The Island business

Vanik Incorporation is preparing to dispose of 66.7% of Forbes Plantations Limited, the owners of Kahawatte Plantations, and Forbes & Walker Limited inclusive of three wholly owned subsidiaries at a price of Rs.400 million, well informed business sources said.

The memorandum of understanding has already been signed between Vanik and Mr. Merril J. Fernando for Forbes & Walker. This deal which the excludes share broking department of Forbes will see a Fernando company taking over the broking activities of this old established brokerage house. This business is handled by Forbes & Walkers’ subsidiaries F&W Tea Brokers Private Limited, F&W Commodity Brokers Private Limited and Forbes Services Private Limited. Forbes and Walker is the holding company.

While F&W Tea Brokers handle the tea broking business, F&W Commodity Brokers deal in rubber and spices and F&W Services handles warehousing and plantations supplies, mainly packing materials and small quantities of fertiliser. This company also has a dolomite operation and export gherkins procured from India to the US and Europe.

Well informed sources said that the Merril J. Fernando interest will pay Rs.150 million for this deal. This would comprise Rs.130 million cash and Rs.20 million in the companies that are being purchased which Vanik would appropriate.

The present Forbes management will be taking between 30% to 40% of the equity under the new ownership and Fernando has been assured that this management team will remain in place after the change in the ownership structure.

Forbes Chairman Chrisantha Perera said that they welcomed this development. "Merril is a strong partner and we are looking forward to working with him,’’ he said.

A former planter, Nimal Silva, and a company named Central Highfields (Pvt) Limited are behind the Forbes Plantations purchase that is now in the pipeline at a consideration of Rs.250 million, well informed sources confirmed.

Nahil Wijesuriya, the millionaire businessman who is on the Vanik board, will be funding the purchasing interest with up to Rs.150 million in this takeover but will have no equity stake in the plantation company. He confirmed this arrangement and said that objections he raised recently about any transfer of Forbes Plantations which was mortgaged could not be done without his consent has now been sorted out.

Wijesuriya said that he previously had a stake in Central Highfields which was interested in Elkaduwa Plantations but has since sold his shares. He also said that Central Highfields has some British capital.

Chrisantha Perera said that all Forbes companies that will change hands under this deal are operating profitably.

The Mercantile Merchant Bank headed by Mr. Milinda Moragoda originally struck a deal with Vanik to but Forbes and Walker and Forbes Plantations. But that transaction did not come through although there were efforts to revive it on new terms involving more spot cash and less credit.

Foreigners are selling aggressively and bailing out of the Colombo stock market with the net outflow this year up to the close of trading on Friday being nearly Rs. 900 million - very close to the approximately Rs. 1 billion outflow in the whole of last year.

``Certain funds have decided to get out. That’s why they are selling so aggressively,’’ a well informed broking source said yesterday.

With the All Share Index down 3 points yesterday to close at 521.5, the big question in investor circles was whether the downward slide of the past few weeks will go as low as 500.

Asked whether there were any new funds coming in, a broker said ``No. There is very little buying. The funds are very much on the selling side.’’

Some corporate executives say that local investors buying over shares held by foreigners is a good thing as their prices would then be less vulnerable to sentiment. But others point out that it was the foreigners who pushed up share prices to attractive levels and their departure will keep prices down.

This was best seen in the years after the economy had been liberalized and the previous penal 100% tax on foreign acquisitions scrapped. That plus the Asian boom of the time brought foreigners into the Colombo bourse in a significant way making the share market a lottery in which there were no losers and only winners.

In 1994, the New York Times rated the Colombo market as the best performing in the world. But then came the negatives with the East Asian crash and its ripple effect. While other regional markets including those in the subcontinent have been recovering, Colombo has been the odd man out.

Given the downturn, many good shares are available at bargain prices. But investors are wary as they do not know when to expect an upturn.

Broking circles dismiss some official suggestions that brokers are pushing the market down to conclude big transactions. ``Doing that will only endanger our livelihood at the end of the day,’’ one broker said.

Coconut prices have been tumbling in recent weeks and the trade said that growers can now expect only Rs.5,500 to Rs.6,000 per 1,000 nuts.

"Desiccated coconut prices are down to Rs.47 per kilo which is the lowest for the past two to three years. However, a price of Rs.50 per kilo is possible with difficulty,’’ one trader said.

Growers fear that with the big crops coming in (the Vesak crop is usually the best in Sri Lanka) that prices will slide even further.

Claims by some desiccated millers that they are contemplating the possible closure of their mills were discounted by others who said that the way fresh nut prices were falling, millers could still operate viably at the expense of the growers who are getting badly squeezed.

