Sri Lanka Newspapers - 01/01/2012

Guardian sees opportunities picking under-valued stock
Predicts medium term foreign inflows
Ceylon Guardian Investment Trust PLC, the biggest quoted portfolio investor listed on the Colombo Stock Exchange, has told shareholders that it was adopting "an innovative growth strategy to create outstanding shareholder value."

The Guardian group, with assets totaling over Rs.13.84 billion against liabilities of just Rs.191.5, million has posted a consolidated profit after-tax of nearly Rs.2.1 billion in the half year ended September 30, 2011, down 10% from the Rs.2.3 billion earned in the comparative period the previous year when the stock market performed exceptionally.

Guardian has said that the profit included a share of Rs.502 million of associate company profits representing the group’s holding in Bukit Darah PLC.

"The after tax profits recorded from investment related operations, therefore amounts to Rs.1.59 billion, a drop of 25% from the comparable period of last year," the interim report said.

Guardian Fund Management Ltd., the managers of the Fund, said they saw opportunity in picking under-valued stocks taking a three to five-year investment horizon particularly in view of unexplored opportunities available to all Lankan corporates.

They expected the CSE to attract foreign inflows in the medium term "given the preference for investing for growth in Asia in comparison to the relatively low performing Western markets."

The total value of the Guardian group’s portfolio as at September 30, 2011 stood at Rs.33.2 billion, down 8% from Rs.36.3 billion a year earlier against a 6.1% depreciation of the All Share Index during this period when equity markets, both local and global, had been very volatile, the report said.

"Hence in the back drop of challenging market conditions, Ceylon Guardian group booked exceptional capital gains of Rs.1.7 billion by taking an aggressive sell position and generating cash for the company."

The group’s portfolio is segmented thus – Rs.1.1 billion in short-term equities, Rs.9.2 billion in long-term equities and Rs.21.4 billion in strategic holdings.

The group’s investment managers noted that the Colombo bourse was now in negative territory after a two-year run as one of the world’s best performing markets in 2009 and 2010.

"However, it yet continues to be one of the best performing markets in the world for year 2011 it noted," the managers said on Nov. 8, 2011.

They noted an anomaly in the market where the Milanka Index which better represents blue chips "lagging behind the All Share Index for the first time in the history of the CSE."

"This is attributable to heightened speculative trading in second tier stocks in recent times, the report said.

"During the period of review much interest was evident in illiquid stocks which were trading with huge price fluctuations drawing retail interest to second tier stocks. Market turnover in the quarter under review has been driven to a great extent by these trades."

The managers reported that the Guardian group had made Rs.1.5 billion new investments during the first half of the current financial year and divested Rs.2.9 billion worth of shares making the group a net seller in the market.

Their focus continued on banking and financial services and diversified holdings, also concentrating on sectors such as manufacturing, beverages, food and tobacco, healthcare and oil palms "which looks strong on long-term fundamentals."

The managers admitted that both the group’s long-term portfolio and trading portfolio had under-performed during the first half of the current

financial year mainly due to concentration of the portfolio on blue chips which lagged during this period.

This was clearly evident from the lower depreciation of the All Share Index by a mere 6.1% vis-à-vis the comparatively higher depreciation of 12.1% on the Milanka.

However, Guardian had continued its style of managing the fund despite the short-term under-performance "as we believe that market anomalies will smoothen in the long-term."

When selecting stocks, Guardian followed a bottom-up approach taking financials, industry presence and management expertise into account.

"Such companies were built into the long term portfolio taking a medium term view of the companies’ earnings and business growth," the report said.

"On the short end, the trading portfolio built positions to enhance shareholder returns in the short term, and bought faster moving stocks substantiated with fundamentals."

The group acquired Guardian Capital Partners PLC (previously Watapota) to consolidate portfolio activity in private equities "profiting from the higher risk/return profile of this business segment."

"Currently the group’s private equity portfolio amounts to Rs.488 million at cost and Rs.731 million at market value," the report said.

During the current year two of their private investments were encashed through IPOs giving the group an average internal return of 85% on those projects.

"Decisions on exit at the time of IPO depends on our assessment of the then prevailing market conditions and the long term value of the stock given the IPO pricing," the manager said.

"Given the immediate over heating of the listed market, we are confident that good quality private placements will give us an edge in maintaining premium returns to our shareholders into the future," they added.

Guardian has continued leveraging their in-house management capabilities by entering a joint venture with Acuity Partners (Pvt) Limited, the investment banking arm of HNB and DFCC banks during the period under review to manage and market unit trusts using Acuity’s distribution and network capabilities.

The SEC has approved the equity and fixed income funds of this joint venture which will be launched this year as what the managers called "a series of innovative investor centric savings plans."

"The drop in interest rates is also likely to see domestic funds shifting from fixed income to equity investments," the managers said.

"Taking into account all these developments, we remain confident of investing for the long term, while we would use the strength of our short term portfolio to ride out the market cycles on a yearly basis."

Guardian had a stated capital of Rs.953.2 million, capital reserves of Rs.517.3 million and revenue reserves of Rs.10.16 billion in its books as at September 30, 2011.

The Guardian share had a net asset value of Rs.132.42 with the company capitalizing reserves and sub-dividing its shares in 2010.

Carsons with 67.15% and Thurston Investments with 6.43% were the two largest shareholders with public shareholding standing at 32.84%.

The directors of the company are: Messrs. I. Paulraj (Chairman), D.C.R. Gunawardena, A. de Z. Gunasekera, V.M. Fernando, K. Selvanathan, C.W. Knight and Mrs. M.A.R.C. Cooray.
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by R.M.B Senanayake
Growth Prospects

The Central Bank has published an optimistic outlook for the economy for 2012. In 2010 we had a growth rate of 8% (our Real National Income, an alternative measure showed an increase of 7.5%) and in 2011 the CB expects to maintain the same figure although the IMF predicts 7.5%. The World Bank has also released its projections for South Asia. "Sri Lanka’s economy which rebounded to record a growth rate of 8 percent in 2010, from 3.5 percent in 2009 is expected to grow 7.5 percent this year, 6.8 percent in 2012 and 6.4 percent in 2012,’’ it said.

The World Bank also warns the region about the threat of higher inflation. The Central Bank expects inflation to level off. But there are risks that the oil prices will continue to rise in 2012 although the demand for oil could slacken if the developed countries encounter lower growth. The World Bank expects commodity prices to increase in 2012. As a net importer of food we could suffer from adverse terms of trade if food import prices rise while our export prices remain the same - which is a likely prospect. We cannot avoid contagion (the spread) from the economic recession in the developed countries in USA and the Euro Zone as we saw in 2008/2009.

The financial meltdown in USA in 2007/2008, led to the outflow of foreign funds from the government bond market and the local stock market in 2008. There was also the continuing deficit in the current account of the Balance of Payments, which had to be partly funded from the Official Foreign Reserves. The Central Bank lost US $ 22,291 million of its Reserves in 2009 and had to go to the IMF in April 2009. Since then the Central Bank has built up Foreign Exchange Reserves of $ 8 billion. But these are borrowed Reserves and a part of this is short term borrowings could flow out at the first sign of trouble here or the need for funds abroad. So we are vulnerable.

The trade deficit has expanded by 100.6 percent year-on-year to US$ 7,733.9 million. Hence another $ 3-4 billion of Official Foreign Reserves are likely to be lost this year (2011) too. So if the current account deficit were to increase in the same manner next year, there will be a further drain out of the Official Foreign Reserves on account of the balance of payments deficit. Our hope lies in larger foreign capital inflows of a long term character. Holding the rupee rigid will only encourage speculators to move out of rupees.

Inflation

The World Bank says that "Elevated international commodity prices are also a negative risk factor, particularly given political resistance to reducing subsidies. Farmers should be able to participate fully in the upswing in the world food prices despite its adverse effects on consumers.’’ The Central Bank is now allowing interest rates to rise perhaps to attract more foreign capital inflows. This will complicate monetary policy and the World Bank emphasizes the need for fiscal consolidation.

If monetary policy is to be eased then fiscal policy should be tightened. But this is unlikely. When the Central Bank buys foreign exchange to prevent appreciation of the rupee it drains out liquidity from the banking system. Then if it engages in a Repo exercise to pump more liquidity it increase the monetary base which could increase money supply and create inflationary pressure

Food represents a large share (about 40 percent) of the household consumption basket, a key concern from a poverty perspective. International wheat and edible oils prices have surged, while rice prices have remained more stable. Higher oil prices and higher imported food prices will have to be allowed to pass through to the domestic prices since any subsidies would increase the budget deficit enormously undermining the fiscal targets agreed to with the IMF. Such macro-economic loosening would also require more printing of money to fund the larger budget deficit. It would also lead to a larger current account deficit in the Balance of Payments. The chances of obtaining foreign funds for meeting the budget deficit are unlikely owing to the liquidity shortage in the Euro Zone. The broad money supply is expanding at 20% this year and further increases will add to inflation and the current account deficit in the balance of payments next year. There will also be higher wage demands as trade unions may clamor for higher wages to offset the rising cost of living, enhancing inflation further.

Despite progress toward fiscal consolidation and plans to bring down the budget deficit to 6.8% this year these targets will be incapable of achievement next year, given this scenario. The outlay for interest payments will increase with the increase in interest rates which are now taking place in the market.

Global growth trends

Economic growth will also be affected by the global economic trends. According to the final estimate of Q3 2011 GDP by the U.S. Bureau of Economic Analysis (BEA), the U.S economy grew at 1.8% SAAR (seasonally adjusted annualized rate) after growing 1.3% in Q2, but it was down from an earlier estimate of 2.5% and the preliminary estimate of 2%. The downward revision was driven by slower-than-earlier estimated consumption growth and a larger trade deficit. However, real gross domestic income (GDI), an alternative measure of measuring the economy showed the economy at a virtual stall.

The National Bureau of Statistics (NBS) reported that China’s GDP expanded at a seasonally adjusted annual rate (SAAR) of 9.3% q/q in Q3 2011, down from a revised 10.1% in Q2. The Asian Development Bank expects China’s GDP growth to slow, at 9.3% in 2011 and 9.1% in 2012, as tightening policies moderate fixed investments and external demand slows. Inflation is forecast to ease in H2 2011, but will remain elevated at an average of 5.3% in 2011 due to rising global commodity and food prices. In April 2011, the World Bank revised upward its forecast for Chinese growth in 2011 to 9.3% from 8.7% previously. The bank expects growth to slow to 8.7% in 2012.

