Financial Times

Sri Lanka’s small and medium scale hotels are to expand marketing capabilities this year, to reach a global audience thanks to a new initiative by the International Finance Corporation’s (IFC).

The IFC – the World Bank group’s private sector arm – launched the SouthAsia Enterprise Development Facility (SEDF) this week in Colombo, to develop small and medium enterprises (SME) in Sri Lanka and the Maldives in a few selected sectors. The SEDF is a multi-donor facility managed by the IFC and was launched in 2002 in Dhaka, Bangladesh. The objective of the SEDF is to reduce poverty by developing small and medium enterprises.

Earmarked for immediate attention in Sri Lanka, is the SME sector in the local tourism industry.

“Today Sri Lanka is still sold as a cheap destination and average room rates are in the range of US$ 40 to US$ 50 per room. The final objective of the tourism project under the SEDF, is to sell Sri Lanka as a high end destination,” says project advisor, IFC/SEDF, Lionel Somaratne.

The SEDF tourism programme will try to achieve this objective by lifting the profile of Sri Lanka’s small and medium hotels that currently have very little marketing and promotional capacity.

“Unlike the bigger hotels the small hotels don’t have the capabilities to market their properties, although there are smaller hotels of good standard. Because of this reason average occupancy in these hotels is around 30%-40%. So what we plan to do, is to set up a marketing facility for small and medium hotels, mainly to enable e-marketing,” says Somaratne.

The SEDF is also hoping to leverage the IFC’s World Hotel Link initiative to provide immediate online presence for Sri Lankan hotels. The World Hotel Link is an online network of small and medium hotels from 34 countries. Linking up with the network will guarantee exposure for Sri Lankan hotels among foreign hotel owners as well as potential tourists.

Meanwhile, the e-marketing facility will be set up as a private company to function independently, with initial support from the SEDF. “We will set up the facility but it will be managed by a private party. The private party is also expected to make some contribution to the venture,” says Somaratne.

“We are hoping to call for private sector proposals within the next three months, to set up this marketing facility,” he said.

The facility is expected to be operational, with Sri Lankan small and medium hotels on the Internet, within this year.

The SEDF estimates that Sri Lanka has around 100 hotels that fall within the category of small and medium and can directly benefit from Internet marketing at a minimum cost. Although there is no standard definition for SMEs in the hotel sector, going on common industry standards, the SEDF will accept any hotel with an annual turnover of less than Rs 100 mn as an SME.

In addition to the small and medium hotels, the SEDF will also target the cinnamon sector to improve its efficiency and competitiveness. The SEDF will also initiate programmes to develop SMEs by improving access to information communication technology and by improving access to credit.

“We are not giving money to SMEs. We provide technical assistance. In the case of improving access to credit for SMEs, we will give technical assistance to the banks,” said Somaratne.

Somaratne points out that although funding is available for Sri Lankan SMEs through various donor and lending programmes, the problem is in taking the funds to the SMEs.

“There is so much funding for SMEs, but the banks are struggling to disburse their targets and the SMEs say their main problem is getting money from the banks. So there is a gap between the funds and SMEs. We will try to work with the SMEs and the banks to overcome this gap,” explained Somaratne.

The SEDF is also in discussion with the Information Communication Technology Agency (ICTA) to see how to leverage information technology for SMEs.

Already US$ 10 million has been allocated for SME development projects, over the next five years, in Sri Lanka and the Maldives but the bulk of the funding will be disbursed in Sri Lanka. The programmes will initially focus on all areas of Sri Lanka except the northeast and will expand to the northeast, say the SEDF, as part of the donor supported reconstruction process as peace progresses.