november 2010 - federation of chambers of commerce and

01st – 07th November 2010

FCCISL News Alert Weekly Business Highlight 01st – 07th November 2010

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Content Page 1. DEVELOPMENT ECONOMICS

Sustainable Development vs economic development 05 Budget deficit contracts 09 Sri Lankan in major expansion of route capacity 10 Thorium as an energy source -Opportunities for Sri Lanka 12 Energy revolution - Modern biomass energy 16 Sri Lanka credit could improve on a better budget direction: Moody’s 20 Upper Kotmale to be operational by 2011 22 Southern solidarity vital 24 Reforming higher education for economic development 27

2. MANAGEMENT What comes first? chicken or the egg? 32 How to prepare a proposal 35 Retaining best talent a challenge 41

3. TRADE & MARKETING

Remarkable growth in footwear industry 45 Product support and power of value creation 46

4. MONEY & BANKING

Tax benefits and settlements 49 Commercial Bank 3Q post tax profits up 27% 51 On bank lending, government policy regarding SMEs 53 Why the budget deficit should be cut 56 Money, Inflation and Output 59

5. TOURISM Cathay to promote Sri Lanka tourism, increase frequencies when required 65

6. EXPORTS & IMPORTS

Fruit, vegetable exporters target Rs.15 b revenue 69


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7. STOCK MARKET

Bourse active 71 More room for capital market development 72 Stocks retreat from early gains 73 Billion rupee turnover, both indices down 74 CSE to make listing rules business friendly 76 More consultation needed in SEC’s proposed public float rules 78

8. BUSINESS

Ease of Doing Business 2011... 82

9. CLIMATE CHANGE

New study highlights 5 steps to confront climate change 85 10. CONSTRUCTION INDUSTRY

Initiatives for regional construction industry development 88 11. ICT

Impact of ICT for livelihood 92 Customer care and the BPO sector 95 Creating a hub in Sri Lanka 98 SLT PAT up 108% for 3Q 101

12. ENVIRONMENTAL

Pursuing environmental sustainability 105 13. FCCISL NEWS IN MEDIA

Sri Lanka calls for greater integration 108 Jaffna Open for Business, expo next January 110 JITF from July 15-17 111


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Development Economics


Daily News – November 2, 2010

Sustainable Development vs economic development: Sri Lanka: Growth is inevitable Dr Telli C Rajaratnam Sustainable development is maintaining a delicate balance between the human need to improve lifestyles and feeling of well-being on one hand, and on the other, preserving natural resources and ecosystems, on which we and future generations depend. Sri Lanka is moving at rapid pace with economic development programs and strategies including industry targeting, commercial and industrial development and competition benchmarking roads, airports, marine ports, railroad facilities and public transportation, lighting up the way are energy programs and projects - including renewable energy generation and distribution facilities, and energy efficiency programs, road development, highways, ports, increase in the arrival of

tourists, the beginning of the acceptance by western countries and stability of Government which attracts foreign investments are all triggered to enhance the standards of living. Sri Lanka is on the right track of on economics for development.

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Economics for development

Economic Growth signifies the increase in per capita income or increase in GNP. In present times, the term economic growth refers to sustained increase in a country’s output of

goods and services, or more precisely product per capita. Output is generally measured in terms of GNP. The term economic development is far more comprehensive. It implies progressive changes in the socio-economic structure of a country.

Hambantota Harbour

Viewed in this way economic development involves a steady decline in agricultural shares in GNP and continuous increase in shares of industries, trade banking construction and services. Further whereas economic growth merely refers to rise in output; development implies change in technological and institutional organization of production as well as in distributive pattern of income. Hence, compared to the objective of development, economic growth is at rapid pace. By a larger mobilization of resources and raising their productivity, output level can be raised. The process of development is far more extensive. Apart from a rise in output, it involves changes in composition of output, shift in the allocation of productive resources, and elimination or reduction of poverty, inequalities and unemployment. Traditionally economists have made little if any distinction between economic growth and economic development using the terms almost synonymously.

Economic development concepts As a concept, Economic development can be seen as a complex multi-dimensional concept involving improvements in human well-being, however defined Critics point out that GDP is a narrow measure of economic welfare that does not take account of important non-economic aspects eg, more leisure time, access to health and education, environment, freedom or social justice. Economic growth is a necessary


but insufficient condition for economic development. Producing more life sustaining necessities such as food shelter and health care and broadening their distribution, raising standards of living and individual self esteem, expanding economic and social choice and reducing fear. The UN has developed a widely accepted set of indices to measure development against a mix of composite indicators: UN’s Human Development Index (HDI) measures a country’s average achievements in three basic dimensions of human development: life expectancy, educational attainment and adjusted real income ($PPP per person). UN’s Human Poverty Index (HPI) measure deprivation using percentage of people expected to die before age 40 percentage of illiterate adults, percentage of people without access to health services and safe water and the percentage of underweight children under five.

Economic development

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Economic Development is a branch of economics that deals with the study of macroeconomic causes of long term economic growth, and microeconomics; the incentive issues of individual households and firms, especially in developing countries. This may involve using mathematical methods from dynamical systems like differential equations and inter-temporal optimization, or it may involve a mixture of quantitative and qualitative methods. Development is a phenomenon which occurs over a long period of time but economic growth is increase in GNP which can occur when we are able to achieve increase in number of resources or increase in technology or by the combination of both. Development as Growth and Capital-Formation Early economic development theory was but merely an extension of conventional economic theory which equated “development” with growth and industrialization. As a result, Latin American, Asian and African countries were seen mostly as “underdeveloped” countries, i.e. “primitive” versions of European nations that could, with time, “develop” the institutions and standards of living of Europe and North America.

Fly-overs under construction

Social aspects of economic development

* The Government has set a long term goal of growing the economy to deliver greater prosperity, security, and opportunities to all Sri Lankans. The Ministry of Economic Development contributes to this goal by delivering high-quality business services; supporting the development of business capability; assisting innovative and productive firms to thrive; helping to create a growth-friendly environment with low regulatory and business costs; and promoting investment in infrastructure. The way we must support the Government’s goal is summarized in our six long-term outcomes: * Enterprising and innovative businesses, improving the drivers for success and productivity improvement in firms. * International linkages ; improving the linkages that allow Sri Lankan firms to benefit from trade and the flows of investment, skills, and technology. * Dynamic and trusted markets ; improving the competitiveness, integrity, and effectiveness of markets.


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*Ease of doing business ; improving the way public agencies and the regulatory environment interact with business. * Efficient, reliable, and responsive infrastructure services ; improving the quality and reliability of key infrastructure services that support growth. * ? productive and competitive for the region and New Zealand. More information about these outcomes, and how we will work towards them, is contained in this year’s Statement of Intent. Our most recent Annual Report outlines our work over the past year, and how it contributed to these outcomes. There’s a wide range of information on our site. Spend some time browsing through it to gain a sense of how our work reflects and supports the Government’s overall strategy for economic growth. Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come. The term was used by the Brundtland Commission which coined what has become the most often-quoted definition of sustainable development as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.” A representation of sustainability showing how both economy and society are constrained by environmental limits. Scheme of sustainable development: at the confluence of three constituent parts. The concept has included notions of weak sustainability, strong sustainability and deep ecology. Sustainable development does not focus solely on environmental issues. In 1987, the United Nations released the Brundtland Report, which defines sustainable development as ‘development which meets the needs of the present without compromising the ability of future generations to meet their own needs.’ Solar towers utilize the natural resource of the sun, and are a renewable energy source. Green development is generally differentiated from sustainable development in that Green development prioritizes what its proponents consider to be environmental sustainability over economic and cultural considerations. Proponents of Sustainable Development argue that it provides a context in which to improve overall sustainability where cutting edge Green development is unattainable. For example, a cutting edge treatment plant with extremely high maintenance costs may not be sustainable in regions of the world with fewer financial resources. An environmentally ideal plant that is shut down due to bankruptcy is obviously less sustainable than one that is maintainable by the community, even if it is somewhat less effective from an environmental standpoint. Still other researchers view environmental and social challenges as opportunities for development action. This is particularly true in the concept of sustainable enterprise that frames these global needs as opportunities for private enterprise to provide innovative and entrepreneurial solutions. This view is now being taught at many business schools including the Centre for Sustainable Global Enterprise at Cornell University and the Erb Institute for Global Sustainable Enterprise at the University of Michigan. The United Nations Division for Sustainable Development lists the following areas as coming within the scope of sustainable development: Sustainable development is an eclectic concept, as a wide array of views fall under its umbrella. The concept has included notions of weak sustainability, strong sustainability and deep ecology. Different conceptions also reveal a strong tension between ecocentrism and anthropocentrism. Many definitions and images (Visualizing Sustainability) of sustainable development coexist. Broadly defined, sustainable development enjoins current generations to take a systems approach to growth and development and to


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manage natural, produced, and social capital for the welfare of their own and future generations. Sustainable development is said to set limits on the developing world. While current first world countries polluted significantly during their development, the same countries encourage third world countries to reduce pollution, which sometimes impedes growth. Economic development refers to social and technological progress. It implies a change in the way goods and services are produced, not merely an increase in production achieved using the old methods of production on a wider scale. Economic growth implies only an increase in quantitative output; it may or may not involve development. Economic growth is often measured by rate of change of gross domestic product (eg., percent GDP increase per year.) Gross domestic product is the aggregate value-added by the economic activity within a country’s borders. Economic development typically involves improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP does not take into account other aspects such as leisure time, environmental quality, freedom, or social justice; alternative measures of economic well-being have been proposed. A country’s economic development is related to its human development, which encompasses, among other things, health and education. Intensive versus extensive growth a closely related idea is the difference between extensive and intensive economic growth. Extensive growth refers to the increase of overall wealth, while intensive growth refers to the increase of per capita wealth. Unlike extensive growth, intensive growth is mainly driven by productivity growth and technological progress. While economies in the pre-industrialization period grew extensively, intensive growth is a relatively recent phenomenon that came with modern economic growth.

Does growth create development? Dependency theorists argue that poor countries have sometimes experienced economic growth with little or no economic development; for instance, in cases where they have functioned mainly as resource-providers to wealthy industrialized countries. There is an opposing argument, however, that growth causes development because some of the increase in income gets spent on human development such as education and health. In addition to increasing private incomes, economic growth also generate additional resources that can be used to improve social services (such as healthcare, safe drinking water etc). By generating additional resources for social services, unequal income distribution will be limited as such social services are distributed equally across each community; benefiting each individual. Thus, increasing living standards for the public.


The Island – November 1, 2010

Budget deficit contracts

According to data released by the Central Bank last Friday, the budget deficit for the first eight months of this year as contracted by 9.25 percent to Rs.314.6 billion from a deficit of Rs.346.7 recorded during the corresponding period of 2009.

Total revenue, including grants, increased 17.94 percent to Rs.502.9 billion from Rs.426.4 billion a year ago. Tax revenue increased 18.04 percent to Rs.441 billion from Rs.373.6 billion a year ago while non-tax revenue increased 52.95 percent to Rs.54.3 billion. Grants declined by 56.81 percent from Rs.17.6 billion a year ago to Rs.7.6 billion. Total expenditure increased by 5.74 percent during the first eight months of this year to Rs.817.5 billion from Rs.773.1 billion a year ago. Recurrent expenditure increased 3.33 percent to Rs.635.3 billion from Rs.614.8 billion while capital expenditure, usually on infrastructure and long term public works, increased

15.09 percent to Rs.182.2 billion from Rs.158.3 billion a year ago. Our calculations show that the budget deficit as a percentage of GDP is estimated at around 5.7 percent, a welcome improvement from 7.18 percent a year ago.

Economists point out that the rise in revenue is a result of natural growth spurred by post-conflict economic activity and this has contributed towards contracting the deficit from the previous year. For this favourable fiscal performance to be sustainable, hard reforms to revenue and expenditure management would have to be introduced sooner or later.

The much awaited reforms of the tax system would only be announced later this month when the budget for 2011 is presented in parliament. Here again, we would probably hear the recommendations of the Presidential Taxation Commission the government would choose to accept.

On the expenditure side, the government is committed to rationalize its expenditure. Recurrent expenditure growth has slowed down but needs to be better controlled over the next few years if the budget deficit, which ballooned to 9.9 percent last year, is to be brought down to 5.2 percent by 2012.

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Sri Lankan in major expansion of route capacity Sri Lankan Airlines is keeping its promise to the country’s tourism industry by expanding capacity throughout much of its route network starting this month in Europe, the Middle East, the Subcontinent, Southeast Asia and the Far East, the airline announced recently. The Airline has already begun expanding its fleet for the impressive growth, with seven more aircraft by the end of 2011. The first of these, a wide-body Airbus A330, arrived last July. Three more are planned by February 2011, including two Airbus A320’s, plus a De Havilland Twin Otter Floatplane for the re-launch of the domestic service Sri Lankan Air Taxi.

The major expansion of capacity, which was first announced at the Airline’s 31st anniversary celebration last month, will commence with the Winter 2010/11 schedule which begins on 31st October and runs through March 2011. Mohamed Fazeel, Head of Worldwide Sales, said: "Sri Lankan Airlines intends to be a major catalyst in the country’s tourism boom, and as promised we are expanding our capacity, increasing frequencies, and widening our route network to support Sri Lanka’s tourism industry. These changes are being carried out after careful consideration of market opportunities, in keeping with the Government’s plans for growth in tourism."

The Government this year repurchased the stake in the Airline that had been privatized in 1998, bringing its shareholding to 94.68%. The remainder shares are held by the Airline’s employees. "Our expansion will cater to most of the largest and most dynamic markets. These include traditional markets such as the UK, India, and the Maldives, plus emerging markets such as China, Malaysia and Singapore," noted Fazeel. Tourist arrivals have grown by 46.7% in the first eight months of 2010, in comparison to the same period last year, according to statistics of the Sri Lanka Tourism Development Authority.

Sri Lankan is also planning to add even more comfort and sophistication to its fleet next year by adding the latest luxurious flatbeds and AVOD entertainment systems (Audio-Video On Demand) in Business Class.

The most significant addition will be the launch of thrice-weekly services to Guangzhou scheduled for 28th January, the fourth city in China to be served by Sri Lankan. This would take the route network to 50 destinations in 31 countries.

In Europe, Sri Lankan will add its 13th weekly flight to London, with effect from 15th December, flying twice daily on all days except Friday.

In India, where Sri Lankan serves six cities, there will be increases to Mumbai, Chennai and Bangalore. Mumbai will have a total of 10 flights from 1st December, up from the earlier daily frequency. Chennai will have one additional flight for a total of 15 flights, with three on Friday and two each on all other


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days from 1st December. Bangalore will go to a daily frequency with the addition of one more flight from 1st December.

From 1st December, the number of flights to Male is being increased to six per day from the earlier 3-4 per day, further strengthening Sri Lankan’s longstanding position as the largest carrier into the Maldives. Karachi will also have an added frequency, bringing it to four per week from 1stDecember.

In Southeast Asia, both Singapore and Kuala Lumpur will have an added flight for a total of 11 flights each from 1stDecember. The Middle East will witness significant changes throughout the region including the services to Bahrain, Muscat and Doha.


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Thorium as an energy source -Opportunities for Sri Lanka Nuclear energy By Dr. Amara Ranaweera - Visiting Professor, Ocean (Sagara) University, Sri Lanka Petroleum Scientist, Norway

Since 1954 when the first nuclear power plant was producing electricity for a power grid (Obninsk Nuclear Power Plant, USSR), the electricity production from nuclear has continuously been increased. Nuclear energy uses a controlled fission reaction to generate heat. In nuclear power reactors, the heat produces steam that drives conventional turbines and generates electricity. Except for the processes used to generate the steam, nuclear power plants are similar to conventional coal-fired generation plants. As of August 2007, there are 439 reactor units in operation in the world contributing to about 16 % of the world’s electricity production. The majority of the reactors are located in the USA (104 units), France (59 units), Japan (55 units) and Russia (31 units).

In addition to the existing reactors, there are 31 units under construction, mainly located in Russia (7 units), India (6 units) and China (5 units).Of the Nordic countries, only Finland and Sweden have nuclear power plants for electricity production. The construction of a nuclear power plant including licensing and environmental assessments takes between 7 and 10 years. The planned lifetime of new reactors today is usually 60 years.

The first reactors constructed in the 1950s and 1960s were early prototype reactors, so called Generation I reactors. The first commercial reactors were the so called Generation II reactors. Today, most of the reactors in operation are of the type Generation II. Generation III reactors are developments of any of the Generation II nuclear reactors incorporating evolutionary improvements in design which have been developed during the lifetime of the Generation II reactors, such as improved fuel technology, passive safety systems and standardized design. Some Generation III reactors are already in operation and some other Generation III or III+ are in construction or planned. The next generation reactors, Generation IV, are a set of (theoretical) nuclear reactor designs currently under Research and Development (R&D).

The Generation IV International Forum (GIF) defined eight goals for these systems in four key areas: economics; safety and reliability; sustainability and proliferation resistance and physical protection.

The role of thorium (Th) as fuel in nuclear reactors This has been discussed since the early 1960s. The thorium isotope, Th-232, is not fissile which means that it cannot undergo fission if bombarded with neutrons. On the other hand, Th-232 is fertile which means that new fissile material uranium-233 (U-233) can be produced by irradiating thorium in a nuclear facility.

Thorium Resources The primary source of the world’s thorium is the rare-earth and thorium phosphate mineral, monazite. In the United States, thorium has been a by product of refining monazite for its rare-earth content. Monazite itself is recovered as a by product of processing heavy-mineral sands for titanium and zirconium minerals. Without demand for the rare earths, monazite would probably not be recovered for


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its thorium content. Other ore minerals with higher thorium contents, such as Thorite, would be more likely sources.

Thorium deposits are found in several countries around the world. The largest thorium reserves are expected to be found in Australia, India, USA, Norway, Canada and in countries such as South Africa and Brazil. A resource refers to a situation where metals or minerals are enriched. The resources can be developed to a reserve (or deposit) when further investigations prove that the enrichment can be economically exploitable. This also implies that the metal or the mineral can be recovered using a viable process.

The most important geological environments in which thorium are enriched include: Alkaline complexes and their pegmatite, Granitic pegmatite, Carbonatites and Heavy mineral sand. On a global scale heavy mineral sand, mostly beach sands, are an important host for several minerals such as zircon (zirconium silicate, ZrSiO4), garnet, etc. and metals such as titanium (Ti), cerium (Ce), Y, and Th. Such thorium resources having significant size and grade are known in Sri Lanka, either as sands or may be as metamorphosed sands.

The potential production of thorium concentrate from the resources will depend on the grain-size of thorium enriched minerals. Thorium occurs predominantly in the mineral monazite, but occurs also in other minerals, especially in REE minerals. A series of thorium bearing minerals are found at different sites in Sri Lanka, but grades (wt%) and volumes of the identified thorium has to be collated. Detailed investigations are needed to estimate the volumes on scientific basis.

THE FRONT END OF THE THORIUM FUEL CYCLE The front end of the thorium fuel cycle comprises thorium ore processing, production of thorium metal or oxide and fuel fabrication. The processing of thorium ore for nuclear applications involves several activities:

• Mining. • Extraction of the thorium-bearing minerals. • Refining to remove impurities, especially neutron absorbing materials. • Production of thorium metal or oxide.

Thorium is found in a number of minerals. The thorium is often associated with other minerals and may be present as a by-product of another process. Examples of this are the beach sands concentrates in which titanium and zirconium may be the metals of primary interest where associated thorium can be recovered as a by-product. Physical and Magnetic Separation and Heavy Metal Chemical Extraction are the well known processes used for separating monazite which is the chief commercial ore from which thorium is extracted. For nuclear applications, thorium has to meet stringent requirements of purity, particularly concerning neutron absorbing elements. This purity is obtained industrially by solvent extraction, by ion exchange, or by direct chemical precipitation.

Nuclear Reactors for Thorium In the 1960s and 1970s, the development of thorium fuel for nuclear energy was of great interest worldwide. It was shown that thorium could be used practically in any type of existing reactors. A large amount of work was carried out and resulted in many interesting developments.


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The Accelerator Driven System (ADS) concept, which couples an accelerator, a spallation source and a sub-critical reactor, is being developed within the European Atomic Energy Community (Euratom) research Framework Program. At present, this concept focuses more on high-level waste transmutation than on energy production. ADS was first proposed by Nobel Prize laureate E.O. Lawrence in the 1950s, mainly as a method to produce fissile materials by neutron transmutation. Later, the concept was extended to "burn" nuclear waste. In 1993, another Nobel Prize laureate, Carlo Rubbia, revived the idea by proposing an ADS that could produce energy at the same time as it destroys both its own waste and waste from other reactors (see Figure below). Rubbia's concept was called the Energy Amplifier (EA).

When compared with critical reactors, Accelerator Driven Systems if well designed, they prevent criticality accidents.

Safety Measures and Emergency Preparedness Any potential future nuclear power in Sri Lanka has to accede to all the IAEA radiation protection and require additional legal regulation. Such regulations could be adopted from existing international guidelines and regulations, such as IAEA safety standards for Radiation protection, Nuclear safety, Activities that can produce radiation producing substances (e.g., mining) and waste handling and storage/depository.

ECONOMICAL ASPECTS Due to the lack of data, it seems impractical to develop meaningful cost projections for any nuclear energy systems using thorium. Historical examples give some ideas of the funding that may be required. For example, in the 1970s, Germany spent around 500 millions Euros in current money to develop a thorium fuel cycle and 2.5 billions Euros for the high temperature reactor itself.

CONCLUSIONS No technology should be idolized or demonized. All carbon-dioxide (CO2) emission free energy production technologies should be considered. The potential contribution of nuclear energy to a sustainable energy future should be recognized. Investigation of the resources in various sites in Sri Lanka should be performed. It is essential to assess whether thorium in Sri Lankan rocks can be defined as an economical asset for the benefit of future generations. Furthermore, the application of new technologies for the extraction of thorium from the available mineral sources should be studied.


Sri Lanka should strengthen its international contacts and collaboration by joining the modern European fission programs and the GIF program on Generation IV reactors suitable for the use of thorium. The development of an ADS using thorium is out of the scope of the

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Sri Lankan capability alone. Joining the European and Asian effort in that field should be considered. Sri Lankan research groups should be encouraged to participate in relevant international projects. Sri Lanka will have to bring its competence with respect to waste management to an international standard and collaboration with India could be beneficial. Sri Lanka needs Educational and Competence with sufficient number of scientists being trained to meet the needs of the future nuclear industry. This can be achieved with increased student interest, increased course numbers, young faculty members and modern facilities. Any new nuclear activities in Sri Lanka,

e.g. thorium fuel cycles, would need strong international pooling of human resources and in the case of thorium strong long-term commitment of the education and basic science side. All these should be included in the country level strategy aiming to develop new sustainable energy sources. However, to meet the challenge related to the new nuclear era in Europe, Sri Lanka should secure its competence within nuclear sciences and nuclear engineering fields. This includes additional permanent staff at the Universities and research institutes and appropriate funding for new research and development as well as high quality research-based Master and PhD education.



Delhi International Renewable Energy Conference: Energy revolution - Modern biomass energy Text of the speech by Power and Energy Minister Patali Champika Ranawaka at the Delhi International Renewable Energy Conference (DIREC) from October 27-29 In a world where ethicists treat burning of fossil fuel as a crime, the 700 million Indians who depend on biomass and constitute the ‘rural poor’ I feel, should consider themselves quite rich. While commending the efforts to shift dependency of these ethically ‘rich’ people from traditional biomass to modern ones, I would like to draw your attention to a few headlines which caught my attention during the last few days.

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Last Friday the New York Times reported how the Obama administration has opted to pay farmers 75 percent of their costs for growing new energy crops, such as switch grass. Besides in a bid to boost biomass energy infrastructure the US Government has decided to fund five bio-refineries and bio-energy plants and 10,000 storage tanks for new mixes of gas that contain a higher percentage of ethanol.

