China Continues To Facilitate Infrastructure Progress

As a means to a rebuild the country's economy after the end of the civil war, Sri Lanka's President Rajapaksa's US$6 billion post-war overhaul of roads, railways, airports and ports has provided a glut of projects. However, there has been a reliance on international donors to fund the majority of these projects, notably on Chinese loans which carry a stipulation that preferential treatment is given to Chinese construction companies. A new agreement to loan Sri Lanka US$2.2bn for infrastructure upgrades by China will likely see continuation of that trend.

The agreement came after an official visit to China by President Rajapaksa and also included a free trade pact and defence cooperation. The major project to benefit from one of the largest loans to Sri Lanka to date will be the development of the Kandy-Jaffna section of the major Northern Expressway, which will see a US$1.5bn investment.

Roads are used heavily in Sri Lanka for land transport. We estimate that roads account for around 93% of all land transport in the country, while railways account for the remaining 7%. Despite this reliance on roads, the World Bank reports that more than 50% of Sri Lanka's national roads (ie, expressways and highways) have poor surfaces, and many suffer serious congestion. The condition of roads is far worse in rural areas, where up to 85% of the population lives.

China Links Up Sri Lanka's Cities
The Northern Expressway

China is currently Sri Lanka's largest aid donor with over US$1bn disbursed in 2012. Adding to that figure in 2013, also agreed during the Presidential visit, although specific details are yet to be announced, is Chinese assistance for extending the Southern Expressway, which only opened in 2011, to Hambantota and a new expressway between the capital Colombo and the north western capital of Kurunegala to replace the current highway. Sri Lanka's second international airport and the new sea port located in Rajapaksa's home district of Hambantota are also Chinese funded. The Colombo-Katunayake Expressway is already under construction and is due to be completed by the Metallurgical China Group Corporation by mid-2013. The total estimated cost of the project is US $ 292 million. Export Import Bank of China is funding US$248.2mn of the total cost. The government has spent US$45mn on the project.

Post-War Improvements On All Infrastructure Fronts
Sri Lanka's World Economic Forum's Global Competitiveness Report Infrastructure Scores, 2009-2013

In other recent developments, in February t he Ex im Bank of China announced that it will provide a US$278.2mn loan to the Sri Lankan government to finance the construction of a new railway extension project. The 115km rail extension will run between Matara and Kataragama. The project is scheduled for completion by the end of 2014. China's involvement in Sri Lanka's infrastructure redevelopment has seen the country's scores in the World Economic Forum's Global Competitiveness Report rise over the last four years across all transport infrastructure sub-sectors.

However, despite the Sri Lankan government's insistence that their relationship with China is not an exclusive one, India is said to be concerned of the Chinese presence in its neighbour. In light of this, we are likely to see increased efforts by India to have a greater presence in Sri Lanka's reconstruction and as such expect new projects facilitated by international loans to continue to emerge.

This article is tagged to:
Sector: Infrastructure
Geography: Sri Lanka, China

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