Sri Lanka’s tourism sector outperforms broader economy

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A steep rise in visitor numbers to Sri Lanka is driving growth in the country’s tourism industry, though a slowdown in the Chinese economy and problems in Russia could take the edge off the surge of arrivals later in the year.

According to the World Travel & Tourism Council (WTTC), travel and tourism in Sri Lanka has outperformed the wider economy, making it a smaller country “hotspot” for growth in 2014 and outpacing large, fast-growing markets like China, India, Indonesia and Turkey in percentage terms.

According to data issued by the Sri Lanka Tourism Development Authority in early April, arrivals from overseas rose 13.6% year-on-year (y-o-y) in the January-March period to just under 479,000. Significantly, the rate of increase accelerated as the quarter progressed, from 6.6% in January to 16.7% in February and 18% in March.

The first-quarter results appear to put Sri Lanka well on track to surpass the 1.52m visitors recorded in 2014 and achieve the government’s target of 2m visitors for the year.

China boom

Chinese tourists spearheaded the charge in the first quarter, with an 84.5% rise in arrivals, beating all other nationalities after visitor numbers more than doubled in 2014. Some 53,000 tourists from China arrived in the quarter, putting the nation a close second to India as a source market. In February China displaced the UK as Sri Lanka’s second-biggest tourism market after India, relegating the former colonial power to third place.

The rise of China as a source market has spurred an increase in investments in tourism ventures in Sri Lanka specifically aimed at meeting the demands of Chinese travellers, including new restaurants, hotels and travel agencies.

Seeking to build on recent successes, the Sri Lanka Tourism Promotion Bureau launched a new campaign in late March targeting the Chinese market, part of a broader LKR1.2bn ($9.2m) programme that will also focus on Germany, India and Italy as key growth areas for tourism. The campaign involves running advertisements on buses and taxis in key cities across China, bringing delegations of Chinese travel agents and writers to Sri Lanka, and improving brand awareness by raising the sector’s profile at trade shows in China.

Global slowdown could impact growth

However, the surge in Chinese arrivals may ease slightly during 2015. The most recent update from the WTTC in March forecasts a lower average annual growth in world tourism of 3.8% between 2015 and 2025, compared with a previous forecast of 4.1%. The main reason cited for the downward revision was weaker economic growth in China, suggesting that arrivals from China may lose their momentum. While the WTTC described Sri Lanka as one of the hotspots in 2014, the challenge is going to be maintaining this growth going forward.  

Another potential issue is the cooling of Sri Lankan-Chinese relations as the new government of President Maithripala Sirisena seeks to reorient its foreign policy away from its predecessor’s strong ties with Beijing. To date, the increasing numbers of Chinese arrivals suggest the government’s stated aim of putting relations with India, Pakistan and Japan on an equal footing with its ties with China has not impacted the tourism sector. However, efforts to reinforce promotional activities in the Chinese market could prove timely.

The shift in focus to the Chinese market comes as arrivals from another market have declined, with inbound tourist numbers from Russia down 21% in the first quarter due in part to the effects of Western sanctions and currency depreciation. In 2014 Russia was one of Sri Lanka’s most promising source markets, with arrivals up 36% y-o-y. However, by late 2014 the flow of Russian tourists had begun to taper as the economy fell into recession. The WTTC cited a continued downturn in Russian tourist spending and travel as another factor that would reduce growth in the global industry this year.

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