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Cohabitation
woes and business The business
community is worried about the potentially far-reaching implications
of the uncertainty that crises of this nature naturally generate.
Despite the regular rhetoric about the importance of private enterprise
and how the private sector is the engine of growth that is going
to take this wretched country from its poverty stricken present
to a glorious future of double-digit growth, neither the president
nor the prime minister had bothered to reply to the Joint Business
Forum at the time of this writing. If the cohabitation
crisis worsens it could affect investor sentiment and the confidence
of foreign donors supporting the peace process and the effort to
revive the economy. Those foreign
governments and international donors that stand ready to pledge
billions of dollars in aid to Sri Lanka at next month's aid meeting
in Tokyo are not going to be too happy at the prospect of unseemly
squabbling between the president and the prime minister. Foreign
investors, we have been repeatedly told, prefer stability and are
nervous about uncertainty. Already there
are reports of foreign investment projects being put on hold until
the smoke clears. The UNP government's
infantile responses hardly go to strengthen its case. It went to
the extent of sealing the government press to prevent the printing
of a presidential gazette notification. Incredible as it may seem,
as President Kumaratunga herself has said in a reply to Prime Minister
Wickremesinghe, one of the two ministers directing the mob from
a vehicle parked outside the Government Press was none other than
the Minister of Internal Security, John Amaratunga. The mind boggles
as to how the government can hope to improve law and order and maintain
public respect for the machinery of state and the government if
its own internal security minister can direct mobs against state
property! One cannot
understand why the UNP government would want to deliberately tarnish
its own image through such acts. Or is it that the ruling party
is unable to rid itself of its arrogant and authoritarian past? The private
sector that is so agonisingly wringing its hands over this episode
cannot escape its share of the blame. After all, the UNP is "their"
party and this is a pro-business government. Did not the stock market
zoom to astronomical levels on this government's victory at the
general elections? Can the private sector say it has done much to
eliminate or even rein in the more unsavoury actions of ruling party
politicians? It has remained silent and continued to fund these
same politicians and the party they belong to. There are also
concerns about what this means in the public sector. As has been
demonstrated by the Government Printer himself, public servants
now have doubts about whom to obey in this system of dual power
- the President or the Prime Minister. This would surely affect
the speed of decision-making in the bureaucracy and is bound to
hold up approvals and other decisions required in foreign aid and
private investment projects. The country, it seems, is destined to lurch from crisis to crisis. The ultimate beneficiary of all the uncertainty created by this fiasco is the LTTE. Charting
a path to secure investments Understanding
a company from varying angles - be it from a financial or a market
perspective, or its Human Resources is vital for an investor. The
primary focus should always remain on the performance of the company.
Therefore it is necessary to seek out those, relatively easy to
access company financials. In fact investors can look forward to
consistently appreciating investments if they continuously focus
on the investment climate (environmental scanning) and the companies
they have already become, or intend to become, shareholders in.
The other area that needs to be focused on is analysis or, in other
words, charting and/or anticipating trends in the marketplace in
such a way that a long term/secure investment can be coupled with
a shorter term/speculative stock to maximise returns. Both environmental
scanning and analysis are essential to identifying and maintaining
a lucrative investment portfolio. Understanding
the financial performance of a company is essential to the success
of any investment. Once a potential investor makes a "buy"
commitment then they also have to be prepared to follow through
and periodically gauge the investment. One could obtain the company's
financial statements from the Colombo Stock Exchange or/from the
company secretaries. This information
could also be obtained from stockbrokers. Stockbroker Research is
another good source. Even though this information is finance oriented,
using the right set of ratios is very important. Ratios such as
Dividend Payout, Price to Earnings and Return On Equity will make
it possible to determine the present position of a company and what
sort of dividends investors can reasonably anticipate in the future,
provided all other factors remain constant. A key method
of selecting investments is to look at the company itself, not just
look at the financials but get immersed in its culture management
practices, processes, product range, etc. This may not be possible
for all investors but if an employee wants to invest in the company
he or she works for, then they may do so after they get a better
understanding of all aspects of the business. Areas such as training
methodology, core culture, competencies, inventory control and liquidity
are some good points to bear in mind while assessing a company.
These areas are key factors and can complement the evaluation beyond
just the old steadfast indicators such as turnover and profits.
For any analysis to be complete it is necessary to compare the financials
of the company to an industry benchmark and one should have access
to at least three to five years financial data to allow for trend
charting and forecasting. Another crucial
exercise is repeatedly and periodically scanning the financial marketplace
for worthwhile investments with high earning potential coupled with
higher risk in the short term and much less risk in the long term.
There are many ways to find, identify, and monitor an ideal investment
potential: Stockbrokers, the Colombo Stock Exchange, Unit Trusts
and something very enthusiastically used today, Initial Public Offerings
of companies. While scanning is a good way to start any process,
it should be understood that one easy way to keep abreast of the
happenings in the market place and develop an insight into investments
is to follow the daily financial news in the local media. An enduring
misconception in investing is that only seasoned veterans last through
bad periods. The truth is that if investors maintain a healthy,
diverse and long-term returns oriented portfolio then they too will
last through the temporary fluctuations that every stock market
sees and, in the long term, make significant capital gains if they
so choose. Investment is a mentality rather than a set of secret
tools handed down to a select few stockbrokers. The impression
that positive gains are only achieved if a shareholder's investment
increases in price is not true. In fact, a more attractive indicator
of a share's profitability is its dividend payout ratio. The dividend
payout ratio is used to find out the percentage of profit that is
paid out as dividends. Some companies also pay consistently high
dividends to maintain the value of their stock. This inherent rise
in value due to dividends sometimes results in a share being sought
after even when its price is low. An added feature is the benefits
accrued from ownership of the shares such as discounts on services
or shareholders are given priority status over other customers. Rising share
prices in an investor's portfolio is only one indicator of profitability,
and, often, investors sell shares that show a marked rise in prices
so that they can acquire a more inexpensive share that has more
benefits, both financial and emotional. There is a
belief, however, that the stock market is not within an ordinary
person's scope of life - it is the playground for the rich. The
truth is that it is not. It is in fact for the well prepared and
other than that, there are no limitations on who can get involved.
