2012 Country Stock Market Performance

As at Wednesday, March 7, 2012

Below we highlight the year to date stock market performance for 78 countries around the world.
The average year to date performance of the 78 countries listed below currently stands at 6.82%, with 66 of 78 (85%) in the black.  Venezuela is up the most at 36.95%, followed by Vietnam at 26.30% and Russia at 21.69%.  Bangladesh is down the most at -18.51%, followed by Sri Lanka at -9.92% and Slovakia at -6.74%.
Of the G7 countries, Japan is surprisingly up the most in 2012 with a gain of 13.25%.  With a gain of 7.55%, the US ranks 4th out of the G7 countries behind Japan, Germany and Italy.  Canada has been the worst performing G7 country in 2012 with a gain of 3.11%.
While the BRICs underperformed last year, all four are outperforming the US in 2012.

Bourse crosses half a million ‘individuals’ milestone

Despite being Asia’s worst performer, there is some news for cheer as the Colombo Bourse has achieved the milestone of over half a million local individuals dabbling in shares though not regularly.

The total operative CDS accounts of local individuals by end March grew to 500,198, thereby crossing the half a million mark for the first time in Bourse’s history.
As per the Colombo Stock Exchange (CSE), this figure excludes the number of multiple registrations sought by the same client through different participants.
The total number of registered CDS accounts amounted to 677,296, up from 666,665 as at end of last year reflecting an increase of 10,631 over the three months ended in March.
The number of foreign individuals having CDS accounts was 3,946, up by 99 from 3,847 last year whilst local companies grew to 7,485 as against 7,321 (up 164) and foreign companies were 4,148, up by 36 from end December 2011.
Analysts said that the increase though nominal was encouraging given the fact that the stock market has remained bearish so far this year on top of the first negative return in three years in 2011.
“The fact that over 10,000 new accounts have been opened is positive. The first quarter didn’t have many IPOs either whilst bearish sentiments as well as rising interest rates had also made investors look to opportunities outside the Bourse,” they added.Largely on account of the relatively better performance of the Bourse as well as spate of IPOs, the number of local individual accounts rose by 20% to a record 81,798 last year. Total registrations recording a similar percentage growth amounted to 666,665.
In the first quarter of this year local individuals’ contribution to market turnover was a healthy 34.6%, same as the 2011 full year figure but higher than 22% in 2008. In 2009 and 2010 the share was 36% and a high 44% respectively.
Local companies accounted for 40.6% and foreign companies share was 23.7% in the first quarter of 2012.
As of yesterday the year to date negative return of All Share Index was near 11% whilst MPI is down by 6%. Last year ASI was down by 8.5%, reversing fortunes enjoyed by Colombo in 2009 and 2010 as world’s most consistent best performer with returns of 125% and 96% respectively.
The only silver lining of the Colombo bourse this year is the strong net foreign inflow of Rs. 21 billion year to date as opposed to outflows in the past three years.
That apart the market’s bearish performance continued yesterday as well. Arrenga Capital opined yesterday that the languid steps of the market seem to be discouraging most investors as it is taking too long to shake off its previous over runs.
“Most players in the market have transformed to be fidgety market timers as they wait to see the sunny side of the market whilst ignoring the attractively beaten down shares.
Investor confidence is the only element that could revitalise current market conditions and we advise investors to have a closer look at counters in the banks, food, beverage and alcohol and selected counters in the Manufacturing sector,” it said.
Asia Wealth Management noted activities at the bourse continue to show very dull sentiments as retail participation has been waved off and most of the institutional investors are on a bargaining buying spree.
“However it’s noteworthy to mention that the foreign participation has been continuously witnessing on the bourse which gives a light of hope for both local and foreign investors who are waiting to enter into the market again,” pointed Asia.
DNH Financial said trading remained lacklustre as investors sit in the wings following the (Sinhala-Tamil) New Year holidays.
“Although some analysts may begin to question the sustainability of Sri Lanka’s economic growth pointing to the possibility of a deceleration, we believe that a significant slowdown is highly unlikely despite the high interest rate environment. However, we advise investors to continue to adopt a selective approach in their stock picking focusing on medium to longer term returns,” DNH added.

Dhammika-Nimal duo’s 12th acquisition brews a perfect cuppa!

Royal Ceramics sees prospects and related party synergies in 51% buy of Asia Siyaka Commodities for

Rs. 363 m

• New Chairman Nimal says broking, credit and warehouse biz will be expanded
• Listing via introduction coming up

The famous duo Dhammika Perera and Nimal Perera last week effected the 12th acquisition, reaffirming their prowess of growing via strategic buys spanning a decade.


