Ceylon Today Editorial

Digital economy

23 September 2016

Digital poverty, digital government, uncollateralized loans and virtual businesses were four key takes delivered by the CEO of the State-owned Information and Communication Technology Agency, Muhunthan Canagey at a function organized by the National Chamber of Commerce, yesterday.

He claimed that digital poverty was worse than economic poverty, because the person who was tech. savvy was one step ahead of the pack, thereby racing ahead economically due to digital empowerment, leaving behind the digitally illiterate, virtual beggars, from an economic perspective.

While the time and tested definition of poverty is due to the difficulty of finding basic essentials such as food, shelter and clothing, leading to bloody revolutions, not least in Sri Lanka, which has thus far suffered three, two in the South and one in the North-East, 'digital poverty' is seemingly a new definition and it yet remains to be seen whether such poverty will also lead to bloody revolutions.

In respect of 'digital government', the opening at this seminar that Canagey gave was a digitized identity card (ID), seemingly replacing the current, plastic ID, in a project to be launched next year, thereby making the necessity of form filling when dealing with the Government of Sri Lanka (GoSL) and of its agents, an apparent thing of the past.

He also spoke of breaking silos, in a government within a government operation currently indulged in, by certain sections of those engaged in the public sector, and moving in to an era of transparency, knowledge sharing and openness in government.

While the electronic ID may become a thing of the past, soon, the breaking of silos in the State may, however, be a somewhat ambitious operation, going by the current work to rule campaign by Customs, arguably the largest revenue earner for the GoSL. The undercurrent behind this present trade union action being the move by the State to digitize the island's revenue authorities, where, according to Canagey's Minister (Minister of Telecommunication and Digital Infrastructure) Harin Fernando, non-digitization of revenue authorities is causing daily revenue leakages of US$ two million to the GoSL. (See Ceylon Today of 9 August 2016)

The underlying cause for these revenue leakages is under-valuation. And the reason behind under-valuation is corruption, where, broadly speaking, the importer makes an 'under the table' payment to the assessor in support of the under-valuation declared on the imported product in order to escape from paying the legal duty, by paying a lesser Customs duty.

Nonetheless, digitization minimizes face to face contact between the importer and the Customs officer, a major reason behind corruption at Customs. Less physical contact means that it may not be easy for the importer, to direct to which officer the 'under the table' payment should be made in order for the under-valuation to go through, unopposed and undetected.

The recent move by GoSL to counter this 'work to rule' campaign is to call-up retired Customs officers back for duty, because falling revenue, in the midst of rising expenditure is a burning issue and a condition which is unsustainable. Therefore, it may be interesting to see how successful GoSL will be in that aspect of digitizing, in order to breakdown government silos?

With reference to uncollateralized loans for tech. startups, Canagey said that GoSL is speaking to banks concerning this move. He said that the success of Silicon Valley is the uncollateralized funding of start-ups based on a business idea. Such funding is usually made by venture capitalists.

Sri Lanka experimented with venture capitalism, at least as way back in the 1990s, but this arm of the financial sector didn't takeoff, probably because there were more lucrative avenues for lending vis-à-vis collateralized loans.

Canagey said that the size of such lending may be as much as US$ 10 million or Rs 1.5 billion, which GoSL is unable to afford. These moneys need to come from the private sector, he said. But, it may be assured, that unless there is sizeable incentives to banks by GoSL to once more make a foray in to this area, non-collateralized lending for tech. start ups may never see the light of day.

Canagey also spoke of virtual businesses, giving the examples of Uber, which doesn't own a single taxi, but is now a $ 62 billion business, though only six years in operation and 'AirBnB,' a $ 24 billion business catering to the hotel and tourism services whilst not owning a single hotel bed. This technology company started just under 10 years ago in 2007.

He said this was the space which GoSL wants to create to make such tech. companies functional.

A possible start may be, as what a representative from a Canadian NGO, Ms. Esther McIntosh from the World University Service of Canada speaking on this occasion said, i.e. of first linking small tech. companies in the periphery which may have entrepreneurial ideas but which do not have the wherewithal to implement such, with larger tech. companies at the centre.