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Contemporary South Asia
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Sri Lanka: putting entrepreneurship at
the heart of economic revival in the
north, east, and beyond
Muttukrishna Sarvananthan a
a Point Pedro Institute of Development, ‘Maanicca Vasa',
Thambasetty, Point Pedro, Northern Province, Sri Lanka
Available online: 30 Jun 2011
To cite this article: Muttukrishna Sarvananthan (2011): Sri Lanka: putting entrepreneurship at the
heart of economic revival in the north, east, and beyond, Contemporary South Asia, 19:2, 205-213
To link to this article: http://dx.doi.org/10.1080/09584935.2011.565313
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VIEWPOINT
Sri Lanka: putting entrepreneurship at the heart of economic revival in
the north, east, and beyond
Muttukrishna Sarvananthan*
Point Pedro Institute of Development, ‘Maanicca Vasa’, Thambasetty, Point Pedro, Northern
Province, Sri Lanka
Economic growth at the national level in Sri Lanka in the past few years has been
largely state-led. Similarly, economic growth in the formerly civil war-affected
northern province has also been largely state-led (including mushrooming
military enterprises) during the past two years after the end of the civil war.
This author is of the view that individual and corporate entrepreneur-led growth
strategy is the appropriate strategy to revive the national economy and the
formerly war-torn regional economies. Moreover, current military peace should
be transformed into civil peace in the former war-torn areas.
Keywords: entrepreneurship; military enterprises; military peace; post-war
economy; Sri Lanka
Introduction
Entrepreneurship is about putting ideas into action. It is the function of scientists to
invent and entrepreneurs to innovate. Whereas scientists invent (or dream of) ideas, it
is the entrepreneurs who materialise those ideas into consumable products
(innovation), i.e., tangible goods and intangible services. In this opinion piece I am
going to spur your minds with the power of ideas as opposed to the power of numbers.
In the first four months of 2010 Sri Lanka went through the ritual of Presidential
and Parliamentary elections. As usual, Sri Lankan politicians have outperformed
each other with facts and figures about what a marvellous country we live in (or lack
thereof) and how they are going to make Sri Lanka an even better place to live in.
For both the governing party as well as the main opposition party economic
development would be the heart of government. I have no disagreement with putting
development at the heart of government. My disagreement is with the ways and
means of spurring economic development that were propounded by both the main
political parties in the country in the aftermath of the civil war.
It is not only the government (politicians as well as bureaucrats) that lacks
innovative ideas to unleash the full potential of the Sri Lankan people; our
development partners (bilateral and multilateral donors) and non-governmental
organisations as well lack innovative ideas to rebuild a war-torn economy by
learning from the experiences of other countries that have undergone such a phase.
*Email: sarvi@pointpedro.org
Contemporary South Asia
Vol. 19, No. 2, June 2011, 205–213
ISSN 0958-4935 print/ISSN 1469-364X online
Ó2011 Taylor & Francis
DOI: 10.1080/09584935.2011.565313
http://www.informaworld.com
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In spite of recording the second lowest growth rate (3.5%) in the past decade
(2000–9) (the lowest being in 2001: –1.5%) and third lowest growth rate in South
Asia (after the Maldives 73% and Pakistan 2%) in 2009 and other macroeconomic
vulnerabilities, the prospects for the Sri Lankan economy are good (Sarvananthan
2010). The end of the protracted civil war and a stable government with an invincible
majority in parliament has removed two structural impediments (i.e., political and
security) to economic take-off in Sri Lanka. However, what are lacking are a robust
growth strategy and an optimal policy framework to implement the envisioned
growth strategy (Sarvananthan 2009).
1
Despite a high intensity civil war, Sri Lanka’s growth in quantitative terms is
remarkable in comparison to countries under similar circumstances. However, the
quality (or the source) of such growth is the cause for concern. In 2009,
Afghanistan’s growth rate of 15.1% was the highest in South Asia and one of the
highest in the world (in fact, in the past several years Afghanistan has recorded
double-digit growth rate annually). However, foreign aid accounted for 40% and
poppy plants and opium trade accounted for another 40% of the Afghan economy
(Schramm 2010: 96). Is this the kind of economy that would secure Afghanistan
from war and poverty? It is imperative, especially in war times and post-war times, to
look beyond the numerical rate of economic growth and identify the source/s (or
quality) of growth to determine the success or otherwise of the economic model/
strategy pursued.
