th - Federation of Chambers of Commerce and Industry of ... alerts/en/2009/November 15, 2009.pdf ·...

09th – 15th November 2009

FCCISL News Alert Weekly Business Highlight 08th – 15th November 2009

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Content Page

1. DEVELOPMENT ECONOMICS 1.1 SRI LANKA CAN CONTRIBUTE TO GROWING 05 ASIAN ECONOMY 1.2 OCCUPATIONAL SAFETY AND HEALTH IN TIMES OF CRISIS 06 1.3 WORLD ECONOMIC FORUM INDIA SUMMIT TO DISCUSS 08 1.4 ECONOMIC PERFORMANCE IN LINE WITH IMF TARGETS 10 1.5 ECONOMIC DEVELOPMENT AND THE PRIVATE SECTOR 11 1.6 ECONOMY DIVERSIFIES GDP GROWS 1.8 PERCENT 16 1.7 “BIGGEST JOLT OF THE GLOBAL ECONOMY HAS PASSED” – HSBC CEO 17 1.8 THE ECONOMY OR POSTPONING THE INEVITABLE? 18

2. INVESTMENT 2.1 BOI APPROVES GARMENTS FOR EU AND AGRICULTURE IN 21

MONARAGALA 2.2 EASING TRADE, INVESTMENT BARRIERS 22 2.3 BUSINESS, INVESTMENT UNCERTAINTY LINGERS ON 23 2.4 INCREASED UNCERTAINTY DISCOURAGES PRIVATE INVESTMENT 25

3. MANAGEMENT 3.1 FIRST ASSIGNMENT AS A MANAGEMENT TRAINEE 27 3.2 LIFESTYLE MANAGEMENT 30 3.3 LEADING TODAY’S ORGANIZATIONS 34 3.4 LEADERSHIP PIPELINES HAVE RUN DRY 36

4. TRADE AND MARKETING 4.1 IMPROVED MARKET ACTIVITY 39 4.2 SRI LANKA’S RURAL MARKET IS GROWING FAST 41 4.3 MARKETING AND SELLING IN TOUGH ECONOMIC CONDITIONS 43 4.4 INNOVATIVE PRODUCTS FOR NICHE MARKETS 47 4.5 APPAREL INDUSTRY HAS STRONG LINKS WITH US AND EU 50 4.6 EMERGING MARKETS GURU MARK MOBIUS IN TOWN 51

5. TOURISM

5.1 SRI LANKAN TOURISM INDUSTRY 53

6. MONEY & BANKING 6.1 GOVT COMMITTED TO REDUCING BUDGET DEFICIT – IMF 55 6.2 FIRST HIGH INFLATION ERODED REAL INTEREST INCOMES 57 6.3 ISLAMIC FINANCE AND RECONSTRUCTION OF SRI LANKA 59 6.4 IMF TELLS SRI LANKA 61 6.5 SL UPDATES IMF ON DEVELOPMENT 63 6.6 DOUBLING PER CAPITA: FAST TRACK TO PROSPERITY – CABRAL 69


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6.7 SELECTING AN INSURER- SOME IMPORTANT CONSIDERATIONS 71 6.8 INSURANCE SELLING AS A CAREER 74 6.9 FUTURE CHALLENGES OF INSURANCE INDUSTRY 76 6.10 THE CONCEPT OF BANC ASSURANCE 77 6.11 GOVT. SLASHES PALM SEEDS IMPORT TAX BY 60% 82 6.12 COST EFFECTIVE DISPUTE RESOLUTION IN INSURANCE OUT SIDE 83 6.13 ROAD MAP MOOTED TO RETAIN GSP+ CONCESSIONS 84

7. INFORMATION TECHNOLOGY 7.1 E-CONTENT DEVELOPING, DRIVE FOR ECONOMIC GROWTH 87

8. AGRICULTURE

8.1 SRI LANKA AGRICULTURE, FISHING REVIVE IN FORMER WAR ZONE 89

9. SHIPPING INDUSTRY 9.1 PORT OPERATING AT 75 PER CENT CAPACITY 91

10. CLIMATE CHANGE

10.1 CLIMATE CHANGE 94 MAKING WOMEN’S LIVES DIFFICULT 10.2 CONSERVING WATER IN THE CLIMATE CHANGE BATTLE 95 G20 SHOULD END PERVERSE OIL SUBSIDIES

11. STOCK MARKET 11.1 GLOBAL STOCKS MIXED AFTER G20 RALLY 98 11.2 ACUITY STOCKBROKERS WEEKLY MARKET REPORT 99


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Development Economics


Daily News – November 9, 2009

POSITIVE MINDSET NECESSARY TO DERIVE BENEFITS

SRI LANKA CAN CONTRIBUTE TO GROWING ASIAN ECONOMY:

Sanjeevi Jayasuriya

Sri Lanka could be a part of the strongly growing Asian economy by changing the perception as the country is now free of terrorism. It is necessary to have a positive mindset to derive the benefits of peace, Laugfs Holdings Limited Chairman, W.K.H. Wegapitiya told Daily News Business. The country is at a crossroad and we are faced with an economic war. With the natural and human resources available Sri Lanka is poised to have a faster economic growth within the next five years, he said.

There is an improvement in the consumer purchasing power and spending ability. However, due to the high cost of energy there was a direct bearing on transportation cost thereby reducing the purchasing power.

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This disparity has been reduced at present, he said.

The Government’s decision to reduce interest rates has solved a key fundamental problem in funding. The reduced cost of capital would lead to an economic growth in the country as capital is the backbone of a business. The country recorded the highest capital cost in the region in the past averaging 25 percent of the total cost of production, he said.

W.K.H. Wegapitiya

Economic outlook

* Sri Lanka poised to have faster economic growth * Improvement in consumer purchasing power * Reduced interest rates solves problem in funding

There would be a cyclical effect in economic growth due to the reduced interest rates and this is a significant step by the Government. This would provide a solution to the working capital requirement and would have a major impact on all aspects of economic activities, he said. The global economic recession is slowing down and the global economy is in the process of bouncing back. This would also have a positive impact on Sri Lanka’s economy. It is important to have long-term goals to enable sustainable self-sufficiency in the country, he said. Tax is an important component of the Government’s revenue and as responsible corporate citizens we need to pay taxes. Tax is a tool that helps generate revenue to carry out infrastructure development and a strategic tax policy is an advantage to a country, he said.


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The island – November 9, 2009 OCCUPATIONAL SAFETY AND HEALTH IN TIMES OF CRISIS: "WE HAVE TO INVEST IN A HEALTHY WORKFORCE NOW" More than 300 participants from some 60 countries discussed this week the potential impact of the global economic crisis on occupational safety and health (OSH) at an international conference hosted by the ILO in Düsseldorf on "Implementing Occupational Safety and Health Standards Globally". Dr. Sameera Al-Tuwaijri, Director of the ILO’s Safe Work Programme, draws some conclusions from the meeting. Q :How is the global economic and jobs crisis affecting occupational health and safety at work? The financial crisis has become a factor of concern for the health and safety of workers around the world. On the one hand, workers have to deal with the fear and stress of losing their jobs. On the other hand, we might expect a reduction in resources allocated to safety and health. Enforcement agencies, labour inspectorates and occupational safety and health services may also have to operate with limited resources. The result could be a sharp rise in work accidents, injuries and fatalities and work-related stress – although some sectors, particularly those affected by rising unemployment like the construction sector, may actually see a decline of accidents as a recent pilot study of the International Social Security Association (ISSA) shows. Q: Several participants to the Conference addressed the impact of crisis and restructuring on the mental health of employees. What were their conclusions? Mental ill-health is on the rise. In Europe, more and more early retirements today are based on mental ill-health. In extreme cases stress can even lead to suicide, and some enterprises are being asked to prepare stress prevention programmes at work. The reasons for this trend include information overload, intensification of work and time pressure, high demands on mobility and flexibility, being constantly "on call" due to mobile phone technology, and last but not least the worry of losing one’s job. Q: Do work-related illnesses and injuries have a strong negative impact on workers as well as on the economy? Our estimate is that roughly four per cent of the annual global Gross Domestic Product (GDP), or US$1.25 trillion, is lost due to direct and indirect costs of occupational accidents and diseases such as lost working time, workers’ compensation, the interruption of production and medical expenses. Even in industrialized countries, the overall cost of work-related accidents and diseases is still very high: in the European Union it is estimated at 2.6 to 3.8 percent of the gross domestic product (GDP). But absenteeism due to work-related illness and injury is only the tip of the iceberg. Another form of loss is incurred by "presenteeism", a term used to describe the phenomenon of ill employees who show up for work but cannot perform effectively owing to their illness. Fearing for their jobs, many employees no longer dare to take sick leave. Some specialists estimate the costs incurred by "presenteeism" are three times higher than those caused by absenteeism as a result of illness and injuries. Q: Can labour inspection play an important role in preventing work-related accidents and diseases? The world’s 120,000 labour inspectors face daunting challenges: preventing more than 2 million fatal occupational diseases and accidents each year and contributing to the fight against HIV/AIDS, child labour and forced labour. The ILO has set "reasonable benchmarks" for the number of labour inspectors in relation


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to workers in a recent report (one inspector to 10,000 workers in industrial market economies and one to 40,000 in less developed countries), but many countries still fail to reach these benchmarks. The ILO calls for an Integrated Labour Inspection System (ILIS) to integrate administrative, procedural and technical elements into a holistic, coherent and flexible approach to labour inspection: from the global policy level down to the operational level in the enterprise where the quantity and quality of inspections can be significantly improved. The bedrock for such reforms is ILO Convention No. 81 on labour inspection in industry and commerce. With 135 ratifications, it is one of the 10 most ratified ILO conventions to date and serves as a good international guide to secure the enforcement of the legal provisions relating to conditions of work and the protection of workers. Q: What is the ILO’s message regarding occupational safety and health in times of crisis? First, everyone has the right to a safe and healthy working environment. That is what the ILO’s Decent Work Agenda states and it is something we deeply believe in. This is especially true in a time of crisis. It should not be an excuse to lessen decent working conditions, including occupational safety and health standards, but an opportunity to promote them. Second, prevention is also good business. In the long term, investments in the physical and mental health of staff will always pay off: companies will save more from reducing the need for continued wage payments during illness than they spend on OSH measures. According to one study, companies gain three dollars for every dollar they spend on preventive measures. Q: What is the potential long-term impact of the economic crisis on occupational safety and health? If companies cut back now on occupational safety and health, they will pay the price in the not too distant future. And with demographic ageing, we will all have to work longer and ensure that the health of the workforce will permit us to do so. If we fail to invest in a healthy workforce now, we will not have a sufficient number of healthy staff in the future.


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Daily mirror – November 9, 2009

WORLD ECONOMIC FORUM INDIA SUMMIT TO DISCUSS NEXT CHAPTER OF SRI LANKA'S GROWTH

The influential World Economic Forum’s (WEF) annual India Economic Summit will today discuss the socio-economic growth prospects of the neighboring Sri Lanka in a special dedicated session. The WEF India Summit 2009 kicked off on Saturday with Premier Manmohan Singh has the chief guest. The 30 minute session on Sri Lanka is slated for today afternoon and India’s Finance Minister Pranab Mukherjee will be addressing it along with Sri Lanka’s Deputy Finance Minister and Minister for Public Administration Dr. Sarath Amunugama. The India Summit this year will see a record attendance of over 800 leaders from industry, government, civil society and academia from over 40 countries. The rationale for a dedicated session on Sri Lanka according to the India Summit co-organizers the WEF and the Confederation of Indian Industry (CII) is that the end of the civil conflict in Sri Lanka lends hope for new opportunities for lasting peace, building trust and creating new investment opportunities. The session will deal with how can Sri Lanka accelerate its sustainable economic and social development while ensuring peace and stability? A spokesperson for CII counterpart in Sri Lanka, the Ceylon Chamber of Commerce said that the dedicated session on Sri Lanka was a milestone bringing the country under greater spotlight. In the past Summits a session on Sri Lanka has been run as a parallel session or a luncheon briefing. “The fact that a special session as part of the main proceedings of the Summit augurs well for Sri Lanka and reinforces the fact that interest on Sri Lanka is on the rise following its successful defeat of terrorism and the end of the 30 year old conflict, ushering a new growth opportunity for the world in general and Indian businesses in particular,” the spokesperson added. A top level Sri Lankan private sector delegation is also attending this year’s Summit. Among them are Ceylon Chamber of Commerce Chairman Dr. Anura Ekanayake, Deputy Chairman and John Keells Holdings Chairman Susantha Ratnayake, Ceylon Chamber Deputy Vice Chairman and Ceylon Breweries CEO Suresh Shah, Carson Cumberbatch Director Mano Selvanathan, Hemas Holdings CEO Hussein Esufally, Ceylon Tobacco Chairman J.D. Bandaranayaka, CEO M. A. Khan, JKH Head of Corporate Finance and Strategy Krishan Balendra and BAM Holdings Chairman Amanda Fernando. Senior officials from the Board of Investment are also part of the delegation. Inauguration the Summit, which is also celebrating its silver jubilee, Indian Premier Singh said that India is committed to “fast and inclusive growth” that will provide productive employment for young people and raise living standards in rural areas across the country. Despite an inadequate monsoon and the resultant slump in agriculture, the prime minister predicted growth of at least 6.5% for 2009-2010. Noting that India’s growth rate has accelerated from 5.6% in the 1980s to an average of nearly 9% in the five-year period preceding the global financial crisis, Singh said that the Indian economy had grown at a “respectable” rate of 6.7% in 2008-2009. The theme for this year’s Summit is “India’s Next Generation of Growth”.


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To realize India’s potential for faster growth, Premier Singh described an ambitious programme of investment in all of the key infrastructure sectors – power, roads, ports, airports, telecommunications, irrigation and urban infrastructure – and pointed to the large role for private investment in helping India achieve its target. “In many areas, we are pursuing a strategy of private-public partnerships,” he added. “Our policy will be guided by the desire to make India even more attractive for foreign direct investment. We are particularly keen to rationalize and simplify procedures so as to create an investor-friendly environment.” To fulfill the government’s commitment to achieve inclusive growth, Singh said he would expand government expenditure in critical social sectors, especially health and education, including upgrading the skills of India’s workforce. The Indian Premier also called on developed countries to provide affordable access to adaptation technologies. “The historic accumulation of CO2 is not the result of what we have done, but is the consequence of 150 years of industrialization in the major developed countries of the world,” he said. “It is our hope … that the world’s major economies will be prepared to create an environment where larger capital flows are available for mitigation and adaptation measures.” India’s National Action Plan to meet the challenges of climate change includes increased energy efficiency and greater use of clean energy technology, including solar energy. Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, noted that India has come a long way in the past 25 years. “Few nations have the growth potential that India already enjoys. India holds the promise of a most successful future. Entrepreneurship drives social and economic progress; however, [it] always has to serve the public interest. This should be at the base of India’s way into a bright future.” Added Schwab: “The theme of this meeting – India’s Next Generation of Growth – is appropriate. We do not want to look back but [want] to develop a roadmap for the future,” he said. The six top industry leaders serving as Co-Chairs for the Summit are: Shumeet Banerji, Chief Executive Officer, Booz & Company, United Kingdom; Carlos Ghosn, Chairman and Chief Executive Officer, Renault, France; President and Chief Executive Officer, Nissan, Japan; William D. Green, Chairman and Chief Executive Officer, Accenture, USA; Baba N. Kalyani, Chairman and Managing Director, Bharat Forge, India; Chanda Kochhar, Managing Director and Chief Executive Officer, ICICI Bank, India; and Indra Nooyi, Chairman and Chief Executive Officer, PepsiCo, USA. “The programme for this year’s Summit will lead to concrete recommendations for addressing key challenges such as skill development, financial empowerment of the poor and development of female talent,” remarked Sushant Palakurthi Rao, Director and Head of Asia at the World Economic Forum. “Next to its strong economic fundamentals, India’s youthful population calls attention to a demographic dividend which could see India become a hub for manufacturing and technological innovations,” added Palakurthi Rao.



EXCEPTIONAL YEAR FOR SRI LANKA AFTER MAY: ECONOMIC PERFORMANCE IN LINE WITH IMF TARGETS - DR KOSHY MATHAI Sanjeevi Jayasuriya

The Government’s economic performance is in line with the targets set by the IMF on the Stand-by Agreement. The second tranche will be released in a day or two and the IMF is confident that the Government will reach the targets, IMF Resident Representative Dr. Koshy Mathai said. “The Government has performed well and underline targets of fiscal, monetary and reserve build up targets have been met. This has been an exceptional year for Sri Lanka after May where dramatic events took place. The global environment is improving and the economy is predicted to grow at 3.2 percent. However, that was not supportive for Sri Lanka, he said. The first half of the year was different from the second half where many development activities took place. The performance will be in line with the targets and the Government has displayed discipline and serious commitment to meet these targets and has recognized the need to do so, he said. “We expect the targets to be within the reach of the Government. However, the high debt stock is not conducive and more international reserves could be accumulated. Sri Lanka is enjoying the benefit of a large amount of foreign reserves”, he said.

IMF Stand-by Agreement

* Government displays discipline and serious commitment

* Targets within Government’s reach

* More international reserves could be accumulated

The reduction in the domestic borrowing rate would send signals to the international market that Sri Lanka is back on rack. The IMF is concerned about the Vote on Account implications. Its plans are not inconsistent with the targets outlined. We are looking in to all issues including the pressure on the Government to increase salaries and carry out an impact assessment and discuss with the Government, he said. The IMF agreed on a US $ 2.6 billion Stand-by Agreement to Sri Lanka to pay international creditors and to finance imports and is given to the Central Bank to boost its reserves. The Government and IMF have agreed on milestones and achieving targets. The quarterly review was conducted to ascertain the level of performance of the Government in meeting the set targets.

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Daily News – November 9-10, 2009

ECONOMIC DEVELOPMENT AND THE PRIVATE SECTOR

Ravi Randeniya Fmr. Senior Policy Analyst, Ministry of Trade and Economic Development Govt of British Columbia

Economic growth is driven by private investments and improved productivity. A vibrant private sector prevails in a business environment that is conducive to private investment. It is universally accepted, however, that the business environment is better when there is: effective government, efficient markets, and resilient human resource development to meet modern day challenges. Many governments in developing countries come under considerable political pressure to find employment opportunities for the millions of young people seeking employment after formal education and trade skills upgrading. Studies show that many of these are in the countries affected by conflict. Added to these difficulties, governments are also compelled to find sustainable ways to finance their operations. In a free market economy, private companies that drive growth and create jobs, which are the major source of tax, to maintain steady revenue collection it must represent a significant portion of the GDP to sustain steady source of revenue for governments. Without sustained sources of domestically generated revenue, governments labour to provide essential public services such as health and education to their citizens. Therefore, governments’ other alternative is to resort to foreign aid, grants and loans to bridge the gaps created by trailing private sector performance. Unfortunately, relying on these measures impedes private sector growth and discharge governments from their responsibilities of constructively engaging in economic development. For real economic growth, developing countries must find ways to distance themselves from exclusively counting on external assistance to fix their economies. All governments in developing countries must understand that these are simply stop-gap solutions and not long-term answers to chronic economic ailments.

If the private sector is to generate jobs, raise tax revenues for governments and deliver poverty reduction, developing countries need stronger private sector development agendas. A greater private sector role in economic development can accelerate commercial activities, wealth creation among the poor, which is a significant portion of most developing countries.

A vibrant private sector is the driving force for growth and

development

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Those who are in influential positions can play a key role by focusing attention on private sector development, and by moving wealth creation to the top of the development agenda. They can scale up successful partnerships already established with the private sector, and continue to devise new ways of working with private companies. Generally, there are many participants in the private sector, from small-scale farmers and traders right through to large firms. Because successful private companies are considered the engine of growth, and the main long-term source of jobs and incomes it is vital for the well-being of a society when there is a vibrant private sector. The contribution private companies can deliver to development and prosperity is highly dependent on their own success. In principle, successful companies invest, participate fully in commerce, improve productivity, employ people, pay salaries, provide goods and services, generate profits and pay taxes. Private sector development is expected to make a positive contribution to development since they create: * More and better jobs, higher incomes, empowerment and economic freedom to workforce, * Higher tax revenues that finance public services, * Better goods and services via competition and real choices for the poor, * Innovation, new approaches, higher productivity, technology diffusion to industries. The axiom ‘engine of growth’ is central to the private sector’s role as the contributor to economic development. Investment in productivity improvements and HR skills development drives growth, and productivity enhancement from private sector is designed to foster innovation. Competitive pressures in markets increase efficiency via optimal utilization of resources and should provide incentives for continued innovation and investment in vital areas in operations. Traditionally, this investment-performance mechanism guarantees continuous economic activity leading to steady growth in employment in the private sector. In successful economies, that scale tips in favor of private sector as the primary provider of employment than the public sector.

Cataclysmic dysfunctional private sector Unfortunately in many developing countries, governments have become the main provider of formal employment. Notably, the public sector can offer only a limited number of jobs, and as more young people enter the labor market, the private sector has failed to be the primary source of employment opportunities. Alarmingly, this is clear evidence of ineffectiveness of the private sector’s role in economic development. Its trailing should raise serious questions about the strategies and policies of a government and its inability to make its private sector the ‘engine of growth.’ As a consequence, the markets no matter how well they are framed will fail to function in a responsive manner to government action. There can be several causes for the private sector’s lack of enthusiasm; their lack of confidence over a government’s ability to make sound fiscal and monetary policies to encourage trade and commerce, private sector participation; disengagement in progressive trade agreements with regional and distant economic zones that could provide new opportunities for the private sector and finally, ill-trained business leaderships failing to recognize and grasp opportunities or diversify into new products or services but preferring to retain unethical business practices that mitigate potential employment for masses are just a few. When the private sector is a fully fledged participant, taxes from private companies and individuals subsidize core government expenditure such as delivering health, defence and education services. Effective income tax collection from firms and individuals build capacity and accountability on the revenue side of public finance, while providing resources for public expenditure.


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It is important to understand that when a government is unable to raise revenue through taxes it is a sign of serious economic woes. An increase in per capita income follows with an increase in tax revenue and offer relative increases in education and health expenditure. It is unsure to what extent the private sector is mindful of the fact that tax revenue is fundamental to delivering public services to bridge economic disparities in nation building - a healthy educated workforce is fundamental to the prosperity of then private sector. It is for their own good that governments have a tax revenue stream, it helps them perform better under viable economic environments.

