Business Returns to Sri Lanka's Former War Zone

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Make rupees, not war Small businesses thrive at a rest stop along the A9 near Kilinochchi

Veramuththu Singamuththu embodies both the pain caused by Sri Lanka's 25-year civil war and the opportunities that the war's end has slowly started to bring. In 2008, the onetime fisherman, along with his wife and three children, fled savage fighting near the northern city of Kilinochchi, effectively the capital of the Tamil Tiger rebels. After a year on the run, they ended up in a camp for displaced civilians, destitute and exhausted amid a sea of suffering.

Then came peace. Seven months after the defeat of the Tigers in May 2009, Singamuththu and his family left the camp and returned to Kilinochchi clutching a precious $220 in government and aid-agency grants. The 58-year-old mulled resuming his life of fishing, but as he gazed at the buses full of people arriving from the south on the newly reopened A9 highway, he had a better idea. He decided to use his tiny cash hoard to set up a refreshment stall for travelers on the side of the road. "It was the best decision I ever made in my life," he says.

Today, Singamuththu makes $300 a month selling tea, snacks and phone cards to troops and travelers — more than twice the amount that families in casual employment can expect to earn. The income has enabled him to resume schooling for his children and to lay the foundations of a house (a real achievement in a district where fewer than 2,500 homes have been rebuilt since the cessation of hostilities). "I don't think I'll go back to fishing," he says, smiling.

Singamuththu is not the only one trying to make a buck. All across northern Sri Lanka, the age of the bullet is being supplanted by that of the billboard. Hoardings are springing up everywhere, advertising everything from infant formula to cell-phone service providers. Phone company Dialog, the market leader, has 14 billboards just for the 120-km stretch of the A9 that runs through the Vanni, the former heartland of the Tamil rebellion, to Jaffna at the very northern tip. Where artillery and shells shrieked overhead a little over 15 months back, there are now gigantic images of smiling women holding tubes of skin-whitening cream. In Kilinochchi stand the remains of a water tank that once supplied the entire area. Its collapse made it a local icon of war's wanton destruction — but today its ruins are obscured by a billboard for Highland milk.

If it all has the feel of a nation in the happy throes of rebuilding, that's because it is — at least in part. President Mahinda Rajapaksa's government has an opportunity to cement its military victory through the economic development of this long- marginalized region, and thereby improve the chances of a lasting peace. But questions remain over the pace and form of that development.

Reflecting a postwar elation still percolating among Sri Lanka's majority Sinhalese population, it is southern companies that are most visible in the Vanni today. Within 90 days of the war's end, Dialog established a network in the area and "has witnessed substantial growth," according to chief executive Hans Wijayasuriya. Lion Brewery, the maker of Sri Lanka's most popular beer, has also done well. "From a growth perspective, it has been tremendous," says chief executive Suresh K. Shah. All told, demand for goods and services has jumped by double digits since the resumption of road access.

Tamil gains have so far been concentrated in the small-business sector (if the return to peacetime trading conditions can be considered a gain instead of the simple restoration of a level playing field). The eateries and hotels springing up to cater to the legions of curious Sinhalese tourists are Tamil-owned — but the easing of road restrictions is being felt in every sort of trade. "Before the reopening of the A9, things brought from outside were just too expensive here," says Murugesu Rajagopal, a furniture dealer in Jaffna. "Now we can sell at affordable rates." Merchant Narasimman Jegamohan echoes his sentiments: "When the war was going on, one of the most profitable businesses was to transport essential medicines by air individually, and the markup was huge. Now everything is available and at Colombo prices or less."

The condition of most ordinary Tamils, however, is not changing as quickly as some would like. Suresh Premachandran, a parliamentarian from the Tamil National Alliance, says he doesn't see "much improvement in the situation of the civilians." Muttukrishna Sarvananthan, an economist from Jaffna, is scathing, speaking of "rationed prosperity" and describing the dividends of peace as "too little, too late." That will remain the case at least for this year — the north will contribute just 3.3% to Sri Lanka's 2010 GDP, according to the Central Bank's provisional estimates. Permanent jobs are rare. Goods transported south are still searched by police, and many parts of the Vanni remain closed to the rest of the country. There are also complaints of extortion and kidnappings for ransom.

Because of the civil war, the industrialization that took place elsewhere in Sri Lanka never reached the north, which remains reliant on its old mainstays of farming and fishing. Serious regeneration will therefore depend for some time on outside investment or foreign aid — or both, as a new $3 million apparel plant set up by Colombo-based MAS Intimates illustrates. The facility, in Omanthai on the southern edge of the Vanni, will create 1,500 jobs and was the recipient of a capital infusion of $600,000 from USAID. The U.S. government agency is also involved in another plant near Jaffna that will generate 1,800 jobs and manufacture jeans for clients like Levi's and J.C. Penney. All told, USAID has pledged $20 million for regeneration projects with Sri Lankan companies in the war-ravaged north and east — not just in garments but also in sectors such as horticulture, dairy farming and construction. The U.N. Industrial Development Organization (UNIDO) is also active in the region, focusing its efforts on small- and medium-sized businesses. "Long-term economic revival is pivotal for the restoration of normalcy to conflict zones," says UNIDO director general Kandeh Yumkella, "and, small and medium industries are key to the success of postconflict societies." (Yumkella should know — he's a native of Sierra Leone, which was torn asunder by a civil war that ended in 2002.)

Grounds for cautious optimism can be found strewn along the side of the A9 highway. If he ever worries about carpetbaggers from Colombo or the continued heavy Sinhalese troop presence, Singamuththu doesn't show it. The proud refreshment-stall owner instead has a hunch that life and business will continue to improve. It came to him recently while he was repairing a billboard that had been swept away by a speeding tour bus. Others may have seen a pile of splintered wood. But to this survivor, the wreckage was a sign that these days a lot of people are in a hurry to get to the Vanni.