1928: A Chinese boy in search of greener pastures came to the Pettah fleeing the poverty of war ravaged Burma. He started off as a dental technician. 1999: Yu Chin Chai, now 81, claims to be Pettah's oldest Chinese businessman, continues to sell optical products. His sons continue his dental business. Story: see -> Those were the days, recalls YuChin

Price Waterhouse changes DFCC

Geared to reflect changing international outlook

By Mel Gunasekera

Internationally renowned Price Waterhouse has recommended DFCC Bank to re-structure its operations and gear itself to be part of the new generation of financial institutions, a senior DFCC official said.

Price Waterhouse has recommended the Bank further strengthen their strategic alliance with Commercial Bank, which they firmly believe will be of immeasurable benefit to both institutions, CEO/General Manager DFCC, Moksevi Prelis told The Sunday Times Business.

Under the re-structuring process, DFCC Bank's role will not be limited to finance and advisory capacities.

"We will concentrate on our core business activities, which is development banking, and look at a wider role in developing and expanding market segments and companies," he said.

The Bank would also focus on developing the debt securities market as well as developing the secondary market, Mr. Prelis said.

A battery of 14 consultants who flew in from Price Waterhouse Washington DC also recommended the de-regulation of the Bank's Head Office operations to its branch network. The decision making process would be de-centralised to lower corporate levels, while corporate management will concentrate on setting guidelines and exercising controls.

The changes would see more systematic risk management systems coming into place, with greater emphasis on information technology.

The Bank's entire structure will be geared to reflect emerging international structures.

The recent worldwide trend in the banking and financial sector, is for mergers and strategic alliances.

Price Waterhouse report highlights that Sri Lanka will witness a similar wave, with standalone small banks being a thing of the past in five years time.

DFCC's re-structuring process has commenced with the management continuing to have discussions with all levels of employees to elucidate the new changes.

"The entire process should take 6 months, and shareholders would be kept informed of the new changes," Mr. Prelis said.

Meanwhile, DFCC has officially informed the Colombo Stock Exchange (CSE) that it has shelved plans to operate a broking firm. DFCC was one of the two new brokers admitted by the CSE last year. Union Bank, the other new entrant, announced it has formed a company called UBS Securities.

Business Times understands that DFCC relinquished the broking licence under a Price Waterhouse recommendation, which said there was 'inadequate financial returns and poor financial gains to operate a broking firm in the short to medium term'.

With the present market turnover hovering around Rs. 3 bn per day, the report said it was not feasible to commence a new operation.

Lackluster market conditions which continue to prevail are even hurting the margins of existing broking houses who are scaling down operations, while analysts and brokers move out in search of greener pastures in other service or manufacturing sectors.

A few existing broking firms are also up for grabs, with no prospective buyers in the near future.

Lankan egg industry cracks up

By Shafraz Farook

Lanka's 80,000 poultry farmers are crying 'fowl' complaining that imports of poultry products are pecking away at their profits.

The Sri Lankan Veterinary Association says that the recent imports of eggs and poultry meat will have disastrous effects on the local poultry industry, which is primarily dependent on small and medium scale producers. This is because imported poultry products are cheaper compared to the local produce.

The imports will result in closure of many small and medium scale farmers causing untold hardships to them and indiscriminate import can give rise to poultry diseases and the cost of control of which could be staggering, the association said.

The problem seems to have started when the prices of eggs shot up in the recent past and the prices of Indian eggs becoming cheap.

"Only 126,000 eggs have been imported from India, this is negligible when compared to average of 2.5 million eggs produced locally per day and the 350,000 eggs exported per month," Additional Secretary, Livestock Development, Dr. A. Shakithevale, said.

"Middlemen or egg collectors are misusing this information," he said. The middlemen are provoking the local producers to bring down their prices by threatening to buy the cheaper imports.

Industrial sources said that the price of imported chicken eggs cost around Rs. 2 each, whereas locally produced eggs cost over Rs.3.50 each. Imported eggs are also said to be smaller in size compared to the local product.

An official from a leading poultry farm had a different view. He said that meat left over from mechanically de boned chicken bones were extracted and shipped to Sri Lanka for the production of sausages. The meat, considered a bi-product is of a very poor quality, he said. They hope their customers will stay loyal to them, he added.

Analysts say that import of eggs and other poultry products will have a minimal effect on the industry. This is because only a small quantity of poultry products is being imported.

Most customers will rather buy a quality, quarantined product at a higher price than buying cheap imports that might not have been thoroughly tested for viruses, they said.

Poultry farmers too would go for a quality approved poultry feed, than risk infecting their livestock.

Egg per capita consumption in Sri Lanka as at 1997 was 34 mn per annum, Azar Yakoob Analyst C. T. Smith Stockbrokers said. Per capita consumption in the region for 1997 was : Bangladesh 11 mn, Pakistan 36 mn, India 27 mn, Malaysia 273 mn and Thailand 117 mn per annum.

25% revenue increase approved by TRC

Tariffs hit business and official phones

Business and official telephone subscribers will bear the brunt of Sri Lanka Telecom approved tariff hike, announced last week.

The Telecommunication Regulatory Commission (TRC) permitted SLT to raise tariffs to ensure the minimum 25 per cent revenue increase granted to them by the government at the time of privatisation.

Tariffs for business and official subscribers, who contribute to the bulk of SLT's calling charge revenues, rose to Rs. 2.25 per unit. While business and official monthly rentals increased to Rs. 300.

