Ethnicity and Exclusion in Sri Lanka: How Markets can Contribute to Greater Social Cohesion by Market Development Facility

Ethnicity and Exclusion in Sri Lanka: How Markets can Contribute to Greater Social Cohesion

February 2017 Anne Kristine RaunkiĂŚr-Jensen

Table of Contents 1. Introduction to the Research .........................................................................................................1 1.1 Introduction to the Market Development Faclity and its Work in Sri Lanka ................................ 1 1.2 Research Purpose and Design ................................................................................................................ 1

2. Background to the Research ..........................................................................................................2 2.1 Background to the Civil War and Post-war Development ................................................................ 2 2.2 Conceptual Framework: Economic Flashpoints .................................................................................. 5 2.2.1 Youth Unemployment................................................................................................................................... 5 2.2.2 Entrepreneurial Affinity ................................................................................................................................ 7 2.2.3 Debt and Access to Finance ........................................................................................................................ 7 2.2.4 Private Sector Investment ........................................................................................................................... 8 2.2.5 Ethnic Relations in Business ........................................................................................................................ 8 2.2.6 Confidence in Key Institutions.................................................................................................................... 9 2.2.7 Voice and Representation ......................................................................................................................... 10

3. Research Findings ......................................................................................................................... 10 3.1 Youth Unemployment .......................................................................................................................... 10 3.1.1 Youth Unemployment Situation in the North and the East............................................................ 10 3.1.2 Job Preferences and Job Search .............................................................................................................. 12 3.1.3 Education, Skills and Training ................................................................................................................... 15 3.1.4 Employment, Social Status and Discrimination .................................................................................. 16 3.2 Entrepreneurial Afiinitiy ....................................................................................................................... 17 3.2.1 Adverse Attitudes to Entrepreneurship ................................................................................................ 17 3.2.2 Nature of Entrepreneurship in the North and the East ................................................................... 18 3.2.3 Skills, Finance, Information and Cultural Norms ................................................................................ 19 3.3 Access to Finance and Debt ................................................................................................................. 20 3.3.1 Access to Finance ......................................................................................................................................... 20 3.3.2 Borrowing Purposes .................................................................................................................................... 21

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3.3.3 Debt, Savings and Repayment Issues..................................................................................................... 22 3.4 Ethnic Relations in Business ................................................................................................................ 24 3.4.1 Inter-ethnic Relations and Perceptions ................................................................................................. 24 3.4.2 Interaction in Business................................................................................................................................ 26 3.5 Private Sector Investment ................................................................................................................... 28 3.5.1 Post-War Investment Trends .................................................................................................................... 28 3.5.2 Sentiments Towards Private Sector Investment ................................................................................ 29 3.5.3 Investment, Employment and Peace ..................................................................................................... 30 3.6 Confidence in Key Institutions ............................................................................................................ 31 3.7 Voice and Representation.................................................................................................................... 32

4. Conclusions and Implications ..................................................................................................... 32 5. References ..................................................................................................................................... 40

List of Figures Figure 1 Economic Flashpoints ................................................................................................................ 5 Figure 2 Youth Unemployment in 2014 .................................................................................................. 6 Figure 3 Perceptions of Post-War Reconciliation Efforts by the Government...................................... 25 Figure 4: Factors behind Social Cohesion .............................................................................................. 36

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1. Introduction to the Research1 1.1 Introduction to the Market Development Faclity and its Work in Sri Lanka Market Development Facility (MDF) is one of Australia’s leading private sector development programmes in the Indo-Pacific region. MDF began in Fiji in 2011 and expanded to Timor-Leste in 2012, Pakistan in 2013, and Sri Lanka and Papua New Guinea in 2015. MDF stimulates business innovation, investment and regulatory reform in order to generate sustainable and broad-based, inclusive propoor economic growth, as well as create more jobs and better incomes for poor women and men in rural and urban areas. In Sri Lanka, MDF is working in the Tourism and Related sector which is underpinned by four strategic engagement areas:    

Diversification of Sri Lanka’s tourism destination, products and services Improving Sri Lankan produce and products for export and tourism markets Innovation in digital services Stimulating entrepreneurship in former conflict affected areas

The Former Conflict-Affected Areas engagement area has a geographic scope spanning the conflictaffected Northern and Eastern Provinces of Sri Lanka. Before the country’s civil war from 1983 to 2009 the North and the East contributed significantly to the national economy. MDF is working to revive the economic activity of those areas. This report, attempts to understand the economic and social situation in the conflict-affected areas and investigates how developing economic activity can contribute to increased social cohesion, in terms of ethnicity and sustainable peace. 1.2 Research Purpose and Design The objective of the research is to understand in which ways a market development program can contribute to social cohesion. The research explores seven economic flashpoints, conceptualized as critical economic developments that, if unaddressed, may contribute to reigniting conflict. The seven flashpoints under examination are youth unemployment, entrepreneurial affinity, debt and access to finance, private sector investment, ethnic relations in business, confidence in key institutions, and voice and representation. Although they are treated as separate domains they interrelate and overlap in various ways. The flashpoints were identified by iteratively consulting with the MDF team, NGOs and INGOs and literature on conflict recurrence and on the Sri Lankan civil war. This process was followed to assess which economic developments in Sri Lanka, that fall under MDF’s scope, are potential fault lines. Following identification of the seven flashpoints empirical data collection was carried out in Trincomalee, Batticaloa and Ampara in the Eastern Province and Kilinochchi, Mannar and Jaffna in the Northern Province. In addition, a border village near Anuradhapura which was a centre of battle dur-

The author prepared this paper as part of a research project supported by MDF. The responsibility for opinions expressed in the paper rest solely with the author.

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ing the war was included in the sample to assess the situation in a war-affected Sinhalese-majority area. The sample was diverse and included households, individuals, key government institutions, banks, NGOs and INGOs, associations, managers and employees of three big businesses (one in the North and two in the East), and residents in an Internally Displaced Person (IDP) camp and in a resettlement compound in the North. Respondents were found via a combination of purposive and snowball sampling. Respondents were from the ethnic groups Sri Lankan Tamil, Moor, and Sinhalese. Indian Tamils and Burghers were not included due to their low representation in the populations of the Northern and Eastern Provinces. Since the main tensions are among the Sinhalese and the Tamils, Sinhalese respondents residing in the North and East were included. In general, the Moors were posititioned better to integrate with the majority Sinhalese as many could speak both Tamil and Sinhalese and due to the high prevalence of Moors in trading. Most Moors from the North and the East learned Sinhalese when all Moors were evicted by the Tamil rebel group the Liberation Tigers of Tamil Eelam (LTTE) during the war and therefore forced to move to other parts of the country. Therefore, the research focused mainly on Sri Lankan Tamils. While a balance of males and females was sought in the sample (MDF emphasises Women’s Economic Empowerment), due to the complexity of the economic flashpoints, the gender angle was not considered in this research. The methods used to collect data were semi-structured interviews and focus group discussions. The research team included Tamil-speaking MDF staff who acted both as co-researchers and interpreters. Dependence on interpreters is a constraint on the research, since ways of expression and body language are more difficult to decipher in translation. After the empirical part the data was coded and analysed with a software program. Finally, secondary sources, reports and previous research was reconsulted to ground findings.

2. Background to the Research 2.1 Background to the Civil War and Post-war Development The three major ethnic groups in Sri Lanka are the Sinhalese, the Sri Lankan Tamils and the Moors. The Sinhalese, who are predominantly Buddhist, form the majority of the population, comprising approximately 75%. The Sri Lankan Tamils are the largest ethnic minority comprising around 11% of the population. They are concentrated in the Northern and Eastern Provinces of the country. Approximately 78% are Hindus and 20% Christians. The Moors comprise 9% of the population and are almost exclusively Muslim. 2 The largest concentration of Moors is found in the Eastern Province. Between 1983 and 2009 Sri Lanka was ravaged by a civil war between the Sri Lankan government and the separatist Tamil movement Liberation Tigers of Tamil Eelam (LTTE) revolting against the majority Sinhalese and demanding autonomy of the Northern and Eastern Provinces. The war evolved from political, social and economic developments causing entrenched cleavages along ethnic lines. The difference between the ethnic categories ‘Tamil’ and ‘Sinhalese’ became more pronounced dur-

HIES 2012-2013 database

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ing the British colonial rule.3 Following independence from colonial rule in 1948 skewed political reforms restructuring education and employment opportunities, especially for youth, coupled with economic/social policies and investment bringing about unequal benefits, led to social unrest and ultimately the onset of the conflict. In the 1950s, state expansion resulted in an increase in public sector jobs attracting especially young people, also from lower classes. Salaried public sector positions at all levels became a source of status and prestige. At the same time free education was introduced but was, as a consequence of ethnonationalist policies, structured along ethnic-vernacular lines so that Tamils and Sinhalese were taught only in their own language. Public sector jobs were thus in high demand but restricted to those who spoke English, generally the urban elite that could afford private or foreign education. Lucrative private sector jobs were similarly given to English-proficient candidates. This left a bulk of rural educated youth unable to compete for attractive and high-status jobs and thereby unable to fulfill their aspirations.4 The monolingual education system also confined the young generation to communicate only with people of a similar vernacular background and curtailed their opportunities for employment to areas where their language was spoken. Multiculturalism existed only among the English-speaking urban elite in Colombo, whereas ethnic regional divisions and social identities were reinforced in the rest of the country.5 Due to colonial policies that granted Tamils more access to English education, they were disproportionately represented in higher education and better public and urban sector jobs upon independence. Subsequent reforms in language, education and employment were implemented to equalize opportunities for the majority Sinhalese, frustrating young Tamils of what they perceived as their only means of economic success.6 The loss of opportunities was exacerbated by macro-economic reforms introduced in 1977 to liberalize the economy and make Sri Lanka more competitive globally. The reforms largely bypassed the North and East and for the rest of the country benefits were â&#x20AC;&#x153;transitory, unequal and based on political patronage.â&#x20AC;?7 This further served to channel job opportunities, resources and benefits to the higher rungs of society. With rising levels of frustrations and an inadequate voice for opposition resulted in the disillusioned Tamil youth, displaying increasing antagonism against the Sinhalese majority, expressing their frustrations through violent means8, culminating in the onset of the civil war in 1983. The civil war lasted for 27 years with failed international intervention and peacebuilding attempts. It ended in the Eastern Province in 2007 and in the Northern Province in 2009 with the outright defeat of the LTTE by the Sri Lankan armed forces. The war had severe social and economic consequences for the country and especially for the population of the North and the East where violent struggle was concentrated. Post-war economic development was centred on developing infrastructure and saw a foreseeable boom in economic growth both at a national level and in the Northern and Eastern Provinces. How-

Miriyagalla 2015, p. 13 Gunatilaka et al 2010 Gunatilaka et al 2010, p.253 6 Miriyagalla 2015 7 Miriyagalla 2015, p. 12 8 Miriyagalla 2015, p. 12 4 5

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ever, the Eastern and Northern Provinces are still among the lowest contributors to national GDP accounting for less than 5% each.9 Many continue to build their livelihoods on small-scale industries with little opportunities for advancement, “becoming increasingly plagued with food insecurity, unemployment, underemployment and limited access to resources.”10 This is compounded by high inflation leading to increasing living costs. In fact, increasing living expenses and lack of jobs along with insufficient salaries were identified by most as the biggest problems in the country in The Asia Foundation’s 2010 Public perception survey (PPS)11, while a reduction in the cost of living was cited as the most important objective of the current development process in The Centre for Policy Alternatives’ 2013 Survey on Democracy in Post-War Sri Lanka.12 The PPS indicated that the strain on living conditions and welfare is higher for the war-affected population in the North and the East and for Tamils in particular. For example, only 50% in the East and 33% in the North compared to a national average of 55% agreed that the country is going in the right direction, while 24% and 21% in the East and the North, respectively, believed it was going in the wrong direction. In addition, a substantial 37% in the North refused to answer. 13 This suggests disparate levels of satisfaction with development in the country, and indicates that there remains some fear of speaking up and expressing dissatisfaction among Tamils. It has been argued that the conclusion of the war by complete victory “enforced a triumphalist narrative of a ‘victor’s peace’ in the post-war years”14 leaving less space for survivors in the Tamil communities to mourn loss and express grievance. The inability to do so can “perpetuate a sense of mistrust and hostility towards the state and other communities”15. This problem is evident by the Indices of Social Development in which, despite significant improvement in intergroup cohesion from 2005 to 2010, interpersonal safety and trust, and social inclusion have both fallen, while civic activism has largely the same value in 2010 as in 1995.16 In fact, according to many scholars “Sri Lanka appears to be caught within a trap of what peace studies scholar Johan Galtung described as a ‘negative peace’, in which the absence of violence belies the existence of structural forms of unresolved conflict.”17 Despite being the country that has improved the most, in the 2016 Global Fragile State Report by the Fund for Peace-USA, Sri Lanka remains in the ‘High Warning’ category and continues to have disturbingly high scores on indicators such as Group Grievances and Factionalized Elites and not insubstantial scores on Uneven Economic Development and State Legitimacy.18 Countries with previous conflict are more likely to experience recurrent periods of violence. 19 57% of the countries that experienced some form of conflict between 1945 and 2009 fell into subsequent episodes of violence.20 This is often referred to as the ‘conflict trap’ whereby deteriorating living

