The Island business

Lanka Milk Foods (CWE) Limited, the packers and distributors of Lakspray, which had been hit by a protracted labour dispute throughout the financial year ending March 31, 1997 has summoned its annual general meeting to consider the report and accounts for that year on December 10.

The company's Chairman, Mr. V. P. Vittachi, regretted that the AGM had to be delayed so long "due to the labour dispute that went on right through the financial year under review''.

He reported a loss of Rs.52.4 million for this period and attributed it to the dispute that disrupted production and resulted in the company losing market share.

"The strikers who carried out a propaganda campaign against the product and against the management of the company, played into the hands of our competitors, who made use of the opportunity and capitalised on the issue to consolidate their position in the market. With time the public has now realised that there is no merit in this false propaganda'', Vittachi said.

He claimed that the LMF directors have "now ended the era of work disruption'' and were in the process of revamping the company and revitalising the product to meet current market demands.

He assured shareholders that the company would be brought back to profitability "within a reasonable period of time'' provided there were no further increases in government levies by way of import duty and other taxes.

Vittachi said that the government's program of making the country self sufficient with liquid milk and reducing the import of powdered milk had not been successful. Hence there was still room and time "to rebuild our lost market share with a vigorous sales campaign''.

He said that the directors had reconsidered the earlier strategy and decided to continue to feed the market with powdered milk until such time as government's liquid milk program takes off.

The chairman thanked the members of the board and staff at all levels who had cooperated with the management specially during the period of turbulence "in maintaining production even at this level under trying and very difficult conditions''.

LMF had an operating loss of Rs.82.7 million during the year under review, down from a loss of Rs.133 million a year earlier. The loss was offset by other income of Rs.30.3 million (Rs.35.4 million the previous year) and the net loss before taxation was Rs.52.4 million for the year, down from Rs.97.6 million a year earlier. After meeting a modest Rs.3.4 million tax liability (Rs.3.8 million the previous year), the company had a loss of Rs.55.8 million for the year under review, down from a loss of Rs.101.4 million a year earlier.

LMF has a substantial stake in the Distilleries Company of Sri Lanka in which it owns 38 million shares.

The directors of the company are: Dr. V.P. Vittachi, Messrs. D.H.S. Jayawardena, R.K. Obeysekere, Z. Alif and C.R. Jansz.

Australia's Pacific Dunlop Cables Group which, through a subsidiary, is the controlling shareholder of Kelani Cables Limited is looking at a further expansion of its Sri Lanka operation.

Mr. Andrew Stobart, who succeeded Mr. Ian Campbell, the former managing director of Pacific Dunlop Cables as chairman of Kelani Cables has indicated the possibility of building a new factory at Kelani's Ekala site.

"At the current level of turnover, it is not unreasonable to investigate the possibility of building a new factory at our Ekala site'', he has told Kelani shareholders.

"Given the turnover and the resulting profit forecasts, it is our intention to pay for the buildings with internally generated funds. Accordingly, your board has directed the Kelani management to study the feasibility of such a proposal. Based on their recommendations the board will make a decision during the current financial year'', he said.

Stobart said that if it was decided to build a new factory, the project would commence in the year 2000. The cost of such an undertaking, he said, will be significant in terms of funds and human resources. They have therefore been conserving retained profits in the past few years.

However, Kelani shareholders who had received no dividend in the past few years will get 20% for the year ended June 30, 1998. Stobart said that the directors were aware of the expectations of some shareholders for a higher dividend. But they had deferred the declaration of a bigger dividend until a decision is made on the construction of a new factory.

The chairman noted that despite a substantial development program to increase capacity both in product range and volume, the company had been able to increase the turnover 28% over the previous year.

However, earnings from operations as a ratio to turnover had dropped to 9.6% in the year under review from 10.6% the previous year.

Nevertheless, the directors were satisfied with developments during the year. An unprecedented development program is expected to more than double the company's production capacity once the ongoing installation work is completed.

"Your company has already spent over Rs.100 million in this expansion program'', the chairman said.

Alongside production, the sales volume too had been increased in the face of intense competition. Supporting the sales effort, the company's operational staff had manufactured and distributed over Rs.500 million worth of wire products during the year under review.

"To have achieved this in the midst of considerable disruptions, arising out of engineering activity, is quite an accomplishment'', Hobart said.

He said that in 1995, during the first year of Pacific Dunlop's stewardship of Kelani Cables the focus was in building a new integrated cables factory to manufacture both power and telecommunication cables. Due to the unsettled political situation in the country at the end of 1995, the directors decided to suspect work on this project.

It was only towards the end of 1996 that the board decided to undertake a limited expansion of Kelani.

"I must say that I am impressed with the developments that have taken place since. I am told that we have come a long way since Pacific Dunlop's initial participation in Kelani. It is also encouraging to note that Kelani has consistently improved its turnover and has been able to record satisfactory operating profits along the way'', he said.

Lanka Olex Cables (Pvt) Limited owns 75% of Kelani Cables. Pacific Dunlop has 75% in Lanka Olex while the DFCC bank owns the balance 25%.

The directors of the company are: Messrs. Andrew Stobart (w.e.f. 22.9.98.) Alternate U.L. Kadurugamuwa), Ronald McGillivray (Alternate U.L. Kadurugamuwa), Huat Tan (Alternate U.L. Kadurugamuwa), Kamal Weerapperuma (Resigned 31.8.98) and Jayantha Nagendran.

Hayleys Limited, one of the country's most diversified conglomerates, has posted an after-tax profit of Rs.343 million for the 6 months ended September 30, 1998.

The company's chairman and chief executive officer, Mr. Sunil Mendis, said that this performance exceeded that of the corresponding period in the previous year by 8%.

"The profit attributable to shareholders was marginally above that of the corresponding period'', Mendis said.

He said that their environment, rubber, coir, transportation and plantations businesses had yet again contributed to the half-year results.

"Despite difficult trading conditions overseas and at home, the group's expectations for the year as a whole remain reasonably positive'', he said.

Group turnover during the period under review at Rs.4.1 billion was up from Rs. 3.7 billion during the previous year's first half. Other income comprising interest, income from investments, profit from the sale of investments and profit from the sale of property, plant and equipment of Rs.19.2 million together with Rs.18.9 million share of associate company profits helped to boost the pre-tax profit to Rs.439.9 million. This compared with Rs.401 million a year earlier.

Tax on group profits have grown to Rs.96.4 million from Rs.83.9 million a year earlier. The after-tax profit of Rs.343.5 million for the half year compared with Rs.317.1 million a year earlier.

