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In Economic news:

Sri Lankas economy grows 6.4% in 2012 from an expanding industrial sector offsetting sluggish service and agriculture sectors. GDP per agriculture sector worker underperforms national average. Standard Chartered lowers Sri Lankas 2013 GDP growth to 6.7%. Moodys concerns over lack of new funding and slower growth affecting external finances. CEB to raise electricity tariffs and considers non-renewal of external power purchase agreements to curtail losses Sri Lanka to shun global lending agencies, seeks funding from bilateral agreements with friendly countries Inflation in Mar 13 drops to 7.5% YoY (-230bps MoM) on lower food prices. The rupee ended at 125.31/128.47 vs. the USD (rupee stronger ~0.4% MoM, +0.2% YTD). All Share Price Index closes at 5,735.68, +1.8% MoM, +1.6% YoY. Prof. Dissa Bandara resigns from SEC, its fourth high profile exit in recent years. Flurry of debentures hit the market as companies take advantage of withdrawal of withholding tax. UN-ESCAP classifies Sri Lanka as less indebted in five out of its six external debt vulnerability indicators.

In Business news:
Tourist arrivals increase 13.4% YoY in Jan with significant growth from UK as Sri Lanka looks to boost Chinese tourist arrivals Tea exports continue to decline on persistent unrest in the Middle Eastern markets. Motor vehicle registrations tumble 44.9% YoY as recent fuel hike further affects the industry Mattala International Airport opens Commercial banks increase net interest margins and expand operations to under penetrated areas LMD-Nielsen Business Confidence Index drops 18 points

In Consumer news:
Dialog expands to mobile phone devices offering two own brand smartphones at competitive prices Agreement on halal certification reached by Ceylon Chamber of Commerce and clergy Nielsen Consumer Confidence Index remains steady at 68 (+1 point MoM).

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In Economic news:
Sri Lankas economy grows 6.4% in 2012.
Department of Census and Statistics recorded Sri Lankas 2012 GDP growth at 6.4% YoY (8.3% in 2011). In 2012, industrial sector (~30% of GDP) comprising mainly of textiles and garments, construction and manufacturing grew 10.3% YoY in-line with 2011. Whereas services sector (~59% of GDP) of trade, tourism, transport, financial services etc. grew only 4.6% YoY(8.6% in 2011) mainly due to lower import trade. Agriculture sector grew 5.1% YoY (1.5% in 2011) but its contribution to GDP continued to decline and now is only 11.1% of GDP. Worryingly this sectors contribution in 4Q12 dropped to 8.8%, an all-time low. Despite several government incentive schemes such as fertiliser subsidies (Rs.60bn in 2012 for paddy), guaranteed prices for selected crops, low interest loans etc., agricultural sector struggles to make a higher contribution to the economy. The government continues to offer substantial support as the sector employs about 31% of the countrys workforce.

Contribution to GDP by Sector (%)

70% 60% 50% 40% 30% 20% 3.5% 10% 2005 2006 2007 2008 2009 2010 2011 2012 6.2% 8.0% 7.7% 6.8% 6.0% 8.3% 8.0% 9.0%

Services GDP growth

6.3% 7 0% 7.0% 6.0%

Industrial
5.0% 4.0% 3.0%

Agriculture

Source: CBSL

600,000 500,000 400 000 400,000 300,000 200,000 100,000 2005

GDP per worker by sector (Rs.)

Services Industrial National average

Agriculture

2006

2007

2008

2009

2010

2011

2012

Source: CBSL, Department of Census and Statistics

Investors Service, an international rating agency view the lack of a program with the International Monetary Fund (IMF) and slower growth to affect external finances. Moody states Although the government will likely continue to make gradual progress in reducing its deficit, the debt burden will remain high, The absence of a new funding program is credit negative from the perspectives of external payments and growth. In Feb 13, Sri Lanka decided against seeking funds from the IMF, as it was not willing to give money directly for government spending stating the country is not deemed to require any exceptional financial support from the IMF. Moodys acknowledging progress since the end of the civil war in 2009, however noted that a follow-up funding program would have increased external reserves, bolstered investor confidence and supported balance of payments. Additionally, Moodys regarded Sri Lankas External Vulnerability Indicator (foreign reserves/short term debt) to be high at 124% in 2013 (down from 132% in 2012). Moodys rates Sri Lanka a B1 speculative rating with a Positive outlook.