A spokesman for a coconut plantation managing agency whose portfolio comprised largely of 50-acre proprietary estates said that the cost of production in an average estate is about Rs.4 per nut. But many properties without the necessary stand of 60 acres of bearing palms per acre have the cost of production going as high as Rs.6 per nut and find it difficult to survive at current price levels.

Although the farmgate price of coconuts has come down as low as Rs.6 per nut, consumers in urban areas pay up to Rs.10 per coconut.

The Hatton National Bank (HNB), the country’s largest private commercial bank, has reported both income and profit growth in 1999 despite the banking sector facing what HNB’s Managing Director called "another hostile year’’ due to conditions in Sri Lanka as well as in the region not being conducive to strong growth.

The bank’s Chairman, Mr. Chrisantha Cooray, has told shareholders that they will be "seriously looking at new areas of business`` and in line with global trends ``look for mergers and acquisitions with a view to expanding market share.’’

"We will take every possible step to further enhance shareholder value,’’ he said in his chairman’s review in the bank’s just published annual report.

HNB closed 1999 with a pre-tax profit of Rs.894 million, up 4.1% from the previous year and an after-tax profit of Rs.718 million, up 5.1% from 1998.

"The performance of the bank would have been much more satisfactory if not for the passive outlook of the overall economy,’’ Cooray has told shareholders in the bank’s just published annual report.

Income during the year had grown 15% to Rs.7.7 billion with the growth mainly attributable to large transactions put through the corporate branches, mainly the City Office, as well as retail transactions effected by over 100 branches in all nine provinces.

Cooray said that interest earnings assets had grown 24% during the year while the fee and commission income grew by 20%. This enabled total assets at the end of 1999 to reach Rs.76.4 billion, up 18% from the previous year.

HNB said that it had been cautious with regard to expansion of credit due to the difficult

conditions that prevailed. But they had identified opportunities for sound lending in many areas mainly due to the marketing campaigns carried out by the branches.

"This growth in assets has helped HNB to maintain its dominance as the largest private commercial bank in the country. We are also the largest quoted company on the Colombo Stock Exchange in terms of assets,’’ Cooray said.

He noted that except in 1996 HNB had constant post-tax profit growth for the past 10 years. Year-on-year, there had been 23% growth over the decade with most of it achieved during the 1990/94 period when year-on-year profit growth soared as high as 129% in 1993. Since then growth has been more modest with a decline in 1996 and a 5% low last year.

Cooray said that the directors were recommending a final dividend of 20% giving the shareholders a 40% return for the year. The remaining Rs.458 million of the bank’s profits will be retained to fund future growth.

HNB which had a capital infusion of Rs.1.05 billion last year by the issue of non-voting shares at a premium price of Rs.70 has seen its shareholder fund base topping the Rs.5 billion mark during the year under review.

Cooray expected their 101 branches to increase to about 110 by the end of this year.

The major shareholders of HNB are the Stassen group of Mr. Harry Jayawardena and the Browns group. Mr. Cyril Gardiner’s heirs also have a substantial interest though less than Stassen and Browns.

The directors of the company are: Messrs. Chrisantha Cooray (Chairman), V.P. Vittachi (Deputy Chairman), Rienzie Wijetilleke (Managing Director), D.H.S. Jayawardena, M.V. Theagarajah, S.E.A. Jayewickreme and R.K. Obeyesekere.

The Bata Shoe Company of Ceylon Limited, the country’s biggest shoe manufacturer, has had a bad year ending December 31, 1999 with turnover down 9% to Rs.1.16 billion and a trading loss of Rs.56.7 million, down from a profit of Rs.74.2 million in 1998.

A tax writeback of Rs.5.2 million compared to the previous year’s tax liability of Rs.30 million saw Bata posting a bottom line loss of Rs.51.5 million against an after-tax profit of Rs.44.2 million a year earlier.

Shareholders who have been furnished these figures have been told that the decline in consumer demand for the company’s products experienced earlier in the year had continued into the final quarter of 1999.

The company had been forced to cut back on production due to the overall slowing of sales in order to avoid building up finished inventories.

"In view of our current levels of fixed costs, the reduction on production and our reduced sales turnover resulted in a trading loss for the year,’’ the company said.

It has however made an optimistic forecast for the current financial year saying it had begun re-focusing future sales and production on volume and value-for-money products. The result of this strategy in the first few weeks of this year indicated a positive market impact.

Bata was hopeful that the new priorities will enable the company to regain its lost market share and return to profitability.

Kelani Tyres has suffered a loss of Rs.184.2 million in transferring its tyre manufacturing assets to a new subsidiary, Ceat Kelani International Tyres (Pvt) Limited, the company’s financial statement up to December 31, 1999 reveals.

Shareholders have been told that the loss on the transfer of tyre manufacturing assets (they had been revalued in the past years) to the subsidiary has been shown as an extraordinary expense in the provisional accounts. At the same time, there has been a resultant transfer of Rs.330.5 million from the capital reserve credited to retained earnings.

