Elevating Sri Lanka’s bilateral economic relations with India

Minister of Development Strategies and International Trade Malik Samarawickrama 

Ladies and gentlemen, it is a great pleasure to be here with you today. I am indeed grateful that you have taken time from your very busy schedules to be present here. I am well aware that all of you have many competing claims on your time. I am also grateful to the CII for arranging this interactive lunch. 

The multifaceted relationship between Sri Lanka and India is rooted in deep civilisational links, which stretch back many millennia. 

Today, India is Sri Lanka’s largest trading partner; ranked first in terms of the source of imports and the third largest export market. It is also ranked fifth in terms of FDI, which averaged only $ 54 million in 2013-15. For India, Sri Lanka is the largest trading partner in SAARC, as well as, the largest export market in the South Asian region.

I believe we can do far better in terms of attracting investment from India. In my view, I am confident we are creating conditions, which will be conducive for leveraging the trade – investment nexus in a positive way. This is also the best way to address our large bilateral trade deficit with India. 

It is my firm conviction that the time is very opportune to explore very aggressively the ways and means of elevating bilateral economic relations between our two countries to a much higher level. 

Strengthening bilateral economic links

There have been a number of developments, which have improved the overall landscape for strengthening bilateral economic links. 

First, Indo-Lanka relations are excellent. The transformational phase in our bilateral relations began last year with the formation of a new government in Sri Lanka. President Maithripala Sirisena paid a State Visit to India, in February 2015, which was his first overseas visit after assuming office. Prime Minister Modi’s visit to Sri Lanka, in March 2015, was the first bilateral visit by an Indian Prime Minister in 28 years. Prime Minister Ranil Wickremesinghe visited India, in September 2015, after his victory in the Parliamentary Elections in August. The momentum generated by these high level visits continued this year, with President Sirisena visiting New Delhi in May. On the 18th of last month, President Sirisena and Prime Minister Modi connected through a video link and jointly declared open the renovated Duraiappah Stadium in Jaffna. 

We are also grateful for the SWAP arrangement provided by the RBI which boosted our external reserves at a difficult time. 

Secondly, negotiations are underway to transform the existing Indo-Lanka FTA into a comprehensive Economic and Technology Cooperation Agreement. The intention is to deepen the current agreement in goods by reducing the negative list on the basis of less than full reciprocity and widen it to include services, investment, technology and training. This will clearly open up new opportunities for Indian and other foreign investors to locate in Sri Lanka to access the markets of the fastest growing large economy in the world on a preferential basis. 

We are also negotiating a new comprehensive FTA with China and invigorating our existing FTA with Pakistan.

With preferential access to both India and China, Sri Lanka will be well-placed to act as a bridge for Indian investors seeking to penetrate the Chinese market on a preferential basis. 

The FTA with Pakistan also provides an opportunity for Indian investors to access that market on a preferential basis by locating in Sri Lanka. Intuitively, there must be possibilities to re-direct some of the Indo-Pakistan trade currently transiting through Dubai. 

Sri Lanka’s Agreements with India, China and Pakistan will give companies located in Sri Lanka preferential access to a market of about three billion people. One could argue that this will be our Unique Selling Point USP. By this time next year, all these negotiations should be completed. 

In addition, we are confident that the EU GSP+ will be restored in about six months. Of course, a separate agreement will now have to be reached with the UK, which is the destination for about 10% of our exports. We anticipate no difficulty in doing so.

We are also about to launch negotiations on a FTA with Singapore and to initiate a five-year program to boost trade and investment with USA. 

In addition, possible FTA’s with South Korea, Malaysia and Turkey are in the pipeline. 

Thirdly, in the past, poor infrastructure in our two countries made it difficult to take advantage of geographical proximity due to high transport and transaction costs. The ongoing improvement in roads, ports and airports in both countries is addressing this problem.

Fourthly, the improving infrastructure also makes it more feasible for Mr. Modi’s ‘Make in India’ strategy to create opportunities for companies based in Sri Lanka to plug into new value chains of domestic companies and multinationals operating in India. This can replicate what has happened in East and South East Asia, where the rise of first Japan and then China contributed significantly to the economic transformation of countries in those sub-regions through production sharing networks. Being located 20 miles off the coast of India, Sri Lanka is well placed to take advantage of such opportunities, particularly, in the fast-growing Southern states. 

Economic reform agenda

Let me now turn to our Unity Government’s economic reform agenda. We are framing outward-looking trade and investment policies, which aim to revitalise Sri Lanka’s export competitiveness and integrate the country more closely with the region and the rest of the world. 

