The Sri Lankan market is on the radar of big Indian companies! Here's why!

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The Sri Lankan market is on the radar of big Indian companies! Here's why!
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The Sri Lankan market is on the radar of big Indian companies! Here's why!

01 Jul 2018 Long Read
Several Indian companies have planned investments in Sri Lanka in the coming years. According to data from the High Commission of Sri Lanka in India, some big Indian companies operating in the Sri Lankan market include CEAT, Gujarat Glass, Indian Oil Corporation, Neelkamal Plastics, Gujarat Ambuja, Bharti Airtel, National Thermal Power Corporation, Welcome Hotels, Larsen & Toubro, Carin India, and Mphasis, among others.

As Sanjay Tiwari, Founder and Past President of the Indian CEO Forum (ICF), Sri Lanka, and Executive Director & CEO, Piramal Glass Ceylon Plc, says, "We (Indian companies) have a significant presence in almost all fields. In the ICF, we have 65 members running either Indian companies, multinational companies or local companies. Indian companies are successful in Sri Lanka, be it energy, packaging, infrastructure, automobile, pharmaceuticals, food, beauty care, rail, tourism, etc. Energy is one area where one can see a lot of opportunity in Sri Lanka. The second most important area of investment is education."

Conducive market
Sri Lanka promises a conducive atmosphere for Indian companies to invest in the market. Several renowned Indian names such as UltraTech (Aditya Birla Group), TATA Group, Piramal Group, Indian Oil Corporation, Ashok Leyland and Asian Paints have been operating in the country for a long time.

As Keshav Hegde, Country Head, UltraTech Cement Lanka, a company that began operations in Sri Lanka almost two decades ago, says: "During the past decades, most of us have been expanding our businesses, and we are well supported by both the government and the Indian High Commission. There are interactions with various government agencies; overall, it is a conducive business environment for Indian companies to invest in the manufacturing and tourism industries. Further, now that a lot of emphasis is given to infrastructure development, there is a big scope for the Indian construction industry to participate in this growth journey. Indian products are considered premium quality and there is a greater level of appreciation with respect to our culture, cinema and music."

Speaking on the country's upcoming infrastructure activities, Rajeev Mehrotra, Chairman & Managing Director, RITES, shares, "Sri Lanka has good infrastructure and the country is certainly focusing on quality infrastructure."

Tiwari adds, "There are a lot of opportunities for investments in Sri Lanka as most things are imported. Looking at the strategic location, port efficiency, and proximity as close as any state in India, Sri Lanka can be the base for any big set-up, provided investments are fully automated.

Sri Lanka is a business-friendly, small and quality-conscious market. One of the main challenges, though, is the availability of skilled and unskilled labour. There are many loose ends from both sides if we refer to the FTA, which is under negotiation for a long time."

The Lanka set-up
UltraTech started operations in the Sri Lankan market almost two decades ago. "Our volumes have grown threefold during this period," says Hegde. The company has a bulk terminal with an installed capacity of 1.5 million tonne, and sells two types of cement in the Lankan market: UltraTech OPC and PPC cement. "Our bulk cement terminal was set up in Sri Lanka in 1999; thereafter, for the past 18-19 years, we have progressed year-on-year in terms of volume output and turnover."

The company started with an installed capacity of 0.6 million tonne per annum and has now expanded its cement packing capacity to 1.2 million tonne. It has four cement storage silos with about 8,000 mt capacity, which ensures cement is available for customers in Sri Lanka 24+7 throughout the year. UltraTech operates with three chartered cement bulk carriers with capacity from 17,000-20,000 mt; these ships exclusively engage in getting the cement from its mother company's manufacturing plant in Gujarat. The company has a distribution network of 120 dealers spread across the island nation.

Its plant is located at Peliyagoda, Kelaniya, where cement is stored in 4 + 7,500 tonne capacity concrete silos. A sophisticated bulk cement terminal, which subscribes to all environmental norms and ensures good value-addition, dispatches cement in bulk form to ready-mix concrete (RMC) and asbestos plants. A modern Italian, Ventomatic machine helps pack cement in 50 kg paper bags to service customers. Through its principals, the company operates a fleet of chartered ships to transport cement. A fleet of dedicated cement bowsers is also in operation for transportation from Colombo port to the plant.

