From Adversity to Hope -

Transcription

1 From Adversity to Hope - October 2011 Sri Lanka s Ongoing Transformation

2 Sri Lanka Today The Democratic Socialist Republic of Sri Lanka is a country in the southeastern coast of the Indian subcontinent with a population of around 21 million people. Today, Sri Lanka continues to pave the way for new avenues of growth through the development of industrial infrastructure and with government working towards providing a more stable business environment. The country is increasingly becoming recognized as a fast moving commercial hub in the region, with the country s GDP in 2010 amounting to around US$49.5 billion. GDP has been rising annually by around 16% since Table 1: Sri Lanka GDP 60 Sri Lanka GDP (in US$ billion) Source: IMF 2011 The government of Sri Lanka has been actively developing programs and initiatives in promoting investment and the country s capabilities. Currently, the government has been initiating programs aimed at enabling the country to become a digital and IT-driven economy. Led by the ICTA (Information and Communication Technology Agency of Sri Lanka) - the government initiated e- government programs enabling more efficient means in procuring government services, through the development of various IT-enabled solutions. Some of these programs include e-population, aimed at providing citizen information and documentation (i.e. birth, marriage certificates) and GovMServices, a service that provides information on crop prices and train schedules can be utilized through mobile phones. 1 Another fruit of this thrust is the establishment of more than 580 tele/knowledge centers or Nenasala. In these areas, the citizens are given training in the use of information technology, and also assist businesses and enterprises in rural areas in acquiring market information. Through 1 ICTA of 20

3 these efforts, IT literacy rates in Sri Lanka have increased from 9.7% in 2004 to around 22% in Out of these efforts, the country was considered as the world s fifth of the best in the development of its information and communication technology sector by the World Economic Forum s Network Readiness Index, with the country s percentage position moving from 72 to 48 in the last 5 years. 2 Such successes in the country s drive towards becoming an information-based society initiated opportunities in the development of the country s IT-enabled services industry. Today, the country is increasingly becoming well-renowned for its strong services sector, comprising around 60% of the country s GDP since 2002 and which has proven to be a draw for foreign investments in the nation s services globalization industry. One such feature of this sector is the country s abundant supply of accountants. Sri Lanka is recognized as a hub for high-value Finance and Accounting Outsourcing (FAO) services, and specific PAO processes related to risk management and derivatives pricing for example. The country is now a location for large captive and third party providers such as HSBC and Aviva, who have been quick to tap into the country s pool of highly capable and qualified accountants. 3 In recent years, Sri Lanka has also improved its general security conditions. As quality of life standards have been raised, the country in turn, has also become a more secure environment to live and do business in. The United Nations Human Development Report highlights that the quality of life in Sri Lanka has been improving, manifested in the increase in life expectancy and literacy rates among its inhabitants. Life expectancy in Sri Lanka for example, was pegged at around 68 years in the early 2000s, and was estimated at 74 years in This has been attributed to the country s universal health care system, providing a wide range of preventive and curative programs, from public and private institutions. In terms of education, Sri Lanka has been able to improve its services, and enlarging the reach of educational programs, with primary enrollment rates reaching more than 90% of the population and secondary school enrollment rate of more than 80% of the population. Through these initiatives, the adult literacy rate in Sri Lanka rose from around 86% of the population in the early 2000s, to around 90% of the adult population of Sri Lanka in With such initiatives, GDP per capita in Sri Lanka has been increasing annually by around 7% from 2007 to reach US$5,220 in 2010, indicating a sustained and persistent effort by government to maintain a dignified quality of life for its citizens. Thus, the Human Development Index for Sri Lanka with 1 as the highest score was at With a regional HDI of around 0.51 for South Asia, Sri Lanka is considered above average in the region. Improvements in quality of life would further be reinforced in the coming years due to the improved security conditions in the country. 2 Ibid. 3 Sri Lankan Accountants Lure Global Outsourcers. Global Services Media of 20

4 Table 2: Sri Lanka GDP Per Capita 3000 GDP Per Capita (in US$) Source: IMF 2011 Apart from improvements in the provision of basic services, Sri Lanka has been able to improve its domestic security conditions. This is seen particularly in the increasing number of Internally Displaced People (IDP) returning to their respective homes. During the period of the domestic from , there were more than 300,000 displaced individuals living in refugee camps in various districts, and with the end of the conflict around 3,000 families per week are being released by the government. By July 2011, the number of IDPs shrank to less than 10,000. This indicates strengthened and focused efforts in peace-keeping and increased safety and security in the country. 4 At the same time, Sri Lanka has become a booming tourist destination. Due to the improvements in the country s security conditions, this sector has become one of the fastest growing industries in Sri Lanka. According to the Sri Lankan Tourism Board, the country received more than 600,000 tourists in 2010, and part of this population is fellow Sri Lankans living overseas, wanting to get to know more about their country. The Tourism Board is also planning to expand the inflow of tourists to 2.6 million by 2016 and 5 million by In line with this growth plan, more and more hotels and tourism projects are coming underway at various locations in the country. For instance, Shangri-La recently announced plans of building a 500-room resort hotel in Colombo, while China s National Aero Technology Import and Export Corporation similarly plans on opening a hotel near the proposed Shangri-La hotel. The Sri Lankan Tourism Board plans to provide more than 45,000 hotel rooms by 2016, expanding its current 15,000 hotel rooms. Today, Sri Lanka is increasingly becoming one of the region s most productive and innovative locations. The country has been the venue for international business conferences such as the 4 IDPs dropped to 10,956. Government of Sri Lanka of 20

