Uzbekistan Tourism Infrastructure Market

 

 

October, 2007

Author: Jahangir Kakharov, Bisnis Representative in Uzbekistan

 

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2007. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.

 

Summary

 

1. Many analysts admit tremendous potential for development of tourism in Uzbekistan. There are more than 4,000 objects of art and architecture from different epochs and civilizations located in Uzbekistan – many of them are on the UNESCO list of world cultural heritage. Cities of Bukhara, Samarkand, Khiva and Tashkent have long time been a trademark of Uzbekistan’s historical heritage.  Moreover, Uzbekistan numerous natural attractions such as mountain peaks and rivers, mineral springs and well-known resorts, along with an authentic culture and wide array of arts and crafts draw in a growing stream of foreign tourists.  Finally, Uzbekistan has significantly improved its hotel choice from the luxurious InterContinental Hotel and comfortable Radisson to a chain of bed and breakfast facilities sporadically spread over the country’s main tourism areas.

 

Uzbekistan’s tourism sector offers considerable scope for development and is identified as a priority sector by the national government.  With the population exceeding 26 million people, Uzbekistan has the potential to benefit from the growth of jobs and revenue that a more developed tourism infrastructure could bring.  Tashkent, the capital city and the most common gateway to Uzbekistan, has seen a boom in hotel construction and renovations over the past few years.  The city’s international airport has upgraded its runways, air traffic control system and airport terminals. 

 

While the opportunities for foreign investments into tourism infrastructure are growing, U.S. companies are urged to carefully examine potential projects.  Currency convertibility issues, opaque bureaucracy and competing interests from state owned businesses still present challenges for American firms. 

 

Overview of the Uzbekistan’s Tourism Infrastructure 

 

2. Uzbekistan is strategically located in the middle of Central Asia along what was once a main part of the historic Silk Road.  It borders all the other Central Asian republics (Kazakhstan, Turkmenistan, Kyrgyzstan and Tajikistan), Afghanistan and the Aral Sea.  The country’s size is 447,000 square kilometers (172,000 square miles) which is about ten percent larger than California.  Two-thirds of the country is deserts or semi-desert.  Much of Uzbekistan’s population of 26 million is concentrated in the east, in Tashkent, the capital city (about 3 million inhabitants), and the fertile Ferghana Valley.   

 

While being a part of the Soviet Union, Uzbekistan was an essential fragment of the Intourist Agency network.  Intourist annually supplied far more tourists to Uzbekistan than it hosts nowadays.  The peak year for the Uzbekistan tourism sector producing an estimated 1.1 million foreign tourists including former Soviet Union travelers was 1989. After gaining independence, Uzbekistan had to start reorganizing its tourism industry. The country came with its own system of state control and regulation.  Some new institutions and direct relations with the global tourist market were established. As a result, immediately after gaining independence, the flow of tourists sharply declined, recovering by mid 1990s and reaching its peak in 2000 with 261 thousand tourists (still significantly below pre-independence peak). The core countries include mostly tourists from Russia, France, Germany, Turkey, Japan, the USA and India. According to official statistics, about 54% of tourists that visited Uzbekistan in 2004 were from Europe (it should be taken into account that all former Soviet Union countries are included in the European region), 26% originated from East Asia and the Pacific region, 11% from Middle East, 5% from America, and about 4% from South Asia.

 

As to structure of the demand for tourist products in Uzbekistan, according to Uzbek tour operators, about 90% of tourists arriving in Uzbekistan are of middle and old age. The most popular route among tourists arriving in Uzbekistan is visiting Tashkent, Samarkand, Bukhara, and Khiva. This suggests that tourism potential of Uzbekistan in the area of ecological and adventure tourism is significantly underutilized.

