[Viewpoint] Strong hand needed to boost tourism

Growth in the international tourism market has slowed amid the global economic strife. The number of international tourist arrivals worldwide was 920 million in 2008, up by only 1.9 percent from 2007, well below the 6.1 percent increase in 2007 and 6 percent in 2006. International tourism receipts rose a mere 1.9 percent during the same period to $944 billion, compared with a 5.4 percent rise in 2007 and 5.3 percent in 2006.

The picture has been bleaker this year. From January to April, international tourist arrivals fell 8.4 percent on-year. Excluding Africa, which had a 3.1 percent rise in foreign travelers, other regions suffered declines, with Europe and the Middle East posting the largest drops of 10.4 and 18.1 percent, respectively.

This weak showing reflects the worldwide recession and concerns over the new influenza virus. In spite of the overall reduction in the global tourism market, however, some countries have shown favorable performances. Among the top 50 countries that attracted the most international tourists in 2008, Korea saw international tourist arrivals jump 18.7 percent on-year from January to April this year. Other gains in this period were posted in Taiwan (13.9 percent), Morocco (9.8 percent), Mexico (5.9 percent), Malaysia (3.4 percent), the United Arab Emirates (3 percent), Tunisia (1.3 percent) and Hungary (0.4 percent).

In many countries, substantial investment has fostered tourism as a strategic industry, and aggressively developed new service segments, medical tourism and MICE (meetings, incentives, conferences and exhibitions).

Tourism in Korea and Taiwan, on the other hand, have benefited from other catalysts. Taiwan has seen a wave of tourists from mainland China since the market was officially opened in July 2008. While Korea also saw a jump in tourists from China, the depreciation of the won has also played a part in attracting an increasing number of travelers from Japan and Southeast Asia. As the international tourism market shrinks, investment in the industry is also expected to decrease. Capital investment in world tourism is forecast to drop 5.3 percent in 2009 from the previous year to $1.22 trillion. Yet in the next 10 years, capital investment in this sector will likely increase an average of 4.7 percent annually, for an estimated $2.59 trillion by 2019.

By region, according to the World Travel and Tourism Council in 2009, the highest total investment made in 2009 will likely be in Europe at $385.6 billion, followed by the Asia-Pacific region ($381.4 billion), and the Americas ($369.7 billion).

By 2019, however, the Asia-Pacific area will see the biggest investment, of $941.2 billion, followed by Europe with $765.5 billion and the Americas with $722.3 billion.

With competition in the Asian tourism market intensifying, it is necessary for Korea to expand its investment in tourism in order to maintain competitiveness and stay ahead of rivals. However, Korea lacks sufficient infrastructure: lodging facilities, world-class resorts and theme parks that can attract new foreign travelers.

According to Business Travel News in 2009, the average cost for a hotel room in Seoul was $203, or 51st most expensive. Tokyo was 40th at $227, Singapore 45th, Osaka/Kobe 49th, and Hong Kong 62nd. This indicates that Seoul has higher competitiveness than Tokyo, Osaka and Singapore.

Seoul’s smaller hotels contribute to this, as do government support and private capital, but the weak won has also played a major role. In 2006, when the won was stronger against the dollar (1,041 won per greenback), the average hotel rate in Seoul was $341, putting it at 14th most expensive, while in 2009, when the won was weaker against the dollar (1,262), rooms cost $203. This suggests that hotel costs in Seoul will lose competitiveness if the won strengthens.

The UN World Tourism Organization reported that among 91 cities worldwide, only a few are expected to see hotel occupancy increase in 2009: Rio de Janeiro (2.9 percent), Seoul (9.1 percent), Nairobi (24 percent) and Beirut (31.2 percent). Seoul was predicted to post the highest average occupancy rate, 81.5 percent. Such a high occupancy would translate to higher room prices.

All this means that investment should be made to boost supply, which in turn could enhance the price competitiveness of Korea’s tourism industry.

What factors are needed to expand tourism investment? First and foremost, strong leadership by the government is needed. A strong government commitment is crucial for successful tourism development, as is empowering those in charge of the sector.

A virtuous cycle should be formed in which the government chooses a profitable business, concentrates on its development, injects necessary public infrastructure, attracts investors (by gaining their trust) and obtains new investment.

Second, highly profitable businesses - casinos, MICE, medical tourism facilities - should be promoted together with other facilities as a set. It is necessary to include highly attractive tourist destinations in overall development projects to boost profitability.

Third, the supply of facilities should be controlled, based on an appropriate demand forecast, to provide stable profits to private companies that have invested. The Canadian resort town of Whistler and the Indonesian resort island of Bali are examples of places that have successfully balanced supply and demand. Whistler set the ceiling for the number of beds at lodging facilities to 52,500, while the Bali government has temporarily frozen expansion of hotel rooms since 2005.

Last but not least, it is crucial to utilize real estate securitization to boost tourism investment. As a means to generate various sources of investment, private equity funds or REITs (real estate investment trusts) could be utilized, while establishing special-purpose corporations responsible for both fund-raising and project execution.

*The writer is a research fellow at Samsung Economic Research Institute.

by Joo Young-Min