Lanka cashing in on Egypt, Kenya crisis

By Shafraz Farook

Local tea industry officials say that now is a good time to regain Egyptian and neighboring markets in the face of a preferential import tariff dispute between Egypt and Kenya.

Tea prices plummeted in the Kenyan auctions last week when Egypt withdrew from the auction due to a row over import tariffs between the countries. The tariff dispute is believed to have come about in November when Kenya refused to allow Egypt to export rice and tyres into Kenya at a preferential rate of 3 per cent agreed under the Common Market for Eastern and Southern Africa (COMESA) agreement.

As a result, the Egyptian embassy in Nairobi, Kenya delayed the legislation of tea shipment documents worth US$ 20 million to Egypt. The process that usually takes less than 24 hours was held back for nearly a month until tariffs were lowered by Kenya on rice imports from Egypt. Since then the Egyptian embassy in Nairobi has held back a further US$ 20 million worth of documents awaiting approval, until last Friday.

Officials claim that if the situation is not resolved within the next few weeks, Egypt would resort to other markets for their tea. Hence, local officials feel that now is a good time for a local delegation led by the Plantation Minister to visit Egypt to discuss the prospects of marketing Ceylon Tea on the face of a preferential import tariff granted to COMESA members.

However, officials said that unless the trade crisis between Egypt and Kenya was resolved, it would lead to a number of set- backs including a delay in the process of payment to exporters by banks. It would also lead to creditors defaulting in payment for teas already purchased with the subsequent delay in payment to farmers, they added.

Egypt imports 70 million kilos of tea annually of which Kenya supplied 50 million kilos last year. Sri Lanka on the other hand exported only eight million kilos of tea last year compared to a high of nearly 40 million kilos in 1986. The drop came about in the early 90's when Kenya moved in with comparatively cheaper teas and the subsequent introduction of the COMESA trade agreement ensured a place for Kenyan teas in Egypt. However, with the tariff battles looming all this could change officials added.

Lanka no longer tops tea research

By Feizal Samath

Sri Lanka may be the world's biggest exporter of tea but it is no longer a dominant force in the field of tea research, says the Tea Research Institute (TRI), the country's top agriculture research agency.

"Whereas knowledge on tea, had, in the past, siphoned out to other producing countries from Sri Lanka with little reciprocal contribution, most of these countries are now well entrenched with their own research efforts," the TRI noted in a recent report.

The 75-year old institute, once the tea world's best-known research facility, said that improvements in process technology in North India and field productivity in South India have characterized the Indian sub-continent.

"More significant, however, have been the rapid strides made by the tea research institutes in East and Central Africa, assisted by European organizations and interests, during a relatively short period. Notable gains too have been reported from Bangladesh," it said.

These comments are contained in the TRI's five-year corporate plan for the years 1999 to 2003, copies of which were sent to tea stakeholders - the industry and the government - last week.

The TRI, while noting that present trends indicate that the average Sri Lanka crop yield would reach 2,000 kg per hectare this year, said all research from the state-controlled agency would be drawn together in a multi-disciplinary effort aimed at this target.

Research efforts would evolve around measures to increase productivity but this would however not be at the expense of the traditional quality of Sri Lankan tea, it said.

While current efforts are on to expand and improve the work of the institute - in keeping with a bigger role by the private sector in the production, management and marketing of Sri Lanka tea - the TRI is unable to attract the best researchers in this field due to poor salaries and inadequate facilities.

"Most research and extension staff are underpaid considering their special expertise and qualifications. They live under hardship conditions, and have inadequate equipment and laboratory facilities and vehicles for activities such as field visits," it said.

Government-level salaries for TRI scientists, extension officers and higher administrators were woefully inadequate to recruit quality staff and many in the institute have left to join overseas organizations and the local private sector.

Industry analysts said that the private sector was now entering the research field with vigour in view of greater efforts now to develop special branded tea and the demand for good researchers was seen growing in the future.

The TRI report noted that its main Talawakelle station, and most of the other TRI stations were hardship locations for staff with inadequate schooling and poor medical, social and transport facilities.

