Damage and Recovery: A Review

The task of medium term recovery involves the rehabilitation and reconstruction of capital assets (both private and public) as well as the provision of the material and institutional assistance necessary for households to engage in gainful economic activities to rebuild their livelihoods. This involves not only the reconstruction of physical infrastructure and replacement of assets, but also the re-establishment of market and social networks. As indicated, domestic and international assistance enabled the country to cope successfully with the immediate relief tasks. Replacement of damaged assets essential for full recovery was estimated to require assistance close to US$ 2 billion, a massive sum for Sri Lanka, though relatively minor when compared with the levels of assistance given to victims of natural disasters in developed economies.

5.1 International Assistance for the Recovery Effort

The response to Sri Lanka’s request for assistance met with an overwhelming response at a meeting of international donors held in Sri Lanka in May, 2005. A total of US$ 2.2 billion was pledged over the next 2-3 years – around $ 700 million per year. US$ 853 million was promised by NGO and other private sector organizations, and the remainder by multilateral donors and governments (for details, see Table 3 [ PDF 254KB | 10 pages ]). In fact, this promised external assistance – to meet both continuing relief needs and reconstruction activities - was in excess of what the government had requested. The task before Sri Lankan authorities seemed to be one of how to manage the funds that would flow in for the recovery effort, rather than how to raise the necessary funds. Funding constraints on the recovery effort seemed to have disappeared.

5.2 Aid Coordination and Distribution

A key issue has been the coordination of the relief and reconstruction effort. In Sri Lanka the coordination is required across three groups. First, activities among the various components of the government require coordination. Second, the activities of various agencies and NGOs - with the heavy post-tsunami influx some 180 have been operating in Sri Lanka – require coordination. Third, coordination is required with the LTTE which controls part of the country that was heavily affected by the tsunami.

As mentioned earlier, as part of its immediate response to the tsunami the government established the Centre for National Operations (CNO) to handle relief efforts, and three task forces to address specific aspects of the relief effort. After one month, with the conclusion of immediate relief operations TAFRER and TAFLOL were amalgamated to a single entity – the Task Force for Relief (TAFOR) – to implement all relief measures and operations of the CNO were scaled down. In February, the CNO was dissolved and officials returned to line ministries. Two Special Task Forces, namely TAFOR (Task Force for Relief) and TAFREN (Task Force for Rebuilding the Nation) took over CNO’s responsibilities. In early March, the Centre for Non-Governmental Sector (CNGS) was set up by the Ministry of Finance and Planning to coordinate NGO activities. With transitional housing largely completed, TAFOR is expected to wind up and its responsibilities passed to the line Ministries.

TAFREN now has the lead role in overseeing the rebuilding of infrastructure in key areas with overall responsibility for implementation of the post-tsunami recovery programme. While an overarching authority such as TAFREN is a sensible option to coordinate postdisaster reconstruction, TAFREN itself lacks links to line ministries in its representation (dominated as it is by private sector representation), which hampers its ability to efficiently coordinate activities among government agencies. The division of reconstruction into sectors – such as housing and water and sanitation – in turn raises coordination issues to ensure, for example, that housing units constructed get access to the necessary water, sanitation and electricity provisions. TAFREN is seen to be increasingly attempting to monitor the line agencies and be a ‘one-stop-shop’ but its role and ability to achieve this goal still remains somewhat unclear.

5.3 Aid Coordination with Donor Agencies and NGOs

The second group whose activities need coordination involves the NGOs. Sri Lanka has long experience working with major donor agencies and several international NGOs (INGOs) have long established operations in the country. Sri Lanka had seen some welcome moves towards donor coordination even prior to the tsunami in the context of its conflict-related donor reconstruction programmes. The World Bank, ADB and the Japan Bank for International Cooperation (JBIC) had already established a partnership that enabled the basis for the very useful needs assessment to be done immediately after the tsunami. However, coordination with donor agencies and NGOs became a vastly more complicated issue due to the numbers and practices of the numerous international NGOs (not counting large numbers of individuals and small groups) who came in after the tsunami.

