31st – 06th November 2011 alerts/en/2011/November 6, 2011.pdf · FCCISL News Alert Weekly...

31st – 06th November 2011

FCCISL News Alert Weekly Business Highlight


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Content Page

1. DEVELOPMENT ECONOMICS • Running the economy: Sanity, vanity or reality 05 • Street politics and street economics 13 • State of SL economy according to IPS: Grow but make it inclusive 18 • Private sector mirrors SL's macro economic developments 23 • Caucasus, Central Asia set for robust growth, but global risks weigh 25 • Chairman appeals for cooperation of all concerned – specially govt. 28 • Current phase of global recovery and implications for Sri Lanka 31

2. INVESTMENT

• Are we serious about private investment? 37 3. MANAGEMENT

• The evolving role of a modern HR manager 41 • Business interviewing skills: Getting it right 42 • Why Consumers aren’t buying brands & marketers are looking guilty 48

4. TRADE & MARKETING

• Exhibitions marketing 51 • Green economy and impact on trade 53

5. MONEY & BANKING

• Macro-prudential policy 56

6. TOURISM • Marketing an emerging tourism destination in Asia 60

7. EXPORTS & IMPORTS

• John Keells Tea Market Report 66 • Innovation key for buoyant tea industry 68 • Tea market will regain momentum 71



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8. STOCK MARKET • Q3 earnings up 74 • Asia stocks down as Greek vote plan rocks markets 75

9. AGRICULTURE & PLANTATION

• Plantation industry needs long term Master Plan 78 10. ENERGY

• Electricity Constraints: Can CEB Profits Lighten the Burden on the Industrial Sector? 82

• Pricing electricity: an important policy issue 86 11. FCCISL PRINT IN MEDIA

• FCCISL promotes India Salon Pro and Beauty Market in Mumbai 90



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Development Economics



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The Island – November 1, 2011

Running the economy: Sanity, vanity or reality * Dr Anila goes on rampage: takes govt. head on regarding policy issues

In a no holds barred address, delivered in an unbridled spirit of candour spanning 47 uninterrupted minutes where she virtually kept a 1,200-plus spellbound audience virtually at the edge of their seats in pin drop silence, the single largest conference audience in this country to date which no Colombo five star could hold, comprising mainly Fellow and Associate Members of the Institute of Chartered Accountants of Sri Lanka, laced with erudition and statistics from her retentive memory, and at times sending them into raptures with caustic wit, biting satire and anecdote, she dared the government to address policy related issues, ranging from arrival targets for the tourism industry vis-a-vis dollar earnings to grandiose proclamations of high external reserves based commercial borrowings at high interest rates.

By Ravi Ladduwahetty

Retired Central Bank Assistant Governor and outspoken Economist Dr Anila Dias Bandaranaike, recently, took on the government on policy related issues in post war Sri Lanka, adding that: "The country’s development potential is unlimited but we need to develop it with wisdom and balance."

Addressing the 32nd National Conference of the Institute of Chartered Accountants of Sri Lanka at the Waters Edge under the theme: Sanity, Vanity and Reality, she conceded that Sri Lanka’s economic indicators had improved leaps and bounds over the last 40 years, but underscored the significance of sorting our regional disparities in economic growth.

Vanity or Sanity: Show-casing Sri Lanka as "Emerging Wonder of Asia" "Can 20 million people and environment cope with 2.5 million tourists?" She asked and challenged the government to say why it was targeting numbers and not dollar earnings.

She also had the audience in cascades of laughter when she said that the projected 2.5 million tourist arrivals was based on the figure touted by a loyalist out to President Mahinda Rajapaksa as the ideal targeted number and the target figure was based on that.

"It is true that Sri Lanka is the emerging wonder of Asia. But I don’ t approve the way that the country is being showcased. It does not matter whether there are 100 or 1000 tourists, but what matters is not the quantum of tourists but the dollars. It is as simple as that.



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There are around 800,000 tourist arrivals and 2.5 million arrivals would mean that the resources would have to be tripled; the buses, the food, which will mean more imports. Forty to fifty buses together, on these narrow roads, will mean that if one gets stuck, all will be stuck! The construction cost of a hotel room is around a million dollars. Can we imagine 2.5 million tourists in our food courts at Polonnaruwa , the Gal Vihara and Ritigala Forest Hermitage ? This is mind boggling on our narrow roads.

"At current migration labour force entry rates, are 500,000 jobs in tourism by 2016 realistic? The current labour force in the tourism industry is 100,000. With people migrating at a rate, who is going to give the 500,000 jobs ? Who is going to give the jobs for the economy to grow at 9%?

"Also targets for BPO, IT sectors as envisaged? The second international airport at Mattala, do we need it ? Of the second seaport at Hambantota, we heard about that rock and that the first ship has come in but now, there is deafening silence in the newspapers about further ships coming in. Then, international sports venues- Sooriyawewa, Pallekelle, Dambulla and there is a Nittambuwa sports complex also in the offing, but Sri Lanka Cricket has no money to pay salaries. "There is also talk of the Upper Kotmale Hydro Power project and filling up the Kotmale reservoir. Can’t we wait at least a unit of electricity is generated from it? Now the government has to evaluate the true benefits versus colossal costs to Sri Lanka and that has to be recognized. We need to be careful about the hype versus performance. We are gassing about gas now even before finding whether it is commercially viable. It is time that we walked the talk for credibility.

"If we are showcasing Sri Lanka as the emerging wonder of Asia, this is too much egoistic talk versus hard reality. This is vanity versus sanity which needs clarity, otherwise it will be inanity!!," she quipped amidst a round of applause from the audience, buttressed with cascades of laughter.

Past reality and future sanity: National Policy Targets and Performance: "Can we expect private investment with the expanding role of state and armed forces in the economy? Can we achieve investment and growth targets on low credibility with investors? Can we reduce budget deficits and maintain debt trends? Can the Central Bank of Sri Lanka intervene to maintain current interest and exchange rates and also sustain growth targets?

"The government boasted of US$ 8 billion in external reserves which was mostly from commercial borrowings," she said, amidst ripples of laughter and amusement among the entire audience.

So, the question is: Vanity or Sanity? "Are we on a balanced path to our medium term goals? Is it sustainable that our country is going today? Can sanity overcome the vanity to rectify these issues? The private sector also needs to look at these issues loud and clear and ask the government where the consistency is.

"Will the sanity overcome vanity where credibility is offered to all the stakeholders? Unless the government gets off its high horse and restores credibility, the required investments will not come in. Will vanity become sanity where the realistic performance will not be measured when it comes to performance? It is true that there are the positives and the negatives. It is very seldom that I see or hear any government official talking of the negatives. What we hear is that it is gung-ho on all fronts and that all is right everywhere.

"There is a lot of hype. We must be balanced to see the positives and the negatives as well.

She said: "Twenty five years ago, before that watershed year, and the last year, going by the statistics of the Central Bank Annual Report, let us see the future whether it is vanity or sanity. The highest



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investment which has been achieved to date that has been achieved during the days of the accelerated Mahaweli program which was 28% of GDP. We were at 29% last year and we are trying to bring it to the mid thirties. We are also trying to reduce the budget deficit drastically. Debt to GDP reduced from 80% to 67% and external debt to be reduced to manageable levels to 12-15%

"The targets are based on post conflict optimism, and I think it is rightly so, with investment led, infrastructure led and consumption led development may generate revenue to meet government expenditure and debt servicing.

"One thing is that we have not got the kind of investment that we need and I asked Deputy Governor of the Central Bank Mr. Dharma Dheerasinghe and he said that it will come. It is nowhere near the thirties yet. Last year there was the growth of 8% and I would not be surprised if it is 8.5% this year because, it was on a low base.

"Taking into consideration, the post 2009 era, there is a lot of construction, be it roads, hospitals, schools, there is domestic tourism, there is investment coming, there is the cultivation of the lands which were not hitherto cultivated in the North and the East due to the hostilities coming back into practice and the demands of that part of the country also have to be met. The immediate growth has to be high. So, achieving 8% is where it should be. But the problem and the challenge will be in 2012 where the low base is no more. So, we have to have this investments for GDP growth to be between 8.5%- 9% or 10% We will also have to remember that inflation could also set in.

"Yesterday, there was a clarion call to invest. All the government policy documents say: " Invest, invest, invest"!! But the government has an expanding role. The Government did not open Sri Lankan Airlines, Shell Gas or Sri Lanka Insurance Corporation to the private sector. They took it on themselves and now we have the government expecting the armed forces to run Janawan Halas all along the A 9 highway, to selling vegetables, to running commercial transport with the Navy and the Air Force and the latest I saw was a shoot of shops at Kilinochchi run by the Army . So, there is a little inconsistency there of the signals that the government is emitting. I don’t see the private sector also asking these questions loud and clear.

"So, the question is, can we achieve the requisite investments and growth targets on low credibility? We have to have that credibility. One is the government’s foothold in economic activity. Secondly, where the government also has adopted a very stubborn stance in the manner it is handling the Western world, which is also very hypocritical in the manner that they are attacking Sri Lanka, not that we have not done anything wrong. We have to build that confidence.

"The third point I want to make is the high external reserves. How can we boast of US$ 8 billion reserves which is said to be sufficient to fund six months of imports when they are based on commercial borrowings? I was at an earlier conference where the International Monetary Fund Representative Koshi Mathai stoutly defended Sri Lanka’s External Reserves. Three days later I saw in the newspaper that the IMF had taken a new turn in spelling out that they were non borrowed reserves. Then comes the question of how it is going to be sustained.

"Then on the budget deficit and maintaining the debt servicing targets. Employment opportunities are expanding but the private sector is also not expanding enough to absorb them. State employment will mean salary bill, pension bill and other perks such as transport etc. All that costs the government money and with the current borrowing trends, is it practical in terms of reducing the budget deficit and reducing debt? The Central Bank will be doing magic by keeping all these things going! How sustainable is this and how long can you go on?



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"My point is that the Central Bank needs to maintain the exchange rates and the interest rates for the maintaining of stability, but, can you also sustain the growth targets with the same levels. One needs exceptional arithmetic for it to work it in the short term. You want investment to grow at 34% and for that, investment goods have to come in which would also mean that the investment bill is also going to grow. That would also mean that there will be pressure on the exchange rates to depreciate.

"The targeted 34% for investment will also mean that there will be demand for credit, which would mean that there will be pressure on the interest rates. So, the question would be how does one maintain the interest rates and the exchange rates at the current levels with the 9% economic growth and the 34% Investments of GDP without also simultaneously managing the inflation. If the government can manage that, I will pull my hat off to them!"

Earlier, she said: "We need to take into account the economic backdrop that we take our food, our housing, our clothing and our shelter along with the other economic services such as our transportation, communication and finance while having the ability of helping the environment

"In addition to that, we also have to think about intellectual well being, having the opportunity and access our educational, professional, aesthetic and cultural pursuits that would enable us to achieve our potential and through that, having the access to employment for a professional career where we can achieve our potential and at the same time, not forgetting that, as human beings we should be able to enjoy our music, theatre, drama, reading and those aspects of human well being .

"As for emotional wellbeing, we need to be comfortable that the society we live in is a physically safe environment and the Police and who ever who is supposed to look after us is doing their jobs and that we are allowed to be free in our thoughts, our speech and our beliefs leaving us to enjoy not only our physical but mental health as well.

"So, I would like to stress that the human well being is just broader than simple material needs and includes intellectual simulation and emotional security. I think that in this point of Sri Lanka’s history, we need to look at this from a broader perspective.

" So, the reality is, what resources in our country that will enable us to uplift the quality of the lives of our people on all these fronts. We are an island nation. A nation with no bounds of natural security with the sea around us; we have the harbours and the beaches which are being turned into commercial ports, ocean resources, not only the fishing but the minerals, wind power and above all, a very strategic location which encompasses the main routes maritime routes of the world and we are next to one of the economic super powers and a regional super power- India.

"Land wise, mostly arable and flat with accessible mountains conveniently placed at the middle of the country and with plentiful water and I can assure you that the dry zone has more water than most parts of the world.

"We have now 30 years of terrorism behind us and now we have all the opportunities to surge forward. In that process, we have to stress for balance and we have it so good. We need to achieve that potential by efficient and honest efforts. "

Responding to the comments made by Chief Guest -Defence Secretary Gotabhaya Rajapaksa the previous night, about the need to eradicate corruption, she said : " We need to make sure that we don’t fall into the same trap like some of the large financial organizations of the western world. We also need to safeguard that rich multicultural heritage while maintaining our unity in our diversity and be Sri Lankans and not be



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divided on ethnic and / or religious grounds and as one voice while enjoying the fabulous environment that we are privy to. We also need to enjoy and preserve life with leisure with family and community for contentment. We need to have time for leisure and for the family and the community. Earnings, the big bucks with the material well being is not going to satisfy our lives. There is much more to life - family community and contentment.

Where are we today? " I am told that I will be addressing an audience whose average ages are 30 plus and I am talking about an era where most of you were seeing the world. We have moved away from that era. Firstly, from the perspective of material gains. We are now living in a country where 90% of the households live in houses either owned by them or free of rent and permanent; This, in sharp contrast, to 40 years ago, where the number of people living in their houses were just 40-50%. The others did not have their own accommodation. Access to sanitation, safe water and electricity is between 85 and 90%, compared to electricity under 10% forty years ago where only half of the people had access to safe water at that time.

"Forty years ago, at the time I was a schoolgirl, hardly anyone had a telephone. But today, we have moved on, but we have to remember that 10-15% or 2 million of the population don’t have access to welfare. Last year, Samurdhi provided 1.6 million people Rs. 9 billion in welfare where as 1.8 million people brought in Rs. 465 billion foreign remittances. Samurdhi translates to around Rs. 500 per month per person while the migrant workers’ remittances translated to Rs. 20,000 per month per family.

"The National Numbers look good but the issue is the regional disparities. The Western Province is different to the other provinces. A quarter of the population produced half of the economic output in 2010 which is equal to the rest of the country. That translated to multi- household expenditure last year was Rs. 42,000 in the western province which also means that only 4% of the people live below the poverty line in the Western Province, she said.

"There was infant mortality going down drastically and life expectancy going up, and the dependency ratios has also go down," she said

National Priorities in our Quest for Balance " What we need to achieve is our potential by ethical means. What we need is to safeguard our rich multicultural heritage, maintain – unity in our diversity, preserve our natural environment, share – leisure with family and community and while enjoy living in harmony and health Our Country’s potential is unlimited – Develop it with wisdom and balance!"

Our country today- the reality- Development Model targets well being "Our country today provides for infrastructure to improve regional economic access, focuses on "Hubs" in Services sector to grow, advocates private participation in development, encourages foreign employment to raise foreign earnings and reduce unemployment, overlooks environmental implications of chosen path and pushes chosen path by discouraging alternate views.

"Of the education statistics, it was only 30% who passed up to GCE A Levels forty years ago which has increased to 70% now and we have to increase that to 100% With that said, our employment has gone down to 5%. In 2010, 61% were eligible for university, but only 10% could enter Free State Universities. Opinion divided on Private Universities. The state provided 14 % of employment in 2010 which accounted for 800,000 people and 1.8 million migrant workers equal about 20% of labour force. The private sector has not generated new jobs and that is an issue for you guys. The reason for the reduction of the employment is due to the state and the outside world generated employment and not Sri Lanka’s private sector. So, these are the questions that we need to ask ourselves.



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Current Reality – Emotional Well-being "Terrorism no longer a threat with the conflict in the North and the East being over and our personal security threats were also over, but there is inadequate trained professionals such as psychologists, psychiatrists and counselors to treat post conflict mental trauma.

" Ten days ago, we have seen political rivals of the same party where they almost killed each other and one was killed. Rising political thuggery, gun culture, underworld violence – do police, courts protect citizens under this culture? Those are issues that we have to grapple with.

"Of balanced language policy, President Rajapaksa has said that he wants a tri-lingual society as soon as possible but there is no minority rights in practice – for official letters, notices, court proceedings are not processed in a manner that the people do not have it in the language they deal with. There were also instances where I have been to official venues where the medium of instruction was in Sinhalese.

" I was in a Court in Fort where there were large numbers of members of the minority and all the notices in the Courts were in Sinhalese. There is a dearth in the communication in presenting the language that the people understand and communicate.

"True that the Government is doing a lot on reconciliation issues but there is perceived apathy on reconciliation issues. There is still a large and excessive Army presence in Jaffna , and there is weak inclusivity in North development. There is a 30 member team of officials for the development of Jaffna District, but there is not a single Tamil speaking person in that. This is true and perceptions matter.

"Of the freedom of speech, we know how the media officers and media personnel have been attacked when there is criticism of the state. Sri Lanka has to live with it. It is not good to ask the Government as to whether they have double standards. Sri Lanka has to answer a lot on its media at various international fora from various western powers at various intervals . I don’t think that we were diplomatic in the manner that we handled it, but all we had to say was, the terrorists were our own people who were being used as human shields, try to minimize co-lateral damage without saying that you guys have no right to come there. If we need to see development, we have to have them on our side. That seems to sum up the reality on the emotional well being and self-defeating attitude to criticism – attacks on local media personnel and offices, poor diplomacy to counter international hypocrisy

Current Reality – Summary

= Material Well-being? - Sri Lanka is a lower-middle income country with national socio-economic indicators at upper income levels. But regional disparities high, aging burden rising

Current Reality - Structure of Economy " We have a dramatic change in the economy from 40 years ago where the agriculture sector has declined and where the share of the sector is keeping to declining, Services increasing, as economy develops and the industrial sector has been moderate. In today’s world, one needs services in a backdrop of agriculture and industry, one needs better transportation for goods to move to markets, for goods to move to airports and ports for export, good market information for agriculture and industry to determine what goods to produce and what prices to determine, one needs also financial services to ensure that credit is available for agriculture and industry. So, services have to grow faster than agriculture and industry to fuel growth in the other two sectors.

"We have also seen the dramatic increases in household incomes quite considerably largely attributable to migrant remittances, and with that, they too, they want more and better services, better transport facilities, better education for their kids, better health services, better leisure and better holidays and people are



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spending much more for weddings and funerals than ever before and therefore, all these needs have to be met. Basically, these services need to be grow.

"There is the minimal change in Industry share , efficient services needed to fuel growth in other sectors, and more and better services required as household needs expand with higher incomes.

What is the reality today? "Basically, yesterday both the President of the ICASL Sujeewa Mudalige and Defence Secretary Gotabhaya Rajapaksa said that we have today a development model that targets material well being. It also provides for infrastructure and provides regional economic access to sites which would circumvent the regional economic disparities.

"Of the statistics, but today, around 90% of the industry is in the western province and where a mere 10% lies in the other eight provinces. I saw in the slide presentation yesterday that there are the eight bridges between Batticaloa and Trincomalee with all the roads and all that.

"Of the specific hubs, ports and tourism, Information technology and BPOs. All these are on the national development program. I would also advocate the private sector participation in development.

"I would also like to congratulate the government in that there is a lot more focus on the environmental issues than ever before, but yet, some of the environment related issues in relation to some projects are still over looked. There was reference to a road that on the side of the Sinharaja Forest. Roads can be built anywhere, but the Sinharaja Forest is a special place. There was also another controversial road that went right through the Wilpattu National Park, which joined Puttalam to Mannar. These are just a few of the many as far as roads were concerned. There was the issue of the second airport at Mattala. There are also a few more issues to maintain our balance.

"In addition to that, we have to recognize that, however well intentioned the government is which is doing a very good job on the macro, is that push to discouraging alternate views.

" I made the references to the media and I see lots of people including former colleagues and professionals in economic policy saying: " I no longer bother to say anything or even constructive criticism because nobody is listening. I think that does not augur well for us. We have to congratulate the good and recognize the bad and talk about it constructively and not to destroy. So, that is the economic model that we are talking of.

Current Trends – Vanity or Sanity? Emphasis on foreign employment "Granted that there is an end to civil conflict, but there is no end to out-migration, brain and skills drain. Retirees were returning, but middle management and young skilled workers were leaving Government policy to encourage migration, with inadequate options, incomes and challenges to retain trained and untrained Sri Lankans, declining HR capacity to deliver on Sri Lanka’s post-conflict development targets and she asked whether the state and citizens balance options for and against living in Sri Lanka today.

"There is a crying need for a balance in the state – citizens balance. Why is there a mass exodus of people from this country. There is a need for sanity to recognize the pushing for the people to go to bring that Rs. 465 billion to enable the economy to grow at 9%



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Vanity or sanity: Emphasis on money and material well-being "What money can buy drives lifestyles. Monetary gains, not professional standards, drive most businesses. Non-communicable diseases linked to stress rising. Globalization and unrestrained marketing, not facts, influence food habits; also lifestyles. Energy, water and waste disposal under strain with "development “Rising noise, water, air pollution, traffic congestion with "development". Do those who make "big bucks" enjoy optimal well-being?

"On money and material well being, well, that is the way that the world is going. We, at this stage, need to guard ourselves without merely going by monetary gain. We have seen the Enron scandals and all that. We need to guard ourselves against rising stress.

"It also does not mean that all the human beings who make the most amount of money does not necessarily have the best emotional well being. What if all the restaurants which now sell those hot hoppers and the kottus are replaced with the pizzas and the hamburgers? We must ensure that our eating habits and dressing habits are not overly influenced with the rising tides of globalization as well

Vanity or sanity: Is there balance in our use (and abuse) of resources for "development"? "She posed the questions: "Will Vanity prevent the Sanity of valuing our non-material advantages and conserving our resources? Despite improvements in material well-being, is there balance towards achieving total human well-being? Is there balance in our use (and abuse) of resources for "development"? Will Vanity prevent the Sanity of valuing our non-material advantages and conserving our resources? Despite improvements in material well-being, is there balance towards achieving total human well-being?

