Business

Bata reconsidering local operations

By Jamila Najmuddin 

The ongoing dispute between the management and the trade unions of the Bata Shoe Company has resulted in Bata reconsidering its business operations in Sri Lanka.

Managing Director, Bata Shoe Company, Kym Bradley said that due to the illegal strike staged by the workers at the Ratmalana factory, Bata Shoe Company was "seriously considering this decision" as an amount of Rs.60 million in terms of turnover had been lost since June this year.

"This is much more than the profits made by Bata during the last six months," Bradley said.

Speaking to The Sunday Leader, Marketing Manager, Bata Shoe Company, Ifthiqar Sameer said Bradley was to leave for Singapore last Friday for discussions with Bata's parent company in Singapore.

"The next step the company will take will depend on the outcome of these discussions," Sameer said.

Adding to the trouble caused by the strike, a fire broke out in the company's warehouse at Model Farm Road in Katubedda, Moratuwa on Thursday, a few hours after the executives of Bata Shoe Company held a media briefing, updating the media on the latest situation of the strike.

Members of the company gained access to the warehouse in Ratmalana under police protection last Thursday afternoon following a court order and it is believed the fire at the Katubedda warehouse was set in retaliation.

Addressing the media last Thursday, Bradley said a large stock, sufficient for more than nine weeks, was blocked inside the Ratmalana stores and the non-striking members from the staff were unable to enter the premises without police protection.

He added the police had failed to take effective steps to comply with the orders of the District Court and the Magistrate's Court, which had ordered the removal of the workers immediately, or the providing of protection for the non-striking members to enter the premises.

"The company has come to the conclusion that the law enforcement authorities are helpless to protect the legitimate rights of the management and protect them from illegal acts," Bradley said.

However, he added the company was hopeful the legal system in Sri Lanka would help the police perform their duties.

"Since it is the 'Back to School' season we are currently trying to work with our local and overseas suppliers since we do not have any access to our stocks inside the Ratmalana factory," Bradley said.

The company is also trying to maintain the 28% market share that Bata controlled by using retail stocks and stocks from its sister company. "Our priority is to save as many jobs as possible. If the company reconsiders continuing with its operations in Sri Lanka, 4,000 people will become unemployed," Bradley said.

Land tax under fire

By Shehan Moses 

The United People's Freedom Alliance (UPFA) government's decision to reintroduce the 100% transfer tax on foreigners purchasing land in Sri Lanka under the bill titled 'Tax On The Transfers of Property' would not only affect foreign investments to Sri Lanka but also put further pressure on the rupee.

It would also affect future loans to be granted to Sri Lanka by international organisations such as the International Monetary Fund (IMF). Former Deputy Finance Minister and United National Front (UNF) Colombo District MP, Bandula Gunawardena told The Sunday Leader the provisions of the proposed bill would not only drive away foreign investors but would also have a negative impact on foreign loans to be granted to Sri Lanka by the international community.

According to Gunawardena, any government would be dependent on foreign loans to maintain sustainable economic growth. "How can the government run the economy if foreigners refrain from granting loans? This would create a negative economic environment in Sri Lanka which may lead to a recession, stifling economic activity in Sri Lanka," Gunawardana pointed out.

According to Gunawardana, the Poverty Reduction and Growth Facility (PRGF) loan granted to Sri Lanka by the IMF last year, of which Sri Lanka is yet to receive US$ 150 million, would eventually be lost if this tax is reintroduced.

"Among the five conditions stated at the PRGF loan is a condition that the government would not adapt any policies that may discourage foreign investments. However, if this tax is reintroduced, foreigners would refrain from investing in Sri Lanka," Gunawardana said. However, Country Head, IMF, Jeremy Carter told The Sunday Leader it was not clear whether the transfer tax would affect any conditions of the PRGF loan facility.

