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10th May 1998

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EPF looks for expert advice

By Mel Gunasekera

Local fund managers will be given the golden opportunity of managing Sri Lanka's largest fund, an EPF source said.

The EPF has asked an international consultant for advice on hiring a fund manager to manage its Rs. 145 billion fund now being released in stages on the Colombo stock market.

On a request by the EPF, The World Bank has agreed to provide technical assistance and funding for this project. The international consultant is expected to spend around six months in Sri Lanka drawing up a suitable proposal. The consultant is also expected to set up an in-house control system for the fund to manage resources, the EPF source added.

Once the plans are in place, the EPF hopes to invite bids from local fund managers for this purpose, the source said.

"EPF does not have in-house portfolio capacity to undertake such engagements," he said. "Hence we are having long term plans to secure the services of an external fund manager to handle our portfolio and we are intend to do it within a year or two."

Since, the EPF has a small investment unit, the fund managers are now undergoing training in basic portfolio management and investment appraisal under the direction of the International Science and Technical Institute in Washington. The programme which began three weeks ago, is funded by USAID.

The much awaited participation of the EPF at the local bourse materialised a fortnight ago. The Fund has been active in a small way. Brokers said the entry was quiet and it was not felt by the market.

The Fund would continue to remain in the market without destabilising the current market activities. Brokers are expecting the Fund to grab blue chips in the market more aggressively in the coming weeks.

EPF participation is expected to boost the current bull run and pushing the market further.

EPF's total portfolio is estimated to be around Rs. 145 bn as at March 1998. With annual growth of 15 per cent, the Fund is estimated to top Rs. 165 bn by March 1999. New contributions amount to around Rs. 10 bn annually. Annual refunds are estimated to be Rs. 4 bn. EPF's annual administrative costs are around Rs. 150 bn. Interest income on investment is around Rs. 20 bn.

Therefore, Rs. 40-50 bn worth of new investments are made annually, the source said.

Since the government has committed itself to curtail the budget deficit, the Fund is keen to move away from government securities.

"Our interest is to make maximum benefit to investors and gradually build up portfolio to give maximum return to investors," the official said.

"We have plans to invest more funds in guilt edged securities. The rest would be divested in the market and private debt securities to enhance the rate of return to our members," the official added.

Euro set for launch but problems remain

The euro which is expected to tip the scales in currency market in the next millennium, is still embryonic.

Of the 15 EU (European Union) members, only 11 have so far agreed or are eligible to have a common currency. The acceptance of the euro in Denmark, Switzerland and the winning over of Britain to a common currency are the major battles ahead.

But the euro is scheduled to replace 15 or at east 11 currencies by mid 2002. A few of the world's traded currencies (hard currencies) like the Deutch Mark, Sterling Pound and the French Franc are in the ECU (European Currency Unit) or the currency basket that is to be converted to the euro.

What then is to become of the existing currencies?

While the official launch date for the euro is January 1999, these 15 currencies will also still be in circulation until possibly mid 2002.

To prevent currency speculation, the European Monetary Union has fixed bilateral rates with the euro for each of the 15 currencies. At last week's top priority meeting of the EU heads in Brussels, member countries' currencies were finally fixed to the Euro.

See also : Euro - how does it affect us?

Mind your business

by Business Bug

A roaring bull

The bull run that hit the Colombo market surprised even the most optimistic of brokers.

More surprising, they said, was the fact that it was sustained by enthusiastic local retail buying rather than oversees institutional buying.

But more good news is in the air. Two major financial institutions - one an insurance venture and the other a fund for employees in the private sector - are likely to increase their quantum of investments in the market in the near future.

So it is likely that the market will be up up and away.

Logo must stay

The Emirs proudly boasted last week that the bird of Paradise will be given new feathers by them, logo and all.

But that has raised a hornet's nest at the highest levels, we hear.

Yes, the Emirs can refurbish if they want to, but the logo must stay, some of those who matter have urged.

A likely compromise could be a new logo, but approved by those who matter.

A good year

If Ninety Seven was a dismal year for tea trade, Ninety Eight already shows signs of compensating.

World market prices for the crop are higher, production in Kenya - our competitor - is lower and the weather will not be as unkind as earlier predicted, the experts say.

All this means at least twenty per cent more revenue, this year they feel.

Tri Star restructures itself, resumes non-quota orders

The crisis ridden Tri Star Group has announced a resumption of non-quota orders from traditional and new buyers.

The Group is also undergoing a series of corporate re-organisational measures to improve efficiency, impose financial discipline, streamline operations and improve sales and marketing strategies.

During the past few months, the Group faced numerous difficulties due to external forces beyond its control, the company said in a recent media release.

The Group also faced internal weaknesses and drawbacks. Rural factories were the hardest hit and were unable to keep to the required production targets, which led to a loss of annual quotas.

The company attributes the quota loss partly due to socio-economic conditions prevalent in the rural areas and also due to the long period of training for unskilled labour. "But now they are fully trained and equipped to produce quality garments surpassing the buyers expectations."

The Group hopes that by strengthening its corporate structure, they would be able to maintain and build upon the trust and confidence the buyers have placed in the company over the past few years.

Tri Star is the largest apparel manufacturer and exporter in Sri Lanka. It is also the highest foreign exchange earner in the apparel industry.

Lankans growing old at state expense

WB seeks a revision of state pension schemes?

By Feizal Samath

Sri Lanka's population is ageing faster than any other country in the world, placing a heavy burden on social security.

Economists say the matter will be of top concern at the World Bank's Aid Sri Lanka group meeting scheduled for later this month.

"Statistics indicating a fast ageing population, ramifications on the pension system and ultimately the burden on the country's budget, will probably be under discussion," a top economist, who declined to be named, said.

