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The Institute of Policy Studies (IPS) in its recently released state of the economy report for 2001 deals with a range of issues from economic management, governance, poverty alleviation to competitive policy, anti-dumping and privatization.
Here are extracts of the report focusing on short and medium-term economic management issues:
Many issues of governance such as the streamlining of ministries, as well as deep-rooted issues relating to overlap of institutions, personnel and decentralisation remain.
Direct improvements in management need to be taken to improve aid utilisation that would generate employment and output, particularly at a time when foreign funding is scarce.
It is important to formulate a Poverty Reduction Strategy Paper (PRSP) as a prelude to applying for the IMF's Poverty Reduction and Growth Facility (PGGF), which integrates poverty reduction with macro-economic policies. This Fund facilitates concessional lending up to a maximum of SDR 538 million under a three-year arrangement at an annual interest rate of 0.5 percent. Of course, the actual size of the assistance (in cooperation with the World Bank) will depend on the extent of the balance of payments needs, the strength of the programme and the history of IMF credit use. Although the assistance is available at softer terms, it is subject to more stringent conditions.
A need to implement a strategy for the power sector that incorporates short and medium term as well as long-term aspects. The time to gather support for a coal power plant is now when the results of inactivity face the nation daily. The success of these initiatives will require the weight of the highest levels of leadership. The country cannot afford the governance failures in the power sector. The expected losses of the Ceylon Electricity Board in 2001 of Rs. 12 billion, is the size of last year's entire Samurdhi welfare programme.
Prior to resubmission of the legislation on competition policy, a renewed look at the importance of fostering competition in industry over revenue goals of privatisation is crucial.
Privatisation contracts need to be designed with the goal of fostering a competitive sector in the medium term without a simple short term aim of maximising government revenue from sales revenue.
Anti-dumping legislation needs to be forwarded with emphasis on simplifying the procedures and reducing the costs of initiating cases. Foreign assistance will be needed especially to assist small and medium size enterprises facing unfair competition from abroad.
Design of international contracts, especially for power supply, privatisation deals and of government borrowing need greater financial savvy and sophistication. These should also be guarded against being controlled by domestic interests.
On the external sector, multilateral trade liberalisation offers the greatest rewards for consumers as long as the appropriate safeguards (such as legislation on anti- dumping and countervailing duties) are in place to protect domestic industries from unfair competition.
The (proposed) bilateral Free Trade Agreement (FTA) with Pakistan is likely to be beneficial in the short term through greater tea exports, and no apparent adverse long term consequence. However, it would be disastrous to pursue numerous bilateral FTA's with the aim of expanding Sri Lanka's tea export markets, without full consideration of the impact on all other sectors (particularly import competing sectors) of the economy.
By Daren Butler
ISTANBUL, (Reuters) - Turkish chocolate maker Ali Galip Cehreli should be preparing for his busiest time of the year as the Muslim fasting month of Ramadan draws to a close.
But while Turks look forward to the "candy holiday" after Ramadan, when they give presents of chocolates and sweets, Cehreli sits in a cold and gloomy office pondering how Turkey's economic crisis has shattered his business.
An old red can on his desk bears the firm's "Golden" logo, recalling a time when it dominated the market and its name was synonymous with chocolate. Turks fondly remember its chewing gum, in a wrapper carrying a picture of film star Sophia Loren.
Now with the firm unable to pay ballooning debts, courts will decide the fate of a company established by two Greeks and an Armenian in the 1940s — when Turkey last faced such a deep recession.
"God willing someone will feel this company should be saved. People feel nostalgic about Golden. Many have rung up to say how sad they are about what happened," says a glum-looking Cehreli, wrapped in a thick coat against the chilly air of Istanbul.
His story is like those of many businessmen who fell victim to surging interest rates in the aftermath of a February crisis that halved the value of the Turkish lira.
Business group figures show that some 25,000 firms closed in the first 11 months of the year, a 14 percent increase over last year. The official unemployment rate, a rather rosy reflection of a harsher reality, has jumped to eight percent from 5.6 percent a year earlier.
The road to recovery appears arduous, with gross national product forecast to shrink 8.5 percent this year, while annual inflation has surged to around 75 percent. Turkey targets growth of four percent next year.
Victims of crisis
Hopes for an economic revival focus on negotiations between Turkish officials and the International Monetary Fund on a $10 billion loan, which would supplement a $19 billion rescue package already in place.
But such assistance will be of little help to Golden and other vulnerable companies which lack the resources to ride out the latest financial turmoil, having been ground down by a series of crises in recent years.
