Sri Lanka’s IT Climate: we’re down a few points

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Earlier this month, we received a copy of an interesting report, titled Sri Lanka’s IT Climate An analysis of the Global IT Report published by the World Economic Forum. This report, by Taryana Odayar of the Lakshman Kadirgamar Institute of International Relations and Strategic Studies, points out some startling facts about Sri Lanka’s IT industry: we’re slipping. 

Firstly, attention must be drawn to the Networked Readiness Index – an annual chart that monitors the disposition of nations to take advantage of the opportunities afforded to them by ICT. As the report states, the NRI comprises four sub-indexes; the Environment sub-index (Political and Regulatory environment and Business and Innovation environment), the Readiness sub-index (Infrastructure and digital content, Affordability, Skills), the Usage sub-index (Individual usage, Business usage, Government usage), and the Impact sub-index (Economic impacts, Social impacts). The final NRI is an average of the four sub-indexes and is a key indicator for IT experts, investors and other stakeholders, and provides a platform for those looking to compare and exploit the ICT climate of different countries.

Last year, Sri Lanka was ranked 69 on this index – out of 144 countries, which isn’t bad at all. This year, however, we’ve dropped 7 place to number 76. Here’s the report from that point on (Note: images applied by Readme):

This year, the coveted and heavily contested ‘Top 10’ spots on the index went to Finland, Singapore, Sweden, Netherlands, Norway, Switzerland, USA, Hong Kong SAR, UK, and the Republic of Korea in that order. All four Asian Tigers; Singapore, Hong Kong SAR, Republic of Korea and Taiwan have performed strongly, with the former three even holding their own in the top 10 against their European and Nordic counterparts. Indeed, when analysing the rankings, it is clearly observable that a marked digital divide exists between the Asian Tigers as well as Japan, and the countries of the South Asian region.

Finland: where broadband access is now a legal right
Finland: where broadband access is now a legal right for all citizens.

The Networked Readiness Index (Top 3) :

RankCountry/EconomyValue2013 rank (out of 144)
1Finland6.041
2Singapore5.972
3Sweden5.933

 

The Networked Readiness Index (Sri Lanka) :

RankCountry/EconomyValue2013 (rank out of 144)
76Sri Lanka3.9469

 

A Comparative Outlook

A comparison between Sri Lanka and its South Asian neighbours highlights some unusual trends. Interestingly enough, whereas in 2013 Sri Lanka was ranked 69 and India 68 in the NRI, this year although Sri Lanka’s ranking has slipped to 79, it has managed to move significantly ahead of India which has fallen to 83. Apart from one blip where India has edged ahead to the No. 1 spot in Internet and Telephony competition under the Affordability pillar of the Readiness sub-index, with Sri Lanka lagging behind at No. 133, Sri Lanka has surpassed India in three of the four sub-indexes overall, namely the Environment, Readiness and Usage sub-indexes, with India doing better only on the Impact sub-index which covers economic and social impacts of ICT.

Overall Sri Lanka has indeed done comparatively better than its closest South Asian neighbour as reflected in its NRI ranking, yet this does not mean it can rest on its laurels as its worrisome drop of 7 places from last year must be looked at more closely.

Editor’s note: NASSCOM, India, is expecting significant growth in the Indian IT industry – estimates have India registering export revenues of $84-87 billion this fiscal year as against $76 billion in 2013.  

Deteriorating Sub-indexes

The Global IT report provides an insightful analysis of Sri Lanka’s IT climate and the reasons for its fallen ranking, indicating that “The environment sub-index, both in its political and regulatory component and in its business and innovation component, loses some ground, yet this is compensated for by stronger usage, especially among business (50th) and government (43rd) stakeholders. Individual usage is also improving, but because it is starting from a very low base (112th) it still needs to fill important gaps across the board, while the country’s infrastructure (104th) demands sustained investments to support the ICT sector adequately.” It is this imbalance between the deteriorating Environment sub-index and the improving Usage sub-index which has contributed towards Sri Lanka’s plunge from 69 to 76 on the NRI.

Furthermore, there is clearly an existing innovation gap in Sri Lanka’s IT field which has contributed towards lowering the country’s Business and Innovation score in the Environment sub-index and thus adversely affecting its overall Networked Readiness Index ranking. The low Business and Innovation ranking of 82/148 is largely due to the very low percentage of IT manufacturers in the country. In fact, the Annual Survey of Industries Report published this year by the Department of Census and Statistics shows that there are only 5 establishments manufacturing office, accounting and computing machinery with less than 2000 employees.

