Sri Lanka Newspapers Wednesday 02/05/2012

Income inequality on the rise

Sri Lanka’s recent labour data shows impressive progress but inequality, youth unemployment and better jobs are still areas of much concern, a new report released by the International Labour Organisation (ILO) showed.



The economy recorded an impressive 8.3 percent growth rate in 2011. Per capita GDP increased to 2,804 last year from US$ 2,370 in 2010. The rate of unemployment has dropped 4.2 percent in 2011, the lowest level in post independence Sri Lanka.

However, according to the ILO, income inequality in Sri Lanka has grown significantly and is only behind China.

"Income disparities have risen in many developing Asian countries, despite remarkable economic growth and poverty reduction in recent past decades. This trend can undermine economic sustainability and threaten social cohesion. Among countries with higher income inequality (measured by a Gini coefficient of 40 or higher), the ratio in China and Sri Lanka increased significantly by 10.0 points and 7.8 points respectively. In the Philippines the picture remains stark with only slight improvement.

In Thailand while a range of health and social policies have contributed to lower disparity levels, these still remain high," the ILO said in its April 2012 edition of the Asia Pacific Labour Market Update.

"In the Philippines and Indonesia, two countries with significant unemployment challenges, unemployment fell to 7.2 per cent in January and 6.6 per cent in August respectively. When looked at in terms of gender gaps, unemployment rates were higher for women than men in Indonesia (1.7 percentage points) and in Sri Lanka (4.3 percentage points). Moreover, in the Philippines, Sri Lanka and Thailand, assessing the desirable fall in unemployment should be balanced against limited progress in improving the quality of jobs," the ILO said.

It also showed that one in five Sri Lankan youth are unemployed, with the number of female youth out of work 11.7 percent higher than males.

Own-account and contributing family workers accounted for 42 percent of the labour force.



"On the surface, we have seen Sri Lanka achieve good employment growth and economic growth. But this is only on the surface and if we look carefully there are some concerns and a lot of work needs to be done," said ILO Labour Economist Phu Huynh as quoted in these pages last December.

"Despite the strong economic growth, we are concerned that formal sector employment is showing very little growth while Sri Lanka’s informal sector continues to be large. We have seen employment increase faster across the informal sector such as in the daily wage category and those working in households. So the country’s employment growth is not really coming from the formal sector and this is a concern because it leads to a question as to whether the economic growth was creating enough quality jobs," Huynh said.
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Indian construction sector firms were able to attract trade queries amounting to over US$ 70 million at a two day expo held in Colombo, the Indian High Commission in Colombo said.

"The Indian Chamber of Commerce, Kolkatta organised ‘India Investrade 2012: An exposition and Buyer Seller Meet on Realty Construction & Construction Materials’ from 26-28 April, 2012 at BMICH, Colombo. The event was organized with the support of Ministry of Commerce & Industry, Government of India and in association with Ministry of Construction, Engineering Services, Housing & Common Amenities, Government of Sri Lanka, Federation of Chambers of Commerce and Industry of Sri Lanka and The National Chamber of Commerce of Sri Lanka," the high commission said.

Fifty Indian companies participated in the exposition showcasing their profile in building materials, construction equipment and technologies, electrical and sanitary fittings, flooring and roofing material landscaping, consultancy, property development, financial service for construction. The Ministry of Construction, Engineering Services, Housing & Common Amenities, Government of Sri Lanka, Board of Investment, Federation of Chambers of Commerce and Industry of Sri Lanka and The National Chamber of Commerce of Sri Lanka also put up their stalls at the exhibition.

Speaking at the valedictory session of the Exhibition Dr. Rajeev Singh, Director General of the Indian Chamber of Commerce said that India Investrade 2012 in Colombo was a huge success.

"Both the Indian and Sri Lankan businessmen found the exhibition very useful. Elaborating on the outcome. Preliminary estimates indicate that Indian companies have received trade queries over US$ 70 million in a span of two days," Dr. Singh said, adding that he was upbeat on the prospects of future cooperation and indicated the willingness of the Indian Chamber of Commerce to participate in forthcoming Construction Expo 2012 to be held in Colombo from June-July 2012.

