Sri Lanka R&D innovation cluster in first breakthrough with $ 25 m seed

From left: COSTI Project Director Prof. Ajith De Alwis, EDB Acting DG Himali Jinadasa and SLINTEC CEO Harin de Silva Wijeyeratne

Sri Lanka’s fledgling R&D innovation and startup cluster has hit the big time in its maiden funding round and several hi-tech startups, having crossed their R&D experiments barrier, are now poised to commercialise their innovations.

“Increasing the share of high-tech exports is essential to face the intense competition in the global market,” said EDB Acting DG Himali Jinadasa recently, addressing the ‘New Product Innovation and Export of High Tech for Economic Growth of Sri Lanka’ session in collaboration with COSTI.

Present at the event were representatives from Dockyard Ltd, TOS Lanka, NDB Bank, Akbar Bros, Neil Marine, Omegaline, Midaya Ceramics, HVA Foods, IPS, Verite Research, LMSL, the World Bank, Institute of Engineers, SLINTEC, officials from Ministry of Development Strategies and International Trade, Mangala Yapa (CEO/Secretary General of Ceylon Chamber of Commerce) and a top economist.

Jinadasa added: “The Government’s vision is to transform Sri Lanka into a strategically important global economic centre in which the exports will play a pivotal role. The EDB, being the lead organisation in this, and entrusted with this important task is currently focusing on diversifying the exports basket. We note that our exports are basically primary goods adopting local economic practices. Even high-tech exports are mostly component exports as our pioneering industry survey reveals. The EDB/COSTI survey also shows the FDI potentials in new innovations. To achieve these goals we at EDB would like to strengthen our working relations with the stakeholders, the Inventors’ Commission, BoI, NEDA and IDB as well as chambers and the private sector.”

The Electronic Sector Baseline Survey – the first ever industry-wide field study on the Lankan high-tech sector and jointly run by the country’s apex export facilitator EDB and innovation mover COSTI – was unveiled to the audience during on 28 October.

The new EDB/COSTI survey reveals that an R&D investment pool of approximately $ 25 m from the 70 active firms is now in place, thereby giving birth to fledgling private innovation R&D cluster in the country. Thirty-five BOI companies are active in the sector with eight start-ups to be already developing their innovative product portfolios for mass scale production lines. 

More importantly, the study – of which the sample is 70 Lankan electronic manufacturing firms – finds that majority of Lankan high-tech industrial leaders are supported through Foreign Direct Investments (FDIs) in that the majority of Lankan high-tech firms are a result of international investments such as BoI projects here. 

Lankan owners of electronic SMEs are challenged by finances, marketing, value addition and quality improvement. A substantial number of these companies are in component manufacturing (rather than ODM or OEM manufacturing) and therefore value addition is minimal. Interestingly, though the use of automation and high-tech during production is quite low, the industry provides a significant number of employment opportunities for skilled labour.

“We need to change our thinking,” said COSTI Project Director Prof. Ajith De Alwis. “We need to make our products looks exciting. For example, take our tea; due to lack of innovation and R&D today it is the Government that is trying to save this sector. This is despite having special research institutions on tea alone.” 

“Strong adherence to financials is an R&D and innovation killer,” stressed SLINTEC CEO Harin de Silva Wijeyeratne. “Fixation on EPS, DCF and Net Present Value are often impediments. And since investing in R&D is a big risk in Sri Lanka with no immediate returns, the private sector avoids it.” 

SLINTEC, the Lankan Private-Public-Partnership R&D incubator success story, has filed for 11 international patents on their innovations done in Sri Lanka of which nine are in US. Of the granted patents, three have been already sold to an Indian firm with promising forex returns to Sri Lanka.

EDB Director – Policy and Strategic Planning Dayani Wegapitiya making an in-depth presentation said: “Our share of the world’s high-tech exports is at 1%. Still, we have diversified our national export basket from 485 products in 1980 to 3,775 by last year. Increasing R&D is a promising export development option.” 

Indrajit Coomaraswamy, renowned economist and former Director Economic Affairs at the Commonwealth Secretariat, said: “This has been an enlightening event. It is clear from today’s presentations that after a historic lag, Sri Lanka’s R&D is progressing in the right direction. The Government has created the ground conditions to develop R&D. It is now up to the private sector to take advantage and start generating exports that we missed. For example, in 1980 both Sri Lanka and Thailand had the same export diversity levels but today Thailand’s export diversity has zoomed past us. R&D and innovation efforts can give us the much needed high-tech export volumes and diversity.”

Last year, Lankan high-tech/electric and electronic exports stood at $ 343 m. In terms of exports diversity, high-tech claimed 2.89% of the total exports of the country in 2014.