C.D.R.A. Jayawardena, Director General of the state-run Sri Lanka Standards Institution (SLSI), told The Sunday Times Business he had complained to Economic Reforms Minister Milinda Moragoda - minister in charge of the subject - about the new rules and that it undermined his authority. He also questioned its validity.

The new procedures, in place since last November, are designed to improve efficiency at the ports but has been widely criticised by importers as cumbersome, complicated and led to long delays in clearing of cargo including essentials like milk powder, canned fish, butter, brown sugar, mosquito coils, bicycle tyres and bicycle tubes.

Jayawardena said he has been sidelined by the SLSI hierarchy - namely SLSI chairman Armyne Wirasinghe and the institution's governing council - a charge denied by Wirasinghe. "He (Jayawardene) has not been ignored. I have no problems with him," he said.

The new import inspection operation scheme meant checking more than 84 products from 54 items earlier. SLSI charges have also been increased to Rs. 9,000 from Rs. 1,500 earlier for checking each shipment.

Earlier samples from shipments were checked at random to ensure that quality products entered the country while now it is compulsory to check all shipments. This has caused delays and added costs to importers, said Association of Clearing and Forwarding Agents (ACFA) chairman M.S.M. Niyas.

SLSI's Wirasinghe said the SLSI has a right to inspect all shipments and make sure sub- standard items doesn't enter the country, adding that he has had discussions with the Sri Lanka Shippers' Council and ACFA and assured them the scheme would be rationalised.

He said any importer possessing a valid international standards certificate can get the shipment cleared quickly, a claim disputed by ACFA's Niyas who said every shipment is checked, irrespective of whether a valid certificate is provided or not.

"Certificates issued by world class laboratories and standards institutions are being ignored by the SLSI," Niyaz said adding that the new increased charges and compulsory checking of every shipment was adding to the cost of living of the people as these costs are passed on to consumers.

Other importers and trade sources say conflicts in the SLSI arose because of Wirasinghe's insistence that the SLSI should run like a private institution and make profits. "Staff have been told their bonuses would increase if they improve the profitability of the institution," one trade source quoted a SLSI staffer as saying, adding that Jayawardene was not in favour of this plan, thereby triggering the crisis.

He said the SLSI is a scientific body serving the community and should not be motivated by profits. "Ultimately it is the consumer who pays as costs borne by importers and shippers in paying for SLSI charges are passed on to the consumer," the source said.

Wirasinghe, a well-known businessman who runs a group of shipping companies, was appointed SLSI chairman by the former regime and retained by the present administration.

Small investors get raw deal
Small investors in the capital markets are getting a raw deal because of poor investment advice from those supposed to be professional advisors, according to the findings of a group of experts on financial reforms.

"The absence of professional investment advice due to the progressive decline of capital markets has resulted in inequitable treatment of small investors," the experts from the financial sector said in their report on financial reforms.

"Institutional investors have eluded on their responsibilities of insisting on better corporate governance from listed companies," said the report, which was prepared as a follow-up to the conference on financial reforms held recently.

The shortage of skilled people is severely affecting the growth of the financial sector as well as the ability to effectively and efficiently regulate the sector, the report said.

In its comments on regulation and self-regulation, the report said that audit firms and the Securities and Exchange Commission (SEC) should enforce regulations and be held accountable.

Those serving on the board of the SEC should give up their positions elsewhere to avoid a conflict of interest - a view shared in many letters sent by readers to The Sunday Times editor.

"Any person appointed to the board of the Securities and Exchange Commission should relinquish their duties in other institutions or corporate bodies that would constitute a conflict of interest," the report said.

It recommends that the SEC should make it obligatory for institutional investors such as Unit Trusts, Pension Funds, and insurance companies to use their proxy votes at listed company annual general meetings and extraordinary general meetings to bring about a greater degree of market discipline.

Small investors have for long complained that big shareholders in listed firms, such as institutional investors, were not taking enough interest and were not doing enough to prevent irregularities and excesses of management.

