challenges of tourism industry in sri lanka

Key challenges facing the tourism sector in Sri Lanka

Friday 27 th June 2014

A synopsis of the keynote address delivered by Institute of Policy Studies Executive Director Dr. Saman Kelegama at the Annual General Meeting of the Institute of Hospitality – Sri Lanka Chapter, Hotel Ramada on 20 June

In Sri Lanka, one sector that featured prominently in the post-war rapid growth was the tourism sector. The arrival of tourists increased rapidly and passed the elusive one million mark in 2012 and increased further in 2013. Consequently, the tourist earnings also increased and now (2013) the sector occupies the position as the third largest foreign exchange earner to the country ($ 1.7 billion) after overseas remittances ($ 6.4 billion) and textiles and apparel exports ($ 4.5 billion).

A growing sector in an economy always faces challenges and the Sri Lankan tourism sector is no exception. These challenges have been highlighted by various commentators from time to time. An attempt is made here to highlight six challenges confronting the sector and the need to address them by both the tourist industry and the Government.

IPS Executive Director Dr.Saman Kelegamadelivering the key note address

Deepening and broadening the availability of tourism data  

To do any comprehensive analysis of the sector there needs to be a solid data base, however, available data have a number of shortcomings. Two cases may be highlighted. First, the tourism arrival figure for 2013 is given as 1.27 million after a correction was made by reconciling online and manual figures.

Irrespective of the accuracy of this figure, what anyone studying the tourist sector would like to know is the actual number of tourists who spend 24 hours or more and spend on a hotel night out of this number? The current figure includes many Sri Lankans with foreign passports, foreigners working in embassies for a short period, NGO workers, donor organisation staff – all of whom come for a limited period less than one year, as well as businessmen/traders who come for a couple of nights that are spent with business partners. If all these are factored in, the actual tourist hotel nights will apply only to about 75% of this figure of arrivals.

“Another issue that arises is which kind of tourists are we targeting – high-end, middle or the lower-end? Some argue that we must target the higher-end and focus on smaller number of tourists who are high spenders and bring more foreign exchange earnings. This is however debatable; Sri Lanka is still considered as a ‘value for-money cheap-end destination’ and this remains its strength. Thus the lower end should not be abandoned, while gradually developing the high-end and the middle level tourism We need to move fast to make this sector a larger contributor to the economy. The current contribution of tourism to GDP is close to an average of 2% (1.7% in 2012 and 2.5% in 2013).

Some of Sri Lanka’s Asian competitors are at a much higher level of tourism sector contribution to GDP, for example, Malaysia – 12.5%, Vietnam – 7.5% and Singapore – 5%. All these challenges among others need to be addressed on a fast track basis if Sri Lanka is to make the tourism sector an above 5% of GDP contributor to the economy after 2016. This is certainly not an impossible task if a master plan is worked out by the industry and the Government”

Second, the Foreign Guest Nights (FGNs) data from the informal sector is not available. With the popularising of the internet and social media, many young tourists look for cheaper hotels in the informal sector and all indications are that the informal sector will grow as rapidly as the formal sector. Data indicates that there are close to 11,700 rooms in the informal sector compared to 15,000 rooms in the formal sector and that is the only data available on the informal sector. Thus, more aggregate data on the informal sector will be useful for policy formulation and making more meaningful decisions on undertaking investment in the tourism sector. Accurate information on FGNs is not available for the registered hotels also as some of these hotels do not submit this information on a timely basis. According to the CBSL – AR 2013, the maximum FGNs is in the Southern Coast followed by Colombo city during the post-war period but for the first time, Ancient Cities ranked second in 2013. The Hill Country and the Eastern Coast perform relatively poorly in terms of FGNs. While this is the picture that emerges from the formal sector, the point to consider is whether the picture will change if the informal sector is incorporated. These are the questions that need answers for investment expansion in the tourist industry.

Targeting 2.5 million tourists by 2016

It is contended that the current 26,700 rooms (15,000 + 11,700) should be increased to about 50,000 rooms by 2016 if we are to accommodate the 2.5 million tourists that are targeted for 2016.There are reasons to believe that the estimate of 50,000 rooms was to accommodate the peak season tourists during November to January.

It was reported in an article titled ‘Hotel construction explodes’ (The Sunday Times, 8 June 2014) that during 2014-2016, 5,306 rooms will come into operation with 75 hotels under construction. If it is assumed that another 4,000 rooms will come into operation in the informal hotel sector during the same period, there will be 9,306 rooms and when this is added to the 26,700 existing rooms, it will come to about 36,000 rooms, still short of the target of 50,000 rooms.

In the Sunday Times report, Shangri-La, Hyatt, ITC and the mixed hotels – Krrish, JKH Waterfront, Queensbury, Crown Plaza of Packer, etc. – have not been mentioned. It has also not discussed the challenge to hotel rooms by the glut of condominium apartments coming up, especially in the city of Colombo. There are number of condominium apartments that are now rented out to tourists. Thus, a more careful estimation needs to be done to judge the situation whether there is an under-supply of hotel rooms.

Clearly, the rooms coming up will be more than 36,000 if the left out component is added and will be most probably above 40,000. There are reasons to believe that this number will be adequate. First, the 2.5 million target may not be achieved in 2016. Second, even if the target is achieved, only about 75% will be actual FGN-related tourists, i.e., about 1.9 million. Further, there will be seasonality factor – periods where tourist flows are less. When all these factors are taken into consideration, the room number seems to be reasonably correct to accommodate the 2016 inflows.

In this respect, one may also recall what happened in the past. Before the 2011 World Cup Cricket, it was stated that there will be a large influx of tourists that the hotels will not be able to accommodate.

Thus, it was argued by some commentators that we may have to hire cruise liners to be parked in the Colombo Harbour to accommodate the excess tourists! Then last year, it was stated that Colombo will be flooded with foreigners when CHOGM starts and a minimum 4,000 rooms will be occupied. Both these proved to be highly exaggerated. No cruise ships were required for the World Cup and only about 2,000 rooms were occupied for CHOGM and the Colombo city hotel occupancy rate during CHOGM was 30% to 40%. Hence, over-exaggeration is an aspect that we have to discount in the tourist industry.

Earlier, the need was emphasised for a good data base on the tourist industry to make informed and sensible decisions. When data is weak, market gossip and herd instinct tend to take over and there can be an over-supply of rooms and cut-throat competition to attract tourists, while the government agencies will give quick approvals to hotel projects without giving much consideration to the qualitative aspects.

Minimum price for Colombo hotels  

This was imposed after the war ended to control price undercutting in city hotels and truly reflect the standard of the hotels in the absence of the war-risk factor. As a result, the Colombo city hotel rates have increased by 40%-50%.

Although an initial price correction was required, whether the price of $ 180 per night for five star hotels unmatched by the services offered, was an over-pricing is questionable. It is reported that the Colombo city hotels had seen a decline in occupancy because tourists feel that they do not get value for money with such pricing. That there is a problem in price fixing is not only felt in Sri Lanka but also outside the country.

