Beyond cryptocurrency – A blockchain-led intervention for Sri Lankan economy

In July this year, Bloomberg reported Sri Lanka as the national economy most at risk for defaulting sovereign debts in the Asia-Pacific region, with a 28 percent likelihood based on its debt default probability scale. Since then, we have succeeded in clearing the US $ 1 billion bond pay-out to investors but the economic condition isn’t showing signs of marked improvement in the near term. 

Whichever side of the political spectrum you may be on, it’s prudent to first recognise the precarious position we have put ourselves in as a sovereign economy, with a large foreign debt haemorrhaging the foreign reserves of the country. 

To consider the technology industry as a catalyst for economic growth in Sri Lanka is hardly new territory. As per SLASSCOM, in 2019, the broader Sri Lankan technology (ICT-BPM) industry generated US $ 1.5 billion in revenue at a 13 percent CAGR (2013-2019). The generated revenue positions the industry as the fourth largest exporter in the local economy, with a 29 percent contribution towards total service exports. 

As impressive as the technology growth story has been in Sri Lanka, the timely figure that should be considered with urgent priority is the 12 percent contribution the industry makes to the country’s service-related foreign currency inflow. To present things a different way, the industry’s potential to generate foreign income should be assessed in careful detail as a companion to our hopes of an invigorated tourism sector.

Emerging blockchain opportunity
The flourishing technology industry of Sri Lanka is by all accounts an impressive one. Considering the intrinsically dynamic and trailblazing nature of the global technology market that Sri Lanka services, one could rest assured that potential for growth is emphatically being leveraged.  

However, it would be unwise at this economic juncture for Sri Lanka to rest on the laurels of arguably its most lucrative industry. Instead, due and urgent attention should be paid to the sub-domain of new technologies that is rapidly outpacing traditional technology market value globally by over 12 percent year-on-year. 

To zero in on the opportunity here, blockchain technology is poised to find exponential growth in the coming years across a number of its many transformative applications. 

To the government’s credit, heir-apparent to its leadership position, Minister Namal Rajapaksa has spoken on the matter twice in public statements, once earlier in the year and again in late August when delivering the keynote address on the theme of ‘Digital Inclusion and Transformation in South Asia’, at a virtual session organised by the Observer Research Foundation of India.

Unfortunately however, no public disclosure has been made to introduce plans at the level of policy to enable local entrepreneurs and technologists to leverage the many blue ocean playing fields that blockchain technology offers.
It should also be recognised that a large part of the focus is seemingly mistakenly placed on cryptocurrency, a financial technology application of blockchain technology. At present, the global market value of cryptocurrency is estimated at over US $ 2 trillion, with the fan-favourite bitcoin accounting for 50 percent of the total value. 

The challenge however with focusing efforts first and foremost on cryptocurrency is the long-tail of regulatory groundwork that should be done ahead of any possible implementations. At present, the Central Bank of Sri Lanka holds a critical stance towards digital currencies as a whole, citing volatility and potential for violation of money-laundering and forex laws as reasons. 

Many countries globally have adopted a similar stance on the matter while regulations are barely in place even among most developed economies to deter use of cryptocurrencies for illegal trade, money laundering and tax evasion. 

With only the troubled and dollarised economy of El Salvador recognising bitcoin as legal tender, the case could be made that we are many months or years away from being able to practically enable the use of cryptocurrencies as an alternative investment instrument or payment method. 

The present foreign reserve crisis faced by Sri Lanka is only mounting pressure against the case for cryptocurrency use in Sri Lanka considering that the economic engine is unable to support individuals hedging against the potential devaluation of the Sri Lankan rupee by investing in cryptocurrencies. In fact, this sort of inflationary hedging will only serve as a self-fulfilling prophecy to further deteriorate the value of the currency and drive inflation. 

It isn’t all doom and gloom for blockchain enthusiasts however. The applications of the technology are far from limited to its applications in cryptocurrencies and the financial industries. The local government must adopt a pragmatic view of the many opportunities presented by the rapidly emerging technology. 

A blockchain-led playbook should clarify the national position on the matter and active efforts should be made to adopt early and lead ahead of the curve, especially in the following areas. 

Education and up-skilling 
Up-skilling and education should be the highest priority for Sri Lanka whose small population and workforce size significantly impedes the ability of home-grown tech businesses to achieve the type of scale that regional competitors are achieving. The limited talent pool is all the more reason to explore avenues for developing high value, niche competencies. 

In 2020, LinkedIn ranked blockchain as the top skill priority for recruitment globally, an indication of things to come. Namrata Murlidhar, Marketing Director at LinkedIn, was quoted saying, “Blockchain has emerged from the once shadowy world of cryptocurrency to become a transformative business solution,” indicating the depth of the technology’s applicability. The report further elaborates that industries outside of the financial domain including retail, shipping, healthcare, farming and gaming are beginning to demand blockchain competencies to be included within their workforces. 

In 2020, Deloitte published its ‘Blockchain Survey’ disclosing that 55 percent of global respondents ranked the technology as a strategic priority of which the top three focus areas are cryptocurrency and banking, data transfer and security.  

