The Sunday TimesBusiness

18th August 1996



Ceylon Brewery to produce more

To meet the rising demand, Ceylon Brewery Limited, will be commissioning a state-of-the-art plant in Biyagama next year, the company said.

With the 70 per cent reduction in excise duty in November 1995, the demand for beer has increased, resulting in the company's improved performance.

Turnover has increased by 164 per cent against the corresponding period last year. Pre-tax profits have increased by Rs. 29.181 million when compared to the same period last year.

The new plant will be one of the most modern of its kind in the Sout Asian region, under the brewery equipment manufacturers, Steinecker and Krones of Germany. Costing Rs. 3.5 billion at final phase, the plant will initially have a capacity of 300,000 HL, with an expansion capacity of 1.8 million HL within a 10-year period.

The reduction on excise duty has not had any adverse effects on the government revenue. The total revenue to government in the form of excise duty, turnover tax and defense levy has increased since the excise duty reduction. The government also stands to gain in terms of Income Tax earnings from the industry as a result of enhanced profitability.

Mind Your Bussiness

By Business Bug

Charter Flight?

Will the Workers' Charter see the light of day?

Everyone thought it won't, what with the private sector and even some in the Cabinet opposing the idea.

But with the inclusion of the man who labours in the delegation to Seoul, there appears to have been a change of heart.

Now, the chances are, the charter will go with minor changes - like the Devolution Package, another minister quipped!

Promoting others

The opening of a hotel owned by a Colombo blue chip but located in a nearby island famous for a type of fish was held last week, but was devoid of the usual fanfare in the local media.

Why, the company big wigs were asked.

Opening a tourist hotel outside the country would be misinterpreted as having no confidence in Lankan's tourist industry and hence the low-key local publicity, we were told.

Paradise partner

A second call for the selection of a " Strategic Alliance Partner" for the Bird of Paradise has re-activated the airline industry.

Among the bidders would be airlines from our neighbouring country, the land of Uncle Sam and even those who claim to be virgins.

But most of them are likely to ask for a more than 40 percent stake, we hear....

Chamber draws up budget recommendations

Proposals on the government's taxation policies will receive top billing in the Ceylon Chamber of Commerce recommendation for the next national budget.

The chamber is represented on the Fiscal Policy Task Force of the National Development Council.

While a special committee directs the Chamber's taxation policy matters, several sub-committees have forwarded their proposals for the 1997 budget, which are now being put together, newly appointed Chamber officials headed by Chairman Mano Selvanathan told the media.

Chamber official, Ken Balendra said that one option to bridge the budget deficit was to widen the tax net. Officials also said that they were studying incentives to export industries, in the Asian region. Officials said that incentives to the non-BOI secter were inadequate in comparison to benefits given in neighbouring countries like India.

Officials said they intended to have closer and more frequent dialogue with the BOI for better incentives.

One of the Chamber's sub-committees were also attempting to have closer dialogue with the government. They pointed out that Sri Lanka's bank borrowing rates were the highest in the region, and some tax breaks and incentives were necessary, especially for the non-BOI sector.

Chamber officials at the media briefing: from left: Ken Balendra, Mano Selvanathan, Chandra Jayaratne.

Ceramics to sell Noritake shares

Lanka Ceramic Ltd. (LCL) will sell dispose of a 25 per cent stake in Noritake Lanka Porcelain (Pvt.) Ltd., shareholders were informed in the annual report.

The shares are to be sold at a price of Rs. 19,000 each.

Lanka Ceramic held 49 per cent of Noritake Lanka at the end of 1995.

During 1995, LCL subsidiary, Lanka Walltile Ltd., had boosted its stake in Lanka Tiles Ltd. to 51 per cent. Both Lanka Tiles and Lanka Walltiles are listed on the Colombo Stock Exchange.

In 1995, the group turnover had risen to Rs 1.478 m from the Rs 1,176 m recorded the year before.

The group's after tax profits had fallen to Rs 39.5 m from Rs 113 m the year before.

However after tax profits of the parent company, Lanka Ceramics, had declined sharply to only Rs 5.1 m from Rs 29 m in 1994.

