The fate of shipping industry SMEs as liberalisation looms

By Jeevan Hettiarachchi

SMEs plays an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to foreign exchange earnings and facilitating equitable distribution of income is very critical.

Small and Medium Enterprises (SMEs), which form the backbone of our economy, are expected to play a greater role in the development of our economy in the coming years as the market expands and becomes more competitive and Sri Lanka shifts towards a manufacturing and service driven economy.

Therefore, growing a diverse and competitive SME sector would be one of the critical factors towards achieving sustainable economic growth. Some advanced economies have succeeded in this regard because SMEs form a fundamental part of their economies. In such economies, SMEs comprise more than 98 percent of the total establishments and contribute more than 65 percent of employment.

Globally, SMEs contribute more than 50 percent to Gross Domestic Product (GDP) in developed countries. Further, SMEs also constitute 95 percent of registered firms in the world. Specifically in the European Union, SMEs constitute 99.8 percent of all firms and employ around 76 million people representing around 67.4 percent of total employment in 2015.

Based on the above statistics, it is therefore very apparent that SME have been largely recognized as the backbone of an economy and play a significant role to generate employment, nurture a culture of entrepreneurship, and support large-scale industries and open new business opportunities. Therefore, it is clear that promoting the SME sector is essential in the nation’s stride towards broadening the sources of growth and sustaining the growth momentum.

SMEs in the shipping industry

In the Sri Lankan shipping industry the role played by SMEs cannot be forgotten. Out of close to 11,500 vessels that call at Sri Lankan ports, about 8,000 are casual caller vessels (non container vessels) which are canvassed by the SME sector. These agency companies have been at the forefront of driving new businesses such as off-shore services, servicing of maritime security companies, attracting of non-containerized business as well as promoting Sri Lanka as a hub for all maritime related activities in all the ports in Sri Lanka. These SMEs started as agents for shipping lines and thereafter diversified their businesses into other areas. This created a sustainable ecosystem where the profits made by these SMEs were reinvested back in the Sri Lankan Economy which created a domino effect.

Any industry has big players as well as small players. If we look at the apparel industry in Sri Lanka like any other industry there are few large and many small manufacturers who are equally contributing for the betterment of the industry. At times SMEs in these sectors assist the key players by creating a related and supporting industry base which will further enhance the competitiveness of the main industry. This was also discussed by Michael Porter in his Diamond Theory of National Advantage. For a country to have national advantage Porter argued that there has to be a related and supporting industry base which mostly consist of SMEs. The government should protect these industries by strict regulation as they can be badly effected by sudden changes in the global economy.

Shipping liberalization

A recent advertisement published by the Finance and Mass MediaMinistrystated that the Sri Lankan shipping industry is dominated by a handful of established businesses and that profits are enjoyed by few large companies. This goes on to show that the real reason behind liberalisation is to kill few big Sri Lankan players in the industry for various personal reasons. This argument is brought in the disguise of creating competitiveness which is actually a myth. What’s the rationale in breaking the backbone of the industry and opening it out to foreigners? Why does anyone want to kill the local entrepreneur just because they are doing well and open it to foreigners? The regulators should keep in mind that by doing so it’s the local SMEs who will get affected first. These foreign companies will not be reinvesting profits in Sri Lanka and will repatriate profits to their countries. This will destroy the entire industry and handover the control of shipping and ports entirely to parties with foreign interests on a platter. So we have come to juncture of selecting between national interest and foreign interest.

It’s high time that we develop our own model for economic development rather than blindly following concepts without gauging its impact on our economy. Liberalisation for the wrong reasons would wipe out an entire industry and effect livelihoods of many. Countries around the world are now turning back to their own economies to see how best they could leverage growth within the economy by strengthening SMEs and fueling local consumption whereas we are planning on handing over the local infrastructure built by local entrepreneurs to foreigners so that they could milk the country dry without any further investments necessary for them to operate. The stage is set for them to operate and repatriate hundred percent of their profits which will leave no funds for further development, expansion or diversification of business.

(Jeevan Hettiarachchi is a senior visiting lecturer in shipping and logistics and also serves as an independent maritime consultant for SMEs in Sri Lanka. He can be reached on [email protected])