By Asantha Sirimanne.
Leading economists and capital market professionals have called for a change in the present budget - making process , which would eventually result in wider support and acceptance of initiastivas." We need a larger audience participating in budget making in Sri Lanka," Soc-Gen Crosby Securities Regional Economist, Arjuna Mahendran told a post budget seminar of the Sri Lanka Association of Securities and Investment Analysts in Colombo .
"Most other countries are moving towards involving the private sector and getting a cross section of public opinion, especially with the device of parliamentary committees to get broader participation," he said.
One of the models that Sri Lanka could follow was the process used in United states, where budget initiatives were unveiled one year before and went through the Ways and Means Committee of the House of Representatives, getting exposure to public opinion through various fora.
The Sri Lankan budget making process on the other hand was modelled after the British system and the concentration of power within the political system has become secretive and rather ridiculous, one analyst said.
"Eventually you find that two or three Treasury officials are in charge of the budget," Mr. Mahendran said. "This is a very unhealthy situation."
A negative factor in the US system was that powerful lobby groups had more punch in the systems and smaller lobbies could therefore be left out of the process.
However other observers say powerful lobbies get their points of view across to the Finance Ministry through secretive means, while it is an open process in the US, which may result in negative consequences for the country.
One example was the limiting of the depreciation allowance on leasing, which gave special advantages to some players resulting in protests from others. There were also shortcomings in the carry forward of tax losses which affected tax planning involved in long term investment decisions. Steps should be taken to ensure that the new proposals did not have a retrospective effect, analysts said.
Under the US system it was possible to achieve bi-partisan consensus on issues such as cutting the deficit, welfare and expenditure which was not possible in Sri Lanka, as in Sri Lanka the budgetary management was not in the Parliament but in the Treasury where it had become a party issue.
When the ruling party wanted to take initiatives to cut the budget deficit, it had no assurance or support from the opposition as the issues had not been open for discussion unlike in America.
This had resulted in unrealistic budget, which did not inspire confidence. This was an not a phenomenon limited to recent years.
"What has happened in the past 20 years is that budgetary estimates have never actually been realised," Mr. Mahendran said.
The government also needed better cash management, analysts said. At present the government was raising funds via Treasury Bill at high interest rates, while hundreds of millions of rupees were lying idle in various departmental accounts in the peoples bank and Bank of Ceylon. What was needed was a central cash management pool. Though the government expected to save Rs 500 mn by way of better cash management, there were serious doubts that this could be achieved given the current set up the Treasury.
The secretive process of the budget had also resulted in the debt markets being dealt a heavy blow in the budget with the government raising stamp duties to unprecedented levels.
CT Smith Stockbrokers Chief, Mahendra Jayasekera said while the equity markets were happy about the benefits for the equity markets, the debt instruments such as commercial paper were going to suffer from the stamp duty rise.
NDB Chairman, Ranjith Fernando said it was very important to develop the debt markets in the context of helping private companies raise capital at low rates. Even in India debt instruments had overtaken the equity markets in volume terms for raising corporate debt. India already had a rating agency.
"We should try to create an environment conducive to the issue of debt securities," DFCC Treasurer Dr. Harsha de Silva said.
Those who were interested in developing the debt markets were hoping that the budget would lift stamp duties in the issue of corporate bonds or debentures. High stamp duties and withholding tax on interest were holding back the development debt markets in Sri Lanka.
Dr. De Silva said he was at first disappointed to see that no initiative was taken to give a lift to the debt markets in the budget.
Later on with the gazetting of the stamp duty rates it had emerged that not only were there no benefits but the rates had been doubled, killing even the existing industry. Bonds and debentures had to pay the equivalent of 2 percentage points of stamp duty. In the case of a six month bond the annual rate would be 4 percentage points.
Fears were also expressed that the country was heading for an internal debt trap with new debt being raised to repay interest.
Analysts also warned of an emerging cash crunch in the economy with the Central Bank being forced to tighten monetary policy in the hope of checking inflation.
By Ruwanthi Ratnayake
Tri-Star Apparel Chairman, Kumar Devapura was selected as ''Entrepreneur of the Year 1996'' at the last week's awards ceremony, held at the BMICH.
By Ruwanthi Ratnayake
Tri-Star magnate, Kumar Devapura, honoured last Wednesday as the top Entrepreneur of 1996, has attributed his success mainly to a policy of keeping his workforce happy by giving them what they deserve.
''The Labour Charter is a must for Sri Lanka. Many developed countries have rules and regulations to protect the innocent labour force and it is time that Sri Lanka too adopted the Charter'', Mr. Devapura said.
In a post award interview with The Sunday Times Business, Mr. Devapura said the Labour Charter would benefit the workforce and also help employees to co-operate with management. The workers should get due respect and they should be looked after properly, with suitable working conditions; it is only then that they would learn to respect the management, he said.
Mr. Devapura feels that Entrepreneur Awards encourage entrepreneurs throughout the country to improve their standards and gain recognition. According to him, his success lies in his devotion to his staff. In addition to the basic salary and overtime payments, the workers are also given an attendance bonus, profit sharing bonus and cost of living allowance.
Further, they are also given free medical and insurance cover.
Tri-Star, one of Asia's largest garment manufacturers, have 30 factrories and employs over 26,000 workers. The Group's annual net income is U.S$ 50mn (Rs.2800 mn).
Mr. Devapura has risen above competition at the bottom, by moving up market and catering only to up market international buyers. While a student in Britain, Mr. Devapura had his future 'business vision' of supplying Britain's top label, Marks and Spencer. Among his international buyers now are Oxford, Victoria's Secret, Kikomo and Warner Brothers.
