The Aborted Flight

How Uzbekistani tourist industry recovers from 2020 crisis

Tourism is a key sector for the entire economy of Uzbekistan and it was nearly suffocated by the COVID-19 crisis. For example, in 2019 the UN World Tourist Organization put the country on the list of five countries with the most dynamic developing tourist industry. The pandemic stopped this fast growth. However, Uzbekistan has been doing its best to support the industry and has never stopped the flow of investments to this sector.
 
The Uzbekistani tourist sector has shown explosive growth since 2018. That year the country simplified its visa regime and the number of foreign tourists surged fourfold compared to 2016 figures. In 2019 Uzbekistan broke its new record – 6.7 million tourists. 
 
The year 2020 was also supposed to be record-breaking; the country was expected to attract about 7.5 million tourists. However, the pandemic has changed everything. Uzbekistan showed a fourfold drop and was able to attract just 1.5 million people; 1.2 million of them visited the country right before the lockdown was declared.

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According to Ministry of Tourism and Sports data, the vast majority of tourists in 2020 were from other Central Asian states: Kyrgyzstanis (33.8%), Kazakhstanis (28.2%), people from Tajikistan (22.4%), Russia and Turkmenistan (5.4% and 4% respectively). Also, there were some tourists from abroad: Turkey at 1.4% all tourists, China (0.5%), South Korea (0.4%), India (0.3%), and Ukraine (0.2%).

More Accommodation Places

Once Uzbekistan witnessed an increased flow of tourists before the pandemic, all the industry’s problems became obvious. One of them is a lack of accommodation. In 2020 there were 1,200 businesses in the hospitality industry with 26,100 hotel rooms and 54,800 beds, according to the ministry. 
 
Thanks to the target state program, which started in 2019 and should last until 2023, more new hotels are being constructed right now. The government subsidies about $4,600 per one room for three-star hotels and $7,600 per room for four-star hotels. 

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To increase the number of high-grade hotels from international brands, the country also has subsidies for royalty: the first 50 three-star hotels will be receiving $200 per room each year; the first 30 four-star hotels will be paid $400 per room each year.

In October 2020 the Cabinet of Ministers of Uzbekistan put into force new incentives for tourist businesses to help them cope with the consequences of the pandemic. For example, the government started to subsidize loan interests, which were higher than a key rate of the regulator (but not more than 10%). The subsidies were also designed to support loan receivers, who spent money for hotel construction, renovation works to make a hotel meet new sanitary standards, or working capital financing (up to $95,000).
 
In total, the Uzbekistani government comes up with 56 incentives and benefits for businesses from the tourism industry.
 
It is expected that the number of hotels will increase to 2,400 with 64,000 guest rooms by the year 2025.

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Moreover, the Uzbek authorities even simplified the licensing of this type of business. As a result, the number of guest houses and hostels skyrocketed. This helped a lot in 2019 when there was a boom in tourism in Uzbekistan.

When a Break Can Help

When COVID-19 hit the world, Uzbekistani business and the government decided to use that pause as an opportunity to improve tourist infrastructure. Large hotel complexes and other accommodation places have emerged in some popular regions. In 2020 the room inventory in Uzbekistan added 3,000 more rooms.

Currently, there are 86 new hotels are under construction, including Hempton (Hilton chain) in Tashkent and Hyatt Regency in Bukhara, according to Aziz Abdukhakimov, minister of tourism and sport. He noted that Tashkent alone needs about 10-15 new hotels for 120-150 rooms each. 
 
As the World Travel and Tourism Council data shows, in 2019 tourism in Uzbekistan accounted for 2.5% or $1.3 billion out of the national GDP.
 
All the efforts to update the Uzbekistani tourism sector are a result of the Tourism Development Concept for 2019-2025 initiated by President Shavkat Mirziyoyev. Once the program is completed, the share of tourism in GDP should account for 5% or $2.1 billion with nine million tourists. At least two million of them should be tourists from countries other than CIS.
 
According to Andrey Suleykov, head of digital tourism in Rusatom Infrastructural Solutions, to increase export of its tourism Uzbekistan has to promote its unique touristic brand in those countries it considers a priority. “It should be trendy to travel to Uzbekistan,” he said. Usually, the attractiveness of a particular destination is based on several factors: security, history and culture, logistics, and visa acquiring process, the expert added.
 
