Export-Oriented Entrepreneurship to Boost Sri Lanka's Economic Growth

Over the past decade, Sri Lanka’s export of goods and services, as a proportion of the Gross Domestic Product (GDP), has declined. With the intention of boosting economic growth, the present government has adopted an export-led economic growth strategy, whereby increasing bilateral and multilateral trade. The National Trade Policy of Sri Lanka recognizes the need to boost Sri Lanka’s exports, and increase international trade for sustainable economic growth. While focusing on diversifying Sri Lanka’s export basket as well as export destinations, entrepreneurship is a pillar in promoting the country’s exports.

Between 2012 and 2016, Sri Lanka’s economy witnessed an average annual growth of 5.3%, while South Asia grew at a rate of 6.6%. Such lackluster economic performance in Sri Lanka, compared to the region, calls for emerging entrepreneurs and existing export-oriented Small and Medium-sized Enterprises (SMEs) to take a more prominent role in increasing Sri Lanka’s outward orientation towards boosting economic growth.

The Need to Ameliorate Entrepreneurship in Sri Lanka

Entrepreneurship has been given much emphasis in the National SME policy framework of Sri Lanka. Presently, SMEs of Sri Lanka have been recognized as the backbone of the economy and account for more than 75% of the total number of enterprises, provide 45% of the employment, and contribute to 52% of the GDP. Further, it offers employment opportunities for youth employment and empowers women. The government recognizes that focusing on developing entrepreneurship would be momentous; as such skills positively influence economic growth.

Stumbling Blocks for Entrepreneurs in Sri Lanka

Despite the recognition given towards entrepreneurship and its' importance, an ecosystem that nurtures future and potential entrepreneurs, effective policies that facilitate startups and government initiatives to encourage longevity of businesses is what Sri Lanka lacks. The Global Competitive Report 2016/17 identifies the prevalent challenge for doing business domestically to be policy instability. The ad hoc changes to policies and practices have curtailed business confidence, due to its effect on productive economic decisions such as investments, production, and labor supply. Policies in Sri Lanka have predominantly been driven by political agendas, aimed at addressing short-term issues, rather than addressing the causes that hinder long-term economic growth. High level of bureaucracy and lack of transparency in policy formulation further aggravates the uncertain business environment. The inability to find reliable and timely information regarding regulation and compliance procedures of the country burdens particularly small-scale entrepreneurs seeking to export their products.

Despite the emerging global trend of startup companies, there is little incentive for innovative business startups to be established in Sri Lanka. This could be attributed to the inequitable investments amenities offered by the government; i.e. while the BOI services are available to all investors, tax incentives are available only to investors meeting a certain criteria, such as minimum capital levels and the extent of the workforce. A survey conducted on start-up entrepreneurs by the Sri Lanka Association of Software and Service companies (SLASSCOM) revealed that 58% of the respondents utilized personal-savings, 12% relied of funding from family and friends, and 28% relied on external funds through bank loans and angel investors. The number of entrepreneurs relying on their personal savings reveals that access to finance could be a barrier for new business establishments, as well as for existing businesses to internationalize. Factors such as difficulties in making and receiving payments online, and bureaucracy in accessing debt capital from banks, have contributed to the ineffectiveness of financial-aid already provided for entrepreneurs in Sri Lanka.

Presently, many of the startup entrepreneurs in Sri Lanka hold a bachelor’s degree and are from Colombo. This reveals that fostering an entrepreneurial mindset and culture has not been regionally inclusive in Sri Lanka yet. With mounting global competition and rapid advances in technology, knowledge and technical expertise need to be imparted at a young age through a holistic education system. The higher education system needs to play a pivotal role in research and development, and technology commercialization. Statistics by the Department of Examinations disclosed that only 60.91% of the students who sat for the GCE Local (A/L) examination in 2015 qualified to enter state university. While a smaller proportion of the remaining 39.1% of the students will go abroad for higher studies, many would stop pursuing further studies or join the informal sector for employment. This divulges the opportunity to encourage technical skills through vocational training, which could aid in shifting employment to the formal sector and lessening the structural gap in the labor force. Entrenching continuous skill-development programmes for entrepreneurs will be more beneficial for the continuity of businesses, in addition to the short-term workshops and training already offered by authorities such as the National Apprentice and Industrial Training Authority (NAITA), Ministry of Skills and Development, and Industrial Development Board.

The Ease of Doing Business 2017 report revealed that many of the difficulties investors face in Sri Lanka concern factors such as registering property, enforcing contracts, paying taxes, and getting credit. It could be deduced that the government needs to loosen the regulatory framework of Sri Lanka to encourage more investments. Policies that stimulate a business friendly environment are imperative for the continuity of entrepreneurship in the country.

Fostering an environment conducive for export-oriented SMEs will aid in future entrepreneurship development and capacity building. Hence, vitalizing export-oriented entrepreneurship in Sri Lanka is essential in reaching higher levels of export intensity. Additionally, taking long-term policy measures that will foster a fertile entrepreneurial-ecosystem will help the government of Sri Lanka to achieve the ambitious export target of US$20 billion by 2020