Sri Lanka’s growth during times of war has been largely fuelled by the growth of
the public sector; both the civilian public administration and the security forces.
That is, the increase in the number of personnel in public services and frequent pay
rises to public sector employees were the main sources of economic growth between
2005 and 2009 (for statistical evidence, see Sarvananthan 2008). Productivity in the
public sector is too low and the cost of the public sector is too expensive. The total
public debt has almost doubled between the end of 2004 (LKR 2140 billion) and end
of 2009 (LKR 4161 billion or 86% of the GDP) and the budget deficit was almost
10% of the GDP in the fiscal year 2009. Politicians and bureaucrats who brag about
doubling of per capita income between 2004 ($1100 per year) and 2009 ($2100 per
year) never point out the doubling of public debt during the same time period.
2
Thus,
the doubling of the per capita income is borrowed growth and not earned growth.
Moreover, the bulk of the rise in public expenditure was for public consumption
rather than public investment. Public expenditure-fuelled growth is wealth diversion
as opposed to wealth creation.
In the same way as the economic growth strategy at the national level, the
government’s post-war economic revival strategy both in the east and north has been
overwhelmingly based on government-funded projects with majority financial
contributions from bilateral and multilateral donors. For the four-year period
2007–10, the budget provision for the Eastern Reawakening Programme (Nagen-
ahira Navodaya) was a total of LKR 197 billion ($1.75 billion); 52% of this amount
was to be financed by foreign aid, nearly 30% by the Government of Sri Lanka
(GoSL), and the remaining 18% by the private sector. Similarly, the development
programme for the north (Uthuru Vasanthaya and other projects) has been
earmarked a total sum of LKR 7 billion ($64 million) thus far (foreign funding
accounting for 40.5% and the rest by the GoSL) (see Kelegama 2010, 24 and 28).
At both the national and regional levels there is a heavy emphasis on
government/donor-funded and government-driven development strategy, which is
206 M. Sarvananthan
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a cause for concern because of the limited fiscal space available to the government,
low (or less than optimal) productivity of the public sector, and the perpetuation of
dependency on foreign donors and the non-governmental sector for delivery of
goods and services to the people. Now let us look at some of the economic activities
undertaken by the government in the north, which could be more productively and
profitably done by individual and/or corporate entrepreneurs in those regions.
Businesses of the government
Passenger transport
The end of the war in May 2009 and the subsequent opening-up of the A9 highway
have created opportunities for individual entrepreneurs and private transport
companies to operate passenger and cargo transport services to and from Jaffna and
other towns in the north. In the earlier stages, the government monopolised the
passenger transport services through the use of Sri Lanka Transport Board (SLTB),
which is a perpetually loss-making state-owned enterprise. Since the beginning of
2010, private bus operators have been allowed to operate bus services to and from
Jaffna, alongside the government bus service.
The inter-city bus services operated by the SLTB have curtailed the local services
within the Jaffna peninsula and other major towns in the north, because hardly any
new buses were made available for the new routes. Curtailment of local bus services
has restricted the mobility of people and goods to the local markets, thereby stifling
economic growth.
Leaving the passenger transport sector entirely in the hands of the private sector
could have created new entrepreneurs in the formerly war-torn areas and provided
new employment opportunities to local youth, the most vulnerable group in the
population. Furthermore, it would have reduced the losses made by the SLTB and
thereby contributed to reduction in public expenditure and public debt.
Hospitality trade
The proposed three-star hotel construction in Nallur (a suburb of Jaffna town) by a
state-owned financial institution (Mercantile Bank of Sri Lanka, a subsidiary of
state-owned Bank of Ceylon) is another blow to aspiring private enterprises in the
formerly war-torn areas. It is doubtful whether MBSL is competent enough to
manage a commercial venture in the hospitality market.
Instead of undertaking to build the hotel itself, MBSL should have called for
expressions of interest from private entrepreneurs in the country and the diaspora to
build and operate the hotel. State-owned enterprises are not only a burden to the
economy and the tax-payers, but stifle private entrepreneurship by diverting public
financial resources.
