Economic Capsule - November 2020

Economic Capsule
December 2019
276th Issue
Research & Development Unit
Economic Capsule
November 2020
286th Issue

C O N T E N T S
BANKING & FINANCE
 CBC Results – 30 09 2020 (Group Results)
 ComBank returns to No 1 ranking in Business Today Top 30
 ComBank Q+ enhanced with ‘In-App Bill Payments’ feature
 ComBank launches its SME Credit Card
ECONOMY & BUSINESS
 Budget Highlights 2021
 Growth to shrink 1.7%: CB
 SL to receive same benefits of EU GSP Plus from UK from 2021
 BOI signs USD 300 mn deal with China’s Shandong Haohua to set up tyre manufacturing plant in Hambantota
 Rigid’s USD 250mn state-of-the-art tyre plant to give major boost for SL exports
 Tokyo Cement to invest USD 12mn to boost capacity
 Four projects for Batticaloa fabric processing zone
 CBSL – Latest
INTERNATIONAL
 US Presidential Election - 2020
 Asia forms world's biggest trade bloc, a China-backed group
excluding U.S.
 Thailand leads in race for ASEAN Digital Hub with upgraded ICT
infrastructure
 Saudi Arabia plans to invest USD 20bn in AI by 2030
 Covid-19 Vaccine update

CBC Results – 30.09.2020
(Group)

CBC Results – 30.09.2020
(Group) cont.

ComBank returns to No 1 ranking in
BusinessTodayTop 30
Commercial Bank has moved to the top of the ‘Business Today Top 30’ ranking
of the country’s best-performing companies in 2019-20.
Commercial Bank’s return to the No 1 position in this prestigious ranking follows 12
consecutive years of being ranked among the top five, most of them as the second
placed corporate entity.
Business Today assigned Commercial Bank of Ceylon PLC total score of 27.6 on a
scorecard that ranged from 4.4 for the 30th ranked company to 26.95 for the company
placed second on this latest edition of the ranking, released in November 2020.

ComBank Q+ enhanced with
‘In-App Bill Payments’ feature
Customers of Commercial Bank can now pay bills instantly via the
ComBank Q+ App connected to the Bank’s Debit, Credit or Prepaid cards,
following the introduction of an ‘In-App Bill Payments’ feature.
This latest upgrade to ComBank’s Q+ enables users to make payments in six categories such
as data reloads, prepaid and post-paid mobiles, fixed telephone lines, utilities, water and
electricity (CEB and LECO) and pay TV bills.
The facility will be further enhanced with the inclusion of more beneficiary companies such
as educational institutes, insurance companies, credit cards payments and prepaid card top
up shortly
The App offers real-time updates on online payments and is easy to navigate, owing to its
user-friendly interface. It also offers bill number validation for most billing companies.
Benefits to ComBank Q+ users include the convenience of instant registration, hassle-free bill
payment options, and other payment options such as the ability to make payments by
scanning QR Codes for purchases of goods and services at any LANKAQR enabled merchants.

ComBank launches its SME Credit Card
Commercial Bank recently launched its
Mastercard-branded Credit Card, exclusively for
entrepreneurs in the SME sector.

Budget Highlights 2021
Budget Focus
Strengthening the 2021-2023 medium
term programme of poverty alleviation
and economic revival as envisaged within
the “Vistas of Prosperity and Splendour”,
the policy framework of the government.
The Budget for the year 2021 has been the
first step towards achieving this medium
term strategy
Key medium term objectives
Growth rate of 6 % over the medium term (5.5% in 2021)
An annual inflation rate of around 5 %
Reducing the budget deficit to 4% of GDP
Reducing the government debt to 70% of GDP
2021
Budgeted
2020
Estimates
Revenue (Rs. Bn) 2,029 1,588
Expenditure (Rs. Bn) 3,594 2,854
Budget deficit (Rs. Bn) (1,565) (1,266)
Deficit/GDP ratio (%) 8.9 % 7.9 %
Tax revenue/revenue (%) 85 % 86 %

