FINANCE SECTOR
Compiled by Fazmina Imamudeen
STAKEHOLDER CAPITALISATION
Asite Talwatte argues strongly against opportunistic shareholder capitalism
Q: In recent years, Sri Lanka has been fraught with difficulties… How do you view the country’s economy in the midst of this unpredictability?
A: Sri Lanka’s current macroeconomic vulnerabilities and unsustainable debt levels are the result of long-term fiscal imbalances, as well as unexpected economic shocks from internal and external factors.
The country has reached a point where fiscal consolidation is necessary to restore macroeconomic stability.
To contain inflationary pressures and overcome liquidity shortages in domestic financial markets, it is necessary to reduce the fiscal deficit progressively. This will require unpopular and burdensome economic measures.
Expanding the scope of what’s subject to taxation and enhancing the efficiency with which taxes are administered remain essential if state revenue is to increase. Government borrowing also needs to decrease.
These factors should bring interest rates down gradually over the next few years. In the interim, corporates will need to reach out to capital markets beyond bank borrowings and attract investors who are willing to wait longer for their ROIs.
To address the challenges of foreign exchange solvency and debt sustainability, a greater number of trade agreements and facilitations need to be established with more countries. This will provide a greater impetus for exports, support tourism and offer incentives for migrant workers to resume their remittances.
Q: Does the new tax regime benefit businesses in any way?
A: Unification of taxes for a level playing field is becoming increasingly evident in corporate taxation to ensure a fair contribution by all sectors for economic revival.
However, one may argue that key sectors – particularly exports and SMEs – will continue to need support in the future. A cause for concern is the unprecedented increase in personal tax rates, as well as a lack of any visible effort to expand the scope of the tax base.
Q: What guidance would you offer financial services professionals so they can play a part in the economic recovery on the path ahead?
A: One of the primary areas of focus should be to achieve equitable and sustainable growth that goes beyond maximising short-term profits.
Any successful enterprise should make an effort to comprehend the changing needs of its clientele under the current socioeconomic conditions.
Achieving this knowledge through information, communications and analytics will enable the strategic repositioning of products, packaging and rationalisation of stock-keeping units (SKUs), innovative service channels and after sales assistance.
Understanding and managing the supply chain, which is currently constrained by various limitations, is another crucial aspect in developing a winning strategy and positioning the right products through the right channels in the right quantities at the right price points.
Working capital management and its financing is another critical aspect given the high interest regime. Innovative ways of structuring supplier credit, and the possibility of securitisation and margin management alongside traditional bank finance should be explored.
Finally, corporates need to focus on sustainable business models and recognise that it takes the engagement of all stakeholders to sustain a business in the long term.
A shift to stakeholder capitalisation from opportunistic shareholder capitalism is necessary at this juncture to ensure inclusive growth and development of society at large.
Q: Moving on to the global landscape, what are your thoughts on the 2023 UN Climate Change Conference of the Parties (COP27)? Can we expect it to deliver on its claims?
A: Following the momentum created at 2022’s COP26 and the signing of the Glasgow Climate Pact, the focus of COP27 was on implementation.
Against the backdrop of an energy security crisis, catastrophic weather events and geopolitical volatility, implementation ambitions were high. Progress on the sidelines of COP27 negotiations revealed much about the important concerns for implementation on the road to COP28 and beyond.
There is no single institution or industry that can solve the problem alone – coordination between the public and commercial sectors is essential.
In addition, there has been a notable movement towards reaching consensus on a policy to reduce carbon footprints and increase our responsibility towards future generations, by protecting and preserving the planet.
This approach to sustainability is value driven. There are worldwide expertise, capabilities and convening strengths to bring together industry, governments and other climate stakeholders, so that they can jointly create better and more sustainable working environments.
However, more decisive action is required in terms of investing in renewable energy sources, green funds and blue bonds.
In my opinion, it is important to take into account the possibility of establishing an institution that will function as the IMF does – with global representation and funding from multinationals and nations – to invest in renewable energy and climate change projects.
