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Giving a start


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Finance Minister Mangala Samaraweera’s decision to reduce payments needed to start a company is a step in the right direction. As a Government focused on improving trade and entrepreneurship, demanding new companies pay fees was a deterrent. Experts also argued that it is important for companies to have progressive taxation to flourish and encourage innovation-based start-ups. But taxes are only one part of a complex ecosystem needed for start-ups. 

For starters, Sri Lanka’s expenditure on R&D is the lowest in the region. In 2010, Sri Lanka’s R&D to GDP ratio was a meagre 0.16% and it has not risen much since then. Out of this 0.16% only 11% was spent by universities while the rest was spread equally between Government research institutions and businesses. Unfortunately, most of this research is targeted at academic goals rather than driven to achieve economically viable goals. Universities in Sri Lanka are also not empowered to own patents from public funded R&D, thereby reducing the incentive to engage in this field.

In fact academics have become so disinterested in research that most of them do pretty much anything but R&D. According to a recent survey conducted by the World Bank, academics cited the heavy academic workload, inadequate lab facilities and a lack of facilitation with companies as significant factors for low collaboration with the industry on R&D.

In response industry leaders believe the lack of entrepreneurial spirit among academics and the low commercialisation potential of university research are key deterrents to invest in R&D in universities. Nonetheless, companies in Sri Lanka have also not historically performed well in terms of R&D expenditure, technology absorption and innovation in respect to the number of patents issued. 

World Bank senior education specialist Kurt Larsen, who was one of the researchers of the study, said that unlike industrial countries like South Korea or even India, Sri Lankan companies do not have the critical mass to invest in research. According to his estimates less than 100 local companies have the required capability. Without this commercially driven interest most companies prefer not to work with universities.

This has led to stagnation in relations between universities and companies where the main type of industry-university collaboration in universities is providing company placements for students whilst the main services offered to the industry are consultancy work. Such a rift has also reduced standards in universities where Sri Lankan universities have primarily calcified into teaching universities. Even dynamic academics who chose to return to Sri Lanka after studying abroad would find their scope limited to teaching with little encouragement to do industry viable research.

Another factor that continues to ail R&D efforts in campuses is the lack of PhD holders in the university system. The World Bank report estimates less than 50% of local university academics have doctorates. PhD holders from humanities account for 33% while those in management sciences account for only 20%, which is a telling disparity in R&D.

Establishing an ecosystem for R&D is tricky because even with resources and a well-oiled university system entrepreneurship can come from the unlikeliest of sources, but if a national platform is established then more startups have a better chance of becoming viable businesses.

To this end, the Government must also understand what policies would matter to start-ups. For example, giving tax concessions would matter little as most startups would not make profit in the first few years anyway. Instead, policies to hire and fire people or even dissolve a company have to be eased to enable startups. Getting this mix right will be at the core of Sri Lanka’s growth prospects.


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