In the three months to September 2011, India’s economy decelerated to 6.9% y/y, down from 7.7% y/y growth over the April-June period. The slowdown was due to poorer performances in mining, manufacturing, financing, insurance and real estate. Analysts expect growth to slow in the next quarter due to weak investment, weakening foreign investor confidence and global economic uncertainty. Persistently high inflation in India is a problem and this will adversely affect India’s growth for FY2012. India’s GDP grew 8.5% in FY2011, up from 8.0% in FY2010. Analysts expect India’s growth to be around 7.0-7.2% in 2011-12, after the Reserve Bank of India (RBI) raised interest rates by a record high to contain inflation. Reuters asserted that the Indian economy has been hit by various factors, such as persistence of high inflation, low investment and industrial output, high capital flows and a depreciated rupee at new lows. There has been a sharp decline in private corporate investment in India this year. This means that the sustainable GDP growth rate at which inflation is non-accelerating has also declined. This is perhaps the situation for Sri Lanka as well. Indian policy makers are however willing to sacrifice growth in the near term by tightening fiscal and monetary policies to curb inflation and sustain longer-term growth prospects

The situation in the Euro Zone is much worse. The Euro zone crisis has now spread well beyond Greece, and even beyond Italy and Spain, with some sovereign bond spreads rising in core countries. . The recent failed auction in Germany suggests that the financial stresses may soon reach Germany, the largest economy in the Euro Zone. The provision of funds by the European Central Bank and/or the IMF, to support the banks exposed to the Euro bonds of the debt ridden countries is not enough. There has to be adjustment in addition to financing. But politicians are reluctant to undertake the required macro-economic adjustments since that would make them unpopular.

But the lack of real adjustment that restores sustainable growth, competitiveness and external balance will eventually undermine any financing plan, even one with very large official resources. This applies to our own country as well. Normally economists recommend financing of the deficit only to gain time, on condition that the required macro-economic adjustments are also undertaken. Because the IMF insists on such macro-economic adjustment it has become unpopular universally. But the facts are stubborn. The necessary fiscal austerity and structural reforms in the weaker countries of the Euro Zone will make the ongoing recession worse. Large official financing is a necessary but not sufficient condition to rescue the Euro Zone.

Monetary Policy implications

The implications for monetary policy in our own country are that inflation cannot be ignored. We need a highly flexible monetary policy. We perhaps need to tighten monetary policy now and also allow the rupee to depreciate but if there are signs of the global recession getting worse then at that stage we need to relax monetary policy and hold the rupee steady to prevent any flight of foreign capital that may arise as foreign investors take out their money to cope with liquidity problems back home. But this still does not eliminate the need for macro-economic adjustment.
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DIRECTIVE ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION Re. DEMATERIALIZATION OF SECURITIES

It is reported that the Securities and Exchange Commission of Sri Lanka (SEC) has directed the Colombo Stock Exchange (CSE) and the Central Depository Systems (Pvt) Ltd (CDS) to mandate the lodging of securities certificates pertaining to all listed securities at the CDS and further directed that all existing listed companies which obtained a listed status before January 1, 2011 to be in dematerialized form within a transitional period of one year from January 1, 2011. In view of the aforesaid directive, all holders of physical securities certificates already issued by listed companies have to convert their securities certificates to a dematerialized (electronic) form by lodging such certificates into their respective CDS accounts and this process would have to be completed within a transitional period of one year from January 1, 2011.

In line with the high standards of ethical conduct and adherence to best practices of good governance which formed a core value to which I was personally committed to, whilst engaged in financial services business leadership and holding directorships in public listed companies, I refrained from engaging in any trading in securities to the account of myself, my family and/or private investment Companies controlled by me personally. Even post my retirement from active employment nearly six years ago, I have not yet engaged in such trading activities.

In view of the above core values strictly conformed to, all investments made by me have been limited to purchase of securities mostly from new issues, rights issues and bonus issues for long term passive investments. As an additional measure of adherence to the core principles enunciated earlier, all such investments have been in the form of physically held certificates. In view of the above I refrained from depositing the securities in the CDS, despite many reminders from the Secretaries of the relevant companies quoting the aforesaid SEC directives.

However, by your recent extension of new facilities, options have been provided for securities to be deposited with the CDS to be held in locked accounts. Following this opportunity, I have attempted to deposit in the CDS all the shares held in the certificate form by me, my family members and the personally controlled investment company, within the deadline stipulated by you.

Several of the certificates so deposited have been returned by the share broker facilitating such deposits on the grounds that some of the share certificates so deposited are not printed and certified in the format in which the deposit to the CDS account can be accommodated (eg. not printed on security paper types and per specifications as required) or due to such certificates relating to companies delisted by the Stock Exchange. These include even share certificates issued by leading business conglomerates which form the larger part of the market capitalization of the Stock Exchange, and further some of them are of recent origin, including those issued by the relevant companies within the last five years.

In view of the above non acceptance of certificates as deposited, the only alternative available is to seek from the relevant companies new certificates conforming to the specifications as deemed acceptable by the CDS. You would no doubt agree that the process now required for deposit of the certificates in the CDS will require substantial time extension, well beyond the set cutoff date of 1st January 2012.

As it is my belief that the SEC in making the directives mandatory and binding by a cutoff date as stipulated, did not intend nor have the enabling legal capacity, to deprive or negatively impact on the rights to share ownership of those failing to comply nor intend to deprive shareholders of any of the attendant benefits of share ownership in the form of linked dividends, rights and bonus issues in the interim.

In view of the foregoing, I appeal to you on behalf of myself and many other shareholders likely to be placed in circumstances similar to mine, to be provided with a due clarification by the SEC and or the CSE/CDS of the applicable enforcement /facilitation processes intended as a consequence of the issues highlighted above. Please clarify how the proposed directives are now to be implemented by the rules and regulations made hereafter by the SEC and or the CSE / CDS and the consequential impact of such announcements on shareholders yet holding their securities in the form of physical certificates.

Your early attention and action will be much appreciated, followed by relevant public clarification and facilitation proposed in respect of shareholders who have not yet effectively complied with the previous directives.

Yours Sincerely,

Chandra Jayaratne

CC. Director General, Colombo Stock Exchange

Mr. Nuwan Nilantha, Head of CDS Services, Central Depository Systems (Pvt) Ltd

Mr. Yadhavan Jayaram, Bartleet Mallory Stock Brokers Ltd

Secretary General/CEO, Ceylon Chamber of Commerce

Secretary General CEO, Sri Lanka Institute of Directors
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Very nearly disastrous 2011 best forgotten
By Steve A. Morrell

The allocation of US$ 10 million for rebranding ‘Ceylon Tea’ was acknowledged as "inadequate" to meet the global challenges for a dynamic exercise, as envisaged, but Director, Sri Lanka Tea Board (SLTB) Hasitha de Alwis said on Friday that although these funds were decidedly low at least now it was more a plus situation comparing past instances of negativity.

He said positive influences brought to bear by the Minister of Plantation Industries Mahinder Samarasinghe had resulted in firm focus as envisaged.

Managing Director, Ceylon Tea Brokers , PLC Waruna, de Silva said results of the final sale 2011, conducted on December 20-21, could perhaps have been a ‘good news’ precursor to an improved results oriented Tea industry through 2012.

Qualifying his views, he said effective branding of ‘Ceylon Tea’ was now essential. There was no option but to adhere to dynamism to look for new markets. "Our main buyers, Russia, and some Middle East countries have progressively reduced their buying. Their preferred origins were Kenya, and some other African countries. Over the years we lost the UK, Egypt, and Pakistan. They were all crowding the Kenyan market place", he noted.

The formal Estate sector had severe cost problems. Labour wages, subject to the most recent collective agreement, had caused incessant stress on Plantation Companies, whose tea lands were now in a negative position of insolvency. De Silva said the image of tea had to have more vigorous sales options.

He cited the instance of numerous coffee houses at various locations in the city of Colombo that marketed a cup of coffee at the exorbitant price of Rs. 500. Image building for tea too should be at that level.

Reverting to new markets, Hasitha de Alwis, said the US and China were areas that were in focus for market expansion. "What can you do with US$ 10 million?" He agreed this quantum of money was not sufficient for their plans, but it was at least a starting point.

He also said there was no option but increase production. Conceding the view that that was easier said than done, plantation companies had to have their re-planting programmes well in hand to re-plant at least 3% of their tea holdings each year. True these were long term perspectives, but options were limited. ‘They have no choices, really’.

The Chairman The Planters’ Association of Ceylon (PA), Lalith Obeysekera at its last press conference said shortage of workers stalled their work programmes. Re-planting was therefore drastically reduced.

Meanwhile, news have emerged of an estate in Hatton facing productivity problems. After the labour refused to increase their output of plucked leaf, the company instructed their planters to leave the plantation, and closed down the estate. The police were informed.

Workers wanted their Unions to intervene, but they did not. This resulted in the Plantation Company holding firm on their decision to close the estate.

The latest information was that workers had said they would now increase productivity.

Questions asked were whether this could this be the turning point the Plantation sector was looking for?

Brokers said that comparatively productivity in most African countries was that out put per plucker per day was about 45 kilos. Here it was barely 12 kilos. These were negative aspects that had to be addressed by the government; because they were owners of these plantation lands.
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By Duruthu Edirimuni Chandrasekera
Despite fervent expectations by the industry that 2012 will be a ‘party’ for the share market with changes at the Securities and Exchange Commission (SEC) directorate, some analysts say the market this year will not be as good as expected despite the impending relaxation on certain rules by the regulator.

Brokers expect the systematic credit control tightening over the past year to be relaxed by the new Chairperson, Thilak Karunaratna (going by his comments on overregulation in the market). “We are also awaiting a meeting with the Colombo Stock Exchange (CSE) and the SEC,” a broker told the Business Times, adding that they’ll lobby to get the current directives by the SEC changed.

Many agreed 2011 was a year of lessons learnt and also noted that relaxing credit rules won’t be a panacea for all ills. “This won’t dramatically push the market up and for it to be sustainable on an upward trend, we need foreign investment,” an analyst stressed.

“The ‘games’ that were played last year at the CSE will not be easy this year,” another analyst warned. He added that ‘lessons’ have been learnt by all stakeholders in the market. Analysts say that with the strong earnings outlook - the 20% increase in expected credit growth, average gross non-performing loan ratio of about 4.5%, healthy capitalization levels, return of equity of nearly 18% -, the banking sector outlook for this year remains positive.