Less holidays better for economy

These dismal days, when the business world is flat on its back and rapid industrial growth is but a distant dream, there are still little rays of sunshine that occasionally break through the gloom. Last week, the government announced that the number of public holidays for 1997 would be reduced by four Ñ among the holidays to be cut were Bandaranaike Memorial Day and National Heroes Day.

Private industrialists, led by some major trade associations, have lobbied for this cut for a long time now. The fact that Sri Lanka nearly topped the list of countries with most public holidays has been a sore point for many local industrialists and foreign investors. They claimed quite correctly that between the public holidays, power cuts, and trade union strikes, very little work was being done. At this time, when business has hit rock-bottom and foreign investment is fleeing into the open arms of Vietnam and other Southeast Asian countries, the last thing we should be seen doing is taking too many holidays.

The government should be applauded for this decision and encouraged to stick to the principle of doing the simple things first to rescue the economy. Most Sri Lankan governments have a habit of arriving at the most complex and convoluted response to political and economic problems. Many policies and plans formulated require tremendous amounts of administrative coordination and technical capability to implement. The fact that our bureaucracy does not have the skill or motivation to do this has been completely overlooked. In comparison to such complex policy responses, cutting back the number of public holidays is a decision that can be made at the highest level and implemented without much ado and without any manpower.

This is a good start not only toward building an environment conducive to investment but also toward cultivating a better work ethic in Sri Lanka. Labour in this country has had it far too easy. Many people are used to coming to work late, taking long tea breaks, and refusing to do anything that is not contractually required. Four more working days a year will not change these traits. The government, however, should seize this opportunity to start being more consistently firm with labour.

In this Year of Productivity, when productivity increases are being forecast with foolhardy optimism at every corner, we should be careful not to attribute the four extra days output as a contribution to productivity. It is true that the nation will increase annual production because of the four extra days of work. Productivity, however, will not increase unless other factors are improved because the output produced per unit of inputs spent (or per worker per hour) will remain the same. Enhancing productivity is a more complex task which involves adopting more efficient production processes and technologies, reducing worker fatigue, enhancing workers skills, etc.

Cutting back on the excessive number of public holidays is a decision well made and one that must be supported strongly by the highest levels of government. Key government leaders must display the political will to stand by this decision in the face of any protests by religious groups and labour unions that crawl out of the woodwork. In the area of the government’s commitment to the market economy and foreign investment, this is a substantive as well as a symbolic issue. It will be welcomed not only by the Sri Lankan private sector but also by foreign investors and the donor community. The government must not only recognise this but also capitalise on it.

More investors may want to leave

The 'CSE' seems to have stabilized at ASPI 560 levels. Marginal declines in certain share prices in the short term (2-4 weeks), could be expected, largely due to disappointing Q2 results. Weather and energy crises being sorted out, corporate performances in most companies are expected to improve in Q3 and Q4.

The ASPI increased nearly 14 points, largely due to retail (local and HNI) buying interest. But the ASPI could not keep the momentum due to profit taking and cashing on by institutions to cut their losses.

The offer for sale of a 51% (10.2 million shares ) stake in Hapugasthanne Plantation limited opened on August 8, while the IPO of 1,040,760 shares of Associated Hotels Company Limited opened on August 6.

Treasury bill rates as expected were climbing during the period under review to 16.8%.

TB. rates are expected to increase further to finance government expenditure. Long term investors (5 year term) and above could expect above average returned by investing in low price shares (less than Rs 20).

Plantation shares is a good speculative investment due to the prevailing bulish tea market. High priced liquid shares ( above Rs.100) may decline further, with poor results all round .

But market reaction is yet to be seen.

The persisting current account deficit and slowing down of capital inflows has led to the decline in reserves (3% in May) with mounting pressure on the rupee. Foreign investors will have a wait and see attitude prior to committing themselves to protect the dollar value of their investments which could wipe out returns of a valued stock, purely due to foreign currency fluctuations. Foreign investors will wait till the Rupee depreciates further, US$1 = Rs 60), before investing.

Political instability, lack of economic direction, the North -East war, especially the recent Mullaitivu attack has left its mark on the country with only a few large investors willing to take the risk and invest. If the present scenario continues, more foreign investors may want to leave. The energy crisis which has been temporarily sorted out (one hour power cut) could come back next year if no coal/thermal/ nuclear power plants are commissioned before April 97.

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