• Unilever may pull out if labour crisis worsens
• Mind Your Business 
• Troubled Vanik seeks bailout
• Bill Gates in Colombo, looking for investment
• ADB to give more funds to SMIs
• Believe it or not today or any other day!
• Welcome ideas, not money
• Coconut growers complain of lower prices as output rises
• News
• Special Feature

Unilever may pull out if labour crisis worsens

By Chanakya Dissanayake

The multinational says it may be compelled to shut down production facilities in Sri Lanka, if the unfavourable labour situation and outdated labour laws don't improve in the near future. Unilever Ceylon Ltd (UCL) is currently tackling a labour problem that it says has been triggered by JVP-led trade unions.

"If the labour force continue to act without foresight and they continue to resist change, we will be compelled to take our production facility out of Sri Lanka," UCL chairman Mike Thompson told The Sunday Times Business in an exclusive interview.

He added that the company would then only maintain marketing and distribution operations in the island but hopes the company would not be forced to make such a drastic decision. Business analysts said that such a move would not only impact on the group's 2,500 workforce but on the whole economy as it could ruin business confidence.

Analysts said demands by JVP-led unions pegged on to the rising cost of living was becoming a serious issue in many companies with as many as 14 firms, including Bata, either shut down or facing difficulties. In general, companies are struggling to cope with union issues as the JVP becomes a heavyweight in this business and is being compared to the impact and influence of the CWE in the plantation sector. 

"The JVP unions have a political agenda. There is no doubt about it," said Thompson.

He said the Unilever relationship with trade unions – particularly with the Ceylon Mercantile Union (CMU) - has always been favourable until the JVP came into the scene, infiltrating the union movement last year.

The latest labour crisis erupted about 10 days ago when Unilever wanted to shift its soap packaging facility from the sprawling Grandpass premises to a new location at Sapugaskanda. 

"It was part of our ongoing restructuring process to increase the capacity of the Grandpass plant. We were planning to upgrade this plant and use this to produce Unilever products for overseas markets, including India," the UCL chief said.

The labour force resisted the shift and asked for an increase in wages and had taken steps to obstruct the move. With tempers running high and fears of safety for senior management personnel growing, the move was called off.

Thompson says the crisis would stall plans to make UCL a supplier to foreign markets. "As a result of the labour resistance, we cannot upgrade our plant. We will have to import the excess demand if the need arises".

The UCL chief said this was a sad situation since the company was planning to use the maximum leverage from the Free Trade Agreement – which he describes as a good one - with India to export many locally manufactured products.

Unilever also stressed the need for labour reforms in Sri Lanka in order to become more competitive. "Both foreign and local investors like us evaluate the labour situation before deciding on new investments. If you ask me whether I will invest more in Sri Lanka, the answer is no! Not until the situation improves." 

The company is also undergoing a brand restructuring exercise globally to de-list its weak brands and focus on the stronger ones. Thompson said that in Sri Lanka the de- listing process is over and the only brand that remains to be de-listed or sold to others is the Debutante perfume range.

Thompson said a current economic downturn has reduced demand. "The pockets of consumers are getting squeezed and we are feeling the impact."

Mind Your Business 

Who is next?

The nominees have apparently been short-listed: now only the man who is bitter and the other who protects them all are in the running.

The professor who deputises has made his thoughts known about the issue but then, the final decision would not be announced until madam returns from her sojourn in Paris. 

Off the bat

But the dissolution has sent alarm bells ringing in business circles: sponsors, advertising agencies, sponsors, and television stations all clamouring for a word about their status. 

Most of them have been reassured that contracts already entered into will be honoured but it may be a different story when new deals are negotiated

Easy AC

The results surprised everyone: business was slow in branches without air-conditioning, which is now banned under special regulations. Elsewhere, where generators provided AC power, it was business as usual. The bank is now said to be weighing the cost-effectiveness of having generators in every branch.

