“Sri Lanka's Role in the Indian Ocean and the Changing Global Dynamic”
Speech by Dr Harsha de Silva, Deputy Minister for Foreign Affairs, at the Public Forum organized by the Institute of South Asian Studies, National University of Singapore, 9th January 2017
Ambassador Gopinath Pillai, Mr Shivshankar Menon, Mr Sanjeev Sanyal distinguished ladies and gentlemen, good afternoon.
Let me first thank Ambassador Pillai for inviting me to the Institute for South Asian Studies here at the National University of Singapore for this public forum on The Indian Ocean.
It is an honor for me to be here this afternoon and participate in this discussion. I bring greetings from the people of Sri Lanka.
Today marks the 2nd anniversary of an important turning point in Sri Lanka’s recent history. It is the beginning of the 3rd of the 5 year term of President Maithripala Sirisena. On 8th January 2015, the people of Sri Lanka went to the polls and on the 9thswitched from a government which had embarked on a divisive and authoritarian trajectory to one of convergence and National Unity.
For the first time since Independence, traditional rivals in Sri Lankan politics, eschewed adversarial politics to undertake pressing political and economic reforms in the long-term interests of the people. Sri Lankans demonstrated to the world that they could change a well-entrenched government, long considered to be undefeatable, by using a simple tool called the ballot.
It was an unexpected outcome to many, both outside and inside of Sri Lanka and demonstrated the importance of democracy.
Optimism in a changing global dynamic
During the last 2 years, we have achieved some notable successes as well as faced some complex challenges that have slowed down our progress. It is a trajectory that is inevitable in a democracy.
Sri Lankans are a resilient people who sustained a sense of optimism about the potential of their country even in the darkest moments of our history. Now, perhaps for the first time in our contemporary history, the future holds more promise than doubts.
We believe that we are at a stage of economic growth and political maturity, which combined with opportunities presented by global and regional developments, will allow us to propel ourselves to the next phase of development if we play our cards right.
Therefore, it’s with a sense of optimism that I approach this topic of my speech ‘Sri Lanka's Role in the Indian Ocean and the Changing Global Dynamic’.
The moment one hears the two words Sri Lanka his or her mind travels to South Asia. And that is why we are here at the ISAS. However, for centuries Taprobane, Ceylon, Sri Lanka or whatever the island was referred to was the heart of the Indian Ocean.
So, we would like to position Sri Lanka more as that centre of the Indian Ocean.
The future prosperity of our people lies in how well we leverage our location in the Indian Ocean.
In order to accomplish our goals we must be vigilant on regional and global developments that will aid or hinder our path.
The year 2016 was a tumultuous year in politics and economics.
We are witnessing momentous changes in the structure of the global economy brought about by the relentless winds of globalization and the current manifestation of Western neo-liberalism.
It is reasonable to be concerned at the rapid pace of changes, and what it means for our economies.
The effect of Brexit and (and other possible exits from the EU) and the trade policies of the US-President-Elect will take some months, even years, to manifest.
And many will be observing with interest the interactions between China and the incoming US Administration.
It is in this context that many say that “Uncertainty is the new normal in business life”. Those countries and organizations which thrive in an era of uncertainty will be those who seize the opportunities presented by these uncertainties and take actions that can avert disasters and promote confidence and recovery.
So the emerging and uncertain global dynamics will present both challenges and opportunities to us in the Indian Ocean.
Sri Lanka’s historical role in the Indian Ocean
Our location has shaped our history so intrinsically for millennia and will continue to be so in the future.
In ancient times, Sri Lanka was important as the half way point between the two great empires of Rome and China and near the equator where navigational winds and monsoon effects changed directions. Therefore, it had strategic geographical advantages where global and navigational contexts were concerned.
The island featured prominently in the Spice Routes which were also known as Maritime Silk Roads. In fact, it is said that cinnamon from Sri Lanka and cassia from China found their way along the Spice Routes to the Middle East as far back as 2,000 BC.
Foreign merchants were attracted to ancient Taprobana because of its importance as a centre of international trade and some of them even settled in the island, particularly Moors, descendants of Arab traders to the island.