This time around via the acquisition of a 51% stake in Asia Siyaka Commodities Ltd. by Royal Ceramics Plc (RCL), the duo hopes to brew a perfect cuppa though times are challenging for the tea industry.
In a deal worth Rs. 336.6 million, RCL bought the 51% stake amounting to 132.6 million shares at Rs. 2.54 each.
For Asia Siyaka, the fourth largest tea broker, few notches down from where it was originally, the acquisition marks another phase of coming under a new set of shareholders.
Set up in 1998 under the Asia Capital Group along with a team of professional brokers, Asia Siyaka saw in July 2011 the exit of its co-founder selling 40% stake for Rs. 175 million to Asia Siyake Pvt Ltd., which is an entity formed by directors and staff.
At least by the sale price the enterprise was valued at Rs. 437.5 million. A few months later, Ishara Nanayakkara of LOLC Group and Dinal Wijemanne bought a 35% stake for Rs. 228 million putting the value at Rs. 651 million which is almost equal to the price at which RCL based its acquisition. Asia Siyaka’s revenue is estimated at over Rs. 400 million whilst it had made a net profit of Rs. 50 million last year.
RCL Managing Director Nimal Perera who will shortly assume duties as Chairman of Asia Siyaka told the Daily FT yesterday that the acquisition was strategic with a long term perspective.
Asia Siyaka will also be listed via an introduction with the application submitted before 31 March being processed by the Colombo Stock Exchange.RCL bought stake from Dinal Wijemanne (15%) and some staff holdings whilst Ishara reduced his stake from 20% to 17.5%. Co-founder Anil Cooke will remain the CEO at Asia Siyaka.
The acquisition also signals that RCL, the market leader in tiles and bath ware, is keen to pursue select diversification.
The acquisition of Asia Siyaka’s control comes hot on the heels of RCL consolidating LB Finance Plc as an associate, having increased the stake to 25% recently. Last year it acquired Ever Paint and Chemical Industries Ltd., mostly as a Research and Development venture.
Given its financial muscle (RCL Group’s retained earnings were at Rs. 4.8 billion and Rs. 2.6 billion at company level as at end 2011) and expertise from LB Finance, the fastest growing in its league, Asia Siyaka is likely to enhance its credit offerings to smaller tea factories.
The warehouse business operated via a subsidiary will be expanded as well harnessing the three acre land space available according to Nimal.
Apart from its own customer base, Asia Siyaka is also expected to benefit from the synergies from Hayleys Plc’s plantation business. Dhammika directly and indirectly controls both RCL and Hayleys.
Hayleys two plantation companies Talawakelle and Kelani Valley have a combined tea crop of 13 million kilos (2011) accounting for 4% of national production.
Talawakella Plantation Plc was ranked No. 1at the Colombo Tea Auctions for prices amongst the Regional Plantation Companies for the eight and fifth year in succession for high and low grown elevations respectively. Its average price registered was well above the national averages.
Last year tea prices declined for the first time since 2000 at the Colombo tea auctions. The national average price declined by Rs. 10.72 per kilo to Rs. 359.89 per kilo.
Colombo auction centre however continued to receive the highest price at US $ 3.29 per kilo.
Forbes and Walker Tea Brokers however said yesterday that weekly auction average of sale No.14 of Rs.396.54 (US$3.06) for the second consecutive week was higher than the corresponding sale average of 2011 of Rs.373.27 (US$3.35).
Medium Growns totalling Rs.358.36 (US$2.27) for sale No.14 of 2012 show a gain of Rs.4.72 vis-a-vis Rs.353.64 (US$3.18)of 2011. Low Growns too totalling Rs.418.72 (US$3.23) show a significant gain of Rs.37.78 vis-a-vis Rs.380.94(US$3.42) of 2011.
High Grown’s however totalling Rs.357.70 (US$2.76) show a decrease of Rs.8.42 vis-a-vis Rs.366.12 (US$3.79).
Forbes said it was evident that Medium/Low Grown’s have shown a growth YoY in Rupee terms. High Grown prices remain below the corresponding sale prices of 2011. You will also observe that although we have seen a growth YoY in Rupee terms, we remain below the corresponding prices of 2011 in US$ terms.
Whilst the Dhammika and Nimal duo see prospects in Asia Siyaka’s under RCL banner, Hayleys and Talawakelle Plantations Chairman Mohan Pandithage in the latter’s 2011 Annual Report noted that the tea industry was at cross roads; requiring a breakthrough in productivity to remain viable.
“It is important that all stakeholders including policy makers, recognise that international competitiveness is a prerequisite for the stability of the industry. Hence, industry wage structure, work practices and government policy should soon move to mirror the required flexibilities,” he added.
“We look to 2012 with cautious optimism expecting at least some of our key export markets returning to normalcy before long. Possible tight supply situation from rising domestic demand in India and China too could help prices to improve. We on the other hand are concerned with the on-going embargo on Iran, increase in domestic interest costs and liquidity constraints,” said Pandithage whose comments more or less echoed sentiments from rest of the regional plantation companies.
Industry analysts said that commodity broking business survives on volume and price garnered by clients for their produce in auctions. Whilst better times for the overall plantation industry could boost prospects for brokers, entities such as Asia Siyaka could also maximise earnings from their other services such as credit and warehousing facilities.
RCL in the first nine months of 2011/12 financial year saw its bottom line grow by 45% to Rs. 1.48 billion whilst in the third quarter the Company produced a net profit of Rs. 752.5 million.
This performance was emphasised by analysts as outstanding given the fact that RCL is only dealing with a single product sector. Group revenue rose by 23% to Rs. 5.8 billion in the nine months whilst for the quarter it rose to Rs. 2.4 billion from Rs. 1.8 billion a year earlier.

Tata Director’s presence on Board to boost Hemas growth, regional foray

Hemas Holdings Plc is confident that contributions and insights from its newest Director on the Board, R. Gopalakrishnan, a top executive from Tata Sons and formerly from Hindustan Unilever will help the local conglomerate’s growth via acquisitions as well as forays into the region.


Hemas last week announced the appointment of Gopalakrishnan, Director of Tata Sons Ltd. as a non-executive Director to its Board. Gopalakrishnan is also Chairman of four Tata companies – Tata Auto-Component Systems Ltd., Rallis India Ltd., Metahelix Life Sciences Ltd. and Advinus Therapeutics Ltd.
Hemas Holdings Chief Executive Husein Esufally told the Daily FT that the presence of Gopalakrishnan on the Board will be a major boost.
“He (Gopalakrishnan) has been a part of the Tata story since the turn of the century when the company moved from being an India-centric company to being a global player with revenues of $83.3 billion (in 2010/11). Hopefully, he can contribute towards helping Hemas grow exponentially in the years to come,” Esufally said. “Much of Tata’s growth came through an acquisition strategy which we intend to pursue more aggressively.”“As we look to expand regionally, Gopal’s worldwide experience and high level contacts will be invaluable,” added the CEO of Hemas, one of Sri Lanka’s leading conglomerates with a focus on five key sectors – FMCG, healthcare, transportation, leisure and power generation.
Since Gopalakrishnan had also spent over three decades at Hindustan Unilever, Esufally said his wisdom will help Hemas’s FMCG and other consumer centric businesses immensely.
“One of Tata’s greatest successes was in creating superior shareholder value whilst operating a diversified portfolio of businesses.
This is a challenge facing most conglomerates and we could benefit from his deep insights of the Tata model,” the Hemas CEO noted.
He also said that philosophically, Hemas share many common values with Tata, in terms of corporate values and ethics. “We look forward to his guidance on these aspects as well,” Esufally emphasised.
Corporate analysts have hailed Hemas’s success in inviting an Indian business leader of Gopalakrishnan’s calibre to its Board.
Apart from his existing positions at Tata, Gopalakrishnan also serves as Vice Chairman of Tata Chemicals, is a Director of Tata Power and Tata Technologies and is an independent Director on the boards of the Indian subsidiaries of Akzo Nobel and Castrol India.
Since 1967, Gopalakrishnan has worked as a professional manager with 31 years in Hindustan Unilever and 13 years in Tata.
He studied physics at the University of Calcutta and engineering at IIT Kharagpur before joining Hindustan Unilever as a trainee.
He has served Unilever as Chairman of Unilever Arabia, as Managing Director of Brooke Bond Lipton India and as Vice Chairman of Hindustan Lever Limited.
Gopal is a past President of the All India Management Association.
In 2007, he authored his first book, ‘The Case of the Bonsai Manager’ published by Penguin India. In 2010, his second book titled ‘When the Penny Drops’ was also published by Penguin India.
He is also a guest lecturer in India and abroad while his articles have been published widely. He has taught a credit course titled ‘LWNT – Learning What’s Not Taught’ at IIM, Ahmedabad, Great Lakes Institute, Chennai and XIM, Bhubaneshwar.

