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Bold – but achievable?

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Sri Lanka's six-month-old coalition government, led by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, has grand plans for a US$ 40 billion redevelopment of the country's capital and its surrounding districts. 

Ceylontoday, 2016-03-17 02:41:00
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Bold – but achievable?

By MUNZA MUSHTAQ


Sri Lanka's six-month-old coalition government, led by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, has grand plans for a US$ 40 billion redevelopment of the country's capital and its surrounding districts. But, while the project may look good on paper, officials face significant obstacles in realizing the 15-year vision. The Western Region Megapolis Planning Project (wrmpp) comprises 150 smaller projects, including the controversial Chinese-funded Colombo Port City development. Progress on this US$ 1.4 billion project has stalled, but is expected to restart within the next few months.

Under the WRMPP, there would also be a trade hub, a high-rise central business district including at least 60 new towers, a science and technology city, and a rapid transit system aimed at reducing traffic congestion in Sri Lanka's most populous region, which is home to almost 6 million people.

The government hopes the project, which covers an area of 3,600 sq. km in the districts of Colombo, Gampaha, and Kalutara, will reduce the unemployment rate from 4% to 2% by 2020, and then sustain that rate until 2035 by creating 2.1 million jobs. The ultimate aim of the project is to help Sri Lanka raise per capita gross domestic product to a level appropriate to a high-income developed country by 2030. GDP per head was US$ 3,819 in 2014, according to the World Bank, compared with US$ 27,970 in South Korea.


Plans also call for developing two tourist cities to increase visitor arrivals in the western region to 4.5 million by 2035, compared with 1.79 million for the whole country in 2015. The government says the project will also improve living conditions of 70,000 families living in shanties and slums.
Reasons for concern
But, despite the impressive plan, drawn up with assistance from Surbana Jurong, a Singapore-based planning and engineering group, the WRMPP's 15-year timeframe, the absence of firm financing arrangements, the country's political vulnerability and its poor record of project completion have raised questions about its viability.
Keheliya Rambukwella, who was spokesman for the government of former President Mahinda Rajapaksa, was scathing in his dismissal of the plan. "Anyone can draw up beautiful and flamboyant proposals, but eventually it depends on commitment and enthusiasm for a project," he told the Nikkei Asian Review. "I think this is a big farce. You are talking of 15 years. But what you need to do is set out something where targets are achieved yearly and not blankly in 15 years. It has to be year-on-year planning."


The project is developing against a background of severe economic difficulties. Wickremesinghe announced on 9 March that Sri Lanka will raise the rate of value-added tax and reintroduce a capital gains tax ahead of talks on a US$ 1.5 billion loan from the International Monetary Fund. Fitch Ratings earlier downgraded Sri Lanka's sovereign credit rating.
Brogan Ingstad, Editorial Manager of the Oxford Business Group, a London-based company that analyses emerging economies, warned that Sri Lanka needs to take great care to ensure that development projects offer value for money, given its parlous economic situation.


According to Ingstad, Sri Lanka faces persistent government budget deficits, a high debt-to-GDP ratio of 74%, and problems with revenue collection, which fell to a low of 11% of GDP in 2014. "Cost-benefit analysis of every dollar spent is important, he said. "You want to ensure the projects count and that they reach completion."
However, Ajith de Costa, Chairman of the WRMPP, said the megapolis is an important "national project" and one that would continue even in the event of a change of government. De Costa said that steps must be taken to minimize political interference, adding that a special committee will be appointed to monitor the project and its implementation. He said he is hopeful that the project will receive parliamentary approval by mid-April.


Pitfalls and potential
Dimantha Mathew, Research Manager at First Capital Equities, a Colombo broker, said the megapolis project could help to accelerate economic growth and attract investment, noting that many of the projects undertaken by the Rajapaksa Government had also faced problems.


"To bring back confidence, and due to that bad track record, the government will have to fund the initial phase of this megapolis, with aid from different funding institutions, which will also go to show the government's commitment in realizing this project," Mathew said. "In the past, too, Sri Lanka has had nice plans, but they never got implemented. So if investors start to see some sort of implementation within this year and early next year, then they will be confident to bring in investments," he said.
Mathew added that 2017 will be a crucial year for the country's economy, with several major projects scheduled for completion. These include new Hyatt, Sheraton and Movenpick hotels, as well as upgrades to the Colombo Port.
The megapolis plan will be financed in part by the World Bank and the Asian Development Bank. However, Yoonhee Kim, Leader of the World Bank's Metro Colombo Urban Development Project, a separate development initiative, said the megapolis scheme would have to adhere to national and World Bank social and environmental policies, and comply with the bank's fiduciary requirements.


Anushka Wijesinha, Chief Economist of the Ceylon Chamber of Commerce, which uses the former name for Sri Lanka, said the megapolis project is just one of the many strategies needed to find new sources of economic growth to create jobs and prosperity.
Wijesinha warned that focusing too much effort and financing on the WRMPP could cause Sri Lanka to neglect the development of second-tier cities with strong prospects for growth. He also stressed the importance of a dedicated megapolis authority with a clear and transparent mandate, along with legislation enabling a robust public-private partnership framework to encourage private investment.
"This is important for two reasons – to give confidence to investors that the deals are safeguarded, and to ensure that the government is not saddled with bad PPP deals. Building confidence and credibility is key," Wijesinha said.
A senior official of an international credit rating agency, who asked not to be identified, said the megapolis master plan lacks detail. "Sri Lanka's laws provide a poor basis for long-term investor confidence. The megapolis is a long way from realization. There is, however, no harm in planning ahead and making the start," he said. He continued: "For now, it is a pie in the sky, a lot of slogans and banter. The only country that can give us money is China, and to some extent Japan. They will not put in equity unless they see return."


Lakshman Jayasekara, the WRMPP's Project Director, defended the government's focus on the western region, which he said accounts for 42% of GDP. He said the project has generated substantial interest among foreign investors from Japan, Singapore, China, South Korea, India, and the United Arab Emirates.
Jayasekara also said that complete transparency will be ensured and that contracts will be awarded on the basis of capabilities, not favouritism. "Even though the private sector could have played a bigger role in the past, due to bureaucratic entangling and unclear project formulation, it was difficult for them to be involved because contracts were granted only to a group of limited and privileged persons," he said.
"We are taking these hurdles out, and we are doing most of planning work, and also obtaining land for constructions, so these hurdles that affected investors in the past won't be a problem anymore. So any investor with sufficient private capital can invest," Jayasekara said.

(NIKKEI ASIAN REVIEW)

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