"I have not studied this matter in detail. However, as far as the IMF is concerned, we are always in favour of Foreign Direct Investments (FDIs) to Sri Lanka," Carter said. According to Carter, FDIs bring finances to improve the economic conditions of Sri Lanka and global knowledge that would transfer information between Sri Lanka and other countries.

Gunawardena also expressed the view that in the event this tax is reintroduced, it would have a negative impact on the exchange rates.

When the UNF abolished this tax in its 2001 budget for the fiscal year of 2002, the rupee value appreciated significantly against the US dollar, he said, attributing it to the majority of foreigners purchasing lands for business purposes.

"When foreigners purchase lands for investment purposes and foreign loans are granted due to good international relationships, large amounts of dollars flow in to the economy, which results in the rupee appreciating in the foreign exchange market," Gunawardana pointed out.

Gunawardana maintained that the government should take measures that would encourage foreign investors to Sri Lanka rather than discouraging them.

"Further, if this tax is introduced, investors who have already invested in Sri Lanka might leave the country, thereby creating a severe economic impact and increasing the level of unemployment," he said.

Chairman, Ceylon Chamber of Commerce (CCC), Deva Rodrigo told The Sunday Leader the economy would face a drastic situation if this tax is reintroduced, especially the provision that categorises companies with foreign shareholding of over 25% as non-Sri Lankan companies.

He emphasised that in such case, many foreign shareholders of listed companies would leave the country because of the restrictive investment climate. Rodrigo further stated this blanket tax system would be against many international treaties Sri Lanka has signed in the past.

The CCC has also requested the Finance Ministry to grant time for the private sector and other stakeholders to provide their views on their recommendations on how the proposed draft bill could be amended to overcome the adverse implications.

According to the bill - which was referred to the Supreme Court as an urgent bill - any company that has over 25% foreign ownership, irrespective of being a Board of Investment (BoI) or blue chip company, would be categorised as a non-citizen for the purpose of implementing the tax.

Accordingly, if this new section were to be added to the Ordinance Act No. 11 of 1963, it would affect over 60 listed companies and hundreds of BoI ventures. John Keells Holdings (JKH), Sampath Bank, Sri Lanka Telecom (SLT) and Nestle Lanka are just a few large companies that would be affected due to this tax.

JKH hotels to be restructured under a single holding company

The John Keells Group is presently restructuring its hotel sector via a share swap, whereby all its Sri Lankan and Maldivian resorts (city hotels excluded) would be brought under a single holding company for greater capital, administrative and operating efficiencies.

For this purpose, the group has identified Keells Hotels Limited (KHL), a 100% owned subsidiary of John Keells Holdings Limited, to be the future holding company of its hotels sector.

The companies that will be consolidated under the new structure are Ceylon Holiday Resorts Limited, Habarana Lodge Limited, International Tourists & Hoteliers Limited, Kandy Walk Inn Limited, Habarana Walk Inn Limited, Unawatuna Walk Inn Limited, Trinco Walk Inn Limited, Wirawila Walk Inn Limited, John Keells Maldivian Resorts (Pvt) Limited, Rajawella Hotels Limited and Resort Hotels Limited.

Accordingly, KHL has announced a voluntary offer in accordance with the provisions of the Company Takeovers and Mergers Code 1995 (as amended) to acquire all the outstanding shares of the above companies, in a swap, whereby KHL would issue an equivalent value of its own shares priced at Rs. 60 each, as consideration.

"We are bringing all the hotels which are now separate legal entities - some listed and some not listed - under one umbrella, KHL. As the first stage, we today bought some of the shares on the floor of the Colombo Stock Exchange (CSE) and also made an offer to CSE through a formal letter," said Chairman, John Keells Holdings, Vivendra Lintotawela, addressing the media on Friday.

According to Head (Corporate Finance), John Keells Holdings Limited, Krishan Balendra, the total value of KHL is expected to be Rs. 3.5 billion after the restructuring process is completed and KHL would also become one of the larger companies in the CSE.

The market capitalisation of KHL upon the completion of the restructuring will be significantly larger than the aggregate of the four companies currently listed on the CSE and its shares are expected to be more liquid and tradable.

