The Nation GAIN

Tuesday, December 14, 2010

Sri Lanka Keeps Interest Rates Unchanged to Support Growth

Sri Lanka’s central bank kept its benchmark interest rates unchanged for a fourth straight month to support economic growth as the nation emerges from a 26-year civil war.

The Central Bank of Sri Lanka left the reverse repurchase rate at 9 percent, the lowest level since November 2004, and the repurchase rate at 7.25 percent, according to a statement on the Colombo-based bank’s website today.

Sri Lanka is charting an economic policy aimed at accelerating growth and controlling inflation after President Mahinda Rajapaksa’s government defeated the separatist Liberation Tigers of Tamil Eelam in May 2009. Sri Lanka said Nov. 22 it will cut taxes on banks and builders, adopt an inflation target, and ease foreign-exchange rules.

“The government is keen to boost growth, create jobs and promote all round development after peace returned to the island,” Sarath Rajapakse, director of research at Capital Trust Securities Pvt. in Colombo, said before the report. “Sri Lanka’s inflation is less worrisome compared with the other countries in the South Asian region.”

Sri Lanka’s central bank Governor Ajith Nivard Cabraal lowered rates in July and August and has kept borrowing costs unchanged since then even as counterparts in neighboring India and Pakistan tightened monetary policy. He said Nov. 16 that rates are likely to stay unchanged until next year.

Consumer Prices

Consumer prices in the capital, Colombo, rose 7 percent in November from a year earlier. That’s almost half the average inflation rate in the five years through December 2009 after an expansion in farm cultivation, following the end of the war, boosted production.

India on Nov. 2 raised rates for the sixth time in 2010 to rein in consumer-price inflation running at more than 8 percent. Pakistan boosted its benchmark discount rate on Nov. 29 for the third time since late July. Pakistan’s inflation rate rose 15.5 percent in November from a year earlier, the highest rate among the 17 Asian economies tracked by Bloomberg.

Sri Lanka’s inflation will “remain subdued at mid-single digits, on an annual average basis, by end-year,” the central bank said on Nov. 16.

Rajapaksa, unveiling the 2011 budget in Colombo on Nov. 22, announced plans to lower the value added tax for lenders to 12 percent from 20 percent, reduce the levy on construction companies to 12 percent and offer breaks to tea and rubber companies.

Corporate Debt

The government will allow foreign investors to buy corporate debt in the country, let local residents purchase shares of foreign companies and enable insurers to invest up to 20 percent of their “long-term fund and technical reserves” abroad, according to the budget.

Sri Lanka plans to introduce inflation targeting in its monetary policy in order to keep prices low for long periods, the central bank said Nov. 22. It didn’t say what level of inflation it would target.

Sri Lanka’s $42 billion economy may grow 8 percent in 2010, and expand as much as 9 percent in 2011 as the government spends more on power and roads and tourists flock to the island nation, Cabraal said on Dec. 6.

Prospects of faster growth have also encouraged companies including Aitken Spence & Co. to step up investments in Sri Lanka.

Aitken Spence, Sri Lanka’s biggest operator of resorts, said Sept. 30 it will build a hotel with Six Senses Resorts & Spas in an investment worth as much as $40 million.

Source : Bloomberg

Monday, December 13, 2010

‘Learn from President’s leadership style’ HNB Chairman tells UNP

By Azhar Razak

Two of Sri Lanka’s veteran corporate leaders, who are currently heading two listed private conglomerates, shared some valuable insights on leadership and management with some young MPs from Sri Lanka’s main opposition party.

Hatton National Bank chairman Rienzie T Wijetilleka said last week that the UNP leader has much to learn from the President’s leadership style which involves keeping everyone together at difficult times, critically reviewing past performance, planning well ahead, taking swift but calculated decisions and motivating people.

“We, at the bank, have to do a periodical review of performance of the leadership as a basic fundamental requirement. Has a similar thing been done in the past 17 years to the UNP,” he queried suggesting that a change in leadership is critical for the party to move forward.

