BUSINESS

Market bull run unlikely to last

By Jamila Najmuddin 

The current bull run at the Colombo Stock Exchange is not likely to last due to the country's economic fundamentals not being strong enough to sustain such a bull run. Market analysts predict a period not exceeding three months for market correction.

Research Manager, HNB Stockbrokers, Hasitha Premaratne told The Sunday Leader that while the stock market is currently on the rise, there was a real threat of interest rates increasing and the stock market being affected due to the stalled peace process and the high rate of inflation.

"The market is currently moving strong due to the absence of bad news in the market but however this does not mean that there is any good news as well. The macro picture of the market within the next three months is that there is a threat of interest rates going up due to the rise in inflation," Premaratne said.

Premaratne said the market was on the rise due to strong buying interest rates. "The macro point of the market at the moment is good due to the Central Bank's commitment in maintaining low interest rates. The economic results within the first quarter was also very good and investors were more confident and took advantage of this situation," he said, adding that since the economic policy statement issued by the government was very promising, most importantly in fiscal discipline, a positive attitude has been set in the minds of the investors.

He said the additional one hour of trading and the increase in foreign buying in most counters are other reasons for the rise in the stock market.

Meanwhile, CEO, Barclay Stock Brokers, R. Muralitharan told The Sunday Leader that if the peace process did not move forward soon, then the stock market would "come crumbling down." "The peace process plays a vital role in each and every market. If the government and the LTTE do not commence talks soon, the end result would be the market crashing completely," he said.

However, he added it was too early to predict whether the interest rates would increase and the stock market would go down in the next few months even though the country was facing a high inflation rate. According to Muralitharan, this was due to the strong demand and supply taking place amongst traders in the market. "This is the main reason why the stock market has currently risen. However, the increase in the hours of trading does not have any affect in the stock market rising as this has not increased movement in the market," he said.

Director, CT Smith, Rohan Fernanado said the future of a "positive stock market" now depends on how the government and the LTTE move ahead with the peace process. "Although we cannot predict whether the interest rates would increase in the next couple of months, even if there is a high rate of inflation in the country, there is a possibility of the stock market crumbling if the government and the LTTE do not give positive signs on the peace process," Fernanado said.

He said that stock market is presently rising due to domestic and foreign investors investing in the market and the increase in turnover. "The increase in trading hours does not have any immediate affect on the rise in the stock market as we are still getting used to this idea," he said.

Senior Research Analyst, DFCC Stock Brokers, Nelika Rajapakse said that due to the rupee depreciating further and the rise in rate of inflation, there is a threat of the interest rates increasing and the stock market going down in the next couple of months.

"The biggest threat that the country is facing right now is the depreciating value in the rupee. If this continues further then there would be less activity in the market and there would be a possibility of investors shifting their funds someplace else," Rajapakse said, adding that the current rise in the market was due to good corporate results and good year end results achieved by companies like John Keells Holdings.

"Good year end results plays a very important role in the stock market and since the peace talks have not yet broken down, the market has remained steady," Rajapakse said.

WB support continues

By Mandana Ismail Abeywickrema 

Vice President, World Bank (WB), South Asia Region, Praful Patel last week pointed out since the signing of the first loan between the bank and the government of Sri Lanka in 1954, the country is yet to reach the anticipated levels of development. Patel lamented it has been a frustrating wait to see the country reaching its desired levels of development in the past 50 years.

Patel however assured Sri Lanka the World Bank will continue to support the country, adding that out of the US$ 400 million allocated for the country's various development projects, 40% had been disbursed as grants.

Country Head, Peter Harrold said that out of the US$ 175 million approved in the recent past, US$ 115 million was disbursed in the form of grants. As for the future, Patel observed that the bank's assistance will continue like in the past two years, adding however, that a successful peace process would bring in more funds for the country as donors too would disburse more money.

The bank's rate of disbursement for Sri Lanka, which is approximately 24%, according to Patel is the highest rate in the region.

Focusing his attention on three specific topics - equity, regional integration and creating awareness on HIV/AIDS - Patel noted that the past few years have witnessed an erosion of the high levels of equity, which once existed in the country. He observed that while the Western Province contributes 48% of the country's GDP, the Northern Province contributes a mere 2.6% with the Eastern Province contributing 4.9%.

Speaking of implementing an interim administration in the north east, Patel said that the absence of an interim administration is not preventing the World Bank from disbursing money, adding however, that there is a chance of seeing an increased rate of funds flowing in if it was in place.

Patel also said that although the country has presented the donor community with a good policy statement, everyone is still awaiting more details and specifics. Last Thursday, President Chandrika Kumaratunga said that despite controversies, she believed the World Bank has played an essential and important role in the nation's development.

'Call termination' widespread 

By Marianne David 

While Voice over IP (VoIP) offers lower call costs, in Sri Lanka unscrupulous parties are now doing what is termed as 'call termination' - an illegal operation - and depriving authorised telecommunications authorities of monies received from international calls.

