It is a somewhat a well-known proverb which states that those who do not learn from history are doomed to repeat it. As such, on the occasion of just having entered 2012, the Business Times offers a review of the incidents and progress, or lack thereof, that Sri Lanka has chartered over the past 12 months. And considering the relevance of a quarterly calendar, particularly to businesses, which use them to track trends and make short term plans, what better way to present to you, our dear reader, the highlights for the year 2011:
 |
| File photo shows a billboard advertising the Shangri- La hotel that is set to come up in Galle Face |
First Quarter 2011 (1Q11) - January, February, March
Keeping in mind our focus on business-oriented news, it is no great surprise that our first highlight is the stock market and there was no bigger story at the beginning of 2011 than the unprecedented number of Initial Public Offerings (IPOs), close to 60, which were planned for 2011. A local record that eventually failed to materialise due to waning public sentiment about, and possibly even small investor mistrust of, the stock market as well as it being perceived as a unfair playing field. Either way, the honour of being the first IPO of 2011 went to HVA Foods, brand owners of Heladiv Iced Tea.
In other news, the first quarter of 2011 was also the time when damage estimates were totalled for the worse flooding that the country had experienced in decades. Overwhelming the central, north central and eastern provinces, and with an expected recovery estimated to cost Rs. 40 billion, the floods also, from the point of view of the Sri Lankan consumer, resulted in skyrocketing prices of essential food items. All vegetable prices rose above Rs. 100, while green chillies’ prices per kilo in Colombo averaged between Rs.600 and Rs. 700.
The month of January was also significant when considering that its dawn heralded word of a final settlement of one area of old business which was much speculated about over the course of 2010, the repayment of monies owed to the Harry Jayewardene-run Distilleries Company of Sri Lanka (DCSL) by the government following the return of Sri Lanka Insurance to state hands.
Golden Key
Meanwhile, another area considered settled, as of January2011, was the long running Golden Key Credit Card Company alleged scam. This was in response to indicted company directors putting forward a settlement plan which was eventually endorsed by the country's Supreme Court. Ultimately falling apart, this long-running issue and its many related court cases, criminal or otherwise, as well as those others citing the failed Ceylinco Group, will soon be closing in on its fourth year as of 2012.
At the same time, the month of February saw the unusual move of the Lanka Indian Oil Corporation (LIOC) raising the price of diesel while the Ceylon Petroleum Corporation (CPC) kept its diesel prices the same, a move which was in response to impending local elections slated for March 17. This was despite the CPC accruing losses tantamount to more than Rs. 2 billion a month.
Further, there were also a number of policy amendments made which were important. One was the halting of dual citizenships, unless this "privilege" was deemed in the best interest of the country. Another was putting the Defence Ministry in charge of approvals for land usage in the western province.
February was also important for Colombo-ites as the historic Army HQ facing the Galle Face Green was cleared away following the property's sale to international hotelier Shangri La. An additional deal made in the following month whereby even more Galle Face Green adjacent land was earmarked for Chinese aircraft manufacturer CATIC was later struck down.
This quarter was also a time heralding substantial future upheavals as both Sri Lanka's Securities and Exchange Commission (SEC) and Board of Investment (BOI) made moves which would ultimately have heavy repercussions. The SEC considered regulating the use of bank guarantees to limit speculation while the BOI restructured itself, shedding some of its functionality, which also sparked the ire of BOI-related trade unions and virtually halted investor applications being processed.
Meanwhile, March was also the month when Colombo's landmark Hilton hotel, a part of the city's sky line for 30 years, finally reverted back to state hands. Additionally, it was also the month when initial positive trends regarding the country's tea crops came to naught as a perfect storm of volatility in key markets in West Asia, erratic weather conditions and wage negotiations took effect.
Inflation
Also seen in March, inflation figures rose by 8.6% compared to the same period in 2010, a figure which dispelled the Central Bank’s hopes for a drop in inflation when compared to February's 6.1% figure. Also, economists weighed in and suggested that this was due to inflationary pressure rather than adverse weather raising crop prices, further citing that inflation had increased over tenfold from 0.7% in September 2009 to the then current8.6%.
This quarter, a time of planning for the months, quarters and, even, full year ahead, was also when senior representatives of Sri Lanka's export sectors expressed concerns regarding a wide range of issues for the coming 12 months, from new electricity tariffs to high energy costs to the suspension of the US's GSP as well as the appreciation of the rupee and the lack of or high cost of raw materials.
Also becoming apparent, were issues with regard to heavy taxation, especially for potentially high growth industries such as tourism. Of particular concern was the advent of a new Nation Building Tax, which along with the tourism industry also being privy to a special tax category that loaded it with a significantly higher than average tax burden, caused top industry players to become especially vocal with their concerns. This from the industry that was virtually the only source of private sector investment in the economy in 2010.
On a more hopeful note, this was also a time during which the Central Bank of Sri Lanka predicted an 8-9% economic growth for the country and tourism numbers for 2010 showed a 46% growth over the year before.
