Sri Lanka CW Mackie bought by Lankem group

Sri Lanka's Lankem group gained control of C.W.Mackie PLC one of the oldest companies in Sri Lanka through the purchase of 56.4% shareholdings on Friday. Lankem and its group company Kotagala Plantations purchased 20.89 mn shares from Aarhus United A/S and its local subsidiary Ceylon Trading Company at a sale price of Rs 35 per share. The transaction was valued at 712 million rupees.

The above purchase is likely to trigger the mandatory offer required under the Takeover and Merger Code of Sri Lanka and purchasers/its partners are expected make an announcement shortly with regard to their manadtory obligation to purchase balance shareholdings of C.W.Mackie PLC at a price of Rs 35/= share.

Mr Anushman Rajaratnam the Managing Director of Lankem PLC, Mr Tom Ellawala Managing Director Ceylon Trading Company and Mr Johnny Andersson Partner Mannheimer Swartling representing Aarhus United A/S executed the agreement between companies which followed the trade of 20.89 mn shares on the Colombo Stock Exchange (CSE).

This transaction was facilitated by Mr Nishan Sumanadeera well known investment banker and a founder director of Sri Lanka Equity Analytics (www.srilankaequity.com) a company specialized in equity research and cutting edge investment banking solutions together with Sahan Kulatunga of Incapita Investments. Trade was executed by the Taprobane Securities (pvt) Limited one of the premier stock brokering company in Sri Lanka

The CW Mackie was founded in 1900 by the late Mr C.W.Mackie a Scotsman, who carried on the enterprise as Merchants and Commissions Agents under the name of ‘CW Mackie & Company’. In 1922, the business was incorporated as a private limited company. In 1946, a consortium of Ceylonese and Indian Businessman bought over the shares of the company and converted it to a public company.

The year 1971 marked a significant change when Ceylon Trading Company Limited, the Sri Lanka based subsidiary of Aarhus United A/S of Denmark, bought a part of the Indian shareholding and took over the management of the company. In late 1994, shares equivalent to 25% of the total shares in the company were issued to the public so as to broad-base the ownership of and give the Company greater access to the capital market of Sri Lanka to raise capital funds for the future diversifications and expansions.

The Group consist of CW Mackie PLC and three subsidiary companies engaged in a diversity of activities such as export of primary and manufactured products, ranging from all types of natural rubber and coconut products to rubber based products; import, manufacture and distribution of sugar; import and resale of branded marine paints and protective coatings, welding equipment and consumables, refrigeration and air-conditioning and light engineering products.

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Lion Brewery : Set to roar again

Investment Summary

Lion Brewery (Ceylon) PLC (LION) is the leader in the soft alcohol market in Sri Lanka. LION has held market leadership since inception of its brand, “Lion Beer” by its parent, the Ceylon Brewery PLC (BREW) in 1881. Currently, LION commands 86% of the soft alcohol market in Sri Lanka, which despite difficult economic and security conditions has grown reasonably strongly by a CAGR of 3.6% over the past three years. LION’s beers are also exported to over 50 countries.

Strong links to Carlsberg. LION also brews, bottles and markets “Carlsberg” beer under license from the Danish brewer and is also 25% owned by that multinational. The links to Carlsberg has also enabled LION to acquire world class brewing technology, thus enhancing its operating efficiency.

Soft alcohol/beer market poised to grow. With the end of the military conflict,we expect strong revival in demand for beer, underpinned by opening up of new markets in the northern and eastern provinces, the likely sharp increase in tourist arrivals, improved security conditions which will prompt increased demand for recreation activity and of course rising disposable incomes underpinned by economic expansion.

Low per capita consumption of beer points to upside potential. Per capita consumption of soft alcohol/beer in Sri Lanka at 2.45 litres per annum is low by regional standards and thus offers tremendous opportunity for improvement as disposable incomes rise and inflation is maintained at sustainably low levels.

LION ventures into India with Carlsberg. LION has also begun to invest in a number of new breweries in India together with Carlsberg in order to exploit the vast untapped market in the sub-continent. LION has effective ownership of 22.5% of South Asian Breweries Limited, which has already constructed five breweries in India.

Earnings to grow by a near eight fold in FY10E. Underpinned by lower raw material costs and improved market conditions, LION’s net profit has grown by nearly a ten fold YoY in 1H10 to LKR 237.1 mn. We are projecting LION’s full FY10E earnings to grow by a further eight fold YoY to LKR 437.0 mn. As demand improves, we are projecting LION’s net profit to grow strongly by 30.1% YoY to LKR568.6 mn in FY11E.

Share attractive on 11.4X forecast FY11E net profit. Having hit a low of LKR42.75 in 7th January 2009, LION’s share price has risen strongly by 75.4%. Following this gain, LION trades on a relatively heady 13.7X projected FY10E net profit.

But given our expectation of a sharp increase in FY11E earnings to LKR568.6 mn, LION is attractive on a PER of 10.6X, given the expected strong growth in demand for soft alcohol/beer, the company’s near monopoly status, likely gains from the foray into India and high ROE. We rate LION a BUY


The LION's story

Lion Brewery (Ceylon) PLC (LION) is by far Sri Lanka's dominant manufacturer and marketer of soft alcohol. The company produces the highly popular "Lion" brand of beers and stouts and also "Carlsberg" beer (under licence from Carlsberg International of Denmark). LION commands a near monopoly share of the soft alcohol market in Sri Lanka and also exports its Lion brand of beers and stouts to Maldives, UK,Japan, Australia, France, Canada and West Africa, although export volumes are still small.

Owned by the Carsons Group. LION is 50.4% owned by Ceylon Brewery PLC [BREW:LKR112.00], which in turn is 66.63% owned by the diversified investment group Carson Cumberbatch [CARS: LKR90.00). CARS is owned and managed by the Selvanathan family, one of the oldest business families in Sri Lanka. The other major shareholders of LION are Carlsberg Brewery Malaysia Berhad (24.6%), HSBC Intl.Nom. Limited - BBH Genesis Smaller Companies (9.86%), HSBC Intl. Nom. Limited - SNFE-Arisaig India Fund Limited (5.95%) and Ceylon Guardian Investment Trust PLC (2.68%).

Pedigree of over a century. The Lion brand is owned by BREW and has a history of over 100 years. BREW was established in 1881 by British entrepreneur Sir Samuel Baker with the brewery being set up in the hill country town of Nuwara-Eliya (175 kilometres east of Colombo). The location of the brewery had apparently been influenced by a water fall that produced crystal clear water which gave Lion beer a unique flavour and hence its legendary popularity.

However, with expanding demand and age, the Nuwara-Eliya brewery had clearly reached the end of its life span by the late 1980s, as capacity and efficiency constraints (and of course high government taxes) began to be a drag on the financial performance of BREW. Consequently, a major re-organisation of the company was undertaken in the mid 1990s with LION being established to construct a brand new brewery and takeover the manufacturing and marketing of Lion beer.

However, the Lion brand continues to be owned by BREW and hence, it is recorded to have paid a royalty of LKR53.98mn in FY09 to BREW for its use.

