The Central Bank's Spot Rates for transactions with Commercial Banks announced on the morning of June 03, 1998 were as follows:

The approximate middle exchange rates of following currencies calculated on the basis of cross rates quoted by Gulf International Bank, Bahrain as it appeared in Reuters Financial Information System on June 03,1998 were as follows:

Average rates at which the following currencies were quoted by Commercial Banks in Colombo for Telegraphic Transfers at mid-day on June 03, 1998 were as follows:

Average Weighted Prime Lending Rate (AWRP) and Lowest Prime Rate (LPR)
The Average Weighted Prime Lending Rate (AWPR) during the week ended May 29th 1998 was 14.8 per cent for all banks. The Lowest Prime Rate among banks during this week was 12.9 per cent.

Average Weighted Deposit Rate of Commercial Banks (AWDR)
The Average Weighted Deposit Rate (AWDR) of Commercial Banks for the month ended April 30th 1998 was 9.6 percent.

Optimism about Lanka's future despite Asian crisis

MILINDA MORAGODA is Chairman of the Mercantile Merchant Bank, a bank that is a low key player among the financial institutions of Sri Lanka. Recently, however, it formed a strategic alliance "to set up and promote the 'Confidence in Malaysia Fund' with the Rashid Hussain Group."

He is optimistic about the future of Sri Lanka despite the crisis in Asia and the economic fall out of the nuclear tests by India and Pakistan. He says: "Historically, Sri Lanka has shown remarkable resilience and some luck in the economic arena.

Our country's ability to maintain significant economic growth over the past decade while fighting a civil war is remarkable by any standard."

Mr. Moragoda is also economic adviser to the UNP leader. Here he talks with DINESH WEERAKKODY.

Q Newspapers recently reported that Mercantile Merchant Bank has teamed up to manage an investment fund in Malaysia. What would your strategy be for the disbursements of these funds?

A. Mercantile Merchant Bank (MMBL) has formed a strategic alliance to set up and promote the "Confidence In Malaysia Fund" (CIMF) with the Rashid Hussain Group (RHB), the largest financial services conglomerate in Malaysia, which includes the Rashid Hussain Bank, Malaysia's second largest commercial bank. The investors in this fund will for the most part be high networth individuals and investment institutions from the US In addition, there is the possibility that we will have a few investors from the East Asian region as well. The initial size of the fund has been set at US$ 50 million and will consist of ten investors each having a stake of US$ 5 million.

RHB and MMBL are presently in the process of identifying a portfolio of 15 to 20 Malaysian companies (listed and unlisted) as targets for investment. These companies are fundamentally sound but need cash injections for expansion financing or to meet short/medium term requirements resulting from the liquidity crisis in that country. The companies are well focussed, well managed and operate in the export, high technology and/or business logistics sectors. The CIMF will also form smart partnerships with several international investment banks and consulting firms in order to provide the necessary technical and turnaround expertise for its investment targets. In this context, MMBL, together with RHB through the CIMF, will also aim to funnel investments from leading international investment banks who at present may not be inclined to look at the Malaysian market as a stand alone proposition.

Q. What are the purposes of setting up this fund?

A: Since MMBL began operations in late 1996, we have successfully established strategic alliances with several influential individuals, high net worth families and financial institutions in the USA, Europe, the Middle East and Asia. As you are aware, we have used some of these linkages to bring foreign investment to Sri Lanka as well. In fact, within the MMBL group's operations in Sri Lanka, there are several subsidiaries and associates which are collaborations with international corporations including Fortune 500 companies. MMBL has chosen to take a relatively discreet and low-profile approach to deal structuring and has sought to emulate the traditional investment and private banks of Europe and the US in this regard.

