• Wake up… the crisis is NOW! 
• Mind your Business 
• Prima monopoly to end 
• Rate cuts boost long-term bonds investment
• Dressing for success 
• SEC investigates Trans Asia share transactions
• The Ganoruwa retreat: whither rice production?
• Celltel launches trail-blazing SMS in Sinhala
• Economy to grow by 3.3 percent this year, says Asia brokers 
• People's Merchant Bank ventures into real estate development 
• Bu$ine$$ Mailbag 
• Improving all the time, says Lanka Electricity Co 
• Contributions welcome! 
• News 
• Inside the aromatic environment of a milk processing factory

From the Business Editor's desk

Wake up… the crisis is NOW!

Independent observers and non-businesspersons should be pardoned if they felt this way after a "crisis" meeting of the National Chamber of Exporters (NCE) last week. To add to the disappointment, the acoustics at the venue, a well-known hotel, left much to be desired and guests had to strain their ears to hear the speakers.

It was no fault of the NCE. The chamber and its president, Patrick Amarasinghe, should be commended for calling a crisis meeting to discuss the worsening political situation and look for ways to ensure that sanity prevails.

But what a letdown it turned out to be. There were no short-term solutions discussed apart from a difference of opinion on the controversial Norochcholai coal power plant. (By the way, have any of the corporate leaders visited the site to understand the ground realities including it being a possible target for the LTTE instead of merely labouring the point about coal power being the only way out?) I have, twice, and now appreciate the concerns of residents though I may not totally agree with some of the issues raised by various groups.

Most of the speakers dealt with the power crisis. Haven't we discussed this since 1996? The mismanagement in the CEB and the CPC, law and order, worsening political culture and so on. A proposal for a national consultative committee with the support of all political parties (it would take months to get them together when they are preoccupied with more serious issues like toppling a government or holding on to power) was mooted.

No one bothered to endorse for instance a lone call for businessmen to take to the streets joining civil society and demand changes from all sides of the political spectrum. No one bothered to endorse another call for an action committee to get things right … NOW. Not tomorrow or months later.

What we need is action … NOW. The crisis is here. It is at our doorstep. We need a quick solution to temporarily tide over the crisis and then work on long-term strategies. The country is heading toward anarchy as the no-confidence motion looms ahead. Look at the various scenarios being highlighted in the media – government being ousted in the no- confidence motion; the president moving to prorogue parliament; the opposition taking to the streets; mayhem; the LTTE launching new offensives to take advantage of the confusion; the armed forces and the police unsure about their status. Chaos … confusion … destruction. And we continue to talk of committees and long-term solutions.

Fine, if the president is able to bring the situation under control; or a UNP government takes over with Chandrika Kumaratunga's blessings. But given the antipathy between the two parties, there is unlikely to be a common meeting ground between a PA president and a UNP government. 

Attempts to delay the emergency debate and also the no-faith motion could lead to further chaos - merely because one party wants to cling to power at whatever cost. Shouldn't the business community be joining hands - immediately - with religious leaders and other segments of civil society to ensure that sanity prevails? Demand meetings with the political leadership (don't send letters pleading for a meeting and await a call that never comes. In one case the letter sent by a chamber to a political leader had been misplaced). Be seen as representing the people. (Don't you and your children have rights like everyone else?)

For years the business community has played a subdued role while the economy has been in tatters and the country is going from wrack to ruin. We have heard it before - it is the country's resilient economy that has maintained a steady growth momentum despite the war. Should we be proud about it? I guess not, for if we were in a worse shape than we are, corporate leaders would have said enough is enough, and taken to the streets to get rid of the politicians and ensure change. Maybe we should have sunk to the bottom like the stockmarket and risen from the ashes like the Japanese after World War 11.

It is high time the corporate sector began thinking about the community, putting country before self and company and taking a lead role instead of issuing statements and seeking meetings with political leaders that don't change things.

We had the business peace group and the J-Biz group, but where have these two praiseworthy initiatives taken us? I need not answer that. Are we any closer to a solution than when we started this process? Or are we comfortable - as we always profess to be - in the thought that discussions and statements calling for peace or national governments would add to the pressure? It never does in the present-day environment.

Politicians from all sides just don't listen to reason. When it is convenient, they demand a national government. If I recall right, it was the UNP that urged the formation of a national government last year and now when the PA is on the defensive it is pushing this idea. To stay in power. Obviously. Look at the umpteen appeals by the Mahanayakes, the Catholic Bishops and other religious dignitaries on the need for peace and a national government. Has any political leader taken it seriously?

