BIMSTEC: Trade and Investment

Several contentious issues and negative lists surrounding negotiations on trade in goods have resulted in missed deadlines on implementation. Negotiations were to be completed between the BIMSTEC nations by the end of 2005 for implementation in 2006 while negotiations on services and investment were to be concluded by 2007.

The importance of BIMSTEC to Sri Lankan trade can be seen through the volume of its exports which grew at 33% from 2002 to 2006 and amounted to US$349 million in 2006, roughly 8% of Sri Lanka's total exports. However, these exports were mostly from neighbouring India which is the most important trading partner in the region. India contributes 89% of exports to BIMSTEC nations followed by Thailand at 7% and Bangladesh at 3%.

Imports from BIMSTEC tell a similar story. Imports grew by 20% from 2002 to 2006 and amounted to US$2019 million or 21% of the Sri Lanka's total imports. Again, 89% of imports came from India followed by Thailand at 10%.

Importance to Sri Lanka

India is an important source of Foreign Direct Investment (FDI) to Sri Lanka and ranks amongst the top five investors with 164 projects valued at Rs.32 billion as of 2006 according to the Board of Investment (BOI). Most of the FDI (over 60%) from India has been in the services sector. Comparatively small investments have been made by Thailand and Bangladesh.

Trade in services with BIMSTEC has concentrated on trade with India. Major services in trade include port related activity, air transport, tourism, health and education and retail. It is likely to be enhanced with India under the Comprehensive Economic Partnership Agreement (CEPA) but may result in diminishing any future service agreements in BIMSTEC for Sri Lanka.

Japan & Sri Lanka

The importance of Japan as a trading partner varies between countries. So far, a majority of the trade between Japan and BIMSTEC has been bilateral trade between Japan and Thailand. Statistics show that Thailand accounts for close to 85% of total trade, both imports and exports, between BIMSTEC and Japan followed by India at 12% and Sri Lanka at just over 1%. Japan's ranking of Sri Lanka as an export market has dropped to 9th place in 2006 from third place in 2000, due to export stagnation. Similarly, Sri Lanka ranked in 6th place in 2006, a remarkable decline after being the largest source of imports in 2000.

Japan accounts for 2.4% of Sri Lanka's total exports and 4.6% of total imports. The main exports are vegetable products (tea), fish and crustaceans, rubber products, textile and textile articles and precious stones. The main imports are transport equipment, machinery and mechanical appliances.

Japan is an importance source of FDI to Sri Lanka, ranking third after the United States and Europe. Approximately 66 projects valued at Rs.17 billion as of 2006 have been funded by Japan, mostly in the services sector.

The need for improved transport and infrastructure in Sri Lanka must be a priority. Around 70% of the current 19.5 million population live in rural areas. Close to 2.3 million live in the Colombo metro areas and around 50,000 to 300,000 live in town centers. Deputy Director of Planning at the Ministry of Transport, J.W. Chandrasekara, explained how the transportation sector really works.

The transportation of employees in the agricultural sector is 34.1%, in industries is 21.4%, and services is 44.5%. Chandrasekara described the bus system, which carries 68% of passengers, as a good network with an adequate supply but poor quality. The problems have been compounded by poor regulation and institutional capacity.

The private sector has also shown some monopolistic behaviour and there has been poor management by the state sector which has led to the domination by trade unions.

Currently, the bus sector is facing high overloading during peak times and high waiting times for passengers. A growing intensity in competition is also leading to more accidents. Operating only at profitable times which excludes early mornings and late nights has lead to an increase in the use of three wheelers.

The railway lines, which carry 5% of passengers, also have a good network but an inadequate rolling stock. Tracks need re-investment and there is poor commercial orientation. Again, the system is unreliable due to disruptions by the trade union actions.

Private vehicles, which carry around 26% of passengers, are growing at a rapid rate but road investment is not keeping pace. Congestion, high energy consumption, accidents and pollution levels are a concern and there is no plan on how to manage growth.

Trucks transport 97% of all goods. Chandrasekara said it was a largely informal sector with low loads, high over loadings, low cost recovery and high external costs. Railways carry a mere 2% of goods which are only a few commodities to limited destinations. Due to its low speed, it is deemed non-competitive.

Providing a safe, reliable and punctual transport services for both passengers and freight traffic which is also economical and efficient is the objective of the Ministry. It involves reducing the total transport and externality costs and improving the quality and service levels of the public transport. Reducing the financial burden of public transport on the Treasury should be undertaken through strategic reforms of the Sri Lanka Railways (SLR) as well as the Sri Lanka Transportation Board (SLTB). Recovering the costs of road use should be done by levying charges. The Ministry is also hoping to reduce the economic cost of road accidents.
The total number of road accidents for 2006 was 33,757 out of which there were 2,069 deaths. The risk of death due to road accidents has increased to 1 in 28 in 2004 from 1 in 115 in 1977. The economic cost of such accidents has amounted to over Rs.10 billion.

While facing an increasing number of accidents, the industry also has difficulties in maintaining services as a result of inadequate provisions which has led to a higher breakdown ratio in buses and locomotives. Costs have also escalated due to the excess work force, low productivity and a lack of expertise.

Chandrasekara explained that possible reasons for non-implementation of projects in the transportation sector are caused by an unclear delineation of responsibilities and lack of priorities and funding arrangements. He also said political influences and external interests may also exacerbate problems.

The government of Sri Lanka and the Japan International Cooperation Agency (JICA) agreed to put into action a study to assist the implementing agencies. The purpose was to identify the Colombo Metropolitan Region's (CMR) urban transport issues and formulate a strategic land use and transport development framework for CMR. It also sought to clarify the high priority urban transport issues in order to formulate a sustainable high priority urban transport improvement plan. The study also sought to propose implementation methodologies to ensure the realization of the proposed high priority measures including institutional, financial, regulatory and legal aspects.

Some of the high priority projects identified by the study was the establishment of a presidential committee on urban transport (PCUT) as well as capacity building activities for the implementing agencies. Other projects were geared at increasing inter-mdal and intra-modal coordination by timetable creation, implementation and enforcement.