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Business

   
 

Safety first

Records have indicated that a significant reduction in firecracker related accidents was achieved this Avurudhu season, although accidents in general have gone up.

 In the early ‘90s, firecracker-related accidents were widespread and children were frequently blinded or injured due to the careless use of firecrackers. This stirred Eagle Insurance to start its Firecracker Safety Awareness Campaign in 1992.

This consistent focus over the past 17 years has resulted in a significant reduction in firecracker related accidents, in recent years, while firecracker accidents in children specifically, have reduced to near zero.

The Company’s aim is to educate and create awareness on the dangers of firecrackers when used carelessly. Eagle conducts multimedia and below-the-line communication campaigns during festive seasons.

Eagle’s primary CSR platforms are Safety & Education, which have made contributions to society. Eagle recorded many successes through far-reaching initiatives to reduce accidents by inculcating safety-awareness on maintaining high safety standards at home, school, work and on the road.“We have seen our involvement in CSR evolving into sustainable projects, built on the long-term needs of the community, where our team evolves and implements projects that are designed to make a difference to our nation,” said AGM Marketing & Planning Amal Perera. He added, “CSR is part of the value-system ingrained in our corporate culture, how we run our business and how we do business revolve on the core concept of social responsibility.”


Rupee dips 3.7% in a week

The US dollar in the week ended Friday gained by Rs. 4.33 (3.7%) in a mere five days to command a middle rate of Rs. 120.35 due to panic buying of the greenback, market sources told The Sunday Leader.

On Friday April 17 the dollar middle rate was Rs. 116.03.

Generally the rupee dip in a year is 6-7%, with half that amount however achieved in only a week this time.

Some market sources however expected the rupee to stabilise at these levels this week, expecting it to dip by another rupee at the most.

Sri Lanka being an import dependent economy and its fast diminishing foreign reserves, have been attributed as the reasons for the pressure on the local currency.

The Central Bank of Sri Lanka (CBSL) in the seven month period to March 2009 has expended a sum of US$ 1.7 billion to defend the rupee at various levels, first beginning at the Rs. 107.90 levels to the dollar.

However, since then they have had stopped intervening in the foreign exchange (forex) market, whilst at the same time seeking a US$ 1.9 billion IMF bailout package and another US$ 500 million loan from Libya.

Some sources say that the US$ 1.7 billion expended by the government to defend the rupee would have had been better utilised if those had been channelled for infrastructure development projects or to build schools and hospitals.

Meanwhile the dollar which closed Thursday at the Rs. 119/90/120/10 levels in two way quotes, closed Friday at the Rs. 120/20/120.50 levels, gaining by Sri Lanka cents 35 as per the dollar’s middle rate, in a day.

 “ The rupee due to importer demand for US dollars dipped to Rs. 120.50/120.90 on Friday morning, before stabilising at the Rs. 120/20/120.50 levels by afternoon,” sources said.

The State which usually buys forex from the market via Bank of Ceylon or People’s Bank was however missing on Friday, though present on Thursday, they said.

“They were however active in borrowing from the rupee (money) market.”

Sources expected the re-entry of the State in the forex market in order to settle an import bill to once more cause pressure on the rupee.

 “I expect the dollar to hover round the Rs. 119-121 range in the week beginning tomorrow,” one market source however said.

There might be that possibility of exporters encashing their dollars, thereby easing pressure on the rupee, he added. “There have however been hardly any forex inflows forthcoming and exporters are as yet unwilling to encash their dollars expecting the rupee to dip further, coupled with CBSL Governor Ajith Nivard Cabraal’s statement that it will take another three weeks for the first IMF tranche to enter the economy, those are causing pressure on the rupee to dip further, “ other sources however said.

 “On Tuesday, after the dollar was making steep gains, Cabraal made an announcements that the real value of the greenback should be Rs. 116, that brought down the rupee vis-à-vis the dollar from the Rs. 120 levels (from the earlier low Rs. 117.50 levels) to the Rs. 118 levels on that day,” they added.