Minority interest at Rs.179.8 million was up from Rs.157.9 million in the first half of the previous year and the profit attributable to Hayleys shareholders was Rs.163.6 million, up from Rs.159.2 million a year earlier.

Hayleys has an issued share capital of Rs.264 million, a capital reserve of Rs.2.1 billion and revenue reserve of Rs.1.4 billion.

Plantations and inland production and marketing had been the highest contributors to group turnover during the period under review.

A Hayleys share was valued at Rs.145.00 on September 30 and during this 6 month period recorded a high of Rs.240.00 and a low of Rs.120.00. Bonus shares announced at the end of the last financial year are now being issued.

Eleven companies in the present sen-sitive price index (SPI) of the Colombo Stock Exchange (CSE) have been excluded from the new Milanka Price Index (MPI) which replaces it from Jan-uary 4, 1999 (the first trading day for the new year), the CSE revealed.

The term Milanka has been coined from the Sinhala words mila (price) and an-gka (numbers) with Lanka built in, ex-plained CSE Director General Hiran Mendis at a news briefing last week.

The companies exiting from the old SPI are Central Fina-nce, Chemical Indus-tries, LOLC, United Motors, Ceylon Oxy-gen, Blue Diamonds, Bata, Korea Ceylon, Singer, Merchant Bank and Lanka Ceramics.

New entrants to the MPI who were not in the SPI are Asia Capital, Ceylon Cold Stores, Distilleries, Lion Brewery, Nestle, Ceylon Brewery, Trans Asia, Lanka Lubricants, Wata-wala, Maskeliya and Kelani Valley.

Mindset explained that the SPI looked at returns synonymous with a blue chip index. MPI was not a measure of blue chips but is a device conducive to the in-troduction of index based instruments. Like the SPI earlier, it mirrors the changes of the all share price index (ASPI) and also addresses the issue of liquidity.

The plantation shares which were not in the SPI, last revised in 1994, is included in the MPI whose 25-strong com-position represents 55% of the CSE's market capitalisation and about ten percent of its 243 listings. The companies in the MPI are:

Banks, finance and insurance: Sam-path, NDB, DFCC Bank, Commercial Bank, HNB and Asia Capital. Beverages, food and tobacco: Ceylon Cold Stores, Distilleries, Lion Bre-wery, Pure Beve-rages, Ceylon Toba-cco, Nestle and Cey-lon Brewery. Cons-truction and Engi-neering: Colombo Dockyard. Diversified: JKH, Aitken Spence and Hayleys. Hotels and Travels: Asian Hotels and Trans Asia. Manufacturing: Grain Elevators, Richard Pieris and Lanka Lubricants. Plantations: Wata-wala, Maskeliya and Kelani Valley.

Mendis said that according to a study done by CSE, the degree of correlation between the ASPI and the MPI is 99.5%, about the same as it was between the SPI and the ASPI. He said that CSE expects to revise the MPI annually - something that was not done as far as SPI was concerned.

Haycarb Limited, the Hayleys subsidiary, has seen a downturn in profits attributable to the company during the first half of the current financial year despite a slight increase in turnover, an interim report to shareholders indicated.

There has been a sharp increase in the minority interest of the company during this period. This plus an increase in the tax liability had depressed the bottom line although the pre-tax profit for the half year under review at Rs.77.5 million was running marginally ahead of Rs.77.4 million earned a year earlier. Minority interest grew from Rs. 6.4 million for the whole of the previous financial year to Rs. 14.3 million for the first half of the current year.

Haycarb Chairman Sunil Mendis explained that the rise in the minority interest was largely due to their Thai associate, Carbokarn Co. Ltd. of Bangkok demonstrating excellent results during the period due to currency advantages accruing from the Thai devaluation.

"We own only 50% of that company and that accounts for the minority interest rising during this period'', Mendis explained. "We are trying to commission a fourth kiln in the Thai factory to maximise production there.''

Mendis said that Carbokarn, with one third the capacity of their Sri Lanka operation, has been twice as profitable as the two factories here. That was largely due to exchange rate advantages vis-a-vis the Sri Lanka operation.

``In Thailand the bhat price of coconut shell charcoal, the basis raw material for producing activated carbons is the equivalent of USD 110 per/mt,'' Mendis said. ``In Sri Lanka it's USD 160.''

Haycarb is a multinational company with subsidiaries and associates in England, Australia and the USA in addition to its Thai production facility.

During the half year under review, the share of associate companies losses had also grown to Rs.6.9 million from Rs.2.7 million a year earlier. However, Haycarb finished its last financial year with a profit share of Rs.8.7 million from its associate companies and the loss making picture is likely to change by the end of the financial year. ``It will be wiped out by the end of the year,'' Mendis said.

Taxation too was up during the half year under review to Rs. 15.3 million from Rs. 10.7 million a year earlier.

by Kanes
The current policies of the State are designed to create the appropriate 'enabling' environment for the free market and the private sector to be the engine of growth by emasculating the public sector of the economy through privatization of state enterprises, eliminating of state intervention, control and regulation, giving up state monopolies and cutting down government expenditure and reducing of the budget deficit. We shall examine here only the reduction of government expenditure and its adverse effects on capital formation and human welfare.

Government Revenue and Expenditure as % of GDP
	1991 - 93	1995 - 97
Total Government Expenditure	29.04	26.94
Current Expenditure	21.24	22.10
Capital Expenditure	6.46	5.31
Lending and Repayments	1.34	-0.46
Government Revenue	20.05	19.23

Let us compare the recent three years with the previous three years 1991-93. The government has been made leaner by reducing total government expenditure from 29.06% of GDP in 1991-93 to 26.94% in 1995-97. Total expenditure has been reduced by cutting capital expenditure from 6.46% to 5.31% between the two periods and not by reducing current expenditure which has actually risen between the two periods. Government expenditure has invariably exceeded government revenue, but the difference has been narrowed. In 1991-93 the excess of expenditure over revenue on the average was 8.99% of GDP but in 1995-97 it has been brought down to 7.71%. (The excess of expenditure over revenue does not correspond to budget deficit figures given by the Central Bank which show an average of 9.0% of GDP in 1995-97 which is the same as in 1991-93).

