Navigating global volatility: How Sri Lanka can turn geopolitical turbulence into an economic advantage

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From left: Sudath Perera Associate Partner and Corporate and Commercial Law Head Dushyantha Perera, Amundsen Davis LLC, USA Partner Ngosong Fonkem, QZ&WD (Jiangxi) Law Firm Partner Mengni (Romanee) Luo, Deloitte Sri Lanka and Maldives Financial Advisory Head Ruvini Fernando, Aditya Birla Sun Life AMC Chief Investment Officer International Sarath Sathkumara and The Ceylon Chamber of Commerce Chief Economic Policy Advisor Shiran Fernando

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BY Nishel Fernando

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The global economic landscape is currently navigating a period of profound volatility, characterised by shifting geopolitical alliances, rising protectionism and unpredictable regional conflicts. 

For the emerging economies, these external shocks present a formidable challenge to economic stability but they also offer an unprecedented opportunity to pivot, innovate and capture migrating global capital. These precarious environments and their direct implications for domestic industries were the focal points of an exclusive forum and networking event titled ‘Trade in Turbulent Times: Geopolitical Challenges and Opportunities from Sri Lanka’s Perspective’. 

Organised by Sudath Perera Associates, the highly anticipated event took place on March 3, at Park Street Warehouse in Colombo, drawing a distinguished audience of industry leaders, legal minds and policymakers. 

Sudath Perera Associates Partner and Corporate and Commercial Law Head Dushyantha Perera moderated the dialogue, setting a sobering tone by noting the sheer complexity of the current era. 

“We live in very uncertain times,” Perera stated. 

Reflecting on the historical global conflicts, he added, “When having gone to World War I and II, we can’t really call it unprecedented but definitely uncertain right now.”

Breakdown of multilateral trade

This sweeping uncertainty is fundamentally altering the rules of international commerce, rapidly replacing the predictable multilateral order of the World Trade Organisation with fragmented, regional realities. Sanjay Notani, a prominent trade law expert and Senior Partner at Economic Laws Practice in India, candidly addressed this systemic shift during the panel, noting the immense friction that has emerged globally. 

“The journey between covid and the recent war has been as difficult as the last 50 years or 60 years,” Notani remarked, pointing out the “[complete] breakdown of the multilateral system”. 

A significant driver of this instability is the ongoing economic friction and reciprocal tariff warfare between the major powers. 

However, Notani offered a blunt assessment of these protectionist strategies, declaring that a “tariff is a waste of time”, acting merely as a temporary political tool rather than a long-term economic solution. 

For astute domestic exporters, the focus must shift away from merely surviving these tariff fluctuations to actively capitalising on the supply chain vacuums created by such superpower rivalries. 

“If you want to be an international business, the rules are different,” Notani bluntly told the audience.

Strategic compliance and navigating tariffs

For domestic exporters, successfully navigating this era of tariff warfare requires acute strategic foresight and rigorous compliance. Framing the challenge, Perera interjected to observe that many local export companies initially dealt with such external shocks “by absorbing some of the tariff increased internally” but pressed the panel on what other viable, long-term strategies exist to protect the already thin margins.

Ngosong Fonkem, Partner at Amundsen Davis LLC in the United States, provided a comprehensive overview of the current trends in trade policy and regulatory developments to answer this. 

Fonkem stressed the absolute necessity of adaptability for smaller economies navigating this shifting compliance landscape. To avoid severe repercussions, “you have to be able to essentially walk sort of a delicate balance”, Fonkem advised. 

He warned that any actions perceived as circumventing trade measures could lead to severe compliance issues, financial penalties and the ultimate loss of crucial market access. 

“For countries like Sri Lanka... you have to find a way essentially adapt within the two giant elephants,” he noted, referring to the economic superpowers.

Overcoming domestic barriers and attracting efficiency-seeking capital

Overcoming these global logistical and compliance hurdles requires resolving deep-seated domestic barriers and fundamentally shifting prevailing sentiments within both the public and private sectors. 

The Ceylon Chamber of Commerce Chief Economic Policy Advisor Shiran Fernando pointed out that the country’s historical structural vulnerabilities have heavily influenced the national economic mindset. 

Highlighting the urgent need for strategic shifts, he noted, “We’re not diversified enough in terms of our basket. We’re not diversified in terms of our export market.” 

Fernando emphasised the critical need to pivot away from a reactive stance by deeply integrating into regional value chains and aggressively pursuing bilateral trade agreements to decisively diversify export destinations.

A critical component of this strategic pivot involves fundamentally rethinking the domestic approach to attracting foreign capital. 

Steering the conversation toward state policy, Perera interjected to question the sufficiency of recent legislative efforts. Noting that the government has revised the frameworks like the Strategic Development Projects Act to offer tax holidays and benefits, he challenged the panel by asking, “Is that enough?” 

Global foreign direct investment (FDI) flows have diminished but Deloitte Sri Lanka and Maldives Financial Advisory Head Ruvini Fernando provided an insightful analysis into a promising domestic shift. 

