National Policy Framework for SME Development in Sri Lanka V.Sivagnanasothy Secretary Ministry of Traditional Industries and Small Enterprise Development sivagnanasothy@hotmail.com

Road Map Mahinda Chintana Vision for the Future National Policy Framework on SMEs Focus of SME Policy Intervention and Support Mechanism Definition of SME Policy Intervention and Strategies

Mahinda Chintana Vision for the Future Indicator 2013 2016 Economic Growth 7.3 8-10% Per Capita Income (US$) 3,280 4,000 Poverty Head Count Index 6.5% 4.2 % Unemployment 4.4% 3.2% Exports (US$ Billion) 10.4 18 Provincial GDP Contribution Transform lagging regions into emerging region of prosperity Western 43.4 Central 9.8 Southern 11.5 Northern 4.0 Eastern 6.3 North Western 9.6 North Central 4.7 Uva 4.5 Sabaragamuwa 6.1

Mahinda Chintana Vision for the Future “SMEs are the backbone of the economy” Accounts for more than 75 % of the total number of enterprises Provides 45% of employment and contribute to 52% of the GDP Driver of Change for inclusive growth, regional development , employment generation and poverty reduction Transforms lagging regions to emerging regions of prosperity

SME Policy Framework Matrix

Focus of the SME Policy With the globalization and liberalization trend, it is important to have a renewed look of these sectors not as a mere object of “protection and promotion” but as a driving force for “growth and development”. Enhancing national and international competitiveness is fundamentally important for this sector to face the emerging challenges. High potential viable promising sectors Promote enterprises with high value addition and use of local raw material Encourage export oriented, demand driven cash-cow enterprises Promote flagship sectors with high potential spillover effects Promote innovative technology driven enterprises Locally and globally competitive : demand driven and market based (Globalizing world – Integrated and borderless world) SMEs which have close cooperation with large enterprises and export firms to supply parts and components under buy-back, sub- contacting arrangements contributing to import substitution.

Focus of the SME Policy Promote relocation of SMEs in the backward region to reduce urban rural imbalances Transforming the landscape of the SMEs from mere trade and commerce towards production and industry Cluster Approach covering the entire value chain (village development) Women Entrepreneurship

Intervention and Support Mechanism Strengthen existing enterprises : Foster micro enterprises to grow into small enterprises and small enterprises to grow into medium size enterprises and medium size enterprises to grow into large enterprises Support start-up SMEs : Extend nursing programme for potentially viable sick industries

Criteria for Selecting and Supporting SMEs High potential, promising sectors Picking the Winners - committed capable interested entrepreneurs with good track records Proven credentials as entrepreneurs – award winners Fair amount of equity participation Skills and competencies acquired in the sector or cluster Committed to excellence in quality and innovation Women entrepreneurs

High Potential Promising Sectors Identification of Key Product Sectors Current Size Large Small Growth Potential High Footwear and Leather Rubber based products Coir and coir based products Food and beverages Textiles and handlooms Boat Building Electrics and Electronics Souvenir , gift items and life style products Kithul & Palmyrah Low

Definition on SMEs World-wide the definition on SME is based on - Employment - Turn over - Asset Value The recent White Paper on National Strategy for small, medium enterprise development in SL Employees Type 5-29 Small 30-149 Medium > 150 Large

Definition on SMEs European Union and other countries Self Employment Employees Type Self Employment 2-9 Micro 10-49 Small 50-249 Medium

Annual Turnover (Rs.Mn) Definition on SMEs Proposed National Policy Framework for SME Development Both Criteria to be considered. Level of employment should be the deciding factor Applied to individuals only . A firm which is a part of a larger grouping may need to include employees or turnover from the grouping too. Type Employees Annual Turnover (Rs.Mn) Micro 1-10 1-15 Small 11-50 16-250 Medium 51 - 300 251- 900

Why definition is important ? Instrument for targeting of policy measures and support interventions National level data Serve as a basis for directing state support For economic research Comparison among countries

