Tourism industry to become a key contributor to economic growth in Sri Lanka


As Sri Lanka’s second-largest industry after textiles and garments, tourism represents an opportunity to generate revenue and create jobs. The country is fast becoming a popular destination for international travellers, as well as for expatriates returning home to visit friends and family, suggesting that Sri Lanka is in the process of moving from the margins of global tourism to becoming a primary destination in its own right. The government has also recognised potential investment opportunities for both public and private sectors on the back of the economy’s positive growth trajectory, with GDP in 2015, 2016 and 2017 increasing by a respective 4.8%, 4.4% and 4.7%, according to the World Bank.

However, challenges remain. The decades-long civil war rendered large parts of the island unsafe to visit, limiting tourism to the south and central areas. In addition, because returns on investment were small and much of Sri Lanka’s talent emigrated, reinvestment was limited, contributing to poorly maintained infrastructure. Although the industry is expected to continue growing, work will be needed to reverse years of neglect, while at the same time minimising the environmental impacts of development and maintaining quality in the country’s already popular tourism destinations. Sector authorities are therefore looking to preserve assets, involve locals as shareholders and develop new markets in an environmentally conscious way.

Growth Industry 

According to data from the Sri Lanka Tourism Development Authority (SLTDA), traveller numbers are growing. In 2015, 1.8m visitors came to Sri Lanka and stayed an average of 10.1 days, generating an estimated $2.98bn in revenue. By 2016 tourist arrivals had reached 2.05m in number, generating around $3.5bn. In 2017 the amount of arrivals grew by 3.2% to hit 2.12m.

In keeping with sector trends, stakeholders have predicted significant growth in tourists arrivals over the coming years. According to the Pacific Asia Travel Association’s Asia Pacific Business Forecast, international visitor arrivals to Sri Lanka are expected to grow by 12.7% per year until 2021.

John Amaratunga, the minister of tourism development and Christian religious affairs, told local media in 2017 that continuing peace and security in Sri Lanka would help the country attract as many as 4.5m tourists per year by 2020.

Broader Impact 

World Travel & Tourism Council (WTTC) calculations suggest that tourism’s contribution to the economy is broad. It estimates that in 2016, tourism and travel – including domestic non-commuter travel – generated LKR631.8bn ($4.1bn) directly, accounting for 5.1% of GDP, and an increase on LKR478.2bn ($3.1bn) and 4.6% in 2015. This was forecast to rise by 5.1% to LKR664.1bn ($4.3bn) in 2017. Taking into account the indirect impact of tourism – including connected industries such as suppliers to tourism businesses and manufacturers of products bought by tourists – the WTTC put the sector’s overall contribution at LKR1.4trn ($9.1bn), or 11.4% of GDP in 2016, with an estimated increase of 5.5% in 2017.

The WTTC has a positive medium-term outlook for the sector, forecasting respective annual average increases of 6.6% and 6.1% in direct and total contribution to the economy between 2017 and 2027. This puts Sri Lanka among the top-25 countries worldwide for tourism growth over the coming decade. The organisation calculated investment in tourism and travel to grow by 7.3% in 2017 and at an average of 2.6% per year to LKR179.2bn ($1.2bn) in 2027.

In 2016 there were 420,000 people directly employed in tourism, accounting for 4.8% of the total workforce, up from 352,000 people in 2014. WTTC forecasts expected that this number would reach 420,500 direct jobs in 2017, accounting for 5% of total employment. Meanwhile, the sector indirectly accounted for 894,500 jobs, or 10.7% of total employment in 2016. This number is expected to grow by 2.7% per year until 2027, by which time tourism will directly and indirectly provide for 1.2m jobs, comprising 14% of the workforce in the country.