State-of-the-art brewery. LION's brewery was constructed in Biyagama (25 kilometres east of Colombo) and began commercial production in early 1998. The modern brewery with an initial capacity of 300,000 hectolitres p.a. cost LKR 1.8 bn to complete in 1997 and was funded by equity of LKR 1 bn and bank borrowings of LKR 0.5 bn.

BREW took up 50.4% of the initial equity and Carlsberg Brewery Malaysia invested 24.6%. The balance 25% of the equity was raised via an IPO, which listed LION on the Colombo Stock Exchange in 1997. Capacity of the brewery has subsequently been increased to 500,000 hectolitres p.a. funded largely by retained earnings.

Links to Carlsberg of Denmark. LION also brews, bottles and markets beers under the world renowned "Carlsberg" brand with licensing from Carlsberg International of Denmark. Its strong relationship with Carlsberg gained evidence with its tie up to float South Asian Breweries in 2006, and now its present foray into India.

Background

Strong Management. Being part of Carson Cumberbatch group has enabled LION to assemble a highly competent management team in addition to being able to draw on the expertise of the parent. CARS is a diversified group with investments in oil palm plantations (in Indonesia and Malaysia), property, insurance underwriting (Union Assurance), listed equities, hotels and beverages. LION's Chief Executive, Suresh Kumar Shah has been with the Company for about 18 years and was instrumental in setting up the new brewery. Further, the senior management of the company have extensive experience in the retailing industry.


BEER MARKET POISED FOR GROWTH

Demand for soft alcohol/beer has been dampened by inflationary pressure and hence lower disposable incomes, relatively high government taxes (which also deflected demand towards illegal and illicit hard liquor), negligible levels of tourist arrivals, security conditions that have curtailed recreational activity and the ban on media advertising. Despite the tough market conditions, demand for soft alcohol/beer has grown over the past two years with sales/production volumes reaching 57.3mn litres, as per the Administrative Report of the Commissioner General of Excise for the year 2008, up by 15% YoY. We also estimate that sales/production volume to remain stagnant at 57.3mn litres in 2009.

However, with the end of the military conflict, we expect strong revival in demand for beer, underpinned by opening up of new markets in the northern and eastern provinces, the likely sharp increase in tourist arrivals, improved security conditions which will prompt increased demand for recreation activity and of course rising disposable incomes underpinned by economic expansion.

Further, per capita consumption of soft alcohol/beer in Sri Lanka at 2.45 litres per annum is low by regional standards and thus offers tremendous opportunity for improvement as disposable incomes rise and inflation is maintained at sustainably low levels.

Against the above backdrop, we are projecting demand for soft alcohol/beer to grow by 18% YoY to 67.6mn litres in 2010 and further by 19% YoY to 80.5mn litres in 2011.

Lower relative prices likely as inflation eases
The biggest deterrent to the growth of the soft alcohol/beer market in Sri Lanka is the high incidence of Government Taxes. The final retail price of a typical 625 millilitre bottle of beer has risen from Rs. 60.00 in 2004 to Rs. 110.00 in 2009, roughly at a CAGR of 10.8% p.a. And the major part of this increase has been due to Government Taxes. Currently, 40% of the retail price of a bottle of beer is accounted for by Government Taxes. The high incidence of Government Taxes coupled with the historically high level of general price inflation in the country has put the relative price of soft alcohol/beer beyond the reach of the average consumer. This has compelled consumers to shift to consumption of hard liquor and more so to illegal and illicit hard liquor (with high content of alcohol), which are perceived as providing a “greater kick per rupee spent”.

However, we believe that as general price inflation in the country falls to sustainably low levels, the relative price of soft alcohol/beer will decline vis-a-vis hard liquor. This will also provide greater space for soft alcohol/beer producers to negotiate tax increases with the Government that could be absorbed by the market/consumer, making the products more affordable. A further step by the Government to ease its policies on the soft alcohol segment, would contract the vast illicit portion constituting approximately 60%-90% of the alcohol market. Thus giving room for LION to further utillize its potential outlay.

Lion is king of the market
LION is the undisputed leader of the soft alcohol/beer market in Sri Lanka and commands a composite 86% share of the market. The second largest producer, Asia Pacific Brewery, has only a 15% share, whilst McCallum Brewery holds approximately 2%. Imports account for a very minute portion of the market but locally manufactured soft alcohols are protected by lower Government Taxes and hence imports are unlikely to be a significant threat.

One of LION’s key competitive advantages is also its extensive distribution network.LION distributes its products across the length and breadth of the country via a network of 2,500 retail distributors. This strong retail chain has enabled LION to overcome the Government’s ban on advertising its products in public media and continue to dominate the market.

LION also exports its Lion brand to Maldives, UK, Japan, Australia, France, Canada and West Africa, with Maldives being the largest destination. LION expects export sales volumes to continue to grow at around 50% per annum over the next three years as global economic recovery takes hold.

We are also projecting LION’s export sales revenue to grow on the underpinned by global economic recovery.

The brand strength of a lion
LION’s key strength is its legendary product brand “LION BEER”. The Lion brand has been nurtured for over a hundred years and is one of Sri Lanka’s oldest and most recognised brands. Lion beer’s legendary popularity is apparently derived from the location of the original brewery in the salubrious climes of Nuwara-Eliya. The story is that the brewery was constructed adjacent to a water fall that yielded pristine clear water, which when used in the brewing process gave Lion beer an apparently distinct flavour. Over the years, Lion beer has also won many international accolades further augmenting its brand image/equity.

Strong brands are a significant asset in Sri Lanka’s consumer market place as customer loyalty once earned is not easily swayed by competitors, not even by multinationals. The prevailing restrictive market in the country also deters competition allowing LION to continue its roar as the king of the leading brand.

Lion lager leads the way
LION brews, bottles and markets three beers under the Lion brand – Lion Lager, Lion Strong Beer and Lion Special Brew, a stout also under the Lion logo – Lion Stout and Carlsberg beer under licence from its original Danish brewer.

The most popular product by far is “Lion Lager” accounts for majority of LION’s sales volume. The second largest seller is Carlsberg, accounting for the next largest.

A bulk of LION’s products are packed in 625 millilitre bottles. LION also sells beers in smaller 300 millilitre bottle aimed at the impulse market and now even in cans. Further, in FY2009, the company set up a brand new canning plant in order to pack it products in aluminium cans. The canned beers are an important addition to LION’s product line in the light of revival of the tourism industry, likely growth of the impulse and convenience segments of the market and also the company’s export ambitions.

Raw material costs can rise
LION’s gross margin has come under pressure over the past years falling from a 35% in FY07 to 32% in FY09. The decline in gross margin has been inline with the increase in global prices of raw materials. However, LION’s gross margin is on a recovery phase in FY10E, reaching 32.2% in 1H10 following lower commodity prices. The costs will be continue in the same phase with the falling prices of raw material in the year 2010 and will remain static afterward avoiding the prevailing inflationary impact. Successful research to back up the management’s thinking of using cheaper materials, with no impact on the quality or taste, has been largely accepted in the past years and would do so even in the future.