In the three years 1995 to 1997 however both current and capital expenditures have been reduced, current from 23. 1% of GDP in 1995 to 22.8% in 1996 and 20.7% in 1997 and Capital from 6.2% in 1995 to 4.9% in 1996 and 5.0% in 1997. In addition, government net lending to public corporations and statutory bodies has been reduced from 0.7% in 1995 to 0.1 % in 1996 and -1.9% in 1997. All these combined to reduce total government expenditure from 30.0% of GDP in 1995 to 27.8% in 1996 and to 23.8% in 1997. Thus the extent of the reduction of government expenditure between 1995 and 1997 was 6.2% of GDP. No attempt was made in this period to increase government revenue; on the contrary revenue was reduced by reduction of taxes and tariffs - which we shall study later - from 20.4% of GDP in 1995 to 19.0% in 1996 and to 18.5% in 1997. So the budget deficit was reduced from 10.1% of GDP in 1995 to 9.4% in 1996 and to 7.9% in 1997 by purely cutting down expenditure.

Government Finances 1995-97 as % of GDP
	1995	1996	1997
Total expenditure	30.0	27.8	23.8
Current expenditure	23.1	22.8	20.7
Capital expenditure	6.2	4.9	5.0
Net lending	0.7	0.1	-1.9
Total revenue	20.4	19.0	18.5
Budget Deficit	-10.1	-9.4	-7.9
(Central Bank Annual Report 1997)

Economic and Social Costs of reducing Expenditure
The burden of the marked reduction in government expenditure fell most heavily on economic and social services. Expenditure including both current and capital on Economic Services which was 6.62% of GDP in 1995 fell to 4.48% in 1997. The biggest casualty was Agriculture and Irrigation where total expenditure fell from Rs.9,886 million in 1995 to Rs.8,612 million

in 1996 and to Rs.7,503 million in 1997. Thus, expenditure on Agriculture and Irrigation in 1997 was 24% lower than in 1995. Reduction of expenditure on Agriculture and Irrigation is one of the major causes for the slow growth of the agricultural sector by 3.2% in 1995, -4.6% in 1996 and 3.1 % in 1997. Paddy production in 1997 for example was lower than in 1995 even when there was no drought in 1997.

The other casualty was Transport and Communications where total government expenditure declined from Rs.20,894 million in 1995 to Rs.15,059 million in 1996 and to Rs.14,620 million in 1997; the reduction between 1995 and 1997 was 30%. Expenditure cuts in transport explain the poor state of that sector today: antiquated railway with frequent rail derailments, inadequate bus transport and bad roads.

The expenditure on agriculture and irrigation was reduced from 1.5% of GDP in 1995 to 0.8% in 1997 while that on transport and communications was reduced from 3.1% to 1.6%. Even expenditure on energy and water supply was reduced from 0.9% to 0.8% between these periods. Not only did expenditure on all Economic Services fall in absolute terms in the three years 1995 to 1997 but it was also relatively lower than in the previous three years 1991-93. Economic Services accounted for 5.3% of GDP in the three years 1995-97 which was lower than 6.7% of GDP spent on them in 1991-93

	1995	%	1996	%	1997	%
Agriculture and Irrigation	9,886	1.5	8,612	1.1	7,503	0.8
Fisheries	466	-	459	-	636	-
Manufacturing and Mining	502	-	638	-	2,041	0.2
Energy and Water Supply	5,993	0.9	6,625	0.9	7,302	0.8
Transport and Communications	20,894	3.1	15,059	2.0	14.620	1.6
Trade and Commerce	192	-	996	-	341	-
Other	6,243	0.9	7,827	1.0	7,457	0.8
Total	44,184	6.6	40.216	5.2	39,898	4.5

	1995	%	1996	%	1997	%
Education	18,908	2.83	20,402	2.66	22,349	2.51
Health	10,952	1.64	10.818	1.41	12,135	1.36
Welfare	33,952	5.06	33,692	4.39	32,002	3.59
Housing	1,610	0.24	1,174	0.15	792	0.09
Construction	2,238	0.34	2,550	0.33	4,017	0.45
Total	67,502	10.11	69,616	9.06	71,294	8.01
Figures from the Central Bank Annual Reports

The absolute reduction of expenditure on Economic Services was accompanied by a relative fall in that on Social Services as shown in the table. While the total expenditure on Social Services increased, it fell in relation to the GDP from 10.11 % in 1995 to 8.01 % in 1997. The expenditure on welfare fell absolutely and relatively from 5.06% to 3.59%. It is noteworthy that expenditure on Education, Health and Housing all declined relatively between 1995 and 1997, education from 2.83% of GDP to 2.51%, health from 1.64% to 1.36% and on housing from 0.24% to 0.09%. The total expenditure on social services in the entire period 1995-1997 amounted to 8.96% of GDP which is slightly lower than 9.02% in the preceding three years 1991-93.

The reduction of public spending absolutely and relatively on economic services in particular meant inadequate investment in the infrastructure which is so essential for private sector investment. As we mentioned before there is a complementarity between public and private investment, in the sense that public investment has a tendency to induce private investment; for example, public investment in irrigation schemes - tanks and canals - will increase paddy and subsidiary food production; improvement of roads provides access to markets and therefore gives further support to economic activities in the rural sector; agricultural research by the state helps to increase the yield in agricultural crops. Public investment in energy is indispensable for increasing the power needs of private industry and improvements of transport and communications are essential to increase efficiency and competitiveness of their products. In addition, as stated earlier, the private sector benefits much from contracts and sub-contracts and supply of materials and multiplier effects of vast expenditure of public funds. As infrastructural bottlenecks constitute a major constraint on private investment, the reduction of infrastructural investments is likely to have slowed private investment in recent years.

Budget Deficit
It is true that the budget deficit has been reduced from 10.1% of GDP in 1995 to 7.9% in 1997 but this has been done at tremendous economic and social costs to the country. The budget deficit has been cut down not by increased taxation or by elimination of inessential expenditure but by depriving the vital sectors of the economy of much needed funds, by denying the farmers irrigation schemes, children schools, patients hospitals, travellers transport and people housing which they badly need. As capital expenditure has been reduced, it was achieved at the expense of public investment and economic development. It is a travesty of the truth to describe this method of reducing budget deficits as good economic management. We can eliminate the budget deficit altogether, under such management by making further cuts in economic and social spending and putting economic and social development on the back-burner!

We seem to be obsessed with deficit financing and repeat on every forum that the budget deficit must be reduced. It is well known that the government's thinking reflects that of the IMF which has always underlined the need to eliminate deficit financing but not to reduce excessive bank credit to the private sector which has the same expansionary effect. Our priority appears to be smaller budget deficits not rapid economic development for we are sacrificing economic growth by reducing expenditure. Bank credit within limits whether to government through deficit financing or the private sector can be just ified if it finances productive investment; it is undesirable only if it finances consumption and speculation .

