21st May 2000
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  • Out out brief PFs, says World Bank
  • NMB to boost its base
  • Pvt. Ltd. gets democracy
  • Industrial relations should be a productive partnership
  • Are you suffering from ''Excusitis"?

  • Out out brief PFs, says World Bank

    A recent World Bank report on Sri Lanka's superannuation benefit programmes highlighted the need to provide adequate income throughout old age and reduce labour market distortions.

    The report which outlined potential reform strategies stated, that lump sum payments at retirement could be replaced with lifetime income products to ensure income throughout old age.

    "To this end it is necessary to have a vibrant and competitive market in annuities. This may be achieved through allowing greater competition in the life insurance sector, including more foreign participants," the report said. 

    The report suggests that individual insurance companies may not represent investment grade credits and it may be necessary to provide some form of government guarantee for annuity schemes. To facilitate the provision of annuities and in recognition of limited long term investment opportunities, the government might consider the attraction of issuing inflation linked securities and allowing limited investment in international markets, the report suggests.

    Consideration might be given to the possibility for annuities to be made available on economic terms to participants in the Employees Provident Fund (EPF) and Approved Private Provident Funds (APPF).

    The issue of tax treatment of annuities could be clarified and favourable tax treatment of lump sum disbursals reduced. 

    The report roots for these reforms on the basis that provident funds — which form the centrepiece of retirement savings system in Sri Lanka — do not offer any insurance against longevity. 

    "Providing a simple lump sum payment at retirement encourages workers to spend their savings in a fashion inconsistent with contractual savings." 

    Limiting opportunities for early withdrawal of funds which are a practice in APPF's and EPF and deferring the retirement age to 65 years are among the other strategies the report outlines as being conducive to providing adequate income throughout old age.

    Labour market distortions could be reduced by establishing equivalence between the EPF and APPF's. 

    The report states that there is a case for bringing the benefits offered by EPF in line with those offered by APPF's. In cases such as the ability to withdraw balances when changing jobs or the provision of highly subsidised loans to members, the report stresses the need to co-ordinate the legislative and regulatory changes being contemplated for the private sector.

    The report states that anecdotal evidence suggests that more private companies would offer pensions as an alternative to provident funds. 

    However, the existing EPF Act requires the benefits offered under a pension scheme must be at least as high at retirement as those which on actuarial analysis the employee would have been entitled to as a member of the EPF. This militates against employers providing pensions and no such equivalence requirement is made for private provident funds.

    The report concludes that the modification of the EPF and APPF system so that membership is not tied to a particular programme or employer would have far reaching impact on the usefulness of the provident funds as a vehicle for retirement saving.

    APPF's are private provident funds whose membership is limited the company establishing the fund. There are 204 funds with 164,000 members whose assets total Rs. 25 bn. 

    The EPF covers one third of the Sri Lankan labour force and has 7.7 mn accounts of which 1.9 mn are active. It has Rs. 161 bn in assets and is managed by the Monetary Board and enforced by the Labour Department.

    NMB to boost its base

    The National Mercantile Bank (NMB) will boost their capital base with an additional Rs. 125 mn through a private placement.

    NMB, will use the additional capital to fund their capital expansion programme, General Manager, Nihal Jayawardene said in an interview.

    NMB plans to trade under the name 'Merc Bank' will officially open doors for business next Tuesday.

    Merc Bank's promoters the MMBL Group will not increase its 25% stake, but some of the bank's other shareholders may increase their stake. The bank has also lined up a few foreign investors to take a share in the new issue. Foreign investors are keen to come on board, since Merc Bank is focused on gearing itself as an IT driven bank, he said. Plans for additional funds through an IPO are on the cards, but the bank is first keen to establish itself and add value to its core products.

    Apart from providing traditional banking services like opening current/savings accounts Merc Bank will focus on being a 'power bank'.

    "We want to be a hi-tech as well as a soft touch bank," Jayawardene said. Merc Bank has already contracted an Australian IT company to install the 'Bancs' system. 

    This system enables a wide range of technological services to be provided, such as ATM, phone banking services and internet banking services.

    Merc Bank is keen to provide banking services through WAP (Wireless Application Protocol) technology, the bank's head of IT, Rohan Peiris said. Some of the local banks are presently offering SMS (Short Message Services).

    "We are strongly looking at getting into B2B (business to business) and B2C (business to consumer)," Peiris said.

    On the retail side, the bank will offer individuals customers a choice to do their banking services from home/office via a computer. Peiris is optimistic that Sri Lankans are ready for e-cash (electronic cash) services.

    A market survey conducted by the Bank had revealed that customers preferred banks to provide more personalised services together with technology-driven focus. 

    Mr. Jayawardene said that the bank drew up their plan based on the survey. There were suggestions of banks providing a relationship manager for their customers, he said. The demand for such services like 24 hours banking services, late night banking is growing and we hope to provide late hour banking services, he said.

    Mobile banking services are also on the cards. NMB's shareholders include the MMBL Group (25%), Merril J. Fernando Group (10%), Mohamed Maharoof (10%), Carlton Products (10%), Datuk Tiah Thee Kian (10%), Perfect Calibre Sdn Bhd (10%), Trust Industries LLC of USA (5.2%), Premier Enterprises (5%).