Main Markets 

According to the SLTDA, at 384,628 visitors, India was the single biggest market for inbound tourism to Sri Lanka in 2017, followed by China with 268,952, the UK (201,879) and Germany (130,227). Many countries have been working to attract more Indian and Chinese tourists in recent years, and Sri Lanka’s success has been credited to its concerted promotional efforts. In 2016 there was a 13% increase in the number of visitors from India, with a total of 356,729, compared to 316,247 in 2015. In 2017 the number of arrivals from India grew by 7.8%. In 2016, 271,577 visitors came from China, up 26.4% on the previous year, although, growth slowed considerably in 2017 and the total number of arrivals fell by 1%. The number of visitors from the UK was up 7.3%, while those coming from Germany shrank by 2.3% in 2017.


The government has implemented a number of initiatives to address short-, medium- and long-term goals. The Economic Delivery Programme (EDP), which aims to boost economic outcomes from 2017 to 2020, includes tourism as one of six priority areas. Key outcomes under the EDP include accelerating private sector job creation, attracting more foreign and domestic investment, boosting the annual per capita income of Sri Lankans, increasing government revenue and promoting exports.

At a March 2017 conference, key public and private sector tourism stakeholders participated in a workshop conducted under the EDP to identify key areas for increasing and maintaining tourism growth in the medium term. Targeted priorities included improving air connectivity to important markets, streamlining access to tourism services, and promoting advertising campaigns in key markets. More than 38 private sector companies and 48 public sector leaders committed resources to making sure priority initiatives are implemented.

Along the same lines, the Tourism Strategic Plan 2017-20 aims to make Sri Lanka competitive in the global travel marketplace, marking a notable shift from setting goals for the number of visitors to focusing on revenue targets instead. The plan’s current aim is $7bn in tourism revenue by 2020 and an average daily visitor spend reaching $210. The implementation of the plan has been assigned to a task force consisting of both government officials and private sector representatives.

Meanwhile, the longer-term Tourism Vision 2025 aims to position Sri Lanka strategically on the international tourism market, and to catalyse growth in tourism and the overall economy. Its objectives include making tourism the country’s second-biggest generator of foreign-exchange income, boosting sector employment to 1m people and increasing foreign investment. This will entail stronger branding of Sri Lanka as an authentic island destination – and measures to ensure that this is borne out in visitors’ experiences – as well as improved management.


From 2009 to 2016, the island undertook only one destination marketing campaign, which ran from 2009 to 2010. An additional advertising campaign was in the works for several years but was stalled by budgets and bureaucratic delays. Meanwhile, its inaugural LKR500m ($3.3m) digital campaign in 2017, which was targeted at European and Asian tourists, fell short of expectations.

However, moves have been made to again promote Sri Lanka to a global market. In late 2017 the Ministry of Tourism (MoT) was reported to be recruiting a CEO for digital tourism promotion to help expand efforts to reach new tourists. Starting in March 2018 Sri Lanka is launching a global marketing push aimed at promoting the country’s potential. Also planned for 2018 is a six-month, $700,000 digital marketing campaign aimed at India, and a series of road shows throughout the UK and Australia.

Sector stakeholders will also be encouraged to attend more major trade shows. In July 2017, for example, the Sri Lanka Tourism Promotion Bureau (SLTPB) participated in the Travel & Tourism Fair in the Indian city of Kolkata for the first time.

Despite ongoing efforts, there is scepticism that Sri Lanka will hit its goal of attracting 4.5m tourists by 2020. “In order for the country to increase inbound tourism, it needs to correctly market its brand globally, and this is a job for policymakers,” JMS Brito, deputy chairman and CEO of Aitken Spence Hotel Managements, told OBG. “At the moment, the private sector is promoting Sri Lanka’s country brand. This is not the best way as there should be a coordinated marketing campaign for this.”

Keeping abreast of local and global market trends will be vital to the development of the industry. Adopting more sophisticated techniques to interpret new trends in order to maximise the effectiveness of investments would support the sector’s development. According to industry media reports, there is a need for more sophisticated methodologies for research into tourism and travel trends. While authorities publish arrival numbers and other key statistics collected by third parties, there has been little effort to turn this raw data into actionable research. This suggests an opening for businesses to seize on opportunities that have not yet been identified in shaping Sri Lanka as a tourism destination.