Budget Highlights 2021 (cont)
 VAT unchanged at 8%, for businesses with a turnover of more than Rs. 25 mn per month engaged
in the import and manufacture of goods or provision of services, except in banking, financial and
insurance sectors.
 Personal Income Tax will apply on earnings from employment, rent, interest, dividends or any
other source only if it exceeds Rs. 250,000 per month.
 A lower corporate income tax rate of 14% will be applicable for Exports, Tourism, Education,
Medicare, Construction and Agro Processing.
 A slightly higher corporate income tax rate of 18% will be applied on manufacturing.
 Online managed single Special GST to be imposed in place of the various goods and service taxes
and levies, imposed under multiple laws and institutions on alcohol, cigarettes,
Telecommunication, betting and gaming and vehicles.
 Businesses and factories with more than 50 employees, to contribute 0.25% of the turnover to the
proposed insurance fund (fund to support those who temporarily loose livelihoods due to the
quarantine process related to epidemics including COVID).

 Investments exceeding USD 10mn, in the areas of export industries, dairy, fabric, tourism,
agricultural products, processing and information technology to be provided with concessions up
to a maximum of 10 years under the Strategic Development Law.
 Promote the Colombo and Hambanthota ports as commodity trading hubs in international trading,
and to encourage investments in bonded warehouses and warehouses related to offshore business
exempt such investments from all taxes.
 Encourage the exports of multi-national companies which are import based for requirements of
the domestic market, it is proposed to reduce the tax imposed on their dividends by 25 % in 2021
and 50 % in 2023 under the condition that they increase their exports by 30 % and 50 % in the
respective years.
 Expand the contribution of the Diplomatic Missions for Economic Diplomacy
 Promote the listing of local companies with the Colombo Stock Exchange, to provide a 50% tax
concession for the years 2021/2022 for such companies that are listed before 31 December 2021
and to maintain a corporate tax rate of 14 % for the subsequent three years.

Banking & Financial Services
Profits on capital and interest income of the investments made by the commercial banks in Sri
Lanka International Sovereign bonds subject to a minimum of USD 100 Mn, will be exempt for a
period of three years.
The loss provisions for investments in Sri Lanka International Sovereign Bonds will be suspended
for 3 years, if the investment exceeds USD 100mn
Instructions to be issued under the Inland Revenue Act with regard to the provisions for anticipated
losses of loans and doubtful loans in calculating taxes of banks and financial institutions.
Merge the finance companies functioning under commercial banks with the banks in order to
strengthen the banking sector. The investment expenditure in acquisitions will be deductable for
tax.
Amend the necessary laws to enable commercial banks to act as investment banks.

Construction
 In order to encourage the recycling and re use of material from construction, a ten year tax holiday for
investments in selected recycling sites.
 Import tax will be removed on the import of machinery with modern technologies
 Implement a treasury guarantee scheme for leasing companies to obtain the leasing payments for purchase
of equipment required by small and medium-term entrepreneurs in the construction industry.
Real estate
 Non-residents could purchase super luxury condominiums utilising, foreign currency earnings made in Sri
Lanka, earnings in foreign countries or a loan obtained from a Bank outside Sri Lanka.
 Investments in the housing market through the Sri Lanka Real Estate Investment Trust (SLREIT), to be
exempted from capital gains tax and dividends free from income tax, and reduce the stamp duty up to 0.75
% from 4%.

Agriculture
Individuals and companies engaged in farming, including agriculture, fisheries and livestock farming
will be exempted from taxes in the next 5 years.
Limit importation of agricultural commodities except the items that cannot be produced domestically
(negative List) and to impose the Special commodity levy to balance the supply and demand of
domestic production for selected agricultural products.
Dairy industry
Tax concessions for a period of 5 years for capital investments over USD 25 Mn in dairy industry.
Special loan facilities up to Rs. 500,000 at an interest rate of 7.5 % p.a. for the purchase of dairy cattle,
setting up of eco-friendly cattle sheds and purchase of equipment for small and medium scale dairy
farms.

