The Competitiveness Initiative

The Tourism Cluster

The Competitive Context of the Sri Lanka Tourism Industry

In Sri Lanka, the tourism industry is a mainstay of the nation’s economy, its fourth largest source of foreign exchange (2003: revenues US $340 million, arrivals 500,542) and a major employer. However, over the last two decades, international tourist arrivals and tourism receipts in Sri Lanka had been weakening; as compared to world averages and those among rival destinations in Asia. The continuing civil conflict had much to do with this trend, but of parallel importance were structural issues pertaining to the type of product, services and facilities offered to tourists visiting the country. In the past, Sri Lanka’s main product was a packaged beach holiday attracting a low-cost, low-value market segment. Current industry strategy is however focusing on value addition by catering to niche markets and offering specialized products such as Ecotourism, MICE (Meetings, Incentive Travel, Conventions and Exhibitions), Adventure tourism and Ayurveda/Spa tourism. Substantial investment has also been made in recent years on boutique resort hotels catering to more up-market clientele.

The Sri Lanka tourism sector is gearing up for arrivals of 700,000 and average daily spend per tourist of $100 by 2006, increased room capacity and additional direct employment. To achieve these targets industry is currently investing to upgrade existing hotels and enhancing the product range on offer.

The Tourism Cluster was formed by key tourism industry associations in April 2000 with the assistance of the U.S. Agency for International Development (USAID) funded The Competitiveness Initiative (TCI). The Cluster was initiated to devise a unified, industry-wide strategy to enhance the competitiveness of the Sri Lanka tourism industry. A broad range of industry stakeholders participated in the Cluster’s strategy work and initiative development including the Sri Lanka Tourist Board, Universities, Academic experts, community groups, regional tourism associations, and several public sector agencies.

The key objective of the Tourism Cluster is to develop and implement a strategy for competitiveness designed to increase the average spend per tourist by repositioning Sri Lanka as a recognized destination for sustainable, differentiated products and services that command a premium price. The key components of this strategy are to improve the tourism product mix, upgrade and develop existing tourism assets, modernize key industry institutions and reform the policy environment.

On May 10, 2004 the Tourism Cluster registered as a non-profit company with the continued mandate to develop and implement initiatives for industry competitiveness. The Cluster has a board of 10 directors of whom three are appointed by the Tourist Hotels Association of Sri Lanka and three are appointed by the Sri Lanka Association of Inbound Tour Operators. The Joint Council of these two associations appoints the Chairman and the other three directors are to be invited from other key industry players.

* Improve the tourism product mix. This initiative calls for developing high-yield tourism products that appeal to independent, high-spending tourists. The proposed products include ecotourism and adventure tourism through establishing associations, standards and accreditation and undertaking demonstration projects.

* Upgrade tourism offerings. This initiative supports improvement of the product mix by adding value to and promoting unique Sri Lankan assets, such as the “Sigiriya” rock fortress. It also calls for upgrading tourism on the Southwest Coast by transforming Galle Fort into a major attraction, commensurate with its status as a UNESCO World Heritage Site.

* Modernize industry organization and key institutions. This initiative supports establishing a national, industry-led, promotion and marketing organization as a first step toward achieving the following:

* Reform the policy environment. Addressing policy and regulatory issues that benefit industry competitiveness. These could include civil aviation policy, reforms to improve tourism-related infrastructure, policies for taxation, tourism planning and regulation, land planning and environmental protection.

The Tourism Cluster is currently involved in implementing the following initiatives in line with this overall strategy:

1) Model Ecolodge Initiative to highlight Sri Lanka as an ecotourism destination

This initiative is to establish a demonstration model for best practice ecotourism and establish standards for ecolodges in Sri Lanka. The site is private property of 506 hectares containing tea cultivation and forestland in Deniyaya and the ecolodge is scheduled to be completed in early 2006. The cluster developed a comprehensive feasibility report that was used to launch the project to the wider industry and invite investment in August 2003. By early 2004 approximately Rs 91million had been raised from local industry participants and the Rainforest Ecolodge Company was set up to implement the project. Key staff have been recruited including the company CEO and the detailed project design and construction planning is currently underway.

The project will have 4 key components:

	20-unit ecolodge
	Visitor interpretation center
	Research station, program and conservation projects
	Nature trails and canopy access system

The key objectives of the project are to ensure sustainability and demonstrate best practices in ecotourism, educate and raise awareness of the environment, undertake long-term conservation and regeneration activities, and develop partnerships with local universities, public agencies and local communities towards improved management of natural resources and livelihoods.

The cluster has been working closely with experts from the Colombo and Peradeniya Universities, environmental and ecotourism experts and there will be ongoing involvement of academic experts and the Forest Department to ensure that the principles of sustainability and conservation focus are maintained.

2) Energy Efficiency Program for the Hotel Sector

In July 2004 the Tourism Cluster and Alliance to Save Energy (ASE) initiated a program with funding from US-Asia Environmental Partnership (USAEP), in collaboration with the Tourist Hotels Association of Sri Lanka (THASL) to promote and encourage energy efficiency in the Sri Lankan Hotel sector.

The Energy Efficiency Program will address these issues through the following activities:

	Establishing a database of energy use to monitor efficiency and compare across the sector
	Introduction of low, no-cost measures, new technologies and local/international suppliers
	Providing expertise to undertake assessments, energy audits and make efficiency recommendations for selected hotels as case studies
	Presenting case studies and information on international best practices
	Developing guidelines for energy efficiency issues in hotel planning

Industry Restructuring

The tourism industry is also in the process of restructuring its private-public partnership arrangements. Previously, the State owned Sri Lanka Tourist Board operated with limited public funding and was responsible for promotion, regulation, planning and standards. The industry restructuring plan proposes that these functions are shared between several organizations as follows:

Tourism Development Council (TDC)
The TDC will primarily be a public body with private sector participation set up to manage the planning and regulatory functions of the Tourist Board and the 5 regional councils for tourism development.
Tourism Marketing Bureau (TMB)
The TMB will be a private sector managed body set up as a company by guarantee; this has been approved by cabinet and will receive 80% of the funds raised by the industry CESS. TCP and the Tourism Cluster have long advocated private sector control over tourism promotion functions.
Institute of Hospitality and Tourism Management
The hotel school (receiving 10-15% of the industry CESS) will most likely be placed under private sector management in the medium term. Its name will change from the Institute of Tourism and Hotel Management to the National Institute of Travel and Tourism and will have a broader mandate and wider industry participation.

The industry CESS is comprised of 1% of revenue of all Tourist Board registered organizations and $5 on all airlines tickets. Relevant legislation is already approved and funding has been collected from September 2003.

Contact Information

Offices:
The Tourism Cluster
C/o The Secretariat
Ceylon Chamber of Commerce
50 Nawam Mawatha, Colombo 2
Telephone: 94-11-2328880