Sri Lanka social media blackouts, protectionism hurt young female entrepreneurs: IPS

ECONOMYNEXT- Social media blackouts and protectionism hurt women-led micro, small and medium-sized enterprises (MSMEs) which rely on online platforms for sales, a preliminary study from a think tank has found.

The Institute of Policy Studies (IPS) a semi-government think tank based in Colombo, said new businesses which are cropping up on social media exclusively use such platforms to sell products, based on a survey of 40 businesses operating on Facebook and Instagram.

When social media is blocked, 83 percent of businesses dependent on such platforms reported a fall in sales, with a majority facing over 40 percent fall in revenue, the preliminary study conducted by IPS researchers Kithmina Hewage and Harini Weerasekara had found.

Social media has been blocked in recent years when communal violence flares up. Social media was blocked following the Digana clashes in 2018 and multiple times after the Easter Bombings which sparked sectarian violence.

Around 70 percent of social media-based MSMEs are owned by women, and 70 percent of those surveyed have just one or two employees. Eighty percent of the business owners are below 30 years of age.

There is scope for the businesses, most of which are informal due to their size, to grow. However existing policies present challenges, the survey showed.

Just 27 percent of the respondents believed that the existing policy framework supported growth of social media-based businesses.

In addition to social media blackouts, the lack of legislation to effectively protect interests of both the businesses and consumers and provide dispute resolution was found as a constraint in the study.

Costs of production were high among the small businesses, due to high tariffs and paratariffs, IPS said.

Sri Lanka is increasingly becoming a nationalist protectionist economy, and is one of the most protected economies in the world.

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Protectionism reduces the incentive for suppliers to produce better quality goods at lower prices, profiting from political clout that disconnects them from world market prices.

Undergraduates in global universities typically learn of the drawbacks of such poor policies in introductory economics lectures.

The IPS study said protectionism reduces profit margins and price out small businesses from importing higher quality ingredients and products.

“Overall, the nature of the businesses, current market market for social media-based e-commerce and wider policy related factors inhibit the ability for small online-based businesses to scale up in the future,” IPS said.

Sri Lanka is currently grappling with low growth and has constantly turned to debt-fuelled construction to provide short-term boosts to growth.

Economists have identified female participation in the labour force and female entrepreneurship as a potential source of sustainable long-term growth, which can be harnessed easily with the right policy reforms, including improvements to public transport, childcare, safer workspaces and closing the gender pay gap.

Sri Lanka’s female labour force participation is low at around 35 percent.

Many women who want to own a business however have to manage Sri Lanka’s high interest rates due to regular monetary instability, which push them to open businesses with low overheads, such as those operating on social media.

Just over half of the respondents in the preliminary study’s survey were retailers, while 30 percent prepared food and 18 percent were personal services.

Over 70 percent of the businesses had begun after 2017, while 75 percent operated from home.

Just 89 percent of the businesses were based in the Western Province, but they have large customer bases outside the province.

The survey showed 35 percent of the businesses having customers in Kandy, while 25 percent made sales in Galle and 18 percent in Jaffna.

IPS said the businesses surveyed may not be nationally representative and the preliminary study was conducted to find the feasibility of future research into the area.(Colombo/Mar04/2020: Updated 08:05)

Reported by Chandeepa Wettasinghe

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