ROLE OF THE BUSINESS COMMUNITY IN ROLE OF THE BUSINESS COMMUNITY IN RECONCILIATIONRECONCILIATION

--------NATIONAL CONFERENCE ON NATIONAL CONFERENCE ON

RECONCILIATION: RECONCILIATION: SESSION 2SESSION 2Key Note Address:

Ajith Nivard CabraalGovernor

Central Bank of Sri Lanka

24th January 20121

TO SET THE STAGE, IT WILL BE USEFUL TO TO SET THE STAGE, IT WILL BE USEFUL TO QUICKLY EXAMINE THE “RUN-UP” TO QUICKLY EXAMINE THE “RUN-UP” TO

THE “RECONCILIATION”…THE “RECONCILIATION”…

2

• Up to about 2008/09, development planning in the North and the East was almost unthinkable.

• During such time, the North and the East areas were the centre stage in the debilitating war that engulfed the entire country.

• In fact, from 2006 to 2008, our main mission economically, was to just maintain services in these areas.

3

For 30+ Years, Terrorism sapped the energies For 30+ Years, Terrorism sapped the energies of our nation…of our nation…

From mid 2006 to mid 2009, we faced massive From mid 2006 to mid 2009, we faced massive challenges from the point of view of the economy challenges from the point of view of the economy

• The LTTE, its proxies and its sympathizers were fully aware and conscious that if the economy were to falter or collapse, victory would be theirs.

• That is why many devious steps were taken by them to damage and destroy key economic centres and discourage economic stakeholders.

4

• Terrorist funding was key to the launch of successful terrorist attacks and the continuation of the LTTE agenda.

• Massive inflows of funds supported the terrorism effort in Sri Lanka

• Diverse methods were used to raise and transmit these funds

5

The Central Bank’s challenges included the The Central Bank’s challenges included the constant battle against terrorist financing…constant battle against terrorist financing…

The effects of the “War on Terror” The effects of the “War on Terror”

were felt, not only in were felt, not only in the North and the East, the North and the East,

but also by but also by the entire economy…the entire economy…

6

• There were attempts to indirectly pressurize Sri Lanka to halt or dilute the final humanitarian effort. For example:– Threat of withdrawing GSP+ concessions at

sensitive times– Deliberate delay in the approval of IMF-SBA in

March/April 2009

7

We faced well disguised, but serious We faced well disguised, but serious ““economic interventions”…economic interventions”…

We faced massive mis-information campaigns We faced massive mis-information campaigns that were designed to affect Sri Lanka’s that were designed to affect Sri Lanka’s economy, funding sources, cost of borrowing, economy, funding sources, cost of borrowing, country ratings, etc…country ratings, etc…

• Every perceived negative factor from an economic point of view was given deliberate and wide publicity – locally and internationally

• Hence, a massive effort had to be launched and maintained to convey the positive features of the economy. Even in the future, these efforts have to be continued, in the interest of economic stability.

8

We faced the significant impact and burden of We faced the significant impact and burden of the “War on Terror” on the economy…the “War on Terror” on the economy…

• Difficulty in maintaining investor confidence in the midst of uncertainty

• Intense human suffering • Political uncertainty• Inefficient allocation of resources• Productivity losses• Destruction of infrastructure• Under-utilisation of production capacity

9

We faced the Central Bank suicide bomb attack We faced the Central Bank suicide bomb attack – 9/11 style – 2,050 days before 9/11/2001– 9/11 style – 2,050 days before 9/11/2001

• 500kg of explosive laden suicide truck smashed into the Central Bank on 31 January 1996.

• Unprecedented loss of human lives and destruction of property, threatening the national economy.

• 41 Central Bank officers lost their lives and over 150 employees were critically injured.

• 30 were blinded or permanently incapacitated.

• In addition, over 90 persons were killed and 1,300 civilians injured.

10

Sadly, it took the world 2,050 days to understand what a suicide attack is!

We faced suicide attacks on economic centres in We faced suicide attacks on economic centres in addition to human, religious and public targets…addition to human, religious and public targets…

– The Bandaranaike International Airport– Hotels and Tourist Attractions– Railways and Public Transport– Kolonnawa and Sapugaskanda oil installations

11

We suffered a Massive Human Cost…We suffered a Massive Human Cost…

• The cruel acts of terrorism destroyed thousands of human lives and physically maimed further thousands.

• The economic and social costs in terms of human, physical, and environmental damage ran into billions of rupees.

• The overall economy suffered, with a heavy negative impact on tourism, investment and productivity.

