by N Sathiya Moorthy 22 January 2021
For Sri Lanka, big ticket foreign investment matters right now more than at any time in the post-Independence era.
Overseas investors would be keenly watching the Sri Lankan Government’s handling of the much-maligned Indian private sector funding for the Colombo Port’s Eastern Container Terminal (ECT), for them to draw their own conclusions about putting their own money in the money-strapped economy. Already, rating agencies have put a huge question-mark over early recovery, especially after the compounded woes added by the Easter serial blasts in 2019 and the continuing travails of the COVID-19 pandemic, hitting what already was a hugely credit-driven economy.
Ever since the late President J.R. Jayewardene took the ‘socialist nation’ and pushed for economic recovery by embracing the western concept of the ‘market economy’ as far back as 1978, Sri Lanka has been hoping for huge doses of foreign investments in multiple sectors. The non-fructification of such ambitions was attributed to three decades of LTTE terrorism, which had phases of bloody wars, ending in the decisive ‘Eelam War IV’ in 2009.
The non-fructification of such ambitions was attributed to three decades of LTTE terrorism.
Yet, one decade down the line, there has not been much foreign investment other than those from China, which are not ‘investments’ in the normal sense of the term. In simple terms, Chinese investments are a ‘debt-trap’ — non-participatory and hugely credit-driven. Apart from physical infrastructure like expressways — reportedly costing more than the normal — the one in the southern Hambantota port has ended up in a debt-equity swap-deal. Translated, this has meant that Sri Lanka has ended up providing a large workspace on a 99-year-lease, for China to bring in their money, men and equipment, work for themselves and take back the profits, if any.
In politico-diplomatic terms, it amounts to compromising Sri Lanka’s sovereignty, territorial integrity and more; these are in ways that are not normally applicable to ‘commercial transactions,’ as President Gotabaya Rajapaksa explained the swap deal, signed by the predecessor Government. He had criticised the deal during the run-up to the presidential polls and promised to re-negotiate the deal if elected President.
One decade down the line, there has not been much foreign investment other than those from China, which are not ‘investments’ in the normal sense of the term.
The curious case of the protests
What now makes the domestic protests against the Colombo Port ECT agreement with Indian private sector Adani Group suspect and motivated is the mere fact that there were no sustained agitations of the kind to stall Chinese investments through the past decade and more. On Hambantota ‘swap deal,’ the left-leaning JVP labour unions’ protest at site ended in a whimper after then Navy chief, Vice Admiral Ravindra Wijegunaratne, reportedly manhandled a journalist covering the event. It is anybody’s guess why the Navy chief had to personally preside over his men breaking up an apology of protests. The then Government claimed it was to ‘inconvenience’ the administration.
China is the only big-ticket foreign investor in Sri Lanka. After coming (back) to power, the Rajapaksa Government rescinded an MoU signed by its predecessor for a US $480 million infrastructure investment on the ‘Millennium Challenge Corporation’ (MCC) of the US administration. In the last weeks of the Trump Administration, the US withdrew the proposal. Sri Lankan Attorney-General, Dappula de Silvera, has since attested the finding of a committee appointed by Prime Minister Mahinda, that the MCC Compact was ‘inconsistent with the Constitution’ and compromised the nation’s ‘sovereignty and territorial integrity.’
It is anybody’s guess why the Navy chief had to personally preside over his men breaking up an apology of protests.
It needs to be noted that there has not been any sustained protests of the ECT kind on either the prestigious Colombo Port City project, and more so the Colombo International Container Terminals (CICT), also in the Colombo Port. This has caused eyebrows to be raised in many circles in the country, with laissez faire economist Harsha de Silva, a minister in the erstwhile Government of Prime Minister Ranil Wickremesinghe, now in the Opposition SJB, backing the India deal.
Eternal critic of the Rajapaksas, Mangala Samaraweera — who was a one-time confidant and close aide but has now been out of active politics for months — has backed the President on the ECT deal. So has columnist, Dr Jehan Perera, otherwise a vocal critic of the Rajapaksas, on human rights issues.
Apart from the trade unions and over-politicised sections of the Buddhist clergy, especially the controversial Bodu Bala Sena (BBS) chief Gnanasara Thero, Opposition SJB parliamentarian, Harin Fernando, has since questioned the wisdom of the Government inviting the Adanis, pointing to their Mundra port, which is further away from Colombo on India’s western coast, past Mumbai. He was a parliamentarian belonging to then Prime Minister Wickremesinghe’s UNP, before the pre-poll SJB split last year, and has claimed that there was the possibility of the Adanis taking away all of ECT business to Mundra Port.
