Tire project linked to US withdrawal of aid from Sri Lanka?

London – Shandong Haohua Tire’s project (see ERJ report) to establish a factory in Sri Lanka was reportedly a factor in a US agency’s withdrawal of a Rs.89 billion ($480-million) package to reduce poverty in the country.

Overseas aid agency Millennium Challenge Corp. (MCC) announced 15 Dec 2020 that it had discontinued the economic-growth ‘compact’ with the government of Sri Lanka.

Approved in early 2019, the programme was intended to “reduce traffic congestion and air-pollution in Colombo and improved public transport for millions of Sri Lankans." 

The funding was also to have upgraded provincial roads, to help farmers get their goods to market, and provided secure land titles to smallholder farmers.

In a 17 Dec statement, the US Embassy in Sri Lanka linked MCC's change-of-heart to a “lack of partner country engagement”, adding that the funding would now be made available to other countries in need of grant funding.

However, a Nikkei Asia report described the MCC decision as an “apparent rebuke” for Sri Lanka’s recent, open-arms policy towards Chinese investors – citing Shandong Haohua as a case-in-point.

In December 2020, Sri Lanka’s board of investment signed an agreement with the Chinese company to set up a factory for the manufacture of tires, largely for export. 

With a first-phase annual capacity of 9 million units, the plant is due on stream within three years, manufacturing semi-steel and all-steel radial tires for trucks, buses and passenger cars. 

The $300-million project qualified for ‘strategic development’ support, within which the rubber industry is listed as a key sector targeted for inward investment. 

Under the strategy, Sri Lanka aims to double its rubber-related export earnings to $2 billion by 2025 – the Shandong Haohua project expected to contribute to meeting 30% of the target.

The project is also anticipated to create around 2,000 jobs, while also providing a stimulus for Sri Lanka’s domestic rubber industry.

As part of the deal, Shandong Haohua was offered 121 acres of land at Hambantota International Port – the first-ever foreign direct investment within the industrial park.