Tourism Development in Sri Lanka: A Review of Literature

Tourism Development in Sri Lanka: A Review of Literature

K. Kumudhini, S. Vijesandiran

Department of Economics and Statistics, University of Peradeniya

DOI: https://dx.doi.org/10.47772/IJRISS.2024.8100271

Received: 14 November 2024; Accepted: 18 November 2024; Published: 23 November 2024

ABSTRACT

Sri Lanka’s tourism sector has played a pivotal role in the country’s economic development, contributing significantly to GDP, foreign exchange earnings, and employment. Over the years, the government has implemented several tourism master plans, with the most recent being the Third Tourism Master Plan introduced in 2008, which was instrumental in the sector’s post-war recovery. The end of Sri Lanka’s 30-year civil war in 2009 acted as a turning point, enabling the country to launch new tourism promotion strategies and experience a rapid increase in tourist arrivals, particularly in coastal and cultural regions. However, the sector’s growth has not come without challenges. Political instability, such as the long-running civil conflict and recent economic crises, has shown how fragile tourism can be as a driver of growth. Furthermore, the COVID-19 pandemic exposed the vulnerability of tourism to global health crises, severely impacting the number of international arrivals and revenue.While tourism development has bolstered the economy, it has also led to environmental degradation, especially in popular tourist areas like the southern coastal belt, where overdevelopment has disrupted local communities and ecosystems. Infrastructure limitations, including poor road networks and insufficient accommodation, continue to hinder the country’s ability to cater to the growing demand for premium tourism experiences. Additionally, concerns about the commercialization of Sri Lanka’s rich cultural heritage have arisen, as some aspects of the local culture are marketed in ways that feel inauthentic or exploitative.For Sri Lanka to achieve sustainable tourism growth, future policies must focus on improving infrastructure, preserving cultural integrity, and adopting environmentally responsible practices. Addressing these challenges will ensure that the tourism sector continues to thrive while contributing to long-term socio-economic benefits for the country.

Keywords: Tourism, Development, Sri Lanka, Literature,

INTRODUCTION

Evolution of tourism in Sri Lanka

Sri Lanka, a beautiful tropical island nation known for its rich cultural heritage, stunning landscapes, and renowned hospitality, has seen its tourism industry thrive and expand over the years. This teardrop-shaped island, nestled in the Indian Ocean just south of India and separated by the Palk Strait, captivates visitors with its unique charm and natural splendor. A pivotal moment for Sri Lanka came in 1966 when the government made a strategic decision to establish tourism as a separate economic sector—a decision that would significantly shape the nation’s progress (Jayasundara, 2021). The tourism sector saw its pinnacle in 2018, welcoming over 2.3 million international visitors and generating an impressive $4 billion in foreign exchange earnings (SLTDA Annual Statistical Report, 2020). This vibrant industry has also become a major source of employment, supporting approximately 3 million jobs, both directly and indirectly, highlighting tourism’s essential role in Sri Lanka’s economy and the well-being of its people. “Economic Impact and Recovery Challenges in Sri Lanka’s Tourism Sector”

The direct contribution of travel and tourism to employment in Sri Lanka increased from 2.5% of GDP in 2000 to 5.9% in 2019, growing at an average annual rate of 5.18% (SLTDA Annual Statistical Report, 2020). The COVID-19 pandemic and the subsequent economic crisis in Sri Lanka in 2022 severely impacted the tourism sector. Tourist arrivals plummeted by 92% in 2021, reaching approximately 194,500. In February 2023, the Sri Lanka Tourism Development Authority reported 107,639 tourist arrivals (SLTDA Annual Statistical Report, 2023).

The Future of Sri Lanka’s Tourism: Challenges and Opportunities

Industry leaders are optimistic about the potential of Sri Lanka’s tourism sector to bounce back in the coming years. This hope rests on a few key factors like political stability, economic recovery, and the absence of major pandemic outbreaks. However, a significant challenge continues to be the labor shortage, made worse by the migration of skilled workers seeking better opportunities abroad. As Sri Lanka tries to rebuild from the lasting impacts of past conflicts, tourism has been identified as a central tool for post-war development. But, despite the hard work put into reviving the industry, there are still big obstacles to overcome. A lingering negative perception of Sri Lanka in international markets, partly due to events like the Easter bombings and the economic crisis, has hindered the country’s efforts in post-war reconstruction and reconciliation (World Bank Report 2022).