Recently, the Director of the Russia Centre of the Russian Embassy in Colombo had stated that more Russian tourists will come to Sri Lanka if the price quality ratio is realistic (The Island, 9 June 2014). For 2014, the Sri Lanka Tourism Development Authority has projected 90,000 Russian tourist-inflows but the Director of the Russian Centre feels that the number could be much more if the price-quality ratio is addressed.

Unfortunately, minimum prices came at a time when the global economy was on a downturn, and disposable incomes of tourists were falling.

The minimum price is good as an initial correction but also has its fall outs just like the market price which encourages undercutting. The stakeholders of the tourism industry will have to work out a compromise formula until a market regulator is established for the sector which is the case in all matured market economies in the world.

  “To match the slogan ‘Wonder of Asia,’ what are the wonders that Sri Lanka possesses? Two items that are noteworthy are Sigiriya and the gathering of elephants in Minneriya. Other than these two, one cannot think of any other wonder in Sri Lanka. Therefore, it is questionable whether the branding of the destination is correctly placed

Sri Lanka lacks a cohesive marketing strategy and campaign which should be a mutually-agreed private-public partnership. There are various promotional exhibitions that have taken place in foreign capitals in the past but they are not based on a master plan to promote the market destination. There is much more work that needs to be done in this area”

Once a regulator is in place, it will be more prudent to allow the demand and supply forces or the market to take over to discover the equilibrium price. If not, with the occupancy falling, the desired capacity fulfilment will not take place in these hotels and it will prove difficult to achieve the set tourist target. Human resource constraint

The number of total hotel rooms will increase to a level above 40,000 from the current 26,700 by 2016 as argued earlier. This will be a result of the number of hotels increasing by 75 in the formal sector and an unknown number in the informal sector. In this context, the question arises as to whether the human resources are adequate to meet this increase in hotels.

If one goes to any hotel in Maldives, UAE, Qatar or Oman one finds Sri Lankan workers – managers, cooks, waiters, gardeners, room boys, hotel car drivers, etc., clearly, revealing that some of the skilled and semi-skilled workers in the hotel industry have migrated overseas.

Meanwhile, the Sri Lanka Institute of Tourism and Hotel Management is bringing out close to 4,000 trained personnel per annum. Some of the Universities like Sabaragamuwa and Uva-Wellassa also produce 50 to 150 tourism trained graduates per annum. Apart from these, the existing private colleges in tourism also bring out some trained personnel although one cannot be sure about the quality of this training. Nevertheless, all these trained outputs will not be adequate to meet the expansion and growth of hotels. Moreover, the quality of output, especially the proficiency in English and some other key languages, does not appear to receive much attention in the current training programs. Thus, the human resource constraint remains a major challenge the industry will face in the coming years which both the industry and the government have to immediately address.

Brand destination

To achieve the 2016 target it is necessary for Sri Lanka to have an effective tourism promotional strategy. In

this context, two issues can be raised. First, does Sri Lanka have an effective brand destination? Second, is there a general marketing strategy for tourism? For brand destination, while Sri Lanka some years back had a slogan ‘Paradise Island,’ by the late 1990s, it changed to ‘Land Like No Other,’ then it changed to the current one: ‘Wonder of Asia’. Before the latest brand name came into being, the tourist industry came out with ‘Small Miracle,’ which did not receive a favourable response from the Government and was consequently rejected.

To match the slogan ‘Wonder of Asia,’ what are the wonders that Sri Lanka possesses? Two items that are noteworthy are Sigiriya and the gathering of elephants in Minneriya. Other than these two, one cannot think of any other wonder in Sri Lanka.  Therefore, it is questionable whether the branding of the destination is correctly placed.

If one takes a country like Singapore, at one time it was marketed as ‘Uniquely Singapore’ and when the country discovered diminishing returns from that slogan it was changed to ‘Yours Singapore’ to underpin its strengths as a destination. The re-branding was accompanied by a change in the offerings to tourists with the introduction of Formula One Racing, Casinos, and other night entertainments. The re-branding focused on the experience of a tourist that could be personalised – sound, tastes, sights, user-centricity, etc.

Branding a destination has to be a carefully-thought-out exercise based on the competitive strength and strategic position vis-à-vis the competitors. It is on this basis that countries have branded their tourism. For example, Greece – ‘A Masterpiece You Can Afford’; Canada – ‘Keep Exploring’; Malaysia – ‘Truly Asia’; Bulgaria – ‘A Discovery to Share’; India – ‘Incredible India’; Vietnam – ‘A Different Orient’; Maldives – ‘Always Natural,’ and so on.

Marketing strategy

Sri Lanka lacks a cohesive marketing strategy and campaign which should be a mutually-agreed private-public partnership. There are various promotional exhibitions that have taken place in foreign capitals in the past but they are not based on a master plan to promote the market destination. There is much more work that needs to be done in this area.

Even target group marketing is lacking. For example, is Sri Lanka making any attempt to attract some of the Italian and Chinese young couples that travel to Maldives for their honeymoon? East China Airlines that flies from Kunming in China to Maldives via Colombo has only 3% to 5% of passengers who get down in Colombo and this is the case in the return flight from Maldives to Kunming also. Italians who travel for sun and sand to Maldives are not fully aware of the different tourism products that Sri Lanka offers to complement their Maldivian experience. In sum, Sri Lanka has failed to market the country as one that offers a different product from that of Maldives to both Chinese and Italians who travel to Maldives in large numbers.

In this connection, another issue that arises is which kind of tourists are we targeting – high-end, middle or the lower-end? Some argue that we must target the higher-end and focus on smaller number of tourists who are high spenders and bring more foreign exchange earnings. This is however debatable; Sri Lanka is still considered as a ‘value for-money cheap-end destination’ and this remains its strength. Thus the lower end should not be abandoned, while gradually developing the high-end and the middle level tourism.

Here the example of Bangladesh in ready-made garment exports may be highlighted. By continuously focusing on the low end, Bangladesh has developed its ready-made garment industry to $ 20 billion export earner by increasing its volumes when Sri Lanka shifted away from the lower end and focused on more niche products with high value. Still, the value and volumes bring in $ 4 b export earnings to Sri Lanka, much less than Bangladesh – a country which was behind Sri Lanka in ready-made garment exports in 1990.

Thus, Sri Lanka should focus on its strength at the low end of the market but at the same time, develop the structure to attract middle level and high-spending tourists and also MICE tourists which brings higher earning than leisure tourists.

