What now for Sri Lanka?

What now for Sri Lanka?
The Hambantota port in Sri Lanka has become a point of contention in both domestic and international politics for the government. Does this signal greater influence of China..

The Hambantota port in Sri Lanka has become a point of contention in both domestic and international politics for the government. Does this signal greater influence of China in Sri Lanka or a takeover by Chinese interests?

Background

Bilateral relations between Sri Lank and China are friendly. Historic and cultural ties between the nations date back to centuries. Recent years have found the governments of both countries working to strengthen their ties. Over the years, China has provided economic, military and technical assistance to Sri Lanka. This is largely due of Sri Lanka’s geographical location. The country plays a key role in China’s ambitious vision as dictated by the One Belt One Road project (OBOR). Nearly every South Asian country has signed into OBOR and the project aims at increasing the connectivity and cooperation among Asian countries, Africa, China and Europe. This will provide a significant boost to China’s economy. Due to the friendly nature of their ties, Sri Lanka is one of the few countries that has supported China over the dispute South China Sea territory.

In July 2017, Sri Lanka inked a $1.12 billion trade agreement with a state-run Chinese firm. The Sri Lanka Ports Authority sold a 70% stake in the Hambantota port to China Merchants Ports Holdings. The lease is for a period of 99 years. At the time India voiced its concern that the port will be used by Chinese military. Sri Lanka has vouched that this will not happen. China has also revealed its plans for building an investment zone and a refinery in the region. The investment zone would be 6,000 hectares (15,000 acres).

Analysis

Domestically, trade unions in Sri Lanka have expressed their concerns over the deal that was struck between China and Sri Lanka. Unions stated that this would give an advantage to China in the bunkering business. Opposition in Sri Lanka has also condemned this sale accusing the government of essentially giving away a strategically important port to China.

“Government is playing geopolitics with national assets? #stopsellingSL,” Tweeted Namal Rajapaksa, Hambantota’s MP and son of the former president.

The region has also sparked a strategic conflict between India and Sri Lanka. In October 2017, it was confirmed that India was in advanced talks to operate an airport in the Hambantota area. The airport currently is considered one of the emptiest airports in the world. The airport had been built for $253 million and had been financed by China and India is in talks to operate it through a 40 year lease period.

One of the main reasons why Sri Lanka has invited both China and India to the same region is because of crippling debt. It stands at $26.52 billion as of March 2017. President Maithripala Sirisena also spoke of the costs that would take to keep the port running independently noting, “We inherited this thing. One and a half billion dollars and nothing to show. Loans were coming due, we had to make payment and we hadn’t the capacity to bring large-scale business to Hambantota.”

The port like the airport has not been busy since its inception seven years ago. It is possible that with the help of Chinese companies, the port could become a strategic location for the OBOR project. “This is a blue-chip listed company we are working with,” said P Dissanayake, Chairman of the Sri Lanka Ports Authority, noting that big global funds have invested in CMP through its Hong Kong listing. “Do you think its shareholders will allow it to invest more than $1bn in a white elephant?”

Locally, the Chinese projects has residents worried. Many living in the area protested as they feared that this would result in acquisition of their land as the project grows. Ultimately, there are those who believe that this begins a new chapter in Sri Lanka’s existence in Asia. The nation could become attractive to foreign investors as the time goes. “There is a phrase, ‘strategic promiscuity’, which is what we should indulge in,” says Indrajit Coomaraswamy, governor of the Central Bank of Sri Lanka. “The trick is to get everybody to come.”

Assessment

Our assessment is that rising strategic tensions between China and India could result in both regions trying to exert more influence in Sri Lanka. Thus, the two countries could begin investing more in the Island. This could be good for Sri Lanka in terms of its own development but there are always fears that a foreign government like China could completely take over Sri Lanka’s sovereign interests. 

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