The future of voice communication will be based on the internet, Chairman/CEO, Qwest, Richard C. Notebaert once said. Voice over IP gives customers the ability to use a high-speed data connection to make voice calls to others over the internet or a private network rather than over the public switched telephone network.

Speaking to The Sunday Leader, Director (Technical), Suntel, Mahinda Ramasundara stated that call termination was illegal, an opinion mirrored by an official of Sri Lanka Telecom (SLT) who confirmed this is fast becoming an issue with more and more people adopting this method.

"Even though it is illegal, you can use any line to do this and it is done through the internet," said the SLT official, who wished to remain anonymous. As a result of this, those with the legal authority to send calls outside are affected, he further said.

Credit Control Manager, Lanka Bell, M. Rustum speaking to The Sunday Leader said that while people obtain lines for normal businesses, some people make illegal use of the line in this manner. Comparing this operation to the brewing of illicit liquor, Ramasundara said it is a problem that is not easy to control.

"This started as a result of the liberalisation of international services, which has been misunderstood and misused by people," he said. Ramasundara asserted that call termination is "against the rules" and that the number of calls made in this manner is on the increase.

"Various kinds of people do this. Normally, there are licensed telecommunication operators who bring in international traffic to Sri Lanka. Now there are people who bring in international traffic and terminate the call in Sri Lanka as a local call," he explained.

When calls come through a legal channel, operators get the benefit of the international call but with this system, the party doing it collects the international rate from the other end and pays the telecommunications operator for a local call, said Ramasu-ndara.

He further said that proving this kind of case in a court of law is not easy and if the prices of international calls come down closer to the levels of a local call from the other end, "doing this would become worthless."

Exports increase 

The brightening global situation along with the well performing external sector has resulted in a significant increase in exports, especially industrial exports. Earnings from industrial exports, other than textiles and garments increased substantially by 59%, continuing an upward trend in other industrial exports.

According to the Central Bank, the higher growth of this component in April 2004 was attributable to an increase in machinery, mechanical and electrical (211%).

Central Bank records further state that while there has been an increase in machinery, mechanical and electrical equipment, there has been a 5-6% increase of total industrial exports when compared with the previous year.

In the export sector, other exports in the field that have seen an increase are jewellery by 41%, diamonds 59%, petroleum products 16%, chemical products 44% and food, beverage and tobacco by 14%. Exporting of rubber products, wood articles and wall tiles too have seen an increase.

Speaking to The Sunday Leader, Rupa Dheerasinghe from the Central Bank's trade division said that the main components exported under machinery, mechanical and electrical are parts for aeroplanes and helicopters.

Dheerasinghe explained that wires, cables, etc., have also seen an increase in exports. Other parts that have been exported include automatic data processing units, magnetic and optical radars, electrical transformers, static converters, inductors (less than 1 kw per hour), machine tolls, copper and copper based parts among an array of parts.

However, the expansion of exports was not sufficient to cover the increase in imports. As a result, the trade deficit widened by US$ 158 million to US$ 724 million in the first four months of 2004. Higher inflows to the services account from higher tourist earnings and earnings from port related activity, as well as increasing worker remittances, partly offset the impact of the higher trade deficit.

- Mandana Ismail Abeywickrema

Angsana takes over Deer Park 

The Jinasena Group owned Deer Park Hotel in Giritale, Polonnaruwa officially opened its doors as a 'Colours of Angsana' property last week. The opening of the all-cottage hotel formalises the much delayed entry of Singapore based Angsana Resorts & Spa into Sri Lanka.

The luxury resort and spa operator, which is a subsidiary of award-winning Banyan Tree Hotels & Resorts, has entered into a management agreement with the Jinasena Group to manage this 77 cottage property. As part of the agreement, the hotel's cottages and common areas have been given an extensive facelift. The hotel interior has been redesigned to feature bright colours and Asian craft, and refurbishment done to reflect the personality of the Angsana brand. The hotel also features the signature Angsana Spa, the first in Sri Lanka and the Angsana Gallery.

Explaining the rationale for the handing over of management to Angsana, Chairman, Jinasena Group, Dr. Nihal Jinasena told journalists visiting the hotel last week that it had become imperative to break away from the status quo of catering to the mass market. "We saw the need for radical repositioning of the hotel to attract high-end tourists, as the hotel was built in 1996 with this very goal in mind."

However subsequent economic compulsions had forced the Deer Park like every other hotel to abandon this strategy and focus on the mass market. With first class infrastructure in place, Dr. Jinasena's son Nihal who had graduated from university was quick to see the futility of this strategy and embarked on a repositioning exercise to go upmarket and cater to the originally intended clientele. Dr. Jinasena explained that it was with this in mind that discussions began with the Singaporean firm which had proved its expertise with similar properties in the Asian region.

"The Banyan Tree Group has always recognised the vast tourism potential of Sri Lanka," said Chairman, Banyan Tree Holdings Pte. Ltd., Ho Kwon Ping. "We bring to the table our management expertise and the service standards of a world-class hotel brand. Deer Park Hotel will offer the adventurous yet discerning traveller the comforts of a quality hotel, adding a fine touch to the soft adventure and cultural experience of this location. This is what makes the hotel unique and this is our competitive advantage."

