The Sunday Leader » The Invisible Hand

A Dark Side To Vesak

sanjeewa — Sat, 26 May 2012 18:48:10 +0000

How many hundreds of millions were spent on the Vesak celebrations this year? I know i sound like a wet blanket. Why can’t I just chillax and enjoy the party? Incidentally, do Sri Lankans party to forget everything else, or do we forget everything else when we party?
That question is purely academic, but the government knows the only important answer. Give us a party and we are ready to forget, and at least temporarily forgive, anything. High fuel prices? Borderline monetary policy mismanagement? Pending international condemnation? Rise in prices of everything from milk powder to cement? How do we solve these pressing economic problems? Simple, throw a party for Vesak. Have the loudspeakers sing the praises of the President. Have various philanthropers give free food to the masses and have them blinded by mesmerizing, colourful fairy lights.
Colombo was decked out to kill. The Beira was lit up by fairy lights consuming electricity in quantities probably enough to power North Korea for a couple of nights. People were out in force, enjoying themselves. Families were traveling from far off places in the backs of lorries and hand tractors to witness the spectacle. Dansals were sporting queues hundreds of meters long. Even Beyond Borders, that is me and my friends, had what we called an ‘inspiration dansal’; we distributed stickers with enlightening quotes promoting peace and tolerance, for what it was worth.
The complete front facade of the Museum was made into a surrealist pandol composed of light projections. Very postmodern and very, very expensive. How expensive? Sadly we will probably never know. It was sponsored by the milk board or the National Livestock and Development Board (NLDB) an entity already bleeding cash, suffering from acute mismanagement and misappropriation of funds.
So as Sri Lankans ‘shoo’ and ‘shaa’ at the beautiful bright lights and marvel at how far the country has come there is a greedy elite basking in the success of yet another PR event of massive proportions aimed at pulling the wool over the public’s eyes. Or maybe i don’t have a right to comment since i’m a Muslim, and have no understanding of the need to spend needless millions on a religious festival that is really about contemplation and inner peace.
Maybe such lulling is needed to calm the people. Imagine Sri Lanka was a small household, spending more than it earned and very much in debt to outside parties. But still with enough hope and potential to make it out of the doldrums, if they manage things carefully. Would it make sense for a family like this to throw massive birthday bash when their daughter turns sixteen? Not really, no.
Lack of transparency does not help. Everyone seems to think that the government sponsors these things by plucking money from trees, to use an old adage i heard occasionally in my childhood. But in reality it is the people who are footing the bill. Would everyone walking around shooting the breeze at the Beira this year been just as calm and relaxed if they knew that half that month’s paycheck was going to fund the festivities? I think not. Yet this is exactly what happens. Whenever the government spends, they spend the people’s money, and contrary to complacent observers here, they have no right to do whatever they please with it.
Maybe my idea that the recent Vesak extravagance only serves to emphasize the cronyism and institutional corruption prevalent in our state is manifesting in my brain because i just don’t know how to have a good time. Maybe i should just get out more instead. And yes, maybe the sus domesticus is aerially mobile. But maybe as Sri Lankans we should all start thinking about economics a little bit more and maybe that’s one clear way we can really make a difference and ensure that our newfound hope for the future isn’t wasted away, trickling into slush funds, white elephants and mass scale public bribes. Feedback:
halikazeez@gmail.com

