March 24, 2019

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    Northern ProvinceMaster Plan for stable growth Featured

    February 20, 2019

    The ‘Economic Development Framework for a Northern Province Master Plan’ aims to be a dynamic tool that provides a ‘blueprint’ for future long-term growth and development of the Northern Province.A committee to develop such a Framework was established on the request of the Governor of the Central Bank of Sri Lanka in acknowledgement of the inadequate development outcomes to reconstruct the Northern economy, including the crisis of indebtedness and the lack of viable employment and incomes for the local population.

    Through analysis of development outcomes, challenges and opportunities, this Framework aims to set out a new 2030 vision and direction for economic development, providing thrust areas to be incorporated into a future master plan.The report aims to make three important contributions:

    It seeks to highlight specific development issues and challenges in the North due to the legacy of war which require a unique policy approach.

    The report provides a perspective from the North, with committee members drawing insight from local knowledge, networks and research.

    The Framework is forward-looking; it takes a holistic macro view of the economy and provides direction for development over the medium to long-term (2030).

    The Framework is intended as a resource for policymakers, implementing agencies, donors and other actors to support future economic development design and planning processes concerning the North. It is also hoped that the report will be used to generate dialogue within the Province to encourage future participation and ownership of development initiatives.
    The Committee worked on a voluntary basis from February to August 2018.

    Pillars of the Framework
    The Framework is centred around three inter-dependent pillars that influence sustainable economic development: the factors of production, the enabling environment and the social foundations of development.
    Factors of production
    Economic prosperity and wellbeing require sustained economic growth, which in turn relies on increasing production. Effective policies to maximise production must be grounded in an analysis of the optimal combination of the factors of production: capital, labour, and land and natural resources.

    Capital

    While there have been high post-war levels of investment in the northern economy, the character of capital invested (mainly in infrastructure and loans for individual livelihoods and self-employment schemes) has not delivered in terms of sustained income streams and employment. It has neither generated a virtuous cycle of production, accumulation and investment.

    First, the lack of retained earnings by firms and producers characterises a shortfall in the availability of long-term capital investment to expand and diversify production capacity and the product base. Secondly, access to working capital necessary to increase capacity utilisation of existing assets and for continued operation of new plants has been lacking. Long-term investment and working capital have not been forthcoming from commercial banks in the practice of recovering short and medium-term loans with high interest overdraft facilities backed by collateral. Facilitation and support to access affordable finance from formal banking institutions must be a critical component of future development planning.

    Labour

    Increased participation of labour in production can immediately increase economic growth and employment. Given the low female participation rate in the North, bringing more women into the labour forcewill significantly increase production. These new employment opportunities must be designed to accommodate women’s domestic responsibilities, providing decent working conditions, proximate location and time flexibility. Livelihoods programmes targeted at women must go beyond default responses such as handicrafts production that tend to omit the costs of labour. Finding avenues for integrating youth into production and regular employment is equally important.

    Continual investment in upgrading the quality of human resources, particularly of youth, is required to enable higher long-term levels of productivity and better returns to labour from small agricultural producers, to skilled labour and professional business and financial management required for industries and service sector firms. In parallel, initiating workforce development programmes that are in line with how the structure of the economy is predicted to change over the next decade will also be important. Outmigration patterns will continue on the current upward trend without a concerted effort to increase both the quality and quantity of work opportunities in the Northern Province.

    Land and natural resources

    Land and local natural resources can be better utilised in production. The Northern Province is host to plentiful resources of farming land, forests, in-land water reserves and tanks, an extensive coastline for fisheries, pastureland for livestock and a vast supply of naturally growing palmyrah. Increasing both the quantity of land and natural resourcesused in production, as well as improving unit productivity and efficiencywill contribute to increasing economic output and growth.

    In the Vanni region, there are considerable state lands available for further land alienation, and an untapped reserve of Palmyrah resources that can be used as raw material for small scale commercial production of value added goods. In areas where natural resources and land are less available such as in Jaffna peninsula, increases in water-use efficiency through the introduction of new technology such as drip irrigation can increase productivity. Improving practices to reduce post-harvest losses can also produce economic gains across all agricultural sub-sectors.

    Optimal combination

    The priority is to mobilise and organise the factors of production in the North in such a way that structural changes of these factor markets will ensure sustained increases to growth over the medium to long term. Optimising investment will create a virtuous cycle of increased primary production and value addition; the latter in turn stimulates the demand for primary production and will result in raising income streams. Higher incomes and employment simultaneously increase demand for goods and services, and if these can be supplied locally, will generate further demand for labour and employment.