Concluding remarks

It is apparent therefore that we need to move fast to make this sector a larger contributor to the economy. The current contribution of tourism to GDP is close to an average of 2% (1.7% in 2012 and 2.5% in 2013). Some of Sri Lanka’s Asian competitors are at a much higher level of tourism sector contribution to GDP, for example, Malaysia – 12.5%, Vietnam – 7.5% and Singapore – 5%. All these challenges among others need to be addressed on a fast track basis if Sri Lanka is to make the tourism sector an above 5% of GDP contributor to the economy after 2016. This is certainly not an impossible task if a master plan is worked out by the industry and the Government.

http://www.ft.lk/2014/06/27/key-challenges-facing-the-tourism-sector-in-sri-lanka/

Tourism in Sri Lanka: One step forward, two steps back

A spiralling economic crisis is hurting tourism, a key source of dollars that had barely revived after three bad years.

Colombo, Sri Lanka – Tourism in Sri Lanka just can’t seem to catch a break.

Three years ago, the number of tourists was down 18 percent following the Easter Sunday bombings in April 2019. The coronavirus pandemic that followed in 2020 was particularly bad. Arrivals fell drastically and there were no signs of recovery until November 2021, when the government removed all quarantine requirements for fully vaccinated tourists, encouraging vacationers to come to the island state.

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It was a welcome change as tourism is the third-largest source of foreign exchange for the country – behind worker remittances and the apparel industry – a large employer and an important source of dollars that help the government run the country.

But now as Sri Lanka grapples with the worst financial crisis the country has ever faced, there are daily power cuts and people are forced to stand in kilometres-long queues to buy fuel and cooking gas . Inflation was 17.5 percent  in February and the government has further tightened its restrictions on imports, exacerbating shortages. All of this is once again keeping tourists away – at a time when the government is scrambling to find ways to repay an overwhelming amount of foreign loans and needs those tourist dollars. 

“We need to find solutions for these people as soon as possible,” President Gotabaya Rajapaksa said in his national address on Sri Lanka’s independence day earlier in February. “As such, whilst strictly adhering to health recommendations, we have acted to restart the tourism industry in a phased manner.”

Worsening economic conditions

“Business has been fantastic the last few months,” said Kate Hopkinson, a foreign national who owns a restaurant and a bed and breakfast in Weligama, a popular coastal town in the south of the country. The prevailing economic conditions, however, are making it extremely tough for her to keep her business running.

“Due to the gas shortage, we have to buy on the black market, food prices are skyrocketing, [and] flour and imported goods are getting harder and harder to source. We run an Italian restaurant and we need cheese, but that is in short supply because of the import restrictions and local alternatives are getting pricier due to the milk shortage,” Hopkinson said.

Hopkinson is not the only one suffering. Restaurant owner Rasika Lakmal and lifestyle and travel ambassador Paloma Monnappa operate tourism businesses in the popular coastal towns of Galle and Unawatuna.

“We are facing four- to seven-hour-long power cuts daily. Fishermen are forced to cut back on fishing due to the fuel shortage, [and] shipping containers with essential items are stuck at the port because the country doesn’t have the money to pay for them”, said Monnappa.

“Every time you think of a possible solution you’re faced with a new issue or obstacle. You buy a generator but there’s no diesel to run it. We are desperate for tourists, but how do we cater to them? My Sri Lankan friends tell me the economy wasn’t this bad even during the war,” she said.

While some restaurants are buying gas from other cities like Colombo and Matara, Lakmal says that’s not an option for him. “If we do that then it costs about 10,000 Sri Lankan rupees ($35), more than double the normal price. We can’t afford that,” he said.

Spillover from the Russia-Ukraine war

Sri Lanka’s usual top tourism source markets are India, China, the United Kingdom and Germany, but since tourism’s reopening, many visitors have been coming from the Eastern bloc, with Russia and Ukraine bringing in 25 percent of arrivals between January and mid-February, partly on the back of active marketing by the tourism authorities targeting those regions.

However, Western sanctions on Russia like the ban on the SWIFT international payment system have now spilled over onto Sri Lanka as well. “Inquiries from Ukraine and Russian nationals came to a complete halt,” Dimitra Fernando, who manages a chain of villas for tourists to rent, told Al Jazeera. “We had Russian guests who were already in the country, but they cancelled all their bookings with us because they did not have money to pay. They couldn’t use their cards, nor could they withdraw money.”

But the main issue continues to be Sri Lanka’s own economic situation. The UK government, for instance, updated its travel advisory for Sri Lanka and warned travellers of shortages and power outages. “Inquiries from the UK and Middle-Eastern market have slowed down so much after the travel advisories,” said Fernando. “We manage eight villas, but we have not had even one booking since.”

Nuwan Amarasuriya, who works for a travel agency that gets most of its business from travellers from the UK, told Al Jazeera that the agency’s clients are “very concerned” about the ongoing shortage of fuel and other essentials, “so we are constantly in touch with them to reassure them”.

Authorities have ensured that tourism vehicles would be given priority in fuel queues, but this has caused anger among locals who are forced to queue for hours. A heated argument broke out in a town in Colombo this week when police officers attempted to allow a tourist coach to pump fuel ahead of others.

Labour shortages

Immediate problems aside, the industry must also address its labour shortage.

Although tourism has been growing in significance for the Sri Lankan economy, it struggled with labour shortages long before COVID-19. In 2018, Malik Fernando, head of the industry body the Tourism Skills Committee, told a roomful of tourism stakeholders that the country needs 100,000 more tourism sector employees within the next three years. “Yet, we only train about 10,000 each year,” he said.

Lakmal has been struggling to find staff for his restaurant in Unawatuna most of whom have “moved on” to other occupations and industries after the last couple of bad years. “They are not interested in working in the tourism industry anymore,” he said.

With the ongoing economic crisis the skills shortage is likely to become more acute as many tourism workers are looking at moving overseas or are not interested in returning to an uncertain industry.

“The issue with the Sri Lankan tourism industry is the pay structure,” said Ahamed Nizar, a tourism consultant. “There is a low basic pay which is topped up with service charges and tips, but that depends on how well the property is performing. So obviously without any tourists, workers were earning next to nothing the last few years and it was very difficult to survive.”

Nizar says he’s seen many skilled tourism workers migrate while the unskilled workers have found alternate options with stable pay. One of his clients doesn’t offer a dinner service any more because of the shortage of staff, while another is making do with a skeletal staff, he said.

A bumpy road ahead

While COVID-19 appears to be in the rearview mirror as far as Sri Lanka is concerned, the worsening economic situation has cast a heavy shadow on tourism. The government’s attempt to preserve what little foreign exchange reserves it has with measures like restricting imports of food items has had a severe impact on the availability of essential goods.

“Some restaurants have had to close for days because of the gas shortage; some have had to remove or reduce their menu offerings due to the import bans and rising cost of local food items. The power cuts are very difficult to explain to tourists. They do empathise with our plight, but nobody wants to come on holiday and sit in the darkness and the heat,” sighs Nizar.

Rebound of Sri Lanka’s Tourism sector: RIUNIT report

The Research Intelligence Unit (RIUNIT) has released a comprehensive report shedding light on the current state of the Sri Lankan Travel and Tourism sector. Despite the challenges posed by the global COVID-19 pandemic and subsequent economic crises, the data reveals promising trends in tourist arrivals and spending, indicating a gradual recovery in the industry, paving the way for ample opportunities for investors to explore. 

