Presentation is loading. Please wait.

Presentation is loading. Please wait.

Sri Lanka: growing the SME sector and opportunities for trade

Similar presentations

Presentation on theme: "Sri Lanka: growing the SME sector and opportunities for trade"— Presentation transcript:

1 Sri Lanka: growing the SME sector and opportunities for trade
Anushka Wijesinha Research Officer, Institute of Policy Studies of Sri Lanka 11th December 2009, Chennai, ‘Trade Opportunities for SMEs in SAARC and ASEAN’

2 Presentation Outline Why SMEs in Sri Lanka? Growing the SME sector International trade scenario Indo-Sri Lanka trade Future Prospects

3 Presentation Outline Why SMEs in Sri Lanka? Growing the SME sector in Sri Lanka International trade scenario Indo-Sri Lanka trade Future Prospects

4 1.1 Why SMEs in Sri Lanka? – Skewed prosperity
Provincial Gross Domestic Product in Rs. Millions (at current factor cost prices) Source: Central Bank of Sri Lanka, Annual Report 2008

5 1.2 Why SMEs in Sri Lanka? – Regional Development
Provincial GDP excl. Western Province in Rs. Millions (at current factor cost prices) Source: Central Bank of Sri Lanka, Annual Report 2008

6 1.3 Why SMEs… – Taking growth outside the Western Province…

7 1.4 Why SMEs… – Things ARE changing
Source: Central Bank of Sri Lanka

8 Presentation Outline Why SMEs in Sri Lanka? Growing the SME sector International trade scenario Indo-Sri Lanka trade Future Prospects

9 2.1 Growing the SME sector – current status
How many SMEs in Sri Lanka? Difficult to quantify, no accurate data Industrial Survey of 2003 150,000 total establishments 100,000 – micro enterprises, self-employment large enterprises So, just over 40,000 SMEs 4,700 exporters, nearly 80% are SME suppliers Lacking an overall, national definition of ‘SME’ in Sri Lanka What qualifies as an SME? Different definitions by different organisations Key problem cited by nearly every player 9

10 2.2 Growing the SME sector – Govt. initiatives I
Infrastructure improvement schemes ‘Gama Neguma’ ‘Maga Neguma’ ‘Neganahira Navodaya’ Rs. 75 bn invested so far, further 121 bn by 2010 Uthuru Wasanthaya – Rs. 5 billion for housing and livelihoods Promoting industries in rural areas ‘Gamata Karmantha’ Promoting rural enterprise growth Nipayum Sri Lanka Special N&E BOI concessions N&E special loan scheme, concessionary loan schemes for SMEs

11 2.3 Growing the SME sector – Govt. initiatives II
‘Nipayum Sri Lanka’ (led by BoI) Programme to set up 300 enterprises outside Western Province Min. investment Rs. 30 Mn, 200 employees 5 to 10 years tax exemption depending on location and employment created Offered for variety of business areas in all three sectors of the economy North and East regional development Particular focus on agriculture, agri-business, fisheries, dairy & livestock, tourism, paper products, textile and apparel 10-20 years tax holiday, depending on project/sector Duty free importation of capital goods and raw materials State lands can be made available at concessionary rates Also includes investment to revive sick companies, as well as expanding existing ones

12 2.3 Growing the SME sector – Govt. initiatives II
New loan scheme by Central Bank for the North - “The Awakening North” providing credit facilities for capital investment for resumption of economic activities in agriculture, livestock, fisheries, micro and small enterprises Rs. 3 bn to be made available through local banks Various Concessionary loans schemes by nearly all banks But take up is low, banks focus on their own products

13 2.4 Growing the SME sector – Govt. initiatives III
National Enterprise Development Agency (NEDA) To become the apex national body promoting SME development Currently studying success stories in Japan and Thailand In the pipeline… SME Cluster Policy SME Management Training Institute Credit Guarantee System Business competency certification Developing Business Development Services (BDS) sector in Sri Lanka SME Council 13