Making entrepreneurship work for the impoverished For impoverished people in developing countries, the private sector offers empowerment and the opportunity to prosper through a private sector which is made up of small household or informal enterprises. They buy and sell labour, goods and services in private informal markets where prices are dictated by consumer demand and supply. When they earn higher income they increase their ability to exercise choices and reduce their vulnerability. Creating wealth and achieving economic independence for the impoverished is at the heart of economic development. Consequently, when markets do not function in a fair and efficient way, it is the impoverished who suffers. However, these informal enterprises are not revenue streams for governments; they provide an economy in which the state plays no role and remove them from the burden of providing employment. In one sense, the private sector is not a ‘sector’ in the way we refer to transport or education. Private companies are part of the fabric of society and operate in all the areas important to the lives of the masses. Also, private companies do have profit making agenda contrasting to the tenets of government agencies. They are often subject to competitive pressures in markets, and their owners, management and staff are rewarded according to their ability to generate profit. As profit is the only measured indicator of their performance, it needs to have the flexibility to make rapid adjustments to deploy resources to achieve desired outcomes. The fundamentals of the market place dictate that those companies not making profits go out of business allowing the better performing firms to carry on. Nevertheless, private sector approaches can be harnessed to traditional domains of government services such as infrastructure, health and education which can help to make them more effective and oriented to the needs of consumers. A vibrant private sector (Ceteris paribus = with other things being equal) is the driving force for growth and development, and how growth leads to poverty reduction. It states that economic growth requires that the productivity of existing activities is increased and that new economic activities are developed. This necessitates investment by the private sector. The private sector is most likely to invest in countries where: there is an open trade regime and an attractive investment climate; equitable, efficient and contestable markets; and also where they can readily access financial services, appropriate skills, technology and connectivity through good infrastructure and IT. The World Bank data show a positive relationship between the share of private investment as a proportion of total investment and the rate of GDP growth. Put differently, the higher the level of private investment, the higher the rate of growth. Similarly the same measure of private investment is inversely related to poverty levels. Therefore, when private investment is higher, poverty incidence is lower.


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Conventional economic policies i.e. market liberalization, has not reduced poverty through a trickle-down manner, there are too many examples of barriers to equality. Explicit measures are needed to ensure that the poor participate. Growth needs to be made available to all in order to address rising inequality, and provide opportunities and the capability to participate in markets. Given the predicament, it could be argued that for governments interventions in markets is justifiable where there are significant failures and inefficiencies which limit private sector growth and prevent the participation of skilled men and women. Public resources used intelligently could address the major shortcomings.

Risk of overexposure to Government Governments have long sought to ensure that market outcomes benefit the citizenry. However, the effects of state failure can be worse than those of market failure. Indifferent governments can impede the functioning of markets and the expansion of the private sector either through inaction and poorly conceived actions. For example, a typical response to poorly performing markets is for governments to try to engage in services that provide goods and services by themselves. This interferes with the natural demand and supply fundamentals of markets, and undermines the productivity driven private sector. The key emerging lesson from this experience is the value of an effective relationship between the state and private sector to identify appropriate solutions to address market failure. On the other hand, the governments must recognize that these activities by them prevent much needed tax revenue, a drain on their resources and a diversion from other more important infrastructure development. An ineffective relationship between the state and private organizations provides the perfect recipe for a failed state that breeds corruption and embezzlement. On the other hand, the competence of a state underpins political and economic stability. In a democracy, the state is chiefly responsible for the provision and regulation of infrastructure, health and education - providing the institutions required for private companies to prosper. It creates the ideal circumstance for flow of investment and commerce activities through sound trade policies, fair competition policy, and regulation of utilities, commercial justice systems, fair taxation, labour codes and sound environmental management.

Need for partnership building Markets themselves can be seen as a type of institution with their own ‘rules of the game’ that are set by historical, political and cultural factors. In theory, it is the role of the state to arbitrate between competing claims on resources and to maintain stability. In short, the state has to be the neutral and rational arbiter to establish its legitimacy as the enforcer of the ‘social contract’ between the government and the governed. The goal is a ‘meeting of minds’ over the political economy of the state and the political economy of business interests through dialogue on making regulatory reform, investment in public goods, how to develop public-private partnerships and other measures to stimulate growth. Private sector development and the economic growth of a nation that realize, must also be made politically and socially feasible. The development of a common interest between the state and the business sector is fundamental to building partnerships between the government and public sector. State and business alliances have been used successively in all parts of the world to maintain economic stability while sharing and managing state assets judiciously.


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The greatest developmental contribution that companies can make is through the investment, jobs, revenues, goods and services they produce. They can also develop better business environments to enable entrepreneurship to flourish giving the brightest and smartest to prosper. The governments’ goal should focus on making the best fit between the opportunities for achieving positive change and maximizing the key competencies of the private sector. They must be targeted at development partners - in government, the private sector, civil society and developing agencies like NGOs - that are interested in private sector led growth. New business models that can support growth and development through purposeful investment should be considered for significant job creation and providing new government revenues through taxes. In addition, international and local businesses participation can help to improve productivity and quality to join the international supply chains. One of the biggest effects will be increased access to goods and services through such partnerships. Governments must incorporate strategies for continuous innovation and experimentation to take advantage of gains from the early stages. When exploring new approaches and financial instruments which are experimental in nature, governments must examine similar implementation experience in other economies. These would include the use of unconventional funds, advance market commitments, transparency initiatives and other facilities for developing partnerships with private firms and foundations. Finally, it is essential that governments take leadership by encouraging ethical trading practices, think of less intervention other than to tweak occasionally and seek a better understanding of how responsibility and competitiveness are mutually supportive and beneficial. The purpose is to ensure healthy competitive markets flourish which are critical for economic growth.


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Daily News – November 12, 2009 MAIN SECTORS TO PROVIDE AN IMPETUS TO GROWTH: ECONOMY DIVERSIFIES GDP GROWS 1.8 PERCENT Charumini De Silva Central Bank Assistant Governor, Dr. P. Nandalal Weerasinghe said the economy has been diversified and as a result Sri Lanka recorded a 1.8 percent growth in Gross Domestic Production (GDP) on a year on year basis in the first half of this year. The three main sectors of agriculture, industry and services grew by 3.7 percent, 2.4 percent and 1.1 percent and with the rehabilitation in the Northern and Eastern provinces it is expected to provide an impetus to growth. He was speaking at a seminar on Statutory and Regulatory Requirements for Registered Finance Companies (RFCs) and Specialized Leasing Companies (SLCs) on “Recent Economic Developments and Future Prospects for Financial Services” on Tuesday. With the dawn of peace, the Colombo Stock Exchange has rallied across the board since April this year and it is amongst the best performing national stock exchanges globally. International investors have purchased Sri Lankan Government securities amounting to US$ 1,646 million from May to October 2009, which shows that foreign investors are confident in investing in the country. Investor confidence is also expected to promote growth in the industry and service sectors with the global economic recovery, he said. He said the Sri Lanka Development Bonds (SLDB’s) offered were oversubscribed and the yields tightened continuously. The US$ 500 Sovereign Bond offered in October 2009 was oversubscribed more than thirteen times. Private remittance inflow increased significantly with the post conflict, leading to an appreciation of the exchange rate and considerable increase in foreign exchange reserves. During the past six years, Sri Lanka’s exports grew on an average of 10 percent, which was facilitated by enhanced market access at bilateral, regional and multilateral levels. The apparel sector in Sri Lanka has acquired a number of strengths over the years and has a reputation of being a reliable supplier of high quality products to world-renowned brands, which shows much scope in enhancing the country’s exports especially in the apparel sector. Earnings from tea exports, which surpassed the US$ 1 billion benchmark in 2007 are expected to record US$ 2 billion in a few years, Dr. Weerasinghe said. In 2008 the Central Bank modified its quarterly reserve money approach by basing it on the quarterly averages of daily reserve money to ensure a more disciplined growth and this has been successful in dampening inflationary pressures on the economy. We expect the inflation rate to remain at single digits in the medium term, he said. He said the banking system has been extremely resilient amidst many challenges and has maintained its performance amidst internal and external shocks. Though there were financial institution failures recorded in developed countries, not a single financial institution in the country collapsed during the global financial crisis. Key financial soundness indicators were maintained at healthy levels. Asset quality deteriorated marginally. However, the reduction in interest rates is expected to bring about an improvement in the asset quality of banks. At present all banks report capital adequacy ratios under the Basel II framework. The economy re-entering the high growth path with the positive developments in the economy, strengthened by the policy stimulus has created vast opportunities for the financial sector, Dr. Weerasinghe said.


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Daily Mirror – November 13, 2009

“BIGGEST JOLT OF THE GLOBAL ECONOMY HAS PASSED” – HSBC CEO HSBC Holdings’ profitability for the first nine months of 2009 was stronger than the group’s expectations at the start of the year, as positive trends experienced in the first half continued into the third quarter. As a result, year to date pre-tax profit was ahead of the comparable period in 2008 on an underlying basis, excluding movements in fair value on its debt related to credit spreads. On the same basis, pre-tax profit for the third quarter of 2009 was significantly ahead of Q3 2008. On a reported basis, HSBC’s performance in Q3 2009 was lower than in Q3 2008, largely due to fair value movements on its own debt caused by tightening credit spreads. Group Chief Executive Michael Geoghegan said: “The global banking industry is in a period of significant and necessary change. The need for strong, well-capitalized banks is indisputable. But it is clear that careful international coordination is crucial if changes are to be introduced in a rational way, which maintains market confidence and a level playing field, especially for those banks with international capabilities.” “Regulatory policy also needs to be sensitive to fragile economic conditions. If capital ratios are increased before Western economies have had the chance to stabilize, this could trigger a number of unintended consequences. These include a rise in the cost and a fall in the availability of credit, which would undermine the ability of the banking industry to play its full part in supporting economic recovery. It may also encourage regulatory arbitrage and the emergence of a shadow banking system, beyond the reach of regulation,” he added. Asserting that he believed the biggest jolt had now passed through the global economy, he noted that it was too early to claim victory, especially while unemployment was still rising in the West. The world would likely experience a two-speed recovery and emerging markets currently offer the brightest prospects for growth, he pointed out, adding that “it now seems clear that they will drive the global recovery”.


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Sunday Island – November 15, 2009 IS THE GOVERNMENT REHABILITATING THE ECONOMY OR POSTPONING THE INEVITABLE? by R.M.B Senanayake The IMF has released another tranche of the standby credit which pushed up the Rupee to 113.75. The Central Bank says "there are signs that an economic recovery is underway" but does not mention which economic indicators show it. Other countries refer to the fall in unemployment and the increase in consumption, investment or exports as indicators of recovery. But this has not been the case in this instance. Industrial Exports for the period Jan-July are $ 2,422 million whereas last year for the same period it was $ 2,932 million. Total Exports for Jan-July 2009 were $3,189 and previous year same period $3,888. The growth rates this year are definitely below last years. The CB said the growth rate would be 3.5%. The first quarter GDP constant prices growth rate was a mere 1.5%. Hopefully the other quarters would show better results. The big companies are not so optimistic. The Hayleys group has shown the most significant growth in earnings but their firms include subsidiaries in rubber products and activated carbon located in Thailand and Indonesia. Sampath Bank has reported impressive results for the first nine months of the year but their increase in earnings has arisen from dealing in government securities and foreign exchange trading rather than from increased lending to the private sector. The conglomerate John Keells Holdings has reported a lackluster performance for the 3rd quarter. Private sector credit has declined instead of increasing. Tokyo Cement, a company which produces for the construction industry, has made much less profits despite the reconstruction in the East. Many of the other listed companies which have reported 3rd quarter results and produce for the domestic economy have not shown any noticeable improvement in profits over the previous year. Many firms find it difficult to repay loans borrowed at high nominal rates when there was high inflation. When inflation fell, the nominal interest rates remained high. Debt deflation took place. If the rupee had been allowed to depreciate then there would have been monetary expansion to provide the extra liquidity and the exporters would have preserved their incomes although imports would cost more. Then the small holders would not have suffered a reduction of their incomes. Reduction in interest rates The recent presidential order to the two state banks to reduce interest on loans both existing loans as well as from new loans is useful if it works. Developed countries faced with the same problem reduced interest rates below 2%. But by itself it is unlikely to be a success. The interest rates on Treasury securities have fallen both in the primary auctions and in the secondary market. But the yield curve has leveled off showing that people do not still believe in investing even in the risk free government long term securities. It is the same with foreign investors who prefer to invest in two year government bonds rather than long dated securities. The government is unable to market sovereign bonds with a longer tenure of say 10 years. Other countries issue sovereign bonds for at least five years . Our previous growth was bubbly in nature Most people assume that before the crash of 2008, our economy was doing well. But it was more in the nature of bubbles in economic activities like leasing and apartment building. The imbalances in the


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government budget spilled over to the current account of the balance of payments and cut the growth short. The oil price hike increased import payments while exports grew less and soon declined below comparable previous period. We had to borrow foreign exchange to fund the shortfall. Then the oil price fell to almost half the peak which reduced the current account deficit. Yet we needed large inflows of short term capital and government foreign currency borrowing. The failure to depreciate the rupee when other competitor countries like India and Kenya did so, made our commodity exports uncompetitive in the export markets. Now the wages in the tea industry have been increased. But tea prices have not gone up sufficiently in dollar terms to make the plantations get a sufficient return on their capital. If the rupee is depreciated they can make up for it. We have to preserve GSP+ to safeguard our industrial exports vital to our future. But owing to the short term inflows of foreign capital to the bond market, there is upward instead of downward pressure on the rupee. The CB will have a hard time to keep the rupee from appreciating further, which would be disastrous for our exports. Real economic growth depends on real not monetary factors The problem is that real economic growth is not affected by monetary factors in the long run. Real economic growth depends on improvements in productivity which in turn depends on hard and efficient work, better work methods, introduction of innovations and new technology. The reduction in nominal interest rates is not enough. What matters for macro-economic equilibrium is the real interest rate, the difference between the nominal interest rate and the rate of inflation. When inflation fell this year the real interest rate rose. We are now correcting for this by reducing the nominal interest rates. When real interest rates rise borrowers find it difficult to repay loans taken on higher inflation expectations. So economic activity has fallen. The IMF agrees that there is still room for monetary relaxation. Inflation was brought down by the fall in import prices with fixed exchange rate. The country is now faced with the problem of deflation and recession. What we need now is to concentrate on restoring confidence among investors so that they will invest.


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Investment


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The Island – November 10, 2009

HONG KONG INVESTMENT FOR KATUNAYAKE EXPRESSWAY BOI APPROVES GARMENTS FOR EU AND AGRICULTURE IN MONARAGALA Hong Kong investment for Katunayake Expressway The Board of Investment of Sri Lanka (BOI) granted investment approval to Dah Fung Enterprise China (Private) Limited for a project to produce quarry material. Dhammika Perera, Chairman / Director General signed the agreement on behalf of the BOI and formally presented the BOI Certificate of Registration to Jinzhong Xiao, Director of Dah Fung Enterprise China (Private) Limited. The venture is an investment of Rs.75 million, sponsored by Dah Fung Enterprise (China) Limited, Hong Kong. The project will produce quarry material required for the Colombo – Katunayake Expressway project. The venture is expected to produce around 60% of the total quarry requirement of the expressway. This project under Nipayum Sri Lanka 300 Enterprise Programme will be located in Pannala and will be providing employment for 100. UK Investment in apparels BOI also granted investment approval for Claudia International Limited to set up a project to manufacture garments for export. Dhammika Perera, Chairman / Director General signed the agreement on behalf of the BOI and formally presented the BOI Certificate of Registration to Michael Moniatis Chairman of Claudia International (Pvt) Limited. The venture will be operating a garment manufacturing plant in Boralesgamuwa and will be providing employment for over 500 workers with an investment of over US$ 1 million. Products manufactured will be exported to the European Market and Ladies Fashion blouses and skirts will be the main products manufactured by the company. Michael Moniatis has extensive experience in the apparel trade having been involved in manufacturing, design development, marketing, supplying to leading European retailers and running his own store group in the UK. His intention is to improve the design capabilities in Sri Lanka which will be an advantage in securing orders from leading European Buyers. To achieve this purpose he together with his UK Company will share the vast expertise they have in this area. Agriculture in Monaragala tobe developed Another project approved was for Pure Nature Limited to set up a project to cultivate and process fruits in Havampitiya, Monaragala.Dhammika Perera, Chairman / Director General signed the agreement on behalf of the BOI and formally presented the BOI Certificate of Registration to the Investors. The venture is an initial investment of Rs.75 million, sponsored by Norwegian Investors. The project which will be based on the out-grower farmer model will initially provide employment for 200 out-growers. The venture expects to expand operations to an investment of Rs.200 million providing employment for 1000 out-grow farmers in Havampitiya, Monaragala. The agri-forestry project would focus on growing Maize as the main crop while growing seasonal crops such as Sesame and Soya. A plantation will also be established on a 25 acre land. He also stated that Maize has a high local demand and that the company expects to export to the European and US markets. Arne Fiortort and Arjuna Dissanayake, Directors of Asia Plantation Capital signed the agreement on behalf of the Company.


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EASING TRADE, INVESTMENT BARRIERS:

SOUTH ASIA TO REAP BENEFITS

Removing barriers to trade and investment will help advance integration efforts in South Asia and deliver sweeping benefits to the region, a new Asian Development Bank (ADB) study shows.

The study, Intraregional Trade and Investment in South Asia, prepared by the ADB, in partnership with the Australian Agency for International Development (AusAID), was one of four new publications on South Asia launched at ADB headquarters in Manila.

South Asia has taken several steps to strengthen regional economic ties, including the establishment of a South Asian Free Trade Area (SAFTA) in 2006. But it remains one of the least integrated regions in the world, with intra-regional trade still hamstrung by prohibitive tariffs and duties, cumbersome border regulations and other restrictions.

The study, which uses an updated econometric model and taps industry and country data, notes that cutting barriers to trade will deliver a broad range of economic and welfare benefits across the region. This includes an expansion of South Asia's key clothing and textiles sector, which is expected to increase women's employment and decrease the gender wage gap. To realize these gains, countries will need to put aside historical political grievances and take steps to remove impediments to trade, market access and foreign direct investment.

This should include reducing tariff and especially non tariff trade barriers, expanding the scope of SAFTA to include trade in services and investment, and focusing on major industries, such as textiles - where the region has a strong comparative advantage - to demonstrate the broader benefits of reform.

"In addition to reaping benefits of removing trade and investment barriers, South Asia must look toward the immense potential of regional cooperation and integration in other areas, including the financial sector," said Director General of ADB's South Asia Department, Kunio Senga. MANILA, PHILIPPINES `


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Sunday Times – November 15, 2009 BUSINESS, INVESTMENT UNCERTAINTY LINGERS ON

Despite the visit this week of high-profile, fund manager Dr Mark Mobius, following on the heels of

investment guru Jim Rogers some weeks back, investment and business uncertainty lingers on.

With an election on the cards probably in January (presidential and parliamentary) and thereafter – before

April 2010 – most investment managers and business firms have put their plans on hold. In fact, many

companies have showed a reluctance to invest afresh or plough back profits even soon after the war in a

decision unconnected to any political developments but to the continuing global financial crisis and slow

consumer demand in Sri Lanka.

The move to cut interest rates is essentially aimed at encouraging the private sector to invest more and

kick-start the post-conflict development phase but that isn’t happening and with elections now on the

horizon, the process would get further delayed. However an investment forum in Colombo this week by a

new fund, Leopard that seeks to invest in Sri Lanka and enthuse foreign investors could garner interest for

long term investment.

While the uncertainty will continue for at least the next five to six months (around March/April) till a new

government (whether President Mahinda Rajapaksa and the ruling coalition returns to power or in the

event of the main opposition United National Party (UNP)-led alliance pulling off victory) announces its

development and investment policies, objectives and goals, it is clear that Sri Lanka is poised for exponential

growth and long-term prosperity with the conflict ending.

Having said that, it is also imperative that the governing party prepares a political framework for action or

after consultations with all stakeholders on solving the ethnic crisis, an issue that continues to affect the

country and its potential.

Dr Mobius has also suggested the need for a clear plan from the government for foreign investments while

saying a final decision on investments would ‘wait and see’ till elections are over.

Nevertheless visits like these are encouraging to the Sri Lankan economy and brings back a smile to the

stockmarket, the private sector and government policy makers.


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In the meantime, the work-to-rule campaign this week by trade unions attached to the petroleum, water,

electricity and ports sectors didn’t go as planned for the unions. Apart from a rush to fill up their tanks on

the day before the protest, there was no serious disruption of essential services and the military didn’t need

to move in, although placed on standby if a crisis emerged.

While everyone is struggling with the cost of living and a wage hike is what wage earners desperately need,

the public at large is fed up with possible disruption of their basic needs – fuel, water, electricity – and

judging by public views on newspaper websites and media interviews, there is absolutely no support for the

unions over their protest action. “Mala Karadarayak (bloody nuisance),” exclaimed one angry motorist as he

waited in a queue outside a fuel shed.

The General (Sarath Fonseka) factor has got entrenched into the political, economic and social fabric of the

country. The stock market has slumped to between Rs300-to-500 million from the Rs1 billion a day

turnover a few weeks back with the Raj Rajaratnam issue not an influencing factor anymore as against the

uncertainty of elections and General Fonseka entering the fray as a candidate at the presidential poll. The

stock market, controlled by the pro-UNP, Colombo-centric business community, would be hoping for a

UNP victory and market developments would be influenced by these factors.

The expected announcement today by President Mahinda Rajapaksa at the SLFP national convention on

the date for presidential or parliamentary polls is being watched by the business community with interest

and also concern, given that political uncertainty is always bad for business.

However on the positive side while the country will face a few ups and downs in coming months over

elections, the long term path for Sri Lanka is clearly one of progress, development and prosperity –

whichever party is in power.


