Financial Times

Econ boom in the north soon

But govt must cut overall spending
By Dilshani Samaraweera and Duruthu Edirimuni Chandrasekera

Sri Lanka’s northeast region is set for a mini-economic boom in coming months – once the LTTE-freed north is cleared for take-off – with the private sector preparing for huge investments to make up for years of lost opportunities.

However, amidst this buoyant mood, economists are urging the government to cut down wasteful expenditure as overall revenues are down, and managing external and internal finances are crucial in the current global recession.

“The government estimated a revenue increase of Rs 200 billion this year but given the current situation, this is a highly unrealistic. This is because the government’s revenue comes from taxing export agriculture, services and industries. Because external demand has dropped, due to the global recession, these sectors will earn less and therefore, government revenues will be less, not more. But government expenses will definitely increase hugely. The government will have to spend on emergency aid, rehabilitation and reconstruction. So although the war is over, the expenses will actually increase,” said senior economics lecturer at the Colombo University, Dr Sirimal Abeyratne.

The private sector is gearing for huge investments in the northeast as consumer demand increases and new markets open particularly in agricultural products and household consumer goods. “In my estimate the North and East accounts for about 20% of Sri Lanka’s total financial market. Even during times of war, the North and East received large amounts of inward remittances. So now, the North and East will generate new opportunities for all businesses,” said the Chairman of Commercial Bank of Sri Lanka, Mahendra Amarasuriya.

The Bank is looking at expanding its activities in that region. “We intend to increase our branches in the North and East within the next few months, when the resettlement process begins. Later, when agricultural production starts, the demand for banking services will increase,” said Mr Amarasuriya.
Businesses also are being encouraged to work with the government in the rebuilding process. “The private sector should take over some of the burden from the government. Businesses can work with the government to coordinate and monitor the rehabilitation process. Each company can take over one small village and help the government implement the resettlement process,” said Mr Amarasuriya.

Jetwing Hotels said they are looking at hotels in the East. "We have got about three inquiries from foreign investors who have expressed interest in building in the East. We might be teaming up for some of those projects," Hiran Cooray, Managing Director Jetwing told The Sunday Times FT.

Pravir Samarasinghe, Chief Operating Officer, Richard Peiris Group said the company has already started its retail distribution in the East covering Batticaloa, Amparai and Trincomalee. "In Jaffna and Vavuniya we have started distributing," he said, adding that no sooner the cleared areas become available, Richard Peiris will venture there. "We had temporarily closed a plant in Polonnaruwa which we will open to cater to the demand in the northeast," he added.

The Softlogic Group has got inquiries mostly on distribution, retailing and telecommunications. "The government is offering land there for development. We will be looking at hotels, in this regard," said Ashok Pathirage, Chairman Softlogic. He said that Softlogic is also actively looking at starting a private hospital in the North.

John Keells Holdings (JKH) Investor Relations team said in a statement that its investments in Sri Lanka in city and resort hotels, property, ports and logistics, financial services, and consumer foods and retail would all benefit from the (overall) upsurge in economic activity.

Economist Dr Abeyratne says the government would have to sharply reduce spending. This means cutting down over-staffed, unproductive departments, saying ‘no’ to subsidising loss making state enterprises, targeting welfare schemes better and overall downsizing of government.

“The government is now in a very strong position and can tell the people that it has to make these changes. In the long term, these painful changes will strengthen the government’s traditionally weak financial position,” he said.

Trade and business chambers are also getting into the act and preparing for the expected boom. “We are helping the private sector to move into these areas and we are linking producers from these areas with markets in Colombo. In Jaffna and in the East, we are providing vocational training,” said the President of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL), Kosala Wickramanayake.

The member chambers of FCCISL in the North and East and adjoining districts, have also developed a plan to build micro and small enterprises in their areas. The plan also looks at reintegrating people affected by the war including ex-combatants, returnees, host communities, women-headed households and young people.

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