Japanese companies like Mitsubishi Corp. and Taisei Corp. are closing offices and canceling contracts in Sri Lanka as its devastating economic crisis makes doing business difficult.
Trading house Mitsubishi says it will close its Colombo office at the end of March, citing “changes in the economic environment.” The office was set up to gather information and to serve as a liaison with the headquarters in Japan.
The company handles engineering, procurement and construction for power plants and trades in steel and chemical products in Sri Lanka. Projects already in progress will continue and be managed by staff in neighbouring countries.
In March 2020, engineering group Taisei won a contract worth 62 billion yen ($462 million at current rates) for the construction of a four-story passenger terminal building, an elevated bridge and more for the second phase of the expansion of Bandaranaike International Airport near Colombo.
As the economic turmoil deepened, the Japan International Cooperation Agency stopped lending to state airport operator Airport and Aviation Services (Sri Lanka), drying up funds for the project. The engineering company is negotiating with the airport operator to cancel the project and is in the process of liquidating the project. It has apparently booked losses on the project.
“We will refrain from commenting on individual projects,” the company said.
JICA is not expected to withdraw funding for the airport construction itself and will likely look for another company to take over. Sri Lankan media have reported that a Chinese company was interested in the project, but the JICA loan is conditioned on participation by Japanese companies.
In addition to the country’s current-account deficit, Sri Lanka’s tourism industry, its main source of foreign currency, has been devastated by the prolonged effects of the coronavirus pandemic. The country went into default in May 2022. After Russia’s invasion of Ukraine, the cost of living increased, especially in prices of imported goods.
Mass protests triggered by the crisis forced President Gotabaya Rajapaksa, who had handed key government positions to relatives, to resign in July. Ranil Wickremesinghe, a former prime minister, replaced him and worked out a deal for a $2.9 billion loan from the International Monetary Fund, but its fiscal woes continue.