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Cablegate: U.S. Business Delegation Examines Investment Opportunities

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RR RUEHWEB

DE RUEHLM #0976/01 2941210
ZNR UUUUU ZZH
R 211210Z OCT 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 0662
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHNE/AMEMBASSY NEW DELHI 3390
RUEHKA/AMEMBASSY DHAKA 1969
RUEHIL/AMEMBASSY ISLAMABAD 9005
RUEHKT/AMEMBASSY KATHMANDU 7243
RUEHCG/AMCONSUL CHENNAI 9568

UNCLAS COLOMBO 000976

STATE FOR SCA/INSB AND EEB/IFD/OMA
STATE PASS USTR FOR VICKY KADER
TREASURY FOR MARY BRENNAN
COMMERCE FOR ITA EROL YESIN

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PGOV CE
SUBJECT: U.S. Business Delegation Examines Investment Opportunities
in Sri Lanka

1. (U) SUMMARY: On October 13 U.S. and Sri Lankan government
officials and business people met in Colombo to attend the first
post-conflict Private/Public Partnership Conference, focusing on how
economic development can help foster national reconciliation. The
mood of the conference was upbeat, with Sri Lankan officials
providing information on the economy's fundamentals and giving an
outline of opportunities for trade and investment. Following the
conference, U.S. business people met one-on-one with Sri Lankan
counterparts and government officials to more closely examine
individual plans and interests. Post's impression was that
U.S.-based leaders were interested but not quite ready to invest
yet, while U.S. business representatives based in India were ready
to move. END SUMMARY.

2. (U) Representatives of over 40 U.S. firms and 30 local firms
attended a public-private partnership forum to discuss 'investment
and business opportunities in post-conflict Sri Lanka.' Organized
by the Sri Lankan Department of Commerce, the focus was on Sri
Lanka's overall economic and investment climate, particularly on
ways to redevelop the North and East. The U.S. delegation included
16 U.S. companies based in India and several U.S. multi-national
firms. The conference heard addresses by the Sri Lankan Minister of
Enterprise Development and Investment Promotion, Central Bank
Governor Nivaard Cabral, Attorney General Mohan Peiris and the Sri
Lankan Ambassador to the U.S., Jaliya Wickramasuriya. Ambassador
Butenis and visiting Assistant U.S. Trade Representative (AUSTR)
Michael Delaney emphasized that Sri Lanka had a unique opportunity
to build an inclusive economy for all Sri Lankans. All speakers
noted the historic opportunity to turn a page in Sri Lanka's
development and start healing the divisions of the recent civil war.
Ambassador Wickramasuriya urged businesses to invest in the North
and East said 'economic opportunity is freedom.' AUSTR Delaney
agreed that there is great untapped potential in Sri Lanka and
employment creation is a key factor in fostering national
reconciliation. AUSTR also urged U.S. companies entering Sri Lanka
to pay attention to promoting internationally accepted labor
standards in their businesses in Sri Lanka.

Early Bird Catches the Worm

3. (U) 'The early bird catches the worm' was an oft repeated slogan
throughout the day. Governor Cabral said despite the war, Sri
Lanka's per capita income nearly doubled from 2003 to 2008 to
USD2000. Furthermore, he claimed that following the end of the war
the Sri Lankan economy could 'leap frog' and double the per capita
income once again by 2014. He invited investors to share in Sri
Lanka's endeavors and emphasized that whoever gets in early will
benefit most.

Reconstruction of the North and East

4. (U) All speakers made a strong pitch for development in the North
and East of the country, where the bulk of the fighting and
destruction has occurred in the final years of the conflict. These
regions cover 30 percent of the land area and 50 percent of the
coastal belt of Sri Lanka. Both AUSTR Delaney and Ambassador
Wickramasuriya highlighted the need as well as opportunities to
build infrastructure in the North and East. Wickramasuriya said
that roads, schools, health care facilities and irrigation systems
need to be built. Further, business sectors such as fisheries,
agriculture and tourism offer good prospects for investors. For
instance, the best beaches in Sri Lanka are in the northern and
eastern coastal belt. The government has already identified three
locations in the North and East for tourism development. These
locations are in Trincomalee, Puttalam and Amapara districts.
Another key sector is fisheries. Potential has increased with the
government now controlling the full exclusive economic zone (which
covers an area more than eight times the size of the island). There
are also opportunities for property development (most of the
property in the North and East is damaged by the conflict) and
investors heading there will receive generous tax holidays ranging
from 10-20 years and be eligible to import raw materials and capital
equipment duty-free.

