2 December, 2021

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Yes To Foreign Investment, No To Privatization

By Chanaka Bandarage

Chanaka Bandarage

Majority of the people in developing nations including Sri Lanka bore a socialist ideology (e.g. the Non Aligned Movement was closely affiliated with China and the USSR).

Thanks to Bandaranaike governments in the 50s to 70s, we have developed a resentment towards the West and a contentment towards the East. Sometimes this has been to our disadvantage. When China offered the Port City, we gladly accepted it. But, we firmly refused the MCC offer. After the US transferred the grant of US$480 to another 3rd world country, we started to lament.

Due to the country’s predominant leftist/socialist thinking, there is a wrong perception that direct foreign investment (they mostly come from the West) is bad. Also, that the West, especially the US, is all out to conquer us.

All countries need foreign investment for development. This means foreign companies investing in Sri Lanka of their capital. The assets include valuable foreign currency – US Dollars, Sterling Pounds, Japanese Yen, Chinese Yuan, Indian Rupees, and Malaysian Ringgit etc.

We need foreign currency even to buy our basic essentials like wheat, sugar, oil, gas, fertilizers and medicine. It is foolish to think we can generate all our foreign money requirements through tourism (currently almost dead) and remittances by our overseas workers. Our export revenue is insufficient even to pay off the foreign debts (currently in excess of US$ 50 Billion).

Unfortunately, there is a tremendous opposition in the country to direct foreign investments. Leftist/socialist elements make a huge cry that if foreign (western) companies are allowed to come, they will destroy the country.

We are a tiny island, we cannot rise on our own. We must closely interact with rest of the world. If we are going to reject everything simply because they come from the West, we will never prosper. We should not allow a small element of radicals and hooligans to take the country to ransom (the writer is not in total disfavour of industrial action/public protest; sometimes they are needed to obtain redress from harsh, cruel and dangerous governments). Some want us to live like frogs in a well.

The writer stresses that Foreign Investment is good and much needed. It must be properly regulated/monitored. They boost economic growth, open up new markets, introduce new technology/know how, create local jobs, provide sophisticated training to employees and promote industry competitiveness.

The government’s role is to assist foreign companies to buy/lease land to set up their offices/factories here and monitor their activities by enacting laws.

In 1940s to 50s Sri Lanka was successful in attracting abundance of foreign investment. Until 1956 or so we were the 2nd best economy of Asia after Japan.

A large number of foreign companies invested valuable capital and established branches/joint ventures here. Some of them exist to this day (some left due to governments’ bad policies such as nationalization, unpredictable behaviour, revenge taking, corruption, civil unrest, economic downturn, labour strikes, too many public holidays etc).

Some of Sri Lanka’s success stories are: Uni Lever, John Keels, Ceylon Tobacco, Hayles, Aitken Spence, Standard Chartered, Walkers, Cargills, Whittal Boustead, Glaxo, EB Creasy, Maurice Roach, Lipton, Brooke Bond, HSBC, Ford Rhodes, Browns, Millers, Apothecaries, Raleighs, Pfizer, Mackinnon Mackenzie, KPMG, Carson Cumberbatch, Colombo Commercial, CV Bhatt, Mackwoods, Ernst & Young, Tata, Freudenberg, Rowlands, Pure Beverages, McLarens, Nestle, Ceylon Cold Stores, Grindlays, Walker & Grieg, Baurs, Hunters, JL Morrison Son & Jones, Colettes, Bartleets and Muller & Phipps.

In 1977, the government established the Board of Investment of Sri Lanka (BOI) under the Chairmanship of Upali Wijewardane. It was successful in establishing South Asia’s first Free Trade Zone (Katunayake). Successive governments established new FTZs, mainly to attract foreign investors in the garment industry.