 

UNDP Policy Brief “Uzbekistan’s Tourism Sector – an Unrealized Potential”, points out to the main reasons for the failure to achieve more successful results in development of tourism sector of Uzbekistan. Despite the fact that tourism sector was determined one of the priority sectors of the economy, still there is no a comprehensive policy on tourism development. Institutional system of state control over tourism should be reformed in order to improve licensing, certification procedures as well as to increase trust between private sector and state agencies. While the number of Uzbek travel agencies and other tourism-related organizations exceeds 400, the main policy and strategy of tourism development are generated by Uzbektourism.  Uzbektourism, created in 1991, inherited most of the former Intourist facilities and at first pushed forward policies aimed to enhancing of the tourism development in Uzbekistan.  Nevertheless, with the years passing by, Uzbektourism did not acquire enough initiative or entrepreneurial spirit to advance the existing legislation for the market economy needs.  The omnipresent bureaucracy and cumbersome process of company registration prevents smaller businesses’ active development. Existing visa regime is a tremendous barrier for tourism inflow into the country. Moreover, customs and border procedures are tedious enough to discourage return of the tourists who have already visited the country once. There is also a need to improve skills and capacities representatives of the tourism sector. 

 

Statistics

 

3. Since 1991 when Uzbekistan experienced a plummeting fall of arrivals visitors, between 1993-2001 period the country’s tourism indicators have shown gradual recovery.  Based on Uzbektourism data during 1993-1996 inbound tourism increased from 461,000 to 589,600 tourists, including foreign tourists from 43,000 to 173,800 people.  Below are the main indicators of development of tourism sector in Uzbekistan during the last few years:

 

Year

Arrivals (thousands)

Revenue (US$, millions)

2000

278

63

2001

231

72

2002

198

68

2003

230

48

2004

262

46

2005

242

35

Source:  World Tourist Organization and Uzbektourism

 

*Decrease in revenues even for years when the number of tourists was on the rise could be explained by presence of significant informal sector and underreporting with tax evasion purpose.

 

Below is the table which illustrates the role of tourism in the economy of Uzbekistan vis-a-vis some countries, regions, and the World:

 

 

Iran

Malaysia

South Asia

Central and Eastern Europe

Uzbekistan

World

Share of tourism in GDP

3.5

4.9

2.24

2.2

0.4

3.8

Share of employed in tourism sector in the total employment

3.3

4.9

2.3

1.9

0.13

2.8

Share of tourist exports in the total exports

15.8

9.1

6.63

11.6

0.5

12

 

*Due to presence of significant informal sector, the data in case of Uzbekistan should be interpreted with some necessary adjustments.

 

4. Most visitors to Uzbekistan arrive in Tashkent.  As the largest city and the seat of the national government, Tashkent is important for the business traveler investigating business opportunities in Uzbekistan.  Travel to other parts of Uzbekistan usually originates in Tashkent.  The city has a developed network of bus, train and air links with all parts of the country and is often a launch pad for exploring the famous Silk Road. 

 

Many business travelers to Tashkent try to combine business and pleasure with a trip to Samarkand, Uzbekistan’s second largest city and the historical seat of Tamerlane’s realm.  Many Samarkand’s sites have been recently restored.  Registan Square, an ensemble of three Madrassahs (Islamic colleges) ranks first in Central Asia and among the greatest of all the grandiose works of the Islamic world.  The Registan along with Bibi Khanim Mosque, the Shah-i-Zinda holy ensemble of mausoleums, and Gur Emir (Tamerlane's elaborate tomb), provide many displays of ceramic tiles from the 14th and 15th centuries. 

 

Bukhara is situated another three hours west by road from Samarkand.  In 1998 the city commemorated its 2500 anniversary.  Regular flights and new comfortable train “Sharq” are among the ways people travel to Bukhara from Tashkent.   The old city is well preserved and provides a glimpse into the grandeur of this once powerful Emirate and seat of Islamic scholarship. 

 

In the far west of the country near the border with Turkmenistan lies the city of Khiva, former capital of the Khorezm Khanate.  This is yet another great attraction along the Silk Road and another historical place that has undergone extensive restoration in recent years.  Because of its distance from Tashkent, it is less visited than Samarkand or Bukhara but it is spectacular in its own way.  Khiva is the best-preserved ancient city in Uzbekistan with scores of sites to visit within its old walls. 