    Enabling environment

    To ensure gains are maximised, it is imperative that the state and other development actors create an enabling environment that promotes provincial growth and distribution. Critical constraints identified in the North include: appropriate technological upgrading, post-war infrastructure gaps, regulatory shortcomings, institutional weaknesses, and market access including viable market connectivity.

    Technology and research and developmenthas lagged behind the rest of the country due to the lack of investment in the North. To achieve the sought after increases in productivity required for sustained economic growth, a systematic policy approach to encourage the uptake of new technology is required. Such a policy must ensure that the form of technologies introduced are appropriate to the current capacity, skills and resources of the existing economic base and actors. A stable approach would see immediate gains from the widespread adoption of currently available low-tech, low-cost solutions.

    Infrastructure required for ‘productive’ economic activities continues to be a gap. Looking forward, infrastructural investments should be aligned to removing barriers to production and tied to the province’s underlying economic strategy, which will initially be dominated by small scale production. Examples include coastal infrastructure for small scale fishers and rehabilitation of minor water tanks for in-land aquaculture, livestock rearing and farming.

    Regulationshould be employed as a policy tool to support sustainable development by removing constraints to production but simultaneously safeguarding the factors of production (e.g. the natural resource base and labour) from exploitation. Concerns in the North regarding access to sufficient pastureland for livestock farming, continued fragmentation of arable land, and the destruction of the seabed caused by bottom trawling need to be addressed immediately to ensure sustained production.

    Lastly, as part of the effort to integrate this once isolated region into the national economy, increased awareness and application of national legislation and regulation is required. With the future establishment of new industries in the North, updating regulation and enforcing policies to promote health and safety is particularly important to enable the sustained participation of an expanding workforce.

    Institutions, specifically state-run institutions aiming to support increased economic production, lack coordination and are unable to provide effective support for Northern producers and organisations. Limited funding is spread too thinly across too many actors, which inhibits the cultivation of specialisation and expertise to deliver results. State institutions are powerful vehicles to drive development and therefore there should be fundamental re-thinking to develop effective policy, direction and allocation of multi-year budgets to support long-term planning and development.

    Systems of organisation and cooperation between economic actors have been decimated by the protracted war. Small farmers and fishers who were traditionally part of collectives that sought efficiencies through bulk input purchasing, savings and loans, marketing etc., now largely operate as individuals, leaving room for exploitation. Reinvigorating and strengthening organisations and networks for producers, workers and firms is important to organise production and increase bargaining power. Additionally, strong organisational systems will also enable a two-way dialogue with the state and private sector to make markets and development initiatives work in a mutually beneficial way.

    Market systems and accesson fair terms provides the vital link to facilitate trade. The Northern economy has only recently opened up to the rest of the country and lacks the infrastructure, transport facilities, information, networks and relationships to ensure Northern producers are able to plan production to respond to market demand and sell surplus production at fair prices. The issue of ‘fairness’ is critical for the North, where small producers dominate and where margins are low because of lower productivity and the use of outdated technology.

    Access to market research and trend analysis, and development of market linkages and trade relationships within domestic, diaspora and export markets are critical to absorbing substantial future increases in production from the North. Finding effective ways of facilitating market connectivity within the North and with value chains in the South are urgently required.

    Social foundations of development

    Food and nutrition

    The resilience of households must be achieved with importance placed on achieving food security. Investment must generate access to diversified income streams for the poorest households to meet their nutritional needs in cash or kind. State schemes to implement this must be holistic in nature and based on equity (i.e. on the needs and capacity of each individual household).

    Shelter, water and sanitation

    Approximately 10 percent of the Northern Province population are completely landless and are considered highly vulnerable because of their dependency on wage labour. While current state resettlement programmes inadequately cater to need, by design, they have excluded the landless by imposing the need for owning a minimum area of land to qualify for housing schemes.

    Health and social care services

    Health and social care services for community groups severely affected by the war are currently inadequate. Services in the North are running significantly below capacity with high vacancies in both nursing and medical officer posts. People living with disabilities and those with mental health concerns need enhanced and bespoke services such as counselling and social support to lead active and healthy lives. The national trend towards an ageing population is more pronounced in the North due to the loss of life and continued outmigration. Re-thinking service delivery models in light of access and affordability issues is required.

    Education

    The high levels of school dropouts in the North can be reduced by expanding mid-day school meals and other nutrition programs. An increase in Science and English teachers in the Vanni Districts in particular can contribute towards employability in the future.

