While social and political instability have inhibited Colombia’s development in the past, aggressive policies over the last decade have made significant strides towards improving both the economy and security. Communicating this change to the global community has been challenging but so far successful.
The travel and tourism industry has continued to grow, earning COP35.3trn ($21.2bn) in 2012 and accounting for 5.3% of GDP, according to the World Travel and Tourism Council (WTTC). In terms of employment, the tourism sector was directly and indirectly responsible for some 5.5% of the workforce in 2012, or 1.1m jobs. For 2013, tourism’s contribution to GDP, which also considers indirect impacts such as investment and job generation, is expected to grow by 6% to COP37.4trn ($22.4bn), reaching 5.4% of total GDP.
PERFORMANCE: Foreign arrivals have risen consistently in the past decade. In 2012 nearly 1.7m foreign visitors entered the country, a 7% increase from the previous year, well above the 4% global growth registered by the World Tourism Organisation. Arrivals have grown at an annual average rate of 8.9% since 2005, when the figure was 935,000. This upward trend will likely continue in 2013 and Colombia’s Migration Department reported that almost 600,000 foreigners had entered the country by April, representing 5% year-on-year (y-o-y) growth. These visitor numbers expand considerably after including cruise arrivals and Colombian migrants returning from abroad, many of whom left in the 1980s to escape poverty and insecurity. Altogether, arrivals for 2012 neared 2.5m.
Spending by international visitors has increased at a similar rate, making tourism the third most important source of foreign currency behind oil and coal, according to the Ministry of Trade, Industry and Tourism (Ministerio de Comercio, Industria y Turismo, MCIT). By the end of 2012, tourism accounted for $3.19bn of foreign reserves, compared to $2.5bn in 2008.
FUTURE GROWTH: These indicators have led President Juan Manuel Santos to establish ambitious goals for the future, the most prominent of which entails boosting the annual number of visitors to 4m by the end of his term in 2014. This figure includes foreigners and Colombians residing abroad, who the government hopes will generate $4bn in annual receipts.
To this end, the government has earmarked COP623bn ($373.8m) for tourism promotion and infrastructure improvement, more than double the previous administration’s sector budget. The continued work of Colombia’s promotional agency, Proexport, along with new legislative measures that directly benefit sector development, suggest short-term targets may well be accomplished, if not within the proposed timeframe, then shortly thereafter. Government estimates forecast the sector, including hotels, restaurants and investment, will expand 13% in 2013.
MARKETS: Colombia’s primary source market continues to be the US, from which 18.9% of inbound tourists arrived in 2012, amounting to nearly 320,000 visitors, according to Proexport. Regional countries provide a significant number of tourists as well, with Venezuela and Ecuador accounting for 14.8% and 6.8%, respectively. Argentina represented 6.6% of visitors, while other regional countries such as Brazil, Mexico and Peru each contributed slightly more than 5%, with Chile accounting for 4.5%. Of the European countries, Spain represented the largest market with 5.6% of the share, followed by Germany (2.5%), France (2.3%) and Italy (1.8%), all of which had lower y-o-y growth for 2012.
One regional market that is set to receive greater attention in the near future is Brazil. According to Adriano Fajardo Ballen, vice-president of Cotelco, Colombia’s hotel and tourism association, low levels of Portuguese proficiency prove a major obstacle in dealing with Brazilian visitors, an issue which, according to him, should be addressed via government training programmes. Previous efforts to improve foreign language skills have mostly been directed at English.
There is considerable interest in attracting greater numbers of Asian visitors, a trend common among South American countries in part due to increased trade between the two continents. From the private sector, Cotelco has begun investigating the Asian market by carrying out exchange programmes with hotel associations in Japan and South Korea.
“These visits help to study the existing hotel infrastructure in Asia and articulate strategies for accommodating travellers in Colombia,” Fajardo told OBG. So far, Cotelco has discovered that when Asians visit Latin America, they tend not to limit travel to one country but rather make regional tours spanning several countries. As a source market, Asia grew 3.6% y-o-y in the first two months of 2013, driven by South Koreans and Chinese tourists, according to Proexport.
Domestic travel is another important market that demonstrated solid growth. Airlines recorded 16.1m domestic passengers in 2012, a 16% increase from the previous year. As for Colombian tourists, MCIT estimates that some 9m travelled internally, displaying a 20% y-o-y increase. Reduced airfares, heightened travel security along highways and the continuous promotion of national destinations are some of the factors behind this positive performance.
BUILDING AN IMAGE: Recent sector growth is largely attributed to the improved perception of safety, which has in turn stimulated investment and increased travellers’ confidence. Proexport has played an important role in building this image through aggressive publicity campaigns, primarily directed at an external audience. One notable campaign from several years ago used the slogan “Colombia, the only risk is wanting to stay,” a daring move that creatively reframed the country’s reputation to attract tourists.
