.

Carsons close to launching 10,000 ha. oil palm plantation in Indonesia

Carson Cumberbatch and Co. Ltd., one of the wealthiest quoted companies in Sri Lanka with extensive plantation interests in Malaysia has reported an "exceptional year'' ended March 31, 1998, with steady growth in profits and net worth.

The company's chairman, Mr. W. Unamboowe, has reported that the economic downturn in East Asia and the devaluation of the Malaysian ringitt had a favourable impact on palm oil export prices, but more because of the high demand for this product in world markets. Carsons have substantial interests in four oil palm plantation owning companies in Malaysia.

Unamboowe also reported that "substantial progress'' has been made in obtaining all approvals required for pressing on with the company's project of developing a 10,000 ha. oil palm plantation in Indonesia. This project has been in the pipeline for some time.


A Carsons oil palm plantation		 "It includes an investment in an oil processing mill in order to secure value addition to the operation. The oil palm industry is now on the threshold of rapid growth and our venture is expected to benefit from the increased world market demand for palm oil in the 21st century,'' he said.

"The gestation period for an agricultural project of this nature is usually at least 3-6 years and it can be expected to generate returns only after this period,'' the Carsons directors said.

They said that the rising value of land and labour in Malaysia as well as the scarcity of agricultural land has prompted the expansion of the oil palm industry to Indonesia. This has been supported by the governments of both countries. In the next century, Indonesia is expected to become the world's leading producer of palm oil, overtaking Malaysia.

"The group's proposed shift to Indonesia, therefore, comes at a crucial time when the entire industry is on the threshold of major growth, and we are likely to be well positioned to take advantage of the industry's new developments globally with the expansion of operations in this region,'' they said.

During the year under review, Carson Cumberbatch Ltd. had a turnover of Rs. 124.3 million, up from Rs. 71.3 million a year earlier. The company's after-tax profit at Rs. 58.1 million was up from Rs. 31 million the previous year.

The Carsons Group encompasses four Malaysian plantation companies, two breweries, seven property development companies with prime city real estate, a clutch of airline and leisure companies whose interests include two hotels and a group of investment companies owning the most valuable quoted portfolios in the country.

Group turnover during the year at Rs. 2.3 billion was up from Rs. 1.9 billion a year earlier. Group turnover including associates at Rs. 2.4 billion was up from the previous year's Rs. 2.1 billion. Group profits attributable to Carsons shareholders was Rs. 141.4 million, up from Rs. 116.3 million the previous year.

Despite group net assets of Rs. 4.8 billion, Carsons' ordinary share capital is only Rs. 10.2 million. On top of this, the company carries Rs. 300 million worth of 14.75% redeemable cumulative preference shares issued in January this year.

The three diversified investment holding companies within the Carsons group, The Ceylon Guardian Investment Trust Ltd.(56.5%), the Ceylon Investment Co. Ltd. (51.2%) and the Rubber Investment Trust Ltd. (100%) has a share portfolio worth over Rs. 1.5 billion. It has what the Carsons directors called "significant holdings in most of Sri Lanka's blue chip companies.''

These include Hayleys (7.58%), Ceylon Cold Stores (10.1%), Richard Pieris (5.2%) Union Assurance (15.1%) Aitken Spence (2.9%), John Keells (9.5%), Dipped Products (1.4%) and Shaw Wallace and Hedges (4.9%).

The group's quoted investments as at March 31, 1998, had a cost price of Rs. 785.4 million and a market price of Rs. 2.9 billion.

The directors of Carsons are Messrs. W. Unamboowe (chairman), Hari Selvanathan (deputy chairman), Mano Selvanathan, I Paulraj, D.C.R. Gunawardena and Mrs. R.L. Nanayakkara (resigned w.e.f. Sept. 30, 1998)

All Share Index hits 7-year low in September

The All Share Price Index (ASPI) on the Colombo Stock Exchange (CSE) hit a 7-year low on Sept. 3 reaching its lowest since May 7, 1991, the CSE Monthly Market Report for September said.

The low point on the ASPI that opened the month at 496 points was 461. But renewed buying interest shown by local institutions and individuals sent the index up during the second and third weeks of the month with the ASPI closing the month at 499.1, the report said.

The Sensitive Price Index (SPI) closed the month at 710.6, up 9.6 points from its opening while the ASPI gained 3.1 points from its opening level at the end of September, the CSE said.

According to the report, the daily average turnover during the month was down to Rs. 42.6 million from Rs. 65 million the previous month. Foreigners remained net sellers with foreign purchases for the month accounting for 22% of the total turnover while foreign sales were 44%.

CSE said that Colombo's performance during the month reflected the volatility in international markets. Regionally, Bombay reported 5% growth while Karachi moved up 14%. In East Asia, Kuala Lumpur gained 23% during the month.

Hayleys get two new directors

Two new directors have been appointed to Hayleys Ltd., one of the leading blue chips quoted on the Colombo Stock Exchange.

They are Mr. Lalith Godamunne who has had a distinguished record in both the public and private sectors as well as the U.N. civil service and Mr. A.M. Pandithage who has been an executive at Hayleys for over 25 years.

