Tourism in Sri Lanka was said to have reached an all-time high last year with a staggering 2.2 million tourists visiting the country. While news articles widely publicized this never before seen rate, little did anyone pay attention to return in investment and surge in local sales brought by these tourists.
Most of the tourists visiting the country spend less than US $500 a week – bringing very little income and indirect employment to our locals, which in turn does not contribute to our economy drastically. So what seems to be the issue here despite having a never before seen rate of tourists pour into Sri Lanka to enjoy our sandy beaches? Let’s dig a bit deeper into the issue.
Digging deeper into the root cause
Whilst it’s important that Sri Lanka has a steady inflow of tourists, our legislative and other bodies do not pay attention to the type of tourists that visit the country. There has been a growing increase in budget hotels and other budget accommodations both in and out of Colombo, and this number only seems to be in the rising. Although the industry must cater to all levels of tourists, our tourism sector must pay special attention to bring down tourists with higher spending power as this is where the real sales and surge in our economy lies.
In the past few years there has been a surge in many accommodations coming up in the North, Central Highlands, South and the Cultural Triangle of Sri Lanka. Almost 80% of these hotels have room rates below US $90 for double half-board basis. Additionally, more and more hotels are coming up in these regions simply because owners find this lucrative market attractive and get into business either because they were advised by a friend or saw someone do well in the same trade.
Diving headfirst into ventures without a proper plan
This isn’t healthy for hotels, banks and the Sri Lankan economy as there needs to be a substantial financial and business knowledge and planning put into a venture. The business will find it very hard in the long run to pay back their bank loans as it will take them between 10-12 years to breakeven whereas a hotel with a good business and financial model will breakeven between 5-7 years; simply because there was no solid financial plan at the inception therefore having a painful effect on the growth of the business.
Tourists visiting Sri Lanka with lesser spending power, are not contributing to the growth of our economy. With a tourist spending less than US $500 a week by cutting down on food, travel and any other possible expense whilst opting to stay at budget hotels, their actions are not helping indirect employment opportunities to grow. With foreigners choosing to either back-pack or choose low cost travel options like travelling by bus in town or train for long distances, they are not providing our local tuk tuk drivers and cab services indirect employment.
Time for hotels to step up and improve their game
In addition to the majority of tourists Sri Lanka attracts, hotels too must take a step up and improve their services. Hotels can no longer rely on their restaurants and buffets to help make profits, as this accounts only up to 40% of the total sale. Hotels must focus on the remaining 60% that is the real value addition; accommodation services. However our fiscal standing doesn’t make higher priced hotel a beguiling destination for the cadre of tourists we attract. With 30% of a tax charged (with a breakdown of 10% Service Charge, 15% Value Added Tax & 2% Nation Building Tax) in addition to the normal rates, tourists and locals alike are disheartened to yield a higher spending power.
In order for Sri Lanka to attract the right kind of tourists which will in turn positively affect our economy and help our nation grow and provide our locals with direct and indirect employment, Sri Lanka must look into developing infrastructure and providing higher valued goods to attract the right level of clientele. Await to find out how Sri Lanka can facilitate an economic surge during our next publication.
About the author
Nirmalan Nagendra is an accountant by profession turned Head of Operations. He posses over twenty nine years of expertise in the hospitality industry including twenty years of strong financial administration at five star hotels. His expertise is spread throughout his various stints in various regions around the world including USA, The Caribbean, Middle East and Singapore as well as holding the position of an operation and commercial oriented Director of Finance, with a wealth of business experience. He is a highly result oriented professional, who believes in cohesive work environments and team work. He is now retired and consults professionally to a leading international consulting firm, whilst residing in his home in Colombo.
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