POLITICAL-ECONOMY PROFILES
A Brief Report on the Business Environment of Kandy Town
Produced by Michael Calavan and staff of The Asia Foundation, Colombo
Political-Economy Profiles
A Brief Report on the Business Environment of Kandy Town
Produced by Michael Calavan and staff of The Asia Foundation, Colombo
Introduction
Now in its second phase, The Asia Foundation’s Local Economic Governance (LEG) program aims to directly
improve economic governance practices in 15 towns in five of the nine provinces in Sri Lanka. LEG facilitates
discussion between the public and private sectors, which in most cities are historically uncoordinated at best,
and at worst mired in disputes over regulations and services, by convening local government officials,
businesspeople, and citizens to address how to improve commerce and trade. LEG focuses on the capacity of
LAs to support economic growth while encouraging the private sector to take the lead in pursuing opportunities
to create jobs, increase profits, and expand the critical revenue base for LAs. The Public-Private Dialogues
(PPDs) established in partner LAs by the first phase of LEG resulted in the identification and prioritization of
issues, and the joint design and implementation of innovative and replicable solutions, such as improved
physical infrastructure, or rationalized processes to help bring businesses into regulatory or tax compliance.
To complement and measure these achievements, LEG introduced the profiling of private sector-local
government relations and interaction through a rapid appraisal in LEG towns. The method was semi-structured,
in-depth interviews with a representative cross-section of the business community, capturing the prevailing
status of the business climate, its “business-friendly” and “unfriendly” attributes. By interviewing the same 1218 business-owners at intervals, the profiles will provide a baseline for LEG’s progress in strengthening publicprivate relationships and economic growth. The profiles will be used to develop a survey instrument for a
survey, using quantitative methods. The surveys will arrive at a numerical scale and data used to make
comparisons among communities in a particular year and to track a single location over time. The reports will
generate discussion in the partner communities as well as at the national level about what steps government can
take to improve the local business environment.
Both the PPDs and profiles identify micro and macroeconomic issues by clarifying the challenges and interests
of businesspeople. But PPDs are highly structured, action-oriented, susceptible to dominance by certain voices,
and often geared toward a specific consensus-based outcome. While PPDs can secure the momentum and
interest for both long-term partnerships and short-term ‘quick wins,’ the open-ended and individualized format
of the profiles adds nuance, identifying concerns and insights that may not come forward in a facilitated group
session. Under the comfort of anonymity and free of the sense of ethnic or political obligations, respondents
state their level of agreement or disagreement on 10 statements about the local economy. These interviews,
lasting 45 minutes to an hour, enable not just yes or no answers, but informative explanations. By inviting
feedback and analysis on a range of economic subjects, the profile allows the respondents to step outside their
traditional roles, speaking not only as an expert or advocate regarding issues specific to their business, but also
to greater trends, future prospects, and the status of the community as a whole.
The profiles allow LEG consultants and field staff to collect detailed information in just a few days, capturing
the distinctiveness of the locality in a way that a formal quantitative survey, using random sampling and a
predetermined range of answers, would not. The open-ended nature of the profiles is more appropriate in
situations where limited knowledge of the local context inhibits the creation of a truly useful standardized
instrument, but one which we are working toward. Panelists who are interviewed have been known to actually
change their positions during the discussion. In this sense, the profiles reveal the short-comings of traditional
surveys in documenting such dynamics.
While the Foundation works with local partners to purposefully identify panelists and ensure appropriate
representation of female business-owners and the variety of industries, a third of interviews are ad hoc,
increasing the opportunity for previously untapped perspectives. For respondents familiar with LEG, the profiles
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confirm the value of their participation and demonstrate the Foundation’s continued engagement. In contrast, the
spontaneous interviews pique new interest and optimism for collaboration. For example, during one interview, a
shop owner accused the local Chamber of Commerce of a lack of openness, and observed that notifications from
the LA were frequently not in Tamil. Though he complained about the responsiveness of these groups, the
conversation appeared to heighten his interest in engaging with both his peers and the LA to advocate for his
rights—while also highlighting for the Foundation issues that may not have been captured by traditional
methods. Another respondent drove home the differing conditions in Colombo by presenting first-hand
documentation of the length of time required to secure a business license in the capital (half an hour) versus his
city (two months), information which he may not have felt comfortable pressing in a meeting with government,
but which speaks to an explicit aim of LEG: to improve the business environment in localities outside of the
Western Province, which enjoys disproportionate growth and investment compared to the rest of the country.