They were a dominant influence on the island's international trade in the Polonnaruwa period in the 11th to 13th centuries; a position which they retained till the early decades of the sixteenth century.
An examination of the foreign relations of the island under the Polonnaruwa kings reveals political links with South-East Asia, in particular with Myanmar and Cambodia.
Peace and prosperity along the maritime Silk Road helped increase the volume of trade via the Indian Ocean, from which Sri Lanka naturally profited.
Much of this trade was in luxury goods, and in this respect, Sri Lanka was a transit point as well as a terminal point, the latter due to Sri Lanka’s own considerable luxury products such as gems and pearls.
However, ancient Sri Lanka was largely a self-sufficient agrarian economy and role of trade was a generally peripheral activity.
It was only after the collapse of the ancient hydraulic civilization at the end of the Polonnaruwa period that the country’s rulers began to pay greater attention to the economic possibilities of trade.
Exports of spices, particularly cinnamon, became an increasingly lucrative activity. During the period 13th-15th centuries, Sri Lanka’s position as a trade hub on the East-West maritime route had been established, as had its position as a gateway to India.
Sri Lanka had direct commercial links with Malacca, and also with regions in India such as Gujarat and Bengal.
During the colonial rule by the Portuguese, Dutch and lastly the English, the volume of foreign trade expanded. The tea trade which was started by the British still plays a significant role in the Sri Lankan economy.
However, in the last 500 years the Indian Ocean region lost its geo political and geo economic relevance; first to colonial dictates and in thereafter post-colonial cold war concerns.
Sri Lanka's strategic role in the Indian Ocean
Now, for the first time in five centuries, global economic balance of power is once again shifting towards Asia. It is estimated that by 2030, Asia will surpass North America and Europe combined in global power based on GDP, population size, military spending and technological investments.
The global financial system is also moving away, albeit slowly, from the dollar dominated international system to a more multi-currency system.
New consumer markets are emerging all across Asia and the Asian middle class is expanding rapidly. Of the four largest economies of the world; US, China, Japan and India, three are located in Asia.
The busy East-West shipping route passes just six to ten nautical miles south of the island with more than 60,000 ships plying this route annually carrying two-thirds of global petroleum supply and half of all containerized cargo.
Thus, Sri Lanka’s situation in the nautical corridor between the East and West is of importance not only from a geostrategic perspective, but also from maritime economics and security perspectives.
We are under no illusion that as a small country, we can change the geo-political realities of the region surrounding us. Thus, a wise foreign policy is essential, not only for the present but to ensure the prosperity and safety of future generations.
Along with many opportunities, the renewed interest will also bring vulnerability to emerging competition among major naval powers.
The blue-water naval capabilities of key Asian States have ushered a new strategic environment, and the Indian Ocean has become an extremely important geo-strategic space.
While the maritime space of Asia is strongly connected to the Indian and the Pacific Ocean through trade and commerce routes, there is a difference in the power dynamics of the Pacific and the Indian oceans.
The power play in the Pacific is dominated by its proximity to the US, centrality to US security policies, and now the rise of Chinese naval power. In contrast, the Indian Ocean Region has maintained a multipolar characteristic.
Let us take a step back and consider when the change started. This transition in global power to Asia began with the economic awakening of East Asia, driven by the growth of China.
And the complementary growth of ASEAN countries; particularly Indonesia and Vietnam.
While the South Asian region has not matched the same level of development, the region is acquiring an intrinsic significance of its own underpinned by the growth of India.
Currently India is the fastest growing large economy in the world and the power transition in the Indian Ocean will be heavily influenced by South Asian developments.
The Indian Ocean plays a crucial role in the future of both these major powers.
The sea routes through the Indian Ocean are very important to China's maritime trade and energy supply. Therefore, both countries will have to respect each other’s legitimate interests to ensure that their future prospects are not affected in the long term.
Unlike the Asia Pacific, the Indian Ocean region is not economically integrated.
No single power or a coalition will be able to maintain peace and stability on their own in the Indian Ocean. In capacity terms also, no country is capable of handling the maritime security threats and challenges in isolation, no matter how advanced and developed it might be.
In addition, it is preferable that the region continues its historical multi-polar characteristic and prevent a spillover of tension from other regions.
