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Develop Tourism in Sri Lanka Essay

Introduction

In countries like Maldives, Malaysia, Singapore and Spain, tourism and related recreation activities play a significant role in the generation of income / foreign exchange and provision of employment opportunities. In fact, in the global context this industry is identified as the single largest economic contributor. Moreover, tourism plays a crucial role in the attainment of macroeconomic stability. Besides, the political stability of a country has a major impact on its tourism industry. According to the preceding view, this essay aims at evaluating empirically the significance of tourism in Sri Lanka after ending civil war. The relationship will be analyzed based on a time series approach. The study will end eavour to estimate the relationship between economic performance and tourism revenue, subject to main macroeconomic variables and political stability of the country. With respect to policy implications, the study recommends that The role of tourism could be highly emphasized in the sustainable economic development with a stable political environment. Sri Lanka entered the international tourism market in the 1960s.

Since then, this industry has been growing steadily as a promising sector for the economic development, subject to periodical setbacks especially the civil war prevailed in Sri Lanka, world terrorist attacks and natural disasters. For example, international tourist arrivals to Sri Lanka increased from 18,969 in 1966 to 438,475 in 2008 consequently the receipts from tourism (Sri Lanka Tourist Board 2008). In particular, the contribution of Travel & Tourism to Gross Domestic Product was 7.5% (LKR407.5bn or US$3,388.1mn) in 2009 in Sri Lankan economy. The contribution of the Travel & Tourism economy to employment wasb503,000 jobs in 2009, 6.2% of total employment or 1 in every 16.2 jobs it also is expected to grow up to 579,000 jobs, 6.7% of total employment or 1 in every 14.8 jobs by 2020. Similarly, the contribution for real GDP growth for Travel & Tourism sector was 5.9% and the travel & Tourism investment was at LKR131.9bn, US$1,096.8mn or 10.1% of total investment in 2009. Out of 186 registered countries of WTTC the Sri Lankan Travel & Tourism economy is ranked number 87 in absolute size worldwide and 110 in relative contribution to national economies.

Tourism remains the fastest growing service industry in the economies of most of developing countries; hence more research has gone into the operations of the sector in order to examine its economic significance and potential. (Amstrong, 1974) It is known that the industry provides an important impetus to growth in other sectors such as agriculture, transportation, retailing and manufacturing and is therefore seen as a key component of economic development. It plays a major role for the generation of foreign exchange which directly facilitates the improvement of foreign reserves of said economies. (Stynes, Daniel J 1999) Similarly, the sector has shown greater improvements in employment generation (direct and indirect), revenue accruing to tourist sites, and increase in number of hotels and similar establishments and other tourism supply establishments.

Main Body

Given its natural advantages, the tourism sector is viewed as one of the most important engines of growth and development in the Sri Lankan economy and as such, is a key focus in the Government’s industrial strategy. Tourism main supporting sectors account for more than 8.0 per cent of GDP. In relation to employment, agriculture transport, storage & communication, construction, and distribution are the primary beneficiaries from a dollar spent within the tourism industry. Further, these sectors account for over 7.0 per cent of the employed labor force. However, the descriptive analysis points to the continued low and declining impact of the industry on the overall economy in particular in the context of other countries like Thailand, Malaysia and Kenya. However the investment share for tourism sector being high the unstable political situation could be the closest
reason for this less performance in the case of comparison. With the end of war, the expected boom in the industry over the years to come will have a noticeable impact. The second empirical modal shows a strong relationship between the political stability and macroeconomic performance in particular with reference to the tourism sector. It is highly recommended to maintain a stable political situation of the country in order for industries like tourism to flourish. The paper has, in the main, addressed two of the important elements of an economic significance of the tourism industry. Further work to be undertaken includes the computation and comparison of cyclical movements of tourism sector performance in response to the global economic and political changes.