"Although the TRI station and estate at St. Coombs at Talawakelle with a total population of about 3,000 have a cadre position for a qualified medical officer, there has not been a full-time resident doctor for several years owing to the impossibility of getting one for the salary and other conditions attached to the post," the report said.

Up to around the 1960s, TRI scientists were much better paid than those in other research agencies and even university academics. But the scenario has changed over the years and now TRI experts get much less than university teachers.

"A general countrywide salary increase, such as in 1997, is not enough: there has to be a salary differential to offset the unattractive features of remote location, and to help in attracting and retaining good staff. TRI salaries should be about 20 percent more than for comparable positions elsewhere," the report stressed.

It noted that attempts to correct this imbalance in salaries and incentives would take too long - given the administrative process and bureaucracy - and called for quick and unconventional measures to rectify this issue in line with new demands from the tea industry.

It said the offer of positions with negotiable salaries would conceivably attract senior scientists and other skilled staff with experience in tea, "perhaps even those who left the TRI and wish to return under improved conditions of service."

Industry analysts said that it was incumbent on the government to ensure the TRI kept pace with rapid developments in Sri Lanka's tea sector, particularly the growing involvement of the private sector.

"There is a need for a joint state-private sector push to bring back the TRI to its old glory and make it one of the finest research centres in the world with the best scientists working in a congenial environment," one analyst noted.

Internet tea to America

Hoping to take a gulp out of the coffer in America two internet entrepreneurs have launched Thousand Cranes, an e-commerce company devoted to serve quality loose-leaf tea.

Yuko Lida Frost and her better half Jay Frost founders of Thousand Cranes said that they themselves were looking for something to soothe their senses after running in the corporate rat race. That was when Yuko had remembered her childhood days in Japan when she was brought up drinking tea. And how her mother, a nutritionist used to serve all her patients with green tea. That is when they decided that it was time to give Americans a real taste of tea.

"Our goal at Thousand Cranes Tea is to bring the benefits of great tea to America," Yuko said. "For years, most Americans have had only two experiences with tea: poor-quality teabags in lukewarm water or bottled brews with sweeteners. We think it's about time that people here enjoy the same great quality beverage as others do abroad." The couple say that the teas are selects from among the best of the world's teas. Current offerings include 19 premium loose-leaf teas in five categories:

Black Blends; China; Green; Organic; and Herbal. Each tea is bold, flavourful and aromatic. All are individually packaged in stylish airtight canisters and are sold at around US$ 4 to US$5 a canister.

Indian newspaper whacks Ceylon tea

An Indian newspaper has reported that the Indian tea industry is worried over large-scale imports of cheap teas. It said that the root cause for the cheap imports was the result of the Vajpayee government's decision to allow free trade among the SAARC countries.

Moreover, it said that a large volume of Sri Lankan teas were entering India and that it would in particular affect the South Indian sector teas due to similarities in quality.

Local officials said that the article implies that Indian buyers have the flexibility to import unlimited quantities of tea for domestic consumption from any source.

They said that if it was so, they would not be negotiating to increase the quantity of tea exports to India under the Free Trade Agreement (FTA). Sri Lankan tea exports to India were around 1,700 to 1,800 tons last year.

It also said that the producer members of the Board were worried that too much Sri Lankan teas were coming to India and that they were seeking to impose higher duties on tea imports from Sri Lanka.

The present duty for tea exports into India stand at 15 percent while tea imports into Sri Lanka stand at 35 percent. The newspaper reports said that this concession given by the Vajpayee government to SAARC countries did not carry economic reasoning. They said that as a result of the duty concessions, cheaper teas were coming into India from countries such as Sri Lanka and Bangladesh while India was unable to export teas to Pakistan and other SAARC countries.

Local officials said that India had very little left once their local consumption and traditional export markets were satisfied. Hence, any efforts to enter new markets should come once they have sufficient quantities to offer. In addition they said that India was unable to export to Pakistan because of the Kashmir dispute and not because of duty concessions.

