12th October 1997

MIND YOUR BUSINESS

by Business Bug

Relief after stock shock

The sale of a substantial stake of a leading private bank at the Colombo Stock Market this week raised many eyebrows.

Some were even worried it could spark off a run on the Bank's shares.

But the reason for the sale was that an overseas investor was short of funds for another deal in another market, so he sold out to another overseas buyer.

Anyway, there was no reason to panic and the Bank's stocks rose appreciably next day, much to the relief of everyone...

Five star price war

The tourists are coming and the hoteliers should be smiling.

Indeed they are, but there is also a nasty price-war among leading city hotels.

Officially at least they offer high rates, but the cut rates are offered for groups. Some hotels, who want to maintain prices say the competition is unfair.

The matter is likely to be taken before the authorities soon...

Milk and the new law

Without much publicity, a law stipulating that milk foods should display the date of expiry as well as the date of manufacture, came into effect last month.

One leading milk food producer had a problem - they had a large "left over" stock which would "expire" with the new regulation.

After a lot of thinking, the decision has been taken to destroy the stock, we hear...

Industrial export recovery

Exports have grown reasonably well this year. The interpretation that it has been spectacular is however misleading. In dollar terms exports grew by 16 per cent in the first 7 months of this year. In rupee terms the growth is as much as 25 per cent. The latter figure could be misleading as it reflects the depreciation of the rupee rather than real export earnings.

lndustrial export growth in the first seven months of this year has been encouraging. Industrial exports have grown by about 19 per cent in the first seven months. This may appear to be outstanding except for the fact that the comparison of export growth this year is with the depressed performance last year.

To place this year's export growth in perspective one needs to look at our industrial export performance over the last 10 years. During the last decade industrial exports grew annually by about 16 per cent. There was a setback to this growth last year when the industrial export growth declined to 10 per cent. Therefore this year's growth is a return to the trend of industrial export growth we have witnessed in recent years.

Textile and garment exports, which have contributed about two-thirds of our export incomes and have led the way in export growth, grew by only 8 per cent last year compared to a 13 per cent growth in 1995. In the first seven months of this year textile and garment exports increased by an impressive 23 per cent.

This figure implies that we have more than recovered our trend in export growth in this sector. It is also encouraging to realise that this export growth has not been entirely due to an increase in the volume of such exports but also due to a larger component of higher priced garments.

Despite some diversification industrial exports continue to be dominated by garment exports. This category of exports accounts for about two-thirds of our total industrial exports. Rubber and leather goods, which constitute a small proportion of total exports, have been increasing in recent years. In the first seven months of this year this category of exports grew by as much as 27 per cent. There are also indications of growth in the food processing category and some of the other minor exports.

Several facts about our industrial export growth require to be noted. First, that our industrial export growth this year has brought the country back to the trend in export growth witnessed in the last decade or more. Last year's setback has been offset and barring any disastrous developments, industrial growth should continue to register a 15 to 20 per cent growth in the coming years.

Second, industrial export growth continues to be dominated by garments. This reflects the inability of other exports to make a significant thrust into export markets.

Third, the growth in garments exports has been achieved not merely by increases in the volume of exports but also by a shift to higher value added garments.

Fourth, there are encouraging signs that other exports, particularly rubber and processed food exports, are gaining ground. In the case of rubber exports, they give a further boost to the economy as there is a greater value addition in these exports owing to the basic raw material, rubber, being locally produced. As much as about 25 per cent of domestic rubber production is now absorbed by local industries.

Fifth, while these developments are encouraging the industrial export growth performance must not be over exaggerated by quoting the rupee value of exports which reflect the depreciation of the currency.

However, the increased rupee income implies that local exporters are getting much more in rupee terms than before. This should enhance their profit margins and encourage expansion of their industries.

Industrial exports are becoming the driving force of the country's economic growth. Manufacturing now contributes 21 per cent of our GDP. It can contribute a higher proportion if our industries could compete internationally and gain markets for the export of more diversified exports.

Export-led industrial growth also provides the means of increasing employment opportunities for our youth. The recent growth in industrial exports should not make us complacent. We have to aim at much higher targets.

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