Economic & Market Bulletin
[December 20, 2004]

A weekly publication of the Economic Affairs Division of the Ministry of Foreign Affairs
Volume1:Issue 20 
17^th December 2004

SLT Global bond issue; Oversubscribed 10 fold

• Sri Lanka Telecom (SLT) a public quoted company listed in the Colombo Stock Exchange (CSE) successfully completed the US $ 100m Million (Rs.10 Billion) International Bond offer. 5 year bond carrying 6.875% rate, was oversubscribed 10 fold (collecting over 1 billion US $). The road show commenced in Hong Kong and proceeded to Singapore, where the bond was oversubscribed and therefore those scheduled for London, Dubai and Bahrain had to be cancelled. 

• This landmark bond issue is the first international fixed rate bond from an entity in Sri Lanka, and the first to be assigned an international credit rating. Also this transaction created a new benchmark in the international debt capital markets for borrowers from Sri Lanka.

• The SLT is a pioneer in Telecommunication in Sri Lanka along with the NTT Japan as the strategic partner, having an annual turnover of approximately US $ 220million and a customer base of over 850,000.   

External Trade Performance in October 2004 

• Export earnings increased by 36% to US dollars 582 million in October 2004 outperforming the 5% growth recorded in the corresponding period in 2003. This is the second highest monthly export earnings ever recorded.  Expenditure on imports grew by 14% recording US dollars 715 million in October 2004, which includes petroleum imports of US$ 97 million.  The resulting trade deficit was US dollars 133 million. 

• The higher growth of exports in October 2004 was mainly attributed to the increased performance in textiles and garments exports, which accounted for 49% of total exports. The export of textiles and garments grew by 38% to US dollars 287 million in October 2004, recording the highest monthly export value since August 2002. Besides textiles and garments, the other industrial exports which registered higher growth rates in October 2004 were food, beverages and tobacco (76%), rubber based products (34%), petroleum products (64%), ceramic products (7%), machinery and equipments (75%), chemical products (86%) and plastics (10%). 

• Expenditure on imports increased by 14% to US dollars 715 million in October 2004, arising mainly from imports of consumer goods. The import expenditure on intermediate goods increased by 6% to US dollar 415 million in October 2004 compared to US dollars 391 million in October 2003. The surge in imports of intermediate goods was driven by the higher petroleum imports. The expenditure on petroleum imports which accounted for 14% of the total imports increased by 8% in October 2004 over October 2003. 

• During the first ten months of 2004 export earnings increased by 12% to US dollars 4,725 million as compared with export earnings of US dollars 4,230 millions in the same period in 2003. The growth in expenditure on imports tapered off as expected amounting to US dollars 6,429 million, recording a growth of 20% from US dollars 5,370 million in first ten months of 2003 largely due to higher petroleum bills, investment goods and intermediate imports of textiles. These high imports of textiles indicate high growth in the export of garments in the future.  

• The trade deficit in the first ten months amounted to US dollars 1,704 million. The trade deficit grew by US dollars 564 million compared to the deficit in the first ten months of 2003, mostly due to the increase in petroleum imports by US dollars 274 million in the first ten months of 2004. 

• In the next two months of 2004, export growth is projected to improve further with better performance of garment, tea, and rubber exports.  Import growth is expected to taper off, narrowing down the growth in trade deficit.  Impact of the trade deficit will be mitigated with improvements in the services sector earnings, worker remittances and with new financing facilities from India and Iran to finance oil imports.  The services sector will improve mostly due to the growth in the leisure sector of over 20%, and growth in port related services.  Inward remittances will also increase in view of the festival season.  The Balance of Payments position will improve substantially during December with the receipts of loan disbursements to the government from Japan (US dollars 100 million), ADB (US dollars 30-40 million) and the receipt of US dollars 100 millions as proceeds from the international bond issue by Sri Lanka Telecom.  

Hayleys-MGT Knitting Mills Supplies Fabric to Leading Global Brands 

• Hayleys-MGT Knitting Mills Limited, the joint venture between the Hayleys conglomerate and an Australian firm, has begun supplying knitted fabric to leading global brands such as Nike.

• This comes after its recent accomplishment in winning a big order to export cloth to make jerseys for English football clubs. The Company has begun supplying fabric to the England and Ireland Football Associations as well as the Norway Football Association and to big-time English Premier League clubs like Everton and Chelsea.

• The Company also recently invested a sizeable amount of money to expand its plant capacity by 50% to 20 tonnes of fabric a day. The firm’s investment in modern knitting and printing technology had helped them to secure business from the likes of Nike. The Company is the only manufacturer in Sri Lanka that can do sublimation prints on polyester and expect bigger orders from Nike in the future. 

Swiss investments in Sri Lanka continues to grow 

• Trade relations between Sri Lanka and Switzerland continue to grow as more Swiss entrepreneurs are investing in the island nation. The US$ 30 million investment by Holcim Switzerland is a good example of this and the most important aspect of Swiss economic presence in Sri Lanka are direct investments.

• Sri Lanka and Switzerland signed agreements to promote protection of investments in 1981 and an agreement to avoid double taxation in 1983. In 2000, the Swiss Organisation for Facilitating Investments (SOFI) and the Board of Investment of Sri Lanka (BOI) entered into a MOU.  

• A. Baur & Company was the first direct investment in Sri Lanka, over a century ago. Subsequently, companies such as Nestle and Holcim have commenced operations in the island and have turned out to be major players in their industries. Currently, around 20 Swiss companies are present in Sri Lanka. 