The report suggested the authorities provide a hotline for whistleblowers, employees or shareholders to inform the SEC of unprofessional conduct and irregularities.

"The SEC should take appropriate action within a specified time period and publish wherever possible such issues for the public to have greater confidence on the regulator," it said.

Among the other findings of the financial sector experts was that the economy is vulnerable to a financial crisis due to excessive reliance on the banking system that has diminished capacity to manage risks. Bank-based lending dominates the financial markets in the country accounting for 57 percent of assets compared with India where banks account for 35 percent of assets.

"Bank intermediation cost is one of the highest in the region," the report said.

The financial service industry is "deficient of rational regulations and an effective regulatory framework", the report said.

Multiple regulatory authorities have led to fragmentation resulting in overlaps, excessive bureaucracy, and regulatory voids.

The insurance industry has a severe asset-liability mismatch (i.e. 25-year liabilities with 3 - 5 year assets) due to the absence of a long-term benchmark yield curve, it said.

The Central Bank has "insufficient authority and autonomy to counter financial indiscipline of governments seeking political popularity," the report said.

Among its conclusions were that the government needs to have a "realistic and transparent inflation index" and announce in advance the inflation target.

The Central Bank should focus on price stability as its primary objective, with financial system stability, supervision of banks and deposit taking institutions and management of foreign exchange reserves and foreign debt as secondary objectives, it said.

Long-term savings in the economy, primarily funds managed by the EPF/ETF and the National Savings Bank, were yielding negative rates of return in real terms, the report said.

Among its recommendations in the short-term was the need to create greater awareness about pension reform given the rapidly ageing population and problems related to the current government 'pay-as-you-go' system which has an unfunded pension liability of around Rs. 540 billion.

Provident funds such as the EPF and ETF were currently giving negative rates of return.
The report suggested the government do an awareness and education campaign emphasising the need for reform.

"If broad scale reform is to be successful, the problem should be tackled by taking a non-political and a multi-partisan approach to the issue," it said.

The authorities should allow foreign investment into government securities, in order to attract foreign capital, while discouraging 'hot money' flowing in through a percentage cap on foreign investment, it said.

The government should also make credit ratings mandatory in two years for financial instruments issued by entities soliciting public funds, it said.

This was in order to increase confidence, transparency and disclosure levels in the financial system.

The authorities should also formally set aside five percent of the net annual collection of EPF for portfolio investments in rated corporate bonds.

The report also said that the Inland Revenue Department should not be allowed to use banks as their tax collectors and informants on tax evaders.

ST Biz Club back
The Sunday Times Business Club is being revived, after more than a year, and plans are underway to hold a meeting on July 22 at the Trans Asia hotel where a range of activities would be discussed.

All members of the club are invited for the meeting. They could contact the club secretary on 304170 for details.

Sri Lankan software firm wins top US award
MediaSolv, a Sri Lankan software firm based in California, was presented an export achievement certificate from the US Department of Commerce last week, a company statement said.The company was among three Silicon Valley exporters to receive this prestigious award. The Commerce Department recognizes companies that are business clients of the Department's U.S. Commercial Service and that have used their services to make their first export sale or open new foreign markets.

MediaSolv develops software for Groupware and Messaging, Project Management and Collaboration, Remote Server Management and Portals. The company's products enable seamless access via any device in any environment. Picture shows Vasee Nesiah, the Sri Lankan-born CEO of the company, seen receiving the award from Congresswoman Zoe Lofgren.

Ceylon tea industry forms apex body
The Ceylon tea industry has finally come together and formed an umbrella body bringing together different sections and interests groups in the trade.

Called the Tea Association of Sri Lanka, the organisation's board of directors consists of the heads of six associations representing the interests of different sections of the industry.

The formation of a federation was proposed by a foreign consultant, A.T. Kearney, who did a study of the tea industry under an Asian Development Bank project.

