24th, August 1997


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Tourism, despite setbacks, a major exchange earner

By Asiff Hussein

Despite setbacks suffered by the tourism industry since 1983, with the eruption of the ethnic conflict, it nevertheless remains a major foreign exchange earner for the country.

In 1995 alone, it earned the country Rs. 11 billion in foreign exchange. It also generates considerable employment to the country's youth. However, the fact remains that the country's hotel industry, a major arm of the local tourism industry, has recorded immense losses from 1983 to date.

Leading hotels have accumulated considerable losses according to a recent study.

The proposed Goods and Services Tax (GST) which is expected to be applicable to the hotel industry once it becomes eftective shortly is bound to create further financial difficulties for the industry.

Hoteliers are presently engaged in a campaign to declare the industry an Export industry, thus exempting it from GST which would otherwise mean an additional tax of upto 16 percent on its turnover.

'The Sunday Times' recently spoke to Mr. Gilbert Jayasuriya, Chairman of the Tourist Hotel Association of Sri Lanka and an ardent campaigner for the upliftment of the industry, on the measures that could be taken to salvage the hotel industry from its current predicament.

Mr. Jayasuriya is presently leading a campaign to have the tourist hotel industry declared as an Export industry deserving of favourable treatment.

According to Mr. Jayasuriya, the tourism industry has undergone some very difficult times since 1983, which saw a sharp decline in tourist arrivals in the country.

He noted that tourists arrivals last year were still 25 percent lower than the tourist arrivals in 1982.

In the meantime, hotel room capacity has increased by 60 percent.

Mr. Jayasuriya observes that contrary to the widespread belief that hotels were making huge profits, many are today recording immense losses.

He pointed out that a Ceylon Chamber of Commerce (CCC) study on the profitability of the local hotel industry on behalf of the Tourist Hotels Association in 1995 had revealed that 18 of the 44 hotels surveyed had accumulated losses and 22 of them had not declared any dividends at all since 1982.

To overcome the financial difficulties faced by the industry today, Mr. Jayasuriya proposes that the state should grant export status to the hotel industry.

He noted that the rationale was that like other exports, hotels too have to compete fiercely in the international market, in this case, for the sale of their rooms and services.

Export status would exempt the hotel industry from GST amongst other benefits, thereby ensuring a level playing field with other tourist destinations.

He noted that at the moment, the letting out of hotel rooms for foreign exchange is exempted from BTT, which GST is to replace shortly.

However, he noted, all indications are that the government intends imposing GST in respect of contracts made with foreign tour operators.

He said that this would mean an additional tax of upto 16 percent on hotel turnover.

He also noted that the principle of exempting sales to foreigners from VAT (the equivalent of GST) is accepted in the UK, and that a foreign traveller staying in a hotel who is liable to a VAT of 17 percent would have that amount refunded to him upon his return to his homeland .

Mr. Jayasuriya dismisses the objections to his proposals raised in some quarters that if tourism is granted favoured treatment, including exemption from GST, other industries too will demand the concession.

"If any industry has to compete in the international market, then it should be given favoured treatment. The fact is that there is no industry that will be eligible under this criteria of international competition," he counters.

Mr. Jayasuriya also advocates that a tourism promotion authority, jointly funded by the private sector, government and AirLanka, be established without further delay.

In this connection he noted that the Tourism Ministry has come up with a counter proposal to privatise the Tourist Board.

He observed that if given the proper incentives, the hotel industry could become a major foreign exchange spinner.

He noted that in 1995, tourism earned the country Rs.l1 billion in foreign exchange. The industry also has potential to create substantial employment.

According to the Tourist Board, the tourism industry provides employment to about 87,000 persons, both directly and indirectly. Mr. Jayasuriya estimates that for every five tourist arrivals, one new job opportunity is created.

"Today's hotel rooms can accommodate upto 700,000 tourists at 70 percent occupancy. This means 400,000 more tourists than last year. It would also mean an additional employment potential for 75,000 persons and the opportunity to more than double our foreign exchange earnings."

"All this can be achieved within a matter of 2-3 years without any additional capital expenditure if only the industry were given the necessary encouragement and incentives," he added.

Bank with common touch

By Asoka de Silva Dy.General Manager Dev.Finance & Marketing

The People's Bank (established in 1961) is today one of Sri Lanka's premier banks with 6.5 million accounts out of a population of 18.3 million.

