A_SYSTEM ~ DYNAMICS EXAMINATION OF THE EFFECTS
OF THE MAHAWELI - PROJECT IN SRI LANKA
by
Frank Lehmann, Thomas Lehner and Jiirgen Beckmann
University of Mannheim
Federal Republic of Germany
ABSTRACT:
The following System - Dynamics model simulates the effects of a deve-
lopment aid to a certain project on social and economic sectors ina
development country.
The project, which has been started in 1980, treats the damming up of
the Mahaweli — Ganga in Sri Lanka. The advantages of this great project
can’t be assessed applying only classical measures of yield.
Using System - Dynamics it is possible to analyse the effects of the
project on sectors like the labour market, agriculture and the budget of
Sri Lanka and to discuss changes of the values in this fields.
An improvement of the values of the 4.5 billion US$ project would create
the foundation for further investments.
Moreover, the effects from the building of hotels and possible direct
investments of foreign enterprises in Sri Lanka are to consider.
2. INTRODUCTION :
Sri Lanka, independent since 1949, is an island in the south of India
with nearly 16 million inhabitants. The democratic form of government is
established in the constitution and includes also the well — known basic
rights applied in the western countries.
The social institutions of Sri Lanka are ideal for a development coun-
try. This is also demonstrated by the following indicators:
- 20% of the budget are used for the education and social sector.
~ Compulsury education begins at the age of five.
- Only 14% of the population are illiterates.
~ The average life expectancy is 67 years.
The government follows a liberal and capitalistic economic policy.
The economy of the country is above all influenced by agriculture. The
distribution of the active population among the economic sectors con~
firms this:
416
Mi tourisn
Btrade
15, | Wleervicer
induct,
production
Gagricuiture
2x
Fig. 1: Structure of the active population in Sri Lanka
Above all, Sri Lanka has considerable problems in two fields:
(4) The economic crises pointed out as well in agriculture as in in-
dustry:
= Sri Lanka, once the rice store of Asia, had still to import 10%
of its rice demand in 1980.
- Many districs of the island, above all in the north - east and the
central highlands, are too dry to use them for agricultural purpo-
ses
~ The industry of the country is still at its beginnings; so far
there exist only a few greater enterprises. The unemployment quota
is about 18%.
(2) The civil war between. Singhaleses and Tamils:
The two groups of the population, different in origin, religion
and language, are fighting against each other increasingly since
1980.
In front of this background stands the Mahaweli - project:
The Mahaweli - Ganga, the greatest river of the island is to be dammed
up in several barrages. This allows the cultivation of new arable land
and on the other hand the gain of electricity, which contributes to the
solution of the economic problems.
The following figures show the purposes which shall be realized by the
Mahaweli - project:
- The irrigation of 3600 square kilometers ground;
from this, 2600 square kilometers for agricultural purposes.
- The production of 540 megawatt power each year.
- The colonization of one million people in this district.
- The creation of 500000 new jobs.
- The distribution of 10000 square meters irrigated arable land and
2000 square meters garden ground to each settler family.
- The planning and structure of new settlements ( proximity to
schools, hospitals and so on ).
- The economic independence of the island by means of an extended
rice production.
- The settlement of domestic and foreign enterprises as a result of
better conditions; the creation of three free trade zones may
support this.
47
The following System - Dynamics model has to point out which develop-
ments in Sri Lanka are imaginable under certain conditions in the se-
veral sectors.
3. THE SYSTEM - DYNAMICS MODEL :
The structure of the model will here be explained by a few main loops.
foreign
transfers
+
investments
+
barrages credits
@
other Sgricultural )
3
arable Produce own financial
land + means
@ “other
rice faporte + Publichy“population
produce omens
ee rtce, “ste8
import demand
Fig. Loop of the agricultural production
The model is based on an irrigation project which is financed by three
resources:
- foreign transfers
- disposable credits
- own financial means, if available.
The more barrages are financed, the more the whole produces increase
as a result of new arable land. As a consequence, less food has to be
imported so that the cancelled public expenses can be used for other
purposes.
arable.
