Developing Countries and Public Interest Capitalism

Developing Countries and Public Interest Capitalism

Looking beyond Return on Equity for Successful and Sustainable Businesses

The twenty-first century is being hailed as Asia’s Century, with the balance of World GDP significantly shifting towards the continent. While in 1950 it was less than 5% of World GDP, the Asian share now accounts for about a third of it, and is forecast to be over half of it by 2050. With increasing economic output comes geo-political weight and a greater responsibility for the governments to secure the betterment of their citizens.

Capitalism, it is argued, is a social system in which the government is exclusively devoted to the protection of individual rights, including property rights – one in which there exists absolutely no government intervention in the economy.

However, causing a widening wealth disparity, the American and British style of Capitalism that has long been considered as the global standard, may be reaching a dead end. Therefore, to overcome the challenge the writers of the article advocate Public Interest Capitalism (PIC). While George Hara conceptualised the notion of PIC, Manish Uprety is interested in exploring the relevance and application of PIC in the context of developing economies.

Public Interest Capitalism is a corporate philosophy whereby, in the long run, a company sustains fair distribution to all the members who contribute to the company, including its employees, suppliers, customers, community, and shareholders. The fair distribution based on public interest capitalism reduces the increasing disparity and enables a more robust middle class.

Shareholder Capitalism and limitations of ROE and IRR

The concept of Capitalism increasingly prevalent in the globalised world today is based on the idea that the company is owned by stockholders. The style of management prevalent in the US with excess focus on shareholder interests and return on equity (ROE) may one day lead many socially beneficial companies to failure. In a company governed solely by stockholders’ interests, stockholders want the highest possible return in the short term. If this kind of Capitalism prevails, the results will be catastrophic.

Internal rate of return (IRR) is a popular measurement used by investors. Because IRR is designed for higher returns when a particular amount of cash is returned to the investor in a shorter term, the measurement tends to cater towards speculators rather than investors. If this measurement is applied to gauge the performance of whole industries that make up the real economy, lengthy research and development that lower the IRR have no place. In other words, IRR cannot be used to measure the profitability of industries such as manufacturing.

The drawback of this mind-set is that it leads the investors towards speculation rather than investment. To the speculative investors, industries such as manufacturing and retail distribution are not efficient since they require substantial R&D or the holding of inventory: their IRRs are too low. Stockholders also tend not to agree with long-term projects, which naturally makes the management more short-term oriented.

If speculators become a major stockholder, they try to make the company’s business that supports the real economy turn into a fund-like, finance-based business. These problematic speculators expect the management not to focus on R&D but on M&A. They demand that retained earnings be distributed as dividends or through stock buybacks – all to maximize short-term returns for shareholders.

Speculation is a zero-sum game that creates winners and losers – where wealth becomes concentrated into a small group of individuals and the remaining majority loses everything. Imagine that a hundred people bet USD 100 each in a game of rock-paper-scissors. One person wins the USD 10,000 pot, and the other ninety-nine people lose. The sum of the money involved is always USD 10,000, and no new value is created during the speculative game.

Shareholder capitalism, along with market fundamentalism, eventually leads to speculative financial capitalism. Speculation always creates a bubble economy, which of course is a major cause of instability in the financial markets throughout the world.

Public Interest Capitalism is a corporate philosophy whereby, in the long run, a company sustains fair distribution to all the members who contribute to the company, including its employees, suppliers, customers, community, and shareholders. The fair distribution based on public interest capitalism reduces the increasing disparity and enables a more robust middle class.

Public Interest Capitalism- A Sustainable Option

Hence a company should be considered as a public institution and should not be construed solely belonging to its stockholders. The profit must be distributed to all of the company’s stakeholders (called Shachu in Japanese) including its employees, customers, suppliers, local communities, and even the planet. While a stockholder who supports the company’s growth by holding one’s shares for the long-term could be considered as one of the true owners of the company, the goal of many investment funds is simply to artificially boost the stock price for immediate gains. These funds should not be considered foremost when deciding how to run a company.

Though there is always a demand for lowering corporate taxes, there is not much evidence to show that it leads to higher wages or more business investments. Instead, most of the profit is allocated to stockholders as dividends or through stock buyback programmes, with the intention of increasing share price.

When a company uses its funds to maximise shareholder returns rather than to invest for growth, long-term prospects of the company decline, and therefore long-term stockholders may suffer a loss. The employees are also discouraged from spending money since their raises always seem very limited compared to shareholder return. As a result, employment stalls, and the income gap widens. The disparities become a cause of conflict that makes economies implode and the world more unstable.

Under the Public Interest Capitalism, a company is considered as a public institution, and therefore its purpose is to contribute towards the society through its business. In order to achieve this, the company must:

  1. Allocate its profit to all of its stakeholders or Shachu that support the company, not just to its stockholders;
  2. Strive for sustainable growth; and
  3. Continually adapt and challenge itself to improve existing products and services offerings and venture into new growth businesses.

Because the shareholder-centric model of Capitalism (“Shareholder-centric Capitalism”) demands that management teams maximise share prices in the short run, long-term R&D projects become less prioritised and pushed aside. In particular, ambitious R&D projects that have the potential to create new core businesses, and even an entirely new industry, are no exception.

This necessitates medium- and long-term risk taking and investment in order to create and maintain stable economic growth in the developed countries of the 21st century, the development of new businesses and future key industries based on Public Interest Capitalism is crucial.

The idea of Public Interest Capitalism plays an important role not only in advanced countries but also in underdeveloped countries, because it encourages economic independence. In 2030, the population of advanced nations will only account for 12% of the whole world’s population, but the remaining 88% will live in the developing world, primarily in Asia, Africa and Latin America. Companies in advanced countries need to establish strong ties with underdeveloped countries in order to survive. However, shareholder-centric management and capitalism will only cause tension in the process making Public Interest Capitalism a viable and sustainable option.

ROC (Return on Company) Index- A Holistic Index

Instead of having a propensity to value a company through its ROE (Return of Equity), the Public Interest Capitalism’s research division at the Alliance Forum Foundation has come up with “ROC” (Return On Company), a new index that measures the value of the company from a holistic perspective of its stakeholders. The ROC (Return on Company) evaluates the sum of all the returns to the entire Shachu.