14 2.5 Growing the SME sector – NEDA
Enterprise and Entrepreneur development New financial solutions Identifying competitive business areas – ‘value chain analysis’, ‘local competitive advantage (LOCA) Attitudinal and mindset change – moving out of ‘hand-out’ mentality Marketing and faciliation Enterprise associations from the village all the way to national level Effective communication between layers Catalysing useful business relationships Market information + assisting in access to new markets (home and abroad) Enterprise productivity Marketing, energy use, technology transfer, attitude building, quality consciousness, clinical visits to learn best practices Comprehensive online portal – NEDA website A one stop shop for useful information for SMEs – from loan schemes to directory of consultants and BDS providers etc Database on enterprises, relevant technical research ,resource people, tax and other regulations etc 14

15 2.6 Growing the SME sector – NEDA’s cluster approach
Special Economic Zones – cluster approach Geographical clusters – e.g. Moratuwa for high quality wooden furniture, Weweldeniya for high quality cane products Domestic AND export orientation Helps SMEs engaging in various aspects of this sector to grow collectively, enjoy various scale economies Enable more concentrated access to peripheral services, transport, technical advice, joint purchasing, other economies of scale Eventual aim is to link with foreign clusters dealing with similar products – cluster2cluster marketing 15

16 2.7 Growing the SME sector – at the district level
District Business Service Fairs To link SME entrepreneurs with BDS providers SME ‘plazas’ – a hub station for SMEs One stop shop for government services, provincial council approvals, information on regulations BDS providers Specialised raw materials providers (more profitable if located at a central hub) District Enterprise Forums – policy advocacy Highlight operational issues + policy issues Issues taken up to national enterprise facilitation forums (chaired by Secretary to the Ministry) National Enterprise Council (chaired by the Minister) 16

17 2.8 Growing the SME sector – strong regional chamber network
FCCISL, CNCI, NCCSL, Ceylon Chamber of Commerce (Business for Peace Alliance) District Chambers of Commerce and Industry Apex body for businesses in the regions Wealth of information on local economic conditions and business opportunities Focal point for business partnerships from outside But lacking many competencies to provide guidance to regional SMEs Message to all investors – chambers are an invaluable resource! 17

18 2.9 Growing the SME sector – key issues
SME policy direction? – several govt. ministries, coordination is a challenge Ministry of Enterprise Development and Investment Promotion Ministry of Industries Ministry of Rural Development and Self-Employment Ministry of Science and Technology Ministry of Youth Affairs Ministry of Export Development and International Trade Finance & credit - lack of access, high cost Access to lucrative markets – home and abroad Market information Technology usage Human resources – technical skills, IT skills, managerial skills, English language Hand-out mentality, waiting for assistance from government/donors Little risk taking by regional entrepreneurs 18

19 2.10 Growing the SME sector – what next?
Key challenge - Building entrepreneurial capacity Many cannot develop business plans, maintain accounts Thus, get rejected from lending institutions Need better BDS services – actually an opportunity for SME BDS providers! Enhance competitiveness in local and international markets Enabling business environment Lack of coordination, no unified SME policy framework 19

20 Presentation Outline Why SMEs in Sri Lanka? Growing the SME sector in Sri Lanka International trade scenario Indo-Sri Lanka trade Future Prospects

21 3.1 International trade scenario – overview
SL’s top export markets: USA (23%) UK (13%) Italy India (5% of all exports) Belgium Germany UAE Russia 21

22 3.2 International trade scenario - Export grew despite tough domestic conditions
Tea – 7% Rubber – 18%, Rubber products -13% Vegetables, Fruits, Spices, Cashew – 6-8% Fisheries – 7% Diamonds, Gems, Jewellery – 10% Food and beverage – 35% Wooden products – 20% Paper, pulp, paper products – 15% Minerals, glass, ceramics – 8% Chemicals and plastics – 10% Base metals (products from aluminium, copper, iron, steels) – 20% Electronic, electrical and machinery – 11%

23 3.3 International trade scenario - Industrial exports

24 3.4 International trade scenario - Spices exports

25 3.5 International trade scenario - Imports of Major Categories (in 2008)

26 3.6 International trade scenario - Direction of Trade in 2008 (in US$)
Exports Imports USA 1869.3 272.6 UK 1090.4 243.2 Italy 445.1 229.9 Belgium- Luxembourg 425.4 332.9 India 418.3 3443 Germany 405.3 281.1 UAE 252.6 427.1 Russia 220.7 5.7 Japan 159 424.5 France 179.7 182.9 Bangladesh 23.1 9.1 Malaysia 44.3 358.4 Pakistan 71.3 191.9 Thailand 74.9 298.1 Phillipines 3.4 7.7 Singapore 75.6 1242.6 Taiwan 17.3 251.2 China 46.8 1091.5 Iran 154.5 1194.3 EU 3033.8 1737.8 SAARC/SAFTA 560.6 3658.1 APTA 520.4 4743.1 BIMST-EC 516.6 3760.4