In an exclusive interview with the research team, Chalaka Gajabahu, Chairman, Sri Lanka Tourism Promotion Bureau said that “the 2023 tourist arrival trends paint an optimistic picture, especially when reflecting on the circumstances of the past year. We have successfully accelerated the recovery process despite numerous challenges, from the onset of the COVID- 19 pandemic to the recent economic crisis. In contrast to our competitors such as Malaysia, India, and Vietnam, who did not experience economic challenges, our recovery, when compared to theirs in numbers, stands out significantly. We anticipate an even more substantial year ahead for us. We are currently formulating a comprehensive plan that will be unveiled in the coming month”

The report indicates a notable surge in tourist arrivals to Sri Lanka, reflecting renewed confidence in travel. In 2022, there was a significant year-on-year growth of 270.18%, with a total of 719,978 visitors. The trend has continued into 2023, with tourist arrivals totaling 904,318 from January to August, surpassing the entire year's arrivals in 2022.

After a sharp decline in 2020 and 2021, tourism receipts saw a slight increase in 2022, reaching US$1,136.30 million. The first two quarters of 2023 also showed positive signs, with receipts totaling US$503.9 million in Q1 and US$371.1 million in Q2.

Tourism receipts Q1 2022 - Q2 2023

Source: Compiled by the Research Intelligence Unit (RIUNIT) with data from Central Bank of Sri Lanka

Sri Lanka continues to attract tourists from diverse regions, with major Middle Eastern, Indian, European, and Asian carriers contributing to the country's popularity. In 2022, Sri Lankan Airlines held the highest market share at 33.3%, followed by Qatar Airways and Emirates.

In a significant turn of events, several international airlines that had temporarily suspended or significantly reduced their operations to Sri Lanka during the global COVID-19 pandemic have now resumed full-time operations. 

Airlines that have recently resumed operations, launched new services, or commenced scheduled operations Thai AirAsia Resumed Operations, Air China Resumed Operations, Air Seychelles Launches a New Service, Uzbekistan Airways Resumed Operations, Alliance Air Resumed Operations Air France Resumed Operations, Azur Air Resumed Operations Aeroflot-Russian Airlines Resumed Operations, THAI Smile Airways

Launches a New Service

Source: Compiled by the Research Intelligence Unit (RIUNIT) with data from the Airport and Aviation Services (Sri Lanka) (Private) Limited 

“Several international airlines that temporarily suspended or significantly reduced their operations to Sri Lanka during the global COVID-19 pandemic have now resumed full-time operations as passenger demand have rebounded and the payload is met. Among these airlines are QATAR Airways, SINGAPORE AIRLINES, and Emirates,” Airport and Aviation Services Sri Lanka (Private) Limited

The report provides insights into fluctuations in cruise line arrivals to major ports, with March 2024 emerging as the busiest month. The data indicates a growing interest in cruise tourism, with various cruise lines choosing Sri Lanka as a destination.

Total upcoming cruise arrivals to major ports by month Nov. 2023 - Apr. 2024

Source: Compiled by the Research Intelligence Unit (RIUNIT) with data from CruiseDig

The complete RIUNIT report on the Sri Lankan Travel and Tourism sector can be accessed on the organisation's website. Interested parties can visit RIUNIT website to access the full report to gain in-depth insights into the industry's current state, emerging trends, and potential investment opportunities.

The Research Intelligence Unit is a London based think tank with a strong presence in Asia and recently celebrated 20 years of service in Sri Lanka.

How tech rescued Sri Lanka’s tanking tourism industry

The country's economic crisis left around 400,000 people jobless in sri lanka. tech is increasingly filling the void..

Sri Lanka’s tourism industry came to a screeching halt in early 2020, as the Covid-19 pandemic forced global borders to shut. The more than 400,000 people in Sri Lanka who work in the tourism industry were left in a lurch. Even after pandemic restrictions were lifted in late 2021, tourism, which contributed nearly 16% to the total foreign exchange earnings for Sri Lanka as recently as 2018, is still struggling to recover.

The collapse of the tourism sector has contributed to the island nation’s worst economic crisis since its independence in 1948. But the rise of a nascent tech sector, and the entrepreneurship around it, has helped many tourism employees and businesses stay afloat — and even thrive. 

Virtual tourism combines technological concepts like augmented reality (AR), virtual reality (VR), and mixed reality (MR), to offer a travel experience without actually traveling to a place. The pandemic led to a virtual tourism surge, with companies like Airbnb allowing online experiences from across the world. People could see the northern lights in Iceland or join a cooking class in Jaipur from their homes. Tourism boards also launched virtual campaigns to keep future travelers interested in their destinations.

Dhanula Jayasinghe, a 32-year-old ranger at wildlife tour operator Leopard Trails, was out of work almost overnight when the pandemic started. He spent the first few weeks of lockdowns trying to figure out an alternative way of making a living close to Yala National Park, almost 300 kilometers south of Colombo. In May 2020, he started conducting virtual leopard safari tours on Airbnb for $14 a person or $100 for 10 people. “I had to talk about leopards and share their videos on Zoom, while also creating a safari-like background. It was a big challenge in the beginning, but I got used to it,” Jayasinghe, who has conducted nearly 600 online safaris so far, also told Rest of World .

In December 2021, Shenuka Hapugoda, a former IT consultant based in Colombo who was on a break when the pandemic hit, launched BA.LA.MU — a mobile app that offers audio guides and maps of popular attractions — to cash in on the virtual tourism uptick. Meanwhile, in May 2020, Foozoo Mantra, a bed and breakfast in Colombo, launched an online store to sell locally grown ingredients under the brand name Goodfolks, which is now available in the U.S. too.

The rise of such digital entrepreneurship is the result of years of gradual mainstreaming of technology, backed by public-private partnerships, venture capital investments, and private sector incubators, according to Nevindaree Premarathne, senior manager of startup ecosystem development at the government-run Information and Communication Technology Agency (ICTA).

“A crisis situation creates many opportunities, and we can see a lot of entrepreneurs coming up with new ideas to support the economic condition. Most young entrepreneurs now know how important it is to go global, and how it helps a country,” Premarathne told Rest of World . “Young people have realized that it’s easier to venture into this field [technology], as opposed to traditional businesses, as it provides scalability and the ability to be location-independent.”

Tech journalist Neville Lahiru says the country’s ongoing economic crisis may hinder the growth of the nascent tech industry there, as more and more professionals have started to migrate to foreign countries for better salaries and lifestyles. “Some of the bigger firms have tried to mitigate the situation by pegging salaries in foreign currencies, like USD or AUD. Unfortunately, not every tech firm can follow this approach, since a notable chunk of the sector operates almost exclusively locally,” Lahiru told Rest of World . In 2018, Sri Lanka had around 125,000 people employed in the information technology and business process management industry.

