What just happened?
Sri Lanka has reclaimed two square kilometres of land from the Indian Ocean as it aims to transform its Colombo Port City to one of South Asia’s most formidable financial new centres.[1]
What does it mean?
The Indian ocean is essential to Western trades. Each month, a large portion of global bulk shipping trades, including petroleum products and coal transit, are transported in this ocean.[2] Sri Lanka's geographic context offers strong potential in these trades as its ports in Colombo connect travelling to Europe and East Africa. Furthermore, they are positioned between other economic powerhouses such as Dubai and Singapore.[3]
Sri Lanka's strategic location is why China has invested a lot of money in the country over the years as it's naval routes paved a clear path for the 'Belt and Road Initiative' launched by the state-owned corporation, the Chinese Merchant Groups.
Developed by Skidmore, Owings & Merrill, the project called 'Colombo's International and Financial City' is the largest private sector development in Sri Lanka's history.[4] The innovative project will include a new commercial and residential district, creating a special economic zone that will attract foreign investors and multinational corporations, through it's low or zero taxation policy.[5] In addition, the district will introduce 80,000 new jobs and expects to have 250,000 daily commuters once completed.[6]
How does it affect the legal industry?
The city aims to cater to the varied and complex global supply chains. Still, in order to do that, the efficiency of logistics will depend on government services, investments, and policies. Sri Lanka will need to develop a regulatory regime that implements efficient custom clearance procedures for foreign businesses to operate in.[7] However, the country's legislation covering key areas such as; trade facilitation, social protection, and revenue collection has not been amended and aligned to the contemporary needs of the international trading environment and the application of recent technological developments.[8] At LawMiracle, we support the argument that in-order for Sri Lanka to transform itself into a leading commercial hub, the government must adopt a holistic approach to reform and modernize its regulatory framework in these areas.[9] In response to this problem, the Sri Lankan government has announced that the city will have its own special jurisdiction with economic and commercial laws based on English Law.[10] This will help set up free ports and bonded areas in the city, which will create the trade-related infrastructure to facilitate import and export offerings without restrictions of carrying out transactions in convertible foreign currency.[11]
Once the project is completed, Sri Lanka may witness a similar economic trend experienced by Singapore, in the 2000s undergoing a global transformation in the commercial and legal industry. An estimated 200,000 Sri Lankans with high-skilled backgrounds leave the country for better employment opportunities every year.[12] This figure could change as the commercial hub would attract global business interest in the country, leading to more foreign parties settling in. From a legal perspective, the client base for the city state's corporate lawyers will shift from local businesses to multinational corporations.[13]
One primary concern that Sri Lanka must investigate is the growing presence of China in the region. It should be noted here that in today's emerging markets, a developing country may face heavy economic and political involvement from a more developed country, which could lead to a debt-trap diplomacy.[14] It follows this project can be viewed as a gamble when one looks at the previous deals made between China and Sri Lanka, which caused heavy losses to the latter. For example, in 2010, the Hambantota Port was built using loans worth $1.3 billion from the Chinese banks. Difficulty paying back those loans led the country to hand over its port to China on a 99-year lease.[15] This is not to say that the project will be a failure. The bigger the risk, the greater the reward. If everything goes to plan, we will see a new titan emerging in the market.
Written by Amarjit Tark
Assessing Firms:
#D.L.&.DeSaram #Julius&Creasy #NithyaPartners #F.J.&G.DeSaram #SudathPereraAssociates #TiruchelvamAssociates #JohnWilsonPartners #Neelakandan&Neelakandan #Tiruchelvam Associates
References:
[1] Adam Savage, ‘The $15BN Island That Will Make or Break Sri Lanka’ (B1M, 4th March 2020)
[2] ‘Commercial Hub Operations in Sri Lanka’ (EDB Sri Lanka Export Development Board)
[3] Adam Savage, ‘The $15BN Island That Will Make or Break Sri Lanka’ (B1M, 4th March 2020) and ‘Commercial Hub Operations in Sri Lanka’ (EDB Sri Lanka Export Development Board)
[4] Chamali Fernando, ‘New Legislation for Colombo’s Port City’ (SAL, 11th September 2019)
[5] Chamali Fernando, ‘New Legislation for Colombo’s Port City’ (SAL, 11th September 2019)
[6] Adam Savage, ‘The $15BN Island That Will Make or Break Sri Lanka’ (B1M, 4th March 2020) and ‘Commercial Hub Operations in Sri Lanka’ (EDB Sri Lanka Export Development Board)
[7] Stephen Muller and Lalith Edirisinghe, ‘Converting Sri Lanka into a Commercial Hub in Asia
An assessment of postwar progress with insights to the way forward - A Case Study’ (International Research Symposium 2013)
[8] Stephen Muller and Lalith Edirisinghe, ‘Converting Sri Lanka into a Commercial Hub in Asia
An assessment of postwar progress with insights to the way forward - A Case Study’ (International Research Symposium 2013)
[9] Stephen Muller and Lalith Edirisinghe, ‘Converting Sri Lanka into a Commercial Hub in Asia
An assessment of postwar progress with insights to the way forward - A Case Study’ (International Research Symposium 2013)
[10] Chamali Fernando, ‘New legislation for Colombo’s Port City’ (SAL, 11th September 2019)
[11] Mahinda Ramanayke, ‘Investment Climate for Logistics Under Commercial Hub Regulations in Sri Lanka’ (BOI Sri Lanka)
[12] Adam Savage, ‘The $15BN Island That Will Make or Break Sri Lanka’ (B1M, 4th March 2020)
[13] Yasmin Lambert, ‘Early reforms recast Singapore as hub for legal services’ (The Financial Times, 27th June 2019)
[14] Chamali Fernando, ‘New legislation for Colombo’s Port City’ (SAL, 11th September 2019)
[15] Adam Savage, ‘The $15BN Island That Will Make or Break Sri Lanka’ (B1M, 4th March 2020)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.