Daily Alerts: Today

Rights Issues - Trading  Of Rights Commences On: Heyleys MGT Knitting Mills PLC

XD From: Gestetner of Ceylon PLC

Corporate Announcements

No Corporate Announcements.

Local News

·         Apparel industry posts $ 4 b revenue in 2011

·         Browns Investments expands operations in Leisure Sector

·         Dhammika-Nimal duo’s 12th acquisition brews a perfect cuppa!

·         CPC, CEB  combined loss  Rs. 119.5bn

·         45 storeyed Rs. 3 bn apartment high-rise to emerge in Rajagiriya

·         IMF says economy to grow 7.5%, inflation to increase

·         Sri Lanka graphite firm sees higher lubricant demand

Foreign News

·         Oil Trades Near One-Week Low on Rising U.S. Stockpiles

·         Yen Drops Versus Peers on BOJ Easing Bets, Trade Deficit

·         Pound Strengthens as Posen Ends Push for More QE; Gilts Decline

Rupee depreciation impacts Bogala Graphite

Bogala Graphite Lanka says, the rupee depreciation against the Euro has impacted the company’s cash outflows during the year 2011 financial year, as the firm had to repay the debt in Euros to its parent firm.

However, Chairman of the firm Vijaya Malalasekara says the company has been able to re-schedule the repayment of their debt to be paid over a longer period of time, after discussing with the parent firm.

“This will ease the pressure on our cash flows into future” added Malalasekera.

The company during the year 2011 financial year has recorded a Profit After Tax of Rs. 33. 2 million, while the Revenues have seen a year on year growth of 3% to run up to Rs. 399 million.

However, the public quoted company’s Gross Profit has declined from Rs. 131 million to Rs.  129 million during 2011, with administrative expenses increasing due to wage increases.

In the Chairman’s review of the year 2011 annual report, Malalasekera says the lubricant plant of the firm, which was installed during the year under review, is beginning to pay reasonable returns.

“Our sales of lubricants to the South Asian market have increased. This appears to be an area of growth into the future” further added the Chairman.

He also mentions that the pricing of the firm’s products is going to a key determinant to profitability, in both the graphite and lubricants.

According to the Chairman’s review, Boghala Graphite is currently in the process of negotiating prices with its key buyers.

Bogala Graphite is a firm engaged in Graphite mining, processing and exporting and is a Ms Graphit Kropfmühl AG group of companies in Germany.

FITCH Asia Pacific Weekly Highlights - April 7 to April 13

Week of April 9 www.fitchratings.com

Welcome to Fitch Ratings' Asia Pacific Weekly Highlights. This newsletter compiles all ratings and research activity across the region. Included each week are links to recent ratings actions, new issue ratings, issuer reports, special reports and commentary, as well as upcoming Fitch events for Asia-Pacific. Sector Research Global Card Network Review (Processing a Changing Landscape) Strong Input Trends: Growth in personal consumption expenditures (PCEs) and a continued shift from paper to electronic forms of payment are expected to support global growth in credit/debit card network volumes for the foreseeable future. The largest opportunities will be outside the U.S., where approximately 85% of purchases are still done in cash...   Fitch: Korea Election Will Spur Spending, not Worsen Fiscals Fitch Ratings-London/Hong Kong-12 April 2012: South Korea's social spending bill will jump after its recent National Assembly election, but Fitch Ratings does not expect this to lead to a significant deterioration in public finances. The incumbent Saenuri Party won the elections, albeit by a smaller margin. The party was under... Fitch: Macau Gaming Supply Constrained After Sands Opening Fitch Ratings-Chicago-11 April 2012: Fitch Ratings expects Macau's gaming market fundamentals to remain positive following the opening of Las Vegas Sands Corp.'s (LVS) new casino property on the Cotai Strip. Although gaming revenue growth in Macau continues to decelerate, new supply additions will be constrained over the next few years... New Issue Ratings Fitch Rates Hong Leong Bank's Senior Notes 'BBB+(exp)' Fitch Rates Hong Leong Bank's MTN Programme 'BBB+' Fitch Rates Genting Singapore's Proposed Perpetuals 'BBB(exp)' Fitch Rates BCAF's Senior Bond Programme 'AA+(idn)' Rating Actions Fitch Affirms China Foreign Currency 'A+' Stable Outlook; Local Currency 'AA-' Negative Outlook Fitch Affirms Japan's Suruga Bank at 'A-'; Outlook Stable Fitch Affirms 3 Chinese Policy Banks Fitch Affirms Korea ACE Mortgage at 'AAAsf'/Stable Fitch Downgrades Finansa to 'BBB-(tha)'; Outlook Negative Fitch Revises Indika's Outlook to Positive; Affirms at 'B+' Fitch Affirms SVI at 'BBB+(tha)'; off RWN; Outlook Stable Fitch Revises Shanshui's Outlook to Positive, Affirms at 'BB-' Fitch Revises Sunac's Outlook to Stable, Affirms at 'BB-' Issuer Research Thoresen Thai Agencies Public Company Limited PT Tugu Reasuransi Indonesia

LOLC Securities market snapshots

§  Sri Lanka to grow 7.0-pct in 2012: ADB

Sri Lanka will grow 7.0 percent in 2012 with tighter monetary policy brought in to strengthen the exchange rate and cut inflation and will rebound to 8.0 percent in 2013 the Asian Development Bank said. - LBO

§  Sri Lanka tourist arrivals up 21-pct in March

Sri Lanka's tourist arrivals rose 21.3 percent to 91,102 in March from a year earlier with arrival in the first three months up 21.1 percent to 260,525, the state tourist promotion agency said. – Daily FT

§  Sri Lanka's state-run Bank of Ceylon (BOC) has been given a 'B1' rating by Moody's Investors services ahead of planned bond sale in international capital markets with a 'stable' outlook. – LBO

§  Fitch Ratings has assigned Sri Lanka's Bank of Ceylon (BOC) long-term foreign- and local-currency Issuer Default Ratings (IDRs) of 'BB-' with stable outlooks - LBO

§  Taprobane to list via introduction

The CSE has approved in principle an application by the Taprobane Holdings Ltd. to list via introduction.The listing of approximately 733 million ordinary voting shares will be on the Diri Savi Board. – Daily FT

§  CSE says 10 more listings via introductions pending

The Colombo Stock Exchange (CSE) said yesterday that at least around 10 more listings via introductions are pending approval. This follows a flood of applications during the last week of March as the Securities and Exchange Commission (SEC) directed that requests for listing via introductions won’t be entertained after 1 April 2012. - DailyFT

§  Soros warns euro crisis could destroy the EU

Billionaire George Soros warned on Monday that the euro crisis is growing deeper, tearing at the fabric of European Union cohesion, because policymakers are prescribing the wrong remedies. – Reuters

§  Six Senses shelves plans to list on CSE

World-renowned leisure brand Six Senses is most likely to shelve its plans to list its regional business unit on the Colombo Stock Exchange (CSE). – Daily Mirror

§  Asian stocks rose, with the regional benchmark headed for its biggest gain this month, after the International Monetary Fund raised global economic forecasts and Spain sold more debt than targeted, boosting the earnings outlook for exporters. - Bloomberg

§  Oil traded near the highest close in two weeks after the International Monetary Fund boosted its growth outlook and a Spanish debt sale raised more than planned, easing concern an economic slowdown will curb crude demand. - Bloomberg

Daily Alerts: Today

Rights Issues - Trading  Of Rights Commences On: Softlogic Capital Limited

XD From: Chevron Lubricants Lanka PLC (Rs.3.00)

Corporate Announcements

Introduction - Taprobane Holdings Limited

Company will be listing 732.9mn shares by way of an introduction. Further information will be made available shortly.

