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 7th February 1999 |
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Mind your businessReserves down profits up?Money markets are quite liquid these days but the bank that is central plans to relax reserves of the market players it regulates. Speculation is that the band that is central is planning for bigger and better things and paving the way for mergers, expecting international trends to spread to paradise isle. In the meantime lowering reserves will be no doubt welcomed by the highest earning sector, which will gleefully attempt to inflate their bottom line with this added bonanza! GST - the bugDespite the millennium bug, one of the hottest businesses in town is the computer - or IT - industry. But sales would be even better if not for the omnipresent GST, a group of leading computer vendors feel. So, they have appealed to the powers that be to exempt computers and accessories from the tax. The good professor who deputises has agreed to consider the request favourably.
Five and six year government bonds out by year endBy Mel GunasekeraIn a bid to bolster the long term debt market, five year treasury bonds are billed to enter the debt market next month, with six year bonds making their debut by the year end, primary dealers said. However, in the absence of a scripless system to replace the issue of certificates, the maturity period of bonds will be limited to six years for the time being, a Central Bank official said. Capitalising on the present liquid money markets, the government is gradually introducing bonds with longer maturity periods, thus extending the term structure of its debt. The issue of two year bonds is to be reduced, with more issues of four and five year bonds on the cards. This would contribute to sustain a low interest rate regime and also reduce volatility in short term rates, dealers said. Most investors are guided by the short-term money market; they tend to shy away from long term instruments. However, a stable exchange rate and stability in the short term money markets would lure investors towards long term treasury bonds, dealers said. Analysts say long term bonds would provide the private sector with medium-term benchmark interest rates and provide a risk free yield curve beyond the 12 month treasury bills. Thus making the government's medium term debt instruments more market oriented. The government intends to borrow Rs. 47.5 bn this year, through treasury bonds and rupee loans. Treasury bills amounting to Rs. 120 bn would also be re-issued this year. The composition of the borrowings is changing with the government increasingly borrowing from treasury bonds as against from rupee loans, a CB official said. Todate, about Rs. 3.3 bn rupee loans, Rs. 8.5 bn bonds and Rs. 21.6 bn in TBills have been issued, he said. The total outstanding debt for 1998 stood at Rs. 419.5 bn, which included Rs. 250 bn in Rupee loans and Rs. 39 bn in treasury bonds. Treasury bills worth Rs. 115 bn were also re-issued together with a further new issue of Rs. 5 bn in TBills. Treasury bonds were introduced in March 1997 to finance the government's long -term capital expenditure projects. Todate, the government has depended on treasury bills, government loans and other gilt edged securities to finance its operations. This has created a mismatch, as short-term borrowings are used to fund long-term projects. Short term borrowings mean the CB has to re-issue the bills several times and pay the interest rate prevailing at that time. "If your borrowing requirement is large, you are exposed to either high or low rate of interest. We want to minimise that risk by spreading the maturities in the medium and long term," CB officials said. A new surveillance system to monitor primary dealers is also in the offing. The Central Bank's Public Debt Department has secured World Bank assistance to secure a consultant to structure the new system. The department is in the process of shortlisting prospective candidates, an official said.
New rules for commercial bank ownershipCentral Bank has relaxed the rules of ownership of commercial banks to allow larger shareholdings in banks. The existing direction issued under Section 46 (d) of the Banking Act, prevents any single shareholder from owning more than 15 per cent, and connected parties and companies from collectively holding more than 18 per cent of equity of a licenced commercial bank. The amendments under section 46 (1) (d) of the Banking Act permits single shareholder to own up to 15 per cent, a company and its related companies 20 per cent, and for the promoter of the new venture, a maximum of 25 per cent of equity. The Central Bank's Monetary Board is to amend the Act further where in the case of a company owning shares in a subsidiary, the company must hold a minimum of 10 per cent of equity in the subsidiary company. Financial sources say the new directions were made to make way for the new commercial bank, Nations' Trust Bank, promoted by John Keells and Central Finance. The new bank's equity would consist of, John Keells 25 per cent, Central Finance 20 per cent and International Finance Corporation 15 per cent. The promoters are hoping to raise the remaining capital through an IPO or private placement, sources said. Financial sources say the new directions will eliminate any existing ambiguity in the interpretation of the directions and prevent parties from holding larger stakes in commercial banks without the approval of the Central Bank. Though some business groups seem to have effective control of some banks, analysts say the Central Bank has not been able to effectively enforce existing regulations in some cases. In 1997, the Monetary Board allowed DFCC to purchase a stake in excess of the specified limit in Commercial Bank of Ceylon. Another aspiring commercial bank, the National Enterprise Bank was not issued a banking licence by the Central Bank earlier because it was not satisfied with NEB's ownership structure.
