Perspectives, Outcomes and Recommendations from the Webinar on 15thÂ April 2020
Business Leaders, must exercise Thought Leadership and Implement Strategic Leadership Action, with focused attention to Health and Safety of Stakeholders, Business Continuity Planning, Effective Cash Flow and Funds Flow Management for Survival and Growth, whilst also focusing on the rapid Enhancement of Economy, Efficiency and Effectiveness of each line of Costs/ Operations and Asset deployment, by Leveraging Technology, Business Transformation/Restructure Options, Outsourcing and Collaborative AlliancesÂ and at the same time Envision likely Changes in Markets, Behaviours and buying Patterns led niche Market Opportunities for Growth.
The state must allow space and freedom to the private sector providing uninterrupted essential services and play the role of an effective facilitator. The State should enable the private sector to effectively implement survival and growth oriented productivity and quality enhancement business transformations and take bold reform initiatives that enhance international competitiveness of the private sector.Â It is essential that a high level Economic Recovery Task Force is established under the Presidentâ€™s Office headed by the Secretary to the President, to work closely with theÂ private sector, and help remove barriers.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
In these days of unprecedented public health challenges, in the midst of local economic constraints posed by restrictive fiscal space and external debt obligations limiting State interventions; within a stressed global economy and financial markets which may even lead to a recession; all of which being prolonged (say even up to 6 months; with full recovery being gradual and spread over 12-24 months) theÂ Private Sector may not be able to look to the State to offer extensive stimuli support.
The limited State resources must primarily be to support the control and elimination of the virus and to provide the bare minimum in food, medicines and cash transfers to the poor and marginalized segments of society and towards maintenance of essential services.
The private sector must recognize thatÂ balance of payments situation, impacted positively by lower oil prices, lower energy production source imports and import restrictions placed; and negatively impacted by lower worker remittances, tourism earnings and disruption in exports of goods and services,Â may be manageable at current account level. However, severe challenges arise at capital account level, due to debt repayments, a majority of it being sovereign bonds; and the withdrawal flight by sale of invested capital in government securities.Â With these sentiments and Sri Lankaâ€™s sovereign ratings being on a watch for a possible down grade, the exchange rate has sharply depreciated, set off following the soft peg based additional liquidity creation by new rupee currency injections.
It is essential that theÂ State proactively take steps to secure a new line of credit from the IMF, as a back stop and also seek additional lines of credit from bi-lateral sources; and following such initiatives the State must engage in a debt restructure, including replacement of high cost debt with lower cost longer duration to maturity commercial debt.
The private sector revenues will be severely impacted negatively due to curfew and other disruptions and will be further aggravated by the break down in supply chains; and these being in a backdrop of job losses, lower demand, restricted discretionary spends and disruption ofÂ livelihoods will severely impact the private sector liquidity.Â Therefore,Â businesses with leaderships capable of agile transformation and taking unique â€˜out of the boxâ€™ decisive and â€˜best fit to situationâ€™ strategic action will have the best chance of survival and growth. For this end result to be achieved,Â it is essential that the State and governance executive must not place any restrictions or constraints on the space and freedoms of operations of the private sector and must in fact promote an external environment which is positive and proactively engaged in a supportive facilitative role.
Central Bank and the banking sector must be credited for keeping the payments and settlement systems uninterrupted resulting in a significant expansionary shift in the use of electronic payments and settlements which augur well for the future productive leverage.
The private sector must now pro-actively embrace these technology options in improving the productivity and cost advantages of trade based payments and settlement transactions.Â
Â The State offered stimuli package valued at Rs 50 billion (in comparison with a total loan book of Rs 10 trillion) is marginal; and this package is not an outright grant as believed by many; but a re-finance scheme targeting micro and SME sector with interest subsidies and term extensions. In addition, the stimuli package includes a supplemental working capital support facility, which may be available to all businesses which are capable of a viable business plan justifying such support.
Banks will need to exercise effective risk management in these disbursements and in the extension ofÂ any concessions, ensuring the sector needs to remain solvent and stable and protects the Rs. 10,000 billion depositors funds; whilst at the same time being empathetic with the needs and expectations of borrowers.
The leadership of large and SME enterprises of the private sector have a significantly important uninterrupted contribution to make, towards assuring economic growth and financial stability of Sri Lanka in the face of this crisis; especially in agro-industrial exports, tourism and services led foreign exchange earnings, trading, financial, logistics and other services sectors; and also in assuring the optimum retention of employees, mobilizing new investments and also in creating new value adding niche opportunities, leveraging technology, innovations and business transformations in enhancing productivity, quality and growth.