The company that distributes its profit to the entire Shachu will eventually bring a higher return to stockholders. A higher ROC tends to correlate with a higher future ROE, which implies that ROC is a long-term version of ROE.

ROC is an area of growing interest for the industry and academics. There is an inherent need to develop a new investment theory by linking ROC with stock prices. The positive correlation between the two would even motivate the speculators to invest in companies with sustainability and a fair profit distribution to Shachu, which would then spur the stock prices even further. The mainstreaming and establishing of ROC as a benchmark would lead to investors buying stocks or bonds of companies that act as “public institutions.”

PIC’s relevance for the Developing Economies

“Public Interest” refers to economic and general well- being of ourselves, our children and the future generation. A “company” should be a public institution that contributes to the society through its business. There are three pieces of management philosophy according to public interest capitalism: (1) fair distribution of the company’s profit, (2) long-term sustainability of the company and (3) entrepreneurship to create and improve the business.

The characterising features of developing countries are low per capita real income, high population growth rate/size, high rates of unemployment, dependence on primary sector and export of primary commodities. As countries move on their development trajectory, their economies gradually become isomorphic in terms of its constituents. For example, Japan, India and Sri Lanka, though on various levels of development, have the service sector contributing over 60 % in their respective economies. In the due course, growing economies face similar kind of challenges and need to set their priorities and focus areas. Cross-sector integration of technologies in IoT (Internet of Things), telecommunications, artificial intelligence, food, materials, and chemicals with healthcare is an important evolving area. A process including the careful collection and selection of information about new technologies both domestically and internationally, along with goal setting and speedy decision as well as creativity is crucial to bridge various divides. It demands an innovative regulatory policy.

Under the Public Interest Capitalism paradigm, governments have to play a major role in solving these challenges by building a robust ecosystem to realise technology and policy innovation in the priority areas. While projects should be led by the private sector, vision and goal setting by national leaders is essential.

Soon it shall be two decades when the philosophy of Public Interest Paradigm was first pitched, to shift the focus away from the excessive shareholder capitalism. Since then public interest capitalism has not only been adopted by leading management teams but has become the basis of policy changes to defy short-termism. With the West also beginning to notice the damaging effects shareholder capitalism has on the health of many companies that are engines of the economy and industry, the tide is finally turning in favour of public interest capitalism. It is quite prudent for the developing economies to take a page out of the book of public interest capitalism and use the very learning to build responsible companies contributing toward a healthy society and sustainable economy

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North South Corridor

North South Corridor

Chabahar could provide an “in” for Sri Lanka

US sanctions have mired the Iranian port of Chabahar in controversy. India, which has taken over partial control of the port, pledged about USD 500 m to develop the port, and expects it to serve as a gateway to Iran, Afghanistan, Central Asia, and beyond – it has been mooted as an alternative to the congested port of Bandar Abbas on the International North-South Transport Corridor (INSTC) which will eventually connect Mumbai to Helsinki, via Moscow.

The port is important to India, since it bypasses its regional rival Pakistan, which has hesitated to make overland access available to it through its territory. It also serves as a counterweight to the Pakistani port of Gwadar, 72 km away, which is being developed as a joint venture with China. Its location close to the Straits of Hormuz, the strategic waterway through which passes about a fifth of the petroleum consumed globally, gives it added significance.

The 7,200 km INSTC is a multi-modal freight network of shipping, railway, and roads, linking India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Eastern Europe. The Corridor, the shortest freight route between the Indian Ocean and Eastern Europe, allows these countries to bypass the Suez Canal and help reduce shipping costs, while providing alternative connectivity to Central Asia and the Caucasus.

Trials showed that the INSTC could cut the cost by USD 2,500 per 15 tonnes of cargo (a reduction of 30%), compared to using the Suez Canal route, and transit time to 25-30 days from 40-60 days, (about 40% reduction). Using the Corridor reduces the distance between Mumbai and Helsinki from 16,129 km to 9,389 km.

Expansion

India and Russia laid the groundwork in 2000-2002 for the project, to take cargo from India to Bandar Abbas, and thence by rail to Bandar-e- Anzali on the Caspian Sea; to be shipped to the Russian port of Astrakhan and from there to the rest of Europe by rail. However, the project expanded from a single route to a network of linked transport systems.

In 2016 Presidents Vladimir Putin of Russia, Hassan Rouhani of Iran, and Ilham Aliyev of Azerbaijan agreed to develop the corridor, envisaged as one of Eurasia’s most important connectivity ventures, at a trilateral summit in Baku. In the meantime, other countries joined the project, including Oman, Syria, Armenia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Turkey, Bulgaria, Ukraine and Belarus. In addition, Finland, Estonia, Latvia and Pakistan have expressed their interest to join while South East Asian countries, such as Myanmar, Thailand, Cambodia, Laos and Vietnam, who are linking up with India through the India-Myanmar-Thailand Highway Project and East-West Economic Corridor, would thereby be INSTC-linked.

In January 2018, the first shipment of cargo from India to Russia, via the Iranian port of Bandar Abbas, marked the inauguration of the INSTC. The leaders of Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan signed a Convention on the Legal Status of the Caspian Sea, linking their Caspian interests with the INSTC, in August last year.  In February this year, Russian Railways Logistics Joint Stock Company (RZD) and Container Corporation of India (CONCOR), the largest rail container transport operator in India, signed a memorandum of understanding (MoU) for providing logistics services on INTSC and studying possibilities for developing joint logistics projects in Russia and India using international transport corridors.

In March, at a co-ordinating meeting of the participating countries, Iran’s Minister of Roads and Urban Development Mohammad Eslami revealed that INSTC member states decided to create a joint company to increase the route’s capacity by expanding its railway and port infrastructure. Each member state will appoint an official in charge of its INSTC affairs, to the secretariat in Tehran, while facilitating a homogenised system of tariffs and customs charges for the corridor.

At the same time, President Rouhani inaugurated a 164 km railway project between the Iranian cities of Qazvin and Rasht, filling a gap in the INSTC. Another gap is due to be filled shortly with the completion of the 167 km railway connecting Rasht to Astara, the Caspian port on the border of Iran and Azerbaijan. The central link is the Railway line from Moscow, through Azerbaijan to Bandar Abbas.

