Contrary to the popular belief that the main source of revenue in the Crimean budget is tourism, this industry contributes as little as 10% to the budget of the Autonomous Republic. In annual monetary terms, it has been about UAH 100 million on average for the last few years. In terms of the number of visitors, they get about 4.5-5.0 million people depending on the weather, season duration and competition luring potential clients to other places.
Put differently, each visitor adds about UAH 20 to the state budget. This is ridiculous! Why is the tourism-and-resort industry, which would be one of the most lucrative in other parts of the world, has such a small impact on the Crimean economy, given that the cost of taking vacations here is sometimes even higher than at prosperous Turkish, Bulgarian and Russian resorts?
Let us make some simple calculations: about a million and a half tourists out of the five million coming to Crimea every year are the so-called “organized” tourists. They buy official vouchers and stay in large sanatoria, hotels, holiday homes and tourist bases. It is easy to count how much they pay into the local budgets. Where do the rest of the visitors stay? We have known the answer since the Soviet times: the so-called “unorganized”, or “wild”, tourists rent rooms or apartments in the private sector.
In order to understand what changes have been underway over the last few years in private “accommodation services” one does not even have to go to Crimea. The Internet will provide a host of offers, with pictures and lists of services – private boarding houses, hotels and B&B, huts for greedy, agricultural and ethnic tourism; ranging from luxurious apartments and cottages for hundreds, or even thousands of US dollars per day, to rooms in a flat or a house with all or some conveniences, full service or a self-service kitchen for 10-20 dollars. Via the Internet, you can book accommodations in advance, choose menus, order transportation (from a modest Zhyguli to S-class Mercedes cars or КА-26 helicopters), arrange for guided tours, including sea voyages on yachts or boats, and horse rides and biking in the mountains.
Now for the most interesting part: according to the Ministry of Resorts and Tourism of the Autonomous Republic of Crimea, 1678 private landlords and 146 private hotels were registered at the start of the 2007 season. Yet Deputy Minister Maryna Sliesareva argues there are at least five times as many private boarding/guest houses and hotels available for tourists: “Facilities of Crimean sanatoria and health resorts comprise 645 placement bases I presume the private sector can offer approximately the same number of lodgings.”
Thus, the vast majority of private guest houses and hotels operate in the shadow economy, without breaking any laws since there are no laws regulating this industry in Ukraine. Those owners that are registered as private entrepreneurs pay a flat tax (which is negligible based on their incomes). Maryna Sliesareva emphasizes that land plots were allocated to owners to construct individual housing. Later, however, residents renovated and converted them into commercial estates – hotels of up to 30 rooms. “These guest houses use the existing infrastructure (electricity, water supplies, sewerage, etc) without any permits. Nor do their owners pay relevant bills, as the legal sanatoria, hotels and spa centres do. Nobody has produced detailed estimates of their recreation activities. The government keeps silent on the process, thus giving it a green light. No wonder the environmental situation is deteriorating, and from time to time local authorities have to close beaches where waste water leaks into the sea from congested sewage. It might not be so evident today, but in a year or two we could face an environmental disaster if nothing is done urgently,” – says the Deputy Minister.
Ministry experts would not even estimate the potential revenue that the state budget could get from new private resort facilities. Some time ago Borys Deych, former speaker of the Crimean Parliament, stated that, if legalized, private business in this industry could account for up to about UAH 2 billion, i.e. twice as much as the entire Crimean budget. Yet that was the only attempt to quantify the forgotten income.
Looking at the typical architecture of private guest houses, one will be able to trace the history of every business. Owners (that were, in effect, residents) of individual houses leased rooms in them to seasonal tourists. As their wealth accumulated, they added more rooms, verandas, terraces and the like, later – a second floor, and turned their house into businesses. There are other (more recent) facilities, originally constructed as hotels and guest houses. People have been doing this without any coordination, supervision or assistance from the state, which has proven incapable of supporting the initiatives of its citizens, regulating this business and benefitting from its development through taxes.
I remember settlements on the Donuzlav River near Yevpatoria that were deserted by the Russian military after the Black Sea Fleet division in the 1990s. In the middle of a severe winter, people were left without jobs and houses, schools and kindergartens – without heating. All social amenities were handed over to local authorities whose budgets could not afford maintaining them. The only way out for the people was to provide services to tourists. Basically, it is what most of them are still engaged in, although their situation has improved noticeably as the coastline has been planted with numerous guest houses. It is true; they do not pay anything to local budgets. In other words, they operate illegally.
