By Daniel Piper
Deputy Editor
The Sri Lankan Civil War was fought between 1983-2009 between the Sinhalese-dominated Sri Lankan government and the Sri Lanka Tamils, a secessionist ethnic minority alleging persecution at the hand of the governments. The fighting was severe, with UN estimates of deaths ranging from between 40,000 people and 100,000 people and an assortment of human rights abuses and war crimes alleged, including the bombing of civilian targets, sexual violence, and repeated abductions and massacres of Sri Lankan civilians.
In the aftermath of the Civil War, Sri Lankan leadership began to align itself with China and the resources that it could provide, strengthening the Superpower’s status within the Indian Ocean. To fully appreciate the impact of this alignment, one must first begin with a retrospective view of the nation and how we have reached the present day – only then can the implications of continued Western inaction be seen.
Background
The result of a Civil War is instability, and instability almost invariably moots the concept of Western Investment. This paradigm, combined with the fact that the Western World was still navigating the fallout of the 2008 Financial Crisis, left Sri Lanka with few options from whom to seek much-needed credit and funding. As part of his 2010 Presidential election manifesto, Mahinda Rajapaksa compared this ‘economic war’ of reconstruction ‘in a manner similar to […] the war against terrorism’, and ‘turned toward China for the war funds’ necessary to begin the country’s reconstruction, per International Finance. In total, USD$11.7 billion was loaned to Sri Lanka by China between 2000 and 2020.
The promised infrastructure projects were delivered upon, but generally saw mixed success. For every Lakvijaya Power Plant, which brought energy to some of the country’s most deprived and remote regions for the first time, there was a counterpoint. The Mahinda Rajapaksa International Cricket Stadium, for example, has been criticised as a ‘white elephant’ for the country given its tremendous costs of construction and maintenance. The Mattala Rajapaksa International Airport, paid for with USD$210 million from China, operates at a loss of around ten million Sri Lankan Rupees per month as of June 2022, according to Sri Lankan newspaper Daily Mirror Online. Whilst these examples certainly paint the Sri Lankan government in a negative light, they are not the issue of most poignant concern to those focused on geopolitics. Instead, the most pressing issue at hand concerns the construction of a port.
Hambantota International Port
The Hambantota International Port (HIP) was constructed in the 2010s as a Deep-Water Harbour on the coast of the country, ostensibly to allow Sri Lanka to take part in the international trade which so often passed its shores by as cargo ships transported goods to and from China and the West. However, the port was never able to operate with a positive return on investment – from operations beginning in 2011 to the end of 2016, HIP accrued around $230 million in operating losses, according to the Sri Lankan Finance Ministry.
Whilst Rajapaksa negotiated a ‘joint venture’ deal which would allow the Port Authority of Sri Lanka to retain control of the harbour legally, his successor, President Sirisena, went one step further. The end result of this deal was a Chinese firm, China Merchants Port Holdings Company Limited (CMPH), being leased a 70% stake in the port for 99 years as well as 15,000 acres of surrounding land in exchange for $1.12 billion.
Many readers may have heard this story before and dismissed it as another case of Chinese ‘Debt-Trap Diplomacy’, as has been railed against frequently in more recent years by hawkish world leaders and demagogues. Whilst arguments on the semantics of what ‘Debt Trap Diplomacy’ constitutes are interesting, they do not bode repeating because they are not relevant to the issue at hand. Indeed, a recent re-examination of the deal by Georgetown University and Moramundali suggests that no such label is proper to describe the transaction.
What was important in this saga is that China held, and holds, some semblance of control over Hambantota International Port, staffing it with Chinese workers and using it as an outpost for Chinese trade.
All (Belts and) Roads lead to Rome, but none lead to India
China’s Belt and Road Initiative (BRI) has been nothing short of wildly successful as a geopolitical and foreign policy strategy by Xi Jinping, Wang Huning, and China as a whole. The Chinese government cites over 150 countries, including Sri Lanka, as being part of the Initiative, with the ostensive end goal being a return to the Sino-centric trade practices of millennia ago. In planning the BRI, China has been able to map out a future conception of world trade in a manner which will maximise China’s potential, and which involves the exclusion of India from the global trade network.
With the inclusion of Sri Lanka, and the subsequent gain of Hambantota International Port, ships no longer need to frequent Indian ports for non-trade reasons, isolating India as China’s main continental and geopolitical rival outside of the United States. With the potential for subsidised docking in Sri Lankan ports, those ships so crucial to the trade routes between East and West may choose to dock away from traditional Southern Indian ports, such as Chennai or the V. O. Chidambaranar Port, for no reason other than to cut costs. In such a scenario, the need for India as a pseudo-middle man of global trade will disappear.
Despite recent discussions at the G20 summit for the US and India to form their own BRI-esque programme, linking India, the Middle East, and Europe through a single trade corridor, this programme will still be years in the undertaking. With treaty renegotiation and specifics still to be worked out amongst parties, there is still plenty of time remaining for India’s isolation to have considerable impacts on the lives and livelihoods of port cities and their citizens.
Military segmentation
To the surprise of few international scholars, the Diplomat reported on August 15th, 2023, that AidData, a research lab based in Williamsburg, Virgina, is claiming that China may be trying to establish a naval base around Hambantota International Port. This would not come as a surprise, based on the writings of Hawkins and Davidson, who reported on the same think tank’s assertion that the likely places for expansion would either be Hambantota, Bata (of Equatorial Guinea) or Gwadar of Pakistan.
