Ashique M. Ali, the Chairman of SLASSCOM, the tech industry body of Sri Lanka, discusses the changes required to unlock Sri Lanka’s tech potential. In this interview with Echelon. He discusses the need for policy consistency to attract investors, eliminating retroactive policy changes and removing restrictions on tech-related imports to support the growth of tech companies, reviewing taxation policies to avoid double taxation and attract investors, removing restrictions on outward investments to facilitate foreign expansion, reforming labour to protect both employers and employees, building collaborations with tech industries in the region for greater access to global value chains and allowing the migration of foreign talent to bridge skills gaps and accelerate growth.
Can you give us an overview of the Sri Lankan tech industry?
The industry earned about $1.7 billion in 2022, which is a conservative estimate based on the cost + transfer price methodology. A significant portion of the revenue comes from local and foreign exporters who bring in the sales revenue which includes higher margins. Therefore, the foreign income could be over $2 billion. A key point is almost 90% of this income is for local value addition mostly in human capital which means the income is retained in Sri Lanka. Over the past ten years, we have been experiencing an annual compound annual growth rate (CAGR) of approximately 13%, and we envisage this growth to continue.
Another important factor is, there are approximately 600 IT-BPM companies and about 400 of them are SLASSCOM members. They range from startups to very large companies, Sri Lankan companies to foreign-owned ones operating their captive innovation and delivery centres here. This reflects a more equitable growth and wealth generation as an industry and the resilience that comes from the technology, services, and market diversity these companies serve.
Focussing on the workforce employed in the industry, we estimate that around 107,000 are in IT and around 37,000 are in the Business Process Management (BPM) space. This workforce has been growing annually adding around 10,000 new employees to the industry each year.
As for startups, the Information and Communication Technology Agency (ICTA) maintains a startup registry with over 800 entries. SLASSCOM membership consists of around 140 operating startups. Taking into account those not registered with us, we estimate a total of 300 to 400 growing startups in the industry. Not all startups are successful and get the funding to sustain or grow. As a key ecosystem partner, SLASSCOM and others provide a range of support to startups throughout various stages – from incubation to scaling up, from serving the domestic market to expanding to foreign markets. These figures provide key indicators of our industry’s progress.
The Central Bank also assesses revenue metrics on a survey-based approach, but their revenue estimate was considerably lower to be around one billion dollars last year. However, when we analyse the employment count and fairly accurate assessment of compensation the industry pays, there seems to be a discrepancy between their methodology and our findings.
How have tech professional remunerations grown over time?
In terms of average wages for tech professionals in Sri Lanka, there is a range depending on various factors. In the lower percentile, the average salary is around $600 a month, specifically in the tech sector. On the BPM side, it may be slightly lower. However, in the higher percentile, salaries can go up to approximately $1,000 to $1,900 a month. It’s important to note that this is a range, and the specific salary depends on the qualifications, skills, and experience the individuals possess. Some universities and educational institutions are known for the quality of talent they produce and their students earn higher salaries. As an industry, we would like to see all our higher education institutions producing high-quality talent who we can employ more readily and we are working with them to raise the bar.
The wages in the tech sector have seen changes over time due to various factors. One important factor is the limited pool of talent produced by our university system, particularly in the technology faculties within the state sector. This creates pressure on wages as companies compete for a limited number of skilled talent. Under normal circumstances, wages in the tech sector tend to increase by around 10-15% annually. Last year, the country faced an economic crisis which saw record-high inflation, which affected the well-being and living standards of millions of Sri Lankans.
When the local currency depreciated, most tech companies adjusted pay by 45-70% or adopted dollar-pegged remuneration, to mitigate the impact of the depreciation. Whilst these were brought in as temporary or time-bound measures due to the highly volatile situation of our currency and escalating costs, as the conditions stabilize these measures are being normalized given a more predictable operating environment and costs. From the outset, the local currency depreciation did not result in windfall gains for exporting companies. The need to retain talent and the uptick in the migration of professionals also contributed to wage pressures. When there is pressure on the availability of skilled workers, companies tend to offer higher salaries to attract and retain talent.
Are increasing wages impacting competitiveness?
