Financial Times

No development in Jaffna - chamber
For people in the south, the peace process has brought many dividends particularly the absence of killings, bombings and fewer security checkpoints. The opening of the A9 highway to the north has led to a mass flow of southerners visiting Jaffna to see how life goes on after years of strife. The business community in Colombo has also benefited by new trade opportunities in Jaffna.

However, M. Ramathasan, Chairman of the Chamber of Commerce and Industry of Yarlpanam in Jaffna speaks of the continuing frustration of the Jaffna resident and the plethora of broken promises by politicians, NGOs and business leaders in Colombo. "Nothing has changed here since the war. In fact the entry of Colombo business firms here has had a negative impact on our society," he says in this interview with The Sunday Times Business Editor Feizal Samath at his office in Jaffna.

Excerpts of the interview:
So far we have not received any capital investment or any development activity except donor-funded programmes like road construction, buildings and reconstruction.

International NGOs are involved in relief or humanitarian work even in the agrarian and fisheries sector which is good but is not going to generate any proper income for the people.

The only way to improve the income generating capability is to pump in more money in a big way in the agriculture or fisheries sector. These are the two main activities here. There is some agriculture extension services provided by the government but we are not satisfied with the level of competence and this needs to be handled to the private sector.

The agriculture department has brought equipment for soil testing which is very basic for agriculture but up to now they have not started that service. Once we were told they had not received the chemicals. The second time they said they have not received the technical persons. Some excuse is given and work doesn't get done.

The private sector should be encouraged to handle this activity. It reduces the work of the government and also makes it efficient. The same problem lies with the international NGOs. They always approach the government to handle a programme. Then when they find their (government) capability is weak, a programme is launched to improve and build the capacity of these institutions. So a lot of money is spent on this.

The UNDP did the same thing. They spent a lot of money to improve the capacity of the government secretariat and divisional secretariat. Now the GTZ has stepped in and says capacity is poor and wants to build capacity. A lot of duplication of work takes place. It's not possible to improve capacity because the system is such that there is no room for improvement. One of the ways of solving this problem is to channel this work through the private sector.

Is the private sector geared for development?
It is. We also have the resources. If there is an opportunity, the private sector would get into that sector. On the other hand we cannot compete with the state sector which benefits from subsidies.

About 18 month ago, lots of companies came from the south and promised trade and investment to improve the Jaffna economy. What happened to those promises?
Many came but few gave. At least six to seven big delegations with members from all the chambers visited. Some proudly even said they were the first to come and contact local business leaders and sought publicity for this achievement! The private sector felt it was a good opportunity to do business but finally they found out that was a small market. They wanted to maximise this market. They brought all their produce and dumped it here. It was moving because of the foreign remittances that comes into the area from expatriates.

Is this what Jaffna needs at this moment - FMCGs (Fast Moving Consumer Goods) like video decks, refrigerators, washing machines - or more prudent investments?
We didn't have this luxury stuff for many years. So it has become a fancy item, eye catching. People want them in their homes. The diaspora community which is visiting on holidays are destroying the attitude of the society because many people can't afford this.

These expatriates bring these luxury goods and keep them in their parents or relatives' homes. Then a neighbour wants to buy the same items even if that family can't afford it.

The copying attitude is common in this area. If you start a business and if it flourishes, immediately there are four to five people doing the same business. They don't study the market potential. They don't study the feasibility of a project. This is the attitude in Jaffna. The same applies to household activities.

The private sector is bringing the wrong mix of goods. The existing small industries also find it difficult to compete with products coming into this area.

Even small items like broomsticks and ekel brooms come from the south. The local industry has been destroyed by the flood of goods from the south.

Are these negative aspects from the ceasefire?
Yes. Self-employment activities are being ruined and small industries like jam and cordials have been affected badly. An international NGO some time back helped the local MPCS to set up small production units as income generating units. Now they too are unable to market their produce.

Profits generated by Co lombo business firms are also not ploughed into this economy. The only activity that's keeping the society alive is the construction industry. Lots of expatriates build their homes and there is hardly any unemployment in the construction sector. There is other construction too.

Construction by whom? Which agency?
These are undertaken by the state of school buildings, hospital etc. This is also unplanned activity. Donors are least concerned or bothered about the real needs of society. For example they reconstructed a hospital at Pandatherripu four years ago. Upto date its not open. It has a 12-bed ward, a 14-bed ward and a maternity ward.

Another new hospital built three years ago is now used as a storehouse. These are the things that negate the ceasefire.

So has anything changed in Jaffna?
On the one hand a lot of construction activity is going on. As a result raw material, cement etc has gone up disproportionately. A lot of money is also pumped into temple renovation by the Minister of Hindu Affairs T. Maheswaran. He is using this investment for political purposes.

The authorities have also embarked on a housing programme. There is a belief that the population of the Jaffna peninsula can take only 500,000 (the current number of residents) as its resources can support such a population and size. There were some 900,000 before the conflict began.

The existing housing is more than sufficient for this kind of population. Most of these houses are owned by expatriates or those living in Colombo. They don't want to rent it out as they find it legally complicated legally to get the house back. There are many houses that are unoccupied.