However, a gross margin of about 33%-34% has been maintained over time. EBITDA margins at 9.9% for FY09 is expected to reach 13.8% in FY10 and 15.2% in FY11 The main raw material used in the brewing process has been Malt, which is derived from Barley. Hops and Wheat (used in the brewing process), ox and Yeast (used in the fermenting process) are the other inputs.

We estimate that the raw material costs accounts for nearly 67% of LION’s production cost. However, in recent times LION has been substituting rice for malt given the fact that the commodity is abundantly available in the home country with no impact to taste or quality. This has been largely accepted by the consumers.

A major internal strength of LION would be its sophisticated manufacturing plants which is highly technical driven proving it to be a highly capital intensive manufacturer. This indicates its high reliance on electricity as a major source of energy, although gas plants have been set up within the premises as pilot experiments to cut down on the future reliance on Ceylon Electricity Board’s supply.

India, the new hunting ground
Having successfully marked its strong presence of the ‘Lion Brand’ in the First World regions such as UK, Canada, Australia, Japan, West Africa and Maldives, it has now successfully tapped the vast Indian Beer market. The Indian beer industry, with the third largest market in the world for alcoholic beverages, is savouring significant growth and is attracting large investments from brewing giants across the world. The Indian beer market is pegged at 13mn hectolitres, which is 26 times of Sri Lanka and is expected to double in the next few years. LION’s investment in Carlsberg India through South Asia Breweries (LION has an effective ownership of 22.5% of the joint venture brewery in India whilst the remainder is held by Carlsberg and Industrialization Fund for Developing Countries [IFU]). We see huge potential in that investment over the medium long term with the expansion into their fifth brewery at Andhra Pradesh.

This move had been identified as one of the fastest growing ventures exhibited by an international brewer. Carlsberg now operates 4 breweries in India. First one in Aurangabad Maharashthra, Kolkata, then in Himachal through the acquisition of small breweries in that region and a more recent one which began operation in 2008 in Alwar- Rajasthan. Each of these has a combined capacity of 825,000 hectolitre or nearly 10 million cases (of 7.8 litre each) annually. Carlsberg had also reported to have started off with its fifth brewery in Andra Pradesh. Sale of alcohol has been growing steadily at 6% and is estimated to grow at the rate of 8% per year.

Beer sales in India is forecasted to grow at a CAGR of 17.2% to 2011. So, with the Indian beer industry seeing steady growth, Carlsberg had proved to have been able to capture about 10 per cent market share in Delhi and Kolkata and about five per cent in Western India in just 6 months after initiation. Carlsberg’s claim of 450,000 hectolitre of domestic sales in 2009 has surprised industry watchers, who have tracked the global beer maker’s investments into manufacturing keenly. While the beer market is growing at a YoY rate of about eight to ten per cent, Carlsberg had also planned to capture about 15 per cent of the total market share in two years and increase its current capacity of 15 mn hectolitres p.a with the loosening of Quantity Restrictions.

All these ensure substantial capital gains in the future though this investment had proven to have a prolonged pay back period.

Profit Outlook
LION has a strong medium term profit outlook on the back of recovery in market conditions. Its established position in the market will enable it to maintain its share and is not likely to be seriously threatened.

Strong growth expected in the upcoming years
Revenues are expected to grow by over 28% YoY in FY10E with the opening up of the war zone areas and the economy at large recovering carrying forward higher levels of celebrations during the festive seasons, when compared to only a 17% YoY in FY09.

A close to eight fold YoY increase in net profit at LKR437.0 mn for the next FY10E is forecasted, having the festive and high peak seasons in mind, reporting a PBT of LKR470.7 mn with a YoY increase of close to four fold. A further increase in profits by 30.1% YoY to LKR586.8 mn with a PBT YoY increase of 31.6% at LKR619.3 mn is forecasted with the North and East markets gain momentum by FY11E.

However 2Q10 revenue had increased by 12.9% QoQ to a near LKR1,880.5 mn and a QoQ decrease of 23.4% finance cost to LKR77.1 mn relieves the gearing level of the Company and broadens the financing scope of the highly aggressive investment theme of the present management.

A huge portion of the FY09’s profits were offset by the finance costs which is expected to ease in the next year with decreasing interest rates and thus providing LION to extend its capacity more easily with its current safe gearing.

It is evident that LION would recover from its fluctuating profit levels and report a more stable and upward moving profit figures shooting up the reported half year earnings of LKR237.1 mn with an EPS of LKR4.30, assuming that the policies of the nation remains favourable.

Despite the unsatisfactory global conditions, LION had been able to remain strong and mark satisfactory contributions. With the recovery from the global economic slowdown coupled with the company’s continuous efforts in new product development (canning facility) and its market penetration strategies as we believe set opportunistic boundaries.

Valuation
LION is on the course of a sharp revival with earnings expected to grow by CAGR of 61.7 % over the next three years. Underpinned by lower raw material costs and improved market conditions, LION’s net profit has grown by nearly a ten fold YoY in 1H10 to LKR 237.1 mn. We project LION’s earnings to grow by a further eight fold YoY to LKR 437.0 mn in FY10E. As demand improves with the North and East markets gaining momentum, we project LION’s net profit to grow by a strongly 30.1% YoY to LKR568.6 mn in FY11E.

Share attractive on 10.6X forecast FY11E net profit. Having hit a low of LKR42.75 in 7th January 2009, LION’s share price has risen strongly by 75.4%. Following this gain, LION trades on a relatively heady 13.7X projected FY10E net profit. But given our expectation of a sharp increase in FY11E earnings to LKR568.6 mn, LION is attractive on a PER of 10.6X, given the expected strong growth in demand for soft alcohol/beer, the company’s near monopoly status, likely gains from the foray into India and high ROE. We rate LION a BUY.

Source - Asia Securities Research

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Sri Lanka Keeps Rates at Five-Year Low to Spur Growth

Sri Lanka’s central bank Governor Nivard Cabraal kept benchmark interest rates unchanged at a five-year low to spur investments and aid economic growth after the end of a 26-year civil war.The Central Bank of Sri Lanka left the reverse repurchase rate at 9.75 percent, the Colombo-based bank said. The repurchase rate was also maintained at 7.5 percent. The economy will expand more than 6 percent this year, Cabraal said in a Bloomberg Television interview today.

“The rate is sufficient to stimulate growth as well as ensure that any risk of inflation is also curtailed,” Cabraal said. “We need not have any fear” of inflation now, he said.

The island’s biggest companies including John Keells Holdings Plc and Aitken Spence & Co. are expanding their hotel and shipping businesses to take advantage of a rebound in the $41 billion economy. President Mahinda Rajapaksa is holding an election two years before his mandate expires after the defeat of the Liberation Tigers of Tamil Eelam rebels in May helped push growth above 4 percent in the third quarter.

“The central bank wants loan books to grow and money to flow into the economy,” Saminda Weerasinghe, research manager at Acuity Stockbrokers Pvt. in Colombo, said before the report. “Inflation pressures aren’t that great.”

