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150, St. Joseph’s Street, Colombo 00140, Sri Lanka.
Tel: +94 112490900, Email: [email protected], www.jbs.lk
9 April 2016
SRI LANKA:
Sailing through choppy waters…
AGEM 2016: Accelerating Structural Transformation: How Can Policy Facilitate Becoming Good at New Activities?”
Page 2JB Securities
Country Snapshot
Name Democratic Socialist Republic of Sri Lanka
Capital Sri Jayewardenepura
Commercial Capital Colombo
Time zone Standard time zone UTC +5.30
Nationality Sri Lankan
Population 21.0 Million
Total Area 65,610 Sq.km
Density 330/Sq.km
Currency Sri Lankan Rupee (LKR)
Exchange rates* LKR 144.50/US$| LKR 164.43/€ | LKR 203.63/£
Economic size (2014 )
GDP (Market) USD 82.3 Billion
GDP (PPP)* Int’l D 220.2Billion
GDP per capita (Market) USD 3,925
GDP per capita (PPP )* Int’l D 11,181
Sovereign rating Moody’s: (B1) ‘Stable’ S&P: (B+) ‘Negative’ Fitch: (B+) ‘Negative’
Official languages Sinhala, Tamil
Business language English
Literacy rate 95.6%
6°54′N79°54′E
As at 08/04/2016, CBSL. *IMF Estimates
Sri Jayawaredenepura
Colombo
Page 3JB Securities
Natures gift…
…the Arabs named it
Serendib
Page 5JB Securities
Mans folly…
…30 year civil conflict,
100,000 lives lost
Page 6JB Securities
Page 7JB Securities
President Mahinda
Rajapaksa…
…the warrior president who
ended the war, hugely popular
Page 8JB Securities
Page 9JB Securities
Unleashed massive
infrastructure projects…
…funded mainly through
Chinese loans
Page 10JB Securities
Source: Department of Census and Statistics, JBS Research Analysis GDP real sector size, YE2015: LKR 8,623Bn
% CAGR, YE2010-15
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500
Construction
Financial& Insurance activities
Real estate activities
Information & communication
Other Services
Wholesale & retail trade, transportation & storage, accommodation & food service activities
Agriculture, Forestry & Fishing
Manufacturing, mining and quarrying and other industries Taxes net
Subsidies
Public admin, defense, education, human health & social work activities
Professional, Scientific, technical, admin & support services
Leaders > CAGR 7.2% Steady CAGR 4.9% - 7.1% Laggards < CAGR 4.9%
CAGR 2010-’15: 6.1%
2010 Constant prices
High GDP Growth…but driven by non tradeable sectors…
Page 11JB Securities
MRMR Port - Hambantota
Phase ICost USD 501 Mn Contractors China Harbour Engineering Company Ltd
Sino-hydro Corp ltd.
Phase IICost USD 808 Mn Contractors China Harbour Engineering Company Ltd
China Merchants Holdings International
A harbour without any ships…
Page 12JB Securities
MRIA Airport - Mattala
Cost USD 210 Mn Contractor China Harbour Engineering
Company Ltd
Katunayake
Mattala
An airport without any planes…
Page 13JB Securities
Lotus Tower - Colombo
Cost USD 104 Mn Contractor China National Electronic
Import Export Corporation
A vanity tower without purpose…
Page 14JB Securities
A ghost city without any people…
Page 15JB Securities
Funded through debt…mainly foreign debt…
Source: Central Bank of Sri Lanka, ADB
Government debt to revenueGovernment debt to GDP
74% 75%
79%
66%
51%
46% 45%
2013 2014 2015 India Vietnem Thailand Phillippines
Sri Lanka
617%
650%
608%
312%298%
267%
235%
2013 2014 2015 India Phillippines Thailand Vietnem
Sri Lanka
Page 16JB Securities
Low tax revenues straining debt servicing…
Source Central Bank of Sri Lanka
Foreign debt servicing
(% of Current account inflows)
Debt servicing
(% of government revenue)
7.6%
10.3% 10.1%
9.5%
2011 2012 2013 2014
75.2%69.7%
74.8%65.1%
17.3% 27.1%27.4%
24.9%
2011 2012 2013 2014
92.5%96.8%
102.2%
90.0%
Domestic
Foreign
Page 17JB Securities
100
105
110
115
120
125
130
135
140
145
15080
85
90
95
100
105
110
