27th December 1998
By Business Bug
Rival cellular networks were taken by surprise this week when the pioneering network introduced radical changes in their call charges.
The other networks are busy these days mapping out strategies to counter this and we hear reductions in tariffs will be announced by them too in the new year.
So at last, with more and more competition, the customer is king.
Business as usual
Just when we had resumed large scale tea exports to Iraq Desert Fox was launched.
Uncle Sam's boys in Colombo, we hear, politely made it known that Washington would very much appreciate a stoppage to our exports.
But our own Foreign Office boys were equal to the task. Diplomatic gestures are one thing, they told Uncle Sam's boys but business is business.
So, it will be business as usual for Ceylon tea bound for Baghdad.
The proposed privately funded medical college has raised a hornets nest, even before it was set up, leading to a clarification from the 'boy' who oversees overseas investments.
But all this fuss has now scared the investors who are worried that their campus might also be 'nationalised'.
The entire operation is now under review and more concrete assurances will be sought from all concerned, including politicians, we hear.
By Feizal Samath
As Sri Lanka's economy slows down this year owing to the twin effects of the East Asian crisis and a global recession, Central Bank Governor A.S. Jayawardene has warned of more turbulent times ahead and says economic growth next year is unlikely to touch five percent.
"Our growth this year could be around 4.5 percent due to a slowdown witnessed in the fourth quarter of 1998, and next year we are unlikely to see much change," he told. The Sunday Times. But, he noted that if Sri Lanka recorded 5.0 percent growth next year, it would be a great achievement and a bonus.
In a wide ranging interview last week, Mr Jayawardene dealt with current issues like the global recession, devaluation of the Sri Lanka rupee, the Iraq crisis, public sector reforms and monetary policy, criticism of the fiscal deficit and the Enhanced Structural Adjustment Facility (ESAF) from the International Monetary Fund (IMF).
The latest estimate of this year's growth rate, at 4.5 percent is much lower than the projected figures of 6.0 percent set by government agencies, earlier this year. The forecasts were reversed throughout the year as global conditions, particularly affected by problems in Japan and Russia, worsened.
The new figures may also surprise private sector pundits. Last June, a spokesperson for Sri Lanka's Econsult Pvt Ltd, an economic consultancy and research agency, told the Sunday Times that economic growth or GDP (gross domestic product) was seen rising by five percent or little over that, this year. Mr Jayawardene said that the key economies like the United States and Europe had failed and there were little signs of any improvement in the financial health of Russia and Indonesia. "There is a general feeling that it is better to set your sights a little lower (lower growth) than what is expected," he said.
The Central Bank Governor ruled out any large-scale devaluation of the rupee, saying that was not the best way to overcome a slowdown in exports. "It is creditable that our exports are showing four to five percent growth.
Many countries are facing negative growth figures and you can't correct it with devaluation. That's not the right way to do it." "Look at one of the things that would happen, if we devalue. Garments exports, is our biggest earner but 80 percent of the inputs are imported.
Any devaluation would increase the cost of cloth and other inputs and make the product un-competitive," he added. Fielding criticism of the budget deficit, Mr Jayawardene said he disagreed with the views expressed by the IMF representative in Sri Lanka, Anton A.F. Op de Beke.
Mr Op de Beke, in post-budget remarks made at a discussion organised by the Foreign Correspondents Association, had expressed unhappiness at the state of the budget deficit suggesting that revenue had been overstated and expenditure understated in the 1999 budget.
Mr Jayawardene said that Sri Lanka was gradually reaching the middle-income country status and per capita incomes may go above 1,000 US dollars next year, placing restrictions on Sri Lanka's eligibility for concessional aid.
By Vasana Wickremasena
The Securities and Exchange Commission (SEC) will run a Y2K audit on 20 companies including the CSE next February.
" The audit will be conducted on CSE, fifteen stockbroking firms and four unit trust management companies," SEC Director General, Kumar Paul said.
" The objective of the audit is to find out the actual situation of computer systems of above organisations through a credible and independent institution ," Mr. Paul added.
After the evaluation the SEC wants to ensure that the companies have taken necessary action to ensure that their computer systems are Y2K compliant.
" We want the investors to be more comfortable after the audit." he said.
" One of the first questions of international fund managers, when they visit Sri Lanka, is whether our computers are Y2K compatible," he added.
