The Central Bank has pointed out that the country's foreign exchange reserves had increased by 23 per cent in the first ten months of last year. The question in the minds of most businessmen is whether our foreign reserves would be seriously eroded this year.
The first ten months of last year had special reasons and propitious conditions conducive to our foreign reserves increasing. In 1998, not only are these conditions absent, but the crisis in the Asian region and lower world economic growth are likely to impact adversely on our balance of payments and foreign exchange reserves.
As the Central Bank itself has noted one reason for last year's improvement in our foreign exchange reserves was the proceeds of the large privatisations bought by foreigners. This year such a 'bonus' is not likely. In fact the current indications are that foreigners are selling out their share holdings, sometimes even at a loss, to avert larger losses and remitting their funds out.
In expectation of a currency depreciation, funds, which should be coming into the country, are being held back. Perhaps even export earnings are being held back in order to gain from a possible depreciation. The climate of expectations is certainly not conducive to the enhancement of our resources. The balance of payments is probably feeling this pinch already.
Last year our exports performed well. Export earnings grew by around 14 per cent in terns of U. S. Dollars. Industrial exports led with about a 16 percent growth, while agricultural export growth was an impressive 9 percent. This export growth together with a slower growth in consumer imports, assisted in the reduction of our trade deficit. Are these conditions likely to prevail in 1998?
Tea exports grew last year owing to both an increased production and an increase in international tea prices. Weather conditions may not favour our tea production this year. Tea prices are more likely to stabilize rather than increase. Nevertheless tea export earnings are likely to be stable and a crisis situation is not expected. In contrast, rubber exports are likely to fall significantly. The massive devaluations of the currencies of the major rubber producing countries in South East Asia, have reduced prices drastically. In fact, Sri Lanka's rubber industry could face a crisis, unless effective measures to assist the industry are implemented or the currency is competitively depreciated.
The main threat to our export earnings is from the industrial sector. The devaluations have left our exports uncompetitive. This is particularly so with respect to exports with a high local raw material content. Rubber goods and ceramics are especially vulnerable and likely to suffer severe impacts. Garment exports are protected to some extent owing to the high import content, which itself would benefit from lower relative prices. Yet, even garment exports of our competitors would benefit from the depreciation and be able to offer better prices in the international market. Industrial exports as a whole face a serious threat and industrial export earnings cannot be expected to rise in the same manner as in 1997.
The Asian economic crisis will have its impact on investment flows into the country. At a time when the country was perhaps better poised to attract foreign investors, the international outlook has turned unfavourable. Slower investments, both direct and indirect though the stock exchange, are likely to result in a larger outflow than an inflow of capital.
Unless the IMF brings in a balance of payments support, the country's balance of payments is likely to be in deficit and our foreign exchange reserves are likely to fall. Fortunately the reserves are reasonably adequate and the economy can cope with a drop in 1998. Such a fall could however, affect the perception of investors for the future.
The situation calls for governmental action to mitigate the unfavourable international economic environment we face. Strong interventionist policies are needed to avert a disaster. Complacency is totally unacceptable. Instead of looking back at our achievements in 1997, we must brace ourselves to face the impending crisis in 1998. We must not let the impending gloom in the trading environment deter us from positive measures to strengthen our economy and look towards the long term strategy for economic development.
The Sunday Times Business met the newly elected President of the Travel Trade Association, Afgher Mohideen, to discuss his views of the tourism industry and his plans for the Association.
Q: How is the present season, is it cruising well according to the industry expectations?
A: We are having a good winter season, despite gloomy predictions after the bomb blast. Arrivals have been very good. According to the Ceylon Tourist Board statistics, January to November '97, arrivals were up by 22.87 per cent (327,000) compared to same period last year (266,436).
Q: Does Sri Lanka have an open-skies policy? Is it true that the authorities permit only certain airlines to operate?
A: We are very liberal in our aviation policy. It is wrong to say that we have a closed policy. The authorities have permitted other airlines to come in.
The aviation authority is not against any airline coming into Sri Lanka. Any schedule airline that has a bilateral agreement with the government of Sri Lanka is permitted to come, provided they conform to all our requirements.
