Promotion of the Regional Economy in the Sri Lankan - German Technical Co-operation

Rationale for PRE

Sri Lankan-German Technical Co-operation in the area of regional economic development is presently concentrated in 4 Provinces with a particular focus on Kandy District of the Central Province. It is based on the concept 'Promotion of the Regional Economy (PRE)' which was developed by GTZ from the mid 1990s onwards. PRE is the German contribution to a reform of Sri Lanka's national policy for regional rural development. This reform emerged out of a critical debate about the Integrated Rural Development Programme (IRDP) among policy makers and donors. On the one hand, it was accepted that the IRDP had played a leading role in the introduction of participatory planning and implementation techniques, social mobilisation and rural infrastructure in neglected remote rural areas. On the other hand, the programme's impact on local and rural economies had remained low, isolated and not sustainable. It had to be acknowledged that the improvement of rural infrastructure alone, without professional economic support programmes could not stimulate economic growth and employment. The various sectoral project components like credit schemes, training or agricultural support services had not generated the expected economic dynamics either. Taking this into account, PRE initiated a re-orientation of rural development promotion: In the past, promotional efforts had been addressing the poor rural population directly, focusing on agriculture-centered initiatives in marginal rural areas. Now, PRE placed emphasis on the development of specific geographic regions with economic potential through the encouragement of private sector-driven initiatives. In doing so, PRE moved away from a traditional problem oriented to a more potential oriented promotional approach. The conceptual re-orientation of Sri Lankan-German Technical Co-operation has influenced a new market and private sector oriented Sri Lankan national strategy for regional rural development, the 'Regional Economic Advancement Programme (REAP)'.

One target group of PRE is still the poorer strata of the rural population, i.e. families with low income moving gradually away from agriculture and seeking employment in the non-agricultural sector. However, according to PRE, the poor are not supported directly any longer but they benefit indirectly through the evolution of a dynamic, competitive micro, small and medium enterprise (MSME) sector. More than 90% of the roughly 40,000 businesses registered in Kandy District belong to this category. PRE creates jobs and income opportunities by supporting MSMEs with high growth potential. The objective is to induce economic development through the enhancement of the performance and competitiveness of MSMEs.

Systemic approach

PRE is a systemic approach in two ways: On the one hand, it combines interventions at policy, institutional and enterprise level. This includes policy dialogue, policy advice to national and regional decision makers, feeding back regional and project experiences to national policy development, organisational development of institutions, in particular, of providers of support services to enterprises, creation of networks and provision of innovative business development services to MSMEs. On the other hand, PRE integrates the existing projects of German Technical Cooperation (TC) which operated in different fields of intervention under one coherent and synergetic alliance. The TC-projects in the Central Region harmonised their strategies aiming at one common goal: the creation of sustainable and productive income and employment opportunities. At present , four TC-projects are based on the PRE-approach:

• the Enterprise Service Systems Promotion (ESSP) Project - Kandy,

• the Enterprise Information Project (EIP),

• the Rural Banking Innovations Project (RBIP),

• the Fisheries Community Development and Resources Management Project (FCDRMP).

Two more projects are closely associated:

• the Sri Lankan-German CEFE Project (SLGCP),

• the Promotion of Vocational Qualifications of Women and Youth in Rural Areas Project (VTW).

Both projects are components of GTZ's Vocational Training and Private Sector Programme.

While the ESSP addresses the aspects of organisational development and institutional networking combined with cross-sectoral issues such as the identification of regions or sectors/sub-sectors of growth, the other projects concentrate on specific sectoral areas of co-operation (business information, micro finance, technical and vocational education and training, entrepreneurial training etc.) or on specific economic sectors (fisheries communities).

Identification of regions and sectors of growth

One of the core principles of PRE is the concentration on regions and sectors which promise to have a potential for economic growth. The regions and sectors of growth are selected using regional planning methods and criteria. This includes:

1. Identification of regional corridors or centres of growth by assessing the resource base of the area including the hinterland, the quality of the physical infrastructure, the position within the intra-regional network of commodity and transport flows and the potential for interfirm co-operation and cluster-building.

2. Analysis of the identified areas with regard to their entrepreneurial and development potentials and to the existing structural problems.

