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Kelani expects new bounce from Ceat tie-up

Kelani Tyres Chairman Chanaka de Silva has expressed confidence in the troubled company’s ability to build what he called "a truly world class tyre manufacturing company’’ following its strategic alliance/joint venture with Ceat of India.

De Silva has told shareholders that the company had during the year ended March 31, 1999 recorded a net turnover of Rs.471 million and achieved a production of 2,985 mt compared to a production of 358 mt during the financial year 1977/98.

During the year under review, the company had earned an operating profit of Rs.25.1 million, up from a loss of Rs.212.2 million the previous year.

But Kelani Tyres remains in the red as its finance cost of Rs.101 million absorbed the total operating profit leaving a bottom line loss of Rs.75.6 million. This compared to a net loss of Rs.308.1 million the previous year.

The company is carrying forward accumulated losses of Rs.420.6 million in its books as at March 31, 1999.

De Silva said that on January 8, 1999 the company executed a formal agreement with Associated Ceat (Pvt) Limited and Ceat Limited, India, confirming the envisaged strategic alliance/joint venture which was also approved by the shareholders of the company.

"The directors are confident, that with the strategic alliance/joint venture in place, we are now in a position to build a truly world class tyre manufacturing company,’’ he said.

Kelani Tyres, in addition to manufacturing tyres and tubes and marketing them locally and internationally, also imports tyres of certain sizes to meet the market deficit.

The directors of the company are: Messrs: Chanaka de Silva (Chairman), Rohan T. Fernando (M/D), Lasantha P. Fernando, T. Bevan Perera, H. S. de Silva, M. G. Barnard and D. Pegler (alternate to M. G. Barnard).

 

Aero bridges so that passengers can walk off aircraft
KIA to have terminal docking facilities

The Katunayake International Airport (KIA) is to be developed to eliminate busing passengers from aircraft landing here to the terminal building. Instead, as in other modern airports, aircraft will dock at a pier and passengers will disembark through 8 aero bridges that are to be provided, the Ceylon Tourist Board said through its Sri Lanka Travel News.

The report said that the KIA is being developed with immediate effect to make it one of the best regional airports on the basis of a report submitted by a committee appointed by the president to study and make recommendations for the development of the airport.

It said that the development program will include building a 350-metre pier which will be 30 metres wide equipped with 8 holding rooms and 8 aero bridges.

This is felt to be an immediate need to bring Katunayake on par with most other international airports, the report said.

Once the aero bridges are ready, passengers will be able to walk directly from the aircraft into the terminal without having to be transferred by bus as at present.

The development program also includes upgrading the existing air navigation system with the installation of new radar facilities, the report said. The cargo terminal too will be expanded.

Other improvements include the overlay of part of the existing taxiway and the construction of a parking apron. Utilities such as power, water, sewerage and telecommunications would also be improved.

The Chairman of Airport and Aviation Services (Sri Lanka) Limited, Capt. Sudharshan Manamperi, is confident that if everything works on schedule, this major development project will be completed by 2004.

The existing cargo capacity at the KIA is 100,000 mt per year. With the completion of the third cargo terminal early next year at a cost of Rs.75 million, an additional 50,000 mt of cargo could be handled annually.

The construction of a domestic aircraft parking apron has already been initiated to reduce congestion on the international apron. A security billet complex is also being built at a cost of Rs.65 million to house 135 security personnel at the airport itself.

The airport’s fire fighting fleet is being augmented with new vehicles and passenger and baggage screening machinery is also being upgraded.

The estimated cost of Phase II Stage 1 of the airport development project is between US$ 100 - 120 million with funding obtained under the OECF 32nd yen loan package from Japan on attractive terms. Japan is also providing grant aid for the consultancy phase.

"Japanese engineers would work on the engineering designs along with our engineers and construction will begin towards the end of 2001 or early 2002,’’ Captain Manamperi has said. The construction contract will be awarded on a tender basis, he said.

Subsequent plans for further development after the initial 5-year development project is completed are also under discussion.

Merril Lynch takes a small slice of Aitken Spence

Foreigners were net buyers on the Colombo Stock Exchange on Wednesday with Merril Lynch taking a large parcel of over 200,000 shares of Aitken Spence & Company Limited, the blue chip conglomerate dominated by a hotels/leisure portfolio.

