State’s Role in Boosting Nanotechnology: An Agenda for Sri Lanka

In the second in the Talk Nanotech special series, we have a guest article by Shalini Dharmawardena, Senior Economist (Economic Research Department) – Central Bank of Sri Lanka

 

The National Nanotechnology Initiative (NNI) implemented by the government can be viewed as a technological milestone for Sri Lanka. Given past failures in grasping the full potential of the technological waves of Information Communication Technology (ICT) and electronics, the timely exploitation of nanotechnology is commendable. Learning by examples of the Asian Tiger economies (i.e., Hong Kong, South Korea, Taiwan, Singapore, etc.,) that moved from poverty to prosperity with the adoption of technological advancements in their development agenda, Sri Lanka has acted wisely in this undertaking.

 

The much needed ‘quick wins’ has been reached and SLINTEC boasts of seven international patents to date. The nanotech park is also becoming a reality and has begun development of its first phase by laying the foundation stone of the Nanotechnology Centre of Excellence (NCE). Aside from these successes, given that investment in technology is a partial public good due to its unique traits of non-rival consumption and non-excludability, the many socio-economic benefits of investment in technology and research as well as the high initial costs calls for the state to intervene further in this venture. Nevertheless, it can be argued that nanotechnology does possess features of a partial public good, which are particularly apparent when the patent period of an invention expires. This is the reality as the consumption of an invention cannot be constrained to the inventor and his/her immediate society alone, but will extend to the society at large.

 

A fitting example of the features of non-rivalry and non-excludability in nanotechnology is the invention of a cure for cancer at a nominal cost through nano research, which will not only benefit the individual researcher, healthcare company, and cancer patients of that country, but will also be an asset to society at large beyond national borders. Once the patent rights eventually expire, other health care companies will make use of past research and will consume its benefits without paying the cost. This explains its nature of being a partial public good and the many socio-economic benefits it carries.

 

Research and Development lacks a clear and certain outcome and is not time-bound. Contrary to this, entrepreneurs are profit-oriented and have time-bound goals and targets. Hence, a mismatch between technology-oriented research activity and application-oriented businessmen is evident. Even though in most developed economies the percentage of private sector investments in technological research outweighs the state sector, the common perception in the developing world is that the state sector should invest in research and development, while the private sector focuses on less risky investments. Sri Lanka belonging to the latter classification necessitates that the state sector intervenes in the development of nanotechnology which is still at an infant stage; as has been done by Asian Tiger economies at the outset of harnessing technology in their development agenda. The main problems faced by these economies were the apparent lack of a clear mechanism linking research with market forces, the lack of an intellectual property system, and the lack of support services. These problems were addressed in numerous ways by tax incentives, lump sum allocations, and the formation of a Technology Development Fund, awarding research grants, and developing the venture capital market.

 

The initial steps taken by the Sri Lankan government to form the Technology Development Fund with the assistance of the Malaysian Technology Development Corporation provided some hope in this direction. Such a fund would ideally finance commercialization of prioritized research, provision of research infrastructure and incubator facilities, and the acquisition of new technologies, etc., and should be duly utilized by the NNI. This fund can also be used to liaise with other international science parks, provide research grants to Multi National Corporations (MNCs), cluster development, incentivize man power training, and build Public Private Partnerships (PPPs).

In the longer term, the state can make further lump sum allocations to address the various ancillary and support fields which are essential for achieving sustainable long term growth in nanotechnology research and development. The funds can be directed towards ensuring the minimization of environmental and social costs of this technology, through the provision of recourse to affected sectors. For instance, given the invention of nano fabrics and nano paints which may have a detrimental impact on laundries and cleaners, an alternative source of employment for this segment of the workforce has to open to avoid unemployment problems.

 

Similarly, the invention of certain nano products may have environmental and health implications. The use of a well thought out quality standard procedure will be necessary to market products that are not socially or environmentally harmful. Obtaining certifications from ISO and SLS will be instrumental in this. In order to ensure sustainable (i.e., socially, environmentally and economically harmless) nanotechnology applications, a robust mechanism committed to this task needs to be implemented and funds should be allocated accordingly.

 

Additionally, funds can also be directed towards building a human capital base. SLINTEC has plans to create an environment which attracts expatriate scientists to the country. Further, the necessity to establish a platform of scientists and technical staff over a short period of time requires local and foreign training, industrial internships, a Presidential award system, etc. Funds can also be committed towards disseminating knowledge among school children and university students on this novel technology, while the gradual inclusion of nanotechnology to the school curriculum is also essential.

 

However, the key to acquiring the necessary resources do not lie in new policies and over involvement of the state alone, but the astute utilization of opportunities within the existing frameworks. For instance, tax incentives offered for research and development has increased substantially over the past three years and the Board of Investment (BOI) grants special tax holidays and other incentives to ventures that are of strategic development importance to the nation. Machinery and lab equipment used for research and development are exempted from import taxes. Similarly, the 2013 Budget has allocated Rs. 9 billion for direct expenditure on research and related work done by researchers in government research institutions. Such budgetary provisions which encompass the entire domain of research and development should be duly utilized by the nanotechnology venture, which has been enunciated as the priority sector in the five year strategic plan of the Ministry of Technology and Research.

 

Furthermore, an environment conducive to attracting venture capital funding is of utmost importance to provide finances for startup companies which will undertake the commercialization of research. The initial funds needed to acquire patent rights, legal costs and expenditure on lab equipment should be easily accessible despite the high risk nature of these projects. The high initial cost involved in nanotech research is justifiable, owing to the potential exponential returns through research and development. Jack Uldrich in his book “The Next Big Thing is Really Small” illustrates this through the example of a pond filled with lilies. He explains that if the amount of lilies in the pond double every day and takes thirty days to fully cover the pond it will be only half covered at day twenty nine. However, for it to be fully covered it will take just one day. The return of technology and research can be likened unto this metaphor where, long periods of labored experiments with precede before a clear outcome. Nevertheless, once the outcome is evident the returns will be immense.

 

That being said, in order for funds to flow to such high risk projects an economy should possess a strong venture capital network. In a country where venture capital funds and angel funds are rarely spoken of, this task seems impossible without the intervention of the state. Despite this predicament, it is imperative to bear in mind that it is primarily the market forces supported by the state sector that should be the focus. The cooperation of the banking sector is necessary as no state body can fully fund all technological projects of a country. The most the state can do to encourage the flow of funds to these high risk investments is to provide guarantees, refinancing facilities, and concessionary interest rates through various state bodies. Therefore, the banking sector must be willing to pass the ultimate benefit to the borrower, charging reasonable interest rates, prioritizing the allocation of funds, and emerging out of its risk averseness.

 

As a final thought, the importance of commitment and coherence of policy decision makers in making this endeavour a success cannot be over emphasized. The industrial thrust, budgetary allocations, commitment of financial institutions, education policy, and private sector enthusiasm will be the key success factors in achieving a competitive edge in the international arena. Slower than anticipated progress of developing the nanoscience park can be detrimental to the country due to a potential loss of market leadership and the competitive advantage of investments. In order to avoid such an unfavourable outcome, there has to be a collaborative effort among all parties. Such will be possible when state allocated funds, private sector participation, expatriate scientists contribution, and the financial sector involvement strive to synergise the overall efforts.

 

(The views, opinions and recommendations in this article are solely those of the author’s and should not be interpreted as the views of the author’s employer. The author is a member of the National Nanotechnology Committee of the National Science Foundation.)