Multiple impacts in Sri Lanka from Ukraine war
Sri Lanka is facing multiple impacts from Thursday’s Russian invasion of Ukraine with the immediate crisis being the hit on tourism, tea and the cascading effect on global fuel prices.
With fuel prices set to increase in the aftermath of the war in Ukraine, Sri Lanka’s tea industry’s key export market Russia and both these countries currently generating high tourist arrivals are clearly set
to create a major setback.
Furthermore Ceylon Association of Shipping Agents (CASA) former Chairman Iqram Cuttilan said that fuel prices is the critical factor and with crude oil prices going over US$100 this week, bunkering costs will go up by about 5 -10 per cent.
Freight rates have now come back to the previous high levels after the Chinese New Year ended and it was expected to ease by the end of the first half of this year, it was noted.
In the meantime, travel to long haul destinations like Sri Lanka will be impacted due to the surge in aviation fuel that will be reflected through the increase in airfares.
As a result travel packages to Sri Lanka will become more expensive resulting in a drop
in traffic from far flung markets like Eastern Europe and Europe.
Tourist Hotels Association of Sri Lanka President M. Shanthikumar said the tourism impact would be severe. Currently, Russia and Ukraine are doing well in Sri Lanka and with Ukraine closing its airspace it certainly will have an impact on travel, he said.
Last year, Russia was the second highest generator of tourists to the country with arrivals reaching 16,894 and Ukraine at fifth place with 7,037 arrivals.
In fact, he noted that they have not experienced any cancellations as yet from these markets but it is likely that even the Russians are unlikely to travel the way they do now following this latest setback.
“In the coming couple of
days we will know the impact,” he said.
The impact of reported sanctions on Russia could be twofold; Asia Siyaka Market analysts stated, the first is that significant funds are due from Russia for tea shipments already made over the past three months. The second aspect is the impact of a Russia buying slowdown in future auctions. Whilst it is not clear what the full impact of the declared sanctions and future sanctions might be, it is inevitable that the cost of doing business with Russia would increase.
Sri Lankan exports to Russia have declined 41 per cent from 46 million kg in 2013 (one of the best years) to 27 million kg in 2021. Despite this negative historic trend, Russian demand plays a significant part in the market for tea and even in January 2022 Russia was ranked second of all export destinations. Russia is ranked number three after Iraq and Turkey in 2021.
Meanwhile, Sri Lanka exported 4.2 million kg of tea to Ukraine in 2021 and shipments to this market had been on or around this quantity in the last seven years. The approximate FOB value was US$4.93 per kg compared with a national average of $4.63 per kg for all teas exported during the year 2021.
Tea is also set to be impacted with exporters stating that there could even be the possibility of no trading with Russia in the wake of the sanctions imposed this week by the Western allies.
Sri Lanka was able to continue under previous sanctions against Russia since then it was only on certain types of food and types of financial transactions but this time it is going to be a major problem if it is going to be a war, Colombo Tea Traders Association (CTTA) Chairman Jayantha Karunaratne said.
He noted that it could even mean that “everything will come to a halt,” which would mean there could be a complete stop to tea exports as “we may not be able to ship goods to Russia, Ukraine, Eastern European states like Lithuania.”
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