Besides, while theoretically we may agree that deficit financing increases demand and causes inflationary pressure and higher interest rates which can be harmful to the economy, in practice there is little empirical evidence in Sri Lanka that reducing the budget deficit has helped to bring down inflation/rise in prices. In the years 1982-84 for instance, the budget deficit was reduced from 17.4% of GDP in 1982 to 13.4% in 1983 and 9.0% in 1984 but the rate of inflation actually increased from 10.8% to 14.0% and 16.6% in those years respectively. Again, the budget deficit was reduced from 11.2% of GDP to 9.9% between 1989 and 1990 but the rate of inflation rose from 11.6% to 21.5%. Similarly, between 1995 and 1996 budget deficit was reduced from 10.1% to 9.4% but inflation rate rose from 7.7% to 15.9%. The opposite scenario-increase in budget deficits but reduction in inflation was also witnessed in some years. Between 1984 and 1985, budget deficit increased from 9.0% to 11.7% but inflation rate fell from 16.6% to 1.5%; similarly between 1990 and 1991 budget deficit increased from 9.9% to 11.6% but inflation rate fell from 21.5% to 12.2%. The same thing happened between 1993 and 1994; budget deficit rose from 8.7% to 10.5% but inflation fell from 11.7% to 8.4%. Thus there is no clear relationship between deficit financing and rise in prices in Sri Lanka. Inflation is caused by so many factors other than deficit financing; devaluation, higher cost of credit, private credit expansion, inflow of foreign funds, rising wages, bad weather and consumption taxes that it is unreasonable to single out deficit financing as the villain. We may reduce or even eliminate the budget deficit, but there is no guarantee that it would reduce the rise in prices.

We have reduced government expenditure mainly to withdraw the government from the economy to create the 'enabling environment' for private investment. The result however is that although we reduced public investment, there was no commensurate increase in private investment and overall domestic investment declined. Moreover, the trimming of government expenditure has deprived essential economic and social development of funds and denied the people economic and social benefits.

By Analyst
The most important problem facing the country is undoubtedly unemployment, particularly youth unemployment. According to the Labour Force survey of the Department of Census and Statistics the labour force was 6.2 million (excluding the Northern and Eastern Provinces) at the end of the third quarter of 1997. Of this 89.6% were employed while 10.4% were unemployed, which would mean over 600,000 unemployed.

With a higher rate of economic growth in 1997 over 1996, the economy generated about 75000 additional employment opportunities according to the Annual Report of the Central Bank for 1997 the labour force has been growing at about 2% per annum which would require at least 125,000 jobs to be created each year merely to cope with the annual increase in the ranks of the labour force. To cater to the backlog of unemployed as well, we need to create about 200,000 jobs each year.

Given the low productivity of our labour, the economy needs to grow by at least 6%-7% in real terms of unemployment is to be reduced significantly. This growth target of 6-7% a year compare with the annual average of about 5% over the last 5 years. Given the investment output ratio of 4.6 (Central Bank Source) investment has to rise to something like 28% of GDP to achieve a growth rate of 6% per annum. What we find infact in that the investment to GDP ratio has in fact come down from its highest of 27% in 1994 to 24.4% in 1997 (Central Bank Annual Report 1997).

Government investment and investment by public corporation which was 8% of GDP in 1993 came down to 5.5% in 1997 while private sector investment which was 20% in 1994 has come down to 18.9%. So the government has not increased investments in spite of rhetoric to the contrary.

As for private sector investment, it depends among other things on the rate of growth of demand for output, the level of interest rates and the cash flow of firms. Private sector investment is affected by the expectations of entrepreneurs - in their confidence in the future. They must be confident that government policies will not change suddenly to their detriment. They must be confident that the rate of inflation will not climb to higher levels, that the state is stable - in political stability.

Need for growth
Productive employment creation is fundamental to the achievement of vital social goals such as the satisfaction of basic needs and the reduction of poverty. The government although limited by a scarcity of fund due to the on-going war, should not fritter aware resources or subsidies and hand-outs like the Samurdhi. If the Rs. 9 billion voted for Samurdhi is spent on investment in capital assets, then would be a higher growth rate and more employment creation.

The government's idea of creating employment, is to expand jobs in the public sector, such jobs as teachers and clerks. But the government can no longer finance such expansion of the public sector since it cannot get more funds either from higher taxation or higher borrowing. Total public sector employment is estimated to be at 1.07 million in 1997, indicating a decline of 8% over 1996. But this decline is due to the privatisation of the plantation companies. But public sector employment allowing for such change, has still registers a 1% increase in 1997 (Central Bank). This increase is in the clerical and administrative jobs.

Although agriculture continues to absorb most of those employed, the relative share of labour in agriculture has come down to 35% in 1997. The proportion of employed in the manufacturing sector now stands at 16%. BOI enterprises absorb about 258,000 persons. The growth of employment in such enterprises has slowed down in the last 2 years. We cannot expect much increase in employment from such enterprises. Services like transport, hotels, finances have also slowed down in the creation of jobs.

Youth Unemployment
It is the unemployment among the youth, particularly the educated youth that causes serious concern. Youth unemployment rate exceeds 30%. These youth are relatively well educated school leavers who may not be under immediate pressure to accept work and for whom any available job opportunities are distinctly inferior to what they aspire to.

As the Central Bank points out, along with high unemployment, there are some economic sectors which experience labour shortages. So it says, a major challenge ahead is to reduce unemployment by reformulating the education system so as to match the growing labour force to the changing needs of the private sector.

This is easier said than done. Education in our country is a sacred cow. Any suggested reform is viewed with suspicion. Over the years there has been much fuss made about free education and the so called national system of education. Traditionalists have attacked the system of denominational schools for other reasons like alleged proselytisation and proclaimed the virtues of state education as enhancing equality of opportunity. The public have come round to believe this myth and look at any proposed reforms with great suspicion.

This phenomenon of 'educated unemployed' has often been taken as evidence of that it is quasi voluntary, with the youth rejecting available jobs in search of better paying jobs in the government. They assume that their superior education should get them better paying jobs which also command social respectability. Dignity of labour is not a social value in the Indian subcontinent, which has been stratified by a caste system based on manual occupations ranked in a hierarchy.

The likely availability of jobs as teachers perhaps induced many educated youth to wait rather than join the labour market and take the available less paying, less 'respectable' jobs. Educationists and general public still do not realise the economic waste directly associated with the education of a large number of youth beyond the capacity of the economy to give them jobs they look for.

There are many who want to raise the numbers in the universities in spite of the evidence that they will join the ranks of the unemployed. The meaningless argument is that a higher proportion of the population should be given a university education because the present proportion is low by comparison with other countries.