Military enterprises
Food and beverages
Another folly of the government is to let the army establish and operate tea
boutiques, snack bars, food stalls, barber saloons and other such businesses, along
the A9 highway (from Omanthai to Mirusuvil) to cater to the passenger traffic in
addition to the armed forces personnel stationed in these areas.
3
These military
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enterprises are copycat versions of restaurants and lodges run by the Liberation
Tigers of Tamil Eelam (LTTE), which controlled these areas during the period of
ceasefire (April 2002–August 2006). Thousands of passengers travel daily along the
A9 highway in both directions. It would provide a good business opportunity for
people living along or near the A9 highway to set up food and refreshment boutiques
to serve the passing traffic.
Instead, the bulk of those refreshment boutiques are run by the Sri Lanka Army
(SLA) and a few, in places like the Murukandy temple area, are run by local multi-
purpose cooperative societies (MPCS), which are perpetually loss-making local
government welfare shops (the exception being a private entrepreneur from the
Southern Province, who built a hotel and restaurant in the vicinity of the
Murukandy temple). The income earned by these army and cooperative society
boutiques hardly contributes to economic growth or generates new employment in
those remote areas. In addition, it unnecessarily diverts the valuable time of the
armed forces personnel and cooperative society personnel to this mundane
occupation. Public service personnel are not paid by the government to prepare
and serve tea, coffee, snacks, or meals to passing travellers. Their salary is much
higher than that which would be required for such a job. Therefore, it is an economic
loss to the government and the country.
Alternatively, if the local people who have returned from welfare camps and
resettled in their place of origin (or nearby) were allowed and were provided with the
appropriate loan facility to undertake these businesses, more jobs would have been
created. This would have boosted the incomes of their households, and increased the
money circulation within the local impoverished communities. Individual entrepre-
neurs from outside those areas could also be encouraged to set up roadside boutiques
to serve the passing traffic, which would have boosted the local economies. Of course, a
few returnees have put up makeshift boutiques to sell soft drinks, biscuits, chocolates,
and other refreshments along the A9 highway. However, they should be encouraged
and provided with the facilities to put up bigger and better shops.
As an aside, the mushrooming military enterprises have also become a nuisance.
For example, there is unlawful tapping of electricity to power the aforementioned
military enterprises in the north; narcotic drugs and prostitution are said to be
‘unsavoury entertainments’ in these establishments; and the army stationed in the
north (particularly in Jaffna) is facilitating informal pavement hawkers from other
parts of the country to trade in the urban areas of the north, flouting local
government regulations and bypassing local authorities. In other words, security
forces are directly and indirectly involved in breaking the law, abusing public
property and undermining democratic governance at the local level.
Domestic air transport
Since the 24-hour opening of the A9 highway in the first week of January 2010, the
market for air travel to and from Jaffna has dropped dramatically. This has paved
the way for the Sri Lanka Air Force (SLAF) to monopolise domestic air services
through its commercial wing, Helitours, thereby driving the private sector out of the
domestic air travel and freight markets. These developments are not conducive to
curtailing public expenditure or promoting private enterprises.
I doubt that domestic air transport to and from north and east is commercially
viable given the current policy framework and cost structure. If this is so, why should
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the SLAF be made to incur losses? Instead, I would suggest that larger private
budget airlines should be encouraged and facilitated to operate the domestic air
passenger market. With the upgrading of the Pallaly airport in Jaffna, not only
domestic air travel, but air passenger services to India, could be resumed (services
that were in operation until the late-1970s and were provided by the erstwhile Air
Ceylon).
Military peace
The oversized military has become a burden to the Sri Lankan economy. Sri Lanka
has one of the largest armed forces per capita and defence expenditures per capita in
the world, and certainly the largest in South Asia. According to the Secretary to the
Defence Ministry, there are about 450,000 persons in uniform (including air force,
army, navy, and police – including civil defence force and special task force –
personnel)
4
for a population of 20.653 million, which works out to be one armed
person for every 50 people in the country. Further, the earmarked Defence Ministry
budget for 2011 is $1957 million (LKR 215.2 billion), which works out to be $94.7
(LKR 10,417) of defence expenditure per person per year. Moreover, every member
of the armed forces (including the police) on average costs the exchequer $4,348
(LKR 478,266) per year, which is significantly higher than the average cost of any
other public sector personnel. Furthermore, 94% of the earmarked defence budget
for 2011 is for recurrent expenditures and only 6% is for capital expenditures; which
means that defence expenditures cannot be curtailed without cuts in the armed forces
personnel (see also Sarvananthan 2004).
