12th – 18th September 2011
FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Content Page
1. DEVELOPMENT ECONOMICS • Income inequality has risen over the past quarter-century instead of falling as expected 05 • Fiscal Neighbours 14 • SEC must increase fines on securities frauds 19
2. INVESTMENT • Investment flow into Asia – can Sri Lanka leverage on it? 22
3. MANAGEMENT • Group Games can alleviate Stress 28 • Now, more than ever before, the world needs creativity 29
4. MONEY & BANKING • CB defies IMF on exchange rate policy 33 • IMF Reviews domestic macro-economic policies 35
5. EXPORTS & IMPORTS • John Keells Tea Market Report 39 • National cinnamon trading facility soon 42 • National jewellery trading facility soon 43
6. STOCK MARKET • Retail investors to dominate market 45
7. BUSINESS • Addressing buyer utility for business success 48 • Rural farming community fights climate change 50
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8. SME • IFRS too complex for SMEs? 56 • Development of site-specific fertilizer programmes for SMEs 58
9. ICT • Harnessing Creativity and Innovation 62 • Getting it right the first time through ERP 66
10. ENERGY • Where has all the power gone? A reply 69
11. FCCISL PRINT IN MEDIA • New Board at FCCISL 73 • SMED organizes delegation 74 • FCCSL banks on HNB to deliver to SMEs 75
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Development Economics
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The Island – September 14, 2011
More or Less Income inequality has risen over the past quarter-century instead of falling as expected
By Branko Milanovic
INEQUALITY is growing. Disparities are increasing—between the rich and poor in individual countries, and until recently, between countries. The global financial crisis is keeping real incomes stagnant in advanced economies but it probably narrowed global inequality between citizens of the world, because most developing countries continued with strong growth. Some say that inequality doesn’t matter as long as markets are working efficiently, or if everyone is getting more. Others argue that inequality hampers growth, or that only so much disparity is ethically acceptable.
Measuring up
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How is inequality measured? People tend to compare their personal financial situation to that of their neighbors, coworkers, or friends, based on the homes they live in or the possessions they have. Economists usually use household surveys to measure income inequality. A broad spectrum of households is interviewed to determine their various sources of income (monetary and in-kind) and patterns of consumption. A household’s total income minus direct taxes paid (or alternatively, total household consumption) is divided by the number of people living in the household and then all individuals in the survey are ranked, from poorest to the richest, according to their household per capita income. This enables us to calculate what economists call the Gini coefficient (see Box 1).
Although household surveys are the best instruments to assess incomes and their variability, they are not perfect. The upper end of the distribution may be "truncated": either really rich people refuse to be interviewed for household surveys or they understate their incomes. The reasons for such evasion are not clear, given the confidentiality of household surveys. But suspicion of "upper-end truncation" has led to a recent wave of academic studies that instead use fiscal data—the reported pretax income of the rich—to estimate the income share of the richest 1 percent (or 0.1 percent) of individuals. The assumption is that the rich can less easily evade tax authorities than they can survey enumerators, and perhaps that they are more truthful when dealing with the former. But in fact, U.S. results based on surveys and those from fiscal data (Burkhauser and others, 2009) show little difference even though surveys look at the entire income distribution whereas fiscal data examine only the top.
Good or bad?
The view that income inequality harms growth—or that improved equality can help sustain growth—has become more widely held in recent years (see "Equality and Efficiency" in this issue of F&D). Historically, the reverse position—that inequality is good for growth—held sway among economists.
The main reason for this shift is the increasing importance of human capital in development. When physical capital mattered most, savings and investments were key. Then it was important to have a large contingent of rich people who could save a greater proportion of their income than the poor and invest it in physical capital.
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But now that human capital is scarcer than machines, widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution. Moreover, widespread education not only demands relatively even income distribution but, in a virtuous circle, reproduces it as it reduces income gaps between skilled and unskilled labor.
So economists today are more critical of inequality than they were in the past. The advantages to reducing inequality are both practical—facilitating economic growth—and ethical—reducing unwarranted income disparities between men and women, between people living in different regions of a country, or between citizens of different nations. The past quarter-century has seen contradictory changes: while many types of inequality have increased (particularly those within individual countries), others became less pronounced.
Inequality on the rise Income inequality has been on the rise—or stagnant at best—in most countries since the early 1980s (OECD, 2008). Often, this flies in the face of the two theories most commonly used to predict inequality: the Kuznets curve and the Heckscher-Ohlin-Samuelson (HOS) theorem (see Box 2).
Income inequality in the richest countries (and in particular, those for which long-term data were the most plentiful—the United States and the United Kingdom) initially followed the Kuznets pattern of rising and then falling (not surprising, given that these observations inspired Kuznets to define the hypothesis). A massive and long downward swing in inequality occurred from its peak in the late 19th century in the United Kingdom and in the 1920s in the United States, to its lowest values in the 1970s.
But since then the United States and the United Kingdom—and indeed most advanced economies—have become much richer and much more unequal. In 2010, real per capita income in the United States was 65 percent above its 1980s level and in the United Kingdom, 77 percent higher. Over the same period, inequality in the United States increased from about 35 to 40 or more Gini points (see Chart 1), and in the United Kingdom, from 30 to about 37 Gini points. These increases reflect significant adverse movements in 7 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
income distributions. Overall, between the mid-1980s and the mid-2000s, inequality rose in 16 out of 20 rich OECD countries. This coincidence of rising mean income and rising inequality in mature economies would no doubt have surprised Kuznets, as it did many economists.
Inequality also rose in China, a poor country with comparative advantage in unskilled labor–intensive products, whose trade-to-GDP ratio jumped from about 20 percent to more than 60 percent in 2008. The HOS theorem of globalization predicts that inequality would have fallen as wages of low-skilled workers relative to skilled workers rose. In fact, however, China’s Gini coefficient rose from less than 30 in 1980 to about 45 today. Once again, fact confounds theory.
Richer in the rich countries What causes inequality? In rich countries, some economists argue, technological change, resulting in increasing demand for highly educated workers, is the reason that inequality is again on the rise. Societies haven’t been able to produce highly educated workers in the numbers needed in the new economy and as a result their wages have risen relative to their less-skilled counterparts. As the late Dutch economist (and first winner of the Nobel Prize in economics) Jan Tinbergen put it, inequality is the result of a race between technology and education. Although this favored the less skilled workers in the first decades of the 20th century, the requirements of the technological revolution again favored skilled workers.
In the United States, for example, Goldin and Katz (2008) find that the supply of skilled workers has been relatively fixed for the past three decades—the average number of years of schooling has been stuck at just over 12—and that, they argue, explains at least some of the increase in U.S. inequality.
This is plausible, if somewhat tautological, because we are unable to measure directly how much technological progress favors skilled workers. We can only deduce its strength from the gap between skilled and unskilled wages. But it is possible that an entirely unrelated force—say, the reduced power of trade unions—is in fact responsible for the rising skilled-unskilled wage gap.
A country’s institutional framework also plays a role in determining the level of inequality. Governments can use higher taxes and social transfers to redistribute some of the higher incomes earned by skilled workers. The more active redistribution in continental Europe may explain why inequality increased much less there than in English-speaking countries (Piketty and Saez, 2006). For example, in 2005, social transfers (exclusive of state pensions) and direct taxes reduced the Gini in Germany by 9 points but cut it in the United States by only 6 points.
A government’s refusal to take steps to minimize inequality may reflect its view that redistribution is wasteful and hurts market incentives (endorsing the argument that there is a strong trade-off between equality and growth). But failure to redistribute income may also reflect a political reality—that the rich wield a disproportionate influence over policy because they are more politically active and contribute more to politicians than their less affluent counterparts.
Recent political economy models of inequality assume that the "decisive voter"—one whose preferences tilt a decision one way or another—is much richer than the "median income voter." Political decisions would then coincide much more with the preferences of the rich. In this analysis political systems have moved closer to "one dollar, one vote," from the more traditional "one person, one vote" model (Karabarbounis, 2011).
Another explanation for increased inequality is changing social norms. In the past, society frowned on huge pay gaps between, say, a company’s chief executive officer and its workers. Now there are large gaps and
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they seem to be not only tolerated but encouraged (Levy and Temin, 2007). Although data confirm the widening gap, it is hard to pinpoint exactly which social norms have changed and why.
Globalization has also been blamed for the rising inequality in the rich world. Specialization in high-skilled exports leads to a rising gap between the skilled and unskilled wages. Moreover, cheap low-skill imports and outsourcing also reduce wages or increase unemployment among the low- or moderately skilled workers—further exacerbating inequality.
It is likely that all four explanations—technological progress, institutional change, changing social norms, and globalization—have had something to do with rising inequality in advanced economies. But even if impersonal forces like technology or globalization are the main cause, government intervention can still curb the increase in inequality.
Widening gaps in emerging markets
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The story is not so different in developing countries. Even as the United States—the richest large country in the world—is one paradigmatic case of rising inequality, at almost the opposite end of the economic and political spectrum is China. China was (and still largely is) poor and has moved from being highly autarkic in the early 1980s to being highly exposed to international trade. Before reforms that began in 1978, China was universally poor, with a Gini under 30. As its economy grew in the years following 1978, China’s inequality surged and surpassed that of the United States (see Chart 2). Inequality increased in all its manifestations. The gap between the average urban and rural incomes is now more than 3 to 1 (compared with, for example, 2 to 1 in India). Gaps between the provinces widened as the coastal areas, which were richer to start with, grew faster than the hinterland. Wage inequality soared. And property and entrepreneurial incomes—always the most unequally distributed, and unheard of in China before the reforms—became much more significant.
But the Chinese story so far does conform to the classic Kuznetsian pattern: a poor country in the early stages of its development is likely to display rising inequality. If the country continues on the Kuznets path, we can expect a decline in inequality in the coming years. This could happen if the government were to extend social security to many more people (outside the state sector), or introduce unemployment benefits and possibly even a guaranteed rural employment scheme—as India did recently. It could also happen as coastal prosperity naturally extends into the central and western areas of China. Inequality is not the product of impersonal forces alone; it widens when society permits it and can be limited through conscious government policies.
Dramatic transitions Post-communist countries experienced, with a few exceptions, the most dramatic increases in inequality. After the breakup of the Soviet Union in the early 1990s, inequality in Russia increased at a speed never recorded before anywhere. While U.S. inequality increased by approximately one-third of a Gini point annually between 1980 and 1995, in the decade following the end of the Soviet Union, the Russian Gini rose three times that fast. At the same time, real average income in Russia declined, often precipitously— creating a huge pool of newly poor.
The main force behind the increased inequality in the countries of the former Soviet Union was a privatization process that left enormous assets once part of the Soviet state in the hands of those close to the political power (the oligarchs) and created a strong division among the state-sector workers: the ones who remained employed and some who even prospered, and those who became unemployed, and whose incomes plummeted (Milanovic and Ersado, forthcoming). Social safety nets, which were often provided by companies, also collapsed. By the late 1990s, the growth in inequality ended; inequality in Russia has since remained slightly higher than in the United States—at a level similar to that of China.
In other post-communist countries, inequality increased too, although not as much as in Russia. In several Central European countries (Slovenia, Czech Republic, Slovak Republic) the new level of inequality was, judged by the standards of the current market economies, still relatively low. This was because they entered the post-communist transformation with highly egalitarian distributions of income, and even significant increases did not place them outside the levels continental Europe considered normal.
Latin exceptions to the rules In key Latin American countries, by contrast, there has been a sustained decrease in inequality over the past decade (Gasparini, Cruces, and Tornarolli, 2011; see also "Spreading the Wealth," F&D, March 2011). This was particularly noticeable for Brazil, which for decades was considered the classic high-inequality country. Brazil’s Gini dropped from the low 60s in 2000 to somewhere below 57 today—a striking difference given how much relative incomes need to change to effect a 1 Gini point decline or increase, how
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quickly the change took place, and how unique, compared with the rest of the world, it was (see Charts 2 and 3). Inequality also declined in Mexico and Argentina.
The improvements are often ascribed to social support programs such as Oportunidades in Mexico and Bolsa Familia in Brazil. But they are too big to be explained by the programs alone, whose size in terms of GDP is very limited (Soares and others, 2007). The changes in Brazil were also the result of broader access to education, which increased à la Tinbergen the supply of skilled workers. But even with these improvements, Latin American countries still exhibit some of the highest levels of inequality in the world. Brazil remains among the five most unequal countries in the world.
Round the world If inequality within most countries either increased or remained constant over the past 30 years, does that mean global inequality must have increased too? The link is not so simple. Global inequality is the product not only of inequality within countries, but also of the gaps between countries’ per capita incomes. It is influenced by population and income sizes of the countries. China will affect global inequality much more than Luxembourg, for example. In determining what happened to inequality among all citizens of the world, we have to look at two contradictory movements: rising inequality within each country increases global inequality, but high rates of real income growth in poor countries, and especially in the gigantic countries like China and India, reduce global inequality.
The data for the calculation of global inequality come from individual countries’ household surveys, but they have to be complemented by an adjustment factor to convert national incomes into an international "currency" that has the same purchasing power in all countries of the world. The adjustment factor is the so-called purchasing power parity dollar ($PPP). Its main role is to adjust for differences in price levels between countries. Generally speaking, price levels in poorer countries are lower than in rich countries and, when we adjust for purchasing power, incomes in poor countries are higher than they would be if measured at market exchange rates. Using the most recent data on $PPPs, one can construct a global income distribution—a giant accumulation of individual survey data adjusted by country-specific PPP exchange rates—and calculate a worldwide Gini.
When we do this, at approximate five-year intervals for 1988–2005, we find that global inequality does not show a clear trend, but it is extremely high (see Chart 3), oscillating around 70 Gini points. This implies that the forces of (population-weighted) country convergence (namely, China and India catching up with the rich world) just about offset the forces of rising inequality within nations. But preliminary data for 2008—which reflect the much faster growth of emerging economies than advanced economies that continues today—suggest that lower global inequality could be ahead.
Global inequality seems to have declined from its high plateau of about 70 Gini points in 1990–2005 to about 67–68 points today. This is still much higher than inequality in any single country, and much higher than global inequality was 50 or 100 years ago. But the likely downward kink in 2008—it is probably too early to speak of a slide—is an extremely welcome sign. If sustained (and much will depend on China’s future rate of growth), this would be the first decline in global inequality since the mid-19th century and the Industrial Revolution.
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One could thus regard the Industrial Revolution as a "Big Bang" that set some countries on a path to higher income, and left others at very low income levels. But as the two giants—India and China—move far above their past income levels, the mean income of the world increases and global inequality begins to decline. It is somewhat ironic that these hopeful developments coincide with the global financial crisis, but the very simple arithmetics of income and population show that the "decoupling" of economic growth between the rich world and emerging market economies has contributed to the decrease in global inequality.
Even in the middle of the crisis, and despite appearances, economics is not only about the "dismal" stuff. Decreasing global inequality, driven by high rates of growth and higher living standards of populous and still relatively poor economies like China and India, represents an epochal change: it reflects the newfound prosperity of millions of people. And as the world becomes more integrated, the political significance of lower global inequality may come to outweigh that of rising inequalities within nations. ?
Branko Milanovic is Lead Economist in the World Bank research group, a visiting professor at the University of Maryland School of Public Policy, and author of the recent book The Haves and the Have- Nots: A Brief and Idiosyncratic History of Global Inequality.
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References Burkhauser, Richard, Shuaizhang Feng, Stephen Jenkins, and Jeff Larrimore, 2009, "Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data," IZA Discussion Paper No. 4426 (Bonn, Germany: Institute for the Study of Labor).
Gasparini, Leonardo, Guillermo Cruces, and Leopoldo Tornarolli, 2011, "Recent Trends in Income Inequality in Latin America," Economía, Vol. 11, No. 2, pp. 147–90.
Goldin, Claudia, and Lawrence Katz, 2008, The Race Between Technology and Education(Cambridge, Massachusetts: Belknap Press).
Karabarbounis, Loukas, 2011, "One Dollar, One Vote," Economic Journal, Vol. 121, No. 553, pp. 621–51.