Local News

·         ADB backs govt’s bid to raise GDP above 8%
·         CSE says 10 more listings via introductions pending
·         Mohan Peiris new Seylan Bank Chairman?
·         ADB in talks with Govt. for two new highways
·         Tourism arrivals up 21.3%, Western Europe dominant
·         Sri Lanka's Bank of Ceylon rated 'B1' by Moody's

Foreign News

·         Oil Trades Near Two-Week High on Spanish Debt, IMF Forecast

·         Yen Falls Versus Peers on Stock Gain, Before Jobs Report

·         Gold May Advance as Euro-Area’s Debt Crisis Spurs Demand

Proposed BOC dollar bond issue could be rated BB-

*Fitch: State-owned BOC rating outlooks stable
*Capitalisation weak
*Profitability low, operating cost base high
*Loans to deposits ratio 95%, management challenged to bring it down to 85%
 

Fitch Ratings has assigned Sri Lanka’s Bank of Ceylon (BOC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of ‘BB-’ with Stable Outlooks. Fitch has also assigned BOC a ‘b+’ Viability Rating (V/R). Simultaneously, BOC’s National Long-Term rating and its outstanding subordinated debentures have been affirmed at ‘AA+(lka)’ with a Stable Outlook and ‘AA(lka)’, respectively.


"Fitch has also assigned BOC’s proposed senior unsecured USD-denominated notes an expected rating of ‘BB-(exp)’, same as its Foreign Currency IDR. The size and tenor of the notes are yet to be determined. The final rating is contingent upon receipt of final documents conforming to information already received," the ratings agency said.


"BOC’s IDRs and National Long-Term ratings reflect Fitch’s expectation of support from the government of Sri Lanka (GoSL, ‘BB-’), if required, given its quasi sovereign status, high systemic importance and role as one of the main bankers to the government. BOC is the largest bank in Sri Lanka and fully owned by GoSL. Any change in Sri Lanka’s sovereign ratings would likely be reflected in the ratings of BOC.


"The V/R reflects BOC’s domestic franchise being underpinned by its sovereign linkages and extensive branch network, as well as its weak capitalisation, improving profitability, increasing loan/deposit ratio and concentration in the state sector (GoSL and state entities).


"While BOC’s IDRs and National Long-Term rating are closely correlated with Sri Lanka’s sovereign rating, an upgrade of BOC’s National Long-Term rating could result from a demonstration of preferential support for BOC. The V/R could be upgraded if BOC enhances its capital buffer substantially (including a high loan loss reserve coverage), the loan-deposit ratio is maintained/sustained at 80%-85% and/or supplemented by medium term wholesale funding, and operating performance and asset quality remain stable. The V/R could be downgraded if capital buffer weakens from continued high asset growth, or if a large asset quality downturn from domestic/external macroeconomic shocks leads to capital impairment.

BOC hires foreign banks to promote bond issue

Bank of Ceylon has hired several foreign banks to arrange bond investor meetings in Asia, Europe and the US ahead of a planned new bond issue, news wire agencies reported yesterday.


The state-owned banking giant is reported to have hired Bank of America Corp., Citigroup Inc. and HSBC Holdings to arrange bond investor meetings, according to Bloomberg news agency. LBO reported that other sources had indicated that top financial management firm Merril Lynch was also included.


The office of BOC Chairman Dr. Gamini Wickramasinghe told us the bank was not making an official statement, nor commenting on the proposed bond issue at the moment.

President revs up reconditioned vehicles

Importers secure increase in age limit for cars and commercial vehicles; higher duty to stay

President Mahinda Rajapaksa yesterday stepped up the accelerator for re-conditioned vehicles agreeing to revise the recently imposed age limit rules at a meeting with importers.
Responding to pleas by motorists as well as Vehicle Importers Association, the President has agreed to increase the age limit for cars to two years from one and for commercial vehicles from three and half years to four years.

At yesterday’s meeting at Temple Trees, the President had explained that higher duty structure cannot be revised since revenue safeguards were important in the current context.
“We are happy with the relaxation of age limits which will now make reconditioned vehicles more affordable for people,” Vehicle Importers Association President Yoga Perera told the Daily FT last night following the meeting with the President. Treasury Secretary Dr. P.B. Jayasundera and President’s Chief of Staff Gamini Senarath were among officials associated with the President at the meeting.
The sharp upward revision in import duties on motor vehicles imposed from 1 April and cut in age limit dealt a big blow to the motor trade as well as motorists.
The Government justified the move to limit imports, save foreign reserves as well as conserve fuel and better manage traffic on the road.“Whilst we understand the revenue needs of the Government, with the revision in age limits, we can at least survive now,” said Perera.
The relaxation of age limit is likely to unsettle companies which deal in brand new vehicles though they too have expressed concern over the hike in duties.
The Association had maintained that if the two-year (age of vehicle) rule is not continued, it could result in the closure of reconditioned vehicle importers’ business and render one million jobless.
At the time the Government revised rules and import duty, around 2000 reconditioned vehicles were already at the Colombo port whilst 6,000 on order.
Last year value of import of vehicles doubled to a record $ 1 billion from $ 546 million in 2010.
Finance Ministry said total number of motor vehicles imported had increased by 121% and 147% respectively in 2010 and 2011 compared to the year 2009. Number of imported motor cars which was 37,134 in 2010 has risen upto 54,285 by 46% by the year 2011. Import of motorcycles has gone up by 61% and 81% respectively in 2010 and 2011 compared to the year 2009 while import of three-wheelers has been increased by 163% and 298% respectively in 2010 and 2011 compared to the year 2009.
As per some estimates the new duty imposed which certain sections of the industry described as “irrational” results in a small vehicle’s price increasing by approximately Rs.1.2 million while others had gone up by at least approximately Rs.1.6 million.
CT Smith Stockbrokers in a recent analysis on the duty revision noted that the change has been greater for smaller cylinder vehicles, such as cars with an engine capacity of less than 1,600cc. This is likely to impact listed players such as United Motors (UML) and Diesel & Motor Engineering (DIMO), which have strong small car brands in Perodua and Tata respectively; each brand sells approximately 300-400 vehicles per month.
Both UML and DIMO however also have strong larger car brands in Mitsubishi and Mercedes Benz respectively. Meanwhile, recent market entrant Softlogic Holdings (SHL) will also be negatively impacted, although the impact is not expected to be too severe as only 12.0% of Group recurring net profit was from the Automobile sector in 1-3Q12; SHL is the agent for Daihatsu, Ford and Zxauto. It is expected the increase in motor vehicle taxes will sharply curb demand in the next three to six months.
“As the vehicle taxes have been revised with immediate effect, those motor vehicles that have been ordered and are being shipped to Sri Lanka will be taxed at the new tax rates. Hence, the backlog of vehicles (which has been approx. three-four months for most companies) will continue to be imported, though there may be some disputes and cancellations by customers,” CT Smith said.
It also said the past few months have seen a dramatic shift in the operating environment for vehicle distributors as interest rates have risen sharply (the 12M T-bill yield is up 401bps since 30 Sept 2011), the exchange rate has depreciated 12.6% in the past two months, and now vehicle taxes have been significantly increased. As a result, we expect sizeable reductions in sector EPS in FY13E.
The new duty imposed results in a small vehicle increasing by approximately Rs.1.2 million while others had gone up by at least approximately Rs.1.6 million, importers said. Ceylon Motor Traders Association (CMTA) President Tilak Gunasekara told the Business Times that there is a need to phase out used vehicles in this country. In fact, he believes the government would unlikely change the one year age of imported vehicles already imposed. Gunasekara said they understood the Government’s situation but believed the rate of increase was “irrational.”

