CONFIDENCE AT AN EIGHT-MONTH HIGH

Business sentiment shifts to recovery mode amid greater faith in the economy

These days, Sri Lanka is facing challenges on multiple fronts on a scale an island its size is barely equipped to handle. On the one hand are issues warranting a longer-term response – such as environmental degradation and waste management; on the other are problems that call for immediate attention – e.g. the likes of the deadly dengue epidemic and concerns that have prompted citizen groups to take to the streets week in week out.

In response to the garbage crisis, the government recently unveiled plans to ban polythene shopping bags and food containers to minimise their environmental impact.

Meanwhile, with hundreds of citizens succumbing to dengue this year, the government has promised to implement a programme – based on the recommendations of a team of experts from the World Health Organization (WHO) – to curb the spread of the disease by 50 percent – shortly, we’re told.

There is still less clarity however, on how the state will resolve trade union concerns and issues related to the higher education sector that have on occasion brought the commercial capital to a virtual standstill.

Nevertheless, the corporate community seems to see a silver lining somewhere in the underlying economic trends, leading to a noteworthy uptick in the LMD-Nielsen Business Confidence Index (BCI).

THE INDEX The BCI made a major comeback in July by gaining 19 basis points on the prior month to settle at 134. This is the first time the index has crossed the 130 mark since November 2016 when the BCI stood at 144.

Biz confidence is also above its 12-month and all-time averages of 130, and eight basis points higher than a year ago.

Commenting on the survey results, Nielsen’s Managing Director Sharang Pant observes that the latest BCI “reflects faith in improving fundamentals.”

“Inflation hasn’t gone up for the last three months, lending rates have not increased although they haven’t dropped either, rupee depreciation has slowed down and GSP+ was granted to Sri Lanka,” he observes.

Pant continues: “All these [indicators] should have been a recipe for the BCI to bounce back in the second quarter – and in fact, this was the case until around May. But then the floods took place at the end of May, followed by avoidable strikes that crippled businesses mainly in Colombo. A minor drop was therefore seen in the BCI in June,” he says of the months gone by.

THE ECONOMY More than one-in-four (28%) respondents feel the economy will improve in the next 12 months – this number stood at 21 percent in May and 15 percent in June. And a third of the survey sample expect economic conditions to stay the same while 39 percent have a negative outlook vis-à-vis the economy.

“There are visible improvements… when you consider the work being done on roadways, as well as with the high-rise buildings and apartment complexes coming up. This is a positive sign for the economy as it provides more opportunities to attract foreign investment to the country,” asserts a corporate executive.

BIZ PROSPECTS Almost half (46%) of the businesspeople consulted anticipate a better year ahead for biz prospects. Meanwhile, the short-term forecast sees 35 percent of respondents expecting sales volume upside in the next three months.

However, a far more pessimistic businessperson declares: “We haven’t seen much improvement in our sales volumes as income levels of the general public have not changed; and we do not expect to see an improvement in this situation in the coming months either.”

INVESTMENT The investment climate seems to be improving given that 29 percent (versus 19% in June) of those surveyed by Nielsen describe Sri Lanka’s prospects as ‘good’ or better.

A respondent explains: “There is more freedom now for investments to take place. And the government is trying to promote foreign investment. We are anticipating an improvement in the investment climate in the coming months.”

But this view is challenged by another member of the biz community who claims that “the prevailing political instability and inconsistencies in policy-making are causing many investors both foreign and local to think twice before investing in our economy.”

WORKFORCE The latest survey results reveal that workforce expansion plans have gained momentum with 23 percent of those polled stating that they will increase staff numbers in the coming six months.

Nevertheless, the majority view is that the employee count will simply be maintained during this period.

SENSITIVITIES Key issues raised by respondents include the dengue epidemic, and challenges posed by the mountain of waste and its disposal. In addition, the release of listed company results for financial year 2016/17 will be keenly watched by business analysts.

To this end, a businessperson from the tourism industry laments: “The prevailing dengue crisis as well as garbage issues are having a major impact on the number of tourists who are considering a visit to Sri Lanka as these problems are being televised on international news channels.”

PROJECTIONS The previous month’s survey results saw a majority of businesspeople pointing to a deterioration of the economy and investment climate, and the outlook for the BCI was subdued.

However in July, macroeconomic factors appear to have buoyed business confidence despite many obvious concerns at the ground level.

Could it be that the second half of 2017 will see corporate sentiment projecting an upward trajectory?

