By George Psyllides
WHILE worldwide tourist arrivals rose by 60 per cent in the past 13 years, Cyprus has seen an 11 per cent decline, a European Commission report said, suggesting it was time for the island to rethink its strategy to reverse the current trend.
“Growth in the number of tourist arrivals in Cyprus has been weaker than in its main EU competitors Greece, Spain, Malta and Croatia, or than its neighbouring competitors Turkey and Tunisia, and has not been in line with the sharp increase in tourist arrivals worldwide,” the report, drafted by the Directorate General Economic and Financial Affairs, said.
It compares Cyprus with Greece and Spain where tourism also constitutes a large part of their economies.
“In Spain and Greece, tourist arrivals increased by around 20 per cent and 10 per cent from 2001-2012, respectively, over almost the same period.”
While worldwide tourist arrivals increased by 60 per cent, from 2001 to 2013, arrivals in Cyprus were down 11 per cent, the report said.
To revive and regain competitiveness, Cyprus needs to define its vision, and perhaps choose between attracting more high-spending tourists, therefore increasing overall non-price competitiveness elements, including quality, or attracting more low-spending tourists, thus competing more on price levels.
Short- and medium-term priorities need to be defined to support the long-term vision for the sector.
“The lack of priorities might be explained by the weak governance structure and a rigid regulatory framework,” the report said.
Among the structural shortcomings was the fact that hotels and restaurants in Cyprus were on average slightly larger than in Spain and Greece – around half the workforce in the industry was employed at hotels and restaurants with more than 50 employees.
This, the report said, may suggest a more relative importance of a few large players and also that competition in the sector could be rather low.
It also noted the lack, since 2008, of foreign direct investment in the Cypriot accommodation and food services, which provided around 7.0 per cent of total real gross value added and employed around 10 per cent of total employment in 2013.
The situation however, was similar in Greece and Spain, which may suggest that investment in the tourism sector is predominantly domestic.
The report said the high number of hotel rooms relative to the population may not be the problem. Instead, it could be the quality of hotels and restaurants.
Using the number of beds at five-star hotels as an indicator for their quality may suggest that quality in Cyprus and Spain was similar, the report said.
“Nonetheless, the higher supply of beds in Cyprus implies a lower share of five-star beds in Cyprus than in Spain, suggesting that the average quality of beds in Cyprus could therefore be lower than in Spain.”
It said that the lack of Michelin restaurants—Spain has 150 and Greece six — could suggest a relatively low quality of restaurants though “it is important to note that the haute cuisine of Michelin restaurants does not always necessarily prove to be an appropriate indicator for quality in countries such as Cyprus, where traditional cooking with simple ingredients dominates.”
“At the same time, prices for accommodation in Cyprus are among the highest in the EU, higher than in Spain and, to a lesser extent, than in Greece,” the report said, which was at odds with possibly lower quality of the accommodation in Cyprus than in Spain.
“A (2013) study by PWC shows that tourists having visited Cyprus in 2012 were the least satisfied with the country’s value for money, suggesting an issue of price competitiveness.”
Overall, the cost structure of the Cypriot tourism sector did not compare unfavourably to Spain and Greece, the report said,
Labour costs were similar to Greece, and lower than in Spain, more so since the reductions in 2013.
The island does compare “somewhat” unfavourably on electricity prices, particularly to Greece.
The report suggests that Cyprus’ strategy to reverse the trend must be consistent with its comparative advantages and must accommodate its unique profile.
Cyprus can overcome these impediments and therefore focus on key priorities: increase price and non-price competitiveness , reduce vulnerabilities related to its high geographical concentration, stronger governance structure of the tourism sector and a clearer ownership by tourism stakeholders, and expand the tourist product.
Cyprus must also further develop branding and marketing.
“As Cyprus remains an incognita for most people, it would be appropriate to give it a specific face by leveraging its local unique characteristics, such as for instance its hallumi cheese, its honey puffs loukoumades, its villages, or its local wine, just to mention some.”
By George Psyllides