Democracy essential to combat poverty

An eminent economist said that in order for democracy to be sustained and for poverty to be effectively combated in the South Asian region empowerment of the region’s poor was of paramount importance. "We need to give substance to the idea of peoples empowerment and not just use it as a slogan," Rehman Sobhan, Chairman, Centre for Policy Dialogue, Bangladesh said. Sobhan delivered the keynote address ‘A Vision for South Asia’ at the inaugural session of the first South Asia Economic Summit: SAFTA and Beyond last Thursday. "The poor of the region remain disempowered due to their unequal command over economic and political resources. This drives them into relations of subordination and dependency on those who monopolise resources," he said. He suggested several policy measures which, through interventions and institutional reforms, can address these "injustices". Broadening the ownership of assets, enhancing the capacity of the poor to participate more competitively in the market place, democratizing educational opportunities, giving strength to the voice of the poor and enabling them to participate in the process and institutions of governance were the basic but critical measures Sobhan highlighted. Sobhan said that the instability of the region could be addressed through these measures, where the most violent and long standing of the region’s insurgencies have been in the least developed parts of the countries in the region. "The resort to violence originates not just in the poverty of the rural poor, but in their deep sense of disempowerment and alienation caused by their marginalization from the opportunities for development and exclusion from the institutions of governance." He stressed the need of broadening land ownership among the poor, particularly in the agrarian sector. "Small agrarian households can be empowered through collective action to realise the external economies available to bigger farmers. Groups of landless households could be incorporated to own and operate tube wells or farm machinery and market these services to other small farmers. "Crops can be collectively stored and communities can as a whole negotiate better prices, own transportation facilities and use IT facilities to track the market," he said. Citing Bangladesh’s Garmeen Bank as an example, Sobhan suggested that the poor can be given the opportunity to own corporate wealth. "Seven million households own Grameen Bank. This is not only the largest microfinance institution of the world but is also one of the largest commercial banks in Bangladesh. "In 2007, the bank dispersed over US$ 729 million to 7.5 million borrowers with a recovery rate of around 99 percent. Grameen Bank holds a 38 percent equity stake in Bangladesh’s largest corporate entity, Grameen Phone, which has around 20 million subscribers and a market capitalization of US$ 3.5 billion." Sobhan cited several other examples of corporate ownership of the poor which included stock option plans to workers. He said however, that promoting ownership in the corporate sector should not be viewed as charity. "Ownership of equity of the poor can be financed through institutional credit in the same way purchase of shares by the rich is leveraged by bank finance. The Poor of South Asia have already proved their credit worthiness and should be no less entitled to financial support than the rich."

Sound macro economic fundamentals needed to benefit from trade

The Assistant Director of the Department of Commerce said that that trade instruments alone are not enough to bring about economic growth. Saman Udagedara told the Island Financial Review that while trade instruments such as free trade agreements give greater market access to our exporters, an environment conducive enough to enable them to expand their production base was prerequisite for sustainable development of the export sector. "Our exporters are facing difficulties because of weak infrastructure facilities, a harsh investment climate where inflation and interest rates are high and high energy costs. The government is doing all it can to address these issues," he said. Udagedara pointed out that a major obstacle for the success of the Indo-Lanka Comprehensive Economic Partnership Agreement (ILCEPA) was high inflation rate and interest rates in Sri Lanka compared to India, which would make production costs in Sri Lanka high. Former Chairman of the Ceylon National Chamber of Industries, K. C. Vignarajah, said that the issues many industrialists had expressed with regard to ILCEPA were minor compared to the issues brought about by the country’s skewed macro economic fundamentals.  "The added value and export industries and services are faced with tremendous disadvantages. Many factories have closed, and many more will closedown soon, unless the Macro Economic factors are corrected forthwith," he said.  "The Macro Economic factors have to be correct and Good Governance Infrastructure structures in place before ILCEPA can be effective for Sri Lanka. ILCEPA is a great advantage if these are corrected," Vignarajah said.  "ILCEPA is an endeavour to offer advantages to our industrialists and service providers by giving them easy access to an expanded market of 1 billion people, through liberalized tariffs."  "However it is negated by the highly disparate inflation rate, interest rate regime, and the lopsided real exchange rate of the Sri Lankan Rupee which is over valued by about 12 to 13 percent," he said.  "For example, an exporter adding value of US $ 300,000 a month is suffering a setback of about Rs. 4.5 million a month. This is a serious disadvantage," he stressed.   "The forward exchange rate a few months ago per US $ 1 was Rs. 122 while the spot rate was Rs. 114. Now the spot rate is only 107. This amounts to a loss, at Rs. 7 per Dollar (spot), of Rs. 2.1 million, per month or if the natural rate was permitted a loss of Rs. 15/- per Dollar (Rs. 4.5 million per month)."  "The intervention by the Central Bank was to borrow hundreds of millions of U.S. Dollars to boost the currency reserves, to artificially appreciate the Rupee, to make imports cheaper, to facilitate taking out Foreign Exchange, while paying much less to exporters who have to face highest rates of Inflation, Interest rates, Electricity, Transportations and Fuel costs all of which cost much higher than our competing countries," he said.  Vignarajah went on to say that in the EU block, the Bundesburg and the Bank of England monitor the Macro Economic factors very carefully and are very sensitive to any slight changes in them and take immediate corrective action.  "The strength and benefits of the EU are there for all to see. Ireland, the poor relation of Europe at one time is now one of the most prosperous nations with a high growth," he said.  Commenting on the CNCI seminar on ILCEPA, Vignarajah said that the frequent comment of the industrialists were that while the Indians had leaders and officials who were really patriotic, the Sri Lankan counterparts were pathetically deficient, self centered and could not be trusted.  "Too broad a brush has been used. But when you reflect on the larger issues, the lack of wisdom in our so called leaders and lack of civil society activism (admittedly a great society otherwise) to correct these errant, self centered power hungry coterie is evident over the last few decades," he said.  When Sri Lankan exports lose its competitiveness the result is that workers are forced to seek jobs overseas.

