SECRETARY OF MODSIT, MINISTER OF MODSIT, USAID/SRI LANKA MISSION DIRECTOR, AND SAIL COP AT THE KANDY PUBLIC-PRIVATE DIALOGUE/ INTERNATIONAL DEVELOPMENT GROUP LLC SUPPORTING ACCELERATED INVESTMENT IN SRI LANKA (SAIL) PROJECT Final Report April 16, 2021 This publication was produced by International Development Group LLC, for review by the United States Agency for International Development. ACRONYMS AfD Agency for Development BEE Business Enabling Environment BOI Board of Investment CBEU Ceylon Bank Employees Union CC&CRMD Coast Conservation Department & Coastal Resource Management Department CEA Central Environmental Authority CESU Ceylon Estates Staff Union CGL Commissioner General of Labor CLA Collaboration, Learning and Adaption CMC Colombo Municipal Council CMU Ceylon Mercantile, Industry and General Workers Union COP Chief of Party DOL Department of Labor EDB Export Development Board EFC Employers’ Federation of Ceylon EIA Environmental Impact Assessment EPF Employees’ Provident Fund ERD External Resources Department ETF Employees’ Trust Fund FDI Foreign Direct Investment FTA Free Trade Agreement GoSL Government of Sri Lanka GSP+ Generalized Scheme of Preferences Plus IDA Industrial Disputes Act IEE Initial Environmental Examination IFC International Finance Corporation ILO International Labor Organization IRU Investor Relations Unit ITA Information Technology Agreement LJEWU Lanka Jathika Estate Workers Union MDA Ministry, Department, and Agency MIEIP Ministry of Industrial Exports and Investment Promotions MODSIT Ministry of Development Strategies and International Trade MOLTUR Ministry of Labor and Trade Union Relations NBRO National Building Research Organization NDC Nationally Determined Contributions NLAC National Labor Advisory Council NTUF National Trade Union Federation PARTNER Partnership for Accelerating Results in Trade, National Expenditure and Revenue PPDs Public-Private Dialogues PTA Preferential Trade Agreement SCM Scoping Committee Meeting SLTDA Sri Lanka Tourism Development Authority SME Small and Medium Enterprise SSLRA Sri Lanka’s Support for the Sri Lankan Reform Agenda SLSFTA Sri-Lanka Singapore Free Trade Agreement SLTA Sri Lanka Tourism Alliance TEWA Termination of Employment of Workmen Act TPD Tourism Planning and Development UDA Urban Development Authority USAID United States Agency for International Development USG United States Government WB World Bank WBO Wages Board Ordinance WTO World Trade Organization TABLE OF CONTENTS EXECUTIVE SUMMARY 1 SUMMARY OF PROGRAM IMPLEMENTATION AND ACCOMPLISHMENTS, AND SHORTCOMINGS 5 INVESTMENT FACILITATION 5 TRADE FACILITATION/POLICY 22 LABOR LAW REFORM 25 CROSS-CUTTING ACTIVITIES - COMMUNICATIONS AND OUTREACH 33 RECOMMENDATIONS FOR FUTURE USAID ASSISTANCE 36 ANNEX I: INDICATOR SUMMARY TABLE 37 ANNEX II: TECHNICAL REPORTS 39 ANNEX III: LIST OF ALL HOST COUNTRY, INTERNATIONAL DONOR, AND FINANCIAL INSTITUTION CONTACTS 40 ANNEX IV: SRI LANKA LABOR CODE 42 ANNEX V: FINANCIAL REPORT 43 EXECUTIVE SUMMARY In consultation with the Government of Sri Lanka (GoSL), a Government with reform high on their agenda, USAID launched the Supporting Accelerated SAIL PROJECT RESULTS Investment in Sri Lanka (SAIL) project in November 2016. The goal of the project was to assist with the • 42 percent reduction in time required GoSL’s economic reforms, targeting improvements in for an investment approval from 54.5 the business enabling environment (BEE) and factors working days in 2016 to 31.5 in 2020. affecting FDI. While Sri Lanka had experienced strong economic growth in the past ten years, including a • 16 percent reduction in time required to growth rate of 7 percent in both 2013 and 2014, obtain a development permit from 49 Foreign Direct Investment (FDI) had remained static working days in 2017 to 42 in 2020. in relation to domestic economic growth. SAIL was a part of the larger and more broad-based USAID • 10 business environment laws, support for the ‘Support to the Sri Lankan Reform regulations, or administrative procedures Agenda’ (SSLRA), to realize democratic and economic were passed or approved. reforms and other related initiatives such as the GoSL’s Vision 2025. • 43 business environment laws, SAIL was designed around two main objectives and regulations, or administrative procedures provided: 1) expert advice on legislative and were drafted or submitted for regulatory reform to attract and retain FDI, and 2) public/stakeholder consultation or analysis and recommendations to improve institutions, legislative consideration. laws, and the regulatory environment, as these related to attracting and retaining FDI in Sri Lanka. Project • 12 public-private dialogues were activities focused primarily on providing technical conducted to facilitate the discussion on