- Asserts South Asia nowhere near its potential in regional trade, calls for integration
- Lists border tax distortions, non-tariff barriers, connectivity costs and trust deficits as key barriers
- Outlines what Colombo is doing to facilitate greater regional integration and improved trade
- Says for Sri Lanka, Indian Ocean is path to progress; no way out other than exports
- BIMSTEC Coastal Shipping Agreement a priority; finalising Sl-Bangladesh coastal shipping agreement
Following is the address delivered by Guest of Honour State Minister for National Policies and Economic Affairs Dr. Harsha De Silva at the Second South Asia Maritime and Logistics Forum held in Dhaka, Bangladesh recently
Your Excellency, Prime Minister Sheikh Hasina, distinguished ladies and gentlemen, I am honoured to be here at this very important conference at an exciting time for Bangladesh.
Even though I have been to Dhaka many times since 1997, this is the first in my official capacity as a Minister of the Government of Sri Lanka. And let me tell you Madam, I am most impressed at how Bangladesh is developing under your astute leadership. Not only your economy, but also your excellent cricket team!
It was only yesterday that the World Bank released a well-researched report called the ‘A Glass Half Full: The Promise of Regional Trade in South Asia’. Given this conference is about maritime logistics issues in South Asia I thought I would touch upon the main message contained therein.
What the Report says is that we in South Asia are nowhere near our potential in regional trade. In fact, given the proximity and size of our economies, the authors conclude that we should be trading three times more among ourselves than the current levels.
It shows that the cost of trade is disproportionately high in our region; 20% more than country pairs in ASEAN and three times higher than corresponding costs among NAFTA, renamed USMCA countries.
Consider the SAFTA. We all know the SAFTA is still far from achieving the goal of tariff-free trade. Most of us have lowered tariffs, but at the same time, many of us have adopted opaque para-tariffs contributing to SAFTA’s underperformance.
Categorising large numbers of HS codes in to sensitive lists, various port restrictions and tough visa regimes have all added to this suboptimal outcome.
Integration of trade among our South Asia must be looked at as being complementary and as a stepping stone for deeper global integration. I don’t have to repeat here that such a strategy would not only create more wealth in all our nations, but, allow our people to consume at much more affordable prices than at present.
Barriers to regional trade
Madam Prime Minister if we are serious about regional trade, then, we must consider the barriers to achieving our objective.
The first is, border tax distortions; the audience this evening is well aware of these distortions. Related to this is to rationalise para-tariffs and sensitive lists.
Second, we must reduce as much as possible non-tariff barriers. Here, improving information flows and establishing procedures and infrastructure; say, for improving the efficiencies in registration, laboratory testing and authorisation, etc. is absolutely essential. We hear stories of how efficient players in one country become totally inefficient in another in our own region due to these non-tariff barriers.
Third, connectivity costs, and in our context this evening, in maritime logistics. Here, besides infrastructure inadequacies, businesses have to deal with complex customs procedures and heavy compliance costs, sometimes extracted as rents by corrupt officials.
And fourth, trust deficits. We must address the trust deficits among our nations by reinforcing the virtuous circle between trade and trust.
Trust promotes trade and trade fosters trust, interdependency and peace.
Madam PM I wish not to dig in to this matter, but we all know that our governments must together play our part in eliminating this trust deficit.
Let me take an example. It has been more than a decade since Sri Lanka and India started to deepen our FTA to include services, investments and technology via a more comprehensive agreement termed ETCA, or Economic and Technology Corporation Agreement.
But, protests by vested interests with strong backing continue to mislead the general public using trust related arguments thus delaying its implementation. Many a time, the arguments put forward are warped, but they appeal to the nationalist emotions which is politically favourable.
But, there are many success stories as well. The WB report highlights the program by the governments of India and Bangladesh through local border markets called ‘haats’ that helps to recapture natural trade at the border before hard boarders were established. It provides data on how prosperity is resulting from the trust being built via trade and vice versa.
What Colombo is doing
Madam PM, let me now take a slightly broader approach at this point and speak a few words on what we are doing in Colombo to facilitate greater regional integration and improved trade within our neighbourhood and outside.
For Sri Lanka the Indian Ocean is its path to progress. For millennia, Serendib, Taprobane, Ceyon, Sri Lanka, whatever we were referred to at given points in time, the island was a trading emporium.
Whether it was the trade of grain, elephants, exquisite gems and jewellery or spices or according to historical chronicles, even liquor, we were a hub. From the early days traders engaged in both domestic as well as transhipment cargo.
How the legendary King Parakramabahu declared war against King Alaungsithu of today’s Mynamar in the 12th century over a trade dispute involving elephants demonstrates the extent to which regional trade was important to Sri Lanka.
How Chinese treasure voyages interacted with Sri Lanka in the 15th century, and the conflicts thereupon between Admiral ZingHe and regional rulers are well known.
Of course, we were an important trading post for the East India companies during the 450 years of colonisation.
So, the ocean and Sri Lanka has been, and are, and will continue to be, intimately connected.
Why this is important is because, while Sri Lanka is identified as a South Asian nation, for us, we are more an Indian Ocean nation.
Successive governments prioritised policy to develop Sri Lanka in to a leading maritime, logistics and distribution hub in the IO.
Our Government has set specific targets to place the Port of Colombo within the top 20 container ports in the world by 2020 and to more than double the maritime contribution to GDP by 2030.
At present Colombo is the only deep-water container port in South Asia that is able to accommodate large vessels of 18,000 TEUs or more. The CICT Terminal has a depth of 18 meters, compared to 14 meters at India’s largest port Jawaharlal Nehru, and nine meters here at Chittagong.