    Pvt. Ltd. gets democracy

    The Centre for Private Sector Development (CPSD) has drawn up a new project on democracy and its relationship with private sector development.

    The project aims to create awareness about democracy how markets function in a democracy and how a democratic framework sets the platform for private sector development, Executive Director, CPSD, N. K. Silva told The Sunday Times Business. The CPSD is seeking funds to get the project off the ground, he said.

    Also on the cards is a programme to promote entrepreneurship among the youth.

    A ten module programme from a Californian organization which promotes entrepreneurship among youth will be adopted for local audiences.

    While large scale organizations are being targeted for corporate governance smaller organizations remain unaware of their responsibilities, Silva said.

    A program to exploit the experience and knowledge of retired professionals has also got under way. 

    The "Mature minds" programme has resulted in the creation of a data base of over 300 such professionals and will place them in organisations which will benefit from their wealth of experience.

    A programme to educate small enterprises on good corporate governance will be undertaken by the CPSD.

    Vocational training programmes will also be undertaken by this organisation.

    The CPSD was established in 1994 under the Companies Act as a Non- Governmental organization. It aims to strengthen the private sector by addressing itself to key issues of the day.

    The CPSD's objectives include assisting the government in formulating laws and policies which facilitate private sector development and facilitating discussion between the private sector, labour unions and the public sector on economic liberalization and privatization.

    While the CPSD has received limited overseas funds, it has also used its directors' personal funds in addition to local funds for its various projects.
    Mind your business

    Up market or What ?
    A well-known supermarket chain is facing the crunch, the reasons for which are not quite clear. Overheads are continuing to rise but sales are not; so profits are on the downside. 

    They have sought and received advice that public perception is negative- that the outlets are mostly for up-market people and that the goods are priced higher. Shortly, there will be a campaign to reverse the trend: 'super' discounts on selected goods as well an advertising campaign in Sinhalese aimed at the wage earner rather than the executive.

    Cash crunch
    The decision to postpone the Aid Group meeting came from the highest levels of government, simply because it was felt that the personalities needed for the meeting could not afford to spend time in Paris in this crisis hour. 

    But the boys in the Treasury are not very happy about the postponement. 

    Cash is short, they say and raising the Defence Levy and cigarette and liquor prices will not help. 

    They have explained matters to those who matter but they have been told that nothing can be done until August..

    When the going gets tough…
    One cannot help but feel some sympathy for the monopoly cigarette maker: just when they agreed to a 'no advertising' policy, the government slaps a price increase which will further dent their sales. 

    Contrary to speculation, there are no immediate plans by the monopoly to close shop but the parent company is worried about the long term consequences. 

    So, they are on the lookout for a more 'smoker-friendly' country in the region to operate from, if the going gets any tougher in Colombo.

    Industrial relations should be a productive partnership

    Industrial peace is vital for economic growth in all sectors of the economy. For quite sometime Sri Lanka has not been viewed as a country where industrial relations were cordial. It is better known for its strong trade union movement, frequent strikes and at times industrial violence. We have to change that to prosper. 

    Last year alone we lost over 300,000 man days of work due to strikes. In the previous year[1998], we lost about 265,000 man days. The previous two years,1997 and 1996, witnessed even more strikes and we lost 355,000 man days and 389,000 man days, respectively, in these years. There is a growing consensus of an urgent need to move away from the adversarial and antagonistic postures of trade unions and employers. We must move to a new relationship, which would increase wages and improve working conditions, through more cooperative and productive relationships .This must be done on the basis of a mutual understanding that the interests of both could be served by better systems of organization, management and sharing of gains, rather than attempts to act against the interests of each other. In an international and national economy, where harsh competition is the order of the day and increased efficiency and productivity are the keys to improving competitiveness, a co-operative relationship between labour and management is essential to achieve this. The pre-condition to achieving this is a realisation that the interests of both labour and the owners of capital could be jeopardized by each trying to extract from the other the maximum. Such an approach could reduce efficiency and productivity and lead to reduced benefits for both parties. What is needed is a shared approach to the fruits of an enterprise. It is now very clear from international experience that enterprises in which labour have benefited from the gains of an industry, have been in a far better position to improve their competitiveness in the long run. Such enterprises have been also able to withstand the vicissitudes of industrial fortunes much better. Management elsewhere have learned that it is in their interests to look after their labour and obtain their cooperation. Participatory management has been shown to yield unexpected gains. 

    It is vital that industrial organisations find the mechanisms to make labour realise their role in the industry and provide them with incentives for their willing participatory involvement. Employee Share Options, Rewards related to profits, profit sharing schemes, membership of decision making bodies of the organisation and methods to ensure speedy settlement of any disputes, are among the mechanisms that can be of mutual benefit to employers and employees.

    Employers must realise that a work force which benefits as directly as possible from the productivity of the enterprise are more likely to be more productive. Employees must realise that their future is inter-linked with the fortunes of the work place in which they work. The ways and means must be found to work out these in concrete benefits to both parties, labour, in particular. Industrial peace, industrial efficiency and economic success can only be achieved by the building of organisational norms and practices based on trust, mutual respect and mutual benefits. 

    It would be most fruitful if industrial chambers were to use some of their resources to research and design the most appropriate institutional structures to benefit employers and employees in the modern age, giving due respect to our work cultures. This may achieve the goals of workers more than the traditional approaches of trade unions. 


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