Though the BEBs conducted to date have already enlightened program staff on whether a city is progressing,
stagnating, or declining, and the contributory factors, the real value of the profile will be shown in the coming
months. One purpose of the profiles is to provide Sri Lankan policymakers with timely, accurate information
about the sub-national business environment, pinpointing common challenges that should be addressed islandwide. But the most valuable outcome of the findings, when disseminated to Local Authorities and private sector
partners, will be the resulting new discussions and cooperative initiatives aimed at streamlined and supportive
local government services, innovative partnerships, and other, perhaps unanticipated, challenges and
opportunities for inclusive economic growth.
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SECTION 1—Methodology
As part of this series, we have prepared political-economy profiles of 15 towns. In alphabetical order, they are:
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Ampara
Badulla
Bandarawela
Batticaloa
Galle
Hambantota
Jaffna
Kalmunai
Kandy
Mannar
Matale
Matara
Nuwara Eliya
Trincomalee
Vavuniya
In the 18 interviews in Kandy that comprise this profile, business and local government leaders were asked to
elaborate on why they agreed or disagreed with 10 broad statements:
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There is observable economic growth
Existing businesses are expanding
New businesses are being established
Opportunities to expand or start new businesses are increasing
The people in Kandy are more prosperous
Businesses are trying for more positive influence on government
The MC is taking practical steps to improve business
The government policies that affect business operations are improving
The basic resources needed to run a successful business are improving
The long-term outlook for business in Kandy is promising
We have not tried to attach numerical scores for each of the ten components because of the small sample sizes.
We want to discourage the temptation to draw comparison between towns based on these small samples. The
statements below represent the opinions of 18 business people selected as panel members in Kandy. The
information must be interpreted with some care; the samples are not large enough to use as the basis for
generalizations. However, they do offer a useful snapshot of the psychological state and institutional setting of
Kandy business at a point in time, in this case July 2011. Later, when qualitative observations are used in
conjunction with survey data, they can provide rich, comparative insights into the business environment.
Asia Foundation staff have made every effort to present opinions and information gathered during interviews
accurately. However, we cannot guarantee that all information provided by panelists is accurate, or that their
opinions are internally consistent. We can vouch for their strong commitment to providing their views as openly
and accurately as possible.
These individuals include: owners and managers of retail shops and service providers—groceries, jewelers,
clothing and textiles, electronics, mobile phones, photographic and printing services, beauty shops, furniture,
training institutes, and private schools; small-scale manufacturers—handicrafts, food products, garments,
mechanical products; wholesalers—of agricultural commodities, food products, and beverages; and others—
bank managers, contractors.
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SECTION 2—Panelist Observations
1) “There is observable economic growth in this community.”
Panelists were substantially in agreement on this issue. Three quarters either agreed or strongly agreed with the
statement. Only one person disagreed, while one sixth of panelists indicated uncertainty by choosing to “neither
agree or disagree.” In explaining their answers, panelists referred to experiences in their own businesses,
observations on other firms, and broad changes in the town. Notable observations [some positive, some
negative] included:
• “People are coming to purchase goods, including computers.”
• “This is a peaceful environment, people are open minded and willing to work, and there are always new
customers for my products.”
• “As a banker, I have seen a rapid growth on demand for credit.”
• The Municipal Council and police are having meetings about making Kandy a “nice place.”
• “The construction field is developing; the packaging industry is booming, and also gems and jewelry.”
• “Kandy has very slow growth compared to other areas such as Kurunegala, Colombo, and many towns
in the South.”
