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

1

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:

2

• 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.

3

• 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

4

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

5

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.

6

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.

7

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.

8

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.

9

• 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.

10

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.

11

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.

12

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.

13

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

17

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.

18

➢ 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

19

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.

21

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.

25

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).

31

• 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

32

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

Reference

Adiyia, B., Vanneste, D., Van Rompaey, A., &Ahebwa,W. (2014),“Spatial Analysis Of Tourism Income Distribution In The Accommodation Sector In Western Uganda”, Tourism And Hospitality Research, 14(1–2), 8–26.

Ashley, C., Roe, D. And Goodwin, H. (2001) Pro-Poor Tourism Strategies: Making Tourism Work For The Poor. A Review Of Experience. Pro-Poor Tourism Report No. 1, Accessed Via Http://Www.Propoortourism.Org.Uk/Ppt_Report.Pdf

Bah And Goodwin (2003), "Improving Access For The Informal Sector To Tourism In The Gambia", Access Via Https://Www.Odi.Org/Sites/Odi.Org.Uk/Files/Odi-Assets/Publications-Opinion-Files/4032.Pdf

Department Of Census And Statistics (2016), Labour Force Survey, 2016: Colomb, Department Of Census And Statistics Of Sri Lanka

Fields, S. G. (2005),“A Guide To Multi-Sector Labour Market Model”, Paper Presented At World Bank Labour Market Conference, Washington, USA. Retrieved From Http://Www.Law-Economics.Cn/Book/17.Pdf

Goodwin (2007), "Tourism, LOCAL Economic Development, AND POVERTY REDUCTION", Access Via Http://Haroldgoodwin.Info/Uploads/ARED2008goodwin_Online_V5n3_Propoor_Tourism.Pdf

Government Of Sri Lanka (2017), Tourism Strategic Plan, Colombo: Government Of Sri Lanka

Government Of Sri Lanka (2005), Mahinda Chinthanay, Colombo: Government Of Sri Lanka

Government Of Sri Lanka (2010), Mahinada Chinathanaya Forward Vision,Colombo: Government Of Sri Lanka

Government Of Sri Lanka (2016), Powerful Sri Lanka, Colombo: Government Of Sri Lanka Government Of Sri Lanka (2016), Small And Medium Enterprises Development Action Plan

(SME-DAP), Colombo: Government Of Sri Lanka

Kirsten, M. And C. Rogerson (2010), "Tourism, Business Linkages And Small Enterprise Development In South Africa", Development Southern Africa, Vol. 19(2)

Meyer, D. (2006), “Caribbean Tourism, Local Sourcing And Enterprise Development: Review Of The Literature. Pro Poor Tourism”, Working Paper No 19, London: Overseas Development Institute (ODI), International Institute For Environment And Development (IIED) And International Centre For Responsible Tourism (ICRT).

Mitchell, J., And Faal, J. (2008),“The Gambian Tourist Value Chain And Prospects For Pro-Poor Tourism”, Overseas Development Institute.

Nyaupane, G. P., And Poudel, S. (2011),“Linkages Among Biodiversity, Livelihood, And Tourism”,Annals Of Tourism Research, Vol. 38(4).

Schneider, F. (2016), “Estimating The Size Of The Shadow Economies Of Highly-Developed Countries: Selected New Results”, DICE Report, 14(4), 44-53.

60

Slocum, S. L., Backman, K. F., And Robinson, K. L. (2011),“Tourism Pathways To Prosperity: Perspectives On The Informal Economy In Tanzania”, Tourism Analysis,Vol. 16(1).

Standing, G. (1999), Global Labour Flexibility: Seeking Distributive Justice, New York: St. Martin’s Press.

Timothy, D.J., And Wall, G. (1997), “Selling To Tourists: Indonesian Street Vendors”, In: T. Huybers (Ed.), Tourism In Developing Countries, Edward Elgar Publishing, Massachusetts, USA, 319-339

Wahab, I, N. Rohana, And S. Zarina (2015), "The Sustainable Competitive Advantage Of Small And Medium Enterprises (Smes) With Intellectual Capital, Knowledge Management And Innovative Intelligence: Building A Conceptual Framework", Advanced Science Letters 21(5):1325-1328

World Travel And Tourism Council (2017), Travel & Tourism: Economic Impact 2017 - Sri Lanka: Colombo, World Travel And Tourism Council

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.

TRINCOMALEE

BATTICALOA

AMPARA

POLONNARUWA

Skills for Inclusive Growth

PROJECT OFFICE :

No# 05, Rosairo Lane, Batticaloa, Sri Lanka.

+94 65 222 9296 inclusivegrowth.com.lk

Skillsforinclusivegrowth Skills for inclusive growth