“Given the negative market sentiment the banking sector counters have shed ground during the last few months. However at these price levels the sector is very attractive,” Dhanushka Samarasinghe, Director Research TKS Holdings, said. He said the tax holiday granted for tourism investments till 31st of March 2015 exceeding Rs 50 million under the Inland Revenue Act will give a large boost to conglomerates in this sector.

"Listed entities such as Aitken Spence Hotel Holdings, John Keels Hotels, Softlogic Holdings, etc would benefit from this tax holiday," he added.
http://sundaytimes.lk/120101/BusinessTimes/bt04.html

“For all of us born in Sri Lanka and living in this time, this is our destiny, our calling- to pick ourselves up, dust ourselves off and begin again the work of re-making Sri Lanka.” This is a quote from a ‘committed’ Sri Lankan, who prefers to remain anonymous, for, in today’s world criticising the government can get you into trouble. On the other hand too much praise too can lose a few business pals.

His points, contained in a letter featured on the adjoining page, suggest that rather than mourn, groan or grumble, Sri Lankans should do their part in making this nation the paradise it once enjoyed – before the war. To some extent that is true and Sri Lankans should be seen as doing rather than letting others ‘do’, then sit back and criticize.

The Business Times over the past year also had its share of brickbats thrown at us, saying we are too critical and not positive particularly on the stock market, development and business. However to these ‘readers’, we say: Please read our columns and stories closely and you would find the balance and objectivity that is required. For example when the Securities and Exchange Commission (SEC) began enforcing settlement deadlines and changing the goalposts, this paper was critical, and said such changes were unfair to investors. But when market manipulators ganged up against the SEC’s plan to deter inside trading and manipulations, the paper sided with the SEC.

No market can survive on manipulation, insider trading or ‘pump and dump’. Though the ‘removal’ of the SEC chairperson and the director-general was expected to ‘boost’ the market, according to influential investors, that’ didn’t happen. The new SEC chief (Thilak Karunaratne) believes over-regulation is negative and won’t help the market to develop, a point that the Business Times has also said in the past. Regulation, however, is important and necessary to ensure a level-playing field and when these rules are applied, they must be applied equally to all. Let’s hope the market will settle down this year and bring the necessary returns to deserving investors.

The Business Times-RCB poll this week has raised some interesting issues, one in particular which caught our interest and has been a hotly debated issue over the past year: the country’s high growth rate.
While the Central Bank has been announcing impressive economic growth figures, economists have begun questioning these, asking, “From where is this growth coming?”

Some of our respondents in this week’s poll raised the same concerns, particularly since many of Sri Lanka’s key export markets (Europe and the US) are adjusting lower, earlier forecasts on growth in 2012. Sri Lanka, on the other hand, is forecasting higher growth this year.

Another comment from a respondent that drew attention was that while the government was doing a lot of good work, this was negated to some extent by corruption, waste, a lawless society, intimidation and harassment by influential parties. A weak opposition has also allowed the government to continue without a fuss. At a recent discourse in Colombo on poverty, the audience raised issues with the reliability of government data and statistics on per capita income, the poverty line and inflation.
One of the biggest debates this year has been transparency, accountability and good governance in government.

Unfortunate indeed, given that for many driving across the country, there is a lot of development to see and many new roads to go on. Road development, without a doubt, has been the cornerstone of the government’s development drive. A speedy completion to the long-awaited southern highway (a treat to drive on and see the ‘real beauty of Sri Lanka’), rapid progress on the Katunayake highway and the circular roads and now plans to begin the Colombo-Kandy highway, are great positives in the development success.

That success, to some extent, has been clouded by corruption, intimidation, poor decision-making (expropriation laws and the disastrous pensions bill) and the latest A’ level examination fiasco. For the government to win the ‘love’ of the people (apart from winning elections which to a large extent is helped by an incapable opposition), it has to score well on all fronts.

The government has the power, resources and dynamism to transform Sri Lanka into a economic powerhouse in Asia if decision-making is transparent and not influenced by political considerations.
Thus on that note, we wish all our readers a pleasant and trouble-free 2012.
http://sundaytimes.lk/120101/BusinessTimes/bt07.html

By Jagdish Hathiramani
It is a somewhat a well-known proverb which states that those who do not learn from history are doomed to repeat it. As such, on the occasion of just having entered 2012, the Business Times offers a review of the incidents and progress, or lack thereof, that Sri Lanka has chartered over the past 12 months. And considering the relevance of a quarterly calendar, particularly to businesses, which use them to track trends and make short term plans, what better way to present to you, our dear reader, the highlights for the year 2011:

First Quarter 2011 (1Q11) - January, February, March
Keeping in mind our focus on business-oriented news, it is no great surprise that our first highlight is the stock market and there was no bigger story at the beginning of 2011 than the unprecedented number of Initial Public Offerings (IPOs), close to 60, which were planned for 2011. A local record that eventually failed to materialise due to waning public sentiment about, and possibly even small investor mistrust of, the stock market as well as it being perceived as a unfair playing field. Either way, the honour of being the first IPO of 2011 went to HVA Foods, brand owners of Heladiv Iced Tea.

In other news, the first quarter of 2011 was also the time when damage estimates were totalled for the worse flooding that the country had experienced in decades. Overwhelming the central, north central and eastern provinces, and with an expected recovery estimated to cost Rs. 40 billion, the floods also, from the point of view of the Sri Lankan consumer, resulted in skyrocketing prices of essential food items. All vegetable prices rose above Rs. 100, while green chillies’ prices per kilo in Colombo averaged between Rs.600 and Rs. 700.

The month of January was also significant when considering that its dawn heralded word of a final settlement of one area of old business which was much speculated about over the course of 2010, the repayment of monies owed to the Harry Jayewardene-run Distilleries Company of Sri Lanka (DCSL) by the government following the return of Sri Lanka Insurance to state hands.

Golden Key
Meanwhile, another area considered settled, as of January2011, was the long running Golden Key Credit Card Company alleged scam. This was in response to indicted company directors putting forward a settlement plan which was eventually endorsed by the country's Supreme Court. Ultimately falling apart, this long-running issue and its many related court cases, criminal or otherwise, as well as those others citing the failed Ceylinco Group, will soon be closing in on its fourth year as of 2012.
At the same time, the month of February saw the unusual move of the Lanka Indian Oil Corporation (LIOC) raising the price of diesel while the Ceylon Petroleum Corporation (CPC) kept its diesel prices the same, a move which was in response to impending local elections slated for March 17. This was despite the CPC accruing losses tantamount to more than Rs. 2 billion a month.

Further, there were also a number of policy amendments made which were important. One was the halting of dual citizenships, unless this "privilege" was deemed in the best interest of the country. Another was putting the Defence Ministry in charge of approvals for land usage in the western province.
February was also important for Colombo-ites as the historic Army HQ facing the Galle Face Green was cleared away following the property's sale to international hotelier Shangri La. An additional deal made in the following month whereby even more Galle Face Green adjacent land was earmarked for Chinese aircraft manufacturer CATIC was later struck down.

This quarter was also a time heralding substantial future upheavals as both Sri Lanka's Securities and Exchange Commission (SEC) and Board of Investment (BOI) made moves which would ultimately have heavy repercussions. The SEC considered regulating the use of bank guarantees to limit speculation while the BOI restructured itself, shedding some of its functionality, which also sparked the ire of BOI-related trade unions and virtually halted investor applications being processed.

Meanwhile, March was also the month when Colombo's landmark Hilton hotel, a part of the city's sky line for 30 years, finally reverted back to state hands. Additionally, it was also the month when initial positive trends regarding the country's tea crops came to naught as a perfect storm of volatility in key markets in West Asia, erratic weather conditions and wage negotiations took effect.

Inflation
Also seen in March, inflation figures rose by 8.6% compared to the same period in 2010, a figure which dispelled the Central Bank’s hopes for a drop in inflation when compared to February's 6.1% figure. Also, economists weighed in and suggested that this was due to inflationary pressure rather than adverse weather raising crop prices, further citing that inflation had increased over tenfold from 0.7% in September 2009 to the then current8.6%.

This quarter, a time of planning for the months, quarters and, even, full year ahead, was also when senior representatives of Sri Lanka's export sectors expressed concerns regarding a wide range of issues for the coming 12 months, from new electricity tariffs to high energy costs to the suspension of the US's GSP as well as the appreciation of the rupee and the lack of or high cost of raw materials.
Also becoming apparent, were issues with regard to heavy taxation, especially for potentially high growth industries such as tourism. Of particular concern was the advent of a new Nation Building Tax, which along with the tourism industry also being privy to a special tax category that loaded it with a significantly higher than average tax burden, caused top industry players to become especially vocal with their concerns. This from the industry that was virtually the only source of private sector investment in the economy in 2010.

On a more hopeful note, this was also a time during which the Central Bank of Sri Lanka predicted an 8-9% economic growth for the country and tourism numbers for 2010 showed a 46% growth over the year before.
Second Quarter 2011 (2Q11) - April, May, June
While the first quarter of 2011 was all about planning and prediction, it could be said that the next three months was all about cold hard realities. The first of which was most acutely felt by public sector employees who faced taxation for the first time in 33 years. Other tax amendments foretold in Budget 2011 were more beneficial to the economy such as with the almost halving of Value Added Tax (VAT) for financial services as well as certain other goods and services. In addition, there was the introduction of a new VAT suspension scheme for exporters. The 2011 budget also called for the removals of the Debits Tax, the Social Responsibility Levy and the Cellular Mobile Subscribers' Levy. However, a Nation Building Tax was waiting in the wings to take their place.

In the meantime, April was also the month when the SEC got serious about a proposed Commodities Exchange, calling for international expressions of interest. At the same time, private firms also started venturing abroad for corporate lending, a consequence of new, more lax laws on foreign borrowing coming into effect. Also emerging was word of Sri Lanka's biggest investment zone to be built in Hambantota, revealed to be a mega facility which would equal the size of all the other zones island-wide en masse.

Commonwealth Games bid
Meanwhile, May was the month during which the Hambantota bid for the Commonwealth Games 2018 officially kicked off, being purportedly a Rs.100-million exercise to position Sri Lanka's south as a sporting tourism venue. The bid document submitted in May called for over Rs. 250 billion worth of investments for sporting venues and infrastructure, etc. The Commonwealth Games 2018 was ultimately awarded to Australia's Gold Coast but most of the proposed venues are still on track to be built, a consequence of Hambantota hosting the 2016 South Asian Games.