12

We incurred a Very Heavy Indirect Cost too…We incurred a Very Heavy Indirect Cost too…

• The actual overall cost of the conflict not only included direct expenditure on the conflict, but also the indirect costs due to:

– Imbalances in the macro-economy

– Regional disparities in economic development

– Loss of opportunities for growth

– Destruction of capital assets

– Development foregone during the thirty year period

• Though the overall effect is difficult to quantify, the reduction in economic growth of the country due to terrorism has been estimated at around 1-2% annually.

13

Finally, the “War on Terror” was successfully Finally, the “War on Terror” was successfully concluded on 19concluded on 19thth May 2009… May 2009…

14

When we look back on the post-war period of 2 When we look back on the post-war period of 2 years, we can now say that the cost of Sri Lanka’s years, we can now say that the cost of Sri Lanka’s “War on Terror” was a vital investment…“War on Terror” was a vital investment…

• Many previous governments did not pursue “Defeat of terrorism by military means” with enthusiasm, because of the perceived massive “cost” that it was supposed to entail, and the tough economic decisions that needed to be taken as a consequence.

• Hence, an analysis of the cost of the military effort during the past 4 years, 2006 to 2009, may be a useful guide for the future.

15

How much was Sri Lanka’s Defence Expenditure from How much was Sri Lanka’s Defence Expenditure from 2006 to 2009?2006 to 2009?

• Sri Lanka expended about 4% of its GDP per annum on defence over the 4 years, 2006 to 2009. – For a country that has been plagued by terrorism, this quantum of

Government spending on defence, indicates restraint and thrift in waging the counter terrorism effort.

• The final result where Sri Lanka emerged as the first country to defeat terrorism, shows that Sri Lanka has been able to expend its resources in an efficient and productive manner.

2006 2007 2008 2009 Total

Rs. bn

US$ bn

Rs. bn

US$ bn

Rs. bn

US$ bn

Rs. bn

US$ bn

Rs.bn

US$ bn

Defence Cost

106 1.0 134 1.2 176 1.6 189 1.7 605 5.5

% of GDP 3.6 3.8 4.0 3.9 3.8

16

It may be useful to compare Sri Lankan It may be useful to compare Sri Lankan “military spending” with other countries…“military spending” with other countries…

17

Source : CIA World Fact Book Ministry of Finance & Planning (GOSL)

So, our 4-year defence cost is only about 14% of the training cost of US troops in the Afghanistan War!

Sri Lanka’s “defence cost” compares very Sri Lanka’s “defence cost” compares very favourably with other “Wars on Terror”…favourably with other “Wars on Terror”…A Report submitted to the US Congress on 28 September 2009 estimated US war costs as follows:

Item Iraq War Afghanistan War Total

Total cost incurred by the US Govtup to 2009 (US$ bn)

683.0 227.0 910.0

Training cost incurred by the US Govtup to 2009 (US$ bn)

23.2 15.8 39.0

• For the FOUR YEARS, 2006 – 2009, the cost incurred by Sri Lanka on the LTTE war was US$ 5.5 bn. This included cost of aircraft, ships, tanks, ammunition, other equipment, training, food for soldiers, uniforms, etc.

• In contrast, the cost incurred by the US government on training of their forces in Iraq and Afghanistan amounted to US$ 39 bn!!

18

Overall, extraordinary economic benefits accrued to Overall, extraordinary economic benefits accrued to the country when terrorism was finally defeated…the country when terrorism was finally defeated…• Return to a high economic growth trajectory – 8%• Greater efficiency in allocation of all economic resources • Higher utilization of production and capital capacities: eg. Ports, tourism,

and marked productivity improvement• Improved political and economic stability and investor confidence• “Brain drain” changing to “brain gain” • Improved fiscal management leading to better macroeconomic

fundamentals • Prevention of regular destruction of property and loss of lives, which

took a heavy toll on the economy and morale of investors• New opportunities being seized by the private sector

These benefits would clearly indicate that the modest investment on defence paid off!

19

The Northern and Eastern Provinces of 18,640 KmThe Northern and Eastern Provinces of 18,640 Km22 (28% of land area) and about 2.9 million people (14% (28% of land area) and about 2.9 million people (14% of total population) were not in good shape at the of total population) were not in good shape at the time the conflict ended… time the conflict ended…

• Education and health services were at a basic level • Roads, highways, and railways were virtually non-

existent in many parts of the Provinces • Transport facilities were marginal• Banking and financial services were highly limited• Even data from these two Provinces were not

available to measure the extent of the weaknesses.

20

Much had to be done… soon!

Therefore, after the defeat of terrorism, an Therefore, after the defeat of terrorism, an extraordinary effort had to be made to restore extraordinary effort had to be made to restore “normal life” in the North and the East. “normal life” in the North and the East. What did such effort entail?What did such effort entail?

