27th January 2002

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SL staff for HSBC Maldives branch

By Akhry Ameer

Sri Lankan staff of the Hongkong and Shanghai Banking Corporation Ltd (HSBC) will run the initial day-to-day operation in Maldives when HSBC opens its Male branch in March, bank officials said.

Although HSBC Maldives is to operate as a branch of HSBC Hong Kong the management control will be in the hands of its Sri Lankan office.

Currently two Maldivians, who will be part of a total staff of nine, are undergoing training at the bank's main branch in Colombo. Gradually the Sri Lankan staff will be replaced by Maldivians in keeping with the bank's policy. HSBC in Sri Lanka has a staff of 760 of which only the bank's head and a trainee from its training college are expatriates.

Nicholas Cherrill who now becomes HSBC's Chief Executive Officer for Sri Lanka and Maldives explaining the background behind the structuring of its Male office said, "The Maldives government made a request a few years ago as they wanted an international bank in the Maldives with the aim of developing their banking standards. We thought it was small and it was not going to be worthwhile to have a stand-alone branch. But when the senior management met in September 2000 in Hong Kong to draw up strategic plans we decided to set it up with the Sri Lankan office providing management control."

HSBC Maldives will provide retail banking services and some of the main services such as trade finance for resorts and hotels. "We have been approached by many of them. We will be slightly wary as it is new and till we get to know them better," Cherrill added. The bank will be situated in Male along with other banks like the State Bank of India, Bank of Ceylon, Habib Bank and the Bank of Maldives.

Spend wisely on expressways

A top architect and city planner has slammed the proposed Colombo-Katunayake expressway saying its 12 to 14 billion-rupee cost should be spent "wisely".

Surath Wickremasinghe, President of the Chamber of Construction Industry, said at a meeting with funding agencies last week that the chamber is supportive of the Colombo-Matara and Colombo-Trincomalee expressways but the road trace (route) of the Colombo-Katunayake highway was a waste of financial resources.

ADB Colombo representative John Cooney also agreed with the chamber president saying the Colombo-Katunayake road trace was a bad choice. "Sri Lanka has not built a good road since independence. There has been a shortage of funds. Also implementation is slow and is the cause for projects to fail," he said adding that with a new government in power, things would be much different.

Wickremasinghe urged funding agencies, the World Bank and ADB, to invest in solid infrastructure projects like super highways. "This is the only way Sri Lanka could compete with its neighbours in South East Asia and very soon India.

If not we would be saddled with the mega problems of slums, sanitation, health hazards, water shortages, traffic congestion, environmental pollution, overcrowding, etc."

CSC passenger ferry to India

The government is determined to revive the national line, Ceylon Shipping Corporation (CSC), and wants to start a passenger ferry service between Colombo and Tuticorin, its new chairman, A.J.M. Muzammil, said.

He said in an interview that it would be a "Herculean task" to revive the CSC, free it of red tape and make it more streamlined to compete effectively with private carriers. But the government was committed to making it a viable company because of the strategic importance of a national carrier and the need to offer exporters cheaper freight rates to help them be more competitive, he said.

The absence of an effective national line was sorely felt last year when many shipping lines jacked up freight rates and stopped calling at Colombo after underwriters imposed huge war risk insurance surcharges on vessels following a Tamil Tiger rebel attack on the Katunayake airport in July.

The CSC owns and operates two 1983-built cargo vessels. The 10,325 DWT 'Lanka Mahapola', with a capacity of 450 containers, is deployed on a weekly basis between Colombo and Karachi, and the 3,080 DWT 'Lanka Muditha', with a capacity of 110 containers, is often used to ship goods to Jaffna.

Muzammil said the CSC had no funds to buy or charter more vessels but would explore the possibility of joint ventures with the private sector to run a viable container feeder service. The corporation, which suffered 16 years of continuous losses after 1982 and was only turned around in 1998/99, hopes to get the government to write off accumulated debts of around Rs. 1.5 billion. It managed to prune losses by terminating loss-making services, shedding staff and cost cutting such as reducing its container inventory.

Muzammil said the CSC also wants to develop passenger ferry transport along the coast as well as with neighbouring countries like India and the Maldives. "If we can operate a ferry service between Colombo and Tuticorin we can attract a lot of Indian tourists," he said.

However, the CSC would first have to recover one of the two fast catamaran ferries requisitioned by the navy two years ago to rush reinforcements to Jaffna to stall the advance by Tamil Tiger rebels after the fall of Elephant Pass. The other ferry was damaged beyond repair in a rebel attack in Trincomalee.

Ranil to US to promote garments?

The Sri Lankan government and the garment industry are negotiating a Free Trade Agreement (FTA) with the US government seeking duty free concessions to boost exports, industry officials said.

They said while an official delegation, led by a minister, was expected to leave to the US in the next few weeks, Prime Minister Ranil Wickremesinghe was also likely to head another high-level group to the US around May to promote the proposed FTA.