The three day event comprised of Exhibition, Conference and Buyer-Seller Meet. The purpose of the event was to promote and facilitate trade and business engagement in construction and construction material sector, provide a platform to introduce the Indian entrepreneurs with their Sri Lankan counterparts and promote the process of business engagement, exchange of ideas and facilitate G2G, G2B and B2B interaction on various issues pertaining to the construction industry of both the countries.

On 27-28 April, technical sessions were organized for the benefit of delegates from both sides with the participation of representatives from National Institute of Construction Management and Research, India; Ministry of Urban Development, Government of India; Central Public Works Department of India; Central Engineering Construction Bureau, Sri Lanka; Chamber of Construction Industry, Sri Lanka, Institute of Construction Training and Development, Sri Lanka; Board of Investment of Sri Lanka; Indian Chamber of Commerce; National Chamber of Commerce of Sri Lanka; National Construction Association of Sri Lanka; State Engineering Corporation of Sri Lanka; IL & FS, India and delegates from both sides.
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The Union Bank of Ceylon PLC has reported a 21.8 percent increase in group net profits to Rs. 74.9 million for the quarter ended March 31, 2012, interim financial statements filed with the Colombo Stock Exchange showed. The bank made a net profit of Rs. 69.9 million, up 16.4 percent from a year ago.

Group level income had grown 62.3 percent during the quarter to Rs. 887.6 million from a year earlier, of which net income grew 35 percent to Rs. 321.3 million.

Provision for bad and doubtful debts and loans written off grew 100.7 percent to Rs. 9.2 million.

Operating profit before tax and minority interest grew 27.8 percent to Rs. 132.4 million.

The banking group’s net loan portfolio grew 11.7 percent to Rs. 19.4 billion while deposits grew at a slower pace up 4.2 percent from the previous year to Rs. 20.4 billion.

Equity capital and reserves grew 1.7 percent during the quarter to Rs. 5.2 billion.

The bank’s core capital adequacy ratio stood at 23.26 percent while the capital adequacy ratio stood at 22.18 percent. The minimum requirement as laid down by the regulator is 5 percent and 10 percent respectively.

As at the balance sheet date for the March quarter, Vista Knowledge (Pvt) Ltd held a 18.5 percent stake in the bank. Sampath Bank and Associated Electrical Corporation Ltd each held a 7.5 percent stake.
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Bank of Ceylon controlled Merchant Bank of Sri Lanka (MBSL) has seen its profits fall as interest expenses growth outpaces interest income, interim financial statements for the March 2012 quarter showed.

MBSL recorded a net profit of Rs. 14.9 million, down 87.61 percent from a year earlier.

Operating income fell 24.26 percent to Rs. 215.4 million. Interest income grew 27.94 percent to Rs. 390.5 million while interest expenses grew 72.57 percent to Rs. 196.8 million.

MBSL group’s customer deposits increased 24.1 percent from a year ago to Rs. 4.6 billion. Borrowings grew 39.7 percent to Rs.6.3 billion.

The group’s loan portfolio increased 21.7 percent to Rs. 3.5 million. Lease/hire purchase receivables increased 47.9 percent to Rs.9.9 billion.
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*After tragic death, SLAITO commissions ‘Risk Assessment’ of most frequented tourist sites

The Sri Lanka Association of Inbound Tour Operators (SLAITO) announced the successful completion of a ‘Safety Assessment’ of the most frequented tourist sites in Sri Lanka.

This Risk Assessment was commissioned by SLAITO and carried out by Malcolm Ellis, Head of Specialist and Activity Health & Safety of TUI Travel PLC over a period of 11 days.

As part of this Safety Assessment, a large number of sites, venues, locations and activities were ‘risk assessed’ so that measures can be taken to prevent any possible eventuality.

This assessment will mainly help hotels and tour operators to alert tourists of potential dangers such as dangerous seas, possible accidents during white water rafting and even when visiting ancient sites during certain times of the year (eg : slipperiness due to bad weather).

Ellis covered many areas in Sri Lanka including Anuradhapura, Dambulla, Sigiriya, Paseekuda, Trincomalee, Hill Country, Yala, Mirissa and Negombo.

