Economic Capsule - October 2013

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Economic Capsule - October 2013

Economic Capsule - October 2013

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  • 1. Economic Capsule October 2013 < Research & Development Unit >
  • 2. CONTENTS FINANCIAL SECTOR NEWS   Commercial Bank’s Chief Risk Officer Honored with Top Global Award  Commercial Bank Wins SLIBI Gold Award  Commercial Bank Launches On-line Banking in Bangladesh  Commercial Bank moves up in Business Today Top 25 ECONOMIC & BUSINESS NEWS   Sri Lanka Ranks 60th in World Prosperity Index  Sri Lanka - Offshoring Destination of the Year  Sri Lanka Makes more Reforms but Slips in Doing Business Ranking  Doing Business 2014  The Time is Right to Attract Japanese Companies  Development News  Snippets  Analysis & Forecast - Fitch: Sri Lanka's Resilience Masks Medium-Term Credit Risks
  • 3. Financial Sector News
  • 4. Commercial Bank’s Chief Risk Officer Honored with Top Global Award Mr. Sanath Manatunge, the Chief Risk Officer (CRO) of Commercial Bank of Ceylon PLC has been honoured with the prestigious ‘Chief Information Security Officer of the Year’ Award at the International Council of E-Commerce Consultants (EC-Council) Global CISO Forum in Atlanta, USA. The Global CISO Award honours the true visionaries of information security from around the world. It recognizes an individual's outstanding work in the field of information security, professional growth and achievement, and promotes strong, innovative security practices. < Research & Development Unit >
  • 5. Commercial Bank Wins SLIBI Gold Award Commercial Bank wins Gold in the Emerging Islamic Finance Entity category, at the inaugural Sri Lanka Islamic Banking & Finance Industry awards ceremony. < Research & Development Unit >
  • 6. Commercial Bank Launches On-line Banking in Bangladesh Commercial Bank has launched its sophisticated Internet Banking service in Bangladesh, where the Bank operates a network of 18 branches and service points. The on-line banking platform offered to the Bank’s customers in Bangladesh is identical to the upgraded on-line banking facility that was launched in Sri Lanka in the third quarter of 2012. It is designed to make on-line banking infinitely more experiential and expedient for customers of the Commercial Bank. In Sri Lanka, Commercial Bank’s on-line banking platform supports bill payments to more than 36 entities in nine categories – Telephone, Electricity, Water, Credit cards, Insurance, Pay TV, Schools, Rates and Other. Investing in Treasury Bills and effecting payments for share trading transactions is also possible, with self-registration of the user’s CDS number. Commercial Bank customers in Bangladesh will be able to enjoy all these benefits including payments to Grameen Phone Company & ISD School fees. They further have the ease of accessing the facility on their smart phones via the WAP link of this new solution. < Research & Development Unit >
  • 7. Commercial Bank moves up in Business Today Top 25 The Commercial Bank of Ceylon PLC has been accorded second place in the Business Today ‘Top 25’ ranking of Sri Lanka’s top performing public listed corporate entities in 2012-13. Sri Lanka’s largest private bank has moved up one place from last year’s ranking. BUSINESSS TODAY TOP 10 1 John Keells Holdings 6 Dialog Axiata 2 Commercial Bank of Ceylon 7 Sampath Bank 3 Bukit Darah 8 National Development Bank 4 Ceylon Tobacco Company 9 Distilleries Company of Sri Lanka 5 Hatton National Bank 10 Sri Lanka Telecom < Research & Development Unit >
  • 8. Economic & Business News
  • 9. Sri Lanka Ranks 60th in World Prosperity Index Sri Lanka has moved up eleven places to 60th (from 142 countries) in overall Prosperity since 2009, compiled by London-based Legatum Institute . Over the past five years, the country has increased twelve places to 35th in the Social Capital sub-index, due to increases in willingness to help strangers and trust levels. The Economy sub-index has risen twenty eight places to 74th since 2009, as a result of increases in capital per worker, gross domestic savings, perceived job availability, and satisfaction with access to adequate food and shelter. Cont…
  • 10. Sri Lanka Ranks 60th in World Prosperity Index (cont…) Top 10
