Nepali Times
Economic Sense
On the tourist trail


In the last couple of weeks this Beed has received a number of requests to write about the future of Nepali tourism. More than a few people think that right now it looks as bleak as it did twelve years ago, during the Indian trade embargo. The problem with Nepali tourism is this: we have a great product, but have never had a government that could formulate visionary policies, or a private sector that understood how the industry ideally works. Like water resources, we keep talking about the potential of tourism, but don't do nearly enough to think of long-term strategies.

The industry is facing a crisis-operations could be shut, banks could be foreclosed, and hundreds of people could be laid off in hotels or travel agencies.

The grand old years of tourism-1992-1994 were extremely profitable for operators in the industry because of limited supply and high demand. Nepal had the capacity to take in about half-a-million tourists and received 350,000. Around this time the first wave of reforms was on and the country and the economy were suitably euphoric. All came together in the form of high earnings per tourist. And then, in 1995, the slide began with capacity enhancement. Now we are in a position to service nearly 1.5 million tourists, while demand is just one-third of that. Naturally, prices tumble and with them, profitability. Returns on investment in the industry have slipped to about one percent. One percent-it does not require a financial whiz to know that something is very wrong.

Enough has been said by all, including your Beed, about the government's failure on all fronts, whether handling tourism at the policy level or the flying debacle that is RNAC. Now it is time to say something no one likes to hear-the private sector needs to get its act together. The larger investments in tourism have been in either operating airlines or hotels. Domestic airlines have been working on a lease-and-operate strategy, so if something goes wrong, shareholders don't really feel the impact. If one were to examine the shareholders' funds and compare those figures with the value of assets the airline firm is operating, it becomes clear that the financing agency bears most of the losses. The same goes for hotels, where investments are more often borrowings rather than promoters' funds. With public issues and creative financing mechanisms, core promoters recoup their initial commitments soon enough, and so they have very little at stake. In the case of travel and trekking agencies too, the volume of business they handle is many fold the investments made and financing is undertaken by pledging vehicles, office equipment or receivables.
The tourism downturn will affect financial institutions the most, as they will be saddled with non-performing assets. And then there are the indirect links, which mean that down the line hotel suppliers, trekking and tour guides, and handicraft industries will also suffer.

So what do we do in the long term? People who come to Nepal spend more in airfare than they do in-country and perhaps we are not competing with other destinations. After all, people who come to see Everest and trek the Annapurna will still come. The objective would now be to ensure that they get quality service at a price. The supply in the tourism industry should be regulated. The Beed even believes that no new entrants should be allowed into the industry until some semblance of order is restored. Since no one here seems to understand the industry, let us leave it to professional companies. If we allow international travel agencies and consultants to operate, they will find a way out. We have paid a price for protectionism, we need to widen our horizon if tourism is to remain an option for this country.

(11 JAN 2013 - 17 JAN 2013)