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Sunday Island – November 15, 2009

INCREASED UNCERTAINTY DISCOURAGES PRIVATE INVESTMENT The London Economist reminds us that there is a distinction between risk and uncertainty as first shown by the economist Frank Knight. It points out that while a poker player with a hand of two kings can figure out the odds of success in his hand, it is not so with regard to future macro-economic events bearing on investment. Any economic decision involves future unknowns. Would you consider buying a house now? Why not? Because you do not know what would happen to land prices, construction costs, future interest rates and your own job and income prospects which determine your capacity to repay. You must be very confident that these variables will move in your favor if you are to buy a house now. Suppose a businessman were to consider putting up a hotel, he would consider whether tourists would come given the West’s opposition to the government, the costs of construction, the likely inflation, security checks on the routes etc. Just because the interest rates are low he will not invest. These other factors have a bearing on investment. When uncertainty increases substantially as it has in recent months, the tendency is for businessmen to do nothing and instead hold on to their cash. So bringing down the rates of interest is unlikely to promote investment unless there is a reduction in uncertainty in the economy. Now there is political instability as well. Very low interest rates in developed countries have not succeeded in pushing up private investment as previously. Japan failed in the 1990s. Meanwhile these bribes to businessmen says the Economist are paid by the elderly who have saved money and invested in interest bearing savings to cope with the high inflation caused over the years by budget deficits and money printing. But penalizing the savers will not help in promoting more savings which is what is required to correct the macro-economic imbalances. We have a national savings rate of 20% where India has 30% of GDP and China is close to 40% of its GDP. What is required in any case is to increase the willingness of the bankers to lend and the desire of businessmen to borrow. The private banks have reduced their lending rates only by 2% and they have reduced the deposit rates by the same amount. 70% of the economy is in the hands of the small and medium enterprises and the informal economy. It is they who create employment and increase domestic output. The data confirms that government spending worsened the structural imbalances underlying our economy. When politicians run up the government deficit and print money, voters soon suffer the unpleasant consequences of higher inflation and rising interest rates as in 2007. Inflation cannot be brought down without the risk of deflation and its attendant costs. The only stimulus we can afford is to depreciate the rupee to a sustainable level and attract direct foreign investments. The latter requires liberalization - both political and economic ( Amartya Sen) and easing conditions for foreign investors. But foreigners perceive democratic freedom as seriously eroded and under continued threat. The government prefers to numb the voting public with a toxic saline-drip of deficit spending and cheap money. Instead it should carry out structural reforms in education, privatize the SOEs, liberalize the labor markets, allow markets to operate freely and conform to IMF targets. Real growth depends on real factors, not by creating money or reducing interest rates alone. So let us resolve to put our public finances in order.


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Management



FIRST ASSIGNMENT AS A MANAGEMENT TRAINEE

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anagement Trainees selected by the People's Bank follow

ere are excerpts from his address. Your first assignment is indeed an achievement. With a job, however,

The first year The First year of your employment as a Man is a critical period. Students with limited

Your first job Your first job can have a strong impact on the er. Challenge, or how much responsibility

Your boss The quality of your working relationship with y e supervisor will affect the amount of support

The M ed a training program at the Staff Training Institute of the People's Bank at Maradana recently. CEO CENLEAD Dr. K. Kuhathasan, addressed the participants recently on "Psychological aspects in managements." Hcomes responsibility. People will rely on you to complete tasks, meet deadlines, and generally display willingness. If your job is not challenging, tackle the tasks with willingness, and you will find that you will be given more interesting tasks. Having a job is fun. You will make new friends, learn new skills, and have money to spend.

agement Traineework experience must cope with (compared to school) longer hours, fewer vacations, more responsibility and pressure to perform, and difficult team members and bosses. Basically, you must learn what is expected of you at work. You must try to display your talents and impress others. You must show who you are! how talented you are!

rest of your careand chance for personal growth your job offers, is related to future job performance and career success. If you have a job that seems unchallenging, you should try to acquire additional responsibilities in the organization.

our immediatyou get, your job satisfaction and performance, your likelihood of quitting, speed of promotion, size of bonus, and annual salary. The nature of the boss-subordinate relationship in the first year establishes a pattern that persists and sets an important trend in the development of the future professional advancement. This relationship also affects your care mobility in the complex game of executive chess. You should avoid taking a position under a boss who is ineffective and commands little respect. Such a boss will provide too little challenge, training, or advice. The longer you stay in this relationship, the more difficult it will be for you to be noticed and to move to more prominent positions. And, if you're talented, an ineffective boss might block your promotion and upward mobility.


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You should seek opportunities to work with an effective and highly respected boss. Such a boss is invaluable. A good supervisor can provide the challenging assignments you need. He will help you learn from his knowledge and experience. And as he progress in his career, he can "talk you up" to others and even promote you along with him. Support your boss. Since your boss evaluates your performance and is the most important influence on your immediate future with your organization, find out the criteria your boss will be using to evaluate your performance. Never speak negatively about your boss to others, nor should you undermine your boss. Do everything in your power to support your boss and to make him or her look good.

Socialization Socialization is the process by which the organization teaches trainees appropriate attitudes and behavior. If the company is successful in its socialization on efforts, its employee will be highly motivated, satisfied, innovative, and cooperative. They will be high performers, and they will be less likely to leave the organization for another job. Ineffective socialization results in two types of employees: those who (1) reject the company's values, perform poorly, and eventually quit. (2) Over conform to the point of showing no individuality or creative contributions to the organization.

Work experience Progress in a career depends on your personal characteristics, credentials, intelligence, motivation, knowledge, career planning, and decision-making strategies. But your career progress will also depend on the experience, or work environment, to which you are exposed. You may learn about three aspects of the work environment: (1) the first year, with its early socialization and training experience (2) various assignments. (3) Your career paths. Vision, mission and goals By exploring your company in the following areas, try to understand the vision, mission and goals of our company: * What are the overall goals of the company? * What are the specific goals of the corporation's action program? * What resource does the company currently have at its disposal? * What strategies are currently implemented by the firm? * What investment is the corporation willing to make in managing the future? * What issues are important to the firm? * What is the perception do corporate constituents have about your firm? * What organizational unit will be responsible for managing various activities? * How will issues be monitored and analyzed? * What strategies will be used to measure the performances? The following skills and characteristics can help you to shine and excel in your field: * Leadership. * Oral communication and presentation skills. * Written communication. * Planning and organizing. * Information gathering and problem analysis. * Decision-making. * Delegation and control. * Self-objectivity (being aware of one's strengths and limitations). * Disposition to lead (a willingness and desire to read others in new directions).


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The Secretary in Management The National Saving Bank (NSB) recently organized a one-day seminar on "The Secretary in Management". The program was held at the NSB Training Centre at Kollupitiya. Dr. Kuhathasan said the Secretaries of today are called upon to handle managerial roles, carry out administrative functions and implement management decisions. They are also called upon to take an active part in management teams. They are part of the management team today. The advent of the Micro-Computer, has completely transformed the role of secretarial staff. Electronic typewriters, which have many micro-computing functions, and word processors are now common-place. Thus the Secretaries of today must set goals, understand and appreciate the vision, mission and goals of their organization, become a team leader, present ideas professionally to management, communicate more effectively as a presenter, display fact and skill in handling customers and win the confidence and trust of subordinates, colleagues and superiors. They must also understand and appreciate the concept of good governance, accountability and transparency. Secretaries of today should therefore, sharpen their skills to work more effectively with the management team. They should understand and appreciate the problems of the management and support the management in several administrative functions. A one-day induction program for the newly promoted Assistant Managers on the theme "How to be a successful leader", of the Bank of Ceylon was held recently at the Central Training Institute of Bank of Ceylon, Maharagama.

Customer is King Dr. Kuhathasan said that a customer is the most important visitor on our premises. He does not depend on us. We depend on him. He does not interrupt our work. He is the purpose of it. He is not an outsider to our business. He is a part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so.



HEALTHY WORK LIFE IN A FAST-PACED WORLD: LIFESTYLE MANAGEMENT Dr. K. Kuhathasan-CEO: Cenlead The Ministry of Health Care and Nutrition, the World Health Organization and the International Labor Organization have joined hands to promote healthy lifestyle management among the working class aimed at arresting the growing health problems faced by the workforce.

Labor Relations and Manpower Minister Athauda Seneviratne recently said that deaths relating to cardiovascular diseases are from the most productive level in the society.

“While women are at greater risk of heart disease, children and adolescents are increasingly becoming vulnerable. It is observed that changing lifestyles have exposed children and adolescents to a higher risk of developing heart problems.

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Major Impact

“The workplace of a person has a major impact on his physical, mental and social health. Stress, depression, chronic back problems, unhealthy eating habits and less time for physical activity due to a busy work environment are some of the problems frequently connected with the workplace”.

“The root cause should be recognized and answered to eliminate the problem of heart disease. Some of those key root causes include use of tobacco, physical inactivity, poor nutrition, high blood pressure, diabetes

and high blood cholesterol”.

Unhealthy eating habits may cause cardiovascular diseases. Changing lifestyles have exposed the workforce to a greater risk of heart disease.

The Government has taken measures to discourage people from smoking. Advertising tobacco products and smoking in public places are prohibited.

Heart attack Regular physical activity is another way to reduce the risk of heart attack, high blood pressure and strokes. Measures have also been taken to encourage people to avoid fast foods and adopt balanced diet habits. The Ministry of Health Care and Nutrition and the WHO have joined hands to experiment various strategies to address the workplace issues relating to cardiovascular diseases. Maintaining healthy canteens with healthy menus, discouraging tobacco consumption and encouraging physical activity at workplaces and healthy lifestyles are some of the activities suggested by them.


Stroke

WHO Representative for Sri Lanka Dr. Firdosi Rustom Mehta said recently that non-communicable diseases have become an epidemic in themselves. Despite all the emphasis placed on communicable diseases, non-communicable diseases cause more than seventy percent of all deaths worldwide. Together with Chronic Pulmonary Diseases (heart attacks), diabetes and cancer, strokes head this fatalist. It’s the fifth major cause of death in Sri Lanka, claiming 25,000 lives annually and leaving many permanently disabled. The ILO and the Health Ministry has issued a circular on “healthy diet and nutrition promotion in the workplace”. According to the circular the availability of a healthy diet in canteens and maintaining standards on safe and healthy food is important. Such canteens can be designated as ‘healthy canteens’.

The diet

It should be a broad classification of food based on permissible levels. Should be readily available as part of a regular diet. e.g.: Yellow and green vegetables, green leaves of many varieties, within limits eg: Red meat once a week, limiting salt (total 5g a person), sweets (one tsp sugar per cup of coffee/ tea), fat (total 5g a person to be used in a work setting 20ml per person per day.)

Mono unsaturated food. They are found in vegetables, fruits and nuts. They are fairly

safe for heart and blood vessels

The four food groups that should be included in all menus cereals especially red rice, rice flour, yams and tubers, fats and oils preferably polyunsaturated fats such as soya oil, corn oil and sunflower oil. Legumes and animal protein such as fish, chicken and eggs (red meat with limitations).

Fruits, vegetables and greens. When preparing menus consider the target groups. If the workplace has staff doing more physical work, the weight of food in total per person should be higher compared to desk workers.

How to manage the canteen * Menu plan should be displayed together with nutritive value and cost. * Food preparation areas should be seen. Clean surfaces should be maintained. * A schedule for cleaning utensils should be maintained, cross contamination should be avoided, ingredients should be of good quality and stored properly, food should be cleaned thoroughly, cooked and processed optimally and cooked food stored properly and served.

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* Food handlers must be clean, with correct protective gear worn and undergo regular health check-ups. * There should be regular contact between the Canteen Manager, Public Health Inspectors and workplace management. * Labels and expiry dates of food should be well noted during procurement and storage. * Promoting nutrition and healthy environment. * Promoting healthy snacks during workshops and meetings (eg. Fruits fresh milk.) * Conducting awareness programs. * Maintaining healthy activity levels. * Physical exercises * Promote a minimum of 30 minutes continuous brisk physical activity a day * Brisk walking from bus stop to workplace * Walking around the workplace after a meal * Cycling to work * Taking the stairs instead of the lift * Employers to arrange sport facilities within the workplace (Volley-ball/ badminton courts/ tennis courts’ Gymnasium) * Facilities for mental sports (carrom, chess, sudoku) * Maintaining activity record book * Employers can assist by proving a printing record book where the type of activity and the time spent can be recorded. Facts about fats PUFA: Poly Unsaturated Fatty Acids (Omega 6) These are found in corn, soya and vegetable oils. * They are beneficial in only small quantities. * Large quantities are risky for the heart. Generally, PUFAs are not very safe for consumption. MUFA: Mono Unsaturated Fatty Acids * These are found in peanuts and other nuts. * They are fairly safe for the heart and blood vessels. Omega 3


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* These are the best of all fats. * These are found in fish oils. * They pose a very low risk for heart and blood vessels. * They are very safe for daily use. Saturated fats * These are found mostly in animal fats. * These are also found in butter, ghee and certain cooking media. * They are dangerous for the heart and blood vessels. Trans fats * These are artificially processed fats. * These are the worst of all fats. * They are used in packed snacks. * They are extremely unsafe for the heart and blood vessels. * They are carcinogenic (i.e. there is a risk of cancer in long-term use) Ideal fats for daily use The fats used should be less saturated. The content of Omega 3 fatty acids must be more than the Omega 6. Currently this is the most important factor that is looked for when we make a choice of ideal oil for daily use. Red alert Consult your physician if you have one or more of the following symptoms: * A sudden, noticeable weight loss * Feeling of persistent weakness or tiredness * Persistent fever or night - sweat * Fainting spells, shortness of breath * Loss of appetite * Repeated urination * Persistent or severe pain in the head, chest or any other part of the body * Chronic indigestion, problems in swallowing, recurrent vomiting, marked change in bowel/ bladder habits. * Unusual bleeding or discharge from any part of the body. * A gland, lump, swelling in breasts or in any other part of the body. * Excessive thirst.


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Sunday Observer – November 15, 2009

LEADING TODAY’S ORGANIZATIONS

Does character matter anymore in leadership? Should organizations worry about character if productivity is not affected? In an age, when the skill based results at any cost strategy seems to be the trend, when expedience takes precedence over morals and ethics - principled leadership may not seem important anymore. However, while skills are important in relating to, and leading the team towards organizational goals, several studies conducted among employees highlight the importance of character. For instance, in the Characteristics of Admired Leaders survey developed by Kouzes and Posner (2007) and administered to over seventy-five thousand people of diverse cultures around the world, the credibility of the leader topped the list. The works of Sinha (1994), Misumi (1985) and Kakar (1971) on Asian leadership reinforce this aspect. Presented another way, people want to assure themselves that the leaders they follow are worthy of their trust. Stephen Covey in his work titled Speed of Trust illustrates this clearly. An informal survey of our own organizations will confirm that people will follow leaders who can be trusted more so in difficult times. In lean times, such exemplary leaders model cost-cutting by applying the cost cutting measures first on themselves. As a result of their integrity such leaders are able to build a high-trust team culture that is essential to navigate the organization through uncertain and perilous times. The progressive leaders understand that the age of encyclopedic minds and the command and control approach in leadership is fast becoming obsolete. They know that Leadership is about networks and partnerships. Seth Godin in his work points out that while everyone can be a leader; most are kept from realizing their potential. Leaders with character are able to uncover and harness the hidden potential of every team member and utilize it for the greater good of the organization. Such leaders are humble enough to admit that they know that they do not know and surround themselves with people who can compensate for their weaknesses. Goffee and Jones in their article: Why should anyone be led by you (Harvard Business Review, Sept/Oct 2000) note that when leaders reveal their weaknesses, they reveal who they are warts and all and thereby create an environment of interdependency and solidarity within the team. This environment of interdependence is of immense value especially during tough times where total organizational commitment and participation become an absolute necessity. Team of Rivals Leaders with character emphasize organizational success over personal survival. Such leaders go beyond personal loyalties and select those who are loyal to the organizational vision.


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Agreed, such decisions involve risks of betrayal and call for courage and inner strength in placing organizational success over personal fame. This demands going beyond personal differences, seeking the highest good of the organization and working with different and even difficult people towards the end goal. Doris Kearns Goodwin in her much publicized book, Team of Rivals, outlines how Abraham Lincoln was an outstanding example of this leadership characteristic. Goodwin offers ground breaking insights into Lincolns leadership style when he chose his three rivals in the Republican nomination to serve in his Cabinet. William Seward, Salmon Chase and Edward Bates - all accomplished men of great standing, initially disdained Lincoln in the race for the Republican nomination in 1860. On his victory, they were invited by Lincoln to serve as Secretary of State, Secretary of the Treasury and as Attorney General respectively. Lincoln turned rivals into allies and harnessed their strengths for the greater good of the nation. For Lincoln this race was about the future of the nation and not about himself. Similarly, principled leaders are able to lay aside personal rivalry for the greater good of the organization. They see the role and place of people in the organization and are able to get that Individual commitment to a group effort (Vince Lombardi). Goodwin argues that had Lincoln not forged these rivals into a team he would not have been able to lead the nation through one of its darkest periods. Staying power Bill Hybels refers to vision as the leaders most potent weapon. Driven by their vision, such leaders stay the course with hope despite the challenges. The focus is on the long-term. They understand that a leader is essentially a purveyor of hope, and like master builders, see the completed building arising from the rubble and the chaos of building sites. Jim Collins in his latest book, How the mighty fall: And why some companies never give up (2009) underscores the importance of hope - if hope is abandoned, then you should begin preparing for the end. The discipline of delayed gratification is honed into a fine art by such leaders as they plod on steadily driven by the vision. Character plays a crucial role in determining a leaders future. Moral and ethical challenges on the job test the strength of a leaders character. We must not forget that leadership is, primarily, service. As such, serving others is uppermost on the minds of the true leader. Leaders ought to see themselves as stewards of the most important resource of the organization and as such need to be trustworthy leaders. Furthermore, ethics in business is sustained by culture, not simply by compliance. Truly effective internal controls are the result of cultures of character and cultures that are created and maintained by leaders of character. The result of character is the mark that our behaviour leaves on the lives of others. Demand for leaders with character, therefore, will never diminish. Ben Manickam is a Chartered Manager, serves as Director of the Center for Graduate Studies and lectures on the MBA and MSc (Organizational Development) programs of the University of Peradeniya. He can be contacted at [email protected]


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LEADERSHIP PIPELINES HAVE RUN DRY By Dinesh Weerakkody

One thing many employers have learnt from the global economic crisis is that employees with Competence, Commitment and Credibility are a requisite for company survival and the leadership talent lurking in their pipelines could not deliver the performance the company wanted.

Some companies that survived the crisis recognized this way before the others that there leadership pipelines were running dry and developed a framework firstly for assessing and then a process for developing their very own internal pipeline of leadership talent via on the job training and development interventions.

Now for companies to make that transformation they need to understand how to increase their organizational competence through training and development and then to measure the impact of those interventions. In high performing companies, individual training and overall development activities are integrated into a cooperative whole; Conceptually and practically they are linked as a single comprehensive agenda. Elsewhere they often turn into a tug-of-war between the CEO and HR –each trying to out do the other. Training is development.

Training is the formal activity that generally occurs in a classroom or elsewhere whereas Development is broader. For example, one of the key functions of managers is to develop people. That development may manifest itself in different ways. It may occur through on-the-job coaching, performance appraisals or development planning discussions.

Then a question that is frequently asked is development more effective than the traditional classroom training? Actually, they go hand in hand. We should start with development planning, collecting facts and data about a person’s performance, competencies and other related behaviors. Based on this we then set stretch targets based on the desired performance standards and behaviors. Training then, is an activity or a solution (among others) to address the gap between current and desired performance standards and behaviors.

Training and ROI

Then how do companies measure the impact of training investments? There are many ways. But the problem is that many companies don’t measure training effectiveness because they find it too difficult. I often refer to Donald Kirkpatrick’s model, which classifies various ways in which you can measure the effectiveness of training. Kirkpatrick identifies four levels.

The first level focuses on attitude. Often we perform this type of evaluation by handing out an evaluation form (happy sheet) at the end of a training programme. From this we can assess how participants felt about the training.


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The second way is to measure knowledge or skills acquisition and this is fairly simple. For example, at the end of a Product Knowledge Training Programme we can have people undertake an examination to test their acquisition of knowledge. Similarly, we can use role-plays to assess whether people have developed the required skills during a training programme.

The third level of evaluation really concerns the way that behavior changes after completing a particular programme. Companies often perform level 1 and 2 measurements but stop there. However, evaluating training effectiveness at level 3 is not as difficult as it may appear. Many companies are beginning to identify, measure and develop competencies to drive performance standards. They look at people who do well in their jobs and identify and observe the behaviors that they demonstrate, rather than focus on knowledge or skills alone. In other words, a person may be very knowledgeable and/or skillful, but may not apply the knowledge and skills on the job in the required way.

Competencies involve the behaviors, or the application of the knowledge and skills in ways that drive desired levels of performance. For example, some companies train Sales Managers to observe their Sales People in the field. They look specifically at the way that sales people behave when conversing or working with customers and how this differs from in the past. They look at the improvements in their behavior and how that behavior has changed as a result of the training. Finally, Level 4 evaluation focuses on the Rupee impact that the improved behaviors have on the business. Therefore, by following a structured process a company can measure the impact of their training investments and to asses the potential of their staff.

However, in practice for proper measurement, firstly HR professionals must have an understanding of the full HR value proposition and secondly have the ability to measure their specific value added elements.

Most importantly the CEO of the company must come to terms with the fact that today’s businesses compete as much on the strength of their human capital as on that of their financial resources and that human capital resides at all levels of the firm, but it takes good leadership and strong HR practices to fully develop and enable it to make a difference in the market place.


