Sri Lanka aims to build tourism momentum

Increased international arrivals and expansion into new segments are key elements in Sri Lanka’s plans to boost revenue in its growing tourism sector, an important earner of foreign currency. 

Aiming for a marked increase

Sri Lanka saw a sharp rise in tourism arrivals in the first half of the year, with inbound traffic up 16.7% year-on-year (y-o-y) through to July, for a total of 1.17m arrivals. 

While these figures are positive, a closer look shows more nuanced growth. The first three months of this year saw a 22.1% y-o-y increase, but visitor numbers were up by just 2.2% y-o-y in June. 

The second quarter of the year is typically a low season for tourism, in part due to the Yala Monsoon season between May and August. However, the easing of the growth rate in June was the smallest increase posted for more than two and a half years. 

One possible cause of the weaker performance could be a decrease in arrivals from of a number of key markets, including Russia, South-east Asia and the Middle East, possibly reflecting slowing economies in those regions. Arrivals from the Middle East, for example, were down 58% y-o-y in June, with 82% fewer visitors from Saudi Arabia, according to press reports.

Arrival growth will need to rebound strongly in the third quarter if the sector is to regain its momentum and achieve this year’s targets of 2.5m foreign tourists and $ 3.5 billion in revenue, set by the Sri Lanka Tourism Development Authority. If this target is met, it will represent a marked increase on the 1.8m arrivals and $ 2.86 billion in revenue in 2015.

Despite the weak June performance, data from July indicates a rebound may be on the way, with arrivals expanding by 19.1% y-o-y.

Diversifying the sector base 

The strong performance of the sector early in the year was cited in a mid-year government fiscal report as one of the driving forces behind higher GDP growth.

The report, issued on 30 June, said GDP expanded by 5.5% y-o-y in the first quarter, up from 4.4% for the same period last year. 

While there was a dip in export earnings, stemming in part from global economic headwinds, the Ministry of Finance said that tourism helped bridge the revenue gap and boost foreign exchange inflows.

To support continued growth, the government targets attracting 4m visitors and increasing tourism revenue to $5bn by 2020, according to John Amaratunge, minister of tourism development and Christian religious affairs, more than double the 2015 numbers.

In part, officials say this is to be achieved by improving the existing product, including more investments in hospitality facilities, while also broadening the base of the industry. 

Traditional sea and sun offerings are expected to remain core attractions; however, more will be done to promote alternative streams including health, sports and ecotourism. 

Expanding MICE capacity

The Government has also identified the meetings, incentives, conferences and exhibitions (MICE) segment as one with significant potential. 

While this segment was already valued at more than $ 400m in 2014, Amaratunge recently said efforts were under way to promote Sri Lanka as a MICE destination to ramp up competitiveness.

“This is something we need to work on, as our MICE tourism capacity is lagging behind,” he said during a travel conference in mid-June. “We see huge growth potential for this segment, especially from India and China.”

The segment is expected to get a boost at the end of October, with France’s National Union of Travel Agents (Syndicat National des Agences de Voyages, SNAV) – which represents 1300 travel outlets – set to hold its annual congress in Colombo. The government lobbied SNAV to stage its meeting in Sri Lanka as part of its campaign to raise the country’s profile as a MICE destination. 

Cruise destination

While the overall increase in arrivals bodes well for the sector, officials are also seeking to target the higher end of the tourism market to boost revenue per visitor, a policy underscored by Prime Minister Ranil Wickremesinghe in a speech in June. 

One way Sri Lanka is looking to achieve this objective is through promoting the island as a cruise destination. The country hosted more than 50,000 cruise tourists last year from a total of 40 liners, according to Rohantha Athukorala, chairman of the Sri Lanka Tourism Promotions Bureau.

Authorities have targeted 100,000 sea-borne arrivals by 2017, though this will require increased investments in port infrastructure and improvements in passenger and luggage handling and logistics.

(This ‘Sri Lanka economic update’ was produced by Oxford Business Group).