In Sri Lanka, even leftist parties who oppose the concept of foreign investment say we need a Lee Kwan Yew or Mahathir Mohamed to develop Sri Lanka. They have forgotten that those two gentlemen developed their countries by securing foreign investment. Today, the world’s 5 top foreign investment receiving nations are (in that order): Singapore, China, Hong Kong, Japan and Malaysia.

Though China is ruled by the Communist Party; it is not incorrect to say that China is today ‘world’s capitalism factory’. China has more BMW, Rolls Royce, Mercedes Benz, Audi, Lexus and Porsche vehicles than any other country.

After the World War 2, Germany and Japan rose from the ashes thanks to foreign investment. South Korea was built by the USA after the Korean War in 1953. Taiwan was helped by the USA, and Hong Kong by the UK. Malaysia is one of the world’s largest computer chip manufacturers. Microsoft, IBM, Apple, Google, Amazon, Ebay, Facebook and many leading companies have branches there. Why cannot we have those branches here? (when Google wanted to establish a branch in Sri Lanka the leftists/socialists strenuously opposed it).

In 2003, an international conference held in Tokyo (IMF) pledged Sri Lanka US$4.5 billion if the war was permanently ceased. After the 2009 victory, we failed to seek that amount (it was a grant). Instead, we went on to borrow money from China at high interest rates to rebuild the North and East (Uthuru Wasanthaya and Nagenahira Udanaya), Southern and Katunayake Expressways, Hambanthotha Port, Mattala Airport, Nelum Pokuna, Nelum Kuluna etc.

In recent years we had an inflow of foreign exchange by way of the establishment of foreign food chains: McDonalds, KFC, Pizza Hut, Taco Bell, Dominos, Hungry Jacks, and Subway etc. The writer acknowledges fast food are loaded with calories, sodium and unhealthy fat; he stresses people should avoid eating them frequently. But, they are healthy to our GDP and generate lots of job opportunities. A noted thing is that those who criticise foreign investment can be seen patronizing these eateries.

Overall, foreign investment is the key for any developing country. Some of its drawbacks are: adverse effect on local industries, cultural erosion, and possibility of inflating the economy.

Privatization

Privatization is the process by which a property or business is transferred from being owned by the government to a private company. This could be a freehold or lease transfer. The basic objective is to increase efficacy and reduce the size of the public sector (Sri Lanka recently absorbed 60,000 graduates to government positions indicating it believes in maintaining a very large public service – one of the largest in Asia. This is a recipe for economic failure).

By obtaining funds through Privatization, the government is able to pay off debts. In some countries it has boosted the stock market.

In Sri Lanka privatization has been a total disaster. It was introduced by JR Jayewardene’s (JRJ) 1977 government: Ceylon Ceramics, Ceylon Leather Products, Sugar Corporation, National Textile Corporation, Ceylon Plywood, sale of state land to private companies (Pelwatte Sugar in Bibile/Moneragala, to MPs at very low price etc). Introduction of private bus operators was the reason for the downfall of the CTB.

Before JRJ’s privatization, Mrs Sirima Bandaranaike carried out a disastrous nationalization policy. She nationalized many private companies: Shell, BCC, United Motors, Lake House, Manufacturers and Merchants, Wellawatte Spinning & Weaving Mills, private schools (there are more private/international schools now than those days), Tea, Rubber and Coconut estates (they are back in the private hands now), and even a small Maradana eatery – Buhari. (Between 1956 – 1959, SWRD Bandaranaike nationalized the Colombo Port and private Bus Companies).

