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Sri Lanka Information Technology Report Q2 2012

The Sri Lankan IT market growth is expected to moderate in 2012, after benefiting from a local and regional economic recovery in 2011. However, a projected 2012-2016 CAGR of 16% makes Sri Lanka one of the fastest growing markets in the region, albeit from a low base. The IT market has considerable latent potential and the restoration of peace and improvements in security have helped to release enterprise demand for IT solutions as companies look to boost efficiency. For now the large corporate segment provides the main market for enterprise solutions but the SME sector has the potential to drive enterprise application spending over the next few years.

Headline Expenditure Projections

Computer hardware sales: US$268mn in 2011 to US$302mn in 2012, +13% in US dollar terms. Forecast in US dollar terms unchanged, and, as basic infrastructure improves in areas outside Colombo, there is potential for strong growth in the north and east.

Software sales: US$48mn in 2011 to US$55mn in 2012, +15% in US dollar terms. Forecast in US dollar terms unchanged, one restraint being the high level of software piracy, with nine out of 10 packages in use believed to be unlicensed. IT services sales: US$74mn in 2011 to US$87mn in 2012, +18% in US dollar terms. Forecast in US dollar terms unchanged with the government, finance and telecoms sectors accounting for at least half of the total services spend.

Risk/Reward Ratings

Sri Lankas score was 28.3 out of 100.0. The country ranked in last place in our Asia region RRR table and had the lowest or joint-lowest score in each ratings category, including IT market and Country Risk. Despite this, the countrys status as a frontier market with high growth potential should see it rise up the rankings over time.

Key Trends & Developments

Sri Lankan IT spending should continue to benefit from the governments cut in taxes and duties on electrical products, which resulted in a double-digit surge in demand for computers in H111. We forecast continued double-digit growth in all segments of the IT market.

The governments 2012 Budget, delivered in November 2011, envisaged a key role for ICT in development of all sectors, a continuation of the seven-year e-Sri Lanka programme and island-wide availability of broadband. Computerisation has only just started in many areas of government and the Inland Revenue Department, for example, is required to be fully automated by 2013. Growth in IT spending will be stimulated by the ongoing modernisation of Sri Lankas banking sector, which should provide opportunities for IT vendors. The tourism industry is also projected to grow rapidly and technology is a key part of plans to assist the sector to improve efficiency and cope with increasing demand. Liberalisation and more competition in the telecoms sector should have a multiplier effect with regard to demand for IT.

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