Dynamic Growth in Sri Lanka: the Innovation Imperative


By Anushka Wijesinha, Research Economist – IPS

  • Innovation is beyond research, it requires clever commercialization
  • Sri Lanka needs to take a 360 degree approach to innovation policy
As Apple’s co-founder Steve Jobs bids adieu to an ipod/iphone/ipad/macbook crazed world, it brought to the fore how much technological innovation has touched the lives of millions, and become so important in this new dynamic global economy.  Jobs was a veritable trailblazer in innovation, with Apple products forever changing the way people interact with technology.

Apple now operates more than 300 retail stores in 11 countries. The company has sold more than 275 million iPods, 100 million iPhones and 25 million iPads worldwide. Jobs’ climb to the top was complete in summer 2011, when Apple listed more cash reserves than the U.S. Treasury (US$ 76 bn to the Treasury’s US$ 72 bn) and even briefly surpassed Exxon Mobil as the world’s most valuable company.

True, Steve Jobs was a tech titan, a once in a century kind of innovation genius. But neither he nor the Apple company could have done it alone. The key to innovation of this nature is that it is bolstered by a myriad of supporting structures – what is known as an ‘innovation system’.

Innovation system – more than just S&T and R&D

The concept of a national innovation system is not new. Metcalfe (1995) writes that it is “a system of interconnected institutions to create, store and transfer the knowledge, skills and artifacts which define new technologies”. In practice, this is the network of universities, research centres, think tanks, firms, business associations, and more generally, producers and users of knowledge in the country. A forward-looking innovation system that supports knowledge-interaction and commercialization among various parties is critical for building a knowledge economy. If Sri Lanka is truly aspiring to be a knowledge-based economy hub, it needs to take the creation of an innovation culture and an innovation system much more seriously.
 “S&T” and “R&D” are buzz phrases that are often heard in the discussion on how to propel growth by building an economy’s innovative capacity and driving high value exports.  The relationship between science and technology (S&T), research and development (R&D) and economic development is a strong one and has been well established in the literature.

But innovation is distinct from just research. In fact, it need not result from it. Innovations come from the entrepreneurs who make them happen and ultimately depend on a society’s responsiveness and ability to transform research into something that adds value to people’s lives, to the economy. Innovation, therefore, is fundamentally a social process. An innovation system is made up of private and public organizations and actors that connect in various ways and bring together the technical, commercial, and financial competencies and inputs required for innovation. Fundamentally, innovations are carried out by entrepreneurs who exploit existing knowledge and technology to propose new products or practices and disseminate them. Government policy should act as the lubricant that helps this process along. So, looking at the business climate that fosters entrepreneurship becomes important – is the government giving the right signals on private entrepreneurship? Is the technology infrastructure in place? Are the requisite skill pools available? Are government licensing and other regulatory procedures business-friendly? – these need to be addressed.

Developing a robust innovation system in a country, requires a robust network consisting of government institutions, regulators, research institutes, universities, enterprises, consulting firms and professional/business groups. Once these networks are firmly in place, the next step is to then develop a productive nexus from this – essentially building an innovation system – strengthen the country’s innovative capabilities. The general underdevelopment of the individual components as well as this nexus in Sri Lanka is a symptom of the low priority given to S&T and R&D investment over the past several years, and will be a determinant of our competitiveness in the coming decades. According to the ICT think tank LirneAsia, Sri Lanka produced just 2.5 PhDs per year on average during 1991-2000 in 7 universities (Colombo – 5 per year and Peradeniya – 6 per year). Meanwhile, qualification levels of universities faculties remain poor, with 23% of Humanities and Social Science teachers having only a Bachelors degree and 33% having a Masters degree from the same university.

In its Five Year Strategy, the Ministry of Technology and Research states that “at present very few knowledge intensive companies and very little R&D that is required for innovation, is taking place in the private sector. On the other hand, most of the R&D undertaken by Sri Lankan scientists end up as mere publications in scientific journals with very few research outputs yielding a commercial product or a process. As such, the contribution of R&D to the growth of our GDP at present is negligible”.

As Figure 1 demonstrates, unlike in most developed countries where much of the R&D expenditure is by the private sector (over 65% in most cases), in Sri Lanka it is a mere 8%. The bulk of R&D expenditure in Sri Lanka is by the state sector (71%). This has strong implications on the rate of commercialization of research.
Innovation also means adaptation
Innovation as a concept doesn’t just mean the domestic development of cutting-edge scientific discoveries – say for example, Sri Lanka trying to develop a game-changing technology, but also the adaption and use of existing innovations for productive use in the local context. This balance needs to be struck in Sri Lanka. While we continue to drive new innovation, for example, through innovative PPP (private-public partnership) mechanisms like the SLINTEC, we need to cooperate more closely with technology champions in the world – from the world’s most innovative nation, the USA, or Europe’s innovation and technology champion, Germany, to Eastern technology giants like Japan, China, South Korea and even India.