Levy, Frank, and Peter Temin, 2007, "Inequality and Institutions in 20th Century America," MIT Department of Economics Working Paper No. 07/17 (Cambridge, Massachusetts: Massachusetts Institute of Technology).
Milanovic, Branko, forthcoming, "Global Inequality Recalculated and Updated: The Effect of New PPP Estimates on Global Inequality and 2005 Estimates," Journal of Economic Inequality.
———, and Lire Ersado, forthcoming, "Reform and Inequality During the Transition: An Analysis Using Panel Household Survey Data, 1990–2005," Economies in Transition: The Long-Run View, ed. by Gérard Roland (Houndmills, United Kingdom: Palgrave Macmillan).
Organization for Economic Cooperation and Development (OECD), 2008, Growing Unequal? Income Distribution and Poverty in OECD Countries (Paris).
Piketty, Thomas, and Emmanuel Saez, 2006, "The Evolution of Top Incomes: A Historical and International Perspective," NBER Working Paper No. 11955 (Cambridge, Massachusetts: National Bureau of Economic Research).
Soares, Sergei, Rafael Guerreiro Osorio, Fábio Veras Soares, Marcelo Medeiros, and Eduardo Zepeda, 2007, "Conditional Cash Transfers in Brazil, Chile and Mexico: Impacts on Inequality," IPC Working Paper No. 35 (Brasilia: International Poverty Centre).
(Courtesy Finance and Development, a periodical published by the International Monetary Fund)
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The Island – September 15, 2011 Fiscal Neighbours
* Canada and the United States confronted growing budget deficits and public debt but the results differed
By Jiri Jonas and Cemile Sancak
PUBLIC debt has grown rapidly in many advanced economies as a result of the recent severe global downturn. Now those countries will have to undertake unprecedented expenditure and tax (that is, fiscal) adjustments to ensure debt sustainability. Earlier attempts at fiscal adjustment provide important lessons to guide policymakers in this effort. We look at efforts undertaken more than a decade ago in Canada and the United States that provide lessons for today’s issues.
Both nations faced growing fiscal deficits and public debt in the 1980s, and the initial attempts to correct them proved insufficient. As deficits and debt mounted in the first half of the 1990s, both countries introduced adjustment plans to restore debt sustainability. In Canada, the 1995 Plan, introduced in the 1994 and 1995 budgets, relied heavily on expenditure measures to reduce the federal deficit to no more than 3 percent of gross domestic product (GDP) by fiscal year (FY) 1997 (the spending year that began April 1, 1996, and ended March 31, 1997). The ultimate goal was a balanced budget. In the United States, the 1993 Omnibus Budget Reconciliation Act (OBRA-93) used both spending cuts and tax increases with the aim of cutting the federal deficit from 5 percent of GDP in 1992 to 2½ percent in 1997.
Both countries improved the fiscal balance and reversed growth in the debt-to-GDP ratio. In Canada, the overall balance improved by 5 percent of GDP over FYs 1995– 97, moved to a surplus in FY1998, and remained in surplus until the onset of the global recession in 2007– 08. In the United States, too, the overall balance improved steadily by 5 percent of GDP during 1993–98, even reaching surplus during 1998–2001. However, the U.S. surpluses did not last, and by 2003 the budget deficit was again in excess of 3 percent of GDP. 14 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Why did fiscal outcomes diverge in the 2000s despite the initial success in both countries? Part of the explanation relates to differences in the approach to reining in deficits. The U.S. improvement was due in part to expenditure and tax reforms. But it also resulted from strong economic activity and significant capital gains growth, which generated tax revenues that could not be sustainedmdashhere—but lulled the country into relaxing its fiscal vigilance. Canada, meanwhile, implemented profound structural reforms in spending and tax policy that had a longer-lasting impact.
Fiscal imbalances prompt action Before the countries set off on their mid-1990s adjustment efforts, their economic and budget conditions were similar. Primary balances (before interest payments were taken into account) were almost identical (see Chart 1, top panel), although when interest payments were added, Canada’s overall balance was worse (see Chart 1, bottom panel). Debt ratios were increasing rapidly in both countries (see Chart 2), and economic growth rates were similar during the two overlapping adjustment episodes (see Chart 3). Cyclical factors such as global recession and higher interest rates played a role in increasing debt ratios, as did structural factors such as the indexation of several expenditure programs to inflation in Canada. Adding to the debt-to-GDP rise were stimulative policies aimed at boosting economic growth, including tax cuts and spending increases.
Both countries perceived growing public debt as a threat to economic prosperity, though for somewhat different reasons. The Canadian government stressed the negative implications of high interest payments on growth, the importance of intergenerational equity (that future citizens should not pay the bills of living citizens), and the need to maintain the ability to spend on valued public programs such as health care and old age security, without jeopardizing long-run fiscal stability. The U.S. government emphasized the adverse effect of high interest rates on private investment and, through that channel, on economic growth.
The adjustment plans also differed. In Canada, the 1995 Plan undertook a major expenditure reduction and profound structural measures based on a comprehensive expenditure review, a reform of the unemployment insurance program, major revisions to the system of transfers of federal revenue to the provinces, and 15 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
pension reform. The authorities chose to adjust public finances primarily by cutting expenditures, because the tax burden was already higher than in the United States, Canada’s main trading partner. In the United States, OBRA-93 included both spending controls and measures to increase tax revenues.
Initial success In both countries, deficit reduction turned out to be greater than expected, but for different reasons that, in turn, help explain the contrasting developments in the following decade.
In the United States, the Congressional Budget Office (1993) projected that OBRA–93 would halve the deficit, to 2.7 percent of GDP by 1997, after which the deficit was projected to increase again. However, the actual deficit was close to zero in 1997, and the budget balance moved to a surplus that exceeded 2 percent of GDP by 2000. This comparison of plans versus outcomes reveals much about the sources of initial success, and its limited duration. The much greater-than-projected deficit reduction was driven by higher revenues, especially personal income tax revenues (see Chart 4), and, to a lesser extent, by lower-than-projected mandatory spending (mainly Medicare, Medicaid, and Social Security). Congress held to the ceilings it set for discretionary spending.
The revenue increase is explained largely by the progressivity of the U.S. federal tax system. A rapid rise in real incomes during the 1990s pushed more taxpayers into higher tax brackets. As income distribution worsened, a rising share of income went to high-income individuals, who paid higher tax rates. In addition, the stock market boom resulted in greater capital gains, further boosting individual income tax revenues.
In Canada, the overall fiscal deficit was reduced by 4.7 percent of GDP over three years, outperforming the plan’s target. Expenditures fell more than projected, in part because interest costs were lower than forecast. Revenues also outperformed the target, but their overall contribution to deficit reduction was smaller than that of expenditures. The fiscal position continued to improve after the three-year goal, and the overall balance moved to surplus during 1997–98.
The successful outcome in Canada reflected a major restructuring of the role of the federal government and profound structural measures centered around four pillars:
•a comprehensive expenditure review that helped refocus the role of government by examining the mandates for the federal government as a whole and for each ministry;
•labor market reform that overhauled the system of benefits as well as labor market policies and funding of the system, helping to improve incentives to work and to reduce excessive cost of the unemployment insurance system;
•major revisions to the system of transfers to the provinces that increased cost-effectiveness and flexibility as well as the incentive for provinces to limit additional social expenditure; and
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•federal government and provincial reforms in the Canadian pension plan that fostered long-term debt sustainability.
These deep reforms were sustained thanks to strong public support, which the government helped build through an intensive communication strategy, including national and regional conferences organized by the federal finance minister and substantive public debates across the country. Canadians became increasingly aware of the implications of high debt levels for growth and intergenerational equity as well as the ways high debt-service costs, which consumed 35 percent of government revenues in the early 1990s, diverted resources from more productive spending.
Furthermore, the government adopted prudent macroeconomic and fiscal assumptions, which helped produce an overall outcome consistently better than projected, raising public confidence in the 1995 Plan. A contingency reserve (of 0.4 percent of GDP) was included in the deficit projection to cover the risks of unpredictable events and forecasting errors. This reserve could offset expenditures but could not to be used to fund new initiatives. In the end, it was not needed, and was used to pay down debt.
Fiscal paths diverge The two countries’ fiscal positions began to diverge in the early 2000s. The U.S. fiscal position deteriorated and the deficit exceeded 3 percent of GDP by 2003. In contrast, Canada’s overall balance remained in surplus until the global financial crisis in 2008, and Canada’s net debt-to-GDP ratio is now the lowest among the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States).
In hindsight, it is clear that the fiscal improvement experienced by the United States in the late 1990s and early 2000s had a less solid foundation, because it was in part driven by temporary factors related to the stock market boom and realized capital gains, as well as by strong economic activity boosted by rapid credit expansion. In the early 2000s, policymakers debated over what to do with fiscal surpluses and expressed concern about the implications of a disappearing public debt. No one expected that both fiscal deficits and debt as a percentage of GDP would be at new postwar highs by the end of the decade. The fiscal outlook at that time appeared favorable, facilitating a relaxation of fiscal discipline.
However, the U.S. fiscal surpluses did not last, and the federal government debt did not disappear. Increased spending and, especially, lower revenues contributed to the reappearance of the deficit and deterioration of the debt ratio. Again, declining individual income tax revenues were the dominant driving force, accounting for three-fourths of the revenue decline. As for spending, in almost all categories, measured as a percent of GDP, it increased during 2000–03.
In contrast, Canada’s adjustment gains accomplished by the 1995 Plan were sustained in subsequent years, because they were a result of fundamental structural reforms. The 1995 Plan raised the primary surplus to more than 4 percent of GDP in FY1997. With the debt-to-GDP ratio firmly on a downward path, the government decided to cautiously stabilize the spending path and introduce tax cuts while continuing to use prudent macroeconomic and fiscal assumptions. As a result, revenues started declining and the pace of spending cuts started slowing down gradually beginning in FY1998. Primary surpluses were maintained for 11 consecutive years. In little more than a decade, the federal net debt declined by 40 percent of GDP.
Structural reforms most important What are the lessons emerging from the U.S. and Canadian experiences with fiscal adjustment?
The main lesson is that fiscal adjustment based on structural reforms is more likely to be sustainable compared with improvements based on temporary factors. During the 1990s, both Canada and 17 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
the United States reduced their fiscal deficits sizably and more than expectedmdashhere—and even reached budget surpluses. However, these similar improvements reflected different underlying elements. In the United States, the improvement was, to a large extent, driven by revenue gains that were not based on tax reforms, but rather were linked to booming asset prices, which turned out to be temporary, and shifts in income distribution that could not go on forever. Indeed, that revenues increased far more than expected under the initial fiscal adjustment plan could have been seen as a warning sign that lower-than-expected deficits might not last. In contrast, the adjustment in Canada was primarily based on structural reforms. The spending discipline, introduced through restructuring of the role of government and structural spending measures, was long lasting.
Second, even if based on temporary factors, an improved fiscal balance can reduce pressure to pursue fiscal discipline. The expenditure limits introduced in the early 1990s began to be ignored as soon as the U.S. deficits turned into surpluses, and were officially abandoned in 2002. At the same time, prospects of continued fiscal surpluses contributed to the decision to cut taxes in the early 2000s to return money to taxpayers.
Given the size of fiscal imbalances and future fiscal pressures related to population aging, many advanced economies will have to maintain fiscal discipline for several years, if not decades. How can policymakers ensure that fiscal discipline is maintained even when good times return in the world economy? Resilient medium-term fiscal adjustment plans, fiscal institutions, and/or fiscal rules can help. However, as Canada’s adherence to fiscal surpluses during the 2000s shows, ultimately, it is the political commitment to sound fiscal management that counts. And that in turn rests on the general public’s clear understanding of the fiscal challenges and broad support for fiscal adjustment. Indeed, the sustainability of fiscal adjustment in Canada reflects a strong public mandate, and the government’s communication strategy on the implications of high debt levels for growth and intergenerational equity helped raise public awareness of the need for fiscal adjustment and supporting structural reforms. ?
Jiri Jonas and Cemile Sancak are Senior Economists in the IMF’s Fiscal Affairs Department.
This article is based on "United States: The Quest for Fiscal Discipline," by Jiri Jonas and "Canada: A Success Story," by Cemile Sancak, Lucy Qian Liu, and Taisuke Nakata. Both appear in Chipping Away at Public Debt: Sources of Failure and Keys to Success in Fiscal Adjustment, edited by Paolo Mauro and published in 2011 by John Wiley & Sons (Hoboken, New Jersey).
References Congressional Budget Office, 1993, An Analysis of the President’s February Budgetary Proposals (Washington, March).
Department of Finance Canada, 2009, Fiscal Reference Tables (Ottawa).
(Courtesy Finance and Development, an IMF publication)
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Daily Mirror – September 14, 2011
SEC must increase fines on securities frauds
By Harsha de Silva, Ph.D
In a country where even a poor jay walker can be fined Rs 1,000, what is the justification of fining a well connected billionaire a measly Rs 500,000 for committing watered down securities related offences on a multi-million dollar transaction?
It is quite possible that profits made by committing such offences could run into billions. The premise that punishment for breaking the law must be large enough to discourage others from breaking the law somehow seems to be absent here.
The recent action by the Securities and Exchange Commission (SEC) to compound offences committed by Directors of Environment Resources Investment; namely Kosala Heengama and his father, former Director General of Customs Lalith Heengama, former Governor of the Central Bank H. B. Dissanayake and former High Commissioner to Bangladesh and South Africa Gamini Sarath Munasinghe and one Scott Newsome has not been received well by the vast majority of law-abiding investors of this country.
White-collar criminals set free? It seems very much like a case of selective justice as in the past where high profile white-collar criminals were set free without being prosecuted or worse yet while being prosecuted. The case of compounding the case of a certain director of the Nawaloka Group conspiring to manipulate the share price of Nawaloka Hospitals comes to mind. The good work done by the SEC in catching wrongdoers obviously gets overshadowed when they are let go without being held accountable for their action.
In a recent statement issued by the SEC proudly quoting chapter and verse, it announced to the naive public, in bold lettering no less, that under Section 51A of the SEC Act, offences committed could be compounded for an amount not exceeding one-third of the maximum fine imposable upon a summary trial by a Magistrate. At present the maximum fine is Rs 10 million.
Thereby, two of the offenders have been fined Rs 3.3 million each and another, Rs 500,000. Two other have supposedly been warned. None of these warnings have been made public and no disclosures have been made by ERI about the offences. The Directors continue to manage the establishment and preach the virtues of good governance on its website.
CSE credibility When the SEC Act was amended in 2003 to set the maximum fine at Rs 10 million, the annual turnover of the CSE was Rs 73 billion and daily average turnover was Rs 307 million. But by 2010, the annual turnover had risen to Rs 570 billion and the average daily turnover to Rs 2.4 billion. This is a huge 8-fold increase. With the increasing size of the market and value of transactions, the scale of the crimes committed has also increased.
It is not uncommon for ‘highly respected’ corrupt individuals to make tens of millions in profits in just one day of trading on insider-information or engaging in other activities contravening the SEC Act. The sad irony is that while it is well known such activity takes place, the kind of punishment meted out when one gets caught will not put off any one engaging in such crime. The recent comment by former SEC Director General Arittha Wikramanayake that the CSE is a “cess pool of indiscipline with no regulation” does not
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seem to be too far off mark. If this trend continues the entire credibility of the CSE will crumble causing further erosion of investor confidence in Sri Lanka.
In a country where any law can be passed in a day; including amending the Constitution, it will be a piece of cake to enact legislation to increase the maximum fine to Rs 100 million to discourage individuals from continuing with the current practice of fraudulent activity ranging from false disclosures to market manipulation.
I propose the government start the process of getting the amendment to Parliament. I am certain the entire opposition will support such a move. But that is if the regulators sincerely wish to protect the innocent investors and use the CSE for genuine development of the country instead protecting their fat cat friends.
(The writer is a Member of Parliament)
20 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Investment
21 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 13, 2011
Investment flow into Asia – can Sri Lanka leverage on it?
