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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

Vijaya Kumar

Chairman, CSTD

University of Peradeniya, Sri Lanka


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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


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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


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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


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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


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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


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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


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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


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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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