What is notable about these options is that all three countries are members of the Belt and Road Initiative, and all three have been beneficiaries of Chinese loans. Indeed, as of data from 2021, Pakistan held the third most sovereign debt to China of any nation in the world, with Sri Lanka fifth on that list. By contrast, Equatorial Guinea owes less nominally but owes an amount equal to 46.8% of its nominal GDP.
Perhaps a coincidence, but an approaching Chinese presence in three countries with deep monetary ties to China does seem to indicate a pattern – as partnerships deepen and money changes hands more impactfully, China is able to seize the opportunity to establish a presence in those countries.
Given the geographic position of Sri Lanka, it is perhaps unsurprising that Sri Lanka should be on this list of potential country bases – with the ability to control the majority of the Indian Ocean, as well as patrol around the Indian subcontinent, any country with such a base could exert tremendous influence over the global economy.
So where are we now?
Domestic unrest has not been uncommon in Sri Lanka since the end of the Civil War. Along with mass protests following the conclusion of the Hambantota International Port deal in 2017, the country saw some of its most concerning protests begin in March 2022.
These protests, in large part, came at the end of an economic crisis of a magnitude unseen in the country since it proclaimed independence from the British in 1948, and a crisis which has already resulted in foreign debt default. Whilst problems existed beforehand, these were exacerbated by the COVID-19 Pandemic. With the loss of the tourism and remittance sectors during the COVID lockdown, NDTV reports, the Sri Lankan government increased the money supply by 42%, against IMF recommendations, between December 2019 and August 2021. Through this, Sri Lanka achieved the highest rate of inflation in Asia by 2022, peaking at 64.3% In August 2022 and averaging 49.72% over the year.
Further, after a shock decision by the government to ban chemical fertilisers, the agricultural industry faced upheaval. Employing around a third of the Sri Lankan workforce, farms began to suffer economic hardship as the paddy and tea harvests failed, which in turn forced the government to import USD$450 million worth of rice. From this came the need to pay for the bureaucracy of a food aid programme to prevent mass starvation amongst the people. This, in turn, was paid for by more borrowing, as the loss in tea yields resulted in an economic loss of USD$425 million and brought in, in relative terms, barely any revenue for the nation.
Dhananath Fernando, CEO of Advocata (an economic policy research group based in Columbo), has called the government ‘hell-bent’ on agricultural policy decisions that experts warned would be ‘disastrous’, whilst the protesters chanted about the ‘madman’ leading their country with a 10% approval rating. Add to this energy, food, and medicine shortages exacerbated by the Russo-Ukrainian War, and the proverbial pot began to boil over.
The Protests, the Aftermath, and what it means
The culmination of these factors, plus more, were the aforementioned Sri Lankan protests of 2022. During these protests, 10 protestors were killed and a further 850+ were injured or arrested. A state of emergency was declared on April 1st, 2022, and a 36-hour curfew across the Island came into effect as the people began to strike. Mass social media blocks were instituted upon request by the Ministry of Defence just two days later before the Public Utilities Commission asked for this to be reversed 15 hours later to inform the people of rolling blackouts.
The aftermath of the protests is an image of division and unity in equal measure. On one side, protests around the country saw people singing the Sri Lankan national anthem together in both Sinhala (the language of the ethnic majority) and Tamil (the language of the breakaway minority involved in the Civil War). A show of solidarity, perhaps, amidst difficult circumstances.
The result of economic hardship is instability, as has been demonstrated, and the result of economic mismanagement is a poor credit rating. The result of this is a lack of Western creditors and the need for alternate ones. Much like in the aftermath of the Civil War, Sri Lanka finds itself in need of aid and finds a Western world that fails to recognise the strategic importance inherent in the Sri Lankan state.
According to the World Bank, Sri Lanka’s economy contracted 7.8% in 2022 alongside a peak inflation rate of 69.8%. National and urban poverty rates have doubled and tripled, respectively, leaving 1 in every 4 Sri Lankans in poverty. The organisation notes that Sri Lanka’s outlook is one fraught with ‘significant uncertainty’. Medicine, energy, and food also remain in short supply, and tourism and remittance levels are yet to fully recover to pre-pandemic levels.
The question that politicians and professionals must then ask is ‘who will loan money to Sri Lanka to aid its economic recovery?’. For the answer, we need only ask which country loans vastly more money to small, underdeveloped, or struggling nations than any other country in the world – China.
Conclusion
Thus, we arrive back at the beginning of this article, examining Chinese investment into Sri Lanka, and the (sometimes empty) promises of prosperity that it brings. It is this cycle, of economic difficulty, rejection by the West, and aid from the East, that so threatens the Western-aligned international order. Whilst China continues to establish influence across the world with the Belt and Road Initiative, and further continues to threaten to cut India out of the global shipping system, the West continues to allow Sri Lanka, a geographic lynchpin of the global economy, to drift further away from them geopolitically.
Few countries have as much potential in the shipping industry as Sri Lanka, which can act as the key connector between the markets of China, Europe, and the United States. As tensions inevitably rise between the world powers, everyone will need to have Sri Lanka on their side. Right now, only China is fortuitous enough to have that privilege.
Comments