INSTC and BRI

The INSTC in not intended as a counterbalance to China’s Belt and Road Initiative (BRI), being conceived long before the latter, by which it is dwarfed easily. The countries involved in the Corridor generally have stronger trading ties with China than with India and are already BRI partners. However, as it runs north-to-south across the Eurasian land mass, it could complement the BRI, by linking the latter’s two main axes of which run east-to-west across the landmass, was well as east-to-west across the Indian Ocean.

This is already happening at a practical level at Baku, in Azerbaijan, which lies on the Caspian. The Baku International Sea Trade Port (BISTP) has signed a MoU with companies and other entities in the south east Netherlands city of Venlo – a transport hub on the border with Germany, containing the distribution offices of some of the world’s largest companies, which handle cargo from Rotterdam, Antwerp and Amsterdam. The co-operation between BISTP and Venlo is based on the strategy of turning Azerbaijan into a regional hub, based on Baku and the new port coming up at Alyat, 80 km from Baku. The MoU called for a test container transportation along the Venlo-Istanbul-Baku-China axis.

President Aliyev participated in the Second Belt and Road Forum for International Co-operation in Beijing, and met Chinese President Xi Jinping. Aliyev is looking to develop Azerbaijan into a central node on the Belt. Azerbaijan also co-operates with Romania, Georgia and Turkmenistan on the Caspian Sea – Black Sea International Transport Corridor project, which will link Baku with Turkmenbashi in Turkeministan with the Georgian port of Poti, and Romania’s important transport node, Constanța port. Baku is also part of the Trans-Caspian International Transport Route, which links Georgia to Kazakhstan via the Caspian Sea.

In recognition of the need for INSTC to attain economic viability to become a truly transcontinental corridor, high-level discussions have taken place to link it to Latvia, Estonia and Finland, which are pursuing integration with the European railway network. However, progress has been slow, with most discussions being bi- or trilateral.

Chabahar

Iran’s only port on the Indian ocean, Chabahar has emerged as a key feeder port on the INSTC, alongside Bandar Abbas. The former is also likely eventually to displace the latter as the key southern port on the Corridor. In contrast to the already congested Bandar Abbas, which is not a deep-water port, Chabahar can handle very large, heavily-loaded vessels.

India’s interest in Chabahar increased as China invested in Gwadar. India, Iran and Afghanistan signed a trilateral agreement to facilitate transit and transport through Chabahar in 2016. The next year, India began exporting wheat to Afghanistan through the port, bypassing the Pakistani route it used hitherto.

However, development has been stymied by US sanctions on Iran. Compared to the 2018 throughput of 50,410 TEU of cargo,  only 225 TEU passed through Indian-controlled assets in Chabahar in the first three months of this year, a huge reduction.

Doubts about the viability of the port following the re-imposition of sanctions this year led to the failure of a search for a partner to develop the port. India Ports Global Pvt. Ltd (IPGPL), a special purpose company partly-owned by the India’s Kandla and Jawaharlal Nehru ports, which holds a 10-year concession at Chabahar, has been trying to find a private partner to operate its interests there since March 2017. Fearing penalisation for trading with Iran, potential  partners have shied away from a commitment.

As India complied with the sanctions and stopped buying crude oil from Iran, the government of the latter has responded by turning to Pakistan and offering to connect Chabahar with Gwadar, the terminus of the China-Pakistan Economic Corridor. This would effectively link Chabahar with the BRI.

Opportunity Sri Lanka

However, the US has kept Chabahar out of its sanctions regime, possibly in view of its part in increasing connectivity to Afghanistan and to Central Asia beyond. This might provide Sri Lanka with an opportunity to get in on the INSTC.

The Sri Lanka government intends to make Colombo port an integral part of global trade, transcending its role as a container transhipment hub for the South Asian region, and transforming it into a broader hub serving a wide range of nautical enterprises. In order to do so, it wants to take part in both China’s BRI and India’s Sagarmala (“string of seas”) Programme – which seeks to enhance the performance of its logistics sector by unlocking the potential of its waterways and coastlines.

Considering the Eastern Europe, and especially Russia, constitutes a strategic traditional market for Sri Lanka’s trademark Ceylon Tea, it would seem logical that Colombo should get involved in the INSTC, which would reduce the cost of shipping its produce. Getting involved as a partner in Chabahar port may provide leverage to get in  in on the act.

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Islamic State  in Sri Lanka

Islamic State in Sri Lanka

Following the Easter Sunday bombings in Colombo, the Government of Sri Lanka banned three Islamist organisations, the National Thowheed Jama’ath (NTJ) the Jamma’athe Milla’athe Ibrahim (JMI) and the Willayath As Seylani (WAS).  The bombings targeted Christian churches and top-end tourist hotels, killing at least 253 people.

The authorities believe the JMI and NTJ are separate organisations which came together to carry out the attacks. The name of the JMI means something like “The organisation of the creed of Ibrahim”, while the Arabic name of the NTJ – Jamā‘at al-Tawhīd al-Watanīyah (meaning “National Monotheism Organisation”), is similar to Jamā‘at al-Tawhīd wa-al-Jihād (“Organisation of Monotheism and Holy War”), the name of the militant group known today as Daesh (al-Dawlah al-Islamīyah, the Islamic State). “Willayath As Seylani” refers to the “Province of Ceylon”, as a a constituent part of the Daesh “Caliphate”; similarly, the terrorist organisation better known as Boko Haram, when part of Daesh called itself Wilayat Garb Ifriqiya, meaning “West African Province.

The government said it was investigating foreign involvement in the outrage. Two days after the bombings, Daesh claimed responsibility through its Amaq news agency, showing a video-recording of members of their Sri Lankan faction swearing allegiance to Daesh leader Abu Bakr al-Baghdadi. The venue of the video-recording turned out to be hideout of the group in the Bolivarian Village neighbourhood of Sainthamaruthu, a town in Sri Lanka’s Eastern Province.

