Speech delivered by Hon Dr Harsha de Silva, Deputy Minister of Foreign Affairs at the ANU South Asia Research Centre on 29th March 2017, during his official visit to Australia

Australia South Asia Research Centre Seminar
29th March 2017

Distinguished ladies and gentlemen,

• Good afternoon

• Even though he is not here due to overseas travel, let me first thank Prof Premachandra Athukorala for inviting me to this prestigious Australia South Asia Research Centre here at the Australian National University for this public seminar.

• I bring greetings from the people of Sri Lanka.

• As you know, our two countries have a long history of friendship.

• In fact, this year marks 70 years of diplomatic relations between Australia and Sri Lanka. Throughout this period, we have worked closely and we look forward to even closer and deeper ties.

• This afternoon, I will speak on the Topic “Sri Lanka in Transition: Challenges and Opportunities from an International Perspective”.

• I will focus more on the political and economic angles of the issue and layout the plan of action we have drawn up to arrive at a successful outcome.

Let us contextualize the problem so that it is easier to understand

• While Sri Lanka is an ancient nation, with 2,500 years of recorded history, it is also a relatively young nation approaching just 70 years since re-emerging as a sovereign country following almost five centuries of European colonialism.

• So, the question really is; having leveraged on what we inherited at independence, how have we done in that 70 years?

• Unfortunately, not too well.

• Last week I was in Switzerland briefly leading our delegation at the UN HRC sessions.

• There, I was thinking about what the British newspapers said when we obtained independence from Britain in 1948.

• We were expected to become the Switzerland of Asia.

• So what went wrong? Many things, but let me focus on the politics.

• Both are small in population and geographic extent. Both countries are steeped in history with distinct religious and ethnic groups.

The Swiss Constitution recognizes four national languages; German, French, Italian and Romansh.

• Each language has many regional dialects.

• In comparison, Sri Lanka has 2 national languages; Sinhala and Tamil and English as the link language.

• When we think of Sri Lanka, we first think of Sinhalese and Tamils.

• However, when you think about Switzerland, you don’t think about the different ethnic groups or languages.

• Rather you think about its attributes such as excellence for precision as in watch making or fine chocolates, or even it’s sometimes dubious distinction as a haven for foreign capital.

• Switzerland did not happen overnight. It came together over several centuries.

• And, I am not saying what works for Switzerland will work in Sri Lanka either.

• But, the important point is that the people in Switzerland; the Swiss, as in other stable plural societies, have found a system or a formula for what works for them.
• In Switzerland it is indeed called the “magic formula”: a political agreement for sharing government seats among the coalition partners which brings a large measure of political stability.

• Unfortunately for us, we couldn’t come up with a formula to hold our nation together and we suffered a prolonged conflict that claimed many tens of thousands of lives.

• Mothers lost sons, children lost fathers, wives lost husbands in battle. Besides the battlefront mothers and daughters too were killed in otherwise peaceful towns and cities.

• After almost 30 years of armed conflict, the guns finally went silent after the defeat of the LTTE.

• However, we didn’t seize the opportunity to come together as a nation and heal our divisions.

• Unfortunately the then government embarked on a divisive and authoritarian trajectory misappropriating the goodwill and mandate of the people.

• Calls for genuine reconciliation were ignored dividing the nation even further.

• However, in 2015, Sri Lankans of all communities demonstrated to the world the power of our democracy by changing the government, long considered to be undefeatable, by the power of the ballot.
• On 8th January 2015, President Sirisena was elected the Executive President on a policy platform of strengthening democracy and governance, rule of law and accountability, transparency and most of all reconciliation

• In 2015, the leaders of the two main parties realized that, despite their differences on many issues, the county was at a critical point where only determined, unified and long term thinking and action, could ensure stability and prosperity and save our future.

• Therefore, for the first time in our contemporary history, the two main political parties of Sri Lanka; the UNP and the SLFP, agreed to come together to form a national unity government.

• The coalition of tamil parties; the TNA became the main opposition yet supportive of the unity government.

• Despite many doubts and stresses the unity government has prevailed and we have achieved much; even though our progress maybe dismissed by those who do not understand the enormity of the challenges that we faced and continue to face.

• Let me assure you that we will strive do our best during the time allocated to us by the citizens of Sri Lanka who reaffirmed our mandate for the second time at the Parliamentary elections in August 2015

• I would like to stress that preserving the integrity and the direction of the unity government, in the face of the many factions who want to see us fail, is a challenge not only for the political parties concerned, but for the nation of Sri Lanka.

• In this context, let me highlight some our successes on the political front:

• We repealed the 18th Amendment to the Constitution, which removed the two-term limit of the Presidency and adopted the 19th Amendment which re-introduced the two-term limit of the Presidency.