+
eo ee mh
population farmers barrages
4 a we tee industrial ‘a
foreign active workers
workers PE arle in investments
{ qs J \” tourisa r
unemployed income- own finan-
om sial means
+ a
unemployment simbiis_
efit 2 8 te
teducation xpenses
oxpenges et
Fig. 3: Active population loop
418
More arable land furnishes an existence base to a greater number of
farmers. As a consequence, benefit payments of the state can be can-
celled and it becomes possible that public income in form of taxes in-
creases. This income gain can be used for the building of new barrages.;
Moreover, an increasement of the number of farmers leads to less unem-
ployed, more foreign workers and a greater population. By the increase:
ment of the population, the education expenses and consequently the
whole public expenses increase.
barragess
eal Fe
infra-—__ sianttcttes investments
structure
i built-upt, i &®
touriet{2— areas inaneen? own finan-
= = enetey, ia means
vse WA consumption
income by industrial Sant | @
tourists (_) workers as income
+
workers iS) + tax
in tougisa Sincome
unemploy:
active wt oonerd
——
Sopulation qieepleyee_—<—e— t
Fig. 4: Tourism and industry loop
The barrages can create good conditions for industrialization and tour-
ism. The higher the barrages, the higher are infra - structure and
electricity in Sri Lanka. This leads to more tourists and industriali-
zation as well as to an improvement of the budget by a higher tax in-
come.
On the other hand, the riots have a negative influence on tourism and
industrialization.
A higher industry growth builds up more areas and lets decrease tourism.
4. RESULTS FROM THE BASE RUN :
The constants and initial values in the model were supported by authen-
tic figures from Sri Lanka.
Fig. 5: PLOT BARRAGES
This plot shows the number of the built bar-
rages. With the help of the financial resour-
ces it was possible to build the ten planned
barrages continuosly in 25 years
The western countries contribute 2.25 billion
US$ to the costs of the project.
In the base run, the rest had to be financed
by credits, because own financial means were
not available.
419
In the beginning of the simulat-
ion time ( 1980 - 1984 ), rice
had. to be imported. This resulted
from an increasing population and
a constant rice production.
In the second period since 1984,
it is possible to irrigate ground
with the help of the Mahaweli -
project. This leads to the creat-
ion of new.rice fields
The following produce increase-
ments cause less rice imports.
The result shows that it is pos-
sible for Sri Lanka to export
rice from 1998 because of the in-
creasing produces.
In the year 2004, the curve turns
again, the exports decrease and
iz04998~«a990”~«a998~=sgouo gees YEAR~=—-s fom 2010, Sri Lanka has to im-
port rice again.
Fig. 6: PLOT RICE EXPORT, RICE IMPORT The maximum of the curve coin-
cides with the finish of the last
barrage. After that, the rice
produce can’t be increased more. The constant rice supply contrasts with
a steady increasing demand, which is an effect of the increasing popu-~
lation.
FOREIGN
INDUSTRY
2.0403 FL
(___ pomestic
INDUSTRY
1.0403
0.0400
0.0400
1980 «198519901995 2000 2005 YEAR
Fig. 7: PLOT FOREIGN INDUSTRY, DOMESTIC INDUSTRY
This plot shows that the number of enterprises increases more and more.
In the modei, a growth of 2% for the domestic and 2.6% for the foreign
industry each year was given by figures from the past.
The course of the curve is also influenced by variables of infra -
structure, electricity, riots, different wages between Sri Lanka and
Europe as well as a greater number of qualified workers as a result of
increasing education expenses
The constellation of the described variables leads to an industrial
growth between 0.3% and a maximum of 5.7% each year.
420
28.8 bs
08 POPULATION
$855 ove
3488 seri
nase POPULATION
8858
gage
weed
8858 SS unenezoreo
eae
\O™ UNEMPLOYMENT
‘uora
3858
ohee
saad z
1980 1985 1990 1995 2000 2005 YEAR
Fig. 8: PLOT UNEMPLOYED, ACTIVE POPULATION, POPULATION, UNEMPLOYMENT
QUOTA
Here it becomes evident, how the population increases. The active popu-
lation ( farmers, industrial workers and workers in tourism ) are also
increasing.
