• Heavy blow for MSMEs, produce 55% of GDP
• Govt. must address inflation and mobility challenges
• Lack of registration hampers MSMEs seeking assistance
• Short-term cash transfers essential for MSME survival

By Skandha Gunasekara The self-employed sector is one of the most vulnerable groups during the current economic crisis due to the shortages in fuel and skyrocketing prices. The effects of the crisis have impacted their lives and livelihoods, making a robust social safety net and other Government interventions essential for their survival. Ajmal Yakoob, a professional mixed martial arts fighter, trainer, and national athlete has had to adapt in order to continue his passion and profession with the advent of the prevailing crisis. As a trainer, face-to-face training sessions are key parts of his programme, which necessitate him to travel to meet his clients – a daunting task given today’s fuel and transport limitations. “I coach martial arts and also conduct personal training for weight loss. For the combat and fighting training, which I specialise in, face-to-face sessions are essential as it is a combat sport,” Yakoob said. However, the ongoing crisis has not deterred him; he has shifted to cycling to his sessions, be it at a client’s house or at the gym where he has planned training sessions. “The fuel issue is what is affecting me the most. It is a very difficult situation, but I decided not to stop what I’m doing. I have now started using my bicycle to go to classes and sessions at homes or at the gym. It is much more tiring now and a bit difficult for me, but I’m doing my best to maintain the same level of training sessions a week as I did before this crisis.” Admitting that the country’s economic woes have dented his income levels, just like for many others, Yakoob is persisting to get back to earning what he did before. Heavy blow to self-employed According to the Labour Force Survey 2020 of the Department of Census and Statistics, 42.5% of the employed population falls under the ‘Self-Employed’ category, while 33.2% comprises ‘Own Account Workers’. Institute of Policy Studies Director of Research Nisha Arunatilake said that the self-employed sector had seen both incomes and purchasing powers reduce. “They are cutting down drastically on their expenditure. Their economic activities have been affected because they themselves cannot go around to earn through their work; partly because people are not moving because of the transport crisis, which reduced the demand,” Arunatilake said. She said solutions to the fuel shortage and high inflation must be found by the Government as soon as possible to assist the self-employed sector.   “The Government needs to solve this transport crisis because that is affecting demand significantly. They also must stabilise inflation because the cost of production has gone up and this has a cascading effect on both demand as well as the price of services of the self-employed. They also need support in sourcing products because with the dollar shortage they are unable to import some of the materials they need,” Arunatilake explained. Informal sector woes Meanwhile, Centre for Poverty Analysis Senior Researcher Gayathri Lokuge pointed out that one of the main issues faced by the self-employed and other Micro, Small and Medium Enterprises (MSMEs) was their official registration and thereby recognition. “One of the main challenges in the MSMEs or the self-employed sector historically is that it remains an informal sector. One of the things we also gathered from the data available at national level regarding the informality of the sector is that 42% of our MSMEs are unregistered. So it is characterised by informality and this informality plays out in different ways when you’re faced with a crisis.” She said the lack of recognition also hindered any possible assistance from the Government. “The critical thing is that since you’re not recognised, any kind of support that is to be channelled won’t come to you because you are not registered and thereby recognised. Whether it is an economic crisis or Covid, with any kind of crisis the manifestations are similar when it comes to the setbacks faced by MSMEs and those who are self-employed.” She revealed that while 55% of the GDP was generated from MSMEs, more than 70% was from the rural sector.   “According to research from the MSME Economic Indicators Database 2019, a total of 42% of establishments which are MSMEs are informal and 98% of these total informal enterprises are micro scale, which means these are usually household businesses and other self-employed persons. MSMEs also make up 45% of total employment in the country, while 50%-55% of the GDP also comes from the MSME sector. It plays a big role. Another issue is that 74% of MSMEs are dispersed in the rural sector while only 25% are in the urban sector and 1% in the estate sector, according to a study done by D.P. Gunawardana in 2020,” Lokuge said. Government role She noted that Government intentions of encouraging MSMEs were not impactful when such businesses remained informal and failed to grow year on year.   “The interest of the Government in fostering MSMEs is strongly linked to the idea of developing the rural sector and minimising regional disparity. However, if the micro enterprises are stuck at the informal sector level, it defeats the Government’s purpose of developing MSMEs.” Referring to a survey done at the peak of the pandemic, Lokuge said that it had determined that MSMEs and the self-employed had fears regarding their income and expenses far more than those employed in the private or State sector. “We did a very small study in 2020 and 2021 during the pandemic. It was an online study, so our sample was skewed to those who had access to the internet. It showed that compared to people employed either in the public or private sector, those who are self-employed or MSMEs are a lot more concerned about losing their income and have various insecurities such as regarding procuring food. They are very uncertain about how to deal with these challenges because they don’t have an assured income. What is happening right now is similar – people who have an assured wage know how to plan, but if you’re totally dependent on a consumer base, which is also now spending much less on certain things, then your revenue is going to be drastically affected.” Overcoming constraints She added that shifting their businesses to online platforms had been a method of overcoming economic constraints such as logistics during the pandemic, but noted that such platforms were only available to those with the resources – a select few, when more than 70% of MSMEs operate from rural areas. “What helped, at least during Covid, was switching to online platforms for marketing. But this only helped those who had some kind of digital literacy and access to devices. The problem here is that 74% of MSMEs are in rural areas, where there is very little access to the internet and even less opportunities for having devices. There is also a gender disparity – women have less access to devices.” State assistance Commenting on what assistance the Government could offer, Lokuge said that in the short-term, cash transfers would be essential simply for those in the self-employed sector to survive on a daily basis. “There has to be a clear identification of the different scales these people operate at because the challenges they face will differ according to scale and where they are located. Then there has to be some kind of cash transfer in the immediate short term, in the next three months or so. Currently the Government is proposing a Rs. 7,500 cash transfer, but I couldn’t figure out what the selection criteria would be. I would say the micro group in the informal sector will definitely need support. This infusion of cash would not be for the enterprise but for them to simply survive.” She also stressed on the need to resolve issues pertaining to fuel and transport. “Another form of assistance in the short term would be to prioritise fuel and transport facilities, especially if the businesses are in the food-related value chain. The farmers, fishermen, and livestock sectors have to be prioritised and they have to be given fuel." Looking forward, she said access to digital services must be introduced for MSMEs along with a more streamlined method of registering their business. “In the medium and long term, a systematic way of registering these enterprises needs to be introduced. The concept of incubation and infusion and encouraging innovation must be done. These have to happen in parallel with access to digital services, which would mean both digital literacy and the access to devices. These are things that need to be budgeted and planned for.”