Discerning, and Supporting, ‘Transformative Subsistence Entrepreneurs’

At a recent conference organised by Monash University and Institute of Policy Studies, a fellow panelist in my session – Prof. Srinivas Sridharan – made a presentation that changed my understanding of informal entrepreneurs. Srinivas, an Associate Professor at Monash University’s School of Management presented his research on micro-entrepreneurs and subsistence entrepreneurs in 3 countries, including in India. He spoke of a new framework through which to think about these entrepreneurs. I found it compelling, and can help change how we think about bottom of the pyramid customers.
The main takeaway for me was that we have to identify the ‘transformative subsistence entrepreneurs’ from the rest, and help them grow. The main point Srinivas made was that identifying this particular type of subsistence entrepreneur isn’t simply by their income alone – other metrics that determine/predict their success, come into play.
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Srinivas argued that subsistence entrepreneurs are a heterogeneous marketplace. There are:
a) ‘Ordinary’ subsistence entrepreneurs
b) ‘Stability-seeking’ subsistence entrepreneurs
c) ‘Transformative’ subsistence entrepreneurs
It is c) who we need to take a closer look at. He noted that there are 3 characteristics of ‘Transformative Subsistence Entrepreneurs’
1. They experience an income spike (as they are able to move beyond ‘stability-seeking’)
2. They have personal agency – i.e., they have more control of their activities, their business, and are more aware of their rights and ability to navigate processes
3. They contribute to community growth – they employ more people, they have stronger local supply links with other micro-entrepreneurs in the community
The transformative story of these entrepreneurs isn’t so much about income at all, it is more about the increase in their personal agency and increase in community links/community growth.  They have ‘embedded assets’ – not from outside, but from within (i.e., inherent strengths)

In Conversation with Shanaka Fernando, a trailblazing social entrepreneur in Australia

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Today I had the pleasure of moderating a session with the trailblazing social entrepreneur, Shanaka Fernando at the ‘International Conference on Social Enterprises & SMEs for Sustainable Development and Poverty Reduction’. Shanaka is Lankan-born and grew up in Australia, and is the Founder of ‘Lentil As Anything’, a unique social enterprise that now spans seven restaurants in Australia and beyond. He has been recognised as an ‘Australian of the Year – Local Hero’ in 2007. As the awards honour roll mentioned, Shanaka has shown that “a commercial enterprise can operate in a socially responsible and altruistic way. ‘Lentil as Anything’ is a bold social experiment that respects difference, promotes trust and defies a consumerist society.”. His model is based on a commercial enterprise with a people-centric ethos, where goodness, generosity, dignity, and business savvy come together to form a unique venture.

In our conversation (audio embedded below), we talked about Shanaka’s personal journey that brought him to where he is today and work on what he is working; his people-focussed philosophy and how that translates into his business; what ‘Lentil As Anything’ is and how the model works; and what top messages he has for Sri Lankan social entrepreneurs. He was a treat to speak with, and it was a refreshing and inspiring post-lunch session. I started with something that had been written about him, and then we took it from there,

“He’s been declared bankrupt, had his business liquidated, and been taken to court by the Australian Taxation Office. He’s had his passport suspended and his bank accounts frozen. He’s even been threatened with jail over unpaid parking fines. In some eyes, all of that would make Shanaka Fernando an inveterate troublemaker, a man who acts as if he is somehow exempt from the laws that most of us live by. But in his own view, and in the view of many others, he’s just trying to shake things up a little, for the good of us all.”

For the audio recording of the full conversation, click play below.

(image courtesy Chandula Abeywickrama, Lanka Impact Investing Network)

Power Structures

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Visiting Parliament House in Canberra last weekend was revealing. The degree of openness was noticeable. We drove straight into the car park underground, no security manning the gates, and no boom gate operators. There’s usually a crescat-style entry ticket machine, but as it was a Sunday the boom gates were fully open – free parking. Entering the building, we encountered just two armed security guards, went through a thorough X-ray and metal detector check, and then inside in a flash. After that we didn’t see a single security guard at all (Of course I’m sure we were being carefully watched by a network of CCTV cameras, but nothing imposing). We walked all the way to the rooftop – which is clad with a natural garden – and then just two security guards up there.

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We walked around freely, including going into the senate and house chambers. Of course, it may have been very different if we had visited on a day the Parliament was in session. The philosophy when designing the building was that regular citizens should be able to walk right up to the Parliament, walk on the grass and enjoy it. The instructions given to the architect was that all Parliamentary chambers should be below the level at which the citizens walk – so instead of climbing stairs up to the Chambers, citizens walk right up to the Parliament on the same level as the road, and they stand above it all – the Parliament chambers are below this level.