Inflation Forecast

Sri Lanka’s inflation rate was 4.8 percent in December, less than half that in January 2009. Today’s rate decision took into consideration a potential pickup in inflation, Cabraal said in the interview before the central bank policy statement.

“Projections of inflation for 2010 indicate benign inflationary pressures, enabling inflation to be in single digits by year end,” the central bank said in the statement.

The economy may grow 7 percent in 2010, the fastest pace in four years, spurred by company investments and construction of new roads, ports and power plants, Cabraal said Jan. 4.

John Keells, Sri Lanka’s biggest diversified company, said in November it will invest about $100 million to build new resorts to benefit from a tourism revival after the war.

Aitken Spence, Sri Lanka’s biggest operator of resorts, plans to expand its hotel and shipping businesses while Commercial Bank of Ceylon Plc, the nation’s biggest private lender by assets, aims to extend more loans in the northern and eastern regions, which were recaptured from the Tamil Tigers.

Presidential Polls

Rajapaksa scheduled presidential elections to be held on Jan. 26, betting the economy’s recovery will boost his popularity.

Cabraal has kept interest rates unchanged for two straight months. He lowered the central bank’s reverse repurchase rate by 75 basis points and the repurchase rate by 50 basis points in November. A basis point is 0.01 of a percentage point.

“We have seen a sharp increase in lending during the past month which indicates to us there is stimulation taking place,” Cabraal said. “If we find there is a bubble being formed or too much liquidity being created, then we would think it’s time for us to increase the rates. But we haven’t seen any such danger right now.”

Sri Lanka’s benchmark stock index, the Colombo All-Share Index, jumped 125 percent last year, outperforming the rest of Asia and trailing only Russia worldwide, on prospects of an economic rebound in the Indian Ocean island.

The International Monetary Fund, which granted Sri Lanka a $2.6 billion aid package in July, expects the island’s economic growth and credit demand to pick up.

By Anusha Ondaatjie and Susan Li - Bloomberg

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Behind The Numbers…Beneath The Surface !

• Recovers from BOP crisis but economy slowing due to imports contracting
• Though LTTE was defeated peace building yet to take off
• Private sector corruption gets exposed
• Stock market buoyant but corporate health in question
• Inflation reported low but brand penetration declines

Being responsible for different facets of the Sri Lankan economic agenda in the last couple of years and having travelled to Jaffna a number of times on military flights together with the soldiers going for war, gave me a very good sense of the ground reality. There are two themes that emerge in my mind that captures Sri Lanka in 2009 — the first being the words of the former World Bank economist Ejaz Gharni who said God is a Sri Lankan.

When I initially heard this I laughed, but when I analysed the economic reality that unfolded in 2009 and the response that Sri Lanka has thrown back to the world, I now agree with the sentiments that God is a Sri Lankan! The second theme that captures my attention is from the Indian Foreign Minister Pranab Mukherjee. He commented that in a country, economics, the corporate sector and politics are interlinked. He went on to say that If people do not understand this reality and want these three areas to work in isolation then, a country’s growth trajectory will be stunted. I fully endorse this when I look back at 2009. Let me now highlight the key events that shook Sri Lanka last year.

Sri Lanka – The new Miracle of Asia

Private sector corruption
After having worked for almost 15 years in a multinational culture where honesty and integrity are required traits, when I decided to work for the government during the time I was pursuing a doctoral study programme the one question that I got bombarded with from my private sector friends was how do I work in a system that is so corrupt. My answer was easy – it is the private sector that corrupts the public sector.

I did not have to explain more as the Golden Key saga unfolded later on where corruption was in excess of Rs. 30 billion. This was the first shock for Sri Lanka in 2009. It was the first time in the history of the country that private sector corruption surfaced with over 10,000 witnesses that ultimately led to the biggest philanthropist in the country being remanded for almost nine months. I strongly believe that this is only the tip of the iceberg.

The sad fact is that the public sector is tainted with a peanut butter approach of being corrupt when the reality is that ninety five percent of the public sector consists of honorable and committed people who have come from the university system after topping their batch. The best case in point is the ‘Upahara’ scheme of Mobitel targeting the public sector which has zero bad debts. Hence the challenge in 2010 is strong reforms in the public sector and ensuring that corruption is curbed.

However, the reverse is currently happening in Sri Lanka with the public sector getting bloated with more recruitment and also consuming over 50% of the tax revenue for salaries and pensions which needs to be corrected in 2010. Public Sector reforms have to come in and curbing of corruption at all levels must take place if we are to drive Sri Lanka to a strong growth. However, a point to note is that this begins with me. Each of us needs to ensure corruption is not resorted to, to get things done in Sri Lanka.

Stock Market Reflection
Post May 18, Sri Lanka’s stock exchange was the golden light that kept Sri Lanka shining in the world stage. In fact when it was ranked as the fourth best performing stock exchange of the world, it did shake little Sri Lanka with this news as we as a nation were yearning for some good news post war. But the key question that needs to be asked is if this is an indicator of strong corporate health based on fundamentals or is it more to do with market sentiment?

Another point that needs our focus in 2010 is that, market capitalisation in Sri Lanka is lower than 30 percent hence the stock market indicator in Sri Lanka is not a real indicator of an upward movement of the economy. Hence in 2010 this needs to be corrected with the big boys in the private sector like Dilmah, Brandix and MAS attracted and listed in the Colombo Stock Exchange. It is only then that we can say the Sri Lanka stock exchange is a reflection of the Sri Lankan economy. If not, we are living in a make believe world that will not get us very far.

The reality of Inflation
Sri Lanka is currently showcasing to the world that inflation is at a low ebb of 3.4%. It may be the reality but when we analyse the panel data either by the trusted consumer panel from LMRB or the Retail Panel data of AC Nielsen we see that in many key consumer categories brand penetration has declined considerably. In fact the only reason that some categories are kept alive is due to the small packs that have been launched.
This fact is shaking Sri Lanka’s private sector as a typical brand health index throws off the brand momentum index declining not only of the brand but in the total industry. The best case in point is Sri Lanka’s banking industry in 2009.

I feel we need to get a grip of this issue in 2010 mainly because the January issue of LMD reports that a top management survey among a representative cross section of organisations reveals that 64% of them stated that the key barrier to growth was inflation. Hence comes the contradiction of how a reported 3.4% inflationary indicator can drive consumer behaviour away from a brand. One argument can be that the 3.4% inflation in 2009 is on top of a 22.6% inflation registered in 2008 in Sri Lanka. But I feel this issue has to be addressed as a priority if we are to support the private sector that accounts for over 75% of Sri Lanka’s economy.

LTTE and world pressure
During the time of the conflict — in my previous responsibility attached to the government — I used to be a frequent traveler to the north-east. Whenever I had to board a Sri Lanka Air Force flight to Jaffna I used to travel with soldiers who were going for war and the thought crossed my mind that I might never see them again. The interaction was so honest and genuine that some used to ask me if the war will really end.
However the unthinkable happened where the total hierarchy was wiped out ending the saga of terror that engulfed our nation for the past 30 years, that costed the country over two hundred billion dollars or more. The political leadership that saw this through ably supported by the strong military sure shook Sri Lanka in 2009.

