Sri Lanka dreams of a ‘Singapore of South Asia’ (Report)
A small island south of India with a population of 22 million. Surrounded by the sea on all sides, Sri Lanka is called the pearl of the Indian Ocean. In Korea, Sri Lanka, famous for its natural environment and Ceylon tea, is starting to transform into an industrial hub in South Asia. In December 2024, I visited Colombo, Sri Lanka, where construction is in full swing on a vast reclaimed land.
On the Galle Face Beach in Colombo, where hot and humid winds blew, tall hotel buildings stood facing the Indian Ocean under the blazing sun. The scenery I encountered on the way from Bandaranaike International Airport to the city looked like Southeast Asia or India at first glance, but as I got closer to the city center, Sri Lanka’s unique colors stood out. Old buildings with European architectural styles from a long period of colonial rule, signs written in English, Sinhala, and Tamil, tall palm trees, and buildings shining brightly here and there created an exotic atmosphere.
The Colombo beach, lined with five-star hotels, was thick with smoke from diesel buses and tuk-tuks (three-wheeled motorbikes). The streets were a bit rough, with acrid smells mixed with the hot air, but the clean, neat streets without even a single piece of trash offset the impression.
On one side of the vast stretch of beach, a large site with cranes lined up in the distance was visible. A well-paved concrete road divided the area, and a few low buildings stood here and there. In this still desolate area, several trucks and excavators carrying construction materials were busily moving back and forth, and containers were piled up on the beach. This is Port City Colombo, an economic special zone that the Sri Lankan government is developing with overseas developers.
Port City Colombo is a new special economic zone being developed around the Colombo Port area, and is being jointly promoted by the Sri Lankan government and private developer China Harbor Construction Corporation (CHEC).
The project, in which CHEC invested $1.5 billion (about 2.2105 trillion won), is the largest public-private partnership project in Sri Lanka’s history. It is managed by the Colombo Port City Economic Commission (CPCEC), a public-private partnership. The completion date has not yet been set.
In January 2019, 6.4㎢ (approximately 1,966,000 pyeong) of land was reclaimed from the sea, and the goal is to create a special economic zone with commercial and financial districts, residential complexes, schools, and leisure facilities. The plan is to create the most business-friendly and livable city in South Asia. A highway connecting the airport and Port City Colombo in 30 minutes is being built, and a light rail that can avoid traffic congestion in the city is also being built with support from the Japanese government.
The Sri Lankan government has also enacted a separate law for the operation of Port City Colombo in 2021. The aim is to provide benefits to foreign investors to facilitate their business activities.
The biggest benefit is that you can do business without exchange rate risk because you can deposit and withdraw all the world’s currencies without the permission of the central bank. For example, if a Korean real estate company wants to enter Port City Colombo and do land development business, they can invest in won without worrying about exchange rate loss due to the rise in the won-dollar exchange rate, and if they want, they can receive the investment profits in dollars and exchange them back into won when they withdraw the investment.
Another advantage is that there are no restrictions on foreign investors or foreign workers. Companies in Port City Colombo can have 100% foreign shareholders, and there are no restrictions on hiring foreigners. There is no income tax. Port City Colombo has a dedicated International Dispute Resolution Center, so disputes within the city can be resolved here without having to take them to the mainland courts.
Even if these benefits are reduced in the future, they will not be applied retroactively to existing contract holders. Businesses will continue to be subject to the laws in effect at the time of signing the Port City Colombo lease. Additional benefits will also be available to existing contract holders. “Thanks to these benefits, the cost of doing business in Port City Colombo will be only 20% to 25% of what it would be in Singapore or Dubai,” said Thulci Aluwihare, managing director of CHEC. “Sri Lanka is also the only neutral country in South Asia, making it very attractive to businesses that trade with countries such as India and Pakistan.”
According to the CPCEC, Sri Lanka is the only country in the world that has signed a free trade agreement (FTA) with both India and Pakistan. The Strait of Malacca, adjacent to Sri Lanka, handles about 60% of global maritime traffic, and the nearby Strait of Hormuz is a key point for crude oil transport. According to the Sri Lankan government, Colombo Port is the busiest in South Asia. Director Aluwihare said, “Just as Korea overcame the foreign exchange crisis in 1997 and grew rapidly with exports as its main focus, I think Sri Lanka also has opportunities.”
Sri Lanka suffered a national default in 2022. With the risk of national debt repayment piling up, the Easter terror attacks by an Islamic State (IS)-related group in April 2019 caused hundreds of casualties, and the COVID-19 pandemic in 2020-2021 caused a decline in the tourism industry, which accounts for more than 10% of the country’s gross domestic product (GDP). The war between Ukraine and Russia, which began in 2022, deepened the economic crisis.
It was not only external factors that affected the Sri Lankan economy. The problem of corruption among politicians and public officials was deep-rooted. When the economic crisis was added to the chronic disease of corruption, anti-government protests spread nationwide, and the government declared intermittent curfews and a state of emergency. Eventually, then-President Gotchabaya Rajapaksa declared national bankruptcy and resigned mid-term. After that, Sri Lanka received approval for its 17th bailout from the International Monetary Fund (IMF) in 2023.
In this situation, the new president, Anura Dissanayake, was elected in September 2024. He is the first left-leaning president in Sri Lankan history, and the current ruling party, which won only three seats in the previous administration, won more than two-thirds of the seats in the general election. The slogan of the new Sri Lankan government is to eradicate corruption and build a digital economy. It is to transform Sri Lanka into a transparent and efficient country and make it a good place for business. It is for the same reason that the port city of Colombo will create different laws from the mainland to benefit businesses. As Sri Lanka dreams of economic recovery after political turmoil, attention is focused on whether the port city of Colombo can become a savior.
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