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A blog about economics in the South Caucasus.

Your Guest Is My Guest, or Why Tourism Is Not a Zero-Sum Game

The South Caucasus is divided by high mountain ranges, often impassable political borders, and ethnic conflict zones. In addition to three independent states, the region also includes three unrecognized territories. Nakhichevan is separated from Azerbaijan’s mainland by Armenia’s Syunik region. Armenia’s border with Turkey and Azerbaijan, on the other hand, is sealed for political reasons.

Though trampled by politics, the economic arguments for greater regional integration in the South Caucasus are truly powerful. For one thing, thanks to its strategic location on the major North-South and East-West transport routes, the region could serve much larger flows of transit cargo and energy resources. And just like railways, roads and pipelines, intra-regional and international tourism could also provide strong stimuli for greater integration, soothing economic pain inflicted by years of conflict and isolation, helping build trust and overcome excessive fragmentation.

Each of the three South Caucasus nations carries significant touristic potential thanks to pristine and versatile landscapes and unique, centuries-old cultures. Not surprisingly, both Armenia, Azerbaijan and Georgia designated tourism as a key national priority, investing in infrastructure and international marketing, easing visa regulations, and improving border crossing procedures. Yet, while going it alone may be a fine strategy in the short run, one should also consider the synergetic effect from doing it together, and potentially engaging other neighbors as well – Russia, Turkey and Iran. Indeed, by fully harmonizing border management procedures, improving communication and transport linkages, and making a joint effort to promote the region as a world-class touristic destination, the South Caucasus as a whole could unlock new, lucrative markets for high-end tourism in the Gulf, Eurasia, Western Europe and North America. Geographical proximity between Georgia, Armenia, and Azerbaijan and the low cost of intra-regional transportation could attract tourists who would never come to this region for the sake of visiting only one (small) country. As an African proverb goes, if you want to go fast, go alone. If you want to go far, go together.


THE MANY FACES OF TOURISM

Is every foreigner arriving in Georgia automatically a “tourist?” Not really. According to the formal definition used by GNTA, a tourist is an individual that spends at least 24 hours in a country different than his or her country of residence. In this sense, a truck driver carrying goods from Turkey to Azerbaijan via Georgia is not a tourist. There is also the concept of transit tourism, which defines the activities of a genuine, international tourist passing by or crossing a country, which is neither the country of origin nor the country of destination (for example, an American tourist heading to Armenia, but spending a couple of days in Georgia). Just like the traditional definition, transit tourism does not include visitors who stayed in a country for less than 24 hours.

Table 1: Types of tourism

  Origin within the country Origin outside the country
Destination within the country 1. Domestic tourism 2. Inbound tourism
Destination outside the country 3. Outbound tourism 4. Transit tourism

Source: The Economics of Tourism Destinations, Guido Candela and Paolo Figini, 2012

Despite the fact that transit tourism has been long known to be an important phenomenon in many developed and developing countries, international economic literature hardly addresses this issue. This type of tourism was first discussed by Markovik for Yugoslavia, and later Croatia (Angelkova, Petkova & Cvetanka, 2015). Nowadays, however, there is not even a consensus among scholars about the definition of this term.


TRANSIT TOURISM ROUTES INVOLVING GEORGIA

Georgia is emerging as one of the fastest-growing travel market worldwide. According to the Georgian National Tourism Administration (GNTA),1 in 2016, the total value added in the tourism sector increased by 11.8%, compared to the previous year, and reached 2.06 billion lari. The growth rate of the tourism sector was significantly higher than the growth rate of the whole economy. As a result, the share of tourism in GDP continued to increase and reached 7.05% (see Figure 1). Moreover, approximately 64.3% of Georgia’s service export revenue comes from tourism, and this sector generates 2.17 billion USD in foreign exchange income for Georgia, which is two times more than income from remittances.

The share of “transit tourists” in Georgia’s total is not very high (about 16.9% in 2016, and 16.7 in the first 9 months of 2017). However, it is increasing over time: both in absolute terms (more than tripling since 2010!) and as a share of total tourism.