Aitken Spence Managing Director Ratna Sivaratnam welcomed foreign interest in the share and said that the parcel taken by Merril Lynch accounted for some 0.7% of the company’s equity.

Last year, Aitken Spence placed a tranche of new shares both locally and abroad at a Rs.105 price to fund its investments in the plantation sector.

The Stassen Group through its cash rich Distilleries Company of Sri Lanka Ltd. has been buying into Aitken Spence in recent weeks and now owns over 29% of the company’s equity. Analysts do not expect Stassen to trigger the Securities and Exchange Commission’s mandatory offer rule by increasing its holding to 30%. Do so would make it liable to offer all remaining shareholders the same price it paid for its acquisition.

Stassen is now the biggest single shareholder of Aitken Spence whose directors too hold a substantial slice of the company.

The WTO fiasco

by Kanes
The WTO meeting in Seattle was doomed to fail from the beginning. Ministers from the 135 WTO member countries met under the chairmanship of US Trade Representative Charlene Barshefsky in Seattle to decide on the agenda - what should and should not be discussed - for the proposed three year round of trade liberalization negotiations beginning on January 1, 2000. The WTO members meeting in Geneva at the end of November had failed to find common ground on the text of a final declaration that the ministers could refine and then publish at the end of their meeting. The new round of global trade talks is an extension of the previous Uruguay Round which dragged on from 1986 to 1995 and finally gave birth to the WTO on January 1, 1995, replacing the General Agreement on Tariffs and Trade (GATT). The Uruguay Round mandated future negotiations in two areas, agriculture and services. These two sectors served as a "built-in-agenda" in Seattle but the new round of trade talks was also aimed at opening up of markets, lifting trade barriers and accelerating the process of globalization. The US envisaged that delegates in Seattle, would convene five working groups dedicated to agriculture, implementation of the Uruguay Round Agreements, market access, new issues and WTO administration and a permanent committee headed by Barshefsky and the WTO Director-General would oversee the groups and monitor progress. In the absence of an agreed upon final declaration, Ministers were provided a previously approved 37-page document giving the broad outline of a possible agenda in the new round, with brackets highlighting disagreements. However, the meeting did not proceed according to plan for the disagreements which prevented a consensus in Geneva, widened in Seattle.

Disunity among Developed Ccuntries

Normally, the US and the European Union (EU) come together in international negotiations and then pressurize everyone to accept their agenda but at Seattle, they were far apart and failed to forge a united stand. To begin with, the EU had reservations on the legitimacy of the "lame duck" Clinton administration in taking crucial decisions on issues of global trade and questioned the propriety of the Clinton administration to negotiate without legislative backing to take major decisions because presidential elections due next year could delay the start of the next round.

There was disagreement on the scope of the agenda. The US favoured a narrow and manageable round limited to the core agenda of agriculture, services and industrial tariffs. It also wanted a few priority issues settled in advance - transparency in government procurement, an extension of the duty-free status of e-commerce, a broader information technology pact, reform of the WTO dispute settlement system, increased WTO transparency and the phase out of tariffs in eight sectors: chemicals, energy products, environmental products, fish, forest products, jewellery, medicine and scientific equipment and toys. The EU favoured a more comprehensive approach that focused on removing tariff peaks for such imports as textiles, glass and footwear but would preserve tariff preferences for developing countries. On dispute settlement reform, the EU maintained that it would block reform unless it included a ban on changing the products against which retaliatory sanctions are imposed. The US, however, was opposed to it as it wanted to keep up the heat on the Europeans. Furthermore, Japan was opposed to liberalizing fish and forestry products.

The US wanted to add monitoring of the environmental implications of any deal and the appointment of a WTO working party to look at links between trade and labour rights to ensure that trade liberalization did not lead to job losses and lower wages. The European Union agreed with the US position on trade and labour and advocated a standing forum on trade and labour rights involving the WTO and the ILO. This was in the nature of a sop to the labour unions as leaders of the International Confederation of Free Trade Unions and the US AFL-CIO federation demanded that the WTO member nations put labour standards on the agenda of the new round or face a backlash from workers around the globe. President Clinton, in his address to the Conference, came out strongly in favour of outlawing child labour and imposing minimum wages and applying sanctions against countries using child labour or abusing labour rights.