Leading global universities are beginning to include blockchain technology in their tech curriculums while also offering qualifications specialised in the emerging technology. Early investments in the area will help Sri Lanka retain its position as a top quality technology education provider to the world. 

Blockchain as a service
On-demand delivery of blockchain technology is a natural opportunity for Sri Lanka. The industry-tested experience and expertise of the local technology industry in delivering software as a service translates effectively to the rapidly growing blockchain as a service (BaaS) industry. To place this in context, the BaaS market globally is valued at US $ 1.9 billion as of 2019 and is predicted to achieve a growth of 39.5 percent CAGR, amounting to US $ 25 billion by 2027. Compare this with the predicted 11.7 percent CAGR growth of the global SaaS market size in the same forecast period and the business case is crystal clear. 

The unique opportunity for Sri Lanka in doubling down on the blockchain opportunity is the early market entry window that is open today. The global SaaS market is at a staggering US $ 158 billion in 2020 while BaaS is at just US $ 1.9 billion. This early entry opportunity will enable Sri Lanka to position itself as a first mover in the industry, opening many doors for local professionals in the global stage alongside the growth of the global industry. 

Both large technology organisations and boutique start-ups will have the opportunity to enter the growing industry, resulting in overall growth of the industry. However, the barriers to industry entry will not remain low for a long period of time and action must be taken today to upskill, enable and empower organisations looking to leverage the opportunity. 

Proof of concept for the BaaS delivery model is already emerging from the region with Alibaba, Amazon, Huawei, Microsoft and IBM venturing into the industry through their own offerings. 

As per the blockchain adoption research report commissioned by IBM in 2020, key industries for BaaS application are cited as being agriculture, fisheries, automotive, healthcare, pharmaceuticals, energy, oil and gas and labour. Sri Lanka would do well to seek out these opportunities and align their service offerings towards these industries with a view of creating captive demand for long-term projects in service of the larger, global players in these domains. 

NFT art and gaming 
Non-fungible tokens (NFT) are perhaps the least talked about opportunity that blockchain technology affords, especially regionally. If Sri Lanka is hoping to remedy the ailing economy through technology use cases, the quickest win in the nearest term arguably is to make a decisive entry towards NFT usage. 

Considering that the financial ecosystem required for enabling NFT exchanges is different to cryptocurrency exchanges that are presently being discussed, the government has the opportunity to set up the necessary infrastructure with minimal consequences. 

In short, NFTs are a form of digital assets, which include art, games, documentation and video content underwritten by a highly secure transactional ledger backed by blockchain technology. The intrinsic immutability of the blockchain and its decentralised process of record-keeping is creating a broad use case for NFTs across creative industries, including art and games. 

Unlike cryptocurrency exchanges, which are occupying the spotlight of the blockchain opportunity, NFT exchanges are far easier to regulate, given the one-way transactional infrastructure needed to facilitate local NFT businesses. At a high level, a centralised payment gateway dedicated towards accepting payments for NFTs via cryptocurrency will directly translate to foreign income to Sri Lanka. Granted, minute outflows such as minting fees for NFTs will need facilitation through the same payment infrastructure but the benefits far outweigh the costs as we are beginning to observe in the global NFT market. 

As per reports from Reuters, the total NFT sales globally surged from US $ 13.7 million in the first half of 2020 to an impressive US $ 2.5 billion in the first half of 2021. 

Sri Lanka is in a unique position to seize the NFT opportunity considering its flourishing industry of creative arts across the frontiers of art, videography, game development and photography. The rich cultural roots of Sri Lankan history are firmly rooted in the domain of aesthetic value and as such, NFTs may finally provide the necessary platform for the local arts to reach a global stage. 

The booming digital art and game development industries of Sri Lanka are trump cards for the local economy considering the ease with which such industries can be formalised and scaled to meet global demands, not only in creating and selling NFTs but also in servicing the broader NFT market through digital asset creation services for in-game merchandise and 3D assets. 

Final thoughts
Credit must be given where it is due to the minister and other regulatory operators including the Central Bank of Sri Lanka for seeing the opportunity at hand and making considerations. However, the state of the economy today and the seeming future trajectory does not offer Sri Lanka the luxury of slow-playing its hand. Action taken must be decisive and timely, if the national economy is to find success in the coming wave of blockchain-led opportunities. 

While considerations must certainly be made towards the obvious applications of the technology to the banking and financial domains, a roadmap should also be in place to identify and enable the potential across industries for other mainstay applications of blockchain technology in today’s global market. 

Sri Lanka is perfectly poised to emerge as a first mover and thought leader to the regional and global market in blockchain technology and the opportunity is here today for the taking.  
(Dilshan Senaratne [MBA (UK), GDM - Business (UK), Dip. Psych (US)] leads marketing (SL) and communication (APAC and EME) for a US $ 1 billion global technology blue chip based in New York. He is also Founder and former CEO of Cyaniq Global LLC, a specialised consulting and advisory services firm based in 
Sri Lanka)