The new technology revolution in Asia – and why Sri Lanka has fallen behind

China has at present the most automated industrial sector in Asia, barring Japan. China’s factories are rapidly replacing their workers with robots in an ongoing automation-driven industrial revolution, aimed at accelerating a greater level of manufacturing production and cutting labour costs, to further improve export competitiveness

By C. R. de Silva

Asian countries automate: China, Singapore and India

The more vibrant economies of some countries in Asia are also automating their manufacturing and production processes in order to attain a higher degree of precision, greater productivity and speed, with reduced costs in rising labour markets. Among these are China, Singapore and even India, which are more important from Sri Lanka’s viewpoint, since our Government is in various, advanced stages of negotiation of Free Trade Agreements (FTAs) with all three countries. 

Sri Lanka has substantial negative trade balances both historically and at present with all three countries, given the disproportionate export-ready, industrial and manufacturing capacities these countries possess, compared to the low-end production capacity, churning out mostly basic goods in Sri Lanka today; this disadvantage is likely to get worse as a result of FTAs due to cheap imports and dumping, and may not be offset by any potential advantage of these same countries’ FDI in Sri Lanka.

China

China has at present the most automated industrial sector in Asia, barring Japan. China’s factories are rapidly replacing their workers with robots in an ongoing automation-driven industrial revolution, aimed at accelerating a greater level of manufacturing production and cutting labour costs, to further improve export competitiveness. China has bought more industrial robots than any other country since 2013, in a determined quest for cheaper and more reliable industrial mechanics, performed with greater precision. China’s technology revolution has still very far to progress, notwithstanding being the world’s biggest exporter of manufactured goods, at highly competitive prices.

China’s central planners are offering generous subsidies to industrial enterprises, both to use and build robots, as well as upgrade them and capture new export markets - with a proactive government throwing its full weight behind this domestic robot revolution. Meanwhile, as the demand increases, the price of industrial robots is falling and their performance is improving progressively, enabling China to overcome emerging labour shortages and rising production costs (‘China’s Robot Revolution’ from Artificial Intelligence and Robotics).

Singapore

Next to Japan and China, Singapore is the City State, Sri Lanka is said to be emulating unsuccessfully, in Asia. Singapore is progressing into automation at top speed – building expertise in high tech niches such as robotics, 3D printing, biologics (making drugs from protein in cell cultures, rather than from synthetic chemicals), and similar cutting-edge products to help the country sustain a large high-tech manufacturing sector, employing well over 100,000, despite the exit of many labour-intensive, low-end industries to cheaper locations, potentially like Sri Lanka and elsewhere.

Encouraged by low income tax rates, and other similar incentives and subsidies, Singapore’s transformation from a sleepy trading post, which declared its independence only in the early 1960s, to an industrial and economic powerhouse is being proactively driven by its single-minded Government, following China’s precedent. Attractive policies and a first world, high standard of living have attracted 44% of global companies’ Asian headquarters to re-locate in Singapore. So, Singapore has a target of attracting about 2,500 data analytics professionals by end-2017. Already, about one-half of South East Asia’s data centre capacity is in Singapore (extracted from ‘Singapore Targets Investment in ‘Disruptive’ Technologies’).

India

Finally, India, which is the fastest growing economy in the world, is also fast automating its industry, the momentum being driven by foreign robotics companies, which are cultivating the market and tapping into trading opportunities. Accordingly, India will have an installed base of 24,000 industrial robots in place by end-2017, while warehouse automation is expected to become a $32 Billion market by 2020 (from $1 Billion in 2013). ‘Robotic butlers’ are helping to pick, sort and package items in warehouses across India, while car manufacturing plants are relying on robots for speed, scale and precision - welding parts and painting cars – and buying 60% of all industrial robots being now manufactured in India, soon to become a vehicle exporting powerhouse.

Locally-manufactured robots are also cleaning radio-active components at India’s Atomic Research Centre; while an autonomous underwater vehicle is inspecting and repairing bridges, pipelines and hulls of ships. So, robotics use and development in India is driven by the private sector and foreign business, which are together quickly diversifying the market for automation, which is not waiting for the Government to formulate national policy (‘India’s Asian Dilemma: How Best to Grow Robotics Industry?’ from Robotics Business Review).

