Sri Lanka last week, according to a foreign agency report from Dhaka, offered to help turn around sick industries in Bangladesh. "Is this a sick joke?" asked a local industrialist. "We are trying to help the sick in other countries when we can't revive our own sick industries. What nonsense is the government talking." Sri Lanka's industry is in crisis and no one - government or the private sector - has still come up with a solution to solve the problem. Daily, firms are closing, crashing or running into debt. (See page three for connected story) 

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Central Bank gets leaner and efficient

By Feizal Samath

The system called the Real Time Group Settlement (RTGS) system would enable cheques at any commercial bank to be cleared instantly instead of being sent to the Central Bank for daily clearing.

"This means that when a customer walks into a bank to deposit a cheque, that cheque would be cleared immediately for payment," said bank governor A.S. Jayawardene, explaining that the process was part of a scheme to tighten some of the bank's operations.

The Sri Lankan bank is aiming to concentrate on price stability and financial stability - the core objectives of central banks across the world – under the re-organization process that began a year ago. The central theme of the plan is to make the country's federal banking institution a 'real" central bank and not get too involved in market operations relating to functions like rural or development banking

Mr. Jayawardene said the bank has been offered support from the World Bank for the RTGS system which would network all commercial banks and the Central Bank. The World Bank and the Central Bank have been discussing possible financial support for the RTGS, which is expected to be in place by the end of the year.

Support was also expected from Sweden's Central Bank called RIKS for help in other re-organisation like money and financial stability functions, the governor said.

The re-organisation came as an indirect result of the January 1996 LTTE bombing of the bank's Fort headquarters. 

Amidst the gloom and uncertainty, Central Bank officials – reviewing staff needs and functions - realized that the bank had become unwieldy and was handling too many things. Functions like the supervision and control of the Employees Trust Fund (ETF) was not a typical Central Bank role though the government wanted the bank to handle this to ensure the safety of depositors' money.

"It was at this point (in 1996) that we released that we had expanded so much over the years that we may be doing things that we should not be actively involved in.

We thought we should trim the organization to make it leaner and efficient," Mr Jayawardena told The Sunday Times Business.

The bank appointed a set of young bank professionals to study the bank and make recommendations on its future course, which the group did after two outstation "retreats" with bank staff to consider their suggestions too. The group decided that the Central Bank should focus on the main objectives of price and financial stability.

"That does not mean that the ultimate development objective of a central bank will be side-lined. It only means that the national development objective will be pursued through the basic objectives of price and system stability, while the Central Bank will continue to focus on the need to develop markets and institutions," the governor said.

Mr Jayawardena said the Central Bank would concentrate on maintaining stable prices and a stable financial system, through the conduct of monetary and exchange rate policy and the supervision and regulation of financial institutions.

The bank is also hoping to outsource some of its requirements and has already begun using a private cleaning firm to clean the office and building and are hiring a private vehicle company to provide vehicles. 

Mind your Business 

Wage hike?

The secrecy is such that specific orders have been issued to keep the ministerial boys and girls in the dark, to prevent the grand presentation being leaked out before the due date.

But it seems fairly certain that a wage hike for the long-suffering masses is in the offing just to ensure that the opposition cannot continue marching to the 'rising cost of living' slogan.

Second strike 

But many in the corporate sector have got the jitters about the plan and are rushing to the greens pleading with them and saying that a general strike will only make matters worse.

And, at least some in the green camp are now said to be having second thoughts.

Five Star cut throat

That is because the powers that be feel that tourism being what it is right now, supply has by far outnumbered demand. This has resulted in unhealthy competition where only the cut-throat has won.

But the outstation five-star category may be exempt from this ceiling, insiders say. 

NDB's buy shifts focus

ABN AMRO's well-established clientele of top 200 corporates is expected to give NDB the critical edge in their aggressive pursuit to establish themselves in the corporate market.

"The 30% stake of Commercial Bank owned by the DFCC has substantially boosted its results. In the NDB's case, since it is a 100% acquisition, the balance sheets will be consolidated. We expect this to deliver a larger boost to NDB's results," said a top equity analyst.

ABN AMRO also has a small foothold in the top-end retail banking market in Colombo. However NDB is not expected to develop the retail banking immediately since the expertise in personal lending etc. takes time to develop.

"We expect the NDB to primarily focus on corporates and move on to retail only after consolidating themselves in the corporate market", said the analyst.

Currently NDB's auditors are carrying out a due diligence on the proposed acquisition which it is expected to be completed in two weeks time. NDB further said that the deal is still conditional subjected to regulatory approvals.. 