Lack of new funding and slower growth to affect Sri Lanka. Moodys

Sri Lanka to shun global lending agencies. Central

Bank of Sri Lanka (CBSL), Governor, Mr. Ajith Cabraal stated that Sri Lanka would not seek funds from World Bank, IMF and Asian Development Bank as the country is categorised as a middle income nation. This classification means Sri Lanka does not receive loans at concessionary interest rates. Mr. Cabraal opines that funding would transpire through bilateral agreements with friendly countries.

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In Economic news:
Standard Chartered lowers Sri Lankas 2013 GDP growth to 6.7%. Standard Chartered
Bank of Sri Lanka (SCB) lowered its forecast for the countrys 2013 GDP growth to 6.7% from 7.5%. SCB expects a slower than expected recovery due to a) increased need for fiscal consolidation b) higher inflation limiting room for near term policy easing and c) slow recovery in EU and US (Sri Lankas main trading partners). SCB also remains concerned of CBSLs 2013 budget deficit of 5.8% of GDP, as it believes this to be challenged by debt repayments and lower tax revenue.

S&P confirms B+ sovereign rating for Sri Lanka. Standard and Poors Ratings Services (S&P)


affirmed its B+ sovereign rating for Sri Lanka with a stable outlook. However S&P warned against weak external liquidity (gross external reserves at three months of current account payments), fiscal weaknesses and state institutions lacking transparency and independence. On a positive note S&P supported its ratings by countrys strong growth prospects and single digit inflation.

(CEB) proposes to raise electricity tariffs to cover mounting losses from high cost of thermal power generation. The brunt of the tariff increase would be felt by 0-120 unit domestic users and most industrial users whilst high volume domestic users and places of religious worship are less affected. Losses at CEB were Rs.65bn in 2012 (~+37% in 2011). Without proposed tariff hikes CEB is projected to lose a crushing Rs.94bn in 2013.


CEB in tariff hike to cover losses. The Ceylon Electricity Board

The revised tariffs were forwarded to the Public Utilities Commission of Sri Lanka (PUCSL), who in turn requested the general public to submit their thoughts on the proposed hikes. The move is widely seen as a publicity stunt as PUCSL has no choice but to rubber stamp proposed hikes. Previously, the IMF laid down conditions as part its $2.6bn SBA facility granted to Sri Lanka that CEB and CPC must be restructured and subsidies reduced. In addition to tariff hikes CEB is also exploring the introduction of an automatic tariff adjustment based on market indicators to the benefit of consumer and the institutions. However this would take about three to four years to implement.

Another strategy being mulled to reduce CEB losses is the non-renewal of its power purchase agreements with the Independent Power Producers (IPPs). IPPs currently numbering 11 are engaged in thermal power generation using furnace oil and diesel, which CEB purchases at a high cost. Expansion of coal and minihydro power plants and somewhat favourable weather conditions are considered to be reasons for considering non-renewal. If confirmed large IPPs such as Hemas Power and Aitken Spence, each supplying over 100MW are likely to be most affected.


Further, learning from bitter past experience the government is keen to bring CEB and CPC losses to manageable levels. In 2011 its failure to raise electricity tariffs, financing CEB losses through cheap bank credit (as interest rates were not adjusted) led to a balance of payment crisis (countrys cash outflows exceeding inflows). To rectify the situation interest rates were raised, import taxes hiked and the Rupee was depreciated vs. USD to 134 from about 110, pushing inflation higher.

