Coping with COVID-19: Economics of social media based business in Sri Lanka during crises
Kithmina Hewage and Harini Weerasekera
As of January 2018, there were six
million active social media users in Sri Lanka, accounting for 30% of the
population. The prominence of social media as a platform for information
exchange – both globally and in Sri Lanka – is well documented. The current
COVID-19 pandemic is probably the first major global
crisis to take place in the social media age. Social media outlets such as
Facebook and Twitter, which did not exist or was at a nascent stage during
previous global crises, such as the September 11 terrorist attacks or the 2008
financial crisis, are currently facilitating important conversations about the COVID-19
pandemic. At the same time, it has also become a hotbed for disinformation and
sensationalism. The unprecedented level of information available to social
media users, however, has also created opportunities for broader usage of these
platforms for activities such as contact
tracing and economic activity.
Given the complete cessation of
usual business practices in Sri Lanka for the past six weeks, due to prolonged
curfew, businesses of all sizes have begun to use social media as their
preferred platform to continue commercial activities. For instance, in addition
to established online platforms such as PickMe coordinating their delivery
services through their mobile apps, many major supermarkets and other vendors have
also started connecting to their customers directly via platforms such as
WhatsApp and Facebook. Similarly, social media based Micro, Small, and Medium
Sized Enterprises (MSMEs) have also attempted to restart their service
provision, amidst several limitations. This blog discusses the impact of crises
on social media based MSMEs in Sri Lanka.
Coping with Policy Inconsistency
and External Shocks
Over the past two years, social
media based MSMEs in Sri Lanka have had to cope with different types of external
shocks, which have posed both opportunities and challenges.
Social media bans, for instance,
pose a direct threat to companies that rely exclusively on social media to run
operations. During a scoping
study conducted by IPS last year, 83% of social media based businesses
surveyed reported a negative impact on their operations during social media
blockades imposed following the Easter Sunday terrorist attacks and the subsequent
violence. Of those who reported a negative impact, more than half reported a
reduction of 40%-100% in sales.
The COVID-19 pandemic is further
evidence of the vulnerability of small businesses – irrespective of whether
they rely on traditional or online sales – around
the world. Firms operating at this scale are often dependent on daily
business activities, since margins are usually thin and cash reserves are
limited. In light of social distancing measures and curfews curtailing service
provision, social media based MSMEs are one group, among others, which is
affected. In Sri Lanka, a majority of such companies (60% of the surveyed
companies) operate in the informal sector and are not registered with the
Registrar of Companies.
However, for some social media
based MSMEs – particularly those operating in the food industry – the unprecedented
rise in demand for home-deliveries during the curfew period, is an economic
opportunity. Particularly home bakers and food caterers who were already
operating from home, via social media, and are already using established
delivery systems, have a distinct advantage over MSMEs that were only relying
on traditional sales platforms. This has also meant that these companies must
strategically alter business operations to meet higher than average volumes of
demand. However, even among social media based businesses in the food industry,
those that rely on take-away and pick-up are likely to suffer, given that customers
are unable to access these options during lockdown.
However, with these benefits, a
host of new challenges have emerged for social media based MSMEs, during this
pandemic. For instance, due to recent actions of a few online competitors,
over-charging of goods has come to be seen by consumers as a new concern in the
online sales-space. Such issues have increased the urgency to formulate a
policy framework that governs social media based business transactions. For
instance, the absence of a legal framework that protects both the interests of
consumers and producers for dispute resolution was cited as problematic by
those surveyed, even before the pandemic. In addition, only 27% of surveyed
respondents believed that the current policy framework in Sri Lanka is
supportive of small online based businesses.
Shifting to Cashless Transactions
Prior to the crisis, the most
popular payment methods for social media based MSMEs were direct bank transfers
(100%) and cash-on-delivery for payments (80%). Meanwhile, amongst MSMEs,
online payments using debit/credit cards are significantly low (17%) due to the
high cost of payment gateways. Notably, under the current curfew measures,
however, access to cash has been limited, since the public is unable to access banks
and ATMs, unless provided with mobile ATM
access. Therefore, reduced access to cash amongst consumers would
consequently drive down business for these MSMEs.
Moreover, the current crisis has
also highlighted the low level of online banking usage within the Sri Lankan
economy. Central Bank of Sri Lanka’s statistics of online
payments, as well as information provided
through recent annual reports of several banks in Sri Lanka, suggest that less
than 15% of the country’s banking customer base has access to online banking
facilities. This number falls even further when considering online banking
activity. As such, the ability for consumers who usually depend on
cash-on-delivery to migrate to direct bank transfers is somewhat limited,
affecting demand for social media based MSME produced goods and services even
further. Currently, many banks have attempted to promote their e-banking
services, and it would be in the best interests of the economy to continue the
momentum towards encouraging such platforms even once the situation normalises.
Conclusion
Beyond the current crisis, as Sri
Lanka steps into a phase of development where digitalisation of services is
being prioritised (government services, doing business procedures, etc.), the
role that social media platforms play as enablers of business activity should
not be underestimated. Particularly for segments such as MSMEs and youth,
social media platforms are increasingly becoming the primary engagement
platform for business activities, including advertising, selling, and delivery.
Amidst the high potential for growth, however, several structural and policy
mechanisms appear to be inhibiting the growth of these businesses. The current
crisis may potentially create much needed impetus for the Sri Lankan economy to
embrace e-commerce platforms, especially through social media. Even though at
times many companies struggled to cope with the rapid increase in demand for
services, they have since established systems to engage in higher rates of
e-commerce.
In a post-COVID-19 economic order, having experienced its convenience, it is likely that demand continues for companies to introduce and upgrade e-commerce tools. A broader improvement in the e-commerce ecosystem in the country, therefore, would consequently result in long term benefits to expand choice and coverage of social media based businesses as well.
(Kithmina Hewage is a Research Economist and Harini Weerasekera is a Research Officer at the Institute of Policy Studies of Sri Lanka (IPS). To talk to the authors, email kithmina@ips.lk / harini@ips.lk. To view this article online and to share your comments, visit the IPS Blog ‘Talking Economics’ – http://www.ips.lk/talkingeconomics/)