Of course, charters are allowed on a case by case basis. The aviation authorities have been quite liberal about them. During the present winter season they have permitted quite a few charters to come from Russia. So this talk of restrictive air traffic policy is not true.
Q: Would you like to see more airlines coming to Sri Lanka?
A: Yes, as far as our members are concerned, we would like more traffic to come to Sri Lanka. Because it enhances tourist traffic, and the hotels are able to get a better occupancy rate. As you know, the total investment in the Sri Lankan hotel industry in around Rs. 35bn. A very high figure, but unfortunately over the past few years, they have had a lean season and despite this the hoteliers kept the hotels going. So it is necessary that they have an option of filling their rooms. With more capacity to Sri Lanka it will give them an opportunity to get their hotels occupied and recuperate some of their investment.
We also welcome more scheduled airlines to Sri Lanka. We are glad British Airways resumed operations. We hope others like KLM and other European airlines will come back and do regular services. This would give an opportunity to our members in airline ticketing to get more revenue.
Q:Despite constant lobbying, we still see only a few scheduled airlines operating in Sri Lanka, is there a reason for it?
A: Primarily, it is due to the commercial factor. They feel there is no adequate traffic or the field is not quite right for commercial airlines.
Q: What type of tourist traffic does Sri Lanka attract?
A: We attract both the beach holiday and cultural holiday clients. By cultural holiday tourist I mean those who come here to see the cultural cities like Kandy. Most tourists who come here do a round trip, one week to see the cultural sites and spend the last week on the beach.
Q: We see a number of beach resorts coming up in the coastal belt. Is there an increase of tourists coming in search of this particular type of hotels?
A: There is an increase of tourists who go in search of resort holidays. In fact, this season has seen a rise of tourists in this particular segment, and the hotels offering these services are fully booked.
Q: Who are Sri Lanka's main competitors?
A: The Maldives, Goa, Thailand, East cost of Malaysia, Mauritius, Seychelles, East Africa.
Q: What makes Sri Lanka stand out among its competitors?
A:Sri Lanka is a unique holiday destination. Within a few hours of driving, you can enjoy the beach, or see the cultural cities, the mountains, the wild life parks. It is a total package within a few hours of driving. Compared to what some of our competitors have on offer. Places like Goa, Maldives they only offer the beach. Other countries do have cultural sites to offer, but it takes a long time to travel to those cultural sites.
Q: Do you think Sri Lanka loses tourist traffic to the Maldives?
A: The Maldives is a complementary destination to Sri Lanka. It has a different concept and a different product. It also has the beaches, is catering for scuba diving, underwater explorations, and other things that we cannot offer. So they are different to us. This type of holiday appeals to certain clients, who want an isolated holiday on the beach. Certain tour operators tie up Sri Lanka with the Maldives for a round trip. The tourist will go to Maldives for the beach holiday and come to Sri Lanka to see the cultural attractions.
Q: Given this present security scenario, do you think the government is doing enough to promote Sri Lanka?
A: It is doing everything possible to make it safe and secure to minimise the risk of tourists getting affected, with minimum inconvenience to the public.
Q: Do you think it gives a negative image to tourists to see armed guards at various points in the city, not to mention right outside their hotels?
A: All security forces have been very courteous and co-operative when it comes to tourists. The tourists appreciate the fact that security is vital and that all steps are taken for their safety. Even in other countries we have this problem. For instance, Egypt where the tourist industry has been targeted of late. This is not so in Sri Lanka. So far, not a single tourist has been killed, except when the bomb exploded in 1986, on board the AirLanka Tri-Star at Katunayake, killing one tourist. This resulted in a drop of Japanese arrivals, which picked up later.
Q: On an average, how much does a tourist spend in Sri Lanka?
A: A normal tourist package on average, with extra food and liquor spend around US$ 75 per day. The hotel room rent and airticket are paid at the point of purchase. This US$ 75, is for additional extras.
Q: What is the role of your association, how do you help promote Sri Lanka?
A: Our association consists of 186 members who are inbound airlines and airticket operators. We work together with the Ceylon Tourist Board to promote Sri Lanka at various travel trade fairs overseas.