Chairman Dr. Jinasena is clear about his intentions - "The aim of this agreement is to make Deer Park the most sought after hotel in Sri Lanka." To achieve this goal already "millions of rupees have been spent on refurbishment" and a majority of the staff trained overseas by Angsana.

"Deer Park Hotel is now set to enjoy a higher profile among the travel trade and visitors alike. We are confident that the new and improved hotel and our partnership with Angsana Resorts & Spa will bring it to the international stage and attract new market segments," said Lalin Jinasena of the Jinasena Group.

With the official opening, Deer Park Hotel will be positioned as a premier hotel in the Polonnaruwa area and presented to a global market, primarily targeting Europe and selected Asian countries, including Japan and China. The international marketing and sales team of Banyan Tree Holdings will promote the hotel to its international network of travel agents such as Elegant Resorts, Tropical Locations and Premier Holidays.

The PATA 2003 gold award winning Deer Park Hotel website has also been developed as a key marketing tool as well as a medium of sales. Room rates have been determined to compete affectivity with high-end boutique hotels in the neighbouring areas and are to be doubled for the upcoming winter season, said Jinasena.

In alignment with the 'Colours of Angsana' promise of soft adventure and cultural tourism experience, the hotel will offer guests tour options presenting a potpourri of sights, sounds, nature, culture and history.

Angsana Gallery, the 700 sq.ft. gallery, is introduced as a signature feature within the 'Colours of Angsana' collection of properties, which Deer Park Hotel is now a part of.

Angsana Gallery, Deer Park Hotel offers exotic souvenirs, traditional handicrafts, rustic home furnishings and unique gifts that reflect the cultural vibrancy of the UNESCO would heritage sites nearby. As with all shops managed by the Banyan Tree Group, Angsana Gallery will retail products with a corporate social responsibility mission. The Deer Park Hotel outlet supports amongst other worthy projects, the Millennium Elephant Foundation in Sri Lanka with its elephant dung products. Guests who take home one of these unique handmade photo frames or diaries will help to sustain the welfare of old and disabled tuskers (elephants used for timber and tourism work) while raising international awareness of this endangered animal.

Angsana Gallery, Deer Park Hotel, is the latest addition to the 15 Angsana Gallery outlets. Two more Angsana Galleries will open in Laos and China this year within 'Colours of Angsana' properties. Angsana Gallery outlets can be found in resort destinations in Australia, Indonesia, Maldives, India, Thailand and Taiwan. Angsana Gallery was awarded PATA gold award (heritage) 2003 by Pacific Asia Travel Association for its role in promoting Asian culture and heritage.

Designed and built by Architrave Design Pte. Ltd., the architectural arm of Singapore-based parent company Banyan Tree Holdings, the spa complex is adjacent to the hotel and occupies a sprawling 4,300 square metre land area. It comes with four indoor air-conditioned treatment rooms and five outdoor spa pavilions. Angsana Spa at Deer Park Hotel has a complete range of spa equipment and specially created Angsana spa products.

The facilities are designed to offer treatments that have been researched and developed by the Banyan Tree Spa Academy based in Phuket, Thailand, which also trains therapists for Angsana Resorts and Spas.

The Angsana Spa at Deer Park Hotel will bring to locals and visitors the international standards of a world-renowned spa group. Angsana Spa Double Bay Sydney (Australia) was recently voted number six in the 'Overseas Urban Day Spa' category of Conde Nast Traveller's Readers' Spa Awards 2004. Readers voted for spas around the world based on their satisfaction with the ambience, d‚cor, amenities, body and facial treatments, cuisine, exercise programmes and service quality. Angsana Spa Double Bay scored 93.33 points out of a possible 100.

Banyan Tree recently bought a controlling 70% interest in Hotel Swanee, Beruwala from John Keells Holdings. Banyan Tree hopes to develop this property in order to complement the Deer Park in order to offer clients a complete Sri Lankan experience Angsana style and towards this end plans are also underway to open a spa in Colombo at Crescat, and also the acquisition of an up-country bungalow or two to be transformed into 'Colours of Angsana' resorts, said Ho Kwon Ping.

Upfa moving from private to public? 

By Dinesh Weerakkody 

All governments, whether in developed or developing countries engage themselves in entrepreneurial activity to some degree at least. In the centrally planned economies, the involvement is almost total whereas in open economy situations, at the other end of the scale, state involvement is minuscule, and maybe confined to a few public utilities such as rail, road, communications, power and water.

In most developing economies, state ownership and state enterprises is still a common feature irrespective of political ideology. Open economies are now generally the accepted norm in the developing nations.