To better align tourism with national development goals, the government has been putting effort into strategic planning and coordination (Jayasundera, 2021). Sri Lanka’s rich cultural heritage, featuring ancient ruins, temples, and traditional arts, continues to attract history enthusiasts and cultural lovers from around the world. With a variety of attractions, the island truly offers something for every type of traveler. The southern half of Sri Lanka is characterized by rugged hill country, while the northern region has vast plains. Along the coastline, pristine beaches invite tourists, providing ideal conditions for swimming, surfing, and diving (Fernando et al., 2015).

The cultural heritage of Sri Lanka is equally remarkable. The country is home to eight UNESCO World Heritage Sites, including ancient cities, Buddhist temples, and Dutch forts. The Cultural Triangle, a region with great historical significance, is home to five of these World Heritage Sites (Fernando et al, 2015).

Growth, Challenges, and Future Prospects

Sri Lanka’s tourism sector was relatively small in its early days. But once the government saw its potential as a source of revenue and economic growth, regions suitable for tourism development were identified (Jayathilake, 2013). This planning was foundational to the sector’s growth. Over time, the number of foreign tourists visiting Sri Lanka steadily increased. By 1982, the country welcomed over 400,000 visitors, showing a big jump in popularity. This growth was mainly driven by the island’s unique attractions, such as ancient ruins, pristine beaches, lush rainforests, and a rich diversity of wildlife (Anandasayanan et al, 2020).

Tourism in Sri Lanka After the Civil War: Growth and Challenges

The end of the civil war in 2009 was a turning point for Sri Lanka’s tourism sector. With peace restored, the country started to rebuild its reputation as an appealing travel destination (Ranasinghe and Deyshappriya, 2010). The government took steps to promote tourism, improve infrastructure, and increase security to attract more visitors. Tourism has since become a key part of Sri Lanka’s post-war development plans, with multiple governments making it a priority to help boost the economy. In 2018, the current government’s ambitious “Vision 2025” plan focused heavily on promoting tourism (Kandewatta et al., 2018). Tourist arrivals surged and by 2015, over 1.7 million visitors arrived, marking an incredible 300% growth in just six years (FMIR, 2021).

While Sri Lanka has made major progress in tourism, there are still challenges. These include limited accommodation options, poor infrastructure, a shortage of trained workers, and rising accommodation costs (Welgamage and Perera, 2015). To address these issues, the government introduced initiatives aimed at upgrading infrastructure, creating alternative accommodations, attracting high-end tourists, and enhancing training for tourism professionals (Jayathilake, 2013).

A primary challenge in the tourism sector is the lack of adequate accommodation. Although more lodging establishments have opened, there still isn’t enough capacity to meet the growing demand (Tisdell and Bandara, 2004). There is a strong need for high-quality hotels that meet international standards, as many tourists prefer this level of comfort. Another big issue is the need for better infrastructure. Despite some development projects, Sri Lanka still falls behind other popular Asian destinations in terms of road and rail transport (Jayathilake, 2013; Ranasinghe and Deyshappriya, 2010). This makes it harder for tourists to get around and affects the overall experience. Sri Lanka also needs to improve its port facilities to attract more sea travelers, especially cruise ships. Human resources are another area that needs attention. Due to a lack of training programs, there’s a shortage of skilled workers in tourism (Tisdell and Bandara, 2004). To keep up with demand, the sector needs a larger and better-trained workforce.

Moreover, Sri Lanka needs to move from focusing on budget tourism to high-end tourism to attract more high-spending visitors. While there has been a rise in tourists from South Asia and the Sri Lankan diaspora, attracting wealthy Western tourists remains a challenge. Recently, hotel prices in Sri Lanka have also increased, making it less competitive compared to other destinations (Jayathilake, 2013). To tackle these issues, the government has introduced a policy framework with initiatives like developing an aquaculture park, promoting gem and jewelry sales, encouraging MICE tourism (meetings, incentives, conferences, and exhibitions), enhancing tourist sites, and offering new water sports. The government also plans to set up a new organization to improve investment and operational efficiency (Ranasinghe and Deyshappriya, 2010). By addressing these challenges, Sri Lanka aims to position itself as a top tourism destination in Asia. The sector has the potential to significantly boost the economy by generating jobs, bringing in foreign exchange, and supporting sustainable growth.