The company has said that both these entries should be read together and that the extraordinary expenditure/loss is in fact a non-cash item. As a result the brought forward loss of Rs.420.6 million at the end of the last financial year on March 31, 1999 has "significantly reduced to Rs.297.6 million.’’

As part of the integration process under which Kelani tied up with Ceat of India in a joint venture/strategic alliance, the Kelani tyre business was transferred to the subsidiary, Ceat Kelani International Tyres (Pvt) Limited, the company said. This subsidiary had from July 1, 1999 been carrying out all the tyre business activities previously done by Kelani.

Kelani said that the share transfer relating to the joint venture agreement between itself, Associated Ceat Holdings (Pvt) Limited and Ceat Limited of India had been covered by an agreement in January last year. The share transfers, though completed in January this year had not yet been completed as at December 31, 1999 to which the latest accounts pertained.

The restructuring of Kelani involves two other parties: Ceat of India and Associated Motorways with which Ceat was tied-up here.

Kelani told its shareholders that the most recent accounts that they have received did not reflect the profit share to Kelani from the joint venture. But they would like to tell their shareholders that according to the management accounts, Associated Ceat Private Limited had a carry forward profit of Rs.176.7 million.

The Merchant Bank of Sri Lanka (MBSL) was tight-lipped last week about the price at which it was divesting up to 60% of its shares in Lanka Securities (Pvt) Limited, a stock broking company jointly owned by the Bank of Ceylon and the Merchant Bank of Sri Lanka.

MBSL Managing Director Sunil G. Wijesinha said that the consideration would be revealed once the actual share transfer takes place.

First Capital Securities Corporation (FCSC) of Pakistan last week signed a memorandum of understanding with the Bank of Ceylon and the Merchant Bank to take a controlling stake of Lanka Securities.

Wijesinha said that the Pakistani company which has a strong presence in the Middle East is optimistic about its ability to attract capital from that region into the Sri Lanka stock market by taking a position in Lanka Securities.

A stock broking licence can cost up to Rs.15 million and the attraction of buying into an already licensed broking firm includes the saving on the licence fee. Last year, T.A. Securities of Malaysia sold out to the

David Peiris Motor Company in a deal which took the value of the existing licence into account.

Wijesinha and Bank of Ceylon Chairperson Dayani de Silva signed a memorandum of understanding with Mr. Salmaan Taseer, Chairman/CEO of First Capital Securities as a preliminary to finalising the deal.

Wijesinha said that the transfer of the shares will take place after the relevant approvals and procedural formalities are concluded. But both the Bank of Ceylon and MBSL will continue as shareholders of Lanka Securities.

"The Pakistani firm had been looking for an opportunity here and we were in the process of getting the necessary Exchange Control approval for a deal. But the budget announcement has now made this unnecessary,’’ Wijesinha explained.

First Capital is a leading financial services and investment company listed on the Karachi and Lahore stock exchanges. Wijesinha said that it is the largest capitalised brokerage house in Pakistan and has a significant business presence in the Middle East.

Lanka Securities expects the joint venture to realise the synergies within the new group in terms of improving research and operational capabilities of the company. Also, the Pakistani partner has global reach and intends to enhance Middle Eastern and other foreign investments in Sri Lanka.

MBSL said that this strategic partnership is in line with the government’s policy to attract foreign investment for the development of capital markets as announced in this year’s budget proposals.

Lanka Securities did reasonably well both in 1998 and 1999 due to its role in some big transactions involving mergers and acquisitions on the Colombo Stock Exchange. One of these was the sale of Hotel Services (Ceylon) Limited, the owners of the Hotel Ceylon Intercontinental and the take over of the controlling stake of United Motors by Readywear.

By Kanes
In the field of economic development, the budget incorporates some proposals to help agriculture: grants from the President’s Fund to researchers and innovators in agricultural technologies, establishment of nine new assembly points or satellite markets to facilitate marketing of agricultural produce, removal of stamp duty on forward sale contract documents or inland bills of exchange related to agricultural marketing and the maintenance of the 35 per cent import duty on agricultural products like potatoes, onions, chillies and rice. Many point out that there is already an assembly point established at Dambulla but the farmers complain that the private traders instead of competing are colluding to keep producer prices low.

The same thing can happen in the proposed nine satellite markets in which case there will be little benefits to the producer. The most effective way of ensuring remunerative producer prices, they point out is by providing competition to private traders through public agencies such as the CWE and Markfed and for this purpose they should be encouraged and supported to play a more active part.

