This article was first published on Global Risk Insights.
Sri Lanka has been seeking to boost its economy following the end of its civil war in 2009, with tourism being a key growth sector. The island nation is witnessing an impressive tourist boom, with foreign investors eyeing the country as a promising growth market. Despite these trends, tourism in Sri Lanka faces serious risks. Specifically, the country’s tourism industry is being dominated by the armed forces, which run a plethora of businesses, generating income for the defence department while keeping hundreds of thousands of troops in the north.
In response the UN exhorted Sri Lanka on October 20th to take immediate steps to strengthen Sri Lankan collective identity, as well as to reduce the role of the military in the private sector, including the return of occupied lands.
Sri Lanka is seeking to attract foreign investors for its tourism sector, with Thailand’s Dusit Thani already setting up shop in the country. The government is offering appealing incentives including guaranteed six percent return for five years, paid out quarterly in U.S dollars, freehold titles for owners, capital gains potential of around 30%, and cheap development land. Hotel chains in turn are lobbying the government to relax visa rules to facilitate longer visits. Despite these incentives, investors need to be aware of existing risks.
The risks for investors in Sri Lanka
T
he problem for foreign investors is that the military is using press-ganged soldiers receiving negligible wages to staff resort and entertainment venues, undercutting competitors. This is also stifling attempts to create a viable economy in the region, as the Tamil population is excluded from even menial jobs, and the military entrenches itself in the civilian sector. We have seen this phenomenon in places such as Egypt, and it does not bode well for economic freedom or accountability.
Foreign investors risk associating themselves with military-linked service providers engaged in anti-Tamil discrimination. Foreign businesses also risk censure from ethically-conscious tourists, as various activist groups are already highlighting the ethical implications of frequenting military run resorts. There is also a serious medium to long-term risk of renewed violence and sectarian conflict. Consequently, investments in these areas are at risk from angry locals protesting the military and unfair development plans prioritizing tourism over local well being.
The perilous situation faced by Sri Lankan journalists and increasingly lack of accountability are also both threats to foreign investors. The former denies companies reliable, objective news and data, while the latter threatens increased corruption and ineffective arbitration – especially when military interests are involved. Lastly, any future downturn in tourism will not only be an economic, but also a security risk, as the revenue of the military is reduced. This may see the military either further undercut competitors, and/or enter other sectors to compensate, destabilizing businesses in its wake.
Military influence undermining accountability
The influence of the military in post-war Sri Lanka is increasing apace, and this poses real risks for foreign investors. For instance on October 17th, the head of Sri Lanka’s anti-corruption body resigned after President Sirisena claimed the agency was favouring his opponents. The agency had been heavily involved in prosecuting intelligence officers and other military staff for wartime acts under the previous Sri Lanka Freedom Party (SLFP) government. Sirisena ousted said government in 2015, but the SLFP now forms part of the ruling coalition.
Furthermore, another indicator of declining accountability is the apparent suicide of an army officer on October 15th. The officer question was found with a note claiming responsibility for the death of a prominent newspaper editor critical of the military and treatment of Tamils in 2009. Many are speculating that this note is a cover-up operation aimed at freeing an imprisoned intelligence officer blamed for the crime. The police have noted missing evidence and autopsy notes, and are exhuming officer’s body to check for tampering. Police also exhumed the editor’s body in June under similar suspicions: he was killed by armed gunmen in a high security zone in broad daylight.
Sri Lanka currently ranks as the sixth most dangerous country for journalists, higher than Afghanistan; 17 journalists were killed under the previous government.
From victory to vacation
Since its definitive victory over the Tamil Tigers in 2009, the Sri Lankan military has lacked a raison d’etre. The military remains grossly oversized, and instead of working towards demilitarization, the military continues to keep between 150,000 – 200,000 troops in the Tamil populated north. This substantial military presence has resulted in one of highest military concentrations in modern history; a level higher than in Northern Ireland or Chechnya at the height of their counterinsurgencies.
During the war, the military appropriated large tracts of private land, creating a demilitarized zone which they continue to control. Despite some efforts to return land to its original inhabitants, the military still controls at least 6,000 acres of private land and has acquired at least an additional 67,000 acres for its own needs. This area includes various Tamil villages and factories, the former of which remain off-limits and the latter, including a cement factory, have been taken over the military.
While over a hundred thousand displaced persons live in squalid refugee camps, the military is using this appropriated land to build luxury resorts and apartments. With Sri Lanka expecting to see two million tourists in 2016 and double that number by 2020, the army has become a major tourism operator. All the staff in these resorts, such as the Thalsevana Holiday Resort, from bell hop to cook to clerk are all active duty military personnel, trained for their respective roles by the military, and receiving pay checks from the defence department.
Visitors are shuttled around the island from the military airport where they land via Heli-Tours, the air force operated charter service. Guests see their reservations and passports are inspected at military checkpoints, only to later go on sightseeing trips on navy vessels. The navy also rents out its larger vessels for corporate functions and private events such as weddings.
The poster child for this militarized tourist sector is the army run Lagoon’s Edge resort where guests are invited to stay at the site where the Tamil ‘terrorists’ were finally defeated. Situated in the middle of the killing fields where some 40,000 Tamil civilians were killed in the final weeks of the war, the resort caters to wealthy Sinhalese visitors from the south.
Perversely, Passikudah – another military run resort accused of abuses against locals – was the venue for the United Nations World Tourism Organization (tasked with promoting sustainable, responsible tourism) conference in July, where delegates lauded the government’s tourism development efforts, before going whale watching with the navy. At the same time local protesters were silenced by threats from intelligence officers.
It is not just hotel staff, but farm and factory workers, grocery store shelf-stockers, barber shops, snack vendors, travel agencies, restaurants – even road side stall workers are all Sinhalese army personnel. The inroads into the civilian sector by the army is so extensive that in 2010 the Ministry of Defence was renamed the Minister of Defence and Urban Development (the name was reverted in 2015). The military has built a 600 acre golf course, cattle ranch and yogurt factory. In 2014 the military announced it wants to operate 150 hotels in the country, and is set to begin construction on a new five-star resort and apartment complex in January 2017.
Mattukrishna Sarvanathan, economist at the Point Pedro Institute of Development argues that “it was a mistake on the part of the government to let the army establish and operate these businesses […] it is not the job of the Sri Lankan army to sell soft drinks, biscuits, and chocolate along the highway.”
Ethnic violence risk increasing
The military has ousted the local Tamil population from the wider economy, as it strives to keep personnel busy. Alongside luxury resorts, new apartment being built are earmarked for foreign investors in a region where only 16,000 of the 100,000 homes destroyed in war have been rebuilt. The region also lacks sufficient sanitary, medical and education infrastructure, all of which the Tamil minority feels most acutely. Coupled with a lack of jobs, anger towards the government will only increase.
All these soldiers also provide a dual role as watchers of the Tamil population, with activists claiming that the soldiers and their families represent the first wave of Sinhalese settlers. There are indeed strong indications that the government tacitly supports demographic change in the north, – the Secretary of Defense Gotabaya Rajapaksa, brother of President Mahinda Rajapaksa publicly stated as much – facilitated by military control of the local economy. This in turn threatens to further entrench divisions between Tamils and Sinhalese — a recipe for future ethnic violence.
Under the Radar uncovers political risk events around the world overlooked by mainstream media. By detecting hidden risks, we keep you ahead of the pack and ready for new opportunities.
Under the Radar is written by Jeremy Luedi.
This is an excerpt from an article first published by Global Risk Insights. Read the original article here: Under the Radar: Tourism in Sri Lanka at risk from military | Global Risk Insights
