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Grain Elevators report sterling results
Billion rupee fine reported as 'contingent liability'

Ceylon Grain Elevators Limited (CGE), the country's biggest feedmiller holding over 60% market share of the poultry feed business, had crossed the Rs.3.7 billion turnover mark for the first time and also posted its highest ever profit of Rs.278.4 million. The company's Chairman, Primus Cheng Chih Kwong, has told shareholders that 1998 was "a year of immense satisfaction" with CGE achieving "sterling results" and notching several milestones.

Save for a note in the accounts relating to the contingent liability, the company has said nothing new on the Rs.1.2 billion Customs forfeiture imposed on it over maize supplies for the Triposha program and maize conversion for special feed sold in the open market in its just published annual report.

In this note, the company has totally denied the alleged contravention and said that it had instituted action in the Appeal Court as well as the District Court in this regard. Shareholders have been told in this note that the Attorney-General had been granted time till March 3 to file objections and till April 23 to file answer in the District Court.

Although there have been market rumours that this issue is being settled, the company itself has made no formal statement on the prospects other than record the forfeiture imposed and its court actions.

The company which paid no dividends in 1996 and 1997 has declared a final dividend of 10% on top of an interim 5% paid in May 1998 for the year under review. This dividend will give shareholders a tax-free return of 15% for the financial year ended December 31, 1998.

The profit after-tax of Rs.278.4 million recorded during the year under review was up 39% from a year earlier.

Cheng has told shareholders that CGE had acquired another 7% of the issued ordinary share capital of its associate, Ceylon Agro Industries Limited (CAI) increasing its total holding of CAI to 29%. The additional 7% purchased at par had cost CGE Rs.70 million.

The chairman announced that CAI was seeking a capital restructuring before embarking on an initial public offering later this year. This would make the CAI the third quoted company of the CGE group, the second being Three-Acre Farms Limited.

Cheng said that the restructuring will be placed before an extraordinary general meeting of CGE shareholders later this year. The company' stake in CAI after the restructuring will be 21%.

CAI is involved substantially in the poultry processing and allied industries, including chicken meat processing, broiler buy-back operations, the operation of retail outlets, instant noodle processing, bread making and bakery pre-mixes.

Cheng said that the annual turnover of CAI was expected to cross Rs.1.2 billion for the financial year ended December 31, 1998 and his directors were of the view that the investment represented good value in the long term and will yield attractive returns in the future.

Cheng said that the company has made a good start to trading this year and was confident of making significant progress in 1999 in a year of moderate economic growth.

He reported that they were ready to commission their new modern silo-cum-warehouse representing a single substantial investment which will position the company strongly in the new millennium.

"Coupled with the fact that CGE group is the largest integrated feed manufacturer, this new silo-cum-warehouse, places the company very well to exploit the burgeoning poultry and allied food industry. Our integrated shrimp feed plant is also scheduled to begin commercial production soon in the first half of 1999," he said.

Cheng said that the board expects the expansion of all the group's quality activities to continue. The strategy adopted by CGE and its subsidiaries was to integrate a number of related businesses systematically - from raw material acquisition to production and marketing.

In a review of operations, the company said that they had successfully completed its long term funding plans with its bankers. This has boosted its profit earning capacity and shareholders can expect to be rewarded with an improved earnings stream.

The directors of the company are: Messrs. Primus Cheng Chih Kwong (Chairman - appointed 19.6.98), Henry Tan Hong Tjioe, Robert Cheng Chih Cheng and Peter Cheng Chih Hui.

Grain Elevators to reclaim acre of Mutwal seabed

Ceylon Warehouse Complex (Pvt) Limited, a Ceylon Grain Elevators associate, has entered into an agreement with the Sri Lanka Ports Authority to reclaim approximately one acre of sea bed near its Mutwal factory.

CGE shareholders have been told that the lease on the newly reclaimed land will run concurrently with that of existing CGE land.

"The board will evaluate new business ventures for this project", the CGE 1998 report said. No details of cost and the technology to be used for the land reclamation was given.

Korea Ceylon amends agreement with BOI

Korea Ceylon Footwear Manufacturing Co. Ltd., a C.W. Mackie subsidiary, will enter into a supplementary agreement with the BOI to expand its product line, shareholders have been told.