As Hegde avers, "In Sri Lanka, UltraTech is the only one single-source cement supplier in the market and, owing to its consistently superior quality, has become the first choice among discerning users and construction professionals. We have a market share of close to 18 per cent, and are one of the valued suppliers for several infrastructure projects in Sri Lanka, such as the Southern Expressway, Sino Hydro, Colombo Port expansion project, Moragahakanda Irrigation Project, Kaluganga Irrigation Project, Outer Circular Highway Phase-3, Central Expressway, and Colombo-Katunayake expressway, among others."

For its part, Piramal Glass Ceylon (PGC) has been present in the Sri Lankan market since 1999-2000; it acquired Ceylon Glass, a listed company, during that time. "We are into the manufacturing of glass containers for all segments, namely food, pharmaceuticals, agro chemicals, beverages, cosmetics and perfume, wine and liquor," says Tiwari.

"PGC started with a 100 mt per day capacity until 2006. In 2007, we invested $30 million in the relocation of our manufacturing facility and expansion to 250 mt per day; we further invested $20 million to expand to 300 mt per day in 2016-17." Notably, PGC has also invested in the renewable energy space by putting up the country's biggest rooftop solar installation of 3 MW at Horana.

Meanwhile, of the total projects executed by RITES, 353 ongoing projects in domestic and international markets have a value of over Rs 10 million, indicating strong revenue visibility. Speaking of its international presence Mehrotra says, "There are several countries we are working with, including Sri Lanka, Bangladesh, Myanmar, Nepal, Mauritius, etc." Specific to Sri Lanka, the company has been involved in the supply of six sets of broad-gauge diesel electric multiple units and 10 broad-gauge diesel electric locomotives to Sri Lanka Railways. "We have completed two railway workshops in Sri Lanka and are in the process of completing a Rs 6.7-6.9 billion export order of 10 locomotives of 3,000 hp for the country," he adds. "They have a line from Jaffna to Colombo and a new line coming up in the entire west coast."

Future plans
UltraTech has been looking for good opportunities to expand its capacity and set up manufacturing facilities in the northern and eastern markets, depending on feasibility. "We consider Sri Lanka our strategic core market and would like to grow and have a strong footprint in both the B2B and trade spaces," shares Hegde. "We have grown more than double digits in the past two years and have a similar growth target for this market." The company is open to associations with Lankan companies in the areas of ready-mix concrete, building materials and construction-related business opportunities within the framework of its corporate vision of being
'The Leader in Construction Solution'.

PGC, too, has expanded its capacity to 300 mt keeping in mind domestic market growth in all segments, which means growth in volumes by over 20 per cent.
"At Piramal, we always look out for strategic partnerships and investments related to our industry or any sector that complements our core strategy," says Tiwari.
Clearly, with the historic legacy between both countries, opportunities unveiling are aplenty!


"We require collaboration of foreign investors."
India is a very important market for Sri Lanka because it is its No. 1 trading partner, No. 1 generator in terms of tourism arrivals and among the top five foreign investors in Sri Lanka, says Upekkha Samaratunga, Minister (Commercial), High Commission of Sri Lanka in India.

She shares more on the bilateral relationship between both countries.
Trade:
Total trade between the two countries stood at US$ 5 billion in 2017. Of that, we have exported goods to the value of $689 million and India has supplied goods to the value of $4,498 million.

Construction: In Sri Lanka, we have over 2,500 registered local construction firms. Government policy encourages private investment in several infrastructure projects such as water supply, wastewater disposal, power generation, roads, industrial estates and car parks, etc. The sector is being constantly innovative with services that set or match global trends such as green construction, soil and geo-technology, which have helped place it higher on the global construction map. We require the collaboration of foreign investors to develop the construction industry and, therefore, encourage Indian companies to invest in construction and infrastructure development projects in Sri Lanka.

