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How Uzbekistani tourist industry recovers from 2020 crisis

Uzbekistan has never stopped the flow of investments to this sector

Фото: Depositphotos

Tourism is a key sector for the entire economy of Uzbekistan and it was nearly suffocated by the COVID-19 crisis. For example, in 2019 the UN World Tourist Organization put the country on the list of five countries with the most dynamic developing tourist industry. The pandemic stopped this fast growth. However, Uzbekistan has been doing its best to support the industry and has never stopped the flow of investments to this sector.
 
The Uzbekistani tourist sector has shown explosive growth since 2018. That year the country simplified its visa regime and the number of foreign tourists surged fourfold compared to 2016 figures. In 2019 Uzbekistan broke its new record – 6.7 million tourists. 
 
The year 2020 was also supposed to be record-breaking; the country was expected to attract about 7.5 million tourists. However, the pandemic has changed everything. Uzbekistan showed a fourfold drop and was able to attract just 1.5 million people; 1.2 million of them visited the country right before the lockdown was declared.

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According to Ministry of Tourism and Sports data, the vast majority of tourists in 2020 were from other Central Asian states: Kyrgyzstanis (33.8%), Kazakhstanis (28.2%), people from Tajikistan (22.4%), Russia and Turkmenistan (5.4% and 4% respectively). Also, there were some tourists from abroad: Turkey at 1.4% all tourists, China (0.5%), South Korea (0.4%), India (0.3%), and Ukraine (0.2%).

More Accommodation Places

Once Uzbekistan witnessed an increased flow of tourists before the pandemic, all the industry’s problems became obvious. One of them is a lack of accommodation. In 2020 there were 1,200 businesses in the hospitality industry with 26,100 hotel rooms and 54,800 beds, according to the ministry. 
 
Thanks to the target state program, which started in 2019 and should last until 2023, more new hotels are being constructed right now. The government subsidies about $4,600 per one room for three-star hotels and $7,600 per room for four-star hotels. 

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To increase the number of high-grade hotels from international brands, the country also has subsidies for royalty: the first 50 three-star hotels will be receiving $200 per room each year; the first 30 four-star hotels will be paid $400 per room each year.

In October 2020 the Cabinet of Ministers of Uzbekistan put into force new incentives for tourist businesses to help them cope with the consequences of the pandemic. For example, the government started to subsidize loan interests, which were higher than a key rate of the regulator (but not more than 10%). The subsidies were also designed to support loan receivers, who spent money for hotel construction, renovation works to make a hotel meet new sanitary standards, or working capital financing (up to $95,000).
 
In total, the Uzbekistani government comes up with 56 incentives and benefits for businesses from the tourism industry.
 
It is expected that the number of hotels will increase to 2,400 with 64,000 guest rooms by the year 2025.

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Moreover, the Uzbek authorities even simplified the licensing of this type of business. As a result, the number of guest houses and hostels skyrocketed. This helped a lot in 2019 when there was a boom in tourism in Uzbekistan.

When a Break Can Help

When COVID-19 hit the world, Uzbekistani business and the government decided to use that pause as an opportunity to improve tourist infrastructure. Large hotel complexes and other accommodation places have emerged in some popular regions. In 2020 the room inventory in Uzbekistan added 3,000 more rooms.

Currently, there are 86 new hotels are under construction, including Hempton (Hilton chain) in Tashkent and Hyatt Regency in Bukhara, according to Aziz Abdukhakimov, minister of tourism and sport. He noted that Tashkent alone needs about 10-15 new hotels for 120-150 rooms each. 
 
As the World Travel and Tourism Council data shows, in 2019 tourism in Uzbekistan accounted for 2.5% or $1.3 billion out of the national GDP.
 
All the efforts to update the Uzbekistani tourism sector are a result of the Tourism Development Concept for 2019-2025 initiated by President Shavkat Mirziyoyev. Once the program is completed, the share of tourism in GDP should account for 5% or $2.1 billion with nine million tourists. At least two million of them should be tourists from countries other than CIS.
 
According to Andrey Suleykov, head of digital tourism in Rusatom Infrastructural Solutions, to increase export of its tourism Uzbekistan has to promote its unique touristic brand in those countries it considers a priority. “It should be trendy to travel to Uzbekistan,” he said. Usually, the attractiveness of a particular destination is based on several factors: security, history and culture, logistics, and visa acquiring process, the expert added.
 
Despite low internal prices, Uzbekistan is not a cheap destination for foreign travelers, co-founder of the Art Hostel Group company Pavel Wolf says.

“Uzbekistan is not a cheap destination due to expensive air tickets. Only those who are looking for something new or just like the history of Central Asia are interested in our country,” he noted.