Some of the NGOs – both INGOs and domestic NGOs who receive external funds - control significant funds. Eith their own funding secure, they face few incentives to improve coordination. In fact, some are openly hostile to any government action that seems to place ‘controls’ on their independence. NGOs vary widely in experience, skills and operating styles. Many NGOs lack experience and local knowledge, and in their haste to spend monies disregard local circumstances and community needs.

Further, the presence of large numbers of donors/NGOs has at times led to competitive behaviour. Deep mistrust has developed in several locations between local NGOs (who have often been working in the area for many years) and some INGOs and agencies who have come for tsunami assistance. Sri Lankan NGOs claim to have been ‘crowded out’ by some of the better financially endowed larger INGOs, who have ‘poached’ staff and resources. Certainly some INGOs and agencies have greater expertise in large scale disaster relief (such as provision of transitional shelters and other relief measures), but domestic NGOs (and INGOs that have operated in Sri Lanka for a long period) usually have a much greater appreciation of local conditions and sensitivities. Greater interaction, engagement and coordination between them would benefit the overall relief and reconstruction effort. Field observations suggest that lack of coordination has led to considerable mal-distribution of aid. In recent months, mechanisms have been set in place to better coordinate donor activities, including NGOs, at regional and local levels through regular meetings and consultations held by regional administrative officers. It is too early to judge their overall effectiveness.

5.4 Aid Coordination in LTTE Held Territory

The third group with whom activities need to be coordinated is the LTTE. This has been the most difficult and contentious issue. Discussions to establish a mechanism for aid sharing have been going on since soon after the tsunami. The spontaneous solidarity that united communities immediately after tsunami rekindled hopes that the ethnic divisions that have cost the country so dearly in recent years may finally be waning. However, a mutually acceptable arrangement for aid sharing to enable assistance to flow into the LTTE controlled areas has proved elusive.

On the one hand, sections within the government and many majority community groups have been opposed to any deal that appears to provide de facto recognition to the LTTE as the administrative power in regions controlled by them. On the other hand, the LTTE has been unwilling to accept an arrangement that dilutes their powers. After long drawn out negotiations a MOU setting out an aid-sharing deal between the GOSL and the LTTE, the Post Tsunami Operation Management Structure (P-TOMS), was signed in June 2005. This was designed as a mechanism to distribute aid in LTTE-controlled areas in the Northern and Eastern Provinces of the country. The P-TOMS agreement envisaged the setting up of a Regional Fund to allow donors to channel tsunami funds directly to the Northern and Eastern Provinces. A multilateral agency (anticipated to be the World Bank) was to be appointed as the custodian.

However, this agreement promptly ran into opposition from within the majority Sinhalese community. Challenged in the courts through a fundamental rights petition, the P-TOMS agreement was declared unconstitutional by the Supreme Court of Sri Lanka in July 2005. An interim injunction was issued, putting on hold key aspects of the agreement pending a final determination in mid-Sept 2005. In addition, many of the major donors who had supported the idea of a joint mechanism for aid distribution between the GOSL and the LTTE declined to channel aid directly to the Regional Fund once the MOU was signed claiming that the LTTE remains a ‘proscribed terrorist organization’ in their countries. The signing of the P-TOMS agreement led to the government losing its majority in Parliament when one of the constituent parties of the government, the Janatha Vimukthi Peramuna (JVP), left the government ranks. With a presidential election to be held in November the future of the agreement remains unclear, as one of the leading candidates, the current Prime Minister, has pledged not to implement it if he were to be elected.

5.5 Livelihood Issues

The loss of lives and infrastructure (livelihood related assets, residential houses, social and capital infrastructure) along two-thirds of the coastline – with many districts which have poverty levels higher than the national average – has plunged large numbers of people into poverty. For the affected districts in the North and East, the resulting stresses worsened the already heavy burden of pre-existing marginalization as a result of two decades of conflict. The following sections survey developments in the main affected sectors as well as the main livelihood assistance programmes put in place.

