.

Property sales boost Ceylon Tobacco profits

The Ceylon Tobacco Company (CTC) is continuing to dispose under-utilised properties as part of a radical set of initiatives to re-allocate resources and reduce its cost base.

The company which earlier sold its head office building in Colombo and re-located its offices to the factory also disposed the chairman's bungalow and Colombo-7 flats reserved for senior management under this scheme.

In an interim report to shareholders covering the 9 months ended September 30, 1998, the company has reported an extraordinary income of Rs.78.8 million from such sales during the period under review.

The 9-month period had seen exports to the Middle East depressed by an excise increase enforced in the region. This has resulted to down-trading to cheaper brands, the report said.

Th domestic volumes for this period were reported as "satisfactory'' but continued to be stifled by the availability of low priced illegally manufactured cigarettes and smuggled international brands. "Both types of cigarettes are readily available in the Sri Lankan market'', CTC said.

The interim report said that gross turnover figures for 1997/98 are not comparable due to differences in treatment between turnover tax and GST.

Profit before tax for the period at Rs.642 million had increased in line with inflation. CTC said that this growth "in a stable market is a reflection of the company's strong productivity gains and the on going cost structure adjustment program''.

The report said that a 27.9% increase in the after tax profit on ordinary activities, up to Rs.515.2 million from Rs.402.8 million a year earlier, had been assisted by a reduced tax charge which is a result of the continuing capital investment program.

The property sale profit boosted earnings after tax to Rs.594.1 million.

CTC which has paid a first interim dividend of 13% has declared a second interim dividend of 14%.

Group's blue chip shares worth nearly Rs. 1 billion
Guardian concentrates on core portfolio

The Ceylon Guardian Investment Trust Limited, owners of a valuable quoted equity share portfolio, has restructured its holdings during the year ended March 31, 1998 focusing on enhanced returns and value addition, shareholders have been told.

"The portfolio has been classified into different categories of shares based on liquidity and yield. With the adoption of this new strategy, several shares with low potential were disposed of, for better management of the portfolio'', the company's chairman I. Paulraj said.

Carsons Cumberbatch & Company owns 41.9% of Ceylon Guardian with several of its plantation subsidiaries and associates with Malaysian holdings owning stakes that gave Carsons a comfortably controlling interest of Guardian.

Carsons Management Services (Pvt) Limited who now manage Ceylon Guardian has reported that the company has added Rs.64.8 million worth of quoted investments to its present portfolio during the year. Additions included shares of Ceylon Cold Stores, Lion Brewery, John Keells Holdings and John Keells Limited.

Additionally, an unquoted investment of Rs.28.2 million in Interbatch Porcelain Limited has been acquired from Carsons at par value with no premium attached. Interbatch is a joint venture collaboration with Interkiln of America which is the major shareholder of the company.

The year under review has seen Guardian disposing most of its shares in the hotel and travel sector. The managers have said that this sector has been given "less priority'' due to both low potential of the stock and the sector's low liquidity.

But the company has seen a high growth potential in the beverages, food and tobacco sector and have concentrated on adding beer and soft drink shares to its portfolio by the acquisition of Lion Brewery (a Carsons associate) and Ceylon Cold Stores stock.

"However, with the proposed plan to ban advertising of alcoholic beverages, a negative impact on this sector is envisaged. Moreover, in the present context, a decline in the sectoral index was witnessed'', the managers said.

The mangers also said that Guardian's manufacturing sector portfolio mainly consisted of low performing stocks and most of these with the exception of high flying Richard Pieris and Dipped Products had been disposed.

The period under review has also seen Guardian buying substantially into John Keells Holdings to strengthen its present portfolio. The mangers said that Guardian's exposure to the conglomerate was already "one of its significant strengths'' and therefore future strategies will focus on building on it.

"Furthermore, the negative trend in this sector is currently perceived to be short lived'', the managers said.

During the year under review, Guardian purchased shares of its associate, the Ceylon Investment Company Limited, to increase its holding to 52.6%.

"This strategic move resulted in the company becoming the holding company of The Ceylon Investment Company Ltd. This enabled The Ceylon Guardian Investment Trust Ltd. and its subsidiaries to consolidate their holdings of the leading blue chips quoted on the Colombo Stock Exchange'', the managers said.

Significant quoted investments in the group portfolio include Hayleys (36.2 million shares) Ceylon Cold Stores (928 million shares), Ceylon Investments (9.3 million), JKH (18.7 million), Richard Pieris (1.8 million) Aitken Spence (13.5 million), Lion Brewery ((34.3 million) HNB (0.3 million) and the Sri Lanka incorporated plantation companies with estates in Malaysia - Indo-Malay, Selinsing, Good Hope, and Bukit Darah.

