LANKA BUSINESS VIEWS

Mergers and acquisitions have become order of the day – Sumanadeera

noreply@blogger.com (Sri Lanka Equity Analytics) — Tue, 19 Jul 2011 07:38:00 +0000

Investment Banking is a quite a new area to Sri Lankan businesses. Top Investment Banker, Nishan Sumanadeera had facilitated the top 'Deals', the biggest investments made by listed companies during last three years. In 2009, he facilitated the C.W. Mackie sale for Lankem Group worth over Rs.1.4 billion, in 2010 Confifi Hotel Group sale for LOLC and Browns group worth Rs.2.5 billion and this year Softlogic Holdings' proposed acquisition of Asian Alliance Insurance worth over Rs.3.3 billion surpassing all big numbers of major acquisitions that took place in 2011. In an interview with Mirror Business, Sumanadeera said, Sri Lanka is not for Sale, but businesses will change hands at least one more time during the next decade, paving way for many opportunities. Excerpts:

Q: As an investment banker, explain how the Sri Lankan investment banking industry evolved in the last two decades?

Investment banking has evolved from being just an impressive word spoken in corporate boardrooms into real life, everyday solutions practiced and adopted by investment bankers and investors collectively to add shareholder value via capital market activities.

With the introduction of the Companies Act in 2007, legislation in Sri Lanka added more flexibility and diversity, which has undoubtedly helped investment bankers to innovate new solutions within the existing legal framework of the country. This was a welcome change, and I must say was the turning point of the industry.

With these changes together with capital market boom, current day Investment Bankers have the opportunity to provide a variety of services, which was far-fledged and unimaginable two decades ago.

Q: What are future Investment Banking opportunities?

Unprecedented. As an investment banker, you live in your own imagination; this is the essence of success. It is hard to find textbook investment banking solutions to complex real life opportunities. Every investment banking solution needs to be tailor-made and requires out of the box thinking. Imagination has no boundaries. It is only when the last tree has died and the last river has dried and the last fish been caught that the investment banker will run out of solutions.

Sri Lanka is not for sale but businesses will change hands at least one more time during the next decade paving way for many opportunities.

Decades ago, investment banking solutions revolved around resurrecting sick companies via restructuring, but today Merger and Acquisition (M&A) activities have become order of the day. I would see many opportunities in this area. Further, Sri Lanka needs capital to rebuild and grow in this post-conflict period. The capital available in Sri Lanka's corporate sector is limited and it is here that Investment Bankers can play a major and catalytic role in promoting foreign direct and portfolio investment. Sri Lanka's corporates must engage Investment Bankers with international reach in order to access foreign capital. For example, John Keells Holdings would not have been able to build South Asia Gateway Terminals if it did not access international capital markets via investment bankers in 1994. SAGT now contributes nearly 40% of JKH's earnings.

Therefore, the role that Investment Bankers can play in developing Sri Lanka is immense.

Q: What are the future growth prospects, investment opportunities in Sri Lanka

Every emerging economy opens varying investment opportunities to investors. It is difficult to adopt one universally acceptable method to identify these opportunities. Opportunities are unique to each country, economy and market.

Sri Lanka is fortunate to be located in a strategic place on the world map. This is one of our biggest competitive advantages. Sri Lanka can easily emerge as the worlds next Transshipment/airline Hub, Financial Hub or the Tourism and Shopping Hub.

Q: What are the risks associated in investing in Sri Lanka?

Emerging Sri Lanka vouches for economic, regulatory and political stability, the hallmark of any good investment destination. No place on earth is risk-free, likewise no investment. Each country has its inherent risks factors, currently geopolitics affecting Sri Lanka should be an important factor in your watch list.

Private investment and Investment Banking needs policy consistency, coherence and transparency in order to flourish. Therefore the government should look to build on these areas which will in turn help build confidence in Sri Lanka's capital markets.

Q: What are the best investment sectors in the CSE?

In an emerging market, as Jim Rogers said, you need to own a bank, brewery and a newspaper. The Banking sector will always remain, as a proxy to any emerging economy whilst beverages and media would have more than proportionate growth.

Sri Lanka is historically known to be a travel destination; hence the leisure and travel sector would always remain in the top drawer. There will be new lines of tourism; many people will come to Sri Lanka for their medical and higher education needs paving way for new opportunities. These new opportunities coupled with ageing Sri Lankan population will help health and education sectors to have a phenomenal growth. The infrastructure development, which is considered as the most, promising opportunity by emerging market investors, also should remain in your shopping list.

Q: How do you cope through CSE’s ups and downs?

It is generally easy to deal with matured investors because they understand the risk involved in capital market activities. It is retail investors that require frequent advise.

As a seasoned investor you generally invest funds in different asset classes with varying risk return combination. Investment in the stock market is an art not a science.

Q: In your observation, what factors are considered by mature companies when buying assets in certain sectors?

There are many factors considered by investors prior to engaging in an M&A deal. Some of these opportunities can be considered once in a lifetime, a dynamic businessman would not want to miss. It is their vision, dynamism, business acumen that drives them towards these opportunities. Mature companies and investors do not place too much significance on past financial performance, more weightage would be given for business synergies. Historical financial information cannot be considered a yardstick of the future growth potential as it has been proved wrong many times. Most of these mergers and acquisitions have happen depending on investment objective, appetite and style of the respective investor.

Q: What are the new investment banking deals you are working on?

There is considerable interest shown by some foreign and local corporates to utilize capital market activities to increase shareholder value to their businesses. Many deals are in the pipeline, and some of these are likely to unfold soon.

We are also looking to buy companies in key growth sectors as outlined previously.

Q: Which of your recent ‘Mergers’ excite your imagination most?

No transaction has yet reached my desired levels of satisfaction and excitement. Facilitation of reverse takeover of Kapila Heavy Equipment PLC (KAPI) by MTD Capital Bhd, excited me most.

Q: In an increasingly competitive environment, how do you source your deals?

It is the trust, respect and confidence; I have earned over the years as an investment banker helps me to secure mandates.

Q: How does your legal & financial background help you function as an Investment Banker?

To do an M&A deal, you need to have a lawyer, accountant and stockbroker. Each of these professionals looks after different aspect of the transaction. Having all 3 qualifications helps me understand and respect the viewpoints of the others while it gives me the competitive advantage in the industry.

By Jithendra Antonio - Daily Mirror

http://print.dailymirror.lk/business/127-local/50396.html

Corporate governance message must be taken to every part of the country: SLID President

noreply@blogger.com (Sri Lanka Equity Analytics) — Sun, 26 Jun 2011 05:04:00 +0000

Taking the message of corporate governance to every part of Sri Lanka would be the main focus of Ronnie Peiris’ term of office in his role as the new President of the 500-member Sri Lanka Institute of Directors (SLID). He made this comment at a press conference soon after being elected at SLID’s 11th Annual General Meeting held in Colombo on Wednesday.

Mr. Peiris, Group Finance Director at John Keells Holdings (JKH), said SLID planned to step up recruitment amongst groups not fully accessed in the past, including directors from outside the Western Province, public sector officials, non-governmental organisations (NGOs), etc. Also indicated, the organisation's constitution would be amended over the next three months, followed by a review by members, to make it "friendly" for this recruitment drive.

Of the 500 SLID members, 33 are so-called associate members who are not corporate board members but, instead, involved in partnerships, etc. Mr. Peiris also noted that, while the institute currently charges Rs. 5,000 for one-time registration and a Rs. 5,000 annual membership fee, this was not enough and would likely increase. SLID officials have also suggested plans for the new term to include setting up a secretariat, a technical advisory committee to help members with business queries, a handbook for directors published in conjunction with the Chartered Institute of Managemnt Accountants (CIMA), and special programmes for the "rapid assimilation of knowledge" for young directors so they can quickly become productive board members as well as Continuing Professional Development (CPD) for all members. Also planned, an ongoing series of seminars, discussion panels, training courses and workshops on topics related to

Triple bottom-line – finding that sweet spot

noreply@blogger.com (Sri Lanka Equity Analytics) — Sun, 26 Jun 2011 04:57:00 +0000

For businesses, sustainability is an influential and defining idea: a sustainable company is one that creates profit for its shareholders while shielding the environment and improving the lives of those with whom it connects, while embracing the triple bottom-line of doing business, according to an international personality on corporate social responsibility.

Patricia Gallardo

“The sustainability landscape is changing and the way we cope spells the difference for business success and failure. Big names such as Wal-Mart, Vodafone, Starbucks Coffee, Puma and Intel have understood this and have in turn taken measures to adapt to this environment,” Director of Corporate Social Responsibility and Sustainability, Shangri-La International Hotel Management, Hong Kong, Patricia Gallardo said, addressing an eminent gathering at the CIMA Business Leaders Summit inauguration early this week.
According to Ms. Gallardo, triple bottom-line ('TBL' or '3BL', and also known as 'people, planet, profit' or 'the three pillars' on which the businesses operate so that the business interests and the interests of the environment and society intersect) business stands an excellent chance of being more successful tomorrow than it is today, and remaining successful, not just for months or even years, but for decades or generations.
She said that Triple Bottom Line is not an award, accreditation or a certification you can achieve - it's an ongoing method that just helps a company keep on track towards operating a greener business and exhibit to the community at large they are working not just towards riches, but the greater common good. She noted that this is what consumers increasingly want to see these days along with businesses being expected to find ways to be part of the solution to the world’s environmental and social problems. She pointed out that the best companies are finding ways to turn this responsibility into opportunity or finding that sweet spot.
"Wal-Mart for instance after making its supply chain green has recorded a 20% decrease in CO2 emissions and also changed the mindset of its customers, who in turn have become more sustainably responsible by shopping at Wal-Mart," she said.
Ms. Gallardo said that a business strategy focused solely on the bottom line is bound to disguise opportunities to chase innovation and create value in the design process. She added that whereas traditional models were all about profit, profit and more profit; triple bottom line identifies that without happy, healthy people to staff a business and the natural environment able to sustain those people and supply resources for trade; business is unsustainable in the long run.

By Duruthu Edirimuni Chandrasekera

'Move forward' on CEPA, add services, investment : Pakistan HC

noreply@blogger.com (Sri Lanka Equity Analytics) — Sun, 26 Jun 2011 04:52:00 +0000

'Moving forward' on a Comprehensive Economic Partnership Agreement (CEPA) between Sri Lanka and Pakistan which also goes beyond only trade in goods outlined in the existing bilateral Free Trade Agreement (FTA), into services and investment promotion, will boost trade between both countries, according to Seema Ilahi Baloch, High Commissioner for Pakistan in Sri Lanka.

Speaking at the recent 18th Annual General Meeting of the Sri Lanka-Pakistan Business council, Ms. Baloch also noted that there was "huge potential for increased trade in light engineering goods, fresh fruits and vegetables, processed goods, textiles, cement and clinker, pharmaceuticals, and industrial chemicals, to name a few."

Further, it was also her opinion that "opportunities for joint ventures are immense and in wide ranging sectors be it in the development of infrastructure or in the tourism sector." At the same time, Ms. Baloch also suggested that it was "up to the business community to provide feedback to the respective governments and identify bottlenecks in the existing trade mechanism." In addition, she also advocated taking "full advantage of the Free Trade Agreement, the Bilateral Investment Treaty, Avoidance of Double Taxation Agreement and more recently an agreement on Customs Cooperation, signed between our two countries."

She also recommended an "increased interaction through exchange of business delegations" and "more Business-to-Business interactions – including participation in trade fairs, single country exhibitions, know-how of market trends in Pakistan and Sri Lanka." Elaborating, she also stated that this was "required to fully realise the potential of trade, joint ventures and possible investments. The proximity between our two countries could be a valuable trade facilitator."

Highlighting the fact that Pakistan was the first country to sign a FTA with Sri Lanka, 20 years ago, and that Sri Lanka had duty free access to 206 products in the Pakistani market while Pakistan could avail itself of 102 products in the Sri Lankan market, she commented that Sri Lanka - Pakistan relations had "come a long way" since then." She further revealed that, in 1991, "bilateral trade between Pakistan and Sri Lanka was worth US$ 96.72 million and in 2010; it stood at US$ 349.76 million. The growth is about 2.6 times. But even this growth does not reflect the true commercial potential of the two countries."

She also indicated that, politically, "relations between Pakistan and Sri Lanka have been on an upward trajectory," adding "Pakistan is the second largest trading partner of Sri Lanka within the South Asian region."

In her remarks, Ms. Baloch also pointed out that Pakistan was a large market of over 160 million people and noted that agencies like the World Bank were supportive of her government's plan to court economic growth which would result in Pakistan fully regaining its traction by 2012, implying an upswing in trade between Sri Lanka and Pakistan was due.

Ozone Friendly Tea, But Supply Chain Development? - Rohantha Athukorala

noreply@blogger.com (Sri Lanka Equity Analytics) — Sun, 08 May 2011 16:21:00 +0000

When one of the leading newspapers invited me to pen a key thought on the economic landscape that is unfolding in Sri Lanka, I was at the launch of a landmark event where Sri Lanka was the 1st ever country to receive “Ozone Friendly Tea status” from the Montreal Protocol.

The award’s significance was that with this certification and the Geographical Indicator (GI) protection that the country is pursuing in the key 40 markets, Ceylon Tea is set to become a US$ two billion plus category for Sri Lanka. Ceylon Tea marketing model is an example to the world on Private-Public Partnership working

Logic

The logic being that the certification mark can be used to market the country’s tea under the tag “Ozone Friendly Tea” which means that Ceylon Tea is produced and manufactured in a manner that does not harm the environment. This unique positioning will create a distinctive position in a global consumer’s mind, thereby making Ceylon Tea a top of the mind brand. With this unique positioning the propensity for a global consumer to pick a Ceylon Tea brand becomes greater, resulting in overall demand increasing. Over time, if the quantitative value can be garnered up due to this tag, given that there is a high resiliency in the area of environmental responsibility, we can command a consumer price spike too that will be good for the industry.

Mexican Tequila

Apart from Basmathi rice one of the best examples cited globally of a category/brand that has taken this route is the famous Mexican Tequila. Apart from the unique positioning this brand has cut out in our mind, it has the GI that has also helped in establishing a premium pricing that indicates the possibilities that have opened up to driving the category/brand Ceylon Tea in the near future. Together with the 10 million dollar marketing and promotional fund that is been set up annually, In my view the demand chain agenda for Ceylon Tea is a masterpiece that can be highlighted for a successful private-public partnership.

Burning Issue

Whilst the demand side architecture is shaping well for the Tea Industry with around three hundred million kilograms of tea being exported, the supply chain performance remains a burning issue that needs to be focused on is my view. If one analyses Sri Lanka tea industry’s corporate sector performance which accounts for around 25% of Sri Lanka’s tea revenue in a five year time horizon 2002 to 2005, the volumes from 142 million kg. have declined to 124 million kg. of tea, a drop of almost 12.6%.

If we look at the overall national output, it has decreased by only a 0.7%, to be precise from 310 million kg. to 308 million kg. during the same period and even if one takes the 2010 performance, the national volumes remain at around 325 million kg. (a 3.9% increase), which means that supply chain development needs focus not only in the corporate sector, but also nationally.

Productivity issue
This volume drop by the corporate sector needs further analysis given that if overall productivity levels had improved then, this output reduction can be justified to “rationalization.” But based on research data, productivity level has also declined from 1,467kg. per ha. to 1,420 in 2005, which calls for a logical analysis and appropriate action such as diversification is my view.

TRI findings

Going back to the production drop from 142 million kilograms to 124 million kilos in a three year period, there seems to be a strong link to the findings of the Tea Research Institute (TRI) which says that the extent of Old Seedling Tea (OST) in Sri Lanka is almost 75% of it being in the corporate sector which endorses the hypothesis that the bushes’ senility can be a key reason for declining production and lower production numbers of the corporate sector apart from improper fertiliser application .

The alarming factor is that if replanting is not done within the next seven years, TRI estimates that production volumes can decline to a level as low as 80 million kg. This means a drop of almost 45 million kg. of tea from the 2002 output of the RPCs. This drop in value terms is equal to Rs. 12 billion rupees which is colossal to an industry generating Rs.41billion annually.

One can argue that replanting by the corporate sector must be done at a rate of 2-3% as per TRI guidelines, but, replanting one ha. of tea will costs over Rs. 2 million. With a seven year gestation period and the Internal Rate of Return (IRR) being 13.7% as per TRI calculations, this makes this investment a financial burden, hence low focus naturally.

Wage Issue

One of the industry’s key challenges is the wage spiral. Way back in February 1992 the total package of the plantation worker was around Rs. 60. Today the wage stands at Rs.447 with EPF and ETF. This results in a 650% increase which the corporate tea sector has no control of which is one of the tea industry’s biggest weaknesses. This has led to the Cost of Production which was around Rs.157 in 2004 to increase to around Rs.300 as at today, an almost 100% staggering increase that has not corresponded to the increase when it comes to the net sales average. I guess this points to the fact that Sri Lanka must be cautious this time around at the collective agreement on the wage bill.

Replanting the remedy?

One can argue that replanting is the way forward, but given the overall financial pressure and the cost of replanting being high, this options becomes financially non viable. The corporate sector’s current replanting rate is around 0.7% as against

the 2% that is stipulated by TRI. Based on TRI’s estimate, the corporate sector has to replant 21,835 ha. of tea in the short and medium term in order to have the right kind of mix of tea stock. This means that on average 2,350 ha. of tea will have to be replanted so that within nine years the right bush stock mix can be achieved.
The alarming point to note is that if this is not implemented with urgency, volumes will drop from the current 125 million kg. to around 80 million kg. in the corporate sector which indicates the supply chain focus that is required. In the area of fertilizer application for good agricultural practices to be followed, research reveals that overall crop sector fertiliser utilization has dropped from 32% to 23% between 1998 and 2006 which gives us an indication of the discipline that is been adhered to at the ground level.

Directional Change

From the above analysis the need of the hour is quick decision making to sort out the key issues and move forward. If the extension of the lease period to 66 years and developing a strategy to drive replanting and productivity enhancement is not done, all the focused developments in the demand end will be waste is my view.

From a more long term point of view it is clear that a new business model in “corporate sector Tea” is required. The good news is that some companies are already on to this new strategy but this requires strong policy reforms that can support this hardline approach. This model includes a highly diversified entity that has business lines in commercial forestry, gemming, mini hydro, eco tourism, palm oil, mineral water bottling, dairy farming and vegetable/fruit cultivation for the export market and other entrepreneurial ventures based on marketplace needs. Another option will be to develop an export arm in a typical corporate either by acquiring a successful export company which has a synergy so that the moneys earned by the exporter will come into the P&L of a corporate. This includes from production to warehousing and logistics to global marketing just like the agency house days. This will require competencies in many areas which can take some time to specialize.

Conclusion

Hence it is clear that from a demand perspective Sri Lanka is a model country in the world of Tea but from a supply side we have considerable challenges that needs to be addressed. The thoughts expressed are the writer’s own based on his doctoral research and not the view of the positions he holds in the Private, Public or in the International Public sector.

Amana Investments: The torchbearer of Islamic banking in Sri Lanka

noreply@blogger.com (Sri Lanka Equity Analytics) — Mon, 21 Feb 2011 12:37:00 +0000

Amana Investments Ltd. has been the torchbearer of Islamic banking in Sri Lanka for almost the last two decades. In that time the parent company also established a Takaful (Islamic insurance) subsidiary, Amana Takaful, in a joint venture with Syarikat Takaful Malaysia and Amana Capital. At the helm at Amana are Chairman Osman Kassim and Managing Director and CEO Faizal Salieh, arguably the two most seasoned Islamic bankers in the country. Years of lobbying finally paid off when the Sri Lankan government a few years ago amending its existing banking rules to facilitate the authorization of a Shariah-compliant commercial bank.

Last month, President and Finance Minister Mahinda Rajapakse and the Central Bank of Sri Lanka granted a full commercial banking license to Amana Investments Ltd. to set up Amana Bank, which is scheduled to start full operations later this year. The bank is headquartered in Colombo and has 13 branches in the west and east of the country as well as one in the south, in Galle, that are being converted into fully fledged branches of Amana Bank.

