The Sunday TimesBusiness

29th December 1996

| PLUS

| HOME PAGE | FRONT PAGE | EDITORIAL/OPINION | NEWS / COMMENT | TIMESPORTS

Mind Your BUSINESS

By Business Bug

Stock market upturn

Ninety six was not a good year for the stock market, but what will the New Year hold?

Most overseas portfolio managers feel that barring an unprecedented escalation of the ethnic conflict, the worst is over, and things can only get better.

And that is why they have advised clients to buy in Colombo, come January. The preferred sectors with promise are banks, the liquor industry and ceramicware and wall tiles.

Private banks to branch out

More about banking: More private banks are set to expand in 1997.

Each has its own ambitious programme and if they all see the light of day, we will have well over another hundred branches of private banks by the end of next year.

And, leading the way is your partner in progress with plans to set up twenty more branches.

Workers' Charter next year

What with all this fuss about privatisation, what will happen to the Charter for workers?

The question was put to the one who labours by a diplomat this week.

The answer: "We will implement it by the end of next year if we are in office at that time.


Ice cream maker opts for bigger production

A local ice cream maker has commissioned an automatic icy choc production line, that can turn out 3000 chocolate coated ice cream bars an hour.

"Though several companies have produced icy chocs before, the process has been manual," says Bonns Frozen Foods' Managing Director Zareen Salih.

The Company already has a network of 600 selling points spread throughout the country, through which it distributes Bonns brand ice cream.

Mr. Salih had started the company with the sale of popsical in 1967. After 1971 he had suspended operations due to the shortage of sugar in the country.

He had later been trained at 'Lyons' Ice cream in the UK and studied ice cream making at Reading Dairy Farming University.

In 1982 he had launched Bonns ice cream made with a continuous freezing and ripple machine.

The icy choc project costing Rs 2.5 mn, uses equipment imported from the U.K.

The product has initially been sold in Supermarkets in and around Colombo.

"We will be marketing the product in the districts of Ratnapura, Kandy and Kuliyapitiya next," he said.


Highlights from Jan. to Dec. at a glance

January, 1996

The government declares 1996 a 'National Productivity Year'.

Dimo Auto Industries Limited exports a consignment of semi-luxury buses to Bangladesh. This is the first such export to be ever made from Sri Lanka.

February

LTTE suicide bombers attack the Central Bank of Sri Lanka killing more than 80 persons. While there was no accurate estimate of the cost of the bomb blast, most assessments of structural damages alone ran into billions of rupees.

Royal Dutch/Shell Group of Companies acquired 51 percent of the shares of Colombo Gas Company and changed its name to Shell Gas Lanka Ltd., the first privatisation of a public utility.

April

British Airways resumes flights to Colombo after a ten year lapse.

A new Export Processing Village (EPV), Tissamaharama EPV is opened with the assistance of the Export Development Board.

May

Apollo Hospitals Group announced plans to establish a 350 bed ultra modern hospital which would be fully operational in the first half of 1998.

June

A Ceylon Electricity Board strike resulting in a power cut leaves many a business paralized and the economic cost running into billions.

The Colombo Stock Exchange introduces Over the Counter trading for companies not listed in the Stock Exchange.

The tourist industry affected by increased terrorist activities seeks relief from the government by way of a rescue package.

July

Kentucky Fried Chicken the world's largest chain of chicken restaurants was launched with an outlet at Majestic City.

August

Bartercard introduces cashless trading to Sri Lanka to provide cash flow relief to small and medium scale businesses.

September

Blue Diamond Jewellery Worldwide Ltd., wins award for the best Sri Lankan export brand at the National Chamber of Exporters Awards Ceremony.

Ceylon Oxygen Ltd, announces a Rs. 450 million expansion drive to cater to the growing demand for industrial gases.

October

The Ceylon Petroleum Corporation announces a price hike in petroleum products including petrol, diesel and kerosene. The CPC justified the hikes by citing the decline in the exchange rate of the rupee as against the US Dollar and the increase in the international crude oil price as the two main reasons for the hike.

