Sri Lanka’s Micro, Small and Medium Enterprises (MSME) are considered to be the backbone of the country’s economy. It plays a huge role in the socio-economic development and estimated to contribute 52 percent to the Gross Domestic Product (GDP).
The MSMEs account for over 90 percent of the total enterprises in the non-agricultural sector and 45 percent of the total employment, according to the UN Sustainable Development Goals report of May 2020.
As per the Department of Census and Statistics Economic Census 2013/14, the number of establishments in the SME sector is 1.017 million, providing livelihood to nearly 2.255 million persons in the non-agricultural sector.The total MSME sector accounts for 99.8 percent of the total establishments in the country. The sector accounts for 75 percent of the total employed in the non-agricultural economic sector, according to the UN.
Impact of pandemic
Needless to say, the impact of Covid-19 to the economic backbone has been huge, leading to the closure or halt of a vast number of MSMEs across the country.
The pandemic which started in early 2020 was the beginning of the disaster for them with the lockdowns and school closure. With patient numbers increasing and hospitals overflowing, the MSME sector was hard hit by continuous restrictions. The daily wage earners were the most affected with their financial status hitting rock bottom.
According to the Tourism Development Authority (TDA), the income from the tourism industry which recorded US$ 3.59 billion in 2019 was the most hit due to worldwide travel restrictions and border control measures. In January, February and March of 2020, the tourist arrivals dropped by 6.5 percent, 17.7 percent and 70.8 percent respectively and in April it reached almost100 percent level (TDA).
The indirect employees of the tourism sector are mostly from the MSME sector affecting them severely. Similarly, sectors such as the apparel, footwear and leather, processed food industry, handloom and handicraft where the MSMEs play a huge role has seen drastic losses in the pandemic period.
Relief
The government took several relief measures to protect the MSMEs during this period by introducing a wide range of fiscal and financial concessions. However, the breakdown of their supply chains due to lockdowns has left the sector struggling to keep its head above water.
However, there are positive stories as well where entrepreneurs were able to think on their feet, and become creative to get their products out even during the pandemic. More and more people started using the online platform for marketing products and services with diversified packages.
Prof. N. Abeysekara, Head of the Department of Marketing at the Open University, during a webinar recently highlighted the opportunities that can be grabbed during a pandemic period.
“This is the time to learn something new, especially financial literacy. The problem with our small and medium scale entrepreneurs is that they are stuck in a vicious cycle of debt. Many don’t know how to save or invest prudently. It is important to have this knowledge. When people get a bit of money, they spend on unnecessary things to show off. They fall further into a debt trap. Happiness is not the accumulation of material wealth. It is more in the simple things such as a positive feedback from a customer,” he said.
Prof. Abeysekara also highlighted the need to be creative in trying times, drawing an example from China. “A salon in Wuhan had to shut down due to Covid. But they did not stop operations. They gathered up some 100 beauticians and carried out promotions through Chinese social media. Amid the crisis, their income doubled. Likewise, entrepreneurs need to be ready to adapt to changes,” he said.
He added that there are success stories even in Sri Lanka. “A group of youngsters, who made a living by organising conferences, had to give it up due to Covid. But they switched to online deliveries and earned enough money,” said Prof. Abeysekara reiterating that entrepreneurs can protect themselves by being creative.
The importance of being multi-skilled during a pandemic situation needs to be considered too, especially when the pandemic offers more time to hone skills and reboot. Entrepreneurs should look to expand their entrepreneurship by acquiring more skills thereby coming up with creative ideas.
Dr. Anil Jayantha, Senior Lecturer at the University of Sri Jayewardenepura spoke about Government interventions to protect the MSME sector.
Examples
“Other countries have given priority to the MSMEs when releasing money. Those governments saw it as a collective responsibility, especially in Europe which has welfare states.
Some people argue that the state has little to do within a market economy. But this is wrong.Countries such as Singapore, spend a bulk of the spending on salaries in the SME sector because they realise that the downfall of the MSME sector would have long-term implications to the national economy.
Even in Sri Lanka, we saw Government interventions. However, the strategies need to be better organised. Money printing should target to uplift the local economy. It should go to production and services. As per my knowledge, the printed money mostly went back to the banks and the stock markets without spending on production,” he pointed out.
Dr. Jayantha added that entrepreneurs need to be supported after assessing their capabilities, be it financial support or guidance. “We have to identify the problems faced by entrepreneurs in their business models and later develop them with value additions.
For financial stability, the entrepreneur has a big role to play. Stability does not mean saving it or piling it up in a bank. This attitude has to change. Entrepreneurs need to put the money in a cash flow where the speed of cash flow can be decided on their capacities.”
Technology
He also highlighted the need to use appropriate technology to gather information rather than relying on instinct. “Technology is not appropriately linked. We need to consider this rather than relying on trust, instincts and emotions. There needs to be a shift from beliefs to knowledge from proper sources. The government mechanism also needs to be smooth and enabling for the entrepreneur.
Most entrepreneurs get discouraged with the existing system which is too tedious. These problems need to be addressed to protect the entrepreneur,” he said. Networking and the exchange of knowledge and skills would also help entrepreneurs grow together, he added. While it is important for state entities to provide relief packages to the MSME sector, it is also important to consider how entrepreneurs can save themselves, which is by learning to become more resilient, thinking innovatively and acquiring more skills.