6th July 1997

Economic recovery in first half

The first half of this year is just over. How has the country's economy performed? No doubt the first six months of this year were not crisis ridden as it was last year. There were no power cut, disruptions to industry and commerce and the security situation improved. These developments have had favourable impacts on company profits, the share market, tourism and investment. The main paddy crop too appears to have been fairly satisfactory and agricultural production appears to have been at normal levels. Therefore the first half of 1997 had a considerably better record of economic performance than 1996.

Tourism, which was badly affected last year, began recovering at the end of last year and this year's tourist arrivals have given rise to an expectation that once again we would reach the 400,000 mark. The better occupancy in hotels has probably helped them to tide over the financial crisis they faced of having to service loans at a time when they were operating at losses. The question that must be asked is whether the country should not be attracting a considerable large number of tourists.

We are still at best hovering around 400,000 tourists, many of whom stay for a very short period in the country and spend very little. It is time to reach out to a much higher level of tourism by an aggressive marketing of our attractive tourist locations to earn considerably more than we presently obtain from a very large investment in hotels and infrastructure.

There are clear signs of increased industrial production in the first half of this year. Industrial exports have increased by around 13 per cent. The garments industry which faced a crisis situation last year has, by and large, emerged out of this crisis. Most garment industries are faring well. The textile manufacturing industry is still in crisis unable to cope with the market situation. Other exports too have increased at a fair pace with leather and rubber goods leading the way with an over 20 per cent increase.

The comparison of industrial exports in the first half of this year with that of last year's poor performance should not lead us to think that everything is well with our industrial production. Industrial production needs to expand by leaps and bounds if we are to achieve much higher rates of growth and strengthen our balance trade position.

Last year agriculture's contribution to GDP fell below that of the industrial sector. This was largely due to a significant fall in paddy production caused by drought conditions. This year's main (maha) paddy crop is estimated to have been fairly normal. Tea production fell somewhat for the first four months of the year but appears to have gained after that and last year's peak production may be maintained or slightly improved upon.

Fortunately tea prices have remained high and are contributing to the profitability of tea plantations and the prosperity of tea small holders. Rubber production has been fairly static over the last few years and it is likely to be less this year if the 6 per cent decline in the first four months continues.

The first half of this year saw a change in monetary policy. Treasury bill rates came down while the liquidity of the banking system increased owing to reductions in the statutory reserve requirements of the commercial banks on two occasions. The effects of the change in monetary policies do not appear to have had as striking an impact as expected. Interest rates have come down only slightly except for prime customers who have been able to exploit the liquidity of the banking system to obtain better terms.

Most of the other customers have experienced only marginal decreases in interest costs. This is partly due to the well known fact that when monetary policies are relaxed they take time to have their impact whereas when tight monetary measures are introduced they have a much more immediate impact.

Apart from this required time lag for the adjustment to take place, the structure of our banking system with a high cost administration of the state banks which dominate the money market prevents a decline in interest rates. Consequently, other commercial banks are also able to maintain much higher rates and enjoy large margins between their costs of funds and lending rates.

The share market, which is often seen as a barometer of investor confidence and a reflection of economic fundamentals, saw a bullish performance through most of this period. The All Share Price Index moved above the 800 mark and the Sensitive Price Index increased even more. This reflects a combination of factors. The Colombo Share Market was unduly depressed and prices did not reflect the price earnings ratios. The reduced interest rates and exemption of profits in shares gave a further boost and preferences for share market investments. Company performances too were better in the first quarter.

Added to all these there was once again a flow of foreign investors into our market. The continued rise in share prices would depend on the sustainability of these factors and also an improvement in the security situation.

Despite the obvious recovery of the economy in the first half of this year we cannot still say that it has begun a significant up- turn. While on the basis of the first half year performance the economy is likely to register a growth of around 5% this year, there is no evidence that a much higher rate would be achieved. We hope the second half of this year will see a higher momentum of growth which would be a launching pad for growth of 7 to 8 per cent in the remaining years of this century.

Lanka's guppies going places

Ornamental fish has been gaining popularity in Sri Lanka over the past few decades. This variety of fish in different vibrant hues is a common sight in many homes, and is popular with small children. What once began as hobby for many enthusiastic, it has turn into a lucrative export venture over the years.

Ornamental fish can be devided into two main groups : marine fish (found in salt water) and fresh water fish. There is also the fish collected from the lagoon, where nearly 99% of this fish can be adjusted to fresh water - 1/3 sea water and 2/3 fresh water. Of these types, Sri Lanka has gained popularity for the export of marine fish.

