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New Study Conducted By The Asia Foundation Ranks Local Governments In Terms of Business Friendliness in Sri Lanka

Colombo, November 13, 2007 — According to a new study of economic governance conducted by The Asia Foundation in Sri Lanka good governance in Horana makes it the easiest place to do business in Sri Lanka, followed by Nawalapitiya, Embilipitiya, Haputale, and Hatton-Dickoy. The study covers all 15 municipal and 33 urban council localities in seven of the nine provinces and 5000 firms in total. The Northern and Eastern Provinces were left out in the study due to the difficulties in carrying out the survey in those areas.

Despite several previous studies, little is known about the business environment affecting private enterprise at the local level. The Economic Governance Index 2007 (EGI) is an initiative of The Asia Foundation’s local governance strengthening program with funding support from the Australian Government and the Department for International Development (UK). The goal of the Foundation’s program is to support improvement in the enabling environment for private enterprise throughout the country, not just in the Western Province where most of the growth has been concentrated.

The EGI was released to leaders in government and the private sector in a symposium on November 13, 2007 in Colombo. Speakers included the Australian High Commissioner Dr. Greg French and Mr. Nivard Cabraal Governor of the Central Bank.

Panel discussants included senior officials from the Ministry of Local Government and Provincial Councils, Ministry of Enterprise Development and Investment Promotion., Provincial Council Chief Ministers, Commissioners/Assistant Commissioners of Local Government, Mayors and Chairmen of urban councils and representatives of district and national chambers of commerce attended this event.

The EGI is a measure of the enabling environment for private enterprise in the localities and considers economic governance indicators as the key factors in its ranking. This document identifies and facilitates understanding of government-influenced constraints to economic growth and the impact of local governance on business behavior. Nilan Fernando, Country Representative of The Asia Foundation noted that “similar studies have been carried out by The Foundation in Vietnam, Cambodia, Indonesia, and the Philippines, and it was this proven methodology and experience that was applied to the Sri Lankan context to produce this important Index for the first time.” Survey data that represent the perception of business leaders regarding the local regulatory environment, as well as published data, are used to construct the indicators.

In terms of the sub-indicators, Kuliyapitiya comes out on top in the area of registration, permits and licenses while Chilaw does well in the area of land access and property rights. Matale is the most transparent and encourages participation while Hatton-Dickoya has the best regulatory environment and Nuwara Eliya provides the best infrastructure and basic services. Businesses get the best value for money in terms of the tax levied and the services rendered in Horana. The legal environment at Minuwangoda was adjudged the best while the government’s attitude toward business was most encouraging in Haputale. Nawalapitiya generally serviced all businesses equally and was the least influenced by informal charges while Gampola was considered the most secure for operating a business. The report notes that the Index will be a useful guide in facilitating the sharing of best practices and learning from localities that scored higher in specific sub-indices.

The report also assesses business friendliness by province using the same indicators. Suresh Bartlett, Program Director of The Asia Foundation stated “The findings have highlighted critical areas that require the attention of local officials and national policy makers and would serve as an excellent opportunity for strategic private-public partnerships to be forged in addressing issues and improving the enabling environment for private enterprise.” The EGI will help enhance private sector growth and job creation by providing information and incentives for local authorities to improve the local economic environment and thereby increase employment and alleviate poverty in different regions of the country.

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