5 US-Sri Lanka Business Conference in October held only months after the end of the local conflict. It was attended by representatives from more than 70 companies from the US, India, and other parts of Asia, with the aim of imagining, and identifying opportunity sectors, such as services outsourcing, and means in growing the Sri Lankan economy, bringing in businesses and investment, and bolstering further reconciliation among the country s citizenry. Such developments in Sri Lanka are highly noteworthy. The country has been constantly and persistently improving its overall business environment and has been promoting the improvement of the quality of life for its citizens. These achievements have been the result of investments by both government in partnership with various sectors, aimed at both improving security conditions and introducing opportunities for economic growth and social transformation. Sri Lanka Then This section presents a discussion of the country s experiences during its 30-year civil conflict, which presented wide-scale challenges, from both social and economic aspects. This section aims to highlight not only the experiences of the Sri Lankan government and people during the conflict, but how it was overcome and the change process that was initiated, and is ongoing even today, as well as the gains from such initiatives. Experience of Ethnic Conflict An important characteristic of the Sri Lankan population is its ethnic and cultural diversity and their conflicts have dominated public life since the nineteenth century. The country comprises four major ethnic groups: the Sinhalese, Tamils, Muslims, and the Burghers. Religion and culture is intrinsically interwoven in almost all aspects of life and the countrymen having a high tolerance towards different religious diversities and faiths. Most conflicts have risen from issues related to political and economic grievances, affecting all communities. In the north, among the rebel groups, one group which was well known as Liberation Tigers of Tamil Eelam (LTTE), fought with fierce terrorist acts and demanded for a separate Tamil State in the Northern part of the country. The year 1983 was the start of the civil conflict between the government forces and the LTTE where hundreds of thousands of people were displaced by the fighting, while leaving thousands disabled, and countless others, widowed and orphaned. Socio-economic Impact During the period between , it was clear that the ongoing civil unrest was causing serious economic difficulties. For instance, damage to infrastructure mounted as sectors such as tourism, transportation, and farming suffered production losses and job losses directly related to the decline in security. Because of this, numerous Sri Lankans fled the country, in hopes of attaining greener pastures overseas. Overseas migration and self-employment have been two major sources of employment generation and this has helped to decrease unemployment from about 16% in 1990 to 8.8% in In 2000, for instance, it was estimated that 100,000 Sri 5 of 20

6 Lankans worked and lived in the Middle East--particularly in the small oil-rich states of the Arabian Peninsula, where wages for comparable work were much higher than in Sri Lanka eased the labor market pressure. In 2002, it was estimated that the country had an unemployment rate of around 9%, amounting to around 70,000 people of its 7 million laborers. Table 3: Unemployment Rate Unemployment Rate (% Labor Force) Source: Central Bank of Sri Lanka 2011 It is noteworthy that despite the existing conflict in the Northern region, Sri Lanka s achievements in literacy, which stands at 90.7%, gender parity in literacy and access to education are exceptional among developing nations. Although this is so, they obscure substantial human development challenges and regional discrepancies. In addition to the prolonged conflict affecting the north and the east and ongoing recovery from the 2004 tsunami, stark disparities exist between and within regions of the country. Although poverty has decreased in urban centers, a significant number of households in rural areas remain impoverished. Meanwhile Government health and education services continued to operate even in conflict-affected areas especially in the Northern Province, including those under control of the LTTE. The delivery of services is hampered, however, by resource shortages and security-related logistic constraints. Challenges in Perception In spite of a steady rate of economic growth, an island-wide decline in socioeconomic indicators reveals that the effects of the prevailing conflict are not only negatively impacting the north and east of the country, but Sri Lanka as a whole. This is evidenced by perceptions from the international community as seen in the trends in tourism, particularly in the number of visitors coming in the country. Tourism was greatly affected during the upsurge of the conflict, with around 400,000 tourists visiting the country from However, with the declaration of the agreed cease-fire, visits increased, averaging around 500,000 per year from This 6 of 20

