Markets before capital?

An expanded version of Enterprise Sri Lanka is scheduled to be launched today and together with the Gamperaliya programme is clearly at the center of the Government’s election campaign push. By last October Enterprise Sri Lanka had disbursed over Rs.58 billion to over 30,000 people and plans are afoot to expand it in Budget 2019, which is expected to be presented to parliament in March.  

Enterprise Sri Lanka is partly funded by the Asian Development Bank (ADB) but a significant part of it is still made up of public funds. The programme provides a range of loans to entrepreneurs at preferential interest rates, which will be paid by the government. Given Sri Lanka’s growth challenges there is certainly a case to be made for fostering entrepreneurship but there is also much auxiliary support that needs to be provided to ensure tax payer money is not wasted.    

Enterprises create jobs and wealth. Without the dynamism they bring to the economy, the challenges of globalisation and structural change would be all but insurmountable. Fostering entrepreneurship means channelling entrepreneurial drive into a dynamic process which takes advantage of all the opportunities the economy can provide.  

To flourish, entrepreneurship requires efficient financial markets, a flexible labour market, a simpler and more transparent corporate taxation system and bankruptcy rules better adapted to the realities of the business world. Clearly, the right balance between these factors is not easy to strike. But strike it Sri Lanka must, because fostering entrepreneurship is not only a major economic imperative but also an urgent challenge that must be met to reconcile the goals of economic growth and social cohesion. 

In Sri Lanka the situation is somewhat complex. On one hand there are large corporations, mostly based in Colombo, that employ thousands of people and are the backbone of the private sector and on the other are hundreds of thousands of small enterprises that employ up to a few dozen people and are mostly based in rural areas. The middle is conspicuously empty and while brave new innovation focused startups have attempted to colonise this space, they remain largely scattered. 

One of the main issues that startups and entrepreneurs in Sri Lanka have is funding. The other 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 programmes to foster entrepreneurship in Sri Lanka but many of these 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. However, 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 the government has 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. 

Not all entrepreneurs are successful, in fact many of them struggle, and even from the successful ones, still fewer become exporters. 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.