SME’s support needed for progress - Opportunity Sri Lanka
SME’s support needed for progress

SME’s support needed for progress

• The Government needs to make a stronger contribution to guide small and medium enterprises, which at the moment make up about 8%-10% of our GDP.
• Only 19% of the total loans have gone to SMEs, and in 2015 barely 1% was added to that. We must at least aim for 25% this year and work backwards to see how we can realise that target.
• The President called on the Finance Minister to widen the tax net and encourage more people to contribute to the national economy.
• Developed countries have shown that economies are driven by the private sector and it is questionable whether Sri Lanka makes the most of the resources at our disposal.
• The maritime economy has not been tapped, the President observed while areas such as Trincomalee have not been looked at as a resource for tourism and other industries.

President Maithripala Sirisena yesterday made an impassioned plea of support for small and medium enterprises as their development would directly improve the livelihoods of middle class Sri Lankans and called on his Finance Minister to create avenues to support private sector investment including providing tax concessions where possible.

Fiscal regulation and discipline has been in short supply in Sri Lanka where loans and other funds have not been invested judiciously, with significant corruption and mismanagement leading to high levels of debt, the President said while addressing the Sri Lanka Economic Summit 2016.

The Government and the people now have to bear massive debt and to emerge from this morass, the Government has to understand fiscal realities and these must also be considered by the private sector and the people, he told the gathering.

The public must be aware of these challenges, in many instances the public question the Government on why Sri Lanka cannot be developed like Singapore or Malaysia.

But these examples may have different political systems and they may also have stronger local companies and higher exports.

“The Government needs to make a stronger contribution to guide small and medium enterprises, which at the moment make up about 8%-10% of our GDP.

If the Government can support at least 20% of these enterprises then we can see stronger middle class development in Sri Lanka.

“Support for agriculture, healthcare and education has to be revisited but we cannot roll back subsidies completely. We have to strengthen the national economy while maintaining our welfare systems,” said Sirisena.

Taking a pragmatic view, the President stated that top industries, especially gem businesses, have the finances to invest in developing the country but they were reluctant to invest because there was little Government support and few mechanisms for them to invest in local businesses with minimum risk.

“Private sector stakeholders have also told me that the Government needs to give more tax concessions. I feel we need to pay attention to these aspects more.

Not only should we understand the economic challenges but they need to assist us as well. Politicians can tell fairy tales from election podiums and go on protest marches but the results of their short-sighted decisions are now being felt by the people.”

“We must guard against inflation so daily life does not become a burden to our people. We must be disciplined in this regard. Freedom, support and relief have to provided, we cannot expect those who pay taxes to pay more all the time while others are not tapped.”

The President called on the Finance Minister to widen the tax net and encourage more people to contribute to the national economy.

“Developed countries have shown that economies are driven by the private sector and it is questionable whether Sri Lanka makes the most of the resources at our disposal.”

The maritime economy has not been tapped, the President observed while areas such as Trincomalee have not been looked at as a resource for tourism and other industries.

Sectors that are represented here have to dedicate themselves to the development of the country with the support of the Government, Sirisena advocated.

OSL Take:

Key identification of World Bank:
• 600 million jobs are needed in the next 15 years to absorb a growing global workforce.
• Most formal jobs in emerging markets are with small and medium enterprises (SMEs), which also create 4 out of 5 new positions.
• Yet more than 50% of SMEs lack access to finance, which hinders their growth.
• A key area of WB work is improving SMEs’ access to finance and finding innovative solutions to unlock sources of capital.

SMEs are less likely to be able to secure bank loans than large firms; instead, they rely on internal or “personal” funds to launch and initially run their enterprises.

50% of formal SMEs don’t have access to formal credit.

The financing gap is even larger when “micro and informal enterprises” are taken into account.

Overall, approximately 70% of all MSMEs in emerging markets lack access to credit.

While the gap varies considerably between regions, it’s particularly wide in Africa and Asia.

The current credit gap for formal SMEs is estimated to be US$1.2 trillion; the total credit gap for both formal and informal SMEs is as high as US$2.6 trillion.

In Sri Lanka too, the access to Bank Loans is limited to large companies as banks are very reluctant to give loans to SME’s.

So the potential SME entrepreneur is discouraged to the point of them dropping their “inspirational projects” and opting for a low-paying monthly job at a “big company” in order to meet the needs of his/her family requirements.

However, at present the booming tourism and construction industries could open the doors for SME sector if the government lends a helping hand.

Share this:

Article Code : VBS/AT/03082016/Z-4

    For More Info and Help






    Leave a Comment