• Rapid de-mining• Speedy resettlement• Quick restoration of Livelihood• Extensive infrastructure restoration and upgrade• Sustained investment in the North and the East• New initiatives by the Banking Sector

21

The rapid de-mining effort contributed immensely The rapid de-mining effort contributed immensely to restore normalcy…to restore normalcy…• In a space of around 2 years, hundreds of thousands of deadly

landmines have been cleared and destroyed by the Army field engineers and other agencies in a land area of nearly 2,000 Km2. – The areas include Jaffna, Mullaitivu, Trincomalee, Batticaloa,

Polonnaruwa and Vavuniya districts.– From Oddusudan to Nedunkerni, the area has been almost completely de-mined. – Currently, de-mining processes are underway in parts of Kilinochchi, Mannar,

and Muhamalai to Paranthan. – Most residential areas and roads in Wanni have been de-mined.

• A large number of forces personnel have been engaged in de-mining, and the services rendered in de-mining has a massive commercial value, which is now being assessed.

• The newly acquired national expertise in de-mining could perhaps be applied on a commercial basis in the future in other countries which may need services of this nature.

22

Resettlement took place at an extraordinary Resettlement took place at an extraordinary pace…pace…

• According to the Ministry of Nation Building, as of May 2009, there were 342,916 IDPs in 30 relief villages established by the Government.

• Since then, this number had rapidly declined with the resettlement of the IDPs: and, as of December 2011, there were only about 10,000 IDPs in the relief villages.

• A huge investment was made by the Government to achieve this outcome.

23

The United Nations commended the The United Nations commended the Government for this effort…Government for this effort…

24

“… the ‘humanitarian catastrophe’ predicted by some quarters when almost 300,000 people escaped from the Vanni between January and May 2009, was averted…”

“… Two statistics reflect well the basic effectiveness of this government led effort to assist them; a nutrition survey of children in the Menik Farm camps in May 2009 found levels of acute malnutrition of 35%. By December the level was 13.5% which is comparable to the national average. Another is the increasing progress and strong partnership on demining, spurred by the Government’s own commitment of resources…”

“…I personally met regularly, sometimes many times in a day, with Government counterparts…”

Neil Buhne (UN Resident & Humanitarian Co-ordinator in Sri Lanka) said in April 2010: (One year after the end of the conflict)

From the Central Bank’s From the Central Bank’s point of view,point of view,

our main challenge was theour main challenge was theQuick restoration of Livelihood Quick restoration of Livelihood

while ensuring while ensuring Financial Inclusiveness Financial Inclusiveness

in the North and the East in the North and the East

25

WE HAD STARTED ON THE EFFORT, WELL WE HAD STARTED ON THE EFFORT, WELL BEFORE THE CONFLICT WAS OVR…BEFORE THE CONFLICT WAS OVR…

What is “Inclusive Growth”?What is “Inclusive Growth”?

• Inclusive growth refers to two inter-linked facets of development which aim at: – A high pace of growth which increases the

opportunities and incomes.

– A broad-based pattern of growth, which will benefit all stakeholders, across sectors, leading to rapid poverty reduction.

• So, both pace and pattern of growth are critical for achieving a high degree of inclusive growth.

26

THIS IS WHERE THE BUSINESS COMMUNITY COMES IN…THIS IS WHERE THE BUSINESS COMMUNITY COMES IN…

Robert Zoellick, President of the World Bank Robert Zoellick, President of the World Bank says:says:

“Globalisation must not leave the ‘bottom billion’ behind.Poverty breeds instability, disease, and devastation of common resources and the environment. Poverty can lead to broken societies that can become breeding grounds of those bent on destruction and to migrations that risk lives.”

27

We can take pride that reasonable inclusive We can take pride that reasonable inclusive growth has taken place in Sri Lanka recently…growth has taken place in Sri Lanka recently…• In 2011, the Sri Lankan economy is estimated to

record an impressive overall growth of 8.3%. The first time in history to record over 8% growth in two consecutive years.

• The Government and the Central Bank are focused on ensuring that the benefits of rapid economic growth percolate down to grass root levels.

28

Sector

Poverty HCI

2006/07 2009/10

Sri Lanka 15.2 8.9

Urban 6.7 5.3

Rural 15.7 9.4

Estate 32.0 11.4

• Poverty in Sri Lanka has come down to 8.9 % in 2009/2010 from 15.2% in 2006/2007, as per the Poverty Head Count index.

In order to create sustainable inclusive economic In order to create sustainable inclusive economic growth, Financial inclusiveness is vital…growth, Financial inclusiveness is vital…

• Financial inclusiveness is where people of working age have access to a variety of quality financial services:– at affordable prices, – in a convenient manner, – with dignity.

• So, sustainable financial strategies should encompass improving the range, quality and availability of financial services to the underserved and financially excluded.

