Key to technology based development

Government after government has pontificated on the critical role of innovation and technology to deliver the next level of development in Sri Lanka. Research was propounded often coupled with science but both disciplines remain incapable to propel the economy even by 1%. 

We are now behind the nations in the Asian Sub Continent who initially were way behind us. Those nations have emerged as technology producers where as we remain trapped with a mediocre economy with commodities. The WIPO Innovation Index 2016 show our country dropped down in the overall ranking to 91 and in Human Capital, Research Pillar to 107 and Gross Expenditure on R&D, % GDP sub index to 102 out of 148 countries. Much worse are the positions with Education and Expenditure on Education sub-indices. How did this happen? I think we can unlock the mystery.

I help as the Chairman of the Technology Committee at the NSF (National Science Foundation) and the committee comprises of eminent professors and scientists who sit in judgement of proposals presented to us for recommending the fund allocations as grants for technology development, commercializing and launching spinoffs. 

Over the last four years we have observed the lukewarm interest and the weakness of majority proposals that came before us. Also, we notice the inept support from the corporate sector towards the proponents to gain market access for these products by commercially developing them. I have no intentions of getting into statistics to prove a point but let me present the logic behind the present thinking of unravelling the mystery.

No technology innovation can become a commercial product by keeping them as ornaments in labs or by presenting only an award to the artificers. Sri Lanka is not short of brilliant scientists and many remain in Sri Lanka for some reason or other. There have been few scientists who migrated and became multi-millionaires owning IPRs drawing a regular stream of cash into their pockets. The gap between colleagues among scientists who migrated and those staying back is clearly visible from the ownership of IPR (Intellectual Property Rights) based assets. 

On the other hand, often the graduates from the science faculties remain unemployed until they find government created opportunities. Fundamentally our corporate sector is lacking in science based business development which requires a commitment on research connected to strategic development. Even when a technology is shown to them it is rarely that a company would come forward to invest. The case with graduates who produce excellent innovations is also similar. The companies sometimes recruit them but do nothing to develop the research end leaving the scientific minds in frustration.

The problem as we see is the inhibition of corporate sector to invest in research. The research investments are for the long term as results will not materialise within a year. The investments in research work would be a project, taking a time span of several years. The success rate may be 20% but the successful one will pay for the entire portfolio of projects being invested as researches. Yet the companies do not invest but there are accountants who know project evaluation, DCF method and the internal rate of return with the concomitant risks associated with the project.

Our breakthrough solution came at a recently held watershed meeting between the Chairperson of the NSF and the President of the CA where I was present. It became clear to us that the reason for the reluctance or avoidance of investment in research is basically connected with the absence of R&D Accounting Standards in Sri Lanka. 

The accounting procedure is viewed for delivering bottom line outcomes for the year in operation within good governance norms. This is aimed at satisfying shareholders in the private sector and the fiduciary responsibility monitored by the auditor general in the case of government. Bottom line results would not encourage any capital investments into intellectual properties that take a long time for realising. Therefore, the CEOs of these companies are not taking the risk of having IPR assets development included in their investment portfolio. 

The present accounting standards appears to have no provision to accommodate such investment. The President of the CA recognised the importance of this missing standard and assured that this situation will be reviewed by his eminent members and remedial measures including the introduction of a new accounting standard for research and development would be considered. Logically this change would provide the space to take a calculated risk with funds on research and development. It would satisfy the queries of the auditors. The company will be able to present the intellectual assets being invested in as intangible assets in the balance sheet without tarnishing the performance indicators. 

Usually IPRs are amortised over a long period in the account statements and this would find its place here. For example, in the pharmaceuticals industry this amortisation is carried over 17 years as opposed to depreciation of fixed assets, which takes far less time. The implication of a longer period for amortisation obviously gives a huge space for the accountants to produce positive results for the company on their statements while the scientists and the technologists get down to producing intellectual assets that the company could find markets. 

Government institutions like the NSF could become proactive in promoting and investing in research and development activities and expect to show their contribution to wealth creation. The grants could even become revolving funds where the government will invest in research and continue the journey until products are commercialised.

We could hope to look for a new era if this new chapter is written into the accounting standards by the CA. It is noteworthy that all technologically moving countries have such innovation accounting standards that has made it possible for their scientific institutions to promote research and innovations for future gains. Good examples are Japan, Korea, Malaysia, UK, US and many others in the research and technology innovation game. With such precedents, it would not be difficult for our eminent body of accountants to change the future of our country with a stroke of their pen.

(The writer is Founder/Vice Chancellor of Uva Wellassa University 2004-2011, Past President of the National Chamber of Commerce, present Chairman of the Technology Committee and Co-Chairman of the STEM Committee of the NSF.)