T O U R I S T I N D U S T R Y Sri Lanka's tourist industry is in need of rehabilitation. The Ministry of State, responsible for the country's tourism sector, put up proposals recently for an intensive promotion campaign for the industry in Western Europe and the Govern­ ment approved the release of a sum of US $ 1.5 million for the purpose. Mean­ while, representatives of the hotel and travel trade, together with the Tourist Board were preparing their own proposals seeking relief from Government taxes, levies and other dues, with the hope of attracting more tourists to Sri Lanka, remaining competitive internationally and staying on in business. The current crisis for tourism In the country was summed up bleakly in a Ministry of State memo­ randum to the Government which stated: "Tourist arrivals had dropped by over 70 percent (in August) and the employ­ ment - both direct and indirect - of approximately 50,000 workers in the formal and informal sectors had been affected. All hotels, except those in Colombo were experiencing occupancies below 10 percent. Foreign exchange earnings estimated to average Rs 275 million per month, had fallen by 75 percent. Government revenue from direct and indirect taxes, computed to be about 10 percent of the gross earnings are also likely to fall in the same proportion." The crisis facing the tourist industry in Sri Lanka has to be viewed not merely in the context of ethnic disturbances that overtook the country but within the peculiarities and underlying trends of the tourist industry itself. The underlying trends recently, both worldwide end in Sri Lanka, have shown e structural tendency towards the levelling off of tourist arrivals from the more luc­ rative West European markets. This was pertly due to the recession in the West (the year 1982 itself had seen a worldwide contraction in tourism of between 3 and 4 percent in terms of occupancy rates), and also partly due to a possible saturation of the Sri Lankan market. The 60's and 70's witnessed a spectacular growth rate of the global tourist industry. What was once a luxury reserved for the privileged became part of the life style of the average person in the Western world. Faster and cheaper international transport, together with rising incomes in these countries, brought semi luxury hotel accomodation of the less developed countries well within the reach of the average Westerner. The developing countries share of tourism which ranged from 10—20 percent of the world's total rose dramatically in the 70's with the Asia Pacific region experien­ cing the fastest increases. Between 1970 and 1980 visitors to this region increased four-fold, from just over 5 million to around 20 million. In East Asia alone it exceeded 11 million by 1980. (See table 1). Table 1 Nine Major destinations cf visitors to East Asia in 1980* Country No. of Visitors 1. Hong Kong 1503,901 2. Indonesia 465,003 3. Japan 1,054,209 4. Korea 784,830 5. Malaysia (mainland) 1,285,627 6. Philippines 829,448 7. Singapore 2,074,867 8. Taiwan 1,308,155 9. Thailand 1,416,372 Total 11,122,412 * Taken from top six sources of each country. Source: Asia Travel Trade.April 1982 In these years tourist arrivals in South and South East Asia went up at an average rate of about 20 percent, upto 1980. From 1981, however, there was a significant change in this trend and Sri Lanka parti­ cularly has felt the impact. The growth of tourist arrivals in Sri Lanka had dropped from 28 percent to 15 percent in that year. In 1982 there was a still further drop with an increase of only 10 percent (See table 2): and in 1983 growth rates were expected to drop still further, throuqh a different set of circumstences. Although overall traffic continued to grow, many major tourist generating markets were not able to sustain the ex­ pansion of the previous years. This resulted in a change in the composition of tourist arrivals in Sri Lanka. ECONOMIC REVIEW JULY/AUG. '82 Table 2 Tourist Axrivals-Growth Trends Year Index * % increase over previous year 1967 127 — 1968 149 + 20.16 I960 211 + 40.16 1979 243 + 15.17 1971 209 + 1339 1972 295 + 41.15 1973 410 +43838 1974 447 + 9.02 1976 643 + 21.48 1976 626 + 16.26 1977 808 + 29.07 1978 1,013 + 25.37 1979 1316 + 29.91 1980 1,692 +^28.57 1981 1347 +16.07 1982 2,160 + 11.0 1983 2,368 '+9.60 * Average 1963-1967 Is taken as 100 ** Provisional Significant changes in the pattern of arrivals took place during 1982, the most notable being the substantial increase in arrivals from India which more than doubled over last year. In 1981 the propor­ tion of Indian arrivals in Sri Lanka was only 13 percent but this rose to almost 25 per­ cent in 1982. The reason for this sudden upsurge was the attractions offered at the Duty Free shopping complex in Colombo. Another noteworthy feature in the trend of tourist arrivals In Sri Lanka in 1982 was the drop in Western European traffic. Amid the uncertainity of the current global economic environment many countries in Europe, including the leading market (West Germany) recorded decreases. in traffic. The only market which consis­ tently recorded.a high growth rate was Australia; while from the North American region, USA recorded e moderate increase. The total foreign exchange earnings from tourism In 1982 was estimated et Rs 3,100 million; but this was an increase of 213 percent over the figure of Rs 2346 million recorded in 1981 compared with the increase in tourism earnings in 1981 which was as high as 39.1 percent. Thus tourism earnings too have decreased along with the slower expansion of tourist traffic. There have been warnings