However, these users will enjoy a higher level of service protection, being entitled to daily rebate of Rs. 25 commencing from the day of reporting the fault, for faults that are not repaired within three days.

International calls charges were slashed by 8 per cent with SLT introducing per second metering on international calls. The tariff hike shielded 63 per cent of SLT subscribers who fall into low and moderate users.

Tariffs for low users (less than 200 units) will remain at Rs. 1.10, while moderate users (between 200-500 units) will remain at Rs. 1.65. Monthly rentals remained at Rs. 180. SLT has advanced the start of its economy period from 9 p.m. to 8 p.m. "This will optimise the usage of the exchange," TRC Director General, Prof. Rohan Samarajiva said.

Netizens were not left out either. A new discount time period from 10 p.m. to 5 a.m. was also introduced to meet the needs of Internet users. "We may see a change in sleeping patterns of Sri Lankans in the future,"Prof. Samarajiva enthused.

"With our latest determination we have shown that SLT can increase their revenues without hurting the low and moderate users," Prof. Samarajiva said.

Rupee to depreciate

John Keells Stock Brokers estimate a fall of 8% in the rupee in 1999 and 2000. In a special report titled 'Sri Lanka Market Strategy' the research arm of the firm identifies three primary reasons for the comparatively lower depreciation of the rupee.

A) the recovery of most Asian currencies in 1998 would have lessened the impact on export competitiveness.

B) Sri Lanka's high import bill (almost 36% of GDP, compared with exports accounting for 30% of GDP) will act as a deterrent to a large devaluation on account of the social cost. Sri Lanka continues to depend on improts for food, fuel and defence requirements.

C) The relatively lower fall of the Indian and Pakistani currencies in 1998 could act as a damper to a larger deprecaition.

Sri Lanka's rupee has depreciated in recent years in line with both India and Pakistan currencies. In 1997, amidst the Asian currency crisis, the relatively unaffected currencies of India, Pakistan and Sri Lanka appreciated by 8.5%, 8% and 8% respectively against the US dollar on a point to point basis from January to December. In 1998 however the Sri Lankan rupee fell 11% compared with an 8.4% fall of the Indian rupee and a 6% fall in the Pakistan rupee.

Trade indicators cause for alarm

Last week we carried an analysis of our recent export performance by the Chairman of the Exporters' Association of Sri Lanka. It was alarming.

As we pointed out some weeks back in this column, the export performance of the first half of last year masked the poor performance in the latter part of the year.

Mr. Lyn Fernando's analysis supported by statistics disclosed a trend of declining export growth last year. This, he held, was likely to continue this year. He also pointed out that remedial actions and a pro-active role by the government were imperative.

A particularly unfortunate situation is that nearly all our exports appear to be adversely affected. A warning which two eminent economists pointed out a few years ago about our new trade structure appears to have been borne out by the recent experience.

Premachandra Atukorala and Sisira Jayasuriya pointed out in their book Macroeconomics Policies, Crises and Growth in Sri Lanka that, "The structural transformation .......... has been achieved by placing the economy in a new and more precarious posture of trade dependence".

This refers to the greater trade dependence on manufactured goods and imports to serve export manufacture. If our industrial exports perform badly the entire economy suffers. There is a need for government intervention to assist industries to overcome temporary difficulties, particularly when there are unfavourable international factors.

It is also very significant that Mr. Fernando pointed out some factors, which are not necessarily related to the Asian currency crisis or temporary in nature, but have been deficiencies for a long time. Freight rates are one such important issue.

It appears that Sri Lanka has long suffered from discriminatory freight rates. Our goods require to pay higher shipping rates than other countries with longer distances. We are now told that even when importers pay the freight on an FOB basis of exports, shippers have put additional charges at this end.

This issue has to be examined expeditiously and resolved favourably. If we only suffer the disadvantages of being governed by the rules of the World Trade Organization and not obtain redress due to us, then we surely would perish under the new international trading order.

Mr. Fernando's article has once again stressed the fact that a number of factors are responsible for the higher costs of production. What matters for international competitiveness is not the cost of a single input but the total costs of production. In the final analysis price competitiveness means producing goods at lower unit costs. Our export strategy has relied far too much on low labour costs unrelated to its productivity.

We pay scant attention to other significant costs of production such as transport, interest and electricity charges. All these costs must also be internationally price competitive to render the costs of manufactures to be competitive. Let there be no doubt that the international marketplace is harshly competitive. Only the most efficient survive. Let us not lose some of the competitive strengths we have developed in the last two decades by ignoring the problems faced by export industry.

A startling disclosure by the chairman of the Exporters' Association was the impression they had that the government was shifting its emphasis from an export-led strategy to one of concentrating on making the country a service centre.

Are we about to make another blunder in our economic policies? Already we have made the mistake of neglecting agriculture to concentrate on industry. That was a high cost mistake we may have difficulty in reversing. A fault in economic thinking is to consider the neglect of one sector as important for progress in another.

There is no doubt that the country must look forward to a future when the country could play a hub role in financial and other services to the region. Yet this should not be at the neglect of our exports in manufactures.

It must also be recognized that the competitiveness in services require even higher levels of technology and efficiency. Until we develop such capabilities we should continue to support our export manufactures and revive and recognize our agriculture.

It would be very useful if our officials respond to the issues raised by Mr.Fernando. A studied response would also add to a much needed dialogue and understanding between industry and the government. There is still a lack of a sense of partnership between the government and industry. Let us build it up soon.

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