The Sunday TimesBusiness

16th February 1996

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Mind Your Business

by Business Bug
Shot of Stability

Stock markets, like our politicians, behave in the strangest of ways.

After last week's upheaval in the local political scene, one would have expected foreign investors to grab their money and run.

But, no. They were advised to stay on by most stock brokers. The reasoning was that after the killing of a parliamentarian, votes would swing the government way, lending more stability to the ruling coalition....

Only cards this year

A phone company known for it's generosity has cut back on it's complimentary gifts for the new year.

So, established customers, used to receiving diaries and magazine subscriptions as new year gifts, received only a greeting card for 1997.

The truth is that even phone companies are struggling to make ends meet.

Power shock after polls?

Yes, the drought will continue, but no, there won't be any power cuts.

What's the secret of this miracle?

There will be thermal power generation, but of course, consumers will have to pay for it. And, when will electricity charges be increased? After the elections, obviously....


Market focus

By analyst

The ASPI finding support in the region of 620 levels due to moderate interest shown by foreign and retail investors had contained the decline witnessed in the last week of January. A moderate increase in performance for Q1 is expected and the CSM ASPI could rise to a higher plane.

The movement of long term funds to South Asia during the year due to refocusing of foreign policy by the US Government (Clinton's inauguration speech) could have an impact on the 'CSM' due the trickle down effect from investments made in the Indian subcontinent by large US based foreign funds.

The continuing stability in the region, with the landslide victory for the market economy oriented Pakistan government and market reforms in India will ensure that the subcontinent attracts increased investments in the course of the year.

Recommended stock:

1. Royal Ceramic - Sole manufacturer of heavy duty floor tiles in the country. Increase in sales in both local and export markets have boosted turnover.Risk: If the present high duty for imported tiles is waived by the government, according to SAPTA conditions.

2. Hayleys - Highly diversified conglomerate, with export led earnings. Core-business being commodity based manufacturing, locally and overseas. Recent investments in the plantation sector could increase earnings.Strengths: Professional management and strong asset backing would enhance more expansion.Risk: Expansionary strategy of diversification could lead to core-business being neglected.3. NDB - One of the two DFI's. Due to unsatisfactory economic conditions loan growth and equity investments have been affected.Joint ventures with Citi Corp and Commonwealth Development Corporation will ensure future growth.4. LOLC - Beneficial 1997 budget for LOLC, due to short-term constraints faced by non-specialized leasing companies LOLC would be able to increase market- share.Market leader in the foreign exchange leasing segment and growth in this segment will be at a higher rate.5. Ceylon Cold Stores: Excellent product range, with export potential. Local expansion also constrained due to weak distribution/marketing strategies. Largest contributor of earnings to JKH group.


Balance of payments crisis

For the second year in succession the country is facing an overall deficit in the balance of payments in 1996. It is not the mere fact of an overall deficit which is significant but how and why the country continues to have a deficit.

For several decades now, with the exception of a few years, the country has had a persistent trade deficit. In fact the few exceptional years were ones where a small trade surplus was achieved owing to stringent import controls even of basic commodities. In addition, severe exchange control regulations enabled the country to achieve a balance of payments surplus.

Since the liberalisation of the economy in 1977, the country has continued to sustain a large trade deficit. This was to be expected not merely because consumer imports were liberalised and a pent up demand for these commodities continued to be satisfied, but also as the development processes require considerable imports of raw materials and machinery. Therefore, the increasing trade deficit was not necessarily bad as it reflected the growth needs of the economy.

However, the trade deficit was offset to some extent by increased flows of capital, both official and private, and increased remittances from abroad. This enabled the balance of payments deficit to be reduced over time and in 1990 the country registered a balance of payments surplus. For five successive years (1990-1994) the country had a balance of payments surplus.

This surplus was entirely due to the offsetting of the trade deficit through earnings from services, remittances from abroad and capital inflows. However, in 1995 owing to the decreased inflow of capital the country sustained an overall balance of payments deficit. This trend continued and the indications are that 1996 would also record a balance of payments deficit.

The performance in the balance of payments in 1996 is particularly unwholesome. In 1996 the country's imports declined. This was due to a slowing down of economic activity which reflected in lower imports of raw materials and investment goods. This decrease in imports led to an easing in the trade account. However, export growth also declined in 1996 and registered an increase of only about 6 per cent compared to an annual average export growth of about 13 per cent in 1990-95.

This, despite a substantial increase in agricultural exports owing to a good performance in tea and rubber production combined with improved prices for these commodities. What this implies is that the country's industrial growth slowed down significantly to result in a slow export growth as well. Despite the slowing down in export growth the substantial decrease in imports resulted in the trade gap being less than in previous years. Despite this, the balance of payments is likely to be in deficit owing to reduced capital inflows.

The reduced capital inflows relate to portfolio investments, reduced foreign direct investments and low levels of official capital movements. However, remittances continue to grow as has been the case for many years. Fortunately, the inflow of remittances does not appear to have a relationship with the country's economic performance but is determined by the number of Sri Lankan nationals abroad and their quantum of earnings.

What the story unfolds is serious for the country. Unless export growth can be enhanced the trade balance will not be healthy. Unless business confidence is restored and there is sufficient foreign capital coming into the country there would be difficulties in offsetting the large trade deficit. The ultimate impact of this would be an erosion of our foreign exchange reserves. Temporarily the situation may be relieved to some extent by the depreciation of the currency. Yet that is not a sustainable way of dealing with the balance of payments problem.

The outcome of the balance of payments and its components must be looked at as a clear indication of the state of the economy. There is probably no better indicator nor a better guide to where action is needed. We hope the revival of the economy in 1997 would change some of these developments. We hope exports will grow and investments would flow in. But both these developments will occur only if there is business confidence, the economic fundamentals are good and the government demonstrates a strong will and determination to support economic growth.


Hemantha new CEO at Lanka Internet

Hemantha Jayawardena has taken up duties as the Chief Executive Officer (CEO) of Lanka Internet. In this capacity, he shall be responsible for all day to day operations of the company reporting to the Board of Directors, a media release said.

Since its inception just two years ago, Lanka Internet has made vast strides under the stewardship of Prabhat Samaratunga. The Internet was merely a distant concept two years ago. Dr. Samaratunga led the team at Lanka Internet that made it reality to a wide array of people and businesses in Sri Lanka. Indeed, much of the credit is attributed to the extensive work done by Dr. Samaratunga with the intention of establishing Internet services in the country. Before that Dr. Samaratunga was a scientist at IBM Programming Systems Laboratories at Research Triangle, North Carolina, USA and a visiting professor at the University of Toronto, Canada. He was also the founding Director of the Lanka Academic Network.

Dr. Samaratunga now plans to continue his other business and academic interests in the rapidly evolving field of Information Technology. He will continue to provide guidance and advice to the company as a member of the Board.

Mr. Jayawardena's appointment as CEO is no doubt equally remarkable as that of his predecessor. He has been an understudy to Dr. Samaratunga and the Manager Technical Operations of Lanka Internet since its inception. Like his predecessor, he has had vast experience in the fields of Computer Science and Electrical Engineering. Having excelled in his studies at Royal and Katubedda, Hemantha continued to maintain an outstanding academic record with a near perfect GPA at MIT. While at MIT he worked at IBM's T. J. Watson Research Laboratory which is one of the best research labs in the world. On returning to Sri Lanka, he worked as a lecturer in Computer Science at the Institute of Technological Studies and Senior Systems Analyst at MSL Computer Services Ltd.

Lanka Internet has achieved phenomenal growth in its two years of operation, in the field of information technology in Sri Lanka.

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