Transaction costs hinder MF

The benefits of micro finance (MF) can be negated by the attendant transaction costs that go therewith, a Central Banker (CBer) warned.

MF is providing credit to small entrepreneurs who have no recourse to bank borrowing. CB Deputy Governor W. A. Wijewardena speaking at the launch of a seminar on MF that took place in Colombo on Monday defined transaction costs as costs the beneficiary has had to pay other than the interest charged on the loan, in order to obtain that facility.

 “Those even include bribes and commissions,” he said.

Wijewardena said that a recent study showed that in a particular MF project facilitated by the CB, that though the interest charged on the beneficiary was only 9%, as opposed to the money lender’s interest charge of 20%, however, when transaction costs were added on, the interest charged on MF loans rose to 30%.

The ideal is to keep transaction costs at zero, said Wijewardena. 

He said that another drawback that prospective MF beneficiaries faced, when they came to the CB to seek assistance from the various MF schemes sponsored by the Bank was their inability to come up with a business plan, a pre-requisite to obtain a MF loan. This problem was however solved by employing A’Level qualified students in accountancy and economics to draw-up such plans, he said.

That created a new employment class, of fee based consultants, who graduated to higher levels with time.

“Big business has the money to buy survey results and to overcome this drawback, MF beneficiaries must get together and collectively pool out their resources to buy such information, Wijewardena said.

 He said that poverty alleviation has two approaches: One, through a sustained high economic growth over a period of time, such as that which was adopted by Malaysia and South Korea, which saw its poverty level decline from 50% to 6% over a 30 year period ending at the beginning of the new millennium, and the other was through MF.

Sri Lanka’s poverty rate is some 15% as per 2007 statistics.

He said that MF is important because all don’t move as fast as the market, thereby losing out on the benefits of the “trickle down effect,” the result of following sound macro economic policies like what Malaysia and South Korea did.“Safety nets” may however create a moral hazard, with the beneficiary always wanting to be in poverty so that he could continue to enjoy the dole, with no lasting benefits to either the beneficiary or the benefactor, i.e. the State.MF however is a safety rope, Wijewardena said.


Downturn hits supermarkets

One of the country’s leading supermarket chains is feeling the pinch caused by the economic downturn with sales being stagnant since November 2008.

Jaykay Marketing Services (Pvt) Ltd. Marketing Manager Priyanga D. Dassanayake told The Sunday Leader that part of this may have had been caused by the collapse of financial institutions which were offering high interest rates to its depositors, some of whom may have had been their customers.

JayKay is the purchasing arm for the Keells supermarket chain.

This supermarket chain which comprises some 44 outlets, mainly centred round the Western Province, in order to minimize costs, compounded by operating in a high inflationary regime, has cut off the services of the middleman, by going direct to the farmer to obtain its quota of locally grown fruits and vegetables.

They began this process by establishing a collecting centre at Tambuttegama in 2005 for dry zone fruits and vegetables and have now expanded this outreach programme by establishing two such centres in Nuwara Eliya for upcountry vegetables, and another at Embilipitiya. Both JayKay and Keells Super are subsidiaries of the John Keells Holding Group.

Dassanayake who refused to divulge details regarding the supermarket chain’s bottomline performance however said that market conditions have had been tough since November 2008, with no improvement in sight.

He further said that despite the global recession, prices of imported goods, other than some fruits and milk powder, have had not come down. “For instance 500 grams of craft cheese is retailed at Rs. 1,000;” he said.

 “We don’t do any imports direct, such products are purchased from their local agents,” said Dassanayake.

He however claimed that by cutting out the middleman in the local context they have been able to give an equitable price to both the farmer and to the consumer.

Dassanayake.also said that by using crates to transport fruit and vegetables to their outlets they have been able to reduce post harvest losses to 2%, compared with the national average which is between 20-40%.

There is of course a cost involved in such an exercise, for instance when transport is done in traditional gunny bags-the main reason for high post harvest losses, upto 20 metric tons of produce may be accommodated per lorry, however, when these are packed in crates, the quantities are much less, he said.