The growth of the industrial workers results from the above described
industrial growth.
By the building of new barrages it is possible to enlarge the arable
land and to settle more farmers
The tourism sector is much more influenced by infra - structure and
electricity supply than by riots and by the industry built - up areas,
so that new jobs can be created there.
But the growth of the population and by it of the labour force is much
greater until 1993 than the growth of the active population, so that the
unemployed increase until that date. It is not until 1993 that the in-
creasement of the active population in each period is higher than the
increasement of the labour force. Consequently, the unemployed and the
employment quota are decreasing
ee
ee. pusuic
38 —— tere
88 ——Puatic
33 EXPENSES
YEAR
1980 1985 1990-1995 20002005
Fig. 9: PLOT PUBLIC EXPENSES, PUBLIC INCOME
421
The considered expenses of the state are first increasing . This can be
explained by a higher repayment of credits as a result of the Mahaweli-
project. When the project is finished, no more credits are necessary and
the repayments are decreasing slowly. In addition to that, the state has
to pay less unemployment benefits, because the unemployed are decreasing
since 1993.
On the other hand, the increasing industrialization and the greater num-
ber of active population leads to more tax income.
Since 2004, the public income is even greater as the public expenses
This surplus may be used for other things.
5. SCENARIOS :
After the base run of the model, two scenarios were simulated, where
first positive and than negative conditions for the Mahaweli — project
in Sri Lanka were created.
a) The positive scenario:
Sri Lanka has, like the most development countries, a great
population growth, which amounts at this time to 1.2% every
year. The possible consequences of this growth are well - known
since the report of the Club of Rome in “ Limits of Growth ".
In the positive scenario, the death - rate is equal to the
birth - rate, so that the population is stagnant and amounts to
14 million inhabitants.
The most important developments can be noticed in the rice im-
port and the rice export. By the stagnation of the demand it is
possible to export rice earlier and in a greater quantity.
But the number of unemployed as difference between labour force
and active population can be reduced earlier by the stagnation
of the population, although the number of the active population
and the industrial growth are not as great as in the base run
This depends on the constant education expenses which reduce
the number of qualified workers and consequently the industrial
growth.
b) The negative scenario:
In the negative scenario, the development aid of the western
countries of 50% of the Mahaweli - costs were cancelled.
Sri Lanka is left alone with its problems.
During the whole simulation time it is impossible to build a
single barrage; credits which are necessary to finance the pro-
ject are not available.
The rice production is much lower than in the base run because
no arable land can be irrigated; the rice import increases more
and more.
Because no new infra - structure and electricity are created,
the industrial growth remains behind the values of the base run.
Less farmers, industrial workers and workers in tourism mean at
the same time less active population and consequently essential-
ly more unemployed, benefit payments and by that more public
expenses.
The main results of the two scenarios are shown again in Fig. 10 using
diagrams:
422
+00
10
5
°
+
parraces 2010 RICE zone
PRODUCTION
+05
1705
10.0 ty
5.0 \
2010 x Y
FARMERS unempLoveo 2°10 pypire 2020 PusLic 2010
EXPENSES INCOME
2010 2010 2010
TOURISTS INDUSTRY ACTIVE
POPULATION
Base run
Positive scenario
Negative scenario
Fig. 10: Results of the base run
The Mahaweli - project is of great importance for the state of Sri
Lanka. If the project comes to its end, the country will get decisive
advantages until the year 2000 and further.
If the project fails, it will be extremly difficult for Sri Lanka to
solve its problems. For this reason, the western countries should ab-
solutly provide the financial means. This has become evident in the
negative scenario.
Sri Lanka can help itself by starting a program of birth - regulation
This has become obvious in the positive scenario.
Moreover, the model shows that in the time after the Mahaweli - project,
Sri Lanka will get serious problems. This should be considered in the
modern plannings.