The US and EU held divergent views on agricultural subsidies and the future of biotechnology. The US supported by Australia, New Zealand and some Latin American countries pushed for massive subsidy cuts in agricultural trade. The EU, however, resisted curtailment of agricultural subsidies that could open up its markets for exports and argued that farming was an industry like any other and should be subject to the same kind of trade rules. The EU has already banned the import of genetically modified foodstuffs and meat enhanced with potentially dubious hormones from the USA. The American attempt to make European regulations governing genetically modified food crops subject to WTO sanctions against trade barriers was resisted by the EU.

Japan joined the fray by wanting the next round of trade negotiations to include a review of anti-dumping laws which allow the US government to impose punitive duties and tariff on foreign made products it deems to be sold at less than production costs. The US anti-dumping duties are designed to protect its domestic industry and hence it refused to add dumping to the agenda. A WTO backed overhaul of the laws would incense politically powerful US industry groups, labour unions and their allies in the Congress who see the anti-dumping rules as their last defence against a surge in cheap imports.

Conflict Between the Developed and Developing Countries

The developing countries were sceptical and not very enthusiastic about a new round of trade talks as the industrial countries had not fulfilled existing commitment made under the previous Uruguay Round. They wanted the developed countries to ensure that the developing countries reaped the promised benefits of the Uruguay Round before embarking on any new negotiations. They felt that they had been short changed in the previous talks, being forced to open their markets but gaining only limited ability to export their goods to the industrial world. The special treatment clauses under the Uruguay Round intended to open export markets in crucial areas such as agriculture and textiles for developing countries have remained virtually inoperative. The EU’s Common Agricultural Policy is highly protectionist while the US has backloaded its textiles liberalization, most of which will not occur until 2005. Their exports further are frequently subject to anti-dumping duties especially in the US. Figures seem to indicate that the average annual growth of exports of developing countries in the four years, after the establishment of the WTO, 1995-1998 was lower than in the four years previous to 1995.

The developing countries maintain further that they cannot comply with some Uruguay Round commitments - for example, to upgrade customs valuation procedure or to enforce food safety standards. They want their obligations in areas such as intellectual property, investor protection, subsidies and anti-dumping to be eased. TRIPS agreement for instance, placed the rights of the patent holder on a higher pedestal than obligations while denying the same rights to countries and indigenous communities whose big-resources or traditional knowledge are put to use. TRIPS also seems to have reduced competition and encouraged monopoly and concentration. Generally it is their belief that the Uruguay Round had been unbalanced and they got little out of it. While some developed countries have admitted the validity of some of these concerns, others have avoided substantive engagement in finding solutions on the plea that these would involve re-negotiation of agreements.

What roused the anger of the developing countries most at the Conference was the persistent attempt of the developed countries to include social issues such as labour and environmental standards to the agenda. The attempt to include labour standards by the US was considered hypocritical as the US itself does not enforce all the ILO core labour rights. Besides, the inclusion of minimum labour standards and environmental protection to the WTO agenda was rightly seen by the developing countries as a ploy for disguised protectionism by the developed countries. They opposed non-trade issues being brought into the agenda

They maintained that attempts to deal with extraneous subjects on the basis of principles governing commercial transactions based on the sole reasoning of trade advantage could ultimately distort development. If the objective is development, it must be ensured that the WTO system sub-serves development and does not subvert it. The developing countries must be ensured that when their interests were at risk, the WTO system would respond positively to fully address their concerns. Thus, they were opposed to relate trade to labour standards, environmental issues, coherent global architecture, investment agreements, government procurement, NGO involvement in the WTO negotiations and competition policy.

Support from the UN

The developing countries received much moral support from the UN and some of its agencies. UN Secretary-General Kofi Annan warned of a backlash from developing countries against free trade if the current round of world trade talks did not give them a better deal. He said that the WTO was not the place to negotiate labour, environmental and other social issues. Instead, he said, UN bodies dealing with those matters should be strengthened to avoid giving individual nations a pretext for more protectionism. He admonished industrial nations for higher tariffs and large subsidies, stressing that the current round of negotiations must be much fairer to poor nations. He also proposed scrapping all duties and quotas on the poorest least developed countries. An essential condition for an effective round of trade talks is a linkage between market forces and universally shared social values, and he called on the international business community, as the primary beneficiaries of economic liberalization, to shoulder the responsibility for dealing with its social and economic consequences.

