Sri Lanka’s war-torn North has only 23 Board of Investment (BOI) companies, just one of which is funded by the diaspora, the lowest number of industrial enterprises in the country and an industrial sector growing far slower than the national average, a new report reveals. In the ten years since fighting ended, employment creation has [...]


Only one BOI project in the North funded by Diaspora, says report

Highlights: Slow industrial growth, low incomes, soaring indebtedness, more suicides, poor child nutrition levels

Sri Lanka’s war-torn North has only 23 Board of Investment (BOI) companies, just one of which is funded by the diaspora, the lowest number of industrial enterprises in the country and an industrial sector growing far slower than the national average, a new report reveals.

In the ten years since fighting ended, employment creation has also not met demand while the Mullaitivu and Kilinochchi districts record the nation’s lowest monthly incomes. Indebtedness has soared. There is an increase in suicides and attempted suicides. Child nutrition levels have plunged and women’s participation in the labour force is well below the national average, says the Master Plan for an Economic Development Framework for the North, launched on Friday.

The report–which was prepared over eight months–is described as a “realistic and dynamic tool to create a blueprint for future long-term growth and development” in the North up to 2030. A ten-member committee led by Central Bank’s Kilinochchi region manager B. Sivatheepan, worked voluntarily from February to August 2018, analysing five sectors: agriculture, industries, services, and social and physical infrastructure.

The committee was set up at Central Bank Governor Indrajit Coomaraswamy’s request. One of its recommendations is to set up a Northern Planning Bureau for long-term strategising and coordination on the unmet specific needs of a war-torn society. These include sustained funding for development; growing of the labour market to increase employment; management of natural resources; and monitoring of development outcomes.

The Government’s post-war reconstruction strategy had hitherto focused on building infrastructure such as road, expanding lending to promote self-employment and encouraging private-sector investment. But expectations were not met.

One reason for this was that such initiatives did not enhance productivity of small-sized producers and organisations. Existing skills and capacity were not built upon. The fragility of people emerging from a protracted war was also not adequately addressed. Finally, the reconstruction strategy lacked direction, was not holistic, was insufficiently coordinated and carried out with a project-based mind-set, the report says.

Any new development model should put monies into existing and new small-scale producers and industries to improve productivity, the report recommends. It must be labour-intensive to get as many people into safe, secure and regular work as possible. It must make extensive use of land and natural resources and be “agriculturally-led”.

It must also support medium-term efforts for those able to take greater risks and move into higher value markets, including exports, and it should be dispersed fairly across the Northern Province and among different population groups to ensure that regional and gender disparities are reduced.

The committee particularly calls for investment in agriculture to achieve household resilience and food security. It calls for a focus on development of small industries that use local resources, including agro-based processing for value addition, crafts, light manufacturing and renewable energy. It espouses a services sector that meets local needs in areas such as financial services, public transport, care and water and sanitation.

The long-term viability of IT and tourism should also be explored further, assisted by experienced firms from the South.

The North is dominated by small-sized economic actors. They include smallholder farmers, small-scale fishers and small industries, businesses and co-operatives. When they were suddenly re-integrated with the market in the rest of the country, most of these uncompetitive producers lost out. Development initiatives then either omitted them or insufficiently catered to their transformation needs.

Aid actors tried to jump start production by introducing sophisticated technology in selected industries or promoting the establishment of new businesses. These were largely unsuccessful because of a lack of understanding of the existing institutional capacity and skills within the region.

The war caused money to flow and technology as well as a highly educated and skilled workforce to fly out from the North, the report observes. There was then not enough working capital for small businesses. There was also an inter-generational vacuum of skills, experience and mentorship to be able to run such operations.

A stark example of this, the committee points out, is seen in the resurrection of Atchchuvely Industrial Estate–costing Rs 210 million in 2013–with the hope of attracting 16 medium-scale industries. As of July 2018, only a few industries are present, of which most are only partially operational.

People will continue to flow out of the North, if there is no concerted effort to increase both the quality and quantity of work opportunities, the committee warns. A fifty percent increase of departures for foreign employment from the province was reported from 2011 to 2016, with a peak annual figure of 12,642 in 2014.

Prosperity amid agriculture boom Once upon a time…
In Jaffna, where much of the Northern Province’s people lived, smallholder farmers’ intensive cultivation of cash crops such as red onions and green chillies for Southern markets during the import substitution regime and intensive fishing for domestic consumption and exports, led to an agricultural boom.

This accumulation during the 1960s and 1970s was reflected in increased social mobility such as cement houses for the lower-middle classes in rural Jaffna, strengthening of consumer and producer co-operatives and urban development of Jaffna and many small towns in the peninsula. State corporations producing cement, salt and chemicals; small industries nurtured by the state including in the Atchchuvely Industrial Zone; and a textile industry built by the co-operatives, led to the emergence of a small industrial sector mainly located in Jaffna with a limited worker base.

The transport of seafood, cash crops and textiles were facilitated by road and train service linking Jaffna to Colombo and other national trading centres. In the war decades immediately prior to the war, the North was characterised by outstanding educational institutions, a prosperous class of professionals, a booming agricultural economy and a nascent industrial sector.
The escalation of the war disrupted this socio-economic trajectory with out-migration of youth and the professional classes to Western countries. Eventually, mass migration and internal displacement led to considerable depopulation of the North.

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