The following is a speech by Central Bank Governor Ajith Nivard Cabraal, a guest speaker at Business Today Top Twenty Five 2012-2013 awards ceremony.
Let me start by congratulating the winners, the top companies of our country, who have contributed to our economy and continue to do so, showing excellence in their respective fields.

I know it is not easy to reach the top and what is more difficult than reaching the top is maintaining the position and very modestly, some speakers mentioned about how they have been retaining their positions.

I don’t think they really want to drop their rankings. Nevertheless, the challenge is difficult and to maintain your position, even after the challenges, is even more difficult.




As you grow, debt also grows
Today, we heard 12 business leaders speaking to you about their companies very proudly. I believe they have every right to do so. So, I was thinking, perhaps I should speak a few words about Sri Lanka incorporated, taking a cue from my friend Harry Jayawardena, as to what the government has also done in creating this enabling environment and also ensuring that Sri Lanka can retain its momentum in going forward. And in doing so, I believe, it is appropriate to use some of the business jargon, particularly the jargon that all of you are familiar with, in analysing Sri Lanka incorporated.

I believe I am reasonably qualified to do so, having worked in the private sector for 32 years of my life and in the last eight years I have been in the state sector. So, I have a four to one ratio as far as my contribution to this country’s economy is concerned. So, let me try and give you some assessment and analysis about how we could judge the government in relation to some of the analytical tools that you yourself use in your portfolios.

Let me begin by putting first the debt sustainability of the country. I know that it is a topic that has been considered and spoken of many times. But I would ask you, the old companies, if you look at the first 25, they are all there and I don’t think there is a single company, which is without debt. You have share capital, which is your obligation to your shareholders, then you have loan capital, which is your obligation to your banks, then you have other creditors all of which are your obligations, which is your debt.

As you grow, not only your shareholdings grow, your debt also grows and therefore, to keep a tab on your debt by using various ratios, I think that is prudent. When I was in the private sector also I used it, now since the public debt is managed by the Central Bank, we keep a close tab on that also and the main instrument that we use is your debt to income ratio, your debt to asset ratios and debt to share capital ratios, which you monitor very closely.

I can assure you ladies and gentlemen we do the same in relation to the management of debt, as far as Sri Lanka incorporated is also concerned. If I were to go over a few figures— in the year 2003, Sri Lanka’s debt to gross domestic product (GDP) ratio, which is equivalent of your debt to income, was as high as 105 percent. In the year 2005, it had come down to 91 percent. Over the last eight years not withstanding all the public investment and FC it should travel on, you should understand that the debt to GDP ratio has come down to 78 percent.  

Something has been done in order to make the country a lot more feasible and a lot more viable. And that is important for us to recognise, the same way that you in your companies assess your debt with various types of ratios and give you the comfort that it has been done in such a way that we maintain Sri Lanka’s overall viability and I can assure you that it is not in any danger.

Let me look at how you also develop your companies with diversification of your overall business models. You do that all the time. If you look at the top company, John Keells Holdings, each year it adds on new types of businesses to its overall types of work that it does. Its business model changes and that is the diversification I’m talking about. And when you grow, you need to diversify, at various intervals, in order to make use of the new opportunities that are created in the business world.




We worked hard on macro fundamentals
The same thing has to be done in a country as well. If we did not diversify, Sri Lanka’s overall income streams over the last several years, you would find that they would reach certain stagnation points. That is why the President in his wisdom, when he put forward the Mahinda Chinthana vision for the future, spoke about five hubs, new creations within our country, which will be the new stars in our economy. All of us know about stars and cash cows.

The stars have to be nurtured in order to develop into cash cows. So, Sri Lanka has now started on new areas, which are the maritime, aviation, commercial, knowledge and information technology—the new stars which will be the new cash cows as Sri Lanka grows into the next decade and beyond. So, again, a very important business strategy, that has been pursued by the government and which will bear fruit as Sri Lanka matures.

The third point that I want to talk to you about is getting the basics right. All your companies have to make sure that your overall fundamentals are in order. You have to see that your business processes are sound, good human resource management techniques in place and accounting systems and IT systems are sound and the equivalent of those in relation to a government is your macro fundamentals.

Over the last several years, we have worked hard on the macro fundamentals and that is why today we enjoy those macro fundamentals, which allow you to do your business without a little worry, about other areas that you used to worry about in the past. If your inflation is very high, if your financial system is not stable, if you have labour difficulties and problems, you will be distracted from the normal businesses that you should run and you’ll be worrying about those aspects, which are under threat or in danger.

So, the government, in its enabling environment, has to give you that comfort by making sure that those types of fundamentals are sound and that is what has been done over the last several years.

Another point that you look at and your shareholders look at is your earnings per share. If your earnings per share drops, your share value drops, your company will not be recognised as the Top 25 and you will probably not be in the same sound position that you are in today. So, you keep a close tab on your earnings per share. In the same way, the government and the overall economic managers, have to ensure that the country’s per capita incomes are rising.

