Ermila Smith (nee Ermila Jayasuriya) from Cardiff, whose beauty and bath products business Winter in Venice turned over £1m in its first year, won the “Best Product Design and Packaging” award, the “Women in Product Development” award and “Special Achievement” award at the top innovators in the British Female Inventor and Innovator of the Year competition – 2009.

Leuan Wyn Jones, Minister for the Economy and Transport, congratulated Ermila on her success. He said, “These innovative and clever ideas have created new successful businesses and jobs and I am delighted that Wales has done so well in this competition”.
Inspiration

Armed with just £60 in cash and a telephone directory, Ermila Smith (also known as Mel) launched an innovative range of beauty and bath products in 2006 – twelve months later her business had turned over £1million. Having started her business from scratch aged 26 years, Ermila now sells her goods worldwide through distributors and on-line, www.winterinvenice.co.uk

Mel says she was prompted to start her own business having made a lot of money for the people she worked for. Mel finally decided to use her creative abilities and convert her own ideas into a profit generating venture that would set the tone for a conglomerate of businesses that will complement each other.

Mel remembers starting off in her spare little box room with her cat Tom seated on the ‘in-tray’ and a plank on the wall that read ‘if you think you can or you think you can’t your right either way.’ It is the very fuel in those words that made Winter in Venice a million dollar company over night. I believed that I CAN’ says Mel, even when she faced some of the toughest critics with dismal funding who would not give her the light of day.

Brand Equity

What differentiates Winter in Venice from other products on the market is the artistic and eye catching presentation of the products. Rather than simply packaging the toiletries in traditional acetate boxes with ribbons Mel uses a range of different lifestyle related accessories to gift wrap her products. They are packaged in wooden pails, plant pots, fabric hat boxes or vanity boxes – which can all be re-used.

Winter in Venice is now sold in more than 800 stores nationwide including independent retailers, department stores and through on-line leaders like Amazon, who last year gave her an order worth more than £1m.

Ermila, who manages her own distribution in the UK, is setting up third party distribution networks throughout Europe and the US and also working on a number of licensing agreements to launch a Mother and Baby Range and a Gardening Range.

Surfing the Recession

Like many businesses Winter in Venice hasn’t been immune to the recession – Mel has had to make some difficult decisions and reduce overheads but is confident the business is now back on track and the business is creating retentions that would be invested into the new projects developed by WIV GLOBAL LIMITED the holding company of the Brand ‘Winter in Venice’. These new projects include a Hotel Range, a Men’s Range and bespoke private labelling for some of Britain Large Department Stores.

“The turnover in the first six months of this year confirms that we have broken even already and we are now into profit and have a number of new lines (stand–alone products), and new market opportunities ranging from corporate gifts to wedding favours. We create different brands to capitalise on the different segments of the market and are already creating a range of toiletries under a different brand at a lower price for the mass market,” she said.

Women in Management

Mel is keen to set up an ongoing mentoring system that enables women in management to regroup and assist each other through the development stages of new business. Mel is a certified management trainer and strategic planner and feels that it is time that women entrepreneurs really shoulder each other through a syndicate formed by women entrepreneurs that will train, assist and mentor new women start up businesses throughout Wales and the UK. The syndicate will be able to provide their services to members and piggy back on each other’s progress and drive a shared vision of progress and a ‘yes I can attitude’ to all those who dare to try. Mel hopes the syndicate will be used as a measuring centre to evaluate progress on start ups and medium sized businesses should they wish to regenerate new product concept, brand develop, marketing, or the basic good business keeping if you like on the administrative do and don’ts. I wish I knew then what I know now says Mel who has along the way made mistakes and feels that she has a lot to share with women like her.

She is being invited by several businesses and business Colleges throughout Wales to deliver lectures and inspirational talks on how to start up and grow businesses.

The Competition

The event is sponsored by the Welsh Assembly Government’s Wales Innovators Network which provides free advice and support to inventors and innovators and helps them develop concepts into commercial products.

She said she was delighted and pleasantly surprised to have won the three awards.”I was completely taken by surprise when they called my name and didn’t expect it at all and was grateful to have been nominated.”

Mel’s innovative and creative approach to business helped her to win these prestigious awards which will honour her as an exceptionally creative woman for inventing a variety of new products and services.

Exploring Asia

Ermila is toying with the idea of entering the Asian and Southeast Asian markets once the recession has melted down and the economy is on a ‘nose-up’. “To achieve this, I must plan now and be ready to go in fast with the right product mix and identified distribution channels if I am to succeed,” says Ermila. She said that she can use Sri Lanka the country of her birth, as a ‘pilot’ entry point to Asia and that it was possible to work out very attractive prices to penetrate these markets.

The Roots

Ermila is the eldest child of Nalin Jayasuriya, Managing Director & CEO of McQuire Rens & Jones (Pvt) Ltd and the former Regional HR Consultant and Regional Head of HR Special Projects for a Fortune 500 company, Smithkline Beecham International, Southeast Asia & India and of Ranjani Jayasuriya, LLB, Attorney-at-Law and former Executive Director/General Manager, Housing Development Finance Corporation of Sri Lanka, currently engaged in strengthening the family business whilst continuing her legal practice.

Event Sponsorship

The British Female Innovator or Inventor of the Year was held in Cardiff and supported by the Wales Innovators Network. This is the second year that the Assembly Government has hosted the event and this year the Sponsorship of the event was part financed by the European Union’s Convergence European Regional Development Fund through the Business Innovation Project which offers an integrated package of support to lone inventors and businesses at different stages of the innovation process.

Creative entrepreneurs can meet the current global economic crisis better than traditional businesses. Many opportunities will emerge as a result of the current global economic slowdown but companies need to move quickly and decisively to realise these opportunities.

Every company, big or small, will be eager to come up with innovations that can capture the public imagination; which in turn can strengthen its image and brand name.

