ISSN: 1391 - 0531
Sunday December 16, 2007
Vol. 42 - No 29
Financial Times  

Preparing biz sector to face 2008 tsunami

The Chief Economist of the International Monetary Fund in an interview over the BBC stated recently, that the world will experience the economic impact of the US sub prime mortgage crisis. This is now predicted to impact the US economy to experience a recessionary force in 2008, with at least two quarters of negative economic growth expected. He stated that this will be compounded by the repetition of the 1970’s experienced oil price crisis. The market had expected the oil prices in 2008 to be around 60 to 70 US dollars a barrel. However, the present indications are that the costs will be much higher.

The impact of the weaker US dollar and its consequential impact on the oil prices, (even in the absence of a production cutback and in the context of ever rising demand levels) indicate that the prices will remain high around the current levels. With the sub prime mortgage crisis extending to the European Union countries, now impacted by the weaker dollar, uncertainty in the Middle East and high oil prices, EU too will be negatively impacted.

The most negative impact of the above world economic order in 2008 will be on developing countries with weaker economic fundamentals, unstable political and macro economic fundamentals and high levels of debt. It is unfortunate that Sri Lanka falls into this category.

Sri Lanka is likely to be impacted in 2008 by the following additional risks;

- An economically debilitating heightened war initiative by the government targeting territorial gains in the North and elimination of the LTTE leadership

- The response of the LTTE in bringing their destructive and despicable acts of terror to the South targeting key personalities and economic targets

- India not playing a decisive role in conflict resolution

- Pre planned violent acts being committed with impunity, with the intent to cause grievous injury and death to targeted groups

- Violent acts being carried out in a manner, that at most times will negatively impact on the peace loving civil society

- Violent acts being committed simultaneously by the terrorist groups, the government and the underworld gangsters with the support of powerful personalities

- Political instability and uncertainty with ineffective governance structures in place within a faltering law enforcement framework

- Politically oriented industrial unrest impacting essential services and key national infrastructure

- A breakdown in the economic governance structures, with the macro economy in a state of unmanaged drift and wasteful spends, widening budget deficits and balance of payments stress

- Lower allocations towards improvements in key economic infrastructure investments in preference to increased spends on subsidies and revenue expenses

- Deteriorating economic ratings of Sri Lanka

- Slowing down of foreign direct investments

- Essential economic reforms and reforms in education being laid by and thus not improving the quality and productivity of services and human resources base

- The justice system and the key public services not living up to expectations

- New debilitating environmental legislation expected to be enacted

- The international community commitment to assure peace and economic stability/growth of Sri Lanka being on a downward trend

- Sri Lanka continuing to be in the bottom quartile of key indices on corruption, ease of doing business and competitiveness

- The leadership both in government and opposition focusing on the short term personal/party gains and not the priority needs of the nation and its people

In the above context what should the private sector business leaders and chamber leaders do? Continue to praise those in power, appeal to those in power for hand outs or sit on the fence and watch the Tsunami 2008 hit the nation and the private sector!In the alternative should the leaders of business and chambers get together and prepare a detailed risk mitigation plan and support the private sector to improve the management of resources with optimum economy, efficiency and effectiveness and aim to improve the quality, productivity and competitiveness?

The business leaders and chamber leaders should in addition plan strategies and develop network alliances to tap into the opportunity of seeking investments and trade with India, now looking for cheaper places for production of goods for its markets in the wake of the extensive appreciation of the Indian currency. In addition these leaders should seek investments into areas that have significant growth options, like exploitation of sea resources, services and growing new forest lands with carbon credit options.


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