In recent times we sold state assets to local and overseas private companies. Almost all of the ventures were failures. Most of those transactions were dubious – they involved millions of amounts in bribery and corruption. National assets built over so many decades were sold/leased to few capitalist friends/acquaintances of the country’s rulers/politicians/elite: Air Lanka to Emirates, CPC to IOC, Ceylon Steel, State Hardware, Salt Corporation, thousands of state land to local and foreign companies (transfer to Dole to grow fruits), cleared thousands of acres of forests – for logging, build hotels/private holiday villas, a proposal to grow Aloe Vera – Komarika in Raja Rata etc, sale/lease of Colombo Port terminals to P&O/John Keels, China Harbour and Adani, lease of Hambanthotha Port to China for 99 years, sale of EAP Group (which was placed under a State Liquidator) to Lyca Mobile Group (why were not the funds raised (US$75) utilised to pay the disgruntled ETI depositors?), sale of Galle Face land (Army Headquarters) to Shangri-La for $50 million (worthed around $2 Billion in 2014?), sale of Kerawalapitiya (40%) to USA firm, New Fortress Energy, for US$250 (worth around US$1 Billion?). There is a current proposal to hand valuable Colombo lands to China through Selendiva. These sales could also go for paltry amounts. Details are unclear.

What the government would do with the old Manning Market land is something all must watch. Let us hope this very valuable property will also not end up in the Chinese hands. If it must go to China (to raise $), the government must lease it (maximum of 99 years) for a value exceeding US$ 4 Billion.

Privatization of government ventures is an outdated concept, started by Margret Thatcher in the early 80s. It was never successful in Sri Lanka. It will not be successful today.

*The writer has been a Barrister in Australia

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Latest comments

  • 3
    1

    I find it strange that an Australian solicitor seems to think that privatisation failed totally in Sri Lanka! He should check out what happened to the Telecom sector after privatisation, for instance. There have been failures like the Sugar Corporation, but that was more due to labour unrest and outdated machinery. In any case, has re-nationalization solved anything? Sri Lankan Airlines for instance is an economic drain that we simply cannot afford, but it is so far gone now that no investor wants it even for free!
    The author’s list of “successful” Sri Lankan corporates is odd. Rowlands? Commercials?Maurice Roche? Collette’s? Seriously? Writers ought to stick to subjects they have properly researched or know something about.

  • 3
    0

    For foreign investment to come into Sri Lanka with enthusiasm it must strictly enforce the rule of law. This is a cardinal principle violated by many third world countries. Through all the pogroms against Tamils and Muslims have undergone in the hands of the Sinhalese impunity has been provided the Sri Lankan state for several decades. The whole world knows it and the West particularly believes in the rule of law for entrusting their capital.

    Sri Lanka and its citizens must learn to live within their means, i.e., they must at least produce what they consume, not more than that. Otherwise they have to borrow to live as they do now.

    Sri Lankan leaders since independence have had no dedication to bring peace or prosperity to its citizens. So Sri Lanka will muddle through even if they have to go through famine.

    • 3
      0

      Privatization has failed in many countries including in UK, Australia.

      Agree State owned companies like sugar, national airline are an economic drain. But, that is due to bribery, corruption and mismanagement.

      You are spot on Rowlands, Maurice Roche and Collettes got into trouble, but they were very successful previously. These things happen. Colombo Commercial (fertilizer company) is still in business.

      • 0
        0

        Chanaka,
        Politicians are hopeless at running businesses. Business should be left to businessmen. The government should concentrate on breaking up monopolies like the bus and rice mafia . The telecom sector is now so competitive that the TRC has to set minimum tariffs, not maximum.

    • 2
      0

      Fully agree, Rule of Law is a must.
      Very correct, wee must learn to live within means.
      The future will be bleak.

  • 0
    0

    Privatization has failed in many countries including in UK, Australia.

    Agree State owned companies like sugar, national airline are an economic drain. But, that is due to bribery, corruption and mismanagement.

    You are spot on Rowlands, Maurice Roche and Collettes got into trouble, but they were very successful previously. These things happen. Colombo Commercial (fertilizer company) is still in business.