Zero emissions On Saturday Irish Radio, Midlands 103, announced that the Irish Government has moved to start the work of a 40 million Euro biomass project in Co Offaly county, early next year and it is due to start operations in June 2012. I also hear often how in China solar and biomass projects share turbines and other infrastructure to cut costs while ensuring their growth in both sectors. In Sri Lanka biomass energy with zero emissions and zero waste is now used even in Cement factories and I got an opportunity recently to visit one such factory in the Eastern port city of Trincomalee.

Power and Energy Minister Patali Champika Ranawaka at the Delhi International Renewable Energy Conference

The world certainly is turning and a very ambitious attempt is being made to reverse the trend - that of the long sustained gradual downward trend in the use of biomass as an energy source. The predominant fuel of the human civilization until the 19th Century today it only accounts for 15 percent of the global energy sources. Still in the developing world biomass fuel supplies 35 percent of the total primary energy requirement and most of that is used for traditional purposes of domestic cooking and space heating. It is said that some 2.7 billion people across the globe still rely on biomass for cooking while wood remains the dominant domestic fuel for rural people in developing countries as well as the urban poor.

Sign of development On the other hand in the developed world, biomass accounts for a mere three percent of energy generated. The general thinking is that moving away from biomass is a sign of development. In energy terms development means replacing traditional biomass with modern energy sources. If we want to develop then we should move away from ‘traditional biomass’ - often identified as being dirty, inefficient and inconvenient.


However when the progressive world today speaks about biomass they speak more about the ‘modern biomass’ than the traditional one, about the one that would mark the end of the fossil fuel era and heralds

the sustainable energy era. Modern biomass is usually grown and is used to generate power and heat in the most sustainable manner without compromising the ability of future generation to meet their energy needs.

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Different forms

The process of biomass applications has two distinct phases. In the first phase, biomass is produced in energy plantations. In the second stage, bio fuel is converted into the desirable form of energy such as hot air, steam or electricity. Once the first phase is completed, the second phase is a simple variation of the traditional fossil fuel applications. In the year 2005 it was estimated that some 44 GW of electricity was generated using modern biomass. Currently biomass comes in different forms - Fuel wood, municipal waste, industrial waste and agricultural waste.

Biomass collected from homes, home gardens and forests, biodegradable material in municipal waste, industrial waste such as sawdust and off cuts from timber mills, agricultural waste such as paddy husks, coconut shells and straw all these can be used with ‘modern’ biomass technologies to generate power and heat. However these are only byproducts of some other mainstream production processes and as a result the quantities are inadequate to play a significant role in the world energy scene. The ‘modern’ biomass, on the other hand, comprises of sustainable grown fuel wood which comes straight from energy plantations.

Energy plantations The fact remains that both the ‘traditional’ and ‘modern’ energy generation processes that use biomass revolve around the sun, the primary source for energy for life on earth. While witnessing the depletion of fossil fuel reserves at the most alarming rate, the challenge before us today is to figure how to harness the sunshine in the most efficient way. At present ‘Solar Photovoltaic’ Solar PV and ‘Concentrated Solar Power/thermal technologies remain the modern direct methods of collecting sunrays. There’s a general public interest on Solar PV but many often forget Solar PS: Solar Photosynthesis. Solar PV continues to be quite an expensive means of power generation and its benefit often goes to modern high-tech companies in the developed world while the cost-effective Solar PS has rural masses living in the developing world as its beneficiaries. Therefore the energy plantations for harnessing Incident solar rays to the optimum should ideally be the modern trend until the Solar PV prices come down to an affordable level. For the tropical countries, Sustainably Grown Biomass (SGP) means energy plantations with fast growing species and short rotational periodic cutting and pruning. In Sri Lanka, we use the terms ‘Dendro Power/Thermal’, derived from Greek term for ‘wood’, to distinguish Sustainably Grown Biomass from other biomass. One of the cardinal principles to be adhered to in energy plantations is to avoid it being a monoculture. It should be integrated to the existing agricultural patterns to ensure that the farmer will not shift from food crops to energy crops and instead get energy crops to complement food crops. Sustainably grown biomass in general is indigenous, cost effective and yields social and environmental benefits. The environmental


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benefits include curtailing of soil erosion, restoration of degraded land and reduction or improving upon of local impacts from fossil fired power generation like production of SO2 and NOX. In Sri Lanka, the fast growing species selected for energy plantations can withstand even the most adverse weather conditions. They grow in a variety of soil conditions and are generally free from disease and have displayed a strong immunity against pest attacks. These are legume that can greatly enrich the soil and hence its green matter forms an ideal base for organic fertilizer. The leaves are an attractive fodder for goats and cattle creating an enabling environment for farmers to engage in animal husbandry. Certain trials conducted in Sri Lanka have shown that multi cropping energy plantations with existing commercial plantations yield multiple benefits. For example the ability of the soil to retain moisture content is enhanced by approximately 50 percent when Gliricidia is grown as a multi-crop under coconut plantations. Gliricidia multi-cropping improves the organic matter content of soil by 40 percent at a depth of 15cm. Besides, 50 kg of processed Gliricidia leaves have the ability to reduce annual chemical fertilizer requirements, yielding the equivalent of 0.8 kg Urea, 0.25 kg Phosphate, 0.6 kg Muriate of Potash and 0.5 kg Dolomite. Further Solar radiation utilization on a coconut plantation is increased from 6 percent to 94 percent in the presence of Gliricidia.

Dendro power Dendro power projects have the largest scope for providing employment to the rural communities and give the highest social benefit. Unlike most of the other renewable energy technologies biomass can be stored and hence it is dispatchable. The key benefit of the Dendro power is that it can replace emitting fossil carbon to the atmosphere with bio carbon. It is carbon neutral. In 2007, per capita carbon emissions (M tons) in Sri Lanka stood at 0.6 while India 1.4, China 4.9, Singapore 7.1, Germany 9.6, Japan 9.8, and US 18.9. While we are yet to exhaust out full carbon quota we in Sri Lanka are quite determined to develop our renewable energy sources and technologies. Though it is heartening to note the progressive renewable energy policies of the countries like the United States which had also displayed a keen interest in developing modern biomass infrastructure, we insist that the developed world should commit themselves to the binding target of reaching 40 percent emission reduction by 2020 and 80 percent by 2050. It is imperative that the global south setting aside their differences to combat this climate terrorism which it has been tolerating for too long and has been at the receiving end of its lethal impacts. Also the developing world should be mindful of the latest move by the industrialist countries to exhaust geo carbon on the pretext that their bio carbon, generated via modern biomass, could offset the depletion of fossil fuel reserves. It is commonsense that geo carbon takes millions of years to develop and it will take another millions of years for today’s biomass to turn to fossil fuel.

Energy supply In Sri Lanka even today around 47 percent of the total energy is generated by the use of biomass in the form of fuel wood. ‘Traditional biomass’ consumption in Sri Lanka has increased from 3,310 tons in 1980 to 4720 by 2007. However the biomass percentage in the primary energy supply has dropped from 68 percent to 47 percent during the same period. Recently, my ministry, Power and Energy Ministry conducted a long-term electricity generation Expansion Planning study to figure out the status of


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different generation options. The candidate options considered for this study included oil, coal, LNG, hydro, nuclear and Dendro. Contrary to the popular belief that the renewable energy technologies are generally expensive, the study revealed that the Dendro power is the most cost effective power generation option. We internalized the external costs and benefits of each technology while doing the analysis. The factors we considered for the study included the difference between the imported and indigenous fuels, carbon trading possibility and the future price hikes of fossil fuel. There are large extents of uncultivated, less productive lands in Sri Lanka and they offer an ideal opportunity for large-scale energy plantations. It is about 1,700,000 hectares excluding reserved land such as natural forests, national parks and other specified areas. Though this may look like a limited space from an Indian perspective, it is quite sufficient to cater to at least part of the energy needs of a 20 million population if maximum use is made. Biomass has always been the main stay of our energy supply from historical times and remains so even to this day. Year round availability of sunshine and adequate rainfall has resulted in Sri Lanka possessing a long tradition and culture for sustainable plantations. Our country has been sustained for over a century, by the plantation economy and in spite of the opening up of economy the plantation sector continues to play a dominant role in the economy. The expansion of plantation technology for energy production, fortunately, is in total harmony with this tradition and culture. We have realized its value as the means of meeting modern energy demands such as thermal energy for industries and also for electricity generation. We are quite convinced that distributed cogeneration Dendro plants are the ideal solution for energy challenges and plans are also underway to convert our coal power plants to co-firing power plants, in order to achieve zero carbon emission growth by 2020. We have already established private, public and civil society partnerships aimed at meeting our energy requirements. Farmers engaged in the traditional rice cultivation in the dry zone in Sri Lanka have employment opportunity only during the peak labour periods of certain months of the year. These farmers who long for alternative income generating avenues in the remaining months will engage in the energy plantations which will in turn help them to boost their food production. Depletion of fossil fuel reserves will have a dual impact on our country: In addition triggering an energy crisis it will also affect the agriculture sector as cost of fossil fuels and fossil based fertilizer will continue to increase. Sri Lanka is currently providing a 95 percent subsidy for imported fossil Nitrogen however this certainly is not an economically viable solution. We strongly believe that the single most important solution to avert this crisis is development of Dendro power. We are fast moving to replace Fossil carbon with bio Carbon and Fossil Nitrogen with bio Nitrogen to ensure a truly sustainable Sri Lanka for the future generations. I would like to emphasize that while man may have excelled in many sciences including rocket science, it is man's primary vocation, agriculture - which was not considered prestigious of all sciences, that has finally come to the rescue of mankind in one of its darkest hours in civilization.


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Sri Lanka credit could improve on a better budget direction: Moody’s A 2011 budget that will broaden the tax base and cut tax holidays will help improve the outlook on Sri Lanka’s credit rating, but an contingent liabilities can undermine its credit, Moody’s Investors Services has said.

Aninda Mitra, senior analyst and vice president of Moody’s Investors Services said the rating agency was waiting to assess whether the 2011 budget will indicate a "policy intention to improve fiscal fundamentals".

Moody’s rated Sri Lanka at a below-investment-grade ‘B1’ with a ‘stable’ outlook ahead of a billion US dollar euro bond issue in September. Fitch and S & P has rated Sri Lanka ‘B+’ four notches below the lowest ‘BBB-’ investment grade level.

Fiscal Promise A commission report which recommended changes to Sri Lanka’s tax regime is with the government and there were expectations that tax holidays which had sapped revenues would be phased out and the base broadened. "If that is something that does indeed improve the credit profile on a stand-alone basis as well as relative to other single ‘B’ credits then we would certainly consider upward movements in the outlook," Mitra told teleconference for investors on its Sri Lanka rating report.

"For now we are maintaining stable outlook." "The promise of fiscal reforms which realizes into concrete positive development in the forthcoming fiscal year we see some upside potential for the credit story we have been discussing here," "The key upside role is from the fiscal front we think. It should also anchor the external balance of payments a little bit better if the reduction of fiscal dis-savings indeed does result in a lower current account deficit as well."

Sri Lanka borrows abroad through the capital for local spending including capital projects which would draw imports though the current account when the money is spent. Sri Lanka’s domestic savings rate is dragged down by government dis-saving. The government dis-saving comes from the deficit in the current account of the budget, or the shortfall of total revenues to cover recurrent spending.

Peace Dividend Moody’s says Sri Lanka now has a chance to improve its finances, growth and inflation as the war, which has been a drag on government finances has ended. "The end of the civil war in Sri Lanka is probably the most important development that influenced our judgment of the ratings," Mitra said. "We see the economy is ready for a structural shift towards more higher-value-added activity."

He said the development in ports and infrastructure would help the change. Meanwhile external risk perceptions had reduced among investors which can help increase foreign direct investment. Mitra said monetary policy, good relations with foreign lenders such as the World Bank, Asian Development Bank and lately the International Monetary Fund had helped "absorb" the country’s "fiscal shortcomings."


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Though the war has ended, and there was less chance for political disruptions the government’s debt to revenue ratios, interest payments to revenue were among weakest among rated countries. Sri Lanka had a debt to gross domestic product of 86 percent in 2009 and interest payments were about 42 percent of revenues, and a government debt to revenue ratio of 546 percent was worse than almost all rated sovereigns.

Weak Credit Metrics Only Lebanon rated ‘B1’ and Jamaica rated ‘B3’ had worse credit metrics, among countries rated by Moody’s "But Sri Lanka could catch up to that if in fact certain contingent liabilities materializes, although we don’t think that it is very likely," Mitra said. At the moment government guarantees on debt was about 3.0 percent of GDP which Mitra said was low. In addition Sri Lanka also has an explicit guarantee covering deposits in National Savings Bank which has deposits about 330 billion rupees (6.0 percent of GDP).

Mitra told LBO that in times of systemic stress, any bank’s liabilities and not just state-owned banks could become a fiscal liability as was shown in the case of several countries during a recent downturn. But Sri Lanka had dealt with a problem at Seylan Bank without a direct increase in the fiscal bill. Under the Moody’s analysis Sri Lanka was considered to score as ‘moderate’ on institutional strength based on a World Bank assessment. But the government’s financial strength was considered low, which also worsened the country’s susceptibility to event risk.

"As such we think even the slightest uptick in contingent liabilities however unlikely they may be could really stress the government’s balance sheet," Mitra said.

"That is why we kept our event risk at moderate rather than low - something that could have been expected now that the civil war has ended and economic growth is picking up. So these are the factor that gave a rating factor of ‘B1’ to ‘B3’.

"We recognize the growth potential, and the promise of reforms and we assess the final rating on the upper end of this range."

- LBO



Upper Kotmale to be operational by 2011

By Ifham Nizam

Power and Energy Minister Patali Champika Ranawaka says 75 per cent of work of the five phases of the Upper Kotmale, the largest and the last hydro power plant with a generation capacity of 150 MW, was completed. He told The Island Financial Review yesterday the environmentally friendly upper Kotmale project will be commissioned by 2011 and the electricity generated from the project will promote the much needed rapid development of the country.

The Ceylon Electricity Board had spent Rs.87,000 million while the Japanese Government offered a loan of Japanese Yen 33, 265 million. He says considering the achieving of economic prosperity, sound power projects to cater to the growth of the electricity demand was much needed. Thus, construction work of the Upper Kotmale Hydro Power Project was commenced under the instructions of President Mahinda Rajapaksa.

As a result of the Mahaweli Hydro development activities, the Upper Kotmale Hydro Power Project concept arose and with assistance of the Japanese Government of Japan. Power Development plans were studied in five different locations and two plants which were economically technically viable were deeply studied. In the first plan a large reservoir project at Kelodonia area was proposed. In the second plan it was planned to build a power plant at Thalawakele with a small dam and a reservoir. Of the two plans it was decided that Thalawakele proposal was the most feasible project, Ranawaka says.

As per the provisions in the National Environment Act of 1998 the Environment clearance was granted to Upper Kotmale Hydro Power Project. However, there were several objections for the project and they were all settled by the courts and full approval given to the project in 2000. It is targeted to generate 409 Gwh of electricity annually by this project and the installed capacity is 150 Mw. The dam will be constructed across the tributary of the Mahaweli River ie Kotmale Oya and the length of the dam is 180 metres and the height is 35.5m

The longest underground tunnel is constructed and the length of it is 12.9 km and the diameter is 5.2 m. The underground power house has 130 m long and 37m wide switch yard. The transmission line of the project is a 220 Kv line.

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Four hundred and ninety five houses were constructed by the project for the affected families. He says as per the policy of the project new houses were given to each and every affected family and also all the infrastructure facilities such as water, electricity and developed access roads were provided.

Further, a 80m bridge was constructed across the Kotmale Oya at a total cost of Rs.77 million.

Members of the displaced families are undergoing some professional training directing them for self employment. In addition to that people who are willing start self employment will be provided concessionary loan facilities and consultancy service facilities by the project.

To improve the education facilities, Central College of Thalawakele has been established. Further new buildings were constructed in places of affected temple churches, day care centres, playgrounds with other common facilities. In addition community centre shop, film halls, libraries too have been constructed.


Sunday Observer – November 7, 2010

Eastern revival: Southern solidarity vital By Gamini Warushamana Date: October 30 Place: Unnichchai village, 26 Km away from the Batticaloa town in Vavunathivu DS division in the Eastern Province. The whole village was gathered at a village school to welcome dignitaries from Colombo. Women in their best saris, men and children in their best clothes. With the financial support and facilitation from Bank of Ceylon, People’s Bank and Sri Lanka Army a grand ceremony was ready to welcome Deputy Minister of Resettlement Vinayagnamoorthy Muralitharan and Central Bank (CB) Governor Ajith Nivard Cabraal.

Many things have changed in this war-torn village from what we had seen six months ago. In May we were here with Central Bank officials to report on the launch of a micro finance credit program to assist the people to re-start their livelihoods.

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The Main Road from Chenkaladi to Unnichchai is now under construction. The STF unit that camped on the bank of the Unnichchai tank has been replaced by a permanent camp of the Sri Lanka Army’s Sixth Gemunu Watch. Some permanent houses have been constructed. In addition to the only SLTB bus that daily reached the village five months ago, a private bus has been added

for transport between Batticaloa town and Unnichchai.

At the meeting in Unnichchai.

With the early showers of the North Eastern Monsoon people have sown the fields. The area was liberated from the LTTE in July 2007 and even after three years, development has not reached many rural villages in the province similar to Unnichchai. This is the third season that have they cultivated their lands after the end of the war and they have a lot of expectations. However, nature too is not too kind to them and the few weeks long drought has dried the green shoots of paddy. They were praying for rain. Lives of these people have not improved much. There are only few options for them to earn an income. The Banks were in the process of mobilising people, forming small groups and giving training to them to start self-employment ventures and loans were not yet disbursed. Sri Mohan, a village youth said that life is still hard for most of the families and their only hope is Maha season’s outcome. Schools still run under-staffed and the nearest dispensary is still closed due to non availability of staff. A large number of families still live in temporary shelters. Divya Ramanadan, an Advanced Level student of Karadiyanaru has to travel 20 km daily to school. Lack of teachers and transport difficulties have made learning a difficult task, she said. The people who lived with war over decades do not possess skills to get available jobs in infrastructure development projects as skilled labour has been brought from the South. A mason working under a sub-contractor in construction of culverts is from Akmeemana in the Galle district. He gets a wage of Rs.1,100 daily with


meals and he stays at a temporary camp with many workers who have migrated from the South. The ceremony we were attending was to mark the completion of the reconstruction of 192 houses and official disbursement of loans for livelihood projects.

Housing project The commencement of this housing project is a story in itself. Last May CB officials visited the STF camp to educate the people on the loan scheme. At that meeting the OIC of the STF camp IP Rathna Malala made an emotional speech explaining the pathetic situation faced by the villagers. He said that after winning the war most of the livelihood activities of the people such as hunting, timber cutting and cultivation of cannabis were banned as they were illegal. Since there were no other alternative people were starving and living without permanent shelter. He urged officials to provide at least a few houses under CSR initiatives of the banks. He stressed that unless these grievances of the people, most of them ex-LTTE cardres, a similar uprising cannot be prevented. In follow up discussions the parties agreed to launch a housing project and finally People’s Bank and Bank of Ceylon provided Rs. seven million to renovate 192 partly damaged houses.

Temporary shelters. Construction of the houses were done by Sarvodaya with the participation of students of Sarvodaya Vocational Training Centre in Batticaloa and soldiers of Unnichchai Army camp. Assistant Governor of the CB, W.M. Karunarathne said that in this housing project they attempted to provide permanent shelter to a maximum number of persons. “As most of the houses that were damaged were repairable we fixed the roofs, front doors and back doors,” he said. The two banks issued loans totalling Rs.27 million for 655 projects in agriculture, animal husbandry and small home based industries. IP Rathna Malala who has now been transferred to Aranthalawa spoke of his experiences. “The whole village was abandoned during the last stage of the war and after the people returned from IDP camps their lives were so pathetic. There were widows with children and they were starving. Houses were damaged and the village did not have even a single toilet. We collected money from our soldiers and helped them in whatever way we could”, he said.

Become millionaires The whole village loves and respects Rathna Malala and this relationship is so strong. The Grama Niladari of the village said that the whole village wept the day he and his STF unit left the village. Rathna Malala urged other donors to join this project and help to construct houses for 172 families still living in temporary shelters and to construct some toilets in the village. CB Governor Ajith Nivard Cabraal in simple terms explained to the loan recipients how to become millionaires by starting businesses with their loans. Ramanadan Kamalini received Rs.50,000 as a loan and she planned to start a bakery. Without knowing about the war against ‘wheat flour terrorism’, in the South she said that there will be a good demand for bread and other bakery products.

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Another loan recipient - Shanthi said that she will invest money to purchase some cows. Already she has 20 cows. She said she gets a good price for milk from Milco. Maheshwari is planning to expand her boutique. She has also received Rs.50,000. The Deputy Minister Muralitharan said that government will immediately address issues faced by the people in the East. Already projects have been started to improve transport, electricity and water supply.

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Unnichchai is only one of the many under privileged war-torn villages in the North and the East. A government official said that the situation in villages such as Karaveddi, Aithyamali, Kokadicholai and Milawettuan is worse. Rapid development of infrastructure is a positive sign of the improving situation,

he said. Area commander of the Eastern Province Brigadier Mahinda Mudalige said that 25 years ago, when they first came to this village through the jungle as young army officers, the situation was the same. This area was a stronghold of the LTTE and poverty is the major factor that pushed the inhabitants towards the LTTE. “We Sinhalese in the South have forgotten the past. If we think like Sri Lankans this situation will not arise.

Roads under construction. Pix by Sumanachandra Ariyawansa

There are thousands of children and widows affected by the war. To reverse the situation the people of the South should come here and show their solidarity. Southerners to help these people. The Sri Lanka Army is doing its best to change the lives of these people”, Mudalige said.



Reforming higher education for economic development By Prof. Gunapala Nanayakkara Once known for quality of education in A lize

ly for e

al

bviously, this is not a trend that favours economic es not

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sia, Sri Lanka has now become a victim of the forces of globaeducation industry. We no longer receive many foreign students, even through the Commonwealth arrangements, toour universities. Instead, Sri Lanka has become a significant source of supply of students to universities overseas, and the negative economic impact at home is serious. In recent years, we have been spending overseas over Rs.80 billion annualeducational purposes and this is about 12% of Sri Lanka’s traddeficit, 18% of external reserves of the country or 25% of totcapital expenditure of government last year.

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Odevelopment of Sri Lanka because this expenditure do

justify the benefits of educating our people abroad. Let us look at some of the details of our expenditure on education overseas. A Central Bank survey of 2008 found that nearly Rs.28 billion had been sent overseas previous year through commercial banks alone by Sri Lankans for educational purposes. This does not include the Sri Lankan foreign exchange diverted to foreign educational institutions by nonbanking means including ATM transactions that are difficult to monitor by purpose. This is a much larger amount, averaging Rs.35 billion a year. In addition, the foreign savings spent by parents on their children’s higher education overseas which could otherwise be foreign exchange that comes to Sri Lanka by way of remittances are very significant. Last year, Sri Lanka received approximately Rs.380 billion by way of remittances by Sri Lankans overseas. If the amount spent by parents for higher education is about 6% of these remittances, then we are diverting another Rs.23 billion a year. Thus, our nation is permitting a total of over Rs.80 billion to be spent by Sri Lankans for education abroad. Assuming that say Rs.60 billion of this total is used for higher education purposes, and knowing that our State expenditure on university education last year was nearly Rs.17 billion, one could ask how a nation could justify such a staggering difference of State expenditure locally and private expenditure abroad.

Relevance at home Surely, Sri Lanka needs a new higher education policy and an institutional formula. The strategy of economic development, as enunciated in the Mahinda Chintana blueprint for economic development policy, makes many demands on higher educational institutions. Development programs, private firms and the government need graduates who can work hard, be creative and norm-setters in their workplaces: Manufacturing firms need product designers and process managers; ports need logistics managers; agriculture needs food technologists and agri-business entrepreneurs; schools need devoted and competent teachers; and banks and services need specialist and analysts. Good IT graduates are in great demand everywhere. Country’s economic development programs are looking for employable graduates who can be relied upon for greater productivity and responsibility.


