What’s wrong in the Eastern Province?

In the recent past we have seen many success stories reported from the Eastern province, be it the new hotels that have been built, the staging of the world surfing championships in Arugam Bay, new infrastructure that is bringing about strong economic growth. The GDP growth of almost 20 per cent registered in 2011 is a testimony to the positive stories emanating from the Eastern province. This also is reflective of the peace dividends that were put in place post-May 2009; a fact that the global community must accept.

Enterprise Survey 2011

In the backdrop of this stellar performance, an interesting study has been conducted by the World Bank that has taken into account a cross-section of 227 businesses in the country to find out what key obstacles are faced by enterprises in their business activities.

The sample researched covered businesses from several industries including food, beverages, tobacco, textiles, garments, furniture, plastic, rubber and chemical companies, non-metallic and mineral product organizations and hotels and restaurants. The study also included motorcycle and service companies which are essentially a part of the SME sector and this inclusion gives a good strong sense of areas that require attention to a policymaker.

The study uncovered the perceptions on obstacles faced in domestic investment. Some can argue that the study was a perception survey but as the great social scientist Shiffman & Kanuk said, perception is reality.

From this perspective, the study illuminates the areas that require policy intervention and further fact-finding. Let me capture the essence of the survey focused on the Eastern province.

The survey reveals that the key obstacle facing businesses in the manufacturing and service sectors in the Eastern province is access to finance.

This is strange given that the reported number of bank branches opened in the Northern and Eastern provinces exceeds 200. During the course of my work in the Eastern province, the points raised by the SME sector in particular was the collateral required. The banking sector stated that the proposals received from the SMEs were weak on the documentation side due to the lack of depth in the proposals and in some instances, the required back-up support was lacking.

Perhaps the regional offices of the Ministry of Traditional Industries and Small Enterprise Development or even the offices of the Ministry of Trade and Commerce can support the SMEs on this front, given that the number of people up against this obstacle is sizable.  

A point to note is that the overall country average is 18.5 per cent in the manufacturing sector whilst in the service sector, it is 9.2 per cent which means that this issue is particularly a burning one in the Eastern province and hence focused attention is required.

Yet another noteworthy point is the fact that in 2011, the overall credit to the private sector increased by a staggering 30 per cent, reaching a dizzying height of Rs. 515 billion. It’s worth analyzing the SME consumption of this value, in particular in the Eastern province.

Senior management time spent on GOSL procedures

Even though the sample is small, a key highlight from the survey reveals that the in the Eastern province, the time spent by the senior management in dealing with the requirements of Government regulations is extremely high. Maybe it’s worth analyzing why it is high, especially compared with other regions of the country.

It’s worth understanding the details because of the significant investment in the tourism industry which demands almost 20 approvals from different Government organizations. If that is so, a regional one-stop shop being set up could be worth pursuing.

Innovation, research and development

On a more positive note, on the front of innovation in new products, related processes and R&D, the Eastern province recording a high number is very interesting. This could be due to the significant new investment coming in the tourism industry and also maybe reflective of the buoyant agricultural sector.

The Ministry of Science and Technology must do an investigation and supplement it with aspects such as technology transfer and cross-check it against its impact to economic growth. There might be best practices that can emerge.

Corruption a major issue

A very demotivating factor was the perception score on corruption in the Eastern province was very high. Some can argue that corruption and development complement each other but sometimes it worth analyzing the details as it can be counter-productive when attempting to attract investment from overseas.

A point to note however is that Sri Lanka’s overall corruption average is very low in comparison to the South Asian average and the global average as per the World Bank study of 2011. Whist being upbeat on this insight, I guess we must continue to work on this attribute as a low score on this attribute can help the country on many other fronts.  

Next steps

Whilst the above study is on the perceptions of people and the sample size may not be truly reflective, the fact of the matter is that it illuminates the issues that need to be further researched and addressed by policy makers. Hence, rather than being on the defensive mode, let us address them in district development meetings and work on the areas that need correction.

The support required to correct the access to finance issue must be addressed. Whilst many reports have revealed the causes and probable remedial action, the fact of the matter is that the common people still find this a key issue for business growth. Let’s focus on this and correct this as it can have a positive impact on the peace and reconciliation process.

Whilst the above issues can be corrected, let’s also link the industrial estates of different line ministries to the SME development agenda which will not only help in the supply chain development agenda but also in gaining market access out of the country. This means that the EDB must be linked to the system. Why not stage regional expos in coming year, with the best performers showcased at Expo 2014.

Given the construction projects that are in progress in the Eastern Province and the planned housing programmes that are to be launched in the near future, there can be an acute problem on the labour and skills front. The current unemployment index of 4.2 per cent as reported in the Central Bank report of 2011 does not augur well for Sri Lanka. We have to address this key issue.

The author is actively involved in the growth agenda of the country in the public, private and international public sectors. Rohantha was the first Executive Director of the Government Economic Council (NCED) under the under the Presidential Secretariat. He can be contacted on [email protected]. The thoughts are his personal views and not the views of any organisation he serves in Sri Lanka or internationally.