In 2021, there was an over 60% year-on-year increase in the total venture capital investment in Sri Lanka, which rose to $19.7 million, according to policy advisory and research firm Startup Genome . “There’s a rise in the number of startups launching in the last four years, especially among fresh graduates. The focus of startups in Sri Lanka has diversified significantly to newer avenues, such as clean tech, artificial intelligence, machine learning, gaming, and edtech,” Minuri Adasuriya, head of programs at Hatch, a leading local startup incubator, told Rest of World . Hatch has directly supported over tech 200 startups in the last three years, including the audio travel guide BA.LA.MU.

Tech entrepreneurship took its roots in Sri Lanka at the end of the country’s civil war in 2009, Premarathne said. For the following eight years, the island nation had only about 200 registered tech startups. In 2019, the government partnered with the private sector to launch Startup SL, a five-year program to boost startups. “Sri Lanka is a small country, where you would bump into someone you know at a meeting. But without credibility, it’s difficult for an aspiring entrepreneur to receive support or funding,” Premarathne said. “Through Startup SL, we connect entrepreneurs with one another and also with investors and accelerators, where they can receive guidance and funding for their projects.”  

Nearly 400 startups were registered under this program in 2020, Premarathne said. Now, 712 tech startups have been registered under the program, and the goal is to have 1,000 startups covered by the program by 2024.

The trend is likely to continue, as Sri Lankans from more diverse backgrounds are now taking to entrepreneurship. In April, when ICTA invited applications for the latest edition of Spiralation , its six-month incubation program, they received interest from every province in the country. “We had fewer applications because of the current situation. Most people are frustrated and trying to find solutions for their day-to-day life. But we had applications from every province. We saw some new faces and innovative ideas that want to address the economic problems we have,” Premarathne said.

But as the current economic crisis unfolds, big companies have the luxury of setting up temporary offices in neighboring countries like India and Singapore, but small startups will find it difficult to operate. Lahiru fears that the situation could worsen over the coming months. “A continuously worsening economic crisis translates to rising scarcity in fuel, transportation, food, and connectivity problems, like electricity and internet. For the tech sector, this means even working from home or remote working — a move that many firms switched to during the pandemic — will become a near impossibility in the future,” he said.

Meanwhile, Jayasinghe is still talking about the elusive big cats on Airbnb. His company had a busy five-month period from December until early May, but it’s the off-season now, and Sri Lanka’s financial crisis is slowing tourist arrivals. 

Since travel restrictions across the world eased, tourists are now leaning toward physical experiences, but virtual experiences are still popular as a team-building exercise for companies, Jayasinghe said. “More than the content, people expect friendly chit-chat, fun, and laugh,” he said. “My online leopard tour takes only about an hour, so I can fit it in during lunch hour or after work for additional income.”

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How tourism in Sri Lanka went downhill: Causes and consequences

Author : Soumya Bhowmick

Expert Speak Raisina Debates

Published on jun 22, 2022.

How have the pandemic, the Russia-Ukraine conflict, and Sri Lanka's current political turmoil hurt the country’s tourism sector?

The Italian explorer Marco Polo’s claim that Sri Lanka was the "best island of its size in the world" dates back to the 12 th century AD. The country’s tourism sector has grown over time to emerge as one of the most valuable players in the Sri Lankan economy, by heavily contributing towards employment generation, FOREX earnings as well as ensuring a steady supply of revenue for the successive governments in direct and indirect ways. Tourism in Sri Lanka accounts for almost 12 percent of the country's GDP and is the third-largest source of foreign exchange reserves—behind worker remittances and the apparel industry. However, the 2019 Easter Sunday Bombings marked the beginning of the collapse of this industry. This was followed by the double-whammy of the COVID-19 pandemic and the Ukraine–Russia conflict amidst the current economic crisis in Sri Lanka—undoubtedly making the revival of this sector extremely challenging.

Often labelled as Sri Lanka’s ‘ Engine of Growth ’, it was not until the 1960’s that the tourism sector in the country gained prominence with progressive steps to enhance the tourism infrastructure in terms of roads, airlines, and construction of new hotels. In fact, large-scale investment was also secured for bolstering the tourism industry with the liberalisation of the Sri Lankan economy in the late 1970s. However, the 26-years-long civil unrest in Sri Lanka that ended in 2009, followed by the fallouts of the Global Financial Crisis (2007-08) had a detrimental impact on the nation, deteriorating the tourism industry as well. It was only after 2010 that this sector saw a steep growth (see figure 1), proving itself to be one of the ace industries in the broader economic structure.

Figure 1: Tourist Arrivals and Earnings in Sri Lanka (2000-2021)

Sri Lanka’s tourism sector also contributes to direct and indirect employment of Sri Lankans, which has been steadily rising over the last few years until the pandemic hit (see figure 2). The total employment provided by this sector stood at approximately 403,000 in 2019. The devastation piled upon the country’s tourism sector and associated channels due to the current economic debacle, as well as the interplay of the other exogenous macroeconomic factors, is bound to have an alarming impact on Sri Lanka’s unemployment situation.

Figure 2: Employment generated by Sri Lanka’s Tourism Sector

The country faced a horrific terrorist incident in April 2019, when the Easter Sunday Bombings in the national capital of Colombo, resulted in the deaths of 250 people, of which 42 were foreign nationals travelling to Sri Lanka. Many of the establishments across Sri Lanka were forced to pull down their shutters for days in the aftermath of the incident. Other countries were hasty in putting out travel advisories that warned their citizens to not travel to the island nation. Tourists exited the nation in large numbers, and the number of visitors fell by more than 70 percent in May and over 60 percent in June compared to the same months in the previous year (see figure 3).

In 2018, tourism provided US$ 4.4 billion in earnings to the Sri Lankan economy and contributed to 5.6 percent of the nation’s GDP, but this estimate came down to a paltry 0.8 percent in 2020, the year when the COVID-19 pandemic began to wreak havoc across the world with Sri Lanka turning out to be no exception (see figure 1 and 3). The onset of the pandemic also led to a 50 percent revenue drop in 2020, and a consequent fall in the tourist numbers, as per the Sri Lanka Tourism Development Authority (SLTDA) .  Adding to the woes, the loss of tourists from China and the European countries, some of the biggest markets for Sri Lanka’s already distressed tourism sector, came as a major blow.

Figure 3: Sri Lanka’s Tourist Numbers in 2019 and 2020

Making matters worse for the Sri Lankan economy is the ongoing Russia–Ukraine conflict which started in early 2022 and has crippled the tourism sector of Sri Lanka further. Russia and Ukraine, the top and third-largest tourist markets this year respectively, have played a crucial role in this domain. Nearly 20,000 tourists from Russia and Ukraine have travelled to Sri Lanka in January 2022, accounting for more than a quarter of all visitors; while the same made up for less than 10 percent of the tourist influx back in January 2018. The likes of Russia, Ukraine, Poland, and Belarus provided for nearly 30 percent of tourists before 2022 and the conflict threatens to curtail this flow of visitors to Sri Lanka. Official records reveal that the country pocketed a sizable US$3.6 billion in tourism income in 2019 before the economic distress witnessed in the country resulted in a swift drop, to less than a fifth, just two years later.

