RS Especially for web The money is there, but where to put it?

The money is there, but where to put it?

April 2012

The Russian tourism industry is not yet ready to handle a possible investment growth

Paradoxically, despite demand from investors, Russia is not yet ready to absorb investment in the development of its tourism industry. The problem is an old one, that of bureaucratic red tape. However, the government could help to remedy the problem by removing existing barriers.

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“Investors are prepared to invest around USD 45 billion”, Mark Harms, Deputy Chairman of the Board of Directors of the World Travel and Tourism Council (WTTC), declared on 28 March. However, according to him, Russia itself is not yet ready for such investments.

As Leo Karp, CEO of Power Network Corporation (Canada), explained at a meeting of the Russian Union of Industrialists and Entrepreneurs (RUIE) Commission, foreign investors are particularly interested in Sochi, Kaliningrad and Vladivostok. At the same time, foreign companies do not just want to invest money, but they also want to redirect the flow of international tourism to our country.

However, within the country, most people are not prepared to deal with such proposals. As Mr. Karp explained, the country has not developed a culture of receiving investments, and bureaucratic hurdles outweigh the desire of international investors to fund development projects.

Foreign companies want to not only invest money, but also redirect the flow of international tourism to Russia. However, the country is not yet prepared to accept such a proposal

According to data from the World Tourism Organisation (UNWTO), although Russia is ranked fifth in the world in terms of tourism potential, the country's income from the industry is ranked 91st out of 139 countries.

“In terms of spending on tourism development, our country is even lagging behind countries such as Cambodia, Gambia and Paraguay. Russia is in 122nd place for state support of tourism. Over the last seven years the flow of foreign tourists into Russia has declined by 30%, from 3.15 million to 2.1 million. At the same time, between 2009 and 2010 the number of Russian citizens holidaying abroad rose by 32%”, said Sergey Veremeyenko, Chairman of the RUIE Commission for the Tourism and Hospitality Industries.

However, experts note that investments in the Russian tourism industry are sufficient and significant, but there are a number of specific problems.

“In my view, first of all, all these investments are concentrated in a few places. Funds are mainly focused on the following clusters: Moscow, St Petersburg, Sochi, the Caucasus, and a number of other, significantly less important regions”, says Pavel Emeliantsev, analyst with the independent agency Investkafe. “Secondly, the infrastructure itself does not exactly welcome tourists. The fact is that the money is mainly spent for very specific purposes, such as hotels, ski resorts and the like, while the overall picture still leaves much to be desired. There are problems with transport, security, adaptability of the infrastructure for foreigners who cannot speak Russian, and so on.”

Meanwhile, he continues, the country is rich in opportunity. There are at least three main areas that are particularly interesting: ski tourism (Caucasus, Altai, Sayany), nature tourism (Baikal, Kamchatka) and historical tourism (Moscow, St Petersburg, the Golden Ring).

“I believe that overall economic growth in the country will help improve the domestic tourism climate,” states Emeliantsev. “We need to develop domestic tourism. It is easier and cheaper, but it would not hurt to improve the entire tourism sphere in an attempt to attract more foreigners in the future. We need to develop not only tourist sites, but also transport and the surrounding infrastructure: airports, roads, railways, shopping centres, and so on.”

In turn, Irina Vorobyova, expert of the assessment department of 2K Audit – Business Consulting/Morrison International, laments about the lack of investment in Russia's tourism industry. “However, a state supported programme has now been developed, according to which the state will invest 96 billion roubles into domestic tourism by 2020, with private investors contributing 200 billion roubles”, she recalls. “Of course, if Russia is to dramatically improve its attractiveness for tourists, especially foreign ones, then even this is too little, but we have to start somewhere.”

In general, experts claim that there has been a definite shift in the last couple of years. The government, nevertheless, has drawn attention to the fact that Russia has very high tourism potential, but it requires private investment and government support to make these plans a reality. “The government has started investing in resorts in the North Caucasus, Baikal, and so forth”, says Ms. Vorobyova.

In 2011 the flow of tourists increased slightly, reaching 2.3 million people. Domestic tourism is also gradually increasing, but not as rapidly as the number of people going abroad (8% vs. 11% in 2011)

Experts have singled out the following problems as hampering the development of the tourism industry in Russia: the first problem, which is common to all resorts, is inadequate and underdeveloped infrastructure. Building new infrastructure would require very serious spending, and the government could be doing a lot more to assist private business than it is now. The second problem is very high cost of air travel. Some places, such as the Kuril Islands and Kamchatka, are reachable only by plane. These are highly interesting tourist destinations, but the cost of getting there is astronomically high. Even though tens of millions of tourists visit these places in the summertime, charter flights do not fly there, hence the high cost of tickets. In addition, several regions have their own specific problems which prevent the development of tourism. For example, security issues hinder the growth of resorts in the North Caucasus.

Sergey Slavin,
Economics observer with the Russian Survey
Special for russian-survey.com RS