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Study on Informal Sector linkages within the
Tourism Value Chain
Table of Contents
Executive Summary 2
Policy Recommendations 4
1. Introduction 7
1.1. Brief overview 7
1.2. Objectives of the study 9
1.3. Justification 10
1.4. Outline of the report 10
2. Key issues in the literature 11
2.1. Key Findings 11
3. Context 16
3.1. Size and Characteristics of the Informal sector 16
3.2. Informal Sector Contribution to GDP 17
3.3. Policy Framework Supporting Informal Sector 17
4. Methodology and Data 22
4.1. Methodology 22
5. Characteristics and Nature of the Informal Sector 25
5.1. Key Findings 25
6. Tourism Value Chain Analysis 30
6.1. Ampara District 30
6.2. Batticaloa District 35
6.3. Polonnaruwa District 39
6.4. Trincomalee District 45
7. Policy Orientated Recommendations 46
Reference 59 Annex 1: Methodology for Estimating the Informal Sector Contribution to GDP 61 Annex 2: Changes in Economic and Tourism Industry Policy Framework 63 Annex 3: Characteristics and Nature of the Informal Sector – Tables 66 Annex 4: Value Chain Analysis Tables 71 Annex 5: Supply Chain Analysis Figures 75 Annex 6: Case Study Profile Tables 87 Annex 7: Summary of Case Study Findings 91
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Executive Summary
The Tourism Industry has been identified as one of the key drivers of growth and development in Sri Lanka by the successive governments. The Tourism Strategic Plan 2017 was formulated to transform the sector and support move towards achieving sustainable development goals. In contrast to more advanced countries, the Tourism Industry in Sri-Lanka is largely driven by the informal sector in Sri Lanka. Despite the significant of the informal sector, the government policy framework pays limited attention on how to improve the livelihood of people engaging in informal economic activities in the sector. Indeed, the government formulated a policy framework, Tourism Strategic Plan 2017, for transforming tourism in to a sustainable industry, but limited attention to informal economic activities in tourism despite emphasizing the need for inclusive growth and development. This situation may have occurred due to a lack of comprehensive understanding on the sector and related value chain. This study aims at filling the knowledge gap identified above and to; (a) understand the current policy environment for the informal employment, (b) map out the characteristics of those engaged in informal activities, (c) explain reasons why people continue to operate in the informal sector, (d) examine how women and those people with disabilities in the informal sector connect with tourism value chain, and (e) estimate the size of the informal sector contribution to gross value addition. Through addressing these issues it is possible to make policy orientated recommendations for implementation. In order to collect the data and understand the situation a mixture of methods were used, including, a combination of quantitative and qualitative approaches. A literature survey is confined to developing countries helped us understand key issues that should be investigated. A detailed descriptive analysis was conducted to map the characteristics of informal sector employment in the important sub-sectors of the Tourism Industry. The main data source for this analysis was the Labour Force Survey (LFS), conducted by the Department of Census and Statistics (DCS) of Sri Lanka. A case study approach was employed to investigate informal activities around the Tourism Industry, with special reference to women and people with disabilities.. Finally, an indirect method was used to estimate the contribution that the informal Tourism Industry to gross domestic value for tourism in Sri Lanka and in the Eastern Province. There are a number of boundaries and assumptions underpinning this study. The study is conducted in four selected districts, namely Ampara, Batticaloa, Trincomalee (Eastern Province) and Polonnaruwa districts. When the study was initially designed it was assumed that it would investigate the different sub-sectors contained in the tourism and hospitality sector. However, once the secondary data analysis had taken place it was clear that the vast majority of those engaged in informal activities were located in the food and beverage sub-sectors and to a lesser extent transportation. Given this situation any attempt to improve earning and employment opportunities must focus upon these sub-sectors. Therefore, in order to reflect realities on the ground this study focused upon the former sub-sectors and where possible made reference to other sub-sectors in the tourism and hospitality value chain. Using this approach, the key findings can be summarized as follows:
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• According to our research in the Eastern Province, the Tourism Industry accounts for 15
per cent of the provincial GDP, while the Tourism Industry accounts for 11.4 per cent of
the nation’s GDP in 2016.At the same-time informal sector account for 1.1 percent of
tourism activities of the total provincial gross domestic product (GDP) in the Eastern
Province, and 0.9 per cent at the national level. These figures imply that the informal
sector plays relatively a larger role in the Tourism Industry in Eastern Province, compared
to the rest of the country.
• The food and beverage sub-sector, and the transport sub-sectorare dominated by
relatively older female, and young or middle-aged male workers. Also, women
involvement in the informal tourism activities is relatively higher in Ampara than in other
districts.
• Firm size in the informal sector is very small, consisting of one or two persons and reason
include: structural weaknesses such as unwillingness to expand or lack of business
confidence, severe competition, and seasonal fluctuation in sales.
• Understandably, the levels of education and training remained relatively low among
persons engaged in the informal activities for these sectors, including soft and technical
skills.Those who obtained some training, have received lower level of training, i.e.
certificate level training.
• A clear demarcationexistsin the Tourism Industry where limited linkages exists between
large and informal small operators.
• In contrast small & medium businesses in the Tourism Industry connect largely with the
local economy/community for theirlabour services and inputs.
• The tourism value chains has failed to connect with the local economy in the selected
districts. The only exception to this statement is in Ampara where the community benefits
from linkages. ..
• The limited linkages between locals and Tourism Industry is due to number of reasons;
ranging from local skill levels, domination of value chains by larger players, limited
capacity of small & medium businesses,unfavourable state policies, , poor quality, lack of
market information, limited product market, as well as cultural concerns. Most of the
former are more pronounced in small businesses run by women.
• There is also a general unwillingness to hire female workers due to barriers such as
working hour restriction, limited areas of placement, security issues, and attitudes
towards working women at tourist hotels.
• The research showed that women-run businesses have positive attitude towards
employing female workers as against the male-run businesses. It is possible that female
workers prefer working at women-run businesses due to security and cultural concerns
• People with disabilities receive very limited opportunities to engage in economic activities
in the Tourism Industry. In particular, little support is provided to people with disabilities
even ex-combatants.
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• Foreign language ability is extremely poor at small businesses in the food and beverage
sub-sector. This has become one of the major stumbling blocks for both small and
medium businesses reaching out to foreign tourists.
• Tourism Industry has enormous potential in uplifting the livelihood of people living in the
four selected districts. However, the present state of affairs may not automatically
generate such wide-spread benefits due to factors just highlighted above..
In the light of above findings, it is imperative to implement a comprehensive policy package in uplifting the livelihoods of people engage in informal economic activities around the Tourism Industry. This study identified a set of policy interventions for consideration by government, as well as the Skills for Inclusive Growth program, and these can be summarized as follows: Policy Recommendations
Policy Interventions for the Government
The Government of Sri Lanka formulated a Tourism Strategic Plan (TSP) 2017 with a broader
objective of transforming the industry in achieving Sustainable Development Goals (SDGs). Some
of the recommendations made below may reiterate some of the already identified areas while
others are new and equally important in achieving government’s ultimate objective of achieving
SDGs, particularly around inclusivity and the informal sector:
Public Invest in tourism site and product development -A number of owners/managers
highlighted the fact that one of the key issues faced by the industry in the Eastern Province
(including Polonnaruwa district) is the fewer tourist attractions (tourist sites) and/or fewer
number of tourism products. It is required that central and provincial governments allocate
sufficient resources for developing tourist sites and products.
Developing a regional talent pipeline in collaboration with the private sector operators-One of
the key concerns of the industry is that current public funded human resources development
programmes do not meet the industry requirements. Policy makers must come up with a
comprehensive human resources development plan and implement it with a close industry
collaboration.
Maintaining law & order and ethnic harmony -One of the key responsibilities of the state is to
maintain law and order in a country. Recent incidents in the country, including in Ampara district,
could have a negative effect on the Tourism Industry. Consensus building is not an easy task since
wounds created during the war have not meaningfully been recovered.
Request BIO registered businesses to comply with the initial agreement on sourcing local labour
from the region.It was revealed during the survey that BOI registered hotels and restaurants
agreed to recruit at least 40 per cent of the total employees from the region. None of the
hotels/restaurants interviewed have met this requirement so far. This situation must be reversed
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Enforce agreed regulations on environment, health, and safety - A number of hoteliers, of all
sizes, pointed out how the industry suffers due to violations of standards environment, health,
and safety rules and regulations. Some managers of the medium and large hotels/restaurants
highlighted the poor health and safety standards maintained by small scale providers. Hence,
central and provincial government need to educate small & medium size businesses and make
sure they follow basic health and safety standards.
Consensus building among operators in the Tourism Industry - Central and provincial
governments need to explore possibilities for building meaningful relationship among industry
stakeholders for enhancing and sharing value addition in the industry. Different stakeholders
have their own strengths and weaknesses and what is needed is to form a collision for industry’s
future growth and sustainability.
Recommendation for the S4IG program
This section highlights some of the intervention strategies to achieve the broader objectives of
the Skills for Inclusive Growth (S4IG) program and how they can support a more inclusive pattern
of growth: .
Promote social enterprises - As discussed above, medium and large operators in the industry face
few constraints when sourcing inputs locally. Most of the above issues could be avoided by
forming social enterprises where the social entrepreneur connects with small producers in
supplying raw materials and collecting final outputs. This approach could be strengthened and
extended for fishermen and meat producers, as well.
Promote non-profit organizations -Formation of non-profit organization – with the support of
proincial government and Sri Lanka Tourist Development Authority – could be useful way to
support small and medium operators, mostly informal operators, in the industry through
provision of advertising, marketing, and finances. Non-profit organizations could effectively fill
this gap by providing necessary services at a reasonably low price.
Piloting consensus building initiatives – Multi-stakeholder platform - creating a multi-stakeholder
platform is a pre-requisite for developing and strengthening back-ward linkages useful for
creating opportunities for workers engage in the informal sector. Informal operators could
enhance the quality of their products and services while formal sector businesses could make use
of products and services as inputs and/or facilitate the sales of their final products and services
to tourists.
Support for product innovation & development - Small and medium size operators tend to offer
homogeneous products and services due to lack of product innovation and development.
Informal sector operators should be educated on potential products and services that could be
offered to tourists and extend support for developing such products and services.
Support for a ICT based solution for improving value chain - Information gap among stakeholders
is a severe issue in the Tourism Industry in four districts. This information gap could effectively
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be address by introducing a mobile app (possible name might be ‘bee’ from the full term, ‘Buy
East, be East)1. This is one of the potential market-based solutions for the industry. It is important
to examine whether such ICT based solution is acceptable to all stakeholders.
Groups formation and strengthening (capacity building) - A small operator is vulnerable on
several grounds when act alone due to number of reasons. Therefore, small operators should be
encouraged to form groups and draw up some basic principles – related to price, quality, and
other things – for operations. For instance, in Arugam Bay, Ampara district, tuk-tuk operators
have formed their association and prepared a set of operational guidelines. Other groups of
operators in the same sector should follow a similar approach.
Financial support for building capital stock: matching grants or soft loans- one of the key issues
faced by medium and small businesses in the Tourism Industry is the lack of finance, in particular,
working capital. This state of affairs largely restricts opportunities for small operators to cater to
the tourists. In this context, it is important to introduce a soft loan or matching grant scheme so
that small operators could buy essential capital goods.
Conduct awareness programmes on benefits of maintaining conducive environment - As
discussed earlier, the industry is under threat due to environmental pollution and various social
misdeeds. Some of these are due to lack of public awareness the others are due to lapses in law
and order. A comprehensive programmes in educating public on the importance of protecting
environment and social order.
Provide training on selected areas such as entrepreneurship, marketing, and management–A
large number of existing managers/owners of small and medium size businesses have not
received any formal training on entrepreneurship and marketing. Most of them have either
received some experiences as employees and/or inherit businesses from their parents.
Promote women entrepreneurship for selected areas - There are a number of areas for promoting
women entrepreneurship training, particularly for beauty parlor, local food centers, local cultural
and dancing performance centers, teaching local languages and local clothing centers. The
Department of Agriculture provide training on preparing food using local ingredients and centers
opened in some part of the country are operating very successfully. It is possible to start up such
centers closer to tourist sites and provide opportunities for women to engage in such businesses.
Business couching centers – These centers could take few innovative steps for promoting
entrepreneurship potential business starters. These include: providing one-to-one meeting with
experts (accounts, lawyers, marketing managers, financiers etc.), funding for individual and group
entrepreneurship, making available various resources useful for business start-up, and on-line
and off-line courses to educate potential entrepreneurs on fundamentals in entrepreneurship.
1 Bee is always busy in collecting small quantities and producing a quality final product. This mobile app could also
facilitate connecting small quantities and producing quality final products and services.
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1. Introduction
The tourism has been identified as one of the key drivers of growth and development in Sri Lanka
by the successive governments (Mahinda Chinthanaya, 2005; Mahinada Chinathanaya Forward
Vision, 2010; Powerful Sri Lanka, 2016; Tourism Strategic Plan, 2017). This position has vigorously
been re-emphasized during the post-war in which Sri Lanka witnessed a notable surge in tourist
arrivals as well as significant increase in private investment in the Tourism Industry. During the
post-2000, Sri Lanka has introduced several policy initiatives. Notable among them are the
Tourism Mater Plan of 2008, Tourism Development Strategy of 2011, and Tourism Strategic Plan
of 2017. The Tourism Strategic Plan (TSP) of 2017 emphasizes the need for harnessing the
untapped potential of the Tourism Industry aiming at attaining sustainable development goals.
In particular, it targets to achieve three Sustainable development Goals, namely (SDG) 8: Promote
sustained, inclusive, and sustainable economic growth; full and productive employment; and
decent work for all, SDG 12: Sustainable consumption and production patterns, and SDG 14:
Conserve and use the oceans, seas, and marine resources for sustainable development. By
analyzing the current status quo, the TSP identifies a number of failures in the industry2. It
proposes six transformation themes and key activities under each one of them. One of such
transformation themes is to engage the workforce and communities in developing the industry.
In particular, it emphasizes the need for creating employment opportunities for women.
Regardless of these developments, Tourism Industry is largely driven by the informal sector in Sri
Lanka. According to industry experts, published in recent electronic media, 50 per cent of
business relating to tourism is done by informal operators (Wahab, 2015)3. Informal sector
connects to tourism value chain through two broad channels; (a) providing final products and
services to tourists (such as food & beverage; accommodation; services (tour guides, Spa, cultural
shows etc.), products (crafts, gift items, paints, decorated furniture) and (b) supplying
intermediate goods and raw materials (i.e. vegetable, fruits, fish, meat, etc.) and services
(transport, laundry etc.) to both formal and informal businesses catering to tourists.
2 These include; coordination failures, institution failures, resource failures, and market failures. 3It ranges from hotel booking, transportation, accommodation and food and beverage, meeting day-to-day needs,
and provision of various services.
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Nonetheless, the TSP pays limited attention in improving the economy of the informal sector.
Moreover, the TSP adopts a narrower definition for the informal sector. Accordingly, businesses
not registered with the Sri Lanka Tourism Board are classified as informal. On that ground, it
proposes few strategies to encourage currently unregistered businesses to register with the
Tourism Development Board. This narrow definition fails to capture a range of informal economic
activities around the Tourism Industry. Moreover, it fails to pay sufficient attention on improving
the lower segment of the tourism value chain though it targets to improve the quality of final
products and services. Improving the quality of inputs is an essential component for enhancing
the quality of final products and services.
In the development literature, labour market informality is often viewed as inferior due to a
number of reasons such as limited space for business growth, lower prices for products services
offered by informal sector, and poor product quality. Moreover, as discussed above, public policy
interventions often pay less attention on informal sector activities; i.e. public policy is biased
towards the formal sector. As a result, informal sector accounts for a tiny share in the tourism
value chain though it is widespread and provides livelihood opportunities for many in a given
locality. As in most other developing countries, informal sector is relatively bigger and wide-
spread in Sri Lanka (LFS, 2016). For instance, informal employment accounts for nearly 50 per
cent of the total employed persons in the non-agriculture sector in 2016 (LFS, 2016)4. Reflecting
the poor economic structure inherited due to the 30-year long civil war, informal employment
remains relatively higher in the former war zones, namely in the Northern and the Eastern
Provinces, compared to the national averages. For instance, 60 per cent of the total non-
agriculture employment is informal in the Eastern Province. If agriculture sector is also
considered, informal employment in the Eastern Province may reach over 85 per cent of the total
employment in the province. Hence, addressing constraints in the informal sector is a pre-
requisite under any initiative for uplifting the livelihoods of masses involving in informal
economic activities. This is highly commendable in the context of the Eastern Province. Before
4 When accounted for the agriculture sector, informal employment accounted for 60 per cent of the total
employment in the economy in 2016.
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the war erupted in early 1980s, Tourism Industry in the Eastern Province had been well
developed (TSP, 2017). Most of the infrastructures and businesses were badly affected due to
the war and the industry was almost collapsed in many parts of the province. The end of the war
in 2009 opened up new hopes for the industry participants as well as new entrants.
Many of such newly opened up businesses currently operate in the informal sector due to
number of reasons. Understanding why businesses continue to operate informally is of
paramount importance for enhancing the livelihood of poor communities connected to Tourism
Industry in the province. In other words, pro-poor tourism development requires policy makers
to pay attention to improving informal sector participation in the tourism value chain. A
comprehensive understanding on how informal sector activities are organized around the
tourism sector value chain is paramount pre-requisite for designing intervention strategies for
improving the livelihoods of workers engage in informal activities connected to Tourism Industry.
1.1 Objectives of the study
The objective of this study is to investigate how informal sector activities are organized around
the tourism sector with special reference to food & beverage sector in four selected districts,
namely Ampara, Batticaloa, Trincomalee (Eastern Province), and Polonnaruwa. In addition, sub-
sectors such as accommodation, craft, tour guides, and transportation also will be examined. A
particular attention is paid to understand how females and persons with disabilities engage in
the informal sector catering to the tourism sector. Specifically following objectives are expected
to achieve;
• Document the current policy environment for the informal sector and those engaged
in informal employment, drawing on existing research/studies.
• Map out the characteristics and numbers engaged in informal sector activities and
informal employment in the tourism and food-beverage sector in the four districts
• Conduct case studies to help explain reasons behind the decision of people to work in
the informal sector and to understand what influences a person decision to work in
the informal sector.
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• Examine how do women and persons with disabilities in the informal sector connect
with the tourism value chain
• Make policy orientated recommendations for interventions. These should be targeted
at how to improve skills and productivity and support the transition to the formal
sector.
1.2 Justification
In recent decades, development thinkers as well as public policy makers recognize that tourism
has enormous potentials in addressing poverty and unemployment (Nadiv and Cantoni, 2015).
The pro-poor tourism recognizes that tourism could benefits local communities through
generating a wide range of employment, self-employment and informal sector opportunities.
However, a number of constraints have been acknowledged by academics which limit the
economic participation of the local community in the tourism sector, especially the poor people.
These include; lack of human capital, lack of financial capital including access to credit resources,
lack of organisation, location barriers for the people who live far from tourism sites, lack of
market power resulting from difficulties on ownership or control over resources, low bargaining
power against formal sector operators and, limited capacity to meet tourists’ requirements.
Others include unfavourable regulations and red tapes including being excluded from registered
and promoted categories of tourism facilities and services resulting to inadequate access to
tourist market, exclusion by organised formal sector interests, limited official focus on developing
alternative markets -including domestic, regional or independent tourism markets and,
government support that is mainly targeted to the formal sector.