  • 11. Sri Lanka - Offshoring Destination of the Year Sri Lanka has won the ‘Off-shoring Destination of the Year’ at The National Outsourcing Association Awards (NOAAs). The NOAAs is the only award ceremony dedicated to the UK outsourcing sector and the award ceremony was held on Thursday 24th October 2013 in London. Other shortlisted destinations for this award included Serbia and Fiji. The judges have compare the how well each destination has performed in the 2 key criteria namely strategy (40%) and results (60%). Criteria: Strategy (40%): overall strategic vision of the destination, approach to differentiation, target markets and approaches to them, focus on skills development and talent management, approach to building an innovative continual collaborative environment. Results (60%): country’s focus on and commitment to best practice, country’s contribution to the ongoing development of the global outsourcing industry, top line projects of UK companies who have recently invested in the country, UK client testimonials that are currently active in the country. Cont…
  • 12. Vision: Sri Lanka - Offshoring Destination of the Year (cont…) By 2022, Sri Lanka’s IT/BPO industry has set its vision to achieve: USD 5 bn in exports Generating 200,000 jobs and Creating 1000 start-ups in this process This achievement is expected to result in a heavy limelight for the IT/BPO industry of Sri Lanka in the global market place, especially in the European region. < Research & Development Unit >
  • 13. Sri Lanka Makes more Reforms but Slips in Doing Business Ranking Sri Lanka made the most changes in South Asia making it easier to do business, but the country slipped to 85 from 83 in a global ranking compiled by the World Bank group. Topics 2014 2013 Change 54 47 -7 108 116 08 91 107 16 145 136 -9 Getting Credit 73 71 -2 Protecting Investors 52 51 -1 171 175 04 51 54 03 Enforcing Contracts 135 136 01 Resolving Insolvency 59 51 -8 Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Paying Taxes Trading Across Borders Cont…
  • 14. Sri Lanka Makes more Reforms but Slips in Doing Business Ranking (Cont…) Business Reforms in Sri Lanka =Doing Business reform making it easier to do business. =Doing Business reform making it more difficult to do business.  Dealing with Construction Permits: Sri Lanka made dealing with construction permits easier by eliminating the requirement to obtain a tax clearance and by reducing building permit fees.  Paying Taxes: Sri Lanka made paying taxes easier for companies by introducing an electronic filing system for social security contributions.  Trading Across Borders: Sri Lanka made trading across borders easier by introducing an electronic payment system for port services.  Getting Electricity: Sri Lanka made getting electricity easier by improving the utility’s internal workflow and by reducing the time required to process new applications for connections. Source: doingbusiness.org
  • 15. Doing Business 2014 – Overall Rankings Doing Business 2014: Understanding regulations for Small and Medium-Size Enterprises, assesses regulations affecting domestic firms in 189 economies and ranks the economies in 10 areas of business regulation. Doing Business 2014 - TOP 10  Ukraine, Rwanda, the Russian Federation, the Philippines, Kosovo, Djibouti, Côte d’Ivoire, Burundi, the former Yugoslav Republic of Macedonia, and Guatemala are among the economies improving the most in 2012/13 in areas tracked by Doing Business. 1 Singapore 2 Hong Kong SAR, China 3 New Zealand 4 United States 5 Denmark  Worldwide, 114 economies implemented 238 regulatory reforms in 2012/13 making it easier to do business as measured by Doing Business – 18% more reforms than in the previous year. 6 Malaysia 7 Republic of Korea 8 Georgia 9 Norway 10 United Kingdom
  • 16. The Time is Right to Attract Japanese Companies JETRO’s Chairman and CEO Hiroyuki Ishige who led a high-powered Japanese business delegation of 40 representatives from nearly 30 companies and institutions stated that he saw for himself the post-war progress and exuberance in Sri Lanka as well as the country’s potential. I have heard a lot about Sri Lanka, during my visit I was able to learn a lot. I was very impressed and was able to see to my own eyes the true advantages of Sri Lanka. The time is right to attract Japanese companies,” he added. The JETRO Boss said Sri Lanka’s strategic geographical location was a key advantage that the country possesses and was ideally placed