The article also alleges that the cheap imports had resulted in a price drop of Rs. 11 (Indian Rupees) despite the 62 million Kilo drop in tea production last year. Local officials said that prices drop as a result of a world surplus brought forward from 1998 and the lack of demand from Russia and the CIS and not the imports. In addition, they said that imported teas from China and Indonesia were allowed only in specified free trade zones, from where they were blended and re- exported.

Mind your Business

by Business bug

Bombs boost business

Bombs are aplenty these days and that is bad news for most businesses except a few- those in the insurance trade.

Both state and private insurers say inquiries regarding special policies that cover terrorism and related accidents have been on the rise, mostly from overseas investors with substantial assets here.

In fact, at least one insurer is reviewing all its terrorism-related policies with a view to cater to this new demand.

Licence to market fags

The tobacco industry may have succeeded in delaying the ban on direct and indirect advertising but the fight with the health authorities is not over yet.

The health watchdogs are pushing for a retailer's licence to market cigarettes- similar to the liquor licences issued to those trading in spirits.

That, they say, would automatically reduce retail points for cigarettes and would help reduce sales but then the tobacco industry is sure to contest these proposed regulations.

GST creates computer bug

Information technology has come to stay in Sri Lanka but there are still a few grouses in the industry. Representations have already been made about the impact of the ubiquitous GST that is levied on computer accessories as well as on charges for logging on to the information super highway.

The response has been positive and there is every likelihood that most sectors of the IT trade will be exempted from the tax, sooner rather than later.

Looming fuel price hike makes motorists fume

Rising oil prices and looming rumours that the rich man's fuel (petrol) prices might be increased after the up-coming general election, has caused concern among its users. Analysts said that prices of petrol driven vehicles though would not go down. In fact, they said that prices of petrol vehicles might come down as owner's wanting to get rid of their money guzzling machines might sell at lower prices.

They also said that this might prove to be the much-needed break for the gas industry as they expect owners who do not wish to sell their expensive toys, to convert to gas.

However, a 66 percent rise in world gas prices may prove otherwise. A recent Shell Gas Lanka news release said that local gas prices for this year would be revised significantly to reflect world prices. It said that for the whole of 1999 local prices were adjusted by only 8 percent while December to January alone the price went up by 4 percent.

The release said that the company was co-operating with the government to implement measures that would help protect customers from the vagaries in LPG prices, but at the same time had to ensure a fair return to its shareholders.

It added that in 1996, the company had absorbed the 100 percent increase but that they were not ready to cushion the increase now. Over 80 percent of local demand was met by imports, paying world prices, the release said.

In addition the company said that under the privatisation agreement LPG prices could be increased when LPG import prices has escalated. Such a price increase may be effected by up to Rs. 25 per annum, the company release said. The agreement also allows prices to be increased beyond Rs. 25 per annum when world LPG prices increased by more than 30 percent, the release added.

The company is said to be in talks with the government to workout a reasonable mechanism for 2000 and beyond. In light of this development, analysts said that in addition to this affecting vehicle prices, that it would also push up the cost of living significantly. They said consumers might resort to burning fuel wood if it was cheaper.

The first Shipping Agency Company in Sri Lanka to receive this internationally recognised certification

ABC Shipping awarded ISO 9002

ABC Shipping (Private) Limited were awarded the prestigious ISO 9002 certificate by the Sri Lanka Standards Institution, which is the National Certification body, at a ceremony that took place at Hotel Lanka Oberoi on January 28.

This is the first Shipping Agency Company in Sri Lanka to receive this internationally recognised certification, from the National Certification body. This award marks a new milestone in the history of this Shipping Company, who are currently the Sri Lanka Agents for the Kawasaki Shipping Line of Japan, which is popularly known the world over as K-Line. The Company qualified to receive this certification having developed an operational system covering all its activities, which meet the quality requirements of ISO 9002, 1994 Standard, laid down by the International Standards Organisation based in Geneva.

ABC Shipping is a Company that made a humble beginning in the year 1990, and became the Sri Lanka Agents for K-Line in 1991.

