Features of investment in Russian tourist facilities

Opportunities

Let’s start with the latest industry statistics.

According to the information provided on the official website of the Russian statistical Agency:

  • During 2019, 24.5 million foreign tourists visited Russia. Almost 2 million people came to the country from China alone.
  • The profit of the tourism industry for the same year 2019 amounted to more than 300 billion rubles (about 5 billion US dollars) and increased by more than 4% compared to the indicators of 2018.
  • The gross value added of the tourism industry in 2018 amounted to 3.680 trillion rubles (about 62 billion US dollars) and increased by more than 7% compared to 2017.

All these data indicate the huge size of the Russian tourist market and that this market continues to grow.

Investments in tourist infrastructure are characterized by high capital intensity, a large share in the total investment of fixed assets (buildings, land, equipment, communications), fairly long terms of return on investment and a long shoulder to reach the break-even point. At the same time, the tourist infrastructure attracts investors by the reliability of investments, the stability of consumer demand, and the high marginality of this activity.

Russia currently has a large number of tourist objects that are offered for sale or are in search of investment. These are hotels, resorts, holiday homes and pensions. Most of them require serious repairs and updating of the material and technical base.

In the category of hotels most promising by geographical location are the objects in Moscow and Moscow region, Saint-Petersburg, Kazan, Yekaterinburg, Vladivostok, Kaliningrad, Samara, Krasnoyarsk, Irkutsk and Khabarovsk.

In the category of places for recreation and tourism, the most promising by geographical location are objects located in the Krasnodar territory, the Crimea, the Altai, the Astrakhan region, Kamchatka and the Kaliningrad region.

In the category of places for sanatorium-resort recreation and medical recreation, the most promising by geographical location are the objects located in the Krasnodar territory, the Crimea, the Altai and the Stavropol territory.

Difficulties

The main problems of attracting investment in the tourist infrastructure of Russia are:

  • high capital intensity of required investments, the need for large one-time expenditures of investment funds;
  • the owners of the object who are looking for an investor often do not have a clear idea of the prospects for business development and quality documents required by the investor (business plans, auditor’s reports, certificates of assessment of fixed assets, etc.);
  • incorrectly selected place for object;
  • the owners of the object who are looking for an investor do not have a documented «back-ground» of business, they is impossible to document the profitability, the amount of previously received financial income from customers, they have significant discrepancies between official accounting data and internal accounting data;
  • location objects that require investment in regions that are problematic in terms of jurisdiction and international sanctions. For example, in a region like Crimea;
  • a large number of outdated facilities built more than 40-50 years ago that do not meet modern requirements and require complex and expensive reconstruction;
  • administrative difficulties, difficulties in passing bureaucratic procedures related to the registration of ownership rights to commercial real estate and confirmation of the purpose of commercial land plots;
  • seasonality of business, which seriously affects profitability, especially in resort regions.

Advantages

The main advantages of investing in the Russian tourist infrastructure are:

  • a large selection of investment objects;
  • low level of operating costs, consisting of low prices for utilities, low staff salaries, low cost of current repairs and maintenance of facilities;
  • high profit margin business. Depending on the level of the facility, region, and seasonality factor, operating profit may far exceed operating expenses ;
  • stability and predictability of demand;
  • high level of business predictability, ability to generate regular customer flows;
  • reliability of investment investments;
  • in Russia, there are state programs for the development of the tourism sector of the economy, which provide a whole package of benefits and support measures for investors;
  • possibility of state co-financing of investment projects in the field of tourism.

To sum up, I would like to add that when the pandemic ends, the population of the planet who have stayed at home for long time will have a huge need for travel and tourist recreation. The projected demand for services in the tourism sector allows investors in this area to look to the future with confidence and optimism.

#investment_in_Russia #investment_consulting #business_with_Russia #investment  #tourism # hotel #resort  #SPA


Sergey Tyurenkov,
investment consultant, lawyer, curator of international projects of the «Academy of tourism, hospitality and restaurant business»

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