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Message: <blockquote data-quote="rocat90" data-source="post: 19929065" data-attributes="member: 452168">Some FDI is like taking Panadol                                     <img src="http://static.ft.lk/ftadmin/wp-content/uploads/2016/03/17214219/Untitled-93.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" />The  Panadol pack says it provides relief from the symptoms of pain and  fever. It does not claim to cure the cause of these symptoms. A tranche  of Foreign Direct Investment to buy land, to build apartments or to buy  shares is very similar in its impact. It will provide temporary relief  by increasing foreign reserves. If the underlying causes that are  creating a drain of foreign reserves is not addressed, the outflow will  continue.      Taking action     If a country does not have the determination and will to take tough  measures to cure the ills of the economy, the best solution to the  problem is to go to the IMF for a loan or facility. This would be like  abandoning Panadol and going for a ‘kasaya’. It’s bitter, has to be  taken for a prolonged period, but will ultimately cure the disease.     The IMF loan will always come with conditions. These reforms are  intended to resolve the underlying economic problems. If you take a loan  from the IMF you have to accept the stipulated reforms, as they are a  part of the package!     The IMF     Some of the conditions could be difficult. Often, curbing subsidies,  increasing taxation, reducing Government expenditure, and devaluation,  are components of the package of reforms.     When you borrow from the IMF, it is important to manage the  relationship. The IMF is said to have a softer approach now, but during  the days when the IMF was very demanding, the Treasury and Dr. PBJ did a  good job in managing the relationship. When I was the Senior Advisor to  the Ministry, I had a ringside view of this successful dialogue.     The bottom line was to accept the IMF view of the problem, and the  solution. This created good vibes with the IMF. From this platform of  mutual respect, it was possible to get them to appreciate local  sensitivities and to soften the demands and pace of reforms. Never fight  with the IMF. They have the money and we want it.     A soft landing     Reforms can hurt and are not popular. Going to the IMF provides a soft  landing for the Government. The thesis is that the previous Government  left the finances in a parlous state. The only option was to go the IMF  for help and this meant having to follow the reforms prescribed to get  out of the mess created by the previous Government!     The long run     Foreign Direct Investment (FDI) that comes in with a long-term  perspective can indeed be a strong contributor to the development of the  economy. Good law and order, conditions that facilitate doing business,  a handsome Prime Minister, a honest President are all helpful but they  alone will not bring in any foreign investment.     Meaningful FDI is an inward investment that sets up a business that in  the future will bring in regularly a stream of foreign income. This  could be exports from the venture or it could be fee income. Such FDI  will come in (only come in) if it makes good commercial sense to the  foreign investor.     Target good DFI     The approach used by Singapore in the early days was very successful.  They created the Singapore Economic Development Board to identify  individual businesses that would benefit by moving their operations to  Singapore. They worked out the case for investment in good detail and  then presented it to the target company.     I have personal experience of this. When I was responsible for the  Reckitt Benckiser businesses in the East, they made a detailed  presentation making the case for moving manufacture from the UK to  Singapore to supply the markets in the Far East. Largely using their  data I put up a paper to the Main Board for moving manufacture. The  Board approved it and we moved manufacture to Singapore. It was a  momentous step for a British company to move manufacture out of the UK  and was bitterly opposed by those responsible for exports, but the  economic rationale won the day.     The point of the story is simple. Foreign investors will come and set  up operations if it makes good economic sense to them. A bad law and  order situation may result in an investor not pursuing what is a good  economic opportunity, but the key starting point is whether the  investment is a good commercial proposition.     Getting DFI     The Government should use the successful Singapore technique and target  specific companies, and make the case that demonstrates that it will be  good economic sense to move operations to Sri Lanka     Three people who worked for the Singapore Economic Development Board  became Ministers, and Pillay became Chairman of Singapore Airlines.     We must look for big hits. Like 20 over cricket must look for the sixes  and fours and partnerships and not the singles. However to do so like  Singapore we must have good batsmen.     We should look for big hits like for example, to persuade Durex which  make latex condoms to set up a global manufacturing plant; get global  leaders in medical gloves, to collaborate with local industry. Deep  mining of gems to create the world’s leading provider of blue sapphires.  Explore opportunities in graphene, the new wonder material derived from  graphite (our friends in China have most of the patents). Coconut water  is now in the UK supermarkets. Collaborate with a big bottled water  company and set up a major bottled coconut water project.     Privatise the two State banks and create joint ventures with foreign  investors (like SLT). Persuade the big apparel firms like Brandix and  MAS to sell equity to foreign firms who would be good partners. Go hard  for money into tourism-related projects. Hotels, helitours, exclusive  golf courses for Japanese, mini Orlando entertainment parks, create a  mini Macao, etc.     The team     To get meaningful foreign investment, we must have a team that can go  and demonstrate to individual investors that it is in their economic  interests to move their operations to Sri Lanka. At present we do not  have an organisation that mirrors what the Singapore Economic  Development Board did in the early days of Singapore.      (The writer has done this, that, and the other, here and abroad, including a MA from Cambridge University in Economics.)</blockquote>

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