It is a well-known fact that small and medium-scale enterprises (SMEs), comprising trade, services, and manufacturing, put in a large proportion of revenue, employment, and innovation into the Sri Lankan economy. Regarded as an essential strategic sector in Sri Lanka, SMEs make up 52 percent of the GDP and 45 percent of national employment.
SMEs play an enormously crucial part in any economy, particularly in developing countries. This important sector demonstrates the most unique contribution to the growth of a country, and Sri Lanka is no exception. Above all, in this dire economic situation, SMEs can provide more employment opportunities than many other sectors, if proper plans and assistance are provided.
In Sri Lanka, SMEs also contribute immensely to national output. At this crucial point, the Government’s attention to the suffering SME sector is extremely important as their success or failure can have a substantial economic and social impact on the country. In addition, SMEs can play a pivotal role in achieving sustainable recovery from the current dire economic situation where external help is delayed for unavoidable reasons.
However, the common belief of the stakeholders of the SME sector is that they are being neglected by successive Governments, including the incumbent, despite their visible representation in a number of forums. The Easter Sunday attacks, the Covid-19 pandemic, and the current gruesome circumstances resulting from the economic crisis all dealt a triple blow to these businesses.
According to statistics, SMEs account for 80 percent of all enterprises in Sri Lanka, making up a significant portion of its economy. These can be found in all economic sectors, including the primary, secondary, and tertiary ones, and they offer jobs to people with a variety of talents, including skilled, semi-skilled, and unskilled workers.
It should be said that while the percentage of SME enterprises in the industrial sector is 20 percent, it is over 90 percent in the service sector. Additionally, SMEs, which are projected to account for around 35 percent of employment, are a crucial source of job prospects in the country.
Commercial operations
SMEs related to manufacturing, imports, exports, tourism, apparel, construction, and many such commercial operations struggle to survive for reasons beyond their control. Most of the entrepreneurs who are engaged in micro, small, and medium-scale business operations revealed that they are unable to proceed further, warning the Government of mass job losses in the near future. Such a situation is certain to create huge social unrest that may even lead to anarchy.
The impact of the ban on imports is severe, although the Government is set to review the amendments required every two weeks. The SME sector is doubtful that the severity of the situation can be decreased with mere reviews.
Most entrepreneurs doubt the efficiency of the bureaucrats and politicians who are responsible. Currently, for most businesses, specifically industrialists, procuring raw materials has become impossible and continues to shackle the day-to-day operations of industrialists.
As a result of the negative impact on SMEs, a new threat is forthcoming in Sri Lanka. Numerous direct and indirect jobs are in danger, according to industry insiders, due to the government’s restrictions on the import of raw materials and other financial constraints. Significant increases in bank interest rates and the rising cost of labour have also been added constraints.
The construction and tourism industries in the small and medium-sized business sectors have suffered the first losses as a result of Covid-19 and later. Despite the tourism sector showing obvious signs of a strong rebound, the construction sector, with its sizable direct and indirect workers, was negatively impacted, with the majority of construction projects coming to a halt.
Although the new Government has pledged financial assistance to the SME sector, the usual lethargy prevails in financial institutions. This writer met with several medium-sized business owners who said getting a loan required a lot of difficult steps, even when the highest authorities sanctioned such loans. The final approval is either delayed or the request is completely rejected because the majority of these small and medium-sized business owners are not well-versed in the preparation of sensitive documents such as project reports, and so on.
Their complaint is that the majority of these banks provide huge organisations with facilities at preferential interest rates and discounts. They thus anticipate Government action to provide further benefits and exemptions for SMEs’ financial needs.
Market situation
Contrarily, the several bankers who voiced their opinions claimed that banks must implement strict rules and be particularly vigilant about the current market situation. They said that the borrower frequently used the money received for the SME program to pay for matters outside the loan purpose. However, the general view of banks is that they are releasing as many loans as they can for SMEs with the help of the Central Bank’s Bank Supervision Department.
Despite its enormous significance, the Sri Lankan SME sector is not without its own problems and issues. Over the years, many shortfalls and weaknesses have been identified. Perhaps now is the time to address those pitfalls and discuss remedies.
The lack of entrepreneurial interest in technological advancements, managerial skills, and entrepreneurial culture was detected by researchers in the Sri Lankan MSME sector business owners, particularly in the industry segment. Although occasional attempts were made by relevant authorities, time and again, none continued successfully. The encouragement of the development of such entrepreneurial traits has not been done with a proper long-term strategy or plan, despite the importance.
Inadequate financial assistance by State and private banks has been another hindrance the SME sector has faced for many years. Many entrepreneurs engaged in small and medium-sized operations revealed that even before the economic crisis, obtaining a business loan from a bank was virtually a nightmare. However, the banks’ version is that if the documentation and the required authorisations are in order, they release the loan.
Another weakness in Sri Lanka’s industrial sector is the over-dependence on the import of raw materials and other inputs. Although clear records of the raw material requirements by industries in Sri Lanka are not available, random representations are being made by certain segments, on and off.
The exact nature of the exact requirement of the nature of such raw material imports or monetary figures has not been introduced thus far by experts or researchers, as per this writer’s knowledge. Hence, it is time to collect data on this important aspect and prepare for the future.
Most important
At these troubled times, the country needs all its resources to be gathered towards a common goal. Reviving the troubled SME sector is perhaps one of the most important tasks of the Government at this point. There is no doubt that SMEs can ease the pressure from households by continuing to provide employment that is under severe threat currently. On the other hand, SMEs’ contribution to the overall economy is crucial to easing the current economic hardships.
Hence, the Government must consciously support required areas such as technology, business knowledge, market opportunities, and other policy-related assistance. Also, whilst imposing restrictions on non-essential imports, they must relax the maximum amount of restrictions on raw material imports to help indigenous industrialists. The development of small and medium-scale enterprises with local industrialists will immensely assist the economic revival.