Taprobane to list via introduction

The CSE has approved in principle an application by the Taprobane Holdings Ltd. to list via introduction.The listing of approximately 733 million ordinary voting shares will be on the Diri Savi Board.

THL’s principal business is investment and management of its associates and subsidiaries as well as portfolio management. It also holds a 28 per cent stake in Browns Investments Plc.
Established in September 2006, THL’s exposure covers financial services plantation management, real estate, telecommunication engineering, power, manufacturing and construction.
Its Board of Directors comprise of Rohini Nanayakkara (Chairperson), Ajith Devasurendra (Managing Director), Ishara Nanayakkara, Ruwan Sugathadasa, Ashan Dassanayake, Roshan Antony and Dinal Wijemanne.

CSE says 10 more listings via introductions pending

The Colombo Stock Exchange (CSE) said yesterday that at least around 10 more listings via introductions are pending approval.

This follows a flood of applications during the last week of March as the Securities and Exchange Commission (SEC) directed that requests for listing via introductions won’t be entertained after 1 April 2012.
However, all applications received under this category on or before 31 March 2012 will be accepted.
The CSE yesterday announced the approval in principle the listing via introduction of Taprobane Holdings Ltd.
Last year there were 16 listings via introductions as opposed to two in 2010. So far this year the sole listing via introduction was AgStar Fertilizers Ltd.

Mohan Peiris new Seylan Bank Chairman?

Former Attorney General Mohan Peiris PC is tipped to be appointed as the new Chairman of the Seylan Bank.
The appointment on a non-executive capacity follows the resignation of veteran banker Eastman Narangoda at Seylan’s Annual General Meeting for 2011 held last month after a three year stint.

Peiris is currently the Senior Legal Advisor to Cabinet whilst previously he was also a Legal Consultant to the Central Bank and Ministry of Defence.
It appears that Seylan Board has opted for a non-banker as well a non-private sector personality to be the Chairman. It has also gone out for a replacement than sourcing someone from within the Board. When appointed it will be the first major private sector break for the highly qualified Peiris.
State funds and entities collectively own 31% of Seylan Bank whilst among major shareholders are Sri Lanka Insurance Corporation (15%), Brown & Company (13.8%), Dr. T. Senthilverl (10%), LOLC Investments Ltd., (9.55%), EPF (8.26%) and Bank of Ceylon (7.5%).
The current Board of Directors of Seylan comprises Nihal Jayawanne PC, (Senior Independent Director) Lalith Withana (Independent), R. Nadarajah (Executive Director), Rear Admiral Ananda Peiris (Independent), Ajith Devasurendra (Non Executive), Ishara Nanayakkara (Non Executive(, P. Kudabalage (Non Executive), Mohan De Alwis (Non Executive), Samantha Ranatunga (Independent Non Executive) whilst General Manager and CEO is Kapila Ariyaratne.
Mohan Peiris’ specialisation has been in the areas of administrative law, commercial law, fundamental rights, industrial law, injunctions and criminal law, Counsel in arbitrations and as Arbitrator.
After entering the Sri Lanka Law College, Mohan was called to the Bar in 1975, starting his legal practice under senior lawyers D. R. P. Gunatilleke and Daya Perera, PC. Thereafter he enrolled as a Solicitor of the Supreme Court of England and Wales in 1978.
In 1981 he joined the Attorney General’s Department as a State Counsel, later becoming a Senior State Counsel serving for over 15 years. During this time he trained at the National Institute of Trial Advocacy at Harvard Law School, the Centre for Police and Criminal Justice Studies at Jesus College, Cambridge and at George Washington University. He was appointed Attorney General between December 2008 and September 2011.
He holds a Diploma in Trial Advocacy Skills conferred by the National Institute for Trial Advocacy at its Teacher Training Trial Advocacy workshop at Harvard Law School, Cambridge, Massachusetts 1988

Soros warns euro crisis could destroy the EU

REUTERS: Billionaire George Soros warned on Monday that the euro crisis is growing deeper, tearing at the fabric of European Union cohesion, because policymakers are prescribing the wrong remedies.
“I’m afraid that the euro crisis is getting worse. It’s not over yet, and it is going in the wrong direction,” Soros said in discussion with Denmark’s economics minister hosted by the daily newspaper Politiken.

“The euro is undermining the political cohesion of the European Union, and if it continues like that could even destroy the European Union,” Soros said.
“That is due to a misunderstanding of what the problem is.”
Soros, the Hungarian born US investor, said that the creators of the single European currency believed that imbalances were created in the public sector without understanding that markets themselves can create imbalances.
He said the euro crisis is being dealt with by policymakers as a fiscal crisis though the crisis began as a collapse of the banking system in the United States and was compounded by a divergence of competitiveness among European countries.
He said that failure to deal with the crisis was creating tremendous tensions because people, who see that policy is failing, are driven into anti-European positions and dissent is growing within and between the countries of Europe.
“It could be reversed at any time if only the authorities understood that the box is broken and you need to find some out-of-the-box invention to bring it back inside the box and then put it right, change the rules of cohesion,” he said.
Soros said the crux of the problem was that debt reduction was coming at a bad time for the European economy. “You can grow out of excessive debt, you cannot shrink out of excessive debt.”
And he warned that the euro zone fiscal compact, an agreement by 25 EU leaders to prevent another debt crisis and restore confidence, was pushing in the wrong direction because it obliged governments to balance budgets and reduce indebtedness at a time of inadequate demand.
He said that because fiscal stimulus was ruled out, monetary policy remained the only tool available.