Noms de guerre

The video identified eight suicide bombers by noms de guerre, giving those of the attackers of the three city-centre luxury hotels as Abu Obeidah, Abu Baraa and Abu Mukhtar. Police identified the only person in the Daesh video with face uncovered, Mohammed Hashim Mohammed Zahran (Abu Obeidah) as dying at the Shangri La Hotel, but doubts surfaced later – until DNA tests confirmed the identification. Initially, the authorities considered Zahran the leader of the organisation, but now consider he was just leader of the NTJ. Another Maulavi (religious leader) at present in hiding overseas, may possibly be the true leader of the consolidated organisation – the WAS.

Another attacker, Mohammed Ibrahim Infaaz Ahmed also blew himself up at the Shangri La, while his brother, Mohammed Ibrahim Mohammed Ilham Ahmed, perpetrated the attack on the Cinnamon Grand. One of the brothers probably led the JMI, “Ibrahim” being their family name.

Yet another attacker, Abdul Lathief Jameel Mohammed, failed to detonate a suicide bomb at the luxury Taj Samudra hotel, but later succeeded in so doing at a low-end motel in the Dehiwela suburb. Ilham’s widow blew herself up when police searched the family home in the Dematagoda suburb.

A Kattankudy resident, Mohammed Nazar Mohammed Azad, blew himself up at the Zion Church, a charismatic Christian place of worship.

The two Ibrahim brothers and Lathief Jameel came from wealthy backgrounds, the former being sons of millionaire, Mohammed Ibrahim; the latter the scion of a tea exporting family. The Police arrested Mohammed Ibrahim, who runs leading spice trading company Ishana Exports, and three of his sons – one of whom, Mohammed Ibrahim Mohammed Ifran Ahmad, had a German-made air rifle and two swords in his possession.

How did people from such privileged backgrounds get involved in an extremist suicide-oriented militant group? Reports from Britain said the war in Iraq radicalised Jameel, while studying aeronautical engineering, in the UK and Australia, where he seems to have made contact with Daesh-linked militants, such as British Islamist preacher Anjem Choudary. He had attempted to go to Syria to join Daesh in 2014, but only got as far as Turkey. In 2015, the death in Raqqa of a school principal, Mohammed Muhsin Nilam, the first Sri Lankan to join Daesh influenced many of the would-be suicide bombers.

The authorities think Jameel had provided the link between Daesh and the Sri Lankan militants. He may have motivated the Ibrahim brothers.  However, the NTJ had a far longer history, which is part of the narrative of Sri Lanka’s Islamic revival.

Muslim transformation

Muslim traders and healers began arriving in Sri Lanka within centuries of the Prophet Mohammed’s demise. Oppression by the Portuguese caused them to flee into the hinterland. By the mid-19th century, the Muslim community had evolved into an ethno-religious grouping with forms of worship congruent with those of the Buddhists and Hindus communities with which it co-existed.

At this point, religious teachers from Yemen began to re-introduce knowledge of Arabic, which the community had lost. The exile by the British of the Egyptian revolutionary Orabi Pasha and his entourage to Sri Lanka accelerated the revival.

However, Muslims retained their traditional, Sufist forms of worship, including through music and dance, and venerated the Prophet and the graves of saints. Their tolerant belief system included faith in talismans, magic spells and astrology, and the acceptance of Buddhist and Hindu folk religion. They lacked a dress code, their garments resembling those of their compatriots – except that a man might wear a skull cap on Friday and women might cover their heads with the end of their sarees.

The rise the prosperity of the Middle Eastern Muslim states following the mid-1970s petroleum boom caused millions of Sri Lankans, including several hundred thousand Muslims, to migrate thence for employment. They found themselves looked down upon as “bad Muslims” by many of their co-religionists in these countries, who followed far stricter rules. This coincided with increasing numbers of Muslims attending school, and finding a lack of teachers of Islam.

Wahhabi institutions from the Middle East filled this hiatus, providing education and social services, especially in the Muslim-majority regions of the Eastern Province. Non-governmental organisations such as the Saudi-funded Centre for Islamic Guidance, came up; while young men began receiving scholarships to religious universities in Saudi Arabia and Egypt, returning fired up with Wahhabi zeal.

The town of Kattankudy, 10 km south of Batticaloa, in the Eastern Province lay at the epicentre of the transformation of the Muslims. With a population of 50,000 within its square mile (2.56 km2), it has the highest density of population in Sri Lanka. It has also the highest density of mosques: over 60. Quite apart from its Muslim identity, the town has a deliberately designed Middle Eastern ambience. An imposing Arabian-style gate, with welcoming inscriptions in Sinhala, Tamil, English and Arabic, greets the visitor; beyond which a line of date palms (not native to the island) adorns the centre of the main thoroughfare. It stands witness to the Arabisation of the Muslims who, 150 years ago, could not read Arabic.

The authorities think Jameel had provided the link between Daesh and the Sri Lankan militants. He may have motivated the Ibrahim brothers.  However, the NTJ had a far longer history, which is part of the narrative of Sri Lanka’s Islamic revival.

Muslim transformation

Muslim traders and healers began arriving in Sri Lanka within centuries of the Prophet Mohammed’s demise. Oppression by the Portuguese caused them to flee into the hinterland. By the mid-19th century, the Muslim community had evolved into an ethno-religious grouping with forms of worship congruent with those of the Buddhists and Hindus communities with which it co-existed.

At this point, religious teachers from Yemen began to re-introduce knowledge of Arabic, which the community had lost. The exile by the British of the Egyptian revolutionary Orabi Pasha and his entourage to Sri Lanka accelerated the revival.

However, Muslims retained their traditional, Sufist forms of worship, including through music and dance, and venerated the Prophet and the graves of saints. Their tolerant belief system included faith in talismans, magic spells and astrology, and the acceptance of Buddhist and Hindu folk religion. They lacked a dress code, their garments resembling those of their compatriots – except that a man might wear a skull cap on Friday and women might cover their heads with the end of their sarees.

The rise the prosperity of the Middle Eastern Muslim states following the mid-1970s petroleum boom caused millions of Sri Lankans, including several hundred thousand Muslims, to migrate thence for employment. They found themselves looked down upon as “bad Muslims” by many of their co-religionists in these countries, who followed far stricter rules. This coincided with increasing numbers of Muslims attending school, and finding a lack of teachers of Islam.