The Central Bank’s proposal of forward sales contract to assist farmers, despite its good intentions, may face numerous obstacles for inland bills of exchange have never been popular in the country. In fact, the Central Bank’s earlier scheme of inland bills to provide loans through commercial banks to meet the working capital requirements of Bought-Leaf-Tea-Factories in 1989, was a failure. Out of 250 factories only 9 participated in the scheme. The unpopularity of inland bills of exchange is illustrated by the fact that the value of all inland bills purchased and discounted by commerce all banks was merely Rs. 11 million at the end of December 1998 as compared to Rs. 21,146 million of import bills at Rs. 6815 million of export bills.

A 35 per cent tariff on imports of subsidiary foods is the existing duty and not a new duty: this duty has been lowered and even eliminated temporarily for short periods to keep consumers happy. The maintenance of this tariff without periodic reductions is a good thing but this alone may not be enough. The fact is, that even at 35 per cent tariff, imported foods (which benefit from subsidies and other concessions in exporting countries) provide effective competition to local produce. Therefore, high tariffs need to be combined with import restriction, as in the past, to protect and stimulate domestic agriculture.

The country’s subsidiary food production rose sharply when imports were restricted in the seventies and declined drastically under the open market policy. In fact, in the last ten years, the production of chillies, red onions and soyabeans has dropped by over half, production of groundnuts, maize, gingelly and blackgram has declined by a third and of potatoes and greengram by about one-fourth on account of foreign imports which flowed into the market without restriction and on payment of existing low tariff.

The budget contains a few proposals to stimulate domestic industrial development. Tax incentives have been provided for the local film industry, manufacture of defence related products, acquisition of advanced technology; financial assistance and tax incentives are provided to upgrade manpower skills in a few sectors - the establishment of 50 information technology training institutes in all the districts, and for training of professional staff. The budget expects the Indo-Lanka Trade Agreement to provide markets for Sri Lanka’s industrial exports when the country does not even produce most of the manufactures required by India and the free trade envisaged under the Agreement is likely to undermine the very industries which may have the potential to export to India.

The budget, according to domestic industrialists, has delivered a severe blow to domestic industry by reducing the maximum import tariff from 30 per cent to 25 per cent. The general approach of the authorities in the last five years has been one of inadequate sympathy with the domestic/import substitution industry. This was reflected in the continuous liberalization of import trade and the reduction of import duties and finally the elimination of import duties on textiles. Now all the tariffs are to be reduced further and no reason has been given for this action.

The reduction of import duties will certainly please the IMF and the transnational corporations but it will reduce the little protection domestic industry has. That protection will be reduced further by the Indo-Lanka Trade Agreement; it will reduce the prices of industrial raw materials for domestic industry but it will also reduce the prices of Indian finished goods which will compete with locally manufactured goods. Already, several local industries have been weakened by liberal imports at low tariff and without restriction.

Domestic agriculture and industry are well protected and supported - by subsidies and income support - in most countries. Imports of agricultural, and industrial products with a few exceptions are restricted in India and it was only a few weeks ago that India raised import tariffs on sugar and edible oil to protect its local industries; import duty on sugar is raised from 27.5 per cent to 40.0 per cent. The US restricts imports of sugar, lamb, textiles, garments, steel, tobacco, groundnuts, dairy products and beef; European Union restricts trade in wine, citrus fruits, tobacco, vegetable oils, tomato and dairy products and Japan protects its rice farmers and beef producers. Further, they subsidize their agriculture and selected industrial sectors. Government support for agriculture in all OECD countries in the form of farm subsidies was $362 billion in 1998 or 1.4 per cent of GDP of OECD countries.

In the case of industries, France subsidizes Renault, Air France, Credit Lyonnaise and Bull computer; Netherlands subsidizes Fokker and Volvo-Mitsubishi car plants and the US supports Boeing by research grants and purchase contracts and rescues failed firms such as Lockheed, Chrysler, Continental Illinois Bank and Long-Term Capital Management. It appears as if we are carrying free trade and laissez faire too far - farther than even developed countries - and undermining our own agriculture and industry.

It is also important to realize that import substitution is not the antithesis of export-led growth. Protection of the domestic market is not inconsistent with export success as clearly demonstrated by East Asia. A country cannot export manufactures without building the capacity to produce them, without gaining experience in production, management and marketing and for this purpose, import substitution can provide the necessary impulse. It would be naive to expect developing countries to become fully grown exporters of manufactures unless they set up industries to manufacture goods to replace imports.

The import substitution industries of today can become the export industries of tomorrow as demonstrated by our own industries such as biscuits which today are exporting to several countries - India, Canada, New Zealand, Russia, the Maldives and the Middle East. Further, the development and expansion of import substitution industries will create employment and conserve foreign exchange. It is in the interest of the country’s development that the authorities pay more attention to domestic industries than hitherto.

By Analyst
The free trade agreement with India is now operational As an editorial in a Sunday newspaper pointed out it is neither a matter for euphoria nor for gloom. Our trade with India is important.