Godamunne, whose family has a sizable shareholding in the company, held senior appointments in the Colombo Commercial Company Ltd. from 1957-68. He has subsequently served as Secretary General and Director of the Mahaweli Authority of Sri Lanka, Senior Advisor for the World Food Programme in Pakistan and its Country Director in Eritrea and held a host of other senior appointments in both the public and private sector. These include a spell as non-executive chairman of Hayleys' Maritime Group.

Mr. Pandithage had a seat on the Hayleys' Group Executive Directorate for the past three years and is the Managing Director of their Maritime Group of companies,

The Hayleys board now comprises Messrs. Sunil Mendis (chairman), M.J.C. Amarasuriya (deputy chairman), M.T.L. Fernando, S. Krishnananthan, R. Yatawara, N.G. Wickramaratne, R.A. Ebell, S.S. Jayawickrame, Dr. W.M. Tilakaratna, Lalith Godamunne and A.M. Pandithage.

PIM studies 40 successful companies

The Postgraduate Institute of Management (PIM) of the Sri Jayewardenepura University has selected 40 successful companies in four key sectors of the economy for a comprehensive study of management practices of large companies in this country, Prof. G. Nanayakkara, Director of PIM said.

"The purpose of the study is to find out best management practices of successful companies,'' he explained. The sample has been selected "to examine how success had been achieved in the past.''

Based on its study, PIM is developing a series of management videos covering best practices in marketing, human resource management and finance and development. The findings will be presented at a Business Leaders' Forum and the PIM's management conference scheduled for November 5.

Nanayakkara said that their study programmed and conference is the largest ever attempted by a university here to develop a closer dialogue between the universities and the business community for mutual benefit.

One year after the Asian crisis

by Kanes
There is little visible sign of any economic recovery in East and South East Asia in the near future. Economic forecasts are being continually revised downward as what began as a currency crisis is turning into a full blown economic depression. It is a bitter ordeal for people who have been used to a boom of prosperity over 30 years to suddenly come face to face with loss of employment and income, and evanescence of hopes for a better future. Millions of people are now living through an economic calamity they never imagined possible. Middle class is fast disappearing and unemployed white collar workers are forced to perform manual labour or to hawk their family silver to earn a living; many children have stopped attending school as parents are unable to pay school fees; hospitals are overcrowded with people suffering from psychological problems; financial difficulties are breaking up marriages; crime rate - thefts, looting, arson and murder - is rising and suicides are increasing most alarmingly.

Currencies in all countries in East and South East Asia are continuing to depreciate - except for China and Hong Kong - and stock prices are yet falling in all of them as shown below:

Table
The sharpest fall in the external value of currency has been in Indonesia where the Rupiah is about 80 per cent lower than the average value in 1996. The values of currencies of Malaysia, Philippines, Thailand and South Korea have declined by about 40 per cent, and those of Singapore and Taiwan by about 20 percent. As far as the stock market is concerned the sharpest fall in stock prices has been in Malaysia where they are 64 per cent lower than a year ago. Prices of stocks in South Korea, Thailand, Singapore and Hong Kong are about 50 to 60 per cent lower; in Philippines 44 per cent lower, in Indonesia 32 per cent less and in Taiwan 28 per cent lower than a year ago.

Country Estimatedv econ. Growth for 1998 Percentage fall in stock price indices in the last 12 months ending in Aug. 98 Currency units per US dollar
Average for 1996 End of Aug'98
%depreciation of currency
China 6.8 - 8.31 8.28 -
Hong Kong -2.8 -51.2 7.73 7.75 -
Indonesia -10. 0 -32.4 2,342 11,150 -79.9
Malaysia -3.0 -64.2 2.52 4.22 -40.3
Philippines 2.5 -43.5 26.21 44.25 -40.8
Singapore 2.0 -52.0 1.41 1.77 -20.3
Thailand -8.0 -57.3 25.34 42.05 -39.7
South Korea -7.0 -59.0 804 1,336 -39.8
Taiwan 5.9 -27.6 27.46 34.80 -21.1
Japan -1.4 -18.0 109 142 -23.2

Economic growth will be negative this year in five countries - Indonesia, Thailand, South Korea, Malaysia and Hong Kong - and poor in two - Singapore and the Philippines. China's growth is expected to slow down to about 6.8 per cent in 1998 compared to 8.8 per cent in 1997 and Taiwan is likely to decline from 6.9 per cent in 1997 and 5.9 per cent in 1998. If depression is defined as a contraction equal to 26 per cent drop in GNP (as experienced by the US between 1929 and 1932), then Indonesia, Thailand, Malaysia and South Korea are in a depression as their GNP calculated in dollar terms has fallen by more than 26 per cent in 1998. According to the World Bank poverty is growing more rapidly in South East Asia than in USA in its depression. Over 350 million people are now earning less than $ 1 day - the World Bank's poverty line. In Indonesia alone the number of impoverished is expected to rise from 22 million in 1997 to 88 million in 1998 or quadruple, and 40 million will be short of food. Thailand's unemployed will increase to 2.8 million by the end this year and South Korea's has risen from 0.5 million last year to 1.5 million in June 1998. Hong Kong's unemployment is 4.5 per cent of the working force and is the highest since 1983.