5.5.1 Fisheries

The tsunami impact was most severe in the fisheries sector. It is estimated that at least 7,500 fishermen died while one-third of the affected households were engaged in fishing or fishing-related activities. In some areas this figure is much higher. For example, in the northern Jaffna district the figure is close to 90 per cent. An estimated 16,500 boats and one million nets were damaged or destroyed. As at June 2005, the number of boats repaired or replaced stood at 13,073 (TAFREN, 2005).¹³

The problems that have emerged in the fisheries sector highlight some of the complex problems in providing livelihood assistance to match community needs in difficult postdisaster conditions. Assistance to replace damaged boats has been forthcoming from many donors who recognised their capacity to generate an immediate income and the number of boats is already close to pre-tsunami levels. However, because the fishing industry uses a wide range of vessels, fishing techniques and practices, including the use of a wide variety of nets, fishing vessels that have been provided do not always match community requirements. This reflects inadequate dialogue with the affected fishermen and poor coordination among donor agencies in procurement and distribution of vessels and equipment.

The uncoordinated replacement of fishing vessels in some locations has resulted in a larger number of smaller vessels than before the tsunami, potentially leading to overfishing. Typically, the smaller boats have been repaired and replaced fastest with over 80 per cent restored countrywide compared to the more expensive multi-day and 3.5 ton boats which indicate a replacement of between 60-70 per cent. However, replacement has been quite uneven. In the southern areas such as Kalutara, Hambantota and Galle, as well as Trincomalee in the east, the number of traditional craft already exceeds the pretsunami levels. Data also shows that many NGOs are planning to continue providing boats which in some places could lead to a doubling of pre-tsunami fishing effort, especially in the near shore coastal areas which were already subject to over-fishing prior to the tsunami. As a result, efforts are underway to encourage a reduction in the distribution of small craft. Some NGOs have been responsive; Sewa Lanka, an NGO, cancelled an order for 2000 traditional canoes.

However, access to engines and nets are still a problem. While the replacement of boats has been generally rapid, only an estimated 50 per cent are being used due to lack of engines and nets. It is estimated that about 1,700 engines have been repaired. While another 6,000 engines have been ordered, by end June 2005 only 450 had actually been delivered. In terms of nets, an order has been issued for 46,000 nets – mostly from international suppliers – but the suppliers can only provide half the order due to the post tsunami surge in demand.

Domestic demand for fish has revived after plummeting after tsunami – consumers were reluctant to eat fish that they suspected may have fed on human bodies that were swept out to the sea - and market channels appear to be reviving robustly. ¹⁴ Despite the considerable loss of life, signs are that fisheries output will regain (if not exceed) pretsunami levels once equipment is replaced, and damages to small fishing ports and harbours are repaired. The pace at which the fisheries sector infrastructure will be restored is obviously critical to sustained recovery of the sector.

5.5.2 Tourism

The tsunami dealt yet another blow to Sri Lanka’s volatile tourist industry just as it was beginning to enjoy a revival in the wake of the ceasefire agreement. About a half of the 105 large and medium scale hotels in the affected areas – which are the heart of ‘beach tourism’ – were partially damaged and 8 hotels were fully damaged. About a quarter (58 of the 242 registered hotels) in the country were affected. In terms of rooms, about 3,500 out of a total of 14,000 rooms in medium to large scale hotels were out of service in late February 2005.

Most larger and medium scale tourist enterprises had insurance cover for natural catastrophes including earthquakes, and this was interpreted as providing tsunami liability. An estimated US$ 150 million was paid out on claims after tsunami, the bulk going to the hotel industry. This suggests that some hotels would at least partially cover their reconstruction costs. However, most hoteliers did not have cover for the consequential impacts of the disasters such as cancellations, etc., and have had to bear these costs in full. Since the tsunami, insurance companies are including tsunami cover as part of their natural catastrophe cover. However, this has led to about a one-third increase in the cost of insurance, rising from 0.1 per cent of the value of assets to about 0.13 per cent. For a medium sized hotel worth about US$ 3 million, this would be an increase in premiums of about US$ 900 while for a large hotel worth about US$ 15 million the increase in premium would be US$ 4,500. While significant, they do not appear to place an overly high cost burden.

