A new president was announced in Sri Lanka last week, but the advertising industry in the country believes there’s still a long way to go before it returns to normalcy.
The country has been in turmoil since 2019.
In April that year, three churches and luxury hotels were bombed on Easter Day.
Campaign India learnt that the first blow agencies faced was at that time and they began letting go of staff.
In December 2019, the consumer sentiment improved leading to agencies looking to hire staff again. In March 2020, right before the Covid-19 pandemic hit, the country hosted its first advertising awards function in several years, for which Campaign India was invited to be on the jury. The awards were well attended and did reflect a flourishing industry.
Then came the global Covid-19 pandemic by the end of March 2020, which meant that consumer confidence lasted for just four months. This led to global lockdowns and the network agencies were ‘left with no option but to announce salary cuts’ for staff members.
As the country and the world figured out ways to deal with the pandemic, Sri Lanka faced its latest crisis – political unrest against the Government of now former President Gotabaya Rajapaksa. This led to protests in the capital, during which President Rajapaksa resigned and fled the country. The protests came on the back of the country's economic crisis, which was a result of Sri Lanka's foreign debt rising to 101% of the nation's GDP in 2021.
Talent drain
Even before the protests got to their peak and the President fled, there were a few requests from those in the advertising industry in Sri Lanka, writing to Campaign India to understand if there were jobs available in markets like India and the UAE. We also learnt that several staff members of digital agencies had already moved abroad for greener pastures.
Ogilvy Sri Lanka’s chairperson, Irvin Weerackody, stated that from its 120-member staff employed for digital operations, 10 have moved out of the country.
“We have lost some very good people from the digital side. For the digital space, business isn't the issue, resources are,” he said.
Mushthak Ahamed, chief operating officer, Hardtalk, Sri Lanka, agreed with the thought and stated that agencies are sticking to their talent and not inflicting job losses, but it’s the latter that wants out.
“Staff members have not been asked to leave nor have salaries been impacted as most established agencies have secured their revenues for the year and had ended their last FY on a strong note. It is a bit too early to see the outcome (of the latest crisis). Most agencies are surviving with their current rosters, however, given that there is a brain drain that is happening simultaneously, it has been challenging to source the right talent to replace them,” he said.
Sugibun Sathiamoorthy, co-founder, Magic Mango, echoed Ahamed’s sentiments.
He said, “Right from 2019 to now, we didn’t lower our agency strength and kept holding on to our people. However, talent migration is inevitable now, more than ever before.”
Ruchi Sharma, founder and chief creative officer, HumanSense, is also concerned about the brain drain. “Almost any bright person I know is polishing his/her resume and trying to get a job out of the country. Our industry's currency is its creativity. And it is very tough for creative juices to flow when your mind is bogged down with existential living issues like the cost of living, schools closing down, no fuel, power etc. Hopefully, it's a matter of time before we get our mojo back,” she said.
Ad expenditure
During this four-year struggle, Campaign India was told that plenty of ‘smaller agencies, which were support systems’ for the bigger, global agencies had to shut down.
It wasn't only the smaller agencies that have been impacted. WPP's Wunderman Thompson also had to close its operations in the country.
Shamsuddin Jasani, chief executive officer, Wunderman Thompson South Asia, confirmed the development through a statement shared with Campaign India.
“At our core we are a people business, it’s why this decision was not taken lightly. Despite doing everything we could do to keep our doors open during the increasing economic and political uncertainty, we are saddened to say our business and our people are not being best served in this region. We will do all that we are able to ensure our people will receive comprehensive support during this transition, including additional financial assistance and access to our global employee access plan for all impacted employees. We will also seek to ensure a managed transition and briefing to impacted clients, suppliers and partners."
But it’s not all doom.
2022 has seen ad expenditure in the country grow, albeit by just 3% over 2021. The year began on a promising note for the advertising industry, as media spends increased by 15% in January and 14% in February, compared to the same period last year.
Between March and May, the adex in the country dipped, but June saw a 40% growth, meaning the country’s expenditure in the first half of 2022 grew by 3% compared to 2021.
However, because of the foreign exchange issues, and the dollar crisis, the country’s print sector was severely impacted. It de-grew by 17% because of the restrictions on importing paper and ink, which led to reduced circulation. Due to the lack of fuel available (private car owners need to be in a seven-day queue), commuting by private cars has reduced significantly, and radio has been impacted and declined by 9%.