Korea Ceylon Chairman A.G.L. Perera said that the directors have approved the execution of this agreement with the BOI to change the approved scope of the business of the company from "manufacture and export of canvas footwear" to "manufacture and export of all types of footwear and moulded rubber products."

The supplementary agreement will also permit the company the right to borrow in Sri Lanka rupees and give tax relief for losses incurred after April 1, 1994 against future profits and a concessional income tax rate of 10% for a limited period of 20 years from April 1, 1994.

The previously applicable tax regime exempted the company's earnings from income tax from April 1, 1994 to March 31, 2002 and thereafter income tax at 2% of net sales.

Losses mount at Ceylon Strategic Holdings

Ceylon Strategic Holdings Limited which bought the prime Trincomalee beach front property on which a Carsons hotel stood, has reported a half-a-million rupee loss up to December 31, 1998 increasing retained losses to Rs.19.9 million.

The original Carsons Moonlight Beach Hotel was destroyed by the LTTE several years ago. Carsons did not resurrect the hotel and instead sold off the owning company which was purchased by an entity called Ceylon Strategic Holdings Limited for which the managing agents here are Jardine Flaming HNB Capital (Pvt) Ltd.

The company has an issued share capital of Rs.11.5 million, a capital redemption reserve of Rs.0.3 million and a general reserve of Rs.1.3 million.

Its balance sheet values its freehold land at Rs.0.4 million.

Shareholders have not been informed of any measures to revive the hotel.

Lanka Aluminium to go into imports

Lanka Aluminium Industries Limited has summoned an extraordinary general meeting on April 27 to consider a resolution amending its memorandum of association to enable it to widen its scope of activity..

The directors of the company have decided that Lanka Aluminium, which is primarily an aluminium extruder, should widen its business to import and sell articles made of aluminium, steel, plastic, rubber and chemicals.

They also want the company empowered to act as managing agents and receive management fees; purchase shares and make investment in other companies and also to guarantee facilities granted to other companies.

The amendment to the memorandum and articles will also include a change enabling the holding of directors meetings with a quorum of three.

Controlling volatile capital movements and Malaysia's experience

by Kanes
There are three main types of capital flows into developing countries; direct foreign investment, portfolio equity investment and long and short-term loan capital. Direct foreign investment is normally stable and long-term and goes into the creation of productive fixed assets like plants, factories and buildings; they are engaged in "real economic activities" and are normally guided by long-term prospects of the country. They are the least volatile and destabilizing in impact. A developing country which needs foreign capital to accelerate its economic growth should therefore provide incentives and welcome this type of investment.

Portfolio capital which flows as investment in equities (shares) and bonds floated on the stock market to earn higher returns than at home, adds to financial liquidity of a country, but portfolio capital is volatile and can suddenly flow out of the country if market conditions, according to its perception, become adverse. Such sudden outflows tend to destabilize the economy by causing currency depreciation, crash of stock market and bankruptcy of firms. It is for this reason that restrictions or limits are placed and taxes imposed on inflows of portfolio investment in some countries; but normally foreign investor is free to bring in his funds and free to take them out. The third type, loan capital inflows take place when domestic firms/banks borrow foreign funds, normally at lower interest rates than at home, mostly from foreign banks. Foreign banks are also tempted to lend to enterprises in developing countries as they can earn more than by lending in their own countries. Bank loans, particularly short-term, too can cause turmoil in a country if they are recalled or not renewed. Thus, the volatile capital movements which destabilize developing economies are essentially short-term portfolio investments and short-term bank credits; it is these two types which caused the economic crisis of East Asia as well as in Mexico, Russia and Brazil.

Hedge Funds

A substantial part of portfolio investments in emerging markets is made by hedge funds. There are an estimated 4000 to 4000 hedge funds in the world which control over about $ 400 billion of resources. Most of these hedge funds are unregistered, operate offshore and not subject to national laws. The best known hedge fund is that of George Soros who sold an estimated £ 10 billion short in 1992 and netted a profit of £ 2 billion. However, he lost in the recent Russian turmoil. Hedge funds are not transparent; their funds are normally from the savings of very rich people; their managers are more keen to make quick profits on the stock markets or currency markets than genuine profits from long-term investment. It is hedge funds which are mainly responsible for the East Asian crisis and currency instability in many parts of the world. Not all hedge funds make profits; the Long-Term Capital Management in US was in deep financial trouble and had to be rescued by other financial institutions.