In 1997 MMBL used its network of strategic alliances to provide investment advisory services in Malaysia. This initiative included providing assistance to set up Malaysia's second national airline along with a US based air line consultancy and providing advice to several leading Malaysian companies on international investment strategies. When the financial crisis struck Malaysia in the middle to late 1997, we firmly believed that this period of uncertainty would be a short lived one and that with in a relatively short period the Malaysian economy would bounce back with even greater strength and resilience. With this in mind, we joined hands with the Rashid Hussain Group, the asset management arm of which has over US$ 1 billion under its management, to set up the "Confidence In Malaysia Fund." Furthermore, we are presently engaged in consultations with leading financial institutions in Indonesia and Thailand on the scope for setting up funds of this nature in these countries as well.

Q. What would your bank's role be in this tie up?
A. Our role would be both to deploy our international network of alliances to source investment for this fund and also to act as fund managers, while RHB will act as the investment managers. We are presently in the process of setting up a joint investment committee to make investment and divestment decisions. If the CIMF is successful in its first phase, we intend to expand the fund to a larger size. In addition, in earlier projects in Malaysia, we successfully employed Sri Lankan personnel. In the program to set up Malaysia's second national airline, Air Asia, it was our Sri Lankan personnel that provided the financial and accounting input while our US partner brought in the airline expertise. Given this happy experience, it is our intention to station some of our personnel in KL in order to assist with the due diligence work.

Q: You have stated that the sourcing of funds for this investment fund will be from the USA. How do you plan to secure US investment for this Confidence In Malaysia Fund?

A: As I stated earlier, MMBL has established linkages and strategic alliances in the USA. This includes leading US investment banks, private families and a group of pension funds which have over US$ 1 trillion in global investments. MMBL itself has a significant joint venture partner in Denmar Associates, a US based investment company. Many of these groups are taking a medium to long-term view of the East Asian Region, particularly Malaysia.

However, although they possess the financial capability, they do not have sufficient knowledge of the local businesses and culture. Hence, many find it hard and in some cases not worth their while to invest in Malaysia. The CIMF is a tailor-made vehicle for such investors. MMBL together with RHB and several of these US-based investor prospects are presently working on the initial CIMF portfolio. Over the coming months, we will be visiting the key investors in the US to finalise matters.

Q: Knowing the economic crisis that is sweeping South East Asia why would large US Corporates pin hopes in an economy which according to economists is fundamentally weak?

A: I would disagree with you that the South East Asian economies are fundamentally weak. In this context I would like to share with you a quotation from an eminent US economist Dr. Jeffrey Sachs which is as follows:-

"The South East Asian currency crises of 1997 are not a sign of the end of Asian growth but rather a recurring - if difficult to predict - pattern of financial instability that often accompanies rapid economic growth. Just as Indonesia, Malaysia, and Korea rapidly recovered from financial crises in the 1970s and 1980s, so the Asian economies are likely to resume rapid growth within two to three years."

Many leading private sector institutions in the US share these views and are waiting for the appropriate moment to enter the East Asian markets. The CIMF as an investment vehicle will serve as a low-risk entry point and window for such groups. In other words, if the CIMF turns out to be successful, these investors may choose to move in directly to the Malaysian market on their own. To this extent, the very structure and profile of the CIMF and its investors encourages this multiplier effect. Interestingly, while promoting this fund we have discovered that several companies from East Asian countries that were not as badly affected by the crises such as Singapore and Taiwan have expressed a strong interest in the CIMF.

Q: Then, since the collapse of the Thai Baht in June of 1997, what has been the real FDI flow from Malaysia to Sri Lanka?

A: Since the crisis began, new investments from Malaysia have definitely been limited. As you are aware, some of the high profile projects such as the Colombo-Katunayake and the Colombo-Kandy highways have been shelved for the moment. As a matter of strategy, most large Malaysian investors are consolidating their overseas positions or divesting themselves of some of their foreign investments in an effort to strengthen and focus themselves at home. In fact, MMBL has been approached by some Malaysian companies who are seeking to divest their investments in countries as far way as Ghana. However, there are several leading Malaysian investors in Sri Lanka operating in the property, hotel and telecommunications sectors who appear to be pursuing their business plans, albeit on a more limited scale.

