The SMEs left behind by Sri Lanka’s economic model

A protected enterprise may survive. A competitive enterprise can endure. This is not an argument against carefully managing economic transitions or supporting vulnerable sectors. It is an argument for recognising that lasting prosperity cannot be built behind permanent walls. Competition, though demanding, has consistently proven to be the stronger foundation for innovation, productivity, and export growth 

I have long believed that the strength of a nation's economy is measured not by the size of its largest corporations, but by the opportunities available to its smallest enterprises. Countries that create pathways for entrepreneurs to compete internationally build resilience that no subsidy can provide. It is from this conviction, not from a preference for one economic model over another, that I write today.

For decades, Sri Lanka has described small and medium-sized enterprises (SMEs) as the backbone of our economy. Every government has reaffirmed their importance. Every national development strategy has recognised their contribution to employment, regional development, and inclusive growth. Yet our policies have too often treated SMEs as beneficiaries of assistance rather than builders of national prosperity. We have become remarkably good at helping businesses survive. We have been far less successful at helping them grow.

The Government's SME Nexus National Strategic Framework deserves recognition. Its emphasis on business registration, finance, digital adoption, and export readiness, together with initiatives by the Asian Development Bank, the Export Development Board, CA Sri Lanka, SLIM, and the Ceylon Chamber of Commerce, demonstrates a genuine commitment to supporting entrepreneurs. 

These initiatives matter. But they do not address the deeper structural challenge. A business may receive training and finance yet remain confined to a domestic market too small for long-term growth.

We have helped businesses survive. We have not helped them scale

Sri Lanka's SME policy has historically been shaped by welfare objectives. Subsidised finance and livelihood programs have improved countless lives, but they have also encouraged us to measure success by the number of businesses supported rather than the number transformed. Too many enterprises remain trapped in low-productivity sectors, disconnected from global supply chains and constrained by fragmented regulation and limited access to long-term growth capital. We have built an ecosystem that preserves small businesses more effectively than it creates globally competitive ones.

Sri Lanka's problem is a lack of continuity

Sri Lanka has not lacked success stories. What we have lacked is the institutional determination to build upon them.

Several years ago, Sri Lanka successfully initiated exports of poultry products to Oman, opening an entirely new market for domestic producers. Around the same period, initiatives were launched to expand exports of fruits and vegetables under the leadership of the then Minister of Agriculture. These were not symbolic achievements. They demonstrated that Sri Lankan producers could satisfy international demand when Government agencies, exporters, and producers worked together toward a common objective.

Yet, the important question is whether those early successes evolved into sustainable export industries or whether they stalled because the institutional support ended after the first breakthrough.

These are not questions of historical curiosity. They are questions of public policy.

Too often, Sri Lanka celebrates the first shipment and forgets the hundred that must follow. We launch programs with enthusiasm, announce new markets with understandable pride, and then move on to the next initiative before ensuring that the previous one has matured into lasting commercial success.

Commercial diplomacy cannot be measured by inaugural ceremonies. It must be measured by whether Sri Lankan businesses are still exporting successfully five or ten years later.

We must build Sri Lankan exporters, not simply facilitate foreign buyers

International supermarket chains have increasingly established procurement operations in Sri Lanka to purchase fruits and vegetables directly from local farmers. While this creates valuable market opportunities, it does not necessarily strengthen Sri Lankan exporters. Farmers receive payment in rupees while branding, logistics, distribution, and international commercial relationships remain abroad. Sri Lanka should welcome foreign buyers, but it should also build local companies capable of exporting directly and earning foreign exchange through their own commercial networks.

Sri Lanka has capable entrepreneurs, strategic geography, competitive industries, and access to global markets. What we lack is continuity

Protection has preserved businesses. Competition builds great businesses

The same pattern can be seen in our approach to trade. For many years, Sri Lanka relied heavily on import protection through para-tariffs and other barriers designed to shelter domestic industries. These policies often emerged from understandable concerns about employment and local production. Yet protection, when prolonged, carries consequences of its own. Businesses accustomed to protected markets face fewer incentives to innovate, improve productivity, or compete internationally.

A protected enterprise may survive. A competitive enterprise can endure.