Plantation
Diversify the local Kithul and Palmyrah industries with a view to access the export market.
Relief on custom duties and financing facilities to obtain land and modern equipment for
entrepreneurs investing in value additions to local crops such as pepper, cloves, cardamom and coffee
suitable for the export market. Additional allocation of Rs. 2,000 mn for these development work to
be undertaken in the plantation sector.
Diversification in the plantations industry is included in the government priority of revitalizing the
plantations economy based on tea, coconut, rubber and cinnamon.
Increase the daily wage of plantation workers to Rs. 1,000 from January 2021.
A legal framework to be presented to the Parliament in January that will change the management
agreements of plantation companies that are unable to pay this salary and provide opportunities for
companies with successful business plans.

Tourism
 Extend the concessions and recovery of loans granted under the re-financing facilities until September 30,
2021.
 Simplify the taxes and fees levied by the Local Government Institutions on tourism with an upper cap.
Information technology
 Earnings from both domestic and foreign sources by those engaged in businesses in Information Technology
and enabling services and also their earnings when made while being resident or non-resident will be
exempted from income taxes.
Techno parks
 Establish 5 fully fledged plug and play Techno Parks in Galle, Kurunegala, Anuradhapura, Kandy and
Batticaloa districts as eco-friendly new cities connected to the expressway network and other infrastructure
facilities.

Manufacturing of medicines
Establish a modern and dedicated investment zone for pharmaceuticals for local and foreign private
investors under the Strategic Development Act.
Boat & shipbuilding
Separate docks, dockyard access facilities and long-term credit facilities to promote boat and
shipbuilding activities which has high development prospects due to the rising demand in the
fisheries, tourism and shipping sectors and the high production potential of local manufacturers. It is
also proposed to grant a tax break of 7 years for local boat and shipbuilding.
Batik products
Ban the importation of batik products under national sub headings in order to develop batik and
related fashions as a national industry.

Untapped industries
Development of untapped industries such as mineral sand, phosphate, fertilizer and graphite as
export industries with high value.
Develop the latent industries such as mineral sand, phosphate, fertilizer and graphite as high value
export industries, reduce the expenditure on research and development of local entrepreneurs
involved with the Institute of Nanotechnology from taxes. Allocate Rs. 2,000mn to initiate the
registration of the Sri Lanka identity of these products.
Source: Budget Speech 2021, EY Budget Analysis 2021, PwC Budget 2021 Analysis and Insights

Growth to shrink 1.7%: CBSL
The Central Bank’s projection is still far more optimistic than similar projections
made by the International Monetary Fund (IMF) and Asian Development Bank
(ADB), which estimate growth to reduce by 4.5%-5.5% in 2020.
Forecast
2020 2021 2022 2023 2024 2025
GDP % -1.7 5.0 4.5 6.0 6.5 7.0
Per Capita GDP (USD) 3,825 4,068 4,340 4,706 5,100 5,529
Gov Debt as % of GDP 93.0 92.4 90.0 86.1 82.3 77.5
Current Account Balance as a % of GDP -6.3 -4.8 -4.0 -2.6 -1.7 -0.5
Inflation % (A.A) 4.7 5.0 5.8 6.0 5.5 5.0
Source: CBSL
Sri Lanka’s growth is expected to contract by 1.7% in 2020 before rebounding to an optimistic 5% next
year, the Central Bank said in a report titled ‘ Recent Economic Developments: Highlights of 2020 and
Prospects for 2021’ but the monetary authority warned a recovery was dependent on strong reforms,
including better fiscal management, strong exports and increased investment.

