The Sunday TimesBusiness

29th December 1996

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Laern from mistakes and forge ahead

As the year draws to an end the business climate and the state of the economy are somewhat better than at the beginning or in the first half of this year. Despite the improvement in business confidence and an upturn in some of the economic indicators in the latter part of the year, 1996 will go down in history as a year below average performance.

Some of the reasons for the poor performance was beyond anyone's control. The drought with its effect on food crop production as well as bombings in Colombo were events which could hardly have been prevented. The power cuts created an enormous gloom in business confidence soon after a deteriorating security situation in Colombo and the vicinity. The power cuts were to come sooner or later owing to the inactivity over a number of years to augment our energy supplies. In any event these three factors affected the economy seriously and at one time it appeared as if the economy was in for a more long lasting slump. Fortunately there has been some revival.

The negative developments in 1996 include a drop in paddy production, disruption in the momentum of industrial growth, reduction in tourist arrivals and a downturn in economic activities related to tourism, poor performance of companies, a bearish stock market for most of the year with low turnover and continued high interest rates. There was a significant depreciation of the rupee particularly in terms of pounds sterling and also in relation to other major international trading currencies.

On the positive side, there was a continued increase in tea production, international tea prices held good and so did rubber prices. There was evidence of investments in infrastructure development and some export industries continued to flourish. Foreign exchange reserves remained reasonably high and adequate for next year's imports.

The 1997 budget signals government's commitment to an economy which would be private enterprise led. Efforts at privatisation were however problematic and the country's confidence in privatisation may have been shaken. Trade unions continued to press for demands against privatisation and labour unrest continued though to a lesser extent than in 1995. The ambiguity and lack of resolution on the part of the government to implement its policies continued to be its weakness.

As the year ends business confidence is somewhat better than in the first part of the year. There are signs of a slight improvement in tourist arrivals. There is a recognition that the high interest rates are inimical to industrial growth. The neglect of non-plantation agriculture and the plight of the farmers now appear to be wellknown.

The government is now more conscious of its weaknesses. The central issue facing the government is that it lacks a unanimity of action. Most of the obstacles to the implementation of the government's policy come from within; the bureaucracy continues to be weak and bureaucratic bottlenecks a plenty. Still there is an inability to put the economic agenda in front. Instead constitutional issues, commissions investigating the past, resolving the ethnic tension are the priority items on the agenda. A lack of business-like approach by the government hinders both short-term and long-term development of the country.

It appears that when the country is on the verge of an economic breakthrough what ultimately turns up is a reversal of economic performance. Policies adopted by the government are no doubt quite sound and capable of generating growth. Yet the slow and sometimes lack of implementation has made these policies ineffective in practice. The government continues to rely more on policy statements than in clear signs of implementation.

It is likely that the year would have generated an economic growth of 3.5 to 4 per cent. This is no doubt inadequate. The enhancement of economic growth to reach the desired 7 to 10 per cent eludes the government. One can only hope that the government is gradually learning the business of government and that in 1997 it would fearlessly implement some of its policies and generate a new business confidence and improve its own performance in implementation. Let us now put back the poor performance in 1996, learn from its mistakes and forge ahead with a strong belief in the capacity of the country to reach much higher levels of economic growth.


Exporters end long wait for recognition

By Deshini Liyanaarchchi

Sri Lanka exporters will finally receive the eagerly awaited news of international recognition, for products bearing the ISO 9000 Certification offered by the Sri Lanka Standards Institute (SLSI).

The breakthrough that local exporters have been waiting for, in order to overcome the non-tariff barrier laid down by the European Common Market, is finally achieved with SLSI receiving accreditation from the internationally recognized Dutch accreditation body "Raad Voor Accreditatie (RVA) SLSI Director General Jayawardena told The Sunday Times in an exclusive interview recently.

This is good news particularly for firms operating on a medium or smaller scale as they can now receive an internationally recognized certification of ISO 9000 series, for as little as Rs. 100,000/= from SLSI, he said.

