25th March 2001
Editorial/Opinion| Plus| Sports|
The Sri Lankan economy has entered a permanent debt trap, with the growth of debt servicing surpassing the growth of GDP. The interest on public debt amounted to 5.6% of the GDP in 1999 and 2000, and it is expected to rise to 6.3% of the GDP in 2001.
The majority of the public debt is used to finance the government's current expenditure. Members of the Sri Lanka Economic Association Economists, at a budget seminar last week, urged the government to implement the proposed privatisation programmes immediately and use the proceeds to redeem some of the debt. They also called for a top down commitment to reduce the size of the government.
"Expenditure ceilings for ministries and government institutions will not be effective in curtailing current expenditure. We need to reduce the size of the government itself, said Dr Dushni Weerakoon, a senior fellow at the Institute of Policy Studies (IPS). She said government cadres have actually grown in numbers during the past few years. "We are yet to see some firm commitments from the government to reform the public sector."
Economist R.M.B. Senanayake, a retired civil servant, stressed that the sustained budget deficits are justified only in developed countries, where unutilised capacities exist. However, in developing economies such as Sri Lanka, unutilised capacities don't exist and budget deficits are almost always inflationary.
"Governments don't need to prop up demand by overspending. The ultimate result of budget deficits is crowding out the investments because of heavy government borrowing," he added.
Speaking about the growth target of 4.5% proposed in the budget, Dr Weerakoon said that in a free economy like Sri Lanka, a growth of 3%-3.5% can be easily achieved without any growth plans by the government. " What Sri Lanka needs is sustained growth at over 6%. This will not be possible without public sector reforms".
She further said that growth has been stagnant during the past few years, and the only high growth years arose from the unsustainable rebounds from the previous low growth years.
Research studies in Sri Lanka on the advanced use of betel have shown that local betel is endowed with several medical and other beneficial properties, the Industrial Technology Institute (ITI) said.
In addition, the research study also found several other properties such as mosquitocidal, mosquito larvicidal, anti mite, anti tick, antibacterial, anti-fungal and high antioxidant properties in the local betel.
Using this information, the ITI research team was able to formulate several value added products from betel. These include betel toothpaste, betel mouthwash, betel shampoo, betel face cream, instant betel quid and betel pellets. A betel antioxidant spray/liquid for food as well as an anti tick preparation for pets has also been formulated.
The research project was launched by the Natural Products Group of the ITI, in collaboration with the Betel Research station of the Department of Export Agriculture, in 1998.
The major objectives of the programme were to study the chemical constituents of different varieties/cultivators of betel, the bioactivity of betel and develop value-added products to enhance its commercial potential. The project was undertaken mainly because betel exports had declined affecting about 20,000 families that were dependant on this industry. The ITI project was aimed at reviewing an oversupply of betel in the domestic market and to enhance the incomes of those involved in the industry.
Betel has several medicinal properties. The leaves are also applied as an antiseptic on cuts, wounds and as a poultice on boils. Several varieties are found in Sri Lanka, and at the initial stage of the project the different varieties of betel were identified and collected for chemical studies with the help of researchers at the Betel Research station.
The ITI study team was led by Dr. Lakshmi Arambewela, Manager of the Natural Products Group of the Agro and Food Technology Division. Ms. Roshini Dissanayake. Mr. Ajit Kumaratunga, Mr. Sujantha Ekanayake and Dr. Sirimal Premakumara were also members of the team.
The Asian Development Bank said last week it had approved an equity investment of up to $360,000 in the proposed NDB Housing Bank, a new market-based financial institution in Sri Lanka. The institution will provide housing finance and help alleviate housing shortages. The institution is an example of the types of projects supported by the Capital Markets team of ADB's Private Sector Group (PSG).
NDB Housing Bank is the first private sector housing bank investment in Sri Lanka and will be a model for similar projects in the region. "ADB's participation will help provide catalytic support for NDB Housing Bank, particularly when it is seeking additional long-term funds, and facilitate the broadening and deepening of the Sri Lankan capital market," says Bob Finlayson, an Investment Officer in PSG.
The main sponsor in NDB Housing Bank is the National Development Bank, Sri Lanka, which is receiving technical assistance and equity support from the leading housing finance institution in India, Housing Development Finance Corporation. Further investment support is being provided locally by the Employees Provident Fund and Eagle Insurance. International Finance Corporation and Netherlands Development Finance Company are also making cornerstone equity investments in the new bank.
NDB Housing Bank will focus on providing loans to medium and low income borrowers, initially in the Colombo region.
Over time, the bank is expected to diversify and cover most of Sri Lanka, and will provide a wide range of loan products designed to meet the funding needs of low and medium income home owners, ADB said in a press release.
By Akhry Ameer
"India is growing at 8-10% a year and Sri Lanka, being its neighbour, is at a distinct advantage to develop as a result of that country's growth," observed A.S. Jayawardena, governor of the Central Bank, recently.
"Small countries can benefit through their neighbours. A good example is the Netherlands, which has developed because of Germany's growth," explained Mr. Jayawardena, speaking at the opening of the Indian Overseas Bank's (IOB) new building at Main Street.