Q: Also, in 1997 it is said that Sri Lanka is estimated to have attracted over US$ 130 million in foreign direct investment. In your view, will much of these planned projects especially from Malaysia now get suspended due to the East Asian crisis, which is far from over?

A: As I said earlier, there is no doubt that the East Asian crisis has had a substantial negative impact on Malaysian investment into Sri Lanka. However, it is extremely important that we in this country take a medium to long-term approach when we look at investment promotion. An unfortunate aspect of our culture is that we tend to look for quick fixes and miracle cures and as a result do not attempt to build and sustain long term relationships. As I said earlier, most countries in that region will bounce back in the medium term and Sri Lanka should aim to build on her linkages with Malaysia by taking a longer term view.

Q: Moving on, Economists have predicted that foreign direct investment will be one of the hardest hit sectors in Sri Lanka due to the East Asian crisis and that as a result economic growth would get affected. What is your view?

A: Competitiveness would be the key word to be used in this context. In other words, can Sri Lanka compete in foreign direct investment (FDI) and exports? As a result of the economic crisis, East Asian investment flows will dry up in the short-term and Sri Lanka's export competitiveness will also be affected. In addition, there will be increased competition in Asia for FDI from other regions.

When looking at competitiveness in the sphere of FDI, one should take a holistic view of Sri Lanka and her economy and seek to identify and address all major impediments to private sector activity and economic growth.

The security situation, the war and its fall out would be the first major obstacle to FDI. The ability to turn out a sound set of economic fundamentals amidst this adversity is another point to be addressed. Regulatory impediments to private sector growth such as an inflexible labor regime should be dealt with as should infrastructural bottlenecks in the areas of roads, power, telecommunications, etc.

One measure to build investor confidence could be to enter into an agreement with the IMF for an Enhanced Structural Adjustment Facility (ESAF). Such an arrangement in many ways would serve as a certificate of good economic management as far as the international financial community is concerned.

On the export front the devaluation should not be seen as the panacea for all ills. Although a competitive rate of exchange is important, a comprehensive view should be taken of Sri Lanka's overall competitive position and efforts made to look at areas such as productivity enhancement and some of the other issues I have alluded to answer to earlier.

In conclusion, yes, there is no doubt that Sri Lanka will be affected by the East Asian crisis and its global fallout. However, if the government and the private sector together proactively rise to meet this challenge, it is quite conceivable that we as a nation will be able to convert what at first glance appears to be a threat into an opportunity.

Q: In your view, what alternate strategies would the BOI have to put in place to attract FDI from other regions to get over the short-term crisis caused as a result of the East Asian crisis?

A: We in Sri Lanka sometimes get carried away with the public relations and marketing aspects of promoting FDI, forgetting the fact that one must have a saleable product before testing ones skills in salesmanship. Therefore, it is extremely important that as one embarks on a promotion strategy, a serious effort be made to find solutions to some of the issues I highlighted in the answers to your earlier questions.

Since the prevailing security situation would be the key concern for any potential investor, Sri Lanka must compensate for this risk by ensuring that the local investment climate is more transparent, predictable and investor-friendly than that of our competitors.

In segmenting the sources of investment it is my impression that there is potential for FDI flows from North America and Europe, and East Asian countries such as Singapore and Taiwan. There will of course be intense competition for the limited investment resources available.

There are many FDI success stories in Sri Lanka. For example, in the textile and garment sector, Sri Lankan has carved a niche for herself as a reliable supplier of quality products. The most credible way to market our country would be to co-opt such companies as our advocates for investment promotion. I am confident that the relationships and reputation that Sri Lanka has established in the garment and other sectors will stand in good stead when it is our turn to face the fallout of the East Asian crisis.