7 points out that the positive change in the local situation brought about improved perception for tourists to visit the country. Table 4: Tourist Arrivals in Sri Lanka 700,000 Tourist Arrivals 600, , , , , , Source: Central Bank of Sri Lanka 2011 Another ongoing concern has been the country s socio-economic environment. The levels of income in the economy grew significantly with per capita gross domestic product more than quadrupling from US$382 in 1975 to US$1,300 by However, policy infrastructure in terms of financing has been lacking, leading to lack of access for funding, while high levels of inflation, fueled mainly by the mounting cost of civil war, serve to raise the cost of living to persistently very high levels. During the height of civil conflict for instance, interest rates among urban and rural enterprises were not uniform. Small urban manufacturing firms pay significantly higher average interest rates (18%) than large ones (12%). They also pay higher rates than rural enterprises (14.5%), which benefit from subsidies from some state financial institutions, especially microfinance institutions. Also, with support from international donors, commercial banks have also started to enter the market for small and medium-size enterprise finance, though their lending remains concentrated in Colombo. Meanwhile, from 2002 to 2008, inflation had averaged at around 16.1%, going as high as 33.2% in This environment posed challenges in attracting investors and maintaining investor confidence, apart from the reality of security concerns. Towards Rehabilitation After more than two decades of fighting, the government and the LTTE formalized a cease-fire in 2002 which ended in early The armed conflict intensified as the Sri Lankan Government sought to reclaim large areas under LTTE control in the northern part of Sri Lanka and in 2009, the Sri Lankan Government formally announced its military victory over the LTTE and its regaining of complete territorial control over Sri Lanka. 7 of 20

8 Meanwhile, more than 300,000 civilians were displaced by the conflict in Sri Lanka. In 2009, the Sri Lankan Government pledged to resettle all remaining civilians although progress on resettlement can be improved. According to the latest UN figures, around approximately 16,401 civilians were reported to remain in the camps, a result of a mammoth effort by both the government and the NGO s to bring back normalcy to these shattered lives. Further, it is estimated that the 26-year war has caused the country around US$200 billion in expenditures, with the last decisive phase of war during 2006 to 2009 contributing to at least another US$ 5.5 billion. Above all, the cost of loss of human lives, livelihoods, economic and emotional losses of widowed, displaced and traumatized countrymen is beyond quantifiable. Sri Lanka s Ongoing Transformation The end of military hostilities in May 2009 served as a turning point in the history of Sri Lanka. It marked the conclusion of civil strife, while at the same time, it served as a starting point for the country s transformation. In 2010 nationwide Presidential elections were held - the first time that voting could take place in all parts of the country, including previously conflict-ridden areas. Out of the elections, re-electionist candidate Mr. Mahinda Rajapaksa won as the President of Sri Lanka. In coming into office for his second term, the president directly prioritized the rehabilitation and holistic development of the country from its long drawn-out conflict. Such vision was carried out in his long-term plan for the country s development. Mahinda Chintana: A Framework for Holistic Transformation President Rajapaksa's broad economic strategy is outlined in his manifesto, the Mahinda Chintana or Mahinda's Thoughts, and serves as the President s comprehensive and cohesive development plan for the country. The plan was first initiated in 2005, during the President s first term in office, and focused on attaining sustainable peace with the combatants. Then, in winning a second term in office in 2010, President Mahinda opted to continue and intensify this campaign to rebuild and foster the country s development and transformation. In coming out of the 30-year strife, he saw the war s devastating effects not only with regard to the economy and infrastructure, but especially with human lives, their livelihoods, and opportunities for development. He envisioned economic prosperity for Sri Lanka. In doing so, he realized that this would be possible by providing avenues aimed at improving the socio-economic standing of the country, and ultimately elevating the human capacities of the citizenry. Overall, the country plan focuses on improving the country s socio-economic conditions, aiming towards robust economic growth. It focuses on developing the country s productive sectors, as well as transforming Sri Lanka to a dynamic global hub in Maritime, Aviation, Commercial, Energy, and Knowledge-based industries. Thus, one component of the plan involves concrete development interventions across these targeted sectors. At the same time, the plan espouses poverty alleviation for the citizenry while inclusively steering investment to disadvantaged sectors, which comprises but not limited to small and medium enterprises, and the agricultural sector. In line with this, a second, crucial component of the plan involves human development opportunities in the government s targeted interventions Led primarily by the Department of National Planning, Sri Lanka s development interventions are be seen in three mutually reinforcing aspects: 8 of 20