• The main exports from Sri Lanka to Switzerland are gem and jewellery, agricultural products and garments. Switzerland is among the top six Sri Lankan gem and jewellery buyers. Diamonds and gold are also exported to Sri Lanka for value addition. Meanwhile, in the tourism industry, around 12,000 Swiss tourists had arrived in the island last year. 

• Sri Lanka imports industrial machinery, chemicals and pharmaceuticals from Switzerland.

EDB Massive Promotional Campaign on Gems & Jewellery 

• Sri Lanka Export Development Board (SLEDB) will organize a massive promotional campaign on Gems and Jewellery in three emerging markets; Italy, France & Japan. The promotional campaign has been organized after research conducted by the SLEDB. The researches have found that Sri Lankan sapphire is very popular, and the buyers from these countries are purchasing from Basel Trade Fair in Switzerland, which is the most prestigious gem & Jewellery exhibition in the world.

• The current market exploration mission of Italy is being done with the cooperation of Sri Lanka Embassy Rome and the show organizers of the Vicenzaoro Fair, which is the main gem & jewellery fair in Italy. The French market is being studied by the SLEDB and the Sri Lanka Embassy in Paris and a fair is scheduled to be held at Print Or 2005, Lyon from 6^th to 8^th February 2005. The exhibition in Japan will be held at International Jewellery Tokyo (IJT) from 26^th –29^th January 2005 with assistance of the Sri Lanka Embassy in Tokyo. 

Is the apparel sector prepared to meet impending challenges?

• The Government’s budget proposals on the Apparel Industry were formulated with the assistance and proposals made by the Join Apparel Association Forum (JAAF), the apex body of the Textile & Apparel Industry in Sri Lanka. 

• JAAF is aiming to double apparel exports by year 2007, under its 5-year strategic plan. The Government has proposed an allocation of Rs.100 Million for a Productive Improvement Programme, which was launched by the JAAF. A further sum of Rs.50 Million has been allocated to undertake an international image building campaign for the benefits of the Apparel industry. An additional Rs.100 Million has been allocated by the Government for the JAAF initiated Fashion Degree Programme at the University of Moratuwa with consultancy assistance from the London School of Fashion. 

• Government also has taken the decision to develop a new Small and Medium Enterprise (SME) Bank, which will provide advice, guidance, finances and management capabilities to SMEs. A guarantee sum up to Rs. 600Million will be given by the SME Bank enabling other financial institutions to disburse a minimum of Rs. 2billion to the apparel sector companies for the sustenance of their business. The SMEs will use this money to modernize their factories. 

• The Government has accepted to amend the Value Added Tax (VAT) Act, to offer concessions to the exporters. 

• It also has been announced that in order to attract fabric suppliers to set up modern state of the art production facilities, will be set up in Biyagama, which will be developed with all the required infrastructure, including treatment facilities for textile mills. 

• Based on another recommendation made by the JAAF, the government has agreed to redefine the goods, which could be imported on a duty free basis to include capital goods for non-BOI companies as well. The Ports & Airport Levy (PAL) has been reduced by 50% for the export sector with effect from January 2005. 

• The Garment Buying Offices, are playing a key role in the industry, particularly after the end of Multi Fiber Agreement (MFA), Government has agreed to take Garment Buying Offices under the zero-rated category for VAT. 

US $ 53Mn for e-Sri Lanka

• The International Development Association (IDA) of the World Bank has provided a credit of US $ 53Million (Rs.5300Mn) to Finance the e-Sri Lanka Development project. 

• The total cost of the programme is US $ 83 Million, out of which Government of Sri Lanka will provide US $ 14Million; Japan Social development Fund will contribute US $ 1 Million. Possibilities will be explored with the Government of Korea to obtain the Balance of US $ 15Million. 

• The project is aiming to promote Information and Communication Technology (ICT) sector of the country and main objectives are; to generate growth, employment and equity, provide affordable access to information and communication including access by citizens and business to public information and services online and encourage and enhance competitiveness of industries, small & medium enterprises and other private sector institutes. 

Euro 22.6Mn Loan from Denmark

• Denmark Government has provided Euro 22.6Million interest free loan facility to rehabilitate and reconstruct Colombo sewerage system under the Mixed Credit programme. 

13^th SAARC Summit in Dhaka 

• H.E. the President will lead the Sri Lanka delegation to the 13^th SAARC Summit scheduled to be held from 9^th – 11^th  January 2005. The meetings preceding the Summit would include Programming Committee meeting, Standing Committee meeting and the Meeting of the Council of Ministers. The Sri Lanka delegations to the Council of Ministers Meeting and the Standing Committee Meeting will be led by Hon. Lakshman Kadirgamar, Minister of Foreign Affairs and Mr. H.M.G.S. Palihakkara, Secretary/Foreign Affairs, respectively.

• The following agreements are expected to be signed during the Summit-

i.   Agreement on Mutual Administrative Assistance in Customs Matters       

ii.   Agreement on Promotion and Protection of Investments

iii.   Agreement on Establishment of SAARC Arbitration Council

iv.   Agreement on Avoidance of Double Taxation & Mutual Administrative Assistance in Tax Matters

Preliminary Findings from the Consumer Finances and Socio-economic Survey 2003/04 conducted by the Central Bank of Sri Lanka can be accessed at the following link:

http://www.lanka.net/centralbank/cfs03_04.html

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Last Updated Date: November 25, 2004 .