Economy succumbs to over enthusiasm
Business tycoon Harry Jayawardena says the 2011/12 financial year brought mixed emotions after the economy fared well during the first half only to succumb to over enthusiasm thereafter.
“I look back on a year comprised of mixed emotions; it is one that began with much expectation and anticipation – whether stemming from the hope that the global economy would see a turnaround or whether, from a Sri Lankan macro perspective, industry and thus economic indicators would achieve envisaged results. Unfortunately, the combination of a number of factors saw both the local and global economies shed some of the anticipated buoyancy and establish defensive modes for progress. Sri Lanka, while performing considerably well in the first half of the financial year, succumbed to its over enthusiasm and redrew more realistic targets for growth, which in the long run is certainly more achievable,” Jayawardena told shareholders in the annual report of diversified Distilleries Company of Sri Lanka PLC.
“Being optimistic, for the most part Sri Lanka did gain a good footing in the first half of the financial year of 2011/12. From this positive aspect, it was one of the few years in recent history that Sri Lanka has had an election-free year which naturally resulted in political stability and better ratings from agencies such as the IMF and World Bank, who instigated confidence via the upgrading of our country’s profiles and rankings. Sri Lanka did achieve its envisaged 8% GDP growth, the first time it has maintained 8% for the second consecutive year; however, having proclaimed similar growth forecasts for 2012/13, reviewed it to 7.2%, which is more realistic given the macro global environment we are dealing with. This still remains high compared to other nations in the region and global GDP, which is currently looking dismal.
“There are conflicting schools of thought on the depreciation of the Sri Lankan Rupee which began its free float in the second half of the year. From a foreign exchange standpoint, this will buffer Sri Lanka’s coffers, helping to abate some of the trade deficit the country has been grappling with. However, with some of our bigger industries such as apparel (which is also grappling with declining volumes due to the global meltdown), telecommunications, technology, infrastructure, and even hospitality for instance, all requiring to expend foreign exchange for raw material and equipment purchases, the depreciating Rupee does pose a dilemma.
“It is anticipated that after the initial upsurge, the Rupee will settle at its natural space of Rs.125.00. However, one of the greatest positive impacts of the Rupee free float has been the effect it has had on export earnings and worker remittances, which has naturally bolstered the country’s treasury considerably and is certainly welcomed at a time when Sri Lanka needs liquidity to invest on its infrastructure expansion.
“We celebrated a landmark of 20 years since privatisation this year. It has certainly been a year where we fortified our status as market leader in the alcohol industry even further, which comprises about 83% of the Group revenue and is a core business. This also sets the tone for the noteworthy Group performance, despite some macro challenges that impacted us somewhat unfavourably.
“Gross Revenue for the Group gained to stand at Rs.63.3 Bn, while the Company displayed Rs.49.1 Bn. Group Profit after Tax for the year, stands at Rs.6.2 Bn, while the Company reported Rs.4.3 Bn.
“The plantations sector was hit by lower global demand, while both the insurance and telecommunications sectors gained marginally.
“We remain very regretful of the Government’s decision to list Pelwatte Sugar Industries under the Revival of Underperforming Enterprises or Underutilised Assets Act No. 43 of 2011, despite the company having turned around significantly since DCSL acquired it. With this re-acquisition by the Government, the synergies we had hoped to leverage upon to supply spirits (ENA) declined considerably.
“I’m also observing a considerable rise of illegal manufacturers of artificial toddy and unscrupulous toddy contractors, whose supply has increased threefold and regretfully observe the Excise Department turning a Nelsonian Eye towards these illegal and dangerous products, which could lead to poisoning and even death in unsuspecting consumers. We stringently adhere to quality control and perform R&D in modern laboratories where quality is monitored by qualified and accountable professionals. The rejected toddy that does not meet our high standards, eventually end up in the hands of these fiends and the Excise Department confesses to not knowing of the transport of such illegal sub-standard produce, although transport permits are given unabated which allows for the movement of such toddy. The end result however will be that the nation’s health will fall victim, as the death of consumers is imminent if such illegal practice continues. This menace must be stopped and action taken without delay.
“We see the paint industry and baby cologne industry increasingly becoming a façade for the importation of spirits in order to pass through customs, while also becoming a front for the illegal manufacture and sale of liquor, which can naturally come on the shelves cheaper than those which are heavily taxed.
“It is important that the Regulator within the Excise Department remains true to the diktats of his Office, ensuring that the market remains legal and clean, by working to eliminate corruption and ensuring that the law is enforced. At present, the illegal market is a sizable portion compared to the legal market and if infused into the mainstream, the government can be assured of even more revenue which can in turn be invested in the vital infrastructure of the country,” Jayawardena said.
Courtesy: The Island