Getting to the root of SME plight

With Cabinet this week finally approving a much-touted debt relief package for Small and Medium-sized Enterprises (SMEs) with the goal of boosting the economy, it brings to focus the real reason as to why so many SMEs are struggling with loan repayment. Namely, lending initiatives that keep falling short in terms providing individuals with the necessary training and know-how to get their businesses off the ground.

The latest example of this was the Enterprise Sri Lanka program introduced by the previous administration, which allocated an estimated Rs. 60 billion to support thousands of potential entrepreneurs. The target was to create 100,000 entrepreneurs by 2020, and this policy was largely supported by the point that Sri Lanka has less than 2% of entrepreneurs.

Indeed while some 75% of all Sri Lankan enterprises are categorised as SMEs according to the Ministry of Industry and Commerce, the country still lags behind in relation to its regional neighbours when it comes to entrepreneurship.

In Vietnam, 19.6% of the working population are business owners or employers, while in Thailand, this number is even higher, at 27.5%. Countries with higher populations such as Bangladesh and China report 11.6% and 7.5% respectively, which correlates to a fairly large number in totality.

In countries with populations equal to Sri Lanka, the rate remains at a steady 10%. Sri Lanka by comparison has approximately 230,000 employers or business owners. As such it’s clear that the country dearly needs to increase the number of entrepreneurs in the country to realistically compete in the global economy and achieve its touted growth targets.

Therefore, Enterprise Sri Lanka was proposed as a means of helping Sri Lankan’s kick-start their entrepreneurial ambitions. It provided SMEs (Small and Medium-sized Enterprises) concessionary loans with extremely favourable repayment schemes, where significant portions of interest repayments – ranging from 25% to a full 100% - were undertaken by the Government.

This addressed one of the main issues that start-ups and entrepreneurs in Sri Lanka have – funding. However the other problem start-ups have is adequate mentoring and networks linking them to the market. Enterprise Sri Lanka provides the answers to one of these issues but does little to meet the other needs to mentoring and markets. For decades, the Government has rolled out numerous programs to foster entrepreneurship in Sri Lanka but many of these have become import substitution efforts rather than export-focused ventures. 

In today’s highly-competitive world, companies need to be ‘born global’ so they are able to link to global value chains and grow into competitive industries. Though the process for supporting companies, linking them to potential investors, and targeting export opportunities is extremely difficult. This process is also closely linked to improving Sri Lanka’s overall ease of doing business environment, where successive Governments have failed to make a significant mark. As the overall structural changes needed to make Sri Lanka’s economy more competitive lags behind, finding markets and supporting entrepreneurs becomes ever harder. 

Entrepreneurship is the golden promise that all countries run after and few achieve. Keeping that in mind, the Government has to be more careful of how it spends public funds and aim to genuinely make, at least some of it, count.