In addition to observations listed above panelists offered 1) general observations reflecting their optimism: “The
city is now developed, people have purchasing power, and tourists are coming in sufficient numbers.” “The
world is changing; Kandy also is changing, for the better.” “I believe that everyone here has a relatively better
and happy life.” New branch banks have been established. The Central Bank has established two low interest
loan facilities for small and medium business. They also reflected on 2) growth sectors: one prominent growth
sector is education. Kandy is an educational center for Central, North Central, and North Western provinces.
“There are a lot of new tourism projects, mainly hotels and guesthouses.” People are spending money for beauty
services and projects. A handloom factory is doing well, providing jobs for young rural women and earning
foreign exchanges; and on 3) improved infrastructure: there are new roads and bridges; the new City Centre
shopping complex is adjacent to the main commercial district.
However, extensive optimism was tempered by 1) more cautious assessments: there is a lot of potential for
growth, also a lot of barriers. “I had hoped for faster development. There’s lots of discussion, but progress is
slow.” “My business is staying about the same. My impression is that it’s about the same for others.” Kandy
people are “stingy” about spending money. Raw material prices from Korea and India are increasing; and 2)
downright gloomy statements: most valuable resources go to Colombo. Tea income goes there. Electricity is
generated here and sent there. Timber is sent directly there, coming back as finished products. “We have a
congested city. Therefore growth is a problem.” “Kandy is still Kandy as it was a few decades ago.” “We can’t
go beyond this level.” There are beggars.
Responses to this statement suggest that, collectively, Kandy business people are “cautiously optimistic.” Unlike
panelists in the East and North, Kandy residents seldom mention the end of the war as a factor in shaping the
business environment.
2) “Existing businesses in this community are expanding.”
Panelists were broadly in agreement in their responses regarding this issue. Eight ninths agreed or strongly
agreed with the statement. Some observations were highly personal; others addressed the general situation. Even
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panelists who are fundamentally positive expressed a few reservations about business expansion. Notable
observations by panelists included:
• Expanding businesses include food, clothing, and beauty shops.
• Tourism and packaging are expanding.
• “I have developed new equipment that will undersell the Indian equivalent by 25%.”
• “I’m starting to produce a new line of PET bottles with reconditioned Japanese equipment.”
• Hotels and computer sales are expanding rapidly, other sectors more slowly.
• Competition by big chains has prevented expansion of local businesses.
Those agreeing with the statement offered observations, in addition to those noted above, of 1) businesses
expanding: expanding firms include food outlets hotels, and electronics showrooms. “I have already spent Rs.5
million for a new building and machinery. We will do ‘blow molding,’ and supply water bottlers that I am
already supplying with cardboard boxes.” “I expect to launch my new sales center upstairs by inviting a VIP to
the ceremony.” Hotels are expanding and hotel nights are increasing, if not yet very good. Panelists also
identified a few 2) contributing factors to expansion: government-mandated low interest rates have led to higher
demand for new homes by professionals and government employees. This has created opportunities for
contractors, hardware dealers, and timber traders. Buildings are being renovated and upgraded. Traders are
expanding by selling imported items. “It is true there is a lack of space, but we can overcome this following the
models of Rome and Mecca.”
Those disagreeing with the statement, or offering cautionary notes, made 1) negative statements: “Businesses
my have expanded 50%. But they could have expanded 10 times.The limits on growth are pointed out in every
forum, but little is done.” Businesses are not expanding as rapidly as in other cities. Businesses that require
space for loading and unloading, such as hardware dealers, are being forced out of the city. They also outlined
2) impeding factors: the prevailing business culture and government regulations obstruct growth of small
businesses. “Our ruling elite hold property, but only want to retain and lease it.” The Government is supporting
business expansion elsewhere—e.g., in Nawalapitiya and Dambulla. Government banks are unresponsive. Space
limits hinder industrial expansion and cause business people to invest elsewhere.
Examples offered by panelists leave little doubt that Kandy business is in a period of expansion. However, some
counter examples and cautionary statements may point the way toward a clearer understanding of the risks and
barriers that businesses face.
3) “New businesses are being established in this community.”