from time to time concerning the uncontrolled in­ crease in accommodation capacity in the hotel sector. The cautionary note in the Economic Review of February 1982 against this trend is worthy of repetition in this context. Between 1967 end 1980 the Source: Ceylon Tourist Board. hotel industry in Sri Lanka has shown a remarkable rate of growth. This is unique in the sense that no sector of the economy had in recent times exhibited such growth. While tax incentives had obviously attracted investors to the tourtst hotel industry, this alone cannot account for the growth, because the industrial sector, which also had equally attractive tax incentives did not attract as much investors or exhibit a growth comparable'to the tourist hotel Industry. Obviously there were other factors and among them the more im­ portant appeer to be: — Technical knowledge required for the tourist hotel industry is less demanding than for the industriel sector. This may have made meny Investors prefer the tourist hotel industry to the industrial sector. — Sri Lanka entreprenuriel experi­ ence end expertise is lergely in trade ectivities; and such entre- prenuers were more comfortable in the tourist hotel industry. Table 3 Computation of Tourist Nights Spent at Graded Accommodation as a Percentage of Total Tourist Nights in Sri Lanka (1) (2) (3) (4). (5) (6) Year Accommodation Annual Number of Total Number Percentage of Capacity Room Occu­ Tourist of Tourists Tourists who (graded) rooms pancy rate Nights Nights stayed et gra­ (graded) spent at ded accommo­ graded acco­ dation mmodation % (•000) COOO) % 1967 770 35.0 167 262 62.40 1968 903 40.7 228 296 77.04 1969 989 44.3 273 406 67.26 1970 1,408 42.8 370 489 76.47 1971 1,767 31.1 340 396 8633 1972 1391 383 455 614 74.15 1973 2,468 42.4 649 804 8138 1974 2305 39.7 716 874 8138 1975 3332 363 829 1,015 81.71 1976 4381 37.7 1,726 1,194 89.75 1977 4351 42.0 1,264 1,645 7631 1978 5347 47.7 1383 2,061 76.79 1979 5399 523 1.834 2,777 6636 1980 6,042 673 2,160 3348 61.20 1981 6391 54.5 2,330 3,907 59.64 1982 7339 473 2,236 4,048 55.24 Notes: 1. 2. 3. Ceylon Tourist Board dtta ror Columns 2 3 & 6 Column 4 has been arrived et as follows: Accommodation capacity (Col. 2) x 365 x Bed Nights realised ratio (1.7) x Occupancy rate (Col. 3) Column 6 is Column 4 es e percentage of Column 5. ECONOMIC REVIEW JULY/AUG. '83 Table 4 Sri Lanka's Hotel Accommodation by Resort Regions 1979-1984 No. of Rooms as at 31st December Region 1979 1980 1981 1982 As at 31st 1984 Est. March '83 Colombo City 1,332 1,418 1,486 1294 1,293 3,790 Greater Colombo 1,046 1,100 1,219 1314 1,326 1,390 South Coast 1,534 1,556 2,138 2,443 2340 3,090 East Coast 367 424 430 464 464 1,149 Hill Country 263 223 260 259 268 293 Historic Cities 1,000 1,082 1,439 1.678 1394 1,764 Northern Region 57 57 89 87 87 103 Total 5,599 5370 7,061 7339 7,672 11382 Occupancy Rate % (Entire Year) 52.8 573 54.3 49.0* Official Receipts (Rs.Mn) 1,188.5 1,600 2,546 3,100* Provisional Source: Ceylon Tourist Board and PERFORMANCE. Ministry of Flan Implementation- whose business character was closer to their trading activity, than the industrial sector. Persons in the construction industry, using their construc­ tion experience, were eble to build hotels at lower cost and and with less construction ma­ nagement problems. This factor attracted many from the cons­ truction industry to the tourist hotel industry, may be initially as construction people and possibly later es partners or shareholders in these ventures. Consequent to land reform acquisitions of the early 1970s, many with managerial experi­ ence in plantation management shifted to the tourist hotel industry, using their managerial experience and expertise with a combination of private, public and loan capital. The number of agency houses, which earlier managed plantations, that en­ tered the tourist industry is illustrative of this factor at work. The nature and character of the staffing and workers of the tourist hotel industry has not led to trade unionization on any significant scale. This may have also been a factor inducing capital tc the tourist hotel industry, relative to the indus­ trial sector. This remerkable growth of the tourist hotel industry while being commented upon by many, was also the subject of concern. As early as 1977 opinion was expressed that .if the growth rate of the hotel industry continued at the same rate it could lead to excessive room acco­ mmodation capacity, and if such a situa­ tion led the occupancy rate of hotels to fall below the break-even point it could heve dire consequences for the industry. The Philippines experience of the mid seventies, when hotel construction booma- ranged into excess capacities: inability to pay interest on loans the need for resche­ duling of loans and repayment periods etc., was relevant in this context of the concern expressed over the expansion of the hotel industry in Sri Lanka. The prediction of hotel room capacity exceeding demand, however, had upto 1980 not proved correct. The fears expres­ sed were perhaps a little exaggerated; but a crucial factor that helped to prevent a drop in occupancy rates, was that the rate of growth of tourist arrivals was sus­ tained over the period. It is apparent that this sustained rate of growth of tourist arrivals from 1977 onwards had led to the utilizetion of the increasing hotel accommodation at productive levels. That this had occurred should not cause complancancy about the future. Global tourism has its phases; trends; fluctuetions and perheps even saturation points both from the point of view of the "market economy" countries from whence tourists arrive as well as the host countries. Despite this situation 33 more hotel projects capable of providing 4,145 beds were granted approval within the first three months in 1983. Investment on these projects would amount to Rs 4,372 million approximately. The distribution of the new rooms according to resort regions ere at follows: Colombo 2,500; South Coast Resort Region 750; East Coast Resort Region 685; Hill Country 25; Ancient Cities 100; and Others 85. The tax con­ cessions given to investors in hotel projects were withdrawn with effect from 31st March 1983, end the above projects were approved prior to the withdrawal. With these additional accommodation facilities, total room capacity is expected to reach 11382 by the end of 1984. (See table 4). A look at the room position, particu­ larly planned capacity, can be alarming in the present situation. At table 5 below indicates as at March 31, 1983 there were a total of 7,668 rooms in operation or avai­ lable, whereas e further 12,765 more rooms were due to be built of which nearly 4,000 were already under construction. Table 5 Summary of Room Position as at 31st March 1983 Region In Operation Under Con­ struction Approved .not off the ground 1. Colombo City 1,501 2,059 2,127 2. Colombo Resort Region 1,233 478 1397 3. South Coast Resort 1397 Region 2,540 993 2300 4. East Coast Resort Region 444 128 1319 5. Kandy Only 660 211 216 6. Ancient Cities 943 _ 200 7. Hill Country 260 60 88 8. Other Resort Regions 87 - Source: Ceylon Tourist Board ECONOMIC REVIEW JULY/AUG '83 5 If all these rooms under construction end approved for construction were to materialise Sri Lanka could have as meny es 20,433 on the March 31 position alone. The situetion, as seen by the Ceylon Tourist Board, is thet about 11,582 rooms will be available in 1984, e jump of nearly 4,000 from the 7,672 rooms in March 1983. See table 4. Of interest in this contect is the comment, from outside-of the usually well informed monthly Asia Travel Trade — which warns in a leading feature in its August 1983 issue, titled Colombo Hotels Heading for Over Capacity es follows: . "Chronic over capacity threetens Colombo if ell the hotels plenned over the next two years actually open. If only the likely ones open, over capacity in the Sri Lanka capital will be no more than serious. Progress is particularly slow on three projects: Sheraton, Hilton and what was to be the Orchard, No work has taken place on the Sheraton (in which the Walkers Tours group is to have a share) and on the Hilton (which was first announced four years ago). Neither is it likely to open before 1986 at the eerliest. As for the Orchard, Singapore-based Orchard International Hotels was saying last year that 200 rooms of its 404-room hotel would open this October. Though Orchard's management contract has appa­ rently been annulled the hotel may even­ tually open as the Trans-Asia, though the January 1984 target looks impossible. Only the Taj Samudra and the Gala- deri Meridien are resonably certain ôf starting operations before next April - a key date because PATA's annual con­ ference will be held thet month in Colombo. An important reason for this recent upsurge in the expansion of the room capa­ city is the' greater attraction of foreign capital into Sri Lanka's tourist sector. This sector earlier adhered to the policy of keeping the foreign component in hotel projects up to 49 percent; but 'this has been relaxed in recent times. The tourist sector it may be observed has also generally attracted considerable foreign investment (See table 6) 'An analysis, of the envisaged investments in the appro­ ved projects by end of 1982 shows that 45 percent of the -foreign investment! approved between 1978 end 1982 was in the tourist sector. Every year 40—50 percent of the approved investments came into the tourist sector and this rose to : almost 64 percent in 1982. Although there is a considerable gap between the approvals and the actual implementation and realisation of projects these figures indicate the dominance of the tourist sector as an attraction for foreign invest­ ments. This is a factor that should have a considerable impact on the room position of the local hotels. The decrease in the rate of tourist arrivals coupled with the increased avai­ lability of tourist accommodation is re­ flected in the drop in room occupancy rates. The overall room occupancy rate in graded establishments which -was 42.0 percent in 1977, kept going up to 47.7 percent in 1978, to 52.8 percent in 1979, and reached a. peak of 57.8 percent in 1980; but declined to 54.5 percent in 1981 and dropped further to 47.8 percent in 1982. The figures available so far before the events of July for 1983 show a further drop roughly 8% compared to 1982 (See table 7). The fall of the room occupancy rates of graded establishments is attributed to certain basic factors, one of which is the sharply rising prices for the tourists in these hotels. An index of tourist prices, maintained by the Ceylon Tourist Board, shows that the steepest increase in prices has been in the City and Beach resorts and it is in hotels in these locations (Colom­ bo City, Greater Colombo and South Coast) that the sharpest decline in occu­ pancy rates has been recorded. In the City, for instance, the accommodation index number of tourist prices (base prices Rising Costs in Graded Hotels and Drift to the Informal Tourist Sector It is not adequate to match tourist arrivals with accommodation and attempt to explain any variation or changing trends in terms of either of