Sri Lanka, which translates as “resplendent island”, is well known to thousands of UK travellers and business people.
A small island nation off the south-eastern tip of India, Sri Lanka — formerly known as Ceylon — is familiar territory to many thousands of British tourists each year as well as to cricket lovers and tea drinkers around the world. Despite current uncertainties surrounding the coronavirus pandemic and its potential economic impact, the country has all the building blocks to succeed as a premier tourism destination.
Located just 30 kilometres from India, one of the world’s biggest emerging markets, it is also a location that holds a much wider and broader business appeal.
Like most other countries around the world, the coronavirus health crisis has exacerbated many key challenges facing Sri Lanka, not least decimating tourism. Ratings agency Moody’s Investors Service highlighted at the end of April that higher financing costs and debt, among other troubles, will combine to weaken the Government's “already fragile” fiscal position.
The Government has turned to multilateral and bilateral financing agencies in a bid to secure additional support and help to cover its repayments. China Development Bank agreed a US$500 million syndicated loan in March, while Sri Lanka has also requested US$800 million from the International Monetary Fund (IMF), as well as additional cash from the World Bank and the Asian Development Bank (ADB). Moody’s said it expects Sri Lanka's debt burden to rise to nearly 100% of GDP, a high level that would challenge any government administration.
As well as the hit to the tourism sector, it noted that weaker demand for Sri Lankan textile and garments from North America and Europe will also weigh on exports. Given global travel and activity restrictions, a decline in overseas remittances of around US$1.5 billion is also anticipated, further undermining the economy.
Naturally, economic growth is expected to slow as a result, though by how much, is hard to determine in such an unsettled and unpredictable climate. Despite these gloomy forecasts, the country is no stranger to dealing with adversity, not only arising from a protracted civil war, but also in the aftermath of the tsunami of 2004. It is a testament to the hard-working and determined people of the island that they have always managed to bounce back.
The UK is expected to play its part in Sri Lanka’s return to a new normality. As well as supporting tourism, major British players with a presence in the market include HSBC, Marks and Spencer, De La Rue, GlaxoSmithKline, Standard Chartered and Rolls-Royce. Business may also get a welcome boost following the appointment of Ranil Jayawardena, a parliamentarian of Sri Lankan origin, as the UK’s new trade minister earlier this year. Jayawardena, whose father is of Sri Lankan origin, also served under former Prime Minister Theresa May, as her trade envoy for Sri Lanka.
British exports to the country cover a wide array of services and products spanning education, infrastructure, information and communications technology (ICT) and financial services. One UK company enjoying life in Sri Lanka is Cleveland Bridge, which has been building hundreds of new modular bridges to help bring rural communities closer together. The Sri Lankan Government estimates that collectively its bridges will benefit more than 100,000 families as well as businesses in the country. The Darlington-based engineering group has designed and built a number of iconic landmarks in its time including Australia’s world-famous Sydney Harbour Bridge.
Like its near neighbour, India — with which Sri Lanka has a free trade agreement, opening up a market of one billion-plus people — there is a natural affinity between the UK and Sri Lanka. As well as strong historical and trading links with the UK and the use of English, the island’s commercial law is based on English law, bringing with it a degree of familiarity. Overseas buyers of UK exports can also access British government-backed finance in Sri Lankan rupees to help facilitate contracts, smoothing the path of business and aiding competitiveness. UK Export Finance, which offers such local currency support, also played a role in helping Cleveland Bridge navigate the various financial challenges presented by its contracts.
Goodwill between the two countries remains palpable, flowing in both directions, and no better illustrated than during the crisis-era of Covid-19. Standard Chartered, one of the top banks to retail and corporate clients in Sri Lanka, was quick to offer payment breaks and other support following the outbreak.
In addition, at the height of the pandemic in the UK, Ceylon tea — one of the nation’s prized exports — was dispatched to NHS frontline workers as a gesture of friendship and support. It was a donation organised by the Sri Lanka Tea Board together with leading producers such as Vintage Teas Ceylon Ltd, English Tea Shop, Tea Trends Export Ltd, Dilmah Ceylon Tea, Mlesna Ceylon Ltd and Stassen International Pvt Ltd. Sri Lanka’s manufacturing industry has evolved greatly in recent times, like its tourism sector and now extends far beyond tea and agricultural products. Indeed, another company, Dipped Products Ltd of the Hayleys Group, a manufacturer of disposable gloves, also contributed to the NHS care package.
In 2019, Sri Lanka’s textiles and garments sector earned a record US$5.3 billion in exports, according to the Joint Apparel Association Forum, a rise of over 5% on the year before. Again, the UK is a vital partner, as Sri Lanka's largest single apparel export market. As a gateway to the other, larger markets of the Indian sub-continent, this small island state may well have an integral role to play for British companies as they seek to reassert themselves in global markets in the wake of Brexit.
A logistical hub for the south Asian region — the port of Colombo is a major regional transshipment centre — it has also caught the eye of other investors. That includes China, which now has a strong profile in Sri Lanka, developing new shipping facilities at Hambantota port on the island’s south coast, where an oil refinery is also planned.
India, which accounts for around 70% of the transshipment business in Colombo port, is likewise seeking to counterbalance China’s rising influence in a territory New Delhi has long considered its own backyard. With a highly skilled and educated workforce and an increasingly diverse economy, this competition is likely to intensify for all sides as economic matters return to centre stage post-pandemic.
Like so many other countries around the world, the challenges Sri Lanka faces in the latter part of 2020 are very real and difficult — yet its underlying potential remains every bit intact.