Will SL Budget 2019 capture key trends globally?

As per the latest estimates of the World Bank, the South Asian region is ranked the fastest growing with a whopping 6.9% GDP growth in 2018, whilst the estimated growth in 2019 is to be 7.1% which indicates the appetite that private sector has and not forgetting the attractiveness to investment.

However, sadly, a tiny economy like Sri Lanka (in comparison to giants like India and Pakistan), is struggling to register 4% GDP and is dogged by corruption and political bureaucracy which includes a financial scandal in the Central Bank of the country which has never happened in any country in the world. 

The key question that is asked by the private sector which accounts for generating more than 70% of the economy is, is this the ‘forward thinking and growth-driven Yahapalanaya Government’ that we voted for way back in 2015?

2019 forecast?

The World Bank’s latest update states that 7% plus growth will continue in South Asia. There might be a slight drawback due to the tension between India and Pakistan but the recovery will take place to end the year at 7% given the engine of growth being the private sector driven tech-savvy companies. The only issue is that the growth is essentially coming from domestic consumption, which is where Sri Lanka is facing a huge challenge. 

Sri Lanka is grappling with 2.9% GDP growth in Q3, 2018 which happens to be the lowest growth seen in the recent history of Sri Lanka. For almost six quarters the country has registered a negative growth at the household end on consumption of food, personal care and household products. 

The silver lining has been that we see that the general trading conditions gaining momentum with a numerical value of +10.8% growth in Q4, 2018 to reaching Rs. 63 billion which sure is a relief for policymakers. However, a point to note is that it is a skewed picture at the household end as it’s the festive period in December and not the normal lifestyle of a consumer. If we can maintain the momentum in Q1 of 2019 then Sri Lanka will be out of the woods. Hence the importance of a focused budget in 2019 linking to the global trends. 

SL GDP growth 2.9%?

A point to note is that the 2.9% GDP growth reported by the Department of Statistics is being challenged by the Central Bank which does not augur well for a country in a region that is growing at 7% plus. The latest Dashboard report of Nielsen state that Job Prospects in the next 12 months looks bleak at just 9% mentioning it will be positive. This is below the 12% reported in the September report. 

On the other hand ‘Consumers calling time to buy things they need’ has dropped from 20% to 5% with the overall Business Confidence (BCI) Index declining from 110 to 90 whilst Consumer Confidence Index( CCI) dropping from 54 to 50. 

Promised reforms not happened – $ 1 b loss

Tracking back to 2015 promises of the current Government, we expected sharp reforms to be activated in the State-Owned Enterprises but the progress has once again been slow with a loss of almost $ 1 billion being reported that goes against the grail of the thinking that was advocated at Davos 2019. Let me pick up the key takes from the 2019 edition.

Key trends 2019 

We in the private sector normally let the past go by and are optimistic on the future. Let’s focus on Budget 2019 and if the IMF would have helped the country shape it to be a budget which will make Sri Lanka in step with global trends. 

One of the key trends that Davos Economic Summit 2019 advocated to the world was the use of Artificial Intelligence (AI) in business. In simple words AI is a branch of computer science that utilises intelligent machines to work and react like humans that is being increasingly being used to transform efficiency processes and deliver savings across key areas of the business. This stems from the Industrial Revolution that has been at play and the launch of the 4th Industrial Revolution that the Davos Summit 2019 advocated to the world.

4th Industrial Revolution – Implication for SL

Conceptualised as an upgrade on the Third Revolution, it is marked by a fusion of technologies straddling the physical, digital and biological worlds. In a paper on ‘The Fourth Industrial Revolution,’ top economist Schwab says that there are three things about the ongoing transformation that can carve out as a new phase rather than a prolongation of the current revolution. They are velocity, scope, and systems impact. The speed of change is utterly unprecedented, it is disrupting almost every industry in every country, and it heralds “the transformation of entire systems of production, management, and governance”.

Key focus industry in SL – link to AI

If we take the key message of George Soros and the Harvard think tank that worked on Sri Lanka, the message in unison was ‘focus and develop the tourism industry using trends like Artificial Intelligence (AI)’.

The 2.3 million visitor arrivals recorded in 2018 into Sri Lanka comes under this hammer, the logic being that almost 54% of the tourist arrivals are consumed by the uncontrolled sector fuelled by online travel agencies such as Agoda and Booking.com that have created a revolution on the ground, leaving the traditional sector challenged by spiralling costs and low ROI that must be addressed in the Budget 2019 in my view if we are to make Sri Lanka contemporary.

The policymakers must understand that Sri Lanka must move away from election-driven policymaking to making Sri Lanka competitive in the global marketplace. AI has disrupted the conventional tourism approach of tour operator-led business into the country that has been in the tourism business model for years. Traditional blue chip leisure companies are experiencing severe competition that cannot be regularised, which includes home stays and apartments also attracting tourist arrivals. 

Companies are experiencing a sharp growth in web-based bookings, which has given rise for new tech-savvy talent to be recruited whose way of life is centred on Facebook, Pinterest, Trip Advisor, YouTube and Twitter, away from the extrovert-driven tourism executive that was once recruited. This trend will have tax implication and the collection of revenue by entities like the Inland Revenue. This must be addressed in Budget 2019.

