Jon (ex_mastodon326) wrote in russian_news,

Russian Tourism: The Cost of Backwardness
Geoffrey Smith
26 May 2004

A superficial glance at Russia's tourist industry might give the impression that it is doing well: Tourism is a "government priority"; federal spending on promotion has recently doubled; in 2002, there was a 30 percent leap in foreign, non-CIS visitors, and there is healthy growth in domestic tourism; the Federal Statistics Service (FSS) reports that growth in foreign visitors to Moscow is 10 times higher than the world average, and the city government has even announced that it plans to quadruple the number of visitors to the capital by 2015.

But the statistic that sheds the most light on the tourist industry is that it attracts 1 percent of the world's tourists. The world's largest country, with immense potential as a tourist destination, thus attracts significantly less than 5 percent of France's tourist revenues. What this is costing Russia in terms of lost jobs and revenues, heaven alone knows. Indeed, the industry itself has little idea, and better understanding of this and other key issues is crucial to Russia realizing its vast tourist potential.

There is therefore an urgent need to conduct an industry diagnostic, focusing in particular on how to raise tourist revenues.

The problem with current data is not simply that they are superficial, that expertise is largely untapped, or the margin of error (which is common to all data), or even the difficulties of verification. A more fundamental problem lurking beneath the surface is that because the industry has hardly developed since Soviet times, reliance on the FSS is tantamount to Soviet benchmarking, and as such it tends to inflate success and conceal the degree to which Russia is lagging in the global tourist market.

Obviously, year-on-year comparisons are essential, but proceeding from low base figures will always make growth look high, especially when expressed in abstract terms like "double," "quadruple" or percentages.

Doubling the number of foreign visitors to Moscow by 2010 would be a tremendous step forward, but would still bring it to just under three-quarters of the number who visit the Louvre each year. "Doubling" the federal budget on promotion is clearly a step in the right direction, but the budget now stands at some $4 million, a paltry sum compared with budgets allocated by other European countries.

The point is that for Russia to become a serious contender in the lucrative global tourism market, it needs to set itself higher standards and recognize that there cannot be high returns without more realistic levels of government investment.

Several of the main factors restraining development of "entry tourism" were identified in the government's concept for tourism development up to 2005. These include: Russia's negative image as a tourist destination; the current visa regime; undeveloped tourist infrastructure; underinvestment; low service quality throughout the tourist industry; erratic hotel pricing and quality.

Since this concept was officially approved in July 2002, progress has been modest. The hassle of getting a visa, for example, deters an unknown but vast number of foreign visitors. Indeed, the whole time-wasting process of applying for a visa draws attention to one of the country's most repellent features: its ubiquitous bureaucracy.

It is impossible to quantify the damage from this, but one official source estimates that visa reform would attract 25 percent to 50 percent more tourists. The same source estimates that for every 12 tourists, a new job is created. Taking the lower figure of 25 percent, this would mean the visa regime repels over 5 million would-be tourists and hinders the creation of just under half a million jobs. If there are good reasons for obstructing reform to a system that is known to cost jobs, retard tourist development, deprive Russia of revenues etc., let the defenders of the status quo explain what they are. But in the absence of such justification, reform is needed sooner rather than later. This could, for example, be in the form of pay-as-you-enter visas at the main airports of Moscow and St. Petersburg (in much the same way as a scheme recently introduced to good effect in Ukraine).

The most intractable "restraining factor," however, is Russia's undeveloped tourist infrastructure. No matter how many foreign tourists Russia wants to attract, and no matter how many foreign tourists want to come to Russia, the fact remains that a gallon cannot go into a pint pot.

This crisis is most acute for hotels. Hotels are particularly important because they are where "high-spend" tourists stay. In Moscow, for example, more than 80 percent of foreign, non-CIS tourists stay in the city's hotels. But the total number of hotel places is officially estimated at just under 65,000, of which less than 10 percent are estimated to be of "international standard." To attract high-spend tourists, quality is key, otherwise people will simply go elsewhere.

"By 2010 we must have 200,000 beds in the city," Deputy Moscow Mayor Iosif Ordzhonikidze has said. This means a threefold increase in the number of hotel places in less than six years. And to help achieve this, City Hall has allocated 18 plots in the city center and an additional 169 dotted around Moscow. However, all but a handful of these are castoffs, and considered by independent experts to be wholly unsuitable for hotel development. If Russia is a market economy, free-market principles must also apply to the capital's real estate market.

Consideration might also be given to alleviating the accommodation problem by encouraging private bed-and-breakfasts. This could be done by facilitating the acquisition of property used for this purpose, offering tax breaks and allocating development grants. There are countless thousands in Russia who could contribute to the local tourist industry in this way and, as in England, this could become an important part of the country's tourist brand image. It would create thousands of jobs, increase beds, bring kolorit and humanity to the rather monochrome and institutional image of Russian tourism.

Before the first brick is laid, however, there has to be investment, and this requires that the government recognize the need for sweeter investment incentives.

For example, a tax exemption on newly built hotels until the sum invested has been recovered would be a major incentive and a clear demonstration that the government -- often and unfairly criticized in this regard -- is genuinely keen to create a safe and welcoming investment environment.

Slapping a tax on revenue before a business has had the chance to start making a profit is a huge and potentially fatal burden, capable of killing enterprises that might otherwise help the economy grow and contribute to community wealth.

It should also be remembered that the investment market is highly competitive, and there are other opportunities with faster payback and better profit prospects. These are attracting significantly more investment, but delivering benefits to far fewer people (the construction of elite homes is a good example).

The continuing growth of the tourist industry despite its current circumstances is clear evidence of its exceptional potential. All are agreed that it is now time to start realizing that potential, but not about how to achieve this. This sets the stage for a potentially fruitful dialogue, provided participants are prepared to consult, listen and recognize that the ultimate prize is not frenzied self-enrichment, but to serve ordinary Russians by helping their country to become one of the world's foremost tourist destinations.
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