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1. Economic Capsule
February 2022
Research & Development Unit
301st Issue

2. CONTENTS
BANKING & FINANCE
 CBC Performance (Bank) – 31.12.2021
 ACCA declares ComBank Overall Winner & Best Among Banks for
Sustainable Reporting
ECONOMY, BUSINESS & DEVELOPMENT
 “January exports surpass USD 1bn” – EDB
 Inflation (NCPI) – January 2022
 Sri Lanka’s Manufacturing & Services activities – Jan 2022
 Sri Lanka’s largest fisheries harbor
 Cape Weligama recognized among 25 greatest properties by Conde Nast
 News Snippets
GLOBAL OUTLOOK
 Russian Invasion in Ukraine – Implications for Sri Lanka
 Russia's plan to fight back against Western sanctions
 Oil rises above USD 105 after Russia attacks Ukraine

3. Banking &
Finance

4. CBC Performance 31 12 2021 (Bank)
Research & Development Unit

5. ACCA declares ComBank Overall Winner & Best Among
Banks for Sustainable Reporting
Research & Development Unit
The Commercial Bank of Ceylon was crowned the overall
winner for its Annual Report 2020 which was also
adjudged the best in the Banking sector at the Sri Lanka
Sustainability Reporting Awards presented by the
Association of Chartered Certified Accountants (ACCA) Sri
Lanka.
These awards were presented to the Bank for being one of the
most transparent, accountable, and responsible entities in the
country. Titled ‘101: A century of experience. A year of reinvention,’
Commercial Bank’s 2020 annual report features a dedicated section
elaborating on its Business Model for Sustainable Value Creation.
This section reports on the Bank’s inputs and outcomes in the areas
of Financial capital, Manufactured capital, Intellectual capital,
Human capital, Social & Network Capital, and Natural Capital as
well as outputs based on the Bank’s products and services and
value driver activities.

6. Economy, Business
& Development
News

7. “January exports surpass USD 1bn” – EDB
Research & Development Unit
• Sri Lanka’s export sector good fortunes
appear to be continuing in the new year as
well, as January 2022 export earnings crossed
the USD 1bn mark, recording a 5.7% increase
to USD 1,062.63mn compared to January
2020.
• Apparel and textile exports accounted for
nearly half of the total merchandise export
income in January 2022, as income from such
exports rose 22.11% (YoY) toUSD 514.41mn.
• Earnings from tea exports fell 9.66% to USD 91.23mn amid the decline in bulk tea exports.
• Export earnings from rubber and rubber-based products increased 3.5% to USD 87.12mn amid higher pneumatic
and retreated tyres and tubes and industrial and surgical gloves.
• Earnings from coconut and coconut-based products rose 26.02% to USD 68.28mn.
• Export earnings from the electrical and electronics components increased by 12.62% to USD 35.87mn, with strong
performance in exports of insulated wires and cables switches, boards and panels and electrical transformers.

8. Inflation (NCPI) – January 2022
Research & Development Unit
Source: DCS
Headline inflation, as measured by the year-
on-year (Y-o-Y) change in the National
Consumer Price Index (NCPI, 2013=100),
increased to 16.8% in January 2022 from
14.0% in December 2021, the highest value
since the index was introduced.
Food inflation (Y-o-Y) increased to 24.4% in
January 2022 from 21.5% in December 2021,
while Non-Food inflation (Y-o-Y) also increased
to 10.2% in January 2022 from 7.6 % in December
2021.

9. Sri Lanka’s Manufacturing & Services activities – Jan 2022
Research & Development Unit
Source: CBSL
The Index
PMI is calculated as a ‘Diffusion Index’,
where it takes values between 0 and 100.
PMI = 50 - sector remained neutral on
month-on-month basis
PMI > 50 - sector is generally expanding
on month-on-month basis
PMI < 50 - sector is generally declining
on month-on-month basis

10. Sri Lanka’s largest fisheries harbour
Research & Development Unit
• Lanka Hydraulic Institute Ltd (LHI) said, the
“Wellamankara Fishery Harbour” in
Wennappuwa, which is constructed as the
largest fishing harbour in Sri Lanka with LHI
expertise in consultancy and construction
supervision, will be opened to the public
soon.
• The project cost of the harbour reached
almost Rs 2bn and was completed in
December 2021. With a basin area of 7.7
hectares, the fishery harbour has a capacity
to moor more than 350 boats at once,
including 65 feet length multiday fishing
boats.
To protect the harbour mainly from adverse wave and sediment actions, the harbour basin is
provided with two breakwaters with a total length of 710 metres. For mooring and loading,
unloading activities, a quay wall of 350 metres length has been constructed.