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Shouldering this responsibility, the Minister of Higher Education S.B. Dissanayake is now on the path of fact finding - he is visiting the universities, meeting administrators, employees, students, and other stakeholders. As expressed in his many public speeches recently, the Minister is bent toward a greater and well-governed role for the private sector in higher education. As a boy from the village, blessed with the benefits of free education, S.B. (as he is known better) is well aware of the need to promote and nourish free education as a priority despite what he may trigger on other dimensions. He is taking forward the President’s vision to see the day that foreign students from such countries as India, China, Vietnam and other East Asian countries, Nepal, Maldives, and the Middle-East come in large numbers to Sri Lanka to receive higher education. The President envisions the day that private universities working with State universities operate campuses in key locations of the island - Southern, Central, Northern and Eastern provinces in particular - to provide education for them. The belief is that we must learn from the higher education policies and strategies adopted by some of the developed countries in order to design ours for competitive advantage that is present in Asia.

Overseas providers The higher education sectors of the developed countries like UK, USA and Australia are increasingly dependent on income from foreign students. For example, the international education export income of Australia for 2007/08 was $14.2 billion and in addition $438 Million was earned from offshore educational services. Remittances from Sri Lankan students amounted to $262 million during that year, and this has been nearly doubling each year. While China and India are the main suppliers of students to Australian universities, Sri Lanka ranked 13 among the top 50 countries sending students to higher education in Australia. Income from international student fees account for 40% of total higher educational expenditure in Australia. Our policies and institutional reforms should aim at having this pattern of expenditure on higher education in Sri Lanka. In the United Kingdom, total university income for 2008/9 was Sterling pound 25.4 billion, and it marked yet another year of revenue increase. Income from university student fees was Sterling pound 7.3 billion, as increase of 16% over the past year, represented nearly 30% of the UK higher education budget. It is also noteworthy that many developed countries have discriminatory (higher) fees charged for foreign students though these students are not even guaranteed of the quality education provided to the nationals. Thus, the countries where higher education is developed are located on the side of benefits of the equation of economics of higher education. The massive outflow of foreign exchange from Sri Lanka for education overseas is largely the result of policies and conditions of higher education at home. Large numbers of students, youth and professionals who cannot find suitable opportunities in the state-run university system are pushed out of the local system and they find funds from various sources to look after their future development. While entry to local universities has been quite restricted for the past few decades (only about 15% of the qualified AL students could enter State universities in Sri Lanka), lack of education relevance and poor quality too had contributed to the push factor. For decades, the doors of higher education in Sri Lankan universities have been closed to over 85% of those who qualify each year through national examinations. In addition, there are thousands of qualified children of Sri Lankan parents living overseas who are forced to look for alternatives to Sri Lankan Universities where the number of places available per year has been limited to a quota of 2% or about 350 students in recent years. Our university graduates are seen by employers as ill-prepared for the task. Employers’ perceptions are marred by negative attitudes about hard and soft skills of our graduates, their


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work values and overall quality. These attitudes are the long-term consequences of our often mismanaged higher educational institutions. Our poorly managed universities are registered in the minds of our people for student strikes, agitations, clashes and blood-shed and frequent closing of faculties and campuses. In other countries, including neighbouring India, universities in the minds of people are associated with science and technology, innovations and research findings, quality and new horizons of knowledge. Our universities have suffered for decades from lack of capital, brain-drain, rigid rules, academic arrogance, and indifference to national demands for economic development. However, despite the severe constraints, universities have admitted marginally increasing numbers of students and a lot of credit must go to those academics who have stayed on track to perform. What we have achieved, though, is far less from the desired.

Punishing markets In the globalize market place, poor performers are punished by the market forces. Our universities, though highly protected by State laws, could not escape these market forces. The growth in internationally-traded education services is having a serious and multi-dimensional impact on our State universities on the one hand, and economics of education of the country on the other. In the border-less education industry, empowered by virtual service providers, Sri Lanka has become an attractive supplier of students to off-shore operators. As a result of the State’s inability to cater to the growing demand for higher education, there are as many as 50 private providers who are operating in Sri Lanka under the legal umbrella of collaborative relations with foreign providers. These foreign providers come mainly from Australia, UK, USA, India, and Western Europe and they are active in our markets with the manifest support of their governments for reasons of domestic financial needs. In view of the above context, should our universities continue to be indifferent to the governing variables of the environment and thus, as medieval educational institutions undertook faithfully, produce knowledge and graduate outputs for a world of yesterday? Or should we the universities awaken to a world that is unfolding right in front of us? Nobel laureate in economics, Professor Vernon L. Smith took a dramatically realistic academic view of universities when he declared, “The reduction and ultimate elimination of world poverty is the pre-eminent socio economic priority. This truth must be part of the university’s commitment to the development and dissemination of human knowledge. Educational institutions must emphasize the distinction between ‘knowing that’ and ‘knowing how’, recognizing that the world’s work is done by people who ‘know how’. A country aspiring to develop fast should drive higher education on the path of social utility.

Asian giants Japan presents an example of accelerated economic development. Its development change was deliberate, visible and inspirational. In many ways, Japan can be considered the case of technological applications executed through trading agencies, industry, laboratories, universities, financial institutions and government agencies in systematic coordination in order to realize a long-term vision of global economic presence of Japan. Sri Lanka needs such coordinated and deliberative action where human capital plays a central role. China’s education, grounded in mathematics, technology, and skills, is directly linked to the advances it is making in the world of business. China has absorbed the competitive labour advantage that many developing countries enjoyed years ago, and adding quality to once cheap labour products ‘Made in China’ are fast invading the consumer goods markets world-wide.


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Are the Sri Lankans aware of the vibrations the Chinese economy is causing globally? Which university in Sri Lanka is teaching Economic Development in China as a subject? In many ways, India’s economic conditions and achievements resemble those of China. India is now implementing its 14th five year plan, and India: Vision 2020 envisages a holistically developed nation by about the year 2020. India envisions joining the Big League of Developed Economies (countries with GDP of $100 billion and above are considered members of the League) by increasing India’s share of 1.7% of collective GDP of 33 nations in 2002 (US$ 28,843 billions) to 4.07% of collective GDP of 42 nations in 2020 (US$ 52,488 billions). India’s approach to development is clearly based on the development of indigenous competencies, R&D for local technology development, utilization of Indian resources, and promotion of market competition in favour of Indian products and services. The tangible proof of India’s ability to perform is its IT sector.

New initiatives Higher education in Sri Lanka clearly needs a comprehensive approach which gives attention to (a) a set of new principles of education and institution building, (b) orienting education to skills and development needs of the economy, (c) improving quality and standards of education, (d) engaging private sector in the provision of education through independent universities as well as corporate universities with public - private partnership, (e) enabling state universities to forge collaborative ventures with private sector and foreign universities on a self-financed and surplus making basis, (f) attracting foreign students to Sri Lanka for education and training, (g) regulating off-shore education providers, (h) establishing a system of accreditation of higher educational programs and institutions, and (i) enhancing foreign exchange earnings from education and drastically reducing outflow of funds for education overseas. Namal Rajapaksa, MP, and the leader in charge of youth and development, is reported to be initiating action to take educational programs to the rural youth. This is an initiative in the interest of developing much demanded skills and resource development, and he will attract foreign collaborators as partners in education and skills development. We should aspire to taking forward higher education as the key factor of economic development in Sri Lanka. The educated and the talented are the ones who shall steer lead projects and programs in the frontiers of action. We shall no longer expect a nation to depend on hard, less-educated, labour to be the main sources of value whether they are our plantations workers, employees in the garment factories, or house-maids and unskilled labour in the Middle-East. We need to transform the equation of education-value creation in this country. Fundamental to both vision and mission in higher education are the values, the collectively held principles and ideals which guide the thoughts and actions enunciated for the future. In higher education, we must get ready for a value revolution. Accepting value change as unavoidable in market-driven, globally-connected, and knowledge-pursuing economies, university academia should move from theory and modelling to action-learning, from universalism to global-local relevance, from preaching to doing, from spending tax payers’ money to earning revenue for universities, from text-book to modernity, and from isolation to connectivity. These value changes are revolutionary for a Sri Lankan university though these values pervade modern universities elsewhere. The writer was founder-director of the Postgraduate Institute of Management, University of Sri Jayawardenepura, and currently the Senior Professor of Management.


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Management



What comes first? chicken or the egg? Nishan Wimalachandra - Corporate Consultant and Lecturer In the most popular confusing question of ‘What comes first’ we have so many confusions as to what actually comes first. People take it as a joke when they ask ‘What came first? Chicken or the Egg?’

This is quite a normal statement which you have heard over a million times. But my question to you is quite similar and the answers for it could actually bring in the ‘Aha’ moments in you. My questions to you are fourfold and precise.

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1. What came first - Virus or Anti- Virus? 2. What came first - Illness or Medicine? 3. What came first - Mosquito or the Mosquito Coil? 4. What came first - Natural Disaster or Hollywood Movies? Or Relief AID? Now don’t get personally attached to situations as these

things are commonly connected to multinational and million dollar conglomerates worldwide which brings about lot of economic activity. And most economists would agree that whenever legitimate money is involved in a transaction that contributes to the development of economy. So we are not here to talk about the economic benefits to a nation but the reality of “Who came first”. Most people would agree that virus comes first and then the world’s computer geniuses will sacrifice their sleep to find an anti-virus to make sure the rest of the world sleeps better. While another set of people will strongly argue that the anti-virus came first. Sometimes it’s a comfort to deceive our inner feeling. While at other times it’s best to realize what actually comes first. Some of you folks will definitely disagree if someone said that the first to come is the anti-virus, if that is the case the price of the anti-virus in the market must be decided on the value of the programs affected by the virus. Now simple economics comes into consideration, supplying for the demand. So the creator of the virus most probably is the person who has the anti-virus so that anti-virus could be sold once the virus creates damage, now that’s a related diversification strategy don’t you think which will boost the sales volumes of the anti-virus thereby creating a legitimate transaction and thereby developing economies? But today there is an innumerable amount of viruses created by large multinational corporations so that they could have abnormal profits when the virus hits other platforms and computer programs. And creating an anti-virus is the key to success of many popular software engineering firms. But the truth be told, there is no point of an anti-virus if there is no virus. So the most important decision is to create such virus which could be stopped by the anti-virus, which will bring the firm both success and praise from the rest of the commoners who are not really literate on how the phenomenon works. So the answer to the first question is simple. anti-virus. That’s the first thing to come out followed by the virus.


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My second question is very simple in nature and of course the second question on what came first. Illness or medicine? Now I know the frowning faces which will say no, illness came first and to help the ones who are suffering, the medicines were introduced. Now this seems quite believable as humans tend to get sick and of course go out of alignment of healthy lifestyles due to the dietary habits. But if the second question is considered properly, what does come first? If anyone talks about HIV/AIDS or even a smaller viral flu experienced by a child, one might say the illnesses come definitely first. But most of the people who are little exposed to the realities of modernization will nullify the above statement as medicine comes even before the illness is in the development stage in the same laboratory. Try this simple example. When you go to a physician if you have a flu or some sort of modern discomfort, what would they first say “Well there is a flu going on and this medicine will definitely make it go away” now how on earth did he know that as soon as you step into the doctors office? It’s not some rocket science; it’s just some basic economics, demand and supply, with the exception where supply is created even before the demand takes place positively as medicine is an essential commodity. I recall the statement of the former Motor company CEO who said “How would one know the kind of vehicle they want, until they see the next model?” This is a great marketing strategy where you create the product and using that you create the want, but with medicines, you create the illness and then create the need to survive. And bingo, you get your sales volumes high; after all they know which kind kills and which don’t so it’s easy to play the good Samaritan. I have heard of this hypothetical economy to which a World organization came forward with a proposal to eradicate mosquitoes through modern science so that all related illnesses and their transmission could be prevented, having the approval of the Government of this economy the project never went into effect as the largest conglomerates have opposed the decision of the Government of this economy as such a move in eradicating mosquitoes will only bring down the sale volumes of many related products such as mosquito coils, medicines, and of course a rising unemployment level caused by the firms if they abandon the products to distribute if mosquitoes are eradicated from the economy. The poor Government in this hypothetical economy had no choice but to dance to the whims and fancies of the conglomerates who threatened the very foundations of the economic stability of that nation if they went ahead along with that World organization. Now we know such economies are just a coincidence, and very much hypothetical in nature. But if it was real, and if they stopped their production of the medicines, and mosquito coils. There would have been an economic collapse caused by a rising unemployment of the large labour force employed by such conglomerates. So the answer is simple “Create an imbalance in the cycle of life, where frogs are killed, stream fish are killed and other insects are killed, where mosquitoes are increasing at a rapid rate in a well perfected system of preferences”. So finally what’s the answer? What came first? Mosquitoes? You got to be kidding. We have all heard of natural disasters increasing at a rapid speed. The most hit companies due to this phenomenon are the insurance companies who are now under the direct threat of the Acts of God which cannot be prevented by the faithful prayers of the devout. The fact is; devastating internet viruses, previously un-heard new illnesses, as well as high death toll taking viruses brought about by mosquitoes and not so natural disasters are not a result of an angry God but of man who wants to make a contribution to an economy. Now how on earth anyone could do this sort of thing you may think. Most of the people who believe in the doomsday prophecies will argue that their religious literature foretells that such disasters will take


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place in the last days, but I wonder they mention anything about God doing such acts out of anger or hatred towards human beings who have become self-centered. When the next earthquake or tsunami occurs or a volcano erupts please see whether who is getting affected. Mostly innocent people. The tsunami which struck Sri Lanka didn’t wipe out the terrorists, but innocent people. If you watch closer enough you will realize that the movie “day after tomorrow” was released few months just before the massive tsunami in December 2004. And the movies such as “Reaping”, “Doomsday”, “Happening”, “I am Legend”, “28 weeks later”, and movies like “Out break” are just the beginning to inform us of the future of the world to come. Viruses like H1N1 - swine flu, dengue and many other popular viruses and illnesses are just surfacing in real life. Nations who are facing a fog problem around their sky-scrapers would agree that an artificial storm is quite the answer to wipe it out. If earthquakes could be detected, they could be prevented by not creating them in the first place to begin with. But unfortunately if an earthquake didn’t take place, there won’t be any tsunamis and therefore no one will be able to give AID relief to that nation making them under obligation to larger super powers. The answer is now confusing, what came first? natural disasters? Or Hollywood movies or AID Relief funds? Confusing isn’t it? The final answer to those above questions is very complex as in the ancient days, illness came first, but in the modern day medicines comes first as illness is developed on a later day after the manufacturing, marketing and international distributions of medicines have taken place to enable a proper buffer against the illness which is awaiting to be released in the same laboratory which the medicine was made. Similar to the biological world, experts on computer software engineering had learned that creating the anti-virus is the key to success. But they spread the virus first as it may seem obvious how the anti-virus to the same virus came before the actual infection of the virus to the computer world. Did we forget the mosquito? Not really - whoever came first is not a very difficult question, but the correlation between the products which are available in the market to drive away mosquitoes and the imbalance in the life cycle in the swamps and rivers show us a deeper link greater than any hypothetical economy that is unable to take action against the larger conglomerates who threaten the stability of such economies. Finally natural disasters are not so natural anymore, as unpublished, unmentioned and unheard high technologies could actually cause earthquakes, tsunamis, volcano eruptions, and many more man made disasters in a few minutes only to make sure that their product lines are safer to that of the products of the other nations who are smaller in size spend millions in research and development to create such disasters. Weather warfare is the name of the game, act of Gods are supposed to be the culprit. If you look closer enough you will see that what follows a natural disaster are the same which follows an invasion. An even closer look will expose that Relief AID, Construction funds, Development and Humanitarian AID which followed many well-known super power invasions goes hand in hand with the aftermath of the so called natural disasters prevalent today. Finally some hypothetical phenomenon is later proven empirically to confirm that a half truth is a perfect lie.

(The author could be reached via [email protected])


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Winning a business contract: How to prepare a proposal Dr K Kuhathasan - CEO: Cenlead A special type of report that is important in business, industry, Government and academia is the proposal. Like other reports, proposals range in length from short (fewer than ten pages) to long, ‘formal’ documents of 50 or more pages. Some proposals can be measured in volumes.

Purposes of proposals A business, a university, a private group, or an individual that seeks the award of a contract from a firm (even one’s own firm) a Government agency, or a private foundation must submit a proposal before being considered. Often, individuals or firms skilled in a special area are asked submit a proposal that could help in solving a problem. On the other hand, proposal writers may indirectly learn of opportunity to solve a problem or investigate a topic and on their own submit a proposal. Examples of publicly announced requests for proposals might include the following topics: * Proposals to a funding agency * Business contributions on reducing urban poverty * Plans for solving rural poverty and needed resources * Human rights and social justice * Governance and public policy * Education and culture * Health Programs * Proposals to Board of Investments * Amalgamation of existing firms * Introduction of new technology


Title page

Most organizations specify the information to be included in the title page. Some even provide special forms which summarize basic administrative and fiscal data. As a minimum, the title page should include the title, the name of the person or organization to whom the proposal is submitted, the person submitting the proposal and the date. Some titles are one line long, occasionally two. Some even include a column – followed by words to clarify the thought. Clarity and comprehensiveness are dual criteria for a good proposal title. Abstract, executive summary, synopsis Even brief proposals should have an abstract.

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Because you will be competing with others for the same opportunity, some evaluators will initially read only the abstract, seeking to gain a quick overview. In fact, the abstract should speak for the complete proposal, it should stand alone and it should summarize how objectives will be met and what procedures will be followed. Budget figures are frequently omitted because proposal abstracts may receive wide distribution. Some proposal readers feel that the abstract is one of the most important parts of a proposal; give it careful time and effort.

Table of contents Brief proposals usually do not require a table of contents. Long proposals do require one, as well as a list of tables, figures and illustrations.

Introduction Purpose

A somewhat safe assumption is that your reader may have a general knowledge of the purpose, and that he or she will send proposals to others for a more rigorous evaluation of its technical competence. Therefore, write the introduction as if approaching an informed non-specialist. Purposes are often stated in infinitive form: * To propose options for evaluating forward pricing strategies * To prepare an environmental impact statement.

Your proposal will be evaluated by a team of experts. Apart from the technical details provided by you the team will also study and look for the general appearance, neatness, consistency of style, completeness and professionalism of your proposal.

* To construct three cooling towers * To rewrite the defence Contract Audit manuals The opening must command attention, establish interest and lead into the main text, making people want to read on. As the introduction has to undertake a number of important, yet routine, tasks, ahead of them, it may be best to start with a sentence (or more) that is interesting, rings bells with the customer and sets the tone for the document. Thereafter, there are a number of other roles for the introduction, for instance it may need to: * Establish the background * Refer to past meetings and discussions * Recap decisions made to date * Quote experience * Acknowledge terms of reference * List the names of those involved in the discussions and/or preparation of the document

Problem

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In the proposal, state clearly that you understand the problem or problems. Does your reader need a complex remodeling and construction job or extensive equipment replacement? If pertinent, mention


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difficulties that may be encountered and consider how you propose to overcome them. If your proposal concerns a research study, is it a community problem, for the local area or a general area? If it’s about a company problem-such as shipping delays, shoplifting, inventory control, poor customer relations, excessive purchase returns, inadequate communication-does it concern a certain branch or area?

Scope If your proposal is for service or equipment you are selling, in what areas will it serve the prospective buyer? Define the boundaries of your project. If you’re proposing a research study, will you study one area of a community, company, department, or severe problem? What boundaries are you setting to accomplish your objectives?

Background If your proposal is short, the background may be omitted; in a longer proposal, information such as the following is usually included. * Previous work completed on identical or related projects * Possibly, literature reviews on the subject, particularly your evaluation of them. * Statements showing how your proposal will build on the already completed projects and research.

Procedures The procedures section is the heart of your proposals. It addresses how you will meet the requirements of your reader. There is no hard and fast rule as to what is to be included in this section, for each proposal will be different. A few suggestions may be helpful.

Proposal Content While the form and certainly the content of a proposal can vary, the main divisions are best described as: * The introduction (often preceded by a contents page) * The statement of need * The recommendations (or solution) * Areas of detail (such as costs, timing, logistics, technical specification) * Closing statement (or summary) * Additional information (or prime or lesser importance-in the form of appendices) Be realistic as to what can be accomplished. Don’t overextend your company’s or your capabilities Be specific on how your methods will meet the goal and purpose you stated earlier. Be precise on time schedule, perhaps breaking down the project into phases. Be clear on how you will evaluate the quality of your work production, or product. Be exact as to the limits: what you will do and what you will not do. Be sure the method of solving the problem connects with the objectives and goals for the project.

Equipment and facilities If your proposals is for your company’s bid on an enormous construction job, probably several departments will cooperate with you in presenting needed facts and figures. For a research project, state what equipment and facilities you already have for use, and assure that you can get the rest. Depending on the type of project, you might for example, need everything from an electronic blackboard to a small airplane.


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Personnel Two sections make up this topic: (1) the personnel arrangements and their involved company areas, and (2) their qualifications, often expressed in complete biographic data. Included here are also the percentages of time that personnel will devote to the project. Especially important is information on the project direct, project associates, and other assistants. It is they who will direct the project and with whom the reader (contractor) will establish an ongoing relationship, if the project is approved. If you are going to be the project director, state your own experience and past successes with similar projects. Include dates and references (with permission) so that the prospective funder can verify your statement.

Budget Sponsors or organizations requesting proposals frequently specify how the budget should be presented. Read such specifications carefully, Not all groups allow the same costs. Chronology of procedure for solicited major proposals A complete chronology of the entire process for a major proposal could go through eight steps. * The soliciting company publicly announces a project in professional publications, newspapers, and newsletters or writes to certain companies asking if they are interested in bidding on the project. * Contacted companies, and others reacting to the public announcement submit preliminary proposals based on initial request information. * The soliciting company reviews all submitted documents, eliminates some companies on the basis of the preliminary review, and establishes a “short list” of finalists. The soliciting company (1) asks each of the finalists bidding for the contract to submit a highly detailed proposal and (2) sets deadlines for receiving the proposal. * Finalist companies select their written and oral presentation teams; writing of their proposals proceeds through several editions; oral rehearsals of statements based on the proposal occur. * Finalist companies submit proposals to the soliciting group; dates are established for the oral presentation to the soliciting group. * Finalist companies make their presentations * Finalist companies wait for response – from one month to as long as half a year, or longer. Writing style and appearance It is better to apply all business communication principles and report writing techniques when writing the proposal – whether it is for a research grant or for a million-dollar sales contract by your company. remember also that appearance throughout your proposal makes important nonverbal impressions. First impressions are very critical. None is more so than that first impression your proposal gives to the reader when submitted to an agency or foundation for consideration. Many proposals are lost at the first look by the reader. He (or she) appraises the proposal immediately in terms of: * General appearance * Neatness


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* Specific appearance of: * Table of contents * List of figures * Title page * Maps * Graphs * Charts * Consistency of style * Title – is it grandiose or does it properly describe the project? * Completeness * Professionalism Therefore, you cannot afford to skimp on the time you spend in ‘polishing’ your proposal. Each item must be checked and re-checked. Since you have spent many hours developing the proposal idea, and further hours researching and writing before your first draft, why risk your investment over poor typing, proofing and graphics. Some of the most important time spent working on the proposal will be that spent on the final draft. If you are not an artist, it might be advisable to employ one to prepare the cover, charts and graphs. The cost is minimal when you consider the potential return.



Retaining best talent a challenge HR leader: Ramani Kangaraarachchi Human Resource Management is the coherent approach to the management of an organization’s most valued assets, the people working there, who individually and collectively contribute to the achievement of the objectives of the business. In simple words, HRM means employing people, developing their capacities, utilizing, maintaining and compensating their services in time with the job and organizational requirements. In that respect the role of the HR Head in any company is very vital towards achieving its objectives. As such Daily News Business features an HR Head in a company fortnightly to educate readers on different aspects of HR and new developments. Hemas Consumer Brands HR Manager at Dankotuwa Nimal Ganepola who has over 25 years experience in the HR field in different companies is featured this week. His significant contribution to HRM has been a key factor in winning gold awards in CNCI, Akimoto 5s National Productivity and National HRM awards in previous years. Here are excerpts of the interview.

