Sri lanka country strategy web by Market Development Facility

SRI LANKA

Country Engagement Strategy Februar y 2017

Quick Facts

Terrain

Gained Independence

1948

Tropical monsoonal climate, low ﬂat terrain with mountainous interior

Former Bri�sh colony un�l 1948, then became the autonomous Dominion of Ceylon un�l 1972 Civil war: 1983-2009 Current President: Maithripala Sirisena. Current Prime Minister: Ranil Wickremesinghe.

SRI LANKA

Population

20.9 million (2015)

Jaffna

Currency Sri Lankan Rupee

81% in rural areas

Pulmoddai

Mannar

Language English, Sinhala,Tamil

Yan River Kala RIver

Poverty Headcount

Trincomalee

6.7%

Batugade

(% of popula�on under the na�onal poverty line)*

Puttalam Chilaw

Matale

Batticaloa

Kandy Negombo

Main Cities Colombo (capital), Jaﬀna (North), Kandy (Central), Trincomalee (East)

Sri Lanka

Laklo River

Batugade

Colombo

Ease of Doing Business Index

110 out of 190 (2017) MDF Sectors

Kalmunai

Kirindi River

GDP

$82 billion GDP Growth

Hambantota

Galle Matara

Human Development Index

73 out of 188 (2015)

4.8%

Major Industries Tourism, Agriculture, ICT, Apparel

MDF’s focus in Sri Lanka

Diversiﬁca�on of Sri Lanka’s Tourism

▪▪ Supporting the diversification of Sri Lanka’s tourism destinations, products and services: Giving tourists more options in terms of how they travel, what they do, where they stay and eat, and what they buy in terms of distinctly Sri Lankan products.

Improving Sri Lankan Produce and Products

▪▪ Improving Sri Lankan produce and products for export and tourism markets: Focusing on a limited number of products and value chains that have the potential to be internationally competitive.

S�mula�ng Entrepreneurship in Former ConﬂictAﬀected Areas

Innova�on in Digital Services

▪▪ Stimulating entrepreneurship in former conflict-affected areas: Supporting business activity and local entrepreneurs in order to improve the economic fabric of the North and East. ▪▪ Innovation in digital services: Expanding the application of services to increase export competitiveness, help the tourism sector communicate with its international clients and bring services to rural communities.

* World Bank online databank – poverty headcount ratio at National Poverty Lines, 2012 data

INTRODUCTION

Diversifying Tourism

Innova�on in Digital Services

Improving Sri Lankan Products and Produce

Entrepreneurship in Former Conﬂict-aﬀected Areas

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 pro-poor 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 will create approximately 2,040 jobs and increase incomes for 25,092 households, reaching up to 97,860 men, women and children. These results are based on a two-year implementation timeframe (2015-2017) at the end of MDF Phase 1.1 Results are expected to increase in MDF Phase 2. MDF works within a select number of strategic engagement areas that represent a major part of the economy, have long-term growth prospects and are relevant for poverty reduction and inclusive growth. In Sri Lanka, MDF will focus on tourism and related sectors, working within four strategic engagement areas: (1) supporting the diversification of Sri Lanka’s tourism destinations, products and services, (2) improving Sri Lankan produce and products for export and tourism markets, (3) stimulating entrepreneurship in former conflict-affected areas, and (4) innovation in digital services to facilitate international tourism and export-led, services-oriented growth as well as inclusive growth.

Market Development Facility. MDF Result Estimates for Five Countries 2011–2017. 2015. Strategic Guidance Note 1.

Poverty

National poverty levels have fallen to 6.7% but a significant portion of the population remains vulnerable. Poverty has fallen dramatically over the past 15 years, from 22.7% in 2002 to 6.7% in 2013.2 However, pockets of poverty persist and social inequality remains high, with a Gini-coefficient of 0.48.3 Also, an estimated 40% of the population lives on less than United States Dollar (USD) 2.79/day.4 These households may not be poor as such, but they are vulnerable to income shocks and at risk of falling back into poverty – 40% of employment in Sri Lanka is classified as ‘vulnerable’.5 MDF’s analysis of Household Income and Expenditure Survey (HIES) 2012/13 data, combined with field observations, concludes that for the bottom half of the population, household expenditure outweighs income, with the balance being financed through increasing debt. Average annual debt is Sri Lankan Rupee (LKR) 258,000.6 Economic growth has been struggling to reduce poverty further. For every 1% Gross Domestic Product (GDP) per capita growth, there is only a 0.2% drop in poverty – the average for South Asia is around 0.7%.7 Sri Lanka needs targeted growth to reach the remaining pockets of poverty, but it also requires broad-based growth to create more secure jobs for the 40% of the population that is vulnerable and often in debt. Enabling women to take up paid work could greatly reduce poverty and vulnerability.

The poor are concentrated in (unproductive) agriculture- and fisheries-related employment. The post-conflict economic boom led to an economic shift from agriculture to services. While national wages increased, rural productivity did not, and the incomes of small-scale farmers and fishermen could not keep up with the rising cost of living. As a result, agriculture, fisheries and other forms of manual work are increasingly seen as ‘not having a future’. Not all farmers are poor. Predominantly, farmers who grow paddy and other low-value, ‘traditional’ crops with limited investment in inputs are poor (limited investment leads to low output and, ultimately, a low-value product). Farmers who invest in higher-value, often ‘new’ crops and higher-yielding cultivation methods fare much better. Farming has ceased to be a ‘default livelihood’ for many, but specific value chains can still be very financially rewarding. However, farmers are hesitant to adopt new crops or farming practices due to a lack of knowledge. Farmers are also not incentivised to invest because they are not connected to lucrative markets – they sell to the few available traders or in the local market, making investments in expensive inputs and equipment such as water pumps less attractive. A proportion of farmers are limited by rain-fed cultivation, which yields only one harvest a year. Farmers who use irrigation systems rely on old, lesseffective systems. Fishing can be rewarding even for small fishing households, provided they own their own boat and are able to sell high-value products through access to relevant markets. This is largely dependent on having access to the right fish, prawn or ornamental fish varieties, for example, which command high prices in the tourism and export markets. Workers and young people struggle to acquire the skills that would lead to more rewarding jobs. This is due to a variety of reasons including limited access to higher education and sufficient skills training. A skill mismatch between training programmes and industry requirements also makes it difficult for individuals to secure better paying employment opportunities. For example, a shortage of skilled workers in the hotel and restaurant industry has led to low wages, high turnover and limited opportunities for career progression, which in turn results in a cycle of low investment in training and development by industry players.

Department of Census and Statistics (DCS), 2015. Household Income and Expenditure Survey (HIES) - 2012/13.,

A score of 0 reflects the highest level of equality and 1 the highest level of inequality. Inequality in Sri Lanka is comparatively higher than South Asian counterparts such as India (0.339), Bangladesh (0.321) and Pakistan (0.30). [Source: World Bank (2013). “World Development Indicators 2013”; Sri Lanka’s Gini coefficient reported from HIES data] 3

The World Bank, Sri Lanka Ending Poverty and Promoting Shared Prosperity: A Systematic Country Diagnostic. (Washington: World Bank Group,2015), Page. 140. 4

Muaz Jalil, Growth Vulnerability & Poverty Nexus: The Case of Sri Lanka & It’s Crop Sectors, (2015), Page. 9

Muaz Jalil, Growth Vulnerability & Poverty Nexus, Page 6.

World Bank: A Systematic Country Diagnostic, Page 25.

The poor are concentrated in former conflict-affected areas in the North and the East; ethnic and religious minorities are over-represented. The 26-year civil war and the 2004 tsunami have left the North and East impoverished and underdeveloped. Based on HIES 2012/13 data, poverty rates in the Northern and Eastern Provinces are more than five times higher than in the Western Province.8 Four largely Tamil districts have a poverty incidence of over 10%, and a further two exceed 20%.9 Statistics vary widely for the incidence of youth unemployment, particularly for the Northern and Eastern Province. The Labour Force Survey 2015 reports youth unemployment rate for 2015 to be around 20.8% nationally, and 18.8% and 21.7% for the Northern and Eastern Province respectively.10 However, these numbers are likely to be understated with other estimates placing youth unemployment rate in main urban towns of Mullaitivu, Jaffna and Killinochchi as high as 60% as of 2014.11 Also, the North and East are home to many vulnerable groups such as landless families, war widows, female-headed households, orphans and people living with disabilities. Beyond these conflict-affected areas, a large portion of the poor and those vulnerable to poverty live on the fringes of the country’s main urban belts.12 Although districts such as Ratnapura, Galle, Kurunegala and Kandy have low poverty rates, they have some of the largest populations of those living below the poverty line or those vulnerable to poverty.13 Furthermore, a significant number of those vulnerable to poverty can be found in/around urban areas in the Northern and Eastern Provinces of Sri Lanka, especially around Trincomalee, Batticaloa and Jaffna.

Social norms restrict greater economic participation of women. Overall, despite high education levels for women, female labour force participation has remained in the range of 32% to 40% over the past decade compared with near-constant male participation of around 75%.14 Sri Lanka ranks 100th out of 144 countries in the Global Gender Gap Index 2016 – down by 16 places from 2014, when it ranked 84th out of 142 countries.15 As a comparison, Bangladesh ranks 72nd and India ranks 87th in the same index. Women are much more likely to be unemployed compared with men. Women are considered primarily responsible for domestic and family duties. MDF’s field research shows that among the women engaged in the labour force, the majority are involved informally. The involvement of women is higher in industries in which there is an ability to work from home (such as handicrafts) or under flexible arrangements. There is a perception that certain industries are less appropriate for the participation of women. For example, in the tourism sector, social stigma discourages women from working in hotels, resorts and spas. Both women and men tend to perpetuate these norms.

DCS. HIES 2012/13, Page 42

Only seven districts in Sri Lanka have a poverty incidence of over 10% - of those Mannar, Mullaitivu, Killinochchi and Batticaloa and are largely Tamil – not Badulla, Moneragala and Ratnapura. Data from: DCS, HIES 2012/13, Page 42. 9

DCS, Sri Lanka Labour Force Survey 2015, Annual Report, Page 26.

