Resurgence in Northern GDP growth

Rohantha Athukorala

*Northern GDP grows by 14.1 percent to 159 billion

*Eastern GDP grows by 14 percent to 281 billion

*North Western GDP growth at 12 percent to 232 billion

*Per capita income increase to 134,000 in North and 183,000 in East

I had the opportunity of working at the highest level in driving economic policy/implementation in 2007 when serving the Government on a full time basis.

Last Saturday when one of the newspapers flashed the Economic growth indicators of 2008/9, it gave me a lot of joy to see the numbers of the Northern and Eastern provinces.

It meant that the programs like Uthuru Wasanthaya and Nagenahira Navodaya together with the private sector initiatives were bringing in the results.

May be the real impact of these efforts will come in 2010 as per my analysis.

The Northern Economy has grown by 33.4 percent in 2008 and 14.1 percent in 2009 which is reflective to the resurgence of this one time fragile economy where at one time the fisher folk could not go out to sea due to the security situation around the peninsula.

The Eastern Province had grown by 32 percent in 2008 and 14 percent in 2009 once again due to the strong growth in the agricultural sector and fishing industry.

I guess the real positive impact of the post war dividend will come in 2010 when the infrastructure has been developed to facilitate the fisheries trade with landing sites and anchorages whilst the agricultural sector will have a strong impact with the private sector getting involved with modern technology initiatives like drip irrigation from the manual irrigation that naturally drives up productivity.

I remember the first industrial exhibition that we staged in Jaffna in December 2008, during the height of the ground operation in the Vanni. Many were skeptical if this will become a reality given that land transport was not possible due to the war along the A9 road from Omanthai to Muhamalai.

But what we saw was that the private sector was waiting to be unleashed in Jaffna and 168 companies took part at the Industrial Exhibition which attracted 304,000 people from the Jaffna peninsula defying the call from the LTTE to boycott the event.

Within two months there were 47 companies that started doing business in Jaffna and the South realized the potential that the Jaffna peninsula had for consuming the products and services that the rest of the country manufactured. Today we have all the banks having branches in the North whilst consumer durable companies are driving penetration of white goods and TVs.

All fast moving consumer goods businesses are building brands with the 300,000 new consumers that are moving back to their place of residence with the new found peaceful environment.

The biggest challenge now is how we can make the North and East to contribute to 20 percent of the GDP in the years to come.

There is a one point that needs to be highlighted. There is a myth that the North and East economy grew only during the ceasefire period of 2002 to 2004.

However, research data reveal that even during the time periods of 2005 to 2007 the economic activity continued to be sustained with the strong intervention of the Government. The Northern economy grew by 12 percent and the East economy growing at a 13.3 percent.

In the post tsunami time period of 2005 to 2007, the overall economy continued to grow this was mainly due to the post tsunami reconstruction which is reflective of the GDP increase in the Industrial sector.

The agricultural sector had actually declined by almost a 10.3 percent due to the fisheries sector declining in volume by almost twenty thousand tons.

This was due to the restriction in fishing as the country had to be on high alert with the LTTE war on the coastal belts of N and E.

To be very specific the agricultural sector includes the sub sectors of paddy, fisheries and other crops and the 10.3 percent decline in the 2005 to 2007 time periods in the NE was due to the fish production dropping from 56,000 metric tonnes in 2004 to 15,000 metric tonnes in 2007 while in the East in 2002 the production of 72,000 metric tonnes in 2005 had dropped to 22,380 metric tonnes. But with the liberalization of this area from the LTTE we see that this sector has naturally recovered and the overall growth catapulting in the North and East.

The Government’s Eastern Development Program under the ‘Neganahira Navodaya’ has invested almost a Rs 75 billion into various sectors in the East from 2007 onwards and a further Rs 121 billion is being invested in 2010.

It is also reported that paddy production increased to 717,869 metric tonnes at a growth rate of 4.1 percent and maize out put increased to 17,655 metric tonnes. The fruit sector has increased to almost 26 tonnes with 511 beneficiaries and 48,275 plants being issues as per available data under the program in 2007/8. The post-tsunami infrastructure and housing reconstruction led the boom in the industrial sector in the North and East contributed to the catapulting of the Industrial sector to a 32 percent growth which is encouraging.

From the 2008/9 data, what we see is that the fisheries sector has come back to its normal level and hence the overall economy is in the balance.

The reason for this balance is because in Jaffna alone there are 4000 fishermen and with the no security restrictions now, livelihood development has started to take place thus driving consumer demand for household products which means things are getting back to normal from an economic perspective.

Jaffna - the opportunity

With liberation of the Northern area from the LTTE in May 2009, a stronger insight began to emerge of the heartland of the war Jaffna. The population now is around 559,619 people as per the 2007 special census that was carried out.

Those who are below 18 years are as a staggering 188,999 youngsters which gives us an indication of the purchasing power of products such as cosmetics and mobile phones.

