• Malaysian oil palm expert attacked 
• SriLankaFirst face up to reality
• Good news for travel and tourism
• Dilmah Tea cheers UK market
• Living is expensive but dying isn't cheap either
• Monetary policy and market interest rates
• Implications for Sri Lanka
• News
• Looking Beyond
• Bleak future for garment industry?

Malaysian oil palm expert attacked 

By Feizal Samath

"This is shocking," noted S.K. Seneviratne, Secretary General of the Planters' Association who was informed of the attack by Watawala Plantations Ltd where the 62-year old victim, Hasan Aziz Bin Mohamed works. The association is urging the government and the Plantations Ministry to arrest the offenders and take swift action.

"We shall be pleased if you could apprise the prime minister, who is also the plantations minister of this unfortunate incident so that he could use his good offices to bring pressure on the local police to apprehend the culprits so as to avoid situations of this nature in future," said Watawala General Manager - Administration, S. Sri Kumar in a letter to the Planters' Association.

The attack, details of which appears in the main section of The Sunday Times, has raised concerns as to its impact on foreign investment particularly in plantations. "We are treating this very seriously. It's a cowardly act on an elderly man and a bad signal for foreign investment," noted Vish Govindasamy, Managing Director at Watawala Plantations Ltd, in which India's Tata Tea Ltd has a US$ 4 million investment.

A spokesman for the Malaysian High Commission in Colombo said they had been informed about the incident and was looking into it. Investment from Malaysia is on a favourable curve and a recent trade and investment exhibition in Colombo saw some positive responses from Malaysian investors.

The Plantations Ministry, when contacted, said it was unaware of the incident. "I'll check this out with Watawala Plantations," promised Ms. Indrani Sugathadasa, Additional Secretary at the ministry.

Watawala has a 2,000-hectare plantation of rubber and oil palms at Nakiadeniya in Galle.

"I can't ask for more foreign consultants as I can't guarantee their safety," he said, adding that he believed the attack was linked to a tussle between the estate management and the local community backed by the nearby Nagoda Pradeshiya Sabha over land use.

Mohamed, a retired Malaysian planter training Sri Lankan managers in palm oil production, was sleeping at the Stokesland estate bungalow when a group of men broke into the house at 1.30 a.m. on Monday, October 1. He was beaten up and received injuries in the eyes and back.

'They warned him saying, Go back, no palm oils. We love this country – while leaving," Govindasamy said. The company has been grappling with complaints from the village that the oil palms have drained water resources and was responsible for a drought.

Consequent to these complaints, the Plantations Ministry assigned a team of experts to study whether there is environmental damage vis-à-vis oil palms. The team found there was no such impact in estates across Sri Lanka. The company has also been facing a land-grab problem with frequent encroachment by villagers and police being brought into the scene.

"This encroachment problem is a big headache. We have already given 300 hectares to the state from our estate," said Govindasamy adding that the nearby Nagoda PS had written a letter to the management two weeks ago asking the company to stop oil palm plantations or face some action. It did not specify the action.

The Watawala CEO said the company had spent Rs. 60 million on improving factory production and another Rs. 200-300 million on the plantations. "We were planning to invest in a refinery with the support of other partners but given this latest crisis, I am not sure whether we would embark on this," he said.

SriLankaFirst face up to reality

Key officials of the movement, led by Jagath Fernando, Deputy Chairman at the John Keells group, met sections of the Sri Lanka media last week for a brainstorming session on the future of this peace effort.

While the main exercise of the session was to discuss and reflect on the direction that SriLankaFirst should take in reaching out to the people to persuade politicians and the LTTE to end the war, campaigners were confronted with a string of questions of credibility and "what next" from the media.

But officials like Ranjit Fernando, NDB CEO, Neela Marikkar, CEO, Grants and Fernando himself deftly handled some of the tough questions from the media, agreeing that this peace effort – in hindsight – should have been launched earlier. "However, it's better late than never," said Fernando, a point that was accepted by journalists.

Organisers said the second phase would not be as publicised an effort as the first phase, which drew close to a million people in a hands-for-peace demonstration last month. 

They said there were plans to interact with all like-minded groups in civil society and the broader business community on a united effort for peace, which they said was the desperate need of the hour.