The best ideas at times come from looking outside the familiar and that is what ‘thinking outside the box’ means. Your mind reacts to its surroundings and has a strange ability to generate new ideas when the physical setting changes.
To face today’s complex challenges, you need to incorporate a wide range of styles, skills and perspectives, where people carrying out different functions and working in different divisions have to get together to resolve mutual problems and come up with solutions that are universally acceptable.

When everyone in an organisation falls into the trap of approaching problems similarly, there can be little or no creativity. Encourage people to think innovatively about your business, your industry and your customers.

Encourage them to ask questions, different questions, or even ask them to word the same question in a different way. By approaching a problem, the response or a prospect from a different perspective, creates an opportunity for new understanding and new learning.

Everybody has a different agenda. Customers want quality products and services, employees want better compensation, recognition or career opportunities while companies want greater profits and better market share. Learn to recognise and develop your team to meet these challenges boldly.

Brain storming
Make brainstorming a religion, practise it everyday and weave it into the cultural fabric of your organisation. Crossfunctional collaboration, exchange of ideas, concept creation and sharing of knowledge virtually at every level of the organisation are needed to manage and fully harness the potential of inspiration and creativity.
Tips for you
Here are some tips that will help you break out of the routine thought process and generate breaking through ideas.

* Exercise your mind: Your mind needs exercise like your body and it can get it through challenges and problem-solving. A good way to feed your mind is to read a lot and study the success stories of other businesses and entrepreneurs.

Read a lot of case studies related to your industry and biographies of successful people. This will not only simulate your grey cells, but will also inspire you.

* Capture your thoughts: When the brilliant idea spells do come, make sure you capture them. Do not rely on mental notes; you will forget them.

* Have a notepad, or voice recorder at all times. You may suddenly strike gold at 2 a.m. Once you’ve recorded your idea, use it as soon as you can as ideas are best when they’re fresh.

* Sleep with an idea Always sleep with an idea. You will wake up with a creative idea.

* Change your setting: Your mind reacts to its surroundings and has a strange ability to generate new ideas when the physical setting changes.

You may be thinking in a very linear and academic way while you are at your workstation. Take your laptop and sit by the office garden or cafeteria and you may see some fresh perspectives.

Take a walk or hit the gym. For all you know, a change of setting may bring you the inspiration you need.

* Go out of your way to help others: Step out of your job description once in a while and help others with their tasks. Do this without having to be asked.

Saying, “Need a hand there” has a twofold effect.

First, you encourage others to give of themselves, creating a more positive workplace.

Second, you buy yourself a future favour, since kindness always comes back. The people you have helped will become sounding boards for your ideas.

* Know your organisation’s and customers’ needs: You must know what you have to offer. Find out the direction in which your company is heading and the areas in which it needs maximum improvement.
This will ensure that your ideas have a business impact and act as a catalyst in your growth within the organisation.

Tailor your ideas to meet the organisational objectives and you will be in a position to add maximum benefit to your organisation.

* Understand your work environment. In today’s team-oriented work environments, no man is an island. You are always a part of the bigger picture.

* Expose yourself to different realities

If you are a marketing person, spend some time with the finance team or the product management team and ask them questions about their nature of work.

* The best ideas sometimes come from looking outside the familiar and that is what “thinking outside the box” means.

* Keep your eyes and ears open and indulge in some idea generation activities.

Certain companies excel in certain kinds of innovation and struggle with others. They might be good at product innovation but not so good at process innovation.

We have also seen how some companies are born out of a great idea but find it hard to repeat it, while others continue with small every day innovations that add up to continued success. As the world we work becomes more chaotic and competitive, we need every kind of innovation, in every part of the organisation.
Competition
Competition is getting tougher every day. Someone, somewhere is tempting your clients with a better deal, a lower price, a quicker service and alternative product, a new way, a faster way or a different way. If organisations are to stay in business, they have to look at every part of what they do and find new and innovative ways of operating.

They need to innovate everywhere. They need innovative products, innovative ways of delivering those products, innovative ways of positioning those products, innovative ways of gaining new markets and protecting the existing ones and innovative ways of operating internally and keeping track of everything.

They need procedural, people, process and product innovation. And they need ideas of all sizes.

Innovation requires people to think in different ways. It needs people who are good at analysis and problem solving. It needs people who are good at implementing ideas and getting things done.

For an organisation to become innovative, everyone has to be involved. For everyone to be involved, innovation must be a part of every day life. Policies, procedures, systems and rewards need to be in place so that everyone can naturally use their heads and be innovative.

Let your organisation flourish with new ideas and new hope of success. Let your organisation have creative people with an optimistic outlook. May your organisation be gifted with innovative people with a dynamic approach.

Innovation will fail if it is left to the ‘creative few’.

The 6-month yield fell 30 basis points to 11.63 percent and the 12-month yield fell 23 basis points to 12.09 percent, two days after the International Monetary Fund said it would give the country a 2.5 billion US dollar loan.
The debt office, which is a unit of the central bank said it sold 12.2 billion rupees of bills. About 10.5 billion rupees of bills matured.

Secondary market bond yields also dropped.

A 4-year bond maturing on 01.02.2013 traded at around 12.60/70 percent, down from yesterday’s 12.85/95 levels, dealer said.

Yields are falling on expectations of a flood of foreign money that will relieve pressure on rates.

The average 3-month auction yield fell below the central bank’s 11.00 percent reverse repo rate today.

Central Bank Governor Nivard Cabraal said under an IMF backed plan Sri Lanka was hoping to keep the budget deficit at 7.0 percent of gross domestic product.

In the first four months of the year, Sri Lanka had already run a 4.0 percent of GDP deficit, putting the country on a path to a 12.0 percent GDP deficit, unless corrective action was taken.

