The Malaysian High Commission in Sri Lanka is working to catalyze around US $ 200-300 million in foreign direct investment (FDI) from Malaysia to …
Sri Lanka in an effort to attract Foreign Direct Investment (FDI) into the country after the end of the war is looking to woo Malaysian investors, especially …
COLOMBO, March 25 (Bernama) — Sri Lanka earned US$1.42 billion in foreign direct investment (FDI) but remained shy of the US$2 billion target in …
By Dinesh Weerakkody
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address?
Organisations today compete not just by having financial, strategy and operational capabilities but by building competitive organisation capabilities. These organisation capabilities come from talent, leadership and culture. Business leaders are ultimately responsible for managing these organisation capabilities and HR professionals should be thought partners to make this happen.
I will review the ideas and specific tools for building strong organisations as CEOs, business leaders and HR professionals.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? Sri Lanka is looking to create a knowledge hub to attract and retain the best and the brightest talent in the region and to attract FDI. Would you like to share some experiences based on your recent work in Singapore?
A county wins in the global FDI marketplace by having a focus or uniqueness, just like a company in the consumer marketplace. For example, Ireland focuses on manufacturing/operations, Dubai on tourism and financial services, Switzerland on pharmaceuticals and Singapore on human capital insight. The Singapore government, industry, academia and labour pooled resources to create a human capital leadership institute that would provide knowledge about talent and leadership to the region.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? You have had exposure to M&A in the US, what are some of the business challenges surrounding M&As?
In the past most M&As failed because the culture was not taken into account and 30 to 40 percent of M&As reached their expected cost of capital. When culture is taken into account before the M&A, success rates get into the 50 percent range. These cultural audits look at the cultures of each of the merged companies and try to reconcile them. But to get to the 60 to 70 percent range, leaders need a new definition of culture. Instead of looking at culture as values, norms, expectations inside a company, they should start the dialogue on culture from the outside in … what do we want the new firm (post M&A) to be known for by those who will use our services? This new culture based on the resources of the newly merged companies then endures because it is tied to and drives customer value.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? The HR profession for many years has focused on the internal customers rather than delivering value to the external customer. Has this changed?
HR roles and expectations are changing. In recent years, HR has connected with business strategy. Strategy was a mirror which reflected what HR professionals should know and do. But the mirror focused inside the company, not outside. Now, instead of a mirror, HR sees a window into the outside world and anticipates that world so that the organisation can respond. Instead of being “employer of choice” HR needs to be “employer of choice of employees and customers”. An external perspective means that HR understands both general business conditions (social, technological, political, economic, demographic trends) but also expectations of external stakeholders (customers, investors, communities, regulators). Turning these external expectations into internal actions brings sustained value to a company.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? Talking of talent, what are leading global companies doing to uncover distinctive talent contributions and deploy talent more effectively to create lasting value?
Instead of starting with key people, great companies are starting with requirements of key positions. Once position requirements are defined through an outside in perspective, key people can be matched through staffing, training or development. In addition, organisations are looking for people who are fully engaged, not just by their behaviours but by their hearts and minds. This work is in our book ‘The Why of Work’.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? How can organisational culture play a vital role in shaping talent and also to manage the identity of the organisation in the mind of their key stakeholders?
Culture has often been thought of as norms, values, expectations and behaviours of employees inside an organisation. We like to think of defining culture (and leadership) through external expectations. What does a company want to be “known for” by key customers, investors, and others? How does this external identity (or firm brand) become woven into the organisation. When this happens, the culture is not just a value set but an incredible valuable value set because customers will pay a premium for it.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? What will the HR profession look like in five years and what are your key predictions regarding the future of HR in a business?
A discussion of the future of HR does not start with the function of HR but with the requirements of businesses. Increasingly, businesses succeed and/or fail based less on access to capital, unique strategies or operational excellence but on how to create organisation capabilities that enable these business outcomes to occur. HR becomes the architect and anthropologist to identify and create these organisation capabilities. This shifts HR from an administrative provider function to a thought partner function.
Q: Dave you are scheduled to be in Colombo on April 30 to address the HR community in the morning and the CEOs in the evening? What are the topics you plan to address? Finally, what competencies should HR professionals harness to face the emerging business challenges and for the success of the HR profession?
