9th December 2001

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Zoooooom! The stockmarket soared to new highs last Friday, the first day of trading after the UNP's clear victory as investors, rejoicing at the prospect of what is widely seen as a more market-friendly government, went on a buying spree. Here, a punter works the phone on the floor of the Colombo Stock Exchange, unfazed by a brief bomb scare in the World Trade Centre. (Pic. by Athula Devapriya).

Mind your Business 

Curse of the purse
Now that the tide has finally turned, the big question is who would take charge of the Treasury.

Apparently the greens have indicated that they intend to take over, especially since reforming the economy was among their main campaign themes.

But if the messages sent to the Treasury just before the polls are anything to go by, the lady intends to hold on to the purse strings tightly and this may well be the first flashpoint between the greens and the blues.

Stay on track
And then there is the story of the head of a major bank who had been linked to the blue camp in recent times who thought it would be the end of his tenure, just because the polls went the other way.

So he sent word to the greens through intermediaries offering to step down, immediately if necessary. Not so fast, he was told and assured that he may even be retained because of his proven track record.

Bourse blooms again 
Brokers at the Colombo bourse are bracing themselves for a Bull Run beginning tomorrow, as the greens are handed over the reins of power.

That is because the weekend has been inundated with inquiries from major institutional players, even though the country was under a blanket curfew towards the end of the week.

And the stocks mostly in demand are value-for-money blue chips and low-priced financial sector stocks, they say.

Re-negotiating IMF package top priority

Re-negotiating the IMF standby credit line, improving foreign exchange reserves, cutting the budget deficit and reducing the cost of living are the main issues confronting Sri Lanka's new government, economists said.

"Winning back the IMF package should top the agenda as our foreign reserves have fallen due to lower export growth, tourism revenues and remittances," said an economist at a local think-tank.

Ironically the new government faces a similar situation as in 1994 when then President Dingiri Banda Wijetunga's free-spending May day package to appease voters saw the People's Alliance inherit a budget deficit of ten percent.

"The new regime is faced with something almost similar and has some tough decisions to make," the economist said. A vote on account is expected to be moved in parliament within weeks to account for spending before a budget is presented, most likely in February.

Two months ago the IMF held back the second tranche of a US$ 253 million standby credit line due to a rapidly changing economic scenario in Sri Lanka, triggered by growing welfare spending and inability to keep to agreed economic targets.

Dr. Nadeem Ul Haq, the International Monetary Fund (IMF) senior resident representative, told The Sunday Times Business that whichever party forms the new government, the economic agenda remains the same.

"Politics does not concern me," he said. "We welcome any government if it is democratically elected. If it is democratically elected we congratulate them and we're willing to work with whichever government comes in."

"I hope the new government would be investor-friendly," he said. "Any government which undertakes reforms is investor-friendly. Without reforms the productive potential of the country cannot be unleashed."

He said reforms were required in the labour market, the financial markets, in education, the power sector, and public sector institutions such as the Ceylon Electricity Board and Ceylon Petroleum Corporation.

Jayadeva Uyangoda, a political scientist attached to the Colombo University, felt that with the business community's backing of the UNP, the new government should be able to attract more local and foreign investment.

Economists also said the new regime would be confronted with a dilemma of reducing the cost of living while further absorbing the generous handouts given in the run-up to the poll by the PA government.

"That's a tough call. The government has to provide some relief to the masses because the rural masses, hitherto with the PA, have voted for the UNP. That's not easy with the economy in the dumps," one economist noted.

Power generation is another problem confronting the new government with immediate solutions required as further power cuts are inevitable. Some economists said the authorities may opt for options like a barge-mounted power station and go ahead with other long-term projects like coal power, etc.

Peace will be a crucial part of the new agenda. "There is no doubt about that. War and the economy are the most serious issues and solutions have to be found quickly to these two problems," said Uyangoda.

Indrajith Aponsu, an economics teacher also at the Colombo University, said economic policy direction should deviate from inflation-control policies, which hasn't worked so far.

"The government has been obsessed with inflation control which retards economic growth. This is a proven economic theory across the world," he said, while articulating a widely held view among economists that the economy and the war should be treated as two separate issues.

Economists say that any government should pay as much attention to the economy as it does to the war. (FS)

Haycarb sees fall in charcoal supply

Haycarb Ltd, a subsidiary of the Hayleys conglomerate that exports activated carbon made from coconut shell charcoal, foresees a sharp fall in raw material supply next year as a result of the drought.

The company, which has two factories here and one in Thailand, is also facing "severe competition" from the Far East where the price of charcoal is cheaper.

Company officials said they expect a 25 percent drop in the coconut crop because of this year's severe drought, the lagged effects of which will be felt next year.

As a result, the supply of charcoal could fall by as much as half, they said.

Last year's coconut crop - at just over three billion nuts - was the best output in recent years and was up eight percent on 1999 because of the lagged effects of favourable rainfall in 1999 and higher fertiliser application.

Haycarb makes activated carbon granules and powders from waste coconut shell and activated carbon pellets from waste charcoal dust. Activated coconut shell carbon is used in the gold mining industry to recover gold from ore, as well as in air and water purification areas such as gas masks, protective military suits, cigarette filters, odour removal and tap water filters.

