‘Pola’ economy vs capital markets
View(s):A commentary this week by marketing guru Hilmy Cader discussing the need to develop “Pola Markets” before capital markets deserves the attention of not only Government planners and policy makers but also the Colombo-based business community.“In a developing country where a significant proposition of population rely on ultra-small businesses for livelihood, governments should invest more ‘energy’ and funds on developing the small business infrastructure against getting distracted by the glamour of capital markets. The message should equally resonate to the chambers and business leaders,” he says in an article published elsewhere in this section.
Cader alludes to the crisis faced by tea smallholders (in fact the entire tea industry for that matter) as an example of lack of attention by the authorities in helping small entrepreneurs and village-level businesses.While this is not the first time that Sri Lankan authorities have been urged to help, rejuvenate and provide the needed incentives to spur growth in small businesses which provide the bulk of jobs and GDP growth, the MTI Consulting founder’s comments should resonate strongly across influential business leaders and Colombo-centric chambers for one simple reason: He is one of them, moves in the same business and social circles; eats, drinks and breathes their lifestyles and whose views are respected.
Unlike a village leader, small business entrepreneur, provincial chamber or similarly-placed group in society making a call, when personalities like Cader make a kind of statement which goes against the grain of business community thinking, it should raise a few eyebrows and, more importantly, trigger a discussion among ministerial-level policy-making arms of the Government.
His comments are also ‘interesting’ as it comes amidst a highly-publicised tour by the Colombo Stock Exchange (CSE) and high-profile companies with meetings in Zurich and London to whip up investment from well-heeled foreign investors.In the meantime, Sri Lankans and institutions they represent should not get carried away by ‘full-house’ meetings and ‘enthusiastic’ investors at local and overseas forums. This is in the context of the CSE’s media release on the Zurich forum which read as “The first ever capital market investor forum held in Switzerland on 28th October 2015, proved to be an outstanding success. Titled ‘Invest Sri Lanka’ and organised by the Colombo Stock Exchange (CSE) in association with the Swiss Asian Chamber of Commerce (SACC), attracted a full house for the Breakfast Meeting at The Widder Hotel in Zurich”.
Hard-nosed businesspersons know that investment decisions are not made overnight unless of course in the Zurich example there have been firm commitments to invest at one-to-one meetings.
Over the years investment promotion meetings abroad have also generated the same kind of “outstanding success and full house” publicity triggering false hopes while Sri Lanka has got only a trickle of investment compared to other emerging markets. It has been the same even in the 2009 post-war era when the doors were open ‘wide’ but investors didn’t wait in line to come here. Be that as it may, the “pola vs capital markets’ debate also needs attention particularly in the context of the ages- old ‘Kolambata Kiri Apita Kekira” argument.
There are thousands of struggling small businesses and young entrepreneurs seeking markets with new ideas and products but deterred by lack of capital, state attention and know-how on market access.
Banks and other financial institutions, despite pronouncements of helping small businesses, ask ‘too many’ questions from small business applicants compared to the risk assessment given to big business (even those with huge debts). This is partly due to the influence of big business and politically-connected parties for which a ‘helping’ hand means even writing off debt because of other ‘fringe’ benefits for ‘friendly’ financial institutions.
What small businesses need is the kind of “Angel” investment model that is successful in the information and technology space where young software and app (application) developers are providing working capital through a stake in their small units. Under this investment model, angel investors invest in a company, provide know-how if need and once the start-up has seen success, exit with their share of the profits.
Across the world, small businesses and entrepreneurs dominate the economy and in advanced societies like the United States, they also have a powerful voice – equally or more authoritative than big business. The state-owned US Small Business Administration provides all the guidance, encouragement and financial support to set up a business. There are many small business chambers and associations that champion the cause of small businesses and village-level entrepreneurs across the world.
Patrick Amarasinghe, one of Sri Lanka’s foremost entrepreneurs who passed away recently, was a driver of small businesses, helping generate ideas for entrepreneurship even in schools. Over the years he was in conversation with various groups as to how to increase the voice of masons, carpenters, plumbers, petti-kades’ (small boutiques) and like-level entrepreneurs and make them heard particularly during the pre-budget discussions with the Ministry of Finance. The ministry’s call (over the years) for public proposals and a series of public consultations are more Colombo-centric with powerful chambers calling the shots.
There is no meaningful dialogue with village-level entrepreneurs and the large number of small businessmen pleading for help unlike access that big business, capital markets and the chambers have. This is not for a moment saying what happens today is wrong but merely pointing out the need for an equal playing field in which small businesses – moreso because their contribution to GDP growth and the economy far outweighs any other business category – need more attention, not rejection by financial institutions or market players.
At one time, the Federation of Chambers of Commerce and Industry took up the role of increasing the voice of provincial businesses by setting up regional chambers but apart from a few programmes (during the Tsunami) and ‘cosmetic’ gestures of support a strong voice for provincial businesses hasn’t emerged.Thus while endorsing the MTI call for the Government to develop the ‘Pola’ market before capital markets, it is also incumbent on big business to adequately steer small businesses since wealth creation in the hands of small entrepreneurs will eventually make its way to the stock market and benefit both – capital markets and “Pola” markets.