A Gateway to Markets with Over 4 Billion People – Sri Lanka's Appeal and Market Entry Tips | 【東京都主催】海外進出支援プラットフォーム「X-HUB TOKYO」

A Gateway to Markets with Over 4 Billion People – Sri Lanka’s Appeal and Market Entry Tips

vol.26Senior Director for Global Strategy, Southwest Asia, Japan External Trade Organization (JETRO)

OBAMA Kazuhiko

2020.03.26

On January 14, 2020, X-HUB, which supports the overseas expansion of domestic startups, held a seminar on doing business in Sri Lanka. India, China, and Africa are attracting a lot of attention as growing markets, and many companies have started looking at Sri Lanka as a gateway into those markets. During this seminar, the speaker shared instances of Japanese companies operating in Sri Lanka and discussed the political situation, international trade policies, and the domestic business environment.


Sri Lankan Market Information and Japanese Companies’ Business Trends

〈speaker〉
OBAMA Kazuhiko, Senior Director for Global Strategy, Southwest Asia, Japan External Trade Organization (JETRO)

Let’s talk about the geopolitical importance of Sri Lanka. With the exception of India, nowadays, it is difficult to make a business plan in South Asia. As Sri Lanka was the first country in South Asia to get 3G and 4G, the simplest example of a business is a pilot deployment of telecommunications infrastructure. When expanding globally, due to the cost and difficulty of choosing India as the first market in Southwest Asia, Sri Lanka, a small country with a high income, is a great place for a trial introduction.

 

One-third of all container ships and half of all the oil tankers of the world pass offshore of Sri Lanka, which shows us that it is very important in logistics. Colombo, a commercial city that is the center of economic activity, has a deep water harbor which makes it a perfect location for large ships to anchor, so it is used for various reasons such as refueling. Tokyo Port is the 27th largest cargo carrier in the world, while Colombo, which handles a large volume of cargo from other countries, is the 22nd largest.

In order to connect the Maritime Silk Road from the Middle East to Europe, China is investing in Sri Lanka. 75% of the cargo handled at the port in Sri Lanka is transshipment, so both America and India use the port and are actively investing in Sri Lanka to secure their ocean routes, as lack of free access is a huge threat.

Usually, countries that are in bad financial condition with low economic indicators do not receive investments from other countries, but due to its geographical advantages, Sri Lanka is attracting investments.

The GDP of Sri Lanka is one hundredth of that of India. However, if converted to a per capita amount, Sri Lanka has double the economic strength of India. In addition, the literacy rate in Sri Lanka is more than 90%. This rate is much higher than India’s and Bangladesh’s literacy rate. The relative poverty rate is also decreasing.


And now about trade in Sri Lanka. At present, the export deficit is growing, and the trade deficit is supplemented by tourism revenue and remittances from foreign countries. However, the deficit remains, so it is necessary to cultivate industries that can attract investment and export more.

You might think that the main export of Sri Lanka is tea, like Ceylon tea. However, its exporting ranking of tea in the world is number two, and it makes up 12% of the total exporting amount in Sri Lanka. The largest export item is clothing, which accounts for 44.7% of total exports. 90% of which is exported to Europe and America. Of all others, the largest export item is lingerie. Much of the lingerie  that is worn by Hollywood actresses or sold as brand name lingerie is made in Sri Lanka. Many apparel companies in Sri Lanka do business with famous European luxury brands. The textile industry may have the image of just requiring a large number of people who do simple labor with low labor costs, like in Bangladesh. Because they make bras, sportswear, and other high-performance apparel, Sir Lanka is recognized for its advanced technology.

 

Revenue from the tourism industry must also be increased. After the civil war, profits were up and 2.3 million people a year visited Sri Lanka. However, due to acts of terrorism last April, the number of tourists has decreased. Because the tourism industry is a core aspect of business, it has been a terrible blow, but is gradually recovering. The Japanese Ministry of Foreign Affairs set the risk level to 2, which means they advise not visiting there unless it is absolutely necessary. In August of 2019, though, this level was set back to 1. This is because safety could be ensured, as the experience of going through a civil war demonstrated that the military and the police were highly capable of responding to emergencies. However, the point is not the number of visitors. In addition to the large number of visitors from neighboring India, more than 100,000 visitors come from China, which is currently investing heavily in Sri Lanka. People from European countries such as the United Kingdom, a former colonial power, visit Sri Lanka too. Since various people from various countries travel to Sri Lanka, the tourism industry will not become unstable even if some area or country goes through economic hardships. This is one of Sri Lanka’s attractive qualities.

 

In the investment field, Chinese investment has been revived. After the administration changed, China resumed investment. In addition, the relationship between India and Sri Lanka is improving rapidly. As of now, investment from Japan is low, but with cooperation from India, it is possible that it will change.

The Sri Lankan government allocates many resources to education and healthcare. Therefore, educational expenses and higher education are free. Healthcare expenses and medicine offered by national hospitals are also free. Against this background, while the level of education is increasing, the unemployment rate also tends to rise because the industry that absorbs highly-educated human resources has not developed. That is to say, the more highly people are educated, the higher the unemployment rate climbs. Since highly educated people often find it difficult to secure a job, it is possible to hire highly educated people at relatively low cost.


Lastly, regarding city development. Sri Lanka is not urbanized. When you consider the urbanization rate of each country, it ranks the lowest in Asia. The long civil war is one cause of this. With the civil war now at an end, though, the economy is going to flourish, so it is expected that people will concentrate in big cities, just like other ASEAN nations. With continued urbanization, various problems such as garbage collection, high-rise buildings, and traffic congestion will occur. However, I still think there are business opportunities there.

Sri Lanka is more of a meeting spot when you think of overseas expansion, rather than a place to do business. When you consider 10 business plans, one or two of them must be related to Sri Lanka in some way in terms of logistics, travel, or the Sri Lankans themselves. Thank you for your time.


Political Overview and Trade Policies in Sri Lanka

〈speaker〉
Mr. Samantha P.K. Wijesekera, Minister (Commercial), Embassy of the Democratic Socialist Republic of Sri Lanka

The civil war, which lasted for 30 years, came to an end in May 2009. Currently, the country is working on economic growth under President Rajapaksa’s administration. Japan also provides strategic support services in the transportation, logistics, and energy fields. In this seminar, the history of the civil war in Sri Lanka, the political situation, and its business strengths were discussed.


Business Opportunities in Sri Lanka – The Challenges of Going Cashless

〈speaker〉
KADOWAKI Yuichiro, Deputy General Manager, International Sales, JCB International Credit Card CO. LTD.

JCB International is accelerating overseas operations to meet the demands for Japanese citizens to travel abroad by entering into contracts with overseas member stores. We are also developing services such as credit card issuance in Sri Lanka. In this seminar, the speaker discussed overseas business development, the overview of the credit card market, and the development situation in Sri Lanka.