After having successfully speculated against the South-East Asian currencies, the hedge funds turned their attention to Hong Kong. They borrowed shares and sold them on the assumption that prices would fall before they returned them and then tried to engineer a fall in share prices by selling HK dollars which under the Currency Board System results automatically in a rise in interest rates. The Hong Kong authorities, however, countered the speculation against the currency peg by purchasing $ 15 billion of shares on the Hong Kong stock exchange. Since then they have controlled the operations of hedge funds. Taiwan too has taken measures to check the disruptive activities of hedge funds. It is because of the onslaught of hedge funds that many were predicting the depreciation of the yen to about 180 to the US dollar by March 1999. The hedge funds, however, could not sustain the costs they were incurring in their operations and were forced to unwind their position. The result was that the yen maintained its value at about 120 to the dollar.

Despite the disruptive behaviour of short-term capital movements (hedge funds) the IMF and the US are opposed to regulating them. In fact, the IMF has planned to add a new chapter to the Bretton Woods Agreement to make liberalization of capital movements one of IMF's objectives and to extend IMF's jurisdiction for this purpose. Alan Greenspan, the chairman of the Federal Reserve System, in congressional testimony, confessed his inability to control hedge funds. "Given the amazing communication facilities available virtually around the globe, trades can be initiated from almost any location. Any direct US regulation restricting their flexibility will doubtless induce the more aggressive funds to emigrate from under our jurisdiction". It is clear that both the IMF and the USA will resist any restriction on the free movement of capital; it may be that they are not unaware of the devastation caused by them in developing countries, but they are only concerned with enabling their firms (most hedge funds are American) to make profits whatever the cost to poor countries. Formerly it was said that what was good for General Motors was good for America; now it is said that what is good for Wall Street is good for the world.

Need for Capital Controls

International regulation of capital movements in order to prevent their destructive effects on poor countries, has been advocated not only by the developing countries but also by eminent intellectuals and businessmen in developed countries. Surprisingly, George Soros, who made millions by currency speculation, has metamorphosed into a strong supporter of international capital control. He has stated that "financial markets are inherently unstable, which can cause tremendous damage to society" and expressed his views emphatically in an interview with Asiaweek of October 23,1998 as follows:

"I am advocating greater supervision and regulation of capital markets in general. I think that obviously the totally free flow of capital is not advisable, so you need to create some mechanism for introducing stability".

In his book he argues further that imposing market discipline on unstable financial markets means imposing instability. "Market discipline needs to be supplemented by another discipline: maintaining stability in financial markets ought to be an explicit objective of public policy".

The former Minister of Finance of Germany - Oscar Lafontaine - was fully in support of controlling financial markets which can ruin economies. He had stated that "globalized markets need a framework that creates internationally binding rules for free and fair competition". Professor G. K. Helleiner, an eminent Canadian economist has called for a new global framework to oversee international financial markets.

Developing countries have also noted with interest how China has achieved the highest sustained economic growth among developing countries with stable currency as a result of its tight controls over the financial market. All foreign exchange transactions in China are subject to strict controls, but they have not prevented foreign investment or rapid economic growth. On the contrary, China has been the largest recipient of foreign direct investment of all developing countries - $ 200 million in the period 1990-97. (Paradoxically, the West connives at China's controls as it prevents the renminbi from falling in value and triggering another round of Asian currency depreciation, but oppose controls elsewhere in developing countries.) They have also noted that South Asian countries like India managed successfully to insulate themselves from the most damaging effects of the Asian crisis by the use of capital controls and that Chile defended itself from speculative short-term capital movements by imposing a 30 per cent tax on them.