In a pioneering attempt to develop the south in a big way, Ceylon Shipping Lines Ltd, and the Southern Development Authority sign an MOU to set up a multi million Rupee (1375 million) chemical plant in the Hambantota District.

November

The PA Government's third budget presented to Parliament. The budget conceded a number of incentives for exporters and small and medium scale industries, while imposing additional sales taxes on the liquor industry. The Sri Lankan business community hailed the budget as development oriented and investor-friendly.

A 3-day SAARC Economic Co-operation Conference held in New Delhi. The Conference identified 10 key areas for discussion towards making the South Asia Free Trade Area a reality by the year 2000.

December

Entrepreneur of the Year (1996) award won by Kumar Devapura, Chairman, Tri-Star garments.

Ceylon Tobacco Company wins National Productivity Award for 1996.

Suntel, a Swedish-Sri Lanka joint venture launched Sri Lanka's first ever Wireless Local Loop telephone service and promised connections within 24 hours.

Suntel's entry opened the country's telecommunications sector to competition.


WTO in cooperation accord

The World Bank has taken the first key step in formalizing cooperation with the World Trade Organization (WTO) , signaling a more coordinated effort to further integrate developing countries into the global economy.

World Bank Managing Director Gautam Kaji announced the endorsement by the Bank's executive board in an address to the first ministerial meeting of the WTO in Singapore. He said the bank looks forward to working with the new multilateral trade organization in a range of areas.

The cooperation agreement, according to a press release, has been submitted for final approval to the Bank's Board of Governors. This sets the stage for the WTO, World Bank and International Monetary Fund to work more closely to establish a level playing field for global trade and to assist developing countries in adopting open policies to support growth and eliminate poverty.

"The agreement will build upon and extend the informal cooperation that has long characterized Bank-GATT, and now, Bank-WTO, relations. The World Trade Organisation and the World Bank have complementary roles in encouraging and supporting trade liberalization", said Mr. Kaji. The Bank, through its policy advice and lending, assists in the design, analysis and implementation of trade reforms that help developing countries take advantage of the increasingly dynamic global economy.

"The Bank's focus is primarily multilateral-emphasizing that the countries themselves are the main beneficiaries of their trade reform." The WTO consolidates these reforms and promotes non-discrimination among all its members. "By bringing trading partners together, the WTO allows countries to lock in their unilateral reforms by binding tariffs and other policies multilaterally; to negotiate improved access to other markets; and through its multilateral rules to seek an equitable and efficient world trading system," Mr. Kaji said.


For whom the Bells chime

Sri Lankan clients will be offered a wider choice in telecom options when Lanka Bell begins operations next February. With advanced digital telecommunication technology Lanka Bell, is partnered in operational services by two of the largest telecommunications companies in North America "GTE Corporation and Nortel" an official revealed at a media briefing last week.

Lanka Bell signed an agreement with Crescat Development Limited the developers of the Lanka Oberoi to provide phone connections to the luxury apartments and office complex under construction at the Oberoi premises.

Lanka Bell Marketing and Sales General Manager Ms. Eloisa Alejandrino told The Sunday Times that Lanka Bell are hoping to connect between 350-500 lines to Crescat Developments and that they would within the next 2 years concentrate on providing connections to corporate subscribers but would also provide domestic clients.

She also added that "Lanka Bell was required by the contract with the government to connect a minimum of 100,000 phones by the year 2000 to have their licence extended for another 25 years. In this regard we have targeted 30,000 connections for 1997".

Lanka Bell would only offer connections in the Colombo Metropolis. They would be launching the Lanka Bell service in February 1997 and plan to cover Kandy and Galle in the near future.


Difficult yet an eventful year

Power Cuts

The power cuts experienced from March 1996 had a crippling effect on industry. As a result industries had to cut down production and were unable to meet orders. It is specially important to meet lead times in a highly competitive export market. To lose a customer is easy but difficult to win them back.

Those fortunate to possess generators kept production going, despite rising costs. This situation led to increased demand for generators.

Power cuts were imposed as a direct result of drought. But the demand for power supply has been growing 10 per cent per year, without any additional capacity being installed.

