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 11th October 1998 |
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Mind your Businessby Business BugInto Banking?A well established, diversified blue chip group of companies has been on a roll in recent years. Their corporate performances have consistently exceeded expectations despite the general slow-down of the country's economy in recent times. Now this conglomerate is contemplating entering the banking sector. Setting up a commercial banking operation is the aim but at present the plans are on hold until more feasibility studies are completed.... Pill's comingThe "miracle pill" with a name that sounds like a tiger is not currently available in the local market. But the local pharmaceutical industry seems to believe that the pill will prove to be popular in Sri Lanka, despite the Lankan's aversion to anything that is linked to tigers. That is why they are doing their very best to bring this pill to the shelves of local pharmacies as soon as possible. So, Lankan males can take heart.... Under the noseOur story over a fortnight ago that another cellular network was contemplating a "card" system has raised a hornets' nest in Telecom circles. Cellular operators were pondering the possible consequences of such a move. And the state owned giant was also making its own discreet inquiries just to make sure that the two rival land-line operators were not upto new tricks. But worst of all was the body that is supposed to regulate all the happenings in the industry. They were more clueless than anybody else. As for who the prospective card operator is, we ain't saying any more.
Stock Market at a glance
Govt. to borrow $100 mn abroadBy Mel GunasekeraThe government intends to borrow US$ 100 mn through a sovereign loan, arranged through ABN Amro Bank and repayable in one year, a top Central Bank official said. Though the agreement has not been signed yet, the government hopes to wrap the deal within the next few weeks, he said. The loan will carry an interest rate of 2 per cent above LIBOR and will be backed by a fixed rate bond, The Sunday Times Business learns. Mounting fiscal pressures with increased defence expenditure and a decline in expected revenue growth this year, have compelled the government to borrow abroad, analysts said. Analysts say this is a pre-requisite for the government to obtain a sovereign rating. They say the lack of a sovereign rating has hampered the development of the domestic debt market. The onset of the East Asian crisis, and uncertainties in the international markets have put a damper on the government desire to go for a sovereign rating this year. Analysts say the government would go for a rating by mid next year. Government officials are hopeful that there would be an improvement in the international markets by that time, so that the government could raise an additional loan of around US$ 250-$300 mn to payback the foreign loan. With the gradual decline in future foreign aid flows, the government needs to look towards commercial borrowing to finance its future infrastructure projects, a top economist said. When a country's per capita income increases, concessionary loans dwindle and the government is compelled to look towards the international capital market to raise debt for future infrastructural projects. Sri Lanka's per capita income is rising steadily and touched US$ 814 in 1997, up from US$ 759 in 1996. A country becomes ineligible for concessionary aid when its per capita income touches the 'magic' US$ 925 mark. When Sri Lanka reaches this benchmark, she graduates from a low-income economy to a lower middle income economy. There has been a general crunch in aid flow worldwide, with Japan leading the pack by curtailing world aid flow by 10 per cent. Analysts say the establishment of a sovereign rating will set a benchmark for the private sector to have access to international finance markets. In 1997, Sri Lanka successfully raised US$ 50 mn through a Floating Rate Note (FRN), without an official country rating. Sri Lanka was able to issue the note at LIBOR (London Inter Bank Offered Rate) plus 1.5 per cent interest, which analysts say was very favourable considering the country ventured out to the international market without a sovereign rating. Sovereign ratings are conducted by creme of international rating agencies like Moodies, Standard and Poor. The agencies compile an offering circular (report) which takes into consideration the political, micro and macro economic scenario in the country. The entire process usually takes around six months to complete.
Expect exports slow down - John KeellsExport figures released for the first 7 months of 1998 show an 8.4 per cent growth year on year (in US$ terms). However, pressure on tea prices from September 1998, due to the Russian crisis, is expected to slow down growth from September to December 1998, a John Keells Stockbroker report states. The textile and apparel sub-sector which drives the industrial sector, with an approximately 68 per cent exposure, grew by 14.3 per cent in the period under review. The textile and apparel sector continues to be relatively unaffected due to 70 per cent of total apparel exports being under the Multi Fibre Trade Agreement system (quota). Tea exports, which grew by 36 per cent, was the main contributor towards the agricultural sector export growth of 13.8 per cent. High prices for Sri Lanka tea from January to July 1998 over the comparative period in 1997 was the key factor for this growth. The mineral sector, which is dominated by the export of precious and semi-precious stones, continues to be affected due to the Asian crisis. Total export growth is expected to decline to 6-7 per cent in 1998 (US$ terms) from the 13 per cent achieved in 1997. This would be mainly on account of the lower growth rates in both the industrial and the agricultural sectors and the decline of the mineral sector.