How do we regain our Balance? "The method to regain our balance, she said, was to recognize reality, avoid vanity and maintain sanity to ensure that Sri Lanka’s development will be sustainable and uplift human well-being," she concluded amidst sonorous applause from the appreciative and attentive crowd.



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Daily FT – November 1, 2011

Street politics and street economics Occupy Wall Street, occupy the London Stock Exchange The frustrations caused to the unemployed, the poor and the marginalized by the international and national economic crisis has spilled out onto the streets in the capital cities of the world’s leading and emerging economies. It has spread at the last count to over 900 cities in over 80 countries. The issue is one of exclusion. Neither one of the Western economic models have much credibility now. European social democracy model has provided an economically unaffordable system. The Anglo Saxon model which claimed that free markets would create prosperity has only created a debt mountain. Communism (the Soviet and Mao models) went down the drain a long time ago. Sustainability is doubted in China’s current controlled capitalism model. In the central Chinese city of Luoyang in Zhouwangchen Square some retired Mao lovers have set up a public display of dissent saying: ‘This is our Wall Street’ – ‘We resolutely support the American people’s great Wall Street revolution’. India’s increasing inequalities, corruption, high interest rates and rampant inflation is affecting the credibility of its growth curve. It is the economics and politics of street protestors that are holding the attention of the world. Wall Street in New York has been occupied; in London, the Occupy the London Stock Exchange movement has pitched their tents in the financial district in the shadow of St. Paul’s Cathedral. In Frankfurt, Germany there is a tent city in the shadow of the European Central Bank building. In the US 17% of those under 25 are out of work. In the EU, youth unemployment averages 20.9%. In Spain it is 46.2%. The middle aged and pensioners are seeing a fall in real wage and diminished pension rights. The inertia caused by the fear of an international financial contagion seems to have put the economic managers of the world and the political leaders into some sort of policy limbo, in which they strategies repeatedly at economic summit after summit but seem unable to come up with any substantial solution to the crisis which is slowly but surely taking a vice like grip on the international economic environment and national economies. How the problem arose The problem arose, according to David Frum, a former speech writer for President Clinton, when “the shapers of the American mortgage finance system hoped to achieve the security of government ownership, the integrity of local banking and the ingenuity of Wall Street. Instead, they ended up with the ingenuity of government, the security of local banking and the integrity of Wall Street” – as the Raj Rajaratnam and Galleon Investments saga sadly proves. It happened due to three strategies undertaken by the Congress, interest groups, government sponsored enterprises (GSES) and Wall Street. First, the politicians were compromised through lobbying, campaign contributions and perks. Secondly the regulators were eviscerated, their budgets were cut, their officials cowed, whistle blowers drowned out. Third was to court the mortgage lenders. For example, the head of the housing bank Fannie Mae, James Johnson, was described as being so slick that “he’d cut off your balls and you’d still be wearing your pants!” Profits were linked to executive pay. Johnson was paid nearly $ 100 million for his nine years at Fannie Mae. A series of asset bubbles were created in a an economy that was rigged in favour of the financial elite, who enjoyed the good times and then decamped leaving the rest no alternative but to bail them out with taxpayers’ money.



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One per cent of the population gained at the expense of 99%. Surely it is time for ordinary people, civil society, the business community, the professionals, the youth, who will inherit this mess, to stand up and be counted? The protesters face two dangers – capture of their movement by others and being consumed by their own energy; can they sustain the effort? Distaste for professional politicians Witness the Arab Spring. Tunisia (which has just conducted an exemplary to poll to elect a Constitutional Assembly), Libya (post Gadaffi et al), Egypt, Yemen, Syria, Bahrain. Witness the protestors taking over Wall Street in New York and business areas of Washington DC and other American cities, Seattle to San Francisco. They are even near the White House on McPherson Square, in Washington DC. One of the protestors very clearly articulated their distaste for professional politicians: “Politicians are only interested in keeping themselves employed, so they don’t make decisions for people.” President Obama and Vice President Biden, while not endorsing the protests, have expressed understanding of the movement that has spread with alarming rapidity across the US. Obama has said the people were angry because Wall Street had not been “following the rules”. Biden said: “The core of the protest is: the bargain has been breached. The American people do not think the system is fair, or on the level.” Even the second highest ranking Republican in the House of Representatives in the US, Eric Cantor has backtracked from his earlier description of the protestors as “angry mobs” and said that his party recognized the problem of income inequality. Editor of the conservative RedState Blog, Erick Erickson, called on the Republican party to find ‘common ground’ with the protestors: “The time is right for a Republican candidate (for the presidency) to take up the cause of populism against Wall Street”. Indian example Witness the leadership given to the Jan Lok Pal bill movement in India by Anna Hazare and Indians who have been totally turned off by the venality of the Indian political class. They campaigned against the ruling Congress Party in a by-election as they do not trust the undertakings given that the Jan Lok Pal bill will be enacted in the winter session of the Indian Parliament this year. The idea is to show the Congress Party what the voters think by asking them to vote for any other candidate than the Congress contestant! The Congressman lost his deposit! Of course much is made of the fact that the winning candidate has a dubious past and some entanglement with the law, but this is ‘common or garden’ for India’s politicians. Hazare only said vote for anybody else but the Congressman. Global phenomenon It is happening everywhere, virtually; Korea, Spain, Italy, Israel, Brazil, Australia, China and Britain. Even in hitherto military-dominated Burma (Myanmar), the rulers have shown the proverbial finger to the Government of the People’s Republic of China, their dominant and powerful neighbour, and said that they are not going ahead with a project to dam a river, which would have generated hydro power to be purchased by China, because public opinion was against it. The Chinese Government has stated publicly that they were surprised by the decision and that they are not amused! The people are rising and expressing their disgust with the machinations of the ruling coterie, the political and business class, the military and the administrators of their countries, who are not responsive to the needs and aspirations of ordinary people and marginalized youth. The political violence which mars routine events such as our recent local government elections may also be a reflection of this frustration against those who take power and abuse it. Anatomy of the protest The situation in the financial district of London is a useful case study to comprehend the anatomy of the protest. The 200-plus strong tent village outside St. Paul’s Cathedral has attracted an eclectic group of



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supporters for its mission to reform the global financial system, end tax injustice and bring about world peace. The squeezed middle class suffering in the midst of Europe’s financial crisis, including unemployed bankers, engineers, vets, IT analysts, etc. have joined up with the Occupy the London Stock Exchange movement. One chartered accountant working in a neighbourhood office came out for a lunchtime sandwich and ended up giving the crowd a rousing speech on the inequities of CEO pay! The group has no leader; its anti-establishment profile is reflected by there being only ‘facilitators’. They have a vague yet inchoate anger on the inequalities of the existing system. A nine point manifesto on the group’s web site calls the current financial system ‘unsustainable… undemocratic and unjust’ and demands better regulation as well and an end to government expenditure cuts. Many who have lost money in the stock markets, even recently in Colombo, will agree. Corporate sentiments Corporate leaders, whom, among other targets, the protesters are targeting, are lining up to chorus how much they understand the public anger over economic inequality. CEO of Wells Fargo Bank John Stumpf: “I understand some of the angst and the anger. This downturn has been too long, unemployment is too high, and people are hurting.” CEO of General Electric Jeff Immelt: “Unemployment is 9.1%. Underemployment is much higher than that, particularly among young people that don’t have a college degree.” Immelt said he understood the anger that drove the Occupy Wall Street movement and urged US businessman and politicians to “try harder” in their efforts to boost exports and create jobs. Immelt insisted at an interview with Reuters that “the only way to solve this specific problem is growth, which would in turn create jobs and allow some of the 250 million around the world seeking work to find employment”. Other business leaders are doing what is needed themselves. Witness Howard Schultz of Starbucks, USA, lining up hundreds of American CEOs who have declared they will not make any political donations until the politicians in Washington DC start behaving with a national sense of getting the deficit under control and vote in policies which create jobs, instead of getting involved a partisan suicidal political war with each other. Schultz says: “I want to send a message to Washington and, unfortunately, the only message they understand is money.” Without honesty from political leaders and the promise of both shared prosperity and shared sacrifice in the future, Schultz says we are going to see riots on the streets, citing the Occupy Wall Street protests. “We need an analogue to the Marshall Plan” (which financed the recovery of Europe after World War II), but the Marshall Plan was based on leadership and we have none of it” today. Schultz steps up Not stopping at that, Schultz has gone one step further. He is asking American business leaders to hire more people. The political paralysis has made business so risk averse that they are missing lucrative opportunities to grow. “Business leaders need to step up and not let Washington dictate a downward cycle in America.” Schultz is putting Starbucks money right where his mouth is. Starbucks plans to open hundreds of new stores in the US and elsewhere. The company achieved record results in 2010 and is enjoying “another very strong year, firing on all cylinders everywhere except Europe,” says Schultz. On 3 October Schultz launched a fundraising campaign called Create Jobs for USA and seeded it with US$ 5 million from Starbucks. The funds are for the Opportunity Finance Network, which provides loans to small businesses. Starbucks coffee shops are selling red, white and blue wristbands with the word ‘indivisible’ on them for a donation over $ 5 to raise funds for the project. The next day Schultz was in Harlem New York to launch a profit sharing partnership with community groups in poor neighbourhoods, including the Abyssinian Development Corporation in Harlem.



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Speaking at a luncheon event hosted by Bloomberg View, Schultz said: “The number one issue with regards to unemployment is access to credit for small business. Banks were sitting on cash largely because of heightened regulatory scrutiny.” The funds were not getting out to the people who needed them most, people who were struggling at the entry level of the economy, who needed small amounts of funds, assistance with a business plan and some mentoring. Mark Pinsky, Chief Executive of Opportunity Finance Network, said the funds raised would be distributed to Community Development Finance Institutions (CDFIs), which he described as “profit making but not profit maximizing” organizations that use their local roots to work closely with borrowers at the periphery who are otherwise marginalized from access to finance at a reasonable price. The CDFIs will make credit decisions about micro loans, housing project financing, community centre loans and small business loans, etc. The loans typically range from under $ 10,000 to as much as $ 200,000. Starbucks is also negotiating with the Angeles Urban League in Crenshaw, California for a similar tie-up. Alleviating economic exclusion This business initiative in the USA can and must be replicated by private business worldwide, if the problem of economic exclusion faced by the young and the marginalized poor in our communities is to be alleviated. The responsibility of the state is to create the policy framework. Where the politicians and the bureaucrats are too busy or otherwise engaged to create a positive environment for private business to get involved, it is no use withdrawing into a shell and making profits and keeping only share holders and investors happy. Business has to get out and fill the lacuna. If they do not do so, the people will be out on the streets demonstrating, as they are in country after country, where governments are unresponsive to pressing needs of communities, if not shooting each other up on the streets in broad daylight. The very fabric and values of society are under siege. Sri Lanka’s case In Sri Lanka’s case, business should reach out to the thousands of microfinance institutions, community-based organizations which are already operating at the grassroots at community level and get into effective partnerships. This is the ‘Bottom of the Pyramid’ which Professor Prahalad wrote about in his groundbreaking book, on the purchasing power of the poor and marginalized, for goods and services which are packaged and priced at a level which they can afford. These are the linkages which retailers and exporters of fruits and vegetables can build up with small scale farmers, helping them with forward contracts for purchase of their output and assisting them with technical knowhow and inputs to make their crops more marketable and customer friendly. Issues such as post harvest wastage, organic farming, improved packaging and new varieties of products, improved seed and planting material are all areas where the business community can communicate cutting edge technology and skill to the primary producers. With today’s communication facilities, mobile phone penetration and connectivity, the power of information can be used to empower primary producers in whatever remote part of Sri Lanka they reside. Sick of promises People are sick of listening to the political leadership promising, promising, ad nauseam. If they are willing to accept such promises, would they throng to the banner of Anna Hazare in Delhi? Occupy Wall Street in New York? Loot and burn the up market shopping districts of London? Occupy the main square in Tel Aviv Israel? Be so desperate for some partisan advantage or gain that they would shoot each other on the streets of Colombo with Chinese Type 56 automatic rifles? Force the authorities to close down a chemical plant which was polluting the environment in China?



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The state may have a role but non state actors have a bigger role and responsibility. Responding to the felt needs of the poor and marginalized is too important to be left to politicians and bureaucrats. They are perceived to be self-serving, inward-looking establishment figures, an establishment from which the poor and marginalized are excluded. The business community lives by marketing goods and services to the whole community, not only to the affluent and powerful. This is the mandate for business in their own interest to reach out in the manner Howard Schultz of Starbucks and his colleagues have done. There are local models of businesses which have made successful forays into working with the poor and marginalized and including and integrating them into their business plans for the mutual benefit of all. But there must be more. A greater effort must be made by the business community to build partnerships with primary producers at the periphery. The result of a failure to do so is reflected in the outcry of the young, poor and marginalized the world over, and in our case in the tragic events which occurred in the capital city in the course of an event which is the very fundamental exercise in a participatory democracy, an election of a local authority. The issue is compounded by an alleged highly-selective determination of culprits. (The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)



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Daily FT – October 31, 2011

State of SL economy according to IPS: Grow but make it inclusive The Institute of Policy Studies or IPS has once again issued its annual assessment of the Sri Lanka’s economy in 2011 six months before the Central Bank of Sri Lanka would do so in March next year. Though the report contains a fair, constructive and elaborative assessment of the state of the economy, no adequate discussion has been made of the report in the mainstream business media and it appears that it has largely been ignored. IPS mission: Give an independent view on policy IPS was created in late 1980s with the support of the Dutch Government as an autonomous think tank that could conduct policy oriented economic research and evaluate the country’s economic policy framework from an independent point of view. This role in the country had long been played by the Central Bank of Sri Lanka which also functions as the fiscal and financial advisor to the Government. However, in doing so, the Central Bank was perceived to have an obvious shortcoming: the bank conducts two important policies, namely, policies to fight inflation and policies to stabilize the exchange rate and, therefore, it was felt that an element of bias could creep into bank’s evaluation of its own policies. This is because however much the bank may endeavour to conduct an independent and impartial policy evaluation, to an independent reviewer, it is simply an insider’s view and not like an evaluation conducted by an outsider who has no interest in the bank’s two policy functions. IPS, not being an institution charged with any policy, was, therefore, considered to possess the best qualification to evaluate the country’s policy framework since it did not have ownership of or affiliation to any such policy. But an independent reader may have the same doubt about IPS’ ability to make an impartial evaluation of the country’s policy framework on account of its getting a small amount of government funding for its upkeep and it being listed as an institution functioning under the Ministry of Finance. Sri Lanka: The State of the Economy 2011 The State of the Sri Lanka’s Economy 2011 just released by IPS has as its theme how the country should proceed with its economic growth after the end of the 30-year-old ethnic conflict with a special focus on the need for ensuring ‘inclusive growth’. In its 2010 evaluation, IPS looked at ‘Post-conflict Growth and Recovery’; hence, the 2011 evaluation is a further continuation of that analysis focusing on inclusive growth considerations. To its credit, the Central Bank too in its Annual Report 2010 talked about providing social, economic and financial infrastructure for inclusive growth in a special box article in the Report. This article provided an excellent summary of the issues involved in the concept of inclusive growth and its main prerequisites. But the bank did not have any particular theme for its Annual Report and, therefore, IPS’ treatment of the subject is a novel idea for Sri Lanka’s economic policy makers. Fifteen out of the 17 chapters in the IPS Report have been devoted to inclusive growth requirements: the importance of attaining inclusive growth in the country, how its accelerated growth could be made inclusive and the policy framework necessary for the country to ensure inclusive growth. Since IPS does not compile its own primary data, its analyses and presentations have been based on the secondary data collected from other sources, mainly, the Department of Census and Statistics and the Central Bank of Sri Lanka. The Report has been prepared in the middle of 2011 and IPS, as in the case of the Central Bank, did not have the benefit of the full year data to make any worthwhile evaluation of the existing policies.



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It has, therefore, overcome that deficiency by making its analysis and evaluation on the basis of the trend development of the economic sectors up to the middle of the year and using information and material on qualitative changes which the economy has undergone so far and the announced policies of the government for the future. This is a fair enough evaluation because any economic evaluation need not be confined only to what has happened in a given calendar year. Inclusive growth: the latest catchword Why should IPS talk about the need for ensuring inclusive growth at this point of Sri Lanka’s growth momentum? There are many reasons, but let’s look at the historical evolution of the concept and its place in current global policy making for raising prosperity of people in poverty stricken developing countries in the world. ‘Inclusive growth’ was not in the terminology of the economists who talked about the issues of raising prosperity of people in developing countries till about early 1990s. For them, a faster and continuous economic growth over a considerable period was the sure way to increase the prosperity and the well-being of the poverty stricken people in those countries. Four East Asian countries, namely, Singapore, South Korea, Hong Kong and Taiwan had shown that a high economic growth in the region of nine to 10 per cent year after year for over two to three decades could ensure a sufficient build up of wealth and prosperity to elevate their people to enjoy a high living standard equal to that enjoyed by people in developed countries. Malaysia also with a similarly high economic growth rate was on its way to join this league within another decade or so. Hence, talking about inclusive growth was totally irrelevant. Developing countries at large: No significant poverty reduction However, many of the countries in East Asia and almost all the countries in South Asia and Africa had had a different kind of an experience. Despite the conscious efforts made to attain and sustain a high economic growth rate, these countries had had growth rates which were unimpressive when compared with the growth rates recorded by those fast growing East Asian countries. With low growth rates, they could not reduce the prevalence of poverty too in their respective countries to acceptable levels. This led to social tension, political instability and violent military conflicts that in turn contributed to record further low economic growth in many of those countries. Thus, the high economic cost of economic growth becoming ‘exclusive’ was for the first time felt by donors, policy makers and multilateral lending agencies. The result was the coining of a new concept of economic growth called ‘inclusive growth’. Though the concept of inclusive growth was coined in mid 1990s, no attempt was made to precisely define what it is and how it works. This led to much confusion and many attempted to use the concept to describe several other aspects of deficiencies that had been created by normal operations in markets or social systems. Thus, it was fashionable to call for adopting policies to rectify any economic or social development which had brought their fruits to some selected exclusive groups: Inclusive banking when the formal banking institutions catered only to a selected few and inclusive education when educational opportunities were available to some exclusive groups and so on. Commission on growth and development In 2006, the governments of Australia, Sweden, the Netherland and the UK together with the William and Flora Hewlett Foundation and the World Bank thought it fit to assemble a global think-tank of 22 leading academics, policy makers and business people from all around the world in the form of a Commission on Growth and Development under the chairmanship of the 2001 Economics Co-Nobel Laureate Michael Spence to study these issues and come up with suitable policy prescriptions. The Commission was to study and report on how rising prosperity and expanded opportunities could solve several key global challenges that are pressing the global community today. These challenges are the



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rampant poverty, deteriorating environment, misunderstandings within and across the nations and vast differences in living standards within and across the countries. The Commission released its report in 2008 under the title ‘Growth Report: Strategies for Sustained Growth and Inclusive Development,’ elevating inclusive development to the same status as sustained growth. According to the Commission Report, inclusiveness covers three important aspects relating to fair and just development: equity, equality of opportunities and protection of vulnerable groups when there are changes in employment and markets due to economic transitions. The report also warned that ‘systematic inequality of opportunities’ is highly toxic to a society since it would derail the growth processes undertaken by countries through political channels and ensuing conflict. Pro-poor growth is strictly not inclusive growth Two World Bank economists, Elena Ivanchovichina and Susanna Lundstrom, following the Commission’s definition of inclusiveness in growth have clarified in a note released in 2010 the concept of inclusive growth and how it differs from other popular concepts like ‘pro-poor growth’, ‘broad-based growth’ and ‘shared growth’. According to them, inclusive growth arises from both the pace and the pattern of growth of a country. The pace recording a continuous high growth will surely reduce poverty. The pattern which focuses on how diversified the economy is and the qualitative changes that take place in the economy enhances economic opportunities. Pro-poor growth can be attained by giving subsidies to the poor people or giving government jobs to those who join the work force. But it does not ensure inclusive growth because such measures are not sustainable and it focuses only on the poor. Inclusive growth is providing productive and sustainable employment channels to both the poor and the middle class which too is sidelined in normal growth processes and therefore could become dangerous breeders of social unrest and tension. Sri Lanka has gone through several of such violent conflicts in the last few decades mainly because of its failure to ensure equality in productive employment opportunities to all segments of the society. It has now come out of one such conflict after much pain and self-destruction. So, in the post-conflict growth strategies to be pursued by the country’s authorities, inclusive growth should be the main focus of growth if the country is to regain social and ethnic cohesion and ensure sustained growth. IPS, a critical but a constructive evaluator IPS has made a critical, but constructive risk assessment of the state of Sri Lanka’s economy today. Unlike the Central Bank reports which highlight only the good factors and praise all achievements in flowery language, the IPS Report has presented the other side of the story in a polite and subtle way so that the authorities could take timely action to avoid the pitfalls that lay ahead of their journey toward prosperity. In comparison, the Central Bank reports are similar to the assessment of the academic achievements of a child by his mother who knows only the child’s achievement and his efforts and strengths. The IPS report is like the assessment made by the child’s teacher who knows both the strengths and the weaknesses of the child in comparison to those of other students and emerging trends in educational standards. But like a good teacher who does so without de-motivating the child or frustrating his mother, IPS too has presented its critical assessment on the state of the economy with a positive tone built into its analysis and evaluation throughout. What are the critical factors that have been highlighted in the IPS Report? There are many, but due to the limitation of the space, only the important ones are assessed here.



