Stop complaining, Sri Lanka needs huge investment and only China can help

Sri Lanka President Maithripala Sirisena visited India for the second time since his election in January 2015. He met Prime Minister Narendra Modi for the sixth time (including meetings at international summits) in 16 months, since becoming president.

After coming to power, he had signaled his desire to move away from his predecessor Mahinda Rajapaksa's overt pro-China approach, and to be more sensitive to India’s concerns of a growing Chinese footprint in the island nation.

In New Delhi and Ujjain over the weekend, President Sirisena made it a point to announce that India was the first country he visited as the chief executive. What he did not say was that his view of China had changed since, and that Beijing would now play a greater role in Sri Lanka’s economic development.

Prime Minister Narendra Modi and the Sri Lanka President Maithripala Sirisena at the Joint Press Statement, in Colombo, Sri Lanka on 13 March 2015. Image courtesy PIB

File photo of Prime Minister Narendra Modi and Sri Lankan President Maithripala Sirisena. Image courtesy PIB

Since his last visit to India in February 2015, the economic crisis staring Colombo has forced Sirisena to take a pragmatic view of China. In the last three months, both he and Prime Minister Ranil Wickremesinghe have visited China separately and sought economic help. The ability of Beijing to quickly provide millions of dollars and stitch up contracts for projects has also made other South Asian nations such as Maldives and Bangladesh to roll out a red carpet to China, much to India’s discomfiture.

Today, Sri Lanka’s economy needs urgent help. Next month, the IMF Board in Washington will meet to put its stamp on a $1.5 billion bailout package to help Colombo avoid a balance of payments crisis. Reuters reported that foreign exchange reserves fell by a third from late 2014 to $6.2 billion in March-end. One-third of government revenues go into interest payments. General government debt was around 76 percent of GDP in 2015, according to Moody’s Investors Service.

Sri Lanka owes China $8 billion. At the end of a three-decade civil war in 2009, when the western world sought explanations on its human rights record in dealing with Tamil Tigers who had waged an armed struggle for a separate state of Eelam, it was China that stepped in to help Sri Lanka, economically and militarily.

India, on the other hand, could not match China’s economic muscle, and given the sensitivity of the Indian Tamil political parties in helping Colombo, New Delhi could only help with rehabilitation of displaced Sri Lankan Tamils in the North and East of the country.

According to an official press release, issued after his second visit to India on Saturday, President Sirisena and PM Modi discussed the issue of fishermen from the two countries arrested for fishing in the other country’s territorial waters, where borders cannot be physically marked.

In the last few months, India announced three water projects in the country, apart from helping build over 50,000 housing units for Tamils in that country.

According to the Indian embassy website in Sri Lanka, “a number of new investments from Indian companies are in the pipeline or under implementation. Notable among them are proposals of Shree Renuka Sugars to set up a sugar refining plant at Hambantota Port ($220 million), South City Projects, Kolkata for real estate development in Colombo ($400 million), Tata Housing Development project along with the Urban Development Authority of Sri Lanka ($430 million), ‘Colombo One’ project of ITC Ltd. (it has committed an investment of $300 million, augmenting the earlier committed $140 million). Dabur has already set up a fruit juice manufacturing plant ($17 million) in May 2013.”

China offered equity in the Lankan public sector, whereas Sri Lanka has now offered equity to Chinese firms in infrastructure projects, in return for waiving some of the billions of dollars of debt. The Chinese government has been offered stake in infrastructure projects and in public sector utilities. Colombo has even received a Chinese offer of 500 million yuan as a “gesture of friendship”, local newspapers reported after the April visit by their prime minister to Beijing.

Simply put, China would have a bigger stake economically and strategically in Sri Lanka’s future. This is not to say that India will cease to be an important player. After all, the geographical position of Sri Lanka does not allow any government in Colombo to get adventurous when it comes to dealing with India. But widening Chinese footprint in South Asia, with its enormous economic strength in what is essentially India’s neighbourhood, is reason enough to cause concern in New Delhi about where its foreign policy headed.

Representational image. Reuters

South China Sea. Reuters

China is investing billions of dollars in infrastructure development in Sri Lanka, Maldives, Bangladesh and Myanmar. Pakistan has been an “all-weather” friend of China for decades.

In last two months, the Sri Lankan President has agreed to the Rajapaksa-backed China’s $1.4 billion project to build a port city in Colombo, the biggest ever single foreign investment made in the country. A new megapolis of luxury apartments, shopping malls, a marina and a Formula One racing track, will be built by Chinese state enterprise, China Communications Construction, on 575 acres of reclaimed land. Work that stopped after Sirisena’s election has resumed, and when ready, it will become a major shipping and financial hub in the Indian Ocean. China is a leader in reclaiming land from the sea and has done so for centuries. Recent western media reports stated that in contested South China Sea, the Chinese have reclaimed over 300 acres of land to build military facilities.

Lanka’s China-built Hambantota Port’s second phase development, costing $750 million, has been flagged off. A three phase project, when completed would make the Sri Lankan port, the biggest port in South Asia with 4,000 acres of service area, and infrastructure to accommodate 33 shipping vessels at a time.

President Sirisena today, backs Prime Minister Wickremesinghe, who declared at the end of his China visit in April that “the economic strategy between Sri Lanka and China for the next two decades has been laid down, and since we are going to be the hub of the Indian Ocean there is going to be a significant difference here”.

By end of 2016, the two countries will finalise a China-Sri Lanka Free Trade Agreement that would be formally signed next year, when the Chinese prime minister visits Colombo. Meanwhile, India’s efforts to get a comprehensive economic agreement with Sri Lanka faces strong opposition from that government.

It’s a matter of time before Hambantota Port becomes another Gwadar, a port city built by China where local Pakistanis are not allowed, and soon separate laws would govern the “free zone”. Already Chinese vessels and submarines make port calls in Sri Lanka, and now with a permanent Chinese naval base coming up closer in the Horn of Africa, Djibouti, the waters around India would witness a lot greater activity and surveillance by Beijing.

What can India do? India has little leeway beyond getting some concerns addressed, like in the case of the revived Colombo Port City project where some part of the land would be given to China on a 99-year-lease, and not on freehold basis as proposed earlier.

India’s neighbours desperately seek humongous amount of funding to develop their countries, and it’s their sovereign right. China has deep pockets, strategic vision and a well-thought plan to operationalise it. India’s economy is just one-fifth of China’s, as reminded by the RBI governor recently.

New Delhi could take the initiative to muster Indian corporates to invest in Sri Lanka and ensure that government-sponsored projects are implemented speedily. Colombo has already requested the Japanese government to take the initiative and help organise a donor conference this year to get commitments on rebuilding the war-torn country.

Given India’s civilisational links and a shared history with Sri Lanka, could New Delhi have taken the initiative to bring donor countries together on the issue of rebuilding?

Updated Date: May 15, 2016 14:52 PM

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