Salieh discusses with Arab News the core objectives of the bank; the potential and opportunities for Islamic finance in Sri Lanka’s development and economy; and the challenges and issues that remain.

What is the license status of Amana Bank?

Faizal Salieh: We have been granted a full commercial-banking license to establish Amana Bank. It was granted on Jan. 24, 2011. The authority is the Monetary Board of the Central Bank of Sri Lanka with the concurrence of the Minister of Finance Mahinda Rajapakse. The license was granted pursuant to Banking Act No. 30 of 1988.

What is the paid-up capital of the bank and who are the main shareholders?

The stated capital is 3.4 billion Sri Lankan rupees ($1 = Rs.110.87) which is what the bank has raised. The minimum required regulatory capital is Rs.2.5 billion. The main shareholders are Bank Islam Malaysia Berhad (with a 20 percent equity stake), Albaraka Bank of Bangladesh (with a 15 percent equity stake), the Jeddah-based Islamic Development Bank (with a 10 percent equity stake) and the local Akbar Bros. (with a 10 percent equity stake).

Which activities are you allowed to conduct under the provisions of the bank license and the law?

Amana Bank is allowed to conduct all commercial banking activities both domestic and offshore banking and Islamic banking products. Amana Bank will engage only in Shariah-compliant banking products and services. The license specifically requires us to assist the government of Sri Lanka to raise long-term funds through Islamic finance products.

What are your core business objectives and which products will you concentrate on?

Our core business objectives are to offer our customers a principled and attractive alternative to interest-based banking; infuse a new and innovative dimension to the country’s banking industry through our business model; and add value to the economy. In this process we aim to be among the top ten banks in the country in terms of brand equity in five years. We wish to touch the hearts and lives of many people as possible through our consumer-banking product offerings and also enable the corporations and small- and medium-sized businesses to access and benefit from our ethical financing products.

What is the potential for Islamic banking in Sri Lanka? Apart from Amana are their any other institutions that provide Islamic financial products, including through windows or ad hoc stand-alone products?

The potential market size for Islamic banking is estimated at $1.5 billion. There is growing awareness even among the non Islamic market segments. The other operators include two conventional banking Islamic windows, one of which is a wholly state-owned bank; two Islamic-leasing windows by a state-owned leasing company and a private sector leasing company; two Islamic windows by private finance companies; and a few small-time fund management entities.

What has been the support from the Sri Lankan government and its central bank in facilitating the introduction of Islamic financial products in Sri Lanka? Is it part of a financial inclusion policy?

The support from the government and the central bank has been essentially in response to Amana’s consistent lobbying efforts and continued dialogue with the regulators, which resulted in some significant amendments being made to the banking law in 2005; the articulation by the Ministry of Finance in the government’s budget proposals about the need to recognize Islamic finance for the purpose of tax neutrality in the country’s tax statutes in November 2010; and the issuance of the country’s first banking license to Amana Bank for the purpose of carrying on Islamic banking in January of this year. The government has recognized the global growth and value of Islamic finance and has expressed its desire to see the economy benefit from it. Yes, Islamic finance is now part of a financial-inclusion policy.

How can Islamic finance contribute to economic growth, infrastructure development and financial stability in Sri Lanka?

Islamic finance is ideally suited to participate in the long-term financing of the country’s infrastructure requirements as it has the right product structures for that purpose. The asset-based financing emphasis will be a positive factor in enabling real economic growth and promoting financial stability. Islamic financial institutions have been successful in tapping the informal sector and integrating it with the formal economy as demonstrated by Amana’s own business experience over the past 12 years. Islamic financial institutions that subscribe to good governance standards, best practices and compliance would by definition become formidable assets in ensuring true stability in the financial system.

Why I moved out of business - Chandana Ukwatte

noreply@blogger.com (Sri Lanka Equity Analytics) — Sun, 13 Feb 2011 04:54:00 +0000

Parting of the ways

Cargills which is rapidly expanding this week made an entry into the alcohol business, buying up the Three Coins brewery through a subsidiary, Millers Brewery. (More details are given in a "Enhancing capacity at the 3 Coins brewery").
In wide-ranging interviews, McCallum Brewery Chairman Chandana Ukwatte explains why he is parting with the product launched by his father in 1964 while Millers Brewery Chairman Stuart Young talks about the potential of the beer market in the post-war period.

Comments from Mr Ukwatte:
Q: Why did you sell the business?
The effort and time needed to make the business a real success did not seem worthwhile to me. I would have been happier to have had the opportunity to monetize the company as a great success. But that opportunity eluded me.

McCallum Brewery Chairman Chandana Ukwatte

The decision was largely mine as I held over 95% of the stock. The timing of it was fortunate only in the sense that the immediate aftermath of the war has proved to be heady days for men of action. Otherwise I feel I have spent too many of my days pursuing external advantages of wealth and distinction, and without success at that.
Q:Why did you give up on making it a success?
There comes a time when you have to acknowledge your own limitations in exciting admiration, whether in the life of practice or the life of reason. Anyway ambition must be limited, I feel, by considerations of the opportunity to cherish liberty which external advantages serve.
Q: Did the regulatory environment for liquor play a part in the decision?
Over-regulation never encourages healthy competition, while stimulating monopolistic practices. But no one prevented us from becoming monopolistic ourselves. In that sense my own failure in business cannot be attributed to the regulatory environment. Others have succeeded in that environment.
Q:Was Cargills the only party making a play for the business?
There were others. Of these at least two parties were presumed by me to be serious contenders, and their offers were superior to the Cargills’ offer. They turned out to be only interested in preventing Cargills from entering the beer industry. I do not mean to suggest that these parties were dishonourable. On the contrary, I doubt one can succeed in business as much as they have without being honourable, although I am told there is honour even among thieves.
To be fair, I must say this. One of the parties was a leading family driven conglomerate, and the two leading members of the family personally assured me of the seriousness of its bid, but at the same time made me understand that Cargills was the driving force of their interest in Three Coins. I suppose it was a kind of a caveat, and the party withdrew its bid no sooner they felt that Cargills was no longer in the running. The mistake the party made, if it was at all a mistake for them, was in underestimating my capacity to go back to Cargills with the metaphorical tail between the legs. Cargills in turn showed none of the mean spiritedness that is usually attributed to commercial people placed in commanding situations. Ranjit Page (Cargills Deputy Chairman) decided to stick to the bargain we had arrived at before the rupture.
Q:There were reports that Lion Brewery and Asia Pacific Brewery were vying for the control of Three Coins?
I can neither deny nor confirm these reports.
Q: As a beer man, how do you see Cargills prospects in the industry?
Excellent, I feel. Cargills has a growing distribution network, and needless to say distribution is the mainstay of business success. Also Cargills’ ways of doing things have evolved into an ethos that bodes well for the beer industry. What I mean by that is simply this: I sense in their ethos a recognition that one cannot do things “on the cheap,” and that profiting from commodification cannot be entirely at the expense of quality, variety, taste, style and novelty. Without a genuine interest in bettering consumer experience, the natural disposition of businesses to engage in monopolistic practices and to underestimate the consumer’s intelligence becomes matured by habit. I won’t be surprised to see Cargills creaming to the top in the beer industry sooner rather than later.
Q:The business was founded by your father, U. K. Edmund?
Yes, indeed.
Q:Was the sale an emotionally, difficult experience?
The selling of a family owned property is an emotionally, difficult experience for most people. But a confluence of interests and pressing circumstances created a logic that had a greater hold on my heart than the emotional attachment to family property.
Q: Plans for the future?
I do not want to bore your readers with my own plans. It is enough to say that I have no business plans whatsoever.

Soft liquor outpacing traditional arrack - Young

In an interview with the Business Times Stuart Young, Chairman, Millers Brewery Ltd responded to the following questions:

Q: What was the reason for the Cargills group to venture into the soft alcohol business?

This segment of the market offers good long term growth potential as soft liquor is relatively undeveloped in Sri Lanka compared to markets in other countries.

Despite the fact that there are restrictions placed on the marketing of alcoholic beverages the younger generation is well aware of international trends which show a 'fashionable' move to wines and beers. We are already seeing beer and LMFLs (Locally Manufactured Foreign Liquors like Vodka, Gin, Rum, etc) outpacing traditional arrack in the market. Furthermore with the island now at peace tourism is destined to boom and we will be producing beers that will cater for the needs of foreign tourists. There will be the inevitable rub-off into the local market.

Stuart Young, Chairman, Millers Brewery Ltd

Q:Given that the 3 Coins product has been virtually dead for many months – out of the market and out of the mind (consumer) plus given the strict regime relating to advertising and promotion, how does Millers plan to get it back to the top-of-the mind of the consumer?

We are certain that there is sufficient goodwill towards the brand that will allow us to achieve similar volumes of these products relatively quickly.

Also the trade will welcome our return as competition will help grow the market. As for marketing, as you know, we can only use the packaging for communication and here we believe that we can be quite innovative in design not only for existing products but also for new introductions.

Q: What kind of spending is planning in the ‘re-engagement of consumer’ campaign?

There is no specific spending plan as the prevailing laws governing the sale of alcoholic beverages prohibit advertising and promotional activity. However our sales force will be introducing the product to the trade and effective display will bring the re-introduction of our brands to the notice of consumers.

Q: Is there additional investment that is required to upgrade or revitalize the plant?

The plant is non-functional at present but minimal investment is required to bring it into full production based on current installed capacity. We will additionally embark on a significant capacity enhancement programme over the next 18 months to be able to produce the volumes that are required to meet the needs of our strategic objectives in the marketplace. Certainly it is our intention to expand the market via innovative new products catering for both the local and tourist segments.

On competition

I am great believer that competition is good for business and is a driver of growth. I know the major player in our industry believe this equally and in competing we will hone our skills. They have set a high bench-mark against which we will strive. Together we will expand the market to the benefit of the consumer and indeed the country. Whilst respecting them I am certain that we will gain a growing share in an expanding market. This will greatly benefit the consumer offering a wider choice of high quality products.

Q:Having spent many years here earlier as the Nestle Managing Director of the local unit, are you happy to be back in the saddle in a different beverage business and also back in Sri Lanka?I have spent nearly eight years in Sri Lanka which outside of my own country South Africa is the longest I have spent anywhere. I believe I know the country and the business environment well and have a great affection for this island and its people. In fact, I have more friends here than I have in my own country. I believe that in this and my other capacities here I can make a modest contribution to the great future that surely awaits Sri Lanka. The potential of this island, now that the war is over is staggering. At my last meeting with the President in my capacity as MD of Nestle he said to me with regard to the war that he would "finish it off" and true to his word he did some six months later. Now, thanks to that determination, the nation is set to take its place amongst the fast growing economies of Asia. Great things are about to happen!!

Courtesy: Sunday Times

11 marketing trends in 2011 for Sri Lankan organizations - Thanzyl Thajudeen

noreply@blogger.com (Sri Lanka Equity Analytics) — Sat, 12 Feb 2011 04:57:00 +0000

Marketing is evolving throughout the globe; the transformation from IMC's to brand building programs, traditional to digital and social, from quantity to quality of engagement, from PR to crisis and reputational management, and a lot more to talk about!

In Sri Lanka, it is noticeable that grounds are changing but yet the traditional remains - it takes time for them to fade off or change. I always continue to study the context in Sri Lanka; it's very interesting and insightful - I trust you know what I'm trying to say. I have listed out eleven marketing trends which I am pretty sure will be happening in this year throughout many Sri Lankan organizations.

1. Marketers will move into the North and East markets of Sri Lanka

It is a known fact that after the 30 year old civil war, finally peace is in the air of the Northern and Eastern parts of the country which calls for economic prosperity in these regions. Many retailers as well as educational institutions have started operations, and I predict that much more will consider and move - from hospitality and entertainment sector, medicals and clinics through to advertising agencies, and clothing and consumer electronics retailers.

Particularly, the educational system will again rise up in these regions - that is only if initiatives are taken by the public sector - yet I predict that private schools and educational institutions will trigger the system.

Many organizations in Sri Lanka will have North and East opportunity / market studies and entry on their quarterly reports or meetings or operational and strategic plans.

I could say that as there are many advertising and marketing communications agencies in Colombo and anywhere else; these agencies will move to North and East with specialized personnel that adhere to their attitude, behavior and other socio-cultural norms - as traditional is falling off; traditional brand building programs might well be worked in these regions!

2. Traditional media will still remain

Traditional media in Sri Lanka such as print of newspapers and magazines through to radio and interactive will still remain, and will still continue to be profitable but not sustainable if we look at a 10 year period. I predict that the main income for agencies will still be newspapers with publishers trying to go out for specialized supplements, and free advert inserts, etc - it's visible especially if you take the Sunday papers in the week.

I predict that outdoor and vehicle branding will be profitable in rural as well as the Northern and Eastern regions of the country - as there is no newspaper circulation or TV/Radio access throughout many households - but yet, it can be said that publishers and stations are also considering to move onto these areas where massive opportunities lie.

3. Agencies will venture onto the digital sector but slowly

You may well by aware that all global agencies have a digital sector in their organization which is very critical in today's digital and social world. Sri Lankan agencies as well as multinational agencies with local presence will stop and think, and even consider of setting up a digital unit to balance off the risk.

Yet, this will just be the sake of just having a so called 'digital unit' - I predict that months later, these agencies will work in partnership with others in the ecosystem to survive together - which I kind of also highly doubt when it comes to the style that is implemented throughout many agencies here.

More than the usage of social media, agencies will consider digital media especially when it comes to giving their client an interactive social media website of their own, integrated with other social and micro-blogging tools that are available freely.

4. Clients will demand for digital media

Organizations, mainly I predict the consumer-savvy ones, will use their own social site whereby creating a community that suits the organization's interest - marketing managers and executives will try to cut down budgets - I predict that especially the larger organizations will leverage having their own social site.

Whereas for the upcoming small and medium enterprises I predict that they will leverage and take the opportunity the social media gives out - as these organizations will not have huge budgets to create interactive sites through to maintenance and other costs.

For example, KIK Cola, a product from Sri Lanka's very own Ceylon Cold Stores, have their very own social site - pictures, movies, gossips, and much more! - I predict that agencies will increasingly use this tool for their clients.

5. Meet unmet needs throughout the 'rural' customers that hold potential

Increasingly much is spoken about capturing the rural needs that are untapped - I only hear these from those lecturers at business institutions - where is the corporate gossip about this? Well, I predict that many organizations will consider and explore the under-served, unmet needs of customers in these areas.

It is said that many rural areas also hold a wealth of profitable customers who have a higher income levels but live in these rural or un-developed areas - mainly the retired, or the ones that need a peaceful life.

I predict that organizations mainly being educational institutions through to restaurants and retailers (mainly being clothing, FMCG as well as consumer electronics) will move into these locations, and interestingly explore different lifestyles, behavior, attitudes, and other demo-psychographic factors.

6. Mobile will play a major role in marketing

With intense competition from five operators; marking 17.3 million mobile subscribers as of September 2010 according to the Telecommunications Regulatory Commission of Sri Lanka; many using mobile internet; smartphones fuelling up the market; increasing Chinese and Indian handsets that are much more affordable; and operators opening up distribution channels and signal towers towards other parts of the country, I predict that mobile will be a highly effective tool that many organizations, research as well as advertising agencies will consider - from SMS advertising through to m-ticketing, etc.

Mobile handsets will turn onto being media vehicles in Sri Lanka - but not so quickly though. I predict that organizations even without formal partnership models with operators will use their own database to send out SMS, MMS, and others.

I personally experience this where business institutes text out notifications to their relevant student database or the so called budget three wheeler service that sends out information about the three wheeler that is sent out to the customer. I predict that this trend will continue but eventually I believe that organizations will work together with operators to leverage on this opportunity and medium as I stated in my earlier written Mobile Advertising articles.

7. Agencies will consider to shift from 'awards and trophies' based to value creation

As we all know that many of Sri Lanka's advertising agencies, particularly stating the industry as a whole is run by those big awards and trophies, and pictorial publicity in all the media - this is not going to be the case anymore.

I still know that it would still be running on awards based - but it's somewhat predictable that brand value creation is replacing this attitude - and hence, agencies will pitch in and fight out and plan out brand building programs as opposed to the traditional IMC programs - for the worst in Sri Lanka, it is still called 'advertising' agencies and not 'Integrated Marketing Communications' agencies!

I also predict that there might be a body that will set up local laws and policies, or even the globally practiced laws might apply to all promotional or communicational materials that are carried out - this is why exactly there is no healthy competition currently throughout many agencies.

8. Sponsorships, endorsements and events will continue big

From cricket sports through to rugby and others, I predict that sponsorships will still remain big in picture and will continue to be mostly used by the local organizations. Endorsements as we can see - through the traditional fixed line operators and the famous jewellery stores - will also just continue like sponsorships.

Events by far will be even huger - with the tourism and international considerations towards the country - many organizations will use events to trigger interest, product launches, or even just as a CSR activity! As sustainability have just hit Sri Lankan organizations, many will practice events on a CSR basis and increasingly many NGO's as well as clubs and associations will use educational or entertainment based events to fund the poor or decrease cancer or other diseases throughout the country.

9. Marketing education will increase

With increasing efforts from professional marketing bodies such as the Chartered Institute of Marketing and SLIM, as well as the upcoming foreign affiliated university degrees specializing or majoring in marketing, I predict that education in marketing will increase and that employees will continue to seek the value and recognition of these qualifications.

As through my experience, many corporates here run in the 'experience' category - we all know what this exactly is, and this is the main reason why you find so many old school executives in many corporates still hanging on their positions - this is said to break out.

I also predict that there will be many forums and educational workshops on new grounds in marketing such as brand value creation, digital and social media, crisis management, and much more that is trending in today's global world.

10. Marketing will rock the board-room

With the increasing importance of marketing, and how it evolves around businesses, it can be conclusive that marketers will take over the board room. Historically, it has always been the finance and accounting guys who dominated the Sri Lankan board rooms - this is not the case anymore - with executives and investors increasing understanding and feeling what marketing is really about - they will give high priority to marketers.

With all the above stated predictions and trends, it's obvious to state that there is more demand for marketers throughout many organizations - marketers are not just sales anymore (this is exactly what the Sri Lankan context is - I really know that you know what I'm saying about!) - Marketers are more of an architect and strategic planner through to brand builders and turnaround executives.

I predict that marketing ROI will rule out the whole board in these organizations with the above stated trends - and increasingly executives will understand that these new ROI are today's tools and are the ones that promise sustainability - this means marketing accountability.

As CEO of MTI Consulting, Hilmy Cader whom I consider as an evolving strategist stated - 'If the argument is that it is difficult to measure, there are many new scientific approaches in which you can find answers to these hard questions. It's time for marketing accountability!'

11. Reputation management will be increasingly considered

It's visible that there are forums and programs coming up in the whole reputational management platform - you may also well read my previous articles on 'organization reputing' and 'online reputing', and 'crisis management'.

Organizations are now even though more focused on just getting the PR presence - a few of them are now realizing the value and benefits of maintaining and developing a good reputation by practicing ethical, good policies throughout each and every level, every function of an organization. I predict that the advertising agencies, and consulting or research agencies will increasingly also deliver a reputational management plan or a crisis management plan for their clients - and this will be a whole new addition and revenue gainer.

(The writer is an evolving marketer and strategist, and is the world's youngest Associate Member of the Chartered Institute of Marketing, and provides consulting, practices and knowledge on industry, marketing, strategy, communications, digital and social media, and strategic reputation. You can reach him onthanzyl@markandcomm.com. You can now follow him on @Thanzyl on Twitter)

Nawaloka Hospitals leading every way all the way

noreply@blogger.com (Sri Lanka Equity Analytics) — Mon, 31 Jan 2011 04:17:00 +0000

Echoing one of the best known sayings well known to all Sri Lankans 'Health is our greatest wealth', Nawaloka Hospitals Plc has redefined the dimensions of success for over a quarter century. The foundation of the business which transformed nursing homes into hospitals and later redefined the standards of private healthcare in Sri Lanka, continues to be the pioneering force in the country's amalgam of healthcare providers.