Troubled Vanik seeks bailout

The chief of Vanik Inc, who once dazzled Sri Lanka's traditionally sober financial sector with his cowboy style corporate raids and takeovers, fought against the odds last week to convince a hard nosed set of bankers that he could still turn around his debt-ridden corporation.

Tuesday - April 3 - will be the day of judgement for Vanik when the consortium meets to decide on the future of the company - whether it is bailable or not.

Meegoda on Wednesday met a consortium of banks where he presented a plan to revive the troubled merchant bank. The consortium was headed by the People's Bank, which has the highest exposure to Vanik and included Bank of Ceylon, HNB and DFCC. Vanik's total debts are said to be 3.7 billion, of which 1.5 billion rupees is owed to banks and 800 million in debentures.

"It was a three-fold presentation. Firstly, I wanted to clear the misconception that Vanik is a completely loss-making outfit. In fact all our subsidiaries made profits for year 2000," he said adding, "if additional funding was available these subsidiaries would have earned higher profits."

"The problem lies in the main holding company. It's a known fact that we are straddled with non performing assets and suffered a run on our deposits," Meegoda added.

Vanik's turnaround proposal seeks working capital funding for profit-making subsidiaries and a grace period of two years to accumulate sufficient cash to settle the debts.

"We have appealed to the banks to look at our subsidiaries with a fresh mindset. They make profits, forget the fact that they are Vanik's," Meegoda said.

"This is the only way out. If the working capital requirement is met, these subsidiaries could increase their current profitability and we can settle the dues."

Meanwhile a due diligence report on Vanik's assets has been produced by international auditors Price Waterhouse Coopers (PWC), at the request of the consortium.

Vanik says the report was prepared without any consultation with them. "PWC agreed to discuss certain discrepancies in the report with us and listen to our side of the story. Afterwards they will be making a final report to the consortium", said Meegoda.

Bill Gates in Colombo, looking for investment

While few details of his trip were known due to security reasons, Gates is said to be en route to the Maldives where he would be holidaying for about a week at the secluded but posh Furakura island, which is exclusively reserved for VIPs like Gates. 

The wealthiest man in the world is stopping over at the Colombo airport later on Sunday in his private Learjet accompanied by family, bodyguards and close aides plus the crew, for refuelling purposes. Gates is always protected by a team of professional bodyguards whenever he travels abroad. 

The US billionaire is however due to spend two days in Colombo on his return from the Maldives and meet government leaders and selected business leaders for talks on investment opportunities. 

"Gates wants to explore the possibility of setting up a fully-fledged IT lab as a gift to the Sri Lankan government. 

He is also considering offering a couple of scholarships for brilliant IT students to study and work at Microsoft in the US," an industry source, involved in preparations for the visit, said. 

He added that a team of officials was currently handpicking the best IT students for Gates to make the final choice while in Colombo.

ADB to give more funds to SMIs

ADB's Deputy Director, Rajat Nag told the Sunday Times Business that these funds would be utilized not only to provide credit facilities for SMIs and but also for training and development of this sector.

"In the past, we used to provide credit lines through the development banks, to uplift the SMI sector. But, we realized that credit alone is not enough to uplift this sector," Nag added. ADB has developed a 8-10 year plan to develop the SMI sector as part of their poverty eradication project.

The plan emphasizes mostly on training and developing entrepreneurship ability of the small industrialist with the assistance of the government, as opposed to earlier projects which focused only on making credit available.

ADB officials told a press conference recently that the development of the SMI sector is an important prerequisite for the economic development of Sri Lanka. "The SMI sector is not receiving sufficient government attention and incentives. For example the BOI provides incentives for large investments, but there are no such incentives for SMIs," one ADB official noted.

A visiting ADB team also presented the bank's report on the poverty situation in Sri Lanka to the media. In this report, ADB points out that during the past 50 years Sri Lanka has achieved high level of human development, but has failed to reduce the high levels of poverty.

They present this as one of the paradoxes of the economic devolopment in the country. Sri Lanka has the highest human development indicator in Asia (0.73), yet maintains an average poverty level of almost 25 percent.