In this scenario, it is pertinent to ask whether the security forces provide value for
money. Is the large army necessary in the post-war context? Is there any reduction in
crimes due to the large presence of armed forces personnel? in fact, Sri Lanka
recorded much lower volume and intensity of crimes in the pre-civil war times (pre-
1983), than at present, when the total number of personnel in the police and armed
forces corresponding to the total population at that time was a minuscule compared
to the current number.
There seems to be an acute underemployment of armed forces personnel (except
police) in the current post-war time, which is reflected in deployment of armed forces
personnel to bizarre activities throughout the country. Army personnel are deployed
to cultivate agricultural crops in state lands (and sometimes abandoned private
lands) adjoining several army camps throughout the country.
5
In January 2011 army
personnel were deployed to sell vegetables in Colombo city and the suburbs at cost
price in order to placate the urban population, which is burdened by rising essential
food prices. Army personnel are also constructing a Buddhist temple in Mankulam
by the A9 highway in the north (they have also reconstructed a couple of damaged
churches in war-affected areas), and are supervising road works done by the
Colombo Municipal Council workers in the city of Colombo.
6
The Army has started a travel agency in Colombo to sell air tickets to its own
personnel (and their families) as well as ordinary people in March 2011. The Navy is
hiring its luxury troops’ carrier for corporate entertainments, private wedding
functions, etc. The Air Force is involved in domestic air transport and has built a
small tourist resort in Trincomalee to cater to the rapidly growing tourist traffic in
the area. The list of retail businesses and commercial activities of the three armed
forces (Air Force, Army, and Navy) is continuously expanding reminiscent of the
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mushrooming proxy LTTE enterprises in their areas of control and outside
(including in Colombo) during the ceasefire time.
Furthermore, the Governors of the eastern and northern provinces and the
District Secretary of the Trincomalee district (in the east) are retired senior army
personnel. Besides, several retired senior army personnel are deployed as
Ambassadors and High Commissioners of Sri Lanka in many countries. Re-
employing retired army personnel in public administration and the Foreign Service is
a longstanding practice, dating back to the late 1980s (whereas even the military
regimes of Pakistan have never deployed army personnel as Ambassadors or High
Commissioners). Some retired army and police personnel function as advisors to the
President of Sri Lanka.
The foregoing examples of military personnel in public administration, the
diplomatic service, and commercial activities are indications of an oversized and
underemployed army, particularly in post-war times. Moreover, this is a reflection of
the military peace in Sri Lanka (as opposed to civil peace). The government should
consider downsizing/rightsizing the armed forces in Sri Lanka for economic
sustainability, which is more important than economic stability advocated by
international financial institutions. Military hardware that has little use in this post-
war time should be disposed of.
There are many more examples of unwarranted government and military
involvement in commercial and economic activities and civilian life, within and
outside the formerly war-torn areas and elsewhere, which could be profitably
avoided. Incursion of the army into the civilian economy is a cause for concern and a
potential threat to democracy. Over-developed military in Bangladesh, Myanmar,
Pakistan, and Thailand (for example) are involved in big businesses such as five-star
hotels, factories, golf-courses, etc, which is an outcome of frequent military coups.
Although the Sri Lanka Army is involved only in retail businesses right now, it could
overtime get its hands on big businesses as well. The economic interests and political
role of the Pakistan army should be a warning to Sri Lanka (Siddiqa 2007).
Governmental impediments
Not only is the government forestalling private entrepreneurship in the north, east,
and elsewhere by monopolising certain commercial activities (cooking gas being the
latest public monopoly, the reincarnation of the erstwhile state-owned Colombo Gas
Company), it is also impeding economic revival in the formerly war-torn areas by the
continuation of the following restrictions in spite of the lifting of many other
restrictions in the past couple of years.
Firstly, vehicles carrying commercial cargo to and from Jaffna and the Vanni
(beyond Omanthai) need to obtain a pass from the Ministry of Defence (MoD).
