charindra chandrasena 00:05 Dana, mr. Dhananath Fernando 00:06 Charendra, charindra chandrasena 00:07 how are you? Dhananath Fernando 00:08 Keeping well, Chari. How are you? charindra chandrasena 00:10 I'm okay. I'm okay. Going on. We have a lot to talk about today. So Dhananath Fernando 00:14 yes, charindra chandrasena 00:15 without the pleasantries too much, I'm going to get right to it. The AKD president is well. He was in Japan. I think he's back now. Initial thoughts, without me saying much. Initial thoughts on the tour to Japan and and broadly about the foreign tours that he has undertaken. Dhananath Fernando 00:39 Honour as the as the leader of the country, Japan, as we all know, is a very important ally for Sri Lanka for multiple reasons. One is even the okay. I'll go on the reverse sequence in the debt restructuring process. They are the single member from the Paris Club, which we had a largest debt holding as a country on a bilateral basis, so they are very important and they have been a supporter of Sri Lanka for for a long time. For a long time. For a long time, and so in that front, that's important. The second front is also the historical links between Sri Lanka and Japan, regardless of which government has been in power, they have been a true friend, and we have been a true friend to them when during the difficult times for Japan. So in that sense, it's it's very important. He charindra chandrasena 01:33 actually brought that up this time. So interesting because he brought that up with President A.K.D. Dhananath Fernando 01:41 Yeah, charindra chandrasena 01:41 who has been talking, which I saw on social media that people were yeah who has been talking about this 75 years of decline and deterioration and corruption and mismanagement and all that. Correct. And then I don't know. I mean, it feels a bit tone deaf on the part of the Japanese Prime Minister to bring that up with AKD, but he had brought it up and said that what President he was not president at the time he was finance minister at the time finance minister Jaya Jawadana about the fact that he went and spoke in support of Japan at the at the San Francisco summit when everybody else was, you know, taking a hardline tough stance on it. So that is interesting, and I think I think geopolitical. I mean, geopolitical and foreign relations-wise, that is probably one of the most significant. And you can have all the criticism you want about Jai Jawad, but I think from a foreign policy perspective, that is the one friendship we seem to have, no matter what, right? Even with the with the Gotaba presidency, when projects were being you know delayed and cancelled, especially it was the LRT, right? So even then, that was I think the lower step of the relationship, but after that it has now recovered. So, Dhananath Fernando 03:04 no, absolutely. And personal story, Shari. I think I mentioned this in one of the Singhala podcast. Like I happened to be at a conference in Japan, and their former, if I remember right, digital. I mean, former defence minister. And when I met him, I think he was a digital minister, if I remember right. charindra chandrasena 03:22 Oh yeah. Dhananath Fernando 03:22 Call a gentleman by the name of Canro Taro. charindra chandrasena 03:25 Okay. Dhananath Fernando 03:25 So I I met him. I met him at like in when Sri Lanka was at the lowest point. Like we had the crisis and everything was not in good shape. So there was a in that conference like when he was at a panel discussion with the former Australian Prime Minister, this question came up on debt sustainability and Sri Lanka. Like you know, our name of course dragged in, and they asked like any Sri Lankans, and like I was like okay, and I had to raise that. And then afterwards, I had a very cordial conversation with him, and he said something unforgettable. So he basically, I mean, then I after the panel, I went went to him and spoke to him, and he said, "What's happening in Sri Lanka? So on and so forth. Then he said, "Son, what is happening? What happened to our LRT project? Now this is like a one of the senior ministers. I also didn't have like a really direct answer. I said, "Yeah, it's quite unfortunate and all that. I basically you know beat around the bush because I really did not have a straight answer. I said like, yeah, it's unfortunate and all that. Then he said, son, countries have longer memories than people. That was all what he said, and then he just left. And so, so, so I think in that front, it's really important that we have that relationship with Japan, and also we have to keep that. I mean, of course, the history. I mean, my view is okay. We have learned lesson from the history. But when you are at the front seat, and when you are at the, you know, when you are leading the government, you have to be cordial with everyone and get the support which is required. And there is no point in that if if you are going towards that. No, no Sri Lanka, no Sri Lankan can visit England because you know they have called. I mean, then let's not go there because it's a it's a unpleasant. Of course, all has done mistakes, so maybe you have to basically you know repair those relationships and move forward. charindra chandrasena 05:17 So Jaya Jarvis' speech was about that that we were also affected by Japan's you know, expansionism and and militarism, Dhananath Fernando 05:24 yeah. charindra chandrasena 05:24 But like the Buddha said, you know, yeah, yeah. So this Japanese relationship, I think, for me, it's amazing to just observe that over the years, just because it feels like an actual friendship, right? Forgetting the geopolitical considerations, it feels like so there are no freelancers. Yes, right. But this is as close to a free lunch as you could get in the in the foreign affairs field. So I think I think it's very important, and I think maybe this government can connect with Japan on the on the anti-corruption drive. Absolutely, charindra chandrasena 06:00 right? And this was a Dhananath Fernando 06:01 case when during the previous regime that you know the Japanese the then Japanese ambassador was the one who complained to the then president exactly the airport the airport bribery case this was for charindra chandrasena 06:16 terminal two right I think I think Dhananath Fernando 06:18 so the airport expansion yes so that's important. I saw today on newspapers that they are considering a special economic zone for Japanese investors who are targeting the