Compiled by Yamini Sequeira


Lahiru Jayasinghe asserts that diversification is a panacea for survival

“Innovation is crucial, particularly in today’s competitive business environment. Diversified groups have innovated products and processes to surmount difficulties amid Sri Lanka’s economic challenges,” says Lahiru Jayasinghe.

Sri Lanka’s economy continues to grapple with unprecedented challenges. With a 7.8 percent contraction in GDP in 2022 and a further 2.3 percent decline the following year combined with a staggering 70 percent inflationary spike in mid-2022, the cost of living has seen a drastic upsurge.

“High inflation, higher taxes, and the increasing cost of energy, operations and finance have eroded sales volumes, heightened pressure on margins and jeopardised profitability,” he observes.

Jayasinghe asserts: “Industries and sectors such as consumer goods, retail, power generation, and building materials and construction are particularly vulnerable to sustained economic instability. The challenges posed by the brain drain exacerbate these issues and demand swift corrective measures to prevent worsening conditions.”

DIVERSIFICATION “Despite the prevailing stressed environment, diversified conglomerates are poised to outperform. Their diverse portfolios span defensive industries and offer stability amid economic turbulence. Weakened competition consolidates their market share and enhances resilience,” he explains.

Jayasinghe also notes that conglomerates boast strong balance sheets, which provide a financial buffer against downturns, asserting: “Adequate liquidity ensures operational continuity and facilitates strategic investments.”

When these are combined, such factors “create a robust foundation that enables conglomerates to navigate the economic downturn better than their counterparts and position them for sustained success in challenging times,” he adds.

With regard to the impact on sales, he avers: “Businesses adopt diverse strategies to mitigate the impact on sales by improving customer service and relationships to retain key clients, diversifying product portfolios to cater to varied demographics, introducing smaller stock-keeping units (SKUs), pricing adjustments strategically, engaging in product innovation, and embarking on promotional offers and cost-efficiency measures.”

Although inflation eased to 5.9 percent in February from a previous peak of nearly 70 percent, purchasing power remains affected.

Marketers are offering value propositions over pricing by employing targeted campaigns and digital channels for cost conscious consumer outreach.

By prioritising product quality and benefits, they aim to sustain consumer interest amid price hikes, while businesses focus on maintaining profit margins through operational efficiency and pricing strategies.

Jayasinghe perceives obstacles for businesses wishing to expand, noting that “challenges persist – including net government general debt that will surpass 100 percent of GDP until at least 2028. Addressing concerns about sustainability requires factors such as nominal GDP growth, fiscal consolidation, increased revenue generation and effective restructuring efforts.”

Meanwhile, he acknowledges that recent trends allude to improvements: the prime lending rate has dropped to 11.35 percent from a peak of 30 percent, private sector credit has consistently grown and the eco­nomy expanded by 4.5 percent year on year in the fourth quarter of 2023.

“Additionally, the Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction) exceeded the neutral threshold for the first time since January 2022, signalling positive prospects for businesses,” Jayasinghe observes.

Prioritising cost management measures, renegotiating contracts and investing in energy efficient technologies are among the initiatives that will enable businesses to adapt and thrive, help them manage costs effectively, and improve efficiency and productivity.

He also suggests diversifying revenue streams by exploring new markets and pro­duct lines.

EXPANSION Meanwhile, trouble at home has forced many local enterprises to look beyond our borders. Jayasinghe reveals: “Numerous businesses – particularly in apparel, manufacturing and leisure – are strategically expanding globally to reduce country specific risks. They’re seeking to capitalise on their expertise while accessing broader markets overseas.”

He concedes that investing overseas presents both pros and cons. The downside includes capital outflows, potential losses of local job opportunities and the risks of repatriated profits. On the positive side how­ever, overseas ventures could boost foreign remittances.

Businesses opt to relocate mainly due to the absence of an investment friendly environment in the country and as a strategic business decision. Venturing into export markets offers revenue expansion and exposure to international best practices.

Jayasinghe explains: “The challenges include understanding diverse market dyna­mics, navigating regulatory complexities, adapting products to foreign preferences, managing currency risks and building brand recognition in competitive global landscapes.”

CONSTRUCTION With regard to the construction industry, he adds: “Sri Lanka’s construction industry plays a significant role in the economy. It contributes between nine and 10 percent of GDP, and involves nearly 2.5 million direct and indirect stakeholders.”

Jayasinghe notes that over the past two or three years, the industry experienced a contraction of more than 50 percent. Positive indicators suggest a forthcoming recovery driven by factors such as low lending rates, lower prices for building materials and growth in private credit.

He envisages the possibility of increased project activity ahead of upcoming elections. The PMI – Construction reflects this trend with an expansion in construction activities noted in January, as indicated by the Total Activity Index reaching 52.9.

Assessing emerging trends, Jayasinghe foresees that the industry may witness a greater emphasis on sustainable construction practices, digitalisation and innovative technologies, to improve efficiency and meet evolving demands.

Additionally, there could be a focus on infrastructure development, particularly in areas such as transportation and renewable energy. Though challenges remain, the construction industry seems poised for growth and adaptation to new trends in the year ahead.

SUSTAINABILITY The impact of the brain drain has been pronounced. More than 300,000 people left Sri Lanka in 2022 for jobs abroad – with possibly more unregistered migrants adding to that number. Nearly 900,000 passports were issued and indicate a surge in out-migration of skilled professionals.

“To counter the brain drain, Sri Lanka must enhance local opportunities through policy reform, competitive salaries, entrepreneurial support and investment in education. These measures aim to attract and retain skilled professionals, and foster economic development,” Jayasinghe emphasises.

Sustainability of resources is becoming a key priority for organisations globally, and businesses should optimise local resources, adopt energy efficient practices and reduce waste through recycling, he recommends.

Jayasinghe concludes: “Green innovation drives progress as it aligns with global sustainability goals. Efforts to minimise environmental impacts, conserve resources and foster sustainable manufacturing processes should be tailored to Sri Lanka’s context.”

The interviewee is the Chief Operating Officer and an Executive Director of St. Anthony’s Industries Group.