Industrial Clusters Industrial Clusters Machinery and Equipment 1 2 Electronic and Electrical Appliances 3 Food and Beverages 4 Footwear, Leather and Allied Products 5 Light engineering and Engineering Industries 6 Wood and Wooden Based Products 7 Coir and Fibre Based Products 8 Printing Papers and Paper Pulp Based Products 9 Rubber and Plastic Based Products 10 Building and Building Material Based Products 11 Readymade Garments and Allied Industries 12 Kithul and Palmyrah Based Products 13 Minerals and Chemical Based Industries 14 Self Employment Sector 15 Other Products and Services

Crafts Clusters Crafts Clusters Crafts Cluster 1 Clay Work 11 Batiks 2 Fibre, Leaf and Grass Work 12 Lace 3 Dumbara Items 13 Lacquer and Sesath 4 Cane, Bamboo, and Reed Based Items 14 Wood Based Handicrafts 5 Handicrafts Based on Metals 15 Leather Based Products 6 Jewellery 16 Stone Based Handicrafts 7 Masks and Puppets 17 Art and Sculpture 8 Carved Masks 18 Coconut, Kithul, Tala, and Palmyrah Products 9 Musical Instruments 19 Miscellaneous 10 Textile

Policy Interventions and Strategies Enabling Environment Policy Perspective : improve the legislative, regulatory and institutional framework including simplification and rationalization of procedures to improve the competitiveness and provide conducive environment for SME development. Challenges Addressed : Reduce transaction cost and improve ease of doing business for SMEs Key Strategies : SME friendly laws and regulations quality and outreach of service delivery, SME friendly desk and one stop service Infrastructure facilities – CSCs, Industrial estates, incubation, clustering (villages) Industrial associations for collective voice. Environmental friendly cleaner production technologies and practices.

Policy Interventions and Strategies Modern and Appropriate Technology Policy Perspective : Facilitate acquisition and adoption of state-of-the-art modern and appropriate clean technologies to promote knowledge based, technology intensive industry Challenges Addressed : Access to appropriate and affordable modern technology Key Strategies : Technology Transfer and Development Fund (TTDF) with interest subsidy to access affordable technology. Trilateral Cooperation between SMEs, technology providers and the Government – technology demonstration platforms Technology transfer, training and diffusion programme

Policy Interventions and Strategies Entrepreneur Culture and Skills Development Policy Perspective : Entrepreneurship development through imparting skills and capacity development at schools, universities and vocational training centres special focus on Youth and Women. Challenges Addressed : Building skills, entrepreneurial culture and sprit with risk taking attitude. Covert employment seekers to job creators. Key Strategies : Demand driven skills development programmes : GYI, SYB, IYB, EYB foe start-ups, existing enterprises and sick industry (Nursing programmes and resuscitation fund). Recognize SME Heroes and disseminate success stories Extension Services – project preparation, feasibility reports

Policy Interventions and Strategies Access to Finance Policy Perspective : Strengthen the mechanisms for easy and affordable access to finance to SMEs. Challenges Addressed : SMEs have Access to Finance to invest in modernization, expansion and successful operations. Key Strategies : Scale up special lending windows and SME desks in banks and financial institutions Promote viability based lending by expanding refinancing schemes, banking clinics, treasury guarantees and non- collateral based lending Venture capital and angel funds to inject equity participation Concessionary loans for Women and Youth entrepreneurs

Policy Interventions and Strategies Market Facilitation Policy Perspective : Facilitate and support SMEs to access local and export market through internationalization Challenges Addressed : Re-positioned SMEs as producers of up-market products through improved product quality, packaging and branding to access local and global market. Key Strategies : Promote business linkages between large and SME enterprises through buyer-seller meetings, buy-back and sub-contracting arrangements Support SMEs to participate in trade fairs and exhibitions Technical support on market information and e-commerce Procurement preference policy

