What is a Creative Economy? It evokes different meanings to different people and cultures. The absence of a definitive meaning for a creative economy presents opportunities while posing some challenges due to the lack of regional coherence. According to the UNCTAD classification of trade in creative goods, it encompasses Arts and Crafts, audiovisuals/animations, design/architecture, digital fabrications like graphic arts, new media, performing arts, publishing, visual arts, and many more. Figure 3 illustrates a few high-potential areas that befit Sri Lanka while complying with UNCTAD description. 
Under the Creative Economy Law enacted by the Indonesian Parliament in 2019, Creative Economy is defined as the “embodiment of the added value of intellectual property generated from human creativity, cultural heritage, science, and technology”

How do countries build a competitive advantage for a core industry? No to “Laissez Faire”.  Cues for Sri Lanka. 

No country in the world has built a powerful economy by continuing or scaling up traditional economic models. Devastated post war Japan and Germany selected unique economic models to catch up with other economic behemoths like the USA and UK. Germany focused primarily on high quality heavy machinery and industrial machine tools and Japan focused heavily on consumer electronics and machines targeting home users such as TVs, Cameras, DIY power tools, fuel efficient motorcycles, and cars. Both countries became world leaders in their respective focus industries. 
In the 1990s leaders of Taiwan decided to focus on the semiconductor industry heavily as they had built the talent pool, R&D infrastructure and a manufacturing base. Within two to three decades, they captured a global market share of 65% and in 2022 Taiwan exported integrated circuits worth US$ 184 Billion contributing 25% to its GDP. 90% of AI powered chips are manufactured in Taiwan. Taiwan Semiconductor Manufacturing Company (TSMC) a state backed technology company single-handedly dominates the world market by capturing 53% global market share. 
In July 2017, the Chinese State Council declared AI as a national priority and designed a Next Generation AI Development Plan (AIDP) to achieve the leadership position by 2030. China ramped up AI investments, startup ecosystem, education and research on a gigantic scale. Tech giants in China like Baidu, Alibaba and Tencent poured billions of dollars into AI research. Chinese Universities like Tsinghua University in Beijing had outnumbered AI related citations of Stanford University in the USA. It is an example of the commitment of Chinese Universities to AI related research. Within 6 years China has achieved a superpower status in AI.
 

Table 1 - Long- and Medium-Term Strategic Thrusts of Countries to achieve competitive advantage. Success Stories from Asia

Way forward for Sri Lanka. Reinventing the Creative Economy

We can take a cue from German, Japanese and more contemporary Taiwanese and Chinese experiences. Diverse core economic programs of these countries had a single-minded focus on a selected state backed economic program. All these countries embraced the latest technology to add value. South Korea faced stagflation (stagnant economy, slow economic growth with high inflation). South Korea recognized the potential of the Creative Economy to overcome the economic slowdown and stagflation, reduce youth unemployment through job creation, foster inclusivity, reduce the income gap and uplift rural income. The creative economy helped South Korea to build foreign reserves by introducing a range of creative products for global markets such as Webtoons, K-pop music and serialized K-Drama. What can Sri Lanka do better with the available resources?  Sri Lanka is renowned for its creativity in apparel, wooden toys, high fashion jewelry for exports, clay/ceramic for exports, batik, arts & crafts, etc. and they share a rich cultural heritage and multiculturalism, spanning over two millenniums. 
 

Figure 1: Sri Lanka is a paradise of arts and creativity. Photos from Internet 
 

A large number of young content creators are already involved in cross border content business via the internet despite the lack of access to global inward payment modes such as PayPal. In certain sectors like music, few Sri Lankan musicians have managed to reach regional markets through social media by reinventing new income models. Democratization of music markets through social media like YouTube and Spotify unlock the talents of young artists like Yohani who appeals to the Z Generation. Yohani’s “Manike Mage Hithe” topped the music charts in India overcoming cross-border barriers, putting Sri Lanka on the world map. According to Spotify, Yohani got three times more viewing or streaming in India than in Sri Lanka. She hit 250 million views on YouTube, registering more views in Indian Cities than in Colombo. Revenue generation in US$s through YouTube, Spotify and subsequent music contracts with Indian producers for movies like “Shiddat” are substantial. Yohani had shown Sri Lanka a direction that encompasses creativity, regional collaborations, Team Play and Interdependence and Web 2.0 / social media adoption. Way to Go!
 