Meanwhile, UNCTAD urged the 48 least developed poor countries to keep up resistance to the inclusion of core labour standards in the work of the WTO, to pressure from the US to insert a labour clause with the rules of the WTO and to oppose any consideration/discussion of a special clause with trade sanctions imposed through the WTO. This forthright position from a UN agency surprised many developed countries.

Further, an ILO report on Social Dimensions of the International Trade concludes that while trade liberalization does stimulate economic activity and boosts productivity, it also risks widening social inequality in the absence of measures to limit the shock of increased international competition in the lives of working people. Gaps between winners and losers from globalization have generally tended to deepen as income gap widens and state resources to improve the lot of least privileged citizens diminish. It points out that globalization has rendered developing economies more vulnerable to international shocks especially where their export base is very narrow and their exposure to changes in the terms of trade is correspondingly high. It also underscores concern about the volatility of short-term capital flows, notably in countries where international financial institutions are probably too weak to sustain the large swings in short-term capital movements engendered by free capital mobility. "There is a danger that short-term capital flows, far from being a mere reflection of economic fundamentals will determine exchange rate fluctuations and consequently, output and employment"

Anti-WTO Protests

The sharp differences and discord among the membership made WTO Director-General Michael Moore warn that "through stubborn neglect of mutual interests and a refusal to accommodate divergent needs, we could fail to agree in Seattle or worse, agree to fail". The US authorities, however, were confident, largely because failure was just too horrific to contemplate. Charlene Barshefsky minimized the discord, describing it as typical jockeying for position that does not necessarily bode ill for the outcome of the talks. As if the conference did not have enough internal turmoil to deal with, thousands of protectors descended on the city to denounce economic globalization, the free flow of international capital and investment - and to press demands for a WTO they said would meet human rather than corporate needs.

On the opening day of the conference - 30 November 1999 — about 50,000 protectors who decried the effect of free trade on US jobs and the global environment prevented the Ministers from holding their opening ceremony with mass marches that later broke down into rioting and clashes with the police ending up in a declaration of a civil emergency and calling in the national guard. The labour rights marches were joined by the environmental protectors and other activists who accused the WTO of enriching big business at the expense of the environment and jobs and charged that globalization lowered people’s living standards. The violence had caused an estimated $2.0 million in damage and had cost downtown retailers $17 million in lost sales. About 500 rioters clashed with the police in London during a protest against the WTO coinciding with the demonstration in Seattle. The WTO Director General defended the WTO arguing that free trade boosts economic development and contributed to global prosperity and world peace and pointing out that exports had accounted for more than a quarter of US economic growth in the past six years creating almost 20 million new jobs, but the trade union leaders were unconvinced and argued that more liberalization could render the entire global system unsustainable.

The hostility to the WTO shown in Seattle was preceded by resentment shown elsewhere last year and this year. A minor WTO meeting in Geneva in 1998 caused a riot with cars being overturned and buildings damaged. Then there was a violent demonstration against the growth of corporate power in New York and a protest by French farmers demanding measures to safeguard healthy food a few weeks back. The WTO is also regarded with hostility by the American right, who see it as a fledgling international government because of its power to impose solutions in the event of trade disputes.

(To be continued)

The PA didn’t deserve to win

by Analyst
Mrs. Chandrika Bandaranaike Kumaratunga has won the Presidential election. But how free and fair was the election? According to PAFFREL, while in most parts of the country people had the opportunity to exercise the vote freely, in several areas the electoral process was seriously flawed.

CMEV, another monitoring organization says the election was marred by serious election violations. Systematic impersonation, ballot stuffing, violence and intimidation of voters...and abuse of state machinery.

Whatever one thinks of the validity of the people’s verdict, there is little doubt that we are witnessing the decline and fall of the process of free and fair electioneering. Future elections, particularly the parliamentary election due next year is likely to see more of such malpractices and violence, vitiating the rationale for democracy itself. We will then see extra-legal agitations as in Bangladesh where general strikes are called to protest against the government. The death of democracy can’t be very far.