Akruwan Wanniarachchi et al., “Sri Lanka’s Northern Province Poorer, Undeveloped After 26-Year Civil War with Tamil Tigers,” Global Opportunities: Sri Lanka (CNBC), April 27, 2016. Accessed February 23, 2017. http://www.cnbc.com/2016/04/27/sri-lanks-northern-province-poorer-undeveloped-after-26-yearcivil-war-with-tamil-tigers.html. 11

Urbanization offers Sri Lanka Major Economic Opportunity, World Bank 2015. Accessed February 23, 2017. http://www.worldbank.org/en/news/pressrelease/2015/09/29/urbanization-offers-sri-lanka-major-economic-opportunity 12

DCS, The Spatial Distribution of Poverty in Sri Lanka, (Poverty Global Practice: World Bank Group, 2015), Page 16

DCS, Sri Lanka Labour Force Survey 2015, Annual Report, Page 4

World Economic Forum. The Global Gender Gap Report. (World Economic Forum, Geneva, Switzerland, 2016).

Growth

GDP growth has been strong, averaging around 6.3% between 2002 and 2013 and is transforming the economy.16 Growth is driven by public investment in infrastructure and increased consumer spending which, in turn, is in part the result of higher consumer confidence prompted by the enhanced stability that came with the end of the conflict. Another important driver of growth is the post-conflict increase in tourist arrivals, from 447,000 arrivals in 2009 to 1.8 million in 201517 and a targeted 2.5 million in 2016.18 This growth in tourism, combined with the expansion of domestic consumer services (e.g., retail and restaurants), sees Sri Lanka transforming from a more rural, agriculturalcommodity-oriented economy to one dominated by mostly-urban-based services. Services, including tourism and Information Communication Technology (ICT), are now the highest contributor to GDP and are increasingly important for bringing in foreign exchange. The contribution to GDP from the agriculture, industrial and service sectors was estimated at 19.9%, 27.3% and 52.8%, respectively, in 2000 and shifted to 10%, 32% and 57% in 2014.19 Manufacturing (notably, apparel exports) has remained an important â&#x20AC;&#x201C; but consolidating rather than expanding â&#x20AC;&#x201C; factor in the Sri Lankan economy. Further, where agriculture lost traction, tourism and, increasingly, ICT have gained importance. Tourism is now the third-highest foreign exchange earner for the country following apparel and remittances, bringing in USD 2.98 billion in 2015.20 This is important in light of stagnating earnings from apparel exports and the risks associated with being overly dependent on migrant labour to the (economically and politically) unstable Gulf region. In addition, ICT and Business Process Outsourcing (BPO) services are rapidly gaining importance as a source of foreign exchange, growing from USD 213 million in 2007 to USD 850 million in 2015.21

There are mounting concerns about the sustainability of growth. Recent growth has, for a considerable part, been funded by public expenditure (on infrastructure and civil servants) and an increase in consumer confidence. Both the state and many consumers are now in debt: public debt has reached 75% of GDP, while 66% of all households have some form of debt.22 There are signs of high government and consumer borrowing crowding out Small and Medium Enterprise (SME) lending. This is largely due to significant debt acquired for large-scale infrastructure projects, most of which are yet to yield substantial returns. The state is struggling to keep up with the current national debt and simultaneously attract investments, resulting in debt-forequity swaps with China, among other measures.23 Tax revenue as a percentage of GDP is declining and was only 10.1% in 2014 versus 14.5% in 2006, making it difficult for the government to maintain investment levels.24 Another sign of looming macro-level instability, showing that Sri Lanka as a nation is spending more than it earns, is the growing trade imbalance (more than 10% of GDP in 2015).25 Despite remittances from migrant workers, Sri Lanka imports considerably more than it exports. To balance its books, Sri Lanka needs to attract more foreign direct investment (FDI) and/or accelerate export-led growth. FDI is relatively low compared with neighbouring countries; in 2013, Sri Lanka received only USD 915 million, versus USD 1,307 million in Pakistan, USD 1,599 million in Bangladesh and USD 28,199 million in India.26 To compensate for this, export-led growth will be essential. At the same time, broadening local manufacturing is necessary to reduce reliance on imports. Increased productivity and investments in agriculture and livestock, upgraded technology, and small-scale industry will need to be promoted to address the negative balance of payments.

World Bank: A Systematic Country Diagnostic, Page 22

Sri Lanka Tourism Development Authority (SLTDA), Annual Statistical Report 2015, (SLTDA, Colombo, 2016), Page 15.

Ministry of Economic Development, Tourism Development Strategy 2011-2016. (SLTDA), Page 24.

Central Bank of Sri Lanka (CBSL), Economic and Social Statistics of Sri Lanka, 2016, (CBSL, 2016)

SLTDA, Annual Statistical Report 2015, Page 5.

SLASSCOM, Vision 2022: Sri Lanka IT/BPM sector, Strategy Document 2016, (SLASSCOM and PwC, Colombo) Page 3.

Muaz Jalil, Growth Vulnerability & Poverty Nexus, Page 5

Blanchard. B, Sri Lanka requests equity swap for some of its $8 billion China debt, Reuters: http://www.reuters.com/article/us-china-sri-lanka-idUSKCN0X60CH

Based on World Bank Data. Assessed on February 23 2017. http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?end=2014&start=1973&year_high_ desc=true 24

Central Bank of Sri Lanka (CBSL), Economic and Social Statistics of Sri Lanka, 2016, (CBSL, 2016), Page 5.

Abdin, M. J, Foreign Direct Investment in SAARC Countries, Global Journal of Management and Business Research: c Finance, (2015).

Sri Lanka aspires to become an upper-middle-income country, with a large middle class that is able to find rewarding employment in a largely services-based economy. However, the country now finds itself at an economic crossroads. There is significant growth potential in service industries such as tourism and ICT, which could generate local employment and bring in FDI and foreign exchange. There is also potential to add value to specific Sri Lankan produce and products in order to supply the growing tourism and overseas markets. All these economic activities can be inclusive in nature – they can take place in, or help connect to, former conflict-affected areas and create sales and employment opportunities for poor male and female farmers, fishermen, craftsmen, workers, unemployed youth and vulnerable groups. Also, tourism and ICT are ‘new’ economic activities in which the ethnic and caste boundaries that pervade other parts of society have not materialised yet – and as such they could help to further the image of a new, more inclusive, more prosperous and peaceful Sri Lanka. Last, increased business activity in, or connectivity with, former conflict-affected areas will help stimulate local entrepreneurship in these areas, as there is more demand for certain products and services from growing industries or consumers with more to spend. However, to make this happen, Sri Lanka needs to avoid the ‘middle-income trap’, which often occurs when a country is attempting to make the transition from being a low-income country to becoming a high-income one, because productivity and value addition are not being increased.27 Sri Lanka needs to become more outward looking, upgrade the skill levels of its workforce, ensure a more conducive business-enabling environment, increase productivity, and focus on innovation to ensure that sustainable, inclusive and broad-based growth can happen.

Thus not creating the space in which salaries can be increased and competition based on “comparative advantage” is replaced by competition based on competitive advantage. 27

Development Challenges

Adopting an export-led growth strategy to sustain growth and create the jobs that will allow Sri Lanka to become an upper-middle-income country. The Sri Lankan market is too small to sustain growth; too much of its current growth is driven by domestic consumption (with borrowed money) and the trade deficit is too wide. Targeting international markets (exports) and audiences (tourists) creates room for sustained growth and more rewarding jobs.

Higher productivity and quality, as well as better ‘service-orientation’ and skills. To compete in the international market and offer an attractive tourism experience, production and service delivery need to become faster and more efficient, and should meet international quality standards. This requires investment in management, technology and skills, which in turn requires access to well-developed support markets. An efficient and responsive businessenabling environment is also needed. Without these elements, promising businesses in key sectors of the economy such as tourism, ICT and agriculture will continue to struggle to reach their full potential.

Fostering innovation and entrepreneurship. While innovation and entrepreneurship are present in some parts of the economy such as ICT, there is room for new entrepreneurs and fresh ideas in other parts of the economy, such as tourism, agriculture and aquaculture. Sectors do not reach their full potential because there are insufficient firstmovers who can and are willing to break new ground.

Including former conflict-affected areas and vulnerable groups in the country’s post-conflict resurgence. The current levels of income disparity and inequality undermine Sri Lanka’s ambition to become an upper-middle-income country in which prosperity is shared by all. Growth must reach the parts of the country, and the people, currently left behind or being threatened to be left behind.

Female role models and better workplace environments would increase the economic participation of women. Female role-models in traditionally male-dominated areas can change norms and perceptions of what women can and cannot do. Similarly, better organised workplaces in terms of fit-out, oversight, transport and flexible work-hour arrangements can also change norms and perceptions of where women can and cannot work.

CAPTURING OPPORTUNITIES FOR GROWTH AND POVERTY REDUCTION Poverty •• National poverty levels have fallen drastically in recent years and are relatively low compared with many neighbouring countries, but a significant portion of the population remains vulnerable to poverty, and pockets of deep poverty persist. •• The poor are concentrated in former conflictaffected areas in the North and East, home to ethnic and religious minorities and, after the end of the conflict, vulnerable groups such as femaleheaded single-income households, war widows, people living with disabilities and unemployed youth who cannot find a job in an economy partly wiped out by war. •• The poor are also concentrated in (unproductive) agriculture- and fisheries-related employment and/or are employed as unskilled labourers – they lack access to skills that would lead to more remunerative employment. •• Women in rural and urban areas face cultural barriers which restrict their participation in economic activities. Enabling women to work would help reduce poverty.

Growth •• GDP growth has been strong over the past five years and is transforming the economy. •• Services – including tourism and ICT – are now the highest contributor to GDP and are increasingly important for bringing in foreign exchange. •• There are mounting concerns about the sustainability of growth, as much of it is fuelled by private and public debt; there is a need for productive private investment to drive more growth. •• Sri Lanka aspires to become an upper-middle-income country, with a large middle class finding rewarding employment in a largely servicesbased economy, but finds itself at an economic crossroads. It needs to become more inclusive and more competitive to make the transition happen.

