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A cut tree, a dead elephant, is a lost tourism dollar in the future

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by Michel Nugawela and Pesala Karunaratna

Four decades of inaction since introduction of open economy – Sri Lanka has never missed an opportunity to miss an opportunity

Globally and regionally, country is unplanned and unprepared to drive forex earnings; exports, FDIs, and foreign-earned wage remittances record very slow growth rates below CAGR 5%

With CAGR 13.69%, tourism sector shows resilience despite no concentrated effort or national strategy; emerges as priority sector in medium-term to be No 1 forex earner

Nature and wildlife tourism has most potential to drive Sri Lanka as a hot destination for high value travellers as global mobility returns in 2021

A single elephant, alive, contributes $0.16mn a year or $11mn over its lifetime to tourism sector; 350 elephant deaths in 2019 amount to economic value of $3.9bn had they lived their lives fully

Forest cover reduced by 130,349 hectares from 2010-2019 reflecting a sharp increase of 8.6% of net forest change

The coronavirus crisis throws into sharp relief the tenuous state of Sri Lanka’s economy. The government is committed to export expansion but remains handicapped by decades of unpreparedness in strengthening the underlying enablers of competitiveness.

This opinion paper proposes a refocus on tourism as the priority sector to drive growth as Sri Lanka begins the difficult and lengthy task of reforming, restructuring, and strengthening national competitiveness. This will require shifting away from one-size-fits-all marketing under the mass tourism model to developing a product differentiation strategy that targets the best tourists – the high value traveller – with our best assets – nature and wildlife. This broad and diverse segment of travellers outspend mass tourists by 3-4 times and will be the first to travel and visit other countries once global mobility returns in 2021.

However, the high rate of deforestation dismantles the only competitive advantage Sri Lanka has to compete internationally and increase its exports of services. By stripping away nature and wildlife assets, the destination will be left with only its beaches and reputation for cheap sea-sun-sand tourism in the future.

Stagnant exports of goods and services

Exports of goods and services (% of GDP) was reported at 18.8% in 2019 of which goods accounted for 14.2% and services for 4.6%. In the years 2015-2019, total exports of goods grew from $10,547mn to $11,940mn – CAGR 3.15% – while total exports of services increased from $3,266mn to $3,888mn – just CAGR 4.45%.

Sri Lanka continues to lag other emerging economies in Asia that have successfully transitioned from an overreliance on primary goods to achieve export diversification and sophistication. In 1989, our total exports of goods and services as a percentage of GDP was 21.4% against Vietnam’s 16.5%. Thirty years later, our exports had shrunk to 18.8% as Vietnam’s increased to 119.3%. The reasons for this disparity can be found in the underlying enablers of export competitiveness where Sri Lanka’s capabilities are weak or entirely lacking.

 

Enabler #1 – Resource abundance

We have none. Consider the example of India’s BPO industry which is around 1% of the country’s GDP and 6% share of global BPO, directly and indirectly employing 10mn people. According to Tholons and AT Kearney Indexes of 2019, India remains the leading country to outsource because of cheap labour costs, a huge talent pool of skilled, English-speaking professionals (India’s English proficiency: #35/100 in the world and #5/25 in Asia), and tech-savvy manpower, despite competition from The Philippines, Vietnam and other Asian countries.

Enabler #2 – Price and contribution of unskilled or market-ready labour

We are stagnating at middle-income levels. The unskilled labour market demands higher wages and Sri Lanka lacks a pool of skilled market-ready workers (unlike the example of India, above).

 

Enabler #3 – Trade agreements that give producers access to a larger market

Domestic interest groups in Sri Lanka have opposed and successfully pressured governments to abandon free trade agreements. Meanwhile, emerging economies like Vietnam have made huge economic advances through trade liberalization and global integration. Since its Doi Moi reforms, the country has signed 12 (mostly bilateral) FTAs that have increased trade by ten-fold – from US$30bn in 2000 to almost US$300bn by 2014 – shifting it away from exports of primary goods and low-tech manufacturing products to more complex high-tech goods like electronics, machinery, vehicles and medical devices. The competitiveness of its exports will continue to increase, firstly, through more diversified input sources from larger trade networks and cheaper imports of intermediate goods from partner countries, and secondly, through partnerships with foreign firms that transfer the know-how and technology that is needed to leap into higher valued-added production.

Enabler #4 – Ability to enter, establish or move up regional or global value chains and production networks

Today, global firms optimize resources by investing or outsourcing the design, procurement, production, or distribution stages of their value chain activities across different countries. Yet since 1978, Sri Lanka has only captured share in the manufacturing and design stages of the global apparel value chain. The examples of Vietnam and Thailand demonstrate how both economies have become integral to different stages of the smartphone and automobile value chains for Samsung and Toyota.