Percentage of Capital investment in travel and tourism sector in Sri Lanka, South Asia and in the World 2009

In comparison to the 7.7 of South Asia and 9.4 in the world the capital investment percentage of Sri Lankan economy for travel and tourism sector is 10.6. This also highlights the significance of this sector in Sri Lankan economy.

Source; World travel and tourism Council Economic impact report – 2009

Percentage of direct industry GDP in travel and tourism sector in Sri Lanka, South Asia and in the World 2009
In 2009 the direct contribution to the GDP from travel and tourism sector is 2.7 in Sri Lanka. The World situation is 3.2 for the same and South Asian Region’s contribution to its GDP from the said sector is 2.2.

Source; World travel and tourism Council Economic impact report – 2009

Percentage of Travel & Tourism Employment in total Employment -2009, selected Economies

The above figure compares the contribution of employment generation from travel and Tourism sector and Sri Lanka is in the 9th place just 0.1 above
India. India being a giant in its resources for tourism product this is the significant place irrespective of Sri Lanka’s internal issues. However Seychelles, Maldives and Maturities are islands who offer similar product.

Source; World travel and tourism Council Economic impact report – 2009

Percentage of Travel & Tourism sector contribution to the total GDP-2009, selected
Economies
The following graph highlights the contribution to the total GDP from Travel and Tourism sector. Sri Lanka enjoys here too a better place in comparison to India which illustrates the significance of this sector in Sri Lankan economy. Here too Seychelles, Maldives and Maturities are islands are out of the general comparison since their product is totally different from the rest of the countries.

Source; World travel and tourism Council Economic impact report – 2009

When we move to the second objective of this research we have to check whether there is a war influence on Sri Lankan tourism industry or not. After running an OLS regression The following results have been obtained.

As we know receipts from tourism depend on many factors, but in this study factors such as exchange rate, word GDP has been considered. To measure the civil war influence in tourism sector, dummy variable has been included. According to the results changes in exchange rate causes to change in receipts from tourism averagely by 395.78 million while world GDP causes to approximately 930 million. However coefficient of exchange rate is significant at 1 % level by showing the importance of exchange rate behavior in the tourism industry in Sri Lanka. As the theory implies increase in exchange rate motivate the tourist’s arrivals, because then they are able to exchange more rupees for ICBI 2010 their dollars. World GDP also a better proxy for world living condition and it is positively related with the Sri Lankan tourism industry.

When we are evaluating the war influence, the coefficient of dummy variable should be taken in to account. According to this coefficient the average receipts from tourism in non war period is higher than averagely by 3919.75 million compared to the war period. This implies that there is a significant war influence on the Sri Lanka tourism industry. In fact tourist’s arrivals have been limited during the war period, because several international media have also warned Sri Lanka as an unsafe place to visit. Especially, after terrorist attacks on Katunayake International Airport and Central Bank of Sri Lanka, tourism arrivals have dropped down dramatically.

The model which has been used to evaluate the above situation is statistically significant at 1 % level and according to the value of R2, explanatory variables jointly explained approximately 93 % of total variation of receipts from tourism. According to both descriptive and econometric approaches of analysis in this study, the significance of tourism sector in Sri Lankan economy has implied to be a major portion for key macroeconomic measurements. Similarly the adverse effects of war on tourism sector have showed a massive loss for Sri Lankan economy over the last decades.

The policies of the government in promoting tourism can be summarized as comprising seven main points. * The Government, recognising the significant contribution that tourism makes to social and economic * development of Sri Lanka, has accorded high priority for tourism in its overall programme of national development. * Apart from the obvious economic advantages of tourism, the Government also recognizes the socio-cultural and political benefits that can accrue. * The Ten-year Tourism Master Plan (1992-2001), prepared by the World Tourism Organization (WTO) with funding assistance from UNDP, will serve as the blue-print for tourism development up to the end of this century, with appropriate modifications to suit changing circumstances.