 

The Ferghana Valley in the east is the most densely populated part of the country and a fertile place with many mountains and streams.  There are many sites to see in this region. Kokand was the seat of a powerful Khanate conquered by the Russian army at the turn of the century.  Andijan was the birthplace of Babur, a descendant of Tamerlane and Genghis Khan and founder of India’s Mogul Empire who fought many great battles from Bukhara to Delhi in the early 16th century.  Margilan is known for its silk production including the largest silk factory in the former Soviet Union. 

 

Travel Infrastructure

 

5. Since independence, Uzbekistan has made development of its transportation infrastructure a top priority.  With loans from the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB) and various export credit agencies, including the U.S. Export-Import Bank, Uzbekistan has been modernizing its airports, air fleet, railroads and roads. 

 

Tashkent Airport is the primary arrival point for international visitors to Uzbekistan.  In recent years the airport’s air navigational system, runways, and security equipment has been upgraded.  A new domestic flight terminal has been constructed according to Western specifications.  With total $48 million investment UK-Turkish joint venture Philipp Holzmann-Baytur completed the reconstruction of the passenger terminal.  This included reconstruction of one-half of the passenger terminal, as well as complete replacement of the engineering systems and equipment in the baggage-handling and operations areas.  This project increased the capacity to handle passengers up to 900 per hour from 600 per hour before. EBRD and Germany's KFW bank jointly financed the project.  There are 12 regional airports across the country offering a comfortable link to Uzbekistan’s regional centers.  The airports in Samarkand, Bukhara and Urgench (near Khiva) have been renovated and now operate with new navigation equipment and passenger terminals.

 

All Uzbekistan airports are managed by Uzbekistan Airways (HY) National Air Company - the flag carrier of Uzbekistan.  In addition to HY, a number of Western and Asian airlines, including Turkish Air, Asiana, PIA, Aeroflot and Transaero conduct regular flights to Tashkent.  Foreign operators conduct 42 flights to Tashkent per week. In total, the Tashkent airport serves 149 flights and about 18 thousand passengers per week. HY modernized its fleet through acquiring of Airbus A310s, Boeing 767s and 757s and British Aerospace RJ-85s.

 

The Airbus and Boeing aircraft are used to link Tashkent with many international destinations including London, Paris, New York, Amsterdam, Frankfurt, Istanbul, Moscow, Delhi, Karachi, Sharjah, Tel Aviv, Kuala Lumpur, Bangkok, Seoul and Beijing.  Furthermore, HY flies to a large number of NIS destinations.  HY has a monopoly on domestic flights originating from the newly constructed domestic departure terminal.  Some domestic and NIS flights still use Soviet-made aircraft, but the smaller RJ-85s are often used on these routes.  Based on recommendation of Western advisors HY seeks to expand its use of western-made aircrafts on all destinations.  Over the past years HY was named the safest airline in NIS, and continues to improve the quality of its services, introducing new bonus and frequent flyers program for Uzbek citizens and foreign customers. However, the products of Uzbek Airways are not well tailored to the needs of tourism sector of Uzbekistan. For instance, the distance between Bukhara and Urgench is about 500 km and there is no air connection between these two tourist destinations. Many tourists get scared away from a trip to Uzbekistan by high price of air tickets, limited choice of airlines, restrictions on acquiring tickets for internal flights of Uzbek Airways for those who arrived in the country with another airline, and long waiting times at the passport and customs controls and absence of luggage and passenger transfer agreements of Uzbek Airways with other foreign airlines.