Challenges •• Adopting an export-led growth strategy that would sustain growth and create the jobs that would allow Sri Lanka to become an upper-middle-income country. •• Improving productivity and quality, service orientation and skills, as well as the efficiency and responsiveness of the wider business-enabling environment. •• Fostering innovation and entrepreneurship: new businesses with fresh ideas to demonstrate untapped potential. •• Including former conflict-affected areas and vulnerable groups in the country’s post-conflict resurgence. •• Creating role models and work places that help change norms and perceptions of where women should and should not work.

Market Development Facility •• Supporting the diversification of tourism destinations, products and services in Sri Lanka, so that tourism can continue to grow in a sustainable manner without “overcrowding” a limited number of sights. When tourism becomes more attractive and inclusive, the country will open up, with more tourists able to travel to more parts of the country in a less ‘locked in’ manner. Local businesses can supply more produce and products to the sector, and more employment is created for poor and/or vulnerable women and men. •• Supporting the formation of value chains for specific fruits, spices and fish products able to generate and preserve high-quality Sri Lankan produce and products suitable for exports and domestic use in, for instance, the tourism market in Sri Lanka. These value chains may connect to production centres in former conflict-affected areas and thus create local sales opportunities and employment, as well as local demand for specific services (e.g., cold chains). •• Stimulating entrepreneurship and business activity in former conflict-affected areas. The conflict left gaps in the local economy, as local entrepreneurs went out of business, and hence new growth opportunities are being missed. MDF will support local entrepreneurship to: (a) serve currently unmet local demand for products and services; (b) meet demand for local products and services arising in relation to an increase in tourism; (c) meet demand for local products and services arising from the formation and expansion of export value chains; and (d) support local efforts that encourage the spread of the ICT industry (currently concentrated in Colombo). All of these are intended to support local economic growth, job creation and diverse industry ownership. •• Stimulate investment and innovation in digital services to: (a) support diversification in tourism; (b) facilitate international trade and generate export-led growth; (c) create products and services for rural customers; and (d) create white-collar employment beyond Colombo (including in former conflict-affected areas). •• Creating role models and supporting changes to work environments that help change norms and perceptions about women’s participation in the economy. •• MDF’s portfolio is aligned well with the Sri Lankan Government’s economic agenda. According to the current government’s budget, priority areas include tourism, ICT and exports.28 According to the same budget, in Tourism, the government seeks to promote an interest subsidy for loans, develop a common technological platform (for lodge bookings) and focus on the Central and Eastern Provinces by improving connectivity to these regions via domestic air travel and highways. Increasing tourist arrivals to the country, tourist expenditure and employment in the industry are also areas of focus. The government is also offering schemes to increase exports, make value addition to fruits and vegetables and upgrade agricultural practices. It is also seeking to improve ICT start-up incubation and enhance IT-enabled services in governance. Generating employment in former conflict-affected areas is another priority area, with allowances and tax credits for businesses generating high employment. •• MDF’s portfolio is aligned with the Australian Government’s 2015-2018 Aid Investment Plan for Sri Lanka. Through its activities, MDF will generate economic opportunities for the poor and contribute towards women’s economic empowerment.29

Expected Results will be •• MDF’s partnerships and engagement with industry stakeholders are expected to leverage USD 918,000 in private sector investment, generating 23 business innovations and/or regulatory reforms and create additional business to the value of USD 2,754,000, which will create approximately 2,040 new Full Time Equivalent (FTE) jobs and increase incomes for 25,092 households, based on a two-year implementation period. •• Poor and vulnerable groups (including those hovering around the poverty line and others in debt) and those living in former conflict-affected areas benefit from opportunities in growing, competitive and productive parts of the economy. •• Women are better able to participate in the economy and find more acceptance in doing so. •• Sri Lanka’s economic fabric becomes more inclusive, diverse, innovative and competitive.

Economic Policy Statement made by Hon Prime Minister, Ranil Wickremesinghe in Parliament on 5th November 2015: http://www.pmoffice.gov.lk/download/ press/D00000000009_EN.pdf?p=7 28

Department of Foreign Affairs and Trade (DFAT): Australian Government, Aid Investment Plan Sri Lanka Program: 2015-2019: (DFAT, 2015)

Innova�on in digital services supports export-led and inclusive growth

S�mula�ng local entrepreneurship and business ac�vity in former conflict-affected areas supports, and benefits from, the diversifica�on in tourism, services and export value chains

More tourists visit less visited parts of the country

The economic base in former conﬂict-aﬀected areas improves

More Sri-Lankan produce and products meet export standards and increasingly appeal to interna�onal consumers, including tourists

Farmers, ﬁshermen and producers are integrated into compe��ve value chains

Investments in tourism des�na�ons, products and services help to open up tourism beyond a limited circuit

Sri Lanka produces more diverse products and services for interna�onal audiences

Sri Lanka’s global appeal and interna�onal compe��veness improves

Increased business ac�vity in interna�onally compe��ve service industries and value chains as well as in former conﬂict-aﬀected areas

More income and jobs, improved wellbeing, for poor women and men

MDF contributes to inclusive economic growth and poverty reduc�on in Sri Lanka

Country-level Theory of Change – Inclusive Growth in Internationally Competitive Service Industries and Value Chains as well as in Former Conflict-affected Areas

Diversifying Tourism Destinations, Products and Services

Definition and Focus This strategic engagement area focuses on ‘opening up’ the tourism sector and making it less dependent on a limited circuit of sights organised through a limited number of tour operators. It is about giving tourists more options in terms of how they travel, where they travel, what they do, where they stay and eat, and what they buy in terms of distinctly Sri Lankan products. This should make Sri Lanka more attractive as a destination, thus fostering further growth of the industry, but also making that growth more sustainable by reducing ‘pressure’ on key sights and improving the management of nature reserves. This would also make tourism more inclusive. MDF will collaborate with private and public actors to develop and provide information available for tourists on where to go and what to do as well as the means available to get there, and to develop and promote new destinations and ‘new things to do and buy’. MDF will also support efforts to disseminate and improve essential hospitality skills in the industry and form a coherent national policy to support the industry.

Relevance and Size Tourism is a labour-intensive services industry that can provide employment for people with different skill levels and education levels. On-the-job training typically is very important, meaning that the industry offers a clear career perspective: an employee can progress as new skills are acquired. Tourism brings economic activity to places otherwise too remote for investment. In Sri Lanka, this is of particular relevance to the former conflict-affected areas of the North and East. Tourism not only creates local employment, but also generates demand for products and services (from the hotels and tourists), which offers opportunities for local businesses (to supply food/restaurant services, make and/or sell souvenirs, set up tourist activities, etc.). Therefore, high-quality value chains that supply, for instance, fruit and fish – often rooted in remote areas – and entrepreneurship in former conflict-affected areas can reinforce each other. Finally – important in the context of Sri Lanka – tourism brings in foreign exchange and can be used by the local industry as a stepping stone for exports: it brings an international market to Sri Lanka’s doorstep. Tourism can be a market for Sri Lankan ICT services, which can help connect tourists to destinations in Sri Lanka and support the diversification of the industry. Tourist arrivals in Sri Lanka have been steadily increasing since 2005, and this growth accelerated with the end of the threedecade civil war in 2009. The sector saw average growth in tourist arrivals of 26.5% between 2009 and 2015, reaching around 1.8 million tourists in 2015.30 Direct employment from tourism reached more than 135,000 people and indirect employment was a further 183,000 people in 2015.31 Women make up 26% of the employment.32 The industry contributed 4.8% to GDP in 2014.33 The Government of Sri Lanka has identified the industry as a priority growth sector and is in the process of developing a new 2025 tourism country strategy.

Growth Potential and Key Constraints While growth has been impressive in recent times, further growth might be undermined by the ‘locked in’ nature of the industry, in which tourists are toured around to a limited number of increasingly crowded sights. Also, in developed destinations, the range of things to do and buy can be quite limited. Longer term, more sustainable and inclusive growth in the industry may require developing new destinations and activities, as well as improving the management and quality of the existing ones. Sri Lanka has more to offer than what is currently easily accessible to tourists. Accessibility, diversity, information and service quality should be improved at all levels and locations to open the industry beyond its currently limited circuit.

SLTDA, Annual Statistical Report 2015, Page 17.

SLTDA, Annual Statistical Report 2015, Page 55.

Chandrasiri, S. and Gunatilaka, R., The skills gap in four industrial sectors in Sri Lanka, ILO 2015.

World Travel and Tourism Council, Travel & Tourism Economic Impact 2015 Sri Lanka. Page 1.

Constraints

Opportunities

Lack of (online) information on where to go, stay and eat, as well as what to do and buy; limited availability of online reservation services restricts tourists to organised tours on a limited circuit (of increasingly overcrowded destinations). A few established players in the industry have a strong online presence; the bulk of the industry does not have the capacity to engage on online platforms. As a result, information is hard to come by and making online bookings is difficult.

Sri Lanka’s internet infrastructure is well developed, connectivity throughout the island is generally good and ICT expertise is locally available to create products and services which can digitalise tourism content and booking services. Businesses are showing an emerging interest in becoming content providers. MDF intends to work with ICT companies, content providers, travel agents, associations and government bodies to stimulate investment in and improve the content, availability, access and quality of online services, activity provider sites, booking/reservation services and transportation services.

Limited convenience of domestic connections (buses, trains, flights) and inadequate use of signboards and (online) maps restrict tourists to organised tours on a limited circuit (of increasingly overcrowded destinations). While Sri Lanka’s road network is generally good, the dearth of signboards and good maps, and the fact that foreign languages are not widely spoken, makes it difficult to travel. Domestic air travel is infrequent and expensive. Rail services offer poor service and limited destinations. Bus services exist, but route information is not easy to access and seats cannot be reserved in advance.

In terms of road travel, MDF could work with ICT providers, publishers and car rental companies to make more detailed (digital) maps available. Improving signboards on the road and/or at destinations can be explored. There are concrete opportunities to promote existing bus services to tourists and make it easier to get information about routes, reserve seats and book trips. In terms of rail services, there could be an opportunity to improve the quality of existing services and introduce new routes by working with emerging private sector players. Lastly, the market potential of domestic aviation could be explored.