9 infrastructure, policy, and basic services, all of which continuously aim at promoting economic prosperity and more importantly, human development. Infrastructure In attaining the goals set by government, a pressing issue involved forging strong linkages within the country, as well as with the global economy. As such, necessary physical infrastructure was needed to better connect and integrated the various provinces across the country as well as providing ports and trading areas for international trade. Closing the Infrastructure gap One of the priority components of the government s plan in rebuilding the country is the development of massive programs aimed to close the Infrastructure Gap between Sri Lanka and its neighbors. This involves very large investments across the full range of transport sector. In these areas, a considerable amount of investment is already taking place. Through such strategy, the country is believed to be able to become a significant naval service center for ships navigating in the region s seas. Out of this mindset, several initiatives have already begun. For instance, measures are currently being implemented in building the several ports in the country, including the Hambantota port, South Colombo Port, Galle, and three other ports. Meanwhile, concrete steps are also underway towards the development of the Aviation Industry. Government plans to launch several massive infrastructure development initiatives such as modernizing the Bandaranaike International Airport at Katunayake, and development of fourteen domestic airports and constructing a new airport in the Southern region of the country which will serve as a link to India and other regional countries. In support of these initiatives for the aviation industry is the construction of a road network connecting to all these airports. Apart from the apparent benefits these physical infrastructures would bring in connecting various areas across Sri Lanka, more important to realize is the human impact of such projects. One immediate outcome of this is the numerous employment opportunities arising in tandem with these developments. It is expected that the development activities in the maritime sector will provide more than 50,000 direct employment opportunities. In preparation for these, there are already several island-wide training initiatives focusing on fields such as ship handling, tourism led by the Vocational Training Authority. In addition, aviation projects are expected to provide approximately 5,000 direct jobs and a further 15,000 jobs. Similarly, training programs are being put in place comprising airport and aviation engineering, assembling maintenance and repair of aircrafts, and other services in related areas in the aviation industry. While such opportunities lead to an increase in demand for labor, these projects serve to ultimately provide the means in attaining income among Sri Lankans in order to improve their well-being, and build on their livelihood. 9 of 20

10 Case Study Hambantota Port: A Testament to the Government s Commitments One flagship project which was recently completed was the Hambantota International Port Development project, located in the southern region of the country. The first phase of construction of the port began in 2009, and was completed in November The proposed port will provide facilities for normal container vessels, ship building and repair work and a six lane highway connecting the port to the southern highway network. The construction of the Port of Hambantota is part of a larger development project centered around the Hambantota District. Apart of the port, the project consists of the construction of an international airport, a highway, a railway, an oil refinery and related facilities. The new airport will initially handle cargo related to the port, with plans for later expansion. Related to the project, a 500-acre (2.0 km 2 ) safari park is being constructed scheduled to be open in late An international cricket stadium is also under construction in the area, and will host two fixtures at the upcoming 2011 World Cup. The projects have resulted in Hambantota, one of the underprivileged districts in Sri Lanka, becoming the fastest developing region in the island. The government plans to transform this area to an IT campus and park subsequent to the Commonwealth games. Source: Tholons Research 2011 Policy Development In parallel with developments in infrastructure, there should be accompanying policy support mechanisms to further the national vision for a more prosperous Sri Lanka in the long-term. With this in mind, the government of Sri Lanka opts to enact policy reforms aimed mainly at developing a more attractive business environment for private sector investments. Encouraging the Private Sector and Foreign Direct Investment Government recognizes that in attaining the development plan s goals, it would need to present a strong business environment that would attract domestic private investment. Government sees that investments need to rise from the current low levels of around 15-17% of GDP to about 22% of GDP for the period In attaining this, the government opts to attract investments through the promotion of opportunities such as public-private partnerships (PPP) as well as making public funding as well as other resources more available especially for small and medium enterprises (SME) in building up their businesses. An example of PPP towards investment promotions in the country s enterprises includes trade fairs such as one recently held in the city of Batticaloa. 10 of 20

11 Case Study Sri Lanka Trade Fair as Example of Public-Private Partnership (PPP) Some 7,000 people, including rural entrepreneurs, local marketers and producers, and representatives of the government, the private sector and international associations and organizations took part in a trade fair in the city of Batticaloa. The three-day event, spanning July 8 to 10 and organized by the United Nations Industrial Development Organization (UNIDO) at the Hindu College Grounds, helped create market linkages and demonstrate a strong public-private partnership. The trade fair was the first of its kind, says Gloria M. Adapon, UNIDO Project Manager. It was organized in partnership with the Batticaloa District Chamber of Commerce, Industries and Agriculture (BDCCIA) in an effort to showcase Batticaloa s local products, skills and vibrant micro and small industries while creating further opportunities for increased sustainable economic development through rural enterprise growth at the village and regional levels. Source: United Nations Industrial Development Organization (UNIDO) The Government also sees that foreign countries and multilateral agencies play an important role in bringing investment and technology into Sri Lanka. During the past decade, foreign direct investment inflows averaged at around 1.5% of GDP. As such, the Government aims to double the level of inflows in the near-term, particularly in the areas of tourism, urban development, IT/BPO services, pharmaceutical and renewable energy. In attaining these goals, reforms are being initiated with regard to the pattern of financing. Financing schemes are being restructured such that the Government resources and Official Development Assistance (ODA) will direct a large share of funds for infrastructure projects. Private investors have also demonstrated their willingness to finance investments in power, ports, telecommunication, public transport, as well as basic services like water supply, sanitation and waste disposal facilities. Today, Sri Lanka enjoys sustained support from donor institutions such as ADB recognizing the country s dedicated drive towards peace and rehabilitation. China in particular has been one of the largest donors towards the rehabilitation process of the country, focusing on infrastructure such as the reconstruction of road networks, and major highways. Sri Lanka s current progress in its rehabilitation process has truly inspired the international community to take part in the process. While policy development and restructuring initiatives serve to increase investor confidence, as enjoyed by the large sums of aid from donors, such efforts also point to a reality for these gains to go and trickle down to the citizenry. With more resources continuously pouring into the Sri Lankan economy, there are now more means to improve the quality of life of the population, as seen in the extension of basic services and opportunities. 11 of 20