Panelists were broadly in agreement in their responses regarding this issue. Eight ninths agreed with the
statement and those remaining chose to “neither agree or disagree.” New businesses identified were frequently
branches of Colombo firms—banks, finance companies, leasing agents, single brand showrooms. But many
firms established by individual investors were also noted, and several mentioned establishment of the City
Centre mall as a significant benchmark in business development. Notable observations by panelists included:
• “This street has become a bank street.”
• “After 32 years as manager of a large firm, I started my own business. I chose Kandy because it’s a
good place to live.”
• “The new City Centre mall has improved local life—e.g., with a film festival, bridal show, and book
exhibit.”
• “Last month I attended the opening of three businesses—a beauty salon, computer shop, and Pan Asia
bank branch.”
• Compared to other growing cities in the country, Kandy remains stagnant.
Panelists who agreed with the statement enumerated 1) newly-established branches of Colombo or international
firms: banks; finance companies; leasing companies, show rooms [Abans, Singer]; clothing shops [NoLimit,
Odel, Fashion Bug, Adidas]; insurance brokers; vehicle agents; rental cars; super markets [Food City]; phone
service providers. They also identified 2) many local firms: pharmacies; book shops; computer shops;
restaurants; hotels; guesthouses; jewelers; cut flower dealers; a chocolate maker; an organic food producer.
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They also volunteered 3) general observations about the business environment: new businesses are
“mushrooming,” but they come and go. Business women need training in general management, product costing,
marketing, and computer operations.
Despite their overall optimism, some panelists offered 1) cautionary observations: outside business people often
fail because they lack an understanding of the local culture and market. Many firms are doing “unsuitable”
business; e.g., “infamous” guesthouses. The “one side parking policy” has hampered business by interfering
with loading and unloading trucks. Business women face a “copy cat” problem. There are a “fixed set of buyers”
who maintain linkages with known traders.
By these accounts, despite a variety of barriers, Kandy is rich in new businesses.
4) “Opportunities to expand new businesses and start new ones are increasing in this community.”
Panelists had divergent views on this issue. Almost two thirds showed a degree of optimism by agreeing or
strongly agreeing with the statement. About a quarter disagreed, and the remainder chose to “neither agree or
disagree.” Those agreeing often cited pre-conditions needed for establishing new businesses. Panelists
mentioned an interesting range of businesses that might become profitable in the Kandy market. Notable
observations by the panelists included:
• The main opportunities are in tourism, both domestic and international.
• “We can learn from Chennai—travel agencies, guide services, and herbal cosmetics and medicines.”
• Hoteliers have proposed to collaborate with Ceylon Railways [?] to upgrades services on ColomboKandy trains [e.g., by providing booking services for hotels and guesthouses en route].
• “The Perahera season is excellent. People do a lot of business then.”
• “I would like to see local processing of scrap iron.”
• Lack of land and limitations on building height constrain business opportunities.
Observations that agreed or strongly agreed with the statement often focused on 1) opportunities in tourism: tour
operators; five star hotels; health tourism; “suitable” entertainment [dignified, with a pleasant environment];
handicrafts [silk products, brass, table decorations]. Panelists also mentioned 2) other ventures thought to be
feasible: computer chips; software development; value added food items [spices, specialized teas and rice
varieties, vegetables]; mining [dolomite, mica, quartz, calcium carbonate]; manufacture of rubber belts for
machinery; scrap iron processing; garment factories; a supervised play area at the City Centre mall; and 3)
existing or needed pre-conditions for new businesses: “The Perahera is excellent. People do a lot of business in
that season.” Women and the newly wealthy will continue to respond to opportunities. “We need improved
transport—both Colombo to Kandy, and from Kandy to surrounding areas.”
Those who disagreed with the statement cited 1) poor overall conditions for business: World Heritage status that
is “wrongly defined” and thus suffocates businesses; traffic problems; fences along the main streets that hamper
truck loading and unloading; environmental problems caused by three wheelers; a hilly landscape [and resulting
space limitations]; lack of business and technical knowledge; non-supportive government institutions; frugal
customers.
While panelists generally agreed with the statement that there are business opportunities in Kandy, many hedged
their positive statements with reasons for pessimism. The city’s status as a World Heritage site is seen by many
as a mixed blessing.