=Public/media relations disappointing
"Sri Lanka remains a highly attractive investment destination, but the high levels of perceived risk mean that potential investors have been wary of investing. However, careful analysis of the levels of investment risk in Sri Lanka indicates that market perceptions are higher than they should be."
Speech delivered by Mafaz Ishak, Director Calamander Capital Singapore (Pvt) Ltd, Colombo Office at a seminar on ‘2011 and Beyond: Trade and Investment Prospects in Asia and Implications for Sri Lanka organized by the Institute of Policy Studies on Monday, September 12, 2011.
Investors fall into many categories and have many motivations for where they place their investments – some rational and some not so. Large Institutional Investors into emerging economies (both for direct investment and portfolio investment) are generally driven by 3 factors :
1. They are so large they need to be there – the economy is so large they feel their absence would preclude them being perceived as a global player– typically along the lines of the China, India, Brazil, Indonesia, Russia, Turkey (collectively the BRIC ++ countries)
2. They are resources economies that are critical to the function of other economies- the economy has strategic natural resources that others need, countries like Nigeria, Mongolia, Congo, Australia, Qatar, Saudi Arabia, Angola, Papua New Guinea, South Africa, Congo
3. They are generally well managed economies and the institutions feel they need to be a part of it. They also have potential for upside – Botswana, Mauritius, Singapore come to mind.
So what type of foreign investor is typically attracted to Sri Lanka?
There are four basic categories that I will examine:
1.The"here for good" to borrow a prominent bank’s new moniker. The long-term investor is in Sri Lanka for a myriad of reasons but has decided to stay and make the most of it. HSBC, Standard Chartered and a number of the foreign banks have been here for decades in a few cases over a century. Nestle, Unilever, Coca Cola, Holcim, Lafarge, British American Tobacco, Bata, Noritake and others have all had associations to the country for decades.
2. The opportunistic. All investors are essentially opportunistic; their ability to hold and/or develop the investment varies mainly based on their time horizon. Foreign investors looking to make a quick buck in Sri Lanka have for the most part been burned (this is essentially true in most markets). Speculators have their place in all markets – look at the recent prices of gold and oil but "buy and flip" can be dangerous when adopted as a national strategy – the real estate market of Dubai serves as poignant reminder. Those of us here for a defined time horizon for our investments – in our case 5 to 7 years or longer are on the lookout for what may be relatively cheap or at least priced at a reasonable market valuation are finding it increasingly hard to find good deals given the frothiness of the stock market. The number of opportunities is increasing but so is the relative valuation – 3 years ago I would be talking to very well run tea factory owners about a valuation of 4-5 times earnings, recently one was offered to us at 12 times earnings, an IT company that is barely profitable wanted 3 times revenue as a valuation! 22 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Sri Lankan opportunity however remains exceedingly viable. Fate has generally been kind to Sri Lanka. We are blessed with geographic attributes that are highly sought after – being at the bottom of the Indian subcontinent and on the main east-west trade route. Temperate and with two monsoons, things pretty much grow year-round. The landscape, beaches, tropical forests, wild life, heritage architecture all contribute to make it an increasingly desirable tourist destination. Coupled with this natural bounty is a fairly nice demographic pyramid, literacy above 90% and free trade agreements with India and Pakistan. So why wouldn’t an investor be attracted to this opportunity? I will discuss this a little later.
Thirdly we have portfolio investors – those looking for investment in either debt or equity securities that can be added to a portfolio for a utility function. The most sought after share for this type of investor has beena country proxy such John Keells Holdings. The oft told barometer of the stock markets performance since the end of the war though has stumbled of recent, couple this with a trailing market price to earnings ratio of 19 down from 29.5 in Feb this year and price to book of 2.4 and dividend yield of 1.5% and the Colombo Stock Exchange looks relatively expensive compared with Singapore, Kuala Lampur or Bangkok at 10-14. In fact the CSE is more in line with the much deeper and more liquid BSE at 18.5 pe, price to book of 3.39 and a similar dividend yield of 1.5%
The fourth category is what I term Foreigners buying holiday homes here and inherently becoming investors – this category came storming into the country during the peace talks honeymoon period of 2002-2004 when the 100% tax was lifted temporarily. They tended to be western expatriates with extensive Asian experience who had become Asia-philesand pounced on the market opportunity to own a piece of paradise. A number of them have subsequently become boutique hotel owners or making a business of marketing and renting out their villas for when they are not here or developing land they have acquired for an agri-business project.
A number of investors I know fall into more than one category and I think it would bode well to address some of their and our own concerns:
To start with – what I might term the public/media relations disappointment after the end of the civil war in May 2009 and dealing with the diaspora. Matthias Keittle’s, apparently a German Researcher who has been following Sri Lanka for the last 25 years recently wrote an article titled " Crucifixion of a country for defeating terrorism" in a daily newspaper and strikes a definite chord. I quote the first paragraph:
"Sri Lanka eliminated a dreaded terrorist group, with intricate global links, but receives little credit for it! Unlike elsewhere in the world, Sri Lanka has succeeded in resettling 300,000 IDPs. There are no starving children for the NGOs to feed but this gets ignored! Sri Lanka has avoided mass misery, epidemics and starvation but the West takes no notice of this.
Sri Lanka has attained enviable socioeconomic standards for a developing country while eliminating terrorism but gets no acknowledgement! The Government of Sri Lanka and its President continue to enjoy unprecedented popular approval through democratic elections but this is dismissed! The economy continues to boom, but remains un-encouraged by the West."
This lack of public and media relations has led to the re-emergence of political risk on the country in the eyes of certain investors. If you look at the general perception as evidenced by Sri Lanka’s reputation in some international publications, for example, the OECD’s Country Risk Classification Report gives Sri Lanka a score of 6 from a range of 0 -6, alongside Angola, Georgia, Uganda and Iran. Similarly, the MIGA World Investment and Political Risk Report 2009 (Published in 2010) perceives Colombia, Uganda and Argentina to have less political risk than Sri Lanka. The AON 2011 Political Risk Map and the Maplecroft 2011 Political Risk Map put Sri Lanka in the company of Libya, Egypt and Peru. In essence, the general 23 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
perception is that Sri Lanka is a very risky place to do business. This has led to many investors avoiding Sri Lanka as an investment destination, resulting in an FDI of less than $500 million in 2010. Incidentally the AON report’s three key areas of concern illustrate their lack of on the ground experience are "Strikes, Riots and Civil Commotion", "Supply Chain Disruption" and " Sovereign Debt Repayment", areas which almost no investor in Sri Lanka would put in his or her top five or ten risks.
Considering the tremendous opportunity that Sri Lanka presents at the dawn of peace, investment should have been much higher. However, as risk has been priced highly investors have been reluctant to expose themselves to the Sri Lankan market.
There are two key reasons why investors should invest in Sri Lanka; firstly, the risk is priced to highly. Secondly, instead of building infrastructure, which involves higher risk, purchasing existing assets in Sri Lanka where prices have already been adjusted for risk significantly reduces one’s risk profile. In fact, it means that assets in Sri Lanka are undervalued by the international market as a result of excessive risk premiums. On the other hand, the relatively risk free stock market is overvalued. Calamander’s proposition is to invest in undervalued real assets, with solid economic potential. The prices at the moment have risk accounted for, and a level of risk that is excessive. Short of a catastrophe, political risk can be easily managed allowing Calamander to exploit Sri Lanka’s economic potential.
No 2. Policy Stability.A greater cause for concern is the instability of government policy. Car taxes went down, and have come back up again; there was a great deal of confusion as to whether visas were going to be introduced for tourists and conflicting signals seem to be the norm. For example, the Wall Street Journal, picked up the fact that despite introducing an investor friendly budget President Rajapakse had boasted of nationalizing Sri Lankan Airlines, Sri Lanka Insurance and a number of other corporations. (1Sri Lankan airlines was not nationalized. A management contract with Emirates was not extended. Sri Lanka Insurance was nationalized as a result of a Supreme Court Judgment.)
The policy climate is highly opaque, and a cursory glance will leave any observer confused and bewildered. Coalition governments, especially as diverse as that of the current government, entails ideological conflict. This leads to policy instability as the President has to balance a range of interest groups and supporters. For example, even within the President’s party, the SLFP, the "the left" want to introduce a mixed economy, the economically right wing UNP crossovers prefer a liberal free market state and then the nationalist right wing are more concerned about environmental impact. The energy sector illustrates this well; although power generation has been liberalized, none of the sectors, such as distribution or marketing, have been in any meaningful way. Moreover, Sri Lanka is investing a great deal in wind power in order to reduce its carbon footprint.
Although policy may have been better in the past, implementation was decidedly slower. For example, the Katunayake Expressway, which has been on the pipeline for over twenty years, has come to fruition under this government. The government was also successful in dealing with the legal issues that have been plaguing the Southern Expressway. The same can be said of urban regeneration and the most celebrated achievement – bringing the 25 year civil war to a close. Overall, this government may have inferior policy but superior implementation. An example of note is in the education sector; while previous governments have always been half-hearted in education reform, especially in the higher education sector. This government has not only allowed a private medical college to develop but has also upgraded the Homagama Hospital to a Teaching Hospital in order for the project to go ahead.
There has actually been no government policy reversal that has seriously affected any investor. For example, the car tax, affected consumers rather than investors. The government never introduced the visa requirement which was being considered. Basic investor policy has not changed and the view that Sri 24 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Lanka’s policy landscape is one that is highly unstable is unrepresentative of the broad levels of stability experienced throughout most of the economy.
Public service should attract the best talent. There are some amazingly well run govt departments – Passport and Immigration come to mind where it is possible to get a passport in a day. This is unheard of even in super-efficient Switzerland.
However, the level of competence and professionalism exhibited by a great deal of officialdom appears to be far from satisfactory. Although there is a distinct urge for development and reform at the highest levels; a lack of competence among the lower ranks is obvious. Firstly, their technical skills sometimes leaves much to be desired. At a higher level there sometimes seems to be a lack of awareness of the repercussions of certain policy decisions. Reluctance to consult with relevant stakeholders before formulating and implementing policy – leading to abrupt changes of policy as stakeholders become aware of changes. For example, in Kalpitiya the development of a tourism zone was temporarily halted as due consultation with local communities had to be undertaken. Similarly, legislation introducing pensions for the private sector were, almost covertly, introduced with the Budget, with no consultation and the legislation itself fairly vague. This lead to a great deal of mistrust among private sector workers, which lead to protests in the Katunayake Free Trade Zone and forced the government to back down.
The rule of law- The legal system in Sri Lanka suffers from many of the issues that judiciary’s face in developing countries. Firstly, there are significant delays in justice. According to the Word Bank Doing Business Rankings it takes an average of 1318 days to enforce a contract (compared to a regional average of 1059). Cases in Sri Lanka take years, and a senior executive at a large blue chip firm observed to us that they go to almost extreme lengths to avoid legal proceedings as they take a very long time to conclude. According to some accounts, only 2% - 4% of cases are taken to court, due to the delays and the resultant expense. Secondly, the competence of judges is often questionable especially on technical matters including technology and financial products.
Why hasn’t the SEC launched a probe into the high profile investor who at a very public platform admitted to passing on insider information and felt there was nothing wrong with it. I believe the comments were made in July and still nothing?
There are good reasons to discount the high levels of risk attributed to the legal system though. Firstly, it is a common law system with well established procedures, precedents and conventions and a healthy professional body. The legal infrastructure encompasses the entire island, not only the capital. Moreover, sound legal advice is readily available with highly skilled and experienced practitioners dispensing impartial advice. The trend is likely to accelerate with greater business involvement in Sri Lanka and increasing linkage with the international economic and legal system.
Fourthly, considering the rather poor state of the system, often both parties are reluctant to take a case to court as it drags. Rather settling issues out of court is common, and is an efficient way of achieving a decent level of fairness. For example, in Sri Lanka, recovery rates on closed business are $0.47 to a $1, while the regional average is $0.28. In comparison, Vietnam’s recovery rate is a mere $0.18.
Bureaucratic Uncertainty. Firstly, no clear procedure exists for investors in Sri Lanka at the moment; the Board of Investment (BOI) was designed to be a ‘one stop shop’ for investors. However, it is in a state of transition, having been absorbed by the Ministry of Economic Development and it is unclear what it future role is going to be. The new $3 million limit at the BOI for incentives is still a bit premature. I believe we still need to incentivize people to come in – maybe set the bar at $500,000 and work it from there.
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Moreover, in the past BOI approval did not mean that an investor did not have to deal with other government authorities, except through the BOI. Investors often complain that they not only have to deal with the BOI, but the Tourism Authority, the Health Ministry, local government and anyone else who takes an interest in the project.
On the positive side, access to information and procedures has become significantly more transparent and easy to access as a result of a government effort to place information in the online public domain. For example, customs procedures and rates, which used to be very difficult to keep track of have now become significantly easier as a result of implementing an online system.
We should steal some of the regional ideas with pride: Hiring of foreigners is difficult. A company or multi-national really does not want to have an expatriate here unless it is absolutely necessary, they would much rather have a Sri Lankan do the work – from many different perspectives. However this is one of the few locations that people do like to come and work even in Asia – I have never heard for example someone say I want to go work in Seoul.
A lot of foreigners complain about doing business here as if it is "all Sri Lanka’s fault". Investing into projects in Sri Lanka is not about the 20,000 ft view and flying-in-flying out (what I believe is tilted parachute management). You need to understand the ground situation of what you are investing in and work thru the issues at hand and no matter what is going on and not leave it to a local partner "to sort out".
Property speculation anywhere is a fool’s game but draws people to it in droves and there is a fair amount of it going on here both by locals and foreigners. The 100% tax on foreigners acquiring property is frankly a joke, not one person is meant to have paid it. It is far better to remove it, announce a general amnesty and say NO foreigner can own land but offer them a 50, 75 or 99 year lease, ask them to pay a 10% tax which is grandfathered and regularize the transactions – this would probably make a huge dent in the national debt and make it clear all and sundry who the rightful owners are preventing misappropriation. We should offer the same incentives as Singapore, namely:
* Non-residents cannot own landed property and only above the 3rdstory * Permanent residences can own upto 18,000 sqft of land
Colombo is probably the nicest major city to live in South Asia. It should be experiencing a real estate boom. We need to develop a concept along the same as Malaysia My Second home. Thru this we should be able to get 50,000 retirees from Europe and the Middle East taking this up – what a boost to the local economy as they escape the European winter or the Middle Eastern Summer. Capital has been king in the past and even now it is emerging as ideas. Those who can think outside the box and pursuing ideas will succeed in the long run. There is a crying need for real Venture Capital in the country and incentives to bring in the capital as well as expertise. We need to encourage entrepreneurs and not just large companies to come in and set up and build real businesses.
Being located in a strategically advantageous geographical location, Sri Lanka has a huge potential to become a maritime, aviation, energy, knowledge and commercial regional hub, to integrate the domestic economy with the international markets, capitalizing the human as well as natural resources of the country. Sri Lanka also has potential as a viable destination of choice for the worldwide IT and BPO market. In concluding I would propose that Sri Lanka remains a highly attractive investment destination, but the high levels of perceived risk mean that potential investors have been wary of investing. However, careful analysis of the levels of investment risk in Sri Lanka indicates that market perceptions are higher than they should be. 26 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Management
27 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 17, 2011 Group Games can alleviate Stress
Group games have a proven effect on stress relief (games that exclude negative stress, if we take into account the undeniable fact that some positive stress is important for winning); and serve as an equally effective activity to relieve pent up stress.
In recent years, support groups, clubs and associations have cropped up in many societies, more importantly in urban societies. Some of the best stress relief games are organized and practiced during meetings and stress relief sessions.
In essence, the best group stress relief games are practiced as stress relief therapy because they are believed to have the following positive effects:
* Greater sense of self-awareness and self-control; * Reinforced coping strategies; * Bringing back belief in fairness; * Collective sense and support; * Positive stress.
Here are a few group stress relief games along with the underlying benefits on the individual as well.
1. Team Sports Team sports are considered an excellent stress relief measure. Games that require considerable input of physical energy obviously relieve negative thought patterns as well as withheld emotions. Group sports are especially beneficial to people suffering from stress because they favor team spirit and support.