The Government of Sri Lanka’s Tourism Strategic Plan (TSP) identified a number of areas four key
areas for reform: (a) coordination failures, (b) institutional failures, (c) resource failures, and (d)
market failures. However, the TSP is highly biased towards supporting formal businesses in the
industry. The TSP emphasizes achieving sustainable development goals is one of its key priorities,
however, it fails to pay sufficient attention on uplifting workers engaged in informal economic
activities around the Tourism Industry5. Limited focus on the informal sector may be either due
to limited understanding of the sector and/or limited representations made by the informal
sector stakeholders during the policy formulation process. This study attempts to achieve above
objectives aiming at improving livelihoods of people who engage in informal economic activities
around the tourism value chain.
1.3 Outline of the report
This report is structured as follows. Section two presents a critical review on informal sector
participation in the tourism value chain, paying special attention to the food and beverage sector
while section three summarizes some of the best practices adopted in developing countries in
5The TSP focuses on the informal sector largely confines to the area business registration and improving the quality
of goods and services offered. In addition, it proposes some measures to address land ownership related issues in the
sector whenever it matters with respect to registration.
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forming linkages between formal and informal sector. Section three discusses the government
policy framework for supporting the Tourism Industry and informal sector. Moreover, this section
spells out some of the interventions in the tourism industry. Section four briefly discusses the
methodology and data analyses undertaken. Section four reports secondary data on the nature
and magnitude of the informal sector around the Tourism Industry while section six presents key
findings from the cases studies conducted in selected districts. Section seven makes some
recommendations. Most of the compiled data are presented in annexes.
2. Key issues in the literature
This section briefly summarizes the key findings of the literature related to informal sector with
special reference to informal economic activities around the Tourism Industry. In particular, it is
expected to present theories and approaches of informal sector as well as some of the
international best practices adopted in linking the informal sector with the main stream. Key
findings are summarized below while detailed account on the topics are presented in annex 7.
2.1 Key Findings
Approaches for understanding the informal sector
A number of approaches have been developed to explain the presence of the informal sector. The dualist school views informal sector as an inferior segment of a dual labor market with no direct links between formal and informal sectors and for the structuralist school it consists of small firms and unregistered workers subordinated to large capitalist firms. In contrast, the legalist school characterizes informal sector as an economic segment consisting of micro-entrepreneurs preferring to operate informally to avoid the costs associated with registration, taxes, and related business and labor regulations. The voluntaristic framework assumes that those in the informal sector make a deliberate choice to stay in the informal sector to avoid tax and regulations. In recent years, based on the idea of multi-segmented labor markets, there emerged an integrated approach to conceptualize informal employment (Fields, 2005)). This new approach encompasses the different approaches mentioned above. Accordingly, the lower-segment is dominated by households engaging in survival activities with few links to formal economy, as the dualists suggest; the upper segment with micro-entrepreneurs who choose to avoid taxes and regulations, as the legalists and voluntaristic framework suggest; and the intermediate segment with micro-firms and workers subordinated to larger firms, along the lines suggested by the structuralists. For operational and measurement purposes, the enterprise-based definition of informal employment, adopted in 15th of International Conference of Labour Statisticians (ICLS), combined with a broader, job-based concept of informal employment, adopted at the 17th ICLS. According to current definition - for measuring purposes - informal employment includes: (i) employments in informal enterprises (small-unregistered or unincorporated) and (ii) informal employments outside the informal sector, mainly in the formal sector. This informs the research undertaken for the current study.
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Key characteristics of informal activities There certain characteristics associated with informal activities, some of which are positive and others negative. Key characteristics include: (a) an activity the informal sector, activities may be either legal or illegal; (b) informal businesses prefer to exchange goods/services to a ‘immediate’ party and for ‘immediate cash’ to avoid transaction related records as well as due to lack of working capital; (c) working conditions under which workers are mostly employed are relatively poorer than that of the formal sector; and (d) finally, the informal sector is often viewed as an inferior alternative to formal sector employment. Positive benefits associated with the informal sector include (a) being paid in cash without taxes, (b) flexibility, (c) controlling one’s income and working environment, (d) exercising creativity and self-expression, (e) building occupational skills. Negatives associated with informal employment are overwhelmingly larger and include (a) lack of employment benefits (social security, paid leave, health benefits, etc.; (b) the lack of economic security, (c) reduced opportunity to access to credit, (d) dealing with dishonest employers, and (d) the risks/penalties of not reporting income. Why people engage in the informal sector? People engage in informal economic activities for a variety of reasons. For some, it is a necessity, i.e. their last resort, or their best option: a better alternative than low-wage formal employment. As mentioned previously, others involve in informal work as a choice, for personal fulfillment, social connection, or to supplement primary income (Schneider, 2011). In some cases, businesses start by being informal and with business success they gradually join the formal sector. Informal sector and Tourism Industry The informal sector is defined as “all those individuals and businesses that engage with tourists and the Tourism Industry but are not members of any formal association or trade organization”6 In Sri Lanka, those businesses and individuals who have not registered with Sri Lanka Tourist Board fall into the category of informal sector. In the broader sense, informal sector around the Tourism Industry may include; unlicensed guides, unregistered restaurants or road-side vendors who does not pay taxes, street sellers, craft markets, taxi drivers, tour operators, lodging service providers who have not registered legally to offer the services are part of the informal sector. The Tourism Industry creates direct, indirect and induced employment opportunities. Direct employment in Tourism Industry refers to jobs created by companies such as tourist accommodation, travel agencies, tour operators, transport companies, restaurants and others that provide goods and services to tourists and earn income from them. Indirect employment refers to jobs offered by firms that are closely related to tourism companies, namely, by firms that supply and produce goods and services for tourists and residents in destinations: stores, construction companies, hotel furniture companies, etc.
6 See Slocum et al., (2011) for a comprehensive review.
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In the Tourism Industry, informal economic activities are wide-spread; some of the informal activities directly cater to the demand of the Tourism Industry while the other activities are organized in supplying inputs to both informal and formal businesses in the Tourism Industry. These activities will disappear with modernization and are limited linkages between formal and informal sector in the Tourism Industry. The operators in the two sectors often blame each other on the ground of the quality of the products and services offered. Informal sector operators often blame formal sector operators for preventing customers buying products and services from the informal sector. Informal sector operators mostly operate at survival level and face several constraints such as lower level of working capital, poor quality of products and services, and lack of market information. There exists a severe competition among informal sector operators as they often tend to offer a set of homogeneous products and services. Finally, informal sector continues to cater a large number of tourists though it claims a smaller share of the value chain. Meyer (2006) argues that the informal sector can complement the formal economy’s products and services, however, such linkage is rarely established without an intentional effort of government and/or non-government institutions’ intervention. The author highlighted a number of channels, such as outsourcing and procurements, through which formal sector could link with the informal sector businesses. However, the formal sector has always been the dominant party with the power to force informal ventures to leave principal sites. This often limits the informal sector participation in the tourism value chain.
A number of studies have found that informal sector operators have developed strong backward
linkages with the community compared to that of the formal sector businesses, especially
through sourcing their raw materials locally. Moreover, recent studies have provided evidence
that linking labour, products and services of local communities (mostly operating in the informal
sector) in developing countries to the tourism sector is vital in providing opportunities for
workers engaged in the informal sector7. It is argued that such linkages need be developed by
effective government and non-government institutions intervention. Kirsten and Rogerson
(2010) suggested that linking informal businesses to larger enterprises by means of outsourcing,
subcontracting or other arrangements is paramount important means of improving the livelihood
of those engage in the informal economic activities.
Thomas and Thomas (2005) developed a framework identifying three different kinds of resources
useful for enhancing small tourism businesses to grow over the years. These include knowledge
resources (including the ability to recognize, operate within, and perhaps alter and subvert, key
frames of reference and hegemonic discourses); relational resources (including establishing
relationships of the right kind with the right interests/actors at the right time) and a mobilisation
7 See Adiyia, Vanneste, Van Rompaey, and Ahebwa, (2014); Mitchell and Faal, (2008); Nyaupane and Poudel,
(2011) more details.
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capacity (or an ability to act collectively) (Bah and Goodwin, 2003). It is argued that multi-
stakeholder consensus and cooperation is vital for opening up sustainable income earning and
employment opportunities for the informal sector operators.
The development of informal-formal linkages can be difficult given the complexity of the tourism
system, consisting of multi-sectoral and multi-scalar relationships. In developing countries,
empowered stakeholders tend to organize the tourism value chain vertically in which tourists are
led in a spatially and socially confined trajectory in the destination (Adiyia et. at., 2015). The
authors argue that promoting culture tourism is one of the solutions to build up such local
linkages compared to nature and eco-tourism.
Policy initiatives for enhancing informal sector participation in Tourism Industry One of the key challenges for policy makers and development practitioners is how to enhance opportunities for informal sector businesses to benefits from the Tourism Industry. Supporting informal businesses certainly enhances the livelihoods of many poor households and improve inclusivity in the development process. Reference to case studies in other countries can provide lessons on how to enhance the participation of the informal businesses and/or connectivity of marginalized groups, such women and certain ethnic groups, to Tourism Industry, including the following: International Best Practice in Linking Informal Sector to Formal Sector
• South Africa introduced a Tourism Broad-Based Black Economic Empowerment (B-BBEE)
in 2003 so that the opportunities and benefits of the Tourism Industry are extended to
black South Africans. This initiative aims to broaden participation in the economy of the
country to result in an equitable society through the creation of opportunities for those
people who were previously excluded from meaningful economic participation. It seeks
to address issues such as the ownership of enterprises, management and control of those
enterprises, procurement, enterprise development, skills development, employment
equity and socio-economic development. However, a number of recent studies have
found this policy significantly failed to deliver the expected outcomes due to corruption
and a failure to raise skill levels.
• Netherlands Development Organization’s agricultural development and local capacity
building project implemented in West Humla, Nepal demonstrates how a carefully crafted
intervention can have a significant on a small number of tourist. The project implemented
several intervention strategies covering areas such as infrastructure development,
capacity building, group strengthening, and local community engagement (Saville, 2001).
• The Department for International Development (DFID) launched a pro-poor tourism
development initiative in Gambia in early 2000s where it aimed at securing market access
of the economically poor informal sector operators around the Tourism Industry. The
evidence suggested that a series of multi-stakeholder interventions secured significant
livelihood improvements for the guides, fruit sellers, juice pressers, and craft workers,
with data on the livelihood benefits (Bah & Goodwin 2003, and Goodwin 2007)
14
• The Overseas Development Institute (ODI) launched ‘Pro-poor tourism pilots in 2002 to
2005 in, Southern Africa’ to see what could be achieved by working with private sector
companies through their supply chains to address poverty reduction. Empirical evidence
showed that the project was successful in promoting local linkages thereby having
positive effects on poverty reduction.
• Ashley et. al., (2005) documented how linkage between tourist hotels/restaurants and
local farmers were developed in Republic of Jamaica. The programme intended enhance
the quality and quantity of farm products while encouraging hotels to introduce local food
and beverage recipes. The project provided effective coordination among chefs and hotel
management, farmers, and agricultural extension officers. The project was able to
increase the income of both farmers as well as hotel through the project activities.
Literature survey summary and lessons learnt As in other industries, linkage between formal and informal businesses in the Tourism Industry remains very weak. As a result, workers in the informal employment accounts for a tiny share of the total tourism value chain though a sizable share of total employment in the Tourism Industry engage in informal economic activities. Linking informal economic activities around the Tourism Industry with the formal businesses is a pre-requisite condition for improving the livelihood of informal workers. Such connection not only leads social inclusivity but also promote Tourism Industry in a country. As in other industries, market forces often fail to build linkages between the formal and informal sectors thereby requiring a set of effective intervention strategies. Some successful intervention schemes – led by government and non-government organizations - showed that multi-stakeholder consensus, capacity (including skills) building, community engagement, and group strengthening are vital elements for improving the livelihood of people engage in the informal economic activities around the Tourism Industry.
15
3. Context
3.1 Size of the Informal Sector in Sri Lanka
Informal employment account for nearly 60 per cent of the total employed persons in Sri Lanka (LFS, 2016). Reflecting the overall weaknesses of the economic structure, the share of informal employment slightly declined during the last decade8. Compared to females, there is a higher probability that males take up informal employment, party as the last resort. For instance, around 63 per cent of total employed males hold informal employment as against the 54 per cent of total female employed workers9. Around a half of the total employed persons in the non-agriculture sector engages in informal economic activities10. In terms of businesses, there are over 950 thousands non-agriculture businesses operate informally and the trade sector accounts for over 40 per cent of total businesses in the informal sector, and the services sector accounts for 33 per cent. It is interesting to note that 75 per cent of the informal businesses are located in the rural sector, indicating that informality is largely a rural phenomenon in Sri Lanka. More specifically in relation to our sub-sector, around 154 thousands of workers are engaged in the accommodation and food services activities in the informal sector. In terms of value added, Economic Census 2013/14 estimated that 46 per cent of total value addition is generated within trade sector while non-agriculture services sector contributing to 28 per cent of the total informal sector value addition. Out of the 85 thousands informal businesses in the accommodation and food services, closer to 90 per cent of businesses engage in food & beverage services activities in the country.
Contribution of the Informal Sector to GDP
Recent estimates suggest that travel and tourism sector account for nearly 11.4 per cent of the
Sri Lanka’s annual Gross Domestic Products (GDP) in 2016 (World Travel and Tourism Council,
2017). In terms of employment, Tourism Industry provides 406 thousand direct employments. In
addition, the industry creates 291 thousand indirect and 198 thousand induced employment
opportunities. Altogether, the industry generates 894 thousand total employment opportunities
in the economy. In relative terms, the industry accounts for 10.7 per cent of the total
employment in 2016. In summary, 10.7 per cent of total employed people account for 11.4 per
cent of GDP. From productivity perspective, the industry does perform well.
Data on informal sector contribution to GDP is not available, however, the Department of Census
and Statistics of Sri Lanka recently published data for non-agriculture informal establishments.
Nevertheless, in official statistics on industry classification, Tourism Industry is not separately
identified as an economic activity. This study made an attempt to estimate the contribution of
informal businesses in the Tourism Industry. A detailed account on the methodology is presented
in annex 1.
8 The share declined from 63 per cent in 2006 to 60 per cent 2016. 9 In terms of absolute numbers, 4.8 million workers engage in informal employment in Sri Lanka, out of which 3.3
millions are male. 10 In the agriculture sector, 87 per cent of total employed workers are in informal sector. One of the main reasons for
this is that agricultural activities in Sri Lanka are mostly small-scale.
16
According to our estimates, the Tourism Industry accounts for 15 per cent of the Eastern
Province’s GDP (see Table 1). This implies that the Tourism Industry makes relatively higher
contribution to the economy of the Eastern Province than it does for the whole economy.
Interestingly, the informal sector activities around the Tourism Industry in the Eastern Province
account for 1.1 per cent of its total provincial GDP. That number is relatively higher than the
national average of 0.9 per cent. According to our estimates, informal sector activities around
the Tourism Industry accounts for 8 per cent of the total value addition, generated by the
industry. It is important to note that 95 per cent of the total persons employed in the Tourism
Industry in the Eastern Province are informal workers. It is irony that 95 per cent of total persons
engaged account for just 8 per cent to the total value addition of the industry. In other words,
labour productivity is significantly lower in the informal sector. Low productivity means low
earnings for the participants and low re-investment levels at businesses. It creates a vicious cycle
thereby trapping businesses and workers at low equilibrium trap. Hence, policy strategies need
to be identified to break this cycle. This may require a set of policy instrument addressing issues
in several areas such as physical, social, and human capital deficiencies, information
asymmetries, and financial literacy and marketing skills.
Table 1: Informal Tourism Sector Contribution to GDP in Sri Lanka and in Eastern Province
Item Sri Lanka Eastern Province
Total GDP in 2016 (RsBn ) 9592.00 684.00 Tourism sector value addition 2016 (Rs. Bn) 1405.40 104.00
Tourism sector value addition to GDP 12% 15% Informal non-agriculture activity value addition (Rs. Bn) 703.00 51.00 Informal non-agriculture activity value addition to GDP 7.4% 7.5% Informal activities around the tourism sector contribution to GDP 0.9% 1.1%
Source: Author’s estimation based on the data extracted from Central Bank of Sri Lanka - Annual Report 2017 Department of Census and Statistics of Sri Lanka - Non-Agriculture Economic Census 2013/14 Sri Lanka Tourism Development Authority - Annual Statistical Report – 2016 World Travel and Tourism Council - Travel & Tourism - Economic Impact 2017 - Sri Lanka
3.2 Government Policy Framework on Tourism Industry and Informal Sector
Since independence, Sri Lanka has adopted a number of policy frameworks in developing the
Tourism Industry (see Annex 2 – Table A2-1). In particular, Sri Lanka has given a greater priority
for tourism development during the post-war period. The government of Sri Lanka formulated a
medium-term policy framework for developing the Tourism Industry in 2017. It aims at
transforming the Tourism Industry to make Sri Lanka a competitive in the global travel market
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place. To that end, the Tourism strategic plan (TSP) recommends actions and implementation
mechanisms for 2017-2020, with a long-term view toward Tourism Vision 2025 and achieving the
United Nations (UN) sustainable development goals.
The TSP postulates that tourism in Sri Lanka has been a story of untapped potential and it aims
at achieving three high-level objectives; namely (a) higher-skill & more jobs, more female
employment, (b) more opportunities for investment (both foreign and local), and (c) greater
inclusivity and sustainability. At least two of these objectives are highly correlated with the
objectives of the Skills for Inclusive Growth (S4IG) Initiatives implemented by the Australian
government in the Eastern Province including in Polonnaruwa district. The current policy
framework is based on seven guiding principles; namely (a) capture the benefits of tourism for
Sri Lanka, (b) democratization of economic participation, (c) conservation and world-class
management of assets, (d) local community involvement, (e) memorable experiences rooted in
heritage, (f) responsible destination marketing, and (g) safety and security for all. From the
perspective of inclusivity, compared to previous policy frameworks, the current policy has
identified the importance of community involvement and democratization of economic
participation for two broad purposes; namely (a) improving their livelihood by connecting with
the tourism value chain, and (b) reducing the tension between the tourists and local people.
The framework states that Sri Lanka’s Tourism Industry, in particular the role that the public
sector plays, requires a systematic rethinking and reorganizing to address a number of failures,
namely (a) coordination failures, (b) institutional failures, (c) market failures, and (d) resource
failures. It recommends that a whole government and whole industry approach is needed for
addressing above failures. The current policy framework identify a number of
initiatives/interventions correct these failures under six broad themes. These include (a)
improving governance and regulation, (b) understanding visitors, (c) marketing and
communicating effectively, (d) developing sustainable destinations, (e) lifting industry standards,
and (f) engaging the workforce and communities.
East Coast Sunrise Corridors (4-Year Project)
Under the developing sustainable destinations theme, the TSP aims at developing a number of
tourist destinations around Sri Lanka. The TSP identifies a number of issues related to the Tourism
Industry in the Eastern Province. These include (a) poor access from Colombo, (b) lack of
destination planning and development, (c) lack of developed regulatory framework, (d) absence
of large anchor investors and investment, (b) absence of a consultative dialogue between private
and public sectors, (f) weak capacity in product offering and lack of innovation, (g) lack of service
standards. It is expected to promote Eastern Province as one of the leading tourist destination.
A number of private sector led (or public-private partnership) projects to develop some physical
spaces are proposed by the TSP. Among them following projects are to be launched during the
medium term.
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➢ Dutch Fort in Batticaloa – A concession for the buildings within the fort to the private
sector to develop as a small boutique hotel, restaurants, café, and other tourism services.
