Europe can bank on Sri Lanka

by Veronique Queffelec

“Sri Lanka has what it takes to be the wonder of Asia”. Friday, December 17, 2010.

Mahinda Rajapaksa, its President, relished the words of Ngozi Okonjo-Iweala, World Bank Executive Director, who recognised ipso facto the emergence of the country among booming economies.

It indisputably opened to the world after a 30-year conflict between the separatist battle of the Liberation Tigers of Tamil Eelam (LTTE) and the central government. Ended in May 2009, the war leaves a legacy of multiple forms. But today, given the growth forecasts of the former Ceylon and its geostrategic position, the country can’t be ignored.

Its President has given an exclusive interview to Entreprendre.

For the moment, in the context of human rights, some countries are turning their back to the island. Mahinda Rajapaksa emphasizes the paradox. “We are the only country in the world to have defied terrorism thanks to the army.” 30 years of suicide attacks, car bombs, killings, even the Central Bank has been subject to a bomb attack.

We have suffered a lot, unsuccessfully attempted to negotiate with LTTE, undergoing what the West suffers now. Then we did what we had to do. Some people understand, some people don’t. Yet, many nations seek our advice on how to eradicate terrorism with minimal damage. I think that the world woke up.”

Recently invited to Oxford Union, his participation was belatedly cancelled due to demonstrations of LTTE supporters. “I thought the United Kingdom was the mother of democracy and freedom of expression in the spirit of your philosopher, Voltaire - I do not agree with what you say, but I will fight until death to ensure that you have the right to say it”. This abortive speech addressed the defeat of the terrorists. The reconciliation, the development programs in the North of Sri Lanka, the destruction of railways, roads, hospitals ... And the 2 million dollars for the reconstruction.

Rapid economic growth

But now, Rajapaksa is looking to the future: “there can be no development without peace, and no peace without development. I continue to try to make this country a home for all of us; for those of us who live in Sri Lanka, as well as for those who live abroad. Unified, this country has a great future.”

That is also the point of view of various international institutions. “The way Sri Lanka overcame its past difficulties reflects the tenacity of the Sri Lankan people and the commitment of the leaders of the country”, continues Ngozi Okonjo-Iweala of the World Bank.

Now eligible for aid by the International Bank of Reconstruction and Development (IBRD) and the International Monetary Fund (IMF), the Sri Lankan Government has undertaken a strategy of investments and liberalization of the economy in order to achieve a medium-term growth of 8% per year. It is expected to have reached 7% in 2010 according to the IMF forecasts, after the 3.5% recorded in 2009.

“For the moment we do not need another loan from the IMF. Our reserves are good. We had requested it in a different logic than that of Greece or Spain. Our annual growth is currently at 6.5%.” “Now we are going to move fast.” Since Rajapaksa’s first election in 2005, the country has gone from all annual income of 1,000 dollars to 2,000 dollars per capita, and “now I want it to double” quickly.

The President would like to develop his ties with Europe and specifically France. “Sometimes France does not understand our positions very well. As far as we are concerned, we have always wanted a rapprochement between our two countries. The Sri Lankan Airlines fleet consists exclusively of Airbus planes.” And that fleet is expected to be increased. To the President, that is an undeniable sign of his attachment to France. But Boeing is obviously in the starting blocks for the next order.

Air transport is not the only priority. Sea transport is also essential, as are commerce and hubs (trade centres). Some recently adopted major tax reforms reduce import taxes on many capital goods, and taxes in the fisheries, agriculture and construction sectors.

“Our next special economic zone will be dedicated to the sea, banking on our titanium, oil and sand resources, our fisheries and all the richness of the marine world.” Special economic zones are planned in Trincomalee. Hambantota and Colombo. “We are one of the few countries in the world allowing investors to repatriate 100% of their investment. They are guaranteed by the Constitution.”

New businesses, including a division of Pearson and Mphasis, a technology company partially owned by Hewlett-Packard, should employ 2,000 people here over the next three years. But there are also “tremendous opportunities for small and medium-sized companies for which we have liberalized our foreign investments policy. We are expecting them in jewellery, clothing, including handmade garments, embroidery, lace, agriculture, and of course IT”.

To the question: will you dismiss anyone?, the President replied: “Why should we leave anyone behind? With English being widely spoken, a literacy rate of over 90 per cent and competitive salaries, Sri Lanka will transform its post-war economy and move from being an island producing tea and textile to an ultramodern small outsourcing centre. Nearly 50,000 people in Sri Lanka are employed in a form of outsourcing.

The exciting part in this sector is accounting. With the development of knowledge in the field of outsourcing and accounting, we are expecting to triple our revenues by 2015, to 1 billion dollars.” Long considered an unsafe destination in all respects, Sri Lanka has been elected as the second best island destination of the year. The New York Times has ranked it among the 30 best tourist destinations for 2010. Shangri-La is the first luxury hotel group to have settled there. The island’s hotel capacity will increase from 15,000 to 50,000 beds in 2016. Sri Lanka is also hoping to receive French hotels.

The significant potential of Sri Lanka’s oil reserves and its strategic location for oil trade probably explain the hyper-responsiveness related to the post war. Various pieces of satellite information shared with India indicate Cuenca de Cauvery deposits. The major oil deposits are situated in the north of the country, in the north of the straight line which links up Chilaw to Trincomalee from west to east. Studies carried out by the Geology Services of the United States confirm that Sri Lanka has one of the major oil reserves of Southeast Asia. Nearly 60% of the oil needs of India come from the Cuenca de Cauvery reserve.

Geostrategic importance

There is no doubt about the geostrategic importance of Sri Lanka. The north of the Indian subcontinent is destabilized by terror. The old “Silk Road”, which today serves as an access to the major energy resources in the Middle East, arouses keen interest. There is still an (almost) completely free zone in the south of the subcontinent: the shipping lanes along the coasts of Sri Lanka.

That did not escape China. “Some people say that I am close to China. But this China axis is LTTE propaganda. When the Chinese came here, they granted us loans. We bought their weapons and made no secret about it. We bought those weapons to fight the terrorists.

We bought weapons from China, India, Ukraine, Russia, Israel and even Hungary. Sri Lanka and its territorial waters are a place where all the waterways that connect the world converge. The new port of Hambantota (Magampura) will emerge as one of the largest activity centres of that kind in the entire region.

The leaders of several nations now want to visit it.” That port, located in the strategic south of the island and which has cost a billion dollars, was built by Beijing.

Sri Lanka has a key position, due to its location in one of the main sea lanes of the Indian Ocean. Because of the end of the conflict, the West has lost control of the Indian Ocean’s corridor through which 70% of oil and by-products circulate, and used by half of the world traffic of containers.

Europe, after much prevarication with India mainly over cultural misunderstandings, can now bank on Sri Lanka and avoid falling into the G2 binomial.

But it has to move fast: banking on a growing and fast profitability country, without neglecting an indisputable strategic and economic hub. Does the situation of our continent really leave us the choice to do without Sri Lanka?