AI and policymaking

Sri Lanka is grappling to adopt this disruptive behaviour that is circling the world, especially in the booming outbound travel market of China where localised versions such Weibo and WeChat are the mediums of communication. Just like what the apparel industry experienced 10 years back where lead times shot down to 12-14 days, Sri Lanka Tourism will have either ride the wave or it will perish. I guess within the next five years taking part in travel fairs will lose its lustre given the digital shift that is in play.

The implication to Sri Lanka is that we must recruit a top quality digital talent who can mix and match the digital platforms to reach its target travellers. What’s more important is the ability to evaluate one’s communication performance by way of tools like ‘Google Analytics’ to be specific. The question is, is Sri Lanka ready for this revolution? A country that has mastered this new destination marketing strategy is Seychelles, which I guess Sri Lanka needs to study. Hence we see the industry moving from an industry managed by art to science.

Technology drive Budget 2019?

Whilst we can broadly be educative just to survive in business in the landscape change taking place, a point to note is that Nicholas Davis, Head of Society and Innovation at the Davos Forum, describes the new revolution as the advent of cyber-physical systems which, while being “reliant on the technologies and infrastructure of the third industrial revolution…, represent entirely new ways in which technology becomes embedded within societies and even our human bodies”. 

Examples, Davis says, include genome editing, new forms of machine intelligence, and breakthrough approaches to governance that rely on cryptographic methods such as blockchain, which I guess Sri Lanka tourism will have to master in the years to come that will sure be linked to mobile technology.

What the 2019 Budget must address

If we drill down on a key industry like tourism, some of the pointers to Budget 2019 are as follows:

1) Competitor countries are launching new tourism products at least once in four years so that the country brand is kept contemporary in the eyes of the global traveller. But Sri Lanka is struggling with the last NPD being the elephant orphanage in the 1970s and yet the product has a penetration of only 40% among total arrivals of 2016. This indicates why we keep attracting travellers who are above 50 years whilst the competitor destinations attract the younger and higher income driven tourists into the country who spend more in a market they visit.

2) Digital marketing companies are becoming a way of life for the international traveller who makes all bookings online and lead times are shortening to 30-45 days. For Sri Lanka the traditional tour operator business remains sizeable. Some companies report a number as high at 75% which is an interesting find. How do we link AI to this demand generation mechanism? Can we get State organisations like SLINTEC to focus on this in Budget 2019?

3) If one does a deep dive on digital we see that around 23 million people Googled Sri Lanka tourism last year but only two million came into the country that means a high dropout to competitors from the global chunk of over a billion travellers. Last month it was seen how the US Googling Sri Lanka tourism increased by 10% but conversion remains very low which explains the need for a stronger marketing campaign. The budget 2019 must address this at a policy level as it has been dragging for almost four years.

4) A question asked by many is, why did SriLankan Airlines discontinue the key established markets of Germany and France? A more calculative decision using techniques like AI should have been used using airlines from host counties operating these sectors as an example.

5) Digital marketing will lead to reaching people at lower costs but this will require a mindset change such as a research-driven approach which is more a scientific approach than the current exhibition-driven approach to marketing that Sri Lankan policymakers are skilled in. Some even call this moving the hypos terminology strictly from a digital marketing professional’s terminology.

6) Latest research reveals that one must measure conversion (like chat app), 57% of bookings are online, it is done on train or break time and not formally – new technology (Google hotel finder, TripAdvisor, social media to drive snow to sun), FB, Instagram (66% buy travel on videos – video marketing is key according to trends globally. These kinds of marketing purchasing cannot be done via tender process which means the State agency in charge of promotions will have to get more freedom from Government’s policy. Will Budget 2019 address this?

7) This leads to the next question if Sri Lanka is ready for the 4th industrial revolution – digital environment (customer expectation, product innovation, collaborative partnership which are parts of the shared economy). For instance, the brand Uber has achieved a sales performance in two years what Hilton did in 100 years. Are we ready for this change?

Next steps

Hence we see that Sri Lanka will have to invest heavily in researching the changing global traveller on how they book and how they purchase a country for their next destination, this must come out in Budget 2019. 

Product lifecycles will be shorter in travel and tourism which will call for stronger innovation to stay ahead as a top-of-mind travel destination which explains the shift in thinking required. The issue here is that the current industry ROI is between 6-10% and the organisation will find it hard to adjust to this disruption with limited funding. Budget 2019 must address this. 

A more noteworthy argument is that whilst we can harp on how Sri Lanka can ride the wave of the Fourth Revolution, a more basic question is, when can Sri Lanka launch the new destination marketing campaign just like what Maldives and Thailand have been doing for the last decade that have made the destinations power brands today?

(Dr. Rohantha Athukorala is the President/CEO of Clootrack – Sri Lanka and Maldives, the first Artificial Intelligence (AI)-based real-time perception management global company operating in 57 countries, apart from the many other companies he leads in Sri Lanka and in the South Asian region.)