Sri Lanka’s Golden Opportunity: Transcript of Ambassador Keshap’s Interview with Daily FT

Q:What are the key engagement points between the US and Sri Lanka?

A:We have the Trade and Investment Framework (TIFA), which has given us a platform to discuss the entire waterfront of Sri Lanka’s economic and trade issues. I think we have a great way forward to develop a plan of action spanning trade between US and Sri Lanka. People don’t actually realise how much is going on between the US and Sri Lanka. We have about 30-35 companies that have operations here. Collectively they employ about 20,000 people and the US is Sri Lanka’s largest export partner with $ 2.9 b in total imports into the US in 2015. Of these, fully $ 2.1 b is apparel and the US imports of apparel from Sri Lanka represent about 46% of your total apparel production. I have been told about 350,000 people work in the apparel and garment sector so almost half of those folk are directly or indirectly involved in supplying the American market, which results in quite a substantial number of people who owe their livelihoods to trade between Sri Lanka and US. So I feel very good that there is a renewed US Government interest in expanding trade with Sri Lanka, that there is a good velocity of visitors coming into Sri Lanka to see what we can do to expand our bases of trade to our mutual benefit. It’s a very good moment to be working on US -Sri Lanka trade and economic issues. The opportunity also exists, especially when you look at Asia at large and where Sri Lanka fits into South Asia. Sri Lanka is perfectly positioned in the Bay of Bengal region and has the busiest port in South Asia, fantastic air connectivity to virtually every country in Asia but also, very importantly, to the Gulf and almost all of Southeast Asia, so you are right at the crossroads. Given your geographic location, I think a lot of American companies are very interested, most notably I find that there is a feeling that with the new direction of the country and Government, with efforts towards reconciliation, that there is new opportunity and renewed hope. We applaud every effort by the Government to develop consistent, sound, predictable, policies that would be attractive to investors and we applaud every effort to create clear regulations and clear legal frameworks.

Q:One of the criticisms of TIFA is that it is too structural and not focused on improving exports in the short term, which is critical to Sri Lanka. What would be your response?

A:You have to look at what is out there in terms of global investment. There’s trillions of dollars of wealth that has been created by the rise of new economies around the world. But there is also trillions of dollars of investment capital in the United States looking for good, predictable, dependable, consistent destinations where the rules are very clear; where you have effective rule of law, arbitration of disputes, and I think if you have that kind of regulatory environment, and you show that you are connected to your broader region, through trade agreements or other frameworks, then it makes its own case. The Hyderabad IT miracle started in 1999 and it was carried forward consistently by Government even though parties and leaders changed. So I think there are lessons there and there is already a very promising IT sector in Sri Lanka.

Q:Proposed connectivity of this nature, such as the Economic and Technology Cooperation Agreement (ETCA), has already resulted in much protest. How crucial is economic liberalisation for Sri Lanka’s growth?

A:Well I think it’s a question of looking around your region. When I think of the region I think of the whole of the Arabian Peninsula; South Asia and all of Southeast Asia. That is your region and if you look at how much work a country like Vietnam is putting into reforming its economy, liberalising its economy, attracting investment, creating the conditions for sustained and heavy foreign direct investment; if you look at the competition between Indian states – they are all trying to get the next big factory or attract the next big investment – I think you need to look at Sri Lanka being part of that very large region. If you look at it and say “where is the money going,” “where are investors showing their confidence by making big agreements?” “How do our regulatory and legal structures, labour regulations, land acquisitions, taxation policies stack up compared to those other places?”

Q:Policies of this nature need a lot of stakeholder buy-in and support. Do you see the Sri Lankan Government being able to attract investment in the short term, especially given the challenging external environment? 