"We believe the restructuring offers a number of benefits to the minority shareholders of the four listed companies. From a John Keells Holdings point of view, the main reason for the restructuring exercise is to create a large vehicle for raising capital in the future. It would also be more efficient to have a single holding company for the sector," he said.

Explaining further, Balendra said, "Presently John Keells has a 100% stake in KHL. The JKH stake on completion of the offer - if all the minority shareholders of the listed companies accept the offer - would be 87% and the remaining 13% would belong to the existing shareholders of the listed companies."

For the purpose of the swap, the shares of the four companies listed on the CSE have been valued at the higher of their respective three-year market price high and book values and the non-listed companies will be valued at their respective book values.

KHL is in the process of obtaining a listing on the Colombo Stock Exchange (CSE) and shareholders accepting the offer will be allotted listed shares.

Benefits of the offer to investors include exposure to the lucrative Maldivian sector of the John Keells Group, reduced investor risk to the volatilities in the local tourism sector and the ability to hold a more capital efficient investment due to the greater asset and earnings backing of a group of hotels.

- MD

Ceylon Biscuits expands operations to India

Ceylon Biscuits Limited (CBL), the manufacturers and marketers of leading brands such as Munchee, Ritzbury, Lankasoy, Cecil, Tic Tac and Ferra Roche, is expanding its operations by purchasing a large biscuit factory in India - the Bakeman's factory.

The Bakeman's brand of biscuits, which entered the Indian scene in the 80s, has been the number three player in India until recent times, seizing 13% of market shares in 1997/1998.

With assets worth Indian Rs.12.5 million, Bakeman's sharp marketing strategies and product quality were the key factors for their success. However, due to family disputes and financial problems, the factory had to end its operations seven months ago.

Addressing the media last week, Chairman, CBL, M.P. Wickramasingha said the purchase of this factory was the first step towards CBL's vision of being the number one brand not only in India but throughout Asia as well.

Wickramasingha described India as a highly industrialised country where intense competition was prevalent in every sector including the biscuit sector.

"Currently the biggest biscuit competitors in the Indian market are Parle and Brittania. However, we hope to grasp at least 10% to 13% of market share in the Indian market as these were the shares that Bakeman's had been able to seize," Wickramasingha said.

"Fortunately for CBL, products under the brand name Munchee and Ritzbury are quite popular in India therefore it will be advantageous for us to begin our operations in that country," he added.

Wickramasingha further stated that today more Sri Lankan industries should move into the Indian market as currently it was only "one way traffic" with many Indian companies investing in the Sri Lankan market, adding that the government should encourage more companies to invest abroad.

The CBL employee work force for the Indian factory would consist solely of Indian workers and only one or two Sri Lankans at managerial level.

- Jamila Najmuddin

Banyan Tree Chairman on Benchmark 

Chairman, Banyan Tree Resorts & Hotels, Ho Kwon Ping strikes a positive note for the tourism industry in general and the country situation in particular, on today's edition of Benchmark.

The Singaporean national, whose company, The Colours Of Angsana, recently took over the management of The Deer Park Hotel in Giritale, tells the weekly business programme presented by LMD: "We continue to be optimistic about our investments in Sri Lanka."

"We have been looking at Sri Lanka from a hopeful perspective ever since the 1990s - when we were going to build our first Banyan Tree (resort or hotel) here," he further reveals on today's edition of the show, which is produced by 'the wrap factory.'

However, political stability ensued; but, according to Ping, "in the last year or so, the political situation has improved, and we have begun to carefully modulate our investments in Sri Lanka."

The regionally renowned hotelier, the proprietor of many world-class properties in Asia, intimates on the programme that his focus is "not to build a brand-new Banyan Tree, which would cost US$ 30-40 million, but to make small investments."

Benchmark airs on TNL on Sundays at noon, with a repeat at 9:15 p.m.