Why an OPEC Deal to Cut Oil Production Matters for Sri Lanka

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Yesterday, after weeks of speculation that it may not happen, members of the Organisation of Petroleum Exporting Countries (OPEC) – a producer cartel – agreed to cut supply by around 700,000 barrels per day (bpd). In overnight trading, oil prices rose sharply by 5-6% and hovered at close to US$ 47 a barrel. By this morning the gains had somewhat tempered.

Under the agreement, OPEC oil production is expected to be reduced to a range of 32.5 to 33 million barrels of oil per day from 33.4 million. This is first time in eight years that OPEC has struck a deal to limit crude output since the downturn in 2008. The deal, including details of actual cuts, will likely be formalised at the next OPEC meeting scheduled to be held in November.

Why does this matter for Sri Lanka? The low oil prices seen throughout 2015 and early 2016 (as low as US$ 26 a barrel in February) has substantially helped oil importers like Sri Lanka. Low oil prices have meant low oil import bills, and at a time of declining export revenues, this has been much needed relief on the external balances side. Sri Lanka’s oil import bill was 41% smaller in 2015 than 2014 (US$4.5 Bn in 2014 compared to $2.6Bn in 2015). Of total imports, oil imports fell from 24% in 2014, down to 14% in 2015. Looking at 2016 (only H1 figures are available),

Oil Imports

– H1 2016 – $1.12 Bn

– H1 2015 – $1.47 Bn

– H1 2014 – $2.5 Bn

% of Total Imports

– H1 2016: 13%

– H1 2015: 18%

– H1 2014: 27%

Y-o-Y Changes

– H1 2016 Vs. H1 2015 : -20%

– H1 2016 Vs. H1 2014 : -52%

– H1 2015 Vs. H1 2014 : -40%

Of course it remains to be seen at what price oil stabilises in Q4 2016 and early 2017. It’s unclear as to whether this OPEC cut in production will be enough to drive sustained higher prices, given that a big new producer Iran (after sanctions on it were lifted) has been granted an exemption from the cut, Nigeria and Libya are also exempt, and there is substantial US shale oil and gas inventory built up that may now be even more profitable than before to come on stream. The OPEC cut could be self-defeating if there is a big drilling response from around the world, particularly from the US.

For Sri Lanka, we squandered an opportunity to reform energy pricing in the country. We didn’t take advantage of the breathing space offered by low oil prices in 2015. Against a backdrop of declining export revenue, a steady increase in the oil import bill certainty doesn’t help. The way forward strategy is to a) reform energy pricing so that its more in line with global prices and consumers and firms price that in in their consumption decisions; and b) boost export competitiveness and market access so that export revenues rise in line to support a higher oil import bill. Of course in the medium to longer term, Sri Lanka needs to strive to move towards more non-conventional renewable energy sources.

19 Notable Quotes of #SLES2016

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The Sri Lanka Economic Summit produced many incisive insights, revealing research, but most of all some memorable and thought-provoking quotes. Here are 19 of my favourites.

1. “The unprecedented concessions granted to favoured enterprises by the previous government have created a nightmare for the present government” – Hon. Ravi Karunanayake, Minister of Finance

2. “Professional advice needs to mix with political realities” – Hon. Ravi Karunanayake, Minister of Finance

3. “Sri Lanka is an island of poverty in an ocean of prosperity” – Hon. Ravi Karunanayake, Minister of Finance (on Sri Lanka needing to latch on to Asian economic growth)

4. “Sri Lanka must move from potential to performance, issues to solutions, rhetoric to action” – Samantha Ranatunga, Chairman, Ceylon Chamber of Commerce

5. “Businesses need to recalibrate their risk and take a long view on investment” – Dr. Indrajit Coomaraswamy, Governor, Central Bank of Sri Lanka

6. “Expectations of the new government have not been met. In fact, they got a kick in the stomach” – Prof. Razeen Sally, Chairman, Institute of Policy Studies

7. “There has been the supreme idiocy of imposing price controls, which I thought was something we had left behind in 1977” – Prof. Razeen Sally, Chairman, Institute of Policy Studies

8. “Sri Lanka needs to tell people the growth story, captivate them, and get on board with reforms” – Dato Sri Idris Jala, CEO of PEMANDU, Malaysia

9. “PPPs are a good option for countries with limited fiscal space and can bring down project costs” – Kamal Dorabawila, Investment Officer, International Finance Corporation