Jan-12 Mar-12 Jun-12 Aug-12 Nov-12 Feb-13 Apr-13 Jul-13 Oct-13 Dec-13 Mar-14 May-14 Aug-14 Nov-14 Jan-15 Apr-15 Jul-15 Sep-15 Dec-15
The currency has been under pressure lately due to capital outflows…
Source: CBSL, JB Securities Research
USD/LKR(Inverted, RHS)
NEER(2010=100)
Page 18JB Securities
Export base is small and unsophisticated
Structural composition of exports – Sri Lanka
"The Atlas of Economic Complexity," Center for International Development at Harvard University, http://www.atlas.cid.harvard.edu
Exports grew just 3.4x during
1995 and 2014
Most exports are agricultural
or primary manufacturing
Page 19JB Securities
Vietnam is a country to emulate
Structural composition of exports – Vietnam
"The Atlas of Economic Complexity," Center for International Development at Harvard University, http://www.atlas.cid.harvard.edu
Exports grew by 28x during
the same time span, and a
machinery-electrical cluster
has emerged
Page 20JB Securities
350 380 341
65 67
54
522 425
256
2013 2014 2015
-6.9%
-25.3%
FDI flows weak… low relative to peers …
Source: Central Bank of Sri Lanka, World Bank
Foreign Direct Investment FDI as a % of GDP
* FDIs excludes loans as per the UNCTAD presentation
Reinvested earnings
Other capital
Equity capital
* USD millions
937
651
872
* Peer data for the year 2014
Sri Lanka
1.39%1.16%
0.83%
1.70%
2.20%
3.41%
2013 2014 2015 India Philippines Thailand
Page 21JB Securities
Country being buffeted by
economic headwinds…
…a great time to implement
much needed structural
reforms
Page 22JB Securities
Currently negotiating for an IMF EFF programme..
15th time the country is seeking an IMF programme.
Focus is on structural adjustments.
Greater tax revenues – simplify tax code, reduce concessions and exemptions and widen tax base by better enforcement.
Rationalise expenditure.
SOEs to be put on a commercial footing.
Better debt management.
Page 23JB Securities
Pakistan
Population 190 MnGDP USD 271 BnPer Capita GDP USD 1,4272016 Growth 4.5%
Bangladesh
Population 159.86 MnGDP USD 202.33 BnPer Capita GDP USD 12662016 Growth 6.3%
India
Population 1,293 MnGDP USD 2,183 BnPer Capita GDP USD 1,6882016 Growth 7.5%
Sri Lanka
Population 21.11 MnGDP USD 79.50 BnPer Capita GDP USD 3,7682016 Growth 5.5%
Major Sea routesSource – IMF estimatesMap - Google
Great neighbourhood…
Page 24JB Securities
Socio Economic Indicators are healthy…
Life Expectancy – 75 years
Median Age – 32 Years
Population Growth – 0.8 p.a.
Fertility – 2.1 Births per Woman
Gini Coefficient – 0.55
Primary School Completion Rate – 97%Literacy – 95.6%
Lower Secondary School Completion Rate – 95%
Poverty Headcount Ratio – 6.7%
Mobile Phone Penetration – 116%
Broadband Penetration – 19.5%
Human Development Index Rank – 73rd
Page 25JB Securities
Percentage of population
Favourable demographic dividend has yet not run out…
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1971 1978 1985 1992 1999 2006 2013 2020 2027 2034 2041 2048 2055 2062
15-59
0-14
60+
Dependency Ratio
Demographic Dividend(28 years)
Dependent Population
Dependency Ratio (RHS)
De Silva, I., & de Silva, R. (2015). Sri Lanka 25 Million People and Housing Projections 2012-2062. Colombo: UNFPA.
Working Age Population
2016
20191991
Age structure of the population
Page 26JB Securities
Greater female participation can drive labour supply…
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Vietnam
Thailand
Philippines
Middle Income
Lower middle income
Sri Lanka
India
Pakistan
Female to male labour force participation ratio (100% is perfect gender equality in the workforce)
Source: Millennium Development Goals, World Bank
Page 27JB Securities
W. Europe (000's)
France 39
Germany 41
Switzerland 30
Netherlands 10
120
Canada
106,000
Italy
60,000
Australia
94,000
New Zealand
7,000
Sweden
7,000
Norway
9,000
U.K.