People who have developed negative feelings towards peers and society at large would particularly benefit from this type of game. Moreover, any sort of activity that allows you to be instinctive and spontaneous will undoubtedly help relieve stress.
The truth is gaming does not only play an important role in the development of the person, but is of equal importance in the life of adults and in the proper functioning of society. The benefits of the best group stress relief games are incontestable. Furthermore, they are free and voluntary and are a simple and genuine source of joy and fun.
2. Role Play Another great group stress relief game is that of role play, which enables each individual to assert his own self within the group. This definitely helps acquiring new forms of communication and social skills. Role play aims at making the individual feel safe and secure within the group, hence in society as a whole.
Paying a particular role also brings greater self-awareness - discovery and greater sense of the self. However, the animation of a therapeutic role game is a complex activity and requires of good to mastery of the methodology.
3. Board Games Apart from being enjoyable by one and all, board games are beneficial as stress relief strategies because they require a lot of concentration and mental focus, which helps ward off negative thoughts for some time at least. Indeed, much of our stress is related to negative thoughts that constantly plague our mind. Board
28 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
games exist in a variety of forms, from the basic Monopoly and Chess to the more complex games.. Some require creativity and intelligence; some are a lot simpler to play.
Whatever these bring out in a person, they tend to show a different side of life than what everyone sees in a daily routine.
Board games usually imply many rules and regulations, but the latter are viewed as an essential part of the game and the fun, rather than something that is imposed on us, and which brings additional stress.
They are clearly separated, isolated from the rest of our daily routine and mundane activities and are effective stress relief activities.
29 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Sunday Times – September 18, 2011
Now, more than ever before, the world needs creativity Focus on creativity
By Eric Frank, Executive Creative Director, Saatchi & Saatchi, Sri Lanka
When I was at school I spent much of my time in class totally immersed in drawing pictures in my books. No margin, introductory page or fly-leaf was spared and when it finally came down to confronting my exam results; I discovered that the time spent on llustrating my fantasies was directly related to my poor marks in subjects that actually didn’t interest me.
During that time function and logic were the passwords to a successful future and the concept of creativity (the stuff behind my drawings) was considered part of the arts; the exclusive domain of painters, inventors, writers, and other weird people.
Sir Richard Branson ( pictured here as a schoolboy).
There is no doubt that creativity is the most important human resource of all. Without creativity, there would be no progress, and we would forever be repeating the same patterns - Edward de Bono Fortunately things must change. With the world facing multiple crises, it is now imperative that leaders and business encourage creativity at every level. Because, creativity is the mother of innovation and both are critical to the future of our planet.
What defines creativity? Creativity is a mental and social process that is stimulated by insight-conscious and unconscious.
It powers ideas, concepts and associations. Innovation, in turn is the successful exploitation of new ideas - it’s the profitable outcome of the creative process involved in generating and supplying new products and services that are viable, desirable and necessary.
Creators and innovators may rarely have the same perspectives or attributes but more often than not they are equally motivated and committed to their goals. Their ability to excel in finding solutions to the challenges they face is what makes them such inspiring people.
30 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The key question isn’t “what fosters creativity?” but it is why in God’s name isn’t everyone creative? Where was the human potential lost? How was it crippled? I think therefore a good question might be not why do people create? But, why do people not create or innovate? We have got to abandon that sense of amazement in the face of creativity, as if it were a miracle if anyone created anything - Abraham Maslow.
Who is Creative? If like many, you believe that only a select few are born creative, you’re wrong. The creative geniuses we look up to are just like you and I. Except when it comes to expressing our creativity we are paralysed by fear of failure and ridicule.
Perhaps we’ve been brainwashed by education or our upbringing has led us to believe that thinking differently is wrong. But, believe it or not, failure is essential to creativity. Without creative failure we wouldn’t have computers, light-bulbs, telephones or the humble post-it-note.
The three components of creativity.
1.Expertise is basically knowledge in all its facets. 2.Creative-thinking skills are determined by how imaginative and flexible you approach problems. 3. Motivation is your passion to solve problems in an innovative and refreshing manner.
Leveraging our creativity: Just like our creative heroes, we also have brains and lots of ideas spinning around in our heads. The only difference between us and them is that they act. They have the courage and self-belief to make their ideas happen.
Take Sir Richard Branson ( pictured here as a schoolboy). While suffering from dyslexia and delivering less than stellar academic performance, Branson discovered he had an ability to connect with people. Focusing upon what he was passionate about, he pursued his own creativity with no fear of failure and in a few short years changed the face of business world-wide.
After he failed to successfully grow and sell Christmas trees, Branson was barely 18 when he launched a magazine, “The Student”, from a crypt in a church near his home. Shortly after that he used it to market his own record company, Virgin Records. In no time both enterprises were thriving successes. Two years later, at the age of 20, he opened the first Virgin Music Store in Oxford Street.
In subsequent years he went on to reinvent the entire music industry and develop his Virgin empire into one of the world’s biggest and most valuable brands. "For me business is not about wearing suits, or keeping stockholders pleased. It's about being true to yourself, your ideas and focusing on the essentials." - Sir Richard Branson
We need more Bransons’ and we need to encourage and inspire as many people as we can to step forward and apply their massive creative potential to discover alternative fuel sources, ways to combat climate change, disease and famine. We urgently need to do anything rather than nothing. The secret to the future is in our creative power.
31 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Money & Banking
32 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 12, 2011 CB defies IMF on exchange rate policy
The Central Bank on Friday countered the International Monetary Fund (IMF) stand that the present exchange rate policy of the Central Bank was inappropriate.
Over the past few weeks the rupee has come under pressure to depreciate against the dollar on growing importer demand. The dollar closed at Rs. 110.17 on Friday gaining from Rs. 109.93 a week ago but was still lower than the Rs. 112.73 position a year earlier.
The Central Bank has been selling dollars in the market to prevent a sharp depreciation of the rupee (US$ 416 million in July alone was sold to the market) but was last week compelled to slightly adjust its trading band to allow the exchange rate to respond to demand and close at Rs. 110.17 against the dollar.
This action on the other hand was causing pressure on interest rates. Dealers told The Island Financial Review that there was considerable pressure on rates given that the exchange rate was not allowed to adjust to market determinants.
An indicative rate, the average weighted prime lending rate, of the country’s commercial banking system had increased slightly to 9.49 percent last week from 9.37 percent a week earlier. Benchmark Treasury bill rates were unchanged over the past few weeks but dealers said this was because captive sources, state- names, were compelled to borrow at prevailing rates.
The IMF was not all too happy with the Central Bank’s exchange rate policy. Last week it released an official statement after a quarterly review under the US$ 2.6 billion standby facility arrangement where it said: "This (exchange rate) policy does not seem to be in line with the current fundamentals of the economy. In responding to market pressures, the Central Bank should henceforth limit its intervention and allow more exchange rate flexibility. Flexibility in the exchange rate, which has appreciated substantially in real terms over the past two years, is also an essential component in ensuring Sri Lanka’s export competitiveness".
The Central Bank on Friday released the following statement defending its exchange rate policy: " The mission has commended the significant macroeconomic achievements and stability of the economy and has indicated the need for more flexibility in the exchange rate with limited intervention by the Central Bank.
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"The Central Bank wishes to emphasize that the gross official reserves of CBSL has now reached the historically highest level of US dollars 8.1 billion, substantially above the desired levels and sufficient to cover 5.8 months of imports. The exchange rate policy of the Central Bank has been consistent where Central Bank intervenes in both sides of the market to maintain stability while also allowing adequate flexibility.
"So far during the year, the rupee has marginally appreciated against the US dollar and has depreciated against other major currencies; at rates of 4.7 per cent against Euro, 3.2 per cent against Pound Sterling; and 5.0 per cent against Yen. During July and August 2011 Central Bank had to intervene in the foreign exchange market as there were some pressure mainly to absorb the proceeds of the sovereign bond of US dollars 1.0 billion and to ease some pressure attributable to significant increase in import demand particularly in the backdrop of increased oil imports," the Central Bank said.
"Going forward, it is evident that significant inflows of foreign exchange are forthcoming on account of investments in various projects including in the areas of tourism, ports, and telecommunications, manufacturing and assembling industries as well as to the debt and equity markets. Inflows to the government to finance various infrastructure projects are continuing. Foreign remittance inflows as well as inflows to the services account, which includes earnings from tourism, port and airport services, continue to be strong. At the same time several commercial banks have also indicated that they would raise their Tier 2 capital and a part of that would come from foreign sources. These will lead to substantial increases in foreign exchange liquidity in the market," the bank said.
"Hence, the Central Bank is of the view that its policy on exchange rate is appropriate in the circumstances and will continue to follow such prudent policy," it said.
IMF Mission Chief to Sri Lanka Dr. Brian Aitken said the exchange rate policy was contrary to the economic fundamentals of the country.
Responding to a query as to whether an increase in interest rates would help bring some balance, Dr. Aitken said an increase in interest rates would stifle growth. "
"Sri Lanka needs to adopt an optimal policy mix. Monetary policy is in line with the growing economy if the government prematurely tightens interest rates economic growth could slow down. So we believe the authorities should not tighten at this stage, but use the exchange rate to ease excessive pressure on the economy," he said.
He also went on to suggest that greater flexibility would also help exporters remain competitive in international markets.
The IMF had given a thumbs-up on almost every aspect of the economy it was monitoring but it implied that the exchange policy would come under further scrutiny as the review mission headed back to Washington vowing to engage in further discussion at the IMF/ World Bank annual sessions this October.
34 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Sunday Island – September 18, 2011
IMF Reviews domestic macro-economic policies Earned versus Borrowed Reserves
By R.M.B Senanayake
The IMF team which visited the Island last week has once again stressed the need for a more flexible rate of exchange and asked the Central Bank (CB) to stop the sale of foreign exchange merely to prop up the rupee without allowing it to depreciate when demand exceeds market supply. By selling its holdings of foreign exchange the CB is running down the Official Reserve. It will justify its position by arguing that the Reserves are very high considering their adequacy in terms of how many months’ imports they can finance and ignoring the need to repay maturing foreign debt each year.
The CB makes much of the fact that the Gross Official Reserves are $8 billion. But the IMF points out that these are all borrowed Reserves and not earned Foreign Exchange Reserves. The earned foreign exchange Reserves are only $ 700 million which is below the US$ 900 million held in March 2009.Then the government had to go to the IMF to buttress the Reserves to prevent a run on the rupee by foreign creditors, particularly those holding government bonds and equities. The CB used to argue that foreign debt can always be rolled over but it still went to the IMF instead of the private capital markets of the world.
Net versus Gross Foreign Reserves Since March 2009 the Gross Official Reserves have continued to grow through foreign borrowings. There have been inflows to the Treasury Bill and Bond markets because the interest rate differential here and abroad is high. The prevailing interest rates in the world’s capital markets are very low- around 2% or so. So with the rupee linked to the US dollar at more or less fixed value and the exchange rate risk eliminated, foreign investors found the local rupee denominated bonds very attractive.
On top of that the Government borrowed through the issue of Sovereign Bonds and dollar denominated Development Bonds and the Gross Official Reserves reached a high of US$ 8 billion. But the IMF Reserve target is based not on the Gross but the Net Reserves figure. Their Net Reserve target which is the Net Official Reserve held by the Central Bank has probably not been achieved and hence the speculation in the newspapers that the next tranche of the IMF Standby Credit may not be released.
The IMF must be disappointed that the net Reserves which are Earned Reserves are below what they began with. Hence the IMF Standby Credit will end up as a failure to resolve the crisis and the same weak external situation will continue and could even worsen.
Exchange Rate policy The exchange rate has been held stable since 2007. It is used as a cushion against inflation arising from imports. But despite it, the rate of inflation has climbed slowly and the inflation differential between domestic and US inflation has widened. The main purpose of the Exchange Rate is to ensure equilibrium in the balance of payments on current account to the extent that there are no long term capital inflows by way of foreign direct investment and multilateral concessional loans. We are not entitled to concessional loans any more as we are now a middle income country. Nor are we getting adequate direct foreign investment.
The Exchange rate has departed from its Relative Purchasing Power Parity and become over-valued by an increasing margin. Owing to IMF pressure the Central Bank allowed some depreciation by about 4% or so 35 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
in 2009/2010. The depreciation of the Euro and the Pound is due to the depreciation of the dollar vis-a-vis these currencies and not due to Central Bank action. The rupee continued to appreciate as against the US dollar during the first nine months of the year. The rupee was Rs 119.25/120.92 in May 2009. But in May 2010 it was 112.99/ 114.58. A larger current account deficit is likely this year (after setting off worker remittances) which may require running down of $2.5 billion from the Official Reserve.
Rupee overvaluation with large current account deficit The IMF is concerned because of the large trade deficit this year. Although exports have increased imports are increasing even more. The terms of trade weakened by 5.3 per cent in 2010 due to the significant increase in import prices above export prices. It may repeat this year as well. What enters the GDP is the deficit in the current account which means the GDP will be less by the amount of such deficit. The rupee is overvalued and it will affect our export industries and also the import substitution industries adversely.
Recently there was a 27% increase in the wages of tea estate workers. It was not tied to productivity. Tea estates are losing workers to the urban centers because the wages in the estate sector are relatively low. A wage increase is also necessary because of the rise in the cost of living since poverty is highest in the estate sector. But the country cannot afford to raise wages by more than the increase in productivity. Wages are the most important determinant of the overall cost of production in the tea plantations with the cost of production said to have increased by Rs 50 per kilogram owning to the wage increase. Meanwhile tea prices are stagnant.
The upcountry teas go to the developed countries where our tea is blended with cheaper teas from Indonesia or East Africa. According to tea industry experts, since we don’t allow the import of tea for blending and packeting, this industry has developed elsewhere. The Regional Plantation Companies with up-country teas are losing money unless they have rubber and palm oil. Even with that the bottom line of one such company, Richard Pieris has gone into the red in the second quarter of 2011 despite a 15% increase in the top line.
The low country teas going to the Middle Eastern countries are also encountering difficulties owing to the political unrest and violence in Syria, Libya and Bahrain . These may be temporary. But they may also lack foreign currency to import the higher priced teas from us instead of the cheaper teas from East Africa. We are in danger of losing these markets if our costs (prices) continue to rise relative to those of East Africa. Faced with losses, the tea producers both the RPCs as well as the small-holders may cut back on fertilizers and replanting- sacrificing the long term for the short term.
This is not the first time that governments have pressurized the tea estate owners to grant wage increases which were relatively high. But those days the Central Bank allowed regular depreciation of the rupee by about 5-7% each year and the plantations were able to recoup their losses through exchange gains. The rigid rupee peg to the US dollar can be justified only if there were no inflation differentials between USA and Sri Lanka. The exchange rate must be in equilibrium in terms of its purchasing power.
Nothing shows up the failure of our economic policies so clearly as the exchange rate. In the 1950s the Indian rupee, the Pakistan rupee and the Ceylon rupee were all with a similar parity to the U.S dollar. But today our rupee is only about 40% of the Value of the Indian rupee. Our post Independence failure to control inflation differentials is reflected in the exchange rate of the rupee with other currencies. But holding the rupee stable in the midst of widening inflation differentials is not a sustainable policy. It is being done at the expense of our exports.
The ratio of export to the GDP continues to fall and as the IMF has pointed out, our share of exports in world trade is also falling. Does it matter? Yes it does since we have to earn foreign exchange not only to 36 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
pay for our imports but also to repay our foreign borrowings and roll-over is not always feasible. Our foreign borrowings continue to increase and the exports to debt service ratio is 15%. Creditors look at our earnings and not only our Reserves to determine debt repayment capacity.
Monetary Policy implications of the peg When the Central Bank policy sells dollars to the market to keep the rupee stable, it is also withdrawing rupees against them. This should lead to the draining out of the excess liquidity in the market. But since that could lead to an increase in the interest rates, the bank also issues its own securities or buys existing securities from the banking system to offset the withdrawal of rupees owing to the sale of foreign exchange. The banks are then free to buy more Treasury securities, creating more cheap money.
