Sri Lanka's Growing Online Marketplace

In 2016, Sri Lankan analysts predicted that online trade, or e-commerce, would take off in the island nation’s retail sector due to its weak physical infrastructure and high demand. After all, Sri Lanka’s per-capita income in 2016 was 3,912 dollars, the highest in South Asia. Demand in Sri Lanka is simply outstripping supply, and many hope that e-commerce can help fill that gap.

Growth of E-Commerce in Sri Lanka

Fortunately, e-commerce has been getting a lot of attention in Sri Lanka lately. At the end of June, Dr. Mohamed Faraz, CEO of Sri Lanka’s largest state-owned retail chain Lanka Sathosa, announced that the company will begin e-commerce transactions starting in January 2019. Lanka Sathosa has been growing rapidly, and now has 398 stores employing 5000 employees across the island. It now is preparing to launch a set of mega stores.

It is not just big state-owned businesses that are turning toward e-commerce. Commercial Bank, a major bank in Sri Lanka, announced last October that it had partnered with WEBXPAY, an online e-commerce platform that would allow small and mid-sized businesses to start selling online as well. According to WEBXPAY founder Nazeem Mohamed, small business owners will now have access to web templates for online stores that don’t require any technical knowledge.

Earlier this month, one of Sri Lanka’s biggest companies, Sri Lanka Telecom, held a conference on the Digital Economy. The prevailing sentiment from the IT professionals, businessmen, and academics at the conference was that digital transformation is a key driver of change in the modern world and countries across the world should continue to focus on their digital economies. Later this year, many in Sri Lanka expect to see the rollout of 4.5G, resulting in wider coverage and faster speeds.

Future Challenges

Despite its high hopes and substantial progress, Sri Lanka faces a number of challenges to developing a thriving e-commerce sector. For one, a small number of large banks and financial institutions control most payment gateways in Sri Lanka. These companies impose high usage fees on small businesses hoping to develop their own online stores. These fees serve as significant barriers to the growth of e-commerce.

Additionally, former Finance Minister Ravi Karunanayake announced a few years ago that the government was considering imposing regulations on e-commerce in Sri Lanka; namely, requiring businesses with online operations to keep their revenue in domestic bank accounts. Although some Sri Lankan retail executives agreed that such regulations are important to stop foreign companies from taking profits from online sales out of the country, others argued the government should be focusing on growing the sector, not regulating it.

Unsurprisingly, a number of traditional retail stores are concerned about the growth of e-commerce. Although Sri Lankan street stores are still in an early stage of development and thus are likely to continue growing, these concerns are not unfounded. In the United States, for example, many retail jobs have been lost due to the growth of e-commerce.

Currently, the Sri Lankan e-commerce market is estimated at Rs. 25 million, which is 1 percent of total national trade. Because companies are starting to find ways to sell their products online at a lower cost, the percentage of trade conducted online is projected to grow to about 3 percent in the near future.

In a speech to the UN in March 2018, Minister of Industry and Commerce Rishad Bathiudeen discussed the importance of developing an online marketplace. “Our apparels, a major manufacturing export, is world class and this sector has reported biggest export earnings in history last year,” he said. “This sector needs digitalization support.”