Cehreli took over the family company in 1994, when a financial crisis hit Turkish banks. Undaunted, the company made investments and began exports to Russia.
But just as business was looking up, the Russian crisis struck in August 1998 and undermined its business.
Turkey's fresh financial troubles in November 2000 piled on further pressure. The final straw was the crisis in February, when Turkey was forced to float the lira which subsequently lost some 50 percent of its value while interest rates surged.
For Golden, this meant that its bank debts of $360,000 surged to $900,000 — an unbearable burden.
"We urgently need a source of funds to get this place to operate again but with the market the way it is our efforts have been fruitless," said Cehreli.
"It is so sad because with the holiday coming, now is the time of year when we should be working more than ever," he said.
Instead, the factory's machines in Istanbul's commercial district of Sisli stand idle in the dark. Authorities have cut off the electricity.
Where 80 staff used to produce 12 tonnes of confectionery a day, the only employees left are two brothers who have grown up with the company over the last 30 years and now face the prospect of unemployment.
Support for manufacturing
While there is little prospect of assistance for Golden, Turkey is currently planning a set of economic measures, including a new law to prevent job losses in manufacturing.
The draft law is to be handed to parliament shortly and includes a move to extend investment incentives due to end in December by one year. Ankara is also setting up an asset management company to assist in restructuring the debts of some troubled firms. It may use some of 19 banks it has seized during the latest crises to help process the new loan system.
The troubles in the banking sector have exacerbated troubles for manufacturers as banks have cut back on lending. But there are some indications the manufacturing sector may be turning the corner. Industrial output rose 3.8 percent in October from a month earlier to its highest level so far this year. It was still down 13.5 percent from a year earlier.
Surveys also point to rising sales at leading stores in central Istanbul over the last quarter.
But while Turks queue up to buy sweets and chocolates in the nearby patisseries of Sisli, the once powerful smell of chocolate is now growing stale in Cehreli's factory.
"There will be no Golden this holiday. My biggest wish is for Golden to reemerge again one day," Cehreli says, before returning to his newspaper and the silence of his factory.
Telecom troubles
Telekomunikacja Polska announced that it would get rid of 12,000 employees next year, some 20% of its workforce. France Telecom, which acquired 35% of the former state monopoly from the Polish government last year, had said that job cuts would come but had agreed with powerful unions that it would wait four years.
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Struggling British Telecom appointed Ben Verwaayen, a Dutchman from struggling Lucent Technologies, as its new chief executive, to replace Sir Peter Bonfield, who recently said he would depart from BT a year ahead of schedule.
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Nokia provided some relief from the gloom surrounding high-tech companies. The Finnish mobile-phone behemoth announced that fourth-quarter profits were likely to be better than previously forecast after handsets sold in greater quantities than expected. But fourth-quarter profits will not match last year's; and its infrastructure business still languishes.
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Consignia, once known as Britain's Post Office, may have to lay off some 30,000 workers over the next year and a half, twice previous estimates for redundancies needed to save costs as postal growth slips. Unions reacted to the state-owned company's announcement with outrage and threatened to strike.
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Yahoo!, the world's biggest Internet portal, made an unsolicited offer of $436m for Hotjobs, a careers website that was planning to merge with its rival, TMP Worldwide.
Drug culture
Corporate Japan suffered its biggest foreign intrusion with the purchase by Roche of a controlling interest in Chugai, a large drug company, for up to yen 198 billion ($1.59 billion). The Swiss drug firm assuaged Japanese sensitivities by dressing the deal up as an alliance with Roche as an invited partner.
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Pfizer threatened to stop supplying France with new medicines in protest at the country's drug-pricing policies. It hopes competitors will join the struggle to squeeze extra cash from France's government; it would go to research and developing better cures, says Pfizer.
(courtesy – Economist)
The Sri Lanka Nepal Business Council has urged the new United National Party government to promote greater interaction with neighbouring countries.
Council President Jagath Savanadasa, in a statement welcoming Prime Minister Ranil Wickremesinghe and the new government, said Sri Lanka should explore to the maximum the opportunities for bilateral and multilateral economic cooperation with emphasis on trade and new investments.
"The new government we hope will utilize the upcoming SAARC conference to project an outline of its foreign policy especially with regard to strengthening regional ties. It could also take a look at the potential for improving trade and investments within SAARC," he said.
Sri Lanka's Lowe Lintas Advertising Agency Group has appointed Keith Martenstyn as its new Managing Director and CEO.
He takes over from Tagore Berry who made a valuable contribution to the agency's brands and is moving on to other challenges, the company said in a statement.