The development of a new country brand in 2012 has also helped promote a positive image for Colombia domestically and abroad. Not limited to tourism, the brand will be applied to many products and companies from a variety of industries. Major companies such as Avianca, Bavaria and General Motors have already signed contracts for usage rights with Marca País Colombia, the state entity in charge of the brand.
According to Claudia Hoyos, general manager of Marca País, the brand will disseminate a “good reputation” for Colombia, which translates into greater benefits such as long-term foreign investment. While the brand will be sent abroad to the US, Brazil, South Korea, Chile and countries within the EU, the domestic Colombian market will receive the first rounds of publicity. “If we are unable to sell Colombians on the new message, we will encounter difficulties offering it internationally,” Hoyos told OBG.
This promotional work will be critical in conveying the new message of safety and optimism, hoping to convince investors and tourists alike that “The answer is Colombia”, as the brand slogan professes. These initiatives go hand-in-hand with government strategies to boost the competitiveness of specific niches, such as medical tourism and nature resorts (see analysis).
HOTELS: The entry of global hotel chains is one indicator that the poor external perception of Colombia has improved. Luxury brands such as JW Marriott and Hilton have already opened hotels in Bogotá and announced the construction of new properties in other major cities. Many international groups have also formed alliances with local partners, seen in the examples of high-end properties such as Starwood and Hyatt, and in more affordable options like Accor, Hilton, IHG and Wyndham, among others.
However, according to Cotelco, more than 85% of all construction and growth in the hotel sector has been achieved with local capital, largely due to a stratified ownership structure. Many hotels, as well as offices and commercial centres, operate through a fiduciary system allowing multiple investors to own shares of property under one brand name. Examples of this system abound, such as the Marriott hotel located in the Bogotá Corporate Centre for which Marriott owns only 26% of the property, according to Cotelco’s president, Juan Leonardo Correa Jaramillo.
From a local perspective this has greatly affected the hotel sector since the appearance of major brand names often sway customer decisions. Furthermore, fiduciary agents that manage properties are legally constituted entities and maintain the upmost levels of formality. However, foreign companies wanting to enter the market may encounter difficulties with this system since it can prove quite intricate.
TAX EXEMPTION: Foreign direct investment in the sector has grown substantially over the past decade due primarily to a 30-year tax exemption on new hotel developments or hotels undergoing substantial remodelling. This measure, implemented in 2002, applies to hotel projects from 2003 to the end of 2017 and has encouraged the return of many international brands that had departed Bogotá and other major cities. According to Cotelco, the benefits of this law have thus far helped create 18,000 rooms and renovate 10,500 throughout the three- to five-star segments.
One criticism of this tax exemption is that it has saturated the market with unnecessary construction. According to Cotelco, demand is growing at annual rates of between 6% and 8% while hotel supply is growing at around 13%. “This ratio is somewhat imbalanced but it exists because people believe there are business opportunities,” said Fajardo, who does not worry about oversupply. “It would be very serious if the demand grew and there was no supply to respond to it. We are preparing for heightened demand.”
OCCUPANCY: Despite the influx of new hotels, occupancy rates have continued to gradually increase over the past few years. According to Cotelco, in 2012 occupancy levels were registered at 54.1% compared to 53.3% in 2011. While these figures include all categories of hotels from three to five star, Cotelco has noted that luxury accommodation is in higher demand, displaying 62% occupancy rates over 2012, while lowend operations ended that year with rates of 47.4%.
Juan Manuel Vargas Buendía, the assistant corporate manager of Bogotá’s District Institute of Tourism (Instituto Distrital de Turismo, IDT Bogotá), is among the sector specialists who believe business tourists are the driving force behind hotel demand. “During the week occupancy rates are high but on the weekend they lower drastically,” Vargas told OBG. “This could be a display of the high influence of corporate tourism arriving in Bogotá.” According to Cotelco, the corporate segment in Bogotá in 2011 accounted for 54.8% of guests, while tour operators controlled 17.9% of the total and leisure visitors represented 10.7%.
Although occupancy rates continue to grow, STR Global found that revenue per available room (RevPAR) has shown a downward trend over the past two years. The international hotel consulting firm reported that although RevPAR increased 4.7% in 2010, it dropped 2.1% in 2011 and a further 4.6% the following year. A further study by Cotelco and real estate consultants Jones Lang LaSalle shows that on a national scale 2011 RevPAR for upper-tier hotels with rack rates of COP270,000 ($162) per night came to COP251,418 ($150.85). Lower-tier accommodation charging below COP170,000 ($102.00) displayed RevPAR of just COP61,805 ($37.08), and intermediately ranged hotels registered RevPAR of COP120,153 ($72.09).
