Sizing Up the Port City of Colombo: An Invitation for Business Visionaries
Written by Vagisha Gunasekara
The Port City of Colombo Development Project has been in media headlines since the beginning of 2021. It has now become a major preoccupation of several elements in the political stage that may not always have converging political agendas, but rally together when it comes to the ‘China Issue’. These reactions are rife with speculation, myth and sensationalization that often distort reality. The politicization of every development project has become somewhat of a national pastime lately, and the Port City has offered plenty of fodder for it. The negativity surrounding the Port City however, seems to be taking us away from closely examining the prospects it has to offer not only in terms of Foreign Direct Investment (FDI) gains, but also opportunities for local industries and service providers. Venturing off the beaten path, BIZnomics spoke to Mr. Raja Edirisuriya, the Executive Project Management Director for Colombo Port City Development Project and Economist Dr. Kenneth de Zilwa for alternative perspectives on our approach towards the Port City, and conducted our own rough estimation of the prospect the project holds for local businesses.
The vision of the Port City is to become South Asia’s premier residential, retail and business destination. It aims to be an international business and services hub with specialised infrastructure to promote key economic activities including shipping and logistics, offshore banking, financial services, information technology, and business process outsourcing. It will also serve as a space to establish corporate headquarters, execute regional distribution operations and promote tourism and entertainment.
The Spillover Effect
“The spillover effect of Port City will be much more than what has been forecasted,” said Mr. Raja Edirisuriya. A well-respected civil engineer by profession, Edirisuriya has held several prestigious positions in city planning and development, including his role as the Administrator and City Engineer for almost 16 years with the city of Chino, California. During his tenure as the Chairman of Sri Lanka State Engineering Corporation (2006-2009), he resurrected the loss-making state-owned enterprise in a record-breaking 9 months. He has also served as the Sri Lankan Ambassador to Brazil, Peru, Argentina, Chile, Colombia and Surinam.
“The main attraction of the Port City will be the financial centre, but it will be flanked by a few important components – the International Hospital, the International School and the Convention Centre, the Theme Park and the Marina – that attract both investors and high-spending consumers,” said Edirisuriya.
Elaborating on his role in setting up these establishments, Mr. Edirisuriya emphasized the importance of aligning with credible and reliable operators and financiers.
“No investor is going to risk his money to come here just because Sri Lanka has beautiful beaches, wildlife, waterfalls, historical places, or botanical gardens. He will not risk his investment unless we have proper infrastructure aligning with a sound legal framework. An investor also looks for an [business] operator that he can rely on. So, we have to work with known, well-reputed operators for the hospital, the school, the convention centre and other establishments. I’m currently working on getting on board some of the top operators for the hospital.”
Sri Lanka’s potential for medical tourism is much-touted, though not a lot has been accomplished in the past few decades. Port City seems to offer an opportunity for Sri Lanka to invite some of the top-rated medical franchises in the world that can rival other medical tourism hubs like Singapore. “For example, if we manage to get a top-rated hospital in the world to come to the Port City, it will attract all the high-spending medical tourists in the region and will also discourage Sri Lankans traveling to other countries for medical procedures. Similarly, if a prestigious school in the UK is established at Port City, it would have the same effect. This will attract a lot of foreign exchange into our country.” said Mr. Edirisuriya.
A Free Port
“It is a free port! And we will be entering a 60-year business cycle. The turnover is estimated to be around 100 billion dollars. This is a huge opportunity for Sri Lanka,” says Economist, Dr. Kenneth de Zilwa. He highlighted that the negativity, speculation and debate about foreign investments in the Port City is diverting attention away from the opportunities that Port City offers for Sri Lankan industries and service providers.
“Sri Lankan businesses are preoccupied with doing other things. Despite all the fiscal incentives that have been offered, the monetary policy stance in place with a single-digit interest rate, businesses are not looking at the opportunity that has been presented. The Port City is an economic centre in its own right. The Port City has to have furniture, food, electronics, blankets, beverages, and pretty much everything. Are we going to allow establishments that come to the Port City to import everything? This is “imports replacement” in our backyard!”
Dr. de Zilwa’s main argument is that a refocus back to fundamentals is necessary. To put it simply, all the lifestyle and business spaces within the Port City will require basic supplies, and an important question in this regard is – who is going to supply the basics?
Mr. Edirisuriya agrees: “The Port City will create many supply chains, not only during the construction stage, but when it is fully operational. If the local suppliers cannot meet the demand or the standards, the business establishments at the Port City will invariably seek to import,”..