Indian market, which I think is also a sensible idea because we have been as Advocata we have been an advocat for private industrial zones, and what we said was when you bring industrial zones. There, in in in the world, there are industrial zone managers who do this job professionally. So Japan is one of those countries. Of course, there are South Korea, Vietnam, who basically professionally design industrial zones and who operate industrial zones. So they know the thickness of the the road, which is good for containers and all that, so they go to that level of detail and they know how the water treatment has to be done, how the rest of the ecosystem has to work, what is the emission levels, temperatures, and everything. There are a lot of technical details that they know how to manage. So, and also looking at the Indian market because already we have some level of free trade agreement with India. So actually, if we can accelerate and sell it to Japan on that front, it is good. And also, there's we are, as we all know, there's a military agreement between India, Australia, Japan, and US, which is the Quad. So on that front, India will also be comfortable, and regardless of the geopolitical shifts, Japan still has a is a major power, and we can learn quite a lot on the productivity improvement that they that they do, and they also have a ageing population. So in that front, I think Japan is vital. I think we have to reactivate some of the projects that that we missed out and repair those relationships because they are a very very important partner, especially to put Sri Lanka on the map when it is needed. I think the two countries that they it can be that three countries probably China, Japan, and India. But of course, with the geopolitical alignment, we have to keep both sides open because with the Western world, it is Japan. It's easier probably with the other allies. It's China that you have to get their support. So, charindra chandrasena 08:32 but I mean, it's it's actually unfortunate for us that Japan, when this relationship began, Japan was just entering the fold again after the World War, but then Japan developed so fast that it actually ended up as the second premier economy in the world after the U.S. But this period of you know stagnation that they have experienced now they are way down the ranking, so it's kind of unfortunate for us also that our best friend has gone from number two way down the list. Yeah, that that that's quite unfortunate. Hopefully they can regain their you know passport but sir Dhananath Fernando 09:12 yes that that that's unfortunate. But still, as we all know, Japan is still a big player for a country like like Sri Lanka, especially on technological cooperation, and also I think Sri Lanka is also an important partner for Japan, especially when it comes to the vehicle imports, especially the I think the reconditioned vehicles. But for Sri Lanka, there are a lot that we can gain from Japan. And interestingly, I saw I think President he he made did he did he mention that there will be no taxes? And indicated was it in Japan or in the U.S. I really got no, no. It charindra chandrasena 09:47 was it was in the U.S. when he was meeting Sri Lankans. Sri Dhananath Fernando 09:52 Lankans, okay, right? Okay. charindra chandrasena 09:53 So that that's a yeah. That's a separate conversation. But I mean. It's it's nice to see him whenever he goes abroad to actually have these kind of meetings that he used to have before the election. So during the campaign, he used to go to they used to sponsor his flight and his accommodation and get him to come and speak. Yeah, right. He was Dhananath Fernando 10:17 he was pretty much a global trotter before even and yes, he was a charindra chandrasena 10:21 globetrotter like celebrity, right? So it's nice to see him doing it even after the election because usually that stops, right? Dhananath Fernando 10:29 Yeah. charindra chandrasena 10:29 But generally, talking about these foreign countries, Dana, what is your view on the foreign policy of Shield? Yes. No. Dhananath Fernando 10:38 Very importantly, now with with Japan, where I want to get to it was now. With there's at the same time there's this UN General Assembly taking place. I think the I I listened to the Finland I think Prime Minister's speech and I think Dr. Jayashankar's speech and few other. I mean mainly everyone is recommending reforms to the UN on one side, given the challenge, the geopolitical shift that is taking place, and at the same time, everyone is quite confused from what I gather, and everyone is looking for some level of geopolitical alignment and looking for someone to take the leadership, because the smaller countries will get affected in the absence of a proper geopolitical order. Because then they get confused which side to align or how you repair the trade negotiations, so on and so forth. So I think that is what even what Dr. Jayashankar mentioned was even the sustainable development goals. Their indicators are at a sorry state, and reforms for the UN is needed. And as and the UN members are violating the charter. charindra chandrasena 11:55 Yeah. Dhananath Fernando 11:55 So what are we going to do about it? charindra chandrasena 11:58 Yeah. I mean, it's it's it's sad because the UN was actually formed. So the UN was formed. If we go back to basics, after two world wars, so it was the League of Nations, and then it became the United Nations. It was formed to ensure a sustained period of peace. Dhananath Fernando 12:18 Yeah, charindra chandrasena 12:19 because they realised, and the fact of the matter is that the First World War is what caused the Second World War, right? So people didn't get enough. So the people who felt that they were marginalised, the countries that were marginalised after, especially Japan and Germany, that they had reason to get into another, you know, world war and try to conquer the world. This was brought in to prevent that. But what has happened is that they have established they have established global like a global policeman, right? Yeah. So America is the top cop, right? America can do whatever they want, and they are they have complete impunity, and they they impose certain values on others that they don't follow themselves. I think that has been starkly displayed during the the Gaza issue. So it's it's a sad state of affairs, and the veto, Dana. I mean that is something that needs to just go. That is a relic of a different