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Trade and Marketing


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Daily news – November 9, 2009 IMPROVED MARKET ACTIVITY Market continued to show the declining trend for the third week running, on moderate trading as banking stocks grabbed attention this week. However bargain hunting managed to prop up the market on Friday, with both indices showing a modest growth after the distinct decline in indices during mid week. Overall Week on Week (WoW) the ASPI closed the week at 2911.6 points down by 65.3 points or 2.2 percent compared to last week, while the MPI fell by 59.1 points or 1.8 percent to close at 3274.8 points. JKH once again retained its position as the highest contributor towards total turnover for the week. Turnover of JKH was supported by couple of big crossings on Tuesday and Thursday which resulted in a total contribution of Rs.956.1 million (38.0 percent total weekly turnover) for the week. Approximately 6.9 million JKH shares traded for the week, while the share price witnessed a decline WoW. The share price declined, by 1.4 percent, to close at Rs.140.00 on Friday. The counter traded at a high of Rs.142.75 per share and a low of Rs.135.00 per share for the week. Amongst the banking counters HNB (Non Voting) was the leading contributor this week, placed second highest in terms of contribution for the week. Wednesday’s Rs.125.1 million generated by the counter helped it to become one of the key contributors for the week, contributing Rs.158.4 million. The counter closed the week at Rs.85.00 per share, declining by 2.9 percent WoW, while within the week the counter was seen trading at a high of Rs.90.00 per share and Rs.83.00 per share. Meanwhile Janashakthi share prices picked up this week, amid considerable trading witnessed on the counter from Tuesday to Friday. Interest on counter was seen with investors reacting positively to the Rs.2.00 interim dividend announced on Tuesday. The share price rose by 15.6 percent WoW to close at Rs.13.00 per share on Friday becoming the week’s top gainer. A total of 11.4 million of Janashakthi shares traded within the week contributing Rs.150.3 million towards total turnover for the week. Activity levels picked up this week, even amid trading being limited to four days, with turnover amounting to Rs.2.5 billion, compared to Rs.1.3 billion posted during last week. The driver of activity this week was JKH which had couple of crossings taking place during the week. Meanwhile average daily turnover for the week amounted to Rs.635.0 million. Foreign participation fell further to 12.5 percent during the week, compared to 15.6 percent posted last week. However, both foreign purchases and sales showed improvement WoW with foreign purchases amounting to Rs.424.9 million and foreign sales totaling to Rs.209.7 resulting in, Rs.215.2 of net foreign inflows for the week. The most traded stocks this week in terms of volume were; Janashakthi, JKH, Piramal Glass, Vallibel and Seylan Merchant (Non Voting).


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Point of View Bargain hunters to resist the downward trend The dull sentiment prevailed in the market as investors cautiously awaited a pronounced outcome from the political buzz over possible national elections soon. Week-on-Week ASPI dropped 2.2 percent while the MPI declined 1.8 percent on modest activity levels. We expect bargain hunters to provide some resistance to the downward trend over the coming week as the fall from the peak recorded on October 13, has now touched 7 percent. As we mentioned last week buying support would build around stocks which are expected to post positive third quarter results. This was witnessed amongst the banking sector counters this week as they stood within the highest contributors to week’s activity. The results released so far by banks turned impressive with DFCC, Sampath and PABC recording notable jumps in their bottom lines backed by improved interest margins. Thus banks which are yet to release their results would also gain more investor attention over the coming week. Similarly, other fundamentally sound stocks which have fallen in the recent downturn would also gain investor interest. Thus we advise investors to actively look for bargain hunting opportunities in the market. The information contained herein has been compiled from sources that Acuity Stockbrokers (Private) Limited (ASB) believes to be true and reliable but we do not hold ourselves responsible for its completeness or accuracy. No matter published herein create any liability of any kind on ASB. All opinions, views, findings and conclusions included in this report constitute ASB’s judgment of this date and are subject to change without notice. ASB has the sole copyright for this report and the information and views contained cannot be reproduced or quoted in part or whole in any form whatsoever without the written permission from ASB.



CONSUMERS PREFER QUALITY PRODUCTS: SRI LANKA’S RURAL MARKET IS GROWING FAST Sri Lanka has an evolved consumer segment. Consumers prefer quality products and make a smart choice of brands. Sri Lanka’s rural market is also growing fast. Research showed that the FMCG growth in 2009 was driven by the rural market in Sri Lanka said Managing Director, Reckitt Benckiser Lanka Limited Reazul Haque Chowdhury. Q. How do you see the FMCG market in Sri Lanka? A: Sri Lanka has a very high per capita income among the SAARC countries. The per capita consumption of any product is significantly higher than other SAARC countries. Therefore, the market offers a good potential for FMCG Companies. The macro economic indicators are moving in positive directions, inflation has come down and the Northern and Eastern regions will be opening soon. Sri Lanka has an evolved consumer segment. They prefer quality products and make a smart choice of brands. The rural Sri Lanka market is also growing fast. Some research showed that the FMCG growth in 2009 was driven by Rural Sri Lanka. Looking at all these, I think Sri Lanka has a potential for FMCG business. More FMCG companies will be interested in Sri Lanka’s market. Q. How do you see the competition

in the market?

A: Sri Lanka is a highly competitive market. All leading multinational FMCG companies are operating in the country. Local companies are doing well and offer quality brands to the consumers. From my market visits, I see that even small retailers are carrying at least 4/5 brands for each category.

Sri Lankan consumers prefer wide choices which also increase the level of competition in the marketplace. Fair competition is always beneficial for the consumer. It will force the competing companies to continuously focus on their product quality and offer the best value proposition to the consumer.

Reazul Haque Chowdhury

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Q. What are Reckitt Benckiser’s future plans? A: Reckitt Benckiser has been constantly reinventing itself in each market to cater to the changing consumer needs. Innovation in product, communication and our market practices are the key to success. We are highly committed to offer the best to our consumers in the categories we operate. Similarly, in Sri Lanka too we have been focusing on product innovation. We have been introducing new products while innovating and reinventing the existing product portfolio. We have been continuously improving our market execution capabilities. As the world leader in household, health and personal care, RB is committed to satisfy millions of Sri Lankan consumers through world-class brands. As far as capability is concerned, we will take the initiative to reach more consumers by expanding our distribution base and making our brands available for them. RB is also focusing on developing local talents through numerous training and development initiatives. Q. What is your advice to young people? A: Encouraging people is one of my passions. Professionals like us should work closely with young managers and help them to grow and contribute. My advice to young people is to give their best in everything. They need to be passionate in everything they do. They need to develop a habit of going into depth. There are a few values they need to develop early in life. These are honesty, humility, a sense of humor and above all a positive attitude towards everything. We will always see what we want to see and our attitude always play an important role in what we see. I would also advise all my young friends to spend some time daily in reading and enhancing their knowledge base. Young professionals should consider the first five to eight years as an investment and be ready to take on any challenges. The dividend of this investment will be realized throughout life. From Reckitt Benckiser’s perspective, I would add that if you are good, you will be recognized within the RB system and if you are mobile, you will keep moving forward in RB. It does not matter how old you are or where you are from. The younger the better. Q. How do you spend your leisure? A: I hardly get any free time. But I have no complaint. I enjoy my work and love to work with my team. If I get some free time, I spend it with my family and friends. My family is the biggest source of inspiration. At the end of a long day, its always rewarding to see the smiling face of my lovely children. Despite the busy schedule, I spend some time in reading mostly business articles. Listening to music is one my passions and I love Bengali music. If I get long weekends, we go out of Colombo with my family.


Q. What is your philosophy in life?

A: I believe in simplicity. As a person, I prefer to lead a simple life and be happy with what the Almighty has given us. I also believe that I am part of the fortunate group in the society and it’s a moral obligation to give back something to the society in our own way.

At corporate level, I believe, “When the going gets tough, the tough gets going” - cliched as it may sound, this truth remains. To say that the last year (2008) was tough would be an understatement. Input costs have gone up significantly; the competitive landscape has become ever more challenging and growth has been circumspect.

Profile

Name - Reazul Haque Chowdhury Civil Status - Married and has two children. Educational qualifications - Masters in Marketing from the University of Dhaka, Bangladesh. Also did Advanced Management Program from Instead, France. School attended - Adamjee Cantonment College, Dhaka College, University of Dhaka and INSEAD. Current position held - Managing Director, Reckitt Benckiser Lanka Limited. Experience: Started his career as Management Trainee in British American Tobacco Bangladesh. Worked for 10 years in different Sales and Marketing roles. In 2002, joined Unilever Bangladesh as Customer Development Director and worked in Unilever as Board member for six years. In addition, worked as a board member of Unilever Nepal. Joined Reckitt Benckiser in May 2008.

However, we at Reckitt Benckiser Sri Lanka have been constantly innovating to meet the changing dynamics of the market - be it the products we offer or our corporate look (we have changed our RB Logo - www.rb.com). I am proud that Reckitt Benckiser Sri Lanka has been growing in line with our internal benchmarks.

Q. What are the places you wish to visit in Sri Lanka?

A: Sri Lanka is a lovely country. There are many places I would like to visit. I find Colombo is interesting as it’s the business hub of Sri Lanka. I have visited many places in Sri Lanka so far. I am looking forward to visit Trincomalee, Jaffna and the other parts of Northern Sri Lanka.

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MARKETING AND SELLING IN TOUGH ECONOMIC CONDITIONS: WHERE IS THE BRAND? Prasanna Perera, Marketing & Management Consultant, Chartered Marketeer, CIM U.K.

With all the pressure on achieving sales targets, I wonder if corporates have forgotten about their BRANDS and brand development. It is easy to take brands for granted and neglect brand development. In the short-term this may work, but the results in the long-term could be disastrous. The purpose of this article is to refocus on the power of brands.

The World’s Most Valuable Brands According to Inter-brand, the top 10 brands for 2009 is as follows: When these rankings are analyzed it is clear that the US continues to dominate global branding. What is the reason? Two fold - one reason is that US companies have financial resources required for brand building. The second reason is the willingness and acknowledgement of the importance of brand building. Hence, to build brands, ability and willingness are both important. Another important insight these rankings provide is that the top five positions have remained unchanged over 2008 and 2009. Hence, we can conclude that strong brands are in a better position to withstand economic downturn than weaker brands.

What about Sri Lankan Brands? The sad truth is that Sri Lankan brands do not feature at all in global brand rankings. Why? To my mind there are several reasons. - Confusing a brand with a name of a product - Not being committed to building brands - Not taking a long-term perspective in brand building - Lack of financial resources required to build brands

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- Non-marketeers holding CEO/MD positions in most corporates - Over emphasis on sales of products and not brands - Not taking calculated risks to build global brands My advice to Sri Lankan corporates is as follows : * Do not be afraid to take calculated risks to build brands * Believe that your brands can conquer international markets * Invest in human resources (competent marketeers and brand custodians) * The CEO must be a brand evangelist and brand advocate. Take the examples of Steve Jobs, Michael Dell, Richard Branson, Bill Gates, Tony Fernandes, Akio Morita, Jack Welsh. * Take a long-term view towards brand building. (It is not a quick fix activity) * Invest in your brands to build brand value, brand equity and brand preference * Think Big. Most successful global brands started small, but the brand owners had greater and grander visions.

“Ceylon Tea” and “SLC” (Sri Lanka Cricket) To my mind these are two world class Sri Lankan brands. Have we done enough to build them into global powerhouses? The answer is sadly NO. Why? Probably not visioned from a branding perspective but from a financial perspective. “Ceylon Tea” is world class and perceived as the best by the global consumer. All that is needed is a globally integrated marketing communication campaign to position “Ceylon Tea” as the best brand of tea in the world. (Please note-a globally integrated marketing communication campaign!)

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In Cricket, Sri Lanka has won the World Cup and many other titles over the past 10 - 15 years. Hence “SLC” is a powerful brand that can help not only Sri Lankan sport but tourism and foreign investment as well. Why not strengthen the destination brand - Sri Lanka, by focusing on three strategic pillar brands namely, Sri Lanka Cricket (SLC), Ceylon Tea and Sri Lanka Tourism (SLT)?

Message to Sri Lankan corporates and their Marketeers

It is worthwhile remembering what the great advertising Guru David Ogilvy once said of brand building:

“Any damn fool can put a name on a product, but it requires a genius to build a brand.”

Please don’t confuse naming a product with a brand. A brand is much more than a name - it has character, personality, values, loyalty, relationships and many more. Also recognize your brand champions and provide them the required resources to build brands. How can a brand champion build a brand, if he / she has their hands tied? Always consider brand building as an “investment” and not as an “expense.” It takes years to build brands, not days and months.

Conclusion

Sir Lanka as a country is facing her “moment-of-truth.” This is the best opportunity to take Sri Lankan brands into the global arena. The simple truth is that to build a strong economy you need strong brands. The best example is India, which boasts of global brands such as Tata, Titan, Kingfisher, Bajaj, Maruti Suzuki to name a few.



INNOVATIVE PRODUCTS FOR NICHE MARKETS: ENTREPRENEUR PROTECTS TRADITIONAL VALUES OF COCONUTS Ramani Kangaraarachchi

Suresh Silva

Coconut is one of Sri Lanka's traditional crops, which earns foreign exchange. But today coconut estates are blocked out and sold to build houses. However, some entrepreneurs are still determined to protect the traditional values in coconut. CEO, Cocos Lanka Exports (Pvt) Ltd Suresh Silva, an entrepreneur believes that 'Coconuts-a natural solution provider for a better environment'. He earns an annual turnover of 35 mn USD by exporting more than 20 varieties of coconut products. He has provided employment to over 1,500 people despite many challenges. Suresh Silva was interviewed by Daily News Business.

'Silver Mill' An old boy of St. Joseph's College, Colombo, Suresh is the eldest in a family of four children. He obtained a degree from a University in California after completing his Advanced level examination in school. "It was my grandfather Anthony Silva who opened the first ever desiccated coconut factory in the country named 'Silver mill' in the Coconut Triangle in 1920." A philanthropist who had entrepreneur skills he hails from Katana. Although he started from humble beginning through his talents he gradually expanded and diversified the company into other areas by exploiting the coconut, and as a result it grew into a group of companies and today there are eight companies under Silver Mill Holdings, which records 4-5 percent growth annually, he said. Suresh returned to Sri Lanka after pursuing higher studies abroad and joined the Coconut Development Authority to familiarize himself with the industry for a short period. Thereafter, he joined BCC Lanka and gained more experience in coconut related products. In 1983 he joined Silver mill Holdings as a junior executive. In 1990 he took over the senior position. Suresh became the CEO eight years ago when Cocos Lanka Exporters (Pvt) Ltd was started as a subsidiary company of Silver mill Holdings.

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Coconut husks

The Company was incorporated to add value to coconut husks by converting it into an array of coir-based horticultural products. "There is a bigger demand for fibre products and it is more profitable. "We have invested heavily on research and development and research is carried out by our in-house staff as well as the University of Moratuwa and other recognized research institutes. "We have introduced a number of internationally patented unique products", he said. "Our latest product is Coco-Bio which is the most effective way to clean oils. It was jointly developed by Ueda Environmental Solution (UES) and the Sri Lanka Industrial Technology Institute. This product has exceptional oil absorbent properties, making it an extremely effective cistern purifier and cleanser of waste-water impurities. It absorbs most oil and very little water which can be mass produced at low cost giving it a promising future as a cistern waste water oil absorbent product". Cocos Lanka has specialized in producing soil substrates for tomatoes, cucumber and strawberries. With long experience in working directly with growers worldwide, it has successfully developed coco slabs grow bags that produced enhanced yields. A range of coir based potting soils have been developed and are marketed to garden centres in different packing styles for hobbyists. Coir husk chips are also produced for potting soil producers or growers to make their own soil substrates. He said that the company is a leading manufacturer of coir pith products in Sri Lanka and concentrates on niche markets and green products.

Big demand The emerging threat of global warming and the big demand for petroleum based products to fulfill the world's energy requirements have created opportunities to develop and market alternative energy solutions. Therefore, we focus on bio-fuels. We use our experience in agro business, plantation management and technology to maximize the advantage of power generation using bio-fuels as a renewable source, he said. The Company has introduced a product known as 'Osen Guard', an organic Anti Foulant Marine Paint Additive. It is an eco friendly additive to marine paints for ocean going vessels.

Adhesion of marine living organisms such as barnacles creates a major problem for ship and fishing boat owners.

Coconut products being processed in the factory at Lolluwagoda

Osen Guard gives excellent results by almost doubling the period of anti-foulant effects by adding five percent by weight to conventional ship bottom paints, and it has much potential in the dry docks, he said.

He said that the Government' farm protection policy is one barrier. When the prices go up artificially it affects the market adversely and we become less competitive. But we manage despite the global recession.

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We negotiate with the Government to reduce duty to overcome this barrier. Sri Lanka is also lagging behind in high technology agriculture.

There are many secrets behind his success. "We have three trade unions but we are flexible and are prepared to listen even to the minor staff.

Changes

They are well motivated and productive. We accept changes", he said. Our income and expenditure are very transparent and open to all like in a Public Quoted company although we are a family based company. Ten percent of profits are shared among them.

His future plan is to improve on value addition and be a green company. With his worldwide clients such as Toyota and Nestle and island wide dealers network, he foresees bright prospects.


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APPAREL INDUSTRY HAS STRONG LINKS WITH US AND EU

Over the years, the local apparel industry developed very strong and close links with not only their customers and suppliers but also with the policy makers of the country said, the Sri Lanka Apparel Exporters Association (SLAEA) Chairman Kumar Mirchandani at the AGM of the Association held at Cinnamon Grand Colombo yesterday.

"Our Association epitomizes the value of public-private partnerships in everything we do. We work very closely with the public service in formulating policies and procedures that affect business in general and our industry in particular," he said.

The apparel industry has had very strong links with both the US and the EU for a very long time. Our exports to the EU have seen steady growth over the last several years, not in the least due to GSP and GSP+. The Government of Sri Lanka has now officially responded to the Commission report and I trust that this will bring about further positive engagement on GSP+, he said.

"Our Exports to the US have seen a decline and we as an industry, have to make serious efforts if we are to reverse this trend. In fact, our industry representatives - known as Sri Lanka Apparel - are in New York right now attending the Women's Wear Daily CEO's Summit attended by all the big US Brands and Retailers - we are actually a principal sponsor of one of the big events - re-introducing our capabilities and our stance on Garments without Guilt to the US," he said.

Speaking on the EDRS scheme he said, "This is an excellent scheme and we thank the authorities for putting this scheme into place. I appeal to the authorities to ensure that the qualified applicants for the first and second quarters of 2009 get paid in full with no further delays and that the scheme continues to the end of 2009 as announced previously".


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Daily Mirror – November 13, 2009 EMERGING MARKETS GURU MARK MOBIUS IN TOWN Meets CB chief over lunch, appointments with select blue chips part of low profile but breakthrough visit In what could be a major boost to Sri Lanka’s profile globally, Dr. Mark Mobius, the iconic emerging markets guru, is in town to get a fresh update on prospects for further investments in the country following the end of the 30-year-old conflict. The news of Franklin Templeton Investments Executive Chairman Dr. Mobius’ visit, which has been under wraps, is yet to reach markets and some of the big players in the private sector. However, when contacted by the Daily Mirror FT, Central Bank Governor Nivard Cabraal confirmed that he had lunch with Dr. Mobius but declined to reveal details. The Daily Mirror FT learns that the visit – facilitated by investment specialist Marianne Page – includes either luncheon or formal meetings with CEOs or senior management teams of select blue chips. Analysts expect premier blue chip and number one market cap entity John Keells Holdings and Aitken Spence to be among companies with which Dr. Mobius would meet up. A team comprising representatives from his Indian and Far East funds are accompanying him in the Lankan tour. Sources who are privy to some of the meetings already held said that Dr. Mobius was “very upbeat” about Sri Lanka. It is speculated that his funds have already invested nearly US$ 1 billion in Government securities. Some estimated that he made these investments in fixed income securities when rates were over 14% and with the current rates being around 500 basis points, any exits by him would be at a hefty capital gain. It is not sure whether he would opt for that course and divert his gains to equity markets for further investments or whether Dr. Mobius was making the Lankan visit with additional funding earmarked. Analysts said that he is very likely to increase his exposure to Sri Lanka as the country is by far the best or among top three in the world for equities. Improved macro economic fundamentals including low inflation, interest rate and stable exchange rates are some of the other factors for such a move. This is, of course, apart from the overall positive re-rating of Sri Lanka’s economic growth prospects and attractiveness following the successful defeat of terrorism. Dr. Mobius is a world-renowned global investor and emerging markets fund manager and is considered to be one of the leaders in the industry as he has been involved in these markets for over 40 years. He directs the Templeton Global Emerging Markets Equity Group based in Templeton’s 15 emerging markets offices and manages the emerging markets portfolios. He has received the following awards: ‘Emerging Markets Equity Manager of the Year 2001’ by International Money Marketing; ‘Ten Top Money Managers of the 20th Century’ in a survey by the Carson Group in 1999; ‘Number One Global Emerging Market Fund’ in the 1998 Reuters Survey; ‘1994 First in Business Money Manager of the Year’ by CNBC; ‘Closed-End Fund Manager of the Year’ in 1993 by Morningstar; and ‘Investment Trust Manager of the Year 1992’ by Sunday Telegraph. In 2006, he was named by Asiamoney magazine as one of ‘Top 100 Most Powerful and Influential People’. He was appointed Joint Chairman of the Global Corporate Governance Forum Investor Responsibility Taskforce of the World Bank and Organization for Economic Cooperation and Development.


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Tourism



SRI LANKAN TOURISM INDUSTRY:

CONSTRUCTION BOOM EXPECTED

Shirajiv Sirimane in London

A construction boom is expected in the tourism industry with over 23, 000 new star class hotel rooms expected to be constructed in the next five years. In addition over 3,000 rooms would be refurbished or upgraded.

This is to meet the projected 2.5 million tourist arrivals by 2016 for the ‘Visit Sri Lanka’ program. Today Sri Lanka offers 12,000 rooms and the Kalpitiya Tourism Zone is expected to offer 5,000 new rooms within the next two years. “We have called for international tenders for five islands and the response has been very good,” said Sri Lanka Tourism Development Authority (SLTDA) Chairman Bernard Gunathilake.

Minister Faizer Mustapha

Speaking at the international launch of the ‘Visit Sri Lanka 2011’ program at the Excell Exhibition Centre Monday night he said that already one investor, Dutch Bay Resorts have started construction for an up-market hotel. Kalpitiya would be an up-market destination similar to the Maldives resorts and no high rise hotels would be allowed, he said.

“Already, 60 overseas investors had visited the Eastern Province and they carry positive sentiments,” he said.

The Tourism Promotion, Minister Faizer Mustapha said that Sri Lanka is aiming to attract one million tourists by the end of 2011 from its current average of 4,000. The industry also hopes to bring in US$ 800 million in two years to the country increasing its earnings from the current average of around US $ 350 million. The average spent by each tourist per day will be increased to US $ 130 (currently around US $ 80)

He said that due to the 30 year conflict, Sri Lanka was marketed as a cheap destination and now the country could attract high spenders.

“This was one reason we intervened to bring a gazette notification to introduce the ‘Minimum room rates’ to city hotels,” he said. Commenting on the Sri Lankan participation at the WTM he said that the event not only focuses on the British market but also on the markets of 200 countries, and therefore investments made for it are highly returnable. The Minister also said that this is the first major exhibition Sri Lanka is participating after the end of the war and the response is overwhelming. He also thanked the tour operators who stood by Sri Lanka during troubled times.

