Sri Lanka Newspapers - 08/01/2012

What should be the next move in rubber plantations?
by Dr. Lakshman RODRIGO

Wage hikes are inevitable. As we all know, wages in the plantation sector have recently increased by about 27 percent; from Rs. 405 to Rs. 515 per day.

Dr. Lakshman Rodrigo

With EPF and ETF contributions, the total is Rs. 572 a day. This has an effect on other terminal benefits such as gratuity. Continuous increase in cost of living associated with the inflation drives people to demand for high wages.

Due to the improvements in science and technology together with striking advertisements, people are attracted to new luxuries; another reason to demand high wages.

In the past, plantation workers were considered to be a underprivileged category in a society. It is no more and it should not have been so; being involved in key economic activities, their contribution to the nation building is second to none.

They are covered and protected by strong trade unions supported by parliamentarians. This has strengthened their bargaining power and so, no way to ignore their demands. Recognising the needs and importance of this sector, the present government has taken steps to provide them good educational and health facilities.

As a way of improving the social dignity, official designations given to plantation workers have recently been changed with a special gazette notification. Nonetheless, some have already taken their move to work in other sectors for greener pastures.

Whilst meeting the worker needs, plantations should maintain their financial viability under any circumstances. Undoubtedly, current prices for raw rubber can cope up with recent wage increase in rubber plantations.

Although there is no speculation on market collapse, we need to be proactive to sustain rubber plantations for the future. Competitiveness would be the best approach for the sustainability. Particularly in human resource management, worker use efficiency and worker satisfaction / motivation are key issues to be tackled.

Cost of Production
Cost of Production (COP) generally declines with increase in worker-use efficiency.

Nevertheless, it is not always the case in the competitive market since workers are to be motivated with improved wage structures. Unlike in the past, managerial staff in most of Regional Plantation Companies (RPCs) has been reduced to bear minimum with given added facilities.

Unfortunately, no such move for worker class. All activities are important, however the first priority should go to what requires most labour. In rubber plantations, latex harvesting is labour intensive utilising over 60 percent of the workforce. In COP, its share is well over 1/3. Therefore, it's time to revise our harvesting policies in rubber estates for improved worker-use efficiency. Latex is usually harvested from rubber trees by tapping the tree trunk with a half spiral cut (i.e. half of the circumference) once in two days.

This is called S/2 d2 harvesting (S/2 stands for half spiral cut and d2 for once in two days). Each harvester is given about 300 trees per day hence 600 trees in two day cycle.

This means an area having 600 trees require a harvester every day. Rubber is planted at a density of 515 per hectare, however it diminishes to some extent with time.

Expecting an average about 400 trees in tapping per hectare, worker requirement for harvesting of mature rubber is about 0.6 per hectare per day.

This is just second to tea and coconut needs only about 0.2 per hectare per day. What can we do about this? All attempts made so far to mechanise rubber harvesting had no success and there is no sign of being a reality even in near future. So, waiting for latex harvesting machines would not be a wise decision. What is next? Is it necessary to tap the rubber tree so often? Is there a way to get the latex out with less labour?

Alternative methods
Low Intensity Harvesting (LIH) systems are found to be the most appropriate means to increase the worker use efficiency in latex harvesting. What does it mean by LIH? When compared with the previously mentioned traditional S/2 d2, either harvesting frequency or tapping cut length or both are reduced in LIHs.

Reduction in the harvesting frequency is made by extending the time gap between two consecutive harvesting over two days and commonly named as Low Frequency Harvesting (LFH).

Instead of half spiral, attempts have been made to reduce the cut length to quarter spiral or even less.

As everyone would expect, reduction in harvesting frequency and cut length has a negative impact on latex yield.

To compensate the yield loss associated with this reduced intensity, yield stimulants are to be applied in a judicious manner. Ethylene is the ultimate stimulant which enhances latex production in the laticiferous system in the rubber tree bark. Obviously, outside application of ethylene gas is not simple and so, ethephon is generally used as a liquidised paste in different formulations to facilitate a slow release of ethylene inside the bark. It is available in the market under different trade names (e.g. Ethrel, Ethephon Plus).

In the past, latex yield stimulants were used to increase yields. This has been a wrong intention and today, it remains as a short-term approach perhaps suitable for the rubber fields at the verge of uprooting.

