After a resilient 2015, the tourism industry in 2016 has shifted into high gear. International arrivals in 5M16 were up 15.3% y/y to 2.1mn visitors, with Azerbaijan and Russia posting double-digit growth rates. Georgia has benefited from an influx of Russian visitors who have shied away from Turkey and Egypt due to political tension and safety concerns. Secondary source markets have also posted strong performances. The number of Iranian visitors in 5M16 has increased 4.6x to almost 26,000, as visa-free travel to Georgia was reinstated for Iranian citizens in February 2016. We forecast an estimated 6.7mn foreign visitors to Georgia in 2016, up 14.1% y/y, on the back of high expected growth from Russia, Azerbaijan, and secondary markets. Travel inflows were up 8.3% y/y to US$ 1.9bn in 2015 and based on our estimates, tourism in 5M16 has generated an additional US$ 100mn in comparison to the same period last year.
The focus of Georgia’s tourism strategy moving forward should be on the quality and diversity of visitor arrivals. Georgia Tourism Strategy 2015-2025 targets 11.0mn international visitors (7.1% CAGR) and US$ 5.5bn in tourism inflows (13.2% CAGR) by 2025. In order to attract more high-yielding visitors, the industry needs to focus on high-potential niche tourism products such as winter tourism, wine tourism, medical and wellness tourism, MICE tourism, and gaming. The state has invested heavily and continues to do so in developing Georgia’s ski regions. The Partnership Fund, a state-owned investment fund, is actively facilitating the development of spa tourism in strategically important resort areas. The World Bank is providing the necessary infrastructure to incentivize the private sector to invest in less-developed regions.
Development of international brand hotels in Georgia is in a hyperactive phase. An estimated US$ 1.0bn will be invested in this segment over 2016-2018. Tbilisi accounts for the majority of the pipeline, but a number of branded hotels are slated to open in regional cities as well. In our view, the international upscale hotel segment in Georgia is likely to become oversaturated in the medium term. We see the first signs of hotel investors recognizing this probability and shifting attention to the international midscale segment, with five mid-market brands to enter the Tbilisi market over the next three years.
Georgia was ranked 71st out of 141 countries in the Travel & Tourism Competitiveness Index 2015. Ease of doing business in Georgia, an investor-friendly tax environment, ease of hiring foreign labor, safety, and visa-free entry for most are among the country’s competitive advantages highlighted in the index. The key challenges, on the other hand, are availability of skilled labor in this sector, air transport infrastructure, openness of bilateral Air Service Agreements, and stringency and enforcement of environmental regulations.
The Government of Georgia aims to spur further development of the tourism and hospitality industry through its latest initiatives. The government has initiated a program to incentivize hotel development in the Georgian periphery by co-financing management fees, interest payments, and consulting services, along with providing a partial collateral guarantee. Film in Georgia is another government initiative, which provides financial incentives for film production in Georgia. Several high-profile events are lined up for 2016, with the 25th Annual Session of the OSCE Parliamentary Assembly being the leading one, as it attracts policy experts, diplomats, foreign media, and members of parliament from the organization’s 57 participating States.
