Thursday, April 10, 2008

Romania: Room to Grow

Oxford Business Group Latest Briefing

During the upcoming spring holiday, thousands of Romanians will head south for the beaches of Bulgaria, eschewing their own Black Sea resorts and seeking superior services. The exodus reveals the ongoing weaknesses of Romania's own tourism industry, which has tremendous potential for growth but remains hobbled by bottlenecks, particularly labour issues and poor infrastructure.

A recent report by the World Tourism and Travel Council (WTTC) said Romania's tourism sector was the sixth fastest-growing in the world, with tourism-derived revenues increasing by 8.1% in 2007 and expected to expand by 9.3% this year.

However, despite the positive headline, the WTTC report made it clear the Romanian tourist industry has some distance to go simply to reach regional standards, let alone compete on a global scale.

Tourism will generate approximately $9.4bn in Romania overall this year, or 5.8% of the gross domestic product (GDP), according to the WTTC. By contrast, it is forecast to contribute 12% to GDP in neighbouring Bulgaria and 25.5% in Croatia, a leader in tourism in the Balkans.

These figures are "cascaded", taking into account indirect income from tourism, such as expenditures by tourism-related companies on other goods and services, including fuel, accountancy and utilities. Direct revenues from tourism in Romania are in fact considerably lower - around $3.6bn, or 2.2% of GDP.

Despite its current slump, Romania has a long history as a popular destination. During the Communist era, the honeypot resorts of the Black Sea coast were favourite holiday spots for fellow Warsaw Pact citizens and budget-seeking West Germans, Britons and Scandinavians on package tours. However, as the economies of Central and Eastern Europe contracted as the Soviet Union crumbled, the tourist flood turned into a trickle. When the inhabitants of these countries began to become more affluent in the late 1990s, they had the freedom to travel to a new range of other destinations, many of which appeared more attractive than Romania, itself in the midst of economic crisis and political turmoil. The country's tourism infrastructure had not developed to meet the new era of the more discerning traveller.

The progress made by Bulgaria, which neared economic collapse in 1996-1997, and Croatia, which was embroiled in a civil war for several years in the 1990s, suggest that Romania's tourism deadlock has much to do with poor marketing and strategy, in addition to underinvestment and poor infrastructure.

Hotel capacity is limited, with high prices and low standards, and a culture of service tourism has yet to be universalised. Other problems facing the sector include long journeys on poor roads and the unsatisfactory levels of cleanliness on many beaches.

Another challenge facing the sector in Romania is the low pay and social stigma attached to jobs in the industry. While the number of people employed in tourism is forecast to reach 304,000 this year, up 10,000 on 2007, such positions are still considered a last resort for many people. The average monthly salary in the hotel and restaurant segment is just over $305, compared to a national average of around $495, according to local press.

However, the good news is that sector's fast growth is propelling wages forward quickly; local press reported that hotel and restaurant workers' wages increased by 27% in 2007, while salaries for those employed by travel agencies rose 31%.

Romania is, it appears, beginning to make up for considerable lost time. Authorities are keen to promote the country's natural beauty, and have identified the potential for adventure, cultural, eco- and agro-tourism ventures. This will help to diversify business away from the often crowded and concrete coastal resorts, which, for the time being at least, have limited appeal. Additionally, these forms of tourism are less damaging to the environment and local culture than the mass variety, and the potential is there to develop Romania's relatively unspoiled interior carefully and strategically. Nonetheless, tourism projects remain largely on a cottage-industry level, and promotion remains sketchy, with a clear "brand" for the country yet to be envisioned.

In the short term, the increasing number of budget flights into the country will improve its accessibility to foreign vacationers. Infrastructure developments for internal transport routes will lend a boost to such cities as Brasov, Cluj and Sibiu (which was designated the European Capital of Culture 2007), in time potentially stemming the yearly holiday migration to Bulgaria
while inviting a new generation of travellers.

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