IN THE PIPELINE: Between luxury and regular accommodation, current stock in Bogotá is around 20,000 rooms. An additional 1400 high-end rooms are due to be added by 2015 through the ongoing development of nine projects. Of these new properties, a 168-room W Hotel is set to debut within a mixed space centre in Usaquen, one of Bogotá’s most exclusive neighbourhoods. Another prominent hotel in the pipeline is the Bacatá, slated for the historical downtown area of the capital. The hotel will offer 364 rooms in 66 storeys and is integrated into a mixed-use space made up of offices and shopping centres. At 260 metres high, the hotel will also be Colombia’s tallest building once it opens in 2015.
However, opportunities are not limited solely to the capital and other large urban areas. According to Fajardo, many medium-sized cities require hotel infrastructure aimed at corporate clients, especially in heavy oil zones. “When representatives of transnational companies arrive in these areas to do business they require executive lodging options,” he told OBG. Many hotels are currently being constructed in cities central to the oil industry such as Yopal, Villavicencio, Puerto Gaitán and Puerto López. “One of Colombia’s strengths is that the private and public sectors work closely together. This generates optimism and is a latent factor in competitiveness,” Fajardo added.
LEGAL INCENTIVES: One of the major leaps for tourism came with the formation of a sector-specific vice-ministry in 2006, a move indicative of the industry’s growing importance to the government. In June 2012 the sector received additional institutional support with Law 1558, which created the High Council of Tourism, tasked with improving public policies and ensuring heightened safety for tourists.
One interesting development within this law is that it considers tourism an important economic activity and one that operates in constant interaction with a variety of other sectors. Evidence of this is reflected in the composition of the council, which comprises high-ranking representatives from 13 other state entities including the Ministry of Transportation, the Civil Aviation Administration and the National Learning Service, to help train Colombians for careers in tourism. An additional, mixed council has also been established, which includes authorities and tourism associations to incorporate private sector views.
The cooperation between key entities such as the Ministry of Interior and the National Police represents significant steps to improve security for tourists. According to Paula Cortés Calle, president of the Colombian Association of Travel and Tourism Agencies, measures to improve safety are crucial for sector development, since this will increase the number of potential visitors willing to consider Colombia.
FUNDING: The new law has also established a higher budget for the sector, part of which is administered through the National Tourism Fund (Fondo Nacional de Turismo, FONTUR), previously known as the Tourism Promotion Fund, and overseen by the high council. For Luis Fernando de Rosas Londoño, general director of IDT Bogotá, this will allow better allocation of resources and become a fundamental tool for the development, promotion and regulation of the tourism industry. Funding will go primarily towards improving competitiveness, strengthening the tourist market, and promoting tourism abroad and at home.
FONTUR receives financing from several sources, including companies related to the sector, which are required by law to make small financial contributions. These include hotels, restaurants, travel agencies, airport and road concessionaries, and national and international airlines, which must pay $1 per passenger. Furthermore, a $15 tax included in all airline tickets also goes to the fund. Through these contributions FONTUR has collected more than COP30bn ($18m). Much of this is reinvested in training and education for the sector. According to Adriana Saavedra Guzmán, general director at FONTUR, one of the greatest challenges is a lack of foreign language skills among staff.
Private-public initiatives have already begun to address this issue through FONTUR resources. In 2012 Cotelco began a bilingual programme for 250 tourism companies in Cartagena and the support from FONTUR allows the classes to be offered free of charge. IDT Bogotá has also benefitted from FONTUR, developing language training programmes for taxi drivers, tourist guides and joint work with hotel associations such as Cotelco. In terms of providing assistance to tourists, IDT Bogotá has over 15 well-marked posts around the capital where workers speak English.
OUTLOOK: The combination of strong promotional initiatives and aggressive legal incentives are opening the path for Colombia’s tourism industry to meet its considerable potential. While many opportunities in the country have long been repressed due to ongoing violence and poor external perceptions, those dark days seem to be coming to an end. Current peace dialogues between the government and the Revolutionary Armed Forces of Colombia appear to indicate a final resolution will soon be declared, marking a milestone in the country’s political history. Not only will this be beneficial for the common good of all Colombians, this turning point is likely to further improve global understanding of the country.
Meanwhile, the hotel industry will continue to capitalise on the benefits offered through tax incentives while they last. Though the influx of so many new hotels may have saturated several markets in Bogotá and other major cities, the high-end segment continues to display positive demand that is likely to increase as business and foreign investment continues to arrive in the country. Smaller centres also have ample space for growth, and development of the ecotourism segment should provide new opportunities in more remote areas with the establishment of eco-lodges.
As a burgeoning industry, tourism offers considerable ground on which to work. However, the most successful foreign investments have either formed alliances with local companies or invested in segments that receive direct government support. These segments are expected to grow as authorities channel more resources into the sector and word travels that the country has overcome its past difficulties.
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