While their success continues to fly sky high, we took a vocal walk with Jayantha Dharmadasa Deputy Chairman of Nawaloka Hospitals down the path which had hardships but yet managed to catapult Nawaloka Hospitals to being the first choice of a majority seeking private healthcare in the country. We were also joined by Professor Lal Chandrasena; Director and General Manager who explained the nuances of the business further.

Q: What do you think that the management of Nawaloka Hospitals plc; does differently to other providers that has brought your business to this degree of success?

From the time we started the fully fledged Hospital, we have been clear with our vision to be the best and the most technologically advanced healthcare provider in the country. We take great pride in being the first Hospital that provided both the Medical and Cardiac Intensive Care Units and we have been pioneers in introducing many types of surgeries and treatments such as bypass surgery and laser treatment to Sri Lanka. Even the first Computed Tomography (CT) and Magnetic Resonance Imaging (MRI) scanners were introduced to the country by us, hence being committed to our vision has given us market leadership and we are confident we will continue to be so.

Q: Your expertise is around business management, how do you drive this organization that predominantly has a medical aspect to its operations?

One has to identify the requirements for a successful operation and providing them with those facilities effectively and efficiently; makes things run smooth. Further, our capacity utilisation plays an important part in ensuring that although we are here to provide healthcare we also are cost efficient.

Q: Elaborating on staff, what is your employment structure and tenure like?

Be it medical or non-medical staff, we have employees who have been with us for over two decades. They feel drawn to their job and the way in which they are treated; we too make every effort to ensure they feel motivated to be part of our establishment. We have our own training facility that accommodates one hundred nursing students at a time; this has proved very productive as they get exposure to many avenues of their job before they can independently attend to our patients. It is these students that later move up the nursing hierarchy and turn out to become higher grade nursing officers of which we take pride in have developed approximately ninety. This also creates immense loyalty towards us as they feel that Nawaloka Hospitals plc is constantly behind every step of their progress. Further, we encourage many welfare projects among them so they have an opportunity to mingle with external individuals other than those from their hectic and responsible medical profession.

Q: To what extent has competition from emerging Hospitals affected you and how about the technology they possess?

It is obvious that the emergence of these hospitals will take away a share of our patients; at least in the short term, but we continue to lead in the market. Our prices are certainly the most reasonable in comparison to other providers. No matter what the nature of treatment, we are able to be more competitive than any other Hospital, even our pharmacy offers drugs to our patients at prices similar to those offered by the State Pharmaceuticals Corporation. These factors increase our confidence to retain our market share. In terms of technology, we have always been the leaders, so we will continue to be in the forefront of introducing new medical technology from the global arena to the Sri Lankan market, thereby complying with our Founder's vision. Our Doctors have access to advanced knowledge so that we keep up with the pace of providing required facilities to enable them to provide the best healthcare. These facilities and new technology means that patients will face shorter stay in hospitals and they will find this tremendously beneficial. There was a team from the United States of America who recently conducted a series of successful Gastric Banding Surgeries which is a proven method of treating obesity, this is another example of our technology transfer. We are confident that we will continue to be pioneers in bringing in many more new methods of treatment to the country and this will cement our Market Leadership enormously.

Q: What are you main values?

Our values are simple; we offer a friendly service with value for money.

Q: What does your Founder, Deshamanya H.K. Dharmadasa feel about the Hospitals progress so far?

Incredibly happy that his vision has been made a reality. He has worked extremely hard to set the standards for this hospital and by us following them today, has made his dream of seeing Nawaloka as the pinnacle of healthcare in the country come true. The Prime Minister; Honourable D. M. Jayaratne described our Hospital as a peoples' hospital, in his address at our silver jubilee celebration last year. So there is no doubt our founders' dream has been accomplished.

Professor Lal Chandrasena reiterated stating " we are not a new player in the healthcare market. We will continue to maintain our standards and conquer the future. Most of the other Hospitals today have achieved their standards of healthcare because we have set the benchmark for the others to follow. Conforming to them have become imperative and we accept this situation humbly. If one Hospital can redefine the manner in which healthcare is managed in a country, it tells immeasurable facts about the confidence it has instilled in patients. Be it the first MRI scanner we introduced to Sri Lanka or the latest 3-Teslar MRI scanner we have just invoiced, we have not had a contender to precede us in Medical technology so far. We were the first Hospital to receive certification from the International Standards Organization (ISO) and the National Quality award. The National Business Excellence award being the latest addition to our array of the most prestigious awards received over the years. Epitomising all of this, our expansion plans for the future are limitless. Our 15 floor new wing with multi storey car park with the lake view will certainly be another milestone in our record of achievements and we aspire to complete this initiative by the end of this year so our service excellence reaches new levels and Nawaloka Hospitals continues to be the best hospital that strives to deliver appropriate and affordable healthcare and tomorrow's healthcare today with an astonishing success story.

Courtesy - Daily Mirror

Sri Lanka must speed up the advancement of Nanotechnology - Professor Tissa Vitharna

noreply@blogger.com (Sri Lanka Equity Analytics) — Sat, 29 Jan 2011 09:33:00 +0000

The proportion of high tech products in the global market is increasing e.g. Telecom - US $ 1662 billion, Electronics - US$ 1200 billion, IT - US$ 1073 billion, Biotech - US$ 73 billion and Nanotech US$ 147 billion per year in the period between 2005 to 2007. Making ICT the core of the Knowledge Hub is a good step. While it facilitates the transfer of knowledge it does not generate new knowledge. It is through the other high tech advances of knowledge, like Nanotechnology, that Sri Lanka can add value to its raw materials and industry.

If Sri Lanka is to penetrate this ever growing market she must improve the quality of her products. That can be done only through high technology. Therefore DM Business met with the Senior Minister for Scientific Affairs, Professor Tissa Witharana to find out how Sri Lanka has fared in ushering high technology to its advancement.

Q: What has the government done to achieve this ambitious target?

Sri Lanka Institute of Nano Technology (SLINTEC) under the Science and Technology Ministry established when I was the Minister in partnership with the private sector has already applied for five US patents using Nanotechnology to enable Sri Lanka to develop an industry that would add 250 times to the value of raw Ilmenite for instance by producing Titanium Dioxide. By this we will gain US $ 8 million each year by exporting Ilmenite whereas now spend US $ 12 million to import Titanium Dioxide for our paint industry. This is why Sri Lanka has remained economically poor.

How could Sri Lanka penetrate substantially the global market for our non traditional exports and how long have we to go to achieve this target?

Goods and services produced in Sri Lanka have to compete with those from abroad in both the local and foreign markets. If our products fail to be sold then our enterprises will collapse and we will be defeated in the economic war. To outsell goods and services from abroad, ours must be of a better quality and cheaper. This outcome depends mainly on the technology that is employed in the production process.

Q:Research, studies and surveys that contribute immensely to the industrial development are lacking in Sri Lanka, why?

The poverty gap between rich and poor countries is a technology gap. Robert Solow of the USA won the 1987 Nobel Prize for Economics in recognition of his research which clearly established that the USA became the leading economy in the world because of the technological advances resulting from scientific research and development and innovation. Investment helps by generating technology.

Technological revolutions (waves) have been the basis for economic development. UK, Europe and the USA advanced on the basis of the Industrial Revolution. South Korea and Taiwan caught the Electronics and ICT Revolutions in the 1960 - 1980 periods. China, India and Cuba have caught the Bio technology Revolution. Sri Lanka missed these waves of technology. That is why while our per capita GDP was US$ 320 as against US$ 84 for South Korea in the 1960s. In 2009 our per capita GDP had gone up to US$ 2200, whereas South Korea exceeded US $ 20,000 (being nearer US $ 30,000).

South Korea invested 3.2% of its GDP for Science and Technology and R&D while Sri Lanka only invested 0.13% of the GDP. As a result South Korea obtained over 5,000 US patents per year in the last 10 years while Sri Lanka only obtained 1.8 patents per year. This was reflected in the fact that Sri Lanka had only 1.5% of high technology exports while Korea had 75%, Thailand had 27%, Singapore and Malaysia exceeded 50%. That is why these countries have been able to capture foreign markets, and also generate more income for their own economies. High Technology products lead to much higher profit and is the reason for these countries to emerge from poverty and become rich.

Q:As a leading scientist and a senior government minister what you suggest for Sri Lanka to fill this gap?

I appreciate the support of National Science and Technology Commission (NASTEC) in arranging the five-year strategy to be presented and discussed at the sixth Biennial Conference on Science and Technology (BICOST VI) held in Kandy from July 16- 18 2010, which provided useful input in to the final document. I thank all those who assisted in the preparation of this strategy, particularly Prof. Sirimali Fernando and all the members of the Task Force.

This 5 year Science, Technology and Innovation Strategy based on the National Science & Technology policy adopted by the Cabinet of Ministers in 2009, designed to enable the country to takeoff economically and help the government to achieve the development targets both at national and village levels. For this, the four stakeholders - the government, the administrators, the scientists and the entrepreneurs - will have to work together. With the necessary determination and commitment we can win the "economic war".

Q:Even though, we add value and improve the quality of our goods and services how are we going to face the challenges coming from other countries?

For Sri Lanka to improve its economy to bring prosperity to its people and become the 'Wonder of Asia' as stated by President Rajapaksa, it is imperative to appreciate the fierce competition our goods and services have to face today in the global market. This could be worse in the decades to come. This competition has to be overcome if we are to win the economic war. This demands the infusion of technology and innovation to make our products and service capable of overcoming the competition from goods and services from abroad in the open market.

At this most opportune moment that Sri Lanka is facing since independence it is imperative that we recognize Sri Lanka towards the 'Asian Rising'. The scientific capability within the country has to be of world class.

It is imperative that we recognize standards in the areas that Sri Lanka has the competitive edge, for the goods and services developed by our economy to be able to outsell those from other countries.

Whilst the Science and Technology (S&T) policy adopted by the Cabinet in June 2009, identifies the generic S&T capability necessary for Sri Lanka it is necessary to specifically focus on the priority needs for rapid economic development in the next five years so as to help double the per capital GDP by the year 2015 as envisaged by the President. This strategic plan primarily focuses on achieving this objective, taking cognizance of the current status of S&T in the country. It presents a rationalized and prioritized course of action, based on the National S&T Policy.

The vision of this strategy is to make Sri Lanka a leader in knowledge, creation and innovation in Asia by establishing a world class national research and innovation ecosystem which will generate the necessary strategic, sustainable innovations and technologies to win the economic war by focusing on areas of co-competencies and resource linked opportunities whilst upholding sustainable principles and preparing our people for a knowledge based society through improved scientific literacy.

Q:Can you kindly elaborate on the five year S&T plan of the government that expects to achieve its development goals by 2015?

To meet these goals it is extremely important to have an efficient system to actively harness innovations and technologies to generate and improve products and services to contribute towards doubling the per capita income and the GDP in an equitable manner by increasing the high tech value added exports and the production for the domestic market.

The five year science and technology plan has envisaged in increasing the high tech value added exports from 1.5% to 10% by year 2015 through the Advanced Technology Initiative.

To achieve a marked increase of import replacement by strategic production and social activities in a competitive milieu through enhanced and focused research and development and to develop a dynamic technology transfer platform for wealth creation through the Techno entrepreneurship Initiative.

A well established, dynamic and resourced world class National Research and Innovation Eco-System and establishment of a system for efficient and coordinated S&T Governance is required in addition to attract, build and retain the strategic human capital needed to make Sri Lanka a leading knowledge and innovation hub in Asia.

We need to create a comprehensive, world-class research and innovation system through a well planned S&T infrastructure and services modernization initiative and facilitate International Partnerships in promoting high end technology and research. An effective framework is needed to prepare the people of Sri Lanka for a S&T knowledge society. Further it is necessary for an implementation of the "Science for All' initiative to attract students at all levels to science
Awareness should be created of the potential of Technology, research and development and innovation in industry and businesses. Sustainability principles must be entrenched in all spheres of scientific activities. And strategic competitive advantage must be ensured with differentiation to achieve economic sustainability in all scientific activities. It is necessary to ensure environment sustainability in all areas of work and ensure social sustainability in all activities.

Ceylon Phobia – will it affect ‘Ceylon tea’ and cripple our economy?

noreply@blogger.com (Sri Lanka Equity Analytics) — Sat, 08 Jan 2011 12:20:00 +0000

According to a recent Cabinet decision, the, word "Ceylon" will be a prohibited word for Government Institutions and Corporations in the near future. Institutions like the Ceylon Electricity Board, Ceylon Petroleum Corporation, Ceylon Transport Board and Departments like the Ceylon Government Railway can very well afford to lose the word "Ceylon" from their identity label and the loss would not make any difference to the general public either, as they would continue to heap burdens on the people and still continue with their ‘Loss Run’! The Bank of Ceylon – the Bankers to the Nation with a 60-year old history would certainly have a problem on their hands to coin a suitable name for themselves which rhymes properly!

At the same time if someone were to tamper with the identification of the main export crop of the country and decide to call it "Sri Lanka Tea" the repercussions would be grave. Ever since James Taylor planted the first tea plant at Loolecondera more than a hundred years ago, and gradually propagated tea to cover the hill tops of the Up-Country area, our main export crop had been identified as "Ceylon Tea"

Moreover during the past three decades, the Ceylon Tea Promotion Bureau, affiliated to the Sri Lanka Tea Board had spent millions of dollars in promotional activities abroad in the Western World, Latin America, Europe, Asia and in Australia, under their standard certification Brand Name "Lion Logo" - which depicts the Lion Emblem with the word Ceylon Tea printed clearly within a small rectangle with rounded corners. The Ceylon Tea Promotion Bureau, holds the franchise for the "Lion Logo", and exporters of tea in packets and tea bags whose consignments adhere to their specific standards of quality were granted permission to use the "Lion Logo" on the relevant packages. Exporters of bulk tea were also given strict instructions to mark their export bulk packages with the words – "Pure Ceylon Tea- Packed in Sri Lanka", to avoid being mixed up with the inferior teas from other tea exporting countries.

Because of the stringent rules and regulations enforced by Ceylon Tea Promotion Bureau, Ceylon Tea was able to stand on its own in the World Market as the best in the world even amidst competition from Kenyan, Vietnamese and Indonesian teas. The Ceylon Tea Promotion Bureau, built a solid customer base for "Ceylon Tea" throughout the world for the exporting companies to exploit. The tea drinking customers around the world were given the knowledge to purchase good quality tea from the shelves of their supermarkets and they came to identify Ceylon Tea with quality, taste and aroma at its best.

After 3 decades of hard work, if the Ceylon Tea Promotion Bureau was to be instructed to start a campaign all over again to popularize "Sri Lanka Tea" throughout the world – it would certainly cost millions of dollars! Why not spend that money to improve the living standards of the estate labourers in the plantation areas?

Srilal Javasuriva,

Courtesy- The Island

Skill, luck and reversion to the mean

noreply@blogger.com (Sri Lanka Equity Analytics) — Tue, 21 Dec 2010 05:26:00 +0000

Businesses, especially those in the public domain have been increasingly spending money on public relations firms and some earnings announcements have now reached cult proportions. A regulatory obligation which was dominated by heavy-eyed analysts and retirees are now at times hosted by celebrities and must have sound bites to feed the 24-hour business channels. This presents challenges to sort out the noise from real facts which can have a meaningful impact on the future value generation within a business.

Many believe that large multimillion and multibillion rupee (dollar) companies are engines of discipline, efficiency, organization, and quality. How could they not be and still be as powerful and successful as they are? A closer look however reveals that most businesses, in fact, succeed in spite of themselves.

In retrospect, this shouldn't have been too surprising. No matter how large a corporation becomes, no matter what personal brand it acquires, the brand doesn't run things—people do. And people, of course, are flawed. Investors fall prey to the mistaken assumption that people always try to do the right thing, are all basically competent, and that a book will be as good as its cover.

Companies thrive on their customers and investors assuming this. A good company will always strive for quality, but simultaneously strive with equal intensity for the appearance of quality. Because achieving quality and achieving the appearance of quality often require entirely separate efforts, it's not uncommon for a large disparity to develop between the two. Think of Golden Key locally and Enron and most Wall Street banks globally. That it's easier to look accomplished and professional than to be accomplished and professional is less a testament to how easy it is to look good than how hard it is to be good.

Often companies go overboard to project an image of being “different” and “above their competition” since most senior management simply don’t understand how the company’s earnings got there in the first place. It is entirely possible (and there are plenty of real life examples) of companies who have done nothing different for up to a decade, only to see their internal value and share price trade within a 90% price volatility band. Companies and investors by extension tend to underestimate one of the most powerful forces of mathematics, that of mean reversion. Mean reversion is misunderstood due mainly to the lack of proper tools in understanding the role of skill versus luck in decision making, be it in running a company or choosing which businesses to invest.

Outcomes from many activities—including sports, business, and investing—are the combination of skill and luck. Most people recognize that skill and luck play a role in results, yet they have a poor sense of the relative contribution of each. The ability to properly untangle skill and luck leads to much better thinking about most day-to-day outcomes, and allows for sharply improved decision making.

The outcomes of any activity that combine skill and luck will exhibit reversion to the mean. More technically, an extreme outcome (good or bad) will be followed by an outcome that has an expected value closer to the mean. Reversion to the mean is a trick concept, and the relative contributions of skill and luck shed light on its significance for various activities.

There’s a simple and elegant test of whether there is skill in an activity: ask whether you can lose on purpose. If you can’t lose on purpose, or if it’s really hard, luck likely dominates that activity. If it’s easy to lose on purpose, skill is more important. Chess falls in very closely to the pure skill category, while gambling in the pure luck category. Most other activities in life are somewhere in the middle. Probably the single biggest challenge in assessing the relative contribution of skill and luck is that in most cases we can only observe outcomes. There’s no problem with outcomes at the extremes of all skill or all luck, because you know what you are getting. But almost all interesting activities have a blend of skill and luck, and it is critical to have a sense of the relative contributions of each. We need to tidy up the jumble of outcomes.

Investors have been badly spoilt by the tremendous run of the Colombo stock market over the last two years. It is time to take an honest assessment and prepare to experience ordinary returns from here on at best and a major correction at worse. Company management who have lulled themselves into thinking that it was some new fangled management technique that “grew shareholder value” would be found wanting as returns begin to mean revert, due nothing but the nature of skill and luck.

(Kajanga is an Investment Specialist based in Sydney, Australia. You can write to him at kajangak@gmail.com).

Now, it's the turn of the diplomats - Jaliya Wickramasuriya

noreply@blogger.com (Sri Lanka Equity Analytics) — Mon, 18 Oct 2010 04:29:00 +0000

The name 'Jaliya Wickramasuriya' needs no introduction. With a short period of less than two years he created a name by proving himself as a diplomat who had a difficult struggle to erase off the negative and harmful propaganda about Sri Lanka which was carried out by the pro-LTTE and anti government elements in the US.

Today having met and updated over 75 US representatives and Senators and important US committees like the Senate Committee on Foreign Relations and House Committee on Foreign Affairs about Sri Lanka's stand and the positive progress in the post conflict scenario, Ambassador Wicramasuriya said that it was the time for the Sri Lankan diplomats to contribute their share to make Sri Lanka stand on its own feet.

"As Ambassadors, this is the time to prove ourselves. President Mahinda Rajapaksa, Secretary of Defence Gotabaya Rajapaksa and the Government have done the most difficult task - eliminating terrorism and bringing peace to the country. Now the turn is ours. If all the Sri Lankan Ambassadors throughout the world work more aggressively now to bring investment, promote tourism and talk about the positive developments that are happening in this country, then automatically the President's vision will become a reality", he said.

In an interview with the Sunday Observer he said he would continue to have effective dialogues with the US Tamil diaspora, which majority had already extended their fullest support to rebuild Sri Lanka.

"We've seen a lot of positive changes in attitudes. Most Americans support us. They know we are a democracy and that we've defeated terrorism. When our critics make noise we move quickly to get our story out. The more Americans we get to travel to Sri Lanka the better things will get", he said.

