Reconstructing Sri Lanka: Top down, bottom up, or both?
Rohan Samarajiva 
Views & Interviews 
15 June 2009 
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The damage that has to be undone is immense. While the rest of the country progressed following the liberalization of 1977, the North and the East regressed. But even in the South, enormous inefficiencies and distortions have got built into the economy because of the war. Law and order and political culture suffered everywhere.
There is little debate that much has to be done, urgently. Yet, there is no consensus, or even the asking of the right questions, with regard to how the reconstruction is to be done. This short article will, hopefully, contribute to the essential discussion.
Top down
Some start with big numbers: the USD 4.5 billion pledged in June 2003 at the Tokyo donor meeting, based on a needs assessment conducted by the World Bank country office. Given that six years have passed since then, during which time Eelam War IV was fought with great ferocity, some believe there is a need for a correction factor. This could be 2, in which case the amount would be USD 9 billion; or it could be 1.5, in which case the big number would be around USD 7 billion.
Whichever the case may be, there are a whole lot of zeros. In USD the amount required is 4,500,000,000 to 9,000,000,000. It is even more frightening when converted to LKR: 450,000,000,000 – 900,000,000,000 (actually a lot more, but the general point is made by converting at USD 1 = 100 LKR).
In 2003, USD 4.5 billion was not an unattainable number. We were held in high esteem among countries that had dollars to give. The peace discourse made the getting of money not difficult at all.
But today, it is not at all a helpful number. When I look at the numbers, I get paralyzed. Not a good outcome.
But I happen to know how these numbers were arrived at. For example, there is USD 83 million in there for telecom. In actual fact, not one cent of donor money is needed for telecom. The level of competition in the telecom industry has been enough for a new business model to emerge that is capable of connecting people at very low cost and keep them connected for even less (http://expandinghorizons.nokia.com/issues/?issue=ExpandingHorizonsQ42008, p. 4-6).
So, if one assumes there are components within the USD 4.5 billion than can be drastically pruned by allowing for the mobilization of private capital, the overall number should come down by quite a bit. This is not to say that there should be no money for rebuilding roads or for resettling IDPs. It is just that we need to stop taking the 2003 number as the end point, or even the starting point of planning. Interrogating the big fat number is likely to make it less terrifying. We need to act, not be paralyzed.
Scepticism regarding the money required for reconstruction should not be interpreted as a claim that government is superfluous.
Government action is required to create the conditions for private investment. There should law and order (e.g., ensuring contracts can be enforced and that payroll will not be robbed). But in many cases that is not enough. There is a need to create the opening for private investment; to remove the barriers.
This may be illustrated using the transport infrastructure. As of today, Jaffna is connected to the rest of the country by ship and by air. Supply does not meet demand, even at high prices, and both are affected by huge delays. The opening of the A9 highway, for which so much blood was spilled and which was rebuilt with ADB funds post haste during the ceasefire, is critical to integrating the North into the national economy. This is something only the government can do.
The government has the power to decide what kind of rail link, if any, there will be between the North and the South. In its separatist frenzy, the LTTE used the sleepers (ties) of the Main Line north of Omanthai to build bunkers. Now the government has launched an initiative called Uthuru Mithuru (note the pure Sinhala terminology) to collect funds from donors in amounts as small as LKR 1,000 (USD 10) to rebuild the track.
In a recent column (http://www.lbo.lk/fullstory.php?nid=1238565096) I questioned the wisdom of giving the reconstruction of the Main Line to the Sri Lanka Railway, which has lost LKR 28,052 million over the past 10 years (close the LKR 8 million per day since 1999). Would it not be better to ring-fence the Main Line reconstruction project, I asked. Would it not be even better to concession it out to a public-private partnership, making best efforts to involve diaspora capital, I asked. These kinds of decisions can only be taken by government.
In the same column, I documented the achievements of the Sri Lanka Transport Board which is in close competition with the Sri Lanka Railway on how much taxpayer money it can absorb. It was winning in 2001-03, but the Railway pulled ahead and is now ahead by about LKR 1,000 million in losses per year.
On the same lines as above, it is up to the government to decide whether to add the Jaffna, Mullaitivu, etc. routes to the money-losing portfolio of the SLTB, or come up with an alternative. Depending on the options selected by the government on questions of roads, trains, buses and such, the private entrepreneurs will get access to efficient and competitively priced transport infrastructure, or not.
Bottom up
Top down requires massive amounts of money. The government has launched an initiative to revitalize the North called Uthuru Wasanthaya or Northern Spring (http://www.lankamission.org/content/view/2170/1/). According to speakers at a recent meeting on revitalizing the economy of the North (details at: http://sanvada.org/), the initiative has been allocated LKR 30 million. This is small change. If it was multiplied by 10 it would be enough perhaps for the much needed Jaffna-Colombo expressway.
The government does not have the money; traditional donors are unlikely to give in the current circumstances; and the new friends China and Iran are less in the donor business than in the business of business. That leaves private initiative; that means bottom up.
At the same meeting where I learned of the LKR 30 million budget of Uthuru Wasanthaya, a well meaning gentleman started to list various economic activities that could be beneficially undertaken in the North, including the growing of karthakolomban mangoes. Were I chairing the meeting, I would have cut him off, suggesting that real entrepreneurs would not be discussing specific business ideas in meeting rooms in Colombo; they would be lining up the land, capital and marketing channels to make some money off their brilliant ideas.
Government or international organization officials sitting in Colombo or elsewhere are not the best to identify business opportunities or to define what areas are to be encouraged. It is easy for people who do not risk their own money and time to talk. For example, there are those who want to encourage tourism in the North, as though the thousands of mines will disappear in a trice, along with the millions of hurts from a 30-year civil war. Would it not be better for those people to actually start tourist hotels to test out their ideas than give advice to others?
There could be some level of government facilitation for these kinds of SME initiatives, but for the most part what is required is the Smithian policy solution of laissez faire.
Both
So in end, it’s not top down or bottom up, but both. Government must figure what it is best at, what it only can do, and do it. The private sector must make intelligent calculations on what kinds of profit-yielding actions are feasible, within the conditions set by the government, nature and history. Risks are high, both of policy failure and business failure. But then it wouldn’t be entrepreneurial if there weren’t risks, would it? And is not the end result worth the effort?
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