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Critical factors in IPS analysis IPS has in fact praised the Government’s efforts to raise the capital expenditure and provide the key infrastructural facilities to help the economy to kick start its growth momentum and attain a high growth. But it has two limitations in the medium to long term. First is ‘the relatively weak recovery of the private investments to take advantage of the country’s new stability’. The second is the need for moving the government’s current emphasis from infrastructure to the development of the technology base and knowledge transfer to raise productivity to ensure the long term sustainability of the current high growth momentum. What IPS highlights is that the current public investment and infrastructure driven growth will fizzle out pretty soon unless the private sector initiatives and talents are harnessed. In the words of IPS, “here, private sector investment, and FDI especially, has a particularly important role to play”. IPS report has also drawn attention to an unseen pitfall that may be created as a result of too fast credit growth in 2005-07. The credit growth resulted in “not only the unravelling of some important financial organizations and illegal ‘ponzi schemes’, but over-leveraging of households and firms”. The result of this over-leveraging or in laymen’s words, borrowing beyond one’s capacity, was the increase in the bad loans of banks from five per cent in 2007 to 8.5 per cent in 2009. Hence, private sector credit may be increased through a liberal policy. But, such increases also impose unnecessary burdens on the banking sector in the form of an unexpected deterioration in the quality of loans. Even the aggressive reduction in interest rates too brings about mixed blessings. The objective of the interest rates was to stimulate the private sector to borrow more and invest in productive investments which bring in additional output and employment. But this objective was partly defeated by the previously over-borrowed firms and households repaying old loans they had borrowed at high rates and locking them up in new low interest carrying loans. Hence, cheaper credit was less likely to provide the required stimulus in adding new production units to the economy. The risks of foreign commercial borrowings IPS has given credit to the Government for its commitment to reduce the budgetary imbalance which had plagued Sri Lanka for a long time. However, the new financing method of shifting from domestic financing to foreign commercial financing poses a severe risk to the economy in the form of rising exposure to external debt. IPS has also drawn attention to the external debt indicators giving a misleading picture. Sri Lanka’s external debt to GDP ratio has shown a marginal decline from 36.5 percent in 2009 to 36.1 percent in 2010. But, IPS has noted that movements in the exchange rate have a clear bearing in the external debt indicators. It has thus concluded that “an appreciating currency, as was the experience of the Rupee in 2010, helps to improve fiscal indicators by lowering the external debt to GDP ratio”. This is because, in laymen’s language, the rupee value of the external debt does not rise despite the new debt raised but the figure below the line representing the GDP in nominal terms rises faster due to the domestic inflation. Hence, naturally the ratio should decline and it is not a matter for complacence. Is the Central Bank becoming irrelevant? This type of critical analysis is salutary and essential for Sri Lanka to make appropriate risk assessment of the current state of its economy. IPS has therefore made a significant value addition to the raw data published by both the Central Bank and the Department of Census and Statistics. Its publishing a critical review of the economy before the Central Bank publishes its Annual Report has satiated the appetite which the external users have for the country’s economic data and analyses of same. But, does this mean that the Central Bank has become irrelevant as the country’s prime storehouse of economic data? The answer is both ‘yes’ and ‘no’.



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Yes, because IPS has come to the market well before the Central Bank and that presence in the market has been made with a critical analysis of the state of the economy. This is the type of the analysis demanded by both the domestic and external users of the country’s economic data. No, because the Central Bank continues to provide a vast array of economic data collected from various sources in a single document, albeit its report is released after the IPS report not because of any inefficiency on the part of the Central Bank, but because it has comply with the Monetary Law Act by providing some selected annual and monthly data series. As for inclusiveness, the Central Bank is more inclusiveness-friendly with its report being published in all the three languages and its report being the main subject matter of those students reading for the economics and business studies papers at the GCE Advanced Level Examination. The IPS Report which is published only in English lacks this inclusiveness, though its theme happens to be inclusive growth. (W.A. Wijewardena can be reached at [email protected].)



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Daily News – November 4, 2011

Private sector mirrors SL's macro economic developments Rohantha Athukorala Given the privilege to deliver a keynote address at the Annual Sales and Marketing conference at one of the largest multinational companies in the country which recorded a turnover of around 65 billion rupees and a contribution of 1.5% GDP to Sri Lanka. The event gave me an amazing insight that motivated me.

I was exposed to diverse macro level economic development initiatives, as the information that was being highlighted at the conference was sales, customer growth, profits, shareholder value, mirrored to the macro-economic highlights of the country that is seen in the media daily.

Top fifty The quarter two at 2011, registering an impressive 8.2% GDP growth and at year end almost a eight percent, poverty at single digit, unemployment at 5.2% and exports growing by forty percent are numbers that surely demonstrate as a top fifty country of the world, although we are up against some issues internationally that need to be managed carefully. However, just like any other country, we have our fair share of issues like the ballooning trade deficit that has touched 5 billion dollars as at end July 2011 and exports tapering out at nine percent in July, tea industry in the red but, from

qualitative aspects on attributes like infant mortality rate, underweight children and their immunization. Sri Lanka out beats global performance and are in line to the Millennium Development Goals(MDG's) that we should be proud about. This makes Sri Lanka a very healthy country and in good stead for the future from a qualitative perspective.

North While the government focuses on the resettlement of IDPs and livelihood development in the Jaffna peninsular, this rhetoric and political mantra what was seen last Friday was that the private sector has worked in tandem. The said company has appointed 10 distributors to drive retail penetration in the peninsular since May 2009, while another set has been appointed in Mullaitivu and Kilinochchi which was once ravaged by the war. Sales growth was at double digit level from these districts. The private sector who works on a profit and customer base developmental model would not have increased their operations if it did not make financial sense. Separately, the strong growth seen in 2010/2011 performance further justifies the thought that the private sector performance mirror the macro economic numbers flashed in the Northern province.

Rural drive In the recent past we have seen policy makers working on projects like 'Divi Neguma' which is focused on developing 1.5 million economic units across the country to uplift the micro SME sector. The increased credit to the private sector in the recent past was 33% which further justifies this thought of the resurgence of the Sri Lanka's economic landscape. From Jan - May 2011 the commercial bank loans to business rose 33.3 percent or 416 billion rupees.

Rohantha

Athukorala



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New products Another strategy that caught my eye at this conference was a range of products that has been developed to cater to the emerging lifestyle of the consumer, backed with the technical expertise. This was similar to the lifestyle development that we have seen with the brand 'Singer' which won the Youthful Brand of the year at the Peoples award 2011. The new products launched by the said company reflect on the macro development trends flashed in the media. The company had increased its visibility with a sales material and above the line, advertising has made the company secure a 93% share in the country and a top of the mind-brand when it comes to bread, noodles and chicken. A particular aspect the emphasis the company made towards skill development. Even the conference was themed synergy through team work so that through strategic development of the sales force how business growth can be catapulted. In conclusion we can infer that from just one sample of the private sector that accounts for 1.5% of the GDP, many parallels can be drawn to the Macro economic numbers that we have seen getting flashed on media. The challenge is to diversify the business agenda and attract more FDIs and improve the doing business indicators which is at a low ebb of 105 as per the global report on competitiveness of nations. The next step is to identify the immediate challenges in case the euro zone splits and the emerging recession looming in the US, that consume almost 60% of the export we market globally. But the reality is that Sri Lanka is poised to be a 100 billion dollar economy by 2015.



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Caucasus, Central Asia set for robust growth, but global risks weigh Economic recovery gains momentum across the region With inflation posing a risk, monetary tightening is needed in some countries Fiscal consolidation would benefit most countries in the region Growth in the eight countries of the Caucasus and Central Asia (CCA) is expected to remain fairly robust, but policymakers should be mindful of inflation risks and take advantage of the strong recovery to rebuild policy buffers and prepare for any downside risks that might materialize, the IMF says in its latest assessment. According to the Regional Economic Outlook for the Middle East and Central Asia, released October 26 in Dubai, the CCA is set to grow 5.6 percent in 2011 and 6.2 percent in 2012 (see table). For the region’s oil- and gas-exporting countries, the expansion is driven by high oil and gas prices, while the oil- and gas-importing countries are benefiting from the continued recovery in Russia, a key trading partner.

However, external risks to the outlook in the CCA region have increased and derive from a heightened perception of fragility in the global recovery, the report noted.

"For the CCA, a sharp decline in global growth could mean a fall in commodity prices, a decline in export demand, and a decrease in remittances and capital flows to the region," David Owen, Deputy Director of the IMF’s Middle East and Central Asia Department told a press conference in Almaty, Kazakhstan. "If these external risks do not materialize, however, we foresee good prospects for the region, with fairly solid growth," he added. Oil and gas importers need to address external vulnerabilities The growth outlook for region’s oil- and gas-importing countries—Armenia, Georgia, the Kyrgyz Republic and Tajikistan—is favorable. Activity has picked up strongly in 2011, reflecting a recovery from last year’s fall in agricultural production in Armenia and a rebound from the Kyrgyz Republic’s contraction resulting from civil unrest. Continued global recovery, including in Russia, is also benefiting the region by boosting both trade and remittances. The IMF forecasts growth



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at an average of 5.3 percent in 2012 for the oil and gas importers. Driven largely by high food prices, inflation has been rising since mid-2010 (see chart). In response to surging inflation, governments throughout the region tightened monetary policy, but additional tightening is still needed in some countries, such as the Kyrgyz Republic and Tajikistan, the IMF assessment says.

With the recovery gaining speed, CCA oil and gas importers should aim for fiscal consolidation to rebuild fiscal buffers that were depleted during the global financial crisis, to help safeguard their economies against future shocks. Such fiscal adjustment has already begun in Armenia and Georgia—would also help rein in large external current account deficits, the IMF report states. Maintaining exchange rate flexibility and accelerating the pace of structural reforms to boost competitiveness will also help reduce external vulnerabilities.

Oil and gas exporters face risk of inflation becoming entrenched The oil and gas exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—are growing fast. This growth, coupled with an accommodative policy stance, poses a risk of overheating. Although international food and fuel prices are moderating, core inflation is projected to rise in 2012 in all of the CCA oil and gas exporters.

Given this risk, monetary policy should exit from its accommodative stance, the report recommends. However, monetary policy has only limited traction in most of the region’s countries, so policymakers should aim to enhance its effectiveness by fostering financial deepening, enhancing central bank independence, improving the capacity of monetary policy tools, promoting more competition in banking systems, and avoiding unnecessary government intervention.

For 2011, all of the region’s oil and gas exporters are maintaining an expansionary fiscal stance. To limit inflationary pressures and ensure stability, however, governments need to exercise caution over spending increases, cut no priority spending, and avoid further increases in hard-to-reverse items, such as wages and pensions, the report observes. Over the medium term, measures to enhance the transparency, quality, and efficiency of public spending, as well as to raise non-hydrocarbon revenues, would also contribute to fiscal consolidation. "If, however, global growth deteriorates sharply, then tightening of macroeconomic policy might have to be put on hold," the report cautions.



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Fostering employment, inclusive growth The reliability of unemployment estimates in the CCA is uncertain, but available data suggest that unemployment is high.

In Azerbaijan, the unemployment rate is near 10 percent, and in Armenia, it stood at 19 percent in 2009. Georgia’s unemployment rate in 2009 was about 17 percent, according to official estimates, but alternative estimates put unemployment in the range of 20–30 percent. In all countries, youth unemployment is even higher.

Creating jobs and fostering high and inclusive growth is therefore a priority for governments in the region, the report says. The key components of the medium-term reform agenda to address this challenge include policies that aim to improve the business environment; ensure equal access to public services; enhance transparency, governance and institutional quality; boost regional trade integration; and address skill mismatches between job-seekers and available jobs.

(Courtesy IMF Survey)



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Sunday Island – November 6, 2011

Chairman appeals for cooperation of all concerned – specially govt. Unscrambling the scrambled Hilton egg

Hotel Developers (Lanka) PLC, the owners of the Colombo Hilton Hotel, has paid management fees and other group charges to Hilton Worldwide of Rs.1.37 billion from 2001 to 2010 and this amounts to approximately 33% of the gross operating profit for this period, Mr. Thirukumar Nadesan, the company’s chairman has told shareholders in its just released annual report for 2010.

The shareholders meanwhile have got nothing although the HDL share continued to trade last week at Rs. 130 on Friday on the default board of the CSE.

The company will hold an AGM for the first time after 10 years on November 21 when shareholders will be asked to separately approve the annual report of the board of directors, statements of accounts and balance sheets of the company from the years ended March 31, 1990 to March 31, 2010.

This meeting will also consider any other business of which due notice has been given.

The Secretary to the Treasury with approximately 29.4 million shares of Hotel Developers controls 64.98% of the company with the two Japanese shareholders, Taisei Corporation and Mitsui & Company with 13.14% each, control the majority of the balance.

Takashimaya Co. Ltd. owns 1.22% while all other shareholders individually have les than once percent.

According to the information published in the annual report now with shareholders, Cornel & Company are not among the 10 major shareholders although Mr. Cornel Lionel Perera and his wife, Mrs. Theresa Patricia Perera, own one HDL share each.

Analysts said that substantial shareholdings of Cornel Perera had been pledged against the state settling dues falling under government guarantees and the Secretary to the Treasury holds these shares. Perera claims to be the owner of these shares though not the holder.

Five cases filed since 1998 by Cornel & Co., Nihal Sri Amarasekera and the Colombo Municipal Council are complicating the affairs of the owning company with Nadesan saying in the annual report that he was



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appealing to shareholders, particularly the Government of Sri Lanka, to assist him and his board "to resolve all the outstanding issues and take the company forward."

Nadesan and five other directors of the 10-member board are government nominees. Cornel & Company has two nominee directors and Mitsui and Taisei one director each. This is in terms of the Articles of Association of HDL.

Nadesan said that the company had a stated capital of Rs.452 million, reserves of Rs.5.077 billion and accumulated losses of Rs.10.302 billion in its books as at March 31, 2010.

The reserves include revaluation reserve of Rs.4.706 million resulting in the revaluation of the building carried out in 2010. Accordingly, the net assets of the company amount to a negative Rs.4.773 billion.

Nadesan identified the following factors contributing to the loss:

(a) The construction of the hotel was fully financed by obtaining a Japanese Yen loan from the Japanese investors, namely Mitsui and Co. Ltd. and Taisei Corporation of Japan under a government guarantee.

(b) The downturn in the tourism industry resulting from the 30 year internal war, had a negative impact on the business of the hotel.

(c) The competition in the hotel industry due to declining tourist arrivals and the fact that the minimum room rate policy did not materialize, had led to under cutting which resulted in a severe impact on the profitability of the hotel.

(d) The exchange loss resulting from the repayment of the Yen loan during the period 1990 to 2010 alone was Rs.4,618 million.

(e) The management fees and other group charges paid to Hilton Worldwide is approximately 33% of Gross Operating Profit. From 2001 to 2010, the total amounts paid to Hilton Worldwide was Rs.1,371 million.

(f) The company was unable to meet the annual loan installments and the shortfall had to be financed by the Government of Sri Lanka under the Government Guarantee. Accordingly the liability to the Government of Sri Lanka as at 31st March 2010 was as follows:

Capital Rs. 3,950 Mn. Interest Rs. 6,248 Mn. Rs.10,198 Mn.

The company had been unable to meet its annual loan installments and the shortfall had to be funded by the government under the government guarantee that was given to the hotel project. The company’s liability to the government as at March 31, 2010 was approximately Rs.10.2 billion.

"The interest paid on the Japanese loan obtained in 1984 for the construction of the hotel and the loan obtained from the Bank of Ceylon in 1998 for the re-construction of the hotel following the bomb blast in 1997 at the Galadari car park and the interest payable to the Government of Sri Lanka on account of the loans obtained for the settlement of the Japanese loans under the guarantee, as at March 31, 2010 was Rs.9,003 million. These loan interest charges together with the exchange loss amount to Rs.13,621 million and this had been the major factor for the loss situation," Nadesan said.



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"It would be observed that the serious loss of capital situation had been there even before the enactment of the Companies Act No.7 of 2007 and the need to take steps in terms of Section 220 of the Companies Act No.7 of 2007 was also a debatable legal issue."

He said that the only option available to change the current loss situation to a profit situation is through company restructuring with the support of all parties concerned.

"Various cases pending in courts have prevented the restructuring process despite the intervention of the Supreme Court to bring about a negotiated settlement in 2005 to facilitate the restructure," he said.

He was hopeful that the revision of minimum room rates, increased tourist arrivals, improving occupancy levels of the hotel and negotiations with Hilton Worldwide to reduce management fees and other group charges would improve the situation.

"Discussions are being continued with the Government of Sri Lanka with a view to restructuring the company and to overcome the debt burden and interest commitment, and also to resolve the issue relating to lease of the property on which the hotel stands. (Of course, certain decisions have to be in line with the government policy and the applicable laws and hence those are beyond our control)," he said.

Among the cases pending is one filed by Mr. Nihal Sri Amarasekera, owning 70,000 shares, calling for the winding up of the Hotel Developers with the case fixed for written submissions on November 28 and with the inquiry into the application should be disposed of by way of written submissions or oral submissions. The company is opposing the winding up.

The case filed by the Colombo Municipal Council relates to the Hilton being operated in 2007 without a trade license and not paying the trade license duty.

Hotel Developers has also initiated a request for arbitration to the International Court of Arbitration in March 2008 against Hilton International of the USA relating to the matter of the "term" of management of the Hilton Hotel Colombo, in terms of the provisions of the management agreement between the company and Hilton International.

The report says they are in negotiation with Hilton Worldwide (formerly Hilton International) "for an amicable settlement of the matter" and the arbitration is pending on HDL initiative.

Both in the financial years 2009 and 2010 the company has posted gross profits of over Rs.1 billion but very heavy finance costs exceeding Rs.1 billion in both years had driven the bottom line into the red.

The directors of the hotel are: Government Nominee Directors – Mr. Thirukumar Nadesan (Chairman), Mr. K.V. Nihal Jayawardene, Mr. V. Kanagasabapathy, Mr. N. Warusawitharana, Dr. Tissa Wickramasuriya and Mr. Kosala Wickramanayke. Cornel & Co. Ltd Nominee Directors – Mr. Cornel L. Perera and Mrs. Theresa P. Perera. Mitsui & Co. Ltd. Nominee Director – Mr. Shigeyuki Kuroiwa. Taisei Corporation Nominee Director – Mr. Mazato Nakano.



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Current phase of global recovery and implications for Sri Lanka Following is the address delivered by Senior Minister for International Monetary Cooperation Dr. Sarath Amunugama at the fourth South Asia Economic Summit (SAES IV) Plenary Session: In the aftermath of the global economic crisis, there has been a noticeable shift in economic clout, moving from the USA and the debt-plagued countries of the Eurozone, to the emerging markets of Asia. The Obama administration has been struggling with economic fragility at home and is showing ambivalence on trade. The stimulus package drawn up by the Obama administration has forced the White House to focus largely on its domestic problems. There have been no key free-trade initiatives in the recent past and there is a sense of defensiveness with regards to trade agreements. Moving faster on greater trade liberalization is currently a low priority for the US administration. The European Union (EU) is suffering from its own dilemmas. Following the global economic crisis, the Single Market for the euro has been under stress. Several countries are facing sovereign debt problems, and there is a crisis in the Eurozone. There is uncertainty about the outlook of the euro area, and the duration of the debt crisis has exceeded the forecasts of certain key analysts. The International Monetary Fund’s (IMF) World Economic Outlook 2011 report states that the euro area’s sovereign debt and banking sector problems have “proven much more tenacious than expected.”1 Some analysts believe the European Union is “internally divided and externally weak.”2 Greece, Ireland, Portugal, and perhaps even Spain and Italy are facing damaging fiscal problems and are in desperate need of financial bailouts. Governments have imposed austerity measures to help curb spiraling debt, and in response there have been protests across Europe. Only yesterday, a general strike took hold of Greece in reaction to tough new austerity measures being voted on by the parliament. On the other hand, economic powerhouses are clearly emerging in the East. Many of the rising economies in Asia were not as badly affected by the global economic crisis, and some believe this is due to better balance sheets and less debt prior to the crisis.3 Such was the case with China. With respect to trade, China is now one of the Big Three, in terms of exports as well as imports. Since the 1980s, the country’s annual GDP growth rate has exceeded 9%, reaching 13% and 14% in some years. Per capita income grew by more than 6% annually between 1978 and 2003, far exceeding the 1.8% growth in Western Europe and the USA. China is now the second largest economy in the world, in terms of purchasing power parity (PPP). As of 2010, the country had a GDP of $10 trillion, with some analysts placing it on the path to overtaking the USA as the largest economy by 2050.4 Another rising Asian economic giant is India. It weathered the global economic crisis relatively well, with its recovery based strongly on domestic consumption. Analysts view this economy with optimism, with GDP growth rates reaching 10% and above since the crisis.5 However, despite having emerged as a global economic and political power, India is not in the same league as China. India does not have the same export power, and its GDP was measured at $4 trillion, placing it in fourth place in global rankings, two places behind China. India has not enacted significant reforms since

Senior Minister for International Monetary Cooperation Dr. Sarath Amunugama

addressing the SAES IV Plenary Session



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2004, and as such there have been no large advancements in agriculture, services, or industry. Trade reforms have also been lacking, with little unilateral liberalization, and as some analysts put it, a sense of “defensiveness” in the World Trade Organization.6 Regional economic performance However, India has helped lead South Asia into a new era of development. The region’s growth rate from 2003 – 2008 was roughly 7%.7 Following the global financial crisis, South Asia’s GDP rose to 9.3% during calendar year 2010, but large fiscal deficits and high price pressures have led to macroeconomic policy tightening, resulting in a slowdown in the region’s growth to 7.5% in the first quarter of 2011.8 Rising food and fuel prices have led to reduced private consumption growth, but the region’s domestic demand has been bolstered by strong exports to robust developing economies, and according to the World Bank’s Global Economic Prospects report, there has been an annual percentage change in exports in the region from -6.3% in 2009 to 12.7% in 2010.9 There are significant demographic transitions taking place that may foresee the region giving rise to a powerful labour force. Analysts estimate that by 2020, South Asia will have the youngest labour force in the world, with 18 million people being added to the working-age population every year for the next 20 years.10 The region’s middle-class has also experienced significant growth, experiencing a 12% surge on an annual basis since 2000. It is estimated that by 2025, South Asia may have a middle-class of approximately one billion people, with India projected to have the largest middle-class in the world at that point. This growth will have important implications in terms of regional trade, with Sri Lanka standing to gain significantly from the increase in purchasing power among its neighbour’s middle-class. However, the degree of regional trade that is currently taking place is a fraction of its potential. The South Asian Free Trade Agreement (SAFTA) has failed to produce any significant benefits for Sri Lanka in the recent past. The country is engaging less in regional trade agreements (RTAs) compared to its South Asian neighbours, India and Pakistan. Sri Lanka has four RTAs in place, covering 21% of its total trade, and in addition to SAFTA, has in force the Asia-Pacific Trade Agreement and two bilateral trade agreements with India and Pakistan.11 Despite being a member of BIMSTEC (the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), the trade liberalization component of the agreement has not been finalized and thus does not count towards the number of Sri Lanka’s enforced agreements. Most of Sri Lanka’s exports reach markets outside the Asia-Pacific region, with only 27% of exports going to Asia-Pacific countries. However, Sri Lanka depends heavily on intraregional import markets, with 73% of all imports coming from the Asia-Pacific region.12

