The government aims to regulate e-commerce. It shouldn’t.

A version of this article appeared on  Daily News

The Sri Lankan government reportedly intends bringing legislation to regulate e-commerce businesses operating in the country. The Finance Minister was quoted as saying “They (e-commerce operators) are just operating here. Where is the regulation for that? We will make them bring money earned there back to the country.” If this were enacted it is quite likely that Uber, Agoda and Booking.com; the businesses which have earned the ire of the Tourist Hotels Association of Sri Lanka (THASL) and the Rent-A-Car Association would pull out. These associations have lobbied for regulation.

Sri Lanka’s domestic market is small and the volume of e-commerce is smaller still. For a global company the hassle of incorporating a local office, opening bank accounts and grappling with the local administration would not be worthwhile. They would almost certainly leave.

The Hotels and Rent-a- car association have not made a clear case for their position. Consumers however would be left worse off facing higher prices and more limited choice.

Tourist arrivals

The informal tourist sector is now the fastest growing segment of the market, catering to as much as 40 percent of the tourist arrivals to the country. Internet booking engines are the lifeblood of the sector; small guesthouses depend almost entirely on them to reach their clientele.

Budget tourists, who form the majority of visitors to guesthouses cannot afford the prices of star-class hotel. Close the booking engine and we close the door to the budget tourists who will head off to India or Southeast Asia spelling certain doom to the 8,000 plus small guesthouses scattered across the country. Some mid-range tourists will choose to pay the higher rates at hotels and still come but many will not.

The beauty of allowing small guesthouses to flourish is to broaden the income earning opportunities for people with a minimal investment. Householders rent out extra rooms in their own houses, with a little refurbishment; upgrading the toilets, installing hot water and perhaps airconditioning. The money earned goes direct to the hands of local families. Further, budget tourists will patronise local shops and restaurants, offering an easy path to improved living standards.

Mark P. Hampton is Senior Lecturer in Tourism Management at the University of Kent, notes that:

My own research in Indonesia, Vietnam, Thailand and Malaysia since the mid-1990s shows that as backpackers tend to consume local products (food, coffee, beer, cigarettes etc), stay in small guest houses, and use locally owned ground transport, more of their expenditure is retained in-country than in conventional mass tourism.

Economic leakages from backpacker tourism are also significantly less than for conventional (foreign-owned) tourism, since backpacker businesses are usually locally owned and profits tend to be retained within the developing country rather than flowing overseas to international hotel groups.

Traveller reviews

Depriving these people of opportunities to better themselves in order to benefit large-scale hotels seems perverse. The booking engines do charge the guest houses a fee but the bulk of what is spent by tourists is retained locally.

What about maintaining minimum standards?

In the pre-internet era there was a problem of standards. How does a visitor know what to expect? This is the origin of the star ratings in hotels, a means to indicate standard.

This is no longer a problem. Booking engines work on the basis of traveller reviews. Visitors post their ratings of the places they stay, those that receive poor ratings are less likely to be patronised. Essentially, standards are enforced by the visitors themselves which is why this model has been so successful.

Previously the hotel industry successfully lobbied for the imposition of minimum room rates and there have been recent attempts to restrict short-lets on apartments which were seen as a threat by the hotels. Now they seek to restrict the informal sector.

Hotels in Sri Lanka need to understand that tourism is a global industry; their competition is not only domestic it is regional: from Malaysia, Thailand and Indonesia. A good number of hotels in these countries offer lower rates than the average in Sri Lanka and overall travel costs are rated to be much cheaper, as comments from tourists on the popular TripAdvisor website testify:

“There is no question whatsoever that Thailand is much cheaper than Sri Lanka and with higher quality. On average, all things being equal, Thai hotels are half the price of those in Sri Lanka and there are lots to choose from especially in the low price category.” or

“Sri Lanka is a compact island offering beautiful vistas, cultural, historical and religious sites, beach and river activities, hiking . . . all year round, taking into account the weather patterns. With ten days and proper planning, you could see and do a lot. Compared to Malaysia and Thailand many of the things you might want to do are more expensive.”

Business-friendly destination

The Sunday Times reported that when a Singapore hospitality expert asked in 2014 for a package tour of Sri Lanka, the offering was similar to that she had experienced 10-15 years ago. “It was no different. I have been visiting Sri Lanka for many years and the package was the same as 10-15 years ago. Attempting to cripple the competition locally will not improve the position of Sri Lanka’s hotels regionally and will be the detriment to the wider tourism industry.

It may also be detrimental to local Tech Startup ecosystem in general as Sri Lanka will come to seen as a place with backward and uninviting regulations at a stage the country’s tech community is desperately trying to position it as a place of innovation and attract investors. Instead of lobbying for strangling regulation the lobby groups need to reexamine their value proposition and adapt. On the government’s part, it should stay out of an industry where the average regulator and legislator has minimal understanding. Cumbersome rules will reduce Sri Lanka’s attractiveness as a forward looking business-friendly destination for FDI.

Ravi Ratnasabapathy is a Fellow of the Advocata Institute.