In such a background, all maritime nations have a role to play in ensuring the overall balance of strategic weight. Smaller nations such as Sri Lanka, even with comparatively limited maritime resources can become an integral element of maritime security in the region.
It is our view that the Indian Ocean is in need of a mutually benefiting security architecture established on a multilateral basis.
There is also space for an effective multilateral governing structure. In this regard, I may add that the Prime Minister of Sri Lanka has expressed an interest in crafting an Indian Ocean Order with accepted rules and agreements that would guide interactions between states. Speaking here in Singapore last year at the inauguration of the Indian Ocean Conference Mr. Ranil Wickremesinghe called for this Order to be built on a consensual agreement and that no singular State should be allowed to dominate the system.
The Indian Ocean Order would have the primary responsibility of upholding the freedom of navigation in the Indian Ocean, ensuring that shipping and air routes to East Asia and beyond are kept open, building closer economic cooperation amongst countries in the region.
In this regard, my Prime Minister called for a dialogue between SAARC and ASEAN leaders. Perhaps that can happen sooner than later and we would be delighted to play a role.
Be that as it may, Sri Lanka remains committed to preventing international terrorism, transnational crimes and people smuggling in the seas around our country. Supplementing the blue water capability of the Sri Lanka Navy and the consolidation of the Sri Lanka Coast Guard are areas of concern for our Government.
We are also reviewing the possibilities of integrating the capabilities of the Navy and the Air Force.
Repositioning Sri Lanka
The Government of Sri Lanka has a clear vision of what it wants Sri Lanka to be in the world today.
We are repositioning Sri Lanka to maximise our relationships with both our historic and new trading partners to leverage our geo-strategic position to make us a hub of the Indian Ocean as well as a transshipment port for the Bay of Bengal trade.
To fully tap this potential, Sri Lanka is engaging in initiatives with regional players who have major economic stakes in the Indian Ocean.
Sri Lanka is now pushing towards further integrating with the world by undertaking reforms to facilitate trade, and encourage productive foreign investment.
We have set a target of boosting exports to US$ 20 billion by 2020; an increase in exports of nearly 80% during 2016-2020.
It is unfortunate that in the last decade or so the previous government in Sri Lanka lost its focus on exports. Exports to GDP fell from 34% of GDP to less than 14%. So, it is critical that we implement our plans to leverage on our competitive advantages as now planned.
Unlike ASEAN which provides its members with a largely stable and peaceful regional environment to focus on economic development at formative stages of their countries’ development, SAARC has not been able to achieve the same level of regional integration.
These geo-political realities require that Sri Lanka build strong bilateral relations with Bay of Bengal members of ASEAN in addition to its fellow South Asian members. In addition, we cannot be content with our traditional markets, and we must look beyond for new opportunities.
India and Sri Lanka hope to finalize an Economic Technology Cooperation Agreement (ETCA) by 2017. The ETCA will enhance the scope of our existing Indian Sri Lanka FTA to extend freer movement of goods and services with the added emphasis of cooperation in the development of technology and in investments.
ETCA will provide an impetus to the existing synergies and has the potential to promote rapid growth of the sub regional economy between Sri Lanka and the five South Indian states, that is Tamil Nadu, Kerala, Karnataka, Andra and Telengana which today accounts for and economy of 500 billion dollars.
We are also negotiating a FTA with Singapore. Singapore already has a Comprehensive Economic Partnership Agreement (CEPA) with India. Therefore, we believe that by next year the Singapore-India (CEPA), the Indo-Lanka ETCA and the Sri Lanka-Singapore FTA will enable the southern sub region of South Asia and Singapore to establish a tripartite arrangement for trade and investments.
Sri Lanka is supporting the One Belt - One Road economic initiative, in line with the major historical role we played in the Maritime Silk Route. This will consolidate our position to become the Hub of the Indian Ocean while further integrating us with the Asian markets.
Chinese investments will be primarily directed to industrialization and further development of the Hambantota Air Sea Hub in southern Sri Lanka.
In addition a 1.4b dollar reclamation is now underway adjacent to the city of Colombofor the creation of a 560 acre Financial City, under English law, to fill the vacuum for offshore financial service between Singapore and Dubai.