The only way to succeed is to move up market and produce value added high end garments. Fully computerised Tri-Star factories now specialise in bead work, embroidery, hand embroidery etc., which adds value to garments. Rs.10 mn was spent last year in upgrading machinery and a further £ 2mn will be spent next year, Mr.Devapura said.
According to him, there is not a single workers' union in the entire group and this is due to satisfaction on the part of the employees. ''But if they feel that a union is necessary, they are most welcome to start one'', he said, adding that as long as the employees are given what they deserve, they will always have loyalty towards the company.
The Group will be begining operations on a major project in Matara, where a further 10,000 jobs would be created, by January next year, Mr.Devapura said.
''Sri Lanka is the best place for manufacturing garments for the next 20 years he said, adding that in comparison to the salary scales of countries in the Far East, such as Hongkong, Japan, Singapore, salary scales are very much less, which is a definite advantage. ''The Sri Lankan labour force is talented and loyal, which is certainly an asset. In most cases this asset is misused and exploited'', he said.
At present, Sri Lanka does not have a proper textile base and most of the fabric is imported. However, by adopting a strong merchandising system, fabric can be bought at cheaper rates from countries such as Hong Kong and Taiwan, in comparison to the high cost borne on local fabric, Mr. Devapura said.
According to him, the Group is gearing towards a quota free era by the year 2005. Currently, the Group is upgrading its machinery and training employees abroad, and gradually equipping themselves to face the quota free era. This system would give the manufacturers with quality garments and strong managerial background, the opportunity to compete in the world maket, he said
Market focus by analyst
Review period 22/11 to 28/11
Rapid declines were witnessed in the review period in the 'csm', mainly due to retail selling customary during the Christmas and New Year season. ASPI declining to 610 levels and erratic daily - turnover levels were also observed. Overseas investors were seen to be crossing portfolios in certain blue-chip companies but not in any commendable volumes. Foreign purchases were more than foreign sales over the review period, although the net-inflow was lower than the previous review period.
On a positive note the US $860 m. loan commitment granted at the Paris Aid meeting and the settlement of Shell gas strike were welcome news given the tight financial position of the government.
Corporate results released during the week reflected the down-turn in the economy with most results below expectation.
1. Dankotuwa porcelain: 3rd quarter FY 96.
earnings drop of 11% to 81 m.
The decline is mainly due to the company being liable to pay income tax on local sales.
2. Seylan Bank: 9 months ended 31/9/96
earnings drop of 2% to net profit of Rs. 192 m.
A turnover increase of 34% to Rs. 3244 m.
3. DFCC: 6 months ended 31/9/96
earnings drop of 13% to Rs. 176 m.
turnover increased by 16% to Rs. 1133 m.
profit decline attributed to zero-capital gains from the equity market and lower treasury bill yield.
4. MLL: 6 months ended 31/9/96
profits after tax decline by 68% to Rs. 8m.
Attributed to very high provisioning made to reflect delayed payments.
5. Ceylon Cold Stores: 6 months ended 31/9/96
drop in profit of 34.7% to Rs. 30.6m.
Attributed the decline to power crises and the general downturn in the economy.
In the warfront due to lack of new recruits to commence operations the forces are in a stalemate situation with a very long and expensive guerrilla war in the offering. The strategy of concentrating only on finishing the NE war seems to have backfired.
If no remedial measures are taken, this could result in the Sri Lankan economy collapsing. The budget presented for 1997, even though endorsed by certain powerful businessmen with a vested interest in supporting the government, seems to have no radical and forward thinking approaches in solving the economic peril presently facing the country.
By Business Bug
Take-over battle
The corporate battle between the merchant banker and the 'Asian' company is still being fought bitterly, but some good may result, after all.
The Take-overs and Mergers Code is at the centre of the legal wrangle over the issue and is being examined for every possible loophole by lawyers of both sides.
But, eventually, the 'watchdog' will take a long, hard look at the 'Code' and some revisions are likely, we hear.
Blessings of competition
Following a sharp fall in world market price of dairy products, local distributors announced they will not charge their prices.
The reason was the fluctuating exchange rate, they said.
But at least one distributor will break ranks and lower prices, we heard last week. Such are the blessings of competition.
Unions on top
Bank staff were out in strength last week to protest against the privatisation of the bank that invests and mortgages.
This flexing of union muscles may have had the desired effect, for already, government circles are talking of a "postponement" in the privatisation plans.
A final decision however must be left at the hands of she who must be obeyed.
The Ceylon Chamber of Commerce (CCC) has obtained access to the internet and electronic mailing facility. This will enable the Chamber to provide its members with an up-to-date service.
The Chamber's initial exposure to the internet came with a web page obtained through Lanka Internet for its monthly Trade Contacts Bulletin which is updated monthly. This bulletin lists details of its members who are seeking business opportunities with overseas parties. This service provides members access to a potential global market at a very cost effective price.
Members of the Ceylon Chamber of Commerce could now benefit from the Chamber's ability to access the Internet. The Chamber can respond to its members needs faster through the electronic mailing facility which also enables members to communicate swiftly with the Chamber. The Chamber could also receive and send voluminous data through our electronic mailing facility which was a time consuming task in the past. The Chamber will also act as an intermediator on behalf of its members by transmitting messages/data on the speedy, inexpensive and secure E-mail, which is often known as the ÔPostal Service of the Future.
The Chamber is also in the process of exploring the possibility of accessing overseas databases on the internet to feed members with business contacts and other information related to trade and commerce speedily.
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