11. The property’s signature design of clusters of villas is seen as a key feature that sets it apart in a class of its own,
Access said in a media release.
Access Projects created 13 iconic swimming pools for Cape Weligama – the crescent, moon shaped pool which was
an exclusive signature design that was recognized as the largest infinity pool in Sri Lanka at the time complimenting
the cluster pools lined with natural stone and an extra-large children’s pool in 2014.
Research & Development Unit
Cape Weligama recognized among 25 greatest properties
by Conde Nast
The iconic luxury resort Cape Weligama, designed by the
world-renowned architect Lek Bunnang and constructed by
Access Projects to reflect a distinctively unique concept, has
been included in the 25 greatest properties the world over by
the Conde Nast Group.

12. Research & Development Unit
News Snippets
SL aims to establish FTAs with most Southeast Asian countries
Significant strides in establishing Free Trade Agreements with Bangladesh and the Maldives, together with existing FTAs will pave the
way to initiate FTAs with most Southeast Asian countries by next year, enhancing Sri Lanka’s position as an attractive destination for
foreign direct investment, State Minister of Regional Cooperation Tharaka Balasuriya stated recently.
Tourist arrivals cross 70,000 mark in first 3 weeks of February
Sri Lanka’s tourist arrivals crossed the 70,000 mark in the first three weeks of February. Provisional data from the Sri Lanka Tourism
Development Authority (SLTDA) released yesterday showed that the island nation welcomed a total of 73, 048 tourists from 1 to 21
February.
The arrival rate for the month of February brings the daily arrival average to 3,478.
The data released shows that the highest number of arrivals for the month so far was observed on February 12, the weekend leading
to Valentine’s Day (14, February, Monday). That Saturday, a total of 4,777 international visitors entered the country.
Russia continues to lead as the largest tourist traffic generator for Sri Lanka with 24,889 visitors from that country.
India regained its position as the second-largest source market with 20,561 arrivals. The United Kingdom (UK) ranked third with
15,846 visitors.
Motor vehicle registrations continue to tumble in Jan. after falling to record low in 2021
Amid heightened foreign exchange crisis and import controls, Sri Lanka’s motor vehicle registrations tumbled in January 2022 with
minuscule registrations after new motor vehicle registrations falling to a record low of 33,850 units in 2021 with 83.3% decline in
2020.
A total of 1,718 vehicle units were registered during January this year, down from 2,134 units in December last year, and from 3,256
units registered a year ago, according to the vehicle registration data compiled by Colombo-based equity brokerage and research
house J B Securities.

13. Global
Update

14. – Implications for Sri Lanka
After months of tension Russia launched a full scale invasion of Ukraine on the 24th of Feb., 2022

15. The Russian invasion of Ukraine – implications for Sri Lanka
Sri Lanka’s expenditure on oil and gas imports is set to rise in
2022 as a result of the Russian invasion of Ukraine. Already the
Brent Crude oil price has crossed the USD 100 per barrel mark.
Russia is the world’s second largest oil exporter, third largest oil
producer and the second largest natural gas producer. Economic
sanctions against Russia by the US and its allies could cause
disruptions to the world’s oil and gas supplies.
Source : Daily Mirror
Sri Lanka’s trade with two warring nations Russia and Ukraine,
especially tea exports, are at stake with major shipping lines
announcing cancellation of services. Sri Lanka’s exports in
2020 to Russia amounted to USD 163mn or 1.6% of the total but tea exports accounted for most of
it at USD 132mn. Sri Lanka’s imports from Russia amounted to USD 232mn in 2020. Tea exports to
Ukraine were USD 24mn in 2020 out of total exports of USD 29mn. Imports from Ukraine
amounted to USD 76mn.
Collectively, Ceylon tea exports to Russia and Ukraine account for 10% of the country’s total tea
exports.

