UAE is Sri Lanka’s biggest trading partner in the Middle East

The United Arab Emirates (UAE) is Sri Lanka's sixth-largest source of Foreign Direct Investment (FDI) inflows. According to a Sri Lankan official in correspondence with gulf media, the UAE is also its largest trading partner in the Middle East. It has bilateral trade representing over half of the country's entire business with the region.

In an interview during his official visit to Abu Dhabi, Sri Lankan Foreign Secretary, Ravinatha P. Aryasinha, said there was a quantum leap in bilateral trade ties between Sri Lanka and the UAE over the past three years.

During 2015-2018, FDI inflows from the UAE to Sri Lanka amounted to $641 million, he said. Sri Lanka earned $593 million in FDI from the UAE during 2015-2017, which accounted for 6.1 percent of the country's total FDI inflows over that span, he said.

"We had 48 million dollars worth of FDI from the UAE in 2018 alone," Aryasinha reported. In 2016, bilateral trade was $1.34 billion, increasing to $2.13 billion in 2018, seeing a rise of 62.92 percent, he said.  Of the $2.13 billion markets in 2018, Sri Lanka's total exports to the UAE amounted to $290 million, and total UAE imports to Sri Lanka amounted to $1.84 billion, the official said. The principal exports from Sri Lanka were tea ($48 million), coffee, apparel, and tobacco, while petroleum and related products were major UAE imports, he explained.

Since most of the oil imports from Sri Lanka come from the Arab Gulf countries, including the UAE, the region plays a crucial role in the energy security of the country, Aryasinha said.

In 2018, Sri Lanka's trade with the UAE accounted for 56.5 percent of the country's total business together with the Middle East, making the UAE its region's largest trading partner, the official said.

In 2018, trade between Sri Lanka and the Middle East (14 countries, including the UAE) accounted for $3.77 billion, of which total exports from Sri Lanka to the Middle East amounted to $1.16 billion, and total Middle East imports reached $2.61 billion, Aryasinha explained.

Approximately 71,636 Middle East tourists visited Sri Lanka in 2018, and, he said, 5,785 were from the UAE. 

In 2018, Sri Lanka also received $3.59 billion worth of foreign remittances from over one million Sri Lankans working in the Middle East, representing 52.2 percent of the country's total,  over the same period, Aryasinha said.

According to Vision 2025, Sri Lanka will take practical steps to move from exporting predominantly low-tech products to high-tech products and attracting knowledge-based transformational investments. Future bilateral relations must form the enormous possibility that exists in the UAE as an export market and as a principal investor in the world.

OSL Take: Sri Lankan authorities are engaged in a global drive to promote trade and investments on the island. The country has also participated in many large scale international exhibitions and initiated bilateral trade discussions with many foreign countries. Meanwhile, the government of Sri Lanka is continuously developing the ease of doing business environment in the country. Also, the country’s geographical positioning in the Indian Ocean, along with the many trade agreements as well as trade concessions enjoyed by the island, makes Sri Lanka the ideal business/investment destination in the South Asian region. In this backdrop, the discussions on trade and investments in the UAE would open up business/investment opportunities for businesses in both countries.

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Sri Lanka-China Political and Economic Ties Strengthen (Part 2)

Its domestic conditions determine foreign policy for Sri Lanka. It is an island country in the Indian Ocean, separated by the Palk Strait from the Indian subcontinent. Its location has given Sri Lanka more strategic freedom to determine its diplomacy independently than other South Asian countries. Though Sri Lanka is not an advanced country, its economic statistics are better than most other economies in South Asia.

His people have every reason to pursue higher economic objectives. The country sits on one of the busiest shipping lanes in the Indian Ocean. The shipping lane is a dynamite location destined to bring enormous wealth to Sri Lanka. Due to its poor infrastructure, however, it was difficult for the country to take advantage of the transport road.

Cooperation with China reflects the desire of Sri Lanka to take advantage of its geographical position and become a transportation hub in the North Indian Ocean. But the ambition of Colombo has made other major regional powers uncomfortable. They're entitled to be concerned. Sri Lanka, however, also has the right to make policies in line with its interests.

