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5th April 1998

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Lukewarm blessings for nut imports

A government decision to allow the import of coconuts, to overcome a shortage in local production, has received mixed blessings from the trade which is however in a quandary as to the proposed source of supply.

Last week, Plantations Industries Minister Ratnasiri Wickremanayake told a press conference that the government would allow the import of coconuts from Thailand to service a shortage for dessicated coconut producers.

While most traders welcomed the move, they were however not so sure whether Thailand is the right source of supply. "If we are importing coconuts, we should get them from either Vietnam, Indonesia or the Philippines," one dealer said.

"Did the minister make a mistake in naming Thailand as the source?" he asked. A spokesman for Minister Wickremanayake confirmed he referred to Thailand in the import of coconuts.

At the Thai embassy in Colombo, a diplomat - dealing with trade and commerce - said the government had not approached them with regard to coconut imports.

But he promised to inform The Sunday Times Business if they had any news on the issue. According to official statistics, Thailand has 377,000 hectares of land under coconut cultivation compared to Sri Lanka's 419,000 hectares of coconut land.

Thailand produces an average 1.1 billion nuts against Sri Lanka's 2.5 to 2.7 billion nuts per year, and most of it is believed to be for local use. Trade sources said that they were unable to confirm, immediately whether Thailand exported nuts.

A spokesman for the Coconut Products Association in the Ceylon Chamber of Commerce said that the decision to import coconuts was taken by the government in consultation with the private sector.

"At that time, there was no mention of the source of supply," he said, adding that Indonesia appeared to be the best source in terms of prices. The dessicated coconut industry has come to a complete standstill due to a shortage of nuts for its use.

Officials said that the 60-odd registered mills are either working at 20-30 percent of its total capacity or have been shut down. "There are many more unregistered ones which are struggling to survive," the spokesman said. In the past two years, Sri Lanka's dessicated coconut exports have been around

60,000 tonnes annually and this year, exports are expected to fall to between 47,000 and 50,000 tonnes. The shortfall in coconuts for dessicated coconut production is mainly due to a crop shortage and high coconut prices, which are now fetching between six to eight prices at the farmgate.

Trade sources said that Sri Lanka's dessicated coconut export prices were much higher - because of high local costs - than other world suppliers like the Philippines and Indonesia.

The spokesman at the Chamber's coconuts section said that the imports would be allowed free of duty but government permits were to be given on the basis of scale. "This means that an importer will be allowed to import a percentage of his requirements. The bigger the mill, the higher the quota," he said.

To ensure proper quarantine, imports will be allowed on the basis of each import consignment being taken straight to the dessicated coconut processing factory. "We are hoping to import nuts that are de-husked and the shells will be destroyed through burning at the site," the spokesman said.

He conceded that the decision to import coconuts came just close to the May to August production season when supplies would be in plentiful, raising questions as to whether it is the right time to allow imports.

"But we are going through this crisis too often and at least we must try it out and see. " The net benefit of imports, apart from servicing the dessicated coconut industry, would be a price fall in nuts for household use.

Another executive at a top coconut trading house said he felt the decision would have negative impact as "we are almost into the cropping season." "If at all there is a major shortfall, it would be after June," he noted, adding that if the imports scheme worked, then it could be implemented again in the period around December when shortages occur.

Coconut researchers say that strict quarantine was necessary in the import of coconuts as there were diseases prevalent in some islands in Indonesia. "One has to be very cautious because we should not import diseases along with the nuts," a government researcher observed.

He suggested Indonesia would probably be the cheapest source of supply as the Philippines currency had gained in recent weeks, after sharp falls attributed to the East Asia meltdown.

After Emirates deal

AirLanka gets better terms than govt.

By Asantha Sirimanne

After its merger with Emirates, AirLanka has negotiated a long term financial package at better rates than the government of Sri Lanka, Deputy Treasury Secretary P. B. Jayasundera said.

When the government went for US$ 50 mn floating rate note it had to pay around 200 basis points above the London inter-bank offered rate (LIBOR).

However the short-term debt component of the US$ 550 mn financing package arranged by the Credit Agrico Indosuez to acquire six Airbus A330s, cost the airline only 175 basis points above LIBOR. Indosuez had also arranged the previous financing package to purchase the Airbus A340s.

"In third world countries it is quite normal for private issuers to get better terms than the government," Dr. Jayasundera said.

Emirates had not even issued a corporate guarantee to cover the loan. But PERC officials say AirLanka had been able to get favourable terms simply because it is managed by Emirates, which enjoy the confidence of international lenders.

However, in developed countries, private issuers do not usually get better terms than the sovereign issues as individual companies are not considered to have a better standing than the overall country risk.

When NDB floated a syndicated loan to fund its small and medium enterprise finance project, it is also believed to have got more favourable terms than the government. However the principal was guaranteed by the Asian Development Bank. Therefore the loan would effectively carry the ADB's risk.

However, unlike the US$ 300 mn financing of which around US$ 120 mn still remains unpaid, the new financing package will be an off balance sheet operating lease arrangement, with both the assets and liabilities not being reflected in AirLanka's accounts.

