Sri Lanka’s potential for economic development

This article uses as background two published articles. The first, ‘Ten business trends for 2023 and forecasts of 15 industries’, published in the Economist on November 21, 2021. The second, ‘The next cycle of capitalism’, by Fabian Salum and Paulo Vincente devos Santos Alves and Fundacao Dom Cabral at the INSEAD Faculty of Strategy.??

The objective of this article is to use the information of the studies cited above as a base and analyse how Sri Lanka can encourage economic development by identifying and aligning herself with global economic trends.??

Kondratieff Cycle or the Long Business Cycle

The Kondratieff Cycle theory showed through empirical evidence that technology did not evolve in a linear fashion but in waves, and each leap of technology stimulated a new wave of growth.??

The depression and recovery are the periods where new technology disrupts existing technology and drives productivity and economic development.??

There is significant consensus on the areas of technology that will drive the development of the next economic cycle, in both articles. They are;??

1. Extreme robotisation using Artificial Intelligence (AI)??

2. Extreme longevity using Human Enhancement Tech (HET)??

3. Extreme geographical dispersion due to the optimisation of telecommunications??

4. Extreme mobility in new cars and airplanes??

5. New energy matrix with solar, wind, biomass and shale (fracking)??

6. New raw materials coming from space??

Source: INSEAD

Relevance of K Cycle to Sri Lanka?

Sri Lankan born economist Professor Howard Nicholas has been arguing that the world is heading towards the bottom of a K Cycle for some time, and the above table supports this view. The dot.com wave driven by telecommunication and connectivity could mark the end of the outgoing long cycle, with identified areas above driving the disruption of this cycle and the evolution of the next one

Global and Sri Lanka’s GDP growth

This diagram organises the areas of potential disruption under three verticals namely Energy, Technology and Tourism.??

The analysis explores how global developments in AI, HET, Telecommunication, Mobility, Renewable Energy, and new raw materials could drive the development of the Sri Lankan economy.??

The first step of this analysis is to illustrate that the Sri Lankan economic development follows the global economy, through the reproduction of a chart by Bram Nicolas, of ETIS Lanka (Pvt.) Ltd.??

This diagram organises the areas of potential disruption under three verticals namely Energy, Technology and Tourism.??

The analysis explores how global developments in AI, HET, Telecommunication, Mobility, Renewable Energy, and new raw materials could drive the development of the Sri Lankan economy.??

The first step of this analysis is to illustrate that the Sri Lankan economic development follows the global economy, through the below charts.??

These charts show that world GDP growth is influencing Sri Lankan GDP, with some time lag, and similarly, global equity markets are influencing the local stock market.??

Global trends that present Sri Lankan opportunities

Energy Sector Opportunities

Renewable Energy??

The Economist forecasts that global energy prices will trend upward, pushed by increasing Asian demand and supply constraints due to the ongoing Ukraine war. This will lead to an increased demand for renewable energy at a global level.??

The demand for energy in India is expected to grow at around 7% per year, and their demand for renewable energy is even greater. Indian businesses are exploring opportunities to harvest around 30,000 KW’s of renewable energy in Sri Lanka and export this to India via an undersea cable that is being discussed. Sri Lanka will not need this energy over the foreseeable future and earning valuable foreign exchange would be a significant economic boost to the country.??

A study on the feasibility to produce green hydrogen in Sri Lanka is underway, and if this study brings positive results, it could be of significant benefit to Sri Lanka.??

Oil and Gas??

The Petroleum Development Authority of Sri Lanka (www.prds-srilanka.com) has completed surveys and found commercially harvestable offshore oil and gas resources available and the process of commercialising this resource is currently underway.??

With the growing global demand for energy, it could be a potential revenue earning export stream or a saving of import expenditure.?

Battery Energy Storage Systems (BESS)??

Sri Lanka can harvest deposits of graphite that can be converted to graphene, that can be used in the manufacture of BESS. Sri Lanka’s geo positioning and regional geopolitical relationships could enable the export of BESS to the region. India, Pakistan and Bangladesh could form potential markets that can be accessed.??

Mobility??

