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1st, March 1998

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42 jobless after SDA shake-up

The government's most ambitious development project shook to its very foundations last week when nearly 80% of its professional cadre was fired.

The Southern Development Authority, a high powered engine to steer the neglected south into a model region has been trimmed down to cut costs, its Chairman Somapala Gunadheera told the Sunday Times Business.

"Certain contracts have been terminated with stipulated notice. This is nothing personal, but a necessary cost cutting exercise," he said.

Insiders however allege that a grave injustice had been done to those fired. All those fired are graduates holding senior posts and 42 of the 53 professional staffers have been fired, they allege.

Mr. Gunadheera, who took over from first chairman Navin Gunaratne (now SDA consultant) has been in office since January.

Responding to this mass scale pruning, Mr. Gunaratne said that the SDA had achieved targets beyond expectations in its initial year managing with a low budget of Rs. 150 million.

The effect of what we have done today will be felt tomorrow, he said.

Within its first year the SDA has commissioned 91 projects with a total investment of Rs. 60 million. 295 more projects totaling Rs. 850 million are in the pipeline.

Altogether 700 micro projects, 300 in Galle District and 400 in Matara District are identified. Of these 58 have already got underway in Galle District.

So far, Rs. 2.2. Billion worth of foreign investment is under implementation.

Large scale infrastructure projects for Ruhunupura exceeding Rs. 100 billion like the Hambantota port, airport, electric rail etc. are in the final stage of negotiations, Mr. Gunaratne said.

The most important component of development, Ruhunupura was conceived, conceptualized, pre-feasibility completed, EOIs called, possible sources of funding attracted, evaluated by a cabinet appointed negotiating committee and approval obtained for the Rs. 100 billion investment, all within 12 months, Mr. Gunaratne said.

There was no concept called Ruhunupura 12 months ago. We built all this from nothing, he said.

A parliamentary consultative committee including opposition members like ex finance minister Ronnie de Mel studied the project critically and applauded it, Mr. Gunaratne added.

An SDA venture capital company has invested over Rs. 40 million in regional projects.

With this track record the SDA could not have been dragging their feet, according to Mr. Gunaratne.

We have covered the development aspect of SDA but we may have neglected the political dimension," he said.

A disappointing agriculture

When we reflected on our economic performance in the 50 years after independence, it became clear that our agricultural performance was erratic and for the most part, inadequate. Agricultural crops contributed the bulk of the GDP at the time of independence. Nearly 40 per cent of our national income was derived directly from these sources. Besides this, most of the other services and economic activities were related to agricultural production. It may not be an exaggeration to say that economic activity unrelated to agriculture was negligible.

Agriculture continued to predominate till the 1970s when industrial activity of various sorts began to have some impact on the economy. It was in the post 1977 era that industrial production gained momentum with the liberalisation of the economy and an export led industrialisation. Today agriculture accounts for only 18 per cent of GDP while industry accounts for 23 per cent.

These developments appear on the surface to be healthy and natural. Indeed they are a part of the usual process of economic growth and development. However, what has been unsatisfactory is that agriculture has been neglected in the more recent years owing to various policy measures. Readers would recall the graphs we carried about our tea, rubber, coconut and paddy production in our issue of February 1st. These show that the performance of each of these crops has been inadequate. In the case of tea the threat of nationalisation, followed by the state take-over of the estates in 1974, and their mismanagement afterwards resulted in a decline in tea production. Tea production, which rose from 136 million kgs at the time of independence to 225 million kgs in 1968, declined thereafter to reach a nadir in 1983, when it was only 179 million kgs. Since then tea production has been on an up-trend partly owing to an expansion of small holdings, and more recently, owing to the privatised management and ownership of the estates leading to increased productivity. Still Sri Lanka's tea yields are among the lowest of the major tea producing countries.

The story of rubber is even more unfortunate. Rubber production had increased to 160 million kgs by 1970 but declined thereafter to reach as low a figure as 104 million kgs in 1993. There has been a slight improvement since then. Last year's rubber production is estimated at 118 million kgs.

Coconut production has indeed suffered by increased urbanisation which has tended to reduce the land under coconut cultivation. In any event the systematic cultivation of coconut has been on a much reduced area and consequently yields continued to be less than what could be achieved.

The story of paddy production is somewhat different. The acreage under paddy cultivation expanded significantly in the years after independence through colonisation schemes. Consequently the extent of cultivation increased two-fold between 1950 and 1981. Also with the introduction of high yielding varieties, Sri Lanka's yields increased significantly in the 1960s. In the more recent period yields have remained stagnant and the viability of paddy production is being questioned.