Poorly managed destination development and limited marketing result in low visibility and issues with the quality and sustainability of destinations. Tourists are sticking to the ‘beaten track’ due to a lack of information on better alternatives. Established locations are under pressure from high visitor numbers, while other possible locations struggle to attract them.

Related to the ‘locked in’ nature of tourism in Sri Lanka, the range of tourism activities and products is limited (e.g., cultural dances, gemstone factories, spice gardens) and the quality offered is not always good (e.g., wildlife guides do not recognise endemic species) – even in established destinations. Sri Lanka has the potential to offer increasingly diverse experiences and products, but these are not being developed because expertise around technology and design is limited. Businesses are hesitant to innovate and tend to stick to generic products and services; services and marketing are often weak.

The opportunity exists to work with associations and market actors in emerging/potential destinations, with a vested interest in promoting their regions. MDF can support institutional strengthening, sustainable management, marketing and filling gaps in services to make these destinations unique, attractive and competitive. This can be complemented at the national level by providing support to market Sri Lanka in the right manner to the right audiences.

MDF intends to work with all industry players – big and small, established and new – willing to invest in new activities or upgrade existing ones that will contribute to a more diverse tourist offering in Sri Lanka, including the emergence of new destinations. Activities could range from zip-lining and sea kayaking to walking tours around inland water bodies and camping in national parks. The variety and quality of products – souvenirs, spa products, handlooms – can be improved by better design, better packaging and wider availability.

Constraints

Opportunities

Limited professional skills and a lack of suitable hospitality training cause service standards, including language and communication skills, to be low; on-thejob training is often not feasible for smaller businesses and the number of good, practical hospitality training institutes is limited. All this contributes to perceptions of ‘low value for money’ services.

There is scope to drive more quality awareness in the industry through a variety of channels: online reviews, initiatives such as the Excellence in Tourism awards, and working with training providers, vocational schools, hotel schools, associations and universities to provide good practical training courses. MDF will also seek active collaboration with other development initiatives working in this space.

The industry is fragmented, with several governing bodies and business associations that do not always coordinate well with each other undermining the ability of the industry to improve quality, maintain standards and ensure the accessibility and sustainable management of destinations. There are currently three separate governing bodies, and several private sector associations with differing mandates, that do not communicate with each other. A unified voice is missing.

The Government of Sri Lanka is working on an overarching tourism strategy. There seems to be an appetite for more coordination. Growing media presence could be used as a platform for discussion. MDF can support this by working with public and private players such as government agencies, businesses and associations to improve dialogue, coordination and efficiency within the industry, with the aim of improving the quality of the Sri Lankan tourism product.

Relevance for Poverty Reduction and Inclusive Growth Tourism’s relevance for poverty reduction and inclusive growth is four-fold. (1) Growth in the industry creates employment opportunities for poor and vulnerable households and provides career growth opportunities for a reasonable number of employees.34 Most new jobs are associated with hotels and restaurants, but services, products and activity providers, travel agents, guides etc. will also see the growth in jobs. (2) Diversification of the industry to former conflict-affected areas brings business opportunities to these areas. (3) Tourism is a relatively ‘new’ industry, and brings Sri Lankans from diverse background together in ways that older industries do not. This is unlike ‘traditional’ sectors such as estates, farming and fisheries, where factors like caste, gender and prestige associated with certain activities affects who interacts with the sector. For instance, the association of paddy farming with castes perceived as higher, and the prestige that brings, propel many to continue unproductive agriculture. (4) By creating role models and supporting changes to work environment, more employment opportunities for women can be created in the industry. While the tourism sector is perceived negatively in terms of being a place for employment for women, factors like mobility, security, and being able to work with other women can make hotels an attractive place of employment for women. There may be potential to work with industry leaders through their Corporate Social Responsibility programs to further include vulnerable people and those with disabilities, especially in the North and East where vulnerability and disability are more prevalent.

The industry employs more than 130,000 employees currently and is targeting to employ a million people by 2025 (according to draft Sir Lanka Tourism Vision 2025) 34

Lack of (online) informa�on on where to go, what to do, where to eat and stay and what to buy restricts tourists to organised tours on a limited circuit

Tourists have access to be�er (online) informa�on and services to travel more independently

Autonomy Sustainability Resilience Scale Inclusion WEE

Increased business ac�vity in the tourism industry

Increased business ac�vity in value chains supplying tourism in former conﬂict-aﬀected areas

Improved wellbeing, for poor women and men

Limited convenience of domes�c connec�ons, inadequate use of sign boards and inadequate (online) maps restricts tourists to a limited circuit

Tourists have access to be�er transport services, maps and signboard to travel more independently

Poorly managed des�na�on development and limited marke�ng results in low visibility and issues with quality and sustainability

Tourists have access to more diverse and be�er managed and promoted des�na�ons

The range of tourism ac�vi�es and products is limited and the quality is not always good, even in established des�na�ons

Tourists have access to more diverse and be�er “experiences” and products

Limited professional skills and a lack of suitable hospitality training causes service standards incl. language and communica�ons skills to be low

Service providers have the skills to maintain service standards and (online) marke�ng

Investments in Sri Lankan tourism des�na�ons, products and services help to open up tourism beyond a limited circuit – while improving quality, sustainability and the industry’s inclusive nature

Limited coordina�on between government bodies and associa�ons limits the ability of the industry to improve standards, manage sustainably

Industry coordina�on helps improve the quality and diversity of services, products, and des�na�ons as well as their accessibility and sustainable development

Tourists do more, spend more on local products, produce and services

Increased business ac�vity in value chains supplying tourism

More income for poor women and men

More tourists travel to more parts of the country

Increased business ac�vity in the tourism industry in former conﬂict-aﬀected areas

More jobs for poor women and men

Theory of Change – Diversifying Tourism Destinations, Products and Services

Making Sri Lankan Produce and Products Export Competitive

Definition and Focus This strategic engagement area targets international consumers and markets – including the domestic tourism industry, which can be considered an international market at Sri Lanka’s doorstep, governed by international standards and expectations and a potential stepping stone for exports to more distant markets. Sri Lankan Produce and Products for Exports focuses on produce from horticulture and aquaculture as well as value added products derived from these, as these have most export potential and relevance for inclusive growth. In this strategic engagement area MDF will not attempt to make whole agricultural subsectors more productive, but to focus instead on a limited number of products and value chains that have the potential to be internationally competitive. These value chains are currently in their infancy resulting in substantial value loss and more generally a disconnect between exporters and producers. Within horticulture the focus is on fruits and spices; within aquaculture the focus is on inland and coastal fishing. MDF will work with actors along the value chain (e.g., exporters, wholesalers, cooperatives) to improve coordination, increase production, improve quality, and develop new products for which there is international demand. This will support Sri Lankan exports as well as the tourism industry, generate local employment along the chain, assist farmers to grow more rewarding crops and fishermen to have a more rewarding catch.

Relevance and Size The majority of Sri Lanka’s poor – irrespective of which ethnic or religious group they belong to – are engaged in fishing or subsistence/semi-commercial smallholder farming. The incidence of poverty in agriculture and fisheries is 40%, second only to labour (45%).35 With so much of the country’s economic development concentred in the Southwest, residents of the North and East have had fewer options to diversify their livelihoods from traditional subsistence activities. Working with traditional crops and traditional techniques and, in the case of small fishermen, not owning their boats, generate returns that have not kept up with the rising cost of living – creating a poverty trap. Integrating small farmers and fishermen into supply chains that help boost productivity, preserve quality and connect the suppliers to international markets and better prices offers a pathway out of poverty; this connects distant regions to international markets and helps bring in foreign exchange. Productive, high-value farming can be a good livelihood, and the growth figures support this: since 2005, the value of agriculture exports has increased by around 520% to approximately USD 700 million.36 Demand has primarily come from the Maldives, the Gulf states, selected European markets and the USA. Agricultural exports are primarily fresh products, although dried and processed products have been showing potential as well. The government has plans to link farmers with enterprises to develop the rural economy. Agriculture, forestry and fishing, combined, involves around 2.5 million people and represents around 8% of GDP; Fruits, vegetables, spices and inland aquaculture contribute 3% to total GDP.37 1.8 million households participate in paddy cultivation.38

Gunatilaka, R, Wan G. and Chatterjee S., Poverty and Human Development in Sri Lanka, (Asian Development Bank, Philippines, 2009), Page 12 & 13.

Calculations based on CBSL 2015 data.

Rice Research and Development Institute, Rice Cultivation: http://www.doa.gov.lk/~agridept/rrdi/index.php/en/rice. Department of Agriculture, Sri Lanka.

Growth Potential and Key Constraints In aquaculture, growth potential is significant. Sri Lankaâ&#x20AC;&#x2122;s large number of inland and coastal water bodies, and its climatic conditions, are favourable for the growth of premium varieties such as giant fresh water prawn, crab and ornamental fish (guppies, swordtails, barbs and catfish). The Food and Agricultural Organization estimates a global demand- supply gap in seafood of 50 million tons by 2030.39 In addition, Sri Lankaâ&#x20AC;&#x2122;s lagoons and estuaries offer great potential for in-demand species such as barramundi and (various kinds of) crab and lobster. Key investments here to tap into this global demand relate to adopting sustainable cultivation and harvesting practices, setting up new cold chains to reach potential production grounds, establishing good post-harvest practices, and developing industries for by-products â&#x20AC;&#x201C; all to preserve quality and freshness and establish a viable business model. National statistics for 2015 indicate around 50,790 families engaged with inland fishing actively, and a total of 207,410 individuals in households for which inland fishing is the main source of income.40 The districts with the highest numbers of active fishers are, in order, Anuradhapura, Polonnaruwa and Ampara. In horticulture, switching to high-value export crops such as tropical fruits, brinjal, green chili and okra can significantly increase farm incomes. The key success factor would be farmers learning to grow the right crops in the right manner that would result in high yields and meet export standards, as well as developing supply chains that are able to reach farmers, provide information, preserve the quality of fresh produce and generate value-added products where opportune. According to field research conducted by MDF, crop selection has a direct influence on poverty vulnerability. Currently, farmers cultivate large amounts of low-value crops despite having the land required for multi-cropping and the potential to generate significant household income. Improving information and connections to the right supply chains for farmers will enable them to capitalise on their resources for greater productivity. Overall, whether it is aquaculture, coastal fisheries, or fruits and spices, the existing potential can only be met if supply chain management is improved, better production inputs and techniques are used and overall skill levels in the value chain improve. In relatively dry regions, improved irrigation practices are important.

