As everyone knows, 2011 has been declared the Year of Tourism in Azerbaijan. Tourism, being the main form of active leisure, health, rational use of leisure time and expanding horizons, is one of the revenue items in the economy provided that it is competently organized. In a previous article, we told readers how it is important to develop tourism in the country in terms of obtaining revenue from tourism. This time, we will speak about how the development of tourism attracts investments into the country.
Source of investments
According to researches, the investment in the tourism industry is a highly profitable business, where investment pays off for about 5 years and then gives a steady income of about 20 percent per annum in foreign currency. In this parameter, tourism and investment in it is ahead of even the banking sector, giving twice more revenue than the revenue on bank deposits or investing in securities.
Investments in tourism are more attractive because today the world volume of free financial resources is much more than a real opportunity to invest them. Tourism and investment in it still remain reasonably free area, where there are all conditions for conducting a profitable business and very low competition.
Today the tourism in Azerbaijan is a sector of economy, where the niche for investments has not filled up, and investment in it today has very low levels of competition. The official statistics of Azerbaijan on investments even have not a separate line of investment in tourism industry.
Currently, mainly government and small and medium local businesses invest in the tourism. State invests, because the status of tourism, as a priority sector of the economy, requires it. Only with public support it is possible to promote Azerbaijan as a tourist destination in the international market and implement programs for regional development. To attract the foreign and domestic investments in the tourist industry, the state has invested in searching its territories in order to identify tourism potential.
Tourism projects often include the construction and upgrading of airports, roads, seaports, waste water clean-up systems, restoration of cultural monuments, as well as creation of museums and information centers on natural facilities. For example, the draft of winter and summer ski resort Shahdag in Gusar region of Azerbaijan was created exclusively by the state.
At present, Shahdag complex has been implemented by state at 50 percent: roads, electric, gas and water lines have been laid, the state builds the first hotel there. The government believes that the private sector will also join this initiative, as there should be built a lot of hotels, ski facilities, lifts, medical centers, restaurants, places for entertainment will operate there.
Consequently, the state's investment in infrastructure, and sometimes in expensive logistical base of tourism stimulates investment of numerous small businesses. It is characterized by a number of separate elements, including various services: small restaurants, motels, hotels, holiday homes, laundries, stores selling products of local artisans and art objects. Ultimately, the initial investment in tourism attracts large investments in the future in ancillary. The lion share of all investments can improve the living conditions of local populations and the quality of tourists' stay here.
The task of the State in this situation is to improve the investment attractiveness of Azerbaijan, in particular, for investors who invest in tourism infrastructure.
Studies of the tourist market show that large Azerbaijani investors are not yet interested in the tourism. They prefer to invest in projects that will bring a quick profit. If to talk about construction, then in big cities, it is the construction of luxury housing. For example, even in cities such as Moscow and St. Petersburg, where, apparently, there is good demand for hotels, people prefer to build luxury homes. This is not surprising. The results of calculations in a number of fairly prosperous regions with a steady flow of tourists have shown that even in case of stable growth, the payback period of large hotels are at least 12-15 years. For the same reason, it can not be realized, and projects to build a network of small hotels in the cities would seem perspective.
At the same time, it is impossible to disclaim that huge investments are made in the tourism sector of Azerbaijan. It is obvious in the growth of the number of hotels and resort zones, administrative buildings, trade and entertainment centers. Due to investments, for eight years, the number of hotels in Azerbaijan has increased by more than five times: from 70 to 380 diffirent categories. The old tourism sites and holiday homes are reconstructed, new routes and recreation areas are established. The architectural and historical monuments of Azerbaijan have been revived. 65 of them are the monuments of world significance and protected by UNESCO. 15 natural and historical parks 20 wildlife preserves and hunting grounds have been created.
According to State Statistics Committee, in 2010, a total of 333.6 million manat was invested in development of the arts, recreation and entertainment in Azerbaijan, which is 32.1 percent more than in 2009.
Many western investors show interests in constructing hotels in Azerbaijan due to general positive dynamic of economic development and huge tourism potential of the country. However, huge global hotel network prefer constructing their hotels exclusively in the capital city, ignoring the region. Baku is located on the Caspian shore and is regarded as the country's commercial, cultural, education and tourism center. Baku is very attractive as for developing hotel business given the fact that Baku enters UNESCO list of world heritage and does not almost have international hotel brands (excluding Hyatt, Park Inn and Holiday Inn). Meanwhile, famous hotel networks such as Hilton, Marriot, Sheraton Meridian, Four Seasons are constructing elite hotels in the Baku center. Financing of these hotels are measures by millions and hundreds of millions. Simultaneously, construction of four- and five-star hotels is underway in Baku.
In the long-term perspective Azerbaijan plans to attract up to three million tourists in the country. To receive them it is necessary to increaser the number of hotel facilities to 1,300 as minimum, based on a calculation that each of them should accept 70 people a day. The potential of the country's tourism zone attains almost 15,000 seats and their number is expected to increase three or four times in 8-9 years.
The domestic tourism needs a lot of investment, both domestic and foreign. Tourism development very much dependents on public investment, which is absolutely inadequate in the absence of private investment and market mechanisms that would be able to meet the changing desires and needs of clients.
So, the government's task is to establish a system of relations between the state and business, which will enable the investor to come to tourism field. Azerbaijan is carrying out work to share a favorable investment climate in the capital and regions in the parts of developing tourist-recreation territory.
Another reason, which hinders foreign investment in tourism infrastructure, is the lack of reliable information about the situation in this sphere, for example, about market size and dynamics of its development, which is extremely important for potential investors. There is another problem that discourages investment in the development of tourism infrastructure by investors who are willing to do it - it is a relationship with district authorities. Even if heads of regions declare their support for tourism, local officials are considering large investors as looking for profit of the capitalists, and in exchange of sites for construction, they offer repairing schools, hospitals, homes, etc.
The investors are also concerned on political situation (it is one of key factors, preventing the inflow of foreign investments in the tourism sector). It implies instability of legislation, particularly, taxation rules. Launching its business on a definite rule, an investor may face absolutely contradictory one. There are cases when rates and principles of taxation change by "post factum". Obviously, no one will bring to Azerbaijan "long-term money" (while, investments in tourism are of long-term character.
To succeed in developing tourism business it is necessary to create special terms, stimulating flow of private investments, particularly, from abroad. Investors should be confident that their investments will bring dividends.
To overcome the existing problems in the field of tourism the government realizes State Program on development of tourism in Azerbaijan in 2010-2014. This document lays a foundation for improvement of investment climate in the field of tourism and resorts to fulfill the local and state budget through this type of activities. The state program is intended to ensure increased rivalry in local tourism and resorts based on rational use of tourist resources. The document envisages strengthening the government's role in tourism and resorts by forming efficient model of cooperation of state, business and society. The Ministry of Culture of Tourism designed a new draft law on Tourism and submitted it to the Azerbaijani Justice Ministry for examination in 2010