The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Can we sustain the tourist boom to reach a million?
Tourist arrivals reached the one half million mark last year. This growth in tourism was a progression of the revival of tourist traffic that started in the second half of 2002, mainly owing to the much improved security situation and the revival of the international economy. Can we sustain this trend to reach a million arrivals soon, may be by 2010? The expectations generated by the tourist boom led to a rise of share prices in the hospitality trade.

There appears to be an interest in foreign new investments to build hotels in Sri Lanka. All these are signs of an impending boom in tourism. However, this euphoria might fade away as the internal security situation is once again in the balance. There are ominous signs that the current political chaos could lead to an unstable security situation that could seriously affect tourism.

The tourist trade has been characterised by violent fluctuations in fortune. It has faced unexpected reversals in the last two decades. There have been ups and downs in tourist arrivals since 1983, when tourist arrivals reached a peak 407,200.Then, the ethnic disturbances rocked the industry. Terrorist attacks and the JVP insurgency created a security situation that saw the decline of tourism. By 1989 tourist arrivals were less than one half of what it was in 1983 at only 184,700.

Once the insurgency was quelled, despite sporadic terrorist attacks, tourist arrivals increased and in 1994 reached almost the peak of 1983. By 1999 it had increased to 436,400. There was a slight dip in tourist arrivals in 2000 to around 400,000 owing to the unsettled conditions in the country.

Just as it was picking up in the first six months of 2001, the Katunayake airport bombing followed by the September 11, attacks brought down the industry again, resulting in the number of tourists dropping to 336,794 in 2001.

The wavering fortunes of the tourist industry in recent years have been a serious constraint to the development of the industry. Not only has the industry itself suffered in the past, even banks and financial institutions have found themselves in difficulties owing to the inability to recover loans given to hotels. The government has had to intervene and provide relief in the form of interest subsidies and deferment of loan instalments several times. It is to the credit of investors that in the face of these setbacks they continued to invest in hotels.

The tourist industry makes a significant contribution to economic growth and earnings from tourism are a significant contribution to the balance of payments. If the 2003 end year figure were to exceed US$ 300 million, it would be a substantial contribution to the country's foreign exchange earnings. Apart from the direct benefits from tourism, indirect benefits are substantial.

For every Dollar earned directly, it is estimated that there is as much as half that gain indirectly. Nearly 40,000 persons are directly employed in the hospitality trade and a further 50,000 or more are estimated to be indirectly employed in tourist related work. In this context, we must hope that the vicissitudes of the industry are events of the past and that there are no internal or external shocks.

If conditions remain peaceful and hospitable for the industry, it is a real possibility that the number of tourists could reach the much dreamed of one million in 5 to 6 years from now. The prospect of such an increase in tourism implies a need to gear the tourist industry and infrastructure to cope with such large numbers. We must provide accommodation in places demanded, provide quality services and continue to remain internationally competitive.

There is a need to ensure that more international airlines fly into the country once again. The prospect of a free skies policy is good for the industry. The accessibility of the country, especially from westerncountries, must be enhanced. There is an imbalance in the tourist accommodation available in the country. Most of the tourist accommodation is in Colombo, Kandy the southern coast and Dambulla area. But in other areas such as the eastern coast and the north accommodation is inadequate.

Quality accommodation in particular is in short supply. There is also the need to ensure that internal transport services are improved and road conditions vastly improved so that travel time from one destination to another is reduced.

The improvement in tourist earnings last year gives an opportunity for the industry to improve facilities in the country. The government must indeed improve the infrastructure in the country. The global economic recovery and international security are also significant factors in ensuring an increase in tourist traffic. The most serious threat is once again from a resumption of war.

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