In the first nine months of 2017, according to Georgia’s Ministry of Internal Affairs, the country hosted about 2.7 million tourists. Out of these, at least2 450 thousand people (16.5%) visited more than one country – Georgia and an immediate neighbor – and, thus, could be considered “transit tourists.”

Several conclusions emerge from the data presented in Table 2.

Table 2: Transit tourism involving Georgia, 2010 vs. 2017

Package Entry Exit transit tourists % of total transit tourists % of total tourists “real” transit tourists
2010 2017 2010 2017 2010 2017 2010 2017
Georgia, Turkey Georgia Turkey  8,994  60,512  6.3  13.4  0.9  2.2  6,769  55,922
Turkey Georgia  9,971  53,410  7.0  11.9  1.0  2.0  7,886  49,294
Georgia, Azerbaijan Georgia Azerbaijan  6,160  23,581  4.3  5.2  0.6  0.9  5,031  18,232
Azerbaijan Georgia  10,508  24,557  7.4  5.5  1.0  0.9  9,159  18,479
Georgia, Armenia Georgia Armenia  10,013  57,942  7.0  12.9  1.0  2.1  8,346  50,472
Armenia Georgia  14,242  64,917  10.0  14.4  1.4  2.4  10,999  55,146
Armenia, Georgia, Turkey Armenia Turkey  10,903  14,102  7.6  3.1  1.1  0.5  6,443  11,541
Turkey Armenia  9,437  11,287  6.6  2.5  0.9  0.4  4,819  7,588
Armenia, Georgia, Azerbaijan Armenia Azerbaijan  1,164  3,346  0.8  0.7  0.1  0.1  1,164  3,346
Azerbaijan Armenia  1,977  7,545  1.4  1.7  0.2  0.3  1,977  7,545
Turkey, Georgia, Azerbaijan Turkey Azerbaijan  31,993  52,025  22.4  11.5  3.2  1.9  2,038  5,667
Azerbaijan Turkey  25,236  50,548  17.7  11.2  2.5  1.8  3,209  6,464

 

“Georgia & Armenia” package is the most popular when it comes to regional tourism. In January-September 2017, at least 123 thousand tourists (accounting for 27.3% of total transit tourism) arrived to Georgia from Armenia or the other way around. Another 25 thousand came to Georgia from Armenia and continued to Turkey or vice versa. Finally, almost 11 thousand used Georgia as a springboard for visiting all three South Caucasus nations. In total, almost 160 thousand visited both Georgia and Armenia.

“Georgia & Turkey” package is second in popularity, attracting almost 114 thousand tourists in the first 9 months of 2017 (25.3% of total transit tourism). In combination with Azerbaijan or Armenia, the Georgia & Turkey package accounts for almost 242 thousand visitors, leaving other packages far behind.

“Georgia & Azerbaijan” package is third in popularity, attracting 48 thousand tourists in January-September 2017 (10.7% of total transit tourism during this period). When combined with Turkey or Armenia, Georgia and Azerbaijan served an additional 113 thousand visitors, bringing the total for this package to more than 161 thousand.

How many of the “transit tourists” are real tourists as opposed to truck drivers, who face delays at the border or have other reasons to extend their stay in Georgia beyond 24 hours? While precise information is not available, we can “guesstimate” their share by excluding Azeri, Armenian and Turkish nationals from transit tourism “packages” involving their own countries (e.g. Turkish or Azeri drivers on the Turkey-Georgia-Azerbaijan route, or Armenian and Turkish drivers on the Turkey-Georgia-Armenia route). Excluding professional drivers, the two winning packages (by a large margin) are Georgia & Armenia, and Georgia & Turkey.

Not surprisingly, these two packages also represent the fastest growing segments in transit tourism involving Georgia. For example, the number of tourists on Georgia-Turkey and Georgia-Armenia routes in just the first nine months of 2017 was 6-8 times higher than corresponding figures for the entire 2010.