India sells to us about 10% of our imports and runs a huge trade surplus with us which is always increasing. We have failed to export sufficiently to India. Now India is showing a keenness to allow access to the Indian market for our products. India probably realizes that the worldwide trend is not towards world free trade but towards regionalism in trade and seeks to build a regional free trade block under its leadership.

This is a step in the right direction. Of course it sets a threat to our political leaders who have hitherto played ducks and drakes with our economy, causing a differential rate of inflation far in excess of the rate in India and ignoring economic efficiency altogether, misusing resources to give jobs for their supporters and squandering the economic surplus generated firstly by the estate worker and now by the housemaids labouring in the Middle East.

India and Sri Lanka should co-operate in exploiting our mutual strengths and resources better. We have ties of history, culture and a common colonial heritage, which should help to tie the people closer together. So it would be to our mutual advantage if the two economies can be brought together. How far will the process of integration go? This will depend on the conscious efforts of the political leaders of the two countries. We have to realize that the world is moving towards regionalism.

Rs. Million
	1994	1995	1996	1997	1998
Exports	1170	1638	2370	2582	2434
Imports	19985	24015	31056	33023	34837
Balance	-18815	-22381	-28686	-30441	-32403
Source Central Bank

India has provided duty free access for about a thousand items while we have allowed 300 items. But this is only a beginning. Within 3 years India will add other items except those on the negative list. We will do the same but have 8 years to complete the task.

Our industrial and value added products will qualify for duty free access if they contain 35% domestic value which is reduced to 25% if Indian raw materials are used. Our negative list will include agricultural commodities while the Indian negative list includes garments, petro-chemicals, alcoholic spirits, coconut and coconut oil, although a quota of garments is allowed.

But how does freer trade boost economic growth? It is clear that lowering trade barriers deliver an economic shot in the arm as inefficiencies are eliminated. Traditional economic models posit that liberalization delivers a one time gain, after which the economy will grow at the same rate as before.

The connection between trade and growth rates has been hard to prove empirically; although there is no lack of anecdotal evidence that countries open to trade grow faster as our own example since 1977 as well as Hong Kong and Singapore show. Empirical verification has been difficult because the degree of openness is difficult to measure. Trade can be restricted in many ways, from tariffs quotas to less obvious measure such as foreign exchange controls. The black market premium on the exchange rate between Indiana and Sri Lankan Rupees will indicate the degree of distortion of trade which leads to trade flows through unofficial channels.

What is really necessary is to find out the relative efficiency of Sri Lankan and Indian production. How efficiently do the two countries put their capital labour to use? After all a country’s rate of economic growth depends on the accumulation of capital and labour and on increases in the productivity with which they are used.

Freer trade is good for productivity growth according to research studies by Economists — ",Openness, Productivity and Growth—What do we really know" Economic Journal March 1998. Total factor productivity growth can come about through domestic innovation or technological advances from outside.

We need big companies capable of improving factor productivity who could compete in the Indian markets. It is manufactured products that are subject to increasing returns to scale. The advantage of a large market can benefit us only if we concentrate on industrial products. It is foolish of us to expect foreign multi-national companies alone to exploit the Indian market from Sri Lanka.

Trying to attract foreign investors to the country hoping they will exploit the Indian market is easy, but it will benefit neither us nor the Indians in the long run. For a small country like ours there is very limited scope for large scale manufacturing enterprises — specialization is limited by the extent of the market as the economic saying goes. But if we can trade with foreign markets, particularly a large market like India with its one billion population and a middle class of nearly 250-300 million, there is some prospect of industrialization.

There is a close connection between increasing returns and the ease of capital accumulation. The larger the market, easier capital accumulation becomes. Economic growth revolves around capital accumulation. India is being a large country which is mastering modern technology is capable of producing capital goods as well as manufactured goods for the mass market. But our industrial enterprises are too small to benefit from economies of scale even if the Indian market is open to us.

We should promote partnerships with Indian enterprises and where we cannot get Indian joint ventures the State must come in and be a partner with local enterprises. It is necessary to make a careful selection of what industrial products we can export to India and develop them. The State cannot adopt a laissez faire attitude in this matter of exploiting the Indian market. Nor can we expect foreign investors to come in and exploit the Indian market on our behalf.

There is no need for us to allow third countries to exploit the Free trade Agreement. That is a violation of the spirit of the Agreement. Nor does economic growth which really benefits the country and our people lie in this path. We should source our raw materials from India and take advantage of the rule of origin to qualify for export to India under the 25% rule.

We should accept as much Indian capital and technology because it will be cheaper in the long run. India could become a low cost supplier of spares and components for our factory industries. We need to become more cohesive economically with India. We must be willing to be led by India. We should not look on India as an adversarial trading partner. Instead our efforts should be to become complementary to the Indian economy.