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In Economic news:
Speculation of debt to equity swap at Norichcholai. News emerged of a possible
debt to equity swap at the $1.3bn Norichcholai

power plant, as a way out for the governments inability to meet loan and interest payments. Highlighting the dangers of this proposition, Dr. Tilak Siyambalapitiya, an energy sector consultant stated that converting debt to equity is very dangerous because the return on equity could be extremely highand thus the whole purpose of putting up a coal power plant which was to bring down the electricity generation cost will be lost as the equity investor generally seeks higher return to compensate his higher risk. Coal power plants are attractive due to its low unit cost of about Rs.6 against CEBs average unit cost of Rs.20. In 2012 BOC raised $500m in dollar bonds in the international markets. Fitch Ratings Lanka notes BOCs high exposure to state enterprises, especially CPC (~20% of BOCs total exposure) requiring periodic capital injections.

Bank of Ceylon (BOC) to raise $300-500m overseas.

State entity, Bank of Ceylon (BOC) proposes to raise $300-500m US dollar bonds in the international markets (Fitch rating: BB- (expected)).

Perceived Economic Opportunity Index at lowest level. Compiled by the Foundation for Economic Freedom in Sri
Lanka, the Perceived Economic Opportunity Index (PEOI) dropped to 1.56 the lowest level since its inception in Jul 11. The current level is considered as relatively pessimistic with a score of 3 being relatively more optimistic. Index surveys 100 randomly selected persons on a monthly basis, gauging sentiment on income, saving and cost of living, law and order, media freedom and corruption and job opportunities and entrepreneurial activity.

Perceived Economic Opportunity Index

2.0 1.9 1.8 1.7 1.6 1.5 1.4

Source: Foundation for Economic Freedom in Sri Lanka

Cairns Lanka finds no oil in fourth well.

Cairn Lanka (Pvt.) Ltd failed to find oil in its fourth exploration well near Kalpitiya (Mannar Basin), its parent company stated in a stock exchange filing. Drillers were said to have found thick high quality reservoir sands, which were not hydrocarbon bearing which was plugged and abandoned. Previously in the Mannar Basin Cairns Lanka found hydro carbon, a substance that generates natural gas and oil. The companys initial commitment to the oil exploration in Sri Lanka is $100m of which $40m had been used as at 2012. The Mannar Basin has eight oil and gas exploration blocks, of which two had been granted to China and India.
140 135 130 125 120 115 110 105 6.5 5.5 4.5 3.5 2.5 1.5 Mid point (rs. per US$) Bid - Ask spread (Rs. per US$) 7.5

Sri Lankas development The rupee ended the month bonds oversubscribed. Sri at 125.31/128.47 vs. the USD Lanka sold $129m in three year dollar (rupee stronger ~0.4% MoM, denominated development bonds 0.2% YTD). In a bid to attract foreign at an average yield of 400bps above
the six month LIBOR rate (current rate, 0.4454%). Initial $50m offer was oversubscribed 2.6x which the public debt office decided to accept in its entirety to provide an opportunity for investors to invest their funds for a longer period. In Feb 13, an offer of $60m bonds at a 400bps premium to LIBOR was also oversubscribed 2.6x. Policy rates were unchanged in March, repurchase rate and the reverse repurchase rate are 7.50% and 9.50%.