the two variables. There is a crucial third factor that has been generally ignored, namely the number of tourists who opt to stay in the graded hotels, where accommodation capacities only ere taken into account and reflected in the Ceylon Tourist Board statistics. It is here that an increasingly significant trend can be observed since 1977. There appears to be a downward trend since 1977 in the percentage of tourists who stay in graded hotels. Obviously the rising costs of accommodation charges in graded hotels has'contributed to this. This rising rate of hotel charges is no doubt linked to the general inflation in the country, but it'Is perhaps aggravated by rising construc­ tion costs and other overheads. It is es-. timated that during the last decade con­ struction costs have increased nearly ten­ fold. The increased BTT charges on graded hotels may have also had some impact. It is also possible' that in the increasing number of tourist arrivals there is a larger number of tourists who are of a type that do not seek graded accommodation. While the cheaper rates of the ungraded hotels may have been attractive to this type of tourist, they may also be attracted to such accommodation by its informal character, simplicity of decor, closeness to urban or middle class life style of Sri Lanksns etc. According to official computations, the total foreign exchange earnings from tourism in 1982 was estimated at Rs 3,100' million, comprising the income earned by tour operators, hoteliers, restaurants. shop keepers, transport dperatdrs, and from recreational and other facilities. Furthermore, according to-estlrrtetes of the Ceylon Tourist Board's Research De- partmeqt, about Rs 800 million was also earned by the informal sector of which there are about 3000 establishments pro­ viding accommodation, food, transport, shopping and recreational facilities to tou­ rists. The earnings received by the local population from the formal tourist sector is estimated at 20 to 30 percent of total earnings, while in the informal sector it is placed as high as 90 percent parti­ cularly in areas such as Hikkaduwa, Ne- gombo, Kalkudeh and Arugam Bay where informal tourism activities are concentrated. All this suggests the need for a prudent monitoring of the hotel expansion pro­ gramme. For if the downward trend of 'occupancy in graded hotels continues and the occupancy rates drop below the occu­ pancy break-even point of individual hotels it can be problematic. This is particularly so for the recently constructed hotels with high capital costs in hotel construction with consequent high fixed costs (by way of depreciation) to variable costs ratio. It has been established that hotels" with such high fixed costs to variable costs ratio have a high occupancy break-even point which in the context of downward occupancy rates would be the first to cross the red line. They would also have to compete with older hotels, which with capital costs accounted on a historical cost basis could offer very competitive accommodation rates. (A five star hotel room which cost between Rs 1 lakh and Rs 1.5 lakhs to construct a few years ago today costs closer to Rs 1.5 million). -In-this context the 1981 83 trends ac­ quire greater significance. ECONOMIC REVIEW JULY/AUG '83 Table 6 Foreign Investment Advisory Committee (FIAC) Projects approved and in operation sector wise classification approvals 1979-82 , operational December 31,1982 Sector No. of Projects Approved 1979-1982 — — 1979 1980 1981 1982 No.of projects -No. of Projects in operation as at 31.1232 Committed Investments (Rs.Mn) Employment Foreign Local Total Actual 1. Agriculture, Animal Husbandry and Fishing 05 13 09 08 10 6.6 16.1 21.7 214 2. Manufacturing Industries 61 55 51 46 99 430.7 767.5 1,218.2 15320 3. Civil Engineering construction and property deve­ lopment 26 17 17 09 26 69.2 4. Tourist hotels and Recrea­ tional faci­ lities 15 26 53 23 33 45.5 216.8 286.0 268.9 304.4 1,610 1.697 5. Specialised services Total No. of Projects 06 26 21 17 36 60.4 208.2 2683 741 113 137 151 102 203 685.0 1321.2 2,206.2 20,107 Totel Investments ~ Envisaged (Rs.Mn) 2,197 Investment Envi­ saged in Tourist Sector (Rs.Mn) 3,630 6.836 3,037 924 1,450 3,214 1,915 Source: Public Investment 1983-1987; Sational Planning Division Ministry of Finance A PlanningMoy 1983 Table 7 Occupancy Rates - Graded Establishments (Hotels) (All Regions) Month 1982 1983 Changed) January February March April May June 66.8 71.4 62.0 45.7 31.9 27.6 63.3 65.1 58.3 41.6 29.8 24.7 - 5.24 - 8.82 - 5.97 - 8.97 - 6.58 - 10.51 Source: Ceylon Tourist Board, Monthly Bulletin on the Performance ofthe To.I The informal sector is pictured tn the popular press as the breeding ground of vices associated with tourism. Complaints of drug, taking and semi nudity .are the oft mentioned symptoms. Studies have found that semi-nudity is also present in the formal sector. Many hotels in the formal sector illegally maintain 8 "private" beaches which operate a strict form of apartheid, with security guards keeping out local vi­ llagers. Nudity and semi nudity is practised in these illegal zones. who would like to know more about the country they visit, the way people live, their problems and their customs. To them the atmosphere of the normal tourist establishments that are geared to only the. four S's (Sea, Sand, Sun.and Sex) of the package are clearly unattractive. As usually believed this changing nature of tourists needs is not simply a youth phenomenon. It should be remembered that the middle. ' aged Europeans of the eighties are the youth who witnessed profound changes in their societies in the sixties. Their values will be different from the outlook the 'white sahib' of an earlier era had of the developing countries. But thinking in the local tourist industry yet seems to be more influenced by this image, rather than being sensitive to the changing nature and needs of today's tourists. This sensitivity will question a tourist promotion strategy that has only numbers in view. The target of 500,000 by the year 1986 has become a regular slogan in tourist promotional activity. But this preoccupation with numbers can become a big drawback for a' future-oriented tourist policy. There are many examples of tourist resorts where a mere increase in numbers has destroyed their attraction. In contrast , to this is the more selective policy where the ' demands.