Northern Sri Lanka businesses faced market shock from post-war road links
ECONOMYNEXT – Businesses in northern Sri Lanka struggling to recover after the end of the civil war 10 years ago were subject to a market shock with the reopening of road links, a new study has found.
After three decades of war, the post-war social and economic challenges were tremendous, according to the Central Bank-sponsored study to revive the northern economy.
The northern province lagged behind the rest of the country in terms of the destroyed and underdeveloped infrastructure, and deteriorated social institutions and human resources, said the study, an economic development framework for the Northern Province master plan.
“Soon after the war, local production was subjected to a market shock as road connectivity resumed to the wider market with far more advanced production,” it said.
“In this context, with a post-war reconstruction strategy of building infrastructure, expansion of credit and the rebuilding of livelihoods and self-employment schemes financed by loans, the population recovering from the war had to rely on their meagre assets, ultimately resulting in widespread indebtedness and a rural economic crisis.”
The study notes that the existing economic structure in the north was and continues to be dominated by ‘small-sized’ economic actors – smallholder farmers, small-scale fishers and small industries, businesses and co-operatives.
“The majority of these uncompetitive Northern producers suffered significant economic losses as a result of the sudden reintegration with the market in the rest of the country,” it said.
It said there was a “compelling case” for a time-bound, state-sponsored protection of the region accompanied by a systematic investment programme to raise productivity and efficiency of small producers.
“But development efforts have either omitted these groups or insufficiently catered to their transformation needs,” it said.
“Whereas public sector development funding in construction created short-term increases in employment and incomes, the much-needed change in the long-run structure and productivity of the economy to sustain growth has not been achieved.”