    A fairer distribution of money, power and resources can ameliorate the existing differences in social vulnerabilities within the region. Communities living under or just above the poverty line cannot participate in development while facing daily challenges of food security nor secure employment without education. It is this context that the state should commit to the social development of the North alongside economic growth initiatives, by strengthening household resilience and delivering universal, well-funded services for health, education and social welfare.

    Proposed strategy

    A sustainable strategy must invest in increasing production and productivity of the existing economic base of small producers and industries and create new and secure employmentfor those excluded from the workforce. High growth strategies that do not meet the above criteria will again fail to deliver outcomes to address the vulnerability of the war-affected community.

    The chosen growth strategy must also distribute the gains from growth widely to provide socio-economic stability and resilience for the population as a whole. The development path may therefore be slower and fundamentally low-risk in order to achieve dual objectives of transforming the existing economic base while simultaneously addressing social vulnerabilities and inequalities that lag from the war.

    Systematically implementing such a two-pronged strategy that focusses on slower broad-based growth along with some investment to develop exports, will create a stronger, more resilient economic foundation in the North, from which growth can be accelerated in the long-term.

    Overarching challenges

    The critical current and future challenges for sustainable development of the North are centred on mobilising resources and strengthening development processes.

    Workforce opportunities

    A major shift in the opportunities provided to the younger generation, many of whom were born into the war, is fundamental to achieving economic growth in the long-run. These generations, and groups disproportionately affected by the war such as ex-combatants, disabled people, women-headed households and families with missing persons require special attention towards reintegration into an economy that has remained stagnant for decades, and which is set to change.

    Similarly, upgrading institutional capacity for development given the special needs of a war-torn society is required.

    Climate change

    Building resilience and adaptation to climate change and natural disasters must be mainstreamed into economic growth strategies, particularly given the Northern Province’s dependence on agriculture and its location in the dry zone. While the impacts of climate change can be unpredictable, there is wide scope for policymakers and economic actors to plan action to anticipate, organise and adapt to mitigate climate change risks. There are vast international resources to learn from; best practice examples include improved systems to disseminate weather information, development of climate resilient seeds, provision of low-cost insurance etc.

    Sector priorities

    Agriculture

    The smallholder agricultural sector is a key driver for the Province’s future economic growth. It contributes directly to food security and supports mass poverty reduction through engaging approximately 60 percent of the region’s households. With the North’s abundance of land, there is vast potential to increase production and incomes, and in the process supply raw materials to develop local agro-industries, stimulate feeder industries and create real demand for rural non-farm goods and services. Success in stimulating growth must be based on a mixture of strategies that take account of the heterogeneous nature of the sector’s economic actors.

    Industries

    The North is not conducive for large industries. The lack of a large and skilled labour force and other issues such as distance from metropolitan centres and the port limit the ability to be competitive. Decades of lag in local industries also means that production in the North cannot compete on the basis of labour efficiency alone. Therefore, it is micro, small and medium (MSM) industries that utilise local resources to produce goods for the local market and for exportthat are likely to succeed. National policies promoting MSM enterprises should be leveraged by directing their investment and activity towards specific industries and sectors where the North has a comparative advantage with respect to existing resources or skills.

    Given the depopulation and distribution of the labour force, industries should be spread across the region, leading to balanced development with opportunities for the wider rural population. In the urban centres, geographical planning of industries should support the galvanisation of clusters of existing small industrial producers to create synergies and ensure better use of infrastructure, rather than create industrial zones and assume new industries will arrive.

    Services

    The service sector in the North has been expanding after the war and contributes 60 percent to the Provincial economy. Currently, the sector consists largely of transport, communication and, retail and trade services. There is scope to widen its base locally and generate value creating forms of service production, as well as reform existing services in the financial sector and public transport to appropriately meet local needs.

    Macroeconomic priorities

    The formation of a Northern Planning Bureau is recommended to undertake the long-term strategic planning, coordination and oversight of development efforts, informed by the specific needs of a war-torn society. The Bureau should encourage collaboration between civil society and the state through membership of leading intellectuals, the private sector, provincial and central government officials. Independence of the Bureau will be important for its effectiveness, but ownership of its outputs must be gained from meaningful involvement of actors with implementation responsibilities. Initially, the Bureau could lead in seeking solutions to the following challenges: development financing, labour market expansion, natural resource management, and research and policy for sustainable development.

    Last modified on Wednesday, 20 February 2019 11:57

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