Crisis puts squeeze on tourism

  • 2009-04-08
  • By Kate McIntosh

MONEY SPINNER: Latvia's bounty of cultural and natural wonders has lured increasing numbers of foreign tourists to the region. However, planned cuts to the sector have those in the industry wondering what it will mean for the future of tourism.

RIGA - Tourism, much like Latvia's frozen landscape, seems to be slumbering throughout the long, dark winter months.

Tough economic times coupled with Latvia's typically seasonal tourism market has meant a long winter indeed for many tourism operators, particularly in rural regions.
But, with the sunshine once more returning and the traditional tourist season about to kick off, cash strapped tourism operators are hoping the annual influx of tourism dollars will provide a much needed reprieve in the current crisis.

But just how many tourists will come?
Competition for the tourism dollar is likely to be fierce throughout Europe this season, with forecasts pointing to a 4 percent drop in tourism across the region.
At the same time, the government has foreshadowed a dramatic restructure of Latvia's Tourism Development Agency (TAVA).

On April 3, the Economy Ministry, which oversees tourism policy, announced that it is considering liquidating the state-owned organization.
TAVA is one of several state-owned agencies that will be put under reorganization as part of required structural reforms and cost reductions across Latvia's entire public administration.

Under new budget amendments ministries are required to make a 40 percent cut in costs. It's envisioned the cuts will save Latvia 4 million lats (5.6 million euros) in the second part of 2009, and up to 8 million lats in 2010.
However, some in the industry have questioned the wisdom of such a move, given that tourism is one of the few sectors still breathing life into the country's ailing economy.

"We don't yet know what the government's decision will be….tourism is bringing money for Latvia, so I'm not sure this [government cuts] is the right way to go," an industry spokesperson told The Baltic Times.
The agency's affiliate offices in Stockholm, Moscow and Riga's Old Town were closed earlier this year due to funding cuts.

Tourism has been a growth industry since the country gained its independence from the Soviet Union.
The potent attraction of beautiful architecture, women and nature continues to lure foreign tourists to Latvia in high numbers.

Riga 's the jewel in Latvia's tourism crown 's boasts a plethora of cultural activities, along with a feverish nightlife, great cuisine and abundance of accommodation options.
Cheap, low-cost carriers such as Ryanair have been a boon to the small Baltic state.
However, the boom industry has also faced problems including infrastructure and tourist related crimes including cases of scams, fraud and assaults.

Tourist behavior has also come under increasing scrutiny, with the loutish, drunken exploits of some leaving many locals cold.
However, in real terms the value of tourism in Latvia cannot be underestimated.
Tourism is Latvia's fourth biggest export market, with estimated revenue from the sector totaling some 7.5 percent of GDP.

In 2008 tourism exports made a 10.8 percent growth compared to 2007, reaching a value of 380 million lats, according to figures provided by the Central Statistics Bureau of Latvia.
In the same year, the number of foreign travelers reached 5.5 million, a 5 percent increase on 2007.
Expenses of foreign travelers in Latvia also increased in 2008, reaching 403.2 million lats, an increase of 19.3 percent compared to 2007.

Although there are positive trends, the indicators of tourism balance of payments are still negative, with the expenses of Latvian residents abroad in 2008 exceeding the expenses of foreign travelers in Latvia by 181.9 million lats.

Tourism related enterprises have taken a hard hit due to the country's deteriorating economic situation amid spiraling hotel vacancy rates and a steady decline in service demand.
TAVA director Uldis Vitolins said while most tourism related enterprises in Riga would pull through the crisis, there was evidence to suggest tourists were becoming increasingly budget conscious.
"Although we do not yet have real figures [for 2008], there seems to be some change in the habits of tourists. More and more they are going for the cheapest way to Latvia. For example, vacancy rates in hotels are very low, but in the hostel sector there has been growth," Vitolins told TBT.

However, in rural Latvia, where tourism is heavily dependent on the domestic market, the situation is increasingly grim.
"We are just surviving, that is all. In the summer we have to make enough money to survive the winter," said one rural tourism operator on the condition of anonymity.
While statistics on tourist figures and numbers for 2008 have not yet been released, tourism numbers in Latvia would almost certainly take a dive as the financial downturn bites and more people tighten their belts and cut out luxury expenses, said Vitolins.

Vitolins also said, however, it was difficult to predict how deep the global economic crisis would impact the foreign tourist market.
"That first of all depends on many things including how the world economy and the European economy recover. Certainly it will affect our tourism industry. Already we see a sharp decrease in the domestic market, but in the case of Riga, at least until now all [businesses] have practically survived," he said.

Vitolins said in contrast to price hikes usually seen during the upcoming tourist season, holidaying in Latvia will present good value, with hotel prices expected to drop two to three times compared to previous years.
Ministry of Economics spokesman Sandris Sabajevs said the reorganization of TARVA was part of an overall 40 percent cut in public administration costs as required under the government's new budget amendments. The spokesman was unable to give specific details about proposed institutional cuts, but said it would involve reorganization rather than closures.

"It seems the [economic] situation is worse than predicted and we are seriously working on making these cuts, which is in line with the government's budget amendments," Sabajevs said. "Of course there will be no literal cuts. We are not talking about elimination. There is a plan and we will be providing information on the progress of reorganization by April 17," he said.
Despite the tough economic climate, Vitolins said it was vital that tourism continue to be fostered and promoted.

"There is no doubt that developing policy and encouraging the market is extremely important for Latvia," he said.
TAVA aims to promote tourism and develop strategic partnerships through its internet portal site, advertisements and foreign media.
The deadline for submissions on the government's planned structural reforms is due on April 17. The changes are expected to take effect from July 1 this year.