Port City could have US $ 4.6bn positive impact on SL’s BOP: PwC study

Colombo Port City (CPC) is projected to have around US $ 4.6 billion positive impact on the country’s balance of payments (BOP) per annum when it reaches the normal operational level after 2041 with an overall US 

$ 11.8 billion contribution to GDP per annum, according to a study conducted by PricewaterhouseCoopers (PwC).

PwC highlighted that the country could earn US $ 4.6 billion in net foreign exchange revenue from tourism-related industries and service exports such as IT, maritime, logistics and other professional services.

It projected that service exports would contribute US $ 4.1 billion, followed by US $ 300 million net foreign exchange earnings from the residential sector and US $ 275 million from the retail sector.

PwC noted that US $ 4.6 billion, in addition to the country’s external sector, could significantly reduce the pressure on the BOP.

Sri Lanka posted a US $ 377 million surplus in BOP at end-2019, after recording an over US $ 1 billion deficit in 2018, according to the 
Central Bank data.

In addition, it is also estimated that there would be around US $ 4.2 billion positive impact on the country’s BOP during the construction period spanning over 20 years. 

The overall construction cost of projects in CPC is estimated at around US $ 8.1 billion over the 20-year period, with construction activities of residential real estate projects amounting to US $ 3.8 billion of the overall construction cost. 

The project company, CHEC Port City Colombo, a unit of China Communications Construction Company (CCCC), targets to complete phase one of infrastructure work within this year and the construction of beach, marina and central park is scheduled to be completed next year.

The construction of phase one of the business district and first hospitality spot is scheduled for completion in 2023 while the completion of the proposed international school, hospital and mega convention centre is scheduled for 2024/2025.

Further, a US $ 1.3 billion positive impact on the BOP is also expected during the land reclamation, infrastructure development and land lease period, which is now nearing completion.

 
The study estimated that CPC would contribute to around US $ 11.8 billion to the country’s GDP per annum through investments and consumption, when the mega project reaches its fully operational level in 2041.

“The value addition during the operational stage is mainly driven by the commercial space, which would account to around 74 percent of the total estimated value addition, followed by the residential and retail sectors. The consideration of an imputed rent for housing units was the primary value-adding factor for the residential sector,” PwC noted. 

In addition, PwC estimates US $ 17.6 billion contribution to the economy before it becomes fully operational in 2041.

In terms of state revenue, PwC estimated that the government could earn up to US $ 800 million per annum once the CPC reaches the operational stage. A US $ 2.7 billion boost to state revenue is also expected during the construction stage, in addition to US $ 1.8 billion revenue through land proceedings.

However, PwC noted that the estimated revenue figures may not realise fully as the government is likely to offer concessions for investments.

The study emphasised that global environment and implementation of critical domestic reforms would weigh on the success of CPC. 

In a scenario coupled with a global discord and domestic instability, PwC warned that only 30 percent of CPC could become operational upon the targeted date of completion, which in result likely to force the developers to cut down the built up areas. Consequently, it would lead to a less than anticipated investments and business activities in CPC.

  
In particular, attracting multinational firms to set up their regional headquarters would be crucial for the success of CPC as it would also determine the demand for residential space in CPC.
The government and project company expect to draw around 70 percent foreign investment to CPC.

In a bid to attract foreign investments, CHEC Port City Colombo is kicking off the global launch of CPC at World Cities Summit 2020, in Singapore this July, with several road shows, which would be followed by a series of other road shows in Asia and Europe.