A sizable chunk of Central Finance costing Rs. 18.4 million and with a market price of Rs. 16.4 million had been disposed during the year under review. The core portfolio with a market price of Rs. 873.2 million had been acquired for Rs. 142.6 million. These shares comprise nearly 90% of the value of the Ceylon Guardian group portfolio.

During the year under review Guardian posted a pre-tax profit of Rs.40.9 million, up from Rs.11.2 million the previous year registering a growth of 267%.

The group's consolidated profit including that of its associates increased to Rs.63.1 million from Rs.25.3 million the previous year.

These results have enable the company to declare a final dividend of 15% on top of a 50% interim paid in May.

The total dividend pay out for the year was Rs.11.57 million against Rs.8.92 million the previous year.

The The directors of the company are: Messrs. I. Paulraj (chairman w.e.f. 22.6.98), D.C.R. Gunawardena, S.C. Fernando, Asoka de Z. Gunasekera (w.e.f. 12.12.97) and P.C.P. Tissera (w.e.f. 1.4.98).

Low growns keep SL tea production up

There has been a 3% decrease in black tea production in October this year but total production for the first 10 months was up 4%, the Sri Lanka Tea Board said.

October production at 24.4 million kg was down from 25.1 million kg a year earlier but the January to October production of 233 million kg compared well against 224.7 million kg produced during the comparative period last year.

Elevation-wise, low growns have gained slightly over 1 million kg during October maintaining the growth momentum which enabled them to contribute the whole of the national production gain during the first ten months of this year after making good lags in both high and mid-growns.

Richard Pieris continues to downsize labour force

Richard Pieris & Company Limited has boosted both turnover and profits during the first half of the current financial year according to an interim financial statement to shareholders.

While turnover grew to Rs.1.16 billion during the half-year, up from Rs.1.13 billion a year earlier, the after-tax profit of Rs.156 million was up from Rs.136.3 million earned in the first half of the previous year.

After discounting extraordinary items and minority interest, the company had a profit of Rs.123.1 million attributable to its ordinary shareholders during the half-year under review. This compared with Rs.106 million a year earlier.

Richard Pieris is continuing a voluntary separation scheme to scale down excess labour, and Rs.10.7 million was incurred on this account during the period under review, down from Rs.13.2 million the previous year. These charges have been written into the accounts as extraordinary items.

Allied Philip gets new name and new chairman

Allied Philip Securities Limited, owned by the Mercantile group of companies and Philip Securities of Singapore, has changed its name to MMBL Philip Securities Limited, a company announcement said.

The major shareholder in the company is the Mercantile Merchant Bank Limited. This securities firm which leads the retail stock broking sector in Sri Lanka is a part of the MMBL group.

The new chairman of the company is Mr. Dharmasiri Pieris, who retired earlier this year as the Secretary of the Ministry of Education and Higher Education. Mr. Pieris previously served as Secretary to the Prime Minister during Mrs. Bandaranaike's tenure between 1970 and 1977. He's been working fr the Mercantile group since his retirement.

Vanik to grant stock option to selected employees

Vanik Incor-poration Limited has announced a stock option scheme for selected senior group employees and will shortly seek shareholders authority to implement it, the company has an-nounced.

This scheme ap-proved by the Colombo Stock Exchange (CSE) will make available 5% of the issued and paid up capital of the company's ordinary shares and 5% of its non-voting shares to be made available to the stock option scheme.

The directors will be vested at their sole discretion to issue a fifth of these reserved shares for a period of 5 years to employees selected to be option holders at the higher of the par value or market price at the time of the grant of the option .

During the 5-year period following the grant of the option, the option holder may at the expiry of one year following the date of issue exercise his right to convert 20% of the options granted to him into shares. At the end of the eleventh year he/she must convert all remaining options. If not, they would lapse.

Several other quo-ted companies including John Keells Holdings and Aitken Spence have stock option schemes for their employees. These have become particularly attractive at present due to investment relief al-lowed to new shares issued by quoted companies under the 1998 budget proposals.

Under the Vanik stock option scheme to be considered by shareholders at an EGM on Dec. 2, over 3.4 million options on ordinary voting shares and over 0.6 million options on non-voting shares will be offered to selected senior employees.

