Sri Lanka: Implications Of Saudi Funding In China’s CPC Project – Analysis


By N. Sathiya Moorthy

Saudi Arabia’s Ajlan Group has signed what both Saudi Arabian and Srilankan sides describe as a ‘strategic partnership’ with the controversial China Harbour Engineering Company (CHEC) for joint development of the even more controversial Colombo Port City (CPC) project. It is unknown if the host Sri Lankan government was taken into confidence or if the CHEC’s original agreement with the latter provides for bringing in ‘joint developers’, without stopping with overseas clients and tenants into the property on a future date.

Analysts have argued that the CPC is yet another ‘white elephant project’ of China, which adds to the debt burden of the host country on otherwise awe-inspiring projects but with little or no relevance to that nation’s limited requirements and use, thus add0ing little or no benefit. The sprawling Hambantota Port in the southern tip of Sri Lanka is one such, as it helps aspirational China to keep an eye on ship movements in the Indian Ocean sea-lines of communication (SLOCs), as China now has a 99-year-long lease-hold on Sri Lankan territory, in lieu of high-cost repayment of the original loan/investment.

Worse still is the China-funded international airport in adjoining Mattala district, which is dubbed as the world’s emptiest facility of the kind. Multiple expressways across the country, all funded by China, have shortened travel time along the otherwise congested roads across the country, but the density of commercial traffic especially does not justify them in fiscal and economic terms.

Double whammy

At 1,150 feet, the China-funded Lotus Towers in  Colombo, the tallest structure in the country, was inaugurated by then President Maithripala Sirisena in September 2019, weeks before the presidential polls that he lost. Its viewing gallery at the top was thrown open to the public three years later, in September this year. While graft-related controversies remained, there is low occupancy, first blamed on worldwide COVID lock-down, followed since by the unprecedented economic crisis, which has made even trade investments unviable, both for locals and foreigners alike.

As some social media activists asked, was all the money worth and the added debt sustainable, for show-casing an evening spectacle of colour lights beaming out of the tall building? More importantly, this one, like all other China-funded projects has not helped local manufacturers, nor have they created jobs and family-incomes for the locals, thus a double whammy for Sri Lanka, when considered against the unsustainable debt burden.

Unlocking the potential?

It is in this background that the Ajlan Brothers Holdings’ investment in the Colombo Port City project needs to be viewed. The idea is for CHEC and Ajlan to ‘jointly develop Colombo Port City and several key pilot developments worth more than US$ 1.3 billion, including Phase-I of Colombo International Financial Centre (CIFC) Phase-I, Marina Waterfront Commercial and Marina Hotel, Super Luxury Villa and Golf Development in the coming years, kicking start the much-anticipated vertical development and business activities with the Port City Special Economic Zone (SEZ), a company statement said.

Ajlan and Brothers Holdings Group is one of the largest comprehensive conglomerate holdings in West Asia/Middle East, well-known for textiles and real estate in Saudi Arabia. It has established its presence in more than 25 countries around the world with 75 companies in the fields of power, environment, industrial manufacturing, healthcare, tourism, technology, retail, real estate, garments and textiles, mining, water, FMCG, logistics, finance & fintech, entertainment and gaming, etc.

According to the statement, “Coupled with the future-ready infrastructures and internationally competitive policy framework, the Port City SEZ is expected to drive the economic and social development of Sri Lanka in the post-crisis era, attracting MNCs and FDIs to unlock the potential of the strategic location and high-quality work-force of the island-nation as a high-end service hub for Asia Pacific.”

The hub idea was an important element in President Mahinda Rajapaksa’s ‘Mahinda Chintanaya: Vision for a new Sri Lanka’ manifesto for his maiden election to the country’s top job in 2005. Significantly, the Ajlan statement also talks about unlocking the potential of high-quality workforce in Sri Lanka, which has been promised also in China’s Colombo Port City project, though no progress or figures are available as yet.