Regulatory Environment 

Four separate tourism systems function under the MoT: the SLTDA, the SLTPB, the Sri Lanka Convention Bureau (SLCB), and the Sri Lanka Institute for Tourism and Hotel Management (SLITHM). Each of these institutions receives financing from the Tourism Development Fund, with the allocations set out in sector legislation.

The SLTDA plays a central role in the sector’s regulation and development. It imposes and monitors standards of tourism businesses, and nurtures tourism development projects, bringing in agencies and private businesses to support growth, and linking international investors to local players. The agency’s promotional work includes organising attendance at travel fairs, in which it invites private sector players.

However, the regulatory environment has created some impediments to private investment, with bureaucracy serving as major challenge to coordinating new initiatives. To address these issues, the SLTDA is establishing an enforcement unit to ensure regulations are strictly followed and are in line with international best practices. The legal and institutional framework is undergoing an extensive review at the national level in tangent with constitutional reforms. “We need to ensure the people that we are all going in the same direction,” George Koumendakos, the general manager of Mövenpick Hotel Colombo, told OBG. “There are minor limitations, however, to what can be accomplished without comprehensive legislative and regulatory reforms.”

Informal Segment 

The expansion of informal and unregulated tourist-related businesses also poses a challenge to sector regulators. According to SLTDA figures, around 50% of tourists in Sri Lanka stay in unregistered accommodation, homestays or hostels. Most are taking advantage of the rise of digital platforms, such as the US online accommodation sourcing service Airbnb, and may not be aware of the legal requirements they need to fulfil. “Sri Lanka does not have regulations or a legal framework for the informal sector of the sharing economy,” Brito told OBG. “This issue needs to be addressed urgently, since most are not complying with the regulations and the tax laws and it is not fair for those who are contributing in the sector. For many years, the private sector has talked with the policymakers, but not a great deal has been done.”

Officials have confirmed that, due to the small size of these enterprises, most of them do not fall into the income brackets required to be liable for national taxes. Because unregistered businesses present risks for all stakeholders, including visitors, intermediaries, the authorities and the providers themselves, the SLTDA announced that in 2017 it would be setting up an enforcement unit to tackle unregistered service providers.

However, after taking an initial aggressive stance against the informal sector, the SLTDA was criticised for tempering its views, having made statements to the effect that new goals were now focused on helping informal businesses improve their standards so they can become registered.

Human Resources 

Despite challenges, the fast-paced growth of tourism is creating new opportunities for employment. The hospitality industry offers a number of benefits over traditional careers, including higher-paying jobs and a strong demand, as well as additional benefits like free meals, accommodation and medical benefits. According to Amaratunga, an entry level job in the tourism sector can pay twice as much as any other field, and salaries paid by the big hotel chains are now comparable to what is being paid globally.

To ensure the human resource needs in hospitality will be met, a number of hotel groups place a heavy emphasis on training and development divisions to guarantee service continues to meet global standards. Complementing the private sector’s efforts, the government – through the MoT, together with the SLITHM – has embarked on a specialised hospitality and tourism training programme targeted at young Sri Lankans. Courses include IT training for hospitality, awareness training for taxi and rickshaw drivers, etiquette training for workers, and a step-by-step guide to trade registration.

Efforts are also under way to attract more women into the sector. In a March 2018 panel discussion involving the MoT, the SLTDA, the SLTPB and the SLCB, sector players talked about issues that needed to addressed to encourage females to pursue tourism occupations. These included the lack of female trainers and women in high-level hotel jobs, a call for policies and laws to protect women in the workplace, and the need to dispel the negative connotations associated with the profession.