5) “The people of this community are more prosperous.”
Panelists professed differing views regarding this issue. Six individuals agreed or strongly agreed with the
statement, while five disagreed. The remaining seven implied that available evidence is too elusive or
conflicting to make a firm judgment by choosing to “neither agree or disagree.” Panelists offered brief socioeconomic theories and a broad spectrum of evidence to support their views. Notable observations included:
• “Almost everyone is employed.”
• “It seems that every day all categories of people are making better incomes.”
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“People are spending, but don’t necessarily have more income.”
“50% are better off. The other half really aren’t.”
“I’m not happy about the income distribution. There tend to be two extremes.”
In addition to observations listed above, panelists who agreed that people are more prosperous cited a few 1)
sources of prosperity: “A lot of people do business. Absolute poverty is not here in Kandy.” “Even the poor, if
they have a little land, can produce spices. There are small lot buyers in Elephant Road.” They also offered 2)
general comments: “People can manage their affairs.” People have money, but they are cautious about spending
it. Life is “peaceful” in Kandy. “People like to live here, so the demand for high salaries is not intense. Thus
there are lower incomes and less prosperity.”
Panelists who disagreed with the statement offered 1) descriptions of poverty in their city: salaries are growing
slowly. People have a lot of [unmet] “expectations.” “The majority are salary earners. They don’t have money
for purchases other than food and a few other necessities.” Small farmers in surrounding areas don’t have much
money either. “It’s easy to lease a vehicle, but I hear a lot of people are defaulting.” “There may be poor people
in the city, but I have no information on those people.“ They also reflected on 2) the implications: as prices rise,
people are getting services less often. “The money is in Colombo. People are not out in the evening because they
do not have money to spend.” “We need more vocational training for school leavers, and for workers who need
to upgrade their skills. I could provide land for a training center.” They need training in “how to deal with
customers.”
Business people rely on a varied evidence to judge whether or not their fellow citizens are prosperous. The
intense responses of many panelists suggest they take a substantial interest both in the buying power and welfare
of their fellow citizens.
6) “Businesses are trying for more positive influence on relevant government units including the LA,
DS, GA, and PC.”
Panelist responses were varied. Nearly two thirds agreed or strongly agreed there are identifiable efforts in their
community to advocate for business-friendly policies and programs. One sixth were unaware of such efforts,
and about a quarter denied that they exist. Notable observations by panelists included:
• There is a Development Committee consisting of representatives of the Municipal Council and business.
• “We lobby the Municipal Council and Provincial Council for different purposes.”
• “There is a somewhat better relationship with the Kandy Municipal Council, less with the Divisional
Secretary and other officials.”
• The Trade Associations lobby a range of government institutions, “even though we are not successful on
most occasions.”
• “I am not aware of any efforts to influence government, but MC services are satisfactory.”
• “They [government] decide, then they tell us.”
Panelists agreeing with the statement 1) described specific advocacy efforts and dialogues: there have been
discussions with the Provincial Council regarding land parcels in the city that might be better used for
commercial purposes. There is a formal Association at the Industrial Estate. Revised parking fees were
discussed by the Kandy Development Committee. Discussion with the Chief Minister and District Secretary
resulted in uniform regulations on shipping produce in all three districts of the Province. There have been
meetings with the police regarding “street discipline” for pedestrians and drivers. They also 2) offered
spontaneous praise for a responsive, activist Municipal Council, and for the Foundation: “Kandy is a peaceful
place where you can engage in dialogue with authorities.” The Kandy Municipal Council and Chamber of
Commerce are working together. “It is a blessing to business!” “Before The Asia Foundation’s involvement,
business didn’t know how to influence government”; and offered a few 3) general comments: All the Trade
Associations—Muslim, Tamil, and Sinhalese—are coming together to get common issues resolved.
Panelists not in agreement with the statement either 1) denied knowledge of its existence: “I’m not very familiar
with advocacy efforts.” “Most business people have little time to lobby.” The business community is not
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organized properly to influence government. Government officials don’t have the right attitude toward business;
or 2) suggested it is of little value. The MC gets the businesses to help implement its program.
