The end of Sri Lanka’s 30-year civil war last May had created the potential for a remarkable “Peace Dividend” for an economy that is set to grow rapidly in a stable political environment, the Credit Suisse Asian Investment Conference was told this week.
Senior executives from two of the island nation’s most eminent businesses told the meeting in Hong Kong that Sri Lanka represented a rare opportunity for investors to participate in a frontier market with many of the attributes of more developed markets.
Sri Lanka is not a familiar investment destination for many global money managers, but the CEO of its biggest telecoms provider and the Deputy Chairman of its biggest listed conglomerate told the AIC delegates they should pay attention to a country that has changed dramatically in the last year, according to Credit Suisse officials.
Ajit Gunewardene, Deputy Chairman of John Keells Holdings, stressed to investors that the civil war was over and that the Liberation Tigers of Tamil Eelam, or Tamil Tigers, would not return. “There is absolutely no doubt that the LTTE has ceased to exist,” he was quoted as saying, although he added that there was a formidable task ahead for Sri Lanka in reconstructing the Northern and Eastern parts of the island that were ravaged by the war.
Hans Wijayasuriya, Group CEO of Dialog Telekom, noted the effective expansion of the Sri Lankan economy since areas controlled by the Tigers came back under government control. “The country is suddenly one third bigger than it was,” he said, pointing out that the land mass of the economy had increased by 33% and the number of domestic consumers was up by 10% since the end of the war. “We were very bullish, moving into the North and East within three months of the war ending,” he added, saying that Dialog had gained a 90% market share in those areas.
Dr. Wijayasuriya said conditions in Sri Lanka’s US$21 billion economy had improved sharply. While inflation had been above 30% and interest rates above 20% during 2007 and 2008, these had stabilized, he said, adding that he expected Gross Domestic Product growth to rise from an expected 3.5% in 2009 to 6.7% in 2010 and 7.9% in 2012.
Looking at improved prospects across John Keells’ portfolio – which includes transportation, consumer foods, financial services, hotels and property – Mr. Gunewardene offered several examples of the rapid acceleration of economic activity in Sri Lanka over the past year.
He noted that record volumes of maritime freight were passing through the Port of Colombo and that prices for Colombo’s 2,000 five star hotel rooms had risen from US$40 with occupancy around 50% to US$100 with occupancy at 100% - perhaps the only bad news for any investors planning to see Sri Lanka for themselves.
Looking beyond the immediate “Peace Dividend”, Mr. Gunewardene said Sri Lanka’s proximity to the Indian market could be a source of prosperity for the island. “Our giant neighbour India presents serious opportunities for Sri Lanka,” he said.
While Sri Lankan stocks have risen some 85% since the end of the war, the panelists agreed that the illiquidity of the market made it challenging for investors.