Investment opportunities for Indian companies include: Mixed development complexes and other commercial facilities in Colombo and other cities; housing -apartments; export processing zones with state-of-the-art technology; warehousing and logistic centres, etc; recreational activities (theme parks).

Indian companies have a considerable presence in Sri Lanka: We have the Tatas in the hotel industry; CEAT; Welcome Hotels; Ambuja Cement; Bharti Airtel; Lanka IOC (Indian Oil Corporation); to name a few Indian investments in Sri Lanka. There are Indian banks, such as State Bank of India, Indian Bank, ICICI Bank, Indian Overseas Bank, operating in Sri Lanka as well.

Government Support
Sanjay Tiwari, Executive Director & CEO, Piramal Glass Ceylon Plc
, explains the support extended by both the Indian and Sri Lankan governments to support Indian companies in establishing a presence in the Lankan market:
The Board of Investment (BOI) of Sri Lanka, which is a one-stop shop for any foreign investor, helps companies set up and establish their base in the country. The government and agencies are friendly and welcome foreign investment. You need investment approvals with all the benefits of taxes and import concessions; all these approvals are given by BOI. Approval for visa and employment eligibility is also facilitated by BOI, thus easing out the process.
From the Indian side, you need the RBI's approval for offshore investments, which is easily possible provided all documents are in place.

- SERAPHINA D'SOUZA

Avenues of Investment



DR S KRISHNA KUMAR, elaborates on the economic investment opportunities identified and promoted by the Indo-Sri Lanka Chamber of Commerce and Industry (ISCCI) in Sri Lanka.

The relationship between India and Sri Lanka dates back millennia with a historic legacy of intellectual, cultural and linguistic interaction. During the course of the ethnic conflict in Sri Lanka, India supported the right of the Sri Lankan Government to act against terrorist forces, helping to safeguard the country's sovereignty. The Government of India has put in place a robust programme of assistance to help the IDPs return to normal life, including construction of 50,000 housing units. India's 'Neighbourhood First' policy under the dynamic leadership of Prime Minister Narendra Modi recognises that neighbours have first claim on India and Sri Lanka is among India's closest and dearest neighbours. Under the leadership of President Maithripala Sirisena, Sri Lanka has embarked on a new journey of peace and prosperity. The country has long been a priority destination for direct investment from India. Sri Lanka is India's second largest trading partner in SAARC. India, in turn, is Sri Lanka's largest trade partner globally.

The India-Sri Lanka Free Trade Agreement, signed in March 2000, is the cornerstone of our commercial relationship - trade between the two countries has increased tenfold after the agreement with bilateral trade standing at $4.6 billion in 2014.

In future, there is much more to explore, particularly considering the fact that over 70 per cent of India's exports to Sri Lanka are outside the FTA route.

The quantum of Indian FDI has accelerated in recent times mainly owing to the investment opportunities created by rapid growth of construction/infrastructure - especially the housing, urban real estate, telecommunication and power sectors - in Sri Lanka, which has attracted major Indian companies. The infrastructure growth also attracted Indian investment in manufacturing of construction materials (cement, steel, paints, roofing sheets) on a large scale. Sri Lanka has the advantage of good governance, stable economic growth, investor-friendly and transparent policies with ease of doing business slightly higher than India, skilled human resources, good infrastructure, strategic geographical location and access through FTAs to over 1 billion consumers. Post-conflict developments and the resurgence of economic activities in Sri Lanka fuelled by the restructuring of FDI policy and thrust on overall economic development extend enormous opportunities and promise for international investors and entities to do business in the country. Our Chamber of Commerce wishes to foster B2B, B2G, and B2C ties to facilitate more and more Indian companies to set up business in Sri Lanka in an optimal timeframe.

ISCCI interacts with both the Indian and Sri Lankan governments and regulatory bodies to provide and disseminate relevant investment and policy-related information to our members.

