Why Sri Lanka & Investment in Sri Lanka

Sri Lanka is an island country in the northern Indian Ocean off the southern coast of the Indian subcontinent in South Asia. Sri Lanka is also often described by many as “paradise’ due to its natural bio-diversity of rain forests, beaches, mountain landscapes and its rich and vibrant history of over 3,000 years.  Sri Lanka is an island gifted with natural bio-diversity that ranges from rain forests to the lush mountainous region in the center to breathtaking landscapes surrounded by 1,600km of unspoiled coastline coupled with 3,000 years of rich history. Therefore, tourism has always been an integral part of the Sri Lankan economy that began with the British occupied Sri Lanka in the latter of the 19th century and early part of the 20th century who built holiday homes and bungalows for getaways in the coastal towns and hill country. This was followed by rest houses and inns being developed in these popular getaway locations such as Hikkaduwa, Bentota, Negombo, Arugambay, Galle, Nuwara Eliya, Kandy and Trincomalee to accommodate the growing number of tourists and holiday makers.

Since the thirty years of civil disturbances in this resplendent Island has come to a definite end it is much anticipated that the tourism industry will boom in the years to come. The travel and the hotel industry fervently believe and is hopeful that tourism will flourish in the post-conflict arena and would be a significant contributor to Sri Lanka’s macro economy.

 The Government of Sri Lanka has identified tourism as a major source of foreign revenue and volunteered to assist the industry in a major scale. The hotels and restaurants sub sector recorded a growth rate of 20.2% in 2012, which was a positive momentum as a result of the end of the civil unrest.  Earnings from tourism exceeded USD 1 billion in 2012, the highest recorded in a calendar year, recording a growth of 25.1 per cent.  The industry is largely benefitted by rapid infrastructure development and transport facilities such as domestic rail and air transport, supporting efficient tourist mobilisation. Realisation of the benefits of new hotels established, and hotel refurbishments are also expected to boost the growth in the sub sector in future years. Further, the tourism sector passed the landmark of one million tourist arrivals in 2012 growing in line with the targets set for the sector. However, Sri Lanka Tourism has set an optimistic target of 2.5 million tourist arrivals by the year 2016, requiring the development of at least 20,000 more new hotel rooms to meet the new demand.

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Source: Sri Lanka Tourist Development Authority

Under the above circumstances most of the existing hotel facilities are being upgraded to four, five star and super deluxe categories. Furthermore, most of the new facilities that are being developed are also positioning their products in the 4-5 star, boutique and super deluxe categories. tia2

Source: www.commonwealth.org

Sri Lanka has a tremendous potential to develop as a major tourist destination. We believe with the end of the civil conflict, Sri Lanka’s tourism will enter a new era and witness an influx of tourist arrivals and place the country back on the map as a holiday hotspot similar to Thailand and Malaysia. The country is full of natural beauty ranging from picturesque beaches, cascading waterfalls and historical sites dating back 2,500 years.  The enticing lands of mountains, lush green forests and exquisite variety of wild life together with the tropical climate have added a number of attractions to potential tourists. As stated previously tourism as a sector is of paramount importance to the government and the economy due to Sri Lanka having scarce natural resources and having to rely on the Services sector going forward.

Investment in SRI LANKA

The positive impact from the end of the conflict has already been witnessed with increase in business travelers and holiday makers.  With lifting of travel advisories on Sri Lanka by European nations and other countries, the Island has once again become a safe travel destination. According to SLTDA statistics, the number of total arrivals in 2012 has increased by 1,003,300 or by 147,325 visitors when compared to 2011.

tia3Source: SLTDA Statistics

We outline below our reasons for Sri Lanka to become the next destination hotspot and holiday heaven.

  1. Government Initiatives

As we have repeatedly stated, tourism is a key player in post war Sri Lanka and a focus area of government resources going forward. The GoSL has already initiated many programs and reforms to ensure the country does not lose out on the opportunity.

    • One Stop Unit (OSU) – Unit for National Investment in Tourism

Given that time is precious and costly, Sri Lanka Tourism set up the One Stop Unit (OSU) in a bid to promote and draw tourism related investments.

