Famous author Stephen Phinker, a finalist in the Pulitzer Prize, in his book ‘Blank Slate’ argued that what we perceive as real is sometimes distorted by our own expectations. This is the basis of optical illusion.
Could you please count how many legs the elephant has?
A good example: A few months back, the then opposition members, like many of us, thought that the high gross domestic product (GDP) growth rates (in the region of 7-8 percent) recorded during the last five to six years have been achieved mainly through high borrowings from China and with little private sector investments put in.
This was confirmed by a majority of the public, who had travelled in and around the country and witnessed a number of large-scale construction projects such as highways, ports and airports and other development work undertaken under Chinese funds. The writer was also of the view that most of the investment funds were coming from the General Treasury where almost all the infrastructure development projects are being carried out by the public sector-government-funded by China and not necessarily through private investments.
However, by perusing the Central Bank annual reports, it was evident that the private sector investments are also on the rise in addition to funding obtained by the government from other multilateral institutions such as the World Bank, Asian Development Bank (ADB), Japanese Bank, etc.
In fact, the private sector investments were around 23 percent of the GDP, out of the total investment ratio of 30 percent for the last three to four years, whereas in 2002, the private sector investment ratio as a percent of GDP was only 16.6 percent out of the total investment ratio of 21 percent (only).
As stated in my article published in a daily newspaper on April 17, the total amount of foreign loans received during the last eight-year period works out to Rs.1,465 billion. The total assistance from China as a percent of the total loans received was only 22 percent.
Further, Sri Lanka has obtained 19 percent and 16 percent, respectively from Japan and the ADB during the same period of eight years. Therefore, it is not correct to say that the foreign funding was mainly from China. It seems that there was no over dependency on one country.
Building a CPEC
BBC reported last week that China’s President Xi Jinping has signed agreements with Pakistan Prime Minister Nawaz Sharif to provide a massive investment of US $ 46 billion to Pakistan. This is almost three times the entire foreign direct investment (FDI) Pakistan has received for the last eight years since 2008. The focus of spending is on building a China-Pakistan Economic Corridor (CPEC) - a network of roads, railway and pipelines.
They will run some 3,000 kilometres from Gwadar in Pakistan to China’s western Xinjiang region. The projects will give China direct access to the Indian Ocean and beyond and marks a major advance in China’s plans to boost its influence in not only Central and South Asia but bigger African nations as well.
According to BBC, there are still questions over Pakistan’s ability to absorb this investment, given its chronic problems with separatism, political volatility and official corruption. China is worried about violence from ethnic Uighurs and fears separatists could team up with militants fighting alongside Pakistan’s Taliban. Quote: “Nevertheless, Mr Sharif’s penchant for “thinking big” and China’s increasing need to control maritime trade routes may well combine to pull off an economic miracle in Pakistan.” Unquote.
After assuming duties by the new government, there has been a slow down on development work throughout the country. The Colombo Port City Project, solely financed by China Communications Construction Company Limited (CCCC), was temporarily suspended by the new Sri Lankan government a few months back after concerns were raised over some aspects of the project.
Indian media has quoted the Chinese Ambassador as saying that Sri Lanka should respect bilateral agreements and business contracts and protect the interests of the investors. He has recently denied the Sri Lankan government’s position that the Chinese contractor for the on-going outer circular road development project has agreed to reduce the cost by some Rs.30 billion.
Speaking to journalists last week, Highways Deputy Minister Eran Wickramaratne said that there was no corruption involved in the multi-billion dollar Port City Project. The US $ 1.4 billion Port City Project is Sri Lanka’s biggest foreign investment. But the new government is still undecided whether or not to grant approval to proceed with the Port City Project despite the Chinese government raised concerns.