The rising cost of warEstimated defence expenditure for 1999 has risen to Rs. 47.3 bn-up from Rs. 45 bn last year.
According to the appropriation bill for 1999 presented in parliament last week, the budget deficit is estimated to be Rs. 106.8 bn, shooting up from last year's deficit of Rs. 98.5 bn. Total government expenditure for 1999 is estimated to be Rs. 339.2 bn with recurrent expenditure at Rs. 138bn and capital expenditure at Rs. 103.9 bn. A further Rs. 97.3 bn has been forwarded under special law.Government revenue including foreign aid totalled Rs. 232.3 bn. This gap leaves a deficit of Rs. 106.8 bn. The appropriation bill also provides for the raising of both foreign and local loans to the value of Rs. 168.0 bn. A major portion of the next year's budgetary expenditure has been allocated to the Defence Ministry. Total defence estimates of Rs. 47.3 bn, include Rs. 39.0 bn for recurrent expenditure and Rs. 8.3 bn for capital expenditure.
New product from Ceybank Unit TrustCeybank Unit Trust will launch a new product that guarantees the capital of the prospective investor. A major portion of the capital will be invested in government securities, while the balance will be invested via the Ceybank Unit Trust in the equity market. Clearance from the Securities and Exchange Commission and the Colombo Stock Exchange has been received to launch the product this month. This is a unique investment product, the first of its kind in Sri Lanka, company sources said. The product provides investors with the opportunity to ride the waves of equity market in pursuit of higher returns, while keeping the initial capital investment intact. "It's a new product that will have a combination of both Ceybank Unit Trust and Treasury Bills," Executive Director/CEO Unit Trust Management Company (Pvt) Ltd., Dheerendra Abeyratne told The Sunday Times Business. Portfolio management services are usually provided to large investors, but here we are making it available to small investors, Abeyratne said. On opening a portfolio account, a proportion of the initial investment is invested in treasury bills or other Government-backed instruments to yield the exact value of the initial investment at maturity. For instance, if you invest Rs. 100,000, Rs. 89,285.71 will be invested in TBills at 12.5 per cent. The balance sum remaining after investing as above will be invested in Ceybank Unit Trust, which will be linked to the share market performance. In the event of poor stock market performance, the initial investment would be intact while the prevailing market value of the Ceybank Unit Trust will be the return over and above the initial investment. "What is unique, is that your investment is safe even in the event of a market crash," he said. Ceybank guarantees the initial investment, if the investment is held for a minimum one year period. Investors could also earn a higher return than Treasury Bill returns, when the share market performs well during the period of investment. "Though return on corporate debt is higher, we are investing in TBills as we have to provide absolute guarantee on the return of capital," he said. If an investor invests in fixed deposits he has no ability to increase his return in the event the share market performs well. Whereas investing in a Unit Trust an investor could lose his capital. This is a combination of both Unit Trust and bank fixed deposit. In the event the market performs well, investors can expect an average return of 16%-17%. Even if the market crashed by nearly 50% that year, he still gets a 5% per cent return, he explained.