era, right? Why should five countries get to just veto like one country? They can veto everything that 99% of others have voted for. Dhananath Fernando 13:30 Absolutely. So I think that is one of the proposals by the Finland Prime Minister. He said, "If someone, if one of the main, I mean, yes, he said he basically brought three interesting points. He said geopolitics is about values, interest, and power. But he said power is only valid for like the big players. The smaller countries, it's more about values and interest. And he said like if if a if a country is basically violating the UN Charter, that there has to be some disincentive. Even provided that even if they are the Security Council members, then they should not have their voting rights in a case of violating the Charter. charindra chandrasena 14:18 Yeah. Dhananath Fernando 14:18 But the challenge is, Chari, why it affects Sri Lanka is given this complicated geopolitical, you know, dynamics, especially and there's another conversation where the U.S. will considering a strike to Venezuela, which has some oil reserves, and we do not know what would India's response on what's going on Pakistan and the tensions between U.S. and India. So, in that front, Sri Lanka's, I would say, our strategy on foreign relationships has to be a bit more focused. I would even say that. charindra chandrasena 15:01 What is the what is the lack of focus you see now? Dhananath Fernando 15:04 First is on the trade front. charindra chandrasena 15:06 Okay. Dhananath Fernando 15:06 Second, we are we are trying. I mean, we have to be friends with pretty much everyone. But charindra chandrasena 15:12 when you say trade front, if you elaborate, right? What specific parts of the trade front are we not focusing on the right export markets, or are we restricting imports unfairly and damaging relationships? Which one is Dhananath Fernando 15:27 yes? I think three. First is the India managing India because ECTA or like whatever the free trade agreement you have to enhance that because India is on one side. They are basically stepping up also as a global superpower. It's quite obvious their growth rates are good. So I I think we have to manage India a little bit better. Of course, the first visit by the president and Prime Minister Modi's visit, everything was okay. I think it was. I think the energy was there. But do you charindra chandrasena 16:01 think he do? Do you think Modi being given that honorary title and all of that? It's a bit like you know massaging his ego, right? Do you think that's the right approach, or do you think it should be just? I think no. I think Dhananath Fernando 16:13 there's nothing wrong by doing that, but I think it has to be followed up with the follow up actions, like you know the trade agreements or the comprehensive trade partnerships that you have to take that discussions forward and get the job done because just because you know massaging his ego alone will not help for us to progress. That's number one. Number two is on the trade front. It's most of these issues are also internal, so a lot of, including the U.S. and other partners, has raised concerns on our trading regime, the challenges that they face internally. Even President Trump highlighted, of course, that 44 tariff, while it is unfair, of course, our tariff structure is quite complicated, which I I consider it's a fair point by the U.S. front. That's the second one. The third one is also managing China and the and the West because we we have to do a lot when it comes to managing that relationship. I I feel that we are just like you know attending to day to day operations while president visits those countries, he he visited Germany, he visited Dubai, he visited. I mean, he visits, but I do not see the follow up action taking place. And also, did you see it charindra chandrasena 17:34 with former? I I did not Dhananath Fernando 17:35 see. I did not see. But I think it becomes quite tense with the current geopolitical dynamics. I definitely I did not see because even I do not see that track 1.5 conversations are taking place because I happen to be one of the I don't want to mention the name but another country with the trading partners they raise some concerns. Okay, they have signed the free trade agreement, but they have like in quite a limbo, what is going to happen? I mean, what is why whether it's moving forward or not? I think those areas we have to move forward because the signals are weren't like it was not bad, but I see the pressure building up inside. So, which I think we have to have an active strategy on that, given these challenging times, especially when a geopolitical major geopolitical event, this can completely you know shake everything. I mean, till there, I mean there are issues, but still it was like not a major thing. But if something, if a trigger event can basically confuse us, so that's why I think it's important that we have a strategy, and you know this geopolitical also, Chari. You cannot you know start it like overnight. No, you have to build that. It's a slow relationship that you have to basically slowly cultivate. So in that front, I think we we should we we should consider a few scenarios and have that upfront conversation in a scenario like this, this has to be our alignment. In a scenario like this, this has to be our alignment, and to keep them informed that we are neutral and how are we going to do it? Because otherwise, when you try to react, I think the best case is if let's say the Chinese vessel try to you know come to the come to Sri Lankan waters. I think the China should know what would be our stance beforehand. India and Japan and the US should know what would be our star. So then it, it, it, it brings the temperature down. Yeah, charindra chandrasena 19:27 and also interestingly, now there's a realignment altogether, right? So the example you mentioned, the issue with the Chinese vessel coming in was for India, Dhananath Fernando 19:40 yeah, charindra chandrasena 19:40 right. So India was pulling that issue. Now Trump has managed to somehow unite the India and India. So technically, now it's a it feels like a East versus West battle all over again. Yeah. Right. Yeah. So India was actually in the U.S. camp because. U.S. needed India as a counterpoint to Chinese dominance in Asia. Yeah. So the two Asian powers and Australia, sorry, U.S. had one, and they were trying to control through India. China stood on its own with its own sphere of