Broadening Appeal

Economic News

22 Jul 2010
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Ukraine's tourism industry has long been built on visitors from former Communist countries, yet is now aiming to draw in tourists from the rest of the world, partly out of necessity. The benefits are manifold, but certain issues will have to be addressed first.

Tourism still makes a relatively small contribution to Ukraine's economy. According to the World Tourism and Travel Council (WTTC), the sector will be worth $2.45bn in 2008, equal to 1.6% of Gross Domestic Product (GDP), and will directly employ 270,000 people.

Yet, the industry's broader economic impact is considerably greater. The WTTC estimates that the total direct and indirect contribution from tourism is in fact $13.66bn, or 9% of GDP. Overall, it provides employment for 1.5m people. Furthermore, in areas such as Crimea, which borders the Black Sea, tourism contributes a much larger share of the regional GDP.

The sector is also growing quickly. "Tourism GDP" - or the direct contribution to the economy - is expected to increase by 6.6% this year, and average 6% growth over the next decade.

The sector's base is currently somewhat narrow, depending heavily on tourists from neighbouring countries. Around three quarters[MSOffice3] of foreign visitors to the country in 2006 came from just three countries: Russia, Poland and Moldova. While this figure is likely to be skewed by frequent business visitors and transit passengers (the latter from Moldova in particular), the fact remains that Ukraine's tourism industry is still reliant on custom from abroad. Many of these are so-called "legacy tourists", who return to Ukraine - generally the coast - on holiday most summers as they did in the days of the Soviet Union. Sunny and appealing as the Ukrainian Riviera is, nostalgia alone may not be enough to lure younger, more affluent and adventurous travellers.

Furthermore, recent reports in the Russian press suggest that the flow of tourists from Russia could slow abruptly within a few years if Ukraine joins NATO. According to Russian Vice Prime Minister Sergei Ivanov, "NATO will make Ukraine[MSOffice4] put visa requirements" on Russian citizens, "complicating" the procedure of entering the country on holiday, and putting Russians off visiting their southern neighbour.

Ivanov somewhat threateningly indicated that this would deal a severe blow to the Ukrainian tourism industry: "At the same time I seriously doubt that American, British and German tourists will rush to Crimean beaches instead," he said at an event on July 14.

Ivanov's statements are part of a broader picture of Russian sabre-rattling. As yet, Ukraine has given little indication of whether it would impose visas on Russians. Even if it does, they could be available at the border and international airports - a system that operates, for example, in Turkey, with very little effect on tourist inflows. Even a possible requirement to obtain the visa before entry could be dealt with by the many package tour companies used by Russian tourists.

Nonetheless, the furore has brought the need to diversify the tourism market sharply into focus. Efforts to encourage visitors from a wider range of countries could be stepped up. Not only will it help offset any losses from "legacy tourism's" decline, but it could also help encourage higher income groups and aid the development of the sector away from the coastal fleshpots.

The country has a wealth of natural beauty, from mountains through forests to the coast; beautiful cities such as Kiev, Lviv and Uzhhorod; and a thriving national culture.

But Ukraine faces a number of challenges as it seeks to expand tourism and attract more visitors from beyond its traditional markets. One issue is the standard of hotels: of the 1140 hotels in the country in 2006, fewer than 200 were suitable to be classified with even one star, according to the state tourism agency. Tourists from North America in particular tend to favour international chains, of which there are only a handful outside the capital.

Another issue is transportation. Travel times are long - sometimes needlessly so. While trains are clean and affordable, they can be agonisingly slow, with the exception of the Kiev-Odessa motorway, the road network is also relatively underdeveloped.

The transport network is being slowly overhauled, but one recent development bodes particularly well. On July 11, Hungarian low-cost airline Wizz Air launched Wizz Air Ukraine, the country's first budget carrier. Operating flights from Kiev to Lviv, Odessa, Simferopol, Kharkov and Zaporozhye, the airline may belatedly kick-start the development of a low-cost sector in Ukraine, adding a welcome dose of competition to the market and helping to open up regional centres to tourism, as has happened elsewhere in Eastern Europe. The flight to Simferopol, dubbed "the gateway to Crimea", is already being promoted to British tourists in particular.

Finally, the sector's development will not be possible without a concerted publicity drive in new markets. This will also involve offering more than sea, sun and sand. Given Ukraine's size and diversity, offering two-centre breaks is a possible option. Another is introducing tailored tours catering to a particular interest group: cultural or adventure holidays, for example. These concepts are being developed in Central Europe, but are relatively new further east. There is no reason why these should not also appeal to affluent tourists from Russia, Poland and other former communist countries.

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