Monday Nov 25, 2024
Monday Nov 25, 2024
Thursday, 15 August 2013 00:02 - - {{hitsCtrl.values.hits}}
technology side. SQW was the first to formalise, articulate and do research on what was known as the Cambridge phenomena; the cluster of university business interaction that happened. It was what SQW was renowned for and now it is revisiting that study as well and it is doing it for the University of Oxford.
We provide evaluation and appraisal of publicly supported initiatives across various sectors. We do business plans, strategy development; we do a lot of work around universities and innovation and business start-up and growth. SQW is part of a group called the SQW Group and our sister company is Oxford Innovation which provides incubation support to technology-oriented businesses to help them grow and they’re involved in a business coaching program which helps businesses grow and make an impact. But they also run investment networks like the business angel network. So our work is for business, central government, regional agencies, providing economic analysis.
Our expertise, although we cover a range of sectors and a range of organisations, is providing a specific economic analysis and experience which then gets formed into policy development essentially. So we do reports, feasibility studies, evaluation reports, appraisals, economic modelling and strategy development and fore sighting; whatever the terms of reference come out from our major clients. We’ve worked with the World Bank and IFC and other agencies as well.
Q: So you’ve been here in Sri Lanka for discussions on a technology transfer and development fund. What does the fund entail?
A: It’s a fund that will enable SMEs to introduce modern technologies and process innovations into their business, and thereby improve their productivity and competitiveness. It is expected that the fund will focus on growth-oriented SMEs that are exporting or wish to enter export markets. New technologies and innovation will bring value addition to their products and services.
The goal of the Government is to reach the $ 4,000 per capita GDP target. There’s only so much you can do as a business in terms of your own productivity and output. What we know from international experience from the likes of South Korea, Singapore and India, etc., is that to get on a higher growth path for the economy, the important phrase here is structural change.
What you need to do is introduce technology to firms and that improves their practices and adds value to the products they produce. So for example you could be a potato producing company and you only export to the international market. That is not enough and because the Sri Lankan Government is looking to develop the export sector and in particular with what they are doing with the hubs which were announced yesterday, taking that into context, and to do that we need to bring in value addition and bring structural change.
Just bringing in the Fitch conference held today; what the Governor of the Central Bank was saying was that we’ve got to avoid the middle income trap that economies get into and one of the shifts in economics and economic development theories is in order to avoid that, you bring in technology. So that is our ultimate aim and for the fund to act as a catalyst to improve the wider financial and innovation ecosystem because the competitive advantage is about innovation.
Technology and innovation are important drivers of development. They underpin productivity gains and improvements in competitiveness that lead to the sustained creation of wealth and the generation of employment opportunities. That’s how Western economies improve, because of how the multinational companies do things and even in the public sector it’s around innovation. There is a lot to be developed here in that wider ecosystem.
The objective of the fund is not to fix everything in the public and private sector but to act as a catalyst so what we have is potentially a fund which will provide finance which is debt finance and equity; so we’re looking at equity options both public and private money from domestic and international sources. So we’re exploring opportunities there but that is tied to technology assistance which is around education because there is no point in giving a machine or technology to an SME and they don’t know how to use it. So not only about how to use it but the benefits of adapting technology so you’re wanting to create a shift, as systematic shift not only in a few SMEs but one that becomes a norm that will affect the wider sector and the focus will be growth-oriented SMEs with export potential. That’s the focus and technical assistance is tied to the finance.
That’s really important and in terms of its geographical reach, we want it to be a national fund where all regions are covered and not only the Western Province. We’re looking at the north, south and east; it’s a national fund that will be available. In terms of its operational delivery we are looking at it to be an independent third-party private sector delivery mechanism, thereby there is more transparency and accountability, monitoring and evaluation, which is very important because it will have private money in which they will want to see the returns.
We want the fund to not duplicate what’s already out there. As an observer of Sri Lanka, there is a cluttered landscape of various initiatives. There are so many funds and not all have been evaluated and what we don’t want to do is overlap and duplicate and create inefficiency in the system so it has to have its own USP. It will be private sector-managed.
An important partner of terms of the strategic board which will oversee that is NEDA. It is important in this because the act that is in place, the legislation to set up the transfer of funds is through NEDA. It will have an important role in this but there will be private sector people on the 
strategic committee, people from the Government, various ministries that will oversee the operational delivery and it will be independent and as a private enterprise with full accountability to investors. However the strategic committee will have input from advisors and experts.