In the long-run, the potential yield of the rubber tree cannot be exceeded in harvesting. Perhaps, you may have planted a rubber clone having a high genetic potential for high yields. However, the way you have looked after the rubber field determines the ultimate yield potential. It is similar to bringing up a child. Though genetically sound, final outcome depends on the nutrition, guidance, education and diseases .

Studies have shown that overharvesting with stimulants results in yield decline in subsequent years and also, leads to physiological disorders such as Tapping Panel Dryness (TPD) where latex synthesis in the bark ceases.

Therefore, ethephon is used in LIH to obtain the potential yield in other words, only to compensate the yield loss due to reduction in harvesting frequency or cut length or both.

As a rule of thumb, we could consider the yield given by time-honoured S/2 d2 as the potential. To overcome the time related discrepancies associated with harvesting frequency, average yield per tree per year (YPT) or yield per hectare per year (YPH) could be taken for comparison.

How does LIH increase the worker-use efficiency and is it the only advantage? Apparently, we could expect a four-fold benefit from LIH; firstly worker-use efficiency. With the increased time gap between two harvestings, each harvester can be allocated to a greater number of tapping blocks resulting in reduced harvester requirement.

For instance, if trees are tapped once in three days instead of two-day intervals, worker requirement is reduced by 1/3; if four day intervals, four blocks to each harvester hence reduction is 50%. Even with the reduction of tapping cut length, there is a time saving; hence number of trees allocated to each tapping block could be increased. It is expected to increase the tapping block size from 300 to 400 trees with a reduction of tapping cut length from half to quarter spiral; 25 percent reduction in labour use.

http://www.sundayobserver.lk/2012/01/08/fin15.asp

Kia Rio hatchback launched
by Senani WASANA THENUWARA

Kia Motors (Lanka) Ltd, the sole agent for South Korea's KIA Motors Corporation, launched 2012 Rio; a coupe-like hatchback in Colombo, last week. Kia Rio is designed by Chief Designer Peter Schreyer of KIA Corporation.

The new Rio, a five-door edition is coupled with new revolutionary advancement in terms of design, performance and technology and safety and environment-friendly features to attract Sri Lankan youth.

It is equipped with a durable Gamma 1.4 Gasoline engine that delivers displacement of 1396cc, maximum power of 107ps at 6300rpm and maximum torque of 13.8kg-m at 4200pm which increases the fuel efficiency and power while reducing emissions and lessening the vibrations to ensure quiet and smooth functioning.

The Kia Group, the fifth largest auto maker hopes to manufacture seven million vehicles this year and reach the fourth largest auto-maker position.

http://www.sundayobserver.lk/2012/01/08/fin20.asp

New chairman for Touchwood
Rienzie T Wijetilleke was appointed Director of Touchwood Investments PLC at an extraordinary general meeting of shareholders on January 2 .


Rienzie T Wijetilleke

At a board meeting held subsequently chairman Roscoe Maloney stepped down from the chairmanship and the directors unanimously decided to appoint Rienzie T Wijetilleke as the new chairman.

Wijetilleke said that "he has during his long years of service in the financial sector focused on the need to utilise economic resourses available in the urban sector to meet the urgent economic needs of the rural sector". He said that medium and long-term objectives of Touchwood were identical to his medium and long-term goals for the nation.

He said that this factor was the main reason for his decision to accept the chairmanship of the company.

He said that while improving stakeholder value, he would make every endeavour to take the company to the next level of growth

http://www.sundayobserver.lk/2012/01/08/fin21.asp

Gateway marks 15th anniversary
by Gayan KANCHANA

Gateway, one of Sri Lanka's largest educational institutions will celebrate its 15th anniversary this year. The institution provides education to local and foreign students.

The organisation has set up four International schools during a short span. A graduate school, IT training centres, English language training centres, speech and drama centres, a software consulting firm and many educational establishments in Sri Lanka. Gateway also has a chain of Kindergartens in Oxford, UK. Gateway's school-based IT programs have been introduced to 12 countries in three continents.

Gateway Group chairman and founder R.I.T Alles said "our students should be down to earth and we don't want snobs passing out from Gateway. They should respect our culture and heritage."

While we charge a nominal fee, we also provide free education to talented students who can't afford to pay fees. Shihan Ambepitiya is one of our products.

When some students are admitted they are unable to speak even a word of English. But after some time they are very comfortable with the language", he said".

Gateway Group Director, Dr. Harsha Alles said, "Even though we are the most recent among the well-established educational institutions in the country, we provide quality education. Our teachers are upto the international standards.

