manusath-derana

Business sentiment-Biz confidence in retreat mode

March, 3, 2020

Sentiment is dealt a body blow on account of the emergence of a global health alert

Just when Sri Lankan businesses thought a semblance of normalcy was emerging following the negative impacts of the Easter Sunday terrorist attacks last year, they’ve been hit by another blow in the form of COVID-19.

The infectious disease caused by the 2019 novel coronavirus originated in China and had more than 50,000 laboratory confirmed cases globally by mid-February.

This is likely to have a major impact on the tourism industry in particular. Sri Lanka recorded a 6.5 percent year on year drop in tourist arrivals in January, according to data released by the Sri Lanka Tourism Development Authority; and notably, China was among the top 10 tourist source markets for the island – although cases of coronavirus have been recorded in several parts of the world ranging from the US to Japan.

Unsurprisingly, the fallout is reflected in the latest LMD-Nielsen Business Confidence Index (BCI) as well while more domestic concerns such as the political climate have also surfaced in measuring sentiment among corporate types.

 

THE INDEX The BCI continues to retreat; it registered 153 in February, which represents a substantial decline of 21 basis points from the previous month’s index value of 174. A year ago however, the barometer registered 115 while its average for the last 12 months is seven notches lower.

Nielsen’s Director – Consumer Insights Therica Miyanadeniya observes that “businesspeople and citizens are now settling down, and facing the realities of their everyday existence” in the context of “little or no new economic policies and the fear of the coronavirus gripping the nation.”

She continues: “There was a drop in imports… and the seventh tranche of the IMF’s Extended Fund Facility (EFF) helped the balance of payments to a certain extent, minimising the impact of a drop in earnings from tourism and remittances flowing into the country.”

SENSITIVITIES Although inflation appears to be less of an issue among survey respondents, political interference and taxes are high on the list of pressing concerns for business in Sri Lanka.

“There is an issue with the rising price of products. However, we have some consolation with the reduced VAT,” says a member of the business community.

Another corporate representative asserts that “the current political climate is not stable enough to help build a strong economy and support businesses.”

PROJECTIONS In the previous month’s edition of the BCI, we noted that it remains to be seen if the spurt of optimism among corporates following the November presidential election would hold in the near term.

As it turns out, corporate executives appear to be less confident about the business climate in the country – some of this of course, being due to external factors.

With the prospect of another round of elections – this time, the parliamentary polls – on the cards, the pendulum of business sentiment could swing in either direction with the fallout from COVID-19 also coming into play.

We’re in for volatile times, that’s for sure.