10. “If I was to promote any country outside of Australia, Sri Lanka would be it!” – Andrew Fairley, Deputy Chair of Tourism Australia

11. “Research, taking the temperature of what travellers actually want give a huge impetus to developing strategy. Sri Lanka needs to find out what people actually want in the markets that they are selling” – Andrew Fairley, Deputy Chair of Tourism Australia

12. “Bringing private partnerships will helps improve viability and accountability of public infrastructure projects, and avoid another Mattala” – Hon. Eran Wickramaratne, Deputy Minister of State Enterprise Development

13. “It takes two hands to clap. The government alone cannot eradicate corruption” – Hon. Eran Wickramaratne, Deputy Minister of State Enterprise Development

14. “Sri Lanka cannot become a hub by  building infrastructure alone, liberal trade and investment policies are key” – Dr. Saman Kelegama, Executive Director, IPS

15. “To avoid the low equilibrium trap, Sri Lanka must shift away from debt financed investment-led growth to FDI- and export-led growth” – Dr. Saman Kelegama, Executive Director, IPS

16. “Sri Lanka must attract non-Sri Lankan talent and build regulatory frameworks that make it the hot bed for next generation businesses” – Rajan Anandan, Managing Director, Google India

17. “We should be thrilled that people in this country are not queuing for jobs. But this is tough for business. We must build businesses that can pay higher wages” – Ashroff Omar, CEO, Brandix

18. “On average an Indian start up will work twice as hard as a Sri Lankan start up. We need to create that hunger in the workforce” – Rajan Anandan, Managing Director, Google India

19. “I don’t want to own your land. I want to make money!” – Desmond Sheehy, Duxton Investments (responding to EDB Chairman’s assertion that foreign land ownership would be prohibited)

 

Cover image courtesy Ceylon Chamber of Commerce Facebook page

“වඩා හයියෙන් කෑගහන අයගේ හඬට යට නොවිය යුතුයි” – My comments to Yukthiya on trade liberalisation

Sinhala language current affairs website, යුක්තිය (‘Yukthiya’) asked for my thoughts on trade liberalisation, particularly in the current context of the ETCA. Here’s what I said:

ලංකා වාණිජ මණ්ඩලයේ ප‍්‍රධාන ආර්ථික විද්‍යාඥ අනුෂ්ක විජේසිංහ මහතා කියන්නේ ඉන්දියාව සමග මෙන්ම වෙනත් රටවල් සමගද අන්‍යොන්‍ය වාසිදායක වන වෙළෙඳ ගිවිසුම්වලට ඇතුළත්වීම අවශ්‍ය බවයි. අපේ නිෂ්පාදන ජාත්‍යන්තර තලයට ගෙන යා හැක්කේ එවිට පමණක් බව කියයි. කෙසේ වෙතත් ගිවිසුම් සකස් කරනවිට සියලූ පාර්ශවයන්ගේ අදහස් ලබාගත යුතු බවත්, වඩා හයියෙන් කෑගහන අයගේ හඬට යට නොවිය යුතු බවත් විජේසිංහ මහතා කියයි.

(Sri Lanka must forge mutually-beneficial trade agreements. With India, and with many other countries. It will help gain market access for our products, and attract investors to our country. When crafting these agreements, there must be solid consultations with all relevant stakeholders, and government shouldn’t be overwhelmed by listening to those who shout the loudest.)

Link to the full article written by C J Amaratunga – http://yukthiya.lk/2474-2/

 

The Curionomist Podcasts | #4: A Chat with AirBnB’s Mike Orgill

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My first experience with AirBnB was on a trip to Europe last year – couldn’t have afforded France if not for it, and got insider tips, driving cheats, and great eats because of it.  A year later, it was great to catch up with a top AirBnB official and chat about the platform. Mike Orgill, head of Public Policy for AirBnB Asia-Pacific, was in town for the Sri Lanka Economic Summit 2016 and we did this podcast on the sidelines of the event. We talked about AirBnB and its role in global travel, the public policy tensions the platform has to contend with, whether the sharing economy has led to the emergence of ‘crowd regulation’, and how AirBnB is growing in Sri Lanka. I last met him when he visited Colombo in his previous role at Google and it was a pleasure catching up with him again.

(Skip to the podcast here)

Growth of AirBnB

The platform now has over 1.7 million homes in 34,000 cities and 191 countries. In fact, they are the first American travel brand to enter Cuba after relations were normalised recently, and they are not in only a handful of countries like North Korea and Syria. On a peak night last August around 1 million people across 180 countries stayed in an AirBnB property. Just this week, the company filed papers in Delaware state to raise US$ 850 million on a US$ 30 billion valuation. This would take AirBnB’s equity raise up to US$ 3.2 billion (yet, still only a fraction of Uber’s US$ 68 million valuation).

