Dear Investors and Friends,
As part of our continuing on the ground research, Ruchir Desai, Co-Manager of the AFC Asia Frontier Fund, traveled to Colombo last month to attend an investor conference. Photos are by Asia Frontier Capital.
Going back to Colombo for an annual investor conference that I attend every year felt a bit different this time given the tragic Easter Sunday attacks that took place just a couple of months ago. The attacks were completely unexpected and given their scale and intensity, the important tourism sector, which accounts for close to 5% of GDP and is the third highest foreign exchange earner for the country, will likely see a negative impact.
Tourist arrivals for the month of June 2019 were down by 57% given the initial negative reaction to the attacks and though tourist arrivals will be lower this year, the country is currently in “off-season mode” for tourism, due to the monsoon, so the recent initiatives taken by the authorities to promote the country as being safe for tourists as well as the lifting of travel advisories by key source markets such as China and India could help bring stability to tourist arrivals once the country enters the peak season towards the end of the year.
As expected, security across all major city hotels has increased significantly. After the civil war ended in 2009, Sri Lanka was the only country in South Asia where one could enter a hotel without going through the whole security screening process, a pity that this has now changed due to the current circumstances. Though occupancy at the Galle Face Hotel where I was staying was low, it was still much better than I expected and, in any case, local wedding events were being held on a daily basis, helping to keep the environment at the hotel quite lively as life goes on.
The tourism sector should see a recovery in arrivals in the longer term as other tourist destinations such as Egypt and Indonesia have seen tourist arrivals rebound after terror-related incidents. Furthermore, given what the country has on offer, the tourism potential in Sri Lanka appears to be untapped compared to other Asian tourist destinations like Cambodia, Thailand or Vietnam.