There are regular consultations provided for between the two governments which should be conducted in a spirit of willing co-operation rather than in a spirit of one upmanship. There is a fear that low priced Indian tiles, buckets, saucepans, electrical accessories, rubber and leather goods, light engineering goods will compete and undermine local small scale industry. Such problems need to be looked into and some support given to them to tide over the problems.

The problem is that years of excessive inflation in our economy caused by large budgetary deficits on the one hand and continuous depreciation of our rupee, have raised our cost & price structures above the levels prevailing in India. Of course India also gives subsidies. Energy is much cheaper in India than in Sri Lanka. Interest rates in India are also much lower than here. Excessive borrowing by the government and the high costs of intermediation by the two State-owned banks are the culprits.

At Independence the Indian rupee and the Sri Lankan rupee were at par with respect to the dollar. Years of economic mismanagement by our ruling politicians have resulted in the Indian rupee being at the premium prevailing today. Our politicians have still not learnt to put economic efficiency above political patronage and corruption. They have squandered the economic surplus generated by our economic enterprises on useless unproductive things much as our ancient rulers did.

We now need to change if we are to make economic progress. We need to reduce interest rates by reducing government borrowing and making the state banks commercially oriented by keeping the politicians from meddling with them. India will have to raise fuel prices sooner or later. We need to use coal for power generation and the government must win over opposition by paying sufficient compensation to the affected community for all the pollution and what not.

As India becomes an important export market for us we will have to co-ordinate our macro- economic policies more closely. We cannot afford to have a greater inflation rate than India. Nor can we continue to have much higher interest rates. We cannot run higher government budget deficits than India. The Indian budget deficits as a percentage of GDP are much lower than ours, being only about half.

We also need to take the Indian currency more into account in fixing our exchange rate. We should follow the Indian rupee parity with the US dollar more closely than in the past if we are to benefit from the freer trade with India. Free trade will undermine the climate in which bad macro economic policies can thrive undisturbed.

For example, if the exchange rate becomes overvalued, the effect on the trade balance would initially be muted in a protected economy. Imports would not rise as much as consumers would like, because of the controls in place by the government. The only symptom of the exchange rate misalignment would be a rise in the black market prices of the Sri Lankan rupee.

Advocates of inward-looking policies might ask what about the need to industrialize? Perhaps some of this could be facilitated through (1) introducing appropriate changes in trade likely to increase the import of capital goods & technology; (2) provision of adequate investment finance for the export production sector.

A lot of trade with South India will have to move from the ports in the North. Hence it is essential to stop the war. The primordial fears of the monks and other Sinhala nationalists are out of step with the modern processes at work. India is well on the way to becoming a strong power and she has come out strongly in favour of the territorial integrity of the country. We also need to strengthen transport & communications with India. We had good rail connections with South India in colonial times which need to be revived after settling the civil war in the north and east.

Modern information technology reduces the need for physical contact between producers & consumers and therefore allows some previously nontradeable items and services to be traded via the satellite and computer. There are less tangible factors that could promote trade with India such as the trading communities like the Borahs, the Sindhis, the Memons and Chettiars who could use their networks.

We should also attract Indian firms to locate their plants here. Ultimately this depends on cheaper relative costs. The BOI should do its promotional work in India to attract them. The government should carry out a survey among Indian business to find out what measures are necessary to promote joint ventures and give concessions for joint ventures with locals rather than purely Indian foreign investments to safeguard our economic strength. Similarly the government should survey local business enterprises to find out who have surpluses in production to export to India and what help is needed for them to succeed.

It is the industries with economies of scale that have the best chances as well as niche products. We need partnerships between the State and local firms to take advantage of such economies of scale. We also need to liberalize more particularly with regard to exchange control to ease payment procedures. We need open account trading with India to give the necessary flexibility for local firms. We should get rid of intervention minded bureaucrats.

The whole point of trade is to allow an economy to specialize. If a country is better at making ships than sealing wax, it makes sense to put more resources into ship building and to export some of the ships to pay for imports of sealing wax. This is true even if it is the world’s best producer of sealing wax for it can still prosper by making ships instead. This is why countries can trade successfully even if they are not best at anything. This is called the law of comparative cost advantage.

To sum up, there is a mix of threats and opportunities in freer trade with India. For effectively meeting the threats and profiting from the opportunities offered some measures must be taken. The government cannot afford to go to sleep assuming that it has done its part and that it is now up to the private sector to follow through.

(1) The government must identify sectors where special policy instruments could be utilized for inducing appropriate changes to promote specific exports to India.

(2) Technological upgrading and establishing new manufacturing units embodying needed technology in the identified sectors so that the country could manufacture the kind of products needed by India as well as maintain the competitive edge in such products.

(3) Promote co-operation with Indian industry through the trade and industry chambers.