New Indian Ocean strategy
During the 2006-2009 war, India wanted the Liberation Tigers of Tamil Eelam (LTTE) defeated despite objections from Tamil Nadu political leadership. Since then, the Indo-Sri Lanka bilateral relationships were seen going through a bad patch until the new government of President Sirisena came into power. As articulated by Bandu De Silva, a career diplomat, under the ‘Panikkar Doctrine’, Sri Lanka was conceived as essential for India’s forward defence system in the direction of Indian Ocean.
In 2013, the United States and India signed two landmark agreements - their first commercial nuclear deal and an accord between the two governments to enhance defence cooperation. The Indian government intends to use US nuclear technology at commercial power sites it is developing in Gujarat and Andhra Pradesh using US nuclear technology.
The two leaders urged Indian and US companies Westinghouse and General Electric-Hitachi to expedite the necessary work to establish nuclear power plants. Indian firms will hopefully sign a Memorandum of Understanding with their American counterparts for the exchange of technical information in nuclear safety matters.
The United States, UK and the West were concerned that China would emerge as the super-power status economically, thus dominating the Indian Ocean region economically as well as a militarily power base later. The ultimate goal of the United States of America is to regain full control and dominance over the ‘Indian Ocean region’. In order to achieve that, they need to ensure that the emerging Asian countries such as India, Sri Lanka, Pakistan and China would not get together and form ‘regional strategic alliances’. This can only be done through creating division among those countries. These three countries could form strategic alliances with China and come to some kind of understanding to safeguard the Indian Ocean forward defence line and promoting the ‘maritime silk route’ strategy for greater economic benefits for the three nations. Already India and Sri Lanka have a free trade agreement (FTA).
The proposed FTA between China and Sri Lanka will allow Chinese companies to set up large-scale industries in Sri Lanka so that they could make use of the Indian FTA to accelerate trade with India and at the same time, re-export products back to China. Here we are talking about tapping 2.5 billion target market customers in both countries. Sri Lanka will stand to gain more.
That is why the former president was so keen to finalise the proposed FTA with China and develop the Port City in Colombo. This would not only safeguard the Indian Ocean forward defence line for the benefit of both India and China as well as Sri Lanka but would eventually develop into a mechanism for long-term coordination by the three nations on harnessing the true potential of the Indian Ocean economic resources. The existing FTA between India and Sri Lanka and the proposed one with China would benefit all three nations.
Regional disparity of economic growth
Coming back to the annual investment ratios in the Sri Lankan economy, it was always less that 29.9 percent as a percent of GDP for the last 50 years, except in 1980 and 1982, where the ratio was above 30 percent.
We could most likely attain a sustainable economic growth of over 8 percent for the next couple of years as well, if we are able to achieve a total investment of 35 percent of the GDP, with a breakdown of 5 percent from the private sector-government and the balance 30 percent from the private sector (the probable private sector investment ratio would ideally be six times more than the investment figure of the government).
What is more important is this would eventually reduce the regional disparity in development and economic growth thus, benefiting the rural population. It is a pity that we ignore the benefits of obtaining financial assistance from China. It is still not too late to re-establish bilateral relationship with this Asian superpower.
As seen from Table 2, there has been a gradual decline of the GDP share (from 51.4 percent to 43.4 percent out of the total GDP) of the Western Province during the last eight-year period. What is more important is that if we consider Southern and Eastern Provinces (as illustrations only) the respective shares of the GDPs have been increased from 8.9 percent to 11.5 percent for Southern and 4.9 percent to 6.3 percent for Eastern Province.
This phenomenon, the Central Bank claims, would help to lower the regional imbalances between the Western Province and other provinces and uplift the income levels of people living in rural areas. The development projects such as the Hambantota port, North-East reconstruction projects, Upper Kotmale Hydropower and proposed Colombo-Kandy-Kurunegala expressway, Port City and Jaffna highways should be viewed in that perspective. The days of ‘Colombata Kiri-Gamata Kekiri’ are gone.
(The writer is the Chief Executive Officer of Bogawantalawa Tea Estates PLC and he can be contacted via firstname.lastname@example.org)