ADB said that they are satisfied with the new poverty eradication programme of the government. However when asked about the high politiciation of the existing Samurdhi project, ADB officials said that they have discussed the need for good governance with the highest authorities in the government.

"ADB does not want to get involved with the internal politics of Sri Lanka. But, we will hold the government accountable for all our funds for the poverty eradication projects," said Nag. The summary of the ADB report says that poor governance and poverty are related to each other. "Political considerations have often influenced the regional allocation of public investment programmes. These include the selection of Samurdhi beneficiaries, Intergrated Rural Development Projects and most importantly, public sector employment." 

The report also opens fire on the politicisation of the public sector. "Politicisation of the public sector has resulted in a costly, bloated public sector, it said.

Believe it or not today or any other day!

Story 1

THE PRESIDENT DECIDES TO PRUNE DOWN CABINET TO TWENTY.

Early this morning the President made an important announcement that the cabinet of ministers would be pruned down to twenty as promised in the PA Manifesto of 1994. Further, she said that an expert committee of persons she had appointed to look into this matter had named the twenty ministries so as to rationalize the portfolios. She admitted that political expediency and coalition politics had made her select a large cabinet, which was unwieldy and ineffective. She had explained this to the cabinet which agreed to the president selecting the twenty-member cabinet. All cabinet ministers agreed to resign so that the President could select the new cabinet.

Story 2

THE PRESIDENT DECIDES TO RELINQUISH HER POST AS FINANCE MINISTER AND APPOINT A FULL-TIME MINISTER OF FINANCE.

In an unexpected move the President said she would be relinquishing her post of Minister of Finance so that a full time Minister is appointed. There will also be only a single Deputy Minister of Finance. It is reliably informed that the new Minister of Finance is very knowledgeable about finance.

Story 3

GOVERNMENT WILL CUT SAMURDHI EXPENDITURE DRASTICALLY AND TARGET PAYMENTS TO ONLY THE NEEDY

The government announced that it would reform the Samurdhi movement so as to ensure that only really poor people will obtain the benefits. The number of households receiving benefits, it said would be brought down from the current massive over one half of households to about 20 per cent of households in the country that is estimated to be really poor. 

All three of these stories would not be believed to be true. Readers would easily identify these as April Fools Jokes. In fact those who had forgotten that March ended yesterday would ponder why these highly improbable stories have been published. They would soon discover the reason and be amused. That then is the measure of the tragedy of the country and the depths of governance that we have fallen into.

All three stories we selected are essential changes.

A government seriously intent on economic growth would have in the first instance not got into the situations which required these changes. The huge size of the cabinet is not only a financial burden but also retards economic functions and decision making in many areas of activity as they fall within the jurisdiction of several ministries. The large and irrational allocation of ministerial functions is therefore a recipe for inaction and inefficiency.

A full-time finance minister has been woefully needed in the last seven years. The appointment of a full-time finance minister would add a greater degree of confidence among the business community. A full-time minister would also no doubt increase the efficiency of this vital ministry. 

A more targeted welfare program would not only reduce the expenditure on the Samurdhi, but also benefit the really poor and improve the public finances and budgetary resource allocations.

Unfortunately all these will remain April Fools' Jokes rather than political and economic possibilities 

That is a measure of the hopeless situation we are in. 

In developing countries, red tape and low productivity remain the biggest drag on growth

Welcome ideas, not money

As IMF Repre sentative, I bring to Sri Lanka two gifts. One is the gift of money. The other is the gift of ideas. Which do you think is more valuable? Unfortunately, too many people in poor countries have got used to considering the gift of money as the more desirable one. I was pretty comfortable in my notion that the second, the gift of ideas, is the more valuable gift until I was reminded of how Greek society valued Socrates' gift of ideas. It may sound funny, but poor countries still treat their thinkers with the utmost of disdain. In my country, Pakistan, the only Nobel Prize winner, Abdus Salam, died in virtual exile and continues to be not recognized at home. 

