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Economic Impact Assessment of Port City

 

What is the economic impact from the Port City to Sri Lanka?

Aruna Perera explained the basis of which PwC Sri Lanka evaluated the economic impact of the Port City to the Sri Lankan economy.

The project was divided into three distinct stages;

  • 1) Reclamation, Infrastructure Development and land lease
  • 2) Construction
  • 3) Operation

The impact was analyzed using the parameters;
  • 1) of Employment
  • 2) Foreign direct investments
  • 3) Balance of payments
  • 4) Value addition and
  • 5) Government revenue.

According to the Project Company, the reclamation of land has already completed, and the construction stage is to start in 2021 and complete by 2041.

The Reclamation and Infrastructure Development and Construction stages have a one-off impact during the project period. But more importantly, Operational stage has a recurring impact every year. To measure the impact of the Operational stage, PwC looked at the impact that would have been there in a mature year of operation of the businesses to be located within the Port City. For the impact assessment, data collection was conducted at micro, meso and macro levels.

Three types of impacts were measured, namely

  • 1) Direct
  • 2) Indirect and
  • 3) Induced
For an example, assume that there's a hotel in the Port City that adds value to the economy, generates revenues and employment. Such contribution is the direct impact to the economy. The indirect impact is something slightly beyond. Assume the same hotel in the Port City buys vegetables from farmers in Kandy. The Farmers will get an income and will grow to supply to the hotel in the Port City. It is called the indirect impact. The induced impact goes even beyond that. Let's say that a Farmer in Kandy employs five labourers in his field. The farmer will pay money to the employees who in turn will go on to create a demand for goods and services (e.g. buy a shirt). There are multiple sectors planned to be operated in the Port City such as an international school, a hospital, a convention center, an integrated resort and a theme park. In addition, there are retail shops, supermarkets, office space, residential apartments as well as well as various other business centers. These are all specified in the Development Control Regulations (“DCR”). The above information was extracted from the DCR when building our models to estimate the economic impact.

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Employment

PwC evaluated potential employment, foreign indirect investments, balance of payment impact, value addition and finally government revenue at different stages of the project. Based on our estimations, during the Construction and Operational stages, the Port City will generate 175,000 and 200,000 jobs respectively.

Another important aspect that has to understood is the knowledge transfers. As the foreign employees that are expected to be employed in the Port City might have been exposed to state of art technology and knowledge, such knowledge may get shared with local employees. This will improve productivity and increase the income generating capability of local employees.

PwC Sri Lanka (2020) Economic Impact Assessment of Colombo Port City

Value addition

In terms of Value addition during the Reclamation and Infrastructure Development stage, PwC considered the excess of leased value of land (approximately 178 hectares) over various input costs to reclaim such land. Similarly, during the Construction stage, when the apartments are sold, excess of sales proceeds over the material cost contributed mainly to the value addition. For the Operational stage, PwC looked at the difference between the revenues generated and various intermediate expenses to arrive at the value addition. The value addition in the first two stages (USD 4.6 billion in reclamation stage and USD 13 billion in the construction stage) are one-off impacts. During the Operational stage, USD 12 billion of value addition is estimated to occur annually as companies produce as services, export and trade. For the estimation, PwC looked at both direct and indirect impact when computing the value addition.

Value addition

Foreign direct investments

Foreign Direct Investments (FDI)

During the land reclamation foreign direct investments will come from two specific sources;

1) Port City’s investment of USD 1.4 bn

2) FDIs from leasing the land. During the construction stage, developers will invest in developing the building infrastructure to boost FDIs. Finally, in the Operational stage, there will be recurring FDIs due to reinvestment of profits.


Balance of payment

Balance of payment will be benefited by the FDIs and few other sources of revenue. For example, during the construction stage, PwC expect the apartments and houses to be sold to foreigners. During the operation stage a lot of companies will generate export revenues. Meanwhile, boost in tourism from the Port City and the related receipts will further improve Balance of Payments.

Balance of Payment (BOP)

Government revenue

In terms of Government Revenue, the two main sources will be tax and non-tax revenue. If you look at the non-tax revenue, the GoSL is going to get 62 hectares of land which they can lease out on a 99-year basis lease. Hence, GoSL will receive a major part of non-tax revenue from this source. There will also be revenue from charges on approvals and licenses to be given by the Government. Tax revenue will be generated through Stamp Duty, Income Tax, VAT and Tax on Employment Income.

Government revenue

 

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Channa Manoharan

Channa Manoharan

Chief Operating Officer / Advisory Leader, PwC Sri Lanka

Tel: +94 11 771 9700 ext.5002

Aruna Perera

Aruna Perera

Director - Corporate Finance, Valuation Consulting, and Real Estate Advisory, PwC Sri Lanka

Tel: +94 77 787 2962

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