US embassy cable - 05COLOMBO227

UNCLAS SECTION 01 OF 02 COLOMBO 000227 
 
SIPDIS 
 
DEPARTMENT FOR SA/INS, J. BRENNIG 
COMMERCE FOR C. CARNES 
TREASURY FOR A. BENAISA 
DEPARTMENT PLEASE PASS TO MCC: D. NASSIRY 
 
E.O 12958:N/A 
TAGS: ECON, CE, Tsunami 
SUBJECT:  TSUNAMI INTERRUPTS SRI LANKA'S TOURIST SURGE 
 
1.  Summary:  Sri Lanka's tourist industry suffered heavy 
losses in the tsunami due to damages to the coastline, beach 
hotels and tourist confidence.  Ironically, Sri Lanka had 
just recorded its best year ever in tourism in 2004.  The 
tsunami struck in the middle of the peak winter tourist 
 
SIPDIS 
season.  Although only about 20 percent of the total hotel 
capacity was damaged, and some of these partially damaged 
hotels have already opened for business, restoration of 
coastal environment and infrastructure as well as demand 
stimulation in key markets will be crucial to bring tourists 
back to Sri Lanka.  End Summary 
 
2.  Tourism, which contributes 2 - 4 percent to Sri Lanka's 
GDP (according to World Bank and ADB figures), was one of 
the bright spots in Sri Lanka's economy over the past few 
years.  It posted healthy growth rates consequent to the 
signing of the 2002 ceasefire agreement.  Tourist arrivals 
rose by 13 percent to a record 566,200 in 2004 bringing in 
approximately $400 million in gross earnings.  The 
Government had forecast 600,000 arrivals in 2005.  Tourism 
was also a key sector in Sri Lankan economic development and 
poverty reduction plans.  Beach resorts hit by the tsunami 
were among the key tourist attractions in Sri Lanka.  While 
many tourists came on package tours, which took them to 
multiple sites, beach resorts were a key component of most 
tours.  Tourism accounted for direct employment for about 
50,000 and indirect employment for 65,000. 
 
3.  The coastal areas accounted for 43 percent of the total 
room capacity but only about half of them were in the 
affected hotels.  According to the Tourist Board, 49 hotels 
of varying sizes with 2,935 rooms (21 percent of total 
capacity) are closed.  Of them, only a few large hotels 
(about 7), used by large tour operators, suffered 
significant structural damages.  These will be closed for an 
indefinite period.  Most of the other larger affected hotels 
are either already in operation or expect to come into 
operation within the next few months (although some parts of 
those hotels will remain closed for repairs).  Recovery 
plans for the smaller damaged hotels are not known. 
 
4.  Meanwhile, tourism has clearly suffered.  There was 
approximately US$200 million in direct damage to hotels and 
US$ 50 million in damage to ancillary tourism services 
(souvenir shops, restaurants, etc.).  According to industry 
sources, occupancy in the beach resorts is currently between 
5 to 10 percent (it was above 80% prior to the tsunami), 
while occupancy in unaffected regions is about 30 percent. 
Sri Lankan Air, the national airline, has cancelled several 
flights due to low demand.  Hotel operators throughout the 
country are reportedly facing grave cash flow problems due 
to low turnout.  While larger tour operators who temporarily 
suspended operations to Sri Lanka have promised to commence 
operations in February, currently there is very low demand 
for Sri Lanka according to an official of Walkers Tours, the 
country's largest inbound tour operator.  Some countries 
have also issued travel warnings against non-essential 
travel to affected beach resorts.  Demand stimulation 
through promotions in key markets has been identified as a 
priority. 
 
5.  While the government has promised to help and is talking 
to industry on a regular basis, restoration will largely 
depend on the private sector.  Currently, the affected 
hotels are carrying out insurance assessments and restoring 
facilities on their own.  In addition to repairs to hotels, 
resorts and roadsides have to be cleared of debris, made 
easily accessible and the local lifestyles restored to 
reasonable levels before the resorts are seriously marketed. 
Another issue faced by the industry is a GSL claim (although 
there has been no official involvement) that it intends to 
enforce regulations preventing building within 100 meters of 
the sea.  The Government has still not offered direct 
assistance to the industry.  A request for duty free imports 
for affected hotels is likely to be approved soon.  Other 
assistance, such as soft loans, is still being discussed - 
the Central Bank has announced a loan scheme for "small and 
medium-sized companies" offering low-interest loans up to 
Rupees 5 million (US$ 50,000).  Meanwhile, the Government 
has unveiled a $320 million "bounce back Sri Lanka" plan to 
promote tourism.  This plan, which envisions development of 
15 tourism zones encompassing existing beach resort areas, 
resettlement of coastal communities and restoration of 
resorts has no funding and is viewed with skepticism by 
industry sources.  The Tourist Board is also hoping to 
launch an international marketing campaign. 
ENTWISTLE