Plantations Industries Minister Lakshman Kiriella had supported the idea as it would bring together the different interest groups, which sometimes tended to pull in different directions.

"The association will comprise all stakeholders," said Malin Goonetileke, secretary general of the Planters' Association of Ceylon, which represents regional plantations companies.

The new organisation will have representatives from three groups representing producers, the Planters' Association (PA), the Private Tea Factory Owners' Association, and the Federation of Tea Smallholdings Development Societies.

It would also have representation from the Colombo Brokers' Association and two buyer organisations, the Colombo Tea Traders' Association (CTTA) and the Tea Exporters' Association.

Mahen Dayananda, chairman of the CTTA, which had expressed reservations over the formation of a federation, said decisions made by the Tea Association would be by consensus.

"My membership insisted that all decisions should be by consensus," he said. "We felt there were only two exporters' organisations represented in the Tea Association. We wanted balanced representation, which was not forthcoming. So the minister wanted decisions to be taken by consensus."

The CTTA has balanced representation with five buyer members and five seller members, he said.

"The Tea Association has more sellers than buyers, hence the demand for consensus in decision-making," he added.

The PA had said earlier that the CTTA represents mainly traders - buyers and sellers of tea - and, despite having representation from other associations, had never played the role of an apex body.

Dayananda had said that in its 108-year history, the CTTA had never taken a vote, with decisions being arrived at by consensus.

The PA's Goonetileke said the first chairman of the Tea Association would be the head of the PA, Mahendra Amarasuriya. The chairmanship of the organisation would be rotated among the stakeholder bodies.

The industry is now looking for a chief executive officer to head the Tea Association.

Cargills in the milky way
Sri Lanka's Cargills group sees involvement in the dairy industry growing with the advent of a new ice cream subsidiary and is aiming to collect more than 50,000 litres of fresh milk a day from some 10,000 cattle farmers.

It also lamented the insufficient support for the dairy industry but said the company had its own plans to develop this industry. "Very little effort has been made by successive governments to develop the dairy industry in Sri Lanka while the total import of powdered milk into the country amounts to more than Rs. 10 billion a year," says Ranjit Page, CEO and Managing Director at Cargills (Ceylon) Ltd in a review of activity in the group's annual report for 2001/02.

Cargills is one of Sri Lanka's oldest companies founded in 1844 on a site occupied by Ceylon's first British governor, Frederick North, and in recent years has expanded into the provinces to serve consumers and develop local farmers and producers with Food City supermarkets and the food supply chain.

The group's biggest investment last year was acquiring Unilever's Walls ice cream plant at Rs. 250 million and launching this year "Magic" ice cream by subsidiary Cargills Quality Dairies (Pvt) Ltd.

Turnover and pre-tax profits grew by 24 percent and by over 10 percent to Rs. 3.5 billion and Rs. 87.1 million, respectively for the year to March 2002 but group chairman Anthony Page described the year as "one of the most difficult in the recent past".

CEO Ranjit Page, referring to the group's foray into dairy products, said the company's long involvement in the food and beverage sector gave it an understanding of the Sri Lankan consumer, their tastes and preferences. "This knowledge, together with the studies undertaken on other less successful brands prior to this investment, gave birth to this venture."

The group presently serves about six percent of the registered households in the country but says that considering the infant stage of organised retailing in Sri Lanka, there is a vast market, much larger than the market in which it is operating.

"The traditional reluctance to visit supermarkets is also gradually breaking down even in suburban and provincial areas, leading us to expect an even better response to this concept," Page said.

He said the organised retailing industry could contribute positively in the economic development of the country, adding that studies show investment in retailing generates one of the highest rates of employment in the domestic economy per rupee of investment.

The report says purchases are made direct from small producers and farmers with a third collection centre to be opening during this financial year.

It speaks of plans to open two new KFC restaurants in Kandy and Jaela this year, both alongside Food City outlets.

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