Guests but no hospitality
Last week we celebrated International Tourism Day, which bureaucrats always welcome with exceptional enthusiasm. By 2010 Kyiv will be receiving ten times more tourists, while the number of Ukrainians eager to explore the capital’s famous landmarks will increase by six times. At least these are the estimates drawn up by Mykola Hrytsyk, head of the Main Administration of Hotel, Tourism, and Resorts Management. On the eve of the professional holiday, Hrytsyk announced that every year tourism in Kyiv increases by 15—20 percent; in 2004 alone tourism contributed 39 million hryvnias to the state coffers. In other words, the Ukrainian capital has every opportunity of becoming a central European tourist mecca, except for one problem: hotels. Of course, the municipal administration is planning to increase their numbers considerably; 40 hotels of varying sizes will be built by the year 2010. However, the current situation remains discouraging. For example, there are 25 beds per capita in Vienna, but only six in Kyiv. This means that the Ukrainian capital is incapable of staging big events. Recall what happened during the Eurovision contest, when the city administration was horrified to discover there were far more guests arriving than expected. It was clear at the time that making the first Radisson SAS chain hotel available in Kyiv would take more time. So the contest organizers tried to book places on pleasure boats and even in student dormitories. It is no secret that the tent city on Trukhaniv Island was a measure dictated by necessity.
Of course, there are many hotels in Ukraine, particularly in Kyiv. But they are often far shy of comfort standards. Out of 1,218 hotels available in this country, only 252 have adequate parking lots; only 546 hotels have restaurants and cafes; 202 have saunas and swimming pools; 217 have dry cleaners and other services. Without adequate tourist accommodations, there is no tourist influx and no revenues. In 1993 there were 661 municipally run hotels, of which only 213 remain. In some cases closures were justified, as the gigantic hotels built under the Soviets could not be filled, especially considering that in the early 1990s no more than 500,000 foreigners visited Ukraine every year. On the other hand, the sharp decrease in accommodation played a dirty trick on certain regional centers, most of which have only a few respectable hotels. This situation is playing heavily into the hands of the shadow hotel business. There are some 60,000 private apartments available as hotel rooms in Kyiv, which has 112 hotels of various classes. Every year the owners of these apartments rob the municipal budget of some 10 million hryvnias, nor are they shy about openly advertising their services at railroad and bus terminals.
Experts say that taxation is the main reason behind this hotel pessimism. For example, hotels in Russia are tax-exempt for three years, provided they invest in the resource base. In Western Europe, the state ensures that hotel owners receive a return on their investments at higher interest rates, as well as customs concessions. According to Mykola Yevdokymenko, chairman of the board of the Ukrainian City Hotels Association, hotels in Ukraine must pay 20% VAT, as well as land and income taxes. Before 2004, a 20-percent hotel tax was added to these payments. At the time the tourism administration managed to have the latter annulled, but from then on, Yevdokymenko says, the hotel business began to revive. New hotels were built and some old ones began to be renovated and expanded. In addition, the law establishing a different price scale for hotel accommodations for foreigners and Ukrainian nationals was abolished. Yevdokymenko recalls that this point was a thorn in the side of many hotel managers. There were numerous lawsuits launched by foreigners, who failed to understand why they had to pay several times more for the same services. Now, however, all these successes have been reduced to nil. The State Tax Administration of Ukraine has proposed restoring the hotel tax with a cap of 5 percent. But Ukrainian hotel owners consider even this figure a disaster. Yevdokymenko says that hotel prices will automatically increase by 20 percent, despite the fact that long-term agreements were signed according to the old tariffs. Complaints, conflicts, and denials are inevitable.
Ukrainian hotel prices are another topic. Why can a traveler get a hotel room for $30 in pricy London, compared to $100-150 in Kyiv? Hotel owners here keep referring to taxes and nonexistent revenues. Volodymyr Tsaruk, director of the National Tourism Organization’s information center, believes that the actual reason is the absence of genuine competition. Today, Kyiv’s most prestigious Premier Palace Hotel (where a room costs $300-400 per night) is filled to approximately 80 percent capacity. Other Kyiv hotels register between 65 and 70 percent. Hence the question: Why reduce prices if there are customers prepared to pay high ones? Hotels of this kind are unaffordable for the average tourist. Their clientele is the business class, with the result that ordinary customers are inadvertently supporting the shadow hotel business.
No competition among hotels is likely in the nearest future. In the first place, new hotel projects take much longer to pay off in Ukraine than in other countries. Second, the Ukrainian state is not stimulating hotel investors. Thus, importing hotel equipment, which is not manufactured in Ukraine, is very costly in terms of import duty. Hotel construction projects are not given any tax breaks for the duration of construction and the first couple of years of operation. Ukraine is theoretically an excellent market for large hotel chains like Sheraton, Marriott, and Hilton. There is only one hitch. Tsaruk says that Ukraine’s bureaucratic procedures for launching hotel construction projects and then running them are among the most complicated in Europe. For example, the Premier Palace project required over 100 different documents that had to be registered with 10 different agencies. The director of the info center at the National Tourism Organization thinks there are also problems getting sites allocated. “Hotel chains, of course, want to access the Ukrainian market, starting in the capital. For them it is important to have their hotels located not on the Left Bank but downtown — that’s their condition.” The fact remains, however, that Kyiv has not succeeded in reserving sites for such hotel chains. As a result, Tashkent has hotels belonging to eight different chains, Moscow has seven, Tbilisi has two, and Kyiv only one, which barely managed to open a few months ago.
DID YOU KNOW?
Last year Ukraine earned some 36 million tourist dollars. As before, the largest number of organized tourists is arriving from Russia. According to official statistics, 6,693,000 Russian tourists visited Ukraine in 2004, followed by Moldovans, Belarusians, Hungarians, and Poles. There is also an annual increase in the number of tourists from Western European countries — e.g., Germany, UK, and Italy. The number of foreign tourists who visited Ukraine during the first seven months of 2005 increased 2.2 times. A total of 3,650,000 tourists from EU countries and Switzerland visited Ukraine during that period, which is 10.7 percent higher than all of 2004.
More than 90 percent of tourists who visited Ukraine are from EU countries: Poles (59 percent), Hungarians (25 percent), and Slovaks (7 percent).