Dassanayake claimed that the prices of some of their goods were less than the Government directed maximum retail price (MRP). “For instance we retail a kilo of dhal at Rs. 159, whereas the MRP fixed for dhal is Rs. 175,” he said. However this price structure is to be reviewed on Thursday.

“Further, though the MRP for white rice and red rice is Rs. 60 a kg., we retail those at Rs. 54 and Rs. 56 a kg., each,” he said.

Giving further examples of how competitive their prices are, Dassanayake added that a 400 gram Maliban milk pack is retailed by them at Rs. 200, while prices of four litre ice-creams had come down by Rs. 50 and that of two litres by between Rs. 20-40.


No show

Though the government claims that the East is liberated, fishing for security reasons is yet restricted in that province, hurting at least one company involved in servicing this industry. “Supplying lubricants to fishing motor-boats, a business that thrived in the East during better days, is yet to get off the ground,” Bertram Paul, General Manager Sales & Marketing told The Sunday Leader.

There is virtually no volume growth year on year (YoY) from this sector in the East, he added. The company which has 80% of the country’s lubricants market, in the financial year ended December 31, 2008 saw net profits YoY decline by 12% to Rs. 947.7 million.


Economy to shrink

While the downturn in the global economy has given rise to a deflationary situation in the economy, which undoubtedly is a boon to consumers because of the possibility of a rise in prices at least being kept under check, but on the flip side, in the unfolding scenario, virtually every key economic sector in the country has been adversely affected due to the global recession, compounded by Sri Lanka’s own internal problems.

And with company earnings being hit as a consequence of these negative economic indicators, the first quarter of this year alone saw 35,000 jobs lost in the formal sector of the economy, with an unemployment crisis (with no unemployment insurance to fall back to) looming in the horizon.

Exports and imports are both down, with imports being of a greater value than exports, resulting in a continuous trade deficit, tourism sector too is in negative growth territory, remittances are contracting, plantation and construction sectors have also been hit, transshipment volumes are down, the manufacturing sector, particularly the export manufacturing sector has also taken a hit, the banking and financial sector has also been impacted by being reluctant lenders to the market economy as a result of rising non performance loans created by the high interest rate regime prevailing in the current scenario, and, according to unconfirmed reports, government revenue  has also taken a hit, with these negative trends permeating to virtually every sector of the economy, and the threat of causing instability in the country looming large as a result.

Though on the positive side prices are coming down, if however there is no demand for such goods because of rising unemployment and the public not having money to buy those items as a result, even though available at give away prices, the knock on effect would make beggars of everyone of us, creating a crisis similar to that which existed during the time of the Great Depression, which had its origins with the crash of Wall Street in 1929.

The Great Depression even had an impact on tiny Sri Lanka, though it took place 90 years ago (when the world was not as inter-connected as it is now), making the well to do beggars overnight during that time as well.

In the emerging scenario, one wonders whether the Central Bank (CB) has been overly optimistic by projecting that the economy will grow by 2.5% this year, and whether a more realistic estimate would have had been a contraction of the economy this year.

The economy grew by 6% in 2008.

Sri Lanka’s economy last contracted in 2001, and the ensuing result was that the government in power was thrown out of power in the elections that was held in December 2001. That time too, as is the case in the present, the government of  the day sought an IMF bailout package.

However, amidst this gloom and doom scenario, there are a few positives, one of the key ones being the seeming end to Sri Lanka’s 26 year old conflict with the LTTE, which, in the worst case scenario (i.e. if terrorism is not totally eliminated) would see the Tigers once more adopting to their hit and run tactics, a feature that was common prior to the July ’83 riots, but being unable to hold onto swathes of territories and peoples as they did so in the past, thereby confining their impact on the economy to be marginal, and not in the same disastrous  magnitude by which they virtually bled the economy white after July ’83.

And the other positive is that the global economy is showing signs of recovery, with predictions that it will once more be on track by next year. If those take place, virtually all of those afore-mentioned economic sectors would once more turn positive from negative, but what is more pressing is what needs to be done in the interim period to avoid an economic and social catastrophe at home.

