The Sunday TimesBusiness

13th October 1996




Big chemical project in Hambantota

Asiff Hussein

In a pioneering attempt to develop the South in a big way, Ceylon Shipping Lines Ltd. and the Southern Development Authority (SDA) recently signed a Memorandum of Understanding to set up a multi-million rupee chemical plant in Hambantota district.

The project, which will entail an initial investment of Rs. 100 million and a projected investment of Rs. 1375 million, will also involve a German consortium, Munchmeyer Petersen GMBH of Hamburg which will bring in technical expertise besides investing in the venture.

Ceylon Shipping Lines, together with its German partners would be holding a controlling share of 51 per cent in the company, RUHUNA 2001-Caustic (pvt) Ltd., while the remaining 49 per cent stake would be held by the SDA.

The project is expected to provide direct employment to 1,500 persons, largely from the area, as well as indirect employment to about 5,000 persons.

The factory site is expected to occupy about 50 acres.

Ceylon Shipping Lines Ltd., Chairman E.A. Wirasinha told The Sunday Times it was high time a serious industrial development programme got underway in the Southern Province.

"As a Southerner myself, I am keen on developing the province and am willing to take the risks entailed in going to the south. We must all be prepared to take risks at some time or other."

"We have embarked on this venture to instil confidence into the Sri Lankan private sector and foreign investors that the south can be developed.

There is a lot of potential for viable ventures of this nature to be developed in the south.

This is imperative today as there is a severe unemployment problem that is getting worse day by day and which has to be corrected if we don't want another youth uprising" he said.

Mr. Wirasinha said the project was unique to the country in that it envisages the utilization of a raw material readily available locally, namely salt water from two lakes in Mirijja-vila which has been identified by the SDA for development as salterns.

"The SDA has provided us with the ideal location for the project. The day, salty environment of Mirijja-vila is just what is needed for such a project. The plant which will be located on higher ground will be situated just two kilometres from Mirijja-vila town" he said.

"The project is also particularly important in that it is high value-added. We will be mainly producing highly refined caustic soda for the domestic market", Mr. Wirasinha said.

"At present, Sri Lanka imports 254 million rupees worth of caustic soda annually, and we are capable of meeting all our domestic requirements. Thus we have an assured domestic market. With time, we also hope to increase our production and tap potential export markets with the help of our German collaborators" he added.

Although caustic soda has been produced before in Sri Lanka by the state-run Paranthan Chemical Corporation, it has been only in a crude, unrefined state. Such production however ceased long ago due to the North-East conflict and the industry has yet to be revived.

Bede Fernando, General Manager of Ceylinco Securities and Financial Services, which is assisting the project with technical inputs explains the process.

"The only raw material we would be using, salt water, will be purified and concentrated before undergoing an electrolysis process which in turn will yield Sodium Hydroxide (caustic soda) and two by-products, namely chlorine and hydrogen".

"A ready market is available for caustic soda which is used in the manufacture of soaps and in textile processing and paper manufacture," explained Mr. Fernando.

"As for the two by-products", says Mr. Fernando "these alone will save the country over Rs. 16 million an year and will also generate considerable foreign exchange from export markets in the South and South East Asian region".

"Chlorine which is used in water purification and the textile industry (as a bleaching agent) is readily marketable domestically, as is hydrogen which is used in metal processing", he noted.

"Although at the initial stages, profits will comprise only about 25 per cent of the capital invested, this is expected to increase considerably with time, following detailed quality studies and expansion into production of various derivatives from the by-products and liquid residue of the brine such as sodium and magenesium salts. For example, hydrochloric acid which is used in metal processing has a good local market" he said.

"Further more, the project will not have any adverse effect on the environment since the wastes from the plant are not hazardous and is easily disposable. There also exists no possibility of toxic emissions leaking into the atmosphere, since the plant will utilize modern facilities designed to control such pollution" added Mr. Fernando.