He pointed out that the UNP has lost about 60-65 percent of the votes of the Sinhala Buddhist majority under the current leadership and was being currently projected as a party for the minority.

“This is in sharp contrast to how the party in the past had won the hearts of the majority by voicing the interests of every community in the society,” he highlighted.

To add further woes to the party, he said the President has, on the other hand, successfully and tactfully brought about both socialist and capitalist economic policies in the Budget 2011 creating a severe challenge to the opposition.

“On top of that, there is also a sense of stability that has been brought about to the present state of economy in terms of inflation, interest rates, exchange rates and foreign exchange reserves thus reducing the scope for opposition to challenge,” he mentioned.

United Motors Lanka chairman Ranjith Fernando, speaking on the occasion, meanwhile, took a critical perspective of the government’s approach towards the private sector and questioned the independence of the legal system today.

He specifically referred to the judgment delivered in the recent case pertaining to former UNP MP A R M Cader, who is currently on the government side and compared with the case relating to Sri Lanka’s former army commander Sarath Fonseka.

Outlining emerging trends in the economic perspective, Fernando said that although the government is trying hard to portray itself as supportive of capitalism, it is essentially a socialist due to its recent actions.

“Look at the reversals of privatisations that have taken place in the recent past. Price controls have come in and SME banks are no more. According to recent financials, the state run Lankaputhra Bank is presently incurring a Non Performing Loan (NPL) percentage of 50 percent,” he said.

“If you ask the bankers, they will tell you that the moment you have a five percent NPL you become scared and when that reaches 8 percent it is catastrophic,” he outlined.

Elaborating his point further, he said the government has recently announced it will not allow any private sector firms to set up mini-hydro power firms and will run them by itself.

“Thousands of mini hydro projects are possible to be taken up by the private sector. Look at the airline industry as well and take India as an example on how many domestic private airlines are being run while in Sri Lanka the government has allowed the Sri Lanka Air Force aircrafts to play monopoly,” he questioned.

He also queried on the decision made by the government to recruit a further 12,500 graduates to the public sector when it is already running one of the largest public worker payroll database of 1.8 million.

Per capita income gimmick

Fernando, on the other hand, blasted the Central Bank authorities of fooling the public by reporting GDP per capita numbers in dollar terms which he says should be revealed in Sri Lanka Rupee terms, which would then represent the realistic picture.

“What they say is the per capita income which was at US $ 300 in 1977 only improved to US $1,000 by 2004 and then US$ 2,000 in 2009.”

“However, if these numbers are converted into Rupees at the prevalent exchange rates US $ 300 would have been Rs. 2,661 (at Rs 8.87 per 1 USD) in 1977 and then Rs97,500 (at Rs. 97.5 per 1 USD) and Rs 228,000 (at Rs114 per 1 USD) in 2009,” he said.

“Therefore, if they claim that it has doubled from 2004 to 2009 even in Rupee terms, one can claim that per capita income has increased by 3,564 percent in the 27 years from 1977 to 2004,” he pointed out saying that this a gimmick played by the Central Bank to fool the public.

He said that the Central Bank has increased the per capita income calculation (GDP over population) in dollar terms by artificially appreciating the Rupee.

He further outlined that exports have dropped for the first time in many years in 2009 recording a negative growth and the country was heading towards an economic disaster with a Balance of Payment crisis that is yet to come.

The two corporate leaders were speaking at a panel discussion held last week by the Independent Professionals Forum under the theme ‘Emerging Economic and Political Trends in Sri Lanka’. Others on the panel included Justin Meegoda, Dr Darin Gunasekara, Maithree Gunaratne, and Chamindra Ediriwickrema.

UNP MPs who attended the discussion were Sajith Premadasa, Dayasiri Jayasekera, Gayantha Karunatilleka, Buddhika Sampath, Ranjith Maddumabandara and Rosy Senanayake.