Small industrialists on wrong tariffSmall industrialists using electricity for production have apparently been the hapless victims of defective legislation. The Ceylon Electricity Board (CEB) and LECO (Lanka Electricity Company) who use a three tiered tariff band (domestic, industrial and general purpose) have placed some small industrialists on the highest tariff band, the general purpose band. Both LECO and Board officials told Business Times that they were following the 1997 amended gazette which refers to industrial purpose as industries that use wholly or mainly motive power for electro-chemical processes in factories, workshops, foundries, oil mills, spinning and weaving mills, water supply and irrigation pumping stations, port and dock installations. An industry that is not mentioned in the industrial purpose category is then, by default, put under the more expensive general purpose tariff band. Because of a serious omissions in the gazette, LECO has placed some small industrialists on a general purpose band. What is even more dangerous is that the loose legislation seems to have resulted in varying interpretations of the law by misguided officials. LECO officials appear to be helpless due to the serious omission in the gazette. They said when such irregularities are brought to their notice, their officials do their utmost to ensure that small industrialists are treated fairly. Some customers fill in their application forms incorrectly for instance calling themselves a commercial establishment, instead of an industrial one. In such instances, industrialists are put into the general-purpose tariff band. "We are unable to do anything until they bring it to our notice," a LECO official said. A Business Times survey found that although not specifically mentioned in the gazette, many confectioners, bakers etc who use electricity for production have been placed on the industrial tariff band. But in complete contravention of their own rules, a small ceramic producer has been paying general-purpose tariffs for the past three years. A rough estimate of what he has over paid LECO amounts to over Rs. 100,000 the industrialist who preferred to remain unidentified, said.The Assistant Chief Electrical Engineer of the Ministry of Irrigation, Power and Energy told The Sunday Times Business that the omission was not their fault but that of those who drafted the bill. Business Times understands that the 1997 amendments were drafted by CEB officials. The Chairman and Deputy Chairman CEB were in parliament and were unavailable for comment.
Financing science and technologyThe annual sessions of the Organisa tion of Professional Associations (OPA) brought out very clearly the need to adequately finance science and technology in the country. The bottom line of the discussion on globalisation and liberalisation of the Sri Lankan economy was that if the country was to be competitive in global markets it had to move into industrial enterprises using much more sophisticated technology and scientifically trained human resources. Without a scientific base, it was argued, the country could not expect to produce the higher value added industrial products or retain a competitive edge in international markets. The biggest stumbling block to the development of science and technology in the country is the inadequate finances that are channelled into these areas. It was pointed out that instead of 5 per cent of GDP, which was considered necessary to develop a scientific base in the country, the nation spent only 0.15 of one per cent of GDP. Such a small amount of funds cannot be expected to develop quality scientific education, provide scientific research facilities nor employ quality scientists on competitive wages. Given the parlous state of our public finances, it is very unlikely that the government could allocate an appreciably higher amount of its revenues for science education and technology development. Most of the government expenditure would go to other committed requirements like war, welfare, administration, pensions and debt servicing. There would be little left to be distributed among the many other compelling needs. Therefore, if the country is to rely on government expenditure through the budget for scientific development, this would never happen. An alternate means of financing must be found. Such a means of financing must be related to other developments in the country. One of the suggestions made at these sessions by Dr. R.O.B. Wijesekera, one of the country's leading scientists, was that a cess be levied on certain imports to finance science. This idea could be extended to establishing a fund for scientific education through a proportion of corporate taxes, export revenues and other profits or expenditures of institutions to be compulsorily contributed to a national science fund. This would be similar to the export cesses which were levied on the country's tea to finance the Tea Research Institute some years ago. We require to develop such an innovative approach to enable us to finance our scientific expenditure requirements. Otherwise our scientific and technological capabilities will be weakened considerably at the time when science is making enormous progress around the world. Once such a fund is established, it may also be possible to obtain foreign funds specifically towards this fund. Donors may be more willing to contribute to such a fund owing to their special interests and concerns in scientific development and dissatisfaction of government utilisation of funds to such research. The other advantage of such funds is to remove unnecessary bureaucratic controls which appear to hamper scientific activities. The setting up of a national science fund could be the beginning of a new era of scientific education, quality scientific research and technological development. In a national financial context of an inability to fund scientific education through the government budget, the imperative need for much higher expenditures on science and technology and the much felt need to release scientific institutions from bureaucratic controls are sufficient justification for exploring this idea of establishing an autonomous national science fund.
More Business * Good financial performance * Rouble tumble drags down tea prices * Earnings growth slows down * Coconut-a much neglected industry fighting for survival * Brightening up a forgotten village *
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Defence
spending accounts for nearly 13.26 per cent of the estimated 1999 budgetary
expenditure. Our graph above shows the steady rise in military spending
since 1983.