WHAT IS THE NATIONAL MIX OF TRANSIT TOURISTS?

Looking at the two dominant packages, two things stand out.

A very large share of transit tourists are Russian nationals: about 42 thousand out of 106 thousand (39.8%), and 43 thousand out of 105 thousand (40.7%) on the Georgia & Armenia and Georgia & Turkey routes, respectively.

Second, regional packages also attract tourists from further away destinations:

• Iran, Ukraine, Saudi Arabia, Belarus, and Kazakhstan account for 44.8% of all transit tourists on the Georgia & Turkey route.

• Poland, Iran, Germany, Ukraine, Japan and Italy account for 27.4% of transit tourists on the Georgia & Armenia route.

Very importantly, the Georgia & Armenia route appears to be particularly promising when it comes to attracting high-end tourist from Asia and Western Europe, who tend to spend more on higher quality hospitality services and shopping.

Finally, something must be said about tourists who come to the South Caucasus in order to explore all three countries of the region. Their number is still quite low, a bit less than 11,000 in the first nine months of 2017. Yet, they represent a fast growing segment, increasing almost 5 times compared to 2010. Of particular note is the fact that a relatively large share of such tourists are long distance travelers, coming from places like Germany, US, and UK, Hungary and Russia, China and South Korea. Truly regional tourism in the South Caucasus is still hampered by many bureaucratic barriers and borders. Yet, its development demonstrates that tourism is not a zero-sum game, building the case for closer cooperation and coordination between countries in the region.


1 Georgian Tourism in Figures 2016, Structure & Industry Data, GNTA See the full report: https://gnta.ge/wp-content/uploads/2016/08/ENG-2016.pdf

2 Given data limitations, we can identify as “transit tourists” only those visitors who used a land border crossing on their way in or out of Georgia, and are thus underestimating the actual volume of transit tourism through Georgia. For example, we do not observe visitors travelling to/from Tbilisi to Baku by air. On the other hand, we cannot identify truck drivers who take more than 24 hours when transiting through Georgia.


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Simon Appleby on Saturday, 09 December 2017 11:10

The Vine and Wine Foundation of Armenia recently held its inaugural International Wine Conference in Yerevan, backed by GIZ. Guest speakers included the President of International Organization of Vine and Wine, as well as senior professionals from academia and industry from France and Germany. Wine Tourism was a major subject of discussion.

http://vwfa.am/wp-content/uploads/2017/11/Agenda-A4-Eng.pdf

It was very gratifying to see the head of the Georgian National Wine Agency, the CEO of the Georgian Wine Association and the head of Georgias State Research Centre for Agriculture in attendance. They all reported that they were very satisfied with the professionalism of the conference, and the high standard of Armenian winery operations and archaeology displays that they visited. The willingness of VWFA and the Georgian National Wine Agency to cooperate on cross-border wine tourism development is a very pleasing outcome.

As an example of the two-country tourism model, my foundation Nuffield Caucasus is running an 11 day wine heritage and viticulture tour in 2018 of Georgia and Armenia for winemakers and viticulturalists from Australia, New Zealand, France and UK. Incorporating the Georgian regions of Imereti, Mtskheta-Mtianeti, and Kakheti, and the Armenian regions of Armavir, Aragatsotn and Vayots Dzor, the two-country programme provides exposure to two different wine-based cultures in their ancient and modern incarnations, and understanding of the incorporation of pre-Christian wine-related spiritual beliefs into two strains of Christianity.

Focussing on just one country, while very enjoyable and educational, would provide an incomplete picture. Private tour agencies have already recognised this, as mentioned in the article, and have been organising two-country tours for many years. Better transport links between Tbilisi and Yerevan (more comfortable buses driven by calm and responsible drivers, and a faster and more comfortable train, for example) will help this to develop.

