Intense US-Lanka Cooperation Ahead
Cordial relations between the United States of America and Sri Lanka date back 165 years, and the USA has assisted Sri Lanka financially with over US$ 2 Billion since independence. The year 2015 is now seen as one of the most critical times where the future of Sri Lanka has been repositioned towards holistic development. And its old ally, the USA is wholeheartedly committed to further intensify cooperation between the two countries in reaching this goal, as Constantinos Nicolaidis, the Head of Economic and Commercial affairs at the U.S. Embassy in Colombo discusses on The Ernest Interview with Ernest Jacobs. Constantinos Nicolaidis is a career diplomat and 16-year veteran of the U.S. Foreign Service who is currently Head of Economic and Commercial Affairs at the U.S. Embassy in Colombo. He has previously been posted to Brazil, Kuwait, Iraq, Egypt and Belgium, and has held numerous positions in Washington, DC. Prior to his diplomatic service, Nicolaidis was a professional staff member at the United States Senate.
ProfileConstantinos Nicolaidis is a career diplomat and 16-year veteran of the U.S. Foreign Service who is currently Head of Economic and Commercial Affairs at the U.S. Embassy in Colombo. He has previously been posted to Brazil, Kuwait, Iraq, Egypt and Belgium, and has held numerous positions in Washington, DC. Prior to his diplomatic service, Nicolaidis was a professional staff member at the United States Senate.
Sri Lanka is quite upbeat on economic, social and cultural development. What is your assessment of the country’s potential for improving international trade?
Sri Lanka sits at the crossroads of some of the busiest logistics and supply chains in the world, is located a few hours from major markets and regional financial hubs in South Asia, the Middle East and Southeast Asia, has a dynamic and relatively well-educated population and is finally enjoying peace and a government that has pledged transparency in financial dealings and good governance reform. I think the potential for improving international trade is tremendous, as good as we have seen in decades.
Foreign Direct Investment (FDI) is a buzz word among emerging economies around the world, and many countries are revising policy structures to enable FDI. What are the most critical changes in long-term policy that Sri Lanka must consider at this time?
This may surprise your readers, but from my perspective, the most critical change necessary to attract FDI is not a policy change at all, but rather a change in mindset. Competition and investment from outside Sri Lankaare positive forces that can help modernize and expand the entire economy, but there is often a natural instinct to see the seas things to be feared or carefully walled off from the larger economy. This is a hard instinct to ignore, but experience has shown the largest economies in the world tend to be the most open. Along with a shift in mindset, policy changes are also critical. The bottom line is that businesses looking to invest in the region seek a welcoming, stable environment where they can be assured of the safety of their investment. Before investing a single rupee, they will want to know: is my investment safe, or will a change in government bring changes, corruption or even nationalization? Will my tax rates be fair and consistent, or will the next government implement retroactive taxes? Can I easily repatriate my profits, or will doing so require countless attorneys and accountants? Are labor costs and policies reasonable? How easily and fairly can I resolve any disputes? If Sri Lankan policy is written to consistently answer these questions in a way that makes it easier to invest in Sri Lanka than in surrounding countries, FDI will come and the economy will grow.
However it is looked at, global economic conditions are greatly affected by the assistance (or lack of it) of the U.S.A. Amidst the new era that Sri Lanka is venturing on, how is the U.S.A. prepared to assist with the journey towards realizing a brighter future?
Thecommercial ties between the U.S. and Sri Lanka are strong, representing economic bonds between our two countries that go back more than 165 years. The U.S. is the single largest country market for Sri Lankan exports. And American investors continue to contact the Embassy expressing interest in opportunities here in Sri Lanka.
But U.S. engagement with Sri Lanka is more than just commerce. The U.S. has provided over $2 billion in assistance to Sri Lanka in the decades since independence, focused on economic growth and trade, humanitarian assistance, strengthening democracy and governance, and bolstering human rights. We hope to continue this cooperation in the years ahead.
During Secretary Kerry’s visit to Sri Lanka in May, he announced the U.S. was committing an additional $40 million to this effort, which we are now implementing with the Sri Lankan government. These funds are being used to, among other things, provide technical assistance on trade policy and facilitation, provide training on tourism promotion and development and build the capacity of key Ministries through technical assistance. Finally, two recent decisions set the stage for even more cooperation. The decision by the Millennium Challenge Corporation (MCC) December 16 to declare Sri Lanka eligible for a Threshold Program means the U.S. and Sri Lanka will be working together to identify areas for intense cooperation in the years ahead. If that cooperation is successful, it could lead to a full compact with MCC, which usually means a commitment from the U.S. for hundreds of millions of dollars in assistance. In addition, the recently announced Partnership Dialogue will include a pillar on economic discussion, an opportunity for full discussions on a whole range of economic issues, in association with the Trade and Investment Framework Agreement discussions. So, I would say the U.S. and Sri Lanka are very clearly making the journey towards a brighter future together.