Keith Martenstyn graduated in economics from the University of Sussex. He worked for Unilever for 18 years, first in brand and marketing management, developing new markets and carving share points for a wide range of products in existing markets.
He was then hand-picked to head the Wall's operation in Sri Lanka. Martenstyn recently returned from a three-year overseas posting where he was the Regional Project Manager for Unilever's ice cream business looking after the markets of North Africa, the Middle East and South Asia.
Terry Benson, chairman and Lilamani Dias Benson, founders of the Sri Lankan operation, will continue as working directors of the company.
The agency, which is the Sri Lankan operation of Lowe Lintas Worldwide, enjoys a reputation for building powerful brands and for outstanding creativity. Some of the agency's campaigns are noted case histories and often quoted to university and marketing students as outstanding communication examples.
The Indian government has allowed futures trading in tea under section 14 of the Forward Contract (Regulation) Act, 1952, according to a government statement quoted by the Economic Times of India.
It said with futures being allowed in tea, market players would be able to take advantage of the facilities of hedging and hence manage their price risk. Consumers are also likely to gain on account of the consequent price stabilisation.
The Forward Markets Commission would identify suitable commodity exchanges for conducting futures trading in tea, the report said. After completion of the procedural formalities such as an application by the exchange, approval of by-laws etc., a certificate of registration would be granted. It is expected that futures trading will commence within 6-8 months.
"Tea is an important item in the agro-economy of India and also in terms of household consumption and a traditional export item. Since the commodity is produced only in certain parts of the country it faces region-specific supply-demand issues and hence volatility and variability in prices across time and space. As an export item, the commodity faces international price risks as well. The availability of a price risk management tool is, therefore, essential, particularly in the face of freer trade of goods and services," the news report said.
It said the government, in order to provide market-based tools for price risk management, has been encouraging futures trading in major agricultural and plantation commodities.
Fixing the carmaker
Fiat unveiled plans for a restructuring that would see the loss of 6,000 jobs, the sale of non-core assets and the possible demise of up to 18 of its factories. The head of its car-making division, Roberto Testore resigned.
Downward march
America's Federal Reserve responded to continuing signs of economic weakness with its 11th interest rate cut of the year. A reduction of a quarter-point brings rates down to 1.75%, the lowest for 40 years.
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The value of global merger and acquisition activity in 2001 was $1.6 trillion, half what it was worth the previous year, according to data from Dealogic. In 2000, the inflated value of high-tech shares fuelled many a deal that now looks unwise.
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CSFB is to hand over some of the cash it had made from the dotcom boom. The investment bank has reportedly agreed to pay $100 mln to settle an investigation by America's regulators into claims that it had rigged initial public offerings of high-tech shares by allocating big tranches to favoured customers in return for a slice of the profits in the form of inflated commissions.
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The weak economy claimed more victims at American Express. It announced that up to 6,500 more jobs would go, on top of the 7,700 announced in the past 12 months, a total of 15% of its workforce.
(Courtesy – Economist)
"Globalisation of Sri Lanka, Its good and the bad and the role of the public sector," by Prof. A.D.V. de S. Indraratna
At a time when the entire world is overwhelmed by globalisation as a panacea for all economic ills, Professor A.D.V. de S. Indraratna critically looks at this process in his monograph entitled, "Globalisation of Sri Lanka, Its good and the bad and the role of the public sector". The integration of the world economy is gathering momentum. With the liberalisation of the economy in 1977, Sri Lanka entered into the arena of globalisation and thus, she has 24 years of experience in this process. The author has taken the initiative to look back at this process objectively so as to highlight what has gone wrong and what the public sector should do to correct the situation. It is a daunting task to address this timely and critical issue but this monograph succeeds authoritatively by presenting a lucid picture from a Sri Lankan perspective.
The author starts by defining globalisation as the process of integration of national economies. In the chapter on historical background, it is explained how information technology (IT) developments in the last two decades have powerfully fuelled globalisation during the last two decades. As a result of the fast developing IT, the world trade rose 2-3 times as fast as the world GDP in the last decade.
Sri Lanka's experience in the liberalisation and globalisation process has been diverse. In the first phase of liberalisation in 1977-82, the country achieved internal balance in terms of high economic growth and low unemployment, but the budget deficit was unattainable and inflation became excessive. In the second phase of 1983-94, the economy suffered an internal imbalance in the form of low growth, widespread unemployment and high inflation while there was also an external imbalance with a large current account deficit. The socio-economic problems aggravated during the third phase of 1994 to-date with low growth, high budget deficits, wide external deficit and high inflation. Fiscal profligacy continued unabated, allegations of waste and corruption were galore. Privatisation was intensified during this recent period, but the author notes that it did not generate or bring much funds either to the Treasury or to the capital market as envisaged. There has been hardly any infusion of capital or technology to the domestic economy.