President of SLAITO Nilmin Nanayakkara said, "Risk assessments are internationally recognised as basic good practice for all tour operators, especially in the area of adventure tours and for specialists in activity-based holidays. This due diligence was done with the intention of creating awareness amongst the Industry members to prevent or minimise the risk levels that our valuable clients are open to. As Sri Lanka’s apex body of inbound tour operators, SLAITO thus deemed it relevant to commission this assessment for the betterment of the country’s tourist industry".

The project was mooted, after an Australian tourist accidently died after walking-off the Hortain Plains in the central mountain regions last year, said NilminNanayakkara, president of the Sri Lanka Association of Inbound Tour Operators.

"The Australian tourist’s family admitted it was their fault, but we wanted to evaluate and avoid future risks, as it makes good business sense," Nanayakkara said, as quoted by LBO.

Risk assessments take many forms - some simple, some complex. This ‘Specialist & Activity Approach’ is not the simplest, nor is it the most sophisticated. It is however flexible and adaptable so that a whole range of issues can be considered in the right context. Risks can also be appropriately considered so that sensible, practical outputs can be obtained.

As Head of Specialist & Activity Health and Safety TUI Travel PLC, Malcolm Ellis leads and manages the Central Sector Health and Safety Team with regards to the implementation, support and development of safety management systems for all sector businesses. These are both customer and employee focussed and aim to prevent, minimise, and where appropriate, defend claims for personal injury, ill health or negligence and protect businesses and individuals within them from litigation and liability and bringing disrepute to the destination.

Always commercially sensitive, Malcolm encourages a practical approach to managing H&S and takes every opportunity to dispel the myth that H&S is about ‘not doing stuff’ and says "it’s about being risk aware, not risk averse".

"We can’t take the adventure out of adventure," Ellis told reporters in Colombo, LBO reported. "We have to be aware of the risks we are taking and I believe nothing in Sri Lanka should be stopped."

The membership of SLAITO consists of the Travel Agents who handle foreign tourists in Sri Lanka on a brochure program, foreign travel organizations in the back-to-back group tour and charter businesses that are principles of the local members, and, charter airlines that bring back-to-back group tours to Sri Lanka. SLAITO members bring almost 80% of the tourist arrivals to Sri Lanka.

Among its primary objectives are the promotion and fostering of rapid and long term growth of tourism by providing and maintaining a high standard of excellence in the services provided for the comfort and convenience of the tourist, offering good value for money.

It also establishes and maintains good cordial relations with all concerned international travel organisations of repute to espouse, establish and promote international relationships with such organisations for the purpose of achieving the objectives of the Association and thereby securing expert help and advice from such organisations for the advancement of the cause of the Association.
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*First Lankan ministerial level presence in Dubai AIM

The sought after international level foreign trade and FDI staple event for emerging economies and frontier markets, the ‘Annual Investment Meeting’ in Dubai, which commenced yesterday will keenly await for Sri Lanka’s investment message. "We will be showcasing the message of our economic resilience and our special facilities to vie keen international investors in this roaring annual event," Rishad Bathiudeen, Minister of Industry and Commerce of Sri Lanka, said prior to the event.

Bathiudeen, who is taking part in the event as the Guest of Honour on the direct invitation of Sheikha Lubna bint Khalid bin Sultan Al Qasimi, Minister for Foreign Trade of Dubai, was billed to address the AIM as Sri Lanka’s Ministerial level messenger and is also scheduled to take part in the Ministerial Networking Roundtable. The Forum will conclude on May 3.

With its post war economic upswing making headlines, Sri Lanka’s message is expected to receive special attention at the Dubai AIM held at the Dubai International Convention and Exhibition Center, the ministry said in a statement.

"Though the first AIM was held only last year, due to its special focus on FDI and international trading for emerging economies in a recession climate, it has drawn wider attention and this year’s event will see 4000 participants from no less than 45 countries, 20 of them being Ministerial level delegations from participating countries. Organised by the Ministry of Foreign Trade of Dubai, AIM is reportedly the first event of its kind in the Middle East to bring on one platform investment opportunities from all over the world. Bathiudeen, will also be attending 2 May’s high level executive roundtable titled "Cross Regional Trade and Investment Roundup" and will be a panellist in "Multi-sector Investment Strategies" held on the same day. Along with Sheikha Lubna, also in attendance will be Sheikh Mohammed bin Rashid Al Maktoum, the Vice-President and Prime Minister of the UAE and Ruler of Dubai."