President Gotabaya Rajapaksa’s regime has claimed time and again that a boost in tourism and ramping up of exports will assist Sri Lanka to navigate through a worrisome crisis. However, the cutoff in the tourism revenue has not been able to sufficiently replenish the FOREX reserves in Sri Lanka (see figure 4), which is almost exhausted due to the rising imports of essential commodities such as food items and fuel.

Figure 4: Trend in Sri Lanka’s dwindling FOREX Reserves (in US$ million)

A steady influx of tourists  would undoubtedly help aid the recovery of the disaster-hit country with its foreign exchange woes. However, the crisis' repercussions, along with the streak of violence and the imposition of emergency, are threatening an industry that has long proved to be a significant component of a viable economic solution to the country’s progress. Images of long queues of motorcycle taxis at service stations waiting for gasoline—a scarce commodity in the country at the moment—is adding to the anxiety of tourists planning to visit the country in the coming months. Additionally, the Sri Lankan government imposed a ban on the social media giants— Meta and Twitter on 3 April, 2020—a step which increased concerns amongst the tourists about the country's future as their vacation destination.

Tourism is slated to play a crucial role in the resurrection of the country’s distressed economic condition, by attracting foreign exchange earnings and complementing the growth rate in the years to come. With the country looking for a way out of the mess it finds itself in on the economic front, the tourism sector will be expected to revive its fortunes, which in the past had been a source of much glory for the Sri Lankan economy.

The author acknowledges Nikhil Joshi at Shiv Nadar University, for his research inputs on this essay.

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Soumya Bhowmick

Soumya Bhowmick is an Associate Fellow at the Centre for New Economic Diplomacy at the Observer Research Foundation. His research focuses on sustainable development and ...

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COVID - 19 and Tourism: Crisis and Challenges of Tourism Industry in Sri Lanka

2020, Rebuilding Tourism and Hospitality Sectors COVID-19 Crisis, Policy Solutions and the Way Forward

The COVID-19 pandemic has created a major crisis in world tourism. The pandemic has created a huge impact of the livelihood of the global citizens including Sri Lanka. The pandemic has destroyed the Sri Lankan economy with the complete closure of almost all the economic activities. Tourism is one of the major industries affected badly by this pandemic. While Sri Lankan tourism industry is recovering from the Easter Sunday attack in 2019, COVID 19 outbreak emerged in 2020 and shutdown the industry completely. Main objectives of this review are, first, to identify the impact of COVID 19 pandemic on the tourism industry in Sri Lanka and second, to identify the challenges to rebuild the tourism industry in Sri Lanka. The study was carried out using different methods, first, a secondary data analysis was done to identify the impact COVID 19 pandemic on tourism industry using different data sources. Then, the semi structured interviews were carried out with the officers of the Sri Lanka Tourism Development Authority and experts in the professional associations and industry. The findings revealed that the industry is badly affected with the zero level tourist arrivals, decline of foreign exchange earnings, increase of unemployment, financial crisis in the industry, loss of source markets. In this critical situation, industry is expecting active mediation of government to facilitate them with favorable concessions, relief packages, reduction of tax burden, favorable policies to rebuild the industry, Tourism Resilience Plan (TRP). However, it will not be easy in short run in the pandemic affected economies and societies. Therefore, it needs to face the challenges of rebuilding the sector. Keywords: COVID 19 Pandemic, Tourism Industry, Crisis and Challenges, Sri Lanka

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TOURISM AFTER CORONA: IMPACTS OF COVID 19 PANDEMIC AND WAY FORWARD FOR TOURISM, HOTEL AND MICE INDUSTRY IN SRI LANKA

Chandi Karunarathne , Amaya Ranaweera , Ali Abdulla Idroos

The global pandemic of novel Corona has not only brought entire socio-economic structures in to a standstill but has challenged the globalization and global operations of enterprises. Paradoxically, potential repercussions and alternative way outs are yet volatile. However, for a speedy recovery and regain of the economy, employment and business functions a sustainable and fresh beginning is necessary in most of the worsened economic sectors. Conventionally, an infection used to attack the vulnerable groups with food, health care insecurity in their lifestyle and they normally used to be the poor of the society. Ironically, novel Corona infection first attacked the international travellers and the pandemic was caused through the travel and thus has confronted mainly the affluent social class globally. Since, tourism is one of the largest and fastest growing industries globally; it is expected to play a significant role in regaining the socio-economic stability after Covid 19 pandemic. It is a key contributor to the Island economies and one of the most important industries that generates much needed foreign currency in Sri Lankan economy. Long suffered tourism industry of the Island was last hit tough by the Easter bomb blasts took place at several places including luxury hotels in the country. Tourism is at halt in the country with the threat of finding the first Sri Lankan national tested positive for COVID-19 who was a local patient on 10th March, 2020. The victim was again a tourism stakeholder, a 52-year-old tour guide working with a group of Italian tourists. The continues threats arise towards the country from Page 2 of 19 tourism with effect to the virus outbreak resulted twenty-nine patients under observation in government hospitals, including eight foreigners, following the new developments, while suspending on arrival visa for tourists on 11 March, 2020. Unfortunately, this rapid expansion of the virus reached 233 cases at present (as at 15th April, 2020 and keep increasing), even though it is well controlled and handled properly by the government special operation in protecting people from the threat. Consequently, travel has become one of the key contributors of carrying the virus around the globe causing tremendous pressure on international travel and tourism operations including airline industry. It was recently confirmed that Qantas admitted viral infection to a large group of its crew challenging airline operations globally. Travel, tourism, hotel and MICE industry as an umbrella industry operation is facing immense challenges at present. The global and local context of the outbreak, impacts of the outbreak and suggestions for speedy recovery (short and long term) are critically evaluated in this review

WHMS Samarathunga

The present study attempts to evaluate the impact of COVID19 on Sri Lanka tourism industry and to make recommendations on the tourism recovery process. The study considers three vital sectors to evaluate the impact on Sri Lanka tourism: impact on the source markets, impact on the local tourism resources, and impact of travel bans, suspension of flights and curfew regulations. The study also envisages on the potential tourist generating countries to Sri Lanka, future travel behavior of the potential tourists, future tourism products demanded, and future operational challenges for the tourism and hospitality establishments. The study finally forwards short-term strategies to protect and promote Sri Lankan tourism industry with multi-stakeholder participation.