Re-building our public service 

By Dinesh Weerakkody 

Today we all agree there is an urgent need to improve public sector performance. Inertia in the public sector has stifled the development and economic performance of the country. Bureaucratic bottlenecks in the public sector have not only slowed down the sector, but also the private sector that competes real time in the world market.

Over the last decade the performance of the country's public service has been uneven. The upgrading of skills in leadership and strategic management and project planning, development and management has not taken place. The utilisation of funds on donor-assisted projects has been less than satisfactory.  With the strong donor support endorsed at the last donors' meeting it is imperative for the government to redouble its efforts to improve the absorptive capacity of aid.

Effective aid utilisation and development impact must be of strategic importance to any government, because without foreign aid, we do not have the required resources to build and develop our infrastructure. Then to utilise the aid we receive effectively, rapid capacity and competency building must take place in the Sri Lankan Administrative Service (SLAS).

According to statistics, out of the 2,800 SLAS cadre, 800 officers are under 45 years of age. Therefore we need to develop the next level of leadership to manage execution and drive change. Projects are the cutting edge of development and will remain so in the foreseeable future. In view of the importance of donor assisted development, it would be necessary for the government to take urgent steps to train a core group of competent leaders in the public sector to spearhead the development initiatives of the government.

It is felt that a critical mass of 100 SLAS officers be trained in leadership and strategic management and project planning, development and management.

The objectives of the training should be to: develop leadership and strategic planning and management skills; provide exposure on project planning and design tools; provide insights and skills required in the appraisal of development projects; provide an in-depth assessment of project implementation issues, and improve capacity for project implementation; provide an opportunity to develop skills in monitoring and evaluation of projects; and provide skills on negotiation and conflict resolution.

Utilisation of aid

US$ 1.5 billion per year for the next three years is what our aid donors pledged last year in Japan. While we all agree that this money is tied up to the peace process, we still need to have competent officials to tell the government how to utilise these funds to develop our country.

Going from past records, our utilisation of donor funds has been only around 16%. Therefore, a sense of urgency and determination is required from our politicians and public officials more than ever to utilise the aid the government has been able to mobilise now and in the future. If counterpart funding is the issue, then we may have to persuade the donors to allocate some amount for counterpart funds as a long -term loan.

The people in the north need to get on with their lives. Any delay in facilitating that will only put more pressure on the peace process and also investors will not come into this country unless we have good infrastructure. The public service needs to simplify and streamline some of the procedures while ensuring transparency if we are to experience rapid development and the reconstruction of the north and east.

Singapore

The seemingly miraculous growth of Singapore in the 80s was directly attributed to the high quality of its institutions and the competence of its civil service. These civil servants were highly skilled, dynamic people who were forward looking, took a broad view of the development process and found the best possible way to achieve the wishes of the people. As a result, Singapore developed a civil service that was proud of its record as an independent service and public servants capable of working with the private sector rather against it.

In Sri Lanka, however, over the years the public service lost its professional edge and became the servant of the politicians rather than of the people and a public service that prefers to say why things cannot be done rather than offer solutions to achieve the wishes of the people. Therefore a highly motivated public service will be a key element to our future success.

What Sri Lanka needs is, like in Singapore, a powerful, competent and dynamic technocratic bureaucracy, shielded from political pressure to devise and implement well-honed interventions. While we need authoritarian leaders, they also must be willing to grant a voice and genuine authority to a competent technocratic elite and key elements in the private sector.

Our leaders must realise that economic development is impossible without the cooperation of the private sector, because when business prospers, state revenue also increases. That means better salaries and benefits for the public servants. Therefore, the government needs to create a culture where everyone has an interest in seeing progress and a public service that works with the private sector rather than against it.

Collaborating

The UPFA government to establish their legitimacy and win the support of society at large is promoting the principle of shared growth, promising in effect that as the economy expands, all groups will benefit. But sharing growth raises serious coordination problems. To tackle these complex coordination problems, the Kumaratunga administration needs institutions and mechanisms to reassure competing groups that each would benefit from growth.

