By Amyra Prasanga and Ganeshan Wignarajah
International tourism is once again in controversy, this time due to visitors running businesses in developing Asian countries on tourist visas. Since Russia’s invasion of Ukraine in 2022, Sri Lanka has waived visa fees for Russians and Ukrainians to boost tourism. Sri Lanka, struggling with a foreign currency shortage after its sovereign debt default in 2022, has turned a blind eye to some of these visitors running businesses.
In 2023, 197,498 Russians and 5,082 Ukrainians visited Sri Lanka, making up 13.6% of the total tourist arrivals. However, data is lacking on how many overstayed their 60-day tourist visas. In February 2024, Sri Lanka abruptly abolished visas for long-term Russians and Ukrainians.
This was in response to public outrage over a so-called “whites-only party” at the nightclub, which led to the Russian proprietor apologizing and cancelling the event. The incident had little impact on Sri Lanka’s neutral diplomatic ties with Russia and Ukraine, but it sparked a policy debate about the benefits of tourists doing business in developing Asia.
Country-specific data on the number of tourists conducting business in Asia is difficult to obtain. However, there are numerous reports in India, Sri Lanka, and Thailand of tourists conducting small businesses. Some of these businesses are legally established and largely follow national rules and regulations, while others operate as informal enterprises outside the scope of national regulation, employing foreigners on tourist visas. Some of these illegal entities are temporary, operating only during the tourist season, making them difficult to regulate.
The habit of tourists setting up businesses can be linked to a variety of factors.
One factor is the exodus of young people in search of new opportunities after the turmoil of a complex geopolitical conflict. Conservative estimates suggest that between 500,000 and 1 million Russians have emigrated since the invasion of Ukraine, including young people desperate to avoid military conscription. Meanwhile, Ukraine is home to more than 5 million refugees abroad, some of whom have traveled to Sri Lanka and other developing Asian countries.
Another factor is lax enforcement of visa rules by overburdened immigration authorities in some countries, while many have inadequate online tracking systems.
Sri Lanka’s experience offers lessons for other developing countries in Asia, including the potential benefits and costs of visitors conducting business on tourist visas. By identifying the trade-offs between the economic benefits and security threats associated with extended-stay tourism, policymakers in developing countries in Asia can develop national strategies that maximize economic benefits while mitigating social and cultural tensions.
Tourism as such can be considered a special case of micro and small enterprises with very small investments, bringing development benefits through technology transfer, increased reliance on local suppliers rather than large foreign investors, local job creation, etc. Examples include small guesthouses, European restaurants and cafes in tourist destinations.
There may also be costs associated with tourists operating illegally. One of these is the loss of tax revenue for the country, which deprives developing countries of public programs and projects related to infrastructure and social development. Another cost is the rising price of land and real estate in tourist destinations, which can exceed locals’ budgets and lead to social tensions and the perception that foreigners are taking away local jobs. Also, increased crime in tourist destinations is a serious problem, including money laundering, fraud, online gambling, drug dealing, and human trafficking.
To encourage short-term tourists to evolve into legitimate long-term investors, developing Asian countries need to create a market-friendly business environment that requires greater transparency and predictability in the procedures for starting and running a business.
By cutting unnecessary business red tape and introducing digitization of procedures, it becomes easier for micro-investors to register their business, obtain work permits, hire local workers, and pay taxes, thus reducing investment costs, associated hassle, and profit-seeking behavior.
Reforming cumbersome business regulations and procedures will take time. As an interim measure, national investment and tourism promotion agencies should jointly set up help desks for small investors to provide information and guidance on the country’s many rules and regulations for starting a business.
Developing Asian countries should also invest in tourism security and modern national intelligence capabilities to combat crime. On the security front, three policy priorities are key: Public-private partnerships should be strengthened, with security services partnering with private security companies to ensure efficient and professional tourism security services; Developing Asian countries should promote cybersecurity awareness campaigns and invest in cybercrime prevention infrastructure to counter online threats; and a regional information-sharing platform should be developed among Developing Asian countries to strengthen security and combat transnational crime.
Small, legitimate, long-term foreign investors from Russia and Ukraine have the potential to bring net economic benefits to Sri Lanka and other developing Asian countries. Economic and national security policies should be judiciously directed toward supporting these investors, rather than restricting them through discriminatory and coercive state measures.
About the author:
Ganeshan Wignarajah is a Visiting Senior Fellow at ODI and Professor of Economics and Trade at Gateway House. Amira Prasanga is Commander in Chief of the Sri Lanka Navy and a Military Research Officer at the Institute for National Security Studies (INSS), Sri Lanka’s premier think tank on national security established under the Ministry of Defence of Sri Lanka.
Source: This article was published by East Asia Forum
The opinions expressed are the authors’ own and do not necessarily reflect the views of any institution with which the authors are affiliated.