IMF prescriptions caused depression
What began as a currency crisis had ended up in an overall economic depression thanks to the IMFs prescriptions to squeeze the domestic economy through higher interest rates, tight monetary policy and spending cuts. These policies were imposed on Indonesia, South Korea and Thailand even when the macroeconomic fundamentals were generally satisfactory and had been commended by the IMF itself. They had high economic growth rates, low inflation, budget surpluses and manageable current account deficits as shown below.

Table II
Macro-Economic Fundamentals 1996
Country Rate of Growth % Budget surplus % of GDP Inflation Rate % Current account deficit % of GDP Foreign Direct Investment $ billion IMF assistance $ billion
Indonesia 8.0 1.2 7.9 -1.4 8.0 43
South Korea 7.1 0.5 4.2 -5.9 2.3 57
Thailand 5.5 0.9 5.8 -7.9 2.3 16

One might say, that the current account deficits of Thailand and South Korea were relatively high but these deficits reflected the use of foreign savings not only for speculation but also for economic development. If a deficit in the current account is interpreted as a weakness, then developing countries would be prevented from the use of foreign investment and loans to supplement domestic savings to accelerate development. The IMF directed the reduction of public spending by 1 per cent in Indonesia, 1.5 per cent in South Korea and 3 per cent in Thailand, - even when all the countries had budget surpluses. This not only removed the stimulating effect of public spending on the economy but also reduced investment in the infrastructure to remove bottlenecks to development.

These policies and measures according to the IMF, were designed to restore foreign investors' confidence, attract foreign capital and strengthen the currency, but they have not only failed in achieving this objective (currencies continue to depreciate) but have also caused an economic downturn. The currency depreciation and the collapse of stock and property markets increased the foreign debt servicing cost of banks and large firms, reduced the capacity of borrowers to repay loans, increased bad loans and impaired banks' capacity to lend. Higher interest and tight monetary policy made matters more difficult to firms who had already been hit by the stock and currency markets. The 30 biggest chaebols in South Korea posted a combined net loss of $ 698 million in the first half of 1998 -the biggest loss ever recorded. They also led to the restriction of credit to thousands of small and medium sized firms who had neither borrowed foreign funds nor were listed in the stock exchange. When they closed their doors thousands were thrown out of employment. The reduction of private investment and consumption was reinforced by spending cuts to drive the economies to depression.

It is paradoxical that while the IMF and developed countries of the West were pressurising Indonesia, South Korea and Thailand to deflate or contract their economies by tight monetary and fiscal policies, they were advising Japan whose currency was also depreciating to do the opposite - to reflate or expand its economy by liberal monetary policy and increase in public spending. This application of double standards was necessary to protect their interests. In the case of Japan they want to prevent the deepening of its recession lest it affects them too; in the case of Asian developing countries, their main concern appears to be that of ensuring the repayment of foreign loans. The contraction of their economies by reducing imports (even if devaluation fails to promote exports) tends to create foreign exchange surpluses which can be used to repay the foreign loans. The IMF appears to the Asians therefore as a watchdog for the foreign banks, especially Wall Street. The objective of the IMF and the developed countries is achieved however, at great costs to the countries concerned - fall in production, closure of business firms, unemployment, poverty and social unrest. To many it appears as if Asian societies are being destabilized for the sake of defending the free market.

Japan, Honq Konq, Taiwan and China
The currency speculators who knocked off the Thai Bhat, Korean Won, Indonesian Rupiah and Malaysian Ringgit have also attacked the stronger currencies in the region. The Japanese yen has depreciated by 23.2 per cent between 1996 and August 1998 and it was as low as 147 to the US dollar in mid August. Japan has spent over $ 20 billion in the past nine months with limited success to defend the yen. Analysts expect the yen to fall to 200 per dollar by the end of 1998. As Japan is a major market for South East Asia and perhaps the largest foreign investor in the region its recovery would provide a much needed stimulus to the region's recovery. Japan however, with banks saddled with $ 620 billion of bad loans and Long-Term Credit Bank - Japan's 10~ largest financial institution - on the verge of bankruptcy, with property values falling for the last six years, and with its stock market 21 per cent lower than a year ago is expected to have a negative growth of 1.4 per cent in 1998. A survey of 4500 big firms by Japan's Economic Planning Agency reveals that the companies plan to cut foreign direct investment by 57 per cent in 1998 to $ 83 billion . Japan has also reduced its imports from other Asia by 3.1 per cent in the first 8 months of 1998. Thus no helping hand to South East Asia can be expected from Japan.

Although Taiwan's reserves are high at $ 83 billion, inflation law at 1.4 per cent, and unemployment little at 2.7 per cent, its currency has depreciated by 21 per cent since 1996 and its central bank is intervening to prevent the new Taiwan dollar from falling below 35 to the U.S. dollar. Taiwan's exports had contracted by 8 per cent in the first 7 months of 1998 mainly because of a fall in demand in the rest of Asia. Hong Kong's Monetary Authority too has spent vast sums to bolster the stock market in order to defend the Hong Kong dollar against speculators. It pumped as much as $ 390 million into selected stocks and derivatives on August 14 to defend Hong Kong's currency peg to the U.S. dollar. China has pledged its support of the Hong Kong dollar and is prepared to shift $ 10- $ 15 billion of its foreign exchange reserves to Hong Kong should another major attack on the currency materialize. The trouble however is that Hong Kong's property market has tumbled and consequently its banks are facing difficulties.

