crimea: tourism business opportunities and strategy by global vision advisory services and one...

CRIMEA: TOURISM BUSINESS OPPORTUNITIES AND STRATEGY

by Global Vision Advisory Services and One Baltic Group

December 2013

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Tourism business in Crimea – investment thesis

Recreation and Health Care sector accounts directly for 10% of Crimea GDP, but it

strongly influences all the Crimean economy, especially retail sector, transportation,

real estate and financial services. Tourism affects up to 40% of Crimean economy and

is the leading industry in the region.

Less than 15% of total number of tourist (~800 000 visitors in 2012) to Crimea were

registered as tourists, while another 85% (up to 5 million visitors) entered Crimea not

for the “tourism”, but for “private visits", "business”, etc.

Crimean hotel infrastructure grew rapidly over post-crisis period, but even now it is

sufficient only for accommodation of up to 800 000 of “registered” tourists. About 800

of existing hotels are old, not integrated into chains and stay at the low quality level.

Crimea tourism sector is still in serious shortage of medium- and high-quality hotels.

Only 11% of hotels (3% of total accommodation space) are rated 3 stars or higher

Tourism and recreation services in Crimea are comparable to the services, tourists

can have in Greece, Turkey and Cyprus, by the seasonal/weather factors (though the

climate here is more healthy and moderate) and by flight time (for direct flights). The

average price of vacation is still about 50% lower. Average price per room per night in

2012 was only £50 ($78), but mainly due to lower quality of existing hotels. Top level

tourism in Crimea is more attractive business, as wealthy Ukrainian and foreign

tourists’ spending is at level of the EU Mediterranean resorts.

3

Less than 15% of tourists to Crimea are officially registered as tourists

Source: Statistical office of Autonomous Republic of Crimea, Tourism and resorts department of Autonomous Republic of Crimea, Arbat Capital

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

1000

2000

3000

4000

5000

6000

7000

Tourists arrivals to Crimea in 2000-2012, official and unofficial data

"Unofficial" tourists, thsd

Officially registered tourists, thsd

4

Crimea hotels infrastructure grew fast over last four years: number of hotels and hotels roominess more than double

Source: Statistical office of Autonomous Republic of Crimea, Tourism and resorts department of Autonomous Republic of Crimea, Arbat Capital

Tourism infrastructure in Crimea in 2005-2013

2005 2006 2007 2008 2009 2010 2011 2012 2013E

Hotelsquantity 78 81 82 93 96 104 172 210 224

capacity* 13 14 14 15 15 16 28 35 40

Sanatoriumsquantity 569 565 556 553 554 548 544 558 558

capacity* 127 126 122 121 120 120 120 123 123

Totalquantity 647 646 638 646 650 652 716 768 782

capacity* 140 140 136 136 135 136 148 158 163

* thousand guests

5

Crimea tourism sector is still in serious shortage of medium- and high-quality hotels

Source: Tourism and resorts department of Autonomous Republic of Crimea

Category Quantity

5* Hotel 2

4* Hotel 6

3* Hotel 18

Non-rated Hotel 198

Sanatorium 558

Total 782

Crimea tourism infrastructure, current situation

The most part of Crimean hotels were build in

Soviet era and now are uncompetitive due to

poor quality

Less than 15% of hotels in Crimea is rated 3*

or higher, sanatoriums accounts for more than

70% of total tourists accommodation sites

Foreign hotel chains operate only 2% of total

hotels in Crimea, but up to 15% of 3* or higher

rated Crimean hotels

International hotel operators in Crimea

Hotel chain Hotel Category Location

Royal Hotels & Spa Resorts Royal Park Hotel Hotel 4* Yalta

Rezidor Group Radisson Resort & SPA Alushta Hotel Hotel 4* Alushta

Premier Hotels Oreanda Hotel Hotel 4* Yalta

Reikartz Hotel Group Kirov Holiday Center Sanatorium Yalta

Best Western International Sevastopol Hotel Hotel 3* Sevastopol

Source: hotel operators data

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Present hotels infrastructure is sufficient for accommodation of officially registered tourists, but isn’t enough for total tourist flow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

