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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Sri Lanka: Throwing the baby out with the bathwater

Sri Lanka: Throwing the baby out with the bathwater

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Equity Analytic
Equity Analytic

By Dr. Nalaka Godahewa

If you are asked to write an essay on the topic 'Development Opportunities of an Island Nation' with particular reference to Sri Lanka, what is the first thing that comes to your mind assuming you are an educated, sensible person with some common sense ?

Won't you immediately think of the unique geographical advantage that made our motherland world renowned in the past?
Ancient Sri Lanka was known to the greatest seafaring peoples or nations of the history including the Greeks, Arabs, Chinese and Europeans. The major sea route connecting the western and eastern Hemispheres is just a few nautical miles away from the southern coast of Sri Lanka. You may recollect that ancient Sri Lanka which was called Taprobane by ancient Greeks is prominently displayed in the 1st century world map of Greco-Egyptian cartographer, Claudius Ptolemy. In this map Sri Lanka is depicted as a vast island since it was considered more important than even India to the ancient sailors. The great Chinese Naval Admiral Zheng He who arguably sailed around the globe long before Christopher Columbus, visited Sri Lanka on six occasions in the 14th Century. At the Colombo museum, we still have a tri lingual stone inscription installed by Admiral Zheng He during his second visit to Sri Lanka. The Old Testament of the Bible refers to a sea port by the name 'Tarshish' from where King Solomon imported peacocks, monkeys, ivory and gemstones. Several historians argue this would have been a port in the Southern part of Sri Lanka and probably the Galle Port. Chinese literature of the 11th and 12th centuries refer to large merchant ships coming to Chinese ports from Sri Lanka. The ancient ports of Sri Lanka such as Jambukola, Mahathiththa, Gokanna, Godawaya were frequently visited by merchant ships from all over the world.

Sri Lanka's geographical location on the silk route was our main advantage in the past and it will work to our advantage in the future as well. No one can take that advantage away from us unless we give it away ourselves.

Sadly we are about to see that happening in the near future due to the downright short sightedness of our current leaders.
The case in point is the Hambantota Port where the current government is planning to enter into a contract with a Chinese company to lease the port in its entirety for 99 years, essentially robbing the rights of three generations of Sri Lankans. This was articulated in Parliament by none other than Wijeyadasa Rajapakshe, a member of the current cabinet.

Referring to the controversy surrounding the lease of Hambantota Port to the Chinese, Minister Wijeyadasa Rajapakshe pointed out that both the previous and current governments have their own justifications for their actions, but one should understand that leasing the port for 99 years which is equivalent to three generations is a very serious matter. He reminded the Parliament that China gave Hong Kong on lease to the British in the 19th century due to lack of money, but they were able to get Hong Kong back after the lease ended, because China had become a super power by then. "But it is unlikely that Sri Lanka will be able to do that," he said. The minister also said, the large area of land that is to be leased out to the Chinese along with the port consists of farmlands that could be used for cultivation. He argued that just because the government needed dollars, we cannot betray the rights of our people. "This is land that had been protected for 2,600 years with so many sacrifices. The people of this country have no other place to go and we will be second class citizens wherever we go. Therefore it is the duty of the rulers to protect our rights, our pride and our sovereignty," said the minister.

I am so glad that at least one minister had the courage to say the right thing, while a vast number of others kept mum on this national tragedy simply to protect their own personal interests.

Then there are some other politicians who ask the standard question, "Didn't Mahinda Rajapaksa also invite the Chinese?" Either these politicians are absolutely ignorant of the facts or most probably trying to mislead the public using traditional tactics. Mahinda Rajapaksa invited Chinese investments inside the port and in the free trade zone. He never offered to lease the port in its entirety.
If someone thinks that we should not have invited Chinese investment to the country, that person has no clue as to how the global economics work in this modern era. The global order is changing. The countries which looked up to USA and Europe for trade and investments in the past century are now looking up to China.

But that does not mean all countries are willing to sell their soul to get some Chinese money.
Remember what Malaysian Finance Minister Johari Abdul Ghani said when he was asked in January 2017 by some journalists about the huge Chinese investments in Malaysia. Ghani said "Malaysia will not end up like Sri Lanka, which was forced to lease its properties to China to cover its debts. But that is Sri Lanka and this is Malaysia."