 

Vietnam:

Vietnam attracted Samsung at the early stages of smartphone evolution. Samsung established its first factory in Vietnam in 2008, when smartphone penetration was 10.8% globally; today it has three factories in Vietnam and world smartphone penetration is at 41%. Samsung remains the single largest foreign investor in Vietnam, with investments totaling $17bn (20% of Sri Lanka’s GDP) whilst Vietnam’s exports of smartphones and spare parts, mostly produced by Samsung Electronics, account for $51.38bn (20% of Vietnam’s GDP). On top of the current $220mn Samsung R&D center, Vietnamese Prime Minister Nguyen Xuan Phuc has requested Samsung Chairman Lee Jae-yong to next invest in a chip manufacturing plant, further strengthening the country’s competitiveness and sophistication in exports.

 

Thailand:

Toyota’s decision to enter the Thai automobile market in 1962 was largely due to the country’s industrial policy regime. Today – after 6 decades of concentrated effort between the Thai government and Toyota – Thailand is becoming a global passenger car production hub. Toyota’s investments have also helped to transfer knowledge and technology into Thailand, strengthening the R&D capabilities of Thai engineers. Toyota Thailand president Michinobu Sugata has expressed complete confidence in both Thailand and the company’s future direction in the country.

Since 1978, Sri Lanka has repeatedly missed opportunities to enter or establish itself in global value chains and production networks. We continue to be unplanned and unprepared in strengthening the underlying enablers of export competitiveness. Expect meagre export growth to continue.

Slow flowing foreign direct investment

These enablers of competitiveness are also the most important considerations to increase foreign direct investment. Inflows between 2015-2019 totalled $6.4bn, averaging $1.2bn every year and merely growing by CAGR 0.93% (this excludes the 99-year lease of Hambantota port to China in exchange for $1.1bn). Without improving supply-side constraints, international investors will remain reluctant to sink substantial resources in the country.

Strengthening the underlying enablers of competitiveness will take time. Expect stagnation in FDI inflows to continue.

Sluggish foreign worker remittances

Sri Lanka has become a major country of origin for unskilled workers with minimal economic value. Wage receipts, which amounted to $6,717mn in 2019 or 8% of GDP, negatively grew by CAGR -0.96% between the years 2015-2019. In 2019, the highest inflow ($3,459mn) came from the Middle East, a segment that participates in the lowest economic positions and lacks the skills, abilities and qualifications to mitigate any downturn in value in remittance flows.

However, the demographics are changing for neighbouring countries like India, where an increasing number of skilled white-collar workers (a growing cohort of professionals in the IT and engineering fields, according to MoneyGram) are quadrupling the average volume per each remittance.

To export quality human capital and increase our share of foreign-earned wages, Sri Lanka must introduce transformational policy reforms in education. Our university system – supported by proactive primary and secondary education systems – must be restructured to produce market-ready workers with the skills and adaptability to learn, grow and respond to change.

Reforms in the education sector will take time. Improving value in wage receipts remains a remote opportunity in the near future.

Amid no support or concentrated effort, tourism receipts grow double-digit

Tourism continued to expand and record double-digit growth of CAGR 13.69% between the years 2015-2018, despite the absence of a national strategy and a high percentage of low-income visitors. As a single sector, tourism receipts amounted to $4,381mn in 2018 or 4.96% of GDP and trended towards topping that in 2019. As Sri Lanka is weak or entirely lacking in the underlying enablers of competitiveness, and continues to be unplanned and unprepared in all other means of earning foreign exchange, tourism is the priority sector to drive economic growth in the short to medium-term.

The myth of mass tourism

For Sri Lanka, mass tourism has its advantages; it produces high revenues at high seasons by attracting tourists looking for the cheapest way to holiday (Sri Lanka’s largest inbound mass tourist markets are India, Britain, China, Germany, France, Australia, Russia, the US, the Maldives, and Canada). The mass tourism sector is also one of the largest employers in the country, providing direct and indirect employment to about 400,000 people.

But there are inherent constraints to the mass tourism model – such as its high seasonality, low average length of stay and low occupancy rates – which accelerate a downward pressure on prices. By repeatedly discounting for shrinking tourism dollars, mass tourism suppliers attract tourists who don’t spend (enough) and the tourism product stagnates: service quality decreases and consumer dissatisfaction increases over time. Finally, the destination gains popularity and is promoted for inexpensive travel.



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Galadari Colombo awarded ‘SLIM People’s Hotel Brand of the Year 2021’

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The Galadari Colombo was given a thumbs up from the people as the People’s Hotel Brand of the Year for the second time running at the recently concluded SLIM (Sri Lanka Institute of Marketing) People’s Awards 2021.

The uniqueness of the SLIM People’s Awards is the fact that it is awarded by the public which shows the popular choice of the Sri Lankan people.

This is the 15th successful running of the much-anticipated event conducted by SLIM in association with Nielsen which is globally renowned for its measurement and consumer insights.

Having stood the test time of time in the hospitality industry for more than 3 decades the Galadari Colombo is hopeful to remain in the hearts of its people as a brand that is trustworthy and dedicated to service.

