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Lankan ports need investment and China steps in



Minister of Ports, Shipping and Aviation Nimal Siripala De Silva (5th from left) and China Merchants Group Chairman Miao Jianmin (6th from left) with other dignitaries at the signing of an agreement with the Sri Lanka Ports Authority to jointly build the South Asia Commercial and Logistics Hub at Colombo Port, Sri Lanka, April 21, 2023.

By Rathindra Kuruwita

Despite innumerable warnings from the U.S. and its allies that China is the root of Sri Lanka’s economic woes, and that Chinese infrastructure development projects create security dilemmas for India, Colombo went ahead recently to sign an agreement with a China Merchants Port Holdings (CMPH)-led consortium to build a $392 million South Asia Commercial and Logistics Hub (SACL) at the Colombo port.

This project is said to be South Asia’s largest port-related logistics complex. A press release to mark the agreement said that the project “aligns with Sri Lanka’s national development strategy to transform the country into a major logistics center, identified as a key sector and a driving force for economic development in the National Policy Framework (NPF) 2019.”

Sri Lanka Ports Authority (SLPA) and private sector firm Access Engineering each hold 15 percent stakes in the project as well. The logistics hub is an eight-story, 5 million square foot facility with a storage capacity of 530,000 cubic meters (CBM). The construction of the facility is likely to commence in the second half of this year and be completed by the end of 2025.

The SACL is situated next to the Port City, also funded by the Chinese and the CBD Business Centre. It will also be linked to the Bandaranaike International Airport by the Port Access Elevated Highway.

“The five million square foot complex will offer the full gamut of logistics-related facilities and services such as Less than Container Load (LCL), Multi-Country Consolidation (MCC), Container Freight Station (CFS), General warehousing and various other value-added services,” the press release said.

The establishment of the center will improve the Port’s logistic and warehousing facilities and services, thereby boosting its competitiveness and reinforcing its position as a hub.

Sri Lanka aspires to be a regional logistics hub and over the past few decades, successive governments and private sector partners have poured billions of dollars into its ports. However, despite Sri Lanka’s lofty ambitions, its ports lag behind many countries and significant investments are needed to make it competitive.

In April, the World Bank released its Logistics Performance Index (LPI) and Sri Lanka scored an overall LPI score of 2.8. India had a score of 3.4. Sri Lanka also had a Logistics competence and quality score of 2.7 and an Infrastructure score of 2.4. Sri Lankan scores were similar to Rwanda and Solomon Islands and even Namibia has a better overall score.

Sri Lanka’s Sunday Times noted that the country’s port facilities are “nowhere near the top 10 high-caliber performers in world trade logistics services, although a parade of national leaders is continuing to peddle the myth of a global or even regional logistics hub, cargo hub, shipping hub and the like.”

In the World Bank’s Container Terminal Performance Index-2021, Colombo was placed 24th, higher than Jawaharlal Nehru Port (54) and Chennai (79) in India.In the past few decades, a port’s commercial success stems from a productivity advantage in conventional cargo-handling services, the value-added services it offers, or a blend of both.

Thus, the most productive ports are the ones that can handle large volumes of cargo and/or significantly reduce unit costs through efficient management and customers view value-added logistics services as an integral part of the supply chain. Given this trend, it is also obvious that in the future only the ports that have advantages in productivity and value-added service will prosper, while the ports that cannot will fall by the wayside. Therefore, Sri Lanka needs significant investments in its ports to ensure that they remain competitive and emerge as logistics hubs.

However, commercial viability is not the only reality in which Sri Lanka operates. Sri Lankan geopolitical analyst Asanga Abeyagoonasekera, who is a senior fellow at The Millennium Project, told The Diplomat that while the Chinese investments make sense in a commercial sense, they often draw the ire of the U.S. and India because Sri Lanka does not communicate its intent.

Indian journalists obviously see the SLCL as an example of China tightening its grip on Sri Lanka. As noted in a previous post, such reporting feeds into the narrative that China can use its port infrastructure in Sri Lanka and other South Asian nations for military use and that this poses a grave national security threat to India.