Neglect of Agriculture

By Kanes
Economic growth in 1995-98 was moderate partly because of the poor growth in the agricultural sector. Agricultural production increased by 3.2% in 1995 but fell by 4.6% in 1996 and then rose by 3.1% in 1997 and the real value of agricultural production in 1997 was 2.3% less than in 1995. The share of agriculture in the GNP declined from 20.3% in 1995 to 18.1% in 1997. The decline in agriculture is in contrast to the increase in other sectors. Between 1995 and 1997 the real value of banking, insurance and real estate increased by 20.9%, manufacturing by 16.5%, trade by 12.1% and construction by 9.0%.

There was a stagnation or decline in the actual production of practically all agricultural products other than tea in the last three years. Between 1995 and 1997, paddy production fell by 20.3% and coconut by 4.5% while rubber production remained almost the same; subsidiary food production shows an overall decline: potatoes, onions, chillies, maize, green gram all. Several minor agricultural exports too show a decline: vegetables, coffee, cardamoms, betel leaves, cocoa products, essential oils, unmanufactured tobacco and other agricultural products. Only tea shows a marked rise by 12.6% in the three year period, thanks to the large Russian purchases.

The drought of 1996, no doubt, was a major cause of the fall in agricultural production; for instance, paddy production fell by 26.7% in 1996 and coconut production by 7.6% and had not recovered enough in 1997 even to reach the 1995 level. Area sown for paddy cultivation in 1997 was curiously enough, 20% less than in 1995 although the rainfall in 1997 was even higher than in 1995. The slow recovery of coconut may also be explained by the long-term effects of the drought. The drought however is not the only cause of the decline in agricultural production. Rubber production for instance, rose in 1996 and fell in 1997 probably as a result of the decline in rubber prices. The reduction of the areas under coconut and rubber cultivation on account of the sale of coconut and rubber land for house building is one of the main factors behind the falling trend in coconut and rubber production. The fall in the production of principal subsidiary foods may have been caused partly by the drought and partly by the liberalized import of potatoes, onions and chillies.

Paddy and Other Food Crops
Perhaps the most disquieting feature of agricultural production is the stagnation in paddy production in the last 10 years. Average annual paddy production in the three years 1988-90 was 2,359,000 metric tons, and in the three years 1995-97, 2,370,000 metric tons or nearly the same. The average area harvested has fallen by 4% in this period but this has been offset by an increase in the average yield by 4% perhaps as a result of the increase in the use of fertilizers by 46%. Apparently no comprehensive study appears to have been done on the stagnation of paddy production. It is not too late for the appropriate Ministry or institution belonging to it to undertake this now, if it has not already been done.

One thing which is clear is that there has been a reduction in capital investment in agriculture and irrigation. Capital expenditure on agriculture and irrigation excluding the Mahaweli Project has fallen from Rs.2970 million in 1995 to Rs.2,778 million in 1996 and to Rs.2,154 million in 1997. This would have meant a slowing of the pace of constructing and repairing irrigation schemes (major and minor tanks and canals) and agricultural extension services which in turn would have adversely affected paddy cultivation. Inadequate water is the principal constraint to paddy cultivation. Secondly, the government has ceased to play an active part in agricultural marketing. The guaranteed price scheme for paddy is virtually nonoperational and the Paddy Marketing Board has been almost closed down. Purchases under the guaranteed price scheme, mainly by the Paddy Marketing Board, amounted to 282,000 metric tons of paddy in 1995 but only 1 metric ton in 1996 and nothing in 1997.

Guaranteed Price
The idea behind the guaranteed price scheme and the Paddy Marketing Board was for government intervention in the market to prevent private traders from exploiting the farmer and to ensure him a remunerative price. The purpose of the guaranteed price was to prevent the market prices falling below it and this scheme was effected by the Paddy Marketing Board purchasing the paddy at the guaranteed price using the Cooperative Societies as its agents. Although it was not entirely successful, it helped to check the private traders to some extent and prevent the producer price from falling too low. Once the Paddy Marketing Board was taken out of the scene, for whatever reason, the CWE attempted to take its place but with little success. The CWE is designed to import and distribute essential food stuffs not to purchase and ensure remunerative prices of domestic agricultural produce. Wide publicity was given by the media that the CWE was provided with liberal bank credit to purchase paddy from the farmer at a remunerative price, but no figures of the volume of paddy purchased by it have been given. Similarly, wide publicity was given to farmers Companies (whatever they are) purchasing paddy but again no figures of their purchase have been given. This is not surprising as both the CWE and the farmers companies had met with little success in ensuring a fair price to the producer, and the free market price had not been aufficiently remunerative to the farmers.