The tsunami may have more significant medium-term impacts on future tourist arrivals and occupancy rates. In 2004 the tourism sector had a record season with arrivals topping 565,000. Tourist arrivals were expected to reach 600,000 in 2005 with 150,000 arrivals during the first 3 months of the year. This estimate has now been revised downwards to 425,000 arrivals in 2005 and 575,000 in 2006 – although there are suggestions that this may be too optimistic. Around 40 per cent of the foreign guest night stays in Sri Lanka are spent along the beaches of the island’s southern and eastern coasts. For some of the undamaged hotels in the affected regions occupancies are currently high as tourists are replaced with aid workers, etc., at least on a temporary basis, while in other undamaged coastal hotels the occupancy rate is under 10 per cent. Hotels in the interior are also registering lower occupancies due to the drastic downturn in tourist arrivals, but Colombo hotels are full with regular business travellers and tsunami related visitors.

For the coastal beach industry the tsunami could provide an opportunity, as with the fisheries industry, to rebuild the industry in a more sustainable fashion. Most hotels have already started reconstruction work. The Ministry of Tourism is assisting the tourism sector with a major ‘Bounce Back Sri Lanka’ campaign which combines public relations with assistance to develop ‘world class’ coastal tourist facilities. The industry is also receiving duty free import privileges for necessary equipment for reconstruction, and the Central Bank has a loan facility for small and medium scale enterprises (SMEs) which covers the tourism industry. Long term confidence in the industry is indicated by continuing work on a number of luxury hotels. The Tourist Board has taken steps to offer new Tourist Zones where land and other infrastructure will be provided. The Tourist Board aims to develop 15 tourist zones at a cost of US$ 12 million each with donor funding.

However, for many affected people who gained their incomes directly or indirectly from the tourism industry there are pressing livelihood issues. If the tsunami proves to have a depressing effect on tourist arrivals, even with rapid reconstruction, recovery in the tourism sector can be delayed. Many hotel employees, though they may get their employment back once hotels are reconstructed, have no immediate alternative income sources. The situation is similar or even worse for many small enterprises that catered to tourists (e.g., handicrafts such as lace making).

5.5.3 Cash grants

For families, particularly poorer families who have lost family members, homes, other assets and employment, immediate cash relief is vital. Hence the Rs 5,000 ($50) per month cash grant and the Rs. 375 ($ 3.75) cash and food ration were a welcome part of the assistance package. By end June 2005, almost all the eligible 880,000 beneficiaries were reportedly receiving the Rs. 375 ($ 3.75) cash and food ration (TAFREN, 2005).¹⁵ In the case of the Rs. 5,000 monthly grant, all households identified as affected appear to have received the initial two payments, either in January and February or sometime after. Where the reach of the state banks was limited, such as the Northern Province, alternative arrangements had been made. The grant scheme seems to have proved very effective in reaching most of the affected population, assisting people with little engagement in the formal financial sector even to start deposits (which were mandatory to receive funds).

However, after the first two payments the Ministry of Finance ordered Divisional Secretaries to revise the lists of eligible beneficiaries, and reduce the number of families receiving payments. Eligibility criteria have changed from time to time, different circulars have been sent, and full information has not been placed in the public domain. Most tsunami affected families are not fully aware of the new criteria. The government circulars announcing the revised criteria seem very broad, offering significant discretion to local government officers leading to wide variations in interpretation, delays and long back-logs of appeals. Interviews with relevant stakeholders, including both affected families and government officials, suggest that households having access to ‘regular income’ are no longer eligible. It has taken several months took to draw up new lists of those eligible to receive the grant based on changing government circulars. This has created added confusion, uncertainty and anger among the tsunami-affected households.