The Nether Regions Of Marketing

sanjeewa — Sat, 12 May 2012 18:48:22 +0000

I saw this eyebrow raising advertisement the other day trying to sell fairness cream for vaginas or, so corrects my spellchecker, vaginae. What will these ingenious Indians think of next? This led me down a train of thought that I’ve often climbed on before, but rarely sat inside until the last stop. Which was ‘Makeup and Fashion’. I heard somewhere that lipstick is mostly red because it mimics the color of a woman’s lips when she is aroused. The same with mascara. Now let’s not get started on that dusky affect your eye-shadow is supposed to produce. A lot of the fashion industry is aimed at beautifying a woman’s body, making it more appealing and sexually attractive to men/other women.
Seems to me that these things have accelerated the objectification of women, sexually or otherwise. If so, many women who champion freedom from objectification have failed to recognize their attachment to the very things that chain them. Is it plausible to expect general society to respect you for your intellect and personality when the first thing thrust at them are your aesthetic credentials?
The mechanism should be logic. If you’re a militant feminist that walks around with no shirt and copious amounts of chest hair, you’re still not proving anything. Surely, a woman can preserve her dignity and grace while still refusing to be judged predominantly by her looks alone, and still progress independently in the world?
Because otherwise, we must all only be sexually charged animals. Fairness cream for ‘vaginae’ the next item in a long line of products (presumably originating in the sex industry) that seek to transform women into socially acceptable porn stars.
This is also the general problem with marketing, and how we see success today. Marketing is notorious for creating needs that don’t exist. Originally a science developed to sell goods and services, it came up against a blank wall when it realized that there is probably only so much of a product that the market can consume before the need for that product is fulfilled. Recognizing that it is needs that drive demand for products and that without a need for a product, a product will not sell, marketing came up with the ingenious ploy of creating, not new products, but new needs.
Fairness creams for your nether regions are probably just the reminders we need to realize how steeped in useless commercialism modern society is. Half the clothes we wear are probably unnecessary, half the accessories we own can probably be thrown away and half our house is probably full of, for want of a better word, junk. I’m probably being generous with my estimates.
Materialism preaches the power of wealth. Wealth is the come all and be all of existence. Economies are measured in terms of the amount of wealth they produce i.e. their GDPs. People are measured by how much they earn and by the possessions they own. This drives them to earn more money and spend it all on ‘status-enhancing’ products, driving the inexorable wheels of an economy crunching the wasted efforts of several billion people beneath its wheels.
Everything is coordinated to sell. Media, the news, politicians. Marketing has moved beyond the explicit realm of the old fashioned advertisement and has permeated the very culture in which we exist; the culture of consumerism. We consume for the sake of consuming, we consume without rest, in the perpetually unrealized hope that continued consumption will bring us contentment, but of course contentment never comes. But still we persist in designing our lives around consumption; get a degree, get a job and then buy that house, car, flat screen TV and then you’ll be happy. Except that all that stuff won’t make you happy. But maybe fairness creams for your secret parts will? Something to ponder on this Vesak.

halikazeez@gmail.com

Where is Japan Heading?

sanjeewa — Sat, 28 Apr 2012 18:48:47 +0000

I was lucky enough to visit Tokyo in February, to get a glimpse at one of the world’s most developed cities, in country that was the onetime contender for the biggest economy in the world. The common perception is that the glory days of Japan are maturing. The economy posted yet another year of not-so great numbers and has officially become a net borrower; a far cry from its powerful net-lender stance at the height of its prosperity. Yet Tokyo still retains most of its power and prestige, and the Japanese people are still relentlessly hardworking.
So what’s going wrong?
Japan never seems to have completely recovered from the stock market and real estate crash that sent it tumbling into the much touted ‘lost decade’ of the nineties. The Japanese asset price bubble was a result of long years of trade surpluses, consequent appreciation of the Yen and a savings fueled credit boom. The heightened optimism, financial deregulation and monetary easing implemented by the Bank of Japan in the late eighties resulted in aggressive speculation. Prices in Tokyo’s Ginza district were as much as 30 million yen per square foot, prices in most areas have plummeted to less than one percent of peak values by the 2000s.
Tokyo itself slightly betrays its past-its-prime status. Despite construction booms in districts like Rippongi, most of the rest of the city seems slightly faded. The subway is immaculately maintained but still looks a little old. The roads are clean and well maintained but don’t look new. Most of the hotels and high rise buildings are ones that have been there for ages.
The cars on the streets aren’t as shiny as you’d expect. Most people drive practical cars, whereas in cities like Beijing the novae riche are out in force with their luxury European sedans. Cost of living is high, but so are income levels. Most Japanese are heavily dependent on their corporations for work.
The Japanese economic crisis is explained by some as a crisis of the Japanese people; they are too insulated and happy that way. They only consume Japanese culture and are oblivious to the rest of the world. Their former prowess in manufacturing has diminished as the world looked to cheaper and more creative countries. The more developed you get the richer you get and then the only way you can compete is through ideas and innovation. And this is where Japan has failed in the last two decades.
Most young people desire to work for established organizations. Entrepreneurial spirits are pretty low in Japan. The job security, fringe benefits and apprehension about making it on your own make most of them opt for jobs with companies. The Japanese work really hard. Most of them will work twelve hour shifts on a daily basis. This is culturally enforced in most organizations, and it is seen as bad for your prospects if you don’t follow everyone in doing this.
A lot of Japanese speak only their own language. Their exposure to foreign ideas and ways of thinking are almost nil. And so the tendency has been to continue doing things the same way they have been in the past, a formula that will obviously not yield positive results. To pick itself up again, Japan needs to innovate, it needs to once again become the innovator of the world and take back that mantle from encroachers like the Samsungs, LGs and Apples of the world.
Tokyo is an expensive city, and Japan is an expensive country. But people are compensated accordingly and income levels are pretty high. I hear that to live above-subsistence life in the city, you need a minimum income of about one hundred thousand yen, a month. That amounts up to one and a half lakhs in rupees.
Japan is still one of the world’s most developed countries, but it is fast losing its competitive edge to many newer and more innovative firms from the region itself. They have looked up to Japan over the long years of its success and now think that they can surpass it in its own game. Manufacturing is not a competitive edge anymore and indeed, a lot of Japanese companies manufacture goods elsewhere, where it is cheaper. Japan needs to think in new ways and do so fast, because it still has the clout it needs to start moving forward in a big way.
Feedback:
halikazeez@gmail.com