A solid majority of panelists recognize the existence of business advocacy in Kandy. Some believe such efforts
have been worthwhile. The Development Committee, a formalized consultation group, creates a precedent other
communities may wish to follow.
7)
“The MC/UC is taking practical steps to improve the business environment.”
Panelists professed diverse views regarding this statement. Five ninths agreed that the municipal government is
taking useful steps to improve conditions for business. Nearly one quarter disagreed. Positive responses focused
on satisfactory delivery of Municipal Council services and, in a few cases, recent procedural improvements.
Several noted a recent initiative to install decorative lamp posts along commercial streets. Negative responses
focused on inadequate services, inconvenient procedures, and an uncooperative attitude among elected and
administrative personnel. Notable observations by panelists included:
• The MC has provided office space to the Chamber of Commerce.
• “The City Development Committee provides a platform for regular dialogue.”
• The street light project is now being extended to other business streets.
• The Public Health Inspectors are providing good service, and “help us to maintain hygiene standards.”
• “The MC is trying to help us. But their effectiveness is limited by the fact that the Council has been
controlled by the opposition for the past 15 years.”
• Key installations—railway shed, the prison—need to be removed from the city.
Observations agreeing with the statement included 1) recent procedural and infrastructure improvements: in
addition to installing antique street lights, there are proposals to install flower pots and decorative paving stones.
[The MC will reduce assessment taxes of cooperating firms by 10%.] There have been efforts to improve traffic
flow; and 2) better services: garbage collection is improved, and the MC will soon acquire trash compactor
trucks. PHIs are helpful. Finally, they offered 3) supportive general comments: there are recent improvements in
“attitudes” of municipal officials toward business, apparently a product of private/public dialogues facilitated by
The Asia Foundation. The Mayor and Commissioner are “business friendly.” “Friendship” and “mutual respect”
have been developed. Some MC Members have good intentions to help business, while others “must be
educated.”
Negative observations included varied complaints about 1) overall MC management: “They don’t even collect
taxes properly or effectively, and don’t send notices of arrears.” “We are not aware of any steps taken by the
MC on behalf of business.” “We should have built three medium-sized parking structures, instead of one mega
structure.” Some businesses are allowed to harm the environment. Taxes are “excessive.” [Rs.8,800 annually for
a large service business]; and 2) specific city services: They don’t collect garbage regularly from neighborhood
collection bins. The city isn’t clean. The drainage system is “hopeless.” “It seems toilets are released into the
drainage network.” City roads are closed frequently for various functions and events, thus disturbing businesses.
Many business people are favorably disposed toward their city government. They appreciate standard services
that many feel are provided adequately. Those aware of the existence of the City Development Committee were
optimistic about its continuing role. Inevitably, a few panelists asked “What have you done for me lately?”
8) “The government policies that affect business operations in this community—laws, regulations,
procedures, safety and security—are improving.”
Panelists held varying views regarding this statement. Five ninths agreed, one sixth were unsure of their views
[thus selecting “neither agree or disagree’], and about a quarter disagreed or strongly disagreed. Those in
agreement mentioned specific government actions—dialogues conducted, committees formed, or simpler tax
payment procedures. Those who disagreed or were neutral often mentioned government pronouncements that
have not been followed up by concrete actions. Notable observations by panelists included:
• “The current MC Commissioner is very business friendly and interprets policies in a supportive way.”
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Discussion with the Ministry of Finance resulted in removal of the BTT on certain high quality
handicrafts. “I sit on the industrial committee.”
“Yesterday we had a meeting with the Deputy Minister that oversees industrial estates. We discussed
electricity problems and rents.”
“As head of the Saw Millers Association, I have proposed changes in policy similar to those current in
the Western Province [which eliminate transport permits for logs and timber].”
Providing business premises in MC-supported structures—the bus station, city markets—is good. “But
the selection process should be more transparent.”
“As a banker, I am not satisfied with the performance of the Board of Investment.”