• Financial inclusiveness is increasingly being seen as important to the goal of poverty reduction and the achievement of the Millennium Development Goals.

29

THIS OBVIOUSLY NEEDS THE CREATION OF NEW OPPORTUNITIESTHIS OBVIOUSLY NEEDS THE CREATION OF NEW OPPORTUNITIES

Why was Financial Inclusiveness so important in Why was Financial Inclusiveness so important in the North and the East in the Sri Lankan context?the North and the East in the Sri Lankan context?

• To support Government efforts to promote regionally balanced growth and development

• To increase economic activities and create employment opportunities in the North and the East quickly

• To distribute financial resources in a fair manner

• To further promote savings and investment• To ensure high, sustained and inclusive growth

30

In order to promote In order to promote Financial Inclusiveness Financial Inclusiveness

in the North and the East, in the North and the East, what was done what was done

over the past 2 1/2 years?over the past 2 1/2 years?

31

Quick restoration and creation of livelihood Quick restoration and creation of livelihood opportunities …opportunities …- Many vocational training centres have been established by both public and private organisations.- Restrictions on fishing have been removed.- A large number of new bank branches has been established and the existing ones in the North

and the East have been re-established.- Thousands of cattle, goats and poultry have been distributed to households.- A large number of boats, motors and nets have been distributed.- The Central Bank has started several new credit lines and added to the existing schemes in the

North and the East. These schemes have provided extensive access to finance, which has greatly assisted the people of these two Provinces to restart their IGAs/livelihood.

32

Disbursement of thousands of Bank Loans on a “fast track” Disbursement of thousands of Bank Loans on a “fast track” approval basis in the Northern and Eastern Provinces...approval basis in the Northern and Eastern Provinces...

Name of the Loan Scheme

No. of househol

ds benefitte

d

Total amount granted (Rs. mn)

(as at 31 Dec. 2011)

Sarusara * 9,772

* 582

Prabodini 18,123 818

Abiwurdhi 1,709 276

Eastern Development 6,892 1000

Provincial Development

313 116

Saubagya 176 67

Post Tsunami Credit Lines

117 42

Total 46,874 2,901Name of the Credit Line

No. of loans

granted

Total amount granted (Rs. mn)

(as at 31 Dec. 2011

Vaddikkin Wasantham 15,508 2,000

Prabodini 8,534 459

Sarusara * 27,502

* 2,709

Abiwurdhi 611 93

Provincial Development 907 637

Saubagya 149 128

Total 56,112 6,026

Northern Province

33

Eastern Province

* During the year 2011

* During the year 2011

Issue of new regulations by the Central Bank to Issue of new regulations by the Central Bank to facilitate bank lending…facilitate bank lending…

• Central Bank introduced a Credit Guarantee Scheme for the benefit of the farmers in the Killinochchi, Mullaitivu and some parts of the Mannar district who have been facing difficulties in obtaining short-term cultivation loans under “Sarusara” due to their inability of providing title deeds to establish land rights/ownership.

• Central Bank also introduced another innovative Credit Guarantee scheme in which the Central Bank will guarantee up to Rs.200,000/- per farmer in case of default arising due to a land ownership dispute. The scheme has facilitated banks to disburse more cultivation loans to farmers who are in possession of lands, disregarding their land ownership status.

34

Establishment of two Provincial Offices in the North Establishment of two Provincial Offices in the North and the East by the Central Bankand the East by the Central Bank

• Facilitating loan schemes operated by the Central Bank, including:– Awakening North, Liquid milk

production, eradication of poverty, SME

– Fisheries sector development– Palmyrah products

• Arranging credit facilities along with entrepreneurship development services to resettled IDPs to restart their livelihood

• Conducting financial literacy programmes to create awareness of the formal sector financial facilities and services 35

Wide extension of loan facilities…Wide extension of loan facilities…

The Central Bank actively engaged in livelihood development and Income Generating Activities (IGAs) of the conflict affected households in the two Provinces under six credit lines implemented through Participating Financial Institutions (PFIs). 36

Provision of loans for projects under the Poverty Provision of loans for projects under the Poverty Alleviation Loan SchemeAlleviation Loan Scheme

An initiative taken to link small producers in Jaffna with large trade networks.

37

Conduct of many education and awareness Conduct of many education and awareness programmes...programmes...

