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 With the opening up of the A9 highway reconnecting the North and the South by road, the Jaffna economy is set to take off. The recent Exhibition and Trade Fair demonstrated the business potential of the Jaffna region, and the top brands participating were clearly impressed at the vibrancy of the market. Following the encouraging response they received from Jaffna consumers, many of these companies are already planning to expand their distribution networks and set up their own retail and production operations. With greater stability, better infrastructure, more commercial activity and improved human capital, Jaffna can become a truly prosperous society once again, which will be necessary to maintain a lasting peace
Tremendous potential for growth
Historically, Jaffna has been a vibrant economic hub, with an educated population and an entrepreneurial workforce. But the Jaffna people have faced numerous hardships over the years. Many have left due to the conflict, and there is a sizeable group living in welfare centres. The population now stands at around 559,619, down a quarter since 1981, while official figures indicate that there were 27,647 IDPs in the Jaffna district as of September 2008. Conflict has severely curbed economic activity too, with production falling sharply in all crops and manufacturing output also dropping.
There are now signs of recovery. Figure 1 shows the take-off in GDP of the Northern Province from Rs. 12 billion in 1995 to Rs. 30 billion in 2001 and then further to an estimated Rs. 104 billion in 2007. Many credit this to the strong tripartite efforts by government, chambers of commerce and private businesses.
Agriculture, livestock and fisheries sectors require new technology to grow
 Agriculture has the capacity to grow almost exponentially in the years ahead, with a push from the public and private sectors. Today it accounts for around 20% of the Northern Province GDP, but it employs over 50% of the workforce. Crop agriculture (red onion, chilli, potato and tobacco), livestock farms (meat, milk and egg production), and fisheries are the major economic activities in the district. However, due to the conflict, Jaffna’s contribution to national red onion output fell from 54% in 1990 to 11% in 2005, chilli from 10% to 2% and potato from 11% to less than 1%.
Jaffna also produces over 4% of the country’s milk and eggs and, remarkably, this was sustained even during the conflict years. Fisheries, which employ 12% of the workforce, contributed 29% to national fish production in 1980, but now only around 9%. Following the total liberation of the Jaffna peninsula, the opening up of the A9 and A32 road links and easing of fishing restrictions, it will be possible to regain and possibly exceed these levels.
Potential agri-businesses opportunities in palmyrah (jaggery, palm sugar, arrack and fibre products) and fruits and vegetables (processed and pickled as well as dehydrated fruits and vegetables) must also be pursued, as recognised in the 2003 ‘Jaffna Plan’ initiative.
The recovery seen in the years since security improved in the Jaffna peninsula, and in particular during the ceasefire period, shows the resilience of the farming community. Given the right stimuli, this revival can accelerate. But Jaffna farmers require information on the efficient utilisation of farming capacity, including new seed varieties, modern fertiliser application and better livestock management. Enhancing their productivity by disseminating lessons learnt in other areas of the country will also be useful. Additionally, securing property rights to farming land so that it can be used as collateral, improving access to finance and easing borrowing constraints through micro-funding schemes and small business loan guarantees should also be addressed. These are all features that, with strong private sector advocacy and initiative, can be fast-tracked.
Market linkages will revive prosperity
 Connectivity is a key driver of economic growth and better marketing can reduce poverty among communities occupied in the agricultural crops, livestock and fisheries sectors. The re-opening of the A9 will improve market linkages, a key to reviving Jaffna’s economic fortunes, but these must be catalysed via Public Private Partnerships. Currently as much as 40% of perishable produce is lost due to the lack of connectivity. Setting up a dedicated agricultural economic centre similar to that in Dambulla, improving storage facilities in order to reduce wastage of perishable goods and encouraging agri-businesses to set up collection centres are some of the measures that can be considered. The current goods unloading point at Medawachchiya has been identified as a potential trading hub for Jaffna produce and efforts to promote Jaffna products under a brand like the ‘Peace Collection’ are also underway. The Federation of Chambers of Commerce and Industry of Sri Lanka already promotes products from Jaffna on its MetaMart e-commerce portal, giving even small and medium enterprises the chance to get a foothold in the global marketplace.