Ababouch, L. and Karunasagar, I., Global Fisheries and Aquaculture: Opportunities and Challenges, 10th World Seafood Congress, (Food and Agricultural Organization, Fisheries and Aquaculture Department 2013). 39

Statistics Unit, Annual Report 2016 - Fisheries Statistics, Ministry of Fisheries and Aquatic Resources Development.

Constraints

Opportunities

Supply chain from farm or fishing ground to export market is broken. Exporters and processors mainly purchase fish products and horticulture produce through a series of intermediaries, resulting in inefficiencies, quality loss and higher prices. This is not necessary in a country the size of Sri Lanka and undermines Sri Lanka’s export position. Businesses mainly function as traders, responding to supply, rather than investing in supply chains to ensure demand is met. Farmers and fishermen struggle to find rewarding markets, which deters investment in quality at their end and/or makes them exit the activity altogether.

MDF will seek to work with exporters and processors to help them establish or improve the functioning of their supply chains to demonstrate the benefits if well managed. This can be combined with working with service providers in logistics (e.g., trucks, containers/cold storage, inventory control) and/or producer associations, so that investment in and the management of supply chains does not sit with a single company. Road networks are good. Based on the priorities highlighted by the current Prime Minister in a speech, the Government of Sri Lanka has also identified connecting farmers to enterprise as a focus area. There are strong international markets for Sri Lankan produce, including the captive market in Maldives.

Post-harvest losses limit access to high-end export markets (e.g. due to improper packaging, poor cold chain management, poor peeling and drying of spices, and poor sorting and grading of fish). Post-harvest losses of fruits and vegetables are as high as 50%. Poor handling and a lack of appropriate grading and packaging lead to losses and low-quality fruit and vegetables. In inland and coastal fishing, post-harvest losses are high due to mismanagement of the catch after it is brought to land. Poor practices in catching, sorting, grading and transporting fish result in loss of quality and quantity (and revenue losses for fishers).

In horticulture, the use of crates and aerated nets for transportation, as well as better grading and handling, can make a lot of difference. Either exporters, more specialised intermediate handlers (both as part of better-organised supply chains) or, for instance, farmer cooperatives could be instrumental in making this shift happen. In inland and coastal fisheries, similar ‘simple’ changes could make a significant difference. Access to ice is generally sufficient; simple practices relating to grading, sorting and storing in chlorinated waters could significantly improve retention of quality and higher revenues for fishermen.

Farmers and fishers are insufficiently informed about how to create (and preserve) value on their farms/from their catch. This results in poor choices and practices, which diminish value and market access. Farmers do not know what to grow profitably and hence adopt poor cropping patterns. Farming practices are outdated: overusage (pesticides, urea), limited use of micronutrients and lack of knowledge about disease control measures. Fishermen rely on traditional methods.

Better-organised supply chains could be used to educate farmers and fishers on fishing/catching practices that would result in an attractive, valuable commodity. Alternative channels that could support this awareness effort would be through telecom companies (apps, helplines,) as well as through better-informed retail networks. For fishermen, in particular, interest among agro-tool manufactures to expand their product range to include technology for more intensive fish cultivation could be explored.

Input market insufficiently developed/competitive, resulting in relatively high prices and limited availability. In horticulture, a few major players control the seed market, and hence prices are high. Also, since the removal of the government subsidy, fertilizer has become very expensive; compost is only sporadically available. In fisheries, there are few hatcheries and nurseries, and hence fingerlings and fry for export species are only sporadically available (mostly from government bodies). With feed imported and expensive, awareness and usage are limited.

Sri Lanka’s farming population is concentrated in certain farming belts. This makes investments in new distribution channels for new companies feasible. Given Sri Lanka’s extensive network of underutilised water bodies and its export market for fish, there are opportunities for businesses to set up hatcheries, nurseries and feed distribution. Alternatively, exporters and processors could start supplying the necessary inputs to guarantee production for export.

Constraints

Opportunities

Limited irrigation infrastructure prevents more yearround cultivation. The bulk of farming is based on rain-fed irrigation. Poor irrigation leads to low output and productivity. The use of water pumps is limited.

The government has a dedicated Department of Irrigation â&#x20AC;&#x201C; an entry point to address issues relating to the maintenance of water bodies/tanks. Another opportunity is to work with selected businesses that sell farm implements and agro tools including water pumps. Exporters and processors could play a more proactive role here too.

Limited capacity for exporters and processors to add value through product development and meet international standards (e.g., related to safety and the environment). Agricultural exports are primarily in fresh form. Value addition would make supply chains more viable (by turning second-grade/perishable items into valuable products) and result in higher international revenue. Exporters and processors lack the technical skills necessary for product development and processing, while expertise in basic business practices such as accounts, finance and operations can also be limited.

MDF will seek to work with exporters and processors to invest in technology, product development, branding and packaging to expand the product range, reduce wastage and expand shelf-life. A number of food companies are showing interest in exporting juice, dried fruits and branded vegetables from Sri Lanka. There are also opportunities to market organic produce from Sri Lanka. Although one step removed, the Seafood Exporters Association of Sri Lanka is a well-established entity promoting good, sustainable practices, which can be brought over to inland and coastal fisheries exporters as well.

Relevance for Poverty Reduction and Inclusive Growth The relevance of Sri Lankan produce and products for export in terms of poverty reduction and inclusive growth is four-fold: (1) The incidence of poverty among small farmers and fishermen is very high. Rolling out export value chains to farmer and fisher communities offers real pathways out of poverty, as yields and the value of produce increase. Not everyone can leave the land to work in the service industry; (2) A significant portion of these value chains will reach former conflict-affected areas and vulnerable groups such as Hindu Tamil fisherman. While horticulture cuts across ethnic lines, in fisheries there is a greater presence of the Tamil community; (3) Investments in warehousing and processing will create employment and demand for industry services in former conflict-affected areas; (4) With the right set-up (e.g., working hours, transport), these employment opportunities can be made relevant for women too.

Increased business ac�vity in export value chains in FCAA

Exporters, processors, logis�cs service providers and producers invest in prac�ces to reduce post-harvest loss, retain export quality

Post harvest loss of quality limits access to high-end export markets (due to poor packaging, cold chain management, peeling, drying, grading etc.)

Exporters, processors, logis�cs service providers and producers invest in be�er coordinated supply chains

The supply chain from farm of ﬁshing ground to export (and tourism) markets is broken; intermediaries cause ineﬃciency, quality loss, higher prices

Exporters, processors invest in technology and product development to expand range, reduce wastage, increase shelf life, meet standards

The capacity of exporters and processors to do value addi�on and meet interna�onal standards is limited

Increased business ac�vity in value chains supplying tourism in former conﬂict-aﬀected areas

Improved wellbeing, for poor women and men

Farmers/ﬁshermen are insuﬃciently informed about how to create (and preserve) value from crops and catch, which results in poor choices and prac�ces

Export supply chains, telecom providers and input companies start informing farmers/ ﬁshermen about good prac�ces, varie�es and species to create and retain value

The input market is insuﬃciently developed and compe��ve, resul�ng in rela�vely high prices and limited availability

Farmers/fishermen have be�er access to the inputs needed, and at more affordable prices, to cul�vate high-value crops/catch high-value fish

Limited irriga�on infrastructure prevents more year-round cul�va�on

Be�er irriga�on infrastructure enables farmers to grow a larger variety of high-value crops year-round

Farmers and ﬁshermen are able to supply more hor�culture and ﬁsheries products that meet export standards

More Sri Lankan produce and products meet export standards and are able to appeal to interna�onal consumers, including tourists

Farmers and ﬁshermen increase the sales value of their crops and catch

More income for poor women and men

Exporters are able to produce more products that meet export standards and increase supply chain eﬃciency

Autonomy Sustainability Resilience Scale Inclusion WEE

Increased business ac�vity in export value chains

More jobs for poor women and men

Theory of Change – Making Sri Lankan Produce and Products Export Competitive

Stimulating Entrepreneurship and Business Activity in Former Conflict-affected Areas

Definition and Focus As its name suggests, this strategic engagement area focuses on stimulating entrepreneurship and business activity in former conflict-affected areas. Local business in these areas suffered during the years of the conflict – businesses were cut off from markets and inputs, did not receive sufficient investment, were expected to support the war effort, or were destroyed (although the extent to which this happened varies significantly among the Northern and Eastern districts). Nonetheless, after 26 years of conflict, there is a need for the North and East to rebuild their economies. As mentioned before, only seven districts in Sri Lanka have a poverty rate above 10% – of these, Mannar, Mullaitivu and Killinochchi are located in the Northern Province, while Batticaloa is located in the Eastern Province. Urban unemployment is high – it is difficult even for educated youth to find jobs in the region. Investments in tourism have picked up, but more could be done. Farmers need to be reconnected to markets they lost during the years of conflict, and supply chains and distribution networks for inputs need to be rebuilt. Businesses present before the conflict have not returned; some of the gaps they left behind could still be filled. Given the stark inequality prevalent among the different regions of Sri Lanka, all of MDF’s strategic engagement areas must be relevant for the economic development of former conflict-affected areas (as well “lagging” parts of the country more generally). The specific focus of this strategic engagement area is to support business activity and local entrepreneurs – typically at a disadvantage compared with the more established businesses of the Southwest – so that the North and East’s economic fabric improves and shows fewer gaps, with peace offering opportunities for all. At a broader level, achieving reconciliation in these provinces is a national priority. MDF aims to work with a wide range of partners to promote economic activities within the regions by addressing issues relating to access to business finance, affordable and appropriate technology, upgrading of skills, access to mentorship and creating a more conducive enabling environment.