Malaysia's Experience

Mahathir Mohamed Prime Minister of Malaysia was perhaps the first to accuse foreign speculators of destroying the rapidly growing economies of Asia. He wanted anarchy in the financial markets stopped by international regulation of the currency trade. When his appeal fell on deaf ears, he did not hesitate to take direct measures to control foreign exchange transactions to protect the Malaysian economy by isolating it from global financial integration. Contrary to gloomy warnings by his critics and the US/IMF, Mahathir's direct controls have saved the economy and allowed it to continue its growth with little cost in terms of output and employment. The Malaysian experience in Mahathir Mohamed's own words is as follows:

"Before the economic crisis started in 1997, the International Monetary Fund's Michael Camdessus described Malaysia as "a good example where the authorities are well aware of the challenges of managing the pressures that result from high growth and of maintaining a sound financial system amid capital flows and a booming property market". Despite this testimonial, Malaysia plunged into financial turmoil together with other East Asian countries, as its currency - along with others - was rapidly devalued by currency traders. But instead of blaming currency manipulators, the governments were blamed for the financial crisis".

Then the IMF used its Malaysian cronies to force up interest rates, squeeze credit and shorten the period for loans to be declared non-performing. It was suggested high interest rates would keep our money out of the hands of currency traders. Instead, there was a massive flow of ringgit to Singapore where even higher rates were offered. Currency traders needed to borrow money only for short periods and did not mind the high interest rates. And they kept devaluing the currency while Malaysia ran short of credit. Subsequently, foreign observers happily predicted that Malaysia would have to seek IMF help and accept IMF control, which in the end would have meant allowing foreigners take over Malaysian banks and privatized utilities and business.

We appealed to the IMF and the World Bank to curb the activities of currency traders. But Mr. Camdessus merely wrote to say that since currency trading was so huge and involved the great banks of the West, nothing could be done to regulate it. We could not understand this since it was obvious that currency trading was at the root of practically all financial turmoil. It seemed that the system had become more important than the result, becoming a religion that must be upheld even if it destroys everything.

Since we believed that currency and stock market speculators were responsible for what happened to our economy, the logical thing to do was to put a stop to their activities as they affected our country. And so we instituted selective exchange controls, designed specifically to prevent currency traders from getting hold of the ringgit. Also, the Malaysian stock market was peculiar in so far as much of the trading in Malaysian stocks was transacted in Singapore through an over-the counter market. Short-selling in Singapore rapidly pushed down the Kuala Lumpur Stock Exchange composite index. To stop this, we required that all trades in Malaysian shares be made through the KLSE and that foreign capital invested in the stock market remain in the country for at least one year. This stopped stock manipulation.

But these selective controls were almost universally condemned. We were told we would fail, or at best the relief we gained would be temporary. The international media as usual accused the government of imposing controls to save cronies and family members of the prime minister ... The truth is we are now managing to recapitalize our banks and purchase non-performing loans without foreign borrowing. Retrenchment has been minimal - statistically, we have zero unemployment. Super markets are well stocked, even with imported foods. There is no shortage of medicine or fuel ... In four months our foreign exchange reserves have gone up to $ 27 billion from $ 20 billion - equivalent to more than five months of retained imports.

Now those who did not condemn the controls outright ask us when we will lift them... But the experience of Latin America shows that as soon as economies recover from the effects of currency attacks, a new assault begins. Clearly, as long as the international financial regime allows currency traders to devalue currencies, there is no guarantee that they will stop simply because financial reforms have been carried out faithfully by governments. Therefore, Malaysia's controls will remain in place until the international community devises a new financial regime that curbs currency to traders' activities... Malaysia is bouncing back. But how far we get depends on the world economy. We won't recover fully if the world doesn't recover. And the world won't recover if it regards capitalism as a religion. (Far Eastern Economic Review, February 11, 1999.)

The sorry state of the polity undermines the economy

by Analyst
The government has won the Provincial Council elections in all five provinces despite its anti-democratic record, showing how little people care for democratic rights. They are more interested in voting for the party in power with the hope of getting favours from the state, like samurdhi benefits, jobs, land, etc.

Under-educated voters will always look for what Americans call "pork" - the politics of patronage. The government deploys its resources to favour its supporters and discriminates against those who vote for the opposition. This is what democracy means in most non-western states.

Although economic growth has slowed down, the economy is still able to sustain living standards owing to the reduction in inflation. Inflation has definitely come down in the last year. In fact the economy is now wallowing in the early stage of a depletion.