Family Entertainment, Passikudah – for soft adventure, small restaurants, events, music
etc.
➢ Waterside development in Trincomalee – The development of a ‘tourist street’ in
Trincomalee town. The street development would attract restaurants, shops, and possibly
small accommodation facilities.
➢ Nature Tourism, around Arugam Bay – develop nature tourism by connecting the national
parks around the Arugam Bay area.
Policy Framework towards the Informal Sector
According to the TSP, informal sector consists of businesses not registered with the Sri Lanka
Tourism Development Authority (SLTDA), nevertheless, it emphasizes the need for a broader
definition. Mainstreaming (formalization through registering with the Sri Lanka Tourism
Development Authority) is the main policy trust towards the informal sector in the TSP.
Accordingly, it is expected that mainstreaming the informal sector will facilitate financing,
promote innovation, product development and investment, and increase consumer confidence.
Under the mainstreaming informal sector, the TSP aims at exploring options of a moratorium on
back taxes for business registration. Moreover, it plans to ease restrictions on land ownership
requirement for businesses registration. In addition to the TSP, government policy on small and
medium enterprises could also influences businesses currently operating in the informal sector.
The government of Sri Lanka formulated the Small and Medium Enterprises Development Action
Plan (SME-DAP) in 2016 to uplift the small and medium enterprises regardless of the industry
they operate. However, this policy framework does not identify the informal sector as a separate
sector. Under this policy framework, businesses employing 10 or less employees in the service
sector are considered as micro enterprises. In that sense, all most all the informal sector
businesses, operating around the Tourism Industry, fall into the category of micro enterprises.
The SME-DAP of 2016 identified a number of areas for supporting small and medium enterprises.
Among them, (a) finance, (b) access to information and markets (c) linkage formation, and (d)
entrepreneurship skills are important policy supports for the business operating in the informal
economic activities around the Tourism Industry.
Limitation of the current policy framework (Tourism Industry and Informal Sector)
Both the TSP and the SME-DAP presume that informal sector may diminish over the time, hence,
need no policy interventions. There are a number of limitations/gaps in the existing policy
frameworks, First, the TSP is formulated with a bias towards formal sector businesses. This may
be either due to lack of understanding and/or limited representations made by the players in the
informal sector during the policy formulation. Second, the TSP’s intervention in the informal
sector confines to facilitate the process of business registration. Third, it is quite clear that a large
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number of informal businesses connect with the tourism value chain and any quality
improvement in final goods and services offered by the formal and informal business to tourists
could only be improved by enhancing the quality of inputs supplied mostly by informal
businesses. The policy pays scant attention on it. Fourth, the TSP identifies the need for
enhancing skills in the workforce, however, it does not pay attention on improving skills in
‘currently working population’ in the informal businesses. Fifth, it is not clear how the TSP
attempt to improve the inclusivity when it is largely biased towards the formal sector businesses.
In that sense, it is highly possible that ‘inclusivity’ largely confines to words rather than outcomes.
Sixth, the TSP expects to increase the female share in the total employment in the Tourism
Industry.
It is not clear as to what extent the policy makers are clear about the social and cultural
constraints faced by women in taking up employment opportunities in the Tourism Industry. This
is particularly valid in the context of the Eastern Province. Seventh, the TSP proposes some
projects in the Eastern Province for creating more opportunities in the Tourism Industry. It is not
clear to what extent small players in the industry may receive opportunities in those locations.
The past experience is that small players are mostly chased away from the highly attractive
tourist places. Eighth, the TSP identifies the coordination failures in the industry. However, it fails
to recognize the coordination failures exist with respect to supply chain in the Tourism Industry
and the need for a consensus building among formal and informal players in the industry. Ninth,
the successive governments have implemented a number of policy frameworks for uplifting the
economies of the small and medium size businesses. However, the results show limited success
due to factors associated with effective implementation, targeting, and addressing issues
relevant to different context. It is important that the policy identifies and address area specific
issues pertaining to the small businesses rather than adopting a ‘one fits all’ strategy. Finally, in
recent past, the lack of policy continuity and consistency has become one of the major issues in
many sectors. None of these policy frameworks contain components/mechanism to guarantee
the stakeholders that the policy environment remains stable at least in the foreseeable future.
Lack of such mechanism could limit the required support from the stakeholders to execute the
identified policy initiatives.
Informal sector development initiatives in Sri Lanka In Sri Lanka, public policy on Micro, Small, and Medium industry does not contain specific strategies for promoting informal sector activities around the Tourism Industry. For instance, Sri Lanka Tourism Strategic Plan 2017-2025 pays little attention to developing and/or integrating informal tourism sector to formal sector. Sri Lanka has implemented a number of initiative for improving informal sector. These included; (a) providing social security to people in the informal sector, (b) policy reforms for improving returns to livelihoods, (b) minimizing variability of incomes, and (c) health insurance schemes, micro finance schemes, and old age protection. During the post war period, a number of initiatives were launch by national and international
20
organizations in improving small and medium tourism businesses. Some of them are briefly discussed in below.
• GTZ assistance in building institutional capacities in the SME sector in Tourism (2005)
The Association of Small and Medium Enterprises in Tourism Sri Lanka, popularly known as ASMET, was founded in 2005 by the Core Group for Alternative Tourism, an initiative in co-operation with the “Value Chain Promotion Component (VCPC)" of the “Capacity Building for Competitiveness and Qualified Employment (CBCQE) Programme" of GTZ-Integration.
• International Financial Cooperation (IFC) assistance for Integrating SME sector with Larger
conglomerates (2008)
IFC launched the Hikkaduwa Tourism Service Providers’ Association in 2008 to help develop a model that integrated small businesses into the value chains of larger conglomerates. The association trained small industries to provide consistent quality of professional services and to reach out to a larger customer base through better marketing. As a result, micro and small entrepreneurs can now access new business opportunities in the tourism value chain and register and formalize their businesses.
• Solimar International assistance for Human Resource Development in the Northern and
Eastern Province (Under the IFC assistance) (2016-2017)
The project aimed at collaborating with local tourism providers to ensure the most up-to-date client services and implement skills development training to these tourism providers in geographical areas. In addition, the project intended to develop 15 tourism products and services to increase the availability of tourism attractions that offer cultural, historic or nature-based tourism products and services in the region.
• World Bank assistance for strengthening institutional framework (2010)
The objective of this project was to strengthen the institutional framework for the Tourism Sector to facilitate environmentally and socially sound investments, in particular in the Eastern regions of Sri Lanka. The project provided technical assistance and funding to all institutions including the Ministry of Tourism (MoT); Sri Lanka Tourism Development Authority (SLTDA), Sri Lanka Tourism Promotion Bureau (SLTPB), Sri Lanka Institute of Tourism and Hotel Management (SLITHM) and Sri Lanka Conventions Bureau (SLCB).
• World Vision assistance to Handicraft in Batticaloa district (2014)
The project was first launched in Koralaipattu, Batticaloa in 2014. Its main aims were to empower women and increase their chance for employment and entrepreneurship at grassroots levels. Identifying the greater need to geographically extend the project and to promote rural producer groups, Phase II will include areas such as Vaharai, Kiran, Eravurpattu and Vellavali in the Batticaloa District. The batch of trained entrepreneurs, numbering around 70, will be increased to nearly 200 in Phase II. While improving the livelihoods of these local communities in the relevant project areas, strengthening and diversifying income-generating activities through tourism is a key goal. Thus, the project focuses on strengthening women’s handicraft production groups in the Batticaloa District. It supports them through business training, finding market linkages, as well as facilitating access to finance.
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4. Methodology and Data
The purpose of this study is to investigate how informal sector activities are organized around the tourism sector with special reference to food & beverage sector in four selected districts, namely Ampara, Batticaloa, Trincomalee (Eastern Province), and Polonnaruwa. In addition, sub-sectors such as accommodation, craft, tour guides, and transportation will also be examined. Specifically following objectives are expected to achieve;
• Document the current policy environment for the informal sector and those engaged
in informal employment, drawing on existing research/studies.
• Map out the characteristics and numbers engaged in informal sector activities and
informal employment in the tourism and food-beverage sector in the four districts
• Conduct case studies to help explain reasons behind the decision of people to work in
the informal sector and to understand what influences a person decision to work in
the informal sector.
• Examine how do women and persons with disabilities in the informal sector connect
with the tourism value chain
• Make policy orientated recommendations for interventions. These should be targeted
at how to improve skills and productivity and support the transition to the formal
sector.
Following diagrammatic representation summarizes our overall approach in this study;
We adopt a General-to-Specific Approach, where analysis was further deepened and
strengthened at each level of investigation. We started by reviewing the existing literature, policy
environment, and previous interventions related to informal economic activities around the
A review on literature, policy environment, and previous interventions
Mapping out characteristics of the informal sector using
secondary data
In-depth analysis in to
informal sector operators based on case-studies
Policy recommendations
Estimate the value addition of the sector to provincial
GDP
22
Tourism Industry. On the basis of the review, secondary data were collected and analysed in
order to discover the key characteristics of the persons and businesses engaged in the informal
sector. In addition, secondary data were utilized in estimating the relative importance of the
informal economic activities around the Tourism Industry to provincial GDP. Literature survey
and the secondary data guided us to identify the cases to be investigated in detail. Accordingly,
case-studies were determined and conducted to look into specific areas such as supply chain,
workforce, finance, marketing, and opportunities for women and people with disabilities. A
variety of different approaches and methods were used to collect and analyses the data. At each
level of analysis, policy recommendations were identified.
The study focuses heavily on the food & beverage sector due to a number of reasons. First, food
and beverage sub-sector is highly connected with the Tourism Industry and wide-spread in any
given locality. Second, compared to other sub-sectors, food and beverage sub-sector offers
multiple opportunities/venues for value addition. Third, this sector clearly encompasses a
numbers of community members as farmers, collectors, traders, processors, whole sellers,
distributors, and home-based food producers. Hence, the sector offers vast opportunities for
employment creation for marginalized groups such as women and people with disabilities.
Fourth, local contents in food and beverage sub-sector are generally higher than any other sub-
sectors, thereby creating demand for locally produced goods and connecting the Tourism
Industry with the local community. Finally, this is one of the few sectors in which there exist value
chain linkages running from formal to informal businesses. Due to above reasons, it is logical and
reasonable to focus more on this sector since the Skills for Inclusive Growth (S4IG) initiatives
attempts to promote inclusive growth around the Tourism Industry.
A literature review was conducted to understand the characteristics of the informal sector. The
review focused upon published research studies conducted in the context of developing
countries. One of the limitations was the limited number of studies that investigated
strengthening informal sector linkages with the Tourism Industry. This study also reviews the
existing policy framework governing the Tourism Industry and the informal sector. In addition,
the review covered programmes implemented to enhance the livelihood of marginalized groups
who cater to the Tourism Industry in developing countries, including those in Sri-Lanka.
A detailed descriptive analysis was conducted to map the characteristics of informal workforce
engaged in economic activities around the Tourism Industry. The main data source for this
analysis is the Labour Force Survey (LFS), conducted by the Department of Census and Statistics
(DCS) of Sri Lanka11. In doing so our study captured a number of labour market activities, at 5-
digit ISIC, associate directly or indirectly with the Tourism Industry (the list of 5-digit industries is
given in the appendix). According to official definition, employees in businesses that employ less
than 5 regular workers or unregistered businesses with Inland Revenue Department and
11 The analysis extracted data from three labour force surveys, namely 2013, 2014, and 2015. It was observed that
number of data points remained very limited when the sample is restricted to Tourism Industry in the study area.
23
businesses that do not contribute to social securities for employees are considered to be
operated in the informal sector12. In addition, the study utilized data from the non-agriculture
economic survey of 2012/13, conducted by the Department of Census and Statistics of Sri Lanka.
This census contains data on no of establishments, people engage by gender, and value addition
in businesses operating in the non-agriculture informal sector. Data related to secondary data
analysis is presented in Annex 2.
In order to collect details on the characteristics of those working in the informal sector a primary
survey was implemented. A structured questionnaire was administered in collecting information
related to selected areas of business operations. Some of the information areas included;
business ownership, sources of inputs and destinations of output, workforce by different skill
categories, constraints related to input and labour sourcing, and nature and magnitude of local
linkages13. A detailed descriptive analysis was conducted to identify the level of local linkages,
constraints faced by businesses in the areas the workforce, finance, and local sourcing. The
analysis specifically examined the constraints. The survey was designed to cover informal
businesses run by men, women as well as by people with disabilities. The expected number of
women headed businesses were surveyed, though, the survey failed to cover the number of
businesses run by people with disabilities as initially expected. Moreover, the case study covered
businesses of different sizes that cater directly to Tourism Industry. Moreover, a number of
businesses that supply inputs - such as fish, meat, vegetables, crafts, and various services were
also investigated. A total of 80 case studies were conducted in four districts faced by women run
businesses as well as difficulties faced by people with disabilities. Table 2 provides details about
the type of businesses covered in the case study exercise for a given district. Data related to case
studies are presented in Annex 3, 4, and 5.
The case study exercise attempts to look deeper into informal economic activities in identifying
value chain linkages, factors influencing businesses to operate informally, and constraints limiting
their economic performance. The cases for the investigation were selected based on both the
literature survey and the secondary data analysis. Moreover, selected cases were refined based
on the pilot survey carried out in two districts.
12The list of economic activities, at 5-digit level,is given in the appendix. 13 See the appendix for the questionnaire.
24
Table 2: Case-Study: District-Wise Section of Cases for the Study – For a Given District
Type of business/activity Male Women
Persons with disabilities
Small size hotels/guest and rest houses 1
4 4
Home-stay/cottage/cabana 1
Small size restaurants/bar/pub/karaoke 1
Road-side food stalls/take-out/eating houses Tourist site-based eating/fruit juice/general stores/handicraft
2
Mobile food vehicles/temporary food & beverage stores 1
Renting vehicles/boats/sport items
3
2
1
Transport services/safari/three-wheel/car/others
Spa/Personal services/Tour guides
Source: Author’s compilation
5. Characteristics and the Nature of the Informal Sector
This section examines the nature and magnitude of informal employment in the Tourism Industry with special reference to Food and Beverage sub-sector14. The first part of the section provides an overview of informal employment in the economy and a discussion on informal employment in the Tourism Industry as well as its Food & Beverage sub-sector. The second part of the section maps out the key characteristics of informal workers engaged in economic activities around the Tourism Industry and its Food & Beverage sub-sector. Before starting this review, it is necessary to define the term informal employment. According to the official definition, informal sector consists of workers employed in small and/or unregistered businesses15. Informal employment is quite broader; it captures both informal sector workers as well as workers in the formal sector, who are not entitled to social security benefits. Since 2006, the Department of Census and Statistics (DCS) of Sri Lanka collects data on informal employment, however, the DCS introduced some changes into the survey schedule in 2013 resulting limited comparability16.
14 The methodology section discusses the reasons for focusing on the food & beverage sub-sector. 15The Economic Census (2013/14) defined informal sector as business entities that do not maintain a complete
set of accounts or unincorporated entities having ten or lesser number of employees were defined as informal in
the economic census 2013/14 (Department of Census and Statistics of Sri Lanka). 16Main among them is the adoption of the Sri Lanka Industry Classification (SLIC) revision 4. During the pre-
2013, the DCS adopted SLIC revision 3.1. There remains a significant difference between the two Industry
classification systems.
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5.1 Key Findings Informal employment in the Eastern province Around 76 thousand informal businesses are located in the Eastern Province and the province accounts for 8 per cent of total value addition in the non-agriculture informal sector. Informal accommodation and food services sub-sector accounted for nearly 10 per cent of informal business entities and employ around 6 per cent of the total non-agriculture informal workforce in the province. Around half of the total workforce in the informal accommodation and food services is female, reflecting higher female participation in the sector compared to other sectors. In Ampara district, there are around 3,750 informal businesses providing accommodation, food, and beverage services and those businesses employ around 6 thousand workers. Interestingly, informal accommodation, Food & Beverage sector is dominated by female workers; i.e. over 54 per cent of total workers are female. In Batticaloa district, a total of 3,500 informal businesses engaged in accommodation, Food & Beverage services sector while this number is around 2,000 in Trincomalee district. In both districts, the share of the female workforce in the sector remains relatively lower than that of the other two districts (see A3-1 in Annex 3). One of the factors influencing the low female participation in the accommodation and food beverage sub-sector may be cultural concerns. In Polonnaruwa district, there are around 2thousands informal businesses in accommodation, Food & Beverage services sector. A number of observations need to be made. First, the size of the informal businesses remains relatively smaller. It could be argued that most of such businesses are for ‘just survival’ purposes and are operated with family labour. Moreover, it is possible that level of productivity to be relatively lower resulting very limited transition from informal to formal sector. Second, female engagement is relative higher in Ampara and Polonnaruwa compared to other two districts. Finally, possibilities are high that the share of female businesses to remain high in this sector. Informal Sector in the Tourism Industry: Size, Composition, and Sectoral Distribution The main objective of this section is to provide a brief overview on the informal sector in the food and beverage sub-sector in the Eastern Province. This section begins with an overview on the overall situation with respect to informal sector in the Tourism Industry in Sri Lanka. The analysis makes use of both Census data and Labour Force data17. Tourism Industry provides 426,000full-time employment opportunities (both formal and informal) in Sri Lanka18. In relative terms, the industry accounts for around 5 per cent of the total employment in the country. Out of the total people engaged in the Industry, around 399,000 (87%) are engaged in informal employments and the remainder 27,000 persons (13%) engaged the formal sector. According to LFS (2015) data,
17The Labour Force Survey data are not sufficient to conduct a detailed discussion on employment situation in the
food and beverage sub-sector. In particular, no of observations related to formal employment are limited at district
level. Hence, this section only provides data for the informal employment. The Non-Agriculture Census data are only
available at disaggregated level. 18World Travel and Tourism Council (2017) estimated that the TourismIndustry directly provides 406,000 jobs in
2016 in Sri Lanka.
26
Tourism Industry accounts for 22,500 employments in the Eastern Province and, which is 7 per cent of the total employed people in the province. Accordingly, Tourism Industry makes relatively higher contribution to employment generation in the province compared to that in the national economy. This fact is further confirmed by our estimation related to Tourism Industry contribution to provincial GDP. The Tourism Industry accounts for 12 per cent of the GDP in the economy while the industry’s contribution to Eastern Province GDP remains at 15 per cent. The Tourism Industry in the Eastern Province, as argued by the Tourism Strategic Plan 2017, is mostly untapped. Hence, the industry has vast potentials to contribute to both provincial output and employment generation. Interestingly, informal economic activities around the Tourism Industry in the Eastern Province account for 97 per cent of total employments. This implies that, compared to national average, a larger share of total employments in the Tourism Industry in the Eastern Province is informal. From the above analysis, two important facts emerged, namely (a) Tourism Industry makes relatively higher contribution to the economy of the Eastern Province and (b) a significantly higher share of total employment in the industry engage in informal economic activities. Hence, it is imperative that policy makers pay greater attention on transforming the informal sector and prioritizing this agenda within the overall policy framework for developing the Tourism Industry in the province. Non-Agriculture Informal Sector Census of 2012/13 provides some useful data on the informal accommodation, food and beverage sub-sectors in the four districts of our interest. It is required to interpret the data since the reported data do not necessarily relate to the Tourism Industry. However, some interesting observations could be made from the data (see Table A3-2 in Annex 3). First, the size of the informal businesses remain very small, the average number of employed persons remains around two persons. This indicates that most of such businesses are run with use of unpaid family labour. Second, the share of the female workforce remains relatively higher in some districts. This may largely be due to social and cultural concerns. Finally, informal economic activities seem to be female bias. In other words, there is a higher probability that females tend to join the sector, partly due to the greater flexibility of such employments. With respect to S4IG project, however, it is important to examine the above in the context of businesses which cater to the Tourism Industry. We make use of LFS (2015) data to examine the characteristics of people engaged in the food & beverage sub-sector in the Tourism Industry. However, the LFS (2015) does not warrant us to examine employment in the formal sector of the Tourism Industry in the Eastern Province since the number of observations remains very limited. Hence, subsequent discussion confines only to the informal employments in the industry. In Batticaloa district, a total of 9 thousand people are engaged in informal employments in the Tourism Industry (see A3-3 in Annex 3). In relative terms, it is 8 per cent of the total employed people in the district. Thus, from the perspective of employment generation, Tourism Industry makes relatively higher contribution than that in the province and the economy as a whole. Both in Ampara and Trincomalee districts, the total number engaged in informal employment remain around 7 thousand persons19. In Batticaloa district, a total of 4.7 thousands informal workers engaged in Food & Beverage sector in the
19 In relative terms, informal economic activities around the Tourism Industry accounts for 4 per cent of the total
employed people in Ampara district whereas this number for Trincomalee district is 6 per cent.