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The All Share Price Index rose 0.47 percent (11.71 points) to end at 2,485.28 while the more liquid Milanka rose 0.89 percent (24.55 points) to close at 2,773.63, according to provisional stock exchange figures.

Turnover was 658 million rupees.

Srimal Liyanage, head of research at Lanka Securities, said investors were upbeat over the government clinching a 2.5 billion dollar International Monetary Fund loan.

“The IMF loan helps improves the country’s image as it implies that the situation is improving,” he said. “It gives confidence to investors.”

But he said foreign investors had still not started investing in the Colombo bourse in a big way, probably as they were still assessing the coutry risk.

Despite the IMF loan, foreign investors still appeared to lack confidence as there appeared to be concerns about the government’s ability to handle the economy properly, ensuring stable growth.

“The positive momentum is still there although can be fluctuations in the share market because of profit taking,” said Liyanage.

“But the long-term trend would be positive as we have got the IMF loan and most of the negative factors are over. The only doubt would be how the government manages the economy in future.

“Investors would be looking at government policies, especially taxation, and also assessing the political situation,”

Lanka Cement was the most actively traded stock on speculation about future earnings potential with several foreign cement companies looking to revive its defunct plant in northern Jaffna which sits on a rich limestone deposit.

The stock closed at 36.75, up 4.25 or 13 percent, the day’s highest gainer, with over 1.9 million shares changing hands.

If Lanka Cement manufactures and distributes cement locally its margins will be higher than Tokyo Cement, the other listed cement maker, which imports some of its cement and raw material.

“The country will have a very high need for cement in future especially when development starts in the north and east,” said Liyanage. “Margins are higher when cement is made here.”
Overseas Realty closed at 14.50 rupees, up 0.75 cents, with over 1.5 million shares traded.

Investors were betting that its big Havelock City property project in the heart of Colombo would yield strong earnings in future.

There were two crossing, or off-the floor-negotiated deals, of John Keells Holdings of 125,000 and 200,000 shares traded at 135 rupees each, one crossing of 500,000 Distileries at 88 rupees a share and a crossing of 85,000 Ceylon Tobacco Company at 122 rupees a share.

Banks are likely to focus on preserving balance sheet quality rather than seeking growth, at a time of global recession and domestic economic slowdown, the rating agency said in a report.
An economic revival with the end of the war is likely to offer growth opportunities only in the medium term, it said.

“While the banking sector was largely shielded from the global toxic asset fallout – due to capital account restrictions and prudential regulations – it will nevertheless bear the brunt of the slowdown in the real economy.”

It said that lower inflation, easing interest rates, improving trade balance, tighter fiscal policy along with an International Monetary Fund loan will create more stability for banks to manage increased asset quality stress in the short to medium term.

Fitch said in a report on the domestic banks that loan growth was slowing, asset quality weakening, deposit growth had slowed, albeit remaining stable, and bank profitability was under pressure.

The impact of the economic crises on the real economy is expected to affect credit quality, while increased risk aversion from counterparties may also be expected, it said.

” . . . the expected macroeconomic stress over the next year is likely to affect the banks’ financial profiles, especially asset quality and profitability,” Fitch said.

“As a result, the overall policy environment will be the key to banking sector health.”

The rating agency said that it believes that if the policy environment improves, the banks’ balance sheets will be able to absorb the stress over the next 12 – 18 months without their National Ratings being adversely affected.

“Nevertheless, the lack of a visible reversal of macroeconomic trends or improved policy directions by the end of 2009 may warrant rating actions.

“Overall, Fitch forecasts a stable to negative outlook for the ratings of the sector.”

In the June quarter the bank showed an 800.3 million forex loss and 1,214 million rupees of other income, which covered the gap.
The bank said the forex bet came “from a breach in operating procedure” in its foreign currency banking unit and risk management has since been tightened.

“The aggressive provisioning in the first half, coupled with further tightening of risk management measures, means that we have cleared the decks and placed the bank in a strong position to propel ourselves for greater growth in the next half,” chief executive Zulfiqar Zavahir said in a statement.

Sri Lanka’s government securities rates plummeted in the first quarter from around 20.0 percent to 13.0 percent, giving holders of government bonds chance for large capital gains.

NTB showed government securities of 12.0 billion in its trading portfolio by end-June (up from 8.0 billion in December). The accounts showed funding of 12.7 billion through repurchase deals.

The bank also had 10.6 billion in government securities in the held-to-maturity stock, up from 7.3 billion in December.

Its performing loan book grew at a slow 3.0 percent to end at 42.7 billion rupees. Most banks had chosen to finance the government, rather than the private sector as the economy weakened.

Loan loss provisions rose 77.0 percent to 467 million rupees. Group net non-performing ratio rose to 3.7 percent in June from 1.8 percent in December.
Group interest income grew 15.0 percent to 3.2 billion; interest expense grew 9.0 percent to 3.2 billion rupees allowing net interest income to grow at a faster 31.0 percent.

Deposits grew by 29.0 percent to 44.2 billion rupees.

Zavahir said the bank was expanding into the north and east with fresh branches to be opened in the next six months.

Group gross assets grew 11.0 percent to 75.2 billion rupees while net assets grew 2.0 percent to 4.4 billion. At bank level net assets were 3.8 billion rupees and it had total capital adequacy of 13.04 percent, (down from 15.2 percent in December) above regulatory requirements.

Ficth said in a statement CLC’s rating reflects its fairly strong financial profile, good asset quality and implied support assumed to be available from its parent, Lanka ORIX Leasing Company (LOLC) which is rated ‘A(lka)’.

In mid-2008, LOLC purchased a 97 percent stake in CLC from its founder shareholders, Commercial Bank of Ceylon, Chemanex and Singer Sri Lanka. It is in the process of acquiring the remaining shares.