OSL Take:    With this new political arrangement, Sri Lanka is in a position to continue to pursue its development projects with a strong ally in China. It is particularly noteworthy that within weeks of signing a similar type of agreement with India, this agreement comes in. It outlines the determination of governments to work with regional leaders and to enable them to support the development of Sri Lanka. Such an arrangement also describes the willingness of the government to maintain an increasing but neutral economic relationship with two of the world's largest leading nations.

A Neutral Stance will go a long way towards ensuring economic stability as well as diversifying the risk dimension of increasing dependency on a more massive nation.

Sri Lankan-based industries will receive a significant boost due to the many infrastructure projects that the Chinese backed investors will be carrying out, and for a potential investor this would mean significantly upgraded, and new operational infrastructure will be in place.

China may enter into a free trade agreement with the Sri Lankan Ambassador to China within the year, sources say. Sri Lanka has stated that the best way to celebrate the 60th anniversary of diplomatic relations with China is through the signing of a free trade agreement.

Such an FTA would further improve the benefits and level of integration achieved by this agreement and would also enable both Chinese investors to invest in Sri Lanka and open up new avenues for Sri Lankan businesses to tap into a much more comprehensive marketplace and investor pool.

Another area that can be included in this arrangement is tourism. The government of Sri Lanka is expanding its search for investors to add significant headwinds to the tourism industry in Sri Lanka. China could be a successful partner in attracting both Chinese tourists and attracting world-renowned hotel chains based in China to operate in Sri Lanka. We can expect the Chinese backed investors in the hotel arena to see Sri Lanka as an attractive option due to both government support and increasingly strengthened relationships. Moreover, with many landmark projects close to completion in Sri Lanka, Sri Lanka will become an attractive option for visitors around the world.

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previous Article

Sri Lanka-China Political and Economic Ties Strengthen (Part 1)

On Monday, after winning the weekend election, Sri Lanka's former defense chief Gotabaya Rajapaksa was sworn in as the country's new president. Since the world perceives Rajapaksa as "pro-China," his inauguration is considered the start of Sri Lanka's tilt towards the world's second-largest economy.

The shared relationship between China and Sri Lanka dates back to the Northern and Southern Empires (386-589). Faxian, a Chinese Buddhist monk who, after his foreign trip, took a large number of Buddhist books back to China, lived in Sri Lanka for a long time, and became a key figure in Sri Lankan Buddhism's history. Zheng landed many times in Sri Lanka in the legendary Chinese navigator Zheng He's journey during the Ming Dynasty (1368-1644). Sri Lanka also sent officials to China at that time.

Before China and Sri Lanka established diplomatic ties in 1952, the two countries inked the Rubber-Rice Pact agreement. At the time, China was facing a foreign-exchange crisis under sanctions from the West and Sri Lanka. China agreed to supply rice for Sri Lankan rubber mid-signing of the agreement.

In both countries, the deal resolved the urgency and showed both as reliable partners.

The relations between China and Sri Lanka have gone through some twists and turns, putting some big cooperation projects on hold. The former has been so since Maithripala Sirisena, former President of Sri Lanka, took office on January 9, 2015.

There are three main reasons for this. First, opposition stems from electoral politics' nature. Second, the international community's pressure and temptation gave Sirisena the impression that he could use relations with China to trade more help from other countries. Third, given the contradictions within the nation between different interest groups, only change can lead to new government winning opportunities. Sri Lanka, however, eventually failed to get more help from other countries.

Yes, ties between China and Sri Lanka are deeply rooted in the island country's public opinion. In Sri Lanka, China has built quite a few major infrastructure projects, including Hambantota Port, Mattala Rajapaksa International Airport, Colombo Expressway, Norochcholai Power Plant, and Colombo International Financial City.

Changes in government can not undo these accomplishments. As Rajapaksa has begun his term in office, China and Sri Lanka will have more opportunities to develop relationships. Rajapaksa's counselor, Palitha Kohona, said in September, "If Gotabaya Rajapaksa becomes the president... he will set the record straight" and restore the association to where it was with China.