Besides, the guaranteed price has remained constant at Rs.155 per bushel for five years, 1993-1997 when the prices of all inputs - labour, agro-chemicals, fertilizer, tractor hire and transport charges - were rising. The extent to which they would have risen is indicated by the rise in the Greater Colombo Consumers Price Index by 34% in this period. It is therefore, doubtful whether the guaranteed price was suffficiently remunerative to the paddy farmer even if it operated.

Bank Credit
Thirdly there has been a reduction in the flow of agricultural credit to paddy cultivation. The total bank credit granted under the Comprehensive Rural Credit scheme to paddy cultivation was as high as Rs.759 million in 1994/95 but declined by more than 50% to Rs.362 million in 1995/96, declined by another 8% to Rs.335 million in 1996/97 and fell by 70% to Rs.99 million in 1997/98.Thus the credit in 1997/98 was about 13% of that granted in 1994/95. Such a big fall in credit cannot be explained by the reduction in area cultivated by paddy, for the amount of credit granted to subsidiary food crops also show a marked fall from Rs.208 million in 1994/95 to Rs. 118 million in 1995/96 and to Rs.28 million in 1997/98. Reasons for this alarming fall in bank credit to agriculture are not clear and a comprehensive study by the relevant authorities is imperative, as it is directly linked to the country's food production.

Imports
The eventual result of a decline in food production of paddy and subsidiary food crops - was an increase in imports. Rice imports which were negligible in 1995 with only 9000 metric tons, rose to 341,000 metric tons in 1996 and 306,000 metric tons in 1997. Rice imports in 1996 and 1997 were the highest of any year in the ten years 1988-97. The value of imports in 1997 of potatoes was Rs.1,301 million, Bombay onions Rs.1,312 million and chillies Rs.593 million. We also imported coconuts to the value of Rs.30.8 million, copra Rs.12.0 million and coconut oil (together with palm kernel oil) Rs.370 million. We may have to import more coconuts and coconut products with the increasing population and diminishing coconut production.

The authorities, it must be admitted, face a very difficult problem, they have to keep both food producers and consumers happy at the same time. There is an inherent conflict of interests here as producers want high prices and consumers low prices. There is no incentive for the producers to grow food crops unless the prices are remunerative and invariably imports of foods flood the market and depress prices to the disadvantage of the producer. Normally, imports are made when local production falls and prices rise. This is done to prevent a rise in cost of living of consumers. Imports in a situation of short-fall in domestic production may have some justification but there must be some reasonable protection to the domestic producer by way of tariffs, for even in a period of local shortage there are always some farmers who are producing. It is difficult therefore to defend government's policy of reducing or waiving import tariffs such as the reduction of tariff from 35% to 20% on potatoes in December 1996 and January 1997 and the waiver of 35% tariff on rice from November 1997 to January 1998.

Our basic aim should be to increase food production to the maximum extent possible, firstly because there is likely to be a world food shortage, according to the FAO, in the near future and secondly because it creates or supports farm employment and income while conserving foreign exchange. Actually, we are almost self-sufficient in rice barring droughts and internal conflict, for in 1995 we had a rice surplus to export. However, as droughts occur from time to time, we have to invest much more than we have actually done on creating, improving and maintaining irrigation facilities in combination with agricultural extension services and marketing facilities. Of course, we must not forget that we can never be self-sufficient in cereals as we need to import, nearly 800,000 metric tons of wheat annually.

It is a matter of utmost priority that we increase subsidiary food production as we have the potential to produce more to be self-sufficient and even to export. We referred to potatoes, onions and chilies but we are in deficit in many other food items and are forced to import at great expense. For example, the value of our imports in 1997 of maize was Rs. 887 million, dhal and peas Rs.3,381 million, garlic Rs.261 million. Our imports of foreign fruits have risen very rapidly: in 1997 our imports of apples was Rs.143 million, oranges Rs. 76 million, dates Rs. 90 million, grapes Rs. 60 million and raisins Rs. 62 million. A substantial part of these vegetables and fruits can be grown quite successfully in the country. Care must be taken however, that free imports do not undermine local production as in the case of local (green) oranges which have disappeared from the market with the influx of foreign oranges. Tax incentive alone are insufficient. The government must show the way and guide, assist and work shoulder to shoulder with producers without waiting for the invisible hand to do the job.

On productivity and efficiency

By Analyst
Economy-wide there is abysmally poor quality of service, both customer service and services in general. Bank tellers close counters forcing long queues. The post office counters are worse. At no time are all customer counters manned.