The Vine and Wine Foundation of Armenia recently held its inaugural International Wine Conference in Yerevan, backed by GIZ. Guest speakers included the President of International Organization of Vine and Wine, as well as senior professionals from academia and industry from France and Germany. Wine Tourism was a major subject of discussion. http://vwfa.am/wp-content/uploads/2017/11/Agenda-A4-Eng.pdf It was very gratifying to see the head of the Georgian National Wine Agency, the CEO of the Georgian Wine Association and the head of Georgias State Research Centre for Agriculture in attendance. They all reported that they were very satisfied with the professionalism of the conference, and the high standard of Armenian winery operations and archaeology displays that they visited. The willingness of VWFA and the Georgian National Wine Agency to cooperate on cross-border wine tourism development is a very pleasing outcome. As an example of the two-country tourism model, my foundation Nuffield Caucasus is running an 11 day wine heritage and viticulture tour in 2018 of Georgia and Armenia for winemakers and viticulturalists from Australia, New Zealand, France and UK. Incorporating the Georgian regions of Imereti, Mtskheta-Mtianeti, and Kakheti, and the Armenian regions of Armavir, Aragatsotn and Vayots Dzor, the two-country programme provides exposure to two different wine-based cultures in their ancient and modern incarnations, and understanding of the incorporation of pre-Christian wine-related spiritual beliefs into two strains of Christianity. Focussing on just one country, while very enjoyable and educational, would provide an incomplete picture. Private tour agencies have already recognised this, as mentioned in the article, and have been organising two-country tours for many years. Better transport links between Tbilisi and Yerevan (more comfortable buses driven by calm and responsible drivers, and a faster and more comfortable train, for example) will help this to develop.
Simon Appleby on Saturday, 09 December 2017 11:26

An interesting market for Georgia, oddly enough, is the Armenian Diaspora market (around 8 million people). Many diaspora Armenians from France, Canada, USA and Lebanon, after visiting Armenia, will take a side-trip to Tbilisi and surrounds for several days. The many such tourists I have spoken to have been charmed by Tbilisi, its cuisine and people, despite having had no prior exposure to Georgians at all (their families having lived outside the Caucasus for a century). The history of the Armenian presence in Tbilisi, Armenian architecture and famous Tbilisi Armenians like Sayat Nova interests them, but not many guides and tour agencies are equipped to meet this demand. I imagine the demand will eventually create a supply, but more can be done on this front at a GNTA level.

An interesting market for Georgia, oddly enough, is the Armenian Diaspora market (around 8 million people). Many diaspora Armenians from France, Canada, USA and Lebanon, after visiting Armenia, will take a side-trip to Tbilisi and surrounds for several days. The many such tourists I have spoken to have been charmed by Tbilisi, its cuisine and people, despite having had no prior exposure to Georgians at all (their families having lived outside the Caucasus for a century). The history of the Armenian presence in Tbilisi, Armenian architecture and famous Tbilisi Armenians like Sayat Nova interests them, but not many guides and tour agencies are equipped to meet this demand. I imagine the demand will eventually create a supply, but more can be done on this front at a GNTA level.
Eric Livny on Saturday, 09 December 2017 21:44

Sounds really interesting, Simon!

Ive recently interviewed Ia Tabagari, head of the Georgian kvevri (or natural) wine association, and formerly managing partner at Caucasus Travel. She confirmed that the Georgia-Armenia package can be very attractive, especially for long-range travelers. When she was involved in an effort to develop a regional tourism package the main markets were Western Europe, North America, and Japan. The Japanese have a two-week vacation once in four years for those who work for government. They try to package as much as possible in just 4 days. For Americans, distance was a factor in willing to visit additional countries. The same worked for the Brits and Germans. The majority wanted to visit two countries on a single trip. In addition to wine, the South Caucasus is recognized for longevity and anything natural, including, matsoni, mineral water, churchkhela, honey, natural wines – her clients are ready to buy the next year’s harvest! As for bottlenecks, she mentioned safe and affordable railway connectivity, harmonized visa and border crossing regulations, better communication around safety, air transport options by the *same* companies from both capitals to save time and money, touristic products presenting the region’s diversity, with an emphasis on cultural, eco-tourism, national parks (quite a few already exist, some new ones are in development), and last but not least, participation of international brokers (such as yourself) to help with regional coordination.

