Corruption in governance structures drags SL businesses

Inefficiencies and corruption in governance structures which were not a problem 20 years ago, have become a considerable drag on Sri Lanka's businesses, the International Labour Organisation (ILO) flagship report, "Impact of Multiple Crises on Sri Lanka’s Micro, Small, and Medium Enterprises” said.

Addressing the issue of the country's institutional failures, Dr. Ramani Gunatilaka, Co-Author at the unveiling of this report on Tuesday during the panel discussion, said that the country needs governance first to uplift the Micro, Small, and Medium enterprises (MSME) sector. This groundbreaking study, conducted in collaboration with NielsenIQ, is the result of extensive analysis, featuring insights from over 550 MSMEs across 10 districts and sector-based interviews with government representatives and non-government organisations.

Stressing the need for institutional reforms, Ms. Gunathilaka noted that it's important to pick a handful of institutions to reform. “The institutional reforms are fundamental. However, It is important to note that we cannot reform all institutions. It is important to pick key ones such as maybe energy. The reform in this sector is really important,” she said.

The panel discussion stressed that transforming the MSMEs will require the design and implementation of policies that finally address these failures and strengthen the institutions whose intended objectives are to correct market failures and not contribute to them.

The COVID-19 pandemic severely affected the business operations of nearly 80 per cent of surviving MSMEs, the report said, noting that the impact of the multiple crises was severe on the businesses in tourism, manufacturing, construction, transport and storage, and wholesale. And retail trade and other services. These sectors account for more than 55 per cent of the national GDP.

A significant majority of MSMEs did not receive support from institutions dedicated to MSME development, leading many to struggle or close.

The report added that employment contracted during the multiple economic crises. Employment among the small enterprises contracted the most at 23 per cent, with the micro and medium-sized enterprises close behind at 22 per cent and 21 per cent. The job losses were among men and affected women's employment only marginally because they were concentrated in the micro-enterprise sector.

Nearly half of the surviving firms, Found it difficult to retain or hire people because they could not pay enough to cover the rising living costs.

Keynote speaker, Manusha Nanayakkara, Minister of Labour and Foreign Employment on the sidelines of the event, told the Business Times that more than 40 labour laws will change with the New Labour Law Act. The final draft is being done and will be released within a month, he added.