Therefore, the first step that the UPFA should take is to recruit a competent, dynamic, honest and relatively young technocratic cadre and insulate them from political interference.  If not, there is no way that the UPFA can convince and win the cooperation of the business elite to share the benefits of growth with the middle class and the rural poor.

In fact, in many NICs, competent technocrats have helped their leaders to devise a credible economic strategy and thereby win the poverty war. In order to foster an effective bureaucracy, the UPFA government in addition to tapping the traditionally accorded public servants in the current administrative service would also have to employ numerous other mechanisms to increase the appeal of a public service career, thereby heightening competition and improving the pool of applicants.

Getting retired people back into the administration should only be a short term strategy. The government needs to have a system to attract young talent and ensure that only the best get accelerated promotions. The long term goal should be to pay salaries competitive with the private sector, recruitment and promotion should be merit based and those who make it to the top on merit should be amply rewarded.

In government, as in nearly everything else, you get what you pay for. There is ample research to show that the more favourably the total compensation package compares with the private sector, the better the quality of the public service.

Capacity building

Not surprisingly, Singapore, which is widely perceived to have the region's most competent and upright bureaucracy, pays its bureaucrats best. In economies where public sector wages are good, if not equal to the private sector, prestige will persuade some talented individuals to forego higher earnings in the private sector. However, prestige can only be enhanced by having a highly competitive, merit based recruitment and promotion process.

The retirement plan, a benefit normally not available in the private sector except in large corporations, could also be an incentive to join the public sector, provided a proper working environment is created.

On the other hand, if we do not have the necessary talent in Sri Lanka, we may have to get the assistance of foreign governments to either second people or provide the right exposure to our people or perhaps even engage the services of top consultants to develop the people and the systems.

An effective public service will enable the government to establish legal and regulatory structures that are generally hospitable to private investment and public servants who consider their primary role is to help the private sector to thrive. To enable this, the present government must focus on attracting competent and relatively young people with fresh ideas and then give them the tools and freedom to do the job.

CSE cashing in on rural investor interest 

By Shehan Moses 

The Colombo Stock Exchange (CSE) is planning to open its fourth branch at Kurunegala by end this year. According to reliable sources, the bourse had already identified a large building space in Kurunegala town for this purpose. Sources revealed that the CSE had confirmed all necessary arrangements for this new branch, which includes broker coverage.

The Sunday Leader learns that already five leading stockbroker firms had confirmed to the CSE they would operate in Kurunegala. In addition, a CSE branch will also open in Jaffna by the end of September. All necessary arrangements have been completed and the interior work is been carried out presently at the Jaffna branch premises.

According to stockbrokers, rural investor confidence is a key force that leads to CSE expanding its operations out of Colombo.

"Villagers show a keen interest in the stock market. This may be due to various reasons such as low interest rates in the banking system, which leads people to benchmark on other alternative investment options such as stocks and bonds," Research Manager, HNB Stockbrokers, Hasitha Premaratne told The Sunday Leader.

According to CSE statistics, the two branches presently operating outside Colombo - Kandy and Matara - are showing momentum backed by investor driven confidence, which brokers describe as "potential markets for future growth."

Monthly turnover at the Kandy branch is growing at a steady pace considering the fact that this is a newly opened branch. The branch was opened on June 3, 2003. Monthly turnover for June 2003 at the Kandy branch was Rs. 246.4 million which is 2.34% of total market turnover.

During the following month, the turnover of the Kandy branch as to total market turnover rose to 2.90%. Consequently, both the Kandy and Matara branches contributed higher figures during the peak months of October and November last year.

The Kandy branch turnover percentage of total market turnover for October was 4.62% - a booming rise compared to 2.32% the previous month. The figure declined slightly in November to 4.19% and fell drastically thereafter - attributed to political uncertainty by analysts.

