The Impact of COVID19 on the MSME Sector in Sri Lanka

1 The Impact of COVID19 on the msme . Sector in Sri Lanka The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena The Impact of COVID19 on the msme . Sector in Sri Lanka May, 2020. Gunawardana National Consultant Sri Lanka UN DESA/DSDG. The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena i Abstract This report gives an overview of the socio-economic aspects of Sri Lanka which includes Sector wise GDP. contribution, growth, population and employment by Sector . A detail account of the msme Sector including the contribution to the economy, scale wise composition, geographical distribution and employment is also given in the report. The Impact of COVID 19 virus threat to the MSMEs is addressed in detail covering the main sub-sectors.

2 A. summary of the relief measures introduced by the Government of Sri Lanka and the present status of the MSMEs are analyzed in detail. The writer in his opinion discuss the measures to build resilience, recommendations for revival and sustenance of the msme Sector . The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena ii Abbreviations BDS - Business Development Service CBSL - Central Bank of Sri Lanka CRIB - Credit Information Bureau of Sri Lanka DCS - Department of Census and Statistics EDB - Export Development Board GDP - Gross Domestic Product GoSL - Government of Sri Lanka IDB - Industrial Development Board msme - Micro, Small and medium Enterprises NEDA - National Enterprise Development Authority SME - Small and Medium Enterprises The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena iii Contents Abstract.

3 Ii Abbreviations .. iii iv List of Figures .. v List of v 1) Introduction .. 1. 2) An Overview of the Economy of the Country .. 1. GDP Contribution - Sector wise .. 1. GDP Growth .. 2. Comparison of Imports & 2. 3) The msme Sector in Sri 4. Distribution of establishments .. 4. Distribution of employment .. 5. Distribution of MSMEs by geographic sectors urban, rural and estate .. 5. 4) The Impact of COVID 19 Pandemic on msme Sector of Sri Lanka .. 8. Tourism Industry .. 8. Apparel 9. Foot wear and Leather Sector .. 9. Handloom and Handicraft industry .. 10. Other industrial thrust areas .. 11. 5) Relief Measures offered by the Government of Sri Lanka (GOSL).

4 12. 6) The Present Status of MSMEs .. 15. New opportunities .. 15. 7) Building Resilience .. 17. 8) Conclusion .. 19. 9) Recommendations .. 20. 10) References .. 22. 11) Annexures .. 23. Case Studies .. 23. Circular No. 05 of 2020 .. 30. The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena iv List of Figures Figure 1: GDP Contribution - Sector wise .. 1. Figure 2: GDP Growth .. 2. Figure 3: Comparison of Imports & Exports .. 2. Figure 4: Employment by Sector .. 3. Figure 5: Distribution of establishments .. 4. Figure 6: Distribution of employment .. 5. Figure 7: Distribution of MSMEs by geographic sectors urban, rural and estate .. 5. Figure 8: The analysis of registered enterprises.

5 6. List of Tables Table 1: The Definition of the MSMEs .. 4. Table 2: Number of Establishments and percentage distribution economic Sector wise .. 6. Table 3: The persons engaged and percentage distribution economic Sector wise .. 6. The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena v 1) Introduction Sri Lanka is an island with an area of 65,610 and has a total population of Million (mid-year 2018). The country has a good average literacy rate of and average life expectancy at birth is years. Government expenditure on health and education is and of GDP respectively where health Sector is predominantly operated by the government and the health services are offered addition, there are a considerable number of private hospitals, majority of them are located in the Western Province and rest are located in main cities and suburbs around the country.

6 There are beds per 1,000 persons one Doctor per 1,203. persons one Nurse per 570 persons in government hospitals1. 2) An Overview of the Economy of the Country GDP Contribution - Sector wise 7% 0% 8%. Services Services 29% Industry Industry Agriculture Agriculture 63%. Other Other Figure 1: GDP Contribution - Sector wise Sri Lanka GDP estimated as US $ billion in 2019 covered with key sectors of Services, Industry and Agriculture with contributions from , and 7% respectively1. Tourism Sector in the country has integrated with an extensive backward and forward linkages to other economic activities under Services and Industry. Such linkages were immensely disturbed with the Easter Sunday attacks and the effects continued throughout the year.

7 Manufacturing activities recorded a slow growth of in 2019 despite the contraction of the production of rubber, plastic, wood and other products. However, apparel and textile industry has contributed positively to the growth of the overall manufacturing Sector . Agriculture production index broadly remained unchanged during 2019 owing to key drivers such as growing of oleaginous fruits1. The Purchasing Manager Index (PMI)2 under manufacturing and services recorded its historically lower levels of 41 and respectively in April reflecting the impacts of the event. On top of these draw backs the country has fallen into a desperate situation due to the outbreak of COVID 19 virus.

8 1 2 dex%20-%20 Apr% (PMI). The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena 1. GDP Growth 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019. Figure 2: GDP Growth Source - Central Bank annual report 2019. The real GDP of the country recorded a sluggish growth of in 2019 compared to growth in 2018. The main contributor to the sluggish growth was attributed to the Easter Sunday terrorist attack in 2019 April on Churches and some leading hotels in Colombo which adversely affected the income from the tourism industry1. Comparison of Imports & Exports 25, 20, 15, Total Imports 10, Total Exports 5, - 2014 2015 2016 2017 2018 2019. Figure 3: Comparison of Imports & Exports Source - Central Bank Annual Report 2019.

9 Exports The major destinations of Sri Lankan exports are USA 25%, %, India 6 % Germany 6 %, Italy 4 % and China %. In 2019. The industrial exports accounted for of total export earnings and increased slightly with marginal growth of textile and garments which recorded as of industrial exports in the same year. Agricultural exports which accounted for have declined mainly due to price fluctuations in global tea market, reduction in production of other agricultural exports and lack of demand specially in EU for seafood exports. The major industrial exporter is the Apparel Sector which accounts for % of the total industrial exports The Impact of COVID 19 to SME Sector in Sri Lanka - Gunawardena 2.

10 And the main export destinations were US 25%, 8%, EU 22% and India 6%. More than 70%. of exports to the US are women's intimate wear, knitted and woven suits, sweaters, shirts and gloves3. Imports The major import origins of Sri Lanka are India 20%, China 17%, Singapore and UAE 7%. Major composition of imports comprised of intermediate goods which accounted for 57%, followed by Investments goods and consumer goods Employment The total labour force in Sri Lanka is million and the participation rate is and the total employed was million in 2019 while the unemployment rate has been While the services Sector accounts for 47% of the total employment the industrial Sector contribution is 28% and agriculture 25%.