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MSME sector development vital for achieving sustainable development

The MSME sector is the backbone of any country. It is not because of the number of people employed therein or the value addition to the national economy; it is because this sector helps solve numerous issues. Therefore, any country tries its best to promote and protect its MSMEs through deferent strategic and policy initiatives. Enterprise Sri Lanka was one of them, recently developed and launched by the previous government, which expected to develop 100,000 SMEs under this programme by mainly providing loans to prospective entrepreneurs. Successive governments have had similar programmes. However, they did not yield the desired results due to numerous reasons.

However, the present government has not yet launched a new programme to develop the country’s MSME sector. It can be expected to have a national programmes to develop MSMEs.

According to the Department of Census and Statistics (2013/2014) there are about 1,019,681 businesses in Sri Lanka. Out of them 99.2% are MSMEs. The micro, small and medium businesses account for 91.8%, 7.0% and 1% respectively of the total establishments in Sri Lanka. The employment generation of the MSME sector, in Sri Lanka is 44.6%, 17.6% and 12.9% respectively. The statistics of the Department of Census and Statistics Sri Lanka clearly shows that the contribution of the SME sector to the national economy is around 31.8% when compared to the large-scale business sector in the country. This sector is as important to Sri Lankan economy as the large-scale businesses.

There are important characteristics of this sector. Out of the 1,019,681 business units, many of them are located in the Western Province, and the Gampaha District has the highest number of industrial establishments in this province. According to the census of industries 2003/2004, conducted by the Department of Census and Statistics, Kurunegala, Gampaha, Colombo, Kandy, Kegalle and Katutara, respectively, have the highest number of industrial establishments in the country. Therefore, it clearly shows that there is a disparity in the distribution of MSMEs in the country.

Policymakers must look into this matter when promoting and developing the SME sector in the country.


Current Issues and Challenges Faced by the MSME Sector in Sri Lanka

There is no apex body to coordinate the activities of the MSME Sector in Sri Lanka right now. It is really a major issue when it comes to policy decisions related to this sector. Therefore, it could be noticed that there is a tug-of-war over policymaking and policy implementation. The Industrial Development Board and the Samurdhi Movement play a role in coordinating the activities in entrepreneurship development and MSME development. However, their involvement is not that effective and enough, due to the outdated mode of operation and approach. There is no proper data base in Sri Lanka, related to MSMEs and their activities. Sometimes, the data and the data bases available are not up-to-date or reliable. The Department of Census and Statistics of Sri Lanka has some data and data bases. However, they are also not clear and up-to-date to help understand this sector, which is in a pathetic situation today due to the uncoordinated polices. Such policies change from government to government and Minister to Minister. One can’t see any justifiable reason to change such policies as are related to the MSME sector. The previous government implemented the Enterprise Sri Lanka project. Sometime ago, the Divineguma Programme” and the “Wasanthaya Programme” were introduced. What happened to them? Today, they are no more. What has happened to the enterprise Sri Lanka programme? What has happened to the previous programmes? The uncoordinated polices and lack of national policies are the main issues in the Sri Lankan MSME sector. In any country, protection and promotion of MSMEs are the primary responsibility and task of the government. However, in Sri Lanka, it does not seem to be the case. The government tries to apply taxes to MSMEs in the similar way they are been applied to large scale businesses. It is very difficult for an MSME to get a loan even from public banks, which ask for collaterals, etc. Can Sri Lanka encourage MSMEs in this manner? There are many

procedurals to be followed when starting and running a business. Sometimes, the English language is a barrier for the MSME owners. They have to fill documents in English when applying for a loan or completion. They also have to fill many documents when registering their businesses and opening tax files. This type of procedural barriers affect the MSME performance in the country. Unnecessary laws and environmental protections have a high negative impact on the MSMEs, which do not have enough knowledge and funds to meet some legal requirements. During the previous government Sri Lanka was talking about Singapore-Sri Lanka Trade Agreement and the ETCA Agreement between the Sri Lanka and India. There are many other agreements like this. Do they affect the MSME sector in the country? How is the government going to protect them? There are many low-cost imports to the country, mainly from China. Therefore, how is the government going protect our SMEs from the products and services coming to the country under trade agreements and products and services coming to the country as direct imports.

In 1977, Sri Lanka opened up her economy. Many large scale foreign and local businesses came into being. Therefore, value addition especially from small industries, went down since the contribution from large industries went up exponentially. Hence, the emergence of large-scale businesses is a serious challenge for MSMEs in the country in competing with them. The Sri Lankan manufacturing MSMEs are in trouble since many people like to start service industries than manufacturing industries. Many people do not like to take a high risk of staring a manufacturing MSME in Sri Lanka. What can the government do about this? What can the public sector and private sector organisation do? What can the general public do? There are important questions to be raised here.

Globalisation is a great challenge faced by the Sri Lankan MSMEs. The technological advancement, innovations, telecommunication and transportation development are major components thereof. Thus, the MSME sector in Sri Lanka, has to face this phenomenon. The socio-cultural changes in the world and Sri Lanka drastically, can affect the customer preferences as well. These customer preferences affect businesses, mainly the MSMEs in Sri Lanka. Therefore, social cultural changes are also a major challenge for the MSME sector in Sri Lanka. (To be continued)