The prospects for exports are bleak. Direct foreign investment has dried up and although stock markets elsewhere in Asia are looking up, our market continues in the doldrums. The Central Bank continues to hold the rupee stable inspite of the stagnation in exports. The foreign remittances from the workers abroad continue to increase and they dampen the need to depreciate.

Foreign exchange reserves are adequate although they are falling slowly. The loose monetary policy and relatively controlled fiscal policy with low interest rates, have helped to keep the economy growing although at a much lower rate of growth. One hopes the banks are strong enough to continue financing the business firms at the same pace.

But there are dark clouds on the horizon. Industrial exports are likely to meet stiff competition and commodity prices are in the dumps with little hope of recovery in the short run. Fortunately, oil prices seem likely to remain low inspite of OPEC commitments to reduce production.

More open trade has meant competition for local manufacturers who produce consumer durables. There is no appreciable dampening of the demand for consumer durables like refrigerators, T.V. sets, etc. The demand for cars is still strong and it is reported that permits for duty free vehicles have been liberally dispensed in the run-up to the elections.

But there are very real threats to social place which will undermine economic growth as well. A director of a leading conglomerate the Aitken Spence group, a blue chip company, was held hostage until a ransom of Rs. 20 million was paid. There are reports of other businessmen also being marked for similar ransom demands. This is a familiar situation in other cities like Karachi and to some extent in Bombay as well. But with 12,000 army deserters this evil of ransom demand could escalate here.

Violent crimes have increased sharply. Rape and murder are becoming common occurrences. The police service is heavily politicised, corrupt and inefficient. Few criminals are apprehended and some of them get off through hiring clever lawyers. Others obtain bail and are at large to commit more crimes. Without removing the police service from this control of politicians, there is no hope of improving it. MPs demand the release of criminals who are arrested by the police. The MPs and the criminals are in cahoots and sometimes the policemen are also in the network.

Political Reform

Political reform is essential if there is to be good governance and economic development. The structure of government requires drastic overhaul. The Indo-Lanka pact of 1987 led to the creation of provincial councils. Such a network of regional assembles has little value. They were introduced to satisfy the Tamil demand for autonomy. But the politicians should have seen to it that while carrying out this exercise the costs of government are not increased. The Provincial Councils should not have been allowed to adds public expenditure.

The government budgets are excessive and we do not even generate a balance in the current account or revenue account of the budget. When an extra tier of government was added in this way, at least one previous tier like the Pradeshiya Sabhas should have been eliminated. Better still, such Pradeshiya Sabhas could have been amalgamated to form larger local authorities.

What has happened is that the number of politicians and bureaucrats have increased enormously, imposing a severe financial burden on the people. The people in the south did not demand Provincial Councils. If they had to be set up to show parallelism to the North-East provincial council, then the powers and functions could be different.

Any solution to the Tamil problem must necessarily involve a regional council with wide autonomy. But this does not mean that the rest of the country should be saddled with a costly institution which has added to the red tape and bureaucrat inertia. Nor is the government genuinely committed to devolving power whenever there has been a real challenge, the central government has re-asserted itself.

The biggest drawback is that there is no accountability by these provincial politicians. Giving them the function of police, would be to give a razor to the proverbial monkey. Without either legal or political accountability these politicians have resorted to plunder and pillage. The tradition since 1956 has been for the local MP not to confine himself to his legislative function but to arrogate to himself all the executive powers of the state officials.

When S. W. R. D. launched his populist attack on the Establishment, he had mobilised social classes which had not been part of the establishment. He championed the Sinhala educated class consisting of the Ayurvedic Physicians, the Teachers and the Bhikkhus who were as much a social class with material interests.

Being unable to satisfy the demands of these classes, he allowed his newer type MPs to encroach on the power of state officials. Soon the MP became the power at the local level, rivalling the government agent. The people could not understand the distinction between legislative and executive functions.

Overwhelmed by the demands of his MPs S.W.R.D. did not contain them within the confines of the legislative.

In any case the attraction of becoming an MP was not to be a legislator but to exercise executive power. They had little or no qualification to be a legislator. They thought of the state as a milch cow. They could not understand that the state had limited resources like an individual. So in the name of the people they demanded various facilities and benefits for their electorates. In order to consolidate their power base they sought to subjugate the government officials in their area of influence.