Following are the excerpts of the interview:

Q: It is said the US-Sri Lanka historic relationship has strengthened and how do you evaluate the present status?

A: Sri Lanka and the US have a very strong relationship at present. We just concluded a very successful week of trade and investment talks with the U.S. Government and U.S. companies. I think Sri Lankans will benefit from more U.S. direct investment in the coming days.

Both the trade and diplomatic relations remain strong. We have worked very hard to make sure that those in Washington get the correct story, the positive story, about Sri Lanka's progress.

Q: What are the important achievements gained through this relationship?

A: Three key events happened in the past year that have helped Sri Lanka in the U.S.

Two senior aides for Senator John Kerry and Senator Richard Lugar, who are the Chairman and ranking members of the Senate Committee on Foreign Relations Committee came to Sri Lanka last year. They spoke to a broad cross section of the community, including the Secretary of Defence and other senior government and opposition leaders, as well as members of civil society. They went back to the US and the report they released stated the importance of Sri Lanka to the USA, both in terms of location and otherwise. I believe this report was a key turning point in the relationship between the US and Sri Lanka.

Another important moment occurred during the visit of External Affairs Minister, Prof. G.L. Peiris. He met with Secretary of State Hillary Clinton. It was his first official international visit in the capacity of External Affairs Minister.

When Secretary Clinton met Prof Peiris, she was very supportive of the lessons learnt and reconciliation commission. She stated that, such commissions of inquiry have played an important role in advancing accountability and redressing wrongs in other countries emerging from periods of internal strife.

She also said that experience in other countries has shown that such a commission that has the credibility and legitimacy within the country has a valuable role in advancing accountability and that they are very supportive of the approach taken by the Sri Lankans.

During the discussions, with regard to resettlement of IDPs we compared our resettlement plan with other countries. In Sri Lanka, resettlement was not after a disaster; it's after an armed conflict. There is a considerable difference between resettlement after a natural disaster and resettlement after a war. We have thousands of landmines to remove.

The international resettlement average in the world is over 17 years, but we have resettled more than 90% within less than one year.

The meeting with Secretary Clinton went a long way toward telling those in the United States that Sri Lanka has strong U.S. support. Finally, Sri Lanka relations were highlighted as a tourism hotspot, particularly by New York Times, which named Sri Lanka the No. 1 place to visit in 2010. The Embassy of Sri Lanka in Washington DC and I have worked extensively with media personnel, particularly after the war.

Q: The President strives to make the country a Marvel of Asia. How do you plan to contribute towards this target?

A: As Ambassadors, this is the time to prove ourselves. The President, Secretary of Defence and the Government of Sri Lanka have done the most difficult task - eliminating terrorism and bringing peace to the country. Now the turn is ours. If all the Sri Lankan ambassadors throughout the world work more aggressively now to bring investment, promote tourism and talk about the positive developments that are happening in this country, then automatically the President's vision will come true. We can already see the progress just by looking at the positive economic figures, the rise in tourism and the redevelopment projects.

Q: Tourism is one major area that the Government is targeting to develop. How do you convince the US tourists to visit Sri Lanka?

A: I have noticed that if someone comes to Sri Lanka, no one will say bad things about Sri Lanka. They only have good things and positive things to say about our country. However, many US tourists do not come to Sri Lanka because we have not marketed Sri Lanka in this sector. I spoke to the management of the Tourist Board, and I am glad that the Minister of Economic Development Basil Rajapaksa, is now also the Minister of Tourism because he is positive thinking and supportive. If we work according to a proper plan, we can attract US tourists to Sri Lanka. Many people say that Sri Lanka is far away and that is why US tourists are not going to Sri Lanka. But they visit countries such as Maldives, Thailand and India. Therefore, you know that it is not about the distance. We have not marketed Sri Lanka properly.

To change that I started this programme called Ambassador's Signature Tour, about four months ago to create awareness about Sri Lanka. I took a group of about 25 people to Sri Lanka in August. We invited not just tourists but also opinion makers and business people who have social networks. I also hold meetings and gatherings both at the Embassy and at my official residence where I make presentations on tourism in Sri Lanka, our food, tea, culture and such features. I have been carrying out these programmes from the time I took up my appointment and since then I have been able to get about 600 people interested in coming to Sri Lanka.

Everybody who came on the 'Ambassador's Signature Tour' paid for their own way - there was no cost to the government. But these people, many of them professionals, all went home and talked about how great Sri Lanka was. A travel writer and a film location specialist also went on the trip. They all loved Sri Lanka.

Q: You arranged a top business meeting with the President while he was attending the UN Sessions. What was the outcome of the meeting?

A: We had more than 100 business people to lunch with the President.

The message from the President was that Sri Lanka is open for business. That was late last month. Some of those who attended the luncheon were interested enough to come this week to our Public-Private Partnership Conference that we just finished in Colombo. Now comes the work of continuing the discussion, winning investment commitments and making sure that these businesses invest in Sri Lanka.

We've had a lot of interest in investment in the North and East.

Q: You took over duties when the war against the LTTE was reaching its peak and the military was engaged in the massive humanitarian operation to rescue over 280,000 civilians. What were the major challenges you faced during that period?

A: That was a very difficult period. My job was to counter the reports that were mostly critical of Sri Lanka. When someone would criticize us, I would call them up and suggest that we meet face to face so I could give them the full story. I spent a lot of time meeting with members of Congress to do the same thing. Once the conflict ended the tone began to change. It might not seem like it but we do have a lot of supporters and fans in the U.S. Government and in the U.S. Congress. And we have more now than we've probably ever had.

Q: How effective is lifting the US travel restrictions on Sri Lanka to bring more Americans to the country?

A: That was a very important development. We have been pressing the State Department to make that change since the day after the conflict ended in May 2009. Many others, including the Minister of Economic Development, Basil Rajapaksa, had been asking the State Department to lift the travel warning.

U.S. Ambassador Patricia Butenis and her staff at the U.S. Embassy in Sri Lanka were especially helpful. The lifting of the travel warning, coupled with Secretary Clinton's words of encouragement, helped convince America and its allies that Sri Lanka had found a peaceful, permanent solution to the conflict. Although not a lot of U.S. tourists had not started visiting Sri Lanka at that time, this gave a message to the world that Sri Lanka is safe.

Q: At the moment what is the view about Sri Lanka in the US?

A: We've seen a lot of positive changes in attitudes. Most Americans support us. They know we are democracy and that we've defeated terrorism. When our critics make noise we move quickly to get our story out. The more Americans we get to travel to Sri Lanka the better things will get.

Q: Recently, the Tamil pro-LTTE diaspora has appointed their leaders for the Trans-national government and Rudrakumar in the US being the President of it still propagates LTTE separatism in the US. What actions have you taken to enlighten the US authorities about the pro- LTTE activities in the US?

A: The vast majority of Tamils in the U.S. are happy that the conflict is over and the LTTE is gone. They contact me to tell me this. I think their sentiments often get lost in the controversy that the pro-LTTE Diaspora generate, which we believe is less than one present of the 40,000 Tamils in the U.S.

A few of those who supported the LTTE have now taken their place in these organizations. It is not a lot of people so I am not too worried about their impact. We talk constantly with the FBI and U.S. Department of the Treasury about LTTE influence in the U.S.

They are watching groups and individuals who still support the LTTE, and the U.S. Supreme Court just ruled that groups and individuals can't give material support to terrorist groups. That was a significant ruling in our favour. The U.S. recognizes the LTTE as a terrorist group, and in the past the FBI has shut down several pro-LTTE fund-raising organisations. We continue to work with the FBI and Treasury Department.

Q: You have started a discussion series with the US Congress. What was the outcome of it since its first meeting in September?

A: I actually began meeting with members of Congress during the conflict. I wanted them to understand the hostage situation the LTTE had created. The meetings proved to be a good way to make sure the right story was getting across.

My staff and I also have met with the Congressional aides who follow foreign affairs and Asia for Congressmen and Senators. Some of those aides wield a lot of power on Capital Hill. We especially move quickly to meet with our critics. I think it is tougher to be critical of someone or something when you're sitting face to face.

I've met more than 75 representatives and Senators and I have focused on the important committees, such as the Senate Committee on Foreign Relations and House Committee on Foreign Affairs. I will continue to meet with them. I invite everyone of them to visit Sri Lanka and to come and see for themselves what is going on here.

Q: Do you think there is a change of attitude for the better from the US authorities towards Sri Lanka?

A: Undoubtedly. The statement from Secretary Clinton helped, and so have the efforts of Michael Delaney, the assistant U.S. Trade Representative for South and Central Asia.

They're supportive of economic development as a way. We should be very grateful to Michael Delaney for pushing this approach, because it was not always popular within the U.S. Government. As the President says, if there is no peace there is no economic development, and if there is no economic development there is no peace.

Q: Do you think the talks over the labour issues on the US GSP will be positive for SL?

A: Yes. Sri Lanka has very progressive labour policies. We have been pioneers in labour standards.In fact, representatives of the U.S. Government are here this week giving seminars on doing business in the United States.

Q: Were the US authorities made aware of the progress made in resettlement and rehabilitation of ex-LTTE caders?

A: We talk about this constantly with our colleagues at the U.S. State Department, in the Pentagon, at the White House and in Congress. I tell them that I don't know of an other country that offers terrorist a chance to forget the past and join society as a peaceful, productive person.

Q: Reconciliation is one major commitment that the international community expects the Sri Lankan government to fulfill while the UN SG is having his own panel on Sri Lanka. What was the US response to the LLRC appointed by the President?

A: I feel it is my job to educate the U.S. Government about the LLRC.

We point out that the mandate is broad, the membership diverse and the process open. It really helps to be able to point the articles on the LLRC's latest hearings, and tell everyone that the LLRC has heard from everyone from IDPs to the Secretary of Defence in public testimony.

Q: What is the progress of getting the support from the Tamil Diaspora in the US in post conflict development activities?

A: We have an active dialogue with members of the Tamil Diaspora.

There have always been many Tamils in the U.S. who think of themselves first as Sri Lankans. I continue to meet with Tamil community groups throughout the U.S.

Q: You Started your career as a tea taster and finally owned your own tea exporting company, have you been able to promote Sri Lankan tea among the US?

A: I promote all Sri Lankan products. I happen to know a lot about tea, but I've severed ties with my company.

The U.S. is a coffee country, but some teas, like green teas, are gaining popularity there for their health qualities. Americans also drink a lot of iced tea, and we might think about promoting our teas in special blends for tasty iced teas. I would love to see some Ceylon Tea specialty stores in some of the bigger cities where a premium is put on food, places like Washington, New York, Chicago and San Francisco.

I think people would be enthusiastic about tea tasting at shops like that.

I'm in a dialogue with the Tea Board about having private sector tea centres to promote Ceylon Teas. They will learn that drinking tea is healthy.

Tourism - the engine of growth of the Sri Lankan economy?

noreply@blogger.com (Sri Lanka Equity Analytics) — Tue, 05 Oct 2010 08:28:00 +0000

Delivering the keynote address of this year's Research Symposium-2010, "Value Addition to the National Resource Base," was Srilal Miththapala, project manager of Switch Asia/Greening Sri Lanka Hotels Project, CCC Solutions (Pvt) Ltd. The symposium took place on September 16 and 17, 2010 at the Uva Wellassa University in Sri Lanka. Here, his keynote address is presented:

1.0 Introduction
I am very honored to be invited toady to deliver the keynote address on the 2nd day of the Research Symposium 2010, organized by the Uwa-Wellassa University, and I hope to talk to you this morning on the Topic “Tourism – The Engine of Growth of the Sri Lanka Economy?”

From time immemorial, Sri Lanka has been well known for its hospitality, and we have on record many accolades from visitors in the annals of Sri Lankan history including Far Hein, Mark Twain, and Marco Polo to name a few. Tourism was formerly recognized as an important industry in the 1960s and was formalized through the Sri Lanka Tourist Board (SLTB) Act No. 10 of 1966 to promote tourism in Sri Lanka and subsequently augmented by the Tourist Development Act No.14 of 1968.

Today most of the sectors of the economy are rebounding rapidly after the eradication of terrorism a little over an year ago. Sri Lanka is the cynosure of most of the business world; due to its exciting growth potential ,ompanies are returning very healthy growth figures and the stock market is booming. Tourism appears to be rebounding back much more strongly than any of the other sectors of the economy, and it is in this context that it may be worthwhile to analyze whether Sri Lanka Tourism can really become the engine of growth for the economy.

2.0 The current status of the tourism industry
Before looking at the future prospects, it is important to assess the current status, and, therefore, it is prudent to pause a while to study the current situation of the tourism industry.

Having being buffeted around by both internal and external impacts for over two and a half decades, suddenly Sri Lanka Tourism is enjoying the bright light at the end of a long dark tunnel. Arrivals to the country started increasing immediately after the war during the latter half of last year, and the trend continues during this year as well.

For the last eight months [that] ended August 2010, arrivals are up almost 47 percent YOY (397,887), with earnings also keeping pace at 69 percent growth (Q2) (US$244.5 million). Although the Hotel and Travel CSE index increased by 199 percent for 2009, annual earnings from tourism still amount to only about US$326.3 million annually (2009 CBSL), having slipped down to the sixth position among Sri Lanka’s foreign exchange earning sectors. Due to the depressed and difficult period that tourism went through, today it accounts for only about 0.5 percent GDP of the country.

2.1 Potential for Sri Lanka tourism
There is no doubt that Sri Lanka is blessed with an abundance of natural beauty and attractions. This small 65,000-square-kilometer island can boast of pristine beaches, over 100 kilomters of coast line, verdant tea plantations, salubrious hill country and arid landscapes, 8 UNESCO World Heritage sites, one of the 34 bio-diversity hot spots of the world, one of the few virgin rain forests, and the list goes on and on. So there is no shortage of natural attractions and sites compacted into such a small area, perhaps anywhere else in the world. With today’s tourists looking for more un-spoilt environments, Sri Lanka is, therefore, well placed to be able to attract large number of tourists, provided that the destination is properly developed, positioned and marketed.

2.2 A word about marketing
There seems to be mode of thinking today, that since the war has ended, we do not need to do anything to promote tourism and that we only need to improve our infrastructure and tourists will flock to Sri Lanka. Certainly the decisive ending of the long drawn-out conflict is something unprecedented, which we all have to be thankful for. However, one must not forget that during all the time we were having our internal strife, other Asian countries were moving rapidly forward, devoid of any shackles. So in reality, what has happened now is that we have regained a clean slate only.

We cannot run away from the fact that in today’s world, marketing place [is] a vital role in everything. There is stiff competition from the Asian region. With the global financial crisis now petering out, very soon our Asian neighbors, such as Thailand (who had their own series of problems), Malaysia, Singapore, Bali, etc. will “get their act together” with strong promotional campaigns, strengthening there already solid, differentiated brands and positions as prime tourism destinations. Singapore is already "re-branding" from it’s "squeaky clean" image to a relatively more exciting destination with casinos opening up. July this year saw their highest ever arrivals for a single month at 1 million visitors. The product offering of these countries is also far superior than what Sri Lanka can offer, on a one-to-one comparison.

2.3 Employment and livelihood
A little-known factor regarding tourism is the impact it has on the livelihoods on common people. Although the industry has only close upon 60,500 directly employed staff, there is large indirect work force engaged in the informal sector. This includes suppliers of vegetable/fish/meat/dry food, chemicals and additives for pools and laundry equipment, stationary, food and beverage and kitchen consumables, etc. Then there are the bands, entertainers, sellers of tourist souvenirs, such as wood crafts, silverware, batiks, beach vendors, and beach operators, transport providers including those who hire busses, cars, vans, and three wheelers - all who also depend on tourism.

It is estimated that this informal sector could be as much as three times the formal sector. Thus, it can be safely concluded that some 240,000 people are directly and indirectly involved with the tourism industry. If one were to assume four persons to a family, the number of dependents on tourism would then be close upon 1 million persons or some 5 percent of the current population of Sri Lanka.

It is evident, therefore, that tourism in Sri Lanka has a profound effect on the large informal sector of the economy. There is always some controversy and heartburn that tourism only benefits the "big" players. As indicated earlier, there is a very large informal sector, which does not get caught in the mainstream economic reporting. No foreign tourist is going to book a flight to Sri Lanka to come and buy masks at Ambalangoda. But when he books a holiday to the south and stays at the Heritance Ahungalle or Lighthouse Hotel he will in all probability, go shopping for wood carvings and masks.

Hence we are unable to clearly identify the economic benefits that filter down to the "smaller" informal players in the industry. But the trickle down and multiplier effect is quite considerable in the tourism sector, especially in the Asian region. In a study done recently and quoted by Air Asia, it was revealed that while tourism earnings of Malaysia and Thailand amounted to some 6-8 percent of their respective GDPs, when the multiplier effect, which is about 12 times, is applied, the impact on GDP shoots up to close to 25 percent!

2.4 Tourism and poverty alleviation
The tourism industry is most often viewed as an industry which promotes opulence and wastage. At first glance, when one sees the external glamour and glitz, this could be considered to be somewhat of a fair collusion. However, it is a less-known fact that tourism does in many ways help the reduction of poverty and improves the wellbeing of people.

The trickle down and multiplier effect just mentioned provides for a wide range of employment opportunities accessible by the less affluent, creating opportunities for micro-, small-, and medium-size enterprises, in which poor people can participate.

Tourism stimulates economic growth at both national and local levels and promotes the growth of other allied and peripheral industries, such as agriculture, telecommunication, banking, transport, and other service sectors. Tourism also spreads developments to remote and rural areas of the country, which may have not benefited from other types of economic developments. The development of tourism infrastructure can benefit the livelihood of the poor, through improvement in tourism linked sectors, such as transport, communication, water supply, health services, and power.

2.5 Tourism as an export industry and value addition
Tourism, although not classified as an export industry, earns substantial foreign exchange with it’s high value-added component. Unlike some of the other foreign exchange earning sectors, most of the inputs and raw material for the operation of tourist hotels are local, yielding a high-value addition.

In the tourism industry, goods and services are consumed at the point of production, where tourists would come to the resort, possibly in a remote location of the country, resulting in greater benefit and impact to the rural economy.

Currently, although not categorized as an export industry, tourism accounts for the 6th place among the foreign exchange earning sectors of the economy, down from its position as no. 4 a few years ago.

So in this light, one can perhaps begin to understand the excitement and emphasis that is being placed on tourism as sector that can drive quick economic prosperity in the country.

3.0 Future prospects and goals

3.1 Targets
Sri Lanka tourism was suddenly put into somewhat of a spin about an year ago, when the HE, the President, came out with a target of 2.5 million tourists by the year 2016. We certainly do not know how this number was arrived at, and even now no one has really questioned it. There is certainly no harm in setting out big, hairy, audacious goals ("BHAG"... to borrow from management parlance ref. James Collins & Jerry Porras).

There are two schools of management theory in goal setting and planning. One is the conservative method of taking stock of where you are, what your resources are, what opportunities there are, etc. (SWOT analysis) and then deciding on your goal. The other school of thought is where the analytical assessments are enhanced with, and "tweaked" with an element of emotion and "gut feel," where the leader, using his in-depth experience, plants a much bigger and more ambitious (audacious) goal. Subsequently, the planners and operational experts somehow try to muster up sufficient resources and work out strategy and plans to achieve this goal.

So for Sri Lanka, it is the latter that has taken place, and for better or worse, a 2.5 million target of tourists (or something very close to that) by 2016 is now an accepted fact among everyone in the industry.

To meet this growth target, the private sector has researched and produced a document entitled “Sri Lanka Way Forward” where it is estimated that we will require some 28,000 odd rooms to meet the demand, which then calls for the development of a further 13,000 new rooms in the next 6 years. Sri Lanka currently has about 14,700 rooms with another 5,300 supplementary establishments.

