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Sri Lanka’s start-ups slammed by Coronavirus, seeking help

ECONOMYNEXT- Sri Lanka’s start-ups have been badly hit by Coronavirus, with the sector generally not getting support from banks, industry official said, and they are seeking help on meeting utility bills and flexibility on provident fund payments.

“Cost on ISPs and cost of utility payments could be looked at by the government and subsidized,” Jeevan Gnanam, Co-founder, Hatch, said addressing an online forum organized by Hatch, a start up incubator, and KPMG, an accounting consultancy.

Gnanam said that short-term reliefs like such could be provided through telecom providers and other utility payments too could be subsidized.

A joint survey conducted by Hatch and KPMG stated that around 70 percent of startups in Sri Lanka was funded by family and friends while only a small percentage comes through banks, venture capital, private equity and angel funds.

One of the crucial constraints identified in Sri Lankan startups were weak management and poor understanding of the risk profile, Gnanam said.

He questioned if this could be solved through discussions and awareness programs to prep startups before they dive in to the industry lacking knowledge on these fronts.

“For example can we work with Pickme to understand the risk profile of the gig economy and are we able to work with incubators to understand the risk profile?”

“Is there a way through these entities, that we can further provide credit to startups giving some kind of relief from banks, to who don’t understand the risk profile,” he said.

Labour costs and on boarding

A Covid-19 preparedness survey 2020, reported that 37 percent of startups had lain off employees and not hired while 39 percent had reduced employee salaries and working hours.

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“The staff cost as an example at the startup stage will be around 2/3 of their cost structure,” Shiluka Goonewardena, Head of Digital advisory, KPMG said.

“Sri Lanka’s labour laws tend to be quite inflexible in terms of getting people onboard and taking them out. We also have a very strong pension, EPF and ETF schemes which are good.

“It helps the employees, but in times of trouble it can be a bit of a problem,” he said.

String policies for labour cost issues among startups have been in the drawing boards for some time, and the industry is looking towards the government to provide solutions on this regard.

“Another problem faced by startups is EPF/ETF. Startups wanted to see if they could not pay back in the short term,” Gnanam said.

“But f it was to be paid, there were some suggestions and recommendations on whether instead of putting it into the EPF/ETF could we give the worker the option to invest it into the company through an ease off.”

The survey states that almost 3 percent of startups in the global context have had to cut down labour cost completely and this number increases to around 8 percent in Sri Lanka.

It could be deduced that there are companies which are operating with just the founder, owing to the effect of the pandemic.

A challenge in on boarding skilled personnel into startups was another challenge addressed by the online forum where it was suggested that the government could pitch in to resolve this.

“Startups have a huge problem in accessing skilled personnel especially in certain sectors which are struggling today like tourism, the apparel industry etc.,” Gnanam said.

“Is there a way that if there is an individual who is from a certain industry that a startup could do a cost share for some parts of that person’s salary to not only get in that expertise but also provide solutions for those industries?”

However, experts said that there might be room for recovery on the staffing crisis as the whole economy will be experiencing a shift from the conventional to a new normal.

“With Covid-19 and possible retrenchments in other sectors, there is a potential opportunity for people to be re-skilled and get back on board,” Shiluka Goonewardena said.

Cashflow and Administration

Globally, 41 percent of the startups have less than three months of cash, the survey stated.

Sri Lankan startups on the other hand have about 88 percent in numbers which only has a cash runway for less than three months following Coronavirus disruption.

“There is a lot that could be done by the government to reduce the administrative complexity of a startup and also opening up government tendering to startups is a provision that was brought up in the budget for 10 percent of government procurement for SMEs and not particularly startups,” Goonewardena said.

“The other interesting area would be regulations. This could be tax or compliance.

“At a startup stage it is difficult to afford a good accountant or tax advisor but most startups are still required to fulfill their tax obligations,” he said.

Startups, generally finds it harder to survive even at ideal economic conditions in Sri Lanka owing to lack of funding options.

Therefore, post Covid-19 recovery might be a rocky road, considering a possible recessionary situation.
Experts also said that the most effected among startups were particularly tech startups.
(Colombo/June24/2020)

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