Haycarb officials said possible fears of chemical warfare attacks following the September 11 suicide strikes in the United States has also led to a "marginal" increase in demand for activated carbon for use in air filtration systems.

During the 1990 Gulf war, Haycarb won big orders to supply powdered coconut carbon for protective suits used by the American military when their regular activated carbon supplier was unable to cope with the demand following fears that Iraq might attack US forces with chemical weapons.

Haycarb accounted for about 62 percent of the 16,441 tonnes of coconut shell-based activated carbon exports from the island last year. The company's pre-tax profits in the first half of this year fell 32 percent to Rs. 128 million. Turnover was down eight percent to Rs. 800 million. Company officials said this year's performance would not be as good as last year's when Haycarb made a record profit.

The firm has got Board of Investment approval for a big investment to produce its own raw material. The company is planning an investment of around Rs. 800 million to set up a plant to make its own charcoal at its Badalgama site aimed at ensuring future stability in the supply of raw material.

A subsidiary called Recogen has already been set up and the firm is the process of acquiring the technology to automate charcoal production and make it cleaner.

The project will also generate eight megawatts of electricity, seven of which can be sold to the national grid, with one megawatt being enough to power the plant. (RG)

Buoyant stockmarket set for major rally

Stock prices look set to rally in the weeks ahead following Friday's unprecedented bull run, as the UNP's win in the general election gives confidence to investors but urgent reforms would be required to sustain the positive sentiment, brokers said.

"The market should remain strong in the immediate future," a broker at Asia Capital said last Friday. "People expect a clear majority for the UNP, so there should be political stability."

Radhika Jayasundera, assistant vice president of research at DFCC Stockbrokers, said the prospect of a UNP government had revived the market. The rally was based on perception, not fundamentals, with investors having confidence that an investor-friendly government would be formed. "But strong reforms and urgent policy implementation would be required to sustain this kind of positivity," she said.

"We see a lot of positive signals coming in," said Chinthaka Ranasinghe, head of research at John Keells Stockbrokers, at the start of trading on Friday morning. "We do have a lot of buy orders in hand." 

Trading on the Colombo Stock Exchange (CSE) ended last week with record increases in the All Share and Milanka prices indices. The All Share price index rose 107.4 points or 20.6 percent to 643.2, its highest-ever daily point change and percentage increase. The Milanka price index shot up 235.1 points or 27 percent, its highest daily rise, to reach an all-time high of 1.106.5 points. Friday's turnover of Rs. 688.3 million was the highest turnover recorded since May 21, 1999, the CSE said. Retail investors dominated the day's trading.

DFCC Stockbrokers' Jayasundera said the rally might last for a couple of months but ease off thereafter. Overall, the economic picture was "not looking so good" with gross domestic product not growing, the budget deficit ballooning, inflation on the rise and interest rates creeping up, she said.

Urgent reforms were required in the next six months or so. "The key is to start taking steps towards reforms," she said. 

Business leaders hail UNP's victory march

Leaders of business chambers and the private sector's peace campaign hailed the United National Party's victory at last week's parliamentary elections, saying they believed the UNP could do a better job than the People's Alliance in reviving the economy and instilling confidence among investors. However, they said, the new government would have a difficult task ahead and hard choices to make in its efforts to set the economy back on track and increase growth. "From the point of view of the business community, here and overseas, we certainly rejoice at the result," declared Ranjit Fern-ando, CEO of the National Development Bank and a promoter of the SriLankaFirst peace campaign. "It is a very positive result - there's a clear mandate to the UNP." Ratna Sivaratnam, chairman of the Aitken Spence conglomerate, said the swing towards the UNP "gives the private sector a great deal of confidence regarding future investment possibilities and economic growth." The Ceylon Chamber of Commerce repeated its call for a new political culture and a stable government that would work in partnership with the private sector to develop the country. "Our aspirations and hopes remain what they were," said Chandra Jayaratne, chamber chairman. "We hope that at least from now on we will have an atmosphere free of violence and hatred. We urge all our political leaders to ensure political stability, network partnership for development and a government of national unity and reconstruction." The new government should take urgent reform measures to support and grow the economy which is in a deep crisis, he said. The chamber had already got to work preparing a document on the economic agenda facing the new government that would be presented as soon as the Cabinet was formed, he added. Jayaratne said the budget deficit needed to be pruned and reforms were required in a number of sectors such as education, the labour market and the power sector. Lalith Kotelawala, head of the Ceylinco group, who is also one of the business leaders backing the peace campaign, said he was "delighted" at the election result as it showed that "all the racial sentiments expressed before the election that spread hatred and misunderstanding had been rejected by voters." A large part of the island's economic problems could be resolved if there was peace, he said, describing the election result as a major step taken by voters in giving Ranil Wickr-emesinghe a mandate to solve the ethnic problem. The UNP has a good chance of reviving the economy as it has "a very constructive approach," he said. "Ranil Wickreme-singhe is a team leader, not autocratic," he said. "He listens to people." The NDB's Fernando said the new government represents "new thinking" and that the UNP was seen as more investor and private sector-friendly. "The team is better. You can see that from the reaction of the stockmarket." The government has an enormous task on its hands and would have to take urgent steps to cut the budget deficit, bring down interest rates and tackle other core issues like stable power supplies, he said. "The new government would also have to give priority to achieving peace," he said. 

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