 

The National Railway Company, Uzbekistan Temir Yollari (TY), provides passenger rail service.  TY operates over 4,300 km of railroads connecting all parts of the country with Tashkent and other CIS destinations.  In 1998 a subdivision of the National Railway called Uzzheldorpass was created to provide passenger service.  Since then more than 40 stations have been renovated.  Comfort and service varies depending on the destination, but many tourists find the new comfortable trains “Registan” operating between Tashkent and Samarkand as well as “Sharq” operating between Tashkent and Bukhara to be both affordable and convenient. TY is modernizing the railway with the assistance of ADB, EBRD and World Bank loans.  EBRD signed a loan of USD 40 million under sovereign guarantee as part of locomotive modernization project.

 

Road travel is currently one of the most tedious ways to travel across Uzbekistan due to many old buses, poor quality and maintenance of cars, bumpy roads and seasonal impediments. Uzbekistan intends to renovate many of its dilapidated roads. Therefore, some sections of the roads are in good condition. Most roads are paved but need to be resurfaced.  A state-of-the-art tunnel completed in 2003 shortened the travel time to the Ferghana Valley.  A new Tashkent ring road improved the capital’s infrastructure.  New more comfortable buses are gradually replacing the Russian and Eastern European buses procured before independence. SamAuto enterprise assembles Isuzu buses in Samarkand and plays its positive role in improvement of the road transport infrastructure. However, high import duties, introduced in 2002 in order to protect SamKocAuto (predecessor of SamAuto), raise the cost of importing new comfortable buses into suitable for tourists into the country.

 

Accommodations

 

6. Uzbektourism, Intourist’s successor organization in Uzbekistan, inherited a number of hotels and camping sites in generally with facilities below world tourism standards.  The Government of Uzbekistan recognized the need for more suitable accommodations to attract business travelers and tourists.  Several new hotels have been constructed in Tashkent, Samarkand and Bukhara and other hotels have been renovated.  In 1996 Uzbektourism investment projects with foreign companies totaled USD 84.5 million, including Hotel Uzbekistan ($32 million), LeMeridien ($39 million), Hotel Shodlik Palace ($12 million) and JV Silk Road ($1.5 million). 

 

Some larger hotels outside Tashkent are owned by the state agencies. This results in a number of inefficiencies peculiar to state ownership such as poor quality of management, excessively centralized decision making process, incentives for efficient utilization of property and etc.. From 2000 till 2004 the number of hotels in Uzbekistan decreased by 21, whereas the number of private hotels increased by 4. The total number of hotel rooms decreased from 17 589 in 2000 to 14485 in 2004. Whereas the number of hotel rooms in the private hotel sector increased by 344, the same indicator in the state owned hotels decreased by 3,448 or 43% of its capacity in 2000. The existing hotel pool can be divided into the following groups: premium hotels, medium class or old Soviet hotels, and tourist class hotels in conjunction with Bed-and-Breakfasts (B&B).

 

Premium hotels include properties built to international standards and offer a range of services suitable for foreign visitors.  The range of these hotels however, varies and -- except for Hotel InterContinental – includes mostly 4 star hotels.  Many of the Western-style hotels have been erected in the 1996-2003 period.  Hotel InterContinental, Hotel Tashkent, Hotel Shodlik Palace, Radisson, Dedeman, Grand Mir transcended into a well-known Tashkent core of hotels.  Furthermore, Afrosiob Hotel, Presidential Hotel in Samarkand (a $22 million investment project) and New Bukhara in Bukhara, Khorezm Hotel in Urgench (a $12 million investment project) completed the circle of major hotel around the Silk Road cities. The majority of premium hotels are located in the center of Tashkent business and government district.  Samarkand’s Afrosiob and Hotel Central, in addition to and Bukhara’s New Bukhara Hotels enjoy the central location as well. 

 

An average room rate varies between $45-150, which however, can be offset by significant discounts offered by local travel agencies.  The average occupancy rate in these hotels comprises 35 per cent.  Hotel InterContinental is undoubtedly the best hotel in Uzbekistan.  Nonetheless, over the past year

 

Medium range or old Soviet hotels are generally comprised of the Soviet era built hotel complexes mainly used by domestic travelers.  Usually a medium range hotel has somewhat modest facilities with a lack of western style services and relatively poor furnishing.  The key old Soviet hotels include: Hotel Chorsu, Hotel Sayokhat, Hotel Turon, Hotel Samarkand, Hotel Bukhara, Hotel Ziyerat and Hotel Khoresm.