           
Figure 2: Reshaping the Sri Lankan music industry by Yohani. Democratizing the creative industry and innovative ways of mixing social media to break cross border barriers and reach the world

Sri Lankan Creative Economy has many strengths that can be developed into an engine of growth. However, we cannot solely depend on traditional practices to become a regional power in the Creative Economy. As shown in Figure 3, Sri Lanka can revolutionize and reshape the Creative Economy by uncovering contemporary Web 2.0 (social media, e-commerce) and emerging Web 3.0 technologies (Blockchain, NFT, Metaverse, Generative AI) by carving out a niche in the global market place.  

Figure 3: Three creative worlds that should co-exist in Sri Lanka. Traditional + Web 2.0 + Web 3.0 
 

Creative Industries have an enormous growth potential. ASEAN trade block registered an annual growth of 11% between 2003 and 2015 and the value of creative goods export in the ASEAN trade block rose from US$ 9.3 Billion in 2002 to US$ 23.5 Billion in 2015 (UNCTAD Statistics). They rely heavily on the Design sector for exports which has a contribution of 75% of creative goods exports. According to an International Finance Corporation (IFC) study, creative industries can play a significant role in equalizing society, boosting innovation and building resilient and prosperous economies in emerging and vulnerable countries. According to IFC, the size of the global creative economy is more than US$ 2 Trillion and it can generate at least 50 million jobs, mostly for people within the age group of 15-29. 

Figure 4: The IFC study shows that creative industries can build a resilient economy in emerging markets. Source: adapted from International Finance Corporation (IFC)

Current and next generation technologies will push creative industries to a new phase of development that can create an unprecedented demand globally. A portfolio of creative industries in Sri Lanka can be developed as a key thrust sector by leveraging online/offline cross border e-commerce, social commerce and next generation emerging digital technologies such as Metaverse, Blockchain / Non-Fungible Tokens (NFT), Blockchain / DeFi and Artificial Intelligence (AI), by emulating the strategic focus of Taiwan government for the semiconductor industry in the 1990s and Chinese government for AI since last decade. 
Note the glossary for key terms used in the article: 

1. Metaverse – In the metaverse, digital experience over the internet is three dimensional, immersive and virtual, blurring the lines between physical and digital space unnoticeably. 
2. Augmented Reality (AR) – AR is a digital technology of overlaying 3 D images over a photo taken in the real world. It is widely used in fashion, interior decoration and architecture now. Metaverse is an extension of AR. 
3. Blockchain – It is a new way of storing data online securely, built around core developments such as encryption and distributed computing.
4. Blockchain / Non-Fungible Tokens (NFT) – A piece of art or digital content can be ascribed onto a token that is built on a blockchain to reap many benefits such as establishment of trust and authenticity, tracking traceability, proof of ownership, assuring intellectual property rights and other values offered by the content. In a nutshell, identity management and digital ownership are facilitated by NFTs which are stored in a digital asset wallet. 
5. Web 3.0 – Web 2.0 offered networking and peer-to-peer interaction through social media. In the Web 2.0 era, the centralized web is controlled by large tech corporations and platforms like Meta, Google and Microsoft while keeping the ownership of users and data by them. In the Web 3.0 era, the real power will lie in the hands of economic actors like creators, artists, artisans and users. Web 3.0 is a decentralized ecosystem powered by blockchain technologies like Ethereum. Since transactions on the blockchain cannot be tampered with or changed, web 3.0 provides precise traceability of the value chain and acts as a trust builder for the user. The new internet world created by Web 3.0 is three dimensional and you can create a digital twin or a second life or an avatar that replicates yourself to represent you in the virtual world. In the Web 3.0 internet, digital twins can perform on different platforms seamlessly in an interoperable manner. It was the big vision of Mark Zuckerberg when he renamed Facebook to Meta by allocating thousands of developers to create an immersive, socially interactive virtual world on Web 3.0 that can revolutionize the way people connect, work and play. 
    