The Central Bank governor said that when the Free Trade Agreement between India and Sri Lanka was launched everyone was apprehensive about it. Now it is welcomed by many and has made trade official between the two countries rather than the unofficial trade which existed before.
Mr. Jayawardena, while congratulating the Indian bank's success and its recent public share issue in India, said he was happy to hear of the banks plan to offer new products and observed that IOB was one of the first to organize a syndicated loan between the two countries when it started foreign currency banking in 1977.
He said he hoped all customers would benefit from the head start by the bank in offering remote logging features. The governor also called upon the bank to help establish links through its network with India's technology in the handloom industry because strong incentives are being offered under the new budget to develop the local handloom and powerloom industry.
IOB chairman and managing director, R.V. Shastri, visiting Sri Lanka for the occasion, said the IOB was happy to finally have its own building after opening its overseas branch in Colombo as early as 1945.
Speaking of the bank's progress, he said that global economists have identified India as one of the 10 fastest growing economies in the world. Under several financial restructuring measures in the last decade, 25% of IOB shares were made available to the public. IOB was the first public bank in India to introduce "any branch banking" with 53% of its 1,429 branches being computerised. IOB plans to concentrate on offering housing finance, future rent financing and retail financing as part of its future products.
IOB's own building at Main Street is totally automated and runs software that has been built in-house. It will also provide its customers with remote logging features to enable them to obtain account information from their offices or homes. The Colombo operation is handled by 56 local staff members of a total of 62 and currently has a deposit base of Rs. 400 million.
The Alliance Finance group of companies has branched out into the home and office furniture business, opening a plush showroom in Colombo with the widest range amongst any other dealer - of imported furniture.
"We have the widest range of imported furniture - from Indonesian cane and rattan, hand-carved Burma teak, Pinewood from Vietnam and China, MDF from Thaliand to rubberwood from Malaysia," said Romani de Silva, the deputy chairman and joint managing director.
The group, which was recently the first financial institution to be awarded the prestigious ISO-9001 international quality certification by European standards authority Der Norske Veritas, said the "House of Alliance" launched the new project last month.
"We felt the need to provide furniture to the middle class segment in the market at inexpensive rates," Mr. De Silva said.
A press release from the company said that the pioneering initiative behind Alliance's business-specific solutions design capability is an innovative concept called Collaboration Finance.
As the term suggests, Collaboration Finance harnesses together the strategic interests of both entrepreneur and financier in the synergistic partnership.
It frees an entrepreneur to focus on core business skills and strenghts, while Alliance Finance concentrates on venture's financial aspects with individually tailored financial inputs and controls.
In keeping with its characteristic conservatism, Alliance Finance has tested its new initiative in practice. De Silva personally monitors each Collaboration Financing project.
"A fine example of this," Mr. De Silva stated, "is the Alliance-Exel collaboration and marketing of a wide range of high quality ceramic wall and floor tiles and fittings. From small beginnings the company is now a leading player in the field."
"We are one of the few companies in Sri Lanka who can claim to have three generations of client patronage," de Silva stated.
It is also one of few companies that have been led by three generations of the same family.
Alliance Finance was established in 1956 as a finance and leasing company by Eardley de Silva, a past Chairman of the Ceylon Chamber of Commerce. He was succeeded by his son Pratapkumar de Silva, the present Chairman and joint Managing Director of the company.
As Deputy Chairman and Joint Managing Director, Romani de Silva now shares his father's duties of corporate leadership.
From its beginnings, Alliance Finance has maintained a low profile while sustaining a high level of investment acumen and innovation - a combinations of values that has brought the Group success year after year.
A consortium of banks on February 28, 2001 signed a Syndicated Loan Agreement to provide the Rs. 2.5 billion debt financing required for two power projects in Anuradhapura and Matara with a capacity of 20MW each.
Two BOI approved companies ACE Power Generation Anuradhapura (Pvt) Ltd., and ACE Power Generation Matara (Pvt) Ltd., were floated to undertake the project at each of the sites. The local sponsor and main shareholder of these project companies is Aitken Spence and Company with a 51% equity stake. The other shareholders are the Commonwealth Development Corporation Group Plc (29%), Wartsila Development and Financial Services of Finland (10%) and Banaras House Ltd., of India (10%).
This project has set significant landmarks in the Sri Lankan Finance and Power Sectors. It is the first time that a diversified blue chip company has taken a major equity stake of 51% in a power project. It is also the first time that a local branch of a foreign bank has been involved in part financing of such a project with a 7-year repayment. The most significant fact is that US $21.5 million of the US $24 million US dollar loan component was funded by the foreign currency banking units of local banks utilizing mainly the deposits of NRFC holders of these banks.
The debt financing has two components a US $24 million term loan and a Rs. 357 million debenture both for a period of seven years. The US Dollar loan is at an interest rate of LIBOR + 3% p.a. HNB was able to participate with US $10 million, which is greater than the total equity contribution, due to its large NRFC deposit base which is the second largest in the country.