Kotagala judgement puts SEC and investors in a tight spotBy Vasana WickremasenaLast week's Appeal Court judgement in favour of Kotagala Plantations has left thousands of investors in the lurch and the Securities and Exchange Commission (SEC) in a tight spot. The SEC took Kotagala Plantations Ltd. (KPL) to court for alleged non disclosure of price sensitive information in 1997. According to SEC's Continuing Listing Requirements (CLR) on listed public companies, any price sensitive information concerning a company or its subsidiaries has to be reported to the Exchange. SEC alleged that the company failed to inform its shareholders that it had lost the controlling interest in Agrapatana Plantations Ltd. (APL), until KPL provisional accounts were released three months later. SEC sources told the Sunday Times Business that it had now decided not to take action under these rules until SEC powers were widened by forthcoming legislative amendment. A legal loophole in the Securities Council Act invalidated the CLR after last Wednesday's judgement, saying that the SEC had acted beyond their powers. " After years of consultation the Securities Council (Amendment) Bill will be tabled in Parliament early this year. The Bill has a provision which will enhance the powers of the SEC," sources said. " The Attorney Generals Department has cleared the Bill and now it is up to the Finance Ministry to table it in Parliament," they added. However, some legal experts say that they are not quite confident whether the bill provides powers to the SEC to make rules on CLR. " Best thing is to include a specific section in the Bill before tabling it in parliament providing the SEC to make rules on CLR ," an expert said.KPL lost its controlling interest of Agrapatana Plantations when their stake in Lankem Plantations Holdings Ltd.(LPHL), which owns APL, was reduced from 99. 99% to 49% on March 17, 1997. The reduction occurred as KPL decided not to subscribe but to invite Lankem Ceylon Ltd. to subscribe the 21 million share issue of the LPHL. " There is a clear case of violating rules on CLR. But question of law finally resulted in invalidating the rules," an expert said. "We have not yet decided whether to appeal against the decision. We will decide after meeting with the Attorney General tomorrow," SEC Senior Manager- Legal Kithsiri Gunawardena said. Insiders say SEC is not expected to appeal against the judgement. Meanwhile the market watchdog's bark seems to be worse than its bite.
A poor year after the golden jubileeOne year has passed since we cel ebrated our 50 years after re gaining our independence. Last year was an occasion for us to do a retrospective analysis of our performance and derive some lessons for our future. Such points in the history of a country provide opportunities to resolve to correct the deficiencies of the past and to take new measures to do better in the future. Has that happened? Unfortunately, it appears that we are on the same path that we trod for many years, just bungling on. Far from any new directions, the old problems which have deterred our growth appears to have emerged in greater force. We seem utterly incapable of getting our priorities established and working towards national goals. We continue to be embroiled in party rivalries rather than national issues of immense importance to the country. In fact, the year that has passed since our golden jubilee of independence has seen a deterioration of the national security situation, a new low in electoral politics and a severe erosion of law and order. We would not be commenting on these if not for the fact that these affect the capacity of the economy to perform efficiently and to deliver its full potential. There is little doubt that the economy is stuck because of the inability of the government to provide the enabling conditions for economic expansion. Besides this, the government has failed to give the sense of urgency for economic development and play a proactive role in the economy. The economy progresses as much as it does because much of the economy is in the hands of private enterprise and these entrepreneurs are dedicated to making profits for their own survival. This is in contrast to the position we had some years ago when public enterprises were dragging the country down. The classic examples are the plantations which were making losses when owned and operated under state corporations. Now they are making profits and not being burdens to the government but providing useful contributions to the public coffers. No doubt better international prices have contributed to this. Yet without private management of the estates it is unlikely that we would have achieved what we have in terms of significant increases in production. Similarly, private industry has thrived and grown despite even some very unfavourable conditions. This too has been a factor which has enabled a reasonably high rate of growth in the economy. The fact is that while the private sector has played its role it has had little support from the government except in the area of a macro economic framework conducive to private enterprise. It must now establish more effective partnerships with the private sector, play a more dynamic role in helping our economic enterprises and even undertake joint projects with private enterprise to stimulate economic growth. Most of all the government must place the economy at the forefront of its policies and take quick decisions on economic issues and ensure that the bureaucracy acts fast to implement economic policies. Until we have a government which can act in this manner, our economic growth would be dictated by the political environment to a large extent.