That notwithstanding, I still insist that, for the development of a society, it is ideas that matter and not money. In fact in this world of global capitalism where money knows no borders, the global market is capable of supplying any amount of money that a society needs for its development. The only thing that stands between society and money is imagination and ideas. So I go along undeterred trying to plant the seed of ideas in the hope that long after I have departed, this seed will take root and the tree of change will grow! 

Economic theory has debated this issue for some time. Nobel Prizes have been awarded to Chicago economists like T.W. Schultz, Gary Becker, and Robert Lucas for arguing that economic growth and economic development is mainly a function of human capital, ideas, imagination and innovation. It is what is now hitting the management literature through writers such as Drucker, Senge, Naisbitt and Champy who are talking about the knowledge worker. It is because of their idea-driven, innovation-led growth, and not because of the money at their disposal, that rich countries grow richer while the poor countries never seem to break out of their poverty trap. 

Rich countries respect ideas, respect innovation, respect human capital. Theirs is a true meritocracy of human talent. They revere people like Einstein, Hawkins, Edison, Kettering, Lucas and Becker, while the poor countries are a net supplier of research capital to the rich countries. Consider how many Sri Lankans are exiled only because they have talent and have acquired an education? This is why Bhagwati, Sen, Khorana, Naipaul and Rushdie reside in the West! 

What better place to talk of human capital, innovation and ideas, and the meritocracy of talent, than the American Chambers of Commerce. 

After all, American society, blessed with the limited burden of history, has had the luxury of being irreverent, bold and innovative.

From the very beginnings when a bunch of shopkeepers and farmers rose to the grand intellectual challenge of writing one of the most democratic of constitutions, American history has honored heroes like Thomas Jefferson, John Adams, Alexander Hamilton, Edmund Burke, Benjamin Franklin, and Thomas Edison, all great thinkers of their time. 

Not only has American society been a host to the wretched of the earth but also the home and laboratory of all the thinkers and researchers of the world. It is indeed a meritocracy like none before it. And it is the richest country in the world as well as the engine of global growth. Need we wonder any more on the power of ideas! 

Yet, our poor societies do not appreciate the power of ideas. They are still looking for money and eschewing the jewels of ideas cast before them. Because of my Pakistani origins, my quest has been to understand economic growth and how to accelerate it. 

I am now convinced that we have to emulate the American aristocracy of the intellect. I am now totally convinced that societies that are led by ideas, by visions, will develop. The only question is, how do we move to that state? A very difficult question to answer. 

Why do I think that a long-term vision is necessary? The answer is very simple.

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In order to plan your jour ney, you must know where you are going. Without knowing where you are going, taking any path will not help. It is your destination that determines where you are going and other factors determine whether you take the scenic route, the quickest route, or the lazy route. 

Those of you who are mathematically inclined or have any engineering background will see immediately that any dynamic system—and an economy is a dynamic system—must be guided by a long-term vision. Your long-term vision determines the steps that you have to take today and in the future. Think about it. Every business, every child, every career, is guided by a goal. 

You go to a financial planner, you go to a career planner, you go to a banker, and he/she will always ask you for your long-term goal.

Should the country practice any less? Yet, I am amazed at the number of countries that have meandered through the years without a proper vision. At best, they have succumbed to the very narrow vision of the development thinker, guided only by crude ratios such as literacy rates, poverty rates, and other such measures. If anything, these ratios mismeasure reality. Taking these crude ratios as guidelines we have evolved a sequencing of policy action where we put all on hold until we alleviate poverty, or effect literacy, or some such strange measure that in itself is very inexact and quite possibly outdated. In effect, this approach is welfare-based and creates an expectation of government guarantees and subsidies. 

This approach of following elusive ratios, packaged development advice and fostering an expectation of government guaranteed welfare led to the creation of large governments for the command, control and regulation of the economy. These overly large governments with an impossible mandate naturally proved to be a drain on the economy. Crisis-ridden or near-crises economies continue to lurch from one payments crisis to another to feed large and hungry governments. 