When Desperate Consumers Meet Opportunistic Businessmen

sanjeewa — Sat, 21 Apr 2012 18:54:38 +0000

I Just watched a film called Dirty Pretty Things. It depicts a seedier side of London. A London where illegal immigrants sell their kidneys for forged passports. They do this so that they can live normal lives, be recognized as human beings in a place where being without proper documents can mean having to eke out a living like rats in the sewers of the underground economy. The operations are butcheries, and some survive, most don’t.
Okwe, a doctor from Nigeria, is living in exile. He is working two jobs, one as a bellboy at a hotel and one as a taxi driver. He is obviously in London illegally. Things begin to heat up when his hotel manager, who is fully aware of his illegal status, gets wind that he is also a doctor. The manager runs a lucrative organ harvesting operation on the side, and wants Okwe to help. He refuses. The story then goes through various levels of complications, there is a girl involved, and Okwe feels compelled to do things that he dislikes. The entire move is quite enlightening, I suggest you watch it. But I’ll skip the spoilers and get to what I wanted to write about.
The operations manager, lets call him the villain, justifies the whole thing because he is in the business of making people happy; the immigrant gets a passport so he is happy; the villain sells the kidney for ten thousand pounds so he is happy; and a dying rich person gets a new kidney and a new lease on life so they are happy.
When it comes down to it, it’s all just plain economics. The villain is exploiting a ready market, he is an intermediary. Intermediaries spring up wherever there is a demand for a product and a ready supply. He connects the buyer with the seller, and finishes the deal. Of course he is a villain because he uses sub-standard medical procedures, unqualified doctors and plainly exploits his suppliers. People die because the industry is not regulated. There are no laws pertaining to quality standards, no periodical checks to ensure procedures are done with safety. The law has only one standpoint; the industry shouldn’t even exist. But things like law and policing can’t really stop the forces of supply and demand, if they really want to intersect.
Therefore our villain doesn’t use proper equipment and qualified doctors because he can’t find them, or simply wants to maximize profits so he opts for cheaper alternatives. The system does not give health services to those outside its limits, because what it can’t see doesn’t exist. Illegal organ transplants is a criminal operation, never mind that most of its victims participate voluntarily, because they are desperate.
One might argue that desperation doesn’t really consist of demand, that it is callous to equate people who have no other option with something as everyday and normal as a market force. I would tend to agree. Desperation more often than not comes from oppression. People are driven to desperation by things like poverty and war. And possibly, it is with the forces that perpetrate these atrocities that the blame lies. The countries they are running away from are often run by corrupt regimes where people have no rights. Banana republics exploited for their natural resources by their ruling elites and behind the scenes, multinational corporations with the implicit support of the very countries towards which the desperate immigrants run to. Do you see the irony?
So who is to blame? Where does the moral responsibility rest? Does morality even have a role? Morality here is outsourced, everyone is technically happy. Except those at the bottom who are just technically desperate. They are reaped like so many harvests.
Comments? Email me: halikazeez@gmail.com

Interest Rates Have Increased, Now What?