So we want to have some checks on the strategic committee as well from the outset and it’s important at all levels that the people in senior positions are of quality and are independent. You know, it’s only from the leaders that the difference is made top down. It’s about the quality you bring in. So in terms of geography it’s a national fund, private sector oriented in the sense in the terms of operational delivery, we are looking at both debt and equity and we’re speaking to players here and abroad and one of the things about universities and research institutes in Sri Lanka is that they are not as business facing. They are not as commercially oriented so their research is not applied research, it’s very theoretical. So there’s no point in getting technology from them so we’re looking at getting technology from outside, from people who specialise in this and not only provide the kit but can also provide the training, skills and education which is very important so the growth path of Sri Lanka is not only going up but shifting so we don’t get caught up in this middle income trap. To begin with we’re focusing on a limited number of sectors because we want it to be focused and build up from there.
Q: What will those sectors be?
A: That is still to be defined essentially but the important thing to note is where Sri Lanka has comparative advantage and those areas are very obvious. Also where it has export potential or is already exporting to international markets. We’re looking to help them not only get those international markets but some of the feedback that we’ve had. We’ve engaged already with a wide range of stakeholders from the main banks, the chambers of commerce the EDB, IDB and we’re speaking to the SMEs to get feedback from the demand side and the important thing to note is that we want this fund to be demand driven. So it’s not only the supply side, the demand has to come from the market so the utilisation of the fund is high.
There’s no point in just pushing everything out and people don’t want it. It’s those sectors that have comparative advantage and have export potential. What we have found with an initial engagement with various stakeholders from the private and public sector is that there is a gap in the market for this fund. That was the first thing we checked, we don’t want to be duplicating what’s already there. We want to check if there is a gap in terms of financing and a gap in terms of the technological need. Both gaps and that is the important thing, meeting the gap in the market which we’re trying to address.
Q: When comparing Sri Lanka to the rest of the region, where do we stand and how serious are we in terms of how focused we are on SME development, in your opinion?
A: Speaking from my personal experience, they are serious. The discussions we’ve had with the various ministries, namely the Ministry of Finance and Planning and the Ministry of Industry and Commerce, they’ve all emphasised SME progression and growth, but what we have to understand is also that the big multinationals and the corporates are also important in the value chain actually, because we should also be supporting them and emphasise the value chain, which is the medium and small size companies in the country, so I find them to be very serious and there’s many initiatives out there for support but the gap we think in this, we want an area of specialisation because there are many organisations doing various things and they’re not specialising and overlapping each other. It is not our job to clear all that out but it will act as a catalyst which will start the process to do that but in relation to your neighbours, the mere fact that you are looking at the outside world in terms of your port infrastructure as a transition route is evidence in itself where you are building the physical infrastructure in the country and that’s come from the Government, which is very important. So they do have a long-term vision and within that you are developing the supply chain.
Q: How effective can a fund such as this be without a larger role played by governments in maintaining stable macroeconomic conditions?
A: At the Fitch Ratings event held today, where people from the financial community both private and public sector were present. The two things that they did emphasise which if I may for the record quote were what they think would be the game changers. Get the budget in order and integration with the rest of the region. There also has been recognition behind data suggesting that FDIs have been slowing down but what will be important is for fiscal or monetary policy disciplined and to get the budget in order at the macro level.
The second point is in integration with the rest of the region. The third point which relates to the budget issue is keeping interest rates down; that will really help. These are comments from very senior people who know their stuff on this topic. So yes on a macro level they can do that. Also what is lacking in Sri Lanka is that there could be a further development of the venture capital or business angel market. There needs to be more focus on that side as well so that private capital comes in.
If you look at it in terms of three areas, there is flow of financial capital both domestic and overseas, second it technological capital or flow, the third is social capital flow. All these three need to be combined in some way. Social capital is as important as finance so we’re talking education, skills development and training not only in technology but business management and having your cash flow in the business.
Q: The lack of entrepreneurship skills in university graduates has been a topic that has been discussed in many forums in Sri Lanka. How important is it for university graduates in an environment like this?
A: It’s because they haven’t had the opportunity. If you take a recent graduate who wants to set up a company, what does he do? The first thing he thinks about is access to finance. So he goes to a bank and the bank wants collateral. How much collateral will a young entrepreneur have? He may have a great idea. So there are access to finance barriers, there are barriers to their own knowledge of what’s available in terms of support. They may need help with their accounts and business financials. Basically they may not be investment ready; they don’t have the business management skills at that stage so it’s nurturing that from an early stage. So you need an ecosystem, whether it be through private or public initiatives, to help grow that and nurture that and there is evidence of funds in Malaysia and South Korea where that is done.