funding, CBSL Governor stated that Sri Lanka will continue to liberalise foreign exchange Source: CBSL controls to encourage the investments needed to maintain high economic growth. The thinking now is to try to have faster growth for which we need more savings and investment which, if not available in our own country, we must get from outside. Attracting foreign funding is crucial to countrys development as currently domestic savings are lagging at around 25% of GDP, below the 34% needed to achieve countrys 8% growth. CBSL is also looking to lift restrictions on repatriation of profits by foreigners investing in property. Currently capital gains by foreigners selling property have to be credited into Non-Resident Foreign currency accounts and repatriation of profits is limited to $20,000 a year. There are no restrictions on repatriation of capital gains by foreigners investing in shares.
2-Jan-12 12-Jan-12 22-Jan-12 1-Feb-12 11-Feb-12 21-Feb-12 2-Mar-12 12-Mar-12 22-Mar-12 1-Apr-12 11-Apr-12 21-Apr-12 1-May-12 11-May-12 21-May-12 31-May-12 10-Jun-12 20-Jun-12 30-Jun-12 10-Jul-12 20-Jul-12 30-Jul-12 9-Aug-12 19-Aug-12 29-Aug-12 8-Sep-12 18-Sep-12 28-Sep-12 8-Oct-12 18-Oct-12 28-Oct-12 7-Nov-12 17-Nov-12 27-Nov-12 7-Dec-12 17-Dec-12 27-Dec-12 6-Jan-13 16-Jan-13 26-Jan-13 5-Feb-13 15-Feb-13 25-Feb-13 7-Mar-13 17-Mar-13 27-Mar-13

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In Economic news:
Inflation in Mar 13 drops to 7.5% YoY (-230bps MoM. Casting doubt on the validity of the measurement CBSL

Inflation (CCPI-YoY%)
10.0% 9.0% 8.0% 7 0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0%
Jan13 Mar12 May12 May11 Mar13 Nov11 Nov12 Jan12 Apr12 Jun12 Aug12 Aug11 Apr11 Oct11 Oct12 Jun11 Feb12 Sep12 Dec11 Dec12 Sep11 Feb13 Jul11 Jul12

published that Colombo Consumers Price Index had reduced to 7.5% YoY. Food and non-alcoholic beverage segment constituting 40% of the inflation index dropped 0.2% in the month.

Source: Foundation for Economic Freedom in Sri Lanka

The All Share Price Index closed at 5,735.68, +1.8% MoM, +1.6% YoY. Best performing sectors in the month were
stores and supplies (+9.5% MoM), banks, finance & insurance (+3.6%) and diversified holdings (+1.4%) whilst worst performers were information technology (-20.2% MoM), footwear and textiles (-7.2%) and healthcare (-3.7%). In Mar 13, foreign investors were net buyers of Rs.5.0bn and have been net buyers of Rs.3.0bn in 2013.

All Share Price Index

6,200 6,000 5 800 5,800 5,600 5,400 5,200 5,000 4,800 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13
Source: CSE

5,972 5,817 5 694 5,694 5,458 5,420 5,419 5,180 4,966 4,945 4,832 5,514 5,351 5,643 5,636 5,736

day after appearing before a Committee on Public Enterprises (COPE) hearing called to examine Securities and Exchange Commission (SEC) action on market manipulators and illegal transactions, temporary Director General of the SEC Prof. Hareendra Dissa Bandara resigned from his post less than a year into it. In a remarkable revelation similar to that expressed by former Chairperson Indrani Sugathdasa, Prof Dissa Bandara said that Based on my principles and considering the current set up at SEC, I was compelled to take the decision to resign. However an official statement later released by Prof. Dissa Bandara did not mention the above assertion. Appointed to the current post in April 12, whose term was to expire in May 13, Prof. Dissa Bandara is the fourth high profile official to leave the SEC in recent times. At the above mentioned hearing, COPE chastised the SEC for not taking sufficient remedial or legal action against market manipulators or illegal transactions. In 2012 under then Chairman Mr. Tilak Karunaratne, SEC initiated investigations into insider dealings, front running and other market manipulations by over 20 listed companies. COPE Chairman Mr. D.E.W. Gunasekara stated that, We are quite aware of what was going on in the stock market. We know what made the previous Chairmen to quit. Your job is a risky one. Bring in the amendments to the Act and strengthen yourself. We are there to help you. Fearlessly expose the culprits and give them deterrent punishment. Then only the investors will have confidence in you. Prof. Dissa Banadara was to later say that the SEC had completed 90% of pending investigations on securities fraud and legal opinion had been sought on the remaining.