Regulatory shift

While staying with AirBnB hosts in different cities, I couldn’t help but think about how regulators must be utterly confused as to how to tackle this growing phenomenon. Unlike in traditional hotel regulation, where a country’s tourism authority would set standards and benchmark properties against it before rating them (1 to 5 stars, for instance), with AirBnB the regulators and ratings are by the community itself. It’s a complete shift in how regulation occurs.

The flat is you-clean, but is it me-clean?

I guess a big difference to contend with is that while community regulation can work – with so many people rating and scoring hosts and travellers on various aspects of the stay – each one of us has different standards – particularly on things like cleanliness. While in a traditional hotel model, a room’s cleanliness would be rated against a benchmark set by a single authority, and that would be applied more or less equally across all other hotels with that start-class regulated by that authority. Think about it – do all your friends have the same level of cleanliness or standards of hygiene that you do?

What do we call it?

With AirBnB there isn’t a single authority or regulator. It is large distributed groups of people. There are tens of thousands of regulators, as it were. It has blurred the lines between the users of a platform and regulators of that platform’s product/service offering. Economists are yet to figure out what to call this. I would suggest one of the following – ‘Distributed Regulation’, ‘Crowd Regulation’, ‘Community Regulation’.

Tourism tensions?

Whatever it is called, the fact remains that AirBnB is coming up against tourism incumbents and also confusing traditional regulators. How do you even begin to regulate something that is just an online platform? Something that simply connect micro-entrepreneurs offering a place to stay, with buyers (travellers). An economic service that is blurring the lines between personal and professional in the provision of commercial hospitality services. How do you even begin to think about taxes? In a speech at a World Economic Forum event, AirBnB co-founder welcomed working with regulators. “As we grow we want to partner with cities. The bigger we get the more regulators say Airbnb are partners to us […] the more people learn about airbnb, the more they love us […] we want to be regulated. To regulate AirBnB is to recognise AirBnB”.

I believe that it is in the interests of tourism agencies, like the Sri Lanka Tourism Development Authority, to take genuine interest, to not attempt to squash it or fumble with regulation of it; rather, to foster it, work with it, and use it to promote more visitors to the country.

Listen to the podcast below (or here).

The new fees on businesses hurt entrepreneurship

The government recently imposed an Annual Registration Fee on Private Limited Companies of LKR 60,000 and a LKR 250,000 closing down fee, both of which were announced in Budget 2016 and came in to effect last month. I find these new fees deeply problematic, for many reasons:

  • The fee affects all private limited firms regardless of their size or any other differentiating characteristics. In taxation there is a principle called ability to pay, and expecting a small one person modest revenue operation to pay the same fee as a larger substantially more profitable one does not make sense. Similar here, this ‘fee’ (which is essentially a flat tax) applies to all firms equally. Considering that a large number of private firms are actually SMEs (in fact according to the latest Economic Census, 99% of all establishments are either micro, small or medium), this LKR 60,000 p.a. fee is often a substantial cost on business operations
  • Imposing a fee for closing down a firm is a recipe for greater in formalisation. Who would want to formally register a business, taking a risk, when there is a LKR 250,000 price tag in the event of having to close down, i.e., fail. This new fee essentially acts as a penalty for failure and is a strong dampener on both risk taking as well as formality. This does not sit well with a country’s development objective of encouraging greater formalisation of firms.
  • This then has a knock-on effect on overall firm growth as well as tax compliance and collection. If such a charge discourages firms from becoming formal, it will affect tax collection. The discouragement to formalisation also affects the firm’s ability to borrow from formal sources, access formal support from institutions, and grow, expand into new markets, access technology, etc.
  • I was also told by many entrepreneurs who wanted to pay the annual registration fee and be compliant that for many weeks and months there was uncertainty as to whether this new regulation was confirmed or not; from which date it is being applied; and from who more information can be obtained. This sort of uncertainty, gaps in information, all add to transactions costs for the firm – particularly smaller firms with limited resources to expend on regulatory compliance requirements, unlike larger firms.

These fees need a serious reconsideration. They hurt entrepreneurship. They impose disproportionate costs on smaller firms than larger ones. They discourage risk-taking and put a penalty on failure. They discourage formalisation. They hamper access to finance and firm growth. And they will ultimately affect tax revenue.