The government does not want to see interest rates rising. But with rising inflation local lenders will want higher interest rates on government bonds for bond yields must reflect an inflation premium. The government may prefer to borrow in foreign exchange instead. Higher interest rates will adversely affect private sector investment and growth. Non-bank financial institutions may have to raise interest rate on deposits if they are to mobilize public deposits. Both interest rate and exchange rate policies are creating a false economy and distorting the rational allocation of resources.
37 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Exports & Imports
38 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 12, 2011 John Keells Tea Market Report: Altering weather patterns hit tea production
The impact of climate change seems to be drastically altering weather patterns, not only in Sri Lanka, but throughout the world. We have seen floods and severe droughts which has caused extensive damage to agricultural outputs in many countries including Sri Lanka.
The monsoons in Sri Lanka can no longer be predicted accurately, and the two quality seasons we enjoy have not brought about good seasonal quality, for a few years.
We have observed the rise in temperature giving way to much hotter weather conditions. The warmer weather, Sri Lanka has experienced this year at higher elevations could be a significant factor for the increase in tea production from these elevations, despite an over all drop in Sri Lanka’s Tea crop.
It has perhaps also constrained the level of quality, and the high quality of “Ceylon Tea” appears to be under threat.
It is believed that rising temperatures over the next couple of decades will have serious consequences on Sri Lanka’s dry zone agriculture. This thinking is shared by many countries, where climate change will have an impact on most agricultural crops including tea production with suitable lands being pushed into higher elevations.
In Kenya climate change is expected to drastically affect tea production over the next 40 years. At the recently concluded Tea convention in Mombasa, a presentation on the effects of climate change demonstrated that by the year 2050, nearly all of the Tea growing areas west of the “Rift Valley”, will be unsuitable for tea growing ! This represents nearly 60 percent of the Tea production in Kenya, including the popular Kericho district.
Following Climate change United Kingdom has started growing tea in parts of the country where the weather has turned warmer. In the long-term, this could pose a threat to the large volume of tea that is imported into the UK annually.
The first tea plantation in Tregothnan Estate in Cornwall, South West of England which is the country’s warmest region was established in 1999. It made its first harvest in 2005 and since then production has continued to improve.
A record harvest in excess of 10 tonnes is expected this year. Could this be the beginning of a shift in the global tea cultivation map?
39 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Last week’s average for Low Grown Tea reflects an improvement of Rs 8.40 over the previous week. The market however, was quoted as having declined around Rs 10 to Rs 15 for most grades.
Hence, the improved average does not reflect the market movement rather, the offer mix for this final sale of the month, along with the impact of unsold teas, which were predominantly, the lower priced varieties. The slightly smaller weight of 0.9 mkgs of Ex Estate teas met with stronger demand at today’s sale. It was pleasing to note the additional interest shown for the Western High Grown BOP/BOPFs, mainly due to improved demand from Russia.
It was also pleasing to see little more activity for Nuwara Eliya teas from the tea bag sector, and together with an improvement to quality prices advanced Rs 10 to Rs 20. More importantly there were hardly any unsold teas.
Bright Uva BOP/BOPFs continued to sell well on special inquiry with a line of Uva Highlands BOP selling at Rs 1000. Others were Rs 5 to Rs 10 dearer.
Select Best Low Grown CTC PF1s too advanced following special inquiry with a line of Kalubowitiyana PF1 fetching an All Time Record price of Rs 620. There was good demand for the brokens with price gains of Rs 10 to Rs 15. High and Medium CTC PF1s too advanced Rs 10 to Rs 15 on average.
The 3.2 mkgs of Low Growns that came under the hammer this week met with wide spread demand. In the Leafy category, BOP1/OP1s were mainly firm, however the bold Pekoes eased a few rupees, on account of restricted Syrian buying. OP/OPAs were mainly firm.
In the Small Leaf category, the select best FBOP/FF1s were fairly steady, others declined several rupees. At the bottom end prices eased following less inquiry. Most traditional markets were operative.
Western Teas Select Best BOPs advanced Rs 10 to Rs 15, other good invoices gained Rs 10, Below Best sorts were irregular, plainer varieties were firm. Select Best BOPFs advanced Rs 10 to Rs 15, other good invoices gained Rs 15 to Rs 20, Below Best sorts too were Rs 10 to Rs 15 dearer, plainer varieties gained Rs 5 to Rs 10. Medium BOPs advanced Rs 10 to Rs 15. BOPFs gained Rs 5 to Rs 10.
Nuwara Eliya Teas BOPs gained Rs 10, whilst BOPFs advanced Rs 15 to Rs 20 on average.
Uva Teas Bright BOP/BOPFs sold well on special inquiry, others gained Rs 10 on average. Uda Pussellawa BOP/BOPFs advanced Rs 10.
CTC Teas Select Best Low Grown PF1s advanced Rs 10 to Rs 20 on special inquiry, others declined by a similar margin with a fair volume remaining unsold. High & Medium PF1s advanced Rs 10 to Rs 15 on average. All BP1s gained Rs 10.
Low Growns Fair demand. Select Best OP1s declined Rs 20 to Rs 40, whilst the Best OP1s maintained last levels, Below Best and poor sorts were irregularly lower by Rs 5 to Rs 10.
40 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Select Best along with the Best BOP1s were steady, clean Below Best types advanced sharply by Rs 10 to Rs 15, others tended lower by Rs 5 to Rs 10. Select Best OPs were firm, Best types were irregularly lower by Rs 5 to Rs 10, Below Best types maintained last levels, poor sorts were lower by Rs 5 to Rs 10. Select Best OPAs shed Rs 20 to Rs 40, Best types too were lower by Rs 5 to Rs 10, Below Best types were fully firm, poorer sorts eased Rs 5 to Rs 10 and were mainly unsaleable due to lack of sufficient bids. Select Best Pekoes appreciated Rs 10 to Rs 20, however the balance declined Rs 5 to Rs 10 and more at times. Shotty Pekoe1s were fully firm, the balance shed Rs 5 to Rs 10. Select Best and Best BOP/BOPSPs were firm, Below Best and poorer sorts were lower by Rs 5 to Rs 10. Select Best and Best FBOP/FBOPF1s shed Rs 5 to Rs 10, Below Best and poorer sorts were barely steady. Select Best Tippy sorts maintained last levels but all others eased on last levels.
Off Grades Select Best and Best liquoring Fngs1s were easier by Rs 5, Below Best and poorer sorts were at last levels. Select Best and Best BMs were firm at last levels, Below Best and others eased Rs 5 from last. All Low Grown Fngs eased by Rs 10 to Rs 15.
All BPs were firm to dearer by Rs 5 to Rs 10. Select Best and Best BOP1As were firm to dearer by Rs 5, Below Best and poorer sorts however were lower to last by Rs 10 to Rs 15 and more at times with low demand.
Dust Select Best Dust1s were firm, other Dust1s in the Best and Below Best category appreciated Rs 10 to Rs 15 but declined by a similar margin towards the latter part of the sale, poorer sorts shed Rs 15 to Rs 20. Clean secondaries were firm, whilst the balance declined Rs 10 to Rs 15. Best Low Grown Dust/Dust1s declined sharply by Rs 20 to Rs 25, whilst the balance were irregularly lower.
41 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 13, 2011 National cinnamon trading facility soon
Sanjeevi Jayasuriya
The cinnamon industry will have the benefit of a National Cinnamon Trading Academy shortly with an investment of Rs 70 million “We have funding from the UNIDO and WTO for the training component and establishment of curricular including other needs. The Spice Council has set up a special company under the name Cinnamon Training Academy Limited to facilitate the national academy, Spice Council founder Chairman Sarada de Silva told Daily News Business.
“The company has already acquired two acres of land in Kosgoda to set up the academy which will address the acute shortage of cinnamon peelers in the industry,” he said.
The cinnamon logo will be internationally launched on October 11 at the Germany Trade Fair. The Spice Council is looking forward for funding to register the cinnamon logo at the main consuming markets of Mexico, USA, European Union, Peru and Colombia Sri Lanka supplies 95 percent of the world demand and there is unmet capacity the country is unable to meet at present. There are 31,000 hectares of cinnamon in Galle, Matara, Hambantota, Kalutara and Ratnapura.
Although, cinnamon could be peeled twice a year nearly 65 percent of the plantation is peeled only once. This provides the opportunity for the industry to double its capacity without adding to the existing plantation.
“We need 30,000 more peelers and with adequate manpower there is promising growth prospects for the industry. With the set up of national academy, the industry could train youth to increase the yield while maintaining high quality,” de Silva said.
Plans are underway to set up a group processing facility to ensure international standard of the product and facilitate value addition to generate more foreign exchange.
Cinnamon exports for the first six months increased recording 81 percent increase in export value and 152 increase in the value added products.
42 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 14, 2011 National jewellery trading facility soon
Sanjeevi Jayasuriya
The gem, jewellery and diamond exports continues its upward trend in foreign exchange generation by recording an overall growth of 21%.
The gem, jewellery and diamond export earnings up to end August this year recorded an increase of 21 percent compared to the corresponding period last year. The sector’s growth in terms of value increase was from Rs 29.95 billion to Rs 36.23 billion, National Gem and Jewellery Authority (NGAJA) Chairman and CEO Gen Rohan Daluwatte told Daily News Business.
The most significant growth was recorded by gem exports where it recorded a 37 percent increase generating Rs 6.90 billion in 2011 compared to Rs 5.04 billion last year.
The total value of jewellery exports too rose with gem studded jewellery exports increasing by 15 percent from Rs 0.96 billion to Rs 1.11 billion while diamond studded jewellery exports increased by 32 percent from Rs 217 million to Rs 285 million.
The diamond re-exports rose by 18 percent from Rs 23.50 billion to Rs 27.73 billion.
“We could see a steady growth in export revenue Sri Lanka gemstones generation. The growth momentum in the sector augurs well for related industries where its contribution to the national income becoming more significant,” he said.
The sector will benefit from the aggressive marketing strategies to capture a wider buyer base in target countries with special emphasis given to Turkey. The debutante entry will be made coinciding with the Istanbul Jewellery Show to be held from October 13 to 16.
There will be a Sri Lankan pavilion at this show where the country’s potential will be showcased for the first time. Six leading gem and jewellery exporters will be sponsored by the NGAJA to enable them to make the show a launching pad to enter the international market.
Turkey has a thriving market and is the leading gem and jewellery supplier to the entire European market. It is expected that coloured gems and gem and diamond studded jewellery will find an attractive market in Turkey where competitive prices and quality are key factors.
“We expect Russian buyers to visit the Sri Lankan Pavilion where the country will have an opportunity to promote the sector as Turkey could be our main market and gateway to Russia,” NGAJA Chairman said.
43 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Stock Market
44 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 12, 2011 Retail investors to dominate market
The ASPI gained marginally for the second consecutive week closing at 6,990.33 points; the more liquid MPI index however, closed on a negative note at 6,286.93 points. The ASPI increased by 0.57% while the MPI decreased by 0.16%.
The weekly turnover value gained by 2.24% to Rs 19.73 billion, amounting to a daily average value of Rs 3.95 billion compared to last week’s value of 19.30 billion. Turnover value for the week was dominated by JKH, Blue Diamond (NV) and Browns Investments Ltd, accounting for 33.36% of the total turnover value. The number of shares traded increased significantly by 130.51%, averaging 317.82 million, as against 137.88 million shares traded last week.
The Diversified sector led the turnover in value for the week, accounting for 31.05%, amounting to Rs 6.13 billion. The second highest contributor was the Manufacturing sector, with 15.33% or Rs 3.02 billion. The third highest contributor was the Banking and Finance sector, accounting for 14.30%, amounting to 2.82 billion.
Volume of turnover for the week was dominated by the Banking and Finance Sector, accounting for 40.48% of total market volume, with 643.24 million shares changing hands, followed by the Manufacturing sector, which represented 22.75% or 361.55 million shares.
Third highest contributor was the Diversified sector, with 230.98 million shares being traded, or 14.54% of turnover volume. Market capitalization recorded a marginal gain of 0.6% to close at Rs 2507.45 billion, as against last week’s close of Rs 2492.18 billion.
Blue Diamonds (NV) was the major price gainer for the week with a 45.95% increase to close at Rs 5.40. The second highest gainer was Ceylon Tea Brokers, closing at Rs 7.7, compared to last week’s close of Rs 5.40, representing a 42.59% gain. Radiant Gems was the third highest gaining 42.04%, to close at Rs 114.20.
The list of major price losers was dominated by Miramar Beach Hotel, losing 14.43%, to close at Rs 263.9. Singalanka followed suit to, closing at Rs 32.70, declining 12.32%. The third major loser was Selising, losing 12.00%, to close at Rs 1100.00.
Mercantile Shipping Company Plc and Metropolitan Resource Holdings Plc were also major price losers for the week. Foreigners remained net sellers, with a total net selling position of Rs 4.44 billion, relative to last week’s position of Rs 37.77 million. Foreign selling amounted to Rs 5.7 billion, mainly on account of Arisag selling its stake in JKH to local institutions.
Blue Diamonds (NV) topped the volume list recording 264.08 million shares changing hands representing 16.62% of the aggregate share volume. SMB Leasing contributed 11.13% of aggregate share volume, with 176.83 million shares changing hands.
Point of view Market momentum based on retail-activity continued over the week with strategic investments by Distilleries, Asian Alliance and East West Properties dominating market activity. 45 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Institutional investors are likely to remain on the sidelines in the week ahead while retail-investors continue to dominate markets. We continue to see value in the market given the strong earnings potential of corporates and believe that an accumulated portfolio of selected stocks will generate value in the medium term.
The IMF’s 2011 growth forecast of 7.5% and satisfaction regarding the macroeconomic conditions and fiscal performance augurs well for the medium term outlook. However, an increased level of investment both - foreign and local - is imperative to maintain the growth momentum.
46 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Business
47 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 14, 2011
Addressing buyer utility for business success
It is not possible to invent or reinvent a business model without first identifying a clear buyer utility value. Blue Ocean Strategy has a focus on genuine buyer (consumer) utility woven through virtually every element of the process. The core part of value innovation, requiring that factors be eliminating and reduced, is clearly explained to consumers, who accept the trade-off for the factors that were raised and created.
Buyer need and business opportunity Let us look at some successful business cases where buyer utility was focused on developing successful business models. Ratan Tata of Tata Group while standing on a Mumbai road on a rainy day noticed the large number of scooters precariously moving in and out around the cars. He further noticed that most of those scooters were carrying both parents and children (families). Ratan Tata immediately saw a buyer need and a business opportunity there. He realized that the average families in India were in need of an alternative safer transport mode. He understood that the cheapest car available in India cost easily five times what a scooter did and that many of the families could not afford one despite the added buyer utility value. Offering an affordable, safer, all-weather alternative for scooter prompted a powerful buyer utility value to reach tens of millions of people who were not yet part of the car buying market.
Ratan Tata knew the only way to get families off their scooters and into cars would be to break the ‘wealth barrier’ by drastically reducing the price of the car. “What if I can change the game and make a car for one lakh?” Tata wondered, envisioning a price point around US$ 2,200, less than half the price of the cheapest car available.
This, of course, had dramatic ramifications for the profit formula. It required both a significant drop in gross margins and a radical reduction in many elements of the cost structure.
He knew, however, he could still make money if he could increase sales volumes dramatically, and he knew that his target base of consumers were potentially high.
In Blue Ocean Strategy, to break the trade-off between differentiation and low cost to create a new value curve, there are four questions (Four Actions Framework) that challenge an industry’s strategic logic and business model: Which factors does the industry take for granted and should be eliminated, which factors should be reduced below industry standard, which factors should be raised well above and created that the industry has never been offered?
Generating a new value curve Tata Motors was able to reconstruct buyer value elements by generating a new value curve. For Tata Motors to fulfil the requirements of its ‘Buyer Utility’ and profit formula for the Nano, it had to re-conceive how a car is designed, manufactured and even distributed, Tata built a small team of fairly young engineers who would not, like the company’s more-experienced designers, be influenced and constrained in their thinking by the automaker’s existing profit formulas.
