Business confidence makes a comeback amid persisting concerns on the policy front

Sri Lanka continues to be gripped by uncertainty in the aftermath of the Easter Sunday mayhem, which was followed by ugly scenes of persecution by what many assert were politically motivated acts of violence.

Meanwhile, the crucial tourism industry is fighting a battle to break the shackles and get back on its feet, and business as a whole is feeling the knock on effects of the sudden breakdown in confidence… we’re calling it a ‘business tsunami.’

On the contrary, the results of the latest LMD-Nielsen Business Confidence Index (BCI) survey – which was carried out in the first week of June – signals an improvement following the dramatic decline in sentiment following the terrorist attacks on 21 April.

THE INDEX While the BCI has trended down since February – it even plummeted to an 11 year low of 62 in May – it increased by 19 basis points to 81 in June. For the record, the index stood at 102 a year ago and the average for the last 12 months is 91.

“The country is gradually emerging from the terrible events of April. There is some level of optimism and discussions at various forums about how Sri Lanka should turn this into an opportunity to come back stronger – politically, socially and economically,” says Nielsen’s Managing Director Sharang Pant.

He also asserts that “the authorities are taking commendable steps to revive perceptions about safety and business sentiment. But citizens in general remain wary of the safety aspect – and this is impacting sentiment or confidence in general.”

With respect to recent events, Pant observes: “While tourism was impacted, positive news on export growth and a decline in imports are helping sentiment. The rupee has also remained firm during this crisis period.”

SENSITIVITIES Corporate executives are citing political uncertainty as a cause for national concern while taxes and inflation continue to be highlighted as issues for business.

One businessperson laments: “Despite the recent terror attacks and declining sales volumes, we have to pay high taxes – and that makes us barely profitable.”

Meanwhile, another survey respondent says that “the business policies of the government have many weaknesses and do not help companies grow.”

PROJECTIONS The previous edition of LMD cautioned that the BCI was inching ever closer to its all-time low of 31 (that was nearly 18 years ago) – we were at a loss to know what to expect in the weeks and months ahead, given the state of the nation at that time.

And while the latest uptick in biz sentiment is a welcome sign, we remain cautious about what the future holds and believe therefore, that to surmise that the turnaround in June could herald sustained gains in the index in the next few months could be an overreaction.

Let’s face it, the ‘rule by mob’ culture that unfolded not long after the tragic events of Easter Sunday, and ongoing political stunts and apathy, as well as the prospect of an all-important election on the not too distant horizon, make for a nation that is riddled with untold sensitivities.