Sri Lanka’s level of engagement with the G20 group of countries is rather limited. In the South Asian region, Sri Lanka can only look to India to represent its interests to the rest of the G20 group. Despite the view that large G20 economies like India are expected to discuss with and relay the needs of smaller economies in its surrounding area, like Sri Lanka, Bangladesh, and Nepal, this is not happening. Most countries in the G20 group are currently focusing on their domestic economies and trying to resolve their fiscal problems. India’s primary policy commitments, as outlined during the G20 Seoul Summit in 2010, revolve around prudent fiscal management through a fiscal consolidation program. The country aims to achieve this through targeting a reduction in the public debt – GDP ratio, thereby hoping to create an environment conducive for investment.13



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Intraregional trade policies are stated among the policy objectives, outlining the need to increase engagement with the rest of the world through regional, preferential, and free trade agreements such as the ASEAN FTA, Malaysia FTA, Korea CEPA, and the EU. These agreements, it is stated, aim to promote openness and fair trade necessary for the country’s growth and are intended to avoid protectionism.14 Despite Sri Lanka’s slow growth in multilateral agreements, the country’s trade relations with India have been gathering pace. The India-Sri Lanka Free Trade Agreement (ISFTA) has seen increasing amounts of trade between the two countries since its inception ten years ago. Unfortunately, this strengthening of economic relations has not expanded sufficiently to have led to a signing of a Comprehensive Economic Partnership Agreement (CEPA), despite prolonged discussions over several years. It will be in Sri Lanka’s benefit to maximize economic relations with its northern neighbour. India is seen as the gateway for Sri Lanka to engage in wider regional integration with the rest of Asia. The economic giant has pursued closer economic relations with its more distant neighbours by signing Comprehensive Economic Cooperation Agreements (CECAs) with Japan, Malaysia, Singapore, and South Korea, as well as a Trade in Goods Agreement with the Association of Southeast Asian Nations (ASEAN). India has also commenced discussions on free trade agreements with the Gulf Cooperation Council (GCC) and the European Union. Based on the UNESCAP Asia-Pacific Trade and Investment Report 2011, Sri Lanka’s exports are well-matched to India’s import demands, with a complementarily of roughly 59%.15 Sri Lanka’s export industry Sri Lanka has nonetheless performed positively in the recent past with respect to international trade. The country is currently ranked sixth among 10 countries in the region in terms of trade in goods and ranked fourth in terms of services. Exports grew by 17.5% in 2010 while imports grew by 24%, based on value in constant prices.16 Nonetheless, forecasts are less optimistic, showing the country’s export industry growing at 8.6% in 2011 and 7.5% in 2012, whereas the South Asian region on the whole is expected to experience a growth rate of roughly 10% in both years, bolstered primarily by India.17 Sri Lanka has been suffering a continuous merchandise trade deficit during the past decade, recording a deficit of $5 billion, or 10% of GDP, at the end of 2010. The country’s relatively high export-dependency is reflected in its share of exports in GDP of 17.2% in 2009, higher than that of India and Pakistan.18 The slow recovery of developed economies following the global economic crisis may hamper Sri Lanka’s export market and remittance income. The bulk of Sri Lankan exports in the last decade, ranging from 55% to 60%, have gone to the USA and Europe.19 The domestic problems in America and the Eurozone crisis may see demand for Sri Lanka’s textile and garment industry suffer as consumption and purchasing power take a dip in the USA and the EU. The recent revolutions and continued instability in the Middle East and northern Africa have led to rising oil prices, leading to domestic inflation in Sri Lanka, which in July 2011 rose to 7.5% compared to the same period last year.20 High inflation may dampen private consumption and increase local production costs, possibly leading to reduced competitiveness in Sri Lanka’s export sector. Likewise, Sri Lanka’s tea exports may suffer a drop in the Middle East, one of its key export markets, due to the recent political turmoil and civil unrest. Impacts of global developments on migration flows The political turmoil in certain Middle Eastern countries and their associated unrest may not significantly impact Sri Lankan migrant workers. The Middle East plays a key role in hosting Sri Lanka’s migrant workforce, attracting over 90% of foreign employment departures from the country. Most of these workers are employed in relatively stable states. Saudi Arabia, Qatar, and Kuwait, all of which managed to maintain



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some degree of stability during the civil unrest, are the top three destinations for Sri Lankan migrant workers, attracting 27%, 20% and 18% of all overseas workers in 2010.21 Remittance flows are unlikely to have suffered significantly during the social uprisings, as it is doubtful workers in these countries suffered substantial real-term decreases in salaries as oil prices rose. However, in Bangladesh, there have been substantial numbers of migrant workers returning from Gulf states. emittances took a dip from 17.1% in dollar terms for 2009 to 2.7% the following year. On a separate note, remittance flows from Sri Lankan workers in the European Union may take a downward turn. The euro crisis that is currently spreading through the EU may lead to a decreased demand for services offered by Sri Lankan migrant workers. The International Monetary Fund projects the Eurozone to grow at 1.6% and 1.1% in 2011 and 2012, respectively.22 There is weakening consumer demand, a sluggish job market, and austerity measures are being imposed by governments across the region. Nonetheless, the number of Sri Lankan migrant workers in the EU is relatively low. According to the Sri Lanka Bureau of Foreign Employment, Cyprus is the only European country among the top 12 destinations for migrant workers around the world, but is still relatively low, having attracted only 1.4% of all Sri Lankan overseas workers in 2010. In conclusion, it is evident that the global economic landscape is changing rapidly. From America’s domestic problems to the EU’s debt crisis to the Arab world’s civil unrest, there are many transformations taking place. The implications these have for South Asia are manifold. However, what will be paramount to Sri Lanka’s successful development will be that we maintain close ties with our neighbours and strengthen our regional integration. References: 1 World Economic Outlook September 2011: Slowing Growth, Rising Risks. International Monetary Fund, Washington D.C.: 2 011. 2 Trade and the Global Economy 2011. Presentation given by Dr. Razeen Sally at the Seminar on Global Economic Developments held at the Ceylon Chamber of Commerce on the 16th of September, 2011. 3 Ibid. 4 Wijesinha, Anushka. Sri Lanka in a Changing Global Economic Landscape. American Center Public Lecture held on 22nd September 2011. 5 Trade and the Global Economy 2011. Presentation given by Dr. Razeen Sally at the Seminar on Global Economic Developments held at the Ceylon Chamber of Commerce on the 16th of September, 2011. 6 Ibid. 7 Wijesinha, Anushka. Sri Lanka in a Changing Global Economic Landscape. American Center Public Lecture held on 22nd September 2011. 8 Global Economic Prospects June 2011: Regional Annex South Asia. World Bank, Washington D.C.: 2011. 9 Global Economic Prospects June 2011: Regional Annex South Asia. World Bank, Washington D.C.: 2011. 10 Wijesinha, Anushka. Sri Lanka in a Changing Global Economic Landscape. American Center Public Lecture held on 22nd September 2011.



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11 Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities. United Nations Economic and Social Commission for Asia and the Pacific. United Nations, New York: 2010. 12 Ibid. 13 The G20 Seoul Summit Leaders’ Declaration: November 11-12, 2010 – Annex I. 14 Ibid. 15 Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities. United Nations Economic and Social Commission for Asia and the Pacific. United Nations, New York: 2010. 16 Ibid. 17 Ibid. 18 Ibid. 19 Wijesinha, Anushka. Sri Lanka in a Changing Global Economic Landscape. American Center Public Lecture held on 22nd September 2011. 20 Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities. United Nations Economic and Social Commission for Asia and the Pacific. United Nations, New York: 2010. 21 Sri Lanka Migration Profile 2010. International Organization for Migration. 22 Wijesinha, Anushka. Sri Lanka in a Changing Global Economic Landscape. American Center Public Lecture held on 22nd September 2011. Sources: Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities. United Nations Economic and Social Commission for Asia and the Pacific. United Nations, New York: 2010. BBC News: Greece unrest: Strike to continue amid austerity vote. British Broadcasting Corporation World News. Accessed 20 October 2011. Available: <http://www.bbc.co.uk/news/business-15377398>. BBC News: EU austerity drive country by country. British Broadcasting Corporation World News. Accessed 20 October 2011. Available: <http://www.bbc.co.uk/news/10162176>. Global Economic Prospects June 2011: Regional Annex South Asia. World Bank, Washington D.C.: 2011. Sri Lanka Migration Profile 2010. International Organization for Migration. Trade and the Global Economy 2011. Presentation given by Dr. Razeen Sally at the Seminar on Global Economic Developments held at the Ceylon Chamber of Commerce on the 16th of September, 2011. Trade Indices – Annual (1990 – 2010). Central Bank of Sri Lanka. External Sector Statistics. The G20 Seoul Summit Leaders’ Declaration: November 11-12, 2010. The G20 Seoul Summit Leaders’ Declaration: November 11-12, 2010 – Annex I. Wijesinha, Anushka. Sri Lanka in a Changing Global Economic Landscape. American Center Public Lecture held on 22nd September 2011. World Economic Outlook September 2011: Slowing Growth, Rising Risks. International Monetary Fund, Washington D.C.: 2011.



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Investment



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Are we serious about private investment? Pathfinder Economic Alert: * Confidence: the Most Critical Element of the Business Climate

"if a party , a country or a nation does everything by sticking to dogma, follows an ossified way of thinking, and is prevailed by superstition, then it can never move forward, its hope of life will die, and either the party or the country will be doomed" - Deng Xiaoping, 1978

Need of the Hour Investment needs to increase from 28% (2010) to 34% of GDP to attain the government’s growth target of 8%, as Sri Lanka’s incremental capital output ratio is 4.2. Public investment has been capped at 6% - 7% of GDP. This means that private investment, both domestic and foreign, needs to increase from the current 21% of GDP to 27-28%. It is, therefore, important to create a conducive business climate that encourages private investors to fill this gap. Failure to do so will mean that the government’s growth target will not be met on a sustained basis. Attempts to circumvent the lack of private investment by raising the level of public investment are likely to undermine the government’s own fiscal consolidation targets and thereby have an adverse impact on the country’s macroeconomic fundamentals. As a lower-middle-income country with an increasing exposure to capital markets, Sri Lanka cannot afford to allow this to happen.

Despite the end of the war, the response of private investors has, so far, not been as robust as one would have hoped. Both domestic and foreign investment has been more muted than necessary to meet the government’s growth targets.

Positives The government, led by the Central Bank of Sri Lanka (CBSL), has implemented a concerted programme to improve Sri Lanka’s position on the World Bank’s Doing Business Index (DBI). This initiative has been successful in improving Sri Lanka’s ranking to 89 out of 183 countries this year, an improvement of 9 places. This is attributed to: strengthened investor protection, through more stringent disclosure requirements for interested transactions; and reduced costs of paying taxes. The DBI also indicates that there is room for improvement in areas such as paying taxes; registering property; and enforcing contracts. However, the overall improvement is a very notable achievement.

Necessary but Not a Sufficient Condition While it is necessary to improve the country’s performance on the DBI, it is not a sufficient condition for strengthening the overall investment climate to meet the government’s goals. The DBI, which is process



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oriented, does not include important aspects of the overall investment climate, including land policy, labour market policies, macroeconomic stability, the skill level of the workforce, the strength of financial systems and corruption. Above all, it does not capture the relationship between investor confidence and consistent and predictable government policies.

Consistency & Predictability of Government Policies and Decisions or Else... A number of international surveys clearly indicate that the consistency and predictability of government policies and decisions are the most important determinant of investor behaviour, both local and foreign. It is more important than tax concessions or even the robustness of a country’s macroeconomic fundamentals. A lack of confidence in the stability of government policies and decisions reduces risk appetites and discourages investors from increasing the time horizons for the expected return on their investment. Without this, it is not possible to build up the productive capacity of the economy and to create the high value employment that will improve the living standards of the people on a sustainable basis, as envisaged in the Mahinda Chintana. The investor confidence that is generated by consistent and predictable policies is, therefore, crucial for implementing the five hubs based vision embedded in the Mahinda Chintana. Measures that undermine investor confidence will, therefore, undermine the objectives of the Mahinda Chintana.

It is also important to have clarity regarding the space that is available to the business sector at a time when organs of the state are moving into activities that could be in the realm of private enterprise. In most instances, the private sector would not be able to compete on a level playing field with entities that are sponsored by the state.

Will the Law on Under-utilized State Assets be Counterproductive? In this connection, the draft Bill titled "An Act to provide for the vesting in the State identified Under-performing Enterprises and Under-utilized Assts" has the potential to create considerable uncertainty and undermine business confidence. The proposed legislation, which has been presented to the Supreme Court as an Urgent Bill, has not benefited from the usual round of consultations. It is contended that the legislation will be a one-off measure targeted at a specific list of entities. However, using legislation to expropriate assets at a time when Sri Lanka is seeking to accelerate its growth trajectory through enhanced private investment would be counterproductive. A more investor-friendly option would be to incorporate US-style Chapter 11 restructuring provisions into the Companies Act. Another market-friendly approach would be for the Government to infuse equity into enterprises that can be resuscitated on the basis of well formulated restructuring programmes and subsequently dispose of its holdings at a profit. This method has been used successfully in Europe and the US to support the banking and auto sectors recently. There is merit in exploring whether these approaches can be adapted to meet the government’s objective of enhancing the performance of under-utilized assets.

It is possible that a lack of stakeholder consultation is leading to greater uncertainty than is warranted. It is a fact, however, that perceptions matter when it comes to investor confidence, both domestic and foreign. Lack of clarity in relation to this sort of legislation reduces risk appetites and discourages investors from taking the longer-term perspective that is necessary to achieve the country’s goals in terms of investment, growth and high value employment.

Unlocking the Value of Under-utilized State Land The current uncertainty and unpredictability regarding government land policy is also undermining the investment climate. Much of the ongoing debate is based on an emotional attachment to land. Such sentiments are not confined to Sri Lanka alone. However, investment is required to unlock the value of any land. For instance, the land occupied by the Defence Ministry, for 30 years, in Galle Face, constituted a gross under-utilization of a very valuable asset. The decision to sell some of the land will now generate



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economic activity, employment and tax revenues that will assist in funding basic services delivery and infrastructure development. It must also be recognized that even if land is sold to foreigners they cannot take it out of the country. It will always be possible for Sri Lanka to benefit from the productive use of it.

It is important that the Government adopts clear and consistent land policies. Ad hoc decisions and policy reversals undermine business confidence and deprive the country from realizing the full value of a precious asset. Any land policy must be designed in the national interest. However, it must be pragmatic and hard-headed rather than dogmatic and emotional. National priorities must be identified clearly and should be the basis of the formulation and implementation of consistent and predictable land policies.

In this context the Pathfinder Foundation wish to draw the attention of the political leadership and the senior policy makers in our country to the statement by Deng Xiaoping, the architect of the Chinese exponential development, at the 11th Central Committee of the Communist Party of China in 1978 "if a party , a country or a nation does everything by sticking to dogma, follows an ossified way of thinking, and is prevailed by superstition, then it can never move forward, its hope of life will die, and either the party or the country will be doomed" Deng Xiaoping, 1978

Where land sales entail involuntary resettlement, it is important that international best practice is pursued. There is a National Involuntary Resettlement Policy already in place. It was developed in relation to the Southern Highway Project.

Contracts The sanctity of signed contracts is also important for building investor confidence. Failure to follow through on signed agreements is likely to increase uncertainty and discourage private investment.

Conclusion In a context where distances have shrunk remarkably through the advance of technology, news of measures that undermine the business climate and investor confidence are quickly transmitted around the world and can have an extremely adverse impact on the country and its people. This is amplified at a time when global uncertainty is resulting in a reduction in risk appetites as well as capital flows to emerging economies.

This is the Sixteenth in the series of Economic Alerts issued by the Pathfinder Foundation. Readers’ comments via email to [email protected] are welcome.



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Management



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The evolving role of a modern HR manager IPM Sri Lanka is a brand that has gained much reputation over the years in the field of education and professional arena of Sri Lanka. Today IPM is the leader in matters concerning the whole gamut of human resource management (HRM). In fact HR has evolved to that of an essential and integral part of the anatomy any professional wishes to gird oneself with. The intense competition that drive today’s corporate world demands a lot from its employees and this is where a competent and qualified human resource management professional plays a vital role. Investing time and effort into hiring employees that complement an organization’s style and finding the correct balance between shared values and diversity of viewpoints can be challenging. It requires a clear understanding of the organization’s values. It requires agreement on those values. And it requires that those values are exemplified and used as benchmark at every stage of the employment process- from recruitments and hiring, to training, to promotion and termination decisions. It’s not an easy task, but all the same, it is a very crucial role. It is heartening to note that HR management has become a much sought after academic path for students and it is our hope that the awareness and knowledge gained would stand them in good stead in their professional future. The phrase ‘People Drive Business’ has now become a buzz word in the corporate world. Yet ponder awhile let this phrase sink into each of us. Isn’t it then simply true? To the uninitiated ‘People’ may mean the nameless mass in a mega entity or even the few who make up the number in your neighbourhood super market. Untrained and unskilled workers with attitudes not in sync with the required business environment would continue to underperform with its associated low morale and productivity. However people with the required skills, knowledge and of course attitude geared by exposure to the myriad modules under the numerous courses that human resource management offers, particularly under the aegis of the undisputed Leader in HR the IPM Sri Lanka - would always be able to make the ‘right fit’ in any organization. Such informed people would be in great demand now and in the future. It is a true fact that

people oriented management is making vast strides in the world of business. Innovative idea from people to guide their businesses and carried out by energized people afresh would give a whole new concept and indeed meaning to the phrase; ‘People Drive Business’! Today’s business leaders who are much concerned with their financial resources rather than human capital would result in losing many business opportunities. Those who preserve and develop their Human Resources while going through many setbacks in other areas will have a greater chance to regain lost opportunities faster and successfully than others.



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To achieve the aforementioned ideals in professional education, the IPM is the place as its dynamic and proactive. Our education and training programmes in knowledge and skills empower and provide effective leadership in managing people in business. The Business School of the IPM Sri Lanka is indeed proud of its track record as it has and will continue to produce leaders who can be able to face any crisis or challenge squarely and effectively . HR is often perceived as the “police”, procedure freak, compliance and protocol driven. Perceived also as responsible for some organizational bottlenecks, being reactive to every new situation that will arise. The new HR roles are work force planning, employer branding and employee retention. These roles will be responsible for developing system that identify and manage how the organization is perceived by both internal and external key talent constituencies to ensure that the organization develops and maintains a dominant position in relevant labour markets as the employer of choice. (Note that the emphasis of this new role is not on employment advertising but on understanding and managing perception among key constituents). Specific responsibilities for these roles include: * Developing and implementing an employment branding strategy that ensures key constituents continue to perceive the organization as an employer of choice, thereby simplifying talent retention, motivation, and attracted. * Marshaling internal management practices and people programs to ensure that the employment experience delivered is one capable of sustaining projected talent needs. * Overseeing the creation and integration of employment branding messages in all public relations, media relations, marketing communication, community relations, special events and recruitment advertising campaigns. * Identifying and developing storylines around company management practices that can be repeated internally and externally through employee referral campaigns, public speeches by executives and managers, news stories, and select awards program applications. * Periodically assessing employment brand internally and eternally to ensure alignment between current strategy and labour market conditions. * Establishing and maintaining the business case for organizational change needed to develop the required employment brand.



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Business interviewing skills: Getting it right Want to hire great employees? How do you conduct a safe, legal job interview that also enables you to select the best candidates for your open positions are important? The job interview is one of the significant factors in hiring because so many employers count on the job interview to help determine their best, most qualified candidates. Certainly the job interview is a key component in determining whether the candidate fits your company culture. Why you must get it right? * It can take six months to get a job-fitting new employee * Researches indicates bad hires cost the company 160% of their annual salary * 80% of turnover can be attributed to mistakes during the hiring process * Employee retention has as much to do with who you hire as what you do after he or she is hired. * Traditional methods of hiring employees only provide a 14% likelihood of a successful job hire. After all, a job interview rarely lasts longer than an hour, but its consequences may last for years. Hence, before rushing into interviewing candidates, check the following: * Has the emphasis of the job changed recently? * What salary should be offered with the job? * What are the perks? * Does it involve working late hours and/or weekends? * Does the job involve a large amount of travel? * How much training is offered to the position? How to improve employee selection and hiring * Don’t rely on the interviews * Hire for the long term * Use a standardized hiring process * Have a clear understand of the position * Hire only the Best * Understand the cost of a bad hire * Match the talent to the job * Follow the law In order to understand and identify the right candidate one of the most important aspects of an individual is there personality. Personality is a person’s typical or preferred way of behaving, thinking and feeling. arrick & Mount’s Big Five Factors is one of the indicators of human personality which consists of five different types of personalities: nExtroversion/introversion: traits such as being gregarious, assertive, talkative and active, together with ambition, expressiveness and impetuousness. nEmotional stability: aspects such as anxiety, anger, worry, insecurity, together with resilience and independent thought.



