Diversification of Georgia’s Tourism Offer

Sector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Real Estate, and Wine sectors in Georgia. Below we provide an excerpt from our latest report on tourism, adapted for Georgia Today’s readers. The full report can be found on Galt & Taggart’s website - gt.ge.

As the Georgian tourism industry has shifted into high gear in 2016, it is important to take a step back and evaluate the strategic direction of the sector in the medium to long term.

The focus of Georgia’s tourism strategy moving forward should be on the quality and diversity of visitor arrivals, not the number, asGeorgia’s Tourism Strategy 2015-2025 rightly points out. The strategy targets a 7.1% CAGR in arrivals, but a 13.2% CAGR in tourism inflows over 2014-2025, as opposed to the trend in the past five years, for which the two growth rates were almost equal. These targets translate into 11.0mn international arrivals and US$ 5.5bn in international tourism receipts by 2025. In order to attract more high-yielding visitors, the industry needs to focus on several niche areas, in which Georgia has great potential – winter tourism, wine tourism, medical and wellness tourism, and gaming.

Winter tourism in Georgia has expanded at a respectable pace over the last five years. The country boasts four distinct ski regions – Gudauri and Tetnuldi/Hatsvali in the north and Bakuriani and Goderdzi in the south. Gudauri has been the leading ski destination in Georgia since its construction in the 1980’s. The number of visitors to Gudauri has increased 2.3x over the last five years to over 200,000, while Bakuriani hosted over 86,000 visitors in the 2015/2016 season. Goderdzi mountain resort in the Adjara Region opened in December 2015 and hosted almost 7,000 visitors during the season. Tetnuldi resort in the Svaneti region opened in February 2016. Significant advances, from artificial snowmaking to new and rehabilitated lifts and equipment, have been made by the Mountain Resorts Development Company (MRDC), a state enterprise tasked with managing and developing ski resorts in Georgia.

There is greater potential for winter tourism in Georgia that remains to be realized. Additional infrastructural enhancements will be crucial in this regard. The government announced in December 2015 that US$ 150mn will be invested in the New Gudauri development project, created by Ecosign, a world leader in mountain resort planning. In 2016, MRDC plans to expand the snowmaking capability in Gudauri by constructing an artificial lake, which will also serve as an additional recreation area off-season. Three new gondola lifts will be constructed to support the creation of a new Kobi-Gudauri ski zone. A toboggan run, which will operate year-round, is to be constructed in Bakuriani, to expand the entertainment options on offer at the resort. The completed and expected improvements have prompted branded hotel entry in Georgian winter resorts. Best Western Plus hotels are slated to open in Gudauri and Bakuriani in 2016-2017, while a Radisson Blu hotel is expected to open in Gudauri in 2017. Food and entertainment variety on offer is still lacking. We expect the expanded infrastructure and a growing visitor base to prompt the private sector to fill the gap.

An 8,000-year history of winemaking and 525 indigenous grape varieties make Georgia a natural destination for wine enthusiasts. Wine tourists in Georgia primarily come from the USA, Canada, Japan, China, the Baltic countries, and the EU. The Georgian wine tourism market is still in its infancy. The uniqueness of Georgian wine, made in clay pots and not in oak barrels, with little or no additives, has grown organically over the years. However, coordinated effort from wine makers, tour operators, and Georgian National Tourism Administration (GNTA), along with the development of infrastructure, will be necessary to monetize Georgia’s rich endowment into a product that can compete on the global wine tourism market. There are a handful of ‘chateau’-type wineries that cater to wine tourists, but collaboration among them in designing integrated wine tours will be crucial. GNTA’s promotional efforts in this regard have had some results: the inaugural UNWTO Global Conference on Wine Tourism will be held in the Kakheti wine region in September 2016. Furthermore, Lonely Planet included Georgia on its list of ‘Ten of the World’s Most Intriguing Wine Regions’ in 2015.

Medical tourism is another niche product with great potential for Georgia in the medium term. Visitors from CIS countries, who dominate the arrival mix, have a level of comfort with Georgia and for the most part, do not have very high-quality healthcare in their home countries. Georgia’s healthcare is very price-competitive vs Turkey, which is currently the regional center for medical tourism. As a result of major upgrades in its healthcare system, the number of medical tourists in Turkey increased from 74,000 to 0.5mn over 2008-14 (with a sizable number of Georgian patients, among them) and generated an estimated US$ 2.5bn in revenue in 2014. The state of medical infrastructure in Georgia (mostly in secondary and tertiary care, which are the main attraction for medical tourists) has improved significantly over the last few years and key private sector players are investing heavily in further improvements in facilities, technology and service. Notably, in November 2015, Georgia Healthcare Group PLC became the first healthcare company in the region to be listed on the premium segment of the London Stock Exchange – an important catalyst for elevating the image of the Georgian healthcare system. The key challenges for Georgia to become a medical tourism destination are the quality of healthcare, attracting foreign-educated medical professionals, and international accreditation of Georgian hospitals.

Development of medical tourism brings far-reaching benefits to a country. First and foremost, medical tourism is a source of foreign currency inflows in the form of payments for medical care and tourism services. Notably, medical tourists typically spend significantly more on non-medical tourism services than regular tourists do. As the segment develops, there is a spillover effect resulting in an improved healthcare offering not only for visitors, but for the local population as well. A developed medical tourism industry also facilitates the return of highly qualified, foreign-educated medical professionals to the country. Furthermore, political ties between the countries are typically strengthened in the process. If Georgia can follow the example of Turkey, it stands to reap these benefits by retaining its domestic patients and attracting medical tourists from the region in the medium term.

Wellness and spa tourism is another high-potential target for Georgia. Tskaltubo, a well-known resort area in the Imereti region that promoted healthy living, relaxation, and medical tourism in the Soviet era, is a case in point. The Partnership Fund enlisted the help of international consultancies to devise a master plan for the privatization of the 18 state-owned buildings in the resort town, three of which have already been sold to local and foreign investors. Furthermore, the government has attracted support from the World Bank and an estimated US$ 28mn will go toward overhauling water and sanitation systems and renovating public buildings and a 70 hectare public park in Tskaltubo. The Partnership Fund is also partnering with Redix Group on the development of a high-class hotel in Abastumani, another strategically important resort area.

The gaming industry in Georgia has large potential as most countries in the region restrict gambling. Strong development has taken place in Batumi, which is now home to 11 casinos. The estimated number of visits to Batumi casinos has increased 2.1x over 2013-2015 to 614,000, while the amount collected by the local government in gaming business fees has expanded 2.7x to US$ 8.9mn over the same period. We expect even faster growth next year, as five of the existing casinos opened at the end of 2015 and their full contribution will be seen in 2016.

Incentives are in place for the development of gaming tourism in resort areas. The annual license fee for operating a casino in the country ranges from GEL 100,000 to GEL 5.0mn, depending on the region. Casinos commencing operations in Kazbegi, Tskaltubo, Sighnaghi, Bakuriani, and Gudauri are exempted from the annual license fee, as the government targets those areas for tourism development. In addition, newly built hotels in Georgia’s seaside resort towns with more than 100 rooms (80 in some cases) are exempt for 10 years. Other regions have highly discounted license fees ranging from GEL 100,000 to GEL 250,000.

Nino Papava (Galt and Taggart)

18 July 2016 18:26