- of a specific tourist segment are carefully considered and the industry, organised to meet these needs. The response of the tourist planners to the presence of so significant a propor- 1 jion of 'cheap tourists' has been the attempt to aim at the higher spending tourist in Western Europe and to a lesser extent in North America and Japan. (See table 13) ' The recently launched publicity'campaigns in popular American journals such as 'Newsweek' and 'Time' is a reflection of this strategy. Apart from the monetary benefits this diversification is also supported by the widely propagated view that the 'cheap' tourist alone brings in social and cultural problems. Doubts have been raised over this assumption and the attempt to relate the so called .'hippie' type tourist with social and cultural problems. It appears that the informal sector seems to have proved itself, economically on certain accounts more than the formal sector. It is possible that informal sector tourism conducted under the auspices of the Tourist Board, with a certain measure of "control" (that is effective "control" of both the formal and informal sector) would lead to a maximising of the benefits the state had identified for tourism. ECONOMIC REVIEW JULY/AUG. '83 9 The occupational categories or types of visitor among the tourists to Sri Lanka is of interest in this regard. As seen in table 14, the number of businessmen and professionals visiting Sri Lanka has been on the increase in recent years and by 1982 over 21 percent of the visitors to Sri Lanka belonged to these two cate­ gories. Meanwhile, those in the category of "No Occupation" had reached a peak of 33.8 percent in 1973 end then gradually declined to 22.4 percent by 1982. There was en unusuel increase in 1982 in those not categorised into any specific occupa­ tion and in the 'Other Occupations' cate­ gory. Foreign Exchange Earnings The hoteliers end travel trade, and government planners end economists, tend to evaluate the benefits of tourism mainly on the financial returns on the investment that is going into this sector. It is main­ tained that there hes been a growth rate in foreign exchange earnings of 37 percent a year between 1977 and 1982. This is based on the estimate that gross foreign exchenge earnings from tourism had gone up from US $ 40 M in 1977 to US $ 147 M by 1982. In rupee terms eernings were estimeted at Rs 3,050 million in 1982, as seen in table 15. It is also argued thet Table 11 Composition of Indian Tourists Among Total Tourists to Sri Lanka Year Total Growth Total Growth Other i Growth Indians as Tourists Rate Indians Rate Foreigners Rate a percentage of total tourists 1978 192,592 — 14,627 177,965 7.59% 1979 250,164 + 29.9 28,099 + 92.10 222,065 +24.78 11.23% 1980 321,780 + 28.6 36,284 + 29.13 285,496 +28.66 11.28% 1981 370,742 + 15.2 48.520 + 33.67 322.222 +1286 13.09% 1982 407,230 + 9.8 93,112 + 91.9 314,118 - 232 2236% 1982* 207,608 1983 227,592 + 9.6 75,122 + 61.4 162,470 - 2.93 33.01% Source: Ceylon Tourist Board Monthly Bulletin Table 12 Comparison of Customer Traffic to the Duty Free Shopping Complex Colombo (1982/1983*) 1982 1983 Month No.of Average per No.of Tic- Average per Change tickets issued dey kets issued day % for the month for the month 1982/1983 January - - 33,401 33 February - . - 30319 1,400 March * • 22,311 897 32,632 1,255 + 3939 April 21360 950 28,331 1231 + 29.6 May 25,644 1,165 32,312 1,404 + 26.0 June 26,411 1,015 27396 1,095 + 3.73 July 25315 996 15328 719 - 38.92 August 30329 1237 12,748 509 -68.78 September 30,012 1,200 11,919 567 -60.29 October 23,759 950 November 22,415 896 December 28324 1,132 * Duty Free Shopping Complex wes opened in November 1981 ** Started the issue of tickets in March 1982 Source: Ceylon Tourist Board tourism has contributed towards the di­ versification of the base of Sri Lanka's foreign exchange earnings which was earlier heevily dependent on the three major export crops of Tea, Rubber and Coconut. The contributory share of tourism as a foreign exchange earner has increased from 0.3 percent of total earnings in 1977 to 7 percent of the totel in 1982; accounting for about one-third the total earnings in the invisible account of the Balance of Payments and helping to reduce consider­ ably the overall deficit in the Belence of Payments. In considering foreign exchange ear­ nings, however, it is more realistic to look at the nett earnings, particularly when there is a high degree of leakage through imports. The import leakages are princi­ pally due to such sources es purchases of goods end services by the tourist industry for investment and current consumption es well as on import of goods required, for provision of tourist amenities, payments in foreign exchange to factors of production foreign exchange expenditure incurred for