sanjeewa — Sat, 14 Apr 2012 18:50:00 +0000

The government didn’t surprise anyone when they increased interest rates last week. Policy rates went up by as much as 75 basis points. This was a part of the IMF’s demands in return for giving Sri Lanka the next tranche of the credit line they opened up for us a long time ago. It was a situation where the Central bank had to increase the rates or be denied the much needed foreign exchange.
Sri Lankan is somewhat caught up in a situation where its experiencing its history repeating itself. On numerous occasions in the past, i.e. 2001 and 2009, Sri Lanka has seen a similar set of economic dominoes toppling. The Central Bank has always at some point kept pegging the dollar to keep the rupee artificially high. Simultaneously interest rates have been somewhat low and have given encouragement for more imports. This has ultimately resulted in more and more pressure on the exchange rate as imports exceeded exports, inevitably resulting in the Central bank always relenting at the last moment and floating the Rupee, just in time to avoid a Balance of Payments crisis.
But when you float the Rupee, and the Rupee suddenly plunges, you create a lot of uncertainty in the market. Importers are worried that the rupee will fall even more and will therefore try to import even more in expectation of this. Exporters will similarly keep their dollars out of the country in expectation of the Rupee falling further, because they know that by bringing in Dollars when this situation unfolds they can get more bang for their buck, so to speak.
Now this situation will prevail as long as interest rates remain at the same, low level. Exporters and importers can still afford to borrow from banks and the former can afford to keep their revenue in dollars until he can use them to increase his gains. When this situation persists, the rupee will automatically fall further, making it a self fulfilling prophesy. The only thing that can stop this slide is an increase in the interest rate.
And like before, the Central Bank seem to have given the correct positive signal to the market. After dipping to about 131 Rupees per dollar in mid march, the rupee stopped at some 128 Rupees per dollar at the end of the month.
Aside from interest rate and exchange rate manipulation the Central Bank is also undertaking several micro moves to reduce imports. The whopping taxes on liquor and vehicles are a good example. These moves however, are not seen in a favorable light by the IMF. The IMF prefers more macro oriented moves that target the broader economy, and frown upon specifically targeting things like vehicle taxes. The philosophy being that no central power should have the right to dictate what the public should consume and shouldn’t consume. It should allow for the maximum freedom of choice between options, and should only control those variables that are common for all consumption i.e. variables like exchange rates and interest rates.
But of course a pure approach like that probably wouldn’t work well for an economy as mixed as Sri Lanka’s. We do import a disproportionate number of vehicles. And our imports do create a serious threat to the health of our Balance of Payments. Investment imports and imports of durable goods (the former include industrial vehicles, machinery and the latter includes white goods and vehicles) claim a significant chunk of our overall imports. Most of these will reduce now that the exchange rates and interest rates have been adjusted.
Whether the exchange rate improves further will depend not only on our trade balance but also on how much foreign inflows we get. As of now, inflows like Malaysia’s purchase of a significant chunk of JKH and the purchase of 5% of Aitken Spence by a foreign entity have been surprise inflows that the government seems to have secured by selling shares owned by the EPF. What Sri Lanka would ideally need would be solid flows in terms of FDI, like hotel projects and other manufacturing projects. For this to happen more, we must get down to focusing on improving the business climate here. That includes not only infrastructure but also human capital improvement and a focus on the Ding Business Indicators.
In the near term however, things are going to be a little harsh. Inflation will experience a sharp uptick but commodity prices may remain low depending on global and local market conditions. But on an overall basis, it’s time to tighten our belts a bit.
Comments? Email me at: halikazeez@gmail.com

On Road Rage And Sri Lankans

sanjeewa — Sat, 07 Apr 2012 18:52:13 +0000

It was late, the roads were empty, and I was cruising with my arm on the window sill. I am approaching the Dehiwala flyover when I see him. A pair of headlights, their proximity indicating that they belonged to a car of Indian make, appears behind me and to the left. I am now really close to the flyover and am reaching the barricade separating it from the rest of the road.
Suddenly, the guy behind cuts through in front of me, which is an insane maneuver, and just manages to edge past in between me and the barricades without causing an accident. He then zooms triumphantly off up the flyover, only to come up short at the top behind an old, rickety lorry (which shouldn’t have been there in the first place).According to Scott (2000) road rage is ‘quite unlike other forms of interpersonal violence’ and therefore leaves ‘conflict resolution practitioners’ in a fix and why is this?