China's economic growth in 1998 is estimated at 6.8 per cent in contrast to 8.8 per cent in 1997 thanks to demand contraction in the rest of Asia and China's recent floods. In addition Chinese banks are saddled with a high proportion of non performing loans - as high as 70 per cent in some banks - and the property market in cities such as Shanghai, appears to be collapsing. Although the official exchange rate is 8.3 renminbi to the dollar, it is reported that the black market rate is about 9.0. China has expressed its deep concern on the depreciating yen and accused Japan of not taking decisive action. It is however unlikely that China will devalue its currency in the near future. While a depreciating yen could make Japanese exports more competitive than Chinese and further restrict China's exports to Japan, it will also make imports from Japan cheaper. It further reduces debt service on yen denominated debt; this is estimated at about $ 40 billion and if the yen falls by 10 per cent China would save about $ 4 billion in repayments. Further China needs foreign capital and technology and they will be more expensive if the renminbi is devalued. Perhaps the most crucial factor is that the devaluation of the renminbi is likely to lead to a second round of devaluation of other Asian currencies, crash of stock markets and further downturn in economic activity which will affect the whole world.

The U.S.A. cannot remain immune to the Asian crisis. It sells about 30 per cent its exports to Asia and the US exporting firms to Asia are facing dwindling sales and falling profits. It is not clear whether the fall of Dow Jones by 6.7% in the six months to August'98 is a reflection of this unfavourable situation. It is not only the U.S. but also Latin America has felt the ripple effects of the Asian crisis. The largest Latin American country - Brazil - had spent nearly $ 22 billion in August to defend its currency against foreign speculators who had sold their shares for dollars, and had further cut its spending and raised the interest rate from 29 percent- to 49.75 per cent.

ASEAN Weakened
While economic prosperity forged unity among the ASEAN countries then, economic hardship is tearing them apart now. The financial crisis which has degenerated into a depression is weakening the ASEAN as a regional organization by the loss of leaders who held it together such as Suharto and the loosening of international ties by priority being given to action to solve pressing national problems. It serves little purpose to talk of regional cooperation when the ASEAN economies can hardly stand up as sovereign nations. Plans to create a free trade area by 2020 have been shelved and talk of open markets and regional trade has given way to that of national self-reliance. Malaysia has already denounced formally the free market and imposed controls on currency movements to check speculation. This has created difficulties for Singapore which held a large volume of Malaysian currency in its reserves and in banks, and had to exchange about $ 3.5 billion worth of Malaysian currency and cancel billions of dollars in foreign exchange markets. The Singapore stock exchange deals in Malaysian stocks on a large scale; they form about 25 per cent of its turnover. The Malaysian ringgit is now inconvertible and no Malaysian stocks will be transacted through the Singapore stock market hereafter. Malaysia is even encouraging Malaysian exporters to stop shipments of Malaysian goods through Singapore ports. This conflict between two neighbours is bound to weaken the ASEAN as their mutual trade forms the largest share of intra-regional trade in ASEAN. Apart from this, ASEAN had been unable to come out with any concrete plan to stage an economic recovery in the region.

b
Educational reforms - will they work?

by Analyst
Educational reforms are being pursued eagerly going by newspaper reports. Education is a nationalised industry and suffers from the same disadvantages as other state owned enterprises. It is politicised.

The politicians exercise patronage in appointments, promotions, transfers and even discipline of teachers. Teachers have to support the party in power if they are not to be victimised. Many teachers have been appointed through political patronage. They owe their appointments not because of their suitability to teach but because they knew the politicians and had cultivated them.

In 1994 the educational system was over-staffed by as much as 50,000 according to a newspaper report, although there were wide anomalies in their deployment in the various schools with many schools under-staffed while others had excesses.

Just as in the case of state corporations, the ruling politicians of both parties have sought to solve the unemployment problem of the educated youth by appointing them as teachers in state schools. Education is only as good as the teachers who educate. So, given the poor quality of teachers appointed on political patronage, what hope is there for improvment in education in the state schools?

Teaching, in the past, particularly English teachers was an occupation for the educated middle class, when teachers were paid better than clerks. Although there are no statistics, it is evident that teachers earn less than other white collar jobs. So any reform should tackle this problem of poor quality of teachers and how to attract a better quality of persons to the teaching profession.

The required qualification should be raised and there should be a probationary period when they should be trained. Higher pay must be given for those who teach subjects like English, Mathematics, or the Sciences and higher pay should be given to those who serve in the more backward schools in remote areas.

It may be desirable to attract fresh talent and older people who may like to enter the profession. At best such recruitment will let in a breath of fresh air, at worst it will allow people who have failed in other jobs to turn to teaching as an escape route.

Teachers should be enabled to become specialists just like in the case of doctors. Such specialists should of course be paid more and deployed in tackling problems in the most backward schools. Teachers recruited should first be treated as probationers and trained not only in the theory but also the practice of teaching, teaching in schools where they could be evaluated. Anyone who wishes to make teaching a career should be able to do so without being shunted on to administrative jobs.