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nAgreeableness, sometimes also labelled ‘likeability’: social conformity, being courteous, flexible, co-operative, forgiving, soft-hearted, tolerant, trusting or cynical. nConscientiousness: hardworking, persevering, careful, organized, and preferences for rules and procedures as against spontaneity and creativity. nOpenness to experience: curious, imaginative, broad-minded traits as well as ‘intelligence’ – however defined. Hence according to the organizational culture and job description candidates can be classified into these five personalities and chosen accordingly. Tips for interviewers 1. An interview is not a dialogue. The whole point of the interview is to get the narrator to tell her story. Limit your own remarks to a few pleasantries to break the ice,

then brief questions to guide her along. It is not necessary to give her the details of your great-grandmother’s trip in a covered wagon in order to get her to tell you about her grandfather’s trip to California. Just say, “I understand your grandfather came around the Horn to California. What did he tell you about the trip?” 2. Ask questions that require more of an answer than “yes” or “no.” Start with “why,” “how,” “where,” “what kind of …” Instead of “Was Henry Miller a good boss?” ask “What did the cowhands think of Henry Miller as a boss?” 3. Ask one question at a time. Sometimes interviewers ask a series of questions all at once. Probably the narrator will answer only the first or last one. You will catch this kind of questioning when you listen through the tape after the session, and you can avoid it the next time. 4. Ask brief questions. We all know the irrepressible speech-maker who, when questions are called for at the end of a lecture, gets up and asks five-minute questions. It is unlikely that the narrator is so dull that it takes more than a sentence or two for her to understand the question. 5. Start with questions that are not controversial; save the delicate questions, if there are any, until you have become better acquainted. A good place to begin is with the narrator’s youth and background. 6. Don’t let periods of silence fluster you. Give your narrator a chance to think of what she wants to add before you hustle her along with the next question. Relax; write a few words on your notepad. The sure sign of a beginning interviewer is a tape where every brief pause signals the next question. 7. Don’t worry if your questions are not as beautifully phrased as you would like them to be for posterity. A few fumbled questions will help put your narrator at ease as she realizes that you are not perfect and she need not worry if she isn’t either. It is not necessary to practice fumbling a few questions; most of us are nervous enough to do that naturally. 8. Don’t interrupt a good story because you have thought of a question, or because your narrator is straying from the planned outline. If the information is pertinent, let her go on, but jot down your questions on your notepad so you will remember to ask it later.

The job interview is one of the significant factors in hiring because so many employers count on the job interview to help determine their best, most qualified candidates



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9. If your narrator does stray into subjects that are not pertinent (the most common problems are to follow some family member’s children or to get into a series of family medical problems), try to pull her back as quickly as possible. “Before we move on, I’d like to find out how the closing of the mine in 1935 affected your family’s finances. Do you remember that?” 10. It is often hard for a narrator to describe people. An easy way to begin is to ask her to describe the person’s appearance. From there, the narrator is more likely to move into character description. 11. Interviewing is one time when a negative approach is more effective than a positive one. Ask about the negative aspects of a situation. For example, in asking about a person, do not begin with a glowing description. “I know the mayor was a very generous and wise person. Did you find him so?” Few narrators will quarrel with a statement like that even though they may have found the mayor a disagreeable person. You will get a more lively answer if you start out in the negative. “Despite the mayor’s reputation for good works, I hear he was a very difficult man for his immediate employees to get along with.” If your narrator admired the mayor greatly, she will spring to his defense with an apt illustration of why your statement is wrong. If she did find him hard to get along with, your remark has given her a chance to illustrate some of the mayor’s more unpleasant characteristics. 12. Try to establish at every important point in the story where the narrator was or what her role was in this event, in order to indicate how much is eye-witness information and how much based on reports of others. “Where were you at the time of the mine disaster?” “Did you talk to any of the survivors later?” Work around these questions carefully, so that you will not appear to doubt the accuracy of the narrator’s account. 13. Do not challenge accounts you think might be inaccurate. Instead, try to develop as much information as possible that can be used by later researchers in establishing what probably happened. Your narrator may be telling you quite accurately what she saw. As Walter Lord explained when describing his interviews with survivors of the Titanic, “Every lady I interviewed had left the sinking ship in the last lifeboat. As I later found out from studying the placement of the lifeboats, no group of lifeboats was in view of another and each lady probably was in the last lifeboat she could see leaving the ship.” 14. Tactfully point out to your narrator that there is a different account of what she is describing, if there is. Start out by saying, “I have heard …” or “I have read …” This is not to challenge her account, but rather an opportunity for her to bring up further evidence to refute the opposing view, or to explain how that view got established, or to temper what she has already said. If done skilfully, some of your best information can come from this juxtaposition of differing accounts. 15. Try to avoid “off the record” information–the times when your narrator asks you to turn off the recorder while she tells you a good story. Ask her to let you record the whole things and promise that you will erase that portion if she asks you to after further consideration. You may have to erase it later, or she may not tell you the story at all, but once you allow “off the record” stories, she may continue with more and more, and you will end up with almost no recorded interview at all. “Off the record” information is only useful if you yourself are researching a subject and this is the only way you can get the information. It has no value if your purpose is to collect information for later use by other researchers. 16. Don’t switch the recorder off and on. It is much better to waste a little tape on irrelevant material than to call attention to the tape recorder by a constant on-off operation. For this reason, I do not recommend the stop-start switches available on some mikes. If your mike has such a switch, tape it to the “on” position – then forget it. Of course you can turn off the recorder if the telephone rings or if someone interrupts your session.



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17. Interviews usually work out better if there is no one present except the narrator and the interviewer. Sometimes two or more narrators can be successfully recorded, but usually each one of them would have been better alone. 18. End the interview at a reasonable time. An hour and a half is probably the maximum. First, you must protect your narrator against over-fatigue; second, you will be tired even if she isn’t. Some narrators tell you very frankly if they are tired, or their spouses will. Otherwise, you must plead fatigue, another appointment, or no more tape. 19. Don’t use the interview to show off your knowledge, vocabulary, charm, or other abilities. Good interviewers do not shine; only their interviews do. Dealing with unsuccessful candidates nBusiness environments change and yesterday’s reject may be tomorrow’s hot property. nRejected candidates may be suitable to fill vacancies elsewhere in the organization. nAn applicant’s details are confidential even after they are rejected. nEveryone is rejected at sometime in their lives. Be kind and positive when breaking the news of rejection. (The writer is the Managing Director and CEO, McQuire Rens Group of Companies. He has held regional responsibilities of two multinational companies of which one was a Fortune 500 company. He carries out consultancy assignments and management training in Dubai, India, Maldives, Singapore, Malaysia and Indonesia. He is a much sought-after business consultant and corporate management trainer in Sri Lanka.)



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Trade & Marketing



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The Island – October 31, 2011

Why Consumers aren’t buying brands & marketers are looking guilty *Brand Emulation could be an antidote to arrest the issue.

By Thayalan Bartlett, former CEO of JWT Colombo and the current COO of JWT Jakarta

Have you ever wondered why consumers buy your brands? Even if you have, you will probably never be honest with the answer, because therein lies an element called "parity" which makes the argument weak and fails to differentiate brands convincingly from competition. Depending on which sides of the economic spectrum consumers belong to they buy a brand for two types of values – brands that are cheap and brands that evoke and fulfill emotional gratification, both actions being representative of "value". "Value for money" is usually misunderstood to be cheap price (or reasonable) but in reality stands for the flipside "Money for Value" ("Money for Value" was a term coined by the former Head of Account Management at JWT Colombo- Irfan Ahmed). Consumers in emerging markets particularly in Asia with new money to spend are making the rapid transition from "value for money" to making "money for value" choices. As marketers we tend to disregard this trend allowing our traditional mindset to hold sway in hotly competitive situations, discounting price but at the same time wanting our brands to be more desirable.

Marketers are caught in a price quadrant rather than making progress up the value quadrant. Think about it, other than for short-term promos where price is temporarily reduced to energize sales whilst keeping value constant, in reality more time is being spent in scheming than theming. Unknowingly marketers make short -term gains and sacrifice long-term value. As an adverting person I have seen more scheme type briefs hit my table in the last decade than value adding theme briefs. By polarizing the two elements Price and Desire that make-up "value", marketers in reality are devaluing their brand’s proposition. Brands can’t multitask and it is important that it stands single-mindedly for a specific and competitive value. JWT’s mission as a brand partner is to ensure that campaigns generate short-term sales but build significant and desirable long-term value. I have no doubt that marketers reading this article are thinking that I sit in a comfortable place called "Advertising" to spew theories not understanding the reality of a market where sales are hard to come by. Not so! I feel the pain of falling numbers on my brands, which prompts me to write this view when seemingly all other options have reached a point of exhaustion.

Lifecycles have become lifelines: Companies are discovering that the product lifecycle meets end-to-end today much faster, than a decade ago. The Interpretation of this is largely based on the assumption that consumers are evolving at a much faster pace than before. Whilst this is true in some categories the larger issue is that the lifecycle from conception to maturity is lacking the vigor to fulfill the life stages of progressive consumers and Price has taken precedence over aspirational value and consumer relevance.



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Increasingly brand lifecycles are looking like lifelines for survival. Consumers believe and seek brands but with price in the foreground, value in the background and all of this is happening on a playground that is looking and sounding literally like a "free for all", consumers have ceased being loyal to brands. They are left foggy and keep switching their allegiance depending on which brand discounts the most. It is short-lived brand loyalty that places brands under extreme pressure.

The category of mobile communications in India, Bangladesh, Sri Lanka and Indonesia to name a few markets in Asia, are good examples where consumers are on top of the game. After years of discounting, packaging and repackaging price by the operators, the consumer is now in total control as to how he wants to manage his phone budget. A typical consumer in the prepaid category carries 4-5 different networks in his purse and decides which one to use depending on the offer of the day. This is a representative simulation of actually what is goes on in other categories and how the consumer’s mind works. I am not sure if the mobile companies even realise that with all the million ad dollars and promo discounting behind brands, their consumer’s loyalty towards them lasts only for an average of 24hrs! Unknown to them they have launched a massive price assault on their category diminishing their brand’s value proposition. The creators of this disloyal culture are also the marketers of it. Here is a way to get out of it by revitalizing brands through the power of "Emulation".

Emulation the antidote: This is not a formula for strategy and is beyond the intellectual and analytical stages of strategy development. It is common sense. So how different is this, to strategy? Strategy usually starts with a diagnosis (Brand Audit) of the current state of the brand. This approach is independent of that process and begins with a fresh perspective as to how you want to see your brand. The fundamental change is to make a paradigm shift in the approach when developing creative from diagnosis to prognosis.

Diagnosis is critical in strategy and should not be skipped at any cost. The stage of prognosis is regulating the creative expression of the strategy to meet the consumer’s expectation at a certain point. I like to believe that advertising should be like great movies but shown compellingly. They entertain and generate a whole range of positive emotions. The impact of movies can be compelling and audiences begin to respond and imitate a particular Star’s style – the way he speaks and the phrases he/she uses, their dress sense, their expressions and projection etc. Like in movies advertising must evoke audiences to Emulate the brand’s personality and characteristics. Successful brands have done this in the past and some wise brands continue to forge with success.

In Sri Lanka a brand of Mosquito Coils called Ninja propelled an unknown average person to be a huge movie star through a phrase the brand created for him and his distinctly expressive delivery of the line. It not only propelled him but also propelled the brand in a category where innovation and differentiation just did not exist. The commercial became so popular the line became a household catch phrase. This is the power of Emulation. If consumers can’t emulate the brand’s personality it will wither in their minds. Emulation is a constant process and needs intricate understanding of consumer expectations from brands.

Why do consumers prefer to have coffee at Starbucks? Coffee Bean sells equally great coffee but Starbucks has chosen to look beyond the coffee they sell. Starbucks has built a unique experience and aura, which other brands are finding hard to match. You don’t go into Starbucks for the want of coffee but to satisfy an urge to relax and unwind. Coffee becomes an excuse and then becomes the reward in your mind. The reward doesn’t come cheap. But since you believe that you have earned the time to unwind price becomes a non-issue and the experience becomes the value. When I need time at my computer outside office Starbucks becomes an immediate option. The value is hard to copy.

Marlboro did this exceptionally well using a static medium. They made every aspiring smoker to Emulate the cowboy. Today, a globally iconic symbol for cool ruggedness that has spread not only into a range of



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accessories but also for other brands to emulate. It had a movie poster look and when you stared deep into the picture you escaped from the humdrum city life, into the Wild West, and so you began to emulate the character and desire his solitude. The Emulation of the character and the Solitude an urban dweller is dreaming of leaves you wondering if Marlboro sold cigarettes all these years or they sold you a 10 minute experience that transported you to the Wild West. An experience that is unique to that brand. There is no such thing called a cheap experience and there is no such thing called a cheap Marlboro either. This exemplifies the steadfastness of the brand within a market of regulatory and statutory challenges staying determined, consistent and above all differentiated. The tough regulation in markets against smoking has annihilated the Marlboro man’s presence in every conceivable public area but his omnipresence will be felt for a long time to come. That is the power of Emulation.

Marketers and advertisers get caught-up in the diagnosis and advertising is usually turned into a 30 second documentary of the marketing brief which consumers are not interested in comprehending. A good measurement of effective communications is to see how consumers Emulate what is seen in advertising. In essence they are not buying brands any longer but they are buying the value of emotional quotients in brands. They are in search for brands that will move them –up the social spectrum at a slightly faster pace than their actual capacity and are willing to putdown the cash for it. Emotional quotients trigger Emulation and Value creation must be at the heart of every strategy. Market share should be pursued through value creation and not intermittent price discounting. Emulation can be the antidote or Viagra for your brand whichever way you like to use it but what is most important for any marketer is to look beyond the Coffee and help their consumer make "Money for Value" choices. The dissonance between what consumers expect and what marketers are delivering can be described as "Consumers are looking for revival through brands but Marketers are thinking of survival". Value becomes a loser, profit becomes a struggle and the experts who were entrusted in keeping the product lifecycle moving, have turned it into a lifeline and are now wondering what to do with it.



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Marketing and selling in favourable economic conditions: Exhibitions marketing Prasanna PERERA, Marketing and Management Consultant, Chartered Marketer, CIM U.K. Every weekend there are different types of exhibitions held in Sri Lanka at the BMICH and the Sri Lanka Convention Centre. Techno, Infotel, Hotel Show, Bridal Fair, the list goes on. Many organizations participate in these different exhibitions, but my concern is, do they get the maximum benefits. Hence, this brief article will address exhibition marketing and tips to maximize benefits of participation. What exhibitions should we participate in? The following factors need to be considered. 2.1 The Venue - Is it popular and the infrastructure suitable 2.2 The Organizer - Their reputation and experience 2.3 Sponsors - Who are they? 2.4 The target audience expected to attend 2.5 The duration and timing 2.6 The cost of participation - All costs not only the stall fee 2.7 Manpower required and the availability of same 2.8 Past experience in participation and the effectiveness 2.9 The publicity provided by the organizers to attract good participation 2.10 The prestige and status of participation Deciding on what exhibitions to attend is often difficult, given the options available. Further, exhibitions need to be integrated into the overall marketing strategy of the organization. Pre-planning There are several aspects that need to be planned in advance. 3.1 The stall design and layout. This is very important to project the correct image. 3.2 Roster of staff to ensure that no individuals are overworked. 3.3 Budget approvals, covering all expenses, including incidentals. 3.4 Marketing collaterals such as required brochures, leaflets, name cards. 3.5 Products required for display purposes. 3.6 Pre Publicity of participation through advertising and promotions. 3.7 Invitations to be sent out and the timing of invitee visits to the exhibition stall. 3.8 Any side events being planned to coincide with the main exhibition. Pre planning is critical to ensure the maximum mileage from the exhibition and the ROI (Return on Investment). Starting early and working together as a team (task force) is the key. At the exhibition Once the exhibition commences your booth becomes a “theatre” and all actions are noticed by other participants and visitors. Hence, a professional outlook must be presented at all times.



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A few important points to note are given below. 4.1 Never leave the booth unattended, since you might miss on important customers and clients. 4.2 As visitors approach your booth, professionally invite them to take a look. 4.3 Collect name cards of all visitors for follow up purposes. 4.4 Using audio - visual material is useful to stand out from the clutter and get noticed. 4.5 All visitors to your booth must be attended to, by someone representing your organization. 4.6 Make sure that the roster is followed and any contingencies are taken care of. 4.7 Shop your competition and find out what they are up to. Exhibitions are very useful to gather competitor information. 4.8 Liaise with the organizers and try and get maximum publicity for your company booth. (Through PA Systems and advertisements) 4.9 Avoid spending too much time with friends, who may visit the exhibition. Exhibitions are expensive to participate and maximum benefits must be obtained through professionalism. Post exhibition Many activities have to be carried out, post-event. They are listed below for easy reference. 5.1 A team review needs to be carried out, for learning purposes. These outcomes must be documented for future reference. 5.2 Communicate with the organizers and highlight the positives and the negatives. 5.3 All visitors should be thanked personally and their requests for information, quotations followed up. (Within 48 hours of exhibition ending). 5.4 All expenditure should be reviewed against budgets. Any over runs should be justified. 5.5 Estimate the benefits of participation, quantitatively and qualitatively. Potential orders received, number of inquiries, advertising and mileage obtained. 5.6 Take a decision objectively about participation in the future. It is better to take this decision when all details are fresh in your mind. Participation in exhibitions is time consuming and resource draining. Further, there is an opportunity cost of participation. Planning is the key, followed by a team based execution strategy.



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Green economy and impact on trade The RIO+20 Conference organized by the United Nations Conference on Environment and Development, marking its 20th anniversary, will take place in Rio de Janeiro in June 2012. The conference’s objective is to secure renewed commitment for sustainable development and meet new and emerging challenges by focusing on two themes: the green economy in the context of sustainable development and poverty eradication; and the institutional framework for sustainable development. It is envisaged as a conference at the highest possible level with the presence of Heads of Governments and is expected to result in a focused political document. Preparatory regional meetings are being held in the different regions these days. The preparatory meeting for the Asia and Pacific Region took place in October in Seoul, Korea. No agreement on concept Although the term ‘green economy’ is in fashionable usage across the world today, the recent regional meetings showed that the participants have been struggling to find agreement on the concept of a ‘green economy’. While some see a redefinition of the economy in green terms as a path towards sustainable development, others fear the concept is synonymous with trade protectionism and conditionalities to the point where participants at one regional meeting chose not to mention the green economy in their meeting conclusions. Many delegations wanted clear answers on the definition of the ‘green economy’ before making any commitments on behalf their delegations. This was largely blamed on a lack of an internationally-agreed definition of the term ‘green economy’. Impact on trade What most delegations fear about the definition is the impact on trade of what is referred to as green economy. At all the preparatory meetings at regional level, it was reported that there was across-the-board insistence that the transition to a green economy must rule out any possible restriction to international trade. There is fear across the globe as was seen by the response at the regional level preparatory meetings whether the green economy could potentially be used to justify the imposition of trade conditionalities on the basis of environmental standards as well as protectionist measures by countries to protect and insulate their own green industries. Some delegates had specifically questioned how complementary previously-stated development goals under the WTO’s Doha Round of trade talks – especially with regard to special and differential treatment for developing economies – are with the implementation of the green economy. Recommendations The Arab preparatory meeting made a series of recommendations on the green economy calling for a clear definition – one that should not substitute sustainable development. At the same meeting, delegates agreed on what should not be the ‘green economy’. These included, in particular, not allowing the green economy to become a means to limit the right of developing countries to utilize their natural resources, nor as a tool to exempt developed countries from their commitments to their developing country partners. Although the participants at the Asia and the Pacific meeting were reported to be more supportive of the green economy than the participants at the other regional meetings, many delegations are reported to have expressed concerns regarding potential restrictions and conditionalities due to the export interest of their countries.



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Linkages between trade and green economy An interesting side event dedicated to the subject of trade and the green economy is reported to have taken place at the African regional meeting where they also looked more in depth at the linkages between trade and the green economy. Participants had examined the challenges and opportunities related to the green economy in the African context hearing both from economists and exporters who have developed green products. Significant opportunities had been highlighted for African countries in a green economy such as exports of organic agricultural products, forestry and other certified products. However, they had also cautioned that measures such as green economy should be time bound and implemented according to WTO rules. Participants had stressed that one of the biggest challenges for Africa would be to move away from exporting raw materials and moving up the value chain in a sustainable manner. Such challenges are not limited to Africa alone, but many developing countries including Sri Lanka. The penultimate Intersessional Meeting of the UNCSD will take place on 15-16 December in New York after the European region preparatory meeting in December and before the final Preparatory Committee Meeting in May 2012. Rio 2012 With the Rio 2012 meeting coming up less than a year after the WTO Public Forum, the aim of this session is to generate a broader and deeper understanding of green economy issues as they relate to trade. The session will be part of a consultative process on trade and the green economy in the lead-up to Rio 2012 and will focus on presenting new perspectives and exploring potential ways forward. The preparatory process for Rio 2012 has met with obstacles due to anxiety or unease among some parties with regard to the green economy concept, specifically due to trade-related concerns and fears of green protectionism. These issues merit more nuanced exploration, and would strongly benefit from input from the trade community, as the debate so far has been limited mainly to the environment community. Topics for the session will comprise: the role of subsidies in greening key sectors, including sustainable energy; greening Aid for Trade; and the evolving nature of intellectual property, technology transfer and innovation with regard to environmental technologies. Key importance Forging coherence between wider issues of trade, sustainable development and the nexus between trade and sustainable development governance will be of key importance to the future of the trade system, and will also present a challenge to it. By seeking ways to better understand the linkages between trade and the sustainability issues to be addressed at the Rio 2012 Conference, this session is expected to contribute to that objective. Whatever the final definition of ‘green economy’ would be, if it is interpreted by importing countries to increase protectionist measures, it would impact on Sri Lankan exports to the world too. Therefore, it would be necessary to keep track of developments with regard to the Rio 2012 Conference. (Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)



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Money & Banking



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Macro-prudential policy

To prevent crises, countries should revamp policies A variety of policies can be effective to help countries prevent financial crises and reduce risks to their financial systems, according to two new studies from the IMF that are part of its ongoing work in what is known as macro-prudential policy.