Justifying the SAARC Summit

Many ask what Sri Lanka received from hosting the 15th SAARC Summit in Colombo. Nawaz Rajabdeen, Vice President of the SAARC Chamber of Commerce and President of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) said the benefits were many. "As an international observer, I have come across many people who used to ask ‘what have we received from the SAARC Summit?’ I often used to respond that it was the intangible benefits which cannot be quantified and not the tangible benefits which can be quantified. "The fact of the matter is, I believe with deep conviction, that the relations and friendship as well as the trust the host would establish with the so called ‘guests’ i.e. global investors, could not be quantified but could be used in many ways," he said. He said that in the medium to long term the benefits would be manifest when investments, FDIs, FIIs, international joint ventures, mergers and partnerships and promotion of trade come in to the country as a result for having played the gracious host. "The total cost of the SAARC Summit is estimated to have been in the vicinity of USD 30 million. It is important to note that 86 percent of the total budget of the SAARC was expended for capital expenditure," Rajabdeen said, quoting Foreign Ministry officials. He noted that because of the Colombo SAARC Summit selected roads and highways had been restored and rehabilitated along with a few institutions such as the BMICH and the Ministry of Foreign Affairs. Economic benefits The Agreement on South Asian Regional Standards Organization was signed at the 15th SAARC Summit. "The intrinsic benefits of this initiative would be that the standards of the goods and services would be consonant with each of the countries, thus increasing bilateral and multilateral trade. Also, the standardization would reduce the cost of production as well," Rajabdeen said. The Summit addressed and mapped out the operational aspects and other related issues of the South Asian Free Trade Agreement (SAFTA). "The region is less integrated than many other regions in the world. Total intra-regional trade is still a mere 5.3 percent where as other similar regional blocs have intra-regional trade ranging from 25 to 65 percent," he said. "Despite the fact that the SAARC region is home to 24 percent of the world’s people, the share of the global GDP is a mere 2.8 percent." Rajabdeen said that the opportunities and economic vistas open to the region, as well as to Sri Lanka, as a result of integration should be exploited. "The Iran-Pakistan-India trilateral gas pipeline and hydropower projects, which are in the planning stages, would be beneficial to Sri Lanka once they become operational. "The newest member of SAARC, Afghanistan, would offer unprecedented opportunities for development of the country and Sri Lanka could leverage these opportunities and offer employment to Sri Lankans to be engaged in the construction sector in Afghanistan. Rajabdeen said that tourist arrivals had improved because the SAARC Summit showed that the country was safe to visitors. "The best and most efficacious course of action to counter, so called, travel advisories issued by certain countries would be to globally demonstrate the stability and safety of the country than to counter them with responses and rejoinders," he said, adding that the Colombo Summit did just that. Again quoting Foreign Ministry officials, he said that over 20 bilateral meetings between the leadership of Sri Lanka and, member states of SAARC and observer states took place on the margins of the Summit while other countries too engaged in about 30 bilateral with each other. "It is needless to state that such meetings on the side lines of the SAARC Summit in Colombo would convincingly reflect the stability, peace, safety and capacity of the city of Colombo and the country. Rajabdeen said that as the Chair of SAARC, Sri Lanka had the privilege to articulate and accentuate positions and issues, on behalf of the SAARC, with other regional blocs and groupings such as the EU, NAFTA, ASEAN, GCC, Mercusor, OIC, G-8, G-15, Commonwealth, IOR-ARC and APEC among others.

SAARC opportunities and challenges highlighted

The first South Asia Economic Summit will be held in Colombo today, through Saturday, and representatives of the private sector in the region (eminent academics, economists and corporate heads) will meet government representatives and officials of the official regional organization SAARC. Managing the food prices crisis, oil price hike, transport issues and integration, bolstering the South Asia Free Trade Agreement (SAFTA), trading in services, improving trade facilitation in the region and liberalizing investments, energy issues and how integration can help and strengthening the SAARC process will be the key issues that will be deliberated on. Promoting tourism, bilateral trade agreements, the ICT sector, issues of weaker economies in the region and labour migration will be tackled in parallel sessions which will be held throughout the three day summit. Dr. Saman Kelegama, Executive Director of the Institute of Policy Studies, spoke to the Island Financial Review about the significance of this summit. "It has always been said of the South Asian region that the second track, comprising academia, economists, private sector, have always been a step ahead of the official process, which is SAARC, in terms of strengthening regional integration. "Interaction of the private sector, between the business chambers, economists and researches of the member countries have been quite intense because they would like to see an integrated region, which is the largest in the world in terms of population," Dr. Kelegama said. He said the region’s human resources development was at satisfactory levels. "But the region is not harnessing its full potential," he said. Dr. Kelegama said that the main objective of the Summit would be to have a strong dialogue, where academics, economists and the private sector of the region can address government officials of the region. "This can be an opportunity to feed the officials with the thinking of the private sector on the need to deepen and strengthen regional integration." The summit will also discuss contemporary hot topics such as escalating food prices, the oil price hike and connectivity, which includes integration in transportation, IT and energy. Strengthening the South Asia Free Trade Agreement (SAFTA), integrating trade in services, investment liberalisation and the need for better trade facilitation mechanisms will also be focused on. "The importance of promoting people to people connectivity is also essential and this can be done through tourism, which will be looked at during the summit. The idea to hold a regional economic summit, on the lines of the World Economic Forum in Davos, was mooted in 2000 by the South Asia Centre for Policy Studies (SACEPS) based in Nepal. "This was debated on and the idea was floating around all these years. The Institute of Policy Studies (IPS) took the initiative to oraganise the first economic summit for the region to and demonstrate that it can be done," Dr. Kelegama said. IPS is joined by Research and Information System for Developing Countries (RIS) of India, South Asia Watch on Trade, Economics and Environment (SAWTEE) and SACEPS, both of Nepal, the UNDP, ADM, the World Bank and the Commonwealth Secretariat in bringing the technical and financial assistance for the summit. The Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) is partnering IPS in organising the summit. The 8th SAARC Trade Fair will kick off today as well at the BMICH and will feature over 600 exhibitors from the region. This fair is organised by the FCCISL. Dr. Kelegama said that RIS of India were inspired by Sri Lanka’s initiative and have agreed to host the 2nd South Asia Economic Summit in India next year.