5. (U) On October 14, a portion of the trade delegation traveled to
Trincomalee in the East to learn first-hand about investment
opportunities there and to meet with local business and government

officials. Local government officials stressed opportunities with
agriculture, fishing and livestock, and noted that several garment
factories had recently opened in the East. The GSL also showed off
the large natural Trincomalee harbor, but today the harbor is little
used aside for supplying a wheat milling plant and a cement factory.
The business leaders based in India seemed much more interested in
Eastern opportunities.

Countrywide Business Opportunities

6. (U) The following areas offer the best prospects for investment:
IT outsourcing, Knowledge-based Business processes Outsourcing
(BPO), Tea, Rubber products, Ceramics and porcelain, Gems and
Jewelry, Light and Heavy Manufacturing, Fisheries, Agriculture and
Dairy Farming, Health Care, Tourism, and Food Processing.

7. (SBU) The Attorney General (AG) in his speech listed the numerous
laws that provide investors with legal protections. (NOTE: Post will
provide additional information on these laws upon request. END
NOTE.) Sri Lanka still faces significant problems with corruption,
cumbersome rules and regulations and government procurement policies
which often favor national companies. Potential investors are
advised to review the Country Commercial Guide or contact Commercial
Attache Ken Kero-Mentz at CommercialColombo@state.gov or
keroka@state.gov.


8. (U) Sri Lanka also offers generous tax incentives through the
Board of Investment (BOI) for foreign investors. The tax holidays
for export industries and services range from 3-5 years. Large
infrastructure projects receive tax holidays of 3-15 years. As
highlighted above, investors going to the North and East will
receive additional incentives.

9. (SBU) Investors in Sri Lanka could also access Indian and
Pakistan markets duty-free through bilateral Free Trade Agreements.
In addition, Sri Lankan exports to EU are duty free under the EU's
GSP Plus. (Note: On October 19, the European Commission
recommended cancelling Sri Lanka's GSP Plus benefits due to human
rights issues surrounding the end of the war and present confinement
of 250,000 people in closed camps. The EU process is lengthy, and
GSP Plus benefits should remain in place until at least mid 2010.
End Note.) Two U.S. business executives active in Sri Lanka spoke
of their successful experiences here. CH2MHill highlighted their
experiences in Sri Lanka in completing a range of infrastructure
projects costing USD60 million for USAID. He commended the
assistance received from government agencies such as the BOI,
regional officials, chambers of commerce as well as the U.S.
Embassy, and said there is still a great need for road
infrastructure.

Results in Over 200 Business Meetings

10. (U) Following the conference, the U.S. delegates had one-on-one
meetings with local companies and government agencies. According to
Ayoni Waniganayake, Assistant Secretary General of the Ceylon
Chamber of Commerce, the CCC had arranged over 200 business meetings
for that afternoon. In addition, some of the delegates were meeting
with government ministers and doing factory visits throughout the
week.

11. (SBU) Comment: The PPP conference focused on the positives while
ignoring corruption, some long-standing transparency issues and
other trade and investment problems. However, post believes that
there are real opportunities for investment here in Sri Lanka, and
the size and strength of the U.S. delegation is far stronger than we
expected. The U.S. participants were quite impressed with
opportunities in Sri Lanka, but they were still testing the waters,
while U.S. businesses based in India seemed ready to dive in.

12. (SBU) Comment continued. The TIFA talks (septel) and the PPP
Conference stood in apparent contrast to the general strains in the
political relationship between the U.S. and Sri Lanka. Ambassador
Butenis noted to the PPP conference the importance of political
reconciliation and rapid resettlement of internally displaced
persons to permit Sri Lanka to win the peace by developing the
economy. Moreover, Ambassador Butenis and AUSTR Delaney emphasized

how providing real economic opportunities in the North and East will
begin to heal the divisions of the civil war. END COMMENT.

BUTENIS

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