economics-anlysisHow beneficial will be the Colombo Port City (CPC) Project for Sri Lanka? There are political and economic arguments for and against the project. In the proponents view, Sri Lanka will be benefited by its relations with China, while the opponents view that China is trying to exploit Sri Lanka’s strategic location in the Indian Ocean for their geo-political benefits, especially to make a stronghold in the region.There is no doubt that the CPC Project is crucial for China.

For Sri Lanka, too, it is a good opportunity to use China’s excessive foreign reserves given that CPC is the largest single private investment in Sri Lanka. However, costs and benefits of the project need to be analyzed in depth to arrive at a sensible decision. However, our relations with India may be strained. Sri Lanka getting close to China may disturb our relations with India. Now that India has become the regional giant in South Asia, the presence of China in close proximity to India will definitely cause problems.

Whatever the merits and disadvantages of the project are, the new government could not have abandoned the project since we would have had to pay compensation as the initial phase had already been initiated by China under Sri Lanka’s previous government. Under international law, we would have had to pay colossal compensation for the breach of contract. It would have also angered China whose goodwill is important for the country’s economic development.

What are the costs and benefits of the project?

The first phase – reclamation of the land has consumed US $ 1.9 billion, exceeding the original budget of US $ 1.5 million, according to media reports. Following the reclamation, a total land area on the Western coast amounting to 233 hectares is to be divided between the two countries (The above figures however are not properly released to the public yet). The exact ownership of land by Sri Lanka and China are still not clear according to statistics put forward so far. However, the land area allocated to economic activities is said to be 170 hectares.

Even though some believe that Sri Lanka does not have to incur a cost as the total reclamation cost is borne by the Chinese government, what about capital goods to be imported during the course of the project? Cost of importing these will be an outflow of finance to China. Moreover, some experts are of the view that China will develop only their extent of land after the land division phase. This leaves doubts as to whether Sri Lanka can match their investment potential on the extent of land we will be owning.

Expected benefits
Colombo is expected to be identified as a maritime hub, business centre for private investments and a tourist destination. CPC may improve livelihoods of people living on the western coast. Job opportunities will be available to local construction workers during the construction phase. Sri Lankans will try to develop their skills and work in a high end business environment. CPC targets to attract many Foreign Direct Investments, which will undoubtedly improve our economy. Making the Port City an international Financial Centre is however an optimistic ambitious objective.

Way forward
A proper environmental impact assessment and a thorough economic and financial analysis of the CPC Project were essential before moving forward. The authorities should have evaluated whether Sri Lanka would actually get the employment opportunities expected since advanced technology will be used. The skills expected from employees will be highly technical, leaving a question whether there are Sri Lankans qualified for these employment opportunities.

What matters is whether CPC Project is viable after all the evaluations. It should not be guided by the numbers stated by either of the two countries, but by the actual economic and social benefits to the country. China not investing on Sri Lanka owned land after the land division, draws our attention to Sri Lanka not having the potential to invest with our earnings alone. Therefore, the need to go for borrowings at commercial interest rates. This is a serious issue to consider given the already high debt burden and debt servicing costs of the country.

Sri Lanka should sit back and consider whether the expected incomes from the project are realistic. Since CPC caters to local and foreign high end customers, will it increase the gap between the rich and the poor? Tourist income is determined by political and economic climate outside Sri Lanka; doesn’t Sri Lanka have other stable income generating options? What is left for Sri Lanka is to choose the option which minimises the already adverse costs. Measures should be taken to minimise the environmental losses.

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  • Gregory Lewis

    I would certainly want to invest in such a project. Hopefully details will be posted soon on apartments and houses as well as schools planned for the Port City.