Prof. Dissa Bandara resigns from SEC. A

Tilak Karunarate, Chairman (Dec 11 Aug 12)

Indrani Sugathadasa, Chairperson (May 10 Dec 11)

Malik Cader, Director General (Nov 10 - Nov 11)

there was pressure from very powerful people

having considered the unfolding circumstances and upholding my principles,

__

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In Economic news:
Flurry of debentures hit the market.
Several listed companies sought to take advantage of the Budget 2013 initiated removal of withholding tax on interest income from corporate debt securities. Seylan Bank kick started the trend by raising Rs.2bn in
Debenture Issues Company Central Finance PLC Lion Brewery (Ceylon) PLC Merchant Bank of Sri Lanka PLC Peoples Leasing & Finance PLC Softlogic Holdings PLC

Feb 13 which was over-subscribed at the end of the first day. Issuing debentures is largely seen as a positive move as it locks in medium to long term funds thus reducing interest rate risk.

Type of Debenture Senior Unsecured Redeemable Unsecured Redeemable NA Senior Unsecured Redeemable Redeemable

Amount Rs.2bn Rs.3bn Rs.2bn Rs.6bn Rs.750m

Rating A+(lka)(EXP) AA-(lka)(EXP) AAAA-(lka) A-(lka)(EXP)

Agency Fitch Ratings Fitch Ratings RAM Rating Fitch Ratings Fitch Ratings

Term and Coupon 3yr and 5yr, NA NA,NA 4yr 17.25% mly, 5yr 16.5% mly, 16.7% qtrly, 17.5% p.a 4yr 16.50% annual, 5 yr 16.75% s.ann, 17.00% p.a 3yr fixed, NA

Note: EXP - expected, mly- monthly, s.ann - semi annual

Source: Fitch Ratings Lanka, RAM Ratings Lanka

Sri Lanka is less indebted. United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP) classified Sri Lanka
as less indebted in five out of the six external debt vulnerability indicators.
Indicator Less Disbursed Ext. Debt/Gross Nat. Income Disbursed Ext. Debt/Export (Goods and non factor services) Total Ext. Debt Serv. Payments/Export (Goods and non factor services) Ext. Int. pay/Export (Goods and non factor services) NPV of Ext. Debt/Gross Nat. Income NPV of Ext. Debt/Export (Goods and non factor services)
Source: Manual on Effective Debt Management, UN-ESCAP

Level of Indebtedness Moderate >30% and <50% >165% and <275% >18% and <30% >12% and <20% >48% and <80% >132% and <220% High >50% >275% >30% >20% >80% >220% Sri Lanka 2012 37.0% 112.6% 10.7% 3.7% 40.0% 130.0% <30% <165% <18% <12% <48% <132%

NWS sold to Nimal Perera and Royal Ceramics. Mr.



Nimal Perera in partnership with Royal Ceramics PLC (RCL) bought 51% of New World Securities Ltd (NWS). Mr. Perera receives a 32% stake under his personal account whilst RCL where Mr. Perera is the Chairman receives a 19% stake. The deal is yet to be approved by the SEC and the Colombo Stock Exchange. NWS commenced operations in Mar 11 led by a consortium of Japanese investors,  attracted about Rs.2bn of Japanese investments into Sri Lankan Government bonds. Recently RCL divested a 51% stake in Asia Siyaka Commodities to Lanka Commodity Brokers for Rs.371m, Rs.34m higher than its purchase price in 2012.