Managing these crises has resulted in a further loss of any sight of longer-term goals of the economy. Every one is so busy dealing with the current crisis, as well as protecting their own interests in the midst of a crisis, that no one has the time or even the inclination to consider "goals, objectives and visions." The crisis orientation creates "short-termism." The political cycle, which unfortunately in democracies runs in five-year, six-year segments, also hinders the development of a long-term vision for society. 

"Short-termism" characterizes all policy discussion in these countries. This is especially visible in corridors of power. Parkinson-like, there is much busywork but no real attempt at systematizing where this work is leading to. They are all very important and arrogant in dealing with today's problem even though the proposed solution might lead to tomorrow's problem.

Should you ask why they have no time to build institutions and teams for better governance in the future, you will promptly be told with considerable venom and authority, "Can you not see we are busy fighting today's crisis?" This is not a joke! I have had many an important person in many countries say this to me, while he/she is creating another mess in settling the current crisis. If only he/she would take a moment to reflect and find conceptual clarity. 

What then is a vision? .

A vision is not your typical government-designed 5-year plan, policy prescription or budget! Literally, a vision is like a prescient dream of a desirable or beautiful state. 

More importantly, when a group or an organization shares it with a visionary leader at the helm, it is a powerful force for change as well as development of value. American history provides us with many wonderful examples of such vision. Perhaps, the most magnificent example of a visionary statement that resounds in all our minds is Martin Luther King's "I have a dream" speech that moved America and changed it to a more humane country.

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A vision must necessar ily challenge the no tions that we are comfortable with, make us think "out of the box", but also give us hope and unleash our creative juices. 

Such visionary thinking originated in America. America has been built more by its very diverse visionary corporate leaders than by its government. 

Enormous corporations like Disney, GE, Ford, IBM, Microsoft, Intel etc., have each become larger than many of the poor countries because of pigheaded and extremely courageous leaders who were all dreamers. 

It took guts to dream of mass-producing the model T, to dream of inventing movies, record players and videos, the computer and then the Internet. 

Imagine conceiving a Disneyland and actually building it in the 40s. But the true pinnacle of American audacity and over-consumption, but also daring, is Las Vegas.

They dreamt it and built it–a fantasyland, an extravaganza that fulfils all your needs. Yet, they change and redesign it every year. Much as it might upset Victorian sensibilities, it is now the hub not only of gambling but of conventions, entertainment, sports and much else. As I said, the vision, and management of that vision, is dynamic. 

I know that many of you will be extremely frustrated if I leave you without giving you my thoughts on a guiding vision for Sri Lanka. I will follow Goethe's advice in doing this: "boldness has genius, power, and magic in it." I urge you also to cast aside timidity and be bold in your thinking. We are, after all, discussing the long term—say 20 years hence. Is it not possible to be daring in dreaming of a new world in 20 years? Let me put it to you in a series of questions to which you could give your answers; after all, it is your country.

What size of government can a small country like Sri Lanka afford?

What nature and size of regulation should you have?

What regulatory structures and structure of government should you have?

In order to answer these questions, perhaps you need to consider the size of Sri Lanka relative to other economic organizations in the world. Too many mistakes have been made in poor countries in merely aping the West in the creation of institutions of government intervention, without due considerations to size and what can be afforded. In answering these three questions consider the following:

Of the world's 100 largest economic entities, 51 are now corporations and 49 are countries.

If we take sales to be comparable to GDP, Sri Lanka is smaller than the 200 largest companies in the world. The 200th company employs 12000 workers while the Sri Lankan government employs about 800,000.

Regulation and protective government is not cheap. In the US, regulation is estimated to cost about $7000 per family and the US has less regulation than many European and developing countries. 

Perhaps it is time to focus on the kind of government and regulation that a small "company" like Sri Lanka can afford. In considering these questions, we must also be aware of who Sri Lanka's comparators are. 

Is it India that you should be looking towards? 

Should you be copying regulatory structures of places like US and Europe? 

Or is it Dubai, Mauritius, Singapore and Hong Kong that are very conscious of the global investors' needs?

