Building Sri Lanka’s Economic Future

It’s a real pleasure to be back here in Colombo and speaking with you today. It is wonderful to see so many distinguished friends here, including Ministers, Members of Parliament, the Central Bank governor, and many others with whom we work closely to promote trade and investment ties between our countries.

Many people think that international diplomacy is reserved for government officials at embassies and diplomatic meetings. But, in fact, many of the most important elements of international diplomacy – enhancing mutual understanding, harmony, and prosperity – are also conducted by our private citizens. So I want to express my gratitude for the work that organizations like the Rotary Club and the American Chamber of Commerce and other private sector partners have done in that regard, which, I must say, makes my job a lot easier.

I also want to tell you that, for those of us who work in foreign policy, Sri Lanka has truly been a bright spot in the region and the world over the last year and a half. The democratic progress we’ve seen and come to expect – and the advances in reconciliation, accountable governance, and freedom of expression– have been paralleled by economic progress in tourism, shipping, manufacturing, and more.

Sri Lanka is showing the world how political reform and economic growth can go hand-in-hand. It is becoming a global example of how a post-conflict, ethnically-diverse country can achieve lasting peace and thriving prosperity.

Your country has always had tremendous potential – just 50 years ago, many expected then-Ceylon to follow Japan’s path of sustained economic growth and become Asia’s next commercial powerhouse. All the fundamentals were there – a robust export sector, a well-educated population, strong per-capita income levels, and a central and strategic geographic location.

However, past achievements do not in themselves translate into present-day accomplishments. Success doesn’t come automatically. Inefficient economic decision-making early on in the country’s modern history, a long and terrible civil conflict, and a tragic natural disaster all combined to keep Sri Lanka on the margins of the global economy for many decades.

But that is no longer the case. Sri Lanka once again has the opportunity, the will, and the support to achieve what has eluded it for so long. Thanks to the Sri Lankan people’s commitment to democracy, and the good-faith steps the government they elected has taken over the past year and a half, your country is now primed to become the economic success story that it was always meant to be.

As venture capital firms are looking to partner with U.S. firms, like Google, to invest in technology start-ups, one can imagine Sri Lanka becoming a more broad-based economy based on innovation, going beyond just the traditional mainstays of tourism and agriculture.

And no other country, I believe, is more excited about and committed to this vision than the United States. Because as the world becomes more connected through trade and technology, our own economic success will increasingly depend on the economic success of countries like yours. Nearly 40 million American jobs already depend on trade, and, if history is any guide, that number will only grow with time.

South Asia is set to be a major driver of that growth. The region has nearly 1.7 billion people – nearly a quarter of the earth’s population. It has more working-age people than anywhere else in the world, and its economies are growing at an average of over seven percent per year.

The region’s largest market, India, is now also the world’s fastest-growing major economy. And Sri Lanka stands to benefit from that growth – India is its largest trading partner globally, and Sri Lanka is India’s second-largest trading partner in South Asia. Sri Lanka also has easy access to the rich markets of the Middle East and emerging markets in Africa, a continent that boasts many of the world’s fastest-growing economies.

With its strategic location along the major sea lanes of the Indian Ocean, Sri Lanka has the potential to become a premier transshipment hub, making it a strong, value-added link in global supply chains. And plugging into those supply chains can drive investment, productivity, employment, and growth.

The country is also blessed with a well-educated, hard-working population with great entrepreneurial spirit. Its entry to a globalized market economy can provide a solid foundation for a truly open, unified society that is buttressed and propelled by transparent, accountable institutions and the rule of law.

This fair and transparent playing field will make Sri Lanka a global leader and example for other countries working to overcome periods of adversity. Sri Lanka’s decision to join the Open Government Partnership is a prime example of such leadership. This partnership gives the government access to the expertise of other countries striving for more transparent, accountable, responsive government, and a platform to highlight Sri Lanka’s experiences in open government reform on a global level.