Vasu demands implementing LMS judgement

The lawyers of Vasudeva Nanayakkara have served notice on the AG, IGP, Deputy IGP, Chairman of the Commission to Investigate Allegations of Bribery and Corruption and the Director General of the Securities and Exchange Commission for failing to take appropriate action according to the law after the Supreme Court ruled against the Privatisation of Lanka Marine Services Ltd (LMS).  The Supreme Court (SC) last week gave JKH time till 10 September to hand over its operations to the Sri Lanka Ports Authority. However, public officials named by court are yet to be brought to book and Nanayakkara’s lawyers have asked the AG, IGP, Deputy IGP, Chairman of the Commission to Investigate Allegations of Bribery and Corruption and the Director General of the SEC requesting them to take necessary action irrespective of the personalities involved.  His lawyers said that the SC ruling warranted immediate action in terms of Offences Against Public Property Act No. 12 of 1982 where ‘mischief to public property, theft and robbery of public property, misappropriation or criminal breach of trust of public property, Cheating, forgery or falsification in relation to public property and attempting to commit any of these offences’ are punishable offences. They said that the SC judgment issued in July stated that all parties to the proceedings had to take necessary action on the basis of the court’s findings. The SC ruled that Dr. P. B. Jayasundera, Secretary to the Treasury and JKH had worked in collusion to give illegal advantages to JKH against the public interest and that he had acted arbitrarily and exceeded his authority. The lawyers said that if the above officials continued to be indifferent to the findings of the SC and its Judgment and failed to take action, they would, on behalf of Nanayakkara, initiate contempt proceedings in the SC. Director General of the SEC, Channa de Silva told the Island Financial Review, that the SEC had sought advice of the Attorney General as to how the SEC should proceed.  Chitta Ranjan De Silva P.C., the Attorney General, said that the Bribery Commission was still investigating the LMS privatisation deal.  Ameer Ismail, Chairman of the Commission to Investigate Allegations of Bribery and Corruption said that investigations to the LMS deal began after the parliamentary Committee on Public Enterprises (COPE), headed by Wijeyadasa Rajapakse, released its first report in 2007, even before the matter was taken before the SC by Nanayakkara. He told the Island Financial Review that the investigation was ongoing.  The SC also ruled that JKH had received unlawful tax concessions. Last week JKH released a statement where it said a tax liability amounting to Rs. 750 million based on a normal tax rate was calculated by the Department of Inland Revenue.  "Based on opinions from independent legal counsel and tax consultants, it is LMS’ view that the supply of bunkers to foreign vessels is an export and therefore income is liable for tax at 15 per cent as provided in the Inland Revenue Act. At the 15 per cent rate, the additional tax liability is Rs. 384 million against the IRD intimation. A further Rs. 137 million of income tax at 15 per cent falls due for the year 2007/08," it said.        Additional customs duty, asset impairment (if LMS does not continue in business) and other costs associated with the vacating of the premises is estimated at Rs. 187 million. JKH said that the impact on the consolidated income statement and / or reserves of the group as a result of the additional tax liability, additional customs duty, asset impairment (if LMS does not continue in business) and other costs associated with the vacating of the premises is estimated at Rs. 704 million (consolidated at 99.44 per cent). "If LMS’ export status is not immediately accepted, then a further Rs. 606 million will have to be treated as a contingent liability till the matter is finally resolved in terms of the Inland Revenue Act." Meanwhile, the government said last week that eight companies will be able to conduct bunkering operations where LMS held a virtual monopoly.