World Bank 2010 Bowden 2015, p. 24 11 The Asia Foundation 2010 12 CPA 2013 13 The Asia Foundation 2010 14 De Mel & Venugopal 2016, p. 56 15 Ibid. 16 Indices of Social Development, June 2013 http://www.indsocdev.org 17 De Mel & Venugopal 2016, 5 18 The Fund for Peace 2016 19 UCDP/PRIO Armed Conflict Dataset, Vol. 4, 2009 in Walter 2011, p. 1 20 UCDP/PRIO Armed Conflict Dataset, Vol. 4, 2009 in Walter (Walter, 2011) 2011, p. 1 10

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conditions and socioeconomic circumstances that contribute to frustrations and outbreak of conflict, are in turn worsened by the destructive nature of conflict.21 On this basis the reverse should hold, that post-war improvement of living conditions, wellbeing and satisfaction should contribute to peacebuilding and stability.22 In fact, evidence shows that, as per capita income, more so in the particular geographic area, rises the probability of renewed conflict declines. 2.2 Conceptual Framework: Economic Flashpoints This section explains the logic behind each economic flashpoint. Figure 1 Economic Flashpoints

Voice and Representation Confidence in Key Institutions Access to Finance and Debt Private Sector Investment

Youth Unemployment Entrepreneurship

Ethnic Relations in Business

2.2.1 Youth Unemployment Youth dissatisfaction with opportunities for education, employment and political influence is a common feature of social unrest.23 Many conflicts, such as those in Sudan and Sierra Leone, have demonstrated the propensity of young people with unmet aspirations and narrow opportunities to turn to violence to express their frustrations.24 This is echoed in Sri Lanka where disillusioned and frustrated youth were heavily involved in both the Janatha Vemukthi Peramuna uprising in 1988-89 and the civil

Gunatilaka et al 2010, p. 244 Tobias & Boudreaux 2011, 224 23 Bowden 2015, p. 28 24 Bowden 2015, p. 34 22

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war in 1983-2009.25 Historically, the government response to such unrest has been largely inadequate, often not acknowledging the legitimacy of youth frustration or addressing the underlying reasons for discontent.26 According to The Asia Foundation’s recent ‘Strategic Country Assessment’ one of the major contestations between citizen and state in Sri Lanka continue to revolve around discontented youth and centre on issues of education and economic and employment opportunities.27 In 2014 45% of the poorest 40% in Sri Lanka were below 25 years old, 20% 20-24-year-olds and 8.3% 25-year-olds were unemployed compared to a national average of 4.3%.28 Along with this, the National Youth Survey from 2000 showed that a concerning 51% of 20-24-year-olds and 3.8% of 25-29year-olds who stated that they had no interest in politics also believed that violence was an acceptable means to fulfil one’s goals.29 Such circumstances are breeding grounds for frustrated youth to join in violent insurgency. One of the attractions of the LTTE movement was its image among Tamil youth as a driver of change against perceived discrimination.30 While youth is a potential source of violent mobilization they are also increasingly recognized as a productive force of post-war development. Successfully engaging youth in meaningful employment both contributes to social and political stability and serves as an impetus for economic growth.31 Figure 2 Youth Unemployment in 2014

Unemployment 25

0 20-24-year-old

25-year-old

National Average

Bowden 2015, p. 28; Gunatilaka et al. 2010, p. 199 Bowden 2015, p. 31; Gunatilaka et al 2010, p. 201 27 The Asia Foundation 2016, p. 35 28 The Asia Foundation 2016, p. 35 29 Gunatilaka et al. 2010, 247 30 Bowden 2015, p. 32 31 Bowden 2015 26

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2.2.2 Entrepreneurial Affinity Due to the continuous prominence of government in economic activities since independence and concurrent preference of public sector and white collar jobs entrepreneurship is not well-recognized in Sri Lankan society. Despite liberalization of the economy in 1977 a ‘socialist psyche’ and adverse attitudes towards self-employment and business persist in Sri Lankan society.32 Being an entrepreneur is not a source of social recognition and prestige as it is in many Western societies. The SchoolTo-Work Transition survey in 2004 and Youth and Poverty survey in 2005 found that dislike of businesses and a lack of social respect were among the reasons why youth did not prefer selfemployment.33 Along with the negative social connotations of entrepreneurship it is likely that the population in the North and the East, having gone through a 27-year-long conflict and experienced continued instability, dispossession and destruction of assets, are even less willing to take on the risk of starting a business venture. Yet, entrepreneurship is vital to spur exponential growth in the economy and to generate employment.34 In addition to economic gains promoting entrepreneurship can induce social change by developing commercial ties between formerly antagonistic groups, referred to as ‘peace through commerce’.35 Studies have found that it has positive social effects by improving capabilities, human skills, national happiness, job satisfaction and health.36 Considering the already saturated public sector in Sri Lanka, if preference for public sector jobs and adverse attitudes to entrepreneurship as an employment opportunity persists this will have the effect of hampering economic growth, curbing potential for increasing living standards and wellbeing, as well as magnifying frustrations among youth unable to find fulfilling jobs. 2.2.3 Debt and Access to Finance Once the war ended many finance, leasing and pawning institutions expanded their networks to the North and the East, perceiving these areas as untapped markets with big pools of pent-up savings that could not be deposited during the war. In the Northern Province, the number of commercial banks increased by 25% between 2010 and 2011.37 This large inflow of banks in the conflict-affected areas has led to high competition in the provision of financial services. Competition may benefit consumers by driving down interest rates, but evidence from microfinance suggests that it can also lead to consumer over-indebtedness.38 High availability of financial services might incentivize people to borrow more. In a post-war context the risk of excessive borrowing resulting in high indebtedness is pronounced since people have few assets and need to re-establish livelihoods and rebuild houses.39 The need for borrowed funds may be enhanced by increasing prices and living costs coupled with scarcity of job opportunities.

Maddumage 2015, p. 56 Gunatilaka et al 2010, p. 189 34 Maddumage 2015 35 Maddumage 2015, p. 30 36 Maddumage 2015, p. 30 37 Romeshun et al 2014, p. 27 38 Romeshun et al 2014, p. 27 39 Romeshun et al 2014, 49 33

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Private debt in Sri Lanka has increased between 2006 and 2013, with 66% of all households in Sri Lanka being indebted.40 For the bottom 50% of households mean expenditure exceeds mean income.41 Indebtedness per se need not be negative when it is channelled to income-generating and productive activities, since this ensures capability of repayment. However, when loans are invested in consumption and non-productive activities with no returns, debtors may find it difficult to repay which increases their vulnerability.42 Debt has adverse effects on health, family life and job performance and it diverts resources that could be spent on productive activities.43 Therefore, depending on the pattern of borrowing and spending loan taking can be either a productive source of economic advancement and improved living standards or a burden to households, hindering advancement. In the second scenario debt causes a strain on households that risk ending in a debt trap. Or households may not be able to access credit to invest in productive activities. This can lead to a deterioration in living standards and frustrations with credit institutions and the financial offerings available. 2.2.4 Private Sector Investment Since part of the call to arms by the LTTE was insecurity and hardships for Tamils, attention to economic restoration and upliftment should be a priority.44 Perceptions of unequal economic advancement like that leading up to the war is likely to nurture underlying tensions. â&#x20AC;&#x153;Failure to ensure a growing and inclusive economy in Sri Lanka can foster widespread discontent, which is then easily tapped towards generating ethnic rivalries as well. This is mainly because as opportunities fail to expand or seem disproportionately distributed, internal competition and a sense of discrimination tends to build; and there is risk of these becoming ethnicized as it has occurred in the past.â&#x20AC;?45 If benefits from private sector investment in the North and the East accrue to the already well-off and/or to certain ethnic groups bypassing others it reinforces inequalities and can aggravate tensions. On the other hand, private sector investment has the potential to contribute to long-term peace by creating a peace dividend and to economic reconciliation by generating employment with high social returns for the war-affected communities, especially those who are economically excluded, thereby enhancing their well-being.46 2.2.5 Ethnic Relations in Business Studies have found that prejudices and stereotypes of others formed through social categorization whereby ones ingroup is categorized against an outgroup is a strong predictor of committing violence against the outgroup.47 In outgroup formations people cluster others into homogenous groups with certain characteristics where every member comes to represent those characteristics. Hatred,

Romeshun et al 2014, ix Jalil 2016, p. 5 42 Vhurumuku et al. 2012, p. 37 43 Romeshun et al 2014, 27 44 De mel & Venugopal 2016, p. 33 45 De mel & Venugopal 2016, 27 46 Miriyagalla 2015, p. 17 47 Tobias & Boudreaux 2011, p. 222; Tobias et al 2013, p. 732 41

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prejudice and violence is thus not directed at one’s immediate neighbour but at the social category of the outgroup. The same process can be claimed to have driven the Sri Lankan civil war that saw little localized communal violence.48 Antagonistic attitudes towards outgroups are more likely to arise and find stronghold when interaction between groups is limited. The ‘victor’s peace’ presumably strengthened the ‘distance’ between Sinhalese and Tamils and thereby reinforced mutual distrust and prejudice. Lack of trust is detrimental to post-war economic development because it “increases transaction costs and the risk of opportunistic behaviour.”49 In addition, ethnic segregation curtails employment and business decisions leading to sub-optimal economic outcomes. Consequently, inter-ethnic distrust and prejudice is an issue that, if unaltered, might exacerbate existing ethnicized economic, political and social rivalries and constitute fertile ground for renewed violent mobilization. Conversely, increased inter-ethnic contact might lead to positive outcomes such as trust and forgiveness. According to ‘intergroup contact theory’ positive contact between groups has potential to reduce intergroup prejudice and reverse hostile attitudes towards other groups.50 In fact, there is extensive evidence from other conflict contexts such as in Northern Ireland, Israel-Palestine and Bosnia that contact is “one of the most effective strategies for reducing intergroup conflict.”51 Contact could take the form of different groups working together towards superordinate goals, through which perceptions of similarity between members of the groups are enhanced and shared identities created. Such superordinate goals could be manifested through joint business or the pursuit of shared goals at a workplace. Such ties across different groups in society is captured in the concept of ‘bridging social capital’ and creates trust and interdependence. Interdependence among previously conflicting parties in commercial networks in which all parties gain from cooperation and trade diminishes the likelihood of recurring conflict because the opportunity costs of hostility is outweighed by the benefits of violent strife.52 Thus, post-war developments of inter-ethnic relations may be a trigger of renewed conflict, but it can also be a catalyst of peace. 2.2.6 Confidence in Key Institutions In the 2010 Public Perceptions Survey by The Asia Foundation Sinhalese respondents consistently expressed higher levels of confidence in public institutions than other ethnicities (albeit this is somewhat expected as the survey was conducted immediately following the end of the war). Confidence levels in the President ranged from 81 to 95% in other provinces while standing at 63% in the North and the East.53 Given the history of discontent with the system that led to the eruption of the civil war such differences in trust levels are significant. . Institutions such as government agencies, councils, chambers, and associations are governing and support systems of society. In addition, the governing role and responsibilities of the private sector is receiving increased attention. Confidence in the private sector and private sector institutions influences people’s decisions with regards to eco-