Strategic Solutions for Overcoming Challenges in Sri Lanka’s Tourism Sector

Improving Infrastructure

One of the key issues in Sri Lanka’s tourism sector is inadequate infrastructure. Roads to popular tourist destinations are often in poor condition, and public transport is not always reliable or comfortable for travelers. By investing in better roads, modern public transportation systems, and high-quality accommodation, Sri Lanka can attract more premium tourists who expect higher standards of convenience and comfort.

Training the Local Workforce

The skills gap in the tourism industry is another major challenge. Comprehensive training programs can help improve the hospitality skills of the local workforce, making Sri Lankan tourism services more professional and appealing. This will also create job opportunities and encourage talented individuals to join the sector, strengthening its overall quality and competitiveness.

Protecting the Environment

Sri Lanka’s natural beauty is one of its biggest assets, but overdevelopment and unsustainable practices threaten this. Stringent environmental regulations are needed to prevent damage to ecosystems and ensure that tourism development happens responsibly. For example, coastal areas and wildlife sanctuaries must be preserved to maintain their appeal for future generations of travelers.

Promoting Authentic Cultural Tourism

Sri Lanka has a rich cultural heritage, from ancient temples to traditional crafts and festivals. By preserving and showcasing this heritage responsibly, the country can attract tourists seeking authentic experiences. Involving local communities in these efforts ensures that the benefits of tourism are shared equitably, while also making the experiences more genuine and meaningful for visitors.

Diversifying into High-End Tourism

Targeting affluent travelers is a smart strategy for boosting revenue. Sri Lanka can do this by enhancing its marketing campaigns to promote luxury resorts, unique cultural experiences, and wellness tourism. Highlighting the country’s uniqueness—like Ayurvedic treatments, scenic train journeys, and boutique hotels—can help position Sri Lanka as a high-end tourist destination.

Building Political and Economic Stability

Tourists and investors are often wary of instability. Ensuring a stable political and economic environment is crucial to building trust and confidence among international travelers. Stability will encourage tourists to visit and make investors more willing to fund large-scale tourism projects, contributing to long-term growth.

Tourism and Economic Growth

Tourism’s Role in Boosting Economic Growth

The Tourism-Led Growth (TLG) hypothesis, inspired by the ELG (Export-Led Growth) hypothesis, proposes that countries can achieve economic growth by expanding international tourism, treating it as a form of non-traditional export (World Tourism Organization (UNWTO), 2020). This theory sees tourism as a strategic driver of economic growth. On the other hand, the TKIG hypothesis suggests that economic growth can be achieved by increasing the volume of inputs. It argues that foreign exchange from tourism can be used to import capital goods, which then help produce other goods and services, promoting overall economic growth (Balaguer and Cantavella, 2002).Research consistently shows that tourism is a major factor in economic growth. Its importance has grown due to various benefits, like creating jobs, generating foreign exchange (Welgamage and Perera, 2015), increasing household income, and boosting government revenue. Additionally, tourism helps balance payments and has led to the creation of policies aimed at developing the sector (Henry and Deane, 1997; Oh CO, 2005; Szivas and Riley, 1999).

A study by Lee and Chang (2008) provided new insights into the link between tourism and economic growth by analyzing data from both OECD and non-OECD countries. They found that tourism development has a bigger impact on economic growth in non-OECD countries than in OECD countries. Furthermore, they observed a one-way causal relationship from tourism development to economic growth in OECD countries, whereas in non-OECD countries, the relationship was bidirectional. They also noted that the real effective exchange rate greatly influences economic growth.Balaguer and Cantavella (2002) argue that tourism, which is closely tied to sectors like accommodation, food, and transport, boosts production in the host country, which leads to higher income and job creation. Tourism’s impact on the economy has been studied extensively in both developed and developing countries because it benefits various industries and parts of society. Studies generally find that tourism development positively impacts household incomes, government revenue, and the balance of payments.

