Were China’s Investments in Sri Lanka’s Hambantota Port a good idea? Duke, National University of Singapore highlight risks
By Zoé Murphy PPS'24
On February 23, the Duke Center for International Development (DCID) teamed up with the National University of Singapore Business School (NUS BIZ) to host, "Political Risk Analysis in the Global Economy: A Case Study of China’s Belt and Road Investments in Sri Lanka’s Hambantota Port.”
The second largest in Sri Lanka, the Hambantota Port had large empty land for potential development, which caught China’s attention and led to its inclusion in China’s Belt and Road Initiative (BRI) and joint operation by China’s investment banks.
Professor Andrew Delios, vice dean of the Master of Science program at the National University of Singapore Business School, and Professor Edmund Malesky, director of the Duke Center for International Development, led the virtual, interactive discussion that focused on political risks and the interconnection between business analytics and political institutions on the port project.
According to Malesky, “Political risk refers to the possibility that investors will lose money or make less money than expected due to political decisions, conditions, or events occurring in the country or emerging market in which they have invested. We can analyze this at the firm, country, regional, or global level. And, if we know enough, we can make strategic predictions that allow us to do business in places where others might not want to.”
“Political risk refers to the possibility that investors will lose money or make less money than expected due to political decisions, conditions, or events occurring in the country or emerging market in which they have invested. We can analyze this at the firm, country, regional, or global level. And, if we know enough, we can make strategic predictions that allow us to do business in places where others might not want to.”
Regarding the steps in conducting a political analysis – analysis, mitigation, and business decision – Delios said, “I would say that the failure tends to occur in most companies is not really in the mitigation or business decisions. The major problem is in the analysis side. There are two issues related to this: 1) there are just not the core skills related to undertake those analyses, and 2) there is a need for unlearning…. I believe political scientists and economists are very good at undertaking those kinds of measurements.”
Malesky then provided context on the Hambantota Port and its implications with China’s Belt and Road Initiative. “The Hambantota had been a secondary port overshadowed by Sri Lanka’s most important port, Colombo Port. When the latter port ran out of capacity and found issues in expanding due to its urban environment, it was decided [by the Sri Lankan government] to seek financing to expand the Hambantota Port. As initial outreach with institutional investors like the World Bank, the US, and Europe failed, Sri Lanka turned to the commercial market, where they caught the interest of Chinese investors. Not long after, Hambantota was subsumed into the larger project of China’s Belt and Road Initiative.”
To put the lesson on political risk analysis and the context of the Hambantota Port into practice, Delios and Malesky posed several questions to attendees: “Was the Hambantota Port a good idea for the Chinese government, President Mahinda Rajapaksa of Sri Lanka, and the Sri Lankan Port Authority? Yes or No?” Placed into break-out rooms, the attendees discussed the question among themselves before returning to the main session to share and discuss.
What followed was an active discussion among attendees and presenters on the benefits and drawbacks of the Hambantota Port for all main actors involved. Most participants noted that the benefits to the Chinese government came in control and economic gain of the port, that the Sri Lankan President Mahinda Rajapaksa found a certain legitimacy through the economic gains of the endeavor, and that the drawbacks for the Sri Lankan Port Authority included the loss of much of its control of the port.
Most participants noted that the benefits to the Chinese government came in control and economic gain of the port, that the Sri Lankan President Mahinda Rajapaksa found a certain legitimacy through the economic gains of the endeavor, and that the drawbacks for the Sri Lankan Port Authority included the loss of much of its control of the port.
Delios and Malesky explained how China’s involvement with the Hambantota Port sparked conversations about China setting a “debt trap” on Sri Lanka, which essentially led Sri Lanka to accept a predatory deal that would allow China to take over the port.
“I see a fundamental misunderstanding about what is happening in the BRI, what are the motivations of the Chinese state, what are the senses of alignment among various organizations with those motivations,” Delios added. “If we could understand those key points in terms of motivations and alignments, then we could have a better read on what is happening in Sri Lanka, and then we could more carefully assess whether this is debt-trap diplomacy or something else, and what does this really mean?”
Malesky noted the importance of analyzing the case from a business and political perspective. “The reason Andrew and I believe that this is such an important collaborative partnership for Duke and NUS Business School is because we both tend to think about these issues from two different perspectives. I tend to ask these questions from the state level. What are some state institutions and regulatory functions that create risk? Whereas Andrew thinks about it from the business level. When you look up, how do you manage those types of risks?”
“The Belt and Road are large industrial projects that will be housing businesses and enterprises, some connected to China and others purely foreign entities,” Delios concluded. “So, there is a massive amount of risk to be managed. If perceptions tend to sway negatively about these investments, the consequences for China could be massive in terms of the ultimate ownership of these assets and investments. It is important to contextualize all of this, and when we do, I think we come up with a much more balanced and nuanced understanding of the international environment.