131,000S. Korea
20,000
Japan
9,000
Denmark
7,000
U.S.A.
48,000
Source: OECD Migrant database http://stats.oecd.org/Index.aspx?DatasetCode=MIG
Aggregate (000's)
Europe 337
N. America 154
S. & East Asia 29
Australasia 101
621
Structural transformation can be facilitated by the diaspora…
Page 28JB Securities
Virtusa
Co-founders
Kris Canekratne Thushara Canekratne
• IT services company
• Founded 1996
• Listed in NASDAQ in 2007
• Revenue: USD 480Mn
• Total Employment 9,000, Sri Lanka 4,500
• Husband & Wife team
• Educated in the US and UK
• Kris worked in startups in early 1990’s
• Started in Boston in their house
Page 29JB Securities
Millennium IT
Notable Founders
Ajit SamaranayakeChief Scientist
Hemantha JayawardenaChief Operating Officer
• One of the top 3 global player in capital market exchange platforms. Named best exchange technology provider in 2016
• Major exchanges include: London Stock Exchange, Colombo Stock Exchange, London Metal Exchange, Johannesburg Stock Exchange
• Employs over 500 people
Tony WeerasingheFounding CEO
Worked in DMS – a sun microsystems product reseller in Sri Lanka
Breakthrough with contract for the Colombo Stock Exchange
Educated in MIT
Worked in Bell Labs
Educated in University of Glasgow
Worked in GE
Page 30JB Securities
Micro Small Medium Large Micro Small Medium Large
Industry
Trade
Services
Establishments Employment
935,736
71,126
10,405 2,414
1,338,064
529,248
387,859
747,948
1,019,681 3,003,119
Source: Department of Census and Statistics, Economic Census
91.8% 7.0% 1.0% 0.2% 44.6% 17.6% 12.9% 24.9%
Distribution of firms and employment…
Definitions• Micro ≤4• Small ≤24• Medium ≤50• Large ≥50
Page 31JB Securities
Source: Ministry of Finance & Planning Annual report 2013
100%
94%
61% 60%
44%41%
32%27% 27%
23%
13%
Lotteries Energy Aviation Port Water Banking &Finance
Media Insurance Health CommuterTransport
Livestock
Market share of State sector
Real crowding out by the state …needs reform
Page 32JB Securities
Koggala EPZEst. Year 1991
Biyagama EPZEst. Year 1986
Katunayake EPZEst. Year 1978
Kandy IPEst. Year 1994
Mirigama EPZ
Est. Year 1998
Malwatta EPZEst. Year 1998
Wathupitiwala EPZEst. Year 1999
Seethawaka EPZEst. Year 1999
Horana EPZEst. Year 1999
Mawathagama EPZEst. Year 2000
Polgahawela EPZEst. Year 2000
Mirijjawila IPEst. Year 1999
WagawaththaEst. Year 2004
EPZ - Export Processing ZoneIP - Industrial Park
Export processing and industrial zones
Page 33JB Securities
97%100%
85% 88%
97%100%
90%94%
67%71%
Katunayake Biyagama Koggala Kandy Mirigama Wathupitiwela Seethawaka Horana Mawathagama Polgahawela
Est. Year 1978 1986 1991 1994 1998 1999 1999 1999 2000 2000
Employees 37,762 25,007 12,906 7,469 3,950 9,394 21,734 1,893 5,735 4,199
Establishments
84 57 22 23 9 18 27 17 7 5
Utilization rate
Industrial zones running at full capacity…
Page 34JB Securities
Agency for Development
Objective is to be an implementation agency to accelerate economic development and catalyze structural transformation.
An initiative by the Prime Minister.
Sunset Agency with a life span of 3 years.
Full time CEO.
Overriding powers over defined institutions.
Page 35JB Securities
For further information contact:Murtaza Jafferjee CFA
+94 11 [email protected]
150, St. Joseph’s Street, Colombo 01400, Sri Lanka.
Tel: +94 112490900, Email: [email protected], www.jbs.lk
© Copyright 2016, JB Securities (Pvt) Ltd, All rights reserved.