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Money & Banking



GOVT COMMITTED TO REDUCING BUDGET DEFICIT – IMF By Devan Daniel Fundamental vulnerabilities remain strict adherence to targets, steadfast implementation of reforms essential Reserve position comfortable, greater exchange rate flexibility needed The IMF says the government is committed to reducing the budget deficit through expenditure restraint and reforms to tax administration, approving the second tranche of the US$ 2.6 billion standby facility to Sri Lanka for balance of payments support over the weekend. "The (Sri Lankan government) remains committed to a deficit reduction and planned fiscal reforms, particularly through expenditure restraint and tax reform aimed at broadening the tax base and simplifying the system," said Takatoshi Kato, IMF Deputy Managing Director and Acting Chair soon after the Executive Board’s discussion on Sri Lanka last Friday which resulted in the approval of the second tranche of the standby facility amounting to US$ 329.4 million. Last week the Vote-on-Account was approved in parliament for an expenditure bill of Rs.362 billion for the first four months of 2010."The interim budget aims to deflect spending pressures in the run-up to parliamentary elections. The (government) intends to submit to the new parliament a full-year budget for 2010 that is consistent with the program’s deficit targets and includes tax reform measures," Kato said in a statement posted on the IMF’s official website. The IMF said Sri Lanka’s performance under the standby arrangement was encouraging but warned that fundamental vulnerabilities remain to be addressed. "Recent economic developments have been stronger than expected, and the near-term outlook has improved. While the Fund-supported programme had helped Sri Lanka avoid a balance of payments crisis, fundamental vulnerabilities remain to be addressed. Strict adherence to the programme targets and steadfast implementation of the reform agenda will be essential," Kato said. "The policy of gradually loosening monetary conditions was successful in reversing earlier liquidity shortages. There is scope for a further cautious easing of monetary policy in view of low inflation, weak credit growth, and below-potential output," he said.

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Domestic financing of deficit... The IMF said Sri Lanka had requested for a waiver of end September 2009 performance criteria on domestic financing of the central government from the banking system and the non-bank sector. The IMF Executive Board has approved the request. The budget deficit for the first nine-months of 2009 expanded 30 percent year-on-year to Rs.322.6 billion. Net domestic financing of the deficit amounted to Rs.166.5 billion. According to a Central Bank report ‘Recent Economic Developments: Highlights of 2009 and Prospects for 2010’, domestic borrowings mainly comprised of debt instruments, especially Treasury bills and bonds. Net borrowings by way of Treasury bills and bonds increased from Rs.15.5 billion and Rs.105.2 billion to Rs.17.5 billion and Rs.153.4 billion respectively. The original budgeted estimate for net domestic borrowings were Rs.183.1 billion later revised in June to Rs.331.8 billion, "which is significantly higher," the Central Bank said.Net foreign financing of the deficit amounted to Rs.156.1 billion, 48 percent of the government’s borrowing requirement. Government recurrent expenditure for the first nine months of this year amounted to Rs.661.5 billion, a 26.2 percent increase from Rs.524.1 billion for the corresponding period last year. "This increase was mainly due to the increases in interest payments (an increase of 63 percent to Rs.253 billion from the corresponding period of 2008), salaries and wages (20 percent increase to Rs.204 billion) and pension payments (17 percent to Rs.62.6 billion). "High interest rates that prevailed in the domestic market and the significant amount of domestic borrowings during the latter part of 2008 and the first quarter of 2009 where the main reasons for the significant increase in interest payments," the Central Bank said. Reserves to exceed US$ 5 billion... Two weeks ago Central Bank Governor Ajith Nivard Cabraal said the country’s reserve position was nearing the ‘magical’ US$ 5 billion mark. The Central Bank said over the weekend the second tranche of the IMF stanby facility would take reserves beyond the US$ 50 billion mark. "The gross official international reserves of the country, which have already exceeded US$ 4.8 billion, will surpass US$ 5 billion mark with the receipt of the USD 329 million. "With the renewed investor confidence on the Sri Lanka’s economy and the continuation of the steady increase in foreign exchange inflows, the country’s external reserves position is expected to strengthen further in the coming months," the Central Bank said. However, the short term foreign currency inflows into the country’s stock market and government securities are not considered as being part of the IMF target for reserves. Need more exchange rate flexibility... "The approach to accumulating reserves remains appropriate, and reserves are currently at more comfortable levels. Fundamental external adjustment is still necessary, including through greater exchange rate flexibility," Kato said.


The island – November 9, 2009

FIRST HIGH INFLATION ERODED REAL INTEREST INCOMES NOW SENIOR CITIZENS ON A LOW WITH LOW INTEREST RATES By Devan Daniel

Elderly Sri Lankans are once again taking a hit as lower interest rates reduce their pensions and fixed deposit incomes while expenses keep mounting.For the past few years high inflation eroded real returns on fixed deposits, EPF/ETF schemes and pensions but with interest rates coming down as a result of Central Bank’s loose monetary policy stance after inflation began to subside from 28.2 percent in June 2008 to 1.4 percent last October, up from 0.7 percent the month before. "Many private sector retirees deposited their EPF and ETF monies in fixed deposits in finance companies and banks and their sole income is the monthly interest earned from these accounts," B. S. Perera said writing to the Island Financial Review."The monthly interest rates on these deposits have now come down from about 20 percent per annum to 13 percent due to the lowering of interest rates on the advice of the government whose desire is to bring rates down to single digits. "As a whole, there may be benefits to some sectors but retired people do not get any reduction in their daily expenses for food, traveling, utility payments, medical needs, house rent and repairs and other family and social commitments," Perera wrote.He went on to say that this created another Sakvithi/Golden Key like scandal and retired senior citizens see their incomes eroding. "What is the government doing to ease the plight of our senior citizens?" Perera asked. The rate of inflation may have come down to single digit levels, the Central Bank said the rate of inflation is expected to increase to reach 3.5 percent by end 2009 but remain at single digit levels throughout 2010, but it does not mean prices have come down nor day-to-day expenses have reduced—it only means that general price levels as computed by the Colombo Consumers’ Price Index increase by smaller percentages than last year. In slightly more than two decades, a recent World Bank report said, Sri Lanka’s population would grow to be as old as Europe or Japan’s are today, but with a much lower levels of income."It would take a spectacular growth for Sri Lanka to catch up with developed countries’ per capita level of income. Without major changes, Sri Lanka would face the massive challenges (of an aging population) at a level of income and pension system coverage that is much below that of countries already at a similar stage," the report said. In 2000, 9.2 percent of Sri Lanka’s population was over 60 years of age and is expected to increase to 30 percent by 2050. While the low interest rates are expected to badly affect pension earners, many of our senior citizens are not covered by such schemes and the World Bank report said many could easily be pushed into poverty and the existing Samurdhi welfare payment scheme has failed to provide minimum income to Sri Lanka’s elderly living in poverty with 70 percent of them excluded from the scheme.

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ISLAMIC FINANCE AND RECONSTRUCTION OF SRI LANKA N M M.Mifly (Naleemy) Senior Assessor (IRD) Sri Lanka has been devastated for the last three decades by the ruthless war. The Lion’s share of the budget had to be diverted to combat terrorism. No major developments were carried out. The commitment, sacrifice, patriotism and above all the able political leadership prevailed over the challenges and betrayals. The motherland Sri Lanka was lucky enough to be liberated from terrorism. It is the bounden duty of every patriotic citizen of the country to do his/her best to rebuild the country which lags behind other similar countries by at least 30 years. Huge investment is indispensable for the reconstruction of the country that is destroyed by the war. Sadly, the global economic meltdown hinders the flow of investment. The irony is that the conventional financial institutions as well contributed to the world economic crisis. Some of them collapsed, while most of them were badly affected. It is noteworthy that the Islamic financial institutions held up against the global economic tsunami. This opened the eyes of the economists and bankers and made them towards the Islamic financial institutions. The main reason for the survival of the Islamic Financial institutions in the global economic downturn is its stand against “Riba”- Interest-. Islam vehemently prohibits all forms of Riba. In the Islamic perspective, money is a measuring and exchanging tool and not a commodity in itself, it requires that one should not receive guaranteed income from money alone. If money generates money - without any effort or risk - it is Riba “interest”. The conventional banks, of which the interest is the lifeline, take care of the investors only. The consumer/customer has to pay the interest at any cost to the conventional banks. Such inflexibility of the banks was one of the major reasons for the collapse of the world economy.

Islamic financial institutions are considerate of both the parties, namely the investors and consumers. Islamic financial products such as “Murabaha” (Finance), “Ijara” (Leasing) and “Sukuk” (Bonds/Securities) are more appropriate in the Sri Lankan context, as they are not exploitive, but share the profit or loss of the customer/consumer.

Islamic financial products such as Murabaha (Finance), Ijara (Leasing) and Sukuk (Bonds/Securities) are more appropriate in the Sri Lankan context

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Vatican on Islamic Finance Vatican’s official newspaper Observatory Romano said in an article in its issue of March 3, 2009 “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service.” Author Loretta Napoleoni and Abaxbank Spa fixed income strategist, Claudia Segre, say in the article that “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London” The Islamic finance has crossed its Middle East borders and stepped into non Islamic countries such as UK, USA, Germany, France, Japan and Thailand. The West, realizing the potential and profitability of the Islamic finance- compete with each other to make their respective countries the hub of the Islamic financial institutions.

Islamic Financial Hub in UK United Kingdom has already recognized Islamic Finance as an alternative finance system and made necessary fiscal and tax adjustments to put it on the same footing as conventional services. The first fully-fledged Islamic bank, the “Islamic Bank of Britain” was opened in 2004. There are now five (05) fully-fledged banks and at least 22 Islamic windows banks. A total of 18 Sukuk issues raising 10 billion dollars have been listed on the London Stock Exchange, which is second only to Dubai. International Financial Services London’s Director of Economics Duncan McKenzie, says: “The UK has benefited considerably from supportive government policies intended to put Islamic services on the same footing as conventional services. Evidence of London’s growing role in Islamic finance is shown in the UK being the only western country to feature prominently, eighth with assets of 18 billion dollars in a global ranking of Sharia compliant assets by country.” As per the UK Trade and Investment’s Chief Executive Officer Sir Andrew Cahn: “Despite its origins overseas, Islamic finance has found a natural home in the UK. Though no sector is immune to the global financial crisis, Islamic finance has shown great resilience”.

Capital of Islamic Finance in France France is seeking to dislodge London and become Europe’s new centre for Islamic Finance, driving to attract billions in investment from Muslim countries. The Finance Minister Christine Lagarde, announced France’s intention to make Paris “the capital of Islamic finance” and announced several Islamic banks would open branches in the French capital in 2009. Based on a report prepared by the Ministry of Finance, the senate is looking at ways to eliminate legal hurdles, particularly levies, for Islamic financial services and products in France and the potential for listing companies on the Paris Stock Exchange. The French Government has recently approved changes to legislation to allow Islamic “sukuk” bonds to be issued and the Qatar Islamic Bank has applied to be the very first bank to begin activity in the reformed French system.

Sovereign Sukuk in Germany In 2004, a 100 million pounds Sukuk, structured as a Sukuk Al Ijara, was issued in the federal state of Saxony-Anhalt in Germany. The Federal Republic of Germany guarantees the debts of Saxony-Anhalt. The


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certificate holders receive a variable rent benchmarked to the EURIBOR over the rented period. This sovereign Sukuk is listed on the Luxembourg Stock Exchange.

East Cameron Gas Sukuk in USA The first Sukuk to have originated from the United States tapped the market in 2006. The unique feature of the East Cameron Gas Sukuk was that it was the first ever Sharia compliant gas backed securitization rated by Standard and Poor’s. The $165.7 million Sukuk originated from Houston based East Cameron Partners, whose reserves are located in the shallow waters off the shores of the State of Louisiana.

Sukuk and Bond A bond is a contractual debt obligation whereby the issuer is contractually obliged to pay to bondholders, on certain specified dates, interest and principal, whereas, the Sukuk holders claim an undivided beneficial ownership in the underlying assets. Consequently, Sukuk holders are entitled to share in the profit or loss generated by the Sukuk assets as well as being entitled to share in the proceeds of the realization of the Sukuk assets.

Sukuk and infrastructure facilities of Sri Lanka Sukuk or rather Sharia complaint “Bond” has developed as one of the most important mechanism for raising huge capital for investment in infrastructure facilities. Multinational corporations and governments use Sukuk issuance as an alternative to conventional bonds as the earlier one is consumer friendlier. Sri Lanka, for the last several decades, has been enjoying better bi-lateral with Middle Eastern Muslim countries. Sri Lanka and the Muslim world express mutual respect and support to each other in international forums. This relationship was further cemented after the present Government took office under the leadership of Mahinda Rajapaksa. Therefore, Sri Lanka has every legitimate right to expect its friendly Middle Eastern countries to invest here in huge projects using the Islamic financial products such as “Sukuk”, “Murabaha” and so on. Sri Lanka on its part should create a level playing field in order to attract Islamic financial products so that they can compete with their conventional counterparts. Sri Lanka should bring in necessary legislative amendments to the statutes or rather “Gazette” notifications to put Islamic financial services on the same footing as conventional financial services. In substance, Islamic financial services and conventional financial services are more or less the same even though the forms are different. Since, the tax statutes consider both substance and form, necessary amendments are to be made to the statutes as USA, UK, France and Germany have already done to their respective statues, so that Islamic financial services can be accommodated as an alternative financial system. If the level playing field is created, Sri Lanka would soon become the hub of Islamic Finance.


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IMF TELLS SRI LANKA: SHORT TERM CAPITAL INFLOWS RISKY EXPORTS, REMITTANCES SHOULD BOOST RESERVES

By Devan Daniel

Sri Lanka has to increase foreign currency reserves through capital account and trade account adjustments because short term inflows could easily be withdrawn, IMF Resident Representative in Sri Lanka Dr. Koshy Mathai said.

He said the situation after the war ended was extremely favorable to Sri Lanka with capital inflows rolling in, especially in to long term government securities, enabling the Central Bank to boost the country’s reserve position.

The Central Bank said the reserves would exceed US$ 5 billion after the second tranche of US$ 2.6 billion standby facility amounting to almost US$ 330 million comes in this week.

A significant proportion of the reserves are made up of borrowed money—investments into government securities—and Dr. Dr. Mathai said there is a risk because investors could easily withdraw their investments.

According to the Central Bank, Gross official reserves recorded US$ 3.89 billion by end August 2009. This includes short-term net inflows to Government Treasury bills of US$ 212.7 million and Treasury bonds of US$ 797.5 million.

Dr. Mathai said there was a difference between these short-term borrowed funds and reserves built up through a boom in exports and remittances.

"We will not look at the headline reserves that are published in the newspapers but at the core of how the reserves are built. The IMF programme is structured to adjust the reserve targets upwards to account for these borrowed funds," he said.

He said it was important for Sri Lanka to build its reserves through a boom in exports and remittances.

"Even after making these adjustments Sri Lanka met the reserve targets," Dr. Mathai said, "This is because remittances fared well. However, we have seen that raising remittances is followed by increased imports spending."

Analysts have called the glut of foreign currency inflows hot capital, funds that can leave just as fast as they come in with destabilizing effect but Dr. Mathai said the nature of inflows in to Sri Lanka was different.

"You cannot call it hot capital. The bulk of inflows have been into government securities with a longer maturity period, so they can be called luke-warm money," he said.


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Dr. Mathai said that because Sri Lanka’s securities market was relatively illiquid which meant it was not easy for investors to exit.

Protecting rupee sensible...

Under the IMF programme Sri Lanka is committed to allow more flexibility in the exchange rate regime.

The rupee has been under pressure to appreciate with the increase in foreign currency inflows but Central Bank has prevented this from happening, keeping the exchange rate stable at around 114 plus by purchasing dollars from the domestic market.

An appreciating rupee could hurt exporters severely as rupee values of revenues decline.

"Predicting future exchange rate movements is difficult but the Central Bank has been sensible because there is a surge of foreign currency inflows and the rupee is under pressure to appreciate," Dr. Mathai said.

Investor confidence...

Dr. Mathai said the success of the recent US$ 500 million sovereign bond issue was a signal to foreign investors that Sri Lanka was back on the ‘scene’.

Sri Lanka’s five-year US$ 500 million Sovereign Bonds offered to international capital markets was priced at 7.4 percent and 13 times oversubscribed, last October.

Dr. Mathai said the 7.4 percent pricing was cheaper than domestic rates and the bond issues was important because it helped diversify Sri Lanka’s debt.

He said that the fact the issue was oversubscribed and had a long term maturity was an indication that Sri Lanka was back as a destination for investments.

"It was a signal that Sri Lanka is back and is a good destination for investments and investors seem to agree," Dr. Mathai said.


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The Island – November 10, 2009 SL UPDATES IMF ON DEVELOPMENT The following is the letter submitted by Ranjith Siyambalapitya, Actg. Minister of Finance and Planning and Ajith Nivard Cabraal, Governor, Central Bank of Sri Lanka, to the IMF dated October 30, 2009 outlining Sri Lanka’s performance under the US$ 2.6 standby arrangement of which the second disbursement was approved by the Executive Board of the IMF last weekend: This letter serves as a supplement to our letter of July 16, 2009 and the associated Memorandum of Economic and Financial Policies. The macroeconomic environment in Sri Lanka has improved significantly since the end of the war with the LTTE and the approval of the Stand-By Arrangement with the International Monetary Fund. Rising investor confidence and an increase in remittances have allowed us to rebuild international reserves, budget revenues are rising, and there are signs that an economic recovery is underway. We maintain our goals of restoring health to the country’s public finances, strengthening external viability, addressing weaknesses in the financial system, and protecting the most vulnerable from the burden of the needed adjustment. Our performance to-date indicates that we remain on track to meet our target of reducing the budget deficit for 2009 and increasing net reserves in line with our commitments under the program. We have met the end-September targets for net international reserves and reserve money. Based on available data, we have also met the end-September target for net domestic financing (NDF). However, a final assessment will be made once data on all the adjustors become available. In order to ensure this strong fiscal performance continues in the run-up to Parliamentary elections due by April, we have opted to pursue a vote-on-account budget covering the first four months of 2010, limiting our spending during this period to about one-third of 2009 approved budgetary expenditures. We understand that this decision, while important for maintaining fiscal discipline, will delay our ability to implement planned structural fiscal reforms as previously scheduled under the program, including introducing base-broadening tax policy measures. Nevertheless, we remain committed to achieving our original target of reducing the underlying budget deficit—excluding reconstruction spending—to 6 percent of GDP in 2010, and we believe that changes to the program can be made to maintain our good performance to date while at the same time allowing for structural fiscal reform measures once the new parliament is in place in April 2010. To this end, the cabinet has approved a vote-on-account budget consistent with achieving the 2010 budget deficit target. Parliamentary approval of this budget will be a new structural benchmark for mid-December, 2009. We will present a full year budget for 2010 to Parliament in line with our commitments in paragraph 6 of the July 16, 2009 Memorandum of Economic and Financial Policies, and this will be a new structural benchmark for end-April, 2010. The presidential tax reform commission will submit its interim report by end-October, 2009, and we still intend the results of this commission’s work—including suggestions for base-broadening tax policy measures—to provide an input into the full year 2010 budget. It is central to our program that we protect the most vulnerable in society and address the urgent humanitarian needs of those adversely affected by the conflict. Our immediate priority is providing humanitarian assistance to remaining internally displaced persons (IDPs). We have proceeded vigorously to resettle the IDPs, and have already reduced the number from 288,000 to 196,000. We are on track to meeting our goal of resettling 70-80 percent of the IDPs by the end of the year, and aim to complete the resettlement by the first quarter of 2010. This has required a major effort, much of which has been carried out by military personnel, toward demining, restoring basic services such as water, health services, and


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education, and rebuilding basic infrastructure. We have already devoted significant budget resources to this effort by drawing on savings from existing budget provisions. The broader reconstruction effort over the next three years will be considerable. Drawing on our experience gained following the Tsunami and the reconstruction of the Eastern Province since 2007, our Presidential task force has developed a comprehensive reconstruction plan for the Northern Province. The broad strategy includes rebuilding basic infrastructure, restoration of law and order, revitalization of the productive sectors, human settlement development, and conducting local and provincial council elections—the first of which took place in August. We are approaching our development partners for assistance in financing the plan’s priority reconstruction projects, and have already received important commitments for grants, loans, hardware, and expertise. The end of the conflict will allow us to divert resources previously used for military activities toward the significant resource needs of our reconstruction effort. Currently nearly 75 percent of the demining activities and most of the rebuilding of northern roads are being carried out by military personnel. These efforts will need to continue, and we intend to increasingly redeploy military resources to this purpose. We also aim to free up budget resources for reconstruction and resettlement by keeping 2010 defense-related spending at current rupee levels. Beyond these changes, our policy agenda remains as described in the July Memorandum of Economic and Financial Policies. We have set the program performance criteria for end-December 2009 and end-March 2010, increasing the NIR target to reflect the faster than anticipated accumulation of international reserves. We have also made changes to the Technical Memorandum of Understanding (TMU) to clarify the measurement of NDF and reserve money for program monitoring purposes. Given our demonstrated strong commitment to the program to date, we request completion of the first review of the Stand-By Arrangement, and a waiver of applicability for the end-September target on NDF. In keeping with its policy of transparency, the Government has authorized the publication of this letter and the attached TMU. Technical Memorandum of Understanding 1. This Technical Memorandum of Understanding sets out a framework for monitoring the performance of Sri Lanka under the program supported by the Stand-By Arrangement (SBA). It specifies the performance criteria and indicative targets (including adjustors) under which Sri Lanka’s performance will be assessed through quarterly reviews, starting with the performance criteria for end-December 2009. Monitoring procedures and reporting requirements are also specified. The third review will take place on or after December 31, 2009, the fourth review on or after March 31, 2010, and the fifth review on or after June 30, 2010. I. Fiscal Targets A. Performance Criterion on Net Domestic Financing of the Central Government 2. Net domestic financing (NDF) is defined as the change in net credit to the central government by the domestic banking system and the net change in holdings of treasury bills and other government securities by the domestic non-bank sector. For the purpose of program monitoring, the central government is defined to include line ministries, departments, and other public institutions. The Central Bank of Sri Lanka (CBSL), state-owned enterprise, parastatals and other agencies that do not receive subventions from the central government are excluded from the definition of central government. NDF of the central government is defined as the sum of (i) net borrowing from the CBSL (ways and means advances, loans, holdings of treasury bills, treasury bonds, and other central government bonds minus deposits); (ii) net borrowing from domestic commercial banks and the domestic non-bank sector (loans,