However sadly post this great victory Sri Lanka has not seen a robust peace building initiative that many envisaged. Even though we are closing on to year I feel it’s not too late to begin this journey. However, the challenge is the political will to actually do this. My worry is that if this is not done fast another group similar to the LTTE can emerge and that has to be avoided at any cost.

Private sector reforms
Focusing on the private sector, when the financial crisis started spinning work economies the sector that was first effected in Sri Lanka was the apparel industry given that over ninety percent of its export markets are in the EU and US. However, this great industry went through some painstaking internal reforms and made itself competitive in the world stage that sure shook Sri Lanka. As we speak it is likely that the industry will taper out to maintain its financial delivery of the previous year. This demonstrated to the world the resilience of the people of Sri Lanka to changing market conditions.

The best names of the industry that came to the country for the first ever Sri Lanka Designer Festival were astonished to see world class manufacturing facilities like the Brandix Green Factory as well as the skill set of the workforce on the ethical tag. I guess the challenge in 2010 is for the telecommunication industry to take a few best practices from the apparel industry and make the industry financially strong. Reports coming in say that the industry is bleeding due to the price war.

Reserve scare
In March 2009, when Sri Lanka’s reserves dwindled down to a dangerously low ebb Sri Lanka was heading towards a BOP crisis which shook Sri Lanka at that time. However, Sri Lanka recovered and exited 2009 at a commanding $5.2 billion in foreign reserves. Even though this achievement was fuelled by foreign inflows through debt instruments and IMF loans, rather than export proceeds, the fact of the matter is that we came through this crisis.

Now the challenge is to strengthen our export marketing strategies in apparel, tea and the BPO business by directing the savings from the war towards these industries. We also need to drive up the R&D investment from the current 0.14% to at least 2% of GDP so that we can give leadership to the world in our exports. Believe it or not the tea industry in Sri Lanka has been operating in the international market without having any protection to the ‘Ceylon Tea’ name. What this means is that any packer in the world in any country can market products under the Ceylon Tea name. If we are to secure legal protection it would cost 25-30 million which has not been done and that explains the R&D gap that exists in the country. The good news is that plans are in place to correct this in 2010 but, the fact of the matter is that this should have happened 100 years ago, before we became a dominant player in the word market.

Political reality
With the war coming to a close and the capture of KP the administration’s popularity reached a peak but the subsequent events that unfolded resulted in a tussle for power where now the country is now bracing for a mega presidential election showdown. It sure shook Sri Lanka that was looking very positively to a stable political environment where the only focus will be economic and business growth. The reality right now is a nation where the productivity of people are at the bottom of the pyramid as the topic at any forum is ‘Who is in the lead?’ The challenge right now is for Sri Lanka’s private sector to focus on business growth and let the politicians do their bit but in reality this becomes a tough task.

Global crisis
Whilst there was much rhetoric that the global economic downturn will not hit Sri Lanka the fact is that no country could be insulated. The first quarter of 2009 saw the Sri Lanka economy contracting to 1.5% and it did shake Sri Lanka. Even though the economy grew by 4.2% in the third quarter of 2009 the latest data reveal that 89,000 people lost their jobs in the industrial sector and another 240,000 in the farming sector which is alarming.

Hence, Sri Lanka needs a new wave of investments in to the country. Latest research reveal that the country’s labour force has increased by only 1% in the period 1990 to 2008 whilst the projection as at end 2020 is that the labour force will grow by only 0.3%. These numbers will not do justice to Sri Lanka as other Asian countries are estimating a 2% increase. This can lead to severe social issues in the future that policy makers must address today.

But in a political economy like today there are bigger issues that push these critical issues into the back burner. This is the challenge for Sri Lanka. We require a change in policy making so that the economic landscape can be changed and if Sri Lanka’s private sector does not drive this together with the public Sri Lanka will get lost once again in the new economic order that is emerging post the financial crisis.

If we take Tamil Nadu for instance their very focused economic reforms have resulted in 27 of the top 100 companies having production facilities in the state and the latest information is that the Tamil Nadu government wants to have its own ranking on the ‘ease of doing business’ in the WTO report. This portrays the opportunity that Sri Lanka is fast losing.

Conclusion
Whilst Sri Lanka’s private sector has withstood the global storm in 2009, we need be cognizant of the fact that the trade deficit contracting is not a very healthy sign for corporate Sri Lanka. The reason being that this indicator means that the country’s performance is not driven by exports increasing but, imports contracting. In other words the Sri Lankan economy is slowing down. This needs to be corrected. A study done recently has revealed that unless 4 billion dollars in new investment come in annually Sri Lanka cannot target 8% GDP growth which tells us the policy reforms required to attract investments and drive growth. For this to happen the public sector reforms become a must which gives us the challenge ahead. If we do not drive for fast track economic growth, every time the world sneezes Sri Lanka will shake.

By Rohantha Athukorala
(The author is a former Chairman of the Sri Lanka Export Development Board and the National Council for Economic Development (NCED) when the country achieved 7.4% GDP growth. He is currently in the international public sector – United Nations Operations (UNOPS) as the National Portfolio Development Manager for Sri Lanka and Maldives. The thoughts are strictly his personal views based on his Doctoral Research Studies.)

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A storm is brewing in the world of tea

Jim Jones reads the global trends forecast in today’s costlier cuppa. A storm in a teacup? Forgive the intentional pun, but few people seem to have noticed that international tea prices have soared in the past year.

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DECLINING FORTUNES: Farmers work in a tea plantation in Thu Cuc village, 160km northwest of Hanoi, in Vietnam. Tea prices have soared in the past year Picture: REUTERS

Tea is not a large part of most families' grocery budgets and, by the time you chuck that packet of tea bags into your supermarket trolley, the high cost of the tea itself will have been partially mitigated by competition between producers of popular brands and the comparatively large share of packaging and distribution in the final cost of getting the tea into the supermarket.

In round figures, European tea drinkers have been paying 5% more than a year ago at the supermarket, and the English are complaining.

The fact is that tea is yet another product whose production and prices have been affected by the droughts that have hit large parts of the globe.

Blame it on global warming, blame prices on demand continuing to rise at a (fractionally) greater rate than production, blame it on what you will - tea is yet another commodity signalling that we could be facing a period of structurally higher agricultural prices.

Tea, too, is being affected by some governments' strategies for domestic food security.

Take India, the world's largest tea producer and consumer, though not the greatest exporter. Last year the monsoon delivered only three-quarters of its normal rainfall in the country's main tea-growing areas.

It may not seem like a large decline, but according to the Indian Tea Association, in the first 11 months of last year the country's total production slipped to 920.9 million kg from the same months' 2008 total of 922.2 million kg. By then average prices per kilogram at Indian tea auctions had risen by more than one-fifth to 104.6 rupees and the Indian government was restricting exports to ensure adequate domestic supplies. Exports fell to 169.3 million kg from a corresponding 186.9 million kg in 2008.