Obviously waste has to be cut down, holding premature elections that costs hundreds of millions of rupees in tax payers’ monies being ordered to take place for the sake of being in power by selling war wins to the masses is one clear waste That money could be put to better use by helping the poor and those who have had been made poor as a result of this crisis, or, otherwise be channelled for infrastructure development, which, in the medium to long term would help cut down unnecessary costs, increase avenues of employment and give a boost to productivity, therewith helping the island to be competitive in the global marketplace.

Analysts have pointed out that the key to maintaining the debt to GDP ratio at 81% this year (the same as last year, i.e. both foreign and domestic debt) is by keeping the budget deficit at Rs. 306 billion as per original estimates and by trying to cap the additional money that the country has to pay for foreign debt servicing on account of the rupee depreciation at Rs. 100 billion.CB Superintendent of Public Debt C.J.P. Siriwardena speaking to reporters on April 17 said that last year, on account of the rupee depreciation, the Treasury had to cough up an extra Rs. 131 billion for foreign debt servicing.

He said that in 2008 the rupee depreciated by 30% against the yen and 4% against the US dollar, two key foreign currencies that go to make up government’s foreign debt.

Regrettably Sri Lanka has a notoriety of not keeping to economic targets, leading to the creation of an unhealthy environment.

 For instance though the Government forecast a budget deficit of 7% of GDP (1% of GDP=Rs. 44 billion) last year, it in fact ended with a budget deficit equivalent to 7.7% of GDP.And the rupee which closed last year at Rs. 113.14 to the dollar according to CB statistics, had further depreciated to Rs. 116.10 or 2.5% as at April 17, and if this momentum continues till the year end, the rupee would have had depreciated by 7.5% to end the year at Rs. 121.63, with the possibility of passing the Rs. 100 billion threshold in additional debt service payments on account of the rupee depreciation.

As at Friday the US dollar commanded a middle rate of Rs. 120.35 according to market sources.A depreciated rupee would also make imports more expensive to the consumer.

However the restraining factors of a sharp decline in the rupee is the possibility of the disbursement of the US$ 1.9 billion IMF standby arrangement (the Government’s loan application is now before the IMF Board) and the contraction in import demand due to the local economic downturn, thereby easing pressure on the rupee.

But on the flip side declining imports might affect government’s import tax revenue, thereby causing an additional strain on the budget, and keeping to the targeted budget deficit of 7% of GDP.And if that contraction hits investment goods imports, as it has done according to the recently released February trade figures, that would be another addition to the country’s long list of economic woes as investment goods are a mechanism to create further employment and revenue.

Increasing government debt to GDP ratios would also mean more and more of the country’s scarce resources and revenues being set aside for debt servicing at the expense of development and meaningful welfarism.


Rs.5 mn. for good drivers

Good drivers will be rewarded with Rs. five million worth of prizes in a programme that will kick off at Kalutara on Wednesday.

The project which will be spread over 10 weeks and which will cover other major cities in the country as well (including Colombo) has on offer gift vouchers of Rs. 5,000 each, as well as insurance cover worth Rs. one million for each of the top drivers picked from the cities covered.

Director Traffic SSP Lucky Peiris speaking to reporters last Wednesday about the project said that unbeknown to motorists, police will observe their road behaviour, with the use of seat belts, stopping at pedestrian crossings and at traffic lights and such like, making them eligible to be winners.

Some five to six road users die in traffic accidents daily, with the State having to incur a sum of Rs. 50 billion annually for medical treatment to those injured in traffic accidents.

Many of the victims are motor-cyclists.

Colombo National Hospital Director Dr. Hector Weerasinghe said that during the past five years road accident victims have been the number one accident casualties being treated in the hospital.

This event is sponsored by Chevron Lanka PLC.

Its Managing Director Kishu Gomes in his speech said that a parliamentary select committee appointed to minimize traffic accidents had targeted to reduce such accidents by 50% by next year. He hoped that this project would help in achieving this milestone.


Selection criterion

Chillies ’09 will make a break with the past by making the scores from the “metal” tally the sole criterion to elect the winner.

