Business Sentiment – Relative Calm before the Storm?

April, 1, 2022

We repeat: a resilient biz sector shows no signs of wavering amid multiple crises – not yet

Whether you view the devaluation of the Sri Lankan Rupee, the prospect of some form of debt restructuring and consequently, an easing of the economic restrictions that have threatened to bring Sri Lanka Inc. to a grinding halt…

Or view the ever threatening political minefield, the war in Ukraine or the prospect of a prolonged power crisis…

The question is which crossroad is likely to lead to the right tunnel – of darkness or light at the end of it?

THE INDEX It is against this topsy-turvy backdrop that the one of a kind LMD-NielsenIQ Business Confidence Index (BCI) registered a notable gain of eight basis points in March – to 132.

This outcome represents an 11 month high and sees the index edge towards where it stood before last April’s third wave of the virus, following which Sri Lanka imposed lockdowns and ‘travel restrictions.’

The barometer of biz confidence is six notches higher than a year ago (as well as its all-time average of 126) and 22 points above its 12 month average of 110.

So for the fourth month in succession, the BCI has headed north – despite the perilous state of the economy, the protracted forex crisis, ongoing shortages of essentials and to cap it all, a power crisis that has left the island in the dark for hours on end.

NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya explains: “With the COVID-19 counts waning and fear surrounding the virus abating, business seems to have started to pick up – and there’s hope on the horizon once again.”

Despite the rise in inflation and shortage of essential goods, businesses are reporting an improvement in sales volumes over the last three to 12 months, and they’re “optimistic about a better tomorrow,” she adds.

SENSITIVITIES The countless downside risks that hover over the economy and political landscape at this juncture continue to cast a shadow over the BCI’s resurgence in recent months – even though the business community seems to be taking a long-term view of what the future holds.

Worse still, the increasingly ferocious headwinds in the northern hemisphere, from the direction of war ravaged Ukraine, make for a doom and gloom scenario for the rest of the world.

So the most obvious near-term sensitivities at the time of going to press include the price of oil, the value of the Sri Lankan Rupee, ongoing power and forex crises, and the prospect of political upheaval.

PROJECTIONS In the last two editions of LMD, we asserted that the business community may well be taking a longer-term view but it has to be said that until there’s a revival of Sri Lanka’s economy and an easing of the restrictions that the forex crisis has necessitated, this level of confidence will be hard to maintain.

We’re inclined to say the same once again.

Miyanadeniya meanwhile, also believes that with the “Sri Lankan Rupee being floated, brutal power cuts, rampant shortages of diesel and other necessities hindering businesses,” it will be very difficult for the index to continue to improve drastically.

– LMD