In Taiwan, Kim et al. (2006) found a two-way causal relationship between tourism growth and economic development using Granger causality tests and co-integration methods. Likewise, Samina et al. (2007) studied the long-term relationship and causality between economic growth and tourism in 20 developing countries using the P-VAR approach. Their findings supported the TLG hypothesis, indicating a positive, long-term link between economic growth and tourism. They also found that tourism and economic growth influence each other mutually.There is general agreement that tourism development has a positive impact on the economic growth of host countries (Khan et al., 1990; Lim, 1997). Many studies have explored both the short-term and long-term effects of tourism on economic growth. For example, Cantavella (2002) studied tourism’s long-term impact on Spain’s economic growth. Their research found a positive correlation between tourism and economic growth, supporting the TLG hypothesis with results from cointegration and causality tests.

Long-Term Relationship Between Tourism and Economic Growth in Different Regions

Govdeli and Baskonus (2014) looked at the long-term connection between tourism revenues and economic growth in OECD countries from 1977 to 2012. By using the Pedroni and Kao cointegration tests, they discovered a positive and significant relationship, showing that an increase in tourism revenue tends to align with long-term economic growth. Similarly, Dritsakis (2012) investigated tourist arrivals per capita, real exchange rates, and real GDP per capita’s effect on GDP for Mediterranean countries, specifically in Spain, France, Italy, Greece, Turkey, Cyprus, and Tunisia between 1998 and 2011. Through panel cointegration and fully modified ordinary least squares (FMOLS), he found a strong link between tourism and economic growth in these nations.

Zortuk (2009) studied how tourism development affects economic growth in Turkey, using data from 1990 to 2008. By applying vector error correction and Granger causality tests, he found a one-way causal link running from tourism development to economic growth. In Pakistan, Samina et al. (2007) analyzed tourism receipts’ impact on economic growth and concluded there was a solid connection between tourism income and the country’s economic growth.

Impact of Tourism on Countries Like Jordan, India, and Greece

Kreisha (2010) found a positive one-way link between tourism receipts and economic growth in Jordan from 1970 to 2009. In a similar study, Mirsha et al. (2011) looked at how tourism growth affected economic development in India. They found that tourism had a favorable impact on economic growth between 1978 to 2009, indicating that tourism activities supported the country’s economic progress. Tourism and economic growth often work hand in hand. At times, tourism helps boost the economy, while other times, economic strength attracts more tourists. Understanding this balance is important for making good decisions in the tourism sector (Oh CO, 2005). Kasimati (2011) used a tri-variate model, involving real GDP, international tourist arrivals, and the real effective exchange rate, to examine the connection between tourism and economic growth in Greece. His analysis, using data from 1960 to 2010, showed a positive long-term relationship between tourism and economic growth. However, the Granger causality test and vector error correction did not find proof for a short-term link or directional causality between these factors.

Challenges to the Positive Link Between Tourism and Economic Growth

Some studies, however, challenge the positive relationship between tourism development and economic growth and the Tourism-Led Growth (TLG) hypothesis (Oh, 2005; Lee and Chang, 2008). Oh (2005) studied the long-term relationship between tourism receipts and economic growth in South Korea and did not find support for the TLG hypothesis using cointegration tests for the period 1975 to 2001. Similarly, Sequeira and Campos (2005) reported that their panel data analysis did not reveal a significant connection between tourism and economic growth.

Economic Contributions of Inbound Tourism

Inbound tourism’s role has grown significantly due to its impact on economic growth. It helps boost economic development by increasing foreign exchange reserves (McKinnon, 1964), encouraging investments in infrastructure and human capital, and raising competition levels (Blake et al., 2006). Additionally, it supports industrial growth (Lee and Chang, 2008), creates jobs, and raises income (Lee and Chang, 2008). Inbound tourism also has positive externalities (Andriotis, 2002). As GDP rises, international tourism may grow further (Brida et al., 2016).