In recent weeks, ministers and opposition politicians have been visiting the Mahanayakes, paying obeisance and agreeing totally with the view of the high priests. But has that been translated into action?

Issuing statements and seeking meetings with the president and the opposition leader fail to produce results. Didn't the joint chambers' forum meet the president soon after last year's elections with a long shopping list of do's and don'ts? What has happened, since then?

Instead of labouring the point, as one businessman suggested, the corporate sector should join civil society in resorting to all forms of democratic protest in forcing the government and the opposition to do something about the war, cost of living, widespread corruption and blatant abuse of law by politicians and their supporters.

The business community would be outraged by these suggestions - protest on the streets, carry placards? But are you waiting for the violence to come to your doorstep just like what happened in 1988 and then be galvanised into action?

The business community needs to seriously look at these issues - be outspoken, be united, rise above politics and look at issues on a national perspective (chambers - please don't be jealous about what your rivals are doing), be prepared to shed coat and tie, come out of air-conditioned rooms and be truly a part of civil society, and join or launch protests with other sections of civil society in demanding change. Stop issuing statements (that's not going to change things).

During my numerous visits to the war front, the frequent lament among soldiers is: "We are fighting a war while everyone in Colombo is having a ball." How true this is. If some portion of the enormous sums of money spent on expensive tamashas, lavish press conferences, product launches and costly dinner presentations is channelled towards finding solutions to the political crisis, the country will be the beneficiary and the business community "richer" by its endeavour to find peace. Who says there is a crisis and people have no money when flights to Bangkok, Singapore and Malaysia are filled with cash-rich Sri Lankan businessmen and their families going on shopping sprees?

The travel trade is doing so well that they are even hosting their annual celebration in a foreign country!

We need to put an end to the partying. We need to get our priorities right. We should not wait for the politicians to deliver. We must ensure that they deliver. We must be activists in civil society instead of moderate voices trying to reason with politicians who do not care a damn about the country other than feathering their nests or going on ego trips.

One may argue that business, the economy and partying have to go on even if there is a war and this, it would be pointed out, has happened in other countries. But can we afford to wait any longer after seeing the country on a slippery slope since 1983?

Coal power, high spending, corruption in the two main state agencies should be sorted out but there are other pressing issues at hand that need more, immediate attention.

The business community needs to work together. The chambers as a united front must summon a meeting chaired by a non-partisan group or individual and work out ways of supporting or initiating civil society action. What is needed is a "quick" action committee to work out ways and means of dealing with the present crisis to avoid anarchy and another group to look at long-term issues like power, corruption, etc.

The business community is a powerful force and should change things if it joins the community, religious and other leaders in calling a halt to the mayhem caused by politicians. Political parties are certain to be unsettled by corporate leaders taking to the streets demanding change. It is the private sector that funds the politicians, not other sections of civil society. Corporate leaders on the streets would jolt the politicians and stop them in their tracks. This, I am certain.

Some corporate leaders told me that whenever they suggested methods beyond mere issuing of statements and making proposals, they were frowned upon by colleagues. I was pleasantly surprised when a corporate leader told me that he endorsed the struggle by JVP-led unions in recent months to demand increased wages in private sector workplaces.

"While one side of me says the JVP is courting danger in disrupting the workplace, the more rational side of me says the JVP is merely voicing the concerns of the common man. The cost of living is soaring and the poor and lower middle class needs a voice as the two main parties have failed them." That was a very considerate point of view.

What is needed is action and the business community as a strong voice in the community must take the lead role to pull this country out of this abyss.

Mind your Business 

Green-eyed investors hopeful

Most, including those who had declared the market virtually dead, are now readying themselves for a resurrection following the expected change of colour in the august assembly.

Many brokers have received instructions to keep funds at the ready for a buying spree if a political changeover occurs; speculative no doubt, but as the brokers say, something is better than nothing in the Colombo market.

Smaller budget packs?

But sales of the new product have been disappointing for some brands and more market research was undertaken. And we may soon see the results of this research: one hundred gramme sachets that will be priced as close to the larger pack as possible.

Last ditch effort

This has caused concern, with the parent company's management weighing the options: selling off the hotel holdings to a rival or attempt an aggressive marketing campaign.

They have opted for the latter but corporate insiders say this might be a last chance.

Prima monopoly to end

The mill by Serendib Flour Mills (Pvt) Ltd will, however, come on stream only by January 2003. "Construction starts in the next few weeks and will be completed within a period of 18 months," said company chairman Asker Moosajee.