If Sri Lanka tourism moves forward on a strategically-planned basis in meeting these growth targets, there is a good chance that in six years’ time, tourism can generate close upon US$2.4 billion as earnings per annum. Per tourist night spend will rise dramatically from the current US$81 to around US$170. If the overall economy keeps to its 7 percent growth targets YOY, then in 6 years’ time, Sri Lanka’s GDP would be in the order of US$65.0 billion from the current US$43.3 billion (2010 estimate), and then tourism would account for as much as 3.7 percent of the economy.

To service this growth, total employment, direct and indirect, would rise to around 1.4 million, which will then translate to around 25 percent of the population (2016 estimates) being one way or the other dependent on tourism (assuming 4 persons to the family).

Therefore the numbers are very exciting without doubt.

3.2 Environmental issues
We are an island nation with only 65,000 square kilometers of land area, rich with cultural heritage and diverse bio-diversity not found in too many places elsewhere in the world.

Even though our forests have diminished by some 40 percent over the past century, Sri Lanka still remains relatively a green country. We were ranked no. 36 in the "living green" rankings of the Readers Digest Magazine a few years ago, and no. 22 in the 2009 Happy Planet index published by the New Economics Foundation. Sri Lanka has a very low carbon footprint of less than 0.6 metric tons per person. Compare this with some of the larger more developed countries such as USA where the emission per person is about 20 metric tons per year!

Sri Lanka should not exceed its carrying capacity of tourists, and we should carefully manage the enhanced throughput. Entry to archaeological sites must be regulated to prevent over visitation, mega developments must be confined to selected areas only with strict environment rules, and a better transportation network with more environmental friendly modes of transport should be implemented. We must at all costs, protect and nurture our valuable natural assets we have inherited over the years.

In reaching for these large arrival numbers, there has to be careful thought given to environmental sustainability issues. If some 13,000 extra rooms are to be built in the country (which will translate into 100 or more new hotels) with over 2 million tourists "unleashed" annually in the country, without proper planning, there is bound to be serious environmental and sustainability issues. Such large scale and fast-track growth has to be carefully planned and managed within specific tourism zones to prevent environmental and cultural degradation. This is the reason that the private sector has suggested large scale zonal development of tourism in building these additional 13,000 of rooms on the fast track.

This will require large-scale resort developments on a planned basis in at least 4-5 designated zones in Sri Lanka. Individual hotel developments will not suffice. Such well-planned, large-scale tourist resorts can be designed to encompass sound sustainable environmental practices (eg., common self-contained sewerage disposal facilities with recycling of water, solar lighting for resort public areas, no-build green belts within resorts, etc.).

Such organized and well-managed, large-scale developments contained in several designated zones, will help mitigate most of the possible negative fall out of the socio-cultural and environmental aspects. Building and subsequent maintenance should be under strict environmentally-sustainable guidelines. Large numbers of small scale development strewn all over will not be a viable proposition to maintain Sri Lanka’s environmental sustainability nor will it be sufficient to drive the exponential growth required.

3.3 Promotion and branding the destination
Reaching towards large ambitious goals is certainly quite good and commendable. But at the same time, we must know exactly what Sri Lanka Tourism "stands for" if we are to succeed in attracting tourists to visit Sri Lanka. What do we as a nation want Sri Lanka to be seen and portrayed as a tourism destination? Without deciding what our competitive advantage is and planning out our strategic position, we will not be able to sustain exponential growth targets.

At a recent public forum on tourism, the leading local exponent of positioning, Dr. Uditha Liyanage of the Post Graduate Institute of Management, who was very closely associated in the now defunct branding exercise for Sri Lanka Tourism, very clearly brought out the need for Sri Lanka to decide what it “stands for” as a tourist destination or even that for that matter as a nation.

Unless and until we have a clear idea of what Sri Lanka’s strategic position is in the market, no amount of infrastructure development, marketing, and promotions will be successful in the long term. We need to figure out "who we want to be" and "what our competitive position is."

Our deliberations a few years back revealed that the ideal positioning for Sri Lanka Tourism was “Asia’s authentic and compact island providing a diverse array of natural and other attractions and experience.”

From this stemmed the vital brand architecture of:

• diversity
• unique
• un spoilt
• traditional
• compact
• authentic
• indigenous
• exotic

Therefore, even if the “small miracle” has fallen by the way side, it is important that we retain this brand architecture in all our proposed developments to ensure environment sustainability.

4.0 Conclusion
There is no doubt, that Sri Lanka tourism today is poised to reap rich benefits after 25 years of strife with definite hope and bright prospects on the horizon. It is the one industry that can bounce back fast after a downturn. We are also seeing that all long-term forecasts indicate that Asia will be the "theatre of action." Growth in tourism, as we have seen, will have a great positive impact on a large number of peoples’ livelihoods.
Most importantly, tourism is an industry of PEACE. It brings people together and helps create harmony and understanding of another’s culture and lifestyle.

If properly nurtured and developed, tourism can, therefore, become the most important and pivotal industry of this country, in this post war, nation building scenario, having a great socio-economic impact on our people, while at the same time nurturing, protecting, and celebrating the wonders mother nature has endowed us with.

IFC to step up support for Sri Lanka

noreply@blogger.com (Sri Lanka Equity Analytics) — Tue, 05 Oct 2010 08:03:00 +0000

As Sri Lanka continues to enjoy peace dividends following the 30 year war, domestically as well as internationally, the International Finance Corporation (IFC) has announced that it would double its work in Sri Lanka in next 18 months taking into consideration the country's positive outlook after many years of struggle.

The newly appointed Director South Asia IFC Thomas S. Davenport told Daily FT that IFC seeks an important role in development of the country's infrastructure and providing expert advice to help the public and private sector in their development efforts.

"We consider Sri Lanka as an important market and we are looking forward to participate in developing areas such as the infrastructure, renewable energy, logistics sector, agro business and tourism industry.

In terms participating in these development activities we stand ready to work with the government of Sri Lanka," he said.

Devenport further said that the currently Sri Lankan economic growth is predicted to be around 8.5% and there is a strong possibility of Sri Lanka achieving a double digit growth boosted by strong regional economic performance.

Commenting on its support for Sri Lanka in the past, the outgoing South Asia Director Paolo M. Martelli, said that the IFC was heavily involved in helping the Sri Lankan private sector a lot.

He pointed out that during the past years the IFC was directly involved in funding the country's infrastructure development activities spanning into many sectors under the private -public partnership projects
"Our past work in Sri Lanka included investments in ports, telecommunications, renewable energy, health care and the financial sector in addition to advising and supporting the country's small and medium sized businesses," said Martelli. He said, he had been instrumental in bringing strategic focus to the post-conflict and fragile parts of South Asia during his term.

Since 1998, IFC has been offering its services to Sri Lanka, both as a financier to develop and implement private sector projects and also as an advisor to small and medium enterprises to improve their ability to access finance and markets and operate more efficiently.

Paolo M. Martelli, who completed his three and a half year term as South Asia Director mid-September this year, accompanied Davenport on this visit.

He is due to move back to Washington DC in his new role as IFC Director for Latin America and Caribbean.

Based in India since September last year, Davenport was leading IFC's investment and advisory work in India's low income states in addition to heading IFC's New Delhi office before taking on his new role as Director for South Asia. He brings his vast experience of working in different parts of the world including Africa, East Asia, Middle East and South Asia. While sharing IFC's experience in working across developing, post-conflict and fragile economies worldwide, Davenport stressed IFC's strategic focus on promoting inclusive growth, addressing climate change impacts, and facilitating global integration through enhanced trade in South Asia. He emphasised IFC's ability to work closely with the government and private sector to take on a more active role in the country's economic growth.

The two officials along with India based IFC Regional Manager, Per Kjellerhaug, who also oversees activities relating to Sri Lanka met senior government officers and key private sector chiefs during their visit to discuss ways to advance the country's development and growth.

Courtesy - Daily Mirror

Share splits, capitalisation of reserves, the myths and reality?

noreply@blogger.com (Sri Lanka Equity Analytics) — Sun, 26 Sep 2010 10:22:00 +0000

Creating high hopes for bullish investor sentiments rallying in the market nearly 20 companies of bourse had either come up with a share split or a capitalistion of reserves increasing the issued shares for past six months.
While some listed companies have recently announced a split of 3 for 1 and a reconsolidation thereafter to 2 to be a one share. And many ‘big stocks’ came up with a share split to increase their liquidity and some are yet to split on coming months.

“A stock split is essentially when a company increases the number of shares. For example, if you owned 100 shares of LOLC at Rs.1500 per share, and when there is a 10 for 1 stock split, you would then own 1000 shares worth Rs.150 each.” said a bullish investor, Damitha Kuruppu, adding his positive sentiments of share splits.

“I remember two years ago Carsons was coming up with a 15 for 1 share split and there after another 1 for 20 further capitalisation of reserves, at that time the share came to Rs.180 which was at Rs.3,000 levels before split and now it’s back to Rs.1,000 on this Friday, so my real increase value of one Carson share which I had in 2008 has now climbed up about 500% from its original, similarly with Cargills it was subdivided for 40 for 1 in 2008 and now the real value of it has gone up by almost 1,000% ” The primary reason for share splits is to increase the Liquidity, according to NDB Stock Brokers head of Research, Waruna Singappuli.

According to fundamentals of share splits some companies believe that their stock should be inexpensive so more people can buy it.

This creates a condition where more of the company’s stock is bought and sold. The problem, in theory, is that the increased activity will also leads to bigger gains and drops in the particular stock, making it more volatile in the market.

But many investors believe splits are a good thing. Their thinking goes ‘Well, if the stock was at Rs.1500, and now it’s at Rs.150, it has to go back up to where it was’. This is wrong according to analysts and intelligent investors.

“The stock is where it was before. Remember that each share now represents one tenth of the equity in the company that it did before the split. That means that each share is entitled to half the dividend, half the earnings, and half of the assets that it once was,” said one investor, Sahan Gamage.

Beginning of this year undoubtedly created a boom in the Colombo Stock Exchange making its some high valued shares rising perhaps by more than 1000% within in a half year.

However, according to many analysts with about 1% to 2% participation of entire population for years in the country and few foreign funds coming into play market was not favouring for many due to its low liquidity and overvalued shares.

And the regulators as well as companies took many steps to increase liquidity of market while many new rules were put in place to prevent the Colombo Bourse from an immediate crash. Many investors appreciate this move as more and more companies which had overvalued shares created the opportunity to more retailers to book for profits by way of either splitting or capitalisation of reserves in company equities.

According to manager research at S.C. Securities, Nikita Tissera, theoretically share splits should offer zero value addition to your investment. However, he said that in real world investing share splits offer two advantages.

“One is the psychological advantage that the investor holds ‘more shares’ than ‘less shares’ where the percentage of the shareholding remains the same. The second and the more important advantage is the added liquidity the share splits bring to the table,” he said.

Tissera said that in a market that has high retail investor presence like the Colombo Stock Exchange (CSE), investors pay a significantly high liquidity premium. “The reason is being that CSE, despite the recent rise is a very small slice in the national economy.” He said adding that the rise in the price of shares has had a far bigger impact on the All Share Price Index (ASPI) and the Milanka Price Index (MPI) than the introduction of new shares (IPOs). Nikita Tissera explained that the high market liquidity premium is seen clearly on how the share prices go up as a split is announced.

“We will continue to see high premier paid for liquidity until we see bigger IPOs coming into CSE. However, I believe that market liquidity is more of a qualitative measure. There is no optimum quantity of a stock volume that can tell us how liquid an investment is,” he told The Bottom Line.

Expressing his views on share splits and capitalisation of reserves, director research of Capital Trust Securities Sarath Rajapakse said that as when a share is too big small players (who are by far the majority in our market) cannot afford to buy even 100 shares. “This affects the liquidity of the share and it will be seldom traded. Therefore as a share grows bigger and bigger the companies should progressively split their shares to make these accessible to all,” he said.

A stock split, as the name implies, is essentially the division of the outstanding shares of a company into a greater number of shares. A stock split does not change either the proportional ownership of shareholders in the company or its total shareholders’ equity.

Although by a split or a capitalisation of reserves, company’s outstanding shares will increase but its market value or capitalisation will be unchanged. Likewise, for an instance a shareholder who held 1,000 shares before the split, will now own 10,000 shares after the 10 for 1 split, but the total value of the shareholder’s holding percentage will be unchanged. Fundamentally a stock split is a normal stage in the evolution of a profitable company. A growing company that is increasing revenues and profits will see its stock price appreciate over time, to the point where the price may be considered to be too high for the average retail investor.

A stock split brings the share price down to a price where a typical retail investor can afford to buy at least 100 shares. Additionally, a stock split is likely to broaden a company’s investor base as the lower price may attract a larger portion of investors.

As per views of market analysts a stock split is usually viewed bullishly by investors, and the stock’s price and trading volume may initially increase as more investors are drawn into the crease when the split occurs.

The effects of a stock split fade away quite speedily, as investors turn their attention once again to the company’s fundamentals.

A typical historical example in the 1990s at Wall Street when many technology companies routinely split their stocks as they rocketed and took the Nasdaq Composite index to record heights.

But as the boom turned to a bust and the Nasdaq index plunged more than 75% during the 2000 to 2002 bear market, stock splits became a thing of the good old past. At that time some technology companies even had to resort to reverse splits.

“You see the effects of stocks splits are only temporary in nature. Ultimately, the company’s business fundamentals will be the true drivers of the stock’s value and its future direction. It is like you are being offered a ten notes of Rs100 instead of a Rs1,000 note the capital is unchanged, however the fact is when the as a consequence of pressure on buying you have the ease of exiting when the equity rise extremely high and gain capital,” concluded Sahan Gamage, outlining his perspectives.

On the contrary, financial theory suggests splits are totally irrelevant – although companies still do it. “Splits are a good demonstration of how the actions of companies and the behaviours of investors do not always fall into line with financial theory,” said a financial analyst.

By Jithendra Antonio
Courtesy - The Bottom Line

Does Sri Lanka require a Financial Hub? - Rohantha Athukorala

noreply@blogger.com (Sri Lanka Equity Analytics) — Tue, 21 Sep 2010 04:01:00 +0000

Last week when I was invited to address the 22nd Annual Conference of the Professional Bankers of Sri Lanka on the theme ‘Gearing Up Sri Lanka as the next financial hub, little did I realise that it was going to be a challenging task of balancing my day-to-day work and trying to understand the intrinsic details of the financial industry.

My mind went back to the days when I used to head a global multinational company. The holy grail of my boss was ‘become the best learner and you will do well in life’. I yet follow this ethos.

Financial Hub?

Sri Lanka’s financial sector contributes to 9.7% of the country’s GDP and is way above other countries in the region in our part of the world such as Thailand at a 6.2% contribution and Bangladesh at 9%. Sri Lanka can also boast of 22 commercial banks that operate in the country and 5,014 branches across the country. The significance of our banking industry is that all top global banks operate in the country, which is an indication of the market attractiveness of the country even though being a forty billion dollar economy.

I would define a financial hub as an expansion of financial services of a country, beyond its borders globally to a larger customer group which will drive up revenues and also develop resources in a country such as infrastructure, ICT and human resources where by wealth creation takes place.

Some of the leading financial hubs in the world are London, New York, Paris,Tokyo and Sydney whilst the emerging ones are Mumbai and Shanghai which are powered by super power economies which tells us the competition that Sri Lanka is up against.

The challenge

Hence, it is fair to say that we are up against the toughest competition that the world can offer, but the recent World Economic Forum report on competitiveness pushed Sri Lanka up 17 places to 62. This indicates the potential of the country.

It would be also fair to state that the world is watching us on how a typical economy performs post liberalization from terror that has costed the country over seventy five thousand lives and over 200 billion dollars to the economy.

The report has identified the most problematic factors for doing business in Sri Lanka and the first two key issues are ‘tax regulations’ and ‘tax rates’. The good news is that Sri Lanka had appointed a high level commission and after government approval the recommendations are most likely to start hitting the Sri Lankan business landscape in 2011.

This proactive decision making, in my view, has made Sri Lanka poised to be within the top 50 countries of the world in the near future. This also means that it is time that we started working on Colombo becoming a Financial Centre.

If one digs deeper into the World Competitiveness report the next four criteria that Sri Lanka must focus on to increase competitiveness rankings are ‘access to finance’, ‘Corruption’, ‘In-efficiency of the beuracracy’ and’ restrictive labour practices’. I believe that with the recently passed 18th amendments, there is a high propensity for a new era of governance to come into the country, which means that we are poised to be top 20 ‘power’ economy of the world in the years to come.

Access to Finance

From the report it is clear that we need to develop the access to finance criteria, which was exactly the point that was echoed by almost every speaker at the recent Professional Bankers conference. As at mid June of 2010, we see that there is a marginal increase in lending to the private sector by the banking industry as against last year. A point that needs to be highlighted is that the private sector accounts for almost seventy five percent of the GDP and as a priority we need to drive lending from 1.7 trillion rupees to 3.5 trillion if we are to achieve a 8% GDP growth that Sri Lanka is visioning.

This requires risk taking by the banks together with the private sector which has grown their profit base by 196% to 55.4 billion rupees in the first half of 2010. This indicates the potential apetite for growth that the banking industry must be congnisant of, which is bound to happen in the near future.

The best case in point is what the Tourism Industry has been repeatedly harping on, where the construction of a five start property on average will cost around 18-20 million rupees per room. At the current lending rates to cover this investment at a reasonable time period one would have to charge around 200-300 dollars per room for a decent ROI to be achieved. A point to note is that the current average room rate is around 125 dollars in the five-star belt. This highlights the ramification of the current high lending rates and the challenge the banking industry has to integrate with the private sector economy.

Taking this growth industry as a case in point, we see that unless the banking industry links with the private sector, the target of attracting 2.5 million tourists into the country will only be an illusion.The reason being the reality that the current 14,700 rooms in Sri Lanka have a carrying capacity of around 0.8 million tourists which gives us an estimate of the business opportunity for the banking sector in the domestic market.

In my view, before the financial industry caters to customers outside the shores of Sri Lanka, we must see how we can stretch ourself and increase business in the domestic economy. Also, from a moral ground we need to do justice to the soldiers who laid their lives for Sri Lanka and in turn build the economy so that the benefits can be reached by their families who can be gainfully employed.

Two choices for the industry

Aparently the best brains in the county normally is housed in the Banking industry. Which I guess justifies the 30 billion rupees that the industry earns in a tough year and in good times scales to Rs.50 billion plus. In this backdrop my view for this concept of a financial hub remaining in the drawing board for over thirty years is because of the current industry attractiveness, even though some can argue that the Industry Return on asset (ROA) is 1.1% which is the norm globally.

Be that it may the Industry has 2 choices. The first is to focus on the domestic market and thereby strategise to integrate with the private sector growth agenda that accounts for over two thirds of the GDP of the country. The attractiveness of this market is from the current lending value of 1.7 trillion rupees to 3.5 trillion in the next three year horizon. This is a sizable profit opportunity given that the first half year profits of the listed companies alone accounted for 55.4 billion rupees from the previous year performance of 18.7 billion. This is a staggering 196% growth. But it must be mentioned that the private sector will have to come up with projects too, which are attractive to the financial sector.

The other business model is that one must develop the product range and focus on catering to customers internationally in addition to the local market requirements which is essentially the concept of a Financial Hub. This approach will also require policy changes ranging from infrastructure facilities, self regulatory community status, separation from the State, regulatory changes such as opening of the capital account which are serious decisions. See page 4

This will also require lengthy discussions and planning with the policy makers which is the next challenge that the industry will have to commit to.

The benefit from the second business model is that it can spruce up the economy through wealth creation and the industry profits have the propensity not just to double, but also triple where by the financial sector on the whole can contribute to 20% of GDP of the country just like in the case of mature financial hubs around the world.

Hence, the industry will have to decide which business model that it should focus on as a strategy. But a case in point is the Apparel Industry where even without a critical mass a business model was developed and thereafter the policy makers were influenced for serious policy changes to be made and today, this business brings in almost three billion dollars plus into the country and is now targeting five billion dollars in the years to come.

However, given the strength of the financial sector of Sri Lanka and its close link to the key policy makers on a day to day basis, the task of driving in policy reforms in making Sri Lanka a financial hub will be an easier challenge in my view.