The road link is essential not only for Jaffna farmers to sell to other markets, but also for Jaffna consumers to access cheaper goods. The cost of sea transport means that a typical basket of goods cost on average about a fifth more in Jaffna than in Colombo.
Mining opportunities remain untapped
Mineral extraction is a potentially profitable field in which little work has been done so far. The Vadamarachchi East area of the Jaffna peninsula is said to be endowed with large deposits of silica sand, which can be used in the manufacturing of glass products. Some of the limestone deposits in the Kankasanthurai area are already being tapped by the cement factory situated there, but more is possible. Jaffna can further benefit from its proximity to the Pulmodai mineral sand deposit and the Seruwavila iron copper deposit. Large deposits of construction sand in Jaffna have not been systematically tapped, but will be a very useful resource when the revival of the Northern Province takes off.
Tourism needs attention too
 Tourism is another sector that would benefit from attention. Jaffna boasts a number of historically important sites, as well as places of religious worship that attract thousands of people like the Nallur Kovil and the Nagadeepa Vihara. Though Jaffna was targeted for tourism development in the sixties, there has been little effort since then, because of political tensions, to develop the necessary infrastructure to support a full-scale revival of tourism.
Key issues
Rebuilding infrastructure is a priority
Infrastructure needs serious attention if Jaffna’s growth potential is to be realised. Better transport links, electricity and telecommunications will reduce transaction costs in Jaffna and facilitate freer commerce. The World Bank ranks it poorly in ‘accessibility potential’, highlighting the poor road network and state of disrepair. The Northern Province has nearly the lowest road density in the country.
Transport improvements are a priority, but other aspects also need attention. Jaffna has only around 75,000 electricity connections - around 63% of households compared to an average 75% in other regions. Only around 7% of households have land phone connections, compared to 10% in the Eastern, 11% in the Southern and 5% in the Western province. However, mobile phones have spread rapidly and now Jaffna has one of the highest mobile phone usage rates, with high spending on international calls. A second mobile operator recently entered the Jaffna market, giving the people some idea of the consumer choice enjoyed in other regions.
Steps are underway to improve Information Communication Technology (ICT) services in the peninsula, including the introduction of broadband internet by two mobile telecom players. This will tremendously improve the business environment, as current CDMA and fixed line connections provide prohibitively slow dial-up internet. The thirst for ICT was seen in the response to the latest Nenasala ICT centre installed at the Jaffna Secretariat, the 5th Nenasala in the region. Jaffna will certainly benefit then from the recent Cabinet decision to declare it a ‘City of Excellence’ for English and IT to promote initiatives in these fields.
Fostering a ‘knowledge’ workforce
 The conflict has greatly impacted on the education system, though performance is still good in comparison with the rest of the country. Literacy is estimated at around 92.5%, which is only lower than the Western and North Western Provinces, and performance at national exams like O Level and A Level is encouraging; the A level pass rate in 2004 was 58%, higher than the national average of 55%. Jaffna has always been a significant centre of knowledge in Sri Lanka, and steps need to be taken to ensure that the admirable results seen today become excellent tomorrow.
The changing aspirations of the youth of Jaffna youth also need attention, with their interests lying more in services than agriculture, fisheries or even manufacturing. Mirroring the trend seen in rest of the country, employment is shifting towards the services sector, with over 45% of the Northern Province workforce being employed in it. According to a recent survey, 85% of youth respondents want to pursue higher education, and a further 7% want to follow vocational training. Only around 6% sought work in the primary sector. Half the students are keen on computer studies and nearly a quarter would like to pursue accountancy. Meanwhile, 37% of firms stated that lack of English language skills is the main problem among their employees, with 23% wanting IT awareness.