According to Mr. Jayawardena, following preliminary discussions between SLSI and RVA in 1994, a proposal was put forward to the government, after which Rs. 2 million was allocated for the accreditation project. Applications were made in 1995, following which, the SLSI accreditation board underwent extensive assessment by the Dutch assessment team from RVA. The board was tested for compliance with the requirement of EN45012, the standard set by the European Union for bodies certifying supplier quality systems, where certain non-conformities were discovered and rectified. At the completion of the assessment conducted over a period of approximately 2 years, accreditation under EN45012 was finally granted on the 13th of November 1996.

The European Commisssion (EC) is presently in the process of issuing new directives on which the products marketed will be assessed for conformity. Qualifying on these grounds will enable the manufacturer to place the letters "CE" which is a product certification mark, a strictly enforced requirements for goods that enter the European Market.

According to the new directives, certain categories of goods such as toys, which are exported to Europe are required to have the EC mark from 1st January 1997. And even though unlike in the case of products such as gas appliances, the CE mark is not yet obligatory in the case of toys, regarding which an announcement may be made in the future.

In order to place the CE product certification mark on a product, the manufacturer should be in a position to prove certification of the system used in manufacture. And this is where the ISO 9000 series comes in to play, Mr. Jayawardena said.

And due to the high product liability that prevails in European and other international markets, the importers are reluctant to take the chance of purchasing a non certified product. They always prefer to go to an exporter who has certification to be assured that all possible precautions have been taken on their part, in case of a problem arising.

Due to this reason local products stand to lose if uncertified, thereby losing out-indirectly as well as directly, he said.

The standards Institute is now accredited to offer certification for 5 scope sectors out of 39 covered by EN45012, namely food products, beverages and tobacco, textiles and textile products, pharmaceuticals limited to ayurvedic drugs, rubber and plastics and electrical and optical equipment's.

We can only expand the scope sectors if there is a demand for a particular sector, Mr. Jayawardena said. The reason we are accredited in sectors such as ayurvedic drugs is due to the demand created by companies such as Hettigoda Industries (Pvt.) Ltd., which is one of the 13 companies that have certification at present. If there is a demand, then assessments can be done and accreditation can be received, he said.

Mr. Jayawardena, therefore, urges companies to come forth and create a demand for the scope sectors that aren't already accredited.

He also spoke of the planned formation of a National Accreditation Board, which will certify all other non governmental certification organizations, such as Societe Generale de Surveillance Lanka Ltd., (SGS) which is affiliated to SGS in Geneva, who offer ISO 9000 certification for approximately Rs. 600,000/=.

The National Accreditation body will also receive internationally recognized accreditation on a peer assessment system under the new Quality Systems Accreditation Recognition Scheme (QSAR) introduced by the International Standards Organization (ISO) recently.

This system will ensure that a certain standard is maintained by all certification bodies in their operations, Mr. Jayawardena said.


Let there be light even after delays

An extraordinary event in the period of darkness. This diesel power plant could not be transported over the Victoria Bridge to Sapugaskande (because of its weight) resulting in delaying its commissioning. This was just one of a long series of delays that prevented thermal generating capacity from being added to the national grid.

Many larger projects have been delayed for years without even contracts being awarded due to shortcoming in state procurement practices.

This culminated in an acute shortage of power when rain failed.

From March to September, the country experienced the longest power cuts in history, (running up to eight hours), which spread a pall of gloom over the country and took a heavy toll on its economy.

The Sunday Times Business Review of 1996, highlights some significant events which took place against the backdrop of a further slide in the economy.

Economic growth is estimated to slump to around 3.5 per cent this year from 5.5 in 1995.

The economy had to survive the shocks of terrorist attacks, power shortages, strikes and a huge budget deficit brought on by the North East war and high inflation.


Proposal to ensure fiscal rectitude, better reporting

A private member's motion has been presented to the Speaker, proposing a draft act to ensure fiscal responsibility and strengthening reporting requirements of the government.

