Disclosure requirement enforced 

By Mel Gunasekera

A new rule on dealings by directors, CEO's and connected parties of listed companies is to be introduced by the Colombo Stock Exchange (CSE) as part of their on going efforts to make the market more transparent.

The new rule will come under the Exchange's rules for continuous listing and will come into effect from end January, CSE Director General, Hiran Mendis told The Sunday Times Business. 

"This rule would ensure better dissemination of market information to shareholders," he said.

The rule applies to dealings of directors and CEO's of listed companies, dealings of their spouse or by or on behalf of any children under 18 years.

Dealing of any company in which the director/CEO has a controlling interest should be disclosed to the authorities. The rule states that a controlling interest prevails in the event of directors/CEO owning at least 51 per cent of equity of the company or can control the composition of the board of directors of such companies.

Director's/CEO's who have traded in his/her company's shares should notify the company secretary or any other person authourised by the board, immediately stating the date of transaction price and the amount of securities acquired or disposed of.

On receiving the information, the company secretary or authourised board official should notify the CSE on a weekly basis, on or before two market days; i.e. every Tuesday for the preceding week ending the previous Friday.

The CSE would then publish this information in the Stock Market Daily's Wednesday edition.

However, the CSE would publish the disclosed information without indicating the names of the directors/CEO and connected parties.

While the onus is on the directors/CEO's to disclose all information, in the event of any allegations of insider trading brought against a director/CEO this rule would be a method of defence for the directors. 

The rules have been approved by the Securities and Exchange Commission (SEC). In the event the CSE finds the rule has been violated, the matter would be reported to the SEC.

Though this is the first instance the CSE is enforcing such a rule, certain listed companies had their own code of ethics where the directors were refrained from trading in the company's shares. 

Most brokers too followed a similar method. But there have been many instances where directors have traded shares or passed on market sensitive information to associates and brokers prior to a dividend, rights or bonus issue. 

The new rule is a hybrid model developed by the CSE after studying similar models in developed and developing markets.

However, certain countries prohibit directors/CEO from trading in the companies they are associated with.

Electronics behind

By Vasana Wickremasena

The supporting industries for electronics development in Sri Lanka are well behind international standards, an international survey has stressed.

"Thus the quality of the electronic innovations cannot meet world expectations," it says. The survey, Sri Lanka Competitiveness Study, says that the development of the electronic industry with its own designed products is seriously handicapped due to inadequacies within the sub-contract services sector.

" There is an absolute shortage of precision engineering workshops, and the plastic molding facilities fall short of the standards necessary to sustain the export market," it points out.

According to the study, there are no electronic part component manufacturers or PCB manufactures producing adequate quality products for the application of integrated circuits and surface mount technology (SMT). There is also a lack of locally produced (or even stocked) specialty wire for industry requirements.

The survey has stressed the importance of focusing on test measurements, type approvals, safety and environmental assessments to enhance the consumer electronic manufacturing export potential.

Operating performance is determined by realistic practical tests. And 'quality' is a factor of the underlying quality assurance system, backed-up by type approval and environmental testing, it emphasises.

" Consumers have become accustomed to highly reliable and fault-free equipment that are robust enough to withstand the 'use and abuse' inflicted by both operators and the environment in which they are used and transported. Therefore, it is necessary for Sri Lanka to establish its own in-house testing facilities, with national standards that invite international recognition," it says.

However, the report points out that it is very unlikely that the current electronics industry could fund such an investment, and therefore some form of initial government sponsorship may be needed.

" As the electronics industry is relatively high- cost and high-risk in terms of investment, it will be important for this type of industry to have established 'anchor' player- to promote some sense of security and to promote the clustering effect and additional investments," it emphasises.

A common electronic testing house facility could be established on a commercial basis, perhaps independently, or perhaps attached to Sri Lanka Standards Institute or CISIR, according to the survey.

" As added value, this facility could ensure the testing of imported electronic consumer products so that Sri Lankan consumers can purchase certified, quality assured products," it adds.

The study points out several opportunities, which can be used to promote the electronic industry.

The opportunities include moving towards the manufacture of products that serve the consumer electronics market, rather than being limited to electronic components.

Creating awareness of local manufacturing capabilities in order to reduce redundant investment and increase the utilisation of existing potential is also an opportunity.

The opportunities also include linking training in schools with employers in industry, and regular business intensifying programs abroad.

