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 21^st 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 21^st 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 takas.lk. These are his personal opinions and do not reflect the views of his organization.

Why eCommerce will Dominate the Retail Space in Sri Lanka in the next 5 years.

Walmart announced last week that it will significantly increase its investment in their eCommerce operations. They have realized (a little late) what they should have realized a long time ago; that eCommerce will be a game changer in the retail landscape and now they are trying to play catch up. This will end up costing them US $ billions more than if they had either invested or bought over an eCom player sometime back in order to address the balance of power in the retail sphere.


It was not long ago in 1999 when Amazon’s top line was a paltry US $ 1.6 billion compared to Walmarts US $ 138 billion (NY times Report). Around the same time an Amazon market cap was at US $ 20 billion to Walmarts US $ 260 billion (Wiki Inest). I am fairly sure that Walmart saw Amazon as little more than a nuisance, even perhaps a house of cards that was bound to fail. They probably waited for that outcome, but it never came.

Over the last 15 years Amazon has been gaining more and more of the total retail market and now dominates the online market place. This is reflected, now more than ever, in the stock price of each company with Amazon’s stock market value surpassing Walmart’s for the first time in July and now exceeding Walmart’s by more than US $70 billion. Amazon’s stock is up more than 80 % this year. Walmart’s has declined 30 % (NY times Report), and for those who want to invest and make money the better bet has been Amazon for some time now

What does this mean for Sri Lanka? It essentially is a clear sign of things to come in the total retail space in the island. What happened in the US took 15 years, in Sri Lanka this will happen in 5 and here is why.

Smart phone penetration this year is growing at a staggering 30%, with mobile data and access becoming more and more common. What this means is that more people will have easy, cheap access to the Internet than ever before. Mark Mahaney, who covers Internet retailing for RBC Capital stated that in the US market the factors that aid in selling are price, convenience and choice (NY times Report), which are factors that come as a natural advantage for an eCommerce company compared to traditional retail. In Emerging markets I would add ‘Trust’ to be another factor that determines purchase patterns for consumers, which is quickly being established by some of the more entrenched players in the Lankan market among the consumer base. eCommerce will have price, convenience and a choice advantage compared to their brick and mortar competitors.

Some may argue that in mature markets eCommerce has become the norm in retail, whereas in emerging markets such as Sri Lanka eCom continues to be a distant alternative. This may be true today, but times are changing; the eCom players who will weather the current storm in terms of ‘time’ will prosper in the coming years beyond all expectations.

However, this will not take place in a vacuum; to get the ball rolling and for the eCommerce industry to flourish in Sri Lanka it will need a favorable policy to continue to attract investment from here and abroad, and policies that aid in the process of online transactions taking place. I believe from the discussions that I have had with frontier market Venture funds that in time to come eCom will be one of the top attractions for FDI in Sri Lanka.

Further to this the current nascent industry will also be greatly strengthened by the backing of entrepreneurial and industry heavy weights.

What is inevitable however is the rise of eCommerce as both a viable and strong player in the retail fabric of Sri Lanka for the foreseeable future.

All views expressed in this article are the personal views of the author, Lahiru Pathmalal, who is CEO/Co Founder of takas.lk


NY Times Report

http://www.nytimes.com/2015/10/23/business/walmart-plays-catch-up-with-amazon.html?_r=1