The Pandemiconomic Impact: Insights from ACCA finance professionals
Sri Lanka’s tourism and real estate face uncertain futures. They are among the hardest hit by the economic fallout due to the global COVID-19 outbreak. The recovery will be long drawn as is painful. This is because reviving both industries depend on global markets opening. However, ACCA Member Adrian Perera is optimistic. He believes Sri Lanka has unique opportunities which must be carefully managed.
“Sri Lanka’s economy was already in trouble before COVID-19,” Perera says. GDP growth has declined gradually each from 5% in 2015 to 2.2% in 2019. “The pandemic has only made things worse,” he says.
Tourism had thrived despite a three-decade war which ended in 2009, then boomed. The industry has the potential to be Sri Lanka’s top foreign exchange earner. A testament to its resilience, Sri Lanka’s tourism bounced back from the devastating Easter attacks faster than expected. But, the unprecedented challenges from COVID-19 took everyone by surprise.
The tourism sector was barely recovering from the devastating terrorist bombings of churches and hotels in Easter 2019. Tourist arrivals fell 22% that year. Then came COVID-19 and global shutdowns, leading to zero tourist arrivals in April 2020, which is the tail end of the usual peak season.
The immediate future is bleak. “In tourism, no country can recover on its own. No company in the tourism sector can likewise engineer a recovery on its own,” says Perera who is Group CEO at Sascon Holdings. The company controls the Thinnai Group which has interests in the leisure industry.
Governments world over must stimulate growth, relax lockdowns, and ease air travel restrictions. Then, tourism can recover.
Sri Lanka’s tourism industry will not experience growth for the next six to nine months, Perera says. The worst-case scenario is that developing a vaccine for COVID-19 could take two years. “The industry must assess what the new normal is going to be and adapt fast to come out of this crisis,” Perera says.
In the real estate sector, Perera believes prices had been trending downwards. Reliable data is hard to come by because most developers are privately held. Perera estimates the average price per apartment is around Rs41 million with an average construction cost of Rs9,000—12,000 per sq. ft, and Rs36 million for a house with an average construction of Rs6,000/sq. ft.
“Looking at these numbers, which are on the high side, there is something seriously not right with the pricing”, he says. “Property prices are too high compared to the value for money in Sri Lanka. However, real estate sales were also on a downward trend before the pandemic due to the weak economy.”
Construction costs are among the highest in the region. Despite this, Sri Lanka has seen the build-up of a real estate bubble over the last few years, Perera says.
“Before the pandemic, a few large construction companies had gone bust. Going forward the real estate sector is precariously placed. There will be pressure on demand, sales, and pricing. An industry-wide strategy shift can prevent a full-blown collapse.
Despite the challenging outlook for both sectors, Perera believes Sri Lanka has opportunities.
The World Health Organisation in April said Sri Lanka was on track to contain the COVID-19 virus. The country placed the commercial capital and several districts on lockdown for two months. While this badly impacted economic activity, it was necessary.
“Sri Lanka’s universal healthcare system has proven itself. We can leverage this to attract tourists and foreign investors to the property market,” Perera says.
Sri Lanka’s tourism industry has always had problems with productivity and delivering value for money. As the sector struggles to survive, salary cuts will be counterproductive. Motivated staff can deliver value for money to boost demand which is critical for revival. In the medium term, tourism will need to generate domestic demand to survive and then expand to the Asian Region.
Health and safety must remain a priority even after this pandemic eases. Stringent standards must be upheld across the industry from high-end hotels to streetside cafes. No one can afford to cut corners,” Perera says.
Sri Lanka needs to sharpen its tourism campaigns. “Over the past 10 years, our tourism campaigns have changed several times with each new government. We need to develop a campaign that can deliver sustainable results over a long period.”
Medical tourism and elderly care are two areas Sri Lanka can potentially develop into major foreign currency earners. It also needs to improve infrastructure for comfortable living and ease visa restrictions. This will feed the real estate market as well.
Construction and real estate companies must revisit their cost strategies and improve productivity.
It will be critical to complete existing property development projects as soon as possible. They must renegotiate supplier contracts to offer reasonable prices. “Banks must be innovative in their financing schemes and give property developers time to recover and engineer growth.
Perera believes the condominium market will take six to nine months to recover. Investors need value for money and confidence in the country’s systems. The commercial spaces market will likely recover faster. “With social distancing guidelines is place businesses may need to invest in more spacious offices. Optimising spaces may no longer be the new normal,” he says.
“COVID-19 may not be the last pandemic so businesses must learn from this experience. Crowding people to optimise space is no longer viable. It is risky. One person gets sick and the entire office is in lockdown. That will be the new normal. Smart businesses may have to reconsider spreading their staff in more than one location.”