Sri Lanka – Information and Communication Technology (ICT) developmentsICT project

In the five years following 2005, the Government implemented the World Bank-financed project entitled ‘e-Sri Lanka: An ICT Development Road Map,’ conceived and developed jointly by the local ICT Agency, which also executed the project, its partners and Dr. Nagy Hanna, then World Bank’s ICT expert and author of the recent book ‘Mastering Digital Transformation,’ referred to earlier. 

The project aimed to achieve ICT goals through technological and institutional transformation of key sectors of the economy, and was expected to assist the Government to develop the necessary capacity to lead and execute an ambitious ICT program; strengthen the information infrastructure serving the poor and rural areas; create an enabling environment for the ‘knowledge’ economy; develop specialised ICT skills and broaden ITC literacy at all levels of education; deliver faster, more efficient and more transparent Government services to all citizens and businesses; use ICT as a lever for social development; and create jobs through a dynamic and competitive ICT sector and through diffusion of ICT among Small and Medium Enterprises. In addition, it was envisaged that its experience in Sri Lanka could help replicate the model in other countries.

The World Bank’s evaluation report on project completion concluded that the above-enumerated objectives had been achieved and a satisfactory platform for ICT development had been created in Sri Lanka. The World Bank noted the need for sustained future interest and government efforts in supporting ICT development in Sri Lanka was warranted, despite growing ICT literacy. Several e-services had been launched on a pilot basis, and the project design had captured a cross-country focus, including in backward regions, but on project completion, the Government took no sustained initiative nor demonstrated any keen interest in seeking further World Bank or other similar external financier’s expert assistance to move ICT developments in the country to the next level, in order to improve the sense of ownership and engagement of stakeholders in further ICT development in Sri Lanka. The record demonstrates that this position remained unchanged during 2015-16 as well.

Sri Lanka – Other ICT developments

Therefore, it is indeed positive news that in ‘The Global IT Park,’ which opened in Japan on 23 August 2016, five ICT companies from Sri Lanka had been competitively selected to participate in international operations, giving a significant boost to developments in the ICT sector in our country. The selected ICT companies would gain an excellent opportunity to obtain exposure to the Japanese market, which is at the cutting edge of modern technology developments.

Secondly, the 2017 Budget proposal for a Rs. 100 million allocation to establish a Biotechnology Innovation Park in Homagama was recently approved by the Cabinet, to help promote industries as well as R&D into biotechnology. It is expected to be a public-private partnership with the Nanotechnology and a Science Park in the same area.

In the same connection, the Sri Lanka Institute of Nanotechnology Academy (SLINTEC ACADEMY), functioning as a non-State, not-for-profit degree provider, is reported to be now offering courses leading to M.Phil and Ph.D degrees in nano/advanced technology, with a view to providing those advanced post graduate degrees in technology, which is an advance in enhancing national education and training of scientists, and is in the right direction. 

SLINTEC is a recognised pioneer in nanotechnology and advanced technology research and innovation in Sri Lanka during the last seven years, holding several ground-breaking patents in nanofertiliser, and making technology transfers to Indian companies; and also registering several more patents in the apparel sector; as well as successful research in ilmenite sands (from Murunkan clay) and thorium (from Monazite sand), a forerunner for future nuclear energy needs in Sri Lanka. 

SLINTEC is also researching synthetic organic chemistry and nutraceuticals, to produce advanced pharmaceutical ingredients, and cater to emerging production in Sri Lanka, already an established industry in Singapore. Advanced degree students will learn cutting edge knowledge from leading academics, while working in close proximity with research counterparts in industry, will maximise chances of research moving into development, and eventually to commercialisation. This development will overcome a serious drawback in the country’s R&D efforts until now.

Regressive taxes obstruct ICT development

However, on the more negative side, the imposition by the 2015/16 Government Budget – at the insistence of the IMF – of a higher level of 15% VAT and NBT on telecommunication services, adversely affected greater penetration of the country by broadband services, which is a declared policy objective of this Government; and is most importantly, an essential component in Sri Lanka’s quest to move to a ‘knowledge’ economy, on the path to the now quite unrealistic and almost fictitious ‘lift off’ of the entire economy, the IMF forecast in mid-2016 as the real policy reform objective, at the foundation of the IMF-crafted economic stabilisation program now in a questionable crisis condition.