Going Green 

Other sector trends include the promotion of ecotourism. Sri Lanka is looking to preserve its attractions for the long term by encouraging tourists and businesses alike to respect the country’s natural and cultural heritage. The UN declared 2017 the International Year of Sustainable Tourism for Development, and there is a concerted effort to align Sri Lanka’s Tourism Vision 2025 with the UN’s sustainable development goals. Following the example of countries like Costa Rica, where hotels and other service providers have geared their offerings toward green tourism, Sri Lanka is set to tailor its offerings to visitors who are willing to pay for environmental responsibility and community engagement as part of their experiences.

Several high-quality hotel chains that offer packages tailored to the demands of this segment are driving this shift. Seeing economic gains, hotels have recognised an incentive to invest in efficient environmental management systems. Enacting such practices promotes water and energy cost reductions, and minimises negative environmental impacts. Globally, these environmentally friendly efforts have been noticed. In 2017 the Sri Lanka Ecotourism Foundation, the first national ecotourism organisation in the country, participated in the Ecotourism and Sustainable Tourism Conference in Ansan City, South Korea, as well as the International Firefly Symposium and the International Conference hosted by Taiwan Ecotourism Association.

Also in 2017 the global travel website TripAdvisor named the eco-hotel Saraii Village in Weerawila as one of its top-10 extraordinary treetop hotels.

Taking Care of Business 

To help address seasonal fluctuations in the number of travellers, officials are looking to build up a meetings, incentives, conferences and events (MICE) segment. While MICE visitors spend a shorter time in the country, they tend to spend more money than leisure travellers and revisit event destinations multiple times.

The MICE segment in Sri Lanka is still in its infancy and as such will need to overcome multiple hurdles. There is a lack of capacity, with the largest conventional hall, the Bandaranaike Memorial International Conference Hall, able to seat just 1600 attendees. To compare, the Sands Expo Grand Ballroom, the biggest conference hall in nearby Singapore, can host 8000 people. Beyond only having small and medium-sized conference halls, there is also a lack of entertainment options for business visitors.

Accommodation pricing may also be a constraining factor. The Sri Lankan government enforces minimum rates in city hotels, which Udaya Nanayakkara, former chairman of the SLTPB, credits with ensuring investor confidence in the capital. However, if Sri Lanka can not offer competitive accommodation prices, businesses have multiple options in India, Thailand, Malaysia and Singapore.

Nevertheless, the SLCB has been focused on promoting conventions and exhibitions, and with 20.9% of all travellers coming to Sri Lanka for business in 2016, according to the WTTC, the potential is there. “MICE tourism is growing fast. In fact, it is exceeding the existing capacity of the country. There is great potential within this segment, and both public and private sectors need to collaborate to meet demand and achieve better results,” Ajith Dias, chairman of national carrier SriLankan Airlines (SLA), told OBG.

Privatisation Push 

A recent trend towards privatisation has resulted in opportunities for foreign companies to invest. In December 2017 government formally handed over control of the Hambantota International Port (HIP) to the state-owned China Merchants Port Holdings Company on a $1.12bn, 99-year lease. The port is located along one of the busiest shipping routes in the world, but had been a loss-maker for the state-run Sri Lanka Ports Authority (see Transport & Logistics chapter).

The deal comes at a time when officials are looking into the potential the island nation has as a cruise destination. Following the 2016 Colombo International Maritime Conference, a report on how to develop cruise tourism was presented to the government with the help of two operators, Royal Caribbean International and Crystal Cruises. The report concluded that to encourage more cruise ships to dock in Sri Lanka, the government needs to develop additional port infrastructure. Recommendations included more passenger terminals, better transportation from the cruise ship to nearby attractions and improved Customs regulations.

The port deal also came four days after the government abandoned its efforts to sell SLA which, like the HIP, has failed to run a profit and is $2bn in debt.

