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26th September 1999

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Mind Your Business

By Business Bug

Card the winner

What business sector offers the best potential for growth in Sri Lanka? If you thought it was cellular phones or computers, you are wrong. Recent market surveys show it is the credit card industry, which is why there are so many 'card promotions' on offer these days. That is because everyone expects industrialists- even in the medium scale range- to turn to e-commerce with the dawn of the new millennium. And, given Sri Lanka's high level education, they expect e-commerce penetration to be very high; hence the aggressive marketing of plastic money these days...

Bark only

Week before last, we related how the greens briefed envoys in Colombo about allegedly corrupt privatization deals and vowed to cancel those sales. This has scared another private investor from a neighbouring land who bought over a state run dairy in the recent past. There were many discreet queries from the greens as to whether their deal too would be probed but the answer was in the negative, we hear...

Only the best

A well-established multinational which for long indulged in the practice of producing several rival brands of the same consumable- say, soap for example- is set to rethink company policy. The reason is that goods from other manufacturers are gaining ground in what is a very competitive market because the multinational's products are fighting each other. The company may not halt the production of rival brands of the same product but at least active promotion will be limited to the brand which the company feels will make the most impact.

Ceat tyre exports expand

Associated Ceat (Pvt) Ltd. (ACPL) has enlisted the help of Ceat India to export tyres produced in Sri Lanka.

In line with this ACPL will make investments of a further Rs. 150 million this, year to achieve the quality and the quantity needed to meet export demand.

The expansion will increase the production capacity of their Kelani factory from 12 tons a day to 20 tons to 25 tons a day by March 2000 and by 40 tons by September.

"This will increase the total production from 28 tons to 56 tons a day. The growth in exports then will be from two tons to 23 tons a day. This would correspond to about a US$ 1 mn a month, as compared to US$ 70,000 at present," ACPL Managing Director, Abhik Mitra told The Sunday Times Business.

He said that Ceat India will either develop new markets and distributors or give some of their volume. "That is the reason why we are now aggressively positioning ourselves for that level of growth. However it takes time for businesses to grow, so hopefully with the support of Ceat India, we will shortcut this process significantly."

Mr. Mitra said Ceat India was also helping ACPL with technology transfers, logistics and marketing. "Kelani tyre is today being made with Ceat technology," Mr. Mitra said.

Technology used in the production process at the Kelani factory was changed in the last six months in order to create a unified specification between the Sri Lankan and Indian factories to achieve consistent quality. ACPL officials said the company would start making tubes towards the end of this year, motor cycle tyres early next year and steel radial tyres in two years.

At present the company is exporting tyres to South America, Pakistan, Bangladesh, Mauritius and Nepal. With the help of Ceat India they are looking at the USA and Vietnam as their next market.

Asia Siyaka allowed to proceed

The Supreme Court last week granted Asia Siyaka Commodities (Pvt) Ltd., permission to proceed with their appeal, following The Court of Appeal's order made last year issuing a writ of certiorari quashing the licence issued to Asia Siyaka in 1998.

The order was made consequent to an application filed by Forbes and Walker Tea Brokers (Pvt) Limited in the Court of Appeal. Forbes and Walker made the appeal on the ground that the licence issued to Asia Siyaka Commodities for the year 1998 by the Licensing Authority was illegal and ultra vires to the Licensing of Produce Broker's Act.

Asia Siyaka in their objections filed in Court, stated that the licence issued for the year 1998 was valid and accordingly that they were entitled to trade as a Licensed Produce Broker for tea.

In his decision last year Justice Upali de Z. Gunawardana upheld the contention of Forbes and Walkers that the licence in question was illegal and invalid.

He held that such legislation was constitutionally valid.

The judgment held that under the scheme of the regulations, a licence to function as a Tea Broker could be operative and entitled the licence holder to trade only from the 1st of January of the year succeeding that in which it is applied for and issued by the Licensing Authority. However Asia Siyaka was issued a licence and hence the Licensing Authority had acted illegally in permitting Asia Siyaka to commence business during the course of 1998. Counsel for Forbes & Walker's objected to the said special leave application on the grounds that Asia Siyaka was able to obtain a fresh licence and that therefore the dispute had become academic.

Cellulars ready to go

MTN Networks, operators of Dialog GSM declared themselves Y2K compliant recently.

The company claims they are the first cellular operator to be Y2K compliant.

However other cellular operators also said they were Y2K compliant, but added that they did not want to make an announcement.

One cellular company in particular said that they had not only finished their Y2K equipment audit but had also completed their Y2K legal audit.

TRC says telecom sector Y2K compliant

The TRC last week said that the telecom networks and terminals made extensive use of computers and electronic systems and thus dealing with the millennium bus was essential for the continued operation of networks. Officials said that it was also necessary because of network interconnection, Y2K compliance must also take care of ensuring end to end connection.