influence and the BRI Build and Road and Road Initiative. So, in that sense, now if I ask you which side, and don't be on the fence and say we have to balance both sides, but which side is a safer bet for us, especially with all the turmoil going on in the U.S. and and look at it from an economic point of view, especially right, which is a safer side for us to. I think, Dhananath Fernando 20:44 Charlie, the reality is you cannot forget India because they are closer, and you know they are economically they are doing well. And I mean, in a we have to take the side most of the time what India takes because otherwise it would be geopolitically unrealistic for us. I think it's the same for India because they want to make sure that you know Sri Lanka takes the same side that they take because otherwise it would be difficult. And as you said, now it's slightly realigned with India and China. Otherwise, it could have been quite a challenging situation. And I think this also leads up to the next conversation on the port city because one reason I think the port city to prosper, I think we need we have to have India support because generally the financial cities are targeting a bigger market and the bigger market next to us is India and without India's support it's very unlikely that we can even initiate, you know, take the concept like port city to the next stage. So that's why I say when charindra chandrasena 21:48 you say support, what do you mean exactly? Investment support or in terms of no investment, Dhananath Fernando 21:54 and they have to endorse the product. So without their endorsement, no one is going to basically you know compass India without their endorsement. charindra chandrasena 22:02 Yeah. Dhananath Fernando 22:02 So we have to we have to have their support. So that's why I said the geopolitical. I mean the the the the location realities. You have to go with India, and that has been the tradition for a long time. Tradition in the sense, even if you look at the religion, cultural-it doesn't mean that it comes like it's not a free lunch. I mean, you have to. There'll be so many other issues coming with that reality. Of course, yeah. So, so. But I mean, we charindra chandrasena 22:31 can't have a foreign policy without. I mean, the foreign policy has to start with India. Start Dhananath Fernando 22:35 with India. For better charindra chandrasena 22:36 or worse, it has to start with India. Dhananath Fernando 22:37 Absolutely. charindra chandrasena 22:38 And then factor in everybody else. Exactly. Dhananath Fernando 22:40 Exactly. You can't start with the U.S. or China. Dhananath Fernando 22:42 Exactly. So you you you got the point. Yeah. You you you you shed light in in better terms. charindra chandrasena 22:50 But about now, since we are talking about Port City, did you see the recent the decision by the president, the Gaza issued curtailing some of the the investment benefits that were provided earlier. Dhananath Fernando 23:05 Yeah. charindra chandrasena 23:05 So this is a SDP, right? A strategic development project. So for strategic development projects, you can grant massive tax holidays and and other perks. Now that has been curtailed. Initially, good thing or bad thing? Dhananath Fernando 23:23 I think initially good thing. Okay. Advocata has always been in the side, like you know. Okay, I have to explain my stance. We are for a lower tax overall regime, and the way that you can bring the taxes down is by cutting down the expenditure, that's the overall star. So we are for low tax environment, which prospers people, businesses, so on. Yeah. So charindra chandrasena 23:52 you're not talking investment specifically. You're saying general taxation access. But Dhananath Fernando 23:56 what has happened in this case was mainly there has been tax concessions given under the Strategic Development Act, which may have also led for some question marks among other investors. Why someone got it? Why others were not? So on that front, I think because on on a on a practical point of view, you have like from from the gold rod on one side that you have one taxes, one rate of taxes, and on the other side you have another rate of taxes. So it was, you know, it was quite in a way discriminative for the other side of the road because all the businesses were trying to then enter the port city, which was not the initial objective. The initial objective was for a financial city, which requires the global giants moving their headquarters and their regional offices here. But instead, what happened was, in my view, it became more a real estate project with a lot of tax concessions. So as a researcher. Lot of local businesses started slowly moving to the port city just because to have a lower tax rate. In fairness to port city, what they said was okay. As a location, you really do not have anything else to offer. Where you know your investment environment, everything. I mean, there are better players in the region, so you have to have you have to offer something, and the only thing that was left to offer was the tax concessions, was their argument. I mean, there'll be some truth to it because we really do did not have a better product to offer. But the challenge is when you give these outrages like you know, I mean, 35 year unlimited tax holidays. What is the ripple impact on the economy? Yeah. Dhananath Fernando 25:44 So in that front line, you have charindra chandrasena 25:46 to wait a generation to reap the benefits of that as a as the investment destination. Absolutely. So Dhananath Fernando 25:52 so in that front, I think at some level of curtailment is better. But overall, Chari, since there is a budget, and since President mentioned that they are going to not going to charge any taxes, which is good, but I think I want to drive a point which lot of people I think forget. People think government revenue is taxes, but actually, government revenue is actually government's expenditure, because ultimately government has to whatever the expenditure, they have to somehow raise that money. So even if definitely there is a budget deficit, so even if they are not getting it as from the taxes, they will charge it at one point either as inflation, either as debt, which the people has to pay interest even for the past expenditure, it's not like a you know personal income expenditure statement. Government's real income actually is its expenditure, while we only consider about the taxes. So that's why we are saying