Intervention

In Sri Lanka, state intervention was first in the service and in the areas of transport (railway), telecommunication, post and power. The bus services were taken over in 1956; the Bank of Ceylon, which began in 1931, was nationalised in 1963. The People's Bank was setup as a state venture in collaboration with the Cooperative Movement. Insurance business was also nationalised. State trading was consolidated in the 60s and 70s so that foreign exchange could be conserved. The nationalisation of plantations was also a significant step.

In 1977 with the advent of the UNP government there was a change of direction and the government sought a departure of a mixed economy and towards a free and liberalised economy. Since then all governments have maintained the free market model to win the support of the donor community.

Objectives of the state

Today, solving the unemployment problem is the most pressing issue. The unemployment rate today is over 10 percent. Therefore the current government should aim to promote long term growth and large-scale domestic employment on an urgent basis not by handouts but by promoting the private sector.

In fact our development objectives should be to:

1.    The acceleration of the growth rate.

2.      Expansion of employment through private investment.

3.      Expansion of the nation's capitol stock.

4.      Alleviation of poverty.

It has been stated that the extension of the manufacturing sector under competitive conditions is seen as necessary for generating exports and foreign exchange. It is now recognised by the UPFA that a healthy public sector should exist side by side with the private sector.

Unfortunately, however, some public enterprises are becoming an intolerable burden on the budget and on the people of the country. We all know a budget deficit can be a great burden on people. The large allocations to public enterprises directly from the budget have drastically reduced financial provisions for several essential sectors or in the alternative have resulted in increased direct taxes to the people.

Unless we do something immediately to improve the efficiency of public enterprises, the implication for the future is likely to be serious. The people ultimately have to pay for the sins of commission and omission of public corporation.

On the other hand, the private sector is not developed enough to undertake heavy investments particularly in infrastructure and certain essential investments with low direct rates of return although the social rate of return is very high. In such instances the private sector does not have the capacity or the will to undertake certain types of investments.

As a result, in several countries not only in the socialist world but also with free market economies, governments have created very efficient public enterprises.

However, the reality is that in most developing countries due to political interference, most public sector corporations run at a loss and are therefore a burden on the budget and ultimately a burden on the people. Every man, woman and child in the country will pay for these losses by way of direct or indirect taxes.

Profit

Financially, profit or losses should normally be the criterion in evaluation of the performance of any public enterprises. However, this criterion should be used with some caution when evaluating the performance of certain state enterprises.

Certain public enterprises are not entirely free to fix prices and also because they are often required to perform relatively uneconomic services which would not be undertaken by private commercial establishments, invariably these state enterprises end up being a burden to the nation.

The Rajapakse Committee in its report on corporations points out that a public corporation operates on a system of multiple motives and that accounting profits should not be the sole standard for judging the efficiency of public corporation.

A suitable test of efficiency depends at least to some extent on whether the corporation provides facilities that are reasonably adequate to meet public needs at prices which are reasonable and which will enable the undertaking to at least break even.

Way forward

One factor which has to be accepted is that there can be no stereotyped formula for the success of government corporations. It is evident that some corporations can function on a profit basis whereas other must necessarily concern themselves with providing services to the public, whether the provision of such services can be done on a profitable basis or not.

A corporation, which has an objective of profitability, should be incorporated under the Companies Act and some freedom from bureaucratic control is necessary if such organisations are to be commercially viable.

Appointments to the board of directors and to the position of chief executive should be on merit and on an assessment of the managerial skills of the persons available. The board of directors should consist of persons representing finance, marketing, technical functions and human resources. The institution of working directors appears to be quite irrelevant and unnecessary.

Proper corporate planning is necessary and for such purpose it is necessary to guarantee a flow of information from top to bottom and from bottom upwards. The objectives of the organisation should be clearly spelt out and these should be attainable objectives, which should be reviewed from time to time, and the effectiveness of which should be reviewed from time to time.

The board of directors should have autonomy and should be unfettered in the matter of making decisions especially in the area of selection of personnel, investment, pricing and marketing, acquisition of materials and the fixing of terms and conditions of employment.

Employees in corporations do not have the stability and security that is necessary to bring out the best in them. It would be necessary to have proper induction of employees and also to have career development programmes to encourage executives and even staff lower down, to integrate themselves fully in their management environment.

The creation of incentive schemes for workers to increase their productivity, the formation of quality circles and suggestion schemes to provide worker involvement may result in productivity gains. Employees' councils, which were set up, did not have the desired results due to trade union involvement.

It is not suggested that trade unions are objectionable to all good business practices, but the trade union structure in Sri Lanka is such that their political objectives and affiliations to political parties tend to remove the closeness and relationship within a workplace between workers and their managers.

Reason for success

In fact, the development of that relationship is an important factor in ensuring the success of the organisation. One reason for the success of the Japanese is that trade unions are 'in house' and the primary objective is the development of their own organisation and one hears reference to a family feeling within an establishment.

Lastly, in corporations that are expected to be profit making, if they are to be formed into companies, it may also be advisable to alienate certain shares to the public so that the ownership base would be larger and there would be more persons concerned with the success of the institution.