AJHSSR Journal

The novel coronavirus pandemic is imposing global travel restrictions. The tourism sector is undoubtedly one of the most severely impacted victims. We seek to explore the potential immediate and long-term effects impact on the tourism due to the pandemic. This study used a comprehensive secondary data from various government and international sources to evaluate the potential impacts of COVID 19 on Sri Lanka's tourism sector. The finding suggests that economic and labour market distortions represent a significant impact on the country's tourism sector and on its future economic potential. The need for a comprehensive recovery plan, the imposition of health and safety measures and a diversifying of the market are seen to be the highest priority for the tourism sector. This study seeks to outline pragmatic solutions for a post-pandemic tourism sector revival and in particular the enabling of a resurgence in tourist visitations through ensuring the health and safety measures.

Tourism Facing a Pandemic: From Crisis to Recovery

raffaella pulejo , Patrizia Anesa

This collection of papers has been written by the international team of scholars teaching at the Master Course in Planning and Management of Tourism Systems of the University of Bergamo, while the Covid-19 emergency was spreading in all parts of the World and especially in the territory of Bergamo. The main aim of the work is to face the topic of Tourism in the case of exogenous shocks, like the Covid-19 pandemic, reflecting on their impacts on territories, communities and heritage both during and after the crisis. The papers adopt different disciplinary approaches and methods, trying to give a multi-focused gaze to the complexity of a global phenomenon and to possible forms of recovery. Raffaella Pulejo's papers (pp.243-250), focuses on some contemporary art practices which are based on local ground and reshape the notion of space, time and social interaction. Against the background of big international events, typical in the contemporary art system and now forbidden, artists' works might suggest new paths in the tourism domain.

University of Bergamo

Federica Burini

This collection of papers has been written by the international team of scholars teaching at the Master Course in Planning and Management of Tourism Systems of the University of Bergamo, while the Covid-19 emergency was spreading in all parts of the World and especially in the territory of Bergamo. The main aim of the work is to face the topic of Tourism in the case of exogenous shocks, like the Covid-19 pandemic, reflecting on their impacts on territories, communities and heritage both during and after the crisis. The papers adopt different disciplinary approaches and methods, trying to give a multi-focused gaze to the complexity of a global phenomenon and to possible forms of recovery. This collection is addressed to students and researchers studying in the tourism sector, who are in search of answers in this time of change and crisis. We believe that after reading this volume they won't have all the answers to their dilemmas, but they will reflect about them, they will receive proposals for specific approaches, methodologies, sources, references, examples, useful for the future of their own research.

International Journal of Engineering Research and Technology (IJERT)

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https://www.ijert.org/the-effects-of-nobel-corona-virus-covid-19-in-the-tourism-industry-in-india https://www.ijert.org/research/the-effects-of-nobel-corona-virus-covid-19-in-the-tourism-industry-in-india-IJERTV9IS050618.pdf The purpose of this paper work is to examine the extent to which an epidemic of 2020 such as Covid-19 can affect the global tourism industry and perform estimates of the destruction to world tourism. The statistical data from the renowned and trustworthy data sources have been collected to realize the effect of the Corona Virus on the world Tourism industry. China where the epidemic started, but also India, where fresh cases are continuously being reported, both is no longer tourist destinations, till May 14 2020. Potential tourists tend to reschedule or stop their plans for a terminus that is plagued by a pandemic. Because of pandemics, tourists cancel their travels avoiding suspicious places and individuals. Such categories of pandemics disturb straight industries such as tourism and retail service sector. In 2019, a total of 29, 28,303 tourist arrived on e-Tourist Visa. The economic consequences of this outbreak will be serious and they will cause harms not only to the tourist destinations with an important concentration of cases but also at a worldwide level. A comparable case was the outbreak of SARS in 2002. Tourism is presently one of the greatest pretentious segments and the World Tourism Organization has studied its 2020 forecast for international arrivals and receipts, though it highlights that such predictions are likely to be further revised. The United Nations dedicated agency for tourism assumes that international tourist arrivals will be downcast by 20% to 30% in 2020 when compared with 2019 figures.

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Since it first started in China, COVID-19 outbreak has become the number one problem of the World. World Health Organization accepted COVID-19 outbreak a pandemic on March 11, 2020. In light of the latest information, it could be said that the world has never encountered such a pandemic in the last century. Tourism is one of the most sensitive sectors to crises such as wars, terrorist attacks, natural disasters and other kinds of unexpected phenomena. This study aims to forecast the short-term effects of COVID-19 pandemic on foreign visitors' demand for Turkey by using scenario analysis technique. According to the results, a decline in foreign visitors’ arrivals in the range of 5% to 53% is estimated. It means a loss of tourism revenues about $15.2 billion as the worst, and $1.5 billion as the best alternative scenario for 2020. It is essential to develop recovery plans and to implement them urgently, to minimize the harms of the COVID-19 pandemic on Turkish tourism.

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Home Emerging & Frontier Markets Sri Lanka: Recovery Takes Hold

Emerging & Frontier Markets

Sri Lanka: Recovery Takes Hold

June 4, 2024

Author: Rajesh Trichur Venkiteswaran

To say that Sri Lanka has seen its ups and downs lately is a bit of a perennial. The island nation was forced to seek assistance from the International Monetary Fund (IMF) 16 times between 1965 and 2020 in a history punctuated by civil war, constitutional crisis, terror attacks and Covid-19.

Each time, it has bounced back.

The latest such episode started in 2019 with the ongoing debt crisis, followed by a currency collapse and, in 2022, the fall of the scandal-ridden government of Rajapaksa. Since then, Rajapaksa’s successor, President Ranil Wickremesinghe has presided over yet another tentative economic recovery.

The government’s economic reform plans, including fiscal belt-tightening, foreign-debt restructuring and measures to attract foreign investment, received a vote of confidence in September 2022 when IMF staff and the Sri Lankan authorities reached a staff-level agreement to support Sri Lanka’s economic policies with a 48-month arrangement under an Extended Fund Facility of about $2.9 billion. By the third quarter of 2023, after six successive quarters of negative growth, the economy saw a positive turn. The country reported a current account surplus, disinflation, increased revenue and growing remittances from citizens working abroad.

Sri Lanka has always held great potential for economic development, say experts; and this latest recovery again offers attractive prospects for outside investors.

“The potential for the economy is huge, especially around sectors such as tourism, global supply chains and service sector exports,” says Michael Iveson, a research fellow in global economics at Lakshman Kadirgamar Institute, Sri Lanka. The nation “can be a gold mine for potential projects, with a skilled labor force, a hard-working population and huge natural endowments.”

Indicators Pointing Upward

Export earnings from tea, rubber and coconut-based products are positive as of February. Quartz deposits in many parts of the country and duty-free access to markets including the European Union and India have made the solar component manufacturing sector attractive. The island’s manufacturing sectors—particularly apparel, textiles and electronics—offer opportunities for foreign capital, notes Hesham Zreik, founder and CEO of FasterCapital, a Dubai-based angel investor.

Sri Lanka welcomed over 100,000 tourists in the first 20 days of April alone. “Tourism has seen a very strong recovery after four years of turbulence,” says Iveson. “By working with local businesses and communities and making the most of a rich heritage, culture and hospitality, tourism will continue to thrive and play an important part in Sri Lanka’s economic recovery.”