The expenditure involved is economic waste and can be put to better use to create employment opportunities for those graduates who are already unemployed. Its a pity that our politicians are following wrong priorities given the tight financial situation caused by the war in the north-east.

The war is now absorbing Rs. 50 billion and amounts to over 5% of GDP. If savings can be made in the military budget, they could be channelled to much needed investment. This is however unlikely and hence investment can be increased only by curtailing consumption expenditure which means primarily the welfare services since public service salaries, pensions and interest payments cannot be reduced.

Remove Distortions
Apart from increasing investment expenditure, there are other ways to increase growth without spending money. Government policy has created many distortions and provided perverse incentives. Most of what we really know about the economy is to do with micro-economics - about the behaviour of markets, firms, consumers and industries - rather than about the macro-economic issues of growth, unemployment and inflation.

Consider the GST. Its introduction would naturally lead to an immediate increase in prices. But this is the short run effect. The second effect which is more long run and indirect, is that GST reduces the spending power of individuals and firms. In turn it reduces the demand for goods and services and is hence deflationary. The over-all effect depends on the balance between the initial impact and the subsequent consequence.

Now, what that balance will turn out to be in practice depends on the general structure of the economy and on specific economic conditions. If there is not much competition among retailers, then prices will rise by the full amount of the GST. It also depends on whether the economy is on a boom or a recession. Presently we are not in a boom. But there is no real competition among retail traders in many lines of business and hence the increase in prices.

The government is concerned about the poor state of the bus transport service. But why does the government regulate bus fares? We know how the communist economies got into deep trouble when they did away with market forces. Surely private bus owners will not invest in buses if they don't receive an adequate return on their investment. How can the bus services be improved if bus fares are held down by the government?

On the other hand should single bus owners be give a route monopoly? Why not allow free entry into the business of running buses, during the peak hours?

There are several other instances where the government is interfering with market forces and causing distortions such as in the labour market and the market for rents. Excessive protection given to those already employed allow those employees in the organised sector to threaten strike action and win salaries and perks which push up the cost of their services. The bank clerks are threatening strikes to win higher wages. In spite of the existence of several private banks there seems little competition on price. Competition is more on service lending policies are more or less the same.

Labour Intensive Projects
The effective use of labour is a major path to achieving sustained economic growth. With a few exceptions, labour intensive development is the only effective way in which development objectives can be achieved. The East Asian NICs did accelerate their development through export led strategies. Their export led strategies grew out of earlier import substitution strategies particularly in Korea.

These economies attracted a lot of foreign capital which enabled them to launch massive infrastructure projects and even unproductive projects. But labour intensive projects would lead to more sustainable growth. Only a few countries have managed to use labour abundance as a springboard for rapid development.

A certain complacency about employment is still in evidence with the government. Hitherto the governments both present and previous ones, have muddled through. But it is doubtful that it will be possible to ignore the problem of unemployment any more. The unemployed youth are likely to revolt again as they did twice before in 1971 and 1988-89. They could also provide active support to the political opposition.

Government therefore needs to re-think its approach to development and to reshape the incentives and signals that influence the demand for labour. Hitherto the government has given incentives to the employment of capital rather than labour. Duty free concessions have been given for the import of capital equipment. Tax concessions have been given for technology. No concessions have been given for the employment of labour. The balance of advantage is for employment of capital and not labour. This is not a strategy for labour intensive development.

The cost of labour has been jacked up by government action. The Termination of Employment Act makes it practically impossible to retrench labour except at a prohibitive cost. The strength of trade unions keeps wages high. If the labour market was more amenable to market forces, then entrepreneurs would employ more workers.

At least small and medium scale enterprises should be freed from these laws and other laws like EPF and ETF which impose costs on such enterprises. The removal of administrative impediments to a better use of labour resources is essential at least for small-scale enterprises.

The poor and the unemployed might be expected to be the natural allies of reform. But as in the case of educational reform this is not the case. They oppose reforms in the labour market. The poor and the unemployed have been brainwashed over several decades of socialist propaganda on the class war. They need to be convinced that reform of markets is their best hope of participating in and benefiting from a developing economy.

The government in spite of its rhetoric on market friendly policies, still do not let markets work in a liberalised framework of price setting. There is a presumption among the people that government is benign, that it is a guardian angel of the national interest. Economists like James Buchanan have pointed out that it is not so. Government reflects the interests of the wealthier and more influential stake holders who are likely to resist reforms.

The duty free baggage allowance cannot be abolished not because of the housemaids working abroad but because the duty free complex is in the grip of powerful persons including ruling politicians.

Training and jobs
We have many institutions that provide training. All of them are in the public sector. There are said to be over a thousand government agencies providing some sort of vocational training. How effective are they? Not much, even though considerable funds are spent. The system is generally supply driven rather than demand driven. Politicians decide that a training institute is useful in their electorate and such an institute is set up. Should these training institutes come under the Ministry of Labour or under the Ministry in charge of the subject matter of training? How many have been trained, in what fields and at what cost? Its time a comprehensive survey is undertaken by the government and the results published. Many countries in the developed world including USA, UK, France, Germany carry out comprehensive training programmes, directed at the unemployed. A trained work-force would benefit not only the unemployed, but the economy as a whole. A better trained work-force would be a more productive one, so training ought to mean not just lower unemployment but also faster growth and higher living standards.

Firms themselves cannot afford to spend money on training their work-force because their trained employees can be poached by their competitors. So the state will have to foot the bill for training. But it is public money and there must be value for money. But running the training schemes by the state has not been very successful.

Singapore has demand driven training programmes finances by both levies and grants from the state. Economists have compared groups of unemployed people who enter government training schemes with similar groups who do not. In almost every case these studies have found that the schemes have failed to improve either the earnings or the employment prospects of their clients.

In 1994 the OECD stated that there is "remarkably meagre support for the hypothesis that such programmes are effective." In USA too the results were found to be negative in the training provided under the Job Training Partnership Act. America's second largest federal training programme, called Job Corps, is for poor youngsters who agree to leave home for training in basic skills. It has had some success although there was no evidence that it had equipped them with marketable skills.

Britain's experience is similar. Youth Training is a British programme which enrolled about 200,000 youths a year. A government evaluation in 1994 found that almost half of those who joined dropped out before the schemes ended unemployment rates of those who finished were higher than for the age group as a whole. Now Britain is shifting the emphasis towards apprenticeships. These account for perhaps 20,000 places and are based in the work place.