We have studied HR competencies for 25 years and seen the evolution of the profession. In our most recent (2012) study, we have found data from over 20,000 HR professionals and line managers and found six competence domains:
- HR innovator and integrator: Able to offer integrated HR solutions to business problems.
- Capability builder: Able to diagnose capabilities and shape and evolve a culture that matches customer expectations and strategy.
- Strategic positioner: Able to position the organisation in the business context and with key internal and external stakeholders.
- Credible activist: Able to build relationships of trust with line managers and employees and to take a proactive point of view about the business.
- Change champion: Able to initiate and sustain change.
- Technology proponent: Able to use information to make informed decisions.
The work is referenced in my two books: HR from the Outside In and Global HR Competencies.
The economic fallout from the spat, which led to the unprecedented sight of India bulldozing security barricades outside the US embassy in New Delhi last week, will only become evident in months to come.
But “it is clear this is not a PR victory that will help attract investors to India”, Rajiv Kumar, director of the Indian Council for Research on International Economic Relations, told AFP.
The diplomat, Devyani Khobragade, arrested on charges of lying on a US visa application about how much she paid her Indian maid, said she had been strip-searched and “cavity-searched” and was detained with “common criminals and drug addicts”.
The diplomat’s detention in New York has prompted outrage in the emerging global economic power which sees her treatment as a blow to its national sovereignty and pride.
One of the most startling reactions came from Yashwant Sinha, a former foreign and finance minister, who said India should now arrest the same-sex partners of American expats in the wake of a court ruling which upheld a colonial era ban on homosexuality.
Sinha’s nationalist Bharitaya Janata Party (BJP) is favourite to win next year’s Indian elections.
Getting cold feet
The surge of anti-US sentiment comes at a time when some American businesses appear to be getting cold feet about investing in India.
The government unveiled a raft of measures late last year aimed at attracting more foreign investment, including reforms to allow foreign supermarkets chains to operate in India.
But citing restrictive foreign investment rules, Walmart — the world’s biggest retailer — suspended plans to open stores in India and scrapped a partnership deal in October with local telecom giant Bharti Enterprises.
International firms which are trying to break into the Indian market have also found themselves falling foul of the country’s often labyrinthine tax laws as well as red tape.
The local unit of US technology services giant IBM is among those to have been caught up in a tax battle, vowing last month to “aggressively defend itself” against a demand for a reported $865 million.
D.H. Pai Panandiker, president of private economic think-tank RPG Foundation, acknowledged that while the backlash over the diplomat was understandable, it could present dangers if things did not cool down soon.
“I think Americans are intelligent enough to understand what is going on in India but if it (the dispute) worsens, then it can create problems for the investment climate,” Panandiker told AFP.
The Confederation of Indian Industry, a leading business lobby, said the row over the diplomat “should have no bearing on bilateral economic relations if there is a quick resolution”.
But the bulldozer incident in particular has the potential of unnerving American businesses from getting involved in a country which has been the target of a number of high-profile attacks by Islamist militants.
“The bulldozer incident was very graphic” for a global audience, Kumar said, adding it “exposes” Americans “to the outside” threats in what is considered one of the world’s most dangerous regions.
India aims to attract $1 trillion in foreign direct investment by 2017 to upgrade shabby infrastructure.
But foreign investment is still politically suspect in many quarters in India where it is seen as taking away jobs, especially in the retail sector, dominated by small mom-and-pop stores.
When India and the United States clinched their breakthrough 2005 civilian nuclear pact ending New Delhi’s atomic pariah status, it was believed commerce would blossom between the two big democracies, often at odds during the Cold War.
But US nuclear plant sales have been stymied by Indian liability laws while India’s $60-billion annual trade with the United States is seen as far below potential — equivalent to just one-eighth of US trade with China.
Overhyped economic benefits
From the US side, there is a belief the economic benefits from ties with India may have been overhyped, analysts say, while in India there is a sense Washington can be overbearing in trade and other matters.
The national president of the Indo-American Chamber of Commerce, Chella Srinivasan, said he believes bulldozing the barricades outside the US embassy was necessary to show India cannot be pushed around.
“The US is so good at arm-twisting — India is just playing their game,” Srinivasan told AFP.
“The US government will realise we’re following the same tactic the US has been using globally.”
|I think Americans are intelligent enough to understand what is going on in India but if it (the dispute) worsens, then it can create problems for the investment climate
Sri Lanka has received 870 million dollars in Foreign Direct Investment during the first nine months of 2013, through 55 projects which have launched …
“It has only been four years since the end of the armed conflict in Sri Lanka. The government needs more time to provide a business-friendly climate that would attract more investment”.