services abroad such as publicity and tou­ rist promotion etc. Studies conducted by the Tourist Board, the German Deve­ lopment Institute and the International Development Research Centre have shown that the foreign exchange leakage in 1978 was 24.5 percent of earnings while in 1979 it was estimated to be 26.6 percent. The figure for 1982 was not expected to exceed 30 percent even with the recent larger parti­ cipation of foreign capital in the hotol industry, according to a Marga study. Since by the end of 1982 only a small proportion of projects with foreign capital involvement were in actual opera­ tion, in the immediate future it could be expected that the outward remittances connected to foreign investments would increase and to that extent there could be a proportionate reduction in the rate of nett foreign exchange earnings. In addition, this tendency could be aggravated as a result of the new market strategies being adopted. It is generally accepted that the servicing of 'expensive' tourists will also require large scale imports of expensive food, beverages, etc. Hence an increase may be anticipated in import leakages. But far more significant could be the social impact of such a trend if any changes in the market, significantly affects the income distribution possi­ bilities in the present system. Although the so celled 'cheap' tourists bring in a smaller amount of foreign exchange it must be remembered that they are a source of income to a broader section of the local population. This dispersion of the benefits of tourism has also been a significant factor that has resulted in very little resentment 10 ECONOMIC REVIEW JULY/AUG. '83 Table 13 Projections of Tourist Arrivals, Tourist Nights and Foreign Exchange Receipts 1982 - 1984 Projected Actual Market Areas 1982 1982 1983 1984 Western Europe 232,080 259300 298,400 337200 North America 17,686 20,100 22,100 24,100 Japan 11,998 19,000 21300 23,000 Australasia 12,788 10,400 11,400 12,400 Eastern Europe 4,148 8300 9300 10,100 India 92340 51,600 66,000 61300 Other Asian Countries 28348 24,300 26300 29,100 Middle East 3,098 3300 4,100 4,600 Africa 3,012 2,200 2,400 2300 Latin America 532 900 1,000 1,100 Total 407.230 400,000 462300 506300 Tourist Nights (in*000) 4,048 4,200 4,746 5313 Tourist Receipts — in Rs. Mn. 3,050.4 2.255.4 23763 3,147.9 -inUS^Mn. 146.6 160.4 1783 2093 Source: Ceylon Tourist Board Table 14 Percentage Distribution by Occupational Categories 1 9 7 5 - 1982 Occupation 1975 1976 1977 1978 1979 1980 1981 1982 Businessmen 8.8 7.1 8.5 11.4 113 9.7 9 7 133 'Professionals 8.7 10.3 7.7 4 3 5.0 5.2 6.1 7.3 Executives, Scientists & Technicians 13.3 14.1 11.5 12.1 11.8 12.3 13.3 8.6 Educationists 7.0 8.4 8.1 6.2 5.2 7.4 7.3 5.6 Other Occupations 12.0 16.0 19.9 25.1 24.7 253 17.6 31.3 No Occupation 29.1 25.7 29.0 26.2 24.1 25.2 21.3 22.4 Retired Persons 2.3 2.7 2.7 2.6 2.8 2.7 2.4 2.3 Source: Ceylon Tourist Board Table 15 Foreign Exchange Earnings from Tourism by Sources 1981 and 1982 In Rs. Million In US 8 Million Sources 1981 1982 Total % Change 1981 1982 Total % Change Change Change Banks 943.0 1.032.4 89.4 9.5 49.0 49.6 0.6 1.2 Travel Agents 846.4 818.9 -27.5 -3.2 44.0 39.4 -4.6 -10.5 Shops 190.3 671.2 480.9 252.7 9 3 32.3 22.4 226.3 Hotels 554.2 513.8 -37.4 I - 6.7 28.8 24.8 -4.0 -13.9 Gam Corporation 12.6 1M - 1.5 -113 0.7 0.5 -0.2 -28.6 Total 2,546.5 3.050.4 503.9 19.7 132.4 1463 14.2 10.7 ECONOMIC REVIEW JULY/AUG. '83 being shown by the local population to the influx of large numbers of foreigners into their midst. If, however, the industry concentrates on expensive tourists who could be serviced only by those having access to bigger investments and if it results in any significant changes in the present pattern of distribution of economic bene­ fits of tourism there can be social" resent­ ment, which can easily disrupt the entire market. Tourism it must be accepted, is not built on the basic premise of a meeting of peoples of different countries or of a meeting of civilisations (that is, of cultural understanding). It is a commodity pur­ chased like any other saleable good where demand end supply, competition, etc. play an interactive role. It is built partly on the selling of myths about the recipient country to gullible foreigners. In the Western market it is usually the myths of the four S's of sea, sun, sand'and sex, thet ere used tp entice foreigners. In Sri Lanka the last comp'oent has not been very important, although in the case of countries like Thailand and the Philippines it has been a predominant feature. In this type of tourist industry, often exaggerated exoticism is packaged and sold in the Western market. The tourist industry is like that of cosmetics, one of images and make believe. The industry in the countries of tourist origin ere controlled by a few firms that have several competing destinations apart from Sri Lanka. These firms operate at a local town level in their countries through small tourist kiosks (Buros) which retail tourist excursions. A tour operator in the West has very high stakes if his customers switch to a competing firm in the case of any perceived discomfort to a tourist. A tourist death, injury or inconvenience in a destination would have a far reaching im­ pact on the entire firm and hence their extreme sensitivity as regards destination situations. (See our special issue on Tourism — Economic Review June/July 1979 — where we discussed the broad nature of the tourist industry.). The tendency in the packaging of Sri Lanka recently was the use of the excessive hyperbole of Sri Lanka as a "Paradise" As any serious social psychologist would testify the ad writers use of the word 'Para­ dise' and its other associations (blatantly used also in Air Lanka advertisements) has inherent dangers. The reason is that a "Paradise" marred would be extremely The events of July end August pro­ vided precisely the grounds for such a collapse. The television screens in the susceptible to an image collapse and con­ sequently of 'course to a contraction in the flow of tourists. 