Enabling private sector adaptation to climate change: factors supporting and limiting adaptation amongst Sri Lankan SMEs

Abstract

The capacity of small and medium-sized enterprises (SMEs) to cope with and adapt to climate-related shocks is a major factor in the climate resilience of the local and national economies they are embedded in. In developing countries, SMEs tend to exhibit low adaptive capacities, influenced by their enabling environments. A holistic understanding of how their capacity to adapt is influenced by both the qualities of their enabling environments and their inherent characteristics is needed. This study contributes to this understanding by reviewing the current knowledge of adaptive capacity in SMEs and providing an analysis of the environment for enabling SMEs to adapt to flood risk in Sri Lanka. Data originates from the Building Businesses’ Climate Resilience project, implemented in Sri Lanka between 2018 and 2021. The study finds that deficiencies in Sri Lanka’s enabling environment mean SMEs are unable to attain the information and competencies that would allow them to adopt suitable adaptation strategies for managing flood risk. Simultaneously, the results show that their capacity to cope with the impacts of flood events is not adequately enhanced by the financial services and support available prior to, and in the aftermath of, extreme weather events. Accordingly, it is suggested that the national government play a greater role in enhancing the enabling environment for adaptation. With the support of other prominent actors in Sri Lanka’s enabling environment, they should seek to enhance access to post-disaster finance, the availability of affordable insurance products for uninsured SMEs, and the availability of interventions and resources that fill the information and capacity gaps that SMEs possess.

Appendices

Appendix

Appendix 1 Sampling procedure applied to identify SMEs for the survey

2.1 Objectives of sampling procedure:

The objective of the sampling procedure was to obtain a sample that had the following characteristics:

• 1. Coverage across both small and medium-sized businesses;¹²

• 2. Coverage across different types of industry;

• 3. Coverage across both formal and informal SMEs.¹³

2.2 Sampling plan:

To generate a sample that meets the criteria above, SMEs were identified using three approaches:

• 1. Via a list of businesses provided by the Ceylon Chamber of Commerce;

• 2. Through site visits by local enumerators to locations with clusters of SMEs within the three study districts;

• 3. Snowballing and random sampling.

To be included in the final sample, businesses had to meet the following criteria:

• 1. They are located in one of the three flood-prone districts selected as study areas (Gampaha, Kalutara, and Ratnapura).

• 2. They employ between 10‒300 employees.¹⁴

2.3 Characteristics of the final sample:

In relation to the objectives of the sampling procedure, the final sample had the following characteristics:

2.3.1 Industry

SMEs in the final sample operate across a diverse range of industries, including garment manufacturing, fast-moving consumer goods (FMCG), light engineering, leather manufacturing, printing, food and jewellery, retails, electrical and electronics, and small hotels.

Table 1

Table 1 Location and industry of the surveyed SMEs

2.3.2 Size

Based on the number of people they employ, 78% of the final sample would be classified as small-sized businesses and 22% would be classified as medium-sized businesses.

Table 2

Table 2 Classification of SMEs based on number of employees

Based on their annual turnover, 27.2% of the final sample would be classified as micro-sized, 55% would be classified as small-sized businesses and 18.2% would be classified as medium-sized businesses.

Table 3

Table 3 Classification of surveyed SMEs based on annual turnover

2.3.3 Registration status

Based on whether the business is officially registered in the country’s economic system, 79% of the final sample would be classified as formal and 21% would be classified as informal.

Appendix 2. List of interviewees

Table 4

Table 4 List of key informants interviewed in the collection of data for the BBCR project’s baseline study