27
Tourism Industry, out of which, one-fourth (887) is female. In contrast, female workers account 63 per cent (1425) of the total informal workers in the Food & Beverage sector in Polonnaruwa district. Food & Beverage sub-sector has become one of the leading employment providers, among the other economic activities around the Tourism Industry, in the study area. Table A3-4 in Annex 3 reports data on the relative importance of employment in Food & Beverage sector in the Tourism Industry. Around 29 per cent of the total informal employment in the Tourism Industry engages in Food & Beverage sub-sector in Sri Lanka. Interestingly, this share is much higher in all the districts, except Ampara, than the national average. In Batticaloa district, over 50 per cent of the total informal workers in the Tourism Industry engage in the Food & Beverage sub-sector. In contrast to the other three districts, the share of informal employment in the Food & Beverage sector in Ampara district remains relatively lower. This may be due to the fact that most of the informal workers in Ampara engage in wide range of activities, as found in the primary survey, such as surf lessons, boat races, nature tracking, safari, and renting out sport items. This implies that interventions in Ampara district need to be worked out within a broader context by focusing on some additional sub-sectors. Age profile of the workforce is one of the key determinants of productivity, innovation, and learning. A break-down of the data by age can be found in the table A3-4 in Annex 3, but one of the key findings is that over 70 per cent of male informal formals workers are in the age category of 20-50 while over 60 per cent of female informal workers are in the age group of 40-70. It implies that female enter into informal Food & Beverage business activities as their last survival livelihood activities. This age profile may be very useful in designing policy interventions.
It is also important to examine whether there is gender segregation along the informal activities in the Tourism Industry. The distribution of workers by sub-sector industries providing various Tourism goods and services are reported in table A3-5 in Annex 3. It could be noted that a majority of informal male workers engage transport activities and the majority of informal female workers engaged in food and beverage sub-sector. For instance, nearly 64 per cent of total informal male workforce engaged in the transport sub-sector while 79 per cent of total informal female workforce engaged in food and beverage sub-sector. In contrary, it could be noted that majority of male and female formal workers engaged in accommodation sub-sector. Firm size is one of the key determinants of adoptability, productivity growth, quality maintenance and the data in A3-6 in Annex 3 shows that over 75 per cent of informal workers are employed in businesses that have no paid employees or regular employees. It means that most of the informal activities in the Tourism Industry organized with the family labour and possibly don’t pay employees on regular basis. Key insight of these patterns is that informal workers operate at mico-scale where amount of labour and capital input remain relatively low. Mico-scale businesses are at disadvantage on several grounds such as lack of financial capital, skills, technology and marketing information. Moreover, most informal workers engaged in informal activities on ‘survival-basis’ rather than as commercial businesses. Policy makers find it difficult
28
to enhance productivity and product/service quality since owners/managers of such businesses have limited motivation/interest in business expansion (growth). Education and Training among Informal Workers Data on education level indicates that a greater share of less educated persons enter the informal sector and suggests that poor educational background is one of the main reasons for workers to engage in the informal sector or informal employment. In other words, the majority of people tend to join the informal sector due to lack of formal sector opportunities that suit with their educational qualification, i.e. involuntary informalisation. In Sri Lanka, around 36 per cent of total workers in the informal sector are employees and 46 per cent of total workers in the informal sector are own account workers (see Table A3-7 and A3-8 in Annex 3). This aspect has to be taken into account when designing strategies for enhancing capacities of persons engaged in the informal sector. One of the key characteristics of persons engaged in the informal sector is the lower level of educational performance when comparing to their counterparts in the formal sector. Around 93 per cent of total persons engaged in the informal sector have GCE O/L or less. There is also a gender dimension for the East, with 50 per cent of female informal workers completing less than General Certificate of Education Ordinary Level (GCE/OL) (see Table A3-9 in Annex 3) words, those informal female workers have completed less than 10 years of schooling. When compared with the national averages, informal female workers record poor educational achievements. This aspect needs to be taken into account when programmes are designed in developing informal sector businesses in the region. Hence, developing human resources must be an integral component of any programmes promoting informal businesses in Sri Lanka, in particular, in disadvantaged districts and provinces. One of the ways to upskill those working in the sector are through vocational training institutes. Unfortunately, in the Eastern province there are a small number of public funded vocational schools. Data on participation rates for vocational training shows that only 22.6 of total trained persons have received some form of training in the field of Tourism Industry (see Tables A3-10 and A3-11 in Annex 3). It is interesting to note that majority of informal workers have received relatively little training compared to trained workers engage in the formal sector20. In most cases, such training courses last around 6 months. This implies that level of human capital in the informal sector remain very low. Finally, ability to work in a foreign language, in particular in English, is a crucial factor for selling goods and services to foreigners. Out of the total workforce in the Tourism Industry, only 22 of per cent could read & write in English (see Table A3-12 in Annex 3).
20 This refers to all the industries in the economy. We do not have sufficient cases to look into the training status in
the Tourism Industry.
29
6. Tourism Value Chain Analysis
Introduction
This section presents case studies conducted in each of the four districts and provides a broad
picture of emerging themes, particularly around the degree of linkages between operators in the
informal sector and those in the formal sector (or not as the case may be). Before presenting the
case studies it is important to understand how the characteristics of tourism vary across the four
districts since this will influence how the value chain operates. These characteristics of the
tourism product and the type of visitors also determine what type of intervention required to
strengthen or to facilitate such linkages when they do not exist. Table 3 summarises some
important characteristics of the Tourism Industry in each district.
Table 3: Nature and Magnitude of Local Linkages
District Type of tourists visiting mostly
Main purpose of visit
Average Time-spent
Existing Nature of the local linkage
Existing Magnitude of the local linkage
Ampara
Medium-spending young backpackers
Adventure, beach, nature
1 week
Small & medium hotels/restaurants – demand for low cost wide variety of local products/services
Relatively strong
Batticaloa
High-spending middle-aged
Calm relaxation, beach
1 week
Large hotels/restaurants –demand high quality limited local products/services
Very weak
Polonnaruwa
Old-aged Fleeting encounter (drop in on)
Visiting historical places/nature
1-2 days
Large& medium size hotels/restaurants/craft sellers – demand for high quality limited local products/services
Weak
Trincomale
Medium-spending middle aged
Relaxation and experiencing, beach
1 week
Medium &large hotels/restaurants/cabanas as well as small restaurants -demand for quality and wide variety of local product/services
Medium
30
Source: Based on views expressed by owners/managers of businesses catering to the
Tourism Industry. The information in the table needs to be treated cautiously since this
compilation is based on a smaller segment of the industry.
.
6.1 Ampara District
In Ampara district, a case-study exercise was conducted in Arugam Bay area, covering both
formal and informal businesses catering to the industry directly or indirectly. It was observed
that, compared to three other districts where the same case-study exercise was conducted,
mostly small and medium size hotels, restaurants, guest houses, cabanas, and cottages are visible
in the area. This is partly due to the type of tourism products available and type of tourists visiting
in the area. Moreover, the Tourism Industry in the area has a long history, thereby having several
positive aspects which could be harnessed for further development. Partly as a result of above
characteristics, the Tourism Industry in Ampara district maintains productive and good-sized
linkages with the local community as against the situation in the other districts, In recent years,
some of large businesses in the industry started opening up their branches in the area. Such
arrivals may affect the existing situation in coming years. Following sections discusses some
important characteristics of the industry with special reference to informal businesses around
the industry.
Relatively strong backward linkages
Compared to the other three districts, Tourism Industry in Ampara is largely dominated by
medium size hotels, restaurants, accommodation suppliers. Small businesses also account for a
fair share of the market. At present, the number of large hotels/restaurants is few in the region.
Party as a result of this industry structure, the Tourism Industry in Ampara district (in particular,
Arugam Bay area) is fairly developed and connected firmly with the local economy/community.
Moreover, it is observed that there are a number of tourism products and services available in
the region. For instance, around 65 per cent of medium size businesses source more than 80 per
cent of all inputs from the region (see Table A4-1 in Annex 4). More importantly, over half of the
large businesses source more than 80 per cent of the total inputs from the locality. As revealed
by the stakeholders, a number of factors have contributed to these strong linkages, including the
following:
• The charcteristics of the industry, including the size of the
hotels/restaurants/accommodation businesses made it possible for local suppliers to
develop business linkages in a sustainable manner.
• Compared to other districts Arugam Bay has a long history in the Tourism Industry and
locals have identified and developed businesses to cater the Tourism Industry. For
instance, not only the locally available inputs but also the inputs produced in other parts
of the country are supplied to hotels/restaurants by local agents (and not those in
Colombo).
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• Farmers in Amapra district produce a number essential inputs, such as rice, vegetables,
fruits and spices. Poultry, dairy, meat, and fish industries in the region are relatively
equipped in catering to the needs of the Tourism Industry, often brining products to door-
step during the peak-season.
• Previous interventions supported bv donors and government have helped in improving
capacities to cater to the Tourism Industry and strengthen existing linkages or facilitated
the development of new ones.
• Local businesses and producers demonstrate a fair level of understanding of the industry
and invest in essential areas in enhancing human capital stocks. This helps to ensure that
an increased commitment obtained amongst employees.
• Finally, a number of industry associations in the district have developed informal codes
of conducts thereby providing acceptable level of quality services. For instance, ‘tuk-tuk’
drivers’ association in the region has determined travelling chargers for different
destinations and the safety of travelers.
With respect to labour inputs, businesses of all sizes depend, to a greater extent, on local
workforce. For instance, all sizes of businesses source at least 50 per cent of the total low skill
workforce from the region and local sourcing is much prominent with respect to middle skill
workers (see Tables A4-2 & A4-3). Relatively higher level of local sourcing is due to number of
factors such as the availability of sufficiently qualified workers in the region and positive attitude
towards the Tourism Industry. Nevertheless, evidence emerged during the case-study survey,
that the demand for and supply of female workers remain relatively low due to cultural concerns.
Females belong to Sinhala ethnicity tend to take up training and jobs related Tourism Industry
though employers are relatively reluctant to employ them on the ground of general concerns on
family responsibilities and security issues. Unmarried females in other communities, namely
Muslim and Tamil, are yet to show any interest in acquiring skills and taking up jobs in the Tourism
Industry.
Backward linkages with informal suppliers
In Ampara district, operators of the Tourism Industry, both formal and informal, establish
linkages mainly with informal suppliers. These informal suppliers are collectors of vegetables,
fruits, and fish products. In addition, some of them are suppliers of products produced by formal
business entities mostly located outside the region. Most businesses have around 8-10 smaller
informal input supplier. Apparently, there is a severe completion among suppliers and, in most
instances payments are done upon the delivery. In other words, there no permanent contracts
between the business and input suppliers. Lack of contract agreements has both positive and
negative effects. On the positive side businesses engage in food & beverage sector need not
worry about the input supplies since many suppliers take their products to the region during the
peak season. On the negative side there are concerns about the quality of supplies, but hoteliers
said this could be overcome such situation through proper inspections. The available evidence
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showed that even small restaurants pay greater attention on maintaining the quality of their
products and services; i.e. quality consciousness remains very high. Hence, it is required to get
small input suppliers organized and improve the quality of their products so that final users could
easily maintain the quality.
Human Capital Stock
Compared to Trincomalee and Batticaloa districts, there appears to be less of a skill shortage.
Most managers of medium size hotels/restaurants are quite happy with the set of skills in
potential employees, but managers work at the larger hotels raise concerns about the level of
skills, attitudes towards work, and work commitment. It must remembered, that skill levels relate
to the tourism product on offer. As discussed earlier, type of tourists who visit (Ampara) Arugam
Bay are different from those who visit other three districts. Most visitors are young and their
main purpose is adventure, and they expect average quality at affordable price. Moreover, the
Tourism Industry in this area has a long history of work with this sector and knowledge
accumulation. Yet, there is a clear need for a comprehensive human resource development
programme to enhance the level of skills in the eve of new large players coming into the area and
vast untapped potential of the industry. Most females work in the industry are low skill workers
and have limited chances for career progress. Cultural concerns play a larger role in determining
females’ education, training, and length of work. A clear majority of businesses prefer to hire
male workers due a number of concerns over female recruitments.
Higher level of labour turnover
Although labor availability and workers’ skills are not a current constraint for businesses, labour
turnover is a formidable challenge to most businesses, especially for medium size businesses.
The higher level of labour turnover is partly due to the seasonal nature of activities as well as due
to relatively low salaries. Most workers in medium size businesses move to large
hotels/restaurants once they accumulate 1 to 2 years of experiences. One managed opined;
“Every season, we have to recruit new set of workers with limited
or no previous experience. We have to teach them and tolerate their
mistakes. However, they leave us within 1 to 2 years. Our hard work
make no sense at the end of the day”
Some managers think that labour turnover is one of the serious issues that constrains business
growth. It seems that there is a vicious cycle between low salaries and labour turnover thereby
making hard to accumulate skills at medium-size businesses. Breaking this is hard given the
seasonal nature of economic activities.
33
Property ownership and working capital deficiencies
Most small businesses operate from rented premises and the agreements cover a period of 1 to
2 years. There are some restrictions over the use of such properties. In particular, managers face
restrictions over any space expansion and in some instances, the agreements do not get
extended. As a result of this situation, small businesses do not plan to grow their businesses and
tend to think short-term. Similarly, most small businesses face issues with respect to working
capital deficiencies. This issue is prominent during the off-season. Some alleged;
“land and building owned by the one community. They do not want
to operate businesses related to Tourism Industry. So, they rent out
to us. However, they make complaints to police whenever there is
a party. Police visits the premises and stop such event. We have to
pay the rent, but they do not allow us to conduct event which make
some earnings”
These situations also reflect certain level of hostility prevail in the region between different
ethnic groups. Small business managers argue prevailing rent charges are really high and as a
result, they cannot build up capital for business expansion.
A wide range of tourism products/services
Compared to the other districts, a number of tourism products/services are available in Ampara
district (in particular Arugam Bay area). Those products include; night parties, surfing, fishing,
boating, nature tracking, Safari, Ayuredic Spa, and cooking festivals. As a result, a significant
segment of the society directly or indirectly is involved in Tourism Industry related activities, in
particular, in Arugam Bay region in Ampara district. There are still opportunities for expansion in
economic activities such as dressing, beauty parlors, cultural shows, traditional dancing, and
photograph could be promoted after giving proper training. More opportunities could be created
for women entrepreneurs in the former areas.
Low product and service quality.
Managers/owners of most small and medium hotels/restaurants maintained that they are
concerned about the quality of the products and serviced offered to tourists. In some cases,
managers prepared foods/drinks to ensure quality. One manager of a small restaurants stated;
“I alone engage in preparing food in order to make sure prepared
food meet the required quality. My family members engage only in
cleaning and other activities. Public health officials visit the place
and fine if we do not maintain standard level of cleanness”
However, the discussions and observations revealed that quality of products and services offered
by small restaurants do not meet international standards. This is partly due to lack of training on
quality maintenances and due to the limited number of employees at the business. Hence, it is
34
important that managers/owners are given a proper training on health standards that they have
to meet during food preparation. Moreover, it is imperative that they are educated on waste
disposal.
Homogeneous set of products and services
A number of small and medium-size businesses serve food and beverage related products, and
very little differentiations exist. In other words, they mostly offer similar products and services.
As a result, competition among businesses is severe and they mostly engage in a price war. This
price competition leads to lower profit margin and tourists largely benefit. Competition is a
healthy sign, but severe price competition most often leads to lower profit and capital
accumulation. This situation could be address by encouraging businesses to offer greater variety
and innovative products and services. Homogenous nature of products/services leads to lower
tourist expenditure. A proper training should be given to small and medium-size businesses to
innovate products/services.
An overview of Findings and Key Issues – Ampara District
The linkages between the Tourism Industry and the local community/economy currently remain
relatively strong in Ampara district. A number of factors have contributed to these strong
linkages, namely the industry’s long history, type of tourists visiting the area, past interventions,
and the size of businesses. More importantly, businesses and workers in the informal sector
largely benefits from the industry. There exist a number of tourist products and local people
engage in a wide range of activities related to the industry. With the entry of new large scale
businesses in to the area, it is possible that this area get attracted by high-spending tourists.
The existing supply chains are briefly summarized in diagrams for small, medium, and large
businesses in Annex 5 – Figure 1a, 1b, and 1c respectively. Many irregular small (individual)
suppliers and mobile traders connect with the supply chain of the small hotels, restaurants, and
accommodation providers (homestays). All of them operate in the informal sector. In addition,
businesses in food & beverage sub-sector purchase some goods from the general stores.
Medium-size hotels, restaurants, and accommodation providers connect largely with informal
businesses to receive their supplies. Some have established permanent linkages with few
suppliers while the others depend on irregular supplies. Large-size hotels and restaurants have
developed very strong connections with both formal and informal sector suppliers. Moreover,
they have developed connection with few suppliers in and outside the region to buy perishable
items such as fish, meat, fruits, and vegetables.
A number of issues/challenges could be identified in the context of the district. These include; (a)
poor female participation, (b) low product and services quality, (c) working capital deficiencies,
(d) lack of product and service variety, (e) higher labour turnover, and (f) tension between
35
communities. Addressing these issues is vital for improving the livelihood of people engage in the
Tourism Industry.
6.2 Batticaloa District
A series of case studies were conducted in Passikudah, Kalkudah, and areas surroundings
Batticaloa. According to respondents, before the civil war, Tourism Industry was well established
in Batticaloa district and the industry was dominated by small and medium businesses. The
Tourism Industry totally collapsed during the civil war and the industry’s workforce switched to
other industries. The government took several initiatives to revive the industry during the post-
war period. The Board of Investment (BOI) offered various concessions, including leasing out
government owned lands along the coastal areas, to large hoteliers to start businesses in the
Pasikudah and Kalkudah areas. In addition, medium-sizes hoteliers and restaurants were offered
various other concessions. The industry emerged out of the ashes within a short period and
attracted high-end tourists to the region. Nevertheless, the industry continues to remain
underdeveloped and it connects marginally with the local community and the economy. Some of
the key findings are discussed below.