11 TOURISM AND CLOTHES The authorities responsible for the promotion and development of the tourist sector in Sri Lanka have shown deep con­ cern in recent times over the excessive state of * undress displayed by tourists on beaches and in hotels. * More recently a high powered official committee was appointed to probe this trend and make recommendations. Meanwhile, the Ceylon Tourist Board has published a'leaflet titled "Come Share Our Way of Life " where specific attention, of the tourist is drawn to that of dress in the illustration below) and in the following manner: "Except for an urban minority? the greater mass of our people have en outlook in life that is simple and traditional. But because that outlook is blended with an inborn spirit of hospitality and tolerance, they do not as a rule resent differences in dress, social behaviour, or manners. In fact, they take e special delight in the company of foreign visitors, language barriers notwithstanding — which we consider, is e tribute to the very large numbers of tourists themselves. But there are instances when what may be quite normal in your country may be alien or embarrassing to our people. The question of clothes for example. While brevity in the dress might be the expected thing on a beach, or while relaxing in the privacy of your hotel, it might be wanting tn prudence \p enter e place of worship dressed in that manner, or even to walk so- in public. And as for nudity on the beach, sea bathing or sun bathing, sorry ; we heve to draw the line there. Please do not do something .that is totally alien to our environment. Thank you." Such behaviour is looked on as typical excesses of Western tourists which contrasts sharply with the presently accepted practi­ ces in most host cultures. But such beha­ viour is also to be expected by the very nature of the tourist industry. - Most tourists from the more developed countries travel to less developed countries such as Sri Lanka not necessarily because of income differentials, but rather because of the carefully structured perceptions of our countries which are fed to them." The Donts for Tourists Conveyed Graphically Coxmv «< m Fi» Sun'' The. services being offered as tourism are packaged and fed to potential tourists as an item with a particular image just as any other commercial commodity, such as soap, would be sold. The building of an exotic image is a, necessary part of the' exercise." Tourism is often grafted onto suchv societies where the standard of living is very low compared to that which is en­ joyed by the tourists. Poverty, is wide­ spread in these tourist destinations and a conspicuous phenomenon is the free spen­ ding vacationer no longer bound by the rules of his daily routine and "escaping into leisure es distinct from that of work. /The gap between the life style of the rich tourists'end that of the poor inhabi­ tants is most noticeable- where large scale resort tourism exists. Such tourists de­ monstrate values and behaviour patterns that clash with the mores of their hosts. The behaviour of Western tourists in the Third World is a necessary manu­ factured one without even his realising that his intimate behaviour is conditioned by the industry for his' vacation. From the moment he contacts his travel agent ) he is an object whose functions are mani­ pulated and controlled. So that he would live in a fantasy world for a few weeks away from thi; dreary everyday drud­ gery. Tourism 'especially in developing nations, functions as a safety valve and escape (or the pent-up frustrations of industrial society; in the process tho tourist loaves behind his or hot societal norms and morals rind therefore (eels no need to 12 ECONOMIC HI. V U W JULY/AUG. '83 conform to them or worry "what would people say ?". Behaviour is defined by the tourist peer group and the letters manu­ factured fantasies and not by the host society's moral code. Etrlj Aiuradbipura Period A study on "Pacific Tourism" by Cynthia 2. Biddlecomb, illustrates well eccentric clothing and dress is one of the diverse forms of this unregulated behaviour. She comments 'Tourists tend to wear clothes they would never wear in their A female vendor IQ/A Century Kandy Portuguese Period Dutch Period Polomiruwa Period Early so/A Century Kandyan Lad/ .UWUMIU HkVlbW JULVMUg. -83 own social setting for fear of ridicule 01 out of modesty. Women who wear biki­ nis on the street in the destination country don't think how it would be to see some­ one in a bikini walking downtown in their home town. Men who wear loup print flowered bermuda shorts with underskirts must realise that they would be laughed at in that outfit at home, why not In the host country ? (In the Pacific where to many tourists tend to wear beach clothing in town. It Is Ironic that although Western missionaries first taught Islanders about modesty in dress, it it now the itiander who brain washed Into Christianity, in the 19th century reminds the Western tou­ rist I •). 