“Chillies” is an annual advertising awards ceremony organised by the local industry to recognize creative works of its member agencies.

For this purpose 12 points will be awarded for the best creative work, 10 points for a grand prix award, seven for a gold, five for a silver, three for a bronze and one point for a “finalist.”Seven hundred and thirty eight entries have been received for some 80 categories for this year’s awards ceremony, down from last year’s 931.Those cover print, TV, radio and “below the line” advertising. It will be held at the Sri Lanka Exhibition and Convention Centre on Saturday.


Modest decline in T Bond yields

Treasury (T) Bond weighted average yields (WAYs) for T. Bonds maturing in a year and 11 months and three years and 10 months fell by 14 and 13 basis points (bps) to 16.78% and 16.86% respectively at Tuesday’s auction, over the WAYs commanded at the previous auction, which was on March 31.

Market sources however said that the next auction is the one to watch, which will be held after Wednesday’s policy rate cuts, where a steeper decline may then be expected.Tuesday’s auction also had a T Bond parcel of a five year 11 months maturity on offer, which commanded a WAY of 16.50%.

This auction had parcels of Rs. 500 million each on offer, while the full amount was allowed to be subscribed for the shorter tenure, in the case of the two longer tenures, in ascending order of maturity periods, saw the market being allowed to subscribe to Rs. 220 and 510 million in values respectively.


In Brief

Govt. revenue down 12%

Government revenue in January 2009 declined by 11.6% year on  year (YoY) to Rs.45.9 billion while expenditure & lending minus repayment increased by 32.5% to Rs.98.7 billion.

Meanwhile the budgeted revenue target for the year is Rs.855 billion and expenditure target is Rs.1,191.7 billion.

Total government debt in the period under review increased by 16% YoY to Rs.3,587 billion. This  comprised a foreign debt component of Rs.1,432.7 billion,a 6.5%  YoY increase and a domestic debt component of Rs. 2,155 billion, a 23.4% YoY increase. (Source: Central Bank)

Five qualify for Seylan

Five of the six pre-qualified bidders to buy a one third stake in Seylan Bank have been asked to buy tender documents in this regard which will be made available from tomorrow.

The names of the five qualified bidders are JKH, LOLC, Sampath Bank, NDB Bank and V.V.Karunaratne & Company, a partnership involved in transportation, trading and construction. Bid books are priced at Rs. 50,000 a set. Tenders close on May 7.

CF enters micro finance 

Central Finance (CF) will be the second registered finance company to enter into micro finance (MF) after LOLC which began this activity last year.

MF is providing credit to small entrepreneurs who have not been exposed to the formal banking sector.

They usually obtain credit from the money lender who charges them with interest ranging from 5-10% per mensem (i.e. 60-120% annually).

“Interest charged on MF loans however is 30% per annum,” CF’s Senior Manager Micro Finance Gamini Bandara Yapa told The Sunday Leader.

The MF industry is not regulated, though there are several players in the business. However there is an MF Act pending.

Govt. revenue down 12%

Government revenue in January 2009 declined by 11.6% year on  year (YoY) to Rs.45.9 billion while expenditure & lending minus repayment increased by 32.5% to Rs.98.7 billion.

Meanwhile the budgeted revenue target for the year is Rs.855 billion and expenditure target is Rs.1,191.7 billion.

Total government debt in the period under review increased by 16% YoY to Rs.3,587 billion. This  comprised a foreign debt component of Rs.1,432.7 billion,a 6.5%  YoY increase and a domestic debt component of Rs. 2,155 billion, a 23.4% YoY increase. (Source: Central Bank)

Five qualify for Seylan

Five of the six pre-qualified bidders to buy a one third stake in Seylan Bank have been asked to buy tender documents in this regard which will be made available from tomorrow.

The names of the five qualified bidders are JKH, LOLC, Sampath Bank, NDB Bank and V.V.Karunaratne & Company, a partnership involved in transportation, trading and construction. Bid books are priced at Rs. 50,000 a set. Tenders close on May 7.