Attracting established market leaders in the industry to set up operations in Sri Lanka, in order to promote investor confidence and cluster formulation is also an opportunity.

Apart from local assemblers of radios, TV's and other products for domestic market, there are only 12 export-oriented electronics factories despite vigorous investment promotion efforts in this sector by the government. The major players are foreign -owned and operate under BOI status. Among the manufacturers, I-E Technics is a fully Sri Lankan owned business and is the only manufacturer with consumer electronic products that are designed in-house.

Earlier, in early 1980's, US based multinationals, Motorola and Harris Semiconductors, entered into agreements with Sri Lanka. However, the giants abandoned the plans immediately after the 1983 riots.

Drop in oil prices boost BOP

Declining world crude oil prices are expected to boost Sri Lanka's Balance of Payments (BoP) for 1998. Crude oil prices have declined from US$ 16.80 per barrel in January 1998, to US$ 13.60 per barrel as at October 1998. The decline has netted in US$ 30 mn as savings to Sri Lanka's foreign reserves.

As at October 1998, Sri Lanka's reserves stood at US$ 2.7 bn, compared to total reserves of US$ 2.8 bn in 1997. 

In 1997 reserves were bolstered with over US$ 300 mn coming in as privatisation proceeds from Sri Lanka Telecom, and plantation issues, US$ 73 mn from the National Development Bank debenture issue and US$ 50 mn from the government Floating Rate Note issue, Central Bank statistics states.

Despite fewer privatsation proceeds flowing in 1998, Sri Lanka's total reserves is expected to swell further with the US$ 70 mn from the DFCC FRN issue.

The DFCC issue was hailed by the authourities as it showed the confidence international lenders had in Sri Lanka, despite the crisis situation in the region.

Exports from January to October 1998 grew by 3.6 per cent whereas imports grew only by 2 per cent. With Asian economies like Singapore recording a negative growth, this is a positive sign for Sri Lanka, a Central Bank economist said. 

A recent Jardine Fleming research report states that Sri Lanka's BoP has seen a 29.7 per cent fall during the first half of 1998 from US$ 118 mn to US$ 83 mn. 

A reduction in trade deficit by 10 per cent, a growth in net services income by 22 per cent and an increase in net private transfers by 14.4 per cent have reduced the current account deficit by 36.8 per cent during 1998. A rise in Foreign Direct Investment (FDI) of 12.3 per cent for the same period, plus an increase in non-resident foreign currency deposits, has boosted capital inflows.

JF expects to see a fall in the current account deficit by 21 per cent to US$ 305 mn in 1998, due to the improvement in the trade deficit and the strong growth in net private transfers.

Cross rates fixed 

On 1st January '99, 00.00 a.m. the Euro, the EU's single currency was launched.

On the 31st of December cross currency rates against the new euro were finalised using the currency of 11 member states of the European Union with a fixed conversion rate against their national currencies. From then on, the value of the Euro against the dollar and all other currencies, including those of the four member states out of the Euro zone, will fluctuate with that day's spot rates.

Although Euro notes and coins will not be physically used until 1st January 2002, the new currency now can be used by the public in the form of "written money" - that is by means of cheques, travellers' cheques, bank transfers, credit cards and electronic purses.

The changeover is being very carefully planned and a lot of effort is being made to answer peoples' questions, settle their doubts and help them with any difficulties with the conversion.

With this single currency, the euro and the dollar will become the two competing global currencies. There is little interest in a common Asian currency. The euro will be the first real competition for the dollar since the dollar passed sterling pound as the world's major trading currency about 75 years ago. 

The EU has already recorded growths of around 0.6 per cent for the second and third quarter of 1998. The EU budget for 1999 is expected to amount to £61 billion and the European Commission had pledged not to increase the total over the next few years.

This year the dollar is strong against European currencies and the Euro is not here yet. And travellers have another choice, the really universal currency - plastic!

Mind your business

The prince wins

The star class garment manufacturer was in dire straits and had applied for a very big loan from some of the big banks owned by the state. The matter has now been referred to the highest levels in government and the chances are the loan will be granted, despite reservations expressed by some banks. 

The rationale is that the political fallout from a possible closure of the factories run by the prince could be even more disastrous....

Not for me

Our man in Old Blighty was a businesman of no mean repute before he went there. 