    • 1
      0

      Chanaka B,
      The national Airline, was profitable from the inception and a new fleet in early 1990’s. in 994, after change of government it started to loose profitability, though it had a good reputation and service,
      Then Chandrika privatised under competitive tendering and EoI internationally by awarding the collaboration 51/49% to emirates, which turned it around to profit making venture circa 2003/04.
      Then came the maestro’s and masterminds of entrepreneurship of SL, in the form of Mahendra and Sajin de V G.
      They held the view, though it was only a joint venture with Emirates, that corporate entity could only survive, if they gave the green light or say so!
      They wanted the bookings “cleared” for the London/Colombo flight one fine day, accommodate MR and entourage which the CEO, who was Emirates nominee, did not succumb to and he was given marching orders pronto by the major shareholder Sri Lanka (MR).
      So we have a loss making airline (Made to understand SL Rs 1 billion a day- if wrong please correct me) from that day, with a bad reputation of government interference, not wanted by any other in the world!
      SL Taxpayers are very understanding and compassionate towards MR!!

  • 1
    0

    Chanaka,
    Rule of Law is the “Sheet Anchor” or basic principle on which, the wealthy investors base their decision to invest their money and wealth.
    Not otherwise!
    Those investors had made their money through hard work, diligence and conscientious due process. Those who have amassed wealth in this process, do not want to lose all their investment to a despot or maniac.
    There are those who have earned wealth and money, by dubious means and enough examples amongst us, who would not care a tuppence for Rule of Law, because they did not earn it the right way.
    That’s why, Singapore, Taiwan, South Korea, Hong Kong et all were successful. Not otherwise.
    Air Lanka/Sri Lankan roll around is a good example of the “way it should have happened”
    So we bear the brunt of this mishap, do not know how long?

  • 0
    0

    Chanaka B,
    The national Airline, was profitable from the inception and a new fleet in early 1990’s. in 994, after change of government it started to loose profitability, though it had a good reputation and service,
    Then Chandrika privatised under competitive tendering and EoI internationally by awarding the collaboration 51/49% to emirates, which turned it around to profit making venture circa 2003/04.
    Then came the maestro’s and masterminds of entrepreneurship of SL, in the form of Mahendra and Sajin de V G.
    They held the view, though it was only a joint venture with Emirates, that corporate entity could only survive, if they gave the green light or say so!
    They wanted the bookings “cleared” for the London/Colombo flight one fine day, accommodate MR and entourage which the CEO, who was Emirates nominee, did not succumb to and he was given marching orders pronto by the major shareholder Sri Lanka (MR).
    So we have a loss making airline (Made to understand SL Rs 1 billion a day- if wrong please correct me) from that day, with a bad reputation of government interference, not wanted by any other in the world!
    SL Taxpayers are very understanding and compassionate towards MR!!

    • 0
      0

      Emirates had the upper hand in the Air Lanka deal in many ways Eg: after the Katunayake bombing compensation for the lost planes went to them, instead of AL. That was millions of $. I think after the deal they retained landing rights belonged to AL in some airports like Heathrow, JFK New York, Sydney. If I’m wrong please enlighten me..

  • 0
    0

    Mahila,
    Srilankan loses about 24 billion a year on average.This is a lot more than any “bond scam”, but nobody wants to know. It is not true that the airline was ever profitable. Air Ceylon was bankrupt when it was replaced by Air Lanka, which didn’t make money either. Only Emirates managed to make it profitable. Now accumulated losses are more than the value of the fleet, so who will buy it?

    https://www.newsfirst.lk/2019/08/21/srilankan-airlines-lost-rs-240bn-over-the-past-decade-cope-revelation/

