|
 t’s a
sign of the times… uncertainty
in the minds of the business community continues, the upshot of this being
that the LMD-ACNielsen Business Confidence Index (BCI) slipped to 102 in
October, from 110 a month earlier.
STILL ABOVE 100
Whilst the sole measure of business
confidence in Sri Lanka hovered marginally above the psychologically
important 100 mark (so it still is in familiar territory… in the low 100s)
the business community is apparently nervous about what’s in store in the
shorter term.
UPBEAT ABOUT THE ECONOMY
 The
business and investor communities, nevertheless, are far less pessimistic
about the macroeconomy, with almost half of those polled saying
that it will “stay the same” in the 12 months ahead – less than 30 per
cent said so three months ago.
Likewise, the proportion of
business-people who now opine that our economic prospects will “get worse”
in the next 12 months is down from a whopping 63 per cent in August, to
some 35 per cent three months later.
Perhaps, the fact that the Sri Lankan
economy continues to grow at a reasonable pace – all things considered –
is buoying sentiments. The central bank recently reported that despite the
highly negative impact of the December 2004 tsunami, Gross Domestic
Product grew by six per cent in the second quarter of this year, which
exceeds the 5.4 per cent registered for the corresponding period last
year.
CAUTIOUS ABOUT BIZ PROSPECTS
The mood about business prospects,
however, is not as encouraging… with 30 per cent of ACNielsen’s sample
population saying that sales volumes will “get worse” in the coming 12
months. The big picture on business, or sales volumes, is that nothing has
changed over the last year or so, in the minds of the corporate community.
Naturally, events on the global stage –
in particular, the direction in which oil prices will head and the impact
of a possible meltdown of the US economy – will affect businesses in this
country… especially the trailblazing export sector.
BIZ PERFORMANCE SHRINKS
The proportion of business-people who say
that business has “decreased” in comparison to last year has shot up to
almost 50 per cent, whereas only a fifth acknowledge higher sales volumes
in the last 12 months. Indeed, many 2004/05 annual reports of the nation’s
leading listed companies lend credence to this.
INVESTMENT CLIMATE BRIGHTER?
But the unique monthly survey suggests
that Sri Lanka’s investment prospects are now being viewed with
some degree of optimism. The “bleak-as-ever” outlook of recent months has
given way, it seems, to a somewhat brighter outlook – with as much as 40
per cent (compared to
 half,
three months ago) now viewing our prospects as being “fair”, and just over
half (compared to a massive 73 per cent, three months ago) saying that the
investment climate is “poor” or “very poor”.
On the contrary, less than 10 per cent of
BCI participants still aver that Sri Lanka’s investment landscape is
“good” – and for four consecutive months, not one business-person has said
that our prospects are “very good”.
VOLATILITY LIKELY TO CONTINUE
We expect the BCI to continue to
oscillate – possibly within a relatively narrow range – not only until the
result of the 17 November election is known, but for as long as it takes
our politicians to recommence their duties… rather than playing politics.
The business community will also be
keeping a close eye on how the nation’s next president will tackle some of
the burning issues facing Sri Lanka…
Poverty (not to mention a neglected rural
economy), bribery and corruption, and indeed the stalled peace process
need addressing.
POST-ELECTION TRENDS
 The BCI has, on the last two occasions,
risen substantially in the immediate aftermath of general elections. In
January 2002, it shot up by 17 basis points following the UNF’s victory
(and by a further 47 points a month later).
Likewise, the UPFA’s success at the polls
was followed by a 28-point hike in confidence.
But the scenario could be different
this time around.
Should Ranil Wickremesinghe emerge
victor, the prospect of a dissolution of parliament (and thus, yet another
election) may dampen business sentiments in the short term.
And if Mahinda Rajapakse reigns supreme,
his alliances with the JVP and the JHU – and how they will impact the
crucial ceasefire – could worry many business leaders.
Which is why we expect volatility in the
near term…
– LMD |