Transformation of Creative Economy, harnessing the potential of Emerging Technologies; Transitioning to a new world.
 

In Web 2.0, the proliferation of social networks, blogs and other content & e-commerce platforms has produced a new breed of “Content Creators” like Yohani. Social Commerce has presented a new avenue for creators to reach Gen Z users by giving a shopping experience through social media. Buyers can complete purchases entirely over social networking sites like TikTok, Facebook, Instagram, YouTube, Pinterest and X (formerly Twitter), either directly or through shoppable ads. 
However, in a web 2.0 e-commerce scenario, there are multiple actors between the creator and user such as logistic provider, wholesaler and retailer and in some instances the platform owners command a larger portion of the pie. In Web 2.0 Platform Economy power is centered on the platform, not the creator. Platforms like Netflix and Spotify have even started producing their own content in competition with creators as user preferences can easily be captured by them. In a Web 3.0 scenario, NFT / blockchain technologies expose the value chain margins, proof of ownership, details of the creator, metadata such as properties of products and pedigree transparently and data ownership lies with the creator. NFT helps to build a “Creators’ Economy” by paying a royalty to the creator of an art piece each time it is sold.   
Following real life cases will exemplify the adoption of emerging technologies like AI, Metaverse and NFT / Blockchain in creative economies and illustrate their symbiotic relationship.
 

1. Webtoons 

South Korea is the global epicenter of digitalized comic webtoons that have given birth to regional webtoon comic platforms like Naver Webtoon and Kakao Webtoon. Korean webtoons are gaining significant traction regionally and globally adding millions of addicted viewers. The “Naver Webtoon” platform has connected nearly 120,000 creators. They share advertising and sales revenue with creators based on page views. The annual income of the top creators of Naver Webtoon is closer to US$225,000. Unlike traditional artists who develop comic episodes manually, after the watershed year of 2023 (Chat GPT launch) digital creators use different digital art platforms that are well integrated with Generative AI, capable of generating authentic images, mimicking artist’s previous arts, styles and machine learning millions of images and patterns. 

Figure 5: Korea is the epicenter of digital Webtoon arts, K-pop, K-drama TV series
 

2. Digital Art

Digital art is the most common use case for NFT enabled by blockchain. An artist can create digital art and connect to a blockchain to be exhibited across various forums.  NFT marketplaces or online NFT arts galleries allocate virtual shelf space for a fee that is deductible upon the successful sale of the artwork. American digital artist / graphic designer Mike Winkelmann created a mosaic or collage having 5000 art (see figure 6) over 5000 days (one art block per day) and posted on the Open Sea NFT platform minted on Ethereum blockchain and sold at a price tag of US$ 69 Million through the world leading auction house Christie, UK. Mike’s digital collage, known as “The First 5000 days” is the first-ever NFT digital art auction conducted by the Christie. The buyer of the artwork had said that the price of the “First 5000 days” will surge up to US$ 1 Billion shortly. 

Figure 6: “The First 5000 days” collage created by an artist was sold for $69 Million in a NFT auction

Figure 7: Metaverse Art Gallery, Bringing virtual art into reality: Image Antier 
 

3. Music 

Centralized / cloud web 2.0 music streaming platforms like Spotify, Amazon Music and Apple Music have a questionable payout model for artists. Decentralized Web 3.0 music streaming platforms like Even, Sound XYZ and Opus built on blockchain provide fair compensation and better royalty (closer to 90% of sales value) for music creators and artists due to the low cost of decentralized blockchain platforms.                                  