Suitable Brand

Whichever strategy that the industry selects, one of the key pegs that needs to be addressed is to make a brand suitable for Sri Lanka. Currently we must accept it that the brand is in question from many fronts. I yet remember when I was managing the global power brand Dettol for Reckitt Benckiser a Marketing Director of Indian origin saying ‘Perception is reality’ in the world of business. I guess this ethos remains even in the case of Brand Sri Lanka. But the challenge is not to critise, but see how we can contribute to brand building. One such strategy is called Nation Branding.

This concept is the work of a scientist called Simon Arnolt. The basic theory is that different attributes of the country is used to communicate the brand values of a nation on selected global customers.

In the outset, an important point to note is that Nation branding does not require fat budgets. It is more about an integrated approach to communication.

If we take a typical customer in UK for instance, the end result is where the different facets of Brand Sri Lanka are wrapped around the typical customer. Lets say in the morning if he switches on to Sky News, he will get exposed to an interview of a Sri Lankan Enterprener who supplies garments to the top UK retail stores and the theme can be on the ethically manufactured proposition of Sri Lanka. Then on the way to work in the tube train he might read the Morning Herald he can be exposed to a press interview of a Sri Lankan politician on a theme such as the Nano park in Sri Lanka and the innovative products it is developing for top end organizations. Then at work, he gets a news alert that Sri Lankan cricketers have won a tournament in some part of the world.

In the afternoon if he decides to savour Asian cuisine and takes a stroll down a street he comes acccross a Sri Lankan restaurant and he tastes the hospitality and the authentic food. May be in the evening at the zoo with the family he gets exposed to a Sri Lankan elephant that has been gifted to this zoo and whist watching it he is served with Ceylon tea. In the evening whilst watching a favourite movie he suddenly realizes that the movie was filmed in Sri Lanka.

This is Nation branding at its best. Hence we see that this concept is all about developing the architecture of Sri Lanka in the minds of global customers, so that over time, a strong positive attitude is formed in one’s mind. Some countries that have successfully used this concept are Turkey and South Africa and maybe a more indepth understanding can be got by the team that will champion this concept in Sri Lanka.

Next Steps

1) Given that the 18th amendment is passed and a stronger government is in place, Sri Lanka is the only country to have a stable political/safe economic climate, the time is right to launch a Nation branding campaign in selected markets.

2) The Financial industry must take a hard look and decide if a Financial Hub fits into the developmental template and if so, a resolution must be passed so that it is official.

3) If yes, then a task force needs to be appointed so that a passionate team takes responsibility to champion this task just like what the apparel industry and the software industry have practiced.

4) The financial hub proposition requires a careful selection of target customers, just like what Malaysia did of zeroing on Middle east, Western Africa and North Africa. We must do the same in the outset.

5) Thereafter, a strong positioning platform must be decided for the Sri Lankan Financial center. Malaysia selected the position of an ‘Islamic Financial Center’ proposition and it has successfully carved out a niche for itself in the global market.

6) Sri Lanka must then make the critical decision of deciding on what criteria do we compete. Is it on equities, bonds, hedge funds, private wealth, fund manager or an insurer/re-insurer. We must analyse our strengths and weaknesses and make this decision.

7) Whilst fashioning this basic business proposition of segmenting, targeting and postionong( the STP of marketing) the industry must involve the key policy makers intimating the key policy decisions required to make Sri Lanka a Financial Hub.

8) Whilst this deliberation takes place the industry must develop strategies to spruce up lending to 3.5 trillion rupees in the years to come that includes addressing the issue of taking off the names in the CRIB of the enterpreuners in the north-east that have been effected by the conflict.

9) A regular business health check must be carried out so that the path to being a Financial hub is monitored with the necessary changes.

10) Finally the concept of a Financial Hub must be explicitly stated in the Mahinda Chinthana –Idiri dekme so that that it will be mentioned repeatedly at forums and the ‘Task Force’ will find it easier in its deliberations.

Conclusion

Whilst we work towards making Sri Lanka the ‘Wonder of Asia’ with the already planned five hubs, there is an opportunity for a financial hub also to be included to this architecture that will fashion the future economic landscape of Sri Lanka. However, the challenge is how it is championed by the task force that, I guess Sri Lanka will have to wait and see.

The author serves the United Nations(UNOPS) as the Head of National Portfolio Development for Sri Lanka & Maldives based in Sri Lanka whilst also serving the Government of Sri Lanka on many policy making bodies in the area of Trade and Business an honorary capacity. He is a former Chairman Sri Lanka Export Development Board, National Council for Economic Development under the Presidential Secretariat and the Souvereign Rating Team of the Central Bank. In 2009 he was appointed to the President Appointed ten man committee on developing the Corporate Tea sector of Sri Lanka . He currently sits on the 7 man national task force to develop a New Industrial Strategy for the country.

Sales coup landed in a war zone

noreply@blogger.com (Sri Lanka Equity Analytics) — Wed, 15 Sep 2010 02:10:00 +0000

The oversized lobby of MillenniumIT’s headquarters is dominated by a glass room that showcases buzzing racks of servers. These machines are the engine room of MillenniumIT’s race to build the world’s fastest trading platform for the London Stock Exchange by the end of the year.

EDITOR’S CHOICE

Sri Lanka ex-army chief convicted - Aug-13

Sri Lanka shrugs off EU move on trade - Jul-06

Sri Lanka seeks Bollywood lift- May-21

Sri Lanka builds on Chinese support - May-20

Editorial: Probing a dirty war - May-18

Pressure on Sri Lanka for war crimes probe - May-17

The gleaming hardware lies in the middle of the company’s verdant 6.5-acre campus on the outskirts of Colombo, where abundant lawns conceal a fuel tank big enough to power the complex for a month during emergencies.

Although it is rarely used, the need for the tank is one of the few signs here of Sri Lanka’s nearly three decades of war, a violent past from which the island is just emerging.

In spite of the conflict, Tony Weeresinghe, the forceful founder and chief executive of MillenniumIT, a designer of software for trading systems that generated $28m of revenue in the year ended March 2009, has won contracts from clients as prestigious as the Boston Stock Exchange and the LSE. His staff describe Mr Weeresinghe’s sales acumen by citing the old saying that he “really could sell snow to Eskimos”.

Yet even by these standards, getting the LSE on board was a particular triumph, coming just as the 25-year civil war in Sri Lanka between the government and ethnic Tamil separatist rebels was reaching its tumultuous climax in the north-east of the country. The deal, under which the LSE not only agreed to use MillenniumIT’s software but also took over the Colombo-based company, represents a major bet by a globally important entity not only on MillenniumIT but also on Sri Lanka.

Mr Weeresinghe recalls how, when he was negotiating with the LSE early last year, Tamil protesters were besieging Westminster to press British politicians to intervene on behalf of the thousands of civilians caught up in the conflict. This inevitably raised questions over whether the LSE should be outsourcing crucial IT functions to a war zone. Mr Weeresinghe reassured the LSE’s board that the war was reaching its end and peace would follow, along with better ethnic relations.

That was 18 months ago. The rebels were crushed, and while tensions remain, Sri Lanka is largely at peace. The LSE bought MillenniumIT for £18m last September, and the work on the new system commenced.

The challenge is formidable. International exchanges’ success depends increasingly on how quickly they can process transactions. The LSE’s current “latency” – the time it takes for an order to travel through its computer system – is about 2 milliseconds (thousandths of a second). MillenniumIT has demonstrated in trials that its system can execute transactions at 130 microseconds (millionths of a second) each at a volume of 1m orders per second.

For Mr Weeresinghe, delivering the system will mark the pinnacle of his career; but it would also signal a revival of entrepreneurship in Sri Lanka. “Sales are coming more easily. The LSE name has opened a lot of doors,” says Ajit Samaranayake, Millennium IT chief scientist, sitting in an office at its Colombo headquarters.

A partnership for growth
Tony Weeresinghe, founder of MillenniumIT, had spent years battling scepticism that a small software company on an island in the Indian Ocean could provide foolproof global trading systems. So while the company enjoyed some success, it needed a partner. The London Stock Exchange, whose first approach came two years ago, was ideal. But that did not make the decision to sell to the LSE any easier.
“My wife struggled a bit to see me moving out. She said: ‘Especially the campus, it’s a beautiful palace and you’re just giving it away,’ ’’ he says.
The deal was structured to retain MillenniumIT’s entrepreneurial spirit. MillenniumIT’s original management team retains operational control and the company can sell its products to any client.
To be sure, there is plenty of market scepticism over whether Millennium IT can deliver. Doubters point out that the company lacks the record of working with exchanges of the LSE’s size and complexity. Others wonder whether tiny Sri Lanka can sustain such a company in the longer term.
But Mr Weeresinghe says being the big fish in Sri Lanka’s small pond has its advantages. The group helps the island’s universities formulate their computer science curriculums, and it attracts the best local talent.
Sri Lanka’s tropical beauty also makes it an attractive place to live, a perception that will only improve with the end of the civil war. “We don’t need a lot of people, we just need a few brilliant people,” says Mr Weeresinghe.

Mr Weeresinghe is speaking from the US via teleconference, since his hectic travel schedule means his time is divided between Colombo, London and Boston, where he is now based. He relocated to the US city in 2001 when he was lobbying the Boston Stock Exchange for a deal to set up its trading platform – the company’s first international contract. “To give them comfort, I moved there with my family and that’s how we won,” he says, occasionally betraying a slight American inflection.

In spite of the hurdles ahead, Mr Weeresinghe has retained an affable air. The 48-year-old talks in an easy, friendly tone. Staff in Colombo say he is rarely seen in suit and tie, preferring short sleeves and open-necked shirts, particularly during his frequent visits back to the island.

Like many Sri Lankans, he grew up an avid sportsman and a keen cricketer, although today he prefers going to ballroom and Latin dances with his wife.

Yet his relaxed style conceals tenacity, staff in Colombo say. In one early indication of his determination, he took a distance-learning British Computer Society degree-equivalent course instead of studying at local universities after finding that the Sri Lankan institutions did not offer the “right subjects”.

He started his career as Wang Laboratories’ agent in Colombo before becoming Oracle’s country manager in Sri Lanka. In 1994, he joined ComputerLand, Sun Microsystems’ distributor on the island, a hardware systems integration company. ComputerLand’s first big deal was a revamp of the Colombo Stock Exchange’s clearing and depository systems.

Two years later, in 1996, Mr Weeresinghe saw his chance to strike out on his own. He convinced ComputerLand’s owner to agree a management buy-out. Employees received a 30.6 per cent stake in the company, which was renamed MillenniumIT, while Mr Weeresinghe held the remainder, which he eventually divested to institutional investors. “It was the first employee-owned company in Sri Lanka,” he says. “We were the first company. . . going to work in jeans and T-shirts.”

The new company began working with what is now Tibco, a software company later bought by Reuters, on a trading system in 1996. Again, its first client was the Colombo Stock Exchange.

The resulting system became the basis of MillenniumIT’s full suite of capital market software products, which it sold throughout emerging markets, starting with Mauritius and Malaysia.

The group also began targeting developed markets, wooing the American Stock Exchange, the Boston Stock Exchange – the contracts ended after the two exchanges were bought out by rivals – the London Metals Exchange and ICAP, the interdealer broker.

As an entrepreneur selling a global product from out of a conflict area, winning each deal has been a battle against negative perceptions overseas of Sri Lanka and scepticism that such a small company could produce internationally competitive trading systems.

But his darkest moment came not from the war in Sri Lanka, but after the September 11 terror attacks on the US when the global IT industry plunged.

His investors urged him to emulate the Indian example and start offering plain IT outsourcing services rather than product development.

“I said: ‘You invested in a product company – if it fails you can write it off as a bad investment but don’t change my business model,’ ” he says. “It was tough, but staying focused on a long-term goal [is important]. You shouldn’t sway from that.”

By Joseph Leahy - FT.com

Role of Imports in the Sri Lankan Economy - Dr Saman Kelegama

noreply@blogger.com (Sri Lanka Equity Analytics) — Mon, 30 Aug 2010 07:58:00 +0000

Address by Dr. Saman Kelegama, Executive Director, Institute of Policy Studies of Sri Lanka at the AGM of the Import Section of the Ceylon Chamber of Commerce, 3 August 2010:

"It is an honour to be the Chief Guest at the AGM of the Import Section of the Ceylon Chamber of Commerce. I thought that it will be appropriate to share some of my views of the import sector of Sri Lanka so as to identify its current role in the Sri Lankan economy and its role in the future. Accordingly, I will deal with four broad issues relevant to the import sector in Sri Lanka, viz., (1) the positioning of imports in the Sri Lankan economy, (2) imports as a value adder to the Sri Lankan economy, (3) imports as a revenue earner to the economy, and lastly, (4) imports as a growth facilitator in the economy.

Let me start with import positioning in the Sri Lankan economy. In the Sri Lankan economy today, imports (of goods) roughly amount to US$ 12 billion and exports (of goods) amount to US$ 8 billion. This roughly boils down to imports amounting to 30% of GDP and exports amounting to 20% of GDP. Basically, exports of goods finances 63% of the imports of goods. If we add remittances which amount to approximately US$ 3 billion or 7.5% of GDP, then 92% of the goods import bill is financed by goods exports and remittances. Thus, the country is in a position to support its import (goods) flows as long as the foreign reserves are in a healthy position.

If Sri Lanka could sustain its reserves above US $ 3 billion, then the country will be in a comfort zone where it could finance 3 months and above of imports. Sustaining reserves above US $ 3 billion when the import bill is escalating will be a challenge. Sri Lankan remittances in recent years have been covering the oil import bill – this is also a noteworthy feature of the import sector.

The largest source of imports is India (accounting for 25% of total imports), followed by China (includes Hong Kong). But if we consider EU as a single source, then it is the second largest source of imports to Sri Lanka and not China. Sri Lankan imports as a percentage of global imports amount to meager 0.1%.

One can note that if the Sri Lankan economy is growing above 5%, it is normally supported by growth in imports above 10%. Sri Lanka’s growth is such that it is an import-intensive growth. Take for instance, the growth of our industrial sector and services sectors – the two fast growing sectors in the economy. Industrial growth is mainly driven by export industries like ready-made garments, gems and jewellery, leather products, etc., and they are all import intensive. Two export items that grew under the India-Sri Lanka Bilateral FTA were Vanaspathi and Copper — they too were import intensive with palm oil imported for vanaspathi production and raw iron imported for copper production. In services, growth sectors like wholesale/retail trade, tourism, telecommunication, etc., all are import intensive.

In any country in the early stages of development this is what we observe, an import-intensive growth. In Sri Lanka, the import composition statistics further provides evidence of this. Consumer imports amounted to 50% of overall imports at the time of Independence. Today, they amount to only 19% of overall imports. On the other hand, intermediate goods used for industries and services that accounted only for 11% of overall imports at the time of Independence, have doubled its share to 22% of overall imports today, clearly indicating that the input of imports in Sri Lankan production has increased.

Sometimes, when there is a call for depreciation of currency by exporters there is also the concern of the impact on the import-intensive exports and import-intensive services and thus the overall growth trajectory, as imports will become more expensive. That is why calls for depreciation take time for full consideration by the policy making apparatus in this country.

These are some of the noteworthy characteristics of Sri Lanka’s import sector.

I now come to my second topic of imports as a value adder to the economy. Import liberalization can also be a source of value addition. Take for instance, assembly operation from Completely Knocked Down importations. One can import components of a motor vehicle, three wheeler or refrigerator and assemble them with some value addition to sell in the domestic market. The value addition will be small but if the operation takes place in a large scale the value addition will also be bigger. Let us now take a higher value addition case with the example of the gem and jewellery industry. There was a call in the early 1990s to liberalize the importation of gem stones. After some initial hesitation, we did liberalize, and as a result, variety and jewellery products were manufactured in Sri Lanka using a variety of stones. One can easily say that the import liberalization in this case certainly increased the value addition to the economy.

But we must note that import liberalization contributing to value addition is not straightforward. If there are competing products in the domestic market, import liberalization will not lead to value addition. In fact, import liberalization will lead to closure of industries if Sri Lankan products are not in a stage to face competition. That is why in the India-Sri Lanka Bilateral FTA (ISLFTA), all agriculture products and SMI (small and medium industries) products were kept on the negative list. Even in the SAFTA, APTA and the Pakistan-Sri Lanka Bilateral FTA (PSLFTA) those sensitive products of Sri Lanka have been put under the negative list.

Then there are cases of import liberalization for value addition where the arguments are not straightforward. In cases where Sri Lanka has a brand name like tea, the case for import liberalization is not straightforward because if import liberalization is done without a proper regulatory framework in place, import liberalization can dilute the brand name and reduce the domestic price for tea. Brand name can be diluted, for example, by mixing 10% Ceylon tea with 90% imported Indonesian tea and exporting as Ceylon tea. Tea traders will benefit, but tea manufacturers and exporters will have concerns on domestic price level and ‘Ceylon Tea’ brand name, respectively. That is why the liberalization of importation of tea has become a hotly debated topic. In such a case, value addition through imported tea should be done with supervision and extreme care. Some countries created special Export Processing Zones for enhanced supervision to get the best results from import liberalization. In cases like this, we have to be constantly vigilant on how global operations are taking place and accordingly adjust our strategy to be in line with global trends.

I now come to my third topic of imports as a source of revenue. At the time of Independence, import duties contributed revenue amounting to 6.2% of GDP, today it contributes close to 2% of GDP as revenue. Here, I am only referring to tariff revenue. When liberalizing an economy, we should not see import duties as a major source of revenue. From 1977 onwards, revenue from import duties fluctuated – from 2.27% of GDP in 1977 it increased to 4.1% of GDP in the late 1980s due to the increase in import volumes making up for the reduction in tariffs as a result of liberalizing the economy. But import duties declined to 3.3% of GDP in late 1990s and further to to 2.0% of GDP in the late 2000s. That is understandable because although the import volumes increased by the mid-1990s, WTO related tariff reduction, regional and bilateral agreements related tariff cuts further reduced revenue. For example, 1,208 product lines became duty free for India under the ISLBFTA and 102 product lines became duty free for Pakistan under the PSLFTA. It is estimated that there are 2,500 duty free lines (746 MFN duty free lines) out of the 6,500 tariff lines. Also, with the formation of BOI in 1992, duty free importation increased rapidly so much so that about 65% of imports now come under duty free or tariff free to Sri Lanka.

At the border however, it is not only tariffs that operate: there are a number of other taxes that have been imposed from time to time at the border, viz.: (a) surcharge on customs duty (was removed for most products on 1 June 2010); (b) VAT, (c) Excise Duty, (d) Commodity Export Subsidy Scheme (CESS), (f) a number of development taxes operating in the border – (1) Port and Airport Levy (PAL), (2) Social Responsibility Levy (SRL), (3) Regional Infrastructure Development Levy (RIDL), and (4) Nation Building Tax (NBT). Due to these taxes, the overall border tax contribution to revenue is close to 50%. This boils down to overall customs duties related revenue amounting to 8% of GDP. Now the question arises why are all these taxes in operation? Several factors have contributed to their evolution. One was to raise additional funds for the war at that time; second, to meet expenses on development activities – PAL, RIDL, etc.; third, to meet product development like the CESS – whether the CESS goes to the industry concerned, i.e., tea, rubber or coconut via the Consolidated Fund is another matter; and fourth, for protection on the basis of industrial lobbying – duty surcharge or CESS may have been imposed to fulfill aspiration of various lobbies.

This has made the border tariff structure highly complicated. These taxes are imposed on different tax bases at the point of importation making it further complicated. When designing the tariffs for the imports coming into Sri Lanka, there was a four band tariff structure: 2.5%, 6%, 15% and 28% and they were to cover the following: 2% for raw material, 6% for semi-processed raw material, 15% for intermediate goods, and 28% for final goods (of course there was the zero rate also). This structure has got complicated not only due to the development and other nuisance taxes, but also due to specific tariffs – extremely high duty on cigarettes, liquor, motor vehicles, etc.