More private sector investments key for higher growth – ADB

The Asian Development Bank (ADB) yesterday emphasised that favourable and consistent policies leading to higher private sector investments were critical for Sri Lanka to achieve higher growth.
In its Asian Development Outlook (ADO) for 2012 released in Colombo yesterday, the ADB said that despite the improved political and economic environment, growth in private investment – domestic and foreign – is falling below planned levels.

It opined that one reason is that the Government has taken only a few steps to reduce red tape and improve the business climate needed to create the conditions for ramping up private investment. Although Sri Lanka’s position in the World Bank’s Doing Business index has improved in 2012 to 89 (out of 183 countries) from 98 in 2011, some challenges still deter private investment (Figure 3.21.9), especially paying taxes.
“Investor confidence is a key factor in attracting investment and this requires a predictable policy environment as articulated and reinforced through the legal, regulatory, and institutional framework. Thus the lack of such an environment for the private sector is a major obstacle to private sector development. Developing that framework will reduce uncertainties in the business environment and avoid unplanned actions that may send mixed signals to potential investors,” the ADB said.
It went on to say that the need for higher private sector investments was in line with Government policy.
“The Government’s Development Policy Framework for 2010–2016 aims to raise GDP growth to above 8% in the medium term and to nearly double per capita income from $ 2,400 to $ 4,200 at the end of the period. The Government has therefore embarked on an ambitious plan to remove infrastructure bottlenecks. It has already undertaken significant investments in some sectors, especially among the major infrastructure development initiatives,” the ADB added.
“The Government, as seen in the framework, would like to see a greater role for the private sector through increased investment by both domestic and foreign investors, as investment is key for increasing supply capacity and bolstering growth. The framework also seeks private investor participation (beyond the traditional areas of industry and commerce) in infrastructure. The framework projects private investment to rise from around 21% of GDP in 2011 to about 26–28% in the next few years.”
The ADO forecasts a 7% GDP growth for Sri Lanka in 2012 but estimates it to improve to 8% in 2013.
However the 7% prognosis is down from the Government expectation of 7.2%, which was downgraded from 8% earlier in the year. Nonetheless economic growth is projected by the ADB to return to 8% in 2013.
ADB Country Director Rita O’Sullivan told the media yesterday that Sri Lanka, which grew by 8.3% in 2011, still has many positives.
She insisted that despite the projected slowdown, inflation would remain at single digit figures leveling out at around 8% and predicted that tourism, apparel and IT sectors would all continue to grow.
“The impact of currency depreciation on external debt, additional Budget borrowing and slower growth is on course to worsen the debt to GDP ratio in 2012. Export growth is expected to fall to 11% mainly owing to weaker demand. Still the trade gap is projected to stabilise as import growth will also be much slower as higher interest rates, tighter credit and a market depreciation in the exchange rate are felt,” she said.
Describing Asia’s growth as “subdued but steady” the region is expected to ease to 6.9% before picking up to 7.3% in 2013. The region’s Gross Domestic Product (GDP) moderated to 7.2% in 2011, down from 9.1% in 2010.

Tourism makes merry in March

By Cheranka Mendis
Tourist arrivals in March this year had been the highest ever for the month at 91,102 – reflecting a 21.3% growth over last year.
The merry March brought the total for the first quarter to 260,525, up by 21% over the corresponding period of last year. End March performance accounts for 26% of the 1 million target for 2012.

March 2012 performance is also the second all time best for a month, behind 97,517 achieved in December 2011. For three consecutive years the month of March has bettered its previous best.
As per data released by the Sri Lanka Tourism Development Authority yesterday, the first quarter success was attributed to the increase in arrivals from Western Europe and South Asia which brought in 115,547 (up 23.3%) and 54,229 (3.2%) respectively.
India remains Sri Lanka’s biggest source market for tourists with arrivals amounting to 39,865 in the first quarter up by 6.4% followed by UK with 28,940 (up by 3.4%), Germany with 21,241 (up by 26%), France with 17,538 (up by 13.6%) and Australia with 9,810 (up by 11%).
Tourism…
In terms of percentage growth the Philippines produced 308.4% with 1,213 arrivals followed by Switzerland with a 103.4% to 6,587 tourists.
In the month of March, arrivals from India grew by only 2% to 13,908 whilst UK, saw an increase of 36% to 12,032. Other traditional Western European markets Germany and France saw March arrivals increase by 29.6% and 8.1% respectively.
Regionally, Western Europe recorded the largest number during the month 40,686, up by 35.6% in comparison to a year ago. Arrivals from South Asia were down by 7.3% to 19,514 on account of declines from the Maldives and Pakistan.
Arrivals from East Asia in March a 44.3% increase to 10,148 and 40% in the first quarter to 29,738 with leading markets being Japan, China, Malaysia and Singapore.
Middle Eastern tourist inflow grew by 24% to 11,711 in the first quarter though it was static in March whilst arrivals from Eastern Europe recorded a 47% growth in the first quarter to 22,602 and 59% jump in March to 7,882 led by a strong Russian performance. North America produced a 20.5% growth in the first quarter to 14,138 and an equal increase in March to 4,795 arrivals.
Whilst March data is pending, as per Central Bank earnings from tourism in the first two months of this year grew by 28.5% to $ 174.5 million.
Central Bank is forecasting earnings from tourism this year to be US$ 1.2 billion, up from $ 830 million last year, which was a 44% increase from 2010. Last year tourist arrivals rose by 31% to a record 855,975.

Market Review – 16th April 2012

The Colombo Stock exchange experienced a dormant operational day with the ending of the holiday season today.

ASI increased marginally by 9.07 points (+0.17%) to close at 5,434.80 and sensitive MPI rose by 20.26 points (+0.41%) to end at 4,929.56.

Market turnover stood at Rs.206.1mn.

John Keells Holdings Plc was the top contributor to the daily turnover at Rs.108.4mn. The counter recorded a crossing of 0.1mn shares at a price of Rs.209.50. In addition Softlogic Holdings Plc (Rs.6.1mn) and Commercial Bank Plc (Rs.5.7mn) made notable contributions to the daily turnover.

Meanwhile heavy trading was seen in counters such as Blue Diamond Nonvoting, Environmental resources Plc and Swarnamahal Financial Plc.