Wahhabi institutions from the Middle East filled this hiatus, providing education and social services, especially in the Muslim-majority regions of the Eastern Province. Non-governmental organisations such as the Saudi-funded Centre for Islamic Guidance, came up; while young men began receiving scholarships to religious universities in Saudi Arabia and Egypt, returning fired up with Wahhabi zeal.

The town of Kattankudy, 10 km south of Batticaloa, in the Eastern Province lay at the epicentre of the transformation of the Muslims. With a population of 50,000 within its square mile (2.56 km2), it has the highest density of population in Sri Lanka. It has also the highest density of mosques: over 60. Quite apart from its Muslim identity, the town has a deliberately designed Middle Eastern ambience. An imposing Arabian-style gate, with welcoming inscriptions in Sinhala, Tamil, English and Arabic, greets the visitor; beyond which a line of date palms (not native to the island) adorns the centre of the main thoroughfare. It stands witness to the Arabisation of the Muslims who, 150 years ago, could not read Arabic.

 

The authorities think Jameel had provided the link between Daesh and the Sri Lankan militants. He may have motivated the Ibrahim brothers.  However, the NTJ had a far longer history, which is part of the narrative of Sri Lanka’s Islamic revival.

Wahhabism

Aid to these areas, especially after the Boxing Day Tsunami of 2004, also came from secular states, such as Iraq and Libya, or even from non-Muslim states such as Venezuela – evidenced by rebuilt townships such as Saddam Hussein Village and Bolivarian Village – but Wahhabi funds swamped this.

Arising between 1200 and 1800, Wahhabism seeks to “purify” Islam through its own interpretation of the Quran and the Hadith, the Muslim scriptures. It rejects the display of human or animal images, celebrating Milad ud Nabi (the Prophet’s Birthday), praying at graves, giving alms in the name of dead relatives, music and dance, people of different gender mixing socially, and non-religious cultural practices and beliefs adopted from other communities. It also opposes as heresy traditional Sufism, which denies the duality of men and women, or self and god.

The Wahhabi organisations which entered Sri Lanka brought with them not only funds, but also the religious and political ideology of its donors. The Sri Lankan Muslim way of life changed as religious fundamentalism took hold. This manifested itself in the adoption of Arab attire, including the Hijab, Niqab and Burka, which began to spread in the 1980s.

Wahhabis began to attack art, science, music, cinema, drama and even sports. The country’s history and culture, of which the Muslim community had been integral, came to be viewed as somehow “alien”.  Wahhabis opposed the annual festivals commemorating saints, at so-called Auliya mosques (which contain tombs of saints) such as the Dawatagaha mosque in Colombo, Kechchimalai mosque in Beruwela and Alupotha mosque in Passara. They accused other Muslims, particular Sufis, of apostasy against Thawheed, leading to clashes.

A political change also occurred, with the emergence of specifically Islamic political parties, identifying themselves with Islamic fundamentalism. Although Muslims had, traditionally, followed the concept of Thowheed (Monotheism) they had not hitherto felt the need to name their organisations thus. However, now such organisations proliferated. They received an impetus from the attacks on Muslims by the Liberation Tigers of Tamil Eelam.

Militancy rises

In August 1990, militants belonging to the Liberation Tigers of Tamil Eelam (LTTE) massacred worshippers at prayer in four mosques in Kattankudy, killing 147. A week later, the LTTE killed over a hundred Muslim villagers in their sleep in Eravur, 10 km north of Batticaloa. The government responded by providing weapons to Muslim volunteers for self-defence against future attacks. In the early 2000s, a clash broke out between the mainstream LTTE and its “Karuna faction”, the latter abandoning their weapons in the hands of Muslim groups.

Following the end of Sri Lanka’s three decades of separatist conflict, newspapers reported the desertion of Muslim Home Guards, with their weapons to Thawheed “Jihadi” groups. The Saudi Arabian embassy in Colombo denied that their government had granted support to an influx of Wahhabi preachers and activists from overseas, but conceded that some wealthy people had been giving financial support to Sri Lankan religious groups.

The combination of weapons with extreme radicalisation made for a toxic environment. In May 1996, suspected Wahhabi extremists set fire to a Sufi meditation centre in Kattankudy, and attacked Sufi leaders with firearms and grenades. In October 2004, a mob of 500 Wahhabi extremists, declaring a Jihad (holy war) once again set fire to the Sufi meditation centre, shooting one Sufi dead and wounding another.

In 2006, the death of reformist Sufi cleric led to a hartal (work stoppage) by Thowheed organisations, opposing his burial with Islamic rites, closing schools, offices, banks and businesses. A Thowheed mob looted and burnt some shops and banks. Later that year, a Thowheed mob destroyed the minaret of the meditation centre, disinterred the cleric’s body and razed over a hundred Sufi houses to the ground.

In 2009 Thawheed activists destroyed a 150-year old shrine in Ukuwela, some 25 km from Kandy, the hill capital. In July that year, a clash between Sufis from a traditional mosque and Wahhabis from a new mosque in Beruwela, on the south-west coast, caused two deaths and injured 40.

Thowheed Jama’ath

Thowheed activists belonged to several organisations. The Sri Lanka Thowheed Jama’ath (SLTJ) had connections with the Tamil Nadu Thowheed Jama’ath. Members of the SLTJ, dissatisfied at the organisation’s Tamil Nadu links, split off to form the Ceylon Thowheed Jama’ath.

The NTJ sprang out of this milieu, in which rival preachers debated one another, the disputes sometimes breaking out into violence. According to Muheed Jeeran, who claims to have been a close friend of Zahran, the latter hailed from Kattankudy, and had been known to the Criminal Investigations Department (CID) as a mischief-maker. He studied at various Madrasas (Islamic schools) in Kattankudy, becoming a moulavi (Islamic teacher), along with his brother, Zainee Hashim.

In the last stages of his madrasa education, Zahran began finding fault with his teachers, arguing with them and turning the students away from them. He was expelled, but started his own Madrasa, and his fluency in Arabic and his debating ability made him popular among young men, so he drew large crowds. According to local Sufis, he preached that Islam should be the only religion and that Muslims should not pledge allegiance to Sri Lanka.

He became a popular preacher at Thowheed congregations around the country, and met his wife Fathima Haadiya in Kurunegala during one of these peregrinations. He married her in 2010, and she bore him a son and a daughter.

