Sri Lanka’s Knowledge Export Road Map – Is It Achievable?

By Eran Wickramaratne -October 11, 2012

Eran Wickramaratne MP

Sri Lanka is known for the export of cheap labour. While it is the intension of government to turn it into a knowledge hub, the road to make Sri Lanka known as a exporter of knowledge requires a meaningful commitment of resources by government and all other stake holders.

More than one million Sri Lankan workers remit 5 – 6 billion US Dollars annually to the country. The trade deficit of nearly US $ 10 billion is largely funded by these worker remittances which annually grow by 15 – 20 %. If Sri Lanka is to be known as a knowledge process out sourcing (KPO) destination we have to set our sights on increasing our IT-BPO/KPO revenues above the worker revenues within the next decade. SLASSCOM’s goal is reaching US$ 1 Billion in revenue with 80,000 employed in the industry by 2015. Is this achievable? Presently the IP-BPO industry employs about 40,000 and government revenues in excess of US$ 400 million.

The IT-BPO industry is dependent on having a steady supply of high quality IT-BPO professionals. The human resource availability is the key critical success factor.

The enabling environment has improved in many areas over the past decade while the availability of quality human resources and the unstable policy environment is of concern.

The physical infrastructure consists of eight mobile operators, broadband, leased line and stattelite connectivity. Office infrastructure and road networks are improving. But the power supply is less reliable and too expensive.

The legal infrastructure is largely in place with Sri Lanka being a signatory to international treaties on intellectual property, TRIPS, Electronic transactions, computer crimes and E-contracting. However, the enforcement of commercial contracts in timely manner is yet to be achieved. Tax holidays of 5 – 12 years, concessionary income tax rates of 15%, and special assistance on real estate acquisition based on investment and employment generating potential has been a boon to the industry.

Even though post war economy has grown at reasonable rates the country has still not been able to realise its potential in the ICT sector. SLASSCOM itself has had to revise its goals for the IT-BPO industry. While A.T. Kearney and Gartners have rated Sri Lanka for financial attractiveness and as a top destination in the Asia Pacific, investment has not materialized in significant amounts. The US department of State Investments climate statement of June 2012 stated “with an unpredictable policy environment, cumbersome bureaucracy, and a recent asset seizure bill has created business uncertainty”.

The slow down on the European and North American economies which are Sri Lanka’s largest trading partners has major implications for the IT-BPO sector too. Cost and effectiveness are paramount in making outsourcing decisions. The outsourcing needs and the IT needs are merging. The job of the Chief Information Officers (CIO) is becoming more about information than technology. Outsourcing is no longer a standalone decision. There is an increasing focus on an end to end approach, business outcomes, domain expertise and technology as an enabler. BPO services out of Sri Lanka have mainly focused on financial and accounting services, investment research, engineering services and UK based legal services. The country has attracted some of the prestigious global brands, but generates relatively small revenues.

The single critical success factor is the available human resources. A study in 2008 by the Export Development Board (EDB) describes expectations at policy level – “should improve the relevance of education by changing curriculums to meet the industry’s skill requirements”.

While the ICTA has been proactive in spending over US$ 5 million for capacity building as a part of the e-Sri Lanka initiative the human resources problem is more complex to fix. Pre-vocational skills of English, IT literacy and familiarity are a prerequisite. The industry also requires the workers to have the attitudes that support a global 24 x 7 work environment where men and women have equal access.

India produces more than 3 million graduates a year, while Sri Lanka graduates 22,000 from its state universities. I hazard a guess that the total graduates from both state and private institutions are about 35,000. Sri Lanka’s under investment in education over several decades has blunted a comparative advantage with competitors overtaking us even in smaller countries. A Knowledge Process Outsourcing industry requires quality and reasonable supply of people.

Sri Lanka’s investment in the education sector :

Educational Expenditure as % of GDP University Expenditure as a % of GDP

1990 3.3 0.37

1995 3.4 0.48

2000 2.8 0.45

2005 2.8 0.50

2010 1.9 0.28

Sri Lanka’s low investment in education has been rapidly declining in recent years. It must be noted that Bhutan, Nepal, Pakistan, Cambodia, Indonesia & Singapore have educational expenditures at 2.4 – 4.7 % while China 3.6%, New Zealand 7% UK 5.6%, USA 5.4% and South Africa 6% are continuing to invest in creating knowledge. When budgetary educational expenditures are compared as % of total expenditure, or the investment per university student, or the research expenditure as a % of university expenditures are compared across countries both in Asia and Europe, Sri Lanka’s under investment in education becomes apparent.

Global comparison of Annual cost per student ;

US$

University of California 66,667

Singapore NUS 41,025

University of Oregon 25,547

Cape Town 14,745

Sri Lanka Universities 1,761

Source : FUTA Presentation

We must truly be amazed at the quality of our graduates for such a meagre investments we make. It must also be pointed out that in creating a knowledge Economy the quality of the graduate has to be internationally competitive. We cannot export the required quality without much more investment in the university system to increase both quality and quantity to support KPO, cutting edge research and increase patents with the present low levels of investment.

I have always believed that Sri Lanka’s greatest asset is its human resources. We have the potential to become South Asia’s hub of excellence for IT- BPO. We need a government that not only professes but will put its resources where it will give returns that are commensurate to the investment. “The people who are crazy enough to think they can change the world are the ones who do” was Apple’s ‘Think different commercial’, 1997. Ladies and Gentlemen You can do it – provided the government understands the priority of investment in human resources.

*Extracts of the key note address made by Eran Wickramaratne, Member of Parliament and founder Chairman of the Information Communication Technology Agency (ICTA).