Of course they should have career prospects in teaching with higher grades carrying higher salary scales. Administrators require a different type of skill and principals should be picked only from those who have such skills.Educational attainments by way of qualifications are not the best test of such administrative skills. The country suffers from a paucity of such skills.

School Admissions
The present school admissions procedure needs to be changed. It is a farce since the catchment area rule of residence within 2 miles of the schools is flagrantly violated. Parents cheating to qualify within this regulation, is more the rule than the exception.

The schools are in the city while the population has moved to the suburbs with the increased urbanisation, leaving the neighbourhoods of leading city schools to be occupied by slum dwellers who are also illegal squatters. A strict enforcement of the area rule would mean that these schools have to be reserved for these children.

The English statesman Edmund Burke stated that no law or regulation should ever be passed, however good the objectives behind it, if it cannot be enforced. The majority must obey the law without compulsion, leaving only a minority against whom a law has to be enforced. Otherwise the law becomes a dead letter.

It is an open secret that school authorities collect big money as a donation when they admit a child to a prestigious school. The law makes such donations illegal. But school authorities collect them and to avoid the hassle and minimise the risk of being detected violating the law, they collect such money in a single lump sum.

If the present ban was removed then the schools may collect such fees in instalments helping the less well-to-do who wish to admit their children to these schools. Both the area rule and the ban on donations should be removed as they are being flagrantly violated, cannot be effectively policed and have no rationale except to preserve the facade of "free education".

The free education scheme has failed to provide equality of opportunity. Those who proclaim it as the pearl of great price" as it was once called, are only being hypocritical. Those who argue that the way to improve state education is to throw more money at it, are ignoring the evidence.

In the 1960's when American state spending on education was doubling fast, Coleman could find no correlation between these - higher expenditure per pupil and the standard of education that any pupil achieved. The report only confirms Adam Smith's cynical view that money thrown "at non fee paying education" would disappear down the sink of a system" in general contrived, not for the benefit of the students, but for the interest or more properly speaking for the ease, of the masters".

The present system of school admissions favours the middle classes. Education is free but admission to a quality education in the better urban schools, costs money. Also, although education is free, transport to a distant school is not.

Would it not be better to promote private fee levying schools and subsidise the children who wish to enter such schools? The private sector should be encouraged to set up fee levying schools. Their fees are undoubtedly too high. Since the children attending such private schools have an entitlement to free education, the state could pay part of the fee of a pupil, equivalent to the per capita expenditure incurred if such pupils were to attend a state school.

The success of a school depends on a sense of involvement which comes from parents and past students and a sense of dedication on the part of the teachers. Why not allow private fee levying schools to be set up freely? In the state of New York in U.S.A. anyone can set up a school of his own.

The city schools have grown too large and become impersonal if not anonymous units. Teaching a large number of students in one classroom doesn't provide equal opportunity for all the students. The class-room numbers as well as the size of the school must be trimmed. We need more schools and we need to site them in the suburbs where the people live.

Equality of Opportunity
Max Weber, the famous sociologist called them "life chances" - the opportunities for people to improve their living conditions. Some people enjoy better "life chances" than others. How much control a person can exercise over his life and decide where to live, where to work, marry, spend his leisure, are all part of such life chances.

How one person's life chances are affected by the behaviour of others in society is important. We value equality and want other people to have life chances as good as what middle and upper classes enjoy. The life chances vary from one individual to another and from one group to another. Many in our society are rural based poor and their opportunities for improvement in living conditions is bleak. The job opportunities of our women have improved by the jobs available as housemaids in the Middle East and hence the desire of many to work abroad although they are aware of the risks of sexual harassment.

Generally in a stagnant society like ours, there are few opportunities for the poor to improve their life chances. People's life chances, change very slowly over time. For centuries our village peasants saw no improvement in their living conditions. It is essential to promote economic growth if the life chances of the poor are to improve. Otherwise they will go on living in the months and years ahead in the same conditions whatever promises are made by politicians.

There is inequality in the distribution of wealth and power and we regard extreme inequality as undesirable. But given extreme inequality of wealth and power, it is hard to provide equality of opportunity. What we mean by equality of opportunity is that all positions in society, the high paying jobs which rank in social status as well, are open to all irrespective of their background of caste, race, gender and social class.

A society that wants to promote equality of opportunity, must recruit to these higher jobs and positions only through merit. People in higher social classes have better opportunities for improving their living conditions. What is more, their children also have better chances than children born into lower classes. Better initial conditions of wealth and power affect equality of opportunity. So we start with vastly unequal wealth and power, equality of opportunity becomes empty.

Free education is often praised as having enhanced equality of opportunity. When central schools were set up teaching in the English medium, opportunities were certainly enhanced for children in small towns and semi-rural areas.

But vernacular education had always been free and such education had not provided access to the higher jobs. So, the Free Education Scheme only enhanced opportunities for the urban middle classes.

So in the 1970's the medium of instruction in the universities was changed into Sinhala from English, bringing down the quality of university education. It was assumed that this will open up avenues for the mass of rural students who received their education in Sinhala. It did nothing of the sort.