27 3.7 International trade scenario – major exports to South Asia
India Rubber Refined copper and alloys Bulk pepper and other spices Stone, plaster, cement Furniture, lamps and fittings Apparel and clothing Tea Paper, pulp Bangladesh Fabrics, dyed cotton Enzymes Pakistan Coppra Natural rubber, smoked sheets Vegetable products Coconuts, desiccated coconut 27

28 3.8 International trade scenario – major imports from South Asia
India Kerosene, disesel, gas oil, light oils and preparations Aluminium, copper and articles thereof, Iron or steel and its articles Cotton Motor vehicles, motorcycles, cycles Electrical machinery, boilers and machinery parts Plastics and items thereof Onions and shallots Uncoated paper and paperboard Bangladesh Iron or steel and its articles Pakistan Rice, Potatoes Knitted. crocheted fabrics 28

29 3. 9 International trade scenario – future growth areas
3.9 International trade scenario – future growth areas? (identified by EDB ) Tea Food processing, agro-businesses, spices Apparel Ceramics (tableware) Gems and Jewellery Rubber (tyres, tubes, gloves) Beauty care and herbal products Wood furniture and mattresses Handicrafts (paper-based, wood, brass) – higher value, innovative products are coming out) Cut flowers Ornamental fish 29

30 3.10 International trade scenario – key agro exports
SMEs mainly ‘feeders’ for larger exporters Coconut Geo-textile – matting to prevent soil erosion – strong demand from Europe Coir fibre, rope Activated carbon Desicated coconut Spices Cinnamon – taste and content is higher than competitors, better than cassia main markets of USA, Mexico and India for oil extraction Pepper – high oil content, large exports of light berry to India Indian SMEs set up in SL and re-export in bulk form Cardamom and Nutmeg Cashew – SL has best cashew, new potential in Eastern Province All spice exports are growing  EU demand for food ingredients Fruits, vegetables, floriculture Small cultivator groups feed in to larger players Pineapple is a potential growth area – best flavour this side of Mauritius! 30

31 3.11 International trade scenario – key fisheries exports
Shrimps and prawns - popular exports to India and the world High value fisheries  Crabs, lobster, beche de mer, yellow fin tuna (sashimi grade) Also, SL imports a lot of regular tuna from India 31

32 Presentation Outline Why SMEs in Sri Lanka? Growing the SME sector in Sri Lanka International trade scenario Indo-Sri Lanka trade Future Prospects

33 4.1 India-Sri Lanka trade - overview
Long history of Indo-SL economic links – far back as 4th century Both fell under British rule in 19th century, links strengthened But post-independence period both countries focussed inward – import substitution But following SL’s liberalisation in 1977/78 economic ties strengthened again, not only with India, but South Asia Culminated in regional trade agreements under SAARC – SAPTA/SAFTA (1995/6) But regional cooperation got stuck following Indo-Pak tensions, India-SL forged ahead with the bilateral ISFTA (1998) Commenced implementation in 2000 India fully implemented by March 2003 Sri Lanka fully implemented by October 2008

34 4.2 India-SL trade - Performance of ISFTA Exports
Exports have seen rapid growth since FTA Pre-FTA Exports from SL to India  US$ 39 Million p.a. Post-FTA Exports from SL to India  US$ 418 Million (2008) SL’s exports to India grew 10 fold in just 5 years In 2000 – US$ 58 Mn, by 2005 – US$ Million But largely driven by copper and vanaspathi (hence the exports dip in 2008) Number of product lines exported has increased From 505 tariff lines pre-FTA to over 1050 tariff lines now Exporting high value goods As FTA progresses, SL has begun to export higher value added products Pre-FTA main exports included pepper, waste and scrap steel, areca nuts, dried fruit, cloves, waste paper etc Post-FTA  in addition to these, value added items like insulated wires and cables, pneumatic tyres, ceramics, wooden furniture, refined copper products, rubber products (gloves), apparel, chemicals, plaster cement and pharmaceuticals 34

