Foundation for Effective Governance 23-F Koudryavskaya street, Kiev, 04053, Ukraine, tel: +380 44 501 41 00, fax: + 380 44 501 41 05

feg@feg.org.ua www.feg.org.ua, www.debaty.org

Tourism is a Priority Sector for Ukrainian Economy

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.

In order to return to the

sustainable growth path

Ukraine should consider

targeted development of

few high growth potential

sectors with substantial

spillover effect on the rest

of the economy

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?

“For the motion” arguments

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.

Given its great tourism

potential Ukraine should

play its card right.

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.

Tourism development has a

substantial economic and

social spillover effect

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.

Tourism development may

not require significant

government spending at an

early stage

Foundation for Effective Governance 23-F Koudryavskaya street, Kiev, 04053, Ukraine, tel: +380 44 501 41 00, fax: + 380 44 501 41 05

feg@feg.org.ua www.feg.org.ua, www.debaty.org

“Against the motion” arguments

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.

There are much better

value-for-money options

currently available both for

investors and the

government

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.

World tourism market is

not going to be so attractive

in the years to come.

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.

Ukraine’s tourism value

proposition is not

competitive

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.