The rupee component of Rs. 357 million will be in the form of debentures that will be guaranteed and underwritten by DFCC Bank and subsequently listed on the Colombo Stock Exchange. These debentures will carry an interest rate of Average Weighted Deposit Rate (AWDR) + 7% p.a.
The National Development Bank (NDB) and Sri Lanka Standards Institution (SLSI) recently signed a Memorandum of Understanding (MOU) for the development of Quality and Productivity standards in Business Enterprises.
According to the agreement NDB will promote the activities of SLSI in particular the Certification of Business Organizations as per ISO9000 and ISO14,000 standards among its clients and provide soft loan facilities towards initial expenditure for obtaining certification from SLSI.
Part of this loan will be used for the development of Quality Management Systems in the Business Sector, SLSI said in a press release.
Presently SLSI has issued over 100 ISO certificates to Business Organizations in Sri Lanka and is planning to expand this service with additional certified Auditors from overseas countries.
SriLankan Airlines recently achieved an important milestone when its A330s were granted permission to operate up to 120 minutes on Extended Twin Engine Operations (ETOPS).
This allows SriLankans Airbus A330-200 aircraft to operate non-stop from Colombo to Sydney, a route that was earlier covered only by the four-engine A340s, the airline said in a statement.
The first non-stop Colombo-Sydney A-330 flight took off recently with Senior Manager Flight Operations Captain Milinda Ratnayake at the Controls. "It is an important milestone for SriLankan Airlines," said Capt. Ratnayake.
The airline is likely to continue operating only A340s on this sector, but the 120 minutes on ETOPS will allow any of its six A330s to fly this sector when needed.
Sri Lanka's Director General of Civil Aviation gave approval for ETOPS, after careful evaluation of the reliability of SriLankans A330s and the competence of its pilots and engineering staff. Earlier the A330s had clearance only for 90 minutes on ETOPS.
Young Entrepreneur Sri Lanka (YESL) launched its School Programme for 2001 at Ananda College, Colombo recently. Secretary, Ministry of Education Dr. (Mrs) Tara de Mel and American Ambassador E. Ashley Wills were the special guests with 600 students from 50 schools participating in the launch.
Private sector businesses who have already partnered with YESL were represented. Principals, teachers and parents of the participating schools were present. All school companies presented a display of their business activities and products in the foyer of Kularatne Hall. It was a full scale Trade Fair, a business convention and an educational seminar, all three in one.
Under this programme, children form their own companies, raise capital, market their shares, operate current accounts in banks, identify jobs, apply for jobs, interview the applicants, select the best, write job descriptions, hire the best person, make business decisions, write their business plans, conduct business, keep records perfectly, compile an annual report, liquidate the company and return the share investments with a dividend.
They also pay taxes, levies, charges, wages and contribute to a social cause.
Local universities will soon be infused with a new level of electronic infrastructure that will put them on par with international network connectivity standards. During the years, 1999 and 2000, the Swedish International Development Cooperation Agency (SIDA) funded the installation of a high speed Academic and Research Network Infrastructure in Sri Lankan for the benefit of university students, academics and researchers. Apart from this, SIDA is also funding a related component on training IT academic staff of universities during the period 1999 - 2002. The project will give students and academics speedy access to information relevant to their respective areas of study and will also enable the exchange of information between different universities in the country, SIDA said. The Research Network Infrastructure which is already in place was formally commissioned on the 23rd of March at the BMICH under the auspices of the University Grants Commission and the Swedish Embassy. The training component, supports eight Sri Lankan IT academics undertaking "Split PhD Programmes" in various Swedish universities. this programme enables students to spend half their study time in a University in Sweden and the balance period of study in Sri Lanka. The main project collaborators are the Institute of Computer Technology of the University of Colombo in Sri Lanka and the Department of Computer and Systems Sciences (DSV) of the University of Stockholm and the Royal Institute of Technology (KTH) of Sweden. The participating universities from Sweden include Stockholm University, Uppsala University, Chalmers University of Technology and Halmstad University.
Project SMED, a joint project of the FCCISL (Federation of Chambers of Commerce and Industry of Sri Lanka) and FNSt (Friedrich Naumann Stiftung of Germany) will be hosting the UNIDO (United Nations Industrial Development Organization), Triple Bottom Line (TBL) project.
Triple Bottom Line is a concept, which integrate understanding of Business Performance, in which social, environmental and financial bottom lines are interrelated.
The main objectives, which UNIDO will like to achieve through this project, is to enhance capacity in developing countries for advising manufacturing enterprises to comply with the TBL. Initially this project will be carried out in Bangladesh, India, Pakistan and Sri Lanka. The results of the demonstrational audits will be presented at the next Rio summit on sustainable development, which will be held in South Africa in June 2002, FCCISL said in a statement.
As the first phase of the project, a training workshop will be held from March 26 to 28 at the FCCISL Boardroom with participants from Bangladesh, India, Pakistan and Sri Lanka. Sri Lanka will be represented by participants from Project SMED and the Employers' Federation of Ceylon.
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