The scope for political patronage was wide owing to the socialism exposed by the S.L.F.P. It started in the C.W.E. where the chairman, a defeated candidate at the polls, gave thousands of jobs to his supporters and supporters of MPs. Each MP submitted a list of persons to whom jobs were given. The chit system of appointments and promotions in the public service had begun.

4,000 men and women are said to have been appointed to the Petroleum Corporation by the minister in charge since 1994. The MPs found that not enough jobs could be given in the state corporations. Meanwhile the finances of all the state corporations collapsed. The MPs then turned to other luctrative means. All types of lucrative licences came to be issued through the MPs goodwill alone.

When the present government came in liquor licences were issued freely through the MPs. Attempts to cancel licences given by the previous governments were stalled by a Supreme Court decision. These activities of the MPs have undermined good governance. We cannot restore good governance without curbing these activities of the politicians. The time has come to put a stop to this distortion of democracy and put the state machinery out of bounds for the MPs.

Public Finances

Almost throughout (except for two years) the 50 years of our Independence, we have had budget deficts. During some years these deficits exceeded 10% of the Gross Domestic Product. Currently it is about 8% of the G.D.P. with a general election and a Presidential election due in the next two years, the efforts to curb the budget deficit are likely to be nullified. This may mark the return of higher inflation and certainly higher rates of interest.

The underlying problem is that public spending takes up too much of the country's economy. Over 30% of GDP, produces very poor economic returns and ever poorer social returns. The entire Samurdhi programme of several billion rupees is an utter waste. Government revenue is only about 20% of GDP. The subsidies go to those who do not need it. It is the middle classes that benefit most from free education. The poor rural population get a third class education and the so-called educational reforms will make no difference.

The politicians are given overwhelming financial perks. They must be thinking we are a very rich country indeed for them to draw such massive financial benefits. Like the nobility in France before the French Revolution they don't pay any taxes. This privilege exists in no other democratic country in the world. The politicians are also provided with armed security. Since they are not part of the government they run no risk from the LTTE. Do they need more protection than the people they are representing? Is the servant worth more than the master?

Adjust or reform

Do we need full time legislators, when Parliament meets only for a few days and few MPs attend the sessions? Why then pay them salaries and pensions in addition to the lucrative privileges given to them? The Provincial Councils have made the fiscal problem worse. A large chunk of revenue of the central government is now diverted to these councils. It was reported that 75% of the moneys given to the Provincial Councils goes for personal emoluments, thereby entrenching more public spending by way of salaries pensions and perks.

The Provincial Councils Act should be amended limiting the functions and powers of the Councils in the South. Since we have the Presidential form of government at the centre, do we need the Westminster pattern in the Provincial Councils? Why not a single elected Executive? Do we need a Governor in the southern provincial councils in addition to the Chief Minister? Do we need several Ministers? Why not have a single Executive who could have non-elected Ministers drawn from outside who are professionals?

The government has made considerable progress in privatisation. Efficiency has already improved as in the Sri Lanka Telecom. The years of waiting for a telephone have been eliminated. Economists would like more privatisation of such large enterprises like the Petroleum Corporation, the Port, the Postal Service, the Railway and the state banks.

But the privatisation are a one-off affair as far as the budget impact is concerned. There has been no appreciable reduction in the budget deficits. In fact they may rise with the usual raft of pre-election public works. We saw many such projects initiated in the last few weeks prior to the Provincial Council election. Essential reforms in the administration are likely to be put on the back burner.

The public servants pension scheme requires modification by introducing contributions by the employees. The EPF should be converted into a monthly pension scheme instead of a lump sum benefit. The fiscal situation is likely to worsen with pre-election public spending.

There is also a pressing need to sort out who does what at different levels of government. Should the central government departments have their own de-centralised offices in addition to the provincial council offices and pradeshiya sabha offices? Aren't officials treading on each others toes? What is the meaning of devolution if the central government has to have its own local offices? Isn't this unnecessary and costly duplication causing even more red tape and even administrative anarchy?

