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Downward pressure on the economy continues as cargo ship sinks off the island’s West coast.

Not too long after maneuvering out of the aftermath of the second wave of COVID-19, the country has had to run into another outbreak. At just over a month into lockdown now, Sri Lanka’s hope for economic recovery has been subdued again, pronouncing a bleak fate to some of our key industries. The present environment is largely depicted by repressed economic activity, escalated unemployment, increased outstanding foreign debt and spiraled rupee depreciation. At a point in time like this, when one thinks it can’t get any worse, the EU spells warning of a withdrawal of GSP+ concessions, the government announces a fuel price hike and last but not the least, a shipping disaster hits the island. The latter has taken the global spotlight this month, so we will discuss its extended implications on our economy.

An overseas cargo ship X-Press Pearl, sank off the island’s West coast early this month, after nearly two weeks ablaze. This has sparked fears of an environmental disaster, as the vessel laden with chemicals has already covered the coastline in tons of plastic pellets, and it threatens to spill oil into its rich fishing waters, risking nearby lagoons, marine life and birds. The fire-ravaged ship was transporting containers of nitric acid, 350 metric tons of oil in its tanks along with other chemicals and cosmetics. This catastrophe alone can cause rippling effects across multiple industries. While the shock waves of the sinking ship are apparent to the fisheries and logistics industries, other sectors such as tourism will also need to deal with the outcome.

The livelihoods of many people are expected to be severely impacted, with the most daunting consequences anticipated to be on the region’s fisher folk. The Western coast covering Colombo, Negombo and Chilaw – provides a livelihood to ~12,000 fishermen and women and ~4,000 other people who depend on fishing trade in the area. The severe flames and toxicity of chemicals have killed thousands of fish and the government has had to ban fishing. Moreover, the risk of oil spillage is inevitable and should it materialize, experts warn that it can destroy the entire sea bed. Implications have been multiplied given the timing of the event coinciding with the rainy season, which usually brings bigger hauls for fisher folks, earning them anything between LKR 5,000 – 100,000 per day. While compensation is being granted to affected individuals, victims are finding it insufficient to meet their losses. The price of fish per kilo has also dropped by close to 70%, leading to more far-reaching consequences, not just for those situated along the West coast.

The repercussions of this calamity aren’t confined to fisheries catering to locals. Even seafood exporters have had to face order cancellations – an industry that generated close to USD 350 million in annual revenue pre-COVID. Several buyers from Europe and Israel have informed Sri Lankan companies not to export seafood until the government provides required safety clearance. This situation will only be exacerbated should Sri Lanka’s GSP+ concessions be withdrawn – a facility that provides permission for us to export goods to Europe without taxation. The GSP+ is what had enabled Sri Lanka’s fishing as well as other exporting industries such as apparel to thrive.

Concerns pertaining to the future of Sri Lanka’s logistics has also been sparked off by the incident – could this be a road block to the country’s goals of emerging as a global logistics and maritime hub? Thanks to its location advantages, situated right at the center of international shipping lanes and all major sea routes connecting the East and West, the island has been an ideal linking point for the provision of quick and efficient global and regional connectivity to move cargo to and from Asia to the rest of the world. Proximity to all major ports in the Indian sub-continent, and positioned between two leading logistics hub, Singapore and Dubai, has generated business volumes close to 25% of regional container throughput. Now, with a catastrophe this large hitting the island, the port has come under global scrutiny and is facing a backlash for its reliability around infrastructure, disaster management capabilities and credibility to handle valuable goods on transit or to be docked.

And, it doesn’t stop there. The ramifications extend to Sri Lanka’s tourism industry as well. While the COVID-19 outbreak had already partially shattered Sri Lanka’s tourist industry, the shipping disaster has almost put an end to it, quelling any yearnings for recovery at least in the medium term. All boutique hotels as well as leisure services in the region will suffer exponentially as paradise beaches in the Western coast are having to close down until it is cleared as safe. The region is an attraction to locals and foreign tourists as it as an ideal destination for those who love to indulge in fresh seafood, beach bathing and leisure activities, which may not be a reality in the foreseeable future. Last year, tourism earnings plunged to USD 957 million, a tumble of more than 73% from USD 3.6 billion the previous year. The decline in tourism revenue has been owed to the dramatic drop in arrivals – down to a total 15,000 in the last five months this year, compared to 507,704 in 2020, about a quarter of the 1.9 million who showed up in 2019. This number being suppressed further is a worrying situation to the tourism industry.

While the incident has stirred the economy up, timely support from authorities can help mitigate further adverse impact, and safeguard those who have been victimized by the incident. International relief in the form of aids and grants would be urgently required to help the fishing industry and those who depend on it for their livelihood. As far as related industries are concerned, such as logistics and tourism, we believe the impact is more profound owing to the lockdown, and expect businesses in these sectors to at least benefit from partial relief when social restrictions are eased in the next couple of weeks. The partial completion of COVID-19 vaccinations to public by the government should also aid this process, helping businesses return to operations faster.