The Bank provides a full range of domestic and International banking services, while pursuing the country's socio-economic goals of assisting the weaker sectors of the economy providing micro financing and industrial credit.

People's Bank is virtually at every doorstep through its 336 full-fledged branches and 127 sub-branches. This has enabled the Bank to link transactions from any part of the world to the remotest corner of Sri Lanka.

All the bank's main branches and the international operations are fully automated while all other branches are semi-automated. People's Electronic Teller (PET) services are available in all major towns.

One of the main objectives of the establishment of the People's Bank is rural development and strengthening the co-operative movement. To achieve this goal some of the major steps taken by the bank are opening a large number of branches in rural areas, (out of 337 branches 233 are located in rural areas), recruitment of staff from rural areas, carrying out business transactions in local languages for the first time and formation of a viable and effective village based formal credit institution the "Rural Banks" with the collaboration of the co-operative movement.

There are 1206 Rural Banks countrywide functioning at present. Rural Banks are catering to a segment of customers who look up to them for their micro financing needs.

The People's Bank has been able to identify thoughts and needs of rural masses and introduce various credit schemes, to suit farmers, artisans, businessmen and other entrepreneurs.

The pawning advances introduced through the branch network and the rural banks became very popular among the rural masses as they could obtain credit from a formal credit institution at a reasonble rate of interest, instead of seeking credit from the informal market.

In 1996 the People's Bank has opened more than 100 pawning and savings centres country-wide and 100 more centres will be opened in future.

The bank has granted credit for paddy cultivation from the inception and has always helped the institutions engaged in purchasing agricultural products by providing credit facilities so that the rural farmers are able to market their products during the harvesting seasons.

Financing of Small and Medium Industry

The People's Bank clearly identified the importance of Micro Small and Medium Enterprise (MSME) sector for employment creation and upliftment of the economic activities in the country.

Focusing on this aspect, the bank has have played a key role in financing micro credit schemes, small and medium industry credit scheme and other development credit schemes to boost the country's economy.

In contrast to large factory based centralised mass production of few specialised items, micro small and medium industry covers a range of productions thus the MSME sector is believed to be more effective in diversification of product and services towards achieving a sustainable industrial development in any country.

As a pre-requisite of industrial development, the People's Bank has already financed more than Rs. 2 billion in assisting the electrification of over a 325,570 rural households. Under the World Bank, ADB aided, SMI loans schemes,the People's Bank has been in the forefront by financing over 6000 projects to the value of Rs 3079.8 million. The bank has granted little over Rs. 2 billion for 505 projects from the bank's own funds.

It has been observed that the bank has allowed a very large quantity of credit through pawning advances. Little over 1,500,000 customers have made use of this micro credit scheme instead of seeking credit from informal money lenders.

Most of them are using this facility to finance their working capital requirement in small business activities. 18 other loan schemes specially designed for the benefit of micro, small and medium entrepreneurs are now in operation.

The Bank has already financed Rs. 400 million on self-employment credit schemes and a start-up enterprises credit scheme. Several viable micro projects have benefited by obtaining these funds.

The People's Bank has played a leading role in granting micro project loans under Surathura and Sasana Credit Schemes. PB has also engaged in credit awareness programme and entrepreneurship development programmes for the benefit of MSMEs with the aim of achieving sustainable and equitable development.

Future prospects

The MSME sector is fast growing in the economy of our country. Yet People's Bank is aware that this market remains largely untapped.

The high interest rates paid to informal and formal lenders demonstrate that specially Micro Entrepreneurs are willing to and actually do pay market interest rates if credit is available at easily on flexible terms.

In order to serve such micro, small and medium entrepreneurs, PB is making arrangements to produce credit and savings products through its rural banking innovation project (RBIP - a collaboration with the GTZ Germany) established for introducing innovative financial technology to serve MSMEs better in the next millennium.

RBIP financial innovations such as -

Linking credit with savings

Flexible multipurpose credit products

Micro Credit

Character loans instead of project loans

Regular and frequent loan instalments monthly and weekly

Incentives for customers

Alternative forms of securities

Wholesale banking and

Credit Plus approach

are experimented to serve the MSMEs better in the near future

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