This team dramatically minimized the number of parts in the vehicle, removed non-essential features by not including airbags, air-conditioning, designing a rear-engine that only has two cylinders, no power steering which is not necessary because the car is so light, only using three lug nuts on the wheels instead of four, using only one windshield wiper instead of two, reducing the amount of steel used in the design and depending on lower priced Indian labour.
48 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
They were able to produce a quality product through value innovation and for the company opened up new and uncontested market space.
Value addition Until recently ‘Ceylon Tea” was marketed benchmarking the competition and competing on price-value for money; Offering bulk tea focusing on big volumes and lower grades of tea; Catering to the traditional mass market (lower and middle income categories). Mlesna Tea revolutionised the local traditional tea export from bulk raw material and cheap consumer packs to a more lucrative form of exclusively finished consumer and gift packs.
While most of the other Ceylon Tea players were competing within the low-end market segment catering to the masses with bulk tea or value for money teas, Mlesna realised the impact of eroding margins of such a market and anticipated the requirement to seek for new markets, in order to combat cut-throat competition. Mlesna Ceylon Tea was instrumental in adding value to the raw leaf of Sri Lanka instead of merely selling it as a low-priced raw tealeaf to major foreign purchasers. They were the first Sri Lankan tea company to introduce the specialty tea concept to Ceylon Tea and thereby shunned the commodity "bulk" tea exporters and value added Ceylon tea. They also introduced lifestyle retailing which is a novel concept in Sri Lanka. Today Mlesna stands as a hallmark of quality tea both locally and internationally and has won over 79 awards, which consists of 19 Presidential Export Awards, 11 National Export Awards, 23 Lanka Star Awards, 17 Asia Star Awards and nine World Star Awards. Going beyond existing market segments Mlesna identified customers a) across strategic groups such as business travellers, overseas travellers, expatriates b) across alternative industries such as hospitality (restaurants) and tourism (handicrafts) c) across functional and emotional appeal such as Gift tea packs d) across time and trends such as classic packaging from clothes, wooden boxes etc. e) across complimentary offering such as chain of exotic tea shops.
Mlesna’s novel concept of exporting tea in a wide range of attractive packs is purely a blue ocean strategy concept moving away from the competition. They created a sensation by bringing traditional craftsmanship and fine art to the tea trade. By exporting the finest blends of Ceylon Tea in a most exquisite selection of consumer and souvenir packing they increased the buyer utility value tremendously while opening up new markets across the globe for “Ceylon Tea”.
(The writer is the Managing Director of SAGA Resource Development Consultants Ltd. Presently he has been contracted by Goodhope Asia Holdings as a HR consultant. Readers can reach him via [email protected] e-mail address is being protected from spambots. You need JavaScript enabled to view it )
49 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Agriculture & Plantation
50 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 12, 2011
Rural farming community fights climate change
By Ifham Nizam
The farming community of Dalada Handiya, Maho – an area between Anurdhapura and Kurunegala (route number 57) - are confident that the timely rehabilitation of the Imbulgodayagama Tank will make their lives more comfortable.
This is a classic story of how a community could do with very limited funds if proper guidance is given.
Last year, according to the residents, they experienced unusual rain patterns which compelled them to go for short cuts and quick farming.
Farmer and village community strongman, 54-year-old Malhitibandaralage Jayathilaka Wannasinghe, says there is no doubt climate change was the major reason they got water at the wrong time. However, they did make maximum use of it.
Wannasinghe went on to say the community is eternally grateful to Sri Lanka Environmental Exploration Society for coming forward with a proposal on a community-based adaptation, following the crisis situation last year.
He added "This is one of our dreams. We never expected an activity of this nature. Our entire village is grateful of such a move. I think this is the flowering stage – the project is almost over - of our hard work. If not for the officials, we would have not have achieved this feat."
Speaking about the Tank, he says even his parents mentioned that it was filled with debris and mud, maybe up to five to six feet. "Imagine now after decades the amount would be much more. Large quantity of debris and mud lead to the overflowing, with little rain. Rehabilitating the Tank was crucial, when considering both the Yala and Maha season.
When officials explained about the project they took the message across the village and won everyone’s heart. "This was an achievement. I was named as Sigra Goviya, last year for introducing quick farming methods," he added.
Oldest farmer, Herath Banda, who is 82 years old, says he was very happy the great work supported by the Global Environment Facility/ Small Grant Programme of the UNDP.
Technical advisors to the project are Dr. S.P Nissanka (Agronomist), Faculty of Agriculture, University of Peradeniya, and Dr. B.V.R. Punyawardana (Climatologist), Natural Resource Management Center, Department of Agriculture, Gannoruwa.
51 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Banda says witnessing such a development project for the betterment of fellow farmers and fellow villagers is a lifetime achievement.
"Almost all villagers supported this project like one family as it was the need of the hour," he added.
He says despite numerous appeals to different successive governments none came forward to help them.
"Certainly with the rehabilitation work, we could improve our income levels by 200 per cent. The reason being the water levels would be sufficient for two seasons. Water will not only be available for farming but for all purposes for 365 day of the year.
We have over 100 families. Some are government employees but others depend on agriculture. Of course farmers are financially strong as state sector employees. Some government employees are also involved in part time farming," he said.
The tank is also rich in fish and is one major protein providers to the people of the area.
Sixty six-year-old M H E Ranbanda, a farmer who gets the highest revenue, says there was a time when they could utilise water for just one season and they didn’t have water even for bathing.
He says thanks to the Government fertilizer subsidy, they earn between Rs. 70,000 and 80,000 per acre. However, the acreage differs among the farmers. However, with the renovation, water levels would be higher and everyone could go for an additional crop. Maze, grains and vegetables, at times give more income than paddy.
There are about 40 acres for direct cultivation purposes and about 50 acres for indirect cultivation purposes.
They are expecting a 60 per cent increase in the capacity level with the completion of renovation. The bund is about eight feet which was increased by one and a half yards on both sides. Earlier only one vehicle could enter now there are points where two vehicles could move.
The Community is also taking part in planting Kubuk to prevent soil erosion. Some believe soil erosion is the major cause for the mud in the Tank.
A UNDP official says climate adaptation works with an interdisciplinary network of experts with a mutual goal of helping clients to understand and prepare for climate change.
He says as such, many villages are calling for more resources to reduce the vulnerability to changes in weather, temperature, and precipitation that will produce some opportunities in some places but also great stresses on agriculture, water supplies, infrastructure, biodiversity, and public health.
According to Dr. Nissanka, climate change refers to a statistically significant variation in either mean state of the climate or in its variability, persisting for an extended period. Since the industrial revolution, change 52 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
of climate has been occurring at an accelerated rate as a result of human activities. Fossil fuel burnings, change of land use practices such as deforestation, emission of industrial gases etc. are some of the causes.
Climate change great threat to global society Climate change has been a great threat to the global society. Evidence suggest that human-induced climate change is causing temperature rise in the range of 1.4 – 6.4°C by 2100 subsequently causing many direct and indirect adverse impacts to natural systems. The impacts of higher temperatures, means more variable precipitation (floods and droughts), more extreme weather events, and sea level rise, etc. in many parts of the world, causing numerous natural disasters and crop losses.
These impacts are more severe for countries in the tropical region, and present yet another significant challenge to be met by the developing world in this region in addition to the already faced chronic food problems. The impact of this would be very serious for countries that lease developed - those are least able to cope.
Agriculture worse affected He says compared to other sectors, the agriculture sector is definitely the worst affected, causing serious threats to food and nutritional security in developing countries, since answers to agriculture related problems cannot be developed in the short run. The contribution of developing countries - except emerging economies- to the global warming is insignificant and they also have extremely limited mitigatory options to the predicted changes in climate change.
Therefore, he says development and implementation of adaptation mechanisms is the only way out to face the climate change related problems. However, lack of information and awareness, unavailable or limited access to technology, and institutional weaknesses reduce the extent and effectiveness of adaptation. Countries with limited economic resources and insufficient access to technology will be least able to keep up and cope up with the changes.
Recent analysis have shown that the maximum (day) and minimum (night) temperatures in Sri Lanka have clearly been increasing in all the metrological stations of the country, with the highest annual increase of the minimum temperature being about 0.0247°C at Nuwara Eliya. Analysis of annual rainfall figures has revealed that, though the total rainfall received not showing significant changes over the last five decades, significant seasonal variation has been observed in most parts of the country resulting in the increase occurrence of flood and drought situations.
Dr. Nissanka added increasing ambient temperature adversely impacts on crop production and productivity, since many crops that are grown in tropics, are already exposed to the upper limit of the optimum temperature for growth and development. Shortening crop duration, reduced plant structure (size), increase pollen and stigma sterility, increase pest and diseases incidences etc. are associated with quantitative and qualitative crops losses due to increase temperature and these impacts are aggravated greatly with moisture limitations.
Adaptation mechanism –a viable option for developing nations "In order to address climate change issues in a country like ours, only viable option is to develop and introduce adaptation mechanisms. For that it is essential to identify most important climate change related disasters, vulnerable regions, communities, and viable adaptation options for the identified disaster situation. Increase water availability and efficient water use for crop production would be one of the most important adaptations for our country since agriculture is practice predominantly in the dry zone," he added.
53 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
He says tank systems our ancestors have developed could be exploited greatly to achieve food security in the future in the event of climate change as in the past.
However, he says unfortunately most of the tanks lost their capacities due to sedimentation, encroachments, and poor management. Best adaptation measure to increase crop production under climate change, therefore is the rehabilitation of these tanks and increase the water holding capacity and introduce proper management system.
Dr. Nissanka, is the Technical advisor based on the recorded technical and social information, and on site assessments, selected five projects for four disaster situations of; drought Ibulgodayaya tank rehabilitation; Tank reconstruction at Beralihela, Lunugamvehera, land degradation (Walapane), flood (Elapatha, Ratnapura) and sea water intrusion related drinking water limitation (Katuneriya and Chilaw).
Ibulgodayaya tank rehabilitation project was proposed by the Sri Lanka Environment Exploration Society and project activities have been executed with very effective direct collaboration with the community.
Technical team had several discussions with Ibulgodayaya community during the course of project implementation. Community discussions were represented by all age categories and there was a very good gender balance as well.
"We got the community views about how they feel about climate change over past several decades. Especially older community highlighted the increase temperature mainly warm nights, increase variability of the onset especially the North East monsoon rains (Maha season) and increased unpredictability of rainfall patter," he added.
He says the farmers said that, earlier they were cultivating both seasons using the tank water, but now they can’t cultivate during Yala due to reduced tank capacity. Even though the recorded tank capacity was 240 Acre feet, it has greatly reduced due to sedimentation and covered with invasive floating plants and sedges.
The Community also said that their livelihood and food security could be increased greatly if they can get the tank rehabilitated. Initial Vulnerability Reduction Assessment (VRA) conducted individual basis for the community confirmed the vitality for tank rehabilitation as the most essential adaptation measure to face the disaster situation cause by drought. They also mentioned that they are not aware about climate change impacts and other possible adaptation measures and request from the technical team to educate them on these issues.
Dr. Puniyawardena and Dr. Nissanka have been providing technical advice and guidance needed to carry out the project activities successfully and closely monitoring the project activities. In addition to the sediment removal, stabilizing tank banks and bud, catchment conservations, tree planting etc and other related landscaping instructions are being provided.
"We are happy to note the Executing agency and the community are carrying out all project activities to the optimal satisfaction of the technical team. The success achieved with the limited funds allocated for the project has been very great," he added.
Tree planting program and future tank conservation are done in collaboration with the nearby school children. Tank rehabilitation activities were carried as recommended by Department of Agrarian Development.
54 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
SME
55 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 14, 2011 IFRS too complex for SMEs?
By Sanath Fernando, Partner Ernst & Young
When small and medium sized businesses aspire for the big time, sound financials are a must. Many companies are mandated to use IFRS or equivalent Sri Lanka Accounting Standards irrespective of the size, whether or not such companies have resources and money that are required to implement those standards. This is why the authors of IFRS, IASB has provided a subset of rules called IFRS for SMEs with a view of reducing the financial reporting burden of the SMEs. This same standard has now been adopted by the Institute of Chartered Accountants of Sri Lanka effective 1st January 2012.
The key feature in IFRS for SMEs is that many requirements have been simplified. For example, accounting requirements for assets (property, plant and equipment; investment property; intangible assets and borrowing costs) have been simplified keeping in mind the skill sets of SMEs, and also bringing more alignment in cost and benefits of adopting standards. Some of the features of IFRS for SMEs are as follows:
Property, Plant and Equipment Property, plant and equipment (PPE) under IFRS for SMEs are measured at costs, less accumulated depreciation and impairment losses. Under full IFRS, an entity may opt to use the revaluation model for PPE where the assets are carried at fair value, less accumulated depreciation and impairment losses. "Fair value" is defined as the market value of the asset, normally determined by professional appraisers. By limiting the measurement to the cost model, SMEs need not spend on obtaining professional market revaluation to ensure that the carrying amounts of these assets do not differ materially from the fair value of the assets at the end of each reporting period. And since no fair value changes in these assets are recorded in the books of the entity, there is also less volatility in financial reporting, arising from property related fair values.
Investment Property Investment property is property (land or building, or part of a building or both) held by the owner or the lessee under a finance lease to earn rentals or for capital appreciation or both.
In IFRS for SMEs, if the fair value of investment property can be measured reliably, without undue cost or effort on the part of management, an entity can opt to carry such property at fair value, with changes recognized in profit or loss. Otherwise, the property is deemed to be an item of PPE and is accounted for using the cost-depreciation-impairment model. This assessment is determined on a property by property basis, considering the underlying circumstances of each property, which is a much simplification of requirements under full IFRS.
Intangible assets In full IFRS, goodwill and intangible assets are considered as having indefinite useful lives. They are not amortized but mandatorily subject to detailed annual impairment testing. Carrying out such impairment testing requires special skills and competences which SMEs do not posses. Goodwill is also generally not recognized as collateral by most lenders, so that the benefit of accurately assessing these given the resources involved, is less useful to SMEs.
Under IFRS for SMEs Intangible assets, including goodwill, are considered to have finite lives and are amortized over their estimated useful lives. If an entity cannot reliably estimate the useful life of an intangible asset, this lifespan is presumed to have a maximum amortization period of 10 years. Moreover, impairment testing is required only when there is an indicator of impairment. 56 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Borrowing Costs All borrowing costs are expensed in profit or loss in the period in which they are incurred. In contrast, under full IFRS, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset are capitalized. Thus SMEs do not need to compute the borrowing costs to be capitalized. However in some industries, such as real estates, expensing borrowing costs may be disadvantageous as the costs will be recognized in profit or loss in the period in which they are incurred which may lead to greater volatility in earnings.
Overall Since most SMEs aspire to eventually grow into large companies, it would be prudent to comply with comparable global financial reporting requirements. IFRS for SMEs is drafted with unique characteristic of SMEs in mind and hence cater to the needs of SMEs without making financial reporting burden to them. In the long run, this will ease SMEs transition from being an SME to a major player in any industry. Sri Lanka Accounting Standards for SMEs can be accessed in www.icasrilanka.com under Technical/Accounting Standards tab.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The view and opinion expressed above are those of the author and do not necessarily represent the views of Ernst & Young.
57 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily Mirror – September 14, 2011
Development of site-specific fertilizer programmes for SMEs
Small and medium-sized enterprises (SMEs) are the lifeblood of the Asian economy, accounting for two thirds of GDP and providing 75 million jobs in the private sector. They are crucial to the drive for innovation and technological development as it seeks to build a dynamic knowledge based economy. In the face of increasing globalization, accelerating technological change and environmental challenges, one should allow SMEs to develop new products and services through innovation and investment in science based technologies.
Sri Lanka In Sri Lanka, the SMEs sector should be considered as the core segment of economic development in the country.
The country has a SME economy, where 65 - 70 percent of tea and rubber, 100 percent of paddy and 90 percent of coconut are of small holdings. These SMEs need recognition, support and considerable synergy to integrate with the real economy,
Global Globally, and particularly in the tropics, rising population pressure is making it increasingly necessary for food- and cash crop production to become more intensive and efficient in the use of inputs. Intensification of land use can lead to soil-fertility decline and often, even when fertilizer is used, it may not be sufficient to replace losses or balance other forms of supply. To maintain soil nutrient status at a particular level, nutrients lost in the crop and through other pathways must be replaced. In commercial practice, much replacement is only regarded as necessary when crops begin to respond to individual nutrient additions.
