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By Channa Kasturisinghe

The Asian Development Bank (ADB) will provide $ 177.25 million to launch three cluster projects to create a more dynamic small and medium enterprise sector (SME) in Sri Lanka.

The program formulated under the National Strategy for Small and Medium Enterprise Sector Development in Sri Lanka will be implemented in three phases and is expected to enhance the capabilities and competitiveness of the sector, create jobs and reduce poverty.

Under the first project the ADB will provide $ 20 million to develop policy and to strenghten the enabling business environment for the SMEs. The second project will focus on facilitating Business Development Services (BDS) and technical assistance. The ADB will provide $ 7.25 million for this project.

The third phase under which the SMEs will be financed comprises a credit component of $ 60 US and a partial credit guarantee of $ 90 million US provided by the ADB.

The report of the Task Force appointed by the Government to formulate the National Strategy for Small and Medium Enterprise Sector Development in Sri Lanka was presented to Enterprise Development, Industrial Policy and Investment Promotion Prof. G.L Peiris at the Ministry yesterday.

The President of the Task Force Dr. Saman Kelegama said that the SME sector has been recognised as an important strategic sector for generating high economic growth and reducing undemployment, inequality and poverty.

"Since, independence, successive governments have introduced various support programs to facilitate growth and expansion of SMEs in different sub-sectors of the national economy. However, there has been no deliberate policy effort to exploit the full development potential of SMEs. In fact, past policies and incentives for enterprise development have been highly biased towards large-scale enterprises and hence discriminatory against SMEs. It is a sector which needs to be carefully nurtured by providing institutional support, access to finance, business development services, and a less regulatory oriented business environment.

Having recognised these major policy requirements, the Government appointed the Task Force comprising representatives of chambers, banks, Government institutions and other prominent individuals including the academia, in October, 2001 to inquire into the needs, problems and future requirements of SMEs and develop a national strategy for Sri Lanka," Kelegama said.

He said that after a long deliberation on the main tasks assigned, the Task Force decided to adopt a methodology to ensure wider participation of stakeholders in formulation of policies and strategies for SME development.

"It includes the development of a mission and key strategic elements for SMEs the formation of four working groups to prepare detailed reports on overall policy, enabling business environment, institutional support and an action plan. The Task Force will also conduct public hearing workshops in selected districts and have consultations with representatives from Government, non-government and private sector organisations," Kelegama said.

He said that the Task Force identified several constraints, affecting SMEs including limited access to and cost of capital, low level of technology , limited access to markets and market information, absence of business development services, regulatory and administrative constraints and inadequate institutional support. "The severity of these issues on SME development was addressed in the context of ongoing policy reforms at the domestic front and increasinghly competitive market conditions at global level," Kelegama said. The Secretary to the Ministry Ranjit Fernando said the recommendations of the Task Force are based on the policy formula of `maximum support but minimum intervention'.

"Under this policy the Government does not interfere directly in the market, but it provides a favourble macroeconomic environment, institutional support and infrastructural facilities," Fernando said.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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