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A family affair

November 24, 2012

THIS morning (Saturday), a large scorpion was found in the sitting room; the other day, a snake slithered before me as I was walking in our house in Sri Lanka. Last night, we sat through the biggest storm I have ever witnessed as rain sheeted through, and lightning tore across the sky to the accompaniment of loud thunderclaps.

And yesterday, as were walking down the beach, we saw thousands of mangrove plants scattered about. Apparently, they have been uprooted by a storm in another part of the island, and deposited along our coast.

Basically, we have learned to expect the unexpected when we come to spend much of the winter in Sri Lanka. Despite the occasional nasty surprise, we have a wonderful time, especially when we learn of the dreadful weather in England.

But what has been a real surprise – and far more important than the occasional snake or scorpion – is the performance of the Sri Lankan economy. When the civil war ended over three years ago, conventional wisdom held that Sri Lanka would benefit from a huge peace dividend. Tourism would boom; foreign investment would flood in; and the country would take off.

Unfortunately, this optimistic scenario has not unfolded according to these rosy forecasts. While the stock market has increased by 200 per cent in value, and the economy has grown by 17 per cent since the war ended, foreign direct investment (FDI) has not been of the magnitude that was expected. The government claims an inflow of one billion dollars in the last year, while according to the UN, the figure was a third of this. If accurate, this would be the lowest FDI inflow since 2005.

And while the number of tourists rose by 30 per cent, the majority of them are on tight budgets that take them to low-end guest houses. Nevertheless, the bulk of foreign investment has been in new hotels, or in adding capacity to existing facilities.

One thing this government has been good at is building new roads and upgrading existing ones. Since we began spending lots of time here, the transformation in the infrastructure has been phenomenal. While it used to take around six hours to reach our bit of the island from the airport, we can make it in under five now. And once the additions to the motorway are completed, we should be able to get home in three- and-a-half hours.

The rest of the island has benefited from this huge improvement as well. But the returns are hard to quantify: the Colombo-Galle motorway is a 100-km long road built to international standards through some spectacularly beautiful countryside. Although its opening has reduced the driving time from the capital to the coastal city from three hours to one, it is used by very few vehicles. Perhaps drivers are put off by the 400 rupees toll, and the absence of places to take a break and relax.

If the economic viability of the motorway is questionable, then the new port at Hambantota is absolutely disastrous. After a Chinese company built this modern facility with a loan from Beijing, it was discovered that there was a large rock blocking the channel. Now this impediment is being blasted, but this has delayed the opening of the port.

In this same southern province, a new airport is nearing completion near the modern cricket stadium, both constructed by the Chinese. Not far away is a brand new conference centre. All these developments are located in President Rajapakse’s home base, and are financed through Chinese loans, but economists and opposition figures have been highly critical of their utility.

When I went to the new cricket stadium to watch Pakistan play Kenya in the cricket World Cup last year, there were more security staff than spectators. Built in the middle of the jungle, I could actually see a wild elephant in the distance through my binoculars. For much of the year, this great facility stands empty, as does the state-of-the-art conference centre.

INVESTORS’ RELUCTANCE: One reason foreign investors are reluctant about investing in Sri Lanka is the stranglehold the ruling Rajapakse family have over political and economic power. According to a Reuters report, the family controls 70 per cent of the annual budget.

Basil is in charge of the economic affairs division; Gotabaya is the powerful defence secretary; and one brother is speaker of the assembly. For good measure, the President’s son has recently been elected to parliament, and is reportedly looking after government projects in the Tamil north.

According to the Reuters report, foreign investors are nervous about so much political and economic concentration in one family. Basil was quoted as defending what he called “the people’s dynasty”, terming it efficient in reaching decisions. But there has been a definite blurring between the boundaries between state and private investments. For instance, the President’s brother-in-law is running Sri Lanka Airways, and the air force is operating a domestic airline.

In the north, there are complaints from the Tamil community about the military’s involvement in a large number of business activities, ranging from bakeries to golf courses. This has made it hard for the locals to compete, and economic activity remains stifled.

Another issue, according to Reuters, is the absence of any significant steps to heal the deep scars left by 25 years of bloody civil conflict. Power has still not been devolved to the Tamils, and they have little say in development matters.

Finally, there are charges relating to human rights abuses that are alleged to have taken place in the last days of the war.

According to some estimates, as many as 40,000 Tamil civilians were killed, victims of the Tigers’ tactics of using them as human shields, and the army’s indiscriminate shelling.

Thus, despite the apparent potential of Sri Lanka as a regional powerhouse, unresolved political issues and ethnic tensions continue to hamper growth. Above all, the ruling family needs to reconsider its overwhelming presence on the political and economic horizon: there are times when too much power can be counterproductive.