What you need to know about the Development (Special Provisions) Bill
Sri Lanka is failing to attract enough foreign direct investment needed to accelerate economic growth. Annual FDI flows have not grown over the last six years, stagnating at below $1 billion each year. Inconsistent, ad hoc policymaking, poor implementation and overlapping bureaucratic approvals don’t give investors the confidence they need to invest here.
The government wants to change all that, and fast. It’s proposing a new bill, Development (Special Provisions), to centralise the formulation of a national economic policy to drive and monitor policy implementation, and streamline investment approvals so businesses can set up operations fast.
The government proposes to cut through bureaucratic layers and coordinate the activities of various ministries, local government bodies and public institutions to attract investors and fast-track development. The proposed bill will give one minister powers so he can make all this happen—although he answers to the president and the Cabinet, the draft bill is too opaque on the scope of his powers and accountability.
Will there be a Super Minister?
Sri Lanka must get its act together fast. The bill will create a super minister to get this done, but the draft bill is vague on both the extent of his powers and accountability.
Fast tracking development needs two things: One, the government must have a clear agenda to guide policy making and planning; and two, an efficient bureaucracy to implement and deliver results. The proposed bill will give one minister the responsibility to ensure both these happen—and that will be the Minister of National Policy and Economic Affairs Ranil Wickremesinghe, who is also the Prime Minister. The new bill will create a Policy Development Office (PDO) to formulate policy and monitor implementation across the entire state machinery.
It reports to the Minister of National Policy and Economic Affairs, but all policy drafts are presented to Cabinet for approval. Once approved, the PDO will also monitor implementation, review other state institutions, and analyse existing laws and recommend changes. An Agency for Development will be created under the PDO to implement government policy. It will have powers to direct other development-related institutions like the Board of Investment.
According to the draft bill published by gazette in November 25, 2016, the PM as Minister of National Policy and Economic Affairs will have the following powers: He can issue directives to other government institutions after consulting the respective line ministers and chief ministers of each province, take steps to eliminate implementation delays and administrative barriers, and fast-track investment approvals, and grant tax incentives. The draft bill also implies that the minister in charge can establish new public agencies, boards and institutions, although it’s not clear what these are and under what circumstances they will be created.
What is the PDO’s role?
The Policy Development Office’s role is not limited to formulating national policy on economic matters, it can cover any subject and set the agenda for any public institution and review their functions. It’s not clear what the bill means by ‘review’ and whether it entails changing or overhauling them. Reforming public institutions is critical but some of them are meant to be independent, like the Central Bank. The draft bill does not mention the Central Bank, but it does fall into those institutions classified as ‘any’.
The PDO is also required to critically analyse existing policy and suggest changes where necessary. Sri Lanka has several outdated or prohibitive laws that need changing: Labour laws are not productivity-centric and tough winding-up rules make investing here risky, restrictive land laws limit foreign land ownership, and exchange controls prevent businesses from freely investing overseas. Setting up a business is not difficult, but consumes a lot of time and multiple visits to various public institutions for approvals.
What is the Agency of Development’s scope of powers?
The Development Agency will directly issue licenses to investors, and even the existing investment promotion agency the Board of Investment (BOI) will need authorisation from this agency before approving any investment project.
The BOI has not been able to attract enough fresh investments that can generate long-term jobs and economic growth. Such in vestments will need access to large parcels of land, water and labour. Land restriction laws legislated in 2014 will not apply to Development Agency-licensed investors.
The agency will have the authority to direct the activities of the Export Development Board, Urban Development Authority, Mahaweli Authority, Information and Communication Technology Agency, Sri Lanka Ports Authority, Civil Aviation Authority, National Water Supply and Drainage Board, and Sri Lanka Tourism Promotions Bureau.
It’s not clear to what extent the Agency for Development can control these institutions, but the draft bill is specific on one thing: The agency, and the PDO, need Central Environment Authority approval to implement any development projects.
The agency will be managed by a General Affairs Council comprising the Minister of Development Strategy and International Trade Malik Samarawickrema, a managing director and six others appointed by the minister in charge Prime Minister Ranil Wickremesinghe.
Where’s the Kryptonite?
Although the extent and scope of the super minister’s powers is opaque, the draft outlines safeguards and oversight in three areas; but the question is will they be effective? First, any decision taken by the PDO needs to be stamped by the Cabinet and becomes operative after gazette publication.
Second, the executive has significant oversight under the Development (Special Provisions) Bill. President Maithripala Sirisena ‘may’ summon a conference of Cabinet ministers, chief ministers and chairpersons of parliament oversight committees to evaluate every activity undertaken by the Development (Special Provisions) Bill. In January 2017, the president ordered all development projects to be handled by the relevant line ministries to prevent in-fighting in the coalition government.
He will also head a Rural Development Board that will approve all development projects identified by the PDO. The board will include the PM, chief ministers of all provinces and seven other ministers.
Five Regional Development Boards will be set up to implement policy spelled out by the PDO and in line with directions issued by the Development Agency. The five regional development boards (Southern, Wayamba, Central, Eastern and Northern) will be required to prepare master plans for 2017-19 and present them to the Cabinet for approval.
Third, every agency, board or institution established under the proposed bill and their officials can be reported to and investigated by the Bribery Commission. However, the draft bill also says no legal action or prosecution can be taken against anything done in good faith. This was likely included to avoid civil lawsuits bogging down the development drive. Public officials serving in any capacity under the bill will be held accountable under the penal code.
Does Malik Samarawickrema get an agency?
Making it easier for investors to set up businesses here is not enough. They will need access to larger markets to ensure attractive returns. This is why it is crucial to deepen trade ties with India and other countries. The draft bill proposes an Agency for International Trade reporting to the Minister of Development Strategy and International Trade Malik Samarawickrema to formulate and implement policy on export development.
This agency will be authorised to direct the activities of the BOI—also controlled by the Agency for Development—Export Development Board, Department of Commerce, Department of Import and Export Control, Sri Lanka Tea Board, and every institution with functions relating to international trade. The Agency for International Trade will be managed by a board comprising public officials and representatives of the clothing export industry.
What happens after three years?
The institutions, except the PDO, set up under the proposed bill will function for three years, only winding up just before the next election. Everything they initiated will continue to be valid though they become inoperative. This is important because investors need confidence that policies will not see any seismic changes.