He said the World Bank wanted the government to move away from the current non-contributory pension scheme for government officials and implement a Singapore-style pension scheme in which the recipient also contributes.

Such a scheme, which would be similar to private pension schemes already in force in Sri Lanka, would reduce government expenditure and ultimately bring down the budget deficit, he added.

The government is also interested in such a scheme but is obviously worried that this could draw widespread protests from the public service and trade unions and politically it would be suicidal, unless weak pay structures are revised to ensure that the contribution will not be a financial burden on the public official. The dilemma facing the government is in implementing a pension scheme that will plug a hole in the state budget but not unfairly burden the public official.

According to a report compiled by the Institute of Policy Studies (IPS) at the request of UNDP, Sri Lanka's workforce is set in the next two decades to shrink while the number of elderly will double.

"By the year 2025, Sri Lanka will stand alone as the only non-high income country with an elderly population greater than 20 percent," the UNDP said in a statement, that was quoted by Reuters this week. "This figure is equivalent to most developed countries, which had between 45 and 135 years to prepare for a doubling of their elderly population. Sri Lanka has only 20 years," Dr. Ravi P. Rannan-Eliya, one of the three authors of the report, wa quoted in the statement as saying.

At present, Sri Lankans are 25 years old on average, but by 2025 that median age is expected to jump to 40 and reach 50 in less than 60 years or in less than one generation, the statement, according to Reuters, said .

The economist said a rapidly growing ageing population - generally due to a lower birth rate and improved life expectancy which implies that less older people are dying due to good health care facilities - would put an enormous strain on the social security system.

"If the costs of pensions, for example, account for over two percent of gross domestic product now, it would be around five percent in the next decade. This is largely because there would be an imbalance between the numbers joining the scheme every year and the numbers going out (through death, etc)," he added.

Foreign donors at the Paris meeting scheduled for May 26 and 27,

will pay more attention to social issues and human development, World Bank officials said.

Roberto Benjerodt, the World Bank representative in Sri Lanka, told The Sunday Times Business that the Aid Group meeting will devote a full-day session to discuss social policies and the human development situation in Sri Lanka.

Human development is generally expressed in terms of mortality rates, life expectancy, health care and the quality of life. The World Bank has praised Sri Lanka's social indicators such as low infant and maternal mortality (death) rates and has prescribed it as a model for the region while it expressed satisfaction about the country's health care and primary health care structure.

Mr. Benjerodt said donors generally felt there was a need to discuss, in more detail, the country's progress in the area of human development and social issues. This may be the first time that donors will discuss social issues in such detail, compared to previous meetings which laid emphasis on the country's economic and political strategies.

Economy's fluctuating fortunes

External and internal shocks have been a part and parcel of Sri Lanka's economic development experience. The country is particularly exposed to external shocks owing to its small size, large dependence on exports and imports, trade liberalisation, flexible exchange rates and the process of globalisation.

Internally, the country has faced shocks owing to youth insurgencies and terrorist attacks. In recent
times, very few years have been devoid of both external and internal shocks

The good economic performance in 1997 has been mainly owing to these shocks being limited. They were certainly not totally absent. The external shock the country received was in the latter part of the year with large devaluations in South East Asian countries and the financial crisis of East Asian countries.

These had several diverse impacts but their effect was minimal in 1997. The adverse effects spilled over into 1998 and the country's economic performance this year is likely to be significantly affected by the Asian crisis and lower world economic growth.

The economic growth of 6.4 per cent in 1997 reflected the recovery of the economy from a rather disastrous previous year when the economy grew by only 3.6 per cent. The low growth in 1996 was mainly due to the internal shocks of terrorist attacks and a power crisis.

When the economic growth of the last two years is averaged, we obtain an economic growth of 5 per cent per year. This has been more or less the average growth rate achieved in the last two decades. The capacity of the economy to generate higher growth remains unattainable owing to the internal and external shocks.

The economic performance of last year is noteworthy for the growth in all sectors of the economy. Agricultural as well as industrial output grew. The plantations as well as food crops increased their production. Tourism recovered and service sectors performed well.Among these, particularly noteworthy was the improved performance of tea, with both plantations' and small holdings' output increasing impressively. The improved prices for tea meant significant increases in income for tea producers.Although there is an official expectation that the economy would grow by 6 per cent, this appears an unrealistic target. The slower world economic growth and the difficulties which several categories of industrial exports are facing make such a prospect unlikely. In fact, it appears that an economic growth of even 5 per cent may be difficult to achieve.

A 5 per cent growth is not to be despised. It compares favourably with growth rates in both the developed and developing countries. Yet it is inadequate owing to decades of slow economic growth which has left the country with a low per capita income, a high rate of unemployment and about one fourth of the population in poverty.This is the reason why high levels of growth are needed. But such high levels of growth are impossible to attain without a good investment climate, a greater degree of certainty about the country's future and significant investments in infrastructure and skills.

We have no control over the external shocks. These would emerge from time to time and we would require to cope with them. The pertinent issue is whether we could minimise our internal problems so as to generate an economic, social and political climate conducive to higher rates of economic growth?

The hope and expectation of higher rates of sustained economic growth would have to await such a conducive climate for growth devoid of internal disruptions. Till such time we would continue to experience fluctuating fortunes in our economy depending on the nature and severity of the external and internal shocks.

More Business * Tea: the ups and the downs * More jobs under SAPTA * CDC opens new office * New Air Separation Plant cost Ceylon Oxygen Rs. 400 mn * Vikram enters the 3-Wheeler market * ETV brings business to your bedroom * Goods and Services Tax: clearing doubts

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