Regulatory Delays Creating Uncertainty Around Port City

The Port City Colombo Special Economic Zone (PCC SEZ) is a game changer, especially for financial services, trade, IT/BPM, tourism, retail and many other sectors. This is because of its special status as an SEZ, governed by the Port City Economic Commission.

However, although the Port City Economic Commission bill was passed in Parliament on the 20th of May 2021, there are still some delays with regard to finalizing the regulatory frameworks. This has resulted in a virtual standstill in terms of the actual moving in of businesses, and the development of the project to its full potential, as investors and others are unsure as to the legal and regulatory procedures and processes.

Therefore, there is a serious need for a concerted call for authorities to expedite the matter and ensure that the necessary regulations and legalities are finalized and introduced so that development can continue.

Untapped Potential

Amidst the present economic crisis, PCC is one of the key ways Sri Lanka can pull itself up and back onto the path of sustainable growth and recovery. This is because the PCC SEZ itself, together with the physical infrastructure already existing, and planned for completion shortly, makes PCC probably the most attractive place to set up shop in South Asia, and also to live, work and invest.

However, as a result of uncertainty surrounding the regulatory framework and finalization of the regulatory structures and other mechanisms required for the PCC SEZ to be fully functional, the progress with regard to development and investors moving in is being delayed.

Making Old Mistakes?

One of Sri Lanka’s biggest hurdles in terms of attracting foreign direct investment (FDIs) and generally bolstering investor and business confidence, has been a lack of policy certainty. It was, in fact, for this reason that the PCC SEZ and the Commission were set up, to ensure consistent and uniform policy for the SEZ, so that investors and businesses could operate seamlessly, and without fear.

However, due to the present delays, the issue of policy uncertainty may once again create reluctance among investors. Therefore, the authorities should do their best to quickly and effectively ensure that the necessary regulations are designed and implemented.

Why is PCC So Important?

There are a number of reasons why PCC is important for Sri Lanka’s future development and progress. Here are some of them:

Ease of Doing Business

One of the major impediments to economic development and foreign direct investment into Sri Lanka is its low score in terms of ease of doing business. The PCC SEZ addresses this and introduces business friendly and convenient policies and practices.

Given that exchange and or capital controls, which are prevalent in the rest of Sri Lanka, will not be applicable within the PCC SEZ, investors and service providers will have the freedom to move capital around in a streamlined manner. Presently, moving investment capital into and out of Sri Lanka is a relatively rigorous process, requiring various clearances and other procedures. However, because capital flows into and out of PCC will not enter the mainstream Sri Lankan financial system, there will be no need for such stringent controls.

Sophisticated Financial Products and Services

Sri Lanka’s financial system remains relatively conservative and unsophisticated. This is largely due to the aforementioned controls and resulting lack of liquidity, combined with restrictive regulations. However, PCC SEZ creates a free and open environment for financial services providers and their ancillary service providers, without any impact on the wider Sri Lankan economy or financial system. It will also create an attractive financial trading venue, for companies to consider listing their securities for trading in Sri Lanka.

The fact that Sri Lanka is geographically well placed in the global financial services sphere is an added advantage. We can easily position ourselves, first as a conduit and thereafter as a mainstream financial services centre between Dubai, Singapore and Hong Kong. This is a perfect opportunity to exploit this unique advantage.

Providing an offshore dollar denominated financial trading venue devoid of exchange control regulations will further create excellent opportunities for firms from China, and the rest of Asia, to seek single or dual listing opportunities. PCC will have potential to attract equity, debt & even derivative trading indices to seek listings on the proposed securities exchange within the SEZ.

It’s Time!

PCC will undoubtedly be a positive turning point for Sri Lanka’s economic trajectory, place on the world stage and role in geopolitics. But unfortunately, Sri Lanka cannot begin enjoying any of these benefits until the regulations and regulatory structures and frameworks are concretely in place. However, if the process can be expedited, Colombo and Sri Lanka can quickly take their place amongst the key financial centers of the world, competing as an equal with the likes of Singapore and Dubai, and maybe even one day, London & New York.

- Writing by Sanduni Koralegedera