Three reasons:
1) It involves strangers,
2) It is related to a driving incident and
3) It hinges upon invasion of personal ‘space’ and thereby is a challenge to identity.
Anyway, after a kilometer or so I come up next to him, we are both caught in a patch of traffic as someone makes a right turn into a by lane. My initial instinct is to be superior and above it all. So I ignore him. At first. But then I cannot resist taking one look at this belligerent idiot who almost killed himself and took me with him. So I turn my head and take a look. He is about my age, arrogant looking and is staring me back right in the eye. And upon contact I swear our eyes narrowed, and we coldly assessed each other for a split second, and in this split second we exchanged a mountain of information, most of it not good. The outcome then is predictable.
As soon as the patch of traffic clears up. We are off. He is driving what looks like a late model Alto, while I drive a 2005 Zen. He gets a head start because he obviously raced off the first gear. I let him get in front, and use the opportunity to scope out the path ahead. There is just a slow moving Honda Civic on the road in front of us. The roads are wide in this part of Mt. Lavinia so there is plenty of room. All I need to do is pass the Civic on the outside, and I have passed my newfound enemy. My car has good acceleration and weighs less than his. So it is no contest, after a few seconds, I’m ahead of him.
But he does not give up. He is dogging my tail. This is one determined belligerent idiot. So I go faster. My eyesight narrows into tunnel vision and I only see what is ahead. A yellow crossing materialises, and a pedestrian appears in my line of sight, I slow down slightly and swerve a bit to give him room to walk. Whether he avoids my tail is not my problem. But my tail is still on me. If anything, my slowing down has given him an edge. And now he’s catching up. I accelerate some more. We are both probably traveling at near optimum speeds. He keeps up, and is now scoping out a way of passing me on the inside. I am calm. My mind is on a different plane, detached, observant and analytical. We are reaching the junction at Templers Road when I see an opportunity ahead. The man is on a bicycle, and he is slowly crossing the road on a yellow line. He approaches the middle of the crossing. I slow down just a bit in order to let him pass in front of me. I know my pursuer cannot see the bicycle but he must know that I slowed down for a reason, but still he insists on making the mistake of accelerating and trying to pass me on the inside despite this, but now the bicycle is directly in his path, and his only options are either to brake hard or to kill someone, possibly himself. As I reach the junction, now accelerating again, I do not hear a crash. And I do not see my tail anymore. I have won. Despite myself, this makes me feel good. What I did was absolutely stupid. Several people could have died. But the soaring feeling of triumph in my gut is not going away. But after a while I feel a little shame. As a response my mind becomes analytical again. I suppose that is why I wrote this post. Because this little drama that went through last night is played out over Sri Lankan roads on a daily basis. Tuk tuks, buses, Marutis, Hondas, Defenders they all do it. Uncles, mallis, thathhaas and Guney aiyyas. We all get a thrill out of the occasional road race. The rage of being wronged is hard to contain. Righteous victory must always be ours. I was in Japan two months ago and it’s impossible to imagine something like this happening there. The Japanese are immeasurably polite, pedestrians would rather wait five minutes until the ‘don’t walk’ sign turns green rather than violate social protocol. Mind you this is when the street is absolutely empty of cars. Drivers respect pedestrians even more than pedestrians respect drivers, and they will stop abruptly well in advance of almost breaking your knees (which is how lowly pedestrian are treated here). In Japan they do not appear to dehumanise other people on the roads. Over here other people are just inanimate objects. As if we are all playing Need For Speed. Because you know, if we die, we can just hit the restart button.Comments? Drop me an email at
halikazeez@gmail.com

Sri Lanka’s Economy Is Doing Well (Theoretically)