Figure 8: Music collection of an artist on a web 3.0 and web 2.0 hybrid platform, “EVEN”
 

Tanerelle, a Z Generation music creator had shared her tracks on “Even”, a Web 2.0 and Web 3.0 hybrid platform. This platform allows her to sell her songs & albums at a discretionary price set by her, register her ownership through NFT and most importantly she has the freedom to access valuable fan related data (name, address, email, etc.) which are denied by traditional web 2.0 platforms like Spotify. Web 3.0 music streaming platforms take a minuscule service fee and there is no need to have intermediaries or aggregators. Web 3.0 platforms like “Even” maintain Web 2.0 interface due to familiarity and user friendliness. This is the beauty of integrating centralized Web 2.0 internet with decentralized Web 3.0 powered by blockchain technology. Tanerelle has a presence in web 2.0 platforms like Spotify, YouTube, and Apple Music in addition to web 3.0 platforms. It is a classic case study for the coexistence of Web 2.0 and Web 3.0 and hybrid platforms to offer more visibility to artwork.

4. Fashion 
Web 3.0 democratizes the fashion industry by creating multiple opportunities for digital fashion creators. NFT and blockchain protect the intellectual property of digital fashion designers and prevent counterfeiting of branded products. 

a. Creators’ economy through mass customization 
The fashion industry is moving from mass production to mass customization or personalization. Mass customization is enabled by technologies such as AI, Gen AI, Augmented Reality (AR) for “fit-on” and 3-D cloth cutting, robotics for auto sewing, and blockchain for supply chain traceability. Earlier the challenge of the fashion designers and brands was to capture the preferences of individual customers and each demographic and psychographic segment to make designs to suit each individual and segment. 

                                  Figure 9: AR powered virtual Fit -On Room of a modern fashion boutique. 
 

Customers can use an online Augmented Realty (AR) fit-on room installed in a smart phone or in a fashion boutique to “try on” dress options and select the favorite. Big Data and AI capture the individual preferences by analyzing digital behavior through social media and past e-commerce learnings of the customer and synthesizes with the trending styles produced by a pool of digital fashion creators in order to submit best dress options that suit the user.  Leading brands like Nike use AR for visualization and use NFT to claim ownership and establish authenticity while safeguarding the interests of the original creator. NFT can even create a circular economy for high end fashion products as NFT’s blockchain technology register proof of origin and prevent counterfeiting.

b.    Selling Virtual Clothes by piggybacking on e-sport 
During the Covid epidemic, many fashion brands turned to virtual worlds backed by Metaverse and NFT. The high-end fashion brand Gucci with the participation of fashion creators set up the virtual “Gucci Garden” in Roblox, a well-known online game platform to buy virtual clothes to dress digital twins (avatars) representing online gamers. The high-end bag maker Burberry also sells virtual handbags designed by 22-year-old digital fashion designer Samuel Jordan on the Roblox platform. Currently e-sports games platforms are popular among Z-generation youth who are the trendsetters and early adopters of Metaverse and NFT and buyers for virtual clothing for digital twins and avatars in e-sports. According to DMarket, the estimated market size for virtual clothing or digital skins is $40 billion.  The designers of virtual clothes can partner with online game platforms like Roblox and major fashion and sports brands like Gucci, Burberry and Nike. Independent Fashion Designers, leading Fashion and Sports Brands and Gaming Platforms build a collaborative ecosystem in a web 3.0 environment to create a network effect for the virtual apparel and sports goods sector. 
 

c.    Design virtual clothes for social media use
DressX is a fashion startup to sell digital garments that can be used to dress up videos and photos on social media virtually, using AR technology. Currently, nearly 100 million photos and videos are uploaded by social media enthusiasts. You can buy a fitting digital garment seamlessly from Dress X after uploading your photo or video. Every digital cloth carries an NFT to prove its authenticity and ownership. The dress is a 3-D rendered version, it can be reused endlessly in multiple user photos and videos posted in cyberspace and can even be transferred to a new owner, creating a circular economy. 
 

 
Figure 10: Two Ukrainian founders of the fashion startup DressX, Daria and Natalia dressed in digital clothing for social media.
Two different outfits and accessories are overlaid in the same photo.
Images: DressX

Digital garments are demanded by Gen Z for self-expression and for portraying uniquely among the crowd for getting instant verification from followers in social media. These are the behavioral characteristics of the Gen Z segment. Digital Fashion will penetrate the high-end fashion segments due to cost advantage and the early adoption of the tech-savvy youth.   

