Tourism in Ukraine

Ukraine is currently facing the challenge to rebuild its economy after dramatic recession caused by the crisis. Even though the necessity of general business environment improvement is not to be underestimated its economic effect could well be increased if coupled by fostering the potential of a few promising sectors with high spillover effect. As the country is facing growing world competition in its traditional export markets and is additionally constrained by the bad state of government finance it is particularly important to prioritise those sectors wisely. Ukraine’s beneficial geographical position together with its historical and natural heritage is bringing tourism into the radar of public discussion in that respect.Does tourism have a high growth potential in Ukraine? Can the sector provide significant return on investments in short to medium term? Is its development in line with Ukraine’s long-term social and economic goals?Tourism represents around a third of global service trade. In many countries tourism is the largest contributor to national GDP, for example, in Croatia it contributes 17% to the country’s economy. Ukraine has a great tourism potential, which is based on its unique geographical position and a variety of tourism sights, ranging from ski resorts in the Carpathians to the Kazantip music fest and Black Sea beaches. However, this potential is currently heavily underused. Around 20 mn people cross the Ukrainian border annually, while the average amount spent per person is only $200 which is twice lower than in Russian and 3 times lower than in Poland, reaching the level of Russia could bring Ukraine additional revenue of $4bn a year.The country can also benefit from indirect effects of tourism development. Tourism stimulates growth in related industries like retail trade and construction, creates demand for higher value-added services, and encourages development of small and medium enterprises. Furthermore, according to statistics, in Ukraine creation one workplace in tourism is tenfold cheaper than in manufacturing.Experience of former socialist countries like Bulgaria or Croatia demonstrates that emerging economies can become highly successful tourist destinations. Effective promotion strategy and good site management can well be enough for a start. Moreover, preparation for the Euro 2012 Championship will help to solve problems with transport infrastructure, accommodation and recreation facilities in the largest cities. It will also present a good opportunity to promote Ukraine’s tourism brand worldwide.In order to attract high income tourists Ukraine should invest a lot into infrastructure, building and renovation of hotels and other tourist facilities, service improvement and country brand promotion. Considering low level of business sophistication and high share of shadow economy in the country, those investments will take too long to payback and would not lead to substantial tax inflow into state budget; on the other hand, modernisation in agriculture and manufacturing industries can provide high returns already in a short run while taxes in those areas are much easier to collect.Statistics demonstrate that tourism demand growth has slowed down in the past few years and the market is potentially approaching its saturation stage. With tourism supply continuing to increase the industry is not going to be very attractive for newcomers unless they feel confident they could cut off substantial market share from the incumbents. Ukraine should better look for more promising high growth potential sectors.The country does not really have any unique tourism attraction, which could compete with such worldwide renowned heritage sites as Egyptian pyramids or natural wonders. Moreover, bringing tourism infrastructure up to a reasonable standard would take years. Therefore, Ukraine is unlikely to be competitive both in the world and regional tourism markets.The question of whether tourism development should be prioritised in Ukraine will be discussed at the public debate organised by the Foundation for Effective Governance in partnership with London-based Intelligence Squared on 28th of October 2010 in Kyiv, Ukraine.

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