The public service has reached a low ebb as far as service to the public is concerned. Although government offices are supposed to open at 8.30 a.m. nobody is available till after 9.00 am. As soon as they arrive in office, the staff go to the canteen presumably to have breakfast. Again around 10.00 a.m. they are back in the counters for tea. From 12.00 to 2.00 p.m. they are at lunch and from 3.30 p.m. they are preparing to depart.

How many hours of work do they perform? Successive government Ministers have packed their offices with staff recruited from their distant electorates. There are departments where staff travel from Rakwana, Pelmadulla and other far off places. The politicians must take the blame for this state of affairs. Instead of recruiting the best available persons for the available jobs, they have packed government offices with poor quality staff, giving jobs to their boys and girls, What a mess they have made of the public service!

The public servants do not consider themselves servants of the public. Nobody shows any friendliness, nor do they talk politely. They are indifferent, surly and downright rude. Since 1972, the politicians as Ministers have taken charge of the public service. It is upto the ministers now to ensure an efficient public service.

Management theorists have stated that the tone of the organization is set by the chief executive. A minister like Felix Dias Bandaranaike had the leadership and administrative skills to ensure that the departments in his ministry functioned efficiently.

Ever since the Chinese discovered the principle of heirarchy lines of authority have been an important principle of management in all large organizations. The world has produced two nations of great administrators - the Romans and the British. Both nations held a far flung empire together through efficient administration.

We had an opportunity to learn administration from the British, but all the lessons learnt were gradually dumped from 1956 onwards when politics triumphed over good administration. Now the state is in dire straits. It cannot even maintain law and order let alone promote economic growth.

The state enterprises were consuming capital and wasting the savings of the nation. The government accepted the need for privatization, not through a recognition of the need for reform but to raise money to carry on with the war and the welfare measures like free education and health care.

As for economic growth it pins its hopes on foreign investment, but without law and order, without properly enforceable contracts and secure property rights, neither local nor foreign investors can make the best use of the resources and skills the country has to offer.

Without greater decentralization of decision making and more checks and balances to the party's power, there will not be greater rationality in economic decisions but only political power play. The institutions of state power like the police and the administration are being used to further the interests of the political party in power rather than promote economic growth and democracy. The only saving grace is the independence of the judiciary. The struggle for power between the two main political parties is becoming increasingly violent.

INVESTMENT
The importance of investment and the need to give it priority over consumption and welfare service is yet to be appreciated by the government. The investment output ratio was estimated by the Central Bank as 4.3. We need lots of investment if we are to avoid the contagion effects of the South East Asian crisis.

Cutting the budget deficit at the expense of public investment is poor economics. Deficit reduction and public investment are not mutually exclusive. The government seems to think that budget deficit cutting is to reduce investment. In fact masses of subsides and tax breaks could have been chopped to finance more investment. That is what the national economic interest requires.

Such investments are desperately needed if we are to create employment opportunities and keep the economy growing even at the measly 5% rate it has averaged in the last few years. Economists may differ on whether public investments or private investments are more efficient, but large amounts of both are needed and the financial capacity of the private sector is limited.

Private sector investments have to be financed through ploughed back or retained profits or through borrowings. The former are low and many large companies are already too much in debt. The small and medium scale enterprises are starved of credit. Although interest rates have come down these small and medium scale enterprises still have to pay relatively high rates to borrow. Even at these rates they are unable to borrow since funds in banks will flow to risk free government securities.

PRIVATE SECTOR SERVICES
If the public sector is steeped in inefficiency is the private sector much better? Much of the private sector is engaged in services, which make a substantial contribution to the gross domestic product Ñ transport, storage, communication, wholesale and retail trade. Banking and financial services are all important contributors to GDP growth. In fact more than half the growth in GDP is accounted for by this sector.

How efficient is it? Not much better than the public sector. Telephone operators put callers on hold and forget about them. Transport moves at a snail's pace and much fuel is wasted. Important service organizations like the Port Authority, the State banks, the Ceylon Electricity Board are still far from customer friendly. They should learn from Sri Lanka Telecom which is being rapidly transformed.

We earn a lot from tourism. Do we handle tourists with friendliness? In the past we had a reputation for smiling faces and friendly care. Not any longer. How friendly are our customs and immigration officials? Staff will chat idly while customers fret. This is a common feature in many an office. Even shopkeepers do not greet customers with a smile and helpful gesture.