Most noteworthy for consumers, during the month of June, a Ministry of Finance ruling came into effect whereby machinery, furniture, vehicles, and electrical and electronic appliances could be regarded as moveable collateral which could, in turn, be offered up as security for bank loans.

On the other hand, this quarter also saw the first true discussions between the government and private stakeholders regarding a private pension bill, which was initially noted in Budget 2011, and which also eventually spiralled out of hand. Adding further fuel to the fire was a move by the government to "sneak" in three bills related to it in parliament at a time when the festive season was at hand and important business was not usually discussed. Measures which were not taken lightly and which ultimately led to demonstrations at the Katunayake Free Trade Zone. In attempting to quash these demonstrations, Police action contributed to inevitability of riots andresulted in the tragic and unfortunate June death of Roshen Chanaka Ratnasekera, a 22 year-old factory hand working in the zone, who was fatally wounded by a Police bullet, who along with 250 others, were casualties of this, just the first failed attempt to gain control of private pension schemes.

Tainted petrol
In addition, this period also saw a fresh consumer crisis as 20,000 metric tonnes of tainted petrol was released to the public, causing close to a thousand vehicles to suffer from engine failure. This was allegedly due to excess metal found within the sub-standard petrol stocks which caused engine failure and required replacement parts, including costly pumps and injectors.

On a more positive note, a famous marketing guru, in fact the "Father of Marketing" himself, Prof. Philip Kotler visited Sri Lanka - a coup for the local marketing fraternity. Also, an Indo Lanka Ferry service, which had been the works for many years, and which had previously been popular pre-war, was finally restarted. However, the ferry only lasted until November when it was suspended again, supposedly a result of poor passenger numbers.

Third Quarter 2011 (3Q11) - July, August, September
A welcome change, July was a slow month in terms of government faux pas. The only exception to this being the final end to a proposed new hotel complex to be built by Chinese aircraft manufacturer CATIC, costing US$ 700 million and coming up on land next to the Shangri-La. This followed a change in policy, or, more appropriately, an adherence to existing policy, whereby land could not be sold by the state but only offered on a 99-year lease. This proved to be a deal breaker for the Chinese company.

This period also saw a new government directive enacted whereby only vehicles under two years could be imported. This proved to be a major hurdle for existing imports of 800 five year-old vehicles which had been covered retroactively by the directive and which were sitting in the port at the time of the directive. Plans have also been revealed to further extend this directive to only allow vehicles under one year-old.
Meanwhile, August witnessed a truly impressive landmark, much lauded by local and international observers alike, as the state of emergency which had existed in the island since 2002 was finally lifted. However, in conjunction to the lifting of the state of emergency, there were new laws put in place in keeping with existing prevention of terrorism legislation so ultimately the public's newfound freedom may prove to be only a gesture after all.

On the other hand, September proved to be an interesting month, at least from a business standpoint, particularly because of new developments affecting long open issues. An offer was finally made for Suntel, a local telecommunications business on the market for a long time. Fixed line incumbent Sri Lanka Telecom bid US$ 200,000 for Sweden-based Telia's majority stake in local Suntel venture, which had been looking for a buyer for more than a year. While this deal ultimately fell through, this proved to be a catalyst for Suntel which very soon after was bought up by SLT's main rival Dialog.

Vehicle imports
Also revealed during this month, vehicle imports would only be accepted through Hambantota from March 2012 onwards. This move, insiders predict would again jeopardise the automobile industry due to the added expenses, delays, etc. which would result from this shift.

This quarter also saw the SEC finally take a stand against insider trading and fined three directors of Environment Resource Investments PLC (ERI) Rs. 10 million in total. This was at the same time that SEC Chairman Indrani Sugathadasa was facing pressure to resign, which was an option which both she and SEC Director General Malik Cader ultimately took a few weeks later. Also interesting, by this time it became apparent that investor sentiment, especially pertaining to small investors, was in a downward spiral. This was especially poignant in the area of IPOs. Of the initial expectation of60 IPOs for 2011, only 30 actually progressed forward with definite plans, with many of the others citing low investor confidence as a reason for their postponement.

Another noteworthy occurrence during this quarter, the International Monetary Fund (IMF) advised Sri Lanka to limit its foreign exchange interventions, suggesting the Central Bank's defence of the rupee was too rigid. It also insinuated that foreign reserves should be conserved, especially since remittance numbers were likely to go down further given the global financial environment.

And what would a financial year be without an IT systems crash at Colombo Stock Exchange? Because of its reliance on an entirely scrip-less system and the breakdown occurring at the beginning of the day’s trading, this crash led to a whole day's trading being lost.

Fourth Quarter 2011 (4Q11) - October, November, December
The final quarter of 2011 proved to be especially turbulent for Sri Lanka... Not only were we privy to riots and election violence but contentious issues such as the private pension plan also again reared their ugly heads, albeit in new and sneakier ways whereby it was approached via provisions in the Employees Trust Fund and Employees Provident Fund amendment bill.

Kicking of this quarter was the October killing of former presidential advisor and parliamentarian Bharatha Lakshman Premachandra and the wounding of MP deleted Silva, both in the same incident, speculated to be intraparty violence within the ruling UPFA party.

During the same month, the Colombo Stock Exchange (CSE) was announced as being the best performing in the region. A statement met by much disbelief and many questions raised regarding the metrics used in this determination. This was also particularly astonishing after continued shakiness in investor confidence experienced by the bourse.

Further coming to the fore during this period, the BOI, an agency which was virtually closed down to enable restructuring at the beginning of 2011, was said to be ready to start its new functions. However, with much of its functionality taken on by other organisations, such as the tourism and economic development ministries, the BOI could have a long and potentially uphill battle on its hands, especially in attaining its newly identified goal of garnering US$ 1 billion in investment by way of its new, more focused structure.

Meanwhile, the month of November is usually most significant because of the budget. 2012's biggest revelation was the upping of the country's defence budget by almost 10% over last year's. This money was earmarked to the newly created Ministry of Defence and Urban Development. The other aspects of the 2012 budget were said to be trying to please everyone at once and having no clear direction or focus otherwise. In other words - in the grand scheme of things, this is neither a minus nor a plus in terms of its impact.

Also in November, Sri Lanka improved itself to the 89thposition (out of 183 countries) in the Global Ranking on the Doing Business Index, which is published annually by the World Bank. This was on the back of improvements with regard to investor protection and simplifying tax structures. However, the report did mention that contracts enforcement, registering land, etc. were other areas the country needed to work on.

Census postponed
This quarter also showcased new problems with Sri Lanka's public sector with the postponement of the first national census in 30 years due to printing errors in survey forms. But perhaps more troubling of all for the country's future growth prospects was the lack of significant increases amongst tourism numbers over the winter months, a period which last year heralded big growth. This was attributed to a lack of marketing, new online visa regulations, increases in hotel and tourist attraction rates as well as a drop in spending by travellers globally.

However, while a shortfall in tourist arrivals was a cause for concern, it was the highly controversial assets seizure or expropriation bill that proved potentially poisonous to investors considering Sri Lanka in the future, with both Fitch and Moody suggesting it could result in negative credit pressure for the nation. Adding to the growing list of detractors of this law were five out of six of the country's top chambers of commerce. Normally falling in line with the government under most situations, and having done so at an earlier stage of discussions regarding this bill, this move by the government has brought out some surprisingly stiff opposition from these chambers.

Rounding out the year was the long awaited verdict on former presidential contender and former Army Commander Sarath Fonseka, which saw him sentenced to three years in prison. In addition, there was yet another leadership struggle within the main opposition deleted that saw party leader Ranil Wickremesinghe retaining his top post. There were also riots and escalating food prices in Colombo, precipitated by the introduction of a new law requiring vegetables to only be transported in plastic baskets to prevent excessive damages and losses.

New Expressway
Finally, and also somewhat interestingly, some remarkable statistics to tide you over until next year, the country's newly opened Southern Expressway, in its first week of operation, netted over Rs 8.5 million with over 36,000 vehicles using this avenue within its first week. Additionally, on average, 5,000 vehicles used the expressway daily. Further, there were over 100 traffic offences committed within the first week of it being patrolled, while its busiest day so far earned an income of Rs. 3.7million in one day alone, for Christmas Day 2011.
http://sundaytimes.lk/120101/BusinessTimes/bt34.html

Ending the year with hope in 2012

Stockmarket Review
By Elton P. Ebert
A prosperous New Year, that’s what everyone is wishing, but it is more emphatically pronounced by the stock brokers. Based on the trading pattern for the last few days and the earnings figures released for the last quarter, it could be prosperous and profitable during 2012 in QR1 at least, but definitely advantageous for those who made purchases when the market was down in the dumps recently.

According to certain sources many rights issues and a few more subdivisions are on the agenda, but the scheduled IPOs will have to be at an attractive price to entice some of the new investors.
The close of the year 2011 has seen many developments - changes in directorates, purchases of office complexes and portfolio adjustments.

Top bank, Commercial of Ceylon said its chairman, Mahendra Amarasuriya was calling it quits because of personal reasons necessitating many changes at the top. With a view to further facilitating the expansion of the company, LB Finance purchased on 26th December, a luxury office complex – property owned by its Executive Deputy Chairman Dhammika Perera, for Rs.788.8 million.

In another development, Melstacorp Ltd, a subsidiary of Distilleries has made a mandatory offer for the purchase of the remaining shares in Aitken Spence. Distilleries ended the period at Rs.147.10 while Aitken Spence was at Rs.120.40.

Trading for the short week commenced on Tuesday, indicating renewed buying which continued until Thursday mid-session when the ASI was almost reaching 6150, but lost steam and took a trimming.
The next day Friday, this capricious behaviour continued, as it was in positive territory for the first hour and then slipped.

Commercial Bank occupied top billing both in its trading actvity as well as with the surprises provided in its directorates. Foreign selling of almost 12 million shares in the stock enabled a few of the high networth individuals and institutions to increase their stake in the bank.

J.L. Morison & Jones commenced trading on Wednesday after its recent share split with the year-end level for these stock being Rs.285 for the voting and Rs.149 for the Non-Voting shares. Ceylon Tobacco which experiences very little selling gradually moved up to reach Rs, 500 on Friday, but fell soon after to close at Rs.490. Among the high value shares Lanka Ashok Leyland was up to Rs.2925 while Colombo Pharmacy chipped in at Rs.1190.