Sounds really interesting, Simon! Ive recently interviewed Ia Tabagari, head of the Georgian kvevri (or natural) wine association, and formerly managing partner at Caucasus Travel. She confirmed that the Georgia-Armenia package can be very attractive, especially for long-range travelers. When she was involved in an effort to develop a regional tourism package the main markets were Western Europe, North America, and Japan. The Japanese have a two-week vacation once in four years for those who work for government. They try to package as much as possible in just 4 days. For Americans, distance was a factor in willing to visit additional countries. The same worked for the Brits and Germans. The majority wanted to visit two countries on a single trip. In addition to wine, the South Caucasus is recognized for longevity and anything natural, including, matsoni, mineral water, churchkhela, honey, natural wines – her clients are ready to buy the next year’s harvest! As for bottlenecks, she mentioned safe and affordable railway connectivity, harmonized visa and border crossing regulations, better communication around safety, air transport options by the *same* companies from both capitals to save time and money, touristic products presenting the region’s diversity, with an emphasis on cultural, eco-tourism, national parks (quite a few already exist, some new ones are in development), and last but not least, participation of international brokers (such as yourself) to help with regional coordination.
Simon Appleby on Sunday, 10 December 2017 14:51

Harmonisation of border procedures is important. The airport and land border crossings are generally professionally run, but can have wildly different requirements for visa-free or visa-on arrival eligibility for foreign nationals.

For example, Chinese citizens can get a tourist visa on arrival in Armenia, for a small fee. They cannot do so in Georgia; they need to apply 2 weeks in advance for an e-visa (unless they concurrently have an extant multi-entry USA visa, UK visa or visa for some EU states, in which case they can enter visa-free for 90 days). The population of Chinese overstaying their visa in Armenia is tiny as wages are higher in China than in the Caucasus, so harmonised visa-free or visa-on-arrival for these visitors would have little downside and make travelling here more attractive.

Harmonisation of border procedures is important. The airport and land border crossings are generally professionally run, but can have wildly different requirements for visa-free or visa-on arrival eligibility for foreign nationals. For example, Chinese citizens can get a tourist visa on arrival in Armenia, for a small fee. They cannot do so in Georgia; they need to apply 2 weeks in advance for an e-visa (unless they concurrently have an extant multi-entry USA visa, UK visa or visa for some EU states, in which case they can enter visa-free for 90 days). The population of Chinese overstaying their visa in Armenia is tiny as wages are higher in China than in the Caucasus, so harmonised visa-free or visa-on-arrival for these visitors would have little downside and make travelling here more attractive.
Eric Livny on Sunday, 10 December 2017 16:58

Agree. I was told that the border crossing points have been seriously improved on the Armenian and Azeri side of the border (with funding from the EU/UNDP). Harmonization to the Georgian level of efficiency can make a huge difference. In summer 2016, I had to drive across the Armenian border 4 times in one month(!), a bit before the most recent improvements. Had to spend a lot of time queuing for some stupid piece of paper (temporary car insurance?) x 4. There was no proper queue, very hot, and no air-conditioning. Two sweaty clerks typing peoples names with two fat fingers. People nervously waiting. Some smart guys going behind the scenes to oil the wheels of Armenian bureaucracy. No fun at all!!!

Agree. I was told that the border crossing points have been seriously improved on the Armenian and Azeri side of the border (with funding from the EU/UNDP). Harmonization to the Georgian level of efficiency can make a huge difference. In summer 2016, I had to drive across the Armenian border 4 times in one month(!), a bit before the most recent improvements. Had to spend a lot of time queuing for some stupid piece of paper (temporary car insurance?) x 4. There was no proper queue, very hot, and no air-conditioning. Two sweaty clerks typing peoples names with two fat fingers. People nervously waiting. Some smart guys going behind the scenes to oil the wheels of Armenian bureaucracy. No fun at all!!!
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