curtail the expenditure. It doesn't mean okay. If you really want to do healthcare, education, please spend money. That's fine. charindra chandrasena 27:08 Yeah. Dhananath Fernando 27:08 But people have to realise that government expenditure is actually their income over a period of time. It may not be on this year. Yeah. But on a social this charindra chandrasena 27:17 year they are going to have a surplus. This year they are going to surplus. The projection is for the for a budget surplus. A Dhananath Fernando 27:22 primary budget surplus, but likely there will be a budget deficit. Then there will be a budget deficit, but they will overperform the revenue target. Is what shows in the indicators. Right. So I think not charging any taxes is good, but at the same time the expenditure curtailment also needs to take place even at a smaller scale, even keeping the longer term impact in mind. Because if you increase the expenditure, there is no other way that you. I mean, you have to introduce more and more taxes over a period of time, or you have to increase the rates. So that's the first point that I want to drive. And also, we have to keep the taxes. You know, we have to adhere for tax principles. It has to be transparent. It has to be simple. It has to be neutral. It has to be stable. We have to have those tax principles. We have to adhere for those tax principles, and also taxes. Charlie, we have to think on the comparative basis. Like your taxes has to be competitive with your regional competitors, no? Because when US charge, I mean, when UK charges 25% tax, we cannot charge 30% tax. There may be a case because of our interest payments and all that. We have to collect revenue, but the reality is we have to be competitive in our tax rate. You are talking charindra chandrasena 28:39 about FDI, right? Otherwise, you Dhananath Fernando 28:42 really cannot attract. So those are the main parts. How do how do you see what's the what's the sentiment on these port city revisions in your view? No, I mean charindra chandrasena 28:50 I think of it as a as a whole in terms of foreign investment, right? I I agree with you on the fact that I think what you said is that these tax holidays need to be sensible also, right? And not be this, you know, 35 years, and not be excessive. So I agree with that, and I think what people forget about that is that the main thing that an investor would be looking at is, I think, say political stability, policy consistency. You know that assurance that I am putting my money here, and my the conditions I am putting my money in, at the the conditions at the time are not going to change drastically over time, right? And this is not much different to people who are investing. I mean, regular people depositing in a bank, right? You would want a stable bank. You you don't you you're not going to be investing in a bank that just started opened today. Mostly, most people are going to want that stability, that assurance, that recognition. So, with a country also, people the in. Investors are looking for political stability. They are looking for policy consistency because they want to know. They want to be able to plan ahead, right? Three years down the line, I can do this if it continues this way. So, I feel the excessive tax holidays and tax benefits are given because governments, Sri Lankan governments have not been able to provide those other key ingredients. Dhananath Fernando 30:27 Absolutely. charindra chandrasena 30:28 So this is a way of mitigating the the negative effects of that. So we give you a great deal. Okay, we can't tell you that we'll be in power in three years. We can't tell you that the policies that we put in today will be the same in three years, but here's a fantastic offer, right? Like those, it's like a cheap product that's going at a discount, like a crazy discount. Okay, you get this. I like Dhananath Fernando 30:57 that anecdotal. It's a crazy charindra chandrasena 31:00 discount, right? So in Sinhala, you said the laba badu hilaki lah, right? So the hiller we have, the hole we are trying to plug, is the lack of policy consistency, the lack of political stability, the lack of predictability generally, right? And also corruption, very important, right? So instead of trying to curb corruption and ensure policy consistency and policy stability. What we are doing is okay. We still have those things. We don't know when we can solve those issues, but here's a fantastic discount for you. Please come. Dhananath Fernando 31:33 Yeah. charindra chandrasena 31:34 Right. And in that discount also there could be corruption. Dhananath Fernando 31:38 Correct. charindra chandrasena 31:39 Right. So the people, the investors who are coming in, you might actually decide. So the the one issue with the the SDA, the Strategic Development Act, and the strategy development projects is that you can the discretion is there for the government to decide what a strategic development project Speaker 1 31:58 is. Correct. charindra chandrasena 31:59 Okay. So because you're my friend, you come with a project. I can say, okay, we'll make it a strategic development one. Sort it out. Don't worry, right? And then you come and you put some money, and you get this amazing benefits. So for me, that is problematic, Dana. And I think now maybe the government can say, "Okay, we are going to have policy. Sorry, we are going to have political stability. We are a government who is going to run till 2029, right? And maybe beyond. We are a government that will not change policies willy nilly, right? So you can trust us. This will be the way we are going for the next few years, and we are our main tagline is no corruption, right? So trust us and come. I if these if these guys are actually following up, following through with what they are saying, and especially the president, then I think it's Dhananath Fernando 33:00 fair for him to curtail the the benefits. Yeah, I think the very valid point. I 100% agree with it's a cheap product, so we had to wrap it up with a I mean unreasonable tax discount. Bonanza. Bonanza, which I think the other point that I think there are a lot of conversations that I had. Some lot of people somewhat, you know, in I mean, they are endorsing these tax holidays on the other side. But I think what we need to realise is when you have such a tax holiday, the impact that it has on all the other businesses. For an example, the employees who are working at the port city will be given. I