Gateway has taken meaningful steps to inculcate the Sri Lankan Culture, a sense of belonging and love for the nation and respect for its values", he said.

Dr. Alles said "Students are encouraged to engage in a variety of charitable and social service activities. The organisation through its CSR arm - the gateway HANDS foundation has carried out many initiatives.

They include rebuilding of tsunami devastated C.W.W. Kannangara School in Galle. On December 17, 2005, Gateway handed over a newly re-built school to the government.

We were the first organization to complete a fully-fledged school within a year after the tsunami. Recently Gateway took over the Management of Achievers, which is a school for children with learning difficulties," he said.

http://www.sundayobserver.lk/2012/01/08/fin25.asp

First Capital appoints Independent Director
Minette Perera has been appointed as an independent director of First Capital Holdings PLC from December 2011.

Perera, a Chartered Accountant with over 30 years experience, serves as Finance Director of MJF Group and on the boards of a number of Group companies including MJF Holdings Ltd., MJF Exports (Pvt.) Ltd., Ceylon Tea Services PLC, Kahawatte Plantations PLC and Forbes & Walker (Pvt.) Ltd.

A Fellow member of The Institute of Chartered Accountants of Sri Lanka (ICASL), the Chartered Institute of Management Accountants of UK (CIMA) and Association of Chartered Certified Accountants of UK (ACCA), Ms. Perera has also held key positions in Finance at several leading local and multinational companies.

http://www.sundayobserver.lk/2012/01/08/fin26.asp

Cabraal Declines To Comment Where Exchange Rate Is Heading
■In Contrast To Last Year’s Optimistic Prediction


Ajith Nivard Cabraal

Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal made little direct reference to the Bank’s exchange rate policy at his annual speech on “CBSL’s monetary and financial policy roadmap for the year and beyond” made on Tuesday after seemingly being cut to size by President Mahinda Rajapaksa on this score recently.
The 3% rupee devaluation by Rajapaksa when delivering his budget speech on November 21 seemingly took everyone by surprise, not least CBSL, whose policy at that time was no devaluation despite pressure on the exchange rate (ER) being brought to bear led by rising oil import bills.
As a result, the ER declined overnight, from being defended at Rs. 110.40 to the US Dollar ($) in inter-bank trading to Rs. 113.90 on November 22 causing panic in the local ER and money markets with pressure on the ER however continuing unabated despite this devaluation, coupled with a spike in interest rates, the latter being a seeming tit for tat response by CBSL to Rajapaksa’s snub where the Bank which had hitherto being defending yields in the weekly Treasury (T) Bill auctions, an indicator as to where interest rates are heading, abandoning this practice at least in the first two weekly auctions immediately following Rajapaksa’s speech, as a result of which weighted average yields of T Bills of 91, 182 and 364 day tenures increased by 37, 41 and 140 basis points to 8.20%, 8.50% and 8.99% respectively. By last year end these yields had further gone up to 8.68%, 8.71% and 9.31% respectively.
Taking a shot at the Treasury, Cabraal said that because of CBSL’s monetary policy vis-à-vis interest rates, this has resulted in a saving of Rs. 100 billion in interest payments to the Treasury last year.
A conspicuous absentee at Tuesday’s event which was conducted at the CBSL premises was Treasury Secretary Dr. P.B. Jayasundera who apparently doesn’t see eye to eye with Cabraal in respect of the latter’s ER policy.
In his Tuesday’s speech, Cabraal on the ER said that it will be linked to the stability of the economy without committing himself to any numbers.
This was in contrast to his last year’s monetary policy speech where he said that they envisage the rupee to appreciate a little this year (2011)-see also the business pages of this issue’s 9.1.11. publication.
In fact a few days ago an international news agency quoting Jayasundera had said that the rupee should be devalued further (see also this publication’s last week’s issue).
In 2010 the rupee appreciated by 3.1% year on year Cabraal in his last year’s speech had further said.
However in his 2012 policy speech, in an apparent dig at the continuous depreciation of the rupee since the island embraced the open economy in 1977, he said that the impact of the rupee being depreciated on outstanding foreign currency debt stock has been 30%, leading to an ER loss of Rs. 667 billion since.
Cabraal said that in contrast the cost of the Southern Expressway was a mere Rs. 77 billion.
Speaking of CBSL’s stance in defending the currency, he said that people need price stability. “If we had allowed the ER to appreciate to Rs. 95 and then have allowed it to dip to Rs. 125 then there is no stability,” said Cabraal, a reference to CBSL’s previous stance of not allowing the ER to appreciate despite pressure of it to go up then after CBSL’s successful US$ one billion Sovereign Bond issue about the middle of last year, concluded on behalf of the Government of Sri Lanka.
However the danger in frittering away the island’s foreign exchange (forex) reserves in defence of the rupee is that in a time of crisis there might be insufficient forex to tide over bad times.
According to available statistics, in the three months from July to September of last year, CBSL expended $ 1,129 million from its reserves to defend the rupee.
But Cabraal expected $ 500 million worth of inflows to the stockmarket this year which he said was equivalent to about 2-4% of market capitalization coupled with local banks raising money from abroad which too would lessen pressure on the ER and also on the money market.
On the money markets, Cabraal’s speech was seemingly two edged. He said that they would not allow inflation to go out of control, hinting at a possibility of a hike in interest rates, while at the same time saying that he expected inflation to remain at the mid single digit range this year

