The Global Startup Ecosystem Report (GSER) is an annual publication by Startup Genome, an innovation policy advisory and research firm that focuses on startup ecosystem. The report offers an overview of the startup ecosystem in different regions across the world. Recently, the organization issued its latest iteration, GSER 2022.
As per the report, Sri Lanka ranks in the top five in the Global Ecosystem in Affordable Talent category, top 30 in the Asian Ecosystem in funding category, as well as top 30 in the Asian Emerging Ecosystem in Talent and Experience category. The report also puts Sri Lanka’s startup ecosystem at USD 228 million during the H2 2019 – 2021 period, a 72.7% jump from last year’s reported figure, along with total early stage funding hitting USD 12 million for the same period.
The report goes onto highlight Sri Lanka’s positioning as a top destination for digital nomads. It cites Club Med’s 2021 listing for top digital nomad destinations, where Sri Lanka was placed in second, just behind Thailand and ahead of Singapore. Further, it points to the Digital Nomad Visa initiative from the Sri Lanka government back in 2021 as indication of the country’s active efforts into building its appeal as a digital nomad destination. On a related note, this digital nomad visa was officially launched back in February where eligible people would be issued a one-year visa initially.
(Image credits: Senzagro)
GSER 2022 also lists cleantech, and agtech and new food as Sri Lanka’s sub-sector strengths. It cites the Lankan government goal to be “energy self-sufficient by 2030” while raising the power generation capacity from 4,043MW to 6,900MW by 2025, “with a significant increase in renewable energy.”
The current reality
Mind you, the startup ecosystem report mostly refers to H2 2019 – 2021 period. Today, the situation has taken a drastic turn. For instance, Sri Lanka’s appeal as a viable digital nomad destination is highly questionable in today’s environment. Yes, the country is home to some of the most rewarding sights for any traveller and the cost of living may even be perceived to be low compared to many other countries in the world. But amidst no fuel, no medicine, no gas, and no constant electricity supply, being a digital nomad in Sri Lanka is a survival game at best.
Speaking of electricity, Sri Lanka’s cleantech ambitions may be a bit ambitious given the situation. For starters, the electricity infrastructure and the CEB has gone through a messy few decades of operation. Recently, the conversation around the Adani project and the updated electricity law points to a more complicated future for the country beyond just the simple 6,900MW power generation by 2025 goal with more renewable energy.
Adani and Sri Lanka’s cleantech ambitions
Back in March, Adani Green Energy Ltd signed an MoU with the CEB for two power projects in Sri Lanka. The two power plants are aimed to be built in Mannar (wind) and Pooneryn (solar), and will generate 500MW costing an estimated USD 500 million. Further, another agreement was signed during the same period with the CEB and India’s National Thermal Power Corporation (NTPC) for a 100MW solar power project in Sampur, Trincomalee.
In any case, the Sri Lanka Electricity Act dictates that energy projects should undergo a competitive bidding process. However, amidst much controversy the law was recently amended, effectively allowing projects like Adani’s to be approved without the need for competitive tenders.
True, the prospect of potentially adding 600MW to Sri Lanka’s grid via renewable energy is promising, particularly with the growing demands of different sectors. After all, if infrastructure around Sri Lanka’s tech and startup sectors are to grow, expanding existing power generation capabilities play an important role. But the question is, at what cost?
Startup ecosystem: Tech is struggling, SMEs are dying a slow death
One missing portion of the report when it comes to startups is the unaccounted efforts that typically don’t fall under the tech category. Operations like Goodfolks’ bee honey and coconut jam products to Bear Appeal’s t-shirts are still part and parcel of the startup sector. Leaving this segment out also leaves an important part of Sri Lanka’s startup ecosystem in the dark. Unfortunately, today many of these startups and SMEs struggle to stay alive.
Of course, the issue goes far beyond startups and SMEs as the tech industry itself is in trouble. In fact, some companies have been forced to set up temporary offices in neighboring countries like India and Dubai just to ensure operations continue running. Then there’s the issue of the country’s increasingly growing brain drain problem, with many of the tech talent opting to move overseas. It should be noted that in 2019, the ICTA itself stated that the “demand-supply gap for the ICT workforce in the country is widening rather than closing.”
As #EconomicCrisisLK continued to unfold, one means of talent retention within the tech industry was to offer foreign currency pegged salaries. Unfortunately, not every company had the means to initiate such a policy as smaller operations lacked the international clientele larger tech firms had. One side effect was that this resulted in more small-scale companies losing staff to the larger entities.
So, while Sri Lanka may rank top five in the Global Ecosystem in Afforable Talent and top 30 in the Asian Emerging Ecosystem in Talent and Experience categories, the country’s current reality may paint a different picture.
The tax situation isn’t helping
Sri Lanka also underwent some recent changes in its tax policies as the government aims at raising LKR 125 billion during the year. Among these changes include increasing corporate income tax from 24% to 30%, raising VAT to 12% (from 8%), and surcharge of 25-100% on the general duty applicable on certain imports, among others. Although, with regard to corporate tax it’s unclear if the tech sector will continue to be exempt as it was before.
Regardless, the lack of consistency and targeted, long-term mechanisms to improve the current environment may prove challenging to the overall landscape. For example, following the 15% telecommunication levy, telecom operators are already looking to up its prices. This will not only affect business operations, but the individual itself. As such, time will tell how all of this will impact the startup ecosystem and the economy in Sri Lanka as a whole.
Where’s the silver lining for the startup ecosystem?
But even in the midst of immense adversity, there are still active efforts both within and outside the industry. PickMe recently partnered with Rhoda to test ebikes for its food delivery operation, with Uber Eats also moving to bicycle food delivery. Watchdog built Elixir to help combat the current medical crisis, followed by the Lanka Software Foundation set to build the next version of the software. More recently, the US signed an agreement with Vega Innovations to help the company build the electric vehicle sector in the country.
So, yes, the idea of adversity breeding innovation may hold true for the future of Sri Lanka’s startup ecosystem. Though the economic crisis will likely continue to push things for the worse regardless. It’s worth pointing out that conversations on the potential of attracting digital nomads, 5G, techno parks, and everything in between should happen. But acknowledging and addressing the present limitations head on are vital, both for the Lankan startup ecosystem and for the country at large.
You can access the Global Startup Ecosystem Report 2022 for Sri Lanka, here.
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