This is not an argument against carefully managing economic transitions or supporting vulnerable sectors. It is an argument for recognising that lasting prosperity cannot be built behind permanent walls. Competition, though demanding, has consistently proven to be the stronger foundation for innovation, productivity, and export growth.

Other countries chose to build competitiveness

Other nations confronted many of the same challenges. Their responses differed, but they shared one important characteristic: they treated SMEs as strategic economic assets rather than permanent recipients of assistance.

China deliberately identified highly specialised firms with the potential to dominate niche global industries. Through its "Little Giants" program, public resources were concentrated on companies capable of leading advanced manufacturing, robotics, precision engineering, and emerging technologies. At the same time, China organised industries into specialised regional clusters where manufacturers, suppliers, logistics providers, research institutions, and testing facilities strengthened one another. Digital infrastructure became shared national infrastructure rather than an advantage available only to large corporations.

India pursued a different path. Instead of beginning with industrial clusters, it removed structural barriers preventing SMEs from growing. The Trade Receivables Discounting System improved liquidity by allowing businesses to receive early payment on outstanding invoices. Udyam simplified the formal registration of millions of enterprises. The Open Network for Digital Commerce expanded market access through open digital infrastructure, while specialised financing mechanisms reduced excessive dependence on conventional bank lending.

Estonia demonstrated how a digitally integrated state could dramatically reduce administrative burdens through online public services, digital identity, and seamless business registration. Singapore approached the challenge with equal pragmatism, positioning Government not merely as a regulator but as a productivity partner by providing sector-specific digital roadmaps, technology adoption support, and coordinated transformation strategies.

These countries differ greatly in geography, politics, and economic history. What unites them is clarity of purpose. None believed domestic demand alone would sustain long-term prosperity. None treated SMEs as businesses whose highest aspiration should be survival.

Sri Lanka's foreign policy must become an economic strategy

It is here that Sri Lanka's foreign policy must evolve.

Our embassies should not function primarily as protocol offices. They should become active facilitators of trade, technology partnerships, investment, and market access. Every major diplomatic mission should know which Sri Lankan businesses are export-ready and actively connect them with international manufacturers, distributors, retailers, investors, certification bodies, and technology partners.

Our international engagement should also focus on attracting technology alongside capital. Cooperation with countries such as India, Japan, Singapore, South Korea, China, and our European partners should increasingly include artificial intelligence for SMEs, digital manufacturing, industrial automation, quality certification, export logistics, and digital trade systems. Technology transfer strengthens competitiveness long after individual investments have been completed.

Trade agreements should reflect the same philosophy. Their success should not be measured solely by tariff schedules negotiated between governments. They should include practical mechanisms that make it easier for smaller exporters to participate through simplified procedures, standards recognition, digital customs cooperation, technical assistance, and business matchmaking.

Economic diplomacy cannot replace domestic reform. A Foreign Minister cannot independently redesign taxation, customs administration, industrial policy, or financial regulation. Those responsibilities properly belong to the relevant ministries and require collective Cabinet decisions. But diplomacy can reinforce those reforms by ensuring that Sri Lankan businesses are connected to global markets, international technology, and commercial partnerships.

Embassies should increasingly be evaluated by the export partnerships, technology transfers, and investment opportunities they help create.

Our SMEs do not need another generation of sympathy. They do not need to remain permanent recipients of programs designed merely to sustain them. They need larger markets, stronger technology partnerships, deeper integration into global value chains, and a foreign policy that recognises them not as beneficiaries of development, but as creators of national prosperity

Sri Lanka cannot afford to celebrate beginnings

Sri Lanka has capable entrepreneurs, strategic geography, competitive industries, and access to global markets. What we lack is continuity. Lasting prosperity is not built by first shipments or isolated programs, but by institutions that help businesses grow year after year.

Our SMEs do not need another generation of sympathy. They do not need to remain permanent recipients of programs designed merely to sustain them. They need larger markets, stronger technology partnerships, deeper integration into global value chains, and a foreign policy that recognises them not as beneficiaries of development, but as creators of national prosperity.

That is the economic diplomacy Sri Lanka should aspire to build.

(The author is a Member of Parliament)