The fat was already in the fire. Drought had clobbered production in Kenya, the world's largest exporter and second-largest producer.

In the first 11 months of last year, production fell 9.4% to 278.8 million kg and exports fell 10.5% to 288 million kg.

At the Mombasa auctions, average prices were 14% up year on year, at $2.68/kg. If this were not enough, third-ranking Sri Lanka's January-November exports dropped 5.4% to 238.8 million kg even though production had risen by 17.9% to 263.8 million kg. In fourth place, more or less matching Sri Lanka, Chinese exports have been level pegging.

In December the UN's Food & Agriculture Organisation (FAO) came out with an emollient statement that prices should "ease" this year as Asian and African weather patterns returned to normal. The organisation's figures lag those of the tea association by some months, and the organisation was basing its forecast on September's record average world price for black tea of $3.18/kg.

Just before Christmas, Kaison Chang, the secretary of the FAO's Inter-Governmental Group on Tea, the only international tea authority, said: "The return of normal weather patterns in the main producing regions indicates that the tight global market situation should begin to ease, alleviating the pressure on world tea prices in the New Year," he said. It will need to.

Between 2007 and 2009 global consumption exceeded production by 3.4%. And over 2005 to 2009, consumption increased by 0.8% while production was falling by 0.6%. As it was, the FAO secretary was dismissing fears of an oversupply developing if countries expanded the acreages planted to tea in response to the higher prices. He said India had said it would not be taking that route.

The signs, though, are not altogether promising for consumers, even if we are looking at extremely short-term trends.

At the Assam Tea Exchange, prices achieved at 2010's first auction were higher than those in 2009's final week.

In the meantime, Indian tea producer McLeod Russel was recently reported by the Financial Times as having been buying tea plantations in Uganda, a country whose tea exports are a fifth of India's currently reduced sales.

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Fraud market for ‘honest criminals’ only

“Honour among thieves” was the guiding principle behind DarkMarket, the online marketplace for credit card fraudsters whose founder member, Renukanth Subramaniam, was facing jail on Thursday.

In the same way that legitimate e-commerce sites such as Ebay and Amazon rate sellers based on previous reliability, DarkMarket’s administrators ranked members on their honesty and the quality of their stolen financial details.

EDITOR’S CHOICE

Web trader in stolen financial data faces jail - Jan-14

Online crooks steal £2.6bn in UK - Jan-14

Internet crime costs UK billions - Jun-25

IT industry backs cyber-security strategy - Jun-25

Examples of comments on sellers included phrases such as “bought order from this guy, had pretty good success: thumbs up” and “pulled £3,000-plus from one debit classic, nuff said”.

Russell Tyner, a prosecutor from the Crown Prosecution Service’s organised crime division, said: “Although the people on DarkMarket were criminals, their reputation for being honest criminals was vital.” If members were shown to have sold on unreliable information, they soon found themselves kicked out of the site.

Police say sites such as DarkMarket have become popular as hackers from countries such as China and Russia look for customers in western markets.

“If you’re a guy in Vietnam who has got hold of the details of thousands of US credit cards, he can’t use those in his own country so DarkMarket and sites like that let him sell to people in a geographical location where they can be used,” said one detective.

DarkMarket operated on an invitation-only basis similar to a members’ club, where a new applicant had to be “vouched for” before being given a password.

The 2,000-strong community included a number of reviewers. When a new member joined, they would be asked to provide the details of 100 compromised cards to a reviewer, who would test that they were valid. “If they were OK, they would get a decent rating, if not they were either out or put on a trial period,” the detective said.

Police described DarkMarket as a “very sophisticated” site, which offered subsidiary services ranging from arbitration to resolve member disputes to an escrow service for money transfers – described by the judge yesterday as a “criminal PayPal”.

Senior site members could make extra money providing such services and trading large numbers of financial details.

DarkMarket was brought down after undercover agents from the FBI and the US secret service, using the online nicknames MastrSplyntr and sockaddr, infiltrated the site.

John McHugh, a reviewer at DarkMarket known as “devilman”, also pleaded guilty to conspiracy to defraud yesterday.

Convictions of online criminals are difficult to secure because of the anonymity of the internet and usually require some “real world” proof of wrongdoing. Mr Subramaniam was filmed by Soca accessing the DarkMarket site under the JiLsi name at the Java Bean cafe in Wembley, the base for his activity. JiLsi sent sockaddr details of credit cards that had been compromised at a petrol station in Portsmouth.

Welcome to DarkMarket – global one-stop shop for cybercrime and banking fraud

• Personal data and tutorials in hacking offered online
• Founder of site traced to London internet cafe

Renukanth Subramaniam, 33, is accused of being a key figure in running DarkMarket, a website where criminals exchanged information on stolen credit cards and other data. Photograph: Serious Organised Crime Agency/AP

To the casual observer, there was little to distinguish the Java Beaninternet cafe in Wembley from the hundreds of others dotted around the capital. But to surveillance officers staking it out month after month, this unremarkable venue was the key to busting a remarkable and sophisticated network of cyber criminals.

From the bank of computers inside, a former pizza bar worker ran an international cyber "supermarket" selling stolen credit card and account details costing the banking industry tens of millions.

Renukanth Subramaniam, 33, was revealed today as the founder and a major "orchestrator" of the secret DarkMarket website, where elite fraudsters bought and sold personal data, after it was infiltrated by the FBI and the US Secret Service.

Membership was strictly by invitation. But once vetted, its 2,000 vendors and buyers traded everything from card details, obtained throughhacking, phishing and ATM skimming devices, to viruses with which buyers could extort money by threatening company websites.

The top English language cybercrime site in the world, it offered online tutorials in account takeovers, credit card deception and money laundering. Equipment – including false ATM and pin machines and everything needed to set up a credit card factory – was available.

It even featured breaking-news-style updates on the latest compromised material available, while criminals could buy banner adverts to promote their wares.

So vast was its reach, with members in the UK, Canada, US, Russia, Turkey, Germany and France, the UK's Serious Organised CrimeAgency (Soca), which helped bust it, said it was "impossible" to put a figure on how much it cost banks worldwide.

Subramaniam, who used the online soubriquet JiLsi, was remanded in custody at his own request at Blackfriars crown court today after pleading guilty to conspiracy to defraud and five counts of furnishing false information. Judge John Hillen warned it was "inevitable" he faced a "substantial custodial sentence".

A Sri Lankan-born British citizen, Subramaniam was a former member of ShadowCrew, DarkMarket's forerunner, which was uncovered by the US Secret Service in 2004. "JiLsi was one of the highest in cybercrime in this country with what he managed to achieve setting up a forum globally. No JiLsi, no DarkMarket," said one Soca investigator.

Its 2,000 members never met in real life. Quality, not quantity, was the key. DarkMarket was fastidious in banning "rippers" who would cheat other criminals. Honour among thieves was paramount.