Our Chamber has specially identified the following potential sectors/projects to pose to Indian entrepreneurs and businessmen for investment in Sri Lanka:

  • The Colombo Port City expansion.
  • Hambontota development: This port on the southern tip of Sri Lanka can be made into a viable commercial/industrial port by moving industries to the southern region: Manufacturing concerns such as ship/boat repair yards, ship/boat-building, dry docking, floating docks, ship-breaking industry for scrap, navigational training schools, tank farms for petroleum and consumable oils and products, etc.
  • Manufacturing possibilities include boat/ship-building, printing, wooden products and electrical and electronic products.
  • Agricultural development: Food grains, sugarcane, vegetables, fruits on a large scale in lands given on lease in the Eastern Province.
  • Agri-processing.
  • Healthcare: Multispecialty hospitals and medical tourism.
  • Ayurveda clinics and villages.
  • A pharmaceutical plant in the Kurunegala area with buyback guarantee for generic medicines by the State Pharmaceutical Corporation.
  • Tourism.
  • Energy.
  • Housing.
  • Engineering colleges and technical university.
  • Institute of entrepreneurship.
  • Skill training in IT.
  • University in Trincomalee.
  • New university in Jaffna.
  • International Film City, Colombo.
  • Trincomalee: International Airport at Batticoloa and Aerocity.
  • Ampora airport development.
  • Another four airports on the anvil.
  • Hotels, MIG, LIG, luxury housing.
  • Low-cost housing in Colombo.
  • Sampur: Developing a major industrial zone.
  • Leather Industrial Complex.
  • Chemical Industrial Complex: Chlorine-based, 200-acre identified.
  • Paper factory: Upgradation of existing facility.
  • Epproval area with large rock phosphate deposits: A fertiliser plus ammonia plant can be set up with major Indian companies with a long-term contract for imports of phosphoric acid to India.
  • Titanium complex owing to large deposits of rare minerals and sands.
  • Conversion of the present inefficient combined cycle-fuel oil-based projects to LNG.                                             
  • A 300-MW power station.
  • Solar plants: Small and medium.
  • IT and biotechnology parks.
  • A string of pristine beaches available for building resorts as part of the great tourism push happening.
  • Rehabilitation of the ancient irrigation system and integration with the Mahawali Scheme.
  • Development of infrastructure facilities: Rail and road development, power generation, export processing industries.
  • Extension of the Kelani Valley railway line.
  • Construction of the Colombo-Kandy expressway.
  • Establishment of a fibre-optic information network parallel to the proposed railway line.
  • Economic and trans-shipment  hubs.
  • Commercial, aviation, maritime, energy and knowledge hubs.
  • Development of eight UNESCO World Heritage Sites.
  • Waste-to-energy plants.
  • Construction and repairs of roads and bridges.
  • Improving capacity of water supply coverage.
  • Investment in improving national transportation.
  • Dairy chain on the Indian Anand model with cross-breed cows, milk collection and processing: A 'white revolution'.
  • Fisheries: Entire fisheries chain in the eastern coast, mechanisation of traditional crafts, fish processing plants, deep-sea fishing and freshwater prawn production.
  • Our Chamber seeks the unstinted support of sister organisations, the Sri Lankan and Indian governments and all supporters of the India-Sri Lanka friendship in our efforts to take bilateral economic collaboration to even greater heights.

About the author:
Dr S Krishna Kumar, is Chairman, Indo-Sri Lanka Chamber of Commerce and Industry (ISCCI), and Former Union Minister, Government of India.


Land of Opportunities


With its massive infrastructure development drive, Sri Lanka is expected to maintain a high and sustainable growth in the medium and long terms, shares CII.

The outlook for the Sri Lankan economy looks positive owing to global recovery and the domestic 'peace dividend' resulting in impetus to exports, increase in tourism, and greater inflow of foreign investments. The main sectors of the economy of Sri Lanka are agriculture (11.1 per cent); industry (31.5 per cent); and services (57.5 per cent).