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According to the aviasales.uz website, in March 2020 air tickets from Russia to Uzbekistan cost $200 on average. The same price was for air travel to and from Kazakhstan. Currently, people can travel from Almaty to Tashkent for just $100. One-way tickets from Turkey cost $250 last year and $360 now. 
 
Developing tourist markets, which include Uzbekistan, have to know that the way back to the 2019 level will require at least several years, says Marina Ten, co-founder of Igmar Apart Hotel. “We have no sea or internationally admired ‘must-see’ sights. Of course, we have some historical architecture and unique cuisine but it’s not enough for the market to be rebounding over a short period. We need low-costers with cheap air tickets because Uzbekistan is a country for non-expensive tourism and to get tourists back we have to make air travel more affordable,” she said.

Bid for Internal Potential

Due to sanitary limitations for international travel, Uzbekistan is going to develop its internal tourism. Over the period from 2016 to 2019, the number of internal tourists had been increasing constantly. Right before the pandemic, this figure reached 14.7 million. “Many can travel to Samarkand by train or car. The average budget for one individual is about $20. The country’s population is pretty big, and that is good for the development of internal tourism,” Wolf said.
 
“We are developing ecotourism and I can say that the number of interested people has risen twofold. Probably, people are just tired from being stuck in their homes. That said, the number of internal tourists is higher now,” said Sharof Egamberdiyev, founder of Mysterious Uzbekistan. 
 
Since March 1, 2021, Uzbekistan has been charging $0.09 from daily payment for accommodation in hotels. The charge is excluded from taxation and is designed to support internal tourism and local entrepreneurs.

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At the same time, to stimulate local travelers the president has approved a special system of discounts for them. For example, they can buy air tickets with a 25% discount. If they do that with the help of a tour operator, they can obtain an additional 15% discount. A similar system should also work in railroad transportation: 15% if you are buying a ticket from a tour operator and an additional 10% for hotel services. This system is already working and as a result, regular tourists can save about 50% over their vacation. 
 
To support tourist business during the crisis, the government developed a set of rules for subsidies and benefits issuing. For example, the land tax and property tax for entrepreneurs have been lifted. Moreover, profit tax was cut by 50%, and social payments were reduced from 12% to just 1%. The government has also declared a debt moratorium for business loans and even compensated interest for some of them.

Potential for Investments

Foreign investors show strong interest in the Uzbekistani tourist sector. Under the new investment program for 2020-2022, the government is expected to attract $904.6 million. Roughly $885 million will be allocated to construction. According to the Agency on Foreign Investments, the country has such strong points as security, more than nine thousand sights, free tourist and economic zones and better legislation in the area of tourism.
 
Among foreign investors are companies from India, China, and Turkey, which want to build new hotels and develop tourist infrastructure.
 
However, they are also not avoiding direct acquisition. For example, Bashan Investment Group PTE LTD from Singapore has acquired 80.1% of the Hotel Uzbekistan for $23.2 million. Another company Ittihad International Investment LLC from UAE bought Chorsu Hotel for $17 million. The prominent Hyatt Regency Tashkent Hotel might be acquired by The Abu Dhabi Uzbek Fund for $110 million.
 
All in all, the most attractive spot for foreign investors is still the city of Tashkent. Over the period from 2020 to 2022, foreign companies are going to implement 14 tourist projects in Tashkent for $429.5 million. Last June Japanese H.I.S. Holdings started the construction of a hotel. The hotel, which will cost $13 million in total, may be opened by the end of this year. The fashionable Marriott Hotel for $10 million was opened in Tashkent in December 2020. 

In general, the city’s authorities are going to implement 90 projects, including 66 hotels for 3,596 rooms and 7,050 beds; 12 shopping centers, nine parks, and three centers of handcrafters.

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Tortuous Trajectory

Sevenfold growth

Photo: Depositphotos

Despite being richer with architectural heritage and natural monuments than other Central Asian states (the vast majority of historical monuments are inside big Uzbek cities or near to them), for a long time Uzbekistan couldn’t make any progress in the development of its internal tourism.

However, after the political reforms of 2016-2017, the number of foreign tourists had been steadily increasing: from two million in 2016 to 6.7 million in 2019. If compared with 2010 figures, the growth was sevenfold (592%) which is one of the most impressive results all over the world.

According to the World Bank, over the period from 2016 to 2019, Uzbekistan increased the share of tourism in its gross exports from 5.5% to 9.9%. Even though the main source of foreign currency for the country (as well as for neighboring Kazakhstan) is still the export of natural resources, tourism plays a bigger role these days.

