Corporate executives take a slightly more positive stance on the state of business

The news from official quarters hasn’t been all that positive with the prospect of a power crisis following prolonged drought conditions that have already dealt a telling blow to Sri Lanka’s agriculture sector.

Additionally, the tourism industry will have to contend with potential losses following the partial closure of the country’s main international airport for three months, which is undergoing a long overdue renovation of its runway.

Nevertheless, corporates appear largely hopeful of better days ahead; it is not uncharacteristic for the new year to generate a sense of renewed optimism, which might help explain the mild turnaround in the latest LMD-Nielsen Business Confidence Index (BCI).

THE INDEX Year 2017 has begun on a somewhat positive note with a marginal improvement in the BCI, which moves up by six basis points to 123 in January – this however, is lower than both a year ago (151) and the all-time average (130).

Nielsen’s Managing Director Sharang Pant remarks: “Business leaders show optimism on the economic front and for their own businesses … The short-term outlook is positive as well.”

Pant also notes that “the investment climate does not see positive sentiments… This comes from the lack of policies from the government, some budget proposals that are yet to be finalised and the continuing depreciation of the rupee.”

Reflecting on the year that was, he observes: “After a fairly stable period in the first five months of 2016, business sentiment reflected huge fluctuations. The floods in May, the implementation and roll back of VAT in May-July, and a budget that did not please businesses added to the woes. The year ended on a disappointing note with the BCI dropping to 117 – its lowest level since July 2013.”

THE ECONOMY Nearly four-in-10 respondents feel the state of the economy will improve in the next 12 months – this stood at 32 percent in the previous month’s survey.

A businessperson notes that “there seems to be a lot of development in the industrial sector, and there are quite a few new projects and investments proposed for this year. An increase in investments will result in higher employment; so going forward, the economy is looking positive.”

“The government’s first priority should be to stabilise the economy,” stresses another member of the biz community.

BIZ PROSPECTS Almost half (versus 39% in the prior month) of the sample population are of the view that their sales volumes ‘will get better’ in the next 12 months. Only 20 percent of corporate executives hold a negative outlook vis-à-vis business prospects, while 31 percent expect prevailing conditions to persist. In terms of the short-term outlook, 44 percent of respondents predict a healthy first quarter for their businesses in 2017.

“With the state of the economy as it is, inflation on the rise and the rupee [value] continuing to decrease, it is manageable for large companies; however, for medium
and small-scale companies it has a big impact…,” cautions a BCI survey respondent.

INVESTMENT Just 28 percent of corporates who spoke to Nielsen say the investment climate is ‘good’ or ‘very good’ as was the case in the previous month. Conversely, more than a third of those consulted view the investment climate in a negative light and 38 percent deem the prevailing conditions to be ‘fair.’

Speaking to the pollsters, a businessperson states that “the government has not made the investment climate better or more attractive for new and potential investors,” and that it “needs to be transparent about all its activities.”

This view is echoed by another respondent, who laments: “There is no transparency about investment policies; and with interest rates increasing, we are doubtful about future investment plans.”

On the contrary, a more optimistic interviewee confirms that “the investment climate seems to be picking up with multiple infrastructure development projects taking place… We can also see foreign investments picking up… These are positive signs for the economy.”

SENSITIVITIES The business community points to a volatile currency and sense of uncertainty regarding the future of the economy as causes for concern.

According to one corporate executive, “as we are in the business of foreign trade, our company has been directly impacted by the depreciating value of the rupee. Also, when you consider the investment climate, investors think twice before investing due to the high level of economic uncertainty.”

“There seems to be a lot of instability… and there does not seem to be a lot of change taking place,” another opines.

WORKFORCE The latest survey results reveal that one-in-10 businesses have no plans to expand their workforce in the next six months. A notable majority (66%) of those surveyed say they hope to maintain their staff numbers in the next six months, while 24 percent plan to expand their cadre.

PROJECTIONS Last month’s outcome was a damning verdict on the state of business in the island. But despite the lack of anything of any real significance taking place at the dawn of the new year, the index has nudged up marginally.

The exclusive monthly poll also suggests that there are mixed views on the state of business and the economy, which may be due to confusion over where the nation is heading. Signs of politicking lead to renewed perceptions of political instability and that surely cannot be healthy for business confidence.

As for where the unique index now stands, could it be that the downtrend has bottomed out? Or perhaps this is merely the calm before the storm!