Ironically, there are more tobacco manufacturing companies (17) with over 4000 employees in Sri Lanka, than there are IT manufacturers. The importance of investing in Sri Lanka’s IT manufacturing and innovation sector is highlighted in the Global IT report, which states that boosting the IT infrastructure of countries including Sri Lanka “will allow populations of the least advanced among them to gain access to much-needed basic services, to improve government transparency and efficiency, and—for the most advanced—it will contribute to boosting their innovation capacity and allow them to attain higher levels of competitiveness.”

Table 2; Environment Sub-index and pillars

RankCountry/EconomyScorePolitical and Regulatory environmentBusiness and Innovation environment
RankScoreRankScore
79Sri Lanka3.85743.62824.08

 

The Political and Regulatory component of the Environment sub-index shown above addresses the national legal framework and regulatory climate of a country, taking into account property rights, the independence of the judiciary and the efficiency of law-making processes especially relating to ICT laws. The Political and Regulatory component has a slightly higher score of 74 compared to its fellow Business and Innovation pillar which scored 82. However, in terms of the number of days to enforce a contract, Sri Lanka is rated a shoddy 142 out of 148 countries, highlighting the significant legal barriers and bureaucracy that clearly exists.

Editor’s note: in short, we need the equivalent of a chainsaw applied to the barriers of red tape if we’re to attract more large companies to Sri Lanka. Of particular import are the barriers to a foreign individual setting up a tech startup in Sri Lanka.

As mentioned above, India has managed to pull ahead of Sri Lanka on the Impact sub-index, and this is in part due to its higher percentage of Internet access in schools compared to Sri Lanka which is ranked almost at the bottom of the list at 108 out of 148 countries. In order to improve its NRI, Sri Lanka must focus its efforts towards boosting these social pillars which will in turn improve the average of its Impact sub-index which has been for the most part neglected.

On a more positive note, ICT specialists will be interested to learn that Sri Lanka is ranked No.1 under the Affordability pillar of the Readiness sub-index for the low costs of its Fixed broadband Internet tariffs (PPP$/month), and No. 4 for its Prepaid mobile cellular Tariffs (PPP$/min). Government agencies and stakeholders should note that Government success in ICT promotion in Sri Lanka has been ranked in the top 20 at No.18 under the Government usage pillar of the Usage sub-index, and prospective ICT entrepreneurs and employers should be aware that in terms of the Quality of the Educational System conducive to ICT, Sri Lanka is ranked highly at No. 28.

Sri Lanka’s advantageous location in the Indian Ocean on the major air and sea routes between Europe and the Middle East serves as an example of its potential as a global logistics hub. In fact, Sri Lanka is fast emerging as a Business Process Outsourcing (BPO) hotspot. It’s IT/BPO industry was ranked among the top 50 Global Outsourcing destinations by AT Kearney, and posted revenues of US$ 310 million in 2010/2011 to become Sri Lanka’s 6th largest export earner.

At the moment, financial markets are still recovering from the Financial Crisis of 2008; arguably one of the worst economic crises in modern-day history. This has forced governments and corporate giants to exploit new ways of generating economic growth through small business start-ups and entrepreneurship schemes. In the process of creating these innovative solutions, the path inevitably leads to the flourishing, relatively stable and constantly expanding ICT market. Therefore, the ICT sector can no longer be considered isolated from other sectors of the economy, as it regularly interacts with other sectors such as education and business to develop an information-rich and productive society.

Editor’s note: One advantage to Sri Lanka is a booming startup scene. With better access to internet (and indeed, access to better internet), communities, dedicated investment and acceleration programs (for example, Spiralation and VentureEngine) and a ready availability of IT talent, Sri Lanka is seeing an exponential rise in startups and technology. Added to this is the steady rise in IT-BPO, with over 300 companies operating on this island alone. 

A key factor is the need to improve Internet access. The latest estimated statistics by IWS (which may be outdated by a year) place Internet penetration at approximately 15%. These numbers, while on the rise, still need a drastic improvement if we are to reach higher.  

Given such a favorable verdict for cost of broadband internet and government success, it’s not unfeasible to wish for a government-backed program driving internet connectivity to schools. Sri Lanka had some 342 national schools in 2012: that’s 342 places that need and can be supplied with high-speed connectivity, not the narrowband lines of yore. Perhaps then real strides could be made. 

 

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