September 11, 2019 Reading Time: 6 minutes
Image Credits: You X Ventures/Unsplash
Presidential candidate Gotabhaya Rajapaksa and potential presidential candidate Sajith Premadasa have both stated in recent speeches that supporting youth with business opportunities and fostering entrepreneurship is the way forward for Sri Lanka’s development.1
Sri Lanka, however, lacks both, an ‘entrepreneurial culture’ and a supportive ecosystem for entrepreneurship. Only 2.8% of the total working population identifies as an employer or business owner, compared to 11.6% in Bangladesh, 19.6% in Vietnam, and 27.5% in Thailand.2
This blog considers some of the key issues local start-ups face in the current business climate and the gaps in support, from state and global organisations alike. It also goes on to consider how Sri Lankan policymakers can encourage the growth of start-ups in this country.
Sri Lankans have traditionally favoured white-collar, public sector jobs that guarantee a pension, over the high-risk self-employment route. In fact, statistics show that the public sector employs one Government servant for every 15 citizens.3
As a result of this, what is seen more often are the so-called ‘push’ entrepreneurs rather than ‘pull’ entrepreneurs.4 This means that people turn to entrepreneurship by necessity rather than opportunity. A shift in this pattern is required, as ‘push’ entrepreneurship is less likely to contribute to innovation and diversity in the local markets. To do so, Sri Lanka needs to make entrepreneurship a viable career for the majority.
An entrepreneurial attitude must be developed from a young age. By injecting entrepreneurship concepts to the national curriculum and allocating a compulsory time for the improvement of relevant skills, changes to the traditional way of thinking could be brought about. The UK, for example, offers Personal, Social, Health and Economic (PSHE) education which will be compulsory in all schools from 2020.5 Programmes like this could be implemented in Sri Lanka to introduce concepts like financial literacy and self-marketing, as well as business-related concepts like networking, innovation and branding, to young adults.
Universities can also play a greater role in creating an ecosystem for these young start-ups. Hosting national youth entrepreneurship fairs and exhibitions to showcase ideas, receive advice or approach funders would equip these start-ups with the confidence and expertise to carry on these enterprises in the future. Greater cooperation between business faculties and other faculties such as computer science, engineering and agriculture in enterprise will also encourage innovation and diversity in these enterprises.
Sri Lanka must also ensure that these resources and opportunities are made available to the wider youth population. While the general English-literate public has access to numerous resources online to learn business concepts, resources catered to the Tamil and Sinhala speaking population are limited. Sri Lanka’s census of population and housing data indicates that English literacy is just 22% among those over 15 years of age.6 Further the computer literacy rate of Sri Lanka in 2018 stood at 27.5% 7 indicating that a large part of the population lacks access to online resources. The relevant resources must, therefore, be provided both online and offline via carefully targeted programs and workshops. The government could play a bigger role in supporting content creators in this field and linking them with successful investors to capture what they seek when investing in start-ups.
Sri Lanka currently holds an overall Doing Business Rank of 100,8 and this illustrates several of the barriers Sri Lankan start-ups face in initiating and sustaining their businesses.
As the figure highlights, key problems that contribute to a lower rank appear to be enforcement of contracts, payment of taxes, property registration, and obtaining credit.
Support hubs are becoming increasingly popular in tech and business hubs like Tel Aviv and Silicon Valley, which are working to resolve similar problems. These hubs often combine coworking spaces, offering entrepreneurs the opportunity to work independently or collaboratively in a shared office space, along with other necessary amenities.
Colombo too, is home to such spaces such as Colombo Cooperative, Hatch and HUB9.9 However, these spaces can take it a step further by taking on the role of incubators by establishing mentorship and accelerator programs. They could also support entrepreneurs by supporting them in market research, helping them establish links to global and local networks to scale their businesses, and offering legal and financial guidance to help navigate the complex web of public institutions.
Apart from Jaffna’s Hatch Kalam, almost all of these spaces are situated in Colombo and primarily targeted at the upper-middle income groups. Therefore, there should also be an effort to branch out beyond Colombo and make such resources accessible to everyone.
While government-backed grants, loans and funding can often be effective, venture capitalists must go the extra step to carefully scout out, mentor and cultivate talents as they fund these ventures. Unfortunately, it is evident that existing venture capitalists focus on mature and high growth companies, and there are almost no providers of such capital to SMEs.10 The SME industry accounts for 70% of the national GDP and nearly 40% of employment.11 Thus, investment should be encouraged in the SME sector and government-backed initiatives and policies can support venture capitalist achieve this growth.
In the People’s Republic of China (PRC), for example, there have been several government initiatives to invest directly in high-tech start-up firms via state-owned venture capital funds.12 While this may not be possible in Sri Lanka, hybrid funding models, where there is a public-private partnership in providing venture capital, may be a viable alternative.
Competition-style funding has also proved to be successful all over the world, with organisations like TechCrunch Disrupt bringing early stage start-ups together on one stage to compete for equity-free prize money, and the attention of media and investors.13 In Sri Lanka, John Keells X14 employs a similar concept and has birthed several successful local start-ups. Encouraging more venture capitalists to follow suit, with public-sector assistance, may be something to look at.
