Everything is politics but ….

Even though I hate to write things about Sri Lankan politics, it has come to a point where I can’t just ignore and stay back. (well, no one can just ignore politics as it affects everyone’s’ day to day life as well as their decisions in life). This reminds me of the book of which the topic was “Everything is politics but politics is noteverything: A theological perspective on faith and politics” from which I actually borrowed part of my topic today. But, don’t worry that I’m not going to write good things about any political party or anything bad about another party. (that is done big time currently in all types of media!). But, if anything that I write here looks as if I’m partial please bear with me. (Because I know that in Sri Lanka if you say something political, there is a culture that you will be labeled. You will agree with me, don’t you!).

Anyway, I just wanted to shed some light on some of the news that comes up in a very urgent fashion in the run up to the elections. As an investor and a blogger who cares about the markets and the equity valuations, I do need to look at those news from that angle. How does these news affect the markets and in turn me. After all, businesses and investors do conduct this analysis called “PEST Analysis” of which the letter “P” stands for political analysis.

Media behavior

An important aspect of these news items is that they have found their way in to the mainstream media and it seems like that they have not done any sanity check on these items. That makes me be skeptical about the accuracy, relevance and importance of these items. But what can I do there are inherent problems in the way the media is handled as this book by Robert W.McChesney argues. (I think these arguments are more or less valid in Sri Lankan context as well).

One recent news item that was very interesting was about introducing Google Loon in Sri Lanka. In fact, one of the Sinhala medium websites mentioned it as the first time something like this was ever done in the world and the witty fact was that they did not seem to have logged on to Google Loon’s website to simply check the truth. On the other hand some web sites depicted it as free wifi internet connections for everyone in Sri Lanka. (if that was the case it will be really good and I also hope and pray that it would happen one day). This was shared on social media by many and none of them seem to have given a thought to some questions like:

• why Sri Lanka at this particular time (when there is an election forthcoming);

• if this is free, why would Google want to do this (they are a for-profit listed company in the USA);

• if not for free who is going to bear the costs (as a balloon is said to have a 100 day life span and then need replacement, i.e., three times a year);

• some articles say that it will be in collaboration with local internet providers (if that is the case it would not be free or may be the government will have to subsidize in order for it to be affordable to poor. In that case, government subsidies will have to be borne by someone, tax payers or everyone);

• if this was available free what will happen to listed companies like Dialog, SLT (if you are investors in these companies) and other commercial operators like Airtel, Etisalat and Hutch;

• Google Loon is still in test stage and why wasn’t it rolled over in most of the poorer nations.

I believe, like anything else there are pros and cons to anything so try to think of any sectors in the market that will be benefitted directly out of this, if this happens. Also note that there will be a lot of ground work to be done in order for the benefits to spill over to the corporate sector. For instance, the English knowledge of the rural populations are very low hence even if they had affordable internet connections most of them would possibly not use these services. For instance, Banking, Finance and Insurance sector can significantly reduce costs if they resort to online solutions. A study conducted by one of the friends found that the usage of online banking services even in Colombo is very low. (I can put you in touch with her if you wanted to!). I also believe most companies will be able to reduce their marketing spend if they use more online services.  

In other instances, it was mentioned that the Board of Investment of Sri Lanka signed agreements to revive a Sugar factory and to build the tallest tower in the country. The sugar factory investment is a USD110 million project, supposedly. But, the names appearing on the article do not seem to even have a proper website for those companies (I know that you can set up a company in Singapore in like hours!). I believe an investor who is bringing in USD110 million to the country should be a reputed company with a track record. Besides, from my encounters with the investor community I do not believe that any investor would look at investing in a country when there is political uncertainty and especially an election at the door. Will this be history after the election! Wouldn’t they conduct a PEST analysis before entering! Or they must be having some deep pockets to take this level of risk.

Sri Lanka currently consumes about 572,300 MT of sugar per year. Of this about 91% is imported with an approximate cost of USD255 million. This is c. LKR64,142.28 per MT. If the Kantale Factory was opened and start producing the quantum of 72,000 MT per year as the BOI mentioned, we should be able to reduce imports by about 13% and increase the local production to c.22% of the market demand. Also thereby save c.USD32 million in forex. What remains in dark still, is the fact whether we will be able to achieve a lower retail price per Kilo of sugar if we increased production locally as compared to imports. Also will this be another political thing as it has always been. (because consecutive governments have promised this as per this article). Further, the Central Bank of Sri Lanka Annual Report 2014 mentions (page no.38) that “while the Kantale factory, which was not in operation in 2014, continued with sugar cane cultivation with an intention to recommence operations in the near future”. (so what was the arrangement there!). I hope something good for the country and economy will happen, at least this time.  

The other company (the real estate one) has one of the candidates in the election as the chairman so I have lots of doubt there as well. (politicians are politicians!). Weren’t we against this type of involvement by politicians!

Another news item read that Volkswagen was considering setting up a plant in Sri Lanka.  The interesting thing was no official from the company itself was involved in any of these discussions and the company is 50.73% owned by Prosche not the Government of Germany. (Only about 20% voting rights are with a State). Refer their Annual Report in page 92. So, I was wondering how the government officials can sign agreements on behalf of a company which is owned by someone else. As far as I know the company has not confirmed this venture. For me, I need more concrete evidence to believe that this deal is done. As the Chrysler CEO puts it, the Auto industry is struggling with some fundamental issues, have a look at this preso.    

Similar items appeared on oil exploration in Sri Lanka’s east coast by French company Total, re-entry by Shell in the LPG market. Shell’s exit was explained in this by the Company.  

   

Bottomline

Don’t fuel a culture of blindly following news, especially the ones published with a view to gain political advantage. Just double check the accuracy and always try to evaluate the importance of these to the economy and thereby our decisions. (on the investments if you are an investor, cost of living and the real earnings for a person in the general public, etc). Because everything is politics…. I think thereby we can also work toward disciplining politicians and making them more accountable to what they do and say. (Broadly, in nurturing a conducive political culture and media  that is responsible).