While there has been some integration of core operations such as treasury and back office functions, the two companies will continue to function as separate entities, benefiting from strong brand franchises in their respective customer segments.

CLC contributed 40.5 percent to LOLC’s group pre-tax profit for the year to March 2009, and accounted for 23 percent of LOLC group assets.

Since its acquisition in mid-2008 there have been considerable improvements to CLC’s credit and recovery processes, Fitch said.

As a consequence, the company was able to decrease non performance loans (NPLs) to levels below its peers in the 2009 financial year.

CLC’s three month gross NPL ratio fell to 4.5 percent in 2009 (peer average 7.3 percent) from 5.4 percent at end-December 2007.

Furthermore, the company has adopted a more conservative provisioning policy, fully providing for all repossessed vehicles irrespective of aging or valuation resulting in a higher loan loss coverage of 73 percent in 2009. It was 50 percent in 2007.

It had further improved solvency as measured by net NPL to equity of 6.2 percent (financial year 2007, 14.2 percent).

Execution volumes, which peaked in mid-2008, were lower in the latter half of the year as the company shifted its focus to collections in line with the weakening macro economy.

Annualised growth in its lease/hire purchase portfolio in the 15 months ending March 2009 was 8.0 percent.

Fitch notes that whilst this has been instrumental in improving asset quality, execution levels would need to increase from present levels to avoid a contraction in the loan book in financial year 2010.

However, CLC’s debt factoring portfolio which historically accounted for a very small proportion of total advances increased by an annualised growth rate of 39 percent in the 15 months ending March 2009, to comprise nine percent of total advances (financial year 2007, 7.0 percent).

Debt factoring is viewed as a growth segment by the company due to the growing demand for the product, Fitch said.

Profitability was lower in the 15 months ending March 2009, due to higher operating costs and increased provisions in the final quarter.

Operating cost to average assets increased to 4.7 percent in the 15 months ending March 2009 (financial year 2007, 3.8 percent) driven by higher costs allocated by the head office for staff, marketing and systems.

Nevertheless, profitability should improve in the near term, supported by lower NPLs and improved margins as borrowings are re-priced lower, Fitch said.

Equity to assets improved to 17.7 percent 2009 as against the 16.2 percent in 2007, supported by higher retained earnings and slower asset growth.

CLC has fairly good access to borrowings from banks and multilateral agencies, though at relatively higher rates, and would therefore benefit from LOLC’s access to lower cost funds, Fitch said.

CLC is a specialised leasing company 99.6 percent owned by LOLC.

It has 13 branches and is involved in the business of leasing, hire purchase and debt factoring. CLC also owns 40 percent of an insurance broking company, Commercial Insurance Brokers.

The Golden Key Credit Card Company collapsed with debts of 26 billion of which 12.7 billion is capital and 13.2 billion is interest according to initial findings of a Supreme Court appointed committee of chartered accountants.
The committee says two sets of accounts were found and some assets have already been mortgaged to other parties, complicated a liquidation process.

Reconciling

The committee’s report to court says an audit is underway to reconcile Golden Key Credit Card Company’s computer system and customer deposit confirmations.

“The company has two sets of accounts one from the IMAS system (computer system) and a set of corrupt accounts prepared on excel sheets,” the report said citing information provided by Golden Key accounts department employees.

The three court appointed accountants, Lakshman Watawala, Nelson Nagasinghe and Mahendra Panditha, are probing Golden Key businesses and assets to repay depositors by selling them.

They have requested court to ask Ceylinco Chairman and the group’s senior directors to contribute.

“In the first phase to bring in a minimum 13 billion rupees – as declared to the Magistrate’s Court – to repay depositors,” the accountants said.

The Mount Lavinia Magistrate, in whose court a criminal case is being heard in parallel with a Supreme Court fundamental rights violation action, has remanded Ceylinco chairman Lalith Kotelawala and other directors.

“Chairman and directors of Ceylinco consolidated are responsible for the proper management of all group companies and safeguarding the assets of these organizations,” the accountants report said.

Group Dues

The report has revealed that Golden Key’s 55 group firms, including nine foreign based companies, owe the parent 5.9 billion rupees.

“Most of these companies are not in operation and employees of those companies have already left,” the report said.

Golden Key subsidiaries were requested by the Supreme Court to come up with acceptable proposals to the committee to either continue operations or to sell the businesses.

However 24 Golden Key firms had not submitted asset declarations to the Supreme Court appointed committee by June 10.

Sixty four directors of Golden Key group had also ignored court orders to submit asset declarations, according to the report.

Included in the 5.9 billion rupees loaned to group firms is 823 million rupees given to the Golden Key ENT Hospital, in the outskirts of Sri Lanka’s capital Colombo.

Asset Transfer

The report highlights a probable sale of Golden Key’s stake in the hospital to a gratuity fund of Ceylinco Insurance, another Ceylinco group firm, for half the 500 million rupee value agreed to by the boards of the two firms, days ahead of the crisis becoming public.

The committee says the transaction needs to be investigated since it has not been registered in the name of the party that advanced the funds.

“A transaction for the sale of Golden Key Hospital was noticed and an advance taken but the transfer of shares had not gone through,” according to the report.

“Ceylinco Insurance accounts showed the purchase consideration to be 250 million.”

The report does not say who the new owners of the hospital’s shares are. However the hospital was valued at three billion rupees by Ceylinco Consolidated in a valuation submitted to court.

Ceylinco Insurance had also agreed to a sale of Golden Key’s main office in Colombo, two thirds of which is owned by the insurer, to support Golden Key’s liquidation, the report said.

The committee says some promised asset sales won’t directly benefit Golden Key depositors.

Low Equity

For instance the firm only owns a 2.6 percent stake in the Ceylino Ceysands Hotel, one of the properties put on sale by Ceylinco Consolidated and valued at 500 million rupees.