She provided a granular breakdown of recent trends to highlight the composition of the local capital influx. She noted that of the FDI that has come in, “about 40 percent of it I believe has been for infrastructure and about 30 percent in that 40 percent for port terminal activities”. 

Crucially, however, she pointed out that “about another 40 something percent [was] for manufacturing” alongside roughly 15 percent in “ICT and hospitality”. 

She noted this indicates “you see some of the competitive sectors actually getting mentioned in the FDI”. 

To accelerate this positive shift, she stressed that the policymakers must urgently prioritise absolute policy consistency across successive administrations to reposition the island as a highly attractive manufacturing hub.

Regional integration, Japanese supply chains and real estate

One of the most immediate and lucrative avenues for unlocking robust economic growth lies in deeply integrating with the massive Indian economic engine. 

Aditya Birla Sun Life AMC Ltd Chief Investment Officer International Sarath Sathkumara, a Sri Lankan-born investment veteran, who manages global portfolios worth approximately US $ 50 billion, explored this broader regional investment landscape. 

Sathkumara reinforced the idea that the domestic economic future is heavily intertwined with India’s rapid, sustained economic growth but he firmly stated that “Sri Lanka’s private sector should be equally blamed” for not seizing these regional opportunities fast enough. He illustrated this starkly by sharing a recent investment screening exercise. 

After directing his team to evaluate the top 30 local companies to potentially allocate capital, the results were sobering. 

“I could find only maybe five companies that I want to invest in,” he revealed, emphasising a severe lack of globally investable local firms capable of delivering the required returns.

Beyond traditional corporate investments, Sathkumara highlighted a highly lucrative opportunity in the real estate market, driven by global shifts and regional wealth. 

“If you can capitalise on this my friend in India... there are 300 million [who] want to have a second home in Dubai,” he explained, adding that this wealthy demographic “will love to buy a place at a fraction of the cost in Sri Lanka”.

Reflecting on these missed regional opportunities, particularly in the hospitality sector, Perera interjected to express his frustration with the current promotional strategies. 

“I was wondering where we are going wrong in our marketing... where is the information gap happening?” he questioned, noting that the wealthy regional tourists often default to a narrow selection of well-known international hotel brands rather than exploring the premium domestic offerings.

Furthermore, this regional integration extends well beyond the subcontinent, opening doors to advanced global manufacturing networks. 

Ruvini Fernando highlighted the significant opportunities to plug into sophisticated East Asian networks, specifically referencing the powerhouse that is Japan. 

“We talked about Japan and the kind of manufacturing powerhouse that Japan has invested into in India,” she noted, emphasising that this presents the perfect opportunity for “Sri Lanka’s plugging into this global value chain”. 

By positioning itself as a reliable component manufacturer for these massive regional investments, the local firms can indirectly access high-value Japanese supply chains without needing to manufacture the final end-product.

Capitalising on China’s digital Silk Road

Expanding on the critical theme of market diversification, the panel extensively explored the immense potential of inbound and outbound investment with China. 

QZ&WD (Jiangxi) Law Firm Partner Mengni (Romanee) Luo provided deep insights into China’s evolving trade and investment strategy. Luo highlighted China’s expanding focus on bilateral trade and the profound impact of integrating into their modern digital infrastructure.

“Actually digital economy is included in our [cooperation] plan already. And how can we benefit it? Let me make it very straight with one word. E-commerce,” Luo stated emphatically. 

She explained the sheer scale of this opportunity, noting that Chinese consumers heavily rely on these platforms for daily purchases. By leveraging these established digital avenues, Sri Lankan businesses can achieve unprecedented, direct access to a massive consumer market, bypassing traditional logistical bottlenecks.

New frontiers of compliance and a proactive strategy

Looking toward the immediate horizon, the panel warned that the next major disruptions in global trade will not be driven solely by traditional tariffs but by sweeping, highly technical regulatory frameworks. The global business community must be ready to face entirely new frontiers of compliance.  Notani challenged the local business community to think bigger and capitalise on their geographic advantages in the technology sector. 

“India is very expensive for land. Why can’t we have data centre sitting here, on the tip of the border,” he questioned, suggesting that Sri Lanka could serve as a vital digital feeder for the region. 

Furthermore, he urged the domestic firms to understand the shifting value chains of critical raw materials, citing silica as a prime example of a resource highly sought after by companies moving operations into the region.

Ultimately, successfully navigating this volatile era requires a unified, proactive strategy that completely breaks down the entrenched domestic silos. The private sector must shed its reliance on legacy economic models, look boldly outward and embrace comprehensive digital and sustainable transformations. 

Summing up the overarching challenge ahead, Notani delivered the panel’s compelling final remark: “Sustainability and AI. These are the two fight[s] we have to be ready with.”

Dushyantha Perera moderates panel discussion 

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Audience 

PIX BY SAMEERA WIJESINGHE

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