sanjeewa — Sat, 31 Mar 2012 18:52:09 +0000

The IMF is positive on the Sri Lankan economy. But ask anyone on the street and they will simply give you a thumbs down and say many disparaging things while complaining about the ever rising cost of living. It doesn’t matter that food prices have been dropping for well near a year now, Sri Lankans are always complaining about the cost of living.
But they have good reason to do so now. The fuel prices are up and inflation expectations are on the rise. Inflation has already hit 2.2% in February, up from negative figures a month ago. Rumor has it that the government is not allowing the prices to rise, exerting pressure on suppliers, but people are feeling the press nevertheless. Private transport costs are up and until a little while ago, protests were rampant along with a few deaths.
Getting back to what the IMF thinks. Koshi Mathai the IMF boss in Sri Lanka, last week waxed lyrical about Sri Lanka’s economic prospects at an HSBC power breakfast held at the Hilton Hotel. Mathai was very optimistic about the governments efforts to curtail an impending Balance of Payments crisis and saw nothing but good things for the future of the country.
Mathai also commented on how great it was the we have had several months of low inflation, high GDP growth (8 percent) and an increasing tendency to keep reducing our budget deficit. He also said that our GDP growth was outstripping our debt growth. Meaning that the debt burden progressively becomes less. The problem came, asserts Mathai, when the country’s imports got a little too much. Giving rise to a progressively more alarming trade deficit. Mathai commended the government’s three pronged approaches of tightening monetary policy (i.e. increasing interest rates), floating the rupee and allowing fuel prices to increase.
Along with the measures to combat a trade deficit, the government also needs to now boost the capital account. The capital account is boosted by bringing in foreign investors, and this is where IMF rhetoric in support of the country will help. Investor sentiment is largely a ‘feel-the-pulse’ sort of game. And IMF approval will go a long way in presenting Sri Lanka as a good place to invest in.
He highlighted several areas the country needed to improve on to grow. Things like physical infrastructure such as roads, human capital development (English skills, IT, degrees, developing more middle managers and vocational training). He also mentioned that the financial sector needed to improve in terms of providing SMEs with more financing and bringing about a more corporate bond market. He finished off by saying that Sri Lanka needed to integrate regionally to prosper.
But what Mathai didn’t say is probably just as important as what he did. He didn’t for instance, talk about the recent mixed messages the Central Bank and Treasury have been giving and how that damages the country’s credibility, he didn’t touch on the political uncertainty involved in the current human rights drama being played out in the UN, he didn’t comment about corruption, nepotism and state inefficiency that can potentially swallow any paltry development gains if not controlled, he didn’t talk about the failure of institutions like the justice system, he didn’t talk about white elephants and Chinese loans, about a looming mountain of ill thought out, high interest debt payments. In fact, he presented only one side of the story.
These gaps in Mathai’s assessment of the economy reveal the looming downside risks it faces. And tell us why the man on the street still regards ‘progress’ with a cocked eyebrow. Its easy to get carried away with numerical indicators like GDP, Balance of Payments, Inflation and Exchange rates. Theoretical valuations of the economy are so far removed from reality that sometimes its all a big joke.
But we needn’t get all queasy about the future. Things aren’t really on a precipice. If Sri Lanka can slowly reform its governance and turn the state service into a meritocracy while maintaining the intelligence it has shown so far in the economic sphere then we might just be able to get on the right track in a few years time. But reform needs commitment and not just from the top, it also needs grassroots support and drive. And does Sri Lanka have that yet, or are people still getting the politicians that they deserve?

What Happened To The Rupee?