Good news for travel and tourism

Airfares – at least as far as SriLankan Airlines and Emirates are concerned – came down after the airlines said the insurance surcharge on flights to and from Colombo had been lifted. Other airline sources said the war risk cover in force since the Katunayake airport attacks in July was withdrawn last week, bringing some cheer to a beleaguered industry.

That is still unlikely to boost the tourism industry which has been hit by high airfares and falling arrivals after air travel has additionally become a risky option since the bombings in the US.

However LTU, the German airline, is reporting promising arrival figures for this month. Officials at the airline's Colombo office said all their Colombo-Frankfurt-Colombo flights for the month of October are full. 

They said the airline operates two flights per week with a capacity of 260 passengers per flight. LTU is the only airline operating flights from Frankfurt after SriLankan Airlines pulled out recently. "The fact that the German tourist traffic is returning is a positive sign," the spokesperson said. She said arrival figures for September – which averaged 150 to 175 passengers per flight - on LTU was also reasonably good considering the bad press the country received after the Katunayake incidents.

In the meantime, officials of the Ceylon National Chamber of Commerce are meeting Treasury Secretary Dr. P.B. Jayasundara on Wednesday for a regular consultation where they plan to raise the issue of dumping.

Ranjit Hettiarachchi, a member of the chamber, said with the US economy being badly affected by last month's bombings there are fears that China could turn to the Third World including Sri Lanka to sell its goods.

"China accounts for 50 percent of consumer goods in the US but due to the current recession and fear psychosis, that market would dry up. China will look for other countries to dump its goods and at any price," he said adding that local industry would get hit in the process as Chinese imports are even cheaper than imported raw material.

He said there was a need for an effective floor price on high volume imports and countervailing duties. 

With the economic situation sounding grim after the Central Bank said GDP growth fell to 0.9 percent in the first half of 2001 against 6.9 percent in the same 2000 period, UNP leader Ranil Wickremesinghe appointed a 15 member committee to study the economic crisis.

John Amaratunga, who is chairing the committee, said they would look at issues like why industry is crashing and how many jobs have been lost. "We need to suggest ways of tackling this crisis," he said adding that the committee's first report was likely by the end of the week.

Dilmah Tea cheers UK market

The launch featured traditional afternoon tea aboard the famous 19th century Tea Clipper, the Cutty Sark, now moored at Greenwich in South East London, followed by a dinner cruise. Dilmah Tea was formally launched in the UK by Ceylon Tea Services Ltd, a company listed on the Colombo Stock Exchange.

Dilmah officials said the launch was attended by a cross section of society including the Chairman of the Labour Party, the Deputy Chairman of the Conservative Party, the Sri Lankan High Commissioner, journalists and businessmen.

They said the mission of Dilmah Tea in the UK is to restore the former glory of Ceylon tea in that country. Up to the early 1970's the UK was the largest importer of Ceylon tea amounting to over 70 million kgs annually, which have now fallen to around 10 million kgs only, due to UK brands moving to cheaper origins. Dilmah's marketing theme in the UK is, "A Return to Real Tea".

Nine varieties of Dilmah Tea are available at almost 500 stores of top supermarket chain, Safeway, with whom Dilmah as a six-month exclusive arrangement. Negotiations are underway to make Dilmah available at other major chains subsequently.

Dilmah is advertised on popular radio stations and in magazines including offers of free holidays in Sri Lanka. 

Living is expensive but dying isn't cheap either

By Hiran Senewiratne

Many undertakers in Colombo as well as outside are grumbling about falling income levels in the past three to four months – again like many things – due to the present economic crisis in the country

Instead of using big funeral parlours like Raymonds or Jayaratne's, people are trimming costs by using cheaper and smaller places and in the village abandoning those who die in hospital, forcing hospitals to bury the dead!

"Our business has dropped by almost 50 percent," lamented A.F. Raymond Ltd Managing Director, Aubrey Raymond.

He said in recent months funerals have dropped drastically. "Those days we used to undertake 80 bodies per month but now we perform less than 40 funerals per month." 

Aubrey Raymond, the oldest living Raymond in their family business which has existed for nearly three generations, said that even their regular clientele has fallen as a result of high funeral costs.