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advances, holdings of restructuring bonds, and holdings of treasury bills and other central government securities minus deposits); and foreign holdings of Treasury Bills and Treasury Bonds. In 2008, NDF of the central government defined in this manner amounted to Rs.296.7 billion. Of this amount, Rs.195.2 billion was net borrowing from the domestic banking system, Rs.114.8 billion was net borrowing from the domestic non-bank sector, Rs.-17.6 billion was net foreign inflows into the Treasury Bill and Treasury Bond markets and Rs.4.2 billion was net borrowing from other sources. The following adjustment will apply: 3. If the amount of external program loans and external commercial loans (including Eurobonds and syndicated loans) to the central government—as set out in Table 1—is higher/lower in rupee terms than assumed under the program, the cumulative ceiling on NDF of the central government will be adjusted downward/upward by the cumulative difference on the test date. 4. If the amount of external debt service by the central government in rupee terms—as set out in Table 1—is higher/lower than assumed under the program, the cumulative ceiling on NDF of the central government will be adjusted upward/downward by the cumulative difference in external debt service payments measured in rupees. 5. If the amount of privatization proceeds to the central government in connection with the sale of central government assets—as set out in Table 2—is higher/lower than assumed under the program, the cumulative ceiling on NDF of the central government will be adjusted downward/upward by the cumulative receipt/reimbursement of any privatization proceeds. 6. If the amount of outstanding claims by the Bank of Ceylon on the central government (item VIII (e, 1) on the balance sheet of the Bank of Ceylon)—as set out in Table 3—is lower in rupee terms than assumed under the program, the NDF of the central government will be adjusted upward by the difference on the test date. B. Indicative Target on the Sum of the Overall Balance of the Ceylon Electricity Board and the Ceylon Petroleum Corporation. The balance of the overall profit or loss position of the Ceylon Electricity Board (CEB) and the Ceylon Petroleum Corporation (CPC) from their operating income statements is measured from above the line on an accrual basis. At end-December 2008, the sum of that overall position of the CEB and CPC defined in this manner stood at Rs.-50 billion. II. Monetary Targets A. Performance Criterion on Reserve Money of the CBSL Reserve money of the CBSL consists of currency in circulation (with banks and with the rest of the public), financial institutions’ domestic currency deposits at the CBSL, and the deposits of following government agencies: the National Defense Fund (General Ledger Acc. No. 4278), the Buddha Sasana Fund A/C (General Ledger Acc. No. 4279); and the Road Maintenance Trust Fund (General Ledger Acc. No. 4281). At end-December 2008, reserve money defined in this manner stood at Rs.268.4 billion. For the purpose of program monitoring, reserve money on the test date shall be measured as average reserve money during the prevailing reserve week (Friday to Thursday). The following adjustment will apply: 8. If any bank fails to meet its legal reserve requirement, the ceiling on reserve money will be adjusted downward to the extent of any shortfall in compliance with the requirement. 9. Changes in required reserve regulations will modify the reserve money ceiling according to the formula: rM=rrB0+r0rB+rrrB


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where rM denotes the change in reserve money, r0 denotes the reserve requirement ratio prior to any change; B0 denotes the resolvable base in the period prior to any change; rr is the change in the reserve requirement ratio; and rB denotes the immediate change in the resolvable base as a result of changes to its definition. III. External Sector Targets A. Performance Criterion on Net Official International Reserves 10.Net official international reserves (NIR) is defined as (i) the difference between the gross foreign assets and liabilities of the CBSL and (ii) the balance of State Treasury’s (DSTs) Special Dollar and Yen Revolving accounts, both expressed in terms of market values. Gross foreign assets of the CBSL consists of monetary gold; foreign exchange balances held outside Sri Lanka; foreign securities (valued in market prices); foreign bills purchased and discounted; the reserve position at the IMF and SDR holdings; and the Crown Agent’s credit balance. Excluded from gross foreign assets will be participation in international financial institutions; holdings of nonconvertible currencies; holdings of precious metals other than monetary gold; claims on residents (e.g., statutory reserves on foreign currency deposits of commercial banks and central bank foreign currency deposits with resident commercial banks) pledged, non-liquid, collateralized or otherwise encumbered foreign assets (such as the government’s war risk insurance deposit with Lloyds during 2001/02); and claims in foreign exchange arising from derivative transactions (such as futures, forwards, swaps and options). Gross foreign liabilities are all foreign currency denominated liabilities of the CBSL to non-residents; the use of Fund credit; Asian Clearing Union debit balance and commitments to sell foreign exchange arising from derivatives such as futures, forwards, swaps, and options. In addition, NIR will include the balance of the DSTs’ Special Dollar and Yen Revolving accounts. DST accounts are foreign currency accounts held by the Treasury and managed by the CBSL as an agent of the government. At end-December 2008, NIR defined in this manner stood at U.S. dollars 1,424.9 million. The following adjustment will apply: 11. If the amount of foreign program financing and the cumulative net foreign inflows into the Treasury Bill or Treasury Bond market—as set out in Table 4—is higher/lower in U.S. dollar terms than assumed under the programme, the floor on NIR will be adjusted upward/downward by the cumulative differences on the test date. 12. If the amount of commercial borrowing (including Eurobonds and syndicated loans)—as set out in Table 4—is higher/lower in U.S. dollar terms than assumed under the program, the floor on NIR will be adjusted upward/downward by the cumulative difference on the test date. 13. If the amount of official external debt service by the central government in U.S. dollar terms (including debt service on syndicated loans)—as defined in Table 4—is higher/lower than assumed under the program, the floor on the NIR will be adjusted downward/upward by the cumulative difference in official external debt service payments. 14. The floor on NIR will be adjusted upwards by any repayments for the foreign currency loan from the CBSL by the Bank of Ceylon’s and the People’s Bank in excess of the repayment schedule in Table 5. 15. The floor on NIR will be adjusted upward for any increase in Sri Lanka’s allocation of Special Drawing Rights (SDR) from the IMF. Sri Lanka’s SDR allocation at the time of approval of this arrangement amounted to SDR 70.868 million.


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B. Performance Criterion on Contracting and Guaranteeing of Medium and Long-Term Non-Confessional External Debt by the Government 16. A continuous performance criterion applies to contracting and guaranteeing of medium and long-term non-confessional external debt by the Government. For the purpose of this performance criterion, the Government is defined as the central government (as defined in 2) and the CBSL. The term "debt" will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

a. Loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future; b. Suppliers credit, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and c. Leases, i.e., arrangements under which property is provided which the lessee has the right to use for one of more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lesser retains the title to the property. For the purpose of this agreement, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property.

Under the definition of debt set forth above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt will not give rise to debt. Medium and long-term debt is debt with a maturity of one year or longer. Excluded from this performance criteria are purchases under the stand-by arrangement of the IMF. 17. Non-confessional borrowing is defined as borrowing with a grant element of less than 35 percent, following the methodology set out in SM/96/86. The discount rates used to calculate the grant element will be the six-month and ten-year Commercial Interest Reference Rates (CIRRs) averages, as computed by the Strategy and Policy Review Department of the IMF. Six-month CIRRs are updated mid-February and mid-August (covering the six-month period preceding the date of update) and the ten-year CIRRs averages are updated mid-December (covering a period of ten years preceding the date of the update). Six-month CIRRs averages are to be used for loans whose maturity is less than 15 years while 10-years CIRRs averages are to be used for loans whose maturity is equal or more than 15 years. C. Performance Criterion on External Payment Arrears 18. A continuous performance criterion applies to the no accumulation of external payments arrears on external debt contracted or guaranteed by the central government (as defined in 2) or the CBSL. External payments arrears consist of external debt-service obligations (principal and interest) on debt as defined in16 that have not been paid at the time they are due, as specified in the contractual agreements.


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However, overdue debt and debt service obligations that are in dispute will not be considered as external payments arrears for the purposes of program monitoring. IV. Data Reporting Requirements 19. Sri Lanka shall provide the Fund, through reports at intervals or dates requested by the Fund, with such information as the Fund requests in connection with the progress of Sri Lanka in achieving the objectives and policies set forth in the Memorandum of Economic and Financial Policies. All the program monitoring data will be provided by the Ministry of Finance and the Central Bank of Sri Lanka (CBSL). Data relating to the external and monetary targets will be furnished within no more than three weeks after the end of each month.1 With regards to the fiscal targets, the data in table 6 will be furnished within no more than five weeks after the end of each month and the data in table 7 within no more than nine weeks after the end of each month. For the overall balance of the CEB and the CPC, estimates will be available within four weeks. 20. For the purpose of monitoring the fiscal performance under the program, data will be provided in the format as shown in Tables 6 and 7. 21. For the purpose of monitoring the monetary targets under the program, data will be provided in the format shown in Table 8. 22. For the purpose of monitoring the external sector performance under the program, data will be provided in the format shown in Tables 9 and 10.


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Daily mirror – November 11, 2009

DOUBLING PER CAPITA: FAST TRACK TO PROSPERITY – CABRAL By Cheranka Mendis

For economic stimulus the country needs to be on the fast track to prosperity. Hence the Central Bank yesterday announced that it is aiming at doubling per capita income by 2014.

Speaking at a seminar on statutory and regulatory requirements for Registered Finance Companies (RFC)and Specialized Leasing Companies(SLC), the Governor stated that a target of USD 4000 per capita income is set to achieve by 2014. “To fast track prosperity we have to target increase in GDP per capita; our aim is to double per capita income by 2014 with USD 4000,” he said.

In 2004 per capita income in Sri Lanka was recorded at USD 1062 with total lending of RFCs and SLCs recording at Rs.84 bn. In 2008 per capita income was recorded as USD 2014 while total lending that year was Rs.202 bn. USD 3000 has been targeted to be achieved by 2011 while USD 4000 has been targeted to be achieved by 2014. “We need to increase lending of RFCs and SLCs to about Rs.550 bn,” Cabral said.

“If that happen the RFCs and SLCs can look at doubling of capital, lending and its branches,” he alleged.

Governor Cabral stated that the if lending is to reach Rs.550 bn by 2014 RFC and SLC should realign business plans, enhance capital to position for the future, tighten their internal controls and systems and practice better corporate governance. Also this would enable the companies to develop skills in credit and other market operations, improve risk management practices and foster good international links and develop credit lines.

While growing the companies need to stay safe and stable thereby the directors of the companies should take responsibility in providing strategic direction and adopting good governance with efficient risk management systems. “The directors have the task of developing systems and procedures, build necessary capacity in management and develop strategic alliance to strengthen funding, technology and skills and products by strengthening the resource base and attract foreign funding,” Cabral said.

The Central Bank in their part has many initiatives to be executed within the next few months as well. Establishing a mandatory deposit insurance scheme is foremost in their strategies. Stating that the final touches are being done to perfect the mandatory deposit insurance, Cabral acknowledged that it is the perfect time to implement it funds are cheaper now. “Such a scheme would serve to enhance depositors’ confidence as it is a self corrective mechanism without a burden and would contribute to strengthen financial system stability,” he avowed.

“We will be more stringent in our supervision and will be resolute in capital adequacy levels and will implement tough and prompt corrective actions based on early warning systems. An articulate internal rating system will be implemented shortly and we hope to practice risk focused supervision,” Cabral said.

The Central Bank is also planning to impel RFCs to go public as it would enhance capital balances, urge greater transparency and improve its compliances.


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Acknowledging that the macro economic fundamentals of Sri Lanka have never been better with international reserves at highest levels and inflation at record low with moderate interest rates, Cabral said that remittance which is presently recorded as USD 3 bn, 7.5% of GDP has been targeted to increase up to 15% by 2014.

“External sector and foreign perception has improved which was seen in Lanka’s latest sovereign US Dollar bond issue of USD 500 million over subscribed by more than 13 times; while the monetary policy has gradually relaxed with the current rate of Reverse Repurchase Rate recording at 10.5, Weighted average one year T Bill recorded at 10.3 and call money rate at 9.8.”

However the past six years have shown mixed feelings for the RFCs. Assets and liquidity of RFCs have improved but capital adequacy and profitability have declined to an extent. SLCs experienced a similar situation with assets, capital and borrowings improved while profitability declined.

Weak corporate governance practices, weak internal controls, inadequate capital and lack of contingency liquidity planning were addressed as weaknesses in the two sectors for which responses were developed. However maturity mismatches of assets and liabilities, lack of contingency arrangements to ensure business continuity still remains. Also comparative high cost funds, highly concentrated and limited business operations and insufficient professional management still remains to be addressed.

Developing the SME sector not just as a CSR initiative but as part and parcel of business was also discussed at the forum.


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SELECTING AN INSURER- SOME IMPORTANT CONSIDERATIONS By Hydery a. Rehmanjee FCII Chartered Insurer Why do we insure? Persons, both individuals and organizations, are exposed to risks. For example a home or a factory is exposed to many risks. Some of them would be fire, burglary and floods. There are three ways of dealing with risks. These are:

(a) Eliminating or minimizing risk. This is known as ‘loss prevention’. (b) Bearing the risk yourself. This could be done by accumulating sufficient money to enable recovery of the financial loss if the risk occurs. This is known as self funding or self insurance. (c) Transfer the risks to an organization specialized to carry such risks. These are the insurance companies.

Through insurance an individual or organization is able to transfer the risk of a possibly large loss to the insurer by the payment of a contribution i.e. the premium and so convert the uncertainty of a possibly large loss to the certainty of a smaller known annual cost. The financing of an Insurance Company Initially, an insurance company is financed by the injection of capital by shareholders. The amount of capital at inception will be determined by the applicable insurance law. The Insurance Board of Sri Lanka (IBSL) determines the minimum paid up capital insurers should have to transact Life and /or General insurance business in Sri Lanka. An insurer is of course free to have more than the minimum paid up capital. Such an increase in the paid up capital should further strengthen the balance sheet of the insurer. If the company is successful over a period of time, the initial paid up capital will be supplemented by:

* Retained profits * Additional paid up capital * General Reserves

How an insurance company is financed is a very good indication of its financial strength. The importance of financial strength The financial strength of an insurance company should be a key factor to be considered when selecting an insurer. This is because the ultimate test of the insurer is its ability to pay the promised sum of money if the risk insured occurs that is the insurance claim. The risk insured can occur at any time in the future. For instance in the case of a Life Assurance policy where the term (or period) of the policy can extend up to thirty years or more, the liability to pay a claim can occur at any time during this period. The insurance business is therefore very special, in that an insurer has to be solvent with the financial resources to meet claims not only at the time the risk is accepted and the insurance policy is issued, but also to continue to remain solvent for many years in the future. The solvency of an insurer The solvency of an insurer is the most important indicator of the financial strength and therefore its ability to pay claims. There are standards for assessing solvency. These are usually laid down in the insurance laws and monitored by the regulatory authority. A detailed explanation of the solvency standards is beyond the scope of this article. However, very briefly, the solvency of an insurer will depend on there being an excess


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of admissible assets over liabilities. The Regulation of Insurance Industry Act 2000 (Sri Lanka) empowers the IBSL to lay down minimum solvency standards for insurers operating in Sri Lanka. The price of insurance The price of insurance is the premium to be paid by the insured to the insurer to be financially compensated in the event the risk covered by the insurance policy occurs. The insurer calculates the premium in order to meet the following requirements:

* To meet the liabilities to policy holders * To provide (provisions and reserves) for unforeseen losses such as unusually high claims experience, the fall in value of investments etc. * To meet office expenses. * To provide a reasonable return to its shareholders.

The profitability of an insurer and ultimately its financial strength and security to its policyholders will depend on the ability of the insurer to calculate the premium as accurately as possible to meet the above requirements. Because of the pressures on individuals and organizations to minimize expenses, the price of insurance i.e. the premium, can be an important factor in selecting an insurer. This is understandable. However when considering price it is also necessary to check as to whether the other factors such as the insurance cover, financial strength and security and service standards also meet the necessary requirements. This is particularly important when comparing the price quoted by more then one insurer. When considering the price of insurance it would be worthwhile bearing in mind the following quotation: "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price alone are this man’s lawful prey". John Ruskin 1819-1900. (Writer and Social critic) Insurance claims In the final analysis, the Contract of Insurance is a promise by the insurer to financially compensate (indemnify) the insured for the loss caused due to an accident (peril) covered under the policy. Claims handling is the "moment of truth" for an insurer that is the opportunity to keep to its promise to pay a valid claim. The manner in which an insurer handles claims should be an important factor in selecting an insurer. All the publicity by the insurer in advertisements on customer care and service is of little use if the insurers’ claims settlements policy is inequitable or claims servicing inefficient. Insurance company ratings Buyers of insurance need to know against some yardstick, the actual financial strength of an insurer. The main function of a rating agency is to provide a consistent standard and measure of an insurer’s capabilities and financial strength. In the final analysis, this means its ability to pay claims on its policies. There are several international rating agencies. Each rating agency will have a rating scale which uses a combination of alphabets and letters known as "rating symbols". A detailed description of these "rating symbols" and the methods adopted to arrive at them is not possible in this article. However, very briefly, it can be said that all categories of ratings can essentially be divided into two main classes of ‘Secure’ and ‘Vulnerable’. Very broadly, the companies falling within the ‘Secure’ category will have secure characteristics that would outweigh vulnerabilities and are highly likely to be able to meet their financial commitments. Conversely companies within the ‘Vulnerable’ category would have vulnerable characteristics that may outweigh their


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strengths.An insurer who has obtained a ‘Secure’ rating would have demonstrated to an independent organization i.e. the rating agency, its capabilities including the ability to meet liabilities. A ‘Secure’ rating should therefore be a positive factor in support of its selection. An insurance rating should not however be considered a ‘be all’ and ‘end all’ of financial strength and security. The Independent Insurance Company, one of the leading General insurers in the U K which went into liquidation in June 2001 had a very secure rating (AA rating) only months before it slipped off the precipice. In the USA the world’s largest insurance group the AIG which had a secure rating avoided bankruptcy in 2008 with unprecedented financial assistance from the US government. A rating therefore is no panacea for all ills and does not remove the need for due diligence and careful consideration of a company’s financial strength, its competencies and the quality of its management and the Board of Directors. Directors of an insurance company The Board of Directors of an insurance company is ultimately responsible for the business of the insurer. It is not uncommon for insurance legislation to include a ‘fit and proper person’ criteria for appointment as a Director. This means a Director must have the necessary qualifications, experience and integrity for him or her to be suitable to be appointed as a Director of an insurance company. The fiduciary nature of the insurance business requires Directors of insurance companies to be persons of unquestioned integrity and credibility. The quality and competence of the Board of Directors should be an important consideration in selecting an insurer. Public listing of an insurance company The public listing of an insurance company makes it mandatory for it to prepare and publish the annual report and accounts in the manner stipulated and within a prescribed period of time as determined by the regulatory authority. In Sri Lanka the regulatory authority is the Security Exchange Commission (SEC). A public listing therefore enables the public to assess the performance of the company and the quality of its directors and managers. This information should be very useful in selecting an insurer. Since a public listing enables a company to raise capital from the public at relatively lower cost it can be a very useful source of financing the growth plans of an insurance company. This would also be a positive factor. Sources of information Information on the important considerations in selecting an insurer, explained above, should be available in the following reports and documents.

* The annual reports and accounts of the insurance company. * Statutory reports published by the regulatory authorities. For instance the IBSL publishes an annual report which gives useful information on the insurance industry and the performance of the insurers in Sri Lanka. * Information in trade journals. * Reports of stock brokers and financial analysts. * Company news releases and discussions with the directors and management. * Seminars and conferences of the company.

In the case of public listed companies the annual general meeting can be a useful opportunity to elicit information from the directors on the performance, plans and prospects of the company.


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INSURANCE SELLING AS A CAREER

Starting a new career path is always a daunting task. Selecting a career in sales is much more decisive than any other, since your success or failure could be seen faster. You may be able to work in your home. However, you will have to work hard to get there. It may require you to go outside of your comfort zone to some extent.

Life Insurance Selling is just like selling any other product. It is quite simple but many say the simplest things are the hardest to learn. Some people find life insurance unnecessary, and that there are more important things to buy. This is why life insurance selling can be a really challenging job. In fact Life insurance is still being sold, rather than bought in Sri Lanka and many other Asian countries. However, with right tactics and selling skills, this very difficult job can be a rewarding career in the future.

Full timer or part timer

A selling career in life insurance one option is to become an insurance agent. The reason why it may be somewhat easier than other options is that it can be done while still working a full time. In addition, while it may take more time for your new career to become lucrative, you can sell life insurance part time. This will give you enough time for you to test your success in selling. However, full time life insurance agents have a greater opportunity to prosper.

A life insurance agent is essentially an intermediary between the insured and the insurance company. Your role as the intermediary is to help your clients choose the best policy to meet their needs and find the best rates for that policy. Life insurance agents need to be perceptive. An agent needs to meet a client and assess the needs of that client very quickly in order to sell the right kind of product to them.

Attributes needed to be successful

The first thing to decide on when considering this career, is whether it is sales. If you are not a salesperson and are unwilling to push pretty hard, this isn't the career for you.

* Ability to network with people In addition to sales, networking is just as important. If you can learn to network and get your name out there, you will be far more successful. Being able to build relationship with people and deal with people are keys to success in this career.

l Take time to know the needs of your customer

Basically, you do not just offer life insurance to anybody. While it is true that life insurance is for everyone, it is really important to understand the specific need of your client so that you design a policy to meet his


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specific need. On the other hand no matter how much a customer is interested in obtaining an insurance plan, or how creative you were in facilitating him a suitable plan, the policy will not continue as per the plan unless your client is financially capable to continue the premium payments.

Therefore, it is of paramount importance to design an insurance plan which fit and match both his needs and purse. This way, your customers will agree that what you are offering them are actually what they need and can afford. Remember Insurance solutions which are correctly designed to address customers' needs will continue throughout the term of the policy.

l Know your product

Knowing what you are selling is such an essential part of any type of business. Life insurance is a long term product and knowledge plays very important role in designing a good life insurance plan.

Insurers usually provide a full coverage of products to match the requirements of customers in a given market. However each of the products will cover one or more specific needs of a customer, which can be based on family protection, child education, investment and retirement planning.

