Economic & Market Bulletin
[December 08, 2004]

A weekly publication of the Economic Affairs Division of the Ministry of Foreign Affairs
Volume 1:Issue 18,
03rd December, 2004 

President Kumaratunga holds wide ranging talks in Iran 

• President Kumaratunga held wide ranging bilateral talks with President Mohammed Khatami on Wednesday (24th November), during the first ever State visit by a Head of State of Sri Lanka to the Islamic Republic of Iran after the establishment of diplomatic relations in 1962. Foreign Minister Lakshman Kadirgamar, Power and Energy Minister Susil Premjayantha and senior officials were also present at the talks. 

• President Kumaratunga said that Sri Lanka looked forward to the expansion of relations, especially in the trade and economic fields. During the visit, a Preferential Trade Agreement and Memoranda of Understanding on Cooperation in the field of Environment, on Health Cooperation, on Friendship and Cooperation and on Exemption of Visas for Diplomatic and Service/Official passports, were signed. 

• Both sides agreed to encourage tourism, both out-bound and in-bound. The possibility of signing a Cooperation Agreement in Tourism will be explored in the future. Action will also be taken to operationalise the Bilateral Air Services Agreement with a view to establishing direct air links between Tehran and Colombo.

• The two leaders also discussed their respective roles in the various international groupings where both Sri Lanka and Iran are members, such as the IOR-ARC (Indian Ocean Rim-Association for Regional Cooperation), in which Iran will take over the chair from Sri Lanka in 2005. 

• President Khatami conveyed Iran’s willingness to send experts in the fields of engineering, infrastructure development, oil and natural gas exploration, radio and TV technology to Sri Lanka, as they were already doing with several other countries. He observed that in both countries great potential for development remains untapped. 

• Private sector business cooperation in areas such as LPG, petro/agro chemical products (finished and semi finished), food items, agriculture related equipment and products, fisheries, transportation, logistics and other trading activities will be further fostered between the two countries. The two sides will also promote cooperation in tea industry and marketing. 

SAARC Commerce Ministers agree to boost trade

• The 4^th meeting of the Ministers of Commerce of SAARC member countries held in Islamabad recently, welcomed the conclusion of the fourth round of the South Asia Preferential Trade Agreement (SAPTA) and progress made on the Framework Agreement on Free Trade SAFTA.

• They emphasized the need to complete negotiations on four outstanding issues i.e sensitive lists, technical assistance to Least Developed Contracting States, rules of origin and mechanism for compensation of revenue loss to LDC’s, by May 2005. This is aimed at ensuring that the SAFTA agreement enters into force on 1^st January 2006.

• The Ministers stressed the need of concluding negotiations on the four draft agreements on trade facilitation so that these may be signed at the 13^th SAARC Summit in Dhaka in January, 2005. These four accords are Agreement on mutual Administrative Assistance in Customs Matters, Agreement on Promotion and Protection of Investments, Agreement on Establishment of SAARC Arbitration Council & SAARC Arbitration Rules and Agreement on Avoidance of Double Taxation.

• The Meeting also discussed a Sri Lanka proposal to make a formal request to the European Commission to grant benefits of Super Regional Cumulation covering both SAARC and ASEAN under its GSP scheme.

• The possibility of enhanced economic and trade cooperation with other regional groupings like ASEAN and EU was also discussed at the Meeting.

• The need of evolving a common SAARC position on issues of common concern before WTO, keeping in view long-term perspective, was another issue of importance, which was taken up for discussion.

Government programme to improve productivity in the Apparel Sector

• Sri Lanka’s Joint Apparel Associations Forum (JAAF) has launched an apparel sector productivity improvement programme to boost output and cut cots at 100 factories.

• This Government funded initiative, which is apart of JAAF’s 5 year strategy to improve the competitiveness of the clothing sector, will provide registered export-oriented manufacturers with an interest free loan. In return the factories will be required to dedicate a core team to training and improvement within key areas. Productivity progress and associated cost reductions will be benchmarked against at least 20 known performance measures and jointly agreed targets set. The project team hopes to increase the industry’s productivity by at least 30%.

• The Sri Lankan apparel industry’s 5 year strategy aims to double the sector’s turnover by 2007; transform it from a “manufacturer” to a provider of a “ fully integrated service”; increase penetration at the premium end of the market; build its reputation as a superior manufacturer of specific product categories; and consolidate and strengthen the industry to meet the challenges of the quota free era. 