The time has come to simplify this process – get rid of these ‘add-on’ taxes and keep the same level of protection by adjusting the import duties. This is a very important area that the Presidential Taxation Commission has been asked to look into and all of you will be able to see the Commission’s recommendations by early September.

My final topic is imports as a facilitator of growth: ‘Mahinda Chintana Idiri Dakma’ aims for a 8% growth rate. This can come by improving the ‘doing business’ environment in Sri Lanka and bringing down the ICOR (Incremental Capital Output Ratio) from 5 to 4 and increasing investment to 32% of GDP. Currently, investment per GDP is at 24% of GDP and thus an 8% GDP increase of investment is required —- 4% will have to come from FDI and the remaining 4% GDP increase in investment from the domestic private sector. If investment cannot meet these targets, we will have to look at a combination of consumption-led growth and investment-led growth.

Most of the consumption-led growth is import intensive. The increased sale of motor vehicles and electronic goods after the import duty was lowered was consumption-led. It is a consumption-led growth that is giving a new lease of life to the leasing industry and electronic good importers. Take for example meeting the challenge of the tourism sector — 15,000 new rooms are required by 2016. It has been estimated that the per room cost will be close to Rs.10 million, and more than 60% of this will be on import expenditure – carpeting, curtaining, air conditioning, TV, DVDs, etc.

Even investment-led growth will be import intensive. Take for instance, North-East rehabilitation and reconstruction – that will also be quite import intensive. Take for instance, the five hubs articulated in Mahinda Chintana: Aviation, Shipping, Energy, Knowledge and Commercial — which will become major growth poles. Can hubs be developed by cutting off Sri Lanka from the rest of the world ? – No, they can be developed only by further opening up the economy and welcoming imports of not only goods but also services.

Singapore is an oil hub —- does it produce any oil ? - no. But, it liberally imports oil and is engaged in value addition. Singapore, blessed by its strategic location by a major sea route for oil tankers, is one of the major energy hubs in the world for oil refining and exporting. In addition to the Singapore Petroleum Company Limited, the world’s largest energy multinational companies such as ExxonMobil, Royal Dutch Shell, Chevron, BP, Total, Marubeni and, Mitsui have invested in Singapore’s oil industry. Singapore produces 8.3 million oil barrels a day, which is nearly a 10% of world oil consumption, but 10 times Singapore’s own consumption. The point I am trying to make is that Sri Lanka need not be an oil producer to become an energy hub.

Let us look at the 5 hub areas from Sri Lanka’s regional perspective: Aviation – today close to 42 % of revenue of Sri Lankan Air Lines comes from flights to India with 90 to 100 weekly flights. Shipping – today close to 71% of transshipment in the Colombo port comes from India. Energy – today close to 35% of our oil imports comes from India – Lanka IOC. Knowledge: IT, Biotech, Nanotech, Ayurvedic and Indigenous medicine —— all these areas we share closely with India. We have to seriously take cognizance of these issues when talking about making Sri Lanka a regional hub. The point I am trying to make is that these hubs will be difficult to develop by trying to by-pass India. It is in this context that the proposed frameworks such as CEPA have to be looked at seriously.

Always there will be views in favour of and against CEPA. Even in the EU there are the Euro-files and Euro-sceptics and this is particularly seen in the UK where the debate is still going on whether UK should be a part of Euro or remain outside it. But unlike in Sri Lanka, these debates are kept at a very professional level and not at a personal level or ‘patriot versus traitor’ level, as it is sadly the case in Sri Lanka. As a result, many are reluctant to openly come out and debate the subject of CEPA.

Be that as it may, imports are going to play a vital role in the Sri Lankan economy in the coming years. Sri Lanka has to clean up the border taxes and make the import tax regime simple and transparent while strengthening the regulatory framework to ensure that dumping of unwanted imports do not take place. Imports will play a vital role as a growth generator and a value adder to the economy in the coming years."

Waiting For Budget 2011

noreply@blogger.com (Sri Lanka Equity Analytics) — Fri, 27 Aug 2010 09:46:00 +0000

After the war on terrorism, it’s the economic war that is drawing the attention of the government, the opposition and the public in recent months. With tax revenue falling, tax officers getting assaulted for ‘pushing’ taxpayers to cough out their dues under strict Finance Ministry guidelines to maintain targets and also reduce the shortfall in 2009, and Treasury bills being offered as compensation in lieu of cash to residents whose properties have been acquired; there are some serious issues in the Sri Lankan economy.

The silver lining however is the host of big-time foreign businessmen visiting Sri Lanka – which this week included India’s Mahindra & Mahindra chiefs and the Hong Kong-based Shangri-La hotels chairman – and complete with a stopover at Temple Trees implying that investors and their big bucks are coming to Sri Lanka. But like the ‘biggies’ of the likes of fund managers Mark Mobius and Jim Rogers, are these just a recce and a look-around?

The Asian Development Bank Vice President is also in town next week while an IMF mission – visiting under the usual mandate to review the economy vis-à-vis the Rs 2.6 billion credit facility – is here this time for a bigger purpose: a deeper insight into the economy and more people to interview.

Will they pick holes or come up with the usual ‘the economy is doing well but there is a need to improve revenue, trim costs, etc’? Of late, opposition pundits have expressed concern over the IMF’s seemingly whitewash of a key economic fundamental – the debt situation – which according to the fund is apparently not trouble-free but manageable because (IMF) funds are flowing in despite fundamental concerns.

The debate on debt will never end between the government, opposition and the media as borrowings rise from commercial loans like for the Hambantota harbour, airport and other infrastructure across the country and fund-raising bonds continue to be offered by the Central Bank on behalf of the government.

There is little doubt the debt situation has reached crisis levels but is it staggering as some say and perched on an economic bubble? “No doubt the debt situation is high but I don’t think it’s at a major crisis level,” one respected, independent economist said. Others say over 40% of government revenues goes to just servicing interest payments.

The debt debate will go on with mixed emotion and statements but one issue where there is no argument is that the government is desperately short of cash. Take for example the plan to offer long-term bonds or Treasury bills in lieu of cash to residents whose lands were acquired for highway development. Rupees 8 billion is not a lot of money (over several years)but the government simply doesn’t have that. Then the promised wage hike of Rs 2,500 has also been abandoned on the grounds that it was not a promise made by the President. But the reality is that the Ministry of Finance, struggling to cut government spending, had prepared estimates of this hike costing Rs 1.5 billion. It may now come in the 2011 budget.

A lot of other things don’t jel. For instance inflation is coming down according to the Central Bank then, why is a new currency denomination note, Rs 5,000 being considered? That takes the value (or worth) of the Sri Lanka currency to a new level.

The Board of Investment (BOI) also doesn’t appear to be attracting too much investment (or attention for that matter) whereas during the tenure of former BOI Chairman Dhammika Perera, almost every other day there was press releases announcing investment agreements. However it must be said that Perera’s strategy was making public, deals with investors which were ‘an intention to invest’; not the final investment. There is a huge difference between this first move and the ultimate decision to invest.

Under Jayampathi Bandaranayake’s stewardship at the BOI there have been little or no recent announcements. Much of this is also due to a direction from Treasury Secretary Dr P.B. Jayasundera to examine past agreements as to whether there have been too many tax holidays and concessions given to projects depriving the state of much needed revenue.

Another issue of concern is that private sector investment other than in tourism hasn’t taken off after the war. “Credit is not expanding even though interest rates have come down. Foreign investors are coming and going. Some come to see me and that’s it. There’s no positive growth in the private sector,” a top official from a state bank said.

Real estate developers are also grumbling. So are the construction industry people. “Apartments are not moving though everyone talks of a buoyant mood. I believe the take-off will be in a year or two. Till then I’m not selling my apartments for lower than the current rate,” one Colombo developer said.
Apart from signals on infrastructure and the occasional announcement by influential personalities like Basil Rajapaksa and P.B. Jayasundera (back to his strong, powerful and influential position after the debacle over the Supreme Court judgment on LMS), that Sri Lanka is back in business, there are no other policy guidelines and pronouncements on taxes.

Clearly the private sector is waiting for the November budget for signals on taxes – with a new tax structure coming in - and the future policy. Until then it will be a push-pull, nice-but-let’s-wait-and-see strategy rather than companies putting their money where their mouth is. Until then it will be the rush of blood and shenanigans in the stock market that will keep people occupied and guessing.

Courtesy - Sri Lanka Guardian

‘Manage your cash, if you must, change your bank’

noreply@blogger.com (Sri Lanka Equity Analytics) — Fri, 23 Jul 2010 03:11:00 +0000

HSBC Global Payments and Cash Management, Asia Pacific Head of Sales, Richard Jaggard said with the economy expected to accelerate, companies should not lose sight of their cash for profits.

"When business takes off, companies should focus on managing their cash for sustainable growth. This is because it is easy to lose sight of cash when there is too much focus in maintaining profits," he said speaking to The Island Financial Review.

High profits would not mean a thing if liquidity levels in an organisation was not healthy enough to meet short term commitments such as payments to suppliers. For example, some of Sri Lanka’s registered finance companies had accepted funds from the public and invested them in long term illiquid real estate, and are still recovering from the run on deposits caused by the Golden Key scam.

Sri Lanka’s economy, which dipped to 3.5 percent on the global financial crisis in 2009, is expected to grow by 7 percent this year. But private sector credit growth is still sluggish and the SME sector is finding it difficult to access credit with overly cautious stringent lending policies of most banks. Treasury Secretary Dr. P B Jayasundera told a recent forum that commercial banks continued to maintain wide interest rate margins that were contrary to the government’s policy of brining down rates.

The Island Financial Review asked Jaggard how companies, especially SMEs, could overcome the tough lending climate.

"The situation is unique to Sri Lanka. Banks all over the world are cautious in their lending but this is why it is all the more important for companies to look at their cash management structures. While banks are important for financing, companies should explore ways of improving the way they use their own funds.

"But with the economy expected to boom Sri Lankan companies should also reconsider the role played by their bankers. Company needs in Sri Lanka have changed and banks should be in a position to partner them and foster sustainable growth. There should be a constant flow of advice from the banks. If this does not happen companies should consider changing their bankers," Jaggard said.

Jaggard was in Sri Lanka for a three day visit to highlight opportunities and issues around centralisation of cash management and shared service centres within an organisation that would lead to better management of liquidity and the efficient use of cash balances.

"The global financial crisis, which has now passed Asia, has taught businesses to get back to basics. There are three important lessons the crisis has taught us. The first is that companies have realised the importance of cash and the need for improving cash management structures so that there is more visibility.

"Secondly, companies are looking at how efficiently their liquid assets are being used and are questioning existing management structures. For example, if they have cash with one bank and a loan from another, they would try to optimise their interest costs and increase visibility by finding out whether bringing the funds and loans into a single bank would help.

He said companies were also looking at ways to manage their working capital by improving their collections and also by helping suppliers with timely payments.

"The third important thing to come of the global financial crisis is the ability to manage information and companies need to know where their cash is," Jaggard said.

According to HSBC, the recent global financial crisis has brought into focus the importance of better managing of liquid assets: "Centralisation and shared service centres have gained in importance as enhanced visibility and control over liquidity allows companies to optimise the use of liquidity by taking over active control over cash balances across the enterprise to enhance working capital management."

With centralisation, for example, companies can gain enough visibility on their cash by centralising accounts into a single service centre in an organisation so that receivables and payables could be better managed.

"In theory it all sounds easy, but it is difficult to do in practice. But this is something banks have being doing all along. It is the same skills that a bank possesses that are required in a company; the only difference is in the volumes and banks like HSBC are sharing their expertise with their corporate clientele," Jaggard said.

In his experience, he said, there were companies in the Asia Pacific region who were managing their liquid assets well and recording extraordinary results, others were following best practices while some were beginning to become aware of centralisation for better cash management.

Sri Lanka price floor for mobile calls - Rohan Samarajiva

noreply@blogger.com (Sri Lanka Equity Analytics) — Mon, 12 Jul 2010 13:45:00 +0000

It is not the responsibility of a regulatory agency to ensure the profitability of telecom operators. Yet, when every single operator in the country, including the incumbent who used to make profits even under inefficient government management, starts bleeding red ink, it is not possible for the government and the regulatory agency to sit on their hands.

After years of bad policy decisions and regulatory inaction that led to a crisis in the industry, finally, the government has started to act. In June, the TRC announced that the previous Sending-Network Keeps All (SKA) regime was being replaced by a mobile termination rate regime, with the termination charge being set at 50 cents a minute for a call and 15 cents for an SMS.

Then in July it announced that a floor price of 2.0 rupees will be set for all voice calls, excluding those covered by previously sold packages.

Action was needed
Sri Lanka is on the cusp of widespread Internet use. This will be driven more by mobile networks than by the fixed network or by the fading WiMAX fixed-wireless solution. Necessary preconditions are

• Building out of 3G mobile networks that can be accessed using various mobile devices and by dongle-equipped computers (desktop or laptop) across the island, and

• Investments in applications that people can use such as agricultural information services, m-commerce services, etc.

Both conditions require significant new investments. Especially in light of the Sri Lankan telecom sector being flagged as high regulatory risk in telecom by Fitch Ratings, investment requires high rates of return.

Obviously, companies operating in multiple countries would not invest in a country with high regulatory risk which was pursuing policies that led to all the operators losing money. The drop in investment had started in 2009, with cuts of around 60 percent estimated.

But what action?
It was clear that the arbitrarily imposed Sending-Network Keeps All regime (SKA), whereby an assumption was made that calls being terminated on different networks were about the same in volume, had to go. Not only because the assumption was not supported by evidence, but because it led, in combination with artificially high termination rates for calls coming into Sri Lanka from foreign destinations, to an upsurge in illegal bypass, resulting in both operators and the government being deprived of legitimate revenue while enriching black-money businesses.

The best evidence of illegal bypass is the mobile screen itself. When the incoming number display shows a local number but the call is from abroad, that is an illegally terminated call. So the TRC did the right thing in June, by replacing SKA with a mobile termination regime.

Contrary to some confused reporting at the time, this should have had no impact on retail prices (except in one instance, discussed below). Mobile Termination is a wholesale payment; some operators would have had to make payments; others would have received payments. As long as it is not set excessively above costs, it is simply a cost of doing business for operators.

While no one got paid for terminating calls originated on other Sri Lankan networks under SKA, those terminating more call minutes will now get paid more; but even the large networks will have to pay the smaller networks when they terminate calls, so there is a degree of netting off. Now that illegal-bypass calls that look like they originated from local numbers can no longer be terminated for free on other networks, operators will have greater incentive to identify and cut off illegal bypass SIMs.

The one retail package that should have been affected by the end of SKA was the government-servants’ package Upahaara that gave free calls to Sri Lanka Telecom fixed phone during daytime, up to 6 PM. Under SKA, one could argue that the mobile operator was simply using off-peak capacity and not spending more money to provide these free calls.

But once SKA was removed, they had to pay 50 cents a minute to Sri Lanka Telecom in order to complete the free call.

Under fully competitive conditions, companies are free to sell certain products below cost and certain above cost, as long as they make enough money to stay in business. But telecom markets are not fully competitive. Therefore, all the licenses under which the operators provide services contain specific provisions against anti-competitive practices. Given the mobile operator offering the government-servants’ package was a subsidiary of Sri Lanka Telecom, a prima facie case existed for an investigation of whether the below-cost offering was anti-competitive and in violation of license conditions.

The free calls did not only hurt the mobile operators. They cannibalized the fixed operator, causing for the first time the return of fixed connections in favor of mobile (http://lbo.lk/fullstory.php?nid=225908997). If one could call free from a mobile, why pay for calling from a fixed phone?

Instead of conducting a broad ranging investigation of anti-competitive practices in the industry, the TRC has now come up with an official floor price, becoming, in effect, the telecom industry’s cartel manager.

This is a pity. Yet, one can understand the rationale in light of the parlous state the industry had been placed in by years of bad policy and regulation combined with the extraction of excessive spectrum fees and such (the TRC contributed 9 billion rupees out of the total of 20 billion rupees contributed by government enterprises to government revenues last year.

One hopes that the TRC will step away from the cartel manager function as quickly as possible and address the underlying causes of the telecom industry’s problems, including spectrum refarming, the policing of anti-competitive practices, and the reduction of excessive taxes.

The future
Voice calls will be “free” in the future. The quotation marks signify that nothing is really free. In the natural evolution of the industry, there will come a time when customers will pay for connectivity in various forms, either by data volumes or time. Voice will simply be one among many applications they can use as part of this connectivity bundle.

If the government at least desists from doing wrong things, this most dynamic of Sri Lankan industries will flourish again, and we will, in due time, get to make free calls.

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the 'Choices' category.

Courtesy - LBO

Sri Lanka: borrowing to get rich

noreply@blogger.com (Sri Lanka Equity Analytics) — Sat, 10 Jul 2010 14:30:00 +0000

With Sri Lanka vanquishing terrorism from its borders, President Mahinda Rajapaksa and his armed forces have hitherto done something which no other country has achieved for a long time. All countries experience terrorism in one form or another and no country is exempt from this scourge. Unfortunately innocent civilians become potential targets and victims of terrorist agendas. On the other hand, the state could also discriminate and take action against a group of people to force them to join the governmentagenda -at any rate, both these actions result in civil liberties and human rights being attacked and compromised.

The superpowers are ironically the greatest threat to civil liberties and human right abuses all over the world. Yet they focus on human right violations in countries such as Sri Lanka as a tool to gain the upper hand over such nations. Today, Russia and China might defend themselves against anti-government forces within and across borders while American and British forces fight in Iraq and Afghanistan. But the world is silent when they do it. Sri Lanka braves the Western world and eradicates terrorism militarily. Do Western countries, with their past histories and present record of atrocities committed, have a right to dictate such terms to Sri Lanka?

Human rights and civil liberties need to be fixed with priority but Sri Lanka will do them amidst other priorities as well. After the military success over the LTTE, President Madinda Rajapaksa requires to focus his urgent attention on the economy. We cannot waste time. This is because with prosperity comes equality in which the disparities among communities will become less and less. If all the people among this single nation were to become affluent with little or no competition for resources, amidst increasing freedom of movement and exchange of trade, the ethnic problem will become more tractable. An affluent population would engender tolerance for different ideologies, a love for and an appreciation of different arts and cultures, and this could ultimately promote the spiritual wellbeing of the people.

Sri Lanka has a wealth of resources at its disposal. Although it does not possess natural resources in tangible form it does posses them, however, with the 20million people at its disposal to carry out its future plans. Strong leadership along with a certain degree of boldness and singled-minded purpose will drive the population to harness the resources available in the world today and make Sri Lanka another example of undiminished economic success. The current administration has the capacity and the boldness to prove to the rest of the world that Sri Lanka indeed can become the "pearl" of the Indian Ocean.

SUCCESSFUL BORROWING

Experts from all corners of the world, and especially within the quarters of the opposition, would say that sovereigns such as Sri Lanka must not borrow too much. Borrowing has been likened to a millstone around one's neck whose weight neither this generation nor future generations could bear. Today, we may ask the most important question, which is the country that borrows the most and is the strongest in the world. America is the world's biggest debtor but the whole world is indebted to it!

US has one obvious advantage, which neither tiny Sri Lanka nor even the consolidated power of the EU possess. US is the single most important reserve currency (61%) of the world. With its fiat stamped upon a majority of international trades and contracts such trades being executed in US dollars, the US can issue paper or electronic money and buy anything and everything the world has. This is facilitated because other countries store their surplus wealth by buying US treasuries and assets. The unique feature of the reserve currency status is that whatever the US buys, notwithstanding the quantum of money outside its borders, it never lessens or takes away from the American economy but aggrandizes it. The only thing that stacks up is its public debts.

They can feed their 761 US military bases across 156 countries with no effort on their part. If the Americans have a military base in Japan, the Japanese will feed them using their own resources. The host country of the US bases will provide food, clothing and shelter and the America will pay in US dollars. Japanese will then deposit this money with a Japanese bank whose counterparty or correspondent bank may be another US or a Japanese bank domiciled on US territory. What is the underlying transaction? The US government has issued nothing but paper money - cheques for millions of US dollars - and thereby fed its army. The Americans have got real value out of this arrangement but the Japanese will have real value only when they decide to spend the US dollars.