BOI to lure global market leaders with special incentives

By Asantha Sirimanne

The Board of Investment (BOI) will offer identified global players special incentives and then capitalise on their arrival to attract related investment, a top board official said.

"We are going to target specific companies which are considered industry leaders in their specific sectors," BOI chief Thilan Wijesinghe said.

He was speaking at a seminar on foreign investment organised by the Society for International Development in Colombo.

"For example, if we attract an industry leader, like Motorola, to Sri Lanka, at least a dozen other companies would automatically follow Motorola," he said.

These companies would include competitors as well as suppliers.

Motorola is one of the international giants being targetted by BOI and Sri Lanka is now believed to be one location being considered for siting a semi-conductor plant.

Mr. Wijesinghe said the BOI was now focussing on attracting risk capital.

During the past year, the BOI has been concentrating on attracting investments into infrastructure which was considered a priority at the time.

He said infrastructure was not considered pure risk capital as various comforts such as Power Purchase Agreements provided guarantees to the investors.

Mr. Wijesinghe said one of the reasons for the labour unrest experienced in the country was the erosion of real wages by inflation. Industries were unable to pay higher salaries as they were operating in a low value-addition environment.

"We have failed to diversify away from the lower end of the market, consequently many industries are operating on the margins and real wages cannot keep up with inflation," he said.

He said it was necessary to bring new technical as well as management skills, especially on the labour front.

Since he took office not a single incident of labour unrest had been reported from 100 per cent Japanese owned companies.

"Certain management styles of the Japanese foster harmonious co-existence between labour and management," Mr. Wijesinghe said.

Meanwhile, attempts were also being made to include electronics components and rubber goods into the South Asia Preferential Trading Arrangement (SAPTA). Rubber goods especially had the potential to feed the growing automobile industry in India. This would open up investment opportunities in Sri Lanka, to make and export such items.

Chamber Chief Patrick Amerasinghe said the country was not realising the value of local entrepreneurs, especially small and medium sector industrialists. BOI concessions for example tended to give unfair advantage to large companies some of which were foreign owned.

He said a large amount of foreign investment had come to the country without the aid of bureaucratic promotion but by the efforts of entrepreneurs themselves.

"We are not effectively harnessing the resources of our local people," he said.

Local investors felt that while foreign investors were given the red carpet treatment, locals were discriminated against.

He said local manufacturers were burdened with cascading turnover taxes, and found they were unable to compete with cheap imports, especially from China.

He said countries such as Korea, which also promoted large industries were now having a strong focus on small enterprises.

"In the seventies or sixties we nationalised foreign ventures, sent totally wrong signals, and now we are going on bended knees asking them to come back," Mr. Amerasinghe pointed out.

He said local investors were now being asked to invest abroad. "Now what is the rationale behind this?" he asked. Most of the problems the country underwent after independence were due to the lack of consistent policies, he said.


By P.M.N. Bandara

Fair growth

"Singer Industries performed satisfactorily in the first half of1996 showing significant growth at the net profit level over that of the equivalent period in 1995", says Chairman, Mr. Hemaka Amarasuriya.

The Company's revenue of Rs. 384m. reduced marginally when compared with the equivalent period of the prior year. "This is partly due to removal of excise duty on T.V sales in the November1995 Budget, which reduction was passed down to the consumer. Overall production of T.Vs. increased and that of sewing machines declined due to market forces.

The entry of low priced sewing machines into the market had an initial impact on our volumes but customers are gradually realising that these low end brands do not have back up service support and we do not envisage a serious erosion of our market share thereby", Mr. Amarasuriya explained.

Financial highlights according to the provisional accounts are as follows:

	1996	1995	% Change
	Rs. M	Rs. M
	   Turnover	384.1	385.9	-0.5
Profit before tax	19.7	19.3	+2.0
	   Profit after tax	11.6	8.5	+36.4

Poor growth

The provisional accounts of Rekitt & Colman of Ceylon for the 6 months ended 30th June, 1996 do not indicate significant changes compared to the figures for the corresponding period in the previous year.