Zahran initially worked with the SLTJ but, although he preached Thowheed, his views went beyond its vision. He split from it about 2011 or 2012, and started the NTJ, building a new mosque, apparently with overseas funding. He began extolling the virtues of Daesh.

In 2017, Zahran staged a public meeting in front of a Sufi mosque, his followers having brought clubs and swords to the venue, and hidden them. A clash began and Zahran inflicted considerable damage. The populace, enraged at his behaviour, demonstrated against him. The police hunted him, but he fled.

The villagers thought he had fled to Maldives, but he apparently sought refuge with his wife’s family in Kurunegala. Later, he travelled extensively among the Thowheed congregations of Tamil Nadu.

In June that year, he began posting videos in Tamil, mainly covering the actions of Daesh.

About 2018, he established a new organisation, distinct from the NTJ, specifically to carry out terrorist attacks in the manner of Daesh, which appears to have done the military planning and provided monetary and technical support. The government has estimated the value of the organisation’s assets at LKR 7 bn (USD 40 m) plus LKR 140 m (USD 800,000) in cash. A further 41 people suspected of links with the terrorists have a total of LKR 134 m (USD 760,000)  in bank accounts, which the government has frozen.

In November 2018, the group attacked and killed two policemen in the Batticaloa suburb of Vavunathivu, taking their weapons and hiding them in a secret base on a 30 ha coconut plantation in Vanathavillu, some 20 km from the Western town of Puttalam. The authorities suspected former members of the LTTE, several of whom they took into custody.

Last December, the group defaced several Buddha statues in Mawanella, 26 km west of Kandy. Investigations led to the discovery of the secret base in Vanathavillu, with a cache of over 100 kgs of explosives and detonators. However, investigations did not proceed further.

Sainthamaruthu

Zahran’s sister Hashim Madaniya told the Colombo Daily Mirror that his wife and children, his father Hayath Mohammed Hashim and his mother, his brothers Rilwan Hashim and Zainee Hashim, and his other sister, Yasira, went missing shortly before the Easter Sunday attacks. The police arrested her later, in possession of LKR 2 m given her by Zahran.

Following the attacks, on 26 April, a tip-off led police to to a hideout in Sainthamaruthu, 37 km south of Kattankudy. A three-hour gun battle ensued, between men of Zahran’s organisation and the military, ending with an explosion – the result of a suicide bomb. The soldiers found 15 dead bodies inside, which the authorities say are those of Mohammed Hashim and his sons Rilwana and Zainee, their respective wives, six offspring of Zahran and his two brothers, and three other young men. A woman and her child survived, injured, and turned out to be Zahran’s spouse Fathima Haadiya and their daughter.

Before they died, Mohammed Hashim and his two sons made a video, which they released on the internet. Mohammed Hashim calls the video “the final call”. Rilwan, seated on the floor between the others, and wearing an explosive belt around his stomach, calls their struggle a jihad (holy war) saying “the infidel dogs have closed in on us. We vow to teach a lesson to those who would destroy us. The right lesson. Very soon.” Zainee, holding a T-56 assault rifle, with his small son seated on his lap, says “the killings will not stop here, even if we are destroyed… you can be sure you will face more of these attacks in future.” The video ends with the three shouting “Allahu Akbar” (“God is great”), against the background of the crying of their children.

Through its Amaq news agency, Daesh claimed responsibility for the gun battle and explosions, saying that “Abu Hammad, Abu Sufyan and Abu al-Qa’qa” had “opened fire with automatic weapons” and “after exhausting their ammunition, detonated their explosive belts.”   The release carried a photograph of Rilwan and Zainee with a T-56 assault rifle. It also claimed, falsely, that 17 security forces personnel had died in the confrontation.

The authorities suspect that Zahran’s sister Yasira, her husband and son, with some others, escaped in a car just before the confrontation.  Although some 90 suspects have been taken into custody, the authorities suspect that the terrorist organisations had up to 150 members, so at least 50 more terrorists may remain at large.

Breakthrough?

On 27 April, the authorities arrested Aadhil Ameez, a software engineer for Massachusetts-based IT company Virtusa, on suspicion of providing logistical and technical support to the suicide bombers. According to reports, Aadhil, who holds a Masters’ degree in Computer Science from Kingston University, had been under surveillance by Indian intelligence agencies since 2016, having been in communication with suspected Daesh terrorists.

Sri Lankan authorities reportedly suspect Aadhil of being the link between the NTJ and the JMI. The groups had communicated via the “dark net”, the encrypted part of the internet not open to public view, and by the WhatsApp messaging and voice-over internet service provider.

The authorities have not revealed how far this arrest helped them. However, the security forces have uncovered seven training camps, spread out over Puttalam, Hambantota, Nuwara Eliya, Kandy and Batticaloa districts. More importantly, they discovered 17 safe houses, concentrated in the Western Province, North-Western Province, and Eastern Province.

They appear recently to have made a breakthrough: on 20 May the State Intelligence Service (SIS) arrested five suspected senior NTJ members, in Amparai, among them a man identified as “Kalmunai Siham” whom, they say, acted as a trusted lieutenant to Zahran. Five more were arrested in Horowpathana, in the Anuradhapura District four days later. More arrests can now be expected.

According to Defence and Media State (i.e. assistant) Minister Ruwan Wijewardena, the majority of the members of the Thowheed terrorist organisation had been arrested, and the rest would be rounded up soon.

Indeed, since the Sainthamaruthu confrontation, no further military activity has been observed from Thowheed groups, which may be a sign that they have retreated, having carried out their essentially disruptive mission on behalf of Daesh. The heightened level of security following the Easter Sunday attacks makes it unlikely that the groups have the ability to mount effective attacks for some time to come.

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Rebuilding  after  the  attacks

Rebuilding after the attacks

Government wheels out proposals to jump-start growth

In an effort to boost economic growth, the Governor of the Central Bank of Sri Lanka, Dr Indrajit Coomaraswamy says monetary policy is to be relaxed, while Finance Minister Mangala Samaraweera has announced new loan schemes to benefit small and medium enterprises (SMEs). The impact on the economy of the Easter Sunday Attacks proved as devastating as the bombs had been against church-goers and overseas visitors.

