‘Revenge Tourism’ on backdrop of economic crisis in SL

Last week, Sri Lanka registered the 1 millionth tourist arrival in the country with reports emerging that the industry is poised to cross the 1.7 million number, overcoming the original set target of 1.5 million visitors in 2023. Even though the global communication campaign has not kicked in, for Sri Lanka to achieve the above performance level means the ‘product’ is strong or it could be that global travel demonstrates strong growth due to the concept called ‘Revenge Tourism.

Revenge Tourism

The term Revenge Tourism as a concept gained ground when people were confined to their homes due to lockdowns across the world and advised to avoid gatherings and stay within one’s home. 

Revenge Tourism is defined as a phenomenon seen where people are tired of following mundane routines at home due to the health stipulations and when lifted tend to rush to travel to nearby destinations for a short break. 

Leading the pack on revenge tourism beneficiaries are the European countries where post COVID a 33% spike was seen across a ten year average that accounted for almost 76% of world total in a nine-month period post COVID. But thereafter, the burning need to get away was seen to subside and the world switched on to aggressive marketing campaigns to attract tourists into the country. 

Research reveals that countries that opened their borders the latest, like China and Japan, saw revenge tourism taking even in the second quarter of 2023 while the rest of the world was getting back to the usual rhythm of travel domestically and internationally. In fact, most countries have moved to negative growth due to the recession in the west. 

 Sri Lanka?

We enjoyed the ‘Revenge Tourism’ wave in the early part of 2022 where the tourism industry saw the positive vibes equivalent to the pre COVID period. But when the country was struck by the economic crisis and the revolt by the masses that resulted in violence and queues for food, petrol and gas the industry was hit badly. The travel advisories by embassies that followed were the last straw for the Industry that has been battered by 30 years of war, Easter Sunday attacks, COVID and then the devastating economic crisis. Today, Sri Lanka is battling the global image as ‘the only country to declare bankruptcy’ globally. 

The economy that was around $83 billion shrunk to just $72.8 billion in 2022 with inflation hitting 70% plus and the currency devaluing by 63%. The brand Sri Lanka which was valued at around $84 billion as per the works of Simon-Anholt, crashed to just over $70 billion. In my view the latter is the real cost to Sri Lanka. Unfortunately, the ‘perpetrators’ responsible for this crisis are getting away due to the political economy that is in play in the country. 

 IMF comes down hard

The fact that the current hierarchy is protecting the wrongdoers not only in the economic crisis but also in the Easter Sunday bombings, has been dished out by the IMF with a 16 point plan on theme ‘Governance’. The country as a whole hails the recent post, the Governance Diagnostic Assessment (GDA) on Sri Lanka which highlights the severe governance weaknesses and deep-rooted corruption vulnerabilities. 

The arrogance of the current Government was seen in that it rejected the proposed action plan when the President was interviewed by the German TV, DW News agency that expressed concern, but he recommended an alternative set of proposals to the IMF. He went on to deny that the IMF had not officially mentioned the cessation of the second tranche of financial support. 

But the reality is that when the expenditure is 19% of GDP and the income is at 9% of the GDP, it is not rocket science to infer that Sri Lanka is heading towards another crash in the immediate future. This view is further justified when the 2024 provisional budget released last week states that the 2024 expenditure is estimated to be Rs. 230 billion over the 2023 value. Sri Lanka has no option but at least now to accept the ‘reality’ and ensure that all walks of society be asked to bear the economic costs of course correction.

First in Asia- Sri Lanka

Notably, it is the first instance in the history of Asia that the IMF advocated a Governance Diagnostic Assessment (GDA) due to the severe governance weakness and deep rooted corruption vulnerabilities across functions in a country that is retarding the real growth potential. The report is a scathing attack on the current administration given that it was this Government that was thrown out by the people of the country. The only difference is that the hierarchy has changed but is backed by the same Parliament members that served the previous President. 

A classic case in point is the recent no confidence motion against the Health Minister accused of alleged corruption and malpractice in the Health Ministry that was defeated in Parliament, which would have been picked up in the IMF GDA assessment. It was a sad day for Sri Lanka but the President remained silent not only on this issue but also on finding the people  responsible for the Easter Sunday bombing that killed 269 people. A testimony to the political economy at play is the current President appointing the fourth commission to probe the details while no action has been taken on the previous reports that include the former President being given a Rs. 100 million fine for which only Rs. 15 million had been paid.

 The DW media agency interview of the President was a sad day for Sri Lanka where he announced to the world that Sri Lanka rejected the UNHRC resolution on the Easter bombing and that Sri Lanka rejected the proposals made by the IMF post the Governance Diagnostic Assessment (GDA). To us professionals it goes against the grain of the engaging stakeholders’ mentality, which is taught as a basic in business schools in a crisis situation.

 What next- exports?