100

200

300

400

500

600

Crimea tourist inflow Vs hotels & sanatorium capacity in 2012

Average tourists inflow

Maximum tourists inflow

Hotels & Sanatorium capacity

th

ou

san

d p

eop

le

Source: Tourism and resorts department of Autonomous Republic of Crimea, Arbat Capital

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Vacation in Crimea for EU/UK tourists is similar to Greece, Turkey and Cyprus by flight time, but average price of vacation is 50% lower

Number of visits by UK residents

in 2012, thsd

Spending on visits per UK

resident in 2012, £

Average price per room per

night in 2012, £

Flight from London

Destination point

Average Flight Time

Distance, miles

France 8 781 394 103 Nice 1:33 639

Spain 11 110 476 86 Barcelona 1:40 707

Italy 2 630 586 111 Rimini 1:49 780

Crimea 81* - 50 Simferopol 3:24 1622

Greece 1 824 592 89 Rhodes 3:37 1733

Turkey 1 419 550 99 Antalya 3:45 1808

Cyprus 821 680 96 Paphos 4:05 1980

* UK residents visits to Ukraine as a wholeSource: UK Office for National Statistics, Hotels.com

Crimea vs. other popular European / Mediterranean resorts

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Crimea economy: tourism, agriculture, services dominate

Source: Statistical office of Autonomous Republic of Crimea

Agriculture, hunting and forestry 10%Extractive indus-

try 2%

Manufacturing industry

11%

Generation and distribution of power, gas and

water 4%

Construction ac-tivity

6%

Wholesale and retail trade

14%Transport10%

Education6%

Health care and public aid

10%

Real estate re-lated activities

10%

Financial services

4%

Public adminis-tration

9%

Other kinds of economic activities 4%

Crimea economy structure in 2010

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Crimean economy: regional GDP is more balanced, than Ukrainian (more tourism, construction and agriculture, less industry and trade)

Agriculture, hunting and forestry

Extractive industry

Manufacturing industry

Generation and distribution of power, gas and water

Construction activity

Wholesale and retail trade

Transport

Education

Health care and public aid

Real estate related activities

Financial services

Public administration

Other kinds of economic activities

-8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00

1.31

-5.27

-3.09

-0.22

2.51

-3.87

-0.99

0.51

6.06

-0.36

-1.11

3.81

0.71

Crimea economy difference from Ukraine economy,p.p. of GDP

Source: State statistics services of Ukraine, Statistical office of Autonomous Republic of Crimea, Arbat Capital

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Crimea as a part of Ukraine: leader in services and grape/wine

* 2011** Jan-Mar 2013


GDP*

Population

Area

Industrial output

Retail sales

Construction output**

New home construction

Agricultural output

Production of grapes

Area of vineyards

Production of wines

Tourists*

0 5 10 15 20 25 30 35 40

2.9

4.3

4.3

2.0

4.5

7.5

6.8

3.6

20.6

32.5

33.6

10.9

Crimea share in particular Ukraine figures in 2012

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GDP per capita (USD) in 2004-2011 grew at almost 15% yoy pace, official data only

2004 2005 2006 2007 2008 2009 2010 20110

1000

2000

3000

4000

5000

6000GDP per capita in 2004-2011, $

Ukraine as a whole, $

Crimea, $CAGR 14.5%

CAGR 14.7%


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Crimea trade balance: growing tourism and local consumption

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-1500

-1000

-500

0

500

1000

92163 203

290 267 324 316 357 382 426 475

-511

-263

Crimea trade balance in 2000-2012

Export of goods, mln $ Import of goods, mln $ Net export of goods, mln $Export of services, mln $ Import of services, mln $ Net export of services, mln $Net export of goods and services, mln $

Source: Statistical office of Autonomous Republic of Crimea, Arbat Capital

* Dramatic import of goods increase in 2011-2012 is related to purchase of offshore oil & gas exploration and production equipment

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Foreign direct investments to Crimea