The author questions whether globalisation has brought about any beneficial effects to the country in the form of increased trade, capital inflows, technology transfer and labour migration. He observes that Sri Lanka did not get opportunities to expand her trade, as there was no level playing field in the foreign trade arena. Because of the export illusion and rush for garment exports, other economic activities, agriculture in particular, received step-motherly treatment. Foreign direct investment did not help much to diversify the export base and to infuse technology into the domestic economy. The author also highlights the economic consequences of the recent shocks like the terrorist attacks on the Colombo international airport and the US twin towers. Globalisation has multitude fallouts like increasing poverty, rising crime and violence, environmental degradation, changes in lifestyles and erosion of cultural values.
The author emphasizes the need to restore good governance and proper economic management to rectify the present situation. In this process the public sector has an important role to play by supporting the private sector to modernise and industrialise the economy. The government should give clear directions to attract FDI and technology. There is also a need to monitor the activities of multinational corporations (MNCs). The role of the public sector in regard to FDI and MNCs becomes all the more important in view of trade-related investment and intellectual property rights measures introduced by the World Trade Organisation. The author also stresses that the government should play an active role in export diversification and poverty alleviation. The author concludes by reiterating the fact that a strong and efficient public sector is imperative to foster economic growth with appropriate national policies in a country like Sri Lanka.
It is a short, but comprehensive monograph on the whole question of globalisation. This is an eye-opener to the general public and particularly to the policy makers. In my view, all those who are interested in the subject should read it.
(Reviewed by Dr. S. Colombage)
Sri Lanka's leading blue chip group Hayleys says it is in the process of setting up a Rs. 1.5 billion consumer products network.
This network will consolidate the marketing and distribution of leading global brands like Fujifilm, Baygon, Philips audio, video and lighting, Daewoo, Daytron, Usha as well as Over-the-counter (OTC) and other pharmaceutical products of Bayer and several other international brands. These brands have been marketed by companies in the Hayleys Group for many years, and the consolidated distribution network will make it one of the largest and most effective in the island, said Rizvi Zaheed who leads the Hayleys Consumer Grouping.
The Ceylon National Chamber of Industries (CNCI) while congratulating new Prime Minister Ranil Wickremesinghe and the UNP government hopes a spirit of national reconciliation will prevail and cooperation between the government and the opposition will mature.
"This is especially necessary if efficiency and high productivity are to prevail in the industrial sector which in the recent past faced a period of dislocation," the CNCI said in a statement.
It said Sri Lankan industry was very vulnerable to external influences and some of the factors influencing it negatively were shrinking markets due to global recession, labour unrest due to politicisation of trade unions, lack of anti-dumping laws, high bank interest rates, ongoing power cuts, a non-level playing field between BOI and non-BOI companies, under-valuation of imported finished goods, low quality imported finished goods and parate execution on properties mortgaged to banks, etc.
The chamber said it was imperative that quick remedial action be taken to solve the issues facing local industry. "This will result in prosperity descending on a significant portion of the economy," it said while assuring the new government its support in developing the country.
Leo Burnett Solutions Inc, the youngest agency in the Sri Lankan advertising industry, recently completed production on its 50th television commercial.
"This is a major achievement for an agency that's still in its infancy, in terms of establishment years. In a very short history of just two years and five months, Leo Burnett Solutions Inc. has risen to be a leading creative force in Sri Lanka, " the company said in a statement.
Now having aired its 50th TV commercial, the organisation has added this golden milestone to its high-profile portfolio. The commercial in question was produced for People's Bank for their 'Vanitha Wasana' campaign.
"High quality TV commercials are in great demand as there are so many run-of–the-mill mediocre commercials being produced today. Communication via the visual medium should therefore cut through the clutter and reach out to the consumer from amongst the rest," the statement said.
Bellucci, world famous porcelain products, was launched by Dainichi Creations Lanka (Pvt) Ltd at a gala ceremony in Colombo recently.
Dainichi, which specialises in ceramic ornaments, is the only porcelain company in the world to be bestowed with preferred status with top brands like Hallmark Cards and Keep Sakes. The company also makes products for international chains like Disney Store, GZO Lefton, Fitz & Floyd, Home Interior and MBI.
The Sri Lankan company, a BOI project, employs more than 3,000 people at its factory at Balummahara in the Gampaha district.
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