Electricity Board in the past had made many attempts to get several projects off the ground to meet the projected demand, but was stalled due to bureaucratic bungling.

Attempts by CEB to promote thermal projects were also resisted by environmentalists. Though efforts had been made to build power projects with private finance on a BOT basis, they had also failed as the government agency in charge could not finalize agreements with private developers until very recently.

The net effect was that the country was unprepared when rains failed. The CEB meanwhile is predicting another power shortfall next year, under average rainfall conditions. The time is ripe for fruitful action.

Labour unrest

The effects of the power crisis worsened when the whole country was plunged in darkness once CEB workers struck work opposing the privatization of electricity distributor LECO. Workers were also against the BOT and BOO projects.

This not only affected production and CEB revenue but also highlighted the power the resurgent labour unions had in the economy.

Labour unrest had a somewhat dampening effect on investment and growth.

Meanwhile the CEB strike also exposed the danger posed by future work stoppages as the entire power generating capacity was in he hands of the CEB. Wth unions holding sway investors have been made to contend with an additional risk.

Privatization programme has also run into problems due to labour issues. With the investors having to contend with what are seen as powerful unions, their ratings of privatization candidates are likely to suffer, as they know they have to bear high costs in case labour unrest flares up.

According to one survey, strikes have been less in 1996 than in 1995 in numerical terms.

However their intensity and duration is said to have increased. As a result more man hours are believed to be lost per month in 1996.

Union action in privatized ventures such as Shell Gas and Ceylon Steel Corporation could raise questions among investors.

Shell Gas in particular was touted as a major achievement on account of it being a Fortune 500 company with an international profile that would help promote Sri Lanka. But the very attribute had the effect of amplyfying the nature of labour problems in Sri Lanka when Shell had labour problems. The Korean purchasers of Steel Corporation were also unable to take possession of their investment due to union opposition.

Bomb blast

At the beginning of the year the bomb blast at the Central Bank created a sense of fear of the unknown in the minds of the public. It was felt that the bombing would have adverse repercussions on the business and financial sectors. But such results as were projected did not materialise altogether. There was no visible adverse effect on the banking sector. The Central Bank showed remarkable resilience and soon it was business as usual. There were no cash shortages and the clearing of cheques took place without interrruption. The Bank continued its vital operations without hindrance from the various locations to which the Bank had distributed its departments. Some of the business houses which suffered physical damage did face distressing problems but in the course of the year they managed to get back to their locations. The bombing did not appear to directly affect foreign direct investment in Sri Lanka.

On the other hand, the impact of the bombing was felt in another economic target, besides the Central Bank - the hotel industry. Two hotels were damaged. But more than the physical damage, the indirect effect of the bombing was the downturn in tourist arrivals. Some countries which are the sources of tourism issued travel advisories to their nationals who were intending to visit Sri Lanka, warning them that the country was not a safe tourist destination. The number of tourist arrivals in the first half of the year declined by 31 per cent when compared to the first half of 1995. The overall occupancy rate declined to 39 per cent in the first half of the year as against 55 per cent in that of 1995.

Fuel/Gas hikes

Pre budget Fuel hikes, added to rising inflation caused a round of price increases of consumer goods, which affected the economy at large.

This unexpected hike, not related to world market prices, increased petrol prices from Rs. 40 to 50 per litre and diesel from Rs. 12.40 to 13.20.

Almost overnight, fuel price hikes were passed on to the consumer. Bus-fares increased by 15%, leading to a general increase in the cost of transportation, which automatically led to a price increase of most consumer items.

Meanwhile the privatization of Lanka Gas Company Ltd., has placed further burdens on the consumer.

While the selling of a public utility with monoply status, to a Fortune 500 company Dutch Shell has been subject to severe criticism, the consumer has been compelled to pocket out Rs. 50 more for a 13 kg cylinder within the year.

While the government and Shell Group are talking of ways to iron out problems in the sale agreement speculation is rife that a further price hike is in the offing.


Return to Business contents page

Go to the Business Section Archive

Plus

Home Page Front Page OP/ED News Sports

Please send your comments and suggestions on this web site to
info@suntimes.is.lk or to
webmaster@infolabs.is.lk