Despite the hiccups, many foreign companies have prospered on the island. The Port of Colombo is the highest-performing port in South Asia, hosting some of the bigger names in logistics, including Dart Global Logistics and EFL Global shipping. Other foreign companies operating in Sri Lanka include IFS, a global enterprise software solution company; HCL Technologies, a global IT company; Apollo Marine International, a food processor; pharmaceutical giant SmithKline Beecham; and Best Pacific International Holdings, an apparel manufacturer. International events like Startup Weekend by Techstars, Seedstars and AngelHack, have touched down in Sri Lanka, encouraging a bloom of startups.

There are signs, too, that the economic recovery is strengthening.

The World Bank projects a GDP of 2.2% in 2024 and 2.5% in 2025. The Sri Lankan rupee appreciated against other currencies including the US dollar, euro, pound sterling, Indian rupee and Australian dollar during the first four months of this year. The Central Bank of Sri Lanka reported the state as having $5.5 billion in gross official reserves at the end of April 2024, recording a more than $1 billion increase from the end of 2023. And the central bank notes that the rupee’s real effective exchange rate of 24 index points remains well below the threshold of 100, indicating that it is maintaining external competitiveness.

“Various indicators employed by foreign exchange traders suggest a likelihood of further appreciation in the currency,” says Vidhura Tennekoon, assistant professor of economics at Indiana University. “Notably, the central bank has actively intervened in the market in recent months to curb excessive appreciation, while also striving to bolster its foreign reserve stock.” In September, Fitch Ratings upgraded Sri Lanka’s long-term local-currency issuer default rating to CCC- from Restricted Default. 

 “The risk of further defaults persists, but the right macromeasures being actively pursued could avert the worst,” says Alnoor Bhimani, professor of management accounting and director of the South Asia Centre at the London School of Economics and Political Science.

Boosting FDI

The nation’s recent history of economic instability has nevertheless created negative perceptions of Sri Lanka and its attractiveness to foreign direct investment (FDI). Net FDI inflows in 2022, as a percentage of GDP, were only 1.2%, far lower than regional peers Malaysia (3.6%) and Vietnam (4.4%). FDI, including foreign loans, fell drastically last year, to $758 million from $1.2 billion in 2022. Just as concerning is the mix of investment targets. FDI has focused on traditional sectors in recent years, and the composition of Sri Lanka’s export basket has remained unchanged for around 25 years. Diversifying into new sectors is necessary to make the country more resilient to external shocks, experts argue.

Thus far, the Wickremesinghe government appears to agree. Its development plan couples sustainable macroeconomic policy implementation with a focus on developing digital- and green-economy sectors and encouraging competition through liberalization and divestment of state enterprises.

“The government’s focus on infrastructure development, digital transformation and export diversification could drive economic growth in the long term,” Zreik argues. Wickremesinghe has also highlighted the potential of renewable energy, including an ambitious plan to achieve net-zero emissions by 2050. An investment of $11.5 billion is needed to shift 70% of electricity consumption to renewable by 2030, and measures included in the Electricity Act of 2022 cleared legal hurdles for large-scale private investments.

But making up for Sri Lanka’s lost years and making the island a lasting FDI magnet will require a careful balancing act between liberalization and addressing basic human needs.

“Transparent, straightforward policies are still needed to make foreign investment a smoother proposition,” Iveson says. And while the economy is “stabilizing at the top level, inequality is drastically increasing,” he warns. “The middle class is being stretched through higher energy prices, rising food prices and weaker public infrastructure. The austerity measures required to finance structural reforms are creating significant challenges for ordinary people.”

Iveson adds, “There are also elections in the coming year, which may bring more instability into the mix; this is the last thing the economy needs after the turbulence of the last few years.”

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Kenya’s Economy Exhibited Robust Growth in 2023 Despite Persistent Challenges

Nairobi, June 5, 2024  — Kenya’s real GDP growth accelerated to 5.6% in 2023, surpassing the previous year’s growth of 4.9%. However, GDP growth in 2024 is expected to slow down to 5.0%. This is according to the latest Kenya Economic Update (KEU) launched today, which adds that the 2023 growth was driven by the recovery of the agriculture sector, following improved weather conditions, and the services sector, with tourism and financial services contributing the most. 

According to the 29 th edition of the Kenya Economic Update: Fostering Trade for Robust Growth and Dynamic Job Creation, tight fiscal and monetary policies, elevated inflation, rising debt service obligations, high borrowing costs that constrained access to global capital markets, and the sharp depreciation of the shilling, framed Kenya’s macroeconomic performance in 2023. Despite this challenging environment, Kenya's economic growth demonstrated resilience and accelerated, driven by the government’s strategic policy measures that have bolstered overall macroeconomic stability.

“ In a decisive move to stabilize the macroeconomic environment, the Government of Kenya successfully conducted a partial buyback of the Eurobond in February 2024, a move that significantly eased the immediate liquidity constraints for the year, instilling a sense of calm in the markets ,” said Keith Hansen, World Bank Country Director for Kenya. “ The improved macroeconomic conditions, and re-access to international financial markets, are anticipated to boost investor confidence and private investment.”

The KEU projects a GDP growth of 5.2% on average during 2024-26, underpinned by favorable weather conditions for the agricultural sector, a recovery of industry, and the resilience of services. The outlook assumes adequate rainfall, government staying on the fiscal consolidation path, and the continuous implementation of the government’s structural reform agenda. The report projects that the private sector will play a stronger role in Kenya’s medium-term recovery.

Kenya’s efforts in trade integration could significantly contribute to substantial economic growth and job creation, notes the KEU whose special focus is on the role of trade integration in promoting economic growth and job creation. Trade patterns shows that agriculture is the largest contributor to Kenya’s exports, followed by minerals and chemicals. Kenya’s exports, however, have significantly underperformed. Also, the country has not diversified its products in the past few years and has lost competitiveness in the markets to which is has been exporting. 

The report notes that Kenya is proactively utilizing all channels on the global, continental, and regional level to enhance its role in the global economy and increase regional and international trade integration. Its aspirations extend beyond export growth, aiming to convert this growth into job opportunities.  

“Even though the export-to-GDP ratio has been declining, the potential for export expansion remains significant,” said Naomi Mathenge, World Bank Senior Economist for Kenya. “ Targeted policy considerations are crucial to fully capitalize on economic growth and robust job creation from trade integration.” 

Some of these policy considerations include revising trade and investment policies to foster export orientation, cementing policy coherence and predictability, strengthening institutions, enhancing strategic skills development, multifaceted support to export orientation and, drawing in more Foreign Direct Investment as a lever for optimizing the role of trade integration. The country will need to also mitigate trade and climate related vulnerabilities, especially for agricultural exports.

World Bank Kenya

Kenya Economic Update (KEU)

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