This is especially important if nutrient availability is already low in relation to crop demand. However, producing the most appropriate fertilizer recommendations in terms of type, timing of application, amount, and balance is challenging due to variability in soils, climate, crop management, and the large number of SME farmers with limited resources and technical support pursuing a diverse range of crop-management strategies.
While these challenges have been addressed in some regions and for some crops, there has been little attention to improving fertilizer recommendations for tree crop smallholder growers. The SME industry is important for rural incomes throughout the humid tropics, and some characteristics of its structure could be utilized for improving fertilizer recommendations. Also, the tree crops are important agricultural commodities globally and are likely to remain so in the future.
Yield gap The mismatch between percentage area planted and percentage contribution to tree crop production represents a “yield- gap” between smallholders and large-scale plantations. It is commonly believed that the lower production by SMEs can, among other things, be attributed to nutrient deficiencies and ineffective nutrient management, a circumstance that has been observed by us on many occasions whilst working within the industry. Therefore, methods are needed to improve smallholder fertilizer management in order to improve productivity (and farmer incomes) from land which is becoming increasingly under pressure.
Perennial tree crops frequently grown in a “nucleus estate” arrangement, in which a large company owns a factory and plantations and also purchases crop from surrounding SME farmers . The plantation companies usually have sufficient income and space to offer to research organizations to carry out fertilizer trials and 58 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
base their fertilizer management on trial results, leaf nutrient analysis, and monitoring of nutrient- deficiency symptoms.
However, the surrounding SME farms are generally not large enough for such research or monitoring programmes to be considered viable. Furthermore, when trials are carried out on SME farms they are often difficult to manage and interpret due to high variability in management practices among farmers and through time. Consequently, smallholders usually receive generic fertilizer recommendations based on plantation trials, which are not necessarily optimal for their situations.
Optimum economic and sustainable tree crop yields can only be achieved with the judicious use of fertilizer, and nutritional constraints are a major limitation to productivity.
In tree crops, as in some annual crops, fertilizer recommendations are based on calibrated soil or leaf tests . These tests usually compare the soil or leaf nutrient concentration with a predetermined “critical” concentration and are used to make fertilizer- application decisions. In the case of large commercial farms with access to commercial soil- and plant-testing services, these critical concentrations are typically developed from field trials with a range of nutrient-application rates on similar soil types and under similar environmental conditions to the field being tested. Such trials may involve one or more nutrients; the latter often being a factorial combination of all deficient nutrients at several rates of application.
Typically, recommendations will thus depend on soil type, climate, previous fertilizer history, etc. Such trials are appropriate for large plantations to determine fertilizer-application rates either for maximum yield or, if fertilizer and other costs are included, for maximum profit .
In some plantations, however, appropriate trial information is not available and thus recommendations are made on the basis of leaf analysis, infrequent soil analysis, nutrient export in product, deficiency-symptom scoring, past experience, and expert opinion. Usually these recommendations are made on a field-by-field basis (fields are generally about 05 to 10 ha and bordered by access roads). Irrespective of how these fertilizer decisions are made, such field-by-field information is usually not available to SME farmers.
Just as it would be considered inappropriate to have the same fertilizer recommendation for every field in a large company’s plantation, it is also inappropriate to have the same fertilizer recommendation for every SME in a particular region without due consideration of edaphic and environmental conditions, and management practices. In addition, as fertilizer represents a substantial cost for SMEs, recommendations should be based on known fertilizer responses to be economically justifiable. Aside from planting and establishment costs, fertilizer purchases represent the bulk of production costs. Employment of hired labour is minimal with the vast majority of SMEs relying on family labour.
Logical plan The following is a suggestion on how the techniques that have been developed elsewhere might be used in a practical sense, with other information, to make sensible and profitable fertilizer recommendations for SMEs. The logical plan, like the decision tool developed -, takes into account non-soil factors influencing yield, and it could be later modified to take account of other factors and other information (e.g., leaf nutrient analysis on smallholder trees), discussed previously, when they become available.
(1) Use plantation fertilizer recommendations (averaged over the last few years), soil maps, and GIS to provide initial fertilizer recommendations.
(2) Use plantation data from comparative fields (already identified as part of step 1) to estimate realistic potential yield under similar edaphic and climatic conditions. It is important to attempt to estimate 59 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
agronomic yield, rather than yield assessed through normal channels, as the latter will underestimate the former because of issues unrelated to biological productivity.
(3) Determine current (or average over a few years) yield of the smallholder block. Again it is important to account for non-agronomic factors such as “trading” crop between blocks and/or under-harvesting. For this reason, as above, the factory purchase-records may not reflect individual block production.
(4) Determine the increased returns to be gained if fertilizer recommendations were followed. This would require evaluation of increased income (crop) against increased costs (fertilizer, loan repayment, labour— also see step 5 below), and the completeness of harvesting. Where incomplete harvesting occurs, extension interventions might be required.
(5) Explore options for additional labour (see also Step 4 above) to meet the increased demand (fertilizer application, weeding, pruning, harvesting, etc.) in balance with other economic and social commitments.
(6) Re-evaluate steps 4 and 5 above to determine a practical and achievable harvested yield.
(7) Determine fertilizer requirements to achieve that harvested yield consistently.
(8) Develop a financial and management strategy to implement that plan. This will most likely involve a staged approach as suggested above to avoid excessive financial burden (fertilizer purchase and application, additional weeding, etc.) while waiting for the return on the investment to be realized through increased yield, which may take 2–3 years.
A staged approach could be achieved in a number of ways: (a) Incrementally increase fertilizer to the whole block up to the level determined in step 7.
(b) Incrementally increase the number of palms that receive the full recommended level determined in step 7 until the whole block receives that rate; most likely starting near the roadside where harvesting rates are usually higher. Option (b) would most likely provide a visual and demonstrable response much more quickly (albeit to only a small section of the block) and thus be a stronger reinforcement that the investment of resources was worthwhile.
Conclusions Provision of appropriate fertilizer recommendations to SME farmers is becoming increasingly important, for reasons of food security, economic viability, and the need to maintain soil fertility.
The procedures discussed can be developed into a conceptual framework which is transferable to all the regions. Recommendations can be updated as new information becomes available on SME block locations or plantation fertilizer recommendations. The framework developed here enables production of fertilizer recommendations for individual SME growers using existing biophysical information.
Adoption of the suggested framework would provide more appropriate fertilizer recommendations at the level of the individual grower than the current method of a single region-wide recommendation. More appropriate fertilizer recommendations at this scale are likely to improve the efficacy of fertilizer application and the returns to growers. Whilst the framework represents a considerable improvement on the current system for fertilizer recommendations for SME farmers, there is scope for further refinement as social factors influencing farm management practices are taken into account.
60 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
ICT
61 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 12, 2011
Harnessing Creativity and Innovation
Welcome Welcome to the fifty sixth edition of this regular column. Here in this column, we discuss a wide range of topics around Information and Communications Technology (ICT) and Business Process Outsourcing (BPO) as well as about Business in general, Education, Entrepreneurship and the Society at large.
Creativity and Innovation We touched on entrepreneurship recently and also talked about characters like Steve Jobs at Apple who gave real meaning to entrepreneurship. As I have mentioned earlier, the life blood of entrepreneurship is innovation. If things aren’t innovated, the society wouldn’t move forward. We discussed creativity and innovation in an earlier article as well, but there were a couple of requests to do a bit of a recap as this is a very important area
"Creativity is the ability to see things differently and have an original idea and innovation is the ability to make new ideas actually happen."
William Coyne, senior vice president for R&D at 3M has explained the distinction as "Creativity is thinking of new and appropriate ideas whereas innovation is the successful implementation of those ideas within an organization. In other words creativity is the concept and innovation is the process."
An EU Council report states that creativity and innovation are obviously inter-related. Creativity is seen as the "infinite source of innovation".
Research indication is that creativity and innovation are critical for any business. The competitive environments constantly change and if organizations are to respond to that, they need to have a horned habit of innovation to change the challenged products, services and practices. If they are to be innovative, ideas need to be generated. If ideas are to be generated, such an environment has to be fostered.
Can Creativity be improved? According to Syrett & Lammiman, being creative is something that you could improve; however developing creative persons by training alone is not that easy. If nurturing is to make a huge difference, it has to take place at an early stage in someone’s life. 62 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Teresa Amabile, through an extensive research realized that there are 6 myths about creativity. One of them is that being creative is by nature. The other myths that she reveals are: money is a creativity motivator, time pressure fuels creativity, fear forces breakthroughs, competition beats collaboration and a streamlined organization is a creative organization.
David Hale in his internet article mentions the following as characteristics of creative people: bright, adaptable, high self-esteem, challenge-oriented, idea-oriented, inquisitive and curious. My experience is that some of these characteristics can be improved by training and by using specific, well tested tools; therefore while nature can bring some level of creativity, nurture can certainly maintain and improve it.
Ideas can be both technical and commercial; it should not be replaced by invention. Inventing is the process of transforming an idea or discovery into a technical application that has value. Verloop believes business innovation has three stages: ideation, development and investment. Stage 1 (Ideation) has three requirements and they are insight, a champion and an entrepreneur. The champion pays the bill and entrepreneurial person takes it to the market. However, interestingly Verloop takes a different view about creativity. To him, creativity is an important aspect of a novel idea, however it is the combination of creativity and analysis that transforms a ‘novel idea’ into the ‘right idea’. Therefore creativity alone isn’t enough, innovation needs ‘insight’. Creativity needs time and analysis to mature into insight.
Creativity for a business is just a start; it needs to go through some validation and improvement before its worthwhile going to the innovation stage. As an example, Thomas Alva Edison moved to the right idea by moving from an electric light to electric illumination based on insightful understanding of the desired application in the marketplace.
Creativity and Innovation Tools One thing that a lot of people do not know is the fact that there are tools which can be used to improve the creativity and innovation ability in people as well as in organizations.
For example, Mind Maps can be used as a simple tool by everyone to obtain an overall view of things and to enable creative thinking.
Mind map is a graphical way to represent ideas and concepts. It is a visual thinking tool that helps structuring information, helping you to better analyze, comprehend, synthesize, recall and generate new ideas. In fact, its power lies in its simplicity.
In a mind map, as opposed to traditional note-taking or linear text, information is structured in a way that resembles much more closely how human brain actually works.
The elements of a given mind map are arranged intuitively according to the importance of the concepts, and are classified into groupings, branches, or areas, with the goal of representing semantic or other connections between information.
Since it is an activity that is both analytical and artistic, it engages the brain in an active way, helping in all its cognitive functions. I encourage you to read up on internet or a book on mind mapping or drop me an email so I can send you some information. In fact in some countries, mind mapping is been taught to school children because it make a big difference in the way they work.
Apart from this, there is a whole range of creativity innovation tools and I hope to introduce them one by one over future editions of this column.
63 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Ten Outstanding Young Persons In Sri Lanka 2011 You may have heard of the TOYP (The Ten Outstanding Young Persons in Sri Lanka) program which recognizes ten outstanding individuals, whose personal and professional achievements in a chosen field are exemplary, outstanding and nationally beneficial. This is organized by Junior Chambers International Sri Lanka (JCI).
The awards presentation for this year (TOYP 2011) held at Waters Edge last week. The Chief Guest was First Lady Mrs. Shiranthi Rajapaksa.
The idea for the original TOYP Program was conceived and developed by Dowered Howes, President of the United States Junior Chamber in 1931. In 1933 this was officially adopted by the United States Jaycees. Since 1952 numerous national organizations have established their own "Outstanding Young Persons" programs in their respective countries. In Sri Lanka this has been in action from 1980.
The award winners this year (2011) are: Mr. Roshan Hettiarachchi for Business Accomplishment Mr. Harsha Fernando for Legal Administration Mr. Srihan Priyanath De Mel for Academic Accomplishment Mr. Yasarath Kamalsiri for Contribution to Media Mr. Eassuwaren Subramanniam for Environmental Leadership Rev. Bro. Pubudu Rajapakse for Contribution to Children Mr. Thushara Deepal Dias Dahanayake for Voluntary Service Dr Ruwan Jayashantha Illeperuma for Scientific Development Dr Neelika Malavige for Medical Research Mr. Yasas Vishuddhi Abeywickrama for Personal Improvement and Accomplishment
I am quite honoured and humbled to have been awarded this year’s award for the category "Personal Improvement and Accomplishment".
In the "Personal Improvement and Accomplishment" category, the past winners have been Mahela Jayawardena & Dr B. Balagobi (2010), Ajantha Mendis (2009), Kumar Sangakkara (2008) and Conrad Fancis & Kosala Dullewa (2007).
Some of the other winners over the years include Arjuna Ranatunga, Rosy Senanayake (1986), Noeline Honter, Anoja Weerasinghe, Dr Ranjith Mahindapala, Dr Sunil Ariyaratne (1987), Kushil Gunasekara (1993), Daya Gamage, Prof. Janaka De Silva, Jackson Anthony (1997), Rodney Koelmeyer, Thilan Wijesinghe, Rauff Hakeem, Wijedasa Rajapakse, Yasodha Wimaladharma, Roshan Mahanama, Muttiiah Muralitharan (1998), D. Weerakkody (1999), Otara Chandiram, Sangeetha Weerarathne, Harsha Alles, Susanthika Jayasinghe (2000), Bathiya and Santhush (2002), Kishu Gomes, Hasantha Hetttiarachchi (2003), Sajith Premadasa, Kingsly Rathnayake (2004), Buddhika Pathirana, Lakshman Mahendra Kuruppu, Shehan Kumar, Tharaka Wasalamudaliarachchi, Sanjeeva Weerawarana (2006), Faizer Musthapha, Chevaan Devaratnam Daniel, Bhavani Fonseka (2007), Nadeeka Chandrasekara, Sanath Nandana (2008), Wasantha K Bandara (2009), Dr Priyath Bandu Wickrema (2010)
All winners and details can be found at http://www.jcisl.org/toyp/toyp_award_winners.html
I wish to thank all those who supported me over the years including the readership of The Island column. If not for them, this recognition wouldn’t have come around.
64 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
If you have an event or a group that you would like me to talk to, I can see if I can make some time for such activities. I am happy to speak to groups about the ICT/BPO sector, its benefits, youth leadership, careers, education, communication skills and entrepreneurship. I always take pleasure from such activities.
Please drop a note if you have any feedback to [email protected]
The Columnist Yasas Vishuddhi Abeywickrama is a professional with significant experiences. He was recognized in 2003 by CIMA (UK) as an up and coming business leader for the future. In 2009 he was named the Young Professional of the Year by Professions Australia. Yasas has a bachelor’s degree in Computer Science from University of Colombo and a Masters degree in Entrepreneurship & Innovation from Swinburne University in Australia. He has worked in the USA, UK, Sri Lanka & Australia and being trained in the USA & Malaysia. He is currently involved in the training organization, Lanka BPO Academy (www.lankabpoacademy.lk). Apart from this column, he is a regular resource person for ‘Ape Gama’ program of FM Derana. Yasas is happy to answer your relevant questions – email him at [email protected] .
65 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily Mirror – September 12, 2011
Getting it right the first time through ERP
Increasing complexities of globalized business boils down to increasingly complex ERP systems. IFS has a solution to this trend by constantly exploring new and innovative ways of designing a system that allows intuitive and efficient navigation and information search.
IFS is a public company (XSTO: IFS) founded in 1983 that develops, supplies, and implements IFS Applications™, a component-based extended ERP suite built on SOA technology. IFS focus on agile businesses where any of four core processes are strategic: Service and asset management, manufacturing, supply chain and project. The company has 2,000 customers and is present in more than 50 countries with 2,700 employees in total. Net revenue in 2009 was SKr 2.6 billion.