In fact many middle-income families already participate because
their retirement policy, if they have one, is usually controlled
by a fund manager who usually will invest in the stock market. High risk generally
exists in the short term. In the long term, risk is outweighed by
returns and there are substantial gains to be made provided you
get the right investment advice and remain diligent in monitoring
your portfolio so that your individual goals are met and risk is
carefully managed. One might say
that most of those who are looking to save have more options than
they realize. In an environment where investment in fixed income
instruments does not offer reasonable returns, one has to look into
other forms of investment which has the potential to earn greater
returns. It is not surprising
to see that increasing numbers of investors prefer to invest part
of their savings in the stock market. Investors who
keep certain core values at the forefront of their consciousness
at all times will prosper, and, were they to fail, their fall could
be brief and well cushioned had they hedged their risk as advised.
Some basic
principles to be followed is to be well prepared, be proactive through
learning about the financial climate and the specifics of potential
investments and above all to consistently monitor your investments. Public
service a stumbling block to progress? Therefore,
a sense of urgency and determination is required from our politicians
and public officials more than ever to utilize the vast amounts
of aid that the government has been able to mobilize. If counterpart
funding is the issue then we may have to persuade the donors to
allocate some amount for counterpart funds as a long-term loan.
The people
in the North need to get on with their lives and any delay in facilitating
that will only put more pressure on the peace process and also investors
will not come into this country unless we have good infrastructure.
Therefore the public service needs to simplify and streamline some
of the procedures while ensuring transparency if we are to experience
rapid development and the reconstruction of the North and East. Singapore Here the Public
Service over the years lost its professional edge and became the
servant of the politicians rather than of the people and also became
a public service that prefers to tell why things cannot be done
rather than offer solutions to achieve the wishes of the people.
Therefore a highly motivated public service will be a key element
to our future success. While we need
authoritarian leaders, they also must be willing to delegate authority
to a competent technocratic elite and key elements in the private
sector. Our leaders must realize that economic development is impossible
without the cooperation of the private sector. Because if business
prospers then more money comes into government coffers. That means
better salaries for public servants. Therefore, the government needs
to create a culture where everyone has an interest in seeing progress
and a public service that works with the private sector rather than
against it. Collaborating We need politicians
who can articulate a clear vision, display an exemplary commitment
to the law and deliver sound policies. The UNF government
to establish their legitimacy and win the support of society at
large has promoted the principle of share growth, promising in effect
that as the economy expands, all groups will benefit. But sharing
growth raises serious co-ordination problems. To bring together
these complex co-ordination problems, the UNP administration needs
institutions and mechanisms to reassure competing groups that each
would benefit from growth. Therefore,
the first step that the UNP should do is to recruit competent, dynamic,
honest and relatively young technocratic cadres and insulate them
from political interference. If not, there is no way that the UNP
can convince and win the poorer classes. In fact, in many NICs,
competent technocrats have helped their leaders to devise a credible
economic strategy and thereby win the economic war. Therefore,
in order to foster an effective bureaucracy, the UNF government,
in addition to tapping the public servants in the current administrative
service, would also have to employ numerous other mechanisms to
increase the appeal of a public service career, thereby heightening
competition and improving the pool of applicants. Getting retired
people will add value to the government only in the short term.
The government therefore needs to introduce a system to attract
young talent and ensure that only the best get accelerated promotions.
The overall
principle, long term, should be to pay salaries competitive with
the private sector, recruitment and promotion should be merit based
and those who make it to the top on merit should be amply rewarded.
In government, as in nearly everything else, you get what you pay
for. There is ample
research to show that more favourably the total compensation package
compares with the private sector the better the quality of the public
service. Not surprisingly,
Singapore, which is widely perceived to have the region's competent
and upright bureaucracy, pays its bureaucrats best. In economics
where public sector wages are good, if not equal to the private
sector, prestige will entice some talented individuals to forego
higher earnings in the private sector. However, prestige
can only be enhanced by having a highly competitive, merit based
recruitment and promotion process. The retirement
plan, a benefit normally not available in the private sector except
in large corporations could also be an incentive to join the public
sector, provided a proper working environment is created. Therefore the
UNF government should formulate a scheme that will attract competent
individuals to the public service. On the other hand, if we do not
have the necessary talent in Sri Lanka, we may have to get the assistance
of foreign governments to either send competent people or provide
the right exposure to our people or perhaps even engage the services
of top consultants to develop the people and the systems. An effective
public service will enable the government to establish legal and
regulatory structures that are generally hospitable to private investment
and public servants who consider their primary role is to help the
private sector to thrive. In the final
analysis, by encouraging innovation, decentralization of authority
and responsibility at the lowest possible level the government can
create a new class of public servants who may hold the key to the
future. However, to create that new class of public servants, the present government must focus on attracting competent and relatively young people with fresh ideas and then give them the tools and freedom to do the job. |
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