A Sharpe ‘dualism’ in the Tourism Industry
Evidence shows there is a sharp ‘dualism’ in the Tourism Industry in Batticaloa district. On one
side, large hoteliers and restaurants, locating on the costal belt cater to the high spending tourists
and on the other side, small & medium hoteliers and restaurants, located mostly away from the
costal belt, cater to the local and relatively low spending tourists (or back-packers). It is not likely
that tourists who stay in large hotels visit small and medium restaurants operating in the informal
sector. Complementarity between the two sectors remains very weak and formal large
businesses offer all most all the required products and services by themselves. Even for ‘tuk-tuk’
drivers, there are limited opportunities for providing transportation services to tourists staying
at the large hotels21. Some informal operator even mentioned that large hoteliers and
restaurants prevent tourists visiting informal places22. To some extent, some of the state policies
have created this division. For instance, the BOI focuses upon leasing out costal belt to large
hoteliers, and small & medium hotels and restaurants are only permitted to operate away from
the coastal belt in Pasikudha and Kalkudha area. This policy as well as the large players’ attitude
towards small and medium businesses has created a sharp division within the industry. This
division has negatively affected small informal sector businesses in joining the tourism value
21 According to ‘tuk-tuk’ drivers, large hoteliers prevent them entering to hotel premises and/or parking nearby. 22Large hoteliers maintains that there hardly available restaurants and other businesses in the area, not just for tourists,
but even for local people. One manager of a large hotel maintained that “lack of business enthusiasm among the
community is one of the major reasons for not opening up business even if there are plenty of opportunities for the
local community”.
36
chain. Hence, it is essentials to form linkages between formal large businesses and small informal
operators in making sure benefits of the Tourism Industry to reach local communities.
Limited local sourcing in large hoteliers and restaurants
The study found that local sourcing by large players in the industry remains very low compared
to the other three districts under the study (see Table A4-4 in Annex 4). Vegetables, fruits, flour
and other ingredients are (over 90 per cent) sourced from outside the areas such as Dambulla,
Nuwaraeliya, and Colombo. Managers of the large hotels maintained that limited vegetable
production in the area is one of the reasons for this situation. Meat, such as beef, is sourced
locally while large hotels/restaurants depend on outside suppliers for chicken and other meat
varieties. Fish is mostly sourced locally (in Batticaloa district), however, large hotels and
restaurants depend on one supplier who has cooling facility. Mangers of the large hotels said
they are unable to get supplies from small & medium scale fishermen since such fishermen
cannot supply the required quantities and varieties on timely basis. Main fish supplier is based in
Colombo and he runs a facility in Valachcheni, Batticaloa. The main supplier buys fish varieties
from different parts of the district such as Vakarei23.
It was also found that large hotels and restaurants do not have interest in purchasing organic
vegetables and fruits even though products are available in the region due to lack of consistent
demand from the customers. They think that organic vegetables and fruits are expensive and the
customers base (those who wish to consume organic products) is not large enough to warrant
them purchasing such products on continuous basis.
According to an agreement reached between the BOI and large hoteliers, at least 40 per cent of
those employed have to be sourced from the region. However, our research found that the
majority of employees, in particular, high skills and middle skill levels, are recruited from outside
the region (see Table A4-5 & A4-6 in Annex 4). One of the main reasons, according to the
managers of the large hotels and restaurants, is the lack of qualified/trained labour force in the
area. In contrast to high and middle skill workers, a sizable portion of low skill workers are from
the local area. In particular, middle and large hotels, restaurants, and accommodation providers
employ fair share of women, in addition to young and middle aged males, from the local
community.
Local suppliers are small and expensive
A significant number of owners/managers of medium & large hotels, restaurants, and
accommodation providers said that one of the major issues facing local suppliers is that they have
capacity and a variety of other constraints. Moreover, local suppliers are relatively expensive.
23 Managers of medium and large hotels and restaurants observed that purchasing fish products from small fish traders
and fishermen is difficult since such small fish traders and fishermen do not have the capacity to supply the required
quantities and varieties due to lack of cooling facilities. On the other hands, hotel & restaurants do not show any
interest in purchasing and storing due to demand uncertainty.
37
One large hotel has done a market survey and has found out that directly purchasing from
Dambulla and Nuwaraeliya (two major vegetable markets) is cheaper than buying from
Batticaloa24. These concerns could further erode the existing weak linkages in the industry.
According to whole sellers, the losses incurred during the transportation and storage are some
of the for the higher prices.
A number of issues with local workforce
A number of large and middle scale hotels, restaurants, and accommodation providers
observed that potential employees in the region lack strong work commitment. One manager in
a leading hotel observed
“We interviewed and offered positions asking the persons to
report to work from the next day. They promised, but rarely
turned up for the work. We have experienced several of such
situations”
Similarly, managers in middle and large hoteliers and restaurants expressed concerns with the
ethics and attitudes of local people towards work. One of the manager opined
“locally recruited employees tend to forget things very easily.
Management staff needs to remind them every time to complete
the task properly. For instance, when guests are severed drinks,
management needs to remind the worker to collect the glass, if not,
it does not happen. We have come across several of such incidents
with employees recruited from the region.”
Most managers maintained that protracted war may have had a negative impact of their general
attitudes towards work and life. They presumed local people are sincere and honest, but less
serious on work. Similarly, poor foreign language ability severely hinders the prospect of local
recruitments. Training schools tend to use local languages as medium of instruction since ability
to work with English remain very poor among who attend the training school. Hoteliers
maintained that they faced difficulties even to offer internships for locally trained students.
Limited Motivation and Finance
Discussion held with owners of informal businesses revealed that most of them have little
interest in expanding their business activities. One of the reasons for this situation is the
fluctuation of business sales due to seasonality and other reasons. Owners fear investing in
physical assets since demand for their products/services are determined by a number of factors,
including seasonality. As a result, small & medium size businesses tend to relay on their own
24 This calculation includes all types of costs relating to a team of workers visiting Dambulla and Nuwaraeliya and
making purchase. The manager observed that such purchasing may not be viable during the season since sending some
kitchen staff is not viable during the season.
38
funds for investment. A comprehensive marketing strategy and a wide range of tourism product
developments could easily smooth out the existing higher level of seasonal fluctuations in tourist
arrivals. Lack of working capital is viewed as a major problem faced by small and medium size
businesses in the industry in all districts. This situation not only forces small businesses to borrow
from the informal money market at a higher interest rates but also prevent them from offering
products and services to clients on credit facility basis. It was also observed that some informal
hotels/restaurants/ accommodation providers have developed some relationships with local taxi
drivers to attract businesses. This practice not only denies opportunities for some informal
businesses, but also eats out a sizable share of sales revenue as commission fees to taxi drivers.
An effective information and communication technology (ICT) based solution could easily rectify
these types of situation.
Weak Human Capital Stock
The discussions held with owners/managers of small & medium operators in the informal sector
revealed that most have not received formal training on entrepreneurship, marketing or business
management. Some of them have worked in tourist hotels and/or restaurants while others have
experiences related to general hotel and restaurant management. More importantly, Tourism
Industry is relatively new to many of the informal operators resulting limited products are
services offered to tourists. Most informal operators limit their activities to traditional areas such
as providing rooms and/or offering food and beverage (or even handicraft). In other words,
informal sector players tend to offer homogenous products and services and lack innovative
product development. According to a manager of a guest house Batticaloa district, in particular
Pasikudha and Kalkudha areas, has had a well-developed Tourism Industry before the civil war
was initiated in 1983. Revival of the industry is a key challenge at present.
Cultural barriers for Female Employment
Some hoteliers maintained that the management faces difficulties in recruiting female workers,
largely due to lack of skills and cultural factors. Females are often reluctant to accept jobs at large
hotels and restaurants due to cultural reasons. Moreover, if somehow recruited, the culture
could prevent women from effectively performing their tasks and the duration of their
employment. Some mis-conceptions towards the Tourism Industry could also affect female
labour force participation in the industry25. Some hoteliers maintained that married females take
up jobs that require minimal skills to perform.
25 In particular, some uninformed people tend to believe that females are unsafe when working at tourist hotels due to
type of job related activities that they have to perform at the hotels (in short, females are prone to sexual mis-conduct).
39
An Overview of Key Findings and Issues/challenges – Batticaloa District
Tourism Industry in Batticaloa district shows dual economic features. Large hoteliers source their
inputs (both good and service, including labour) from outside the region while small
hotels/restaurants/accommodation provides largely depend on the local economy for their
inputs. There exist weak complementarities between the formal large hotels and informal
businesses. This dual nature is partly created by the government policy interventions. In addition,
there exist a mis-trust between the large hotels and informal sector operators.
Supply chains for the small, medium, and large size hotels, restaurants, and accommodation
providers are roughly sketched and presented in Annex 5 by Figure 2a, 2b, and 2c respectively. A
number of small suppliers connect with the supply chain of the small hotels, restaurants, and
accommodation providers (homestays). All of them operate in the informal sector. In addition,
businesses in food & beverage sub-sector purchase some goods from the general stores.
Medium-size hotels, restaurants, and accommodation providers connect largely with formal
businesses to receive their supplies, except for perishable items. In addition, they also depend
on few outside whole sellers for goods (vegetables and other things) that are not produced within
the locality. Large-size hotels and restaurants have developed very strong connections with
formal sector suppliers in outside the region and such suppliers keep visiting the places on regular
basis. Moreover, they have developed connection with few suppliers for fish and meet in the
region. A clear majority of workers, in particular high and medium level employees, are from
outside the region while around on-fourth of low skilled persons are from the region.
Informal businesses around the Tourism Industry in Batticaloa district face several
issues/challenges. These include; (a) very capacity, in terms of quality and quantity, (b) limited
financial, human, and social capital stock, (c) lack of motivation for growth, and (d) lack of
information and knowledge, (j) foreign language difficulties. The industry is characterized with
several issues such as (a) high labour turnover, (b) mis-trust between big and small players in the
industry, (c) unrest among ethnicities, (d) cultural concerns over female labour force participation
(e) lack of opportunities for people with disabilities, if they are ex-combatants, and (f) lack of
work ethics and positive attitudes towards the Tourism Industry. Moreover, there are number of
issues with respect to human resource trainings offered by public-funded institutes.
6.3 Polonnaruwa District
In Polonnaruwa district, this study conducted case studies in Minneriya, Girithala, and in and
around the city area of Polonnaruwa. A large number of tourists, both local and foreign, frequent
Polonnaruwa district every year. Compared to the other three districts, the Tourism Industry is
relatively developed, however, it connects marginally with the local community due to structural
weaknesses. The amount of time spent by tourists in Polonnaruwa is one of the main worries of
40
the business operators. According to industry sources, this is largely due to lack of tourism
products in the region. Moreover, it is alleged that Tourism Industry in the region is largely
controlled by large players, limiting opportunities for small businesses to develop. Some of the
key findings are summarized below.
Limited Local Sourcing
The research found that small businesses, engaged in food & beverage sector, source vegetable,
fruits, and some grains (mostly rice) mostly from informal businesses in the local economy (see
Table A4-7 in Annex 4). However, medium-size and large hotels/restaurants have developed
contract with few whole sellers, operating in the informal sector, who buy their supplies from
outside the district26. In addition, fish, eggs, and meat supplies come from smaller traders to small
hotels/restaurants while medium-size and large hotels/restaurants receive them from super
market chains and/or large-scale producers operating in the formal sector. Most of such suppliers
are from outside the region. Small operators buy other goods directly from super market chains
and/or whole sellers mostly operated in the formal sector. In short, share of the total inputs
purchased locally remain relatively smaller. With the opening up of supermarket chains, even the
small operators tend to buy their inputs from supermarkets operating in the formal sector. Large
hotels, restaurants, and guest houses employ workers who are largely from outside the region
while small & medium hotels and restaurants mostly employ local persons (see Table A4-8 in
Annex 4).
Diminishing Market for Handicrafts
With respect to handicraft businesses, most of the handicrafts are done by craftsmen living
nearby villages and operated informally. In addition to supplying handicrafts to main craft-selling
shops, which operate formally, some craftsmen take their goods to different parts of the country
where there are favorable demand for their products. Some handicrafts are sold in tourist-site
based shops and such places are mostly operated informally. These shops buy handicrafts from
handicraft producing villages. Persons engaged in handicraft businesses allege that their
livelihood is under threat due to imported products from countries such as Nepal and Malaysia.
Moreover, they maintain that demand for handicrafts have declined over the years partly due to
the low tourist spending.
A manager of handicraft selling shoe, with 38 years of experience in the sector, expressed;
26 Small & medium size accommodation and food & beverage providers work with around 10-15 informal traders
while large scale hotels and restaurants connect with 2-3 large scale, yet informal, traders. Such larger scale traders
have well established supply chain networks connecting with major markets.
41
“I had around 60 employees in 1990s. Now I have just 10 employees. Sales
have declined over the years. Tourists visit the place and expressed that
handicrafts are excellent, but they rarely buy. This is a diminishing sector.
People do not want to engage due to weak demand for their products. Sellers
mostly imports from other countries”
Hence, it is important to take into account these developments when intervention strategies are
identified.
Information and Knowledge Gap
The discussions revealed the existence of information and knowledge gaps in a number of areas.
One among them is the marketing information (see Table A4-9 in Annex 4). The research found
that accommodation providers find it difficult to maintain sufficient and sustainable demand for
their service since they rely on a third party -such as tour guides to market their services. Informal
sector accommodation providers do not use ICT or any other advanced mode of communication
to reach potential customers. Instead, tour-guides and/or other parties (such as taxi drivers)
introduce customers to accommodation providers.
The arrangements outlined above have led to a number of issues, with middlemen charging a
sizable share of the total amount earned by the accommodation providers. Moreover, it was
found that some transport facility providers were unaware in reaching out customers. One of
such providers mentioned that the taxi service is in a position to rent out all type of vehicles, yet
the company does not received sufficient demand for the services. It was also mentioned that
the company representatives visited a number of leading hotels, guest houses, and other
accommodation places and discussed about the possibility of providing the service. Nevertheless,
the company has not go a single opportunity to cater to local or foreign tourists. The interview
had with the female manager of the taxi service revealed that she has limited understanding
about how to utilize ICT for reaching out potential customers.
Language Barriers
Lack of sufficient command in foreign language is one of the main barriers for growth of small
businesses to cater for international tourists. Most of owners/operators of the road-side
business, providing meals, fruit juice etc., tourist-site based shops, selling handicrafts, and
general grocery items, etc. lack sufficient command in foreign language. In most cases, they could
describe certain characteristics of the good/item in English, yet, such description often fails to
impress/educate foreigners sufficiently to make a purchasing decision. Ability to speak some of
the other leading foreign languages, such as German, French, Chinese, Spanish, Japanese, etc.
remain very weak.
Moreover, it was found that the taxi company, though attempted to link up with hotels/guest
houses in providing the transport services to tourists, one of the main barriers it faces is the lack
42
of drivers who could command at least few words in English. Similarly, some owners/operators
engaging in accommodation and homestay businesses are not able to communicate in any
foreign language though they offer services to foreign tourists. At present, most entities cater
only to local tourists.
These findings confirm lack of sufficient command in foreign language is detrimental to informal
sector engagement in tourism value chain. Our research also examined to what extent business
face difficulties in finding workers with language ability. It was revealed that small & medium
scale businesses face severe difficulty in finding low skill and middle skill workers with sufficient
foreign language knowledge (see Table A4-10 in Annex 4). According to our survey results, 50 per
cent of the total firms who identified ‘knowledge of a foreign language’ as a major barrier in
requiting low skill workers, informal small businesses. Interestingly, large businesses also face
difficulties in finding low skill with sufficient level of foreign language ability.
Limited Motivation and Innovation
The discussions held with owners/managers of small & medium hotels, restaurants, guest houses
revealed that the operators lack motivation to expand theirbusiness, and cater for foreign and
high-end local tourists. Moreover, those businesses tend to offer homogenous products/services
and lack innovative business ideas. Most of owners/managers/operators of the small & medium
scale businesses have not received a formal training though most of them have several years of
experience in the field.
Limited Financial Resources
A number of informal operators complained about difficulties they faced gaining access to
finance. Some of the accommodation providers recognized that there is a growing demand for
accommodation from local and international tourists. However, they are not in a position to cater
to this growing demand since they lack enough space and/or facilities. In most of the cases,
attempts to expand or add new facilities failed because they could not access to finance in the
formal sector due to their old ages and/or lack of mortgagable assets. Existing finance schemes
do not provide any credit guarantee system for old-aged applicants. Similarly, road-side vendors
as well as tourist-site based vendors find it difficult to access formal sector finance due to lack of
clear-cut land and/or building ownership. In most cases, they borrow from the informal sector
where interest rate remains really high.
Similarly, a number of informal sector operators said they lack working capital and are not in a
position to cater to the demand (see Table A4-11 in Annex 4). A number of businesses have
indentified lack of working capital as one of the major constraints for increasing their sales.
Limited working capital has meant that some restaurants/hotels do not provide their services for
vouchers. Most Colombo based hotels/tour operators issue vouchers for meals and it takes
nearly 1-2 months for cashing. Small restaurants/hotels find it difficult to wait such lengthy
periods since they lack working capital. Hence, they do not join the tourism value chain. Access
43
to lower cost finance remains one of the greatest difficulties facing businesses operating at the
lower level of value chain.
Drop in on Tourists
Formal and informal businesses mentioned that one of the regional disadvantage they face is
that tourists only stay in Polonnaruwa for a short period, often lasting for one or two days or
even a couple of hours..This situation is applicable to both local and foreign tourists. Hence, the
operators highlighted the need for a comprehensive plan to develop Polonnaruwa as an
attractive tourism destination where a wide variety of tourism products are offered for tourists
to engage so that tourists stay more time in the district thereby opening up more opportunities
for people to join the tourism value chain. The TSP has identified a number of projects aiming at
reviving the industry in Polonnaruwa district. One among them is the opening up of an airport in
the district. The construction of an airport in Polonnaruwa has been on air for some years, though
tangible steps are yet to be taken.
Unfair Market Arrangements
Most small vendors (road-side and tourist-site based) complain that they find it difficult to sell
their products/services to tourists, specially foreign tourists since there is a well-organized
network that bar others operators from entering the value chain (see Table A4-12 in Annex 4). In
other words, large players in the industry decide who should participate in the tourism value
chain. This practice could affect wider participation in the value chain. Some argue that there are
a number of issues when buying services from small players. Hence, it is important to link up
small players with large businesses. Improvement of quality of services is mostly required in
linking small businesses with large players in the industry.
High Labour turnover
Most operators complained about the higher level of labour turn-over. Almost all businesses,
irrespective of size or location face this situation. This is partly driven by workers’ desire to seek
higher wages in businesses operating in the same industry and others keep shifting to other
industries for various reasons. It was found that most formal sector businesses employ workers
from outside the regions and in contrast most workers in the informal businesses are from the
same region. This is partly due to the fact that informal businesses are mostly run by unpaid
family workers.
An overview of Key Findings and Issues/Chllanges – Polonnaruwa District
Our findings broadly indicate very limited informal sector participation in the Tourism Industry,
partly due to the fact Polonnaruwa district has limited tourism products and unethical practices
of the big players in the industry. Value chain connecting informal sector is relatively shorter and
large businesses in the industry mostly source inputs (goods/services/labour) from outside the
regions and mostly from established formal sector operators.