Scarcity of resources is a fundamental fact which is the starting point of economic analysis. The number of high paying, high status jobs in the economy are limited and cannot be increased in the short run and even in the long run it cannot be done without considerable investment in the economy as a whole. Most of these high paying jobs like doctors, engineers and accountants are service occupations and their number cannot be increased unless the demand for them increases as a result of higher per capita incomes and investment.

So, the scarcity of such jobs means that what is available has to be shared out among a larger number of competitors. All can't succeed in getting such jobs even if they are qualified to hold them. So we have unemployed graduates in large numbers.

Soon, those who pass out of medical schools will join the ranks of the unemployed like their peers who did arts and sciences. The reaction from those in the professions is to limit such competition by reducing the number of medical students.

In a free market the supply of doctors would be reduced as students compare costs and returns from the investment in education. But when university education is free, market forces don't operate and a policy decision is required by the state.

Politicians think only of the short term and their interests. They cannot win votes if they say they are going to limit university education. But given the inability of the state to find the revenue to fund the expansion of universities.

It is foolish indeed to add to the student intake to the universities. In fact in order to improve university education it would be better to increase the funds while limiting the intake. More money will then be available to improve the facilities in the universities.

To quote the percentage of numbers entering universities in relation to the population proves nothing. Education mirrors the society as much as it creates it. The manifest social evils such as ragging and indiscipline, teenage suicides are due to the wrong educational system.

The idea of secondary education for all is less than half a century old even in the developed western countries. Throughout our history, education has been limited to a few, the monks in ancient times. As for university education it is still not provided for all anywhere in the world.

Those countries like U.S.A. may provide university education for a larger percentage but such education is not free. In fact none of the developed countries provide university education free of charge, not even Britain where in the last budget under the new labour government introduced fees to be paid.

How can a poor country like ours afford to provide university education free for a large number of students? The political leaders do not value the education provided in our universities. The president was educated abroad. Her daughter is reported to be contemplating entering a foreign university. What is good for the hoi polloi is not good for the elite.

University education is intended mainly to educate the future elite. It is esential not to sacrifice quality. The very fact that private schools which levy high fees, attract students is itself the most damning indictment of the state schools which are free. The fact that those who can afford to send their children to foreign universities abroad shows that they do not rank our universities among the best.

The quality of our university education has deteriorated. They are no different from schools. Our reformers do not face upto these facts. They pretend otherwise. They would rather say that more money should be spent on education. But such money would be going down the sink as Adam Smith stated.

State education has failed, free education has failed to provide equality of opportunity, although interested parties continue to proclaim it from the house tops. The poor physical state of many rural schools may be due more to the mismanagement of resources even than the lack of cash, for the uneven provision of facilities, repairs to buildings etc.

Parent Power
As long as the state schools are run like government departments from the Battaramulla complex, there will be little improvement in their condition. Parents must be involved in the management of the schools. The school boards should be given greater autonomy. They should be given power to manage their schools. They should be allowed to recruit teachers according to criteria laid down by the department. They should be given a budget and financial powers to equip the school.

Some feel that there is corruption at the grassroots level. There undoubtedly is. But it is no worse than corruption among public officials at the centre. At least those who practise corruption at the grass roots level will be detected by those who suffer from such corruption.

Democracy and good governance are learning processes and one learns administration only by the practice of it. Parents should be in a majority on the school boards and all state money should be channelled through them, in block grants.

Another problem which reformers have ignored is the poor discipline in schools. Should there be corporal punishment, should students who behave badly be caned?, Ragging is already a menace. Our politicians have passed a new law imposing severe punishment for raggings. Should teachers be strict and authoritarians or democratic? Which have best results? Answer: authoritarians have least trouble in class, democratically controlled children have better behaviour when no teacher is there (which is more important).

Laissez faire approach has the worst results on all scores. The ideal system is agreed disciplinary approach, but not much use of actual punishment. As Coleman says of U.S.A. "in all areas of behaviour without exception, the public (state) schools have greater behaviour problems than the Catholic schools private free levying schools in USA do better than public sector schools in all areas, such as attendance, cutting classes, fighting and thereatening teachers.

So even if education is free there should be choice for parents. Then those schools with bad records will not attract pupils. The proposals for extending parental choice of schools is based on vouchers. Each child would get an annual book of three vouchers, one for each term.

The value of a voucher will be based on the current cost per pupil in state school at primary and secondary levels. The parents could spend the vouchers by continuing to send them to the same school or to one of the private schools.

Slate educational monopoly has to be dismantled and state schools should be called upon to compete with private schools if the quality of education is to be raised.

Lankem reports "phenomenal'' profit growth but faces contingent liability

Lankem Ceylon Ltd., a member of the E.B. Creasy Group has, after a lapse of two years, declared a 25% dividend to shareholders following what the company's chairman, Mr. N. Jayasingam called "a phenomenal growth'' in profitability fuelled largely by earnings from plantations. The trading activities of Lankem too had contributed to the profits, the chairman said.