As transpired at the ceremonial proceedings, it is reported that the ABC Shipping made its progress, by placing emphasis on a few unique policy considerations.

Providing a conducive and a friendly working environment to all its employees has been one of the Company's pivotal considerations, towards developing a committed skilled staff at all levels.

Training and manpower development has been another focal point, in the Company's efforts towards work efficiency and productivity, which would in turn provide a good customer service. It has always been a policy of the Company to ensure that the Company's growth always went hand in hand, with the growth of the employees.

The ABC Group of Companies, which has diversified its business operations, into several subsidiaries within the Group, are now engaged in the businesses, of Container Terminal Operations and Freight Forwarding, and Consolidation of Ocean and Air Cargo, in addition to the traditional Ship Agency Operation.

As emphasised by the young and dynamic Chairman of the Group, Mr. Shiran Dissanayake, the Group is now working towards the goal, of all Subsidiary Companies being ISO 9002 Certified, in the near future, to provide a service through all these subsidiaries, which will exceed the expectation of the Customers. Quality and Productivity has been the theme spelt out by the Chairman for the year 2000.Entire Group of Companies, is blessed with a core resource of a strong management outfit, and a highly committed and competent supporting staff, at all levels, and this is seen as the Company's promise for the future, for a consistent and continually improving service towards its valued customers.

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K Line to order eight 5,500-TEU containerships

Kawasaki Kisen Kaisha (K Line) has announced its decision to order eight 5,500-TEU containerships from South Korea's Hyundai Heavy Industries and Imabari Shipbuilding of Japan for completion between the latter half of 2001 and the first half of 2002.

Of the total, Hyundai will build five and Imabari three, it said.

K Line is the first Japanese shipping company ever to order a newbuilding from a South Korean shipbuilder, although many major carriers outside Japan are using ships built by Korean builders or have newbuildings on order at Korean shipyards.

Major reasons for K Line's ordering the ships from Hyundai and Imabari include their competitive prices and delivery schedules. Most of the vessels are expected for delivery in 2001.

The newbuildings, measuring about 280 metres long and 40 metres wide, are the first over Panamax containerships to be ordered by K Line. They are designed to have a service speed of 25 knots and be capable of loading 500 FEU of refrigerated containers each for use in a fixed-day weekly service on the Japan/Asia-Europe route.

K Line has drawn up their specifications and ordered them on its own, but details of the newbuilding programme are not yet worked out, such as financing.

The nineteen nineties : a lost decade

By Nimal Sanderatne

High aspirations, low achievements. This about sums up our economic performance in the 1990s. An aspiration to achieve an ill defined NIC status was repeatedly spoken of by politicians, bureaucrats and economists alike. In a rare consensus, economists and planners spoke of the need for a 7 to 8 per cent annual economic growth sustained over a decade to resolve the country's problems of unemployment and poverty and double per capita incomes in a decade. This better defined goal, as well as the nebulous NIC status, remains unattained. More disturbing is the fact that economic growth has slowed down during the decade and several indicators point to a weakened economy requiring urgent remedial interventions.

The economic growth in the 1990s averaged only 5 per cent per year compared to a targeted or hoped for 7 to 8 per cent. Within the 1990s we see a slowing down rather than a gain in momentum. Poverty persists, unemployment has abated somewhat but remains a dominant social problem. Although single digit inflation was achieved in the last three years, the high cost of living in relation to average urban and rural incomes remains a serious concern.

Let us look at the hard facts of our economic performance. In the first half of the decade (1990-94) the economy grew by 5.5 per cent. In the second half economic growth fell to 4.7 per cent. The lowest growth rates for the decade was in the drought affected year 1996, when the economy grew by only 3.8 per cent. Last year's growth is estimated at slightly below 4 per cent.

The performance of the real sectors indicat the tardy progress. Agricultural growth has been decelerating. From around a 3.3 per cent average annual growth in 1994-95, agricultural production decreased by 4.6 per cent in drought ridden 1996. It grew by only 3 per cent and 2.5 per cent respectively, in the subsequent two years. Indications are that it would have performed better last year owing to higher food crop, tea and coconut output. The fact is that apart from a phenomenal growth in tea output in the last five years, other crop production has been relatively sluggish. Rubber output is only about 85 per cent of production in 1990.