The more you are thorough with the features and benefits of each product, the more will be your ability to get the correct solution for the customer. Unless you provide the best solutions to address the needs of the customer, you may not be accepted as a "Good Sales Person"

l Provide after sales service

In any form of business, a proactive after sales service would play a major role in receiving more referrals while sustaining the existing clients.

Insurance is a business based on trust, as in most of the cases a customer is not alive to see the actual delivery of the promise made via the insurance policy. Properly handled, efficient after sales service gives an assurance and confidence to a that the agent and insurance company will deliver the promises given.

A confident customer will faithfully execute the deliverables due on his part, while recommending the agent and/or the company to many others who can be potential new customers.

This aspect will also give you the job satisfaction, as a happy customer will motivate you to do more and more business.


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Daily News – November 13, 2009 INDUSTRY POISED FOR SIGNIFICANT GROWTH: FUTURE CHALLENGES OF INSURANCE INDUSTRY Manjula De Silva The Insurance Industry in Sri Lanka has experienced a rapid growth in the recent past demonstrating the benefits of a competitive market environment. Apart from recording an average growth rate of nearly 20 percent during the past four years, the industry has also made strides in raising its service standards much to the delight of its growing customer base. During the current year, the industry has experienced a dramatic slow-down in its growth momentum due to the recessionary conditions prevailing at present, but yet it is likely to record a low growth rate for the year rather than an absolute decline. As the economy gradually pulls out of the recession, the industry is well poised for another period of significant growth reaping the benefits of new opportunities emerging in a post-war Sri Lanka. However, the industry should be mindful of several major challenges it needs to overcome if it is to return to the high growth rates experienced in the past and more importantly, if it is to convert such growth in business volumes to a corresponding growth in the creation of value for all its stakeholders.

Rates plummet Treasury Bill and Bond rates have virtually plummeted from the levels of 18 percent - 20 percent and experienced single digit levels within a few months. Hitherto, most companies offset their underwriting losses on general insurance business by recording very high growth rates in investment income taking advantage of the high interest rates available in the market. Life funds had also swelled with the rapid growth in investment income outpacing the growth of liabilities which in the case of some companies may have been reduced further by applying a higher discount rate. Investment Managers need to bring out their true genius to minimize the drop in investment yields by moving into other asset classes and engaging in trading activity, the onus will shift more on to the underwriters and business channels handling general insurance business to cut down their underwriting losses sharply.

Combined ratios To counter the inevitable reduction in investment income, companies will have to reduce their combined ratios either by reducing the cost of claims or expenses bringing about an improvement in the underwriting surplus/deficit position. I have developed a simple rule of thumb to work out the extent of improvement needed in the combined ratio to counter a given reduction in the investment yield. If the size of the shareholders' investment portfolio (leaving out what belongs to life policyholders) is roughly equal to the net earned premium on general insurance business, for every 1 percent fall in the investment yield you will need a 1 percent drop in the combined ratio to prevent a net impact on profitability. In many companies, these two bases may not be equal to each other as they don't need to be. However, in such cases, one should look at the ratio between the two, i.e. the shareholders' investment portfolio over the net earned premium.


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If this factor turns out to be 1.5, what it means is that you need a 1.5 percent reduction in the combined ratio to counter a 1 percent reduction in the investment income. I believe this is a useful tool around which a constant dialogue should be maintained between the investment management team and the general insurance management team, perhaps facilitated by the accountants. Similarly, on the life insurance front too, companies will need to improve their product profit margins reducing the reliance on growth in investment income to generate growing surpluses that can be transferred to the shareholders account. If any guaranteed returns have been offered based on the high interest rates prevailing in the recent past, these products may have to be withdrawn or the guarantees revised in line with the change in interest rate expectations. If discount rates used to value future liabilities had been revised upwards during the past period, the time has come to review them again and bring them down to a level consistent with the likely future scenario in a post-war context.

Motor policies Insurers will also need to revise their practices adopted previously with regard to pricing motor policies as these were developed taking into account the contribution arising from SRCC & T covers. Hence any discount offered on the total premium inclusive of SRCC & T premium will no longer be feasible for a client who has opted not to take these covers. Insurance brokers and other intermediaries need to understand this reality and help the insurers to make appropriate adjustments to their pricing structure when these covers are not taken. If not, there is a danger that motor insurance will soon turn into an unprofitable class of business as it used to be in the not too distant past compelling insurers to cut down on business volumes and even withdraw some of the high cost service features which provide great value to the public at present. The insurers supported by the intermediaries should also make a conscious effort to promote other covers to their clients to compensate for the loss of premium arising due to this development, if the industry is to prevent a decline in its total premium income. Adding a further uncomfortable element to this new trend, some companies have received VAT assessments on their reinsurance recoveries as well, notwithstanding the fact that these relate to claims already paid along with the relevant VAT component where applicable. To make matters worse, some of these assessments have been made with retrospective effect clearly with the intention of capturing the large recoveries made subsequent to the settlement of tsunami claims. While the whole country should be grateful to the insurance industry and the reinsures backing them for coming forward and paying a substantial volume of claims exceeding ten billion rupees to the people and businesses who lost their assets during the tsunami of 2004, the Department of Inland Revenue has ironically thought it fit to go after these companies now to place an unanticipated extra burden in the form of a massive VAT claim.


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The Island – November 13, 2009 THE CONCEPT OF BANC ASSURANCE By Chandana L. Aluthgama Bcom (sp), FCMI, MBA, Head of Corporate Business Development - HNB Assurance PLC This article is based on an intense research carried out by me in 2005 which I have also published both locally and internationally. It is my privilege to share a part of the research paper according to my findings with our industry. To analyze the nature of Banc assurance, we can examine "What is Banc assurance?" and "What makes it different from a traditional Insurance operation?" The differences with other operations will help us to understand and to define the "Banc assurance" concept. The type of Insurance we know best is the "Insurance Agent or Broker". "How do they differ from Banc assurance?" Insurance intermediaries defined above will provide asset protection and life insurance to interested parties. These Agents or brokers identify the needs of their clients and provide insurance to the client’s interest. These intermediaries will also be entitled to a commission from the insurance company they are attached, for sourcing insurance business. Most of the traditional insurance polices they market are for one year in property insurance and long term for life insurance. Moreover the traditional insurance selling has been limited to these channels, whilst the traditional Banking activities have also been limited to developing and marketing banking instruments. One of the most significant changes in the financial services sector over the past few years have been the appearance and development of Banc assurance. Banking Institutions and insurance companies have found Banc assurance to be an attractive and often profitable - complement to their existing activities. The successes demonstrated by various Banc assurance operations, although not all of them have been successful, have attracted the attention of the financial services sector, and further new operations continue to be set up regularly. Important link A Banc assurance operation is an important link between the bank and the Insurance Company, unlike in the past today most banks are looking at distribution of insurance products through the bank’s distribution network in return for a fee. This is one of the emerging distribution point for the insurance companies. Banc assurance has become the alternate distribution channel today providing insurance solutions to banking customers under one roof. This concept keeps in line with the current thinking of banks; build under the notion of "once stop shop". This facility will provide maximum convenience to banking customers Many successful operations in Banc assurance have been recorded from the west and Banc assurance in Europe is deliberate since most developments in Banc assurance up to the mid-1990s took place in Europe. According to Munich Re Banc assurance has been the hype in other parts of the world, e.g. the USA, Canada and some areas in Asia, Banc assurance operations are now developing in other parts of Asia. In doing so, they seek to learn from the experiences of European Bancassurer’s. Banc assurance covers a wide range of detailed arrangements between banks and insurance companies, but in all cases it includes the provision of insurance and banking products or services from the same sources or to the same customer base. Because there is a wide diversity of strategies, there is no standard model for Banc assurance, even within a country. Available literature also shows a wide range of possible descriptions of Banc assurance: The Life, Insurance Marketing and Research Association’s (LIMRA’s) insurance dictionary defines Banc assurance as "the provision of Life insurance services by banks and building societies".


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Alan Leach, in his book, "European Banc assurance - Problems and prospects for 2000", describes Banc assurance as "the involvement of banks, savings banks and building societies in the manufacturing, marketing or distribution of insurance products". Munich Re has developed the following definition for Banc assurance. "Banc assurance is the provision of insurance and banking products and services through a common distribution channel and/or to the same client base." The main reasons why banks have decided to enter the insurance industry area are, Intense competition between banks, against a background of shrinking, interest margins, which has led to an increase in the administrative and marketing costs and limited the profit margins of the traditional banking products. New products could substantially enhance the profitability and increase productivity. Financial benefits to a banks performance can flow in a number of ways, as briefly outlined below: Intense competition

* Increased income generated, in the form of commissions or profits for sourcing insurance Business * Reduction of the effect of the bank’s fixed costs, as they are now also spread over the insurance relationship * Opportunity to increase the productivity of staff, as they now have the chance to offer a wider range of services to clients

Several European countries have made considerable regulatory changes regarding the banking and insurance sectors. Although regulatory changes vary from country to country there has been a pan European trend towards the "universal bank" and the limitations of the past no longer exist. Banks are now able to operate across a broader range of activities, including insurance, via legally independent risk carriers. The insurance companies and banks are not competing within just the life insurance industry and banking industry respectively anymore but within the wider financial services marketplace. Customer preferences regarding investments are changing. For medium term and long-term investments there is a trend away from deposits and toward insurance products and mutual funds where the return is usually higher than the return on traditional deposit accounts. This shift in investment preferences has led to a reduction in the share of personal savings held as deposits, traditionally the core element of profitability for a bank which manages clients’ money. Banks have sought to offset some of the losses by entering insurance business. Life insurance is also frequently supported by favorable tax treatment to encourage private provision for protection or retirement planning. This preferential treatment makes insurance products more attractive to customers and banks see an opportunity for profitable sales of such products. The high operating expenses of bank branches have led many banks to decrease their branch network, as shown in the following table. The need for more efficient utilization of branches and bank employees is today as pressing as ever before. However, in Italy the number of branches has increased due to the noticeable development in Banc assurance. In the future, in view of ongoing consolidation, the bank branch networks will probably decrease as well. Analysis of available information on the customer’s financial and social situation can be of great help in discovering customer needs and promoting or manufacturing new products or services. Banks believe that the quality of their client information gives them an advantage in distributing products profitably, compared with other distributors (e.g. insurance companies).The realization of banks and insurance products can be better for the customer as they provide more complete solutions than traditional standalone banking or insurance products.


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For example, a policyholder takes out a permanent assurance with the aim of funding future education costs. At the same time, the policyholder can take out a loan (mortgage) and assign the life policy to the bank as beneficiary. For the bank the benefits are increased sales and a more widely based relationship with the customer than would be possible with bank products only. Banks are experiencing the increased mobility of their customers, who to a great extent tend to have accounts with more than one bank. Therefore there is a strong need for customer loyalty to an organization to be enhanced. Client relationship management has become a key strategy. To build and maintain client relationships, banks and insurers are forming partnerships to provide their clients with a wide range of bank and insurance products from one source. It is believed that as the number of products that a customer purchases from an organization increases the chance of losing that specific customer to a competitor decreases. The western industrialized countries and the decrease in birth rates in conjunction with increasing life span will have a significant impact on the age structure of the population in the future. As a result it is likely that there will be increasing pressure on public pension systems and an increasing need for additional retirement provisions or long-term investment products. Banks see an opportunity to meet clients’ growing, needs in this area while making a profit. Banks are used to having long-term relationships with their customers. Banks have developed skills in deepening the relationship with their customers over time, for example by marketing extra services such as deposit funds or taxation advice. Life insurance operations are also used for managing a relationship over the long term with their customers. This allows similar skills to be practiced and the Bancassurer’s can make use of the best that each partner has to offer. Apart from the benefits that can be derived from the possible wide spread of branches across the country, Bancassurers can have a competitive advantage over traditional insurers (non-bancassurers), derived from the provision of customer service through automated teller machines (ATMs). In particular the Bancassurers can provide its customers with an ATM card that can be used to gain access to any ATM and request information such as cash values, unit price, policy status, next premium due date, loan accounts, surrender values, etc. This channel of customer service can easily be extended so that the customer can gain access to information regarding his bank accounts and insurance policies through his personal computer. Finally the Internet can be considered as an additional customer service channel since the customer can gain access to information regarding his bank accounts and insurance policies through this network as well. Under the above circumstances Banc assurance has been defined by many markets in different ways and operated in many different ways. However, the gist of the subject matter gives one understanding; the researcher has defined the concept of Banc assurance in the Sri Lankan context as follows. The Banc assurance concept could be developed according to the researcher as "to provide asset protection to banking clients with maximum convenience and most competitive pricing, via a system driven customer friendly administrative mechanism, in order to enhance the risk quality of the banking loan portfolio, through a mutually beneficial process" Banc assurance Have we exploited its potential? External alliances will take an insurance company to the second phase of growth. The Banc assurance channel will be an obvious choice of expansion with the comfort of having the hypothesis being successfully tested overseas. Banc assurance in its simplest form is the distribution of insurance products through a bank’s distribution channel. In concrete terms Banc assurance, which is also known, as Allfinanz - describes a package of financial services that can fulfill both banking and insurance needs at the sometime. It takes various forms in various countries depending upon the demographic, economic and legislative climate of that country. Demographic profile of the country decides the kind of products Banc assurance shall be dealing in with,


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economic situation will determine the trend in terms of turnover, market share, etc., whereas legislative climate will decide the periphery within which the Banc assurance has to operate. The motives behind Banc assurance also vary. For banks it is a means of product diversification and a source of additional fee income. Insurance companies see Banc assurance as a tool for increasing their market penetration and premium turnover. The customer sees Banc assurance as a bonanza in terms of reduced price, high quality product and delivery at doorstep. Actually, everybody is a winner here, Banc assurance has a long history even though hyped up in the 1990’s as a concept. According to Genetay and Molyneux (1998) provide an excellent overview of Banc assurance in Europe and document its historical roots dating back to the 1800s. As discussed by these authors, Daniel (1995) differentiates three periods of Banc assurance development:

* Prior to 1980 banks sold closely related insurance products, such as consumer credit, home property, and currency theft insurance * After 1980 banks expanded into savings Insurance products, including (for Example) endowment contracts in France that paid a lump sum at a future point in time * In the 1990s banks made major progress in traditional insurance activities, with various annuity investment contracts and combined savings and insurance contracts

There are several reasons why banks should seriously consider Banc assurance, the most important of which is increased return on assets. One of the best ways to increase ROA, assuming a constant asset base, is through fee in-come. Banks that build fee income can cover more of their operating expenses, and one way to build fee income is through the sale of insurance products. Banks that, effectively cross-well financial products can leverage their distribution and processing capabilities for profitable operating expense ratios. By leveraging their strengths and finding By ways to overcome their weaknesses, banks could change the face of insurance distribution. Sale of Personal fine insurance products through banks meets an important set of consumer needs. Most large retail banks engender a great deal of trust in broad segments of consumers, which they can leverage in selling them personal line insurance products. In addition, a bank’s branch network allows the face-to-face contact that is so important in the sale of personal insurance. Insurers have much to gain from marketing through banks. Personal-lines carriers have found it difficult to grow using traditional agency systems because price competition has driven down margins and increased the compensation demands of successful agents. Over the last decade, life agents have sold fewer and larger policies to a more, upscale client base. Middle-income consumers, who comprise the bulk, of bank customers, get little attention from most life agents. By capitalizing on bank relationships, insurers will recapture much of this under served market.


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Daily Mirror – November 13, 2009 GOVT. SLASHES PALM SEEDS IMPORT TAX BY 60% The Government is reducing import tax on palm seeds by 60% in a bid to revitalize the fledgling

industry.

Enterprise Development and Investment Promotion Minister Anura Priyadarshana Yapa told the

Cabinet decision press briefing yesterday that Plantation Industries Minister D.M. Jayaratne had

presented a paper requesting the relief on behalf of Regional Plantation Companies (RPC).

“At present we have around 5,000 hectares of palm oil. However, expanding the industry is difficult

given that the import costs of seeds are extremely high. In fact, around 60% of import costs are for

taxes. Therefore, the Ministry has requested that the Customs duty of 28%, along with other taxes,

be waived. However, these are only for use at the nurseries run by the RPCs,” he said.

Remarking that at present there are few companies that are engaging in palm oil manufacturing, he

noted that this tax relief would encourage more expansion. “We will consider this on a case by case

basis and when the Plantation companies send a request through the Plantation Industries

Ministry, we will then forward it to the Customs,” he pointed out.


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Sunday Observer – November 15, 2009

COST EFFECTIVE DISPUTE RESOLUTION IN INSURANCE OUT SIDE LITIGATION

By Dr. Wickrema Weerasooria

After nearly five years in office, I can categorically state as the Insurance Ombudsman, that as an Alternative Dispute Resolution Mechanism, this scheme has been a great success. There are several reasons for this success.

Firstly, the insurance industry has fully supported this scheme. From the CEO downward, the executives who come for my inquiries at my office have been sympathetic to claims. While they have steadfastly stood by their own terms, they have also realized that unless the insurers help the Ombudsman, the scheme will collapse.

Whenever, after my inquiry I have felt that the complainant should be given some relief, the insurance companies have acquiesced and not said 'NO' just to prove that they were always right in rejecting the claim earlier. On the other hand, as the Ombudsman, I have also always maintained the fundamental principles of insurance. For example, that non-disclosure of material facts is a serious matter justifying a rejection of the total claim. Some policy holders say that it was the Agent who filled up the proposal form who suggested that the non-disclosure will not be a problem. On such occasions, I tell the insured, that it is not the Agent who is buying the policy. Also it is not the Agent who signs the proposal form !

The Ombudsman Scheme is also very cost effective. We have a small office. I have my small office in the larger building in which the Financial Ombudsman operates. By having a room in this larger office we have cut down cost of rentals. I also have only one Secretary who works efficiently and attend to all the work. A normal office would have about five to six staff. All this goes to cost saving.

We also do not charge policy holders any fee for processing their complaints. The fact that the Ombudsman service is totally free has its disadvantages because some people come with frivolous or belated complaints. So we have to be discerning.

No one will contest my statement that resorting to litigation in a insurance or banking dispute is not worth the trouble, the delay and the money that will have to be spent. It is not possible for the average citizen to take on and fight an insurance company. The only beneficiaries of litigation are the lawyers. I advise people to avoid litigation and do my best to get at least an ex-gratia payment where the insurance company has lawfully rejected the claim.


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Sunday Times – November 15, 2009

ROAD MAP MOOTED TO RETAIN GSP+ CONCESSIONS By Dilshani Samaraweera

The EC and the government are looking at developing a Road Map to retain the EU’s GSP+ duty free export scheme. “We will, after consulting with the Sri Lankan authorities, issue what we call a Road Map, which will address the concerns raised in the final report (of the investigation),” said the Ambassador for the EC in Sri Lanka, Bernard Savage, speaking at the AGM of the Sri Lanka Apparel Exporters Association this week.

The government, said Mr Savage, is even now prepared to start this process. The Road Map, which is a commitment by the government to address concerns raised by the investigation, could retain the GSP+ scheme, even if the EC recommends the EU member states to suspend the GSP+.

The Ambassador said the government’s response to the EC investigation report will be “examined extremely thoroughly and seriously.” However, the EC will make a recommendation to the European Council, on whether or not to suspend the GSP+ scheme, based on its investigation findings.

“The next step will be a recommendation by the Commission to the Council, our member states. The recommendation must be based on the conclusions of the final report. That is a legal obligation,” said Mr Savage.

So at this point, the EC may recommend suspending the GSP+. “The recommendation at this stage, could well be for suspension,” said Mr Savage. After the EC recommendation, the Council will have two months to arrive at its own decision. However, if the Council decides to suspend the GSP+ scheme, the GSP+ will be suspended only six months after the decision is taken.

Meanwhile, a ‘Road Map’ is to be developed by the government and the EC, to address the concerns raised by the investigation. The Road Map can convince the EU to allow Sri Lanka to retain the GSP+. “We will engage in a dialogue on the Road Map and on specific actions, to address concerns,” said Mr Savage.

“Our engagement with the Sri Lankan authorities before the suspension of the GSP+, would allow us to review the recommendations, so that there is no break in the concession,” said Mr Savage.

Export impact Apparel exporters say the GSP+ has helped grow exports to the EU even at times of global downturn. This growth, say exporters, may not happen without the GSP+ behind Sri Lankan exports. “Our exports to the EU have seen steady growth over the last several years, not least due to the GSP and GSP+. If we are to lose this concession, which I sincerely hope not, I fear for that growth,” said the Chairman of the Sri Lanka Apparel Exporters Association, Kumar Mirchandani, speaking at the AGM. The latest export data from the Joint Apparel Association Forum (JAAF), the apparel industry representative body, shows that total apparel exports in September, dropped by 4.7% in value, compared with September 2008. Exports to the US fell by 19.2% but exports to EU increased by 8.5% in September 2009.


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Total apparel exports during the nine month period of January to end-September 2009, reduced by 3.6% over the corresponding period last year. The largest losses were in the US, where export incomes dropped by 13.2% in the first nine months of this year. Export earnings from the EU increased by 4.3% up to September this year, despite the recession.

GSP+ not working for workers Meanwhile, workers rights groups are calling for mechanisms to be introduced into the GSP+ trade scheme, to allow trickle down of benefits to workers. At a press conference on Thursday, ALaRM, a trade union and non-governmental organization coalition, pointed out that although the EU’s GSP+ preferential trade scheme is expected to help reduce poverty, the scheme has no inbuilt provision to ensure distribution of benefits to workers.

ALaRM maintains that the EU’s GSP+ trade scheme has overwhelmingly benefited the corporate and employer category, and that the working masses have not enjoyed comparable benefits. While corporate incomes and profits have grown because of the GSP+, worker wages and work related benefits have not kept pace.

In fact, in Sri Lanka, workers in garment factories, the biggest users of the GSP+, have seen job losses and cuts in welfare measures. Employers attribute these adverse developments to recession impacts. However, trade unions note that exports to the EU have increased and not decreased, while worker benefits have decreased, indicating that trade growth benefits are not accruing to workers.

“Our main concern with the GSP+ is that the benefits from the GSP+ are going only to employers and company owners. The workers do not get any benefits from it,” said the spokesperson for the Stand Up Movement, Ashila Mapalagama. The Stand Up Movement is a non-governmental organization involved in apparel sector worker welfare and is a member of ALaRM.