Sri Lanka’s strategy for addressing Indian concerns has involved giving Indian companies large-scale projects to counterbalance Chinese-funded ones. However, the Indian projects in Sri Lanka, almost all involving the Adani Group, are not adequate to meet Sri Lanka’s infrastructure investment needs.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.The World Bank and the IMF have been moving away from infrastructure development for decades. Therefore, despite what their ideological beliefs are, Sri Lankan leaders ultimately end up turning to China for investments.

China was closed for almost three years due to their zero-covid policy and since lifting restrictions, Chinese companies, state-affiliated and private, have been traveling across the world for new business opportunities.

In recent months several such delegations have arrived in Sri Lanka and Chinese investments will probably spike leading to mass hysteria in Indian media. It is up to Sri Lanka to ensure that India and the U.S. understand that these investments are indeed commercial in nature.

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Sri Lanka still ‘under test’ before it can receive crucial second tranche from IMF



From left: Sarwat Jahan, IMF Resident Representative in Sri Lanka, Katsiaryna Svirydzenka, Deputy Mission Chief for Sri Lanka, IMF, Peter Breuer, Senior Mission Chief for Sri Lanka, IMF, Huong Lan 'Pinky' Vu, Communications Officer, IMF at the press briefing held at the Central Bank head office in Colombo yesterday.

by Sanath Nanayakkare

International Monetary Fund (IMF) staff concluding their visit to Sri Lanka yesterday reaffirmed their support to Sri Lanka to move out of the ongoing economic crisis, but did not specify an exact timeline for releasing the second tranche of its Extended Fund Faculty (EFF) arrangement to Sri Lanka.

The IMF mission team led by Peter Breuer and Katsiaryna Svirydzenka that visited Colombo from September 14 to 27, is yet to be convinced that it has received a robust programme from the Sri Lankan authorities where they indicate how they would be addressing the persistent revenue shortfall besides outlining progress in foreign debt restructuring which would give Sri Lanka a breather to balance its financing requirements as it starts to repay its foreign debt.

“We had constructive and productive discussions with the Sri Lankan authorities on economic performance and policies underpinning the first review under the IMF Extended Fund Facility (EFF) arrangement. The people of Sri Lanka have shown remarkable resilience and the authorities have made significant progress on important reforms. The discussions will continue towards reaching a staff-level agreement in the near term that will maintain the reform momentum needed to allow Sri Lanka to emerge from its deep economic crisis, Peter Breuer said.

“The objectives of the IMF-supported program will continue to focus on restoring macroeconomic stability and debt sustainability, while protecting the poor and vulnerable, safeguarding financial stability and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential, he said.

However, the press briefing given by the IMF team yesterday signaled that they needed to see more economic and financial policies to support the approval of the First Review of the program under the EFF arrangement.

“Sri Lanka has made commendable progress in implementing difficult but much-needed reforms. These efforts are bearing fruit as the economy is showing tentative signs of stabilization. Inflation is down from a peak of 70 percent in September 2022 to below 2 percent in September 2023, gross international reserves increased by $1.5 billion during March-June this year, and shortages of essentials have eased. Despite early signs of stabilization, full economic recovery is not yet assured. Growth momentum remains subdued, with real GDP contracting by 3.1 percent in the second quarter on a year-on-year basis and high-frequency economic indicators continuing to provide mixed signals. Reserve accumulation has slowed in recent months, he said.

Speaking further Peter Breuer said: “Sustaining the reform momentum is critical to put the economy on a path towards lasting recovery and stable and inclusive economic growth. The authorities have met the program’s primary balance targets and remain committed to this important pillar of the program so as to support their efforts to restore debt sustainability. However, revenue mobilization gains – while improved relative to last year – are expected to fall short of initial projections by nearly 15 percent by year end, in part due to economic factors.

“The onus of fiscal adjustment would fall on public expenditure if there were no efforts to recoup this shortfall. This could weaken the government’s ability to provide essential public services and undermine the path to debt sustainability. To increase revenues and signal better governance, it is important to strengthen tax administration, remove tax exemptions, and actively eliminate tax evasion.