The research examines the evidence these policies help reduce the risk of crises, and the institutional changes needed for them to be used most effectively.

The global crisis has taken a huge economic and human toll. Macro-prudential policy is designed to help countries lessen risks to their financial system as a whole, not just to individual banks, and reduce the frequency and severity of financial crises.

Macro-prudential policy looks at a wide range of indicators to assess the resilience of the financial system to shocks, the availability of funding in financial markets, market participants’ connections to each other, private sector debt, and international capital flows.

The list of macro-prudential policy tools available to governments includes, for example, countercyclical capital requirements, loan-to-value ratios that help prevent the out-of-control credit growth that led to recent housing bubbles, and systemic capital and liquidity surcharges to address financial institutions’ contribution to risks.

Road map Macro-prudential policies are most effective when well coordinated with monetary and fiscal policies and adjusted to a country’s economic circumstances. The research finds there is no one-size-fits-all approach for countries to organize these policies and their implementation. The IMF’s latest research found some general lessons.

• The central bank should play an important role in macro-prudential policy to harness its incentives to reduce systemic risk, as well as its expertise in reducing risks to the financial system and to ensure coordination with monetary policy.

• A lead authority or committee vested with a mandate and powers to conduct macro-prudential policy helps ensure accountability and results.

• Complex arrangements aren’t likely to detect risk as effectively and can create frictions in decision-making and implementation of policies.



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• The Treasury’s participation in crisis prevention is useful, but a leading role poses risks. The Treasury needs to play a strong role in crisis management and resolution. Separate institutional arrangements for macro-prudential policy and for crisis management are therefore useful in many cases.

Crisis prevention policies work The working paper on macro-prudential policy tools is a comprehensive analysis of their use and effectiveness, examining a broad range of instruments, risks, and countries.

The study finds that many of the most frequently used macro-prudential instruments, such as caps on the loan-to-value ratio, caps on the debt-to-income ratio, and dynamic provisioning, are effective in mitigating systemic risk in both emerging and advanced countries.

The paper finds emerging economies have tended to make greater use of macro-prudential tools than advanced economies. However, the evidence shows their effectiveness does not depend on the level of economic development, the exchange rate regime, or the size of the financial sector. The analysis does suggest, however, that different types and sources of risks call for different instruments.

Countries use a variety of macro-prudential tools to address risks, including credit-related, liquidity-related and capital-related measures, as well as those mentioned above. They often use these in combination to complement other economic policies, such as monetary policy. They also adjust them to economic conditions to prevent a country from suffering the negative effects of a crisis.

The design and calibration of the measures also need to take into account • The ability of the financial system to circumvent them, as well as bear the cost of additional regulation • The quality of supervision and enforcement • The governance and accountability arrangements regarding macro-prudential policy.

Not all models are created equal The staff analysis and accompanying working paper on institutions assesses different models for organizing and implementing macro-prudential policy.

The IMF found that arrangements need to be tailored to local conditions, and some institutional arrangements could be further strengthened by addressing the following issues:

• If the institutional structure is too fragmented, no one institution may have all the information needed to analyze all interlinked aspects of systemic risk. Problems can easily fall through the cracks.

• Macro-prudential policy tends to be subject to strong lobbying by the financial industry and can also be politically unpopular. This can create a bias against forceful and timely action, especially since the potential benefit reduction in the probability and severity of future crises will often remain uncertain. Where multiple government agencies are involved, this can reduce accountability and incentives to act.

• Macro-prudential policy should not undermine the operational independence of established policy functions, such as monetary and micro-prudential policy.

The road ahead The analysis is expected to help countries as they review their existing macro-prudential frameworks. Macro-prudential policies should not be viewed as a panacea able to prevent all future crises.



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In order to be effective, macro-prudential policies need to be complemented by strong supervision of individual financial institutions, and policies to resolve failed banks and financial institutions that help ensure that no one is too important to fail in order to be effective.

Ahead of this week’s Group of Twenty advanced and emerging economies leaders’ summit in Cannes, France on November 4, the IMF published a progress report with the Financial Stability Board and the Bank of International Settlements on macro-prudential policy. Part of this detailed research was included in the report.

(Courtesy IMF Survey)



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Tourism



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Marketing an emerging tourism destination in Asia A country perspective of innovation and diversification Distinguished invitees, presenters, organizing committee members, officials, representatives of the media, ladies and gentlemen, it is indeed a privilege for me to present at this important global conference, Sri Lanka’s perspective of innovation and diversification in marketing tourism. Given that the objective of the conference is to share best practices and disseminate knowledge on latest developments in tourism have structured this presentation to address the following;

• Global tourism outlook • Major tourism trends • Opportunities to innovate and diversify • Introduction to Sri Lanka tourism • The end of the war and the focus on economic development • The formulation of a five-year tourism development strategy • Diversification of the tourism product • The eight products and the 12 monthly themes • Positioning strategy • Innovations to exploit global trends • Aligning stakeholders towards a common objective

As you are already aware, global tourism arrivals grew by 6% in 2010 recovering from a 5% slump in 2009. In 2010 we saw 940 million tourist arrivals globally, with global tourism revenue reaching an all time record of US$ 919 billion. At the beginning of the year UNWTO has predicted a further growth of about 4-5% in 2011 as global tourism industry is recovering fast. UNWTO projections for 2011 were as follows (see table 1). Tourism as you can see in the above figures is growing quite fast in Asia. China and Malaysia, the number one and two tourist destinations in Asia are now amongst the 10 most popular tourist destinations in the world (see table 2).

It is in this background we are discussing as to how an emerging tourism destination such as Sri Lanka could be effectively marketed. Surrounded by so many ambitious neighbours with large marketing budgets focusing on tourism as a key economic driver in their respective countries this is indeed a challenging task for us. To be successful in marketing one must first understand the market, the behaviours and expectations of the target customers and the industry trends. I would like to highlight 10 major global trends in the tourism industry today: n Regional and short haul travel becoming popular

• A defensive mindset and tight budgets.

Sri Lanka Tourism

Chairman Dr. Nalaka

Godahewa addressing

the fifth UNWTO/PATA

forum



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• Consumers are becoming more demanding • Travellers are searching for meaningful experiences. • Consumers seeking more green • Independent women travelling with friends. • Travellers are more activity oriented than destination oriented • Web and mobile technologies are emerging as powerful marketing tools • Instant access to information through traditional and social media • China is dominating growth of both inbound and outbound

When Sri Lanka Tourism developed its five-year tourism development strategy in consultation with the key industry stakeholders this year we gave due considerations to the above facts, particularly in refining our tourism product and the marketing strategies. As you may be already aware, Sri Lanka is a distinct island located just below the southern tip of India. It has a land mass of 65,610 sq km, surrounded by 1,330 km of coastline. Geographically, Sri Lanka is well positioned on the sea route connecting the East and the West. This is why historically Sri Lanka was an important trading hub in the ancient world. Trade links with China Egypt, Greece and Rome goes back as far as 1500 BC. Sri Lanka is believed to be the island fortress of legendary king Ravana in the great Indian epic Ramayana. The Sinhala race, the majority ethnic group in the country, was founded by Vijaya, a North Indian Prince who arrived by ship with 700 supporters. From 1505-1948, the island was under the colonial rule of the Portuguese, Dutch and British. This beautiful island has inherent advantages of having a highly diversified tourism product which could be pitched against any other well established tourism destination in the world. It has beaches like Maldives or Mauritius, ancient heritage sites like Egypt or Greece, rain forests like Congo or Amazon, art and culture like India or Thailand, waterfalls like Zambia or Canada, wildlife like Kenya or South Africa, natural beauty like Switzerland or Myanmar, gemstones like Madagascar or Burma, spices like India or Indonesia and festivals like China or Brazil.

With such a comprehensive tourism product, one may wonder why Sri Lanka hasn’t emerged as a top tourism destination in Asia so far. It is due to a very simple reason. For 30 long years the progress of this beautiful country was hindered by an internal conflict orchestrated by one of the most brutal and horrendous terrorist outfits that the world has ever seen, the LTTE. Fortunately for Sri Lanka and also for the world this 30-year-long armed conflict ended on 18 May 2009 with complete annihilation of LTTE under the enlightened leadership of Mahinda Rajapaksa, the President of Sri Lanka. During the last three years of post conflict period, the resettlement and national reconciliation programmes have made significant progress, setting an example to the rest of the world. The Government is now totally focused on the economy. In 2010 the country recorded 8% GDP growth. In the first half of 2011 we have maintained the same growth rate. Per capita income is expected to grow from the current $ 2,400 to $ 4,000 by 2016. A number of industries have been identified by the Government as key economic drivers. Amongst these, the tourism industry also plays an important role. The economic development policy of the Government draws attention to all segments of society. The development according to the vision of President Mahinda Rajapaksa cannot be confined to a few sectors, few organizations or few individuals.



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A larger cross section of the society must benefit from the economic activities supported by the Government. The development task has begun from home by the Government supporting activities that improve the household economies. Community-based economies are being improved by providing the necessary assistance in terms of training, credit financing, subsidies, etc. Townships are being developed to offer better life standards to society. The overall investor friendly Government policy framework supports the emerging economy. Infrastructure development and capacity building are the highest priorities of the Government currently. President Mahinda Rajapaksa has set a target for the tourism sector to reach 2.5 million tourist arrivals by 2016. In the ‘Mahinda Chinthana,’ the Government policy framework for the future, he states: “I will introduce an accelerated development programme for the tourism industry. I will launch a programme to fulfil the infrastructure and other requirements in order to attract 2.5 million tourists annually by 2016.” Minister of Economic Development Basil Rajapaksa who is also in charge of tourism has introduced a five-year master plan for tourism development in order to achieve the following key tourism objectives:

• Positioning Sri Lanka as one of the most-sought-after tourist destinations • Promote tourism to reach annual tourist arrivals of 2.5 m target by 2016 • Increase the annual foreign exchange earnings to US$ 2.75 b by 2016 • Attract US$ 3 b or more Foreign Direct Investments to the country within the next five years. • Increase the room capacity to 45,000 by 2016 • Reach 500,000 direct and indirect employment within the next five years • The tourism development strategy 2011-2016 focuses on five main areas: • Creating an environment conducive for tourism • Attracting new tourists • Ensuring arriving tourists are happy • Improve domestic tourism • Improve the global perception about the country

Sri Lanka Tourism with the assistance of key industry stakeholders has identified a number of projects and activities under each one of the above and they are being implemented currently. The Government of Sri Lanka has clearly identifies tourism as a private sector driven industry and has confined its role to planning ,policy making, providing common infrastructure, coordinating capacity building, identification of thrust areas/zones/projects, facilitating efficient project clearance, ensuring transparency and welfare and coordinating country promotions and research. Dr. P.B. Jayasundera, the Secretary to the Ministry, has been involved in a series of consultative meetings with the industry to identify the key issues faced by them. A number of initiatives have been taken by the Government during the last two years in a positive direction to support the industry. For example, restoration of a simple tax regime, improved licensing procedures and faster service, setting up of a one-stop-shop for tourism investment approval, expediting city development, revising regulations to align with international standards, extensive use of technology for tourism promotion activities (web marketing, electronic ticketing for key attractions, online visa, call centre facilities, etc.) and development of a five-year strategic plan with industry participation.



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The private sector is expected to focus on identifying and investing in new business opportunities, building infrastructure and manpower, training staff and improving service standards, creating value added products, marketing year-round capacity, ensuring corporate social responsibility and ensuring sustainability. According to the major tourism trends I presented earlier, tourists are today looking for more enriched, meaningful experiences. They demand value for their money. They like to travel short distances and see more things within a limited budget. They look for more activities in a single location. The new positioning strategy of Sri Lanka Tourism takes these global needs into account and tries to capitalize on our inherent strength of being a highly diversified tourism product. Sri Lanka is an island whose main advantages for tourism are authenticity, compactness and diversity. The unique advantage of Sri Lanka as a tourism destination could be elaborated around these three core strengths. With 2,600 years of recorded history, everything about Sri Lanka is authentic and there is no necessity to manufacture a story for marketing purposes. Nature has blessed the country, making it an extremely attractive destination for tourism. So authenticity is our first advantage. With only 65,610 sqkm land mass, the entire island of Sri Lanka can be explored within a few days. Even the longest distance across the country can be covered within a few hours and if you are flying it can be done within one hour. Even a busy traveller can see most parts of the country within a short period of time due to this second advantage, which is being compact. The third and the biggest advantage is the unparalleled diversity of our tourism product. For the convenience of marketing we have summarized all attractions in Sri Lanka into eight categories. The number eight has been selected because there are eight letters in the name Sri Lanka. The eight different product categories that we want to promote are:

• Beaches: Pristine • Sports and adventure: Thrills • Heritage sites: Heritage • Mind and body wellness: Bliss • Scenic beauty of the country: Scenic • Wildlife and nature: Wild • People and culture: Essence • Year-round festivals: Festive

Now just think of any tourism destination in the world where you can find all these in one place. Even if you do, where else can you cover all these within a few days? Sri Lanka is probably the only country which makes it possible. That’s why we can call Sri Lanka the ‘Wonder of Asia’. Since many tourists view exploring Sri Lanka as a refreshing experience, we have chosen the tagline ‘Refreshingly Sri Lanka, Wonder of Asia’. If we continue to use this tagline over a period of time we can make it globally known such as ‘Incredible India,’ ‘Malaysia Truly Asia’ or ‘Amazing Thailand,’ with much less marketing expenditure. In order to establish the fact that it is a compact destination, we advice the industry to use the theme ‘the 8 wonderful experiences in 8 wonderful days’. However this will depend on the type of packages that each tour operator wants to promote. Under each category, we want to focus on about three icons when promoting the destination rather than focusing on too many. For example Sigiriya, Temple of the Tooth Relic and Dambulla cave temple are the most widely-promoted heritage sites. When it comes to wildlife we hope to promote The Elephant Gathering at Minneriya, leopard watching at Yala and blue whale watching at Mirissa as talking points. When it comes to sports and adventure surfing at Arugam Bay is already well established. Scuba diving and



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ballooning are two other sports with high potential that we can popularize over time. Similarly for all eight categories we are in the process of finalizing what we need to focus on when promoting internationally. Tourism should be a sustainable industry. There are two aspects that the Government is quite keen to ensure. Firstly the economic benefits of tourism should be shared by a larger cross section of society. Hence supply chain development and value creation becomes key. Secondly, no development can compromise the environment. The Government policy and regulations as well as the nature loving culture of our people will take care of this aspect. As an emerging tourism destination we are quite keen to innovate on the technological front. We believe that the future of tourism belongs to technology. Over the last two years, since the end of the war, a number of initiatives have been taken in this area. The Sri Lanka tourism website has been completely revamped to make it an informative, user friendly, dynamic and interactive site where one would find more videos and pictures than text. Users can share their experiences and upload pictures and videos to the site. The website is linked to a number of social media networks such as Facebook and Twitter. The industry has been requested to use the Government web portal for marketing their products. We would like the entire tour planning process of the tourist from hotel reservation, airline ticketing, visa approval, tour planning, finding a guide, purchasing tickets for key attractions and even booking a taxi to be facilitated online. Call centres and online tourist information will obviously be part and parcel of this exercise. We want to get maximum advantage of the fast evolving mobile phone technology for tourism. Initially there will be some resistance from parties who may feel that technology is cannibalizing traditional distribution networks. But our advice to them would be to embrace the change and exploit the opportunities rather than resisting the inevitable. The consumers are getting sophisticated. The world is moving forward. We need to keep up. Over the next few years Sri Lanka will continue to focus on attracting local and foreign investors for the purpose of enhancing our product range and creating value. A number of investment opportunities which include hotels, golf courses, race courses, water parks, theme parks, marinas, shopping malls, taxi services, entertainment studios, adventure sports facilities, light aircraft services/sea planes, boat manufacturing, boat hiring, convention centres and tourism and educational institutes have been highlighted in the Tourism Development Strategy 2011-2016 published by the Ministry of Economic Development. Sri Lanka has great potential in tourism. The vision and the strategies for growth are clear. What is required now is to continue the positive momentum and implement the plans with commitment.



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Export & Import



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Daily News – October 31, 2011

John Keells Tea Market Report : Welcome change in weather for tea Workers of most plantations in the High and Medium elevations celebrated Diwali which is a special occasion. We have had reports of weather conducive for growth in the Eastern and Western sectors which

is a welcome change to the dry conditions that prevailed in the past two months. With the expected high intakes after Diwali, plantations are advised to ensure that there is tight rein on the leaf standards in order to produce an acceptable product quality. If not, we could see a significant price differentiation between the best and the below best teas, particularly with the wide choice of teas that will be on offer. The 0.85 mkgs of Ex Estate teas on offer met with fair demand. A few Select Best Western High Grown BOPs sold well, others declined Rs 10 to Rs 20. A few Below Best and plainer teas were firm, others declined Rs 10 to Rs 15. Select Best BOPFs

were firm to Rs 10 to Rs 15 easier, whilst the Below Best invoices gained Rs 5 to Rs 10 on average. The plainer teas however, were irregularly lower. Nuwara Eliya BOP/BOPFs were of a easier market being Rs 10 to Rs 20 lower. Coloury Uva BOP/BOPFs were firm to a little dearer, whilst others tended lower following quality. Best Low Grown CTC PF1s were mostly firm, others appreciated Rs 5 to Rs 10. High and Medium types too appreciated Rs 10 to Rs 15, whilst brokens were irregular. The 3.4 mkgs of Low Growns that came under the hammer this week, met with better demand. In the Leafy category, Pekoes continued to sell at attractive levels. BOP1s were fully firm. The wiry OP1s advanced a few rupees, however the below best gained sharply. Select best OPAs were fully firm, whilst the below best at times gained several rupees. But the poorer sorts were difficult of sale. In the Small Leaf category, there was more inquiry for FBOP/FF1s with prices moving up. Tippy varieties too gained when compared with the previous week. The Russian buyers continued their strong buying. There was also more inquiry from the Middle Eastern buyers. Western Teas A few Select Best BOPs sold well on special inquiry, other good invoices declined Rs 15 to Rs 20, Below Best sorts shed Rs 10 to Rs 15 on average, plainer varieties declined Rs 5 to Rs 10. Select Best BOPF advanced Rs 10, other good invoices gained Rs 15 to Rs 20 on average, Below Best sorts gained Rs 10, plainer varieties were Rs 5 to Rs 10 dearer. Medium BOPs advanced Rs 10 to Rs 15. BOPFs were firm. Nuwara Eliya Teas Brighter BOPs declined Rs 10 to Rs 15, others were firm. BOPFs eased Rs 10 to Rs 15 on average. Uva Teas BOPs were firm. BOPFs advanced Rs 10 to Rs 15 and more. Uda Pussellawa BOP/BOPFs shed Rs 5 to Rs 10.



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CTC Teas Select Best PF1s advanced Rs 10, others gained Rs 10 to Rs 15 on average. BP1s were firm. High & Medium PF1s advanced Rs 15 to Rs 20 and more. BP1s were firm to easier. Low Growns Fair demand. Select Best OP1s were firm to Rs 5 to Rs 10 dearer at times whilst the Best were irregularly lower Rs 5 to Rs 10, Below Best appreciated Rs 10 to Rs 15 whilst the poorer sorts declined Rs 5 to Rs 10 and more at times. Select Best BOP1s were irregularly lower Rs 5 to Rs 10, the Best and Below Best types too shed Rs 5 to Rs 10 and more as the sale progressed. Select Best OP/OPAs appreciated Rs 10 to Rs 15 and more following quality the Best were irregularly lower by Rs 5 to Rs 10, Below Best gained Rs 5 to Rs 10 on average, poorer sorts declined Rs 5 to Rs 10 and more at times. Bold Pekoes were irregularly lower Rs 5 to Rs 10. Shotty Pekoe1s gained Rs 5 to Rs 10. Poorer sorts were irregularly lower Rs 5 to Rs 10. Select Best and Best BOP / BOP.SPs maintained last levels, Below Best and poor sorts were firm. Select Best and Best FBOPs were slightly lower to last, Below Best types and poorer types were irregular. Select Best FBOPF1s were firm, Best and Below Best types gained Rs 5 to Rs 10. Select Best and Best Tippy varieties met with good demand and advanced above last, Below Best types too met with good demand and gained Rs 20 to Rs 30, poor types were firm. Off Grades Select Best and Best liquoring FNGS1s sold at firm levels, Below Best and poorer sorts were firm to dearer by Rs 5. Select Best and Best BMs were lower by Rs 10, whilst the Below Best and poorer sorts were irregularly dearer by Rs 5. All BPs sold at firm levels. All Low Grown FNGS shed Rs 10 to Rs 15 and more at times. Select Best and Best BOP1As were firm on last levels, whilst Below Best sorts declined by Rs 5, poorer sorts too sold on last levels. Dust Select Best Dust1s were firm, improved teas in the Best category gained Rs 5 to Rs 10. Below Best types gained Rs 5 to Rs 10 but declined Rs 10 to Rs 15 towards the later part of the sale. Clean secondaries advanced Rs 10 to Rs 15 whilst the Below Best types gained to a lesser extent, poorer sorts remained firm. Best Low Grown Dust/Dust1s advanced Rs 20 to Rs 30 whilst the Below Best types were firm, poorer sorts declined Rs 20 to Rs 30 and were mostly unsaleable.