 

In 2003, Uzbek government made significant investments modernizing hotels in this category. Due to the EBRD’s Board of Governors Annual Conference held in Tashkent, four hotels were reconstructed and modernized. Turkish construction Group Ay-sel updated hotel Tashkent. The project for this 268-room four-star hotel amounted to $16.3 million. Four-star Grand Mir hotel was open in place of the former Russia hotel. The cost for this project, carried out by Demir Group (Turkey), was approximately $8.5 million. Tourism and investment firm Ipak Yuli did the reconstruction of Dostlik hotel for $9.9 million, and now managed by Dedeman, Turkish hotel chain. These projects were financed by Turkish Exim Bank Loans guaranteed by National Bank of Uzbekistan. 

 

Price-conscious local and CIS business travelers and tourists as well as some Western tourists prefer to stay in these hotels.  Originally old Soviet hotels were developed to accommodate medium and large tourist groups fully or partially sponsored by the trade unions.  After 1991 this formula resulted into further deterioration and complete lack of competitiveness among these hotels and newly constructed Western style hotels. 

 

In response to current market demands, hotels of this type had to undergo complete renovation and reorganization of services or else - face bankruptcy.  With an average room rates as low as $15-35, these medium price-point hotels still constitute over 70 percent of Uzbekistan hospitality sector.  Their major quandaries include shabby decoration, small and uncomfortable beds, antiquated plumbing and lack of air-conditioning (crucial for Uzbekistan summer) and modern bathroom facilities.  However, one of the most recognized and, perhaps critical problems is a lack of Western style services.  Major downturn of such hotels is in its inefficient management, which rejects to utterly surrender control to the Western style operators.  

 

Tourism class hotels and Bed and Breakfast (B&B) facilities represent a new generation of hotel facilities.  Organized primarily by the local entrepreneurs in existing old and refurbished residential houses, B&Bs offer unique and authentic opportunity to grasp the local flavor within a fraction of a cost.  Many analysts identify this sector as the most dynamic and promising. 

 

Since 1997, Uzbekistan experienced prolific growth of B&Bs. A common private hotel is usually based in a relatively large one- or two- floor house with an inner courtyard.  These hotels are compact and contain no more than 20 rooms.  Most of B&Bs have 6-8 rooms.  Generally, a family business or entrepreneur who purchases and then leases a part of multi-story house runs these hotels.  B&B provides a broad range of services, including airport pick-up, transportation, translation/ interpreting, city tours, etc.   With a few exceptions, prices vary within $25-35 range for a single suite and $40-50 for a double suite.

 

Bukhara provides a perfect example of successful B&B businesses. There are more than 20 privately owned B&B style guesthouses in this city providing tangible competition to conventional hotels.  Visitors often favor B&B accommodations because they are usually family owned and operated providing a higher level of service and a cultural experience. The original and most favored B&B is “Sasha and Lena's” and its spin-off “Sasha and Sons”.  Its facilities can accommodate 40 people and occupancy is at or near 100 percent all year round.  Besides Bukhara, Samarkand rapidly picked up on this trend, and now offers over 15 B&Bs and apartments for rent, including City, Furkat, Malika, Optimist and others.  A famous Arcanchi B&B in Khiva augmented by two smaller hotels provides accommodations in this city.

 

Over the course of the past few years, Tashkent has also experienced an increase of tourism class hotels and B&B facilities.  Sam-Buh Hotel was a pioneer among tourist class hotel ventures in Tashkent.  Offering a more intimate and affordable place to stay than major local hotels, Sam-Buh’s six rooms with air conditioners and satellite were almost always booked.  In 2000 Sam-Buh has become a part of Orzu Hotel Chain with total of 73 rooms.  Supported by Dolores Tour agency Orzu has been able to attract a large number of tourists to Uzbekistan.  By April 2002, the hotel chain management completed 22 additional rooms.  The success of Orzu venture demonstrated evident benefits of small hotel business, resulting in rising interest among the local entrepreneurs that began constructing or renovating several buildings in the country’s capital. 