An education programme conducted at Vembady Girls School

Discussion of the developments in the area

38

Rapid and far reaching Infrastructure Restoration and Rapid and far reaching Infrastructure Restoration and upgradeupgradeRoad reconstruction•Access restrictions on A9 totally lifted. A9 highway development commenced from Galkulama to Medawachchiya & from Vavuniya to Mankulam, Nawatkuli to Mannar •A32 (Puttlam to Mannar), A35 (Paranthan to Mullaitivu) & Paranthan to Poonakari are already under construction•Mankulam/Mulativu•Jaffna/KKSRestoration of electricity•Sampur Coal Power Project•Extended power supply to Mankulam, Kilinochchi and Vavuniya•New Electrification scheme in Vavuniya•Lighting Sri Lanka – North and EastConstruction of bridges•Kinniya bridge and Trincomalee bridge completed•Mannar bridge & causeway completed•Sangupidy bridge completed•Navakkuli•Many other smaller bridges completed

39

Rapid and far reaching Infrastructure Restoration Rapid and far reaching Infrastructure Restoration and upgradeand upgrade

Railway• Vavuniya/KKS• Madawachchiya/Madhu• Madu/Thailimannar• Omanthei/PallaiWater supply• Major Jaffna Peninsular water supply scheme

completed• Mannar/VavuniyaRestoration of health services• 164 major health institutions constructed• Medical equipment and hospital furniture

supplies providedLarge number of small scale sanitation constructions• 14,539 latrines constructed• 10,891 wells cleanedIrrigation • 5 major irrigation schemes and 115 minor

irrigation schemes are in the process of completion

• Iranamadu• Giant Tank

40

Initiation of Market Linkages for Small Producers...Initiation of Market Linkages for Small Producers...• The opening of the A9 and other roads has provided access for the

farmers in the North and the East to reach the rest of the country.• The Dambulla market is now open to the Jaffna farmers, with nearly

35-40 lorry loads per day making its way. They are also linked with other economic centres in Ekala, Meegoda, etc.

• Co-operatives and supermarket chains have improved their ties with farmers to purchase their produce

41

• Production societies have been formed to organise farmers and share knowledge

• A few months ago, the Central Bank felicitated the most successful beneficiaries of the Poverty Alleviation Microfinance Project. – These farmers from Jaffna, notably women,

had been able to get an excellent harvest and earn incomes that many of them would have thought impossible during the conflict period.

Formation of Self Help Groups (SHGs) in the Formation of Self Help Groups (SHGs) in the Northern and Eastern Provinces…Northern and Eastern Provinces…• SHGs are one of the key vehicles for financial inclusiveness for people

with low income • The progress made by SHGs in the North and the East under the

Poverty Alleviation Microfinance Project II (PAMP II) implemented by the CBSL has been very encouraging, and is as follows:

42

Performance under PAMP II in the Northern and Eastern Provinces : 2008 - 2011

DistrictNo. of groups

formed by PFIs

No. of low income people

registered with PFIs

No. of loans disbursed

Amount of loans

disbursed (Rs.mn)

Northern Province 5,891 29,141 8,534 459

Eastern Province 7,336 43,161 18,123 818

Total 13,227 72,302 26,657 1,277

Many new initiatives and strategies are being introduced Many new initiatives and strategies are being introduced by the Banking Sector in 2011…by the Banking Sector in 2011…

Bank of Ceylon•Further strengthen the poverty alleviation loan scheme to facilitate lower income people in the Northern and Eastern Provinces. •Develop a new product channel in collaboration with Cargills (Ceylon) Ltd to promote sale of products from the Jaffna Peninsula.•Establish 26 Extension Offices (EOs) in the North and the East•Organise small groups of low income people in the two Provinces for purposes of granting facilities•Launch of a housing loan scheme for IDPs in the Northern Province in collaboration with the Ministry of Rehabilitation. Sampath Bank•Open 6 branches in the North and the East

Seylan Bank•Open 4 branches and 4 Extension Offices

43

We have addressed the “chicken and egg” situation!

New initiatives by the Banking New initiatives by the Banking Sector in 2011Sector in 2011

People’s Bank

•Funding for large scale hotels, hospitals and other economic activities•Commence social mobilisation programmes•Provide non financial services for micro entrepreneurs & loans under PAMP- II •Establish microfinance villages•Upgrade 47 branches and 41 Service Centers •Open 11 New Service Centers and 3 new ATM machines•Establish Microfinance Desk in every branch and service center•Recruit 557 new employees from these areas in 2011•Develop SMEs in tourism, commercial, industrial, renewable energy sectors•Fund identified agro-based industries, storage of paddy and farm mechanisation•Fund Multi-day boats, ice factories and livestock sectors•Provide facilities for Coop-cities and mini Coop-cities•Provide credit facilities to the MPCS and other co-operatives •Provide credit facilities for housing and commercial building

44

New initiatives by the Banking Sector in 2011… New initiatives by the Banking Sector in 2011… National Savings Bank•Open 2 to 3 branches•Promote “Smile” savings accounts with the collaboration of the local post offices.•Expedite the loan processing time, by empowering the branch managers of Jaffna and Badulla branches to authorise housing and personal loans.