Kalpitiya Beach Resorts and Waskaduwa Beach Resorts from the Citrus Group, will make its debut on the Diri Savi Board on January 3. Meanwhile the rights issue of Nation Lanka Finance PLC of 1 new voting ordinary share for every 4 voting ordinary shares at Rs 10 is based on their shareholding as at end of trading on 5.1.2012 Price bands - there were no price bands this week.

Changes in directorates: Commercial Bank of Ceylon - M.J C. Amarasuriya resigned as Chairman on Friday. B.R.L. Fernando relinquished office as a Director on 31st December, and Dr. H.S. Wanasinghe also ceased to be a member of the board after 31st December. Preethi Jayawardena was appointed a director on 28th December;

Sampath Bank - Arthur Senanayake resigned as Chairman on December 31, while Dhammika Perera was appointed Chairman from January 1. As trading closed for the year both indices were marginally higher than last week with the All Share Price gaining 91.84 points or 1% to close at 6074.42 and the Milanka gaining 39.30 points or 0.5% to end at 5229.16. The turnover for the four days was Rs 2.5 billion against Rs. 2.7 billion last week.
http://sundaytimes.lk/120101/BusinessTimes/bt27.html

Gorvernment's dream to make Srilanka a Financial hub will not come true unless we have a strong Stock market.So hope government will take necessary action to create strong share market by adoption of appropriate policy measures./reviwing of policies related to financial market.

The Global economy is going through turbulent times. The Business Times spoke to Dr. Saman Kelegama, Executive Director, Institute of Policy Studies of Sri Lanka, on the current global economic situation, lessons from 2011 and the prospects and challenges for developing countries and Sri Lanka in 2012.

How do you see the 2011/12 crisis with that of the 2008/09 crisis?
The core of the 2008/09 crisis was driven by bad banking assets and sophisticated mortgage securities in the developed countries, mainly USA, while the core of the 2011/12 crisis is driven by sovereign debt problems, mainly in European countries.

The main difference can be seen in the policy responses to the crisis in the two periods. In 2008/09, governments had enough policy space and responded either by a fiscal stimulus or monetary relaxation by reducing the interest rates. In 2011/12, Western governments have run out of policy space -- public debt and fiscal deficits are very high and hence there is no room for fiscal stimulus; interest rates are near-zero and there is no room for further reduction. So the global markets are well aware that the policy firepower is muted to react to the current crisis. What is worrying is that fiscal austerity is now pursued to its limits in Europe at a time when credit markets are freezing – this is a recipe for economic stagnation like what Japan experienced in the 1990s. IMF Chief, Christine Lagarde had stated recently that the global economy is in danger.

What are the lessons from the 2011 global economic performance?
There are a number of lessons that we can learn from the 2011 country/region economic performance.
First, monetary easing takes a long time to revive an economy unlike a fiscal stimulus because the former is heavily dependent on private sector sentiments. Most European countries have run out of fiscal space due to excessive debt and the only option they have is monetary relaxation, which they have put into operation at present, but it is not producing the desired growth revival. What is required is to work out policies that would promote both growth recoveries in the short-term and sufficient debt reduction in the medium term. This would require a credible debt reduction plan (with the European Central Bank involvement) that would take care of major budgetary areas and allow for some spending in the short-term. Without such a combination of policies, a mix of growth reduction and debt reduction will not be sufficient to reduce debt to GDP significantly in the medium term, resulting in public protest against self-defeating austerity measures.

Second, the EU experience shows that a Monetary Union with single currency and a European Central Bank (ECB) cannot be fully effective without fiscal harmonization among member countries. EU embarked on a Monetary Union without fiscal harmonization. Fiscal Harmonization will be easy if there is a Political Union, like a United States of Europe, which will be a long shot given the cultural and historical differences among European countries. At one time, the debate in EU focused on affected countries like Greece, Ireland, Portugal, Italy, and Spain leaving the Monetary Union but this would have triggered a collapse of the entire EU, so now the debate is on how the ECB could play a role to rescue the affected countries and bring some degree of fiscal harmonization to move forward. In sum, the lesson is that fiscal harmonization is essential for a Monetary Union to be effective. (The recent German initiative for an EU Treaty change to bring fiscal harmonization was however vetoed by UK).

Third, the debt roll over strategy (borrowing to repay maturing debt) has its limits as the Greece experience clearly shows. Debt roll over strategy works to some extent and one can assume that more revenue will be available to settle maturing debt in the medium term but there comes a time when the strategy does not work. This happened in Argentina in 2002. Only an international bail-out will work at such times, and today Greece and other affected countries in EU are just waiting for such a package.
nWe saw the second dip in the global economy in 2011 and this was reflected in the lower growth in 2011 compared to 2010; will the situation continue in 2012 ?

After the 3rd quarter of 2010, the growth momentum generated by the fiscal stimulus in most developed and developing countries (as a reaction to the 2008/2009 crisis) ran out and what we saw since then was a slowing down of the growth in many countries, especially the EU and US. Most Asian countries in the epicentre of modern global growth, also showed an economic slowdown and this was reflected in the overall growth rates for 2011 (see Table 1).

The EU and USA have run out of policy space to stimulate their economies as explained earlier. The US has space for non-conventional monetary policy in the form of quantitative easing at a time when interest rates are near-zero but whether this option wil be used in 2012 is yet to be seen.

Due to inflationary pressure, both China and India moved away from monetary relaxation to monetary tightening in mid-2011 in order to reduce domestic demand generated by large domestic investment and consumption. China has managed to bring inflation under control and avoided a hard-landing and has once again started to relax monetary policy but India has jacked up its interest rates to take excessive pressure out of the exchange rate to depreciate and control domestic demand. The Indian currency has depreciated by about 20% vis-à-vis the US dollar since the middle of 2011. This pressure is due to the expanding trade deficit in India.

Growth for 2012 has been revised down for most countries as shown in Table 1 (US growth has been upgraded from 1.1% in 2012 to 1.8% recently). Growth has been revised downwards for a number of Asian countries – in addition to China and India that are shown in the Table, Hong Kong from 5.0% in 2011 to 4.3% in 2012, Korea from 3.9% to 3.5%, UAE from 3.9% to 3.1%, etc. So to answer the question, the situation will continue in 2012 and growth will be lower than in 2011.



What about the behaviour of the global commodity prices in 2012?
A: According to the World Economic Outlook of the IMF (September 2011 issue), global oil prices are to decline by 3.1% and Non-Oil commodities prices are to decline by 4.7% in 2012. But after closely examining the commodity price behaviour in 2011, it can be said that the global commodity prices will be volatile as in 2012 due to a number of factors influencing the prices: supply disruptions given the climate conditions, slowing global growth reducing demand for commodities, interaction of food and oil through biofuels, and speculation in commodity markets.

During 2003-2010, assets allocated to commodity index trading have risen from US$ 13 billion to US$ 320 billion and the number of outstanding contracts on commodity futures and options have risen from 13 million to 66 million. This has disrupted the traditional trading relationship between future prices and supplies. Financialization of commodity markets is a major concern for developing countries. The recent fall in some commodity prices like oil without any fundamental change in demand and supply forces in the short-term, brings into focus the impact of speculating investments in commodity markets, which is a significant force to reckon with.

If there is going to be a third round of Quantitative Easing (QE) in the USA, like during the last two rounds of QE, more capital is going to flow in search of higher returns in bonds, other assets, and commodity markets. Such investment in commodity markets will contribute to food price escalations. In short, global commodity markets will be volatile with a trend downwards in 2012 but will escalate if the 3rd QE is initiated in the US.

What are the pressures from the global economy for developing countries in 2012?
There are forces at work that are exerting pressure for currency depreciation in 2012 unlike in 2011/2010, where there were pressures for currency appreciation. As seen in previous global downturns, there is a tendency to protect domestic industries in affected economies by restricting competition from exports. This can lead to depreciation of currencies of developed countries and trade measures aimed at supporting exports while restricting imports. As a result, there is a possibility of competitive depreciation of currency in developing countries in order to maintain export competitiveness.
Second, at a time of perceived global economic uncertainty, the region is also affected by the standard reaction of a “flight to safety” – a retreat of assets to a destination perceived to be safe. So, despite concerns of sovereign debt in US, investors have once again retreated to US Treasury Bills in large numbers. Asset markets will be somewhat destabilized by sharp outflows of capital and capital outflow from developing countries is exerting pressure on currency to depreciate.

Third, in some developing countries, due to growing trade deficits (current account deficits) with imports far outweighing exports, there is pressure on the exchange rate to depreciate and curb imports while incentivizing exports.

What are the prospects for the Sri Lankan economy in 2012 ?
According to available statistics, Sri Lanka grew at 7.9% in the first quarter (QR), 8.2% in the 2nd QR and 8.4% in the 3rd QR of 2011. In the third QR, construction has grown at 17.3%, industry at 10.8%, services at 7.8%, and agriculture at 6.2%. Industrial growth has been supported by mining and minerals growing at 19.6%, services by hotels/restaurants growing at 27.2%, and agriculture by paddy growing at 12.4% growth.

Exports have shown a growth rate of 23.4% in the first 10 months of 2011. Tourist earnings will be close to US $ 800 million, FDI will be around US $ 1 billion, and remittances around US$ 5 billion by the end of 2011 –all three items, highest recorded in the country. Recent off-shore gas discoveries also augur well for the economy.

Construction growth is basically triggered by the massive infrastructure programme led by the average 6% GDP capital expenditure of the government with contributions from the private sector. Tourism (plus hotel sector) growth was expected after the North/East war came to an end, and remittances have been a great source of strength to the Sri Lankan economy, now being the highest foreign exchange earner. There are reasons to believe that these growth generators, in particular, construction activities and remittances, will play a similar role in 2012 but there are concerns on tourism. Close to 40% of tourist arrivals are from Western Europe, and given the current economic downturn in Europe, there can be a decline of tourist arrivals from this region.

However, if this decline is compensated by more tourist arrivals from the Asian region, then the momentum of increased tourist arrivals could be maintained. There are however issues on the macro-economy. Our export growth is below that of countries like India (52.1% export growth) and the import growth at 50.7% in the first 10 months of 2011 far outweighed the export performance. Due to the ever increasing current account deficit in the balance of payments (imports almost double that of exports), there will be pressure on the exchange rate to depreciate. The current strategy of using the foreign reserves for defending the currency has its limitations and there will be no option but to allow the interest rates to go up so that it becomes a supporting anchor for the current exchange rate regime. The ‘trillemma’ or the ‘impossible trinity’ is well known -- where it is impossible to have a partially open capital account with an exchange rate peg and a stable interest rate. One has to give way, to be in line with the global and domestic market forces.