One of Sri Lanka's greatest comparative advantages is our proximity to India. As Hong Kong became an international economic power house by serving as the gateway to China, there is no reason why Sri Lanka cannot become the entry point to the still untapped Indian market. Many international corporations are interested in penetrating the Indian market and it is a widely accepted fact that in spite of all the constraints, it is much easier to do business in Sri Lanka than in India. Therefore, we should aim to become the Hong Kong of South Asia. This would entail combining an investor friendly climate with a trade regime that would aim to link Sri Lanka closer to India.

In fact, over the past year, we at MMBL have been working on establishing closer linkages with a few leading business groups in India as part of our own plans to move in this direction. I believe that the Sri Lankan government itself has been working on innovative initiatives such as the concept of exploring the synergies of traingular trade and investment linkages between India and third countries such as Brazil.

Q: Also, in your view why do the East Asians still view Sri Lanka as an attractive investment opportunity despite their economic problems at home?

A: According to published statistics, the total long-term private foreign investment flows to South Asia were a mere US$ 9 billion in 1997, representing only 1.6% of South Asia's GDP, while total investment flows to all developing countries as a group was in the range of US$ 250 billion. Given this extremely low South Asian investment base, the South Asian region, especially India, offers vast potential for absorbing foreign direct investment.

While East Asian countries such as Indonesia, Malaysia and Thailand may have become more preoccupied with their internal problems, Singapore and Taiwan are seeking to broad base their investment portfolios by seeking opportunities in South Asia. These countries are presently seriously looking at India and Bangladesh. The security situation in Sri Lanka has made them somewhat hesitant to look for long-term investment opportunities here. This is compounded by the fact that certain East Asian investments like the World Trade Centre, were adversely affected by two separate bomb blasts.

Therefore, I would not say that these East Asian countries treat Sri Lanka as an attractive investment opportunity but on the other hand, as a spin-off, of their interest in the South Asian region, if initial security related inhibitions can be overcome, there is no doubt that there is a significant potential for investment flows from these countries.

Q: As a final question, how would our economy perform in 1998?

A: There is no doubt that the economic performance in 1998 will not be as favourable as it was last year. As you are aware, as a result of the East Asian crisis, growth forecasts for this year have been revised downwards on a global basis. Sri Lanka's situation will be no different.

Historically, Sri Lanka has shown remarkable resilience and some luck in the economic arena. Our country's ability to maintain significant economic growth over the past decade while fighting a civil war is remarkable by any standard. Despite the fallout of the East Asian crisis, possible adverse consequences of the EL Nino effect and other yet unforeseen occurrences, I believe the Sri Lankan economy will move forward. However, it is only when we Sri Lankans as a nation can find a way of overcoming our differences and coexisting peacefully, that the prospect of this country realizing its full potential and becoming a South Asian economic miracle will become a reality.

Carsons show 38 p.c. profit growth

Carson Cumberbatch & Co. Limited, reported a satisfactory growth based on the corporate results for the year ended 31st March, 1998. The Group turnover was Rs. 2.25bn, up from Rs. 1.94bn over the preceding year. The main sectors which contributed substantially towards the Group turnover were beverage, investments, oil palms and real estate. Beverage sector turnover grew by 15%, whilst investment sector showed a significant growth of 200% in the period under review. Oil palm sector too, contributed significantly towards the Group turnover recording an increase of 16% over the preceding year whilst the real estate and property development sector grew by 22%.

In the year under review, operating profits of the Group showed a 47% growth from Rs. 319.0mn of the previous year to Rs. 469.89mn mainly due to the improved performance of the aforementioned sectors. Profits of beverage sector grew by 15%, and investment sector by 149% whilst the real estate sector recorded a 49% increase over the same period. Furthermore, oil palm sector too, recorded a growth of 27% as against the preceding year. However, Rs. 71.25mn. was incurred as finance charges in the said period, thus achieving Group profit after interest of Rs. 398.64mn. Further more, Group’s pre-tax profits recorded a 38% growth from Rs. 309.25mn of the previous year to Rs. 427.83mn.