A:You are asking me to look into the future, which is something you can’t do and I can’t do. I wish I could but I will say that it is important to have plans. It is important to have a vision. It is important to root that vision in the reality of the broader competitive framework all around the world. I read the Prime Minister’s (policy) statement in the newspaper the other day about what he is trying to do for the country and I recognise that there is a lot of good work outlined in that, but implementation will be crucial. If Sri Lanka is able to emulate the success of Malaysia or Thailand or Singapore, vision is crucial. A big part of having a good vision is making sure you have done your research about the rest of the region and having a clear sense of what they are doing so that you can be just that bit better. Sri Lanka already has the central geographic location, you’ve already got a fantastic workforce of great people, you’ve already got a beautiful country, you’ve got peace after many, many decades, so this is a golden opportunity for Sri Lanka to implement a vision that can attract FDI, create good, high quality employment, and really set the country on a path toward better prosperity.

Q:A significant part of TIFA is encouraging economic reform. In the latest ease of doing business rankings compiled by the World Bank Sri Lanka was stagnant because other countries are implementing reforms faster. What are your views on this and could your top three reforms you feel the Government should implement?

A:It’s not really for me to tell anyone what they ought to do. I really think there is no dearth of highly intelligent people in this country who can discern for themselves what the best solution is that fits Sri Lanka’s needs, that addresses Sri Lanka’s desires and fulfils its dreams. But I think the key here is to realise, right at the core of it all, that this is not just about Sri Lanka itself. Even an economy as big as the United States is aggressive about ensuring that it is competitive. We are obsessed with making sure we are in that top ten of competitive economies around the world and that is hard to do when you are dealing with smaller and much more nimble countries like Singapore or Hong Kong or New Zealand, but we try. We are constantly trying to be in the top ten and we succeed. Even now as a $ 17 trillion economy, we are obsessed with connectivity, whether it is within the United States, or it’s between the US and Asia, or US and Europe, or US and Latin America. We want to make sure that the North American supply chain is as efficient, as well regulated, and as free as humanely possible. So I don’t think I would want to say what is best for Sri Lanka. That is for Sri Lankans to do. What I would say is you’ve got a great opportunity. Your timing is impeccable.

Q:During the last round of TIFA talks in Colombo the Sri Lankan Government requested preferential access to the US market, which is politically very difficult to achieve. How can Sri Lanka increase exports to the US? 

A:We are already your number one trading destination, number one export partner, and by my very bad math, at least 150,000 people in the garment sector are working on exports to the US. So a lot of good has already been done and we’ve got American companies that have employed about 3000 people or more in your IT sector and so that is now coming up. You and I are both aware that America is in the midst of elections, the entire Congress is running for re-election, one third of the US Senate is running for re-election, and that is just the nature of our system. So I don’t think we would be in a position right now to say “this is what we can do” given that uncertain factor. But I would say that there is a lot that Sri Lanka can do by itself to make its products more attractive to the American market. Within the TIFA talks we can certainly revisit this point once we have a new administration in place where those steps may be taken and part of the genius of TIFA is that it creates a broad inter-agency Government-to-Government coordinating body to talk about all these things.

Q:You dwelt extensively on the importance of connectivity and the Sri Lankan Government has outlined plans to move toward private-public partnerships on infrastructure. You have also given a number of speeches on this topic, especially on regulatory frameworks that are needed but would you encourage US investment into this sector in Sri Lanka? 

A:You and I both know the American private sector will not do things at the behest of the US Government. The American private sector is beholden to its shareholders, its beholden to company value, its beholden to the board of directors; it is beholden to its fiduciary responsibilities and to its employees. But American companies are investors all over the world. We are often the number one investor in countries everywhere. We have been in Sri Lanka at least 60 years, probably more. So there is no dearth of entrants by American companies all around the world in investing and they have trillions of dollars of ready-cash and they bring world class standards of innovation, knowhow, of ethics, of corporate social responsibility, and technology. When an American company moves in and really sets up, it brings in a force multiplier effect of creating supply chains and bringing the next level of whatever industry they go into. If you build it and “it” being the enabling regulatory environment, the enabling policy environment, they will come. They will find the opportunities.