"The prime minister is keen to get the maximum benefit from US authorities and has indicated his willingness to lead a high-powered delegation on the garments issue," an industry official said.

Sri Lanka is seeking duty free concessions in the US in a bid to compete on prices with South Asian countries like Bangladesh and Pakistan, and some African states which have been granted some concessions in the US.

Bangladesh gets duty free SAARC fabric by virtue of being a Least Developed Country (LDC) while Pakistan is also entitled to some concessions. US duties range from 17 percent to 30 percent on garment imports.

The industry has hired US lobbyist, Tom Travis for a year to push the Sri Lankan case in the US. Officials said the government was considering meeting 50 percent of Travis' fee, as the ultimate beneficiary is the Sri Lankan government. Travis is now in Colombo for discussions.

Garments, the biggest export earner particularly from US buying, was one of the worst affected sectors last year due to a recession in the US followed by terrorist attacks there which affected supply and prices. Several garment factories were forced to close down or prune staff due to a shortage of orders.

Wickremesinghe's visit would have to take place after the first phase of peace talks begins. Talks between the government and Tamil rebels are due to commence in May, analysts said.

On another front, Industrial Policy Minister, Prof. G.L. Peiris is negotiating with the EU for duty concessions on garments, stressing that the peace process would pave the way for more jobs and factories in the war-torn north and east.

"The government is using prospects of long-term peace as a lever to get a better deal from the EU. The government has also told the EU that there is a need to develop industries in the north and the east and garments is a logical choice because of Sri Lanka's expertise and skills in this field," an analyst said.

The US and EU campaign on garments is also in preparation for the end in 2005 of the quota system. The FTA negotiations and conclusion could take up to three years, analysts said.

Effective policies needed for revival

By Dr. S. Colombage

Reflecting the poor performance of the economy, export earnings fell by ten percent in the first eleven months of last year, according to the latest trade statistics. This is rather alarming. A 15 percent decline in imports helped to ease the balance of payment disequilibrium, but this was not a healthy development as the fall in intermediate and investment goods imports adversely affected economic activities. Economic growth is below zero. Inflation, which is running at double-digit levels, continues to accelerate despite the government's attempt to suppress price increases of some selected consumer goods. Unemployment is over ten percent. About two-fifths of the population live below the poverty line. The budget deficit is likely to be as high as 12 percent of GDP.

The Prime Minister in his policy statement to Parliament outlined the government's proposals to deal with the economic crisis as well as two other major problems facing the country, i.e. the north-east war and strengthening of democracy. The north-east conflict has been a major impediment to economic development during the last two decades and therefore, a peaceful resolution will certainly facilitate economic upliftment. But this alone is not sufficient to boost the ailing economy. The present economic crisis is basically an outcome of the poor economic management during the last several years. Policy misalignments caused tremendous uncertainties among private entrepreneurs and as a result, they were rather hesitant to expand their production capacity. Consequently, both domestic and foreign private investment declined. In a market-oriented economy the economic climate should be conducive to facilitate private sector investments. In this regard economic policies of the government are crucial.

Unless the policy lapses of the previous regime are rectified, it will be extremely difficult to achieve economic progress as envisaged by the government. For this purpose, a new set of economic policies is needed. Continuation of the same old policies, which have already failed, will only deepen the present crisis. Imprudent monetary policy measures practiced by the Central Bank have led to destabilise consumer prices, interest rates and exchange rates. The Treasury's huge cash flow shortfalls over the years were financed by way of absorbing limited financial resources of the market, thus depressing the business sector. These were the causes of the present economic crisis.

The Trade Ministry is making an attempt to deal with the rising cost of living by collaborating with the private sector to bring down the prices of essential consumer goods, which have gone up rapidly in recent months. The price of rice has gone up to Rs. 40 per kg from Rs. 32 a year ago. Prices of vegetables, dried chillies and fish remain fairly high. The domestic production setback was a major reason for these price hikes. Besides, various policy decisions relating to monetary and fiscal sectors also led to fuel inflation. The money supply rose at a faster rate of nearly 15 percent in 2001, compared with an 11 percent increase in the previous year. At a time when the GDP was falling, the demand pressures emanating from this additional money supply tended to push up prices. The bulk of the money increase was used to accommodate the huge budget deficit. The Central Bank merely played a passive role without being proactive in tackling inflation. This is a major cause of the present high inflation. Therefore, the effectiveness of monetary management in achieving price stability, which is the major function of the Central Bank, needs to be probed.

Depreciation of the exchange rate also has a considerable impact on domestic prices, given the high import content of the consumer basket. With the introduction of the "free float" by the Central Bank early last year, the Rupee depreciated against foreign currencies much faster. This obviously had an upward effect on rupee prices of imports and in turn, on domestic prices. Unless the exchange rate gets stabilised, this process will continue fuelling inflation. High inflation calls for faster rupee depreciation so as to sustain export competitiveness. Rising inflation further dampens the already weak export sector. Much attention on these macroeconomic fundamentals is needed to materialise the economic goals envisaged in the PM's policy statement.

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