Policy Interventions and Strategies Research and Development Policy Perspective : Facilitate R&D to improve innovations, market oriented new designs, product development , productivity improvement and competitiveness Challenges Addressed : competitive advantage through innovations and technological advancement Key Strategies : Strong links between industry and R&D institutions Focus on demand driven applied research including search to find alternative substitute materials Quality assurance and certification Special Funds and incentives for SME focusede R&D Patents for innovations and commercialization

Policies from Budget Proposals Development Initiatives on SME Development by M / TISED

Establishment of sustainable home based industrial Economic Units Divi Neguma – National Programme on Cottage Industry Implementation Strategy 1 Prioritization of high potential key industrial sector products 2 Distrtict Exhibition : Technology Showcase & Awareness 3 Sensitization & Need Assessment 4 Technical & Managerial Training 5 Provision of Basic Tools & Raw Materials 6 Linking with Markets & Financial Institutions Establishment of sustainable home based industrial Economic Units

SME Industrial Estates Poonthoddam, Vavuniya Negampaha, Anuradhapura Mihindala, Anuradhapura Lunuvila, Puttalam Kaludawela, Matale Pannala, Kurunegala Pallekelle, Kandy Ekala, Gampaha Galigamuwa, Kegalle Pannaluwa, Colombo Kotagala, Nuwara-Eliya Horana, Kalutara Buttala, Moneragala Wawulugala, Kalutara Pusella, Ratnapura Karandeniya, Galle Baddegama, Galle Beliatta, Hambantota

Reactivation of the Atchchuveli I.E S.N Details of Industries Type of Production Investment (Mn) 1 Sarah Industries Light Engineering Project 200.00 2 Union Enterprises PVC pipe & Roofing Sheet 168.00 3 Nobble Printers Waste Paper recycling 150.00 4 Malba Ropes (pvt) Ltd Nylon twine making 5 Yarl SST Fibre Ltd Fibre class 28.50 6 Hema Industries Food based products 14.00 7 Vesta Industries 10.00 8 Sun Tech Engineering Cement based production 7.00   Total 727.50

Reactivation of Elephantpass Saltern

Cluster Development Programmes Budget Proposals Industrial Production Villages – One product; One village Clay, Cane, Coir, Leather, Blacksmith Enterprise villages and Women Entrepreneurship Pottery villages Handicraft Villages Interventions Provision of infrastructure – roads, electricity Technology transfer, training and CSC facilities Market oriented new designs - gift items and souvenirs Skills and capacity development Raw materials ,basic tools and equipment Quality improvement and packing Market facilitation – buy-back and sub-contracting , buyer-seller meetings, exhibitions and Trade Fairs Banking clinics

Development of Enterprise Villages and Women Entrepreneurship - 2014 Budget for 2014 = Rs. 30 Mn Expenditure = Rs. 7.6 Mn Toddilay/Chankanai (Jaffna) Jaffna District Village No. of Beneficiaries Sector Total Cost Estimate (Rs. Mn.) Kurunegala Nugawela 60 Thalakola 2.1 Nuwara Eliya Ginigathhena 39 Lace,Jewelery, Ornaments 4.6 Matale Maussagolla 15 Lacquer 4.4 Hambanthota Medamulana 48 Coir Galle Welladdaragoda 100 Coir Yarn 1.9 Puttalam Mahanelubewa Leather 1.1 Anuradhapura Wanathawilluva Cashew Jaffna Toddilay/ Chankanai 40 Batik Selvapuram Palmyrah Based Food & Handicrafts products Vannankulam 75 Palmyrah Based Fiber Production 3.1 Mullaitivu Mankulam   Establishment of Handicrafts Experience & Sales Centre 2.0 Kilinochchi Vannankulam (Kilinochchi) Selvapuram (Mulaitivu) Mullaitivu Mankulam (Mulaitivu) Vavuniya Mannar Trincomalee Anuradhapura Mahanelubewa (Anuradhapura) Puttalam Polonnaruwa Batticaloa Wanathawilluwa (Puttalam) Kurunegala Matale Maussagolla (Matale) Nugawela (Kurunegala) Gampaha Badulla Ampara Kegalle Nuwara Eliya Colombo Monaragala Kalutara Ratnapura Ginigathhena (Nuwara-Eliya) Galle Hambantota 13 Matara Welladdaragoda (Galle) Medamulana (Hambantota)