Whether it be through incubation support which is physical infrastructure, whether it be through more coaching and mentoring of various skills, strategy, marketing, finance and product design; all those things especially in the initial stage. A key thing in developing the entrepreneur in my view is private equity finance because it’s what is known as smart money; you’re getting a mentoring and in fact you’re being disciplined. They want to be held accountable; basically you’ve got X amount and what are you spending on? They want a full business plan of what’s happening at regular intervals so there’s a better screening of the best entrepreneurs, so selection is as important as not everybody is fit to be an entrepreneur and I don’t think we should always be supporting everybody. Sometimes you need to pick people who have the competency and even though are not quite there yet and nurture them and develop those to get the maximum impact. So venture capital money brings in advice and coaching, which debt finance doesn’t.
With loan finance what happens is that typically in medium size firms is that you end up servicing the loan which contributes to your cash flow issue and the most important thing for a medium or small size company is cash flow. If you have to service the debt, it becomes an issue. VC finance is different in that sense. They get that support and lift early on. So it’s not that there is no talent in Sri Lanka; there’s huge talent. People here are very innovative. They have ideas and sometimes they need that nurturing and a space where they get signposted. It doesn’t have to be hands-on, heavy intervention from the private sector it’s just a lot of going through which a bit of private finance can do and so can public sector initiatives.
There was an article in your newspaper just today about the importance of innovation where they quoted figures for the proportion of GDP spend by the Government and by the private sector as well and if you look at the figures for South Korea, they are way above Sri Lanka. So commitment from them is important but it’s not because entrepreneurs are not there. What you do have here is resource, you have a plural society which is very important, you have a mixture of different cultures, religions and communities and you are open to the world; whether it is through technology or travel.
Some people argue that it is something that can’t be taught or it’s within you, I tend to think it is the latter. It can be a mix of two but it is something which is that you are to some degree born with and people have that here. The reason that people have that here is because for example compared to the UK where there is a welfare system, people have to survive here and they are entrepreneurs not by choice but by necessity and when you are an entrepreneur by necessity, you make sure it works because there is no alternative. The drive within you is not only financial but that is who you are then, which is different from being an entrepreneur by choice. Sri Lanka has that pool of resources and you need to make sure that the people coming out of the universities that they have the best opportunity. That’s all you can create for them, the best opportunities in which to operate.
Q: What kind of assistance does your fund expect to offer in such a scenario?
A: In that scenario, what we’ve tied into in terms of technical assistance and what we’re exploring, I stress the term ‘exploring,’ is that technical assistance will be for the SMEs and not only people looking to start up. We’ve not quite decided where the fund will sit in terms of the SME definition but certainly we want to build the capacities of the SMEs and of the research base to help on that side. So it could be that the SME takes that support which is more than financial and then will look to find the best people whether it be developing it through the schools or the higher education centres; there’s a bit of flexibility in that side.
Q: In terms of understanding the benefits of venture capital funding as opposed to debt finance, how would you get about educating SMEs about it?
A: That’s a very good question. The only way you can do that is to create exemplars, people who’ve done it and you showcase that and you champion that. So the SME that doesn’t know about venture capital looks at another firm that has and sees the difference it has made. That’s how you generate the awareness along with a little marketing. It is a bit of education and creating networks which I see is happening.
Q: How vast is SQEs experience in this region and what would be one of its success stories?
A: We have just developed a fund in Kenya which was a major multi-million dollar fund similar to this and that involved private sector investments as well. The people we have in our team are an international pool of experts who have extensive experience working for the World Bank for example and they have developed funds in India. The concept worked in Hong Kong and China among other regions too.
Q: How long a process will it be to get this concept off the ground and working?
A: We will be developing our proposal and our deadline is end October which will have a proposal for the Sri Lankan Government and for GIZ to consider and take forward. So we will be hoping to set up something next year essentially or start the process of setting up something. I can’t give you a timeline of when the beneficiaries will see the support yet.
Q: How long term is the fund planned for?
A: We want this fund to be an evergreen, revolving fund so that it’ll be reinvested in again. It’s a long term-project which is going to act as a catalyst and structurally change the wider economy, bring value addition, be sustainable and to make it sustainable we have to ensure that it is governed well, operationally delivered, how it’s financed and how it meets the specific market demands. It has to be market-driven.