Although officially there is no payment required for this pass, there is a ‘compulsory’
informal payment. This increases producers’ costs and consequently reduces market
access.
Of course, the present situation is much better than during the ceasefire time
(March 2002–August 2006) when all commercial and personal cargo passing through
the A9 was subjected to illegal taxation (extortion) by the LTTE, thereby increasing
the prices of all goods in Vanni and Jaffna. In the past couple of years, the prices of
goods in Vanni and Jaffna have been more or less the same as in Colombo or
elsewhere.
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Secondly, foreign nationals need MoD permission to travel by air or road to
Jaffna even two years after the end of the civil war. For instance, Indian nationals
travelling to participate in the Jaffna International Trade Fair in April 2010 and
January 2011 had to obtain prior permission from the MoD. This puts off foreign
tourists visiting, let alone investing in, those areas.
Thirdly, maintenance of the High Security Zone (HSZ) in the commercial hub of
Jaffna city continues to hamper business development due to the dearth of
commercial property and office space. I do not think there is any security imperative
to hold on to this HSZ in the commercial hub of the city. In January 2011 the army
in Jaffna announced that it was planning to move out of the city centre, and
eventually did so in March 2011.
The foregoing restrictions and impediments are hardly conducive to promoting
foreign investment and private entrepreneurship, both of which would spur growth
in the formerly war-torn areas. Not only are the government and the military getting
involved in commercial activities and thereby forestalling individual and corporate
entrepreneurship, they continue to stifle growth incubation by unnecessary and
irrational impediments. The government should restrict its activities to those for
which there is absolutely no other viable alternative (like restoring economic and
social infrastructure) and leave the rest to individual and corporate entrepreneurs.
Negative effects of dependence
Like other war-torn and post-war countries, Sri Lanka has been substantially
dependent on foreign aid, non-governmental assistance and private foreign
remittances for the livelihood of its people, especially in the north and east.
However, there is a threshold beyond which these concessionary and philanthropic
benefits could be counterproductive and even disruptive for economic revival.
International experiences reveal that foreign aid may not necessarily buy quality
economic development or promote enduring economic growth during the time of
war or in the aftermath of war. War-time experiences in Iraq and Afghanistan and
post-war experiences in the Balkans provide ample evidence for this. In Bosnia, for
example, in spite of nearly $10 billion of foreign aid disbursed since the end of the
war in the mid-1990s and the current per capita income of circa $3500 per year, both
the rate of unemployment and poverty is about 25% today. Similarly, the current
unemployment rate among the age group of 15–29 years in Iraq is about 28%, in
spite of a higher per capita income than that of Sri Lanka (Schramm 2010, 90–1).
Hence, real economic development should be measured in terms of rate of net
increase in new private businesses, real increase in the disposable income of the
population, and creation of new employment, in lieu of economic growth, per capita
income and so on.
Anecdotal evidence suggests that the ‘food-for-work’ and ‘cash-for-work’ pro-
grammes of the foreign multilateral donors, various relief and welfare programmes of
the non-governmental organisations, and private remittances from abroad in the
north are perpetuating the culture of dependence and stifling the culture of entre-
preneurship, in spite of the noble intentions of such welfare programmes. Yet, there is
a call for a ‘Marshall Plan’ for the north and east by one expert (Kelegama 2010, 31).
Similarly, the Improving the Relevance and Quality of Undergraduate Education
(IRQUE) project funded by the World Bank and the Secondary School Education
Modernisation Project (SSEMP) funded by the Asian Development Bank at the
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national level appear to be hitting the wrong targets. On and off I read newspaper
advertisements by these projects calling for tenders for the supply of furniture and
equipments (computers etc.) to the universities and schools, and construction of new
buildings. Although the objective of these projects is to improve the ‘quality’ of
secondary and tertiary education in the country, a significant proportion of the funds
is expended on buildings, furniture and electronic equipment. How could these
material goods and physical infrastructure improve the quality of education?
Besides, I am personally aware that a few buildings constructed under the foregoing
projects lie idle. Moreover, two flagship projects of the World Bank in the formerly
war-torn areas are headed by former government officials who were subjected to
disciplinary inquiries while in public service.