3. Selection of economic sectors and sub-sectors/trades on the basis of the following criteria:

• number of enterprises operating in the sector or sub-sector/trade

• number of persons employed

• traditional roots in the area or region - which means existence of traditional skills - and contribution to the development of the local economy (measured on the basis of license fees paid)

• use of local resources and value added to local resources (value chains, supply chains)

• employment possibilities for young people and women

• potential to address growing markets with products and services

• positive or at least no negative environmental effects.

Creation of networks and co-operation structures

Another important element of the PRE approach is the creation of networks and of co-operation structures at different levels, notably between:

1. institutions of the private and the public sector, like regional chambers and provincial governments or universities,

2. institutions at national and regional level, like national and regional chambers,

3. various providers of business development services (BDS), like micro finance, business information and/or business training,

4. providers of BDS and MSMEs,

5. MSMEs and large and corporate, even international enterprises.

Such networks aim at the creation of "win-win" alliances including enterprise clusters as well as the creation of groups or associations to foster common interests like trade organisations or chambers. In this context, the newly established Business Information and Development Unit (BIDU) of the Chamber of Commerce & Industries, Central Province (CCICP), plays a key role as an initiative of various private and public stakeholders at the provincial level. BIDU's tasks as the professional arm of the CCICP comprise, among others, support for decision makers and planners in the identification of promotional strategies and the exploration of growth-oriented business opportunities.

Market oriented business development services (BDS)

The identification and provision of BDS under PRE follow some basic principles:

• demand-orientation of the services offered;

• development of markets for BDS which means that clients pay for them and public subsidies are gradually reduced;

• cost-efficient use of resources and economic viability of services to ensure sustainability;

• compatible and subsidiary services to avoid duplication and overlapping;

• initiation of public-private-partnerships.

The BDS supplied on this basis comprise:

1. CT-driven business information: information services by national and regional chambers to be used by the MSMEs for strategic business decisions. Particularly, this includes business contacts, general economic information, the analysis of sectoral statistics, trends and demand in specific sectors.

2. Financial services: innovative financial products, especially provision of credits with a minimum of administrative requirements and within short time like the credit product 'people's fast' by the People's Bank.

3. Business advisory services: advisory or consultancy services of general nature (e.g., how to create a business) or technical advice in specific sectors or branches, for example, for the fisheries sector. Such advisory services include technical issues, marketing, management and self-organisation (development of self-help potentials).

4. Entrepreneurial training for the development of entrepreneurial skills and knowledge for business start-ups, and for the improvement of existing enterprises.

5. Vocational training for women and youth to meet the demand for skilled labour of competitive private enterprises.

Cross-sectoral aspects: gender and environmental issues

Gender aspects are raised at policy level and in the context of institutional development which are addressed by different projects under PRE. The VTW in particular has made the sensitisation for gender equality in the labour market one of their core activities at political level. Gender considerations are also part of the selection process of sectors and trades and training participants.

Sustainable management of the natural resource base is a concern of PRE and is, therefore, also raised at policy level. Here, PRE aims at a consideration of environmental aspects in the discussions about policy and legal frameworks for the MSME sector. Environmental issues also play a role in the type of support provided to MSMEs under PRE. Among others, PRE-related consultancy services or trainings for MSMEs include modules on clean, environment-friendly and resource-saving production processes (PREMA). In the FCDRMP, resource depletion concern in the marine fisheries sector led to increased priority given to the private sector-driven inland fisheries and the generation of alternative income generation activities in fisheries communities.

Replicability of the PRE approach

In order to replicate PRE, it is necessary to learn the lessons, gather the experiences and codify the PRE knowledge base. PRE has come up with innovative methods, products and services which can be implemented in other regions of Sri Lanka. The system approach applying the concept of systemic competitiveness is becoming a trademark of German intervention in the field of regional development. Sri Lankan-German Technical Cooperation has started to enter into this replication process and will apply PRE-knowledge in other regions in the future.

Integration of PRE into the Sri Lankan-German priority area 'Economic Reform and Development of Market System'

From an administrative point of view, PRE at present is still a cluster of various individual TC-projects. Although the projects co-operate with each other to a high degree, they are autonomous entities. It is suggested that PRE becomes the nucleus of the future priority area of the Sri Lankan-German Development Co-operation, 'Economic Reform and Development of Market System'.

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