Q: You’ve recently held discussions with the Minister of Industry and Commerce Rishard Bathiudeen and his Ministry regarding the fund. What has been their take on this?
A: They’ve emphasised the importance of technology within the specific sectors of the economy and just by meeting they have shown their interest, but those were just initial discussions. We’ve not found so far any rejection of our idea. Everybody has said that there is a need and we want to make sure that that the need is fulfilled where the gap is.
Q: Tell me about the team behind the fund here.
A: The core team consists of Dr. Nicholas Miles, Senior International Expert/Team Leader and Managing Director of Miles Strategic Consulting Ltd. He has over 30 years’ experience working in some 30 countries, including Sri Lanka, on knowledge based economic development, technology transfer and the creation of innovation ecosystems; Chris Green, International Expert and Chief Executive of SQW Group; and myself. We’ve got an international pool of experts including people who’ve worked as consultants to the World Bank and who’ve done work in Asia specifically in this sort of thing and we also have a team of international experts who know innovation, entrepreneurship, business development, start-ups and growth and how to change the economy and developing the right systems. So I think the team combined plus I think maybe when you come to developing countries you need to be more flexible and have a lot more patience and one of the key things we’ve emphasised in our presentation to various stakeholders is part of our work is to do benchmarking with other countries like South Korea, Singapore and Malaysia. You can’t just take what happens there and dump it in Sri Lanka.
First of all, it’s a different time, secondly it’s a different context and it’s a different environment. We were very careful to point that out and while we can understand what they’ve done and learn, implementation will be different here. We can understand maybe where they were successful, what they learnt, what are the key things that made the difference but we are not taking an off-the-shelf fund from another country and planting it here in Sri Lanka. That’s very important. It’s a home-grown thing and it has to be developed from here by the people, by the organisations both public and private and it has to address the specific needs here at this particular point.
Q: What would the delivery mechanism be for the fund?
A: We haven’t reached that stage yet when we come to detail the operational side. We have only started our work. We will set that out.
Q: Will it be set up through the various chambers of commerce?
A: That’s a very good question. We’re looking at various delivery mechanisms and seeing where the expertise lies, where the capacity is and where the capacity could be built. The only way I can answer that question at this time is that we would be looking at both the private and public sector as co-partners. That’s the important thing. The eventual delivery mechanism still has to be teased out.
Q: In your opinion, is Sri Lanka doing enough to support its vision of developing infrastructure through its hub concept focus in order to take advantage of the so called strategic shift into Asia?
A: Certainly there is recognition in the literature both academic and in the business press that the nature of capitalism is actually now being reshaped more by the east. There are new ways of doing things which are shaping capitalism. Development of private enterprise and entrepreneurship is to some degree being informed increasingly by Asian economies. I would recommend a book called ‘Standing on the Sun’ by Christopher Meyer which discusses some of these topics.
In answer to the first part of your question, I’m also a member of Bankinter Innovation Foundation and recently participated at the Foundation’s Future Trends Forum “New Flows of Capital: Strategies for an Evolving World Economy” in Madrid, Spain. This international Forum considered future disruptive trends in financial, human and intellectual capital flows that will emerge over the next decade. Key areas of focus included: developing economies in Asia; scientific and technological advances, and new forms of financial capital. A key theme arising from this forum was the importance of Asia in developing and shaping the nature of the global economy. Sri Lanka certainly has a role in this strategic shift.
The Sri Lankan Government’s focus on the infrastructure side is very important. How would you attract FDIs if your ports, road and communications infrastructure is not there? But within that also what that needs to be supported with is the softer infrastructure, not just the physical; we need to place emphasis on the networks and softer infrastructure within that to complement that. Geographically where it is placed, it is at a huge advantage essentially both as a trading and shipping route. So certainly, on that front it is lining itself strategically to a degree with which it is successful in fulfilling its potential.
For example one of the issues it still has is the brain drain to the Western economies and perhaps more needs to be done to incentivise those people to come back and be involved in the future dream of Sri Lanka. So physical infrastructure, yes there is lots of evidence of that happening. So certainly the nature of the global economy is being shaped. The way business is practiced it comes back partly out of that necessary entrepreneurship drive. However, the important thing is that you have to create an environment, and I use the term ‘financial and innovation ecosystem,’ that has to be conducive and that is where the Government can play a role and the private sector as well.
Pix by Daminda Harsha Perera