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In 2019 Central Asian countries accounted for the vast majority of foreign tourists in the country: Kazakhstan (33.5%), Tajikistan (21.8%), Kyrgyzstan (21.6%), and Turkmenistan (8.5%). Fewer tourists arrived from Russia (6.7%), Turkey (0.9%), China (0.8%), Japan and Germany (0.4% each). In general, about 488,000 or 7.2% out of all foreign tourists came from outside of the CIS.

The type of transportation that tourists prefer to use depends on the geography. According to UNWTO, roughly 90% of all tourists use cars, 1% trains and 9% air transportation.   

Year of Restrictions

Last year should have to be a record-breaking year for the entire Uzbekistani tourism industry. However, the pandemic changed everything.

Uzbekistan was forced to do exactly what all other Central Asian countries did: to declare a lockdown in the middle of the tourist season from March to August. People were not allowed to move from one region to another and all public events were canceled. The public food industry and hotels were also told to stop working.

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To support the internal tourism industry, the Uzbek government has started to differentiate its regions by colors which reflect the rate of COVID-19 risk. For example, for regions labeled with green and yellow, tour operators were allowed to work if they comply with sanitary rules.

Moreover, the government has been implementing some other supportive measures. For example, tour companies were paid $15 for each tourist who decided to stay in the country for more than five days. Last year tour operators could also rely on transportation subsidies: about 30% for air and train tickets for groups of foreign tourists (not less than 10 people). Subsidies for renovation work in hotels are still available until the end of this June.

There were no restrictions for tourists from countries in the green zone (South Korea, Japan, China and Israel). Tourists from the yellow zone (EU member states, Malaysia, Thailand and Singapore) as well as from the red zone (Turkey, Russia, Kazakhstan and other CIS countries) were able to visit Uzbekistan after a fourteen-day quarantine.

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As a result of these restrictive measures by the government and extremely low tourist activity, the tourism industry in Uzbekistan dropped fourfold. 

Tough Times for Tourism

According to the UNWTO report (January 2021) about last year, world tourism faced the most severe crisis in modern history. The number of guests who had traveled abroad and stayed in hotels plunged by 74% all over the world. As a result, the industry lost about $1.3 trillion, which is 11 times higher than in 2009, when tourism had suffered from the financial crisis.

Given the global scale of the sanitary measures, tourism struggles everywhere. And of course, tourism losses in different regions directly depended on the scale and intensity of restrictive measures in a particular country. For example, Asia and the Pacific region lost 84% of foreign guests, the Middle East and Africa - 75%, Europe - 70%, and North and South Americas about 69%, according to UNWTO. However, in terms of absolute figures, these losses were not the same: while Asia lost 300 million tourists, the losses for Europe were about 500 million.

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In terms of the industry’s future, UNWTO experts give controversial forecasts. In a survey the organization conducted in January, 45% of experts said that the situation is going to improve. About 25% believe that nothing would change compared to 2020. And 30% of experts are expecting the industry will worsen. Half of the respondents said that the rebounding of tourism will occur in 2022, even though in another survey conducted in fall 2020 they expected the rebounding in 2021. However, the process to get tourism back to its pre-pandemic level (2019) may consume much more time: 43% of experts believe it might happen in 2023; 41% of others expect that in 2024 or even later on.

Because tourism in the open air is not banned, this sector may show growth, experts said. Also, the demand for internal tourism and tours to neighboring countries will surge.

There is no evidence that Uzbekistan can return to the pre-crisis trajectory soon; it can take two years or four. However, given Europe and South Asia are still not ready to open their countries for tourists, Uzbekistan might be attractive for tourists from Russia and Kazakhstan. All three countries have relatively soft quarantine rules for those who enter or exit them.

Thus, Uzbekistan is going to intensify transport communication with Kazakhstan. Currently, the two countries are working together on a high-speed railroad project, which is going to connect Turkestan, Shymkent and Tashkent. Uzbekistan has already built a high-speed railroad between Tashkent and Samarkand; therefore, once the project with Kazakhstan is ready the trans-border tourist cluster may appear.

Soft sanitary conditions may also prove helpful in attracting more tourists from Europe or even from Turkey and the UAE. In March, Uzbekistan reached a deal on the creation of the air transport bubble with India and Seychelles. 

Uzbekistan is going to expand its tourist infrastructure with HoReCa, new transport routes and foreign consulates in the most popular tourist areas. For example, in March the Turkish consulate was opened in Samarkand. Another consulate out there is going to open in Kazakhstan; the country’s president Kassym-Jomart Tokayev signed a relevant edict in September last year.

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