The group profit before tax for the year ended March 31, 1998, at Rs. 370.9, was up from a loss of Rs. 16.3 million the previous year. Although these earnings were sufficient to erase a carry forward loss of Rs. 16 million and pay the dividend absorbing Rs. 30 million, the company has transferred Rs. 7 million from its general reserve to the profit and loss account. After paying the dividend, Rs. 14.8 million of retained profits are being carried forward in the books.

The company's auditors, KPMG Ford, Rhodes Thornton and Co. has without qualifying their opinion on the accounts drawn the attention of shareholders to a contingent liability confronting the company. This relates to an inquiry by Exchange Control into a transaction relating to Lankem Tea and Rubber Plantations (Pvt) Ltd. (formerly George Steuarts Management Services Ltd.) and Kotagala Plantations Ltd. and the sale of Kotagala debentures.

Exchange Control had imposed a penalty of Rs. 115.5 million on Lankem in this regard. The company has totally denied any contravention of the Exchange Control Act and filed an appeal to the finance minister against the penalty imposed in July last year. No response to this appeal made in August 1997 had yet been received, the Lankem report said.

The auditors have also drawn members' attention regarding a winding-up application of Agrapatana Plantations Ltd., a Lankem company, filed in court by a creditor. Lawyers for Agrapatana had tendered in open court a bank pay order in favour of the creditor in full settlement of the claim, the report said.

"The creditor sought to return the said draft but the court refused to make order for return. In turn, Agrapatana has sought an order of the Colombo District Court to dismiss the winding up application by the said creditor,'' the report said. This matter is now in the Appeal Court.

Jayasingam said that during the year under review the net worth of the group had increased from Rs. 282 million to Rs. 305.8 million. Aggregate borrowings too had grown to Rs. 1,413 million from Rs. 1,398 million.

Discussing prospects, the chairman said that the group's activities encompass three major sectors - manufacture and marketing of chemicals and allied products, tea and rubber plantations and hotels. Prospects for chemical based products in the ensuing year were satisfactory. But the outlook for plantations "is not very encouraging'' and "uncertain'' for the hotel industry.

Two of the company's directors, C. Jayaratne and R. Thambiah resigned during the year under review.

The directors of Lankem are Messrs. N. Jayasingam (chairman), S.D.R. Arudpragasam (deputy chairman), A.C. Gunasinghe (managing director), A. Rajaratnam. C. Karunanayake and R.N. Bopearatchy.

Turnover doubled and losses reduced
Elephant Lite remain in the red under new ownership

Elephant Lite Corporation Ltd., the makers of Laxapana batteries which is now a member of the E.B. Creasy Group, has succeeded in doubling turnover and reducing losses in the year ended March 31, 1998.. But the company been unable to turnaround to profitability and begin making a dent on its substantial carried forward losses.

Reporting to shareholders the company's chairman, Mr. N. Jayasingam said that turnover during the year ended March 31, 1998, had increased to Rs. 160.5 million from Rs. 80.8 million a year earlier. But the company incurred an operating loss of Rs. 21.3 million, down from Rs. 35.5 million the previous year.

After interest charges and other income, the loss was Rs. 34 million, down from the loss of Rs. 53 million the previous year.

"Even though the turnover doubled, the company was not able to bring its cost of production down to the extent planned. The steps taken in regard to reducing the cost of production have manifested in the current financial year,'' Jayasingam said.

In May 1997, E.B. Creasy and Co. Ltd. purchased the Hatton National Banks 37.5% stake in Elephant Lite at a price of Rs. 2 per ten-rupee share. Darley Butler and Co. Ltd., a member of the E.B. Creasy Group, acquired from HNB the debt of Rs. 337.4 million owed to the bank by Elephant Lite. No interest was payable on this account during the year under review.

At the end of the year, Elephant Lite was carrying forward Rs. 456.4 million in retained losses in its books.

Jayasingham said that the year saw the company modifying machinery to increase capacity, standardising torch cell production and reducing manufacture costs. Some of the previously imported components are now manufactured by the company itself and further machinery is on order to produce other components here.

"A new generator has also been installed to enable the factory to work continuously without interruptions due to power failures. These measures together with prudent commercial practices have reduced the cost of production in the current financial year,'' the chairman said.

They had also negotiated a wage settlement with the Ceylon Mercantile and Industrial Workers Union covering all the company's employees. This settlement will be effective until March 31, 2000.

Darley Butler which is handling the company's marketing have embarked on an aggressive campaign to regain the market share lost in the past few years. Darley Butler is also marketing Laxapana penlite batteries, flashlights, fluorescent tube lights and domestic bulbs earning valuable income.

Jayasingam said that although the year's losses have eroded the company's working capital, its operations have not been affected. They were confident of returning to profitability in the medium term as a result of re-organising and streamlining production and marketing.

He thanked HNB for the support and encouragement extended in restructuring operations of the company and their continued support.

Elephant Lite which was incorporated as a public company in 1956 and quoted on the Stock Exchange from 1982 was the country's pioneer manufacturer of dry cell batteries. Its factory and offices are located on 8.5 acres of freehold land at Homagama. The company employs 150.

The directors of the company are Messrs. N. Jayasingam (chairman), S. Ediriwickrame (nominee director of the Ministry of Industrial Development), S.D.R. Arudpragasam, A. Rajaratnam, A.H. Wijayasekera and A.C. Gunasinghe.