(4) Establish a fund to support investment finance for exports, not an Export Bank as erroneously thought by some people.

(6) Promote joint ventures with Indian firms with or without State participation.

Pelwatte Sugar Industries Limited has reported strong turnover and profit growth during the first 9 months of the current financial year erasing accumulated losses of the past. But its final performance in the financial year ending March 31, 2000 will depend on its ability to collect Rs.704 million receivable from the government in terms of the minimum sugar price agreement between the government and itself.

Pelwatte said that its turnover at Rs.1.44 billion during the period under review was up 45% from the Rs.1 billion posted a year earlier. This years figure inlcuded receivables from government.

The company’s after tax profit of Rs.401.1 million during the period under review was up 170% from Rs.148.4 million earned during the comparative period the previous year.

This strong improvement in profitability was attributed to the 17% rise in the average minimum price of sugar last year compared to 1998. Also, production last year was up 21% from the previous year, the company said.

This earning has enabled Pelwatte to wipe off Rs.150.2 million accumulated losses from its books and carry forward a retained profit of Rs.250.8 million.

The company has a share capital of Rs.695.7 million. It carries long term liabilities of Rs.1.36 billion.

Tri Star has set up an Institute of Apparel Technology to provide free training for young people seeking jobs in the garment industry at its industrial complex at Ratmalana.

Minister G.L. Peiris declared open the new facility at its industrial complex at Maligawa Road, Ratmalana on Friday.

Tri Star Apparel Exports (Pvt) Limited, a giant in the local garment industry, was the first company to provide free training for youth in apparel technology. Many other institutes of this nature charge fees for the training shutting out low income families from the facility.

Tri Star Chairman Kumar Devapura has agreed to the request of Minister Peiris to give youth from the Moratuwa preference in granting admission to the institute.

Prof. Peiris who is also SLFP chief organiser for Moratuwa has launched several initiatives to address the problems of the people of the area. Priority has been accorded to the resolution of the problem of youth unemployment.

"The training made available to youth by the institute will give them job oriented skills in one of Sri Lanka’s biggest industries,’’ the minister said.

Tri Star Chairman Kumar Devapura, Group Managing Director Sarath Silva, other officers of the company and local dignitaries here associated with Prof. Peiris at the opening of the new training institute.

Thirty leading local business houses actively exploring trade and investment opportunities in Bangladesh will be represented in a delegation organised by the Federation of Chambers of Commerce & Industry of Sri Lanka (FCCISL), visiting Dhaka from March 27 to 31.

This visit is being organised in association with the Sri Lanka-Bangladesh Business Council and the Metropolitan Chamber of Commerce & Industdry of Dhaka, a FCCISL news release said.

Noting that bilateral trade between Sri Lanka and Bangladesh had increased sharply in the recent past, FCCISL said that the trade mission will explore potential trade and investment opportunities in Bangladesh.

The Chamber said that a number of Lankan companies have already invested in Bangladesh and were successfully running their businesses. Over 5,000 Lankans were also employed in that country.

With the South Asian Preferential Tariff Agreement (SAPTA) being expedited, several new trade and investment opportunities have emerged in the South Asian region and FCCISL, as primary member of the SAARC Chamber of Commerce and Industry here is committed to increase trade and investment between Sri Lanka and other SAARC countries, FCCISL said.

Regular trade missions to and from SAARC countries are now being organised by the Chamber to promote this objective and the visit to Bangladesh is the third delegation from Colombo to a SAARC country in the past six months. The two earlier delegations visited India last November and the Maldives in January.

The visit to Dhaka follows a visit here by a business delegation from the Federation of Bangladesh Chamber of Commerce & Industry last January. The President of the Bangladesh Federation, Mr. Abdul Awal Mintoo requested FCCISL President Lal de Mel to lead a business delegation to Bangladesh.

The Colombo delegation will have one-to-one business discussions with Bangladesh businessman during their 3-day stay in that country. These meetings have been arranged by the Metropolitan Chamber of Commerce & Industry of Dhaka.

FCCISL said that there will also be bilateral trade discussions with concerned government officials and meetings with the Commerce and Industry Ministers of Bangladesh as well as with the Board of Investment and the Chairman of Export Processing Zones in that country.

Among the companies that will participate in this business visit are: Malba Ropes (Pvt) Ltd., Sunplast (Pvt) Ltd., Samson Rubber Industries (Pvt) Ltd., Ameeniya Engineering Group, Impressions (Pvt) Ltd., State Pharmaceuticals Corporation of Sri Lanka, Masons Mixture Ltd., Ceylon Auto Industries, Tech Waters, Ceylon Biscuits Ltd., Confifi Management Services Ltd., Araliya International (Pvt) Ltd., BHP Steel Building Products Lanka (Pvt) Ltd. and International Foodstuff Co (Pvt) Ltd.