De mel & venugopal 2016, p. 47 Tobias et al 2013, p. 731 Tobias & Boudreaux 2011, p. 218 51 Tobias & Boudreaux 2011, p. 218-221 52 Tobias & Boudreaux 2011, p. 218-9 53 The Asia Foundation 2010 49 50

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nomic activities. Low levels of trust in institutions’ reliability and ability to fulfil the ‘social contract’ with the population can lead to discontent and anger towards them. On the other hand, enhanced trust in and utilization of key institutions can improve social organisation, promote dialogue between different groups thereby bridging divides. 2.2.7 Voice and Representation Voice relates to whether people feel that they have the ability to raise their concerns and the freedom, means and agency to influence the direction of the country and their own situations. This is especially important when significant, perceived and real, inequalities and contestations exist. Contestations are not per se negative. A degree of contestation is inherent to political and democratic processes. In fact, when underlying tensions are present it is often the lack of available channels for peaceful contestation that causes discontent groups to express their frustrations through violence.54 In the 2014 Democracy in Post War Sri Lanka survey 28.3% of Tamils and 24.6% of Muslims felt that they were not at all free to express their feelings about politics. Worringly, this is an increase from the 2011 survey where the numbers were at 18.9% for Tamils and 9.,1% for Muslims, and significantly different from Sinhalese out of whom only 2.4% felt the same. Even more significant differences were found when asked whether they felt free to attend a protest/demonstration against political injustice where 45% of Tamils and 38.1% Muslims indicated that they were not free, while only 4.3% of Sinhalese said the same. Similar tendencies were exhibited in the Public Perceptions Survey from 2010 where 36% in the North and 58% in the East believed that people freely expressed political opinions compared to percentages ranging from 67 to 94 in other Provinces.55 Channels of representation play an important role in feelings of freedom of expression. Channels could be political representatives, media, civil society groups and associations. Such channels are not always in place and equally accessible to everyone. The aforementioned figures indicate significant disparities in feelings of abilities to raise one’s voice and be heard. Being unable to freely and peacefully express discontent can drive people towards violent means of expression. On the other hand, effective means of contestation can contribute to stability and furtherance of minority causes.

3. Research Findings This section presents a synthesis of the findings of the present research, other studies, reports and secondary literature. 3.1 Youth Unemployment 3.1.1 Youth Unemployment Situation in the North and the East The 2010 Public Perceptions survey revealed that lack of jobs is a big issue particularly in the East and North where a meagre 13% and 22%, respectively, believed that the employment situation had got-

54 55

The Asia Foundation 2016, p. 40 The Asia Foundation 2010

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ten better the past year. On the contrary, 50% in the North and 40% in the East believed that it had become worse.56 In the 2013 Democracy in Sri Lanka survey unemployment was cited by 46.5% of the Tamil population as the most important area the government should pay urgent attention to. 57 This concern was echoed during the present research with many respondents mentioning lack of jobs, insufficient income and rising prices as the biggest issues in the country and/or their main struggles. Indeed, the Northern and Eastern Provinces are among the provinces in the country that have both the highest levels of poverty and the lowest labour force participation rates, standing at 44 to 48.6% in the North and 44.4 to 46.6% in the East. Whereas the two other provinces with high levels of poverty, Uva and Sabaragamuwa, exhibit much higher labour force participation rates58 at 55.7 to 59.9%.59 This suggests that there is an urgent need to pay attention to employment creation in the North and the East. Indeed, working was seen by many respondents as the solution to their hardships as expressed by one: “We have to work and solve our problems”.60 Between 2011 and 2015 youth unemployment rates increased from 15.4 to 18.8% in the North and from 20.4 to 21.7 in the East.61 In 2015 youth constituted 57% of total unemployed in the North and 57.8% in the East.62 This shows that contrary to post-war expectations the unemployment situation for youth has become worse since the end of the war. Youth are disproportionately represented both among the poor and the unemployed. Many young Tamil respondents in the North and East felt that they were being discriminated against in hiring processes due to their ethnicity and age. They expressed difficulties in finding jobs and many were confined to labour or day jobs. This may be also because their linguistic skills in Sinhalese and English are limited. On a national level a third of Sri Lankans in ‘informal’ or ‘insecure’ employment fall within the youth bracket.63 In 2013 underemployment levels among youth stood at 51.9% in the North and 49.2% in the East, compared to a national average of 30.8%.64 Informal sector work and underemployment tend to lead to more insecure economic bases for households. Indeed, in the National Youth Survey only 38.1% of youth in the North and East indicated that their family had enough money to fulfil their needs the past month, whereas 39.6% barely managed the needs of the family. 6.2% stated that they had to take loans to cover basic costs such as food consumption.65 Bad living conditions and life prospects and “the failure of mainstream institutions to address existing inequalities in the distribution of both resources and gains generated by economic development”66 is a cause of frustration for youth. It leads them to perceive society as unjust and discriminatory and cause alienation from “established political, social, labour and community institutions”.67 Other than in the public sector the formal sector job creation rate continues to be low in Sri Lanka. Institutions have been unable to create enough desirable jobs

The Asia Foundation 2010 Centre for Policy Alternatives 2013 58 De mel & venugopal 2016, p. 34 59 Department of Census and Statistics 2015, p. 10 60 NHH1-FT 61 Department of Census and Statistics 2015, p. 26 62 Department of Census and Statistics 2015, p. 27 63 Gunatilaka 2008, cited in Bowden 2015, P. 30 64 Bowden 2015, p. 60. 65 Family Health Bureau 2012/2013 66 Gunatilaka 2010, P. 115 67 Gunatilaka 2010, P. 202 57

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to absorb the eligible workforce. The ramifications of this are magnified for those for whom it is difficult to find jobs, for example due to discrimination and lack of qualifications. 3.1.2 Job Preferences and Job Search Studies have found that 40-50% of those searching for employment in the North and the East were looking for government jobs.68 In line with this, most respondents of the present research prioritized government/public sector jobs. There were cases of employees in the private sector still looking for public sector employment. A young Tamil girl in the North took a job in a factory because it set up close to her house. Before she was looking for a government job with the reasoning that it would give her pension, which would be helpful for her future where her children would depend on her. After getting employed in the factory she was still seeking a government job.69 Several respondents took private sector jobs because they could not find a public sector job. Some came to be satisfied with the private sector job while others saw the private sector job as temporary and continued their search for a public sector job. One Tamil male in the East was studying to become a pastor, but would only opt for that in case he did not manage to find a public sector job before finishing the studies.70 Common reasons given for preferring public sector jobs was security, pension and other benefits. Respondents believed that job security was low in the private sector because private companies could shut down or other candidates with better qualifications or skills could come along. On the contrary, public sector jobs were perceived as risk-free and stable. Along with this it was commonly perceived that government jobs were better regulated so that salaries were fixed and work “not as hard”, whereas private companies would overwork their employees. Beyond that there is high status and prestige associated with public sector jobs. Respondents pointed to ‘image’ and ‘good social acceptance’. A young Sinhalese male from the North wanted a government job “because it has a good reputation. It is a cultural tendency. Government employees have more status and authority. This is not so in the private sector.”71 Preference for government jobs seems to be ingrained in both parents and youth. A young Tamil female living in the IDP camp in the North had dropped out of school after her O-levels due to inadequate results and had been searching for a government job for three years. Despite being unsuccessful she continued the search because she had “faith that a government job will be a permanent job and give better quality of life.”72 This suggests that the connotations of ‘public sector jobs’ weighs stronger in people’s minds than the specifics of the job itself. Public sector jobs are pursued often “regardless of the actual overall quality of the job.”73 The respondent’s two siblings were also planning to get government jobs once they were finished studying. They were convinced that getting a

De mel & Venugopal 2016, p. 34 NBBE3-FT EFGD1-MT 71 NBBE2-MS 72 Field notes North 73 Bowden 2015, P. 34 69 70

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degree would ensure a government job.74 This sentiment recurred in the East where a young Tamil male explained that skills do not matter in government jobs, you need a degree and influence.75 With regard to private sector jobs, respondents pointed to salary, job permanence, proximity to home, suitability, and status attached to the job as important factors. The importance of remuneration, job security and social status has been confirmed by other studies.76 Respondents’ emphasis on having a permanent job with a good salary can be seen in the context of widespread difficulties to make ends meet reported in the 2013 National Youth Survey. After 27 years of continuous disruption and insecurity people seek stability, but still struggle to manage. For the young Tamil males still living in IDP camps, choosing a job does not come down to liking the job, but to the necessity of earning a living for themselves and supporting their families. They are confined to unstable income sources such as day labour jobs and paid training courses. An issue commonly raised was having to travel far to work, predominantly for women. For males, mobility issues were mostly practical such as language barriers, finding and affording accommodation and food, and reluctance of employers to hire people coming in from outside due to regulations prescribing them to pay an allowance for accommodation costs. For example, one young male Sinhalese graduate gave as a reason for taking a job in a company in the Northern Province that besides from a good salary, the company also provided accommodation and the location was only two hours away from his home.77 For females, however, the propensity to work from home or close by seemed to be rooted in cultural norms. As one respondent said: “even when there are jobs available, women prefer to work at home because of transport, norms, religion and husband.”78 During a focus group discussion with young females in a resettlement in the Northern Province all agreed that they could do any job given that they could work from home. They preferred working from home because they wanted to take care of their children and husband and due to poor transportation facilities. When presented with a hypothetical situation of the possibility of work nearby with childcare facilities they were willing but would still be more comfortable working at home.79 This suggests that even issues of a practical nature, such as transport and childcare are conditioned by cultural prescriptions that feed into personal preferences. This comes to the fore both when talking to females and males. The group of young Tamil males in the IDP camp in the North agreed that both male and female should be economically active for the household to be able to save up money. In this way females would get exposed and experience, and gain knowledge of the country and society, which would reduce problems and fights in the household. However, they maintained that if needed the woman should get a parttime job so she could also attend to housework.80 Thus, among some young males there is an increasing acceptance of young women working and being ‘exposed’ to society, yet norms that allocate household activities to women persist. Among both youth and parents there was an insistence on finding a decent job. There was a general reluctance to do manual or physically straining labour commonly expressed as not wanting to ‘travel

Filed notes North EFGD1-MT 76 De Mel & Venugopal 2016, p. 34 77 NBBE2-MS 78 EHH4-FM 79 NFGD3-FT 80 NFGD3-MT 75

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or suffer in the sun’ or ‘do field work’. This was also found in the National Youth Survey according to which “present day youth seem to have a more sedentary life style with significantly higher female proportions”. After urban youth, Northern and Eastern youth were the least engaged in manual work.81 According to an employee in the Youth Service Council in the Eastern Province youth attitudes is a big problem; Many go ‘voluntarily’ unemployed because they do not want to exit their comfort zone. All want government jobs or desk jobs and expect to get high fixed salaries straight away. A group of young Tamil males in the North explained that the unemployment situation is worse in the North than in the rest of the country because people from other provinces are hired instead of locals as they ask lower salaries. The reasons for asking higher salaries were higher prices of goods due to transport costs, and ‘culture’ explained by them as buying clothes for themselves, or shalwars and saris for sisters and wives when getting married.82 It is notable that they did not refer to ‘basic needs’ goods but to items such as clothes that are commonly markers of image and status. Despite preferences for public sector over private sector jobs there was a sense among most respondents that if an opportunity arises ‘they will go’. According to a Sinhalese manager in a hotel in the Eastern Province locals would take any job they have qualifications for.83 However, many respondents indicated that there were no guidelines for them to choose careers and find available jobs. Information about job opportunities is limited. As found by other studies the present research saw that people to a large extent depend on their social networks to find jobs.84 Lack of worker mobility and complaints of lack of opportunities may therefore partly be due to a lack of information about jobs in other areas inducing youth to confine job search to their locality.85 The School-to-Work Transition survey found that 64% of employed youth had found their jobs through social networks.86 Two of the big businesses spoken to during the present research, one in the East one in the North, used informal channels for recruitment. Both made announcements in the local religious institutions (A church and a Hindu temple) and used word of mouth through locals and existing employees. And according to two young Tamil males even when jobs are publicly announced there are perceptions that employers will still hire though influences. Both had gone to job interviews where the positions had already been filled.87 This lack of coordinated job search system and dependence on others explains the tendency for respondents to speak in passive terms when referring to job search, such as ‘if an opportunity comes’ rather than of actively seeking employment. In this regard the public sector may appear more approachable. However, there was a widespread sense among respondents of discrimination in the allocation of public sector jobs. A 2012 study found that 3% and 6% of employees in the top two tiers of government positions were Tamil.88 Scarcity of job opportunities, lack of information, and other factors potentially exclude young Tamils from attractive economic opportunities and makes it difficult for them to achieve economic advancement on their own. Disparities increase between the North and the East and other parts of the country where the private sector is more present and job