The committee adds that the valuations of asset provided to the Mount Lavinia magistrates in a list of assets the Ceylinco group plans to dispose of and repay Golden Key depositors is unrealistic.

“It was noted that the values placed on them were not realistic and the government valuer will be engaged to give a fresh value of assets.”

It says 844 million rupees in credit card dues are outstanding from employees and related parties (equal to 3.2 percent of Golden Key’s depositor liabilities) to whom statements will be sent soon “requesting payment as per the court order.”

Other debtors owe Golden Key some 359 million rupees. Liquidating other assets may prove difficult.

“Credit facilities have been obtained from banks by mortgaging properties as securities,” making it difficult to liquidate the firm’s property holdings, the report said.

“Even though vehicles are listed under GKCL (Golden Key Credit Card Company Limited), the majority of the vehicles have been acquired on a leasehold basis.

“Most of the vehicles have been taken over by the respective leasing companies,” the report said.

The accountants’ committee is also urging Ceylinco Consolidated’s chairman and senior group directors and directors of Golden Key Credit to provide a solution on the manner in which depositors are to be repaid.

Given the present global conditions, analysts have warned that the country would be badly hit due to the global economic recession by 2009. Already, out of the original 800 garment factories set up in the country only around 275 are in operation as at end 2008.

Industry experts say 2009 would be a decisive year for the export industry. The tea industry is in crisis and has already sought urgent government assistance. According to tea small holders, the government’s intervention came a bit too late, as three months had already passed.

Like the tea industry, the rubber industry too is facing a severe crises due to the fall in prices. Rubber manufacturers say that the government’s move to provide subsidised fertiliser is useless. They say that the government has to come up with a new pricing formula, as the issues faced by the industry are mainly due to the drop in sheet and crepe rubber prices.

The apparel industry unlike the tea and rubber industries has been facing problems even before the global financial crisis. These problems have been aggravated by our largest market, the US reducing its purchases. According to apparel manufacturers, the granting of GSP+ would play a key role in the survival of the industry.

Manufacturers say that the GSP+ concessions would give the local industry an edge over other countries and also provide a level playing field to compete with competitors like Bangladesh and Vietnam.

In the case of the global recession, manufacturers say that it would not make a difference, as all countries were facing the same problem. In other words, all countries face the same global environment. However it was noted GSP+ gives an added boost to the country’s export industry.

The leisure industry is in the doldrums and has sought government assistance to avert a complete crash. The prevailing security situation has adversely affected the local tourism industry. Last week, the Indian media reported that foreign tourists were avoiding Sri Lanka due to the prevailing unstable security situation.

Hospitality industry sources admitted that both the global economic recession and the ground situation in the country had resulted in a drastic decrease in tourist bookings. According to the sources, the number of bookings this season had been dismal compared to previous years. They added that this was the worst year as far as the industry was concerned.

In addition to the above, export markets of items such as spices and ceramics have also been badly hit. Analysts have called upon the banking sector to come to the rescue of these industries.

The National Chamber of Exporters (NCE) has planned to meet Central Bank and Treasury officials together with the bankers in the near future to explore the possibility of obtaining relief for the export industry. The government however has promised it will take measures to rectify the situation.

Former Enterprise Development and Investment Promotion Minister Dr. Sarath Amunugama has assured that the government would take all possible measures to maintain GDP growth at 6%.

The banking sector however is optimistic that if the cost of living and inflation are contained, 2009 would not be as gloomy as it appears to be.

Other exports

Export markets for spices, ceramics and other items have also suffered badly due to the global credit crunch and unless the local banking sector comes forward to rescue these industries the export companies would certainly collapse, President National Chamber of Exporters (NCE) Rohan Fernando told The Sunday Leader.

According to Fernando the present situation has come about purely due to the global credit crunch.

“We do not receive our dues on time and in some instances the demand for our export products has shrunk as a result of the global financial crisis. If this situation continues the export industry would collapse,” Fernando added. He however said that this is the time for the banking sector to come forward to help the industry, as it was the export sector that gave vigour to the banking sector.

“If not for the export sector the banking sector too would have suffered and the time has now come for the banks to help us as a goodwill gesture by way of cutting down interest rates,” claimed Fernando.

Fernando further said that the NCE representatives were planning to meet the Central Bank and Treasury officials together with the bankers in the near future to obtain relief for the export sector.

——————————————————————————–

Export sector

Exporters say that the new year will be a challenging year as far as the entire export industry is concerned.

According to the National Chamber of Exporters, 2009 is expected to be a decisive year for the export industry due to the effects of the global economic recession.

President, NCE, Rohan Fernando told The Sunday Leader that unnecessary expenses should be cut down by the industry and the money invested.

“The year 2009 is going to be a decisive year as far as the export industry is concerned. The industry needs to invest more by cutting down on unwanted expenses,” he said.

The three issues that need to be considered at this juncture, according to Fernando, are movement of currency, the rate of exchange and bank interest.

With the global financial recession, there has been very little movement of currency, as countries such as the USA and the UK had stopped buying from other countries.

“These three issues are the most important. The Central Bank’s intervention is also needed. The rupee has been allowed to float, which is a good thing. But, this will definitely be a testing and a challenging time,” Fernando noted.

Following a special cabinet meeting last Tuesday, December 30, the government announced a series of measures to certain export sectors including the plantation sector.

Fernando said that the proposals put forward by the government were not adequate to address the current crisis and had been made to appease certain sections.

Speaking further, Fernando said that the relief measures offered were not enough and that the government was targeting only a section of the export industry, namely the estate sector.

Both these sectors were badly hit due to the global crisis.

“These are all populist measures. The government has not addressed the problems of the export industry as a whole. It has only spoken about a few industries that have been severely affected. Instead the government should look at industry as a whole. These are done probably for political gain,” he said.

