SRI LANKA: TOURISM INDUSTRY PINS HOPE ON NEW TOURISM ACT

UNCLAS SECTION 01 OF 02 COLOMBO 001313

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E.O 12958: N/A
TAGS: ECON ETRD EFIN EAID KMCA CE
SUBJECT: SRI LANKA: TOURISM INDUSTRY PINS HOPE ON NEW TOURISM ACT

REF: 05 COLOMBO 1898

COLOMBO 00001313 001.2 OF 002



1. Summary: On October 1, following a two year delay, the
government will implement the Tourism Act of 2005. The law
provides for greater private sector participation in
government-controlled tourism regulatory, promotion and training
agencies. More importantly, the private sector will now have a
direct role in the use of funds collected for promotion and
marketing. Tourism sector sources hail the decision to implement
the law as a positive step to develop the industry. End Summary

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Tourism Act to Finally Boost Sector
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2. Sri Lanka's tourist industry is private-sector driven, with
hotels, travel agencies, and airline offices privately owned.
Nevertheless, the government historically played a crucial role
through its control of the state-owned Sri Lanka Tourist Board
(STB),the main tourism regulatory and promotion body. This
arrangement gave the Tourist Board and Tourism Minister control of
tourism-related tax collections intended to be spent on promoting
the sector as a whole. The Board and various ministers, however,
were frequently accused of utilizing these funds ineffectively, or
even corruptly. The Tourism Act of 2005 was intended to remedy this
situation by ensuring greater accountability in the use of tourism
tax collections. Despite passage of the act in 2005, the Government
resisted giving up control even in the face of repeated requests
from the private sector. Milinda Moragoda's appointment as Minister
of Tourism in February 2007 finally brought in a minister committed
to implementing the act -- it will become effective on October 1.
(Note: Moragoda previously served as Minister of Economic Reforms in
the 2001-2004 United National Party government.)

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Private Sector Will Lead New Agencies
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3. The implementation of the Tourism Act of 2005 creates three new
agencies to replace the current government-controlled Sri Lanka
Tourist Board. The new institutions are the Sri Lanka Tourism
Development Authority (SLTA),the Sri Lanka Tourism Promotion Bureau
(SLTPB) and the Sri Lanka Institute of Tourism and Hotel Management
(SLITHM). SLTA will steer tourism policy, regulate the industry,
look at ways to improve tourism infrastructure, and administer a
Tourism Development Fund using embarkation fees collected at the
airport. SLTPB and SLITHM will oversee promotion and training,
respectively. Private sector firms have strong representation on
the management boards of the new agencies and will play a large role
in determining both the planning and use of funds.


4. A major advantage of the new Act is that seventy percent of the
Tourism Development Fund budget will be given to the new
private-sector led Tourism Promotion Bureau for promotions and
marketing. Industry reps hope that targeted promotions and
marketing, orchestrated by industry leaders, will help to revive the
currently depressed sector. Prema Cooray, Secretary General of the
Ceylon Chamber of Commerce and a key tourism industry figure, will
head the new Tourism Promotion Bureau. According to Cooray, the
city of Colombo, beach resorts, hill country, and ancient cities are
the four primary locations the Bureau will promote. Further, the
Tourism Promotion Board will soon undertake a major promotion in
five Indian cities, aimed at tourists and conference participants.
The industry notes that 900,000 Indians attend conferences each year
and would like Sri Lanka to attract ten percent of that market.


5. Another advantage to the new Act is that the Sri Lanka Institute
of Tourism and Hotel Management will now manage a hospitality
industry training school that was formally government-controlled.
Private sector contributions to the school's management will help
ensure that the industry has qualified graduates to hire.


6. Industry sources say these new institutions will enable the
private sector to play an active role in developing tourism.
According to Cooray, private-public collaboration in tourism was
unsatisfactory in the past. As a result, progress in the tourism
sector was hampered. He aims to redress this by ensuring that the
new private-public partnerships will be effectively utilized in Sri
Lanka, as they are in countries such as Singapore.


COLOMBO 00001313 002.2 OF 002


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Comment: Peace and Infrastructure
Improvements Also Vital
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7. Despite the Central Bank Governor's July comment that "the
tourism industry's contribution [to GDP] is insignificant" and that
the "dip in tourist arrivals is no serious issue" -- meant to
assuage concern about a depressed tourism market due to the conflict
-- Sri Lanka's tourism industry remains a key contributor to foreign
exchange earnings. The industry estimates that as many as 900,000
Sri Lankans (of a population of 20 million) are in some way
dependent on tourism. Including private industry in the management
of tourism promotion should increase the country's ability to reach
new travelers and to encourage former visitors to return. USAID's
"Competitiveness Program" has long urged these reforms in its work
with the Sri Lankan tourism sector. Nevertheless, without a
peaceful solution to Sri Lanka's long ethnic conflict, we do not
expect significant increases in tourism-sector revenues anytime
soon. Other issues like dilapidated tourism infrastructure -- roads
and rails -- will also need to be addressed for Sri Lanka to make
major gains in tourism.
BLAKE