The much awaited Annual Convention of the ‘Grand Old Party’ is scheduled to be held today.

http://www.thebottomline.lk/2010/12/12/biz_feature4.html

Walkers Piling wins Rs 400m Colombo deals

Walkers’ Piling (Pvt) Ltd, a 100% owned subsidiary of MTD Walkers and one of the largest piling contractors in Sri Lanka has secured contracts amounting to LKR 400 million to carry out piling work on two major projects: the Department of Labour and the Census & Statistics buildings in Colombo.

These sites have already been mobilised and piling work has already commenced on the sites and is expected to be completed within the next three months on the 35-storey building for the Labour Department and 10-storey Census & Statistics buildings.

Commenting on the new contract Lal Perera, COO MTD Walkers Piling, said: “We are delighted to have secured this important contract which is the largest piling contract tendered by the GOSL for this year. This proves that our reputation as a dependable piling company is underpinned by its track record of delivering challenging and complex projects.”

Walkers Piling (Pvt) Ltd the pioneer Pile Foundation company in Sri Lanka specialises in constructing bored cast in-situ reinforced concrete pile foundations for the past 30 years.

The company was incorporated in 1981 along with Voltas International Limited of India as a joint venture with approvals from Foreign Investment Advisory Committee of Sri Lanka.

In 2008, the company was acquired by MTD Walkers PLC, the only fully-fledged engineering company in Sri Lanka.

Walkers Piling managing director D D Wijemanne said: “As a company, we have been aggressively building our portfolio with a string of recent project wins, and we are delighted to strengthen our presence further with winning the prestigious contracts for the Labour Department and the Census and Statistics buildings.”

He said that to date, the company had successfully completed over 160 prestigious piling projects including pile foundations for the Bank of Ceylon – Merchant Towers at Colombo 3, the Ceylinco Seylan Twin Towers (a joint venture project) at Colombo 3, the Commercial Bank of Ceylon Limited building at Union Place, Colombo 2, the Peoples Church –Assembly God at Kirimandala Mawatha, Colombo 05, and the Sri Lanka Customs Head Office Building located in Colombo.

With the boom in the construction of roadways, bridges and other infrastructure across the island, the piling industry is slated to hit the Rs 4bn mark in the coming year with Walkers Piling already claiming a 40% market share of the business.

Meanwhile, the company posted a ‘best performance’ year for 2010 with expectations for a better year ahead.

Wijemanne said the company aims to purchase two more piling rigs as a part of the Company’s strategy to cope with the heavy demands for contracting services due to the surge in island wide infrastructure development.

“The increased demand for high quality contracting services has been a major catalyst for the expansion of our operations. These new machines will play a vital role in ensuring that Walkers Piling maintains its position in the construction sector.”

The purchase of these two rigs will bring the total number of piling machines in the Company’s fleet to six, substantially increasing the company’s delivery capacity and expediting the piling process overall.

“This acquisition will ensure the entire piling process can be completed much more efficiently, leading to faster completion of foundation construction. This, of course, will have a knock-on effect, enabling developers and contractors to complete their projects sooner,” Wijemanne added.

