Cultivating the capital market

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By Charumini de Silva

Capital Market Conference 2017 came alive with straight talk and futuristic observations on the Sri Lankan economy, with the need for consistent policies and prompt execution intertwining through the discussions.

Organised for the fifth consecutive year by UTO EduConsult; the conference saw plenary sessions on ‘State of the economy’, ‘Impact of the Budget on Capital Markets’ and ‘Equity markets’.

Delivering the opening remarks Calamander Capital Singapore Director MafazIshaq pointed out that the looming issue of our debt, pressure on interest and exchange rates, impact of VAT hike and the slowdown exports would all have an impact on the economy, but the greatest challenges would be from external factors where the impacts would be felt far and wide.

Stating that the inadequacy of the country’s capital market should be understood historically, he said: “Our capital market needs scale and depth in order to function, but Sri Lanka’s legacy of political journey and geographic fragmentation prevented that formation and as a result we are much poorer now because we have lacked the ability to be accumulating our own wealth.”

He emphasised the importance of regional and continental integration in the current global economic context, however admitted that markets only work when participants believe it is fair and transparent.

“In this regard, the quality of corporate governance in region must be raised for Sri Lankan companies would be able to grow into cooperation with continental and global reach,” he added.

He also highlighted that capital market depended on integration of technology and trust, where it is going to be a part of the infrastructure optimism, upon which Sri Lanka’s prosperity rises.

In addition Ishaq called on the stakeholders to make their submissions to the Securities and Exchange Commission Act 2017, which is currently in draft format.

Get the politics right to drive the economy

The first discussion on ‘State of the economy’ was moderated by Daily FT Editor Nisthar Cassim and comprised top corporate leaders including KPMG Managing Partner ReyazMihular, Sarvodaya Development Finance Chairman Channa de Silva, Economist Deshal de Mel, Frontier Research Lead Economist and Senior Product Head Shiran Fernando and Capital Alliance CEO Gihan Hemachandra, where they called on the Government to get the politics right to drive the economy.

Mihular said it was crucial to translate the vision set out by the Prime Minister Ranil Wickremesinghe which was highly endorsed as the way forward for Sri Lanka without holding back due to unreasonable political motives.“We just have to bite the bullet and get these things implemented,” he added.

Noting that foreign investors still had an appetite for investment opportunities in Sri Lanka, he pointed that there was a willingness to pay taxes, but policy consistency was a concern for them.

Considering the current global economic outlook, Mihular pointed out that there would be no significant investments the country could expect from Western economies. Therefore he said in this context China would be the only powerhouse that would invest in Sri Lanka.

“China has come up with a proposition that if we execute, they will make the entire south a very vibrant export zone making a lot of use of the Hambantota Port. It is not only debt issue, but the vibrancy that comes in with the industrial zone, export income generation and the use of Mattala Airport,” he noted.

He cautioned that if the authorities do not resolve the legal issues related to the project any soon, the investors would walk away.

“We have got a coalition Government and both parties need to get real. I think they are all paying games and eventually the country suffers. They need to get the economy out of this mess, if not the Sri Lanka will end up like Greece,” Mihular warned.

De Silva said that the authorities had failed to stabilise the rupee which is the single parameter that explained the health and wellbeing of an economy.

“Now the prime lending rate is 11.5%. SMEs are borrowing at 18% to 25% and sometimes it’s more. Micro finances are borrowing north of 30%. Some people are charging 40% and some 50% effective rates — but still keep on borrowing,” he stressed.

He explained that currently the strength between inflation and prime lending rate in Sri Lanka is at least 600 basis points, whereas in Japan it is only 60 basis points, cautioning that the country was burdening local entrepreneurs with high borrowing rates.

“My only fear is the role Sri Lankan entrepreneur will play against the large Chinese, India, European tickets (projects) that are expected to coming in. What is the role of the Sri Lankan entrepreneur who sacrificed his life living in this country to serve this country? If you are going to bleed them out charging them 25% to 30% debt they take, what is the peace dividend that the Government is going to reward them with?” he questioned.

Despite the very powerful private sector engine that is very optimistic in Sri Lanka’s future, the tumbling Government sector had created disappointment in delivery expectations to a certain degree, he said.

Commenting on the economic outlook for this year de Silva said that owing to the small economic base, the country would start to grow at a very low level.

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http://www.ft.lk/article/604529/Cultivating-the-capital-market#sthash.qgQUPPtj.dpuf

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