35 4.3 India-SL trade - Performance of ISFTA Imports
Imports from India have grown much more Pre-FTA Imports from India  US$ 509 Million p.a. Post-FTA Imports from India  US$ 3.4 Billion (2008) India is now largest source of imports to SL But also largely due to higher price of oil imports Petroleum imports from India are on the negative list, so no FTA influence Likely to rise more, after further liberalisation since last year But many imports from India still on negative list (vehicles and parts, sugar, iron and steel, paper and paper board) So wide trade deficit is not necessarily due to FTA, reflects normal trading pattern 35

36 4.4 India-SL trade - Indian investments have risen
Between 1978 and 1995 Indian investment was 1.2% of total FDI to SL By end-2007, Indian investment was 6.5% of total FDI Recent investments have largely been in the services sector (63%) Telecoms, health, retail, energy, hospitality and air transport services Some Indian firms set up here and exporting to India Surge in investment between 2000 – 2007 is a result of the increased profile of economic ties and increased investor confidence arising from the FTA Examples of strong recent success stories – PRIMALA GLASS 36

37 4.5 India-SL trade - some issues & challenges with ISFTA
Restrictions of certain port entry, quotas on certain exports But much of it resolved during CEPA talks But issues such as state tariffs and other opaque levies make trading with India difficult Federal govt., so state impose taxes over and above national tariffs Particularly difficult in Tamil Nadu – Local producers pay 10.5% state tax, while outsiders must pay 21% Delays at customs and bureaucratic red tape Mainly anecdotal evidence, needs closer evaluation + documented evidence CEPA talks provided a forum for dialogue to resolve many issues Was due to sign at 15th SAARC summit But now shelved due to domestic pressure Key lesson - not enough stakeholder engagement prior to signing 37

38 4.6 India-SL trade - links likely to strengthen further
Lesson learnt from global economic crisis – SL must diversify export markets Currently, over 60% goes to USA and EU Many firms now looking closer at trade with India Large potential consumer base, particular affinity in South Indian markets But many SMEs unaware of benefits accruing from ISFTA, AFTA etc Growing trade in value added goods, not just bulk commodities like before Sri Lankan exporters urged to undertake branding for Indian markets Already some success stories – Lionco (mattresses), Janet (beauty products), Stone n’ String (gems and jewellery), Dankotuwa Porcelain (tableware) 38

39 Presentation Outline Why SMEs in Sri Lanka? Growing the SME sector International trade scenario Indo-Sri Lanka trade Future Prospects

40 5.1 Future Prospects – trade with Sri Lanka
Many trade fairs which Sri Lanka participates in: India International Trade Fair (Delhi) Aahar Food Fair (March 2010) India Rubber Expo (March 2010) My Karachchi (June) Expo Pakistan (2010) Dhaka International Trade Fair SAARC Trade Fair (Colombo 2008, Bhutan 2009) 40

41 5.2 Future Prospects – way forward for SMEs
In the near term  SL SME exporters likely to be mainly in commodities and bulk goods exports But ideal way forward should be branded, niche products Some success of this seen already – examples cited earlier SME exports Long way to go  Q C D is lacking (Quality, Cost, Delivery) Difficult to promote large assembly plant style manufacturing Capital outlay for large manufacturing is too high for SL SMEs But way forward is  ‘feeder plants’ E.g. mechanical parts manufacturing to supply larger industries, locally + India, Thailand, etc Cannot compete on low cost – we missed that bus already! Way forward for exports to many countries, incl. India will be through: Superior quality High standards Value adding and branding 41

42 5.3 Future Prospects – Adopt PPPs, like BizPAct
Ground-breaking initiative to bring investments to promising SME projects in the regions 42

43 5.3 Future Prospects – key players for trade opps
Department of Commerce (for trade policies, trade data) - Export Development Board – Federation Chambers of Commerce and Industry – Ceylon Chamber of Commerce – BizPAct initiative – National Enterprise Development Authority (NEDA) – Central Bank of SL (for macro data) – Board of Investment – 43

44 Thank you! Email - Visit -
Blog ‘Talking Economics’ - 44

Download ppt "Sri Lanka: growing the SME sector and opportunities for trade"

Similar presentations

Ads by Google