Sri Lanka tipped as Asia’s new island of growth

FT.lk
July 11, 2014

A renowned investment banking and equity markets specialist has described Sri Lanka as the new island of growth for Asia and tips the post-war rebounding nation to be the next Singapore and even do better than the region’s city state.

In an analytical article titled ‘Sell Singapore, Buy Sri Lanka’ on seekingalpha.com, specialist Fraser Dennis makes a compelling case for Sri Lanka and its future prospects.

“Singapore is showing signs that its extraordinary growth of recent years may be reaching an end as it reaches its 50th birthday. Sri Lanka is putting in place a strong foundation upon which rapid economic growth can be achieved. Two island nations with strategic locations and significant Chinese investment but high economic growth is more likely in Sri Lanka over coming years than in Singapore,” says Dennis in the article, which can be found at http://seekingalpha.com/article/2305515-sell-singapore-buy-sri-lanka.
Noting ‘why on earth should any sensible investor consider such a trade recommendation?’ and that it also may be akin to comparing apples and oranges, the specialist gives various insights and explanations backed with recent performance of Lankan economy, plans and policies underway for the future.

In his article, he states: “Let’s go back to 1956 when the father of Singapore, Lee Kwan Yew first visited Colombo, the capital of Sri Lanka. A mere nine years before Singapore independence, LKY stated that Singapore should aspire to being like Colombo. It had two universities, foreign exchange reserves, a strategically-critical location and enviable infrastructure owing to its position as a key Allied HQ during the war compared to Singapore which had been occupied by the Japanese. Step forward to today and it is Singapore that has the foreign exchange reserves, amazing infrastructure and world-renowned education and it is Sri Lanka that is recovering from a period of war….”

“However, as any sensible investor knows, in deploying capital, it is not the past that is important, but the future. As Singapore reaches the ripe old age of 50 next year, it seems likely to be Sri Lanka’s turn to produce the economic growth over the next 50 years that Singapore has produced since independence in 1965,” he added.

Dennis, who has been living and working in Asia for over 24 years, analyses Singapore’s past growth as well as future prospects and where necessary points to Sri Lanka’s future potential, emphasising that Singapore’s current and future weaknesses lead to Sri Lanka’s advantage and opportunities.

Some of the key advantages of Sri Lanka which is similar to Singapore included strategic location, new infrastructure, enormous tourism potential, a world class product in Ceylon tea, wealth of natural resources and its new economic and political allies.

“Over the past five years, a transformation has taken place around a country which promises so much,” says Dennis. “Whilst the potential of the country is clearly high, it may come as a surprise that so much has been achieved in such a short period of time since the end of the civil war? The answer is the China factor! Whilst Chinese investment may be one of the factors now hurting Singapore, it has certainly propelled Sri Lanka and looks destined to continue to support the island’s expansion,” noted the specialist.

“China recognised the strategic importance of Sri Lanka and has been the largest investor in its infrastructure expansion. Of course, this has led to tension with India, for whom Chinese influence is less attractive. However, the Sri Lankan Government of President Rajapaksa has embraced Chinese investment whilst trying to reassure India that its intentions are not inconsistent with maintaining close links to its neighbour. It isn’t just money that is flowing from China either, tourists from China increased 137% in the first half of 2014 to over 52,000,” he added.

Dennis also tips the Colombo Stock Exchange to be a future star with reforms from its current position as a “frontier market” for investors.  He also expects Foreign Direct Investments to grow in real estate, the strategic investment in tourism, energy, agriculture and minerals and other private equity investments will be joined by internationally listed opportunities for international investors to participate.

“Singapore’s reputation for its rule of law and fairness will not be matched by Sri Lanka for many years to come. Many will also be concerned by continuing investigations into the approach taken by the Sri Lankan Government in ending the civil war and by allegations of corruption within the country,” says Dennis.

“However, the question has to be posed. If the past 50 years belonged to Singapore, will the next 50 years belong to Sri Lanka? At least today, it seems likely that at least for the next few years, the growth opportunities are more likely to lie in the Indian Ocean than in the South China Sea,” concludes Dennis in his article.