Knowledge Economy of Sri Lanka : An Overview

Knowledge has been an important criteria for many activities and professions in a community. And as technology progresses, the value of knowledge amplifies as well. Knowledge has been considered a supplemental economic growth factor in economic studies since the early days of economics. That idea has changed over the recent years as the importance of knowledge increased significantly with technological advancements.

An Introduction to Knowledge Economy

A Knowledge economy is an economic system where the production of goods and services is based on knowledge-intensive activities. Human capital, information, intellectual property, innovative ideas and practices are some of the key factors which create value in a knowledge economy.

The human intellectual is considered as the main actor of a knowledge economy (Mikhailov, A.M. and Kopylova, A.A., 2019). The World Bank defines the following as the key components (pillars) required for the function of a Knowledge Economy:

• An educated and skilled labour force: The establishment of a strong knowledge-based economy required workers to have the ability to continuously learn and apply their skills to build and practice knowledge efficiently.
• A dense and modern information infrastructure: is of the easy access to the information and communication technology (ICT) resources in order to overcome the barrier of high transaction cost, and to facilitate the effectiveness in interacting, disseminating and processing the information and knowledge resources.
• An effective innovation system: a great level of innovation within firms, industries and countries to keep up with the latest global technology and human intelligence so as to utilise it for the domestic economy
• Institutional regime that supports incentives for entrepreneurship and the use of knowledge: An economy system should offer incentives to allow for better efficiency in mobilising and allocating resources, together with encouraging entrepreneurship.

Knowledge Economy is a broad economic system which encompasses a myriad of activities and concepts. Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) can be considered as activities which belong to a knowledge economy.

Business Process Outsourcing is outsourcing various operational activities of a business to third party vendors. This is a broad concept which encompasses activities such as the outsourcing of activities such as Accounting, Human Resources related services and Information Technology services. Knowledge Process Outsourcing is the outsourcing of information-related activities of a business to professionals with highly specialized knowledge and skillsets. Knowledge Process Outsourcing is a subset of Business Process Outsourcing.

Overview of the Knowledge Economy framework in Sri Lanka

Figures provided by the Central Bank of Sri Lanka (CBSL) suggest a significant growth in the BPO industry of Sri Lanka. According to the CBSL, the BPO industry had become the fifth largest export revenue earner in 2015 with a total revenue amounting to $850 million. Low costs and the presence of a qualified workforce are key factors which contribute to the growth of the BPO industry in Sri Lanka. The Information Technology sector is perhaps the fastest growing sector of the BPO industry in Sri Lanka.

The following sections provide a brief analysis of the Knowledge Economy of Sri Lanka with respect to the core components of a Knowledge Economy as stated previously:

Competency of the workforce

A skilled and knowledgeable workforce is required to build and apply knowledge in a knowledge economy. Workers should have the ability to continuously learn and apply knowledge to generate goods and services in a knowledge economy. Sri Lanka has a strong workforce in the BPO industry, especially in rapidly growing industries such as Information Technology (IT). The KPO industry, which requires specialized knowledge and education, has grown over the recent years in Sri Lanka. The workforce in the Sri Lankan IT industry has grown by 50% between the period 2014–2019. Financial and Accounting services have grown considerably with an increased number of qualified professionals joining the workforce over the recent years. The primary language of communication in the BPO industry in Sri Lanka is English. Hence, it can be asserted that the workforce in the BPO industry is fluent in the English language.

The BPO Certification Institute (BCI) is the chief government institution which improves the competency of the BPO workforce in Sri Lanka. Institutions such as the Sri Lanka Association for Software and Services Companies (SLASSCOM) stimulate the growth of the IT industry in Sri Lanka by providing vocational training and other programmes to improve the competency of the IT workforce in the country.

There are certain challenges faced in expanding the BPO workforce in Sri Lanka. Lack of high school graduates with a good background in STEM subjects remains an issue which reflects on the quality of public education in overall. There are limited opportunities in state universities and vocational training institutions to pursue studies in STEM subjects. Lack of competitive remuneration packages for skilled workers also remains a concern as this is one of the key reasons behind skilled labour emigration in Sri Lanka.

Status of Digital Infrastructure

A robust digital infrastructure is important for the functioning of a knowledge economy as it constantly relies on the dissemination of knowledge, information and digital resources. Ministry of Digital Infrastructure and Information Technology is the chief public institution responsible for the development and sustenance of Digital Infrastructure in Sri Lanka. Sri Lanka Computer Emergency Readiness Team (SLCERT) and Information Communication Technology Agency (ICTA) are the two organizations which come under the purview of this ministry. Numerous ICT projects have been undertaken by the ICTA to improve the digital literacy of Sri Lankan citizens and to improve the digital infrastructure in Sri Lanka.