44
Supply chains for the small, medium, and large size hotels, restaurants, and accommodation
providers are roughly sketched in Annex 5 - Figure 3a, 3b, and 3c respectively. Around 8-10 small
(individual) suppliers connect with the supply chain of the small hotels, restaurants, and
accommodation providers (homestays). Most of them are the collectors of vegetables, fruits, and
fish products. In addition, businesses in food & beverage sub-sector purchase some goods from
the general stores as well as from super market chains. In addition, some home-based food
producers also supply prepared foods to homestay places. Medium-size hotels, restaurants, and
accommodation providers connect both with formal and informal businesses. Instead of many
small suppliers, they depend on few whole sellers to make sure that they could receive right
quantity-quality mix. They also depend on super market chain and in some cases receive goods
directly from distributors. Large-size hotels and restaurants have developed very strong
connections with formal sector suppliers in outside the region and such suppliers keep visiting
the places on regular basis.
Informal businesses around the Tourism Industry face several issues/challenges in Polonnaruwa
district. These include; (a) lack of capacity and quality in products and services, (b) limited
working capital. This issue prevents them connecting with big players (tour agents mostly
operated from Colombo), (c) poor foreign language capacity, (d) lack of finance for business
expansion, (d) lack of marketing and managerial skills, (e) poor human and social capital stock, (f)
lack of product/service variety, (g) limited demand (in particular of handicraft products), and (h)
lack of innovation. The Tourism Industry is characterized with (a) high labour turn over, (b) limited
availability of skilled workers in the region (c) unfair business practices, and (d) lack of tourism
products in the district.
6.4 Trincomalee District
In Trincomalee district, case studies were mainly conducted in and around the Trincomalee city
and Nilaweli beach. Tourism Industry in the district was also largely affected due to the civil war.
The industry in Trincomalee district is moderately connected with the local economy, with
opportunities to further development. However, the level of connectivity is not strong when
compared to the situation in Ampara district. Vast potential exists for providing opportunities to
the informal sector and for strengthening linkages with the formal sector. A number of barriers
prevent informal businesses from getting access to the value chain. The nature of these
constraints and related issues are discussed below.
Seasonal and off-seasonal patterns affecting informal operators
The Trincomalee district attracts tourists primarily from March to August each year. This is the
peak-season, and most informal operators in and around main destinations, confine their
business activities to this period. These include; restaurants, cabana, and other types businesses.
As a result, most of these informal businesses have remained small and are run by family labour.
This has become one of the major issues for developing sustainable livelihood, particularly for
45
those engaged in small and medium size Tourism Industry related activities such as food &
beverages. In contrast, large hotels, restaurants, and accommodation providers could negate the
effect of seasonal variation in demand, to some extent, through attracting local tourists under
various packages and sponsorships. Nevertheless, they also lay off some workers, in particular
low skill workers, during the off-season. Hence any attempt to develop livelihood of local
communities through tourism need to come up with strategies to shorten and/or smoothening
the length of the off-season.
High labour turnover
Both medium-size and large hoteliers/restaurants complained about the higher level of labour
turn-over (see Table A4-13 in Annex 4). This is not a significant issue for small businesses since
they are run with unpaid family labour and/or irregular workers. High labour turnover is partly
driven by workers’ eager to seek for higher wage opportunities in businesses operating in the
same industry while other employee keep shifting to other industries due to various reasons. One
of the reasons for high labour turnover is that majority of workers are from outstation. Hence,
they tend to move to take up jobs closers to their living areas once they receive some work
experience. High labour turnover has affected negatively on firm-level human resource training.
Moreover, businesses are unwilling to fill all vacant positions due to high labour turnover issue.
Lack of formal training for informal operators
The discussions held with owners/managers of small & medium operators in the informal sector
revealed that most of them have not received formal training on entrepreneurship, marketing or
business management. Some of them have worked in tourist hotels and/or restaurants while
others have experiences related to general hotel and restaurant management. More importantly,
Tourism Industry is relatively new to many of the informal operators resulting limited products
are services offered to tourists. Most informal operators limit their activities to traditional areas
such as providing rooms and/or offering food and beverage (or even handicraft). In other words,
informal sector players tend to offer homogenous products and services and lack innovative
product development.
Limited local sourcing of labour
As in other districts under the study, large hotels, restaurants, and accommodation providers
higher fewer percentage of workers – high, middle, and low skills, from the region citing lack of
technically qualified human resources (see Table A4-14 & A4-15 in Annex 4). In addition, they
complain about language capacity of personals trained by training institutes, both pubic and
private, in the region. Out of the total low skill employees, around 30-40 per cent is sourced from
locally and in most cases on temporary basis. During the off-peak season, most of these
temporary workers are laid off. Hence, young employees have limited interest in pursuing a
career in Tourism Industry.
46
Limited local sourcing of all the other inputs (including fish and meat products)
The study found evidence that local sourcing bylarge players in the industry remain very low
compared to the other three districts under the study (see Table A4-16 in Annex 4). Vegetables,
fruits, flour and other ingredients are mostly (over 90 per cent) sourced from outside the areas
such as Dambulla, Nuwaraeliya, and Colombo. Managers of the large hotels maintained that
limited vegetable production in the area is one of the reasons for this situation. Meat, such as
beef, is sourced locally while large hotels/restaurants depend on outside suppliers for chicken
and other meat varieties.
Issues in the local workforce
As found in Batticaloa district, some managers in large hotels and restaurants observed that local
workforce lack required skills and work attitude suitable for the industry (see Table A4-17 in
Annex 4). One among them is the foreign language ability among middle and low skill workers.
As a result, over 70 per cent of middle skill workers in large hotels/restaurants are from the
outside the region. It is also observed that public funded training institute failed to provide
sufficient training due to number of reasons such as lack of qualified teachers as well as higher
level of students’ absenteeism during the training period. One manager stated
“Principals in training institute says that they are not in a position
to instruct in English since such policy could discourage student
enrollment and increase student absenteeism. Hence, the institute
adopts a policy which is practical given the ground realities”
Similarly, it is also mentioned that public funded training institute in Trincomalee district
does only provide training related to cooking and kitchen operation related training and
students who wish to obtain training related to other areas in hotel and restaurant
operation
Limited opportunities in the industry – opportunities are restricted by large players
Most small vendors (road-side and tourist-site based) complain that they do find it difficult to sell
their products/services to tourists, specially foreign tourists since there is a well-organized
network that bar others operators to engage in the value chain. In other words, large players in
the industry decides who should be there in the tourism value chain. This practice could affect
wider participation in the value chain. One of the owner of a small restaurants stated that
“large hotels advise tourists not to eat at small restaurants citing
poor food quality. Similarly, tourists are prevented from taking tuk-
tuk. However, during the peak-season, tourists coming in
disregarding the advice”
It seems that there is a certain level of mistrust between the small operators and large & medium
size operators in the industry in Trincomalee district.
47
An overview of Key Findings and Issues/Challenges – Trincomalee District
Informal businesses around the Tourism Industry in Tricomalee district moderately connect with
the tourism value chain. Both local and foreign tourists are mostly attracted to the district during
April-August in every year and a sizable share of informal businesses only operates during this
period. Moreover, a sizable share of formal medium-size businesses also operates only during
the season. A sizable share of the workforce in large hotel is from the outside the region while
majority of the workers in medium-size and small businesses is from the region. The industry has
greater untapped potentials in generating more value and employment opportunities in the
district.
Supply chains for the small, medium, and large size hotels, restaurants, and accommodation
providers are roughly sketched and presented in Annex 5 – Figure 4a, 4b, and 4c respectively.
Many irregular small (individual) suppliers connect with the supply chain of the small hotels,
restaurants, and accommodation providers (homestays). In Trincomalee district, home-based
food preparing businesses are wide-spread due to significant demand for prepared food from
homestays, cabanas, and small accommodation providers. Medium-size hotels, restaurants, and
accommodation providers connect largely with informal businesses to receive their supplies. In
addition, they also depend on few whole sellers for goods (vegetables and other things) that are
not produced within the locality. Large-size hotels and restaurants have developed very strong
connections with few outside formal sector suppliers.
Informal businesses around the Tourism Industry in Trincomalee districts face several
issues/challenges. As in other districts, capacity constraints (in terms of quality and quantity) put
them at a disadvantage position when catering to large hotels. Moreover, poor access to credit
has become a major issue for business expansion. Seasonal pattern in tourist arrivals make it
difficult for small businesses to expand their operations. Skill and information gap also remain as
barriers for informal sector operators. Most informal operators offer similar set of products
thereby leading to severe competition and lower profit margins. Product and service quality also
remains at low. Also, small businesses are at a disadvantage position due to unethical practices
carried out by the medium and large hotels. The Tourism Industry in Trincomalee district is
characterized by several features; namely (a) seasonal nature of business operation (applicable
to some small and medium size businesses), (b) lack of trained workforce, (c) moderate level of
complementarities among stakeholders, (d) facing challenges due to environmental pollution
(costal areas and sound pollution), lack of consensus among stakeholders, and high level of
labour turnover27.
27 Summary of key findings are presented in annex 5.
48
7. Policy Orientated Recommendations
Introduction
This section summarizes the key characteristic and issues facing informal sector operators and
identifies recommendations for the government, and the Skills for Inclusive Growth (S4IG)
project to address challenges faced by the informal sector operators in the four districts. The
ultimate objectives of these recommendations are to tap the potentials of the Tourism Industry
in such a manner that local communities and disadvantaged groups benefit.
7.1 Summary of the Findings
• The majority of informal workers engaged in the food & beverage and to a lesser extent
transportation sub-sectors in the study districts and any attempt to improve earning and
employment opportunities needs to focus more on these two sub-sectors.
• These sub-sectors tend to be dominated by relatively older female, young or middle-aged
male workers. Also, women involvement in the informal activities around the Tourism
Industry is relatively higher in some districts.
• Firm size in the informal sector is very small, consisting of one or two persons and reason
for this situation includes some structural weaknesses such as unwillingness to expand or
lack of business confidence, severe competition, and seasonal fluctuation in sales.
Moreover, labour turnover is also a concern in the industry.
• Levels of education and training remained relatively low among persons engaged in the
informal activities for these sectors. Language ability remained very poor among those
engaged in the informal activities.
• There are a number of unfilled vacancies for middle and low skill categories in the Tourism
Industry and this varies across districts, with levels increasing during peak season.
• Workers lack soft skills such as communication, team work, responsibility taking, and
leaderships. These skills are important no matter the sector to which workers join.
• Finally, the workers (those who obtained some training) have received lower level of
training, i.e. certificate level training. However, it is doubtful to what extent such training
is appropriate given the level of quality expected by incoming tourists.
• A clear dualism exists in the industry where little complementarity occurs between the
formal large and informal small operators.
• Formal operators in the industry mainly connect with the formal businesses in sourcing
their inputs (both goods and services).
• Compared to small & medium businesses, large operators source a limited amount of
labour from the local economy/community and so the local community benefits
marginally from the Tourism Industry.
49
• Small & medium businesses in the Tourism Industry connect largely with the local
economy for their labour and inputs. Nevertheless, local economy/community accounts
for a tiny share of the total Tourism Industry value addition in respective districts. This
suggests tourism value chain has largely failed to connect with the local economy in the
selected districts. The exception to the above statement is the Ampara district.
• Limited linkages with local economies across the districts occur for the following reasons;
Tourism Industry has enormous potential in uplifting the livelihood of people living in the four
selected districts. However, the present state of affairs will not generate such wide-spread
benefits due to factors just highlighted above. It is widely recognized in the literature that pro-
poor initiatives need target local people and businesses, mainly informal businesses, linked with
the tourism value chain in a sustainable and productive manner so as to make opportunities
available for men and women in the society to benefits from the Tourism Industry. A number of
countries have initiated programmes to achieve above objectives though effectiveness of such
initiatives is not evaluated empirically.
Table 4: Key Reasons account for the lack of linkages between the informal and formal
sector in the Tourism Industry
• Lack of trained workforce,
• Inefficient suppliers with limited capacities (in terms of quantity and quality),
• Large players organizing the value chain horizontally,
• Financial and capacity constraints faced by small & medium businesses,
• Unfair business practices adopted by large operators in the industry,
• Limited number of tourism product development
• State policies creating unequal access to natural resource assets such as costal belt,
• Limited of training and motivation in small & medium businesses to expand their activities,
• Lack of information on products and services offered by the informal sector operators,
• Mis-trust among players in the industry,
• Missing (or under-performing) markets due to quality concerns,
• Small & medium businesses lack information and knowledge on tourism related products and services,
• lack of product innovation,
• Lack of concerns in guaranteeing quality (through certification, labelling etc.) in products and services offered by small and medium businesses,
• Informal small & medium businesses mostly get branded as back-packers’ places, and cultural concerns.
50
7.2 Recommendations for the Government
The Government of Sri Lanka formulated a Tourism Strategic Plan (TSP) 2017 with a broader
objective of transforming the industry in achieving Sustainable Development Goals (SDGs). Some
of the recommendations made below may reiterate some of the already identified areas while
others may be important in achieving government’s ultimate objective of achieving SDGs.
(a) Public Invest in tourism site and product development
A number of owners/managers highlighted the fact that one of the key issues faced by the
industry in the Eastern Province (including Polonnaruwa district) is the fewer tourist attractions
(tourist sites) and/or fewer number of tourism products. On account of this situation, tourists
(both local and foreign) either do not visit the region or decide to spend less time when they do
travel to the area. As a result, industry participants get fewer opportunities for value addition. It
is required that central and provincial governments allocate sufficient resources for developing
tourist sites and products. Both central and provincial governments have identified several sites
and products for development, however, implementation remains far from satisfactory.
(b) Developing a regional talent pipeline in collaboration with the private sector operators.
One of the key concerns of the industry is that current public funded human resources
development programmes do not meet the industry requirements. As discussed above, it is
relatively harder to find middle level and senior level staff from the region and even low skill
candidates do not receive sufficient training from the public funded institutes. Policy makers
must come up with a comprehensive human resources development plan and implement it with
a close industry collaboration. Policy makers need to encourage the industry to take more
responsibilities in designing and conducting training programmes. It is important that regional
business leaders to play a key role in developing and maintaining a talent pipeline. Policy makers
need to give greater responsibility to private sector and private sector needs to get in board
collectively to address the present skill shortage in the region..
(c) Maintaining law & order and ethnic harmony
One of the key responsibilities of the state is to maintain law and order in a country. The region
is clearly divided along the line of ethnicity and religion. Ethnic and religion diversity could be
immensely useful for the industry provided such plural societies do not disrupt the social
harmony. Recent incidents in the country, including in Ampara district, could have a negative
effect on the Tourism Industry. Tourism Industry suffered a lot due to the civil war which
protracted around 30 years in Sri Lanka. Tourism Industry in the Northern and the Eastern
Provinces witnessed a huge blow during the period. The revival of the industry during the post
war could be reversed or experienced slow march if the state does not pay enough attention to
improving social harmony by implementing required constitutional changes. Consensus building
is not an easy task since wounds created during the war have not meaningfully been recovered.
(d) Request BIO registered businesses to comply with the initial agreement on sourcing local
labour from the region.
51
It was revealed during the survey that BOI registered hotels and restaurants agreed to recruit at
least 40 per cent of the total employees from the region. Large hotels/restaurants were offered
certain benefits on the basis of the above agreement. However, none of the hotels/restaurants
interviewed have met this requirement so far. The hoteliers argued that they are unable to find
suitable workers from the region. However, at the time of the agreement, the hotels would have
known to this fact since the province had undergone severe hardship due to the civil war.
Government needs to encourage and support large hoteliers to meet the agreement since this
arrangement could immensely benefit locals in the region as well as the industry.
(e) Enforce already agreed regulations on environment, health, and safety
A number of hoteliers, of all sizes, pointed out how the industry suffers due to violations of
standards environment, health, and safety rules and regulations. Coastal areas have severely
been polluted due to waste dumping whereas sound pollution has seriously affected
accommodation providers. A number of small scale providers have entered into the
accommodation business, but it is not clear whether they comply with health and safety
standards. Similarly, small scale restaurants also operate disregarding basic health and safety
standards. During the survey, it was witnessed that small operators pay less attention to basic
health and safety standards. Moreover, some managers of the medium and large
hotels/restaurants highlighted the poor health and safety standards maintained by small scale
providers. Hence, central and provincial government need to educate small & medium size
businesses and make sure they follow basic health and safety standards.
(f) Consensus building among operators in the Tourism Industry
Central and provincial governments need to explore possibilities for building meaningful
relationship among industry stakeholders for enhancing and sharing value addition in the
industry. A number of developing countries such as South Africa, Gambia, and Indonesia have
developed such stakeholder consensus for improving local linkages. It is important to remind that
improving local linkages not only benefits local people but also helps in developing the industry
in a socially sustainable way. Large and medium size operators need to recognize that developing
local linkages imperative for long-run sustainability of the industry. Similarly, small players need
to recognize the importance of the roles played by the large and medium size hotels play in
attracting high spending tourists to the local areas. Different stakeholders have their own
strengths and weaknesses and what is needed is to form a collision for industry’s future growth
and sustainability.
52
7.3 Recommendation for the S4IG programme (in terms of interventions)
This section highlights some of the intervention strategies to achieve the broader objectives of
the Skills for Inclusive Growth (S4IG) program. According to S4IG program, it aims at supporting
sustainable job creation and business growth along the tourism value chain in Sri Lanka, including
in the informal sector. In this respect, the S4IG initiative plans to introduce targeted and flexible
skills and business development programs. This study identifies some intervention strategies to
promote inclusive growth in the context of the Eastern Province. The relative
importance/relevance of a particular intervention in a given district is summarised and presented
in Table 4. Accordingly, most of the intervention strategies are highly relevant in Batticaloa
district.
(a) Promote Social Enterprises
As discussed above, medium and large operators in the industry face few constraints when
sourcing inputs locally (see Figure 1). Major among them are supply constraints, quality concerns,
variety constraints, timely delivery constraints, and uncompetitive prices. These factors force
large and medium size hotels/restaurants to look for established large players who are generally
located outside the region. Most of the above issues could be avoided by forming social
enterprises where the social entrepreneur connects with small producers in supplying raw
materials and collecting final outputs.
The case study found a social entrepreneur who was initially supported by an International Non-
Government Organization (INGO) under the post-tsunami livelihood restoration programmes. It
collect final products from the farmers by paying market prices and supply to hotels and
restaurants in the region. In addition, it connects with several homestay providers and provides
them necessary supports and information for the business. It connects with several small holder
vegetable, spices, and fruit producing farmers in the area and provides them raw materials as
well as information relating to quality maintenance as well as pesticide and fertilizer use.
Figure 1: Activities around a Social Entrepreneur
Hotels/Restaurants
Social Entrepreneur
Small producer/provider
Small producer/provider
Small producer/providers
Small producer/provider
Output flow
Input flow
53
This model could be further strengthened and introduced to the other districts. Under the above
arrangement, it is found that rural women benefits largely since most home gardening is carried
out by women. This model could be introduced not only for small agricultural producers but also
for fishermen and meat producers as well. Small scale fishermen as well as meat producers face
several constraints in supplying their products to formal sector businesses. One of such
constraints is the lack of cooling facility. This intervention is largely relevant for Batticaloa and
Trincomalee districts. A number of strategic areas/concerns must be taken into account at the
implementation stage; namely (a) awareness on the objectives and benefits of the arrangement
and (b) drafting a comprehensive, yet, easy to understand contract. It is required to pay greater
attention in selecting potential entrepreneurs for social enterprises to avoid exploitation in the
long-run.
(a) Promote non-profit organizations for providing various services
Formation of non-profit organization – with the support of provincial government and Sri Lanka
Tourist Development Authority – could be useful way to support small and medium operators,
mostly informal operators, in the industry. Informal operators face several constraints in the area
of advertising, marketing, and finances. Most of the cases, they tend to reply on friends and
relatives for information. It is important that they reach accurate and reliable information for
better decision making. However, information is costly and small and medium operators find it
harder to reach out such information. Non-profit organizations could effectively fill this gap by
providing necessary services at a reasonably low price. Non-profit organizations could also help
businesses to transit from informal to formal. Moreover, non-profit organization could educate
small operators on various types of products and services offered tourists in various parts of the
world. Moreover, non-profit organization could provide translation facilities. For instance, these
organizations could help preparing menus, posters, and other leaflets in different languages.