Foreign participation stood at 36.5% of the total market activity and at the end of the day foreign investors were the net sellers with a net foreign outflow of Rs.33.2mn.

Summary of the Annual Report of the Central Bank for 2011

Section 35 of the Monetary Law Act requires the Monetary Board of the Central Bank of Sri Lanka (CBSL) to submit a report giving details of the state of the economy, the condition of the Central Bank and the policies and measures adopted by the Monetary Board during the year to the Minister in charge of the subject of Finance within four months of the commencement of the following year. The 62nd annual report of the Monetary Board was submitted to H.E. the President of Sri Lanka and the Minister of Finance and Planning on the 9th of April 2012. Following are some of the highlights of the report.

 

Daily stock watch by Capital Trust

Daily stock watch 10-04-2012

Market Review – 10th April 2012

Market ended in red today with both indices recording losses. Benchmark ASI lost 20.78 index points (-0.38%) to close at 5,392.34 while sensitive MPI lost 19.43 points (-0.4%) to end at 4,877.73.

Market turnover improved to LKR 202.8mn

Swarnamahal Financial Services was the highest contributor to the daily market turnover and was the heavily traded stock for the day. Further Ceylon Hotel Corporations (LKR 13.9mn) and Coco Lanka (LKR 10.6mn) made notable contributions to the turnover. No crossings were recorded during the day.

Environmental Resources, Piramal Glass and HVA Foods were among the mostly traded stocks for the day.

Foreign participation calculated at 15.1% of the total market activity and at the end of the day foreign investors were the net sellers with a net foreign outflow of LKR 2.8mn.

Price depreciations in index heavy counters such as Carsons Cumberbatch (by LKR 20.00), Hatton National Bank (by LKR 8.40) and Aitken Spence (by LKR 1.90) contributed negatively to the market performances.

Treasury bill rates rise

   

Sri Lanka’s weekly Treasury bill auction saw the three month and the six month rates climbing by over 50 basis points, while the one year rate rose by 37 basis over the previous week’s rate.

The latest rise in yields follows a rate hike on Sri Lanka’s key policy rates, which  took place on the final working day of the previous week.
Accordingly, the three month bill rate rose to 11.62% from last weeks 11.05% while the six month rate moved up to 11.65% from the previous weeks 11.06%.
The one year rates rose to 11.69% from last weeks 11.32%.
The auction was oversubscribed with bids received running up to Rs. 16.73 billion while the bank has accepted Rs. 5.82 billion worth of bids to settle Rs. 10 billion worth of maturing treasury bills.

Daily Alerts: Today by LSL

Last date of acceptance & payment – Rights issue: PEG

Provisional allotment –Rights issue: MGT

XD date: CFIN (LKR 0.70)

Div. payment date: HASU (LKR 2.10), SLTL (LKR 0.85), CSD (LKR  0.10)

Corporate Announcements

Disclosure – BIL: Samudra Beach Resorts (Pvt) Ltd, a fully owned subsidiary of BIL signed an agreement today with BOI, Sri Lanka with regard to constructing of a Star Hotel with 150 Rooms in Kosgoda. Estimated cost of the project is LKR 1.75bn. Project is scheduled to be completed in 2013.

Corporate Disclosure – RCL: RCL acquired 132.6mn shares (51% stake) of Asia Sikaya Commodities at a total consideration of LKR 336.6mn

Local News

·         Nivard says no crisis as some claim; Showcases impressive economic achievements to rebuff critics:

·         Lanka IOC invests $11 m in China Bay tank farm during past decade

·         RAM reaffirms Alliance Finance Company PLC’s ratings at BBB/P2

·         Nawaloka in major expansion drive

Foreign News

·         Oil Trades Near One-Week Low Amid Forecast U.S. Stockpiles at 22-Year High:

·         U.S. Employment Growth Seen Rebounding From Slump

Budget deficit target: Slight miss as revenues suffer setback, expenditure rationalized

*Debt to GDP down from 81.9% to 78.5%
*CB governor wants govt. to cut back on domestic borrowings

 

The government’s 6.8 percent of GDP budget deficit target for 2011 was slightly missed, reaching 6.9 percent on a improved expenditure performance despite revenues falling, the Central Bank said yesterday.

With the Central Bank tightening credit growth in a bid to contain a balance of payments crisis, its Governor Ajith Nivard Cabraal said yesterday that he would like to see the government borrow less from domestic sources, while remaining optimistic that the government could tap into external financing sources.


He said this was crucial in order to maintain inflation at single digit levels, contain pressure on interest rates and place the economy on a sustainable growth trajectory.


During the first two months of this year, net credit to the government from domestic banking sources increased substantially by Rs. 136.3 billion. Credit to the private sector increased by around Rs. 100 billion.


"The government’s domestic borrowings were fairly high and the problem was that it was trying to finance an infrastructure development drive. We would like to see the government rely less on this (domestic) source and we believe it could rely on other (external) avenues, such as bilateral facilities and international bond issues," Cabraal said, adding that he was confident such sources would be available soon.


Releasing the Annual Report for 2011, the Central Bank said, "The focus of the budget for 2011 was to create a conducive environment to enhance investment to maintain high economic growth, while continuing the fiscal consolidation process. The budget for 2011 announced major reforms to simplify the tax system and to broaden the tax base to enhance revenue mobilisation in the medium term. Further, the government reiterated its commitment to fiscal consolidation by rationalising recurrent expenditure, while maintaining public investment at a high level.


"Accordingly the overall fiscal deficit in 2011 as a percentage of GDP was reduced to 6.9 per cent from 8 per cent in 2010. Despite the revenue shortfall, restraints on recurrent expenditure and prioritisation of capital expenditure helped to maintain the fiscal balances during the year broadly in line with the estimates for 2011.


"Revenue collection in 2011 suffered a setback with the abolition of several taxes, the reduction in tax rates and the upward revision in tax thresholds. However, the major reforms that were introduced in the budget for 2011, to simplify the tax system and to broaden the tax base, are expected to enhance revenue mobilisation in the medium term although in the short term these measures are likely to result in some reduction in the tax/GDP ratio. Exemptions granted, particularly on imports of petroleum and milk powder, to mitigate the pressure on the domestic market from rising international prices, also adversely affected revenue mobilisation in 2011. Consequently, the revenue to GDP ratio declined to 14.3 per cent in 2011 from 14.6 per cent in 2010.


"Measures taken by the government to rationalise recurrent expenditure, while prioritizing public investment to strategically important infrastructure development projects helped to reduce total expenditure and net lending to 21.4 per cent of GDP in 2011 from 22.9 per cent of GDP in 2010.