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In Business news:

140,000 120,000 100,000 80,000 60,000 40,000 20,000

TouristArrivals

2011

2012

2013

GrowthYoY2011 2012 30% 25% 20% 15% 10% 5% 0%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: Sri Lanka Tourist Board

the largest increase of 25.4% YoY. Visitors from the UK also comprise Sri Lankan expatriates and as such we feel that the income generated by this segment of the market may not be proportionate to other market segments. The figure is of extreme importance given the recent statements from the British High Commissioner calling for better security, rule of law and protection of tourists. With a slightly ambitious target of 1.25m tourist arrivals set for 2013 Sri Lanka would do well to ensure the highest standards as possible in the tourism industry. Sri Lanka targets 60,000 Chinese tourists as part of its 2013 annual target and to reduce its dependency on European markets. Arrivals from China grew 58% YoY to 25,781 in 2012 and 100 travel agents from China are to be invited to Sri Lanka on a familiarisation tour. Sri Lanka is growing in popularity in China having been awarded the title of Most Popular Tourist Destination at the Buyers Night and Award Ceremony held on the Guangzhou International Travel Fair 2013 and the prestigious Most potential outbound tourist destination Award at the Jinhua Travel New Model Awards ceremony organized by the Beijing Times.

Tourist arrivals increase in January. Tourist arrivals in Jan

13 grew 13.4% YoY as 97,411 tourists visited the country, marking the 45th consecutive month of growth. Arrivals from Western Europe were the highest contributor of growth with visitors from the UK showing

Tea exports continue to reduce. Tea exports during the

first two months of 2013 dropped 3.0% YoY to 43.9m kgs as Sri Lankas largest market segment in the Middle East continued to be unstable. The overall values increased by 7.2%YoY from Rs.24.2bn to Rs.25.9bn. This comes amidst attempts by companies like James Finlays to market their brands to migrant communities in non-traditional markets like America, Europe and Australasia. A shipment of Sri Lankan tea detained at the Iraqi border was only recently allowed in to the country due to a shift in testing parameters. There is also a call for a shift from the traditional simple nature of Sri Lankas export portfolio which is mainly focused on tea and garments to more complex products. According to the former deputy governor of CBSL Mr. W.A. Wijewardene Sri Lanka is home to the developers of one of the fastest stock market systems in the world and would have to produce more such products if they are to avoid falling into middle income trap. Agricultural products and textiles and garments still constitute the bulk of Sri Lankas exports.

Exportsearningsas%ofTotalExports
Agriculturalexports
50.0% 45.0% 40.0% 35 0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

TextilesandGarments Tea

PetroleumProducts

2007
Source: CBSL

2008

2009

2010

2011

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In Business news:
Motor vehicle market continues to tumble.
According to JB Securities only 23,544 (-44.9% YoY) vehicles were registered in Feb 13. The industry continues to be affected by higher import taxes, depreciation of the rupee and multiple increases in fuel prices. Motor car registrations dropped a significant 69.3% YoY. Other large volume vehicle segments, 3 - wheelers and 2 wheelers dropped 39.3% and 41.3%. Analysts believe that the total number of registrations would have been much lower if not for the issuing of concessionary vehicle permits to government officials, clergy, exporters etc. In Feb 13, brand new registrations of super luxury vehicle BMW 5 series increased 411% to 46 units. Over this same time frame the number of registrations, of the more middle and lower middle class vehicles such as the Maruti Zen model was only 11 (126 Feb 12) and Suzuki Alto was just 68 (596 in Feb 13).

411%

88%
Motor Vehicle Registrations (New/Pre Owned)
Motor Cars 25,000 20,000 15,000 10,000 5,000 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 3-wheelers 2-wheelers Trucks

Source: JB Securities

Mattala International Airport is open.

The Mattala Rajapaksa International Airport (MRIA) was ceremonially opened on the 18th Mar. The inaugural Sri Lanka Airlines flight was followed by Air Arabia and Fly Dubai. Regular flight schedules are expected from the end of Mar 13. Under phase 1 of MRIA construction, the airport is capable of handling up to 1m passengers and

30,000 aircraft movements p.a. including the airbus A380 aircraft which is not possible at Bandaranaike International Airport (BIA) at present. The second phase of construction will increase capacity to 5 to 6m passengers and 45,000 aircraft movements p.a. Total investment over both phases is expected to be $330m a majority provided by Chinas Exim Bank. Separately, expansion of the BIA by 2015 should increase its capacity to 15m passengers from current 6m p.a.