Will Sri Lanka ever be as open, business-friendly and inviting of foreign investment as these countries? 

Should you strive for that and in what time frame?

I said before that the vision must be a combination of a set of visions that Sri Lanka's own Disneys, Gates', and Carnegies develop. But the government must step aside and allow them to do so.

What if somebody wishes to create a Waikiki Beach-style string of hotels and a board walk with a clear beach running all the way from the Port to Mount Lavinia, perhaps even to Bentota. 

That would truly make Sri Lanka a tourist destination. 

How about a cruise ship industry or a tourist boat industry to allow the ocean yield per tourist to increase?

Sri Lanka currently makes the least use of the ocean among island economies. Imagine an island where you use only cars to move from one coastal city to another!

A tourist paradise must also have tourist attractions a la Las Vegas. Please do not fall into the trap of only thinking of gambling. As I mentioned, Las Vegas is now the convention center of the world, the entertainment center of the world and the family tourist spot of the world. But then people must be allowed to build outrageous structures like theme parks and pyramids.

*******************

How about develop ing a Colombo Fi nancial Exchange that learns from Chicago and New York? Such an exchange would house not only equities and high-grade debt but also all manners of paper and commodities. Should it not envisage housing a tea exchange that will allow forward and futures contracts? 

Why should a beautiful country like Sri Lanka not also be an offshore education market for the 1.3 billion people of the subcontinent? Harvard, Chicago and many other world class universities are now establishing campuses across the continents. Will Sri Lanka benefit from this movement? 

These are only some examples of dreams and visions that your country could have for rapid development. Would a dreamer be able to do any of these even in 20 years? 

Do not tell me that financing is the constraint. Financing is simple. What is necessary is the ability to let dreams turn into reality. Will the regulator, the government, allow such dreams to be turned into reality? 

So my theme is that for dreams and visions to be realized, we really have to address the issue of the role and structure of governance in the country. 

Like many other poor countries, Sri Lanka has spent many long years building regulatory structures that the US developed in the great depression.

These structures were built to be risk averse and protective, not encouraging of innovation and dreaming. They served a purpose in the immediate post depression world. 

But they were found to be outmoded in the 80s and 90s in the US and Europe and much of the last two decades have been spent dismantling them. 

Why should Sri Lanka continue to develop these now dated structures? 

Coconut growers complain of lower prices as output rises

By Hiran Senewiratne

CCB Chairman Dr Sunil Jayasekera told The Sunday Times Business that output rose last year from an originally estimated 2.9 billion nuts due to weather conditions that were ideal for bigger harvests.

He said there was unlikely to be any drop in coconut prices unlike previous years. 

Many of the coconut growers in the coconut-growing triangle of the north western province (NWP) are the most effected segment due to the low prices fetched for their coconut last year.

Growers say income levels dropped by 50 percent last year due to the low prices coupled with increasing labour costs and fertiliser prices.

''I cannot manage my coconut estate with this coconut prices'' says B.S. Kahawita, a coconut estate owner at Nathandiya. 

He said that though government agencies contended that the farmgate price for coconut at present was reasonable, it was not. Farmgate prices last year were 3.50-4 rupees per nut compared to 6-8 rupees per nut in 1999. 

The market price for consumers last year averaged 8-12 rupees against 7-9 rupees in 1999. This year's farmgate prices are in the region of 4-5 rupees per nut while the retail price is around 10-12 rupees.

Another estate owner, Jayantha Samarasekera, said his estate income has fallen sharply last year resulting in the use of lesser fertiliser which will further result in a drop in production.

Harindra Abeyasekera, president of the Coconut Growers Association, said that coconut growers were not making much of a profit and could hardly make ends meet. 

Coconut prices, he added, should go up like other commodity in the market and government support for the oil industry is necessary to arrest the current crisis.

CDA's Director Marketing S Jayawickrama said the government was giving maximum support to coconut industry. He said the imposition of a 150 percent tax for imported oil would be some consolation for local coconut industry.

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