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Innovation key for buoyant tea industry Welcome Welcome to the sixty third edition of this regular column. Here, we discuss a wide range of topics around Information and Communications Technology (ICT), Business Process Outsourcing (BPO), many aspects of Business, Education, Entrepreneurship, Creativity, Innovation and the Society at large.

Tea Sector in Sri Lanka Our topic last week revolved around agriculture. Let’s keep it in similar lines today, and discuss about Tea! Who doesn’t love a good cup of tea anyway?

Global tea production is primarily lead by the countries India, China, Kenya and Sri Lanka. These four countries account for about 75% of the world’s tea production. In fact India and China are the largest tea producers in the world, but due to their huge populations, domestic consumption is very high too. So they aren’t very big exporters. Hence, Sri Lanka and Kenya are the largest exporters of tea in the world. Sri Lanka held the position of number one in this category for a long time but for the first time in recent history, Kenya surpassed us in 2007. Kenyan tea production has been growing strong, mainly due to the increase in cultivated land mass and improving production skills with regards to the tea sector.

As we saw last week, services and industry sector contributes more to our GDP than the agriculture sector. However, the tea sector earns over 1 billion USD a year for us (USD 1.18 in 2009, which is roughly 15% of the total export income) and that’s the second largest export revenue earner for the country, only second to the garment industry. About 1 million people are directly employed in the sector. So, it is still an extremely important socio-economic factor for the country.

Challenges According to records, Sri Lankan tea yields have been lower than those of the competing countries such as Kenya, China and India. Kenya has average yields of about 2000 Kg per hectare while India has it around 1800. The Sri Lankan average is around 1400 Kg per hectare. This appears to be a productivity issue.

Interestingly on the other hand, small tea estates (smallholdings) account for about 60% of the total tea cultivated land area. However they contribute about 70% of the total tea production. So, the larger estates in fact show a lower productivity level than the smallholdings. These large estates were privatized a couple of decades back and there seems to be more to be done by them to improve the productivity including more re-planting. When we look at some of the small holders, their dedication and productivity on a small land mass of less than 5 acres is actually admirable.

The cost of production is high for tea in Sri Lanka as for many other industries. Here, the Cost of Production (COP) is around USD 2.33 per kilogram. This is one of the highest in the world. Kenyan COP is almost half of this figure. Vietnam, India and Bangladesh etc have much lower COPs. The lower productivity is one factor that increases the cost. The labour costs are the other. Also, the cost of electricity has also increased considerably over the last few years.

So, the competition is increasing while we battle with the above issues. Additionally, our focus has been geared towards bulk tea over the years. However, slowly, the consumption patterns in the world are changing. Green tea, tea bags, iced tea and other forms of novel versions are increasing in demand. Also, beverages such as Coke are fast spreading across the world. Of course, it wouldn’t completely kill the demand for tea, but it could push it down. However, the biggest substitute and hence competitor for tea would be coffee, which commands a very strong presence in most countries around the world.



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Improving the quality of life of the estate workers is a challenge too. Out of the people involved in the tea sector, a significant number are working and living in the tea estates. Out of these workers the vast majority are women. It always amazes me that if you take the top foreign income earners to this country, garments, tea and foreign employment, all of them are dominated by women. We owe more to these hard working people!

Innovation In order to compete and thrive in the future tea industry innovation should come into play. New varieties of tea should give us the edge. In fact the profit-margins in the global market for specialty tea are higher. Also, while maintaining bulk tea exports, export of tea bags, green tea, instant tea and tea packets should also be increased.

The government has been trying to encourage more exports of value-added teas and has discouraged bulk exports by imposing a tax on the latter.

In addition, there is a need to export more value added tea. Ceylon tea was known for its premium quality. When the consumption patterns change, we need to innovatively respond to those changes. We need to maintain our uniqueness and at the same time image on high quality for teas that will be in demand in the future. There needs to be a lot of attention to this area.

This is where tea research would come in handy as well. I hope more will come out from existing tea research centres in Sri Lanka to further innovate our offering. Generally speaking, research is something that is lacking in Sri Lanka in most areas, not just in Tea. Even in the Sri Lankan university sector, the scientific research is comparatively less than in the developed countries. This is partly due to the unavailability of infrastructure, equipment and funds. On the other hand it’s the lack of linkage between the universities and the industry.

If energy (electricity) costs are higher, can we produce energy within the estates at a lower cost? I remember once someone pointed out that during British rule, almost all tea factories had their own small turbine to generate hydro-power but today only a handful is left with that facility. In fact when mains power lines were expanding, factory authorities just stopped producing electricity. That has added more strain on the national grid and their costs!

Branding We need to continue to position Ceylon Tea as the world’s best tea. If we are to make the Tea sector hit revenue of about USD 2.5 billion, the brand needs more promotion, especially among the younger generations while responding to changing consumption patterns. There were reports a few months ago that The Ministry of Industry and Commerce will readily support the Tea Board and the Ministry of Plantations to achieve a $ 2.5 billion tea export revenue target. The Geographical Indicator (GI) Registration undertaken by Sri Lanka will make Ceylon Tea stronger in the international market. The government has committed Rs. 8.5 million for 2011 for the Geographical Indicator (GI) Registration to ensure ‘Ceylon Tea’ a protected brand in twenty countries.

Dilmah is a Sri Lankan brand that took Ceylon Tea to the world stage. Their association with the Sri Lankan cricket team as former sponsors and strong advertising overseas helped Dilmah as well as Ceylon Tea. When I was in Australia, I was always proud to see a Dilmah advertisement on TV. On the supermarket shelves, our brands have presence but then again cheaper brand-less products from low quality tea production countries take a lot of shelf space too.

Lets end today’s discussion with a few interesting points about tea.



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* Tea breaks are a tradition that has been with us for approximately 200 years. * 80% of office workers now claim they find out more about what’s going on at work over a cup of tea than in any other way.

* Tea contains half the amount of caffeine found in coffee.

* Tea was created more than 5000 years ago in China.

* Tea is a natural source of fluoride that can help protect against tooth decay and gum disease

* The first book about tea was written by Lu Yu in 800 A.D

* Tea has potential health maintenance benefits in cardiovascular disease and cancer prevention.

* 96% of all cups of tea drunk daily in the UK are brewed from tea bags.

* Apart from tourism, tea is the biggest industrial activity in India.

Tea is a cup of life. ~Author Unknown If you are cold, tea will warm you. If you are too heated, it will cool you. If you are depressed, it will cheer you. If you are excited, it will calm you. ~Gladstone, 1865

Get in Touch 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, youth leadership, business, careers, communication skills, soft skills and entrepreneurship. I always take pleasure from such activities.

If you have any feedback, please drop a note to [email protected] See you next week!

The Columnist Yasas Vishuddhi Abeywickrama is a professional with significant experiences. In 2011 he was recognised as one of the Ten Outstanding Young Persons (TOYP) in Sri Lanka. 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 organisation, Lanka BPO Academy (www.lankabpoacademy.lk). Apart from this column, he is a regular resource person for ‘Ape Gama’ program of FM Derana (Sunday 3-5pm). Yasas is happy to answer your relevant questions – email him at [email protected] .



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Sunday Observer – November 6, 2011

Conducive weather: Tea market will regain momentum By Lalin Fernandopulle There is a light at the end of the tunnel for the tea industry with the onset of rains which is expected to revive production which dropped drastically due to the prolonged drought. Brokers said many regions are experiencing sunny mornings and evening showers, the weather is seen as being conducive for growing tea. “Tea production will improve with the regular showers which are vital to enhance quality and demand at the Colombo auctions”, a broker said. Lanka Commodity Brokers Ltd. (LCBL) sources said that by midddle of this month cropping will commence and increased volumes will be catalogued for auctions conducted throughout December. “Larger volumes will continue to be on offer during the early part of the new year as well”, sources said. The tea industry is optimistic that the yield would improve and the market would regain momentum with the conducive weather prevailing in the country. LCBL Director/CEO Sarath Sirisena said 2011 has been a bad year for the tea producer who has been burdened with additional costs making it difficult to make ends meet. The dry weather from May to September had a drastic impact on the crop grown on High and Medium elevations which account for a substantial quantity of tea production in the country. According to brokers tea production volumes this year are turning out to be disappointing due to the poor weather during the past few months. The country recorded a crop of 22.9 MKGS in September this year which is 2.6 MKGS lower than the crop harvested in the corresponding month last year. The highest drop was recorded from the High and Medium elevations with the former declining by 1.2 MKGS and the latter by 1.1 MKGS while the Lower Grown sector showed a marginal decline of 282, 799 Kgs. According to Lanka Commodity Brokers Limited (LCBL) a crop of 245.1 MKGS was recorded from January to September this year as against 247.2 MKGS recorded during the corresponding period last year which reflects a negative variance of 2.1 MKGS. During the period under review the High Grown sector recorded a gain of 0.6 MKGS while Medium Grown production recorded a sharp drop of 3.9 MKGS. Low Grown production has shown a gain of 1.2 MKGS. “Hot on the heels of the wage increase granted to the plantation workers the drought added to the woes causing a huge loss to the industry”, Sirisena said. Spiralling costs have sent the cost of production to unprecedented heights resulting in huge negative variances between COP and the Gross Sales Average (GSA). Brokers said traditional buyers of Ceylon Tea



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are facing problems due to the turmoil in the Middle East which has severely impacted on tea prices and demand. Sanctions against Iran, a key market for Sri Lankan Low grown teas has had a serious setback on the market. “Libya, a strong contender at our auctions has been conspicuous by its absence for the past few months”, brokers said. The recession in the US and certain parts of Europe is adding to our woes and these markets which paid for good Ceylon Tea earlier may be forced to look at cheaper alternative markets from other origins. HVA Group Chairman, Rohan Fernando said that tea exports to the Middle East have picked up and there is prospects of a quick recovery of the crisis hit markets. “The demand for tea will never subside as it is a refreshing health beverage which is an integral part of daily life. The prestige of Pure Ceylon Tea has been maintained and it has paid well for the industry”, Fernando said. According to tea research data, from January to October this year 261.8 MKGS of tea were sold at Rs. 360.80 per Kg while on average during the corresponding period last year 262.28 MKGS were sold at Rs. 367. 81 per Kg. Sri Lanka Tea Board sources said tea production will stabilize this month with the improvement in the weather in the plantation regions. He said tea exports to the Middle East are continuing despite the crisis in certain countries. The CIS and Middle East are major markets for Ceylon Tea. Sri Lanka is the fourth largest producer of tea while China, India and Kenya are the leading producers in the world. These four countries account for around 75 percent of the world’s tea production. Sri Lanka held the number one slot for tea production but in 2007 Kenya took over due to the increase in cultivated land and improved production skills. Tea export earnings crossed the one billion dollar mark in 2009 for the first time becoming the second largest export revenue for the country. Around one million people are directly employed in the tea sector.



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Stock Market



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Daily News – October 31, 2011

Investors remain cautious: Q3 earnings up Both indices continued their downward momentum with the ASPI and MPI recording a week-on-week decline of 0.13% and 0.23% respectively. The ASPI closed at 6348.44 and the MPI closed at 5661.89. Turnover in value for the week was led by HVA Foods, JKH and Seylan Bank, which accounted for 26.07% of aggregate turnover value. The weekly turnover value declined by 38.36% to Rs 2716.66 million, amounting to a daily average of Rs 679.17 million, as against last week’s daily average of Rs 881.51 million. The number of shares traded decreased 42.20% to average 39.58 million shares over the week relative to last week’s average of 68.48 million shares. The Banking and Finance sector led the turnover in value, contributing 31.94% or an aggregate of Rs 867.70 million over the week. The Beverage, Food and Tobacco sector followed suit, contributing 14.72% (or Rs 399.80 million) of total turnover value. The Diversified sector also topped the turnover value list, contributing 12.73% or Rs 345.81 million over the week. Turnover volume too was led by Banking and Finance sector, which accounted for 51.40% (or 81.38 million) of traded shares. Following this was the Manufacturing sector with 17.37 million shares changing hands (ie; 10.97% of total turnover volume) while the Power and Energy sector contributed 7.08% or 11.20 million shares. Market capitalization continued to decline for the fifth consecutive week closing at Rs 2281.47 billion, dropping 0.10% from last week’s close of Rs 2283.39 billion. Citizens Development Business Finance Plc was among the top price gainers, recording a 20.88% increase to close at Rs 60.20. Agalawatte Plantations Plc gained 20.45% over the week to close at Rs 53.00, while Gestetner gained 20.20% relative to last week’s close of Rs 300.00. This week’s price losers were headed by SMB Leasing (NV), which fell 12.50% to close at Rs 0.70. Associated Motor Finance Company was the second highest price loser, closing at Rs 411.00 to represent a decline of 10.65%. Ceylon Hospitals Plc recorded a loss of 10.33% to close the week at Rs 85.10. Mercantile Shipping Company Plc and Union Assurance Plc also recorded losses, declining 9.49% and 8.96%, respectively. Foreign investors closed the week as net buyers, with an inflow of funds amounting to Rs 87.98 million as against last week’s net selling position of Rs 329.78 million. The bourse saw daily average foreign sales decline by 54.62% to Rs 68.55 million, relative to last week’s value of Rs 151.04 million. Panasian Power Plc topped the volume list accounting for 5.81% (or 9.20 million shares) of the week’s aggregate share volume. HVA Foods meanwhile contributed 4.63% of the total share volume as 7.34 million of its shares changed hands over the week. Point of view Markets reverted to a downward trend once again this week, with the ASPI ending two successive days of declines to close up on Friday. Gainers outweighed losers by 98 to 68 on Friday but turnover remained thin, declining 48% over the four-day week to hit a year-to-date low. Q3 Corporate earnings have thus far been positive with this week’s results - primarily from the Banks, Finance and Insurance and Motor sectors -mirroring strong company fundamentals. Although the upcoming Q3 earnings are likely to be strong amid robust e economic fundamentals, we expect subdued retail sentiment in the week ahead as investors remain on the sidelines. Acuity Stockbrokers Research



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Asia stocks down as Greek vote plan rocks markets BANGKOK (AP) — Global market turmoil continued Wednesday as fears intensified that Greece might reject an austerity plan and default on its massive debts.

Asian stocks slumped for a third consecutive day, extending the wave of selling in world markets that was sparked Monday when Greece’s prime minister said he would call a national vote on an unpopular European plan that entails painful tax increases and drastic welfare cuts.

Oil fell below $91 a barrel, while the dollar was steady against the euro but lower against the yen.

Japan’s Nikkei 225 index tumbled 1.8 percent to 8,673.78. Hong Kong’s Hang Seng dropped 0.9 percent to 19,192.72 and South Korea’s Kospi index sank 0.9 percent to 1,892.70. Australia’s S&P/ASX 200 index lost 0.7 percent to 4,201.40.

Benchmarks in mainland China, Taiwan, Indonesia, Thailand and Malaysia also fell. Singapore’s rose.

A top European official warned that Athens could be left to go bankrupt if it went through with the vote and experts said the broader deal — which hopes to protect larger countries such as Italy from markets panic and was agreed to only last week — could collapse.

Ultimately, Greece could leave the 17-nation euro currency union, causing financial havoc and pushing the global economy back into recession.

"A no vote could quickly start a chain reaction leading to Greece being forced to leave the Monetary Union. A resulting run on Greek banks could have serious spillover effects on Portugal and Ireland," Citibank analysts said in a report.

That prospect could be enough to keep the referendum from happening — Papandreou’s government could collapse before the proposal goes through, having lost huge amounts of support from its own party.

The possibility of financial contagion spreading across the continent rattled banking stocks. Japan’s Mitsubish UFJ Financial Group fell 2.1 percent. Industrial & Commercial Bank of China, the world’s largest bank by assets, slid 1.9 percent. Australia & New Zealand Banking Group fell 1.8 percent.

The Dow fell 2.5 percent to close at 11,657.96 on Tuesday. It was the biggest drop since Sept. 22. The S&P 500 lost 2.8 percent to 1,218.28. The Nasdaq composite dropped 2.9 percent to 2,606.96.

Japan’s powerhouse export sector fell sharply, a day after data showed that U.S. manufacturing grew more slowly in October, hampered by weak demand for exports.

Mazda Motor Corp. tumbled 4.8 percent, Panasonic Corp. lost 3.3 percent and Sharp Corp. fell 3.3 percent.

Japanese utility Tokyo Electric Power Co. fell 1.3 percent after saying there may be signs of fresh nuclear fission in the No. 2 reactor at its disaster-damaged Fukushima Daiichi power plant.

Mainland Chinese shares lost ground, with the benchmark Shanghai Composite Index falling 1 percent to 2,445.40 and the Shenzhen Composite Index lost 1.3 percent to 1,028.30.



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"The loss was due to both to what is happening with Greece and also China’s worse than expected manufacturing data, which shows slower growth," said Cai Dagui, an analyst at Ping’an Securities, based in Shenzhen.

Shanghai-listed Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. lost 4.6 percent while Huaxin Cement fell 3.1 percent.

Benchmark crude for December delivery was down 62 cents at $91.57 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1 to settle at $92.19 in New York on Tuesday.

In currency trading, the euro was steady at $1.3715. At one point Tuesday, the euro fell to $1.3607, its lowest point since Oct. 12. The euro is down nearly 4 percent after hitting a seven-week high Thursday, when the European financial rescue plan was announced.

The dollar slipped to 78.10 yen from 78.33 yen.



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Agriculture & Plantation



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Plantation industry needs long term Master Plan

Malik J. Fernando, Director Operations of the MJF Group, the owners of the international Dilmah brand, called for a Master Plan for the plantation sector. Fernando in a statement issues to the press says an industry-wide Master Plan is required for Sri Lanka’s 150–year-old plantation industry to re-align itself with internal and external changes and to remain competitive.

"We need to develop a common Master Plan that all stakeholders, including the Government can work towards. Tea, the main plantation crop, requires long-term strategic direction, but right now, this is sorely lacking. The entire plantation industry needs 5-10 year rolling plans to enable long term planning and financing of the required investments," Fernando said.

Changing landscape Fernando, who joined the MJF Group as a Management Trainee nearly 25 years ago and oversees the diversification activities of the Group, notes that the current production model for tea is unsustainable in the long term given the high production costs, low yields and volatile market prices.

"The industry is badly affected by high costs and low yields. Tea prices have been at record highs for the past 2-3 years and could not be expected to remain at those levels continuously. The global turmoil also impacts demand," said Mr. Fernando.

The close to 30% wage hike in June 2011 is seen as unsustainable within the current production model, with some high grown estates already losing as much as Rs 150 per kg of tea. Fernando points out that the Sri Lankan tea industry is uncompetitive against international competitors.

"While wages are 60% higher in Sri Lanka than in Kenya, worker productivity is 60% lower in Sri Lanka. The daily labour wage is now over 150% of the value of a kilo of tea sold at the auctions. This is only 80% in Kenya."

Meanwhile, yields are dropping as tea plants get older, and companies cannot afford proper agricultural practices.

This combination of rising production costs, lowering yields and price uncertainty, Mr Fernando, says, "is a deadly cocktail."



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Market risks are also rising, particularly in the traditional Arabic tea markets, due to recent political changes. These changes would put Sri Lanka’s low grown, smallholder teas at risk in the medium term.

"Together with democracy, central purchasing will be replaced with free markets. Multinational companies will enter and attempt to change tastes and demand patterns in these countries, increasing the competition that Ceylon Tea will have to face."

Re- aligning the tea sector To re-align Sri Lanka’s traditional tea sector to face the future, Fernando says government support is needed in long-term financing and regulatory changes. For financing, Fernando suggests a model similar to India’s ‘Special Purpose Tea Fund’ for replanting, infilling and rejuvenation aged tea bushes.

"A similar program can be offered in Sri Lanka to all growers, both companies and smallholders. The export levy on bulk tea introduced last year can fund part of this cost. Banks investment funds from VAT savings can also be channelled for such activities. Out of Sri Lanka’s total 220,000 ha of tea around 5000ha can be targeted for replanting annually, under an accelerated program."

On the regulatory front Fernando suggests that the Government consider lease extensions to 99 years, for companies that implement proper agricultural and management practices. Restrictions on land use, by Regional Plantation Companies (RPC’s) should be reviewed, to allow RPC’s to diversify land use, as a hedge against a downturn in a mono-crop situation.

"We must move away from the perennial mono-crop model to a maximum land productivity model. This means planting rubber, oil palm, fuel wood or other fruits or vegetables in fields that are not suitable for tea."

Addressing regulatory obstacles is seen as vital to encourage innovative solutions for industry challenges. Fernando points to the attempt at forestry as one example where plantation companies and the country could not benefit because of regulatory confusion.

"To reduce fossil fuel dependence, around 20,000ha of fuel-wood was planted, with borrowed funds, under a master plan with Forest Department approval. But companies were not allowed to harvest the fuel wood, even under supervised conditions. This has contributed to the increase in the cost of production due to contractors transporting firewood from other parts of the country, much of it indiscriminately felled and the use of imported liquid fuel instead of renewable fuel-wood."

Another regulatory change helpful to the industry, would be to make the tea growing sector zero rated for VAT, as the present exempt status prevents claiming of input VAT.

The industry also needs to invest in training and skill development to regain its innovative edge, through research into sustainable practices, moving away from fertilizer intensive methods that deplete soils. Many companies already have a serious commitment to sustainability and have obtained FSC and Rainforest Alliance certification.

"We must encourage scientific research on the latest technology such as nano technology, bioremediation techniques, soil organic enhancers and slow release fertilizers. Genetically modified plant material, integrated pest and disease management systems with biological predators, should be encouraged," said Fernando.



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While the industry needs to upgrade skills for the future, Fernando notes that Sri Lanka’s plantation industry already has a large pool of professional agriculturalists. This pool of human resource can be deployed to make Sri Lanka self sufficient in food and to foster high value export crops to regional markets, points out Mr. Fernando.