• In addition, the 19th Amendment
– reduced the powers and the term of the Presidency from 6 to 5 years
– established a Constitutional Council,
– restored Independent commissions
– recognized the Right to Information as a fundamental right (this is operational now)
– and recognized the Promotion of National Reconciliation and Integration as duties of the President among others.

• The Parliament of Sri Lanka, in April 2016, unanimously adopted a Resolution to prepare a draft Constitutional Bill for the consideration of Parliament.

• We believe this as to be the best opportunity for us to achieve genuine and sustainable reconciliation.
• We want to ensure that this Constitution, unlike its predecessors, would reflect the true aspirations of our people through a Parliamentary process and referendum.

• Much of the preparatory work for the new constitution has now been completed. The 6 sub comittees appointed to look into the various aspects of the constitution have submitted their drafts to be considered by the steering committee; hopefully soon.

• Besides the work on the constitution, we drafted, through a consultative and inclusive process, of a National Human Rights Action Plan for the next five years beginning from this year.

• We set up a permanent Office on Missing Persons, and allocated resources.

• We also became a party to the International Convention for the Protection of All Persons from Enforced Disappearance.

• We moved forward the formulation of the Policy and Legal Framework of the proposed Counter Terrorism Act in keeping with accepted international practices.

• We restored the freedom of the press, ended censorship and invited exiled journalists to return to Sri Lanka.

• For a government in office for less than 2 years, since August 2015, this is a significant amount of achievements.
• In addition to delivering on our promises to the people at home, let me give you some background on the international processes we have undertaken to restore our credibility and reputation as a responsible member of the international community.

• The unity government ended the previous government’s policy of isolating itself from the international community and entered into a more proactive engagement with the world.

• I refer particularly to the UN Human Rights Council where repeated resolutions were brought against a non-responsive Sri Lanka on alleged violations of human rights during and after the conflict.

• We know from bitter experience that grievances or trauma that is left unaddressed doesn’t go away or are forgotten. They lie hidden until an opportunity presents itself for them to transform in to new cycles of grief or violence.

• So, If we fail to address grievances, we would be failing in our duty towards all Sri Lankans, to prevent a recurrence of conflict. Most importantly, we would be failing the victims and their families; be it Tamil or Sinhalese or Muslim.

• It is this realization that guided the government’s decision to co-sponsor the HRC Resolution 30/1 in October of 2015.

• However, this resolution and its contents have been seized by our critics to portray a misguided picture that the international community is out to take revenge from the Sri Lankan military for defeating the ruthless LTTE.

• Let me take a few minutes to explain.

• The Resolution addresses the Government’s four pillared approach of truth, accountability, reparations and non-recurrence.

• The content of the Resolution is based on commitments that we ourselves as a Government, made to our people, and proposals that we presented to the Council based on the Lessons Learnt and Reconciliation Commission Report and the Paranagama Commission Report, both of which predate our assumption of office and advice of our own experts.

• By co-sponsoring the HRC Resolution 30/1 Sri Lanka reasserted our commitment to human rights and willingness to work with international partners in addressing issues of concern.

• As in any democracy, there are divergent views within the government in respect of the proposed judicial mechanism in the HRC resolution.

• Some of our critics have sought to highlight such differences while forgetting that despite this divergence of opinions, the government is united on the need for an independent and credible domestic mechanism to address the contentious issues.
• As a democratic Government, we will work out the architecture of such a mechanism in consultation with all the stake holders.

• At the adoption of the HRC resolution at the 34th session of the HRC on 23rd march 2017, Sri Lanka clearly stated that we are striving to establish ‘Sri Lankan Government-led processes’ within our Constitution with international assistance, engagement and support for the benefit of all our citizens, without discrimination.

• For those who may be wondering about what our critics have been portraying; the possibility of a hybrid court with foreign judges sitting in judgment; let me be quite clear that there is absolutely no possibility for such a scenario as reiterated by both the President and PM.

• Having said that, I would like to stress that at the end of the day we need to have a mechanism that is victim centric. And whatever we do, those who suffered; be it Tamil or Sinhala must feel that their pain has been genuinely reduced.

• As you would now appreciate the challenges we face in the political sphere, particularly in transitional justice, are many.

• But, taking a positive view, one can see the opportunities themselves embedded in these challenges.

• Therefore, successfully dealing with the challenges we face would help us seize the opportunity to create a win-win situation for all; a sustainable peace for all Sri Lankans.

• Let me now turn my attention briefly to the economic issues we face.

• At almost USD 4,000 per capita we are a lower middle income economy. But this figure hides the complex nature of the challenges we face not be caught in a middle income trap.

• The two major issues we face are (1) low revenue to GDP and (2) low exports to GDP. These two issues together and the entitlement and subsidy culture have created a situation where the Government is stressed to the limit.

• I don’t plan to go in to depth here, nor discuss the revenue issue; but will lay out the structure of the primary export problem we face sticking to the international perspective in this talk.