The capable leadership of large enterprises and consultants must as a first priority proactively address the challenge of survival, leveraging business continuity plans, effective cash and funds flow management and business transformations. The highest priority must be to continue in business, with supportive cash flow resources. These entities must thereafter assist their suppliers and other stakeholders, as well as less capable SMEâ€™s to survive and grow, helping them to enhance value creation, generate free cash flow contributions, seek options in change management, collaborations, alliances, outsourcing, use of shared services and the adoption of new technology led transformations.Â
All entities must aim being agile, innovative, and become smartly managed businesses, using apt â€˜out of the box solutionsâ€™ and â€˜best fit technologyâ€™. The leaders and consultants must energize their managementÂ to engage in a competitive analysis to squeeze out every last bit of wasteful, unnecessary and good to have costs of operations, marketing, financing and minimize the capital tied up in assets. They must seek options for deploying creative new ways of doing business, leveraging technologies and out-sourcing to yield enhanced productivity; and thus generate optimum free cash flow returns.Â
The State must importantly listen to the private sector with empathy; and facilitate the private sector in implementing their survival and growth strategies. It is essential that a high level Economic Recovery Task Force is established immediately, under the Presidentâ€™s Office, headed by the Secretary to the President, to work closely with the private sector and help remove barriersÂ (say- for example if employees refuse to work flexi hours, object to survival based temporary remuneration package changes from a mindset protected by labour laws and other regulations).Â The government must intervene in such situations to the save the businesses; whilst ensuring employee rights are protected.Â
Australia has established a Corona virus Business Liaison Unit within the Treasury. Â Sri Lanka must go beyond this and establish the Economic Recovery Task Force, with larger representation including, Labour Commissioner, Customs and BOI Director Generals, Registrar of Companies, Attorney General, the IGP, Defense Secretary and other key officials who can help manage the business challenges.Â
The State must ensure that uncalled for price controls, import controls, supply chain and logistics restrictions and restricting the space and freedoms of the private sector are never re-imposed; and that right people are in the right places to play the desired facilitative role with excellence. This task force must operate bi-partisan and never bring up extraneous political/ethnic or religious issues in to consideration in decision making.Â
The economic challenges commencing from the low level of 2019, multiplied by the lost/disrupted days of agro-industrial production and services sectors, could lead to significant job losses; mainly affecting part time/daily wage earner, micro enterprise and self-employed persons (job losses during Asian financial crisis was around 80-90,000) whilst pay cuts imposed demotivating staff, garnering growth will not be easy.
It is best that theÂ state and private sector, along with job agencies & Rakiya.lk type web sites, promote available job opportunities, including part time/shift work. In addition,Â the private sector can look to outsource jobs and even look towards setting up shared services, using trained staff made redundant.Â
The State Banks could assist capable staff to set themselves up as micro entrepreneurs by opening new lines of credit. This situation may turn out to be a golden opportunity to introduce the much delayed mega reforms involving trade liberalization, land banks, and one stop shop approvals of business and permits related to registration, local authority approvals and environmental clearance, enhancing ease of doing business, customs processes and significant labour law reforms. The Central Bank and the State Banks must examine how best the self-employed, micro and SME businesses impacted by high cost micro credit and informal borrowings can be reformed and made productive in Â supporting the informal sector/ (daily wage earners) and small businesses working with loan sharks. The digital NIC initiation [Aadhar card type] would be an option implementedwith proper privacy and data security laws.Â The State must also re-examine the proposals for re-introduction of Development Bank concept to finance future growth/productivity seeking investment needs; and also examine how best a more effective and value added operational role post Covid the Provident and Pension Funds, Investment Banks and Capital market development Institutions can assist in achieving a V shaped recovery growth path.Â
It is quite evident that the existing credit lines open to meet extended cash flow support required impacted sectors, especially large enterprises and SMEâ€™s are totally inadequate to ensure survival of deeply impacted businesses.
Venture capital support, debt/equity swap and Mergers & Acquisition facilitations and other innovative investment banking support lines are urgently needed to be in readiness to support the growth phase.Â Attractive investment protection arrangements, less cumbersome land acquisition options, ease of business approvals, uninterrupted power/other essential services and capable human capital at competitive costs, attractive tax / double taxation and ease of customs/logistics arrangements with operational freedoms will be required to attract businesses relocating post Covid, for risk mitigation and international relations reasons.Â Here well-structured collaborative initiatives of the State and Chambers/private sector, along with the BOI and EDB, have to take the lead to establish credibility and build investor confidence facilitated by the Economic Recovery Task Force.
The Business leaders must carefully track emerging changes in markets, demand, trends, buying patterns/preferences, behaviorsÂ and habits: and be conscious and agile to pick winning options and consistently analyze the products mix analysis on the BCG Matrix and select and nurture emerging new niche market options within the available skills set, asset base and capital resources.