Company's turnover for the period was Rs. 594.7 m as against Rs. 540.0 in 1995. Profit before taxation decreased by 7.5% from 80.6 m to Rs. 74.7 m.

Profit after tax decreased marginally from Rs 45.9m to Rs. 45.6m.

Profit drop

Sharp decline in turnover and profit are the significant features of performance of Bata Shoe Company of Ceylon Ltd., during the six months ended 30th June 1996.

The following figures indicate the change over the previous period.

		1996	1995	% Change
		Rs.'000	Rs.'000
	   Turnover	590,953	645,299	-8%
	    Profit before  taxation	1,545	51,000	-97%
	   Profit after taxation	850	28,000	-97%

Profit decline

Despite a 20% increase in income a sharp decline in profit of DFCC is shown in the quarter ended 30th June 1996 according to the interim accounts.

Following are the comparative figures.

		1996	1995	%Change
		Rs. M	Rs. M
	Income 	554	476	+16.0
	Profit before tax	132	176	-25.0
	Profit after tax	92	116	-21.0

Fair performance

Union Assuarance Limited earned Rs. 530.7 m gross premiums written for the 6 months ended 1996 which is an increase of 18% over the previous year's figure. However, profit for the period under review with zero tax provision dropped by 16% according to the interim accounts.

The consolidated balance sheet as at 30th June1996 shows an increase of shareholders' funds by 10% from Rs.409.9 m to Rs.453.3m

Mixed results

Ceylon Cold Stores Limited has reported a turnover of Rs. 323.2 m for the 6 months ended 30th June1996. This is an increase of 8% over the previous year's turnover (Rs 298.8m).

Profit before taxation dropped by 12% from Rs. 34.9.m to Rs. 30.9 according to the provisional accounts. The drop of profit after taxation was 26% from Rs.27.9m to Rs.20.7 m.

The shareholders' funds as at 30th June 1996 shows an increase of 79% compared to the figure as at 30th June 1995.

Mind Your Business

By Business Bug

Stock showdown

Last week's sale of Udapussellawa Plantations raised many hopes that Colombo's stocks were finally on an upward move.

But, even though the next sale of a plantation company is not in the near future, battlelines are already being drawn.

At least three major companies are in the fray and bidding is likely to be fast and furious, once again, brokers say.

Insuring broker

The Stock Exchange has called for applications for stock brokers to be enlisted. Even though there maybe room for only two new 'brokers', the response is likely to be overwhelming.

Among the contenders is a major player in the insurance industry which recently ventured into the money markets....

Wrong number

Any publicity is not good publicity, one cellular network found out recently when an Indian delegation refused to deal with them after reading what an Indian sports magazine had to say about their service.

This is what the magazine said: "Try hiring a cellular phone in Colombo and you realise what life is. They promise you the earth but do not deliver....

So, when the delegation was offered several choices of networks, they started by saying: "Any network but this...."

Commmitte given more powers

By Ruwanthi Ratnayake

The Sunday Times - Celltel Business Club meting took an interesting turn last week at the Colombo Hilton with members actively participating in the Business Club elections.

As proposed at the previous meeting, it was decided that a committee, including the President, Vice President and Secretary should be appointed to organise monthly meetings and to encourage more interaction and participation of the members. The committee is also expected to help develop new ideas amongst the members themselves, by their being directly involved in organising the meetings.

Mario Fonseka was elected President, while Ainsley Alles and Rizan Jiffry were elected Vice President and Secretary respectively.

Celltel's Assistant Manager Sashi Fernando assured the members that the support given by both Celltel and The Sunday Times would remain unchanged. He said what was needed was the active participation of the members. The committee is free to decide on the type of meetings - fund raisers, workshops etc. In addition to organising these meetings, the committee can also decide whether more frequent meetings are needed, to obtain the active participation of the members.

