Colombo, Sri Lanka, June 9, 2021— Sri Lanka can realize its development aspirations by promoting a private sector-led growth model—one that spurs further growth and creates jobs for its people through innovation and agility.
That's the view of IFC's Vice President for Asia and Pacific, Alfonso Garcia Mora, who today called for a greater focus on the private sector to support Sri Lanka's aspiration to return to upper middle-income status in the medium-term and fully develop islands of excellence in the long-term. He was delivering a keynote session via a video link at the Sri Lanka Investment Forum, organized by the Board of Investment, the Ceylon Chamber of Commerce and the Colombo Stock Exchange.
"Sri Lanka has been a development success story," Garcia Mora told the forum. "But the outbreak of COVID-19 has exacerbated an already challenging environment of low growth and fiscal pressures. As Sri Lanka moves on the road to recovery, challenges remain. Now, more than ever, Sri Lanka needs to focus on a growth model that provides for a much greater role for the private sector."
A bigger role of the private sector is crucial to boost growth and enhance productivity, at a time when the government does not have the resources to make the investments necessary to propel Sri Lanka to an Upper Middle-Income country. A greater contribution of the private sector can also be a source of much needed fiscal revenue that would allay some of the current fiscal pressures.
Garcia Mora said a new wave of growth could be fueled by sectors such as ICT, resource based and light specialized manufacturing industries—as recommended by an upcoming report by IFC and the World Bank, the Country Private Sector Diagnostic (CPSD) for Sri Lanka.
Leaders in these sectors have already shown their high level of sophistication—offering a glimpse of the country's potential to build a knowledge intensive industry.
"These pioneers offer a solid base on which Sri Lanka's industry could flourish, targeting regional and new international markets," Garcia Mora said. "These islands of excellence sector have the potential to grow further and contribute to export earnings and offset some of the challenges posed by a stagnant tourism sector."
Building and sustaining a knowledge intensive economy requires significant inflows of foreign direct investments. But given that Sri Lanka's small market size and limited resource base, government policy makers as well as private entrepreneurs must look towards increasing regional engagement to overcome the constraints imposed by the market size.
"Sri Lanka can attract more FDI if the country is seen an entry point to the larger economies in the region," Vice President Garcia Mora said. "Therefore, pivoting country's growth trajectory requires strong linkages between public policies and the private sector, with a more diverse array of incentivizing schemes and publicly funded facilities to provide space for innovation, as well as better links between university research and commercial use."
The Asia Pacific Vice President also called for developing a new high-value post COVID-19 vision for the tourism industry, a key pillar of the Sri Lanka economy which has been battered by the pandemic. "Branding should not be low cost or budget. It should instead take advantage of the country's natural resources and promote nature based and wellness tourism," he said.
In Sri Lanka, tourism is the third largest and fastest growing source of foreign currency, accounting for almost US$4.4 billion of revenue in 2018 and US$3.6 billion in 2019.
IFC is looking at an investment pipeline of about $875 million, including a focus on what it calls the islands of excellence, over the next five years.
Supporting growth-enabling sustainable infrastructure is a key element of IFC's country strategy for Sri Lanka by 2026. IFC's track record in Sri Lanka goes back over 50 years.
IFC's first investment of $3.25 million in the country's textile sector came at a time when private sector financing was not readily available. IFC remains a key private sector development partner having invested $1.6 billion in some 30 projects across the country. Our portfolio today stands at $486 million.
"In Sri Lanka, we have learned through experience that straightjacketed investments are not necessarily an effective solution. Instead, we needed to be innovative and respond to the needs of people and times."
About IFC
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2020, we invested $22 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org.
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