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Tourism ordered to survive

Member of the Russian Geographical Society Roman Tarantul - on whether the tourism industry of Primorye will withstand the blow of COVID-2019

In recent years, Primorsky Krai has been confidently following the path of development of the tourism industry, where it has achieved certain results. Now, after the introduction of restrictions due to the coronavirus, the regional tourism industry will have to look for ways to survive.

Tourism ordered to survive

Roman Tarantula

Entrepreneur, member of the Russian Geographical Society

In 2019, Primorye was visited by 760 thousand foreign tourists, due to which Primorye took the third place in Russia in the number of foreign guests, second only to Moscow and St. Petersburg. The main part of the flow was made up of tourists from China (370,7 thousand people), South Korea and (299,7 thousand) and Japan (35 thousand).

Last year, the tourism industry in the Primorsky Territory accounted for about 6% of the gross regional product, bringing 6,7 billion rubles to the budget and providing 45 thousand people with work. In 2019 alone, the number of hotel service and catering workers increased by 1 people, retail trade - by five thousand people, transport services - by three thousand people. According to the estimates of the regional government, in total, 100 branches of the national economy of the region are connected to one degree or another with the tourism industry.

With the spread of coronavirus infection, the tourism industry has already suffered significant losses, the scale of which will only grow. Firstly, in the high season of 2020, a massive foreign tourist will almost certainly not come to Vladivostok. Secondly, by the beginning of the high season, the downtime of tourism industry enterprises will already be four to five months, since passenger traffic with China and South Korea was stopped long before the introduction of internal restrictive measures in Russia, and it was these two countries that accounted for 88% of the influx of foreign tourists in Primorye. In addition, in 2020 Vladivostok was preparing to receive 15 cruise liners, the first of which was expected on April 19.

The hotel load has already decreased to 5%, and the revenue of travel agencies has dropped to zero, since many have been “sharpened” for Asian guests. At the end of 2019, some hotels and travel companies in Vladivostok took out loans to expand their business because of expectations of a sharp increase in tourists from Japan due to the opening of a direct Tokyo – Vladivostok flight by Japan Airlines. Today, some hoteliers plan to “freeze” the work of hotels, someone intends to continue to work while optimizing costs by saving on wages, advertising and meals.

The negative impact of the coronavirus pandemic on the tourism industry in Primorye will be more lasting than on other sectors of the national economy. Even with the full opening of passenger traffic with Asian countries, the restoration of tourist flow, similar in volume to the level from 2018-2019, will not happen right away. The growth rate will depend on many factors that are currently simply impossible to calculate. As a result, the consequences of the fight against COVID-19 will affect Primorye at least until the end of 2020. Moreover, many epidemiological experts predict a second wave of infection in the fall of this year.

The spread of a new coronavirus infection brought the tourism industry of the Primorsky Territory to a state close to collapse. The leadership of the Primorsky Territory, managing one of the most attractive regions of Russia for foreign tourists, faced a serious challenge - to develop effective measures to support the economy of the subject as soon as possible, 6% of the GRP of which is the tourism industry, which is in a deep crisis.

A fundamental step by local authorities in this direction is the decision to officially recognize a new coronavirus infection as force majeure, which makes it possible to revise civil contracts towards a reduction or complete cancellation of obligations. On March 23, the Primorsky Chamber of Commerce and Industry began issuing certificates of force majeure circumstances under domestic agreements. It is noteworthy that the COVID-2019 pandemic was recognized as force majeure only in 43 subjects of the Russian Federation.

Direct measures to support the tourism industry developed by the regional government can be divided into three areas: reducing the tax burden, canceling or reducing rental payments, and providing concessional financing.

The reduction of the tax burden on the tourism sector is carried out depending on the type of activity of enterprises through the abolition or reduction of property tax, a significant reduction in tax rates on income of companies operating under the simplified taxation system, as well as reduction of the transport tax rate for carriers involved in excursion and passenger services tourists.

Due to the interconnectedness of economic processes, a two-fold reduction in property tax rates formed the basis of regional measures to reduce the cost of real estate rent. This decision allowed the owners of commercial real estate to meet the tenants and revise the agreements in the direction of reducing rental rates and introducing rental vacations. So, in some shopping centers in Vladivostok, the rental price is reduced by 50-80%, and in some cases - to the cost of ownership of retail space.

An additional measure to reduce the rental load on small and medium-sized businesses was the abolition of payments for the use of property owned by the Primorsky Territory for a period of three months, with the possibility of extending the rental vacation for up to six months in total.

This decision was initially criticized by the local business community, since many were simply not aware of what percentage of the region's enterprises use regional property. However, market analysis shows that in Primorye there are about 300 companies directly related to the tourism sector and renting regional real estate. The incentives cover such business entities as air and road carriers, cultural, leisure, sports and recreational and sports enterprises, hotels and hostels, catering establishments, non-governmental educational institutions and centers of further education, companies for organizing conferences and exhibitions, firms for the provision of domestic services to the population, travel agencies.

The regional authorities recommended that municipalities also consider providing incentives for tenants of municipal property. So, from April 1, the Vladivostok City Hall introduced a moratorium on the collection of rental payments for the rental of city property. This decision further expanded the list of companies falling under rental privileges, since about two thirds of all small and medium-sized enterprises of the region are registered in the city.

A loan program with a rate of 0,5% with a maximum loan amount of five million rubles and the possibility of deferring the first payment for a period of six months is called upon to provide the basis for preferential financing in the region. This credit line developed by the regional Ministry of Economic Development is implemented through state financial institutions. The first entrepreneurs who received preferential loans under the local program claim that it will allow refinancing existing loan agreements and at least preserve business in times of crisis.

As an indirect way to support the tourism industry of Primorye, the region’s leadership sees attracting an additional flow of Russian tourists to the region, which will partially offset the losses incurred by the business. Local authorities have already applied to the Russian government with a proposal to expand the subsidy program for domestic air transportation between the regions of the Far East and Siberia, to adopt a subsidy program for domestic railway passenger transportation, as well as introduce additional air and railway flights between the European part of Russia and Vladivostok.

In favor of Primorye is the fact that most of the citizens of Russia simply will not be able or afraid to go abroad in the upcoming holiday season. As a result, in the current epidemiological situation, such decisions could quickly turn the Primorsky Territory into a Mecca of domestic tourism, like Crimea or Sochi.

Implementation of support measures will cost the regional government 4,65 billion rubles, despite the fact that the economic loss of the budget due to the coronavirus for the year will be about 15 billion rubles. For comparison, the total budget deficit of Primorye for 2020 was planned at the level of 4,84 billion rubles.

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