Despite low internal prices, Uzbekistan is not a cheap destination for foreign travelers, co-founder of the Art Hostel Group company Pavel Wolf says.

“Uzbekistan is not a cheap destination due to expensive air tickets. Only those who are looking for something new or just like the history of Central Asia are interested in our country,” he noted.

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According to the aviasales.uz website, in March 2020 air tickets from Russia to Uzbekistan cost $200 on average. The same price was for air travel to and from Kazakhstan. Currently, people can travel from Almaty to Tashkent for just $100. One-way tickets from Turkey cost $250 last year and $360 now. 
 
Developing tourist markets, which include Uzbekistan, have to know that the way back to the 2019 level will require at least several years, says Marina Ten, co-founder of Igmar Apart Hotel. “We have no sea or internationally admired ‘must-see’ sights. Of course, we have some historical architecture and unique cuisine but it’s not enough for the market to be rebounding over a short period. We need low-costers with cheap air tickets because Uzbekistan is a country for non-expensive tourism and to get tourists back we have to make air travel more affordable,” she said.

Bid for Internal Potential

Due to sanitary limitations for international travel, Uzbekistan is going to develop its internal tourism. Over the period from 2016 to 2019, the number of internal tourists had been increasing constantly. Right before the pandemic, this figure reached 14.7 million. “Many can travel to Samarkand by train or car. The average budget for one individual is about $20. The country’s population is pretty big, and that is good for the development of internal tourism,” Wolf said.
 
“We are developing ecotourism and I can say that the number of interested people has risen twofold. Probably, people are just tired from being stuck in their homes. That said, the number of internal tourists is higher now,” said Sharof Egamberdiyev, founder of Mysterious Uzbekistan. 
 
Since March 1, 2021, Uzbekistan has been charging $0.09 from daily payment for accommodation in hotels. The charge is excluded from taxation and is designed to support internal tourism and local entrepreneurs.

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At the same time, to stimulate local travelers the president has approved a special system of discounts for them. For example, they can buy air tickets with a 25% discount. If they do that with the help of a tour operator, they can obtain an additional 15% discount. A similar system should also work in railroad transportation: 15% if you are buying a ticket from a tour operator and an additional 10% for hotel services. This system is already working and as a result, regular tourists can save about 50% over their vacation. 
 
To support tourist business during the crisis, the government developed a set of rules for subsidies and benefits issuing. For example, the land tax and property tax for entrepreneurs have been lifted. Moreover, profit tax was cut by 50%, and social payments were reduced from 12% to just 1%. The government has also declared a debt moratorium for business loans and even compensated interest for some of them.

Potential for Investments

Foreign investors show strong interest in the Uzbekistani tourist sector. Under the new investment program for 2020-2022, the government is expected to attract $904.6 million. Roughly $885 million will be allocated to construction. According to the Agency on Foreign Investments, the country has such strong points as security, more than nine thousand sights, free tourist and economic zones and better legislation in the area of tourism.
 
Among foreign investors are companies from India, China, and Turkey, which want to build new hotels and develop tourist infrastructure.
 
However, they are also not avoiding direct acquisition. For example, Bashan Investment Group PTE LTD from Singapore has acquired 80.1% of the Hotel Uzbekistan for $23.2 million. Another company Ittihad International Investment LLC from UAE bought Chorsu Hotel for $17 million. The prominent Hyatt Regency Tashkent Hotel might be acquired by The Abu Dhabi Uzbek Fund for $110 million.
 
All in all, the most attractive spot for foreign investors is still the city of Tashkent. Over the period from 2020 to 2022, foreign companies are going to implement 14 tourist projects in Tashkent for $429.5 million. Last June Japanese H.I.S. Holdings started the construction of a hotel. The hotel, which will cost $13 million in total, may be opened by the end of this year. The fashionable Marriott Hotel for $10 million was opened in Tashkent in December 2020. 

In general, the city’s authorities are going to implement 90 projects, including 66 hotels for 3,596 rooms and 7,050 beds; 12 shopping centers, nine parks, and three centers of handcrafters.
 

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