High margin service industries, base of future growth

by Surekha GALAGODA

The growth of the country will come from high margin service industries as opposed to labour intensive, low value added manufacturing industries.

According to Chief Operating Officer and Senior Vice President – Capital Markets IIFL Ceylon Sherman Gunatillake there will be a shift in industries from where growth will come. Growth will shift from labour intensive low value added manufacturing to high margin service industries such as tourism, financial markets, education, health, export agriculture, IT, real estates and logistics.

Sherman Gunatillake

The labour market will have alternative opportunities and the country will not be a haven for ‘cheap labour’ anymore.

Gunatillake, a well-known personality in the capital market community with years of experience in Investment Banking, Capital Markets, Equity Research and Asset Management and ranked as the Best Analyst in Sri Lanka by Asiamoney in 1995 said that when it comes to capital markets foreign and institutional knowledge based participation is somewhat lacking right now. Therefore, emphasis has to be driven to get those investors into the market.

He was extremely bullish on the economic outlook of the country and said that the country’s economy recovered strongly recording an impressive growth of 7.8 percent during the first half of 2010, thus moving on to a high growth path. This growth was underpinned by the restoration of peace, improved business confidence, a strong macroeconomic environment as well as gradual recovery of the global economy from its deepest recession since the Great Depression.

Gunatillake said that the economy will grow over 8 percent for the year 2010 and is poised to maintain this momentum at least for the next three years. This growth will primarily be influenced by infrastructure development that the government has embarked on with over $ 3b investments channelled towards highways, ports and air ports, power generation, tourism development zones and export agriculture.

He said that the country graduated to middle income status from the list of Poverty Reduction and Growth Trust (PRGT) countries in January 2010. The specific factors that were considered by IMF on Sri Lanka’s elevation to this level include the strong economic performance in recent years that has lifted Sri Lanka’s per capita income substantially to USD 2,014 in 2008, well above the prevailing IDA threshold and has been on a steady upward trend for at least five years,gradual decline of the projected external debt and Increased access to capital markets in recent years e.g. international sovereign bond issue in 2009, thus meeting the market access criteria of IMF.

Gunatillake said that the positive economic prospects primarily influenced two key macro indicators Interest rates to come down to a single digit and be maintained, and the strengthening and stability in the exchange rate.

These have already been translated into corporate earnings having witnessed a reported corporate earnings growth of listed companies of over 55 percent (YoY) in Jan-Mar 2011. IIFL Ceylon is a holistic financial services company, with a presence across multiple asset classes providing innovative and customised solutions on the back of world-class research having a presence in New York, Dubai, Singapore, Mumbai and Colombo.