Good service is a bundle of factors such as politeness, responsiveness and caring, all of which make transactions smooth hassle free and satisfying. Good service does not result from offering the best product or best price but from being sensitive to customer needs, gracious in behavior and sincere in honouring commitments. It makes the customer want to do business at a given firm.

Most customers remember how they were treated much more than how the product performed. American research shows customers are five times more likely to leave over poor service than poor product quality or high cost. Improving service quality costs much less than improving product quality, a lesson of great relevance to a poor country like ours.

If one follows newspapers or listen to top executives and management experts one might think we have first class business firms. Buzzwords and catch phrases like total quality management, the vision for the new millennium or the 21st century abound. Seminars are held all over the place on fancy topics like Business Re-engineering, cost and performance management Japanese methods etc.,

Much of this is hype and even nonsense, irrelevant to the stage of the economy we are in. We are the only country in Asia that has more than 15 public holidays. Our poya system of holidays lead employees to take extended holidays combining such holidays with the week-end or statutory holidays. Our disciplinary rules and militant trade unions make it difficult to manage a concern.

These problems are ignored by the government. Instead there are regular talks on improving productivity using Japanese methods. What would be more relevant is to go back to F W Taylor and adopt Time and Motion study F W Taylor is perhaps the most popular bogey-man of modern management thinkers.

TAYLORISM
He was one of the first if not the first person to study work systematically. He argued that the productivity of physical labor could be increased greatly by measuring in minute detail the activities of workers and then standardizing and accelerating their tasks.

He argued that there was one best way to do any activity. He called his methods "scientific management', in a book published in 1911. His methods came to be widely applied in USA as mass production spread. But workers always resented Taylor's ideas and they came to despise the stop watch and clipboard carrying engineers who wandered around factories, watching their every movement.

"Taylorism" is today vilified as the epitome of an authoritarian style of management, which causes labor strife. But this is probably unfair to Taylor who always stressed that not only the accurate measurement of tasks but the willing co-operation of workers was necessary.

Paul Adler in an issue of the Harvard Business Review argued that coercion is not essential to obtain efficiency. He studied a car factory in California jointly owned by General Motors and Toyota and attributed its phenomenal success to the widespread application of Taylor's methods but with a crucial difference: the stop watches and clipboards were in the hands of workers not managers.

Work measurement and Time and Motion study are important but more so is worker co-operation. Work study, organization and methods were in usage in the public service in the 1950's and 1960's. They seem to have died out.

Our private sector businessmen need to go back to basics, not to move up to more esoteric stuff. Our manufacturing sector is still in a rudimentary stage. But there is much scope for improving efficiency in the service sector.

Even in these days of globalisation, the service sector is naturally protected from foreign competition. So the emulation of best practice from foreign firms is not available for this sector. But there is room for considerable improvement in this sector where several big corporate names dominate.

What is important in this sector is not "Just in Time" production or their fancy innovations, but to teach staff to be polite, how to respond to customer's inquiries, how to deal with customer's complaints, how to treat customers with dignity and attention. These are not difficult to teach to staff.

Real change will come only when customers are attended to promptly by bank tellers, when bills can be passed without hassle through the banks and through credit cards, when customers can obtain information through a telephone call and have their transactions done promptly.

INFORMATION TECHNOLOGY
One political worthy has stated that computers are not suitable for Sri Lanka because it costs too much money to update them and that it reduces jobs . This is baloney. Information technology is today much more than a resource or a cost. It is the very environment of business.

Most white collar workers like counter clerks in banks or insurance or other service businesses like travel or airlines should now have computers on their desks. In the next couple of years electronic mail, electronic data bases and even electronic commerce will become widely used.

It is pathetic to see clerks in the state insurance corporation pushing dust laden files, writing out receipts on manual cash registers and keeping customers in long queues. Computers can quicken transactions and increase productivity of people. Anyone who says that it is easy to change the way groups of people do things is mistaken. Change is hard for individuals, for groups it is almost impossible. Yet change is essential if we are to become more productive and efficient.

Of course computers do not simply boost productivity. It requires hard work to make computers successful. Companies should build up the skills of their staff first. At Toyota's factories one of the main measures of performance looked at by management is the number of suggestions for improvements submitted each day by workers.

PRODUCTIVE INVESTMENT - THE KEY
The proven path to development is open competitive markets, fair prices for farmers a favorable investment climate and limited government interference . Investment is the most volatile part of Gross Domestic Product. Interest rates, profits, demand and technological innovation all play a part in determining investment.