As for the Matara branch, during the peak period, branch turnover as a percentage of the total market turnover was 4.99% for October and 4.40% for November. These figures fell drastically in December due to political instability.

Surprisingly, both figures of Kandy and Matara branches reached an all time high last month, similar to the Colombo bourse, which recorded its all time high indices.

According to Premaratne, retail investment is the driving force for the growth of these outstation branches. "We do not get big time investors in those areas unlike Colombo. There are large scale retail investors who would invest small numbers but contribute significantly to the total market," Premaratne said, adding that the CSE should take all necessary measures to provide necessary investment education for the public.

"Since the share market would be something new for these investors, there are possibilities they may invest their earnings in a poorly performing company or a company on the verge of bankruptcy. Consequently, these investors would lose confidence in the share market and prevent others from investing at the bourse. Therefore, the CSE should take all necessary steps to provide investor education for these potential investors," Premaratne said.

He further added the CSE should take appropriate marketing approaches and highlight the importance of investment decision making to investors.

Meanwhile, Assistant Marketing Manager, CSE, Thushara Jayaratne told The Sunday Leader the CSE had taken all necessary steps to provide investor education to the people in rural areas.

"We held a series of seminars at Jaffna last month at the MPCS Auditorium and at the Jaffna University in association with the Jaffna Chamber of Commerce and Industry. There were several presentations about the CSE and the overall market. During the Q&A session we understood that these people showed a keen interest in the CSE," he said.

According to him, the halls were not sufficient to accommodate the audience, which he attributed to the fact that these people had confidence and interest in the bourse. Commenting further on investment education for the public in rural areas, Jayaratne said the CSE had recruited graduates from the Sarasavi programme to work as investment educators and promote the CSE in rural areas.

"After completion of the training period within three months, the CSE would assign these graduates to various parts of the island to conduct awareness programmes of the CSE and provide investment education, therefore encouraging the rural community to invest in the stock market," he said.

While Jayaratne highlighted the importance of establishing many outstation CSE branches for market growth, the high cost involved in such establishments would be a constraint for its growth.

"We always provide live price movements of shares at our outstation branches. Therefore we are compelled to establish Automated Trading Systems (ATS) in all our branches. This system is an expensive system, which the CSE would find it difficult to cope with since we are a non-profit making organisation," emphasised Jayaratne.

Big boost for SriLankan's cargo capacity 

SriLankan Cargo took another step forward in its quest to make Colombo the cargo hub of the Indian Ocean with the completion of a giant awning at the cargo centre of the Bandaranaike International Airport (BIA) at a cost of Rs. 30 million.

The awning added 3,500 square metres of working area to the earlier capacity of 8,000 square metres, an increase of 44%. Located on the runway side of the cargo centre, the prefabricated steel structure was completed in only six months.

"SriLankan Cargo has been handling more business than it has ever done before and the amount of imports, exports and transshipment cargo keeps on increasing," said Head, SriLankan Cargo, Nalin Rodrigo. "We expect this to continue increasing as we expand out dedicated freighter operations in the region, coupled with the expansion of regular flights of SriLankan Airlines and the increase in traffic of all airlines that fly to Colombo."

SriLankan Cargo has greatly expanded its operations as the airline rapidly expands its fleet, frequencies and number of destinations. In addition, Sri Lankan Cargo also operates two Antonov AN12 dedicated freighter aircraft in the region, and is exploring the possibility of acquiring a third freighter. Increased cargo traffic is also expected following the recent signing of the South Asian Free Trade Agreement (SAFTA), which is aimed at making a free trade block of India, Pakistan, Sri Lanka, Nepal, Bangladesh, Bhutan and Maldives.

The earlier capacity of the cargo centre was 100,000 metric tonnes per year, but SriLankan Cargo far exceeded that and handled 125,000 metric tonnes last year. A second warehouse, which is currently under construction, will increase the centre's annual handling capacity to 300,000 metric tonnes. SriLankan Cargo handles cargo of all airlines, numbering about 30, which operate through Colombo.