Hemas Consumer Brands HR

Manager Nimal Ganepola

Q: What made you to select HR as your career path? A: When I first stepped into the HR field, I was aware that the human resources management field has its own challenges and its not going to be easy at all. But in my mind I was so passionate to work with people related matters and find innovative ways of managing them. This has given me immense pleasure throughout my career. Today I am happy to say that I have contributed to the field of Human Resource Management. Q: What is the nature of your company? A: Hemas is one of Sri Lanka’s top diversified conglomerates, with a focus on five key sectors FMCG (Fast Moving Consumer Goods), Healthcare, Transport, Leisure and Power. We are a public listed company with over 2,000 employees. Our products and services touch the lives of millions of people from new-born babies to large international businesses. The FMCG sector has its state-of-the-art manufacturing facility at Dankotuwa which I am attached to. Here, we produce a range of personal care products from creams and lotions to toothpaste, shampoos, talcum powder, colognes, soap and also baby diaper and sanitary napkins using modern manufacturing equipment and processes. These products cover total baby care, oral care, skincare, haircare, personal wash and personal hygienic categories. Q: Why is the HR department important to a company? A: The human resources function has come a long way for the last 20 years in this part of the world. It has become a part of the decision making process and developing strategies for businesses. It is no more an isolated function. In my view HR plays a very key role in business by being a integral part of the business. 41


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Q: What is Hemas’ most valuable asset? A: I would say people and the culture that we have built over past few decades. Q: What are the significant HR challenges in your company? A: In my view the most significant challenge is managing several generations in the organization. In any organization there are four generations: the Silent, Baby Boomers, X and Y Generation. Each of these generations has its own expectations. Hence managing their expectations are the biggest challenge. Also I would like to state that hiring the right talent to the organization would be the next. When I say the right talent, I would like to emphasize on hiring the right attitude to the organization and making them part of the culture that we have. Q: How do you attend to those problems? A: Firstly we pay attention to different needs of people. You need to understand that everybody is different from one another and they have their own career ambitions. How, you attend to those challenges is intervening in these problems genuinely to build people and give them opportunities to achieve what they want to achieve in life. We make people to understand the organization, giving them the opportunity to be part of it and most importantly we talk of our pride of being a local organization which has taken multinationals head on and we make people to believe in the culture and encourage them to embrace it. Q: What are the HR issues that companies should give their attention in general with global changes? A: A few things. Making room for multiple career paths, giving people the opportunity to move cross functionally, remuneration and being innovative in variable incentive structures. More emphasis on retention strategies and employee development should be given. In an environment where business margins are becoming thinner and thinner, the disposable capital for rewards and recognition becomes limited. Retaining best talent in the organization under such circumstances will be a challenge. Q: What are your business challenges? A: As many other local organizations, competing with multi nationals, high competition and thinner margins due to escalation of costs are real challenges to any business. Managing the continuously increase in people cost with gradual decline in company margins is another challenge as far as HR is concerned. Hence, improving productivity, efficiencies in processes are important. Q: How are you planning to meet global challenges? A: As local companies we have our own home grown HR practices, but going in to the future we need to ensure our people think global in terms of business acumen and building entrepreneurships will be key areas to focus on. Q: What are the competencies required to become a HR Head? A: Responsibilities of the HR Department is an ever evolving process with a growing business environment. Today, the responsibilities of HR cannot be confined into normal conventional areas of recruitment and selection or wages administration and such like. An HR Head should have a thorough knowledge of the entire operation of the business since his involvement is vital in the decision making process in organization development. He should be in


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readiness for senior level decision making on both day today management and strategic direction of the organization. Ability to foresee things differently, analytical skill, good PR skills, talent management, retaining high performers, talent sourcing, excellent leadership qualities and managing needs of the people who are the building blocks of success could be mentioned as a few other key competencies of an HR person. Q: How did you handle the recession with least burden to staff members? A: Handling the recession with least burden to staff members is another challenge. Especially with a workforce in a factory environment. Good relationship, constant dialogues and imparting awareness on real economic situation in the country will definitely help in facing this challenge. Encouraging the management in introducing lean management solutions (reduction of waste) rather than cutting down employee benefits, is an effective way of handling this situation.


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Trade & Marketing



Remarkable growth in footwear industry Indunil Hewage The Sri Lankan footwear industry has recorded a remarkable growth last year and a positive growth is also expected in the industry during this year. “More new players are coming to the footwear industry and many factories are opening in the face of existing healthy environment in the country.

More opportunities will be created in the Northern and Eastern areas in the future with the further developments in the industry,” Footwear Advisory Chairman Ranjith Hettiarachchi said. He said the Sri Lankan footwear industry has reached international level and is capable of fulfilling the local footwear requirements now.

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Sri Lanka has a limited market and identifies new markets and foreign buyers for exporting Sri Lankan footwear products. Arrangements have been made by authorities to have a safety net to protect the industry from cheap imported footwear coming from various countries to Sri Lanka. “The lack of operating staff and leather has hampered the growth of the industry. The current workforce in the footwear sector is around 30,000 and the industry is engaged

in importing leather from Chennai, India. In addition to that, raw material and machinery can be imported duty free to Sri Lanka now. This shows the platform has been made to develop the footwear industry similar to the international footwear market,” Hettiarachchi said.

Ranjith Hettiarachchi

A Sri Lankan delegation was sent to China recently with the assistance of the Export Development Board to obtain an idea about technical improvements in the footwear industry in China. Earlier, two batches comprising Sri Lankan footwear designers and technicians underwent training at the Footwear Design and Development Institute in India with the assistance of the Industry and Commerce Ministry. “We are at the discussion level to set up training centres in the country and are in the planning stage to draw a five year master plan for the industry. Having understood the commercial value of the footwear industry, ‘Footwear and Leather Fair 2010’ from November 5 to 7, will be held at the BMICH. Industry and Commerce Ministry, Industrial Development Board and Sri Lanka Footwear and Leather Products Manufactures Association are organizing this. A special area has been reserved at the fair to display footwear and leather merchandise in terms of quality and designs capability.



Product support and power of value creation Prof E G Ubayachandra. Marketing Management Department, Kelaniya University The practice of promise and delivery has been a focal scenario of marketing, and the holistic approach of formulating a marketing mix which includes typical product, price, place and promotion should lead

consumer life. The purpose of marketing mix is to create values for customers’ life; therefore, the integration among aforesaid elements is a must for a sustainable strength of getting and retaining customers. Product support might be as simple as a set of instructions and a throwaway wrench that comes with an assemble -it- yourself child’s bicycle or as complicated as warranty programs, service, contracts, parts depots and equipment on loan to replace ad effective machine while it is being repaired.

All of these constitute product support. They are designed to ensure that customers get the value from use of the product after the sale, such factors as heightened customer awareness and higher expectations about support levels, reduced ability to perceive product differentiation through superior technology and or features, and improvements in support methodology have greatly increased the importance of product support in company strategy. The identification of customer expectations about product support and the development of cost-effective strategies for meeting those expectations is these authors demonstrate a major face of successful marketing today. When making purchases, customers often believe they are buying more than the physical item. They also have expectations about the level of post purchase support the product carries with it. This support can range from simple replacement of a faulty item to complex arrangements designed to meet customer needs over the product’s entire useful life. Our investigations show that defining these expectations of support and meeting them effectively might be critical to a successful marketing effort. In developing a support strategy, it is necessary for managers to make trade-off between effectiveness and cost. These trade-offs are often quite complicated and need to be evaluated carefully. Managers need to understand the nature of each trade-off and to develop a suitable framework for choosing among competing alternatives. It is seen that many companies do not centralize responsibility for product support; As a result, management receives a disjointed picture of product support. Many managers often fail to contemplate the needs of customers until after the design is frozen and the marketing strategy decisions have been made. Individual departments adopt support strategies that may not be compatible with one another. In the early stages of marketing growth, customers concentrate more on technology and features and are concerned with only a few aspects of support. As the market starts to mature, customer needs become more sophisticated. Product support encompasses everything that can help maximize the customer’s after-sales satisfaction. In many companies, however, the earlier limited view still holds away, as a result they separate product support from marketing strategy. In case of certain companies, explicit support strategy is lacking. Customer expectations about product support add a crucial dimension to market segmentation. In most cases the package of support services that must be offered-implicitly or explicitly-changes significantly from one market segment to another.

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A major problem in segmenting the market on the basis of customer expectations lies in defining what these expectations are unlike product features or performance levels, customer support expectations focus on intangible attributes. Without a suitable framework, the task of defining support segment is very difficult. Because these intangible qualities can be viewed as proxies for underlying costs used in equipment purchasing decision can provide the basis for quantifying customer preferences regarding support. The life of a product after it is placed in service can be viewed as a sequence of up-times and down times, terminated eventually by final failure, obsolescence, or sale and replacement. As the product goes through this cycle, customers can incur three costs namely fixed costs, variable cost and maintenance costs. Once the costs and risks of concern to the customer have been identified, managers can single out attributes such as reliability, availability and dependability and measure these in such terms as failure frequency, meantime between failures, downtime per failure and the like. Moreover, customer preferences are often non compensatory. Customers rank-order their preferences and do not consider an excess of one type of support as a substitute for deficiencies in another. Similarly, the office equipment buyer wants rapid response; irrespective of how infrequently it may be needed. For both risks and requirements of downtime are too high. Having defined customer needs, the company can set about designing suitable support strategies. Normally, the manager can use one of several alternatives support approaches. Each meets certain customer needs. At the same time, each affects the manufacturer’s costs or revenues by creating higher product costs increasing support costs, or lowering revenues. Choosing an alternative involves a trade-off between the effectiveness in meeting customer needs and impact on costs. Such trade-off are complex, neither effectiveness nor cost can be judged in terms a single variable. Since support strategies meet diverse customer needs and affect the manufacturer’s costs in various areas, trade-offs have to be made along several dimensions of effectiveness and costs. Two additional factors further complicate the process of choosing a support strategy - the limitations of individual strategies and the interactions among strategies. Support strategies are not static, a strategy that is effective today will, if unchangeable, become ineffective in meeting future customer needs. Generally, customer satisfaction increases with improvements in one area up to a point. And when customers demand higher levels of satisfaction than can be economically provided with loaners, the company has to switch to still another approach, like improving access to components that fail and thereby reducing repair time. This pattern appears to be characteristic of product support systems in general. A different dominant strategy provides the Customer satisfaction at successive stages, and the level of customer satisfaction increases progressively. Each rise in the level of satisfaction raises the manufacturer’s costs and accentuates the need for choosing another, more efficient support strategy. Since shifting to a new stage raises the level of effectiveness considerably, companies that are slow to react to changes in customer needs and or the level of support provided by competitors risk being frozen out improvements in the level of support given in other industries, raising customer’s expectations across the board, pressure on competitors to maintain or increase market share, and introduction of new support techniques - any or one of these could signal the need for a shift. Managers also need to plan for such shifts to ensure that existing support strategies do not box them in.


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Money & Banking


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Tax benefits and settlements S R Balachandran - National Chamber of Commerce of Sri Lanka Council Member I quote below the following matters and request the Finance Ministry and the Inland Revenue Department to take appropriate action.

Withholding tax At present when we supply goods to Government Departments and the following deductions are made when settling our dues Income tax – 5 percent of taxable supply VAT - 331/3 percent of the VAT charged In the case of income tax a tax deduction certificate is issued which could be used by the supplier. Regrettably in the case of VAT, remittance should be to the Inland Revenue Department within seven days who will issue the perfected paying-in-slip to the supplier. This takes more than three months and also after several reminders. It is better to draw the deduction cheques in favour of the Inland Revenue Department and sent together with settlement cheque to the supplier. If the supply is Rs.100,000 and the VAT Rs.12,000, a cheque should be drawn in favour of as follows. a) Commissioner General of Inland Revenue – Income tax – Rs.5,000 b) Commissioner General of Inland Revenue – VAT – Rs.4,000 c) Supplier – Rs.103,000 This will ensure that there is no delay in deduction cheques being issued to the supplier.

Terminal benefits Retiring Gratuity, refund from EPF and ETF Departments (employers contributions only) to be taxed in toto. * Over and above 20 years of service – Rs.5,000,000 exemption * Over and above 10 years of service – Rs.2,000,000 exemption * It could be observed that there is a vast difference of Rs.3,000,000 in respect of 10 years difference in service. i.e. even the employee completes 19 years service he will receive only Rs.2,000,000 as exemption. Therefore it is suggested * Over and above 10 years – Rs.2,000,000 exemption as before * For every additional year – Rs.300,000 be added to Rs.2,000,000, (Rs.300,000 x 10 – Rs.3,000,000).

Tax settlement dates The Tax settlement dates are as follows - Income tax, SRL, PAYE, Stamp duty, and Withholding tax (5) – by the 15th VAT, NBT ESC (3) – by the 20th It is better to have a common date for all tax settlements i.e. 20th of the month.


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Tax clearance certificate Since 1976 Tax Clearance Certificate has to be obtained from the Inland Revenue Department to renew liquor licence annually. It is better to extend this requirement to all licence holders of all material value. This will compel them to maintain proper books and accounts and submit all tax returns on time after making due settlement. Consider the case of a private bus operators who enjoys VAT, NBT and other exemptions. They are expected to:- * Account for all income received by way of issuing receipts *Maintain proper books and accounts * Pay authorized salaries to their employees with statutory dues such as EPF, ETF contributions with retiring gratuity. Maintain satisfactory services – deploying road-worthy busses, comfortable seating arrangements and no over loading.

Disguised income Several buses are now deploying in the Northern Line which improve revenue collection. The Inland Revenue Department should ensure that tax compliance is maintained satisfactorily The Government believes that the maximum revenue is received from large companies. If proper control is effected more income would be received from small and medium enterprises. It could be seen that earners of income over a certain limit pay that NBT, ESC and other taxes. Attention should be drawn on the following categories. a) Earning income over the limit but not paying taxes due to suppression of income. b) Drawing income less than the limit – I remember the Defence Levy was paid even by non-GST payees upto July 31, 2002. The following categories has to be taken into account. a) Small hotels, eating houses, restaurants and bakeries b) Small wholesale and retail shops c) Private bus owners d) Tutories, dance and music teachers, beauticians d) Hair dressing saloons and laundries f) Caterers, cake decorators, suppliers of meals to offices It is better to take a survey and include all in our tax net. This method ensures maximum revenue collection and the Government would be in a position to fulfill all development tasks satisfactorily.


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Commercial Bank 3Q post tax profits up 27% Higher credit demand, internal measures and better conditions spur profit of benchmark bank A strong focus on core banking operations and a resurgence of credit demand have generated solid growth in key performance indicators for the Commercial Bank of Ceylon PLC at the end of the third quarter of 2010.

The bank has reported pre-tax profit of Rs.6.519 billion for the nine months ended 30th September, recording an impressive growth of 30.5 per cent over the corresponding nine months of last year. The Bank’s post tax profit grew 27 per cent to Rs.3.727 billion in the same period.

Financial statements filed with the Colombo Stock Exchange indicate that growth was particularly strong in the third quarter, with the Bank’s profit before tax growing 54.8 per cent to Rs.2.494 billion, and its post-tax profit improving 47.8 per cent to Rs.1.414 billion over the corresponding three months of 2009.

One of the principal contributors to this performance was the robust growth of the Bank’s loan book in the 3rd quarter as well as over the nine month period, Commercial Bank’s Chief Financial Officer Mr. Nandika Buddhipala said.

He disclosed that Gross Loans and Advances increased by Rs.18.135 billion in the three months, from Rs.186.635 billion at 30th June to Rs204.770 billion at 30th September, a growth of 9.72 per cent. Within these three months alone, non-performing loans reduced by Rs.2.602 billion or 13.65 per cent, Mr. Buddhipala said.

Gross Loans and Advances for the full nine months reflected a growth of 11.91 per cent over the figure of Rs.182.9 billion at 31st December 2009.

Total Deposits grew by 7.6 per cent to Rs.252.617 billion at 30th September 2010, an increase of Rs.17.873 billion over the nine months reviewed.

Taken as a Group, the Commercial Bank, its subsidiaries and associates posted pre-tax profit of Rs.6.547 billion at the end of 3Q 2010, recording a growth of 29 per cent. Profit after tax for the period was up 25 per cent to Rs.3.735 billion.

Elaborating on some of the other contributory factors to growth, Mr. Buddhipala said Net Interest Income had increased by 32.5 per cent for the nine months to Rs.11.705 billion. The interest expenses of the Bank recorded a drop of 23.78 per cent responding to the low interest rate regime that prevailed during the period under review compared to the corresponding period of last year. Interest income on loans and advances also recorded a drop of 16.70 per cent. However, interest income on other interest earning assets which mainly consist of treasury bills and bonds, increased by 29.87 per cent, restricting the drop in total interest income to 5.38 per cent, he explained. As a result, the net interest margin of the Bank improved to 4.57 per cent during the period under review.


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Net Interest Income growth was more pronounced in the third quarter, he said, disclosing that increased lending had generated Net Interest Income of Rs.4.312 billion in the three months ending 30th September 2010, a growth of 41.5 per cent compared to the corresponding period of last year.

Total net income of the Group for the review period stood at Rs.15.768 billion, reflecting a growth of 13.77 per cent. Total assets reached Rs.364.614 billion as at 30th September 2010, an increase of 13 per cent since 31st December 2009.

Growth in the non-interest expenses was limited to 4.5 per cent despite additional expenses incurred on expansion of the branch network.

Net provisions on account of Bad and Doubtful Debts decreased by Rs.218 million or 44.5 per cent. "The improved quality of loans and advances portfolio due to the actions taken by the Bank has resulted in comparatively lower specific provisions in 2010," Mr. Buddhipala said.

He disclosed that these measures, coupled with improved macro economic conditions in the country had enabled the Bank to bring down its gross and net non-performing advances ratios to 5.02 per cent and 3.36 per cent respectively by the end of the third quarter from levels of 6.84 per cent and 4.89 per cent at the end of the previous year.

Commercial Bank of Ceylon PLC has been adjudged Sri Lanka’s ‘Bank of the Year’ seven times by ‘The Banker,’ ‘Best Bank in Sri Lanka’ for 12 consecutive years by ‘Global Finance’ Magazine, and the Best Bank in Sri Lanka twice by FinananceAsia. It has also been rated ‘Best Local Trade Bank’ in Sri Lanka by the UK based ‘Trade Finance’ magazine.

The Bank’s operations in Sri Lanka consist of 185 branches and supermarket banking counters and an ATM network of 385 terminals. The Bank also operates seven branches, two booths, two off-shore banking units and six SME Centres in Bangladesh.



On bank lending, government policy regarding SMEs

Excerpts of the speech delivered by Aloy Jayawardene, President of the Sri Lanka Chamber of Small and Medium Industries at its 47th Anniversary celebrations yesterday:

The ongoing economic downturn have pushed the Small and Medium Sector of Industry into its worst period, similar to what it was in late seventies and early eighties, the time the open economy was introduced. We need the Government to protect the Small and Medium Sector during these difficult times. The Small and Medium Sector has taken a heavy beating since 2007. The main reason was the adverse impact on the global downturn. Myself as President of the Chamber of Small and Medium Industries was invited as the only Chamber President to address the Monetary Policy Consultative Committee of the Central Bank early this year to express the Chamber views on the Small and Medium Industrial Sector.

This Committee was chaired by Professor A.D.V. de S. Indraratne with a high powered private sector business leaders in the Committee. The Banks were represented by the President of the Bankers Association, Mr. Rajendra Theagarajah,Chief Executive Officer of Hatton National Bank.

Problems related to finance were identified as the foremost affecting Small and Medium Industry today. Our main problem is with banks. Everyone in the Small and Medium Sector has mortgaged all Assets to the banks and are unable to get even a loan for working capital as no bank is willing to extend credit if they cannot offer collateral. For our survival we requested Government to suspend the labour laws and allow lay offs, to freeze bank loans and accumulated interest and taxes for a period of two years to overcome the global meltdown which had effected Sri Lanka’s Industry since 2007.

The Government should understand that the Small and Medium Enterprises are a vital cog in our country’s economy and that we represent 70% of the Gross Domestic Product and a kick start should be given to the Small and Medium Sector if the economy is to develop. This presentation was given much publicity in the print media, as one said-I quote, "It is heartening that at least one private sector chamber leader has had the guts to tell the truth, not minding whether it is bitter or not for government" unquote.

After having placed our proposals to the said committee, the Governor of the Central Bank called us for a meeting. At this meeting he gave us the assurance that the forthcoming Budget for 2011 will give much benefits to the SME Sector. We are hopeful that this would be a reality bringing the much belated relief to the SME Sector. We were elevated when the President of the Bankers Association, Mr. Rajendra Theagarajah speaking at a forum a few weeks ago said that the Banks should be less tight fisted and lend More to the Small and Medium Entrepreneurs. The end of the Island’s 30 year ethnic war has opened up new opportunities that should accelerate growth. Building confidence in us is very important. The

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banking sector should drive the economic growth in the immediate future. The banks should unclench their fists to support the national dream for faster economic growth. There is a huge need for the banking sector to support the Small and Medium Entrepreneur as we hold 70% of the Country’s economy. The Banks should move away from Asset or security based lending to cash flow based lending.

Even Dr. P.B. Jayasundere has rapped the country’s banking sector for making things difficult for borrowers. As the Secretary to the Treasury have rightly pointed out- I quote, " In the post conflict context, our private sector deserves some relief from the banking sector. Today most enterprises which were shut down and performing below par due to security risks are witnessing a gradual renaissance. They should be given all the assistance by the banks to put them back on their feet. Rigid regulations in lending should be re-considered since this would discourage Small and Medium Sector Enterprises. The Private Sector as it is often said is the engine of growth" – unquote.

The Ministry of Industrial Development during the latter part of 2009, appointed a committee to drafty a Policy Strategy on Small and Medium Enterprise Development, It was surprising with one or two sittings, with the appointment of new Ministers, your goodself Sir, we presume this committee was suspended. We received a draft prepared by the former Secretary to the Ministry requesting our comments. The said draft contained most of the issues that were discussed and a white paper formulated in the year 2002, which was funded by ADB in which Committee I myself sat for discussions for more than 5 to 6 months. This Committee was chaired by Dr. Saman Kelegama Executive Director, Institute of Policy Studies. This report was commissioned by the then Minister of Enterprise Development, Industrial Policy and Investment.

This report never saw the light of the day other than two issues. This ADB funded document of 2002 can be considered to be a comprehensive document dealing with SME Development Strategy. It recognizes the vital role the SME Sector plays in Sri Lanka’s economy. The White Paper has identified several issues and has proposed a series of measures to be undertaken by the Government and other relevant parties in order to address them. Only two issues of this document was taken up, The SME Authority and the Bank for SME. The Authority to be established was similar to The Board of Investment, a One Stop Shop.

But with the implementation it did not happen. Although the National Enterprise Development Authority was established in place of the SME Authority it does not have the powers to serve the SME Sector in the proper way as expected. The SME Bank, presently known as The Lankaputhra Development Bank that was established for the SME Sector, the monies of the Bank was doled out to the larger sector of Business and did not cater to the Small and Medium enterprises. Further, even the credit line given by ADB did not serve the SME but benefited the larger businesses.

The other proposals in this document of 2002 was put into a shelf and thereafter forgotten. We welcome the fast growing unity among Tamil political parties. These Leaders met President Mahinda Rajapaksa sometime back to discuss issues facing the Tamil Community. The LTTE is buried and they will not face any obstacles on their way. No democratically elected legitimate Government could offer nor find solutions to any aggrieved community, if that community stands divided. Therefore, having unity is paramount at this juncture to find any solution to meet the aspirations of the Tamil speaking people.

The inland basin of the Hambanthota port is being flooded and the first ship is expected to reach the New Port quite soon. The development goals of this Government we may see within the next few years –


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Colombo/Matara Expressway, the Norocholai Coal fired Power Plant, The Colombo Port expansion scheme. Katunayake/ Colombo Expressway and more. President Rajapakse faced upheavals of unprecedented magnitude during his first term as President, but he is now free from trouble and in a position to concentrate on development in a big way during his second term which commences shortly.