However, not everyone is pleased to see closer ties develop between China and Sri Lanka.

Some are concerned that the island country would rely heavily on China economically, politically, and militarily, thereby boosting the influence of China on Sri Lanka, affecting the power structure around the Indian Ocean.

If the goal of a country is to achieve a strategic monopoly in South Asia and the North Indian Ocean, it can be considered a threat to the rapid development of cooperation of any other nation with major powers outside the region.

But if the primary goal of a country is regional peace and prosperity, Chinese investment and cooperation with countries in the region would be welcomed. Rajapaksa is believed to be writing his foreign policy based on his interpretation of the interests of Sri Lanka. Rajapaksa is not "pro-China" nor pro-Sri Lanka.

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 To be continued ...

Alibaba’s Daraz and Wow.lk sign strategic partnership to grow digital commerce in Sri Lanka

Daraz Sri Lanka and Dialog Axiata Group have entered into a collaborative strategic partnership on digital trade. Daraz Sri Lanka is merging wOw.lk's management and business activities, the online retail platform owned by Dialog Axiata Group, as the first step in this relationship. The integration will help Daraz expand its e-commerce presence in Sri Lanka further and grow it. Visitors to wOw.lk will be redirected to Daraz.lk with effect from 1 December, allowing greater access to products and services through Daraz.lk, the fast-growing online retail site.

That said, current wOw.lk customers who purchased items from their platform will continue to enjoy their purchasing point's guarantee arrangement. WOw.lk has been instrumental in building Sri Lanka's e-commerce presence over the past seven years. With this new partnership in the making, customers of Dialog will benefit from Daraz as an exclusive online shopping platform.

"Integrating the e-commerce service of Dialog gives Daraz a secure marketplace and allows us to drive growth more vigorously while offering our customers the best in online shopping. Wow.lk is one of Sri Lanka's pioneers of e-commerce, and we plan to build on this legacy through Daraz.lk," said Rakhi Fernando, Managing Director of Daraz.

Daraz's marketplace model has proven itself successful for both shoppers and seller partners. It has given brands more visibility and a more extensive range of products from which to shop.

Daraz's affiliation with the global cynosure of success in e-commerce - Alibaba, has ensured that timely and proven technology gets transferred to an online market as young as Sri Lanka.

Daraz.lk has created a leveling ground for international brands as well as SMEs over the three years of operations on the island to be part of their journey to expand the online retail market. The latest development will result in a merger of more brands, adding to Daraz's current 800,000 plus product range. Dialog Axiata PLC Chief Digital Services Officer, Dr. Nushad Perera, has commented on the partnership:

"Our two organizations are strongly committed to building the digital infrastructure of our country, and this partnership will further improve access for every Sri Lankan to affordable digital trade."

OSL Take: Such an acquisition has paved the way for other interested parties to consider such a venture as well. With the government’s focus on steering the country towards a digitized economy, such investments are bound to prove fruitful. On the other hand, the availability of cutting edge Financial Technology in the country would be an added advantage for possible investors to the country. Also, the passage of the Electronic Transactions Amendment Bill has further enabled Sri Lanka to engage in cross border transactions.

It will improve Sri Lanka’s ability to trade with these countries using digital platforms. Hence, businesses in Sri Lanka, as well as any new entrants to the country’s economy, would be benefited when carrying out business with other countries. The Sri Lankan government has also offered incentives for companies engaged in the development of digital infrastructure. Foreign businesses/investors could, therefore, explore opportunities in Sri Lanka’s digital infrastructure sector.

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Water Sector Opportunities

Over the past decade, some remarkable achievements have made in Sri Lanka's water supply and sanitation sector. Continued efforts by the government to improve national indicators of social development have put the country ahead of most other South Asian countries.

The provision of drinking water supply and sanitation is a government priority. The proportion of the population that should have access to safe drinking water and improved sanitation services have set periodic targets.

