Country's rich nature is one of the key drivers of growth for its tourism market. According to a recent report by the World Travel and Tourist Council's (WTTC), Mongolia's travel and tourism sector directly contributed almost 4% of the GDP. The total contribution of the industry - direct and indirect- is even larger and accounts for 9 % of Mongolia's GDP. The sector attracted capital investment of US$ 400 million in 2011. According to the data of Mongolia's National Tourism Centre (MNTC), around half million tourists visited Mongolia this year. However, government has a plan to increase to the number to 1million by 2020. Going back the history, tourism sector once accounted for 30% of the GDP. Also, looking at other emerging economies, there are quite a few countries whose economies much more heavily depend on tourism sector. Also, tourism sector will have a significant impact to labor market. So, importance of tourism sector in Mongolia should not be exaggerated. So, we will explain about following topics
1. The Tourism sector in general
2. The policy of the Ministry
3. Disadvantages of tourism sector
4. Possible solutions of the problems
5. IFC as an example of investment to the sector
6. The advantages of the sector
The Tourism Sector in general
As I have explained above, Mongolia's travel and tourism sector accounts for 9 % of Mongolia's GDP. However, the number of the tourists visited Mongolia was only 460,000 in 2011, among which China accounted for 43%, followed by Russia with 22%. The other three rounding out the top five were South Korea with 10% and the United States and Japan with 3% each.
In terms of the sub-sector, the internal tourist market is growing. The WTTC estimates 46% of direct industry GDP is generated by domestic spending, totaling US$160 million in 2011. This is likely to rise to US$370 million by 2021. WTTC calculates that business travel spending accounted for 34% of direct sector GDP in 2011.
We believe that the share of internal tourist market will increase further in a future driven by increasing per capita GDP and better infrastructure. Also, the share of business travelers will increase as the quality of the hotel rooms will increase.
The policy of the Ministry
The Government of Mongolia has recognized tourism as a priority sector with a great potential to contribute to socio-economic development of the country. Thus, the government is trying to channel investment into the country's tourism industry and take specific steps to encourage greater private sector participation. Currently, there are nearly 700 tour operator companies, 350 hotels, 375 tourist camps and 65 star rated hotels. The investments are needed to create a productive tourism sector. The government is using mining revenues to partially finance the country's forthcoming International Airport, which is expected to be a key component in driving tourism growth and improving domestic links.
By 2020, Mongolia hopes to welcome 1 million visitors per year. Already, the number of people coming to Mongolia is on the rise, with visitor numbers up 11% in the past three years and revenues showing an increase of 30% for the same period. However, in order to realize the set target of attracting 1 million foreign visitors per year by 2020, experts believe that, the Mongolian government will need to adopt more measures and channel more investment to boost the country's tourism sector. Hence, the country's tourism industry is expected to flourish further as the robustness of Mongolia's economy and the opportunities that arise will further make tourism an attractive investment option. To increase the number of the international travelers to Mongolia, significant measures should be taken. And those measures should focus on improving the current situation. To understand the current situation compared with other nations, the Travel & Tourism Competitiveness Index is the benchmark and can suggest some solutions for the future. As you see below index, tourism infrastructure in Mongolia is ranked 116. The poor infrastructure has been a big hurdle for attracting foreign tourists to Mongolia in a past. Therefore, increasing the number of 4-5 star hotels in UB should help improve the score. As you see the below bar chart, the number of 4-5 star rooms are expected to increase from 1400 in 2010 to 5300 in 2020. So, that will help improve the score significantly.
Also, increasing business travelers will be very important for the industry as per head spending of the business travelers are averagely 60% higher than leisure travelers. Also, they spend four times more than leisure travelers for accommodation (see below). At the same time, business travelers are not so much seasonal as leisure travelers who tend to come only during summer season. So, they will help increase the utilization of the industry.
Disadvantages of the sector
The country also has several disadvantages that constitute challenges to faster growth in the sector. These include:
Due to the harsh and long winter periods, the active tourist season is concentrated in the months of June, July and August. Although there are modest shoulder seasons (starting beginning or mid-May to June and September to mid-October), tourism service providers rarely make an effort to be open outside the main season. High operational costs in colder weather further limit efforts to extend the season and use price incentives as a way to attract visitors.
Limited international air access to Mongolia is a significant disadvantage for tourism development. Among the main complaints of tourism service providers in Mongolia are the limited number of flights (due to uncompetitive air transportation policies underpinning the national carrier) and high airfare cost. Weather-related cancellations (especially in Spring and Fall) and last-minute changes in seasonal schedules add to the difficulties associated with international access. Some of the above problems should be solved after the completion of the new international airport as the frequency of the flights will increase by 3-4 times. Also, the increase of the business travelers will be helpful.
Signage and markings are also missing, and could be another way to promote the use of already existing unpaved roads and improve their safety. Many vehicles deviate from existing tracks, which contributes to negative impact on the surrounding nature. This is sometimes due to deterioration of the roads but also due to missing signage and lack of awareness on the potential impacts of such behavior among local drivers and tour operators. Wider use of GPS equipment, improved mobile phone connectivity and availability of search and rescue services are also needed to improve safety of local transportation. The existence of reliable local domestic flight providers is also a great advantage for growth, especially in higher-end and specialty markets.