Since the exchange rate was defended before the 3% devaluation in mid-November and again defended after the devaluation using the foreign exchange reserves, overall amounting to above US $ 1 billion in 2011, there is pressure on the interest rates to go up to reduce domestic demand and cut imports. This we have already seen in the market, giving ample evidence to the “trilemma” explained earlier. The simple truth is that we cannot defeat the market and swim against the tide.

Unlike a depreciation of currency, an increase in interest rates will make inroads to the growth process and slow down the overall growth. That is why most governments allow the depreciation of currency, as India has done with a 20% depreciation during the last 6 months, to bring about a sharing between interest rate hike and currency fall to avoid excessive pressure on either instrument. An increase in interest rate will reduce demand for credit and also attract more deposits to banks and improve the liquidity in the banking system. However, interest rate hikes will not be very favourable for a stock market boom. Moreover, exports will slow down in 2012 as Sri Lanka’s major markets, viz., US and EU (accounting for 56% of exports) will manifest a reduction in demand. We will witness these dimensions in the Sri Lankan economy in 2012. Thus, the overall growth in 2012 will be lower than 2011 and will be in the range of 7 to 8 per cent.

What is the worst case scenario for developing countries like Sri Lanka you see for 2012?
The worst case scenario will result if: (a) the European Union breaks up, and (b) US will engage in a third round of quantitative easing. Let me elaborate.

First, if the EU breaks up, a rapid bank run is likely with individuals and institutions withdrawing their deposits out of the affected economies like Greece, Italy, etc. The banking and financial system in EU will be threatened and will spread to US and there will be a credit crunch. Equity markets will also collapse in EU and US and spill over to the developing economies via contagion effect. The new currencies that EU countries will create will depreciate dramatically against well established global currencies such as dollar, Yen. RNB, etc., and will further reduce demand for exports from developing economies like Sri Lanka.

Second, is the further loosening of monetary policy in order to give another round of stimulus to the US economy. Of course, given the near-zero interest rates in the US it is not possible to further reduce the policy rate (guiding interest rate). Thus, the non-conventional approach of relaxing monetary policy in the form of quantitative easing – as used twice before can be used.

The previous two rounds were not very effective and there are doubts as to whether another round will bring a turnaround to the US economy. But given the fact that there is no policy space for a fiscal stimulus and President Obama has to face the polls in November 2012, there is a possibility that he will have another go at a QE policy assuming that it might work this time. If this takes place, it would introduce huge liquidity into the global financial markets which will go in search of speculative investment, among others, in food and the oil market and will insert pressure for price hikes in these two essential commodities. With currency already under pressure for depreciation in most developing countries, such increase in global commodity prices will manifest as huge price increases in developing countries bringing severe hardship to the poor people living in those countries.
http://sundaytimes.lk/120101/BusinessTimes/bt08.html

Positive thoughts for 2012
This is always a hopeful time, as we celebrate the end of a year and the beginning of another. In the year gone by many things may not have gone the way we expected. As individuals, as families, as communities, businesses or even as a nation, challenges of crisis proportions may have passed our lives. Confidence may have sapped and hope may have diminished. But all that is now history. Before us are 365 new days with endless possibilities. What can you and I make of these days?

Do we continue to choose conflict and discord over unity of purpose? Do we continue to dwell on what can go wrong and has gone wrong or work within our means to make a difference? Do we continue to blame the global economy or the political status quo for our failure to seize the moment?

In 1983 just after the riots now famously known as ‘Black July’ many businesses began new journeys. Entrepreneurs ventured into entirely new industries on the back of an extremely bleak period in our history when ‘business confidence’ was to say the least, non-existent. These business houses continued to believe (the nation, the people and themselves) and never looked back. In the years ahead they faced even greater challenges but have today grown into large and respected conglomerates. Good and sustainable businesses do not worry too much about recessions, civil strife or state nepotism. They focus on a business journey that is based on fundamentals and yields value for the masses. Unfortunately in the new environment of peace we are yet to see such bold decision- making on the part of the corporate sector.

The State on its part has, amidst substantial challenges created an environment of peace. It has boldly set out to action what has never been dreamed possible. High security zones are converted into entertainment zones by night. Sri Lanka’s first highway has been declared open and commuters use it efficiently and safely on a daily basis. Infrastructure development of a mega scale is initiated. But what have we have done to contribute towards this effort? In the past year have we done anything more than criticize and downplay our potential as a nation? For everywhere we look there is still work to be done and there seems to be just a single ‘doing’ entity.

On the other hand, the State too needs to directly engage the entrepreneurs of this country in the development agenda. Goals and targets needs to be outlined with clarity so that businesses know where the State is heading with the national development policy. Only then can the private sector start incorporating the larger national agenda into their own businesses plans. The private sector investment can then be aligned with State policy so that the ultimate vision is translated into a reality in the stipulated time frame.

Sri Lanka in May 2009 began a new journey. This is the same journey we must continue today. Our people are talented, our minds are inventive, our capacity and resources unutilized but our time is limited. All of us would have but 24 hours in a day, not one hour less or more. Tomorrow may never come. For all of us born in Sri Lanka and living in this time, this is our destiny, our calling- to pick ourselves up, dust ourselves off and begin again the work of re-making Sri Lanka.

The state of the world economy calls for action both bold and swift and may or may not have implications on ours. Regime changes will continue to happen in the Middle East and elsewhere. But none of this can be controlled by you and me watching CNN.

What we can manage is the time we have in our hands and what we accomplish within that time. What is required now is a new era of individual responsibility, recognition on the part of every Sri Lankan, that we have a duty towards ourselves and our nation. All of us are called to duty, to be dedicated to a great task, to ensure that the lives sacrificed to give us this grand moment were not in vain, to ensure that this nation would have a new destiny.

Today all Sri Lankans are free and there are no weapons in the arsenals of the world that is as formidable as the courage and hope of free men and women. Let us all move with this courage and conviction in the New Year to build Sri Lanka. What we set out to achieve from this day on must transform Sri Lanka into a nation that is strong both in an economic and ideal sense. For the wealth and prosperity that we set out to achieve should not only involve a commitment that extends beyond our own immediate self-interest, but should also extend beyond our time here on earth. For, once we the Sri Lankans of this moment are gone, our children and our children’s children should feel and be proud that we justified our brief stay and that we did all that could be done for our country and our people.
A ‘hopeful’ and ‘positive’ Sri Lanka, Colombo

(Any comments on this positive contribution on the path for Sri Lanka and its people in 2012 should be sent to bt@sundaytimes.wnl.lk)
http://sundaytimes.lk/120101/BusinessTimes/bt09.html

By Gamini WARUSHAMANA
Despite the negative expectations of the recovery of the global economy in 2012, Sri Lanka is confident of achieving an eight percent growth target Central Bank Governor, Ajith Nivard Cabraal said.

“We are optimistic and we will explain our position and on what stance we forecast our economic growth targets in the Road Map: Monetary and Financial Sector Policies for 2012 will be released on January 3”, he said.

However, the negative predictions on global economic recovery continue and economists say that growth forecasts of Sri Lanka will have to be downgraded. Professor of the London School of Economics, Razeen Sally said in Colombo last week that Sri Lanka should be prepared for a slow external environment with stimulus by deficit spending which has failed in advanced economies. He also said that China and India are losing momentum.

“Many of the policy interventions in the wake of the crisis (2007 banking panic) have made matters worse,”. Fiscal stimulus packages have by and large failed, huge amounts - hundreds of billions of dollars or Euros - have been spent by central banks indulging in rather questionable policy mainly buying government bonds in what is called quantitative easing. Of course in addition to this, there had been huge financial sector bailouts,” he told a seminar held in Colombo.

Meanwhile, FITCH Ratings cut emerging Asia’s growth forecast of 2012 to 6.8 percent from 7.4 percent predicted in June 2011. FITCH said that the downgrade reflects both deterioration in outlook for the world economy and the lagged impacts of policy tightening in some countries including China and India.

Another stock brokering company DNH Financial said that the 8.4 percent GDP growth rate recorded in Q3 of 2011 is the world’s fourth best. It has also pointed out that higher growth of the Sri Lankan economy remains consistent with 8.2 percent in Q2 and 7.9 percent in Q1.

http://www.sundayobserver.lk/2012/01/01/fin01.asp

We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope.

The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation.

Olivier Blanchard is a macro economist and a fellow and Council member of the Econometric Society, a past vice president of the American Economic Association, and a member of the American Academy of Sciences.
It was a long agenda, but one that appeared within reach.

Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.

I draw four main lessons from what has happened.

First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria-self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications.

Multiple equilibria are not new. We have known for a long time about self-fulfilling bank runs; this is why deposit insurance was created. Self-fulfilling attacks against pegged exchange rates are the stuff of textbooks.

And we learned early on in the crisis that wholesale funding could have the same effects, and that runs could affect banks and non-banks alike. This is what led central banks to provide liquidity to a much larger set of financial institutions.

What has become clearer this year is that liquidity problems, and associated runs, can also affect governments. Like banks, government liabilities are much more liquid than their assets-largely future tax receipts.

If investors believe they are solvent, they can borrow at a riskless rate; if investors start having doubts, and require a higher rate, the high rate may well lead to default.

The higher the level of debt, the smaller the distance between solvency and default, and the smaller the distance between the interest rate associated with solvency and the interest rate associated with default. Italy is the current poster child, but we should be under no illusion: in the post-crisis environment of high government debt and worried investors, many governments are exposed. Without adequate liquidity provision to ensure that interest rates remain reasonable, the danger is there.

• Second, incomplete or partial policy measures can make things worse.

We saw how perceptions often got worse after high-level meetings promised a solution, but delivered only half of one. Or when plans announced with fanfare turned out to be insufficient or hit practical obstacles.

The reason, I believe, is that these meetings and plans revealed the limits of policy, typically because of disagreements across countries.

Before the fact, investors could not be certain, but put some probability on the ability of players to deliver. The high-profile attempts made it clear that delivery simply could not be fully achieved, at least not then. Clearly, the proverb, "Better to have tried and failed, than not to have tried at all," does not always apply.

• Third, financial investors are schizophrenic about fiscal consolidation and growth.

They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth-which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds.

To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.