SLAASMB confirms disclosure requirement to Hunters

The Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) said that Hunter and Company Limited (HCL) is required to disclose the provision of a company owned bungalow to key management personal in its financial report. In a letter to HCL (dated 20 August 2008) SLAASMB said that disclosures should be made under short term employee benefits reflecting the fair values of such benefits. SLAASMB said that disclosure on the nature of the related party relationship was also required "…as information about the transactions necessary for an understanding of the potential effect of the relationship on the financial statements." Last month in a circular to shareholders, Ernst and Young, said that they would resign as auditors of HCL as requested by its board of directors at a extraordinary general meeting after a dispute over the disclosure provisions of the company owned bungalow being used by key management personnel. The auditors said that the board of directors HCL was unhappy about the disclosure in the company’s audited accounts for the year ended 31 March, 2007. The auditors were told that the disclosure was incorrect and misleading and that a similar disclosure should not be made in the consolidated accounts for 2008. However the auditors did not agree to this and told shareholders that they would resign as per the board’s wishes. Hunter and Company PLC in a letter to the Island Financial Review said its auditors had not been asked to resign but had done so on their own. They sent us a copy of a letter from SLAASMB (dated 20 June, 2008) which stated the disputed disclosure was not necessary. However the SLAASMB letter was addressed to Heath and Company (Ceylon) Ltd, a subsidiary of HCL. SLAASMB in its recent letter to HLC had this to say. "This is the first clarification the Sri Lanka Accounting and Auditing Standards Monitoring Board is issuing to Hunter and Co. Ltd, regarding disclosure of a bungalow benefit provided to key management personnel of the group. "Prior to your request for the above clarification, we had issued a clarification on related party disclosure dated 20 June 2008 to Heath and Co (Ceylon) Ltd," it said. Heath and Co. owns two bungalows, on land approximately equivalent in extent, in Colombo 3. SLAASMB noted that these properties had been valued by a professional valuer in 2004 for a total value of Rs. 215 million. The bungalow facility provided is valued at Rs. 15,000 per month (Rs. 180,000 per annum for income tax purposes). SLAASMB drew its conclusions from the following accounting standards; SLAS 3 – Presentation of Financial Statements, SLAS 30 – Related Party Disclosure, IFRS 2 – Share-based payment and IAS 24 BC- Basis of Conclusions on IAS 24 Related Party Disclosures. (Note- SLAS- Sri Lanka Accounting Standards, IFRS- International Financial Reporting Standards, IAS- International Accounting Standards).

CEPA will just not work in context of India’s restrictive practices - Rajabdeen Indian visa requirement an irritant

Perhaps the staunchest supporter of the Indo-Lanka Comprehensive Economic Partnership Agreement (ILCEPA), Nawaz Rajabdeen, President of the Federation of Chambers of Commerce and Industry, says that India’s treatment of Sri Lankan travellers and investors is unfair and is a reason why ILCEPA is looked at with resentment. "Indians get their visas on arrival into Sri Lanka whereas we have now to apply 14 days before our departure to India. This kind of bureaucratic red tape must be dispensed with if any trade partnership is to be meaningful," Rajabdeen, who is also the Vice Chairman of the SAARC Chamber of Commerce, told the Island Financial Review. He said that this was just one of the many bottle necks delaying ILCEPA that India would have to address. "ILCEPA will open up the goods and services sectors of both countries but the people of both countries should be able to benefit from this, agreement not just the traders and professionals," Rajabdeen said. "There is no point in wanting to pursue a partnership agreement with us if ordinary citizens cannot enter India as easily as we allow them to enter Sri Lanka. Many of our people visit India on pilgrimage, for studies or on medical grounds and it is difficult for them to get visas." Rajabdeen said that if the Indians were concerned about screening Sri Lankans because of the LTTE threat, it did not hold because India too has its fair share of terrorist problems. "Applying for a visa to India is as difficult as applying for one to the US. Why should this be the case when India is our neighbour, especially when we have opened our doors to India?" Issuing visas on arrival to Indians is only limited to tourists and is issued for 30 days. Rajabdeen charges that there is nothing to prevent Indian businessmen from posing as tourists and have their passports stamped for about seven days which is ample time to conclude a business deal. A representative of an Indian real estate company was in Sri Lanka earlier this week promoting real estate in Mysore. He told the press that he was impressed with the visa on arrival and the services of the BOI. Research Officer of the Institute of Policy Studies, Deshal De Mel, told the Island Financial Review that Sri Lanka lacked the capacity to monitor the movements of Indians in Sri Lanka. "Using the 30 day tourist visa to conduct business in technically illegal, but we lack the technical capacity to monitor our visitors," he said. Rajabdeen also blamed India’s bureaucracy for causing problems to many Sri Lankan entrepreneurs who tried entering Indian markets through the FTA. "The Indians used, and continue to exploit the BOI to establish themselves here, but Sri Lanka is given no such assistance in India." He said the unfair treatment agitated many against ILCEPA. "India must not take undue advantage by restricting our people from visiting India and businesses from investing while enjoying benefits offered by Sri Lanka." "The foreign ministers of the SAARC countries should seriously address this issue because no regional integration can be fruitful if ordinary people cannot enjoy the benefits of such an arrangement while only the influential do," Rajabdeen said.