The current situation with regard to this payment is somewhat unclear. According to TAFREN, payments were being made to 234,000 eligible beneficiaries by the end of June 2005 (TAFREN, 2005).16 According to the World Bank website in early September only about 140,000 families are benefiting from the livelihood grant scheme. Its distribution is being audited for both financial management and to ensure money is reaching genuine tsunami victims. The World Bank expects that this programme will be extended for a further two months – for a total of four months - before it is phased out.

While it may seem equitable to narrow the scope of the grant so that it targets the ‘truly needy’, in practice the costs of such narrow targeting may well exceed benefits. In assessing the changes to this programme, it should be noted that even households with a ‘regular’ post tsunami income have suffered a major loss of wealth in terms of property and possessions and are cash strapped. The chances of them slipping into the pitfalls of high interest informal sector borrowings to meet many pressing needs are high. Perhaps most critically, any decision to take recipients with a regular income off the list after only two monthly payments generates perverse incentives, effectively penalizing not only those who have held on to previous jobs, but perhaps even more importantly, those who have managed to obtain regular employment after the tsunami. If donor assistance is available for this programme – and it is hard to see why funds are not available going by the May 2005 pledges are being honoured – given the obvious need to provide affected households with some income, cutbacks are hard to justify. Moreover, since bank accounts have been opened for the cash grant transfer, the system is extremely cost effective compared to the high transactions costs of many other tsunami livelihood projects which often incur as much as 30 per cent administrative overhead costs.

In a number of locations, the larger international NGOs in particular have introduced cash for work programmes such as clearing of rubble and rebuilding of transitional shelters. Typically, the daily wage rate offered is Rs. 300-350 ($ 3-3.50) for men and women; this is close to the average daily wage rate that has prevailed until recently for men, but is higher than the usual wage rate for women (though with inflation, wages and these rates may soon become unattractive). The advantages of this cash for work is that it enables affected people to obtain employment while addressing the shortage of labour to clear debris and put up transitional shelters. However, this approach has some limitations. In practice, cash for work largely benefits able bodied people, primarily men. The old, young, sick and disabled and carers (typically females who find it difficult to leave their dependants) find it difficult to benefit from such arrangements. It has also faced some resistance from local NGOs, who feel it undermines the voluntary approach to community action through shramadana (‘gift of labour’), and may also lack the funds to pay these wage rates.

5.5.4 Micro-enterprises and Microfinance

Many tsunami affected households were engaged in micro-enterprises with as many as 25,000 micro-enterprises estimated to have been damaged. In addition, there are an estimated 15,000 tsunami survivors involved in self-employment and informal sector activities such as food processing, coir manufacture, carpentry, toddy tapping and tailoring. Many of these workers urgently need funds to replace lost or destroyed assets such as equipment and stocks. While fisheries have been relatively well served by the relief effort, it is clear that many other livelihood activities have received less attention. Often activities such as coir and lace making are more important for women so their slower recovery may impact more on female headed households (who comprise about a sixth of affected households). In some places, tension has grown between fishers and other livelihood groups because the latter feel that the fishing industry has received greater attention.

While boats, nets and other equipment (supplied through the relief agencies) are central to recovery of fishing activities, credit is the critical input for many micro-enterprises.

The problems faced by poorer communities in accessing formal sector credit are well known. Such difficulties are exacerbated when communities are affected by natural disasters which damage the few assets they may have had to offer as collateral, reduce the number of people who can act as guarantors, while sharply increasing the need for credit. Recovery of many micro-enterprises then depends on the availability of microfinance. ¹⁷

A host of programmes to address this need for microfinance is in the process of implemntation. Prior to the tsunami, Sri Lanka had a relatively well served microfinance sector including commercial and rural banks serving smaller customers (e.g., Cooperative Rural Banks and Regional Development Banks), and organisations adopting a grassroots approach to microfinance where a group will operate a revolving credit fund (e.g., Sanasa, Sarvodya SEEDs). To support a strong repayment culture, most microfinance organizations are encouraged not to switch to grants. Where grants are necessary, for example for housing and food, they are best provided not by microfinance organizations but alternative institutional mechanisms.