Second Quarter 2011 (2Q11) - April, May, June
While the first quarter of 2011 was all about planning and prediction, it could be said that the next three months was all about cold hard realities. The first of which was most acutely felt by public sector employees who faced taxation for the first time in 33 years. Other tax amendments foretold in Budget 2011 were more beneficial to the economy such as with the almost halving of Value Added Tax (VAT) for financial services as well as certain other goods and services. In addition, there was the introduction of a new VAT suspension scheme for exporters. The 2011 budget also called for the removals of the Debits Tax, the Social Responsibility Levy and the Cellular Mobile Subscribers' Levy. However, a Nation Building Tax was waiting in the wings to take their place.
In the meantime, April was also the month when the SEC got serious about a proposed Commodities Exchange, calling for international expressions of interest. At the same time, private firms also started venturing abroad for corporate lending, a consequence of new, more lax laws on foreign borrowing coming into effect. Also emerging was word of Sri Lanka's biggest investment zone to be built in Hambantota, revealed to be a mega facility which would equal the size of all the other zones island-wide en masse.
Commonwealth Games bid
Meanwhile, May was the month during which the Hambantota bid for the Commonwealth Games 2018 officially kicked off, being purportedly a Rs.100-million exercise to position Sri Lanka's south as a sporting tourism venue. The bid document submitted in May called for over Rs. 250 billion worth of investments for sporting venues and infrastructure, etc. The Commonwealth Games 2018 was ultimately awarded to Australia's Gold Coast but most of the proposed venues are still on track to be built, a consequence of Hambantota hosting the 2016 South Asian Games.
Most noteworthy for consumers, during the month of June, a Ministry of Finance ruling came into effect whereby machinery, furniture, vehicles, and electrical and electronic appliances could be regarded as moveable collateral which could, in turn, be offered up as security for bank loans.
On the other hand, this quarter also saw the first true discussions between the government and private stakeholders regarding a private pension bill, which was initially noted in Budget 2011, and which also eventually spiralled out of hand. Adding further fuel to the fire was a move by the government to "sneak" in three bills related to it in parliament at a time when the festive season was at hand and important business was not usually discussed. Measures which were not taken lightly and which ultimately led to demonstrations at the Katunayake Free Trade Zone. In attempting to quash these demonstrations, Police action contributed to inevitability of riots andresulted in the tragic and unfortunate June death of Roshen Chanaka Ratnasekera, a 22 year-old factory hand working in the zone, who was fatally wounded by a Police bullet, who along with 250 others, were casualties of this, just the first failed attempt to gain control of private pension schemes.
Tainted petrol
In addition, this period also saw a fresh consumer crisis as 20,000 metric tonnes of tainted petrol was released to the public, causing close to a thousand vehicles to suffer from engine failure. This was allegedly due to excess metal found within the sub-standard petrol stocks which caused engine failure and required replacement parts, including costly pumps and injectors.
On a more positive note, a famous marketing guru, in fact the "Father of Marketing" himself, Prof. Philip Kotler visited Sri Lanka - a coup for the local marketing fraternity. Also, an Indo Lanka Ferry service, which had been the works for many years, and which had previously been popular pre-war, was finally restarted. However, the ferry only lasted until November when it was suspended again, supposedly a result of poor passenger numbers.
Third Quarter 2011 (3Q11) - July, August, September
A welcome change, July was a slow month in terms of government faux pas. The only exception to this being the final end to a proposed new hotel complex to be built by Chinese aircraft manufacturer CATIC, costing US$ 700 million and coming up on land next to the Shangri-La. This followed a change in policy, or, more appropriately, an adherence to existing policy, whereby land could not be sold by the state but only offered on a 99-year lease. This proved to be a deal breaker for the Chinese company.
This period also saw a new government directive enacted whereby only vehicles under two years could be imported. This proved to be a major hurdle for existing imports of 800 five year-old vehicles which had been covered retroactively by the directive and which were sitting in the port at the time of the directive. Plans have also been revealed to further extend this directive to only allow vehicles under one year-old.
Meanwhile, August witnessed a truly impressive landmark, much lauded by local and international observers alike, as the state of emergency which had existed in the island since 2002 was finally lifted. However, in conjunction to the lifting of the state of emergency, there were new laws put in place in keeping with existing prevention of terrorism legislation so ultimately the public's newfound freedom may prove to be only a gesture after all.
On the other hand, September proved to be an interesting month, at least from a business standpoint, particularly because of new developments affecting long open issues. An offer was finally made for Suntel, a local telecommunications business on the market for a long time. Fixed line incumbent Sri Lanka Telecom bid US$ 200,000 for Sweden-based Telia's majority stake in local Suntel venture, which had been looking for a buyer for more than a year. While this deal ultimately fell through, this proved to be a catalyst for Suntel which very soon after was bought up by SLT's main rival Dialog.
Vehicle imports
Also revealed during this month, vehicle imports would only be accepted through Hambantota from March 2012 onwards. This move, insiders predict would again jeopardise the automobile industry due to the added expenses, delays, etc. which would result from this shift.