"The reduction in total expenditure and net lending by 1.5 percentage points of GDP was the combined outcome of a reduction in recurrent expenditure by 1.4 percentage points and capital expenditure and net lending by 0.1 percentage points. The fiscal consolidation measures taken in the previous year as well as the low interest rate environment slowed the growth in interest expenditure, largely helping to moderate recurrent expenditure in 2011. However, investment on key infrastructure projects in the areas of roads, ports, power and energy, railways, water supply and irrigation were continued to enhance economic activity.


"The fiscal deficit was mainly financed through domestic sources with the banking sector contributing a major portion of the required funds. The limited resources available with the non-bank sector, as part of their funds were invested in alternative investments, and the tight rupee liquidity in the domestic market during the latter part of the year, increased the purchase of government securities by the Central Bank from the primary market.


"Considering the favourable response from foreign investors and the relatively low interest rates that prevailed in the international market, a 10-year international sovereign bond was issued to reduce the crowding out impact of budgetary financing and to reduce pressure on domestic interest rates. Consequently, net domestic financing in 2011 amounted to 3.5 per cent of GDP, while net foreign financing amounted to 3.4 per cent of GDP.


"Continued improvement in government debt sustainability was reflected in the outstanding debt to GDP ratio, which declined to 78.5 per cent from 81.9 per cent in the previous year. Fiscal consolidation efforts together with higher economic growth contributed to the reduction in the debt burden, although the depreciation of the rupee against major foreign currencies towards the end of the year had some adverse impact on the outstanding debt stock," the Central Bank said.

Nivard says no crisis as some claim; Showcases impressive economic achievements to rebuff critics

 

Central Bank Governor Ajith Nivard Cabraal yesterday literally brandished the 2011 Annual Report to silence critics and doomsayers, saying that there was no growing economic crisis in the country and was emphatic that Sri Lanka will do well despite challenges.


Referring to editorials, one-sided analysts and political economists, Cabraal said: “There are attempts by some to portray that there is a huge crisis in the country but it is not so. President Mahinda Rajapaksa and his economic team ensured that in 2011 the country achieved an 8.3% economic growth which was the highest in post-independence era. Two successive years of 8% growth is also unprecedented.”
Addressing the launch ceremony of the Central Bank’s 2011 Annual Report officiated by President Mahinda Rajapaksa, Cabraal said that the highly controversial draw down of reserves last year was done “deliberately to ensure stability.”
"Over the past year we built spaces within the economy and have used those spaces when necessary at times of stress,” the Central Bank Chief said, adding that a similar strategy was a continuous process aimed at better managing risks.
Separately during a post-launch press conference Cabraal said that due to prudent overall economic management, the country has become resilient enough to enjoy a longer period sans frequent adjustments.
In a further step to set the record straight, Cabraal also said that the Central Bank was a professional and competent body with over 100 economists who have qualified from top universities and has successfully delivered its core functions of ensuring economic, price and financial system stability.
In his speech at the ceremony, Cabraal also noted that in the past, the longest period in which inflation was at single digit figures was during 23 months between August 1998 and June 2000 but President Rajapaksa’s government has established a new record with 38 months to date with the same achievement.
“2011 was a challenging year yet we can take comfort that we have delivered record growth. 2012 will be an equally challenging year as well and we are confident of achieving the revised growth rate of 7.2 per cent sans major external shocks,” Cabraal said.
He described the 672-page 2011 Annual Report compiled with information drawn from all stakeholders and specialists in the Central Bank as “historic” and a “prime document” as it would be used when people write history of Sri Lanka.
FT Insight
Highest in years!
Among the many significant achievements of 2011 in the real economy highlighted by Governor Cabraal during his speech were the following:
Services sector recorded its highest growth in 46 years
Fisheries recorded its highest growth in 39 years, except after the tsunami
Industry sector recorded its highest growth in 33 years
Construction sector recorded its highest growth in 31 years
Import trade recorded its highest growth in 18 years
Small industries recorded their highest growth in 14 years
Hotels and restaurants recorded their second highest growth in 12 years except for the post-tsunami year
Manufacturing sector recorded its highest growth in 11 years
Export trade recorded its highest growth in 11 years

Central Bank’s key suggestions

 

 

Whilst expressing confidence on the outlook for 2012 the Central Bank in its 2011 Annual Report said there are several immediate challenges facing Sri Lanka. Here are some key highlights of Central Bank’s recommendations

• Diversification of export products and markets
• Higher foreign inflows
• A price mechanism for oil
• Energy conservation and

efficiency

• Labour market and pension reforms
• Education reforms
• Improvements to public

transportation system

• evenue and expenditure reforms
• Support for tourism

Central Bank’s Check List for 2012 and beyond

 

 

Whilst expressing confidence over the outlook for 2012 the Central Bank in its 2011 Annual Report says that the key challenge facing Sri Lanka in 2012 is managing the numerous risks arising from global developments.

It said given the uncertain outlook for global commodity prices, especially oil, the challenge ahead would be to maintain inflation at low and stable level. Though recent policy measures would moderate growth and ease demand pressure to some extent, monetary policy will need to continue to focus on restraining demand pressures to maintain inflation at mid-single digit level. Managing supply side shocks to ensure an adequate domestic food supply would also be required to complement demand management strategies, the Central Bank said.
It also said that Sri Lanka’s sustained growth momentum has taken the country to a high growth trajectory placing the country among the middle income economies in the world. Against this background, challenges, which can have a downside risk on potential growth become focal to economic policy management.
Here are some key highlights of Central Bank’s recommendations

• Diversification of export products and markets: So as to improve demand for exports since weak recovery in global economy and geopolitical uncertainties in Sri Lanka’s traditional export markets are likely to affect export growth
• Higher foreign inflows: Inflow must be strengthened, particularly in the areas of service inflows and FDIs through appropriate policies and macroeconomic environment
• A price mechanism for oil: A mechanism that reflects movements in international energy prices may need to be considered to help avoid the need for large adjustments of domestic energy prices while lessening the burden on public enterprises
• Energy conservation and efficiency: Policies need to be put in place to mitigate the impact of high oil prices by promoting energy efficient production technologies, increasing the use of renewable energy sources and energy conservation
• Labour market reforms: The substantial decline in unemployment is expected to tighten labour market conditions. Policies need to be put in place to improve labour productivity and to address structural rigidities in the labour market whilst increasing capital intensity to deal with any manpower shortages. Reforms to ensure sustainability of pension funds and greater elderly care facilities
• Education reforms: Attention should also be paid to realign Sri Lanka’s education system to generate a human capital base with the skills necessary to sustain this new growth momentum
• Improvements to public transportation system: Existing system insufficient to accommodate the growing demand both in terms of quantity and quality forcing public to opt for more expensive and inefficient private modes of transportation
• Revenue and expenditure reforms: To create fiscal space necessary to support higher economic growth
• Tourism: Support for infrastructure development, capacity expansion and skills development and preserving the environment