Local tyre giants to merge

Associated CEAT (Pvt) Ltd. (ACPL) which took over the management of Kelani Tyres is planning to merge the two companies and possibly go to the Colombo Stock Market for a cash injection.

ACPL Managing Director Abhik Mitra said the details of the mergers were being worked out and an announcement would be made soon.

ACPL officials say they hope to replace some of the antiquated machinery at Kelani Tyres with hi-tech modern machinery to produce high quality steel radial tyres in Sri Lanka.

Preliminary work on the radial tyre project has begun with production to start in a year's time.

On October 30, 1997, ACPL signed a strategic alliance with Kelani Tyres Ltd when the company was facing closure due to labour unrest.

The factory resumed production in December 1997, and tyre sales in early January this year.

Kelani produces light truck, truck radials, farm and agricultural tyres. The truck and light truck tyre market accounts for 65-75 per cent of the total local tyre purchases.

Being the sole domestic tyre manufacturer, the two companies control 40 per cent of the local market.

The rest is imported. At present, they are facing severe competition from Malaysia, and Indonesia.

Devalued domestic currencies had enabled both Malaysia and Indonesia to slash their prices by 16-30 per cent. "We are still about 5 per cent cheaper than them," Mr. Mitra said.

At present, Kelani produces around 9-10 tonnes of tyres a day. Before closure it produced around 22 tonnes.

Associated CEAT itself has expanded production from 12 tonnes to 16 tonnes a day with a Rs. 40 mn expansion programme.

The company intends expanding its overseas sales operation to the South Asian and African region. Studies are being carried out to look into the possibility of exporting to the lucrative Pakistan market.

In 1993, ACPL sold Rs. 252 mn worth of tyres, in the 1997/1998 financial year, it hopes to sell Rs 620 mn worth of tyres. Kelani will continue to produce its own brand.

By the year 2000 the CEAT Kelani combination hopes to sell Rs 3000 mn worth of tyres locally and abroad.

Missed opportunities

The first quarter of this year witnessed a large number of seminars discussing the past performance of the Sri Lankan economy and related issues. Many of these also looked at the prospects for the future. The more than usual number of symposia was due to the celebration of our fifty years after independence from colonialism.

These discussions have generally been critical of the Sri Lankan economic performance. One leading economist from Harvard and writer on the Sri Lankan economy, Professor Donald Snodgrass described the period as one of "missed opportunities".

Whatever we may have achieved during this period, there is little doubt that given the initial conditions at the time of independence and our resource endowments we could have done considerably better.

Our intent in this column is neither to summarise those discussions nor to comment on the specifics. What we want to focus on is the need for such seminars to develop policy directions for the future and to present these to relevant decision making bodies.

Recently, the President herself said in opening a seminar at the University of Peradeniya that there was inadequate research on social issues. This may be partially correct. What is more pertinent is that the research which has been done hardly feeds into decision making processes.

One cannot blame the researchers entirely for this. Policy makers must take an initiative in finding out what research has been done in the areas relevant to them, read and examine them and use such findings in deciding policies. The tragedy is that most of those who are charged with responsibility of making decisions do not make an effort to acquaint themselves with research findings.

We are personally aware that in the recent past several ministers took trouble to read research outputs and make use of them. Alas most of those whom we have known to be in this mould are no longer in the land of the living.

We wonder how many Cabinet ministers of today take the trouble to find out the research done in their specific areas. Do they have the background? Are they inclined to read such material? Are they too busy in political activities and tamashas to have the time to read such material?

A similar fate appears to have befallen the bureaucrats who also don't seem to have the time or inclination to acquaint themselves of available research. Unfortunately this situation has an adverse impact on researchers themselves because they feel their work is not appreciated and of little significance.

The second issue we would like to focus on is the need for these deliberations to not only indicate what is ideal or the best solution but to look upon the problems as ones requiring practical solutions. The best solution to a problem, if not implementable, is of little use.

The institutional, cultural and socio-economic context in which policies have to be implemented must be considered. Where the ideal or best solution cannot be implemented it is best to find a second best solution which at least meets the problem half way.

There is also the need for researchers to look at the practical aspects so as to formulate innovative means by which any impracticality could be overcome. Researchers must look at socio-economic problems as exercises requiring social engineering to effect solutions.

The large number of seminars and discussions this country holds regularly can serve a useful purpose. To serve a useful purpose there are several pre-requisites. The research must be socially relevant; it must come up with practical solutions and decision makers must be made aware of research findings.

Sri Lanka must develop an organizational basis by which research findings are channelled into the decision-making process. Researchers and policy makers must join hands to make such a productive linkage possible. We hope this would be a reality soon. Otherwise, the future would also be a story of "missed opportunities".

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More Business * Competitive economy through modern company law * Transparency of government operations * EU says ready to lend Asia helping hand * Employers avoid national labour advisory council * Mixed blessings for coconut imports * India Expo promotes SAFTA

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