Administrative reform and political reform are likely to be the key to the strengthening of the economy. There is no genuine desire on the part of the government to devolve. A critical test of the government's willingness to devolve real power comes up when the provincial councils want to do something which challenges central government orthodoxy. The government is generally hostile to provincial councils run by the opposition political party. The government encroaches on the devolved functions of such PCs, taking away schools and hospitals under the PCs by the simple expedient of calling them national schools or teaching hospitals.

How can the Tamils in the north and east trust a government dominated by the Sinhalese if they cannot be trusted to respect the PCs in the South? If it is thought necessary to maintain Provincial Councils in the South so that those in the North and East don't look anomalous, it may be better to keep the form and remove the substance. The elected P.C. could be an assembly which will pass the budget, monitor its implementation and hold the Executive accountable, rather like a development Council. This is what Britain has proposed for England in a new federal Britain with assemblies in Scotland and Wales.

Hypothecation of Revenue

Economists used to think it was best to pool all government revenue into one consolidated fund and draw on it for expenditure according to a national priority. In practice this has not worked and many now advocate the hypothecation of taxes to particular expenditure programs. One of the strongest candidates for hypothecation is the revenue from petrol and diesel which should be earmarked for financing road building. The revenue from motor vehicle licences could be used for the same purpose. The annual revenue licence for a vehicle could be dispensed with and the revenue collected by way of the petrol or diesel taxes.

The municipality for example could set apart a fund to finance garbage collection either by introducing a new fee or from the annual property tax. Hypothecation of taxes is a useful measure to re-connect taxation to the service and cut down on wasteful expenditure.

Union Carbide reports its best year in Sri Lanka

Union Carbide Lanka Limited has reported its most successful year ending December 25, 1998 with a post-tax profit of Rs.15.7 million, up 47% from the Rs.10.7 million earned the previous year. This has enable it to declare its highest ever dividend since setting up here 11 years ago.

The company's Chairman, Mr. R.G. Neri attributed this success to relatively lower prices of raw material, resurgence of the chemical sector and lower interest cost.

He said that the construction and packaging industries are the two main sectors serviced by the company. Latest available estimates showed satisfactory growth in the construction industry while the packaging industry in Sri Lanka too had been steadily growing in the recent past.

"These factors augur well in forecasting another successful year based on the results achieved during the first quarter of the current year," Neri said.

He said that the company had begun a program of renewal of its plant and machinery, upgrading them to the standards of operation and safety required by Union Carbide Corporation. It was therefore necessary to retain funds to facilitate this program.

However, given the extremely favourable results achieved in 1998, Neri said that he and his directors were of the view that a first and final dividend of 25% be paid out of the 1998 profits. This was by far the highest annual dividend declared by the company since it set up its Sri lanka operation.

Neri said that the latex sector of the company had performed to expectation with a 5% increase in sales volumes. Imports from Asian countries continued to be the main competitor in this sector.

Economic problems in the CIS countries of the former USSR had reduced the sale of value added tea exports to those countries. This had affected the company's adhesive supplies to this sector, but the effect was cushioned by increased sales to other market segments.

Neri reported that the product rationalisation program in the chemical sector to re-allocate resources in favour of products where Union Carbide has the competitive edge marked the resurgence in chemicals. The customer base had been strengthened and profitability maximised. Chemicals had contributed 30% of the overall profit with commission income earned from indented sales of Union Carbide products remaining a major contributor to the chemical sector.

Neri also thanked Mr. E.J. Stubenrauch who has retired during the year and was instrumental in commencing latex operations in Sri Lanka.

The directors of the company are: Messrs. R.G. Neri (Chairman), P.C.H. Fernando (Managing), N.U. Jayawardena, A.N.U. Jayawardena, G.R. Pathmaraj, E.J. Stubenrauch (Resigned 17.2.99), T.P. Costello (Appointed 17.2.99), B.C.S.A.P. Guuneratne (Alternate to R.G. Neri), N.B. Liyanage (Ceased to be alternate to E.J. Stubenrauch 17.2.99) and H.A.D.U.G. Gunasekera (Alternate to T.P. Costello - appointed 17.2.99).