Key objectives cited are as follows;

  • Present a stress free, convenient approach to investors keen on investing in Sri Lanka’s tourism industry
  • Coalesce relevant information for all types of tourism related investments and ensure interested parties have easy access either through meetings, telephone, email or teleconference (skype)
  • Provide and educate interested parties on existing investment opportunities, lands available, projects commenced and tourism needs
  • Supply feasibility studies and other analyses for potential investments within a short time frame
  • Expedite the approval process by centralizing functions of relevant line agencies, reduce the time frame by at least 50%
  • OSU Services

Services available prior to investment:

  • Information on potential tourist investments
  • Help with investment promotion and gathering of information
  • Provision of a directory of land available
  • Assist in finding similar entrepreneurs for investors interested in joint ventures
  • Assist in completing relevant application forms
  • Organization of site inspection
  • Representation of the investor at meetings
  • Fast-track obtainment of the project clearance permit

Services available during the investment:

  • Fast-track the approval from government agencies
  • Coordinating of building plan approvals required for investment
  • Coordinating Board of investment incentive schemes granting final approval

Services available after the final clearance for construction:

  • Recommendation for Visas
  • Monitor construction progress and facilitation on construction

(Source – SLTDA 2013)

    • Improvement of infrastructure and investment in the tourism sector in both existing locations and new locations:
      The North and East parts of Sri Lanka had been virtually inaccessible not only for the foreign tourists but also for the locals due to the war.  The Sri Lankan government has already initiated major road reconstruction and hotel development projects in North and East especially in former hotspots such as Trincomalee Bay, Arungambay and Passikudda. Investors have been attracted with the support of government actions such as tax holidays, competitive land lease rates, and low interest financing and decreased red tape.  The government recently reduced the tax to 12% from 15% for tourism hotels and VAT to 12% from 20%, further concessions have been given on importation of certain capital goods and branded items. The Sri Lanka Tourism Development Authority has signed with local and foreign investors for the development of 2 tourists’ resorts in the area for the value US$39m, with another 8 islands available for bidding. Analysts suggest this would also create employment opportunity as well as build tourist and investor confidence in Sri Lanka as a safe destination.
    • Increasing hotel room supply: The hotel sector is by far the costliest investment area. Graded establishments of 3 to 5 star categories are the preferred choice of discerning tourists. Availability in 2009 was 242 establishments with 14,461 rooms, working out to 60 rooms per hotel. A comparison may be drawn with Malaysia having 2,373 hotels with room strength of 165,739. There is an average of 70 rooms per hotel. In 2009, Sri Lanka had around 40% occupancy with 10 nights stay duration. The capacity of 14,461 hotel rooms in Sri Lanka is quite insufficient at present to cater to the growing tourist arrivals to the country; the flipside currently being occupancy rate would be at 100%. The Sri Lanka Tourism Ministry target to attract 2.5 million tourists to Sri Lanka by 2016 and 4m by 2020 would require approximately additional room strength of 40,000. The government in cooperation with the private sector is aiming to fill this void and increase the number. An investment of Rs.300 bn/US$3bn at Rs.7.5m/US$75,000 per room may be needed over the course of the next 10 years, at an average of Rs.30bn/ US$300m per year.  Currently many domestic private sector blue chips and hotel\leisure groups are investing heavily in the hotel and tourism sector that include upgrading and refurbishing existing resorts, and acquiring smaller hotel properties blocks to create larger hotels. Examples include renowned high end hotel chain Shangri La Group has recently acquired a 7 acre former army facility in the heart of Colombo from the government to build a US$76m luxury high rise hotel and shopping mall. Another example is the pending sale of 11 acre government property in Colombo’s commercial district opposite the scenic Beira Lake to a blue chip conglomerate for ~US$80m for a hotel and residential complex. Soflogic, a diversified holding company has also inked an agreement with Movenpick Hotels of Sweden to build a 200 bedroom in the Colombo city. We believe this is just the tip of the iceberg in the hotel and leisure industry and expect more international resort and hotel chains to make their mark in Sri Lanka as the government offers concessions and support to the development of the sector.
    • Minimum room rates: In order to improve Sri Lanka’s image from the current low cost destination, the government has introduced guidelines for minimum room rates. City hotels minimum room rate will be increased U$125 per night from US$90 and mid-tier hotels at US$40, helping eliminate price wars. In comparison Maldives records a minimum room rate of luxury hotels and resorts at US$300 per night and the super luxury resorts at US$1,045 per night according to the SLTDA. Previously hotels and tour operators have kept rates low to increase demand and attract visitors, but with new guidelines and increasing influx of tourists the hotels and resort operators would increase profitability and the sectors investment attractiveness.
  1. Re-branding and changing pattern of tourists

