75% of Japanese companies in Sri Lanka expect improved operating profits in 2025
View(s):JETRO has conducted its annual survey on business conditions of Japanese companies operating overseas in August and September 2024, receiving responses from 5,007 companies in the Asia – Oceania region and 31 companies in Sri Lanka.
It said in a media release that Japanese companies in Sri Lanka are clearly on the road to recovery from the economic crisis. 46.4 per cent (+ 11.9 per cent from 2023) expect a ‘profit’ in operating income for 2024. This is the third highest figure since 2015, after 2019 (55.2 per cent) and 2018 (48.5 per cent). Specific factors contributing to the profit include the recovery of the economy and the tourism industry, acquisition of new customers and business growth.
The outlook for 2025 is for further acceleration. On the outlook for operating profits in 2025, 75 per cent said they would improve, well ahead of ‘remain the same’ (21.4 per cent) and ‘decrease’ (3.6 per cent). This is the highest figure in the Asia-Oceania region, surpassing India (57.9 per cent), Philippines (52.9 per cent), Vietnam (50.4 per cent) and Bangladesh (50.0 per cent). Reasons for the improvement included ‘increase of demand in the local market’, ‘strengthening the sales system in the local market’, ‘improvement in production efficiency’, as well as ‘lifting of vehicle import ban’ and ‘reduction in container freight rates’.
Japanese companies in Sri Lanka are also positive about their future business. Regarding their business development plan for the next 1-2 years, 36.7 per cent (+ 8.6 per cent from 2023) stated ‘expansion’. They pointed to ‘expansion of their local sales network’ and ‘development of new products’. However, 13.3 per cent (+ 7.0 per cent from 2023) answered ‘reduction’ or ‘transferring to a third country /region or withdrawal’.
In terms of the advantages of investing in Sri Lanka, ‘low labour cost’ (54.8 per cent) was the highest. Labour costs for Japanese companies in Sri Lanka are in line with Myanmar, Laos, Pakistan and Bangladesh, demonstrating Sri Lanka’s competitiveness in the Asia-Oceania region. ‘Fewer linguistic/communication problems’ (41.9 per cent), ‘market scale, growth potential’ (38.7 per cent), ‘tax incentives’ (22.6 per cent), ‘ease in recruiting local staff’ (22.6 per cent), ‘good living environment for Japanese expatriates’ (22.6 per cent) and ‘plentiful land/offices, low land/rent prices” (22.6 per cent) also ranked highly.
On the other hand, the most frequently cited risks to investment in Sri Lanka were ‘political or social instability’ (83.9 per cent), followed by ‘unclear government policy management’ (71.0 per cent), ‘currency volatility’(45.2 per cent), ‘increased labour costs’ (41.9 per cent), and ‘high employee turnover rate’ (35.5 per cent). More specifically, Japanese companies in Sri Lanka highlighted ‘sudden import restrictions and abrupt changes in tax rates’, ‘increase in fixed costs due to hikes in corporate tax and utility tariffs’, ‘overseas migration of young talents’, ‘power outages’, ‘too much time to obtain import licenses and residence visas’, and ‘Risk of supply chain disruption due to import restrictions’.
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