Boost for SME sector By Lalin Fernandopulle Peace is essential to build business and investor confidence in a country. Sri Lanka has reaped the dividends of peace since 2009 which marked the end of terrorism in the country. Since then, the economy has been growing at a steady pace. The unemployment rate declined to a single digit and the Per Capita Income (PCI) rose above US$ 2,500 a month. The Government targets a PCI of US$ 4,000 by 2016. Pottery Industry Small and Medium Enterprises (SMEs) are a vital cog in the economy of the country. The backbone of the country’s economy, SMEs make up over 80 percent of businesses in the country. Small and medium enterprises are spread across all sectors of the economy - primary, secondary and tertiary - and provide employment to those who are differently skilled too. SMEs in the agriculture sector grow spices, fruits and vegetables and those in the manufacturing sector are involved in numerous industrial activities accounting for nearly 20 percent of industrial establishments. In the services sector, SMEs account for over 90 percent of businesses. They are an essential source of employment generation and are estimated to contribute around 35 percent of employment in the country. They play an important role in promoting inclusive growth. Business and industrial chambers and banks and financial institutions, through microfinance schemes, support a large number of small and medium sector enterprises in the country. The Regional Development Bank, Sanasa Development Bank, Hatton National Bank and NDB Bank are some of the banks that support SME development in the country. The role of the trade chambers in promoting SME development cannot be undermined. All chambers support SME development through various programs to enhance entrepreneurship skills and access to finance. National Chamber of Commerce of Sri Lanka (NCCSL) Secretary Sujeiva Samaraweera said that the Chamber supports around 2,500 small and medium-scale entrepreneurs in the outskirts of the country and added that many of these enterprises have grown into large-scale businesses. “The SME development project of the Chamber, which concluded last year, helped over 1,000 small and medium-scale entrepreneurs to develop their entrepreneurship skills, marketing of their products and enhance their legal knowledge”, he said. NCCSL supports a large number of SMEs in the North and the East with funding to expand their businesses. The Chamber provided livelihood assistance and empowered around 40 women entrepreneurs. Federation of Chambers of Commerce and Industry of Sri Lanka Past President Nawaz Rajabdeen said that SMEs are the backbone of the country’s economy and added that steps should be taken to promote sustainable regional SME development through the network of trade chambers. “Entrepreneurship skills should be developed at regional level for which the support of the government is paramount. There should be special venture capital schemes to support micro and small industries. The budget should focus on developing a vibrant SME sector in the country”, Rajabdeen said. Sri Lanka Chamber of Small Industries President Aloy Jayawardene said SMEs play a major role in the economy, but if this role is to be sustained, the small and medium entrepreneurs should be supported. Commercial banks provide a range of services to the SMEs to boost regional development. They provide low interest loan schemes for SMEs. Many micro-financing banks provide training on marketing and entrepreneurship development. The Hatton National Bank (HNB) has financed over 250,000 SME development projects and opened around 25 branches to cater to the SME sector in the North and the East since 2010. Government programs such as Gami Diriya, Divi Neguma, Gama Neguma, and Poverty alleviation Micro Finance Project (PEMP) promote a large number of small and medium sector enterprises in the country. Promotion of cut flower and foliage under the Divi Neguma dairy industry under PEMP, ornamental fish and prawn farms and a large number of cottage industries are developed through various ministries. The focus on SMEs in policy discussions emanates from their role in developing entrepreneurial skills, innovation and promoting economic growth. These are also seen as useful in promoting social cohesion. It is therefore essential that the environment these SMEs operate in is improved.Policy development focuses on issues such as gender bias, lack of knowledge and absenteeism among workers. There is a gender bias in SME employment and good equal employment practices are needed to correct this and to attract, recruit, retain and promote women in SME employment. SME entrepreneurs lack knowledge and experience of personnel management practices. That should be addressed while measures should be taken to increase worker attendance.According to a study, SMEs suffer from a lack of information exchange, leading to conflict, dissonance and other industrial relations issues. More systematic cooperation and consultation with stakeholders is promoted under the new SME policy. The key policy documents of the Government recognise the role of SMEs. The measures proposed to develop SMEs are skills development, tax concessions, entrepreneurship development, sub-contracting, marketing and access to finance. The focus on SMEs is guided by their potential to provide employment. The capital investment needed in this sector to provide an additional workplace is less compared to investment on large-scale enterprises. SMEs are very diverse, and consequently have different needs. Some are active while some are essentially dormant. There are issues of defining the size of enterprises. High and rising unemployment rates in the 1980s and 1990s have moved the employment question to the centre stage in the policy debate. The SMEs are considered to offer the potential to drive substantial employment growth as well as wealth creation in the economy, contributing greatly to the area of poverty alleviation as well. Small and medium-scale enterprises face many challenges in the globalised economy. SMEs cannot go on as mere suppliers, but they have to come out of their shell and explore opportunities in the globalised world. They should be empowered to deliver solutions to meet the needs of the dynamic markets. Business competitiveness has shifted from mass production with size and scale based advantages, to “lean production” where responsiveness, speed and constant re-invention reign supreme. The Government has launched a program to address the problems of SME sector entrepreneurs. The shortage of skilled workers is one of the major problems affecting SME sector growth. Measures will be taken to enable SMEs to hire skilled workmen. Policy measures to promote decent work practices and social protection of micro and SME sector employees will help enhance the productivity of workers.