Colombo Port City - a project with the potential to change Sri Lanka’s future outlook

     September 30, 2021

Development activity on the Colombo Port City (CPC) has continued amidst prevailing economic uncertainty and volatility in the country in order to be able to expedite potential revenue generation and foreign investment flows. Commenced in 2014, the Port City was proposed to strategically transform Sri Lanka into a world-class smart city in South Asia and is projected to be completed in 2041. Numerous studies conducted on the Port City project have revealed that it has potential to positively impact employment, Foreign direct investments and value addition.

Nearly 200,000 jobs are projected to be created during the construction and operational stages of the project. Moreover, knowledge transfers to local employees from foreign employees are expected. Employment of foreign employees with exposure to state of art technology and knowledge will improve productivity and increase income generating capability of locals. However, controversial views on the project highlight that despite assurances on the amendment of the CPCEC (Colombo Port City Economic Commission) bill in favor of the working population of Sri Lanka, the actual number of jobs that would be reserved for Sri Lankans is unclear. For example, accepting USD 7 billion worth of loans for the construction of the Hambantota port in the past have visibly enabled the Chinese to build a competitive advantage over Sri Lankan construction companies.

The CPC is by far Sri Lanka’s biggest FDI project worth about USD 1.4billion and is expected to generate secondary investments from multiple sources, worth at least USD 15 billion over the next 5 years. During the construction stage, FDIs are expected from leasing the land to developers to build infrastructure, and once operational, FDIs are expected to recur due to reinvestment of profits. In terms of value addition, the CPC is expected to generate a one-off USD 4.6 billion during its initial stages – land reclamation and construction; however, once operational it would generate approximately USD 12bn of annual value addition as companies produce services, export and trade.

However, contrarian views are that the project has failed to generate any notable financial benefits to date. Receiving large amounts of high-interest commercial loans from foreign countries, as opposed to support from world financing institutions such as the IMF, also mean consenting to the terms imposed by loaning countries. Land ownership, rising levels of debt as well as the influence on geo-political relations are some of the concerns economists have had on the mega project. Out of 269 hectares of land reclaimed from the Indian ocean, only 125 hectares of land will be taken by the Sri Lankan Government, while about 88 hectares is being given to China on a 99-year lease plus the Chinese have been offered a free hold on additional 20 hectares of land. Moreover, Sri Lanka’s existing relations with India and any prospective support from nations such as the US are questionable as Chinese influence in the country grows.

The nature of this project, its sheer size, large investments committed to and the long duration for completion have made it one that can entirely tip off Sri Lanka’s future for the better or worse depending on how well or poorly it is managed.

References

“Economic Impact Assessment of Port City” – PWC, 2021; “Challenges for Colombo Port City amidst uncertainty & volatility of current markets” – Lanka Business Online, June 2020; “China building another enclave in Sri Lanka: Colombo Port City” – Times of India, July 2021; “Colombo Port City Project and Indian Concerns” – June 2021; “No pause in development despite pandemic – PM” – Daily News, June 2021