Water resource management has become an important discussion point and is vital for economic development. Only 45% of the population has access to the pipe-borne water supply. Waterways have also been polluted, thereby compounding the problem of providing safe drinking water to all. The state intends to meet this challenge and ensure 100% of the population supplied with clean and safe drinking and pipe-borne water. The newly elected government have a range of upcoming tenders in the water sector:

·         There will be a tender to introduce a water storage mechanism for all new houses located in water-scarce areas to ensure groundwater is not misused.

·         The government will ensure that all water resources are managed and utilized efficiently for agriculture by adopting drip irrigation and other modern techniques. To facilitate this process, we will introduce low-cost interest rate loans and tax relief.

·         They will take necessary actions to create an environment where rivers, lakes, and reservoirs/tanks are free from chemicals, pesticides, and other harmful chemicals.

·         The government ensures that all citizens of this country will have access to pure drinking water around the clock contained by the next three years. They will do this by expanding and improving the efficiency of the current projects carried out by the Sri Lanka Water Board and Community Water Projects. They will also introduce new legislation to establish accurate water recycling processes for all industrial and commercial constructions.

·         Sri Lankan government spends billions of money every year to manage water-related disasters.  Such disasters include those due to the flooding in the areas of Kelani, Kalu, Gin, and Nilwala rivers and the droughts in the dry regions of the country.

Therefore, they will utilize this money to proactively manage these situations by developing a flood control mechanism with prevention and forewarning systems and water storage and pumping methods to dry areas through drainage and canals systems. They will form a committee consists of experts to execute this project by 2025.

The National Water Supply and Drainage Board (NWSDB), Sri Lanka's primary water supply and sanitation service, had an estimated 840,000 total water connexions in 2004.

It doubled this number by the end of 2013.

Another feature of the development of the water supply sector in Sri Lanka is the increased use of water supply systems operated by the government. In the 1980s, apart from a few urban pipe-borne water-supply networks, small gravity systems and deep wells represented the majority of the rural population.

A series of projects were initiated at the beginning of 1990 to extend district-level agricultural water supply systems to be run by the local communities themselves — so-called community-based organizational schemes. These systems provided an additional 500,000 connexions to the water supply.

OSL Take:  The interest shown by the Sri Lankan government at modern technology to address the issued faced by the country due to droughts has created new opportunities. Sri Lanka’s development program that covers the entire island includes projects of different levels covering all vital economic sectors. Therefore, foreign businesses/investors could explorebusiness/investment opportunities in Sri Lanka’s development program.
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Sri Lankan Government ready for an Economic Turnaround (Part 4)

Abolishing of the advance tax collection system

It is also proposed to play a similar game concerning personal income taxes. The current early tax collection scheme “pay-as-you-earn” tax – is to be abolished for employees in both the private and corporate sectors. The government will also reduce the marginal tax rate currently at 24% to 15%.

At the similar time, in the case of employment income around Rs. 700,000, the tax-free limit will be raised to provide extra relief for workers who are filing annual tax returns. This portion will also reduce the monthly cash inflow to the Treasury, close to the cut in corporate income tax.

But, after the elimination of the PAYE tax, all responsible workers and others will have to file annual tax returns and pay taxes not only on income from employment but also on other income types. If this occurs, despite the low tax base, it will undoubtedly increase the total tax revenue. If not, the government will again face an expanded gap in the budget.

Scrapping out offensive taxes

Other types of ancillary fees are also being abolished or reduced. The government will abolish the Nation Building Tax or NBT, Economic Service Charge, or ESC and Tax or WHT withholding, and will reduce the added value of tax or VAT from 15% to 8%.

Two other tax proposals aimed at encouraging companies appear to be non-working. One is the five-year holiday for small and medium-sized enterprises and agriculture. As these companies are not currently in the tax net, the specific tax holiday is irrelevant for the purpose.

The other is the zero VAT rate given to tourism businesses as long as they use 60% of local inputs when providing tourists with their services. Since it is the common practice that VAT is passed on to tourists in the sector, this particular vacation does not leave a surplus to businesses in the cash-strapped tourism sector.