mean, they even do not need to pay. They pay taxes. So obviously, if I am an employee, I would look for opportunities, job opportunities at the port city, and they can offer a higher salary. And when, like, lot of people, it's like migration. When a lot of people migrate into the port city job opportunities, I mean, all the other businesses will have an impact. The only option that was because you know your cream of the cream, your talent is moving inside port city because they can offer higher salaries with that 36% So charindra chandrasena 34:12 this is this is brain drain within the country. Within Dhananath Fernando 34:16 the country, and the other businesses will have major impact for sure. And then you're basically rather than improving the economy, you are basically diluting the economy because of the talent shortage on one side. So that's where we say it in economic terms called the comparative neutrality. You have to keep it on the neutral ground. But on post, I mean, it doesn't mean post series is a bad. I mean, bad. But Dana, charindra chandrasena 34:41 there are so this is not a uniquely Sri Lankan problem. Correct. How do other countries, which have financial centres, it may be offshore, it may be even you know onshore, but I don't know. It may be a different demarketed area. How do those countries deal with this? They Dhananath Fernando 34:58 also, to be honest, some. Some of not some I think most of these financial cities offer generous tax holidays, but based on the context of that particular country. Yeah, charindra chandrasena 35:12 I'm talking specifically about not tax holidays, but the result of it. What you told me that that the salaries are higher, right? So technically, it leads to brain drain within the country. Yeah. Now Dhananath Fernando 35:23 I'm not sure other countries. How do they have the you know the pay or the main salary taxes? I'm not sure. I I really do not have the data to comment on it. But definitely, if you have it, this problem will be definitely there. But I think the it's important to have the port city concept because actually, Chari Port City was a special economic zone, but unfortunately, it became a real estate project. You know, special economic zone is because of the other challenges that we have in our policy environment. You basically make it airtight that the other policies do not impact for this, you know, this area. So there is an incentive for investors to come, but it doesn't mainly impact the other factor markets like the labour, the capital, land, and so on and so forth. Okay, land there is an issue, so that you make it a financial city targeting services. But ideally, we should have, I mean, more of the special economic zone. I would even recommend another special economic zone in in in Trincomalee or one in Jaffna, where you have a you know your mediation takes place in Singapore, which is you know otherwise you have to stay in the in Sri Lankan courts. It takes about 20 years, 15 years. So those facilities we have to provide. But when it comes to the level playing field on factor markers, ideally you have to keep it somewhat equal. That's where you can make it really a financial city, and of course with the support from the big players or the big markets. Yeah. So that's where I think is the concern. What we have to be cautious is whether the curtailment, whether it would be adequate or whether how the IMF would see on these changes, whether they will say this is enough or whether they will say no, this is not enough. That's where would be the real challenge. That's charindra chandrasena 37:12 a point that we couldn't mention that the IMF has been pushing for this as well. Absolutely. So I mean, the government can take some credit for telling it, but like with a lot of things with the running recovering government, it is the the push that makes things happen. Absolutely, push from the IMF because we love being pushed no into doing things without doing it ourselves. Yeah. But about what you said about this real estate, it's quite an interesting point, right? So when in your experience or understanding, did it go from a financial centre into a real estate project? And isn't it also about plugging a hole in a different way? So you're not getting the kind of investments you wanted for a financial centre, and therefore you just let anybody come in and build right, and then it turns into a real estate budget. Dhananath Fernando 38:03 I think it's purely the government's our our fault. I do not blame anything for China or anyone because the the when you have a financial city, the investors come based on the product that you offer. So you have to define the regulatory framework as fast as possible. I think there were multiple committees appointed, and there was a debate in the parliament. But still, I think the regulatory framework was not very clear. Without that clear regulatory framework, no investor will put their money. I think that's what which is going on. And then you try to sell the land blocks instead of attracting as a financial city, and the concept of a financial city is you have all the players in the same centre, so your transaction cost is less, and it's easy to work around. And now what we see is just few businesses which was on the other side of the road, just shifting the office to the to the port city just to get the tax concession. charindra chandrasena 38:59 It Dhananath Fernando 39:00 won't make it a financial city. What we need is exactly from orbit to both city, right? Not not it is not the financial financial city means you're basically the Facebooks and you know Google and whoever the services, the ship shipping agents and whoever has to come to this financial city and their headquarters has to slowly move here, or like their regional offices has to move here, and that's why it becomes workable. So it's basically I I would say the drift was the delay that took place under multiple governments. They have multiple committees appointed, so that was the delay. But port city is an either concept. It it is. I highly endorse, and in fact, Advocata charindra chandrasena 39:45 and and and people have to understand it is not a Rajapaksha project. Absolutely, you know, it is a project conceptually that is good for the country. Dhananath Fernando 39:53 Absolutely, and in fact, the China. This was a concept. I remember it like yesterday when this bill. In debate in the parliament, we did a live commentary about the debate, and