Coconut production is about the same as in 1995 and paddy production in 1998 was about 6 per less than in 1990. Tea production alone has displayed a consistent growth especially since 1995. During the decade tea production increased by about 22 per cent. The increase since 1995 has been 13 per cent. Most of the increased production has come from smallholdings, which now account for about 60 per cent of total tea production.

Manufacturing fared well until the last few years. Between 1994-99 manufacturing output grew by 8 per cent. From 1994 to 1997 manufacturing grew by slightly over 9 per cent per year except in 1996 when the industry was adversely affected by a power crisis. What is disturbing however is that since 1997 there has been a deceleration and decrease in industrial production. In 1998 manufacturing grew by only 6.3 per cent. In 1999 it is likely to have not grown at all, as industrial exports decreased by about 5 per cent.

Our recent export performance is one of the most disconcerting economic indicators. Industrial export growth has fallen from 19.6 per cent in 1995 and 14.3 in 1997 to a mere 3.1 per cent in 1998 and declined by about 5 per cent in 1999. The export industry which grew fast and sustained the country's growth has lost its momentum. Our capacity to cope with both the Asian crisis, as well as the Asian recovery, accounts for this. A loss in competitiveness could seriously jeopardise our economic prospects. There were a few signs of recovery at the end of last year.

This must be supported by government policies to enhance industry export competitiveness, perhaps by a larger depreciation of the currency than seen in the last six months.

Our agricultural exports have fared no better. From a growth of 18 per cent in 1995, it decreased to 15.9 per cent in 1996, 6.7 per cent in 1997 and only 2.4 per cent in 1998. In 1999 agricultural exports declined by about 13 per cent. However our agricultural export performance has to be viewed differently to our industrial export performance, as the main factor accounting for this decline has been the depressed prices for tea and rubber. An improvement in international prices of tea and rubber forecast for this year could result in an upturn in agricultural export earnings.

The country's trade deficit has remained significantly large but declining somewhat from around US$ 1,505 million in 1995 to US$ 1157 million in 1998. The trade deficit is likely to be only a little higher in 1999. However, the reduction in the trade gap is a reflection of lower imports owing to reduced economic activity requiring lesser raw material and capital imports. The trade deficit has been manageable owing to lower import prices, particularly in 1998, rather than due to increased export earnings. The decline in intermediate goods imports by about 2 per cent and the reduced growth in capital goods imports are significant indicators of lower investments. Therefore the reduced trade gap is not necessarily a good sign for economic growth.

Sri Lanka has been and will be an export - import dependent economy. The economic future lies in enhanced exports. The domestic economic performance and the trade performance is closely inter-related. Therefore, these trends have to be viewed seriously as export performance is an important determinant of the country's economic growth, incomes and employment.

A stabilising factor for the economy has been from a source unconnected to the domestic economic performance. This is the continuous increased inflow of foreign remittances to the country. Private remittances into the country have been increasing consistently over the years. It increased from US$ 707 million in 1994 to US$ 999 million in 1998. Remittances are likely to have exceeded a billion U.S. dollars last year. These inward remittances were over one fifth of our gross foreign exchange earnings from the export of goods in 1998.

Foreign inward remittances are about 6 per cent of our GDP. They exceeded export earnings from tea and were nearly equal to the export earnings from all agricultural exports in 1998. In 1999 they would exceed our earnings from all agricultural exports.

They are probably even higher than the net foreign exchange earnings from all our industrial exports, as these have a large import content.

In the light of our recent economic performance it is almost frightening to think of the state of our economy without these remittances. An interesting issue is whether these remittances have had a counter productive impact on economic policy by not sensitising ourselves to the gravity of our economic problems. Any sudden reversal in this situation would of course have very serious repercussions on the economy. If we do not recognise the weaknesses in the basic sectors of the economy and take remedial actions, our economic situation could deteriorate further and thrust us into a serious crisis. Little could be achieved by either attributing the problems to the external environment or the on-going war's dislocative impacts and its large expenditures. Increased agricultural and industrial production and an improved export performance are vital to a much needed economic recovery.