“Against continued uncertainty, it also remains important to rebuild external buffers through strong reserves accumulation. Building on the Central Bank of Sri Lanka’s success in controlling inflation, refraining from monetary financing will help keep inflation in check. Other challenges include maintaining cost recovery in electricity pricing.

“The government has made steady progress on structural reforms. Key legislations passed in Parliament, including the new Central Bank Act and the Anti-Corruption Act, could improve governance if implemented effectively. The IMF Governance Diagnostic report would inform future reform measures to strengthen governance when published.

“A new welfare benefit payment scheme was enacted with new eligibility criteria that aims to improve targeting, adequacy, and coverage of social safety nets. To ensure financial stability, steps were taken on conducting bank diagnostics, developing a roadmap for addressing banking system capital and liquidity shortfalls and improving the bank resolution framework.

“The authorities have also made headway on regaining debt sustainability through the execution of the domestic debt restructuring and advancing discussions with external creditors. As Sri Lanka is restructuring its public debt which is in arrears.

“Executive Board approval of the first program review requires the completion of financing assurances reviews. These financing assurances reviews will focus on whether adequate progress has been made with debt restructuring to give confidence that it will be concluded in a timely manner and in line with the program’s debt targets.

“Discussions are on-going, and the authorities are continuing to make progress on their plans for revenue mobilization targets, anti-corruption efforts, and other important structural reforms.”

The IMF team held meetings with President and Finance Minister Ranil Wickremesinghe, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, State Minister Shehan Semasinghe, Chief of Staff to the President Sagala Ratnayaka, Secretary to the Treasury K M Mahinda Siriwardana, and other senior government and CBSL officials, during the visit. The IMF team also met with parliamentarians, representatives from the private sector, civil society organizations, and development partners.

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‘Imposing minimum room rates on five star hotels could ruin tourism sector’



Tourists in Sri Lanka

By Hiran H.Senewiratne

The imposing of a minimum room rate on five star hotels on the basis of a recent gazette notification is actually killing the industry. Room rates, accordingly, could henceforth rise to between 80 percent and 100 percent, top travel and tourism industry expert Chandana Amaradasa said.

“The minimum room rate of a five star hotel currently comes to about US $ 65 but with the new gazette notification it would go up to US $ 170 per day. But our competitors, such as, Thailand, Malaysia and Vietnam are maintaining a minimum room rate of US$ 80 to US$ 85, Amaradasa told The Island Financial Review.

Amaradasa said that the tourism industry is just picking- up and ‘this type of move is detrimental to the entire sector because these room rates are normally determined by demand and supply and not by gazette notifications.

Amaradasa added: ‘At present, Colombo five star hotels are mainly patronized by Indian tourists, corporate clients and MICE tourists. This will not only impact hotel revenue but the outside supply chain as well. Nowhere in the world is the tourism industry regulated in this manner and this would enable our competitors, such as, Vietnam and Thailand to attract tourists.

“As a long term consequence, some of the airlines could also pull out of Sri Lanka and hotels will halt recruiting new staff and training them with the limiting of their revenue sources.’

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ADL’s journey continues: Unveiling new offices in Indonesia and Malaysia for tech excellence



Axiata Digital Labs (ADL), the renowned technology hub of Axiata Group Berhad, is proud to announce the grand opening of two new offices in Indonesia and Malaysia. These strategic expansions, respectively, mark significant milestones in the company’s journey since it’s inception in 2019. This signifies ADL’s unwavering commitment to revolutionizing the telecommunications industry and propelling the global rate of digital transformation.

The inauguration of these state-of-the-art offices exemplifies the dedication ADL has towards expanding its footprint and harnessing the power of innovation across Southeast Asia. As the first CMMI 2.0 Level 3 IT organization in Sri Lanka and an ISO-certified company, ADL is well-positioned to lead the charge in transforming traditional telcos into techcos through its groundbreaking Axonect Product Suite.

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