The road ahead of President Rajapakse is clear as never before. It is now up to him to steer the country towards prosperity. President Mahinda Rajapakse’s triumphanist Government has failed to make the country’s Tamil minority feel secure after crushing the Tiger insurgency last year. There is no denying the fact that the LTTE utilized the provisions of the CFA(Ceasefire Agreement) to the multi pronged terrorist war against Sri Lanka and we are even today paying the price for that folly despite the military offensive itself being over.

The only way to head off the Diaspora International Campaign is by winning over the Tamil People with a credible constitutional proposal which would be acceptable to the Tamil People. If we can come up with such a proposal we would then get the support of the International community to end their campaign against our Country.

The distancing that has taken place between Sri Lanka and the Western Countries over the past several years is unfortunate. These countries continue to be Sri Lanka’s export markets and also gave a considerable amount of development assistance to the country in the past. At present Sri Lanka is receiving considerable economic assistance from China which makes up for the reduction in Western assistance. However, more assistance the country can obtain from developing partners the better it is for the people, if that aid is used for their benefit. Until recently Japan was Sri Lanka’s largest Donor, and what it has given will be difficult for any other country to match. Special relationships like these that spanned the decades must not be lost. Despite the stresses of the present, these countries have been good friends too.

We are to introduce a series of activities aiming at assisting the SME sector commencing from the year 2011. These activities will be designed to benefit a number of businesses at national level. The activities will also be directed towards the informal businesses in order to get them into main stream economy.

The Chamber has assigned this task to Mr. Neil Magederagamge former Director General of Commerce. He is assigned with the task of mapping out an appropriate programme of action towards this purpose. At present Neil is conceptualizing various ideas in order to transform them into a concrete work programme. It is imperative that we could be able to make an early assessment on the possible support that the Chamber could harness from donor Agencies.


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Sunday Island – November 7, 2010

Why the budget deficit should be cut By R.M.B Senanayake

The Government is committed to the IMF to keep the budget deficit for this year to 8% of GDP. Figures for eight months show that the deficit has overshot the full year’s target. Capital spending for the first eight months was up 15.1 percent to 158.3 billion rupees. Cutting the budget deficit to levels agreed with the IMF will be possible only if growth quickens in the rest of the year. Will the Government dump the IMF prescription without following the austerity measures recommended to provide a corrective for our problems?

Why cut the budget deficit? The Government doesn’t really believe that cutting the budget deficit is necessary. Those who have the ear of the President are all heterodox economists who are Keynesians and statists. Keynes never really proposed his theory for under-developed countries but for the developed countries where there were factories idle owing to the lack of effective demand for their products. That’s why he proposed pump priming or expanding aggregate demand through fiscal stimulus including running budget deficits, even funding them by money printing.

But lack of effective demand is not the cause of our unemployment or lower growth rate. They are due to our general backwardness in the production function, the lack of adequate investment, the lack of skills among our labor force and the lack of modern knowledge and technology. These economists think that the government can by its investment promote development. They are carried away by the investment in infrastructure in India and China, which propelled these economies to a faster growth pattern. But this is not for general application.

The massive investments in Hambantota for the harbor and the airport may stimulate growth but not in the short run. The construction is said to be by Chinese workers and this spending will not create even short term jobs to the extent that few locals are employed. The problem with such massive investments is that provision must be made in future budgets to maintain these assets. Infrastructure investment will add to the burdens on the budget in the future. "There were many reasons why the 18th century Dutch economy failed to become a full-blown industrial economy, but one of them was the fiscal burden of maintaining the infrastructure investment that had fueled the growth in the first place," says Economic historian John Wallis.

Increase in Aggregate Supply is what drives development not increases in Aggregate Demand. What is aggregate supply? There are no producers of goods-in-general. There are only producers of specific goods aimed at specific customers. (They can of course be added up in terms of market prices to get the GDP). There are no demanders-in-general. There are just demanders of specific goods to be purchased from specific producers. So we should look into the specific sectors rather than to Aggregated Demand or Aggregated Supply to understand our problems.

These are abstractions used in macro-economic analysis. But we have to look behind them to see what is wrong in specific production functions and specific sectors. The problem may be due to the lack of competitiveness because of the use of obsolete machinery or technology (National Paper Corporation). In


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the case of agriculture it may be due to lack of timely credit or marketing facilities or due to the small size of the plots of land and the inability of small farmers to sell their land owing to regulations which prevent fragmentation which prevents the emergence of a free market in agricultural land.

The State run education system is an obstacle to workers trying to equip themselves with the knowledge and skills required for employment in sectors where there is a demand for their services. So many sectors are out of equilibrium- industry, agriculture & services. There is no general lack of demand but there are obstacles to the supply of the factors of production- land labor and capital - to adjust properly to the demand for particular goods and services. Our current level of unemployment, particularly among the educated, is structural and not a matter of inadequate demand. How many graduates can the economy in its present state of development employ? We need Technical Institutes not more universities. Our unemployment is structural, reflecting a mismatch between available and needed skills.

Why do economists oppose budget deficits? The Government is dis-saving - spending more than its income for running current operations or consuming more than its income justifies. The golden rule in budgeting is never to run a budget deficit on current account for it reduces the national savings. We should be increasing national savings not reducing it by government dis-saving. India has a savings rate of 30% of GDP and China 35-40%. Our national savings is about 18-19% only. Economists justify borrowing only for investment and such investment should generate greater returns than the cost of the investment. Mihin Air for example would not qualify.

We are supposed to invest about 30-35% to generate higher growth rates. So we borrow from foreigners for our investment. But will the loans generate sufficient foreign exchange to repay these debts? We are also borrowing short to fund infrastructure investments which bear fruit only in the long term. So we roll-over the debt which could be at higher and higher rates of interest, while the interest burden keeps on mounting. Is there a limit to this? About 30% of the budget goes to fund interest payments. Suppose, without corrective action, it goes to 100% of the budget? Would we then run all government services by borrowing? We have been doing so in the past by borrowings mostly from our own nationals.

The Government can always repay the interest by borrowing from the banks (printing money now called quantitative easing). But this means paying off borrowers with debauched currency. The public then demand higher and higher rates of interest? But the government can still print money by borrowing from the central bank and the banking system on repressed interest rates. But this means that all government services - education, defense, health, will be funded by printing more and more money. Deficit budgeting without limit would end in hyper inflation. The revisionist theory that deficits don’t matter is nonsense and the sooner the government disowns such voodoo economics the better.

How then should the budget deficit be reduced? The voodoo economists will point out that the tax revenue in terms of the GDP is too low and should be increased. They argue that the affluent should be taxed more. But there are costs to that. The government will earn more tax revenue if there is more growth. In 2009 tax revenue declined because growth slackened. This year with the recovery of the economy tax revenue has increased. But if tax rates are increased then growth will suffer. Businessmen undertake risky investments only if they hope to get higher than average returns. They will invest in longer term projects only if they expect tax rates to be stable. If they are not sure of the future tax rates they will have another uncertainty to cope with in addition to all the risks of the investment.


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The budget deficit to GDP ratio is not a satisfactory standard. It implies that if the economy grows faster, then a larger budget deficit is acceptable. But what if the growth is due to inflation? (The ratio is a comparison in terms of GDP in money terms and not real GDP). But the authorities are happy that the Debt/GDP ratio is coming down. True, but it doesn’t mean that the debt ratio is acceptable. The acceptable limit was laid down as 60% by the Fiscal Management (Responsibility) Act. Countries in Europe including the UK which resorted to fiscal stimuli via deficit budgeting and money printing are now pulling back and cutting their budget deficits. They now emphasize structural reforms instead. But will cutting the budget deficit reduce growth? Not likely. In fact fiscal austerity with reforms could boost growth because it would provide an environment conducive to growth.

Presently the banks are funding part of the budget deficit pushing up money supply with inflation likely to rise. The Central Bank is also repressing interest rates, something desirable but only by a reduction of government borrowings not by creating more money through buying dollars in the market to prevent appreciation. But the rupee is far above its real effective exchange rate (Rs. 127) which is damaging exports. It is only by cutting the budget deficit and doing away with banks subscribing to Treasury securities (money printing), and limiting foreign borrowings by the government, that a market determined exchange rate and interest rates and low inflation can be achieved. This is the best framework for sustainable growth.

We must cut all extravagant foreign trips by ministers and MPs. We cannot avoid cutting universal benefits for free education and free health and the excessive numbers drawing Samurdhi. But enforcing austerity is likely to lead to social unrest. The austerity measures cannot be imposed by fiat but requires the support and co-operation of the Opposition. The best course is to have a national government including the JVP so that these austerity measures can be implemented without social unrest.


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Sunday Island – November 7, 2010

Money, Inflation and Output Published by Global Policy Research Centre, Colombo, 2010; pp. 238; Rs. 1500. Book Review Reviewed by Saman Kelegama

By H.N. Thenuwara

The book is the latest addition to economics literature in Sri Lanka. The basic thesis of the book is ‘good money’ creates wealth and growth while ‘bad money’ would retard this. This observation was made by Copernicus in 1529 AD and Thenuwara shows the validity of this observation in the modern day world. The book has 11 chapters. Some of the chapters explain basic economic concepts in the context of monetary policy while others show how monetary policy has worked and the prerequisites for positive results. The underlying theme of the book is the need for a Central Bank to conduct independent monetary policy and thereby keep inflation low, which is essential to achieve higher economic growth.

Inflation When too much of money circulation is not matched by an increase in the supply of goods, the goods prices increase and creates inflation. Inflation inertia is created when past high inflation makes it difficult to control current and future inflation. When the public is used to a high rate of inflation, they incorporate high inflation rates to future economic plans — expectation causes the inflation to persist by way of self-fulfilling phenomenon. Thus to combat adverse expectations on inflation, Central Banks make an effort to sensitize the public on their plans to reduce inflation and provide forecasts of future inflation levels.

Core inflation is the extent of inflation that responds to demand management policies and usually excludes items that are very sensitive to supply side disturbances like food and energy. Headline inflation on the other hand, is the rate of increase of the price level of all goods and services included in the consumer basket. A comparison of the two indicators shows that in Sri Lanka, core inflation has been on the decline until late 2007 but headline inflation has been on the increase from mid-2006 to mid-2008. These trends basically show the lagged effect of excessive money printing and the influence of the escalation of food and energy prices. While presenting these trends, the author has a closer look at the revision of the Consumer Price Index (CPI) in 2002 to replace the outdated basket of currencies (based on the 1952 basket) that governed the earlier CPI, and expresses concern of alcohol receiving a zero weight, especially when a number of commentators have expressed that Sri Lanka is a very high alcohol consuming nation.


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Demand for Money Demand for money can be explained by the classical framework of the Quantity Theory of Money or Keynesian Framework or Friedman’s framework – it is a complex subject. If demand for money is stable, a Central Bank can carry out monetary targeting (quantity of money) in its monetary policy to keep inflation at a low level. In the real world however, the demand for money is unstable. Thus, Central Banks adopt different monetary policy regimes at different times. It is left to the Central Bank to select the most efficient monetary policy instrument or a combination of instruments to reach the desired credit and money targets.

In monetary targeting, a Central Bank cannot directly hit at the final target, i.e., inflation, thus, it aims at operational and intermediate targets. First, the interest rate is used to hit at the operational targets such as high powered money and short-term interest rates. Then high powered money and short-term interest rates impact on the intermediate targets of narrow money, broad money, and medium term interest rates. Finally, narrow and broad money and interest rates impact on the aggregate demand and inflation.

Central Banks use several instruments to conduct monetary policy: interest rates, the statutory reserves, moral suasion, central bank communications, and administrative instruments to control aggregate demand. The book shows that the most effective and convenient instrument is the market based instrument of interest rate for conduct of monetary policy. But the market players should be sensitive to the interest rates. If the government is a major borrower in the market, and does not change its demand for credit when changes occur in the interest rates, then monetary policy becomes ineffective.

Chapter 9 highlights the need for proper coordination between monetary authorities and fiscal policy officials to obtain best results from monetary policy. When fiscal policy is excessively used and generates high budget deficits, monetary policy becomes accommodative and ineffective, leading to high inflation. Why politicians influence Central Banks and dilute their effectiveness is best captured by quoting the former Governor of the Reserve Bank of Australia; first, the tendency to push the economy to run faster than its capacity, and second, the temptation that governments have to incur budget deficits and fund these by borrowings from the Central Bank.

Global Economic Crisis Chapters 5 and 6 respectively deal with exchange rate management and the global economic crisis. Exchange rate management is closely linked to monetary policy. After heavy loss of international reserves during the recent global economic crisis some Central Banks realized that defending the exchange rate (Sri Lanka spent over US$ 1 billion to defend the rupee), is not compatible with independent monetary policy and open capital account — known as the ‘Impossible Trinity’ (Sri Lanka had a partially open capital account). Either the Central Bank undertakes a devaluation or approaches a funding agency like the IMF for a loan to boost up the reserves, and there was no case for resisting both. It is by approaching the IMF that Sri Lanka created the space to pursue and sustain a more independent and relaxed monetary policy.

In the chapter on economic crisis and monetary policy, Thenuwara argues that the Central Banks have always been either part of the causes of the crisis or part of its solution. He highlights the US experience of the economic crisis and how the then Fed Chairman, Alan Greenspan, misread the economy and quotes Paul Krugman’s observations on him: "Greenspan’s story is also the story of how makers of


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economic policy convinced themselves that they had everything under control, only to learn, to their horror and the country’s pain – that they did not" (p. 107).

Regulation has always lagged behind financial innovation, partly because financial innovation takes place at a rapid pace and partly because of the belief that financial markets are self-correcting. But when regulation is introduced especially after a financial crisis, it may be an interim measure which needs to be continuously updated to face the challenges of financial innovations. In regard to regulatory responses, Thenuwara highlights the shortcomings of Basel I and II and goes on to say "After resolution of the current crisis, international regulators, no doubt will introduce Basel III, and will fine tune it until the world is hit by a brand new crisis." (p. 124).

Effective Monetary Policy Chapter 7 is perhaps the most important chapter in the book where the key theme is addressed. While money eliminates the cost of searching associated with the barter system (discussed in Chapter 1), excessive money growth does not cause any changes in the long run growth of the economy. This phenomenon is called ‘neutrality of money’. Excessive monetary growth unless matched by equivalent increase in the supply of goods, will generate inflation. Highlighting the existing literature, the book shows that an inflation level of about 2% is the best to achieve high growth rates — completely dismissing an assertion by some commentators that having a little bit of inflation is like being a little bit pregnant. The ``little bit’’ will grow to an uncontrollable level.

In Chapter 8, Thenuwara discusses inflation targeting (IT) and argues that "successful implementation of IT requires a country to meet several prerequisites: a mature financial system, monetary policy independence, fiscal discipline and transparency, accountability and good governance in the Central Bank" (p. 157). Due to the instability of the demand for money, many Central Banks have abandoned the monetary targeting framework in favour of IT. New Zealand pioneered IT and their strategy was that if the expected inflation was not realized, the Governor of the Central Bank would resign unless he could provide an explanation acceptable to Parliament. Many countries (Canada, Australia, Chile, South Korea, Mexico, Israel, etc.) today use IT as a policy to bring down inflation. Sri Lanka is yet to create conditions for IT, although the subject has been discussed extensively. However, given the groundwork done so far, there are reasons to believe that IT will soon become the policy in Sri Lanka.

Independence of the Central Bank The 10th Chapter is on the independence of the Central Bank. Thenuwara shows that unlike New Zealand and other inflation targeting nations, the Central Bank of Sri Lanka is both goal and target independent. Basically, the goal has to be identified from the broad objectives in the law governing the Monetary Board. The key duties of the Central Bank should be to ensure price stability and financial system stability. Some Central Banks are entrusted with a large number of other functions unrelated to the key objectives. For instance, the Central Bank of Sri Lanka is encumbered with management of government funds – EPF and management of public debt, and these have conflicting interests with the key objectives of the bank. "..Central Banks have realized that they do not have instruments and ways and means to achieve multiple objectives. The only task they could accomplish well is maintaining price stability .." (p.19).


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The independence of the Central Bank of Sri Lanka is then discussed, first highlighting that the Central Bank has no legal identity and it is only the Monetary Board that has a legal identity; thus, what matters is the independence of the Monetary Board. The book highlights four areas which have contributed to the dilution of the independence of the Monetary Board: (1) Section 89 of the Monetary Law Act permits the Central Bank to grant provisional advances to the Treasury up to 10% of the estimated revenue. In the past, the Treasury has always availed of this facility fully, thus preventing the Central Bank from controlling this injection of money to the economy, (2) the Central Bank is the agent for the government in raising public debt – thus making it vulnerable to subscribe to the public debt, (3) the Central Bank is the banker to the government – thus causing difficulties in controlling money supply, and (4) the Secretary to the Treasury being a member of the Board (ex-officio) may influence the Board to accommodate the fiscal needs of the political establishment. The book argues that the Central Bank should be made independent by law (this was also the recommendation of the Final Report of the Presidential Commission on Finance and Banking, Vol. II, 1992, pp. 266-267), to make monetary policy more effective.

What should be the attitude of a Central Banker? Always pessimistic – always look for risks to the stability of the economy. Quoting another Central Bank Governor, the author argues that this attitude should permeate from bottom to top in a Central Bank: "when my Minister is elated about high economic growth, I worry about overheating of the economy, when he talks about high foreign inflows, I worry about external stability, and when he beams with appreciating currency, I worry about competitiveness of the country" (p. 215-216).

Looking Beyond There are a few areas in the book where some questions could be raised. First, in the final chapter, the book argues the case for a regional Monetary Integration for bringing more binding commitment to monetary discipline than perhaps an independent Central Bank that will be difficult to create due to the political economy. This idea of course requires harmonizing of macroeconomic policies – which would be difficult given the fiscal indiscipline in the regional members of South Asia.

Second is the re-emergence of Keynesian economic policy after the recent global economic crisis where a fiscal stimulus was injected by many countries (that had fiscal space) to rejuvenate their economies, rather than sticking to the monetarist doctrine of inaction. The latter is based on the belief that self-adjustment of the economy is sufficiently fast, while government action may cause undue harmful effects on the economy, which could have in any case reach its equilibrium before any government action takes effect. The rapid global recovery – at least at present – shows that the Keynesian formula has worked with reasonable control over inflation.

The book says: "..when governments resort to Keynesian policies of active engagement, countries may recover, but may cause other long-term problems of high budget deficits and high debt levels" (p. 121). The author presents the case where the monetary formula did not work when Japan was in a ‘liquidity trap’ in the 1990s and how it resorted to a fiscal stimulus to revive the economy resulting in budget deficits.


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This issue needs elaboration and Paul Krugman today advocates a 4% GDP fiscal stimulus package to the US economy instead of the current 1% GDP stimulus package of the Obama administration. Krugman believes that at a time when credit markets are frozen, producers are closing factories and consumers are not spending, there are unused resources that could be put into effective work via a Keynesian stimulus and argues that any adverse consequences of such a policy could be effectively managed (see The Return of Depression Economics and the Crisis of 2008 by Paul Krugman, Norton, 2008). This area should have received more attention in the book where better harmony could be worked out between fiscal policy and monetary accommodation to minimize the adverse consequences of a fiscal stimulus after a crisis.

Reflections The book is written in very simple language without using much mathematical jargon. One need not be an Economist to read and understand the book as all key concepts and terms are well explained. It draws examples from various countries and is not confined to the Sri Lankan scenario alone.

It is very clear from the book that the author had a deep understanding of Central Banking and monetary policy. Although he is no longer serving the Central Bank, he has shared his experience and made a significant contribution to understanding monetary policy. The book will be useful for Central Bankers, policy makers and economists in Sri Lanka and it is an essential reading for anyone interested in the subject.

(Saman Kelegama is the Executive Director of the Institute of Policy Studies of Sri Lanka)


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Tourism


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Cathay to promote Sri Lanka tourism, increase frequencies when required By Harischandra Gunaratna

The Aviation interviewed newly appointed Country Manager of Hong Kong national carrier Cathay Pacific (CX) Andrew Pattison on issued faced by the airline industry and Cathay Pacific’s operations in particular. We also asked him how Sri Lanka fitted into the airlines strategies for the future.

1) How is the airline industry progressing globally. - 2010 has been a better year for the aviation industry than many expected. The airline industry was very hard hit by the financial crisis. However it appears to be V-shaped recovery, with a particularly strong recovery in Asia. For CX, we have been pleased to see a strong increase in demand over the year, but premium traffic has still not fully recovered to levels seen in 2007. Fuel price remains a worry for the industry as a whole.

Q: Will airfares continue to increase and has it affected sales even marginally. - With more competition on routes, actually our fares to key destinations such as Bangkok and Singapore have reduced. Since CX has some of the most attractive fares to BKK/SIN in the market at the moment, we have actually seen a double-digit increase in our passenger numbers this year.

Q: How prepared is the airline industry to face unexpected situations crested by natural disasters such as the volcanic eruption in Iceland early this year. Traditionally, the airline industry is in a continued state of crisis, punctuated only by short periods of calm. Luckily we’re in a calm spell at the moment. CX has already survived 9/11, SARS, The Asian Financial Crisis, The Oil price crisis as well as natural disasters such as volcanic activity in the past decade.

In addition, we deal with other natural disasters such as typhoons on a regular basis. So CX is very experienced in dealing with crisis. However, we can always learn from each event to ensure that we are as fully prepared as we can be to handle future disruptions. At CX, we’ve found that disruptions can actually provide an opportunity to provide world class service. Through proper planning and organization, we can gain a competitive advantage by providing world class service to our customers during a disruption. We have found that our customers accept that natural disasters can lead to disruptions and they appreciate the ‘Service Straight From The Heart’ provided by Cathay Pacific during these difficult times.

Q: How stifff is the competition, how has Cathay fared over the years and what plans has the airline got for the future. (Profits , new destinations and improvements)? Competition continues to grow, both from the Middle East and across Asia. We welcome competition and it really reflects the economic growth in Asia in recent years. It is an exciting time to work in the airline business in Asia. Here in CMB, we’ve also seen competition grow as the country recovers and grows after the end of the war.


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Interim results this summer, CX announced an attributable profit of around US$880m (up 8 times vs. 2009). More importantly, the operating profit before fuel hedging and tax was around US$540m, compared to a small loss in the same period in 2009. There was a strong recovery in both passenger and cargo demand. However the fuel price was also up compared to last year. CX will have 10% capacity growth next year to take advantage of robust demand in the aviation market. CX will receive 9 new passenger aircraft in 2011: 6 B777-300ERs and three A330s. In addition to this, there will be six new freighter aircraft: B747-8Fs.

In total, before 2020 we have on order 12 B777-300ERs, 7x A330s, 10x B747-8. On top of that, this summer we made our biggest ever aircraft order in our history: 30 A350-900s and another 6 B777-300ERs. The catalogue price of the 36 aircraft was almost US$10b. These aircraft will be used for future growth and also to gradually replace our B747 and A340 fleets. The new generation aircraft such as A350-900 and B777-300ER are far more fuel efficient and hence more environmentally friendly aircraft.

Cathay Pacifc launched the following services in 2010: Hong Kong to Milan, HK to Moscow. Also CX will operate double daily flights to Tokyo Haneda from 31OCT, in addition to the five daily flights to Tokyo Narita. Dragonair our sister airline (100% subsidiary) has launched flights to Shanghai Hongqiao, (in addition to flying to Shanghai Pudong). In addition, Dragonair will start scheduled daily flights to Fukuoka afrom 31OCT and will launch three times per week flights to Sendai from 1st December.

CX has just opened a new Lounge ‘The Cabin’ in Hong Kong and also opened new lounges in London Heathrow earlier this year. Work has already started on a state-of-the-art cargo terminal in HK, costing US$700m . Once completed, it will be one of the biggest and most advanced facilities of its kind in the world. Special packages to Bangkok and Singapore. Buy 2 Get 1 free Disney Package. Double Asia Miles Promotion to Bangkok and Singapore. Special fares to HK for HSBC premium credit card holders.

Q: How does Cathay look at Colombo as a destination? Cathay sees a very bright potential for Colombo in the future. With the end of the war and the Governments continued efforts to promote Sri Lanka as a tourist destination, we have already seen an increase in leisure and business passengers from all over the world, including the US, Australia, HK, Asia and especially China.