and we we did a video. I think it's still available on how actually Shen. This is coming from this Shenzhen model model in China. That was, if I remember, this Deng Xiaoping's concept on how because he had a problem, lot of Chinese people were just swimming across the ocean. Because on the other side, it is Hong Kong for for better economic opportunity. So then he did not have any choice. He said, like, okay, why don't we create the similar economic conditions in Shenzhen, so then we can stop our people going to the other side. And the concept was creating a special economic zone, easy to do business, less regulation, and providing that ecosystem to businesses to prosper. So I think that is that concept is needed. In fact, we had to make entire Sri Lanka a special economic zone, but given the limitations, at least we have to have special zones, which is more you know environment business friendly. That's the way forward. Charey also wanted to know like what is the political take or like the the the the politics of it because of the now when you curtail the tax concessions, how would you see on a geopolitical angle or with an IMF pressure? How do you see the government will react to it, and what are the potential challenges? No, I charindra chandrasena 41:36 generally think that the government, like I touched on earlier, the government needs to attract investors, foreign investors, on merit. That is the government's merit, the country's merit. If they have a strong enough product, they can go out with it. One thing the government will have to do is properly market it. Right now, they are not marketing Sri Lanka in terms of tourism, right? I'm quite disappointed about that. So we are getting organic tourism growth, but not really, you know, marketing led. So like that, they can't market Sri Lanka that way with that lethargy when it comes to as an investment destination, as an investment destination highlight what Sri Lanka has to offer and bring them into the mix. Bring the government into the mix. Sri Lanka is this way because we have those mainly those three things I mentioned earlier: policy, sorry, political stability, policy consistency, and no corruption or minimal corruption, and also sorry, there's a fourth one I forgot the regulatory. Sorry, the legal environment, right? If there is some issue, that's a big problem. No, as an investor, if you face some issue, we will help you get it resolved fast, right? Without it languishing in the courts for years and years, right? That's another important matter. So they have to really. I don't see Sri Lanka being packaged like that, Dana. Right? When you go out now, there are investment promotions, investment road shows, all of these that these people go to, I don't know, and and somebody can comment on this video saying no no we are doing it right and that's fine, but I have not seen a proper packaging of Sri Lanka as an investment destination right, and as that package changes over time, right? So you can't have the same package you had when the war ended, right? Saying okay, now Sri Lanka is a peaceful country. That's not going to fly anymore. Dhananath Fernando 43:50 Yeah. charindra chandrasena 43:51 So what is the new packaging? What is the new can be a tagline even whatever? But that packaging, I don't see. Okay, and when it comes to the BOI, and I want to get your thoughts on the BOI as well, right? I think the BOI can do so much more. Okay, and this is not a government-based criticism throughout. I feel the BOI is not the ideal unit as it is, and I think the Economic Transformation Act wanted to break it up, right? Absolutely, yeah. And it it was, if I remember correctly, five or four or five parts. Yeah. So, and one part specifically was for investment zones, if I remember correctly, right? So that has I don't think that has been enforced. No, it's not. Boi is still there. The boy, for me, is not doing, not serving its mandate properly, and thereby the entire country is not being packaged in the way that it should. And politically, I think the president has to. Really look into it if he's serious about FDI's, right? Without because there's a report also, by the way, out by the U.S. Trade Representative saying that our investment climate is still not healthy. Speaker 2 45:15 Yeah. charindra chandrasena 45:15 Okay. Yeah. Yeah. You you saw that I think yeah it was Dhananath Fernando 45:18 widely covered also on English media, charindra chandrasena 45:21 yeah. Dhananath Fernando 45:22 So charindra chandrasena 45:23 and that investor scepticism. One thing about that, Dana, is that investor scepticism I think will remain for about two years until the government can show that okay we are here to stay and also we are following through on our words, right? They are not going to suddenly come in, correct? So, Dhananath Fernando 45:42 yeah. So, so this U.S. Trade Representative report also highlights, Shari, the same issues that has been there for a long time. So, this is, I mean, it has reported about the labour issues like the TEVA Act and the trade union issues on one side, and same the customs issues has been highlighted. Again, the land issues, the geopolitical sense, everything has been so. It it is basically reiterating the same thing, but on a different like it it is it was published in September. So I think it's quite fresh, but but we charindra chandrasena 46:18 don't know when the the we don't know when the assessment stopped. Probably yes. Dhananath Fernando 46:23 It it may go back to I think about six months. Probably in my view. Yeah. Probably with the government change, they probably went through another political economic analysis and updated the same issue since nothing has been changed. So so I think it's important to address those issues upfront on one side. Coming back to your point on BOI, I think one thing that the government, as you very correctly said, this economic transformation act. I mean, whatever the name of that is, doesn't matter. But reforming the BO charindra chandrasena 46:55 can take credit for it. You do whatever that you want. Different name on it. But Dhananath Fernando 46:59 ultimately, the BOI has to reform and the investment, as you very correctly said, it has to be packaged well. And the challenge is, Chari, the to package well, you have to do a lot of other reforms. Like investors, one main issue is the land issue. I mean, when you don't have access for land, Speaker 3 47:12 exactly. Dhananath Fernando 