The economic slowdown has not only cut into their business but also reduced the publication of obituary notices in newspapers, he said adding that it was a serious setback faced by A. F. Raymond, which has been in the business since 1885.

As far as funeral packages are concerned, Raymond's have packages ranging from Rs. 20,000 to Rs. 350,000 but offer many concessions to keep the business alive. 

"Pre-arranged funeral'' inquiries - popular among the upper as well as middle-class - have fallen to two inquiries a month from five under this pay-before-you die scheme.

Officials at Jayaratne Funeral Directors (Pvt) Ltd also said there was a noticeable fall in the number of funerals handled by undertakers.

A company spokesman said orders have fallen to 70-80 now from 100 bodies about three months ago, again due to rising costs of living. He said their basic funeral packages start from Rs. 7,500 and goes up to Rs. 500,000.

Barney Raymond Ltd Managing Director, Christopher Raymond noted that they were handling 10-12 bodies a month against 20 earlier. He said interest in their ''pre-paid funeral'' schemes have declined in recent months.

L.H.P. de Silva, the Deputy Registrar General of marriages and deaths, also felt that many people were not publishing obituary notices in local newspapers as people couldn't afford to spent a couple of thousand rupees.

Business outside Colombo is no better. An official at Upali Brothers, one of the leading funeral undertakers in Anuradhapura, said business was down as most of the bodies of patients who die in hospitals are unclaimed by relations, forcing hospitals to perform the last rites.

Monetary policy and market interest rates

By Dr. S. Colombage

Rising interest rates had detrimental effects on production activities. Having realised these adverse repercussions of its high interest rate regime, the Central Bank has adopted a totally different monetary policy stance since February this year taking steps to bring down market interest rates. In attempting to justify its u-turn, the Central Bank indicated that low interest rates are feasible in view of the moderate inflation and increased foreign reserves. Accordingly, the bank reduced the Repo and Reverse Repo rates by 100 basis points in February and another 50 basis points in April, 2001. The rates were further reduced in July and August. In September, the Repo rate was brought down by 200 basis points to 13 percent and Reverse Repo rate by 350 basis points to 15 percent. These drastic rate cuts have helped to arrest the rising trend in deposit rates, but not bank lending rates.

From the viewpoint of entrepreneurs, a decline in interest rates is a welcome move as it helps to bring down their production costs. But it would be difficult to sustain a low interest rate structure owing to the weak macroeconomic fundamentals. Firstly, "moderate inflation" which was put forward by the Central Bank as the major underlying reason for the rate cut seems fallacious. In fact, the Central Bank has begun to cut down interest rates at a time when inflation is accelerating. In September, annual average inflation rose to 13.1 percent, as against 5.7 percent a year ago. The point-to-point inflation has shot up to 14.9 percent. This is much higher than the inflation target of 8 percent for 2001-02 (as per MoU with the IMF). With inflation overtaking the nominal interest rates, savers are bound to realise negative real interest rates.

Secondly, the widening government budget deficits exert considerable demand pressures on the limited financial resources of the banking system, thus pushing up market interest rates. Government borrowings from the banking sector increased exorbitantly by 44 percent during the 12 months ending July 2001. But bank credit to the private sector rose only by 12 percent. The banking system now holds as much as 28 percent of the domestic debt of the government. Central Bank's holdings of Treasury Bills and Treasury Bonds have risen to Rs. 48 billion and Rs. 13 billion, respectively.

Thirdly, commercial banks are compelled to attach a high-risk premium for their lending due to the rising trend in nonperforming loans in recent years. This is partly an outcome of the problems faced by the corporate sector due to the economic setback. Nearly 20 percent of state bank loans and 15 percent of private bank loans are estimated to be nonperforming. In this context, a reduction in bank lending rates seems unviable.

Fourthly, the foreign exchange market is still unstable. As I predicted in these columns last February, the rupee float has not helped to bring about any improvement in foreign reserves. At present, interest rate cuts may look feasible, as demand for foreign exchange has somewhat eased due to a downturn of intermediate and investment goods imports precipitated by production setbacks. But once the import demand picks up, rise in interest rates as well as depreciation of the exchange rate will be inevitable.

In view of the high inflation, weak foreign reserves position and heavy government borrowings, the present low interest rate policy stance of the Central Bank will not be sustainable for long.

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