Political and economic challenges have bearing on SL businesses: MTI survey
Nationwide political and economic challenges such as policy inconsistencies, political stability, fiscal and monetary policies are expected to directly impact the businesses making them the key concerns for business leaders. All the Sri Lankan companies and business leaders are encouraged to consider re-strategising and gearing their organisations to overcome the mentioned challenges, to achieve the expected business objectives and results, a new survey has revealed.
The MTI CEO Business Outlook, for the 6th consecutive year, undertaken by MTI Consulting in partnership with the Sunday Times, the Daily Mirror and the Daily FT , has revealed that 2017 will be an interesting and challenging year for business leaders, considering uncertainties and volatilities both at home and abroad.
“Despite a majority having performed below expectations in 2016, CEOs enter the New Year with relatively positive expectations for their businesses. However the confidence on the recovery of both global and local economies have not been fully restored,” it said.
It said 61 per cent of the CEOs reported, their businesses have performed below expectations in 2016. This shows an increasing trend from 2014 onwards. As opposed to 68 per cent and 53 per cent respondents from 2014 and 2015 respectively, only 38 per centof respondents stated that their business performed either as expected or above expectations.
Considering many indicators, including exports and reserves, the external sector performed poorly in 2016 compared with 2015. The decline in the country’s reserves, despite the IMF package is a serious cause for concern – according to economists.
Banking - The banking sector continued to expand its asset base during the first nine months of 2016 maintaining its capital and liquidity at adequate levels. Return on Equity increased to 17.2 per cent during the first nine months of 2016 when compared with 15.7 per cent in the corresponding period of 2015.
Tourism – Sri Lanka missed the arrivals target for 2016 by 149,000 tourists. Nevertheless, arrivals growth continued in 2016 the momentum which started at the end of the war. However revenue was US$200 million below the original target of $3.6 billion.
Apparel - Apparel exports contracted by 1.2 per cent YoY during the first 10 months of 2016. Exports to the EU contracted substantially by 9.8 per cent as uncertainty loomed over the EU market with the Brexit vote in the UK and elections in other European countries like Italy and Austria further aggravating an already weak market.
Construction - The construction sector which went through a rough patch in 2015 have indicated signs of recovery with some of the large infrastructure projects driven by the public sector recommencing. Large infrastructure projects driven by the public sector kick started during the first quarter continued growth in projects in the condominium and leisure sectors. In early 2016 Sri Lanka’s real estate market expanded rapidly, continuing a medium-term growth trend that has been fueled by an increased appetite for residential property among the nation’s wealthy and middle-class population, growing demand for high grade office and commercial space from local and foreign corporates, and rising interest in the country as a tourist destination.
Stock market: The All Share Index (ASI) declined to 6,228 points and S&P SL20 index to 3,496 points at end 2016 compared to 6,895 and 3,626, respectively, as at end 2015. The CSE lost Rs. 193 billion from its market capitalisation by the end of 2016 to stand at Rs. 2, 745 billion, compared to Rs. 2,938 billion at the end of 2015.
Annual turnover stood at Rs. 176.9 billion, lower by Rs. 76.3 billion and Rs. 64 billion than 2015 and 2014, respectively.
The majority is still hopeful of the Sri Lankan economy stabilizing, but the sceptics have also increased. Sri Lanka in 2017 : The key issues under political, legal and governance were concerns on policy consistency and effective implementation of policy decisions. According to MTI Research, several experts and economists have emphasised the importance of having consistent and coherent policies. Especially as mentioned by ambassadors of the US and China, having consistent investment policies is vital to attract US and Chinese investments. Equal amount of concern is shared between political stability of the coalition government and attracting Foreign Direct Investments and building investor confidence.
Economic Policies: A closer look at the composition of responses citing economic policies as a challenge revealed that the depreciation of the Sri Lankan currency, increased taxes due to fiscal policy reforms, high interest rates, need to improve net trade were considered as the most significant issues among Sri Lankan business leaders. Less frequently cited issues cover ensuring economic stability and growth, managing national debt, stability of monetary policy etc.
Business Leaders are still optimistic that 2017 will be see higher growth. MTI said. Despite performing below expectations in 2016, 45 per cent of the surveyed chief executives are optimistic on achieving better performances in 2017. This is an improvement from last year where only 38 per cent were expecting higher growth.
Despite the economic, monetary and fiscal challenges, increasing confidence on world economic recovery and growth opportunities may have been the reason for better expectations than previous year.
Challenges come from outside :
The main external challenges the CEOs have identified are related to the economy such as devaluation of Sri Lankan rupee, rising interest rates, fiscal policy and tax reforms etc. Hence the key challenges for the Sri Lankan economy and businesses are more or less the same. Second most significant issues are, political and regulatory issues, which cover policy inconsistency and implementation, political stability and rules and regulations. External demand generation challenges mainly cover the low disposable income and purchasing power of consumers.