Q:How crucial is it for Sri Lanka to brush up its anti-corruption and institutional independence credentials to attract investment? 

A:American companies are governed by the Foreign Corrupt Practices Act. If an American company pays a bribe anywhere in the world, it is prosecutable in the US. We bring the highest level of ethical comportment to the activities of American business. So they will go where they feel they not only get what they need to do business but that they will never be put in a position where they could break American law.

Q:Last year during former US Secretary of State John Kerry’s visit, he pledged to assist in corruption investigations and even help in recouping assets taken out of Sri Lanka. What is the current status of this cooperation?

A:We have done our level best to be helpful to the Government. We keep open channels of communication. These are very difficult things, when it comes to money that may not have been obtained in lawful ways, people are very diligent about making sure footprints are covered, but we do work with the Government and we do talk to them and they are talking to us. They are also talking to many international partners about ensuring that the money of the Sri Lankan people is put to the purposes that are best intended for the Sri Lankan people.

Q:We have seen many US Government officials coming to Sri Lanka but there has yet to be a significant business delegation. Is that in the works and if so how long would it take? 

A:There is some talk about it. There is a desire to see where things go with Sri Lanka’s trade agreements that it’s negotiating in its neighbourhood. If I may go back to my point of Bay of Bengal connectivity, you are beautifully positioned; Sri Lanka is a small country so it doesn’t have a large domestic market, but it does have fantastic positioning and these trade agreements coupled with s good, solid, consistent, regulatory policy framework, I think you can have a pretty good product to sell, and it would in turn attract the attention of US companies and there could be trade delegations. I know we have a franchise trade delegation coming down in December and we may have some other stuff going on in 2017. We may have reverse trade delegations going to the United States to sort of educate American companies about what is going on here with governance and turning the corner economically, as well as talking about the political changes in Sri Lanka. A little bit of sales and marketing is important in life, a little bit of self promotion is important, so I can’t say for sure when we will have a trade delegation here, but I would say Sri Lanka can do a lot to toot its own horn in America and with American audiences and business groupings, and that would be something I would be happy to lend my efforts to because I think as trade develops in both directions, it is good for both countries.

Q:How critical is economic growth for reconciliation?

A:Everything is easier if the pie is growing. The Government has certainly set out, through the Prime Minister’s statement, a vision of a more prosperous Sri Lanka and that would go a long way towards aiding the course of reconciliation. The United States Government is fully and firmly committed to helping the people of Sri Lanka achieve their vision of national reconciliation, as set out by the voters in the 2015 elections. We are firmly committed; we are expending every effort we can to be helpful to this Government. We have a robust USAID program underway and an expansion of diplomatic relations, so we are going to keep at it because we think it is important and we would also be supportive of efforts by the Government and the people to grow the pie. That can only be helpful for the very ambitious political goals that have been set by the Sri Lankan people.

Q:Are you at all concerned about Government plans to lease the Hambantota Port to a Chinese State company?

A:PPPs are kind of like getting someone else to bring money to achieve your national goals, whether it’s a road or harbour or hospital. Private money can be marshalled towards public good, as long as that private money feels it has a return on investment. So how you design your PPP structure is entirely up to you. These are the sovereign decisions for the people and Government of Sri Lanka. What I would say is, if you create a good system, a level playing field and predictable system, and you ask private investors to come in, you may also see interest by world class private investment whether it is American or Japanese or Indian or Chinese. The key here is, if you build it they will come and it won’t be just one company or one country, it would be many. The challenge for Sri Lanka is to take maximum advantage of this golden moment and see how the work and decisions made by Parliament and businesses and people can derive the best returns for the Sri Lanka that is yet to come. Now is the time to be confident and propagate ideas and policies that make you world class across the entire Indo-Pacific region, particularly the Bay of Bengal.