By Mel Gunasekera
A code of ethics and standard of professional conduct for investment advisors will come into effect from January 1st 1999. The code drawn up by the SLASIA (Sri Lanka Association of Securities and Investment Analysts) will be enforced on a voluntary basis for SLASIA members for two years, and thereafter will be adopted mandatorily by all members, subject to any amendments, SLASIA Ethics Committee Head, Dhirendra Abeyratne said.
"It's a radical change for the whole industry and it will put discipline into the financial sector," he added.
SLASIA members includes the Stockbrokers Association, Unit Trust Association, Venture Capitalists, Merchant Banks, Financial Houses, Fund Managers.
The key features of the code include the disclosure of conflict of interest, fair dealing with customers/clients, preservation of confidentiality, thoroughness of research reports and the recommendation on portfolio investments.
Investments and investment advice should disclose any material conflict of interest relating to any material beneficial ownership of the securities or other investments involved that could reasonably be expected to impair ability to render unbiased and objective advice.
Investment professionals should act in a consistent manner with their obligation to deal fairly with all customers and clients when disseminating investment recommendations, disseminating material changes in prior investment advice and taking investment action.
Appropriate research and investigation should adequately support research reports, the code states. Brokering houses will also have to maintain appropriate records to support the reasonableness of such recommendations and actions.
When making an investment recommendation or an investment action for a specific portfolio or client, the investment advisor has to consider its appropriateness and suitability for such portfolio or clients.
He should take into account the needs and circumstance of the client, the basic characteristics of the total portfolio. The advisor has to use reasonable judgement to determine the applicable relevant factors.
However, The Sunday Times Business learns that the Stockbrokers Association is not too keen on certain aspects of the code.
For instance, it's the responsibility of the research analysts to maintain records to support the research documents they produce. They say there is no specific time period as to how long they have to maintain analysts' record.
With regard to portfolio investment recommendations brokers say the code will severely constraint brokers giving speculative advice to clients.
Unlike the Stockbrokers Association, SLASIA covers a gamut of institutions that do not come under the brokers' code.
SEC rules and regulations already govern the brokers. There is also confusion as to whether another body can issue guidelines over an association.
However, despite various sceptisms the code has been welcomed by the industry as it will instil discipline within the financial markets.
SLASIA was incorporated in 1994 following financial markets project review carried out by USAID.
By Shafraz Farook
The world's best loved soft toy cuddled by the young and not so young alike is not the best-seller in Sri Lanka, toy makers say. Sri Lankans, sticklers for tradition have dumped the traditional top selling teddy bear in world markets for other soft toys and electronic gimmicks, local toy makers said.
This Christmas too teddy was way down in the popularity list with Sri Lankan children .
Many children and adults in Sri Lanka though they love soft toys would not look for a teddy in particular toy retailers said.
This is quite in contrast to other parts of the world where Mr. Teddy Bear has a special devotion with teddy museums, chat lines on the net for teddy collectors, clubs, auctions, magazines etc.
Teddies are characterised with names and identities and become collector's items which fetch top prices.
Every week there are many advertisements in the papers from sellers and buyers alike.
Sir William 1907, Big Ted and Knickerbocker, 1930s Knickerbocker Monkey, 1940s Gebruder Hermann, 1950s Panda, 1907s Steiff and Blank Button Steiff are a few of the teddies in demand.
There is even a Teddy Bear Times like the New York Times or the Sunday Times!
Teddy is a perennial favourite around the globe at a time when other toys fight hard to keep their place on the top often toppling over for new wave toy trends.
Last year in the UK, it was the Teletubies and this year it is the talking doll named Furby. The Sunday Times Business on a toy round up found no such local trend. Indeed Sri Lankan parents are lucky because there is no such trend here.
The question is how long will it be before we too have to hunt for the special toy for the season. Not too long at the rate local entrepreneurs are commercialising Christmas.
There is no mandatory act that regulates toys in Sri Lanka. Sri Lanka Standards Institution (SLSI) officials said that there is only standard for the paints used but was not mandatory since there was no regulator.
The SLSI itself cannot implement the requirement because their act only allows them to set standards and not implement them.
Telecommunications Regulatory Commission (TRC) has decided to make a final determination on mobile interconnections as the parties involved are unable to reach an acceptable agreement.
" We have to make a determination before next July," SLTRC Director General Prof. Rohan Samarajiva said.
According to the Director General, the determination will include interconnection between mobile operators, Sri Lanka Telecom (SLT) and the two WLL (wireless local loop) operators, Suntel and Lanka Bell.