Even more importantly, since the country enjoyed some of the world’s lowest data tariffs, Broad Band, leased-line and satellite connectivity were earlier widely available, and ICT revenues increased from $128 million in 2007 to $713 million in 2013, and was rising YoY. It is inevitable that increased VAT applicable to telecom services, including Broad Band, will seriously slow down the significant growth in ICT export revenues, though intrinsic to Sri Lanka’s determined quest to remain a top global destination of business process outsourcing (BPO) and ICT. 

Therefore, IMF/Budget-instigated increased and regressive VAT is operating as a double-edged sword hurting much-needed (but now dwindling) export revenues, and also increasing the general cost of living with cell phone use common countrywide, with foreseeable political repercussions, about which political personages seem unconcerned in their rush to comply with seemingly infallible IMF diktats, emanating from the ‘Delphi Oracle’, now operating from 19th Street N.W., Washington D.C. 

Megapolis Project – Need for ICT education and training

In addition, the planned Western Region Megapolis Project (WRMP) now in the implementation phase in Greater Colombo, incorporates a “smart city” component to be developed in several urban agglomerations, using digital technologies or ICT to enhance quality and performance of urban services, as well as to reduce costs and resource consumption and to engage more effectively and actively with area residents.

The planned Megapolis is expected to provide residents with an integrated transport system, real-time traffic information and management, ‘smart’ power grids to supply demand-dependent electricity, ‘smart’ street lighting, ‘smart’ city maintenance and many other technology-centred facilities.

These planned WRMP innovations as well as external exposure for local ICT companies, mentioned above, vitally necessitates progress being made in restructuring education and vocational training, geared towards achieving competence in digitisation and automation, which will soon become central to economic development and future job creation in Sri Lanka in the wake of rapid progress in these areas in the West as well as in Asia, including Japan, Singapore, Thailand and China, even India. 

It is, therefore, timely for the current Government to obtain external financial and expert assistance to move current domestic levels of technology to the next stage of ICT development if Sri Lanka and its people are to prosper and improve their standards of living in a radically complex, digitised, highly automated and therefore, autonomous, transforming world economy. Sri Lanka’s current low-end industrial export capabilities are not going to lead to a ‘powerful’ Sri Lanka.

Sri Lanka – Payments in the digital age

One other area where some development has occurred is in the modernisation of payment systems. While cash still remains the predominant method of payments accounting for over 90% of retail transactions, more than 800,000 credit cards are now in use – one local peculiarity is that a credit card has to be backed up most of the time by cash security with the issuing bank, reducing its risk to nil – a huge departure from Western practice – where real credit turns the wheels of the economy.

However, a start has been made by mobile phone-based electronic payments, with a private company pioneering with ‘Epic Mobile Wallet’, to fulfil payee and payer requirements, in a digitally-enhanced format, and offering a vehicle to “integrate all payment instruments, including credit and debit cards, as well as banking transactions into a single platform on readily available systems”. Authors say that “benefits include less congestion at banks, minimal physical interaction and consistent quality of service” (‘Epic Lanka brings next level of e-payments with Epic Mobile Wallet’, Daily FT, 13 March).

Sri Lanka – Digital age consumer protection

New reports indicate that gaps still exist in the current Sri Lankan laws that regulate consumer rights and data protection in mobile and online platforms. Legal experts have pointed out that the Consumer Affairs Act of Sri Lanka is inadequate as a dispute resolution mechanism in the current digital era, where transactions occur in online trading platforms. 

Digital consumer rights protections need to be enacted into law to prevent and keep privacy violating companies at bay; since they contract data mining companies or use their own data bases to ‘spam’ consumers through digital channels or sell their customer data bases to joint venture partners or to third parties. Most consumers are unaware of their digital rights and cannot fight these issues individually. Though an inter-Ministerial Committee came to a determination to fast-rack consumer protection, laws are way behind the new technology., 

The need for umbrella organisations that unify traders and consumers of online platforms to resolve commercial disputes has been also highlighted. Sri Lanka also lacks an adequate and fair mechanism to protect online traders’ rights. These issues become important because, about 30% of the local population is now connected to the internet today. Gaps in the Electronics Transaction Act #19 of 2006 in respect of cybercrime, security and data have also been publicly pointed out. These developments highlight the need for a comprehensive data protection regime based on an adequate institutional framework.