Cathay has high hopes for this growth to continue in the years ahead as Sri Lanka blossoms into one of the most attractive holiday destinations worldwide. On the cargo side, Colombo is also a very important destination for Cathay Pacific. We send big shipments of seafood and garments to N. America, Europe, Japan and China. Overall, Sri Lanka is becoming an increasingly important destination for Cathay Pacific and we are looking forward to continued growth in the coming years ahead,

Q: What do you think of Sri lanka as a tourist destination in the post-war period. Sri Lanka has huge potential as a tourist destination. With the historic boutique hotels, world-class beaches, ancient cities full of history and culture, tea resorts, wildlife parks, and with the opening of the east coast, Sri Lanka really is already developing into a very fashionable leisure destination at the moment.

Now that the war is over, I believe the whole tourism industry can look forward with confidence to a boom in the number of tourists visiting Sri Lanka in the next few years.


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Q: Is there an increase in Cathay’s inbound traffic to Colombo in the post war period. Yes. Year to date, we have seen a 14% increase in the number of inbound passengers to Sri Lanka, on top of big growth in 2008-9. We are seeing more passengers from Asia, Japan, China, Australia and North America.

Q: What improvements should be affected to attract more tourists to Sri Lanka mainly from the Asian region? The Sri Lankan Tourist Board is doing a great job of promoting the country. I believe they also have exciting plans for 2011, as part of the ‘Visit Sri Lanka Year’. As a travel community here in Sri Lanka, we must all play our part to continue to promote Sri Lanka as a tourist destination. Education is key and I think the Sri Lankan Tourist Board programme for 2011 looks really encouraging. With the end of the war, exciting times ahead for tourism in Sri Lanka.

Q: Is Cathay planning to promote Sri Lanka as a tourist destination in Hong Kong and other countries in the region? Yes, in fact Cathay Pacific is planning to publish a third article dedicated to Sri Lanka in our inflight magazine ‘Discovery’ in just the past 18 months. This magazine is onboard all of our aircraft worldwide, with a potential readership of millions. We have already featured the beautiful city of Galle and Sri Lankan shopping in previous articles.

We also promote Sri Lanka as a destination through Cathay Holiday packages. We already have 4 separate packages for Sri Lanka, from 4 to 13 night holidays. In addition we promote our Sri Lankan fares to all of our MPO/Asia miles members worldwide. Finally, we even promote Sri Lanka as a tourist destination for our own staff travel. Last year we also brought a group of journalists from Taiwan to Sri Lanka, 17 media and travel agents. In addition we brought cargo agents from Thailand to promote Sri Lanka as both a tourist and business destination.

Q: Next year is "Visit Sri Lanka Year" and what role does Cathay propose to play in this regard? CX is already in discussion with the tourist board on how best we can cooperate during the "Visit Sri Lanka" year. Although we are still finalizing the details, CX looks forward to working with the Tourist Board to jointly promote Sri Lanka as the tourist destination of choice in 2011.

Q: Do you propose to increase the number frequencies to Colombo in the near future? We are constantly reviewing our flight schedules and frequencies. We currently have a daily flight to HK, which is 3 times per week via Bangkok and 4 times per week via Singapore. We currently operate a very large aircraft: a B777-300 with 398 capacity (45 Business class seats and 353 economy seats) and it also has a very large cargo belly.

We are currently happy with our operations but we’ll continue to monitor the market demand and we hope to increase frequencies in the future as the Sri Lankan economy and tourism continues to grow.


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Exports & Imports



Fruit, vegetable exporters target Rs.15 b revenue Sanjeevi Jayasuriya Fruit and vegetable exporters and processors target to become a Rs.15 billion industry by 2016. They are optimistic that this could be achieved considering the current trend. The industry is poised to become a high foreign exchange earner in the country with the global markets recovering from the economic

downturn. The country will explore new market opportunities and plans to increase land utilization to meet the growing demand, Sri Lanka Fruits and Vegetables Exporters and Processors Association General Secretary Zuraish Hashim told Daily News Business.

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Industrialists are confident that the industry is capable of generating more revenue and employment provided the Government gives them sufficient land to enhance production. We need more land to increase production capacity which will lead to increased supply, he said. "In keeping with all other developments in the country we could emerge as the most vibrant sector in the years to come. This is mainly due to existing and potential

markets. However, the production needs to be of high quality and quantity. The world market for vegetables and fruits is huge. Sri Lankan exporters have not tapped the potential and need a proper marketing mechanism to capture new markets. As the entire country is suited for agricultural purposes focused attention and integrated approach is needed to gain maximum benefits, Hashim said. "Exporters request the Government to relax or extend tax concessions for this sector in reaching the desired goals. For this Sri Lankan products should move from the concept of a back garden agricultural policy to a more planned progressive market-oriented commercial policy", Hashim said.


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Stock Market


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Stock market report: Bourse active Market followed the sentiments of earlier week and ASPI shed eight points to close at 6678.05. Milanka was down by 29 points and ended for the week at 7241.77. Total market turnover was at Rs.27.5 b of which Rs.9.3 b was on account of transfer of 28.84 m share of Royal Ceramics to Vallibel One as a part of internal restructuring. Market Capitalization reduced marginally from Rs.2211 b recorded last week to Rs.2209 billion. Banking and finance sector dominated the market with 37.58 percent share and was followed closely by manufacturing sector at 35.22 percent. Amongst the banking and finance the majors that contributed to the indices were LB Finance, HNB, Commercial, DFCC, and Sampath while Royal Ceramics added for the manufacturing sector. Royal Ceramics put in 34 percent to the market turnover by adding Rs.9.3 b with 28.8 m shares trading to close at Rs.319.40. Another major contributor was LB Finance with 19 percent share adding Rs.5.36 with the share volumes of 17.88 m. JKH and Aitken Spence contributed Rs.2.1 b and Rs.2 b respectively to the turnover. Royal Ceramics was the most traded scrip during the week followed by LB Finance. SMB Leasing traded 12 m shares with Aitken Spence noted volume of 11 m shares to close at Rs.184.8. Foreign investors continued to be net sellers for the week with Rs.5 b sales as against purchases of Rs.1.97 b. However, not much change was reflected in the net sales levels for the week. Top gainer for the week was Gestetner with a price increase of 80.85 percent to close at Rs.108.50. Huejay also featured this week as second highest gainer, with the scrip rising by 25.49 percent to close at Rs.64 from its last week’s price of Rs.51. ERI also followed closely behind to show an increase of 19.67 percent of the share to close at Rs.86.4. Ceylon Investment, Central Industries and Elpitiya were among the top losers dropping value by 79.45 percent, 66.67 percent and 53.8 percent respectively. Point of view Week’s trading at the Colombo bourse has been active with healthy turnover driven by internal strategic investments by institutional and retail investors taking positions on the expectation of a positive earnings season. The initial indication of the results released so far is that the corporate sector has recorded sound growth levels stemming from operational earnings and gains made in financial and capital markets. Retail investors seem to be keen on IPOs and have shown their appetite for primary markets. We expect the current sentiment to continue into the week ahead.



More room for capital market development Charumini de Silva The Colombo Stock Exchange (CSE) performed tremendously while growing at a faster pace. However, to sustain in the market there is room for capital market development, LR Global Principal Don LaGuardia said at a recently held forum. He said some of the mature markets in the region have more than 120 percent of revenue as a percent of Gross Domestic Production (GDP) from listed companies.

"Using India as Sri Lanka's benchmark by assuming a similar corporate earnings profile and valuations, we would expect to see, at a minimum, US $ 15 billion of corporate revenues listed in the CSE, he said. Construction, manufacturing, transport and trading companies are underrepresented in the CSE.

Don LaGuardia

On the positive side, companies are looking to list in the CSE and are working towards standardizing their operating and financial reporting procedures to meet the CSE listing requirements. The construction boom following the integration of the Northern and Eastern provinces with the rest of the country, these two provinces account for 10 to 15 percent of the population, 30 percent of land mass and 50 percent of coastline.

There is a remarkable increase in number of tourist arrivals to the country. In the first half of this year, Sri Lanka's tourist arrivals were 49 percent on year-on-year (YOY) basis, while in Asia and the Pacific it was 14 percent YOY. The tourism industry is identified as a key thrust area and the country should harness this important facet. The increase in economic activity due to ports expansion will benefit the entire economy in a bigger scope. On average, 200 to 300 merchant ships sail past Sri Lanka daily. However, only about 12 to 15 call on Sri Lanka currently. With the development in the ports the country will have a greater possibility of attracting them. "The future growth drives are not built on a labour arbitrate strategy, but on value addition to the global supply chain, tourism and playing catch up for 30-years of infrastructure spending," LaGuardia said. The definition of a frontier market is that they are smaller and less accessible markets of the developing world (distinct sub-class) from traditional such as emerging markets and Sri Lanka is now in it. To achieve a stabilized rapid growth Sri Lanka needs to have a political stability of at least five years. The current political stability in the country has been able to attract investors locally and internationally, which is essential for a country that is emerging outstandingly after 30-year war. "The progress of the country is excellent and we hope that the improvement momentum will keep improving further, as Sri Lanka is on the correct path," LaGuardia said.

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Stocks retreat from early gains

NEW YORK (AP) — Stocks closed mixed Monday as traders waited for this week’s election results and more details about the Federal Reserve’s plan to stimulate the economy. Stocks rose early in the day following reports of unexpected growth in the manufacturing industry in both the U.S. and China last month. Manufacturing expanded at its fastest pace in five months, according to the Institute for Supply Management. The group said that its industry index rose to 56.9 in October from 54.4 in September. Any number above 50 indicates growth. The Dow Jones industrial average rose 125 points, led by manufacturers Caterpillar Inc., United Technologies Corp. and General Electric Co.

But stocks were unable to hold on to their gains ahead of the election and the two-day Fed meeting that starts Tuesday. The Dow fell steadily throughout the day, briefly turning lower before a late rally gave it a modest advance. The Dow rose 6.13, or 0.1 percent, to finish at 11,124.62. The broad Standard & Poor’s 500 index rose 1.12, or 0.1 percent, to 1,184.38, while the technology-focused Nasdaq composite index fell 2.57, or 0.1 percent, to 2,504.84. In one sign of the mixed day in the stock market, half the industries that make up the Standard and Poor’s 500 index fell, while the other half rose. Intel Corp. rose 2.5 percent to lead the 30 companies in the Dow, while Kraft Foods Inc. was the index’s laggard with a 1.5 percent decline.

Investors have been assuming the Fed will launch a new program of buying Treasury bonds to help stimulate the economy. Stocks rose for much of October because investors expect the Fed will announce as early as Wednesday that it plans to buy government debt in an effort to spark consumer spending and bank lending. Only in the last few days has the market rally trailed off amid questions about exactly how much the Fed will spend to buy bonds. The Dow rose 3.1 percent in October, including a 0.1 percent drop last week. Lower interest rates weaken returns on debt, which would make stocks and commodities more attractive investments since their potential return would be significantly higher.

Bond prices fell following the strong manufacturing report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.63 percent from 2.60 percent late Friday. The dollar rose 0.28 percent against a broad basket of currencies. The Euro Stoxx 50, which tracks the performance of blue chip stocks in Europe, fell 1 point to 2,541.77. China’s Shanghai Composite Index rose 2.5 percent, or 75.1, to 3,054.02.

The number of falling and rising shares were about even on the New York Stock Exchange, where consolidated trading volume came to a light 3.9 billion shares.

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Billion rupee turnover, both indices down Dull day on CSE with players stuck in IPOs

Low turnover and a decline in both indices marked trading on the Colombo bourse yesterday with turnover barely topping a billion rupees and both indices down – the All Share by 16.47 points (0.25%) and the Milanka by 33.74 points (0.47%)with 105 decliners ahead of 62 advancers.

"It was a relatively dull day with the main interest being on the opening and closing of the Laugfs Gas share offer," Prashan Fernando of Acuity Stockbrokers said. "A lot of market players re stuck in the IPOs. Apart from that, we saw million shares of Commercial Bank traded and over eight million Dunamis Capital."

Commercial Bank with nearly 1.1 million shares done between Rs.274 and Rs.277 closed Rs.1.90 down at Rs.274 generating the day’s top business volume of Rs.290.4 million.

"There was one crossing of 196,000 Commercial Bank at Rs.275 and over a million shares of the counter was done at the same price," Fernando of Acuity said.

Dunamis Capital was down 50 cents to Rs.15 on nearly 8.4 million shares traded between Rs.14.80 and Rs.16.90 generating Rs.131.8 million turnover.

One of the previous owners of Kotmale Holdings acquired on Wednesday by the Supermarket giant, Cargills, Dunamis and other Janashakthi related companies with stakes in Kotmale booked substantial capital gains on the deal.

Brokers said that the five top turnover generators yesterday saw price declines – Commercial Bank by Rs.1.90, Dunamis by 50 cents, JKH by Rs.3.30, Royal Ceramics by Rs.2.80 and Aitken Spence by Rs.1.60.

JKH, with 0.2 million shares done between Rs.296 and Rs.303 closed at Rs.298, Royal Ceramics with over 0.1 million shares done between Rs.312 and Rs.315.10 closed at Rs.315 and Aitken Spence with 0.2 million shares done between Rs.179 and Rs.180.70 closed at Rs.179.

Kotmale Holdings was up Rs.2.10 to close at Rs.42.20 on nearly 0.7 million shares done between Rs.38.20 and Rs.43. A mandatory offer at Rs.40 is pending from Cargills.

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CF Venture Fund which disposed nearly 30% of Kotmale on Wednesday booking a capital gain of Rs.170 million closed flat at Rs.19.30 with over 1.2 million shares traded between Rs.18.80 and Rs.20 while Ceylon Glass, with strong results under its belt, also closed flat at Rs.4.70 on 4.7 million shares traded between Rs.4.70 and Rs.5.

HNB X was up Rs.3.50 to Rs.220.10 on over 0.1 million non-voting shares done between Rs.215.10 and Rs.224 while the voting share was up Rs.7.50 to Rs.417 on 48,900 traded between Rs.408 and Rs.418.

Cargills gained a further Rs.5.50 to close at Rs.200 on nearly 0.1 million shares traded between Rs.195 and Rs.200 while Ceylon Theatres, the holding company of Cargills, was up Rs.1.80 to Rs.195 on over 0.9 million shares done between Rs.193 and Rs.196.

Dialog gained 10 cents to close at Rs.12.20 on 1.4 million shares done between Rs.12 and Rs.12.40.



CSE to make listing rules business friendly

By Mario Andree

The Colombo Stock Exchange (CSE) has considered changing its listing criteria, making it more business friendly to attract large numbers of foreign investment.

Speaking at the IPO forum organized by MTI Cooperate Finance, CSE Chief Executive Officer, Ms. Surekha Sellahewa said, the CSE is in the process of examining the listing criteria.

She said already research is in progress and according to its results the CSE would consider changing its listing criteria.

Currently to list in the Main board corporates would have to submit a capital of Rs.100 million and a share issue of at least 25 percent. To list in the second board (DiriSavi) they would have to submit Rs. 35 million capital base and a minimum of 10 percent share issue.

Companies listed in the Main Board will be requested to submit its annual report and three years of audited accounts.

She further noted that there is a need for listing large corporates in the CSE to attract more investment. Many foreign investors are holding back investing as they find fewer shares to invest on.

She said if the top corporates list at least 10 percent of their shares in the CSE it would create much liquidity in the market for foreign investors.

Further she requested the listed companies to produce all its results and progresses to the public as those would help in reducing unnecessary volatility.

The Colombo Stock Exchange is the second best performing market according to many international experts. It has grown at 98 percent compared to last year and the investor base grew 73 percent.

The country is in the path of development and it is expected to achieve a eight percent growth rate however to sustain the growth in the coming years would be a challenge, said Ceylon Chamber of Commerce, Chairman, Dr. Anura Ekanayake.

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He said that the country needs to build up its investment base from 25 percent of GDP to at least 45 percent of GDP to sustain such growth.

Foreign investment has accounted to be nearly 1.5 percent which event doubled would only be 3 percent of GDP. He said the local investors are the key drivers which need to be encouraged.

Recently the Security and Exchange Commission, Chairperson, Ms. Indrani Sugathadasa said, there is around 530,000 CDS accounts registered which is less than three percent of the total population.

She said this year only 68,000 accounts have been active at least with one transaction done.

She noted that it is vital to expand the CDS account base and also create large numbers of active usurers for the CSE to develop. The SEC has taken measures to promote investment from rural areas to enhance the investor base.


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Sunday Times – November 7, 2010

More consultation needed in SEC’s proposed public float rules Three investors have made representations to the Securities & Exchange Commission (SEC) on the proposal to implement a minimum public float as a continuous listing requirement, welcoming the move but raising some concerns. The group -- K.C. Vignarajah, Dr. Dilesh Jayanntha and Tissa Seneviratne – in a letter to the SEC says that while the preamble of the consultation paper ‘is well worded, the implied inference in the last sentence therein (that there could be leniency in treating the gross transgress of the compact with the public at the time of listing), has led to great anxiety on the part of investors, local and foreign.” The letter said that the possibility of delisting, however remote it may be, is dampening their enthusiasm. “It has also given heart to violators and calculating transgressors, who have taken advantage of regulators who were hitherto generally in deep slumber, or afraid to ruffle the feathers of the predatory kind,” the trio said. The letter says: “.. the first undersigned (Mr. Vignarajah) has, on numerous occasions over many years, publicly spoken, commended and written about the iconic chairmen and a majority of exemplary directors. They have faced no problem or embarrassment from us. On the contrary, we have even gone to Courts to defend them against related parties controlled by corporate raiders. Even the larger but diversified majority in Commercial Bank needed Court protection gained through the activism of anti-monopolistic shareholders. Currently, there is no particular fiscal or other attraction in being a listed company. We emphasize, therefore, that delisting is not a deterrent to Controlling Interests (CI), which may wish to abuse their positions. Indeed, it may be welcomed by those who plan to defraud the public and the independent and minority shareholders in order to take hugely disproportionate benefits for themselves! Thus, unless the public float requirement is coupled with appropriate fiscal, administrative and good governance measures, there is no incentive to comply. The voting rights of the CI should be capped at 60% initially, as an interim measure, to deter moves to delist and encourage the public to invest in the PLCs. On the issues raised, we have the following comments. On the question of the definition of ‘public’ float (Issue 1), we suggest; - Statutory institutions (with no representation on the Board of Directors of the listed entity) could be considered a part of the public float up to a maximum of a 5% holding; - Private unit trusts and funds should be specifically excluded as, in Sri Lanka, these are very often heavily influenced or controlled by related parties. (The case of DFCC and HNB indirectly controlling NAMAL is most pertinent in this context). The term affiliate should also include the adult children, siblings of directors and employees. The term ‘affiliate’ should be further extended to cover companies, or institutions in which any director also has direct or indirect influence, sits on the Board or has a significant (say 10% or more) shareholding. A recent well-known example of an employee (a warehouseman) holding 60% of an unlisted company (of


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which he was not even a director) which had a strategic investment in a major bank speaks volumes of the need to define related parties, affiliates and operation by remote control! Due to the convoluted definitions, loopholes, lax supervision and inaction by regulators hitherto, it took concerned parties considerable effort, time and financial resources to restrain a caucus of related parties from ousting Mr. Mahendra Amarasuriya, an outstanding chairman of the Commercial Bank. The courts restrained these related parties from exercising cumulatively voting powers in excess of 10%, though the related parties had about 42%. In the light of such examples, our long-standing demand is to include those obviously related parties like children over 18 years, siblings, employees and companies and institutions with common Directors or owners in the term ‘affiliates’ and therefore outside the public float. It would be a farce to exclude these categories from any definition of related parties. The current proposal by some to entice the minority shareholder and the general public to invest in the stock market via unit trusts and mutual funds is fraught with many dangers. There is no control by the stakeholders over direction, policy or management, whatsoever. They only have the option of encashment of their holdings on specified terms. Therefore, one can well perceive the abuses that the fund manager could resort to, to distort the market. The role of providing adequate information to evaluate investments in a timely manner should not be abdicated or assigned to another set of controllers. On the question of a minimum public float (Issue 2), we suggest a figure of at least 30% initially. PLCs could be given a maximum of one year to raise this minimum float of 30% to 45%, in order to continue enjoying proposed fiscal benefits. This will encourage a rapid increase in urgently needed new investments and the liquidity of the market. On the variation in the minimum required public float (issue 3), however, it is best to have a uniform percentage (due to the complexity and evasiveness of many companies in reporting and accounting), rather than vary this according to market capitalization or sector listing. We would stress that holding companies which indirectly control listed subsidiaries and/or associates be required to have a higher threshold, in order to have greater transparency, accountability and less susceptibility to stealthy takeover bids of valuable assets. Further, provisions should be designed to prevent undue concentration of ownership of large conglomerates and possible abuse of power through leveraged holdings. Regarding the time given to comply with the new requirement (Issue 4), we feel that this should be a maximum of one year. Regarding the time given to a company to increase its public float, where it has dropped below the minimum (Issue 5), this should be about three months. As noted, currently there is every incentive not to comply; so that new fiscal, legal and administrative measures are required if the proposals made are to be effective. Regarding the consequences of non-compliance (Issue 6), we suggest that delisting should not be permitted, as it only plays into the hands of CI out to defraud the public and is in fact a reward instead of a deterrent or punishment. Laws should be amended to achieve this. A punitive delisting levy should be imposed on any affiliate which has consistently increased its stake, in order to acquire excessive control and reducing the public float.


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The buying patterns of the affiliate (or combination thereof) in a period of a minimum of five years prior to the minimum public float being breached should also be examined for probable insider dealing. An automatic triggering mechanism to analyze this should be established by the SEC for this purpose. Appropriate declarations and affidavits of all transactions should be obtained from the concerned affiliate (or combination thereof) and the Company Secretary to quicken the process. Where insider dealing is found, the criminal aspects of it must be pursued vigorously, as in many other countries. This would be the only significant deterrent to such activity. The disgorgement and compensatory payment should also be a part and parcel of the scheme of justice that should be ensured. Independent Directors, Advisers and Auditors should be truly independent of the CI which manages the business. They should therefore be appointed by the independent and minority shareholders represented by the public float. The CI (represented by the affiliates A, B and C referred to in your Consultation paper No.6) should have no say in this vote. However, if the nominee has interests in conflict with the business of the company, he should not be considered. It is indeed convoluted thinking to deem Directors, Advisers and Auditors appointed by the CI as ‘independent’. Indeed, the last nail in the coffin is the audacity of resolutions which empower the directors to fix the remuneration of Auditors and Independent Directors. Many large and reputed independent investors, local and foreign, have cited the small public float of the PLCs as discouraging investment in the CSE. It has also facilitated market manipulation and thereby contributed to losses suffered by some of the genuine investing public. This has the potential to undermine public confidence in the CSE in the medium to long term. In this context it is important that the SEC seeks to increase the minimum public float, whilst simultaneously pressing for an array of fiscal, legal and administrative measures for firms to list. We feel that the SEC should certainly NOT reduce the minimum public float. In the current fiscal, legal and administrative framework, it will only encourage delisting and reverse the growth of the Sri Lankan capital market, inflicting a death blow to genuine investors. Many Sakvithis and Dandugam Mudalalis are lurking in the sidelines. The SEC should also have enhanced powers in this context, such as the right to send representatives or nominees to General Meetings of the PLCs.”


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Business



Ease of Doing Business 2011... Sri Lanka does not improve ranking

More than a year has lapsed since the end of the 30 year conflict but Sri Lanka’s Ease of Doing Business

ranking has remained unchanged from a year ago at 102nd out of 183 other economies. The World Bank and its private sector arm, the International Finance Corporation, released the Doing Business 2011 report yesterday where Sri Lanka’s ranking remained unchanged from the 2010 edition with no reforms during the year and lags behind Pakistan and the Maldives in South Asia.

Doing Business 2011 is the eighth in a series of annual reports investigating the regulations that enhance

business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies—from Afghanistan to Zimbabwe—and over time. Regulations affecting 11 areas of the life of a business are covered: starting a business, dealing with

construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, closing a business, getting electricity and employing workers. The getting electricity and employing workers data are not included in the ranking on the ease of doing business in Doing Business 2011.

The highest ranked country in South Asia is Pakistan at 83rd place followed by the Maldives 85, Sri Lanka 102, Bangladesh 107, Nepal 116, India 134, Bhutan 142 and Afghanistan 167.

While Sri Lanka is not reported for any reforms during the year, Pakistan improved its electronic communication links between the Karachi Port and private terminals which reduced the time required

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for exporting. The terminals also boosted productivity by introducing new equipment, Doing Business 2011pointed out.

Bangladesh made it easier for companies to start up businesses by eliminating the requirement to buy adhesive stamps and further enhancing the online registration system. It also made transferring property easier, by reducing the property tax to 6.7 percent of the property value.

India eased business start up establishing an online system for value added tax registration. It also improved an electronic tax payment system.

Sri Lanka ranks worst in dealing with construction permits at 169th place where 22 procedures and 214 days are required costing 1,335.2% of income per capita. It is ranked 166th in paying taxes which consumes 256 days and requires a number of 62 payments a year where rates could reach 64.7 percent of profits.

In the area of registering property, Sri Lanka ranks 155th with eight procedures, 83 days and costing 5.1 percent of the property value. In enforcing contracts it is ranked 137 with 40 procedures, 1,318 days and costing 22.8 percent of the claim.

Access to credit and trading across borders have an equal ranking of 72 while closing a business is relatively easy (ranked 43) and starting a business is even easier (ranked 34).


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Climate Change


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New study highlights 5 steps to confront climate change A new study from the Independent Evaluation Group (IEG) reviews the World Bank’s efforts in mitigating climate change. It stresses five measures that offer attractive local benefits while fighting climate change: energy efficiency; forest protection; appropriate project finance; technology transfer; and accelerated learning. The study notes that carbon finance has yet to realize its promise of catalyzing large scale new investments in renewable energy.

"Floods in Pakistan and West Africa, and heat waves in Russia, bring home the severe threats that climate change poses to development," said Vinod Thomas, Director-General of IEG. "To meet the urgent challenges of financing development, adapting to climate change, and promoting greener growth in a recession-battered world, it is crucial that efforts focus sharply on areas of greatest effectiveness."

During fiscal years 2003-08 the World Bank Group scaled up annual investments in renewable energy and energy efficiency from $200 million to $2 billion, with sizeable further increases since then. In 2008 it adopted a policy framework on development and climate change, subsequently mobilizing an additional $5 billion in concessional funds for greenhouse gas reduction. Reviewing these expanded efforts, the report highlights five areas that can help deliver stronger results.

Energy efficiency can offer countries direct economic returns that dwarf those of most other development projects, while also reducing greenhouse gas emissions. In Ethiopia, for instance, a US $5 million investment in efficient light bulbs prevented the need to spend more than US $100 million to lease and fuel polluting diesel generators. In Vietnam, efficiency improvements have been a key element in expanding electricity access. And in China, energy efficiency lending through banks and energy service companies has yielded large energy savings. The report calls for a retargeting of industrial energy efficiency finance for greater effectiveness.

Slowing deforestation is one way to reduce greenhouse gas emissions. Globally, about one quarter of the world’s tropical forests are under some form of protection, and the World Bank has contributed significantly to this effort. Rigorous and globally comprehensive analysis by IEG finds that, on average, protected areas significantly reduce tropical deforestation, preserving carbon sinks and biodiversity. Contrary to fears that protected areas can only function effectively by excluding people, the study found that, compared to strictly protected areas, deforestation rates were lower in areas that allowed sustainable use by local populations, and even lower in the case of areas under control of indigenous people.

Long-duration loans have been important in facilitating investments in hydropower and wind power, for instance in Turkey. Loan guarantees and MIGA’s political risk insurance may become increasingly important for making renewable energy bankable. In contrast, the carbon market – whose development the World Bank helped to pioneer — has not yet significantly catalyzed hydropower and wind investments. At prevailing carbon prices, carbon offset sales had little impact on most renewable energy projects’ rate of returns, and did not address investors’ need for up-front capital. Many forms of renewable energy require higher financial incentives for viability.


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Technology transfer – broadly understood to include diffusion of technical and financial innovations related to low-carbon development – has worked well when the logic of piloting and demonstration is well thought out, and when grants are used to mitigate the risk of pioneering efforts. For instance, an agro-forestry project in Colombia proved to ranchers that putting trees in pastures could increase profits – while incidentally boosting carbon storage and biodiversity. A project in China demonstrated how energy service companies could provide energy efficiency advice and financing to industrial firms, sparking the growth of this service industry. Technology transfer projects have, however, often failed or floundered in the case of more advanced technologies, or where there was no clear mechanism for diffusing know-how from recipients to the economy at large.

"For higher impact, the World Bank Group and the world at large need to learn faster what works and what doesn’t and focus on results, not just dollars committed. Most projects reviewed lack periodic, reliable reporting on impacts, leading to lost opportunities for learning," said Kenneth Chomitz, study author and Senior Advisor at IEG. For instance, twenty years of forest management efforts have largely lacked rigorous measures of economic, social, environmental, and financial impacts which could have guided current international efforts in REDD (reducing emissions from deforestation and degradation). In contrast, a distinctive benefit of Clean Development Mechanism (CDM) projects is their requirement for regular, publicly-reported monitoring on output. For instance, CDM monitoring led to the rapid discovery that landfill gas projects, as a class, were significantly underperforming against expectations, prompting attention to improvements in appraisal and operations.

The IEG report recommends that the World Bank Group rebalance its efforts toward higher-impact sectors and instruments, with relatively greater emphasis on energy efficiency, such as lighting and improvements in electricity transmission and distribution. The report also emphasizes the need for the Bank to actively assist clients to move away from coal, using energy-system-wide analyses to find cleaner, more cost-effective and financeable alternatives. It urges the Bank Group to take a venture capital approach in the public as well as private sectors, incubating a portfolio of promising investments and rapidly scaling up the successful ones.


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Construction Industry



Initiatives for regional construction industry development Dakshitha Thalgodapitiya - CEO and Secretary General, Chamber of Construction Industry Sri Lanka The Chamber of Construction Industry believes in the development of regional construction industries as a sine qua non for development of the National Construction Industry. Development in the regional construction industry cannot take place in isolation. It needs continuous focus on the development of the National Construction Industry in its entirety. The presence of advanced construction industries outside the regions should not be seen as a threat to the sustainable development of the less developed but be viewed as a platform to accelerate the development of less developed industries in the region. The more developed industries have the capacity and other wherewithal to research and develop appropriate solutions to problems, benchmark standards and lead the way in the development of the construction industry. Less developed regional industries need to capitalize on this, and take a cue from these solutions appropriate to their regions and embrace these solutions in order to realize their own industry development goals. The Chamber of Construction Industry Sri Lanka has been continuously advocating the need to deploy regional contractors on infrastructure development and construction related projects in the respective regions. This becomes increasingly important in the context of conflict transformation. There is a need to ensure accrual of benefits of development to the people of the indigenous locale. With national resurgence being on unity and solidarity, development and renewal and an end to marginalization, sustainable development particularly of conflict-affected areas must be based on the needs and resources of the community with least intervention from outside parties.

The construction industry which is largely informal needs to achieve some degree of formalization

The role of outsiders must be time-boned and the scope of assistance and participation must be limited to supplementing regional resources and capacities. With the construction industry being the prime mover of development, prominent participation of regional industry stakeholders in the development endeavours must be visible and must also assure that resources in the regions are put to optimum utilization. To facilitate prominent participation of construction industry stakeholders in regional development, the immediate need and an essential prerequisite is the capacity building of regional contractors.

A common framework In the prioritization of regional construction industry development a common framework has to be agreed upon and launched among the donor communities who provide much needed investment for infrastructure development. The identified core components of such a common framework shall include

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targeted procurement policy and mechanisms, access to finance, access to training, access to information and standardization and simplification of contract documentations and processes. Our Chamber as an organization has been associated with the northern construction contracting community long before the dawn of peace or elimination of terrorism in May 2009. The Chamber has launched a series of activities designed to enhance capacity building of the Northern construction community giving its prioritized attention to training of construction craftsmen in the Northern sector. CCI has used every forum available to articulate policy reforms, to put in place an enabling environment for local construction industry growth and development. It must be noted that procurement reforms to deploy regional and SME contractors is a necessity. We have noted a similar approach being adopted in countries such as South Africa where marginalized communities have been provided with facilities and opportunities to play an increasingly important role in development. Training of construction craftsmen to meet the demand is fundamental to capacity building. Conflict transformation through livelihood development is one of the most effective tools. But with only four construction companies in the North of Sri Lanka falling within classification of major contractors there is a bigger need to develop smaller players in the Northern Province. Technical and managerial capacities of the SME sector require enhancement on an urgent basis. With limited financial resources and very few business opportunities, deployment of competent managers and technical personnel are beyond the payroll capacities of a majority of the construction community in the North. By definition, Business Development Services (BDS) is a wide range of non financial services provided to entrepreneurs to facilitate efficient operation and growth of their businesses. The role and responsibility of a Chamber like CCI is the provision of Business Development Services to the construction sector.

Series of activities We have initiated a series of activities from advocacy to trade fairs, seminars and workshops to facilitate continuous professional development and training, publication of trade catalogues and operation of data banks. We believe that the construction industry must have an accredited workforce which will automatically augment productivity and quality of the end products. Towards this end, recognition of Prior Learning, in accreditation of the workforce in the industry is also fundamental. To ensure rapid capacity building of the Northern and Eastern construction contractors, establishment of collaborative arrangements, not only with bigger players from outside the region but also with overseas companies on joint venture basis, must be encouraged. The mindset of the regional construction contractors must be changed to facilitate formation of consortia among themselves thereby pooling of scarce resources and obtaining pre-qualifications through consolidation. In this context it is pertinent to mention that the Chamber recently entered into an action plan with the Chinese International Construction Association (CHINCA) to facilitate sub contracting and cooperation arrangements to be provided for our membership on an equitable basis in the undertaking of large scale infrastructure projects. Donors and procurement procedures of the Central Government and Provincial governments must encourage deployment of local contractors as sub-contractors and regional industry stakeholders and resources on a mandatory basis.


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Private sector product BDS approach must be assisted by the donor community. It is essentially a demand driven private sector product as against a supply driven public sector product. It is noted with regret that very little has been done by designated public sector agencies for industry development over the years. BDS must be pursued as a demand driven exercise and a commercial approach at this stage will not yield desired results as well. For the development of the construction industry a need has arisen to develop the construction material manufacturing sector as well. Non availability of standard products conforming to quality standards is also detrimental to the progress of the regional construction industry. We advocate establishment of a construction machinery operating leasing outfit to support the SME sector that is unable to make substantial capital investments in the acquisition of the construction equipment. Sri Lanka has had the experience of creating a specialized machine leasing company to support small time contractors in the 1980s. Such an initiative which can be promoted by our Chamber could substantially benefit the regional contractors as well.

Tailor-made software use Other initiatives will include the introduction of Information Technology and use of tailor-made software in construction project management for Small and Medium scale contractors which will undoubtedly enhance their competitiveness through improved project management. I perceive that lack of IT knowledge and exposure to the regional contractors as a major obstacle to the growth of the regional industries. Institution of a technical clinic for provision of Business Development Services to the Northern and Eastern contractors and introduction of ISO and environmental management systems include work place cleanliness and cleaner production. In the Trincomalee district out of 138 registered contractors only one falls within the grading of a major contractor. Only six out of 101 contractors in the Ampara district and in the Batticaloa district only eight out of 90 contractors could be classified as major contractors. In the Northern Region which covers Jaffna, Vavuniya, Kilinochchi and Mullaitivu districts out of 137 registered contractors only four construction companies have been graded as major contractors. These figures amply demonstrate the need to address the issue of developing regional construction industries in the conflict affected areas aggressively. This will enable them to play a more prominent role in infrastructure development and other construction related projects which will facilitate accrual of benefits from development endeavors to a community that has suffered for three long decades. The Chamber is establishing seven Craftsman Training Centres in the Northern Region with the assistance of the USAID. Germany is funding the operation of four Craftsman Training Centers in the Batticaloa District, a project launched by this Chamber in collaboration with GTZ. These two training projects are expected to have a deliverable output of more than 12,000 accredited construction craftsmen in the three year period. The Chamber has already established regional offices in Vavuniya and Batticaloa to spearhead this program. Our attention is now being focused on developing technical and managerial personnel of constructors of the Northern and Eastern regions in addition to accreditation of craftsmen in the industry through recognition of prior learning mechanisms. The construction industry which is largely informal needs to achieve some degree of formalization. The construction industry also has a huge corporate social responsibility and a vital role for fulfillment in achieving sustainable development.


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ICT



Impact of ICT for livelihood Ashan Kumar describes a cross section of projects on how ICT has made a change in the lives of rural people in a global context. Information and Communication Technology (ICT) is increasingly used by governments to deliver its services at the locations convenient to the citizens. Rural ICT applications challenge to present the services and concepts like e-Sri Lanka from the Information and Communication Technology Agency (ICTA). These applications utilize ICT in offering improved and affordable connectivity and processing solutions. Several Government-Citizen (G-C) e-Government pilot projects have attempted to adopt these technologies to improve the reach, enhance the base, minimize the processing costs, increase transparency, and reduce the cycle times. A large number of rural E-Government applications, developed as pilot projects, are aimed at offering easy access to citizen services and improved processing of government-to-citizen transactions. Some of these have drawn international attention and have won prestigious recognition. I took a closer look on a selection of life changing projects. ICTA’s Impaired Aid project recognized at the World Summit 2009 ICTA won the World Summit Awards 2009 for the Impaired Aid project. The World Summit Award (WSA) is a global activity to select and promote the world’s best e-Content and most innovative ICT applications. It offers a worldwide platform for all who value the creative use of ICTs and who are committed to making today’s information society more inclusive.

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WSA is based on a unique mechanism of a global contest supported by national selections of best practice and a sequence of content-focused national and international events, content conferences and promotional exhibitions. Before the arrival of Impaired Aid, no attempt had been made in Sri Lanka to harness the power of ICT to improve the teaching and quality of life of two disadvantaged segments of the population; the aurally and the visually impaired. Impaired Aid comprises a suite of software programs that opens up the world to these marginalized groups, giving them the chance to be equal partners in society. An engine developed to convert Sinhala text to Braille, and vice versa, offers the visually impaired the facility to read daily newspapers, use word-processing software and read and write e-mails.

A group of Virtusans contributing to the OLPC project through quality assurance.

Messages typed in Braille are converted into Sinhala and sent to the recipient. If the recipient is also visually impaired, he can read the mail using a refreshable Braille display. Impaired Aid has also produced interactive multi-media software to teach written language skills to the hard of hearing. Likewise a series of programs exists to give hearing impaired students grounding in mathematical concepts, ensuring that such students are able to keep up with the rest of the mainstream class. Information and Communication Technologies for Development (ICT4D)


According to Wikipedia Information and Communication Technologies for Development (ICT4D) is a general term referring to the application of Information and Communication Technologies (ICTs) within the field of socioeconomic development, international development and human rights. ICT4D concerns itself with directly applying information technology approaches to poverty reduction. ICTs can be applied either in the direct sense, wherein their use directly benefits the disadvantaged population, or in an indirect sense, wherein the ICTs assist aid organizations or non-governmental organizations or governments or businesses in order to improve general socio-economic conditions. In many impoverished regions of the world, legislative and political measures are required to facilitate or enable application of ICTs, especially with respect to monopolistic communications structures and censorship laws. The concept of ICT4D can be interpreted as dealing with disadvantaged populations anywhere in the world, but is more typically associated with applications in developing countries. The field is becoming recognized as an interdisciplinary research area as can be noted by the growing number of conferences, workshops and publications.

Such research has been spurred on in part by the need for scientifically validated benchmarks and results, which can be used to measure the efficacy of current projects. Many international development agencies recognize the importance of ICT4D. For example the World Bank’s GICT section has a dedicated team of some 200 staff working on these issues. A good example of the impact of ICTs on development are farmers getting better market price information and thus boosting their income. Community e-center in the Philippines developed a website to promote its local products worldwide. Another example includes mobile telecommunications and radio broadcasting fighting political

corruption in Burundi.

The One Laptop Per Child (OLPC)

project

Technology low cost?

ICT4D projects try to employ low-cost, low-powered technology that can be sustainable in developing environment. The challenge is large, since it is estimated that 40 percent of the world’s population has less than US $ 20 per year available to spend on ICT. In Brazil, the poorest 20 percent of the population counts with merely US $ 9 per year to spend on ICT (US $ 0.75 per month). This is the economic reality of these income segments in developing countries and the magnitude of the challenge to provide one laptop per child. From Latin America it is known that the borderline between ICT as a necessity good and ICT as a luxury good is roughly around the “magical number” of US $ 10 per person per month, or US $ 120 per year. This is how much ICT people seem to strive for and this is therefore how much ICT everybody would like to have as a minimum. In light of this reality, telecentre, desktop virtualization and multiseat configurations are probably the most simple and common way to affordable computing as of today. ICT4D projects need to be properly monitored and implemented; the system’s design and user interface should be suitable to the target users.

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ICT4D projects installed without proper coordination with its beneficiary community has a tendency to fall short of its main objectives. For example, the usage of ICT4D projects in the farming sector in third world countries, where a majority of the population are considered to be technologically illiterate;


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projects lie idle and sometimes get damaged or become obsolete. Furthermore, there should be a line of communication between the project coordinator and the user for immediate response to the query of, or the difficulty encountered by, the user. Addressing properly the problem will help to encourage the user via interactivity and participation.

Sustainability and scalability A growing perspective in the field is also the need to build projects that are sustainable and scalable, rather than focusing on those which must be propped up by huge amounts of external funding and cannot survive for long without it. Sustaining the project’s scalability is a huge challenge of ICT for development; how the target user will continue using the platform. ICT4D is not one shot implementation but rather it is a complex process to be undertaken continuously, and the progress of each project evolves around the pervasive education for, and adaptability of, the technology Also, many so-called ‘developing’ countries, such as India (or other South Asian countries like Sri Lanka, Pakistan, and Bangladesh, as also nations like Malaysia, China, Indonesia, Brazil, South Africa and many others) have proved their skills in IT (information technology). In this context, unless these skills are tapped adequately to build on ICT4D projects, not only will a lot of potential be wasted, but a key indigenous partner in the growth of this sector would be lost. Also there would be unnecessary negative impact on the balance of payments due to imports in both hardware and software.

OLPC - One Laptop Per Child project The One Laptop per Child Association, Inc. (OLPC) is a U.S. non-profit organization set up-to oversee the creation of an affordable educational device for use in the developing world. Its mission is “to create educational opportunities for the world’s poorest children by providing each child with a rugged, low-cost, low-power, connected laptop with content and software designed for collaborative, joyful, self-empowered learning.” According to Virtusa Corporation Strategic Initiatives Head, Chamindra de Silva, “Virtusa has been applying and contributing to Open Source R&D for quite a long time now, from Apache contributions on Web Services, to the Sahana Disaster Management project in the wake of the Tsunami and most recently to OLPC. In the case of OLPC through with our experience with Open Source, we realized that there is much opportunity to contribute to Quality Assurance (QA) as most often Open Source volunteers are motivated rather by the research and development side of the project and there often is not enough focus on QA. Yet projects like OLPC and Sahana have a global impact and in the latter case needs to be mission critical, thus the quality and stability of the system should be a very important part of the project”. Targeted at children from ages 5 to 12, the open source software provides them an opportunity to fully own the laptop, which is an open source machine. The children-and their teachers-will have the freedom to reshape, reinvent, and reapply their software, hardware, and content. Therefore, OLPC will not only revolutionize the way children learn, but will also scale up the eco-system of sharing between diverse set of communities existing in these countries. Kerala and Manipur are the first Indian states to have initiated the orders of the XO laptops. About 1,300 laptops for 13 rural schools have already been distributed in Sri Lanka.



Customer care and the BPO sector

A word on the E-pension scheme to be launched this week

The ICT and BPO Era of Sri Lanka We are on a journey to increase the awareness on Information and Communications Technology (ICT) and Business Process Outsourcing (BPO) sectors among Sri Lankans. This is the eleventh consecutive weekly edition of this column, thanks for all of you who read it and also for those who send suggestions and questions via email. We all have a vision to make Sri Lanka a better place in this new development era and let’s march on that journey together. I hope our discussion in ICT and BPO adds value to that.

We have discussed about the ICT and BPO in general and then we talked about the international as well as the local situation for the ICT and BPO sectors. We have also discussed how the concept of offshore outsourcing has become attractive for countries like Sri Lanka. We covered some career related topics in detail as well. Over the coming weeks, we will get into further details on opportunities for Sri Lanka as a country, what it can do to our economy, the knowledge economy and the impact on our society. Last week we discussed about call centres, and today I would like to explore further into customer care fundamentals.

What is Customer Care? As we discussed last week, voice BPOs are often called Call Centers. This is mainly because they use telephones and other communication media to talk to the customers of their client companies to solve customer problems. The area of support can vary. It could be technical support, support to use applications, support for banking customers about their banking issues, product descriptions and so on.

Call centres are also called contact centres, because they act as contact points with customers of their clients. This could happen in two ways. The call centre may call customers to help or discuss certain things while the customers may also call the contact centre to get assistance with their specific queries. These two are identified as in-bound and out-bound.

Customer care is applicable in both cases but it is more applicable for in-bound call centres where customers call the centre asking for help. Out bounds usually do tele-marketing type of work to sell products and services to customers. In simple terms, customer care is about taking care of your customer by helping them out and keeping them happy. If you don’t, the organizations are going to lose customers down the track so it is extremely important for call centres to be good in customer care.

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Following are few areas that are important to ensure customer satisfaction: Timeliness – The time taken to respond to customer queries.

Flexibility – The options available for customers. If the customers are pushed for just one option, they aren’t going to be too happy.

Friendliness – Is the customer being dealt with in a friendly manner?

Honesty – Is the customer support agent honest in what can be done for the customer and what cannot be done?

Customer Expectations – Once someone gives a customer a promise, they set an expectation on the service. Is that expectation delivered on?

Quality of Service – Customers do expect correct information and quality service as they are paying the organization for whatever the service they are getting. So, a level of quality needs to be maintained.

Value Addition – Do you add value to the customer in addition to what they are already paying for?

It is important to greet and welcome the customer when they first contact the call centre. Then a good customer care agent needs to understand customer’s problem and be empathetic towards the problem. Empathy is a word that I personally had a lot of trouble coming to terms with. What it means is not just understand the other person but be able to get into their shoes and think from their perspective to really feel the way they are feeling. Once that’s done, it’s easier to help the customer from that point onwards and make sure they are ultimately happy with the service. If the customer feels that they were well treated and that they received value for their money, they will be ambassadors promoting your organizations. This is something to reflect on for businesses that provide customer support for their products and services as well as BPO Call Centres that provide customer care all the time.

Interpersonal skills, verbal communication skills, listening skills and basic computer skills are important for call centre customer care agents. In addition to that, they need to know about the service or products that are assisting the customer with. For example, if they are helping customers of a bank, they obviously need to know well about the products and services of that bank.

I can’t stress enough the importance of English language to be a good BPO employee. As we understood in the previous weeks, the BPO sector is about bringing work to Sri Lanka from western countries. A vast majority of these clients work in English and one reason they come to countries like India and Sri Lanka is our knowledge in English. One advantage we have over a country like China which has a huge population, is the English knowledge. While our education system has done the basics, there are still improvements to be made in the English ability of our school leavers. As an immediate need, we just need to train new entrants to the industry with English and Business Communications but as a long term strategy our school and university education system need to re-think the way we teach English. I have a view on this matter and will be talking more about this in the future.

A good customer care ‘professional’ needs to develop certain skills to be able to their job well. I would like to emphasize the word ‘Professional’ in that. There are people who think call centre and other


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customer support jobs are easy or you can do it without any training, support or professional development. I beg to differ.

As mentioned earlier, customer care is one of the most crucial aspects of any business. At the end the day, any business (or even government or non-governmental organizations) exist because of customers, and their survival is highly dependent on how well the customers are serviced. There is this famous saying, "If you don’t take care of your customers, someone else will", and that is very true. So, if the customer care/support personnel aren’t trained professionals, how do you expect to manage that critical element?

Training of Call Centre and BPO staff in general in Sri Lanka is an issue at the moment, hence why you would have heard about many initiatives by the ICT Agency of Sri Lanka (ICTA) and SLASSCOM (The Sri Lankan ICT/BPO industry chamber) to build the capacity as well as to develop the talent pool to make our country a hot spot BPO destination. I am currently involved in such an initiative that intends to support the capacity building for the Sri Lankan BPO sector and will discuss more about in the coming weeks.

E-Pension Scheme As the column is about ICT and BPO sector, I wanted to let you know about a great initiative that is relevant to this column.

The ‘e-Pensions’ project, a brainchild of President Mahinda Rajapaksa benefiting all pensioners in the country is being launched this week. The ICT Agency of Sri Lanka (ICTA) and the Department of Pensions of the Ministry of Public Administration and Home Affairs have put the project in place jointly. Under this project the whole procedure from computation to the payment of pension would be subjected to a positive change benefiting the pensioner. Once this e-pensions project is implemented the bulky file currently containing a large number of paper documents would be reduced to a thin one with a few basic paper documents.

Until Next Week I hope this column has given you more insights about the call centre and especially customer care and the importance of it. Customer care is an important aspect to learn and master, for call centre staff as well as others who deal with customers in general. Who doesn’t love great customer care?

The Columnist The columnist Yasas Vishuddhi Abeywickrama is a professional with significant experiences in the BPO activities mainly in the ICT sector both in onshore and offshore roles. He was recognized in 2003 by CIMA (UK) as an up and coming business leader for the future. In 2009 he was named the Young Professional of the Year by Professions Australia. He has worked in the USA, UK, Sri Lanka & Australia, being trained in the USA & Malaysia and worked with clients such as British Telecom, Telstra & Siemens. He has worked for companies that are significant players in the ICT/BPO industry such as Accenture and Virtusa. He is the Director, Young IT Professionals Board of the Australian Computer Society and also works on a BPO human resource capacity building venture for Sri Lanka titled The Lanka BPO Academy. Yasas is happy to answer your career related questions via this column – email him at [email protected] .

mailto:[email protected]


Daily News - November 4, 2010

Mould and Die Industry: Creating a hub in Sri Lanka K P Sarath De Silva An Association of leading mould and die makers in Sri Lanka was formed in August 2005 with the blessings of the Industries Ministry primarily to enhance the quality and the number of moulds and dies made in Sri Lanka. A mould or a die is a key component used in almost all the manufacturing industries to enhance its production capability. A mould or a die is needed to manufacture any component from a safety pin to a sophisticated component used in aerospace industry. If you have a look around you, telephones, computers, automobiles, washing machines, cellular phones, soap tablets or a chocolate slab, an endless list of articles, are made economically using dies and moulds. It is calculated that around 15,000 to 30,000 moulds and dies are employed for the production of several parts assembled in an automobile. That alone will give the reader an idea of the demand for moulds and dies globally. Sri Lanka being a small economy compared with the global scenario needs to boost its mould and die making capacity if it is to become a prominent stakeholder in global economy.

Inside the Die and Mould Facilitation Centre

After the formation of "Mould and Die Makers Association" representations were made to the Industries Ministry and the then Minister Kumara Welgama (he himself a prominent businessman) realized the importance of this sector and extended his fullest co-operation. This is now undertaken by Minister Rishard Bathiudeen with keen enthusiasm. Upon our request a link was made with India where several personnel involved in the mould and die making sector were given one month's training at Indo-German Tool Room in India's Arungabad. Fifty percent of the cost was borne by the Ministry and the balance was borne by the participants. When this program was in full flight we realized the importance of establishing our own institute. There also the Ministry came forward setting up a Task Force headed by the Industries Ministry Secretary and with the participation of the Mould and Die Makers Association President and the General Secretary, the Engineering Faculty Dean, Moratuwa University Mechanical Engineering Faculty Head of Department and a Finance Ministry representative, along with several key players from the industry itself, to prepare short-term and long-term goals for the development of this sector. A five year and a 10 year development plan were envisaged with specific goals. It must be mentioned that the tireless work undertaken by SLMDA President L L Buddadasa and the SLMDA General Secretary K H Janaka Mangala as well as the Moratuwa University CAD/CAM Centre Senior Lecturer played a vital role in preparing the development plan. Also the keen support from Industries Ministry Secretary K Piyathilaka and Industries Ministry Director Epa Dayaratna were 98


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instrumental in reaching agreement to sign a memorandum of understanding between the Industries Ministry, SLMDA and the Moratuwa University to set up a Die and Mould Facilitation and Training Centre. The Industries Ministry provides financial resources to set up the centre while the Moratuwa University provides the infrastructure and administration and SLMDA links the industry with the centre as well as providing expertise and jobs for the sustainability of the centre. Initially a four axis CNC Machining Centre, an EDM Machine and a CNC Lathe were imported to commence work and latest software like "Mould Flow", "Pro/Engineer" were purchased for nearly Rs.32 million provided out of the Rs.100 million total allocation. This centre will support mould makers who are not equipped with sophisticated C.N.C machinery as well as undertake designing and programming of tool paths using the latest software and also will undertake flow path analysis and flow gate designing using mould flow software. The Centre will undertake Training CNC Machine Operators as well as Designers already employed in the sector for a reasonable fee by conducting part time and full time courses for CNC and Software Training. This centre will provide training to Mechanical Engineering Undergraduates at the Moratuwa University thereby attracting professionals to the Die and Mould Sector. As the Centre is located inside the Moratuwa University premises, the Mould and Die Facilitation Centre acts as an independent body to avoid unnecessary red tape. Before conclusion we must evaluate the present state of the Mould and Die Industry in Sri Lanka. Almost up to the new millennium dies and moulds were made using conventional workshop machinery such as lathes, milling machines, shaping machines etc. Special machines adopted by the mould makers were engravers and copy milling machines to deviate from an ordinary workshop. Though C.N.C Technology was there before in the western world it took time for us to catch up for obvious reasons. By using old technology accuracy level, repeatability on multi cavity moulds was compromised to a great degree. C.N.C technology (Computerized Numerically Controlled) revolutionized the entire machining capabilities as X,Y,Z Axes could be traversed to an accuracy level within Microns (One Thousandth of a Millimetre) as the commands for movements came through a computer and repeatability is dead accurate, thus eliminating most of the nightmares of the old Mould and Die Maker. Government policy for implementing Zero Duty for advanced technology using machinery also helped a lot for Sri Lanka to enter the C.N.C era. Still then CNC machinery as well as sophisticated software used to program the machines are very expensive. For example, one software purchased when setting up the Die and Mould Facilitation Centre amounts to US $ 60,000 in the international market and that amount is close to seven million Rupees. Each and every mould maker in Sri Lanka cannot afford to buy this software for himself. The reader will understand the usefulness of setting up this Centre from this example alone. Where does Sri Lanka stand in the die and mould sector right now? To be frank we are insignificant in the global scenario and locally, we make around 18 percent of the country's requirements. The balance is imported from China, India, Singapore, Japan, Korea etc. Some multinational companies get down their moulds from the west which is rather expensive. All over the world the special steels and accessories used for making dies and moulds are available. The machinery is also freely available though expensive. So if a country is rich in human resources with skilled and well trained personnel it can flourish in this market, which is lucrative. Sri Lanka is blessed


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with talented and to an extent English literate youth as the garage mechanic era of the mould and die makers workshop is something of the past and in a modern mould making facility it is somewhat a job involving modern automatic CNC machinery, computers and software. Fresh passing out Science and English educated youth should be attracted to this industry. There is a global demand for CNC Machine Operators, Mould Designers and Programmers etc. Western countries can afford to have all other infrastructure but skilful personnel, paving the way to our Engineers passing out of Universities, the German Tech and ATI being offered permanent resident status in those countries above other professionals. If we can keep these trained people to ourselves by investing in high tech machinery and accessories and give proper training, we can create a mould and die making hub in Sri Lanka as our youth have a reputation for grabbing knowledge with ease. The brain drain will continue but if we keep training more and more we too will be left with talented people in Moratuwa University. The die and mould Facilitation Centre is a step in the right direction if everybody concerned contributes to the sustainability of this national cause.


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SLT PAT up 108% for 3Q Sri Lanka Telecom (SLT), the National Integrated Telecommunications Service Provider, released its Group and Company Financial Results for the 9 months ended 30th September 2010. The SLT group comprises of its parent company (SLT) and seven subsidiaries including the mobile arm Mobitel.

During the first nine months of 2010, the group has recorded a Profit before Tax (PBT) of Rs.3.73 billion and a Group Profit after Tax (PAT) of Rs.2.40 billion with YoY growth rates of 105% and 108% respectively.

PBT of Rs.1.58 billion has been recorded for the 3rd Quarter which is an exceptional growth compared to PBT of Rs.5 million recorded in the corresponding period of the previous year. Recorded Group PAT for the 3rd quarter is Rs.1.03 billion, a Year on Year (YoY) growth of 643% from a loss of Rs.189 mil.

After normalization for non recurring expenses and Telecommunication Development Charge (TDC) refunds, the Group recorded a PBT of Rs.4.49 billion for the 9 months which is an increase of 95% YoY.

The Group reported revenue of Rs.37.34 Bn. for the 9 months and Rs.12.77 billion for Q3, recording a growth of 4% YoY for both periods. Group revenue also grew by 3% on an adjacent Quarter on Quarter (QoQ) basis. Meanwhile the major Group Key Performance Indicators marked positive trends. The group EBITDA (after International Telecommunication Levy - ITL) for the 9 months grew by 7% to Rs.12.67 billion while EBITDA (after ITL) margin rose from 33% to 34% YoY. PAT margin of the group for the 9 month period rose from 3% to 6%.

During the first nine months of 2010, the Group Free Cash Flow grew by 448% to Rs.7,308 million, from a negative Rs.2,099 million of same period of the previous year. The growth was mainly attributed by lower capital investments coupled with better performance of Mobitel.

Releasing the results the Chairman, Sri Lanka Telecom Group, Nimal Welgama stated that, the SLT group has built a well diversified business portfolio with strong market positions in Fixed, Mobile, International, Data and Broadband services to seize new market opportunities and capture a strong share of the underlying economic growth occurring across all sectors of the country. The SLT Group has clearly displayed its resilience by delivering strong performance both QoQ and on a YoY basis. Meanwhile the business transformation of the main business entity is well underway as we transform our company into a customer focused and market centric organization, he said.

During the first nine months of 2010, SLT Company achieved a PBT of Rs.2.35 billion, with YoY growth of 19% and PAT of Rs.1.40 billion with a YoY marginal decline of 3%.

On a normalized basis the company recorded a PBT of Rs.3.12 billion and PAT of Rs.1.93 billion with YoY growth rates of 26% and 7% respectively.

The company experienced a drop of just under 2% in its operating revenue during the first nine months of the year 2010 on a YoY basis; however strong revenue growth was recorded at 4% on an adjacent QoQ basis.


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Strategic initiatives such as our ongoing company transformation program to become a more customer centric organization, network modernization, expansion and migration to NGN technology, ICT services, together with cost management initiatives have put the company on a strong footing to deliver strong financial performance. In addition, SLT has significantly benefitted from the recent decision of the Telecommunication Regulatory Commission to reduce the ITL.

Fixed wired line customers have grown by 20,000 YoY, while during the same period the Fixed wireless (CDMA) customer base has declined by around 17,000, a trend underpinned by the strong customer demand for fixed broadband ADSL service. Further, the Average Revenue per User (ARPU) of fixed line voice has declined compared to the previous year mainly due to the migration from fixed to mobile voice consistent with market and global trends. Meanwhile in line with our strategic growth plan, the fixed broadband customer base recorded very strong growth of 40% and which is over 56,000 customers YoY, and has recently passed the milestone of 200,000 customers.

The mobile arm of the SLT Group, Mobitel recorded a Profit before Tax (PBT) of Rs.1.36 billion and a Profit after Tax (PAT) of Rs.1.05 billion for the 9 months of 2010 crossing the milestone of rupees one billion PAT, compared to Rs.197 million and Rs.283 million pre tax and post tax losses respectively in the corresponding period of 2009. For the third quarter, Mobitel recorded a PBT of Rs.628 million and a PAT of Rs.514 million compared to Losses of before Tax and after Tax of Rs.413Mn and Rs.496 million respectively. EBITDA for the 9 months 2010 reached Rs.5.01 billion with a growth rate of 72% YoY. Mobitel was able to bounce back in 2010 reporting excellent performance underpinned by strong growth in all profitability indicators. This remarkable growth in profit was achieved despite having to provide a corporate tax of over Rs.315 million for the entire nine months of 2010 whereas during the year 2009 the provision was only Rs.86Mn as corporate tax was liable only from 1st July 2009 due to the expiry of the Mobitel tax holiday.

EBITDA and profit growth attained by Mobitel during the period under review is a result of an impressive 32% increase in revenue of the company over the same period of 2009. In absolute terms revenue of Rs.14.8 Bn in the first nine months of 2010 was recorded by Mobitel compared to Rs.11.2 billion in the first nine months of 2009, an increase of over Rs.3.6 billion. This significant feat was possible due to growth in the subscriber base by almost 20% to the end September 2010 compared to same period in 2009, and was complemented by growth in ARPU and new products such as Mobile Broadband.

Growth in revenue of Mobitel has driven improvement in all other profitability indicators inching EBITDA margin up, towards 35% during the 3rd Quarter of 2010. Earnings Before Interest and Tax (EBIT) also grew by over 200% although the incremental depreciation charge was 39% higher compared to the first nine months of 2009 consistent with ongoing investment in network expansion. Further the company bottom line was able to withstand the negative impact of the interconnection regime introduced by the Telecommunication Regulatory Commission of Sri Lanka (TRCSL) in June 2010.


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Across the group, other subsidiaries and other business areas continue to show positive progress including the PEOTV entertainment and interactive service which was launched in Q4 2008 and has recorded customer growth of 157% for the 9 months YoY. SLT PEOTV is the pioneer of IPTV services in Sri Lanka, and has revolutionized the traditional TV watching experience, through its unique features enabling customers to enjoy Digital quality pictures even during rain, Time Shift Television (TSTV) facility to watch missed programs up to 48 hours, Rewind TV (Pause, Rewind live television) and video on-demand (a video gallery) of movies, dramas & documentaries in addition to local and International channels.

The SLT Group publishing arm, SLT Publications (Pvt) Ltd. shoulders SLT’s responsibility to publish telephone directories and has positively contributed Rs194 million. PBT during the first nine months of this year. The SLT Directory, previously confined only to the printed book has now expanded to many electronic formats enabling customers to access directory information through a CD, a Web based internet portal, WAP on their mobile phone, e - Directory and Call Centre service. The call centre service alone provides information access to over 14 million customers in Sri Lanka. These multiple media services make directory & other service information accessible to anybody at anytime from anywhere.


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Environmental


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Pursuing environmental sustainability This report describes findings from research that was conducted with organizations that have put environmental integrity or ecological sustainability at the core of their mission. The basic assumptions of this research are that the ecological health of the planet is essential for human well-being, and that the planet integrity is being compromised, with conventional economic activity being an element in creating the observed problems. Further, it argues that the pursuit both of profit maximization and continual growth are behind organizations adverse impacts. If pursuing profit always resulted in positive social and environmental outcomes there would be little need for this research and little rationale for the existence of the types of organizations interviewed. In particular, this research seeks to explore and understand the views of, and decision-making processes adopted by, a number of organizations that have put environmental integrity or ecological sustainability at the core of their mission or purpose, as opposed to having such aims simply as an addendum. In addition, the research seeks to understand the implications that this approach raises for conventional theories of management. The propositions (drawn from the literature) that informed the investigation are that these are unusual for organizations: do not pursue profit maximization can demonstrate examples of pursuing sufficient (rather than maximum) return do not believe in quoted status, because of the profit demands when listed see money as a means to an end as opposed to an end in itself are not likely to see clear lines of demarcation between the inside and the outside of the organization (the environment), and may have a world view that is either eco or sustain centric. Interviews were conducted with 23 organizations that identified themselves as pursuing environmental objectives. The main finding from the work is that these organizations are challenging conventional meta-narratives of business, with this challenge framing the pursuit both of their missions and money (that is, making a financial return). In effect, the organizations could be described as hybrids between conventional businesses and societal innovators, in that they are trying to pursue their environmental ends in an economic world which for the most part does not value those outcomes. As a result, these organizations have to negotiate the tension between doing their best in the current business environment while also seeking to change industry and societal norms. In this regard, the organizations could be seen as campaigning or pioneering entities, with their approach to realizing their campaign outcomes being through commerce. In a world where entities cease to operate unless they maintain access to or generate cash flow, these organizations are bound to have to pursue their environmental missions and financial success. These organizations do not see the environment merely as a means to make money, nor do they use the argument that if the company makes money then a particular environmental outcome will be achieved. Rather, these organizations have clear lines that they will not cross, which suggests that their environmental mission is a primary motivator with money being secondary. For example, some of these organizations: focus on achieving a sufficient return, as opposed to maximizing profits use measures of success other than money are cautious about, or critical of, quoted


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status identify customers with which they will not do business show a willingness to question the pursuit of growth as opposed to having an automatic belief in the value of growth. Furthermore, many of these organizations see their businesses as being built upon three equal pillars of society, environment and the economy, as opposed to just the economy. Nonetheless, some of the interviewees disagreed with the idea of three equal pillars, preferring to use the image of a situation where they exist in a materially closed system with no boundaries. In this view of the world, to focus on one particular outcome or to try to achieve a balance between society, the environment and the economy is seen as artificial. In short, some organizations take a holistic approach to thinking about the impact of their business. The world view of the organizations interviewed could be described as tending towards sustain centric as opposed to techno centric (which tends to draw on conventional management beliefs). In this regard these organizations may be seen as part of a movement to help humanity realize sustainable development. Interviewers also asked the organizations what holds them back from achieving more sustainable solutions. It was suggested that a lack of role models for sustainable business models, the lack of availability of suppliers who take the same approach as they do, and a lack of people who can operate in the required ways are all critical impediments to more widespread adoption of the principles on which they operate. To summarize, the organizations interviewed are challenging conventional narratives of what a business's purpose is and how businesses can and should operate. By analogy, the organizations interviewed for this project perform the same function in that they are pursuing missions that will benefit the whole of society (as we all benefit from a healthy environment) while at the same time they are benefiting themselves by ensuring their own survival in the process.

(ACCA)


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FCCISL News in Print Media



Sri Lanka calls for greater integration SAARC SME Forum: The Industry and Commerce Minister Rishad Bathuideen said the challenge for South Asia is how inter regional trade can be increased given that total external trade of the region given the low ebb of 0.8 percent of worlds exports and 1.3 percent of world imports.

Indian SME Expert Dr Padmanadan, Economist Dr Raju, FCCISL President Kosala Wickramanayake, Industry and Commerce Minister Rishad Bathuitheen, EDB and IDB Board Director Rohantha Athukorala and Chennai’s Deputy High Commissioner Krishnamoorthy at the event.

Addressing the International Conference on the SAARC’s evolving SME conference in Chennai, India he said the intra regional trade represents only a meagre 5.3 percent (Exports) and 4.8 percent (Imports) of the total in contrast with the likes of EU where 55 percent of the total trade comes from within the EU, ASEAN a 35 percent of the total trade comes from within which explains the strong integration that exits between countries, in comparison to South Asia. He went on to say that in the NAFTA, the integration is so strong that 60 percent of the trade comes from within the region. EDB and IDB Director Rohantha Athukorala presenting the Sri Lankan scenario said that Sri Lanka could play catalyst to integrating trade between the region with its emerging hub status for transport, commercial, knowledge, shopping and later on the financial hub that will form. He went on to say that a 8.5 percent GDP growth registered in quarter two driven by the SME sector is an indication of the entrepreneurial skill set available and with the new budget reforms coming into play later in the month, Sri Lanka becoming an economic engine in the South Asian region will only be a matter of time.

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There were many commitments for entrepreneurs wanting to set up rice mills and fisheries export companies post the Sri Lankan Session which was the highlight of day one as the country is emerging after a 30 year conflict. The Federation of the Chamber of Commerce President Kosala Wickramanayake said that even the tea industry is driven by the SME sector who contribute to over half of the production of the quality tea of the country. He explained the regional network the Chambers have and how it is assisting SME’s in the incubation period to becoming a business enterprise. South Asia is the home to around two billion out of the six billion people and the World Bank and the ADB estimates the regional GDP to be worth almost a US $ 1000 billion while the GDP growth for the last 20 years has been around 5 percent which is double the global average. Some of the key points discussed were the need for a SME policy and how access to finance can be facilitated together with support services like R&D and market access by the Indian, Pakistan, Bangladeshi, Bhutan and Maldivian high level delegations.



*Jaffna Open for Business, expo next January ‘Plenty of opportunities for businesses in North’

By Mario Andree The opening of the Jaffna economy after 30 years of civil conflict has opened opportunities for business, said the President of the Federation of Chamber of Commerce and Industries of Sri Lanka (FCCISL), Kosala Wickramanayake. Addressing the gathering at the launch of the second consecutive Jaffna trade fair he emphasized Jaffna has opened an avenue for local industries to expand business in the peninsula.

The Jaffna Trade Fair this year under the theme of ‘Open for Business’ indicated the peninsula was now free of distresses. He said the market in Jaffna is virgin and will serve well the first comers to the peninsula as it is in need of high development.

The exhibition will be held from 21 to 23 of January 2011 at the Durayappah Stadium with additional attractions compared to last year.

This fair illuminates a turning point in the development of the North with the current rebuilding of infrastructure. This trade fair is hoped to strengthen and bridge the trade links between the North and South, he said.

The revival of the Jaffna Economy has gradually boomed and it is rapidly developing as an emerging market, he said.

Lanka Exhibition and Conference services, Director, Imran Hassan said Jaffna trade fair ensures creating a platform for entrepreneurs and manufactures to build their businesses by strengthening their connectivity.

Companies would have a first hand experience of Jaffna to analyze market potentials in the peninsula. It is aggressively looking for partnerships and plans to dominate the world trade market.

He said Jaffna has a per capita income much higher than in the other parts of the country.

Further the industrialists in the peninsula are now looking forward to expand their businesses with the support of the banks in the zone.

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JITF from July 15-17 By Sapumali Galagoda Jaffna International Trade Fair (JITF) 2011 themed open for business will be held from July 15-17, 2011 at the Duraiappa Stadium Jaffna. The Fair is organized for the second year by the Federation of Chambers of Commerce and Industry in Sri Lanka (FCCISL), Chamber of Commerce and Industries of Yarlpanam supported by the Sri Lanka Convention Bureau. The main objective of holding this fair is to strengthen and bridge trade links between the North and the rest of Sir Lanka. The trade fair wills open doors for all sectors to come together and witness the restructuring taking place in the North. JITF will build a platform for business relations. Jaffna is pursuing partnerships and business plans with the entire world and is expecting to dominate world trade in the future, said FCCISL Chairman Kosala Wickremanayake. The trade fair invites a wide section of industries such as building construction, interiors, processed and agriculture food, packaging, machinery, cosmetic products, electrical appliances, fabrics and garments, gifts and toys, handicrafts, hardware and tools, health and hygiene, home appliances, sanitary ware and stationery. This year a new feature will take place in the fair Adyapana Kalvi Jaffna an education and career exhibition. The organizers are planning to work together to hold investor forums to develop Jaffna. Jaffna has a population of 600,000. Its per capita income is high as they set remittances from relatives who are living abroad. Their main income is from fisheries and agriculture. Tourism is growing. JITF will help re-unite the business community. The previous year the JITF attracted 30,000 visitors including people from all industries, attracting 300 stalls from over 200 companies making it the first and largest exhibition hosted in Jaffna. This year blue chip companies such as Diesel & Motor Engineering Plc and Ceylon Cold Stores have already extended their support as sponsors. The partner country is India and the silver sponsor is DIMO Technology.

november 2010 - federation of chambers of commerce and

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