 OSL Take: The assumption of office by President Gotabaya Rajapaksa and the stability brought about the appointment has given a boost to the country’s business sector. Following Rajapaksa’s swearing into the office, the country’s stock market recorded an increase. All this along with the confidence expressed by the country’s business chambers indicate the growth potential for Sri Lanka’s business sector.

The present focus of the government of Sri Lanka is on increasing the inflow of foreign direct investments to the country. Contemplating the need to modernize the country’s laws to attract more foreign investments to Sri Lanka is a positive sign for international businesses/investors looking at doing business with the state.

Sri Lanka’s geographical positioning in the Indian Ocean, the ease of doing business environment in the country and the many trade agreements, as well as trade concessions enjoyed by the state, have made it an attractive business destination in the South Asian region. Given the strength and growth of the country’s private sector, foreign businesses/investors could explore business/investment opportunities in Sri Lanka. Also, international businesses could look at possibilities of forming partnerships with local companies and expand their businesses to other countries.

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Technology Sector Opportunities

Telecommunications, software, and data technology are a crucial component of growth within the services sector, producing steady growth in 2018. In 2018, gross ICT earnings amounted to $995 million, about an 8.9% rise over the previous year. In 2018, the country launched the fifth generation (5 G) technology adoption process. Software providers in the United States have been successful in selling solutions to private customers and some agencies in the public sector. (Data Source: Sri Lanka Export Development Board). 

The newly elected government plans to invest strategically in new technologies and integrate such innovations with the education system, manufacturing sector, and the economy.

·         Plans to make Sri Lanka as a Global Innovation Hub – Sri Lanka will maximize the practice of the Internet of Things (IoT), Artificial Intelligence (AI), Biotechnology, Robotics, Augmented Reality, Cloud Computing, Nanotechnology, and 3D Printing and through these innovative measures establish Sri Lanka as a Global Innovation Hub.

·         Digital Government - Using new methodologies and adopting new Internet-based technologies, public services such as obtaining National Identity Cards, Passports, Birth Certificates, Death Certificates, Driving Licenses, copies of deeds, etc., could be speedily and efficiently handled through nine (09) Citizen Service Centers to be established, one in each Province.

·         A Digital and Electronic Payment System will be established for citizens to pay traffic fines with ease and without any hassle.

·         A new e-Procurement system would be introduced, thereby ensuring that bribery and corruption would eliminate.

·         Establish a countrywide High-Speed Optical Transmission System and high speed 5G Mobile Broadband System to facilitate data transmission.

·         Digital Cities with digital monitoring and administrative centers will be established to address water and electricity usage, traffic congestion, and disaster situations.

·         The government will introduce mobile and digital payment system along with the necessary physical infrastructure and legal provisions to handle all local and international financial transactions.

·         Cross border e-Commerce and International e-Payment system will be put in place to handle all international trade and financial transactions electronically, along with the required legal provisions.

·         Business Process Outsourcing (BPO) industry and the Knowledge Process Outsourcing (KPO) industry would be developed to make export earnings of USD 3 billion by 2025. To realize this, we will set up IT centers and BPO centers in our connecting cities.

·          Maximum support will be given to local and foreign entrepreneurs to develop software for the international market in Sri Lanka.

OSL Take: Sri Lanka is emerging as a destination of choice in a variety of main areas as a regional IT Business Process Outsourcing (BPO). In 2017, AT Kearney ranked Sri Lanka 11th among the world's top 50 outsourcing destinations, moving up three slots from 2016. The computer industry in Sri Lanka produces world-class products and has expanded significantly over the past decade. Telecommunications, banking, financial, and insurance (BFSI) and software testing included in the software services sector.

Sri Lanka’s ICT and digital infrastructure sectors are on a growth path creating many business/investment opportunities in the two industries. The government of Sri Lanka has also given priority to digital infrastructure development and widening the ICT education sector and offered many incentives, thereby increasing the connectivity while eliminating interferences and enhancing data services to both enterprise and consumer users. Such technology will help optimize business efficiency, which is an attractive infrastructure commodity to investors. OSL also sees the possibility for investors to lease spectrum resources for the further expansion of the telco sector.