Meanwhile Fernando told The Sunday Leader that the NCE met the Central Bank Governor on Friday to review the progress in exports during 2008 and also consider the economic outlook for 2009 as it was noted that the year ahead would be crucial for the export sector in terms of sustainability.

“With the global financial recession and lack of demand for consumer goods the year ahead would be a crucial year for the industry,” added Fernando.

However according to Fernando although the year ahead would be crucial, the first three quarters of 2008 had recorded a good growth rate compared to the last quarter of 2008. “The prices of commodities came down and fuel prices were also slashed and overall a 6% GDP growth was recorded in 2008. While unemployment has reduced to 5% by end 2008, inflation too has come down to 14.5%. It is hoped that inflation will come down to a single digit by June 2009,” added Fernando.

——————————————————————————–

Banking sector

Many economists note that 2008 has been a ‘bad one,’ and that from the look of things, year 2009 is going to be worse. They have based their findings on the fact that the cost of living has been soaring sky high during 2008 and that the rate of inflation has been steadily rising to reach the 30% levels till the Central Bank manipulated it with a new cost of living index to bring it down to around 24%.

The trickle down effect of the global financial crisis hit Sri Lanka about three months before the end of 2008. The official stance however has been that the global economic crisis would not have an impact on Sri Lanka.

But addressing a seminar on ‘Current global financial crisis and its implications to Sri Lanka’ around November last year, the Governor of the Central Bank had said that skilful partnership and planned management would definitely prove effective in gaining immunity for Sri Lanka from the prevailing global crisis.

This stance however had been countered by a government minister who had said that Sri Lanka would be affected by the global financial crisis for at least another two to three years while another government minister maintained that there had been large job cuts in the US and India running into several millions and that Sri Lanka was sure to be affected by the global crunch. The minister had also noted that banks such as AIG and Citi Bank, which were global giants, had failed as a result of the crisis.

Many economists and analysts had pointed out with concern that the economy of the country was nose-diving, a fact that the Central Bank Governor had either consistently refuted or ignored.

Despite the Central Bank Governor’s rebuttal of the facts brought out by economists, the government had issued a circular to ministries, departments and provincial councils to stop all development projects.

The JVP that was a part of the government and had parted ways around a year ago had charged that the Central Bank was about to announce a bailout package by releasing funds from its foreign reserves to counter the situation.

With the dawn of the New Year The Sunday Leader spoke to some experts in the banking sector to obtain their views on what’s in store;

Secretary General, Sri Lanka Banks Association (Guarantee) Ltd., Upali de Silva speaking to The Sunday Leader said that the year 2008 was not altogether bad for the banking sector except the third quarter. He said, “Year 2008 has not been bad for the banking sector except the third quarter. But year 2009 certainly seems gloomy.

“The Central Bank has said that inflation is coming down and if that is the situation we should be happy about it, as inflation affects all businesses in the country. If the cost of living can be curtailed during 2009, I can say that year 2009 is not going to be bad for the banking sector.”

Asked to comment on the economic outlook for 2009, a source at the Central Bank said the high inflation rate had declined to 14.4% by end 2008 and that as expected it would further decline, possibly reaching a single digit in mid 2009.

The source further said that the growth rate of the economy in 2008 was 6% and in 2009 a growth rate of 5.6% to 6 % could be expected. The source attributed this downward trend in growth in 2009 to the global financial crisis.

The global financial crisis had impacted on the developed countries as well as on the developing countries placing a heavy strain on their collective economies. In Sri Lanka the impact of the global financial crisis, the sources said, had pushed commodity prices down and consequently our tea, rubber and garments were experiencing low prices.

The source further said that the economic outlook for 2009 would not be that gloomy and maintained that the spending on imports would be lower with the export prices too being lower.

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Tea sector

Tea small holders allege that the government’s relief proposals were not adequate to restore the industry adding that the government was not serious about solving the issues.

Chairman, Joint Federation of Tea Small Holders (JFTSH), Chandrasena Wijesinghe said that the government’s intervention to resolve the crisis in the tea industry had come too late.

Speaking to The Sunday Leader, Wijesinghe said that the proposals put forward by the government following last week’s special cabinet meeting were not adequate to rescue the industry.

He added that the tea industry was facing a crisis during the past three months and the government had only got involved after the industry had faced serious difficulties.

“The government has intervened three months after the industry had virtually collapsed. Most of the tea lands have become forest lands now,” he said.

Wijesinghe added that the government’s proposal of buying tea leaves at Rs. 45 was not enough. “It has to be bought at least for Rs. 50,” he said.

He also said that the federation had put forward many proposals to the government to take into consideration when coming up with solutions.

“The government however chose to ignore our proposals. The government did not come up with any proposals of its own for the last three months when the industry was collapsing. The proposals that the government came up with last week are not at all adequate to save the industry,” Wijesinghe said.

“The government’s attitude towards this whole issue was evident when one of its spokespersons said that the crisis was only like a mild cold, and that it needed very little treatment,” he said.

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Investments

Former Enterprise Development and Investment Promotion Minister Dr. Sarath Amunugama has stated that the government would take all possible measures to maintain GDP growth at 6%.

Addressing the media Dr. Amunugama said that in the last four years GDP growth was over 6%. “At a time when the US growth rate was diminishing to a negative level, China and India were reversing their growth figures. During the third quarter of 2008 Sri Lanka recorded a growth of 6.3%. There has been a rapid growth in the agriculture sector and inflation has come down from 30% in June 2008 to 13% in December 2008. We are confident that the inflation rate will come down further,” Dr Amunugama explained.

He went on to say that the government had a 6.5% budget deficit and that efforts were being made to keep it at that level. “People have a right to complain when they are facing difficult situations and it is up to the government to address these issues and introduce relief measures to ease their burden. This is why the government has taken steps such as bringing down the prices of fuel, gas, cutting down on expenditure of government officials and writing off long overdue debts.