Both Mr. Edirisuriya and Dr. de Zilwa offered fresh perspectives for local business leaders to size up the potential the Port City offers for them. They flagged that Sri Lankan industries ought to prepare plans, spend resources on research and development, and invest in enhancing production capacity to supply for the demand that will arrive in another 4-5 years. Mr. Edirisuriya also indicated that the Colombo Port City Economic Commission may want to take this aspect into serious consideration.
“If the investors want to import goods that are already being produced in Sri Lanka, the Commission could put a limit on it. They could say, only 50% of goods can be imported.”
Cumulatively, these arguments make a strong case for demand for goods and services produced by spillover effects and the opportunities presented to the local supply chains. While the Commission may encourage investors to source locally, stringent rules on importation may not be pragmatic, especially if the local businesses do not have the production capacity or quick turnaround times to meet the demands of Port City investors.
The Scale of Port City Supply Chains
The Gross Floor Area (GFA) – 5.6 million square metres (6.9 million square metres including car parks) – of the Port City will comprise 5 precincts: the Financial District, Central Park Living,
Island Living, The Marina and the International Island. It offers a range of lifestyle and business spaces ranging from healthcare, education, entertainment, hotels and restaurants, retail and office with an integrated resort and a marina. Figure 1 illustrates the breakdown of GFA.
Sizing up the demand
Local businesses have the scope to cater to the many facets of demand generated as a result of the day-to-day operations of this brand-new city when it becomes fully functional. Food & beverages, transportation, stationery, linen and other commodities are among them. Even before it starts its days as a fully functional city, the finishings have to be completed in its brand-new buildings, to enable occupancy by the businesses and residents planning to move into them.
In order to provide a general idea of our premise to the reader, we estimated the demand in the pre-functional phase of the city, in the soft and hard finishes of its buildings and in the fully functional phase in the demand for food and beverages for the Port City’s hotel rooms.
Demand for soft and hard finishes Port City structures estimated: The gross floor area (GFA) provides a general picture of the requirements. For example, the amount of floor tiles, carpet or paint that is needed. Based on the GFA breakdown, BIZnomics worked in collaboration with Chartered Architect Mutiara Tegal, AIA (SL) to arrive at rough estimations for soft and hard finishes in Port City structures, to size up the opportunity of the indirect potential it presents that the local businesses can take advantage of.
With a few assumptions about hard finishes we came up with a conservative estimate of tiles, carpet and paint requirement for the floor area.
Estimate #1: over 500,000 floor tiles (size: 450 x 900 mm) would be required to cover half the GFA.
Estimate #2: over 2.8 million square metres of carpet would be required to cover half the GFA.
Estimate #3: over 500,00 gallons of floor and ceiling paint would be required to cover the total GFA.
Similarly, using a few assumptions about the soft finishes, we managed to provide a rough picture of how much paint, wallpaper and bulbs would be required for the wall and ceiling areas.
Estimate #4: over 480,000 gallons of paint would be required to cover the wall areas.
Estimate #5: over 6 million square metres of wallpaper would be required to cover half of the wall areas.
Estimate #6: at the very least, 1 million LED light bulbs would be required to illuminate the Port City.
Once operational, the Port City is expected to have a resident population of 75,000 and a transient population of 175,000.
Estimate #7: approximately 25,000 water closets and 25,000 wash basins would be required to service the resident population. Approximately 28,992 water closets and 28,992 wash basins would be required to service the transient population. The estimated total of water closets and wash basins would be 107,984.
Estimate #8: approximately 75,000 bedroom furniture sets would be required for the resident population.
Estimate #9: approximately 37,500 living room furniture sets and 37,500 kitchen cupboard sets would be required for the resident population.
Estimate #10: approximately 160,000 office furniture sets would be required for the transient population at Port City.
Demand for food and beverage requirement for the hotels in the Port City estimated: The “Economic Impact Assessment of the Port City Colombo” carried out by PwC (2019) predicts that the local food suppliers would be approximately USD 134,492 (LKR 27 million) per day through the demand generated from the hospitality segment of the Port City
The hospitality segment of the Port City is estimated to have 2369 rooms in total. This breaks down to 1491 4- and 5-star hotel rooms and 905 rooms in the integrated resort and theme park. PwC predicts an average occupancy rate of 77% based on an average for Sri Lanka and for similar areas in the Southeast Asia region. Priced at USD 176 per night, these rooms are expected to bring in food and beverage revenue of USD 160 per day per room. Similarly, the integrated resort and theme park is expected to have 905 rooms priced at USD 264 per room per night with a predicted occupancy of 78%. These rooms are expected to bring in food and beverage revenue of USD 121 per day. At least This is based on the assumption that 50% or more of the total Food and Beverage demand per day can be fulfilled by the local suppliers with the right level of preparedness.