Many developing countries like Sri Lanka have a long way to go before they can start creating world-changing, cutting-edge technologies. It will be some time before Asia sees the birth of its own Apple. But this does not mean that their development should not focus on creating an innovation culture. According to the report on ‘Building Sri Lanka’s Knowledge Economy’ (published by the World Bank in 2008), large rewards from technology accrue to those that adopt new technologies, adapt them, and make them productive in the local context. So, an innovation culture for developing countries like Sri Lanka must be understood as the building of a technical culture and a system of incentives that support the adoption and subsequent adaptation of existing (often foreign) technologies. The success of East Asian economies has also followed this pattern of first moving to existing best practices and then attempting to develop new technologies.

With technological transformations continuing at a rapid pace, and the emergence of a globalised marketplace, all countries are under pressure to become more innovative and technologically connected. For Sri Lanka too, adopting existing technologies and best practices, while of course gradually developing new ones, is the quickest way for the economy to move up the value chain. A report on Indian innovation revealed that India achieved a five-fold growth in output by simply adopting existing information and technologies elsewhere. East Asian champions like Korea, Singapore and Malaysia also grew rapidly by adopting existing technologies by often ‘looking East’ towards early adopters like Japan. Of course, later they developed new and advanced capabilities and became global innovation hubs themselves.

Global economic leadership – the innovation imperative

Steve Jobs once famously said “innovation distinguishes between a leader and a follower”.

As the debate about the changing economic power balance shifting East, and the debilitation of the economic might and dynamism of Western economies continues apace, we mustn’t write them off just yet. An important reason why several of them remain fundamentally strong is that they possess a key ingredient to adapt to changing tides – innovation. Particularly, the United States and Germany.

The strength of the US economy lies in its capacity to invent and innovate. These inventions are converted into commercial products at a rate much faster than in other countries. Many social factors and flexibility in economic policies contribute to this innovative dynamism. America’s Gross Domestic Expenditure on Research and Development is the second highest in the world (next to Japan) and has consistently been higher than the OECD and EU average. It accounts for a significant 43% of all pharmaceutical patents, half of all medical patents and almost 20% of all environmental patents. It publishes nearly 280,000 scientific articles each year, the highest in the world. At a recent lecture in Sri Lanka, Dr. Razeen Sally, Director of the European Centre for International Political Economy, mentioned that “the number of patents being registered in the USA far exceeded patents being registered by the rest of the world combined”.

Immigration policies have strengthened the innovation talent pool in America, attracting both the best minds from East Asia, and ample labour from South America. The Harvard political scientist, Joseph Nye, considered the father of the concept of ‘soft power’, points out in his book The Future of Power that Chinese- or Indian-born engineers run more than a quarter of all high-tech companies in Silicon Valley. By 2005, one in four technology start-ups had been launched by immigrants. According to Nye, America’s greatest long-term strategic asset is “its ability to attract the best and brightest from the rest of the world and meld them into a diverse culture of creativity”.

In Europe, Germany is the innovation powerhouse, and will help it navigate the changing tides of the global economy.  The country boasts of not only industry-leading firms but also one of the world’s strongest and most innovative small and medium-sized enterprise sectors – the powerhouse of its economy. Products with the insignia “Made in Germany” still command an unrivaled global position, re-known for their high quality and cutting-edge technology. In 2008, Germany spent around 2.6% of its GDP on Research & Development, well above the EU average of 1.9%. In 2009, firms based in Germany registered the 3rd highest number of patents in the world. In an analysis of the world’s leading innovation hubs, 5 German cities featured in the top 15 – Frankfurt, Hamburg, Berlin, Stuttgart, and Munich. Germany’s focus on Research and Development is clear from the highest level – it doesn’t just have a Ministry of Education, it has a Ministry of Education and Research. The country boasts over 750 publicly funded research institutions, the highest in Europe. Yet, it is the German private sector that leads the way in R&D. Of the 62 billion Euros spent on R&D in 2009, more than two thirds was by industry.