The motion by DUNLF parliamentarian, Ravi Karunanayake has proposed that the Minister of Finance publish the long term objectives for fiscal policy and strategic priorities for the next three years at least three months before the budget; (a budget policy statement) that an economic and fiscal update prepared by the Treasury for the preceeding year and prognosis for the three years be pubslihed in March each year; and also publish before each general election an economic and fiscal update prepared by the Treasury, on the economy as it is, and for the next three years.

The government would be allowed to deviate from the targets set in the long term strategy, if such a deviation is temporary.

The Finance Minister however would be required to specify the reasons for the deviation, the approach proposed to rectify the anomally and the time period taken to return to the original targets.

If the variation is more than 10 per cent of the budgeted target a two third majority of Parliament has to be obtained.

When presenting economic forecasts a statement should also be made on the significant asumptions underlying the forcasts.

The Minister and the Secretary to the Treasury would also be required to make a statement of responsibility to Parliament.

The Minister has to state that material economic or fiscal implications of all policy decisions of which the Minister was aware had been communicated to the Secretary.

The Minister also has to disclose the consistency of the budget with the requirements of the Fiscal Responsibility Act, once the motion becomes law.

The Treasury Secretary also has to certify that the Treasury has used its best professional judgement on the basis of economic and fiscal information available.

Mr. Karunanayake believes that the enactment of such a law would prevent politicians from coming up with 'sunshine promises' prior to elections.

From the time of gaining independence Sri Lanka has not been able to move forward due to various controllable or uncontrollable reasons.

Mr. Karunanayake believes that the negative fallout on the economy from sunshine promises is controllable.

"Despite the emergence of genuine and committed politicians who want to develop the country, their attempts have turned futile owing to the greed of politicians ably backed by a servile bureaucracy," he said.


Ace Airways moves to new office

Moving into a new office at Vauxhall Street, Ace Airways has geared itself to respond to the growing demands of its customers, a Company release said.

A member of the Aitken Spence Group, the Company believes that this spot away from traffic congestion and with sufficient parking space, will be an ideal location for customers making it easily accessible.

According to Ace Airways Manager, Jaliya Devendra, they are the General Sales Agents for Silk Air, the regional wing of Singapore Airlines. Silk Air covers most of the regional destinations out of Singapore. Their main focus is Indonesia. Together with Singapore Airlines, Silk Air flies 5 times a week to its destinations via Singapore.

They are also the General Sales Agents for Finnair and cover Sri Lanka and the Maldives. Being one of the oldest airlines in the world, Finnair flew a weekly charter to Sri Lanka during winter seasons.

Ace Airways were also appointed as the General Sales Agents for Tradewinds Tours and Travels. Tradewinds is the established tour operating arm of Singapore's two carriers, offering a variety of products that include stopover holidays, hotel packages, etc.

With the open sky policy they were appointed as Passenger Sales Agents for Jet Airways (India), selling tickets for travel inside India, with competitive rates for students and elder citizens.


Bottom Line

By P.M.N. Bandara

Of the interim financial reports received during this week Hunters & Company Ltd., Siedles TV Industry Ltd., Hotel Sigiriya Ltd., Lanka Cement Ltd., Ceylon Synthetic Textiles Mills Ltd., and Radiant Gems International Ltd., have reported net loss for the six months ended 30th September, 1996.

Hunters

Hunter & Company Ltd., reported Rs. 980,454 net loss against Rs. 11,069,607 in the previous year showing some improvement. However, Company's turnover dropped by 13% from Rs. 53.6m. to Rs. 46.6m. Shareholders' funds of the company marginally dropped by 1% from Rs. 335.8m. to Rs. 332.4m.

Siedles

Siedles TV Industry Ltd., incurred Rs. 91,713 loss against Rs. 717,442 pre tax profit in the previous year. The net loss after tax was Rs. 130,511 in place of Rs. 416,362 profit in the previous year.

