Economist Anushka Wijesinha, Co-founder/Director of the public policy think tank Centre for a Smart Future, uncovers the critical components needed for an innovation-led transformation of the economy.

According to Wijesinha, Sri Lanka needs to prioritize fostering a comprehensive innovation ecosystem beyond digital innovation, encompassing both product and process innovation to drive economic growth, particularly focusing on sectors like exports and sustainability. 

It involves acknowledging the diverse players involved, including government, private sector, research institutions, and digital technology hubs, and implementing strategies to fortify every facet of the ecosystem while ensuring inclusivity and equitable access for all stakeholders. Additionally, overcoming obstacles related to the relationship between the state and the private sector and clarifying their distinct roles are crucial for realizing Sri Lanka’s economic potential.

What measures should Sri Lanka take to foster an innovation-driven economic transformation?

There is no doubt that for Sri Lanka’s next stage of growth – beyond the current economic recovery – the innovation imperative is vital. Exports in diversified and technology-intensive segments need to grow. Process innovation can help reduce resource and material use, and also bring about cost efficiencies amidst high energy costs. Product and process innovation is needed to embrace new compulsions around green growth, environmental sustainability, and circularity for Sri Lankan firms to be competitive globally.

So, while digital innovation tends to be more prominently discussed in Sri Lanka today, we must remember that innovation extends beyond just the digital realm. We must broaden our perspective to encompass the entirety of innovation and consider the role of innovation in broader economic transformation. For this, we must strengthen the innovation ecosystem – which ranges from large private sector players, startups and small firms, public actors, R&D institutions, finance, fiscal incentives, and global technology companies’ presence – the whole gamut.

What strategies and initiatives can be implemented to assess and fortify the inclusivity and diversity of stakeholders within innovation ecosystems?

Assessing the strength of our innovation ecosystem requires recognizing the diverse players involved, including government, the private sector, research and development institutions, and digital technology hubs. Each entity, from large corporations to SMEs and startups, contributes to the ecosystem’s vitality. To address this complexity, we must acknowledge and fortify every facet of the ecosystem. Past initiatives, such as the Innovation and Entrepreneurship Strategy, have recognized this multifaceted nature of innovation, and the need for comprehensive programmes and policies.

We need to also recognize that innovation does not only happen in new digitally-led start-ups, but it is also possible and indeed imperative in some of our traditional sectors as well. Whether it is blockchain-based traceability for our unique spices, robotics in our apparel manufacturing, or materials innovation in manufacturing to reduce waste and resource intensity, there is plenty of scope for innovation in our traditional sectors. 

There are so many new businesses emerging in Sri Lanka that are connecting the dots between tradition and innovation, for instance, businesses supported by Good Life X programmes. Innovative businesses like them require innovative types of support – it isn’t plain vanilla ‘concessional loan schemes’, it is about capital to help de-risk the early years and reduce the likelihood of failure, it is subsidizing the cost of expensive certifications and testing fees, it is connecting them with international buyers and reducing their go-to-market expenses, and so on.

All of this points to inclusivity being a paramount consideration in the approach to innovation where we ensure equitable access and participation for all stakeholders. As part of the Global Future Council on Innovation Ecosystems, we prepared a toolkit to help nascent innovation ecosystems assess and improve how inclusive their ecosystem is. It also provided recommendations on how to use public procurement to spur innovation in countries like Sri Lanka.

Any ongoing initiatives you can talk about that make you hopeful?

I am very encouraged by the work that Good Life X (GLX) is doing to support innovation among SMEs keen to win in export markets with innovative products. Their ‘lost ingredients lab’ programme birthed so many new innovative businesses that leveraged different technologies to embrace new products and new markets.

As someone who cares deeply about economic transformation, what are the biggest obstacles to Sri Lanka realizing its potential?

We have an unfinished reforms agenda that keeps getting postponed, and a big part of it comes down to the relationship between the state and the private sector. There is still a lack of broad societal consensus on what this relationship needs to be. Either the state is too heavily involved – micro-meddling by setting controlled prices, or giving preferential incentives or deals to private investors–or the state is involved too little – such as ensuring tertiary education access, education affordability, inclusive urban infrastructure, etc. 

The same is true of the innovation ecosystem – clearly identifying where the state should get out of the way – onerous and outdated regulations and rules – and where the state should get in the way – patient capital to de-risk business models or to drive technological advancements in solving SDG challenges, where commercial interest is still lacking.

So more broadly, until we are clear – and a government sets out clearly – what the role of the state will be and what the role of the state won’t be, we will have fits and starts of reforms.