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The export of construction services is hampered due to the non-acceptance of US$ guarantees issued by local banks to overseas clients awarding contracts, said Secretary General / CEO Chamber of Construction Industry of Sri Lanka, Eng. Nissanka N. Wijeratne.
Nissanka N. Wijeratne
“To remedy this, a counter guarantee facility with an international donor should be arranged so that our commercial banks can use this facility.”
He said that for local companies to undertake projects in many countries they require formation of subsidiary companies in those countries with a share to a national of the country concerned. “At present our companies can get guarantees only up to US$ 1.0 million to such subsidiary companies, as per Central Bank Direction No. 20 of 2021. This should be increased upto at least US$ 10.0 million considering the size of projects available.”
He said that in some countries the clients require Sri Lankan companies to deposit about 10% of the project cost as a show of commitment to award the construction contract. “This is refunded on completion of contract. This was allowed earlier but was disallowed by Gazette No. 2286/27 dated June 30, 2022, extended again in June 2023, issued under Foreign Exchange Act, No. 12 of 2017.”
Due to repeated contractions suffered by the construction industry since 2020 todate, most of our companies are unable to furnish security to banks to obtain the guarantees in the high values needed to execute overseas contracts.
“As such a special scheme should be introduced to select 20 Construction Industry Development Authority (CIDA) registered companies which have performed well, in consultation with CIDA and the Chamber of Construction Industry, and issue guarantees backed by Central Bank on a nil margin with the condition that each company will sub contract to two other local CIDA registered companies.”
“Due to unprecedented financial problems faced by construction companies and property developers, banks should be directed not to resort to Parate Execution until Dec 2024 when the Construction Industry is expected to turn around.”
“Property Development projects should be exempted from VAT as otherwise it will become a cost to the buyers further increasing the already high property values. “
He said the CCI has already forwarded this proposal to the Government.
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