Sri Lanka's Colombo financial centre to be business oasis, policy lab: Harsha
Oct 02, 2017 11:10 AM GMT+0530 | 0 Comment(s)
ECONOMYNEXT - Sri Lanka's planned financial centre in Colombo will be a top global oasis for business creating high value jobs and a policy lab which will spread to the rest of the country, Deputy Policy Minister Harsha de Silva said.
"The strategy is to create a top 10 doing business oasis in the world," de Silva, who chairs a steering committee to make the financial centre possible said.
"What we are now trying to do is to look at the law, the regulations, the taxes, ease of doing business processes."
The 'hard infrastructure' of the city is being built by CHEC Port City (Pvt) Ltd, which is reclaiming land from the sea, the Urban Development Authority of the Ministry of Megapolis and the government of Sri Lanka.
De Silva is looking at the 'soft infrastructure' of the city.
"We are trying to create a major structural break from the rest of the country doing business investment climate," he said.
"And I want it to be a policy lab. And I want what works here to permeate to the rest of the country."
Sri Lanka however has an uphill task in attracting capital.
Sri Lanka's record has a safe destination for investment has been hurt by several bouts of expropriation of domestic as well as foreign businesses, the latest in 2011, ad hoc taxation and questions over rule of law. Over the last two years independence of the judiciary has been improved.
Sri Lanka's economic stability is also hurt by the central bank, which has been a source of unsound money.
It had operated a highly unstable soft-dollar peg, creating monetary instability every three to four years, triggering exchange controls, capital flight, currency collapses and high inflation.
The creation of the central bank in 1951, by abolishing a currency board which served as a hard budget constraint, the money printing institution made possible reckless deficit spending.
The loose policy came from ether financing budget deficits unwillingly through fiscal dominance, or through its own tendency to delay rate hikes and run contradictory monetary and exchange rate policy when currency pressure began. Renewed attempts are being made to reform the agency, and many draconian exchange controls have been abolished.
De Silva says over 100 locations around the world have tried to become financial centres.
"But you can count on the fingers of two hands the ones that are successful," says De Silva. "Some are countries by themselves like Singapore and Hong Kong and even Mauritius.
"Then there are cities that have become financial centres like London and Tokyo or New York, Dubai."
As a matter of interest Singapore has a modified currency board, Hong Kong an orthodox one. Tokyo and New York have free floating rates and Dubai mimics US monetary policy in a currency-board like manner.
While some financial centres benefitted from being oasis of stability while countries with Bretton Woods soft-pegs collapsed and got mired in exchange controls, others also became low tax havens for questionable money.
"These cities have different ways in which they operate from the rest of the country," says De Silva.
"Dubai International Financial Centre operates in an unusual way from the rest of Dubai and that gives the investors the guarantee.
"I don't foresee Colombo as moving into a direction of a DIFC or a Qatar Financial Centre or a Singapore financial centre. Those were in the past."
De Silva says in the future the scope for similar financial centres will be limited, with the way finance is evolving with a lot of technology coming into finance and asset managers, investment bankers and traders even being replaced with artificial intelligence.
"The kind of financial services that will be in demand in 10 years from now is what we need to be thinking now," muses de Silva.
"This will be a top 10 doing business oasis. There will be financial services, there will be tech services, knowledge services, there will be logistics services both regulated and non-regulated."
"Even Michelin star restaurants," he says smiling. "So we are creating a hi-tech knowledge city rather than just place for pinstripe suit wearing bankers running around raising dollars. That will also happen, but it will have more."
"We want companies setting up overseas to set up here, and get equal or better benefits. We want Sri Lankan brains that are scattered around the word to come here."
To make it work, top notch education and health services are needed, he says. Schools in particular are needed to attract talent.
Sri Lanka's currency collapses, have in the past led to both brain and brawn drain, as people who could, moved abroad to get better salaries. The worst period was in the 1980s, when inflation was compensated by currency depreciation which led to more depreciation and more inflation.