Chinese investors have made significant commitments to invest equity in the China-debt strapped Hambantota port and the Mattala international airport the previous Government built; now as PPP ventures.
Our government is currently negotiating a 1.3 billion USD lease agreement with CMPort of China to lease the currently empty deep sea port to integrate with the proposed industrial zone.
It was just this Saturday we inaugurated the 15,000 acre, that is 50 square kilometer ‘Sri Lanka China Logistics and Industrial Zone’ to become a seriousplayer in global production networks.
It was revealed at the inauguration that Chinese investors were ready to bring in 5 billion USD in investments in to the zone in just the next 3 years.
The economic cooperation with Japan is as important to us. We are grateful that four decades of Japanese donor assistance has made a significant impact on our economic and social developments in Sri Lanka.
The Japanese Prime Minister has also appointed a senior official to especially coordinate Japanese Sri Lanka Joint Comprehensive Partnership Programme that was entered in to last year.
After some lull, Japan is once again also getting involved in several major infrastructure projects in Sri Lanka including Light Rail and expressways.
Many may not be aware that Sri Lanka also is home to the second largest natural harbor in the world in Trincomalee; said to be one of the finest deep sea harbors in the world.
In fact, there have been many sea battles to control the harbour. The Portuguese, Dutch and the English have each held it in turn. In 1942 the Japanese Imperial Navy attacked Trinco harbor and sunk three British warship anchored there.
While it has a large 99-unit tank farm built by the British during the war and mostly unused, except for some tanks by the Lanka Indian Oil Company, we have now initiated action to develop the port cenetred the larger Trinco development zone.
The government is working with India and Japan to develop Trincomalee with Surbana Jurong of Singapore already being contracted to draw up a city master plan.
The proposed container terminal at the Trincomalee Port will serve trade in India’s east coast as well as Bangladesh and Myanmar.
With the strong interest in utilizing the zones along the Southwest Corridor centered around the Colombo port and the Western Megapolis; logistics and industrial zone centered around the Hambantota air-sea hub and the North East corridor centered around the Trincomlee port development by investors from China, Korea, and Japan and also likely from India, we plan to create an export market focused on Europe, China, Japan and USA and the crescent of markets around the Indian Ocean.
Among the Middle East, Iran, Afghanistan, Pakistan, India, Bangladesh, Myanmar, Thailand, Malaysia, Singapore and Indonesia there exists a fast-growing population currently of over 2 billion people. This combined market has the potential of 3 billion consumers by 2050.
Going forward, our development strategy will be aimed at capturing trading opportunities within these identified Indian Ocean markets by pursuing trade liberalisation agreements with their governments.
We have already made the application to the European Union to regain the GSP+ facility for preferential access to the single market and are hopeful of an agreement by next year. European Commission has expressed their confidence that the GSP Plus trade concession would be given favourable consideration.
A concerted effort is also underway to improve the business climate domestically. Far-reaching governance reforms that are rules based have made investment and business more secure and certain.
Sri Lanka is taking measures to increase investor’s ease of doing business more directly. For example, we are bringing a number of government agencies together to create a one-stop investment and trade-facilitation shop under the Agency for Development.
We are reviewing our laws and regulations to create a simple rules-based business environment: including those related to land ownership, as well as tariffs and para-tariffs. We have adopted policies that enable private enterprise to thrive: for example, Sri Lanka has a simple 3 tier tax rate with the lowest at 14 percent. Together these reforms – alongside our educated workforce and solid infrastructure – are making Sri Lanka the most attractive, secure and competitive investment destination in the region.
In conclusion, I would like to point out that those of us who are geographically located in the Indian Ocean region have a primary interest in the security of the Indian Ocean, which is directly linked to our economies.
Therefore, managing competition and strengthening cooperation would be essential given both these economic and strategic security factors which have a direct impact on the future of this region. There will always be tension, such as between large countries and their smaller neighbors.
However, the countries in the Indian Ocean region have more in common in terms of history, culture and religion, than what sets us apart.
We believe that the Indian Ocean Region now facing an extraordinary opportunity to create something new in the global context and something historically uniquely beneficial to its people. Thank you.