• In fact, if we are able to crack the export challenge, then it will anyway become easier to deal with the rest upon necessary reforms in SOEs and subsidies.

• To put the problem in basic terminology, Sri Lanka has been growing, but it has been hitting speed bumps because our exports have not been growing sufficiently.

• The reality is that our Exports to GDP fell from about 34% in 2000 to about 12.5% by 2015. An astonishing fact.

• With expanding Trade deficits  CA deficits were not matched by Capital Account surpluses  resulting in Forex reserves dropping sharply and Growth slowing down.

• In fact, after a debt-fueled post war growth bubble that registered 9 and XXX growth in 2010 and 11, the pace slowed down to 3.5 and 4.5 in 2013 and 2014. 2015 was 4.5 and 2016 expected to be around the same range.

• So periodically, we have been going in for IMF programs to address BOP crises

• Why? With the lack of focus on exports, or in other words an inappropriate incentive structure to drive investments in to exports in the last 10 years or so, what we find is that the low export growth is structural and that is there has been a serious lack of ‘new exports’

• This means that we had not ‘diversified’ enough.

• We have been stuck producing ‘low value’ products except for the ‘outlier’ in certain apparels. In fact, if not for this ‘outlier’ particularly the big 3; MAS, Brandix and Hydramani and a few other niche players, Sri Lanka would have been in much deeper trouble.

• To give an example; while Vietnam in the last 10 years had introduced 45 new products at $545/per capita SL had only introduced 7 new products at $5/per capita.

• Our export basket looks more typical of a poor country than a middle income country.

• It is less complex and not balanced out by service exports. 75% of the products are similar to what is produced in the lowest quintile of countries; by income  that is normally low wage economies

• What this means is that Sri Lankan exports are quite vulnerable to competition and we could, with the exception of the ‘outlier’ subindustry we can get priced out if our cost of production continues to increase relative to others.

• Further; SL export basket is dominated by Buyer Driver products as opposed to producer driven products; meaning typically non-durables such as apparels and footwear etc as opposed to components for branded electronics or automobiles etc.

• Professor Athukorala has analyzed this issue comprehensively and brought to the attention of policy makers back home the need to urgently address the problem before it becomes critical.

• He and others have highlighted the need to attract FDI and establish branches of MN Enterprises to link SL with producer driven GPN.

• They have shown the need to move away from arms-length type sourced production relationships to more solid integrated relationships that are sustainable.

• To do any of this, we must first link up with the world.

• It is in this context I will now talk a little about what our plans are.

• Beyond the UN, Sri Lanka is once again integrating with the world guided by a strong democratic foundation and a balanced policy of international relations.

• Our focus is on Economic Diplomacy.

• In a world where even some of the major players seem to be moving towards protectionism, we will continue to strive towards greater trade.

• For us, to establish our presence in GPNs trade is paramount and we are of the strong view that Sri Lanka’s future lies in how well we integrate with the world and use our geo-strategic location to our advantage.

• In this context, we are repositioning ourselves to maximise our relationships with both our historic and new trading partners; both in the West and East.

• We are on track to regain the GSP + concessions from the EU that we lost in 2010, on human rights concerns.
• We hope to hear the good news by 15 May that will give 6,600 Sri Lankan products complete duty free access to the EU opening up brand new opportunities for investors to locate in Sri Lanka.

• Besides GSP+, we are currently discussing potential Free Trade Agreements (FTAs) with several other countries.

• In particular, we are working towards finalizing the Economic Technology Cooperation Agreement (ETCA) with India by 2017.

• The ETCA will enhance the scope of our existing India Sri Lanka FTA to extend freer movement of goods and also services with the added emphasis on investments.

• Fear mongering among some have made the progress slow, but let me emphasize that we will ensure that the agreement we finally enter in to will certainly be asymmetric and be beneficial to both Sri Lankan consumers and producers.

• And that we will ensure necessary safeguards.

• The ECTA will provide an impetus to the existing synergies and has the potential to benefit from the rapid growth of the five South Indian states, that is Tamil Nadu, Kerala, Karnataka, Andra and Telengana which today accounts for and economy of nearly 500 billion dollars.

• We are also negotiating a FTA with China, but that is still in early stages.
• The first FTA to materialize will be the one with Singapore, which is mainly geared towards the provision of a level of comfort for the envisaged large investments in multiple sectors including services.

• I expect that this FTA will come in to force in the next few months.

• The other major area of discussion in terms of global integration is with that of China.

• In continuation of the historical role we have played in the Maritime Silk Route, Sri Lanka is supporting the One Belt – One Road economic initiative.

• Under this initiative we are currently negotiating to enter into an long lease agreement with China Merchant Port company to put in to use the USD 1.3 billion Hambantota port that is currently making enormous losses.