Housing Development Financing Corporation•Open 2 branches in the North, and 2 branches in the East.•Introduce a fast track housing loan scheme, having gold as security.

State Mortgage and Investment Bank•Open Vavuniya Extension Office

Sri Lanka Savings Bank Ltd•Carry out microfinancing activities in the North and the East.

45

New initiatives by the Banking Sector in 2011… New initiatives by the Banking Sector in 2011…

Pan Asia Bank•Open 3 branches in the North and the East

Lankaputhra Development Bank Ltd•Open 1 branch in Jaffna in 2011

Indian Bank•Establish its Jaffna branch•Finance Self Help Groups, microfinance and agricultural sector

Pradeshiya Sanwardana Bank•Open 5 branches in the North and 12 branches in the East•Introduce a new microfinance scheme

46

New initiatives by the Banking Sector in 2011…New initiatives by the Banking Sector in 2011…DFCC Vardhana Bank Ltd•Open 4 branches in the North and the East•Introduce Vardhana Garu Saru (VGS) FD and savings schemes for Senior Citizens above 50 years•Launch Islamic Banking and Internet Banking

Indian Overseas Bank•Open 2 branches in the North

Sanasa Development Bank Ltd•Open a branch in Mullaitivu and 3 Extension Offices

MCB Bank Ltd•Open a branch in Batticaloa•Introduce Islamic Banking Pawning Scheme as a new product in Batticaloa

47

NewNew initiatives by the Banking Sector in 2011 initiatives by the Banking Sector in 2011

HSBC

•Expand lending activities in Jaffna through the designated SME business development officer. •Install safe deposit lockers to enhance the quality of service to the clientele.

•Lend to investors in the Achchuveli Industrial Park and develop supply chain financing opportunities. •Channel approximately US$ 200 mn for projects, which includes a solar power project, fisheries harbour project and several bridge construction projects.

48

How did the North and the East perform in 2010?How did the North and the East perform in 2010?North•In 2010, the Northern Province recorded the highest nominal growth rate of all Provinces, at 22.9% following a high growth rate of 12.1% in 2009. •The contribution to the country’s GDP by the Northern Province increased to 3.4% in 2010 from 3.2% in 2009.

East•In 2010, the Eastern Province recorded a nominal growth rate of 18.7%, which followed by high growth rate of 13.4% in 2009. •The contribution to the country’s GDP by the Eastern Province increased to 5.9% in 2010 from 5.8% in 2009.

49

What lies beyond 2012?What lies beyond 2012?

• There is a clear drive towards holistic development in the North and the East to ensure that people sustain their economic achievements and translate them into a way of life.

• We expect that the range of investments made in these Provinces will result in a nominal growth rate of over 20% per annum in these Provinces, from 2012 onwards for the next 5 years.

50

Ensuring Financial Inclusiveness Ensuring Financial Inclusiveness in the North and the East in the North and the East over the next few years over the next few years will need several drivers:will need several drivers:

51

Physical AccessibilityPhysical Accessibility

• Today, the road network is being expanded and will continue to expand at an unprecedented, accelerated pace.

• With the continuous upgrading of the road network, we expect trade, business, enterprise and investment to increase significantly.

• Farmers in the North have now found new competitive markets in the South and were able to sell their produce at market prices.

• Simultaneously, many businesses expanded their networks to the North and the East, giving people in those areas an opportunity to benefit by higher level of services and high quality goods.

52

Banking Accessibility• Bank of Ceylon, People’s Bank and others operated banking services

to IDPs from “container offices” soon after the end of the war. These banks provided a valuable service to IDPs by providing much needed safekeeping facilities and money transfer facilities.

• The Northern and Eastern Provinces have immensely benefited by the 2:1 rule in branch opening that requests commercial banks to open two branches outside the Western Province for every branch they open in the commercially developed Western Province.

• “Mobile banking” systems have been encouraged.

• The Central Bank works with financial institutions to raise awareness of formal banking activity. Banks have been requested to open SME centres and to promote SHGs.

• Awareness programmes are also conducted to encourage the public towards formal sector deposit opportunities.

53

Skills and Training Accessibility Language Accessibility • The Central Bank conducts entrepreneurship development

programmes with other financial institutions for people with low income and for small and medium scale entrepreneurs. – Best practices are introduced to obtain better yields in agriculture

and livestock, and higher profits in SME and other Income Generating Activities (IGAs)

– Focused training programmes include book keeping, doing business, leadership skills and export market orientation.

• Former combatants are trained on mechanical and electrical skills, guided by the SL Army and private companies.

• The universities in the North and the East conduct market oriented degree programmes.

• Several language labs or computer-based language courses have been set up.