12 Case Study Targeted Investments from China The Chinese government has become the topmost aid provider to Sri Lanka during the past years with a total aid commitment of US$759.8 million in the Q1 of CY 2011 surpassing Japan. Other Lenders to Sri Lanka include the Asian Development Bank, Government of Japan, and World Bank. China has committed nearly 55% of the total aid to the Sri Lankan government while Japan came second with nearly 30%. Asian Development Bank (ADB) and World Bank (WB) committed US$413.2 million multilateral aid. The Chinese aid is for the rehabilitation and improvement of road networks in Sri Lanka, such as improvement and rehabilitation of major roads and highways as well as the construction of the Southern Expressway in the Southern region of Sri Lanka. In addition, lenders and donor agencies to Sri Lanka have made a total commitment of US$1.385 billion for the Q1 of CY2011, of which project loans amounted to US$1.361 billion while grants have only amounted to US$24.4 million. The government now has an undisbursed balance of foreign financing of US$8.6 billion available with a time period of 2-5 years for project implementation, of which a major portion is allocated for Roads and Transport and the remainder allocated to the Power & Energy sector, Water Supply and Sanitation, Agriculture, Fisheries, Irrigation and Land, Ports and Rehabilitation of Conflict Affected Areas. Source: Tholons Research 2011 Basic Services An essential component in the Development Plan includes the institution of avenues that promote human development. Such initiatives promote the inclusion especially of deprived sectors in society, particularly those directly affected and displaced by conflict. Such initiatives mainly focused on education and the provision of health services. Initiatives in Providing Basic Needs Foremost in the country s development plan consists of inclusive growth initiatives, focusing on poverty reduction and human empowerment, especially for those directly affected by the armed conflict. One of the country s major poverty reduction programs, the Samurdhi Program, headed by the Samurdhi Authority of Sri Lanka (SASL). The program aims to mainly provide basic commodities such as nutrition and food rations under its subsidy program. At the same time, these programs are coupled with livelihood, capacity-building and income-generating initiatives such as enterprise development to aid beneficiary families to emerge out of poverty. In 2010, more than US$40 million were disbursed for the subsidy and capacity-building programs, reaching out to more than 1.6 million Sri Lankans benefiting from this initiative. Education In terms of developing Sri Lanka as a knowledge hub, the Government states that during the decades of the strife, more and more professionals who were developed through the free education system left the country, inducing a brain drain on the labor pool and society in general. This was further aggravated by the result of insufficient and ineffective education system, 12 of 20

13 resulting in a large number of unemployed graduates who are not employable by any sectors of the country. The Government in its plans for education reforms is looking at significant progressive changes in the structure of universities, technical colleges and tertiary and secondary education institutions. Programs associated with up-to-date knowledge in the fields of communication, naval, aviation, commercial, and environmental activities will be generated in order to create a ready pool of trained workers in these fields. This is to ensure that they will be able to take up positions when future opportunities are created within the country. Aside from supplying the local market with substantial and skilled labor, the government aims to commence training programs that directly target foreign markets, realizing opportunities in global landscape. So that Sri Lanka becomes a key hub for knowledge and learning in the future, government has targeted the strategic development of the country s capabilities in information technology (IT) and IT-enabled services, led by the ICTA. ICTA: Driving Sri Lanka IT Initiatives One of the thrusts of government has been the development of the country as an informationbased economy, utilizing IT as a means to further economic growth and poverty reduction. To this end, the Information and Communication Technology Agency (ICTA) of Sri Lanka was established. The ICTA serves as the governing body in ICT policy direction and implementation. Wholly under the Sri Lanka government, the agency assesses the current ICT landscape of the country, drafts growth targets, and develops policy guidelines as well as concrete initiatives in achieving those targets. It is the main implementing body of the e-sri Lanka initiative of the government. 5 E-Sri Lanka Initiative In realizing the goal of a technologically-driven society, the government formulated the E-Sri Lanka initiative. The project s main goal is to bring the benefits of the global knowledge economy to both urban centers and rural areas of Sri Lanka. This was to be achieved through a series of programs that included government services online, establishing Nenasalas (telecenters) in remote areas. It also aims to enhance the competitiveness of the country s ICT private sector and opening up opportunities for investment in outsourced IT-Enabled services. Some of these initiatives are highlighted below. 6 Human Capital Development through IT In targeting the population, ICTA has been developing capacity building programs and IT training modules aimed at equipping government employees with capabilities in administering e- government services. More importantly, ICTA opts to drive IT training as vehicle for human development through its numerous Nenasalas and IT training centers providing IT-enabled education for the population. In these areas, citizens are constantly trained in the use of computer technology and the Internet. It is also providing grants through its e-society initiative, geared towards the development of IT literacy and the use of IT in community development. Some of the 5 ICTA Ibid. 13 of 20