Sri Lanka to receive same benefits of
EU GSP Plus from UK from 2021
The Department of International Trade of the UK has announced that EU-GSP eligible
countries will be able to get the same tariff preferences they were entitled to earlier
through the UK GSP from January 1, 2021.
Being an EU-GSP-plus beneficiary country, Sri Lanka will continue to be eligible to
receive the same preferential benefits under EU GSP Plus for the UK as per their
proposed Enhanced Framework replicating EU GSP Plus.
The proposed Enhanced Framework of the UK replicating EU-GSP Plus criteria is
expected to be enforced on January 1, 2021 for a 3-year-period.

BOI signs USD 300 mn deal with China’s
Shandong Haohua to set up tyre
manufacturing plant in Hambantota
The first-ever foreign direct investment to the Hambantota Port
industrial zone was signed off involving a Chinese investment
worth USD 300mn initially. Shandong will manufacture semi-
steel radial tyres and all-steel radial tyres needed for trucks,
buses and passenger cars.
The Chinese company is Shandong Haohua Tire Ltd. which is one of the largest private tyre manufacturers in China
with a production capacity of 20mn PCR tires and 5.5mn TBR tires annually.
This high profile project has been qualified under the provisions of the ‘Strategic Development Act’ with an
envisaged Foreign Direct Investment of USD 300 mn. Exports are expected to commence within three years.
Rubber sector is one of the five thrust sectors identified by the BOI’s strategy to drive FDI to the country.
The decision to set up a manufacturing facility in SL is due to the availability of high quality natural rubber in Sri
Lanka as well as the strategic location of the country to ship efficiently to South Asia, Middle East and Africa.

Rigid’s USD 250 mn state-of-the-art tyre
plant to give major boost for SL exports
Rigid Tyre Corporation Ltd. built with an
investment of USD 250mn is slated for opening in
mid-January 2021.
The construction of Phase 1 with an investment of USD 100mn
has been completed while the Phase 2 will be completed by
mid-March 2022. Project is set to generate over 3,000 jobs
The landmark project is the first and only of its kind in Sri Lankan
and is tipped to be the largest such facility in the whole of
Southeast Asia manufacturing Passenger Car Radials (PCR)
including specialised category for SUVs, two- wheelers, three
wheelers, trucks, buses and solid tyres seamlessly combining
local talent with sophisticated European technology.

Tokyo Cement to invest USD 12mn to
boost capacity
Tokyo Cement Company (Lanka) PLC has said that it expected to sign a
Supplementary Agreement with the Board of Investment (BOI) to enhance the
production of Ordinary Portland Cement and Hydraulic Cement by one million tons
per year at the existing location at Cod Bay, China Bay, Trincomalee.
It said based on preliminary estimates, the project would cost approximately USD
12mn and translated at the current exchange rate it works out to Rs. 2.28bn and will be
financed mainly by internally-generated funds and bank borrowings.
The company expects to increase local production capacity by a further one million
metric tons with the investment.
The project is expected to be completed in 24 months.

Four projects for Batti fabric processing
zone
Preparations are being made to handover proposals to the Board of Investment (BoI)
to establish four projects at the newly approved 275- acre Industrial Zone for Fabric
Processing Enterprises in Eravur Pattu, Batticaloa, an industry official said.
Joint Apparel Association Forum ( JAFF) Secretary General Tuli Cooray told that the
industry was preparing initial paperwork to be handed over to the BoI to set up four
projects. However, details on these projects will be given in future due to the
investment being in the early stages of development.
The industry hopes to tap increased value addition encouraged by GSP+ and promote
backward integration, resulting in the setting up of new industries and creating new
employment opportunities in the country. Accordingly, the proposed textile zone could
have factories ranging from woven manufacturing, knitted manufacturing, dyeing and
finishing.