Similarly, Parliament’s recent passage of the Right to Information act will allow citizens to access information on government procedures, policies, and decisions; such openness creates an environment that naturally attracts investors from across the globe. We applaud these efforts and look forward to further political, economic, and social reforms promised by the government.

While the path of economic reform isn’t always smooth and easy, the rewards at the end are well worth the hardships of the journey. As Sri Lanka continues on its path, it can count on the strong support of the United States. Development assistance from our public-sector, and investments from our private-sector, while both of different means, ultimately have the same ends: promoting sustained economic growth by developing the technical capacity and expertise of Sri Lanka’s people. That kind of reform-led growth will mean more jobs, higher incomes, and a better life for this generation and the next.

Just a few months ago, our two governments held the latest round of our trade discussions, where we adopted a new action plan that aims to significantly increase two-way commerce and investment. This action plan, which is to be implemented over the next five years, covers a wide range of ambitious objectives, three of which I’d like to expand upon today.

One proposal works to strengthen workers’ rights and promote environmentally friendly manufacturing. More and more, customers are demanding that the products they purchase, especially their clothing, are sourced in a way that is ethical and environmentally sustainable. Our goal is to increase Sri Lanka’s global competitiveness among this growing customer base, especially in the United States and Europe – two of the world’s largest markets for garment imports. Sri Lanka has a unique opportunity to seize this moment, building upon its foundation of strong worker protections and respect for the environment, and attracting the growing list of manufacturers whose products meet high ethical and environmental standards.

Another proposal in the action plan aims to lift Sri Lanka’s trade and investment regime to world-class standards. It’s a broad and ambitious goal, but one on which we’re already making concrete progress. For example, a couple months ago, our Commerce Department worked with Sri Lanka’s Ministry of Power and Renewable Energy on ways to make the procurement system for private power projects more efficient and transparent. Sri Lanka’s energy needs are expected to rise as its economy grows and its people become wealthier, and a more efficient, transparent, and competitive energy sector can better attract the capital and investment needed to build new capacity.

Sri Lanka’s eligibility to develop a Millennium Challenge Corporation threshold program– thanks to its government’s commitment to good governance – is also a sign of great progress. We’ve seen in other countries how the “MCC effect” can work as a force-multiplier by increasing investor confidence. We also have experts working with Sri Lanka’s government to help it become a financial services hub, as well as to improve the environment for foreign investment, increase transparency and accountability in public finances, and seek solutions to help address other difficult fiscal issues like budget deficits.

Regionally, we’re looking at regulatory and non-tariff barriers to trade and foreign investment in South Asia, and next month Colombo plans to host a forum to explore ways the region’s governments can advance the efficiency and transparency of reciprocal trade, especially through the use of national trade portals and single windows that serve as “one-stop shops” for importers and exporters.

Which brings me to the third area of the action plan I wanted to discuss: developing new markets that take advantage of Sri Lanka’s potential as a regional maritime and services hub, on par with Singapore or Dubai. After all, half of the world’s merchant fleet capacity and about 40 percent of the world’s seaborne oil passes through the two straits that bound the Indian Ocean to Sri Lanka’s east and west. Yesterday I saw first-hand the enormous capacity of Colombo Port, South Asia’s busiest port and one of the top 30 globally.

Just last year, it handled over 4,000 ship arrivals and processed 5.1 million containers. The port also provides jobs for over 9,500 people, and I understand there are plans for expansion. The U.S government has been helping the Colombo port operate securely and efficiently by providing training and technical assistance through our Container Security Initiative and Megaports project. We have also brought Sri Lankan port officials to the United States to meet and share expertise with our port authorities and our port infrastructure companies in Louisiana, Maryland, New York, and New Jersey.