CB issues Rs. 8bn securities to check inflation

The Central Bank said that its tight monetary policy has enabled it to maintain reserve money at targeted levels and decelerate high monetary expansion which in turn is causing inflation to decline. "Since reaching a peak of 28.2 per cent, as measured by the year-on-year change in the new Colombo Consumers’ Price Index in June, inflation has indicated a turnaround, as expected, by falling slightly to 26.6 per cent in July," the bank said in a statement. The Central Bank had been using its stock of Treasury bills to mop up excessive liquidity in the market. But the bank has exhausted its stock of Treasury bills and has begun issuing its own securities, Central Bank Securities, to the job of Treasury bills. "We have issued about Rs. 8 billion in Central Bank Securities to the money market and depending on the foreign exchange inflows we may have to continue doing so," Central Bank’s Chief Economist Dr. Nandalal Weerasinghe told the Island Financial Review. When foreign currency inflows increase, liquidity of the money market increases correspondingly. The Central Bank then auctions its Treasury bills to mop up the excessive liquidity of the market. Dr. Weerasinghe said that the Central Bank would continue to issue its own securities depending on the level of foreign exchange inflows as the bank had a policy of restraining from investing in Treasury bills. "This is nothing new. Central Banks of many countries issue their own securities," he said. He said that the Central Bank had to bare a cost by issuing its own securities because of the interest that must be paid. The interest is determined by the money market when the securities are auctioned to primary dealers. "The profit margins of the bank will be hit but the bank’s purpose is to curtail credit expansion and bring inflation under control and is not concerned about the profit to be transferred to the government at the end of the year," Dr. Weerasinghe said. "Accordingly, the broad money growth decelerated from 16.6 per cent at end 2007 to 13.6 per cent by end June. Credit to the private sector, which was on a higher than desired growth path and remained a concern of the Central Bank, also decelerated to 12.7 per cent by end June, from the higher growth rates ranging from 20 - 26 per cent in 2007. The Central Bank said its tighter monetary policy stance had yielded its desired impact on monetary aggregates, decelerating the expansion in aggregate demand. "The favourable impact of this deceleration in aggregate demand coupled with the healthy developments on the supply side is expected to be observed during the forthcoming months in the form of moderating inflationary pressures in the economy," it said.

Indian real estate developer anticipates post CEPA demand High value lands in India for Sri Lankans

Sri Lankan investors may have an opportunity of acquiring land in India’s next IT hub, despite the fact that the property is developed to be a high-end residential city. An Indian joint venture company dealing in real estate is offering land to Sri Lankan investors in Mysore which is expected to be the next IT hub as is Bangalore. Esvee Group and Ishya Properties are developing a up market residential site called Highlands and is offering 4,000 sq ft and 5,000 sq ft plots at an early bird rate of 700 Indian rupees per square foot. Translated into Sri Lankan terms, the joint venture is offering 15 perches at about 7.84 million Sri Lankan rupees and 18 perches at about 9.8 million Sri Lankan rupees. The company said that land in Bangalore fell in the range of 2,000 to 4,000 Indian rupees for a square foot. At the Central Business District at Mysore, land trades at about 4,500 Indian rupees per square foot where rent can amount to about 55 Indian rupees per square foot. According to the company, commercial properties are trading at 1,500 to 3,000 Indian rupees per square foot in other areas. Demand for residential property in Mysore ranges between 1,800 and 3,200 Indian rupees per square foot. Chairman and Managing Director of Ishya Properties, R. Girish, said that several Sri Lankan high net worth individuals, CEOs and corporate heads, had confirmed investments in plots at Highlands. "About half of those who spoke to us said that they may invest in plots for commercial purposes while the rest were interested in building luxury homes for themselves," Girish told the media on Monday. Girish said that according to the laws and regulations of the state and central government of India, investors would own the properties once the price is paid. He was impressed with Sri Lanka’s policies of granting Indians with visas on entry and the work done by the Board of Investments (BOI) to facilitate Indian investors here. "I cannot comment on government policy but India should consider granting visas to Sri Lankans on entry as well," Girish said. He also said that investors could chose to do what they pleased with plots they owned. "They could either build commercial residencies or commercial establishments," he said. Girish said that the joint venture company was competent to handle construction as well and said that investors could contract them or anyone else for constructions. About 2,200 acres have been acquired in Mysore for the establishment of IT and apparel parks. Infosys has a 450 acre campus. Wipro has its Global Management Centre in Mysore as well. Corporate giants such as TVS, Siemens, L&T, AT&T and Nestle have already established themselves in Mysore. Companies such as Mphasis, First American Corporation, Reid and Taylor and Bharat Earth Movers are moving into Mysore too, according to Ishya Properties. Girish said that India’s ‘Silicon valley’, Bangalore, was saturated (35 percent of India’s One million IT professional base is employed at Bangalore) and that the Indian government was investing in Mysore to be the country’s second IT hub. Highlands is expected to be a residential hub for high net worth individuals and its developers have already presented the project in Dubai, Nepal and the USA. The company hopes to construct a high-end residential spa and club house for its future residents and hoped to complete these projects by 2010. "We want Highlands to be a holiday destination or a place where businesses can have their strategic meetings," Girish said. But with India’s policy on issuing visas to Sri Lankans, apply for visas three weeks in advance