The Japanese may now decide to buy goods and services from China, since importing Chinese items may be cheaper than getting them from the US. The Chinese will expend their own resources and export goods to Japan. As the US currency is one of the major currencies to be used in execution and exchange of trade transactions (another advantage) Japan will use US dollars to pay for the bill. The Chinese will bank the US dollars like the Japanese did in the first instance. Has the US gained from the second transaction between Japan and China? Of course, its currency has become global fiat. Moreover, when the US decides to trade with any country it is never subject to exchange rate variances; the rest of the world, however, is!

The American trade deficit in extremely high compared to the rest of the world while China is in surplus -almost 1 trillion US dollars in 2010. Recently, China declared to the US, "We own you!" Actually, the Americans need to borrow 2 billion US dollars per day to uphold and upkeep their way of life. This is exactly how the Americans do business with Asia and the rest of the world. In 1835 the US public debt was zero. After the financial crisis in November 2008, US foreign and domestic debt level (public debt) has almost increased significantly to 89 percent of its 13 trillion dollar economy. Does anyone complain? Does anyone worry about its ability to repay debts?

BORROWING OPTIONS

For Sri Lanka to re-consider its borrowing appetite, assessing its debt repayment capacity is imperative for further borrowings. The US example shows otherwise. However, Sri Lanka's balance sheet and revenue generation capabilities must be enhanced by every cent of foreign money borrowed. The IMF and unfortunately the opposition both have similar understandings about foreign debt. The IMF will stipulate that Sri Lanka needs good fiscal discipline to secure its standby arrangement and support package and they will enforce it at whatever cost. They will praise countries in Asia and sub-Saharan-African nations which do not borrow from other countries for exercising such fiscal discipline and for tightening their belts. IMF and World Bank will grant such countries small concessions as incentives and sweeteners to ensure that poor countries will stay poor. The biggest beneficiaries are Western Corporations and multinational companies that do business with poorer countries and profit from them.

In addition to the US, Britain, EU, Japan and now Australia have the property of their currency being a world reserve currency. Exchange rates of the home currency are primarily affected by lower stock of foreign currency reserves -following greater value of imports as opposed to exports, which is one reason for the Sri Lanka rupee to depreciate since independence. This is because trading currencies are limited to a basket of major currencies such as USD, GBP, EUR, JPY CAD, CHF. AUD, SEK and NYZ while most other currencies are inextricable pegged to the US dollar. China, it may be said is an exception to this rule. Due to the supply of cheap labour and its vast resource base US and Western companies have invested large sums of money and set up manufacturing plants and facilities in China. China has so far used a strategy of artificially keeping is currency lower to gain access into larger US markets defying and undercutting other Asian exporting countries. China has indeed succeeded. But we are not China and our resources are comparatively limited.

WESTERN LESSON

We must therefore learn from the West and there is one important remedy underpinning all this -we must improve our flagging balance sheet. Our assets are dilapidated, outdated and hardly fit for revenue generation. Look at our roads, energy supply, housing, cars, agro-base, transport systems, education and we can see that we are lagging far behind other nations. Our housing is limited and our buildings old. Sri Lanka's fleet of vehicles is virtually the backyard for unwanted Japanese vehicles. In this light, SL's balance sheet needs to be upgraded rapidly. How must we start? We have no capital resource such as oil or commodities such as gold, silver, iron, and palladium. Yet we can borrow, borrow and borrow and use this pool of funds to fast-track infrastructure development and upgrade Sri Lanka's balance sheet. Fortunately, this is currently taking effect thanks to this farsighted infrastructure strategy in place by the incumbent government.

Sri Lanka's debt servicing capability is unblemished. We must maintain this at any costs and there are two ways we can yet do this despite increasing foreign and domestic debt levels. It is known that if the Central Bank holds foreign currency and deploys LKRs into the market it could causes inflationary pressures. Yet this can be avoided by allowing local companies to hold and use foreign currencies to pay for and settle their debts. A freely convertible exchange policy is therefore essential subject to an interest rate policy. The flip side, of course, is that we will expose ourselves to unscrupulous foreign exchange speculators in the likes of George Soros to punish such countries by using his wealth. Today, Malaysia has not forgotten what he did to them in 1997 which sealed the Asian financial crisis.

Nonetheless, when our infrastructure gets a boost we can borrow more to repay debts and/or we must galvanize the economy to such an extent that we generate massive export revenues from the exchange of goods and services. We need to start by slashing all duties on consumables and investment goods to zero and make SL the world's No. 1 tourist and duty-free destination. If we do so, our economy will emulate those of Singapore, Dubai and Hong Kong and we can do it better. We can learn from the pains that those economies underwent during their transformative stages. If the unshackling of all duties is initiated that could have foolish consequences if there is no proper economic plan and vigorous monitoring system in place. Our domestic industries will become uncompetitive overnight and Sri Lanka's trade deficit would balloon. Subsidies for the agro-based economy would need to continue through this borrowing regime until such a time the economy matures. If we borrow considerably and have significant reserves of foreign currency drawing rights in store the transition could become seamless.

BOLD LEADERSHIP

Thereafter, it must become mandatory by an act of law that that all shops in Colombo and in urban cities must be kept opened till 10.00 P.M. Bold business leaders must take the lead. When our shops are filled with the best of all the branded goods, which should be cheaper than those of other Asian tourist destinations, there will naturally be an exponential influx of tourism in Sri Lanka. It would be a natural boon to the economy and Sri Lanka's leisure sectors would boom. More and more shopping complex and trading centres will open and construction activities will take place to exploit the huge opportunities that will be thrown open by the flood of tourism and unprecedented exchange of trade.

Unemployment will be solved rapidly with more demand for semi-skilled personnel coming in from sophisticated shopping areas and precincts. Our rural folks will increasingly migrate to centres of prosperity when economic activities in those urban areas start expanding in the country. There should be "controlled" bars to entertainment and such areas could be carved out as it is done in Singapore. With the exchange of goods and services being the major focus of the economy, Sri Lanka's tourism is bound to thrive. Government revenues will fundamentally come through taxes which these trading houses, shopping centres and 5 to 6 star superluxury hotels will earn. It is likely that tourists will pay more money for accommodation and for a world class experience if they can also buy top-of-the-range goods cheaper than what is available in their own countries.

In the age of information and technology are we bracing ourselves for a future we cannot predict and understand. The traditional values are unlikely to exist in their current form with Facebook now emerging as the new internet platform for social networking. What is better we may ask. Is it a weak economy with people chained by poverty, or reasonable affluence based on a robust economy to free them from enslavement to ideologies of antiquity? The state must not fear the critics since they are needed in any society to ensure that there are proper checks and balances in society -a disciplined and well paid police force is therefore vital.

This is our hour of reckoning. We need to be bold and we need not unnecessarily fear the consequence of borrowing too much. There is a significant difference when an individual or a corporate entity borrows as opposed to when a sovereign state borrows money. Individuals borrow for short term whereas government can borrow for 50 - 75 years. If we look at various countries that went through various crises such as Argentina and South East Asia or, now Europe - Greece, Portugal, Spain and Hungary - they all seem to be better off than Sri Lanka and after this financial crisis passes they too will come out of the woods looking yet better and stronger still. America has borrowed so much from everyone but there is still an implicit confidence in their economic power even though the American had triggered the worst financial woes since the great depression.

We must, of course, judiciously employ money that is borrowed for capital investment as well as for recurrent ones instead of politicians making do with most of it. The money we borrow must find its place somewhere in the country's balance-sheet-upgrading exercise. Once Sri Lanka's balance sheet improves and revenue account surges its sovereign rating will correspondingly improve. When this occurs we could raise sovereign or even corporate bonds from the international market and borrow at cheaper rates, and much more. After independence, how did the Singaporean dollar become an alternative trading currency in Asia while the LKR lags behind in the doldrums of obscurity? If we pursue this path of first importing all the best items of American, European and Asian goods, we will also one day be able to reproduce them locally. It is also right time to stop the exodus of the brain drain. President Mahinda Rajapaksa won the war; now he can implement these economic plans with resounding results.

Hiran Perera is a senior executive in a leading international bank. -The Island/ANN

"Sri Lanka 'the land of great opportunities" says Secretary Defence

noreply@blogger.com (Sri Lanka Equity Analytics) — Thu, 08 Jul 2010 07:22:00 +0000

"Almost always, only negative publicity was generated. That era is now no more. Now the time has come for us to talk about the positives in this country. We need to hear about the success stories and the true potential that Sri Lanka has" said Secretary Defence Mr. Gotabaya Rajapaksa.

He made these views Wednesday (July 7), while delivering the key speech at the 24th CACCI Conference in Colombo. "This is a land of great opportunities. Come here and invest. We have so many areas with potential for development. Our economy is poised for a remarkable revival. Sri Lanka is set to become the Miracle of Asia. We hope that our friends overseas will join with our Government and our domestic investors in bringing this about", Mr. Rajapaksa further asserted.

The CACCI Conference-Co hosted by the Ceylon Chamber of Commerce and Industry (CCC) and the federation of Chambers of Commerce and Industry (FCCISL) will focus on the theme "Facing Global and Local Challenges: The new dynamics for economic development".

Full text of Secretary Defence Mr. Gotabaya Rajapaksa's key speech delivered at the 'Sri Lanka Economic Summit-2010.

Ladies and Gentlemen,

I am glad to have this opportunity to speak with you at this plenary session of the Sri Lanka Economic Summit. I trust that the Summit thus far has been a very fruitful one for all of you, and I hope that this session will be similarly productive.

Not so long ago, Sri Lanka was in the news mostly for the wrong reasons. It was mostly terrorist attacks through car bombs, bus bombs and suicide bombers, attacks on military camps and on civilians that kept this country in the headlines. Almost always, only negative publicity was generated. That era is now no more. Now the time has come for us to talk about the positives in this country. We need to hear about the success stories and the true potential that Sri Lanka has.

That is why at the very outset I want to deliver a very clear and simple message to you on behalf of the Government of Sri Lanka: this is a land of great opportunity. Come here and invest. We have so many areas with potential for development. Our economy is poised for a remarkable revival. Sri Lanka is set to become the Miracle of Asia. We hope that our friends overseas will join with our Government and our domestic investors in bringing this about.

It has only been one year since Sri Lanka emerged victorious from a struggle against terrorism that had lasted thirty years. The losses we suffered during that period, in terms of lives, property and opportunities for growth were many. The threat of terrorism held back domestic and foreign investment. Restrictions imposed to uphold security also had a limiting effect. The full potential of our economy simply could not be realised.

Now that peace has dawned in our country, it is important that we recover these losses as much as possible. The Government is fully committed to bringing about the economic resurgence that Sri Lanka deserves. With this in mind, the Government has already launched a dynamic development programme throughout the country to accelerate our economic growth.

Special emphasis has been placed on the development of transport infrastructure such as road and rail networks. The national highway network is continually being improved. It is soon to be augmented by new roads such as the Southern Highway and the Outer Circular Road. The roads and bridges in the Eastern Province have almost completely been redone and the road network in the North is presently being developed.

The railway system is also undergoing a remarkable growth. New tracks are being laid to Talaimannar, and the track to Jaffna is being rebuilt. The railway lines in the south are also being extended. In addition to these, Ferry services between Sri Lanka and India will soon commence. These services will operate between Talaimannar and Rameswaram, and between Colombo and Tuticorin. The enhanced connectivity provided by all this infrastructure development is vital for future growth.

Another area in which a lot of development is taking place is the national energy infrastructure. Power plants at Norochcholai, Kerawalapitiya and upper Kotmale will augment the national grid and provide the energy needs to support our economic resurgence.

The regional development initiatives known as Uthuru Wasanthaya (Northern Spring) and Nagenahira Navodhaya (Eastern Revival), have rapidly built up vital infrastructure including roads, bridges and irrigation systems, in the newly liberated areas. These initiatives have created an environment conducive for investment in these newly accessible regions.

In terms of international trade, the developments in the harbour system around the country augur extremely well for the future. The Hambantota Port will initially provide refuelling and bunkering services for the ships crossing the busy sea route just a few nautical miles south of Sri Lanka. There will be many opportunities to develop various lucrative port centred businesses there, including shipbuilding, ship repairing, bunkering and other industrial activities.

Work has also begun on a second international airport at Mattala. Situated near the Hambantota Port, the creation of this airport will enable the development of an air-sea transhipment hub at Hambantota which is a strategically important location in the South Asian region. Investors interested in setting up such facilities there are likely to benefit immensely in the long term.

In addition to Hambantota, the Government has already begun to expand the harbour facilities in Colombo and hopes to develop ports in various strategic locations around the country. These ports, which include Oluvil, Trincomalee and Kankasanturai, will create many opportunities for investors to develop port-related businesses. With their easy access to fertile lands and fertile seas, there is a lot of scope to develop agriculture and fisheries processing facilities in these places. The development of industrial facilities will also be potentially very lucrative.

Through the rapid development of all this vital infrastructure, Sri Lanka is gearing up for a remarkable transformation. From being a country that relied only on a handful of crops and industries in the past, Sri Lanka is about to start exploiting latent strengths that were underutilised all this time. Foreign investors as well as Sri Lankan businesses have the opportunity to contribute to this transformation, and will stand to gain a great deal by doing so.

The Government is very keen to encourage such investments. Through the Board of Investment, a wide variety of incentives, including full tax holidays ranging from three to fifteen years, and various other concessions are available for a wide variety of investments. Various programmes also exist on a regional level to encourage investment in less developed parts of the country. I strongly urge you to explore these options and seek out opportunities that will be beneficial both to your businesses and Sri Lanka.

There are countless opportunities for investment available here today. Large areas of land that used to be inaccessible in the North and East are free for development for the first time in decades. These are mostly very fertile lands that have a high potential for agriculture. Large plantations and farms can be established there at very little cost. It is noteworthy that there has been virtually no large scale agriculture in these regions over the last thirty years. The soil is therefore completely free of chemical fertiliser and pesticides. It will be very easy to develop eco-friendly farms in these regions. Such farms can provide natural produce to meet the ever-growing demand for organic food in the international market.

As with the land, the seas along the entire coastline are now completely free. The restrictions that used to be in place on fishing in the past for security reasons have been completely removed. The large fish populations in these fertile seas, which have been undisturbed for decades, can now be freely tapped. At the same time, we should take care to ensure that fishing is done responsibly and that over-fishing is avoided.

The freeing of the coastline has also given a tremendous boost to the revival of tourism. Sri Lanka possesses some of the most beautiful beaches in the world. Trincomalee is the only place on Earth where elephants and blue whales, the largest animals on land and sea, can be seen during a single morning. This region, as well as the beach areas in places like Pasikuda, Vakarai and Nilaweli can easily be developed for tourism. There are also many small islands around the Jaffna peninsula and the Northern coastline with a great potential to be developed into high-end resorts.

Tourist development opportunities are not limited to the newly liberated areas. There are opportunities to further develop windsurfing, sailing, white-water rafting, eco tourism, wildlife tourism and adventure tourism around the country. Tourism can also be developed around the many well-preserved historical, cultural and religious sites that dot our landscape.

I should stress that Sri Lanka is a wonderfully diverse country possessing a range of attractions that can be sampled during even a short visit. It is possible to go from pristine beaches to lush rainforests to mist-covered mountains within the course of a single day. As Salman Khan, the Indian film star and producer, said recently:

"This place, as far as film making is concerned, is ideal. We go to Switzerland, Maldives, Seychelles, hill stations, interior villages, etc. We go to different locations, which are places where there is grandeur, beauty and forests. We go to these places because we don't get everything in one country. Just imagine if we got everything in one place, which is about two hours away from India? Everybody would want to come here".

It is clear from his remarks that Sri Lanka's natural environment makes it an ideal place for the setting up of film location services.

For the same reasons, Sri Lanka is also an excellent place in which to organise summits and conferences. Because the country is so scenic, because most sights are located close to each other, and because our people are so hospitable, visiting delegates are certain of an enjoyable experience. The warm reports carried back by the participants at the recent International Indian Film Awards (IIFA) ceremony in Sri Lanka attest to this.

Another encouraging indicator is the fact that our nation will be co-hosting the 50 over Cricket World Cup next year. The International Cricket Council has also selected Sri Lanka as the sole hosting nation of the Twenty20 World Cup in 2012. These are all very positive signs about Sri Lanka's future potential in this area.

Something that will further improve this potential is the development of air transport. Alongside the improvements to the land-based transport infrastructure I spoke about earlier, the Government is taking steps to improve the network of airfields all over the country. With the removal of the restrictions that used to be in place on aerospace, there is a lot of potential in air services such as transport through helicopters and seaplanes. Such services will greatly benefit the country's reputation whilst also being financially lucrative for those who invest in them.

Another field with high development potential is education. Sri Lankans generally aspire to a high level of education, and there is a lost of potential for more tertiary education facilities here. The Government is eager to welcome foreign universities and tertiary education institutes that hope to come and set up campuses in Sri Lanka. There is also a lot of potential for technical training and vocational training in this country, and institutes that focus on providing such training would ably augment the tertiary education system.

Sri Lanka is also an excellent location for business process outsourcing and off-shoring. There are already a number of world leading companies present here for this purpose. Because free education that has been available here for decades Sri Lanka has an educated, skilful and hardworking labour force. Our workers can easily be trained to excel in technology and knowledge intensive work. Companies that transfer some of their operations here will benefit greatly from these human resources. They will also enjoy comparatively lower running costs here.

Another area where many opportunities are coming up is in the construction sector. The Government aims to clear the unauthorised structures that have sprung up in city areas, particularly Colombo, over the years. These structures not only caused problems for their occupants in terms of bad living conditions, they also prevented the beautification of the cities. The Government is in the process of relocating the occupants of these structures and rationalising real estate availability in the cities. As a result, there is an urgent need for a large number of economical housing units that can be set up in a very short span of time.

At the same time, there is also a shortage of middle class and upper middle class housing in Colombo and the suburbs. If developers can provide housing facilities for these segments at reasonable prices, there is a lot of potential to be tapped in this field. This is clear from the boom in the construction industry even during the troubles. Many condominium complexes came up in various parts of Colombo, and these have all been sold. This demonstrates the high potential that exists in this field. All the opportunities that I have discussed so far are only a handful of the multitude available in Sri Lanka today. I am confident that you have already learnt of several others during the course of this Summit, and will no doubt learn of many more during today's discussions. Please also make sure to use the discussion forum to resolve any questions you may have.

In concluding, let me stress once again that the Government of Sri Lanka has a deep and abiding commitment to bring about a remarkable economic resurgence in this country. The participation of our friends overseas in this revival is warmly anticipated, and discussion sessions such as this one will no doubt be instrumental in facilitating this.

At a time when the rest of the world is suffering the after-effects of a recession, post conflict Sri Lanka is enjoying a period of growth and optimism unparalleled in recent decades. This country is poised to be the miracle of Asia. I have every confidence that this is a miracle all of you can contribute a great deal to and will benefit a great deal from. I strongly urge all of you to make use of this unique opportunity, and I wish you all success.

Ministry of Defence (press release)

Global buyers are reposing faith in us – CEO, Tristar Apparels

noreply@blogger.com (Sri Lanka Equity Analytics) — Sat, 19 Jun 2010 06:15:00 +0000

Sri Lankan clothing exporting companies with only strong management skills and good productivity will survive and will be competitive in the international market, if Sri Lanka loses its GSP+ status, was the opinion of a top garment exporter.

While speaking exclusively to fibre2fashion, Mr Deshbandhu Kumar Dewapura, Chairman, Tristar Apparel Exports said, “We have settled terrorist problems. The biggest drawback was terrorism in Sri Lanka, which has now been completely wiped out”.

He continued by saying, “The buyers are now reposing confidence on the Sri Lankan clothing industry and have come back to Sri Lanka and our garment business will reach higher levels for next five years without any doubt”.

However, according to him the only stumbling block was renewal of GSP+. “If GSP goes then companies with only strong management skills and good productivity will survive and will be competitive in the international market."