Sri Lanka bets on high-end casinos to boost economy

COLOMBO - Multi-million-dollar casinos planned for Colombo have boosted Sri Lanka's ambitious hopes of becoming Asia's new gambling hotspot, but the projects still face political and religious opposition.

Sri Lanka legalised gambling in November 2010, with the aim of eventually luring cashed-up tourists to the island nation and boosting an economy battered by decades of ethnic war.

The government granted approval to Sri Lanka's John Keells group last week, for a US$850-million (S$1,066 million)  "mixed development", a euphemism for an entertainment hub that includes gambling.

The green light was also given last month to the local partner of Australian billionaire and gaming tycoon James Packer, for a similar deal to build a $350 million lakeside resort in the heart of Colombo. Both investments have been given a generous 10-year tax holiday.

"Big names coming to Sri Lanka for mixed developments is a huge boost to the (tourism) industry," said Chandra Mohotti, chairman of the state-run Sri Lanka Institute of Tourism and Hotel Management.

John Keells, the island's biggest diversified group with interests in hotels, has not announced details but industry officials say it will include a casino with a yet-to-be named foreign partner.

Packer's Crown Group and John Keells are betting on Sri Lanka's post-war economic growth and rising tourist numbers. Government officials have stressed that both projects, expected to start before the end of this year, will create thousands of jobs and attract high rollers.

But the main opposition party has baulked at the projects, not on moral grounds, but because of the generous tax breaks gifted to developers.

"What we are saying is that if the country is to benefit, they must be taxed and regulated," United National Party (UNP) lawmaker Harsha de Silva said. "We will not jump up and down saying we oppose casinos."

The UNP is pushing for a sin-tax on casino developments in line with the heavy duties slapped on the alcohol and tobacco industries. Investment promotion minister Lakshman Yapa Abeywardena defended the government's efforts to encourage "mixed-developments" including with the 10-year tax holiday.

"If we don't offer generous tax incentives, these investors will go to some other country," Yapa said last week.

Small, low-key casinos have been tolerated in conservative mainly Buddhist Sri Lanka even before gambling was legalised in 2010, by exploiting various legal loopholes.

The government has been trying to placate the island's influential monks by saying all future big-name casinos will be built in one designated zone in Colombo, and open only to foreigners.

Buddhist monk Athuraliye Rathana, a lawmaker and senior leader of the National Heritage party, warned the government that these and other details set out in the 2010 gambling legislation must be strictly followed.

"We oppose gambling, but it is not practical to eradicate it completely. The government must enforce the Gambling Act (of 2010) and limit casinos to designated areas rather than give them a free run," he told AFP.

"The government has at least said there will be a separate area for gambling. So let us see how they implement it," another Buddhist monk, Galagodaatte Gnanasara, secretary of the radical Bodu Bala Sena (BBS, or Buddhist Force) said.

The government is still thrashing out details of a regulatory framework for casinos, three years after legalising gambling. A senior minister told parliament at the time that Sri Lanka hoped to replicate Singapore's success in attracting high rollers to a well-regulated industry.

Mohotti said luring Crown and other brands was key to further developing tourism, which is enjoying steady growth after hitting rock bottom during the war between 1972 and 2009.

"Four top brands - Le Meridien, Marriott, InterContinental and Oberoi - left Sri Lanka during the war," added Mohotti, who is also a senior vice president of Sri Lanka's 149-year-old Galle Face Hotel.

Tourism income is set to rise from 1.0 per cent of gross domestic product to 5.0 per cent in the next three years, according to government forecasts, on the back of a continuing hike in visitor numbers.

The government has set a target of doubling annual visitor numbers to 2.5 million by 2016, including by encouraging different forms of tourism.

Sri Lanka attracted a record one million visitors in 2012 with between 1.2 and 1.3 million expected this year, the government says.

Big-name casinos in Sri Lanka could tap a huge pool of potential punters from neighbouring India, where most forms of gambling are banned, according to a recent analysis from the daily FT financial newspaper.

"Sri Lanka emerging as a gaming centre could draw more tourists from India and the Middle East," the report said.

However, independent economic analyst Channa Amaratunga said it was difficult to forecast the financial gains given the lack of transparency in the government's gaming plans so far.

"In the alcohol and tobacco industries, we have a good idea of how much is produced, what the sales are and more importantly what the profits are, but not in gaming," Amaratunga said.