A better economic performance this year cannot be left entirely to external conditions, however important these may be to our domestic economic performance. A new thrust in economic policy is needed to re-invigorate the economy. The next budget would be the occasion to commence a pro-active programme of economic development. A new economic policy statement with fresh measures to invigorate the economy is overdue. Institutional changes to speed up economic policy implementation is also needed.

We can't leave an economic recovery entirely to an improvement in global conditions. Economic policy changes are needed to regain a fresh momentum in the economy.

The business community in particular are waiting to see a more pro-active role by the government. Without such a thrust the economy may continue to grow at around 5 per cent per year. This is indeed inadequate.

Local retailers prop up market

Further foreign selling in the Colombo bourse caused local retail and institutional investors to step in and prop up the market. Foreign institutional investors are facing redemptions and have to pay back unit holders and this has made them sell out to realise cash, brokers revealed. John Keells Holdings, Hayleys, Grain Elevators, Dockyard and NDB were some of the stocks which changed hands in the process. Net foreign outflows for the week was Rs 97.7 mn. Plantation stocks too fluctuated between narrow margins.

The market was flat during the weeks trading and the All Share Price Index rose 0.4 per cent to close at 554.9 while the Milanka Price Index gained 1 per cent to register 907.4. The MBSL Midcap Index rose 0.5 per cent to close at 976.3. Average turnover during the week was Rs 64.9 mn. "Improved corporate profitability and a rebound in the plantation sector margins will support the market," Strategist, Jardine Fleming HNB Securities, Amal Sanderatne said.

"We expect further consolidation of the market at current levels prior to a pick up in the latter half of February," Head of Research, Asia Securities, Dushyanth Wijaysingha said. "This will be driven by the reporting of positive corporate results for the fourth quarter of 1999 and a pick up in tea and rubber prices," he said.

"Expectations of results for the quarter ending December should drive prices in the next two to three weeks," General Manager, Forbes ABN Amro, Alistair Corera said.

MediPlus for 70 plus

Union Assurance has launched Union MediPlus, a unique health insurance scheme covering medical expenses for pensioners.

This insurance scheme has been tailored to meet one of the most pressing issues of the millennium: statistics reveal that one in every five Sri Lankans will be 60 years of age and over by the year 2020. This puts a tremendous burden on the state, especially in terms of the escalating costs in healthcare associated with an aging population, a company release says.

Union MediPlus has several unique benefits which can be enjoyed for a very reasonable premium. It meets expenses on hospitalisation which include operation charges, hospital room expenses as well as medical and specialists' fees. Medical cover is provided for senior citizens upto 75 years.

BOC introduces insurance cover on savings accounts

The Bank of Ceylon (BOC) will give insurance cover to one million children below 18 this year. The Bank has joined hands with Sri Lanka Insurance Corporation in this trail-blazing venture, a bank release said.

The Bank intends to attain the targeted one million mark by extending the "Ran Kekulu" Children's Savings Account Scheme, which has mobilized deposits amounting to Rs. 3.9 billion through 700,000 accounts. The extension has produced two types of savings products - namely "Ran Kekulu" Millennium Accounts and "Ran Kekulu" Millennium Plus Accounts which were introduced to the market at the dawn of the New Millennium.

"Ran Kekulu" Millennium Accounts have been specifically designed with the unique "Millennium" Babies who were born on 1st January 2000. The initial deposit required to open the account will be provided by the Bank and the amount denominated is Rs. 500.00 per account. A special feature of the account is that it offers a special 5% Millennium Bonus [ subject to a maximum of Rs. 500.00 per annum] in addition to the usual annual interest on deposit if the annual deposits to the account exceeds Rs. 2,000 during the period from January 2000 to December 2004. Further, each account holder will be awarded an attractive docket to hold the savings passbook and an infant information chart.

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