Lakshman Kadirgamar Institute launches new study on the Indian Ocean economy

The world is currently undergoing major economic and geopolitical transformations. While economic power continues to shift from the West to the East, rising populism and escalating geopolitical tensions in the South China Sea pose risks. These risks are being compounded by rising oil prices, capital outflows, and a simmering economic crisis in emerging markets. Meanwhile, the Indian Ocean - a crucial artery of global maritime energy and goods trade - seems below the radar. When considered as a single unit, the 28 economies touching the Indian Ocean across South Asia, East Asia and the Pacific, and Africa and the Middle-East can play a role in fostering global prosperity and peace in a new world order. 

To highlight their collective economic impact, the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) published a major study entitled ‘Is the Indian Ocean Economy a New Global Growth Pole?’, written by Ganeshan Wignaraja, Adam Collins, and Pabasara Kannangara. The LKI Working Paper, which is available for download at www.lki.lk, examines the initial conditions for trade-led growth in the Indian Ocean, and the trends in shipping, trade flows, foreign investment, and GDP growth. It then makes projections and explores pressing policy challenges. It concludes with national and regional-level suggestions to realise the region’s economic potential.

The study highlights that:

• The Indian Ocean economy has a rich natural resource base and strategically vital sea-lanes that provide conducive initial conditions for trade-led growth.
• Current trade-related trends in the region are positive, demonstrating an increase in shipping, trade flows and FDI. The region’s economy is projected to continue to grow and trade much faster than the world economy. But development gaps between regional economies and inequality remain challenging. 

nSustaining the region’s performance requires, among others 

1.Investing in port development and customs modernisation

2.Gradually reducing barriers to trade in goods, services trade and investment and putting in place trade adjustment programmes

3.Setting up an Indian Ocean Development Fund to address development gaps between economies

4.Strengthening regional economic institutions like the Indian Ocean Rim Association (IORA) and consolidating bilateral free trade agreements (FTAs) into a region-wide FTA.

Strategically located Sri Lanka has the ambition of developing into a regional trading and logistics hub to complement Dubai and Singapore. Whether this is achieved depends partly on how well Sri Lanka integrates with the vibrant Indian Ocean economy. This study aligns with LKI’s mandate of conducting independent research on Sri Lanka’s international relations, strategic interests, and economic development. By highlighting the Indian Ocean as the ‘next best economic thing’ amidst an uncertain global environment, this LKI study highlights its contribution to research and knowledge sharing in Sri Lanka and beyond. 

LKI is a think tank that analyses Sri Lanka’s international relations and strategic interests, to provide insights and recommendations that advance justice, peace, prosperity, and sustainability. The Institute reflects the vision of the late Hon. Lakshman Kadirgamar, by promoting the country’s intellectual profile in foreign policy research and engagement. For more details visit www.lki.lk.