China Sri Lanka economic cooperation agreement and opportunities

China Sri Lanka economic cooperation agreement and opportunities

Sri Lanka and China entered into a framework agreement on investment promotion, economic and technical cooperation during the visit of Sri Lankan Prime Minister to China. The agreement was signed by the Ministry of development strategies and international trade of Sri Lanka and Ministry of commerce Sri Lanka. This follows an earlier MoU signed between the same ministries on April 07 of 2016. The Minister of Development Strategies and International Trade Malik Samarawickrama had presented the agreement to the cabinet approval and the agreement is titled “Outline of Medium and Long-term Development Plan for Investment, Economic and Technological Cooperation”
This agreement is envisaged to include a number of fields and includes establishing transparent legal foundations, favorable investment conditions and improving the general investor and business climate in Sri Lanka. The agreement focuses on areas such as agriculture, manufacturing, energy, tourism and urban construction among many other areas. Among the areas that will be the focus of this agreement, number of projects have been identified as priority projects.
Among the priority works, the Hambantota port development, Rathnapura and Central expressways as well as Pollonaruwa development project can be identified as the key projects. It is estimated that the cost of the projects listed could reach US$ 2.76 billion excluding the costs for the port city, Hambantota port and certain water supply projects.
The agreement has also covered commercial financing while also ensuring preferential loans play a larger role than they do right now. Also, the establishment of financial institutions that will aid both countries has also taken a key role according to sources. Furthermore, it is expected that China will play a large role in devising investment policy of Sri Lanka including areas in land, taxation, visa and working permits with the objective being enticing more and more Chinese companies to invest in Sri Lanka. The agreement will likely strengthen Sri Lanka’s position as a key stakeholder in China’s Belt and Road initiative and will ensure Sri Lanka’s vision of becoming a hub will be one step closer to reality.
The agreement is expected to encourage a massive influx of Chinese companies entering Sri Lanka as well as number of government projects receiving a much-needed boost and due to the vast scope covered by the agreements it can also be expected that the growth factor will be spread to a wider number of sectors of the economy.
As agriculture is among priority areas it can be expected that Chinese companies will become involved mainly in the sector in construction of various agricultural infrastructures than being involved directly in the sector. In terms of developing infrastructure, it is worthwhile to look closely towards the announced government projects such as Heda Oya, Maduru oya right bank channel and Thalpitigala reservoir of which the latter has been awarded to China Synohydro Co. Ltd and the other projects too are backed by Chinese funding. As these projects signify some of the key projects that the government is undertaking, it can be expected that Chinese assistance will be sought in these areas. Maduru Oya project will aim to develop drinking water and irrigation for the districts of Pollonnaruwa and the contract was signed last October between China CAMC Engineering and the Ministry of Mahaweli Development and Environment.
According to various sources around 12,000 farmer families will be benefited through this programme alone. Additionally, this project will also bring into circulation 39,000 hectares and it is expected that the road network around the area to also be upgraded and plans for a sugar cane factory and environmental tourism in the area has also been suggested, which will present new opportunities for a multitude of investors. Thalpitigala Reservoir is expected to generate around 51.3 GWh of electrical energy which will add to the national grid to supplement the power requirement nationally as well as an additional supply for upcoming industries. Also, it is expected the agreement will assist in establishing an Agro Economic Centre project as well.
Another area that has been identified as a priority area is Manufacturing, due to Sri Lankan government trying to transition Sri Lanka to a manufacturing economy. Especially the proposed Industrial Parks in the country will play a key role in attracting Chinese investment and therefore opportunities will be ample around Industrial Parks and for industries which can benefit off of this agreement. Sri Lanka’s interest in raising the role manufacturing plays in its present economy is heavily reliant on industries such as Rubber, Textile, Construction, electromechanical manufacturing and the involvement in these sectors can be expected to arrive mostly in terms of technical expertise and personnel exchanges. However, even with such a wide scope it can still be expected that the proposed Industrial Park in Hambantota will be the key focus. Any investor that will engage with the Hambantota Industrial park or in surrounding areas will therefore be likely to benefit more in the medium to short term due to the focus it will undoubtedly receive.