While the country faces a three-hour power cut, television hasn’t been impacted. Adex on the medium has seen a 5% increase with spends.
Alvin Gomesz, CEO and director, Mideation Integrated, explained that brands haven’t spent less during the crisis, but instead spent ‘smart’.
“Historically, Sri Lankan advertisers have always shown resiliency, no matter what the crisis. The need to keep the brands top-of-mind is crucial given the competitive landscape. Time and time again, brands who weathered all adversity and kept the flame burning, benefitted during the good times,” he said.
He added, “The escalating costs in fuel have added more burden to the print industry. Publishing houses had to limit the number of pages and the circulation in certain instances.”
Several studies during the pandemic revealed that print as a medium is trusted more than digital because the latter is sometimes associated with ‘fake news’.
But Gomesz claimed that even that couldn’t help print. “Most of these publications had the online version and therefore the need of the physical paper to look at trusted news was not felt that badly.”
Sathiamoorthy stated that the Covid-19 pandemic had created a ‘positive shift’ towards digital, which helped during this crisis.
“Ad expenditure did increase on digital. Categories like e-commerce, telecom companies and retail, were the big spenders during this time,” he said.
Chanaka Perera, director and chief strategy officer, Kites Global, added that while digital advertising has increased, profits for the agencies haven’t increased because of the foreign exchange issues.
He explained, “Digital expenses for clients have increased in some cases. However, when working with suppliers like Google and Facebook, the agency has to pay in USD for advertising. So companies have to spend more to reach the same level of reach they used to get due to the increase in USD with the LKR.”
The solution for this was empathy from the big tech companies.
“If companies like Facebook and Google can charge the local agencies through the local currency or exchange rates can be kept fixed for a certain period it will be beneficial for the client as well as the industry,” he added.
Weerackody stated that this crisis is not the end of the road for the industry or the country but there’s a lot of work that needs to be done to speed up its recovery.
“We are a ship-to-mouth economy. There are import restrictions now and that’s why the economy collapsed. At the moment, we have sunk to the bottom of the economy. Without a healthy society, the economy won't stay healthy. So, there can't be a healthy existence for advertising and marketing, during this time,” he said.
Weerackody also linked the current crises to what the country faced in the 70s when it had a closed economy. Back then, two big agencies faced the brunt and had to shut shop.
“We have faced such issues, back in the 70s, but the hardships were lesser. During that time, two agencies closed down - JWT (now Wunderman Thompson) and International Advertising (a leading local agency). JWT came back in the 80s after the economy was revived and set up an office here. So advertising suffered a serious setback. We are experiencing a similar situation in the advertising picture, now.”
Sharing some numbers, Weerackody revealed that the total ad spends in the country is set to reduce by 20% even though the new president has been elected.
“In 2020, during the Covid-19 pandemic, the total ad spends in Sri Lanka was LKR 19 billion. In 2021, despite Covid’s new variant and subsequent wave, it rose by LKR 5 billion to 24 billion. For 2022, while ad spends have increased in the first six months, there's a 20% drop in billing expected for the next six months. It also depends on what the Government will be forced to do,” he said.
Weerackody added that the Ogilvy group of companies is prepared for this drop and can absorb it.
However, Sharma had a contrarian view.
“In the case of multinationals, perhaps the parent companies are helping them ride this crisis, but local, independent and small agencies are facing grim prospects. I run a small, independent creative consultancy and my clients aren't doing much at the moment. Understandably, it's very quiet. There was a trickling of activity in the digital space but now with social media distracted with the current events, we have seen that stop too,” she said.
Recovery
Weerackody expects things to improve only by 2024 and suggested that the country can look at the India model for recovery.
He said, “For a strong economy, a robust middle class is needed. The middle class was doing well post 1978 when the economy opened up. Now, it's disintegrating and falling apart. We can only correct this if the Government gets rid of the loss-making corporations which are a real burden in the country. For Sri Lankan Airlines, we have to come into an arrangement with an airline (like Air India did), or in the long-term interest of the country, close down. We can't afford to lose a million dollars a day. Then there’s the petroleum industry and electricity boards making losses. We can't go on this way,” he said.
Sharma signed off with optimism, which we all can echo for the betterment of the country.
“Hopefully, it's a matter of time before we get our mojo back."
We agree.
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