Overall BOP records surplus by end June

The trade deficit for June 2008 amounted to US$ 504.5 million, an increase of 206.9 percent from June 2007. In May 2008 the trade deficit amounted to US$ 512.2 million while in January 2008, it amounted to US$ 610.8 million. The cumulative trade deficit for the period January to June 2008 amounted to US$ 3.083 billion, an increase of 92.4 percent for the corresponding period of 2007. The Central Bank said last week that private remittances during this period together with capital and financial inflows helped off set the deficit. "Private remittances which amounted to US dollars 1,460 million, and the higher capital and financial flows more than offset the deficit in the current account, as a result of which, the overall balance of payments recorded a surplus of US dollars 390 million by end-June 2008," the Central Bank said. "Consequently, the gross official reserves increased to US dollars 3,433 million by end June, 2008, up from U.S. dollars 3,062.5 million in December 2007, which was sufficient to finance around 3.1 months of imports." Export earnings amounted to US$ 654.6 million, a 1.9 decrease from US$ 667.3 million in June 2007, (export earnings in January and May 2008 amounted to US$ 489.5 million and 745.9 million respectively). The textiles and garments sector brought in US$ 262.8 million in export earnings in June 2008 (US$ 307.2 million in May and US$ 230.2 million in January 2008) which corresponded to an 8.9 percent decline from June 2007. Export earnings from minerals declined by 27.9 percent from US$ 11.3 million in June 2007 to US$ 8.1 million in June 2008. However, the earnings from the agricultural sector increase by 34.6 percent from US$ 119.8 million in June 2007 to US$ 161.3 million in June 2008 riding on export earnings from Tea which grew by 41.7 percent year on year. "The growth in earnings from tea, coconut and minor agricultural products negated the impact of the decline in industrial export earnings to some extent. Agricultural exports are expected to continue to perform better, in terms of volumes as well as prices, and industrial exports are expected to rebound from the one-off decline in June," the Central Bank said. Tea exports fetched US$ 117.2 million in June 2008 (January and May 2008 tea export earnings amounted to US$ 90.8 million and US$ 96.4 million respectively. Imports in June 2008 amounted to about US$ 1.16 billion, a 39.4 percent increase from US$ 831.7 million in June 2007 (the import bill in January and May 2008 amounted to US$ 1.17 billion and US$ 1.25 billion respectively). "While intermediate goods accounted for about 73 per cent of the growth in expenditure on imports in June 2008, imports of petroleum products accounted for 87 per cent of the increase in this sector," the Central Bank said. The Petroleum bill amounted to US$ 339.9 million in June 2008, a 159.3 percent increase from US$ 131.1 million in June 2007 (US$ 301.2 million and US$ 337.2 million in January and May 2008 respectively). "Expenditure on imports is expected to be lower during the rest of the year, as the petroleum prices continue to dwindle," the Central Bank said. The Bank said that fertilizer and diamonds were among the other intermediate imports that increased in June, 2008. "Expenditure on imports of consumer goods grew by 29.6 per cent, largely due to higher expenditure on food imports," it said. The consumer imports bill amounted to US$ 210.9 million in June 2008 (US$ 201.2 and US$ 238.3 million in January and May 2008). "Imports of investment goods grew by 17.7 per cent, with imports of machinery and equipment and building materials expanding. Higher growth in investment goods reflect the implementation of large scale infrastructure development projects funded by capital flows to the Government and the private sector by way of foreign direct investment," the Central Bank said. Exporters say that the country’s exchange rate did not reflect the trade deficit. They say that workers remittances and other capital inflows appreciates the rupee more than what it should be and together with high inflation and interests rates the export sector continues to struggle for its existence and create meaningful employment. However, the Central Bank maintains that the free-float exchange rate is not determined by trade alone as the remittances and other inflows form an integral part of the foreign currency markets. The Central Bank however intervenes to prevent extreme fluctuations of the exchange rate. Interventions in the market for this year have resulted in a net buying of dollars amounting to about US$ 329 million as at the early days of August. "And this has gone a long way to prevent the rupee from appreciating to as low as 103 to a dollar," Dr. Nandalal Weerasinghe, Chief Economist, the Central Bank, told the Island Financial Review earlier this month.

More concessions from China following President’s visit Sri Lanka already submitted its offer list for the APTA round of negotiations

President Mahinda Rajapakse met with China’s President and Commerce Minister and sought further concessions for Sri Lanka under the Asia-Pacific Trade Agreement (APTA). Chinese President Hu Jintao agreed to consider favourably President Rajapaksa’s request for further reduction of tariffs for Sri Lankan exports under the APTA. While Sri Lankan exports to China had projected a growth rate of 27 percent Deming reportedly acknowledged that the total volume of exports from Sri Lanka had the potential to increase further. He said that this could reduce the huge trade imbalance tilted in favour of China. The Sri Lankan Embassy in China in a statement said that Deming agreed to assist Sri Lanka to enhance its production capabilities and competitiveness. Sri Lanka had already submitted its offer list for the APTA round of negotiations. "Deming assured his support for an early conclusion of the 4th round of APTA negotiations with further concessions and market access opportunities for Sri Lankan exports," the Sri Lankan Embassy in China added. About 23 percent of Sri Lanka’s exports to China comprised of tea and the Minister agreed to favorably consider President Rajapakse’s request to accord further tariff concessions. The Chinese side agreed to facilitate Sri Lanka’s participation at identified trade fairs on a subsidised package. The President apprised the Chinese Minister of the special investment zone allocated in the Mirigama Export Processing Zone for Chinese entrepreneurs which will be inaugurated today. Deming said that Sri Lanka would be a preferred destination for relocation of many of the Chinese enterprises, especially in the textile and the light industries sectors. The Chinese Commerce Minister assured President Rajapakse that China would ensure uninterrupted funding of development projects undertaken by China in Sri Lanka. The Minister also ensured funding for three new development projects; the Colombo Katunayake Expressway, Puttalam Coal Power plant (Phase II & III) and the Hambantota oil tank and bunkering project. President Rajapakse met Li Ruogu, the President of the EXIM Bank of China, and expressed his satisfaction over the speedy funding provided for the Hambantota Port Project. He discussed the need for further assistance for the next phase of the Puttalam Coal Power Project, the Colombo-Katunayake Expressway and also the Hambantota Bunkering. Ruogu said that the bank would expedite funding processes for these projects. President Rajapaksa also met with CEOs of a few leading construction companies that have undertaken development projects in Sri Lanka, the Sri Lankan Embassy in China said. Progress of the Hambantota Harbour project, the second phase of the Norochcholai project, the US$ 23 million Arts Theatre in Colombo and the Colombo-Katunayake Expressway were the topics of discussion. Finance Secretary Dr P B Jayasundera, Gamini Senerath Additional Secretary to the President and Sajin de Vas Gunawardena, Coordinating Secretary to the President were present at these meetings and bilateral discussions. An official of the Export Development Board told the Island Financial Review that total exports to China in 2007 amounted to US$ 36 million (0.5 percent of total exports to all countries) and imports amounted to US$ 921 million (8 percent of total imports from all countries).