EU to fund SMEs and renewable energy projects.

The European Union (through The European Investment Bank) is to loan Euro 90m to Sri Lanka to finance renewable energy projects and small and medium enterprises. The disbursement of the loans will be handled through DFCC Bank, Commercial Bank of Ceylon and Regional Development Bank. Funds will be given to Sri Lanka as a 20-year loan with a 15 year payback at approximately 2.9% p.a. 70% of the funds would be allocated to SMEs and 30% for renewable energy projects.

Banks increase margins and expand operations

Sri Lankas bigger banks maintained their net interest margins (NIM) at around the 4% mark in 2012 on the back of lower interest foreign loans in spite of higher interest rates imposed by the government. Commercial banks were allowed a 23% credit ceiling including foreign loans and Sampath Bank, NDB, HNB and Commercial took advantage to increase their foreign loan portfolio significantly. HNB showed signs of aggressive expansion, introducing a mobile banking platform hot on the heels of the product being launched by Nations Trust Bank recently. HNB plans to attract almost 300,000 users in the next three years focusing more on rural areas. Separately, the IFC and German development financier DEG are expected to buy 10% stakes in the Cargills Agriculture and Commercial Bank, a venture promoted by the Ceylon Theatres group. Other members in the group CT Holdings and Cargills (Ceylon) Plc have also agreed to buy 10% stakes.

NIM %
5.5 5.0
4.7 4.9 4.6 4.2

2011

2012
5.4 4.9 4.6 4.5 4.3 3.9 4.6 4.6

4.5 4.0 3.5 3.0 HNB

4 4 4.4

4.1

3.8 3.7

Com Bank Sampath

NDB

DFCC

NTB

PABC

UBC

Source: Company data, Capital Alliance

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In Business news:
Iluka Resources plans re-entry into Sri Lanka. One
the worlds largest producers of mineral sands, Iluka Resources based in Perth, Australia, are planning to re-enter the Sri Lankan mining industry after a lapse of a decade. The company had a mining operation in the country during the late 1990s but withdrew its operation in 2003. Rising production costs in Australia and strong Australian Dollar hurting exports resulted in the company announcing 200 job cuts in early 2013. Further, maturing traditional reserves such as the Murray Basin in New South Wales have forced companies to focus on countries with untapped reserves and cheaper production costs. The incentives provided by the Sri Lankan government seeking to capitalise on the boom in the mineral sands industry globally have also encouraged foreign investors. The demand for mineral sands, closely linked to the housing and construction markets is expected to rise as China and India, Sri Lankas largest buyers of mineral sands pursue rapid urbanisation.

The LMD-Nielsen Business Confidence Index drops 18 points. Ending a nine month positive momentum the

business confidence index dropped a staggering 18 points in February to 140. Mr. Shaheen Cader, Managing Director of Nielsen Sri Lanka says it is largely a result of some nervousness about the economy and comes shortly after the publication of Sri Lankas third-quarter growth of 4.8 percent the lowest in three years. Further the IMFs revised GDP growth forecast of 6.25% (lower than the official figure 7.5%), low exports and the failed negotiations with the IMF for $1bn Extended Fund Facility for additional budget support have negated business confidence. The impeachment of the chief justice and the negative sentiment regarding Sri Lanka at the UNHRC are believed to have further compounded this negative outlook. There is a growing trend of pessimism among those polled with 24% expecting the economy to get worse over the next three months as opposed to just 14% last month. Furthermore 28% compared to 17% last month say their business volumes are lower this time than last year and 21%, up from 18%, say they expect sales volumes to get worse over the next three months. Rising cost of living and the change in electricity tariffs are also expected to reduce business in the next few months.
ADVERTISEMENT

Business Confidence Index

170 160 150 140 130 120 110 100 90 80
Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13