Crucially, we are committed to stabilising the economy with assistance from the IMF. The highest priority is being given to fiscal consolidation to address the main source of instability in the system. In addition, the Central Bank of Sri Lanka is taking steps to anchor monetary policy on inflation targeting. We are confident the macroeconomic fundamentals will become stable. 

We are also in the process of implementing a series of reforms to uplift the country’s trade and investment performance. 

A new trade policy framework is being formulated, which focuses on reducing the anti-export bias in our policies. Para tariffs are being reviewed and the Central Bank will manage the exchange rate flexibly while avoiding high volatility. These reforms are being complemented by improved trade facilitation, which will enable Sri Lanka to capitalise on its strategic geographic location and excellent port facilities to become a distribution and logistics hub. Already, Colombo is India’s largest port, with 75% of the tonnage handled being transhipment cargo. A concerted effort is also being made to move to a single electronic window for customs clearance. 

We are also undertaking a number of measures to strengthen the investment climate. The investment laws are being reviewed to modernise them. A one-stop-shop has been established at the BOI. The BOI is moving beyond facilitation to attach higher priority to investment attraction, with particular attention being paid to attracting anchor investors in key sectors. There is a concerted process underway to improve Sri Lanka’s ranking on the World Bank’s Doing Business Index. 

Emerging investment opportunities

Let me now devote the rest of my remarks to give you a flavour of the emerging investment opportunities in Sri Lanka. The concept note that the CII has circulated to you captures these opportunities very well. So I will be brief to have more time for interaction. 

There are a number of area development programs, which will be at the centre of our Government’s concerted push to accelerate growth and generate productive employment. 

The Western Region Megapolis Plan (WRMP), in the area around Colombo, envisages 142 projects valued at over $40 billion to be implemented over 15-years. The Master Plan was prepared by Surbana Jurong of Singapore. The Colombo Port City Project, involving reclamation of 269 hectares of land from the sea, will also be in this area. It will have an International Financial Centre governed by UK Law. There will also be area development programs for Hambantota in the South; Kandy in the Centre; Trincomalee in the East; and Wayamba in the North West. 

These programs will generate enormous investment opportunities in various forms of infrastructure; transport; real estate, both commercial and residential, including large-scale affordable housing programs; zones for financial and IT-enabled services; logistics, where we are upgrading our ports and airports; manufacturing, where a series of industrial zones are being established; and training and skills development. 

Let me emphasise that most of this will be done through private investment. There will also be a role for PPPs including BOTs. 

On manufacturing, we would welcome Indian interest in developing and managing an Industrial Zone. Automotive components to plug into the supply chains in South India and elsewhere; pharmaceuticals; and light engineering are areas, which offer potential. We are ready to provide the land. 

I must also emphasise that we are attaching the highest priority to rehabilitation and reconstruction in the former conflict–affected areas, as a means of promoting lasting reconciliation. Indian businesses can play an important role in advancing this agenda. Infrastructure development, housing and livelihood creation are urgent priorities. For the latter, IT-enabled services and investment in the Atchuveli Industrial Zone are promising leads. 

Before I finish, I should also point out that Sri Lanka has enormous potential as a tourism destination. Investment opportunities are considerable in this sector. India is ranked number one as a source of tourist arrivals into Sri Lanka. Much more can be done to leverage the attractiveness of Sri Lanka as a destination for Indian tourists, including through promotion of the Ramayana Trail. 

Our Government is taking a number of positive measures to improve investor confidence, strengthen the business environment and make Sri Lanka an attractive destination for FDI. We see a major role for Indian FDI in our development process. 

Let me conclude by reiterating that the benefits of investing in Sri Lanka include its resilient economy; supportive Government policies; its educated workforce; strategic location; preferential access to large markets; fast developing infrastructure; and an increasingly vibrant business environment. 

Later this month Prime Minister Ranil Wickremesinghe will be making a statement on the Government’s five-year plan to transform the economy and generate one million jobs. This will provide a coherent framework for our plans in the medium-term.

Let me conclude by informing you that the 16th World Export Development Forum, the annual flagship event of the International Trade Centre, will be held in Colombo on 12-13 October. The theme of this global conference is ‘Trade for Success: Connect, Compete and Change’. This would be an ideal opportunity for representatives of Indian companies to interact with their Sri Lankan counterparts. I would like to thank the CII for the initiative taken to send a delegation of CEOs to this Forum. 

Thank you.