Britain's other big training vehicles, Training and Enterprise Councils, are private companies that contract with the government to deliver training. A select committee of the House of Commons found that only 27% of adults in TECS courses had work. Even the best courses had a success rate of less than half. The committee concluded that "a modest contribution" to the economy was made by such courses but that "their performance in placing people in work and gaining qualifications appears to reflect economic conditions and not to overcome them."

Germany's scheme of "dual education" is highly regarded. Under this system, most German 16 year olds sign an apprenticeship contract with a local firm to work part-time, for below entry level wages, in return for training at the firm. The rest of the time they go to a vocational school (e.g. one for insurance, another for chemists etc.) run by the local government body. When the apprenticeship finishes, most get jobs either with their employer or in their field elsewhere.

The teachers who train the apprentices at work are paid by the firms themselves: examinations under the system are set up by local chambers of commerce.

In his recent budget speech the Deputy Minister of Finance talked of skills development. He said the number of training centres under the Vocational Training Authority had increased from 118 in 1996 to 150 in 1997. The total enrolment has increased from 8,503 to 10,512. The National Apprenticeship and Industrial Training Authority had trained 19,973 trainees in 1996 and 22,576 in 1997.

But have all these trainees secured jobs after their training? That is what prospective trainees and the general public would like to know.

In the last analysis it is business investment that will lead to the employment of these trainees and other unemployed. The challenge is to establish confidence in the stability of a new policy regime so as to encourage new investments and a substantial commitment to long term investment planning by the private sector. A National Economic Council including nominees of the Opposition would help.

Dipped Products Ltd. (DPL), the Hayleys/Richard Pieris associate which is one of the world's largest non-medical rubber glove manufacturers, and its subsidiaries including Kelani Valley Plantations, has announced half year profits of Rs.133 million, up from Rs.100 million during the same period last year.

A group spokesman attributed the increase in profits entirely to the excellent performance of Kelani Valley Plantations. KVPL made a profit of Rs.119 million in the half year to June 30 which is consolidated in the results of DPL just published. The contribution from KVPL helped to offset a 12 percent decline in profits from manufacturing.

DPL is bracing to meet severe competition from South East Asian countries such as Thailand and Malaysia who are major producers of rubber gloves. These countries have emerged much more competitive following depreciation of their currencies a company spokesman said. Recent news reports monitored by the Sri Lanka Embassy in Thailand indicate massive investment in the glove industry in that country, he said. According to the Bangkok Post, Thailand soon expects to be the leading manufacturer of rubber gloves displacing Malaysia.

In a news release, DPL's Managing Director, N.G. Wickremeratne said that the group had set in motion a series of initiatives to combat this challenge. He said a principal strategy would be to improve productivity and the company had undertaken a major awareness programme to inculcate productivity improvement and waste reduction measures from top to bottom.

"We want the workers of the group to understand that they could also suffer if the group becomes uncompetitive as a result of the South East Asian crisis. Our objective is to make them aware that these steps are intended to protect them and to be still able to provide a valued product to our customers'', he said. He said the reaction so far from all employees has been extremely positive.

The group is also focusing on completing some major capacity enhancement and product development projects which have been in the pipeline. Wickremeratne announced the commencement of trial production of Phase 1 of Neoprex Ltd., which will increase the capacity of the group by 10-15 percent when fully operational. He said that planning work on Phase 2 is under way but actual implementation will be timed taking into consideration projections of global economic conditions. Several other projects aimed at.increasing the group's product range and enhancing its process capability are also being expedited.

The group has also undertaken 22 continuous improvement projects which are expected to streamline the company's business processes and make its products and service measure up to the sophistication being increasingly demanded by global markets. Wickremeratne said the group is not underestimating the impact of improving even the most simple activity as it adds to the final outcome.

These projects range from quality and process improvements, timely shipment performance, improving business processes and procedures, tightening material specifications and improving and developing the technical product information base. He said on completion these efforts should result in the group being capable of increasing its sales output without additional management overhead and infrastructure. The group recognised that improvement and productivity gains are not necessarily to be delivered by only shop floor personnel though they do in fact play a vital role. An integrated millennium compliant IT system will be installed by mid 1999.

Wickremeratne observed that productivity improvement is vital for the country and one of the biggest hurdles currently facing industry is the labour laws. This is as important as the exchange rate and on both counts current policy measures are inadequate. "If anyone can contribute towards surviving the financial crisis it has to be the export sector. Our main concern is that people still feel that financial situations faced by other countries in the Asian region will not affect Sri Lanka. They need to be educated,'' he said.

Explaining that the company's mission is to be the preferred and most sought after provider of hand protection wear in the world, Wickremeratne added that the company has set a target of achieving a manufacturing turnover of US$ 100 million by the year 2005, a five fold increase on the present turnover. This means that the annual sales would need to increase by 25 percent over the next seven to eight years. "We have these goals very much in our sights'', he said.

In so far as the plantations are concerned, KVPL expects a reasonable increase in profits in the final quarter when historically its tea division has performed well. Rubber prices continue to be low but to some extent KVPL is insulated from the sharp falls in price experienced for most grades of rubber since it produces sole crepe and centrifuged latex. The latter is sold to the manufacturing division of the group.

Established in 1976, Dipped Products and its subsidiaries now account for about one percent of the national exports of Sri Lanka. The Hayleys Group and Richard Pieris are the major shareholders of the company. The manufacturing division of the group employs more than 1,000 people and supports about 3,000 local latex producers. Major export markets for the company's domestic, industrial and commercial rubber gloves include North America, Western Europe, the Middle East, Australia and Japan. The plantations division provides employment to more than 14,000.

Associated Hotels Co. Ltd., owners of the Lihiniya Surf Hotel at Bentota, has achieved a 76% increase in turnover during the year ended March 31, 1998, and increased its operating profit to Rs.13.7 million for the 15-month period ended March 31, 1998.

"Your company has achieved a profit after tax of Rs.1.3 million in the year 1997/98, up from a loss of Rs.11.9 million in 1996'', the company's chairman, Mr. George Ondaatjie said.

He reported that the company had achieved an occupancy of 53.3%during the year which was higher than the 45.2% occupancy achieved by south coast hotels.

"We are in the process of upgrading the rooms which were refurbished five years ago. Your company will make the maximum use of the concessions offered to the hotel industry by the government for the refurbishment programme in the year 1998/99'', he said.

The company is closely held with two shareholders owning 54.8% of the equity and four owning 35.5%.

Rs.6.9 million of the operating profit has been absorbed on account of deferred expenditure for refurbishing rooms and expenses relating to an initial public officer of shares. The sum remaining to be written off amounts to Rs.2.1 million.

The company also incurred Rs.6.5 million interest charges, down from Rs.9.1 million a year earlier.