• In fact, the success will ultimately lie in the establishment of the proposed Industrial zone that would help us address the issues pointed out by Prof Athukorale and others in terms of linking up with producer driven GPNs.

Sri Lanka is in a way lucky.

• We have perhaps the most enviable geo strategic location advantage in the Indian Ocean.
• From our location in the Spice Routes as the half way point between the two great empires of Rome and China Sri Lanka possessed strategic geographical advantages in the ancient world.

• Exports of spices, particularly cinnamon, became an increasingly lucrative activity. During the period 13th-15th centuries, Sri Lanka’s position as a trade hub on the East-West maritime route had been established, as had its position as a gateway to India. Sri Lanka had direct commercial links with Malacca, and also with regions in India such as Gujarat and Bengal.

• However after 500 years of colonial dictates and thereafter post-colonial cold war concerns the global economic balance of power is once again shifting towards Asia.

• It is estimated that by 2030, Asia will surpass North America and Europe combined in global power based on GDP, population size, military spending and technological investments.

• Sri Lanka’s challenge is now to capitalize on our location and transform nation as the true hub of the Indian Ocean.

• We are focusing on defining the two development corridors across the country – this will be a focal area for investment by the public and the private sector.

• They will correspond to the two distinct halves of the country irrigated by the two monsoons.
• (1) The South-Western corridor will have as its major axis the proposed Kandy-Colombo highway linked to the existing Southern highway. This region has the strongest potential to link up with global value chains, because of its close proximity to the Katunayake airport and the Colombo harbour. This project envisages:

• Creating a Megapolis Development Authority to develop the entire Western Megapolis-an urban area of over 8 ½ million people.

• Colombo is one of the nicest cities in the region with emerging opportunities in real estate and leisure. We have hopes to transform Colombo into a uniquely Sri Lankan, modern, cosmopolitan city—the most livable city in the Indian Ocean region. This would involve integrated planning, transition to mass transit, transforming housing, enabling private investment and leadership, and strengthening governance.

• A brand new financial city centre that will be based at the new reclaimed land development project alongside the Port of Colombo. Under this scheme, a US$ 1.4 billion reclamation is now underway adjacent to the city of Colombo for the creation of a 560 acre Financial City, under English law, to fill the vacuum for offshore financial service between Singapore and Dubai.

• With the strong interest in utilizing the zones along the Southwest Corridor centered around the Colombo port and the Western Megapolis; logistics and industrial zone centered around the Hambantota air-sea hub and the North East corridor centered around the Trincomlee port development by investors from China, Korea, and Japan and also likely from India, we plan to create an export market focused on Europe, China, Japan and USA and the crescent of markets around the Indian Ocean.

• Among the Middle East, Iran, Afghanistan, Pakistan, India, Bangladesh, Myanmar, Thailand, Malaysia, Singapore and Indonesia there exists a fast-growing population currently of over 2 billion people. This combined market has the potential of 3 billion consumers by 2050.

• (2) The second North-Eastern development corridor will connect the Eastern Province and the North Central Province to Jaffna linking the Trincomalee Port City to the Rajarata.

For those who didn’t know, Sri Lanka is home to the second largest natural harbor in the world in Trincomalee; said to be one of the finest deep sea harbors in the world. We have now initiated action to develop the port cenetred the larger Trinco development zone. The proposed container terminal at the Trincomalee Port will serve trade in India’s east coast as well as Bangladesh and Myanmar.
• The government is working with India and Japan to develop Trincomalee with SurbanaJurong of Singapore already being contracted to draw up a city master plan.

• As touched upon earlier, we have recently inaugurated the 15,000 acre (50 square kilometer) ‘Sri Lanka China Logistics and Industrial Zone’ to become a serious player in producer driven global production networks.

• It was revealed at the inauguration that Chinese investors were ready to bring in 5 billion USD in investments in to the zone in just the next 3 years.

• Chinese investors have made significant commitments to invest equity in the Hambantota port and the Mattala international airport that the previous Government built.

• The economic cooperation with Japan is as important to us.

• Japan is once again also getting involved in several major infrastructure projects in Sri Lanka including Light Rail and expressways. The Japanese Prime Minister has also appointed a senior official to especially coordinate Japanese Sri Lanka Joint Comprehensive Partnership Programme that was entered in to last year.

• Before I conclude, let me say a few words about our bilateral ties.

• Australia is special to us as so many Sri Lankans have come to Australia in search of better opportunities, for themselves and their families. They; you, have worked hard and many of you have excelled in your chosen fields. You have adapted well and become part of the vibrant, multicultural landscape of this country.

• Australia is also a favoured destination for Sri Lanka students with over 5,500 Sri Lankans studying at Australian universities.

• Therefore, we welcome Australia’s support and cooperation at this important stage of our country’s history, a period of transition when we are striving to overcome challenges and seize opportunities.

• Thank you.

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