The world has already rediscovered Georgia as a popular tourist destination. Tourist numbers are already close to the country’s population of 3.7mn. The total number of international visitors (tourists, transit and one-day arrivals combined) increased at a CAGR of 21.7% over 2008-17 and reached a record 7.5mn persons in 2017. With 3.5mn tourists in 2017, 2018 looks set to be another bumper year with tourist arrivals forecast to reach a new record of around 4.2mn – above Georgia’s local population.
Georgia managing to attract tourists from non-traditional markets. Traditionally, visitors to Georgia have been more frequently from CIS countries and Turkey. However, the highly sought-after diversification of the arrival mix is evident, with the share of the top four source markets down from 88.1% in 2012 to 80.1% in 2017 as arrivals have increased significantly from the Middle East and Iran.
Tourism is most flourishing part of Georgian economy, which was otherwise affected by regional economic turmoil in 2015-2016. Revenue from the tourism sector of US$ 2.8bn (18.1% of GDP) in 2017 helped to significantly reduce the country’s current account deficit, when it fell to single digits at 8.7% of GDP for the year. Importantly, Georgia has never seen a decline in its tourist revenues – even in 2009 and 2015, beating peers which experienced reduced tourism revenues in those years.
We estimate that tourist arrivals will more than double over the next five years to 7.6mn – 2.0x Georgia’s population. At this proportion, Georgia will overtake Hungary (1.6x), Slovenia (1.5x), Albania (1.4x) and Bulgaria’s (1.2x) ratios from 2016 but will still be below the proportions found in Croatia (3.3x), Cyprus (2.7x), Montenegro (2.7x) and Estonia (2.4x) in 2016. The findings for Georgia seem reasonable as in the other countries mentioned above, tourist numbers used to double every five to seven years. Additionally, we do not exclude faster growth in tourist arrivals in Georgia given the quick success of on-going reforms in the tourism sector.
Georgia generates far less than peer countries in terms of per arrival spending. This is explained by 1) the dominance of neighbouring countries in its arrival mix; and 2) the low share of “real tourists” compared to peer countries. Despite the number of tourists doubling over 2012-17, per visitor spending only increased to US$ 364.2 in 2017 from US$ 318.6 in 2012. Efforts should be directed to lift per visitor spending toward the US$ 500-800 level found in peer countries. In order to attract more high-yielding visitors, Georgia’s tourism industry needs to focus on high-potential niche tourism products such as winter tourism, wine tourism, medical and wellness tourism, MICE tourism, and gambling.
Visitor growth matched by consistent growth of accommodation sector. Over 3,000 new hotel rooms were added to Georgia’s accommodation stock in 2017. Without success in attracting high-yielding visitors coupled with an extensive pipeline of upscale hotels, we expect pressure on prices and occupancy rates in this segment. At the same time, budget accommodation still seems scarce considering the rapid expansion of the Airbnb market in 2016-17. The extensive pipeline for mid-market brands and increased interest in regional destinations also hint at an oversupply in the luxury hotel segment in Tbilisi.
Insufficient infrastructure and scarcity of skilled labour remain major challenges. Georgia meets the medical and sanitation requirements of a successful tourist destination, as well as safety and security standards according to different studies. However, the same studies identify underdeveloped tourism infrastructure as well as scarcity of skilled labor and service quality as key weakness in the sector.
Tourism development is a key area of the government’s four pillar of reforms introduced in 2016. These reform targets aim to improve the relationships between towns and villages, to promote high-quality sustainable tourism development and to transform Georgia into a four-season tourism destination.