Now that he is due to return home after his stint, the Foreign Office is not adverse to the idea of sending another businesman to present credentials to her Majesty. 

A feeler was sent to the man who protects them all, but the response was negative, we hear.... 

A way out?

The ban on ads on liquor and tobbaco began this year. 

But at least one manufacturer - who has been advertising heavily recently - will test the law to its limits, executives say. 

They will market mineral water- not liquor- bearing the same brand name but with a slightly different logo, they say. 

With the liquor ad campaign still fresh in the minds of the public the message will reach the people, the company seems to think...

Looking ahead with realism 

One of the predictions on the glo- bal economy for 1999 is likely to be right. The problem is, which one! Some predict an upturn with Asian economies reviving and Japan playing a more pro-active role. Indications of economic recovery in Thailand, a more stable Malaysia and growth in South Korea are cited as reasons for this optimism. 

At the other extreme is the view that 1999 would be a year of recession; that the US economy will feel the pinch of the Asian crisis only next year and that the American economy would take a down-turn. 

With it, it is suggested there would be a global recession. Among a wide spectrum of views is the moderate one of 1999 being a year of slow growth but not recession.

The uncertainty of global conditions creates considerable concern regarding Sri Lanka's economic performance too. No doubt, international conditions will bear heavily on the Sri Lankan economic performance. Yet, there are some specific factors which must be looked into to understand the likely prospects.

Sri Lanka is a trade dependent economy. In fact, its dependence on imports is greater than its dependence on exports. Further, a fair proportion of exports is import-dependent in that a high proportion of raw materials and equipment are imported. Consequently, global conditions affect us not only in terms of our export possibilities but also the cost of production of many of our locally produced goods, imports, exports and the cost of living.

There are several aspects which would determine our capacity to grow in the face of adverse global conditions. It is vitally important that our domestic production processes perform efficiently. If adverse external conditions are coupled with low domestic production then the external blow is compounded by the internal inefficiencies. Some of the factors which affect internal performance are beyond the control of governments.

These include such factors as drought and security conditions. Yet even these could be mitigated by policy actions. For instance in 1996 when the drought affected our power generation and created an energy crisis, it was not solely the result of natural conditions. 

It had been quite clear for some time that the energy requirements of the country were increasing at a rate which implied that sooner or later the energy capacity would be inadequate. It was also clear that at intervals of time there would be reduced power generation capacity based on hydro resources. 

The fact is that in 1996 we were not prepared and consequently the severity of the crisis which struck the economy was nearly crippling. There has been some expansion of power generation since, but the slowness of installation of new power generation plants could reap us a similar problem in the future.

Similarly in the case of food shortages, a country which produces surpluses could provide for lean years as well. Blaming external factors hardly helps. The approach should be to accept that adverse global conditions would affect us periodically. We should prepare to face such difficulties by strengthening our domestic economy.

Last year the economy faced problems reasonably well owing to our two main exports, tea and garments, faring quite well. Consequently, the impact of the external factors was not severe. There were also other favourable factors which helped us. 

Paddy production was high and the country had adequate foreign resources to enable it to not panic and create other problems such as high domestic inflation, deprivation of basic needs to poorer sections and social disruptions.

However, we were unable to take advantage of some of the favourable factors of the global developments owing to fundamental weaknesses in our economy. For instance, energy prices declined sharply but domestic prices remain stable. 

Had the reduced prices been passed on to consumers, it would have been a boost for production and incomes. The weaknesses in our public finances did not enable us to do that. This is once again illustrative of the fact that domestic weaknesses have an important bearing on the final outturn of global impacts.

Whatever be the performance of the global economy in 1999, it is unlikely that it would have a crisis character this year. A global economic slow down may affect our capacity to export, but it is unlikely that it will disrupt us as much as the events of 1998.

Therefore it is important to retain a realistic position with respect to global developments and adjust national policies to make adverse impacts tolerable. We must look at 1999 with a degree of optimism and expect to be able to cope with any adverse factors by appropriate strategies both at macro and micro levels. 

Certainly some industries may face difficulties which are severe and unbearable. Yet the country as a whole should have other enterprises which are less affected or not affected at all so that the economy as a whole could continue to grow at a reasonable rate. 

The country has faced adverse global conditions before. There is no reason to think that it is unable to face up to problems which emerge in 1999. We cannot control global developments but we can act locally to ensure that their impact is not catastrophic. 

More Business