14 areas covered include IT training to small and medium-sized enterprises as well as the use of IT in documenting violence against women. By 2010, there were more than 500 Nenasalas across the country providing IT literacy training, serving as potential labor for the country s growing ITenabled Services (ITeS) sector. 7 E-Government Initiatives The e-government program aims to streamline government services through the use of ITenabled processes. It serves to provide programs that enhance the citizen s experience and improve access in procuring government services. As of late, e-government services have been focused on delivering timely information to the citizenry. Some of these programs include e- population, aimed at providing citizen information and documentation (i.e. birth, marriage certificates) and GovMServices, a service that provides information on crop prices and train schedules can be utilized through mobile phones. These initiatives serve as catalysts in allowing governance to be more transparent and predictable, allowing for more fluid transactions, ensuring and maintaining investor confidence. 8 E-Knowledge and IT Employment Opportunities The e-sri Lanka initiative is also creating opportunities for the development of e-knowledge and IT services for private sector development and employment opportunities. E-Knowledge focuses on building the country s human capacity in IT. It integrates IT in the educational system to better equip the student body with the necessary skill sets required for jobs requiring IT skills. Today, specialized training modules on network administration, advanced technical skills and IT management are now incorporated into university curricula, certification programs, distance learning, and MBA programs. In terms of job creation, over 45,000 new jobs are being created in Sri Lanka s Information Technology (IT) and Business Process Outsourcing (BPO) sector since Because of this, IT Enabled Services (ITeS) is increasingly becoming a major component of the country s exports. Since, 2008, it has become the 5th largest foreign exchange earner in the country with US$250 million in earnings. By 2015, it is expected that the IT/BPO industry will be the country s number one export revenue earner with exports of US$2 billion and creating 103,025 jobs. 9 The government s ongoing commitments in the development of Sri Lanka s IT capabilities in ICTA serve as a sound investment in improving the socio-economic fabric of the country, and ultimately expanding opportunities to the citizenry and developing their individual capacities consistent with the vision of the Mahinda Chintana. These initiatives thus can be seen as catalysts in opening up opportunities for growth in Sri Lanka s IT-BPO industry. Sri Lanka: On the Way to Growth The actions the government has taken since the end of the conflict have been impressive in manifold: Over 300,000 Internally Displaced Persons (IDP s) have been released or resettled, 7 Ibid. 8 Ibid. 9 Ibid. 14 of 20

15 and over 30 High Security Zones have been demobilized, allowing over 3,000 families to return to their homes. Development and reintegration programs are also in full swing. This is seen in the continuous disarmament, demobilization and reintegration programs (DDR program) that have made impressive progress. Also, the Joint Plan for Assistance to the Northern Province has been bringing economic investment to Jaffna (Northern region) and the surrounding areas. Consequently, out of these sustained efforts, Sri Lanka recorded strong growth in 2010, as GDP grew by 8%. Official foreign reserves, including borrowings, reached US$6.6 billion. Reconstruction of the war-damaged areas as earlier mentioned as well as infrastructure development throughout the country is also fueling growth. Exports grew by a healthy 17% in 2010 from 2009 levels. Foreign remittance inflows from 1.7 million Sri Lankan citizens working abroad, was estimated at around US$4.1 billion in 2010, one of the most important source of foreign exchange for Sri Lanka, and second largest foreign exchange-earner after commodity exports. Sri Lanka s economy aims to continue its post-war resurgence and is expected to grow strongly in the immediate term. Sri Lanka has set the goal of improving its business climate, and has been faithful in its thrust of strongly sustaining the gains from the end of its civil conflict. Such improvements have been lauded by the international development and business communities, as seen in the growing IT-BPO industry of Sri Lanka. Sri Lanka IT-BPO: Growth in Ongoing Transformation The end of the 30-year conflict between the Government of Sri Lanka and the Tamil Tigers in May 2009 marked a major turning point, inspiring optimism for investment in the country, particularly in the Services Globalization sector. The country s services sector spanning financial services, software development, and telecommunications has been a strong component of Sri Lanka s GDP since In 2010, it comprises around 60% of Sri Lanka s GDP. The government, through the Board of Investments (BOI) and the Sri Lankan IT-BPO Chamber (SLASSCOM), has identified the IT-BPO industry as a potential growth sector for the country, and the government has enacted various fiscal measures and incentives in fast-tracking industry development. According to the Information and Communications Technology Agency of Sri Lanka (ICTA), with the country s sustained efforts in enacting socio-economic reforms due to the improvements in the country s security conditions, the country s IT-BPO outsourcing market is expected to garner a bigger share of the global outsourcing industry, and is projected to be a US$1 billion industry by ICTA of 20