Plans were also announced in mid-2017 to sell off two state-owned luxury hotel enterprises to raise revenue. On offer are a 51% share in Hotel Developers Lanka, which operates a Hilton hotel in Colombo, and 100% of the stakes in Canwill Holdings, a private company co-owned by three government agencies. Canwill is currently constructing the 47-story Grand Hyatt Colombo hotel and was valued at over $240m.

Air Connectivity 

Central to the EDP, increased air connectivity will facilitate the movement of people, investment and cultural linkages to and from Sri Lanka. In April 2017 it was announced that upgrades were being planned for Bandaranaike International Airport (BIA) in Colombo. Work will include improvements and expansion of the existing runway and the addition of a second. The project, which has a 2020 completion date, will bring the airport’s annual passenger capacity to 15m passengers.

Currently, BIA is the only airport in the capital running international flight services; however, given Sri Lanka’s soaring tourism expectations in the coming years, air passenger capacity for Colombo will need to grow to keep pace. In September 2017 officials announced a new development project to expand flight services at Ratmalana Airport in Colombo to include international flights. According to the airport’s master plan for 2018-30 released in December 2017, previous plans to extend the 1.3-km runway to accommodate larger aircraft have been shelved due to a lack of return on investment. Officials are instead looking to make optimal use of existing facilities for the time being. This will include raising the number of smaller aircraft coming from nearby countries. “Until BIA is expanded and developed we will have to come up with an alternate plan to ensure that we can handle the extra arrivals comfortably,” Amaratunga told local media in September 2017.

In addition to increasing airport capacity, the authorities are looking to improve flights servicing key markets, while dialling back in others. As China is Sri Lanka’s most significant tourism market after India, SLA has responded to this growth by launching new services. These include a Chinese-language direct-dial customer service number, which will connect callers with Mandarin-speaking service agents, and installing in-flight Wi-Fi on Chinese routes.

While SLA formerly ran the only direct flights to Colombo from Paris, Rome and Frankfurt, it ended all routes to and from European airports except for those to the UK after the routes proved unprofitable.

Roads & Infrastructure 

In addition to developing infrastructure for travel into Sri Lanka, there is a need to enhance the transport network within the country. Sri Lanka is in the process of making improvements to its roads under its national highway development plan. Already, travel time between Colombo and Galle was cut by 60% with the building of the Southern Expressway, which links Colombo with Galle and Matara. Opened in 2011, the highway was the country’s first modern highway. Further projects under development as part of the national plan include a beltway around Colombo, which will reduce congestion within the city and allow long-distance drivers to bypass the urban area altogether. Another road, the Central Expressway, will link the capital with the key cities of Kandy and Dambulla.

Railway provides a currently underinvested alternative to road travel. Infrastructure is old and in need of upgrade, but trains are often quicker than cars given the congestion issue on intercity roads. Moreover, rail has built-in tourist appeal due to the scenic territory the railway lines traverse. Some progress has been made in the effort to capitalise on this potential, such as the installation of first-class tourist rail cars and private sector premium rail service. The government has also proposed three new rail projects that will connect Matara to Beliatta, Beliatta to Hambantota, and Kurunegala to Habarana with a projected completion date of 2021.


Tourism is one of the world’s fastest-growing industries and an important source of foreign exchange and employment for many emerging economies. Beset by decades of civil war, Sri Lanka’s tourism industry has now become the backbone of the country’s economic recovery. However, significant work lies ahead to fully capitalise on the country’s natural attractions, instinctive hospitality and relatively low costs for visitors.

A priority will be to increase marketing campaigns that highlight these attractions and illustrate decisively that the country is open for business. Additionally, infrastructure upgrades, particularly when it comes to air, rail and road connectivity, would be an important step forward. These efforts, combined with continued regulatory reform, could enable Sri Lanka to fully capitalise on its tourism-related potential to become the pearl of the Indian Ocean.


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The Report: Sri Lanka 2018

Tourism chapter from The Report: Sri Lanka 2018

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