Sri Lanka's Economic Future and State of Play in Geo-economic Landscape

Sri Lanka's strategic position in the Indian Ocean beholds both a promising future based on shared prosperity and an overhanging threat from the implications of geopolitical rivalry. Whilst the future that will emerge in the region will be beyond the control of one single nation, the approach that Sri Lanka adopts in developing its national competitiveness and fostering international trade and diplomacy will have a strong bearing in shaping the economic future in its favor.

With the share of global population and natural resource endowments concentrated in China, India and Africa, and the larger Afro-Asian region, the inter-regional trade between Africa and Asia will be the next economic growth frontier in the 21st Century and maritime trade will absorb a larger share of this growth. With Sri Lanka's central position in this important maritime route and with its accessibility to greater Indian Ocean Rim Region, the possibility of positioning the country as an international trade and finance hub is becoming that much more apparent.

However, with the competitiveness and productivity of other regional ports in Singapore, Dubai and Malaysia and their established status quo as international trade and finance centers, there has been little incentive for global shipping companies such as Maersk, MSC and CMA-CGM or international financial industry players to enter Sri Lanka due to inadequate hard and soft infrastructure, lack of global connectivity, and lack of political stability and policy coherence. Therefore, if Sri Lanka's aspirations of becoming a regional maritime and finance hub were left to these market forces alone, it would have been a pipe dream taking generations to fulfill.

However economic realities and strategic interests of China has given the opportunity for Sri Lanka to attract capital and trade volumes which it otherwise would not have been able to muster alone. Whilst the lease of Hamabanthota port is seen as Sri Lanka capitulating to a debt-trap, the reality is that Sri Lanka would not be able to make the port commercially viable without the cargo volumes that can be channeled by China. According to Reuters, China's COSCO shipping in November 2017 had overtaken Maersk as the top container shipper in the world. Therefore, with COSCO's volumes serving as a baseload for the Sri Lankan ports and with the technical capabilities of port operators such as CHEC and CMport, Sri Lanka is able to secure the required technical and market feasibility to operate as viable ventures, especially at Hambathota port, where the allied infrastructure and ecosystem is woefully inadequate for international shipping. China's investment in Colombo International Financial City (CIFC) will similarly infuse the critical mass in investments for Colombo to build the allied ecosystem to make it attractive for other investors to consider Sri Lanka as an investment option.

The new technological developments such as blockchain are narrowing the barriers to entry for countries like Sri Lanka into international markets and provides the potential for the country to leapfrog and get connected to the new platforms in global connectivity. Since established players such as Singapore and Dubai are also new to experimentation in these new technologies of fourth industrial revolution and confined by the inertia of their already established systems, Sri Lanka will have the space and the leeway to design the new maritime and financial cities and systems that is in line with these new technological developments from the inception. The technology transfer from China to this end will also be beneficial, since some of their innovations have already succeeded in transcending their boundaries as with digital finance companies such as Ant Financial (Alipay) and Tencent (WeChat) which are disrupting global financial and payment systems.

For China too, as a country that is trying to optimize its channeling of resources (shifting financial investments from financial securities in developed markets having saturating real returns to investments in strategic assets that yield high returns over the longer term - especially where they can propagate the competitive advantage of state enterprises in infrastructure, maritime and finance) investing in the Belt and Road Initiative makes economic sense. The transition of China from an export led economy to consumer driven economy also makes supply chains from Africa and Middle East that much more important to that country and securing access routes and minimizing risk of any choke holds in this critically important trade route in the Indian Ocean with a presence in Sri Lanka is a sound investment both in terms of economic yield over the long-term and in terms of economic security.

However, Sri Lanka will need to engage with India and China to find common ground in enhancing trade between these two countries so that a scenario of zero sum game doesn't develop between them, where instead of shared prosperity a sense of fear, suspicion and antagonism could mire the trade relations in the region. Sri Lanka will need to allay any fears India may have of inimical use of Sri Lankan territory through transparent engagement with them, as India has once again reverted to an "India First" aggressive mindset, which has in the past led it to make destabilizing interventions in the region, which had boomeranged to hurt its own security interests.

Just as Sri Lanka is part of the Belt and Road Initiative (with Hambanthota Port, CICT and CIFC), Sri Lanka should, as it rightly does, engage with India and Japan on the Asia Africa Growth Corridor (with investment opportunities in Colombo and Trincomalee) and work with India, Japan and ASEAN on the reverse string of pearls trade route, so that the country is part of both maritime trade corridors/thrusts and the country is sufficiently diversified in investment and trade. Every opportunity must be taken to promote partnership amongst these trade corridors and perhaps Sri Lanka could play a role in facilitating such a discourse, as it does with the Galle Dialogue on maritime security.

While engaging in this economic diplomacy, Sri Lanka should not compromise in its own interests in protecting its natural environment and enriching its people to seize the new economic opportunities. The set up of mega cities and international hubs will be to no avail if it pollutes our natural environment and is detrimental to human development. Employment opportunities in these foreign investments and allied ecosystems should be targeted at Sri Lankan youth and access to quality education including set up of foreign universities in Sri Lanka should be pursued.

Sri Lanka will need to expose its younger generation to the new economic and technological opportunities and open up to play a proactive role as ambassadors (through inter-governmental and business partnerships and citizen level engagement) in connecting Asia and Africa on a path of shared prosperity.