47:12 Let's forget. I mean, there's no even there's no premise to even to get to a conversation. Yeah. If you don't have land, I mean, they are right. So elaborate charindra chandrasena 47:20 on that, Dana, for our viewers, right? The land problem Dhananath Fernando 47:24 exactly. No land problem means for in. I'm not talking about the common man's land problem that you have a deed and all that. That's a separate issue that we can have do another podcast. Out of the industrial zones, about more than 90% of the land is occupied. Where it is available is fairly logistically challenging areas, a ravur and all that. So when an investor comes in, he has to go from pillar to post to secure a land plot. Then that takes a couple of months or sometimes years. So by the time when you secure your land plot, your you know investment interest is gone. I think that's where we recommended. Okay, government has to declare more lands for industrial zones. Otherwise, they cannot go and people protest and all that. Very difficult. So basically, you convert everything. Then it's a plug and play. I think that's what this Japanese visit that was basically promised that the Japanese investors will have like a separate zone targeting the Indian market to boost up exports is in the right direction. But the government has basically to declare the land and get a proper industrial zone manager to operate that. So that's the land issue because without that land, as a joke, I always say even Elon Musk comes, you do not have any land to offer. You have land, but it is not designated and developed to a level that an investor come and do a plug and play and run the operation. So that's where it is. And also, land doesn't mean just the land. You have to have that water access, electricity, internet, transport, everything. So that is the problem. Yeah, and charindra chandrasena 49:00 and the marketing of that would have to be with the you know like you said a new zone being established or something. Otherwise, we are not going to be able to market that. No, so we can't be false advertising, right? Dhananath Fernando 49:11 100% So the charindra chandrasena 49:12 packaging before the packaging, there's a lot that needs to be done. But what is the actual problem with the BOI. Why is it so lethargic? Dhananath Fernando 49:23 Yeah, I think couple of issues. One is the the salary scales really cannot attract the talent who can do a investment promotion on one side, and BOI is a very tail heavy organisation where they manage zones, and so most of the political patronage has taken place, so basically you have a very few people who can do investment promotion, and you really cannot recall or retain them with the salaries. So as a result, your investment promotion side is very weak. As a result, you are more shifting towards zone management and all that, which really do not generate any. Investments, so definitely there has to be some charindra chandrasena 50:03 operational things that they are bogged down in, Dhananath Fernando 50:05 and and you have to have a separate arm to actively promote the the very the the most important thing that you mentioned. You have to package it. You have to package based on the global dimensions. Yeah. Now, okay, you have an access to the Indian market. You have this and that, and at the same time, you as strategically you have to basically connect with the other markets to bring that investment. For an example, if we have a better trade agreement with India, we can basically promote it for the investors who really do not have a free trade agreement with India, because then there is an incentive for them to come here. Then they get the access to Indian market at a concessional rate or with tariff-free rate. So that's how we have to do it strategically. Okay, this is how we do. This is what Vietnam does. Okay, then we have to look at this or whether are we looking at other products which has a comparative advantage in this market. So that strategy has to cover it any form of bill, but it has to basically reform BOI, go for more trade negotiations and like trade agreements. But of course, you when you say charindra chandrasena 51:05 reform BOI, you mean do away with it, right? Do away Dhananath Fernando 51:08 with it, or you or break it charindra chandrasena 51:09 up in like the economic transformation. Absolutely, you have to Dhananath Fernando 51:12 have an investment separate zone, zone management, separate open zone management for private sector as well, and give those facilities. And you can, of course, when the good thing is in the private sector coming in, then you can price whatever the expenditure, and it you can assure that it is properly managed. So those are the reforms that is required on the investment front broadly. So and address this U.S. report, and it has also highlighted about our favourite topic, state-owned enterprises. But I think the time is up. We have ever, but we have some special segment for our Advocata Insiders. But I mean, for the general audience, this is where I mean, this is mainly what we discuss today. But on Advocata Insiders, we have a special offer, early bird offer till 14th of October. They can get all unique content access for 10,000 rupees. Otherwise, it will be 12,000 rupees for a for a year. You get access for information on vehicle markets and your exchange rate, and also economic news stories about the economy, so you can make your investment decisions, financial decisions based on what is happening, and it's mainly in Singala, but also content like this will also appear in English. So don't wait till the last moment. Content is already getting updated on a regular basis, so become an Advocata insider, and by being an Advocata insider, you help to spread this economic, you know, news stories and reform process to a larger community. So you are becoming an insider means while you get some exclusive content, you also support others to learn and creating awareness for a larger audience. charindra chandrasena 53:07 All right, I think we are done for today. Dhananath Fernando 53:09 Yes, charindra chandrasena 53:11 I'm going to see you next week. Dhananath Fernando 53:12 Absolutely, and with more insights on economy and geopolitics and politics. Yes. charindra chandrasena 53:19 All right. Thank you, Dana. Dhananath Fernando 53:22 Thank you, Jari. Take charindra chandrasena 53:23 care. Have a good week. Dhananath Fernando 53:23 You too. Transcribed by https://otter.ai