The retained losses of Rs.2.5 million brought forward from the previous year has now been reduced to Rs.1.2 million, the accounts revealed.

The directors of the company are: Messrs. G.L.A. Ondaatjie (Chairman), P. Nadesan (Deputy Chairman), A.K. Mallimaratchi (Managing Director), J.A.R. Felix (Executive Director), G.P.S.U. de Silva, Naveen Rajapakse, S. Gardiner, Jan P. Van Twest, G. Divitotawela and Dr. D.J. Aloysius.

Ceylon and Foreign Trades Limited (CFT), the old established export company that celebrates its 50^th anniversary this year, has posted a net loss of Rs.1.7 million during the year ended March 31, 1998, down from a profit of Rs.4.2 million the previous year.

Despite an increase in turnover to Rs.100.4 million from Rs.88 million the previous year, the company's vice chairman, Mr. S.A. Gulamhusein, has said that that the comnpany had suffered a loss. After incorporating the results of subsidiaries, there was a group net loss of Rs.2.1 million. All the subsidiaries except Colombo Freight and Transport Limited had remained inactive during the year.

There had been a diminution of rental income to Rs.5.9 million from Rs.6.4 million the previous year due to some of the company's previously rented stores space being utilised by it to store desiccated coconut on its own account.

Gulamhusein said that operation of the building "continues to be satisfactory'' with all available space fully utilised during the year.

He said that the directors were not recommending a dividend for the year under review "as a result of the poor performance of the company''.

Ceylon and Foreign Trades has an issued capital of Rs.7 million, a capital reserve of Rs.76.7 million and revenue reserve of Rs.6.3 million. Its property, plant and equipment had been valued at Rs.90.7 million.

The directors of the company are: Messrs. S.A. Gulamhusein, T.A. Gulamhusein, N.J. de Silva Deva Aditiya, M. Radhakrishnan, P.R.A. Jayasinghe, S.C. Fernando (alternate to Mr. N.J.de Silva Deva Aditiya) and S. Navaratnam.

Galadari Hotels (Lanka) Limited which is now carrying Rs.3.3 billion in accumulated losses in its books expects the hotel which was damaged by a bomb explosion in its car park October 1997 to be fully operational by next February.

Reporting to shareholders, Mr. Abdul Latiff E. Galadari said that 1997 promised to be one of the best years of the company. Then the bomb hit on October 15 and the hotel had to be closed down.

Had this unfortunate event not occurred the hotel's performance could have been ``very close to year 1995 which was the best year of performance of the hotel so far'', he said.

Up to the time of the closure, the hotel had turned over Rs.362.1 million and had a gross operating profit of Rs.60.1 million. That was a 3.4% increase from the previous year's turnover and a 19.8% increase from the Rs.96 million gross operating profit.

Galadari said that 1997 was a tragic year for the hotel with the bomb explosion claiming the lives of seven staffers and severely damaging the hotel whose operations had to be stopped.

The rehabilitation of the hotel had been carried out with the financial assistance of the Sri Lanka government. Although the repairs have not been completed, the hotel commenced operations on March 23, 1998 with a partial opening.

He said that the progress of rehabilitation was ``rather slow'' due to restrictions on the movement of vehicles, material and men in the area where they are located which is a high security zone. Tight security in that area was also a major factor adversely affecting business.

Galadari said that despite all difficulties, the staff led by General Manager Chandra Mohotti was doing an excellent job. They have been successful in bringing the hotel back into business after the bomb explosion and their efforts are much appreciated.

Turnover during the year ended December 31, 1997 was Rs.362.1 million, up from Rs.350.2 million a year earlier while the operating profit of Rs.60.1 million compared to Rs.50.2 million the previous year.

The company however suffered grievously from interest (Rs.119 million compared to Rs.78.7 million the previous year), depreciation (Rs.98.8 million against Rs.97.5 million the previous year), exchange losses (Rs.145.8 million, up from Rs.85.1 million the previous year) and the loss on damages (Rs.268.5 million).

Total losses at Rs.571.6 million were more than double the previous year's loss of Rs.209.7 million.

The directors of the company are: Messrs. Abdul Latif Ebrahim Galadari (alternate - Mr. Syed Mohiddina Syed Khalil), Mohamed Abdul Rahim Galadari (alternate - Mr. Edward B. Quinlan), Parvez Homi Darbari (alternate - Dr. Neelan Tiruchelvam), J.B. Wimalasekera, N.W. Samarasinghe, Attavar Dinakar (alternate - Dr. Neelan Tiruchelvam) and Dr. A.M.M. Sahabdeen.

The deeply troubled Kelani Tyres Limited which is tying up with CEAT of India has succeeded in earning an operational profit during the first half of the current year but seen it absorbed by interest charges.

The company is now carrying Rs.326 million in unappropriated losses in its books.

According to an interim financial statement to shareholders, turnover during the period under review had grown to Rs.245.3 million from Rs.206.8 million a year earlier. An operating profit of Rs.25.2 million had been earned during this period against a loss of Rs.29.5 million during the first half of the previous financial year.

But interest charges at Rs.49 million had grown from Rs.43.6 million a year earlier and the company posted a loss of Rs.23.8 million during the half year, down from a loss of Rs.73. million a year earlier.

Other income of Rs.1.3 million (Rs.3.3 million a year earlier) reduced its loss to Rs.22.4 million. An extraordinary expense of Rs.0.2 million (Rs.99.3 million a year earlier) when the company substantially downsized its work force took the after-tax loss to Rs.22.7 million, down from Rs.169.1 million year earlier.

The company has an issued share capital of Rs.402 million and capital reserve of Rs.350.3 million. Its revenue reserve is a negative Rs.348.7 million. Long term liabilities amount to Rs.683 million.

As many as 38 of Sri Lanka's 243 listed companies with financial year ending March 31 have not yet submitted their annual reports incorporating the audited accounts as at November 13, 1998, the Colombo Stock Exchange said.

Three companies, Ceylon Synthetic Textiles, Hotel Developers (Owners of the Colombo Hilton) and Kapila Heavy Equipment have not submitted their 1996/97 reports up to this date.

Parquet (Ceylon) Limited has had another bad year posting a loss of Rs.14 million for the year ended March 31, 1998, down from a loss of Rs.30.1 million a year earlier. The company's accumulated losses now stand at Rs.60.6 million.

Parquet Chairman Singha Weerasekera has told shareholders that the company is seeking an equity injection of Rs. 15 - 20 million and ``is in the process of finding an investor'' to take advantage of bank facilities which would be made available to if new equity is found. That would enable them to undertake confirmed export orders worth USD 1.8 million in hand.