http://www.thesundayleader.lk/2012/01/08/cabraal-declines-to-comment-where-exchange-rate-is-heading/

Plush New Head-Office

Union Bank of Colombo plc moved into their new head-office building at Galle Road, Colombo on Friday.
The bank’s focus will be on the SME sector, its Executive Director/CEO Anil Amarasuriya told this reporter.
He further said that another prime target will be to give returns to their shareholders which they have not done so for years.
This once troubled 16 year old bank was first saved by a capital infusion by Sampath Bank. It was subsequently taken over by a group comprising foreign and local shareholders. The Bank’s CFO Malinda Samaratunga said that they have strategies in place to tap the SME sector which will be implemented this year.
He further said that currently their weightage was towards the corporate sector with the ratio being “60” to the corporate sector and the balance towards the SME sector. “We want this ratio to be the other way around,” said Samaratunga. Servicing the retail sector is too expensive because the volumes are small, he said.
And banking in the corporate sector market is competitive, he said. Samaratunga further said that those who have not been captured by the banking sector is serviced by their recently acquired finance company F&G, a former Ceylinco company, which went through hard times after the collapse of Golden Key Credit Card Company, another Ceylinco company over three years ago. Amarasuriya also said that they want to enhance productivity, where the international norm in the banking sector was 40%.
Meanwhile the Bank’s chairman Ajita de Zoysa speaking from an external sector perspective and its impact on the country said that the crises in the Euro zone and Iran were alarming. The Bank has a total of 30 islandwide branches and 2.2% of the banking sector’s total loan portfolio. It plans to add 15 branches this year, and, additionally to have in place utility banking centres in key areas of the country comprising a 2-3 man operation in each.