It operated an "escrow" service, with payments and goods exchanged through a third party – "like a PayPal for criminals", the judge observed, and an arbitration service resolved disputes. To keep off the radar, the rules were strict: no firearms, drugs or counterfeit currency.

Built on a pyramid structure, administrators decided who joined, moderators ran specific site sections, and reviewers vetted wannabes – each demanding 5% or £250 per transaction as a fixer's fee.

To get on, criminals had to present details of 100 compromised cards free of charge - 50 to one reviewer, 50 to another. Reviewers would test the cards and write an online review of customer satisfaction – just like eBay customers. "If the cards did what they were supposed to … they would be recommended. If not they weren't allowed in," said the investigator.

Payment was via accounts on WebMoney, or E-Gold. "It was the QuickTime method of sending money anywhere."

Subramaniam was one of the top administrators. He kept his operating system on memory sticks. But when one was stolen, costing him £100,000 in losses and compromising the site's security, he was downgraded to reviewer. Surveillance officers caught him logging on to the website as JiLsi unaware the fellow criminal MasterSplyntr he was talking to was, in fact, an FBI agent called Keith Mularski.

Considerable money was exchanged, though actual transactions took place away from the site for security reasons. One buyer spent £250,000 on stolen personal information in just six weeks.

Described as "a very quiet man", Subramaniam worked at Pizza Hut and as a dispatch courier. "He owned three houses but was largely itinerant," said Sharon Lemon, Soca deputy director. "The key to investigations of this sort is finding the evidence to connect the online persona with a living, breathing person."

Harendra de Silva QC, defending Subramaniam, said the "evidence was unchallenged" but said the "question of interpretation does arise in certain areas" and there would be submissions on "nuance" of the fraud in so far as it applied to his client. He is charged alongside John McHugh, 66, known as Devilman, also a site reviewer who has pleaded guilty to conspiracy to defraud and at whose Doncaster home officers found a credit card-making factory. The two will be sentenced later.

But the battle against cybercrime continues. "This was one of the top 10 sites in the world, but there are more than 100 we know of globally, and another 100 we don't yet know of," said the investigators.

In the DarkMarket

DarkMarket price list

Trusted vendors on DarkMarket offered a smorgasbord of personal data, viruses, and card-cloning kits at knockdown prices. Going rates were:

Dumps Data from magnetic stripes on batches of 10 cards. Standard cards: $50. Gold/platinum: $80. Corporate: $180.

Card verification values Information needed for online transactions. $3-$10 depending on quality.

Full information/change of billing Information needed for opening or taking over account details. $150 for account with $10,000 balance. $300 for one with $20,000 balance.

Skimmer Device to read card data. Up to $7,000.

Bank logins 2% of available balance.

Hire of botnet Software robots used in spam attacks. $50 a day.

Credit card images Both sides of card. $30 each.

Embossed card blanks $50 each.

Holograms $5 per 100.

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Sri Lanka opposition presidential candidate's speech to the business community

Sri Lanka's common opposition candidate for upcoming presidential polls, retired general Sarath Fonseka met the business community Tuesday.



The following is the prepared text of his speech.


Dear Friends,

I come before you today, not as a politician with years of experience, but as someone with a lifelong commitment to safeguarding the country. It was this commitment that saw me leading the security forces to a decisive military victory over the LTTE, which many said was not possible.

Of course the victory would not have been possible without the commitment of the three forces, the police and the civil defence force, many of who made the ultimate sacrifice with their lives.

The victory we secured for all Sri Lankans was not an end in itself. It was the decisive beginning towards restoring peace that would enable us to re-build the country and put it firmly on the path to economic recovery and development. We owed this to the general public who gave us the moral support and patiently endured many economic hardships. We owed this to the soldiers who sacrificed their lives and those who suffered permanent disabilities. We even owed the international community that supported the war against terrorism.

Sadly, this hasn’t happened.

Corruption and Mismanagement


Nearly eight months after victory was declared, the incumbent regime is continuing to glorify the military triumph as a personal achievement at the expense of the follow-up needs - that of reconciliation, peace building, infrastructure development and economic resuscitation. It has effectively managed to place the nation in a time warp of victory euphoria, disguising the rampant corruption and one family rule, while sidelining the urgent need for progress on numerous fronts, the least of which is good governance that ensures transparency and accountability.

The nation’s wealth is being squandered on self- perpetuating projects that are both wasteful and meaningless. Billions have been lost due to corruption, nepotism, mismanagement and waste. Public funds are being used to sustain and nurture a single family. The goodwill of the international community has been destroyed, so much so the US and the European Union have become our harshest critics. The economy is in ruins and we are on the verge of losing the GSP+ trade concessions that are of immense benefit to our export sector and the hundreds of thousands employed in the apparel, ceramics and many other sectors.

Under the guise of security, our citizens are increasingly being denied their democratic freedoms. Dissent has been suppressed, sometimes violently, with the independent media and its journalists coming under frequent threats and attack. A significant segment of the Tamil population from the north continues to languish in IDP shelter and in transit camps with uncertain futures. The rule of law has morphed into the rule of political might, depriving the common man the right to equal justice. Even powerful groups such as the formal business sector, professional bodies, academics, the judiciary and those maintaining law and order have not been spared. The nation is gradually drifting towards a dictatorship, with fear replacing freedom and discontent replacing hope.

My Vision


Was this the post war developments we envisaged? Certainly not. This is why I consented to contest the Presidential Election as the common candidate of the opposition. Sri Lanka at this juncture needs a leader, who is disciplined, committed, honest, forthright and not afraid to make tough decisions. Just as my decisions of the past, my decision of the future will always be in the interest of the nation. I have delivered on my promise to rid the country of terrorism. Now I promise to restore democracy and good governance, eliminating corruption, waste and all other evils that have blighted the promising prospects secured with our hard fought victory over terrorism.

I have a vision of a free Sri Lankan, where decent and functional democracy prevails and the rights of all citizens are upheld. A Sri Lanka free of discrimination and with equal opportunity for all. A Sri Lanka not weighed down by the tyranny of an Executive Presidency, but where the best men and women run for Parliament and those elected have the highest standards of ethics. A Sri Lanka where every family enjoys three square meals a day and every Sri Lankan is ensured access to a safe health service, quality education and gainful employment.

Believable Change


To do this, Sri Lanka needs change, believable change.

As a man who keeps his promises, I have pledged that my first act upon assuming office will be to reactivate the 17th Amendment to the Constitution by appointing the Constitutional Council for the re-establishment of the Independent Commissions. I will then dismantle the jumbo cabinet and invite all parties representing Parliament to nominate members to a caretaker cabinet. I will then dissolve Parliament. Within a month cabinet papers will be presented for the approval of a Constitution Amendment Bill to abolish the Executive Presidency and take necessary step to ensure that the most free and fair elections in Sri Lanka is held.

Within three weeks my multi-party Caretaker Cabinet will bring new regulations to combat fraud and corruption in conformity with the UN Convention against Corruption. A powerful agency to combat fraud and corruption will be established along with an independent commission to audit all public finances. I will also ask the new Parliament to pass Parliamentary Code on Ethics, similar to that of developed democracies and appoint an independent Parliamentary Ethics Commission to uphold Parliamentary ethics on finances.