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

200

400

600

800

1000

1200

1400

Foreign direct investments to Crimea in 2000-2012

Foreign direct investments to Crimea, cumulative, mln $

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Crimea: agricultural sector - ideal climate for growth


Key figures of Crimea agricultural sector performance in 2000-2012 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Growth*

Agriculture output, mln hryvnia (2010 const.price) 4938 4840 4595 4469 5016 5295 5451 6210 7311 7662 7360 - - -Production of grapes, thsd t 179 84 91 168 83 116 59 119 117 125 125 125 94 -1.1%

Crimea production of grapes, as % of Ukraine 34.9 25.0 25.3 33.2 22.2 26.3 19.5 33.0 28.1 26.7 27.4 24.0 20.6 -Production of meat, thsd t 69 67 82 94 102 115 120 136 138 139 145 148 147 6.5%

Production of eggs, mln. 447 495 582 548 548 582 609 652 699 763 811 793 746 4.5%Production of grain crops, thsd t 1064 1413 1106 665 1205 1160 1221 1228 1734 1662 1404 1931 908 3.0%

Production of potatoes, thsd t 250 227 151 146 201 159 180 187 350 401 366 467 344 7.7%Production of vegetables, thsd t 185 176 160 132 127 128 160 210 286 398 399 433 391 10.5%

Production of fruits and berries, thsd t 134 39 35 126 30 59 37 55 106 77 116 100 123 3.9%* Average annual growth rate in 2000-2012


Meat and poultry22.0%

Milk and milk products

14.9%

Eggs5.3%Grain crops

20.5%

Potatoes10.3%

Vegetables21.6%

Fruits and berries4.0%

Others1.4%

Crimea agricultural output in 2010

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Mining and quarrying4.9%

Production of foodstuffs, beverages and tobacco products

26.1%

Textile industry0.2%

Manufacture of paper and paper products, printing

0.5%

Manufacture of refined petro-leum and chemical products

19.7%

Manufacture of other non-metallic mineral products

1.9%

Manufacture of basic metals and fabricated metal products

1.6%Engineering industry

9.9%

Electricity, gas, steam and air conditioning supply

35.2%

Crimea industrial output in 2012

Crimea: industrial sector – still balanced and exporting goods

Source: Statistical office of Autonomous Republic of Crimea, Arbat CapitalIndustrial production, % yoy 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total industrial sector 18.9 28.2 13.8 2.7 12.3 3.1 -17.3 10.5 4.3 -1.3Mining and quarrying 6.9 9.8 9.5 4.7 -4.1 -7.5 -10.1 -6.9 1.2 5.5

Production of foodstuffs, beverages and tobacco products 29.4 37.5 22.2 -4.8 14.3 6.7 -6.7 -0.3 -6.2 1.3Textile industry -12.0 -45.4 -21.5 38.1 -25.8 -13.8 -25.8 -5.7 -35.8 2.4

Manufacture of paper and paper products, printing -1.8 3.4 12.9 -1.8 22.6 5.5 -14.7 22.2 -16.0 -21.3Manufacture of refined petroleum and chemical products 22.3 32.6 17.4 3.6 7.5 -1.1 -15.0 22.7 6.5 -6.9

Manufacture of other non-metallic mineral products -8.6 30.1 -1.1 8.8 8.9 2.6 -46.8 3.1 9.4 -6.8Manufacture of basic metals and fabricated metal products 5.5 44.5 8.8 5.2 8.5 -2.0 -12.4 10.1 -3.1 -11.5

Engineering industry 6.2 15.8 -5.1 27.7 33.1 5.8 -28.5 34.3 23.9 -4.5Electricity, gas, steam and air conditioning supply 26.2 21.0 7.6 1.6 9.7 4.9 -23.4 47.9 6.0 28.3


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Crimea: construction sector – not enough to satisfy the demand

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

100

200

300

400

500

600

700

800

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

Crimea construction sector performance in 2000-2012

New home construction, thsd sq.m.Total appartments per capita, sq.m. (r.h.s.)