Through this agreement it is expected that the Sri Lankan and Chinese governments will be involved heavily in the development of the transportation infrastructure. The ports, especially the Hambantota Port; operations, shipyard, operation of oil area and docks as well as oil refinery will be key in these works. Also, this would contribute heavily to the development of the expressway network primarily the Central Expressway and the Rathnapura Expressway. Both the expressways are considered key in terms of upgrading transportation infrastructure of the country and the Chinese investment and involvement is likely to fast track the completion giving many industries much better infrastructure to rely on sooner. Creation of jobs and businesses being able to reach other parts of the country more easily would be a benefit that many existing entrepreneurs as well as potential investors would find enticing. Also, it is expected that the agreement would place significant importance on construction of a new railway track from Kurunegala to Habarana via Dambulla. This project is also a part of “Let’s awaken Polonnaruwa” development programme and is expected to link people in eastern and north provinces to Dambulla Economic Centre to have better access to a marketplace. This would present a significant boost to the industries based out of eastern and northern provinces as Dambulla signifies a key economic centre of the country.
Energy and Electric Power too will play a key role in the agreement with particularly expertise being shared by the Chinese counterparts to uplift and maintain the power grid of Sri Lanka especially in terms of renewable energies as well as hydro power. As Sri Lankan government pursues renewable energy as a solution for power both domestic and industrial Chinese knowledge in engineering, construction and management along with Investment will represent a significant assist to a sector which is still only recently given mainstream attention. Industries and businesses that are in operation in Sri Lanka would have the opportunity to tap into the knowledge that will be shared with Sri Lanka and would be able to craft a more robust and sustainable structures in Sri Lanka. Also, the Refinery in Hambantota as well and the recycle power station in Hambantota port will also be of critical importance within the agreement.
China has increasingly attained the status of an information and communication superpower in the modern world and the inclusion of projects in the information and communication in the agreement is a sign that Sri Lanka is trying to leverage China’s position and knowledge in developing Sri Lanka’s own industry. The agreement in this area is expected to be largely cooperation on international levels such as in the International Telecommunication union and to introduce new advances of technology in Sri Lanka. However, a benefit from this would likely to be the investment for the telecommunication industry in Sri Lanka, which is a very limited market and thus has hampered development of telecommunication companies. Investments in the industry would allow Sri Lankan telecommunication companies to expand their operation overseas and perhaps into many other areas beyond voice and data services.
Sri Lanka currently has undertaken a number of urbanization initiatives as well as various projects to uplift the public services and this agreement could potentially transform many such industries. A particularly important subsector that this agreement could potentially affect is the housing initiatives conducted by the government as well as commercial property development by Chinese Investors. Also, the Chinese backed Colombo International Financial City will play a key role in these developments as the value of the real estate in the Financial city will be an enticing prospect for any investor.
Another area that can be surmised as to be included in the agreement could be tourism as Sri Lankan government is increasingly expanding its search for investors to add significant headwind to Sri Lankan tourism Industry. China could prove to be a valuable partner in attracting both Chinese tourists as well as attracting Chinese based globally acclaimed hotel chains to operate within Sri Lanka. It can be expected that Chinese backed investors in the hotel arena will view Sri Lanka as an attractive option both due to government backing and increasingly strengthened relationships. Also, Sri Lanka will become an attractive option for tourists worldwide with many landmark projects nearing completion in Sri Lanka.

OSL TAKE

Sri Lanka is in a position with this new agreement to continue moving forward with a strong ally in China for its development projects. It is particularly noteworthy that this agreement comes within weeks of signing a similar type of agreement with India. This outlines the governments commitment to working with regional leaders and enticing them to support Sri Lanka in its development. This also outlines the government’s commitment to maintain a growing economic yet neutral relationship with two of the biggest leading nations of the world. The neutrality will go a long way towards ensuring stabilization of the economy as well as diversify the risk element of depending on a larger nation for development.

Sri Lankan based industries will receive a significant boost due to the many infrastructure projects that the Chinese backed investors will carry out and for a potential investor this would mean significantly upgraded and newer infrastructure being in place for conduct of operations. Also, it is expected that a free trade agreement will come into effect within the year with China with the Sri Lankan Ambassador to China expressing that the best way to celebrate 60th year of the establishment of diplomatic relations with China is by signing a free trade agreement. Such an FTA would further the benefits and the level of integration accomplished by this agreement and would further incentivize both Chinese Investors to invest in Sri Lanka and would open up newer pathways for Sri Lankan business to tap into a much wider market place and a pool of investors.

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Article Code : VBS/AT/14062017/Z_4

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