Family Health Bureau 2015 NFGD1-MT 83 EBBM1-MS 84 Gunatilaka et al 2010, p. 251 85 De mel & Venugopal 2016, 35 86 Gunatilaka et al 2010, p. 203 87 EFGD1-MT 88 De Mel & Venugopal 2016, p. 24 82

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opportunities more readily available. Failure of institutions to address this “provide easy recruitment ammunition for these anti-government movements to attract large cohorts of disengaged youth.”89 3.1.3 Education, Skills and Training Both employers and unemployed pointed to lack of skills and academic qualifications. As mentioned above the Youth Service Council in the East agreed that in public sector jobs academic qualifications are important whereas in the private sector skills and practical experience is valued. This was exemplified by respondents in lower management positions in the private sector explaining that they wanted to get experience and advance from that. Private sector employers and managers told that it was difficult to find employees with the required skills and experience. In agreement respondents searching for jobs mentioned lack of skills, knowledge and qualifications as obstacles. A factory in the North had to hire engineers from India to train the locals in operating machinery. It was difficult for them to find an engineer that spoke Tamil. Such hassles might present disincentives to hire locals. Lack of work experience was also seen by a manager to affect job performance in other ways: “people also do not have any work experience so they don’t have job skills and confidence.”90 In the eyes of this manager low education levels could mean that employees were sometimes not serious about work. Skills and education levels were depleted during the war. A think tank in the North told that many educational institutions have a high proportion of people from other areas enrolled because entry qualifications are too high for the local youth who have suffered disrupted schooling and war traumas. 24.1% of school drop-outs in the North and the East are due to poor academic performance, compared to a national average of 11.3%.91 The widows in the Sinhalese border village believed that children and youth in the village have the capabilities but cannot advance due to poor availability of good education. They explained that there are no good teachers, and teachers from outside are reluctant to come to the area because it is poor. There were incidents where incoming teachers had scolded at their living conditions and left after a couple of days.92 Inability to obtain quality education make youth “less qualified and less equipped to take up the better paying jobs that are being created through new investments in war affected areas.”93 This in turn means that companies will be reluctant to set up business in the North and East or if they do, hire skilled employees from outside further ‘crowding out’ local youth’s opportunities. One way for youth to obtain skills is through training programs, offered by the government, NGOs and private institutions. However, government Resource Centres in the East were unutilized and lacked funding. They wanted to acquire more technology to ‘move around with youth’, indicating that they find it difficult to reach youth.94 For the young males in the IDP camp lack of finance restricted training opportunities with private institutes to the well-off.95 NGOs offer free or even paid training programs, but not all of them have proven efficient or effective. According to a local think

Bowden 2015, p. 32 NBBM1-MS 91 Family Health Bureau 2015 92 NFGD4-FS 93 De mel & Venugopal 2016, p. 34 94 Field notes East 95 NFGD2-MT 90

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tank in the North training programs are comparable to handouts since they provide no linkage to jobs after the training. An INGO in the North explained that many youth enter training programs due to incentives such as allowance, but have no intention of using the training once they complete the program. This was exemplified by the young Tamil males in the IDP camp in the North saying that being in training was more attractive than doing day labour because of the stable income.96 A national level study found that “overall training has not improved employability much”, because most training programs are concentrated in the Western Province where the need for them is less, and due to “outdated study programs, inadequate teachers and teaching aids, irrelevant industrial training, and insufficient practical work.”97 3.1.4 Employment, Social Status and Discrimination An ILO study found that “real earnings and quality of employment have deteriorated since the early 1980s.”98 A major concern among youth nationally, echoed in the North and the East, is for ‘better’ jobs rather than just more jobs. The contradiction of companies complaining of the lack of a skilled workforce and youth complaining about a lack of jobs can “be understood in terms of the longestablished mismatch in Sri Lanka between the aspirations and availability of jobs in the country.”99 Youth aspirations are influenced by their relations and social norms. The two young males partaking in the focus group in the IDP camp who were still studying both wanted to become public sector teachers or lecturers. When asked for their motivation they responded that this is what their family likes, therefore they like it.100 Many other interviews confirmed parents’ aspirations for their children to be well-educated and get government jobs. Generally, during the research it was difficult to uncover the wishes and aspirations of youth themselves, with many responses seeming ‘automatic’. There were some cases of disagreement between generations, with the respondent wanting to be self-employed while parents insisted on public sector jobs. Other studies confirm that parents have high stakes in the education and employment of their children because this may be a stepping stone for social mobility for the entire family. Therefore, “the job choices youth make are shaped not only by their own interests and aspirations, but also by those of significant adults in their lives.”101 Gunatilaka et al 2010 suggest that employment in the public sector is a pathway to social mobility for the less privileged that circumvent the otherwise rigid social hierarchical structures in Sri Lankan society. Public sector employment establishes an opportunity to form the connections needed to access resources and services. It is a safe platform for youth to compete on relatively equal terms. Whereas the need for connections to get public sector employment is highly recognized, the same pattern in the private sector is less discussed. Also here are social networks, status markers, and language crucial for obtaining employment, and “when it comes to the more prestigious, better-paid, and high-skilled jobs, there is clearly a preference for personal characteristics that only people from a

NFGD2-MT Gunatilaka et al 2010, p. 8 Gunatilaka et al 2010, p.247 99 De Mel & Venugopal 2016, p. 34 100 FGD2-MT 101 Gunatilaka et al 2010, p. 204 97 98

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specific elite socioeconomic background would possess.”102 This was expressed by two young Tamil males from the East: “Sinhalese can get a job in the private sector and a high salary because of the language and where the companies are based. But people outside of Colombo who only know Tamil and English if they want to get into those private sector jobs they are struggling. Even if private companies start here the same problems occur – you need to know three different languages and have influences and recommendations to get a job”, and “even any organisation they say there are equal opportunities for ethnicities but when we go and talk to them they talk in Sinhalese. At least in public sector they use Tamil in this province.”103 Another important element mentioned by several respondents to get jobs was experience. Young people’s lack of experience poses a difficulty to find jobs since most employers would hire older and more experienced candidates instead. Restrictive employment protection legislation may induce employers to hire workers with experience to be certain about their job performance and thereby safeguard themselves from ending up with bad workers.104 In the public sector there is not the same demand for experience, and “the cultural markers of modernization and privilege”105 prevalent in the private sector are less important. 3.2 Entrepreneurial Afiinitiy 3.2.1 Adverse Attitudes to Entrepreneurship Reasons listed in three national youth surveys106 for not preferring self-employment ranged from “dislike of business, lack of knowledge or skills for business, and lack of social respect, to lack of markets and capital” with stability, security and lack of social respect most cited.107 The present research found similar sentiments in the North and the East. The most important deterrent seemed to be income and job security with many being reluctant to start businesses out of fear that they would not be successful or that a shock would destroy the business. Social status came to the fore with one young Sinhalese male working in the North saying that investing to grow the business is difficult and small businesses are not well reputed.108 With few success stories to look up to and a weak supportive environment for start-ups there is little to instil confidence in youth to start a business. According to a think tank in the North, post-war optimism that development initiatives would come to the North and East and encouraged people to invest in things they lost during the war such as tractors and other machinery. However, owing to various reasons, development failed to manifest at the required levels. Locals saw little opportunities to utilize their newly acquired machinery and were forced to pawn them.109 An INGO in the North told that the population has little faith in politicians and in stability and therefore prefer to keep money or draw up insurance rather than make risky investments in, for example, businesses. Accord-

102

Gunatilaka et al 2010, p. 209 EFGD1-MT 104 Guntilaka et al 2010, p. 135 105 Gunatilaka et al 2010, p. 210 106 National Youth Survey 2000, School- to-Work Transition for Youth 2003, and Youth and Poverty Survey 2005 107 Gunatilaka et al 2010, p. 189 108 NBBE2-MS 109 Field notes North 103

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ing to the local think tank in the North risk averse parents were a major deterrent for youth. 110 Another study conducted in Jaffna found that local communities function as centres of restriction deterring youth from taking risks rather than as â&#x20AC;&#x153;support system[s] should these risks not work.â&#x20AC;?111 Sri Lankan culture often values affiliation, that is, social ties with family, community and business partners, over individual achievement and planning.112 When asked about job aspirations most respondents mentioned the importance of being able to provide for their family rather than individual goals. 3.2.2 Nature of Entrepreneurship in the North and the East Among the respondents who were or wanted to be self-employed it was either a means to have a secure income base, and thereby a mechanism of self-insurance or a last resort. For the young Tamil males in the North taking a mechanics training having the skills to run their own mechanics shop provided them with a secure income source. If they were employed but lost their job they would always be able to start their own mechanics business and thereby be certain to have an income. They believed that their parents endorsed it because it was important for their future.113 The young male Tamils in the IDP camp had similar sentiments. Once they were resettled, if they were unable to get government jobs, they wanted to return to fishing like their community used to, because then they would not have to be concerned about losing their job.114 Others only resorted to self-employment as a last option because they were unable to find other forms of employment. The business was then seen as temporary or complementary to income from employment. For women self-employment was an attractive option because they could do it from home.115 Few aspired to expand their business and enter new markets. Most wanted to do smallscale businesses and give employment to relatives or expand to help other families in the community. In the Sinhalese border village starting a business in the village was preferred over private sector employment because it would contribute to develop the village and allow women to participate.116 Only if the businesses had increased their income over time should they target other regions. This sentiment of becoming self-sustained, secure high and steady income for themselves, and only gradually expanding to help others in the locality, rather than to fulfil entrepreneurial aspirations was recurrent. Only two young Tamil males from the East pointed to the need to do something innovative to survive as a business mentioning hotels, shops, marketing, vehicle business, computer shops, electricians.117 Rather than being opportunity-seeking, entrepreneurship in the North and the East is associated with small-scale self-employment motivated out of necessity and feasibility. A study conducted in two cities in the war-affected areas found that 80% of entrepreneurs were necessity-driven, that is, pushed into entrepreneurship due to the lack of other employment options, low job satisfaction or

110

Field notes North Bowden 2015, p. 105 112 Gunatilaka et al 2010, p. 187 113 NFGD1-MT 114 NFGD2-MT 115 NFGD3-FT; EHH3-FM 116 NFGD4-FS 117 EFGD1-MT 111

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insecure employment.118 While locals were predominantly necessity entrepreneurs, non-local entrepreneurs were motivated by the business opportunities opening after the end of the war. The disinclination of locals to seek emerging business opportunities may be grounded in a number of reasons: Lack of skills and business management capabilities, an ineffective support environment and resources, and a culture that is not conducive to individual pursuits and gains. 3.2.3 Skills, Finance, Information and Cultural Norms Aside from the young Tamil males participating in the mechanics training not many respondents displayed positive attitudes to entrepreneurship training programs. On a national level few make use of enterprise development training programs and even less start or expand their business after training.119 According to a local think tank in the North training programs were only handouts of certificates. Most are structured as formal lessons, which facilitates participation of only some kinds of people. Training should rather be hands-on involving making one’s own business.120 A young Sinhalese male working in the North explained that you need ‘practical exposure’ before starting a business. People that have started businesses have either learned the skills from their parents or held a job first.121 Two young Tamil males from the East agreed saying that doing training is pointless since it does not ensure employment after. Rather skill and experience are obtained on the job or by starting a business. According to a microfinance institution in the East people in general lack the skills or capacity to start businesses.122 To address this one Human Resource office in the East conducted training programs for home industry but experienced that participants would return to them for funds.123 The young Tamil male in the IDP camp wanting to become fishermen said that most had the knowledge to do so, but lacked resources to start fishing on their own and would have to take a loan. Finding capital to start a business was mentioned by many as a main constraint. Getting a bank loan requires proof of repayment capacity, which is difficult without assets or a job. There is a perception that those that have ‘connections’ find it easier. Taking a loan is a hassle, takes long and repayment is difficult. According to the young Tamil males wanting to start mechanics businesses “the majority of people that have taken loans to start self-employment are finding it difficult to repay. Mostly families help out, otherwise they take informal loans.”124 They remained confident that they would be able to repay. Despite all of them wanting to start the same type of business, they believed that they would not have to compete since they came from different villages, and were confident that they would get customers who would return if they did a good job.125 A young Tamil girl wanting to start her own beautician salon had learned of the demand for it from her beautician teacher who had told her there were plenty of opportunities to generate income.126 The young males from the IDP camp based their estimates of supply on the fact that little fishing activities had taken place during the war and