Service quality is a challenge that appears to be twofold. On one side, there is lack of governmental policies or industry-led guidelines that promote quality standards or encourage the maintenance of higher standards for tourist facilities and services. On the other, there is low awareness on what quality should be and what an appropriate service culture is. To some extent this could be attributed to the seasonality and fast turnover of employees in the sector, relatively young and inexperienced workforce (usually students or young people out of college), and temporary nature of employment in the sector. Tourism is perceived as a training step for young individuals interested in foreign languages or international education. This is aggravated by competition for quality human resources with mining companies, which offer much higher wages than the average $150 monthly salary in tourism.
Mongolia’s training and education in the field of tourism are not up to standard. All professional tourism service providers conduct their own training programs and do not rely on knowledge received at official educational institutions. To improve the situation, the proper guidance of the ministry will help improve the standard of the industry.
Possible solutions for the problems
The biggest problems of the sector comes from the low productivity of the sector. To increase the productivity, the sector needs to increase the $ amount spend for the sector. And, to do that, the sector needs to 1. Increase the capacity utilization. 2 increase business travelers 3. Increase the service level of the works
Also, government needs to 1. Set guidelines for the sector. 2 spend more money for tourism infrastructure (building historic monuments and museums etc)
In any case, government should pay more attention to travel and tourism cluster in Mongolia and try to improve the productivity in each cluster.
IFC as an example of investment of the sector
Since 1956, IFC has invested over US$2.6 billion (including syndications) in 260 hotel projects in 89 countries; more than half these investments are in International Development Association (IDA) countries, which are some of the poorest countries in the world.
Hotels play a critical role in development as they catalyze tourism and business infrastructure. In addition, hotels generate jobs, grow tax revenues, increase foreign exchange earnings, and provide better opportunities for small businesses. This ability to facilitate local, regional, and national economic growth—thereby helping to reduce poverty—is the reason that IFC is deeply committed to the hotel and tourism industry. Their commitment extends to environmental protection and cultural preservation with investments in hotels that complement unique natural habitats and enhance the attractiveness of historically significant sites.
IFC’s Track Record
Their investments in the hotel sector have had a far-reaching impact globally and vary from supporting city center and airport hotels that contribute to business infrastructure to tourist hotels and resorts, including eco-tourism and all-inclusive properties.IFC also support historic and environmental preservation tourism projects that encourage redevelopment of historic buildings and preservation of historic sites. In addition, IFC invests in mixed-use facilities, such as, hotels combined with shopping centers, office towers, and residences.
Tourism and Poverty Reduction
The latest research from the World Travel and Tourism Council suggests that the travel and tourism industry will generate 324 million direct and indirect jobs worldwide by 2021, which is 1 in 10 jobs. In 2010, international visitors spent more than $900 billion on goods and services annually, of which 37% were spent in emerging market countries. Tourism-related inflows are often the primary source of foreign exchange in many developing countries (and the main source of foreign exchange for 47 of the world’s 50 Least Developed Countries). No other sector spreads wealth and jobs across poor countries in the same way as tourism.
Also in Mongolia, the development of high-end hotels should send a positive signal to foreign investors. Hotels create critical business infrastructure and venues for international conferences.
In some destinations, for every US$4 spent by a tourist, US$1 reaches the poor. High-end hotels in particular create an average of 1.5 to 3 jobs per hotel room and can generate substantial tax revenue.
Private financial markets are often unwilling to fund hotel investments in developing countries on account of risk factors, such as, political or economic instability, seasonality, unstable cash flows, capital intensive nature of developments, etc. This is often the reason that IFC and other investors need to step in.
The investment from the private sector should come after the confirmation that the investment by IFC is successful.
Examples of IFC’s investments in Mongolia
Shangri-La Ulaanbaatar
• Business: Shangri-La Hotels is a luxury hotel and resorts chain spanning key locations around the world.
• Market Gap: This is Mongolia’s first international standard hotel, including office and retail space, and will contribute to the country’s business and tourism infrastructure.
• IFC Financing: US$ 50 million A loan.
• Development Impact: The project is expected to increase supply of hotel services to help meet the growing demand for hotel accommodation in the presently underserved 5-star hotel sector in Ulaanbaatar, Mongolia, and create a significant number of direct and indirect jobs for local communities. It will also create demand for locally sourced materials, service, and labor during construction and operation stages and support SMEs, including a wide range of goods and service providers. In addition, the presence of the Shangri-La Hotel in Ulaanbaatar will send a positive signal to other foreign investors—who are considering investments in Mongolia where there is limited private sector activity—that the country is ready and open for business.
We hope the project will increase the productivity of the industry by
1. Higher professionalism in the industry
2. By international grade service and
3. The quality of the building.
Advantages of Mongolia
As Mongolia has several advantages that any other countries do not have, the tourism sector have a huge potential. Mongolia, as you know, has a big advantages in unique history, culture, nature and even weather.
However, those advantages should be promoted in a way foreigners are easy to explore and also should be promoted more in foreign countries especially in south east asia. One of the good example is the success of the brand of Hokkaido to Hong Kong, Singapore and other south east asian nations. Mongolia should also learn how to attract these travelers by learning more about Hokkaido.
Also, some of the disadvantages should be considered to be the advantages. For instance, poor infrastructure is one of the biggest challenges for the sector. Although the lack of a quality road network and other supporting infrastructure has impeded faster growth of tourism, limited infrastructure should not be seen solely as a disadvantage.