Investors adopt ‘wait and see’ policy

by Lalin FERNANDOPULLE

Sri Lanka will lose heavily on foreign direct investments due to loss of investor-confidence as a result of the global financial crisis said Chairman, Hayleys PLC, N.G. Wickremaratne.

He said the declining investor confidence will result in the loss of large number of jobs, capital gain, industrial productivity and innovation. Work on mega projects have ground to a halt and employees have been retrenched to confront the impact of the global economic downturn.

The export sector is the most affected by the world recession, leading to major catastrophes among emerging economies. Sixteen of the Fortune 500 companies have declared over US$ 1 billion loss within a short period after the crisis.

Wickremaratne said apparel which accounts for around 45 per cent of country’s exports, tea, around 13 per cent, rubber, gem and jewellery and manufacturing equipment have been hit by the low demand in many importing countries.

Some of Sri Lanka’s key export destinations USA, Europe, Japan, and Russia are adversely hit by the crisis.Banks are not lending and investments on projects have dried up.

Financial institutions have taken a ‘wait and see’ position, which, according to many experts will take over a year to ease off.

The sub-prime mortgage crisis had its genesis in the US housing boom about a year ago when lending standards began to deteriorate with an increasing proportion of loans being made to people with poor credit credentials. A multitude of weaknesses in risk management, regulation, accounting and policy response have been revealed.

High market volatility triggered by year-on-year growth in inflation and wage increases are major concerns that need to be addressed. Depreciation of the rupee, reduction in energy costs and education of trade unions are vital steps to be taken to face the external shock. “Loss of wealth has caused loss of consumption amounting to over a trillion US dollars of exports.Hayleys which manufactures around 70 per cent export items accounts for 26 per cent of the country’s export revenue”, he said.

He said Sri Lanka’s economy is US$ 35 billion to which the export sector contributes a major share. The export sector is in a bad state due to the collapse of US and UK markets. Tea prices had a drastic slide and rubber prices dropped by around 50 per cent following the outcome of the recession.