Observations agreeing with the statement included 1) specific policy and procedural improvements: “The
business licenses are issued efficiently [by the MC].” The Central Bank is helping through tax holidays for
importers and more liberal foreign exchange regulations. The MC’s decision to allow private parking lots has
been helpful to business. “We get good support from the various tourism units; there was a recent preparatory
meeting on the Perahera regarding crowd management, security, and sanitation”; 2) various outreach efforts: a
business women’s group met with the Provincial Minister of Industries to request low interest loans for their
small “packeting” activities [e.g., for tea, incense.]; and 3) general observations: the national Government
should consider allowing “metro authorities” and annexation of areas adjacent to cities. Kandy should have a
physical plan similar to the one passed for Colombo in 1977—removing the bus stand, central police station,
and city employee housing from the central city, and limiting the rail station to passenger loading only.
Complaints aired by those who disagreed or “neither agreed or disagreed” with the statement included 1) lack of
information and responsiveness: “I don’t see business friendly policies even proposed by the MC.” Officials
don’t consult the community; and 2) unsatisfactory policy enforcement: the national Government has announced
helpful programs, “but in the middle are government servants and it’s very difficult to control.” Central
Government loan programs “have not yet been passed on to the local level.” The MC has announced a Citizen
Charter that makes promises about service delivery. But problems come when promises are translated into
action. “The MC tax on business signboards [Rs.150 per square foot] is excessive.” Kandy’s Heritage City leads
to “No. No. No.”
The great majority of panelists believe supportive government policies are essential to their success and all are
hoping for greater, more consistent support. Some are optimistic that better, more coherent policies can be
elicited from various levels of government; others are not.
9) “The basic resources needed to run a successful business in this community—roads, banks,
transportation, parking and traffic management, street lighting, phone and internet services,
electricity, water—are improving.”
Panelists were broadly in agreement in their responses regarding this issue. Five sixths agreed or strongly agreed
with the statement. Virtually all panelists singled out at least one or two basic resources for praise, and at least
one that still needs improvement. Notable observations by panelists included:
• “Most of these things are available in Kandy.”
• “The water supply is 99% OK.”
• “The large parking garage has kept the parking problem within bounds.”
• “There have been some efforts in traffic management.”
• “Phone service is better because people have mobiles.”
• “Transport from Colombo to Kandy is not satisfactory.”
Those who agreed with the statement had 1) particular praise for: phone and internet service; banks; water
supply; roads. They 2) also mentioned: electricity [“There are hardly any power cuts.”]; parking and traffic
management; street lighting [better lighting helps businesses].
Interestingly, panelists singled out 1) some of the same services for criticism: electricity [many power failures at
the industrial estate, the need to pay for upgrading to triple phase service]; transport services [lack of late
afternoon service]; banks [not “business friendly,” especially government banks]. They reserved special
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criticism for 2) roads and traffic management: city roads [improvements needed on half a dozen business
streets]; traffic management [daily flow impeded by school drop-offs and pick-ups, bus stops in the wrong
location, three wheeler queues impeding traffic flow].
Collectively, panelists are pleased with recent advances in the basic resources needed to run their businesses.
But most recognize that further improvements are needed to sustain business growth.
10) “The long-term outlook for business in this community is promising.”
Panelists professed a range of views on this issue. Two thirds agreed or strongly agreed. Nearly a quarter
disagreed or strongly disagreed. In any case, many panelists were concerned about physical limits on Kandy’s
growth as a result of the city’s upland location and World Heritage status. Notable observations included:
• The Central Market and City Centre can draw people from a large area.
• “The country is peaceful, tourism is growing, and we have more clients.”
• “Kandy will become a tourism-based city, not an industrial city.”
• “This is a very accessible town for half the country. We can service the area within three hours.”
• “The city is in a basin, so we can’t expand. And we can’t change many of the buildings because we are
a World Heritage site.”