The owners don't need these houses and there should be a way maybe with the government acting on their behalf and leasing it and asking the tenant to leave if the owner needs it back.

The other problem in housing is the caste system where upper caste owners don't rent or lease homes to lower caste tenants. Politicians talk about eliminating the caste system but that is not possible. There are links in every sphere including trade. Unless we improve trade and raise living standards this problem won't be solved. For example the scavenging labour force still uses the same work process and patterns. We need to upgrade their work and raise their status.

Otherwise no one will respect them. This applies to the toddy tapper, the dhobi, etc. Another example of the ad hoc development is a new housing scheme of about 500 houses at Pompaiwadu and Kakkadi which are water-logged areas. It's going to be a headache for local authorities. When it floods they would have to move residents into schools and public buildings and feed them.

This was a Muslim area and a slum. Now they are creating another slum. Kakkadi is a barren land without water. They are targeting the poorest of the poor for these areas.

Has there been any contact or communication by the chamber with government agencies or groups to speed up development here?
We have made representations to Mr R. Paskaralingam (Advisor to the Prime Minister) and the Government Agent, Jaffna and highlighted our problems so that the authorities would understand the role of the private sector in future. I don't see any movement however.

Similarly, the Federation of Chambers of Commerce and Industry invited us to one forum and we have been represented at other meetings with government agencies.

The situation is getting aggravated but the authorities are not concerned about coming up with solutions or going about the right way in the development phase. For example the World Bank had been asked to support a project for 50,000 houses. The Bank asked the Jaffna Secretariat to consult our chamber. We told the officials that the construction industry is in a crisis with a shortage of manpower, skilled labour and raw material.

Hence we asked the Secretariat to postpone this activity and channel those funds to some income generating activity in Jaffna that would create jobs, incomes. Unless we start this kind of activity, the school dropouts, university graduates and those who have studied in technical colleges will some day leave this area. That's the only way for them to succeed.

Another problem in income generation activities are the markets. We are forced to pay LTTE taxes in the Jaffna peninsula and the Wanni and hence we can't compete with the rest of the country.

Is the LTTE rate of taxation high?
It ranges from 5 to 20 percent. For example, there is a charge of 20 percent tax on polythene (packing) material and 15 percent on construction material. Everyone has to pay this except some funded programmes like from the ADB where it is exempt. The exemption also applies to public sector projects. There is no tax on incomes but from time to time, the LTTE asks for lump sums from the business community in the form of a donation.

Even if this is happening, the LTTE should have a progressive form of taxation. If we bring in a machine, the tax is 10 percent. But if this machine is dismantled and brought into the region in parts the tax is higher at 15 percent. This is unfair because a dismantled machine will generate employment at least for one person here in assembling the machine. The tax should be the other way around because employment is being encouraged when parts of a machine are brought in.

What is the government rate of taxation?
Most businesses don't register with relevant authorities. Thus tax evasion is very high.

Do you have any plans or proposals on income generation activities?
We are working on this with some Colombo based groups and trying to come up with some proposals for unemployed youth from both genders. On the issue of proposals, such suggestions should come from the producers themselves not from some outside group or NGO - because producers know their markets better than outside experts.

For example there was a woman who was given a sewing machine through an NGO. Soon after the ceremony where these machines were donated, this woman while travelling home in a bus with the machine had sold it to another passenger before she got off!

That is the problem with NGOs. They don't have a clue about the target group. They have some pre-conceived ideas of how things should be done. There is no consultation with local people. They also have a limited range of products like garment industry, sewing machines or animal husbandry.
There are many things needed for day-to-day activity here. For example they can encourage small industry.

Any kind of benefit from the peace process?
The only benefit I can see is the opening of the A9 highway. However we still have the LTTE and the security forces at our doorstep while our politicians have failed us.

Even if civil society groups try to get involved in the peace process to raise the concerns and worries of the population, there is suspicion that they may belong to some interested party.

That is an unfortunate thing. For example two years after the chamber was formed in 1999, we made a request for Canadian government funds. We were told by the agency at that time that they had been watching our progress for two years as to whether we represented the interests of some group and not merely the business community!

There is another problem. International NGOs are paying high salaries for local staff and disturbing the whole wage structure here. Raw graduates are paid salaries starting from Rs 15,000 per month. We can't afford to pay such high salaries. Even CTB drivers are quitting their jobs despite pension benefits and joining NGOs.

Some NGOs have realized this and are changing things. The GTZ for instance has trimmed its staff to about 10 from 70 and is outsourcing work.

Has big business interests from Colombo helped in developing Jaffna?
There are many top business leaders who have promised many things but not delivered. There are five to six banks that have opened new branches here. What has been their contribution to peace building? Nothing! They come here to make money and sent the profits back to Colombo.

No funds are ploughed back into the region for the benefit of the people. The banks don't even take risks. They want 100 percent collateral. They don't look at the feasibility of a business and decide to invest in that project based on the feasibility (which is what happens in Colombo). They look at the political risk - not whether a project is genuine and can succeed.

We also have the "Wayside Consultant" syndrome. There are consultants who look at either side of the A9 - don't go deep into the villages and countryside - and make recommendations on projects and often these suggestions are accepted.

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