Milestone visit 

Incidentally, the Ajlan-CHEC agreement was signed days before Chinese President Xi Jinping’s visit to Saudi Arabia, where he met King Salman and his 37-year-old son Crown Prince Mohammed bin-Salman (MBS). The two countries signed 46 cooperation agreements totalling US$ 30 billion, during the visit, including one on teaching Chinese language in Saudi Arabia. Significantly, Riyadh also hosted what Xi described as separate ‘milestone meetings’ with leaders of the Gulf Cooperation Council (GCC) and the Arab League.

The tone and tenor of the three-day visit in the second week of December indicated that Saudi Arabia was seeking to lead the GCC and Arab League nations to a ‘centrist position’ vis–á-vis the US in geostrategic, geopolitical and geoeconomic matters. It was evident from the joint statement, in which China and Saudi Arabia stressed the importance of ‘stability’ in oil markets, after Riyadh and the OPEC point-blank refused Washington’s call to increase oil production to try and neutralise Russia’s ‘oil diplomacy’ at the height of the ongoing Ukraine War.

The two sides also spoke about “focusing on emissions rather than sources” in tackling climate-change. While the West, especially the US, has been focussing on the sourcecarbon emissionssion, to target front-line developing countries like China and India, the Gulf-Arab nations, a major source of hydro-carbons to the world, have been highlighting that the global initiatives on climate change should centre on ‘emissions’, where the industrialised West is the culprit.

For Saudi and China-watchers, such proximity displayed by the two countries and such open expression of coalescing interests and concerns is unprecedented. Traditionally, Saudi Arabia, as the self-appointed guardian of Islam’s holy places of Mecca and Medina, was not expected to have a high degree of politico-strategic identification with ‘god-less’ communist China was unanticipated. Their collective forward movement will be keenly watched.

Gota’s appeal

From a Sri Lankan angle, too, the China-Saudi Arabia cooperation was not an expected one. But that does not mean that Saudi funding of projects in Sri Lanka was owed to Chinese initiative and offer of cooperation. Put differently, it could also mean that China was seeking Saudi investments only after being criticised for ‘debt-trap diplomacy’. More importantly, China may not have much need for non-productive real estate/territory in indebted countries as in Hambantota, and needed more funding to retrieve its own financial commitments in third and Third World countries.

Yet, the Saudi investments in Sri Lanka flows from an appeal made by erstwhile Sri Lankan President Gotabaya Rajapaksa when Saudi Minister Faisal bin-Farhan Al Saud visited Colombo in March this year. Yielding to the demands of mass-protests, Gota quit office in mid-July, after fleeing from the country, fearing for his safety, at the height of the nation’s economic crisis, which triggered perceptions of political instability in the weeks that followed.

Specifically, Gota highlighted investment opportunities available in agriculture, renewable energy, technology-based development, Colombo Port City, ports, pharmaceuticals, IT, textile and fabrics sectors, to the Saudi visitor. While Ajlan’s profile fits Sri Lanka’s investment-requirements and opportunities, there is no knowing if Colombo too facilitated the Beijing-Riyadh ‘strategic partnership’ in the economic sector, centred on a third nation.

Needless to say, the partnership can have consequences for Sri Lanka’s Indian neighbour. For optics, pro-government groups in the country have been making an occasional song-and-dance sequence whenever a Gulf-Arab government grants a religious concession or offers political support to Indian and Indians. This was especially so when the United Arab Emirates approved of a Hindu temple, but it was only a part of the local government opening up to all religious faiths and their followers.

But the Saudi-China cooperation on joint investments in Sri Lanka is a different kettle. From a politico-diplomatic perspective, what was thus far seen as China’s strategic interest and move would have to be seen also at least as an economic initiative of Saudi Arabia. It also implies that the present government in Colombo, headed by President Ranil Wickremesinghe may have endorsed the ‘strategic partnership’ between China and Saudi Arabia, rather their firms, as far as investments in Sri Lanka are concerned.

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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