It is common sense to ask the question of how it helps a private investor to put in big money in ECT just to get it closed down.
SJB’s Fernando does not seem to have done his homework, as even otherwise, the Adanis are developing a green port in Vizhignam, in the southern Indian state of Kerala, which is much closer to Colombo. It is common sense to ask the question of how it helps a private investor to put in big money in ECT just to get it closed down. The practical option would be for them to instead give great deals to big ocean-liner operators now using Colombo Port, to go to Vizhignam, and not far-away Mundra, when the former is ready. It would be a win-win situation for both the promoter and liner-operators, with a private investor like the Adanis not having to get caught in the melee of a mess in Sri Lanka, which is problematic even in the best of times.
The ECT deal got a new lease on life after last month’s Colombo visit of External Affairs Minister (EAM) S. Jaishankar, though that was not necessarily his core agenda, as is being made out by a section of the Sri Lankan critics of India and the local media. It was Jaishankar’s first substantive visit to the island-nation, when he met with President Gotabaya, Prime Minister Mahinda, Foreign Minister Dinesh Gunawardena, and a cross-section of political opinion in the country, apart from the local business community, seeking Indian investments. Earlier, Jaishankar had made a whistle-stop visit, when he became the first foreign dignitary to land in Colombo, after President Gotabaya assumed office in November 2019.
The ECT deal got a new lease on life after last month’s Colombo visit of EAM S. Jaishankar.
No sale, lease
Like the MCC with the US, the ECT was a Government-level trilateral deal, involving Indian investments and Japanese technology. The new jobs were/are to go to the locals, unlike in every Chinese ‘investment.’ With the predecessor Government getting increasingly entangled in itself, followed by the Easter serial blasts, which shook the core of the nation a decade after the end of LTTE terrorism, the ECT deal too stayed at the level of a trilateral MoU.
Once the Rajapaksas returned to power, and closer to last year’s parliamentary polls, protests against the ECT MoU being converted into a full-fledged agreement got revived suddenly, with a slew of criticism coming to the fore, almost overnight. Both President Gota and Prime Minister Mahinda said that there was now no question of signing the agreement on the ECT as it would impinge on the nation’s sovereignty. Nor would they permit the sale or management of any ‘national asset’ by a foreign entity.
It’s anybody’s guess why the Government had to rush through the project, which India, for instance, had declined thrice owing to economic viability.
It is not unlikely that the Rajapaksa experience flowed from a sense of being cheated by China on Hambantota, as most public perception on the ‘swap deal’ against the predecessor did not stick as much as that of the original act of inviting China in the first place. It was an act of the Rajapaksas, when in power during the ending weeks and months of ‘Eelam War IV.’ It’s anybody’s guess why the Government had to rush through the project, which India, for instance, had declined thrice owing to economic viability. With the successful conclusion of the war in sight, Sri Lanka could have gotten a more favourable deal from any foreign investor, other than China.
Even ahead of the parliamentary polls, which brought him back as the duly-elected Prime Minister, incumbent Mahinda had clarified that the stalling of the ECT deal did not mean that they were abandoning it. Instead, he defended the Indian interest in investing in ECT, pointing out how 70 per cent of the Colombo Port business was India-centric and naturally New Delhi would like to have a stake. He did not mention the Chinese presence in the CCIT in this regard.
Post the Jaishankar visit, the Cabinet confirmed the Government’s earlier decision to allow 49 per cent Adani investment in ECT, i.e., without incurring further loans, and without granting a ‘controlling stake.’ President Gotabaya has since briefed the trade unions personally about the deal, but they remain ‘unconvinced.’ He pointed out to them how India accounted for 66 percent of ECT’s mainstay re-export operations and Bangladesh, nine — and New Delhi would thus want to have a say.
With the successful conclusion of the war in sight, Sri Lanka could have gotten a more favourable deal from any foreign investor, other than China.
There is, however, a need for the Government, independent of the political master in office at any time, to agree that regardless of the ECT deal, no foreign investor would want to put in big money, without a say in the management of the company. Whether such ‘say’ will be in terms of overall direction of the company, through board-level participation or day-to-day running, will depend on the work culture of the individual investor-entity.
For Sri Lanka, big ticket foreign investment matters right now more than at any time in the post-Independence era. It will be even more so if Prime Minister Ranil Wickremesinghe’s claims that the Government was ‘begging’ the nation’s businessmen for US $10 million, to buy COVID-19 vaccines proves to be anywhere close to the truth. It is another matter that Wickremesinghe-led led Government earlier had contributed to the current state of the economy.
(The writer is Distinguished Fellow, Observer Research Foundation, Chennai Initiative)