Electricity tariff hike may hurt hotel sector trade growth

By Azhar Razak
Sri Lanka’s industry association representing tourist hotels, Tourist Hotels Association of Sri Lanka (THASL), has raised concerns over the future of the industry if the recently proposed electricity tariff hikes for hotels are implemented.
According to THASL President Anura Lokuhetty, the island’s leisure industry would not be able to sustain such substantial increases in electricity tariffs, which has been proposed to be implemented from next year to June 2011.
“We have submitted our representations to the Public Utilities Commission of Sri Lanka (PUCSL) in this regard voicing our concerns on the proposed tariff hike. We hope to get a positive response at the public hearing to be held on December 15 in Colombo,” Lokuhetty told The Bottom Line in a recent interview. He says that the PUCSL has proposed that electricity tariffs for hotels are to be increased from the current Rs 9.30 per unit to a substantial Rs19.50 per unit, a move which would put most hotels out of business due to the extra cost burden.
“With the recent pick of the tourism industry, most of the hotels in the country are presently undergoing a phase of refurbishment by infusing a lot of capital. Therefore, this proposal for a sharp increase of electricity tariffs for the industry at a time like this would definitely affect the leisure industry in the longer-term,” he pointed out.
Having outlined the tariff proposals, the PUCSL in a notice issued recently, has stated that it had prepared a Consultation Paper on the proposed setting of electricity tariffs for the period from 2011-2015 and has requested public representations to be made to the commission in writing on or before December 8, 2010.“Representations will then be heard at a public hearing to be held on December 15, 2010 in Colombo,” the recent notice issued by the commission stated. Lokuhetty, meanwhile, commended the government for its decision to amalgamate the three tourism bodies, Sri Lanka Tourism Development Authority (SLTDA), Sri Lanka Tourism Promotion Bureau (SLTPB) and Sri Lanka Convention Bureau and at the same time leaving the Sri Lanka Institute of Tourism and Hotel Management (SLITHM) as a single agency to promote tourism.
“This is good because it will leave aside the complications involved with too many bosses and steer the ministry to one direction to achieve a common goal,” Lokuhetty said.
The government has announced that a new legislation will be introduced in this regard during the first 100 days of 2011 to enable this amendment.
Sri Lanka has targeted to achieve tourist arrivals of 2.5 billion by 2016.

Poultry group denies shortage

Imports of chicken and eggs will hit farmers, says association

The All Island Poultry Association (AIPA) has criticised the government’s recent decision to import 2,000 tonnes of chicken and 50 million eggs, a move which they opine as ‘hasty’ and one that could badly hit the local poultry industry.

According to All Island Poultry Association (AIPA) chairman Dr D D Wanasinghe, there is a monthly surplus of around 2,000 metric tonnes of chicken at present in the market proving that the shortage of chicken is a clear misconception although there is a marginal shortage of eggs.

“We are concerned that the government has hastily ordered the import of chicken and eggs into the country due to a false estimation of demand and a misconception about the available stock which is going to badly hit the survival of an estimated 75,000 local poultry farmer families and another 100,000 input suppliers,” Dr Wanasinghe told The Bottom Line.

He says his recent talks with all of the 11 ISO-certified chicken processors had revealed out that there were enough stocks of chicken to be consumed in the country and the shortage was a misapprehension by senior government authorities.

“Of the 10,000 tonnes of chicken we produce a month, the assessment of requirement is only about 8,000 tonnes a month leaving us with a clear surplus every month,” Dr Wanasinghe said adding that the government was overestimating demand to as high as 12,000 tonnes a month and was trying to kill the local industry by flooding the market with cheaper imports.

He said that although there is a price control for chicken of Rs 350 at present, it is presently even selling as low as Rs 315 a kilo, specifically in areas such Ja-ela, Wattala and Kandana, where the output was high.

“The monthly surplus in local production would be more than enough to meet higher demand during the upcoming Christmas holiday season and there is no need to import chicken,” he pointed out.

In the case of eggs, he said the association had forewarned the authorities about a possible shortage as early as July 2010 and had requested the Ministry of National Livestock and Rural Community Development to import 400,000 pullets. This request was not heeded at the time, he pointed out.

“If it was allowed at the time, we would have had the requirement of eggs by now but what I heard is now they are importing both pullets and eggs, which decision will also leave a surplus of eggs in the future,” Dr Wanasinghe outlined.

Budget

He said the 2011 Budget had not met the local poultry industry’s expectations, specifically with regard to the request towards the reduction of Value Added Tax (VAT) to a reasonable level.

“The local poultry industry didn’t get any benefit from the budget. We had requested the government to reduce the VAT to a reasonable level as consumers presently pay a VAT of Rs. 57 on every Rs. 350 a kilo of chicken. We had also asked for some duty concessions presently with regard to the transportation of the items,” he said.