The economy had been mired in low growth for some time. Dr Coomaraswamy says that he expected the economy to have grown faster during the first quarter of 2019, following the modest growth of 2018, because of better-performing agriculture and industry sectors. Inflation had picked up to 4.5 % in April after falling to 2.8 % in December, partly due to currency depreciation.

External debt at the end of 2018 is an estimated 59% of gross domestic product (GDP), the ratio of external debt to exports, at 258%, is high. According to the International Monetary Fund (IMF) public debt as a whole had risen by end 2018 to an estimated 90% of GDP at the end-2018, and rather higher than the median average for emerging economies

Strained economy

The pillars that have supported the Sri Lankan economy have been worker remittances from overseas, tourism, the small and medium enterprise (SME) sector, catering mainly to the internal market, foreign direct investment, and loans from overseas – long-term loans and short-term government bonds.

The country’s biggest single foreign exchange earner, worker remittances from overseas, peaked at USD 7.2 bn in 2017, and dropped thereafter because of lower petroleum prices, which have affected the West Asian job market. In the first four months of 2019, they dropped 13.8% to USD 2.17 bn from USD 2.51 bn last year.

The consequent lack of liquidity hit the SME sector as well as retail trade. This showed in low sales turnover during the Sinhala and Tamil New Year season in March-April. Credit card holders faced a veritable barrage of offers of extended credit, interest free instalment plans of up to 5 years, and discounts of up to 50% on purchases. Retail outlets sent out text messages to consumers at a similar frenetic rate.

Meanwhile, the collapse of the Rupee in mid-2018 led to the Central Bank selling off its foreign exchange reserves to shore up the currency, putting the Central Bank’s plan for recovery in tatters. The strain in the economy found reflection in the Colombo Stock Exchange (CSE) All Share Price Index (ASPI), which started the year at the 6060 mark, but dropped steadily to the 5500 level by the end of March. It recovered slightly over the New Year season, and hovered about the 5600 mark.

Precipitate

The effect of the 21 May bomb attacks on the already-distressed economy proved shattering. The tourism sector, which is vital to the economy, accounting for 5% of the GDP, suffered first, as foreigner visitors left in droves, and travellers cancelled flight and hotel bookings in fear of attacks. Some hotels slashed their rates, whilst some of the smaller outfits closed down completely.

However, other sectors also felt the impact severely. People did not go to work for a fortnight, for fear of further bomb attacks, which affected the economy further. Financial institutions began investing heavily in government securities, consolidating against future setbacks.

The share market’s reaction proved precipitate. The market opened after the Easter break on 23 May, the Tuesday following the attacks and the ASPI lost over 200 points during the course of the day’s trading, bottoming out below 5200 by 15 May.

Unexpectedly, a few overseas buyers became active as the market plunged, apparently in hope of picking up bargains. This found reflection in a recovery in the ASPI to above the 5300 level by end May, although on very low turnover.

However, this did not prove sufficient to balance the huge outflow of foreign funds. The total net outflow to date this year rose to LKR 5.8 bn worth of equities. Government securities were worse, with net outflow rising to LKR 21.2 bn.

Borrowing

The Governor of the Central Bank hopes to improve the foreign exchange shortage by extensive borrowing. He said that the Cabinet approved borrowing USD 1.5 bn from international markets to cover cash flow requirements, plus a further USD 2 bn to meet debt obligations.

He expects to raise up to USD 1 bn through a World Bank-guaranteed dollar bond and the remainder through a Samurai bond issue guaranteed by the Japan Bank for International Cooperation (JBIC) and a Panda bond issue guaranteed by the Bank of China, and possibly on a term loan. In his opinion, the LKR will remain stable if the global environment is favourable and if the US Federal Reserve continues to pause ire rate-hiking cycle.

Meanwhile the IMF has agreed to release a further US$ 164 m tranche of its Extended Fund Facility (EFF). In March, it had already extended the USD 1.5 bn facility by a further month. According to a review report it released in mid-May, fiscal consolidation envisaged under the EFF-supported programme is predicted to reduce the public debt/GDP ratio from 90% in 2018 to 75.4% by 2024.

“The external debt dynamics are very challenging,” Dr Coomaraswamy told a business forum at the end of May. “The question is, do we have adequate foreign reserves? Currently, reserves are at USD 7.5 bn, and pre-Easter Sunday attacks projections for the year being at USD 8.2 billion predicated us to borrow USD 2 bn from foreign markets.”

Monetary relaxation

The Governor says that the attacks affected the confidence and sentiments of economic agents, in particular in tourism-related activities. “Although normality is gradually returning to economic activity, a lower than initially projected growth could be anticipated during 2019.”

In order to boost the economy, the Monetary Board of the Central Bank decided to relax monetary policy.

“The Central Bank has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points to 7.5 % and 8.5 % respectively. Statutory Reserve Ratio (SRR) remains unchanged at 5.0 %,” Dr Coomaraswamy says. The SDFR is the rate at which the Central Bank pays for deposits from commercial banks, while the SLFR is the rate of interest at which it lends to them.

He anticipates that the reduction in policy interest rates will bring about a rapid, substantial reduction in market lending rates in order to boost economic growth and stabilise inflation at mid-single digit levels. However, inflation will remain in the 4-6% region and growth rates are not expected to increase.

Growth has deserted the heady heights it reached in the early 2010s. In 2017 it stood at 3.4%, dropping to 3.2% the following year – the lowest level since 2001, when separatist terrorists attacked Colombo Airport. This year, the Central Bank estimated initially that growth would reach 4.2%. However, this had to be revised sharply downwards after the attacks.

“Growth will be lower this year,” says the Governor. “It will certainly be below 3 % with tourism, a key sector of the economy having taken a hit from the recent attacks and its chain effects on sectors linked to the tourism industry.”

Opinion surveys of business analysts have found negative sentiment about the country’s economic prospects, with most anticipating a growth rate of only 2.5%. They found projections of second-quarter growth negative.

Loan schemes

In the meantime, the Cabinet approved a proposal submitted by Finance Minister Samaraweera to broaden the subsidised-interest“Enterprise Sri Lanka” loan scheme.