After making a tax provision of Rs. 104.80mn (Rs. 94.39mn the preceding year), the Group was left with a post tax profit of Rs. 323.02mn, up from Rs. 214.86mn from the previous year. The effective tax rate of the Group was 24% compared to the normal tax rate of 35%.

After adjusting the minority interest of Rs. 191.7mn (Rs. 108.24mn in 96/97), net profit attributable to the shareholders of Carson Cumberbatach & Co. Ltd. was Rs. 133.83mn, up from Rs. 116.34mn of the previous year. With retained profits of Rs.348.90mn brought forward from the preceding year, a sum of Rs. 482.73mn was available for appropriation.

The total cost of the Group’s investment portfolio as at 31st March 1998 was Rs. 1.15bn compared to Rs. 1.01bn in the previous year. Group’s net assets increased by 24%, up from Rs. 2.07bn in the preceding year to Rs. 2.57bn. The market value of the investment portfolio including the Group’s subsidiaries amounted to Rs. 6.21bn of which Carsons Group holds 10% of Ceylon Cold Stores Ltd, 7.5% of Hayleys Ltd, 9.5% of John Keells Ltd, 7.1% of Hunter & Co. Ltd and 5.0% of Richard Peiris & Co. Ltd.

Resultantly, the Group’s reserves stood at Rs. 1.19bn comprising capital reserves of Rs. 478.48mn and revenue reserves of Rs. 718.33mn.

The Lion Brewery Ceylon Ltd., a company with a state-of-the-art brewery commenced brewing operations on 30th March, ’98. A susbtanital addition to the current year’s profitability is envisaged with the commencement of the commercial operations by the Company. The bottling operations commenced on 10th May, 1998, since which date, stocks of bottled beer are being built up, pending release to the market shortly.

Carsons Group envisage expanding its activities in the plantation sector which in turn will enable the Group to enhance its future profitability significantly.

The directors of the Company are Messrs. Wijaya Unamboowe (Chairman), Hari Selvanathan (Deputy Chairman), Mano Selvanathan, Israel Paulraj, D. Chandima R. Gunawardena and Mrs. R. L. Nanayakkara.

The Directors of Carsons Management Services (Pvt) Ltd. — The management services arm of Carson Cumberbatch & Co. Ltd., are Messrs. Hari Selvanathan (Chairman), Mano Selvanathan, D. Chandima R. Gunawardena, Suresh K. Shah, A. Kenneth Sellayah, Wijaya Unamboowe, Israel Paulraj, Sunil P. Dissanayake and Mrs. M. N. De Silva.

Seminar on BOI incentives

The Ceylon Chamber of Commerce will hold a seminar on BOI Incentives on 5th June 1998 in the Ground Floor Auditorium of the Chamber commencing 3.00 p.m.

Mr. Thilan Wijesinghe — Director General of the Board of Investment of Sri Lanka will address the participants on "New Incentives/Concessions offered to Key Industrial Sectors" which will be followed by a discussion session.

Zesta Tea — launched

Zesta — a new brand of tea with premium quality flavour, aroma and colour was launched last week at the Intrad 98 Trade Fair by Watawala Plantations Ltd., who own 12,400 hectares of some of the country’s best tea gardens. When Minister for Internal & International Commerce and Food, Hon. Kingsley, T. Wickremaratne visited their stall, he was presented with a pack of Zesta Tea by Mr. Dushy Ratnasingham, General Manager, Marketing/Trading of Watawala Plantations. Zesta comes to the consumer in an attractive and convenient "PET" jar that seals the flavour in and retains the richness of its aroma. Zesta tea has the distinction of being plantation fresh and therefore reaches the consumer within a few days of plucking the leaf, fresh and full of the flavour that distinguishes Dimbula high grown teas from others.