By Paneetha Ameresekere

Despite good news such as the announcement of ADB’s new loan programme for Sri Lanka for the next three years, multinationals such as Prima expanding their operations and yet another corporate, namely DFCC Bank Ltd., showing good quarterly results for the quarter ended June 30 (following on the heels of two other blue-chips, namely JKH and Commercial Bank also showing good results for the period under review) and a pat on the back by the Ceylon Chamber of Commerce (CCC) of an improved business climate, those sentiments were however seemingly not enough to give the Colombo Bourse a boost at Tuesday’s trading, which recorded a modest turnover of Rs 20.9 million.

What is needed to give the market a boost, going by the market’s bull run till recently in the aftermath of the UNF government’s victory in the December 5 polls, are strategic investments, which in turn caused a knock-on effect, encouraging others too to make investments in the market.

Strategic investments in general require vast sums of monies. And persons/entities who generally have recourse to such funds are high networth individuals (HNWIs) - both local and foreign, corporates and foreign funds.

Factors that may contribute to encouraging such portfolio investment in a country such as ours is a thriving economy or at least expectations of such in the foreseeable future. For such things to happen, what may be required are business friendly and a capitalist oriented economy, good corporate results, peace and political stability and a boom in exports and tourism.

With the economy contracting by 1.4% last year and recording a marginal 0.1% growth during the first quarter of this year and the second quarter expected to be only slightly better than the first, such factors don’t speak much for the country’s economic growth, at least for the first six months of the year.

The government envisages a growth of a little over 3% this year, while donor agencies say that a 10% growth rate over a sustained period of time is essential for the country to get over its economic morass.

Despite the seemingly negative performance of the bourse during the past few days and so far for this week, it must be said that the market, spurred on by strategic investments, made by both local and foreign HNWIs, local corporates and foreign funds, recorded high turnover figures and market indices reached new heights, at least during the first six months of this year, which was however not seen during the tenure of the PA’s seven year regime which ended in December of last year.

This market upswing, attributed to sentiments connected with the new UNF government (generally considered as being more market friendly and Capitalist oriented than the previous PA regime) taking office, seems to have now subsided.

The second round of portfolio investment, if there be any, will not be driven by sentiment alone, but by cold, hard economic and political factors such as peace becoming permanent, of market friendly laws being in place, a boom in exports and tourism and last, but by no means the least, having profitable corporates that would act as magnets to attract portfolio investment in such institutions and of the economy once more taking an upswing.

In the peace front, negotiations between the government and the LTTE are continuing with Norwegian facilitation, which may be construed as a positive signal to the market, as peace is still holding, without suffering a breakdown.

In the economic front (it must be said that the peace issue forms an integral part in this context and cannot be ignored nor divorced from this issue), what is needed for a boost and an uplift are more avenues for employment, either locally or overseas, infrastructure development, particularly roads, highways, the port, airport, power, telecommunications and transport services.

For all this, that which is required is a massive infusion of capital, which neither the government nor the country’s private sector on their own, are capable of harnessing. The solution is to attract donor funding or foreign direct investment (FDI) or both.

To draw either bilateral or multilateral funding, the government and the country will necessarily have to subscribe to their terms and conditions, which may include less of government and more of the private sector in business.

This connotes privatisation, including that of state banks and other services such as water, transport (the Public Enterprises Reform Commission has already called for expressions of interest in this regard) power, the port and the airport.

One way out, other than privatisation, may be to adopt the Singaporean model, where their institutions such as the port and the airline, though being under state control, are however allowed to run on commercial lines, with little or no government interference.

Other required changes may be labour reforms, which in essence means making it easier for employers to hire and fire their employees, with limited liability, as is allowed in countries such as the USA and the UK.

But embracing models which are the ‘norm and the law’ in First World countries may not be the panacea to be dished out and forced to be embraced by Third World countries such as Sri Lanka, where poverty is rampant and where a large number of its peoples live at subsistence/below subsistence levels.

While acknowledging the fact that the country’s productivity needs to be increased, if it is not to be left behind because of globalisation and WTO rules coming into play and competition from our neigbours in South Asia and even South-East Asia (Vietnam) and China increasing, adequate safety nets will have also to be devolved to protect the poor, the weak, the disabled and children, for which too the government will have to canvass the support of donor agencies, friendly governments and NGOs.

Will all these measures lead to the prosperity of the country and of its peoples? Countries in the South-East and Far East who embraced the Capitalist style of government and governance have seemingly prospered, but in Latin America, particularly in Argentina, this model has seemingly failed. What is therefore required is to strike a correct balance, making all stakeholders, whether they be the beneficiaries, the workers, the government and the public, all accountable, if the country is to survive this era of globalisation and WTO rules, and not be left behind.