Prima recently concluded an agreement with the government to buy the flour mill at Trincomalee.

With this deal, the government opened wide the market to free imports and sale of wheat flour or grain. But analysts said that while Serendib is the only new flour mill planned, it is unlikely that other private traders would import flour or grain as it is uneconomical.

Serendib is a joint venture between the Al Ghurair group, owning the National Flour Mill in Dubai, and Moosajees. Other investors include Emirates Trading Agency (ETA), an Al Ghuriar partner, involved in trading, construction and having eight cargo ships. The cost of the project is US $ 50 million with the main investment coming from abroad

Mr. Moosajee said the mill with a storage capacity of 65,000 tonnes per year, will be located within the port of Colombo on a 1 1/2 acre plot of land. Initially the mill will produce 1,000 tonnes per day and double production a few years later.

Prima's capacity is much higher at 800,000 tonnes at Trincomalee while the annual demand ranges from 700,000 to 900,000 tonnes. "Our mill will help to improve quality and offer an alternative to the consumer as people have to rely on one type of flour now," Mr. Moosajee said, noting that the project would be commissioned later this week at a gala ceremony in Colombo.

"Consumption patterns are changing and the demand for flour is growing but it is important to emphasise that rice is our staple food and should remain that way when we reach self-sufficiency," he added.

Rate cuts boost long-term bonds investment

By Chanakya Dissanayake

"Interest rates are clearly on a downward trend. Investors can make capital gains by investing in three-year government bonds," said a leading money broker. The Central Bank's move to cut the reverse repo by 2 percent and the repo by 2.5 percent was higher than market expectations. "This was the acid test for the government. They kept telling the market that the economy is on the revival, but this time the Central Bank has gone beyond mere talking," said another analyst.

Central Bank governor, A.S. Jayawardena said the bank's decision on Monday caught the market by surprise, taking banks time to react after fully absorbing the decision. "They (banks) expected a lower rate cut," he said. 

The reverse repo rate was used to control inflationary pressures that have been caused by the recent removal of administered prices of essential goods. 

Treasury Secretary, Dr. P.B. Jayasundara has said in the past that interest rates couldn't be brought down due to high inflation. "According to official forecasts, average inflation should drop to single digit levels by the year end. This favours the interest rate cut", an analyst said.

The latest interest rate cut in the US is also expected to favour the monetary situation in Sri Lanka. " Exporters holding their dollars in foreign deposits will now gain only 3.75 percent. We expect these funds to come into Sri Lanka," he added. The Central Bank is expected to watch inflation closely and adopt a cautionary approach towards further rate cuts.

Commercial banks are watching market trends before arriving at a desision. The two state banks have already cut their lending rates. "We are observing the market to see the rate cut transform into a reduction in our cost of funds. If it does, we will reduce our lending rates accordingly," said Sampath Bank CEO, Anil Amarasuriya.

Dressing for success

At a time when local brands in the international market are few and far between, these designers have broken through to the global market.

Purnima Abeyratne designed swimwear under her 'Inspirations' label for Chelsea Girl in Kingston, England, for many years. She now designs for a boutique in Sweden also called 'Inspirations.' She designs 80-100 ball gowns yearly and caters to an upmarket niche specialising in elaborate designs, fantasy themes and formal wear.

Ms. Abeyratne, who has been designing for ten years, said that each dress sells at between ten and fifteen thousand rupees.

Yoland Aluvihare's annual turnover for her hand painted designs is Rs.14 million with half of this earned in global markets under her label, 'Yoland Collection.' 

"If I see a formation of clouds in the morning it inspires me and I use it in my work," Ms. Aluvihare said. "I love painting colours, earth colours and nature," she said whimsically. 

She supplies garments to the Japanese, German and Indian markets. These include Boutique Matsubra in Japan and the Leena Singh boutique in Delhi. Local handlooms and imported Chinese silks and materials from Frankfurt, Germany, are used to create the garments which cater to an upmarket niche.

Ms. Aluvihare began working as a designer in 1975 and got her first break during the Non-Aligned Conference in Colombo attended by delegates including Libyan leader Muammar Gadaffi, where she held a show for the delegates' wives. 

– (DG) (Pic. by Dunstan Wickremaratne)

SEC investigates Trans Asia share transactions

By Dinali Goonewardene

The company came under scrutiny when 13 percent of its shares were sold by the Sri Lanka Insurance Corporation to the Moghul Fund who subsequently sold the shares to a newly-formed Employees' Share Trust (EST) of Trans Asia, official sources said.