The victory would certainly give the President a large amount of power in the country’s still centralised system, inspite of the Provincial Councils. She is unlikely to diminish her powers or remove the pernicious absolute immunity for the President.

Past Economic Performance

Anybody who assessed the performance of the PA government during the last five years should have voted against her. Although the macro-economic balance has been held reasonably due to the pressure of the World Bank and the I.M.F. rather than a genuine commitment to fiscal prudence, the performance in micro-economics has been dismal.

Even in macro-economics the performance was not all that satisfactory. It could not bring down the budget deficit as originally promised in the first budget speech. Last year there was considerable slippage with the deficit rising to 9.2% of GDP although the target was 6%.

In 1994 the first year of office, the deficit was 10% of G.D.P. In 1999 there was the downswing which is likely to continue into 2000 as well. Although inflation has come down, as usual with a downswing, the rate of economic growth will fall below 4% (or 3.5% according to private sector estimates).

Since Independence our growth rate has averaged only 2.5% except during the post 1977 period when the UNP government had growth rates over 5% beginning with 8.2% in 1978. But such growth petered out and it was only in 1993 that it recovered to 6.9%.

The UNP has performed much better than the PA (SLFP) on the growth front. The new year is likely to be quite difficult with high oil prices unless tea prices were to improve dramatically. Growth in U.S.A. has fortunately held up providing a market for the export growth of the East Asian and South East Asian NICs. The big question mark is China. Will she devalue the currency and set off financial turmoil in East and South East Asia? Will she liberalise and attract DFI?

Failed Economic Liberalism

Political and economic liberalism feed each other. The failure of the PA in the area of political liberalism will affect economic growth since we depend on foreign aid and foreign investment. Liberalism expressed through political equality, free of discrimination and social exclusion of minorities, a free media and limits to the discretionary power of the state constitute the creed of liberalism. The world community is promoting liberal democracy. State sovereignty is no longer accepted to justify human rights abuses and interference with democratic freedoms. The PA government better look sharp if we are to be considered as a democracy in the eyes of the world community.

What economic policies would express those principles? A stable non-inflationary macro-economic policy should top the list for the area in which the government can do most damage in the short term is in macro-economics. The Central Bank should pursue a monetary policy to ensure price stability while maintaining interest rates low and keeping the exchange value of the rupee steady, in a market determined environment.

But the Central Bank cannot succeed unless the government balances its books on current account and reduces the budget defict to less than 5% of G.D.P. The task becomes harder when the G.D.P. is not increasing much, when public expenditure cannot be reduced or even held in check. The new PA government cannot reduce the deficit without raising taxes steeply or cutting down on the welfare services.

It requires much optimism to expect an early end to the civil war. There is scope for increasing tax revenue particularly direct taxation. A large segment of the elite including politicians, and bureaucrats don’t pay any income tax at all while enjoying all manner of lavish perks from public funds. They don’t even pay the proper tax on their private incomes claiming the personal allowance of Rs. 144,000 per annum they should not be entitled to.

Meanwhile the black economy flourishes with professionals like lawyers, doctors, accountants dealing only in cash cheating the Inland Revenue has become a fine art. The government has by providing various tax shelters given a fillip to this tax evading professional consultancy.

Businesses which would have been pursued in any case without tax concessions are given unnecessary reliefs. The PA government gave away so much tax revenue that the ratio of tax revenue to the G.D.P. came down in 1998 to 14.5% which is extremely low for a developing country.

The PA government tended to reduce tax rates and depend more and more on indirect taxes to obtain revenue. In developing countries the number of income tax payers are low, being less than 10% unlike in developed countries where it is 30-40% of the total population. In these circumstances to continue to exempt politicians and bureaucrats from income tax is totally unjustifiable. The burden of taxation is thereby increased for the rest of the population.

The G.S.T. rate of 12.5% has failed to generate the level of tax revenue which prevailed. So the G.S.T. rate may have to be raised. The conspicuous consumption of the rich with their Pajeros and Volvos, with their high living in five star hotels shows the high degree of tax evasion.

