Knowledge economy, growth and development: a nexus

Text of the speech by Professor A D V de S Indraratna at the seminar on ‘Knowledge economy and urban growth’, organized by the National Academy of Sciences of Sri Lanka held in Colombo on April 6, 2011.

First part of this article was published yesterday

The transformation was such that at present, the services sector has become the highest contributor to the GDP with 58 percent with manufacturing accounting for 30 percent and agriculture only 12 percent.

Since the end of the terrorist war and the recovery from the global recession in mid 2009, the economy has been on an upswing with a growth rate of 8 percent in 2010. In Mahinda Chinthana: Vision for the Future there is a development framework to sustain this growth rate in the next few years and increase it even beyond in the following years so that Sri Lanka will be a middle income country by the end of 2015.

Professor A D V de S Indraratna

The attainment of this goal depends on sustainability of competitive advantage over our Asian neighbours given the necessary physical infrastructure and the enabling environment, this depends in turn on our ability to emerge as a knowledge economy vis-a-vis the rest of the world and the speed at which we can turn the knowledge economy to commercial opportunity. What do we see as our prospect in this regard?

It is noteworthy that the volume of Sri Lanka’s exports has been growing (except in the recessed 2008-2009). The share of knowledge-based exports as shown by value addition and branding in our merchandise and IT-BPO including accounting and financial services has also found a place in the spectrum of exports.

Sri Lanka is also reported to have the second largest pool of CIMA trained students and members outside of the UK.

Nevertheless, it must be admitted that the progress Sri Lanka has been making in knowledge economy, as a whole, that is in regard to its three major components of tertiary education, ICT and innovation, in comparison with her Asian competitors, is little and slow.

ICT penetration

India which was behind Sri Lanka in 2008, in ICT penetration (judged by the number of phones, the number of internet users, and the number of broadband subscriptions and the number of personal computers, per 100 people) despite its vast size with a population of 60 times that of Sri Lanka, is fast catching up, and that many more innovative products have been coming out of the corporate sector of India than its counterpart in Sri Lanka, even making the life of a Sri Lankan housewife easier. Take for example, the car ‘Nano’ which India has put out beating Japanese giants like Toyota and Nissans.

A lot more can and should be done, and that too faster, in regard to tertiary education, ICT penetration and innovation and ‘enabling’ environment in order to build the knowledge economy and maintain a competitive edge over our Asian neighbours.

Sri Lanka has achieved almost 100 percent in literacy and school enrolment, but we are far behind in equity of access to qualitative and relevant tertiary education. Inadequacy of budgetary resources has been the biggest constraint here. The Government has allocated less than 3 percent of the GDP to the entire education sector, less than one fifth of it only comes into to tertiary education. This is hardly adequate. While the Government must increase its budget to education by cutting down non-essential and ostentatious expenditure elsewhere and minimizing waste and corruption wherever they occur, the private sector must be drawn in as a provider of higher education along with the Government. At the same time, universities themselves must become entrepreneurial. It is gratifying in this context that the University of Moratuwa has made a beginning in building up entrepreneurial partnerships with the private sector, as evident from the consultancy consortia they have already established.

Proficiency of English and IT

The present ICT level, as mentioned earlier, is inadequate to fast track the knowledge economy to productivity and growth and development. It has not adequately penetrated to the periphery of the country and the rural areas for greater connectivity and integration. The potential of development via ICT penetration is high. It is estimated, for instance, that an increase of 10 percent of mobile phone users per 100 people can boost GDP by nearly 1 percent while 1 percent increase in the number of Internet users can do it by as much as more than 4 percent. The government, for example, has launched several programmes to improve the proficiency of English and IT at school, while universities have begun to revise their curricula recently to introduce more IT and other knowledge-based courses.

High ICT penetration as in emerging knowledge economies of Asia, as referred to earlier, accompanied with increased physical transport and communication will increase the connectivity between the periphery and the centre and between the existing rural villages and the urban cities. This will impact on growth of new cities with development of industrial clusters and value chains and corresponding shrinkage of the rural economy. Increasing attention must be simultaneously paid to development of innovation. For innovation, not only incentives to the private sector that matter, but also increased R and D on the part of the Government is imperative. Sri Lanka has the lowest level of R and D, not only of the world but also of Asia, with less than 0.2 percent of the GDP. Public sector research and technology institutes have become ineffective and weak and there has been very little innovative research coming out of these institutes.

Innovative research

The inadequacy of funds may be one reason for this. The resources put aside for R and D by the private sector has also been meagre. If the Government gradually increases its R and D contribution to at least 1.5 percent of GDP within the next four or five years, the private sector could be expected to follow suit. Innovative research should come out not only from the public sector research institutes and the private industrial and business sector but also from the universities and other tertiary educational institutions. Innovation is necessary for value addition and differentiation to improve competitiveness. The more innovation there is, the more innovative value added products we can expect.

The full potential of the knowledge economy must be expeditiously and fully harnessed by the development of the human resource through education, increased penetration of ICT and innovation through S and T and R and D, as discussed above. This would help to make Sri Lanka the Knowledge Hub of Asia, as visioned in Mahinda Chinthana. If at the same time, an enabling environment is created with good governance, high quality rule of law, flexible labour laws and simple rules and regulations and procedures for investment, a good business environment would be created. The FDI which has been hitherto slow to come in, will flow in adequately. Overall, high growth and development will be sustained and it should not take long for this country to become a middle-income country with her per capita income doubled.

[email protected]

Concluded