‘Wait and see’ is perhaps the best bet – this is Sri Lanka, after all!

These days, Sri Lanka is facing challenges on multiple fronts on a scale an island its size is barely equipped to handle. On the one hand are issues warranting a longer-term response – such as environmental degradation and waste management; on the other are problems that call for immediate attention – e.g. the likes of the deadly dengue epidemic and concerns that have prompted citizen groups to take to the streets week in week out.

In response to the garbage crisis, the government recently unveiled plans to ban polythene shopping bags and food containers to minimise their environmental impact.

Meanwhile, with hundreds of citizens succumbing to dengue this year, the government has promised to implement a programme – based on the recommendations of a team of experts from the World Health Organization (WHO) – to curb the spread of the disease by 50 percent – shortly, we’re told.

There is still less clarity however, on how the state will resolve trade union concerns and issues related to the higher education sector that have on occasion brought the commercial capital to a virtual standstill.

Nevertheless, the corporate community seems to see a silver lining somewhere in the underlying economic trends, leading to a noteworthy uptick in the LMD-Nielsen Business Confidence Index (BCI).

THE INDEX The BCI made a major comeback in July by gaining 19 basis points on the prior month to settle at 134. This is the first time the index has crossed the 130 mark since November 2016 when the BCI stood at 144.

Biz confidence is also above its 12-month and all-time averages of 130, and eight basis points higher than a year ago.

Commenting on the survey results, Nielsen’s Managing Director Sharang Pant observes that the latest BCI “reflects faith in improving fundamentals.”

“Inflation hasn’t gone up for the last three months, lending rates have not increased although they haven’t dropped either, rupee depreciation has slowed down and GSP+ was granted to Sri Lanka,” he observes.

Pant continues: “All these [indicators] should have been a recipe for the BCI to bounce back in the second quarter – and in fact, this was the case until around May. But then the floods took place at the end of May, followed by avoidable strikes that crippled businesses mainly in Colombo. A minor drop was therefore seen in the BCI in June,” he says of the months gone by.

THE ECONOMY More than one-in-four (28%) respondents feel the economy will improve in the next 12 months – this number stood at 21 percent in May and 15 percent in June. And a third of the survey sample expect economic conditions to stay the same while 39 percent have a negative outlook vis-à-vis the economy.

“There are visible improvements… when you consider the work being done on roadways, as well as with the high-rise buildings and apartment complexes coming up. This is a positive sign for the economy as it provides more opportunities to attract foreign investment to the country,” asserts a corporate executive.

BIZ PROSPECTS Almost half (46%) of the businesspeople consulted anticipate a better year ahead for biz prospects. Meanwhile, the short-term forecast sees 35 percent of respondents expecting sales volume upside in the next three months.

However, a far more pessimistic businessperson declares: “We haven’t seen much improvement in our sales volumes as income levels of the general public have not changed; and we do not expect to see an improvement in this situation in the coming months either.”

INVESTMENT The investment climate seems to be improving given that 29 percent (versus 19% in June) of those surveyed by Nielsen describe Sri Lanka’s prospects as ‘good’ or better.

A respondent explains: “There is more freedom now for investments to take place. And the government is trying to promote foreign investment. We are anticipating an improvement in the investment climate in the coming months.”

But this view is challenged by another member of the biz community who claims that “the prevailing political instability and inconsistencies in policy-making are causing many investors both foreign and local to think twice before investing in our economy.”

WORKFORCE The latest survey results reveal that workforce expansion plans have gained momentum with 23 percent of those polled stating that they will increase staff numbers in the coming six months.

Nevertheless, the majority view is that the employee count will simply be maintained during this period.

SENSITIVITIES Key issues raised by respondents include the dengue epidemic, and challenges posed by the mountain of waste and its disposal. In addition, the release of listed company results for financial year 2016/17 will be keenly watched by business analysts.

To this end, a businessperson from the tourism industry laments: “The prevailing dengue crisis as well as garbage issues are having a major impact on the number of tourists who are considering a visit to Sri Lanka as these problems are being televised on international news channels.”

PROJECTIONS The previous month’s survey results saw a majority of businesspeople pointing to a deterioration of the economy and investment climate, and the outlook for the BCI was subdued.

However in July, macroeconomic factors appear to have buoyed business confidence despite many obvious concerns at the ground level.

Could it be that the second half of 2017 will see corporate sentiment projecting an upward trajectory?

‘Wait and see’ is perhaps the best bet – this is Sri Lanka, after all!

 – LMD