09th November 1997


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Mirror Magazine


Big business bouquets for budget

By Asantha Sirimanne

The 1998 budget is being widely hailed as 'business-friendly', and the government targets as 'much more credible.'

However, there are emerging concerns that the government has not adequately addressed the concerns of exporters on which the economy is now dependent.

"Currencies of India, Pakistan, Bangladesh and East Asian nations have fallen," Patrick Amerasinghe, President, Federation of Chamber of Commerce and Industry said. "Our export competitiveness is being affected."

"Export competitiveness has not been addressed as it should have been," Mano Selvanathan, Chairman, Ceylon Chamber of Commerce commented at a post-budget media conference.

"We are not advocating a devaluation but other measures such as rebates could be introduced," CCC Vice Chairman, Ken Balendra said.

Analysts warn that unless export competitiveness was addressed, the 24 per cent growth in industrial exports may not be sustained and the incentives given to thrust sectors may not be made use of.

However CCC said the government has implemented most of their proposals.

"Our concerns are completely overshadowed by the positive features of the budget," Mr. Balendra said.

"Overall the budget is reasonably good considering the constraints faced by the government," Mr. Amerasinghe agreed.

The agriculture sector has been given a much needed boost and analysts expect plantation companies in particular the ones which are now looking for diversification, to benefit from the incentives, in addition to the traditional farming community.

There are also concerns that the government has given too many concessions endangering its revenue targets.

"There have not been proposals to increase revenue except for a one per cent increase in BTT," Accountant cum businessman MP Ravi Karunanayake pointed out.

"Given that much of the concessions have been targeted at areas which weren't major tax contributors to begin with, the fallout will be minimal," Jardine Fleming HNB Securities said.

However, most research houses expect the deficit next year to be nearer 7 per cent than the budgeted 5.7 per cent.

The targeted incentives for thrust industries and making BOI concessions available to existing industries as well, have also been widely welcomed.

"The budget makes a departure from the previous hands off approach which offered lower taxes and import tariffs across the board to all sectors and was neutral between sectors," SocGen Crosby Securities observed.

However, concerns are expressed that unless export competitiveness is tackled, the concessions may not yield desired results.

The government has also proposed to lower the statutory limit on treasury bills by Rs 10 bn form the present Rs 125 bn.

"This is merely a cosmetic change," Mr. Karunanayake said. "Compared to a total public debt of Rs 752 bn, this is a drop in the ocean," he pointed out.

However he said from a businessman's point of view the budget was positive particularly since it had given recognition to domestic industry.

He also welcomed the duty waiver on textiles and jewellery.

"People may even come from abroad to shop, and Colombo may become a shopping paradise like Bangkok," he observed.

The introduction of GST at 12.5 per cent was also widely welcomed, as a much higher rate of 17 per cent had been expected.

"This is another redeeming factor in the budget," Mr. Amerasinghe said. He also expressed concerns that Small and Medium scale industries which had the potential to provide greater employment opportunities large industries would not be able to make use of most concession due to the high capital requirement.

Formulators of the GST had suggested 17 per cent for government turnover tax revenue to remain the same under GST (or revenue neutral) and there were doubts whether expected revenue target could be achieved with 12.5 per cent. Telephone calls for example could become at least 7 per cent cheaper.

Mr. Amerasinghe said there was widespread ignorance about the implementation of the GST within the business community itself. Coping with GST and the Chamber movement would begin a process of education.

Ceylon Chamber officials also warned that unless businesses were properly geared for GST its effects could cascade with disastrous consequences.

"This must be carefully tackled as it would cause cost push inflation," Mr. Karunanayake said.

"Though the prices of some manufactured goods would come down, some essential goods that are presently taxed at 7 and 11 per cent would go up in price. The party would be over in April," he predicted.

Vanik back on Capital Radio

By Mel Gunasekera

Sending shockwaves in media circles, Vanik Incorporation executed a lightening take-over of Capital Radio last week when a major shareholder sold his stake in the company to Vanik, sources said.

Vanik is now said to own a 75 per cent stake in Colombo Communications Ltd., which owns Capital Radio and two other stations the Sinhala medium Savana and Tamil medium FM 99 after Bhadra Wimalasena sold his shares, the sources said.

"It was not a hostile take-over, but a friendly one," Vanik's head of Corporate Finance Sisira Jayasinghe who is the new CEO of Colombo Communications told The Sunday Times Business.

The Vanik move came barely a year after it sold a minority stake in the company.

Vanik first took-over the reigns of the station two years ago, when it was formerly known as 'FM 99', which broadcast programmes in three languages at different intervals. Vanik injected further capital to the station and created two more stations, Capital Radio (in English), Savana (in Sinhala), and FM 99 in Tamil.

Mr. Jayasinghe who confirmed that Vanik had bought a controlling stake in the radio station, declined to reveal how much they had bought, and at what price. "We have plans to strengthen the company, but we don't want to publicise them at this moment," he said.

Since the take-over, former Chairman Ajith Dias and Deputy Chairman, Ajith Fonseka have relinquished their positions, sources said.

The new Chief Operations Officer, Gerry Jayasinghe said though Vanik sold its stake in Colombo Communications a year ago, it continued to take an interest in the company. "There were rumours that certain parties were interested in the company, before Vanik bought into Capital Radio. When a shareholder offered to sell out, we decided to buy them."

Whilst declining to elaborate on the cost of the transaction, he said "Vanik always makes a fairly decent offer. I am sure it's the same this time."

The new management has plans to expand the coverage islandwide. "We hope to make Savana and FM 99 islandwide sometime next year," said Mr. Jayasinghe. "But Capital Radio would remain a city station."

Despite the change in management structure, Livy Wijemanne would remain as the Managing Director of Colombo Communications. "Mr. Wijemanne is a veteran broadcaster with many years of experience, and we will continue to turn to him for advice," Mr. Jayasinghe said.


By Business Bug

Who's king

Conversion of petrol vehicles to gas was, until recently, the monopoly of one company. Now the monopoly is broken and three companies are in business.

This has led to severe competition, with two companies offering cut rates to lure customers. The third a joint venture between two established automobile dealers is not so flexible and appears to be losing it's share of the market.

Anyway, in an open economy where it is more the merrier, the customer is king!

The secret

Every year, just prior to the Budget, Liquor and cigarettes disappear from bars and shops, anticipating a price hike.

Surprisingly, this year there was no price hike. More surprisingly the items didn't go missing from the shelves either.

Now, the Treasury boys want to know who leaked the little secret.

Price hike

A leading soft drink bottler was faced with a dilemma - labour disputes had eroded profits and a price revision was badly in need.

But a price hike would have given the upper hand to it's rival and reduced it's market share.

After much deliberation the company last week opted for a price hike. Only time will tell what the impact of the decision will be.

Continue to Business page 2 * 'Local textile industry on road to grave' * Budget boost for agriculture

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