29 January 2016 07:21 am
Grossly below expectations
CEOs entered 2015 with much greater hope for growth than the previous year, yet almost half of those surveyed reported their businesses having performed below their expectations for 2015. As opposed to 68 percent in the previous year, only 53 percent of CEOs stated that their business performed either as expected or above expectations. In the same vein - an analysis of the latest (September 2015) quarterly reports published by the CSE S&P 20 and a random sample of small-tomid (S&M) cap firms revealed that 40 percent of the former experienced a year-on-year drop in net earnings while 25 percent of the latter experienced the same. According to the Asian Development Bank, businesses that may have been among the most affected in 2015 were companies engaged in construction-based and exporting activities. The construction industry, which previously contributed significantly to the annual growth, slowed down notably amidst political uncertainty for the existing infrastructure projects. Textile and garment manufacturers saw their exports to the European Union (EU) decline, while tea producers achieved less than the expected level of production last year
Persistent outlook of weaker global growth
With the pessimism moving forward to 2016, a striking number of CEOs expect the global economy to remain depressed in the current year. As opposed to only 35 percent expecting the world economy to recover, 52 percent expect it to remain depressed while a further 7 percent expect the economy to slip even further. It must be noted that there has been a drastic growth in the number of CEOs expecting the global economy to decline in the following year (59 percent for 2016 compared to 31 percent for 2014) and a synchronous drop in the number of CEOs expecting it to improve in the following year (41 percent for 2016 compared to 69 percent for 2014). This, however, is in contrast to the forecasts by the World Bank and the International Monetary Fund (IMF), which expect the real value of goods and services produced globally to grow by 2.9 percent and 3.4 percent, respectively in 2016 – up by 0.5 and 0.3 percentage points, respectively from the previous year. Despite the Chinese troubles to hold on to its own as its economy shifts away from investment and manufacturing to consumption and services, the IMF believes a modest global recovery will be carried upon the backs of advanced economies and currently distressed emerging market economies witnessing gradual improvement. Both the IMF and the World Bank believe that this moderate recovery may be negatively affected in the event of an unexpected political or economic shock.
Will the economy finally stabilize this year?
Synonymous with the previous year, more than half of the surveyed CEOs expect the Sri Lankan economy to stabilize in 2016. Eighteen percent and 59 percent of CEOs cited acceleration and stabilization, respectively, whereas 24 percent of CEOs (up from 15 percent in the previous year) stated that the
Great expectations? Not this year
Despite performing below expectations in 2015, almost half of the surveyed CEOs expect to continue along this rate of growth in 2016. Forty five percent of
“The problems aren’t with us”
2 0 1 6 w i l l be primarily a f f e c t e d b y f a c t o r s e x t e r n a l t o their business. I n c o n t r a s t , o n l y 3 1 p e r c e n t o f CEOs believe the problems l i e e i t h e r w i t h i n t h e i r organisations or within their span of control. Of the external factors, roughly 63 percent of the responses pointed to future difficulties that would be faced by organisations having to accommodate the new economic policies,
stricter regulations (or a lack of regulations or regulatory body) and political Competition from both f o r e i g n a n d d o m e s t i c companies, poor levels of awareness, interest or purchasing power among target audiences and saturated markets (thus leading to a lower level of demand for goods and services),
Conclusively: The need for re-strategizing
2016 may be an interesting, though difficult, year for business leaders, considering uncertainties and volatilities both at home and abroad. With a majority having performed below expectations in 2015, CEOs enter the new year with moderate expectations for both their businesses and the Sri Lankan economy. Unlike some economic analysts, Sri Lankan business leaders do not expect the global economy to markedly recover anytime soon. On the back of poor transparency and waning investor confidence, the business community sees the current economic policies and regulations as the biggest challenge to the Sri Lankan economy, while the very same appears to threaten the success of their businesses as well. Sri Lankan companies, especially those export-oriented, will have to consider re-strategizing and gearing their organisations to avoid the adversities of lowflation, currency devaluation, stricter regulation (if applicable), global tensions leading to reduced foreign demand and the existing poor levels of investor confidence.
(The CEO Business Outlook Survey 2016 was carried out by MTI Consulting in exclusive association with Wijeya Newspapers)