sanjeewa — Sat, 17 Mar 2012 18:54:11 +0000

A little more than a month ago the rupee was doing fine. Ticking along at a nice pace of about 110 ish. The subsequent move to 115 shocked a few people, but in true Sri Lankan fashion, we put up and shut up about it and just moved on with our lives. After the sudden hike in petrol prices and the dollar skyrocketing to 124 rupees however, even the most cynically stiff eyebrows in the country raised in consternation.
A higher dollar is going to limit all those luxury imports, and the not so luxury ones too. Fuel for one thing. And all those imported items you see in supermarkets for another. Cornflakes, chocolates, ice cream etc etc. Online shoppers are going to find it harder to buy things they like, and inflation is going to gradually pick up as markets start reflecting the cheaper rupee in commodity prices.
Many greeted the devaluation of the rupee with shock. They weren’t expecting this. Where did it come from? Why did the government do this overnight? What in blue blazes is going on?
But was it really so shocking? Actually, it shouldn’t have been. For one, things were boiling up to this point for a while now, and for another, the government should have been way less abrupt in their decision to float the rupee. But of course, as all Sri Lankans like doing, they left it until the very last minute.
In economics we have what is known as the impossible trinity. Interest rates, exchange rates and inflation cannot be kept favourable at the same time. If you try to keep them all low, somewhere some pressure is going to build up and the dam will pop. The Central Bank has long been propping up the rupee. They did this by selling dollars, buying rupees and keeping the rupee demand high, and keeping its price at somewhere around 110 per dollar. In the meanwhile, they also lowered interest rates, facilitating large amounts of imports into the country. The imports dwarfed the exports and put a lot of pressure on the exchange rate, and it got harder and harder to keep propping it up.
In the meanwhile, a policy conflict developed between P.B. Jayasundera and the Central Bank. Jayasundera wanted the rupee to be devalued because he thought the price was too artificially high. This political uncertainty and lack of credibility drove would be investors to reconsider investing in Sri Lanka. Spooking the much needed forex (that was used to prop up the rupee) from coming in to the country. This essentially fulfilled the treasury secretary’s prophesy; the rupee had to be let go.
That, however, is not to say that the rupee devaluation is the treasury secretary’s fault. Many economists have been maintaining for a while that the rupee should have been eased. The central bank’s intervention couldn’t go on forever. The large amounts of imports resulting from the low interest rates coupled with the cheaper rupee was causing a lot of pressure on the country’s Balance of Payments, or BOP. The BOP is basically the status of a country’s financial dealings with the rest of the world in a given period of time. And if we owe much more money that we are taking in, as it happens when exports are dwarfed by imports, it is generally not a good sign.
Will this situation last forever? Analysts favour both sides of the argument. Some say it’ll skyrocket on past 130, while others believe it will stabilise around 117. The bottom line? It’s hard to say. If Sri Lanka continues to get more foreign inflows via stock market investments and FDI (a Malaysian entity just bought a Rs. 14bn in JKH for instance) the Rupee might rise in value. But If capital flees the country for some reason like another global crisis or local political uncertainty the the rupee could devalue even more. The fuel prices are also a primary concern, and have increased due to international speculation on the Iran issue. If the iran issue escalates globally then Sri lanka will be in a bit of hot water (or should i say hot petrol?) because we are highly dependent on Iranian oil. This is not an entirely inviting prospect to the Rupee or the economy as a whole, but this issue probably warrants a column of its own.

Expensive Coffee Anyone?

sanjeewa — Sat, 18 Feb 2012 18:50:19 +0000

Expensive coffee shops have been blossoming all over Colombo. They serve as a much needed place for affluent people with refined tastes to sit and relax. Colombo is notoriously boring in the daytime and not so interesting in the night either. That is, once you’ve had your fill of its meager decent entertainment and realise that variety is rare indeed. Coffee shops serve as a convenient place for the entertainment starved. A convenient excuse for them to meet and enjoy the company of friends.
A new shop called Java Lounge just opened up in Colombo. Ordinarily this would not have caused much comment. The burgeoning perceived demand for high priced coffee causes all sorts of coffee shops to periodically pop up, only some survive. But the difference with this new place is that it serves Starbucks coffee. This got the attention of ‘coffee lovers’ (yes, there is a whole subset of people that identify themselves thus) really excited. A post i wrote on my humble blog together with pictures got thousands of hits, together with some good natured snarky comments about my ‘lack of understanding’ of what motivates coffee lovers. The overpriced coffee market indeed seems to be booming.
It is funny, that the thing about overpriced coffee is well, it is overpriced. But the advent of an affluent upper middle class and the lack of any other alternative places to time kill is contributing to a growing market for high priced kopi. In the West where the concept first developed in busy cities where coffee is considered a necessity, its different. The dynamics are driven by an actual desperation for caffeine and near price blind consumers.
In Sri Lanka Prices are unusually high given our income levels. Coffee in most upmarket shops here cost the same as they do in Singapore or the US. In other words, what is a slightly overpriced mass market operation elsewhere is definitely a luxury brand here.
Quite a few studies have been done on the subject. Tim Harford says in The Undercover Economist that overpriced coffee is usually a result of a coffee shop picking a strategic location near a subway station for example. The high rent drives away competition, and coffee starved customers pay extra for the convenience of a cup of latte enroute to work. The actual cost of the ingredients and overheads per cup is minuscule in comparison to the prices charged, put the premium location enables the shop to do this due to having little or no competition.
Expensive coffee shops in Sri Lanka and other parts of the developing world however, justify high prices by virtue of prestige. The prices keep the rabble out. So housewives can chill and gossip, expats can come in to escape from the heat, office workers can take the occasional break and MBA students can discuss course assignments. Coffee shops do fill a much needed niche in the city. But the costing causes my eyebrows to move upwards. A friend of mine, Raashid Riza, who lives in the UK, had this to say:
“My flatmate in London used to work part time in a prominent coffee shop in London, a latte costs £ 1.99 to take away and £2.20 to have in. But what is not known to the consumer is that the combined cost of materials, production and labour is only £0.17, so one cup of latte brings in a profit of 1170%. All coffee shops around the world work on such a large profit margin for a single cup of latte.
However, in London the price of a latte is relatively in fair proportion to the average income. I used to have a latte almost everyday before I went to work, at the Pret a Manger close to my workplace. But directly translate that amount to rupees and we are talking of Rs.400 to have a latte when it costs about Rs 30 to make it.”
But coffee shops continue to attract large numbers who don’t seem to mind the prices in the least. This points to the simple fact that the actual payment is not for the coffee, but for the ambiance and exclusive environment that the coffee shops create. The increasing demand for coffee is also indicative of rising incomes in the affluent classes of the city.
A funny thing, just up the street from the new Starbucks is a little kadey called ‘Eat cabin’ that will serve up some nice hot hot Harischandra for a fraction of the price, there’s even a little bench outside to sit and put a chat.
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Dirt Cheap Designer Wear

