14 May 2011

Sri Lanka's Game Changing Next Port of Call. Standard Chartered Highlights Ports Development in Sri Lanka Driving Economic Growth & Boosting Revenue

13th May 2011, www.island.lk

Global banking giant Standard Chartered Bank says the Sri Lankan government’s push to develop the country’s ports is likely to be a game changer; increasing trade, driving economic growth and significantly boosting revenues. However, fiscal constraints are a major dampener to Sri Lanka’s prospects given the inadequate and inefficient capacity of the existing ports.

Sri Lanka must act quickly, because major port developments in South India pose a threat to the island-nation’s ambitions of being a maritime hub delivering greater economic dividends to its people.

Standard Chartered Bank Research Economist Samantha Amerasinghe in a paper titled ‘Sri Lanka: The Next Port of Call’ in the bank’s latest periodical ‘Global Research: On the Ground’, says the development of Sri Lanka’s ports would have a strong multiplier effect on direct and indirect employment generation.

"The current push to develop ports is likely to be a game-changer, allowing Sri Lanka to benefit from increased trade. The expansions of Colombo Port and Hambantota (Magampura) Port, which is set to be the largest port in South Asia, are expected to drive economic activity and significantly boost revenues in the years ahead.

"However, a strategic location alone is not sufficient to achieve the status of a regional trade and logistics hub. The South Asia region is becoming highly competitive, and addressing capacity constraints and modernising port operations through new technology are crucial," the research paper said.

The existing port capacity is inefficient and inadequate, reflecting the broader structural problems the country has had to deal with which has constrained economic growth by hindering trade. Over the years, governments have not engaged in large infrastructure development projects, but with the end of the thirty year conflict, the research paper says the tide has turned.

"In a bid to improve the country’s competitiveness and attract investment, the government has identified ports infrastructure as a critical area for development," it said. But there are concerns.

"From a fiscal perspective, we are concerned about the government’s ability to spend on ports and aviation to achieve hub status (approximately 17 percent of total capital expenditure is earmarked for ports development, second only to the 34 percent allocated for highways expenditure), given other priorities such as education, health and rural infrastructure.

"That said, the economic benefits of ports development far outweigh such concerns, as large-scale projects of this nature have strong multiplier effects on direct and indirect employment generation. Furthermore, the development of ancillary industries such as oil bunkering will have indirect economic benefits. Colombo, Galle and Trincomalee ports employed 12,828 people in 2010; the development of Hambantota port alone is expected to create 50,000 jobs."

Benefits of developing Sri Lanka’s ports

The Standard Chartered Bank research paper says revenue from Sri Lanka’s ports, once completed and fully operational, would triple revenue from current levels to Rs. 72 billion.

Lower freight rates and faster delivery would result in savings amounting to US$ 82 million by 2015. (The average turnaround time in Hong Kong is 10 hours, whereas it is 18 to 24 hours in Sri Lanka.)

Direct payments from transshipment alone are expected to increase the contribution of ports to GDP by an additional 0.1 percent.

FDIs, which amounted to US$ 460 million in 2010, would amount to US$ 800 million in the ports sector alone.

South Indian port development a threat, Lanka could lose US$ 52mn

* High prices, labour unrest short-term respite for Sri Lanka

The Standard Chartered Bank research paper says the development of ports in South India pose a threat to Sri Lanka’s ambitions of becoming a regional maritime hub.

"Although Sri Lanka is strategically positioned on the east-west maritime route, its ports sector faces stiff competition from regional counterparts. India’s port development activities and changing sea routes pose a threat to Sri Lanka’s ambition of establishing itself as a shipping hub.

Sri Lanka’s ports are currently also a partial gateway to the southern and eastern parts of the Indian peninsula, providing trans-shipment services for the import and export trade of the southern Indian states of Tamil Nadu, Karnataka, Hyderabad, Kerala and Kolkata.

Sri Lanka must keep a close watch on current developments in the ports sector in the region, where port infrastructure is rapidly being enhanced, while ensuring that investments do not result in under-utilisation of resources and assets. Major shipping lines call at Colombo Port primarily to trans-ship volumes of containers to India’s Southern ports," the report says.

Sri Lanka currently commands an 18 percent share of India’s transshipments (70 percent of total container volume handled by Sri Lanka) and has nothing to fear as India’s pricing is three times higher.

"If (Indian port) prices are lowered, this has the potential to threaten 80 percent of the transshipments handled by Sri Lanka, which are worth US$ 52 million. Labour unrest in Indian ports may provide some respite for Sri Lankan competitors, but if the island-nation is to compete with regional players, it needs to act fast to modernise its ports and overcome operational shortcomings.

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