The UK Foreign and Commonwealth Office’s (FCO) ‘Overseas Business Risk – Sri Lanka’ report, updated and published on 16 July 2014, examines key security and political risks that UK businesses may face when operating in Sri Lanka.
Doing business in Sri Lanka is not without security risks, but lots of companies do export and operate there without falling foul of some of the issues we have aimed to highlight. Those companies that successfully navigate the risks below are usually well prepared and have strong company policies relating to their behaviour overseas.
1. Political and Economic
The Government of Sri Lanka draws on the World Bank’s Ease of doing business indicators and the World Economic Forum’s Global Competitieness Reports as frameworks for improving the foundations for regional business competitiveness. The World Bank currently ranks Sri Lanka 85 out of 185 countries (down from 81 in 2013) beating India ranked 134th and Bangladesh ranked 130. And the WEF Report see’s Sri Lanka maintain its 65th ranked position.
Sri Lanka’s economy has remained relatively buoyant during the global economic crisis. Post-conflict GDP figures of 8% have receded to 7.25% in 2012 and 7.3% in 2013. The economy is expected to grow at 7.5% in 2014.
The macro-economic background is reasonably stable though challenges arising from high debt and debt repayment need to be addressed in the short term. Against a reasonably positive macro-economic background, significant areas of weakness are that the perceived environment for inward investment remains unstable, due to arbitrary political interventions in the market, such as the expropriation of assets bill in 2011, and that the labour market is both lacking in capacity and constrained by restrictive labour laws.
Looking to the medium-longer future, political and economic risk is tied to how successfully the government can manage the aspirations of residents in the North and East and the redevelopment of former conflict zones and containing the extreme religious groups.
More information on political risk, including political demonstrations, is available in the FCO Travel Advice.
2. Business And Human Rights
Sri Lanka has a predominately male work force despite an established framework of equality for women in the labour force. Legislation exists to protect the rights of women and children. While child labour occurs, it isn’t as wide-spread in Sri Lanka as other regional countries. There is concern for minority rights including those of ethnic groups, LGBT and disabled groups. Sri Lanka has yet to formulate legislation protecting their rights. Discrimination against these groups is prevalent.
The law allows workers to form and join unions of their choice without previous authorization, with the exception of members of the armed forces and police officers, who may not unionize. A union must represent 40 percent of workers at a given enterprise before the employer is legally obligated to bargain with it. The Department of Labour is authorized to cancel a union’s registration if the union fails to submit an annual report for three years. Approximately 122,000 persons are employed within the country’s 12 export processing zones (EPZs), where the Board of Investment (BOI) sets minimum wages and working conditions. Forming trade unions is more difficult in the zones; union representatives seeking to organize workers and other outsiders could enter only at the invitation of factory owners or the BOI.
All workers, other than police, armed forces, prison service, and those in essential services, have the right to strike. However, the President has broad discretion to declare sectors “essential,” as these can include “any service which is of public utility or is essential for national security or for the preservation of public order or to the life of the community and includes any Department of the Government or branch thereof.” The law prohibits retribution against strikers in nonessential sectors; in practice, however, employees sometimes are fired for striking. The law allows unions to conduct their activities without interference, but union activists and officials remained subject to harassment, intimidation, and other retaliatory practices. There were reports that employers arbitrarily transferred union members, and there were numerous reports of unfair dismissals of union members.
For more detail on human rights in Sri Lanka, see the FCO Annual Human Rights report: Sri Lanka.
3. Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Although Sri Lanka has a moderate level of corruption compared to some other South and Southeast Asian countries, the level of corruption is perceived to be high in public procurement. Allegations of corruption plague many government deals, the police, the inland revenue, customs – indeed almost every public body that businesses rely on to function fairly.
Transparency International’s [corruption perception index])http://www.transparency.org/research/cpi/overview) (CPI), measures the perceived levels of public-sector corruption in a given country. From 176 countries worldwide Sri Lanka was ranked 91 in 2013, dropping twelve places from its ranking in 2012. In the South Asia region Sri Lanka ranks better than India at 94 (an improvement of one place) and Bangladesh at 136 (dropping sixteen places from its ranking in 2012).
The public sector is characterised by political appointments and overstaffing. In State Owned Enterprises under-qualified senior management is common. A Public Service Commission does exist to oversee the public sector but its powers are limited and its independence questionable.
Meanwhile, prosecutions of officials are rare with no senior figures having been taken to court whilst in power Public officials are not required to declare their assets and “conflict of interest” guidance is sketchy and unenforceable
We would encourage all UK companies preparing to do business in Sri Lanka to consider their strategy for dealing with bribery and corruption. We would advise taking advice from a wide range of sources including the British High Commission and other local professionals, performing due diligence on all potential partners, having strong and defined corporate policies as to what constitutes bribery and alerting staff to the consequences of taking part in such transactions. A range of tools is available to businesses faced with operating in markets where bribery and corruption is likely to take place.
Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Sri Lanka
Read the information provided on our Bribery and corruption page.
4. Terrorism Threat
With the end of military conflict in May 2009, the threat from terrorism has all but disappeared for the short to medium term. Government forces are strongly in control of the former conflict zones and there is little scope for insurgency.
Read the latest Travel Advice for Sri Lanka from the Foreign & Commonwealth Office.
Read the information provided on our Terrorism threat page.
5. Protective Security Advice
Read the information provided on our Protective security advice page.
6. Intellectual Property
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.
The National Intellectual Property Office of Sri Lanka was established under the Intellectual Property Act No 36 of 2003 and is mandated with the administration of the Intellectual Property System in Sri Lanka. It was first established on January 1, 1982 with the same mandate under the provisions of Code of Intellectual Property Act no 52 of 1979.
The National Intellectual Property Office (NIPO) is mandated with the administration of intellectual property including the activities relating to registration and post registration of marks, patents, industrial designs, layout designs of integrated circuits and collective societies. NIPO also has the remit of facilitating the enforcement of IP rights. However, infringement of IP Laws is prevalent extensively. Most DVD / CD shops sell pirated copies in the open market and counterfeiting of other consumer items such as clothing and accessories is rife. Enforcement of IP laws is not considered a priority by the authorities.
When entering into contracts businesses need to ensure that their IP rights are protected and written out in the contract. Big and foreign owned companies might find that the threat of legal action is enough to stop plagiarism. Read the information provided on our Intellectual Property page.