According to this the 24 telecommunication operators providing basic telephone, cellular, data communication, paging and other communications infrastructures, providing nearly one million communications connections were over 95 per cent compliant.

Officials said that programmers and network engineers of the telecommunication operators have conformed that no material risk of disruption has been identified. The TRC said that the remaining five per cent of public networks, the operators are in the process of making them Y2K compliant. The TRC expects all of this work to be completed by end of September.

The TRC further said that even though the network operators are ready with their plans and standby arrangements for the millennium transition, as nothing could ever be 100 per cent guaranteed there is no room for complacency by the TRC. Abnormalities in networks may render such arrangements inadequate and therefore TRC will continue to monitor the situation so that no room is left for any malfunction during the millennium shift, officials said.

The TRC also warned the public to refrain from making unnecessary calls on New Year eve, because traditionally the New Year was a very heavy period for phone usage and the turn of the millennium is likely to be even heavier that in previous years. However they added that the service providers had made necessary arrangements to handle heave traffic during the millennium.

Market picks up on plantations

Plantation stocks rekindled interest in the ailing Colombo bourse following increased prices at the tea auction. The plantation sector indices rose 17.94 per cent to register 278.7. The All Share Price Index rose .51 per cent to close at 567.3 while the Milanka Price Index declined .11 to register 926.9. Average turnover was Rs 59.4 mn while the net foreign outflows was Rs 86.98 mn. Turnover notched a high of Rs 104 mn on Wednesday when 553,000 shares of Aitken Spence were traded.

Horana Plantations gained 125 per cent while Korea Ceylon Footwear Manufacturing Company rose 50 per cent and Udapussellawa Plantations increased 39.39 per cent. Losers included Palm Garden Hotel 8.59 per cent, Lanka Milk Foods 8.33 per cent and Three Acre Farms 7.96 per cent.

"The present trend in the market will continue into the next week. There is room for tea prices to move further up with winter buying," Director Research, John Keells Stock Brokers, Nandakumar Nair, said. "Auction price increases will reflect on the market," he added.

"The market will gradually climb over the next couple of weeks driven by rising tourist arrivals and higher tea prices," Head of Research, Asia Securities, Dushyanth Wijaysingha said, "The market is poised to revive," he added.

"We expect the rise in tea prices to have an impact on sentiment towards holding companies in the plantation sector and this will improve the corporate earnings outlook," Strategist, Jardine flemming HNB Securities, Amal Sanderatne said. "With the second quarter GDP growth coming in stronger than the first quarter there is a definite indication that the worst is behind and this should increase optimism towards equities," he said.

"Activity in the plantation stocks will increase market turnover," Head of Research, CDIC Sasoon Cumberbatch, Diluk Desinghe said. "Foreign activity will be restricted to large blocks of selected blue chips," he predicted.

Tea Update

Picking up in leaps and bounds

By Shafraz Farook

Tea prices bounced back in the last two auctions putting to rest the worries of the producers and brokers. After a lapse of 36 weeks the Colombo auction averaged Rs. 130 per kg. The previous highest for the year of Rs. 127.30 was recorded at the second sale in January Last week's auction especially boosted morale in the industry. Officials said that it was high time that prices picked up realising the long overdue price rises predicted due to the 100 million shortfalls in the world market.

Most varieties picked up sharply including the market for low growns continued strong.

The previous two auctions too saw some buoyancy, but last week's auctions really meant that the industry was on its road to recovery.

However, the industry is still worried over the narrowing gap in prices between the below best and the bottom end of the market. The industry fears this could affect the availability of better teas in the months ahead. Price gains in the last four auctions have brought it to the extent that the distinction between these categories is often blurred, Asia Siyaka Commodity's officials said.

Elsewhere, Indian officials said last week that the Central Government may be forced to allow imports of tea in a big way if domestic production failed to meet demand. Indian tea prices started rising around three months ago when Sri Lankan prices were still dropping. It is only now we are feeling the shortfall in production.

Meanwhile it is understood that Indian authorities are indeed planning to tap the international market. Indian officials have said that Indian producers and marketers needed to work out strategies for increasing demand in India and abroad for its industry to remain profitable. It was reported in June that Tata Tea, India's largest tea company also bid for Tetley, a privately owned UK teabag maker. Only Tata and one other international company were considered serious bidders. Tata already has a small joint venture with Tetley to supply tea bags to Poland.

Officials said though India's growth in domestic consumption seemed high, growth in earnings in dollar terms had not been matched. India's domestic consumption as at end 1998 was about 664 million kilos. India however recorded a drop of over 52 million kilos in production for the first six months of this year.

However, India might not embark on this venture any time soon because of its present situation. Officials said that once the situation stabilises we could see the Indian tea industry positioning themselves once again to capture the world market.

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