The island nation of Sri Lanka has become one of the most sought-after tourist destinations in Southeast Asia since the country’s three-decade civil war ended in 2009. The country, popularly known as the Pearl of the Indian Ocean Due to its rich natural beauty and cultural heritage, offers tourists a plethora of experiences with multiple attractions ranging from pristine beaches, beautiful rainforests, tea plantations, animal parks, historical sites, ancient ruins , temples and even casinos. The country’s tourism sector rebounded immediately after the war, becoming the main economic engine of post-war Sri Lanka.

The tourism industry experienced unprecedented growth from 2008 to 2018, with tourist arrivals increasing at a CAGR of 18% during the period and foreign exchange earnings increasing at a CAGR of 34.4%. The tourism sector has steadily improved its ranking, moving from the fifth largest source of foreign exchange in 2010 to the third largest in 2018. Improving infrastructure, developing new hotels, increasing number of tourism activities and government initiatives helped Sri Lanka be named the # 1 travel destination by Lonely Planet in 2019.

Government initiatives have helped boost tourism in the country.
The Sri Lankan government, fully aware that good infrastructure is necessary for the country to achieve economic and tourism growth, has constantly focused on bringing foreign aid into the country to build projects for infrastructure. The last decade has seen massive infrastructure development in the form of roads, railways, bridges, ports and a second international airport, all of which have contributed to the growth of tourism.

The government has also streamlined the regulatory framework for the tourism sector by creating a “One Stop Shop (OSU)” to assist potential investors. Several incentives, such as VAT exemption, tax holidays for hotel development, tax exemption for MICE organizations, grants for the development of medical tourism facilities and zero import duties on caravans, yachts, surf equipment and mini cruise ships, among others, have helped increase investment in the sector over the years. The government has also launched effective marketing campaigns to undo the bad publicity the country received during the civil war and to rebuild its image as a safe tourist destination. Electronic visa authorization has also been introduced to facilitate travel within the country.

Tourist arrivals in Sri Lanka 2008 – 2020

However, the sector is currently experiencing a temporary slowdown.
The relentless pace of growth of Sri Lanka’s tourism sector was deeply affected by the terrorist attacks in the country in 2019. More than 250 lives were lost, including at least 45 foreign nationals, in the Easter bombings targeting Christians in three churches and tourists residing at three luxury hotels in the commercial capital of Colombo. The tourism sector experienced a massive collapse following the bombings, with an 18% drop in tourist arrivals. However, Sri Lanka has offered a series of discounts, waived tourist visa fees for 48 countries and adopted an effective marketing campaign to attract tourists after the crisis, helping to gradually revive the tourism industry.

Just as the sector was starting to recover, the COVID-19 pandemic wreaked havoc, severely crippling the travel and tourism sector in 2020. Sri Lanka’s tourism industry has been significantly affected due to the disruptions travel and restrictions issued around the world to contain the pandemic. Tourist arrivals to Sri Lanka declined by around 74% in 2020, as all passenger flights and ship arrivals were suspended in March 2020. The effect of the epidemic was visible, with major source countries recording a notable drop in tourist arrivals.

Top 10 Source Markets

Relaunch tourism with strict protocols.
The country reopened its borders to tourism in January 2021, after a 10-month closure, as part of a bio-bubble concept. Tourists were not allowed to leave their hotels for the initial 14-day period. However, they were allowed to make approved tours to select tourist sites at particular times. Thus, in the first five months of 2021, nearly 15,300 tourists visited the country.

To revive the sector, the government has also announced numerous COVID relief measures such as exemption from VAT, extension of the moratorium, removal of renewal fees and liquor license fees for SLTDA approved establishments. , a grace period for utility payments and vehicle rentals, loan programs for affected industries, and wage support schemes for hotels and travel agencies, etc.

The rapid growth of Sri Lanka’s tourism industry ahead of the anomalies of the past two years reflects the untapped potential of tourism in the country as the sector is poised to generate opportunities for growth and investment. A combination of the right policies, infrastructure development and effective marketing campaigns can help the country capitalize on the economic prospects of the tourism industry after the pandemic.

Additional contributor to this article: Kavya jain, Intern at HVS ANAROCK

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