“The government has provided debt relief and a reduction on electricity surcharge to tourist hotels, a fertiliser subsidy for the agriculture sector, offered relief to the industrial and manufacturing sectors, the tea and rubber sectors and concessions to boost cinnamon production. Tea will be purchased by the state trading institutions. A suspension of export cess on the rubber industry will also be implemented,” Dr. Amunugama said.

He added that the government would also give a 5% incentive to the apparel, ceramic, tyre and tube producing companies if they continue to maintain the same production levels as in 2008.

“Many concessions and relief measures have been provided by the government to the public in order to address the global economic crisis. We have given the public very healthy concessions for 2009,” Dr Amunugama said.

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Rubber industry

Convenor, Joint Association of Rubber Manufacturers (JARM), Gamini Ratnayake said that the government needed to come up with a proper pricing formula rather than granting subsidised fertiliser.

He said that the rubber sector employees were facing problems due to the drop in prices.

“There is no point in giving subsidised fertiliser now as they have started to tap rubber. They do not need fertiliser now,” Ratnayake said.

“What we want the government to do is to come up with a proper pricing formula that will help the people who depend on rubber manufacturing to survive.”

He said the price of rubber had dropped drastically in recent times, affecting the manufacturers and employees alike.

According to Ratnayake, the price of a kilo of sheet rubber dropped from Rs. 400 to Rs.100 while a kilo of crepe rubber, which was sold at Rs. 350 is now sold at Rs. 90 a kilo.

“This is a drastic fall in prices. Therefore, the government has to come up with viable solution by presenting a proper pricing formula – a formula that will help the industry workers to survive,” he said.

Ratnayake said that the government needed to concentrate on rubber manufacturing as well, as some factories had closed down.

“The government has to look into the rubber factories. Some of the factories have closed down. It is the government’s duty to get them going again,” said Ratnayake.

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Garment sector

Secretary General, Joint Apparel Association Forum (JAAF), Rohan Masakorale said that the apparel industry will be facing a challenging year due to the global economic crisis and also the GSP+ issue.

The apparel industry, unlike the tea industry has been facing problems even before the global recession set in, according to Masakorale.

The US is the largest market for Sri Lanka’s apparel industry. According to Masakorale in recent times however the US has reduced buying from the country largely due to the global financial crisis.

“The crisis in the tea industry was an immediate after-effect of the global economic crisis. However, the apparel industry was facing problems even before the economic crisis started.”

He said that the buyers, mainly from the US and the seller (Sri Lanka) were likely to go for consolidation. “The retailers have been heavily challenged. Therefore, there is a likelihood that the buyer and the seller will go for a consolidation,” Masakorale said.

He said that while 10 to 15 garment factories had closed down recently, many of them were trying to consolidate.

“There were around 350 to 380 factories operating as of 2007. There are around 260 to 295 factories operational at the moment. Some are trying to join. Some have closed down.”

According to Masakorale, there are orders for January and February. However, he said that the situation was uncertain as some of the countries had delayed their orders.

“There is a lot of uncertainty,” said Masakorale.

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BoI

Speaking to The Sunday Leader Deputy Director General – Investment Promotion, BOI, A.M.C. Kulasekera said it was hard to say what the impact of the global economic crisis on Sri Lanka would be as it was still in the early stages.

“The economic crisis has just started and it is too soon to say how Sri Lanka would be affected by this situation. We have to wait for at least three to six months before we can assess how badly the country is affected by this global economic crisis. At present Sri Lanka is not that badly affected by the global crisis as our foreign exports are relatively limited, Kulasekera said.

Just started

He added that companies have only just started reducing staff and cutting down on overheads to address the present economic crisis. When questioned on the number of garment factories closing down in the country Kulasekera said that small garment factories that survive hand to mouth were the ones closing down.

“There are around 800 to 900 garment factories in the country. Out of this number 50% come under the BOI. Most garment factories will try not to close down for as long as they can, which is why they are cutting down on overheads and employees.

“The big garment factories can survive for more than a year by cutting down on expenses. However the small garment factories that depend on small scale orders cannot survive that long. These small garment factories are the ones that have closed down,” Kulasekera explained.

All affected

He went on to say that Sri Lanka is not the only country that is facing this global economic crisis. “China had recently made a large export order of apparels for USA. But due to the global economic crisis the USA cancelled this order. China had no option but to sell their export order in the local market.

“Sri Lanka’s apparel export orders are mainly to Europe and USA. However the danger of these exports getting affected has not yet been felt in Sri Lanka,” Kulasekera added.

He went on to say that due to the global economic crisis people around the world are cutting down their expenditure. “Foreign buyers who used to wear a garment once and then discard it and buy another, are today washing that garment and wearing it again. Similarly the tea industry is affected in Sri Lanka.

Chain reaction

“The global economic crisis is a chain reaction. When tea exports come down tea packaging companies are also affected. Similarly when the Golden Key Credit Card scam was exposed Seylan Bank got affected. This is what is happening all over the world. We cannot escape from this chain reaction in the global arena. However we can take preventive measures to address the crisis,” Kulasekera explained.

He stressed that the BOI is not a donor agency but an investment facilitation company. “What we can do as an investment facilitation company is to not charge concessions from companies that register with us. We can also advice the government on what measures it can take to address this situation. As the BOI we can advice the government to give affected companies and factories concessions on taxes and funding from banks among other facilities,” Kulasekera said.

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Tourism sector

The country’s leisure industry, which was once the fourth largest foreign exchange earner for the country is to face the worst ever crisis during 2009 due to the global financial crisis and also as a result of the country’s security situation, the Tourist Hotels Association of Sri Lanka (THASL) told The Sunday Leader.

