Dateline Colombo

Sri Lanka and China: Towards Innovation Driven Economies

01 Sep, 2014    ·   4637

Asanga Abeyagoonasekera writes how Sri Lanka can leverage its geostrategic location to improve its economy

September begins with summer Davos in Tianjin, China, themed, ‘Creating Value through Innovation’; and over 1,500 participants from 90 countries will be in attendance. The discussion will be on how innovation can generate more and better value for all stakeholders of our society. China has given top priority for innovation. Last year too, the theme for the same conference was on innovation. Recently, presiding over a meeting of the Central Politburo of the Communist Party of China, President Xi Jinping said the Chinese military must make great leaps in development and innovation so as to close the gap with its better-developed peers in the world. He urged the military to innovate in military strategies and management. This statement is a clear indication of China’s development of its military strength. Growth in innovation, research and development has become a top priority for the Chinese economy.

Last week, at the National IT conference, this author spoke on a similar topic: Sri Lanka’s journey towards an innovation driven economy. The topic was discussed along with talks on the bottlenecks, such as low budget allocation for research and development, plaguing the industry In Sri Lanka, a very nominal amount of annual expenditure – 0.5 per cent – is allocated for research and development purposes. There are many research institutes in the country without proper funding. While the country is moving towards a five hub development strategy, it is important to focus on improving the research and development sector.

According to Sri Lankan President Mahinda Rajapaksa's policy statement, it has been envisaged to make the country a regional hub in five areas. This will transform Sri Lanka into a strategically important economic center. The five hubs are: knowledge hub, commercial hub, maritime hub, aviation hub and an energy hub. The idea is to use the geographically strategic position of the country as an advantage to achieve the five hub status. Sri Lanka’s post war economic growth rate is positive and the country is moving from a factor driven economy to an efficiency driven economy.

On this journey it is important to concentrate on strengthening the second layer that includes institutions of the society. Government institutions and administration has to be strengthened to achieve results from the five hub development strategy. There are issues such as corruption, governance problems and the need to transform loss-making public institutions into profit-making ones. These are only some of the challenges the government has to overcome.

To achieve the status of a knowledge hub, Colombo needs to improve its education sector, especially at a university level. 40 per cent of high school students fail mathematics, and we need to improve the quality of teachers and facilities required for schools. Many students are unable to enroll in universities owing to lack of seats; this needs to change.

If Sri Lanka continues with its present growth rate for the next two decades, the country could become a high income nation. It's important to develop the five hubs. Many regional nations promote the hub concept as well, and, as a result, the competition for this status will be very high.

Hambantota port, being developed with Chinese assistance, will play a pivotal role owing to its location at the center of the Maritime Silk Road.. As the aviation hub, Sri Lanka has already developed the second International Airport in the south of the Island. The significant increase of tourist inflows, from 200,000 to a 10, 00,000 within few years after the war is a major achievement.

The Chinese president’s historical visit with 150 top officials and business leaders will be another significant event in September. The Sri Lanka-China Free Trade Agreement, to be signed during the president’s visit will be an iconic moment and a leap forward for the relationship of both nations in over 60 years. The agreement is supposed to cover wide areas such as trade, services, tariffs, market access in China, diversifying Sri Lanka’s exports and overall enhancement of the country's export potential. China is the 18th export market for Sri Lanka, with $121 million in exports and imports worth $3 billion. To Sri Lanka, this is an extremely unfavorable trade deficit that needs to be addressed.

Sri Lanka is moving towards becoming a higher income nation by 2040 with a per capita estimation of above $22,000. China and Sri Lanka with their close strategic collaborations should work towards moving from efficiency driven economies to an innovation driven economies. As the entire focus is on economic development, it is also important to focus on reconciliation to create a harmonious society in Sri Lanka. The government could consider initiating a new ministry for reconciliation and diaspora affairs to undertake the new mandate of promoting, designing and implementing reconciliation efforts. The development of strategies to re-engage with the disconnected Sri Lankan Tamil diaspora will be another important area the new ministry could work on.