I should be clear here. Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be, in the words of Angela Merkel, a marathon rather than a sprint. It will take more than two decades to return to prudent levels of debt. There is a proverb that actually applies here too: "slow and steady wins the race."

• Fourth, perception molds reality.

Right or wrong, conceptual frames change with events. And once they have changed, there is no going back. For example, nothing much happened in Italy over the summer. But, once Italy was perceived as at risk, this perception did not go away.

And perceptions matter: once the "real money'' investors have left a market, they do not come back overnight.

A further example: not much happened to change the economic situation in the Euro zone in the second half of the year. But once markets and commentators started to mention the possible breakup of Euro, the perception remained and it also will not easily go away.

Many financial investors are busy constructing strategies in case it happens.

Put these four factors together, and you can explain why the year ends much worse than it started.

Is all hope lost? No, but putting the recovery back on track will be harder than it was a year ago.

It will take credible but realistic fiscal consolidation plans.

It will take liquidity provision to avoid multiple equilibria. It will take plans that are not only announced, but implemented. And it will take much more effective collaboration among all involved.

I am hopeful it will happen. The alternative is just too unattractive.

Courtesy IMF.org

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

Sri Lanka information technology exports surge

Sri Lanka’s earnings from information communications technology (ICT) services and products grew strongly this year after rising sharply last year, officials said. ICT and BPO (business process outsourcing) exports shot 47 percent to 310 million US$ in 2010-11 from the year before and will remain strong, a new survey by Pricewaterhouse-Coopers has found.

The sector has 175 firms employing 16,000 people, which is expected to grow as more foreign investment comes in. Chairman of the Export Development Board, Janaka Ratnayake said.

The growth rate should enable ICT and ITES (information technology enabled services) sector to reach a billion dollars in export earnings before 2015, he told a news conference.

Chairman of the EDB’s advisory committee for the ICT and BPO sectors Mano Sekaram said the PwC survey of 175 firms was needed to find out how the sector was performing.

“This industry is a new industry,” said Sekaram, who is also general secretary of the industry body, SLASSCOM, Sri Lanka Association of Software and Services Companies.

“Transactions take place over the Internet and there’s no customs declaration of exports out of the country because you send software and services over the wire - there’s no physical transaction.”

The PwC survey report stated that the IT export industry earned $250 m while BPOs earned $60 m in 2010-11, up from $161 m and $48 m the year before.

The main markets for ICT exports are Europe, USA, and South Asia while the main markets for BPOs are the US, Europe, Canada and mature Asian countries.

The officials said the industry expects to maintain the growth momentum although economic crises in key markets might reduce growth rates from existing high levels.

However, IT sector export earnings were on track to reach the target of a $ one b by 2015, Ratnayake said.

(LBO)

http://www.sundayobserver.lk/2012/01/01/fin02.asp

US-EU recession would hit Sri Lanka -Dr. Sirimal Aberathne




Dr. Sirimal Aberathne of the Department of Economics, University of Colombo said that the adverse impact of the EU recession on the Sri Lankan economy would be widespread and Sri Lanka will have to downgrade its anticipated growth targets.

Growth forecasts for the Euro Zone have been revised downward in the backdrop of the worsening sovereign debt crisis in the region. Most countries in the Euro Zone began to violate their policy coordination through increased borrowings. When the private sector becomes weaker, the government has to be stronger to mitigate the adverse impact of economic recessions.

Yet the theory does not seem to have worked that well, as investor confidence deteriorated and growth slowed down re-enforcing each side. The attempts of the European Central Bank to prevent the forthcoming recession have so far been ineffective. And, above all it is a new dimension of business cycles as Euro Zone is an “alliance” of countries, which established a single currency (Euro) after agreeing to work together.

They will have to integrate even more by surrendering policy autonomy. If not the challenge is how to defend the Euro, which would come under increasing pressure for disintegration.

Euro recession, apparently quickly spread to US because the EU and the US are integrated intensively through trade, investment and financial flows much more than the other regions in the world.

For that matter the two regions share a large part of the world income and consumption.

Developing countries such as Sri Lanka are integrated with the US and EU through trade, investment and tourism. Since Sri Lanka does not have a deeper financial integration, the US-EU recession would affect the country mainly through the real sector.

Sri Lanka’s exports share to US and EU account for nearly 60 percent of total exports.

As the recession could affect many other countries which are integrated to US and EU, and which are having economic relations with Sr Lanka, the adverse impact of the EU recession on the Sri Lankan economy would be widespread, he said.

Is 8% growth target a realistic or do we need a downward revision?

Dr. Aberathne said that Sri Lanka will have to downgrade its anticipated growth targets. Sri Lanka’s growth outlook in the recent past has moved in a peculiar path.

As a “small economy”, Sri Lanka’s growth must be reflected in its trade performance.

Yet during the past few years, Sri Lankan trade volume as a percentage of GDP has declined sharply, despite rapid economic growth.

Moreover, Sri Lanka’s export share to US has declined already, while its decline has been replaced by rising share of exports to EU.

With recession, the rising trade share of the EU would be under pressure. In addition, Sri Lanka’s trade diversification has not been satisfactory, so that our exports to the rest of the world grew slowly.

Against this backdrop, the negative impact of a possible Euro recession is likely to be dramatic.

Coincidently, the changes in development strategies and the role of the government during the past few years were, helpful in mitigating the medium-term adverse impact of the US recession.

Yet, the sharp changes in the policy regime, as clearly anticipated at the time, raised the important issues of their long-term sustainability and macroeconomic costs which the country is facing right now.

Therefore, if the EU crisis deepens Sri Lanka could have a double blow, one external and the other internal, he said.

GW

http://www.sundayobserver.lk/2012/01/01/fin03.asp

Lanka, US trade to grow this year




by Lalin Fernandopulle

Trade between Sri Lanka and the United States will grow this year with the gradual revival of the US economy and new trade opportunities explored by both countries said American Chamber of Commerce (AmCham) President Vijaya Ratnayake. He said 2012 will be a good year for trade and investments for both countries which are eager to expand cooperation and trade ties.

Trade and investment between Sri Lanka and the US recorded a substantial growth last year.

Sri Lanka exports apparels, rubber, precious stones, tea, coffee, spices, chemical products, plastics, electrical machinery and equipment to the US while aircraft, spacecraft and parts, cereals, machinery and machinery appliances, cotton, filaments, paper and paper board and knitted fabrics are imported from the US. Ratnayake said the Trade and Investment Framework Agreement (TIFA) talks held recently were successful in promoting trade and investment between the two countries.

The talks centred around market access, the US Generalized System of Preferences (GSP), promotion of trade, intellectual property rights and sector-specific challenges to investment.

Discussions also included the importance of considering gender- issues in setting up a trade and investment policy, and in expanding technical cooperation between the two countries.

Increasing private sector involvement was upheld at the discussions.

The next TIFA meeting is scheduled to be held in March next year to coincide with Sri Lanka Expo 2012 which will be held in Colombo.

TIFA was signed in 2002, and is now the primary forum for bilateral trade and investment discussions between the two countries.The US is a main market for tourism in Sri Lanka.

The US is the second largest market for Sri Lankan garment exports which accounts for around 40 percent of the total garment exports. Exports to the US last year were estimated to be around US$ 1.77 billion or 21 percent of total exports.

http://www.sundayobserver.lk/2012/01/01/fin04.asp

Gampaha, a model district in Sri Lanka
by Rohantha ATHUKORALA

Last week I was invited by an MBA alumni group of a top University in Sri Lanka to share some thoughts on the changing landscape of Sri Lanka. Given that we see many reports of the most visible aspects of the development agenda be it the Southern highway, the first new hotel brand in the country- Avani or the Hambantota sea port, I thought of sharing some insight that many have overlooked.

Taking into account, the Household Income and Expenditure Survey published by the Department of Census and Statistics on August 3, 2011, I thought of focusing on the Gampaha district which is where most of us in FMCG Marketing test new products.

The reason why we test market new products in the Gampaha district is because it has a cross section of consumers.

Consumer feedback becomes relevant the district is secluded geographically avoiding the spillover impact due to floating clientèle.

Gampaha can be made a model district in Sri Lanka due to the cross section of people who live there.

From a population perspective, there is a 23 percent population below 14 years. Between 15-59 it is close to 63.6 percent as against the 61.8 percent national value whilst over 60 years it is at 13.3 percent as against the national number of 12.3 percent. A deeper analysis on the Socio-Economic Classification (SEC) will validate the representation of the Gampaha district.

May be the next step would be that the district can charge the private sector a nominal value to test market a new product that includes key hoardings, access to a particular place in the 'Sunday Pola' for display and trial purposes so that the uniqueness of this district can be marketed in a suitable manner.

Poverty
As regrads poverty, Gampaha is ranked number three at 3.90 percent which is way below the national average. This indicates a positive sign. One can also interpret this as a few families being unemployed.

Identifying the age group of unemployment levels, so that focused companies can be targeted. For instance whilst the overall unemployment level registers at around five percent, on the 18-22 segment numbers move up to almost fourteen percent.

May be we can see a similarity in the Gampaha district that can be targeted with BPO companies that might be attractive to the youngsters of today.

Education
In education, Gampaha scores the best from among those who have not had a schooling at a mere 1.8 percent while those who have been educated up to Advanced Level is above the average but against other urban cities it is below in schooling upto Grade Five and also in the passed Advanced Level segment.

An evaluation must be done as to why those who passed the Advanced Level are below the urban number of 18.7 percent. Maybe it could be that many get educated in Colombo schools due to proximity and is a practical error of collecting data.

It's worth tabulating why only 13.3 percent are in Gampaha up to Grade Five as it may mean that families are getting smaller and is reflective in urbanised districts of Sri Lanka and we see this trend in Gampaha and this case in point which is interesting.

Vehicle ownership
The ownership of motorcycles, three-wheelers and buses, the Gampaha district has a higher percentage as against the rest of the country as well as against other urban markets which may be reflective of the lifestyle of households and occupation.

But families that have no vehicles is significantly lower at 33.5 percent which is indicative of the district registering the second position in the Average Mean income at Rs. 48,870.

Marketeers
Marketeers who are targeting the Gampaha district will have to take these insights into account when developing brand marketing campaigns.

For instance a hoarding that is designed for the Gampaha district must show motorcycles than a car as this number is way above the national average. On the other hand, it also indicates the opportunity that exists for motorcar marketeers.

The wide use of washing machines the highest at 22.3 percent is interesting and I guess marketeers must see what key strategies helped the companies to get there.