Taxable capacity is not measured by income alone but also by wealth. Equity also requires the taxation of wealth. Efficiency requires that the entire tax system be self-reinforcing and self checking, so that the attempt to evade one tax such as income tax increases the liability to other taxes. The system has to be based on a comprehensive annual return by prospective tax payers.

The PA although pursuing privatisation and proclaiming its adherence to the open economy, has not done enough to free markets. In fact the PA has failed miserably in micro-economics. It did nothing to free the labour market. In fact it had the dreadful idea of a Labour Charter, enacted in only one other country in the world - Spain where unemployment averaged over 20% of the labour force. The failure to remove the excessive protection given to a priviliged group of workers in the organised sector, has dampened any incentive for investors, local and foreign to create new jobs.

Small scale enterprises which are the backbone of many an economy, have no incentive to expand since they get caught up with all the labour laws, powerful trade union action and the excessive provision of super annuation benefits to employees.

The government restricts hours of work, imposes too many paid holidays, discourage shift work, part-time work and contract work. A low wage economy is the main attraction for manufacturing enterprises in high wage developed countries to re-locate or fragment the production process to produce labour intensive components in developing countries. This is the trend in such industries as textiles, clothing, semi-conductors, computer software etc.

The PA government has cut itself off from this global movement in industry and mistakenly espoused only free trade as globalisation. Globalisation is a movement what involves the movement of capital and industry.

PA doesn’t understand markets

The PA government doesn’t understand how to manage a market economy. None of the PA technocrats and bureaucrats who are the key advisers have any experience in the private sector. So bus fares and train fares continued to be controlled and rents of premises, even of commercial premises continue under the Rent Restriction Act under the purview of a Marxist Minister.

The disappointing showing of the JVP and the Marxist Vasudeva Nanayakkara show that the people will no longer listen to rubbishy Marxist rhetoric dressed up in intellectual grandeloquence. The Time magazine in one of its issues lamented that "much of the world doesn’t have the values needed for free markets". So the PA government will continue to dictate to markets and cause immense damage to the economy.

The PA has no ideas, no policies except to dole out dollops of money to its party supporters under the so-called Samurdhi scheme. If there are any private sector projects on offer it will demand excessive commissions to grant permission. If such corruption is exposed in the media they are ignored assuming that they will be forgotten by the people as new scandals unfurl.

The PA has set a record for the number of allegations of corruption which are not investigated. The PA has sought to create a culture that condones corruption, even accepts it. Allegations against the Ministers are ignored by the President and nobody can do anything about the allegations against the President herself. This breeds cynicism and discredits democracy itself.

Although the President accepted the Open Economy, the only sensible thing to do, when even the British Labour Party under Tony Blair itself believes in markets and accepts the profit motive. But unlike Tony Blair she doesn’t understand how markets work and what conditions are required for markets to work well.

The PA wants to tell the private bus operators how much to charge for bus journeys. It doesn’t know how to regulate the transport industry. It doesn’t allow the prestigious schools to levy fees although it is fully aware of the money corruptly demanded for school admissions. This encourage hypocrisy and deceit by the parents bringing law and morals in upper class society into contempt.

No corrupt government even achieved outright victory in a war. The basis instincts of the PA are illiberal. The Government wants to ban the advertising of tobacco and alcohol. What is required is to legalise the domestic manufacture of liquor. The PA likes to regulate to interfere and to lay down the law to others, never mind if such regulations and laws cannot be enforced and only create new opportunities for corruption.

The PA doesn’t like criticism and hence doesn’t want a free media. Rohana Kumara, a journalist was killed with impunity. The Editor of the Sunday Leader was attacked twice. The PA has a shameful record of corruption and human rights abuses committed even by its own Deputy Ministers. The UNP Leader unfortunately has to carry the can for the legacy of illeberalism and human rights abuses of former Presidents.

The Ethnic Problem

The PA with its unilateral Devolution Package is unlikely to solve the ethnic problem and settle the war. Nor is it capable of winning the war given its record of corruption and incompetence and the politicization of the strategies of the war.

Although power is devolved to the Provincial Councils, the PA isn’t committed to it. It would rather take back the powers devolved in various ways both overt and covert like calling schools and hospitals national. These councils are being checkmated.