India-Sri Lanka trade and economic cooperation
The India-Sri Lanka Free Trade Agreement (ISFTA), which was signed in 1998, marked an important milestone in bilateral relations, paving the way to strengthen and broaden trade relations between the two countries.
Sri Lanka is India's major trading partner in South Asia. The bilateral trade between India and Sri Lanka in 2014-15 was $7.459 billion, with Indian exports amounting to $6.703 billion and Indian imports amounting to $756 million.

Infrastructure
The massive infrastructure development drive currently in progress is expected to support the country to maintain a high and sustainable growth in the medium and long terms. In 2013, the economic infrastructure development programme of the government focused on all areas of infrastructure: Development of roads, water supply and sanitation, ports and aviation, transport, housing and urban development, establishment of industrial zones, hospitals, and warehousing and logistics centres, etc.

The construction sector expanded with the acceleration of ongoing road development projects such as expressways, inter-regional national highways and mega construction projects. Urban development projects together with the construction of houses and reconstruction work in newly liberated areas boosted construction activities in the country.

Roadways
The government policy on road development is focused mainly on building a national highway system, supported by an integrated road network, improving the management of the existing road network and increasing private-sector participation in investing in new roads. The government is continuing with major road development projects.
The National Road Master Plan has already been prepared, which focuses on the construction of highways, widening of highways, reduction of traffic congestion, road maintenance and rehabilitation and bridge rehabilitation and reconstruction. Several new roads and highways will be built in the island nation.

According to the National Road Master Plan 2014, it has become an urgent necessity to invest further in the road network; thus the development of the road network has become a major determinant in attracting new investments to the country.

Airports
Colombo Airport has been modernised and an international airport is coming up in Hambantota. There are opportunities to develop smaller airports for domestic flights.
Expansion of Bandaranaike International Airport: A project is underway to expand the island's first international airport at Katunayake, 35 km north of Colombo. The project includes the expansion of the transit area, construction of a new baggage-reclaim area, multi-storeyed car park and widening of the existing runway. A feasibility study is being carried out for a second runway.

Development of a second international airport at Mattala: The construction of the international airport at Mattala in the southern Hambantota district is being carried out in two phases. The first phase was completed and opened on March 18, 2013. That includes one runway and a taxiway that will be expanded in the second stage to allow for larger planes, including the latest airbus A380, to land.

Ports
Development of port infrastructure has been given the highest priority in recent years. Phase-1 of the Hambantota Port Development Project has been completed. The construction work of Oluvil Port Development Project has been completed. Opportunities are available for setting up port-related activities/business ventures at Hambantota. Trincomalee harbour is the second best natural harbour in the world and the available water and land area is about 10 times as much as Colombo port.
Colombo South Port expansion: The Colombo South Port expansion project with three terminals, each with a capacity of 2.4 million teu per annum, will increase the capacity of the port by 160 per cent upon completion. The first terminal, a JV between the Sri Lanka Ports Authority and China Merchant Holdings, was built under a 35-year BOT agreement with SLPA. The terminal was opened for commercial operation on August 5, 2013.

Energy
With an increasing demand for energy to provide for the country's economic and social development, total primary energy demand is expected to increase at an average annual growth rate of about 3 per cent. The country's incremental primary energy requirements need to be supplied mainly by imported fossil fuels in the medium term. In the long term, possible development of indigenous petroleum resources and accelerated development of non-conventional renewable energy are likely to make a significant change in Sri Lanka's mix of primary energy resources.
The strategy of the government is now focused at diversifying into a third fuel, which has been determined to be coal.
Non-conventional renewable energy shall be the fourth resource in this diversification and security strategy.
In this direction, the government has undertaken the construction of the first phase of the Norochcholai Coal Power Project. In addition, NTPC and the Sri Lanka Government have signed an agreement to set up a 500-MW, coal-based thermal power plant in Trincomalee as a JV with Ceylon Electricity Board (CEB).
The government is also focused on exploring the possibility of transforming high-cost thermal power plants to run on low-cost fuel such as liquid natural gas (LNG).
The Sri Lanka Government also encourages investment in the renewable energy sector.
A cost-based tariff regime has been introduced for projects up to 10 MW. This tariff has been designed by considering the viewpoints of banks, investors and electricity consumers.
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