This was a remark by a panelist from a leading Sri Lankan corporate at a recent private sector forum titled ‘Creating Future-ready Enterprises’. This is an argument one hears often, at both formal events like this one, and at informal gatherings among professionals and friends. The argument often goes unchallenged as the country’s post-war track record has been impressive – the improvement of city infrastructure, building of new connective infrastructure like ports, airports and highways, and steady growth spurred mainly by construction, consumption and tourism. Yet, four years since the end of the war Sri Lanka appears to be struggling to boost domestic and foreign investment by an impressive magnitude and an important aspect of this challenge lies in creating a climate conducive for private initiatives to thrive.
In the latest Doing Business 2014 Report prepared by the World Bank and the International Finance Corporation, Sri Lanka has slipped down the rankings to 85 this year. In the four years following the end of the armed conflict, Sri Lanka jumped substantially in the Doing Business Index (DBI) rankings from 102 in 2009 to 81 in 2012. While the country has made reforms and improvements in the areas of obtaining construction permits, getting electricity, paying taxes and trading across borders over the last year – all reflected in the DBI with an increase in the ranks – it hasn’t fared so well in areas like starting a business, registering property and protecting investors. Yet, as the speaker at the earlier mentioned forum remarked, an argument can be made that it is not realistic to expect a government to get all its policies right in such a short time. Perhaps what we need is more time to bring about a more significant change in the economy?
This article does not answer this question for Sri Lanka. Rather, it examines the development process of another country that also emerged from a conflict era and made significant transformations within a short time span – Georgia. This article is not intended to be a comparative study between Sri Lanka and Georgia, though, but merely an exploration of the business-oriented reforms that took place in that country in the span of four years.
The Georgian Case
Under Soviet rule, the sole purpose of Georgia was to produce goods and services for the consumption of the Soviet Union. After gaining independence, like many of the countries that were previously a part of the USSR, Georgia’s economy struggled to stay afloat despite the shutting down of many factories, widespread unemployment and hyperinflation. Soon after independence (with the breakup of the Soviet Union in 1991), Georgia underwent several civil wars that resulted in the Georgian economy contracting to 10-15% of its pre-independence condition and left over 300,000 people displaced. These internal conflicts also caused the resident Georgian population to shrink by 30 percent due to outward migration.
The Georgian government attempted to stabilize the economy for over a decade but the ineffective policy measures only heighten the burdens of the country. The rapid transformation of the Georgian economy that we see now took place with the beginning of the Rose Revolution in 2003. The revolution brought about a public demand for rapid economic change along with the election of a new President – Mikheil Saakashvili.
Since the start of this new government in 2004, the Georgian economy saw rapid progress. In 2006, Georgia was ranked 112 among 185 countries listed in the DBI, but in just one year the country turned its economy and business environment around and improved its ranking to 37th (see Figure 1). The rankings continued to improve and in 2008 Georgia became one of the top 20 easiest countries in the world to do business, with a rank of 18. The World Bank named Georgia the number one economic reformer in the world as a result of its achievements. In the latest DBI (2013/14) Georgia holds strong by being ranked among the top 10 easiest countries to do business (ranked 8).
Getting the basics right
When the Saakashvili government took over, the country underwent extensive developments in less than four years. Like Sri Lanka, the Georgian government began by ensuring that the basic infrastructure needed to build the economy was in place. Heavy emphasis was given to providing stable electricity, construction of roads and buildings, improving communication networks and other areas of infrastructure development.
This proved to be extremely beneficial to the Georgian people who had experienced difficult living conditions for over a decade. Reforming the education system and the healthcare system were also primary policy priorities of the government. Healthcare was made accessible to low-income households and those living below the poverty line. Primary education enrollment rates increased significantly after education was made mandatory to all children aged 6-14. Admission into higher education institutions was more transparent and competitive.
Fiscal policy reform was another significant focus of the post-war Georgian government. With the assistance from the IMF and a few other institutions, Georgian government officials identified that one of the main issues in relation to estimating the potential tax revenue was the lack of reliable data. The inaccurate projection of tax revenue was a huge burden on the actual tax collection process. State officials were educated on estimating government revenue and given special training on estimation methods.