Sri Lanka has decided to import upto 2,000 tonnes of chicken from India to meet shortages in the domestic market ahead of Christmas holiday season.

The government was immediately placing an order for 500 tonnes with the balance to be imported before the holiday season, trade ministry officials said.

The number of foreign holiday-makers has increased by 43.5 percent in the first 10 months of this year compared to 2009, with nearly half a million travelling to Sri Lanka to sample its beaches and wildlife.

New strategy to promote tourism from next year

By Azhar Razak

Sri Lanka is to adopt a different tourism promotion strategy next year by focussing on key sectors during each month.

The move is in line with the year being declared as ‘Visit Sri Lanka Year’.

According to a top official, the new proposal should help the industry to attract more tourists to the island as it aims to concentrate on specific aspects of tourism each calendar month.

“We have adopted a theme for each month in 2011. The month of January will be dedicated for beaches, February for sports and activities, March – MICE, April – people and culture, May – religion tourism, June – weddings and honeymoons, July – health, August – heritage, September – wildlife, October – community (agriculture and fishing), November – culinary and December – shopping and entertainment,” Sri Lanka Tourism (SLT) chairman Dr Nalaka Godahewa told The Bottom Line.

To keep these themes alive, he said SLT had planned to concentrate on various events that will happen right throughout the year.

According to industry officials, in January, SLT will promote beaches at the season’s peak, in February - the ICC World Cup 2011, in March - organising of UNWTO regional commission meeting in Sri Lanka, in July - an Ayurvedic exhibition to be held, in August - the Esela Perahera and related events, in September, the Minneriya elephant gathering, in October, SLT will encourage the nine provinces to come up with a minimum of nine tourism villages focussing on their strengths, in November - the World Spice Festival is set to take place, and in December a large scale shopping festival will take place.

Dr Godahewa said Sri Lanka is fast emerging as a tourism hotspot as travel advisories are now favourable and more airlines have scheduled flights into Colombo.

“We have also sorted out the administrative issues specifically with regard to delays that used to happen in project approvals in relation to the industry by setting up a ‘one stop shop’ service which now fast tracks most applications,” he said.

When asked what the tourist arrivals target would be for the year 2011, Godahewa said the board had not yet set a specific target for the year alone but were working on the longer term target of attracting 2.5 million visitors by the year 2016.

Sri Lanka’s total arrivals from January 2010 to October this year has shot up by 43.5 percent to 497,598 from a year earlier with tourist arrivals in October 2010 increasing by 39.4 percent to 52,370 visitors from a year ago.

Earnings from tourism have also jumped by 62 percent in the first 10 months of this year to a record $437.9 million, the Central Bank’s latest data showed.

Diana Group plans IPO

Diana Group, manufacturers of biscuits and chocolates based in Matale, has plans to go for an Initial Public Offering, probably in the latter part of 2011with a view to expanding its business and possibly venturing into export business.

According to a senior official of the firm, the group is presently receiving a lot of interest from foreigners who are encouraging the firm to venture into exports.

“We will be going for an IPO possibly in a year’s time and this will be to raise funds for further expansion and venture into exports,” Upendra Jayasekara, general manager – operations, told The Bottom Line.

In the meantime, Diana Group, which recently disposed its sister company, Diana Biscuits Manufacturers Pvt Ltd to Cargills Ceylon Plc for Rs 350 million, has plans to utlise the proceeds to set up a new wafer plant.

“We are looking to set up another new wafer plant to manufacture wafer biscuits. However, we have not identified a specific location yet,” Jayasekara said.

When asked what would happen to the ‘Helen’ brand of biscuits which Cargills had acquired, he said Cargills would rename the biscuit with a new brand once the existing stock was sold out and the brand would not be used anymore.

The Diana Group now comprises Diana Trading and Diana Chocolate, which produces Diana biscuits and Diana chocolates.