What these facts point out is that the declining importance of agriculture was only partly due to the increased industrial production. Some of the decline is also due to low productivity of agricultural crops. It is also well-known that Sri Lanka's other food crops have much higher cost of production and cannot compete with similar products in South Asia or other producing countries. A land abundant with a variety of fruits is now very much dependent on imported oranges and apples. Ironically these imported produce are cheaper than our local fruits. While the prices of agricultural produce are high, the income of agricultural workers and peasants is low. This is a paradox which has to be resolved. It is the responsibility of the government to explore the reasons for this and find appropriate solutions. In a country where about 40 per cent of the work force is in agriculture and about 55 per cent of the population live in rural areas, the development, expansion and viability of our agriculture are vital to ensure improved incomes for the majority of our people. A neglected agriculture would lead to a neglected people. However much we may expand our industrial base, the neglect of our agriculture could be disastrous to the country's economy and social viability. It is vitally important that in this year of our golden jubilee of independence we should focus our attention on resolving the problems of our agrarian society and develop a robust agriculture to ensure the economic health of the majority of our people.

Hotelier hits out at BA

By Asiff Hussain

A leading hotelier recently criticised British Airways for citing charter flights as one of the main reasons for suspending flights to Sri Lanka. British Airways announced the suspension of its two weekly services to Colombo effective from March 29.

BA claimed that its losses which have amounted to several million pounds were due to poor yields on the route and the operation of charter flights from London to Colombo.

Chairman of the Tourist Hotels Association of Sri Lanka, Gilbert Jayasuriya said at a press briefing last Tuesday jointly convened by his association, the Travel Agents Association of Sri Lanka and the Association of Group Tour Agencies, that the allegations against charter operations were totally unfounded.

He noted that in November and December 1997, BA brought in a total of 1,968 passengers which represents an increase of 37.2 percent for the corresponding period the previous year, when the airline brought in 1,434 passengers.

This proves that charters have not adversely affected arrivals on British Airways, he noted.

He also pointed out that in the case of Sri Lanka's national carrier AirLanka, Colombo/London/Colombo is the most profitable route with a load factor of over 85 percent for the first three months after the introduction of charters in November last year.

He also pointed out that AirLanka will be requesting two additional flights to the UK at the the bi-lateral negotiations to be held this month, clearly indicating that AriLanka finds the route very profitable despite charter operations.

If AirLanka finds the route profitable despite charters, why can't British Airways?, he asked.

He explained that the secret of AirLanka's success is that they fly aircraft that are economical to operate and fly non-stop Colombo-London, while British Airways commence from Gatwick, stop at Dubai and fly less economical aircraft.

He also noted that the Sri Lankan government has pending applications for additional flights from a number of other airlines flying from London to Colombo including Oman Air, Kuwait Airways, Gulf Air and Qatar Airways. He noted that the above airlines would not have requested additional flights if their existing flights were unprofitable.

Mr. Jayasuriya claimed that 'the reason' for suspending BA flights to Colombo was a purely commercial decision to employ their aircraft in more profitable routes.

CB's enhanced seignorage

By a special correspondent

In the 48th year of its existence the Central Bank of Sri Lanka has been empowered to issue commemorative currency notes and coins. The Monetary Law (Amendment) Bill which was recently passed in Parliament, as amended at the Committee Stage of the Bill, stipulates that the Bank may with the approval of the Minister in Charge of Finance issue commemorative currency notes or coins.

A commemorative currency note or coin is defined as a currency note or coin issued to commemorate any person or a special event.

But in the past the Bank has indeed, been issuing coins to commemorate persons and special events. The first so-called commemorative coin was issued to commemorate Buddha Jayanthi. Two coins were issued, a Rs. 5 coin and a Re. 1 coin.

Other such coins issued included those to commemorate the 5th Summit Conference of the Non-Aligned Nations held in Colombo and to commemorate the installation of the first Executive President of Sri Lanka.

If the Bank has been issuing so-called commemorative coins why was there a need to enact legislation to enable it to issue such coins and notes? The answer is that the Bank's recent issue of notes and coins to commemorate 50 years of Independence were to be (and indeed were) sold to the public at a price higher than the denomination specified in the respective note or coin.

All the previous issues of commemorative coins (their were no notes issued) as aforementioned were issued (sold) at their denominational value.

It is in order to legalise the sale of Golden Jubilee notes and coins at a value higher than their denominations that the amending legislation became necessary. The Monetary Law (Amendment) Act does indeed sanction the sale above the denominational value, thus accordingly the Bank enhanced seignorage. Such sales have been done by other central banks.

The Bank of England has been selling a £ 1 gold coin for £149 and a silver £ 1 coin for £24.50. The Monetary Authority of Singapore has also sold its coins higher than the denominational value.

A section introduced at the Committee Stage states that the amendments in question shall be deemed to come into force on February 4, 1998 and any commemorative note or coin issued between that date and the commencement of the Act will deemed to have been lawfully issued and sold.

This section with its retroactive effect would not have been necessary had the amending bill, which was gazetted as far back as December 22, 1997, been passed before February 4th when the Golden Jubilee notes and coins were issued and sold at prices higher than their denominational values.

The effect of the amending Act is that the previous so-called commemorative coins are not commemorative coins in the legal sense. Another consequence would be that the purchase of the recent issue of commemorative currency notes and coins by the public at prices higher than their denominational values would reduce the money suppoly.

More Business * State farms to be seeded with private capital * Apparel associations sound warning * Coconuts go places * New tea broker gets green light

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