By Maya Majueran
Industrial zones are geographically designated areas designated by the government for the production of industrial goods and services. These zones typically enjoy unique legal and economic status to encourage investment from companies that otherwise might not be attracted. The main objective was to encourage foreign investment and create an internationally competitive and problem-free environment for exports in order to be competitive worldwide. Zones play a key role in a country’s rapid economic development and world trade. When successfully implemented, industrial zones can contribute to job creation, Foreign Direct Investment (FDI), foreign exchange revenues, exports and government revenues. In addition, industrial areas can facilitate skills upgrading, technology transfer, the introduction of modern management practices and economic diversification.
Belt and Road Initiative (BRI)
One of the main goals of the Belt and Road Initiative (BRI) is to enable free trade. Therefore, Chinese companies have contributed to the construction of industrial zones in many countries along the BRI routes. From Cambodia to Ethiopia to Belarus, industrial zones are an increasingly important dimension of international cooperation within the framework of the BRI. The BRI cooperation could make better use of such special zones and create more win-win results for the participating countries.
To date, up to 140 partner countries have signed documents on Belt and Road cooperation with China. Sri Lanka has been one of the critical members of BRI since its inception. Since Sri Lanka became an active partner of BRI, Chinese investments in various projects in Sri Lanka have increased significantly. The Hambantota Port Project is one of those that originally started in 2009 and is now considered part of BRI.
Hambantota International Port (HIP)
The Hambantota International Port (HIP) is a deep sea port that is being developed in phases in Hambantota in southern Sri Lanka. This port is 10 nautical miles from the main international east-west shipping route – the Suez Canal and the Strait of Malacca – and is strategically positioned at the gateway to India. For many centuries, Sri Lanka was the center of the historic Silk Road that linked Europe and China. In general, around 300 ships pass this route every day, creating good business opportunities in the production of goods and services, supported by efficient logistical facilities and lower transaction costs.
The HIP industrial park covers a little more than two square kilometers of dedicated space, which is made available for the settlement of companies and industries. The declaration of the Port of Hambantota as a free port eases the financial burden for shippers and manufacturers to manage their freight movements during import, export and re-export in today’s fast-moving world. The Port Industrial Park follows and replicates the success of the strategic “PPC” – or Port, Park & City model of China Merchants Port. This model has enabled investors to benefit from significant cost and time savings by being close to the port near their manufacturing facility. The industrial park has delimited and classified 3 industrial clusters as heavy industry, light industry and food industry.
Plug-and-play production facility “Park in Park”
In June of this year, HIP teamed up with the Shenzhen Xinji Group to create a 9,000 square meter high-tech, plug-and-play “Park in Park” manufacturing facility valued at $ 16 million in the port’s industrial zone erect. The project began construction within 20 days of the signing of the partnership agreement with the Hambantota International Port Group (HIPG). The concept is a full-fledged, stand-alone industrial facility with some very unique features to operate within the industrial zone of the Hambantota International Port. This project will promote the production and manufacture of electrical and electronic household appliances. This makes Sri Lanka an attractive destination for manufacturers who do not want to build cumbersome factories, but instead use ready-made services and want to get started without delays in production.
The plug and play concept is not a new type of factory or building, but rather a set of manufacturing standards required to achieve plug and play capability on the factory floor. The easiest way to understand it is to imagine how your office is now networked. Everything is more or less centrally controlled for computer systems, telephony, printers and even building management and if something goes wrong, call IT. This is very similar. The entire factory works according to a set parameter of communication standards, the machines are networked so that all activities can be monitored in real time and even managed remotely. Therefore, with this concept, a user literally only needs to install an additional device, such as a computer. The ability to add software or hardware as needed to improve manufacturing quality or output is an important step in industrial production processes, which are usually more rigid and require costly know-how to adjust even the smallest parameters.
Another benefit of the plug and play factory concept is the ability to do a lot more in a much more limited space. Some industries, especially those of small businesses, are limited by size and funding options, but with greater efficiency due to interoperability standards, these limitations can be accommodated and even better collaborated with. According to the interoperability standards, plug and play should enable standardized communication between devices from different providers. This allows smaller businesses to maximize the use of the property in order to achieve higher levels of production. Many factories use a third less space to accomplish what they used to need a lot more space to do. This saves the company money in terms of personnel, space, resources and other production costs.
With the “Park in Park” concept, all the facilities for an investor are provided by management, right through to the dismantling of bureaucracy, infrastructure hurdles and even the staff required for smooth business operations. This model would be attractive to investors as it would significantly reduce start-up investment costs while avoiding the hassle and expense of building factories. Potential investors could take advantage of direct “check-in” services that reduce production time. They also facilitated the development of industrial clusters, which enabled enormous economies of scale and leeway for industries.
South Asian market
In addition, industries operating within the HIP plug-and-play park-in-park facility benefit from the added benefits of the Free Port Policy and Industrial Zone Free Trade Agreement that enable them to offer quality products to Sri Lanka and the surrounding countries to deliver. It would be a big plus for light industry manufacturers and distributors looking to set up in Sri Lanka to find markets in South Asia. As of 2014, South Asia has been one of the fastest growing sub-regions in the world, and economic growth is largely driven by domestic demand and is therefore less affected by global economic developments. The strong growth in South Asia was mainly driven by the performance of Bangladesh and India. South Asian domestic demand for consumption and investment has been strong and is expected to remain strong due to the large needs for development and investment.
Therefore, there is great potential for investors around the world to see HIP as a manufacturing hub for production and sales to the South Asian markets and to jump to East Africa and Southeast Asia through the excellent connectivity of Hambantota Port and Plug and Play production facility “Park in Park “.
In addition, China is moving up the value chain with its huge investments in technology, artificial intelligence, robotics and blockchain, while Chinese companies in turn develop and produce higher value goods. Therefore, part of the production is now being relocated from China. Sri Lanka takes this opportunity to win some manufacturers from China for HIP as well.
A well developed, strategically located port and plug and play “park in park” manufacturing facility in Hambantota to strengthen its role as a global manufacturing hub. This fascination can attract foreign manufacturers to set up their plants, and this can bring in Foreign Direct Investment (FDI), creating jobs, foreign exchange earnings, exports, and government revenues. In addition, industrial areas can facilitate skills upgrading, technology transfer, the introduction of modern management practices and economic diversification. The facility can also provide downstream benefits to other Sri Lankan companies as the industries operating in the park are encouraged to use Sri Lankan raw materials and services.
Maya Majueran is a PhD student at the University of Kelaniya, Sri Lanka. He researches the effects of the Chinese Belt and Road Initiative (BRI) on personnel development in Sri Lanka’s maritime logistics sector. He is an Associate Member (AMCIPM) of the Chartered Institute of Personnel Management (CIPM), Sri Lanka. Maya is currently the director of BRISL, a Sri Lankan think tank focused on China’s Belt and Road Initiative (BRI). He has extensive experience in supporting functions in the field of humanitarian aid. Maya can be contacted at: [email protected]