Sri Lanka is geographically situated in what could be called, “the east-west gateway”, how best could the country harvest potential for economic growth availed through this geo-location?
Sri Lanka is a natural global hub, and is ripe with potential for further development. For example, the port at Trincomalee is one of the finest natural deep-water ports in the world. If further developed, it could serve as a link to regional and global markets and an economic driver for the entire country, particularly the Eastern Province.
I think everyone understands how the painful history of recent years has held back commercial and infrastructure development, but now there is opportunity and a bright economic future ahead. So I would say, Sri Lanka should be the gateway it naturally is. Develop and link your roads, your ports and airports, your rail networks, and most importantly your people. Incentivize private investment in the sectors that create lasting jobs. Work with your neighbors to ensure Sri Lanka reaps the full benefits of regional trade and economic integration. The international community can help, through both public-private partnerships and assistance programs, but it will take its cues from the comprehensive vision offered by Sri Lanka’s leaders.
It has been approximately six years since the end of the armed conflict in Sri Lanka, and there’s many reasons for the rest of the world to partner with the country in many ways. But what more needs to be done towards communicating this improved stability in the country and potential for polygonal growth?
The choices the Sri Lankan people have made this year have already put the country on a path towards stability and growth. From my vantage point, the most important way to communicate that stability is to stay the course. Stick with the plan for structural reforms; see them through, difficult and politically unpopular as they may be, in the short -term. This won’t be easy, but it will bring about the long-term changes needed. Once the policy changes are in place, business and government will need to work hand in hand to market Sri Lanka as a destination for FDI, including by highlighting specific commercial opportunities. Roadshows to world financial centers should tout Sri Lanka’s easy access to regional markets, business-friendly policies, a talented and educated workforce, natural beauty and clean air. Trade delegations should be invited to witness all of this first-hand. Sri Lanka is its own best advertisement, but when it comes to the economy, there is no better signal to the world that Sri Lanka is open for business than significant investments by large companies and financial institutions. Since international capital flows to the best business opportunities, the world over, Sri Lanka should work towards creating these opportunities.
Sri Lanka is not yet a formal member of the Trans Pacific Partnership (TPP) that avails many benefits to its members. Yet how can the country seize potential within this partnership until receiving formal membership, and what needs to change for Sri Lanka to join the TPP?
The TPP is a landmark trade agreement that I have no doubt will drive rapid economic development among its members. While Sri Lanka is not a member, there is nothing stopping the country from taking steps right now to set Sri Lanka up for eventual membership. The best part is those steps would immediately make your domestic companies and your economy more competitive in the international arena. These could include implementing tariff reductions, streamlining customs duty procedures, introducing more transparency in government procurement processes, strengthening intellectual property rights and enforcement and ensuring state owned enterprises are managed with commercial considerations in mind. Those would be my recommendations for how to seize the massive potential facing Sri Lanka, and I am proud to say the U.S. and Sri Lanka are already working together in many of these areas.
There is much discussion about increasing manufacturing and related infrastructure in Sri Lanka. Yet manufacturing is energy intensive and most of Sri Lanka’s industrial energy is derived from fossil fuels that is harmful to the planet, while there is huge potential for harnessing natural / renewable energy. How would the U.S.A assist with technology and investment towards maximizing renewable energy in Sri Lanka?
Sri Lanka already gets around 11% of its energy from renewable energy sources, including from the Mahaweli River Irrigation System, a hydropower projected developed with support from the U.S. Agency for International Development. Region-wide, however, South Asia’s commercial energy demand is currently met mostly met by coal and oil. To accelerate economic growth, the region must develop clean, renewable sources of electricity, establish reliable sources of natural gas and the means to transport it, and increase opportunities for regional energy trade. U.S. firms are interested in providing the technology to create renewable energy in Sri Lanka. Given a stable and welcoming economic environment, I’m confident U.S. and other renewable energy firms will come.
What is your Earnest question?
Sri Lanka has arrived at a historic moment, a fulcrum from which it can leap forward, economically. What are you doing to prepare for this leap, and how can the United States help?
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