“So if the GSP+ is going to be available in future, we say it should have some mechanism to allow benefits to reach down to workers, as well as employers,” said Ms Mapalagama. ALaRM is also calling on local authorities to ensure that GSP+ withdrawal, will not adversely impact the working masses. The garment industry alone is estimated to employ around 230,000 people.

The government has so far maintained that exports to the EU will not be drastically affected by the loss of the GSP+, if it is withdrawn. The Central Bank for instance, said that domestic cost reductions, coupled with rupee depreciation against the euro and the sterling pound, would give exporters a competitive edge even without the price advantage provided by the GSP+.

Economic impacts are also expected to be limited, as only a portion of Sri Lankan exports ( even in the apparel sector) actually use the GSP+ to export to the EU. At this point the apparel export sector is the most dependent on the EU’s GSP+ trade scheme.


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Information Technology


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Daily mirror – November 9, 2009 E-CONTENT DEVELOPING, DRIVE FOR ECONOMIC GROWTH By Cheranka Mendis

Drive for the economic growth of Sri Lanka lies with the augmentation and development of the Information communication Sector. Thereby recognizing the e-content developers of the country and forming a platform for them to reach for higher aspirations in the global market is the key to realizing the goal of achieving economic development of the country.

Celebrating Sri Lanka’s first ever e-content awards, ‘e-Swabhimani 2009,’ World Bank Country Director for Sri Lanka Naoko Ishii stated that to become a player in the global arena it is important that Information communication technology is developed to its maximum potential.

“Information technology plays a vital role in linking the private and public sectors which is imperative in developing a country. It also gains access to the international world linking the local and the world markets causing a higher growth in the sector.”

To create a dynamic knowledge base is therefore of great importance. It would create adequacy and sustainable content which is fundamental in increasing the quality of content and applications.

Improving the skills and services of all e-developers regardless of the geological barriers is therefore step one in information communication sector growth, Minister of Science and Technology, Tissa Vitharana acknowledged. Islandwide access to information communication technology has been hindered due to inadequate infrastrucre and lack of content.

“We are still far behind when compared to other best manufacturers in the world, but we can reach equal levels and improve the quality and standard of our products through innovation and creativeness,” he said.

Developing this sector would facilitate increasing employment opportunities to the youth of the country and increase the literacy rate of Sri Lanka at double the speed of its current growth, alleged Minister Vitharana.

“Developing the e-society and content development is the key to future growth.”

e-Swabhimani 2009 award presentation held last Friday saw 27 e-developers receiving awards out of the 137 nominated. The panel of judges for this event consisted of both local and international personals.


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Agriculture


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SRI LANKA AGRICULTURE, FISHING REVIVE IN FORMER WAR ZONE

Farmers and fishermen have been among the main borrowers under a Sri Lankan government loan scheme to revive economic activity in the former northern war zone, the Central Bank said.

It said in a statement that a total of 1,875 loans valued at 264 million rupees has been disbursed under the 'Vadakkin Wasantham' (Awakening North) loan scheme by the state-owned People's Bank and Bank of Ceylon.

Out of the total granted, 47 percent of loans (890) have been disbursed for agricultural purposes while 28 percent (524) were for trade and service sector activities.

"In agriculture, farmers have shown a keen interest to obtain loans for fruit cultivation, i.e. grapes and banana and livestock development activities."

The balance 25 percent (461 loans) has been obtained by borrowers in the fisheries, small and micro-industries sectors in the northern Jaffna peninsula.

The special loan package launched in July, 2009 is being implemented with loans up to 200,000 rupees being granted at an interest rate of 12 percent a year, with repayment over a period of five years.

The peninsula was cut off from the mainland for years as Tamil Tiger separatists controlled the land route.

Restrictions on fishing and farming were also imposed because of the war, affecting the livelihood of a large number of residents of Jaffna. -LBO


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Shipping Industry



A FEW ACTS OF SABOTAGE PROVE INEFFECTIVE PORT OPERATING AT 75 PER CENT CAPACITY - SLPA CHAIRMAN By Brian Tissera

Despite a few acts of sabotage committed by the joint UNP-JVP during the work to rule last morning, vessel and cargo movement have not been effected. In fact the berthing of three ships was also handled despite the efforts of the union members to disrupt operations at the port, said Chairman of the Sri Lanka Ports authority, Dr. Priyath Bandu Wickrama.

Threats have been made to members of the Sri Lanka Nidahas Sevaka Sangamaya and the Management of the SLPA will take appropriate action against such offenders Dr. Wickrama added.

Chief Secretary of the Sri Lanka Nidahas Sevaka Sangamaya (SLFP affiliated Union) Prasanna Kalutarage said that the action of the JVP-UNP unions is not a work to rule rather a deliberate slowing down of work, an act of sabotage. However they were unable to block the berthing of three ships.

President of the Jathika Sevaka Sangamaya (UNP affiliated Union) Mr. Udeni said that the work to rule was a total success upto 12.00 noon yesterday. However it turned violent when about 40 members of the underworld who arrived at the scene of the protest, Mercilessly attacked transfer crane operator. Gunathillake who is in critical state. He has been removed inside port premises and is being denied medical treatment at the national hospital, colombo. According to Udeni, his injuries are life threatening.

Uden added that a shipment of fuel is expected today (12) but will be kept out harbour till the 16th of November due to the work to rule. Commenting on the attack of a protesting workers, Dr. Wickrama said it had occurred to to certain comments being made by victim, which had caused a tense situation.

He (Chairman, SLPA) had immediately had this person taken into the port and he is under medical supervision. His injuries are not as serious as it is made out to be, Dr. Wickrama added. However, he was admitted to the National Hospital a little later.

Chief Secretary of the all Ceylon General Port Employees Union (JVP affiliated union),Chandrasiri Mahagamage said that the success of the work to rule must be measured by the attendance at a protest

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meeting held yesterday at which over 5000 workers participated .The peaceful protest was marred by the assault of a port crane operator at the conclusion of this meeting.

In the background of the impending work to rule special discussion took place between the SLPA and its Trade Unions on 05th November 2009 on the initiative of Minister of Port, Aviation, Irrigation and Water Management Chamal Rajapaksa. The Secretary of the Ministry of Port and Aviation Ranjith De Silva, Chairman of SLPA Dr. Priyath Bandu Wickrama and the Managing Director of SLPA Capt. Nihal Keppetipola were also present at the discussion.

The current situation of SLPA, its progressive activities and also the matters raised by the Trade Unions were discussed at this special meeting. At the discussions the Trade Unions raised concern over the salary increments, limitations pertaining to the over time working and also corruption at the port. As per the instructions by Minister of Port, Aviation, irrigation and Water Management, clarifications and implementations on these matters were also expressed by the relevant authoritative officers at the discussions.

Earlier SLPA had taken steps to offer higher salary increments to its employees in 2006. According to the agreements reached between the SLPA and the Trade Unions, concerns were expressed at these discussions on extending a considerable salary increment from January 2010, incentives and bonus.

Despite the current limitation of over time services from 25%, it was defined that it would be reduced to 10% as following satisfactory revenue conditions of SLPA. It was also expressed that during the times, financial management was equally important as the development projects implemented by SLPA could not be halted or delayed in any circumstance. Measures have also already been taken to purchase new equipment for the port to facilitate efficient services in all sectors of port activities aiming higher productivity at SLPA. Expressing further views the Chairman of SLPA, Dr. Priyath Bandu Wickrama stressed that the government has no idea whatsoever to privatize services or any section of SLPA.

The Chairman said that SLPA always takes action as per the regulations of SLPA and the prevailing law of the country to stop corruption and to take action against any such misdeed while punishments have been implemented at present against several employees upon receipt of accurate details and information, proven to be punishable for their misdeeds against the wellbeing of SLPA. He requested the Trade Unions to forward any information on such corruption and corrupt employees with true and accurate details so that measures could be implemented against such misdeeds and persons as per the regulations and the prevailing law of the country.

The Trade Unions also expressed concern over the salary and grading procedures raised in different section and division levels at SLPA. The Chairman instructed that prompt and permanent steps be taken to solve the matter. At the conclusion of the discussions an agreement was also signed between the SLPA and the Trade Unions. Representatives of 21 Trade Unions signed the agreement.


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Climate Change


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The Island – November 9, 2009 CLIMATE CHANGE MAKING WOMEN’S LIVES DIFFICULT By Ifham Nizam Nearly 50 per cent or to be exact 43.5 per cent of the world’s needy population lives in South Asia earning less than or USD one per day and the poorest of the needy are women. And their plight is aggravated by climate change due to global warming impacting on food security, food production, environmental degradation and natural disasters. In addition to low productivity, increase of fuel prices with inflation has resulted in soaring food prices. These pressures are bound to irreversibly accelerate the environmental degradation process in the sub region. With doubt, the cost mitigating this environmental catastrophe in the making would exceed the capacity of the region’s economies leading to breakdown in governance system and the spread of civil unrest. According to National Council of Women Chairman Dr. Neela Gunasekara, halving poverty by 2015 and environmental sustainability as envisaged were unachievable goals in the context of increased food prices and low productivity making the vulnerable groups poor. She claims climate change had made women’s lives more difficult. Women in farming activities were facing difficulty in supplying water and fuel to the required extent with environmental degradation. Climate change fuelled migration creates isolation and loss of kinship networks, women’s needs and roles and their attitude toward family well being as primary care givers are different to that of the so called men. Sadly, decision makers frequently do not understand the fact that climate change impacts men and women differently. Therefore, it is vital to access how climate change impacts on women’s role in food security and their role as important agricultural producers in the Asian context as well as support through policy changes, a capacity building their roles as agents of adaptation. The impact of climate change is more on women farmers in the Asian region who constitute 40 per cent of the agricultural labour. Climate change affects the women farmers in here who constitute 41 per cent of the farming population. The incidences of natural disasters are on the increase and the rainfall patterns, water shortages were frequently reported in the dry zone. Declining water availability will be a strain on agriculture and water supply for drinking. In the event of a reduction of water supply women have to travel far to fetch water and waste their valuable time searching for water foregoing their time on production work and contents are subjected to health hazards. Gender Consultant Swarna Sumanasekera believes it is vital to include women’s views in climate change policies and programmes and demonstrate how women’s contribution could strengthen the effectiveness of climate change measures.


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The Island – November 9, 2009 CONSERVING WATER IN THE CLIMATE CHANGE BATTLE G20 SHOULD END PERVERSE OIL SUBSIDIES By Ifham Nizam It was heartening to witness a number of renowned institutions especially from the developed nations were at war on the polluters especially the high and mighty of the world. Role of G20 nations These institutions had pointed the importance of the role of G20 nations and the paramount importance of water and its role when it comes to the issue of climate change which would really wreak havoc on nations, may it be big or small. The Green Coalition earlier this week urged the G20 governments to end their perverse fossil fuel subsidies, which contribute directly to climate change, cost hundreds of billions of US dollars each year, and creates artificial barriers to sustainable development. The Green Economy Coalition members including the International Institute for Environment and Development, Consumers International, IUCN –World Conservation Union- and the International Institute for Sustainable Development (IISD) urged the G20 nations to phase out these subsidies as soon as possible. The Coalition wrote last week to the G20 finance ministers ahead of their meeting in Scotland to outline how and why to remove these harmful subsidies. The Coalition stresses the need for governments to ensure that the poorest consumers are not made more vulnerable following a phase-out of subsidies. A document put forward by the Coalition said: "It is clearly invidious for governments to finance carbon reduction policies whilst simultaneously increasing fossil fuel consumption through subsidies. The current annual fossil fuel subsidy bill of hundreds of billions of dollars would be better spent on health, education, renewable energy or other actions that would accelerate the transition to a green economy." The Green Economy Coalition says an end to subsidies would help stabilize the world climate by reducing global carbon dioxide emissions by 10 per cent or the equivalent of Russia and Japan’s combined total. "These subsidies are a massive diversion of public funds that could be better spent in other ways," says Mark Halle, executive director of IISD-Europe. "Subsidies create false impressions about the relative cost of lower-carbon energy alternatives and this is brining us closer to irreversible climate change," he further stressed.In September, G20 leaders agreed in Pittsburgh in September to phase out these subsidies over the medium term. The Green Economy Coalition welcomes that move but calls for greater urgency in implementing the phase-out and outlines ways to ensure that a reform of subsidies will protect the welfare of the poorest. Water Day Meanwhile, Governments, UN agencies, international NGOs and civil society advocates gathered at a Water Day in Barcelona on November 3 to urge negotiators to consider the critical role that water plays in climate change adaptation. The failure to recognize that role risks undermining the wider objective of the negotiations. Participants called for recognition that water is not a sector but is the primary medium through which climate changes will impact on human populations, society and ecosystems, due to predicted changes in its quality and quantity. The way that water is managed in and between countries will be a critical component for the success of any efforts to adapt to the impacts of climate change. It will also be a vital consideration for many mitigation activities, including hydropower, agriculture and forestry projects.


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To a large extent, the global climate crisis is a global water crisis. Yet the latest iteration of the negotiating text on adaptation, the so-called Non-Paper 31, has deleted any clear references to water and its management as a vital consideration for climate change adaptation. This is despite increasing mobilization by the water community to call for a strong outcome on water from Copenhagen.Chair, UN-Water and Service Chief, FAO Chair Pasquale Steduto said: "Let me be very clear. There is no development without water. There is no food security without water. There is most likely also no energy security without water. Water is the primary medium through which climate change influences the Earth’s ecosystems and therefore people’s livelihoods and well-being. If water is not further recognized in adaptation strategies and plans, we are making a big mistake." "Even with the best mitigation strategies, water related effects of climate change will come. The challenge for many nations is how to adapt. Climate Change is in effect Water Change, since it will be through water that the changes will be realized first and foremost." Anders Berntell, Executive Director, SIWIParticipants at the Water Day drew particular attention to the following issues like climate change impacts on water resources that would affect livelihoods and development. Scientists estimate that 90 per cent of the 3 billion people who are expected to be added to the population by 2050 will be in developing countries, many in regions already under water stress conditions. Integrated land and water management arrangements will be critical to manage water flexibly among competing users, prioritizing human needs.More than 75 percent of the world’s nations have shared river basins within their boundaries. Regional co-operation on climate change adaptation will be vital for addressing climate change impacts on shared water resources, even as a way to prevent potential conflicts. Ecosystem investment.Ecosystems build resilience to climate change. Healthy ecosystems need water and in turn help maintain a healthy water cycle. Care must be taken that climate change mitigation activities do not damage and degrade ecosystems, and that adaptation efforts priorities their preservation. This is critical not least to food security. Understanding climate change impacts on water resources will require enhanced data collection and sharing, and increased capacity for gathering and using data. However, climate change impacts are being felt now and improving water governance arrangements to respond to uncertainty and variability will be the key to good adaptation. The projected increase in hydropower and bio-energy to meet low-carbon energy needs will depend heavily on sustained water flows and water availability. Projected changes in the water cycle as a result of climate change must therefore be taken into account. Building dams for water storage and energy needs must be done in the context of understanding and mitigating potentially negative impacts on human populations and the environment. Bio-energy must be balanced with food security and ecosystem protection. The Water Day was held against a backdrop of drought and famine as many developing countries begin to experience the devastating impacts of climate change on the water cycle. If precautions are not taken, this may lead to an increase in conflicts related to water availability and distribution. Extreme weather events leading to drought and floods, as recently witnessed in Kenya and the Philippines, are predicted to increase in frequency and intensity as a result of climate change, and are likely to become the norm’ in coming decades. It is imperative for the Parties to the UNFCCC to recognize the pivotal role of water in adapting to climate change in order to increase resilience and achieve sustainable development.


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Stock Market


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Daily Mirror – November 11, 2009 GLOBAL STOCKS MIXED AFTER G20 RALLY LONDON, (AFP) - European stock markets built on a strong rally seen a day earlier owing to a pledge by leading G20 nations to keep pumping their economies with easy money, while Asian stocks diverged on Tuesday. Gains in Europe were however less sharp than on Monday as investors digested a batch of mixed earnings reports. "Looking at the major indices, there is maybe an element of twitchiness creeping back into the market," said IG Index chief market strategist David Jones. In late morning trade, London's benchmark FTSE 100 index was up 0.29 percent to 5,250.49 points, Frankfurt's DAX 30 rose 0.35 percent to 5,639.42 points and in Paris the CAC 40 climbed 0.14 percent to 3,791.03. Europe's main stock markets had closed up between 1.8 and 2.4 percent on Monday on prospects for continued stimulus measures to underpin economic recovery in leading world economies, traders said. Tokyo's benchmark Nikkei-225 index climbed 0.63 percent to close at 9,870.73 points on Tuesday as investors took their cue from New York where the Dow Jones Industrial Average rose 2.0 percent, hitting the best close for 13 months. Tokyo's gains were capped, however, by worries about the renewed strength of the yen as well as uncertainty surrounding the nearly two-month-old Japanese government's economic policies, analysts said. "The market's momentum is rather sluggish, because foreigners are reluctant to buy Japanese stocks," Nikko Cordial senior strategist Tsuyoshi Kawata told Dow Jones Newswires. As long as US interest rates stay low, the dollar is likely to remain weak against the yen, he said. The greenback's slide is bad news for Japanese exporters such as car and electronics makers. Elsewhere in Asian stock market trade on Tuesday, Hong Kong advanced 0.27 percent, Shanghai gained 0.10 percent and Sydney jumped 1.26 percent. Jakarta dropped 1.02 percent and Mumbai lost 0.35 percent. On Monday, the Dow Jones Industrial Average jumped 2.03 percent to end at 10,226.94 points, logging its best closing level since October 3, 2008. Market sentiment was lifted by a weekend decision by G20 finance ministers to stick to emergency stimulus support measures despite signs that the world was emerging from a long financial maelstrom, analysts said. It acted as a "impetus," said Patrick O'Hare of Briefing.com as the ministers "tempered the market's concerns about stimulus measures being withdrawn too soon." Together with last week's US Federal Reserve announcement that interest rates will likely remain at exceptionally low levels for an extended period, it "effectively sent a message that easy money policies will remain the rule and not the exception," O'Hare said. The world's largest and top emerging economies agreed at a Group of 20 (G20) meeting on Saturday in Scotland to maintain stimulus measures to support "uneven" economic recovery. "The recovery is uneven and remains dependent on policy support, and high unemployment is a major concern," the G20 said in a final communiqué. "To restore the global economy and financial system to health, we agreed to maintain support for the recovery until it is assured."


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Sunday Island – November 15, 2009 ACUITY STOCKBROKERS WEEKLY MARKET REPORT INDICES PICKED UP AS WEEK PROGRESSED Both indices showed slight week-on-week improvement this week in spite of showing a downward trend during the early part of the week. Low market sentiments driven by the developments in the political scenario over the past few weeks was seen easing off as the market yet again bounced back into activity in the last trading day of the week. The ASPI (All Share Price Index) closed the week at 2,979.4 points, up by a modest 67.8 points or 2.3% compared to last week, while the MPI (Milanka Price Index) showed a similar movement rising by 121.2 points or 3.7% to 3,395.9 points. Attention this week yet again fell on JKH, driven by two crossings on Monday and Tuesday. These trades helped to boost the week’s turnover, contributing Rs.1.1 billion, with 7.8 million JKH traded in total for the week. For the third consecutive week JKH was the highest contributor to turnover, while the share price witnessed a slight appreciation rising by 3.6% to close at Rs.145.00 per share. Earlier in the week the counter was trading at a price range of Rs.135.75. A 1.7 million quantity of Diversified sector counter, Hemas, traded at a price of Rs.125.00 per share on Wednesday. The trade which saw a contribution of Rs.212.5 million made Hemas become the week’s second highest contributor with a total contribution amounting to Rs.214.4 million, while trading a total of 1.7 million shares for the week. Hemas share price closed unchanged for the week at Rs.125.00 per share. Construction sector counter Dockyard gained investor interest with 1.2 million of its shares trading this week. The counter contributed Rs.204.8 million towards weekly turnover with the share price showing modest movements during this week. The counter closed the week at Rs.185.00 per share, improving by 5.7% from last week, while within the week the counter was seen trading at a high of Rs.188.50 per share and a low of Rs.174.00 per share. Apart from the JKH, Hemas and Dockyard, the contribution from other stocks remained quite low. Banking stocks such as Commercial, HNB (Non Voting), Nations Trust and Sampath were amongst the top 10 contributor for the week with a combined contribution of Rs.297.4 million for the week. Contrary to the modest upward movement in indices, the volumes saw a deteriorating trend as the week progressed. However early market activity through two strategic deals on JKH boosted market activity on Monday and Tuesday. Turnover for the week was up 14.9% compared to last week to stand at Rs.2.9 billion. The average daily turnover amounted to Rs.583.9 million with foreign activity accounting for 14.8% of total turnover. Foreigners remained net buyers for the week with Rs.23.8 million net inflows. Volume-wise the highest traded stocks for the week were JKH, Janashakthi Insurance, Dialog, Kshastriya Holdings and Tess Agro.


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POINT OF VIEW A longer term view needed The week ended 13/11/2009 saw the ASPI moving up from 2,911.6 to 2,979.4 amounting to 67.8 points. The MPI moved 121.2 points up. Due to the heavyweight JKH declining, Monday and Tuesday saw the ASPI moving down on relatively high turnover and activity. The next two days saw the indices up but with less activity in the market. It was evident that the investors were cautiously waiting till the market dipped to pick bargains. When considering the recent movement of the bourse, it is evident that the investors take a very short term view of the market looking for short rather than long term gains. However, from a fundamental perspective the market could offer better returns if the investors were more medium to long term focused. Hence, the current short term perspective precludes a potentially higher yield which could have been gained through a longer term view. The latest quarterly earnings of most of the companies have shown a positive picture, either by way of increasing profits or by reducing the previous quarter losses. Hence, such companies will have the potential to capitalize on the expected economic revival going forward. Thus we recommend a long term view. The political picture changed with Friday’s retirement of General. Sarath Fonseka (Chief of Defense Staff). Speculation that he would be a possible common candidate for the upcoming presidential election has grown rapidly on media reports. The picture will clarify in coming days. Albeit the latest developments on the political landscape, the end of the war has given hope of an economic revival with the corporate earnings improving, downward pressure on inflation, presently stable exchange rate etc. Hence, we will hope that the light at the end of the tunnel is not far.

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