New
government and shareholder value
Our columnist argues that lower taxes and further deregulation can
provide the economy the required boost, instead of subsidies, but
that peace and democracy would be the key considerations for investors
in the long run.
The elections dust has settled and a new president is in power.
He
may not be the one the business community wanted but an individual
with a high degree of experience with regard to Sri Lanka’s
rural economy. The question now is how can the new government enhance
shareholder value and foster a vibrant economy.
Shareholder
value
Shareholder value will increase if a frame work can be created for
companies to post higher earnings and if adequate stability and
confidence can be created with regard to the continuity of such
earnings. JKH’s decision to invest in the BPO industry is
absolutely laudable in terms of a strategy which will bring in the
right quality of earnings to the group in the future.
How can the government help this process?
The answers are not straight forward. But the tried and tested methods
in many countries are:
1.Lowering
taxes
2.Deregulating the
economy
3.Sectoral support
4.Skills development
5.Peace and democracy
Lowering
Taxes
To rejuvenate the economy it is necessary to lower personal and
corporate taxes.
Lower corporate taxes would boost corporate earnings whereas reduction
in personal taxes would boost demand for goods and services in the
economy. This may affect the welfare goals of the government but
one has to note that most welfare spending is unproductive and is
inflationary becoming counter productive to the economy
Deregulating
the economy
Despite the achievements over the years there is still more room
for pragmatic deregulation. The law should facilitate sensible mergers
and acquisitions which boost the interests of shareholders. The
interests of the other stakeholders should be protected through
other legal mechanisms rather than by discouraging mergers.
Sectoral support
I feel that the Sri Lankan stock exchange is not balanced
in terms of different vibrant sectors.
Our main sector in the economy, apparel, is unfortunately still
not listed in a major form. Others such as property development
and BPO can also be encouraged to develop and list in the local
stock exchange.
Skills
development
For corporate and national development Sri Lanka needs skills. We
need technical skills in terms of vocational abilities as well as
soft skills in terms of language and management abilities. The BPO
industry has the potential to become one of the biggest employers
of rural youth in this country but the biggest difficulty in doing
so will be the lower level of English speaking skills in Sri Lanka
when compared to India.
Peace
and democracy
No one will be interested in investing in Sri Lanka in the long
run unless there is peace and democracy. The national ethnic conflict
will have to be resolved without prolonging the problem any further
or leading into any types of escalation. The government should strengthen
democracy and law and order. A stronger media and civic society
are needed to become the pillars of democracy.
Message
to the investor
Ours is a nation with lots of potential. Unfortunately it has not
been reaped. There is in fact a high level of brain drain at the
moment from Sri Lanka of skilled individuals.
Can we make a change and can we become a vibrant market where shareholder
value can be reached? Mr. President, it is your call now.
(The writer could be reached at - ravim@icbsgroup.com) |