Enterprise Sri Lanka aims to create 100,000 entrepreneurs within a year, using 17 relief interest and three reimbursable loans schemes, as well as two non-monetary programmes. So far, the government says that nearly LKR 81 m have been approved as relief interest and LKR 55 granted as loans.

Samaraweera proposed eight new loan schemes. The “Ran Aswenna” agricultural loan scheme has been extended to include tourism, enabling loans up to LKR 250 m to be obtained for purchasing equipment such as motor boats for water-based tourism. The “Riya Shakthi” scheme for purchasing buses has been extended to cover school van operators at district-level.

The Medium Income Housing Loan Scheme has been replaced with a loan scheme entitled “Home Sweet Home”, which raises the maximum loan figure from LKR 5 m to LKR 10 m, at 6% interest over 25 years, with 15 years’ interest relief. The “Sihina Maliga” loan scheme, which provides Sri Lankan workers abroad to build houses in Sri Lanka, has been modified to provide loans in stages, to adapt to the short-term employment contracts into which they enter.

Borrowers under the “City Ride” loan scheme for buying buses, have been granted a 5-year grace period. The maximum loan amount for purchasing mini-taxis and electric trishaws has been increased by LKR 250,000 to LKR 2.25 m.

The “Mage Anagathaya” loan scheme has been introduced, to provide students who fail to get into state universities, a loan of LKR 1.1 at a concessionary interest rate, in order to attend private universities.

The main loan scheme under Enterprise Sri Lanka is the “Jaya Isura” scheme, intended to create entrepreneurs, which provides loans for businesses related agriculture, fisheries, ornamental fisheries, livestock, floriculture, horticulture, light engineering, printing, tourism, handicrafts, apparel, information technology, manufacturing industry and renewable energy sectors, for innovation and expansion.

 

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Rebuilding the tourism sector

Rebuilding the tourism sector

President says Sri Lanka is safe for visitors

The Easter Sunday Bomb Attacks, which left 42 overseas visitors dead and a further 37 injured, impacted Sri Lanka’s tourism sector immensely. Apart from early departures by visitors already in Sri Lanka and cancellations by those expecting to come, some 37 travel advisories discouraging visitors are likely to impact the sector’s short-term prospects.

“Though the travel agents are keen to send tourists to Sri Lanka,” says Sri Lanka Tourism Promotion Bureau (SLTPB) chair Kishu Gomes, “these advisories are holding them back and we would soon contact local missions on this subject.”

Only 1,700 tourists visit Sri Lanka per day now, compared to 4,600 per day before the Easter Sunday attacks.  Gomes expects the year to finish with 30% fewer tourist arrivals than last year (when 2.3 million visited the island) and only USD 3 billion in revenue, compared to USD 4.5 bn in 2018.

According to Finance Minister Mangala Samaraweera, cancellations could cost the sector USD 1.5 bn this year. The Governor of the Central Bank of Sri Lanka, Dr Indrajith Coomaraswamy, expects earnings from the tourism industry to decrease considerably from the projected USD 5 bn this year.

“The low earnings will be triggered by the sharp drop in the number of tourist arrivals in the coming months,” he says. “The tourism sector is clearly to take a hit… We need to be confident the security forces are doing a good job.”

Gomes explains that whenever a terrorist attack takes place, the tourism market in the country concerned takes an average of 13 months to recover. However, he hopes it will be sooner in Sri Lanka. He admits that a considerable sum of money will need to be invested in global public relations.

“We will be spending around LKR  464 million on the PR campaign that will go on for around one and half months. The campaign will be run by a reputable global PR company,” he says.

Meanwhile, tourism industry sources point out that the 500,000 jobs in the sector depend on swift government action. Additionally, they say, the chronic labour shortage the industry faces will intensify as more employees seek work overseas because of lower service charge receipts due to fewer tourists. Hotel occupancy rates have fallen by over 70% since Easter. They urge the government to ensure security by investing more in defence infrastructure, state-of-the-art technology and superior intelligence systems.

President Maithripala Sirisena says that terrorist violence is not a purely Sri Lankan issue, but part of the problem of “global terrorism”. He points out that other countries who are fighting against terrorists have sent intelligence experts voluntarily to Sri Lanka, who now act in co-operation with the indigenous intelligence services.

The President seems assured that terrorist attacks can be prevented. He expresses confidence in the country’s security forces and says they are tackling the terrorist threat island-wide, and carrying out missions to eradicate it. He emphasises that normal activities are going on and that nobody should have any unnecessary fears.

“The country is in a safe position right now,” he said in an interview with the Associated Press. “Our intelligence divisions have identified how many terrorists are there and 99 % of them have been arrested. One or two may have been left and they too will be arrested.”

The President says the government is prepared to provide a security programme for businesses, if the need should arise. He pledges the fullest assistance for business recovery.  He has appointed a cabinet sub-committee to inquire into the issue and recommend steps to further the recovery of the sector. He says that the government is taking action to provide relief and monetary aid more flexibly.

Meanwhile, the Cabinet approved a “relief package” to strengthen the tourism sector.

State Minister for Finance Eran Wickramaratne revealed that the package consists of:

(a)   A moratorium until 31 March 2020 on both capital and interest payments granted to the tourism sector as of 18 April 2019; dues in the period being convertible into concessionary interest term loans, recoverable after July 2020.

(b)   Tax concessions, including slashing Value Added Tax (VAT)  on hotels and tour operators, from 15 % to 5 % from 1 April 2019 to 31 March 2020; and duty free imports of security equipment such as handled metal detectors, walk-through metal detectors, baggage x-ray inspection equipment and vehicle scanners.

(c)    Working capital loans under the “Enterprise Sri Lanka” programme, with two-year repayment and a 3.4% interest rate, subsidised 75% by the government until 31 March 2020.

Wickramaratne revealed that the Enterprise Sri Lanka loan scheme had released LKR 1,514 m (USD 8.6 m) for the tourism sector. He said loans would be considered on a case-by-case basis for the moratorium.

On 30 May, Finance Minister Samaraweera announced a new loan scheme under Enterprise Sri Lanka, to assist the recovery of informal tourism sector stakeholders. Small hotels and homestays would receive LKR 500,000 interest-free, “Sancharaka Podda” loans.

 

  Upekkha Gunasekera

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