Global crisis likely to hit poor hard

Wanduramba, a rural Sri Lankan village 130km south of Colombo, is about as far as one can get from the frenzy of the global financial markets.

But as the international economic crisis worsens, this village in the lush tea plantations of Galle District will feel the impact. The credit crunch could have a telling effect on three of Sri Lanka's top foreign revenue earners in 2007 - foreign remittances (US$2.7 billion), tea exports ($1 billion) and tourism ($300 million), according to the latest data from the Central Bank.

Only exports of readymade garments - valued at $3 billion in 2007 - are not expected to be severely affected. They brought in a little over 10 percent of gross domestic product of $32.3 billion in 2007.

Small plantations hit

W Nallaperuma, owner of a tea plantation of about 0.8 hectares in Wanduramba, has seen tea prices sliding alarmingly in the past two months. "A kilo of tea that we could sell at Rs55 [about $50 cents] two months ago is now going for about Rs30 [about $25 cents]," Nallaperuma told IRIN. "The real effects of the drop in prices will be seen in the coming months."

The planter said tea plantations needed major pruning, fertilising and other maintenance every quarter and the drop in revenue had prompted many farmers to cut back on this essential periodic tending of their tea estates. "Where is the money to do all that?" he asked, "and what is the guarantee that we will get a return?"

Financial specialists told IRIN the drop in tea prices was primarily due to a decline in Russian purchases. "Due to the significant impact of the global financial crisis on the Russian economy, which is the largest single buyer of Sri Lankan tea, the demand for tea is slackening," Sri Lankan economist Muttukrishna Sarvananthan, a Fulbright visiting research scholar at the Elliott School of International Affairs, George Washington University, told IRIN.

He calculated that prices at the national tea auctions had dropped by 24 percent since July 2008. "Since over 60 percent of the tea in Sri Lanka is produced by small-holders, they are the ones most affected by this sudden drop in auction prices," said Sarvananthan.

Falling tourist arrivals

The global crisis is crippling the tourist industry as well, Sarvananthan said. "There was a 10 percent drop in tourist arrivals and earnings from tourism during the first 10 months of this year," he said. "The drop is partly due to fewer tourists from Europe because of the global financial crisis and partly due to the escalating civil war in northern Sri Lanka." ()

Hotel operators at the southern beaches of Sri Lanka, a main tourist destination, are getting ready for lean months during the usually bumper winter season.

"It is a combination of global and national events," Dayal Fernando, the general manager at Amaya Reef Hotel, Hikkaduwa, a tourist hot spot on the southern coast, 100km south of Colombo, said. "Arrivals have dropped because of the global financial crisis and the security situation in the country and now we are also faced with the aftermath [and residual fear] from the attacks in Mumbai."

Any drop in tourism will be acutely felt by poor labourers and daily wage earners in the rural areas of the country, Sarvananthan said.

"Tourism provides livelihoods to hundreds of thousands of people in the interior parts of Sri Lanka, particularly along the southern coast, especially in terms of providing employment in the hotels and resorts, providing markets for locally produced vegetables, fruits and handicrafts, and an array of services such as local transport and tour guides," he said. "The impact on ordinary people will be considerable."

He also warned that the global financial crisis meant a significant drop in all kinds of employment throughout the world. More than 1.6 million Sri Lankans are employed abroad, bringing in $2.7 billion in remittances in 2007. They will likely see a precipitous decline in such earnings, according to Sarvananthan.

ap/bj/mw