JKH purchases 50.3% stake in MLL 

John Keells Holdings (JKH) acquired a 50.3% stake of Mercantile Leasing Limited (MLL) on July 14 for a total consideration of Rs. 358,903,353. JKH purchased this stake from local investor, M.M Udeshi, at a premium price of Rs. 35 despite the market price of MLL trading around Rs. 30.

"Since this is a long-term strategic investment, it is ok that JKH paid a premium price for MLL shares," said Research Manager, HNB Stockbrokers, Hasita Premaratne. The stake acquired of MML would expand the JKH position within the financial sector despite JKH holding stakes of Nations Trust Bank, Union Assurance and JKH Stockbrokers.

"It's the performance of MML that enabled JKH to strengthen its financial service sector, to organise it business portfolio and enjoy better synergies using the group financial strength," said Premaratne.

Group Finance Director, JKH, Ronnie Peiris told The Sunday Leader the objective of this purchase was to consolidate its presence in the financial sector. He further added that JKH presence within MLL would boost MLL's performance in the financial sector.

"Considering our financial strength and market share, it would certainly benefit MLL and its future operations," said Peiris.

According to him, JKH would further expand its operations in the financial sector on a selective basis. "If any company meets our financial credibility and long-term strategic objectives, we would certainly like to purchase stake in those companies," emphasised Peiris. He further stated that shareholders' confidence in JKH has increased due to decisions taken by the management for better performance of the company.

•  HNB Stock Brokers market research analysis 

JKH records 1088% increase in profits 

John Keells Holdings (JKH) recorded a 1088% increase in net profits during the three months to June 30, in the absence of a Rs. 687 million Voluntary Retirement Scheme (VRS), compared to the corresponding quarter of previous financial year. While recording significant growth in almost all sectors, JKH maintained a 61% growth in profit before tax and extra ordinary items, compared to the first quarter of the financial year 2004 (FY2004).

Except the financial services and plantations, all other six sectors recorded a growth in the top line. The drop in financial sector revenue came as no surprise, as overall financial sector performance has shown a decline after an extraordinary year in 2003.

Meanwhile JKH's divestment of Namunukula and Kegalle Plantations is the primary reason for the 16% decline in plantation sector revenue to Rs. 768 million. The transportation sector continued to be the key revenue generator, while posting a 27% growth in top line to Rs. 1.7 billion, backed by strong contributions from South Asia Gateway Terminals (SAGT).

The leisure sector continued its dramatic growth, supported by consolidation of Asian Hotels & Properties Ltd. (AHPL). Despite the decrease in tourist arrivals during the period under review compared to the corresponding period of previous year, JKH hotels managed to record growth backed by increased room rates.

Furthermore city hotels and the Maldivian hotels continued to record steady profits. We expect the leisure sector to record better growth during the latter part of the financial year, as they are to benefit from the upcoming tourist season. We believe that the transportation and leisure sectors would remain as the main income drivers for the group in the coming years.

The food and beverages and information technology sectors recorded improvement in turnover. During the year JKH disposed its holding in RPK Management Services, the holding company of Kegalle Plantations and Maskeliya Plantations. As a result we forecast a 50% dip in plantation sector revenue to Rs. 1.89 billion during FY2005.

The operating profit grew by 49% to Rs. 631 million, with an operating margin of 12.2%, an improvement from 10% recorded during the corresponding period of FY2003.

JKH's operating margins improved from 10% to 16.5% during FY2004, after they restructured their business portfolio based on the recommendations made by a study conducted by the Boston Consultancy Group (BCG). We expect the EBIT margins to improve to 17.4% during FY2005, with better margins in the leisure sector the cost savings of VRS coming into effect.

Meanwhile the food and beverage sector remained a concern even though it recorded a marginal operating profit of Rs. 57 million. Sector operating profits were below our expectations, as a result of increased excise duty and high input costs.

In the wake of intense competition from Cargills Supermarkets and the overall decline in the soft drinks market, we feel a strategic review of this sector may help boost the earnings in the medium to long term.

As expected by us transportation was the key contributor towards group operating profit with Rs. 419 million, up by 48% from corresponding period of FY2004. This represented almost 61% of group operating profit, justifying our view that a bulk of future growth would be represented by the transportation sector.

However, we expect group's heavy dependence on the transportation sector, to be ironed out once the leisure sector starts contributing strongly during the tourist season, thus we project the leisure sector to represent 37% of the group operating profits during FY2005.

The group finance cost declined by 20% to Rs. 74 million, as JKH repaid some of its borrowings reducing it by 26% over the last 12 months. The net profits jumped up by 1088% to Rs. 537 million, with a fully diluted EPS of Rs. 6.52, based on the annualized earnings. Stock is currently trading at 1.9x of its book value of Rs. 52.90.

We project the net profits to grow by 40% to Rs. 2.7 billion during FY2005, in the absence of a high VRS and full year consolidation of AHOT. Based on increased capital structure the fully diluted EPS for FY2005 is at Rs. 8.19, resulting in a PER of 13.2x. The forward multiples are expected to decline to 12.1x based on an EPS of Rs. 8.95 during FY2006, making the stock attractive.