CEPA with Pakistan at initial stage

Sri Lanka and Pakistan have had one round of negotiations for a Comprehensive Economic Partnership Agreement (CEPA) an official of the Department of Commerce said. "The two countries met once on discussions of the draft text of the CEPA document but the items on the agreement will be subsequently negotiated," Acting Director of Commerce Saman Udagedara told the Island Financial Review. Udagedara said the Free Trade Agreement currently in force between the two countries included trade in services. "When the FTA was finalized with Pakistan, only trade in goods had been negotiated. The FTA was signed with the intent of initiating negotiating the schedules for trade in services." Udagedara said the Department of Commerce had since then consulted the stakeholders of the private sector. "We have sought their views as to which areas they would like Pakistan to give them market access and the areas we could offer Pakistan," he said. "However the response from the private sector continues to be poor. Perhaps it is because they do not understand the process and we have had several meetings at the department and have tried to explain it to them." Udagedara said that it was a stakeholder driven approach the department was taking and said the private sector ought to get more involved. When the government tried to sign the CEPA with India on the sidelines of the SAARC summit it opened up issues with many in the private sector claiming that they were not adequately consulted. ILCEPA (Indo-Lanka Comprehensive Partnership Agreement) is still going through the negotiation process and PLCEPA (Pakistan-Lanka CEPA) has just begun and those concerned in the private sector can still voice their concerns and take part in the consultative process and an invitation to do so should not be required, Udagedara intimated.

ICT sector urged to contribute to CEPA with Pakistan

The ICT Agency of Sri Lanka (ICTA) said the preliminary stages of a Comprehensive Economic Partnership Agreement with Pakistan was underway and urged the ICT companies of the private sector to make its recommendations to the government. "The private sector is less engaged and there is little feedback. The government cannot make decisions for the private sector. The agreement can open up new markets and you don’t have to be trapped in the small market here," ICTA Programme Manager Fayaz Hudah told the private sector at the ICTA-Private Sector Forum last week. Hudah called on the private sector to get actively involved in the consultative process of the government on the CEPA with Pakistan. Presenting an update on ICTA’s Private Sector programme for the second quarter (March-July 2008) he said that the greatest difficulty that was faced by the industry was that few people could afford to pursue higher education in ICT. "Besides the exodus of our ICT professionals, less and less people take up higher education in ICT as it is too expensive," Hudah said. The New Age Academy Programme (NAAP) will be launched in September this year to address this issue. "This is an industry initiative which will bring together academia, financiers, and students to accelerate the growth of the IT and BPO talent pool." The industry is to partner academia in a bid to increase capacity and to produce more industry ready graduates. Hudah highlighted another pressing issue affecting the sustainability of the ICT industry. "There is a lack of awareness of ICT at the grass-roots," he said. A fund has been created to build awareness among rural youth and build form among them employable youth for the ICT sector. The US$ 150,000 is to be used to raise the profile of the ICT/BPO sectors as career destinations and to provide information on requisite skills needed to join the industry. The targeted locations have been identified. Ratnapura, Kurunagala, Anuradhapura, Galle, Ampara, Wellawaya and Badulla. 2Q results Hudah presented key highlights for the second quarter. US$ 762,540 has been committed through the ICT Capacity Building Programme for the private sector. Twenty two companies had been awarded grants amounting to US$ 211 thousand to pursue Quality Certifications enabling local companies to be on par with the global ICT industry. Forty four grants had been awarded to companies amounting to US$ 194 thousand to train their employees. Nine scholarships had been awarded to individuals to follow short-term overseas courses amounting to US$ 54 thousand. The programme had awarded 9 grants amounting to UD$ 215 thousand to companies for ICT research and development. US$ 13,500 was awarded to 60 SMEs to computerize their accounts. Hudah said that since November 2005 the ICBP programme had funded 147 companies, 130 individual scholarships and 120 training programmes. "Over 5 thousand people have benefited through the ICBP programme which has committed US$ 1.8 million since November 2005," Hudah said. On CEPA Speaking to the Island Financial Review on the Comprehensive Economic Partnership Agreement with India and the ICT sector Hudah said that ICTA had felicitated the government’s consultancy with the private sector of the ICT industry. "India’s ICT industry is mature so we have to make sure that India does not flood our market. But at the same time there is a lot we can gain from India in terms of capacity development and training," Hudah said. He said that after consulting the private sector the government put on the table those areas which the industry felt Sri Lanka could benefit from India’s inputs. Investments and technological transfers is one area Sri Lanka can no doubt benefit immensely from India. "However, there is more that can be done to improve on CEPA before it is signed. And the private sector of the ICT industry has a big role to play." "When it comes to consulting the private sector it is not always easy to get everybody involved at an individual level. "The doors are open and ICT companies can always approach us (ICTA) and join us in the consultative process," Hudah said.