Sri Lanka must work to build up a more supportive ecosystem for these start-ups to flourish, and public-private coordination is crucial in such instances to reform these policies and identify where encouragement is needed. One such barrier to address, particularly for ecommerce start-ups, are the restrictions of the Electronic Transactions Act in Sri Lanka, which limits local businesses from engaging in global electronic payment platforms such as PayPal and Stripe, reducing inward ecommerce sales.15
It is also prudent that there is encouragement for these start-ups to engage in value added export production. Almost 76% of Sri Lankan exports are associated with low GDP products compared to, for example, 34% in Vietnam.16 SLASSCOM’s Sri Lanka ‘Start-up Report 2019’ showed that out of the start-ups surveyed, 40% of the founders have come from a Computer Science background showing a growth in tech-related local enterprise. However, only 5% of these companies earned the entirety of their revenue from outside Sri Lanka17 showing a lack of export initiative. Local tech talent in Sri Lanka is a great asset in growing and diversifying our export industry which is key going forward.
Growth in enterprise and entrepreneurial initiatives is prudent in today’s day and age for further development of this country. The youth, in particular, should be targeted in looking for growth in enterprise. Relevant, clear policies, coupled with the fostering of a strong entrepreneurial culture will encourage more Sri Lankans to produce globally-competitive products and services. The modern world is dominated by technology and innovation, and a successful enterprise culture in Sri Lanka will aid the nation’s ambition to reach the upper-middle income status.
1 Daily FT. (2019). Gota promises to deliver on all fronts in maiden campaign speech. [online] Available at: http://www.ft.lk/news/Gota-promises-to-deliver-on-all-fronts-in-maiden-campaign-speech/56-683771 and Daily FT. (2019). I have the people behind me: Sajith. [online] Available at: http://www.ft.lk/top-story/I-have-the-people-behind-me-Sajith/26-683851 [Accessed 4 September 2019].
2Daily FT. (2019). Govt. to launch Innovation and Entrepreneurship Strategy. [online] Available at: http://www.ft.lk/mobile/front-page/Govt–to-launch%C2%A0Innovation-and-Entrepreneurship-Strategy/44-651311 [Accessed 4 September 2019].
3Lanka Business Online. (2017). Sri Lanka to review public sector cadre, redeploy excess. [online] Available at: https://www.lankabusinessonline.com/sri-lanka-to-review-public-sector-cadre-redeploy-excess/ [Accessed 4 September 2019].
4 Sirisena,P. (2015). Problems with Youth Entrepreneurship in Sri Lanka.Vesses. [online] Available at: https://www.vesess.com/problems-youth-entrepreneurship-sri-lanka/ [Accessed 4 September 2019].
5PSHE Association. (2019). Curriculum Guidance. PSHE Association. [online] Available at: https://www.pshe-association.org.uk/curriculum-and-resources/curriculum [Accessed 4 September 2019].
6Talking Economics-Institute of Policy Studies. (2018). Building a More English-Literate Sri Lanka: The Need to Combat Inequities. [online] Available at: http://www.ips.lk/talkingeconomics/2018/04/23/building-a-more-english-literate-sri-lanka-the-need-to-combat-inequities/ [Accessed 4 September 2019].
7Department of Census and Statistics. (2018). Computer Literacy Statistics – 2018. [online] Available at: http://www.statistics.gov.lk/education/ComputerLiteracy/ComputerLiteracy-2018Q1-Q2-final.pdf [Accessed 4 September 2019].
8World Bank. (2019). Ease of Doing Business in Sri Lanka. [online] Available at: https://www.doingbusiness.org/en/data/exploreeconomies/sri-lanka [Accessed 4 September 2019].
9Roar Media. (2018). Coworking Spaces in Colombo. (2018). [online] Available at: https://roar.media/english/tech/insights/coworking-spaces-in-colombo-2018/ [Accessed 4 September 2019].
10ADB South Asia Working Paper Series. (2018). Catalyzing Small and Medium-sized Enterprise Venture Capital in Sri Lanka. [online] Available at: https://www.adb.org/sites/default/files/publication/408131/swp-054-sme-venture-capital-sri-lanka.pdf [Accessed 4 September 2019].
11Hewage, I. (2019). Govt urged to support SMEs. [online] Daily News. Available at: http://www.dailynews.lk/2019/05/15/finance/185629/govt-urged-support-smes [Accessed 4 September 2019].
13 TechCrunch. (2019). Start-up Battlefield. [online] Available at: https://techcrunch.com/startup-battlefield/ [Accessed 4 September 2019].
14 John Keells X. (2019). Open Innovation Challenge. [online] Available at: https://www.johnkeellsx.com [Accessed 4 September 2019].
15 Daily FT. (2018). Online direct sales hampered by lack of PayPal access. [online] Available at: http://www.ft.lk/front-page/Online-direct-sales-hampered-by-lack-of-PayPal-access/44-665340 [Accessed 4 September 2019].
16 Daily FT. (2019). Sri Lanka must focus on quality of exports rather than value. online] Available at: http://www.ft.lk/rohantha-athukorala/Sri-Lanka-must-focus-on-quality-of-exports-rather-than-value/19-670907 [Accessed 4 September 2019].
17 The Sri Lanka Association of Software and Service Companies. (2019). Sri Lanka Start-up Report 2019. [online] Available at: https://www.edocr.com/v/rnxdvj69/techcelerate/Sri-Lanka-Start-up-Report-2019 [Accessed 4 September 2019].
*Nuthara Bandara was a Communications Assistant at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI). The opinions expressed in this piece are the author’s own and not the institutional views of LKI, and do not necessarily reflect the position of any other institution or individual with which the author is affiliated.