Post-Election Agenda: Setting Up a National Innovation Council to Drive an Ambitious Programme

The Sri Lankan economy is in the midst of a unique, and tricky, transition. It’s easy for Sri Lanka to get stuck in what economists call “the middle income trap”. Already the country is finding it increasingly difficult to compete against cheap labour in low-income economies (like Bangladesh, Cambodia and Laos), on the one hand, and with the technology and innovation-driven economies (like Malaysia, Indonesia, and South Korea), on the other. Essential, then, to making a successful transition to upper-middle income levels and beyond, is fostering innovation in the country.

Ambitious Programme

Sri Lanka needs an ambitious and focussed national programme to boost innovation. Fostering a forward-looking innovation system, that supports knowledge-interaction among various parties, builds linkages between domestic and foreign firms as well as between universities and R&D institutions and the private sector, and commercialization of inventions, is critical, if Sri Lanka is to achieve faster growth. Also, of course, the daunting but essential element of raising the overall level of R&D in the country – currently at an abysmal low of 0.2%. The innovation agenda needs to be driven across the economic spectrum – not just in manufacturing and exports, but also in sectors like agriculture, healthcare, urban development. This is why the innovation agenda needs to be driven at a national, strategic level, taking an economy-wide and all-of-government approach.

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Promoting Entrepreneurship in Sri Lanka: Balancing the Government’s Role and Introducing an Entrepreneurship Climate Index

This article originally appears in the Daily Mirror Business of Thursday 9th July, under the weekly ‘Smart Future’ column.

Entrepreneurship is very much about ideas and efforts of individual (or a collective) of private actors, who start a business, hire employees, make profits, invest, expand, etc. – all through private initiative and risk-taking. So, to talk about a role for government in all this might seem unnecessary. At the same time, believing that there is no room for government and policy in fostering entrepreneurship is also a fallacy. There are two aspects to the government’s role in promoting entrepreneurship – the first is knowing when and how to get out of the way, and the second is knowing when and how to help create a way.

Where to Get Out and Where to Get In

Government policies can sometimes hurt and sometimes help entrepreneurs. In shaping a conducive climate for entrepreneurship, we need to look at what are the regulations, rules, government procedures, regulatory provisions, policy bottlenecks, etc., that get in the way of entrepreneurship and innovation. For instance, are the rules around starting up and running a business conducive for young entrepreneurs?; are government institutions geared to understand the needs of a new breed of young entrepreneurs?; are the fiscal and financial frameworks in place to support them? Then we must also look at what specific initiatives that must be in place to create a helpful path for entrepreneurs. For instance, can there be government support to encourage the setting up of affordable working spaces for new start-ups?; what can be done to increase the speed and coverage of broadband internet and telecoms infrastructure to help entrepreneurs leverage digital technologies?; are rules around land use and property development – the taxes and ownership rules for example – helping or hurting investment?; is the visa regime in place to attract good talent from abroad and cross-fertilize here in Sri Lanka?; to bring in mentorship and networks among Sri Lankans and others abroad?. These are some critical areas that the government can lend active support, to shape a better climate for entrepreneurship.

Sri Lanka Needs an ‘Entrepreneurship Climate Index’

Many of these questions need to be looked at not only at a national level but also at a sub-national level. This requires a rethinking of how we measure the entrepreneurship climate at the sub-national level, as existing indicators are inadequate. The Doing Business Index, for example, measures costs and delays in government procedures and regulations in the largest commercial city of the country, i.e., Colombo. Previously, the Asia Foundation’s Local Economic Governance Index has attempted to measure sub-national business climates but there was no continuity in the assessment and therefore planning and measuring change over time was not possible. Sri Lanka needs a new comprehensive assessment of entrepreneurship for the whole country – and I suggest an ‘Entrepreneurship Climate Index’. This ‘ECI’ can not only measure elements that traditionally form the basis of an entrepreneurship climate – like start-up regulations, access to infrastructure (like electricity, roads, water, etc.), but also elements like the availability of start-up financing and the entrepreneur-friendliness of local bank branches; the attitudes towards entrepreneurship of young people in different localities (rather than job seeking); the perceptions on constraints faced by young entrepreneurs in different regions; the availability of land, workspaces, and incubation facilities for new start-ups; the spread and quality of services by government agencies that support entrepreneurship (like the National Enterprise Development Authority, the Industrial Development Board, the Industrial Technology Institute, the Inventors Commission, the Registrar of Companies, etc.); the quality of networks between young or new entrepreneurs and the leading businesses, trader associations and chambers of commerce in a locality; and other measures to capture the quality of the entrepreneurship eco-system.

A Good SME Policy Can Help Entrepreneurship

Any policy framework that focuses on the overall small and medium enterprise sector – an SME policy – can help all entrepreneurs. It’s unfortunate that 13 years since Sri Lanka developed an SME White Paper, we are yet to see it become a full-fledged policy document. The latest effort at legislating a SME Policy Framework, which was near completion, has also stalled due to the dissolution of Parliament. Such a policy framework is important because it pushes all government agencies relevant to this area to align their work towards supporting entrepreneurship; to focus their efforts and make them coherent so that businesses truly benefit. It can help streamline the numerous ad hoc, overlapping, wasteful and ineffective entrepreneur development programmes currently being implemented, and focus efforts on where government support is truly needed. It brings a clear focus on what the government should do and should not do. It also helps those outside of government – private sector, chambers of commerce, development agencies, and universities – orient their work towards supporting this agenda. Overall, it gives a national push – from the local schools to the highest government agencies.

Renewed Focus

Once the latest round of elections are done with, we need to focus on gearing regulations and administrative procedures towards fostering entrepreneurship and innovation. We need tight rules for the right reasons, not long rules for the wrong reasons. Let’s look at the policies that are holding entrepreneurship back, and improve them; and let’s look at the policies and programmes that can help entrepreneurship and fine tune them and scale them up. Everyone can and should influence that process. Our goal should be to make Sri Lanka the “best place in Asia for a young entrepreneur to start and grow a business”.

This is the 18th article in the ‘Smart Future’ series that advances ideas on competitiveness, innovation, and economic reforms.