The investigation by the SEC seeks to establish whether the Moghul Fund or the EST which purchased the shares last April had acted in concert with Asian Hotels Corporation, the major shareholder, when buying the shares. This, the sources said, would trigger the Takeovers and Mergers Code which states that parties acting in concert to hold over 30 percent of a company's shares must make a mandatory offer to purchase the shares of remaining shareholders.

Under the code, a purchase of upto two percent by the Moghul Fund or the EST would have been within the stipulated limit of 30 percent and does not warrant an investigation even if the parties had acted in concert. However, the size of the transactions necessitated an investigation, the sources said.

Meanwhile, the price of Trans Asia stocks rose by approximately 50 percent to Rs. 33 per share from Rs. 20 triggering the investigation to establish whether there had been market manipulation.

Trans Asia Hotels created considerable controversy when it established the EST and used Rs. 220 million in shareholders' funds to purchase 13.2 percent of its shares from the Moghul Fund. Trading in the shares was suspended temporarily prompting a directive from the SEC to the Colombo Stock Exchange to incorporate rules to ensure that companies sought approval from shareholders prior to using funds to set up Employees' Share Trusts.

Trans Asia came under the management of General Hotel Management on July 1 after changes in the shareholdings. The company's board of directors had also seen some recent changes with David Crichton Watt replacing Tan Sri Azmi Wan Hamza as Chairman and the resignation of Manohan Nanayakkara, former company secretary.

The company's major shareholders at the end of June included Asian Hotels Corporation Ltd (43%), HPL Sri Lanka Holdings Pte. (38%) and Jacey Trust Services (Pvt) Ltd (13%).

The Ganoruwa retreat: whither rice production?

The recent division of agriculture into about seven ministries has added to the confusion and apathy among ministries. For instance while food crop production is in one ministry, another is responsible for marketing. Such bifurcation we fear has led to inconsistent and uncoordinated agricultural policies as well as lack of a vigorous policy.

A clear example of the latter is the expected policy statement on rice that never materialised. In December last year, amidst much fanfare the Rice Symposium 2000 was held at Ganoruwa. Nearly all the eminent rice scientists, as well as prominent agronomists and economists and some administrators were present and participated in the proceedings. Many different aspects of scientific research and policy were analysed.

The crowning achievement of that symposium was expected to be the Ganoruwa Resolution. With all the eminent rice scientists present, this statement was expected to be a clear-cut statement of the needed directions in rice policy to be followed up by the commitment of resources for its implementation. Such a policy statement was indeed necessary as there was inadequate support for rice production. And rice productivity was much lower than the potential.

Six months have passed since that event and there has been no Ganoruwa Resolution or declaration of policy. It means that we not only do not have a policy, but also do not intend to have one for rice. Despite the extensive discussions at the Rice Symposium 2000, no clear statement of policy has emerged. Implementation would of course be another matter.

What could be the reason for such a lack of concern to articulate a rice policy? As we have already suggested a prime cause could be apathy and lack of a sense of urgency. By whom may we ask? Is it that the political leadership of this country has lost its interest in the rice economy? Is it that the large numbers of persons still dependent on paddy cultivation for their incomes are no longer important? Is it that the government believes that a laissez faire policy, where the market or the invisible hand determines the allocation of resources and determines output is the solution for the paddy farmers? Is it just sheer apathy and lack of interest of politicians whose sole concern is to remain in power?

Maybe the answer lies elsewhere. We may be barking up the wrong tree owing to a tendency to always bash politicians. What about the scientists and the administrators of agricultural policy that met at that symposium? Have they neglected their responsibilities? Is there a difficulty for scientists to arrive at a consensus? Is it that the administrators have throttled the resolution?

Whatever the reason, the nation is poorer by not having a well-articulated long-term policy on rice. It is an economic arena in which a policy is urgently needed as the viability of rice cultivation is being questioned. It is only by an increase in productivity on our rice lands that we could increase the incomes of a significant proportion of our rural communities. If we fail to raise our rice yields significantly many farmers would be compelled to leave paddy farming or in the alternative live on incomes too low for their barest subsistence.

The lack of seriousness and real interest in vital areas of our economy is well illustrated by the futility of the Ganoruwa Rice Symposium. It also illustrates the wasteful expenditure on seminars and symposia that are held on important issues that bear no fruit.

Ganoruwa or no Ganoruwa, we need a well -articulated plan and an implementation programme for rice. Without it the nation's food security may well be jeopardised.

