Business Sentiment
Posted on the December 14th, 2011 under Research & Views by Lanka Monthly Digest 
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Biz Climate Up in the Air in November
There are contradictions in the latest poll outcome and little movement in the index
The rough-and-tumble world of politics and a consequent wobble of the biz bubble took shape last month, both at home and away. The race to nowhere in November produced an equally inconclusive outcome when The Nielsen Company Lanka’s pollsters completed their work on the LMD-commissioned survey a day after D-Day for business in this country – that was 9 November, when the Rajapaksa administration hastily passed its ‘bill of rights,’ The Revival of Underperforming Enterprises and Underutilised Assets, thanks to a hefty majority in the legislature.
Nielsen’s Managing Director Shaheen Cader however, points out that “the impact of the bill would not have been picked up in November as 90 per cent of the fieldwork was completed in the first week of the month…” He adds that as 80 per cent of his firm’s sample population represent small and medium businesses, “I don’t think this segment would be overly concerned about the new law.” Amongst the reasons for the index being flat, he explains, that “businesses are seeing their future revenue expectations as being the same as in the previous year,” rather than expecting higher top lines.
In November, the LMD-Nielsen Business Confidence Index (BCI) nudged upwards by five basis points to register 158 on the sentiment scale, only a point away from the average in the last 12 months.
There will surely be a fallout across the globe from events in the Eurozone and many rich nations, following a loss of risk appetite because of anxiety and uncertainty about the immediate future of the world economy. Likewise, one would expect there to be repercussions in the aftermath of the controversial bill – two leading rating agencies Moody’s and Fitch joined the corporate chorus against it, with the former saying that the enactment “may undermine the predictability of future policies and increase investor uncertainty.”
THE ECONOMY There are two ways of looking at the improvement in sentiment pertaining to the national economy that’s reflected in the November poll. If one were to see the glass as being half full, the rise in the proportion of executives who now feel that the economy ‘will improve’ in the year ahead (by 10 percentage points, to 47) is encouraging. If the glass were to be seen as being half empty, the fact that a clear majority (in a range of 51-57 per cent) in the three months to September said the same could come into the picture.
SALES TRENDS In what could be viewed as a contradiction of sorts, the word on the medium-term outlook has suddenly turned positive, with more than six-in-10 corporates expecting their sales volumes to ‘get better’ in the next 12 months. That’s a noteworthy turnaround from around a third only a month ago. Cader believes that “with infrastructure development gathering pace, the benefits of economic growth should sooner rather than later impact the medium and small segments positively.”
INVESTMENT It may come as a surprise, but the latest survey findings suggest that businesspeople are holding on to their faith in Sri Lanka’s investment prospects. When more than four-in-five interviewees rate the investment climate as being ‘very good’ or ‘good’ for the second month in a row, there’s no denying that optimism is in the air on the FDI front.
There are sceptics too. “Government policies are not favourable for investment, and we are focusing on short-term benefits rather than long-term development. Since the global market is becoming worse, we can’t expect FDIs, [so] there should be a proper mechanism to sustain growth,” says one such naysayer.
SENSITIVITIES The new year will be rife with question marks dotting both the developed world and the little one we live in. At the top of the list of ‘what ifs’ lie the post-mortem on the Eurozone crisis (if and when it is averted), the path that the US economy takes (will it avert a double-dip recession that will inevitably permeate the landscapes of the West and beyond?), the IMF’s take on Budget 2012 here at home (will it release the next tranche from the US$ 2.6 billion facility… and if so, when?) and the Government’s intentions in the post-budget era (will it walk the talk and meet the fiscal targets it has set for itself?).
The mood meanwhile, is sombre – as one BCI participant says: “Our third-quarter performance is very poor; and according to market conditions, the last quarter will be worse. I think it would be the same scenario for most businesses, but we hope things will change next year.”
PROJECTIONS Next month’s poll results will certainly be an eye-opener on two counts in particular: we will know to what extent confidence is being driven by events in Parliament, vis-à-vis the recent legislation that raised many eyebrows in business and investor circles; and how the business community views Budget 2012, which was presented to the House on 21 November.
– LMD
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Business Sentiment