According to the event organiser the Ministry of Foreign Trade of Dubai, "the 2012 event aims to strengthen and renew the relationships, also to consolidation the Global Strategic Equities by investors in the emerging market. AIM 2012 will be the meeting point between the Investors and Government to identify the opportunities for investment in the countries of the developing economies, as well as to attract public and private sectors and investors in different segments."
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LBO: China Merchants Holdings International which is building a deep-water container terminal in Colombo port is interested in investing in other Sri Lankan ports as well, an official said.

Hu Jianhua, managing director of CMHI, said the Chinese port operator was drawn to the island because of its "strategic advantages" like location, access to south Asia, open economy and literate labour force.

China Merchants is investing 500 million US dollars to build and operate a container terminal that will have a capacity of 2.4 million TEUs (twenty-foot equivalent container units).

China Merchants intends to use its investment to modernise the port and improve its competitiveness, Hu told the Southern Asia Ports, Logistics and Shipping 2012 conference in Colombo.

Sri Lanka’s advantages and attractive location on the main East-West shipping route "convinced us we should invest in Colombo and in future other ports of Sri Lanka as well," Hu said.

China has emerged as Sri Lanka’s main supplier of aid and investment in recent years with a Chinese consortium building a deep-water port in southern Hambantota, a near-by international airport and roads, rail tracks and power stations.

Sri Lanka’s advantages make it a strong contender to be developed as a modern port with the right investment and support of an international port operator, Hu said.

Investment by a major port operator would help improve Colombo port’s competitive position as its existing water depth was not enough to handle bigger ships and its capacity was near saturation, he added.

"If Sri Lanka wants to keep its competitive position, well-equipped container terminals and modern procedures are badly needed."
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At Monday’s encounter with the media, there was an apparent sense of frustration in Treasury Secretary Dr. P.B. Jayasundera over the manner in which markets and businesses have failed to respond to what he described as ‘fundamentals” but being swayed by speculation.

A series of monetary and fiscal policy measures effected from as far back as mid-November last year starting from the 2012 Budget presentation are part of these fundamentals, apart from regular pronouncements by decision makers of such policies.

However, some analysts have opined that the flipside of regular or successive policy actions between short intervals could also mean previous moves having failed in achieving desired objectives.

This, along with some pronouncements failing to materialise (exchange rate will stabilise below Rs. 125 for the dollar but in turn crashing to Rs. 133.50 and hike in interest rates will check high credit growth – in February the rate of increase was still high at 34%) or getting delayed (for example $ 75 million inflow from India’s ITC to build Sheraton Hotel has been coming now for several months), have caused a setback to the level of confidence in both the Treasury and the Central Bank.

Furthermore, inconsistent policy has been another hiccup for the Government. Most recent case was accommodating reconditioned motor traders’ request to increase the age limit of vehicles, in less than a month after the original rule was imposed.

Given the impact of recent measures and downturn in the economy, several analysts have said the targeted 6.2% budget deficit is unattainable too.

Questions from the media to Treasury Chief did cover some of these issues on Monday, prompting Dr. Jayasundera to reiterate past statements or be emphatic about the Government’s standpoint.

He admitted that there could be an issue of lack of confidence but on his part he expressed confidence that recent measures would stabilise markets as well as help boost exports, the import replacement industries as well as energy conservation.

The Treasury Secretary also said people (markets and private sector) must have greater trust in recent policy measures as well as in those who took decisions. “When the economy was growing at 8% if people believed us and our actions, why cannot the very people do the same today (on our actions)?” Dr. Jayasundera queried at the media conference.

“We expect stability in markets in May,” Dr. Jayasundera said, suggesting that markets would factor in moderation in imports and credit expansion when latest data was available. “No one can go on speculating regardless of limits or fundamentals. Sanity will prevail,” he added.