While there is much interest in providing new loans a pressing issue is how to handle old loans. In general, individual banks and microfinance institutions are being left to negotiate this on a case-by-case basis because they have the best knowledge of a client’s needs and ability to repay. Typically, microfinance organizations only forgive loans in the event of death or permanent disability, but many recognize that the tsunami situation is not one of wilful defaulting. However, there are concerns that borrowers face many unforeseen risks such as drought, floods or political volatility and risk. In this context, some microfinance organizations prefer to avoid using the tsunami to create a precedence for loan forgiveness. Instead, the preference is for loan rescheduling allowing the client time to return to a normal positive cash flow. Loans can even be provided to replace lost assets and increase future earnings. This can often be in the long-term interest of the client because loan defaults will make it harder to access future credit.

The Central Bank has been implementing a microfinance scheme (Susahana) through the two state-owned commercial banks. The Susahana loan is provided with no repayment required for the first year and interest at a fixed rate of 6 per cent thereafter. The National Development Trust Fund (NDTF) is also offering similar terms through its partner organizations. By end June 2005, 4,154 applicants had received Rs. 1,940 million (US$ 19 million) through the Susahana scheme of the state banks and another 4,437 people had received Rs. 158 million (US$ 1.58 million) through the NDTF scheme.

Despite claims to the contrary and its stated intention to also reach micro-entrepreneurs, the Susahana lending schemes have been set up in a way that makes it very difficult for small tsunami affected micro-entrepreneurs to obtain access to the scheme. The conditions for access were onerous. There were initial constraints in passing on information to those in the camps and helping with application forms. Guarantors are required who have a permanent income above a certain threshold level. Collateral is required, for which land within the buffer zone is not acceptable; it is not yet clear how this may change given changes to buffer zone building rules recently announced. Loans will only be given for businesses registered before the tsunami, which rules out many smaller unregistered businesses – many small enterprises were not registered – and stops people taking up new livelihoods in response to their changed post-tsunami circumstances, such as the death of the main earner, disability or new responsibilities to care for some family members. The terms of the Susahana need to be urgently reviewed to ensure that they can start to reach the poorer micro-entrepreneurs.¹⁸

The ADB has supported a major microfinance scheme for Sri Lanka which works through grassroots organisations. In principle this scheme has the ability to address the limitations of the Susahana programme. It announced in February 2005 that US$ 7 million will be used to reach tsunami affected communities through this programme. In our fieldwork for this report, we were unable to determine the ground level scope and effectiveness of this programme. However, it is clear that a successful microfinance programme would meet an urgent need, particularly in meeting the financing needs of tsunami affected micro-enterprises to rebuild their livelihoods.

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1. Dushi Weerakoon, one of the co-authors
   (posted 31 March 2006 / 11:43:50 AM)
   
   In response to the comment below:
   
   Besides funeral expenses, etc. a cash grant of $50 per month and $3.75 cash and food ration were given to all affected households (for approximately 4 months). For residents outside the buffer zone, if a house is more than 40% damaged, a grant of $2,500 is given in 4 instalments, based on progress. If a house is less than 40% damaged, then a grant of $1,000 is provided, disbursed in 2 stages. For residents within the buffer zone, the government planned to assist not only landowners, but all residents (including encroachers) with some form of housing. This was estimated to require around 50,000 permanent houses. Further quite considerable details on government handouts are contained in the report itself.
   
2. ken bacon
   (posted 18 December 2005 / 06:57:36 PM)
   
   This chapter notes that the government immediately paid money for funeral expenses, livelihood and cooking utensils. What additional government compensation has been provided? I am particularly interested in how the relatively generous post earthquake compensation program in Pakistan compares to government compensation for loss following the tsunami.