Moreover, it is possible to make available resources useful for language learning, quality
maintenance, food & beverage cultures in different countries. Non-profit organization may need
political backing and some financial support from the provincial government. It also could charge
reasonable charges for some of the services it offers. It is possible that such non-profit
organizations close link with regional universities and other higher education institutes rather
than operating in isolation. The universities and higher education institutes could facilitate most
of the activities.
(b) Piloting consensus building initiatives – Multi-stakeholder platform
Creating a multi-stakeholder platform is a pre-requisite for developing and strengthening back-
ward linkages useful for creating opportunities for workers engage in the informal sector. As
discussed, there is an information gap between the formal and informal operators in the industry.
This information gap has resulted fewer linkages as well as distrust between the two segments.
Existing situation is harmful for the industry since it marginally utilizes local sources and resources
for value addition. In particular, closer cooperation prevents informal operators joining the
tourism value chain in a meaningful manner. Some developing countries such as South Africa has
attempted at creating a multi-stakeholder platform for generating more opportunities for
54
informal businesses run by the marginalized black community. Informal operators could enhance
the quality of their products and services while formal sector businesses could make use of
products and services as inputs and/or facilitate the sales of their final products and services to
tourists.
Consensus building exercise needs some local political blessings and strong backing from the
government agencies working in the Tourism Industry. Local political leaders could stress the
need for a consensus on the ground of benefits locals could derive from such initiatives. Prior to
launching initiatives for building consensus, it may be useful to make local politician aware about
the benefits of a consensus building as well as the level of the existing linkages (summary of the
findings of this study may be useful).
(c) Support for product innovation & development
Small and medium size operators tend to offer a set of homogeneous products and services. This
is mainly due to lack of product innovation and development. Heterogeneity of the basket of
products and services offered largely determines the tourist expenditure in any given locality.
Lack of innovative products and services is partly due to lack of knowledge on numerous goods
and services offered to tourists in major tourists destinations in and outside Sri Lanka. Hence, it
is essential that informal sector operators are educated on potential products and services that
could be offered to tourists and extend support for developing such products and services.
Product and service development may require things such as technology and finance. Non-profit
organizations could play a key role in sharing information related to various traditional foods,
beverage and cuisines. Moreover, Department of Food Science of regional universities could also
extend their assistance through non-profit organizations to support product development and
innovation.
(d) Support for a ICT based solution for improving value chain
Information gap among stakeholders is a severe issue in the Tourism Industry in four districts.
Input buyers, mainly hotels and restaurants, have insufficient knowledge about the quality and
quantity offered by different input suppliers. And on the other hands, input suppliers have limited
understanding on the quality and quantity required by input buyers. This information gap
resulted inefficient market conditions for inputs. Similarly, managers in most medium-size and
large hotels and restaurants stated that they have no idea about products and services offered
by informal sector operators. Some hotels display products and services offered by some
organisations such as war widows. Some hotels display information about some restaurants. This
information gap could effectively be address by introducing a mobile app (possible name might
be ‘bee’ from the full term, ‘Buy East, be East)28. It not only enhances business opportunities
available for informal sector operators but also allows medium-size and large hotels/restaurants
to buy quality products at competitive prices. Moreover, it will be possible to provide
28 Bee is always busy in collecting small quantities and producing a quality final product. This mobile app could also
facilitate connecting small quantities and producing quality final products and services.
55
employment opportunity related information into this system. This is one of the potential
market-based solutions for the industry. It is important to examine whether such ICT based
solution is acceptable to all stakeholders (see Figure 2).
Figure 2: Composition of Stakeholders
The stakeholder consensus building may provide an ideal platform for identifying, designing,
developing, and launching the mobile app. In such a context, the stakeholder may share the
ownership of the app thereby receiving wider acceptance. During the developing stage, it is
importance to consider technical, market, and financial feasibilities of the app.
(e) Groups formation and strengthening (capacity building)
A small operator is vulnerable on several grounds when act alone due to a number of reasons. In
particular, small operator is unable to offer the variety and quantity demanded by large-scale
hotels and restaurants. Moreover, opportunistic behavior of some small operators could have a
long lasting adverse effect. Hence, it is important to encourage small operators – producers,
homestay providers, restaurants, etc. – to form groups and draw up some basic principles –
related to price, quality, and other things – for operations. For instance, in Arugam Bay, Ampara
district, tuk-tuk operators have formed an association and prepared a set of operational
guidelines. The discussions with stakeholders revealed the presence of organizations mostly
looking after the welfare of individual members. These associations act, to a limited extent, on
issues common to all the members. Hence, to some extent, the S4IG initiative needs to look into
avenues for strengthening the existing groups and direct them to develop certain norms and rules
for operations.
'Buy East, Be East' -
(Bee) -Mobile apps
Associations
Social enterprises
TouristsJob seekers
Mobile technology
provider
Accommodation
providers
Restaurants
HotelsIndividual Informal suppliers
56
(f) Financial support for building capital stock: matching grants or soft loans
One of the key issues faced by medium and small businesses in the Tourism Industry is the lack
of finance, in particular, working capital. Some small restaurants find it difficult to provide
products and services for vouchers since it takes nearly 1-2 months for receiving cash. Colombo-
based tourist hotels/agents often issue vouchers instead of cash in buying goods and services at
outstations. As a result of this situation, tourist guides often stop only at places where vouchers
are accepted, mostly at large-scale hotels/restaurants/craft sellers. This state of affairs largely
restricts opportunities for small operators to cater to the tourists. Access to finance is severely
restricted on several grounds such as collateral requirements. Informal operators tend to borrow
from the informal financial market at high interest rate. As a direct consequence of this situation,
small operators tend to operate with limited capital stock. In this context, it is important to
introduce a soft loan or matching grant scheme so that small operators could buy essential capital
goods. The S4IG could explore the possibility of joining force with some other donors to launch
this initiative. Soft-loan may be more productive than the matching grants. It will be useful to
utilize the existing banking system to channel funds for matching grants/soft loans.
(g) Conduct awareness programmes on benefits of maintaining conducive environment
As discussed earlier, the industry is under threat due to environment pollution and various
social misdeeds. Some of these are due to lack of public awareness while the others are due to
lapses in law and order. It is needed to carry out a comprehensive programmes in educating
public on the importance of protecting environment and social order.
(h) Provide training on selected areas such as entrepreneurship, marketing, and management
Compared to other parts of Sri Lanka, in particular Southern province, and in other tourist
localities in developing countries, a large number of businesses could be started up in the Eastern
Province and in Polonnaruwa districts provided proper training is given to existing and potential
entrepreneurs. As found in our case study exercise, existing managers/owners of small and
medium size businesses have not received any formal training on entrepreneurship and
marketing. Most of them have either received some experiences as employees and/or inherit
businesses from their parents. Hence, there is a real need in the study area to provide
comprehensive training on entrepreneurship and marketing. It is important to conduct these
training in collaboration with the vocational training institutes in the areas (be them private or
public funded). Moreover, it is also important to improve the capacity of training
institutes/trainers in order to make sure the sustainability of human resources development
related above areas. The S4IG could join hands with National Enterprise Development Authority
(NEDA) it its endeavor to conduct above training programmes as the NEDA is one of the public
funded institute in carrying out training and supporting programmes for enterprise development.
(i) Promote women entrepreneurship for selected areas
There are a number of areas for promoting women entrepreneurship training. These may
include; (a) beauty parlor, (b) local food centers, (c) local cultural and dancing performance
57
center, (d) Teaching local languages and (e) local clothing centers. The Department of Agriculture
provide training on preparing food using local ingredients and centers opened in some part of
the country are operating very successfully. The department has put up the physical structures
and trained women engaged in preparing and serving local foods. It is possible to start up such
centers closer to tourist sites and provide opportunities for women to engage in such businesses.
(j) Business couching center
Business couching center could take few innovative steps in promoting entrepreneurship
potential business starters. These include (a) providing one-to-one meeting with experts
(accounts, lawyers, marketing managers, financiers etc.), (b) funding for individual and group
entrepreneurship, (c) making available various resources useful for business start-up, and (d) on-
line and off-line courses to educate potential entrepreneurs on fundamentals in
entrepreneurship.
Table 4: Relative Importance of the Proposed Intervention by District
Ampara Batticaloa Trincomalee Polonnaruwa
Promote social enterprises
Non-profit organization for providing various services
Consensus building among stakeholders
Support for product innovation and development
Introducing a Mobile app for connecting businesses around the Tourism Industry
Group formation and strengthening
Financial support for enhancing capital stock
Conduct awareness on the benefits of the tourism and ethnic harmony
Provide training on entrepreneurship, marketing, and management
Promote women entrepreneurship in selected areas
Business couching centers
Relative Importance
High Medium Low
Level
58
7.4 Concluding comments
This section attempted to make some recommendations to uplift the livelihood of people
engaged in the informal economic activities around the Tourism Industry. Government has
formulated a policy framework for transforming the Tourism Industry with the ultimate objective
of achieving sustainable development goals. On the other hand, the S4IG program specifically
emphasize on improving skills and promoting businesses for a inclusive growth and development.
The identified recommendations fall in line with the objectives of the government’s policy
framework as well as that of the S4IG program.
In the context of developing countries, particularly in Sri Lanka, policy execution remains very
weak due to a number of reasons. It is important that the S4IG program coordinates with relevant
parties (public and private organizations) and falls in line with the overall policy framework (in
particular, with the Tourism Strategic Plan 2017) when implementing the policy
recommendations. Some of the policy recommendations, for instance ICT based solution, may
need further refining at the implementation stage.
59
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61
Annex 1
Methodology for Estimating Informal Sector Contribution to Gross Domestic Product (GDP)
Among the alternative methods, this study employed an indirect approach in estimating the size
of the informal sector in the Tourism Industry. World Travel and Tourism Council (2017) recently
estimated the Tourism Industry total value addition. This allowed us to estimate the relative
share of the industry as a percentage of GDP. Next, we made use of the total value addition of
the non-agriculture sector and estimated the relative size of the non-agriculture sector’s value
addition in GDP. Relative share of the informal sector’s (in the Tourism Industry) value addition
is the weighted share of the total Tourism Industry value addition. The share of the non-
agriculture sector value addition was used as the weight for the calculation. This study estimated
the relative share of the informal sector’s (in the Tourism Industry) value addition for the entire
economy as well as for the Eastern province. The share of the Tourism Industry’s value addition
in the Eastern Province was calculated by adjusting the total industry value addition to the guest
nights (both local and foreign) in the province. Detailed methodology is presented in the
appendix. The estimation is based on data collected for a number of sources such as Central
Bank of Sri Lanka, Department of Census and Statistics, Annual Statistical Report published by Sri
Lanka Tourism Development Authority, and the recent research published by World Travel &
Tourism Council. Specifically, the methodology adopted is outlined as follows;
Estimating at national level
Where; y= GDP (national or provincial)[source: Central Bank of Sri Lanka) x= tourism industry value addition[Source: World Travel and Tourism Council] [x/y]= share of tourism industry value addition in GDP z= informal non-agriculture activity value addition[Source: Department of Census and Statistics of Sri Lanka] [z/y]= share of the informal non-agriculture value addition to GDP
Share of the total value addition of the informal sector in the tourism industry to
national GDP = [x/y]*[z/y]
Estimating at provincial level The department of census and statistics estimate provincial GDP, however, data are not
available for the provincial tourism industry value addition. This study employs a proxy
measure, namely share of foreign and local guest nights in the Eastern Province to total foreign
and local nights in Sri Lanka, for capturing Eastern Province’s tourism industry value addition29.
Eastern Province Tourism value addition (q);
29 It is possible that this measure may over-estimate the tourism sector contribution in the province.
62
q=x*(EP’s total guest nights to total guest nights in Sri Lanka)
p= Eastern Province (EP) GDP [Source: Central Bank of Sri Lanka]
q= Tourism industry value addition in the EP [Source: Author’s calculation]
[q/p]= EP tourism industry value addition in the EP to EP’s GDP
r= Non-agriculture informal sector value addition in the EP [Source: Department of Census
and Statistics of Sri Lanka]
[r/p] = share of the informal non-agriculture value addition in the EP to EP’s GDP
Share of the total value addition of the informal sector in the tourism industry in
the EP to EP’s GDP = [q/p]*[r/p]
It is possible that this measure contains some limitations, nevertheless, having some
understanding on the share of informal sector contribution to provincial GDP would be useful
for policy makers and development practitioners30.
30 Terms of Reference (TOR) of the study requires to estimate the contribution of the food & beverage sector
contribution of gross value addition. However, it is difficult to derive such disaggregated numbers due to lack of
reliable data for the province.
63
Annex 2
A2-1: Changes in Economic and Tourism Industry Policy Frameworks
64
Table A2-1: Changes in Economic and Tourism Industry Policy Framework
Period
National Economic Policy
Regime Tourism Development Strategy Main features of strategies
Before
1948
The pre-independence - open
economic policy
1937 -first tourism bureau was
established Provided services to the passengers who sailed between the West and
East through the port of Colombo 1940 - Tourist Bureau ceased its
operation during to the war
1948-
1956
Continuation of pre-
independence open economic
policy
1948 -Revival of government
tourist bureau
Began to undertake tourism marketing and promotional strategies
immediately after the independence from the colonial rulers
1956-
1965
Closing up the economy with
the import-substitution strategy
Under the closed economy tourism
did not play an important role in the
national development strategy
Under the directionless and loosely organized tourist bureau there were
no tourism promotional and marketing activities
1956-
1970
Partial departure from the
closed economy
1966 -The government legislative
body was established for the
tourism sector
Revival of tourism promotion and marketing strategies
Tourism board Act No 10 of 1966
Ceylon Hotel corporation Act no 14 of 1966
1966 -Introduction of the first ten
year master plan for tourism
Tourism development act no 14 of 1968
The plan became the blueprint for tourism development and witnessed
first tourism boom in Sri Lanka
The country witnessed a first-wave of new hotel construction with five
resort development zone
1970-
1977
Closing up the economy No new government initiative to
develop tourism
Rate of investment growth in tourism fell down due to the re-
establishment of import control measures. However, tourism grew
rapidly as a result of previous promotional activities and peaceful
environment
1977-
1996
Opening the economy
1977-introduction of trade
liberalization, exchange rate
reforms and incentives for FDI
Sri Lanka managed to attract a large number of tourists specially from
Europe under the open economic policies, Tourism was promoted. The
progress continued till 1983. Tourism became a victim of was since 1983
Second-wave of economic
reforms in 1989
1992 - Introduction of the second
ten year tourism master plan
Annex 2
A2-1: Changes in Economic and Tourism Industry Policy Frameworks
65
1996 to
2014
Continuation of opening
economic policies with some
limitation
2002 - signing a cease fire
agreement and created peaceful
environment for the tourism sector The relatively peaceful short term environment gave rise to an increase
in tourism arrivals to Sri Lanka
2005 - new tourism act
Closer relationship between government and private sector through
joined experiences. The tourism board built integrated approach to
tourism 2008 - introduction of the third
tourism master plan
End of the war in 2009 - launching
a new tourism promotion strategy
Tourism sector has made a remarkable recovery and it is became one of
the fastest growing and dynamic industries in the country mainly due to
the peaceful environment
2011 - implementation of the
tourism development strategy
2015 to
date
Continuation of open economic
policy framework with greater
private sector participation
2017 -Sri Lanka tourism strategic
plan
Tourism strategic plan recommends actions and implementation
mechanisms for the next four years, with a long-term view toward
Tourism Vision 2025 and achieving the united nations (un) sustainable
development goals.