The Treasury Chief also made it a point to note that the IMF’s recent World Economic Outlook has forecast oil to be $ 98 per barrel in 2012 whereas it is nowhere close with the range being $ 120 level.

For argument sake, “Let’s assume we are incompetent whereas the US or India’s policy makers are competent. However, even those countries have got certain economic forecasts and actions wrong but does that mean their (US and Indian) people and markets have lost confidence?” was another poser from Dr. Jayasundera.

At the press conference he asserted: “The recent spike is due to speculation more than on fundamentals. I reiterate that the US Dollar exchange rate will stabilise below Rs. 125. There is no reason why the rupee’s value has to go beyond that. The monetary and fiscal policy measures taken recently will ensure greater stability.”

The Treasury Chief explained that policy rates were increased to effect an upward revision in interest rates to curb credit growth, whilst taxes on vehicles, along with revision in fuel prices, were implemented to discourage imports. There were also subsequent adjustments in electricity tariffs. He said that even after these changes if the economy wasn’t responding or adjusting and if people wanted to import at a higher exchange rate, then it showed the strength of the economy.

He suggested that a mix of using reserves to defend the rupee as well as allowing market flexibility to adjust itself was the way forward. However, the Treasury Chief warned that if speculators persist disregarding the fundamentals, then the Government would intervene. “If the element of speculation goes beyond tolerable levels, then we will intervene,” he stressed.

Whilst Dr. Jayasundera’s briefing was on Monday morning, by close of business, the rupee ended 0.2% down as importers bought dollars and the market appeared to have ignored the warning from the Treasury boss. Dealers said a State bank, through which the Central Bank usually directs the market, sold about $ 6 million to support the rupee though that was not adequate.
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The recent buy of a 12% stake of The Finance Company (TFC) by the National Savings Bank (NSB) is completely value driven and an investment to the future of both corporate entities, said TFC Chairman Preethi Jayawardena.

The contention that the price paid for each share of TFC was premium and did not validate the company’s share value was roundly rejected by Jayawardena.

“The investment by NSB was on the future of TFC. This is an institution with a long and prestigious history.
However, after the Ceylinco debacle, there were doubts cast upon the company’s future. When I was appointed as Chairman of the company and the new Director Board took over, upon intervention of the Central Bank, TFC was in great financial difficulties. From a Rs. 1.7 billon loss-making venture, the company has witnessed a significant turnaround, making Rs. 15 million in profit during the last three quarters,” he said.
Jayawardena, said that the value of the share of TFC previously did not reflect the company’s performance or potential.

“The share price for a TFC share was highly undervalued owing to market conditions within the country and external factors such as economic factors on a global scale. Therefore, it can be safely said that the share price did not reflect the true worth of the company,” added Jayawardena a widely-respected business leader currently functioning as the Managing Director/CEO of Chemanex PLC and also as a Non-Executive Director of CIC PLC (the holding company of Chemanex).

The Chairman said that the transaction should not be viewed as a one-off dealing. “This is a partnership for both entities. This was not a share bought over the counter and I am sure NSB would have done its homework before consideration. The benefits that would be reaped by the deal would augur well to all stakeholders of both companies and would provide horizontal integration to both companies in their future endeavours.”

Jayawardena was optimistic about the future of the company, stating that TFC had taken all necessary steps to strengthen infrastructure in order to meet the needs emerging within the current market.

“The inclusion of a new Director, Cherille Rose – a former Vice President of global giant Citi Bank – has added to the strength of the company. We have adhered to all corporate governance principles and have taken all necessary measures to ensure that the company is run efficiently and diligently. I firmly believe that investors should look at the future of the company and this is exactly what this transaction mirrors,” he said.
TFC Director/CEO Kamal Yatawara also expressed similar sentiments: “The company has been working with an internationally-reputed strategic consultancy firm and this will only go on to maximise value and profit creation.”

Yatawara went on to point out that TFC is necessarily value-driven with a proud heritage and history. “This company is the largest and most sought-after financial institution in the country. Today the monthly intake in deposits of the company has exceeded over Rs. 1 billion, which mirrors investor and public confidence in the company.”