assistance to improve the BEE, promoting FDI, and improving legislative and regulatory developing institutional and individual capacity. environment addressing FDI attraction. The Ministry of Development Strategies and • 2,147 person hours of training International Trade (MODSIT) was assigned by the completed in business enabling GoSL as the counterpart ministry for the SAIL project. MODSIT proved to be a dynamic partner environment. with a cadre of result-oriented government officers, enthusiastic to learn and to cooperate. In consultation • 15 new public and private institutions with the Minister and his senior personnel, the focus received capacity development support for SAIL was quickly established. SAIL immediately from SAIL. assisted MODSIT in the formulation of a communications strategy and began work on an assessment of the current labor law and legislation surrounding contract enforcement. INVESTMENT FACILITATION One of the main goals of the SAIL project was to increase the amount of investment inflow to Sri Lanka with the aim to build on the World Bank’s previous assistance in this sector. SAIL quickly recognized that 30 percent of FDI is focused in the tourism sector and identified the Sri Lanka Tourism Development Agency (SLTDA) under the Ministry of Tourism as a major entity for attracting FDI to Sri Lanka. With an agreement between USAID and MODSIT, SAIL engaged with SLTDA to form a strong working relationship. 1 | SUPPORTING ACCELERATED INVESTMENT IN SRI LANKA (SAIL) PROJECT FINAL REPORT USAID.GOV SAIL’s achievements in the investment facilitation sphere include: • A preliminary clearance common application form now encompasses 13 agencies and can be expanded to cover more as required. The information gathered in this single application, meets the application needs of all agencies and reduces time and cost for investors. The design of the application form allows the process to easily become fully automated. • Key agency processes are mapped out for preliminary clearance, development permit, and certificate of conformity to understand the approval process of other agencies responsible for approving tourism investment and to strengthen the communication and cooperation between them. • With SAIL support, SLTDA signed three Memorandum of Understandings (MoUs) and developed nine MoUs with key agencies. • A consolidated Site Inspection Checklist developed for SLTDA and key line agencies avoid duplication of efforts in site inspections and better prepare the officers to conduct the inspection. • SLTDA and other key approval agencies use training materials and templates developed by SAIL joint Scoping Committee Meetings (SCMs) bringing together SLTDA and key agencies to view investor presentations and discuss different aspects of the investment proposals. • Investor Relations Unit (IRU) operations manual, compiled in collaboration with SLTDA, directing the IRU staff step-by-step through the actions they are required to take upon the receipt of a new investment application. This document will now become a guide for staff to follow and will further become a part of the agency’s key results matrix including the introduction of minimum service standards. • A comprehensive investor handbook is now available and reduces time and cost required for investment approvals thus instilling confidence in investors. • The draft Tourist Accommodation Design Guidelines define and describe tourism accommodation spaces, informing designers and investors on minimum requirements for designing and building a tourist accommodation facility in Sri Lanka. • SLTDA has initiated reviewing Sri Lanka’s hotel classification system with the goal of making it more responsive to the industry and customer needs. • 846 person hours of training were completed for the SLTDA staff and key ministry/department staffs on streamlined tourism investment approval process. • Sri Lanka Tourism Alliance, a private sector industry organization, is well established and resilient, responding to crisis such as the Easter Sunday Bombings in Sri Lanka and COVID-19 pandemic. SAIL assisted SLTDA to untangle investment processes that involve multiple agencies and duplicated efforts. No one investor received the same information on the process, and applications with large investment potential would be delayed for months, even years, with many investors choosing to withdraw and to invest elsewhere in the region. The Ministry of Tourism confirmed that this USAID.GOV SUPPORTING ACCELERATED INVESTMENT IN SRI LANKA (SAIL) PROJECT FINAL REPORT | 2 complicated process has been a significant barrier to attracting FDI. The ministry sought to streamline their processes for attracting FDI and improve them to be user-friendly and transparent. SAIL, working closely with officers