The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Transforming the disaster into a window of economic opportunity
The cost of the human tragedy that has overtaken us is enormous and incalculable. The economic consequences are still too difficult to estimate. That they are huge is beyond question. Do we as a nation despair or rise up to the challenge? We have no options. The challenge must be accepted and the devastating experience must be transformed into an opportunity for reconstruction not merely in economic terms but in moral and political terms.

The reconstruction should be used as an opportunity for the remodelling and modernizing of the devastated regions. The immediate concern is in the alleviation of the suffering of a million people by the provision of shelter, basic amenities, medicines and food. This phase needless to say would occupy several months, considering the widespread area of disaster. Then the economic reconstruction must begin in earnest. So far the country and the international community have been preoccupied with the reconstruction of the North and East of the country ravaged by the prolonged war. Now it is a devastation of the South, North, East and the Western coastal belt. The economy has received an enormous blow.

The economic devastation is of several layers. First there is the dislocation of economic activities, like farming, fishing and industry. Transport and communications no doubt have been worst affected and would in turn affect industry, particularly the export industry. The devastation of roads and railways would have a serious impact on production and exports. The reconstruction of economic infrastructure would be the costliest, most difficult and likely the most protracted.

There is the urgent need to provide for housing and drinking water to enable people to resume their normal lives. There cannot be a complete return to their previous life and work routines. Yet every effort must be made to enable them to earn their livelihoods and contribute to the productive capacity of the country as soon as possible. Particularly hard hit is the country’s fishing industry. In the last two decades, we have been somewhat accustomed to the paralysis of the fishing industry in the Northern and Eastern waters. Just as the revival of fishing in this area was occurring a more widespread disaster encompassing nearly the entirety of the fishing community in the Island has occurred.

The destruction to the fleets of boats on both the western and eastern coasts is nearly complete. The costs of repair and restoration of these as well as of new boats, motors and fishing gear would indeed be a massive investment. A quick plan for the reconstruction of the fishing industry would have to be put in place very early. Such a plan, as in many other areas of the economy, must attempt to more than restore the industry. It must modernise the fisheries industry and enhance its productive capacity.

The other most hard-hit industry is the booming tourist industry. The year, in which we reached the highest tourist arrivals and foreign exchange earnings, ended with the worst destruction. Many large hotels have been flattened to the ground, others in various levels of devastation. It is a double blow. On the one hand, the repair of the hotels and accommodation would be an enormous capital cost, while on the other hand it has to be undertaken in a bleak year for tourism. No doubt both the lack of accommodation and the fears generated by the devastation would mean that there would be a huge dip in tourist arrivals not merely to Sri Lanka, but to the region as a whole. Once again a carefully thought out plan for the reconstruction of the tourist industry has to be put in place. The industry must develop a resilience of its own and the government and the financial institutions would be required to be of assistance.

Agriculture may seem less affected. This is only partly true. Inland agriculture is damaged little. Tea, rubber and many food crops in the hinterland have not been affected. On the other hand, paddy cultivation especially in the North and East would be seriously impaired and the next Maha Paddy crop will see a further decline. The areas in the East are about the most productive paddy fields with yields rising to around 10 metric tonnes per hectare compared to the national average yield of 3.9 metric tonnes per hectare. It is not only the immediate destruction of crops, but also the effect of the tidal waves on the soil conditions that would affect paddy cultivation adversely.

The danger of salinity in the soil remains the latent threat to the cultivation of these paddy lands. Some of the vegetable cultivation in the North is also likely to be impaired by the destruction. Some coconut areas are also affected by the winds that brought down productive coconut trees. These are only some of the economic consequences of the tsunami. Initially the effort would have to be to save lives, prevent epidemics and mass deaths, provide shelter, food and drinking water. This phase of rehabilitation has to be followed by the longer phase of reconstruction. The reconstruction of the devastated areas should not be a mere restoration of the damaged areas. It is an opportunity to improve living conditions of people, plan the townships and villages, relocate homes in less vulnerable areas, improve housing and sanitary conditions and upgrade the road and rail network. No doubt the enormity of the reconstruction effort is so massive that it has to be a sacrificial effort of the entire community supplemented by generous assistance from foreign countries and international organisations. If the reconstruction of the North-East required US$ 4.5 billion over three years, then the reconstruction of the extensive area of disaster would need a much larger sum.

The enormity of the challenge requires a very large-hearted and sustained response. This is a national challenge and opportunity for people and politicians to act without distinctions of political, religious or ethic discrimination. It is time for a national government to mobilise resources for reconstruction. If those in power on both sides of the political divide are unable to work together at this time of grave national crisis, they must give way to a new leadership that can. Civil society must press for a national effort overcoming partisan differences. Can we transform this massive disaster into a new opportunity for political and economic consolidation and development?

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