J. P. Morgan pulls out from Colombo bourse

Anura Wickremasinghe, CEO of Jardine Fleming, said the decision announced on Wednesday came as the "Sri Lanka operation was not central to J.P. Morgan's strategy."

The announcement came as a surprise to the market and Jardine staffers. Jardine controls at least a 21 percent market share of the Colombo bourse and had many foreign accounts. Market analysts said J.P. Morgan-Jardine's decision to move out was expected to hurt market sentiment which has been badly affected by depressed trading conditions.

Wickremasinghe, speaking on recent developments in Jardine, said the company was merged with Chase Mahattan bank and then subsequently sold to J.P. Morgan late last year. He said J.P. Morgan had a 50 percent stake in Jardine's stockbroking operation while Hatton National Bank (HNB) held 40 percent. Wickremasinghe said Jardine Colombo's other services would continue.

The Jardine CEO was unable to say as to whether HNB would buy out the J.P. Morgan stake while HNB officials were also unavailable for comment on the next move.

SLTconnects 90,000 lines

SLT plans to provide a further 90,000 new telephones this year.

The semi-private company said in a statement that with this massive connection rate in 2000, one out of every two SLT phones have been given during the last three years after the privatization of the once fully-owned state organization.

Stockmarket analysts said that there are doubts as whether SLT would go ahead with plans to sell out another government stake this year, due to weak market conditions. 

Last year, the government delayed the sale of SLT shares in the global market due to depressed market conditions here and abroad.

Analysts said the treasury desperately needs the US $ 300 to $ 400 million that it was planning to raise from the sale but postponed the public issue as it was unlikely to raise that kind of money.

Maldivian link saves the day for Aitken Spence

By Chanakya Dissanayake

"We have finalised on the location and we are working with a local counterpart. However, currently our overseas investments are high and our debt servicing is high as a result. By 2002 we expect the debt servicing to decline and we will then be in a position to start the Indian project," said group chairman Ratna Sivaratnam.

In an interview with the Sunday Times Business, he said bold changes taken to adopt the company to the changing economic environment in the country, resulted in Aitken Spence posting favourable results for the nine months ended December 2000. 

These changes included closing down the loss-making Mattakkuliya garments factory and increasing the capacity in the other two factories in Matugama and Galle. That helped to cut company losses in the garment sector to an expected Rs 2 million from Rs 33 million in 1999-2000.

The group's Maldivian resorts boosted its results for the March 2000-2001, a period which saw a decline in tourism in Sri Lanka. The average Return On Investment (ROI) from Aitken Spence's three resorts in the Maldives has been over 20%, while the ROI from its local Sri Lankan hotels has been a meagre 5%. 

Meedhupparu, Aitken Spence's latest $15million -250 room development in the Maldives, has created a ROI of 22% in Dollar terms. The other two resorts, Rannalhi and Bathala, in operation for 4 and 5 years respectively , has a ROI of over 30%. The high return is mainly due to declining debt servicing on the two resorts.

Aitken Spence's interim results for the nine months to 31 December 2000, shows gross revenues up 14% to Rs 3.54 billion from Rs 3.1 billion in 1999. However, Mr. Sivaratnam noted that the figures were down by 15%, from expected growth, mainly due to the drop in the core business-tourism due to the adverse security situation in the country last year.

Mr. Sivaratnam said the company has identified infrastructure development as a key growth sector in Sri Lanka and in line with this Aitken Spence will be commissioning two 20 mega watt, diesel power plants in Matara and Anuradhapura.

The US$40 million investment is in collaboration with Wartsila of Finland, with Aitken Spence owning a 51% equity stake.

" A few years back we realised that all our key businesses are in high volatile areas. With our foreign investments rising we wanted to invest in relatively safe fixed income generators to improve the cash flows," said Mr. Sivaratnam. 

Aitken Spence has entered into a contract with the CEB to sell a specific number of units annually. The forecasted ROI on the power generation operation is expected to be around 16%. 

"Sooner or later the Sri Lankan economy should revive. We expect the infrastructure development sector to ride high in the revival. Aitken Spence is positioning itself in this sector, to gain the lead once things start moving," Mr. Sivaratnam added.

IMF assistance with conditions

In fact it is with the prospect of such assistance that we could expect the value of the rupee to show some semblance of stability. It is there for every important that the nature and extent of such assistance be worked out quickly so that the crisis situation and the uncertainty that is sapping the vitality of the economy be restored as fast as possible.

