Tackling inflation, a key challenge - CB

By Azhar Razak

The Central Bank of Sri Lanka (CBSL) last week said that given the uncertain outlook for global commodity prices, especially with regard to oil, the key challenge ahead would be to maintain inflation at a low and stable level.

“Although the recently implemented policy measures would moderate growth and ease demand pressures to some extent, monetary policy will need to continue to focus on restraining demand pressures to maintain inflation at a mid-single digit level,” the island’s monetary authority highlighted in the CBSL Annual Report 2011 released last week.

The report noted that managing supply side shocks to ensure an adequate domestic food supply would also be required to complement demand management strategies whilst developing quality seed varieties to suit local conditions, expanding cultivation to different agro climatic zones to ensure uninterrupted supply, increasing storage facilities and improving supply chains to ensure a reasonable price for producers and consumers are some areas that may need to be addressed in this regard.

“The weak recovery in the global economy as well as geopolitical uncertainties in Sri Lanka’s traditional export markets is likely to affect export growth. Demand for exports needs to be improved through diversification of both markets and products. Also, foreign inflows must be strengthened, particularly in the areas of service inflows and FDIs through appropriate policies and macroeconomic environment,” CBSL identified.

It further added that high oil prices in international markets can have a significant impact on an oil dependent economy like Sri Lanka pointing out that policies need to be put in place to mitigate the impact of high oil prices by promoting energy efficient production technologies, increasing the use of renewable energy sources and energy conservation.

“Moreover, a price mechanism that reflects movements in international energy prices may need to be considered to help avoid the need for large adjustments of domestic energy prices while lessening the burden on public enterprises,” the Report suggested.

Meanwhile, the report cautioned that since substantial decline in unemployment is expected to tighten labour market conditions, policies need to be put in place to improve labour productivity and to address structural rigidities in the labour market while increasing capital intensity to deal

with any manpower shortages.

“Attention should also be paid to realign Sri Lanka’s education system to generate a human capital base with the skills necessary to sustain this new growth momentum,” it further pointed out.

Read more ...

Dabur India sets up new subsidiary in Sri Lanka

Firm plans setting up a manufacturing facility which is expected to start production by the end of this fiscal

FMCG firm Dabur India today said it has formed a new entity, Dabur Lanka Pvt Ltd, as part of a strategy to strengthen its presence in Sri Lanka. 

In a filing to the Bombay Stock Exchange (BSE), Dabur said Dabur Lanka has been incorporated under its wholly-owned subsidiary, Dabur International, which manages the company's overseas operations.

"Accordingly, Dabur Lanka Pvt Ltd has become company's step-down subsidiary company," Dabur India said.

As part of its plans for the island nation, Dabur is in the process of setting up a manufacturing facility which is expected to start production by the end of this fiscal.



According to company officials, Dabur currently does not have a significant presence in Sri Lanka. However, it has identified the country as one of its focus markets in the coming years.



Around 22 per cent of the company's sales come from international markets, including African nations, Nepal and Bangladesh.



Dabur, which sells personal care and healthcare products under brands like Dabur and Vatika, registered sales of Rs 4,110 crore last fiscal.



The company's scrips were being quoted at Rs 104.20 per share in afternoon trade on the BSE today, up 1.41 per cent from their previous close.

Read more ...

Moving car imports from Colombo Port to Hambantota Port

Importers claim the move a Trojan Horse

By Azhar Razak

The Ceylon Motor Traders Association (CMTA) last week expressed their anger to a plan mooted by the Sri Lanka Ports Authority (SLPA) Chairman, Dr Priyath Bandu Wickrama to move the clearance facilities of all car imports from Colombo to the Hambantota Harbour claiming that logistically it was not practical.





Their stance is that since the majority of buyers are from the Western Province, such a move would only make the vehicles more expensive to the consumer with additional transport costs to be borne among a series of other logistical issues to be addressed in such an implementation. “It is his (SLPA Chairman’s) own version and nobody has so far discussed this with us. However, such an initiative is not feasible unless solutions are found to a gamut of arising problems,” CMTA Chairman Tilak Dias Gunasekera told The Bottom Line. He cited practical issues such as relocating Pre-Delivery Inspection (PDI) officers from Colombo to Hambantota, extra cost factors involved in the transport of thousands of cars from Hambantota to Colombo, risk of damage in transport among many other issues that would resultantly crop up. The CMTA chairman observed that the Colombo Port is presently only facing a temporary issue with regard to the backlog of vehicles stranded at the port since the government is yet to take a decision on whether or not to clear imported used vehicles over two years. This is because in April 2011, along with tariff revisions the Customs Department relaxed the regulation pertaining to the importation of used petrol cars, from 3.5 years to 2 in a move to encourage the importation of brand new cars and also encourage expatriates to bring in brand new vehicles for private usage, minimising the foreign exchange outflow. “There is a dispute between customs and used car dealers who have imported cars older than three years over the clearance of vehicles. Since the Customs stay put on the new two-year rule, traders cannot clear them. This delay has trickled down to new car imports as well due to space constraints at the Port,” claimed Gunasekera who insisted that if this issue was resolved without much fuss then the shifting vehicles to Hambantota for clearance would not arise. The SLPA Chairman, Dr Wickrama had suggested the plan when he addressed a news conference last week to announce Colombo hosting the 12th Asia/Oceania Regional Meeting and Port Forum on March 8 and 9, 2012 and also the International Air Freight, Shipping and Logistics Expo 2012 from March 8 to 12. “So far we have always had problems because thousands of cars kept at the port awaiting clearance. The cars are kept outside of the port and the clearance delay results in more expense.”

If the cars are instead brought to Hambantota then there is plenty of space and clearance would be faster. Importers would also have the benefit of reduced tariff charges. The only issue is the modality by which they can be transported to Colombo, otherwise the importers are keen,” SLPA Chairman Dr Wickrema is reported to have stated. Meanwhile, the Chief Executive Officer of United Motors Plc, Chanaka Yatawara said that their firm was not ready to a shift in Port idea since majority of its customers came from the Western Province. “Apart from additional costs, this will also create greater congestion on roads while there will be a risk factor that needs to be taken into account,” he noted.



http://www.thebottomline.lk/2011/08/07/page7.html

Read more ...

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

Read more ...

‘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

Read more ...

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.

Read more ...

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.

Read more ...