Currently, nearly 150 independent designers work with DressX to build a dress collection of nearly 50,000 digital assets. As they have partnered with Meta (Facebook and Instagram) and Google, customers and their digital avatars can be dressed up by selecting preferred NFT tagged virtual garments of DressX using AR and AI technologies and uploading in social media seamlessly. As we will be living in a hybrid Physical + Digital ‘Phygital’ world, everyone will carry a digital wardrobe before the end of this decade. The estimated market size for digital garments will reach US$ 50 Billion by 2030. Currently, online retail sales in the fashion industry exceed 25% of total sales volume and there is a growing trend.    

                                 
Role of the government in building a Creative Economy
 

Contemporary Noble laureates in economics from the USA, Joseph Stieglitz (winner of the Noble Prize in 2001, Economic Advisor to Clinton and Obama) and Paul Krugman (winner of the Noble Prize in 2008, Economic Advisor to Regan) had challenged Adam Smith’s free market laissez-faire ideology which can sometimes be called as “Lazy-faire”. Direct government intervention and a proactive hands-on approach are required to build a competitive advantage in pre-identified creative industries that thrive on adopting emerging technologies. The government’s role should not be limited to policy formulation and planning only. It should help to mobilize resources, build the required infrastructure, develop human capital, provide seed funding for deserving enterprises, find new markets and most importantly build a collaborative ecosystem for content industries. State intervention is required to build a resilient creative economy, transforming from economic backwaters into a dynamic economic powerhouse in just a few decades. The role of the government on two fronts is clearly illustrated in Figure 11. 

                                             
Figure 11: State’s role in building a Creative Economy in Sri Lanka (Conceptualized by Mothilal)

To redefine the Creative Economy, it is of utmost importance to bring all the related ministries under one banner and appoint one minister to drive the strategic level and some important operational tasks outlined in Figure 11.
 

Assist in Funding, Mentoring and Training 

First and foremost, the government should play an active role in policy formulation and clear the regulatory bottlenecks that may hinder the trade activities of creative industries, especially in inward payments and crowdfunding areas. Inadequate financing is one of the major constraints for creative industries in the early phase of their life cycle of a creative business.  A crowd-funding platform (Public Investment Fund) can be incorporated with the participation of state, public and private sector (say 60%:40%) while broadening the range of financial instruments. Funds can be disseminated to deserving creative startups based on revenue generation and global penetration. High weightage has to be given to the ability of the startup to go global when allocating funds. 
During the early phases of creative industries assistance may be required in finding angel investors and early-stage venture capital to find seed funding for startups and venture capital and private equity partners for scaling up the operations of startups. The government should look at the possibility of starting a new stock exchange to bridge the financial needs of the matured companies in the Expansion Phase, as done in South Korea and Indonesia. 
It is good to create a tax-free environment for the dollar income of creative industries. Preference can also be given to foreign exchange earners when disbursing funds for further expansion. Such export incentives will help the industry to become more transparent and provide creators with more capital for scaling up their efforts. 
The government and private sector can set up incubators and create “Innovation Hubs” for mentoring innovators of creative industries located in Colombo and regional cultural cities like Kandy, Galle and Jaffna. 

Developing Human Capital, Capacity Building

Steps need to be taken to upskill Sri Lanka’s human resources to make them future-ready while fostering a globally competitive creative economy. It is necessary to revitalize technical education on Digital Marketing, Social Commerce, Graphic Design, AI, Blockchain, NFT, etc., and sector specific skill sets that suit the hybrid nature of modern creative industries illustrated in Figure 3. It is also important to develop a curriculum tailor made to Sri Lanka with the participation of trade, technology, management, and industry experts. State and Private Universities should align the courses to meet the requirements of the 21st century Creative Economy in coordination with government agencies and the proposed “Sri Lanka Creative Content Agency” (Figure 11). Online education institutes like DP Education can design a package for a creative economy covering each sector. Inculcating a global outlook for creators is of utmost importance as Sri Lanka needs to produce content for the outside world.
21st century Sri Lanka should promote STEAM education (STEAM- combining Science, Technology, Engineering, Arts & Design and Mathematics) over STEM education as Arts & Design fosters critical thinking, teamwork, innovativeness, and creativity. Redesigning the curriculum to align with blended multidisciplinary STEAM education from primary school up to the university level is essential to stimulate a Creative Economy.