Q: Do you think the Ceylon Tourist Board is doing enough to promote Sri Lanka, are you happy with their services so far?
A: I think it is doing its best despite its limitations. At the moment the government is spending US$ 2.5 mn on an image building campaign, and has enlisted the services of an international advertising firm, Manning Salvage and Lee, to project Sri Lanka as a safe country for both tourism and investment. The Tourist Board began its activities only in November last year. So its still too early to assess the results. The government has also posted information officers at various missions overseas to give the correct picture of Sri Lanka.
Q: Is the industry giving any concessions to attract tourists, given the present scenario?
A: No concessions have been given. As I said, Sri Lanka is a value for money destination. Where can you get our product for this price?
Q: Do you think there are adequate hotel rooms in Sri Lanka?
A: The President has given a target of 18,000 rooms by 2001. At present 12,857 rooms are in operation. The Tourist Board has approved about 5,000 rooms. 1,002 rooms are under construction and will be ready by early 1999. So by 2001, we should have little over 18,000 rooms, I think in 2-3 years time we would have achieved our target
Q: Do you think we need more 5 star hotels?
A: Yes. If we are going in for up-market tourists we can't have 2 star accommodation.
Q: There are new concept hotels coming up. Do you think there is a ready market for them?
A: Yes there is a market, we like to see many such hotels coming up in the near future.
Q: Do you think the new hotels that are coming up should base their hotels on a particular theme?
A:It depends on what type of market they (the developer) would like to cater to. It varies from developer to developer.
Q:What are the Association's plans to celebrate Sri Lanka's golden jubilee celebrations?
A: The travel agents, tour operators, together with the ministry of tourism have handpicked 75 presidents and CEOs of tour operators to be in Sri Lanka as guests of the travel trade and the government. They will be here from February 3-5 and will participate in independence ceremonies in Kandy on the 4th. This invitation is to thank them for having continuously promoted Sri Lanka for past 50 years. They will also visit the Independence Day exhibition held at the BMICH on the 5th.
Q: We hear constant problems of undercutting airfares. What has your association done to curb this problem?
A: At the moment we have a market development programme. This has stabilised the airfare rates. The programme began in mid 1997. All airlines and travel agents agreed on a minimum fare level, they cannot undercut, or give a bigger discount to the passenger from their commissions. This agreement is only for air traffic going out of Sri Lanka.
Q: What do you think of the government's intention to privatise AirLanka?
A: It's our national airline. We like to see the carrier continue to maintain the identity of our country. We still don't know what's happening about the AirLanka deal, we only know what appears in the media.
Q: Do you think the authorities need to set up a tourist advice centre?
A: The local police stations handle whatever problems that arise very effectively. The Ceylon Tourist Board also has an information desk that operates 7 days a week. With tourism industry growing we will need such desk in the future.
Q: We hear that there is a controversy in the Association about big and small agents not treated alike. Is this true?
A: These rumours have been going on for a while. Some operators began small and grew to what they are today due to hardwork, application and entrepreneurship. These opportunities are available to every agent to become big, if they work hard and apply themselves. John Keels, Aitken Spence, Connaisance, Jetwing Tours are all companies that began small. Jetwing for instance, had no corporate backing. Their chairman Herbert Cooray was a building contractor. Due to his hardwork, dedication and application he is today the single largest individual hotelier in Sri Lanka. His travel company Jetwing tours, is the largest incoming travel operator. So opportunity is available to all to be made use of.
Q:As the newly elected President, what are your main tasks?
A: To work together. Earlier we pulled in different directions. Major operators like John Keells, Aitken Spence left the association earlier, as they felt their needs were not being looked after. Since I took-over, they have re-joined us.
Q: What are the plans of the association?
A: We are pushing for a Tourist Promotion Authority (TPA) in Sri Lanka. The proposed authority will do the marketing, promotional and development activities for Sri Lanka. The authority would comprise both private and public sector. The Ceylon Tourist Board could then function as a regulatory body. We want the Tourist Board to give the marketing, promotional activities to the TPA to handle. We have made the proposals to the Tourism Ministry and are waiting for a favarouable response from them.
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