Key figures of Crimea construction sector performance in 2000-2012

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

New home construction, thsd sq.m. 179 205 226 196 274 283 370 522 416 387 535 504 733

Fixed assets investments, mln hryvnia 784 1208 1483 1913 2740 3375 4684 7007 8655 5536 6781 16257 -

Fixed assets investments, mln $ 143 225 278 359 515 661 930 1392 1645 687 853 2036 -

Total appartments, mln sq.m. 37.3 37.7 37.5 37.8 38.1 38.5 39.0 39.7 40.0 39.3 39.3 39.8 -

Total appartments per capita, sq.m. 18.0 18.2 18.3 18.6 18.7 19.0 19.4 19.8 20.0 19.7 19.7 20.0 -

Real construction output, % yoy -27.0 5.6 -9.9 22.2 19.1 -1.9 19.7 13 -21.4 -37.9 -18.2 -3.8 -14.4


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Crimea: transport network – road (highways) and airlines in demand

Crimean and Ukrainian transportion system Crimea Ukraine

Length of rail tracks (thsd km) 0.6 21.6

Density of rail track (km per 1000 sq.km) 23 36

Length of motor roads (thsd km) 6.3 166

Density of motor roads (km per 1000 sq.km) 245 275

Source: State statistics services of Ukraine

3540

2247

1410373129

Crimea passenger transportation in 2012, mln pass./km

Railways Motor vechiles, incl. buses Water Aircrafts

Trolleybuses Trams

5341

475961

Crimea cargo transportation in 2012, mln t/km

Railways Motor vechiles Water Aircrafts


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The Infrastructure for growth in Crimea: the main bottlenecks

Old and underinvested infrastructure is a key problem for further business development. Crimea needs modernization

of power grid, highways and airport.

Crimea still lacks consistent sustainable electric power supply. Due to its geographical position and scarce traditional energy resources Crimea has limited facilities for cheap power generation, while old worn-out backbone power grids make it impossible to import relatively cheap power from mainland Ukraine or Russia in sufficient quantities. The situation has improved over past 3 years, but Crimean power system still has major capacity for modernization.

Poor condition of road network is another serious obstacle for the development of the tourist sector. The regional road network is comparable with Ukrainian road network density (per 1000 habitants and 1000 sq km of land), but Crimean motor-roads are mainly lower quality and require major upgrades.

Number of flights is limited by capacity of Simferopol international airport to handle aircraft and passenger numbers. Modernization of Simferopol airport or new international airport facilities will significantly increase aircraft traffic and make Crimea easier to access for tourists.

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Crimea business: sectors, which need the right strategy for growth

What tourism-related business will grow in Crimea in the coming years?

Where European entrepreneurs can get the good market share?

Infrastructure engineeringInfrastructure sector is a key for tourism development in Crimea. Government and private sector both will create strong demand for the engineers in coming years. Power generation (including Renewable Energy) and grids are extremely underinvested and EU could focus on the sector in order to modernize the region.

Construction, architecture and designConstruction sector incurs a large deficit of specialists. Growing incomes lift construction activity in the region and increase demand for good quality housing and commercial/public buildings.

Tourism and related servicesSecond phase of post-Soviet touristic boom is starting. The region now needs more investments and management efforts in hotel chains, restaurants chains and entertainment.

Entertainment businessGood possibilities for new cinemas, kids’ parks, movies production in the historical Yalta Film Studious.

Hotels, recreational facilities and health/medical servicesGreat potential for hotel management/efficiency upgrade due to lack of domestic hotel networks. Famous for the recitation resorts with the best medical specialists in the USSR, Crimea today can’t develop it because some investments into equipment, staff training needed. With the $250-300 mln of new investments, the region will be a leader in the growing business of health services for wealthy retired people from the ex-USSR countries (especially Russia, Ukraine, Kazakhstan, etc.)

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Contacts

Global Vision Advisory Services Ltd125 Old Brompton RoadGlen House2nd FloorLondonSW3 7RPUK

One Baltic Investment GroupTerbatas 14, RigaLV-1011Latvia

crimea: tourism business opportunities and strategy by global vision advisory services and one...

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