Back to nature with niche tourismBy Feizal SamathA Sri Lankan think- tank research agency has prepared a plan for the promotion of nature tourism in the country, saying there is tremendous potential for this aspect of tourism which has not been fully exploited, both for foreign as well as local tourists. "While all tourism has been severely affected by the war, it would be expected that nature tourism being more of a niche market is less susceptible to drops than other tourist markets," said a study done by the Institute of Policy Studies (IPS). Tourist planners, worried about the long-term impact of Sri Lanka's never-ending war on tourism which is performing below its full potential, has been looking at a range of options, including attracting high-spending tourists and promoting nature, cultural and eco-tourism. But so far the industry has not come up with a comprehensive plan to promote nature or eco-tourism. A few top tour operators have included the nature and eco-aspect of tourism in their Sri Lankan itineraries and also slotted culture into the programme. Some Sri Lankan grassroots non-governmental agencies like the Bandarawela-based Woodlands Network work exclusively in promoting culture, Sri Lankan culinary and waterfalls and nature walks for tourists visiting the central region. According to the IPS study, nature tourism is defined as visiting natural sites such as a coral reef, rainforest, wetland or grassy plains to enjoy the natural beauty. This does not include conventional beach tourism. Nature tourism is broader than the definition of eco-tourism, which requires that the travel is in an "environmentally friendly fashion." The IPS study was prepared by researchers Paul Steele, M. Sivakumar and H.M.B.C. Herath last November and contains a comprehensive strategy for nature tourism management in Sri Lanka. It points out that while countries like Nepal, Kenya, Costa Rica and Ecuador have actively promoted their nature tourism as a source of foreign exchange, Sri Lanka has been more dependent on conventional beach tourism. IPS says that Sri Lanka has three main advantages in terms of nature tourism like its high density of wildlife, particularly birds and elephants, many different types of natural habitats and the smallness of the island making accessibility to nature sites from Colombo within reach by 3-4 hours of driving. "Domestic nature tourism has shown rapid growth over the last five years. This interest should be harnessed to increase visitor awareness of biodiversity conservation, which would require investment in visitor centres, nature trails, water holes and other facilities to improve wildlife viewing and the provision of educational material,"the study said. Tourism industry sources, noting that domestic tourism has not been sufficiently tapped although it has a sizable growth potential, say that a range of middle-level accommodation facilities like the resthouse concept - slightly more upmarket and around 2-3 star hotel ranges - should be created across the country to encourage domestic tourism. Among foreign tourists, IPS noted that there is an estimated 2,000 specialist birdwatchers each year and in 1995 (most of the figures included in the IPS study is based on 1995 data) more foreigners visited Bundala and Sinharaja than locals. An estimated 10-15 percent of foreign tourists visit at least one national park and in 1995, 75,000 foreign tourists visited the five main protected areas of the Wildlife Department. Noting that the demand by foreign tourists for nature tourism is growing rapidly, IPS suggested that the Ceylon Tourist Board should promote nature tourism to increase the number of tourists visiting Sri Lanka. "Despite Sri Lanka having the highest biodiversity per unit area in Asia, there is very little marketing by the Ceylon Tourist Board and other agencies. Most tourists arriving in Sri Lanka are unaware of the natural beauty of the country," it said. In developing a strategy for nature tourism, IPS has recommended that the plan should be based on - increasing marketing and promotion of nature tourism, increase environmental benefits of nature tourism, and increase economic and employment benefits of nature tourism. IPS said that foreign visitors make up only 20 percent of the total 320,000 annual visitors to Wildlife parks and reserves but they generate more than 60 percent of the Wild Life Department's annual revenue, suggesting that there is a lot of revenue to be earned from nature tourism. "Nature tourism is an attractive niche market as there is some evidence that nature tourists have higher incomes than the average tourist, stay longer and spend more on locally produced products and services," the study noted.
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