Commenting on intervention by the Central Bank, Yatawara noted that the intervention proved vital. “When financial institutions in the West were falling like a pack of cards, leaving employees and investors destitute, not one registered financial institution in Sri Lanka had to close shop.”

Yatawara went on to state that the buy by NSB would enhance value to both companies to serve their stakeholders and the public at large. “NSB is a specialised banking institution and this in essence is a strategic partnership. NSB will be able to integrate horizontally and move into sectors that it could not previously due to limitations in place. It will open up new avenues for both entities and is clearly a win-win situation for both companies.”

Speaking on the transaction further Yatawara said that since TFC had been the market leader in the real estate industry, the partnership with NSB would cement its dominance and provide relief to its clientele.

“A majority of citizens in the present day market buy land on loans and this partnership will only add value to them, giving them the direct opportunity to take out loans with less hassle and adding value to what we bring as a company to the desk. TFC has witnessed an unprecedented increase of 350% bringing in Rs. 2.7 billion in real estate-related transactions in comparison to last year and the partnership will further cement our surge,” he said.

Yatawara pointed out that the transaction would have occurred after thorough and careful analysis of the future potential of the company together with its corporate practice. The infrastructure possessed by TFC was also a major contributing factor for the investment. “TFC has the largest and widest network in our specified business and therefore it proved to be crucial in the decision,” he said.

He went on to state that the investment by NSB was one that was long-awaited. “NSB in fact wanted to buy shares worth Rs. 200 million during the initial share issue, but circumstances were such that when the cheque was received when the issue was closed. They always had an intention to pursue a profitable venture with us,” he said.

Yatawara said that the investment would prove to be fruitful in the near future. “As a company, despite doing one of the best turnarounds in the country’s recent corporate history, we know that we could achieve much higher goals. The investment would facilitate this drive to the future and cement our place once again as the most respected and profitable company in the country in our specified business.”
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Sanjeevi JAYASURIYA
HDFC Bank has taken the lead in publishing integrated annual report givinga holistic picture for the year ended 2011. “This is our first attempt in publishing an integrated annual report that showcases a holistic view of HDFC Banks’ commitment on economic, environment and social aspects of its operations. HDFC depends on stakeholders from employees to community, customers to valued business partners, shareholders to the nation at large,” HDFC Bank Chairman Siromi Wickramasinghe told Daily News Business.

We have been successful in re-focusing the bank to deliver on accelerated economic contribution inline with the government’s goal. The addressing of the housing finance needs of the country’s urbanizing population and the growing middle income sector was the priority in our strategies in 2011, she said. HDFC granted 14,224 housing loans valued at Rs 4.8 billion compared to 10,739 facilities worth of Rs 3.1 billion in 2010. The savings customer base improved from 210,000 to 261,000 recording a deposit improvement of 48 percent for the year. Over 75 percent of the total loan portfolio is comprised of low and middle income sector customers.

It also enhanced customer access points from 28 branches to 31 branches, 225 ATMs to 310 ATMs and 81 mobile bankers to 100 mobile bankers islandwide. We have taken a challenging and revolutionary step to publish the integrated annual report where the stakeholders and investors could seek information easily. This integrated report not only gives the financial information, but the qualitative information that has direct as well as indirect impact on the society, HDFC Assistant General Manager Finance and Planning D. Vidana Pathirana said.

“We are the first government institution to produce an integrated annual report in compliance to Global Reporting Initiative.We consider this as a greater achievement,” he said.

Among the highlights of the report regarding the carbon foot print are the electricity consumption of 650,000 Kwh, petrol and diesel consumption of 23,051 litres, photocopy paper consumption of 2,558 kg, water consumption of 7.340 litres , own vehicle mileage of 207,000 km and public transport by the staff of 7.3 million km with comparisons of 2010.

These measures are to minimize the carbon foot print to contribute in managing global climate change. We have quantified direct and indirect impact on society and taken measures to improve the situation where it is necessary and possible, Pathirana said.

HDFC Bank recorded Rs 310 million, the highest profit after tax up by 130 percent from the previous year. The bank recorded Rs 20 billion asset base and Rs 15 billion loan portfolio for last year.
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