This is what we call National pride which unfortunately is lacking in our country.
Previous government had planned to sign a supply operate and transfer (SOT) contract for the container terminal with a Chinese company for 40 years. Other than the container terminal, all other terminals and the 1,300 hectare industrial zone was to be controlled by the Ports Authority.

What the current government is trying to do is completely different. They are planning to lease out the entire port to the Chinese including a large amount of land for an industrial zone.
A framework agreement has been signed by the govt. with China Merchant Company to lease out the entire free port for 99 years for a payment of 1.12 billion USD on a 80:20 profit sharing basis. No other income will accrue to the Ports Authority for the first 15 years. Thereafter they will receive dividends for the 20% stake, provided dividends are declared by the company.

It is important for the public to understand the possible reasons behind this seemingly unfavourable transaction.
Though the government has not openly admitted, it is quite evident from various reports and statements available in the public domain that the government is currently facing a serious cash crunch. Since it came to power the foreign reserves have declined from USD 8.3 billion to below USD 5 billion. The rupee devaluation over the last two years is over 15%. Exports are down, FDIs are stagnant and government expenditure is on the rise. The solution policy makers of the current government see is selling State assets. They don't seem to care much at this stage whether these assets are of a strategic nature or not.
The truth came out at a recent press conference held by the Governor of Central Bank, Dr. Indrajit Coomaraswamy where he said. "Hambantota Port sale is crucial for Sri Lanka Government. If it does not materialize, the economy and the people will feel the burden. We also might have to take certain tough measures."

So it is quite clear that the government is selling our most strategic asset to Chinese to address a short term financial issue.
The opportunity Hambanthota Port offers to Sri Lanka is very similar to the advantage the Port of Singapore offers to Singapore. Both countries are strategically located along the major sea route connecting East and West. The visionary Prime Minister of Singapore Lee Kuan Yew and his team of administrators heavily invested in the Singapore Port since 1970s, having seen its potential to be a key economic driver of the country. They were not discouraged by the fact that even by 1974, after investing so much in the container terminals, the Port of Singapore was attracting less than four ships a month. None called the Port of Singapore a white elephant despite heavy investments. The Singaporeans knew that it was a long term investment. Since then the Port of Singapore has played a significant role in the development of Singapore, making it an economic miracle within one generation. The maritime industry currently contributes about seven per cent of Singapore's GDP. Today the Singapore Port is considered the busiest port in the world.

Hambantota Port has the same or perhaps greater potential than the Port of Singapore. What is required is a master plan to develop it to a world class port facility. Like Lee Kuan Yew, we need visionary leaders to continue to invest in this port and believe in its potential.

When the current government came into power, the leadership publicly declared that Hambantota Port was a white elephant and that it had to be privatized to raise the money to pay off the loans taken to build it.

This is another misconception. According to widely circulated information, the loans taken for the construction of this harbour was USD 450.7 million for the first phase, USD 67 million for the bunkering facility and USD 815.1 million for the second phase bringing the total to USD 1,332.8 million. The initial loan, one amounting USD 306.7 million for phase one was taken at 6.4% interest. All the other loans apparently were at 2% interest making the overall interest rate for the project approximately 3.1%. This is not at all high compared to current market rates. According to the repayment schedule, overall payment including interest comes to around USD 1,761.25 million. According to informed sources Ports Authority has already settled USD 498.53 million. The balance to be paid is around USD 1,262.72 million including the interest component. So here is the question. If the port has already settled closer to USD 500 million, it shows that the project is quite capable of settling its own debts. Then what is this hue and cry about a massive loan repayment?

The bitter truth perhaps is that Hambantota land lease has nothing to do with the loans taken to build the port. As Central Bank Governor openly admitted last month, the government desperately needs the proceeds of this transaction to survive the day.
What is about to happen with the lease of Hambantota Port is therefore one of the greatest betrayals of our future generations.
Unfortunately very few politicians, academics, professionals, entrepreneurs and clergy have realized this danger yet. That is why they keep switching their attention from one issue to another while the government is slowly but surely moving ahead with its plans.

Dr. Nalaka Godahewa is a former Chairman of the Securities and Exchange Commission of Sri Lanka and a former Chairman of Sri Lanka Tourism.

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