 

Tourism Agencies

 

7. At the beginning of 2005, 351 firms obtained licenses for conducting tourism related activities in Uzbekistan. Two hundred and eighty of these firms were private companies (83%). The share of the private companies in the tourism sector is about 95%.  Close to 90% of services rendered in the tourism sector are delivered by private enterprizes.

 

The Association of Private Tourism Agencies (APTA) was established in 1998.  Main purpose of APTA is development and improvement of services of existing Uzbek tourist firms, support of small and medium (SME) size companies and attraction of foreign investors.  More than 90 local tourist firms joined APTA trying to accelerate the faster development of SMEs engaged in tourism services.

 

Future Trends    

 

8. The Government of Uzbekistan sees the tourism sector as one of its priority sectors for development.  Although Uzbekistan has made important strides forward in the introduction of a market economy, development of the tourism sector will likely continue to have heavy government involvement particularly through the national tourism company, Uzbektourism.  However, as mentioned earlier, a comprehensive state strategy on development of tourism sector has yet to be put into place. According to UNDP policy brief, such a policy could optimize efforts and resources targeted at development of tourism sector in Uzbekistan. UNDP suggests that this strategy should include the following aspects:

 

Best Prospects

 

9. The following tourism infrastructure projects appear to be the best prospects for U.S. companies:

 

- Tenders for continuous modernization of the Tashkent’s airport infrastructure;

- Works associated with the modernization of the regional

- The construction of hotels and related infrastructure in Chimgan mountains;

- The construction of theme parks throughout Uzbekistan;

- Construction of Andijan-Tashkent-Nukus-Beineu highway;

- Safety and security equipment for infrastructure projects

 

These projects also might create opportunities for US exporters of construction equipment and technology to implement these projects.

 

Competitive Analysis

 

10. U.S. companies may face heavy competition from European, South Asian and Southeast Asian firms.  Companies from India, Indonesia and Malaysia have been among the most active in this sector. Japanese, Turkish and European companies have been involved in several infrastructure development projects, sometimes with financing from their national export credit agencies as well as through multilateral development bank-financed tenders. 

 

Market Access

 

11. Companies engaged in tourism activities must be accredited with Uzbektourism.  U.S. companies conducting business in Uzbekistan must also register with a number of other Ministries. UNDP Policy Brief points out that the tourism sector of Uzbekistan is recording a fairly stable growth in micro and small investments made by private local entrepreneurs, but at the same showing decrease in activities by large international enterprises: airline companies like Lufthansa, British Airways, Air France and hotel chains like Sheraton, Le Meridian, etc. Based on interviews with the local stakeholders, UNDP concludes that this trend might be a result of the lack of clear tourism investment policy and strategy and due to the fact that present financial incentives adopted by the government are inadequate for development of tourism sector.

 

Contact information for the Commercial Service in Tashkent

 

12. U.S. companies and individuals interested in learning more about the tourism infrastructure and travel market in Uzbekistan may obtain additional information from BISNIS representative in Uzbekistan. BISNIS offers advisory services and logistical support to assist U.S. companies entering this emerging market.  For additional information about how BISNIS can help your business, or for answers to specific questions, please direct inquiries to

 

Mr. Jahangir Kakharov, 

BISNIS Representative in Uzbekistan

Telephone: 998 71 143-51-54

Fax: 998 71 143-51-54

E-mail: bisnis.tashkent@bcc.com.uzv

www.bisnis.doc.gov/bisnis/country/uzbekistan.cfm

 

For more information on Uzbekistan, visit BISNIS online at

http://www.bisnis.doc.gov/bisnis/country/Uzbekistan.cfm

 

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov)