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FCCISL News Alert Weekly Business Highlight

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Content Page

1. DEVELOPMENT ECONOMICS • Public sector beats private sector? 05 • Asian Development Outlook 2011 09 • Post-9/11 changes to industries outlive bin Laden 13 • Robust growth, but inflation causing concern 16 • Some issues facing the economy 18 • Call to create a knowledge economy 21

2. MANAGEMENT

• Prudent fiscal policy, management 26 • Why women excel in entrepreneurship ... 31 • Increasing experiences of positive emotions 33

3. TRADE & MARKETING

• Is ‘push marketing’ a blight on selling? 37 • There’s more room to improve German-SL trade 39 • Value Innovation in Blue Ocean strategy 41

4. MONEY & BANKING

• Frontier issues on the global agenda 44 • Ernst & Young’s views on re-fining Financial reporting in Sri Lanka 53 • Banking and Business in Sri Lanka 55

5. EXPORTS & IMPORTS

• John Keells Tea Market Report 58 • Challenging times for tyre industry 60 • Gem, jewellery exports rise 65 • Govt. targets industrial share of GDP to reach 35% by 2015 66


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6. STOCK MARKET • Weak market sentiments 69 • Markets get boost from bin Laden death 71 • Bourse continues to dip 73 • Bourse closes flat 74

7. ICT

• Innovations in learning and teaching 77 • Insights to Sri Lankan Facebook pages 80

8. FCCISL PRINT IN MEDIA

• Is the European Market Accessible for Sri Lankan Exporters? 84 • FCCISL- CHEER brings relief to flood hit famers in the East 86


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Development Economics


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Daily News – May 3, 2011

Public sector beats private sector? Rohantha Athukorala * Top valued brands in Sri Lanka in 2011 in the Public Sector * SLIM People’s choice of most favourite brand 2011 - People’s Bank * The Sri Lanka GDP equals to Apple brand When ever I get some free time I try to spend some time to understand some macro trends that are emerging in the country. Last week during the Easter break I spent some time on the Brand Finance report of 2011. What was interesting to see was that the top three brands in the country valued at Rs. 16.7 billion, Rs. 16.6 bn and Rs. 11.5 bn were Bank of Ceylon, Peoples Bank and National Savings Bank all from the public sector. If one were to single out People’s Bank, it had won the Peoples favourite brand of the year for 2011, Service Brand of the Year 2010, SLIM Brand of the year 2009, People’s Bank of the year 2008, Best loved bank of the year 2007 and Power of People Award 2006 which in my view signified that the public sector was doing some cutting edge business strategies and outsmarting the private sector which was contrary to the current perception in the market place. Let me analyse this in more depth.

Public sector -talent My mind went to the time that I was the Chair of the Sri Lanka Export Development Board I. I remember at that time that I was very surprised at the talent of this state institution given that I was coming from a fifteen year multinational career and the ethos that was floating around was that the public sector efficiency was the lowest that one can encounter . However, the talent at the EDB was so high that it forced me to do some fact finding given that this was the first public sector job that I had done. The facts gathered revealed some interesting information. Normally the cream of the university material gets selected for the jobs in the public sector. Namely the first and second class ranked students in a batch. Which is why institutions like the EDB, which is a premier export driving government agency has a set of very competent personnel. Thereafter when I took over as the Head of the National Council for Economic Development (NCED) the pivotal policy making body of the Government I came across the same talent base in many ministries and my final conclusion was that provided that there is a strong leadership which was transparent in nature backed with high levels of financial integrity at the top echelons the middle management motivation levels were at a very high level and in fact in my view was better than the private sector. The sad situation was that the public only gets a share of life of the public sector like the local municipality council or the motor traffic law enforcing officers and tend to form opinions of the public sector which to my mind was unfortunate.

Rohantha

Athukorala


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Marketing Excellence award -2009 At the 2009 Marketing Excellence Award I remember sitting in the judging panel when the Peoples Bank’s Marketing Head was presenting the performance of the entity. The performance was outstanding in my view. Not specifically the numbers but more the discipline of the marketing model that was at play. There was also a brand equity measurement track that was discussed that is normally practiced by only the top brands even in a multinational organization. I gave my thumps up for the performance to be tipped for ‘Brand of Year’ award. Even from a business angle from overall asset value to deposit base and number of customers tracked on a monthly basis signified the cutting edge marketing excellence practiced by companies was my view. In fact I did not see this stature of brand marketing that were being practiced in the private sector entries that year. Which proves that the Public Sector has the potential to out beat the private sector provided that the leadership is right.

People’s Award 2011 - best bank Even if we examine the recently concluded 2011 SLIM-AC Nielson most favourite brand competition called the ‘Peoples Awards’, once again we see how the power of the public sector emerging. Peoples Bank was selected by the people as the most favourite banking brand 2011. This selection was orchestrated by the Global research company AC Nielson which means that there is absolutely authentic on the results. What’s also important to note is that this selection is not on internal data released by the organizations but on perceptions and attitudes of the people’s based on real life experience, which makes the results more valid and relevant. Peoples Bank being selected by the people means that from a customer care to touch point experiences that a typical customer gets exposed to just opening a current account the brand experience has been very positive that has led the brand to be rated as the most favourite bank over powerful private sector driven brands. A point that needs to be highlighted is that in 2010 the advertising spend of the banking sector alone was a staggering 2.4 billion rupees that gives us an indication of the entrenched competition there is in this

People’s Bank is one such

public sector entity that has been outstanding

in performance over the private sector


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industry. In this backdrop for a public sector brand to be at cutting edge performance especially in a highly service driven industry augurs well for this entity in my view. Which also means that even with such an entrenched competitive scenario and with such a strong marketing muscle of the private sector it could not beat the performance of the Public sector entity that has 683 branches island wide and ATM facilities, Foreign Exchange transfer facilities and a range products to meet the changing consumer of the new economy. This indicates the sheer power of the talent in the public sector. All that is required is strong leadership and as mentioned before the performance will naturally happen.

Top valued brands 2011 If one examines the most valuable brands of 2011 as per the brand finance report as mentioned we see that top three brands are public sector owned and managed. Namely BOC, Peoples Bank and NSB. The combined values of the brands as per Brand Finance 2011 exceeds Rs. 44 billion which once again indicates the muscle that these entities have to expand globally or at least regionally. BOC leads the performance with Rs. 16.7 billion with a higher share of the import-export trade, international remittances that has resulted in a net profit of 10.1 billion rupees last financial year. The beauty of this brand is that even among the next generation consumers, namely the 4.2 million school going children the top of the mind brand is BOC which tells us of the strong brand marketing work that has been done by this state entity in the last couple of years.

Emerging strong brands Apart from the above, we can also see that there are more categories away from the banking industry that is demonstrating strong business performances that can teach some strong lessons to the private sector. 1) Lanka Hospitals Post the take over from Apollo the company has re-fashioned its business model. Moving away from the AB SEC targeting to the C1/C2 target market the organization has developed some cutting edge business practices that has been able to lure some of the loyal consumers from the private sector hospitals. In my view this is another classic example of a public sector entity driving private businesses to second place. 2) Mobitel Once again tracking back to the 2009 Brand Excellence award, I was surprised to see how a brand equity model was practiced where the brand performance was tracked not just on revenue and profits but on brand equity parameters. To me, this was the ultimate of best practices in driving brand marketing in the market place that require depth of talent in the marketing division of the organization as well as the sense of appreciation that the top management provides for such practices to be continued.

Next steps 1) The continuity of these best practices in the identified state institutions must take place. This must happen without any political interference and financial irregularities even though in our part of the world where a political economy exists this is tough to practice. 2) The People appointments at the higher level must be on merit and not of political nature. More importantly there should be security of employment so that cutting edge branding and business strategies can be implemented and tested.


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3) A holding company can be set up where these government entities can be placed under with strong private sector personalities at board level. This will drive in strategic thinking and new business practices that are working in the private sector world. 4) Best practices in the public sector organizations must be identified and shared among the rest of the enterprises in the government so that diffusion of the practice happens. 5) A thrust to move on cutting edge mergers and partnerships must be pursued. The successful public sector organizations must be encouraged to move to the South Asian region or the global market like what Tata did in India.


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Asian Development Outlook 2011: Healthy growth for Sri Lanka The economy bounced back strongly in 2010, reflecting post civil war optimism and the global recovery. The outlook, too, is positive for healthy growth provided the fiscal consolidation process meets targets and the burgeoning inflation pressures are addressed. The medium term presents a need to greatly lift private investment, if the country is to reap the full rewards of the peace dividend. The economy rebounded in 2010, with GDP growth estimated at 7.6 percent after 3.5 percent in 2009. Continued benefits from the end of the long-running civil conflict in 2009, such as improved business and tourist confidence plus more land available to agriculture, as well as the global return to growth, underpinned the strong performance. The overall optimism was reflected in the stock market’s doubling. With the revival of paddy and fisheries production in the former conflict areas of Northern and Eastern provinces, agriculture grew at 6.5 percent in 2010. Good weather and fertilizer support by he government helped. With the improved domestic business climate, the upturn in domestic and external demand, and gradually improving infrastructure, industry grew by 8.0 percent. Services, which account for nearly 60 percent of GDP, recorded growth of 7.6 percent. This was mainly due to the expansion of wholesale and retail trade, revival in tourism – which contributed to robust performance in hotels and restaurants – and the impressive performance of the banking, insurance, and real estate subsector. Tourist arrivals leaped by 46 percent to 654,477 in 2010, the highest number on record. Annual average inflation as measured by the Colombo Consumer Price Index reached 5.9 percent in 2010, up from a 25-year low of 3.4 percent in 2009. Import duty reductions and subsidies that maintained stable fuel prices partly reined in rising global commodity prices’ impact on domestic inflation. Nevertheless, overall inflation increased steadily from midyear to reach 7.8 percent in February 2011, with the rise due to escalating food prices that were 13 percent higher than a year earlier (Figure 3.21.2). Core inflation was on a downward trend throughout 2010 that continued in the first 2 months of 2011. Commercial banks’ average weighted prime lending rate continued to decline gradually in 2010 to 9.3 percent by year-end (Figure 3.21.3). The central bank reduced the reverse repurchase rate, the main policy rate, twice (and again in January 2011 to 8.5 percent).


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As interest rates edged down, growth in credit to the private sector came back strongly after 2009’s shrinkage, reflecting commercial banks’ improved lending appetites. Credit to the private sector increased by 25.1 percent and broad money by 15.8 percent. Per plan, the government tightened the budget deficit to 8.0 percent in 2010 from 9.9 percent in 2009 (Figure 3.21.4) It took minor steps to expand the revenue base, preferring to focus on simplifying the tax system, including reducing customs duty bands from five to four, removing the import duty surcharge, revising taxes relating to imports of motor vehicles and selected electronic items, and revising cess rates. Domestic revenue as a share of GDP at 14.6 percent was only marginally above 2009’s. Grants added 0.4 percent of GDP to budget revenue. The deficit narrowed therefore through current expenditure being cut by 1.5 percentage points as a share of GDP. All major categories of current expenditure saw a reduction as a share of GDP, including salaries and wages, interest payments, and transfers and subsidies. As a share of GDP public investment was lower than in 2009, at 6.5 percent. Total expenditure was 23 percent of GDP in 2010. The ratio of government debt to GDP fell to an estimated 84 percent at end-2010 from 86 percent a year earlier but the total stock of government debt increased by 11 percent. While the debt ratio has fallen in recent years, the structure of debt has adversely changed, as the mix shifted from concessional external borrowing to higher-cost domestic and no concessional external borrowing. By August 2010 the share of concessional debt had declined to 68 percent from 72.2 percent at end-2009. In September 2010, the government issued its third international sovereign bond offering of $ 1 billion, after issues in 2007 and 2009. This issue was oversubscribed six times, with a yield substantially lower than the two previous issues. After a 12.7 percent fall in 2009, exports recovered to expand by 17.3 percent in 2010. Industrial exports accounted for 74 percent of export earnings (of which more than half came from textiles and clothing) and agricultural exports 25 percent. Exports to major regions increased even though the European Union withdrew concessions under its Generalized System of Preferences Plus in August 2010. As the economy recovered in 2010 there was a marked increase in imports (about 32 percent), though this upsurge in large part reflected higher global prices, especially of oil. The steeper rise in imports than exports pushed out the trade deficit to 10.5 percent of GDP, from 7.5 percent a year earlier. The strong resurgence in tourism as well as freight and port related activities brought an upturn in the services sector surplus. Growth momentum in remittances continued, reaching 24 percent. These items helped to counterbalance the large trade deficit to hold the current account deficit to 3.8 percent of GDP (Figure 3.21.5). Supported by healthy capital flows, the balance of payments recorded an estimated overall surplus of about 1.8 percent of GDP in 2010. Foreign direct investment strengthened sharply, to an estimated $ 500 million from $ 384 million in 2009, though at only about 1 percent of GDP it is very low for an economy of Sri Lanka’s size and development level. Investor sentiment was strengthened by the simultaneous approval of the third and fourth tranches of the International Monetary Fund (IMF) stand-by arrangement in June, and the fifth tranche in September, 2010. Both Standard and Poor’s and Moody’s raised the country’s outlook to stable, and Fitch to positive. Supported by the success of the bond issue and the release of IMF funding tranches, gross official reserves reached $ 6.6 billion, covering 5.9 months of imports (Figure 3.21.6). The Sri Lanka rupee climbed gradually against the US dollar by about 3% to reach SLR $ 111.1 by end-2010 (Figure 3.21.7). The real effective rate appreciated by about 5 percent because of higher inflation than


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in trade partners. The central bank intervened to buy foreign currency, though this move created excess rupee liquidity in the economy, leading to inflation concerns.

Economic prospects After last year’s rebound, the economy it expected to show continued high growth of 8.0 percent in 2011, supported by some strengthening in external demand, and maintain growth at that level in 2012. Sustaining such performance will require fiscal consolidation, state enterprise and finance sector reforms, as well as flexible exchange rate management. Services and industry will lead growth in 2011; agriculture is likely to be hampered by heavy rains and consequent flooding that affected several provinces in January-February 2011. Continued and planned infrastructure and tourism-related building will support construction growth, while services, especially hotels and restaurants, will perform well, catering to the likely prolongation of the tourist boom. Rising global food and oil prices and a shortfall in domestic supply of agricultural produce due to the flooding will stoke inflation, but only upto around 8 percent. In January 2011, the Government reduced customs duty on gasoline from SLR $15 a litre to SLR $5 to avoid passing through global price rises. As with similar tariff-lowering steps on some imported food items, the fiscal implications are unclear. A recent hike in electricity prices will also contribute to upward price pressures this year. In a surprise move, the central bank cut policy rates in January even though inflation was on an upward trend, reasoning that the prevailing economic conditions provided the space for monetary relaxation to facilitate greater private investment without creating inflation pressures. With the economy now on a higher growth trajectory and inflation pressures rising, however, monetary tightening may well be needed later in the year. The budget deficit is expected to come down to 6.8 percent of GDP from 8 percent in 2010, split equally between a 0.6 percent increase in revenue and a 0.6 percent cut in expenditure. Revenue buoyancy is likely, stemming from budget measures to simplify the tax system and move from tax concessions as the principal tool for attracting investment to increased economic activity. Expenditure is forecast to rise moderately in nominal terms as the government is looking to cap public investments at around the 2010 level of 6 percent to 7 percent of GDP. A sharp one-third increase in private investment is seen driving growth higher. The budgeted fiscal consolidation is prudent, but meeting its target will require further measures as the costs of the humanitarian and reconstruction expenses related to the flooding in 2011 and the reduction in customs duty on gasoline were not provided for in the budget adopted in 2010. The Government expects to move to a 5 percent of GDP deficit target in 2012. To achieve this it would be necessary to look closely at closing loopholes in the tax system and to improve efficiency in tax collection, together with further steps to broaden the tax base. Moreover, with infrastructure development a compelling priority, expenditure rationalization would have to focus rigorously on recurrent expenditure. Export performance will depend on the recovery in Sri Lanka’s major markets and is likely to grow by, say, 16 percent in 2011 and 2012. Rising global prices, especially of food items and petroleum, as well as high domestic demand, are expected to push up imports by around one-third in 2011 and 2012. Higher remittances and net services receipts are expected to hold the current account deficit to some present in both years. FDI is projected to increase, supported by policy measures reinforced in the 2011 budget, including streamlining the role of the Board of Investment and ensuring that incentives to unproductive investments are canceled. The government wants FDI to hit about 3 percent of GDP this decade. The reserve position is likely to remain strong, supported by capital flows and the IMF program.


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Development challenges Investment is too low to achieve national development goals, and private investment in particular needs to be scaled up substantially. But several areas need to improve to secure an investment climate conducive to large-scale private investments. The 10-year development plan, the Mahinda Chintana, emphasizes the need to improve the business environment more widely. The World Bank’s Doing Business 2011 report ranks Sri Lanka at 102 out of 183 economies, suggesting the need to eliminate red tape. It also includes strengthening institutions, building human resources capacity, and simplifying procedures. The finance sector requires development, as part of the thrust toward macro stability and hence greater investment. Improvements are needed in the legal framework for financial services and commercial transactions, and more generally in strengthening and enforcing prudential norms. The challenge for Sri Lanka will be enforcing different institutional and regulatory policy reforms in ways that are effective but without excessive bureaucracy. It is also important to encourage both competition and consolidation in various parts of the finance sector to achieve efficiency and economies of scale. The capital markets are underdeveloped. Developing the corporate bond market is important to diversify funding sources in order to reduce reliance on banks and the equity market.


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The Island – May 4, 2011

Post-9/11 changes to industries outlive bin Laden

Security screening at airports will still be a hassle and raise the cost of travel. Laws that turned banks into financial cops will stay in place. And most companies will still spend more to ship goods and secure their computer systems. Osama bin Laden’s death won’t reverse the transformation of business that followed the Sept. 11 attacks.

The attacks fueled higher corporate spending on security and intelligence — costs that have been passed on to consumers. Those surging gas prices that motorists are cursing are higher, in part, because the bin Laden-driven attacks raised fears that terrorists might disrupt the flow of Middle East oil.

No matter what happens next, bin Laden’s legacy has meant costs and fees that business and consumers had never faced before and that aren’t about to go away.

"The cost of doing business has gone up permanently since 9/11," said Sung Won Sohn, an economics professor for the California State University at Channel Islands.

At the same time, John Silvia, chief economist at Wells Fargo Securities, said bin Laden’s death might reduce the perception of risk in trading and doing business, something that could benefit the global economy.

"I would view this as a risk-reducing event," Silvia said. Stocks began climbing Monday morning after news of bin Laden’s death. Strong earnings reports from Humana Inc. and other companies also pushed them higher.

But by lunchtime, the gains were gone. The major indexes wavered the rest of the day and closed slightly lower.

Here’s a look at how different industries and sectors were reshaped by the Sept. 11 attacks:

AIRLINES The terrorist attacks turned the act of flying into a test of patience. Air travel changed from a routine exercise — almost as simple as hopping on a train — into a process of seemingly ever-changing rules and procedures and time-hogging scrutiny. The role of flight attendants changed from serving coffee and a meal with a smile to being a first responder with a need for combat training.

In the near-decade since 9/11, passengers have been forced to take off their shoes, throw away containers containing more than 3.4 fluid ounces (100 cubic centimeters) of liquid and, more recently, subjected to full-body scanners if they want to avoid pat-downs that have sparked complaints about invasions of civil liberties.


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"Whether or not these rules are effective at making our planes more secure is debatable, but one thing for sure is that they have made going through security more of a hassle for the traveling public," said Anne Banas, executive editor of SmarterTravel.

It also caused deep financial hardships for an industry that had long struggled to maintain profits. Besides having to charge a $2.50-per-flight fee to help bankroll the Transportation Security Administration, most airlines now charge to check baggage, too. That adds $100 to $200 to the cost of flying for many travelers.

The good news: An airline ticket itself costs slightly less than it did before the attacks. That’s largely because airlines remade themselves into leaner operations, desperate not to lose money after a wave of bankruptcies triggered by 9/11. The list of post-attack bankruptcies included US Airways in 2002 and 2004, United in 2002, Northwest and Delta in 2005.

Mergers have reduced the number of airlines. The result: Airlines employed about 380,000 people at the end of last year — down 27 percent from roughly 520,000 from 2000.

ENERGY Electricity and other energy costs are likely higher than they would be had the Sept. 11 attacks not occurred. Power plants and energy transmission networks are deemed to be potential terrorist targets. So the security costs related to them have risen, with costs passed along to customers.

After 9/11, U.S. oil refineries were subjected to increased and costly security measures that remain in place, says Bill Day, spokesman for Valero Energy, the nation’s largest independent refiner. Bin Laden’s death prompted Valero to increase security at its 14 refineries as a general precaution.

Michael Lynch, President of Strategic and Economic Research, Inc., says oil has been more expensive over the past decade because traders have worried that al-Qaida could disrupt supplies by attacking refineries, pipelines or ports in the Middle East.

"The right person in the right place could do a lot of damage, and al-Qaida has always had people willing to take more risk than anyone else," Lynch said.

But Lynch says the threat, and the fear premium, have diminished in recent years, in part because attempted attacks failed to do any damage. In 2006, terrorists tried to attack a Saudi oil refinery. And last year, an al-Qaida affiliate took credit for an attack on a Japanese oil tanker in the Strait of Hormuz.

"It will fade more with time because of the death of bin Laden," he said of the fear premium.

TECHNOLOGY The attacks spurred more demands for more sophisticated computers and software.

The fear of another destructive attack that might target information technology, or IT, forced companies to hustle to upgrade their security software. This included heavy-duty encryption and data-recovery protections. The urgency has been especially felt in banking and government and operators of bridges, tunnels and power plants.

"The one thing 9/11 really brought to life was how organized the terrorists were," said Patrik Runald, who runs the U.S. security lab for Websense Inc., a San Diego-based Internet security firm. "People started realizing, if they’re so organized when it comes to physical attacks, what if they were that organized when it comes to cyber-attacks?"


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More companies also tried to make their workers more productive to help offset their higher costs in 9/11’s aftermath. That goal also helped sell more computers and technology services.

"When businesses want to raise productivity, the first place they look is technology," Sohn said.

PORT SECURITY Before 9/11, port security focused almost solely on smugglers and thieves. Now, the focus has shifted to international terrorism threats. And that’s raised the cost of doing business.

"We are really looking at threats through a different lens," said Aaron Ellis, a spokesman for the American Association of Port Authorities.

There are more guards, and radiation and gamma ray technology is used to scan containers and ships. Unusual shipments like artillery or chemicals draw extra attention.

FINANCIAL COMPANIES Banks had to shoulder higher costs to obey the Patriot Act after 9/11. Among other things, the law required banks to police their customers more vigilantly to prevent money laundering and detect the transfer of money to terrorist causes. To comply, the banks had to improve their record-keeping and more closely scrutinize new accountholders and the sources of large deposits.

The regulations have been costly to implement, particularly for small financial institutions, according to the most recent information from a 2007 study published in the Journal of Money Laundering Control. "Banks, brokerage firms, and other financial institutions spent over $11 billion in 2002 to strengthen their internal controls," after the Patriot Act was passed. Those same firms spent an average of 61 percent more in the three year period from 2001 to 2004 than they had in prior years.

Brokerages also spent more to guard against possible terrorist attacks. After 9/11, Lime Brokerage in Manhattan invested in backup servers to handle orders in case the primary servers went down. It now has 22 extra servers on standby, one for each primary one. The costs involve millions for redundant fiber-optic lines and software to coordinate the multiple systems.

"We try to be as paranoid as possible," says John Jacobs, head of operations at Lime’s offices just north of the World Trade Center site. -AP


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Daily Mirror – May 4, 2011

Robust growth, but inflation causing concern After reaching a rate of 8.3 percent in 2010, GDP growth in Asia is projected to average nearly 7 percent in both 2011 and 2012, according to the IMF. Although the earthquake in Japan in mid-March caused terrible loss of life and property, the government’s response helped to contain the economic impact, and spillovers to the rest of Asia through the supply chain should be limited. But in its regular report on the economic outlook of the Asia and Pacific region, the IMF warns that Asia’s rapid recovery from the global economic crisis has been accompanied by pockets of overheating across the region. The threat of overheating At the launch of the IMF’s twice-yearly Regional Economic Outlook held in Hong Kong, Anoop Singh, head of the Fund’s Asia and Pacific department, said economic growth in Asia was expected to remain robust, fueled by both exports and domestic demand, but new risks had emerged, including the threat of inflation. “Headline CPI inflation has accelerated since October 2010, and while this initially reflected higher commodity prices, pressures have now spilled over into core inflation and inflation expectations,” said Singh. “While we expect inflation in many Asian economies to increase further in 2011 before decelerating modestly in 2012, inflation risks in Asia remain tilted on the upside.” The IMF economist also noted that credit growth was not far from the “boom” levels in a number of economies, while property prices continued to grow rapidly in a few regional markets. As well as the danger posed by exuberant credit and property markets, Singh also identified additional risks from higher commodity prices, volatile capital inflows and possible spillovers from Japan’s earthquake. Tightening macroeconomic policies Against this background, Singh said the need to tighten macroeconomic policies in Asia had become more pressing than it was six months ago. “Further monetary tightening is necessary in economies that are facing generalized inflation pressures, as interest rates are generally negative,” said Singh. He added that there was also room for further fiscal consolidation and exchange rates appreciation that would help contain inflationary pressures. While the task of monetary tightening has been complicated by surges of capital flows to Asia after the global crisis, their recent moderation gives central banks more room to raise rates. Capital is expected to continue flowing into Asia in 2011 and 2012, attracted by the region’s strong growth prospects and fueled by abundant global liquidity and risk appetite, but at a more moderate pace than in 2009 and early 2010. Capital inflows remain a concern Still, increased volatility of capital inflows, especially debt related inflows, “remains a key concern,” for a few regional economies where these flows have been particularly large, says the Regional Economic Outlook. The report notes that several Asian economies have introduced macro prudential measures aimed at reducing the risk of overheating in asset markets, and staving off any subsequent bust if capital flows reverse. These measures include reducing banks and household leverage, and cooling down property markets. “These measures have been helpful,” says the report, but stresses they are “complements” and not a substitute for macroeconomic policy. Balanced, sustainable, inclusive growth Over the longer term, the report says the main challenge for Asia’s policymakers is to achieve a balanced, sustainable, and more inclusive pattern of growth and it warns that the global imbalances that characterized the pre-crisis period remain unchanged.


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“Without policies targeted at correcting these underlying distortions, they could threaten global growth prospects,” it warns. Among the challenges it identifies are strengthening domestic demand in Asian emerging economies, allowing the exchange rate to appreciate in some economies, narrowing inequality through inclusive labor markets, and offering stronger social protection. (IMF)


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Sunday Island – May 8, 2011

Some issues facing the economy By R.M.B Senanayake

Chandra Jayaratne, an experienced CEO of multinational companies, has circulated a letter to professionals posing the following question " Have you reflected on the recent economic and social calamities that negatively impacted common citizens of Iceland, USA, Greece, Portugal, and Spain etc? Following such a critique have you asked the critical questions? Can Sri Lankan Citizens be similarly impacted in the future? Are there amber signals in the rapidly expanding level of foreign debt and its inappropriate profile despite the much publicized high foreign reserves?

He refers to the sustainability of our economic growth since it is largely funded from foreign borrowings due to the paucity of domestic savings. The government has selected an inappropriate target for growth. It wants to double GDP per capita in four years. Fine, this can be achieved if the rate of growth is 18% per annum. But the GDP figure taken into account for the purpose is the GDP at current prices or nominal GDP. This includes inflation and if we have 18% average inflation we can certainly achieve it. But it constitutes zero real growth.

The government should use as its target not the nominal GDP at current prices but the real GDP at constant 2002 prices. The GDP per capita is obtained by dividing the GDP by the midyear population. But again the government is using the nominal GDP per capita and not the real GDP per capita. Of what value is this since it includes inflation which was 5.9% in 2010 (the GDP deflator which also reflected inflation is much higher and around 7%) It is wrong to assume that the GDP per capita, nominal or real, reflected the average income of the people. It doesn’t for it is distorted by the upper income ranges and the numbers in them.

Countries generally use the median Income in an income distribution table to compare improvements in the living standards of the people. In order to answer this question whether living standards of the people have improved, it is best to look at median household income. Median household income represents the statistical mid-point, with half of all households making more and half making less. So the public should not be carried away by statistical jugglery of taking the nominal GDP and converting it at an unrealistic rate of exchange. The valid method is to convert into dollars is the Purchasing Power Parity rate of exchange.

Exchange Rate policy One of the questions Chandra Jayaratne asks relates to the exchange rate - `` Is there justification for the current exchange rate policy in line with local inflation and inflation in competing countries and can Sri Lanka sustain its export competitiveness in the longer term?

Economics is not a science like physics or chemistry. It is not a science that can make specific predictions about the future course of events. This is not because it lacks sophisticated methods of analysis but because the variables involved are too many to determine the effect of a change in any one of them on another. Often the change in one variable affects all or most of the others as well. The economy is far too complex to permit such predictions.

Astronomers can accurately predict a solar eclipse because they have only a handful of objects to understand: the sun, the earth and its orbit, and the moon and its orbit. The most that economists can do is to say that other things being constant if X occurs then Y will be the consequence. If the money supply increases other things being constant inflation will take place. So the questions posed by Chandra are not


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capable of easy answers - but they must be discussed and debated. Unfortunately criticism is looked upon with disfavor by the authorities.

The Importance of exports to the economy We are running deficits in the balance of trade which is the balance between exports and imports. The deficits have gone on for the last 30 years. In 2010 the trade deficit was US$ 5,205 million. Exports were $8,307 million while imports were $13,512 million. This trade deficit used to be covered by large amounts of foreign remittances from migrant workers abroad. About 80% of them are working in Arab states in the Middle East. Over a million workers are said to be working abroad. But the current political unrest in the Middle East could mean a reduction of such remittances in the next few years.

Even after the addition of these foreign inward remittances our current account in the balance of payments was adverse by $1,418 million last year. This deficit has to be met by either running down our official foreign exchange reserves or by the inward flow of capital from foreign investors. But we cannot depend on foreign investors given the world economic outlook. So to repay the short term foreign debts when they fall due or when their owners prefer to sell out and want to repatriate in foreign currencies, we have to depend on our export earnings.

One of the factors that affect exports is the exchange rate. The currency must not depart too far from its trade weighted real exchange rate value. This happens when the rupee appreciates as it has done for the last year by 3.5%. But the country went through inflation of 6% with the GDP deflator at 7.3%. Such inflation reduces the competitiveness of our exports and affects the volume of exports. The restoration of competitiveness was in the past done mainly through depreciation of the rupee. But the present government does not accept this policy.

The exchange rate should not depart too much from its real rate. The Central Bank is trying hard to prevent appreciation of the rupee. But economists refer to the impossible trinity which is free foreign capital inflows, stable exchange rate and low interest rates. When the Central Bank buys dollars to prevent its appreciation it creates new money which keeps interest rates low but promotes inflation. Even if it attempts to sterilize through open market sales of bonds to withdraw such created money, it cannot do so unless it raises the interest rates if inflation is rising. So one of these three has to be dumped and which it should be must take into account the current economic circumstances.

We will soon witness rising food prices and since we import a lot of food we cannot afford to let the rupee go free. Nor can we stop capital inflows which are largely for investment by the government. Foreign capital inflows to the stock and bond markets have dried up (in the case of bonds there is a limit fixed by the Central bank which has been reached.) So the best option seems to me to allow the interest rates to rise.

Apart from the contribution to debt repayment, exports also contribute to GDP growth. Exports increase the Gross Domestic Product while imports reduce it. The contribution to the GDP therefore depends on net exports and we should while trying to promote exports seek also to discourage imports. But such discouragement should not be through controls but through market forces which means an appropriate exchange rate.

The official method for determining GDP, in turn, makes clear how trade balances affect the economy’s size at any given time. When exports exceed imports, and our foreign sales therefore more than offset the domestic sales lost to imports, trade flows on net add to output levels. When imports exceed exports, and therefore the domestic sales lost to imports more than offset the nation’s foreign sales, trade flows on net subtract from output levels. So if we wish to increase our GDP growth rate we must seek to increase our


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net exports. When the trade balance worsens, trade flows detract from growth. When the trade balance improves, they contribute to growth.

Exports also increase employment particularly through the newer industrial exports like apparel, shoes, leather goods, ceramic ware etc. Export opportunities in newer industrial goods should be promoted because while adding to growth they also add to employment. Indeed, exports must increase sufficiently compared with imports to improve the country’s trade balance — the difference between the two. Because imports have vastly exceeded exports for so many years, better trade performance requires narrowing a huge deficit.

Exports must also increase to boost our debt repaying capacity. When this capacity improves the Sovereign rating for the country will improve and we will be able to borrow at much lower rates of interest in the international capital markets of the world. Exports add to the GDP through a favorable terms of trade as we saw in 2009.

Trade unquestionably represents a badly needed growth opportunity. The proposed CEPA with India has been held up because of the political anxiety created by the size and proximity of India. But it is an opportunity to boost GDP growth. With government finances shaky at best, selling more goods and services abroad credibly promises to bolster the economy without further risky borrowing and spending. The trade deficit rebound last year with the return of normal growth and it went up from US$ 3,122 million to US$ 5,205 million. With the oil price hike the trade balance will worsen further in 2011. Expansion in net exports is a source of growth which would help the achievement of the target of doubling GDP per capita in four years.


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Sunday Times – May 8, 2011

Call to create a knowledge economy By Lloyd F Yapa Knowledge is created by investing in education and training or human resource development as it is called now. In the modern world it is codified, diffused and transmitted mainly by using Information and Communication Technology (ICT). The medium of codification and diffusion is mainly English. However, printed material containing information/ knowledge is still widely used. Peter Drucker spoke of “competitive strength (or competitiveness) and economic achievement” emanating from the productivity of knowledge. Economic achievement involves the production of goods and services mainly by private and public firms for trade in the domestic market of a country or with the rest of the world for generation of earnings or incomes, assisted by the State ; higher incomes can be generated by improving competitiveness which boils down to innovation for undertaking differentiation of: n goods and services on the basis of customer preferences using technological innovation, n a set of activities to deliver a unique mix of value to a particular segment of customers in a market using superior knowledge gathered through market research, both to prevent imitation by competitors and win greater market share. This means giving up other segments of customers as all cannot be served at the same time without confusing the employees and customers and as adopting such a strategy can cost a large investment. An example of serving a particular market segment is the production of the ‘Nano’ car by India’s Tata Enterprises for low income customers. Differentiation thus involves the use of knowledge rather than manual labour. KE (Knowledge Economy) refers therefore to an economy driven by brains/knowledge i.e. educated and skilled workers/personnel, differentiation of products and activities through technical innovation and other strategies to satisfy the needs/preferences of segments of customers to earn higher returns versus an economy producing mainly primary commodities driven by brawn, earning low returns. The Sri Lankan (SL) economy based mainly on tea, garments and foreign remittances of workers residing abroad is of the latter type; however, there are glimpses of the emergence of a KE in the industrial and services sectors. These have to be developed further in the manner suggested here. The state has to assist the private sector in creating a capability for undertaking the above mentioned two forms of differentiation (and improvement of productivity) i.e. competitiveness, for an economy to become a KE; in fact the government has ambition of creating a Knowledge Hub in SL. The net result of all this would be an increase in incomes due to proliferation of higher paid job opportunities and faster economic growth. On the basis of the above description the basic elements of creating a KE are:

• Investment in the development of human resources (HR) through education and training both by the State and the firms producing goods and services,

• Creation by the State of a conducive (business) environment to the acquisition of knowledge,

technologies and strategies for innovation leading to differentiation of goods and services, • Improvement of productivity by resorting to economies of scale and scope and,


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• n Investment in physical infrastructure mainly Information Technology both by the State and the firms concerned

HR development Since SL is not gifted with critical natural resources such as iron ore and coal used in industries, the emphasis has essentially to be on the development of human resources. Though India does possess vast quantities of natural resources for industrialization, priority was given without a break to development of HR/education particularly in S&T and the teaching of English since independence. In fact countries such as India, Japan, South Korea and even Japan, which have succeeded spectacularly in economic development, made it a point to send thousands of students for higher education in S&T as well as management to leading universities in the West particularly in the US and motivated them to come back to their countries after qualifying to contribute to economic development. At present the number of students sent abroad by these countries has declined as they have succeeded in uplifting most of their own educational institutions to the level of those in the West. SL has done the opposite up to now. The country’s ranking in the latest Global Competitiveness Index (GCI) for health and primary education is 35 (vs. 3 for Singapore) out of 139 countries and its ranking for higher education is 62 (vs.5 for Singapore); inexplicably higher education has been neglected, leading to dependence on manual labour in the economy. Since about 80% of students who qualify at the A levels are denied entry to our (public)universities and the quality and type of education imparted by them do not ensure employment, about 10,000 students leave SL for education abroad every year and most of them never return after qualifying as they don’t have suitable jobs back at home. This is only part of the brain drain; scores of qualified and experienced personnel who have been working here also leave the country every year for better ‘pastures’; skilled workers like masons, carpenters and electricians in addition leave for employment abroad as higher paid jobs are not available here. This appalling situation no doubt has to be arrested with a carefully prepared plan of action after an analysis of reasons for the brain drain, not just by setting up foreign universities. A KE and a Knowledge Hub for achieving higher incomes will otherwise be a distant dream. Conducive environment for knowledge The role to be played by the State for improving knowledge for differentiation through innovation (and improvement of productivity) is one of creating a conducive (business) environment for firms and other institutions to operate successfully while training personnel and attracting Foreign Direct Investment (as the latter particularly can add to HRD in a way that schools and universities cannot since the larger and more reputed foreign firms have developed their own technologies which are being modernized continuously). The creation of an environment conducive to the emergence of a KE that will improve competitiveness, includes:

• Laying greater emphasis on macro economic (budgetary and monetary) discipline (as according to the latest Global Competitiveness Index –GCI- Sri Lanka ranks 124 out of 139 countries on this score) to reduce budget deficits and rely less on borrowing. The main objective of all this is to reduce the intensity of inflation which adds pressure on costs of inputs and prices of outputs and to increase savings for investment e.g. in infrastructure for adding to a KE.


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• Development of infrastructure (dealt with below) including education and training (already dealt with under development of HR).

• Simplification of the numerous bureaucratic procedures and cumbersome laws by improving the

efficiency of government institutions (GCI rank 55 as against rank 1 for Singapore) including the judiciary by recruitment and promotion purely on merit without politicization to enable the employment of top class knowledge workers/professional managers. This ability has almost irredeemably disappeared in SL due to the disastrous decision in 1972, to make the politicians responsible for it with an intolerable increase in corruption and poor law and order conditions with the deterioration of the public service.

• Formulating a closely monitored set of policy reforms, incentives and regulations to motivate the expansion of a KE through innovation in products and services to meet customer expectations thereby increasing earnings. The Budget 2011 has proposed reduction of taxes for encouraging firms to increase investments. Competitor countries, however, offer more attractive incentives that enable them to draw in reputed FDI which add to the type of knowledge that is scarce in SL.

• The most important requirement is to increase competition among firms particularly by discouraging monopolies and cartels and reducing the degree of protection to domestic enterprises so that they will be compelled to look for ways and means to innovate using knowledge workers instead of seeking protection which would make them sluggish and less competitive. Sadly, however, import substitution is promoted in SL despite its failure in the nineteen seventies; India for instance sharply deviated from import substitution that led to economic stagnation and integrated with the rest of the world with spectacular results particularly through the development of a KE.

It must be stated here that it is the overall environment in the country that would induce firms to invest and improve knowledge and innovation and not a single incentive. Improvement productivity Innovation for differentiation by acquisition of knowledge/technologies will not be enough if unit costs cannot be reduced as most consumers would not tolerate higher prices even though value addition has taken place, as stated earlier. The firms have a direct role in this endeavour with the State playing an important indirect supporting role (which was already discussed under creating a suitable business environment). According to the latest available IMF World Economic Outlook data, GDP per capita (proxy for productivity or output of labour) in SL is US$ 1972 vs. US$ 8,141 in Malaysia, US$ 38,972 in Singapore; the productivity in agriculture in SL is about 1/3 of the national average). The techniques that should be adopted by the firms to improve productivity or output per man hour are well-known. The major ones include:

• Realization of Economies of Scale (and scope, i.e. using the same assets for example S&T personnel to undertake work in the subsidiaries of a firm) to reduce unit costs using large scale production and capital deepening/ widening or the use of machinery and equipment (particularly those that are ICT related) at a faster rate than that of (manual) labour.

• Research &Development –R&D to create new knowledge: The country spends much less than some

of its Asian counterparts on R&D (0.17% of GDP or less while India spends 0.61%, Malaysia 0.93%,


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China 1.34% and Singapore 2.36% of GDP); local firms therefore undertake very little innovation (the country’s GCI rank for technological readiness is 84 vs. 11 for Singapore). Fortunately the budget 2011 has extended double deduction of Research and Development (R&D) expenses in the calculation of income taxes to encourage firms to raise their level of technological readiness.

Investment in Infrastructure/ICT The infrastructure development programmes being undertaken do not seem to be prioritized on the basis of costs and benefits, improvement of productivity and contribution to knowledge. Express ways and an ICT development programme including an advanced fibre network to improve the extremely poor connectivity between Colombo and other towns especially in rural areas, wider use of computers/Internet with the provision of electricity connecting all the towns/cities are yet to be realized; the use of knowledge and the generation of knowledge therefore ise still confined to the areas around the city of Colombo. The above requirements will therefore have to be met quickly for the emergence of a KE to contribute substantially to the improvement of competitiveness through innovation, thereby pushing towards double digit economic growth as envisaged by the government. (The writer is an economist)


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Management


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Prudent fiscal policy, management Prudent fiscal policy and management by the Central Bank of Sri Lanka and the Treasury have enabled the reduction of the overall national debt in the five year period from 2005 to 2010. The Gross Domestic Product, which has also been a steady 6 percent and above from 2005 to 2010 and highest at 8 percent in 2010, has risen higher in relation to the rises in the national debt which has reduced the national debt. The interest rates have also declined sharply, resulting in the cost of debt of Government borrowings considerably. Here, Central Bank Deputy Governor Dharma Dheerasinghe speaks to Daily News about the statistics of the reductions of individual components of the national debt and the strategies adopted to achieve them. The Government debt as a percentage of GDP declined to 81.9 percent in 2010 from 86.2 percent in the previous year due to improvements in fiscal operations. Higher revenue collection which reduced the borrowing requirement, the reduction in the discount factor (which is the net difference in the book value and the face value of issues and maturities of Treasury bills and Treasury bonds) as a result of declining yield rates in government securities and the appreciation of the rupee vis-à-vis major foreign currencies, as well as higher economic growth contributed to the reduction in the debt to GDP ratio. In nominal terms, the total outstanding government debt increased by 10.3 per cent to Rs 4,590 billion as at end 2010. As a percentage of GDP domestic debt declined significantly to 45.8 percent of GDP in 2010 from 49.8 percent of GDP in 2009, while foreign debt declined to 36.1 percent of GDP in 2010 from 36.5 percent of GDP in the previous year. The share of domestic debt in total government debt declined further in 2010 to 56 percent from 58 per cent in 2009. Repayment of high cost domestic borrowings with the proceeds of the international sovereign bond and the increase in availability of foreign funds reduced the share of domestic debt in the total debt stock. The share of medium to long term debt to total domestic debt stock declined marginally to 76 percent in 2010 from 77 percent in the previous year, while 84 percent of medium to long term domestic debt comprised Treasury bonds. The share of Treasury bills in short term debt, increased to 83 percent in 2010 from 79 per cent in the previous year. The outstanding stock of Rupee loans continued to decline to Rs 88 billion in 2010 from Rs 112 billion in 2009, due to the repayment and non issuance of Rupee loans during the year, as the debt management strategy has been to move towards more market oriented debt instruments.

Dharma Dheerasinghe


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Reflecting the increasing reliance on non-bank borrowings, the outstanding debt held by the non bank sector increased by 10.5 per cent to Rs 1,873.8 billion in 2010. Accordingly, the outstanding stock of Treasury bills and Treasury bonds held by the non bank sector increased by 19.5 per cent and 12 per cent, respectively, in 2010. The EPF and NSB continued to be the major investors in government securities, accounting for 46 percent and 15 percent, respectively of the outstanding debt stock held by the non bank sector. The outstanding debt obligations of the government to the domestic banking system declined by 2 percent to Rs 691.7 billion in 2010. The outstanding debt held by the Central Bank declined by Rs 31.2 billion to Rs 78.4 billion, while outstanding government debt held by commercial banks increased by Rs 17.2 billion to Rs 613.3 billion in 2010. Consequently, the share of banking sector debt in the total domestic debt stock declined to 27 percent in 2010 from 29 percent in 2009. Retirement of the Central Bank's holdings of Treasury bills reduced the government debt outstanding to the Central Bank. While, Treasury bill holdings of commercial banks increased by Rs 60 billion to Rs 220 billion, Treasury bond

holdings of the commercial banks declined by Rs 26 billion to Rs 162 billion, reflecting the appetite of investors for short term instruments. Further, other outstanding government debt held by commercial banks declined to Rs 230.8 billion in 2010 from Rs 247.5 billion in 2009. Although there was an increase in foreign currency denominated domestic debt in US dollar terms, the rupee value of these debts declined marginally due to the appreciation of the Sri Lanka rupee against the US dollar.


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The outstanding domestic debt denominated in foreign currency declined to Rs 190.5 billion (US dollars 1,717 million) by end 2010 from Rs 191.8 billion (US dollars 1,676 million) at end 2009. This comprised outstanding OBU borrowings of Rs 16.6 billion (US dollars 150 million) and SLDBs amounting to Rs 173.9 billion (US dollars 1,567 million). Total outstanding foreign debt increased by 15 percent to Rs 2,024.6 billion in 2010, although as a percentage of GDP it declined to 36.1 per cent in 2010 from 36.5 per cent in 2009. The share of concessional debt in the total foreign debt stock declined further to 63 percent in 2010 from 72 percent in 2009 as a result of a marginal decline in concessional borrowing together with an increase in non concessional financing in 2010.

Non concessional debt increased by 55 percent to Rs 758 billion, raising the share of non concessional debt in the total foreign debt stock to 37 per cent at end 2010 from 28 per cent at end 2009. The increase in non concessional debt was mainly due to higher foreign commercial borrowing, which increased by 49 per cent to Rs 610 billion in 2010. The gradual move of Sri Lanka towards middle income country status reduced the availability of concessional foreign financing. However, the favourable environment in international financial markets as


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well as the improvement in investor confidence enabled the government to raise funds from non concessional external sources to finance the overall deficit. The rupee value of outstanding debt declined by Rs 4.7 billion due to the impact of the variation in the exchange rate. The rupee value of US dollar denominated domestic debt (FCBUs and SLDBs) declined as result of the appreciation of the Sri Lanka rupee vis-à-vis the US dollar by 3.1 percent in 2010. The appreciation of the Sri Lanka rupee against other currencies, such as the Special Drawing Rights (SDR) and the euro by 4.6 percent and 10.9 percent, respectively in 2010 also contributed to reduce the outstanding foreign debt stock, since about 59 percent of the total foreign debt stock is denominated in SDR (28.3 percent), US dollars (23.5 per cent) and euro (7 per cent). However, since around 25 per cent of the foreign outstanding debt stock is denominated in Japanese yen, the depreciation of the Sri Lanka rupee against the Japanese yen by 8.8 per cent had a negative impact on the outstanding debt stock. The improvement in public debt indicators signals a decline in the future debt burden. The improvement in the fiscal sector, lower interest rates and the appreciation of the rupee vis-à-vis major foreign currencies together with the high economic growth reduced the debt to GDP ratio in 2010. The debt to GDP ratio in 2010 fell below the targeted level set in the Medium Term Macro Fiscal Framework of 84 per cent of GDP by 2010. Continuing the fiscal consolidation process and maintaining a high economic growth would be required to reduce the outstanding debt stock to the targeted level of 60 percent by 2016.

Debt service payments Total debt service payments declined by Rs 5.2 billion to Rs 820.4 billion in 2010 due to lower amortization payments, as interest payments increased during the year. Total amortization payments, which accounts for 57 percent of total debt service payments, declined by 9.3 percent to Rs 467.9 billion. Of the total amortization payments, Rs 389.7 billion was made to domestic sources and Rs 78.2 billion to foreign sources, including deferred repayments on defence loans.

A decline in the maturing debt stock in 2010 and the appreciation of the rupee, which reduced the rupee value of foreign debt repayments, mainly contributed to the decline in amortization payments to external sources. Total interest payments increased by 13.9 percent to Rs 352.6 billion in 2010. Although domestic interest payments increased by 8.4 percent over the last year, this was well below the 50.4 percent increase in interest payments recorded in the

previous year.


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The main reason for the lower growth in domestic interest payments in 2010 compared to 2009 was the declining yield rates on government securities in 2010. Interest payments on foreign debt increased by 55.4 percent, mainly due the increase in non concessional foreign borrowings. Debt indicators improved in 2010 reversing the unfavourable trend recorded in the previous year. The ratio of debt service payments to revenue declined to 100.3 percent from 118 percent in 2009 with the increase in revenue collection and the decline in debt servicing costs. The higher GDP growth in 2010 together with the decline in debt servicing costs contributed to the decline in the total debt service to GDP ratio to 14.6 per cent in 2010 from 17.1 per cent in 2009. Total interest payments to GDP also declined to 6.3 percent in 2010 from 6.4 percent in 2009. Further, the ratio of foreign debt to earnings from the export of goods and services declined to 166.4 percent in 2010 from 170.7 percent in 2009 due to higher export growth in 2010. - Compiled by Ravi Ladduwahetty


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Why women excel in entrepreneurship ... Wall Street Journal recently highlighted the tremendous gains made by companies headed or founded by women ; according to WSJ, revenues of such companies have risen in 2010 as reported by the Women Presidents Organization, an advisory group representing multimillion-dollar women-owned businesses. The report notes that women led companies posted an annual revenue of US $ 82.7 million last year, a significant improvement from 2009. The research also showed that businesses founded by women had trouble with start- up capital while none were ventured funded and less than one fifth used bank loans to commence operations.

Start-up funds The start -up funds are crucial to any business and can determine how successful the operation will eventually become. But interestingly, credit lines and start up loans were not options for women starting their own businesses in the USA. Thankfully, things are better here at home where women entrepreneurs

have consistently and continuously worked hand-in -and with banks to get successful women-owned businesses up and running. From the traditional beeralu weavers of the southern coast who turn out exquisite hand- made beeralu lace sought after by many, to the rural women’s enterprises funded by micro-credit operations, women have become entrepreneurs who keep the clogs of a nation’s economy oiled. They often play silent roles, away from the star lit stage of entrepreneurship the city would love to put on a pedestal and celebrate yet their contribution keeps families fed, children in clean clothes attending school, societies active and banks wanting to continue to help them grow. Flexibility So what really makes a woman a better entrepreneur? Apart from being multi-tasked which runs through every woman owned venture like a common thread of sister-hood, entrepreneurship often gives women the flexibility to combine work and the home front. Granted it is a lot of work, doing the balancing act but women being women, we thrive on challenging situations. Running your own business , be it a saloon, a home baking operation or a garment export company, women entrepreneurs have succeeded in applying a formula that works for women in leadership everywhere. Mothers and wives get things going. If you can manage a home successfully every day, keep the kids in check, fed and taken care of, the kitchen up and running, meals on the table and take care of an often busy husband, running a company worth multimillion dollars or a few thousand rupees becomes second nature. Women also tend to dream more – spurn ideas and concepts that can go on to become global businesses. Corporate history is full of such ventures that took off on a smart idea coined by a woman, eventually becoming marketing case histories studied in MBA classrooms. Business women in villages Often, the best women entrepreneurs are not found in the air conditioned boardrooms but on the un-tarred village roads, in modest homes. There are women in this country who have courageously built successful businesses in their own villages without access to significant capital. Businesses built by women are less likely to take unnecessary risks as already proven, while ensuring that funds are often pumped back into the business. Women entrepreneurs tend to keep things manageable and strive to keep operations small or medium. A few whose names dot the Sri Lankan hall of entrepreneurship fame like Aban Pestonjee whose small business eventually grew into a large conglomerate the Abans Group, have gone into business history books


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but others have stayed perhaps a rung or two above the start-up. One female entrepreneur says that keeping her business manageable makes her comfortable. “I don’t take unwanted risks and I don’t want my business to grow so much that it becomes an impersonal big corporation. My business is built on loyal customers who know and trust my products and the relationship I have with them. I want it to stay that way. “is how she puts it, ever the entrepreneur who knows the business she built from scratch. Entrepreneurship is also about keeping the customers happy, delivering a consistent level of service that harks back to the initial days. Women regularly excel at nurturing and building relationships and are able to extend this to forging strong bonds formed with customers.

An old saying goes that when you empower a woman, you empower a family. Nothing is more true for the spirit of female entrepreneurship that seeks to celebrate and uphold values of motherhood and family. Lessons for tomorrow’s young female entrepreneurs whose drive may not always be built on such values ; as we all know, starting a business is the fun part, but keeping it going is tough. It takes a lot of discipline, commitment, capability and perseverance. Qualities that most women have found they can relate to in being mothers, wives, aunts or sisters. (Nayomini is a senior journalist & PR professional and can be contacted at

[email protected] e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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Increasing experiences of positive emotions (In this final part of the article I will explain strategies that can be used to increase the experiences of positive emotions in our daily lives) Given the demonstrated benefits of frequent positive emotions, it is of utmost importance that we cultivate positive emotions in our lives. However, this task is easier said than done due to the fact that it is impossible for people to just conjure up love, joy, kindness, just as they please. The reason for this is that positive emotions like all other emotions are based on appraisals of past events. However we do not need to despair as there are strategies that we can follow to increase the incidences of positive emotions in our lives. The first and most important step towards increasing the experience of positive emotions is being aware of the disadvantages of frequent negative emotions and the advantages of frequent positive emotions to our lives. This awareness will act as a motivator for us to actively find ways to increase the incidences of positive emotions in our lives. Always keep in mind that it is not the intensity of the positive emotion that will bring benefits to us but the number of times such emotions are felt by us on a daily basis. Also note that the absence of negative emotions in our lives does not signify the existence of positive emotions. Positive emotions need to be experienced and cultivated to derive their benefits. The following strategies have been advocated by psychologists as being effective in increasing one’s experience of positive emotions. a. Finding ‘positive meaning’ in ordinary events – The ancient Greek Philosopher, Epictetus, quite rightly explained the reason for humankind’s woes when he said that ‘Man is troubled not by events, but by the meaning he gives them’. This statement, subject to a little modification, is also true for describing the essence of an emotional experience. Human beings are not only ‘troubled’ but ‘pacified’ as well, by the meaning they give to the events they encounter in their lives. Infusing ordinary events with positive meaning helps to bring about positive emotions in our lives. For example, simply being grateful and happy about the many blessings in our lives, help to bring about the positive emotions of ‘gratitude’ and contentment’. Valuing our family and friendships help us to feel connected to others and feel ‘love’ and ‘joy’ at being around others. Admiring and taking an interest in the trees and nature around us help to cultivate the emotions of ‘happiness’ and ‘compassion’ for all beings. Likewise it is important to look at our ordinary lives with renewed meaning and acceptance. Research has also found that finding positive meaning in ordinary daily life events aid long-term psychological well being. We may encounter many obstacles in our daily lives such as problems at work, family problems, and problems with our health. However, instead of being overwhelmed by such troubles and thereby increasing the negative emotions in our lives, we can enrich our lives by valuing the many simple and often neglected ordinary things in their lives. If everything and everyone seems to be against you, just be grateful everyday for the life sustaining oxygen that you breathe, and you will cultivate the positive emotion of ‘gratitude’ in your life! A very appropriate quip that comes to my mind at this point on how to see the bright side of life is: ‘Life on Earth may be expensive, but look at the bright side. Every year we get a free trip around the sun!!’


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b. Positive reappraisal- Positive reappraisal refers to the reappraisal of stressful events in one’s life as being harmless, valuable and hence beneficial to life. This is an adaptive approach to coping from life stressors. Research has found that viewing stressful events in a positive light leads to improved health in people compared to viewing stressful events in a negative and crippling light. It is true that life is fraught with many difficulties and problems. Yet the extent to which we view life as burdensome depends on the type of appraisal we give to life’s events. By positively reappraising the adversities in our lives, we are capable of viewing life as a rewarding and challenging experience instead of a great load that weighs us down. For example, one of the biggest challenges young people in Sri Lanka face today is finding employment suitable to their qualifications. Many apply for jobs but become repeatedly unsuccessful. This can have a very negative impact on the applicant’s emotions and hence outlook on life. However, these outcomes are a result of how the applicant originally viewed the disappointment. If he/she saw it as a crushing defeat, then that appraisal will lead him/her down the path of anger, frustration, blaming the employers, de-motivation and even depression all of which are maladaptive. However, if the applicant views the original disappointment as an opportunity to grow rather than a personal blow to self, he/she will be motivated to change his/her job hunting/applying tactics, keep trying for various other jobs, upgrade his/her current skills/ knowledge so that he/she has a greater chance of being employed and following other techniques till he/she reaches success. In a similar manner, other adversities such as failing an important exam, losing a profitable customer/contract, being laid off from work etc., can also be reappraised in a positive light to induce greater experiences of positive emotions and consequently adaptive behaviour. c. Meditation and relaxation techniques – Meditation and relaxation techniques are also useful in helping us elicit positive emotions. Mindful meditations which involve the practice of focusing ones attention at the present moment helps to cultivate the positive emotion of ‘contentment’. Since the meditating person directs his/her attention only towards the present moment in a non-striving, non-judgmental manner, the person develops acceptance and contentment. Loving-kindness meditation which directs loving-kindness towards the self and all beings, on the other hand helps to develop such positive emotions as ‘joy’, ‘contentment’ ‘kindness’ and ‘empathy’. Similarly relaxation techniques such as muscle exercises and imagery exercises also help to develop the positive emotion of ‘contentment’ in our lives. Apart from the positive emotions experienced, meditation and relaxation techniques also bring about the so called ‘relaxation response’ to the practiser, which involves a decrease of heart rate, blood pressure, breathing rate and muscle tension. d. Use of humour Humour and joking behaviour are known to elicit ‘happiness’, ‘amusement’ and social connectedness. Humour also has health benefits in the form of relieving stress and tension, alleviating boredom, stimulating creativity and enhancing mood. Research has found that humour is useful in helping us view a harmful life situation in a harmless manner, inducing fun and absurd meaning to mundane life events and helping to view our own shortcomings with laughter. All these functions of humour help to elicit positive emotions. However, it is important to be careful when using humour as it can also harm as much as it can heal. When inappropriately used such as with the intention of discriminating people, laughing at the weaknesses of others or as a form of revenge, humour can


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lead to anger, distrust, embarrassment, hurt feelings etc. Therefore humour must be used responsibly to elicit the positive emotions rather than the negative emotions. Concluding remarks As was discussed in the preceding sections, positive emotions do not just make us feel good at the moment of experiencing them but also have long-term benefits that make us feel good in the future as well. Negative emotions on the other hand are useful in helping us deal with genuine emergencies in our lives but if not managed properly they can lead to health problems and maladaptive behaviour. Therefore in order to lead a healthier, fulfilling and connected life, positive emotions such as love, joy, kindness and contentment need to be actively cultivated and experienced in our lives. Taking those first steps towards nurturing more positive emotions in our lives may be a difficult and at times even a daunting task but by making this a daily habit through repeated practise, we are certain to reap the many rewards of positive emotions in time to come. (Nilupama Wijewardena is a doctoral student at Monash University, Australia and she could be reached on [email protected] e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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Trade & Marketing


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Marketing and selling in favourable economic conditions: Is ‘push marketing’ a blight on selling? Prasanna Perera Marketing & Management, Consultant, Chartered Marketer, CIM U.K.

A PUSH strategy essentially involves pushing products into the distribution channels through distributors, agents, wholesalers, retailers and direct dealers. There is nothing wrong in this strategy, except that too much emphasis is being paid to same, without balancing the PUSH and the PULL. (Targeting end-users or consumers).

PUSH vs PULL Strategies For the record let me outline push and pull strategies. Pull strategies are targeted at end-users/consumers through advertising and consumer promotions. Push strategies target distribution intermediaries, through trade promotions, intermediary competitions etc., A good balance between the Push and Pull is required. Why? If there is more Push than Pull the distribution channels will be

overstocked. On the other hand, excessive Pull will result in stock-out situations. Neither is desirable from a professional marketing standpoint.

Why do Sri Lankan Marketers emphasize the Push Strategy Over the Pull? I have observed that both consumer and industrial goods marketers concentrate more on the Push than the Pull. (BTL - below the line over ATL - above the line). The reasons to my mind are outlined below. Firstly, in most organizations salespersons call the shots over the marketers. The belief is that if you Push, you can sell. There is no need to create demand Pull. Since Sri Lanka is a developing country, the traditional retailer (shops)

dominates over the modern retailer (supermarkets and self service stores). Hence, it is believed that by incentivizing the traditional retailer, they will Push the products/brands. Therefore, the retailer is expected to change the consumer mindset at the point-of-purchase. Retailers and wholesalers are also becoming demanding, since they have many suppliers knocking on their doors. The balance of power has clearly moved away from the manufacturer to the distribution intermediaries. Top Management also encourages short-termism i.e. achieving this months and next months targets. Therefore, once again the Push strategy is seen as the savior. Accountability for expenditure is easier with the Push, when compared with the Pull. Push strategies can be measured in terms of sales and profit impact, in the short term. Pull strategies are harder to measure (specially advertising), since they have a lag effect and results are seen long term. Marketers lack assertiveness, over the sales teams. Most brand managers and executives also target the marketing principles and get pressurized to go for short term gains. Lack of good market research inputs, also results

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in Push strategies given preference over the Pull. Organizations have not researched the consumer/end-user-decision making process. Hence, they are assuming that the Push is what generates sales revenue and volume.

The Dangers in Over Emphasizing the Push Strategy The biggest danger is that brand equity will be eroded in the long term. Consumers/end-users will lack awareness about the brand being marketed and demand Pull will decline. Consumer loyalty will be compromised for intermediary / trade loyalty. This is a dangerous trend, as traders loyalty is directly related to functional benefits (profits), as opposed to emotional benefits desired by consumers/end-users. Many intermediaries are pampered by foreign trips, weekend holiday packages and many other incentives. In fact, many distributors and dealers are travelling the globe at company expense.

My question to Marketers/Sales Persons is “do these incentives make intermediaries more loyal to your organizations and brands?” What would happen if better offers are made by your competitors? For example your organization offers a trip to Bangkok and a competitor to Europe. Too much of Push, also creates price based competition, as products and brands are commoditized. This is detrimental to organizations in the longer term, as profit margins get eroded, together with the working capital situation. What is the Solution? A Balance Between the Push and the Pull

Balancing the Push and the Pull is what should be done. Do not neglect the end-user, as well as the distribution intermediaries. Allocate marketing budgets accordingly. Conduct continuous market research to understand market trends and end-user buying behaviour. By creating demand Pull, the balance of power can be pulled back from the intermediaries, to a certain extent. Do not forget marketing principles. The consumer is the final authority, in the long term, specially with the modern trade growing in Sri Lanka. In the next 5 - 10 years the entire Push ball game will change.


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There’s more room to improve German-SL trade German Ambassador to Sri Lanka Jens Ploetner launched the website germanyhelpinghands.lk today. This website showcases over 400 projects worth over Rs. 75 billion implemented across the island over the past half century by the German government as well as private donors from Gemany. Ambassador Ploetner speaks to Mirror Business about the 50 years of cooperation between Sri Lanka and Germany and what the future holds. By Athraja de Silwa Q: Briefly describe the half century partnership between Germany and Sri Lanka. The focus of our development cooperation shifted with time. At the beginning it was developing vocational training, a prominent example being the German Tech College in Moratuwa. Then we went on to infrastructure development such as the Mahaveli water scheme, the technical safety of the Colombo power grid and provision of reliable energy supply, a project started in the 90’s and continued till today. There was also huge amount of help following the Tsunami. Today, our assistance is focussed on helping to cope with the aftermath of the war in the North and East. Q: What is the current status of economic relations between the two countries “We can do much better !” is my short answer. Given the potential of Germany as number one economy in Europe and of Sri Lanka as an interesting market with a number of competitive advantages, we have only begun to exploit our trade potential. Looking at the figures of our commercial exchange I find they are much too low. While there are a number of German companies working here I would hope that with the end of the war we can increase that. Q: What do you think hinders the relations developing? Three reasons; one being it’s a very competitive world and while in the last 10-15 years Sri Lanka was focused on its domestic conflict other countries grew to become very attractive investment locations. Two, Sri Lanka is still associated with the conflict in the minds of businessmen. It will take time to change and for them to realize that the situation today is a different one. Thirdly, before investing, every companies takes are carefull look at the investment environment. This includes the transparency in the tax regime, the efficiency of the administration or the level of corruption. Basically they look for good governance. While I appreciate the efforts being made in Sri Lanka to make foreign investments more attractive there is still room for improvement. Q: You believe that Sri Lanka hasn’t done enough to bring in FDIs, and transparency is an issue? I believe first steps have been taken and that the government is aware of this being an ongoing process. In the race for FDI, Sri Lanka certainly has a number of advantages such as a skilled workforce, its strategic location, or high degree of English literacy. But indeed there is room for improvement.


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Q: What is your opinion on the ongoing post - war rehabilitation work, and what do you believe are the biggest challenges Sri Lanka will face? I believe it’s a two fold challenge; the firt is reconstructing the North and East economically, meaning roads, bridges, energy, housing etc. There the government is on the right track and we are doing what we can to help. The second challenge, and I believe the more complicated one, is to bring about political reconciliation. Here, we encourage the government to push forward with structured dialogue between themselves and the TNA. Q: German govt implemented projects to revive livelihoods of those residing in Mullativu and Kilinochchi. Could you elaborate on this? This is one of several projects we have in the North and East. Our projects have three key elements. One is supplying food and hygienic items to the IDPs’ and recently resettled. Secondly, helping them build a house and number three is to help create job opportunities. In my travels to the North I have been impressed and humbled by the resilience of the Tamil citizens that I have spoken with. I wonder how they take the strength to start again after all they’ve gone through. We can modestly and humbly give them a helping hand by providing something as simple as a fishing net. We hope that our help will contribute to making peace sustainable and to show to the people that peace pays. Q: You have also implemented a project in order to revive the Justice system in those areas. If you could elaborate on that as well? It was started in April and is being implemented by the UNDP. Main elements of the program are training judges, lawyers. and modernize the training scheme for the judicial sector.. We are also assisting in equipping training centres in the North. The basic goal is to give citizens there best-possible access to justice.. Especially in this post-conflict time, there are dozens of legal questions that have great significance for the people..

Q: Which sectors do you mainly focus on developing in Sri Lanka in general? One of the important sectors for Germany is tourism. For a long time Germans were the biggest number of tourists coming to Sri Lanka and we are still today a significant group and the numbers are increasing again. German companies are interested in investing in this area. Then agriculture is an interesting branch where the idea of the government to have a higher degree of added value produced in the country makes sense. Here, I believe cooperation is possible. Transport and logistics is also a promising sector because of the strategic location of the island. Some of the biggest logistic companies in the world are German – for them, this could be a promising field.. We are already exploring the possibility of cooperation between the Colombo harbour and Hamburg harbour. Q: What do you see in terms of the future of economic cooperation between Sri Lanka and Germany?

The embassy is working very hard to raise the awareness among the German business community of the opportunities available in Sri Lanka. I myself travelled to Germany in March specifically to brief German businessmen about this issue. I hope that within the course of this year we see a meaningful business delegation coming to visit Sri Lanka. germanyhelpinghands.lk can be accessed online and it aims to raise awareness about German economic and humanitarian funding in Sri Lanka


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Value Innovation in Blue Ocean strategy Within just five years, two-thirds of the identified model firms in the book In Search of Excellence, the bestselling business book published in 1982 had had fallen from grace. It was same with those sample companies in the book Built to Last, another bestselling business book. These are good indications to show that there are neither perpetually excellent companies nor perpetually excellent industries. Companies and industries rise and fall based on the vision of the leaders and the strategic moves that are made. Hence at the root of a profitably growing company are the strategic moves, and not the company or the industry. Strategic moves involves leaders visions and decisions involved in making a major market-creating business offering or moves that have delivered products and services that opened and captured new market space, with a significant leap in demand while creating great stories of profitable growth. Auto industry Let’s take an example from auto industry – a snapshot of the auto industry from 1900 to 1980. In 1908 Henry Ford created the auto industry with the Ford Model T. Prior to Ford, consumers had two choices: horse-drawn buggies or expensive custom-made automobiles. Ford created a product by making the automobile easy to use, reliable, and priced so that the majority of Americans could afford it. Ford’s market share went from 9 to 61 per cent. The Model T, then, was the strategic move that ignited the automotive industry. Similarly in 1924, Ford Model T was overtaken by another strategic move, this time by General Motors. Contrary to Ford’s functional one-colour one-car single model strategy, GM created the new market space of emotional, stylized cars with ‘‘a car for every purpose and purse’’. Not only was the auto industry’s growth and profitability again catapulted to new heights, but GM’s market share jumped from 20 to 50 per cent while Ford’s fell from 50 to 20 per cent. Move forward to the 1970s again Japanese car companies created unchartered market spaces (blue oceans) of small, gas efficient autos. And then, to the 1980s there Chrysler created the blue ocean of minivans.

Re-orienting strategic focus Fundamentally to shift the value proposition of an industry, a company must begin by reorienting its strategic focus from competitors to alternatives, and from customers to non-customers of the industry. To pursue both value and cost, companies should resist the old logic of benchmarking competitors in the existing field and choosing between differentiation and cost leadership. As a company shifts its strategic focus from current competition to alternatives and non-customers, it gains insight into how to redefine the problem the industry focuses on and thereby how to

reconstruct buyer value elements that reside across industry boundaries. Cornerstone of this strategy is “Value Innovation”. Value innovation is the simultaneous pursuit of differentiation and low cost. Value innovation focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space. Value to the buyers comes from the offering’s utility minus its price, and value to the company is generated from the offering’s price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned.


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Need for value innovation Value without innovation will give only incremental gains easily duplicated by the competition. Innovation without value is typically technology oriented and won’t be a commercial success. The whole purpose is to create a huge leap in value never seen before. That leap should attract buyers those who never before considered buying the product or the service. Value Innovation process search for radically different value curves. This is being done to reduce or eliminate some value elements (the ones the customer does not care much about) to save cost, and increase or add others to deliver desired value. The best-value innovation examples always show this combination of reduced cost in some areas and greater value in others. The most powerful innovators have value curves very different from those of traditional competitors. Although it is conventionally believed that companies can either create greater value to customers at a higher cost or create reasonable value at a lower cost those who seek to create blue oceans pursue differentiation and low cost simultaneously. Value innovation is about strategy that embraces the entire system of a company’s activities. While competition-based red ocean strategy assumes that an industry’s structural conditions are given and that firms are forced to compete within them. Value innovation is based on the view that market boundaries and industry structures are not given and can be reconstructed by the actions and beliefs of industry players. Value Innovation is very much an outside-in, customer-oriented approach to innovation. In developing business strategies based on the findings of Blue Ocean Strategy, the Four Actions Framework will help to analyze the value-cost tradeoff by questioning following: What factors can be eliminated that the industry has taken for granted? What factors can be reduced well below the industry’s standard? What factors can be raised well above the industry’s standard? What factors can be created that the industry has never offered? Value innovation in customer’s mind often occurs in two modes: (a) based on the product platform, it mainly refers to carrying out gradual and jump-style innovation or the functions of a product based on a particular platform at the same time or cross. The other is customer value innovation based on business process, it mainly refers to continuing and varying change and innovation of business activities an enterprise carries out in order to adapt to the external environment, especially changes in customer needs, to provide customers with more valuable products or services. To pursue both value and cost, companies should resist the old logic of benchmarking competitors in the existing field and choosing between differentiation and cost leadership. As a company shifts its strategic focus from current competition to alternatives and non-customers, it gains insight into how to redefine the problem the industry focuses on and thereby how to reconstruct buyer value elements that reside across industry boundaries where as conventional strategic logic, drives a company to offer better solutions than rivals to existing problems defined by an industry. (The writer is Managing Director of SAGA Resource Development Consultants Ltd. Readers can reach [email protected] )


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Money & Banking


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Frontier issues on the global agenda Emerging economy perspective: The speech made by Dr Duvvuri Subbarao Governor of the Reserve Bank of India as part of the 60th anniversary oration series of the Central Bank of Sri Lanka.

As institutions, central banks go back several centuries. The first central bank, the Riksbank in Sweden, was established in 1668, nearly 350 years ago. The Bank of England came shortly thereafter in 1694. By the turn of the century in 1900, there were only 18 central banks. Today, there are around 180 central banks, a tenfold increase in the last one hundred years. In relative terms, both the Reserve Bank of India (RBI) and the Central Bank of Sri Lanka (CBSL) are young institutions. RBI was established in 1935, and we celebrated our platinum jubilee last year. Apart from relative youth, there are several other similarities between our two institutions. Both of us have a wider mandate than is typical of central banks. In addition to maintaining price stability and macroeconomic stability, we both have responsibilities for currency management,

debt management and external sector management. More importantly, we also have an obligation to calibrate our policies to promote the socio-economic development of our peoples. And in the wake of the crisis, we face the common challenge of managing our policies, particularly preserving financial stability, in the face of globalization. India and Sri Lanka are not just geographic neighbours; we have deep social, cultural and economic links that go back several centuries. And as we navigate an increasingly complex world, we face a number of similar opportunities and challenges. We are both fast growing emerging economies; we aspire to raise our growth rates to double digits, and want to efficiently translate that rapid growth into poverty reduction. We also have to manage our ‘inclusive growth’ strategies in the face of globalization. Experience shows that globalization offers incredible opportunities but also poses immense challenges. If the years before the global financial crisis – the period of the so called ‘Great Moderation’ – demonstrated the benefits of globalization, the devastating toll of the crisis showed its costs. As emerging market economies (EMEs), we cannot withdraw from globalization. That is neither feasible nor advisable. We have to confront globalization head on, but manage it in such a way that we exploit the opportunities and mitigate its costs. Surely, we have our concerns about the forces of globalization and how they might impact us. Many of these issues are on the global agenda that the G-20 is deliberating upon. G-20 I attended a meeting of the G-20 Finance Ministers and Central Bank Governors in Paris in mid-February 2011. Apart from the specific issues on the agenda, what impresses me about the G-20 forum is its group dynamics driven by two underlying convictions. First, that global problems cannot be solved without global cooperation and that uncoordinated responses will lead to worse outcomes for everyone, and second, that solutions to global problems are sustainable only if they reflect also the EME perspective.


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I thought the way I can best add value to this series of orations is to focus my remarks on the EME perspective on issues on the global agenda. Emerging market economies in the global context Fifty years from now, when historians look for the defining features of the first decade of the 21st century, they will probably mark the rise of worldwide terrorism, the deepening of the internet culture and the devastating global financial crisis. Whether the emergence of EMEs as a group will rank pari passu with those others will depend on what EMEs achieved in the last decade, but importantly also on how they consolidate those gains in this decade and beyond. Before I go on to specific issues, let me make a brief comment on EMEs in the global context. The sift in the global balance of power in favour of EMEs is by now a familiar story. Some broad trends will show what a remarkable shift this has been. Setting GDP at 100 in the base year of 2000, the following chart shows the aggregate growth in the decade 2000-10. Against the aggregate growth of 17 percent of advanced economies, emerging market and developing countries (EMDCs) grew by 82 percent and BRICs (Brazil, Russia, India, China) by a whopping 127 percent. When we look at shares in global GDP, the growing dynamism of EMEs becomes even more persuasive. The share of advanced economies in the global GDP dropped from 80 percent in 2000 to 67 percent in 2010 with a mirror increase in the share of EMDCs. Quite expectedly the share of BRICs increased more impressively from 8 percent to 17 percent. By all accounts, the world has recovered from the financial meltdown and the follow on recession much sooner than we had feared at the depth of the crisis. The recovery is all the more remarkable because global income, trade and industrial production fell more sharply in the first twelve months of this crisis than they did in the first twelve months of the Great Depression. In its latest World Economic Outlook (WEO – January 2011), the IMF estimated global growth for 2010 of 5.0 percent, this marks a surprising upward revision from its earlier projection of 4.8 percent made in October 2010. EMEs, contributing nearly half of this growth, have clearly been the engine of this recovery. EMEs have also been the motive force behind the estimated expansion of world trade at 12 percent in 2010, an impressive reversal from shrinkage of 11 percent in 2009.

Two FAQs This post-crisis scenario, marked by the faster recovery of EMEs, throws up two frequently asked questions relating to EMEs in the global context. The first is whether EMEs will be able to sustain global growth at near pre-crisis levels even if advanced economies continue to languish. People who put this question, I believe, are doing so as a rhetoric – to encourage analytical thinking rather than to solicit an affirmative answer. Sure, multiple growth poles are a safety-net for the whole world, but to expect EMEs, by themselves, to lift global growth to former levels will be unrealistic. Note that

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EMDCs account for less than half of world GDP even when measured at PPP valuations, and only about a third of the world trade in goods and services. The second question about EMEs in the global context relates to decoupling. The decoupling hypothesis held that even if advanced economies went into a downturn, EMEs would not be affected because of their improved macroeconomic management, robust external reserves and resilient financial sectors. The crisis failed to validate the decoupling hypothesis as all EMEs were affected, admittedly to different extents. What the crisis, in fact, reinforced is that the economic prospects of advanced economies and EMEs are interlinked through trade, finance and confidence channels. Even as the decoupling hypothesis gained intellectual credence in the pre-crisis years, it was never very persuasive in the face of globalization. In fact, recent research within IMF shows that the detrended aggregate output growth of EMEs has strong association with the aggregate output growth of advanced economies, and that this ‘association’ has in fact increased over time, evidencing not only that the coupling is strong but that it is getting stronger. Sure, in recent years EMEs have been less affected by recessions in advanced economies owing to improved policy framework, more effective macroeconomic management and growing intra-EME trade. But over an entire cycle, the economic prospects of EMEs remain firmly coupled with those of advanced economies. In an increasingly globalizing world, advanced economies and EMEs are dependent on each other, and going forward, both have big challenges in terms of sustaining growth, containing inflation and reducing unemployment. By far the biggest challenge for EMEs will be to convert high growth into poverty reduction. Against that backdrop, let me proceed to look at some of the issues on the global agenda from the EME perspective. Global rebalancing The first issue I want to address from the EME perspective is global imbalances. No crisis as complex as the one we have gone through has a simple or a single cause. We now have a fairly good idea of the multiple causes of the crisis and almost everyone is agreed that one of the root causes of the crisis is the build up of global imbalances. In as much as global imbalances – no matter whether they were caused by a ‘consumption binge’ in advanced economies or a ‘savings glut’ in EMEs – were the root cause of the crisis, reducing imbalances is a necessary condition for restoring global financial stability. The post-crisis debate on global imbalances has three interrelated facets. The first is the role of exchange rates in global rebalancing. The second relates to capital flows into EMEs raising the familiar challenge of managing the impossible trinity. And the third facet is the framework for the adjustment process. Let me turn to these one by one. Role of exchange rates First, on the role of exchange rates - a prime lever for redressal of external imbalances. Global rebalancing will require deficit economies to save more and consume less. They need to depend for growth more on external demand which calls for a real depreciation of their currencies. The surplus economies will need to mirror these efforts - save less and spend more, and shift from external to domestic demand. They need to let their currencies appreciate. The question boils down to what can surplus countries do domestically to increase consumption and what can deficit countries do domestically to increase savings.


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The problem we have is that while the adjustment by deficit and surplus economies has to be symmetric, the incentives they face are asymmetric. Managing currency tensions will require a shared understanding on keeping exchange rates aligned to economic fundamentals, and an agreement that currency interventions should be resorted to not as an instrument of trade policy but only to manage disruptions to macroeconomic stability. Capital flows That takes me to the second facet of global imbalances - return of lumpy and volatile capital flows. Since capital flows have become such an emotive topic around the world in recent months, it is important perhaps to recall a few realities. First, that EMEs do need capital flows to augment their investible resources, but such flows should meet two criteria: they should be stable and be roughly equal to the economy’s absorptive capacity. The second reality that we must remember is that capital flows are triggered by both pull and push factors. The pull factors are the promising growth prospects of EMEs, their declining trend rates of inflation, capital account liberalization and improved governance. The push factors are the easy monetary policies of advanced economies which create the capital that flows into the EMEs. What this says is that international capital flows comprise a structural component and a cyclical component. It is the cyclical component that typically disrupts the macroeconomic stability of EMEs. That said, the multi-speed recovery around the world and the consequent differential exit from accommodative monetary policy have triggered speculative capital flows into EMEs. The most high profile problem thrown up by capital flows, in excess of a country’s absorptive capacity, is currency appreciation which erodes export competitiveness. Intervention in the forex market to prevent appreciation entails costs. If the resultant liquidity is left unsterilized, it fuels inflationary pressures. If the resultant liquidity is sterilized, it puts upward pressure on interest rates which, apart from hurting competitiveness, also encourages further flows. Currency appreciation is not the only problem arising from the ultra loose monetary policy of advanced economies. Speculative flows on the lookout for quick returns can potentially lead to asset price build up. The assurance of advanced economies to keep interest rates ‘exceptionally low’ for ‘an extended period’ has also possibly triggered financialization of commodities leading to a paradoxical situation of hardening of commodity prices even as advanced economies continue to face demand recession. EMEs have been hit by hardened commodity prices through inflationary pressures, and in the case of net commodity importers, also through wider current account deficits. EMEs have dealt with the problem of excess flows in diverse ways depending on their macroeconomic situation. This has broadly taken one of several forms: controlling capital at entry, taxing it on entry or intervention in the forex market. Such measures would have attracted criticism in the past as they went against the broad economic orthodoxy that market forces should not be resisted. The crisis has changed the terms of that debate. It is now broadly accepted that there could be circumstances in which capital controls can be a legitimate component of the policy response to surges in capital flows.


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Managing capital flows should not be treated as an exclusive problem of EMEs. In as much as lumpy and volatile flows are a spillover from policy choices of advanced economies, the burden of adjustment has to be shared. How this burden has to be measured and shared raises both intellectual and practical policy challenges. Our current theory of external sector management draws from an outdated regime of fixed exchange rates and limited capital flows when the task was largely limited to managing the current account of the balance of payments. What we now need is a theory that reflects the changed situation of flexible exchange rates and large and volatile capital flows. The intellectual challenge is to build such a theory that encompasses both current and capital accounts and one that gives a better understanding of what type of capital controls work and in what situations. What is the practical challenge? The practical challenge is that once we have such a theory, we need to reach a shared understanding on two specific aspects: first, to what extent are advanced economies responsible for the cross border spillover impact of their domestic policies and second, what is the framework of rules that should govern currency interventions in the face of volatile capital flows. G-20 framework for global growth The third facet under global imbalances is happily not actually a problem but an approach to a solution. At the Pittsburgh Summit in 2009, the G-20 committed itself to a new “framework of strong, sustainable and balanced growth” as also on a “Mutual Assessment Process” (MAP) to determine the degree to which G-20 macro policy actions are ‘collectively consistent’ when examined together. The framework and its assessment should ensure that individual actions of countries add up to a coherent path forward. The framework essentially consists of identifying a few indicators and the guidelines against which these indicators for each of the countries will be assessed. At the Paris meeting of the G-20 in mid-February, there was an agreement on the broad indicators that will aid us to focus, through an integrated two-step process, on those persistently large imbalances which require policy action. It was also agreed to decide on the guidelines for assessing the indicators by the next meeting of the G-20 scheduled for April 2011. The G-20 Mutual Assessment Process is a potentially promising mechanism to facilitate timely identification of disruptive imbalances and to ensure that preventive and corrective action is taken in time. Needless to say, global cooperation is vital for the success of MAP. Global reserve currency The global crisis has revived the familiar concerns about the robustness of the international monetary system, and in particular about the global reserve currency and the provision of liquidity in times of stress. The system we now have is that the US dollar is the world’s reserve currency by virtue of the dominant size of the US economy, its share in global trade and the preponderant use of dollar in foreign trade and foreign exchange transactions. And as Barry Eichengreen tells us in his latest book on the story of the dollar, the reserve currency status depends also on a host of intangible factors such as strategic and military relationships, laws, institutions and incumbency. In line with the Triffin paradox, the US has met the obligation of an issuer of reserve currency by running fiscal and external deficits while enjoying the ‘exorbitant privilege’ of not having to make the necessary adjustment to bridge the deficits. With no pressure to reduce the deficit, a dominant economy can potentially create imbalances at the global level as indeed happened in the build up to the crisis. An argument can be made that even in the context of a single reserve currency, global imbalances are not inevitable. The US could not have run persistent deficits


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had not the EMEs provided the demand side impetus by accumulating reserve assets either for trade advantage or as a measure of self-insurance against external shocks. The problem with the world having only a single reserve currency came to the fore during the crisis as many countries faced dollar liquidity problems as a consequence of swift deleveraging by foreign creditors and foreign investors. Paradoxically, even as the US economy was in a downturn, the dollar strengthened as a result of flight to safety. Based on the experience of the crisis, several reform proposals have been put forward to address the problems arising from a single reserve currency. One is to have a menu of alternative reserve currencies. But this cannot happen by fiat. To be a serious contender as an alternative, a currency has to fulfill some exacting criteria. It has to be fully convertible and its exchange rate should be determined by market fundamentals; it should acquire a significant share in world trade; the currency issuing country should have liquid, open and large financial markets and also the policy credibility to inspire the confidence of potential investors. In short, the exorbitant privilege of a reserve currency comes with an exorbitant responsibility. A second solution to a single reserve currency is to develop the SDR as a reserve currency. This does not seem to be a feasible option. For the SDR to be an effective reserve currency, it has to fulfil several conditions: the SDR has to be accepted as a liability of the IMF, has to be automatically acceptable as a medium of payment in cross-border transactions, be freely trade able and its price has to be determined by forces of demand and supply. A third suggested solution aims at reducing the need for self-insurance and thereby the dependence on a reserve currency by supporting a multilateral option of a prearranged line of credit that can be easily and quickly accessed. Such a multilateral option is necessary as a complement to self-insurance but it cannot be a substitute; some measure of self-insurance will continue to be the first line of defence. None of the above solutions fully addresses the problems arising from a single global reserve currency. What this underscores is that at the global level we need to explore these and other options for protecting ourselves from the vulnerabilities that we confront as a consequence of a single reserve currency. Protectionism In the post-crisis world, there may not actually be ‘deglobalization’ but the earlier orthodoxy that globalization is an unmixed blessing is being increasingly challenged. The rationale behind globalization was, and hopefully is, that even as advanced countries may see some low end jobs being outsourced, they will still benefit from globalization because for every low end job gone, another high end job - that is more skill intensive, more productive - will be created. If this does not happen rapidly enough or visibly enough, protectionist pressures will arise, and rapidly become vociferous and politically compelling. Recent international developments mark an ‘ironic reversal’ in the fears about globalization. Previously, it was the EMEs which feared that integration into the world economy would lead to welfare loss at home. Those fears have now given way to apprehensions in advanced economies that globalization means losing jobs to cheap labour abroad. There is concern in some quarters that even as open protectionism has been resisted relatively well during the current crisis, opaque protectionism has been on the rise. Opaque protectionism takes the form of resorting to measures such as anti-dumping actions, safeguards, preferential treatment of domestic firms in bailout packages and discriminatory procurement practices. Experience shows that countries resort to restrictive trade practices in areas not covered by multilateral rules or by exploiting the lack of specificity in certain rules.


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To strengthen multilateral trade discipline, the need for a quick conclusion of the Doha Round can hardly be overemphasized. In a world with growing worries about the debt creating stimulus packages, a Doha Round agreement should be welcomed as a non-debt creating stimulus to the global economy. The most familiar form of protectionism is trade protectionism operationalized through tariffs and controls. There can be other forms of protectionism as well. Martin Wolf talks about what he calls ‘macroeconomic protectionism’ which is an attempt by a country to shift inadequate aggregate demand on to its own output. The efforts of several countries around the world in recent times to resist currency appreciation is a manifestation of macroeconomic protectionism. Another form of protectionism is ‘financial protectionism’. What is financial protectionism? It is a situation where countries impose controls increasingly not on capital inflows but on capital outflows. In a recent op-ed piece in the Financial Times, Richard Dobbs and Michael Spence argue that “the 30-year era of progressively cheaper capital is nearing an end. The global economy will soon have to cope with too little capital, not too much.” Their thesis is that even as investment needs of EMEs, especially in infrastructure will grow, global savings will not rise in step because of several factors: ageing populations who will spend rather than save, increased expenditure on adapting to climate change and large economies like China rebalancing towards consumption rather than saving. This will make capital scarcer and raise long term interest rates for corporates and consumers. The question is, will the savings constraint be so large as to push countries into restricting capital outflows as a defence against rising interest rates at home? If yes, we will have to brace for financial protectionism in the years ahead. The short point is that in the years ahead, the pressures for protectionism will mount and protectionism will also take new forms. Global welfare will be maximized when collectively we resist short-term pressures and put our long-term interest ahead of narrow short-term advantage.

Financial Sector Reforms Received wisdom today is that financial deregulation shares the honours with global imbalances as being the twin villains of the recent crisis. It should not be surprising therefore that vigorous reforms in the financial sector are under way. The Basel III package finalized by the Basel Committee on Banking Supervision (BCBS) has since been endorsed by the G-20 at its Seoul Summit last November. Broadly, these reforms will require banks to hold more and better quality capital and to carry more liquid assets, limit their leverage and will mandate them to build up capital buffers in good times that can be drawn down in periods of stress. Another crisis driven initiative has been to expand the erstwhile Financial Stability Forum into a Financial Stability Board (FSB) by giving representation to EMEs. The FSB has been working on a number of initiatives including managing the moral hazard associated with systemically important financial institutions (SIFIs) through more stringent regulatory and supervisory norms, principles to guide compensation of bank managements, a single set of accounting standards and regulation of OTC derivatives, credit rating agencies and hedge funds. There are also several areas where substantial work needs to be done including in improving resolution regimes for cross-border banks and systemically important non-bank financial companies, addressing the procyclicality of the financial system, and macro-prudential surveillance. We also need an approach for


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extending the prudential norms on the lines of Basel III to the shadow financial system which lay at the heart of the recent financial crisis. The financial sector reform agenda is driven by the need to prevent the type of excesses in the financial sectors of the advanced economies that led to the crisis. Even so, EMEs too will have to fall in line and implement these reforms. Some of these reforms entailing higher capital and capital buffers will make the financial sector safer, but they come at a cost and pose implementation challenges. Let me expand on this a little. Both the Bank for International Settlements (BIS) and the IIF have come out with some preliminary estimate of the macroeconomic impact of the Basel III package. The Basel Committee too is carrying out an extensive impact assessment study. EMEs will need to supplement that with their own self-assessments to more accurately determine the impact of the new norms on their financial and monetary systems. In all likelihood, EMEs will see the cost of credit going up at a time of growing credit demand arising from strong growth, structural transformation of the economy and financial deepening. The challenge for EMEs will be to balance the tension between implementing Basel III and keeping the cost of credit at an affordable level. In terms of capital, banks in EMEs typically have higher capital ratios, and can be expected to comfortably meet the higher Basel III capital requirements. However, going forward, as credit expands and bank balance sheets grow, banks will find it necessary to raise further capital to conform to the Basel III requirement. Basel III also poses non-cost challenges. For example, operation of countercyclical buffers will need judgements to be made on the trajectory of the business cycle and on the identification of the inflexion point. Wrong judgements can entail huge costs in terms of foregone growth. Many of these reforms on the anvil, including some elements of the Basel III package, allow for national differentiation. Should EMEs, keeping in view their national circumstances, decide to deviate from any global standard or norm, the challenge for them will be to communicate the rationale so that the market does not interpret the deviation as regulatory looseness. Realizing that the reform measures designed for the financial systems of advanced economies will have different implications for EMEs, and that the challenges facing the EMEs may be entirely different from those facing the advanced economies, it was decided in the Seoul Summit of the G20 to work towards making the financial regulatory reforms better reflect the perspective of EMEs. The FSB, the IMF and the World Bank have been tasked with working on this agenda and report before the next Summit. Let me now summarize. In my remarks today, I tried to give you an EME perspective on some of the issues on the global agenda. I started off by giving the big picture - the tectonic shift of global economic power towards emerging economies. EMEs, however, have not completely decoupled from the advanced economies; their economic prospects remain linked to the prospects of advanced economies. Even as multiple growth poles are a better safety-net for the world, we will be collectively better off if all segments of the world grow at a sustainable pace. I then went on to the issue of global rebalancing which needs to address three inter-related issues: exchange rate flexibility, capital controls and an agreement on a framework for strong, sustainable and balanced growth. A prime source of vulnerabilities at the global level is the single reserve currency and I emphasized the need for global cooperation in finding a viable solution. An important issue on the global agenda is protectionism and I talked about why protectionist pressures may arise again and what new forms protectionism might take in the years ahead.


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Finally, I gave a brief status of the reforms in the financial sector and emphasized the need for further work to study the implication of these reforms for EMEs. The common thread running through all the issues that I raised is the need for global cooperation in solving our most pressing problems of today. The crisis has taught us that no country can be an island and that economic and financial disruptions anywhere can cause ripples, if not waves, everywhere. The crisis also taught us that given the deepening integration of countries into the global economic and financial system, uncoordinated responses will lead to worse outcomes for everyone. The global problems we are facing today are complex and not amenable to easy solutions. Many of them require significant and often painful adjustments at the national level, and in a world divided by nation-states, there is no natural constituency for the global economy. At the same time, the global crisis has shown that the global economy as an entity is more important than ever. The global crisis has taken a devastating toll on global growth and welfare. In their painstakingly researched book, ‘This Time is Different: Eight Centuries of Financial Folly’, Kenneth Rogoff and Carmen Reinhart show how over eight hundred years, all financial crises can be traced to the same fundamental causes as if we learnt nothing from one crisis to the next. Each time, experts have chimed that ‘this time is different’ claiming that the old rules do not apply and the new situation is dissimilar to the previous one. It will be too costly for the world not to heed this lesson. We should cooperate not only to firmly exit from the crisis, but also to ensure that in resolving this crisis, we do not sow the seeds of the next crisis.


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Ernst & Young’s views on re-fining Financial reporting in Sri Lanka New standards equivalent to globally accepted IFRS Investors will be able to better understand financial reports Will create a level playing field Accounting and auditing firm Ernst and Young says Year 2012 will herald a new era for financial reporting, and will enhance the governance and financial reporting of Sri Lankan entities to higher levels. Issuing a statement on its views it said: "The Institute of Chartered Accountants of Sri Lanka has issued accounting standards that are applicable for financial periods beginning on or after 01 January 2012, (SLFRS) equivalent to the globally recognized International Financial Reporting Standards (IFRS). Throughout Asia and other parts of the world, including United States of America is making their way towards this change. Several expertise have given their views on the subject to relating to the necessity and impact of adopting International Financial Reporting Standards equivalent to Sri Lanka Financial Reporting Standards, comprising of SLFRS and LKAS. Manil Jayesinghe, Partner Ernst & Young speaking on the benefits of Sri Lanka converting to SLFRS/IFRS, said "Sri Lanka is at a very critical stage, with the post war opportunities streaming in from around the globe. We have evidenced a substantial increase in the number of investors in the country and it will continue to grow. With such a backdrop, there is no doubt that the adoption of a common accounting language will contribute immensely."

With the adoption of SLFRS,

* Investors will have a much better ability to understand financial reports. Therefore Sri Lanka will be in a better position to compete with the rest of the world.

* Analysts will be able to compare our financial information more easily and comfortably with similar companies across the globe.

* It creates a level playing field for Sri Lankan companies when competing with the global market, and as a result will benefit from relatively lower cost of capital.

Mark Seddon, Managing Partner, FAAS services – Asia Pacific shared his view on challenges faced in Europe when conversion to IFRS took place. Many organizations initially believed that converting to IFRS could largely be confined to Finance or the Accounting Policy function and therefore charged this group with responsibility for delivering the change agenda. It took some time before it became obvious that the implications of IFRS extended well beyond Finance and touched all facets of a business. Leadership had to step up the messaging around the importance of this change and empower a senior executive to lead who had line of sight across an organization, could engage the business effectively, and was capable of transforming accounting speak into operational impacts and issues that the business could relate to, be they at the product/front office level, systems, process and control functions, or geographical.

Driving change, delivering a consistent message across an organization and being able to identify matters quickly and effectively, for example, timelines slipping, or resources need bolstering, were met with varying degrees of success. Many organizations under invested in the program management team and paid the price with missed deadlines and overspend, also the level and extent of training that is required across an organization was underestimated. Training can take many forms and typically the format, content and


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timing will vary from the Board down through the organization. More often than not most delivered training very early on and did not refresh it through out the life-cycle of the project or did not tailor it to the needs of the different audiences.

Sanath Fernando, Partner Ernst & Young said "One of the biggest challenges to all concerned is the interpretation of standards. SLFRS encompass principle based standards which means the financial information is more likely to reflect the substance of arrangements and there is less opportunity for abuse. However there are cases where there are legitimate needs for interpretations to promote consistent and comparable financial reporting. The challenge is achieving a balance between making interpretations when they are needed, but not becoming too rule-based and losing the benefit of principles-based standards."

He also added, "Companies will need to make a gigantic effort upfront to understand the changes that it will face in terms of Accounting, Business processes and IT. Transactions will need to be captured at the initiation of the transactions. It will pose an organization wide cultural change that will encompass almost all of the divisions. Companies will have to put a lot of effort into educating and training staff on the impacts on the financial reporting of the organization."

Markets like Hong Kong faced a lot of tactical issues causing significant costs as financial institutions did not fully consider IT changes in the early stages of the project during the initial adoption in 2005. Yin Toa Lee, Partner Ernst & Young Financial Services Leader – Far East, said "Organizations were comfortable with the current IT systems and were not willing to admit that they will require strategic modifications especially to the front-end business related systems on the initial adoption of IFRS. This resulted in the increase in human labour involved in the preparation of financial statements at the back-end where time is being spent doing the numbers as opposed to analyzing them for reasonableness."

With the trend to empower finance as the trusted advisor to businesses, IFRS automation would be a necessity, markets like Korea has learned.

This leads us to the question, what processes should a company go trough to adopt these standards effectively and efficiently? The global conversions have shed light on the following ground rules.

* Training and awareness is a key element in the conversion process. This should commence from the Boards and Audit committees and flow down to the operational management.

* An advisor with necessary skill and competence to be selected.

* Each company must set up a steering committee to analyze the issues, discuss the alternate accounting options and determine the accounting option that is most strategically suited to the entity. All such decisions must be ratified by the Boards and Audit committees.

* A strong project Manager is required to ensure that the project receives the due attention it requires in obtaining information and that key milestones are met without undue delay.

* Progress updates to the Boards and an Audit committee is imperative.

* Coordination between all departments is key to the success of the project.

* Devil is in the detail – All organizations must undergo a contract review process to identify the substance behind the transactions. The terms and conditions needs to be evaluated in order to determine the accounting treatment that should be reflected in the financial statements."


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Banking and Business in Sri Lanka Reviewed by Dayani de Silva

“Banking and Business in Sri Lanka” authored by V S Nadarajah records the progress of banking and business in Sri Lanka from the nineteenth century to contemporary times and provides the reader with valuable insights into the transition from “a plantation economy as a British colony to a more vibrant one today with the diversification and expansion of industries” as stated in the introduction to the book.

With requisite academic and professional qualifications and an outstanding career spanning forty years as a professional banker in Sri Lanka, Saudi Arabia and Australia, Nada was indeed well equipped to undertake this project. The result is a very useful and well documented book in which he traverses a wide area with ease. The first five chapters are on the growth of the banking industry in Sri Lanka while the latter part comprising seven chapters deal with the growth of business and progress towards industrialization.

Reinzie Wijetilleke, an eminent banker in Sri Lanka, concludes the forward to the book by observing that “This Book is a MUST for Professional Bankers who aspire to take up leadership in their organizations. Nadarajah is to be congratulated for the successful accomplishment of a difficult task.” As a person who is neither a professional banker nor an economist though with some exposure in working life to both the banking industry and economic development, I may add that this book will be equally useful to many others. It will appeal to the general reader who wishes to learn more about Sri Lanka, to the investor who is on the look-out for potential host countries, to the economists and mostly to students who wish to identify interesting areas of study for further research and deeper analysis.

Nada’s style of writing is simple and direct. He adopts a historical approach and both facts and views are succinctly presented. He avoids technical terminology to the extent possible. The different chapters are arranged in a systematic and logical manner to explain how banking and business in Sri Lanka evolved to the present status. At the same time the reader gets a glimpse of dynamics of social change over a long period.

Chapter 1 on the initial phase of banking includes interesting socio-economic phenomena such as the role of the Nattukottai Chettiars and the Guarantee Shroffs who acted as intermediaries between the international banks and the local population who were excluded from banking services due to communication problems and the tendency to disregard their needs. The chapters that follow cover banking in the early post colonial period, the advent of Ceylonese banks and the rapid inflow of foreign banks consequent to the liberalization of the economy in the late 1970s. How growing competition encouraged the local banks to improve their own standards and to spread out their branch network to outstations introducing more products suited to the rural population, is well documented. The book also covers the role of the Central Bank and the gradual introduction of the present regulatory framework and finally focuses on the need for greater sophistication in the banking services.

The section relating to growth of business and diversification of the economy is wider in scope and raises complex issues in analyzing the impact of socio-political factors and the policies and strategies adopted by successive governments. However, the writer attempts to present a non-technical, non-political and balanced view as to how the economy progressed over a period of time.


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He first reviews the transformation of the agrarian economy to plantation agriculture resulting in an export-import economy with exposure to a high level of volatility in markets and excessive dependence on primary products.

A broad overview of different stages in the post-independent period follows from the perspective of how each such stage influenced business growth. From 1957-1977, mainly under left-oriented governments, the country experienced a closed economy which impacted adversely on the business sector. A comprehensive coverage is given on the restrictive policies such as stringent exchange and import controls, import substitution policies, emergence of State Corporations, progressive nationalization of business ventures and plantations which marked this period resulting in severe erosion of investor confidence and inhibiting growth. This situation was further exacerbated by an insurgency in the south and the emerging threat of civil war in the north.

The last three chapters deal with the open economy era and the progress of major industries. The change of government in 1977 saw a fundamental departure in policy with the introduction of an open liberalized economy.

With relevant details, the writer records how the new policies and strategies such as relaxation of exchange control regulations, extensive liberalization of import trade, establishment of an Export Processing Zone, generous incentives to promote investment both foreign and local with special concessions for export-oriented industries, resulted in a strong resurgence of business with higher capital inflows and transfer of technology.

Continuation of the open economy and liberalization policies thereafter despite changes in political regimes led to considerable progress towards industrialization over the last three decades. Though plantation exports continued to be important, the process of diversification facilitated the growth of a more balanced economy. The writer also makes a critical assessment of the insurgencies in the south and the protracted civil war in the north which caused damage to the economy and neutralized the progress made.

Another important feature of the book is the inclusion of a sector-wise breakdown of the major industries during each period under discussion, together with detailed information of the specified business concerns. Such information will no doubt be of great value to potential investors as well as students who wish to embark on further study of the different stages of industrialization.

The book concludes on a positive note stating that with the end of the civil war Sri Lanka now has the prospect of becoming a newly industrialized country in the foreseeable future. Overall it also highlights the resilience of the business community and the fact that notable achievements have been made in banking and business since independence, especially in recent times, despite the drawbacks of political and social instability.


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Exports & Imports


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John Keells Tea Market Report: Record tea crop in March Brighter Nuwara Eliya BOP/BOPFs although lower to previous week is well above an average Western BOP/BOPFs selling above Rs 400. The plainer Nuwara Eliya's however were of a much weaker market. The Sri Lanka tea crop for March at 33.3 Mkgs. is the highest on record surpassing the previous best of 32.4 Mkgs. in 2008. High and Medium elevations have recorded increases of 80 percent and 72 percent respectively compared to the corresponding months of 2010 with Low Growns recording a 50 percent increase. The phenomenal crop increases in March has helped, recoup the crop deficit of 9.3 Mkgs, as at end February in addition to registering a 2.9 Mkgs. surplus to end March. The main contributory factor for the High crop intakes from the High and Medium elevations in March was on account of useful and frequent rains experienced in the first quarter of the year which is a period normally associated with dry weather. With such high crops presently being experienced it is unlikely that we would see a rush in the months of April, May.

In view of high crops in March the weekly auction quantities in April continued to rise with the Ex Estate sale of May 11, exceeding the 1.8 Mkgs. The large crops coupled with a drop in product quality have taken a toll on prices at last week's Ex Estate sale comprising of 1.6 Mkgs. Both Western High Grown BOP/BOPFs met with lower demand with prices declining Rs 20 to 30 on average. Brighter Nuwara Eliya BOP/BOPFs although lower to previous week is well above an average Western BOP/BOPFs selling above Rs 400. The plainer Nuwara Eliya's however were of a much weaker market. Uva's too were much lower declining Rs 20 to Rs 30 with a fair weight remaining unsold. Best CTC PF1s were firm to a little irregular, whilst others tended lower. High and Medium types too were Rs 15 to Rs 20 easier. A large volume of 3.8 Mkgs. of Low Growns came under the hammer

last week was the largest quantity on offer for 2011. There was widespread demand, however at lower levels. Hence prices declined Rs 5 to Rs 10 particularly for Pekoes and OPAs. Most BOP1s too declined at times fairly sharply. In the Small Leaf category the BOP SP continued to sell well, however the Below Best FBOPs and FBOPF1s and most Tippy varieties declined in value. There was excellent demand from Russia, whilst Iran, Iraq, Libya, Syria and Saudi Arabia lent useful support.

Western Teas Select Best BOPs declined Rs 20 to Rs 30, other good invoices shed Rs 10 to Rs 15, Below Best sorts eased Rs 10 to Rs 15 and more at times, plainer varieties shed Rs 10 to Rs 15 on average. Select Best BOPFs shed Rs 15 to Rs 20 on average, other good invoices declined Rs 10 to Rs 15 and more, Below Best sorts shed Rs 15 to Rs 20 and more as the sale progressed, plainer varieties eased Rs 15 to Rs 20 on average. Medium BOP/BOPFs declined Rs 20 to Rs 30 on average.


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Nuwara Eliya Teas Brighter BOPs declined Rs 20 to Rs 30, others were substantially lower. A few bright BOPFs sold well on special inquiry, most others declined substantially.

Uva Teas BOPs declined Rs 15 to Rs 20 and more at times. BOPFs shed Rs 20 to Rs 30 on average. Udapussellawa BOPs eased Rs 20 to Rs 30 and more for the poor leaf sorts. BOPFs shed Rs 30 to Rs 40 on average.

CTC Teas Select Best Low Grown PF1s were firm to marginally easier, others declined Rs 20. BP1s shed Rs 20 on average. High and Medium PF1s declined Rs 20 to Rs 25. BP1s eased Rs 10 to Rs 20 on average.

Low Growns Fair demand. Select Best OP1s maintained last levels, selected clean invoices appreciated Rs 5 to Rs 10, Below Best and poor sorts were irregularly lower by Rs 5 to Rs 10 Select Best BOP1s shed Rs 20 to Rs 40, Best types were steady, Below Best and poor sorts were lower by Rs.5/- to Rs 10. Select Best OPs gained Rs 5 to Rs 10, however the Best and Below Best types declined Rs 5 to Rs 10 poor sorts declined Rs 10 to Rs 15. Select Best OPAs appreciated Rs 5 to Rs 10, Best types were mainly firm, Below Best and poor sorts were irregularly lower by Rs 5 to Rs 10. Select Best Pekoes appreciated Rs 10 to Rs 20 however the balance tended lower by Rs 5 to Rs 10. Shotty Pekoe1s eased Rs 10 on average, Best types too were lower by Rs 10 to Rs 15, Below Best and poor sorts were irregularly lower by Rs 5 to Rs 10. Select Best and Best BOP/BOP.SPs maintained last levels, Below Best and poorer sorts eased Rs 5 to Rs 10. A few well made wiry FBOPs advanced Rs 10 to Rs 15 and at times more, however the others remained firm. Best FBOPs gained Rs 5 to Rs 10, Below Best and poorer sorts met with irregular demand and were mostly lower by Rs 5 to Rs 10. Select Best FF1s maintained last levels, Below Best types eased Rs 5 to Rs 8, poorer sorts declined Rs 5 to Rs 10. Select Best tippy varieties met with good demand and advanced a few rupees above last, Below Best and Best types met with irregular demand, poorer sorts shed Rs 10 to Rs 20.

Off Grades Select Best liquoring Fngs1s were lower by Rs 10 to Rs 15, while Below Best and poorer sorts depreciated by Rs 20 and more at times. Select Best and Best BMs depreciated Rs 5, while poorer sorts were lower by Rs 10 from last levels. All BPs depreciated Rs 10 and more at times. All Low Grown Fngs depreciated Rs 10 to Rs 15. Select Best BOP1As along with the Best declined Rs 10 to Rs 15, Below Best too eased by similar margin, poorer sorts too were firm to lower by Rs. 10/- to Rs.20/-

Dust Select Best Dust1s declined Rs 10 to Rs 15, while the Best Dust1s declined Rs 20 to Rs 30, Below Best types too declined Rs 30 to Rs 35, while the poorer sorts declined further. Clean secondaries shed Rs.25/- to Rs 30, while the balance declined further. Best Low Grown Dust / Dust1s eased Rs 20 to Rs 30, while the balance declined further.


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Challenging times for tyre industry Dr. N. Yogaratnam Robust automobile sales notwithstanding, tyre manufacturers have been facing rough weather in recent times. Unabated rise in the price of natural rubber, a key raw material due to tight supply conditions and increase in other crude-based inputs have dampened their margins and earnings. Given the strong demand, the tyre producers have been able to pass on some portion of the material cost increases to customers through periodic price increases. Nevertheless, according to some leading Indian tyre manufacturers, for the nine months ended December 2010, while net sales grew about 30 to 35 per cent year-on-year, net profits have fallen from Rs 137 crore to Rs 49 crore , about 180 percent reduction. Raw material costs as a percentage of sales for the first three quarters of 2010-11 have jumped to 77 percent from 58 percent seen in the same period last year. A lot, nonetheless, will depend on how rubber prices move.

Tyre technology Tyre is a high technology product, an amalgam of several otherwise incompatible materials like natural rubber, synthetic rubber, steel, nylon, carbon black, rubber chemicals etc. It absorbs shock, rolls freely, distorts in shape while cornering, braking and crossing obstacles, yet regains the shape quickly, provides road grip and offers driving comfort. Tyre making needs multidisciplinary technology involving physics, chemistry, engineering, metallurgy, textile technology and polymer science.

History of tyre development Pneumatic tyre was first invented in 1845 by Robert William Thompson, a Scottish engineer and inventor. He secured a patent, but it was not commercialised as the age of motor transportation had not arrived then. Four decades later John Boyd Dunlop, a Scottish veterinary surgeon, reinvented and patented the pneumatic tyre in 1888. Since then, several developments have taken place in the design and composition of the tyre. In the early years of motoring, a car tyre cost as much as US$100, but ran only for about 750 km. By 1900, the cost fell to US$30 and the mileage rose to 20,000 km. With the development of radial tyres in 1946 and further improvements in tyre design with steel, polyester and aramid belt, life of tyre tread has risen to over 160,000 km. Retreading can prolong its life many times. The first aircraft tyre was produced in 1910 and the truck tyre emerged in the US around 1917. Phenomenal developments took place during World Wars I and II and the industry has made tremendous

Tyre manufacturers moving into

Asian region to cut costs

John Boyd Dunlop

Robert William Thompson


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progress since then, developing pneumatic tyres suited to different vehicles such as bicycles, motorcycles, passenger cars, trucks, tractors, earthmovers, aircrafts and other off-the-road vehicles. Solid tyres have also been developed for several shop floor, industrial and commercial applications. However, cycle tyres have not seen much technological development though a number of cycle tyre units have come up the world over. Tyres for motorcycles, other two and three-wheelers are made in small factories, but tyres of passenger cars, trucks, buses and the like are produced in big factories.

Tyre basics The pneumatic tyre has undergone many changes in response to rising demands of modern transportation. Two features may remain unchanged at least in the near future - use of pressurized air to support the load and use of rubber in the tread to provide traction. The air cushion improves riding comfort and helps spread the load to a larger contact area with less stress concentration.

Tyre is capable of operating on a variety of surfaces such as highways, unpaved terrains and even on soft sand beaches. Modern vehicles owe their maneuverability to rubber in the tread and its capacity to provide dry tractive ratio, i.e., longitudinal shear divided by the contact pressure greater than 1. Pneumatic tyre has a toroidal structure with typical cross-sectional geometry. Its major components are the tread, belts, carcass plies, inner liner, bead, chafer, apex or head filler and side walls. Some tyres have white side wall component with a protective black cover strip. Tread/cap: Tread or cap is the part coming into contact with

the road. Though it serves to protect the tyre casing from cuts/punctures, its major role is to provide wear resistance and the critically important traction for generating the force for vehicle manoeuvring. The pattern mould in the tread serves mainly to improve road grip in rain or on snow, and it plays an aesthetic role. Tread patterns are major sources of excitations that contribute to ride vibrations and tyre noise. Belts and belt cap: Tyre belts located between the tread and the carcass plies are typically made of two cross plies of tyre cord made of cotton, rayon, nylon, steel or aramid. Fibre glass belts were popular in the 1970s and early 1980s. Introduction of belts in the belted construction of the late 1960s improved the performance of cross ply tyres. Belts in radial tyres are essential to bolster the radial carcass in the circumferential direction. The belt reinforcement provides a solid foundation for the tread and vastly averts interfacial slippage between the tyre and the road during free rolling. Cross ply tyre casing will deform during road contact without belt reinforcement, forcing the tread elements to slip during free rolling. Belted radial tyre provides better handling generating more efficient lateral force, as the slippage is only moderate during normal cornering. A zero degree (circumferential) nylon over-wrap or cap is provided over the belts. This checks their growth due to centrifugal force and improves the tyre's durability under high speeds. The cap also smothers the formation of standing waves at high speeds. Carcass: Carcass is made of rubberized fabric such as rayon, polyester, nylon, steel or aramid. This layer functions as a membrane or tensile structure whose surface tension caused by the load on the tyre, is carried mainly by the cords attached on both ends of the tyre's beads.

Tyre making in progress


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Inner liner: Inner liner is the innermost layer of a tyre body, typically made of low permeable rubber such as halobutyl, to slow the tyre's loss of air pressure due to diffusion. The inner liner is also important for reducing the diffusion of oxygen in the tyre body, particularly in the belt area. Bead and chafer: Bead is a hoop typically made of bronze coated high tensile multi strand wires or cables. Usually coated with rubber, it is often fabric wrapped to protect the adjacent carcass plies. The pair of bead rings provide anchor for the carcass cords and support the cord tension. For a tubeless tyre, the bead also makes the seal, through a tight interference fit against the wheel rim flange that contains the internal air pressure. Forces generated in the tyre road contact are transmitted through the bead and rim contact to the vehicle. The chafer is an abrasion resistant rubber sometimes reinforced with fabric, to protect the tyre's lower sidewall from chafing against the rim flange. Apex and bead filler: This is a component with triangular cross section that fills the void between the carcass ply and its turn-up around the bead. It serves to strengthen the area above the bead to remove rim chafing. A larger bead apex is often used in the radial tyre carcass, to stiffen the lower sidewall and enhance both the lateral and the torsional stiffness of the tyre casing. Side wall: This protects the carcass. The side wall compound requires good flex life and resistance against weathering and ozone cracking. The side wall on the out-board side is made slightly thicker for more protection against abrasion with road curbs.

Main tyre types With the advancement of technology, mainly five types of automobile tyres are produced - cross-ply, radial ply, bias-belted, steel or aramid-belted radials and tubeless tyres. Cross-ply tyres are the oldest type with casings made of two or more plies or layers of fabric which run diagonally from bead to bead, crossing one another at an angle of about 40o at the crown. Tyre strength and load-bearing capacity are indicated by the number of plies. Radicalization has turned out to be an important milestone in tyre technology. The radial tyre has core threads of the casing run at an angle of 90o to the direction of travel; i.e., they run radially from bead to bead. Between the casing and the thread, there is a stabilizing belt made of inextensible material on the top of the carcass but below the thread. This thread makes the tyre stronger. Bias belted tyres are made based on the concept of belt from radial construction. The radial construction concept is extended to steel and the carcass and the belt material are made with steel cords. Performance of steel belted tyres is superior and they became very popular. The method of manufacturing tyre had not changed much in about 100 years from the invention of pneumatic tyre, but the changes thereafter have been rapid. Traditional tyre making was slow and labour-intensive, requiring many separate operations and generating considerable waste. Michelin made a revolutionary departure from this in 1997 when it introduced the C3M process. The C3M process uses a single, solid insert mould that reduces the process to a single phase instead of the traditional seven steps in tyre manufacture. It allows tread to be created with enhanced accuracy. The C3M process improves performance balance between wear and grip, especially in radial tyres. The C3M process brought about dramatic savings in capital costs, factory space, labour and waste, besides offering operational flexibility. Even a complete plant could be airlifted and erected in 24 hours whenever extra capacity was needed and it could be dismantled and shipped out just as rapidly. Taking the Michelin cue, other tyre majors have announced new proprietary manufacturing methods, each claiming large savings - IMPACT (Goodyear), MMP (Continental), MIRS (Pirelli) and BIRD (Bridgestone).


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Exciting developments (a) Run-flats: Then came the development of run-flat tyres and intelligent tyres. Run-flats are capable of running with loss in air pressure due to puncture or other factors, at a speed of around 80 km for a distance up to 100 km. Runflat tyre, with an insert mounted on the wheel or a rubber internal component to withstand high deflection and the vehicle load during deflated run of the tyre, may become commonplace in the near future. (b) Intelligent tyre: Intelligent tyre has a Tyre Pressure Monitoring System (TPMS) or other monitoring or reporting systems aided by electronic sensors. A computer chip embedded in the intelligent tyre monitor tyre pressure and temperature, wheel load, grip level and wear status and communicates with vehicle dynamic controllers and driver assistance systems. This helps the driver know the tyre condition every now and then and keeps the tyre in perfect inflation pressure. Reduction in rolling resistance makes the ride smoother and brings in economy in fuel consumption. Rolling resistance has been brought down by tyre design and compounding. Studies have shown that under-inflation of 0.5 bars would enhance bars would enhance rolling resistance of the tyre by 12 percent, which in turn would lead to 2 percent higher fuel consumption in city traffic. At the same time if rolling resistance is reduced by 10 percent, it will improve fuel economy by 1.5 percent. The tyre designers are also looking for developing an energy supplying piezo element to replace the battery of the sensor. Steps are also on to automatically monitor the tyre inflation, running temperature and revolution count data. A system that combines low tyre pressure monitoring and self-inflation capability to maintain constant air pressure may also emerge in the near future. Super single: Another advancement is development of super single tyre with wide tyre base, for commercial trucks that carry heavy loads. This single tyre can replace the twin tyres at the rear and middle points of heavy trucks. Lower weight of the single tyre also brings down rolling resistance to the extent of 12%. The single tyre has been found to improve the truck's stability and reduce the pavement damage to a significant extent due to the wider base of the tyre. (d)Self-sealing: Self-sealing tyres are also under development to ensure extended mobility avoiding punctures. Green tyres are getting perfected, integrating silica into the rubber compound to reduce fuel consumption, carbon dioxide emission and enhance safety and life of the tyre tread. (e) Nitrogen inflation: Inflation of the tyre with nitrogen gas in place of air is catching up with the time. Nitrogen gas can maintain tyre pressure at the optimum level for a longer period and drastically reduce the damaging effect of rubber oxidation that weakens tyre rubber. Nitrogen inflated tyres can bring down tyre blowouts in hot operating conditions. They would be better suited for regions of elevated summer temperatures in the gulf countries, India, and in other arid zones.

Other advances Wet tyres have been developed for sports vehicles for smooth ride on dry roads and slick tyres for trouble-free ride in damp conditions. Solid tyres of aspect ratio lower than 0.35 with carbon fibre ring wheel has been developed for military combat vehicles. The wheel rim is bonded to soft polyurethane foam to absorb shocks. Such tyres are better suited to eliminate tyre blowouts. Yarns of aramid are made use of in reinforcing sidewall of the tyres to make it highly resistant to cuts and punctures. Such sidewalls offer higher puncture resistance of approximately 35 percent. Aramid is also used


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to make tyre belt. Its advantage is less weight for the tyre. Replacing steel components of the tyre with aramid has been found to reduce tyre weight by 20 percent. Low tyre weight abets savings in fuel consumption. Latest in the technological breakthrough is the development of self-inflating tyre (SIT). It was patented by the Prague-based company Coda Development. A pump system is built into the tyre. While the tyre rolls, the peristaltic pump forces air through a liquid filled tube to maintain pressure at a set level. The tyre is reported to eliminate the need for pressure checks, making it maintenance-free. Its developer, Frantisek Hrabal of the Coda Development Company, won the 2009 Tire Technology of the Year Ward in Hamberg.

Tyre labelling Tyre performance is getting more attention in many countries. The European Union has enacted legislation on tyre labelling. Tyres entering the European market, whether indigenous or of overseas origin, should bear label on fuel efficiency, rolling resistance, wet grip and noise levels. The European Tyre and Rubber Manufacturers Association has supported the move. This initiative is expected to help the consumers to purchase tyres that surpass the limits set in the vehicle safety regulations.

Outsourcing In recent times, owing to high labour cost in developed countries, tyre majors have been looking for contract manufacturing or putting up production ventures in regions where labour cost is low and raw material supply is not a problem, either independently or jointly with local manufacturers. Some of them have established production facilities and R&D units in China, India and other Asian countries to make production cost-competitive. Developed economies now find outsourcing cheaper than indigenous production. Outsourcing is not confined to manufacturing. In research and product development, many are drawing on the vast pool of technical manpower in India and China. The expanding implementation of microprocessor technology in on-board automotive systems, along with advances in sensor technology and improved control algorithms, is assisting integration of the automobile's active suspension components and braking control systems with sensor information on the vehicle's attitude and the tyre's deformation and slip rate, leading to the development of the so-called 'small tyre'. The many developments in the tyre industry are helping production of tyres with an unprecedented balance and other advanced performance characteristics - more durability, better uniformity, shorter product development cycles, faster 'speed to market' etc. All these indicate that the tyre and tyre products industry is passing through exciting and challenging times.


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Gem, jewellery exports rise Charumini De Silva

There is a significant growth in gem and jewellery exports in the first quarter of this year. Speaking to Daily News Business National Gem and Jewellery Authority (NGJA) acting Director General Ajith Perera said there is a 10.6 percent increase in the total export of gems. The value generated increased from Rs 2,242 million to Rs 2,479 million compared to the corresponding period last year. He said a marked improvement was indicated in the gem and diamond studded jewellery segments. The diamond studded jewellery exports recorded a 89.8 percent growth while generating Rs 111 million. It was Rs 59 million in the first quarter last year. The gem

studded jewellery exports grew from Rs 343 million to Rs 361 million, marking a growth of 5.1 percent. “The NGJA is pleased with the first quarter performance and is confident that the industry will record a better growth this year if the momentum continues. We encourage value added gems and jewellery exports as the exporters could gain higher returns. “The value addition of converting gems into jewellery has benefited exporters, which has also encouraged them,” Perera said. He said they are expecting a growth of 10 percent compared to last year’s total growth, while expecting total exports of this sector to be Rs 50 billion. With the announcement of the Royal Wedding; there was a huge demand for Sri Lankan Blue Sapphires from all over the world. The NGJA also promoted Blue Sapphires via the website and received a commendable response. Sri Lanka will participate in the Jewellery Shanghai Show in China from June 16 to 19 with a participation of around 40 gem and jewellery industrialists. The NGJA will be organizing the Sri Lankan pavilion and is looking forward to increase the business activities throughout the show as NGJA is eagerly focusing on the Chinese market. He said China and India are emerging well in the gem and jewellery industry. The NGJA will be participating in four leading gem and jewellery shows. “We are also focusing on the Hong Kong, Thailand, Singapore, Malaysia and Turkey,” he said. “We are organizing several promotional activities in Turkey as it is one of the countries that has a thriving gem and jewellery industry. “Another reason to select Turkey is that the country is neighbouring Russia. Russia has a great potential, but the Custom formalities are much higher. Hence, having promotional activities in Turkey will help Sri Lanka to attract more buyers from Russia,” Perera said.


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Govt. targets industrial share of GDP to reach 35% by 2015 The sector grew marginally from 28.6% of GDP in 2009, to 28.7% in 2010

Sri Lanka wants its industrial sector’s share of GDP to increase to 35 percent by 2015 from 28.7 percent in 2010, which grew marginally in the first full year of peace from 28.6 percent of GDP in 2009, and a top government minister says its overseas missions would have to aggressively promote Sri Lankan products and discover new markets.

Minister of Industry and Commerce Rishad Bathuideen in a statement issued by his ministry said, the industrial sector must reach 35 percent of GDP by 2015 with focused strategies dominated by public private partnerships.

He was commenting on a report prepared by a 10-member task force he had appointed to fast track the development of the industrial sector. Bathuideen recently presented the first copy to Senior Presidential Advisor and Economic Development Minister Basil Rajapaksa.

"Through the offices of the Trade Counselors in our overseas missions, details of our local products and services will be highlighted and new markets identified," the industries minister said.

He called upon ministry officials, heads of departments and commerce representatives posted worldwide to chip in with their contributions and work towards achieving the country’s economic goals.

"Regular progress reports are being called from all units under the ministry," Bathuideen said.

In 2010, the industry sector recorded the highest sectoral growth of 8.4 percent, compared to 4.2 percent the previous year. Its share to GDP, however, grew marginally from 28.6 percent in 2009 to 28.7 in 2010, according to Central Bank data.

Over the past few years, the services sector has received much attention and is expected to be further developed on the ‘five-hubs’ concept (air, sea, commercial, energy and knowledge). The agriculture sector has also received a lot of political attention as global food prices continue to surge.

However, The Central Bank recently warned that the industrial sector should be given ‘high’ priority.


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Economists have argued that Sri Lanka needed to develop its manufacturing base so that jobs and incomes could be generated for the majority of Sri Lankans in the post conflict economy; this is because the agriculture sector has its limitations and it would take a lot more time to prepare a skilled workforce from rural Sri Lanka proficient in English and IT to take up high-paying jobs in the services sector.

"Taking into account the contribution by the Industry sector to the national economy, the improvement of productivity in the Industry sector should also be given high priority. To make Sri Lanka globally competitive, the Industry sector needs to be upgraded with new technology and be diverted towards value added niche products," the Central Bank said in its Annual Report 2010.

"Also, there should be an increased emphasis on research development and innovation, and improved infrastructure facilities, particularly the provision of uninterrupted power supply to eliminate nonproductive time of machinery and reliable transport facilities to minimize unproductive worker time. Maintaining industrial peace is also important in this context," it said.

The Ministry of Industries and Commerce recently launched a publication titled ‘Kirula’ (Crown) which would provide up-to-date information on investment opportunities island-wide, facilitate overseas business contacts for exporters, and open up market for our local products and services in the international trade circles. The publication will also provide information about current trade events and activities both local and overseas and focus on issues of economic, cultural and technological importance.

Officials from the Ministry of Industry and Commerce also publish a monthly tri-lingual publication ‘Mansala’ for the general public in Sinhala, Tamil and English, copies of the publications can be found on the ministry website www.industry.gov.lk.


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Stock Market


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Weak market sentiments Weak market sentiments were prevalent in the Colombo Stock Exchange during the last week with little buying pressure building on indices. Benchmark ASI dropped notably by 99.85 points WoW (-1.33 percent) to close at 7,356.97 and more sensitive MPI witnessed loss of 124.34 points WoW (-1.79 percent) to end the last week at 6,822.77. Average daily turnover of the last week stood at Rs.1.7 billion (-4.82 percent WoW) Foreign participation was slightly increased to 18.57 percent of the overall market activity and at the end of the week foreign selling outweighed foreign buying by Rs. 721.4 million.

The Colombo Stock Exchange continued its downtrend with the start of the week on Monday for the fifth consecutive day and ended in the negative territory with a massive setback as selling pressure intensified during trading hours. Both ASI and MPI closed at 7,345.48 and 6,855.27 with heavy losses of 111.34 points (-1.49 percent) and 91.84 points (-1.32 percent) respectively. Central Finance Company Plc (Rs.252.7 million), John Keells Holdings Plc (Rs.106.5 million) and Lankem Development Plc (Rs.65.7 million) made strong contributions to the daily turnover while counters such as Free Lanka Capital Holdings

Plc and Pelawatte Sugar Industries Plc were actively traded during the day. Trades at the Colombo Stock Exchange were passive on Tuesday as both indices varied around the previous day's levels. ASI closed at 7,349.17, up marginally by 3.69 points (+0.05 percent) while MPI lost 18.73 points (-0.27 percent) to close at 6,836.54. Commercial Bank Plc (Rs.387.5 million) turned out to be the top contributor to the turnover with several off-the-floor deals. In addition noteworthy contributions to the turnover were seen from National Lanka Finance Plc (Rs.94.4 million) and Central Finance Company Plc (Rs.49.9 million). Meanwhile counters such as Free Lanka Capital Holdings Plc, People's Leasing Finance Plc and Union Bank Plc were traded heavily. On Wednesday the Stock Market bounced back to green though gains were modest to make note of. ASI was up by 14.61 points (+0.20 percent) and closed at 7,363.78 while MPI recorded a loss of 20.17 points (-0.30 percent) to close at 6,816.37. Lankem Ceylon Plc (Rs. 185.7 million), Brown and Company Plc (Rs.108.5 million) and Colombo Fort Land and Building Company Plc (Rs.72.7 million) were the main contributors to the turnover. These counters were also traded intensely to attract active level of investor participation. Positive gains in the market were carried forward to Thursday. However the gains were meager to record a significant impact on indices. ASI gained 13.87 points (+0.19 percent) to close the day at 7,377.65 and liquid MPI increased by 19.96 points (+0.29 percent) to close at 6,836.33. Larger contributions were made to daily turnover by stocks such as Commercial Bank Plc (Rs.265.5 million), Colombo Fort Land and Building Plc (Rs. 218.1 million) and Pan Asia Bank (Rs.193.4 million). In addition high investor participation was seen in Free Lanka Capital Holdings Plc, Brown and Company Plc and Lankem Ceylon Plc. The market wrapped its weekly operations on Friday, demonstrating high level of intra-day volatility. Albeit encouraging gains in the morning session, the market lost its steam in the afternoon to end in the red zone. ASI weakened by 20.68 points (- 0.28 percent) to end trading for the week at 7,356.97 and more sensitive MPI dropped by 13.56 points (-0.20 percent) to close at 6,822.77. Commercial Bank Plc (Rs.704.2


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million) sustained its position at top as the top contributor to the turnover followed by Colombo Dockyard Plc (Rs.119.9 million) and Colombo Fort Land and Building Plc (Rs.89.1 million). In the meantime Pan Asia Bank Plc, Tess Agro Plc and Union Bank Plc were aggressively traded during the day. The information contained in this report, researched and compiled for purposes of information do not purport to be complete description of the subject matter referred to herein. In preparing this report care has been exercised to collect information from sources which we believe to be reliable although we do not guarantee the accuracy and completeness thereof. Lanka Securities (Pvt) Ltd. and/or its affiliates and/or its directors, officers and employees shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner. Lanka Securities Research


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Markets get boost from bin Laden death LONDON (AP) — The death of al-Qaida leader Osama bin Laden has helped lift the mood in the markets all around the world Monday at the start of an extremely busy week of economic news.

President Barack Obama’s announcement that the man who inspired the deadly Sept. 11, 2001, terror attacks in the United States had been killed in an operation by special forces in Pakistan, prompted an increase in investors’ appetite for risk. That usually benefits assets like stocks but dents widely-considered financial safe havens, such as gold.

"The immediate impact of Osama’s death has been a boost to risk appetite although the U.S. has also issued a travel alert because of ‘enhanced potential for anti-American violence,’" said Philip Marey, an analyst at Rabobank International.

However, due to holidays in Britain, China, Hong Kong, Malaysia, Singapore and Thailand, the reaction hasn’t been too substantial.

In Europe, the CAC-40 in France was 0.4 percent higher at 4,122 while Germany’s DAX rose 0.8 percent to 7,574, with airlines, such as Air France-KLM SA and Lufthansa AG, doing particularly well.

Wall Street was poised for a bright opening too later — Dow futures were up 0.7 percent at 12,842 while the broader Standard & Poor’s 500 futures rose 0.7 percent to 1,368.

Despite the knee-jerk response to news of bin Laden’s death, analysts said the markets will soon turn towards more fundamental matters for their direction, such as the state of the global economic recovery and how central banks respond to the threat of higher inflation.

Though bin Laden’s death may have a beneficial short-term impact on U.S. consumer confidence, Rabobank’s Marey said the main reasons for low confidence have not disappeared — unemployment is still high and so are gasoline prices

The coming week is awash with key economic developments that could have a huge bearing on all types of markets in the run-up to summer.

In the U.S., a run of economic data, which begins later with the monthly manufacturing survey from the Institute for Supply Management, culminates on Friday with the April nonfarm payrolls data from the U.S. government. That often sets the tone in markets for a week or two after their release.

In Europe, investors will be keeping a close watch on interest rate decisions from the European Central Bank and the Bank of England. Neither is expected to change interest rates though the ECB is tipped to indicate that it will follow up April’s first interest rate increase in nearly three years with another rise in June.

Figures earlier reinforced market expectations that the ECB will sound a hawkish tone on Thursday.

The monthly manufacturing purchasing managers’ index — a broad gauge of activity — for the 17 countries that use the euro was revised up to 58 in April from the initial estimate of 57.7 — April’s reading indicated that the sector was enjoying its second-strongest monthly pace of expansion since August 2000.


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"The survey reinforces belief that the ECB will pull the interest rate trigger sooner rather than later," said Howard Archer, chief European economist at IHS Global Insight.

That belief has helped bolster the euro currency over the past couple of months despite ongoing debt problems across the eurozone, most notably in Greece, Ireland and Portugal.

It has also helped shore up the currency against the dollar Monday, even though the U.S. currency has been supported elsewhere by the news of bin Laden’s death.

By mid morning London time, the euro was 0.2 percent higher at $1.4827 while the dollar was 0.4 percent firmer at 81.55 yen.

Elsewhere, oil prices eased off 2 1/2-year highs to below $113 a barrel. Benchmark crude for June delivery was down $1.40 at $112.53 a barrel in electronic trading on the New York Mercantile Exchange.

Meanwhile, an ounce of gold was down 0.3 percent at $1,551, down from an earlier record of just above $1,575 an ounce.


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Bourse continues to dip Royal Ceramics, Distilleries and Asian Hotels generate turnover The Colombo bourse lost more ground yesterday, though not as steeply as in the previous day, with the All Share Price Index down 57.33 points (0.79%) and the Milanka down 43 points (0.64%) on a turnover of Rs.1.8 billion, down from the previous day’s Rs.5.7 billion, with 168 decliners way ahead of 37 gainers.

Business volumes yesterday largely came off Royal Ceramics, Distilleries, Asian Hotel Properties and Seylan Merchant Bank, brokers said with Royal Ceramics and Distilleries being the main turnover generators.

Analysts noted that the indices were dragged down with sharp downturns in many pricey shares on very thin volumes.

One million shares of Royal Ceramics were crossed at a price of Rs.165 with brokers saying there was interest in the counter during the afternoon trading.

The share closed Rs.8.40 up at Rs.158 with nearly 4.5 million done between Rs.148 and Rs.163.

Distilleries lost 70 cents to close at Rs.180 on nearly 1.4 million shares traded between Rs.179 and Rs.180 with two crossings of parcels of 640,000 each at the Rs.180 price.

Asian Hotel Properties with a million shares crossing at Rs.188 closed Rs.1.80 up at this price with transactions on the trading floor amounting to just 3,700 shares transacted between Rs.185.10 and Rs.190.

"Asian Hotels has been more or less stagnant at this price," a broker said.

Seylan Merchant Bank saw high volumes with nearly 57.6 million shares traded between Rs.190 and Rs.2.10 closing 10 cents down at Rs.1.90. A large parcel of nearly 26.8 million shares at a price of Rs.2 was among the trades.

Brokers expected market activity to remain subdued at present levels for some time but said that current price levels may encourage some strategic deals with buyers finding prices attractive at current levels and sellers also seeing exit opportunities for large quantities.

CIC and Tokyo Cement (non-voting) also saw crossings – two parcels of CIC of 143,600 shares each changing hands at Rs.151 and two parcels of Tokyo X of 804,100 shares transacted at Rs.44.Sri Lankan losses contract in 2010


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Bourse closes flat Browns, Lanka Aluminum, Fort Lands & Central Finance attract retailers

The Colombo bourse closed the week virtually flat with the All Share Price Index up a marginal 1.98 points (0.03%) while the Milanka dropped 10.47 points (0.16%) on a turnover of Rs.1.7 million, down from the previous day’s Rs.1.8 billion, with 107 losers ahead of 89 gainers.

"The market was quiet although the All Share Price Index was up 30 points during early trading," Prashan Fernando of Acuity Stockbrokers said. "At the close of trading, the All Share was only marginally up while the Milanka was down 10 points."

He said that retail play was evident in the stocks that generated much of the day’s business volumes – Browns, Lanka Aluminum, Colombo Fort Lands and Central Finance to a lesser extent.

Analysts said that forced selling, with insistence that if the T+3 deadline is not met, forced selling must begin on T+5 was a market damper. Some day traders have authorized brokers to hold sales proceeds against purchases, protecting themselves against forced sales.

Browns was the day’s top turnover generator gaining Rs.9.30 to close at Rs.356 on nearly 0.5 million shares done between Rs.349.80 and Rs.359.70. The counter contributed Rs.163.1 million to turnover.

Sampath, where two crossings totaling slightly over 400,000 shares at a price of Rs.277 were seen, was up Rs.1.20 to close at Rs.276 on the trading floor.

Brokers said that Lanka Aluminum on which there has been a lot of recent speculative play gained Rs.18.20 to close at Rs.95 on over 1.1 million shares done between Rs.77.20 and Rs.100.

Colombo Fort Lands gained Rs.2.40 to close at Rs.86.30 on slightly over 1.1 million shares traded between Rs.80.20 and Rs.89.90 while Central Finance closed Rs.27.10 up at Rs.1,450 on 48,900 shares done between Rs.1,440 and Rs.1,465.

JKH and Ceylon Guardian also saw two crossings – 100,000 JKH at Rs.280 and 100,000 Guardian at Rs.380.

HNB announced a one for six rights issue on both its voting and non-voting shares with the voting shares priced at Rs.219.50 and the non-voting at Rs.119.50.


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The bank also said that it plans a private placement of 13.5 million new voting shares at a price of not less than Rs.235 per share subject to CSE and shareholder approval.

These shares would be placed with institutional investors, both foreign and local, to be identified by the managers to the issue with the shares issued to those making the best offer/offers. Investors in the private placement will not be entitled to the rights issue.

Dividends were also announced by the DFCC Bank where a final dividend of Rs.3 per share for 2010/11 will be paid after shareholder approval at the June 30 AGM. The shares will trade XD from July 1 with payment on July 11.

Piramal Glass announced a dividend of Rs.0.30 per share first and final for 2010/11 following shareholder approval at the July 19 AGM. The shares will trade XD from July 20 with payment on July 28.

Equity Two announced a final dividend of Rs.0.20 per share for 2010/11 with shareholder approval at the June 21 AGM with the shares trading XD from June 22 and with payment on June 30.

Pegasus Hotels announced a first and final dividend of Rs.0.30 per share for 2010/11 subject to shareholder approval at the June 17 AGM. The shares will trade XD from June 18 with payment on June 28.


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ICT


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Innovations in learning and teaching

The ICT and BPO Era of Sri Lanka Welcome to the thirty seventh edition of the regular column "ICT and BPO Catalyst - To Make Sri Lankan Economic Dreams a Reality!" Here in this column, with the support of The Island – Financial Review, we are on a journey to increase the awareness on Information and Communications Technology (ICT) and Business Process Outsourcing (BPO) sectors that are set to play a crucial role in our economy in this new development era of our country. We also discuss a wide range of topics around Business in general, Education, Entrepreneurship and Society at large.

Innovation in Education We discussed about mobile-learning last week. I thought of discussing some further innovative inventions that relate to teaching and learning. These are technology based global organizations, however; I believe they would provide some good guidance and learnings for us here in Sri Lanka.

The US based "Leap Frog" is a company that combines technology with education in order to create toys that help kids to learn in a fun and interesting way. Parents can design a learning path online using the Leap Frog website, and this is a customized plan based on their child’s age and abilities. Various toys that are part of Leap Frog are used within the learning path to further enhance the learning experience. , Parents will have to buy these toys online from the website for their kids. This has become an innovative method of cross-selling for the company as well.

Among other offerings, the web based "Second Life" offers in the field of education, virtual education solutions to amplify existing curricula and to create new models for engaged collaborative learning. In the 3D virtual world in Second life, users can socialize, customize an avatar to connect, meet other residents or travel throughout the world. Students can create virtual worlds to learn collaboratively. The innovators expect that apart from fun and engagement from this web based solution, people would use it for purposes such as prototyping, simulation, meetings, conferences, learning and teaching. Second Life also offers education in collaboration with New Media Consortium, a group of Universities that deliver their courses in the virtual community.

Interestingly many online businesses in the education sector are coming forward in a strong manner. Second Life and Leap Frog are good examples. A trend in this is that other businesses are either transformed or leveraged to form successful new education business. For example, Second Life was a web platform to have a virtual life, through Second Life Education the virtual world is being used to deliver education online. Leap Frog was a toys business, now they deliver online education to young kids so that kids’ toys can supplement kids’ online education.


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Tutor.com is a company that specializes in offering tutoring service 24×7. They have tutors accessible via their website at any time for a monthly fee to access their services. Additionally they have to pay a subscription. Students can upload their problems online to an interactive whiteboard and walk through the problems with a tutor.

Apple is another innovator in education. They have revolutionized the sphere by allowing the use of Apple products such as the iPad, iPhone and iPod Touch as the platform to be accompanied by education apps (software applications/programs). When learning through education apps, students download the relevant apps according to subjects such as maths, science, English etc and learn through the use of those apps.

Learning Science Pty Ltd from Adelaide Australia was a winner of 10 of Australia’a most innovative companies as part of global small business excellence award. This was a result of designing Reading Doctor Software - a fun, effective, scientifically based, specialist made literacy improvement software product for children learning how to read.

"Blackboard" mobile Learn takes interactive teaching and learning to mobile platforms, giving students and instructors access to their courses, content and organizations on a variety of mobile devices, including Android and BlackBerry phones, HP webOS devices, and iOS-powered devices. I have been a user of Blackboard e-learning system during my Masters studies, but never had the mobile learning experience with the same product. Blackboard Mobile Learn extends school’s existing Blackboard Learn systems by making much of the content available on mobile devices. Students and instructors can access documents in multiple formats, post announcements (instructors), create threaded discussion posts, upload media as attachments to discussion boards and blogs, create content items within the course map, and comment on blogs and journals, all on the mobile devices they prefer.

The education division of the software & information industry association (SIIA) named Mobl21 as the "most innovative education product or service" mid last year. The software & information industry association (SIIA) is the principal trade association for the software and digital content industry (US based). Mobl21, a mobile learning platform has been designed for educators to create learning content quickly and effectively. It also allows learners to create their own study material and for publishers to create content that will complement formal text and online courseware. Mobl21 is an easy to use platform to deliver educational mobility. Mobl21 is accessible enough for individual teachers and students to adopt, and scalable enough for institutional and enterprise adoption.

Researchers from University of Texas have studied the features of these new learning innovations. According to them, a feature that is repeated again and again in the companies that belong to the new era of learning is the new paradigm of learning. These are companies that have understood learning in a different way using the new paradigms of learning such as constructivism, student-centred learning environments, situated cognition, communities of practice, distributed cognition, everyday cognition among others as part of their formula for their success.

Several environmental factors across the world are driving the demand for lifelong learning in the twenty-first century including abundant access to information, rapid technology changes, increased global interactions, industry shifts, as well as increasing entry level credentials and skill requirements.

E-learning comprises all forms of electronically supported learning and teaching. e-learning encompasses several different types of technology assisted training, such as distance learning, computer-based training (CBT), or web-based training (WBT). Simulations are also used in a training delivery method to mimic the processes, events, and circumstances of the trainee’s job. This includes business games, case studies, role-playing, and behaviour model type of simulations. Behaviour modelling is primarily used to build skills of


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the trainee. This includes interpersonal skills, sales techniques and more typically in a live model- video tapes.

ICT/BPO Industry News As mentioned last week, in Sri Lanka, a MoU has been signed between the higher education ministry and Mobitel to use Mobitel’s mLearning. Mobitel mLearning will be used as a national higher education learning platform through the national online distance education service (NODES). Traditional learning environments mixed with cutting edge technology will support educational development. This initiative will enhance facilities at NODES to create more accessible centres throughout the island.

Sri Lanka railways and Sri Lanka telecom - Mobitel launched Sri Lanka’s first mobile railway ticket reservation system in 2009, to offer railway commuters the convenience of reserving tickets for intercity travel over a mobile phone call. Under the initial phase, the service was confined to the Colombo-Kandy route. The second phase of this project has now been announced. The new service extends intercity travelling to Vavuniya and Batticaloa through its advanced reservation system, and plans are under way to extend the service to Omanthai in the very near future.

Until Next Week If you have any questions, you can contact me and I am more than happy to discuss topics and questions you may have through this column. Also, while I am writing this column to increase the awareness on ICT/BPO, I also speak to groups as a presenter about the ICT/BPO sector, its benefits, youth leadership, communications skills and entrepreneurship. So, if you have an event or a group that you would like me to talk to, I can see if I can make some time for such activities.

I can be contacted via [email protected].


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Insights to Sri Lankan Facebook pages Facebook, the social media giant, has now reached a 665+ million user base with 80 million new accounts in the first quarter of 2011. It is with no doubt that it has hit the Sri Lankan context with a 47.2% online penetration that is a user base of 830k+ taking the country into the 75th position of the global Facebook list. However, Sri Lanka experienced a 7% drop in the user base that is over a 64k+ users. Mark & Comm Limited (MNC), a strategic marketing, reputation and communications partnered with Social Baker, the heart for Facebook statistics and a leading Facebook App developer, to bring in insights into Facebook pages in Sri Lanka and how it is misused when it comes to brand engagement, and the measures taken to tackle and change perspective. Users from Sri Lanka If we take the global scenario, nearly 30 % of the new account registrations have been made by users in the age group of 18-24 years of age - this remains the strongest one on Facebook and at this moment represents over 210 million Facebook users overall. This is the same with Sri Lanka – 45% of total users in Sri Lanka are from the age group of 18-24 years of age.

Second biggest age group on Facebook global is from the 25-34 years age group with almost 20 million new account registrations .This age group totals 174 million Facebook accounts as of now. It is trending the same in Sri Lanka with this age group being the second biggest age group with a 33% share. Interestingly, Sri Lanka boasts a massive male user base – 65% when compared to the 35% that make the female user base. Founder and the Chief Brain of MNC, Thanzyl Thajudeen, states that Facebook is more of a masculine type when it comes to Sri Lankan Facebook pages from a branding point of view than users point of view– It’s highly visible that brand marketers and agencies hold massive promotional and content that is mostly masculine type but yet the female audience is just starting to pick up on Facebook in Sri Lanka with self-expressive brands on the rise. The third biggest gain of Facebook users in the first quarter of 2011 has been in the age group of 35-44 years of age, almost 11 million new registrations and 90 million Facebook accounts in total. However, Sri Lanka also experienced increasing users from this age group during the last month. More than this age group, it’s visible that the 13-17 age groups is second biggest in Sri Lanka as it saw increasing user rates, according to the graphs presented here. Misuse: Not fan growth that matters Facebook has definitely hit brands and organizations in Sri Lanka to think and act on the platform. However, it seems that brand marketers and agencies have misused this strategic tool, and hence have led to a promotional tool. MNC have been watching many brand pages from Sri Lanka, and concludes that the trigger given is some promotional game such as ‘Win tickets and reloads’ or ‘Like us and stand a chance to win’, etc. As consumers move towards preference and likes apart from promotional materials being bombarded at them, these pages are being taken as a motive of increasing short term revenue and platform to carry out promotions, etc.


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There is also a misusage when it comes to brand engagement. Thanzyl Thajudeen stated that Sri Lankan Facebook pages mainly those Official pages of brands and organizations are only concerned with increasing the fan numbers, and the agency or the marketer handles Facebook advertising to increase the user growth with triggering a promotional message that easily makes the user to click the like button. But what happens here is that it is good for short-term but you are actually not winning the lifetime value or what we call as the ‘lifetime like’ of a fan or user. With many brand marketers practicing on this basis, the whole Facebook platform when it comes to Sri Lanka is hence being perceived as another promotional platform. It is time to change this type of usage, brand marketers will be surprised if this tool is taken as a strategic and a longer term tool, rather, it’s so disappointing to see this. Insights to Pages in SL Mark and Comm Limited (MNC), a local partner for Social Bakers, carried out an analysis using one of the best engagement monitoring and enhancement tool SocialBakers Page Analytics, taking from January 01 to April 12 from pages in Sri Lanka taking four into account to give out how engagement matters than just growing fan numbers. MNC took four pages namely Odel (the retail clothing giant), Dialog Axiata (the leading mobile network operator), Iraj (the constant Hip-hop & RnB music artist) and EFM (the most favourite lifestyle radio station) to just give out as how Social Bakers Analytics identifies engagement areas and why brands and organizations need to use this Analytic tool which are available on subscription packages to monitor and increase engagement on Facebook. Page Analytics gives detailed analysis for Facebook pages, and hence is a great tool for brand marketers and agencies. It covers many areas of the page such as a quick overview of the monitored page, detailed analysis with regard to gain of fans, detailed analysis of posting on the wall, shows how much fans engage on this page, shows mistakes page has done while posting, list of the key influencers on page, and shows how much the page responses to its fans. Fanpage Score measures critical areas of the page such as Content, Fans, Post Quality and Engagement meaning that the higher the Page Score, the better the performance it is on Facebook. If we look at Chart Three, Odel, the retail clothing giant in Sri Lanka is having a 24% engagement rate which is of course really good as the maximum index score is 30%. Dialog Axiata, the leading MNO, engages at 14%; Iraj, the hip-hop and RnB icon, engages at 12%; and EFM, the favourite lifestyle radio station engages at 7%. So now, we could see the importance of engagement rate which is critical to a page. Engagement measures how well fans interact on the Facebook page. It takes into account comments and likes and calculates number of interactions to the total number of fans. If you have a page and do not have any idea at which rate you are engaging the fans at, ask these questions for yourself - Do you attract your fans? Do they interact with you? How many of them have engaged with your wall posts? This is why using SocialBakers Page Analytics give you the edge for the page. Another interesting insight this Page Analytic tool gives is the most happening content type. This is called the Post Category in the tool that evaluates posts on the Facebook page measuring the number of wall posts made on the page, the number of fan posts made on the page wall, the distribution of wall posts type, etc. If we look at the Chart Three, Odel and Dialog Axiata’s most favourite content type is ‘status’ whereby Iraj and EFM’s favourite is ‘video’. This is natural in the offering, for example Odel and Dialog is more of a message and offer based page giving out updates on offers, etc. but whereas Iraj and EFM which are more of an entertainment based page giving out latest musical videos, etc. SocialBakers Page Analytics also gives recommendations on your posting strategy. We measure whether your page posts too often or too little, if posts are not too long or too short. It also takes into account the situation when you post more content more than once. In general, this section gives you hints and


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recommendations on how to post effectively in order to reach the maximum amount of your fans. The maximum index score is 25 %. It also gives insights to post quality where it measures the quality of your content published on your page. Our index checks whether the page posts different content, if it posts regularly, etc. We measure this index for the past 30 days. Maximum index score is 30%. Further to all this, it also finds out which fans influence and engages with your page on a constant basis , this is great as you could reward and influence them to influence the rest and increase engagement. SocialBakers Page Analytics is key SocialBakers Page Analytics is a key tool to be used by brand marketers and agencies to keep up the engagement and enhance growth and dialogue. It gives brand pages real-time information about fan engagement or quality of the postings on the Facebook page and finds out which content generates the biggest buzz whereby improving communication on Facebook. One of the best reason as to why it is key is that it allows you to compare different Facebook pages, even the ones that you do not own on Facebook, this gives a detailed analysis of how your friends or competitors are using their page. As it’s tiring and the must to keep on track with your Facebook page, SocialBakers Page Analytics tool makes it easier – it save tons of your time, no more manual comparing of Facebook Pages, it provides all in well-arranged statistics and graphs. This tool comes with subscription packages namely SINGLE (analytics of one Facebook page costing $50 a month), BASIC (analytics of 3 Facebook pages costing $100 a month), MULTI7 (analytics of 7 Facebook pages costing $100 a month), MULTI20 (analytics of 20 Facebook pages costing $100 a month), and the ultra package MULTI100 (analytics of 100 Facebook pages costing $1000 a month). What is more awesome about this is that it also comes with a 14 day trial period, and takes less than two minutes to sign up. From there on, it is simple , add the Facebook pages which you want to monitor , to do so, click Monitor new page, and add any Facebook page by inserting its URL into the system (for example, www.facebook.com/socialbakers). Select the appropriate time zone and click Add page. Once you have added the pages, you are then taken to the Leaderboard where you find all the monitoring analysis, you could even compare to those with your industry players or competitors to gather and gain competitor analysis. Conclusion It’s very critical to remember that it is not the fan growth that matters which is the case with most of the Sri Lankan brand pages , it is the engagement and dialogue that matters, along with knowing which posts matters the most and who are the key influential people that constantly engages with your page. Engagement is Key when it comes to Facebook and SocialBakers Page Analytics makes it possible. Mark & Comm Limited has partnered with SocialBakers to bring in this insight and the benefits of using this tool to change the mis-used landscape that is from a promotional to an engaging longer term perspective. Mark & Comm Limited also goes beyond to give advice and how to use this analytical tool to boost up the page engagement. (This report is published by Mark & Comm Limited (MNC), a local partner for SocialBakers. For re-selling and advice on SocialBakers Page Analytics and related services, contact Thanzyl Thajudeen, Founder of MNC, [email protected] e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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FCCISL Print in Media


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Is the European Market Accessible for Sri Lankan Exporters? * Center for the Promotion of Imports from Developing Countries (CBI Netherlands) Training Sessions

The European Union (EU) is an economic and political union of 27 member states; The EU has developed a single market through standardization of laws which applies in all member states including the abolition of passport controls within the union. Consequently, it ensures the free movement of people, goods, services and capital and maintains common policies on agriculture, fisheries and regional development. With a population of over 500 million highly educated inhabitants with higher spending capacity, it has attracted many exporters exporting goods from various parts of the world. However, many Sri Lankan exporters do not comprehensively understand how to find markets, attract buyers, market policies, environmental standards and other statutory requirements of the EU. This complex market was always a challenge for our exporters and this reason has seen exporters limiting their exports to a market with immense opportunities which could be utilized if properly understood and trained.

The Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL), the rallying point for free enterprises of the country has empowered Sri Lankan Small and Medium Industry on businesses in the changing times, to demonstrate up their competitiveness and enhance their National and Global reach. At FCCISL, we deem that small and medium enterprises (SME) is the growth engine of the Sri Lankan economy with country’s current conducive state for business, and with the initiations for exports development, the SMEs can play a pivotal role in Sri Lanka’s exports sector for the growth of the nation in very large scale. SMEs currently account for 80-90 percent of the total number of enterprises in Sri Lanka.

The strategy of the Government is to ensure that by 2020 Sri Lanka’s industrial sector will be a highly value added, knowledge based, internationally competitive and diversified which employs highly paid skilled work force. The Government aims at continuous training and retaining of workers in relevant disciplines. The exports sector will be supported through a more conducive tax regime. Steps are taken to facilitate more market access via multilateral and bilateral trading agreements.

With a nationwide membership of over 50 chambers of commerce and business associations, FCCISL advocates the shared vision of Sri Lankan businesses and speaks directly and indirectly to over 12,500 business units. It has an expanding membership of enterprises drawn from large, medium, small and micro segments of manufacturing, distributive trade and services.

FCCISL maintains the lead as the proactive business solution provider through research, interactions with the Government and through global networking. Set up in 1973, FCCISL is the largest and most represented apex business organization of the country’s business. It is also the most widely spread business organization with member bodies from all districts and provinces of the country.

Center for the Promotion of Imports from Developing Countries (CBI) of Netherlands contributes to sustainable economic development in developing countries through the expansion of exports from these countries. CBI, the expert in export development and export promotion from developing countries and has a solid network on international stakeholders. Their contribution consists of strengthening of competitive capacity of SME exporters focusing primarily on European markets. The core focus areas are counseling, advice and knowledge management. With this mindset, CBI has joined forces with FCCISL and its partner chambers to form a strategic alliance to offer training for exporters in Sri Lanka which is supported and assisted by the Export Development Board (EDB) of Sri Lanka.


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The first highly successful training program (Exporting to EU Market) was conducted in Galle for the exporters in the region at the Galle District Chamber of Commerce and Industries in March which was acknowledged by the participants as a knowledge building exercise which gave them an insights of the unknown but lucrative European market. To consolidate and build on this, the FCCISL will conduct a series of programs in Kandy, Trincomalee and Jaffna targeting the exporters in these regions.

To increase effectiveness and efficiency of the exporters, CBI will conduct factory visits in Kandy region to share its knowledge and expertise and further to provide best industry practices. This will be an initiative to gather first hand insights, and first of its kind conducted by the CBI in Sri Lanka. This program will provide exporters in the region a tremendous boost to understand, increase knowledge about the EU markets and to harness the best possible opportunities.

The next program is set to commence in Kandy on the 14-15th of June at the Chamber Academy, Kandy and is expected to be a curtain raiser to the regional exporters who are in much anticipation of knowledge gathering. Target audience will be exporters from Kandy and surrounding areas.

This program will be conducted in English with translation in Sinhalese language for the benefit of the majority of participants. Participation is only on registration due to limited availability of space, and the registration is now open at the FCCISL for this program. Please contact Ms. Subani Basnayake (Center Manager – Chamber Academy Kandy) on 081-2223468 or Mr. Shazly Oowise (Manager - International Affairs) [email protected] on telephone 011-2304253/4. Further information could be obtained from regional chambers in Kandy, Kurunegala, Ratnapura, Matale, Kegalle, Badulla and Nuwara-Eliya.


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Daily FT – May 7, 2011

FCCISL- CHEER brings relief to flood hit famers in the East Settlement of cultivation loans by the insurers in the FCCISL-CHEER Project facilitated cultivation efforts in the Eastern province has brought in much relief to the farmers who were affected by the recent floods. CHEER Project facilitated cultivation loans to the value of Rs.18.9 Million for 386 farmer households to cultivate 1741 hectares of maize, paddy and other field crops during the last Maha season. Majority of the crop was affected by the recent floods and settlement of bank loans through the insurance cover under this facilitation availed the famers of new loans facilities for cultivation in the forthcoming yala season. Ceylinco Insurance Company and Agriculture Insurance Board (AIB) were the main insurers and the bankers confirmed that the Ceylinco Insurance has fully settled the claims and AIB has already completed necessary assessments of the damage and is in the process of settling the claims shortly. FCCISL CHEER is one of the national implementing partners of OXFAM GB in the EU – ACAP 2009/2013 Project (European Union Assistance for Conflict Affected People). It works in association with the district Chambers of Commerce and Industry of Ampara, Batticaloa, Trincomalee, Vavuniya, Mannar and many local implementing partners of OXFAM. This facilitation is to contribute towards one of the key result areas of the EU ACAP Project where the capacity of women and men of IDP families is built to pursue their choice of economic activities to significantly improve their household income and food security. One of the important features of the facilitation was the buyback arrangement of all crops made with leading private sector organization. Though over 90% of the crop was completely destroyed by the floods the remaining crops fetched higher price than the original farm gate price agreed upon with the companies. These farmer households from the rural communities in the province did not have any links to formal financial services providers and have valued the importance of Insurance for cultivation purposes, until CHEER intervened. Hatton National Bank, Bank of Ceylon, Peoples Bank and Commercial Bank were the leading providers of cultivating loans in the Eastern Province and have been supporting the CHEER effort of facilitating buy back arrangements and insurance coverage. “Your effort has helped us tremendously and the farmers seem to now begun believing in insurance and we have enjoyed a good recovery rate despite floods” a senior officer of a bank said. He added that this type of facilitation brings in fair play and a win-win situation for every stakeholder eliminating unnecessary interventions by parties with vested interests. CHEER Project operates through Oxfam’s regional partner network consisting of Federation of Social Development Organization (FOSDO), Social Welfare Organization Ampara District (SWOAD), National Gender and Community Development Organization (NGACDO), Eastern Self Reliant Community Awakening Organization (ESCO), Social Economic Development Organization of Trincomalee (SEDOT) and , Sarvodaya (District Offices) which handle mobilization of the farmers. CHEER plans to facilitate over 10,000 acres in maize, paddy and other field crops this Yala season and most of the ground work in the facilitation process is completed.

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