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The Role of SMEs in Sri Lankan Exports

The Role of SMEs in Sri Lankan Exports

2021-01-18

Small and medium-sized enterprises are businesses that comprise a lower number of employees, assets, or revenues at a lower scale when compared to large-scale firms. The exact definition for an SME may differ based on the country. In Sri Lanka, a business is considered as an SME if its number of employees does not exceed 300 individuals and if its revenue does not exceed 750 million LKR. (1)

SMEs play a key role in the wellness of many Asian economies. These entities require less capital than larger firms. Therefore, the growth of an SME provides more employment opportunities to the youth and supports the battle against poverty. They also can increase tax bases much quickly when compared to big organizations. This is good news for any government. (2)

SMEs in Sri Lanka

In Sri Lanka, socio-economic development is given massive support from SMEs. These businesses contribute up to 52% of the GDP. As a result, it is considered as the backbone of the economy. Some of the major sectors that are powered by SMEs include the agricultural sector, In the agricultural sector, SMEs account for over 90% of the total enterprises present in it. According to the records of the Department of Census and Statistics in the year of 2013/2014, SME establishments in Sri Lanka accounted for up to 1.017 million providing livelihood to nearly 2.225 million individuals in the non-agricultural sector. (3)

Sri Lankan SMEs are mostly rural-based. At the same time, the need to improve the exports sector by promoting their integration to the exports value chain has been identified as mandatory. This is an excellent opportunity for the country to improve its exports figures and increase the overall income of the country. The major export destinations for Sri Lanka are USA, India, Germany, Italy, and China. The Sri Lankan industrial exports accounted for 78.9% of all export earnings in 2019. Most of these SMEs are located in rural areas. (4) Therefore, they have become the dependent factor for many families when it comes to household income.

SMEs, however, face challenges when addressing financial reliability. This is mainly caused due to problems regarding financial access. This is because the narrative of SMEs is focused on the bigger picture of how these entities serve the country’s GDP. Therefore, it has been identified that a band-aid approach is required to address the small problems to establish a stronger foundation for the future of local SMEs.

The Future of Sri Lankan SMEs

Just like any other entity, Sri Lankan businesses are also blending themselves to address the elephant in the room, COVID-19. Since these businesses are funded by individual entrepreneurs, they faced financial insufficiency with the outbreak of the pandemic, which led to the closing down of most businesses. Most of the businesses that were fueled by bank loans were left in debt due to their inability to pay back. On 20th March 2020, the Central Bank of Sri Lanka introduced a set of range of fiscal and financial concessions for these businesses. SMEs carrying out business activities in the sectors of manufacturing, services, agriculture, construction, value addition, and trading businesses were eligible for these reliefs. (5)

The Colombo Stock Exchange and Securities and Exchange Commission of Sri Lanka has appointed a board that goes by the name of, “Empower” that is dedicated to SMEs enabling the CSE to improve the SMEs access to finance. This is done in a manner that government standards are balanced while these businesses are provided with the opportunity to build credibility. SMEs have the chance to improve their visibility with this program. “Empower” also helps to attract more investors to the sector. (6) Sri Lanka is a developing country that is going through the process of recovering itself after ending 30 years of war. This has led to a lot of infrastructure development. These establishments not only support SMEs, but also the continuous flow of various industrial activities.

In addition, EDB Sri Lanka too have launched a new exporter development and SME training program that seeks to assist SMEs and women led SMEs in Sri Lanka helping them to explore new markets and financial opportunities.

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