FCCISL said that businessmen/entrepreneurs interested in joining the delegation should contact the Secretariat at No.29, Gregory’s Road, Colombo 07. Tel. 698225/684784 for more details and registration.

By Sumadhu Weerawarne
I want to change the perception of JAIC Hilton Towers. It is not just luxury service apartments. There’s much more that the public can make use of, said the newly appointed Manager of Sri Lanka’s only luxury service-apartment complex Carsten Schieck.

Schieck’s previous posting with the hotel chain was in Shanghai, China as an Executive Assistant Manager. "Most people seem to know the JAIC only as a place for luxury apartments. I want to change all this. We have a shopping mall that is essentially open to the public. And our grill and even our restaurant too is open to the public. These are not exclusively for guests," he explained. He is keen to start on things, and said that he had spoken to over a hundred people in the last week. "We want to promote the rest and recreation facilities. I am also aware that there is a huge wedding market. The banquet facilities at the JAIC are not big, but we provide fine service. So we will look into attracting more customers. We also have very good meeting facilities. This too will be an area that will be promoted. There are also plans to expand banquet facilities."

He said that his target period to "put the JAIC on a bigger map" was six months. "We will come up with an action plan. Marketing is key," he added. He also said that plans were afoot to upgrade the lobby, making it "bigger and more cosy". The over all idea he said was to promote the JAIC as a weekend getaway for families. "We offer our appartments for both long and short stays, even as short as one night. Our rates are competitive, reasonable and flexible," he added.

Shieck who is currently 36, said that he commenced his career in the hotel trade when he was 16 years old. "I have done everything. I have carried suitcases, been a bell boy... and I would still carry suit cases if a customer asked. But at some point I had to think whether I wanted to carry suitcases for the rest of my life. And I decided that I had to move on. So I went to hotel school and also got a diploma in economics and eventually joined the Hilton."

This is the hotelier’s second visit to the country. "I am happy to be here." Speaking of his previous experience in the East, with the Shanghai Hilton, he said that one drawback was the nature of the people. "The Chinese people are not very outgoing or service-oriented. They also knew little English. I had to use interpreters at times to communicate with my supervisors. It will take one or two generations before things change." Sri Lanka he said was relatively laid-back, with friendly people. "This does not mean that things don’t get done. It is just different. I like the mentality. It is very much different to what it was like in China."

He noted however that in terms of infrastructure Shanghai was far superior. "It is a rapidly changing, unlike on Sri Lanka. Sri Lanka has much to do about its infrastructure. It is a general complaint among tourists that the ride from the airport to the resort where their housed takes just too long. First impressions count, and this is not a very good one. One of the major travel operators even said that Sri Lanka was not a country that was not recommended for this reason, the poor infrastructure.’

But he said once you arrive here there is no sense of hassle. "It is beautiful and you feel free. But the first and last impressions are not very good." He also expressed the hope that conflict would end soon. "The occupancy rates in most hotels is just 30 to 40 per cent. If the conflict ends there will a lot more tourists and better business. The hotels won’t have to kill each other to get guests."

Comparing rates in the region he said that Sri Lankan rates were very reasonable. "For example, in Shanghai breakfast alone costs US$ 30. Here, a buffet meal costs US$ 5. So it is very low cost."

JAIC’s income in the last year was 313 million rupees, and it has a current occupancy rate of 74 per cent.

ANZ Grindlays Bank, the oldest and the second largest foreign bank in Sri Lanka, has reported a surge in operating profits during the year ended September 30, 1999 with a profit after tax of Rs.608 million, up 130% from Rs.264 million earned the previous year.

The bank’s General Manager in Colombo, John Iossifidis, reporting these results last week said that the only "one off’’ boosting the result was the specific provision writeback of Rs.207 million (Rs.135 million after tax).

He told a Colombo news briefing that net income from banking activities grew 48% during the period under review and the positive result for the year was attributable to strong growth in both corporate and consumer banking.

Iossifidis stressed that the most important aspect of the result was the fact that underlying earnings, that is earnings before possible provision for doubtful debts, increased by an impressive 48%.

"The bank maintains a sound credit portfolio and has built a strong capital base with a capital adequacy ratio of 9.2%,’’ he said.

The general manager who said that his bank’s strategy continues to focus on large local corporates and multinational companies noted the improved quality of its credit portfolio. They were also looking at providing value added services to gain more of their clients business, he said.

Some of the big deals that ANZ Gridlays had initiated in the recent past included Rs.1.8 billion for Shell Gas with ANZ Grindlays as arranger and lead bank, Rs.1.8 billion medium term facility for the John Keells group, USD 22.4 million for the Ampara National Water Supply Project and over Rs.3 billion for the telecommunications sector.