Fiscal Responsibility


These mechanisms will ensure that government acts in a fiscally responsible manner and cuts waste and losses due to corruption. Prof Indraratne; the President of the Sri Lanka Economic Association has estimated that corruption in government causes a loss of 9 % of GDP. This is a staggering Rs 400 billion a year at present. In addition the wasteful government expenditure including expenditure incurred by 108 ministers is phenomenal. Elimination of corruption and waste will help the immediate reduction of heavy and unwarranted taxes and help bring the budget deficit to a manageable level, leading to freeing up of resources for the private sector, lower interest rates and sustained lower inflation.

Economic Growth


The time has come for Sri Lanka to unleash its true potential and boost economic growth. We need to have an economy where the private sector and the public sector work in partnership to serve the people in a corruption-free environment.
We must ensure there is the right amount of regulations and the rights and obligations of workers as well as employers are protected.

We also need to learn from the economic policies of our previous governments, so future mistakes are avoided. We must undertake necessary reforms and adopt pragmatic approaches.

We need to create wealth in Sri Lanka by encouraging not only big business but equally importantly village level entrepreneurship. We need to ensure the distribution of this new wealth equitably to all people, not just for a selected few.

The Ease of Doing Business ranking for Sri Lanka has dropped from 97 to 105 from 2009 to 2010. Under my watch, I will ensure Sri Lanka is brought to the top 50 by streamlining and simplifying the process of starting a business, making tax payment, obtaining construction permits, registering property, obtain credit and carrying out cross border trading. I assure you that the current kappam regime will be demolished. We will also look into impediments to accessing finance, especially leasing, for the Small and Medium Enterprise sector, which has become very expensive because of wrong tax policies.

The streamlining process will also see the reintroduction of the one-stop-shop concept that was practiced by the BOI in the old days, to help improve investor facilitation. Today, the BOI only gives licences and the investor has to deal with various government departments to get other approvals. The National Enterprise Development Authority (NEDA) which was set up mainly to assist Small and Medium Enterprise has proved to be ineffective. Both the BOI and NEDA have to be refocused on business facilitation throughout the country, with special provisions for the development of North and East.
Another area we will focus on is the construction industry, which at present has no work as most government projects are carried out by foreign contractors including labour at very high cost. Foreign contractors must be made to subcontract a part of their work to local contractors.

I will also urgently address the problems faced by the tourist industry to make sure the infrastructure is ready to receive the expected large inflow of tourists.

Better Salaries


I have pledged to increase the salaries of the public sector employees. As I have explained, this can be done by eliminating waste, mismanagement and ridding the country of corruption that continues to gobble up billions of rupees in state revenue. By negotiating with the private sector stakeholders and by assisting in eliminating unwarranted taxes and payments that increase the cost of doing business as well as by having a realistic exchange rate, low interest rates and low inflation I hope the salaries of private sector employees can be increased. By adjusting the income tax threshold I hope to help these employees take home more of their hard earned salaries.

I will also take steps to correct the tax anomalies that see the private sector retirement benefits being taxed 3 times; employees contribute to the EPF from their after tax salaries (only Rs 25,000 per year is allowed as qualifying payment); the fund itself pays tax; the benefits are again taxed when the employee receives it. This creates hardship to the retirees and needs to be set right.

Employment opportunities for the Youth


Youth unemployment is an area that needs to be addressed urgently. Accordingly, within three months, I will take steps to initiate a ‘Youth Challenge Programme’ which will provide vocational training for young people between the ages of 17 and 25 and will establish a ‘Youth at Work Programme’ under which the government and the private sector will find jobs for youth who complete the youth challenge programme.

GSP +


I have stated time and again that this government is pilfering a golden opportunity to reap the economic benefits of defeating the LTTE. However it bears repeating, because today, when we have a unique opportunity to put our country on the right path, the prospect is being wasted because of the government’s arrogance and political expedience. This fact is nowhere better illustrated than by the foolhardy manner in which the GSP+ issue is being mishandled. The President, Ministers and even the Governor of the Central Bank have gone on record stating that the European Union need not bother granting the GSP+ trade concessions to Sri Lanka.

The government’s sole purpose is to portray the GSP+ issue as an international conspiracy, to stoke up anti-west fervour and hoodwink the people into believing the west is all out to undermine the country’s economic progress. Playing politics with the lives of the innocent people has now become a pastime for those who put us in this dismal situation in the first place.

The GSP+ concessions were not a gift granted to the Rajapaksa administration. It was the result of hard work done by previous administrations and our Foreign Service, which ensured Sri Lanka was among the 15 countries the EU saw fit for the trade concessions, based on adherence to certain accepted standards of democracy. The benefits of these concessions are now obvious. Today the EU has overtaken the United States as Sri Lanka’s main export market for garments.

These trade concessions are not applicable purely to the apparel sector. Thousands of other products also benefit from it. The fact that Sri Lanka is a GSP + recipient nation has attracted the attention of many investors, who see our country as a gateway to the European Market. Furthermore, the potential of utilising the concessions to promote other products remain enormous, while it also give the apparel industry the additional fillip - to explore new and better options for market penetration in Europe.

Yet all this is now at risk due to the actions of a few. The EU is now threatening to discontinue the GSP + citing our poor human rights record.

I am not willing to gamble with the lives of the people of my country, especially the poorer segments who should not be punished for the grave mistakes of power hungry politicians. Given the opportunity, I promise I will make a determined effort to safeguard the GSP+ concessions, because losing it would mean wide scale livelihood loss for hundreds of thousands of Sri Lanka and a marked step backward for the apparel industry as a whole.

I am confident that with the return of good governance, democracy and due process to Sri Lanka, we will be in a position to obtain these concessions for a longer period. The lives of 800,000 people directly depend on this.

Political Partnership


Many political parties, forces, organisations and individuals have gathered around me in the hope that we can usher a better tomorrow for our country. The political parties that invited me to run for President reflect the great diversity among us. This is our strength. You may wonder how the JVP which professes a socialist, welfare oriented economy can be in the same league as the UNP which is known for its open economic policies. This is a valid question. I would like to ask a question which I initially asked myself. Why are such politically, ideologically and communally diverse parties rallying behind one candidate at this point?

The answer is a testament of our current predicament. All those who are now rallying behind me believe that there should be a country left for us to have ideologies and differences in opinion. It is no longer a matter about open or closed economy. It is now a matter of preserving democracy, re-establishing law and order and delivering on a functional state. After the Presidential elections the JVP and the UNP will go before the people and present their respective cases on their own if they wish to do so. Yet at this moment we are united in the cause to save our mother land. For, that necessity far outweighs any other difference we may have. It is in this spirit that so many others have thronged around us.

Conclusion


It is this spirit that will pave the way for a realistic and believable change on January 26, when the country votes for a new era of unity, vibrant democracy and development that will provide an equal opportunity for every Sri Lankan to enjoy the benefits of an economically strong and free country.

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