Impact of Tourism in Turkey, Sub-Saharan Africa, and OECD Countries

Yusuf et al. (2009) showed that tourism positively affects economic growth in Turkey over the long term. Fayissa et al. (2007) found that tourism receipts play a significant role in GDP and economic growth in Sub-Saharan Africa. Govdeli and Baskonus (2014) revealed that tourism revenue increases are associated with long-term economic growth in OECD countries. Dritsakis (2012) also noted that tourist arrivals are linked to economic growth in Mediterranean countries.

External Factors Affecting Tourism and Economic Growth

Many outside factors impact tourism and a country’s economic growth. For instance, war and political instability can seriously affect tourism, while free trade policies may increase tourist arrivals (Saroja, 2007). David et al. (2004) showed that war can greatly harm tourism. The COVID-19 pandemic had a major impact on Sri Lanka’s tourism industry, halting tourist arrivals and visa issuance. In response, the Ministry of Tourism and Aviation released new operational guidelines in May 2020, focusing on preparedness and response to the pandemic (Jayasundera, 2021).

Evolution and Impact of Tourism Policy in Sri Lanka: From Pre-Independence to Post-War Recovery

Before Sri Lanka became independent in 1948, the economy was mostly open, which encouraged trade and tourism. In line with this policy, the government set up the first Tourism Bureau back in 1937. But soon after, the Bureau’s activities were interrupted by the outbreak of World War II in 1940 (Welgamage and Perera, 2015). During the war, the Bureau stopped regular operations but still provided essential services for travelers passing through Colombo on their trips between the West and East.

After independence in 1948, Sri Lanka kept its pre-independence economic policies and reopened the Government Tourist Bureau, which had been inactive during World War II. Right after independence, the Tourist Bureau started promoting Sri Lanka as a destination, launching marketing strategies aimed at attracting visitors and showcasing the country’s rich heritage and beautiful landscapes.

Sri Lanka’s tourism sector faces several challenges, but with the right strategies, it can achieve sustainable growth.

Ways Tourism Influences Economic Growth

Tourism contributes to economic growth in various ways: (1) it boosts foreign exchange, helping to finance imports (Mastny, 2001); (2) it encourages investment and enhances local business efficiency through competition (Kreishan, 2010); (3) it reduces unemployment by creating jobs that require substantial human labor (Brida and Pulina, 2010); and (4) it generates economies of scale, which can lower local businesses’ production costs (Croes, 2006). Studies that support the Tourism-Led Growth Hypothesis (TLGH) include Kadir and Karim (2012).

On the other hand, some research supports the Economic Development and Tourism Hypothesis (EDTH) (Narayan, 2004). Payne and Mervar (2010) argue that tourism growth is driven by solid economic policies, effective governance, and physical and human capital investments. This supportive environment encourages development activities that boost tourism (Sugiyarto et al., 2003). Additionally, there may be a two-way causality between tourism income and economic growth (Ridderstaat et al., 2014). From a policy perspective, a mutual relationship between tourism and economic growth suggests that government initiatives should promote both areas together (Balaguer and Cantavella, 2002)

Shift to Import Substitution and Impact on Tourism (1956-1965)

Between 1956 and 1965, the country moved towards an import-substitution economic policy, aiming to reduce reliance on foreign trade. This shift affected tourism in a big way, as tourism was no longer a focus in the national development strategy. The Tourist Bureau, poorly organized and lacking vision, struggled and failed to carry out any meaningful marketing or promotional activities.

Late 1960s: Revival of Tourism with the Ten-Year Master Plan

In the late 1960s, Sri Lanka moved away from its closed economic policy, sparking a shift in the tourism industry. In 1966, the government created a dedicated legislative body for tourism and rolled out the first Ten-Year Master Plan for tourism development. This plan laid a strong foundation for reviving tourism promotion and marketing strategies. Supporting this growth, the government also passed important laws, like the Tourist Board Act, the Ceylon Hotel Corporation Act, and the Tourist Development Act, which gave a structured framework for investment and development in tourism. The Ten-Year Master Plan was a success, leading to a major tourism boom. The country experienced a wave of new hotel construction, and five resort zones were established, marking a comeback for the tourism industry and setting the stage for long-term growth.

