October 20, 2009 / 1:02 PM / 10 years ago

Economy sprouts under guard in Sri Lanka's north

* Trade booming after Sri Lanka highway opens

* Traders say profits double, costs drop since war’s end

* Banks rush to open new branches

By Shihar Aneez

JAFFNA, Sri Lanka, Oct 20 (Reuters) - The highway is open, prices are up and business is growing in post-war northern Sri Lanka, but traders say a legacy of tight security left by a 25-year conflict is holding back the region’s full potential.

The northern Jaffna district has been all but cut off from most of Sri Lanka since war with the Liberation Tigers of Tamil Eelam (LTTE) separatists broke out in 1983.

Now small-time traders and entrepreneurs, from paintshop salesmen to electronics sellers and fisherman, say sales have nearly doubled with eased restrictions and the opening of the main highway after the Tigers’ defeat in May.

The Tigers’ control of parts of northern Sri Lanka just south of military-controlled Jaffna meant that the peninsula and its namesake city were virtual islands — with goods only coming by boat or by air.

The military opened the main north-south A-9 road in July and is now permitting transport under close watch. All of Jaffna remains under military control.

“In bad times, I had to sell a kilo of grapes at 30 rupees... now I am getting a wholesale price of 200 rupees per kilo,” K. Devendrarasa, a 56-year old grape farmer, said on Tuesday.

Sri Lanka’s only native-grown grapes come from Jaffna, and street hawkers for the first time in years are now selling them in southern Sri Lanka.

“We need more finance for expansion and investment,” he said after receiving a 100,000 rupee loan from Hatton National Bank HNB.CM to finance the planting of a one-acre crop.

Central Bank Governor Ajith Nivard Cabraal visited on Monday and Tuesday, and met with Jaffna business leaders and bankers.

The central bank has been expediting approvals for dozens of new bank branches in the north to speed up access to credit. Many Jaffna residents kept their money out of the banking system under LTTE rule, opting to convert it to gold or outside investments.


Already, prices of consumer goods have fallen by about 15 percent in Jaffna, while the market price for goods produced or grown there have at least doubled, traders say.

“Earlier we paid 500,000 rupees ($4,350) for a truckload for shipping, but now we only pay 100,000,” Perambalam Naharathnam, the owner of a hardware and cycle shop, told Reuters after making a deposit at a new National Development Bank NDB.CM branch.

Poor links with the south during the war have turned most of Jaffna’s businesspeople toward trade, primarily financed through remittances from family members abroad.

More than two-thirds of Jaffna residents have relatives living outside Sri Lanka who regularly send money home, according to private-sector estimates.

Motor vehicle dealer C.J. Paul said he had sold more than 120 motorcycles and 15 motorised three-wheelers for cash since his outlet opened on Sept. 9.

Fishermen said their fortunes have been on the rise since the government relaxed a fishing ban. That has helped them meet strong demand for Jaffna’s prawns, crabs, lobsters and cuttlefish — traditionally considered among Sri Lanka’s tastiest.

Despite early positive signs, most entrepreneurs privately complain that security is still too tight and transport options limited to a handful of politically-connected people.

“We can’t send goods from here. There is a huge security process. All the transport business is monopolised by some influential parties,” one entreprenuer told Reuters.

Most traders said Jaffna trucks have not been allowed to go out of town, while those from the outside with Defence Ministry approval can travel in both directions.

The government has pledged to ease security once it gets a proper state administration in place. (Editing by Bryson Hull and Ron Popeski)

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