54

Technology and ICT Accessibility

• The Universities in the North and the East have established state-of-the-art computer laboratories with the assistance of international development partners.

• Private sector computer training institutes and cyber cafes are flourishing in these Provinces.

• Many young persons have been given bank loans to establish internet cafes.

55

In order to maintain these conditions, new infrastructure In order to maintain these conditions, new infrastructure investments in 2011 to 2014 are also being focused:investments in 2011 to 2014 are also being focused:Major Investments:

- Rehabilitation of key roads, railroads, hospitals, and bridges- Restoration of industries that closed down because of the violence- Implementation of large scale irrigation schemes - Implementation of projects for providing electricity and water- Establishment of vocational training centres, and technical colleges

for skills development- Upgrade of fisheries harbours- Development of tourist attractions

Minor Investments:- Rehabilitation of village tanks, canals, and minor irrigation systems- Reconstruction of damaged houses and shopping areas- Provision of furniture, equipment for schools and hospitals- Provision of boats, fishing gear, etc. for fishermen

56

Estimated Plan of Vadakkin Wasantham : 2011 - 2013 Rs. million

Social Protection and Livelihood Development 12,876 Improving Economic Infrastructure 150,375 Strengthening Social Infrastructure and Fostering Social Services 25,010 Revitalization of Productive Sectors 24,297 Human Settlement Development 39,025 Total 251,583

Source: Ministry of Finance & Planning

57

Needless to say, we are putting our money Needless to say, we are putting our money where our mouth is…where our mouth is…

In 2011 alone, the planned major investments In 2011 alone, the planned major investments in the North were substantialin the North were substantial

58

Investment Area Rs. million National, Provincial & Rural Roads 20,186 Railway 8,900 Electricity 5,308 Ports/ Harbours 56 Water Supply 2,273 Housing 1,514 Irrigation & Agriculture 2,130 Health 1,293 Education & Skills Development 1,131 Sports, Culture and Tourism 246 Resettlement 5,025 Livelihood 237 Other 2,631

Total 50,930

Source: Ministry of Finance and Planning

Investments already carried out in East: 2006 - 2010

Rs. million

Resettlement 12,242 Economic Infrastructure 94,124 Productive Sector 4,075 Social Infrastructure 5,643 Total 116,084

Source: Ministry of Finance & Planning

Already massive investments have been carried Already massive investments have been carried out in the East : 2006 – 2010…out in the East : 2006 – 2010…

59

Major investments were carried out in the East Major investments were carried out in the East too, in 2011…too, in 2011…

60

Investment Area Rs. million National, Provincial & Rural Roads 12,356 Railway 1,147 Electricity 1,363 Ports/Harbours 1,591 Water & Sanitation 1,614 Housing 1,134 Irrigation & Agriculture 2,459 Health 529 Education 592 Sports, Culture & Tourism 791 Resettlement 1,040 Livelihood 395 Other 1,600

Total 26,611

Source: Ministry of Finance and Planning

Our Actions over the Past 2 1/2 Years have borne Our Actions over the Past 2 1/2 Years have borne fruit…fruit…• The GOSL has provided a satisfactory enabling environment to

facilitate economic activities• The CBSL has taken decisive steps to implement a financial

inclusiveness strategy. • The private sector, both formal and informal, have responded

very well and continues to respond• As a result, financial inclusiveness in the North and the East has

gone beyond the traditional practice of touching only the poorest. – The reality of the North and the East inclusiveness is that it has encompassed

the large scale businesses with opportunities and facilities of the formal banking and regulated financing sectors.

– The expansion of banks has provided people not only credit, but also an important source of mobilising national savings.

61

At the same time, the two provinces have At the same time, the two provinces have demonstrated a major appetite for Economic Activity…demonstrated a major appetite for Economic Activity…

• To accommodate this appetite, banks have already expanded to these regions. There were 324 bank branches and extension offices in the North & East in 2010, and this increased to 385 by 2011.

• The expected natural growth of bank branch networks is a clear indicator of the expected economic growth in these regions.

62

But the private sector needs to take hold of these But the private sector needs to take hold of these opportunities and venture into these areas. Thee is a opportunities and venture into these areas. Thee is a huge growth potential in these area and plenty of huge growth potential in these area and plenty of investment opprotunities…investment opprotunities…

EASTERN PROVINCE NORTHERN PROVINCE

• Trincomalee port is a natural harbour whichhas the potential to become a major commercial and industrial hub for the South Asian region.

