Sri Lanka is set to become a destination of choice among businesses looking to tap opportunities in pan-Indian Ocean trade due to its strategic location. Maithripala Sirisena, the country's new president, will have to carefully balance the conflicting interests of neighbouring India and the country's largest business partner-China - to sustain economic momentum.
On 15th February, Indian officials welcomed the new Sri Lankan president, Maithripala Sirisena, to New Delhi. The four-day visit to neighbouring India was Sirisena's first trip overseas since being sworn into office in early January.
Sirisena and India's prime minister, Narendra Modi, signed four agreements, including a bilateral deal on civil nuclear cooperation. These diplomatic efforts underline the countries' mutual intent to forge closer ties.
Relations between the two South Asian nations had turned increasingly sour during the presidency of Sirisena's predecessor, Mahinda Rajapaksa. The failure by Rajapaksa's government to establish reconciliation with the ethnic Tamil minority has resonated in India, which has a sizeable Tamil population itself.
Furthermore, the pursuit of closer ties with China has strained relations with India and put Sri Lanka at the centre of geostrategic rivalry in the Indian Ocean.
Sri Lanka's appeal to investors
Sri Lanka is strategically positioned in the Indian Ocean along the major shipping route that connects (South) East Asia with the Indian subcontinent, the Middle East and Eastern Africa. In a bid to revive the "maritime Silk Road" (MSR) - referring to an ancient series of land routes that connected China to the Mediterranean Sea - Beijing became a key supporter of the island's economy after the 26-year civil war ended in 2009.
When the Sri Lankan government became the target of global protests over alleged human rights violations against the Tamils, Beijing stood by Colombo. China's interests in Sri Lanka are largely strategic and commercial in nature, in particular, the access to resources in the wake of burgeoning energy consumption.
However, the visit of a Chinese warship and two submarines at the port of Colombo in October 2014 fuelled India's security concerns over China's diplomatic push in the Indian Ocean. Modi's administration has made no secret of welcoming the unexpected change in government and Mr. Sirisena's decision to make his first official trip to New Delhi - not Beijing.
Infrastructure development an attractive business
The surge in Chinese investments and government lending has helped Sri Lanka to make significant progress in its infrastructure development. The Chinese government and state-owned firms have assisted Sri Lanka in the modernisation of railways, the construction of expressways and the expansion of the country's maritime infrastructure.
Phase 1 of the $360 million project in Hambantota was completed in 2010. The project intends to transform the port into a major transhipment hub along one of the busiest shipping routes around the world. Moreover, an expansion of facilities is under way at the Port of Colombo.
In August 2013, the Chinese-owned Colombo International Container Terminal (CTCT) was added to the Port of Colombo at a total cost of $500 million. The new terminal makes Colombo the only port in South Asia that can accommodate 18-meter deep draft vessels, putting it in position to serve the Indian subcontinent, the Middle East and Eastern African states.
Two further terminals are currently under construction that will boost the port's container handling capacity 2.5-fold to approximately 12 million TEUs and make it one of the world's largest container ports.
To be continued...