Tax rates were reduced and ineffective taxes were removed– the number of taxes was reduced from twenty to six. Effective advertising that portrayed the importance of paying taxes as means by which to improve public goods for all proved to be successful in encouraging the public to fulfill their civil duty. After various extensive reforms, tax revenue increased by 450 percent in 2008 and tax revenue amounted to 25 percent of GDP (see Fig.2). This was an impressive achievement given that the government actually increased tax revenue despite the reduction of tax rates.
Attracting FDI Inflows
The Georgian government then focused on improving the business climate of the country and to enhance local and foreign investment. Policy reforms based on research findings steered the government towards deregulation of the economy. The number of licenses and permission needed to start or run a business was reduced from 944 to 150.
Businesses only had to visit one counter to complete all procedures which drastically reduced the time required to start a business. Employer – employee relations were strictly confined to contractual agreements ensuring protection to both parties. In response to these and many other measures, investment in the country increased within the span of just two years. By 2006, FDI inflows had soared to 158 perecent over the previous year and by 2007 FDI inflows amounted to 18.6 percent of GDP from 8.4 percent in 2003. In just four years (2004-2008) FDI net inflows increased from USD 4.9 million to USD 15.1 million – a threefold increase in FDI.
Fighting corruption came under the spotlight of the Georgian government as well, and an Anti-Corruption Interagency Council was established to develop a new national anti-corruption strategy. Both active and passive bribery and corruption was criminalized, particularly in the public sector. But one of the main complaints against the Georgian government was that the relationship between the government and the business community was strained due to the government ordering businessmen to make payments that were not included in government accounts, violating the property rights of owners and intimidating and arresting businessmen. The government claimed that these measures were taken to correct the mistakes made by previous governments that allowed for large-scale corruption and exploitation within the business community. However, the unconstitutional nature of these acts cannot be overlooked.
The government also took measures to weaken the local governments by centralizing power at the centre. While the intention behind this – to ensure easier implementation of reforms and new policies – can be argued as necessary for faster results, it made local governments less accountable to its population. Had the measures improved efficiency of local government this would have been justified but no conceivable improvement was seen. Meanwhile, in 2004, the President was able to enforce certain constitutional amendments that drastically increased the power of the executive presidency and the judiciary was made overly dependent on the Executive President.
The Government of Georgia has undoubtedly made significant improvements in terms of economic and social reform to transform its economy in a short time span. But unfortunately in this reform process it has also weakened important independent bodies like the judiciary and has alienated the business community. As a result of these shortcomings, there have been various mass protests by the public against the undemocratic actions of the government. While efforts to ensure much needed economic reform is highly commendable, the decisions made by the Georgian government have intentionally or unintentionally sacrificed democracy in the name of nation-building.
Lessons for Sri Lanka
Much like any country emerging out of conflict, the issues faced by post-war Georgia with regard to finding the right balance between economic development, peace building and preserving democracy are delicate and challenging. While Georgia still has more to do before it can be considered a developed country, in the two significant four year time spans of both Sri Lanka (2009 – 2013) and Georgia (2004 – 2008), unlike Sri Lanka, Georgia has been exceptionally successful in transforming its business environment through extensive economic reforms.
While a direct comparison between Sri Lanka and Georgia would be unfair, the story of Georgia provides instructive lessons. While circumstances differ from country to country, the Georgian case demonstrates that coherent and focused efforts can bring about significant transformation and it can in fact happen in just four years. But it also demonstrates that sustaining the positive trajectory requires a focus beyond aggressive reform to also include important elements of economic governance and institutional strengthening.
(In 2012 the Saakashvili government lost the parliamentary elections to the Georgian Dream party. Mikheil Saakashvili ended his two term presidency in October 2013 when he was constitutionally barred from running for a third time. Last month, Giorgi Margvelashvili, won the presidential elections with 62% of the vote.
(To comment on this article and view references visit www.ips.lk/talkingeconomics. Background research by Dulara De Alwis (Project Intern) contributed to this article)
“This could be a source of vulnerability as the central banks of major advanced economies tighten global funding conditions,” the report noted.
Sri Lanka’s Central Bank said the country has received US $ 537 million worth Foreign Direct Investments (FDIs) in the first half of 2013.
Sri Lanka has set a FDI target of US $ 2 billion for 2013. In 2012, Sri Lanka received US $ 1.34 billion in FDIs, falling short from a target of US $ 1.5 billion.