The digital infrastructure in Sri Lanka has made significant strides over the recent years. One of the most significant limitations present in digital infrastructure in Sri Lanka is the lack of unlimited internet services. Until recently, Internet Service Providers have provided internet packages with limited data allowances. The government has taken measures to incentivize the implementation of unlimited internet services by Internet Service Providers. The introduction of unlimited internet services is still an ongoing process in Sri Lanka. In addition to this, the speed of internet services in Sri Lanka also pose a challenge to the development of the ICT industry in the country.

Policies and Regulations

According to the National IT and BPM (Business Process Management) Survey for the year 2019 published by the Information and Communication Technology Agency (ICTA) of Sri Lanka, the impressive contribution made by the IT and BPM industry has induced the Export Development Board of Sri Lanka to identify the IT and BPM industry as one of the six priority sectors of the National Export Strategy (NES). According to the World Bank, Sri Lanka has one of the best cyber laws in Asia (Ahmed, S. et al 2009).

Sri Lanka ranks 85th Place in the E Government Development Index (EGDI) of the 2020 United Nations’ International Survey of e-governance. According to the findings of the Survey, Sri Lanka is a country with a Human Capital Index. This implies that the country is highly capable of mobilizing the economic and professional potential of its citizens. However, it was also stated in as a finding of the survey that, despite having a high Human Capital Index, Sri Lanka’s development in e-governance policies has stalled because of constraints in telecommunication infrastructure. Hence, it is noteworthy to emphasize the importance of development of telecommunication infrastructure being prioritized as a government policy to improve the e-governance services as well as increase the productivity of the BPO sector.

Although there are recent developments in fiscal and non-fiscal incentives for the BPO industry, there is room for improvement in non fiscal incentives such as the implementation of higher tax holiday periods. Non fiscal incentives would help drive more Foreign Investments towards Sri Lanka. Sri Lanka is placed in the 99th place in the World Bank’s Ease of doing Business Index as of the time of writing of this article. This implies that the level of bureaucracy and rigidity of regulations which oversee business activities in Sri Lanka is comparatively high. Such a regulatory framework is a constraint to the expansion of business activities in the BPO sector.

Innovations

Innovations are an integral component of a knowledge economy. According to the World Bank’s Knowledge Economy Framework, innovations improve the Knowledge Index of a country which, by extension, improves the Knowledge Economy of the country. With regard to the context of innovations in Sri Lanka, the number of patents and journal articles produced are lower comparative to other countries which have thriving knowledge economies (Fernando N.V. et al 2015). Despite being classified as an Upper Middle Income country by the World Bank in 2019, Sri Lanka ranks in the 88th Place in the Global Innovation Index provided by the World Intellectual Property Organization (WIPO). Hence, there is room for improvement in uplifting innovation. The lack of innovation is correlated to the lack of research facilities in educational institutions in Sri Lanka. Hence, it is important that the state invests more on education with due attention paid to this aspect as well.

Conclusion and Key Points

Knowledge Economy is an indispensable component of the overall economy of a country. The generation of goods and services in a knowledge economy relies on knowledge-intensive activities conducted by a workforce of highly specialized professionals. Sri Lanka’s Knowledge Economy has made tremendous strides with its highly qualified workforce. However, the Knowledge Economy system also faces certain challenges which should be mitigated as well. The following are key observations made by the author with regard to the current status of the Knowledge Economy of Sri Lanka:

• Sri Lanka has a competent and skilled workforce. Sri Lanka is ranked as very high in the Human Capital Index provided by the United Nations.
• Among the BPO Sector, the workforce in the Information Technology sector shows the most promising growth.
• However, lack of competitive remuneration packages result in skilled labour migration in Sri Lanka. Moreover, limited opportunities in further education in the STEM field is a constraint to the growth of the workforce.
• There are notable limitations in the Digital and Telecommunication Infrastructure in Sri Lanka, especially with regard to internet services.
• The Sri Lankan government has made efforts to recognize the importance of the BPO industry and formulate favorable policies via organizations such as the BCI.
• Professional bodies such as SLASSCOM provide quality IT and BPM based education and training programmes as well as provide consultation for policymaking with regard to the BPO industry.
• There’s room for improvement for the Sri Lankan government to increase given financial as well as non-financial incentives in order to attract more foreign investments to the BPO industry.
• Efforts should be made to reform the prevalent rigid and bureaucratic regulatory framework in order to stimulate growth in entrepreneurship and business activities.

References

Mikhailov, A.M. and Kopylova, A.A., 2019. Interrelation of Information and Knowledge in the Economy of the Post-Industrial Society. In SHS Web of Conferences (Vol. 62, p. 01003). EDP Sciences.

Ahmed, S., May, E., Bell, S.C. and Haththotuwa, M., 2009. Regional Collaboration on IT-Enabled Services. Colombo: World Bank.

Fernando, N.V., Amaratunge, S. and Perera, A., 2015, December. LESSONS FOR SRI LANKA ON HOW TO UTILIZE KNOWLEDGE ECONOMY AND INNOVATIONS TO ACHIEVE ECONOMIC DEVELOPMENT. In Proceedings of International Conference on Business Management-ICBM.