It takes just a glance at the map to see the economic advantages of Sri Lanka’s geographic location, which I mentioned earlier. But fully leveraging those advantages will require the right infrastructure, including ports, roads, and rails. These can be expensive projects, and often there simply isn’t enough public funding – just try driving around on some of the roads in Washington, D.C. to see what I’m talking about. Public-private partnerships are often a great solution for getting capital for infrastructure projects, and we’re happy to share some of our experience with Sri Lanka in developing these partnerships in an open and transparent way.

Achieving the vision of becoming the maritime and services hub of South Asia will also require the proper legal and regulatory framework, allowing goods and services to move quickly and efficiently into and out of the country.

Currently, there are obstacles in all of these areas; for example, tariffs and tariff-like import charges are very high – sometimes exceeding 100 percent – and serve as a powerful disincentive for trade and foreign direct investment. Investment, while fairly open, is frequently subject to complex and non-transparent procedures.

There is an even greater obstacle to creating a more attractive enabling environment for foreign investment. It is a problem that deters investors worldwide, but it must be confronted in Sri Lanka as well: the culture of corruption that had been a hallmark in previous years and unfortunately still lingers today. Fortunately, there is recognition at the highest levels of government of the seriousness of this problem. As President Sirisena declared earlier this year, “the current national unity government considers our prime duty to root out of corruption from the country.”

Better regional connectivity will also be critical. As you may know, South Asia is one of the least economically-integrated regions in the world. And while that’s an unhappy data point that has hindered the region’s economic development, it’s also one that we view as an opportunity – it means that smart, targeted improvements can make a big difference.

In support of the Obama Administration’s Rebalance to Asia, we’re working on an initiative we call the Indo-Pacific Economic Corridor, which aims to strengthen economic ties throughout the region by improving energy markets, trade and transport, customs and borders, and people-to-people links. Fortunately, we’re not alone in these efforts – the Asian Development Bank and the World Bank have many complementary efforts, and we are strong supporters of their many projects across the region.

As I mentioned earlier, there are several other elements to the action plan, and in the coming weeks other U.S. government delegations plan to travel here to Colombo to work on the next steps and other ways to deepen our economic relationship. That will include my colleague Assistant Secretary Charlie Rivkin, who runs our Economic and Business Affairs Bureau, as well as senior officials from our Commerce Department and Trade Representative.

Already, the United States purchases nearly three billion dollars worth of Sri Lankan products annually. That is more than any other country; we are your best customer. Our purchases support thousands of jobs, providing livelihoods for many Sri Lankans and their families. We are proud of the role we have played in fostering economic growth and prosperity in Sri Lanka.

We have also significantly ramped up our assistance to the people of Sri Lanka, especially when it comes to promoting economic growth and financial stability. The U.S. Agency for International Development (USAID) is working with small- and medium-sized businesses to create new employment opportunities, including in economically lagging regions, and is promoting investment and skills-development. USAID programs are also working in the agricultural, dairy, and poultry sectors, helping to connect local producers with markets. And with USAID’s presence expected to expand in the near future, we will see even more kinds of these important projects coming online, spurring new jobs, greater incomes, and more opportunity for all of Sri Lanka’s people.

We are moving full steam ahead, because we believe that this is Sri Lanka’s moment. We believe it can be the fulcrum of a modern and dynamic Indo-Pacific Region: a prosperous and open economy that not only thrives in the global marketplace, but drives it to new levels of connectivity and innovation.

Lee Kuan Yew talked about Sri Lanka becoming the next Singapore when the economy opened up in the late 1970s. Decades of conflict delayed that potential. But now is the time to make good on that promise.

For that promise to be fulfilled, we must recognize that the economic future of Sri Lanka is necessarily and inextricably linked to its political future, which must reflect the needs, aspirations, and diversity of all its people.

And as Sri Lanka seizes this moment, the United States will be there as its friend and partner. We are invested in Sri Lanka’s success because we know that its future and ours are intertwined, and that the whole world stands to benefit from a strong, unified, and prosperous Sri Lanka. (US.Gov)