China, too, is emerging as an innovation leader, mainly by adopting and adapting Western technologies, while developing its own new-innovation capabilities. Although both China and India are touted as the new ‘Asian Giants’, China is clearly ahead of India on the innovation pillar. Even when we factor in the different population and land sizes, the numbers are impressive. China has 708 researchers per million people compared to 119 in India. By 2009, China had over 16,000 PhDs in science and engineering, while India had around 6,400. In 2007, the Chinese filed 245,000 patents compared to 35,000 in India. China is set to overtake Japan as the second largest spender on Research and Development after the US in the next two years. So if you thought China is still thinking of competing on low cost labour, think again.

But some argue that Asia doesn’t have what it takes to give birth to people like Steve Jobs. At an event in Delhi last year, Lord Meghnad Desai of the Centre for Global Governance at the LSE said that “Asians aren’t rule breakers. We tend to follow the pack. What sets Western trailblazers apart is that they break the rules and refuse to conform, giving birth to a dynamic innovation culture.” (Similar thoughts are shared by Sri Lankan commentators – see ’Goodbye Steve Jobs, Long Live Mavericks!’ 

Innovation policy – the Government as a Gardner

An effective and comprehensive innovation policy needs to take a holistic approach by looking at the overall innovation climate. This goes beyond just science and technology policy and involves many ministries, government departments and other state organs, while actively engaging the private sector. A World Bank report on creating innovation policies in developing countries uses the analogy of a gardener tending to plants.

“Government action can usefully focus on a few generic functions comparable to nurturing plants to help them grow. It can facilitate the articulation and implementation of innovative initiatives, since innovators need basic technical, financial, and other support (watering the plant). The government can reduce obstacles to innovation in competition and in regulatory and legal frameworks (removing the weeds and pests). Government-sponsored research and development (R&D) structures can respond to the needs and demands of surrounding communities (fertilizing the soil). And finally, the educational system can help form a receptive and creative population (preparing the ground)”.

We don’t need to reinvent the wheel. Advanced as well as less advanced countries offer good practices that Sri Lanka can adapt to local contexts in developing a holistic innovation policy towards building a robust national innovation system. But the institutional challenges to creating an effective innovation system, and driving forward an innovation policy would no doubt be many. What is critical is leadership at the highest level to ensure the success of a national innovation policy – a high-level task force or commission chaired by the President or Prime Minister would give credibility to a national vision and would facilitate the adoption of key measures to remove hindering bureaucratic hurdles. A good first step has clearly been made by the Ministry of Technology and Research in preparing a National Science, Technology and Innovation Strategy 2011-2015 (the full document is downloadable via the link below). It is possibly the most comprehensive and futuristic look at driving innovation in Sri Lanka, so far, even speaking of ‘techno-entrepreneurship strategies’ to promote greater science-industry linkages. However, what needs to happen now is to embed this strategy within a broader strategy that looks at the national innovation system – what are the other government institutions and private sector organisations not only in the science and technology sphere that need to be linked in to take this agenda forward?

Steve Jobs once said in an interview with Fortune magazine (9th November 1998) that, “innovation has nothing to do with how many R&D dollars you have […] It’s not about money. It’s about the people you have, how you’re led, and how much you get it”.

For Sri Lanka, it still WILL matter how much R&D rupees are spent. But what Steve Jobs said here about his company Apple, is relevant for Sri Lanka as a country. Spending on R&D, focusing on expanding science and technology education and utilization, alone will not be enough. Innovation is about people, about providing the space and opportunity for Sri Lanka’s people to develop their innovative and creative capabilities. It is about providing a conducive business climate to commercialize their innovations and creativity. It is about ‘getting it’ – understanding what it takes to build a holistic national innovation system and how to incentivize all the actors involved. And it is about giving the right leadership from the highest levels of government. Sri Lanka needs to take a 360 degree approach.

11-Science Technology and

Innivation Strategy

Useful links:

World Bank (2008), ‘Building Sri Lanka’s Knowledge Economy’ – http://go.worldbank.org/ONUB0VVB70

Lanka Business Online (4th July 2011), ‘Sri Lanka ranked 82nd in innovation index’ –  http://www.lankabusinessonline.com/fullstory.php? nid=1748864538

The Island Financial Review (2nd Oct 2011), ‘A closer look at innovation in Sri Lanka’ –http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=35971

Lanka Monthly Digest (2nd September 2011), ‘BURDENED BY A STAID PRIVATE SECTOR’ -http://lmd.lk/2011/09/01/sri-lanka/

Ministry of Technology and Research – http://www.motr.gov.lk/web/index.php?lang=en

Sri Lanka Institute of Nanotechnology (SLINTEC) –http://www.susnanotec.lk/