 Given the IMF has highlighted that the key issue to be addressed is the gap where the expenditure is 19% of GDP and the income 9% of GDP, the challenge is how income could be increased without burdening the already stretched consumer. A point to note is that if one does a deep dive into the first eight month collection by way of Payee Tax the quantum has increased substantially. It is the other collection that has faltered and needs attention which the IMF has also highlighted in its recent report.

Burdening the public is a non-starter given the poverty levels in Sri Lanka have moved up from three million in 2018 to seven million as at 2022. The estate sector is registering a 51% poverty level, rural households at 36% and urban poverty is 18% of the households as per the LIRNEasia report. Given the recent increase in LPG gas by Rs 209 and the proposed price increase of electricity by 18% evaluated for October will take another set of consumers into the poverty trap. Hence, the best option of increasing revenue is by focusing on exports and tourism.

If we analyse the export performance from January to August 2023, things look bad. The overall export revenue has decreased by 10.4% to $7.9 billion with the top products, apparel and textile declining by a staggering 18.7% to $3.3 billion due to the recession in the US and Europe. 

Rubber products have decreased by 13.6% to $0.6 billion mainly due to the lower demand for items such as surgical gloves and pneumatic tyres. Coconut based products have declined by 18.5% to $ 0.4 billion which is surprising but  is due to the lower demand for items such as, coconut oil and desiccated coconut products. The export of seafood products have taken a tumble by 11.8% to 0.16 billion which is once again due to the sluggish demand from the key market, Europe. 

In this backdrop, the best estimate would be to expect from exports $12 billion for the year 2023, which is a drop of about $ 1 billion from the $13 billion registered in 2022. This is the reality and unless we reform the export basket with a deeper penetration to the Indian market under the Free Trade Agreement( FTA) and drive forward the Comprehensive Economic Partnership Agreement( CEPA), Sri Lanka will not see any light in the dark tunnel even in  2024. 

The rhetoric of forging trade agreements with Malaysia, Thailand, Singapore and Australia are positive strategies, but a point to note is that well thought out trade agreements take a minimum of 3-4 years to be negotiated. If one does not develop a white paper and discuss with the private sector via the chambers there are severe anomalies that can emerge to hurt the local enterprise. 

Let’s accept it, Sri Lanka has no option but to lean on the 6% plus GDP growth on the Indian market and drive reform in the product mix so that we can make exports to be a $ 28 billion business by 2030. 

If this does not happen with hurtful reform, mainly in the supply chain we will once again hit an economic crisis just like what the IMF has warned us at the recently concluded 2nd tranche discussion post the Governance Diagnostic Assessment revealing severe governance challenges. 

Tourism?

In this backdrop, we see how  ‘Revenge Tourism’ is weaning off and we have no option but to launch an aggressive communication strategy to correct the global negativity to travel to Sri Lanka post COVID, the economic crisis and now the recessionary situation in the key markets of Europe. 

A point to note is that Sri Lanka has had over 51 Destination Marketing Plans in the last 50 years.  If we draw a parallel, Maldive Islands has only done five Tourism Master Plans in the last 35 years; the first in 1982, the second in 1995, the third in 2007, the fourth in 2013 and the last one in 2018. This is the sustainability of the destination from a policy perspective that has made the brand a top of the mind destination globally for the high end traveller. Its distinct positioning, ‘Sunny side of life’ as a pay off line has been entrenched in the global travellers’ mind even though the little country has been in absolute turmoil politically. This is what makes a difference in a country’s economic policy, in my view. This is where change needs to happen among Sri Lankan policy makers, as we see a new positioning strategy every time a government comes to power. Hence, the challenge is not about launching another tourism communication campaign like ‘You will come back for more’ but more importantly, how consistently policy can be built and maintained.

Sri Lanka must become a good country is my take from the work of global nation branding guru Simon Anholt theory. We must be known globally for good things where the brand becomes relevant. The recently launched ‘Draconian Online Safety Bill’ does not add value to brand Sri Lanka, as the bill is so badly structured that even a tourist can be arrested for commenting on a most visited site such as the Dalada Maligawa.

While we agree that reforms must happen in Sri Lanka, to make the country competitive in the ‘Ease of Doing business’ index, the reform agenda must help tourism to be developed to cross $7 billion. Not strifle it. The Industry is now in arms with the ‘minimum room rate policy’ when in global markets the price is determined by supply and demand. Let’s also not forget that 99% of the industry is private sector led so why does the Government get involved in pricing decisions. 

 Next steps

It’s the time for the private sector to come down harder on the Government given the country is focusing on areas that have low ROI. Our single minded focus must be on the IMF 16 point agenda and how to reduce corruption vulnerabilities. We have to move up the income from 9% to at least 13% and reduce costs from 19% of GDP to 15%. Let’s stay away from getting involved in the political economy. 

(The thoughts are strictly the views of the writer and not the views of the organisations he serves in Sri Lanka or in the South Asian region.)