Our salary scales are still competitive. What we have to improve is productivity. With the Covid lockdown, 100% work from home (WFH) didn’t see too much productivity drop because everything was in lockdown with very restricted movement. Nearly every household requirement was delivered. No one went to work or school. Now with everything else back to normal, children going to schools, traffic as usual, and our lifestyle changing back to the pre-Covid time, 100% WFH is not as effective because we are trying to balance or prioritize other aspects of our day-to-day responsibilities during working hours. We need to transition into hybrid work and back-to-office shifts need to increase. This is critical for an industry that requires a high level of collaboration for problem-solving, innovation, learning and knowledge transfer.
We also need to attract more people to join the tech workforce and bring in suitable foreign talent to grow faster and foreign expertise for knowledge transfer. We have to think globally in accessing talent. It will help us to gain a bigger share of the tech demand globally. Instead of viewing our regional peers as competition, we can foster a more collaborative approach. With India, Philippines, Bangladesh, Pakistan, Indonesia, Cambodia, or Vietnam, we have the opportunity to leverage our niche products and services, which can become a portfolio solution for customers and investors. A recent example is a large BPM company from the Philippines leveraging finance and accounting services and software development from Sri Lanka with their contact centre and customer experience services. We have Indian tech companies looking at setting up software development centres taking advantage of our relatively lower attrition rate to manage specific types of work like software product engineering. Both customers and suppliers are also looking to de-risk by looking at a multi-country footprint for sourcing and business continuity planning.
We need to shift our perspective from seeing regional peer countries as competitors to embracing collaboration. This mindset is already shaping up through initiatives like the Global Technology and Business Services Council (GT&BSC), in which 13 supply-side countries have come together to explore opportunities for working together rather than competing. SLASSCOM is a founding member of the GT&BSC.
We should also consider the concept of the value chain, which is prevalent in manufacturing. Just like an iPhone, which involves various components manufactured in different countries, we need to identify niche-focused areas in the tech services and products space where Sri Lanka can contribute. By fitting our offerings into a larger value chain, we can gain access to global sourcing opportunities.
The tech industry had a goal to become a $5 billion export revenue industry by 2025. How is that going?
The $5 billion export target was set when we initiated the National Export Strategy (NES) in 2017-2018. It involved collaboration between various stakeholders, including industry, government institutions, and academia, with the support of international partners. The government identified the tech sector as one of the six key thrust sectors for significant growth.
The tech sector showed great potential and had a track record of growth. Based on our predictions for compounded annual growth, we set a target of reaching $5 billion by 2025. To achieve this target, we had two strategies in mind. Firstly, we expected organic growth to contribute around $3 billion. Secondly, we aimed to identify and support companies that had exponential growth potential to 5X their revenue.
Due to successive setbacks since 2018 starting with the political crisis between the executive and legislature, then the Easter bombing in 2019, and then Covid in 2020, and the political and economic crisis from late 2021, all of which saw three governments and ensuing policy changes and budgetary challenges, we could not implement NES according to plan or timelines. This has set us back from our targets, especially in propelling the exponential growth potential of companies. Nevertheless, with the economy showing stabilization and a more positive outlook emerging for the country, we are fairly confident of achieving $3 billion in exports in 2025.
The global demand for tech is continuously evolving. Digital transformation has become a permanent trend, and emerging technologies like artificial intelligence, machine learning, and blockchain are becoming mainstream. Enterprises, governments, and individuals worldwide are embracing these technologies, ensuring the sustained demand for tech services.
Moreover, we are not limited to traditional markets like Europe and the US. South Asia, Southeast Asia, the Middle East, and Africa are all transitioning into digital economies, creating new growth opportunities. Many of these regions have set ambitious strategies for 2030 and beyond, which aligns with the projected demand for tech services.
Despite our current export value of $1.7 billion, the growth potential is enormous. For instance, neighbouring India has a $280 billion tech industry. By attracting Indian businesses to Sri Lanka, we can tap into their talent pool and benefit from their need for de-risking and specialized services.
Our competitive advantage lies in the quality of our talent and its accessibility to companies of any size. Sri Lanka’s talent pool is focused on making meaningful contributions, gaining exposure, and being recognized for their work. Comparatively, top-tier talent is available here, as they are rooted in the country and prefer working in exciting technologies and projects rather than having the primary aspiration to migrate to the West or work for MNCs and large corporations.