Sri Lanka traditionally since the 1960’s to early 2000 has been know as a “Triple S” or “Sun, Sea, Sand” destination with seasonal influx of tourists from November to February as Europe is in winter and Asians during summer from May to July.  Popular places of visit in the island were the Southern beach towns stretching from Waduwa to Kogala or beach tourism with a small portion visiting the cultural triangle of Sigiriya, Dambulla, Polonaruwa and Kandy. In-terms of tourist profile, 50% of arrivals were mainly 30-39 and 40-49 middle aged Europeans and Russians , who were low spending  first time visitors, as Sri Lanka had become a low cost destination with tour operators selling cheap packages. In the meantime Asian peers benefited, Maldives become a high spending and high end tourist destinations, younger and urban Europeans, Americans and Australians were going to Thailand and the Middle Eastern families and shoppers were choosing Malaysia and Singapore. A savior to the industry were local holiday makers and Sri Lankan expatriates, who had a higher spending rate and opting to leave town for long weekends (3 days or more) due to the large number of holidays on the Sri Lankan calendar. However, this pattern began taking transformation in 2005 and the top tourist arrivals had become Indians and the Europeans were second. ‘Triple S” tourism had become a cliché and the sector sought new opportunities to improve its product mix and offerings to visitors. Sri Lanka began focusing on rebranding and promoting the country as a whole and not only the beaches but also its rich history and heritage, its wildlife, rainforests and the emergence of high end boutique that offered wellness and spa services. Further, with end of the conflict a whole new area of the country, the North and East opened up.  The Tourism Promotion Bureau under the Ministry of Tourism has taken the task of rebranding the island.  They in partnership with private sector stakeholders in the tourism sector would conduct promotional events, road shows and PR activities through Sri Lankan embassies globally.  The goal is to attract a wider range of tourist age groups and profiles. This coupled with a large product and service offering that could cater to a variety of tourist interests would help bring Sri Lanka as an undiscovered destination under the spotlight. Below we list out Sri Lanka’s tourism product and service mix that can be offered according to a matrix developed by the chartered marketer Malraj Kiriella.

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Some examples of the product and service mix offerings include:

  • Adventure tourism in the form surfing and wind surfing has begun in East coast locations such Arugambay and Passikuda as surfing destinations, which is popular with Israelis and Japanese tourists.
  • Nature Tourism – opening up of Uda Walawe Park, Wilpattu National Park, Yala Park and Singaraja forest for wildlife safaris, camping and eco-tourism.
  • Activity Tourism – Mirrissa at the end of the Southern coast has become a dolphin and whale watching hotspot.
  • Activity Tourism – Hikkaduwa and Unawatuna are already popular Triple S destination and has begun additional offerings such as wind surfing, deep sea diving and snorkeling. Further they have recently become popular nightlife venues with an increase in restaurants and bars on beachfront properties that is attractive to younger target markets between 20-35 years.
  • Ayurveda, Meditation and Wellness tourism – Sri Lanka as deep history in homeopathic medication and treatment that has been used for centuries by locals. In the past decade wellness and treatment resorts have opened up in the southern coast and cultural triangle but have lagged due to poor promotion. Looking forward we believe this service offering would significantly benefit from rebranding and influx of tourists due to its uniqueness and locality.
  1. Sri Lanka’s competing edge

We also believe Sri Lanka would have a competitive edge over some of the competing nations in the region for the below mentioned reasons.

    • Internal upheaval in Thailand is likely to take its toll on the tourist industry for the region. Forecasts by analysts suggest that a 38% drop in tourist arrivals to Thailand would be seen as a result.  This in turn creates an opportunity for Sri Lanka to attract travelers and indulge in its many offerings.
    • Another factor that attracts tourists to Sri Lanka is that of low room rates compared to regional tourist destinations and virgin scenic locations that are hitherto not promoted as tourist’s attractions offer a distinct advantage to Sri Lanka to capture tourist markets in the foreseeable future.
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