In household terms, the number is around a 130,000 but a key point to note is that way back in 1983 the population was around 1.5 million.

Almost seventy five percent of the Tamil people that have migrated from Sri Lanka are estimated to be from the Jaffna peninsular.

Hence the opportunity that exists for the private sector is that the 130,000 households have a higher disposable income than an average family in the rest of the country given that diaspora remittances keep coming into the country via these 130,000 households.

This means that the per capita household income of a typical Jaffna household can be way above the national average. There are around 2130 retail outlets in the Jaffna peninsula with almost a 900 of them in the Jaffna town which gives us an indication of the sales force strength that this geographical area will require.

It also tells us the branding opportunities that exists for fast moving consumer goods organizations.

The companies that have moved into the Jaffna peninsula after the first Industrial exhibition have secured the first mover advantage and now have penetrated the 130,000 households successfully.

The most effective are the consumer durable companies like Abans and Singer while even motor car companies with brands like Maruti has made major in roads in this market. We also see that all retail banks have got their tentacles into these cash rich communities which are welcome signs. But the challenge is to use these funds to develop the North and not else where around the country.

Now that the Vanni is open for business let me share with you the reality in this part of Sri Lanka. As per the 2002 agricultural census, almost 58 percent of the 164,000 agricultural households in the Northern Province were households with less than 0.1 hectare of land which is essentially in the back garden.

Vanni - the reality

They grew a few trees, a couple of vegetables in this land with around two milch cows and goats and some households had around ten poultry. To keep the home fires burning in 2007/8 the main income earner engaged in fishing or some other work in neighbouring farming lands.

This gives us an idea of the lifestyle of a typical consumer from a marketing point of view. It also tells us the brands one would require.

The challenge is if we want this to be the standard of life of the returning people or are we as a nation want to move them to the next generation of mainstream economic activity that the East has been developed to, by the private and public sector joint partnership.

The challenge now is to strengthen the administration structure in this part of the country so that the private sector can engage in the village for network development.

The health and sanitation level needs to brought to standards on par with rest of the country.

Move to the next generation

The distribution network needs to be set up so that consumer purchasing takes place together with the private sector business opportunities which will stabilize the demand cycle. Companies must also set up businesses in Kilinochchi to help drive livelihood development in this area. The business that existed in the agricultural domain was major crops like paddy, kurakkan and maize. Pulses (green gram, black gram and cowpea). condiments and vegetables (chilli and red onions) oil crops (ground nuts and sesame) root crops and cassava and yarn fruit crops (Banana, mango,jack, lime and grapefruit) which can be tied up to the Cargills and Keells super market network. This will have a major impact on the pricing given the supply chain development that will come in with private sector intervention.

I would strongly recommend a brand called ‘Peace Collection’ be launched for produce out of the Vanni just like what the world saw in Rwanda’s post conflict.

A point to note is that paddy production was above the national average in Kilinochchi, Mannar and Mullaitivu districts sometime back which means that rice mills need to be introduced with a strong market and logistical network which can be private sector led.

Similar strategies can be implemented in the fisheries sector and tourism as the Vanni is surrounded by the sea route access.

Next steps

1) Industry specific geographies

The private sector must work with the Government to develop industry specific geographies so that we can move.

This area to a next generation economy. The benchmark will be India where we see Pune is developed to focusing on automotive trade, Thimpa for textiles and Calcutta and Chennai for leather. A similar model can be developed in the Vanni in my view.

2) Community based programs

Just like in Ampara the 400 km road development program and Waste Management strategy, similar program can be implemented in the Vanni so that employment is also provided with skill development.

3) Vocational training institutes

As mentioned before the next generation value chain investment must take place such as rice milling, ice plants, cooling rooms, skill development vocational training, fish net manufacture and logistical chain facilities.

The vocational training institutes must be set up as planned in Kilinochchi, Mullaitivu and Vavuniya which will help develop capacity in these areas and also provide livelihood development.

4) Retail branding

Here the branding opportunities in the retail outlets, hoardings and consumer sampling will have to happen so that the brands in the other parts of the country can be cascaded to the Vanni and find its way into the households.

5) Profiling the Vanni consumer

In order for more focused engagement of the private sector a research study will have to be done so that the consumer in the Vanni can be profiled and mapped based on the unique lifestyle of a consumer.

6) Knowledge city - Jaffna

The number of schools in the Jaffna peninsula is equal to the number of schools in Colombo but the issues that need to be addressed are the requirement of trained teachers.

I strongly feel that Jaffna can be Sri Lanka’s first knowledge city with BPO’s with the well educated youth in this area.

Achchuveli Industrial Zone

After the investment conference that we staged in January this year and 15 companies having been identified to be set up in the Achchuveli Industrial zone. This development must be fast tracked.

The good news is that four apparel companies have also agreed to set up factories there. May be at least if the first phase of developing 25 acres is done it will help change the landscape of Jaffna.