What policy changes are SLASSCOM advocating for at this time to unlock the tech industry’s full potential?
To boost the tech industry in Sri Lanka, it is crucial to implement key policy changes. One important aspect is ensuring policy consistency not just in the tech sector, but for the entire country. Currently, frequent policy changes without considering long-term implications negatively impact investor confidence. To attract and encourage investments, it is essential to provide a stable and predictable policy environment.
In the tech industry, attracting new talent and fostering technological growth is vital for investments. However, policy changes can create uncertainty for both new and existing investments. Retroactive policy alterations send the wrong signals to investors and may lead them to suspend or withdraw further investments.
Unlike other industries, the tech industry can easily relocate due to investments in operational expenditures like office leases, connectivity, and payroll. Therefore, policymakers must exercise caution when making changes that could destabilize the industry. For instance, the mandatory conversion of foreign exchange during a currency crisis created concerns for foreign companies operating in Sri Lanka’s tech sector. This policy indicated that the government was locking in foreign currency during a free fall, leading to a lack of confidence in investing or billing out of Sri Lanka. Such policies should be analysed for their impact on uncertainty and hindering new investments.
Restrictions on imports, particularly related to IT equipment, have also caused concerns. These restrictions hinder the expansion of tech companies and impede their ability to provide necessary devices and equipment to their employees. Moreover, the scarcity of IT equipment affects university students’ access to tools required for hybrid learning and project work, potentially impacting the future talent supply for the industry.
Taxation policies need careful review to avoid double taxation and provide a more favourable investment environment. Clear taxation policies, along with double taxation avoidance treaties, should be established to create an attractive investment climate.
Additionally, the complete restriction on outward investments since July 2020 needs reconsideration. This restriction limits growth capital for marketing, business development, and acquiring companies in foreign countries. By relaxing this restriction, Sri Lankan companies can attract the growth capital necessary for foreign market expansion and stimulate investments.
Changes are also required in company law to accommodate Limited Liability Partnership (LLP) structures and bankruptcy protection mechanisms like Chapter 11. Establishing the Data Protection Act, the Authority for Enforcement, and expediting the Cybersecurity Bill into law after stakeholder consultation is essential for a conducive legal framework.
The upcoming port city project provides an opportunity to implement more business-friendly policies and attract foreign investments. Its liberal policies could accelerate the investment climate and promote foreign investments in Sri Lanka.
Furthermore, allowing inward skilled migration and sponsored visas for foreign talent would benefit the sustainability and growth of the tech industry. Companies registered in Sri Lanka should be able to bring in talent from abroad through sponsored mechanisms to fill skill gaps and accelerate growth. This approach should strike a balance between accessing foreign talent and protecting the local labour market.
By implementing these policy changes, Sri Lanka can create a more favourable environment for the tech industry, attract investments, foster knowledge transfer, and promote sustainable growth. A stable policy framework, strategic collaboration with industry stakeholders, and a commitment to gender equity, diversity, and inclusion (DEI) efforts will contribute to the industry’s success and elevate Sri Lanka’s position in the global tech landscape.
SLASSCOM is actively working on improving gender representation and DEI efforts in the tech industry. Actively attracting and retaining more women in the tech industry is crucial, as it offers numerous advantages for their career growth. Focusing on developing their skills and creating opportunities in the tech industry will help bridge the gender gap. Inclusive regional growth is also a priority, ensuring that highwage employment and economic upliftment percolate to all parts of the county. Integration of Environmental, Social, and Governance (ESG) practices is another important aspect. Companies should prioritize ESG practices and strive for compliance to align with global sustainability trends and attract more investments.
The industry’s national brand, “Island of Ingenuity,” projects the talent attributes, culture, and conducive environment required to become a tech hub in the region. It offers three key distinct value propositions: serving as an attractive captive innovation and delivery centre for foreign companies, acting as a gateway for global tech companies and startups to access fast-growing South Asian markets with Sri Lanka as a beachhead, and becoming a hotbed for IP-led companies to access top-tier talent and funding