It is reflective of the lifestyle they lead which makes them want such products has been a luxury.

However, it's strange that the ownership of refrigerators, cookers and electric fans is below the national average in urban markets.

Data clearly indicates the market opportunity for manufacturers of electric fans, cookers and refrigerators.

Stronger links with Housewives Associations in the Gampaha district might give better insights to the reasons behind these numbers.

Dabur in Gampaha
The Indian fruit drink company which set up a 15 million dollar project to export fruit drinks to South India is very interesting, given that it will be another feature of making Gampaha a model district of Sri Lanka. Given that unemployment levels are at a low ebb with poverty at just 3.9 percent may be novel productivity enhancement methods will have to be employed to drive overall production. This can become a model for rest of the country.

Handloom
Given the popularity of sewing machines, these are at 51 percent of the households. Products like handloom can be targeted for value added export marketing so that within the next 3-5 years, the Gampaha district can rank number one on mean income as well as on overall poverty.

Special project
In the quest for developing a district to be a 'model district' an area to be cognisant of are special numbers. For instance in the Gampaha district households that are suffering from chronic illness and disabilities, the percentage is at a high 17.5 percent as against the National average of 14.4 percent and the urban markets at 15.4 percent. This means a special program needs to be developed.

The Gampaha district development committee has taken note of it and there is a village where partially blind people make bags that are being exported and even available on SriLankan Airline flights which are the details that make a proto-type district to my mind.

*A similar analysis must be done in all 24 districts so that ground realities can be understood.

*A master plan must be drawn up so that a 3-5 year developmental program can be done just like what we see in Gampaha.

*The overall developmental agenda must be done with a clear mission.

*This bottom- up game plan must be linked to the national Budget.

*GDP growth must be tracked at district level if possible so that national level planning can be made and targeted.

The author is the Head of National Portfolio Development Sri Lanka, Maldives UNOPS and former Export Development Board Chairman.

http://www.sundayobserver.lk/2012/01/01/fin10.asp

Mobitel showcases mobile Augmented Reality at Infotel 2011!
The national mobile service provider, Mobitel showcased mobile Augmented Reality for the first time in Sri Lanka at the recently concluded Infotel 2011 Exhibition, Sri Lanka's flagship ICT Expo organised by the Federation of Information Technology Industry of Sri Lanka (FITIS) in partnership with the Ministry of Telecommunication and IT and ICTA.

This year's Infotel exhibition, themed 'Accelerate IT', was the eleventh to be held in a series of events and is the initial event subsequent to the organisers' decision to make it an annual occurrence due to the response it has had in the past few years.

An anticipated event among ICT stakeholders in the country, the exhibition has progressed towards achieving President, Mahinda Rajapaksa's vision for national ICT development in increasing ICT literacy to 75 percent, creating a knowledge hub in Sri Lanka, and reaching $ 1 b ICT exports by 2015.

Augmented Reality (AR) is an extension of Virtual Reality (VR) which primarily involves computer simulated graphics and sounds.

The difference between the two is that VR consists of fully simulated environments while AR maps connect simulated graphic objects onto the real world images, acquired from the imaging device (camera) in real time augmenting virtual objects to the reality.

AR can therefore enrich user experience by giving more visual appeal and detail to the viewer by augmenting virtual objects to the real images.

Partnering with a leading provider, in mobile Augmented Reality browsing, Mobitel is now well equipped to provide a wide array of AR services to its customers for the first time in Sri Lanka.

The demo is a feature rich AR browser was capable of extending dynamic services such as 360 degree panoramic views, location based services, Glue (3D object mapping on to real images), image and movie mapping in addition to many more services.

Furthermore, it takes the fullest advantage of the built in Gyro, accelerometer, GPS sensor, camera and relatively large touch screens of latest smart phones to provide the best AR experience to the users.

Mobitel was awarded a Merit Award for 'Most Technological Innovative Stall' at Infotel 2011 for demonstrating superior data link speeds of 4G LTE technology and its latest navigation solution, T-Navi in addition to demonstrating rich ICT applications using Augmented Reality.

Mobitel has been at the forefront in introducing the latest mobile technology to Sri Lanka, delivering its vision of leading Sri Lanka towards an infocom and knowledge-rich society through its service offerings.

Mobitel lauds FITIS for being the principal driving force in accelerating ICT that propels the country's economic development.

http://www.sundayobserver.lk/2012/01/01/fin11.asp

Duriyan, a commercial crop

Harry Weerasekera

Duriyan is a delicious and nutritious fruit which is also of medicinal value. It has a demand locally and in foreign markets.

A continuous bearing of fruits could bring a good income and a good crop could be obtained from grafted Duriyan. Many cultivators are experimenting duriyan cultivation in Sri Lanka.

Harry Weerasekera, a planter in Pelmadulla who started Duriyan cultivation on a small scale 10 years ago has now expanded. He has experimented with grafted Mongthong plants imported from Thailand. He has been able to reap a good harvest and a profitable income too. Weerasekera has other crops like rubber, pepper, cloves, fruits and flowers. The Department of Agriculture has experimented and approved two varieties of Duriyan for cultivation and these plants could be purchased from nurseries of the Department. The Mongthong plants are grafted and are in demand.

http://www.sundayobserver.lk/2012/01/01/fin12.asp

Seylan Bank wins Governor's Challenge Trophy

The Seylan Bank winning Team (from L) Ceylinco House Branch Subani Amaraweera, Treasury Nimesh Dissanayake, Quiz Team Leader/Dealing Room, Shanaka Perera, Imports Illanko Kathiravelupillai and Dealing Room Brian Joseph.

The five-member Seylan Bank Team, recently clinched the inaugural quiz competition for the Governor's Challenge Trophy for Global Commerce Excellence. The "most prestigious and coveted trophy for mind sport in Sri Lanka", was held on December 13, at the Ceylon Continental Hotel and attracted a record 50 participating teams from Sri Lanka and overseas.

"We are indeed delighted to have emerged champions of this first ever Governor's Challenge Trophy. A deep degree of team work, coupled with a great deal of detailed preparation went into our success. It brought out the best of us as a team comprehensively and fostered great bonding among every single team member. I wish to thank and acknowledge the untiring efforts of my team members Brian, Nimesh, Illanko and Subani", said Assistant General Manager - Treasury/Senior Dealer and Quiz Team Leader Shanaka Perera.

http://www.sundayobserver.lk/2012/01/01/fin13.asp

Agbiz exhibition to boost food exports
by Mohammed NAALIR

The Pro Food Pro Pack exhibition will provide stakeholders an unparalleled experience in the food and beverage industry.

The latest products in the local processed food industry will be on display, said Chairman, Organising Committee, Dhammika Gunasekara.

He said a large number of institutions in the processed food, packaging and beverage industry will take part in the exhibition. This year's event will be held in conjunction with the agriculture sector under the theme From Farm to Kitchen.

The Pro Food Pro Pack and Agbiz exhibition 2012 will be held from July 6- 8 at the Sirimavo Bandaranaike Memorial Exhibition Centre.

http://www.sundayobserver.lk/2012/01/01/fin30.asp

Nation Lanka ventures into micro finance
Nation Lanka Finance PLC launched a project in the financial services sector, at a ceremony where the company disbursed loans to a group of individuals for use in self-employment opportunities.

Venturing into Micro Finance under the name Dinawamu Lanka was a collective decision of the new Board of Directors, as it was felt that with the expansion in economic activity throughout the country the resources and talents of the rural sector too had to be made use of. However, for this to be made a reality private sector contribution and participation was imperative. Micro Finance was found to be a major contributor to the improvement of the national economy of countries, especially in the South Asian region.

With the expansion of its branch network with 10 new branches planned to be added to its 13 branches, the inclusion of Micro Finance to its portfolio will be a fillip to the company's growth.

Chairman Jayantha Dharmadasa said that this was an ideal opportunity for Nation Lanka Finance to honour its Corporate Social Responsibility through this venture, where the rural sector could be harnessed and made contributors and partners to national growth.

http://www.sundayobserver.lk/2012/01/01/fin31.asp

P.G. Martins introduces new vehicles for tourist industry
P.G. Martins Motorways Co. of the P.G. Martins group, with a history of more than sixty years launched for a local and overseas tourists service under the Slogan "Travel with comfort and safety."

Sri Lanka has now achieved worldwide fame as a tourist paradise. The best testimony is the increasing number of foreign tourists.

Not only overseas tourists but local tourists as well are interested to visit tourist attraction in the country.

P.G. Martins Motorways Company recently imported a fleet of modern luxury buses and vans with a capacity of up to 10, 15, 30 and 40 seats. Vice-Chairman of the P.G. Martins Group of companies P.G. Lalith Nimalsiri said that these vehicles of international standard are ideally suited for the fast improving road network of Sri Lanka.

Vehicles of the latest models, including jeeps suitable for any form of travel including weddings can now be obtained from P.G. Martins Motorways Company.

http://www.sundayobserver.lk/2012/01/01/fin32.asp

AA-/P1 ratings for Hayleys
RAM Ratings Lanka has assigned respective long and short-term corporate credit ratings of AA-and P1 to Hayleys PLC ("Hayleys" or "the Group"); the long-term rating has a stable outlook.

The ratings reflect the Group's diversified business portfolio, strong market positions in several key businesses and adequate debt-protection metrics.

On the other hand, the ratings are moderated by the Group's high debt levels, fragile liquidity and a few loss-making operations.

The ratings are further pressured by Hayleys' exposure to volatile commodity prices and foreign-exchange risk.

http://www.sundayobserver.lk/2012/01/01/fin33.asp

Janashakthi on winning streak
Janashakthi Insurance PLC won the CMO Asia Awards, Asian Leadership Awards, SLIM (Sri Lanka Institute of Marketing) Brand Excellence Awards, World Brand Congress Awards, National Business Excellence Awards 2011 and the recently held ICASL (Chartered Accountants of Sri Lanka) Annual Report Awards 2011.

Janashakthi Managing Director, Prakash Schaffter said, “Continuous improvement is a practice we have tried to inculcate in our pursuit of excellence. Janashakthi was the only Sri Lankan insurance company to secure top honours at the second CMO Asia Awards for Excellence in Branding and Marketing with the “Award for Brand Excellence” in the Banking, Financial Services and Insurance category. Hosted by the World Brand Congress, the awards were presented at a ceremony in Suntec, Singapore amidst a large gathering of representatives from Asia and the Middle Eastern region.

http://www.sundayobserver.lk/2012/01/01/fin34.asp