CF enters micro finance 

Central Finance (CF) will be the second registered finance company to enter into micro finance (MF) after LOLC which began this activity last year.

MF is providing credit to small entrepreneurs who have not been exposed to the formal banking sector.

They usually obtain credit from the money lender who charges them with interest ranging from 5-10% per mensem (i.e. 60-120% annually).

“Interest charged on MF loans however is 30% per annum,” CF’s Senior Manager Micro Finance Gamini Bandara Yapa told The Sunday Leader.

The MF industry is not regulated, though there are several players in the business. However there is an MF Act pending.

Rs.120 mn. saving

A garment factory would make a Rs. 120 million annual saving on utility bills by cutting down on the working week from 45 hours to 40 hours, a Minister said.

Labour Minister Athauda Seneviratne told The Sunday Leader that Tristar Group which has several thousand employees informed him about this saving.The Minister speaking at an ILO conference in Colombo on Friday said that garments was one of the worst affected industries due to the global economic downturn.He said that the validity of the 40 hour working week was till the year e nd to enable companies to cut down on costs.

Foreigners net sellers

The market buoyed by war wins saw the benchmark ASPI gain by 35.03 points over Thursday’s close on Friday, while the more sensitive MPI gained by 63.64 points on a turnover of Rs. 376.8 million.Institutions and high networth individuals (HNWIs) have now joined in the fray, though foreigners are on the selling side, market sources said.

“They may be selling because of the rupee depreciation coupled with problems in their home investments due to the global recession,” they said.  Once the rupee stabilizes they may return.

However, the bourse is expected to continue to be buoyant in the week beginning tomorrow as well due to expectations of the IMF and Libyan loans, the sources said. A  big sale that took place on Friday was a foreign sale of 1,160,000 shares of NDB shares in three parcels of 200,000; 500,000 and 460,000 each, at Rs. 90 a share.  A total of three million NDB shares were transacted this way last week. . Among the buyers were HNWI Sohli Captain and connected parties who are believed to have had bought between 200-300,000 NDB shares at Rs. 90 a share.

Offer

Dialog Telekom PLC and Research In Motion  launched a new “Lite” service package designed to attract customers to the BlackBerry platform together with a promotional offer of 10% discount on all BlackBerry devices.

“The new ‘Lite’ service package offers unlimited emails for a nominal fee. It is a result of our continuous efforts to innovate and yet offer cost-effective solutions for customers,” said Dialog Telekom Group Chief Marketing Officer Nushad Perera.

Api

In celebration of its 15 years in advertising, Triad has launched Api -a book chronicling the agency’s passage to becoming Sri Lanka’s Number One agency.

Also presented are case studies of two of Triad’s most successful campaigns, Rata Perata and Api Venuwen Api. The agency’s “living mantra” of Sri Lanka Can is evident every step of the way in its willingness to learn from others and accept responsibility for its own mistakes in the early years and in the later ones, in the authority of its insights, novelty of its ideas and the finesse of its crafting.

The book, released for private circulation, will be made available at several libraries and resource centres to enable students and enthusiasts of the industry to study the paradigm shifts of Sri Lankan advertising, over Triad’s first 15 years.

WAYs continue decline

Weighted average yields at Wednesday’s Treasury (T) Bill auction dropped by 71, 98 and 100 basis points (bps) to 13.38%, 14.90% and 15.40% respectively for 91, 182 and 364 day maturities over that which were commanded at the previous week’s auction.This auction was for the re-issue of Rs. 8,000 million worth of maturing T Bills, where the full amount was sold to the market.

Awards

National Chamber of Exporters of Sri Lanka (NCE) will hold its 17th Annual NCE Export Awards at a Colombo hotel on September 25, 2009.Sectors covered include Agriculture-Bulk and Value Added, Tea-Bulk and Value Added, Industry-Garments and Others, Minerals-Bulk and Value Added, Precious Stones & Jewellery, Suppliers/Service Providers to Exporters and Export of Business & Professional Services including BOPs.


 

 

 

 

 

In Brief
 
 
 
 
 

 

 


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