Can government do the right thing and win the election too?

Introduction

In any country sale of strategic assets and getting foreign investments are sensitive subject. In Sri Lanka its importance is magnified by its strategic location and the power plays between India, US and China.  Bringing such international investment strategies has almost always have helped the governments to lose elections.

Can we solve this issue once and for all?  In this article I am proposing a mechanism and a legislation that can help us to put this whole debate to rest.

Lets Rationalize

There are number of fundamental facts that we all must agree before embarking on this discussion. So, let’s examine those facts

We are important

Sri Lank is situated in place that is strategically important. Even Sri Lanka had no natural resources we will attract the unwanted attention of the world powers. This situation is only to get more intensify as the strength of eastern and western economies grow over the year

We have resources

Starting from beautiful locations to build tourist hotels to the black sands of Pulmude to Rubber and Team plantations are resource that are hardly exploited to modern standards.  There are many economic opportunities and every investor in the world wants a slice of that

We do not have cash

Sri Lanka like many other third world countries don’t have the ability to invest money in strategic infrastructure. If we ware to remain competitive, we need to find ways to get that capital into the country

Investors wants the best deal

No person, company or country going to invest in Sri Lanka as a charity. They would all want the best deal.  It maybe to maintain political influence in the region or to cheaply exploit our natural resources. But no one is coming to Sri Lank to give charity. They want to invest. They want the best deal that money could buy

We do not want to get exploited.

The public do understand and is quite vocal that we do not want to get exploited in these investments. Furthermore pubic do understand that such exploitations are coupled with corruption.  There is nothing like corruption that can make one lose an election.

Key Principles to consider

Developing a national strategy around this area needs to consider following competing priorities and see how we can optimise these priorities

1. National Control of Strategi Assets
2. Ability to bring in the best value from the investors
3. Ability to deliver best returns to the investors
4. How to neutralise/mange the influence of world powers
5. Ability to address public grievances/trade unions
6. Maintaining long term benefit of strategi assets to the nation
7. Political support to the process

If we could build a singular strategy around the above objectives, we shall be able to bring in foreign investments and the government to win the election.

National Control of Strategic Assets

All assets are not strategic and some of assets needs to be protected.  So who choose to decide what are the national assets and not.  In the current governance process the executive branch of the government decides to interpret such as per its convenience.  Our proposal is to allow the parliament to decide what are the strategic industries

Proposal step 1: National Strategic Industry Classification Act

This will be an act that will categories industries based on its strategic importance and regulate the type of ownership and other controls.

This categorisation will be incorporated into the parliament and only the parliament can include or exclude industries in specific categorisation.  

Following is an example on how we could establish this categorization

Based on this categorizing number of requirements / controls must be established following table again an example of such controls

Obtaining Best value from National Assets

Current practice of “Project” based investment incentives would have to be removed.  Any investment incentives (ex: BOI facilities) would have to be opened to specific industries.  This would ensure that we do not help to build monopolies in specific industry sectors.

Proposal Step 2:     National Strategic Industry Classification Act to include provisions that controlling foreign aids/investments with procurement limitations.

1. All government project initiatives (including unsolicited proposals) that incudes investment in Tier 1 and Tier 2 industries would have to go through a mandatory bidding process. 
2. Unsolicited proposals and priority for unsolicited ideas can only be for Tier 3- and Tier 4 and lower categorization and only for innovative concepts. 
3. There must be legal provisions to challenge unsolicited proposals for established products/ideas already present in the country (example: No need to provide extra benefits to specific real estate development projects, unless it comes as a sector specific incentive programme)
4. Government must be legally prevented for getting any type of Aids/ Concession loans from foreign entities (including government and international aid agencies) that force the government to
   1. Procure from /award contracts from parties limited by the respective agency.
   1. Change laws of the lands/ regulations.
   1. Provide concessions, overrides on specific regulatory, governance protocols.

Delivering best returns to investors

Its important to recognise that “Best Return to Investors” cannot be delivered by choosing winners and losers in the market.  By providing undue economic benefit to a specific player would

1. kill the other investors in the area, essentially eroding the long-term viability of the industry.
2. hamper the competitiveness of the “favoured” investor and remove its ability to compete in a more competitive market.

Examples for such can be found starting from the ULA (United Launch Alliance in the USA) to Sathosa in Sri Lanka.  If the government wants to ensure best long term returns to the investors it must adopt an “Industry Sector focused Incentive strategy”. 

Proposal step 3:  Prevention of favored economic assistance and industry monopolies act   

This act will bring in laws preventing the government from issuing incentives targeted at individual companies or people.  The law must be drafted in such a way that

1. Government is prohibited to provide economic incentives (i.e. : Any type of Tax holidays, exceptions for specific regulations, land assignment) for individual companies/ people.  Government can only provide such incentives based on
   1. Industry sector
   1. Size of the company / size of the investment
   1. Any other scientifically proven attributes that is not designed to single out a specific company for incentives or impediments.
2. Government should actively monitor industries and industry players that build monopolies or trade cartels.  When such monopolies and trade organisations are built/operated using unethical practices and remove competitiveness the government must have provisions to intervene and
   1. Support smaller players to grow in the industry in the short term basis
   1. Help with consolidation of smaller players.
   1. Bring in regulations that improve the competitiveness in the industry without specifically singling out dominant players in the market.

This would not support individual investors. However, it will ensure a greater number of investors from specific industry sectors are benefitted.

Addressing Public / Trade union grievances

We firmly believe that public/trade union grievances will be addressed by establishing a firm strategic investment strategy similar to this. However, we suggest following additional steps to be included as a principle.

1.  Any of the Tier 1, Tier 2 industries must establish a specific share holding that belongs to current employees (not less than 5%) that will enable them to appoint a director.  The organisation must establish a democratic mechanism to select a director from the employees.
2. Wherever foreign parties’ own higher percentage of share in such enterprises, those companies must be mandated to be listed in a stock exchange governed by the GOSL. This will ensure that company operates in a transparent manner. Any exploitation by shareholders can be visible and challenged as needed.
3. Listing of these lucrative enterprises in the stock exchange will boos the stock exchange and improve the public participation the stock market. Since public could benefit from such enterprise the resistance to such investments will be reduced

How to ensure the long-term viability of such strategy!

1. The legislation should establish specific clauses to prevent the parliament changing these regulations without 2/3 majority.
2. Benefits/concessions provided to these industries can only be amended once a year or in special circumstances such as economic or natural crisis.
3. All tier 1 and tier 2 industries must have regulatory bodies with industry specific regulation frameworks

conclusion

We believe these provisions would help us to

1. Ensure our strategic assets are exploited in an equitable manner for the betterment of the nation.
2. Preventing foreign powers trying to influence the executive branch (the president) to take decisions knowing that the country has a legal basis for controlling strategic assets.
3. Try and recover some of the mistakes done in the past by providing a reasonable mechanism to bring foreign ownership under GOSL per view through the Stock Exchange listings
4. There is sufficient room for politicians to wiggle within these provisions and deliver targeted benefits to their constituents.