The Government also recognises the importance of promoting domestic tourism, not only as a means to enhance the quality of life of the people, but also as a vital necessity for national integration of people living in isolation due to geographic and ethnic barriers. However, the Government is conscious and mindful of the potential adverse effects that uncontrolled and unplanned tourism development can have on Sri Lankan society and the physical environment. Accordingly, the corner-stone of the Tourism Development Policy will be planned, coordinated and sustainable development. The pace of tourism development over the five-year period 1995-1999 will be moderate, neither too high nor too low, as recommended in the Tourism Master Plan, by taking into consideration the socio-cultural and environmental absorptive capacity. This will help to optimize the economic benefits of tourism, while at the same time minimizing potential adverse impacts on Sri Lankan society and the environment. Policy of mobilizing the private sector to invest in tourism projects and operate tourism enterprises will be pursued with greater vigor in line with the free-market economic policies of the Government.

The Government will follow the main recommendations of the Ten-year Tourism Development Plan for development of tourism, with modifications as deemed necessary. The Plan has set definite targets for development. * to increase tourist arrivals from the 1992 level of 394,000 to 874,000 by the year 2001, with an average annual growth rate of 9 per cent; * to increase foreign exchange earnings from the 1992 level of US$ 201 million to US$ 706 million by 2001, an average annual growth rate of 15 per cent; * to increase hotel accommodation capacity from the 1992 level of 10,200 rooms to 17,600 rooms by 2001, an average annual growth rate of 6 per cent; and 95 * to increase total employment, both direct and indirect, from the 1992 level of 69,000 jobs to 137,000 by2001, an average annual growth rate of 8 per cent. The Government believes that the targets are realistic and attainable and is working towards their attainment.

However, with the improvement in the security situation with the restoration of peace and stability, a boom in tourism is expected and hence a re-adjustment of the targets will be required. The tourism product program is designed to encourage the private sector by providing fiscal and other incentives to undertake activities such as refurbish existing hotels, start new hotel development projects and establish tourist restaurants and develop tourist recreational facilities. The new hotel projects already approved has resulted inexceeding the room requirement for the year 2001. The objectives of tourism marketing and promotional activities are:

* To consolidate market growth in the priority
* Tourist-generating markets of Europe and Asia by servicing the travel trade and by further raising consumer awareness and
* To create consumer awareness and the desire to travel to Sri Lanka in the secondary and opportunity tourist markets. The selected priority markets for promotional activities have been identified as:
* The primary markets of Germany, the United Kingdom, France, Japan and India; * The secondary markets of Italy, the Netherlands, Belgium, Denmark, Sweden, Austria, Switzerland, Russia, Singapore, Hong Kong, Thailand, Republic of Korea, China and South Africa; and * The opportunity markets of Spain, Eastern Europe, the United States of America, Canada and Australia. Each of these markets will have different degrees of emphasis in terms of required marketing activities, Depending on the degree to which Sri Lanka is already an established destination. There is a need for awareness of Sri Lanka to be raised particularly at the consumer level and point-of-sales. The Board is represented through its offices in Frankfurt, Paris, London, Japan, Thailand and India. It is proposed to appoint Marketing Services Agents in Singapore, Hong Kong, Australia, the United States and South Africa.

There are a number of promotional activities being carried out by Sri Lanka. Servicing of tourist information is a continuing activity which includes distribution of literature to the travel trade and to the consumers and servicing telephone and mail inquiries on a continuing basis. The Board participates in a number of major tourism fairs held annually, along with Air Lanka (the National Carrier) and the Sri Lanka Travel Trade. This is considered an effective means to promote the travel trade as well as to attract consumers. Among the major trade fairs where Sri Lanka participates are: ITB -Berlin, WTM -London, BIT -Milan, BTF -Brussels, TRAVEL -Singapore, JATA -Japan, FITUR -Madrid, HOLIDAY TRAVEL SHOW -Sydney, GIFT -Guangzhou, TOP RESA -Dauvilli, SMTV -Paris, LTE -Hong Kong, SATTE -New Delhi, KOFFA- Seoul and VAKANTIE -Utrecht. Regular presentations on Sri Lanka are made to major tour operators and travel agents in the form of seminars and workshops to educate and inform them about tourism in Sri Lanka and to induce them to sell Sri Lanka by offering tour programs.