16 Table 5: Sri Lanka GDP by Sectors (2010) Sri Lanka GDP Composition 2010 Agriculture 12% Industry 29% Services 59% Source: Central Bank of Sri Lanka 2011 A significant driver of such aggressive growth is the fact that Sri Lanka is increasingly attracting outsourcing companies, tapping the country s services in software development and testing and Finance and Accounting Outsourcing. Today, there are more than 8 outsourcing companies providing Finance & Accounting Outsourcing (FAO) services directed to countries such as the US and the UK and more than 4 companies providing software development services. Some notable locators include HSBC and Amba Research, specializing in high-end services in F&A such as risk management for money managers and stock research for investment banks. Meanwhile, companies like Intel, Microsoft, and Oracle, have located in the country and specialize in R&D and software development and testing services. 11 Aside from increased investments in the country s IT-BPO industry, recognition of the country s ongoing transformation also served to bode well for the country in terms of recognition in for the country s strong educational base. Sri Lanka today establishes itself as a strong talent base especially for F&A services due to its vast pool of certified accountants. The country hosts more than 15 tertiary education institutions, including state and private universities offering accounting courses. Also, talent in F&A strongly comes from the country s 4 professional accounting bodies, namely the Institute of Chartered Accountants of Sri Lanka (ICASL), the Chartered Institute of Management Accountants (CIMA), the Institute of Certified Management Accountants (CMA), and the Association of Chartered Certified Accountants (ACCA). Out of these institutions, the country produces around 3,000 accounting professionals, and from 2007, the country s accountants have been growing at an annual pace of 7%, growing to around 30,000 certified accountants in SLASSCOM 2010, Tholons Research Ibid. 16 of 20

17 Table 6: Certified Accountants from Accounting Associations 35,000 Certified Accountants from Sri Lanka Associations 30,000 25,000 20,000 15,000 10,000 5, Source: SLASSCOM 2011 Sri Lanka has effectively capitalized on its positive developments in growing its IT-BPO sector. A clear indication of the country s recognized capabilities have been the expansion of activities in the country s outsourcing industry. For instance, Mphasis, an Indian BPO company, opened its global delivery center in Colombo in September Acknowledging Sri Lanka s strong efforts and commitments in building its IT-BPO industry, Mphasis saw opportunities in the capable talent the country produces and aims to build linkages with the talent supply of the country. Meanwhile, the country s mobile telecom operator Dialog Axiata announced a BPO joint venture with India s Firstsource, with initial investments amounting to more than US$1 million. Firstsource saw the booming IT-BPO industry in post-war Sri Lanka driven by the country s stabilizing economy, opting to invest in the country and tap its vast talent pool. 13 Such developments further attests to the increasing recognition of Sri Lanka s ongoing transformation, moving from its conflict-ridden past and driving towards greater social and economic development. The country s IT-BPO industry has been experiencing renewed vigor and dynamism mainly due to the country s progressive change and especially with the government s heightened focus in the industry as a driver of economic growth in the country. Sri Lanka has taken on the challenge of vigorously rebuilding the country s strengths, and its efforts are definitely opening numerous opportunities for the country towards true development, comprising not just industry development, but also building and improving the lives of its inhabitants. 13 Tholons Research of 20