Celltel launches trail-blazing SMS in Sinhala

The company said it had entered into an alliance with WaveNET (Pvt) Ltd., whose innovative software OmniBIST has enabled Celltel to offer a host of exciting features on the company's GSM phones, including a non-supported local language on SMS for the first time in Sri Lanka.

Addressing a news conference in Colombo, Celltel's Chief Executive Officer, Dumindra Ratnayaka, said consumer research had showed that although SMS is popular globally, one key constraint was the language barrier, which now has been bridged with the introduction of SMS in Sinhala. 

"With the convergence of Internet and mobile phones, this is just the beginning of what subscribers will be able to do with their mobile phones," he said. 

"Our vision is to stimulate the growth of the cellular industry by offering the finest quality network and innovative services catering to real customer needs," he said. "We are a company inspired by customer needs. We have selected WaveNET to help us serve their needs because of the quality and reliability of the company's products. 

WaveNET has the resources to develop some of the best mobile based innovations in the world," Mr. Ratnayaka stressed.

WaveNET's Chief Executive Officer, Suren Pinto said that these services have been 100 per cent developed by locals for Sri Lanka. "When we first gave demonstrations to cellular networks eight months ago only Celltel saw the potential and the value of what we had to offer and supported our company to build and expand our product portfolio," he said. 

"It has been a technically and financially rewarding experience to work with Celltel, a company whose objective is to meet the demand of telecommunications at hand and provide the most innovative products to the market."

Economy to grow by 3.3 percent this year, says Asia brokers

The broking firm said in a report that their revised forecast followed the lower than expected growth in Gross Domestic product (GDP) in the first quarter this year, the deterioration in the outlook for the domestic economy for the second half due to political uncertainty, possibility of elections by end 2001 and the likelihood of prolonged power cuts.

The report quoted the Central Bank as saying that the fall in economic growth was due to a contraction in the key agriculture sector and a decline in value-addition in the wholesale and retail trade sub-sector of the services sector and also a marked slowdown in growth of the manufacturing sector.

The rate of economic expansion in the first quarter is probably the lowest recorded in the past decade and is even below the 2.8% growth in GDP seen in first quarter 1999, when the key export sector under-performed due to competitive pressures following the East Asian economic crisis, it noted.

"The extent of the slowdown in the economy is thus considerably worse than our expectations," Asia said.

The Central Bank has been estimating economic growth this year to be around 4 to 4.5 percent but these estimates also are likely to be revised given the weak first quarter performance in the economy.

Expanding on these reasons, Asia said in a report that:

Adverse weather and sluggish consumer demand is likely to result in a marked slowdown in growth in the agriculture sector.

Lack of rain in areas where hydro-electric reservoirs are located could result in extended and prolonged power cuts (which have just started), thus hurting overall economic activity.

Prevailing political uncertainty following the government's loss of majority strength in parliament and the likelihood of elections in 4Q2001 would undoubtedly dampen investment and hence curtail economic growth.

Slowing consumer demand amidst rising inflationary expectations would further curtail economic activity.

Forecast GDP Growth

Agriculture 20% 4.5% 1.8% 0.4% 2.6% 2.7%

Mining & Quarrying 2% 4.1% 4.8% 5.1% 5.7% 5.9%

Manufacturing 17% 4.4% 9.2% 4.6% 7.4% 7.8%

Construction 7% 4.8% 4.8% 4.9% 5.8% 6.4%

Services 53% 4.2% 6.9% 3.7% 5.5% 5.8%

GDP 100% 4.3% 6.0% 3.3% 5.3% 5.6%

People's Merchant Bank ventures into real estate development

A bank statement quoted People's Merchant Bank Chairman, Mano Tittawella as saying the decision to venture into real estate development and housing was influenced by the need to offer innovative products and services to all segments of society.

The bank, in existence for over two decades, is the second investment bank to be set up in Sri Lanka. Charitha Atukorale, a manager who has successfully completed a number of real estate projects in earlier appointments, will head the new division.

PMB's Chief Executive Officer, Naomal Soysa, said the bank would invite property developers to form joint ventures. The expertise of the corporate finance division will be used to structure proposals and syndicate loans for these projects. The Real Estate Division will be responsible for managing and marketing, and, will play the role of facilitator in arranging finances for customers through its main shareholders - the People's Bank, Hatton National Bank and DFCC.

The new division would initially handle the sale of houses and properties on behalf of high net worth individuals owning land in the suburbs and Sri Lankan expatriates wishing to sell their properties here.

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