Change the traditions Many other tea industry traditions may also require changes to ensure Sri Lanka’s 150-year-old tea industry’s long-term viability.

"The industry-wide bargaining with unions is out of date and the colonial plantation model of resident labour is outmoded." Because of the resident labour model, RPC’s bear unusually high ‘cradle-to-grave’ social costs, playing the role of welfare providers to estate families - a situation not faced by any other industry in the country.

"The Government should help meet the social cost of non-workers because 68% of people living on RPC estates are non-workers," Fernando says.

Changes are already slowly unfolding. RPCs are starting to move to a ‘bought leaf / out grower’ model of self-employed worker/farmers, who are allocated specific lands and supply green leaf to the factories and work on their own time. This ensures no flush is lost, maximizes field productivity and empowers the worker. A move away from a fixed wage also gives higher incomes and dignity of work. Part of the factory profits is shared with the farmer, who receives comprehensive extension services from the factory. This, according to Fernando, is a successful global model, already practiced in East Africa.

Meanwhile, all industry stakeholders, producers, workers, unions and Government need to recalibrate their relationships and focus on the common wealth.

"The unions and workers do sense that the industry is not sustainable on the current basis. Indian unions recently reduced wages 11% in response to worsening conditions. Companies need to engage closer with unions and workers; we are in the same boat," Fernando said.



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Energy



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Electricity Constraints: Can CEB Profits Lighten the Burden on the Industrial Sector? By Buddhika Brahmanage, Research Assistant - IPS Electricity: Continued Constraint for Sri Lankan Industries Speak to any major industrialist in Sri Lanka, and they will tell you that electricity is a critical constraint on their operations. A forthcoming World Bank report entitled ‘More and Better Jobs in South Asia’ reports results from country-level Enterprise Surveys that shows that electricity is the number one constraint for enterprises in Sri Lanka, and is in at least the top 5 list of constraints for all South Asian countries(1).

The World Bank report investigates major constraints hindering employment generation and expansion of enterprises, and their severity, through the surveys. While in Sri Lanka electricity is reported as the top constraint, it is second most severe constraint for a South Asian benchmark firm in the urban formal sector (a benchmark firm is defined as a medium-size manufacturing firm with 30 employees that is domestically owned, does not export or import and, is located in a large city).

More significantly, according to the Enterprise Survey results contained in the jobs report, electricity in Sri Lanka out ranks other constraints such as business licensing, corruption, political instability and macro instability. It is the top constraint for medium-size and micro benchmark firms in the urban formal sector and second most severe in a micro benchmark firm in the rural sector in Sri Lanka (2). These results indicate the severity of electricity related issues for the commercial sector in the country.

Industrial firms in Sri Lanka are faced with three main bottlenecks with regard to electricity - accessibility, reliability and affordability. The problem isn’t new. Even in 2004, a World Bank report Sri Lanka: Improving the Rural and Investment Climate identified that over 40% of urban manufacturing firms and 25% of rural enterprises in Sri Lanka found electricity to be a major bottleneck for enterprise growth. The report noted that less than 70% of rural enterprises received electricity from the national grid (3). This has no doubt changed since then. Electrification levels in Sri Lanka have improved significantly and by the end of 2010 it was estimated at 90%. Yet, we must remember that this was achieved partly due to the host of rural electrification schemes, many of which are not yet connected to the national grid.

Apart from urban centers, particularly in the Western Province, few areas enjoy uninterrupted power supply in the country - 52% of medium-size enterprises in Sri Lanka are compelled to use generators to cope with power outages (5). Generators could account for as much as 12% of a firm’s fixed assets on average. So, the lack of reliable power supply significantly impacts operational costs of Sri Lanka’s industries, which in turn impinges on their competitiveness.

Electricity: Impacting Enterprise Profitability Maintaining cost competitiveness is crucial for the industrial sector. However, the industrial sector in Sri Lanka, along with the hotel sector, cross subsidizes other categories of consumers such as households and religious establishments.

The Public Utilities Commission of Sri Lanka (PUCSL) has started implementing a new tariff rebalancing exercise since the beginning of 2011 with a view to bringing the power sector back to profitability (4). Mandating time-of-use (TOU) tariffs (applying differential tariffs depending on the time of the day



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electricity is being used such as daytime, peak, and off-peak) for all medium and large industries as well as medium and large hotels since January 2011 is a salient feature of this exercise. This has further driven up the costs of hotel and industrial categories.

Tariff increments in the hotel category affects the key growth sector, tourism, where it is estimated that top city hotels will incur additional costs of Rs. 120 million due to electricity tariff increases in 20115. Similarly, electricity-intensive industries such as textile, cement, ceramic, metal and aluminum, ship building, and food and beverages are also affected. Industry sources expect a cost increase of 4% to 8% on average, which adversely affects the competitiveness of export-oriented manufacturers in particular (with the current exchange rate policy). In the ceramic industry, for example, the electricity component alone accounts for about 50% of total costs. A statement by the Sri Lanka Ceramics Council, the industry body of the sector, noted that, under the new measures, the cost of electricity of their member companies could increase by as much as 20 to 42% (6).

CEB Profitability: Passing on to Users According to the tariff rebalancing exercise, the licensees (i.e., entities tasked with generation, transmission and distribution) are to be "compensated transparently for external or market related features of the business" such as weather (7). Similarly, any direct or indirect subsidy received by the CEB is to be "clawed back and passed-on to customers as a discount, as provided in the approved Methodology for Tariffs" (8). Tariff revisions are to take place every six months in order to facilitate this process.

The recent financial turnaround of the CEB should be viewed in this light. In 2010, the CEB recorded profits worth Rs. 5 billion after a decade of steady losses. According to the methodology outlined above, these profits should be passed on to consumers as discounts. A careful look at the factors behind CEB’s profits indicates that this may not be possible.

According to the Ministry of Power and Energy, numerous reasons contributed to the financial turnaround of the CEB. First, is the implementation of the Ten Year New Plan which brought the CEB a profit of Rs. 8,006 million (9) (the details of this plan are not available in the public domain). Second is the reduction of unlawful usage and wastage of electricity by strengthening the Investigation Unit of the CEB. As reported by the Ministry of Power and Energy, total wastage in 2010 was 1.19% lower than in 2009 (10). Third is the adoption of "stringent methods of staff administration" at CEB which improved productivity and financial efficacy (11). In addition to these, the increment in hydro power generation during 2010 reduced the dependence on the more expensive, thermal power generation.

While the above measures undoubtedly had a significant role in the CEB’s profitability, it seems likely that other factors also contributed strongly to this result.

CEB Profitability: Taking a Closer Look The heavy rains experienced in 2010 favoured hydro electricity generation, a fact which may not have received enough significance when considering recent reports on CEB profitability. At present, Sri Lanka is heavily dependent on oil-fired thermal generation. The average cost of thermal electricity generation by the CEB licensee is Rs. 18.11 per kilowatt hour. This is significantly higher than the average cost of hydro electricity which is just Rs. 1.35 per kilowatt hour (12). In 2009, the generation mix was 60% thermal and 34% hydro. While in 2010, thermal generation was 47%, hydro electricity generation increased to as much as 47% due to heavy rainfall (13). Thus, the reduction of thermal generation was a key contributor to CEB profitability, without which the generation costs incurred by the CEB would have escalated much further.

The financial assistance provided by the government to the CEB also needs to be considered. As the ‘Consulting Paper on Setting Tariffs for the Period 2011 – 2015’ by the sector regulator, the PUCSL, states



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- "the total outstanding debt stock (of CEB licensees) to the Treasury and Ceylon Petroleum Corporation as at 31.12.2009 should be considered as zero" (14). This includes dues to the Ceylon Petroleum Corporation (CPC) for Heavy Fuel supply amounting to Rs. 46 billion as at the end of 2009 (15). This moratorium was continued in 2010 as well (16).

The fuel subsidy given to the CEB is also an important element. The CPC has remarked that 80% of their losses are due to selling underpriced Heavy Fuel to the CEB (17). Although the exact percentage cannot be verified, it is established that the CEB receives heavily subsidized fuel from the CPC, also a state-owned enterprise afflicted with profitability issues. While the price of furnace oil is Rs. 81 per litre, the CEB has been paying Rs. 25 per litre until September 2010, at which point it was revised to Rs. 40 per litre, still half of the market price (18).

Therefore, it is clear that even though administrative reforms taking place to streamline the CEB as an entity would have contributed to the profitability of the CEB in 2010, it has also been significantly dependent on favourable weather and direct government assistance. Moreover, due to very low water levels in major reservoirs during the middle of this year, reducing to as low as 20% (19), the CEB had to increase the share of thermal power generation to cater to the demand in the country. Thermal power generation has been stepped up further as the second inter-monsoonal rains have been delayed. The CEB states that hydro power generation has dropped to 20% as of October (20). This would no doubt mean that generation costs would be higher again in 2011, unlike in 2010. In fact, the CEB has already requested the PUCSL to increase electricity tariffs in order to cover their monthly losses of around 5 billion (21). Moreover, according to the forecasts by a renowned energy specialist, electricity costs will keep rising until 2013, which will burden industries further (22).

So, it is unlikely that the concerns of the industrial sector could be effectively addressed amidst the attempts by the CEB to make the power sector financially viable. It seems that the industrialists would have to continue to grapple with their electricity issues at least until financial viability is restored to the sector by 2015, assuming the tariff rebalancing exercise is executed on schedule. Meanwhile, the Sri Lankan industrial and commercial sector (including tourism) needs to place greater focus on energy efficiency and go ‘lean and green’ in their energy consumption. These changes take time and won’t be easy in the short-term, but would no doubt reap rewards in the longer run.

Citations (1) The World Bank, 2011, More and Better Jobs in South Asia: Overview, Washington D.C.; (2) Ibid; (3) The World Bank, and International Finance Cooperation, 2004, Investment Climate Assessment. Sri Lanka: Improving Rural Urban Investment Climate.; (4) Public utilities Commission of Sri Lanka, 2010, Consultation Paper on Setting Tariffs for the Period 2011-2015.; (5) http://www.porcelaintablewares.com/news/news32.html; (6) Ibid; (7) Siyambalapitiya Tilak, 2011, The New Electricity Pricing Policy in Sri Lanka, Prof. R. H. Paul Memorial Lecture.;



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(8) Public Utilities Commission of Sri Lanka, 2010, Consultation Paper on Setting Tariffs for the Period 2011-2015.; (9) Official website of the Ministry of Power and Energy - http://power.lk/2011/03/ceb-has-made-profit-of-5-billion-for-2010-financial-year-after-incurring-losses-running-into-115-billion-in-the-previous-10-years/; (10) Ibid; (11) Ibid; (12) Ministry of Finance and Planning, Annual Report 2010.; (13) Ibid; (14) Public Utilities Commission of Sri Lanka, 2010, Consultation Paper on Setting Tariffs for the Period 2011-2015.; (15) Ministry of Finance and Planning, Annual Report 2010.; (16) Ibid; (17) http://www.lbo.lk/fullstory.php?nid=1668399651; (18) Ministry of Finance and Planning, Annual Report 2010. (19) The Daily Mirror, July 18, 2011. The Real Truth Behind the Power Crisis.; (20) The Daily Mirror, October 4, 2011. Rain delayed: Threat to food, hydro-power. (21) Lanka Business Online, October 24, 2011. Sri Lanka power sector facing bankruptcy: minister. (22) Siyambalapitiya Tilak, 2011, The New Electricity Pricing Policy in Sri Lanka, Prof. R. H. Paul Memorial Lecture.

This article is open for discussion ar http://ipslk.blogspot.com



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Sunday Island – November 6, 2011

Pricing electricity: an important policy issue By R.M.B Senanayake

The importance of electricity for economic development and modernization was realized by Lenin when he was in power in the former Soviet Union. Since then economists have traced correlations between industrialization and the consumption of electricity. No modern machinery can run without quality power available throughout the day. Such plant and machinery are expensive and must be fully utilized to obtain maximum productivity and to minimize costs.

But our politicians have been more concerned with providing electricity to households rather than to industry and commerce. So like free education and free health care for all, they have given priority to rural electrification. The Government brags that it has provided electricity for 90% of the households. But this is not uniformly distributed. Mannar, Kilinochchi, Mullaitivu have electricity for less than 40% of the households. Even in Jaffna town power goes off several times a day and several firms in the country have to install standby generators.

Subsidized power not sustainable The government subsidizes domestic consumers. Such consumption is mainly for lighting. TV sets, refrigerators and other household electric equipment. This would be ok if the price of electricity is based on cost recovery. Such subsidizing of consumption is at the expense of production and investment for the subsidy or a part of it is passed to the firms. If there is more emphasis on electricity provision for the industrial and commercial sector, then there would be distinct increase in production and export contributing to GDP growth. If financial resources are diverted to consumption rather than production through subsidies, then such resources are misallocated.

The IMF has insisted that the CEB should become a profitable entity. This cannot be done without removing the subsidies. The present tariff has six blocks with different rates per unit and the prices in the lower blocks don’t cover the costs. The Public Utility Commission has come up with a road map for a phased reduction of the subsidies over a period beginning from 2012 and ending in 2015. There are several categories of consumers with different tariffs such as the religious establishments, retail consumers including small industries and hotels. There are also the bulk consumers in industry and business.

The Public Utility Commission has suggested reducing the differential rates in order to reduce the subsidy for consumers in the lower tariff category. The aim is to have in 2015 just one class of household with a single tariff. Without cost recovery pricing, the CEB must run deficits which have to be met by the Treasury. A recent news report quoted Ceylon Electricity Board (CEB) officials arguing that a tariff hike of between 10 and 20 per cent is needed for their debt ridden institution to break even. They had told The Island that they had no alternative but to increase tariff for those who used less than 90 units per month if they are to minimize losses. "Nearly 90 per cent of the domestic use is below 90 units, thus adjustment is vital," an official said.

Production mix The country’s power sector has recorded massive losses due to the increase in thermal power generation, although in 2010 due to the favorable rainfall the hydro-power component in the mix of power generation was higher permitting less thermal power generation. The Power and Energy Minister has said that the losses of the CEB for this year have been estimated at Rs. 29 billion. He says the amount may increase further. The CEB debt exceeds Rs 200 billion. The CEB’s losses are largely due to the under-pricing of



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electricity to households. The average earnings of the CEB per kilowatt in 2005 were Rs 7.71 (Institute of Policy Studies) whereas the average revenue required to have a positive cash flow was Rs 9.62. This is not a sustainable situation. All subsidies are ultimately paid by the people at large. Is it fair to burden the whole population to give a benefit to the consumers of electricity, for the subsidy is funded either by taxes (mostly indirect taxes) or through inflation and the increasing budget deficits are funded by borrowing or printing more and more money? This type of financing worsens the inequality of incomes for it is a transfer to the beneficiaries of subsidized electricity and the investors in the bond market at the expense of the general population.

This subsidy increases with the use of more thermally generated electricity. The production mix between hydro-power and thermal is determined by the rainfall. The CEB had recommended 20 years ago that the government should set up coal power plants but successive governments played politics and preferred to placate particular lobbies rather than the general public. The present government deserves credit for boldly proceeding with the coal power project in Norocholai. The first stage is over but not without some technical problems according to the grapevine. The plant and machinery is apparently non-standard and is in accordance with Chinese standards and has developed technical problems which undermine peak performance. Hopefully these teething problems can be overcome.

Rumors that the Government was negotiating with the Chinese to sell the plant to them have been denied by the Chinese. Another coal power project in Sampur to be built by the Indians seems to be having problems of its own and is getting postponed. On top of it all the world market price of coal has gone up. So whether the anticipated price reduction in electricity after Norocholai comes on stream is yet an open question. What is important is that the supply of electricity must keep on increasing and to do so, the generation capacity must increase each year to cope with the annual increase in demand due to economic growth.

Other countries like Thailand welcomed private sector power producers. The CEB does so too. About 55% of the installed capacity is by the CEB and the rest is provided by the Independent Power Producers. Some say that the Independent Power Producers are paid too much. Anyway they do have an important role to play in providing electricity for the increasing annual demand. The efficiency in the use of the plant and the minimization of transmission losses is another factor that has to be monitored.

We also need to tap new sources to generate electricity. The principal forms of these are bio-mass, wind, solar and small hydros. In Australia small solar power plants are used by households and they supply their surplus to the national grid. Similar promotional schemes may be worth examining. There are also possibilities of trans- border flows of electricity. There apparently are proposals for linking our grid to the Indian power supply.

Commercial and industrial sectors The commercial and industrial sector is called upon to pay a high price for electricity which reduces the competitiveness of our production and exports. Other countries subsidize their industry rather than the consumers because they value growth over welfare.

Over 40 % of urban manufacturing firms and 25% of rural enterprises are said to be hamstrung by poor electricity supply (Institute of Policy Studies). The supply of electricity is not reliable and there are several power outages. So nearly 75% of urban manufacturing firms have invested in generators which account for 12% of their fixed assets- a significant investment which could be diverted elsewhere to promote growth instead.



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The high cost of electricity undermines the competitiveness of the economy as a whole as well as exports. High electricity costs means higher production costs and hence adversely affects the competitiveness of producers, those producing for the domestic market as well as exports. It can be particularly harmful for exports since our exports must compete with those of our competitor countries. The low end of commercial and industrial sectors however receives marginal subsidies. But then other firms are surcharged to cross subsidize them.

Economists say that the best principle in pricing is to do away with cross subsides and fix prices according to marginal costs. Such marginal cost pricing promotes the optimum allocation of resources which enhances the output and makes it conform to market demand. Market demand, not need, is the basis of pricing for optimum allocation of resources. This year the CEB increased the tariffs in the hotel category and this is said to have increased CEB revenue by Rs 120 million.

The cost of electricity is too high particularly for those industries which consume a lot of it in their production processes. The ceramic industry is particularly affected since the cost of electricity is quite a high component of production costs. But this is an industry based on local raw material availability and deserves support as an export industry. Many countries provide subsidies for their industrial export industries and it is worth considering such a subsidy since the social or true value of foreign exchange is higher than the unduly inflated rupee exchange rate.

Our pro-inflationary economic policy since the 1960s is very destructive but we never seem to learn. Previously we safeguarded the export industries by depreciating the rupee to offset the inflation. But it would be better still if we can avoid the inflation in the first place and this requires a budged which is in balance. When will we learn the need for balanced budgets?



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FCCISL Print in Media



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FCCISL promotes India Salon Pro and Beauty Market in Mumbai India Salon Pro & Beauty Market India is scheduled to be held at Hotel Renaissance, Mumbai from 31 January to 1 February 2012. The two shows will be co-located for ease for those in both industries and will see two days of energetic networking, education and recognition through awards. This year’s edition sees an eclectic mix of global and Indian players, as well as emerging companies, each showcasing their latest product and service offerings, innovations in an exciting yet business-like manner. The Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL), the rallying point for free enterprises in country has empowered Sri Lankan Small and Medium Industry on businesses in the changing times, to demonstrate their competitiveness and enhance their National and Global reach with the intention of connecting local companies in the global markets which is one of its focal aspects of existence. International Affairs Division of FCCISL has embarked on organizing a powerful delegation to this programme as the Sri Lankan Partner. Some of the highlights to expect at India Salon Pro and Beauty Market India: Exhibition: launch pad for all brands entering the market or those already there but needing to connect with retailers and distributors Conference: Where does beauty stand in India? What is its scope for growth? All these questions and more will be answered here Awards: May the best Woman Win!: Quite simply see it to believe it! Salon owners meet: Setting up a salon takes time, patience and taste. It’s a challenge so this meet can help to clarify several queries Mega Hair Show: Global giants in the hair styling business will show off their skills Brides 2012: Wedding season is around the corner all over India and Sri Lanka this workshop will talk about the significance of styling and the bridal business in India Franchising: Understanding in depth the pros and cons of franchising Salon Management: Is it an art or science? It’s an amalgamation of both. Visit and one can see how both are used in perfect harmony Barber’s Safari: A highlight event where batches of 200 barbers/Hair Stylist will learn to better their skills from their internationally renowned compatriots The Palette: The best beauty brands will explore techniques in casual, formal and couture as well as bridal make-up Aesthetician Capsules: Demonstrations of the latest facials and body therapies by leading brands Over Coffee: Pre-booked meetings with exhibitors/professionals for consultations and bookings Brand Buyer Meets: Major retailers will be there to meet participants. This will mainly be a B2B event



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Brand Activation Arenas: See the live demonstration of products. This Arena will be relevant, adaptable and profitable for the entire industry. Both these events are supported by NHBA (National Hair & Beauty Association) and AIBHA (All India Beauty Specialists and Hair Dressers Association). India Salon Pro & Beauty Market India is a true reflection of the industry’s needs. This is a show where the best in the industry will be out in full force. It’s something that cannot be missed. Participation will provide Sri Lankan Professionals in the beauty & wellness sector, Salons’, Hairstylist, Spa owners, Beauty therapists, Makeup artists, Cosmetic owners, Supermarkets, and the rest who aspire to beautify the country. Joining the FCCISL delegation in this event will further provide participants with the possibility to join the B2B discussions organized, and this will be an opportunity to meet the well known personalities and obtain attractive business connections with most prominent and respected businesses in the beauty and salon industry. A limited number of stalls are available for Sri Lankan participants for advance bookings. Participation and bookings of stalls are only on registration due to limited delegation size, and registration has already commenced at the FCCISL. Contact Buddhi, [email protected] or Shazly Oowise, [email protected] at the International Affairs Division. Telephone 2304253-4 or 0777 30 97 76. Or visit www.fccisl.lk for more information.

31st – 06th November 2011 alerts/en/2011/November 6, 2011.pdf · FCCISL News Alert Weekly...

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Transcript of 31st – 06th November 2011 alerts/en/2011/November 6, 2011.pdf · FCCISL News Alert Weekly...