JKH has taken positive steps to restructure its business portfolio after a study conducted by the Boston Consultancy Group (BCG) and we believe that the successful implementation of the suggestions would enable the group to further exploit greater synergies, thereby improving operating margins.

The recent share issues have added more liquidity to the stock, increasing the free float market capitalisation to Rs. 20.91 billion (US$ 209.8 million). Forward earnings multiples are expected to decline from 18.5x in FY2004 to 12.1x by FY2006.

Jayasundera on Benchmark 

In a candid interview on Benchmark today, Treasury Secretary, Dr. P.B. Jayasundera intimates that an efficient tax system can contribute to the equitable redistribution of national wealth.

"Those who can afford to pay taxes must pay taxes - not those who cannot afford to do so," he says on the weekly half-hour business programme presented by LMD.

Asserting that "tax efforts must be consolidated if the country is to move forward," the senior government official says on today's edition of the programme, which is produced by The Wrap Factory, that "every government, irrespective of political ideologies, must make sure that the tax system becomes stronger."

The economist further elucidates some of the "three to four main reasons" for the widening gap between the 'haves' and the 'have-nots.' Jayasundera attributes the disparity, inter alia, to poor transport facilities, "infrastructure not being broad-based" and the current structure of Small and Medium Enterprises (SMEs) - which he avers has "bigger potential than the total stock-market capitalisation... if given high priority" and undertaken on a scale beyond the present focus of SMEs on micro-enterprises.

Benchmark airs today on TNL at noon, with a repeat at 9.15 p.m.

Micro finance - the future of banking 

By Marianne David 

Sometimes people think micro finance is a social banking aspect, where concessions and low interest rates have to be given but the future potential for banking is in this area, said Deputy General Manager (Personal Banking), HNB, Chandula Abeywickrema speaking to The Sunday Leader.

"Look at the banking industry; commercial banks fill 80% of their income from 20% of the customers and therefore they mainly concentrate on those customers. It is only now they are venturing into the outstations. However, in addition to our branch network of 140, we also have 160 micro finance centres in villages around the island," he said.

The micro finance centres are named Gami Pubuduwa units. Gami Pubuduwa is HNB's micro finance model - the most successful micro finance scheme in Sri Lanka. Gami Pubuduwa was started 15 years ago and has a recovery rate of over 95%.

"Among all the banks, we have the best micro finance model and it was the brainchild of our chairman, Rienzie Wijetilleke. So far we have financed nearly 50,000 micro finance entrepreneurs and given over Rs. 3 million in the last 15 years," Abeywickrema said.

He said that while remittance money helps the economy of the country, the bank's focus was how its micro finance model could help the people who send this money to start up a self-employment project or a business once they return to Sri Lanka.

With Gami Pubuduwa, HNB encourages remitters or those who receive the money to save regularly so that a capital is accumulated, which can be used to start a business.

"Most of the developing countries are heavily dependent on migrant worker remittances. In Sri Lanka, migrant worker remittance is the largest foreign exchange earner and HNB is the second largest remittance receiver here. The migrant worker population is two million, that is 10% of our population. Our main focus was how much of this remittance money is going to a direct economic involvement."

Some of the micro finance projects financed by HNB have now grown into big companies and those who borrowed Rs. 5,000 then are presently borrowing up to Rs. 1 or 2 million. Being a commercial bank, HNB also has the opportunity to graduate those who are starting in a small way into big entrepreneurs with its commercial banking facilities.

"As a national bank we believe we have a responsibility to look after the 70% of the population who live in the rural areas. The migrant workers and the rural economy are very important sectors that should be looked after by the banking institutions," Abeywickrema explained.

With Gami Pubuduwa, HNB does not stop at giving money to the people but also guides them to run their businesses successfully.

"Those who receive micro finance assistance are working with us continuously until their business is stable. We tell them how to find markets, how to do their financing and keep accounts, how to reduce costs, etc. Our micro finance field officers are fully equipped to do all this," he said.

Abeywickrema made Sri Lanka proud recently when he made a presentation on micro finance and remittances from an Asian perspective, highlighting HNB's micro finance model at the Remittances Micro Finance Technology Forum, a two-day workshop organised by the Foundation for Development Cooperation (FDC), an Australian based development institute together with the University of Queensland's School of Economics.

The purpose of the workshop was to increase understanding of the importance of remittances as a source of financing for development, explore the potential for information technology and micro finance to enhance development impact, examine implications for policy and regulation in the financial sector and identify areas for further research.

Abeywickrema's presentation, titled 'Remitting Money Into The Future - Going Beyond Money Transfers,' focused on migrant worker remittance - a US$ 80 billion business - and how this money could be channeled for micro finance, highlighting the situation in Sri Lanka.

Abeywickrema was one of the two key speakers at the forum, which was attended by around 80 people from different countries, including academics, professionals and practitioners from large financial institutions.