CBSL – Latest
The Central Bank of Sri Lanka (CBSL), in consultation with the
Government of Sri Lanka, implemented Saubagya COVID-19
Renaissance Loan Scheme Facility in 3 phases to provide working
capital loans at the interest rate of 4% per annum, with a repayment
period of 24-months, including a grace period of 6-months.
However, it is observed that most of the borrowers have experienced
difficulties in revamping their businesses as expected, due to the
second wave of COVID-19 pandemic.
Therefore, having considered the importance of facilitating and
encouraging borrowers to repay the loans without any failure, the
CBSL decided to extend the grace period applicable for the loans
registered under Saubagya COVID-19 Renaissance Facility by
additional three (03) months, upon the written request made by the
borrowers.
Accordingly, beneficiaries of these working capital schemes who wish
to receive a grace period of 9 months are required to send a written
request to the relevant bank.
Central Bank extends grace period of 4%
working capital loans by three months
Debt Moratorium for COVID - 19
Affected Businesses and
Individuals
Central Bank of Sri Lanka (CBSL) has
required licensed banks to extend a
debt moratorium to COVID-19 affected
businesses and individuals for a
maximum period of six months
commencing from 01 October 2020.
Eligible borrowers may request for the
moratorium on or before 30
November 2020.
Click for more information
https://www.cbsl.gov.lk/en/news/debt-moratorium-for-COVID-19-
affected-businesses-and-individuals

US Presidential Election - 2020
Joe Biden defeated Donald Trump to win the US presidential
Elections. Where does he stand on key issues?
Corona virus - A national test and trace programme. Free
testing for all.
Raise minimum wages and invest in green energy.
Criminal justice reform; grants for minority communities.
Rejoin global climate accord.
Restore America's reputation and maybe take on China.
Expand Obamacare (Expanding Healthcare).
Undo Trump's immigration policies.
Universal pre-school ; expand free college. Counting still underway
Latest results as of 24th November GMT 0930
Source: The Guardian/BBC

Asia forms world's biggest trade bloc, a
China-backed group excluding U.S.
Source: CNBC
Fifteen Asia-Pacific economies formed the world’s
largest free trade bloc, a China-backed deal that
excludes the United States.
The signing of the Regional Comprehensive
Economic Partnership (RCEP) at a regional summit
in Hanoi, is a further blow to the group pushed by
former U.S. president Barack Obama, which his
successor Trump exited in 2017.
RCEP may cement China’s position more firmly as
an economic partner with Southeast Asia, Japan
and Korea, putting the world’s second-biggest
economy in a better position to shape the region’s
trade rules.
Members of RCEP

Thailand leads in race for ASEAN Digital Hub
with upgraded ICT infrastructure
Source: CNBC
Thailand, which leads ASEAN in 5G rollout, is eyeing
the pole position in the race for ASEAN digital hub
with its initiative to boost the ICT infrastructure and
ecosystem, government officials revealed at the
Powering Digital Thailand 2021: Huawei Cloud &
Connect event in Bangkok.
Industry research estimates that a 20% increase of domestic investment in ICT sector
will drive the country’s GDP increase by at least 1%. By 2030, Thailand’s digital
economy is expected to contribute 30% of the country’s GDP, up from 10% at present.

Saudi Arabia plans to invest USD 20 bn in
AI by 2030
Saudi Arabia announced it will invest USD 20bn in
artificial intelligence projects by 2030, as the oil-rich
country seeks to diversify its economy amid slumping
crude prices.
The kingdom, the Arab world’s biggest economy,
launched an artificial intelligence strategy last month to
attract investors as part of Crown Prince Mohammed
bin Salman’s ambitious “Vision 2030” plan to wean the
kingdom off oil.
Source: The Hindu

Covid-19Vaccine update
Trials around the world are
attempting to identify treatments for
people with severe Covid-19.
The first drugs that do make a
difference are now being identified.
There has been encouraging recent
news about coronavirus vaccines,
with some successful trials reported.

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 >

Economic Capsule - November 2020

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