Sri Lanka Embraces Tourists But Confronts Illegal Ventures – Analysis


By Amila Prasanga and Ganeshan Wignaraja

International tourism is again attracting controversy, this time due to visitors on tourist visas running businesses in developing Asian countries. Since the Russian invasion of Ukraine in 2022, Sri Lanka has allowed Russians and Ukrainians to enter the country without paying visa fees in a bid to boost tourism. Desperate for foreign exchange following its sovereign debt default in 2022, Sri Lanka has turned a blind eye to some of these visitors running businesses.

As many as 197,498 Russians and 5082 Ukrainians visited Sri Lanka in 2023 — 13.6 per cent of total tourist inflows. But data is lacking on how many have stayed beyond a 60-day tourist visalimit. In February 2024, Sri Lanka abruptly terminated visas for long-staying Russians and Ukrainians.

This was in response to massive public outrage over a so-called ‘white-only party’ at a nightclub, leading the Russian business owner to apologise and cancel the event. This incident had little effect on Sri Lanka’s neutral foreign relations with Russia and Ukraine but has sparked a policy debate on the benefits of tourists running businesses in developing Asian countries.

Cross-country data on the number of tourists running businesses in Asia is hard to come by. But there are many reported cases of tourists running small businesses in IndiaSri Lanka and Thailand. Some of these businesses are legitimately set up and largely adhere to domestic rules and regulations, while others operate as informal enterprises outside domestic regulatory reach, employing foreign nationals on tourist visas. Some of these illegal entities are temporary ventures that only operate during the tourist season, making them hard to regulate.

The practice of tourists setting up businesses may be linked to various factors.

One factor is the outflow of young people seeking new opportunities following disruptions caused by complex geopolitical conflicts. A conservative estimate suggests that between 500,000 and one million Russians have emigrated since the invasion of Ukraine, including desperate young men wanting to avoid the draft. Meanwhile, Ukraine has more than five million refugees residing internationally. Some of these refugees have gone to Sri Lanka and the rest of developing Asia.

Another factor is the lax enforcement of visa rules by overstretched immigration departments in some countries, many of which have poor online tracking systems.

Sri Lanka’s experience offers lessons to other developing countries in Asia. One is the potential benefits and costs of visitors on tourist visas running businesses. By identifying the trade-offs between economic benefits and security threats associated with extended-stay tourism, policymakers in developing Asia can develop national strategies that maximise economic gains while mitigating social and cultural tensions.

Such tourism can be considered a special case of micro or small enterprises investing on an extremely small scale. It offers development benefits by transferring skills, relying more on local suppliers than larger foreign investors and providing local jobs. Examples include small guest houses, restaurants with European cuisine and cafes in tourist areas.

There may also be costs associated with tourists illegally running businesses. One is the loss of national tax revenue, which deprives a developing country of public programs and projects related to infrastructure and social development. Another cost is escalating local land and property prices in tourist areas, which can outprice locals, leading to social tensions and the perception that foreigners are stealing local jobs. There is also the serious issue of rising crime in tourist areas, including money laundering, fraud, online gambling, drug trade and human trafficking.

To encourage short-stay tourists to evolve into legitimate long-stay investors, developing Asia should create a market-friendly business environment. This would require greater transparency and predictability in business start-up and operating procedures.

Cutting unnecessary business procedures and introducing digitisation of procedures would make it easier to register a business, get work permits for micro investors, hire local workers and pay taxes. This would reduce investment costs, the hassle factor involved and rent-seeking behaviour.

Reforming cumbersome business regulations and procedures can take some time. As an interim measure, national investment and tourism promotion organisations should jointly set up a help desk for micro investors to inform and guide them through the myriad of domestic start-up rules and regulations.

Developing Asia should also invest in tourism policing and modern national intelligence capabilities to tackle crime. Three policy priorities are important on the security front. Public-private partnerships should be enhanced by security services partnering with private security firms to ensure efficient and professional tourism security services. Developing Asian countries should promote cybersecurity awareness campaigns and invest in cybercrime prevention infrastructure to combat online threats. Regional intelligence-sharing platforms should also be developed among developing Asian countries to strengthen security and combat trans-border crime.

Legitimate long-stay micro foreign investors from Russia and Ukraine could bring net economic benefits to Sri Lanka and others in developing Asia. Economic and national security policies should be geared towards cautiously facilitating these investors rather than curtailing them through discriminatory heavy-handed state action.

About the authors:

  • Ganeshan Wignaraja is Visiting Senior Fellow at ODI and Professorial Fellow in Economics and Trade at Gateway House.
  • Amila Prasanga is Commander in the Sri Lanka Navy and Military Research Officer at the Institute of National Security Studies (INSS), the premier think tank on National Security in Sri Lanka established under the Ministry of Defence.

Source: This article was published by East Asia Forum

The opinions expressed are the authors own and do not reflect the views of the institutions to which they associated .

East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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