Apart from room and F&B revenue, there are many opportunities for the hospitality ecosystem. For example, look at the estimate of the bed linen requirement for these rooms.
The Port City is likely to attract high spenders, a point reiterated by both Mr. Edirisuriya and Dr. de Zilwa. While even conservative estimates show lucrative business prospects for local suppliers, there is uncertainty about the quality of Sri Lankan products and services, and whether our businesses have the capacity to cater to the scale and the preferences of residents and the transient population of Port City. For instance, local food suppliers have a golden opportunity to supply basics such as dairy, meats, poultry, fish, , and fresh produce. And this requirement is not merely for a month or two. It would be a continuous and uninterrupted demand. The high-end meat cuts, fish fillets, cheeses, etcetera can easily be produced in Sri Lanka, therefore, the local businesses should be gearing up to meet these demands. They should assess their current capability and identify the gap that needs to be bridged to meet the required scale up. A relevant question to ask themselves would be – “how should we plan to scale up to meet the resulting demand for food and beverages?” according to Dr Kenneth de Zilwa.
Local suppliers will need to up their game: The quantity required should not be the only concern of local suppliers. Very few local suppliers spend time understanding customer preferences and food trends, and thinking of ways to innovate their products to suit rapidly changing market needs. Those accustomed to rudimentary practices of food sales pay little attention to matters of quality and freshness. Strategies should be aligned to address concerns regarding consistent supply, and quality of products as well as turnaround times. The Pandemic has forced a trial period upon the local food suppliers during which they had to reconfigure their normal way of doing business. While it is true that expanding production and investment in technologies that ensure the freshness and quality of the products can be expensive, “…businesses should be using risk management tools to manage their balance sheets in preparation for the business cycle that is to come,” said Dr. de Zilwa.
Ecosystem support required for the local suppliers to gear up: Dr. de Zilwa asserted that this is an opportunity for the banks to intervene to assist the business community with medium-term financing so that the latter is able to develop their product offerings and capacity and be ready when the business cycle begins in 4-5 years.
All this points to the need not only for research, but also for harnessing skills and resources to develop products that can be sold at the Port City of Colombo. It also emphasizes the importance of improving the production capacity and the efficiency of Sri Lankan manufacturers.
Entrepreneurs who wish to be included in these supply chains need to spend enough time learning about the preferences of the high-spending future occupants of Port City. What kind of food will the occupants consume? What kind of furniture will they like to use, and what is the expected turnaround time for a furniture set? – are pertinent questions to ask to assess the demand for each good or service. Local dairy businesses, for example, should assess the demand for their produce and a relevant question might be, can we develop high-quality cheeses and other dairy products that can compete with international brands reaching the Port City consumers?
Asking these questions early will lead to identifying knowledge and resource gaps and possibly filling those in the time.
Setting Benchmarks for Our Services
A project of this magnitude is expected to have a spillover effect, attracting FDI towards Sri Lanka for investments outside the Port City. There is also the possibility that the services-driven zone of the Port City will provide opportunities and exposure to young, Sri Lankan entrepreneurs and drive innovation. In a country with a rapidly growing service sector that rarely follows international benchmarks due to the lack of exposure, the world-class standards of service provision will fill in this gap. For example, for budding Sri Lankan architectural firms, it might be worth investing time and resources in developing their design skills to cater to the preferences of the Port City investors. It might suit them well to use this time to forge links with globally recognized architectural firms and explore future collaborations so that they are ready to provide architectural and design services in 4-5 years. The service establishments within Port City Colombo will also be able to provide much-needed big data on customer preferences which in turn could be productively used to innovate products and services offered by Sri Lankan businesses.
In many ways, the “free port” seems to offer Sri Lankan businesses a market on a platter. But Sri Lankan business leaders need to have a plan and prepare for a long business cycle. “We are such an import-dependent culture. This is why we are not thinking about production,” explains Dr. de Zilwa. The mindset that has internalized import dependency is dangerous, and is evidenced by the current complacency among businesses. The Sri Lankan businesses and people have a choice at the moment. The businesses have 4-5 years to improve production capacity, consistency and quality, conduct market research and fine-tune their products to suit the needs of the Port City occupants. The future labour force has a choice to sharpen skills that may be required at various stages of the Port City project. The government will have to direct the future labour in preparing them for the skills required. The failure to do either will lead to the inevitability of importing goods, services and labour to service the Port City of Colombo.