  • 0
    0

    old codger
    Fundamentally, I agree with you. But, up until 1978 or so the governments ran businesses pretty well. Most of them were profit making.
    I again say bribery, corruption and mismanagement (and maladministration) are the main reasons for the fall of our government owned corporations and boards. JR’s uncontrolled free market economy also caused many government owned businesses to fall. Instead of streamlining the loss making ventures that government had the great desire to privatize them. UNP henchmen bought the businesses; it was like winning a lottery for them.
    Most of the foreign companies including multi nationals (I listed some in my article) came during the latter part of the British rule and during UNP governments prior to 1970. Credit must be given to SWRD and Sirima Bandaranaike for setting up public corporations. Eg: Mineral Sands, Salt, Ceylon Leather Products, State Hardware, Ceylon Steel, Ceylon Ceramics, Kanthale Sugar, National Textile, National Paper, Ceylon Tyre, Ceylon Fertilizer, Ceylon Fisheries, State Flour Milling, Laksala. They were clever in obtaining grants from socialist countries for many of the projects.
    ‘Governments should break up monopolies’ – yes, but, nationalization is unfair. People work very hard to build their businesses; eg. private bus owners in 1957. If there were errand bus owners, the government should have enacted laws to punish them. Taking over their entire fleet (without even paying adequate compensation) was too harsh.
    Yes, competition in the telecom sector is good. Sri Lanka Telecom seems to be a successful joint venture enterprise.
    But, lots of profit making public ventures were sold to private companies. This is the million dollar question. Eg: Ceylon Ceramics (Negambo, Piliyandala and Balangoda), National Paper (Valachchcenai and Embilipitiya), Ceylon Steel (Oruwela), Ceylon Cement (KKS, Galle and Puttalam), National Textile (Thulhiriya, Veyangoda and Pugoda), Ceylon Leather Products (Negambo), Sri Lanka Petroleum (to IOC), Plywood Corporation (Kosgama), Tyre Corporation (Kelaniya). The list goes on.

    • 0
      0

      Chanaka B,
      If any businesses were ” pretty well run” by the government, it was only because they were protected from competition. I don’t think you were an adult in the 70’s, perhaps that’s the reason you romanticize the period. I was, and I can remember standing in queues for products which were either overpriced or of poor quality. If good quality and cheaper imports were not totally banned, who would buy such stuff? Take radios for example. They cost between 250 and 500 rupees, at a time when an average salary was 200!
      None had FM, though a broadcast was available.
      Profits can be made in a closed economy, but we don’t live in one now. There is the GATT, under which tariffs are regulated. Even China is a member. (There are no nice “socialist countries” to give us freebies nowadays). If we try to exclude foreign products, they can exclude our products too. It’s already difficult enough to sell our garments.

      • 0
        0

        old codger

        Thanks.

        I note you agree uncontrolled free market is one reason that killed our govt owned busineses.

        Yes, all romanticize the ’48 – ’70 period!

        70 – 77 were difficult years, economically.; but less corruption. Agree competition for the govt corporations was less mainly due to import restrictions. Agree people should not pay rs 250 for a radio if wages were rs 200.

        JRJ was successful in obtaining enormous amounts of foreign aid.He ran the country well until ’83. He did not know how to face the civil war.

        Sri Lanka started becoming a real basket case (in every aspect) after ’94.

        Today I heard we have the worst economy in the world. The future is really scary but people do not seem to care. We certainly are a happy go lucky
        people!

        • 0
          0

          Chanaka B,
          Thanks.
          My general opinion is that the economy is in this state because there are too many people being paid too much for doing too little. What is the rationale in having 300,000 in the forces and a million three-wheelers?

  • 0
    0

    I think it’s much less than 300,000. Lots are doing government civil work like – construction, cleaning etc. That’s a contribution to the GDP.

    Sri Lanka may be the only country where double pensions are paid – for self and the diseased spouse. Why should the government pay a 2nd pension; difficult to comprehend. These days both men and women work. It is unfair to revoke this benefit retrospectively, but should happen prospectively. Say, applicable to those who join the public service effective from 1 January 2025. We can save millions.

    3 wheelers are doing a yeomen service. basically they are the engine room of the economy. 3 wheel is the poor man’s vehicle; other public transport is pathetic. Strangely 3 wheelers are (still) inexpensive. They are always occupied, shows they are in much demand. If they do not have work, they will simply disappear (principle of supply & demand).

    Cheers!

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