118

Maddumage 2015 Gunatilaka et al 2010, p. 167 120 Field notes North 121 NBBE2-MS 122 Field notes East 123 Field notes East 124 NFGD1-MT 125 NFGD1-MT 126 Field notes North 119

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believed that they could sell to businessmen in Colombo.127 When asked about business management capabilities most responded that if they could not manage on their own they would reach out to someone with proper knowledge. The above indicates that business decisions are based on suboptimal information sources. This was explained by a think tank in the North: “Here you don’t find the resources on the internet. You go to the provincial office but they don’t know what they should do. There is no support system.”128 A 2004 study found that “the responses of poor clients indicated a tendency toward a passive approach to enterprise selection: few had investigated alternative occupations, and they were far more likely than others to cite ‘‘copying others’’ as the primary determinant of their choice.”129 In more commercialized areas business decisions tend to be based on identified market opportunities whereas in more remote areas with low complexity in economic activity non-economic aspects guided by social and cultural norms tend to form the basis of business decisions. When there are several identical small-scale businesses in one community social pressure inhibits competition and “conceptions of the communal good sometimes take precedence over individual gain.”130 This puts emphasis on contributing to the community rather than engaging in competitive behaviour. The present research saw cases where entrepreneurial activity was forestalled by social hierarchies. The Tamil inhabitants of the resettlement compound in the North had limited options of economic activities. The community, being from a perceived ‘lower’ predominantly Christian fishermen caste, had been promised by the government that they could fish on the coast close to the resettlement. However, a local politician had posted a statement in a newspaper that the Hindu temple nearby the shore attended by a higher agricultural-based caste was holy and fishing could therefore not be allowed. The leader of the resettlement believed that the actual reason was the fear of the farming community that the resettled fishermen would prosper and advance. According to him, the politician had attempted to obstruct the resettlement process to use Tamils ‘still suffering’ in IDP camps as political leverage. The resettled community had little options for sustaining a livelihood since they were not permitted to set up shops as the area was within a government housing scheme. A similar situation has been reported among Muslims in the East where “local politicians are viewed to have hindered attempts at improving relations at the grassroots inter-communal level, and allowed tensions to escalate for personal gain.”131 Such cases evidence that besides from practical constraints sociocultural barriers to entrepreneurship is a prevalent issue in Sri Lanka. 3.3 Access to Finance and Debt 3.3.1 Access to Finance A 2012 World Food Program study found that an average of 70% in the Northern Province and 63% in the Eastern Province have debt. Around half owed to formal sources such as banks and pawn

127

NFGD2-MT Field notes North 129 Shaw 2004, p. 1257 130 Shaw 2004, 1257 131 The Asia Foundation 2015, p. 25 128

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shops and half to social networks or informal money lenders.132 Formal banks assess repayment capacities of clients by checking account histories and scanning CRIB’s (The Credit Information Bureau of Sri Lanka) database. To get smaller amounts collateral is not needed, but borrowers typically need two guarantors to sign off, often government officials are required. Many banks release loans in stages where repayment criteria must be met in one stage to get a larger sum of money in the next stage. For larger sums of money collateral is required. Banks have monthly targets for each loan type. A Bank manager in the North explained that meeting the targets could be a challenge due to the many banks in a low populated area causing high competition. In this bank, it was easiest to meet targets for personal loans whereas business loans requiring mortgage were most difficult. This bank often rejected applications due to lack of repayment capacity, CRIB problems, unsatisfactory conduct of account, and problems with collateral security.133 Although many respondents had loans the majority reported that it is difficult to get a loan. As with access to other resources getting a bank loan is easier if an individual has government connections. For example, a young Tamil girl living in an IDP camp in the North indicated that connections can avoid potentially difficult situations. Other reasons given for the difficulty of taking loans were the hassle of the procedure, difficulties of low-income households to prove repayment capacity134, and for bigger loans, lack of collateral.135 Youth that were unable to get loans would approach government employees or have relatives or other others take loans for them.136 The female respondents in the Sinhalese border village in the North agreed that “most people would take loans for their children because they work for their development.”137 The difficulties of getting loans through formal channels explains the high proportion of money borrowed from informal sources. The banks spoken to during this research all reported low default rates, which was puzzling considering consistent references to debt problems. A similar pattern was found in a study on housing debt where “the default rate in the Northern Province for loans is assessed to be low or zero by banks. But narratives from individuals indicate that debt is an issue.”138 This suggests that those unable to borrow from formal sources or to repay loans, turn to informal lenders and social networks. In the present research, it was confirmed that getting loans from private credit institutions or informal money lenders is easy requiring little more than a signature. However, such loan agreements have higher interest rates and most commonly weekly repayment. 3.3.2 Borrowing Purposes Low and unstable incomes do not prevent people from taking loans.139 In fact, borrowing money is a common coping strategy to deal with shocks, support livelihood activities, or cover basic living costs. Respondents reported that many, having no savings, take loans in cases of urgency. In such cases people often resort to ‘quick and easy money’ from informal sources. One respondent owning a

132

WFP 2012, p. 36 Field notes North 134 NHH1-FT; NGD2-MT 135 NFGD1-MT 136 NFGD2-MT 137 NFGD4-FS 138 Romeshun et al 2014, p. 27 139 Romeshun et al 2014, p. 55 133

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small brick manufacturing with three employees had to take an informal loan when one of her employees ran away with her money. She had also taken a loan to support the business, but was forced to spend it on her son’s funeral and thereafter take another loan for the business.140 Vulnerability means that loans intended for productive purposes are sometimes diverted to cope with unexpected shocks. Investment in livelihood activities and small businesses are not always successful at raising incomes. A family living in an IDP camp in the North having taken a loan to stock up their retail shop were earning more money, but the surplus was outweighed by rising prices leaving total profits unchanged. Despite this, the family was planning to repeat the procedure because expenses for education and daily living meant that they were unable to stock up the shop on their own.141 Borrowers are thus not always better off following investments in productive activities. According to the young female Tamils in a resettlement compound in the North “people have no proper way to invest the money and therefore few have succeeded.”142 Others have to borrow money to supplement their low incomes and sustain daily living. A respondent whose husband worked as a labourer sometimes borrowed from neighbours to manage daily expenses.143 A 2012 study on food insecurity in the North and East found that between 2011 and 2012 there was an increase in the proportion of households purchasing food on credit in 6 of the 8 districts.144 A substantial number of households also borrowed money from relatives and neighbours or pawned valuables to cope.145 The above cases exemplify how insecure employment and low and unstable income “poses insurmountable challenges to manage basic daily living expenses, resulting in high levels of borrowing and indebtedness among households.”146 The findings from the 2012 housing loan study suggested a strong relationship between type of household and household income source and indebtedness; those doing casual labour had the lowest incomes and constituted 55.6% of the borrowers in the sample. They were also the ones struggling most to repay, with 40% indicating no payments and 21% making irregular payments. In addition, 70% of the entire sample reported insufficient income to make payments for loans.147 There seems to be a cycle whereby low and unstable income forces people to borrow, and in turn causes them difficulties to repay, which might lead to further borrowing. Although few respondents reported borrowing to repay other loans themselves most agreed that it was common and some knew of others having done it. A bank manager and a manager at an NGO providing microcredit loans and financial guidance told that many indicate to lending institutions that they will spend the borrowed funds on productive activities to obtain the loans, but instead spend the money to pay off other loans.148 3.3.3 Debt, Savings and Repayment Issues In the 2012 study on food insecurity 9% of total household monthly non-food expenditure was on debt. The next highest expenditure was education standing at 6%. With the exceptions of Mannar

140

EHH1-FT Field notes North 142 NFGD3-FT 143 EHH2-FM 144 WFP 2012, p. 33 145 WFP 2012, p. 35 146 Romeshun et al 2014, p. 24 147 Romeshun et al 2014, p. 24 148 Field notes East 141

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and Vanvuniya median expenditures exceeded reported income per person. Expenditure on livelihood/livestock inputs stood at only 2% indicating a slow pace of re-establishing and expanding livelihood bases. 149 During the present research a similar pattern was explained by a manager of microcredit NGO in the East according to which an average household in the area has at least four to five loans from multiple lending sources, of which the sum exceeds their average income.150 The young Tamil females in the resettlement in the North explained that the majority had taken loans between 40,000 LKR and 150,000 LKR from private finance institutions for daily consumption while they were in the IDP camp. Repayment was weekly with an annual interest rate of 26%. In their estimates, each person was paying 30,000 LKR in debt per month from their husbands’ income. They were all ‘suffering to repay’ and attempted to help each other, but some had also taken new loans to repay. 151 A similar situation was recounted by young Tamil males in mechanics training according to which the majority of people that had borrowed to start businesses were struggling to repay. Families would help them out and otherwise they had resorted to informal loans.152 A Sinhalese bank manager that had moved to the North to work experienced more difficulties recovering loans here than at his former placement.153 Respondents showed no signs of anger or resentment towards banks or credit institutions. Some believed that the agreements were in general fair, just not to them due to their current situation and lack of proper incomes.154 An NGO manager in the East told that lending institutions would pressure people unable to repay by showing up at their homes in big groups. Many respondents reported that borrowers would prioritise repaying at any cost, as expressed by one: “even if people are not eating they are repaying the loans. They are afraid of the consequences.”155 Another respondent was trying to manage money according to a budget in which first priority was education followed by loan repayment and finally basic needs and food.156 In fact, cutting on food or restructuring diets are common initial-stage coping mechanisms to repay debt, along with employing more members of the household.157 A number of respondents reported household members taking up extra work to manage.158 According to the NGO manager some households send female members overseas to work because they get an advance payment that they can use to repay loans.159 Another respondent told that people were hiding160 and, despite no mention of concrete examples, a couple of respondents mentioned the prevalence of suicides due to debt. The strong priority of repaying loans explains the contradiction between the low default rates reported by banks and consistent narratives of debt problems. Lack of a savings base is another issue forcing people to take loans to deal with shocks, survive or expand business, and high debt in turn hinders saving. Reasons given by respondents for not saving were having to pay back loans, spending on children’s education, rising prices or rarely having surplus

149

WFP 2012, p.43-45 Field notes East 151 FGD3-FT 152 NFGD1-MT 153 Field notes North 154 Field notes North; NFGD3-MT 155 NBBE3-FT 156 EHH3-FT 157 Romeshun et al 2014, p. 28 158 EHH1-FT; EHH3-FM 159 Field notes East 160 EHH2-FM 150

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of money. Some had joined a women’s society to get assistance for financial management and improve their saving patterns. A 2009 microfinance survey concluded that because of the conflict the Northern and Eastern Provinces have lower saving rates of 65% than the country average of 75%.161 During the present research a bank manager in the North reported a low savings base in the area. Small amounts are deposited frequently for a short period without the total sum exceeding 100,000 LKR before the money is withdrawn again. The manager attributed this pattern to the low income base in the area, re-establishment of livelihoods, and lack of knowledge of financial management. In his words: “the people’s minds are not set well. People in this area are still not educated. They have no knowledge of banks.”162 The 2012 study on housing loans found that “there is a general tendency of not planning for the repayments prior to borrowing due to the lack of financial literacy.”163 While all respondents with loans in the present research said they were able to understand loan agreements, it seemed to be a general issue that “people are aware of and understand the conditions but do not think about how they are going to be able to repay.”164 Such lack of financial literacy with regards to longer-term financial planning was recurring in many interviews. 3.4 Ethnic Relations in Business 3.4.1 Inter-ethnic Relations and Perceptions In the context of ethnic conflict individuals are likely to see ethnicity as a salient social identity category.”165 Value and opinion surveys of the Sri Lankan population often see marked differences across ethnicities. The 2014 Democracy in Post-War Sri Lanka survey found that 35% of Sinhalese believed the government had done a lot to address the root causes of the war, whereas only 2.3% of Tamils felt the same, and 39.9% Tamils believed the government had done nothing.166