"Sri Lanka is mainly known for its conflict, people hardly know anything about Sri Lanka. At the forum they were amazed that we had a bank in Sri Lanka with the kind of micro finance model even they could use for their micro finance, remittance and technology requirements," said Abeywickrema.

HNB is a member of the Banking With The Poor (BWTP) network and Abeywickrema is one of the executive committee members representing HNB. Abeywickrema made his presentation at the Remittances Micro Finance Technology Forum due to a request by directors of FDC, which works closely with BWTP.

Dwellco - personalised service for 15 years 

Incorporated in July 1989, Dwellco Pvt. Limited - an exclusive homebuilder in providing designer homes - will celebrate its 15th anniversary this month. Winning the trust of clients over the past 15 years in building star class homes according to the clients' needs, Dwellco will expand their market share in building individual homes for the benefit of its clientele.

The primary aim of the company is to provide quality and personalised service to its customers and over the years, Dwellco has built many exclusive homes in Colombo and the suburbs.

According to Managing Director, Dwellco, Dharshan John, Dwellco was established with a vision that would help realise a common dream of most urban dwellers in the capital of Sri Lanka - to build homes according to their plan and budget, on their own land.

"We started this company with the primary objective of providing a building service for busy professionals and executives. People were getting busier and they did not have the time to build the home that they have always dreamt of. Therefore, this leads to their in-laws and relations building a house for them, which could result in problems springing up between families," John said.

"We focus on providing quality and personalised services to our clients. No matter what economic problems the country has faced in the past, we have always focused our attention on providing quality to our clients. Having completed 15 years in personalised home building, we are proud to have achieved a large and satisfied clientele," John added.

According to him Dwellco caters to all segments of society as they build homes according to what the client wants, on their land and according to their budget.

"If people give us a certain budget, we build homes accordingly. Geographical locations are not a barrier as we have built many homes in distant suburbs as well. We also have a very resourceful staff and more than 60% of our staff have been working in the company for more than five years," John said.

New chairman at ITI  

Senior Professor in Chemistry and Dean, Faculty of Science, University of Peradeniya, Prof. Vijaya Kumar has been appointed chairman, governing board, Industrial Technology Institute (ITI) by the Science and Technology Minister with effect from July 5.

ITI functions within the purview of the Science and Technology Ministry and maintains its role as the leading interdisciplinary research institute in Sri Lanka. The institution has a strong commitment towards the provision and dissemination of scientific and technical information through a well established Library and Information Services Center.

Prof. Kumar was educated at the University of Ceylon and at Magdalen College, University of Oxford where he worked for his PhD. He is a Fellow of the National Academy of Sciences and a recipient of presidential awards for scientific achievement. He is a member of the task force on science, technology and innovation of the United Nations Millennium Project commissioned by the United Nations Secretary General.

Prof. Kumar is also the Sri Lankan representative on the UN Commission on Science and Technology for Development (UNCSTD) and was chairperson of the commission during 2001-2003 and vice-chairperson during 2003-2004. He is a member of the board of management of the Postgraduate Institute of Science and formerly of the National Science Foundation, the Council for Information technology and chairman of its committee on computer education. He has worked in universities and research institutes in  Canada, Sweden, Germany, Thailand and India and has over 175 research publications and communications to his credit.

Prof. Kumar's wide array of professional experience in both the scientific and technological arena as well as the recognition he has received nationally, regionally and internationally will contribute immensely towards guiding and positioning the ITI to meet the challenges of the future that is characterised by a complex mixture of many demands.

Union Assurance rewards safe drivers 

With the number of road accidents increasing daily, going against the tide in the insurance industry in order to promote safe driving and reduce the number of accidents, Union Assurance is offering an innovative, flexible policy that promotes safe driving through rewarding safe drivers - Union Motor Star.

Union Motor Star is designed to promote good driving habits, inculcate road safety and provide convenient, hassle free service to policyholders.

Going further in its effort to make the roads a safer place, Union Assurance has now organised a road show, the purpose of which is to create public awareness, promote safe driving and reward safe drivers.

"The road show will be held at three service stations a day where safe drivers will be identified and rewarded, with around 1,000 people being rewarded each day. Signs of good driving we will be looking for are the wearing of seat belts, use of hands free kits with mobile phones, following the traffic rules, etc.," said Sales Manager (Group Life), Dharshini Kurukulasuriya, the organiser of the show.

The road show will be held on July 17, 18, 24 and 25 at service stations in Nugegoda, Nawala, Parliament Grounds Kohuwala, Wellawatta and Dehiwala and Union Assurance will be at each location for two hours at a time.

With motor being the largest class of insurance, in the recent past a large number of motor products have entered the market. Since of late, however, there has been a lot of interest to develop the motor insurance business and recent trends in the industry have shown a growth in motor insurance, which has helped build the market share in most insurance companies, said General Manager (Marketing), Union Assurance Limited, Ramal Jasinghe.

However, he said that most of the products follow a similar platform and while service levels and demands of motorists have improved, there is a lot imitation in the market.