20th century European puppets are administered by puppets programmes by late 19th century Europe. There are no easy prescriptions or solutions to such situations. A more typical Pacific problem is the increase of nude and topless bathing; among tourists. The occurence Is, In some Pacific cultures, totally unacceptable and local people are greatly offended by it. In Sri Lanka the dress of its people has been guided by socio-economic changes thet occurred in the country over the cen­ turies. Before the advent of the Portuguese and other colonials the manner in which Sri Lanka women are attired Is depicted in various frescores, sculptures and artistic records. (See illustrations). A good survey of such dress was done 'by Martin Wickre­ masinghe several decades ago. This dress did not cover the entire body and was attuned to the country's hot and humid climate. With the coming of the Portuguese and subsequent colonial influences, modes of dress begin to gra­ dually change and took on more European characteristics. Ridiculous heights of top hat and tails were reached in the height of the colonial era. From early colonial times, and more particularly in the 19th century and the early 20th century, the dresses adopted were largely inimical to a hot humid climate in that the wearer was completely enme­ shed in heavy clothing from the neck to anckles, at illustrated here. The very recent cultural imports of dresses have introduced imitative patterns that have somewhet reversed the tendency for heavy clothing and have set trendt towards lighter forms of clothing, reminiscent of early Sri Lanka clothes. 11 n target market* of the Wait showing our- ning ihops, cart and sometimes even people, brought graphically to Western drawing rooms a different Sri Lankan reality. News­ paper coverage, as well as magazine articles played on the paradise theme and spoke of a paradise lost. The image collapse could no doubt have very serious consequences. Tight centorthop of news in Sri Lanka at the time also had an adverse impact on the tourist industry. Because of the absence of hard news from Sri Lanka Western media would interview tourists arriving from this country, often in a highly emotional and excited state. Whereas a professional jour­ nalist would report the July/August calamity in a dry and technical sense, a tourist would do it in a highly subjective personal sense. In fact one of the stories that went round the world both on TV, radio and in printed words was that of a Norwegian tourist who had allegedly seen a mini bus set on fire with the occupants inside. The uncertainly in Sri Lanka has had a telling effect. The tourist arrival figures for July and August this year showed the immediate impact of the disturbances. There was a dramatic contraction of arri­ vals with a total drop of 75.4 percent for August. Premature, and in retrospect, irres­ ponsible statements in late July and August, to say that everything was back to normal and to force the appearance of normaic wes also unfortunate. Normalcy is not ushered in by media or prats announce­ ments, but by actual reality as every travel agent in the target countries would only be too acutely aware of The period of the disturbances saw also an exodus of the local representatives of foreign travel firms which belied the sanguine medh p'onouncr"- ments in the eyes of ihe most sensitive tar gets, the travel representatives themselves. The obvious remedial measures is not an emphasis on excessive- imogc boos­ ting Such attempts can he brought to nought by a single event that runs counter to the image. More important than the image is the reality of peace and calm on a permanent basis. The establishment of a real situation of peace, calm and confidence of all Sri Lankans is the best remedy for the tourist industry. In the sight of the slowdown in growth of tourist arrivals in recent years, the changing travel patterns and promotion strategies, and recent events in Sri Lanka, the need for a prudent monitoring of the country's hotel expansion programme and market strategies need not be over em­ phasised. In 1971 when an islandwide insurrec­ tion broke out the industry suffered a simi­ lar image collapse whose effects lasted for another year Today the industry has a grea­ ter momentum so it would perhaps recover faster. On the other hand the events of 1983 were probably more damaging to the country's tourist image than those of 1971. A recent study conducted by the Tourist Board's Research Division, shows that while the 1966 to 1976 era marked only a modest growth pattern in tourist arrivals, the post 1976 period accounted for very high growth rates; and this pattern was however curtailed from 1981 due to the world-wide recession which affected the western economies. A trend of decrea­ sing arrivals was initiated during this period and continued until the recent disturbances. While the disturbances acted as a severe blow to the tourism industry, the recovery process has also been at a relatively rapid pace. The post disturbances trend in arrivals indicate* that Sri Lanka would be able to return to the 1982 status in tourist arrival* by 1984. If thi* trend continue* undiitur- bed it is possible that a growth rate of about 15 per cent could be realised between 1984 and 1985. Such a prediction it bated on the possible reversal of the recessionary situation in the western economies which still is a significant factor in terms of gene­ rating tourist arrivals to Sri Lanka. There is no doubt that for the future of tourism in Sri Lanka both factor* are equally important, namely a reversal of the recessionary trend in the western market economies and the restoration of Sri Lanka'* image as an attractive tourist destination C.G. 14 ECONOMIC REVIEW JULY/AUG. '83