Source: lmd.lk

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In Business news:
Headcount at software and outsourcing companies on the rise. Number of
staff at software and outsourcing companies in Sri Lanka had increased between 14-21% over the past three years, a survey conducted by Sri Lanka Association of Software and Services Companies (SLASSCOM) and PricewaterhouseCoopers revealed. The survey also highlighted the salary scale of IT sector employees as well as the IT and Export Software (ITES) industry. According CBSL the ITES industry generated export earnings of about $600m in exports for 2012 and the industry is targeting $1bn by 2016. However exporters face a growing threat with regards to pirated software and the need to ensure that the software used is fully licensed and legal. An IT industry source commenting to Mirror Business stated that the piracy rate in Sri Lanka in 2012 is about 84%. This has resulted in local exporters being increasingly subjected to checks by local and foreign companies. The Urban Development Authority (UDA) and the Ministry of Defence are planning a knowledge park in Colombo at a cost $7m. The park is expected to house a range of IT and design oriented industries with representation from local universities. The idea behind the development is the clustering of knowledge based industries to develop synergies through knowledge sharing.

Paycorp Payment Solutions through Paycorp International

an Australia based provider of enterprise payment processing solutions to financial institutions, corporates and others is to establish a knowledge process outsourcing (KPO) operation in Sri Lanka with a $4.4m investment employing about 100 people.

In Consumer news:
Dialog expands to mobile phone devices. With the launch

21000000 18000000 15000000 12000000

Fixedlines

Mobilephones

InternetandEmailsubscribers

Mobilepenetration

1.05 1 0.95 0.9

9000000 6000000 3000000 0 1Q11

Sources: CBSL

0.85 0.8 0.75 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

of two own brand smart phones at competitive prices, Dialog entered the mobile phone market offering standard features of smartphones and a one year warranty. According to Dialog Axiata Group chief executive Dr. Hans Wijesuriya the move is aimed at making smart phones more

accessible. Dialog currently has 7.8m subscribers with GSM, 3G and HSPA+ technology. Mobile penetration in Sri Lanka exceeded 100% at the end of 2012. Separately, Dialog announced that it is to launch 4G high speed mobile broadband shortly, made possible through companys purchase of 1800MHz band spectrum. Fixed 4G LTE (long term evolution) network was launched in 2012.

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In Consumer news:
Nielsen Consumer Confidence Index remains confident increasing 1 point to 68 from Jan to Feb 13. However

Job Prospects Good Not so good Bad Personal Finances Good Not so good Bad Affordability of Essentials Good Not so good Bad

Feb-13 32 49 19 Feb-13 24 42 28 Feb-13 13 49 38

Jan-13 29 59 10 Jan-13 13 72 14 Jan-13 16 61 23

Change 3 -10 9 Change 11 -30 14 Change -3 -12 15

there appears to be reversal in momentum compared to Jan 13 with many of the categories surveyed expressing comparatively higher negative sentiments. 32% feel job prospects will be better over the next year. While this figure is up from last months 29%, those who say job prospects will be bad have risen to 19% from 10%. The same is true regarding the expectation of personal finances and purchase of essential items over the next 12 months

Agreement on halal certification reached. This was

achieved under the auspices of the Ceylon Chamber of Commerce and several other private sector chambers following discussions with buddhist clergy and member of the All Ceylon Jamaiythul Ulama (ACJU). The agreement recognised that the halal certification process for FMCGs has not entailed any religious activities in the pre or post production process and also established that to maintain products of identical packaging with the only difference being a logo would be confusing to consumers and cumbersome for producers. The agreements also states that in the short term the present stocks of halal certified products would be allowed to exhaust themselves naturally while producers work on developing packaging without the halal logo as soon as possible.

Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Source: lmd.lk

68 67 62 60 59 59 57 59 58 60 65 72 77 85 87 85

Nielsen Consumer Index

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Mo n t h l y B u l l e t i n : March 2013
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