SL hotel construction loses steam in 2015

Hotel construction in Sri Lanka which had slightly slowed down in 2015, may raise questions over the quantity and quality of tourists the country is attracting, and will attract by 2020. Central Bank data showed that Sri Lanka had 19,377 rooms in graded establishments (1-5 star hotels) in 2015, compared to 18,078 rooms in 2014.

This was a 7.19 percent year-on-year (yoy) increase in graded room construction, compared to a 11.43 percent yoy growth witnessed from 2013- 14. However, in the space of supplementary establishments, which include home stays, rest houses and other non-graded accommodation, the number of rooms grew 34.46 percent yoy to 10,702 rooms, compared to 7.94 percent yoy rate over 2013-14. Tourism sector analysts point out that the slowdown cannot be attributed to political uncertainty which was prevalent in the country during 2015, as projects were commissioned and construction started years in advance.

They further noted that the decision to pull out by some accommodation operators may be a reflection of a possible trend of Sri Lanka becoming known more as a budget destination, as opposed to the government’s aspiration to position the country as a luxury paradise. It appears that no decisive government marketing efforts have been seen to promote the country as a luxury destination either. Sri Lanka attracted 1.8 million tourists in 2015, and the government is aiming to attract 2.2 million tourists in 2016, and 4.5 million tourists by 2020.

Experts are worried that if the government continues to look at increasing arrival numbers, the arrival rate of budget tourists will increase over luxury counterparts. Accounting for the prevailing 75 percent occupancy rate, an average of 1.8 tourists per room, and an average length of stay of 9 days, the star class hotels are estimated to have catered to 1.06 million tourists in 2015. Due to lack of information, if the same variables are applied, the supplementary accommodation sector catered to 585,934 tourists in 2015. The unregistered accommodation segment, which may have questionable standards, lies outside national taxation, and does not offer employee benefit payments and development, accounted for the remaining 160,000. It is estimated that there are over 6,000 unregistered rooms in the country. To cater to the 2.2 million arrivals this year, the country requires at least 40,182 rooms. The total of star class, supplementary and informal sector accommodation as at December 2015 stood at 36,079 rooms. To achieve the 4.5 million target for 2020, 82,191 rooms are required. However, latest information from the Sri Lanka Tourism Development Authority released in early 2016 estimated just 43,919 star class and supplementary rooms to be operational by 2018. The inconsistency in policies and politics may have deterred some investors. Tourism Minister John Amaratunga was quoted recently as saying that Sri Lankans with foreign passport holders are not included in the tourism arrival figures. Therefore, even accounting for informal accommodation, this could mean that Sri Lanka will be short of hotel rooms to accommodate its tourists from this year until 2020, or something may be off with the arrival figures. If the government attempts to improve the length of stay, quality of tourists and spending per tourist, Sri Lanka could increase revenue without increasing arrivals through the mass market, which will eventually lead to a deterioration of the local environment.

Lack of transparency and barriersto information persist

Despite the new government’s claim of promoting the right to information, the Chairman and Director General of the Sri Lanka Tourism Development Authority (SLTDA) have ordered its employees not to disclose any information to the public. When attempting to inquire how many hotel projects have been approved for construction, the telephone call was transferred 7 times, with an SLTDA Director finally claiming that information cannot be disclosed. “Normally, we don’t have any authority to give out information to outsiders. Especially newspapers, because you know, we have been given orders by the Chairman and the Director General not to release information,” the official said. This was the same reply parroted by tourism officials during the past regime.