Being the primary transhipment hub for South Asia, Colombo is also the most efficient port in our region. Both SAGT and CICT, with performance of about 35 moves per hour per crane, exceed all other SA ports in terms of productivity. The port also records the lowest turn around and idle time.
While many ports have seen lacklustre growth the Port in Colombo saw significant progress and has now become the 25th busiest port according to independent analysis.
Our policy of PPP at the Colombo Port has been most successful, and representatives of both private terminals are here in the audience.
While we are aggressively expanding our capacities by, I hope sooner than later, bringing on line the East Terminal at Colombo the West thereafter and also the new North Port, north of Colombo, we are fully cognisant of the multitude of challenges we face both due to policy delays as well as competitors, particularly from India.
The Port of Hambantota, in the deep south of the island, just at touching distance to the east west sea routes, is a new international port in Hambantota. This port has recently gained attention, or notoriety should I say, due to the controversy of Chinese debt that had to be incurred to build it and the subsequent lease of the facility on a 99-year lease to two JV companies jointly owned by China Merchant Group and the Ports Authority of Sri Lanka.
HIPG is in the process of developing Hambantota as a multi-purpose port which will provide a variety of services such as handling containers, break bulk, passenger, oil, bulk terminal, gas and project cargo.
Just a week ago, Laugfs Gas, a pioneer in Sri Lanka’s power and energy sector, who is also a significant player in the LPG market here in Bangladesh signed up with HIPG as the first enterprise to use the facility in Laugh’s vision to create an energy Hub at Hambantota.
Once their large LPG storage complex is commissioned in November 2018, for commercial operations, it is expected be the largest and most modern LPG related infrastructure in the Indian Ocean rim area.
HIPG is expected to service the massive industrial area, earmarked to be 50 sq km, where we hope businesses will establish manufacturing plants to take advantage of FTAs we already have and are in the making; particularly with India, China and also duty free access to the EU via GSP plus.
This port would help plug Sri Lanka into regional and global production networks in time to come with the innovative structure we have created, as opposed to what this port was; an absolute white elephant.
And of course, we have the Trincomalee Port in the north east with access to a massive oil tank farm built during World War II.
Trinco is one of the largest natural harbours in the world and the available water and land area is about 10 times as the Port of Colombo. But Trinco currently handles little commercial traffic.
At present our Government is in the process of re-developing Trincomalee as a metropolis growth centre. Along with India and Japan we have completed a zoning plan to utilise the huge amount of existing unutilised land under its jurisdiction for productive maritime logistics purposes.
Collaboration with Bangladesh
Madam PM, I wish to touch briefly on how we are collaborating with your nation.
For us, the Bay of Bengal is very important.
With us recently assuming the Chair of BIMSTEC for the next two years, we plan to accelerate the many pending matters that would help improve trade among the members; among which is prioritising the BIMSTEC Coastal Shipping Agreement which is currently being discussed.
In the meantime, I am happy to note that Sri Lanka and Bangladesh have almost finalised a bilateral coastal shipping agreement to boost trade, investment and maritime connectivity between Dhaka and Colombo. I understand the agreement would be signed within days.
May I take this opportunity to applaud the work of your High Commissioner in Colombo Riaz Hamidulla, known to be the hardest working diplomat in Colombo. He has been pushing this and many other initiatives very hard and is delivering results.
The coastal shipping agreement will help increase the frequency of feeder services between the ports of Chittagong and Colombo cut down both the transhipment cost and time, boosting competitiveness.
For Bangladeshi exporters, it will provide even better value with connectivity with main shipping liners at a lower cost.
As the apparel industry relies on speed-to-market, savings in transit time will have a significant impact on the supply chain. For example, practitioners agree that shipping cargo westbound via Colombo as opposed to Singapore would instantaneously reduce four days of sailing time.
Bangladesh exporters will also have the opportunity of consolidating cargo in the South Asian region which will provide consolidation benefits to both the shipper and the consignee.
We in Sri Lanka are anyway moving ahead with necessary policy tweaking to encourage greater multi-country consolidation (MCC) services as competition and changing policies among us and others erode Colombo’s advantage as merely a transhipment port.
I am aware of the limitation of time, this will not delve in to any more of the plans that we are currently implemnting to bring development to the people of Sri Lanka, but note here that the most significant of the Government’s game plan to transform SL as the hub of the Indian Ocean is the National Export Strategy which includes a tailor-made logistics strategy to address the country’s strengths and weaknesses in order to maximise opportunities and minimise threats to the NES.
SL’s logistics strategy identifies SL as a multimodal logistics hub providing integrated services and facilities.
Working to create much bigger trade flows
Madam PM, as a region, to bring prosperity to our people, I am certain that you agree with me that we must all work towards creating much bigger trade flows among ourselves.
As the WB study that quoted at the beginning mentions we can grow 200% from where we are if we can address the major barriers; and they are 1. Border tax distortions, 2. Non-tariff barriers, 3. High connectivity costs and 4. Trusts deficits.
We in Sri Lanka have begun a focused program to improve our export performance by addressing each of the points that I highlighted.
In fact, we have no way out other than exports; while many nations are facing enormous pressure on their currencies, it is those countries with weak current account balances who are hit the most; including Sri Lanka.
Unfortunately for us, our goods and services exports to GDP fell from almost 40% to 20% in the decade before we took office and we have finally managed to turn the trend around. But a lot more needs to be done; our targets are very ambitious.
For this reason alone, expect Sri Lanka to carry though the difficult liberalisation that is necessary in the maritime and logistics industry as I had mentioned before so that we can improve our trade to GDP ratio to a level that helps us on a steady path of growth.
Madam PM, I invite your Government to engage with us in a dialogue to map out a strategy to take advantage of the changing landscape and commit to liberalise the industry in such a way that our citizens can benefit from enhanced trade among our nations.
I thank you.