161

German Development Cooperation (GTZ) 2010, cited in Romeshun et al 2014, p. 27 Field notes North Romeshun et al 2014, p. 63 164 NGO manager, in Field notes North 165 Lee & Reade 2014, 1657 166 Centre for Policy Alternatives 2014, p. 16 162 163

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Figure 3 Perceptions of Post-War Reconciliation Efforts by the Government

Perceptions of the governments effort to address the root causes of the war 45 40 35 30 25 20 15 10 5 0 Sinhalese Has done nothing

Has done a little, but not enough

Tamil Has done a lot

Don't know/Not sure

Most respondents however believed that relations between ethnic groups have improved after the end of the conflict. People can now move freely among provinces, and mental barriers from wartime related to who supported who are less present.167 However, some respondents referred to the soar of Sinhalese-Buddhist antipathy against Muslims that induces fear among minorities.168 Indeed, most respondents thought that Tamil and Moor relations were good and that problems were with the Sinhalese majority. There are fears of ‘losing the grip they have on this place’ when majority Sinhalese are ‘coming in’.169 In the East, a couple of respondents referred to Sinhalese-Buddhist religious temples and statues being raised next to Hindu temples in areas with no Sinhalese population. In the opinion of a young Tamil female “they are doing it purposefully because if the area is full of Hindu Tamils, others coming there will think it is a Tamil place. They want it to be viewed as theirs as well.”170 Two Moor and Tamil neighbours in the North explained how the inflow of Sinhalese settling down will in time make them the majority. They saw most Sinhalese as untrustworthy with whom “it is risky. There are a lot of threats.” They feared that their children will “suffer in the future.”171 The young Tamil males in the IDP camp believed that there would be trouble between the communities because “when they see our community they don’t like it. They assume that we are lower class.” 172 Discrimination in school and by employers due to low status of IDPs was also reported by Sinhalese in the border village.173 While such discrimination appears to be rooted in social status hierarchies, the young Tamils associated it with ethnic differences, indicating how different markers of social categorization such as ethnicity, religion and status are intertwined.

167

EHH4-FM; NBBE1-MM EBBM1-MM 169 NBBE3-FT 170 EBBE4-FT 171 NHH2-MT 172 NFGD2-MT 173 NFGD4-FS 168

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3.4.2 Interaction in Business Interaction in business happens at workplaces among colleagues and in value chains between buyers and suppliers. A 2014 study on workplace homophily in Sri Lanka found that people “who work in ethnically mixed groups perceive less ethnic homophily compared to those who work in ethnically homogeneous groups” suggesting that “positive contact in the form of colleagues who are friendly, approachable and listen to problems has the capacity to weaken perceptions of ethnic homophily in the workplace, as suggested by contact theory.”174 The majority of respondents employed in big businesses in the present research saw their workplace as a positive platform for people of different ethnicities to interact. At one workplace in the East teamwork was highlighted: “I like it here because the jobs are not individual. I work with colleagues to achieve targets. There are no problems because everyone got the same training and move around between the different tasks.”175 The same sentiment was expressed by a colleague: “Everyone is working as a team and not caring about others’ religion.”176 The manager of the factory explained how business can be a bridge to peaceful relations: “improving business is important for long-term peace because the area is ethnically divided. Some people see others as strangers and are not willing to mix. Here we are not only doing business but giving a space to interact on an everyday basis. By for example sharing Hindu celebrations and birthdays. People are talking to each other on a good basis and now they can speak up. Before, the Muslims associated the Tamils with LTTE. Working places are easy ways to create peace because people work as a team.”177 However, some issues arose as well, mostly related to communication between locals speaking Tamil and incomers speaking Sinhalese. All workplaces in the sample hired locals but brought in staff from other areas for office and management positions. Misunderstandings arose due to the language barrier: “Even if I’m speaking nicely they will think I am scolding” but there was still a sentiment that differences should be respected: “we have to respect all the cultures; with that we can live peacefully. These people are very nice actually.”178 Management reported challenges to explain to employees and make them follow regulations. One also felt that their instructions were not being received well because they were ‘outsiders’: “when management advises, they don’t respond very well. They think that it is their area and their home so they should do what they want. I think some people are annoyed. So we try to explain.”179 To address such issues the workplaces did trainings and one workplace in the East provided English language courses. An unusual case was also found where a Sinhalese manager in a hotel in the North had learned Tamil to communicate with the employees. Despite different positions in the workplace hierarchy and communication difficulties, there appeared to be a general willingness both on behalf of management and employees: “I am supervising them and therefore have to have a good relationship with them.”180 And: “we know little Sinhalese and management knows little Tamil. But we communicate. I do not want to think of it as a problem because it

174

Lee & Reade 2014, p. 1656 EBBE5-FT 176 EBBE6-MM 177 EBBM1-MM 178 NBBE3-MS 179 NBBE2-MS 180 NBBE1-MM 175

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is a multilingual country.”181 Some attributed management difficulties to underdevelopment and interrupted education due to the conflict: “people here are different… It will take some time to change.”182 Although interaction at workplaces were perceived by respondents as positive, conversations were confined to work-related topics rather than personal issues as exemplified by one respondent: “I have no one I can talk to about personal stuff. I can express ideas but not personal problems or political opinions.183 The 2014 Democracy in Sri Lanka survey found that “‘three quarters of Sri Lankans have few or no friends outside their ethnic group’; just 16 per cent of people feel they understand the customs of other groups, and ethnicity is a limiting factor even in business partnerships and commercial interaction.”184 During the present research it did not become clear to what degree interaction reached beyond the workplace. Most said that ethnic communities were geographically separated. Separation is reinforced by ethnically and religiously clustered community and association networks through which people access services and assistance. Still, some reported that people met up outside of work, while others said that there was no interaction after work, but that they “would like to if there were chances.”185 According to this respondent, restrictions between Tamils and Moors to go to each other’s houses no longer exist. When talking of interaction respondents seemed to refer mainly to relations among Moors and Tamils whereas the Sinhalese fractions of workforces and communities were low. One respondent told that “there are no Sinhalese here. If they did work here it would be fine if they are good. But if they act racist there will be problems.”186 Such a comment indicates prevalent suspicions of the majority Sinhalese and confirms the localized nature of interaction needed to bridge such sentiments. Another respondent had gone to Colombo to work in a garment factory but did not settle well: “It was a very different environment. I couldn’t work there for more than two months because of the bad work environment.”187 Inter-ethnic interaction in value chains was more limited than at workplaces. Given that most commercial activity in the North and the East is small scale business, relations are localized and informal. In more remote areas most people do the same kinds of business which enhances the need for interpersonal relations in choosing business partners.188 One respondent told that “people do business based on trust. By cash on hand delivery”189. The big businesses in the sample sourced some of their inputs locally but this seems to be limited. One respondent complained that buyers were in positions to dictate prices because there were no other options to sell to, and because they had leverage by giving loans to producers.190 Underpayment by middlemen was recurrent in the Sinhalese border village where locals did not have the facility or transport means to take the produce to market them-

181

NBBE3-FT NBBE2-MS 183 NBBE1-MM 184 De mel & venugopal 2016, p. 50 185 EBBE5-FT 186 EBBE6-MM 187 EBBE5-FT 188 EHH1-FT 189 EHH1-FT 190 NBBE3-FT 182

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selves.191 Most businesses seemed to operate mainly in their locality doing transactions based on trust or out of necessity due to lack of other options. One respondent indicated increased commercial ties across ethnicities: “the situation has improved because of tourism. Everything is mixed up, which leads to a reduction in misunderstandings. Earlier Muslims and Tamils were doing separate business. Now they trade with each other. For example, Muslim buyers are buying fish from Tamil fishermen. There is a better understanding. Because of this, politicians cannot set rumours and create problems by telling ‘this Tamil did this and this’. There is internal understanding.”192 3.5 Private Sector Investment 3.5.1 Post-War Investment Trends Public investment levels post-war in the Northern region has superseded that of any Sri Lankan postindependent government.193 The government’s post-conflict reconstruction strategy was centred on major infrastructure projects often contracted to big Sri Lankan companies based in the Western Province or big foreign companies, mostly Chinese. Construction largely took place by use of nonlocal labour with limited local employment creation.194 This is exemplified in the disparity between the level of economic growth created in the construction sector in the conflict-affected provinces and the expansion of employment in the same sector: in the Eastern Province the sector grew by 52.3% between 2010 and 2012 while employment only rose by 4.9% during the same period. The same trend is visible in the Northern Province where the figures stand at 56.6 % growth increase and only 5.3% employment expansion.195 A respondent in the present research said that “the government is investing enough in infrastructure but not in people’s individual economic situations.” 196 Some respondents acknowledged the government’s infrastructure investments but the most common perception was that no development was taking place or that their area had not seen any benefits from this development. This indicates that the benefits of public investment-led growth have sometimes failed to feed back into the local population and that investment may have failed to create an economic peace dividend.197 Estimates suggest that the greatest economic cost of the war in Sri Lanka has been the income foregone due to loss in foreign direct investment, accounting for almost half of the total cost.198 FDI inflow to the country is still relatively low and within the country there has been little private sector investment in the North and the East compared to other provinces. Sri Lanka’s investment climate is lacking behind on areas such as political instability, economic uncertainty, quality of infrastructure and predictability of labour regulations.199 According to the BOI in the East investors are mainly concerned with the unpredictability of government regulations. This applies especially to diaspora. There were stories of government trying to obstruct or deter diaspora investment because of continuous

191

NFGD4-FS EBBM1-MM 193 Sarvanthan 2015, p. 574 194 Bowden 2015, p. 59 195 Sarvanthan 2015, p. 582 196 NBBE1-MM 197 Sarvanthan 2015 198 ADB & World Bank 2005, p. 34 199 ADB & Worldbank 2005 192

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fear.200 A local investor had experienced government officials attempting to prevent him from setting up business by spreading rumours among the public. The same respondent also complained of lack of government facilitation. The most important factor for him with regards to business partners was reliability which was a struggle because “there is no support from the government. No insurance for companies.”201 He had problems with payments from smaller seasonal suppliers. Dealing with less than medium sized businesses was riskier for him, but due to locals’ lack of experience operating big businesses joint businesses between locals and outsiders would be ideal.202 The interview with BOI revealed the lack of joint partnerships between outsiders and locals in the East. Two factors may have an influence on this. Firstly, the inability and/or unwillingness of local businesses to change or upgrade their ways of doing business in the face of increased competition. Wartime isolation has stifled competition and lessened the need for business strategies.203 A government official in the North told that “some people in the region still follow traditional systems in, for example, sales outlets.”204 According to an informant in a 2015 study on youth unemployment in the North: “There is a cautiousness and fear among older generations to break from traditions. Because the Tamil culture was what the separatists were trying to empower and preserve during the war there is an unwillingness to modernise if it contradicts historic norms.”205 This sentiment was echoed by a respondent in the present research: “Tamils don’t want to mix because then traditions and culture will be erased. We want our place to be developed from our people.”206 Secondly, the percieved extractive approaches of some southern businesses entering the areas after the war. Some southern based businesses saw the region mainly as a ‘market’ with opportunities for short-term gains. Few were indifferent to the social and economic problems of the areas, and risks were sometimes borne by local facilitators and middlemen.207 According to a government official in the North southern investors want quick returns and ease of business and issues of nationalism and racism can occur.208 Such cases have had a negative impact on local businesses’ perceptions of southern based businesses209 and give grounds to sentiments of outsiders ‘taking over’ the area rather than contributing to the local population. 3.5.2 Sentiments Towards Private Sector Investment Some respondents shared the perceptions that outside investments were destructive to the local economic fabric: big southern based businesses have higher capacity and source cheaper from bulk production in the south rather than from local small-scale producers. Thereby they outcompete local businesses on price and quality so that these lose market share and income, or must eventually shut down. Some local businesses have outstanding debts from loans taken to start the business that they