Boosting trade ties with England 

• Officials of the London Chamber of Commerce and Industry and the National Chamber of Commerce of Sri Lanka (NCCSL) signed an MOU to strengthen ties between England and Sri Lanka, recently. Under the MOU both Chambers are expected to encourage and promote in accordance with their respective laws and regulations, cooperation between the two countries in the field of bilateral trade in goods and services on the basis of equality and mutual benefit.

Air Arabia begins Colombo Sharjah daily flights 

• Air Arabia LLC - UAE's national airline and first low-cost airline of its kind in the Middle East and North Africa region - will offer daily flights from Colombo to Sharjah International Airport from December 1, as well as introduce their winter schedule offering increased flight frequency throughout their network. 

• Since the start of operations to Colombo in January this year, the number of passengers travelling on this route has increased dramatically and to meet this growing need, they have introduced three additional flights per week. 

Colombo Consumers’ Price Index for November 2004

• The Colombo Consumers' Price Index (CCPI) for the month of November 2004 was 3826.2.  This shows an increase of 126.8 index points or 3.4% from the October 2004 index number of 3699.4. This is an increase of Rs. 256.34 in the Expenditure Value of "Market basket" when compared to October 2004. 

• The increase in the CCPI for November, 2004 is mainly due to increase in prices of   Bread, Wheat Flour, Rice & Curry, Bread & Curry, Milk Tea, Limes, Red Onions, Coconut Oil, Fresh Fish – Salaya, Dried Fish - Salaya, Coconuts, Potatoes, most varieties of Vegetables, Firewood, Postal Charges and Arrack.  These price increases can be mainly attributed to short supply of locally produced agricultural consumer goods, specially the vegetables to the main markets in Colombo City due to seasonality. However, prices of Rice, Dried Chillies and some varieties of Fresh Fish & Dried Fish have decreased during this month.    

• Annual inflation rate on the basis of 12 months moving average increased to 6.8% in  November, 2004  from 6.1% in October, 2004.

Tourist Arrivals by month up to October 2004

Lanka IOC share issue; creates history

• Initial Public Offer (IPO) of the shares of the Lanka India Oil Corporation (Lanka IOC) has attracted Rs. 31.4 Billion in share application. This is a historical moment in the Sri Lanka capital market. The IPO was launched to attract 133.33 million shares, which was over-subscribed 8.7 times, attracting foreign & local investors.

• Lanka IOC is an Indian direct investment made in the Sri Lankan Petroleum Industry, which is a collaborative with the Ceylon Petroleum Corporation. With investor cash still tied up on this mega issue, both indices of the Colombo bourse showed a down play in the Stock market. However Foreign Activity is moderate with purchases of Rs.8 Million outpacing sales of Rs. 6.7 million yesterday (02^nd December 2004). 

New Company for Gem & Jewellery

• The Ceylinco Group has started a new venture to promote and develop the local gem and jewellery industry; Ceylinco Gem Corp International Ltd. 

• The Company expects to form a Gem Bank, set up a trading center for rough and polished gems, act as a welcome center for local and foreign gem buyers, have linkages with the gem buyers around the world and to ascertain techniques of color induction from Thailand, and import gems from other countries like Australia, Burma and Asian countries in a bid to make Sri Lanka a center for Gems. 

Export earnings rise 

• Export earnings increased by 19% to US $ 549 million in September 2004 from US $ 461 million in September 2003. First nine months exports have increased by 9 % to US $ 4,143 millions as compared with export earnings of US $ 3,802 millions in the same period in 2003.

• The performance of the textile & garments sector depicts the higher growth rate of exports and accounted for 51% of the total exports. This industry grew by 18 % to US $ 278 millions in September. Among other higher growth products, rubber based products (44%), petroleum products (149%), ceramic products (29%), plastic products (30%) and chemical products (38%) have increased. 

• The agriculture exports have increased by 9%, mainly due to three plantation crops; tea, rubber & coconut. Tea exports, which accounts for 11 % of the total exports has increased by 6 %. This growth is mainly due to higher demand from Middle Eastern and Commonwealth of Independent States (CIS) countries. Average export price of tea has increased up to US $ 2.59 per Kg. 

• Mineral exports including gems grew by 61% in September 2004. Gem exports, which accounts for 93% of mineral exports increased by 55% in September 2004. 

• Exports of desiccated coconut grew by 65% during the first nine months of the year, due to increased export orders from South Asian and Middle Eastern countries.

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Last Updated Date: November 25, 2004 .