Relevance and Size Economic activity in the former conflict-affected areas has been growing, but government spending on (rehabilitating) infrastructure has far outweighed private sector investment. The combined output for the Northern and Eastern provinces as a percentage of national GDP stands at around 10%.41 According to the Central Bank of Sri Lanka, in 2015 the Northern province recorded the highest growth rate of 12.9% in GDP contribution (year on year), while the Eastern province recorded a 10.9% increase. However, with public spending plateauing, there is an urgent need for the private sector to step in with investments to maintain momentum. Local entrepreneurship can help diversify the local economy, create local employment, make products and services locally available and help ’anchor’, or make connections with, other growing industries such as tourism, horticulture and aquaculture for export and ICT. Locally available services, from warehousing to distribution to manufacturing production inputs to entrepreneurship networks, make it more feasible and less risky for other businesses to invest in these regions – which would help accelerate growth. However, entrepreneurship in these regions is very much embryonic and, after years of conflict, there is a strong aversion to taking risks. Years of conflict damaged institutions and led to an exodus of capital, expertise and experience as business and talent left the country. Post-war, an entirely new entrepreneurial base had to emerge. In the North, investments made after the conflict remain limited to small-scale trading. The few manufacturing and value-addition enterprises established after the war struggle to meet industry standards and compete with more experienced businesses domestically and internationally. In the East, business activity and investments have grown comparatively faster, propelled by investments in the tourism sector in particular. Around 2.5 million people live in the North and East of the country. Based on national labour force statistics, the total economically active population in these provinces, combined, is around 830,000. Jaffna, Killinochchi, Trincomalee, Batticaloa and Ampara have the lowest labour force participation rates in the country.42

Calculations CBSL 2015 data.

DCS, Sri Lanka Labour Force Survey 2015, Annual Report, Page 10.

Growth Potential and Key Constraints The other three strategic engagement areas identified by MDF offer a good basis for sustainable, inclusive, pro-poor growth that will strengthen Sri Lanka’s economic base, including reaching the North and East. Stimulating entrepreneurship and business activity in former conflict-affected areas has the potential to connect to and support these ‘growth engines’. Fisheries, agriculture and tourism are all important for the development of the Eastern Province. In the Northern Province, the picture is more diversified, with additional potential for manufacturing and ICT. In addition to local entrepreneurship that intersects with the other strategic engagement areas, MDF will also support entrepreneurship that is of more general relevance to the region, for instance by providing services or goods that were present before the conflict but may now only be available in Colombo. For instance, the glass and cement industries were operating in the Northern Province prior to the conflict – but these have not re-emerged since the end of the conflict. In summary, the key constraints are: the embryonic state of local entrepreneurship, hampered by a lack of capital and/or less appetite for risky investment, a lack of specific skills (both entrepreneurial/managerial and technical), and a general business environment in which role models, support networks and information are insufficiently available, and rules and regulations are too generic to connect to local realities.

Constraints

Opportunities

Local enterprises struggle to start: new entrepreneurs are unfamiliar with basic procedures, such as business registration, and often lack some of the documents required, as these have got lost in the conflict. As a result, getting a business started is a hurdle too high to overcome for some. Better business-support networks that could guide new entrepreneurs and procedures acknowledging that the conflict created specific circumstances for which solutions need to be found would go a long way to address the matter.

MDF can partner with government institutions, banks and representative bodies (chambers, sector bodies) to work out more appropriate procedures and proactive guidance for aspiring entrepreneurs. Peer support networks, universities (as part of entrepreneurship courses/ networks/incubators), as well as service providers and local media, can also play a role.

Local enterprises struggle to grow: there is a dearth of basic management skills for running a profitable business, such as accounting and understanding the relation between product quality, packaging and pricing. Business support networks are weak. Because there are only a few local entrepreneurs, there are no peer and support networks that could provide guidance and mentorship. Chambers and associations are often oriented towards lobbying with the government and lack the capacity to provide more strategic advice.

MDF can partner with local universities to set up entrepreneurship courses/networks/incubators for young, aspiring entrepreneurs. It can also work with service providers and banks (see below) to create better access to basic business management services. In addition, (some) local chambers and sector bodies have the potential to operate more strategically. Finally, better integrating local business in value chains can give them access to appropriate services, skills and information.

Related to this, there is limited access to information on market demand and, thus, equally limited awareness of market segments and business opportunities. More information and a more informed idea about markets would support better-informed investment decisions (what, where and how to sell). Instead, potential entrepreneurs are often reminded that business is a ‘gamble’ and public jobs are more ‘safe and secure’. Risk appetite is low after years of conflict.

The growing presence of media (print and radio) provides an opportunity to expand the circulation of information and ideas. Better business networks, as described above, can also help. The Sri Lankan diaspora, as well as businesses with roots in the former conflict-affected areas, are increasingly interested in investing back in their region – they can bring the capital, skills and market insight currently missing. MDF can support activities that stimulate such investment.

Limited access to investment capital restricts the ability to start and/or upgrade enterprises. Banks typically require collateral for loans over LKR 250,000 (approximately USD 1,600) and may have a preference for consumer lending, which is deemed less risky. Informal finance and microfinance is thriving but charges high interest rates.

The number of financial intermediaries is growing and becoming more diverse. Inevitably, banks will begin to realise that overexposure to consumer finance is also risky. MDF will seek to identify players in the industry that are receptive to bringing about change. In addition, valuechain financing and investments by the diaspora could offer new opportunities for aspiring local businesses with potential.

Access to appropriate, up-to-date technology (e.g., industrial machinery and agro-tools), as well as skilled labour to operate them, is limited. Distribution networks collapsed during the conflict and still have not recovered. As a result, businesses use obsolete technology, which hampers quality and competitiveness.

MDF can help individual businesses invest in upgrading their technology but will prefer to support in rebuilding distribution and supplier networks so that local businesses can increase capacity and efficiency. MDF will also investigate how to improve on-the-job learning to increase the pool of workers with practical skills.

Relevance for Poverty Reduction and Inclusive Growth The relevance of stimulating entrepreneurship and business activity in former conflict-affected areas is self-evident. Sri Lanka has pockets of deep poverty, with districts in which up to 28% of the population is poor.43 Growing industries need to penetrate these areas to create alternative, productive and rewarding livelihoods. Local entrepreneurship creates employment and growth, supports anchoring to other emerging industries and provides role models who show others what is possible. Local market conditions can be harsh, as the list of constraints demonstrated, and MDF must focus on supporting truly (commercially) viable businesses and support networks. These are the sustainable means to achieve the ends, namely more rewarding jobs, better incomes and, overall, more opportunities for those living in former conflict-affected areas. The beneficiaries of these jobs will be the youth who cannot find decent employment, families who lost (access to) their ancestral lands as a result of the conflict, female-headed households and other vulnerable groups (e.g., people living with disability). Furthermore, stimulating local entrepreneurship helps ensure balanced ownership of resources in the economy â&#x20AC;&#x201C; and hence, inclusivity.

DCS, The Spatial Distribution of Poverty in Sri Lanka, (Poverty Global Practice: World Bank Group, 2015), Page 16

Enterprises struggle to start up: entrepreneurs struggle to navigate registra�on procedures and o�en lack key documents due to the conﬂict

Government ins�tu�ons, banks and representa�ve bodies work out appropriate procedure; support network and media help create awareness

Improved wellbeing, for poor women and men

Enterprises struggle to grow: basic management skills for running a proﬁtable business are largely missing; business support networks are weak

Local chambers, sector bodies, universi�es, value chain actors, media, banks, business consultants and diaspora investors all create insight into what can be produced for whom and how

Access to informa�on on market demand is limited; awareness of market segments and business opportuni�es is equally limited

Access to appropriate, up-to-date technology and the skills to operate them is limited

Be�er access to investment capital and be�er access to appropriate technology from value chain partners or (re) established distribu�on networks allows local enterprises to upgrade and produce as per market demand/speciﬁca�ons

Limited access to investment capital restricts the ability to both start up and/or upgrade enterprises

Based on a be�er (shared) understanding of business opportuni�es and be�er business networks, banks, value chain actors and diaspora investors are willing to invest more in local enterprises

Businesses from outside the former conﬂict-aﬀected areas, including those in the tourist industry and export value chains, invest in these areas

Increased local entrepreneurship and business ac�vity in former conﬂict–aﬀected areas

More income for poor women and men

Local enterprises grow, filling local market gaps and access markets beyond the former conflict affected areas

Autonomy Sustainability Resilience Scale Inclusion WEE

More jobs for poor women and men

Theory of Change – Stimulating Entrepreneurship and Business Activity in Former Conflict-affected Areas

Innovation in Digital Services for Inclusive Growth

Definition and Focus This strategic engagement area focuses on helping expand the reach of Sri Lanka’s digital services industry. This includes software/product development, development of mobile applications, Business Process Outsourcing (BPO) and IT-enabled Services (ITeS). All these services aim to improve business and social processes with the help of digital processes and platforms. Within this growing industry, MDF will focus on stimulating innovation in, and expanding the application of, services to increase export competitiveness, help the tourism sector communicate with its international clients, and bring services to rural communities. MDF will also focus on investments that support employment creation in areas where skilled jobs are rare and youth unemployment is high. Thus MDF will support investments in digital services where these have a demonstrated development benefit in terms of increasing the competitiveness of future drivers of growth in the Sri Lankan economy and/or create jobs and access to services in places that need them. MDF will invest in start-ups with innovative products able to expand the reach and relevance of digital services. MDF will also seek to partner with existing businesses with relevant products, the potential of which have not yet been fully exploited. MDF will also collaborate with associates and organisations with a vested interested in the development of digital services, such as the Sri Lankan Association for Software and Services Companies (SLASSCOM) and the Information and Communication Technology Agency (ICTA) of Sri Lanka.

