Competitiveness focus

Tourism is arguably one of the few bright spots in Sri Lanka’s post-war economy. The boom, which began almost before the War ended has earned rich dividends over the last decade with the industry leap-frogging much older sectors such as tea to reach the third spot in foreign exchange earners. In 2018, tourism was estimated to have earned $4.4 billion and is set to continue increasing revenue but this growth has to be managed carefully. 

Part of the reason why tourism has been so successful in Sri Lanka is because the industry has also been allowed to become competitive. When the War ended in 2009, tourism showed an immediate uptick, prompting new players to flood into the industry. Almost overnight, ambitious locals marked out picturesque spots and set about building new guest houses, hotels and restaurants. Many shrewd entrepreneurs also saw opportunities in providing services, improving infrastructure and enhancing experiences. Tourism is attractive because it allows people to link to the sector fairly easily and earn a return immediately. 

These attributes along with Sri Lanka’s natural attractiveness as a destination, resulted in thousands of guest houses springing up countrywide. Many of them sidestepped the need for expensive marketing schemes, which many of them could not afford, by listing on online booking sites and engaging directly with tourists. This allowed an industry, long dormant and neglected, to become competitive with countries that have been tourist powerhouses for decades, especially in East Asia. Sri Lanka’s new tourism entrants may be smaller but they are also nimble, innovative and unpredictable. 

For years data has shown that Sri Lanka’s informal tourism sector is improving competitiveness. While there are certainly safety, regulatory and tax concerns in allowing the informal sector to flourish it is nonetheless better than the formal sector, which generally runs to the Government for handouts and tax concessions in order to be competitive. It can be argued that the informal sector side steps regulations but the formal sector also tends to use its political clout to lobby for measures that could be seen as advantageous to themselves at the cost of reducing competitiveness. 

Take for example the new Budget proposal to block small hotels and guesthouses with more than five rooms from listing on booking sites unless they are registered with the Sri Lanka Tourism Development Authority (SLTDA). Small players are obviously reluctant to register because they would have to pay higher taxes. They are reluctant to part with their money because they receive very little assistance from the State. The SLTDA only provides a star rating, which is largely outmoded because reviewer ratings are now more prized and consumers prefer to consider user reviews above star ratings. 

Despite becoming taxpayers, smaller establishments are unlikely to receive training and other support to improve their businesses. In many instances, the State is so incompetent that it does not even remove garbage from popular tourist sites or provide basic facilities to improve attractiveness. Payments by tourists at wildlife reserves, historic monuments and museums are not used to protect these places and improve conservation. A second Budget proposal to charge 3% Nation Building Tax (NBT) on credit card payments for all foreign online platforms including Uber also fails on the progressive front as it increases barriers to services that have become essential to modern travellers. 

Governments should not block economic freedoms only to increase revenue. Policymakers should remember ‘a rising tide lifts all boats’, and look beyond short-term measures.