Explaining the rationale behind developing a product that is completely different to other motor insurance products on offer, Jasinghe said, "Union Motor Star actually started on the drawing board as something very revolutionary, where rather than encouraging people to have accidents and serve them, we thought we'd promote safe driving. With Union Motor Star, we underwrite the safety of the driver rather than the vehicle."

With Union Motor Star, when you have an accident free year, you are entitled to a no claim bonus, which encourages the concept of safe driving.

According to Manager (Motor Insurance), Union Assurance Limited, Ravi Sumithraarachchi, in the last year there were 59,444 road accidents recorded in this country. "When you analyse the reasons for these accidents, there are many reasons, but the majority revolve around the unprecedented increase in the vehicle population," he said.

Billions of insurance claims have been paid against these damages in the past and the industry is starting to suffer due to the increasing number of accidents.

There are 2.2 million registered vehicles in Sri Lanka and a road network of 125,000 km. The main cause for the increase in road accidents is the huge increase in the number of vehicles while other causes are the improper maintenance of roads, improper maintenance of vehicles, negligent driving or speeding and the negligence of the road users, in that order, he explained

"Sooner or later someone has to take a positive step to reduce these accidents. There are many authorities that could contribute towards reducing accidents and they should all act together with one goal. In the past, little attention was paid to this vital aspect and though it was discussed at length, no company took action regarding this problem," Sumithraarachchi said.

"We, as an insurance company, do things in a different way. When you say insurance, people think insurance is there to look after you in the event of an accident. That is correct. But on the other hand, it is the duty of insurance companies to look after people who are not having accidents."

Union Assurance is the first insurance company to look into this aspect and considers it a social responsibility to encourage people not to have accidents - resulting in the development of Union Motor Star.

According to Sumithraarachchi, in a global context, this is not a new thing and safe driving is encouraged. "We have brought this concept to Sri Lanka with Union Motor Star, which benefits safe drivers and a very important benefit is the reduction in the insurance premium. We look at the driver's attributes and insure a car, which falls in line with the global philosophy of motor insurance," he said.

Customers of Union Assurance qualify for the many benefits on offer in the policy and Union Motor Star rewards safe drivers with a no claims bonus at a higher percentage than the market. There are, however, situations where even a safe driver could meet with an accident, an eventuality that is covered by Union Motor Star.

Any customer with a 15% no claim bonus, namely a motorist who has held a motor policy for just one year, is eligible to qualify for on-the-scene assessment and approval of up to 75% of the claim, without obtaining a police report, subject to there being no third party liability.

This on-the-scene assessment service is initially introduced within the Colombo and Greater Colombo areas, where UAL's motor assessors would be on the scene of an accident within 30 minutes of the reporting of the accident to the Union Assurance call centre on the 24 hour hotline 2428444. Customers out of Colombo are provided with a round-the-clock assessment facility. Customers are also given the choice of opting for a settlement through the usual claims processing channels if they are not in agreement with the cash in lieu offer.

With the introduction of Union Motor Star, Union Assurance seems to have started a trend in motor insurance in Sri Lanka.

"Now one of our competitors has an ad campaign promoting safe driving, proving that we have started a trend and raised consciousness about this very important matter. Accidents statistics are quite high and if more people take on the cause of safe driving, the roads will be safer. Union Assurance is definitely proud to have started it all off and spearheaded a new trend of awareness," said Jasinghe with pride.

The product has caught on in the market, been very successful and given the correct signals to the public at large, he added.

Speaking about the success of Union Motor Star, Jasinghe said that a person in the motor industry recently described it as an "out-of-the-box product," which Jasinghe adds, "says it all."

- Marianne David

Discussion on Indo-Lanka FTA 

The Indo-Lanka Free Trade Agreement (FTA) is to be discussed at a seminar organised by the Ceylon Chamber of Commerce (CCC) to enhance the knowledge of the Sri Lankan business community about the issues relating to the agreement.

The businessmen are expected to benefit through this seminar which is to be conducted on July 23, from 8:30 a.m. to 1 p.m. at the ground floor auditorium of the CCC.

In addition to the FTA with India, the seminar will also discuss the recently released economic policy framework of the government of Sri Lanka, while two Indian experts will present a review of the 2005 Indian budget.

Sri Lanka and India have a long history in trading. In December 1998, the Sri Lankan President and Indian Prime Minister signed the Indo-Lanka Free Trade Agreement (FTA), which has been fully operational since March 2000. Treasury Secretary, Dr. P.B. Jayasundera will deliver the keynote address on the economic policy framework of the government of Sri Lanka.

Director General (Commerce), K.J. Weerasinghe is expected to speak on the topic 'Indo Lanka Free Trade Agreement - The Way Forward.' The two Indian experts, Chief Economist / Head (Research and Information Group), CRISIL India, Dr. Subir Gokam and CEO, CRIS India, G. Ravishankar are due to address the topic 'India: Economic and Business Outlook 2004.' The concluding address will be made by Sting Consultants on 'Passage to India.'