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FDI and Technology Growth in Sri Lanka

FDI and Technology Growth in Sri Lanka Vijaya Kumar Chairman, CSTD University of Peradeniya, Sri Lanka Sri Lanka and FDI 1977 – Promotion of FDI Annual averages for five year periods: 1975-1979 – US $ 9.5 m 1980-1984 – US $ 45.2 m 1985-1989 – US $ 37.4 m 1990-1994 – US $ 106.2 m

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FDI and Technology Growth in Sri Lanka

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  1. FDI and Technology Growth in Sri Lanka Vijaya Kumar Chairman, CSTD University of Peradeniya, Sri Lanka

  2. Sri Lanka and FDI • 1977 – Promotion of FDI • Annual averages for five year periods: • 1975-1979 – US $ 9.5 m • 1980-1984 – US $ 45.2 m • 1985-1989 – US $ 37.4 m • 1990-1994 – US $ 106.2 m • 1995-1999 – US $ 208.2 m G. Wignarajah, Commonwealth Secretariat FDI Conference, 2001

  3. FDI Promotion • Powerful agency – Board of Investment • Four week FDI approval • Attractive investment incentives • 5-20 year tax holiday • Duty free imported inputs • Free repatriation of profits and capital • 1998 – Indo-Lanka Free Trade Agreement • Phased tariff reduction, 35% local origin • Negative lists

  4. Nature of FDI • 1987-1992 16 % High skill • 1995-1998 27.5 % High skill • Manufactured exports 1998 $ 3.5 m • 68.2% Textiles and garments • 79.7% of foreign firms in textiles and garments • Portfolio equity flows low • Good, Bad and ugly FDI attracted

  5. 1994-2000 • 1994 – 2000 average of $ 208 mean of: • 1994 -$ 166 m, 1995- $ 65 m, 1996-$ 133 m • 1997-$ 435 m, 1998 - $ 206 m, 1999 - $ 202 m • Boost in 1997 due to privatization • $ 300 m from Telecom/Airline part sale • FDI excluding privatization below $200m • Affected by conflict in the North

  6. Privatization • Terms often disadvantageous • Less than 50% ownership but 100% management control • Monopoly marketing agreements • Five year monopoly – Gas, Lubricating Oils • On overseas calls – Sri Lanka Telecom • No free market, price increases • Access to country quotas - garments

  7. FDI in technology and industry • Telecommunications • Some FDI in Information Technology • Power Generation and Marketing • Shell ($ 20 m storage), AES for local market • Sri Lankan Airlines • Emirates – Inputs from Dubai • Cement, Flour milling for local market

  8. Telecommunication Sector • Most investments through FDI • Land line monopoly – minority holding • Large expansion/modernization of networks • Call rates remain high • Two Wireless loop operators -FDI, local partners • Four mobile phone operators – Mainly FDI • Originally catered to land line shortfalls • Mobile phone culture

  9. Information Technology Sector • Hardware – one enterprise making memory chips • Indian owned US firm with Sri Lankan involvement • Software – FDI low, outsourcing • Partnerships with foreign firms • Swedish, British, US involvement • Software training • Branches of foreign, usually Indian or Far East firms • Lacunae in local education • Usually no software development

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