Below are the excerpts of the interview conducted with Poorna Bandara – General Manager and Director Consulting Services South Asia for IFS speaking in-depth on what it takes to get it right the first time…
Q: How is ERP different from any other software? In the market, there are different categories of software such as bespoke software, accounting packages and ERPs. It is absolutely important for the industry to clearly understand the difference since each of them serves completely different segments. Bespoke Software is for one-off computerizations and is generally a result of a software development project. The objective of Accounting Software is simply to handle accounting function of a company. ERP Software is developed over a long period of time encompassing best business practices of multiple industries providing an end to end computerization for applicable industries. ERP software makes available key business information for the management while streamlining the entire business processes which allows business to function as one cohesive entity.
Q: What does it take to get it right the first time in an IT project for a company like IFS? IFS being a global company with roots in to Sweden with almost 2000 customers worldwide, we focus on having the right product and right implementation methodology. What we have done from the beginning is that we use the same product and methodology used for our global clients like Absolute Spirit, Pepsi, Dupont, BMW, Toyota, Singer, Babcock, France Telecom for all local projects. This is one big step in getting things right the first time. The IFS product and the implementation methodology are refined, proven and continuously mature through the application in large number of worldwide projects.
Getting it right the first time requires a holistic approach. Having a proven product and an implementation methodology is only one aspect. It requires a readily available trained resource pool, continuous monitoring and maintaining a steadfast focus in building trust and relationship with the customer. Having a customer centric mind set is a key. Getting it right does not end once the project is made Live; it in fact is the beginning. The most important aspect is how much focus, support and attention customer is given after the go-live. It is well known in the industry that the most ERP implementations have failed after going live. The key to success of IFS in getting it right the first time is the ability to continuously serve the customer both during and after go-live thanks to the incomparable resource pool in Sri Lanka.
Q: What is the contribution of talent to this process? ERP is a knowledge based business. Hence, having a talent pool is a key contributing factor. IFS base in Sri Lanka has more than 700 employees comprising ERP Consultants, Project Managers, Business Consultants, Software and Technical Engineers, which is the biggest advantage we have. The local employees work hand in hand with their counterparts in rest of the world in collaborative work which synergizes the overall delivery capability. Sri Lanka has the largest resource base of consultants in the region and our talented Sri 66 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Lankan consultants work in various global projects on day to day basis. Leveraging on such wide exposure and experience is a critical success factor for local implementations.
Q: How do you execute when it comes to projects? Prior to the start of the real project, we invest substantial amount of time to set the right stage for the implementation. In Sri Lanka, in most cases, it could be the first time the users are introduced to ERP. Hence we start with an education process to the key users and management and prepare the customer for the transformation while setting the right level of momentum and expectation for all stake holders.
Depending on the need, there would be a business process refinement process prior to start of the ERP mapping to ensure that the processes mapped to the ERP application are refined best business practices. Matured customers use this exercise as an opportunity to streamline their existing business processes. Instead of blindly mapping existing processes to the applications, our consultants always make an effort to bring in improvements. Once the processes are agreed upon, the consultants make sure that a prototype is shown to the customer in a conference room pilot; again a brainstorming session, where the client experiences the product; Having the configured prototype, customer could then test-run their business processes and verify the system behavior in various business scenarios.
Q: How important is customer training for an ERP project? Right training and grooming is absolutely important. We get the customers to sit with us on the entire process helping them to run the process, in parallel with the consultants. A significant attention is given to ensure that the users are competent in running the system on their own. The Program Monitoring office continues to monitor and pilots the project, throughout the whole project lifecycle.
Q: What happens after project completion? Our journey with the customer doesn’t end with the project completion; this is where the real work starts. Once the customer’s business is made to run live in ERP, we perform an adequate period of hand holding to ensure that the users are capable of running the system and a proper customer team structure is established for continuity. IFS understands that customer needs significant attention for a certain period after the project completion to ensure sustainability and to experience the true success of ERP.
IFS runs a dedicated support center for Sri Lankan customers which caters to local support calls. As a value added service, the support service includes periodic customer visits to monitor how well customers use the ERP Application. We continuously advise the clients in terms of how they could further improve the processes. We release a new version almost every year; we also have a responsibility to ensure customers derive the benefits of the new functionality. Maintaining constant interaction with customer has been the key in terms of maintaining positive relationship with customer; we make sure they grow with us which has been a win-win relationship for both parties.
Q: What’s in store in Sri Lanka? In Sri Lanka we have launched a special campaign targeted towards enhancing long term customer relationship and support through which the local customers are expected to benefit considerably and capitalize further on their current investments on ERP.
Powered by 700 plus talent pool in Sri Lanka collaborating with equal number of global talents, we are the leader in terms of bringing in new technology to ERP arena. The capability to bring loads of changes swiftly is an unparallel advantage we inherit thanks to continuous investment in Research and Development. Similar to our global customers, Sri Lankan customers too would benefit from the upcoming state of the art new versions.
67 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Energy
68 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 15, 2011 Where has all the power gone? A reply
The following is an unedited response by one Mr. Thushan Chathuranga to the above article which was published in The Island Financial Review of September 07, 2011:
"The article named "Where has all the power gone" which apparently has a double meaning as well, twisted many facts to serve the business mafia who created the true power crisis and financial crisis of the power sector. Well, if the power of the present minister who genuinely tried to get out the CEB and the power sector form the grip of these merciless Shylocks, the ordinary people who voted for this so called Mahinda Chinthanaya should be deeply regretted.
It is true that CEB generation plans were continuously ignored by the decision makers. If we go back to JR’s era he did not follow those plans. He had a high end plan for the country and his electricity expansion plan was well beyond than the CEB planner’s. But the decision making of the latter part of UNP regime was not at all competent to identify the coal power needs of the CEB. Had coal power was implemented in time not only the power sector but the country also would be in a better economic shape than the present misery.
Article first put the facts about planning part right and then take an unexplainable conclusion to promote private power and hide its ugly face. If private power is good and CEB planning both are correct, why did the CEB unions prevented private owned coal power plants such as "Mihale" promoted before 1996 to come in? Then a KWH unit was promised at 7 US cents (about 7.70 RS/KWH today). If the writer’s argument is correct then CEB TUs are responsible for the today crisis, not the politicians.
Sardonically the West Coast Power Plant at Kerawalapitiya (WCP) was cited as a cheap plant. Those who know about the real facts and figures know that the fist IPP (Asia Power) and the last IPP (WCP) are the most expensive plants. The first IPP can be excused since the CEB engineers and decision makers were not conversant with IPP game and power purchase formulas. But how come the last IPP, having gone through many IPP agreements, WCP being a government owned one, the special attention of hierarchy of CEB engineers and the secretary MOPE was continuously paid become the worst and of highest cost?
When buying power from an IPP two costs are involved. One is the fixed cost or the capacity cost. In WCP this is unexplainably high. See the table below.
Please note the following points in this money game.
69 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
1. WCP payments are growing every year. A comparison is made with a similar IPP (AES) using combined cycle technology with exchange rates from 2009 onwards. In AES cost decreased heavily after the loan payment is over in 2020. In WCP case even after the loan payment is over in 2021 the cost increases! In 25th year CEB has to pay a capacity charge of RS million 20,000 for WCP.
2. The capital cost of the WCP is not known. (Being a government owned company that is not available!) However when at the awarding capital cost was said to be USD million 222.5 equivalent to Rs million 24,400. After the construction it went above Rs million 35,000. Is there any agreement and approval to pay at this escalated amount?
3. How does CEB pay at these rates?
4. The initial cost is about Rs million 35,000. Over the 25 year period CEB pays Rs million 313,000 for this! Can any banker or an economist explain the justification for this extravagance?
The cost is the energy cost which will be paid for the actual units delivered. As the article points out the fuel actually costing RS 82 per liter is given to CEB at RS 40 per liter. If so the actual energy cost of the WCP plant is double the actual cost. So the additional cost of 180 million liters per year x RS 42 which is RS 7200 million is paid by the ordinary users of petrol. Why? Simply to show this colossal corrupt expenditure as a Bo sapling in front of idiotic voters.
When this information is revealed it is up to the PUCSL- guardians of the electricity customers and the Bribery & Corruption Commission to find out the truth, correct the situation and take the culprits into task. If the reader believes that to happen; let me disappoint you, you all are mistaken. Actually there are no proper cabinet approvals for the paying formulas. All the essential files are destroyed, the culprits are in different places enjoying all the benefits and planning to fly away from the country probably little scared of surfacing these information.
Many people were preached over and over again and they were convinced that private power is cheap and more reliable. The first argument against this is given by the writer himself. Due to the rains CEB made profit! If rain made the magic how does it happen? Because the majority of the hydro generation is with CEB and for most of the hydro power plants the capital and the loans are fully paid by now. CEB now spend only for the maintenance. The cost of a CEB hydro power unit is about Rs 1.25.
But the similar hydro power unit generated by a private mini hydro developer is not sold to CEB at this rate. It ranges between Rs 15-10. So when CEB was benefitted by rain thanks visionary forefathers who developed hydro power by CEB, CEB dearly paid a good amount to the private owned hydro power.
Just because it rains the power will not come cheap to CEB. How it is developed is important. Those who preach about private power development, inside and outside of CEB have their hidden agendas.
Even for the wind power same analogy is applicable. Some 100 MW of wind power is already handed over to private sector and now CEB buys a unit at Rs 27! The same blood sucking vampires are nervously trying to hand over the rest of the wind power potential also to private sector.
Stating both Lak Vijaya & WCP plants were available at full capacity in 2011was either a deliberate attempt to mislead the public or stated with ignorance. Lak Vijaya should have been available and 700 GWH was expected during the first half of 2011. However that delivered less than 265 GWH by the end of June. WCP could have delivered 670 GWH but delivered only 275 GWH during same period. In lieu of this required thermal power either power should have been shed in May itself or the available water should 70 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
have been drawn to produce power. The malicious article failed to see the growing demand over the years and simply compared 2009 figures with 2011. It points out to the subsidized fuel rates and tries to reader to be with the idea that there was no profit in 2010 and showed profit was due to the subsidy. With same fuel rates 2009 year was run and then CEB made losses. The demand also was higher than 2009 which results in costly more thermal generation.
Then the argument of unusually high rain, as article correctly pointing out, comes. That is very true. Unless for the heavy rain in 2010, profits could not be made. But the CEB budgeted estimate of the 2010 loss was RS 40,000 million! So the gap that was bridged was 45,000 million. How on the earth this level of gap can be met by additional rain alone?
Now the interesting part: in 2010 there was a heavy rain. In 2011 mid monsoon failed. The long expected cheap coal power could contribute only 190 GWH in first half of the year. The CEB prediction of the 2011 loss is RS 54,000 million. Even with these adverse conditions CEB had a surplus over RS 6000 million. How can that be explained?
It quite evident that the business mafia which has spread their arms to politicians, MOPE & petroleum ministry high officials, few CEB engineers do not want to give the required credit to the present minister for his sincere efforts to get the CEB to stand on its feet. They team up, create traps at the cost of our dear motherland and campaign against the minister and his team. The best management team CEB had after a long time were chased away despite of their contributions to financial recovery, awakening the work force and welfare activities initiated for the down trodden worker. The mafia does this for two reasons; one is save their present and future business. Secondly to cover up the lie that was long preached that CEB is loss making and can’t be profit making.
Well the mud was thrown on the minister. So he has to reply. But we don’t expect that happening as a part of this corrupt government he will not be allowed to do so. In this light as the general public and customers of the electricity we all should demand for the "Right to access and receive the true facts and figures of government entities" as proposed by Hon. MP Karu Jayasooriya in the parliament."
71 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
FCCISL print in media
72 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 13, 2011 New Board at FCCISL Eminent personality from the hospitality industry Kumar Mallimaratchi who served as the Senior Vice President of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) since November 2010, took over as the 17th President of FCCISL. He was a Council Member since 1999 and was elected to the Board of Directors in 2008.
A graduate in Hotel Management from the International School of Tourism in Italy, a Life Member of the Cornell Hotel Society USA and a Member of the Institute of Hospitality UK, Mallimaratchi served as the President of the Tourist Hotel Association of Sri Lanka, Chairman of the Ceylon Hotels Associations of Sri Lanka, Chairman of Ceylon Hotels Corporation and several quoted companies. He is a Member of Statutory Accounting Standards Committee of the Institute of Chartered Accountants of Sri Lanka.
FCCISL Vice President Ajith Wattuhewa appointed to the Board in 2008, was elected as the Senior Vice President. Wattuhewa was the Founder President of the Uva Chamber of Commerce and Industry and the Chairman of the Central Pre Cured Retreads (Pvt) Ltd and Asian International Promoters (Pvt) Ltd. Kumar Mallimaratchi W K H Wegapitiya was elected as the Vice President of the FCCISL. He is the Founder and Chairman of Laugfs Holding Ltd and its eighteen subsidiaries. Wegapitiya is the Immediate Past President of the Chamber of Young Lankan Entrepreneurs.
Vidyani Hettigoda, President of Women’s Chamber of Industry and Commerce and Director of Hettigoda Group of Companies is a new entrant to the Board.
Other Members of the Board of Directors are Kosala Wickramanayake, Immediate Past President, S T S Arulananthan, and Shiran Karunaratne.
73 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
Daily News – September 14, 2011 SMED organizes delegation The Small and Medium Enterprise Developers (SMED) the SME arm of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) is organizing a delegation to visit International Gift and Houseware Fair in Bangkok to be held from October 18-22 at Bangkok International Trade and Exhibition Centre (BITEC) in Thailand.
The trade delegation focuses on importers, wholesalers, manufacturers and distributors of handicraft items, houseware and gift items, artificial flowers and plants, Christmas decorative items, household products, toys, toys manufacture and games and stationery.
The SMED is conceived in 1989. The primary objectives of SMED is the development and promotion of a market economy in Sri Lanka through the improvement of the competitive performances of individual of Small and Medium Enterprises, as well as the straitening of the organizations which represent the SME sector in the country. SMED is involved in enhancing the SME sector traders through organizing trade delegations for overseas exhibitions and developing the technical knowledge of industrialists through organizing workshops, seminars, exhibitions. The SME Machinery, Technology and Services Exhibition is one of the major events held once a year.
For 2012 it will be held on August for the seventh consecutive time. SMED is expecting to create business connections and market linkages to go for the global market.
74 FCCISL News Alert Weekly Business Highlight 12th – 18th September 2011
The Island – September 15, 2011 FCCSL banks on HNB to deliver to SMEs
Recognizing the importance of small and medium scale entrepreneurs to the growth of our national economy, Hatton National Bank (HNB) & the Federation of Chambers of Commerce of Sri Lanka (FCCISL) entered into a Memorandum of Understanding to promote a range of financial services to Sri Lankan SMEs.
Jonathan Alles, Chief Operating Officer of HNB, and Kumar Mallimaratchi, President of FCCISL, signed the MOU at a simple ceremony held on 8th September 2011 at Level - 14 of HNB Towers.
The signing of the MOU will be a very important milestone, as both institutions have a strong presence island-wide and have allocated substantial resources for the development of this sector. HNB with it’s network of 220 Customer Centres, strong brand name, a comprehensive product portfolio and a strong focus on customer care, is well strengthened and capitalized to launch this initiative. With a view to facilitate the extending of finance to the SME sector, which has emerged as the most viable financial segment in the market, HNB launched "HNB Small & Medium Enterprise Development Partner (SMEDP)" scheme during the early part of the current year to meet it’s customer requirements. Adding strength to this mechanism, all Regional Offices have been assigned with SME Units to handle and evaluate SME applications in an expeditious manner.
FCCISL is the apex organization for the Chambers and Associations in the country. Incorporating 59 Chambers and 29 Regional Chambers, they have more than a 30 year history of active involvement in SME development. SMED the SME development arm of FCCISL also organized the "SME" Machinery & Technology Exhibition, 2011 during 10th - 12th June at BMICH, very successfully encouraging innovation and its membership displaying their commitment for the relevant sector.
Signing of the MOU between HNB & FCCISL is a significant development for SMEs in Sri Lanka as it opens doors for many SMEs who require comprehensive financial solutions, thus partnering the rise of an entrepreneurial nation.
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