to be a competitive hub, especially to the giant Indian market as well as the rest of South Asia. ‘Needs and Strategies for Japan-Sri Lanka Business’ The objective of the survey was how best to attract foreign investment to the manufactured exports sector, which is essential for diversifying Sri Lanka’s export products base and reducing the trade deficit. As part of the exercise, JETRO interviewed 102 Japanese companies and Multi National Corporations (MNCs) in Japan, Singapore, India and Sri Lanka. Inputs from these companies inspired key recommendations for the strategic directions that Sri Lanka should take in luring Japanese companies and other Foreign Direct Investments. < Research & Development Unit > Cont…
  • 17. The Time is Right to Attract Japanese Companies (cont…) JETRO has suggested two business models that Sri Lanka can adapt or accelerate. One is the maximising Sri Lanka’s potential as the most efficient gateway to India using the existing Free Trade Agreement between the two countries, as well as a slew of other advantages including close proximity and the logistics prowess.  It has been suggested that Japanese or other companies could import raw material from Japan or Singapore, add value and export manufactured products to India using the FTA. An existing Japanese company already successfully engaged in such an operation has been highlighted by JETRO. This Japanese firm manufactures mould parts for precision presses for exports. Based on the success, it plans to expand operations in Sri Lanka to manufacture presses as well. The business model 2 is maximising search and successful penetration into new export markets.  Sri Lanka has been suggested to look to the North (India, Pakistan and Bangladesh), East (ASEAN, China and Japan) and the West (Middle East, Africa and Eastern Europe). < Research & Development Unit > Cont…
  • 18. The Time is Right to Attract Japanese Companies (cont…) Having realised the enormous potential, the JETRO study has also identified several constraints which, if addressed with the recommended solutions, can help Sri Lanka to convert the opportunity into reality. JETRO has suggested that a greater pool of industrial human resources such as skilled labour, engineers and managers will address the human talent challenges for foreign investors. A more consistent and clear industrial policy will be useful as well to lure more manufacturing ventures and FDIs. More efficient and effective one-stop services at the Board of Investment for convenience of investors. Lowering electricity tariff for peak period and exempting Port and Airport Levy and Nation Building Tax imposed on import of machinery and equipment. < Research & Development Unit >
  • 19. Development News… Colombo-Katunayake Expressway Declared Open…  The 25.8 km long expressway was built at a cost of USD 291 mn with a loan from China.  The CKE is expected to reduce the travel time between Colombo and the Airport to about 20 minutes. Speed limit will be 80 km per hour (50 mph) for the first eight km (5.0 mi) and 110 km/h (68 mph) for the rest of the road. Sri Lanka Starts Southern Railway Project  The US$ 272 mn Chinese-funded Southern Railway Project, which includes the longest tunnel in Sri Lanka, commenced construction recently.  The new project, which will be completed in 2016, is the first phase of the Southern Railway project. The total length of railway of this project is 26.75 kilometres; it is a single line and broad-gauge railway driven by diesel traction and design speed is about 120km per hour. Sri Lanka’s First Nanotechnology Research Centre, Nanoscience Park Open  Sri Lanka’s first nanotechnology research centre and nanoscience park was declared open in Pitipana, Homagama. It was established with Government and private sector participation.  The nanotechnology park aims to create opportunities for all businesses to develop new products through a collaborative innovation process, taking them from research, through development, toward commercialisation. Crown Project Details  Crown Ltd. released draft images, project details and a website (www.crownsrilanka.com) for its proposed 5-star luxury integrated resort in Colombo, Sri Lanka.  Packer recognised the growth of tourism in Sri Lanka and his personal fondness for the country, stating: “I truly believe as a destination that it is Sri Lanka’s time to shine in Asia.
