Last week the Sri Lankan government received US$ 293 million from China Merchant Group, being the first payment of the $1.12 billion-worth Hambantota Port deal. The accumulated losses of the Hambantota Port for not generating returns to investment for the past six years were reported to be Rs. 46.7 billion by the end of 2016; [...]

Business Times

Salt from Hambantota


Last week the Sri Lankan government received US$ 293 million from China Merchant Group, being the first payment of the $1.12 billion-worth Hambantota Port deal.

The accumulated losses of the Hambantota Port for not generating returns to investment for the past six years were reported to be Rs. 46.7 billion by the end of 2016; this is equivalent to over $300 million. The first payment of $293 million nearly covers the accumulated losses of the Hambantota Port project.

The IMF has also approved the disbursement of the third tranche of its Extended Fund Facility (EFF), amounting to $251.4 million. Both receipts together accounted for more than $500 million, which have provided some breathing space to the debt-laden economy.

Foreign debt bunching up

According to the Government Budget 2018, foreign debt repayment will be in the range of $2 – 4 billion per annum for the next 10 years ending 2027, while the highest repayment of over $4 billion is due in 2019.

Why does foreign debt bunching up become a serious problem (in addition to an equally serious domestic debt problem)?

This is because, on the one hand, some of the mega projects financed by foreign borrowings have not yet generated returns to investment; probably, all mega projects in Hambantota were of this nature. On the other hand, the country’s potential to generate adequate export earnings or foreign direct investment (FDI) is yet to be realised.

Substantial increase in foreign exchange inflows still seems to be long-term prospects of the country, but debt repayment is bunching up within the next couple of years.

Business by the roadside

One day (recently) I was passing through Hambantota along a newly built, beautiful and wide road, but I did not see that many vehicles on the road. A magnificent international conference hall was standing all alone by the road, but I did not see any sign of conference activities there either. There were sign boards pointing into various directions, such as the newly built Seaport, Airport, Stadium and other facilities; but the area looked quiet without movements.

All the new infrastructure facilities was fascinating, but there were hardly any economic activity on either side of the roads. Neither were there people around. Just a handful of vehicles appeared to be moving fast once in a while. All what was seen around miles of long highways were the vast stretch of shrubs under the burning heat of the sun.

There was, however, just one business activity along the road under the little shades put up on either side of the road. People, both men and women who had covered their heads with a piece of cloth to avoid the burning heat, were trying to sell salt packets to the few vehicles passing through. It was cheap too; Rs. 100 for eight packets, each weighing one kg.

Salt for survival

What came to my mind was that nobody would ever think of doubling the amount of salt in the dhal curry because it is cheap now. Salt, in economic jargon, is a “price-inelastic” commodity in which you cannot make more money even if you lower the selling price and offer it cheaper.

Didn’t they know that this business will not take them anywhere beyond survival? Since you don’t need to have an economics degree to understand this, there must be something else.

Most probably the problem would have been that “there was no other choice”. They knew that this business would not take them anywhere beyond surviving, but simply there was nothing else to do. They must have been collecting salt probably from the leftovers in the salt fields in Hambantota, and trying to sell it to the vehicles moving on the highway.

File picture of children flying kites at an event at the Shangri-La's Hambantota Golf Resort & Spa in Hambantota just before it opened in June 2016. Proposed during the tenure of the former regime, the resort isn't doing as well as originally planned.

If it was the case, what a development contrast in Hambantota. The world-class infrastructure that had been superimposed has just overlooked the common people there.

Physical plan of the country

The Physical Plan 2010 – 2030, prepared by the National Physical Planning Department projected a future map of Sri Lanka, identifying five Metro Regions that would emerge by 2030. In addition to Colombo, it shows Hambantota, Batticaloa, Trincomalee and Jaffna as the other emerging metro regions, where about half the population will concentrate and live by that time.

Colombo, or rather the Colombo Metropolitan Area is already a metro region of Sri Lanka. If you consider the Western Province, nearly 29 per cent of population of the country live there in less than six per cent of the land area; the Western province has 1620 people per square km, compared to the national average population density of 323.

Jaffna has also been growing as a metro region in our history, but its growth was reversed for 30 years due to the war. Other locations identified by the Physical Plan – Hambantota, Batticaloa and Trincomalee have so far remained far from being closer to the status of a metro region.

There is no question that locations other than Colombo should emerge as the new metro regions of the country; some of them will have the potential capacity even to surpass Colombo’s dominant position in the economy.

Geographically bumpy growth

The future outlook of the country, as projected by this map is beautiful and meaningful. However, the problem is that the Plan does not explain any logical reason as to why people would concentrate in Hambantota or Batticaloa or Trincomalee. Let me explain why and when people gather in any of these or other locations of the country.
People gather in certain specific smaller locations and tend to have a compact living, because of the opportunities to work and live:

  • Opportunities to work – make use of their human resources productively in economic activities they prefer
  • Opportunities to live – derive benefits of growth in terms of greater incomes, better facilities and higher living standards


People find these opportunities where economic activities are concentrated. Actually people follow nothing else but economic concentration, driven by business investment.

Investors prefer to locate their business activities in specific locations rather than spreading them everywhere, because its advantages are stronger than the disadvantages. Therefore, both businesses and people gather in smaller geographical locations, leaving larger areas to farmlands, forests, and deserts. Growth has never been even across geographical space.

Until and unless investors find it worthwhile investing in Hambantota or any other location in Sri Lanka, the dichotomy between world-class facilities and people’s lives would continue to remain. When the eyes of the world-class investors also focus on Hambantota or other locations, people would follow suit for a better future. Then there will also be a return to government investment in world-class facilities so that foreign debt would not be a burden any more.

(The writer of this weekly column in the Business Times dealing with economic issues is Professor of Economics at the Colombo University)

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