Given that a BESS forms the core component of an Electric Vehicle (EV), mobility is being dealt with here. Whilst the global market for automobiles is estimated to grow at a mere 1% in 2023, the market for EV’s is estimated to grow at 25%, led by China’s aggressive conversion to EV’s.??

The next generation of EV’s are known by the acronym ACES – Autonomous, Connected, Electric, Shared. ACES will disrupt present mobility by dropping the cost of transport by over 50%. This is achieved by eliminating the cost of the driver, and through the reduced running and maintenance cost of an EV vs an Internal Combustion Engine (ICE) vehicle. ACES technology is presently commercially available, and adoption can be very rapid and growth rates can be exponential.??

Drone technology is approaching maturity, and drones that can transport passengers are under design. To complement this, VTOL – Vertical Take-off & Landing vehicles are being tested.?

BESS technology is core to all these mobility solutions. Manufacture is not complicated as most key components like batteries, motors and controllers will be sourced from specialist manufactures. Coding will form a key component of product design and manufacture.??

Technology

General IT??

To attract frontier manufacture, Sri Lanka requires the training ability to produce the prerequisite skills that these industries require. Global technology experts have asserted that Computer Science graduates of Moratuwa University are compatible with graduates of the best universities in the world. Training will have to be developed and scaled if we are to achieve our potential.??

Retail Technology??

In retail, The Economist Magazine identifies three areas of technology that will dominate the future world, as the ability to predict demand, the ability to track supply and the ability to analyse data. Sri Lanka has this technology, but it needs scaling.??

Data Science and AI??

With the ability to analyse data comes the growing field of Artificial Intelligence (AI). Whilst this will assist in general forecasting, its use is far wider. Whilst AI will drive robotics, autonomous driving, it will also enable healthcare to use data to analyse genome characteristics. This technology will enable personalised medical solutions. Thus, big pharma companies will require highly specialised small production units – again, new business that Sri Lanka could pitch for.??

Finance??

Like the automotive industry, technology stands ready to disrupt the finance industry, through the innovation of FinTech’s. These are technology driven financial institutions that can function at much higher levels of efficiency compared to the conventional finance industry.??

The invention of digital currency is also challenging the current financial system and is once again technology driven.??

Sri Lanka, and the recently launched Port City of Colombo could be a hub to Fintech start-ups that can service the region. We require a forward-looking policy environment and governance structure to facilitate this.??

Entertainment??

The conventional movie industry is estimated to grow in 2023 and surpass 2019 levels. Streaming firms are expected to lose subscribers. However, Netflix alone is estimated to invest US$ 17 billion into their business in 2023. Sri Lanka could find a niche as a ‘location destination’, where the Government encourages movies to be locally filmed. This will boost tourism through the visitors that will be directly generated, and through the visuals of the country that will be seen by audiences who watched the movies shot here. This will enable an entertainment industry back-office to emerge. With the industry being digitised, the back-office would be primarily technology driven. The global film industry is estimated to bring in revenues of around US$ 60 billion annually.??

Tourism

The tourism industry in Sri Lanka has been a major source of foreign exchange earnings and employment, earning around US$ 3 billion in a pre-COVID world. The modern world brings the ‘Staycation’ niche as a viable area to exploit. Similarly, the niche for retired folks to get away during winter becomes more financially attractive with increasing energy prices. Around these two broad niches come a host of sub niches such as adventure tourism, sports tourism, nature and wildlife tourism, historical tourism, and so on.??

Existing Opportunities that can be further harvested

Logistics and Infrastructure??

Sri Lanka is a dominant regional port with ongoing investment into the sector. Recent trends of supply chain diversification and growth of regional markets can generate increased demand for Sri Lankan ports. This trend can also create demand for local logistics hubs emerging.??

Organic Agriculture??

Whilst ‘organic’ is a bad word in Sri Lanka, due to a knee jerk policy shift to organic, that went horribly wrong, there is a strong market for organic agricultural produce that can be supplied. A progressive and planned shift into this niche can supplement earnings from an agriculture sector that is struggling to support the large local farming community.??

Sri Lanka can attract frontier businesses to locate locally, based on enablers such as a trainable work force, geo-location, strong logistics and the Colombo Port City.??

Detractors, that need to be resolved, are Ease of Doing Business and the perceived lack of political and policy stability.??