Sri Lanka has been at the heat with debates over its economic ecosystem and its suitability to cater to the needs of its young entrepreneurs. While growth has been considered exponential for the economy, many analysts have agreed that much needs to change for the country to accommodate the needs of its start-up businesses and small firms to achieve an optimal growth.

The Economic Environment of Sri Lanka

Pic by @Shalini_Ratnayake

Being the intermediary for trade between West Asia and South East Asia, Sri Lanka places itself in the most convenient position for communication. This is primarily the reason behind their rapid economic growth succeeding the civil war that would’ve left their economy in shambles otherwise. Therefore, businesses centred in Sri Lanka has been bestowed with a geographical advantage as trade internationally is eased. Furthermore, the economic environment of Sri Lanka has thrived from a recent Free Trade Agreement conducted with India and Pakistan, resulting in the reduction as well as removal of tariff to trade.

With the country achieving an average growth of 5.8% in the years of 2010 to 2017, Sri Lanka does contend in bringing a better atmosphere for small businesses to set up. The tertiary sector persists with the highest growth among other economic business activities in Sri Lanka, where the service sector grew by 1.1% in 2018 compared to previous years, and the IT programming sector achieved a similar growth rate from 11.8% to 10.8% in 2018. This does indicate a rather promising future for businesses located in Sri Lanka, especially for start-ups.

The Ecosystem for Start-Ups in Sri Lanka

A start-up is denoted by a business that has the ability and willingness to grow and expand, contrastive to small businesses which tend to constrain its growth to a specified limit. The reason why start-ups is absolutely essential in the economic activity of a nation is because it possesses the potential of greater business activities, resulting in higher investment and income which leads to better economic growth. Understanding the significance of a start-up and its relevance to their economic growth, the Sri Lankan government has initiated investments into the technology and IT sectors to improve communication and allow for businesses to take on the international market as well. However, many economic analysts have identified shortcomings in the government’s policies that still act as detriments to the inception of start-ups.

The main demographic of entrepreneurs who establish their own start-ups include those within the ages of 20-35. While the population of entrepreneurs are dominated by the male category, as 96% of entrepreneurs in Sri Lanka are male, most of them hold degrees of higher secondary education as well as post-graduate degrees. According to statistics, about 86% of start-up founders have attained a Bachelors’ degree while 27% possess a Master’s degree. Furthermore, most of these entrepreneurs hold degrees that are pertinent to their area of specialisation, signifying that the do input full use of their attained education. With 40% having a degree in Computer Science and 31% coming from a Business Administration background, the majority of these individuals possess the skill and comprehension of suitable business strategies and to implement them within their business activities.

Challenges Faced by Start-Ups in Sri Lanka

The criticism towards the government’s lack of proper amenities provided to owners of start-ups is one that is well reasoned. Despite Sri Lanka benefiting from fast economic growth, it still falls short in their development of infrastructure. This is vital to the growth of businesses as faulty infrastructure indicates that there is less amount of useable space for start-ups to rent and maintain their business activities in. Furthermore, the government also does not provide enough financial support to facilitate the entry and growth of small businesses in the market. This signifies that start-up owners require personal funding to commence their operations, with the lack of sufficient loans and subsidies being a significant deterrent to potential new-comers into the market. According to statistics, about 58% of entrepreneurs had to use their personal earnings to finance their business operations, making the risk of losses incurred relatively large and taxing.

In addition to these factors, a problem faced immensely by new founders is the lack of market advice. It has been impressed upon that the key reason for failure of start-ups is the inability to conduct proper market research. Therefore, having an insufficient number of experts in the field and relevant guidance can lead to beginners in the market basing their operations on guesswork rather than practical data and strategies. Failure, therefore, becomes inevitable.

The growth of specific sectors in Sri Lanka does not only suggest that the nation is largely specialised but also limits the opportunity for growth in other sectors, primarily the sectors that garner the greatest demand from consumers and investors. The large proportion of investors emanate from sectors relevant to transportation, healthcare and education, whereas the economy of Sri Lanka has put more resources in the breeding and development of their service and technology sector. The limitation that this represents is one that most start-up founders have to encounter and suffer from, especially since their inability to diversify leads to the loss of potential market profits.

Hope for Sri Lankan Start-ups

As the importance of start-ups become more prevalent within the economy, there has been significant improvements to certain policies taken up by the government. The regulation over the licensing of companies has become more lenient, allowing start-up owners to not have to encounter hefty procedures to begin operations. Furthermore, many private organisations do participate in bringing greater transparency of market information to potential market entrants as well as providing them with professionals who can teach the ins and outs of the market. Other than this, schools and universities have introduced learning programs that encourage their students to work in their own start-ups, resulting in a significant portion of the next generation population in Sri Lanka being young entrepreneurs. Ideally, this would mean that with sufficient resources, Sri Lanka can become the powerhouse for entrepreneurship among all other nations.  

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