We spoke earlier about Sri Lanka moving towards a four thousand dollar per capita income. What were we doing? We were actually talking your language, we were talking about ensuring that the overall per capita incomes rise so that the country conditions would be brought up to a level that people can enjoy a good life and a good standard of living.

As directors and as chairmen my dear friends, you also want to keep your shareholders happy. Several business leaders who spoke today spoke about that you are keen to ensure that your shareholders are kept happy. The equivalent of that in relation to the government is to keep the country’s shareholders’, every citizen in this country happy. Over the last several years, we have seen poverty reduced, have seen the regional disparities reducing, and those important signs of keeping your shareholders happy.

If your shareholders are not happy, they don’t want to keep you happy and then you worry and that is why you keep the shareholders happy and even from the government’s point of view, it is imperative that the key shareholders and all those who work in our country are kept happy.




Country has to give itself a brand
Let me also talk to you about another aspect, which is the company brand. All of you are very concerned about your brand. If you take every one of those 25 companies, you know and we all know how much you work on the brand. Your brand eventually exercises every type of activity that you do, has a foundation on your image building. A country also needs to do that. A country also has to give itself a brand to ensure that the people, who deal with the country, will feel comfortable, be keen to do business with that country. So, how do we create a country brand?

The country brand has to be done with good exposure and other people from other parts of the world coming to our country to see how we develop and our infrastructure has developed. These are all useful components of building a brand. I think the government, even recently taking the decision to organise the Commonwealth Heads of Government Meeting (CHOGM)—we are coming very close to that now—it is an important event, which will create a new brand.

Whether we like it or not, you have to understand that we did not have a great brand up until four years ago. We were known for the wrong reasons. The world recognised Sri Lanka, not for the great things that we have done. So, we have to shake off that brand, we have to create a new brand. I believe just like what you do in your own companies, building the brand, the country also needs to do that and that is what you see happening today and that is what we have seen happening for some time as well.

You concentrate on risk management in your numbers. You constantly look at your horizons to see whether there are impending risks, new threats to disturb your business. We do the same ourselves. The country’s risk needs to be also assessed at various times because the risks out there are huge. Every day you see new threats looming. Not only in the political scenes of the world and not necessarily only for Sri Lanka.

Today, you see IT connecting each one, as a result of which, threats can be transmitted very quickly. Those days, a particular threat took a long time to be transmitted but today it is not so, it is immediate. So we have to keep a very close search light on to ensure that Sri Lanka is kept free from threats and the economy is also made conducive for you to do business.

At the same time, we got to have procedures and processes in general to enforce. In the same way, the government has budgets, our policy statements and roadmaps to ensure that we stay in line and we are progressing without any deviation from the original plans. I also believe that all of you in your own companies take great pains to make your own infrastructure, your own company to be at a high level and high weight in order to make your stakeholders will feel comfortable when they come to see you.

A similar exercise should be carried out in the country to make it clean, to make it neat, to make it more conducive for people to come in. Today, what you see is that happening. So, the government is not very different to that of the private sector.

We are approaching the governance from the point of view of private sector values as well in order to give you a great life for you to do business. Let me also reflect on what exactly takes place when Sri Lanka incorporated has to go forward. We have to plan, we have to make sure that we reflect on what has taken place and we have to always be a step ahead in order to ensure that our country can be safe  as well as economically sound.




Sri Lanka on threshold of a new era
Let me conclude by telling you the story of a Polish immigrant, who was very wealthy at the time he was about to retire. He had educated his children. He has come to the US from Poland and worked hard and he has put his son through Harvard University. The son, after he qualified and came back to the business of the father, told the father after some time, “Papa, you are not running your business correct. You don’t have sufficient accounts. You are not in a position to tell me exactly what your profit is. You are not able to have a very good handle on the business like what they have taught me at the Harvard University.”

The old man was a little puzzled and he told the son, “You know, today, I have educated you at Harvard, which has cost me about 500,000 dollars. Your sister has been put through one of the most prestigious ballet schools and I have spent a million dollars on her education. Your mother has all this jewellery and all this finery, which have cost me another 500,000 dollars. I have now three cars, I have a cruise liner and I have also been enjoying life and that has given an asset base of around two and a half million dollars.

When I add up all that and I deduct the 18 dollars that I had when I came from Poland to the US - that is my profit. I think that is enough for me and the rest of it now you can build up on it.”

I think, if you look at Sri Lanka in 2008 or in 2005 and you look at Sri Lanka today, you can assess for yourself what has been the mega change that have taken place in our country. What has changed, what has improved and if you deduct from what you see today, what was available in 2005, that my friends would be the profit of our country and that is the profit which we all are going to enjoy. The only thing that we must now remember is that, that should not be our end but that should be our beginning.

Sri Lanka is on the threshold of a new era. We have set the platform for that new era and all of you are today poised to take Sri Lanka forward to the next level and the next era. I hope all of you will be up to the task and put your shoulder to the wheel in order to ensure that Sri Lanka will move to the next phase and with it we will all enjoy a much better life for all of us and for our children.