  • 20. SNIPPETS… Loss of GSP+ Losing the General Scheme of Preference (GSP) Plus benefits in August 2010 has caused closure of 25 apparel factories, forcing almost 10,000 people out of work, with the total loss to the country exceeding Rs. 782 mn from apparel exports, the Government has revealed. Maruti Suzuki Plans to Build a vehicle assembly unit Maruti Suzuki India Ltd is in discussions with the Sri Lankan government to build a vehicle assembly operation in Hambantota. The proceedings in this regard are still in the early stages and Maruti Suzuki plans to set it up at either Mirijjawila Industrial Park or at Suriyawewa Investment Promotion Zone in Hambantota. R.C. Bhargava, Maruti Chairman, told reporters that the company is doing a feasibility study on the facility and that at present the structure of the company – such as whether this unit will be a partnership with its local agent Associated Motorways (AMW) or not hasn’t still been decided. Sri Lanka's Jan-Sept Foreign Inflows Jump 45 % y/y Sri Lanka has attracted USD 890 mn in foreign direct investment (FDI) in the first nine months of 2013, a jump of 44.8% year on year according to Investment Promotion Minister Lakshman Yapa Abeywardena.
  • 21. Analysis & Forecast
  • 22. Fitch: Sri Lanka's Resilience Masks Medium-Term Credit Risks Sri Lanka is the only twin-deficit country in Asia whose growth has not been affected by currency volatility. Fitch Ratings sees the relative currency stability as due to a less open onshore capital account which provides insulation from volatile global capital flows, as well as an increasing ability to tap offshore global bond inflows. This strategy, however, is adding to the stock of gross and net external liabilities, and carries mediumterm credit risks.  The authorities have successfully reduced annual inflation to around 6%-7% from a near-double-digit rate in late 2012. This has brought on monetary easing - with the policy rates being cut by 125bp since November 2012.  Monetary easing coupled with softer inflation should support robust GDP growth - which Fitch project at 6% this year, and 6.6% in 2014.  In contrast, Fitch sees the growth rates of India and Indonesia - the other two major Asian emerging economies with twin deficits (and both rated 'BBB-') - as languishing at a sub-6% rate in both years. < Research & Development Unit > Cont…
  • 23. Fitch: Sri Lanka's Resilience Masks Medium-Term Credit Risks (cont…) But Sri Lanka's benign growth-inflation story does not improve the overall sovereign credit profile ('BB-'/Stable), for two key reasons. First, Fitch expects the current account deficit to remain at 5.6% of GDP this year. This has improved by 1pp from a year ago, but is larger than at all the other Fitch-rated Asian emerging markets, except Mongolia (B+). It is also larger than the 'BB' median current account deficit of 2.7% of GDP. Moreover, Fitch sees a rising external debt service burden as limiting much further improvement in the current account position in the year ahead.  The second reason is that Sri Lanka has been unable to attract much by way of foreign direct investment (FDI) inflows following the end of its civil war, with net FDI averaging just 1.2% of GDP since 2009. This is low in comparison with most regional peers, and has fueled a reliance on debt-creating capital. The country has therefore banked on the promise of higher future growth to successfully issue more foreign debt. This has kept the external debt burden at 57% of GDP, and which is much higher than all other Asian emerging markets, except Mongolia. Cont… < Research & Development Unit >
  • 24. Fitch: Sri Lanka's Resilience Masks Medium-Term Credit Risks (cont…)  The government's decision to refrain from issuing Global Bonds this year does not fundamentally alter what remains a growth strategy reliant on external debt. This is because the state-owned banks are picking up the slack, and are expected to issue around USD1.5bn-1.8bn in US dollar Global Bonds - for on-lending to SOEs, SMEs, long-term infrastructure projects, and for purchasing Sri Lankan government bonds.  The shift in debt issuance strategy may limit a further run-up in the sovereign's direct (foreign) debtburden. However, quasi- and contingent-sovereign risks will still rise, along with credit and FX risks brought on by on-lending to local counterparties who may lack access to foreign-currency receipts and assets.  In the year-to-date, Bank of Ceylon, National Savings Bank (both 100%-state-owned) and DFCC have raised USD1.35 bn in five-year US dollar bonds. National Development Bank is expected to follow suit.  The upshot of all this is that Sri Lanka's relative currency stability and robust growth has not been accompanied, as yet, by a structural improvement in the size of the current account deficit or composition of capital inflows. Meanwhile, the reliance on foreign debt continues even though the sovereign has scaled back its own external bond issuance programme. < Research & Development Unit >
  • 25. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence of using such information for whatever purpose. Research & Development Unit