Hotel Sigiriya

Net loss incurred by Hotel Sigiriya Limited was Rs. 1.3m. against Rs. 3.4m. profit before tax in the previous year. Turnover dropped by 47% during the period from Rs. 14.7m. to Rs. 7.7m. Shareholders' funds dropped by 9% from Rs. 60.9m. to Rs. 55.3m. mainly due to sharp decline of retained profit.

Lanka Cement

Lanka Cement Limited has incurred a net loss of Rs. 14.4m. a 15% increase of net loss compared to the previous year inspite of 77% increase of turnover from Rs. 157.5m. to Rs. 278.7m. The carry forward loss at close was Rs. 1162m. according to the accounts for the 9 months ended 30th September, 1996.

Ceylon Synthetic

Ceylon Synthetic Textile Mills Ltd., incurred Rs. 2.4m. net loss. This is a 77% drop of net loss reported in the previous year. With the current period loss the total carry forward loss as reported by the company is Rs. 107.7m.

Radiant Gems

Radiant Gems International Ltd., reported Rs. 509,400 net loss for the period under review. This is an improvement compard to the Rs. 2.1m. loss incurred in the previous year. Company's turnover increased from 96% from Rs. 2.6m. to Rs. 5.1m.

The carry forward loss as at 30th September 1996 was Rs. 16.7m. against Rs. 13.7m.

Millers, Union Assurance and Singer reported drop in profit during the period despite the increase in turnover.

Millers

Millers Limited reported decrease of profit before taxation by 59% from Rs. 17.9m. to Rs. 7.3m. Profit after taxation dropped by 60% from Rs. 12.1m. to Rs. 4.8m.

Company's turnover increased by 12% from Rs. 305.3m. to Rs. 341.2m. Decrease in Shareholders' funds was 5% from Rs. 69.5m to Rs. 72.9m.

Singer

Singer Industries (Ceylon) Ltd., reported Rs. 25.9m. profit for the nine months ended 30th September, 1996. This is a 10% decrease compared to the previous year figure. However, profit after tax was Rs. 14.9m. which is 3% increase over the previous year.

Turnover of the company was Rs. 548.5m and it shows Rs. 2.0m. increase over the previous year.

Union Assurance

Union Assurance Ltd., reported Rs. 35.3m. profit before taxation for the nine months ended 30th September, 1996. This reflects 32% drop from the previous year figure of Rs. 51.7m. Drop of profit after tax and transfer to equalization reserve was 23% from Rs. 32.7m. to Rs. 25.2m.

The companies reported better performance in terms of both profit and turnover include Dipped Products, Hayleys Limited and Chemanex.

Dipped Products

The group turnover of Dipped Products Ltd., increased by 109% from Rs. 431.5m. to Rs. 904.6m. Increase in profit before taxation was Rs.110.3m. This shows 80% increase over the previous year figure of Rs. 61.2m. Profit after taxation increased by 90% from Rs. 55.3m. to Rs. 105.3m. Increase of shareholders' funds was 83% from Rs. 426.5m. to Rs. 782.2m.

Hayleys

The group turnover of Hayleys Ltd., was Rs. 3,335.9m. This shows 25% increase over the previous year figure of Rs. 2,664.9m. Profit before tax up by 34% from Rs. 226.0m. to Rs. 302.0m. during the period. Increase of profit after tax was 42% from Rs. 154.6m. to Rs. 219.6m. Shareholders' funds increased from Rs. 3,164.0m. to Rs. 3,689.8m. This shows 16% increase.

Chemanex

Chemanex Limited recorded Rs. 76.0m. group turnover, a 23% increase over the previous year figure of Rs. 61.6m. Profit before taxation up by 95% from Rs. 7.9m. to Rs. 15.4m. Increase of profit after tax was 135% from Rs. 4.9m. to Rs. 11.5m.

Chairman B.R.L. Fernando says this is a welcome improvement.

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