Relevance and Size As suggested above, in the context of Sri Lanka, the relevance of digital (or IT/BPO) services is four-fold. Digital services work as an ‘enabler’ which can make other industries, such as tourism and export industries, more competitive. Sri Lanka’s competitiveness – being a middle-income country now – can no longer depend on price alone. Export competitiveness must be based on an increase in productivity, and a wider application of these services in the Sri Lankan economy would support this. For instance, digital solutions surrounding tourism range from information provision, reservation services and peer-to-peer platforms that directly connect tourism service providers to tourists. However, their application is still somewhat limited in Sri Lanka. There is a long way to go for online information to become available for less-frequented destinations, especially relating to travel options, routes and services. Digital applications can give rural populations better access to relevant information and services. For instance, the country’s wide telecom coverage and usage provide an opportunity to disseminate practical information on farming practices and provide financial services. While some such services exist, uptake has understandably been gradual, considering the innovative nature of these products. The services industry itself is a growing source of export revenues and employment creation. Many male and female graduates, diploma holders with degrees in ICT or its sub-categories, travel to Colombo from other regions of the country for employment. However, given that the cost of living and salaries are rising in the Colombo area, the industry is starting to show signs that it might be willing to invest outside this area, for instance in Kandy or Jaffna, to attract suitable and affordable talent. Lastly, the industry offers prospects for greater involvement of women by offering flexible work-hours, suitable workplaces and the ability to freelance. In terms of the ICT workforce, female participation in the industry was 29.7% as of 2013.44 While women are making inroads, they tend to be disproportionately concentrated in lower-skilled jobs in BPO companies in roles related to word processing or data entry.45

SLASSCOM, Sri Lankan IT/BPM Industry 2014 Review, (SLASSCOM and PwC, Colombo).

Asian Development Bank, Deutsche and Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Country gender assessment, Sri Lanka: An update. (Mandaluyong City, Philippines: Asian Development Bank, 2015) 45

Growth Potential and Key Constraints The digital services (IT/BPO) industry has shown significant growth in the past ten years and has almost tripled in revenue. In 2013, the industry comprised around 220 companies, which contributed USD 720 million in export revenue and employed around 75,100 persons.46 Women’s participation in the industry is 32%.47 Over the same period, the telecom sector also witnessed significant growth. Sri Lanka has five mobile phone operators, countrywide coverage for 4G and a mobile subscription ratio of 1.12 (for every 100 persons, there are 112 subscriptions).48 This provides a good basis for more IT-enabled services that will impact the poor. The digital services industry also enjoys vested government interest due to its capacity to export its services. The rapid expansion of the industry over the past decade is expected to continue. This is highlighted in the ‘Vision 2022’ developed for the industry by industry association SLASSCOM in conjunction with the Export Development Board. The vision statement postulates that by 2022, the industry’s contribution to GDP will have increased to USD 5 billion, with 200,000 related jobs, harbouring 1,000 start-ups.49 The government has promised Information and Communication Technology Agency (ICTA) LKR 10 billion (USD 6.6 million) to promote ICT incubators and innovation.50 While this overall growth is impressive, there remain gaps and constraints that prevent the industry from reaching its full potential in terms of supporting Sri Lanka’s export-led growth, competitiveness and inclusiveness. Innovation and product development supporting tourism, export-led value chains and rural consumers could be stronger. The networks around innovative start-ups could be developed better. Creating pools of skilled labour, particularly in areas with few economic alternatives, could be fostered more.

Constraints

Opportunities

Limited product innovation and (marketing) efforts to open up new markets that can be served by digital services. Digital service industries have a limited understanding of the potential demand for customised products and services beyond the major cities – hence these products/services are not being developed. The export-focused industry also does not recognise the potential in connecting to local industries such as tourism.

MDF can work with industry players such as tourism service providers, exporters, suppliers/distributors of agricultural inputs and consumer services to articulate the demand for specific digital services. MDF can also work with new start-ups that want to carve out a space for themselves in these under-serviced markets and can work on the support networks around them to make them succeed – see below. MDF can also work with telecom providers, which are increasingly interested in providing information and establishing connections to remote parts of the country.

Innovative start-ups do not have sufficient access to mentorship and support networks to grow and succeed. This has proven to be a barrier for start-ups when developing truly innovative concepts (addressing market gaps) and growing to the next level. Overall, the success rate of start-ups is low.

Associations have taken note of this gap and started providing access to mentorship and support services for start-ups. MDF can work with these associations, but also with ICT universities and venture capitalists to further develop these support networks.

SLASSCOM, Sri Lankan IT/BPM Industry 2014 Review.

Chandrasiri, S. and Gunatilaka, R., The skills gap in four industrial sectors in Sri Lanka, ILO 2015.

Based on World Bank data: http://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=LK

News.lk, Sri Lanka’s IT/BPM sector vision 2022 a $ 5 Billion revenue, http://www.news.lk/news/business/item/5089-sri-lanka-s-it-bpm-sector-vision-2022-a-5billion-revenue. 49

Hewage, I., Rs 10 billion to set up incubators, innovation centres, Daily News 2016, http://www.dailynews.lk/?q=2016/04/01/business/78019.

Constraints

Opportunities

Related to this, access to (venture) capital is a constraint. Start-ups are not seen as a viable segment to give loans to by the banking sector. Hence avenues for funding for startups are few. Start-ups are not connected to international circuits of venture capital, and such activity in Sri Lanka is limited.

There are a few venture capital firms operating in the digital services space in Sri Lanka. This number could increase. Better networks – e.g., organised through associations – through which venture capitalists and startups get to know each other and through which start-ups could tap into international capital streams would help circulate ideas and access the capital to support these ideas.

Specific gaps in regulation and legislation undermine growth in the industry. Examples of such gaps include: (1) labour laws that restrict working hours for women; and (2) the lack of international competition in internet payment gateways, perpetuated by strict regulations regarding the exchange of funds, which in turn makes it difficult to move money in and out of Sri Lanka, thereby also negatively affecting freelancers. Further, the difficulty and cost of doing business contribute to relatively low levels of FDI.

There is strong cooperation between the public and private players in the digital services arena that could provide a good basis for more constructive policy formulation. While the government realises the need for updated regulations, there is a lag in implementation. To reinforce this, MDF can work with the associations, public sector agencies and media to improve coordination in the sector and keep the government informed of industry needs.

Insufficient ICT graduates to meet industry demand. Demand for ICT skills far outstrips local availability. In competing nations, companies find it easier to access the required skills. The rising cost of skilled workers in the Western Province makes it advantageous for companies to expand outside the province.

There are a large number of private ICT schools in operation, albeit with questions about quality and affordability. ICT companies with innovative ideas such as placements and targeting diploma holders are emerging. MDF will work with companies and suitable universities, institutions and training houses to increase the output of skilled graduates, especially in areas attractive for an expanding industry and with high youth unemployment.

Relevance for Poverty Reduction and Inclusive Growth The relevance of digital services for poverty reduction and inclusive growth in Sri Lanka is manifold: (1) develop products and services that support opening up the tourism sector, as discussed in the section above; (2) develop products and services to support integration and coordination in export value chains, making it easier for them to reach former conflict-affected and lagging areas; (3) developing products and services relevant for rural costumers, including local SMEs for local consumers; (4) creating employment, particularly in areas with few economic alternatives; and (5) offering employment to female workers. While the sector enjoys a better participation rate for women (32% as opposed to 26% in tourism) and higher wage levels, only a small proportion move up to mid- and top-management levels.51 Flexible hours, better transportation and day-care services are some avenues that show potential to help businesses hire more women to this area. Finally, like tourism, digital services is a ‘new’ industry that offers opportunities to workers irrespective of financial and ethnic background.

Chandrasiri, S. and Gunatilaka, R., The skills gap in four industrial sectors in Sri Lanka, ILO 2015.

Limited product innova�on and (marke�ng) eﬀorts to open up new markets that can be served by digital services

More awareness of the poten�al and feasibility of new market segments will trigger investment in innova�on to open these up

Access to (venture) capital is a constraint

Speciﬁc gaps in regula�on and legisla�on undermine growth in the industry

Public ins�tu�ons, representa�ve bodies and the private sector collaborate to improve BEE

There are insuﬃcient IT graduates to meet the demand from the industry

Be�er training programs and placement programs create a larger pool of IT specialists with relevant prac�cal skills XXX

More innova�ve digital services are available to support export-led growth (e.g., in digital services, tourism, export value chains)

(Incuba�on) networks develop around associa�ons, universi�es or venture capital providers which help innova�ve start-ups work out new products and services, grow and mature the business, and facilitate access to (interna�onal) investment capital

Innova�ve start-ups do not have suﬃcient access to mentorship and support networks to grow and succeed

Improved wellbeing, for poor women and men

Digital services can expand in areas with high youth unemployment, such as the former conﬂict –aﬀected areas

Innova�on in digital services supports export-led and inclusive growth

Increased business ac�vity in former conﬂict-aﬀected areas

More income for poor women and men

More innova�ve digital services are available for rural customers

Autonomy Sustainability Resilience Scale Inclusion WEE

Rural customers, both SMEs and individual clients have more access and choice

More jobs for poor women and men

Theory of Change – Innovation in Digital Services for Export-led and Inclusive Growth

Inclusivity Strategy

For Sri Lanka to become a higher-middle income country with a services-dominated and export-led economy, competiveness is key. At the same time, to build a stable and inclusive society in which all share the recent peace dividend, no one should be left behind in this quest for growth. In response, this engagement strategy seeks to focus on economic activities that can drive future growth and support inclusive growth.

Key Drivers of Exclusion

Deep rifts characterise Sri Lankan society. One can distinguish a class, caste and skill divide; an ethnic, linguistic and religious divide; and a rural-urban divide. These drivers of exclusion are often compounded and concentrated in, but not limited to, former conflict-affected areas. Women face distinct challenges when participating in the economy. People with disabilities also struggle to participate in the economy, and in Sri Lanka this segment is also aging, placing a further burden on caregivers. There are strong overlays between ethnic, linguistic and religious exclusion and economic class/caste exclusion. The Tamil population is relatively more poor, more rural, further removed from the economic centre, less skilled, and employed in less rewarding and less respected jobs. The conflict exacerbated this situation. There are indications that the strain on living conditions and welfare is higher for the war-affected population in the North and the East, and Tamils in particular. For example, in a survey conducted by the Asia Foundation, only 50% of people in the East and 33% in the North, compared with a national average of 55%, agreed that the country was going in the right direction.52 With the exception of some industries, it is rare that Sinhalese and Tamils work side by side, outside of Colombo. They do not share a common language and rarely move in the same social networks. Sinhalese investment in former conflict-affected areas is welcomed, as it creates jobs and opportunities – and thus helps to bridge the divide – but there are also fears of being ‘overtaken’. Post-conflict rehabilitation/ resettlement efforts have undermined many livelihoods (e.g., resettling fishermen in areas in which they cannot fish); there is a long way to go to help families regain stable incomes. Urban poverty is not limited to ethnicity – skill gaps are significant and difficult to bridge. The education system ensures good basic skills but offers limited opportunities to acquire vocational and professional skills. The public university system is only able to cater to 17% of qualified candidates finishing secondary school every year, due to limited places.53 Private universities servicing the gap are either expensive and/or offer dubious-quality accreditations and recognition. Vocational training, when available, aligns poorly with industry needs. Rural poverty is exacerbated by a lack of access to information and the means and opportunities to increase productivity – producing with the same efforts products that have more value. Also, the bureaucratic nature of public services makes them virtually impossible to navigate from a distance.

