Sri Lanka: A country trapped in debt

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Hambantota port from above
Image caption,
Hambantota port was funded by Chinese money

China is investing billions of dollars in infrastructure and developments in Sri Lanka, but many local citizens feel the country is being sold to the Chinese.

Normally the roads leading to Asian ports are bustling. Trucks loaded with cargo. Small shops where lorry drivers and workers take a tea break.

Hambantota port in southern Sri Lanka is starkly different.

Despite being open for seven years, the access road looks barely touched. And when we eventually found it (signage is not its strong point, and locals seemed pretty uncertain of its whereabouts too) ours was the only vehicle.

Except for the few security staff accompanying us, there was no-one at the site. A car carrier eased its way out of the port, after dropping off vehicles from Asia's auto giants. But the next ship wasn't due for two days.

And for a port that cost more than $1bn (£770m), that is just not enough business.


Hambantota was built by a Chinese company and funded by Chinese loans.

But now Sri Lanka is struggling to repay that money, and so has signed an agreement to give a Chinese firm a stake in the port as a way of paying down some of that debt.

Image source, AFP
Image caption,
Ravi Karunanayake was previously finance minister but took office as foreign minister this week. He says Sri Lanka needs to "sell ourselves"

The terms of the deal are still being debated in Sri Lanka's parliament, but the share it gives could be as high as 80%.

"It is unaffordable for an activity that doesn't bring any economic returns," says Sri Lankan Foreign Minister Ravi Karunanayake. "So that's compelling us to look at options."

The vision for Hambantota was that it would bring more ships to Sri Lanka, and ease pressure on the Colombo port, one of Asia's most important container terminals.

Sri Lanka is located on the sea route that sees oil shipments travel from the Middle East, making energy security a key reason China was keen to invest.

Image caption,
Hambantota has struggled to make money

But it also fits neatly into China's controversial One Belt, One Road initiative, building road, rail and sea links to boost trade with countries around the world.

Local fury

Hambantota has struggled to make money, partly because it is fairy isolated. With no industrial hub nearby, there are no natural customers on its doorstep.

But now that China looks set to take control of the port, that is a problem it wants to fix and is talking to the government about plans to create a large economic zone - buying 15,000 acres of land to build factories and offices.

But many who live in the area don't want to give up their homes and farms.

At a small village near the harbour, locals are furious about the plan. Many of them participated in a large protest against the investment hub in January.

Police used tear gas and water cannon to disperse people. Some protesters were jailed for weeks, which has only deepened the anger.

Image source, AFP
Image caption,
Hundreds of activists and Buddhist monks protested against the Chinese investment in Hambantota earlier this year

"We wanted to show the world that we oppose this project," says KP Indrani, who was injured during the protest. "We are not against development, but what they are doing is not going to be beneficial for us."

But these deals look like Sri Lanka's best way of paying down some of the $8bn it owes China.

Squandered money

The island's total debt stands at $64bn. About 95% of all government revenues go towards debt repayment.

And when some of that money borrowed has been seemingly squandered on infrastructure that shows no sign of turning a profit, that is even more damaging.

At the international airport, barely 30km from Hambantota, just five flights take off every week serving just a few hundred passengers.

Image caption,
Mattala Rajapaksa Airport is not the busiest

Then there is a state-of-the-art conference centre that is barely used, and a cricket stadium now only occasionally rented out for weddings.

Job creation

But not all of China's developments in Sri Lanka have proved a flop.

Roads and highways are being laid all over the country, and some have really shortened travel time between towns and cities. This has helped boost tourism, the country's biggest source of foreign income.

"In the near term, there will be some local jobs for Sri Lankans," says Angela Mancini, who advises businesses and governments on investments.

"But in the longer term, I think the bigger upside potentially for Sri Lanka is to really get tapped into this global trade route system that the Chinese are backing."

Media caption,

Why are so many Sri Lankans learning Chinese?

Many of the China-funded projects were planned and constructed during the tenure of previous President Mahinda Rajapaksa, and are located in his electoral constituency.

Too much to turn down

A new government came to power in 2015, pledging to reduce Sri Lanka's reliance on China, but financial pressures have forced it to tow the same line.

It initially suspended a major project that China had invested in - a brand new city being built off the coast of Colombo on reclaimed land.

But the $1.4bn it was bringing in proved too hard to turn away, and development resumed last year.

Image source, CHEC
Image caption,
The developers say the new city will become a financial hub for South Asia

So at Colombo's historic Galle Face seaside promenade, from where once you could only see waves and the horizon, now there's a fresh piece of land jutting out into the Indian Ocean.

The hope is to transform it into a modern city by 2040, with swanky corporate buildings, shiny apartment blocks, hotels, resorts, beaches, malls and even a marina. The first part of it will be available for use in two years.

China Harbour Engineering Company (CHEC), which is building the city, will get about two-thirds of the marketable land on lease for 99 years in return for its investment.

"What this project will bring to Sri Lanka is foreign direct investments estimated at $15bn," says Thulci Aluwihare of CHEC Port City Colombo.

"Last year foreign direct investment in the country was a mere $300m. So this would be a catalyst for Sri Lanka."

'Protect, not sell'

Once again, the government has faced opposition. Groups of fishermen and locals have held protests and demonstrations.

Some are worried about the environmental impact of the project. They are not convinced by the studies done by government agencies, who have given it the all clear.

Image caption,
Fisherman Aruna Roshantha says Sri Lankans don't like their land being given away

But many are also concerned about the growing Chinese influence in the country.

"We don't like our land being given away to China," says fisherman Aruna Roshantha. "Not just China, if any country comes and takes land from Sri Lanka, we don't like it. The government should protect our land, not sell it."

At the moment though, Sri Lanka's government doesn't have much room to negotiate.

And Foreign Minister Ravi Karunanayake says they need to welcome everyone with open arms.

"We love the Indians to come in, we love the Chinese to come in, we love the Japanese to come in. Koreans or European, we have no problem at all.

"We need to basically sell ourselves and sell on a consistent coherent basis, and make that economic diplomacy a selling tool for Sri Lanka."