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Sri Lanka tourism on reverse gear with proposed new Act
There’s mounting opposition from all fronts against the government’s plan to change the existing Tourism Act. Having been a member of the team that helped draft the current act around 15 years ago, I felt that I should also lend my voice to the ‘chorus of objections’. To fully understand the issue, it is necessary firstly to delve into the past.
Historical perspectives
Tourism in Sri Lanka was recognised as an important new industry way back in 1960s. The industry was formalised through Sri Lanka Tourist Board (SLTB) Act No. 10 of 1966, to promote tourism in Sri Lanka and subsequently augmented by Tourist Development Act No.14 of 1968.
This framework was adequate during the formative stages of tourism. However, with tourism fast developing into a global competitive industry, there was the need for more strategic thinking and direction to be given to the industry. Professional marketing strategies were required to compete in the world tourism market.
Private sector participation
The growth of Sri Lankan tourism could not keep pace with other competitive destinations, due to the ongoing internal strife. The strategic direction for Sri Lanka tourism still remained in the hands of the government, with little or no participation of the private sector.
However, it was the private sector, which had the professionals with better understanding of the business, than the career administrative government officers, who were at the helm of the SLTB.
The private sector itself was clamouring for more involvement in driving the industry forward, due to their increasing involvement and investment in the industry.
World tourism
With world tourism was growing at over 4 percent per annum (at that time) and South Asia in particular, showing exceptional growth, it was imperative that Sri Lanka needed to present a new image to the world and quickly catch up.
Sri Lanka urgently needed to reposition and rebrand as an upmarket destination, which will attract better quality tourists, which would in turn drive receipts up and hasten growth.
The private sector was also quite convinced that they should be part of the decision-making system in marketing and promoting the destination. (This is the concept followed by many other leading Asian destinations.)
Birth of new act
In this backdrop, more than a decade ago, the private sector initiated the idea of a separate Tourism Authority, which will be vested with the power to manage, promote and develop tourism in Sri Lanka, where the private sector will play a lead role, in partnership with the government.
Successive governments discussed this proposal with all stakeholders and after a long and arduous process of many years, a final draft of the new Tourism Act was agreed upon by all stakeholders.
Consequently, this draft was gazetted on September 16, 2005 and the new Tourism Act No. 38 was presented to Parliament in November 2005. It subsequently came into operation in 2007 only.
It was noteworthy that this legislation was unanimously approved in Parliament, something very rarely seen in Sri Lanka politics.
Current act at a glance
The new Act No. 38 of 2005 provided for the establishment of separate independent bodies having their own board of directors, comprising private sector professionals and government representatives, to manage different aspects of the tourism industry.
The new act provided for establishment of the following new entities:
- Sri Lanka Tourist Development Authority (SLTDA)
- Sri Lanka Institute of Tourism and Hotel Management (SLITHM)
- Sri Lanka Tourism Promotion Bureau (SLTPB)
- Sri Lanka Convention Bureau (SLCB)
Each of these bodies would have:
- A chairman
- Director general/managing director/chief executive officer
- Board members from private sector and government
Funding for new framework
It was proposed to establish a Tourism Development Fund (TDF), which was to be funded by:
- One-third of all airport embarkation levies
- One percent of cess collected from the industry (It is important to note that the industry, although going through difficult times, would voluntarily pay one percent of its turnover to the fund, so as not to burden the government for funding.)
For this purpose, a Finance Act was instituted, which provides the modalities for the collection of the funds needed from the private sector directly to make the new Tourism Act work.
The funds thus collected were to be disbursed amongst the four institutions on a fixed ratio.
It was evident that this laid the foundation for a strong public-sector/private sector participation (PPP) and was hailed as a landmark initiative at that time.
So then what is wrong with present act?
The concerns raised currently are:
- Over that past decade there has been no appreciable strategic development and growth of Sri Lanka tourism, in spite of these changes
- There is a majority representation by the larger tourism operators
- There is duplication and added administrative costs in operating four different entities
There is no question that there is some truth that Sri Lanka is still unable to clearly position itself and to really be a major player in world tourism. However, it is wrong to lay all the blame for this on the prevailing system.
It is evident that except for a few brief periods, the act was not properly implemented as envisaged.
Ad hoc appointments
There were long periods when the respective posts MD/DG of a particular institution were not filled and the chairman played an executive roll. At other times, persons thoroughly unsuited for the position were appointed (political patronage). Many changes of chairmen took place at the ‘whims and fancies’ of the government. In many instances, the boards of the entities were not properly constituted with several vacancies left unfilled.
Within these 14 years, there have been 11 chairmen at the SLTDA, with only one serving for three years and six director generals. It is the same with the other three institutions as well.
Government regulations and bureaucracy
The Tourism Act clearly provided the framework for operations similar to any private sector organisation. Once the annual plan and budget had been approved by the boards, it was the responsibility of the CEO/MD/DG to ensure that the plans are carried out. The incumbents were to be experienced and knowledgeable professionals capable of giving leadership. The chairman was to play a more non-executive role.
However, the basic operations still came under the government regulations (administrative and financial regulations). Hence, there was clearly a disconnect with what was expected and practical ground realities. Therefore, board decisions often could not be implemented.
Impact of private sector
There is no doubt that the industry is led by the private sector with the formal sector making the largest investment in the plant.
In January 2020, there were 24,451 rooms in the formal sector (various star classes). Based on studies done, if the current replacement value of this room stock is calculated on a cost per room basis for each star class, the total investment is close upon US $ 5.6 billion, without land value. (Close upon 6 percent of Sri Lanka’s GDP)
Therefore, with such a large stake in the economy of this country, it is quite justifiable that the formal sector should have a greater say in the affairs of tourism. (In any organisation, the majority shareholders have larger representation)
This by no means takes away the tremendous impact that the informal sector has played in the recent years in the development of tourism.
Duplication of operational aspects
Certainly there could be some duplication of back of the house operations with four institutions. When the act was implemented, no clear study was done as to how to allocate the staff to each of the institutions in an efficient manner.
Rectification of this would be a simple task of undertaking a detailed work study and reassessing the distribution.
So, way forward?
It is therefore evident from the foregoing that the existing act provides an adequate framework for an excellent PPP.
After some 14 years in operations, certainly there could be some identified operational issues. That does not call for the entire act to be replaced.
What is needed is for all parties to discuss the prevailing act, identify the existing shortcomings and make necessary ‘course corrections’ to address these issues.
If such a process is not followed and a new act instituted unilaterally, over a decade of hard work will be destroyed and we would be ‘throwing the baby out with the bathwater’.
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