Meanwhile, net inflows to the stock market and commercial banks in the first half stood at US $120.2 million and US $ 664.3 million respectively. Net inflows to the government securities market amounted to US $ 664.4 million.
“Such inflows display that the foreign investor confidence on Sri Lanka has remained unchanged despite the volatility caused by global markets reacting to the prospects of the tapering of quantitative easing by advanced economies,” the Central Bank said.
Meanwhile the Central Bank Governor, Ajith Nivard Cabraal said during a recent forum that even if the country missed the target, it wouldn’t matter much.
“Even if we miss it, it doesn’t matter. “We have had large FDIs. I know many people talk of FDIs not being sufficient. Yes, we are never satisfied. We don’t want to be satisfied ever.
The Fitch report further noted mobilising more domestic savings could help fund growth without increasing reliance on foreign capital. A smaller fiscal deficit would directly boost domestic savings, while lower and less volatile inflation could lead to higher private sector savings.
“Sri Lanka has to attract more FDI’s because apart from its extolled virtues, it also brings in the new technologies and know-how to the country,” he said, while calling the country to focus on exports to emerging economies such as China.
Sri Lanka was not able to attract the amount of FDIs as it would have liked in 2012 and according to Board of Investment (BOI), the country achieved US $ 1.3 billion in FDIs, falling short of the US $ 1.75 target set. BOI expects to attract US $ 2 billion FDIs in 2013.
Speaking at the Annual General meeting of the Sri Lanka Chamber of the Pharmaceutical Industry, Mathai further noted that Sri Lanka has to reverse the current trend in exports.
“We have always focused on the EU and the US, but its time now to focus on emerging markets such as Chin, the ASEAN and India. Since the late 90’s, exports have dropped from 30 percent to 17 percent and this trend must be reversed,” he said.
Sri Lanka’s trade gap widened 19.2 percent Year-On-Year (YoY) in the month of April to US $ 825.4 million amid a fall in export earnings and a reversal of subdued import expenditure in the first three months of the year.
The export earnings during April fell 6.87 percent YoY to US $ 696.6 million with all three export categories reporting YoY declines in earnings. Meanwhile, the cumulative export earnings in the first four months of 2013 dropped 7.8 percent to US $ 3 billion.
Mathai went on to state that despite Sri Lanka doing well to curb inflation and control its foreign reserves, the country has to focus on increasing revenue.
“The tax revenue relative to the GDP is 11 percent and that is a very low figure” he said and called for the Inland Revenue Department to focus on collecting more taxes in order increase revenue. “You can’t starve the beast owing to discrepancies. Revenues must increase for further growth” he quipped.
Matahi also commended the Central Bank’s decision to remove the fixed exchange rate policy permitting the rupee to fluctuate according to its true value.
The government last week lowered the country’s 2013 foreign direct investment (FDI) target to US$ 1.5 billion, clearly implying that Sri Lanka had failed to materialize the original target of US$ 2 billion for 2012, which was later revised downwards to US$ 1.75 billion.
“Neither I am a believer of numbers nor do I not deny that the FDI target is off-track. But what we need to realize is that the investor sentiments are high as never before. We have also developed a credible investment pipeline which will pay off,” said Treasury Secretary Dr. P.B. Jayasundera, confiding the sustainability of those flows.
Dr. Jayasundera also mentioned that the government was not providing or extending tax holidays for investments as before, except for larger scale investment projects, as the government is committed to fiscal consolidation by way of achieving tax revenue targets, as the country’s tax system was much simplified.
Meanwhile, M.M.C. Ferdinando, the Chairman of the Board of Investment (BoI), the apex investment promotion agency in the country, speaking to Mirror Business said that the full year FDIs were slightly above US$ 1.2 billion for 2012. This is an increase from last year’s US$ 1.07 billion, the highest ever FDI the country attracted.
“Although we have failed short of accomplishing our original target of US$ 2.0 billion, I am certain we would have attracted slightly above US$ 1.2 billion, which can be exactly verified once the audit report is finalized in three months,” Ferdinando remarked.
However, this is amidst the FDIs during the first 11 months of 2012 falling 9.4 percent to record only US$ 614.7 million, way below the full year target.
The FDI figure is arrived at by the accumulation of the funds received throughout the year in a piecemeal basis from the total value of the projects of which the agreements signed this year or in a previous year.