The Asia Foundation, Survey of the Sri Lankan People: Findings from a public perceptions survey, The Asia Foundation (2010)

Sri Lanka University Statistics 2014, University Grants Commission

Women’s participation in the economy is undermined by prevalent social norms. Work can bring women into contact with men (deemed undesirable) and is often seen as a reflection of the household’s low social status (the fact that a woman needs to work to support a household). Suitable working hours that allow women to juggle home demands, workplace proximity to the home, and the availability of transport can help ease some of these social objections and create examples of female economic participation that are seen as ‘good’ and thus help change norms and perceptions. Women’s workloads are also high, given that they are the primary caregivers and home managers. Women play an active role as money managers within the household are responsible for day-to-day purchases. Further, domestic abuse and violence against remains a concern. In former conflict-affected areas, single-female-headed households have received livelihood support from various NGOs and the government, often to set up micro-businesses. However, many of these initiatives may not be viable in the long term. Stable employment might be a better alternative. There is significant opportunity for job creation in agribusiness, adding value to local catch and produce. Female-headed households that face social stigma also face constraints in, for instance, accessing banking services, but micro-finance fills this gap. There are 1.6 million people living with disabilities across Sri Lanka, with the highest incidence of disability in the Kandy, Ratnapura, Nuwara Eliya, Jaffna and Kurunegala districts.54 Access to jobs, inclusion in the economy and manageable workloads in the household for caregivers are key areas to look into.

Pathways for Inclusion

All four strategic engagement areas are relevant when addressing the key drivers of exclusion, and hence offer pathways for inclusion. Diversification in tourism destinations, products and services, reinforcing export value chains, and helping the digital services industry expand will support investment and job creation in former conflict-affected areas. This business activity supports, and benefits from, an increase in local entrepreneurship (businesses typically need other businesses to run effectively). To reinforce this, MDF supports entrepreneurship in former conflict-affected areas to help anchor investments by growing industries and filling gaps in the local economic fabric. Taken together, this should result in sustainable, inclusive and balanced economic growth. Tourism and digital services are seen as new economic activities in which the traditional lines that divide society are less prevalent. Tourism ventures in former conflict-affected areas are among the most diverse workplaces in the country. Multilingual management is important to make everyone work together smoothly. Rural inclusion will benefit from export value chains, digital services and, to some extent, tourism branching out into rural areas. This rural expansion will provide access to markets, as well as inputs and services, and hence offer a chance to turn agriculture and fisheries into more productive and profitable livelihoods. Digital services can support this by facilitating coordination among value-chain actors. Digital services can also be used to create better access to information and services, in general. Tourism has the ability to generate economic activity in places too remote to be attractive to other industries. All MDF partnerships have a demonstrated link to poverty reduction and support systemic changes in the four strategic engagement areas, geared toward inclusive growth.

54 Calculations Based on Census of Population and Housing 2012, Department of Census and Statistics.

In the MDF portfolio, 80% of partnerships are drivers of women’s economic empowerment, through creating access to information and services, life-changing opportunities, help with manageable workloads and ensuring a sufficient say over household resources. All five factors (the five domains of the Women’s Economic Empowerment (WEE) Framework) lead to economic advancement.55 As mentioned, MDF will focus in Sri Lanka on creating conducive conditions for women to join the workforce so the prevalent perceptions and norms are challenged, female participation in the economy increases and (better) jobs beyond those traditionally occupied by women open up. Where possible and relevant, MDF will also try to ensure these conditions are suitable for single, female-headed households. Household dynamics in terms of access to services, workloads, control of resources and any correlation with violence against women will be actively monitored. Wherever feasible, MDF will support sustainable solutions that will help reduce workloads, e.g., day-care facilities and flexible work-hours. An internationally accepted framework along the lines of the five WEE domains does not exist yet for disability – but MDF is working on formulating one. MDF believes persons with a disability should be able to participate in the economy, and access services, skills and workplaces without overburdening caregivers. It also believes that markets should contribute to prevention of disability, instead of increasing the risk. MDF will continuously assess all its partnerships to check if something can and should be done to improve access, ease burdens, increase safety and ensure prevention measures for disabled individuals.

Engagement and Influencing Strategy

Through the process of facilitating business innovation, investment and reform, and monitoring their impact on markets, poverty reduction and WEE, MDF builds up a body of knowledge informed by practice. MDF ploughs the learning from its partnerships back into its portfolio to increase its effectiveness, inclusiveness and reach – to create systemic changes in the economy. MDF also strives to use this learning for engagement and influencing beyond its partnerships. MDF’s information, learnings and networks garnered from firsthand, on-field experience of working in markets can benefit stakeholders beyond just our partners and can be valuable in increasing scale and fostering system-wide changes. In Sri Lanka, MDF will forge a constructive partnership with the Ministry of Tourism. Working closely together, MDF and Department of Foreign Affairs and Trade (DFAT) will keep the Ministry abreast of engagements with the tourism industry as well as other stakeholders. These would cover work under all four strategic engagement areas. Where applicable and according to the nature of the various MDF partnerships, MDF will collaborate with other relevant ministries including the Ministry of Women and Child Affairs, the Ministry of Agriculture, the Ministry of Industry and Commerce, and the Ministry of Sustainable Development and Wildlife.

Market Development Facility. Women’s Economic Empowerment: How Women Contribute to and Benefit from Growth. 2015. Strategic Guidance Note 4.

MDF will also engage with other representative bodies and key private sector players whenever appropriate to share insight, strategies, successful business models, good practices, potential investment opportunities – all with the objective of increasing the dynamism in, and movement towards, systemic changes in the economy. MDF has been constructive in discussions with different associations, chambers and key institutions. Going forward, MDF plans to collaborate with such entities and under key themes such as inclusive growth, poverty impact and women’s economic empowerment. MDF will organise events in partnerships with bodies such as Institute of Policy Studies, Centre for Poverty Analysis and Centre for Women’s Research. MDF will also maintain close links with key chambers/associations such as the Ceylon Chamber of Commerce and the Federation of Chamber of Commerce and Industry of Sri Lanka, with the dual aim of either disseminating successful innovations (and encourage crowding in) or in identifying potential partners for innovation. Delving deeper into tourism, considering the fragmented space in the enabling environment, MDF will pursue constructive interactions with key tourism government agencies (SLTDA, SLTPB, SLITM) as well as relevant tourism associations including regional chapters. The idea behind such interactions is to promote more coordination and synergy across the enabling environment space in tourism. Promoting regional destinations would fall under this scope of work. For Sri Lankan produce and product, MDF has been in and will remain in touch with bodies such as the Sri Lanka Fresh Food Exporter Association, Organic Food Association and Seafood Association. These interactions are helping to identify, at first, appropriate organisations to partner with and, once successful, would be instrumental in promoting more crowding in across other similar business. In former conflict-affected areas, MDF will be keeping its options open. Interactions with the regional chambers, divisional councils and relevant sector associations have all pointed to capacity issues within these entities. Beyond these, there is also the presence of civil bodies. Hence, to address constraints relating to the enabling environment (business registration, access to finance, trade licenses etc.), MDF is likely to adopt a mixed approach by working with various institutions while also working with regional media houses to promote more active dialogue and policy making. Under digital services, a key point of focus is to encourage a conducive environment for starts-up to grow. Without adequate support, guidance and mentorship, ICT starts-up are unlikely to flourish in the ever-competitive global environment. To this end, MDF’s partnership with SLASSCOM to nurture the accelerator programme is likely to be the first step to identify promising start-ups across the country, provide access to global mentors and then link up with global venture capitalists. There is a possibility that once this is successful, the accelerator programme will become independent and operate as a sustainable entity providing mentorship and financial support in the ICT field in Sri Lanka. MDF communications will support this dynamic engagement with the private and public sector by making materials (reports, videos, posters) available that can support the debate. With DFAT, MDF will develop a communication plan to ensure the relevance of MDF’s and DFAT’s work is conveyed to all relevant audiences. At one end, this will consist of interaction with the various ministries. More specifically on partnerships, MDF will work with DFAT to organise launch events of its various partnerships covered by Sri Lanka’s major media houses. At least two launches are planned for the current phase of MDF. All three languages (English, Sinhalese, and Tamil) will be used to promote country-wide coverage. Beyond these launches, MDF will also produce videos to capture the story and impact of partnerships. These would be shared through various social media channels. MDF would also continue to cover interesting partnership outcomes by writing blogs and articles that will be published on its website and disseminated through social media platforms. Overall, MDF aims to be an effective development partner generating sustainable income and jobs and promoting inclusive economic growth. MDF adheres to the Donor Committee for Enterprise Development Standard for Results Measurement, which places strong emphasis on fieldwork, active monitoring of partnerships and overall market trends, and evidence-based implementation and learning. Under its inclusivity agenda, MDF also works on encouraging women’s economic empowerment and promoting increased social cohesion across different ethnicities. In addition to this continuous engagement with the economy, MDF will invest in assessments to collect fresh primary data and compare these with available secondary sources. Findings will be made public and shared with relevant audiences.

Market Development Facility, Sri Lanka

No 18 Police Park Avenue, Colombo 5, Colombo, Sri Lanka info@cardnomdf.org www.marketdevelopmentfacility.org