Observations, in addition to those above, that agreed or strongly agreed with the statement focused on 1)
tourism: “Tourism is the main thing. The Tourism Board projects 2.5 million arrivals by 2015. There is a lot that
needs to be done in tourism promotion.” “Kandy is a World Heritage city. Tourism will increase.” Health
tourism is a possibility; on 2) pre-conditions already in place: World Heritage status; a clean city; a “very
strong” and skilled business community; investment by Colombo business people; and 3) needed improvements:
more facilities like the City Centre Mall; elimination of corruption; “positive thinking”; good policies and
actions by the MC; effective management of local talent; removal of police facilities to outlying areas;
underground pedestrian access; “photo ops” with statues of elephants and other animals. Panelists also
mentioned a few 4) promising business opportunities for the future: value added preparation of tea and spices;
outsourcing of business services.
A few panelists offered 1) cautionary statements: adjacent towns—e.g., Katugastaga and Perideniya—will
develop more rapidly. The KMC and police “disturb” potential customers, and discourage them from coming to
make purchases. “Old, dilapidated buildings that are not part of the World Heritage district are preserved for ‘no
reason’”; and 2) gloomy forecasts: “The future of business is bleak. On-street parking is prohibited. Certain
businesses—hardware suppliers, textile and pottery manufacturers—are forced out of the city.” “There’s not a
lot of potential. People can start a small boutique. That’s about it.”
Many Kandy business people see their future tied closely to successful expansion and continuation of the
tourism industry. However, they harbor fears that opportunities may be undercut by poor governance.
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SECTION 3—Asia Foundation Comments
In the future, when constructing a quantitative measure or index of the business environment in secondary cities,
for purposes of comparison, we may want to employ the use of tiers. This is because a few points of difference
should not be considered important, but assignment to the same or different tier should be noted. For example,
seven of the towns are in provinces that were most severely affected by the war, and are now proceeding
through roughly equivalent recovery processes. It is only where communities are separated by one or two tiers
that substantial psychological and institutional differences should be inferred. Asia Foundation consultants and
staff members who participated in interviews in Badulla and Bandarawela, for example, can attest to such
differences. The two towns are in the same district and separated by a brief one hour drive. But the content and
tone of panelist responses varied dramatically. Bandarawela business people were almost invariably upbeat and
enthusiastic, while those in Badulla were inclined to be pessimistic and cynical. The contrast between
Bandarawela and Matale, four tiers apart, is even more dramatic.
It is striking that respondents in three towns located well outside the war zone—Galle, Matale, and Badulla—
were generally less positive in their outlook than respondents in seven towns more directly affected by fighting
and militarism—Jaffna, Mannar, Ampara, Vavuniya, Trincomalee, Kalmunai, and Batticaloa. Lacking an
obvious break in the routine of managing their businesses, panelists in Galle, Matale, and Badulla were inclined
to focus on their own problems and on shortcomings in their community. Panelists in the Northern and Eastern
towns had experience of a clear “line in the sand.” They described the end of the war as a fundamentally
important turning point for business and daily life. Compared to the recent past, there are broad opportunities to
invest and innovate. This optimism and “sense of the possibilities” is a positive resource, one that can be
harnessed in planning and implementing a comprehensive development strategy. In contrast, towns lacking a
clear “line in the sand” [such as Galle, Matale, and Badulla] need to build such support. A preliminary strategy
is needed to help business people and government officials to discover their “sense of the possibilities.”
Kandy is a provincial capital, World Heritage site, major center of international and domestic tourism, and
cultural and religious focal point for Sinhalese in Sri Lanka and for Buddhists across Asia. In general, panelists
responded to the study with “tempered enthusiasm.”
Two major issues arose spontaneously during interviews:
World Heritage status: a mixed blessing: Panelists seldom referred to Kandy’s World Heritage status as a
positive benefit. Yet it is likely most business people would agree that special status does benefit the city, by
protecting its status as an ancient capital and Buddhist pilgrimage center, and preserving the charm of old
buildings and lovely scenery. Without the special status, Kandy would lose much of its attractiveness as a center
of tourism. However, businesses must deal with day-to-day costs of that status, notably the difficulty of
operating businesses within physical limits—preservation of buildings that may be on the verge of collapse,
maintenance of traditional facades, height limits—imposed on businesses and residents.
The City Centre: This downtown shopping mall has altered the commercial landscape of Kandy, bringing a
major, modern business facility to the city center in a relatively unobtrusive manner.
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