No doubt the biggest constraint to receiving the IMF assistance is the need to agree to the conditions laid down by the IMF for giving assistance. It is customary or more precisely, mandatory, that countries receiving assistance comply with certain conditions, or in the terminology of the IMF "conditionalities" for balance of payments support.

This appears to be quite reasonable, as any financial institution needs to ensure that the monies lent be repaid. For this purpose the lending institution may lay down conditions. Yet the IMF's "conditionalities " often go beyond the usual financial conditions. May be this too could be argued as necessary as the performance of an economy is dependent on a wide variety of conditions, economic and non-economic. Political factors, social conditions, education, legal framework and issues of governance, among others have an important bearing on an economy's performance, especially in the medium and long-term.

It is perfectly clear why the IMF would be concerned about the compliance with certain economic indicators like the extent of the fiscal deficit and the need to curtail certain items of expenditure. In fact the compliance to such limits and goals are indeed good for an economy whether we get IMF assistance or not. The lack of fiscal discipline of governments in the developing world has indeed been a major reason for poor economic performance. Political considerations tend to make governments spend beyond their means to gain popular support. Such an approach is indeed disastrous and the surveillance of international institutions could be even considered a blessing.

However there is the pertinent question as to how far such conditions should extend. There are several concerns. First, do conditions imposed by the IMF take into consideration the actual conditions in the country and the impacts on the vast mass of people? Does the IMF really understand the economic and social conditions of the countries when they prescribe their rather stereotyped policies? Do they take into consideration the social and political repercussions and costs of their policies? The IMF unfortunately acts as if they are infallible. And the IMF despite their pretensions to infallibility has made grievous mistakes. Unfortunately the costs of those mistakes are never borne by the IMF, rather than by governments and ordinary people of the countries. They are in other words not accountable for the policies they impose on other countries.

The mistakes of the IMF just prior to the East Asian Crisis is the best recent example of how the IMF did not assess or evaluate the situation in these countries correctly. The IMF and World Bank have admitted to this themselves. There are however many other instances where these institutions have taken refuge in their mistakes by pointing to lack of actions taken by the recipient countries. 

There is also the related question of the extent to which the conditionalities imposed by the IMF erode the sovereignty of governments and the democratic wishes of the people. This is especially so when they impose wide ranging conditions with respect to education and other social policies. 

The stark reality is that governments like ours are hardly in a position to assert their will as the crisis situation they have got into makes IMF assistance imperative. So whether we like it or not, in the next few weeks we will subject ourselves to conditions which may not be in the best interests of the country, conditions which will make the burdens on the poor unbearable and conditions which cannot be implemented. It all boils down to the old saying that beggars cannot be choosers.

In spite of the limitations that confront us, it is essential that our negotiators demonstrate that all the conditions that are placed before us are not in the interests of the country. They must educate the IMF of the actualities of the Sri Lankan social and political conditions. They must be armed with the facts of the numerous instances in other countries where the remedies suggested have led to riots and political destabilisation. On the other hand it is also important to recognise our own mistakes and be willing to correct these. Two examples of such recent mistakes are the wasteful expenditure on Samurdhi and the dysfunctional large cabinet. Let us hope that we get the assistance we so desperately need with outcome promises of our long-term national interests.

Direct marketing with social objective

By Akhry Ameer

It has hired several young people - who are perceived by society as unemployable due to their lack of qualifications, skills or English - and put them through a rigorous training scheme. "It does not matter that they leave us after a few months. The most important thing is that we have been able to turn around youths who otherwise would have struggled to get a job," said a company spokesman.

The company, Mediawatch Direct Access (Pvt) Ltd. announced its entry into the direct marketing arena at a soft launch and news conference last week.

Market analysts say that direct marketing or house-to-house sales is a more effective method of reaching the consumer, and in recent years has become a prominent form of sales with the entry of two large companies with their house-to-house sales force.

Newest addition Mediawatch Direct Access feels it has an edge over the competition with new strategies and has identified - through a successful test marketing campaign - that the key to success is in the guarantee of the service, quality and nature of the products. 

Mediawatch's operational strategy is different to the other players. The marketing facilitators are the responsibility of the business partners who will fan out into various areas in vans.

"The facilitators would then alight from the van and go door-to-door selling the products. They then return to the van and refresh their stocks and return to another lane or street. In the meantime the van too would travel through lanes announcing over a PA system their products," said a company official.

The products which are essentially FMCGs (Fast Moving Consumer Goods like detergents, washing powders, soaps, toothpaste, etc) are sourced by the company from small organizations, who will be under contract to supply these goods for a period of three years. The company also has an office in China where it hopes to source good quality consumer goods for sale in Sri Lanka.

