VZCZCXRO5118
PP RUEHBI RUEHCI RUEHLH RUEHLMC
DE RUEHLM #1136/01 3481019
ZNR UUUUU ZZH
P 141019Z DEC 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 0969
INFO RUEHNE/AMEMBASSY NEW DELHI 3590
RUEHKA/AMEMBASSY DHAKA 2158
RUEHIL/AMEMBASSY ISLAMABAD 9192
RUEHKT/AMEMBASSY KATHMANDU 7437
RUEHCG/AMCONSUL CHENNAI 9752
RUEHCI/AMCONSUL KOLKATA 0490
RUEHBI/AMCONSUL MUMBAI 7043
RUEHKP/AMCONSUL KARACHI 2630
RUEHLH/AMCONSUL LAHORE 0116
RUEHGV/USMISSION GENEVA 3902
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
UNCLAS SECTION 01 OF 02 COLOMBO 001136
SIPDIS
STATE FOR SCA/INSB, EEB/APRATTIPATI
STATE PASS USTR FOR VICKY KADER
TREASURY FOR SUSAN CHUN
COMMERCE FOR ITA EROL YESIN
E.O 12958: N/A
TAGS: ECON SOCI PGOV CE
SUBJECT: Business Leaders See Progress in Eastern Reconstruction;
Challenges Remain
1. Summary: A/S Robert Blake met with a group of business leaders
to discuss reconstruction of the conflict regions of the North and
East. The Government of Sri Lanka (GSL) defeated the LTTE in 2007
in the East, and there has been great progress in that region, with
fewer checkpoints, improved roads, and agricultural and even some
industrial development. The GSL just defeated the LTTE in the North
in May 2009, and security concerns and resettlement issues have
limited an economic rebound in the North so far. The business
leaders identified several common challenges to development in these
regions, namely education and vocational training for the workforce,
water and land for agricultural production, and transportation
facilities. A/S Blake discussed ways that the USG and the Diaspora
might help, perhaps through private partnerships to promote
education. End Summary.
2. A/S Blake met with seven companies who are active in Eastern Sri
Lanka, a regional Chamber of Commerce, and United States Agency for
International Development representatives, to learn about the
business climate in the East, the successes and challenges faced by
their companies in the East, and their experiences, if any, in the
North. The businesses had experience in agriculture, tourism,
logistics, apparel, and banking. The GSL has held up the East as a
success story, which they hope to recreate in the North.
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Progress in the East; Not Yet in the North
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3. The business leaders agreed that that the North and East have
tremendous potential in agriculture, with a good share of Sri
Lanka's most fertile land, fisheries (underutilized due to wartime
restrictions on fishing boats), tourism with virtually untapped
beaches and islands, and industries such as apparel manufacturing.
These representatives saw substantial progress in reconstruction in
the East. Several companies with plants in the East stated that the
number of security checkpoints had declined dramatically, which was
very important in allowing them to transport their goods
efficiently. The checkpoints were a particular problem for
agricultural produce, which can spoil if it takes too long to get to
market. These companies also felt that the security situation had
improved. The representatives praised the GSL for work improving
the national and regional roads, although some roads still need
work. The business chamber representative noted that small and
medium sized enterprises in the East were not doing as well as the
large Sri Lankan conglomerates.
4. The North has shown much less progress in economic development so
far. The North has great potential in tourism, but to date there
have been few, if any, tourists; instead, people who previously
lived in these areas are returning to see them. Two business
chambers are planning trips to the North, one from Colombo to lure
local and Diaspora investors, and another from the Southeast to
assess business opportunities. In general, the business leaders
thought that economic development would take time, and - since the
war just ended in May - many people are just being resettled in
their homes, infrastructure is being built, and approximately
100,000 Internally Displaced Persons (IDPs) are still in camps.
-----------------------------------------
Obstacles to Further Economic Development
-----------------------------------------
5. The business leaders identified several key challenges before the
East (and by extension the North) can reach their full potential.
-- The workers in the East have very low productivity in
agricultural work and other fields, which will require a great deal
of education, vocational training, and life skills. An agribusiness
conglomerate representative said that many former IDPs did not want
to work in agriculture. Moreover, they do not have the necessary
knowledge, leading to a large shortage of laborers with the right
skills. There is a need for technology transfer to improve skills
COLOMBO 00001136 002 OF 002
and productivity. Other business leaders agreed that although there
was a large pool of unemployed workers, they needed training and
skills to fill positions ranging from agriculture to apparel to
clerical work.
-- Agricultural producers need water, land and more cows. Both
agricultural and business companies said that one of their most
pressing needs was additional water supplies, gathered through
better rainwater collection or conservation techniques. Although
some businesses had sufficient land, others, especially agriculture,
had trouble getting enough land to grow crops, especially since the
government reserved much of the land for rice paddy production.
Finally, the North and East have great potential for dairy
production, but not enough cows. It will take 7-10 years to build a
good herd through natural breeding.
-- There are substantial transportation needs. A garment
manufacturer had difficulty getting workers to its factory, so it
created its own bus service. The fishing industry is constrained
because there are insufficient cold storage facilities, so after
traveling over hot roads the fish can spoil before they get to a
local market or the port for export.
-- GSL policies are sometimes misguided and they do not promote
economic growth. The GSL provides generous incentives to investors,
such as 25-year tax-free holidays for investors in the North, and
15-year tax-free holidays in other parts of Sri Lanka. These
business contacts emphasized that they need infrastructure more than
tax-free holidays, since the tax incentives primarily benefit them
if they are making a profit. Moreover, sometimes government
policies are contradictory. The GSL had a policy to encourage rice
production, but when the price of rice went too high, the GSL
imposed price controls which reduced the farmers' incentives to grow
rice.
-- Although banks have opened branches in the North and East, they
primarily take in deposits and do little lending. The Central Bank
has encouraged many banks to open branches in the North and East,
and the banks have done so. The banks are taking in large deposits,
but there still is little credit, and a bank representative said
that his bank of lends out only 20% of their deposits. A/S Blake
asked about micro lending. Business representatives responded that
micro lending is cost effective due to administrative costs, so they
prefer to lend to small, medium, and large enterprises.
-----------------------------------
Options to Increase Economic Growth
-----------------------------------
6. The business representatives had three ideas that could increase
economic growth. The first, and most important, is to tap the
skills and resources of the Diaspora. Although there is interest,
the Diaspora has not yet returned, although some are sending
remittances to relatives. A/S Blake said that he plans to meet
Diaspora representatives to seek their engagement through
public-private partnerships to provide education and vocational
training, and the business leaders were supportive of this concept.
Several of the companies work with USAID, and they were pleased with
the worker training and agricultural technical assistance that they
received. Therefore, the GSL could focus on these areas instead of
tax holidays. Another possibility is to develop industrial parks in
the East and North, alleviating the problems of land, water, and
worker transportation. Finally, the USG could assist through the
Overseas Private Investment Corporation (OPIC), and a business
consultant urged an OPIC mission to the area.
7. A/S Blake's staff has cleared this cable.
BUTENIS