This quarter also saw the SEC finally take a stand against insider trading and fined three directors of Environment Resource Investments PLC (ERI) Rs. 10 million in total. This was at the same time that SEC Chairman Indrani Sugathadasa was facing pressure to resign, which was an option which both she and SEC Director General Malik Cader ultimately took a few weeks later. Also interesting, by this time it became apparent that investor sentiment, especially pertaining to small investors, was in a downward spiral. This was especially poignant in the area of IPOs. Of the initial expectation of60 IPOs for 2011, only 30 actually progressed forward with definite plans, with many of the others citing low investor confidence as a reason for their postponement.
Another noteworthy occurrence during this quarter, the International Monetary Fund (IMF) advised Sri Lanka to limit its foreign exchange interventions, suggesting the Central Bank's defence of the rupee was too rigid. It also insinuated that foreign reserves should be conserved, especially since remittance numbers were likely to go down further given the global financial environment.
And what would a financial year be without an IT systems crash at Colombo Stock Exchange? Because of its reliance on an entirely scrip-less system and the breakdown occurring at the beginning of the day’s trading, this crash led to a whole day's trading being lost.
Fourth Quarter 2011 (4Q11) - October, November, December
The final quarter of 2011 proved to be especially turbulent for Sri Lanka... Not only were we privy to riots and election violence but contentious issues such as the private pension plan also again reared their ugly heads, albeit in new and sneakier ways whereby it was approached via provisions in the Employees Trust Fund and Employees Provident Fund amendment bill.
Kicking of this quarter was the October killing of former presidential advisor and parliamentarian Bharatha Lakshman Premachandra and the wounding of MP Duminda Silva, both in the same incident, speculated to be intraparty violence within the ruling UPFA party.
During the same month, the Colombo Stock Exchange (CSE) was announced as being the best performing in the region. A statement met by much disbelief and many questions raised regarding the metrics used in this determination. This was also particularly astonishing after continued shakiness in investor confidence experienced by the bourse.
Further coming to the fore during this period, the BOI, an agency which was virtually closed down to enable restructuring at the beginning of 2011, was said to be ready to start its new functions. However, with much of its functionality taken on by other organisations, such as the tourism and economic development ministries, the BOI could have a long and potentially uphill battle on its hands, especially in attaining its newly identified goal of garnering US$ 1 billion in investment by way of its new, more focused structure.
Meanwhile, the month of November is usually most significant because of the budget. 2012's biggest revelation was the upping of the country's defence budget by almost 10% over last year's. This money was earmarked to the newly created Ministry of Defence and Urban Development. The other aspects of the 2012 budget were said to be trying to please everyone at once and having no clear direction or focus otherwise. In other words - in the grand scheme of things, this is neither a minus nor a plus in terms of its impact.
Also in November, Sri Lanka improved itself to the 89thposition (out of 183 countries) in the Global Ranking on the Doing Business Index, which is published annually by the World Bank. This was on the back of improvements with regard to investor protection and simplifying tax structures. However, the report did mention that contracts enforcement, registering land, etc. were other areas the country needed to work on.
Census postponed
This quarter also showcased new problems with Sri Lanka's public sector with the postponement of the first national census in 30 years due to printing errors in survey forms.
But perhaps more troubling of all for the country's future growth prospects was the lack of significant increases amongst tourism numbers over the winter months, a period which last year heralded big growth. This was attributed to a lack of marketing, new online visa regulations, increases in hotel and tourist attraction rates as well as a drop in spending by travellers globally.
However, while a shortfall in tourist arrivals was a cause for concern, it was the highly controversial assets seizure or expropriation bill that proved potentially poisonous to investors considering Sri Lanka in the future, with both Fitch and Moody suggesting it could result in negative credit pressure for the nation. Adding to the growing list of detractors of this law were five out of six of the country's top chambers of commerce. Normally falling in line with the government under most situations, and having done so at an earlier stage of discussions regarding this bill, this move by the government has brought out some surprisingly stiff opposition from these chambers.
Rounding out the year was the long awaited verdict on former presidential contender and former Army Commander Sarath Fonseka, which saw him sentenced to three years in prison. In addition, there was yet another leadership struggle within the main opposition UNP that saw party leader Ranil Wickremesinghe retaining his top post. There were also riots and escalating food prices in Colombo, precipitated by the introduction of a new law requiring vegetables to only be transported in plastic baskets to prevent excessive damages and losses.
New Expressway
Finally, and also somewhat interestingly, some remarkable statistics to tide you over until next year, the country's newly opened Southern Expressway, in its first week of operation, netted over Rs 8.5 million with over 36,000 vehicles using this avenue within its first week. Additionally, on average, 5,000 vehicles used the expressway daily. Further, there were over 100 traffic offences committed within the first week of it being patrolled, while its busiest day so far earned an income of Rs. 3.7million in one day alone, for Christmas Day 2011. |
E-mail
