The FINANCIAL — With continuous support for the tourism industry, TBC Capital continues to provide the latest findings in the sector. Hosting its presentation in the museum of history “Karvasla”, attendees drank the finest wine while paying attention to the figures.
Georgia’s tourism industry has achieved remarkable growth over the past decade, hitting record numbers of tourist arrivals and outpacing the economic growth with a 12.8% compound annual rate over the past ten years.
A 5% increase in the number of tourists by the end of the year is just one of the forecasts made by TBC Capital researchers after the summer tourist season. As we read in the study, Georgia is not overcrowded when it comes to tourism, which allows the country to continue growing. According to the CEO of TBC Bank, Vakhtang Butskhrikidze, despite the difficult summer season caused by Russia’s imposition of airline sanctions, the expectations are still positive.
“From year to year there will be a slight increase in the number of tourists, the growth rate will decline slightly, but the sum will be positive. As for the medium-term predictions, the forecasts are very optimistic. We have been analyzing the data of Eastern European countries, which indicates the likelihood of development in tourism and hospitality sector-related businesses,” stated the General Director.
Tourism still represents the largest component of service exports in the balance of payments, accounting for 72%, with a staggering 32% increase in just a decade from 40%. As of 2018, tourism revenues make up 36% of Georgia’s total exports.
Consumption by international visitors is significant, with 84% contribution to spending on short-term accommodation, 20% on food and beverages, 51% on culture and entertainment, and 16% on ground transportation.
Even though the number of international visits peaks in summer, tourism in Georgia is more than a classic ‘Sun and Sea’ destination, with winter months keeping the relative balance. However, the winter resort comparison indicates that Bakuriani lacks skiing infrastructure; Gudauri needs both more infrastructure and accommodation, and the remaining resorts have the capacity for more visitors. The 2023 Freestyle Ski and Snowboard world championships, that will be held in Georgia, further highlights the potential for growth in winter tourism.
The residents of the neighbouring countries account for over half of all visitors, with visits from Russia showing the fastest growth before the recent flight ban.
Gladly, the share of EU citizens, what’s considered to be a high-spending segment, is increasing (5.3% in 2018 in absolute numbers, up from 4.1% in 2015 and 11.6% in total tourist receipts, up from 6.9% in 2015). However, there is still a need for further diversification: In 2018, the top 5 countries of origin accounted for 76% of all international visitors to Georgia, a significantly high ratio.
Visitors spent GEL 7.9bn in Georgia in 2018, up 37.4% YoY. Average expenditure per trip picked up, totalling USD 447 per visit in 2018, up by 7.2% YoY. The country comparison indicates a high upside in average spending. Attracting visitors to an older age would increase tourism receipts.
The share of air arrivals is rising, which is promising growth in average spending. The increasing air connectivity will keep underpinning the growth in future.
The number of Russian citizens visiting Georgia by plane has been declining by around 75-80% YoY in July and August, due to the sanctions imposed from the Russian Kremlin, however, the alternative routes have been activated. TBC Capital believes the effect of Russian sanctions will not be long-lasting.
TBC has been actively involved in tourism for many years and has been carrying out various activities in this field. In the last year alone, TBC’s contribution to the tourism sector amounted to GEL 800 million. Of these, 300 million were spent on tourism development in the regions.
“There were two main reasons why we did this research at this time. One is the role of TBC in the development of the tourism sector. We have a 43% market share and have invested more than half a billion GEL in the sector over the past three years. The second reason would be the suddenly-imposed Russian sanctions.
After we observed the negative trend, the group wanted to assess the current situation and state our forecasts on the market trends and show how the demographics of tourists arriving in Georgia are expected to change,” stated Goga Tkhelidze, Deputy CEO of TBC Bank.
The share of stays in tourist accommodation is increasing, up from 40% in 2015 to 53% in 2018. The share of hotels and similar establishments is growing among tourist accommodation, reaching 74% in 2018, up from 65% in 2015. At approximately 25% of the total accommodation stock, the share of large hotels in Georgia is currently lower than in Europe.
Georgia’s bed-per-visitor ratio at 12 per 1,000 visitors is among the lowest in Europe, indicating a need for additional accommodation.
The hotel occupancy rate of 64% in Georgia is among the leaders in Europe and it keeps growing. Even if the supply of tourist accommodation outgrows the tourist arrivals for a certain period, the occupancy rates will remain attractive. Currently, a sizable increase in accommodation facilities is expected. We expect the hotel accommodation stock to grow at a compounded annual growth rate of 11% for 2018-2025.
Tbilisi, Mtskheta-Mtianeti, Kakheti, and Imereti are interesting locations for additional stock, while Samegrelo, Guria and Racha are so far under-toured. Currently, the branded hotel pipeline is mostly concentrated in Tbilisi and Batumi. We see the potential for unique local brand concepts on the market.
We compare the hypothetical upscale and midscale hotels for the capital and the region to present the ranges of their returns. The annual occupancy rates in branded hotels are the highest in the country, averaging 70% in Tbilisi and 64% in Batumi. Rates and prices for economy hotels as well as in seasonal resorts are lower. We expect international tourism to grow at a slower tempo than accommodation supply in coming years, causing the country’s occupancy rate to somewhat decline, stabilizing at circa 60% in three years’ time.
The state is prioritizing tourism. GNTA implemented the Tourism Development Strategy, setting benchmarks to achieve by 2025, which is successfully followed so far. The Government of Georgia is engaged in co-financing of loan interest rates for entrepreneurs involved in the hotel industry, subsidizing the interest rates on loans. State programme “Film in Georgia” marked a major success in 2019, shooting parts of the first Hollywood project in the country.
By Gela Megeneishvili