The company also has a data collection system, which will collate all data collected from client visits by market facilitators or sales representatives. The information provided by consumers on their preferences, choices, price choices etc, would be fed into an integrated software network.

It has recruited almost 700 people for jobs as marketing facilitators and other positions such as drivers, storekeepers, data entry operators, etc. " Of the current recruits, at least 250 responded to announcements made by company mobile vans during the test marketing phase," said Asanka Gunasinghe, the firm's group business development manager.

He said attempts to recruit workers through the media and government organizations had failed which resulted in Mediawatch resorting to this unique recruitment tactic.

Market facilitators can get decent incomes if they work hard. "With performance based incentives and other allowances each facilitator can earn on average Rs. 10,000/- per month," Gunasinghe added.

Mediawatch Direct Access (Pvt) Ltd. is a subsidiary of the Mediawatch Group (Pvt) Ltd which is primarily engaged in outdoor advertising from 1995. Last year the group through its diversification plans set up its direct marketing arm, an advertising agency and an industrial and institutional marketing company.

The direct marketing company is a Rs. 25 million working capital investment. Some of the other investment is in the form of 72 vehicles by an investor who would ensure transport infrastructure to all business partners. The Mediawatch Group is expected to achieve turnovers of over Rs. 500 million in the next financial year.

Point of View

Who is really sick?

I refer to the above news report on February 12 in a recent newspaper.

I am wandering whether it is a joke since the learned Prof. G.L. Peiris, Minister of Constitutional Affairs and Industrial Development, is fully aware that many industries in Sri Lanka are sick and several of them are even closed up. Various representation has been made to the previous government as well as the present government including minister Peiris on this subject.

Over the years warnings have been given to the powers that be not only to rehabilitate or review viable, sick & closed industries, but also to take necessary steps to prevent further industries going against the wall.

Before we try to help others we must get our house in order and then our credibility in helping others would be meaningful. If Bangladesh knows about the sick and dead industries in Sri Lanka, they would be shocked.

Many industries have fallen sick or closed down due to reasons beyond their control.

a) Inability to compete with cheap imported products.

b) Import of second-hand products- furniture, electrical goods etc.

c) Raw materials having higher rates of duties than finished goods in some cases

d) Ad hoc policy changes

e) Under invoicing imported goods

f) Unsettled conditions in the country

g) Comparative disadvantages with competing countries like higher interest rates, more holidays, lower technology, lower productivity, higher cost of raw materials etc

h) Lack of skilled managers and other staff etc

i) The regular foreclosures of enterprises by parate executions by banks.

A study done by the Federation of Chambers of Commerce & Industry of Sri Lanka highlighted in your newspaper recently said 22 small factories and companies closed down daily, 75 others fall sick and 346 firms have been closed under parate execution between February 1st to 31st July 2000. Several hundreds have been foreclosed thereafter.

Unless immediate steps are taken to develop a mechanism to sustain what is already on the ground and also rehabilitate and revive viable sick industries and even some of them which are closed down, this country is going to face more severe economic problems and further unemployment in the future.

It must be noted that these industries have already developed their infrastructure and markets with much hard work. All their efforts and investments are going down the drain, at great cost not only to entrepreneurs but also the country.

There are many entrepreneurs who have lost everything they had including the only house and property mortgaged to the banks. Many are spending sleepless nights and going through psychiatric treatment and even wondering whether suicide is a better option than run industries.

The writer would send a further memo on what can be done to help sick industries and not kill entrepreneurship. What is the priority — helping Sri Lankan sick industries or the "sick" in other countries?.

-A sick & disgusted industrialist

The best woman entrepreneur

Sri Lankan women have proved their capabilities in various fields of commerce and government in addition to being active drivers of small, medium and large-scale enterprises and the economy. The awards ceremony takes place on April 1 at the Trans Asia Hotel in Colombo.

WCCI said the awards scheme would provide national recognition, trophies and certificates. There are four categories of winners- large-scale, medium, small and micro with gold, silver, bronze and merit awards offered.

There is also a special award for a WCCI member who has contributed in an outstanding manner to the development of the community and the country. "A professional woman who has made a contribution in this manner would be named the professional woman of the year," WCCI said.

It said that a unique feature of this year's event is the award for the SAARC woman – a nominee from the SAARC Chambers of Commerce & Industry of India, Nepal, Bhutan, Bangladesh, Maldives and Pakistan. The event is sponsored by NORAD, the National Development Bank, BOI and the EDB.

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