Pessimism on policy performance; strong support for PPPs, freeing up trade, logistics

By Economic Intelligence Unit, Ceylon Chamber of Commerce
The participants at the recently concluded Sri Lanka Economic Summit are optimistic about the government’s ability to deliver economic results in the next four years, but are critical of the progress made so far and have mixed views about Budget 2017, according to a survey conducted at the event. 

The Ceylon Chamber of Commerce (CCC), the organisers of the summit, surveyed top corporate executives at the summit through a combination of mobile and written questionnaires. The questions were anchored to the overall theme of the summit of ‘Focus.Act.Deliver.’ as well as to specific issues tackled in the sessions, ranging from public-private partnerships (PPPs), to tourism, human capital and international trade and logistics. 

The results on specific sector questions need to be interpreted with the caveat in that the audience would not entirely consist of experts of each of those subject areas.

Views on performance poor, but optimism for next four years
The poll asked three questions inked to the summit’s theme of ‘Focus.Act.Deliver.’ The first on ‘How focussed is the government on creating policies that support private sector growth?’ 
showed a lot of pessimism with 47 percent of respondents giving a score of three out of five (with one being the lowest and five being the highest). Thirty six percent scored a one or two and only 15 percent scoring a four or five. This reflects the wider feelings of confusion and uncertainty among the private sector on the government’s economic policy plans.

On the question of ‘How successful has the government been in auctioning such policy changes during the last one year?’, a majority of 49 percent scored a low two out of five, indicating strong disappointment in the progress of reform in the first year of the government’s term. Only a low 7 percent gave a score of four or five and 26 percent gave a score of one, the lowest. 

Interestingly, however, top executives were a bit more optimistic about the future, but uncertainty prevailed. On the question of ‘How confident are you that the government can deliver its economic promises in the next four years?’, 41 percent of respondents scored either a four or five, while 35 percent scored a moderate three out of five. A quarter or respondents were still pessimistic, scoring a one or two. 

On trade policy, an overwhelming majority of 70 percent of them agreed that economic and trade agreements with partner countries would boost Sri Lanka’s economy. Only 2 percent disagreed, while 28 percent were undecided.

Strong support for PPPs, but concerns on capabilities 
The session on PPPs explored the key reasons why the PPPs are needed right now, particularly due to the constrained fiscal space and growing debt burden as well as the need to bring down project costs and improve the viability and accountability of public infrastructure projects. The audience strongly endorsed this, with 85 percent voting ‘yes’ to the question of whether PPPs are a viable alternative to building infrastructure in Sri Lanka and only 6 percent voting ‘no’ and 9 percent unsure.   Yet, there are some concerns of the capabilities for structuring PPP deals as highlighted by the experts on the panel and echoed in the votes of the audience. Fifty six percent of the audience either said ‘no’ or were unsure on the question of ‘Does Sri Lanka have the expertise/capacity to structure PPP deals that are viable in the short and long term and can attract investors’, while 44 percent said ‘yes’.  Meanwhile, 64 percent voted ‘yes’ on whether roads, ports, energy and airports were the top priority sectors for PPPs right now. 

 Tourism – Positioning as a value brand
The tourism session highlighted the need for continual investments to improve infrastructure to ease tourism bottlenecks, a focused campaign to brand and market the destination globally, informed by research; and a comprehensive and accelerated programme to tackle the gaps in skills availability and service standards. 

 On the question of whether Sri Lanka Tourism was focused on these issues, a significant portion of the participants (42 percent) believed that it was not, while 41 percent were ambivalent and 17 percent said yes.

 An overwhelming majority, 83 percent, indicated that these issues are important and Sri Lanka Tourism should address them if tourism is to deliver on its potential. 

Participants were also asked to comment on what positioning Sri Lanka should promote on the tourism level. Forty four percent said that Sri Lanka should be ‘positioned as up-market’, while 25 percent disagreed; the majority felt Sri Lanka should not be ‘positioned as a budget market’ (54 percent) with only a minority (9 percent) saying it should; and overwhelmingly the consensus was that Sri Lanka should be ‘positioned as a value for money market’ (71 percent) with just 5 percent disagreeing. 

Location advantage – Ports and shipping key 
The leveraging on location session focussed largely on Sri Lanka’s international connectively infrastructure – particularly ports and shipping. Interestingly, the majority of participants were in agreement that constructing the Hambantota Port at this stage was positive (54 percent), but with a number of them (32 percent) disagreeing and a further 14 percent ambivalent. An issue that was scrutinized quite a bit during the session was the role of the Sri Lanka Ports Authority (SLPA) – and its conflict of interest as both a regulator as well as a port developer and terminal operator. The SLPA Chairman strongly acknowledged the need to reform this and he proposed that the SLPA should remain as a port and terminal developer, with a higher authority set up as the port regulator. 

On the question of whether the SLPA’s terminals should be corporatized (so it competed on equal footing with the private players) a sharp majority (59 percent) voted ‘yes’, while only 6 percent voted no and 35 percent were ambivalent.  The participants were also strongly in favour of removing foreign ownership restrictions on freight forwarding and shipping (64 percent), while just 16 percent opposed it. 

Talent pool – Investment in education 
The results in the talent pool session were rather mixed. On the question of whether Sri Lanka has sufficient numbers of skilled talent to meet the country’s growth aspirations over the next five years, 36 percent said ‘no’, while 38 percent said ‘yes’. A further 26 percent were ambivalent.

On whether the executives’ companies would be interested in hiring talent from countries in the region if the process of obtaining work visas for such candidates was simpler, 43 percent responded ‘yes’, 32 percent responded ‘no’ and 20 percent were ambivalent. What there was strong consensus on, however, was that the budget outlay on education must increase even if it means that taxes need to be increased - 75 percent said ‘yes’, 12 percent said ‘no’ and 13 percent were unsure. 

Immediate issue – Budget 2017
On the immediate future of macro and growth policies – Budget 2017 – the participants were rather sceptical. Only a minority of executives – 18 percent –expressed confidence that Budget 2017 will set the right economic policy climate to boost business confidence and drive growth. Meanwhile, 34 percent were not confident and a significant share – 48 percent – was unsure. 

These results, while based on a sample of 100 respondents for the questions related to specific sessions and 200 for the three overall questions, could hint at a wider dissatisfaction among the corporate community of the country’s economic condition. A challenging global economic climate, legacy issues from the previous government, persistent domestic policy bottlenecks are no doubt feeding into this sentiment. 

It is important that the government take steps to boost the confidence of the private sector, so that it rekindles its animal spirits and recalibrate risk. The prime minister’s Economic Policy statement due this month is eagerly awaited by the business community, which, together with Budget 2017, ought to set the stage for a period of sustained inclusive growth over the next four years with a focus on action and delivering on the country’s abundant 
economic potential.