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SJB MPs Dr. Harsha de Silva (left) and Eran Wickramaratne
The main Opposition the Samagi Jana Balawegaya (SJB) this week warned in Parliament that the crisis faced by the Micro, Small and Medium Enterprise sector is worsening and called for urgent measures including new efforts to ease their plight.
SJB MP Dr. Harsha de Silva led from the front to shed light on the dire state of the Micro, Small, and Medium Enterprises (MSME) sector in a compelling speech delivered in Parliament.
He emphasised the urgent need for comprehensive measures to address the mounting challenges faced by these enterprises, which are crucial to the country’s economy and employment landscape.
To provide immediate relief to the struggling sector, Dr. de Silva called for a two-year suspension of Parate Execution for non-wilful defaulters and the introduction of insolvency legislation to support MSMEs.
De Silva highlighted the significant suffering experienced by the MSME sector, with businesses closing down, jobs lost, entrepreneurs facing bankruptcy, and even tragic cases of suicide. Painting a grim picture, he emphasised that approximately 80% of Sri Lankan enterprises fall under the MSME category, contributing 52% to the country’s GDP and accounting for 45% of employment opportunities.
The MP pinpointed a series of events that have inflicted severe blows on the MSME sector since October 2018, including the constitutional coup, the Easter attacks in 2019, the COVID-19 pandemic, and the subsequent economic crisis triggered by Sri Lanka’s declaration of bankruptcy in April 2022. These calamities have resulted in a cascading effect on banks, Government institutions, and the general population as a whole.
While the Government has proposed some solutions, MP Harsha de Silva argued that the deteriorating economic conditions have exacerbated the situation, leading to further neglect of the struggling MSMEs. Recognising the immense impact of these issues, he expressed his willingness to support the Government in any endeavour aimed at revitalising the MSME sector.
To tackle the challenges faced by the MSME sector, MP de Silva presented four key points during his speech:
Firstly, he highlighted the need to alleviate financial constraints faced by MSMEs. He pointed out that the lack of financing options has forced many MSMEs to seek collateral loans from banks, but the economic meltdown has made it difficult for them to repay these loans. As a result, banks have seized their assets under the Parate Execution Act. From 2023 January to April alone over 400 assets have been seized. MP Harsha proposed an ‘investor-equity eco-system model’ as an alternative to collateral loans or venture capital, which would generate localised economic growth and provide investment opportunities for MSMEs.
Secondly, the MP emphasised the pressing need to address the escalating cost of production. He highlighted how inflation and increased interest rates have placed significant burdens on MSMEs, making it challenging for them to sustain their operations. The rising import costs have further contributed to the increase in production expenses thus, reducing their competitiveness. Additionally, bureaucratic hurdles and high-cost utilities have added to the difficulties faced by MSMEs. In light of this, MP Harsha urged for comprehensive trade policy reforms, streamlined trade facilitation, and increased regional collaboration to enhance the competitiveness of MSMEs.
Thirdly, Dr. de Silva identified problems with Government policy as a significant hindrance to the growth of MSMEs. He pointed out that the absence of a clear and universally accepted definition for MSMEs limits their recognition and support. He also criticised the high tax rates of 30% imposed on even micro and small businesses, urging for amendments to tax policies.
Furthermore, he advocated for the establishment of an ‘SME Authority’ that would centralise the functions of various institutions, simplifying the authorisation processes for MSMEs. This authority would coordinate regional programs, leverage resources from Government institutes, and engage private agencies and organisations to facilitate efficient service provision. By implementing these proactive measures, Sri Lanka can extend crucial support to struggling MSMEs, paving the way for their revival and fostering sustainable growth.
De Silva also emphasised the significance of integrating MSMEs into global value chains. He noted that Sri Lanka’s limited consumer market necessitates focusing on producing key components for global value chains. MP Harsha proposed substantial trade reforms and enhanced business models to enable MSMEs to participate effectively in global value chains. He also suggested reducing the minimum investment requirement for obtaining BOI (Board of Investment) approval to facilitate funding for MSMEs, as it currently stands at $ 500,000.
In his concluding remarks, MP Harsha de Silva recommended the formation of a bipartisan parliamentary committee to engage with the MSME sector, discuss proposed solutions, and find ways to address the challenges faced by these enterprises. He emphasised the importance of giving special attention to SMEs when connecting to global value chains, citing a paper by Dani Rodrik and Kaushik Basu.
With the MSME sector being the backbone of Sri Lanka’s economy, MP Harsha de Silva’s passionate speech serves as a wake-up call for immediate action to support and revive these enterprises, which are currently struggling under the weight of economic hardships.
Fellow SJB MP Eran Wickramaratne too called on the Government to extend debt moratoria offered to small and medium businesses.
He said following the fallout of the pandemic, the prolonged economic crisis has heaped further burden on SMEs, and warned the failure to provide relief could result in more job losses.
“This cannot be done by the banks alone, the Government should take a policy decision with the involvement of the Central Bank to ensure the implementation of the moratorium extended in the past,” he said.
Wickramaratne added there is no need for the Government to always act according to the conditions of the International Monetary Fund, and an immediate decision must be taken for the good of the country.
According to Wickramaratne, the SME sector contributes about 50% of GDP and two-thirds of the employment sector, and therefore the Government cannot afford to turn a blind eye on the challenges faced by the sector. He added SMEs currently lack capital and have limited access to finance and required skills amidst regulatory barriers that impede access and knowledge on foreign markets.
“The Government must adopt a firm policy for the betterment of SMEs which contributes to GDP immensely, as many have withdrawn from the production process due to increase in utility costs such as water and electricity charges, petroleum and transportation. This is not their fault, but the Government has failed to offer solutions and relief to them,” Wickramaratne added.
The Parliamentarian stated that many large facilities provided to a number of big businesses have been written off by State banks, whilst property of smaller entities are auctioned off when they are unable to meet commitments. Wickramaratne said these are not the faults of banks but the result of poor management and poor policy, as non-performing loans climbed almost 4% in 2022.
He urged the Government should immediately implement a system to provide relief to small and medium businessmen and producers who are facing difficulties. If there is no solution to the problem, unemployment may increase to one million in the future, he said.
