Biz community hopes for clear policy directions | Sunday Observer

Biz community hopes for clear policy directions

Kishu Gomes , Murtaza Jafferjee and Tilak Gunasekera

The business community is optimistic that 2017 will be a year with clear policy directions and stability to steer the country towards higher economic growth. Attracting Foreign Direct Investments (FDIs), creating a vibrant export sector, improving the ease of doing business ranking and creating a people and business friendly tax policy in the country are some of the key concerns of the business community who expressed their views to the Business Observer.

Candor Group of Companies Director/ CEO and President of the Stock Brokers Association, Ravi Abeysuriya said 2016, can be branded as a year where the expectations of stock market investors were not fulfilled by policy makers. There was unsatisfactory progress been made in implementing policy reforms and a sound economic policy package for the stock market to perform.

“The stock exchange needs inspiration to ensure the exchange attracts genuine investors and provide opportunities for a broader group of local and foreign investors to invest in the stock exchange. To ensure this, the policy makers should act as a facilitator and implement the capital market reforms identified in the 2017 Budget,” Abeysuriya said.

Abeysuriya said, he expects there would be a more conducive environment that provides a level playing field and long-term investment friendly policies that will benefit all companies.

Former Ceylon Chamber of Commerce Chairman Chandra Jayaratne said, the new regime that came to power on January 8, 2015 must fulfill its promises on good governance and reconciliation in the new year and beyond.

He said, certainly the citizens are advanced in areas of freedom of expression and have less fear of exercising democratic rights and can freely move throughout in the country and the judicial independence. The government must be credited for this.

“However, there is lot of room for elimination of corruption, cronyism and nepotism and implementing key reform actions to assure ethno religious harmony in the country. Conflict of interest have affected the potential gains in the economic, social and reconciliation spheres,” Jayaratne said.

Chevron Lubricants Lanka PLC Managing Director/CEO Kishu Gomes said, 2016 was a year the business community looked forward to for a fresh start for sustainable growth with policy alignment and certainty around tax and duty structures so the business community can base their long term strategic plans. There was a lot of optimism in the minds of the business community purely driven by the direction and pledges by the new government.

“However, there was constant changes and uncertainties in many areas confusing business leaders on the intended direction of the policy makers. Many industries and markets recorded either lower growth or no growth reflecting lack of confidence and buying power of the consumer. The Stock market recorded low levels and the US dollar hit record high levels making imported inputs more expensive driving cost of goods and inflation high,” Gomes said.

Sathosa Motors PLC Managing Director Tilak Gunasekera said 2016 was not a favourable year as it was not a year for a robust economic growth. Although the government expected a higher GDP, now it is estimated to be around 4.5 percent. This is mainly due to lack of policy measures, inefficient implementation and unfavourable global conditions. It is the industry and the service sector that contributed to the GDP. The agricultural sector did not perform well due to bad weather condition and due to other related factors.

The revision of Income Tax System to pave the way for an increase by way of direct tax component toward 40% from around to 20% at present is commendable.

“Foreign direct investments (FDI) were less than USD 1 billion in 2016. If we could contain fiscal deficits and have better policies on economic and financial management which could bring better economic performance this year,” Gunasekera said.

HVA Foods PLC Chairman Rohan Fernando said most corporates in varied businesses performed lower than what they expected due to the unsettled global economy as well as lack of strong and stable policies for trade and commerce. The budget announced in 2015 for the year 2016 did contain productive and development based proposals. Unfortunately due to divided opinion in the unity Government and the pressure groups with selfish interest, operating in the periphery most of the pro-development strategies were put in the backburner. The most significant development witnessed during the 2016 was opening of new tourist hotels and it appears that a major hotel drive is taking place with fears expressed of a “bubble burst”

“With regard to 2017 the Budget presented in parliament last November once again spelt out progressive plans for development of the export economy. However, implementation of the budget proposals is the key to boost the lagging economy burdened with the gigantic repayments of foreign debt”, Fernando said.

He said for the Tea Export Industry, proposals in both budgets 2016 and 2017 are yet to be implemented. Tea Import Export trade for value addition in Sri Lanka to create a global Tea Hub remains the most progressive step yet taken in this direction.”

Jafferjee Brothers Managing Director Murtaza Jafferjee said, in 2016 corporates focused on the domestic economy saw robust demand benefiting from the momentum coming in from 2015 and the fiscal stimulus via a 20% increase in public sector wages. Profitability of corporates were further enhanced from volume growth and lower input prices what were not necessarily passed on to consumers.

“The non-enactment of the tax proposals in the budget of 2016 were a setback for the treasury but greater focus on collection yielded higher revenues. Business sector remained confused as to the future policy direction of the government due to confusing and sometimes contradictory utterances from various quarters of the government. The appointment of governor Dr. Indrajit Coomaraswamy went a long way to increase confidence of the central bank and the future direction of monetary policy,” he said.

He said in 2017 since we are under an IMF program the government will have to work towards further fiscal consolidation which implies that they cannot stimulate the economy through running up large fiscal deficits. For example in 2015 the treasury ran a primary deficit (revenue – non interest expenses) of Rs. 216 bn which is targeted to be Rs. 55 bn, this implies a reversal of Rs. 271 billion of excess demand that was previously being created.

Higher market interest rates and higher indirect taxation will act as a damper on demand – corporates selling non-discretionary items will see a contraction in sales.The treasury has been signaling that a new income tax code will be introduced which is much needed for the current one is too complicated and confusing. One hopes that the new code will also be fairer and will not try to double tax certain activities, e.g debt securities. If we get GSP+ into the EU it will be a major game changer for exports especially apparel.

“A stronger US economy will suck in more imports – this will also benefit Sri Lanka.Building of residential condominiums will continue although there is a danger of an oversupply situation going into 2018. A similar dynamic is playing out in the Colombo hotel market.

The economy badly needs structural transformation to increase productivity – need to reduce tariffs especially para tariffs that have been imposed to benefit specific industrialist need to be done away with. Further, the more productive and growing sectors of the economy need labour to be released from unproductive sectors thus we need to have policies to aid this movement,” Jafferjee said.