Carsons sits at apex of new arrangements
Ceylon Guardian takes control of two associates

The Ceylon Guardian Investment Trust Ltd. (CGIT), the wealthiest portfolio investor quoted on the Colombo Stock Exchange, has now become the holding company of its associates, the Ceylon Investment Co. Ltd. (CICL) and the Rubber Investment Trust Ltd. which too own valuable share portfolios.

CGIT remains a subsidiary of the Carson Cumberbatch Group that retains the 56.5% holding of this company it held prior to the restructuring.

Shareholders of CGIT have been told that there has been a "reconstitution'' of the Carsons Group and its associate holdings in CGIT during the first half of the current financial year ending Sept. 30, 1998. This has been undertaken to "rationalise the operation of CICL under CGIT.''

This has been achieved by a multi-pronged arrangement under which CGIT acquired shares in CICL from related companies of the Carsons Group and its associates, thus making CICL a subsidiary of CGIT. CGIL now holds 52.58% of CICL.

Subsequently, a 25.5% holding of CGIT held by CICL was transferred to Carson Cumberbatch and Co. Ltd.

CGIT has disposed of blue chip shares of Ceylon Cold Stores, Richard Pieris, Lion Brewery and John Keels Holdings to CICL and the Rubber Investment Trust, to fund these transactions.

"The net result of this reconstitution was that CGIT has now become the holding company of CICL and the Rubber Investment Trust while the Carsons Group and its associate holdings of CGIT which was 56.47% prior to the restructuring remains at the same level,'' CGIT has told its shareholders.

The company said that due to this transfer/disposal, the value of the company's investment portfolio had increased to Rs. Rs. 399.9 million, whereas it would otherwise have been worth Rs. 390.4 million.

Looking at the Colombo stock market during the half-year under review, Carsons Management Services Ltd. who are CGIT's managers, have said that the bourse is now "experiencing the worst effects caused by the pullout of foreign funds from regional markets.''

"With most blue chips trading at historically low levels, retailers were buying stocks at bargain prices. The Russian crisis had its toll on the stock market as expected with the plantation sector being the worst affected,'' the managers said.

They said that the "temporary setback'' in the market did not have a major impact on the group as it owned high quality stock with attractive long term potential. These shares could be expected to gain significantly in value when the market recovers.

The managers said their investment activity will be "fairly moderate'' in the current market situation and CGIT would focus on investing for the long term to strengthen its portfolio rather than trade for short term gain. They would look for opportunities to add good quality stock to its portfolio "at the appropriate time.''

The directors of the Ceylon Guardian Investment Trust are Messrs. I Paulraj (chairman w.e.f. 22.6.98). D.C.R. Gunawardena, S.C. Fernando, Asoka de Z. Gunasekera and P.C.P. Tissera.

You've got to open your mouth wide to get a good bite of a McDonald's hamburger as this picture vividly illustrates. Industries Minister C. V. Goonaratne was chief guest at the opening of the first McDonald's restaurant in Colombo along with US Ambassador Shaun Donnely. The two of them are pictured here with the local franchise holder, Rusi Pestonjee, and David Wilson of the International Operations Office of the Mcdonald's Corporation. The Colombo restaurant located at the Abans Building on Galle Road, Kollupitiya seats 170.

Seylan hits Rs. 600 m. debenture target

The Seylan Bank Friday announced that its recent debenture issue has been fully taken up after the bank had exercised the option of doubling the Rs. 300 million worth of debentures it had first offered.

"On day one itself the issue of Rs. 300 million was oversubscribed and Seylan exercised the option to further extend the issue by another Rs. 300 million making a total of Rs. 600 million,'' a news release said.

It said that the bank regarded the subscription of these debentures "as a good augury for future business trends.''

British Trade Fair '98: Important seminars at the Oberoi

The British Trade Fair 1998 (BTF '98) will take place at the Lanka Oberoi Hotel between November 9-11. In parallel with the Trade Fair, a number of other important events are being arranged by the British High Commission and British Council, including a series of seminars which will be of wide interest to the business community, a British High Commission news release said.

The British Council - whose Educational Information Service is already well known in Sri Lanka - will be organising three seminars on Management and Leadership: over the period 9 to 11 November. For further details contact Jill Morgan at the British Council.

A variety of other seminars are being arranged by the British High Commission, in co-operation with the Department of Trade and Industry in Britain: these include:

Ceramics: Waste Minimisation in the manufacturing process: 9 November at 13.30.

ISO Standards: the ISO 9000 series, its history, development and benefits; and the new hot topic ISO 14001 on Environment Management Systems: 10 November at 9.30.

Renewable Energy: a number of speakers will focus on the global market for renewable energy, the revival of small hydro developments in Sri Lanka, and conditions for the development of commercially viable and financially sound renewable energy projects: 11 November at 9.30.

A British High Commission spokesman said:

"In arranging these seminars we have focused on what we believe to be topics of particular interest in Sri Lanka. We have made a special effort to fly people out from Britain who are acknowledged experts in their field, and very much hope that the seminars will be well attended and lively".

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