Growth During Economic Closure (1970-1977)

Between 1970 and 1977, the government once again restricted foreign trade by re-closing the economy. However, despite this, tourism continued to grow. The re-imposed import controls slowed down investments in tourism, but the positive results from earlier promotional efforts and a relatively peaceful environment helped the tourism sector expand during this period.

Trade Liberalization and Tourism Growth (1977-1996)

From 1977 to 1996, Sri Lanka’s economy took a new direction with trade liberalization, exchange rate reforms, and incentives for foreign direct investment (FDI). These reforms created a better environment for tourism development. Under the new open economy, Sri Lanka successfully attracted a large number of tourists, especially from Europe. The government actively promoted tourism, and the industry kept growing steadily until 1983, when the civil war broke out, which dealt a huge blow to the tourism sector.

War and the Second Ten-Year Tourism Master Plan (1989-2002)

In response to the war’s challenges, the government rolled out another round of economic reforms in 1989. The second Ten-Year Tourism Master Plan was launched in 1992, aiming to revitalize the struggling tourism sector. These reforms led to a temporary recovery in tourism and a rise in tourist arrivals. Since 1996, Sri Lanka has kept following open economic policies, though with some limitations. The ceasefire agreement signed in 2002 created a more peaceful setting, resulting in a notable surge in tourist arrivals.

Third Tourism Master Plan and Post-War Recovery (2005-Present)

In 2005, the government introduced a new tourism act and then the Third Tourism Master Plan in 2008. The formation of a joint board promoted better collaboration between the government and the private sector, creating a more integrated approach to tourism. The end of the civil war in 2009 was a major turning point for Sri Lanka’s tourism. The government launched fresh tourism promotion campaigns, and in 2011, the Tourism Development Strategy was implemented (Kandewatta et al., 2018). These initiatives fueled an impressive recovery in the tourism industry, which has since become one of Sri Lanka’s fastest-growing and most dynamic sectors.

CONCLUSION ON TOURISM DEVELOPMENT IN SRI LANKA

Tourism in Sri Lanka has undeniably played a crucial role in economic development, but its impact remains complex and multifaceted. While tourism contributes substantially to GDP, foreign exchange earnings, and employment, the path has not been without challenges. Political instability, such as the 30-year civil war and recent economic crises, shows how fragile tourism can be as a growth driver (Kandewatta et al., 2018). Political and economic stability are essential to the sustainability of the sector; without these, tourism struggles to deliver its full economic benefits. In recent years, the COVID-19 pandemic also revealed the sector’s vulnerability to global health crises, impacting arrivals and revenue severely (Jayasundera, 2021).

Moreover, tourism development has not always balanced economic gain with social and environmental responsibility. Rapid expansion in popular areas, like the southern coastal belt, has led to environmental degradation and disruption of local communities (Ranasinghe, 2014). The lack of effective regulation and comprehensive planning has, in some cases, created conflicts over resources and displaced local populations. Such issues underline the need for sustainable tourism practices that prioritize long-term environmental health and local well-being over short-term profits.

Sri Lanka’s infrastructure is also underdeveloped for a country aiming to become a high-demand tourist destination. Poor road conditions, limited transportation options, and inadequate hotel capacity in some areas make it hard to attract higher numbers of tourists, especially those seeking premium experiences (Kandewatta et al., 2018). While some efforts have been made, such as the introduction of new resorts and improved roads, further investment is needed to meet the expectations of a growing global tourism industry.

Finally, the cultural dimension of tourism in Sri Lanka has often been undermined by commercialization. The rich heritage and unique traditions of the country are sometimes marketed in ways that feel inauthentic to local communities, prioritizing tourist appeal over cultural integrity (Ranasinghe, 2014). It is crucial to recognize that while tourism can bring prosperity, it should also protect and celebrate the culture that draws tourists in the first place. Overall, Sri Lanka’s tourism has made valuable strides, but its path to success requires critical improvements in sustainable practices, infrastructure, and cultural sensitivity. Future policies should focus on building a stable political and economic environment, implementing stringent environmental protections, and promoting authentic cultural experiences to ensure that tourism remains a lasting and beneficial industry for Sri Lanka.

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