Sri Lanka’s economic crisis threatens dollar-generating IT companies

Colombo, Sri Lanka –There were days when cyber security specialist Asela Waidyalankara and his colleagues sat in hotel frontiers and completed projects during a power outage. On other days, they ran around Colombo looking for generator fuel so they could work from home.

“We have a system of friends in the company to inform each other about the availability of fuel,” laughs Widyalankara, adding that his company encourages employees to ride together if they need to attend meetings in Colombo and whenever possible from home must work.

Prior to the pandemic, Sri Lanka’s IT industry employed more than 120,000 people and was the island’s fifth largest source of income for 22 million people. It was on track to become the largest exporter within the next five years and double its number of employees. But with President Gotabaya Rajapaksa’s government failing to repay its foreign debt earlier this year and severe deficits crippling the economy, these plans are now in jeopardy as normal business operations become difficult to maintain.

Daily power outages for long hours are now normal. Fuel queues stretch for miles, sometimes so far that one fuel line meets another. The country operates on a cash flow basis. Nandalal Wierasinghe, governor of the Central Bank of Sri Lanka (CBSL), said last month.

On May 19, CBSL said it expected the economy to “setback recordEven as the cost of living continues to rise, inflation in May was 39.1 percent, and fuel prices have more than doubled since the beginning of the year.

Constant power and a smooth internet are constantly affected, which is essential for the effective functioning of the IT industry. “We have weekly and monthly directors and we sometimes struggled to meet them,” Widyalankara told Al Jazeera. “Our service levels are also affected, for example, we have to respond to a cyber security incident within two hours, but with power outages and slow internet, it is a challenge to meet these expectations,” he said.

Sri Lanka has many regional competitors in the IT sector, including India, Bangladesh and Vietnam. “We’ve spent years developing relationships with customers so they understand, but there’s always a fear that our business will be snatched away and given to competitors if we can not maintain delivery and quality,” says Waidyalankara.

The ongoing economic crisis and the lack of a coherent plan by the current government to resolve it have begun to affect the confidence of foreign investors.

Sanjiva Werawarana, founder and CEO of WSO2, a Sri Lankan software company that raised $ 90 million from Goldman Sachs in November, told Al Jazeera its company must look for innovative ways to hedge the country’s risks to attract investors. While WSO2 has offices in several countries, including the US, UK, Dubai and India, the company is likely to expand its presence outside Sri Lanka to strengthen investor confidence and ensure business continuity, Weerawarana said.

Some companies have even set up temporary offices in neighboring countries like India and Dubai and relocated some of their employees to these offices to maintain business continuity. “We will not relocate the company, but we temporarily moved some employees to an office in Dubai in April just to ensure that the business runs smoothly,” Weerawarana said.

Fuel rows stretch for several kilometers, and sometimes collide with another [File: Jonathan Wijayaratne/Bloomberg ]

brain immigrant

The last few years in Sri Lanka have been difficult. A 52-day unconstitutional government in October 2018 shook investor confidence and was followed a few months later by deadly bombings on Easter Sunday in April 2019. While immigration, especially among highly skilled workers such as software engineers, doctors and nurses, not uncommon, conditions Economic unrest over the past year, in addition to the turmoil that preceded it, has further accelerated Sri Lankan’s search for greener pastures.

The ongoing economic crisis has made the cost of living excessive, especially as the value of the US dollar has risen by 75 per cent over the past year against the Sri Lankan rupee. Owning a car or a house is a distant dream and with their hopes faltering around them, many Sri Lankan youth want to emigrate and move away from an uncertain future in their homeland.

A November 2021 survey report (PDF) by the Colombo-based Institute of Health Policy, an independent think tank, found that the number of Sri Lankans wishing to migrate had doubled from three to five years ago and nearly 50 per cent of young and educated people want to migrate immediately now. Long queues at the passport office are just one indication of this.

A 35-year-old software engineer, who preferred not to be named, moved to Australia with his family in March this year. I had no plans to emigrate. “I ran a small IT company, and I was happy with that,” he said. But increasing ethnic and racial tensions in the country ahead of the 2019 election prompted him to consider the transition and the subsequent economic mismanagement made his decision. “It really is not promising in Sri Lanka. “I want to prioritize my daughter’s future,” he said.

If Sri Lankan software companies can operate some of the world’s largest stock markets such as the London Stock Exchange and Bursa Italiana, and some of the world’s busiest airlines such as Qantas, it’s because of local talent. Brain drainage would be a disaster for this sector.

“Our employees have helped us build global businesses,” says Waidyalankara. “The real competitive advantage for our industry comes from people, and unfortunately they are now starting to come out of the country. It is a great loss. “

Weerawarana agrees. “We believe that 10 percent of our technically skilled and experienced employees have already applied for immigration and another 20-40 percent are probably considering it,” he said.

The industry was also significant in other ways – it was one of the first companies to openly support the spate of spontaneous protests that took place across Sri Lanka against the Rajapaksa government in March and April this year. Industry workers have even held a rally to celebrate 50 days of protests since locals set up a “GotaGoGama” outpost in the capital’s Galle Face Green.

Military personnel travel in armored cars on the main road during a curfew in Colombo, Sri Lanka
Without a quick fix, Sri Lanka risks undermining its future growth [File: Dinuka Liyanawatte/Reuters]

fixed salaries

With high salaries and flexible working environment, the IT industry in Sri Lanka has always had a better appeal for talent than other important sectors like banking and tourism. To retain this talent now, players in the industry had to choose new paths.

Since the Sri Lankan rupee began to depreciate, many IT companies earning in foreign currencies have begun to link the salaries of their local employees to either US dollars, British pounds, euros or Australian dollars – making the industry an attractive employer for many locals.

This has had an unexpected impact on smaller IT companies that cater to local customers and lack a large pool of contracts and foreign exchange. Unlike large corporations, they are not able to link their employees’ salaries to a foreign currency.

“Some key employees are considering emigrating or moving to large companies that pay dollar-linked salaries,” Dean Jayaman, owner of a small software company, told Al Jazeera. “On top of the power outages and internet problems, we have to deal with it now,” he added.

A software engineer who immigrated to Australia said he did not believe the IT industry in Sri Lanka had proper policies for acquiring and retaining talent. “When I applied for a job for immigration [a year ago], I received two offers from Australia and the Netherlands. They took care of everything. Visas, airline tickets, relocation expenses and even temporary housing. All I had to do was get to the airport. That’s how far they go to get talent. ”

From where?

Despite ambitious plans by Sri Lanka’s top government last year to encourage investment in the state, the Investment Council, to promote the IT industry as the country’s best source of income and employer, the reality seems different. go to the side.

The situation is exacerbated by an already existing supply gap in the industry. The Information and Communications Technology Agency, the government body responsible for ICT policy in the country, warned in a 2019 report that “the supply and demand gap for ICT workers is widening rather than closing.”

Even with dollar-linked salaries and flexible work environments, a rapid solution to the ongoing economic crisis is needed to retain talent, employers say. It is also key to ensure a stable pipeline for foreign investors and clients. “Once a rate has been set for the country, I think the problems of investors will be significantly reduced,” Weerawarana said.

Experts fear that without this solution the country “runs the risk of undermining its future growth”. In an interview with Al-Jazeera, economic expert Malathi Knight referred to Lebanon, which saw a major exodus of local talent in the face of its economic and political crisis. “Sri Lanka needs to learn from the experiences of other countries,” she said.

“It is essential to offer hope and opportunity to young people that, without such efforts, Sri Lanka will continue to decline economically and socially, even after the economic crisis has stabilized,” Knight said.

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