Opportunity - Unilever explores global buyers for its tea business

In the face of declining group sales growth, Unilever will conduct a review of its global tea business, including the PG Tips and Lipton brands, in an apparent strategy that Chief Executive Alan Jope is rethinking.  Jope said the group had previously invested in turning around the tea sector over the longer term, but the change of plan could ease the fears of investors who criticised the lack of urgency in transforming Unilever's struggling business of food and refreshment.

Pitkethly said tea is an excellent performer in emerging markets and the premium segment, but it would consider for review for all regions and all parts of the business. The company said the analysis caused by traditional black tea sales slowing down in developed markets as customers turn to herbal tea. Black tea, Pitkethly said, is the dominant part of Unilever's tea market, distributed in 60 countries and producing annual sales of 3 billion euros ($3.3 billion).

Unilever also struggled elsewhere with stuttering growth in India and China, two of its main emerging markets, while intense competition in North America and Europe also hindered attempts to meet growth targets for the full year. The food and refreshment company which produces teas from Lipton and mayonnaise from Hellmann among others and contributes 40% to group sales-has been hit particularly hard in North America and Europe as customers look for healthier options.

Joe announced that he is concentrating on sustainability instead of topline growth. Nonetheless, Joe's focus is on growth, and he said on Thursday after the results from his first full year in charge showed a 2 per cent increase in annual turnover and 2.9 per cent improvement in underlying sales.

OSL Take: Sri Lanka’s tea sector has been recording continuous growth with increased recorded in the export sector as well. The proposed merger and acquisition opportunity avails the range of business opportunities towards the astute investor.

The government of Sri Lanka has also offered many incentives to promote the country’s tea industry. Foreign businesses/investors could explore business/investment opportunities in Sri Lanka’s tea industry.

The latest report by the Central Bank of Sri Lanka highlighting the decrease in the trade deficit, increase in the tea export revenues, and the easing of pressure on the rupee is all indicative of an economy on a buoyant growth path. International lending agencies have recognised Sri Lanka's economic policies like the IMF, World Bank, and ADB, which have expressed confidence in Sri Lanka and expressed willingness to assist the country.

The country’s economic policies have also helped the growth of several key industrial sectors in the country. Hence, this has resulted in the opening of many business/investment opportunities along with the aggressive development program undertaken by the GoSL. The country is, therefore, a hotbed for foreign investments, and interested businesses/investors could explore opportunities in Sri Lanka.

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India’s Cabinet approves agreement with Sri Lanka to avoid double taxation

Sri Lanka and India will sign a double tax avoidance agreement that aims to improve tax transparency and help curb tax evasion and avoidance. An official release said India-Sri Lanka signed the new DTAA on 22 January 2013, which came into force on 22 October that year. India and Sri Lanka are members of the Inclusive Framework and are required to implement the minimum standards for their DTAAs with Inclusive Framework Countries under the G-20 OECD BEPS (Base Erosion and Profit Shifting) Action reports.

Minimum BEPS Action Six requirements may be met through the Multilateral Convention for the Implementation of Tax-Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI) or through bilateral agreement.

India is an MLI signatory. But as of now, Sri Lanka is not a signatory to the MLI. Therefore, amendment of the India-Sri Lanka DTAA bilaterally is required to update the preamble and also to insert Principal Purpose Test (PPT) provisions to meet the minimum standards on treaty abuse under Action 6 of-20 OECD BEPS project

OSL Take: The commitment towards setting up an agreement to avoid double taxation by India to Sri Lanka indicates the close bilateral ties enjoyed by the two nations. Sri Lanka and India have an existing free trade agreement as well. India has played an active role as Sri Lanka’s development partner. Therefore, business opportunities between the two countries are very high.

Foreign businesses/investors interested in doing business with India could look at setting up bases in Sri Lanka to get the trade benefits enjoyed by Sri Lankan businesses in India. The ancient ties between the two nations have further strengthened through trade ties that have been benefited by a free trade agreement (FTA) between the two countries. While many Indian companies have formed joint ventures with local businesses, the Indian government has continuously assisted Sri Lanka in its program.

The trade relationship between Sri Lanka and India could be beneficial to foreign businesses/investors interested in doing business in the South Asian region as well as India. On the other hand, given Sri Lanka’s continuous efforts to develop its railway sector, foreign companies engaged in rail transport could explore business opportunities in Sri Lanka’s railway sector as well as help build additional facilities.

Sri Lanka already has a free trade agreement (FTA) with over ten countries, and the continued assistance would help build investment opportunities in various sectors. The move to further strengthen bilateral relations between Sri Lanka and India as well as the redoubling of trade promotions to invigorate efforts to reach the target of US$ 1 billion trade by 2020 are indications of the island nation becoming a hot spot for those looking at entering the Turkish market using the facilities available in the Pakistan–Sri Lanka Free Trade Agreement.

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Govt. to expand available infrastructure at free trade zones for business expansion

The Ministry of Industrial Export and Investment Promotion said the rapid construction of infrastructure at the FTZs and EPZs was also a key promise outlined in the manifesto 'Visions of Prosperity and Splendor' by President Gotabaya Rajapaksa.

The GoSL has recognised the need to develop drinking water facilities within FTZs and EPZs and has instructed the competent authorities to submit a proposal for project implementation Ranatunga reported that Rs. Five hundred forty million had already earmarked for the construction of drinking water facilities in the Seethawakapura FTZ, where 24 factories with 22,534 employees are working.

The Investment Board (BOI) has built 15 FTZs across the country, the oldest being Katunayake FTZ, founded in 1978. Katunayake FTZ currently employs 137,478 employees at 81 factories while Biyagama FTZ, which opened in 1985, has 55 factories and employs 28,588 workers. Koggala FTZ has 19 factories, using 14,689 people.

The government has already established a 200-acre stretch of land to develop a new FTZ in Eravur, in the Eastern Province's Batticaloa District. They will provide essential infrastructure, and the environmental impact assessment (EIA) reports have taken. However, he said the ministry is now finding potential investors for the new FTZ in Eravur. Special attention has also been given to resolving issues in industrial zones Bingiriya and Wagawatta, the minister said.

While the growth routes of these high-growth Asian economies may not replicate, their growth experiences involve lessons and plans from which Sri Lanka can learn. Economic reforms are vital if Sri Lanka is to unleash its true potential for development.

The key to enormous economic growth is export-oriented industrial development funded by private capital, especially foreign direct investment. Hence, Sri Lanka requires a solid export development policy and a regionally competitive incentive framework to attract large-scale foreign direct investment in this context.

OSL Take: The latest report by the Central Bank of Sri Lanka highlighting the decrease in the trade deficit, increase in the tea export revenues, and the easing of pressure on the rupee is all indicative of an economy on a buoyant growth path. International lending agencies have recognised Sri Lanka's economic policies like the IMF, World Bank, and ADB, which have expressed confidence in Sri Lanka and expressed willingness to assist the country.

The country’s economic policies have also helped the growth of several key industrial sectors in the country. Hence, this has resulted in the opening of many business/investment opportunities along with the aggressive development program undertaken by the GoSL. The country is, therefore, a hotbed for foreigninvestments, and interested businesses/investors could explore opportunities inSri Lanka.

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