• Fertile agricultural lands• Mineral ores• Forests• Palmyrah based industries• Wet lands• Beautiful beaches and coral deposits• Value addition for fruit, vegetables and

seafood• Livestock and fishery resources can be

developed substantially

• Large stretches of beautiful beaches and ecological conservation areas can support a vibrant tourism industry

• Untapped productive agricultural crop land with low population density can be developed for high intensity and productive agricultural enterprises

• Value addition of seafood

• Livestock and fishery resources can be developed substantially 63

ALREADY, SOME INTERESTING INVESTMENTS ALREADY, SOME INTERESTING INVESTMENTS HAVE ALREADY TAKEN PLACE:HAVE ALREADY TAKEN PLACE:

• Yaal Hotel by Jetwing, Jaffna (66 rooms)• Fortune Premier, Pasikudah (60 rooms)• Holiday Resort, Pasikudah (50 rooms)• Anilana Properties, Trincomalee (70 rooms)• ICC Hotel, Trincomalee (50 rooms)

64

CARGILLS/BOC DIARY PROJECTCARGILLS/BOC DIARY PROJECT

HUGE INVESTMENT IN HUGE INVESTMENT IN FISHERIES/AGRICULTUREFISHERIES/AGRICULTURE

In the budget for 2012, the government provided several In the budget for 2012, the government provided several tax and concessions to encourage investment in tax and concessions to encourage investment in agriculture, fisheries…agriculture, fisheries…

2009 2010 2011

Northern Province

20,485 28,136 81,762

Eastern Proviince

216,148 244,523 262,764

65

2009 2010 2011

Northern Province

21,210 33,600 45,040

Eastern Province 68,480 92,240 87,210

The North and the East have already made a critical The North and the East have already made a critical contribution to Sri Lanka’s recent Economic journey…contribution to Sri Lanka’s recent Economic journey…

66

• The farmers in these Provinces also received a good price for their produce!

• The natural calamities of last year and early this year destroyed a significant amount of agricultural crops. This would have created chaos in domestic markets having a severe impact on prices and inflation.

• However, ample stocks of key agricultural crops that arrived in the market from the North and the East, helped mitigate adverse price pressures to a great extent.

The success over the past 2 1/2 years has been The success over the past 2 1/2 years has been extraordinary and we clearly surprised the World! extraordinary and we clearly surprised the World! But, that is because…But, that is because…

• We prepared for the post-war period, before the war ended• We worked to the plan• We displayed deep commitment

• However, this is only the beginning.• There are huge benefits the entire country, including the North

and the East can look forward to, with the contribution expected from the North and the East.

67

• In that context, we must not allow various forces within and outside our nation (however well meaning they may sound) to destroy our unity or distract us from our mission.

There is no shortcut to prosperity…There is no shortcut to prosperity…

• Developing an economy, at national, provincial or even at village level, is a complex balancing act.

• As much as we may believe that world class infrastructure, well regulated financial services, steady inflow of foreign remittances and demand for goods, will be adequate for our progress, we must not relax or be complacent…

• Hence, hard and smart work over the next decade is vital to maintain the balance and the growth momentum.

68

As a nation however, we can be satisfied…As a nation however, we can be satisfied…• Our country has been able to achieve 8% growth and over

US$ 2,000 per capita income, even though we did not enjoy a smooth, easy passage.

• Our journey was marked with many obstacles, which we overcame. Every obstacle overcome, was a lesson learnt.

69

“The fact that we have been able to achieve a sustained and uninterrupted growth in a most challenging era while facing the ongoing conflict was an amazing achievement. I am therefore confident that we will be able to now maintain a continuous growth rate of 8% per annum, during the next six years.”

Mahinda Chintana – Vision for the Future (December 2009):

Based on our achievements so far, we can certainly Based on our achievements so far, we can certainly have hope…have hope…

Mahinda Chintana – Vision for the Future (December 2009):

70

“In the next few years, we will face two major economic challenges. One, will be to ensure that the growing economic prosperity and the benefits of recent developments will filter down to all our people. Two, will be to lay the foundation for long term sustainable development. In the same manner that we faced and overcame the previous challenges, I am certain that we can face and emerge victorious against these new challenges as well.”

This is exactly what inclusive growth and Financial Inclusiveness is all about!

WE MUST NOT WAIT FOR FOREIGNERS, OR WE MUST NOT WAIT FOR FOREIGNERS, OR OTHERS TO DO WHAT WE MUST DO.OTHERS TO DO WHAT WE MUST DO.

THEY WILL COME. BUT THEY WILL THEY WILL COME. BUT THEY WILL COME, AFTER US!!COME, AFTER US!!

WE MUST BE CONFIDENT THATWE MUST BE CONFIDENT THATWE CAN DELIVER ON THAT PROMISE.WE CAN DELIVER ON THAT PROMISE.

71

For the sake of our country,For the sake of our country,We must…We must…

THE BUSINESS COMMUNITY MUST NOW THE BUSINESS COMMUNITY MUST NOW RESPOND …RESPOND …