18 Points to Consider From Concrete Means to a Focus on Holistic Development Sri Lanka s economy took a heavy beating from the 30-year strife, as physical infrastructure such as roads were destroyed and government funding was highly directed to the conflict, raising inflation rates and the standard of living. However, what is most important to point out is the fact that the war also had a huge impact on the Sri Lankan citizenry. During the span of the strife, a huge number of Sri Lankans were either killed or displaced due to the fighting. For the displaced, the fighting excluded them from attaining their basic needs in order to attain a dignified way of life. On the one hand, the strife cut them off from their homes, while work and schooling for the children were halted as they needed to move out from their community, and access to basic services such as food and water were difficult. At the same time, the conflict also deprived people from opportunities in attaining states of health as well as literacy and productivity at work, personal states of being that give meaning to an individual s life. Thus, in the institution of the Mahinda Chintana in the rehabilitation efforts, there was a shift in focus. From creating economic impact in investments, productivity, the country s policy framework further extends its focus on the human impact of economic development initiatives. For instance, the large infrastructure projects translated into livelihood opportunities for the citizenry, while at the same time highlighting opportunities for engineering talent development due to the rising naval and aviation sectors. Also, basic needs provision from the Samurdhi program coupled with trade fairs for investment promotions strives to develop the creative and entrepreneurial capabilities of the country s small and medium enterprises. Sustainability in Ongoing Transformation As previously mentioned, the concrete change initiatives serve mainly as a first step. More importantly, the government s economic development initiatives serve as a means to attain a greater goal of improving the lives of the citizens, as well as improving the perceptions of the country. For Sri Lanka, such process remains an ongoing one, and should be continuously sustained in order to attain its vision of socio-economic development. Sustainability in Sri Lanka s ongoing transformation can be seen in two fronts. First, it is noteworthy that the country s programs are highly interrelated and are mutually reinforcing. For instance, the development of the Hambantota port extended into talent development initiatives that aim to provide the necessary labor in ship-building and engineering services. Second, the country s transformation process and its gains do not only affect the present, but are part of the country s long-term goal of socio-economic development. The Mahinda Chintana framework serves as a 10-year guide, crafting the development path of the country. It defines the concrete path of development for the country as well as immediate and long-term targets. For instance, the development of Nenasalas today serves as a hub for IT-enabled training and education. However, in the future, this same location can serve as a hub for IT-BPO services with a scalable and employable supply of talent. The change initiatives and the gains from these efforts do not solely address the immediate needs of the country; these gains serve as building blocks for future initiatives, which ultimately serve to bring the country closer to its vision of socio-economic development. 18 of 20

19 Sri Lanka s case points out to two crucial points. First, the reality of deprivation or poverty is not only a material problem, consisting of access to basic means, but ultimately a human, albeit personal, issue, involving attaining states of being health, productivity, for instance. Second, and in relation to the first, the effectiveness of government capacities are contingent with the concrete capabilities of its citizens. While improved growth rates and increases in investments are truly laudable, the true measure of development still lies in the human impact of these macro and microeconomic interventions. Socio-economic development initiatives should ultimately effect improvements in the quality of life of the individual, allowing him/her to realize his/her potentials. Admittedly, Sri Lanka still has a considerable road ahead in rebuilding and emerging from its experience of conflict. Even then, one may take an optimistic stance with regard to its current progress and future outlook. With a holistic mindset in its development process, the country is bound to achieve substantial gains, moving from a past filled with adversity towards a hopeful future. 19 of 20

20 Authors: Francisco Iñigo P. Garde Analyst Ruwanthi Fernando Head of Business Development and Operations Tholons Sri Lanka Editor: Manuel Ravago Vice President Head of Research About Tholons Tholons is a Services Globalization and Investment Advisory firm that combines "Best of Breed" consulting experience with deep execution expertise and investment insights to deliver truly effective services to its clients. Tholons offers a detailed understanding of business processes and combines it with practical hands-on expertise in executing the strategy. Tholons draws upon the considerable experience of a hand-picked team, which has successfully formulated and executed globalization strategies to unlock value for Global Fortune 1000 companies. Service providers leverage Tholons expertise to optimize their global delivery model. Tholons advisors engage with government bodies to build compelling strategies for making countries attractive destination for outsourcing. THOLONS Global Offices North America 5 Penn Plaza, 23rd Floor New York, NY Phone: Fax: South America Av. Italia 6201 Latu Los Sauces CUTI Montevideo, Uruguay Phone: Copyright Notice This Tholons document was published as part of the Tholons Advisory, Investments and Research Services portfolio, covering all consulting projects and publications. For further information related to this document, reprint rights or general inquiries regarding other Tholons services, contact info@tholons.com or call any of our global offices. Reproduction of this document and all content within is prohibited unless authorized by Tholons. All rights reserved. For more details about Tholons' Services Globalization and Investment Advisory capabilities, please visit our website at: Europe 2505 The Landmark West Tower 22 Marsh Wall, London E14 9AL Phone: Asia Office India 2/10, 2nd Floor, 80 Ft Road RMV Extension Stage II Bangalore , India Phone: Philippines Unit 803, Richmonde Plaza 21 San Miguel Avenue, Ortigas Center Pasig City 1600, Philippines Phone: Sri Lanka Regent Building, No. 345 R A De Mel Mawatha Colombo 3, Sri Lanka Phone: You may also contact: info@tholons.com 20 of 20