 
Building a Collaborative Global Network

Sri Lanka can work closely with UNCTAD and IFC in implementing a holistic program that builds a competitive advantage for creative products and digital content while positioning uniquely in the global markets. IFC can also help in raising funds for the “Public Investment Fund”. Though Sri Lanka is not a member country of OECD, ASEAN or EU, it is of utmost importance to establish some kind of partnerships with these global and regional bodies that take leadership roles in promoting creative industries by playing a catalytic role. Many Asian countries have introduced “Creative Economy” initiatives in the last decade to stimulate economic growth, innovation and to harness the productive potential of small and medium enterprises and tech startups. These countries have achieved many successes. Indonesia has a dedicated minister for Creative Economy and they held the OECD conference on Creative Economy 2022 in Bali. In the Private Equity and Venture Capital Summit 2023 held in Jakarta. Minister of Creative Economy of Indonesia Sandiaga Uno said that the country’s creative economy is among the top three in the world after South Korea and the United States. Sri Lanka can learn a lot from the experiences of Asian countries like Indonesia, India, South Korea, China and Japan.by establishing state-level linkages. 

   
Figure 12: Minister of Creative Economy of Indonesia, Sandiaga Uno addressing PE-VC Summit 2023 held in Indonesia. The Creative Economy in Indonesia generates 6 times more foreign exchange than the Tourism Industry. (US$ 24.79 Billion vs. US$ 4.26 Billion)
Photos: Mothilal de Silva
                                         

My Concluding Thoughts

Sri Lanka’s total dependence on the traditional economy is coming to an end and Sri Lanka should follow a new growth model based on Innovation, Entrepreneurship and Creativity as done by Taiwan for semiconductors, China for AI and South Korea for creative industries. Though the economy has to be driven by the private enterprises, the state should play a vital role in identifying focus industries, programs and mobilize resources that can realistically drive the economy forward by fast tracking to the next level; an Upper Middle-Income Country (World Bank Classification 2021) status in the short run and to reach the High-Income Country threshold level of GDP US$ 13,845 (Nominal) at least within 2030-2035 timeframe. Digitalization and next generation technologies will reshape creative industries. A creative Economy powered by Web 2.0 and Web 3.0 technologies will help Sri Lanka to unlock the full potential of the Visual Arts, Performance Art and Design sectors and develop online and off line cross border trade that will bring needy foreign exchange. 
We can make Sri Lanka a regional hub for a Creative Economy where young Sri Lankans produce music and dance for the international audience through social media, create virtual fashion for leading global fashion brands like Gucci, Nike, Louis Vuitton, Adidas, etc., and for millions of overseas fashion enthusiasts to dress up their online avatars in metaverse internet. Just imagine an economy where local design studios produce online games and interior & architectural designs on AR, conduct art exhibitions & international forums on metaverse platforms and sell arts & crafts on social commerce, NFT and metaverse platforms to bring $ Billions into the country. If Sri Lanka can build a collaborative ecosystem that can fuse traditional art forms with Web 2.0 and Web 3.0 technologies, this dream will become a reality.  However, we have to develop the 21st century creative industries on the strong foundation of our cultural heritage, not in isolation. Traditional art and culture of Sri Lanka is our differentiation and creative identity, which is hard to mimic by others. 
Proposed government agencies need to formulate plans in close coordination with functioning and active entities like the National Craft Council, Design Council SL, Fashion Design Council SL, SL Institute of Architects, SL Institute of Interior Designers, University of Visual and Performing Art, College of Fashion and Designing and related faculties of universities. Currently, these entities do a yeoman service amidst many difficulties. Building a Creative Economy is a collective effort.