In addition, the lack of trust of consumers in online transactions, cultural and language barriers as well as regulatory hurdles are still challenges in serving consumers in today’s digital era. In summary, the rights of traders, the needs of consumers in the e-market, greater entrepreneurship to expand e-commerce in Sri Lanka and the changing regulatory landscape for consumer protection in the digital area, are all outstanding issues to be resolved.

Why has Sri Lanka fallen behind Asian ICT sophistication?

The entire sector of ICT/technology development is essentially an adjunct to, and an integral part of, a country’s overall development strategy, which should ideally include primary emphasis on the Government encouragement of entrepreneurship and innovation to advance industry. If a development strategy is found wanting in material respects, and lags behind the relative development experience of like economies, then obviously all sectors of economic activity, including information, communications and technology development, will also suffer and fall behind, if not by the wayside, in comparative terms. The recent experience of ongoing innovation in China, Singapore and India make this point indisputable. 

To cite one glaring development example: soon after WWII ended, Sri Lanka was ahead of Korea in GNP and per capita income terms, as well as in overall standards of living; both countries suffered the ravages of protracted war and conflict, with Korea being practically razed to the ground in a much more fundamental way than Sri Lanka’s bitter experience with a virulent guerrilla insurgency, actively supported by an interfering neighbour, just like China’s role in the Korean war of the 1950s. Both countries lacked oil and gas, with Korea also suffering from being a very hilly, unproductive peninsula, lacking the fertile agricultural zones of Sri Lanka, enhanced by many rivers and with excellent ancient irrigation systems to help fuel its agricultural economy. But the two countries adopted and pursued diametrically different forms of government, one authoritarian and the other democratic in the western mould, as well as very different development strategies. 

Similar parallels can be drawn between Sri Lanka today and both Indonesia and Bangladesh, which were economic basket cases about 45 years ago, when left-leaning President Sukarno was overthrown in a coup after heavily indebting the sprawling, heavily populated archipelago; while overpopulated, flood-prone Bangladesh, with little natural resources, was still a poor adjunct to West Pakistan. Both countries today are universally recognised as successful export economies and emerging ‘tigers’, way ahead of Sri Lanka. Since 1980, Sri Lanka has come under the IMF’s neo-colonial ideology and has implemented the western philosophy underlying the ‘Washington Consensus’, at the very heart of IMF-sponsored strategy, which has increased nagging poverty here – to this day, applying a set of slow-moving, ‘trickle-down’ development strategies leading to inequitable communities - a strategy now being questioned openly both within that institution (IMF) itself as well as critically by globally renowned economists and academics.

But Korea took a unique, actively Government-interventionist development path, pioneering the ‘Development State’, emulating Japan in many respects and flouting all norms of neo-liberal dogma, along with six other East Asian economies, to reach sustainable, inclusive growth and broad-based prosperity, which is now the envy of the waning western capitalist system, which has generated a huge class of food-stamp dependent have-nots, who are staged electoral revolts in the very citadels of unregulated capitalism.

The resulting growth numbers so revered by IMF economists, speak for themselves; Korea is now at $28,000 per capita income, while Sri Lanka lags seriously behind at under $4,000, and limping from one IMF-bailed-out financial crisis to a worse economic crisis, adopting presently a debt-driven path to nowhere. For a complete treatment of these challenging development issues, see the writer’s series of three articles titled ‘Sri Lanka’s IMF-directed Slow Development Strategy’ in the Daily FT of 1-3 March.

(The writer was a member of the former C.C.S. and was later a senior professional at World Bank Headquarters for over 30 years. Aside from the books and other sources identified throughout the above essay, liberal use has been made of facts and figures appearing in internet websites, newspapers, magazine articles, other books and research papers, too numerous to cite in compiling the above text.)