He said the year under review showed an improvement over the previous year but the high debt burden proved to be a drag. Turnover was up to Rs.138.1 million from Rs.102.4 million the previous year with exports contributing 84% of the total.

The South East Asian financial crisis had hit Parquet's export business with competitors in Malaysia, Thailand and Indonesia offering much lower prices to buyers in Europe. Weerasekera said that many of the competitors who had undercut their prices had fallen back on deliveries and buyers who had demanded discounts ranging from 20% to 40% at the beginning of the year "are now behind us for deliveries''.

He said that this was probably the result of the inability of their competitors to perform in the long term. But they were placed in an unfortunate situation finding it difficult to obtain the necessary working capital to execute export orders at an opportune time when competitors have fallen back on deliveries.

Weerasekera reported that there had been a "vast improvement'' in their local parquet operation. They have successfully completed installing approximately 120,000 square feet of flooring and squash courts at the recently completed Royal Park high rise in Colombo.

Parquet which closed their factory on June 17 following the challenge from South East Asian competitors, have successfully negotiated with their workforce and union to increase productivity at the factory. An agreement to this effect has already been signed at the office of the Deputy Commissioner of Labour, the chairman said.

"Having also reduced our overheads wherever possible, we are now in the process of negotiating with our banks and other financial institutions to restructure our finances and obtain the necessary working capital to execute confirmed export orders to the value of approx. US$ 1.8 million in hand, as at date'', he said.

The directors of the company are: Messrs. Singha Weerasekera (Chairman/Managing Director), James S. Mather, Mahen S. Weerasekera, Dayal de Silva and Chandra Wijenaike.

Richard Pieris Exports Limited (RPE) has seen a sharp increase in profitability during the half year ended September 30, 1998, with the bottom line outstripping turnover growth according to an interim financial statement now with shareholders.

The group had turnedover Rs.371.1 million during the period under review, up from Rs.319.8 million a year earlier. The operating profit for this period at Rs.60.8 million was nearly double the Rs.32.2 million earned during the first half of the previous financial year.

Finance charges were up to Rs.18.9 million from Rs.16.4 million a year earlier and the profit before other income of Rs.41.9 million compared well with Rs.15.8 million earned a year earlier.

Although there was no other income during the period under review (Rs.0.4 million a year earlier), the associate companies profit share of Rs.1.9 million (Rs.1.4 million a year earlier) boosted the pre-tax profit to Rs.43.8 million. This compared with Rs.17.6 million earned a year earlier. Taxation was down to Rs.2 million (Rs.2.8 million a year earlier) and the after-tax profit of Rs.41.8 million compared well with Rs.14.8 million a year earlier.

After discounting minority interest, the profit attributable to shareholders of the company during the half year at Rs.38 million was over twice the Rs.16.2 million earned a year earlier.

RPE has three subsidiaries, Richard Pieris Natural Foams Limited, Playcraft Lanka (Pvt) Limited and Micro Minerals (Pvt) Limited.

C.W.Mackie & Co. Ltd., now readying for a substantial cash infusion, has turned around during the first half of the current financial year with a substantial improvement in turnover. The company posted an operating profit of Rs.15.4 million during this period, up from Rs.3.6 million a year earlier.

These earnings had enabled the troubled firm to absorb its interest liabilities and post a pre-tax profit of Rs.1.7 million for the half year against a loss of Rs.9.4 million a year earlier.

However, the share of associate company losses amounting to Rs.11.9 million for the period under review (nil a year earlier) has been daunting. They have dragged the bottom line down to a loss of Rs.10.1 million for the half year under review, up from a Rs.9.4 million loss a year earlier and a loss of Rs.22.1 million for the whole of the financial year ending March 31, 1998.

Mackie's will shortly see a substantial capital infusion by way of both equity and soft loans from Denmark. It also expects to commission its new Sunquick bottling factory early next year. The arrangements are in place and shareholder approval for an underwritten rights issue at a small premium will soon be sought.

C.W. Mackie are exporters of rubber, coconut products and spices and importers and distributors of sugar and rice.

The company also imports and re-sells light industrial products and is into paddy milling and the sale of rice.

It has four subsidiaries, Ceymac Rubber Company Limited (93.2%), Scan Imports Limited (99.1%), Mackgrains Distributors (Pvt) Limited (100%) and Prodcarry (C.I.) Limited (100%).

The deeply troubled Korea Ceylon Footwear Manufacturing Company Limited is an associate with C.W. Mackie owning 34% of its equity.

Union Assurance Limited (UAL) has seen a tidy profit growth in the first 9 months of this year largely attributable to underwriting earnings from its general insurance business, an interim report to shareholders revealed.

The company has provisionally posted a profit of Rs.55.8 million for this period, up from Rs.44.3 million a year earlier. Its general insurance profit at Rs.14.8 million was up from Rs.0.5 million for the comparative period the previous year.

UAL was not liable for taxes during this period and after a transfer of Rs.4.7 million to its tax equalisation reserve, the company had a bottom line of Rs.51.1 million as at September 30, 19998.

With unappropriated profits of Rs.256.6 million brought forward, a sum of Rs.307.7 million was available for appropriation on 30.9.98.

Earnings per share during the period under review at Rs.3.83 was up from Rs.3.02 a year earlier. EPS for the full year ended December 31, 1997 was Rs.5.28.

UAL has an issued share capital of Rs.133.3 million and a similar amount in its share premium account. The company's net assets per share had grown to Rs.43.07 from Rs.38.94 a year earlier and Rs.39.20 at the end of the last financial year.

The National Development Bank (NDB) will open a new branch - its 7^th - in Kandy shortly, a NDB spokesman said.

The new branch which will be located at the Queen's Hotel is expected to fill a lacuna in long term lending and supervised credit which the NDB considers its specialty, a news release from the bank said.

The manger of the new branch who hails from Kandy was quoted saying that they will provide finance and advisory support to small and medium scale industries through ongoing credit lies.

"We also look forward to providing financial services to larger BOI industries situated in the Pallakelle and Matale Industrial Estates, and hope to fill the need for finance in the estate sector, to rehabilitate and improve tea factories.

"Another area on which we will concentrate is funding through the Perennial Crop Development Project, for crops such as pepper, cardamom, cloves, nutmeg, banana and mango'', Manager Caffoor said.

The NDB said that the new Kandy branch will offer medium to long term finance, including finance for small and medium industries (SMI), and also provide project loans, working capital, leasing and services such as opening of letters of credit for Kandy district businesses.