" There is no existing mobile interconnection agreement or determination in Sri Lanka," Prof. Samarajiva said.
The SLT at present treats the mobile telephone operators as retail customers and charges fully for outgoing calls and using its facilities.
However, the mobile operators receive nothing when SLT uses their facilities. Meanwhile, TRC may also permit free incoming calls to mobile phone holders through its determination.
The proposal is not to charge from mobile phone holders for incoming calls but increase charges for the sender.
However, SLT is against such a determination, The Sunday Times Business learns.
The year that is just ending is best characterised as one of turbulence rather than a year of crisis. It cannot be described as a crisis year as the Sri Lankan economy faced upto the global crisis reasonably well. There was a dip in economic growth but not a depression.
The economic growth for the year is likely to be around 5 per cent, which is a reasonably good performance given the international context.
The best way to demonstrate that 1998 was not a crisis year is to compare it with the economic performance of 1996. In 1996 a serious security situation, a drought, which affected agricultural production and resulted in a power crisis, slowed down the economy considerably.
Both agricultural production and industrial production fell. Tourist arrivals dipped sharply and investment was static. All this resulted in an economic growth of only 3.2 per cent. In contrast, during 1998, the production base of the economy was quite healthy.
Some sectors faced intense international competition. Others lost markets. Yet the main sectors of the economy grew and consequently unlike many of the East Asian and South East Asian economies the Sri Lankan economy displayed a resilience and growth.
Good weather conditions assisted agricultural production. Paddy output during the main season increased significantly by 22 per cent. In the first ten months of this year tea production grew by nearly 4 per cent and is heading to a new peak production this year. Rubber and coconut production however declined by about 4 per cent.
Although a few industries were affected, the main industrial exports - garments withstood the crisis and garment exports increased by 9 per cent in the first ten months of this year. The reasons for this growth are rather paradoxical.
On the one hand, the quota system under the Multi-Fibre Agreement (MFA) ensured that the country could export its quota items. On the other hand, the country's garment industry had diversified into non-quota items of export and about 40 per cent of garment exports are outside the quota system. These garment exporters were able to retain their markets owing to superior quality and strong market connections.
Industrial exports, as a whole, grew by 4 per cent. Tourist arrivals suffered somewhat with a small dip in arrivals. The cheaper and perhaps even more attractive locations in South East Asia were the main cause of this decline. With it the gem and jewellery industry appears to have suffered, especially as demand from the crisis-ridden countries decreased sharply.
Among the country's affected sectors was rubber. Rubber prices declined to make rubber production uneconomic. Rubber manufacture suffered a double blow with South East Asian countries able to sell their production more cheaply in a market which was also declining.
There were some aspects of good fortune to the country in 1998. Prices of some key imports fell. Most significant was the decline in petroleum prices. Crude oil prices fell to one of the lowest in recent years. Similarly, the prices of raw materials, machinery and vehicles decreased.
In the case of oil, as well as some of the other products like cement, Sri Lankan consumers did not get any benefit. The Petroleum Corporation did not pass on the reduced prices of oil owing to the weak fiscal situation in the country.
Consequently, the lower import prices would result in higher profits to the Corporation and these would find their way to the government budget. In the case of some other items too, it appears that traders have not passed on the lower cost of imports and consequently people could not reap some of the benefits.
However, reductions in import prices did help the balance of trade and the balance of payments.
While the country will continue to have a trade deficit in 1998, it is a reduced amount and will ease the balance of payments situation.
However, reductions in official capital inflows will have an adverse impact on the balance of payments.
Consequently, in 1998 the foreign exchange reserves of the country is likely to fall by 4 per cent. At the end of October, reserves were US$2,709 million compared to US 2,822 at the end of 1997.
The crisis in the East Asian and South East Asian countries, the economic sanctions on India and Pakistan and a general slow-down in economic activity globally, did affect the economy. Yet the impact was sustainable owing to a diversity of exports, a healthy growth in garment exports, good weather conditions and improved agricultural production.
AIthough there are signs of some improvement in the global situation, some of the adverse factors are likely to linger on and the economy will continue to face an inhospitable global situation in 1999 as well.
The country may not be able to achieve the levels of economic growth it desires, but at least it must avert a crisis-situation and ensure that the unfavourable external environment is not compounded by internal weaknesses and shocks. The economic experience of 1998 brings home the truth that a diversified production base is the best protection against external shocks.
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