Perhaps most significant is the state of business confidence - or what Keynes called entrepreneurs "animal spirits'. Remember the period of Premadasa regime when business confidence was soaring. The banks were liberal with credit. But the situation today is different. At present the spirits of entrepreneurs are restrained.

Several possible explanations can be advanced for today's sluggish investment. Firstly the decline in public investment. Government investment spills over to private investment as government contracts with private sector firms. The Government is still the largest economic agent in the economy being the largest buyer, seller and contractor.

Again private foreign investment has fallen. In previous years there was much direct foreign investment which has been drying up. We still have substantial foreign reserves which we can use for investment. But the government does not have the rupee funds to utilize them owing to its parlous financial position.

The private sector lacks business confidence. It also lacks funds. The development Banks must play a more liberal if not aggressive lending rule. Otherwise investment will flag.

Since the export sector is shrinking there is no other sector that can sustain economic growth. Although interest rates have fallen, the benefit to small and medium scale enterprises is insignificant. The real threat is that as bankers get nervous, they will curtail credit to the smaller enterprises which alone can expand in difficult times.

Large companies' confidence is easily affected by the adverse conditions in the world economy. The Government is trying to stimulate the construction industry through tax incentives. While house construction is capital investment from the viewpoint of the individual, it is more consumption oriented than investment, proper with ripple effects through the multiplies as other forms of economicrs investment. It does not add to the productive capacity of the economy.

Faced with a constraint on funds for capital investment, government should not be promoting housing but rather manufacturing investment and infrastructure investment in roads, bridges, ports, power etc. We have neglected infrastructure for too long. Nor have we maintained our infrastructure assets properly. We have sadly neglected maintenance and we see the pot holed roads, the bursting sewerage pipes and water pipes, falling bridges etc.

All capital assets have a limited life and where they are not properly maintained, their life is shortened. Our gross investment must grow faster to simply maintain the existing stock of capital. It is time for the Government and business to spend on investment if the economy is not to enter a recession.

Elephant Lite slows losses

The troubled Elephant Lite Corporation Limited, makers of the Laxapana batteries, has been able to slow losses during the first half of the current financial year according to an interim statement to shareholders.

The company which is now in the E.B. Creasy/Lankem group has lost Rs.5.8 million during the half year compared to a loss of Rs.19.3 million a year earlier. Losses for the whole of the last financial year was Rs.34 million.

Elephant Lite now holds Rs.462.2 million in accumulated losses in its books.

While interest cost remained almost static at Rs.8.1 million during the period under review, other income of Rs.3.4 million helped to slow down the losses incurred during the half-year. The loss before interest at Rs.1.1 million was also substantially below a comparative loss of Rs.11.4 million recorded a year earlier.

Elephant Lite has an issued capital of Rs.32.4 million and capital reserve of Rs.151.4 million.

Record third quarter at Grain elevators

Ceylon Grain Elevators Limited (CGE), the country's biggest feed miller and livestock producer, has reported a record third quarter with a profit of Rs.202.3 million, up 83% from Rs.110.4 million a year earlier.

"The net asset value per share at the end of the third quarter was Rs.32.99, 15% above the figure for the same period last year'', a company statement to the Colombo Stock Exchange (CSE) said.

CGE also said that it expected its new Rs.330 million silo and modern warehousing complex to be ready by the first quarter of next year. Eighty percent of the work is nearing completion, the company said.

There was no mention in the statement about the huge billion-rupee customs fine imposed recently on the company in the interim statement. CGE has already said that it was appealing against this forfeiture and claimed that it was not guilty of any wrong-doing.

The statement reported a steady third quarter "despite a tough economic environment'' largely caused by external instability.

With group turnover net of GST for the period under review at Rs.789.6 million, the company had a cumulative 9-month turnover of Rs.2.6 billion, up 10.7% from a year earlier.

Profits available for appropriation were stated at Rs.364.2 million of which an interim dividend absorbing Rs.30 million has already been paid. A balance of Rs.334.2 million is being carried forward.

CGE shares have acquired considerable momentum in the past few days and were trading at around Rs.35 each at the end of last week with large parcels changing hands. There was considerable foreign buying interest and investors were speculating about the possibility of Prima of Singapore, CGE's parent, increasing its stake. There was no confirmations on this rumour.

John Keells Stock Brokers said in a research report that CGE's 9-month growth had been driven primarily by a 70% expansion in operating margins. This was mainly due to sharp declines in raw material prices including soybean meal and corn used for feed manufacture.