Although private foreign remittance is the single largest foreign exchange
earner and thereby indispensable to the balance-of-payments of the country, it has
negative consequences for economic revival in the formerly war-torn areas. Free
flow of foreign remittances has dis-incentivised productive work and had made
many youths laid-back. Ironically, amidst complaints from many in the north and
east about the high unemployment and underemployment rates, there are labour
shortages during agricultural harvest season. Thus, the threshold for incentive to
work is high.
Conclusion
Money or wealth cannot buy quality economic development or economic dynamism;
oil-rich Arab countries are prime examples of this fact. What Sri Lanka requires is
not a ‘Marshall Plan’ of any sort; instead, what it requires is entrepreneurial
capitalism. Modest scale enterprises, as opposed to donor and/or government-
funded grandiose projects, could contribute to substantive and enduring growth.
Wipro (a vegetable oil trading turned technology company), Infosys (one of the
largest IT companies) and the like are the ones spearheading and transforming the
Indian economy, and the role models for budding young entrepreneurs (see Naude
2010 for the nexus between entrepreneurship and economic development).
Suppose the government had given one million rupees per household ($9000) to
about 50,000 households in the north and east, based on their innovative ideas and
viable business plans (total cost of LKR 50 billion or less than $450 million; just 25%
of what the government would have spent in those areas in the four-year period
2007–10). If only 5000 or 10% of them succeeded in establishing growth invigorating
dynamic enterprises, the economic and social landscape of the former war-torn areas
could have been vastly different.
The past two years have been watersheds in the political history of Sri Lanka
because of the end of the civil war (2009) and the re-election of the President and the
government (2010), respectively. I hope and wish for this year to become a watershed
in economic history by way of overhauling the traditional economic thinking or
paradigm, and embracing transformative entrepreneurial capitalism.
Acknowledgements
This opinion piece was first written in April 2010 and updated in March 2011. I am
indebted to Carl Schramm, whose article in the Foreign Affairs magazine inspired me
to write this one.
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Notes
1. Muttukrishna Sarvananthan, Envisioning a robust post-war economy, The Sunday
Leader, 31st January 2001: 14. http://www.thesundayleader.lk/2010/01/31/envisioning-a-
robust-post-war-economy/.
2. See Central Bank of Sri Lanka, Annual report 2009, special statistical appendix Tables 2, 5
and 6.
3. See also Mel Gunasekera, Sri Lanka soldiers adapt to post-war pastimes, AFP, 24th June
2010. http://www.mysinchew.com/node/40828?tid¼14.
4. Indian Defence Review interview with the Defence Secretary of Sri Lanka, 25, no. 4,
October–December 2010. http://www.indiandefencereview.com/2010/04/interview-with-
gotabaya-rajapaksa-defence-secretary-sri-lanka.html. However, according to this author’s
estimations, the total number of armed forces personnel (including the police) may not
exceed 375,000: Army 200,000 þAir Force 25,000 þNavy 25,000 þPolice 125,000
(including Special Task Force and Civil Defence Force).
5. In fact, the Army Commander boasted in January 2011 that the army is cultivating the
farms formerly cultivated by the LTTE in the north and has saved about $27 million
(LKR 3 billion) to the exchequer by building bridges, pre-fabricated cantonments,
renovation of houses and de-mining. (Sunday Observer, 30th January 2011: 1). What the
Army Commander fails to recognise is that the long-term cost of maintaining an oversized
army will far outweigh the occasional savings to the exchequer. It is important to note that
Sri Lanka’s annual defence budget does not include disability benefits and pensions to the
armed forces personnel.
6. The elected Colombo Municipal Council was dismissed in 2010 on corruption charges and
is now run by the Urban Development Authority, which was brought under the Ministry
of Defence by Executive fiat in 2010.
References
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nos. 11 and 12 (February–March). Colombo: People’s Bank.
Naude, Wim, ed. 2010. Entrepreneurship and economic development. Basingstoke, UK:
Palgrave Macmillan.
Sarvananthan, Muttukrishna. 2004. Economic imperative for peace in Sri Lanka. Faultlines:
Writings on Conflict and Resolution 15 (February): 39–55.
Sarvananthan, Muttukrishna. 2008. Phantom growth of the Sri Lankan economy. PPID
Working Paper No. 10. August. Point Pedro: Point Pedro Institute of Development.
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