 

 

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Expatriates’ organization painting competition for Sri Lankan children from care homes highlights close India-Sri Lanka ties

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Celebrating 75 years of India’s independence in Sri Lanka, Sri Lankan children from care homes converged in Colombo from all across Sri Lanka over 10-11 April 2021 for the final round of the nationwide painting competition organized by Colombo Expatriates Cultural Association (CECA) – a voluntary organization of expatriates consisting of mainly Indians – with support of the High Commission of India, Ministry of Education of government of Sri Lanka and several other partners.

Prof. G.L Peiris, Minister of Education was the Chief Guest and Gopal Baglay, High Commissioner of India was the Guest of Honour at the final round. Several other dignitaries including State Minister Piyal Nishantha were also present. The dignitaries lauded the effort as a shining example of strong people-to-people ties between India and Sri Lanka and stressed the enormous significance of the enriching experience for the children.

The competition was held in three categories – Sub Junior, Junior and Senior. The first round of the competition had seen enthusiastic participation of 4,375 students from child care homes across Sri Lanka. Contestants from all provinces who had produced sixty best paintings were invited along with one care-giver for the final round held in Colombo on April 10 at Hotel Taj Samudra. While top three winners in all the three categories were awarded SLR 100,000, SLR 75,000 and SLR 50,000 respectively in addition to various other gifts, certificates and medals, all the 60 finalists received cash awards, desktop computers, and other gifts contributed by various sponsors.

The event also formed part of ‘India @ 75’ celebrations in Sri Lanka which comprise events and activities in the run up to completion of 75 years of India’s Independence in August 2022. Prime Minister of India Shri Narendra Modi had launched these celebrations in India on March 12 2021, 75 weeks before the 75th Anniversary of Independence. In Sri Lanka, formal launch of these celebrations had taken place on April 9 2021 with the inauguration of ‘India Corner’ at the Nagananda Institute for Buddhist Studies.

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Chrissworld to raise Rs. 56.25 million through IPO

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By Hiran H.Senewiratne 

Chrissworld Ltd. (CWL), an SME company  engaged in the provision of third-party logistics (3PL) services, is gearing to raise up to Rs. 56.25 million via an initial public offering (IPO) on the Colombo Stock Exchange, sources said.

The company plans to offer 7,500,000 Ordinary Voting Shares for subscription at Rs. 7.50 per share. The subscription will open on April 27, with Atara Capital Partners representing the company as managers to the issue.

Meanwhile, the CSE noted in a statement that it has approved an application submitted by Chrissworld Ltd. for the listing of its Ordinary Voting Shares by way of an offer for subscription on the Empower Board of the CSE.

The company,  starting off with Rs. 6 million capital in 2019, expanded its capital to Rs. 22.5 million and projects to obtain Rs. 79 million after the IPO.

Chrissworld will be earmarking milestones with the IPO as the first to be listed on the Empower Board, CSE’s newest listing platform, dedicated to SMEs. Further, Central Depository Systems (Pvt.) Ltd., a subsidiary company of CSE, will step in for the first time as the registrar to the issue.

Amid those developments the CSE  started  on a bullish note yesterday and during the latter part of the day with heavy retail investor participation the CSE witnessed a bullish trend. It is said that manufacturing sector counters became the most popular stocks during the day. Notable price appreciation was reported in Hayleys Group, Royal Ceramic Group and  Distilleries.    

Both indices moved upwards. The All Share Price Index went up by 100.10 points and S and P SL20 rose by 49.18 points. Turnover stood at Rs. 3.51 billion with a crossing. The crossing was reported in JKH, which crossed 1.32 million shares to the tune of Rs. 199.3 million and its share price was Rs. 151.

In the retail market, companies that mainly contributed to the turnover were; Royal Ceramic Rs. 511.2 million (1.46 million shares traded), Expolanka Holdings Rs. 359.9 million (4.5 million shares traded),  Hayleys Group Rs. 359.9 million (4.5 million shares traded), Dipped Products Rs. 321 million (5.5 million shares traded), JKH Rs. 290 million (1.9 million shares traded), and Haycarb Rs. 177 million (1.5 million shares traded). During the day 87.8 million share volumes changed hands in 23900 transactions.

Hayleys shares appreciated by Rs. 6 or eight percent. Its shares started trading at Rs. 75.90 and at the end of the day they moved to Rs. 82. Royal Ceramic shares appreciated by Rs. 13.5 or nine percent. Its shares started trading at Rs. 328.25 and at the end of the day they moved to Rs. 358.75. Expolanka shares appreciated by Rs. 2.70 or five percent. Its shares  started trading at Rs. 49.70 and at the end of the day they shot up to Rs. 52.40 and Distilleries shares appreciated by 70 cent or 3 percent from Rs. 20.20 to Rs. 20.90  

Sri Lanka’s rupee quoted steady at 202.00/203 to the one month US dollar Monday, while gilt yields remained unchanged, dealers said.

The rupee last closed in the one-week forward market at 202/203 to the US dollar on Friday. Sri Lanka markets were dull as seasonal bliss kicks in.

 

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