Telecom accounts for more than half of FDI

13-Apr-2008
By Samantha Whybrow

Last year saw a record US$734.4m in approvals, up from US$604m in 2006

The telecommunications sector has firmly established itself as the single largest source of foreign direct investment (FDI) in the country, with Central Bank statistics showing the sector was responsible for more than 50 percent of FDI inflows to Sri Lanka in 2007.
Last year saw a record US$734.4 million in FDI approvals, up from US$604 million in 2006.
While the specific figures were not reported by the Central Bank, it is known that Bharti Airtel agreed last year to invest US$100 million in the country in its first year of operations, although it is yet to commence its operations here.

Dialog Telekom also signed an agreement in with the Board of Investment (BOI) in 2007 to invest US$300 million in the country.
Together, these agreements to invest account for well over half of approved FDI to the country for 2007.

Dialog’s record investment in the country will target infrastructure development to enable large scale expansion of services across all regions of the country to accommodate the rapid growth of telecommunications in the country.

Mobile penetration has risen phenomenally in Sri Lanka, from around four percent in 2002 to around 30 percent today, with nearly 8 million subscribers according to the Central Bank. This figure is projected to rise to around 10 million by 2010.

Investment into telecommunications, including broadband services, is widely viewed as essential for attracting other investment to the country, particularly the lucrative BPO sector.
However, several analysts have cautioned that future growth in the sector may be limited unless greater transparency in regulation and greater competition are introduced.

“The Telecommunications and Regulations Commission should be given greater independence and authority for its regulation, as well as complete transparency and public participation in its procedures,” said the World Bank in a recent report on the knowledge economy in Sri Lanka.

Telecommunications licensing in Sri Lanka has been described as opaque by some industry insiders.
The World Bank pointed out that the regulations commission should not report to a government official and should not be staffed by ex-employees from the government institutions.

The Bank also called for fewer restrictions on cross-ownership of multiple networks and services, along with the immediate opening up of the international services market with no predetermined limitation on the number of licenses or the type of services to be offered.

“A liberal licensing regime to permit maximum entry will be instrumental to the growth and development of Sri Lanka’s information infrastructure [as well],” said the World Bank report.

Meanwhile, according to the Central Bank report, more than 70 percent of last year’s FDI approvals were for investment in the area of infrastructure generally. Of this proportion, telecommunication, power generation, housing property, and office complex development were the major components.