Hi-tech farm ready for launch near Padukka
1998 best year for Lanka's poultry industry

Three-Acre Farms Limited, the Ceylon Grain Elevators subsidiary which operates the country's largest and most modern poultry hatchery and breeder farm, has reported 1998 to be one of the best years for the country's poultry industry.

The company attributes the buoyancy and growth achieved during the year largely to a stable economic environment, improved tourist traffic and balanced supply and demand factors. It also says that chicken is fast becoming the most favoured meat in the Sri lankan diet.

"Healthy prices at wholesale and retain levels have helped to uplift the businesses of many farmers and proved that poultry farming is a dependable and stable industry. Most farmers possess the means to ride over temporary downturns caused by seasonal cyclical demand and supply," the company's Chairman Primus Cheng Chih Kwong said.

He said that TAFL, with its business broadened by the 1996 acquisition of Christombu Farms, had been able to seize growth opportunities and achieve a volume growth of over 24% in the supply of commercial day-old-chicks.

"The consolidated results show the total output of day-old-chicks exceed 18 million," Cheng said.

However, the company's total turnover for the year ended December 31, 1998 was down 1.5% to Rs.518.7 million while net profit attributable to shareholders was also down to Rs.53.4 million from the previous year's Rs.59.6 million. Cheng however described profitability as "healthy."

1998 saw an operating agreement between TAFL and Ceylon Agro Industries Limited (CAI) for CAI to manage the company's ten sales outlets located in Colombo and suburbs at a guaranteed profit of Rs.1 million per month for TAFL subject to yearly review.

Cheng also reported that the TAFL group had at the end of the calendar year owned 203 acres of freehold land with a total value of Rs.113.5 million.

He announced that the company was not paying a final dividend on top of the 20% interim paid last December. Although they could support a higher dividend, Cheng said that his board was mindful of conserving surplus funds for internal farm expansion which will position TAFL to take further advantage of future growth opportunities.

Cheng said that although the business environment this year is expected to be uncertain, his board expected 1999 to be another growth year for the company. This was expected to result from the synergy from earlier acquisitions, stepped-up production from existing breeder operations, continued streamlining efforts and tight management.

"Barring unforeseen circumstances, the directors expect TAFL to secure improved level of group turnover and net profits," he said.

Cheng announced that the construction of the 27-acre Wewalpanawa Farm in Padukka will be completed by June. This would be one of the most modern and technologically advanced farms in Sri Lanka and will mark a milestone in the company's history.

He expected commercial day-old-chicks produced on this farm to boost TAFL's strength in the industry and made the point that chicken was fast replacing other meats in. the Sri Lankan diet.

Cheng saw the long term outlook for the poultry industry in the country to be "extremely bright" and said that the sector was poised to reap further gains.

The directors of the company are: Messrs. Primus Cheng Chih Kwong (Chairman - appointed 19.6.98), Henry Tan Hong Tjioe, Robert Cheng Chih Cheng and Hilary Duncan Fernando.

Ceylon Aquatech earns Rs. 26 m. from shrimp

Ceylon Aquatech (Pvt) Limited, the Ceylon Grain Elevators subsidiary farming shrimp, had registered a strong 1998 result despite a high risk environment, CGE shareholders have been told.

There had been no outbreak of the dreaded "white spot" or "orange head" diseases that had affected the company's farms the previous year, the company said.

"This gives us the confidence that our farm techniques lave improved tremendously over the years", it reported.

Turnover in 1998 at Rs.72.8 million was up 181% from Rs.25.9 million the previous year and the prawn farming operation earned a profit before-tax of Rs.26.9 million, up from a Rs.7 million loss the previous year.

The hatchery expansion work that had been started in 1997 had been completed and a volume of 17.6 million post-larvae was sold during the year against 2 million in 1997.

This was despite many shrimp farms in the country remaining closed during the latter half of 1998 because of the outbreak of the white spot and orange head diseases.

Ceylon Aquatech-owned in-house shrimp cultivation results had been excellent with a record 78 mt. of export quality headless shrimp harvested during the year. This had been entirely sold to the Japanese market.

The company said that it plans to commission its new shrimp feed production plant in the first quarter of this year. This will fulfill a long felt need of commercial shrimp farms in Sri Lanka as all shrimp feed is currently imported.

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