This enthusiasm for more skills and vocational training and for higher education must be catered for, and this must be championed by the private sector. Having traditionally enjoyed high levels of educational achievement, knowledge-based businesses (IT, legal and accountancy) may be the way forward for Jaffna. Investments in English and IT education now would yield rich results in the coming years, following the global thrust towards building a knowledge economy. Higher education institutes like CIMA, SLIM and IIT that attended the Educational and Industrial Exhibition remarked that there is a huge demand for such education services among the youth there. They intend to take their services to them, and possibly also bring students to sit exams in Colombo.
New initiatives in the North
 The Government has launched its ‘Uthuru Wasanthaya’ programme aimed at reviving the Northern Province, similar to its ‘Neganahira Udanaya’ programme for the East. Rs. 3 billion has been allocated to rebuild 80,000 houses and Rs. 500 million has been set aside for resettlement programmes. Jaffna will benefit from this in addition to the other three districts of Kilinochchi, Mullaitivu and Vavuniya. Donor agencies are also enthusiastically involved in the Northern Province revival, and the World Bank and Asian Development Bank have dedicated projects for the conflict areas. Particularly important to the Jaffna farming community is the World Bank’s ‘Re-awakening’ project (formerly the North-East Irrigated Agriculture Project), which aims to restore the irrigation network in the peninsula and boost the retention of fresh water whilst preventing sea water encroachment, at Thondaimanaru and Valukkaiaru.
To ease electricity constraints and avoid the regular power cuts in Jaffna, a 30MW power plant at Chunnakam has just been constructed and is to be commissioned shortly. The peninsula needs around 24MW and the excess electricity generated by this new plant will help power the Jaffna islands.
Land has also been allocated for a proposed eight acre industrial processing zone at Achchuveli. The main seaport at Kankasanthurai, the airport at Palaly as well as the road links to these hubs need to be improved, if manufacturing businesses are to be attracted to the proposed industrial zone. These initiatives hope to breathe new life into the economic infrastructure and business environment of the region.
An urgent need, in terms of understanding the development requirements of this promising region, is to mobilise data collection on the region’s economy as soon as possible. Updated data will enhance the efficacy of development initiatives under the ‘Uthuru Wasanthaya’ and other donor-driven programmes. Currently, there is a dearth of comprehensive data, as recent household income and expenditure surveys, labour force surveys and other censuses had to exclude this region.
Looking to the future
Jaffna has proven itself resilient, and will undoubtedly find its way back to its past glories with a little help from the public and private sector, catalysed by business chambers. However, though Jaffna is more prosperous than other districts in the Northern Province, much remains to be uncovered on the status of poverty in the region now, and the health and nutrition needs of vulnerable groups of the population.
Some attention could usefully be placed on innovative measures to attract investment and business interest from the Jaffna diaspora, converting the accumulated financial and human capital among the diaspora into assets in the development process - turning the ‘brain drain’ into a ‘brain gain’, as was done in India. About 75% of the Tamil population who left Sri Lanka are believed to hail from the Northern Province, and in particular from the Jaffna peninsula.
From a strategic point of view, the people of Jaffna, and the agencies aiding their recovery, need to identify where Jaffna’s key strengths lie and then work aggressively to bolster them. Jaffna’s workforce must become more educated, empowered and entrepreneurial and, seeing the determination and resilience of the people over the past decades, this will not be a tough ask. Jaffna can propel the Northern Province to contributing 6% to national GDP, twice its current level. Can Jaffna farmers link into global agri-business supply chains, similar to such projects in the East? Are knowledge-based businesses the way forward for Jaffna, given the traditionally high level of educational achievement and intellectual capital? The challenge is how the public and private sectors work together to address these, and reap a sustainable peace dividend in the peninsula.
Economic Affairs Unit Secretariat for Coordinating the Peace Process Courtesy: SCOPP |