Nor does the PA believe in providing the essential framework of independent institutions like an independent Police and Public Service. The Presidents past utterances show that she envisages unorthodox methods resorted to by the Marxist Dr Colvin R. de Silva to amend the constitution destroying the tradition of constitutionalism.

Development Errors

Development is not a quick fix to be brought about by setting up a few mega projects or industrial estates to attract foreign investors. Such foreign investments are rarely integrated into the rest of the economy through forward and backward linkages. They remain alien bodies in the economy. The hoped for trickle down effect to benefit other sectors and other levels of society has failed to materialise.

Another grave mistake is to continue to milch the State Corporation for the benefit of politicians. No surplus can be generated for re-investment by say the Petroleum Corporation or the Port Authority because they recruit large numbers of unwanted staff at the behest of the Ministers. The State banks are being robbed of these money by way of irrecoverable loans to politicians or to their cronies by the banking bureaucrats, who line their own pockets in the process of lending.

‘’He who will not work shall not eat’’ says the Bible. The poor must also contribute to the economy instead of being made dependent on hand outs from the state by way of samurdhi benefits. The only valued strategy to alleviate poverty is to mobilise the poor to co-operate.

The SEWA in India and the Grameen Bank in Bangladesh show how the productive potential of the poor can be harnessed. The PA government must learn from the actions of self-help promoted by non-governmental organizations. As for foreign aid, it will not succeed unless there is good governance.

Underlying conditions that hinder good governance and development must be removed. What we need is a legal order that helps protect people and their property, a legal order that encourages genuine competition in markets and are that dismantles and prevents crony capitalism.

Our greatest problem is the lack of competitiveness. Wrong economic policies and lack of fiscal restraint over 50 years have made our industrial exports too costly and uncompetitive in world markets. They now face fierce competition from the East Asian and South East Asian NICs, which have recovered from the economic debacle of 1997. Indonesia is still to recover and when she does so we will face even greater competition.

Our agriculturel products are also too costly and uncompetitive and cannot compete with the products from India. Do we become a nation of lotus eaters waiting for the imported goodies abandoning our agriculture and industry? This is the challenge before the PA to hold down wages, prevent inflation, keep the rupee stable, in its exchange value and desist from more indirect taxes which will make us even more uncompetitive. If the PA fails we will end up as a basket case.

CIS and Russia top tea buyers despite problems

Despite political and economic problems that had plagued the Commonwealth of Independent States (CIS) and Russia, they continue to remain Sri Lanka’s largest export destination for tea absorbing 18% of the country’s January-October 1999 tea export volumes, John Keells Stock Brokers said in an economic update.

The report said that the UAE was the number two importer taking up almost 15% of total tea exports during the same period. In total, the Middle East accounts for a sizable 49% of tea export from Sri Lanka.

Although the cumulative tea export volumes to the CIS and Russia have for the first time in 1999 surpassed the year-on-year figures up to October, the decline in tea export revenue continued unabated due to fall in prices.

Export revenue fell in both dollar terms (down 12.7%) and rupee terms (6.1%) year-on-year. Cumulative exports up to October also continued to show declines in both dollar and rupee terms, the report said.

During the 10 months from January-October 1999, the tea export volume of 224.1 million kg was down 1% from a year earlier. But revenue from tea in US dollars at 513.5 million was down 22.7% and in rupees, at 35.7 billion, was down 16.1%.

The report said that the main contributing factors towards the decline in export revenue in October was lower export volumes, down 5% year-on-year due to lower cropping in August and September when crops declined 26% and 5% respectively.

The national sales average (NSA) for tea for October at Rs.133 per kg was marginally higher by 3.9% year-on-year with the high grown NSA of Rs.137 per kg achieved during the month up 14% year-on-year.

"Tea prices have been strong in the past couple of months amidst the world shortage of 108 million kg as at the end of October,’’ John Keells said. Trade sources said that the plantations were now getting prices ahead of their cost of production.

Sampath enters Forbes list of world’s best 300 small firms

The Sampath Bank has been rated among 300 of the world’s best small companies by the Forbes Global Magazine, the bank announced in a news release.

Sampath CEO, Mr. Anil Amarasuriya, said that this prestigious ranking was a matter of great pride for all employees of the bank.