Traditional Handicraft Villages developed in 2013

Development of Traditional Handicraft Villages - 2014 Budget for 2014 = Rs. 35 Mn Expenditure = Rs. 10 Mn Jaffna Allarai (Jaffna) Sarasalai (Jaffna) District Village No.of beneficiaries Sector Allocation 2014 (Rs.Mn.) Puttalum Mundalama Higuregama 30 Thalakola 1.60 Kandy Kalasirigama Hana (Jute) 7.40 Gampaha Alawala Musical Instrument 2.93 Jaffna Sarasalai Palmyrah Leaf Handicrafts 2.90 Hambanthota Angulmaduwa 40 Laquer 2.00 Allarai Coir 1.29 Matara Kiyaduwa 20 Bamboo 1.00 Thalagune 25 Dumbara Rata 0.88 Polonnaruwa Manampitiya cane 1.46 Kurunagala Galatharaya 0.80 Kalutara Remunagoda/ Imbulgoda Rush & Reed 1.12 Gandara/ Devinuwara/ Thalalla 75 Bobbin Lace 1.13 Trincomalee Paththinipuram 50 0.63 Ampara Navithanveli 100 2.80 Batticaloa Mailambaveli 175 1.40 Killinochchi Kiranchchi Kilinochchi Mullaitivu Kiranchchi (Kilinochchi) Vavuniya Mannar Trincomalee Paththinipuram (Trincomalee) Anuradhapura Manampitiya (Polonnaruwa) Puttalam Polonnaruwa Batticaloa Mundalama Hinguregama (Puttalam) Mailambaveli (Batticaloa) Kurunegala Matale Galatharaya (Kurunegala) Thalagune (Kandy) Kandy Alawala (Gamapaha) Badulla Gampaha Navithanveli (Amapara) Ampara Kegalle Nuwara Eliya Colombo Kalasirigama (Kandy) Monaragala Kalutara Ratnapura Remunagoda/ Imbulgoda (Kalutara) Hambantota Galle Kiyaduwa (Matara) Matara 9 Gandara/ Devinuwara / Talalla (Matara) Angulmaduwa (Hambantota)

Development of Pottery Villages - 2014 Total Estimate Cost (Rs. Mn.) Jaffna Development of Pottery Villages - 2014 Budget for 2014 = Rs. 40 Mn Expenditure = Rs. 5.12 Mn Chankanai (Jaffna) Kilinochchi District Village No. of Families Total Estimate Cost (Rs. Mn.) Anuradhapura Elappankulama 43 3.62 Kurunagala Madawalagaraya 60 4.68 Gampaha Polwatta 470 3.65 Matale Dodamattawala 25 3.30 Nuwara Eliya Puranagama 40 1.53 Matara Kumbalgama 1.74 Batticoloa Eravur 250 3.82 Colombo Ranala 3.12 Jaffna Chankanai 50 4.10 Webadamulla 0.17 Puttalam Halabawatawana 51 2.54 Melpura 2.53 Kudakelagama 1.95 Mullaitivu Vavuniya Mannar Trincomalee Elappankulama (Anuradhapura) Kudakelagama (Anuradhapura) Anuradhapura Puttalam Polonnaruwa Batticaloa Halambawatawana (Puttalam) Dodamattawala (Matale) Eravur (Batticaloa) Kurunegala Matale Madawalagaraya (Kurunegala) Kandy Webadamulla (Gamapaha) Gampaha Badulla Ampara Polwatta (Gamapaha) Kegalle Puranagama (Nuwara-Eliya) Nuwara Eliya Colombo Monaragala Ranala (Colombo) Kalutara Ratnapura Galle Hambantota Matara 15 Kumbalgama (Matara) Melpura (Matara)

5 Year Strategic Plan of the Ministry www.tisedmin.gov.lk - Reports

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