200

Field notes East EBBM1-MM 202 EBBM1-MM 203 MIriyagalla 2014, p. 22-23 204 Field notes North 205 Bowden 2015, p. 107 206 EBBE4-FT 207 Miriyagalla 2014, p. 19 208 Field notes North 209 Miriyagalla 2014, p. 20 201

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still must repay after shutdown. In turn, not enough employment is created by investments to outweigh the loss. The types of employment created benefit a narrow fraction of people. In the opinion of the group of young Tamil males aspiring to start their own mechanics businesses “they should do business in their provinces and we should do business here.”210 Perceptions that incomers make money of the local communities and give nothing in return were common. However, a young Sinhalese male working as a manager in the North expressed a reverse sentiment, that exchange is onesided with the Tamil population benefitting. He maintained that investments are beneficial because “only in this way will exchange happen”. Most respondents were positive towards the prospect of development by “outsiders” setting up businesses in their areas: “If they are able to it would be good. At least someone is doing something”.211 There was widespread agreement that private sector investment is good conditioned that employment opportunities are given to local people rather than outsiders. A 2005 study on corporate social responsibility, business and peace found that 72.8% from conflict areas believed that being an equal opportunity employer was a very important attribute of businesses, while only 50.1% of the rest of the country thought so. In the present research many respondents stressed that opportunities should be ‘suitable’, well-remunerated and provide training and benefits, confirming demands for better jobs rather than just more jobs. One respondent believed that good private sector job opportunities could help reduce/ameliorate the bias towards the public sector: “If investment comes here people can get high salaries and it will reduce the unemployment. People will trust these companies and not think about public sector jobs.”212 In the North there are no requirements of investors to hire locally, but in the East BOI agreements with investors specify minimum employment of locals and adherence to certain labour standards to ensure quality of employment. Locals are defined as Sri Lankan citizens which allows companies to recruit from elsewhere in the country, as confirmed by BOI unskilled workers are commonly from the Province whereas skilled are from outside.213 3.5.3 Investment, Employment and Peace In the 2005 study on business’ role in peace 73.2% of people in conflict areas found it very important that business play a big role in bringing peace to Sri Lanka against 53.7% of the rest of the country.214 The Northern and Eastern Provinces were among the most positive about business organisations addressing issues in society predominantly by providing employment opportunities. 215 Another study from 2015 found that youth in the conflict-affected areas connect employment with peace through increase in income and employment security providing hope for the future diverting time from insurgent activities.216 This was one of the rationales given by respondents in the present research as well: “because after the war minorities have issues to get jobs”217 and employment “would help to increase living standards which might lead to sustainable peace.”218 One respondent feared that ad-

210

NFGD1-MT EBBE1-FT 212 EFGD1-MT 213 Field notes East 214 International Alert 2005, p. 46 215 International Alert 2005 216 Miriyagalla 2015, p. 23 217 EFGD1-MT 218 NBBE1-MM 211

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vancement of minorities would be perceived as a threat by the majority: “within 10 years the minority people can speak all languages and get more opportunities. This might create some issues with the majority.”219 However, most respondents agreeing that business and employment creation could contribute to peace believed that it did so exactly by improving relations between ethnic and religious groups; working together across ethnicities can decrease perceptions of differences, ease communication and foster unity.220 Some respondents expressed uncertainty: “we hope that, but can’t tell the situation. It will change. Our people expect to have a war again because we are still suffering. They have not fulfilled. We just catch the fish. The Sinhala don’t allow Tamil people at their side but they are coming to our place. Where we have to go?”221 Thus many are hopeful and positive towards the idea of private sector investment to develop their regions, but reservations also exist. 3.6 Confidence in Key Institutions Respondents displayed little trust in the government. The common experience was that the government only attend to them during elections making promises that are not fulfilled afterwards. Few went to government for assistance but referred to NGOs and community associations instead. This is due to lack of confidence that the government would act on their requests but instead “make a note that we have come but do nothing.”222 Experiences of failure by the government to provide services and assist people in need has led to hopelessness in regards to the state’s ability to help its population: “Before the people in need gets something it is difficult to believe that they will.”223 The perception that the government does not care about them was common and very strongly expressed by a young female Tamil: “And our people are still in huts without work, facilities and money. And the government don’t mind that. The army is getting money and pension and taking things. These things hurt for us. Why they don’t care about us? The government still doesn’t provide.”224 According to a Youth Council Service in the East trust towards the government is decreasing among youth and the population in general because of unemployment issues.225 A respondent in the North explained how people themselves have to go search for jobs adding that government should do something but that they do not trust them.226 Another respondent in the East explained how this causes a lot of social struggles and creates hatred towards government.227 Both among Tamils and in the Sinhalese border village people felt that the government was discriminating against them and benefitting communities of other ethnicities. A respondent in the North believed that with the new government “there is a change. The people over there are getting something.”228 The women in the Sinhalese border village explained that Sinhalese politicians are only catering to a few select and that this issue is similar ‘on the Tamil side.’229 This exemplifies how marginalization and grievances di-

219

EFGD1-MT EBBE1-FT; EBBE5-FT; NBBE1-MM; NBBE3-FT 221 EBBE4-FT 222 NHH2-MT 223 NBBE3-FT 224 EBBE4-FT 225 Field notes East 226 EHH1-FT 227 EFGD1-MT 228 NHH1-FT 229 NFGD4-FS 220

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rected at the state are not isolated to one ethnic group but a shared experience.230 Some hoped for a positive change with the new government being elected in 2015, but had yet to see change manifest. Contrarily, some thought that the new government was worsening conditions by for example raising prices or imposing unfavourable regulations on business.231 3.7 Voice and Representation According to an INGO in the North the population does not feel that the government is accessible on a grassroots level.232 A respondent in the East explained that there are no linkages between government officials and the people, “when we have issues we sort it out in the community amongst ourselves. We do not feel like we can express our political opinions because we feel insecure.”233 Two young Tamil males in the East felt that there is no political freedom for Tamils.234 A respondent from the East told that she votes “but that doesn’t mean that the politicians are doing anything. People have to protect themselves, there is no one to help.”235 Respondents in the North were more reluctant to comment on their political rights and freedom of expression, but sometimes resorted to convoluted responses such as “the government has given us freedom to live in this country.”236 One respondent in the North told that the Tamils in his area do not have a voice but the Muslims do because a politician from the area was elected for parliament.237 A local think tank explained that “people will not take on Sinhala people that come in and take up business because they are scared and do not know how to.”238 Thus, there was a widespread experience of lack of official representation and effective channels to raise concerns and have an influence. Media can be a means of expression and contestation but a 2005 national study found that only around a quarter of the population believed that print and electronic media contributes ‘very much’ to the betterment of society.239

4. Conclusions and Implications Seven years after the conclusion of the civil war there are still severe challenges to restore the social and economic fabric of the conflict-affected areas and build peace. The populations of the Northern and Eastern Provinces struggle with high levels of unemployment and underemployment especially among young people. Post-war public sector investment has often failed to generate a peace dividend and locally embedded and sustainable jobs. Private sector investment in the region remain limited and at times extractive. Increased inflow of businesses from other parts of the country has outcompeted local businesses on lower prices and better quality, and not utilized local resources. This reinforces negative perceptions of the majority Sinhalese.

230

Gunatilaka et al 2010, p. 259; De mel & Venugopal 2016, 49 EBBM1-MM 232 Field notes North 233 EHH1-FT 234 NFGD1-MT 235 EHH2-FM 236 NFGD3-FT 237 NHH2-MT 238 Field notes North 239 International Alert 2005, p. 52 231

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Poorly directed investments and limited job creation curtails re-establishment of livelihoods retaining insecure income flows. Continuous failure to establish stable livelihoods and reach exponential growth in income generation along with an influx of financial institutions and early-stage optimism has brought about excessive loan taking and high debt levels. Barriers for the less connected and less well-off to access finance through formal channels direct them to informal lenders and private credit institutions with less favourable loan conditions. Poor financial literacy to estimate and plan repayment capacity and high levels of vulnerability often make debt a burden to households rather than a source of productivity. Business decisions relying on imperfect information and restricted by sociocultural norms and hierarchical structures as well as limited resources and access pose obstacles to household business investments, leading to frequent failure or suboptimal outcomes. Such experiences amplify risk-averse mentalities reinforcing preferences for public sector employment which is considered safe and secure, and strengthening reluctance to start own businesses. Recruitment channels based on social networks and patronage, and discriminatory hiring practices favouring candidates with certain socio-cultural characteristics and ethnicities exclude many from desirable jobs. Lack of options to exert agency and of support systems to turn to is a source of frustration. Regardless of these difficulties, the strong societal predisposition towards public sector employment makes some go voluntarily unemployed while others take up temporary occupations or enrol in training programs, sometimes with no intent to utilize the skills upon completion. Cases also exist where those unable to find public sector employment, get an opportunity in the private sector and settle in this job. This is the case when private sector jobs have sufficient salaries and high social returns capable of diverting outlook towards public sector employment. However, in the North and East such opportunities remain few, clustered geographically and available only to some. The most lucrative positions in bigger businesses are commonly filled by bringing in candidates from other areas due to the low skills base in the conflict-affected areas, reinforcing unequal relations between ethnically and spatially divided groups. Despite this, and in agreement with other studies, the current research did find evidence supporting the positive contribution of ‘contact’ to inter-group relations. The importance of the nature of contact must be stressed, placing emphasis on work environments and supply chains that are conducive to positive contact. Given that such conditions are met, there are good prospects for the private sector to contribute to a peaceful environment and fruitful relations. Sustainable economic growth can serve to ease the passage to peace in Sri Lanka. If the pie grows there is more for everyone to share, while if it shrinks or the dividends of the growth accrue to a select few, issues intensify along ethnic, religious and class lines. Poverty in itself does not lead to violent conflict, “but the awareness of relative poverty and expectations of a better life have always been potent ingredients in the world’s richest and poorest nations.”240 In post-war Sri Lanka, to ensure stability and sustainable development it is crucial to create economic growth that provides equal economic opportunities. This can redefine existing asymmetric power relationships, which is a critical predictor of conflict,241 and contribute to meet expectations of post-war betterment, thereby easing current frustrations. A study in post-war Rwanda found that “high economic satisfaction today

240 241

Rupesinghe 1998, p. 18 Tobias et al. 2013, p. 739

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was connected to low ethnic distance, and a positive change in life satisfaction was associated with a reduction in ethnic distance.”242 Addressing the issues related to the economic flashpoints outlined above will have positive impacts both on a short and long term. It is critical to attend to the needs and issues of youth as neglecting them “can be seen as a possible danger for social cohesion.”243 Provided with opportunities for meaningful employment youth can be a catalyst of peace and economic growth. To raise living standards in the Northern and Eastern areas the economy must generate enough attractive jobs in those localities so that youth are not forced to migrate to other areas.244 The nature of employment created is essential as it must satisfy aspirations and criteria defined not only by youth but also by relatives, communities and societal preferences at large.245 In turn, youth need to be employable, that is, have the right skills to adopt these positions. This also necessitates effective recruitment channels hindering discrimination and enveloping otherwise excluded groups. To accelerate and diversify economic activity in the North and East and provide more viable livelihood options entrepreneurship should be promoted. Better information to base entrepreneurship decisions on along with increased financial literacy will optimize returns on investments made with borrowed money. While access to finance can be a stepping stone to advancement, when there is lack of information and poor financial management it may cause people to maintain sup-optimal business models and/or occupations. Alleviation of debt is contingent on establishment of steady income streams for households246 allowing them to cover household costs, repay debt and alleviating the necessity to take loans for unproductive activities. There is a need to create and disseminate entrepreneurial success stories to instil confidence and conviction in youth, relatives and communities. Training programs for locals should be tailored to nurture opportunity-motivated and employment-generating entrepreneurship for example by including support mechanisms that help early-stage entrepreneurs improve and expand their business.247 This will have a cyclical effect on the economic growth as opportunity-motivated entrepreneurship is a driver of exponential growth and regeneration of economic activity in turn leads to an increase in opportunity-motivated entrepreneurs.248 By transcending their localities in business operations opportunity-motivated entrepreneurs facilitate trade linkages between the conflict-affected areas and the rest of the country.249 Linking local businesses with non-local markets is a strategy for poverty relief as it releases small-scale producers from limited selling options, and “inter-ethnic trade relationships encourage employment-generated entrepreneurial activity after a conflict, providing an avenue for conflict reduction.”250 Cooperation and economic interdependence among businesses spanning geographic and ethnic communities tend to