With the global financial crisis, the leisure industry has hit rock bottom with advanced bookings seeing a steep decline in the past few months. The situation is expected to worsen after January 15 as hardly any new bookings have been made beyond January 15 according to the THASL.

This would have serious consequences on the industry and if precautionary measures are not taken to protect the industry and its dependents many resort hotels would have to close down partially or even completely to avert further losses according to the THASL.

Worst crisis

“This is the worst ever crisis the country’s tourism industry has had to face. The industry that suffered a setback following the tsunami and the airport bombing was able to bounce back with determination quicker than expected.

“But the current global financial crisis and the country’s security situation have forced the leisure industry to suffer its biggest setback yet.

“The situation has affected the industry, especially the hotels so much so that owners have sought government assistance just to keep afloat and avert a possible mass scale closure,” President, THASL, and Chief Executive Officer/ Director, Serendib Leisure Hotel Management, Srilal Miththapala told The Sunday Leader.

According to Miththapala the surveys carried out during the past few months had clearly shown that the industry would be in great trouble after January and the extra staff engaged during the season would have had to be retrenched although this is the winter season – the peak season for Sri Lanka.

“In December there were only a few arrivals which was a huge decline compared to the previous years. But the situation after January would be completely different as hardly any bookings have been made,” Miththapala added.

Miththapala further said that although the THASL wanted to ask for financial assistance from the government in order to keep the industry afloat, they had to put off the idea since the government has assured some relief to the industry.

Wait and see

“With the recent announcement by the government providing relief to the leisure industry in its ‘economic stimulus package’ the THASL has decided to wait and see what relief the industry would receive from the government. Although the government has claimed that some relief was being provided to the tourism industry we have not been informed as to what we would get.

“Anyhow we are happy that some relief has been promised and we are hoping to hear about the specifics at least by tomorrow (Monday). When we met Tourism Minister Milinda Moragoda on Thursday January 1, he wanted the THASL to wait and see as to what we could get from the relief package,” Miththapala stated.

Speaking further Miththapala said that not only were those directly involved in the industry suffering, but their dependents were also suffering. He also said that more than 40, 000 persons indirectly involved with the industry and their dependents had already lost their livelihood.

“Although the industry suffered enormously in 2007 this year’s loss could be rated as the worst ever as it is a 15% drop compared to 2007. Even the World Tourism Organisation (WTO) in mid 2008 had projected a growth of 6.8% in the tourism sector, but within a few months they had to downgrade the growth figure to a 3% decline, which clearly shows how the crisis has impacted on the tourism sector,” Miththapala said.

Charters cancelled

According to Miththapala, Russian charter flights that were to bring leisure seekers to the country had been cancelled and many more cancellations of this nature were expected.

In addition the industry has started to crumble following the security situation in the country. If this situation prevails further around 20 to 30 THASL member hotels would be pushed to closure. Forward bookings have dwindled over the past few weeks with the patronage of the Russian, German, UK and French markets whittling down.

“There is very little to talk about the German market as well as the other tourism generating markets as tourists from these countries are not travelling to Sri Lanka probably due to the global crisis. Although the present situation is mainly due to the global crisis we still could attract tourists in small numbers if the government could agree to some sort of a ceasefire which would bring peace and stability even temporarily. The 2002 ceasefire agreement (CFA) helped the industry to bounce back after many setbacks and helped the industry to pick up within a short period,” added Miththapala.

“We continue to expect economic activity to bottom out, then to turn up later this year,” he told a congressional hearing.

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He said key elements of his forecast were assessments that the housing market, at the epicenter of global financial turmoil, and consumer spending was beginning to stabilize.

Recent data, he said, suggested that the pace of economic contraction might be slowing, including “some tentative signs that final demand, especially demand by households, may be stabilizing.”

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Despite significant progress seen in financial markets in recent weeks, Bernanke cautioned that financial institutions remained “under considerable stress.”

He cited declines in asset prices, tight credit conditions and high levels of risk aversion, saying they continued to weigh on the economy.

“A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” he warned ahead of results to be released Thursday from “stress tests” conducted by authorities on 19 top banks.

News reports Tuesday said that 10 of the 19 banks subject to the tests might need to raise more capital and those affected could include banking giants Wells Fargo, Bank of America (NYSE: IKJ – news) and Citigroup (NYSE: C – news) .

When pressed by a lawmaker, Bernanke refused to disclose the test results but said many US banks needing fresh capital would be able to meet their needs through the market without further government support.

The stress tests will cap a period of suspense that began when President Barack Obama’s administration unveiled in February its overhaul of a program to restore stability to the financial system of the world’s largest economy.

The United States entered into recession in December 2007 following a home mortgage meltdown that triggered a credit crunch and financial turmoil across the globe.

US economic growth contracted a massive 6.1 percent in the first quarter of 2009 after a 6.3 percent slide in the previous quarter but emerging government and private data clearly showed that the recession is easing.

Bernanke said the decline in foreign economic activity might also be moderating, with investor sentiment and the functioning of financial markets abroad having improved somewhat.

Analysts noted that Bernanke devoted a considerable portion of his testimony to conditions in financial markets.

“Despite the notable progress in recent weeks in the financial markets, the Fed remains extremely concerned about tight credit conditions, and the persistence of concerns about the stability of the banking industry,” said Brian Bethune of IHS Global Insight.

Bethune said that by implementing the stress test program to establish significant capital buffers for US banks, “the Fed is hoping to substantially mitigate one of the major downside risks to the outlook.”

Bernanke cautioned that even after a recovery got underway, the rate of growth of real economic activity was likely to remain below its longer-run potential for a while.

“We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly,” he said.

“In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes,” he explained.

The most recent information on the labor market — the number of new and continuing claims for unemployment insurance through late April — suggested that “we are likely to see further sizable job losses and increased unemployment in coming months,” Bernanke said.