16. The Russian invasion of Ukraine – implications for Sri Lanka
Tourist arrivals to Sri Lanka from both Russia and Ukraine are likely to be adversely affected in
coming months. Russia was second in terms of tourism arrivals to Sri Lanka during 2021
amounting to a total figure of 16,894. Meanwhile tourist arrivals from Ukraine to Sri Lanka
amounted to 7,037 making them the fifth largest tourist arrival market for 2021. With Ukraine
closing its air space, and international sanctions on Russian air space, there will certainly be
an impact on Sri Lanka’s tourism industry.
Ukraine is called the “wheat basket” and it has some of the most fertile lands for wheat
cultivation. These fields are located in the war-torn Eastern part of Ukraine.
Russia is the world’s largest wheat exporter. Hence, this situation may push the global wheat
prices up.
Russia and Ukraine together feed billions of people in the world in the form of bread, pasta
and package food. The two countries are also key suppliers of barely, sunflower seed oil and
corn among other products. Many international analysts warn that the present conflict
between the two countries could cause volatility in the global food supply in coming months:
specially after the next harvesting season.

17. The Russian invasion of Ukraine – implications for Sri Lanka (Cont.)
Sri Lanka’s wheat imports are sourced from Russia and Ukraine. In addition, more than half of Sri
Lanka’s imported soybeans, sunflower oil and seeds, and peas are from Ukraine. Moreover,
Russia and Ukraine are significant import sources for asbestos, semi-finished products of iron and
steel, copper (cathodes), and potassium chloride for fertilizer.
The inflationary pressure in the Western markets, especially in Europe due to high energy prices
and supply chain bottlenecks, may reduce consumers purchasing power, lowering the demand
for goods exported by Sri Lanka. Europe is a significant export destination for readymade
garments, tea and spices, and seafood. There is also a growing tendency for increased military
expenditure in the long run, which might reduce the “peace dividends” for European households.
Sources: DM, Sunday Times, IPS

18. Russia's plan to fight back against Western
sanctions

19. Russia's plan to fight back against Western sanctions
Source: BBC
Research & Development Unit
Russia has spent years preparing for this moment.
In 2014, when Russian troops moved into Crimea,
annexing part of Ukraine, it provoked a first round
of international sanctions. And that taught
Moscow an important lesson. Since then it's been
setting up defences, moving away from relying on
the dollar, and trying to sanction-proof the Russian
economy.
President Putin may be betting that he can
withstand sanctions for longer than the West
assumes.
By January this year, the government's international reserves, in foreign exchange and gold, were at record levels
- worth more than USD 630bn (464bn Euros). That is the fourth highest amount of such reserves in the world -
and it could be used to help prop up Russia's currency, the rouble, for some considerable time.
Notably only about 16% of Russia's foreign exchange is now actually held in dollars, down from 40% five years
ago. About 13% is now held in Chinese renminbi.

20. Russia's plan to fight back against Western sanctions
(cont.)
Source: BBC
Research & Development Unit
• There have also been other changes in the structure of the Russian economy.
• Over time it has reduced its reliance on foreign loans and investments, and has been actively seeking new trade opportunities
away from Western markets.
• China is a big part of that strategy.
• The government in Moscow has also taken initial steps to create its own system of international payments, in case it gets cut off
from Swift - a global financial messaging service which is overseen by the major Western central banks. (Various reports
suggested that Russia has been cut off from its Swift systems after Putin’s declaring the invasion)
• It could certainly be a dangerous game for Moscow. Sanctions on major Russian banks, particularly state banks, would hurt.
• But President Putin may be calculating that the US, the UK and the EU have slightly different strategic interests to consider.
• It is obviously easier for some countries to impose sanctions on the Russian oil and gas industry than it is for others. The EU, for
example, gets 40% of its natural gas supplies from Russia. The UK gets about 3%.
• Germany's decision to put the Nord Stream 2 gas pipeline on hold, therefore, is damaging for Russia but will have a direct
impact on energy prices in western Europe as well.

21. Oil rises above USD 105 after Russia attacks Ukraine
Research & Development Unit
Oil prices jumped on 24 February, with Brent rising above
USD105 a barrel for the first time since 2014, after Russia’s
attack on Ukraine exacerbated concerns about disruptions to
global energy supply.
Russia launched an all-out invasion of Ukraine by land, air and
sea in the biggest attack by one state against another in
Europe since World War Two.
The United States and Europe have promised the toughest
sanctions on Russia in response.
“If sanctions affect payment transactions, Russian banks and possibly also the insurance that covers Russian oil and gas
deliveries, supply outages cannot be excluded,” said Commerzbank analyst Carsten Fritsch.
“Russia is the third-largest oil producer and second-largest oil exporter. Given low inventories and dwindling spare capacity,
the oil market cannot afford large supply disruptions,” said UBS analyst Giovanni Staunovo. “Supply concerns may also spur
oil stockpiling activity, which supports prices.” Russia is also the largest provider of natural gas to Europe, providing about
35% of its supply.

22. 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.
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