Also, favorable weather conditions had helped boost day old chick production with a strong demand for chicks increasing prices. The CGE subsidiary, Three Acre Farms Limited, had recorded a 31% increase in net turnover fuelling the growth momentum, John Keells said.

Colombo to target rural communities

By Amal Jayasinghe
It is not only Sri Lankan speculators but the Colombo Stock Exchange )CSE) itself that is taking a gamble. For as the bourse heads for uncertain times, it is embarking on the risky business of expansion.

The tiny Colombo exchange is to open its first branch outside the capital in a bid to attract rural investors and reduce its dependency on foreign investors who have been leaving in droves.

"We are taking a big chance'', said Rienzie Wijetilleke, chairman of the exchange as he outlined the decision to open an office at the southern town of Matara.

Mr. Wijetilleke said the rural farming region would have to generate at least SL Rs.5 million ($73,861) worth of trades each day for the CSE to break even. He recognises this is a very tall order.

"We may not be able to get this initially'', he said. "But we want to do it in the interest of developing the market''.

In terms of technology, the tiny Sri Lankan stock exchange is probably on a part with counterparts in the West.

The proposed branch some 160 km south of the capital will be on line with screen-based trading.

The CSE hopes to educate rural communities which are more accustomed to traditional savings accounts to keep their excess cash in the equities market as a "high risk but high return'' option.

When the Matara branch opens in March with five broking houses located within the same premises, it will also encourage school children to learn more about the markets.

But even the most astute analysts in the country find it difficult these days to explain sharp price movements in Colombo.

When John Keells Holdings, one of the bluest of blue chips, announced profits of more than SL Rs.1,000 million earlier this year, investors were apparently unimpressed and the company's share value dropped by almost half.

However, the John Keells share price subsequently made a dramatic recovery, even though the company reported disappointing third-quarter results showing profits down by 71 percent.

The National Development Bank found itself in a similar situation when its share price started climbing - even though the company reported a 16 percent fall in third quarter profits.

Colombo is often described as a foreign-driven market, but overseas investors have been pulling out.

A sharp downturn in Colombo began before India carried out its first nuclear test explosion on May 11, which shattered foreign investor confidence in the entire region.

"About half the trading was by foreigners in May and June'', the director general of the CSE, Hiran Mendis, said. "Now they account for about 25 to 30 percent of the market and there is a net outflow of foreign funds''.

G.L. Peiris, Deputy Finance Minister, said there had been a lukewarm response to several tax concessions aimed at boosting volumes at the exchange.

In spite of the technological improvements in the trading system and a tax bonus the investor base remains narrow due to insufficient participation by ordinary people, the local business community and institutional investors'', said Mr. Peiris.

The exchange is now eyeing local institutions with big cash holdings as future investors.

In an effort to lift the market, the government has also asked three state-run institutions to invest in equities. However, few individuals expected the latest mini-rally to last for long.

"I just don't know why the market is suddenly picking up. It may be the stars'', said private analysts Elton Ebert. "But my advice is don't be in a hurry to gamble''.

(Courtesy Financial Times of London).

UAL's 9-month profit grows nicely

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, 1998.

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.

Ceylinco supports Children's Heart Project

The Ceylinco Insurance Company Limited has announced an initial donation of Rs.1 million to the Children's Heart Project and will increase such contributions with a share of earnings from all children's health policies sold by the company.

Ceylinco Chairman Lalith Kotelawala who announced the contribution said that the company was responding to a request by Dr. P.N. Thenebadu to help care for underprivileged children suffering from heart diseases.

"This is a worthy cause and we are happy to come into this project'', Kotelawala said at a news conference last week.

Best Annual Report contest expanded

The Institute of Chartered Accounts of Sri Lanka is expanding the categories and extending the last date for closing applications for its Best Annual Reports of the Year competition which attracts keen interest among the top companies.

A news release from the institute said that there will be 15 categories of reports that will be judged and the technical committee has already commenced preliminary evaluations.

The institute's secretariat will receive applications upto December 5 and companies and corporations interested in competing have been requested to contact the institute on 074-512882/286256.

The categories for annual reports that will be judged are:

1. Group companies quoted - upto five subsidiaries.
2.Group companies quoted - above five subsidiaries.
3. Non group quoted companies.
4. Companies - unquoted.
5. Finance companies.
6. Financial institutions.
7. Banking institutions.
8. State corporations.
9. Service sector organisations.
10. Telecommunication companies.
11. Hotel companies.
12. Food & beverage companies.
13. Insurance companies.
14. Plantation companies.
15. New companies incorporated after April 1, 1993.

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