242

Tobias & Boudreaux 2011, p. 234 Gunatilaka et al 2010, p. 201 244 Gunatilaka et al 2010, p. 3 245 Miriyagalla 2015, p. 25; Bowden 2015, p. 31 246 Romeshun et al 2014, xi 247 Maddumage 2015, p. 155 248 Maddumage 2015, p. 155 249 Maddumage 2015, p. 100 250 Maddumage 2015, p. 97 243

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deter recurrence of conflict.251 This will create social networks with high levels of bridging social capital, which is important in business to ease transaction costs and enforce contracts.252 Violation of trust is less likely because it would hurt the investments of all businesses in the value chain.253 Developing the skills of youth will expand the pool of skilled labour available for companies, and enhancing economic activities in the conflict-affected areas will broaden the supply of inputs for companies, in the long term inducing more companies to set up. More companies will in turn increase competition for labour among firms, incentivizing them to provide better job conditions. Sensitive human resource management practices have been identified as an indirect way for firms to respond to violent conflict at the societal level.254 Hiring locals and offering them possibilities to advance and build their skills on the job will contribute to the effectiveness of the business and lessen asymmetries in relationships. Thereby workplaces can be platforms for social exchange that did not take place before. Pleasant contact and high social sensitivity at workplaces can enable “individuals to redefine identities based on economics, not politics”255 and has been proven in a study by Google256 to increase productivity.257 Ethnicity-based homophily in the workplace has negative impacts on the organisation such as compromised workplace integration and collaboration.258Promoting interethnic relations through diversifying value chains and workplaces can enhance general social trust in society, which “contributes to an emotional climate of peace within communities and nations.”259According to Tobias et al. 2013 reconstruction and peacebuilding programs often fail because they do not give emphasis to economic development. In poverty-conflict zones projects explicitly targeting ‘social’ transformation may be received with more suspicion “than those with less palpable ‘political’ motives.”260 Since MDF is working with institutional and organisational actors to indirectly reach individual beneficiaries the degree of felt intrusion to the local realities of people is minimal. MDF is therefore well-equipped to design its interventions in a way that implicitly promotes social cohesion concurrently with poverty reduction. 

Targeting Industries: In terms of industries in the Northern and Eastern Provinces the most preferred types of business establishment and employment creation mentioned by respondents were tourism, agriculture and aquaculture.261 More than a third of the population in these provinces are predominantly vulnerable and poor.262 In the 2005 business and peace survey by International Alert tourism was perceived to contribute very much to the betterment of society by 30.2% of the population in the North and the East compared to 8.2 of respondents in non-conflict areas indicating a more positive attitude towards this sector in the conflict-affected areas. The same survey found that the populations in the conflict-areas

251

De Mel & Venugopal 2016, pp. 26-27 Maddumage 2015, p. 141 253 Tobias & Boudreaux 2011, 219 254 Lee & Reade 2014, 1659-60 255 Tobias et al 2013, 737 256 Google is consistently named among the best American companies to work for. 257 Freakonomics Podcast: Trust Me http://freakonomics.com/podcast/trust-me/ 258 Lee and Reade 2014, p. 1647 259 Tobias et al 2013, 731 260 Tobias et al. 2013, pp. 737-738 261 This should be taken with caution as the preferences may be a function of the occupations of the respondents in the sample 262 De mel & Venugoal 2016, 35 252

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were much more positive towards information technology and telecommunications contributing to the betterment of society than the rest of the country. Development of the IT sector in the conflict-affected areas should also be supported. Introducing new technology can upgrade business operations. Improving familiarity with modern technologies especially among youth can serve to expose them to different cultures and ways of life, potentially giving them zest to break with the restrictive social and cultural structures and hierarchies framing their employment possibilities.263 This might empower them to act as ‘agents of change’264 enhancing their decision-making power and their ‘voice’ in communities. 

263 264

Investment Awareness: When developing the portfolio for the tourism and related sector MDF needs to be cognizant of the types of investments it partners with; who is the investor, which other business organisations and institutions does the business and business owner have ties to, what is the current composition of the business organisation and how will it evolve along the trajectory of the intervention, what ethnic and social status groups will benefit from the employment or extra income generated, what kinds of recruitment channels will be used, how will the intervention affect the social, economic and political fabric of the locality in which it will have an impact. While many areas are outside the scope of active MDF intervention it is helpful for MDF to be aware and mindful of the effects of its interventions in territories affected by conflict.

Bowden 2015, p. 106 De Mel & Venugopal 2016, p. 57

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Figure 4: Factors behind Social Cohesion

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265

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Upgrading Value Chains: MDF can work with partners to source from local suppliers, in the process providing support to these suppliers so that they are able to meet required standards. This may involve identifying new and previously unutilized producers and geographical areas, expanding and developing businesses’ supply networks, reorganisation and coordination of small-scale suppliers to provide bulk produce. It may also involve assistance to local producers to upgrade and streamline operations and move into more value-added activities. Incorporating local producers in domestic-wide or export-oriented value chains can be a path to economic upliftment for the producers and a platform to enhance bridging capital.



Advancing Workplace Integration: MDF can work with partners to hire a more locally based and diverse workforce by use of recruitment procedures and channels that reach out to targeted groups who might otherwise not get such opportunities. Jobs should have high economic and social returns; be fairly remunerated and offer benefits and possibilities for advancement. Effort should be put into recruiting locals for management positions as well, and providing on-the-job technical and management training for employees to upgrade their skills base. Partners should also be incentivized to implement sensitive human resource management practices that foster an open and free work environment and encourages both work-related and personal interaction. This can be achieved by helping partners access more support/mentorship services.



Enhancing Youth Skills: Training programs should be designed in ways that are suitable for the recipients and targeted to the job market. They need to be comprehensive and go beyond teaching technical skills. Types of training offered should be determined by local industry demands and by which occupations are desirable to youth to ensure that the skills gained in the training are being utilized subsequently. In this regard, training programs should include channels or mechanisms that connect graduates to the job market upon completion of the training. Trainings can also include mentoring and career guidance.



Promoting Entrepreneurship: self-employment options that are conducive to opportunityseeking and employment-generating entrepreneurship should be promoted. General information systems about entrepreneurship should be improved to inform about occupation options that are culturally suitable, accessible, match demands of the market, have potential for sustained growth, and that do not rely on large initial capital investment but on incremental technology addition.265 Training programs should be designed in ways that are suitable for the recipients and targeted to the market. They need to be comprehensive and go beyond teaching, to involve elements such as funding opportunities, assistance to establish businesses, ongoing support in the initial stages of business development, assistance in developing linkages to markets and suppliers, forms of risk-insurance, and financial management.

Shaw 2004, p. 1260

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

Developing Information and Support Systems: o

266 267

For Unemployed: Establishing platforms and channels through which youth (and others) can access information about available job positions and current and upcoming trends and events in the job market should be afforded priority. This should be coupled with opportunities for career guidance. Such offerings should be carefully designed so that they can reach and will be utilized by youth. This involves promotion through channels that are used by youth. For example, youth in the North and East use the internet comparatively little compared to youth in other parts of the country, whereas 59.2% own a mobile phone and 23.6% have access to a relative’s or friend’s phone.266 The population in the North and the East refer less to TV advertisements to stay informed about activities of business organisations than the rest of the country. In the East use of radio is widespread and in the North word of mouth and newspaper articles were used by more than a third.267 For Entrepreneurs and Businesses: Opportunities for business counselling, and business development and management services should be advanced and made widely available. Information and guidance about entrepreneurship options and procedures should be installed. Information on inputs, markets and technologies for different industries/occupations could be centralized and disseminated through channels that are easily accessible. Effort should be put to streamline registration procedures for businesses as well as other administrative necessities. And information on how to do this should be easily accessible.

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Improving Finance Acquisition and Management: Systems of access to finance and loan packages should be revised to match the needs of borrowers. Mechanisms that allow a wider range of people, including the less resource rich and less connected to borrow money for business investments should be promoted. Along with this it is essential to implement better guidance on loan investments and on taking loans in general. It is crucial that loan takers/recipients understand not only the terms and conditions of loan agreements but also the implications of repayment obligations. Capabilities to systematically manage household and business finances should be enhanced so that loan takers have an overview of surplus/deficit from income sources and expenses and how specific loan conditions will affect this.

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Supporting Institutions and Associations: In building its portfolio in the Former Conflict Affected Areas sector MDF can look to involve not only business organisations, but also local and regional business associations and institutions. Involving such actors may optimise outreach since they tend to have deep community ties and broad knowledge of local contexts. Research suggests that civil society associations can be helpful towards ensuring peaceful relations: “Local violence is often made possible when breakdowns in communication allow information and events to be manipulated by individuals or groups. Local business associa-

Family Health Bureau 2015, pp. 49-50 International Alert 2005, p. 37

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tions, which tend to be multi-ethnic and inclusive, can help to promote community communication and act quickly in times of unrest or emergency when misinformation or rumour cause small events to spin out of control.â&#x20AC;?268 MDF could engage youth associations, rural cooperatives, womenâ&#x20AC;&#x2122;s associations, financial associations or business associations, among those, associations such as Business for Peace Alliance that actively work with business and peace.

268

international alert 2005, pp. 89-90

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Mel, N. d., & Venugopal, R. (2016). Peacebuilding Context Assessment Sri Lanka 2016. United Nations. United Nations . Miriyagalla, D. (2014). Locking-in and locking-out business and economic reconciliation in the conflict-affected region of Sri Lanka. International Journal of Business and Economic Development, 2(2), 13-25. Miriyagalla, D. (2015, December). Perceptions of Small Businesses and Youth of Employment and Peace-Building in the Conflict-Affected Region of Sri Lanka. Business, Peace and Sustainable Development, 2015(6), 9-20. Romeshun, K., Gunasekara, V., & Munas, M. (June 2014). Life and Debt Assessing Indebtedness and Socio-economic Conditions of Conflict Affected Housing Beneficiaries in Jaffna, Kilinochchi and Mullaitivu Districts. Centre for Poverty Analysis. Rupesinghe, K. (1998). Civil Wars, Civil Peace: An Introduction to Conflict Resolution. London: Pluto Press. Sarvananthan, M. (2016). Elusive economic peace dividend in Sri Lanka: all that glitters is not gold. GeoJournal, 2016(81), 571â&#x20AC;&#x201C;596. Shaw, J. (2004). Microenterprise Occupation and Poverty Reduction in Microfinance Programs: Evidence from Sri Lanka. World Development, 32(7), 1247â&#x20AC;&#x201C;1264. The Asia Foundation. (2010). Survey of the Sri Lankan People: Findings from a public perceptions survey. The Asia Foundation. The Asia Foundation. (March 2016). Sri Lanka Strategic Assessment 2016. The Asia Foundation. The Fund for Peace. (2016). Fragile States Index 2016. Washington, D.C.: The Fund for Peace. Tobias, J. M., & Boudreaux, K. C. (2011). Entrepreneurship and Conflict Reduction in the PostGenocide Rwandan Coffee Industry. Journal of Small Business & Entrepreneurship, 24(2), 217-242. Tobias, J. M., Mair, J., & Barbosa-Leiker, C. (2013). Toward a theory of transformative entrepreneuring: Poverty reduction and conflict resolution in Rwanda's entrepreneurial coffee sector. Journal of Business Venturing, 2013(28), 728-742. Vhurumuku, E., Nanayakkara, L., Petersson, A., Kumarasiri, R., & L.P.Rupasena. (2012). Food Security in the Northern and Eastern Provinces of Sri Lanka . United Nations World Food Market Development Facility | 41

Programme & Ministry of Economic Development and Hector Kobbekaduwa Agrarian Research and Training Institute. Walter, B. F. (2011). Conflict Relapse and the Sustainability of Post-Conflict Peace. San Diego: University of California.

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