http://www.thesundayleader.lk/2012/01/08/plush-new-head-office/

Goals May Change
■If Global Conditions Worsen

If conditions become more difficult Central bank of Sri Lanka (CBSL) may be forced to change targets, an official warned.
CBSL Governor Ajith Nivard Cabraal presenting his annual monetary and financial policies for this year and beyond on Tuesday said that the Euro zone debt crisis has slowed the global economy.
Therefore world economic growth could be sluggish, he said.
“Howbeit, currently we shall move as per present projections,” said Cabraal.
The goal is to become a US$ ($) 100 billion economy by 2016.
Meanwhile, in his policy statement of last year, some of the targets envisaged then were: “Tourism receipts: US$ 750 million, uplift the World Bank’s ‘Doing Business Indicator’ from the current 102nd position, by another 30 levels by 2016, growth to be between 8-9% in the next few years, 9% in 2012 and 9.5% in 2013. Increase investments to the 30% GDP levels and domestic savings to 22% GDP and jack up reserves to US$ 10 billion by 2013, sufficient to meet 5-6 months of imports.” (See also the business pages of this publication’s 9.1.11. edition). Last week, Cabraal’s other forecasts in this year’s speech included increasing the country’s GDP to $ 66 billion by year end, remittances to $ 6.5 billion, FDI to $ two billion, $ 1.2 billion tourism inflow figure and new foreign inflows of $ 500 million to Treasury (T) Bills and T Bonds and fiscal deficit to decline to 6.2% of GDP.
He also expected the Agriculture sector to grow by 7.3% as opposed to 2% last year and the industry sector to slowdown to 9% (led by construction, mining and quarrying) as opposed to 10.1% last year.
Cabraal also projected growth in the services sector too to slowdown to 7.7% as opposed to an 8.6% growth last year. Tourism is expected to contribute to 22% to the services sector.
The economy is envisaged to grow by 8% this year, down from the previous prediction of 9%. Inflation is expected to be in the 5-6% range this year. Broad money and reserve money is expected to grow by 15% each this year.
Banking sector assets are targeted to double to Rs. 8,000 billion by 2016 and lending from Rs. 2,500 billion to Rs. 5,000 billion. Banks’ net interest margin is expected to come down to 3.3% from 4.2% and public debt down to 60% by 2016.
Cabraal said that the economy grew by 8.3% last year reaching a GDP of $ 59 billion and a per capita GDP of $ 2,830. Unemployment rate was 4.3%. Services sector which grew by 8.6% contributed to 58% of GDP. Industry sector grew by 10.1% to 30% of GDP and the Agriculture sector by 2% to comprise 12% of GDP.
Import-export trade increased from 44% to 51% of GDP year on year last year. Exports which grew by 23% comprised 17.7% of GDP. Imports grew by 50% and comprised 34% of GDP. This comprised a $ 1.5 billion increase in investment goods and an increase in gold imports by $ 600 million. Petroleum bill too increased by $ 1.5 billion and vehicle imports by a further $ one billion last year.
Tourism industry is moving towards the $ one billion mark with 197 hotel projects and 12,500 rooms to be added on, said Cabraal. Worker remittances increased by 27% and comprises 8.3% of GDP and FDI exceeded the $ one billion mark with gross international reserves equivalent to four months of imports last year Reserves which were $ 6.6 billion at the beginning of last year dropped to $ six billion by last year end. It previously reached an apex of $ 8.2 billion. The fiscal deficit was under 7% last year, from 8% in 2010. Debt to GDP ratio was 78% and worker remittances $ 5.2 billion. Broad money grew by 19.8% which was too high, admitted Cabraal. Inflation was however contained at the single digit level.
Meanwhile banks’ loan portfolio grew by 48% last year. Foreign outflows of Rs. 19 billion from the stockmarket comprised 0.9% of market capitalization of the same. However inflows into government securities increased by Rs. 25 billion. Foreign holdings comprise 20% of the stockmarket’s total market capitalization, Cabraal said.

http://www.thesundayleader.lk/2012/01/08/goals-may-change/

ME, Euro Zone Crises Hit Sri Lanka

In a scenario of falling rubber prices, the wisdom of the Government of Sri Lanka increasing the cess on raw rubber exports from Rs. 12 to Rs. 15 in Budget 2012 was questioned by a broker.
Rubber prices which were at a peak of Rs. 600 a kilo in March of last year has since fallen by nearly a half to Rs. 340 with chances of it coming down further due to slack demand caused by the Euro zone debt crisis, Richard Jansz, Managing Director JD & Sons (Pvt) Ltd., told this reporter.
To put it simplistically, if a European consumer usually changed his car tyre after it had done x number of kilometres; now he would be postponing his tyre change only after it has done as much as x plus 10,000 km. said Jansz.
It’s the EU which drives demand, similarly if the EU starts consuming less, then that causes prices to contract, he said. Rubber’s chief demand is by the tyre industry, said Jansz.
The timing of the cess increase was bad, he said. It should have had been imposed when prices were at a peak and not at a nadir. Cess money is used for research and development, added Jansz. The new cess has negated the gains made from the rupee devaluation. Matters are further compounded by the wage increases introduced to the plantation sector last year which covers tea and rubber, he said.
Jansz also said that with the heightening of tensions in the Middle East (ME) and the imposition of sanctions on Iran, it would hurt Sri Lanka’s biggest commodity export, namely tea, which has Iran and the ME as one of its major markets for this commodity.
Matters are made worse for Sri Lanka because rising tensions in the ME has also resulted in oil prices going up, causing a further crisis in the country’s balance of payments position, said Jansz, alleging that the island is well set for another 3% rupee devaluation following a similar devaluation made under two months ago when President Mahinda Rajapkasa presented Budget 2012 in Parliament on November 21 of last year. This is only the beginning of Sri Lanka’s troubles, he said.

http://www.thesundayleader.lk/2012/01/08/me-euro-zone-crises-hit-sri-lanka/