"We would not have achieved our growth and profitability without the contribution and dedication of the entire team at Sampath Bank and our customers. We are celebrating our 12th anniversary and as the only Sri Lankan company to make it to the list this year, we believe we have done our country proud,’’ he said.

Amarasuriya said that standing at the threshold of a new millennium, they reinforce their commitment to enhancing the value of investment of their shareholders and providing opportunities for their employees to grow to their fullest potential.

"We will continue to provide best in class banking solutions that exceed customer expectations,’’ he said.

In selecting the 300 best companies in the world featured in the November 1 issue of the Forbes Global, the magazine said that they have made every effort to identify firms with the strongest financial performance both inside and outside the US. But in order to convey the vitality of new entrepreneurialism, the selection has been weighted outside the US.

"Putting together a list of the 300 small best companies in the world is a lot tougher than compiling a list of the world’s largest companies, or those with the best performing stocks,’’ Forbes said.

"Small is easy to define: publicly quoted and less than US $ 500 million (approximately Rs.34 billion) in revenue in the latest fiscal year. But what do we mean by "best’’? For those that were chosen by computer screens, about two thirds of the list we asked for at least 10% return on equity in the past year and 15% sales and earnings growth. But while statistical screens help, the numbers don’t always tell the whole story. Many companies don’t have enough data to calculate growth rates for sales and profits. The criteria for selection is not just financial performance but also value added innovative products and services introduced,’’ it explained.

Duff & Phelps explains their
AA+ rating for SLT debentures

Duff & Phelps Credit Rating Lanka (DCR Lanka) has assigned a `SL AA+’ (Double-A-Plus) rating to the SL rupees 1.5 billion 14.5 percent, 5-year unsecured redeemable debenture issue of Sri Lanka Telecom Limited (SLT), the company said in a news release.

``SL AA+ local rating indicates extremely high credit quality as SLT’s creditworthiness differs marginally from the implied SL AAA rating of the Government of Sri Lanka due to external risk factors and changes in policy environment,’’ it said.

``Current economic, political, and technological, market, and social transformations taking place locally and globally have accelerated the development of the telecommunications sector. While the political and regulatory environment in Sri Lanka favours open market competition, penetration levels remain low due to stagnant economic growth exacerbated by the protracted civil war and external macro economic shocks.’’

Divested in 1997, SLT is the strongest, most established and diversified service provider in the market, and has played a pivotal role in meeting the growing communication demands both in fixed and mobile market, the release said. As evidenced by high capital expenditure and foreign currency debt outstanding, free cash flow will be constrained, as SLT has invested heavily in infrastructure development to capitalise on the growth potential.

As of 30 June 1999, total debt outstanding was Rs.28,103 mm (US$ 395 mm). Approximately 40% of loans are foreign currency denominated with 27% of total loans in USD as of June 1999. Capital expenditure, which is largely discretionary, will be financed by borrowings until 2002. Thereafter, SLT is expected to fund its capital expenditure entirely from internally generated funds. Total debt-to-capital ratio is projected to remain below 59% and improve steadily from 2000, the release said.

Duff & Phelps said that post privatisation experience proves that NTT has been instrumental in making SLT a financially viable land efficient company by offering competitive prices, providing quality, diverse and speedy service. This rating has taken into consideration, SLT’s strong financial performance as evidenced by historical EBITDA coverage of interest expense of greater than 3.9 times (X) and Total-Debt to EBITDA of less than 2.7X.

The rating agency said that year 2002 and beyond, SLT faces several challenges that will possibly hinder the future financial health and debt repayment capacity due to the loss of international monopoly and increased competition. SLT has successfully mitigated future risks by adopting a number of pre-emptive strategies. In view of the rapid decline of inward remittances from international in payments, SLT as positioned itself to accomplish growth by implementing a tariff rebalancing strategy to eliminate the cross subsidy that currently exist between the local and international tariffs.

SLT has also given priority to network expansion. Currently 200 projects are underway to meet the growing demands. Further measures have been taken to improve the operating environment by improving working conditions, collections and marketing. Going forward, despite changes in the economic, regulatory, political and business policy environment, DCR Lanka remains optimistic of the future financial and operating performance of SLT as it has the capacity and ability to be a top corporate in Sri Lanka.

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