Wednesday, October 26, 2016

How Sri Lanka can avoid the Middle Income Trap; foster innovation and entrepreneurship.
Post-war Sri Lanka had a significant level of optimism in terms of economic growth, but as many of you will agree that optimism was short lived. Sri Lanka was hoping for FDI to boost our economy and that never really came. To make these matters more difficult we have now got in to a Middle Income Trap where our labor is becoming too expensive to compete with developing countries (tea, garments, etc.) and where we are too poor to invest in value-added products for export (smartphone, cars, computers, etc.). The ratio of Sri Lankan exports to GDP has halved over the last few years. In such an environment, to not get left behind, Sri Lanka must take immediate action boost our economy.
What must be done?
1.)  Reality Check – most export products we have depended on historically are agricultural and they are becoming too expensive to compete in the global market. So we need to adapt fast as a country to tackle this issue. I would encourage changes in policy in regards to re-allocating resources (land in this case) for more profitable ventures. Policy needs to allow for companies to utilize their land holding in a manner that maximizes returns and if this means, for example, that tea plantations should be used to grow coffee, it should be allowed. Furthermore, R&D budgets should increase in order to develop more efficient farming methods or we should learn from countries such as Isreal that has excelled in this space.
2.)  Labor Policy – in the 21st century significant amount of wealth will be created through technology start-ups. Startups generally grow fast, and at times needs to hire and fire people just as fast to keep up with a changing environment. This is nearly impossible in Sri Lanka. Labor policies must reflect the needs of the modern economy.
3.)  Investment Policy – regulations around investment in to Sri Lanka needs to be streamlined and loosened. Ideally all bureaucracy would be handled by one department. Policies should be clear & carried over from one regime to the next.
4.)  Education System – we need to update the education system to get students to be more entrepreneurial. The current system is ill equipped to do so. This would only require a change of thinking in terms of curriculum and value system.
5.)  Data usage- Internet is the great emancipator in the 21st century. We should reduce the tax burden on data that is consumed by Sri Lankan’s so they will have the ability to have access to knowledge no matter where they are in the country.
6.)  Human Resources- The value of Sri Lanka is primarily in its human capital. What this means is that we should be open to having ANYONE who wants to work here being allowed to work here. We should be an immigrant friendly country. For too long Sri Lankans have left in search of better pastures, we should allow anyone who is willing to work and contribute to the growth in SL to make this their home.
All the above recommendations given will not cost the government or the Lankan taxpayer a lot of money. If action is taken we can expect great benefits to come into the island to move Sri Lanka from a lower middle-income nation to much greater heights.
The author of this article is the co-founder/CEO of These are his personal opinions and do not reflect the views of his organization.