CEPA a mechanism to resolve problems and issues More than just an agreement in trade, investments and services

The Comprehensive Economic Partnership Agreement (CEPA) with India is more than just opening up trade in goods, services and investments but is also the tool with which to sort out issues and problems that arise. The opponents of CEPA argue that the Free Trade Agreement with India brought no benefits because India imposed so many non-tariff barriers that hindered access of Sri Lankan enterprises into Indian markets. They fear that CEPA will do the same while allowing more access of Indian enterprises into Sri Lanka. But one function of CEPA is to identify and resolve constraints and issues that may arise. A research officer of the Institute of Policy Studies (IPS), Deshal De Mel, said that constraints to trade could be dealt with through CEPA, which is still under negotiations. "The private sector can identify their export interests and request for market access through CEPA. It can also identify constraints and resolve them through CEPA," he said. CEPA is to be reviewed every six months by the technical committee and annually at ministerial level. De Mel said that the services component of CEPA will be reviewed every three years. "If there are unresolved disputes in a particular sector, commitments can be cancelled by either country upon payment of compensation on investments made." He also said that considering the size of the two countries, less than full reciprocity was expected. This means that Sri Lanka does not have to open up its markets to the same extent as India and could take more time in liberalization of the areas committed. "In all such agreements there are opportunities and challenges. It is important for the private sector and government to work in tandem to identify and address the latter in order to take advantage of the former," De Mel said. De Mel was the Guest Speaker at the 12th Information and Communication Technology Agency (ICTA)—Private Sector Forum last week. India has offered to open up the following sectors to Sri Lankan IT professionals. Consultancy services related to the installation of computer hardware, Systems and software consulting services, Systems analysis services, Systems design service, Programming services, Systems maintenance services, Input preparation services, Data processing and tabulation services, Time sharing services, Other data processing services, Data base services, Maintenance and repair services of office machinery and equipment including computers, Data preparation services and Other computer services (e.g. training services for staff of clients, and other professional computer services). According to De Mel the movement of these professionals will be limited according to the classification given below. * Business Visitors (BV) - for sale or to secure agreements for trade in services or for employees of a Juridical Person (JP) to set up commercial presence – 180 days and the BV will not receive remuneration in India. • Intra-Corporate Transferee (ICT) - employee of a JP in SL who is transferred to a JP in India owned or controlled by the JP in SL, for temporary provision of services. – limited to managers, executives and specialists. Maximum 5 years. • Contractual Service Supplier (CSS)- employee of a JP owned or controlled by SL who travels to India to perform a service pursuant to a contract between the JP in SL and the client in India. CSS for periods up to 1 year. • Independent Professionals (IP) – natural persons traveling to India or short periods up to 1 year to perform a service pursuant to a contract between him and the client in India. Same sectors as above. As far as Sri Lanka’s offer list is concerned De Mel pointed out that technical staff can be hired from India in the ratio of 10 percent of total staff cadre for every US$ 100,000/- of investment, up to a maximum of 50 percent. Technical staff must have a minimum of a Masters degree in the relevant ICT field and work experience of no less than 5 years. Access is available for expert trainers with high-end technical professional qualifications (CCIE/MCAP or equivalent) who can benefit the development of Sri Lanka’s IT sector both in terms of human resource development and firm level performance. Consultancy services related to the installation of computer hardware, Software implementation services, Data processing services, Database Services and Data preparation services are the areas open to Indian ICT professionals.

Mediation Committee report on THC out, but dispute still on

A Mediation Committee set up to resolve a long standing dispute between shippers and shipping agents over terminal handling charges released a report last week. However the disputes seems to be far from settled. According to the report a consensus between the stake holders was reached where the THC for 20ft container would be reduced by US$ 4 and US$ 8 for a 40ft container, an official of the Ceylon Association of Shipping Agents (CASA) told the Island Financial Review. He said that the Chairman Captain Ajith Peiris had represented the interests of both CASA and the Sri Lanka Freight Forwarders Association (SLFFA) while the Sri Lanka Shippers’ Council (SLSC) was represented by its former Chairman Ananda Wijesuriya. "There was consensus between the stakeholders who took part in the deliberations of the Mediation Committee and we have circulated the report amongst the membership," the official form CASA said. However, the Island Financial Review learned that the SLSC had only heard about the report and not seen it as yet. "We are not happy with what we heard the report had to say about the THC and our members will meet this week and will take our case to the Chairman of the Mediation Committee Shantha Weerakoon," an official of the SLSC said. Weerakoon is also the Director General of the Merchant Shipping Division of the Ministry of Ports and Aviation. The dispute lasting for more than a decade was taken to courts where the Chief Justice requested that matter be resolved through the mediation framework. An official of the Merchant Shipping Division, who also did not want to be named, said: "Since we operate in an open economy there is no possibility of government trying to enforce price regulations on something such as the THC, which is practiced else where in the world. This is perhaps why the court ruled that the stakeholders should resolve the matter through mediation. They will have to come to a consensus." He went on to say that while exporters had some grievances over the THC charge, it was not very reasonable to expect the shipping lines to bear the costs of handling cargo on land. "There is no room in the harbour and containers have to be stored at a location outside the port so obviously there would be a cost component to transport the goods to the ship for loading and one cannot expect the shipping lines to bear this cost," he said. He says on the other hand that competition had greatly reduced shipping costs. An analyst of the industry said that freight forwarders are highly competitive and resort to under cutting tactics (reduced rates) to attract businesses.