With the help of the national carrier (Air Lanka) and other airlines, educational and familiarization tours to Sri Lanka are organized as a continuing activity to enable trade and media personnel to obtain first-hand knowledge and experience of Sri Lanka’s tourism product. These programs are conducted for the travel trade as well as for the travel media. Travel journalists, writers, television, broadcasting and film producers will be given high priority in order to obtain maximum publicity for Sri Lanka’s tourism in the key media in major tourist generating markets. Special promotions in the form of cultural and food festivals, Sri Lanka Evenings, etc., are undertaken in the major generating markets, in association with Air Lanka and the travel trade.

New trends in tourism marketing policies and strategies in Sri Lanka

On the basis of research undertaken by the Ceylon Tourist Board and the World Tourism Organization (WTO), it has been revealed that there is a tremendous potential in developing tourist markets in the Asian region. This has resulted in a change of the tourism marketing policy to consider Asia as a major generating market for Sri Lanka, in addition to Europe. To pursue the change in marketing policy, the Ceylon Tourist Board has developed an Asian Marketing Strategy for Sri Lanka with the assistance of WTO and UNDP. Several markets in the Asian region have been identified with three priority groupings. The first priority is Japan and India. Between them, it is estimated that by 2004 they will be producing over half of all the Asian visitors to Sri Lanka. The second priority is the Republic of Korea, Malaysia, Singapore, Taiwan province of China and Thailand. Travel from these markets to Sri Lanka can grow strongly but on a lower scale. The third priority is China and Hong Kong. The marketing programme of the Asian Marketing Strategy has been divided into two phases. Phase 1 is the period until the end of hostilities in Sri Lanka.

It is assumed that this will be in December 1997. Phase 2 is a peacetime marketing program that will be introduced by a marketing campaign. It has been shown that the prevailing situation of tourism in Sri Lanka is partly due to the security situation and partly due to misconceptions and disinformation about the image of Sri Lanka. The negative image of Sri Lanka is due to the wide publicity given by the international media about the civil disturbances and acts of violence. In order to counter the misconception, the Sri Lanka Government will launch an Image Restoration Campaign on a sustained basis for a minimum period of two years by means of a public relations and communication campaign supplemented, where necessary, with limited advertising in the key international markets, by using the services of a professional public relations firm with an international network. The current trend in international travel is for tourists to be attracted not so much to a destination, but to specific tourist products. The Ceylon Tourist Board has identified this significant development and is planning to develop specific tourist products to which international travelers could be attracted.

Conclusion

Given its natural advantages, the tourism sector is viewed as one of the most important engines of growth and development in the Sri Lankan economy and as such, is a key focus in the Government’s industrial strategy. Tourism main supporting sectors account for more than 8.0 per cent of GDP. In relation to employment, agriculture transport, storage & communication, construction, and distribution are the primary beneficiaries from a dollar spent within the tourism industry. Further, these sectors account for over 7.0 per cent of the employed labor force. However, the descriptive analysis points to the continued low and declining impact of the industry on the overall economy in particular in the context of other countries like Thailand, Malaysia and Kenya. However the investment shares for tourism sector being high the unstable political situation could be the closest reason for this less performance in the case of comparison.

With the end of war, the expected boom in the industry over the years to come will have a noticeable impact. The second empirical modal shows a strong relationship between the political stability and macroeconomic performance in particular with reference to the tourism sector. It is highly recommended to maintain a stable political situation of the country in order for industries like tourism to flourish. This essay has, in the main, addressed two of the important elements of an economic significance of the tourism industry. Further work to be undertaken includes the computation and comparison of cyclical movements of tourism sector performance in response to the global economic and political changes.


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