"Sri Lanka was highlighted in the world market as a exporter of marine fish in early 1950's" , said Vibhu Perera, managing director Lumbini Aquaria Wayaba Ltd. Though we started with marine fish, we also started to build tanks to get into the fresh water market.

Though fresh water fish were bred in Sri Lanka, the country was not geared to export them at that time. Because Sri Lanka began exporting marine fish, the country was considered as a marine fish exporter. Incidentally, fresh water fish has become the "premier" group in the ornamental fish category. This was not the case about 15 years ago, when marine fish dominated the scence taking nearly 70% of the world market, followed by 20% fresh water fish and about 10% the lagoons.

Times have changed and fresh water fish commands around 65% of the world market, with 30% for fish grown in the lagoons. Hence, it is vital that Sri Lanka capitalises in this by penetrating the market with category, which has always been dominated by Singapore.

Some conservationists think that the breeders have over exploited their own resources and are now concentrating on fresh water fish - a claim which breeders deny. Vibhu Perera says that Sri Lanka was unable to compete in this lucrative field for the reasons.

One, Sri Lanka did not get into the fresh water fish business because Singapore had the edge over us at that time. "That is one reason we were holding on to the marine fish " Mr. Perera says. Over the past few years, Singapore has gone in to massive urbanisation, where most of there breeding areas have been converted to industrial parks. Fish breeding has been moved in to Malaysia. Apparently the Singaporeans are not too keen to take technology to Malaysia, hence the industry is yet to take off. This has opened doors to Sri Lankan exporters.

Another point is that, countries like Saudi Arabia, Maldives, The Caribbian Islands and Australia have opened up markets by exporting marine fish that are found in their own countries, to the other world markets.

To adept them selves to the changing market trends, Lumbini pioneer outgrower system in Sri Lanka, by spreading its wings in to the most remote areas of the country. This has helped the farmers while strengthening their procurement of fresh water fish. The company has set up an outgrown network around Giriulla and Panduka which provides income for nearly 100 families, mainly to breed guppies. They also manage of the fisheries ministry's inland fisheries stations, where they do both ornamental and edible fish. The guppy species commands the third highest demand in the world aquarium trade, neat to the Neon Tetras and the Cardinal Tetras. Hon Kong is the leading exporter of Neon Tetras, but we have now been successful in breeding them here, Mr. Perera said. The company exports around forty thousand pairs of guppies per month. This has brought in revenue of Rs. 57 mn in 1996/7 and they hope to reach a target of Rs. 90-100 mn during the present financial year. Lumbini had its humble beginnings in the back yard of Mr. Pereras home. The company was started way back in 1952, by Lloyd Perera ( Vibhu's father) and Gratien Pieris ( his uncle) to cater to the local hobby segment. Thereafter, 1953 they began exporting marine fish to the public acquriums in Europe.

" In those days we did not any sophisticated packing materials to ship our products. So we used to carry the fish in old oil cans, with their tops take off, Mr. Perera recalls nostaltically. The curator who imported the fish had to convert to passenger rooms of Dutch liner with fitted tanks to accommodate the fish. Now every thing is air freighted, and we serve all major markets like USA, South America, Europe, The far east , Australia and New Zealand. We even serve the eastern European markets like Russia and Poland," Perera said.

Lumbini has the privilege of doing the " Grand Champion" trophy for the guppy category at the Aquarama Exhibition in Singapore for the second consecutive year. Aquarama is one of the worlds biggest fish exhibition held biannually in Singapore." To win by competing with about 200 other exhibitors around the world is a great achievement," said Mr. Perera.

There are about 20-22 varieties of guppies available in the world market. 14 varieties are found in Sri Lanka, out of which, 5 have been developed in Sri Lanka and won awards. This five are pure Sri Lankan fish, " said Mr. Perera.

Vibhu Perera's wining pair this year is the Black Mono colour and the Micariff Sunset guppies. The mono colour has jet black tails which contrasts vividly with the rest fish which is silver while the Micariff sports tropical sunset colour.

Previous " Grand Champion" was the Red Tuxetos, who had black posterior markings and had brilliant red fins.

Lumbini are hoping to get a quotation on the Colombo Stack Exchange by the end of this year. Mr. Perera said that company has grown over the years, with the large number of workers and their families dependent on it.

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