sanjeewa — Sat, 11 Feb 2012 18:50:18 +0000

Picture courtesy: joanafaria.wordpress.com

Often in Sri Lankan clothing stores you can find designer wear going dirt cheap. Most of these clothes come from garment factories. They are either rejected shipments or a result of surplus production. It is illegal for the factories concerned to sell these items under the names of their original brands, so most of the clothes you will see have labels cut off, or unconvincingly painted over. This is alright though because it does not really take an expert eye to figure out what garments were meant for foreign markets and designer labels.
There is a new shop on Highlevel road that had great gear going very very cheap. This shop has dropped all pretence and simply called itself The Factory Outlet (TFO for short). There were jeans by Lee and Wrangler going for around thousand rupees along with an array of other designer wear with labels cut off or discreetly erased selling for low prices.
Of course there are a good number of items that are clearly fakes, with made up brand names so you have to know how to separate the chaff. There are also some on-the-fence things like soft leather Crocodile wallets for about Rs.700. Not to bother on the shoes. There was a ladies section also, and kids; but I did not venture in.
Where else do they sell designer wear dirt cheap? Spellbound, also on Highlevel road has great t-shirts. Most of their shirts start from size XXL upwards. In fact this is a feature in most of the stores of similar type: the sizes are large and do not fit ‘average’ Sri Lankans. This is because most of the clothing is made for Europeans and some for Americans, who are obviously much more generously proportioned.
Cool Planet also has some good items. House of Fashions has the occasional hidden gem but most of the time you should not bother. Take my advice and be wary of Odel, anything you find there can be obtained more or less for half the price at any of the other stores I have mentioned. Cotton Collection is not bad though. Although there are plenty of other shops popping up everywhere now, so if you know a place, do share.
Where does the stock come from? Local factories obviously. But also from India and Pakistan. A lot of the fakes come from Thailand and China. How do they operate and how does the distribution work? The answer to that would make for very interesting investigative journalism. But I suppose all it takes is a contact from a factory, sufficient working capital and you have excellent clothing for local consumption, it is like magic.
Why go designer? Well aside from the fact that designer wear obviously looks better, the quality is far superior and will last you for years if needed. Usually you pay a massive premium for design and quality and that is why designer clothing is a multibillion dollar global industry. In Sri Lanka though, our unique position as a manufacturer of designer garments has given us a great positive externality. Positive externalities are created when an external party benefits from a good or service at next to no cost. This is just one of the ways Sri Lankans can benefit from large garment manufacturers operating within its borders. So why not?
Clothing stores completely dependent on garment factory rejects and surplus produce have blossomed all over Sri Lanka. Some of them have become chains and are probably worth billions of rupees. Do the big labels that order these clothes mind? Well largely they do not. They turn a blind eye because of the massive reductions in cost of manufacturing.
The factory in Sri Lanka gains by obtaining some relief on already tight margins and the Sri Lankan consumer gains as well. But again, there is never a free lunch, and no situation is entirely win win, so there must be a loser. In this case it is the European and American consumer that has to pay three or four times the price to buy the same garment that you and I buy for a thousand rupees. No wonder tourists go berserk with the shopping when they get here.
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