The strategic plan focuses heavily on promoting sustainable tourism that
creates jobs and promotes local culture and products
It aims at making the industry Sri Lanka's 3rd highest foreign exchange
earner, creating employment opportunities for 600 thousands, and make
sure women accounting at least 10 per cent of the total employment, and
increasing daily expenditure by a tourist
The Tourism Strategic Plan pay greater attention on informal sector
actors and aim at getting them to mainstream
66
Annex 3
Characteristics and Nature of the Informal Sector - Tables
Table A3-1: Distribution of Informal establishments and persons
engaged in accommodation, food, and beverage by district
District No of
businesses
Total
employment
Male Female (Female/Total)
%
Ampara 3,759 6,185 2,838 3,347 54
Batticaloa 3,590 6,867 4,351 2,516 37
Tricomalee 2,016 3,236 2,038 1,198 37
Polonnaruwa 2,299 4,313 2,110 2,203 51 Source: Economic Survey, 2013/14
Table A3-2: Distribution of Workers employed in Informal Economic Activities around
the TourismIndustry
District Food & Beverages
All informal activities in the
TourismIndustry
Male Female Male Female
Ampara 638 462 5,146 919
Batticaloa 3,833 887 7,034 2,059
Polonnaruwa 843 1,425 3,480 1,425
Trincomalee 1,982 845 6,130 845 Source: Labour Force Survey 2015
Table A3-3: Relative importance of Employment in Food & Beverage Sector
District As a % of total informal employment in TourismIndustry
Ampara 18.14
Batticaloa 51.91
Polonnaruwa 46.24
Trincomalee 40.53
Sri Lanka 29.35 Source: Labour Force Survey 2015
67
Table A3-4: Distribution of informal workers in the Food & Beverage sector in the four
selected districts by age in ‘East +’
Male Female
Less 20 2.9 5.6
20-29 26.5 5.6
30-39 17.6 27.8
40-49 29.4 16.7
50-59 11.8 33.3
60-69 8.8 11.1
70 or + 2.9 0.0
Total 100 100 Source: Author’s estimation based on LFS, 2015
Table A3-5 : Distribution of Workers by Industry and Gender in ‘East +’
2-digit Industry
Male Female
Formal Informal Total Formal Informal Total
Retail Activities 2.1 3.0 2.9 8.6 7.4 7.5
Transport 8.5 63.8 56.4 2.9 4.3 4.2
Water Transport 0.0 0.1 0.1 0.0 0.0 NA
Accommodation 59.3 6.8 13.8 45.7 7.4 12.5
Food & Beverage Supply 21.2 23.3 23.0 22.9 78.7 71.3
Renting vehicles 0.5 0.3 0.4 0.0 0.9 0.8
Tourist guides 8.5 2.7 3.5 20.0 1.3 3.8
Total 100.0 100.0 100.0 100.0 100.0 100.0
Source: Author’s estimation based on LFS, 2015
Table A3-6: Distribution of Workers by Firm Size – All Island
Firm Size Formal Informal
Less than 5 0.0 16.1
5-9 0.0 6.1
10-15 22.8 1.2
16-49 22.8 0.4
50-90 17.4 NA
100 or more 32.6 0.1
No paid employees/regular employees 4.5 75.9
working for household 0.0 0.1
Total 100.0 100.0 Source: Author’s estimation based on LFS, 2015
68
Table A3-7: Distribution of Workers by Education and Gender: Tourism Industry – All
Island
Education level
Formal Informal
Male Female Total Male Female Total
Below Gr5 0.0 0.0 0.0 9.1 17.4 10.4
Gr5-9 7.4 11.4 8.0 22.5 20.9 22.3
GCE O/L 65.1 45.7 62.1 62.2 47.8 59.9
GCE A/L & above 27.5 42.9 29.9 6.1 13.9 7.4
Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Author’s estimation based on LFS, 2015
Table 3A-8: Distribution of Informal workers in the Tourism Industry by Education
Level in the ‘East +’ Region
education level Male Female
Below Gr5 17.3 32.0
Gr5-9 30.6 24.0
GCE O/L 45.9 40.0
GCE A/L & above 6.1 4.0
Total 100.0 100.0 Source: Author’s estimation based on LFS, 2015
Table A3-9: Distribution of Informal workers in Food & Beverage Sector by Education
Level in ‘East +’
education level Male Female
Below Gr5 29.4 33.3
Gr5-9 52.9 16.7
GCE O/L 11.8 50.0
GCE A/L & above 5.9 NA
Total 100.0 100.0 Source: Author’s estimation based on LFS, 2015
69
Table A3-10: Training Received by Field of Training: All Island
Field %
Food & Bakery 4.52
Clothing related 1.01
Small Business 0.5
Technical Production 0.5
Maintenance 1.01
Transport Related Mechanics 15.08
Technical 5.53
Electricity related 10.55
House Designing 0.5
Building construction 1.51
Health service 1.01
Teaching 0.5
Computer related 17.09
Management, Sale and Finance 4.52
Business and Management 3.52
Tourism Related 22.61
Office services 1.51
Personal care/Services 1.51
Law related 0.5
Languages 1.51
Personal hospitality 0.5
Handicraft, dancing, music 3.02
Designing 1.01
Media related 0.5 Source: Author’s estimation based on LFS, 2015
Table A3-11: Training Level by Sector Engaged
Training certificate Formal Informal Total
General Certificate 62.0 77.5 71.4
Diploma Certificate 32.9 17.5 23.6
Higher diploma Certificate 1.3 0.8 1.0
NVQ Certificate 3.8 4.2 4.0
Total 100.0 100.0 100.0 Source: Author’s estimation based on LFS, 2015
70
Table A3-12: English Language Ability by Education Level in ‘East +’ Region
English language ability Formal Informal
Ability to read & write English language 22 7
Unable to read & write English language 78 93
Total 100 100 Source: Author’s estimation based on LFS, 2015
71
Annex 4
Value Chain Analysis Tables
Table A4-1: Local Sourcing: All Raw Materials - Ampara District
% of local sourcing
Size 20-50% 51-80%
More
than 80% Total
Less than 5 employees 25.00 0.00 75.00 100.00
5-25 employees 0.00 33.33 66.67 100.00
More than 25 employees 0.00 50.00 50.00 100.00
Source: Primary survey
Table A4-2: Level of Local Sourcing: Low Skill Employees - Ampara District
% of Local sourcing
Size 21-50% More than 80% Total
Less than 5 employees 50.00 50.00 100.00
5-25 employees 33.33 66.67 100.00
More than 25 employee 50.00 50.00 100.00
Total 42.86 57.14 100.00 Source: Case-study survey
Table A4-3: Level of Local Sourcing: Middle Skill Employees - Ampara District
% of Local sourcing
Size 20% or less 21-50% More than 80% Total
Less than 5 employees 0.00 25.00 75.00 100.00
5-25 employees 0.00 33.33 66.67 100.00
More than 25 employee 50.00 0.00 50.00 100.00
Total 11.11 22.22 66.67 100.00 Source:Case-study survey
Table A4-4: Level of Local Sourcing: All Inputs (products/Services): Batticaloa District
% of local sourcing: All Inputs Size 20-50% 51-80% More than 80% Total
Less than 5 employees 0 0 100 100
5-25 employees 0 33.33 66.67 100
More than 25 employee 100 0 0 100 Source: Case-study survey
72
Table A4-5: Level of Local Sourcing: Middle level employees: Batticaloa District
% of local sourcing
20% or less 21-50%
More than 80
per cent Total
5-25 employees 0.00 0.00 100.00 100.00
More than 25 employees 75.00 25.00 0.00 100.00
Source: Primary survey
Table A4-6: Level of Local Sourcing: High skill employees: Batticaloa District
% of local sourcing
Size 0% 20% 100% Total
Less than 5 employees 0.00 0.00 100.00 100.00
5-25 employees 0.00 0.00 100.00 100.00
More than 25 employee 75.00 25.00 0.00 100.00
Source: Primary survey
Table A4-7: Level of Local Sourcing: All Inputs (products/Services): Polonnaruwa District
% of local sourcing: All Inputs
Size of the business 20-50% 51-80% More than 80% Total
Less than 5 employees 0.00 20.00 80.00 100.00
5-25 employees 0.00 50.00 50.00 100.00
More than 25 employee 100.00 0.00 0.00 100.00 Source: Case-study survey
Table A4-8: Level of Local Sourcing: Labour Input: Polonnaruwa District
Low Skill workers
Size 51-80% More than 80% Total
Less than 5 employees 0.00 100.00 100.00
5-25 employees 0.00 100.00 100.00
More than 25 employee 100.00 0.00 100.00
Middle Skill workers
Less than 5 employees 0.00 100.00 100.00
5-25 employees 0.00 100.00 100.00
More than 25 employee 100.00 0.00 100.00 Source: Case-study survey
73
Table A4-9: Lack of Technology and Information: Polonnaruwa District
Size No barrier Minor barrier Substantial barrier Total
Less than 5 employees 20.00 60.00 20.00 100.00
5-25 employees 50.00 0.00 50.00 100.00
More than 25 employee 100.00 0.00 0.00 100.00 Source: Case-study survey
Table A4-10: Knowledge of a foreign language: The Largegest Constraint in Finding Workers
(%)
Size
low skill
workers
Middle skill
workers
Less than 5 employees 50.00 50.00
5-25 employees 25.00 50.00
More than 25 employee 25.00 0.00 Source: Case-study survey
Table A4-11: Main Barrier to Increase Sales: Opportunities Restricted by Major Industry
Players: Polonnaruwa District
Size
No
barrier
minor
barrier
Severe
barrier Total
Less than 5 employees 0.00 40.00 60.00 100.00
5-25 employees 50.00 50.00 0.00 100.00
More than 25 employee 100.00 0.00 0.00 100.00 Source: Case-study survey
Table A4-12: Main Barriers to Increase Sales: Lack of Working Capital: Polonnaruwa District
Size
No
barrier
Minor
barrier
substantial
barrier
Severe
Barrie
r Total
Less than 5 employees 0.00 20.00 20.00 60.00 100.00
5-25 employees 0.00 50.00 0.00 50.00 100.00
More than 25 employee 100.00 0.00 0.00 0.00 100.00 Source: Case study survey
Table A4-13: Barriers affecting the growth of businesses: Labour Turnover in Trincomalee
District
Size
Minor
barrier
Substantial
barrier
Severe
barrier Total
Less than 5 employees 50.00 50.00 0.00 100.00
5-25 employees 33.33 33.33 33.33 100.00
74
More than 25 employees 0.00 50.00 50.00 100.00 Source: Case-study survey
Table A4-14: Local sourcing: Middle skill workers – Trincomalee District
% of local sourcing
Size
20% or
less
21-
50%
51-
80%
More
than 80% Total
Less than 5 employees 50.00 25.00 0.00 25.00 100.00
5-25 employees 0.00 0.00 25.00 75.00 100.00
More than 25 employees 100.00 0.00 0.00 0.00 100.00 Source: Case-study survey
Table A4-15: Local sourcing: Low skill workers – Trincomalee District
% of local sourcing
Size 21-50% 51-80%
More
than 80% Total
Less than 5 employees 25.00 0.00 75.00 100.00
5-25 employees 0.00 25.00 75.00 100.00
More than 25 employees 100.00 0.00 0.00 100.00 Source: Case-study survey
Table A4-16: Local sourcing: All inputs – Trincomalee District
% of local sourcing
Less than
20% 51-80%
More than
80% Total
Less than 5 employees 0.00 75.00 25.00 100.00
5-25 employees 0.00 100.00 0.00 100.00
More than 25 employees 100.00 0.00 0.00 100.00 Source: Case-study survey
Table A4-17: Is foreign language a Barrier for Recruitment? Trincomalee District
size No Yes Total
Less than 5 employees 25.00 75.00 100.00
5-25 employees 50.00 50.00 100.00
More than 25 employees 0.00 100.00 100.00
Source: Case-study survey
75
Annex 5
Supply Chain Maps
Figure A5-1a: Supply Chain: Small Hotels/Restaurants/Accommodation Providers: Ampara District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Many Informal sector producers/collectors/trad
ers
Few Individuals
Super markets
Few Informal sector stores
Weekly market (pola) – Informal traders
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
National level producers
Within the region Outside the region Products/services purchase
76
Figure A5-1b: Supply Chain: Medium-size Hotels/Restaurants/Accommodation Providers: Ampara District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Few Informal sector collectors/traders
Few small firms/individuals
Super markets
Few whole sellers
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Farmers/collectors
National level Producers
Within the region Outside the region Products/services purchase
General stores
77
Figure A5-1c: Supply Chain: Large-size Hotels/Restaurants/Accommodation Providers: Polonnaruwa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Firms in outside the region
Super market chain
Few whole sellers in the region
Whole sellers in outside the region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
Producers in outside the region
Few firms
Within the region Outside the region Products/services purchase
Informal collectors/traders
78
Figure A5-2a: Supply Chain: Small Hotels/Restaurants/Accommodation Providers: Batticaloa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Many Informal sector producers/collectors/trad
ers
Few Individuals
Super markets
Few Informal sector stores
Weekly market (pola) – Informal traders
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
National level producers
Within the region Outside the region Products/services purchase
79
Figure A5-2b: Supply Chain: Medium-size Hotels/Restaurants/Accommodation Providers: Batticaloa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Few Informal sector collectors/traders
Few small firms/individuals
Super markets
Few whole sellers
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Farmers/collectors
National level Producers
Within the region Outside the region Products/services purchase
Genera stores
80
Figure A5-2c: Supply Chain: Large-size Hotels/Restaurants/Accommodation Providers: Batticaloa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Firms in outside the region
Few whole sellers in the region
Whole sellers
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
Producers in outside the region
Few firms
Within the region Outside the region Products/services purchase
A collector (fish)
81
Figure A5-3a: Supply Chain: Small Hotels/Restaurants/Accommodation Providers: Polonnaruwa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Many Informal sector producers/collectors/trad
ers
Few Individuals
Super markets
Few Informal sector stores
Weekly market (pola) – Informal traders
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
National level producers
Within the region Outside the region Products/services purchase
82
Figure A5-3b: Supply Chain: Medium-size Hotels/Restaurants/Accommodation Providers: Polonnaruwa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Few Informal sector collectors/traders
Few small firms/individuals
Super markets
Few whole sellers
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Farmers/collectors
National level Producers
Within the region Outside the region Products/services purchase
83
Figure A5-3c: Supply Chain: Large-size Hotels/Restaurants/Accommodation Providers: Polonnaruwa District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Firms in outside the region
Super market chain
Few whole sellers in the region
Whole sellers
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
Producers in outside the region
Few firms
Within the region Outside the region Products/services purchase
84
Figure A5-4a: Supply Chain: Small Hotels/Restaurants/Accommodation Providers: Trincomalee District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Many Informal sector producers/collectors/trad
ers
Few Individuals
Super markets
Few Informal sector stores
Weekly market (pola) – Informal traders
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
National level producers
Within the region Outside the region Products/services purchase
85
Figure A5-4b: Supply Chain: Medium-size Hotels/Restaurants/Accommodation Providers: Traincomalee District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services
Few Informal sector collectors/traders
Few small firms/individuals
Super markets
Few whole sellers
Farmers in nearby villages/region
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Farmers/collectors
National level Producers
Within the region Outside the region Products/services purchase
86
Figure A5-4c: Supply Chain: Large-size Hotels/Restaurants/Accommodation Providers: Trincomalee District
Note:Size of the arrow reflects the magnitude of sourcing
Vegetables, Fruits, fish, meat, dairy products,
rice, poultry products etc.
Sanitary, cleaning, and other related products
Oil, cheese, butter, other ingredients used for
cooking purposes and preparation of beverages
Transport, laundry, cleaning, accounting, ICT
related services Few fiirms
Few whole sellers
Whole sellers
National level producers/distributors
Main agriculture marketing center
(Dambulla)
Whole sellers
Informal Farmers/collectors
Producers in outside the region
Few firms
Within the region Outside the region Products/services purchase
A collector (fish products)
87
Annex 6
Case Study Sample Profile Tables
A6-A: Distribution of Sample by Mostly engaged economic activity: Polonnaruwa
District
Main activity No of businesses %
Food & Beverages 12 60
Accommodation 5 25
Crafts & artifacts 2 10
Transportation services 1 5
Total 20 100
A6-B: Distribution of Sample by Mostly engaged economic activity: Trincomalee District
Main activity No of businesses %
Food & Beverages 12 60
Accommodation 6 30
Bar 1 5
Crafts 1 5
Total 20 100
A6-C: Distribution of Sample by Mostly engaged economic activity: Batticaloa District
Main activity No of businesses %
Food & Beverage 12 60
Accommodation 4 20
Craft, gifts, artifacts 1 5
Transportation services 1 5
Fish & organic food suppliers 2 10
Total 20 100
A6-D: Distribution of Sample by Mostly engaged economic activity: Ampara District
Main activity No of businesses %
Food & Beverage 10 50
Accommodation 5 25
Renting vehicles and tourism related equipment 2 10
Ayuredic Spa 1 5
Organic food supplier 1 5
Safari & surf lessons 1 5
Total 20 100
88
A6-E: Distribution of Sample by Size of the Business (in full-time employment):
Trincomalee District
Size No of businesses
<5 employees 8 5-25 employees 8 More than 25 employees 4
A6-F: Distribution of Sample by Size of the Business (in full-time employment):
Polonnaruwa District
Size No of businesses
<5 employees 10
5-25 employees 7
More than 25 employees 3
A6-G: Distribution of Sample by Size of the Business (in full-time employment):
Batticaloa District
Size No of businesses
<5 employees 7
5-25 employees 7
More than 25 employees 6
A6-H: Distribution of Sample by Size of the Business (in full-time employment):
Ampara District
Size No of businesses
<5 employees 10 5-25 employees 7 More than 25 employees 3
89
A6-I: Types of value chains Investigated
1 Food & Beverages
2 Accommodation
3 Bar/restaurant
4 Spa
5 Craft producing/Crafts selling
6 Fish collecting and distributing
7 Vehicles renting
8 Renting sport equipment
9 Conducting Surf lesson
10 Growing vegetables/fruits
11 Laundry services
12 Fun entertainments
13 Artifacts selling
14 producing and Selling decorated furniture
15 Producing and selling furniture relate products
16 Local beverage (king coconuts, orange etc.)
17 Selling Gift items
18 Safari tours/tour guides
19 Coffee Bar
20 Ayurvedic spa
21 Producing organic fruits
22 Collecting and distributing Vegetable, spices, and fruits
A6-J: Age-Profile of Managers Interviewed
Age group Male Female Total
20-29 6.90 0.00 5.71
30-39 34.48 50.00 37.14
40-49 37.93 50.00 40.00
50-59 10.34 0.00 8.57
60 + 10.34 0.00 8.57
Total 100.00 100.00 100.00
A6-K: Distribution of managers by Education level and Firm Size
90
Primary or
less Secondary GCE O/L
GCE A/L or
above Total
Less than 5 employees 6.670 73.330 13.330 6.670 100.000
5-25 employees 0.000 25.000 58.330 16.670 100.000
More than 25 employee 0.000 0.000 28.570 71.430 100.000
Total 2.940 41.180 32.350 23.530 100.000
91
Annex 7
Summary of Case Study Findings
• A clear dualism in the industry where little complementarity exists between the formal
big and informal small operators.
• Formal operators in the industry largely connect with the formal businesses in sourcing
their inputs (both goods and services).
• Small & medium businesses in the Tourism Industry connect largely with the local
economy/community for labour services and inputs.
• Compared to small & medium businesses, big operators source labour very limitedly from
the local economy/community. If any, such sourcing mostly limit to low skill workforce.
• On account of above state of affairs, local community benefits very limitedly from the
Tourism Industry. Except in Ampara district, tourism value chain very limitedly touches
the locals.Local economy/community accounts for a tiny share of the total Tourism
Industry value addition in respective districts. In other words, tourism value chains has
largely failed to connect with the local economy in the selected districts.
• Limited linkages between locals and Tourism Industry is due to number of reasons; (a) lack
of trained workforce, (b) inefficient suppliers with limited capacities (in terms of quantity
and quality), (c) big players organizing the value chain horizontally, (d) financial and
capacity constraints faced by small & medium businesses, (e) unfair business practices
adopted by big operators in the industry, (f) limited number of tourism products (g) state
policies creating unequal access to natural resource assets such as costal belt, (h) limited
of training (i) limited motivation among owners/managers of small & medium businesses
to expand their activities, (j) lack of information on products and services offered by the
informal sector operators, (k) mis-trust among players in the industry, (l) missing (or
under-performing) markets due to quality concerns, (m) small & medium businesses lack
information and knowledge on tourism related products and services, (n) lack of product
innovation, (o) lack of concerns in guaranteeing quality (through certification, labelling
etc.) in products and services offered by small and medium businesses, (p) informal small
& medium businesses mostly get branded as back-packers’ places, and (q) cultural
concerns.
• Small businesses run by women face several constraints.These include lack of proper
training, limited working capital, and ownership of assistance. In addition, they lack
marketing skills and social recognition. They show interest in business expansion,
however, their capacity is constrained by their family and social responsibilities.
• General unwillingness to hire female workers due to barriers such as working hour
restriction, limited areas of placement, security issues, and attitudes towards working
women at tourist hotels.
92
• Moreover, lack of educated and trained females is also a barrier for recruiting female
workers. Cultural concerns over working in the Tourism Industry prevent female receiving
training in the field of Tourism Industry.
• Case studies found evidence that lack of working capital is a severer in women headed
businesses than that of the male-headed businesses. This may be due to multiple factors
such as poor access to credit, lack of assets, poor level of social capital, and lack of proper
training on financial management. Hence, intervention strategies must be designed to
address this issue through interventions such as introducing matching grants or soft-loan
scheme and enhancing financial management knowledge among women.
• It is interesting to find that women-run businesses have positive attitude towards
employing female workers as against the male-run businesses. It is possible that female
workers prefer working at women-run businesses due to security and cultural concerns
and/or women managers find it easy to manage businesses with female workers.
Regardless of the underlying reasons, this implies that supporting women businesses
could promote female participation in the Tourism Industry.
• People with disabilities receive very limited opportunities to engage in economic activities
in the Tourism Industry. General unwillingness to offer job opportunities to people with
disabilities due to lack of required skills in them as well as physical constraints. In
particular, little support to people with disabilities if they are ex-combatants.
• Foreign language ability is extremely poor at small businesses in the food and beverage
sub-sector. This has become one of the major stumbling blocks for both small and
medium businesses reaching foreign tourists. Hence, improving language capacities
remains as one of the top priorities of any policy intervention to improve the livelihood
of poor engage in the Tourism Industry.
• Tourism Industry has enormous potential in uplifting the livelihood of people living in the
four selected districts. However, the present state of affairs may not automatically
generate such wide-spread benefits due to factors just highlighted above. It is widely
recognized in the literature that pro-poor initiatives need get local people and businesses,
mainly informal businesses, linked with the tourism value chain in a sustainable and
productive manner so as to make opportunities available for men and women in the
society to benefits from the Tourism Industry. A number of countries have initiated
programmes to achieve above objectives though effectiveness of such initiatives are
widely not evaluated empirically.
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