With the appointment of the new committee, the Business Club meetings will consist of innovative and creative ideas, in keeping with the interests of the members and one can be certain that the meetings will surely take a wholly different dimension.

CB ties up with EDS

The Central Bank of Sri Lanka has signed up with Elecetronic Data Systems (EDS) Lanka for an integrated human resource management (IHRM) package a company release states. Since the Central Bank bomb blast on January 31 EDS has been involved with the Bank's automation process. One such area is the personnel system which curently has around 2,500 employees. The hardware for the above system includes three IBM AS/400 advanced series mini computers. USAID has been instrumental in funding the entirety of this project as an emergency procurement.

EDS is also helping the data processing staff of the Bank, who will be developing AS/400 based applications, by providing training on RPG/400.

Baiting the investor

The quality, cost, availability and turn over of skilled labour are critical considerations in foreign investors setting up industries. This is the finding of a study published by Political Consultancy and Economic Risk Consultant, (PERC), a Hong Kong based firm of Consultants. The study brought out that among the countries surveyed, which did not include Sri Lanka, the Philippines comes out best on an overall score for these four attributes. Several countries like India, which scored high on cost, turnover and availability scored low on quality. Several countries which had a good score on quality, had high cost, low availability and high turnover. What this study brings out very strongly is that firms would invest in countries not merely because of the low cost of skilled labour but give due consideration to its quality, availability and turnover.

Interestingly, entrepreneurs are leaving some Asian countries owing to the poor availability and high turnover of skilled staff and increasing costs. Recently several firms transferred the manufacture of hard disk drives from Malaysia to Japan. As many as 3,600 workers were laid off in Penang which housed 130 electronic firms. The main reason for this was the severe shortage of skilled workers and increases in wages. It appears that in countries like Malaysia the increase in wages outstrips the increases in productivity.

When discussing the issue of labour one must not forget that labour costs constitute only part of the cost of production. The ultimate cost of a product is as much dependent on other factors. The cost of electricity, delays owing to poor infrastructure and bureaucratic bottlenecks can have a significant bearing on the cost of production.

When considering labour costs the need to look not merely at the wage rate but the quality of the skills, their productivity, discipline and minimal disruption of work schedules are significant issues in determining wage costs. With the level of unemployment in Sri Lanka it is likely that the availability and turnover of labour would be attractive to entrepreneurs. The wage rate too should be an attraction provided the productivity of our labour is comparatively high. It is the combination of quality of our labour and productivity related to wage rates which determines the actual cost of labour. The lesson we must learn is that we have to move away from the notion that low wages alone would attract investors. We have to offer quality attributes if we are to be attractive to foreign investors. It is particularly important that the advantages we have in terms of wage rates are not frittered away by poor labour discipline and disruptions of work.

In this connection it is also instructive to refer to some of the findings with respect to other countries. In the case of Vietnam the wage rates are low but labour is poorly skilled. Consequently in the PERC ranking of Vietnam it did not fare as well as one would have expected. India had advantages on cost, availability and turnover, but scored low on quality. The Philippines on the other hand combines high quality labour with reasonably low wages and a good availability and reasonable turnover which gave it a high overall grade. However interestingly the Asian countries which came out best on quality were South Korea, Singapore and Hong Kong. Western countries like Britain, U.S. and Switzerland scored high on quality but had high costs.

Sri Lankan strategy should be worked out in relation to the developing scenario of labour markets in the region. It is likely that higher costs in East Asian and South East Asian countries would move investors to countries which have lower wages. This is particularly so as some of the fast developing Asian countries not only have rising wages but difficulties in availability and high turnover. On the other hand, other less developed Asian countries with lower wage costs may be deficient in skills. Therefore Sri Lanka should attempt to combine its relatively low wage cost with improved productivity and enhanced quality. If we do just that we may be one of the most attractive locations for foreign investors. We must ensure that wage increases are more than offset by productivity gains, if we are to remain attractive to foreign investors.

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