“When private guest houses started mushrooming, and the private sector started competing with the public ones (large sanatoria and health resorts), tax and law enforcement authorities came to them and inspected them every other day, – says Andriy Klimenko, renowned Crimean economist and author of the Crimean Economic Development Program. – I told the ARC government they should be grateful to those people for providing services that the post-Soviet resort institutions could not provide at the time. Yet authorities, in best tradition, preferred to ban rather than pass relevant legislation and facilitate de-shadowization.”
Perennially futile attempts by the Crimean Ministry of Resorts and Tourism to develop the aforementioned legislation testify to the fact that national lawmakers and top officials are not interested in legalizing private recreation business. “I’ve worked at the Ministry for 10 years, nine of which I have dealt with supervising private guest houses and hotels,” – comments Maryna Sliesareva. – “Frankly speaking, sometimes I am overwhelmed with frustration: try as you might, it does not seem to matter. Our correspondence with the Cabinet of Ministers of Ukraine, the Parliament, the Tourist Administration in Kyiv, architecture and tax authorities in Crimea takes a ton of paperwork but does not lead anywhere.”
The only thing Kyiv has done so far is the Cabinet of Minister’s resolution. Issued two years ago, it has been utterly useless. Olexander Tarianyk, then ARC Minister of Resorts and Tourism and incumbent Head of Bakhchisaray District Council admits it: “The resolution reads: guest houses are residential houses where more than ten beds are leased out. Yet owners disagree. They say: we do not have tenants; we live in those houses with long corridors and toilets attached to every room. Inspectors come to visit and see 40 people in the yard. According to the host, all of them are former classmates that have arrived to celebrate a graduation anniversary. What should be done about it? A law should be adopted to require landlords to have licenses. Then they will pay adequate electricity and water-supply bills, and the licensing fee will go to local budgets.”
O.Tarianyk thinks central authorities “do not care about the development of resorts and tourism. Look at Russia. They decided to develop their recreation industry, invested USD 20 billion into spa facilities in Sochi and held tenders; the government controls the construction of roads and water-supply systems, while private developers build hotels and guest houses according to the general plan. In Crimea, Yevpatoria is the only city that has a general urban development plan; there is no such plan for the peninsula. International practice shows that the tourism-and-recreation industry is more profitable than metallurgy or oil production. Even Russia believes tourism is worth supporting. We are unique, as usual. Governments at all levels ignore it, leaving concerned people to their own devices.”
The business community has put forward its own ideas regarding the legalization and regulation of private sector in the industry. For instance, Rostyslav Abramitov, owner of the Gurzuf Stars mini-hotel, who used to manage a large resort facility belonging to a trade union, maintains that legislators do not even have to draft a new law – amending the law on tourism currently in effect would be enough. Detailed regulations could be developed locally. The law should provide clear definitions for different types of facilities (both state-owned and private) and set up certification criteria for them.
“Strictly speaking, all private hotels in Crimea should be certified as non-category ones,” says Abramitov. “Very few of them – 20 at the most – can be viewed as falling into the first or second category. In Yalta, the municipality registered about 400 private hotels, including residential houses with two rooms to let, on one hand, and facilities like my mini-hotel with 25 rooms, a swimming pool, bath and sauna, and hostel for staff, on the other. So they treat us equally. I am not sure it is correct.”
Now, for taxes and the private business’ ability to bring more revenue to local budgets… Rostyslav Abramitov, pays a monthly tax of UAH 3000, consisting of the flat tax and payroll tax for 10 staff members. He also pays a resort charge of UAH 12 per visitor and makes charitable donations for the development of local community, firefighters, the sanitary-epidemiological station, etc. Rostyslav declined to specify the amount of those contributions; he says entrepreneurs give as much as they can. Other hotel owners on the Southern Crimean Coast admitted that various “voluntary donations” are much higher than official taxes. Please, do not confuse the donations with bribes – it is a separate line of entrepreneurs’ expenses.
The second important issue is the mechanics for business legalization. The matter here is not even to make all landlords register, buy licenses and pay taxes. It should go without saying, and it should become a priority task for the government at all levels that are responsible for securing budget revenues. The greatest challenge is the impossibility to transfer facilities from the category of individual residential houses into that of small or medium-size businesses.
As mentioned before, almost all owners of private guest houses received their land plots for individual housing construction. Today, according to O.Tarianyk, an entrepreneur planning to open a guest house has to go through several circles of bureaucratic hell: “I know manysuch owners that are prepared to pay taxes as commercial structures. But land reserve authorities insist they should change their land use permits accordingly. Then the person is in for some real trouble. Firefighters and sanitary-epidemiological inspectors step in, and the trouble extends for another 2-3 years. We need to streamline and simplify the re-registering mechanism for existing guest houses and private hotels. A relevant decision should be made by municipalities, and the concerned controlling bodies should issue required documents to owners. A certain fee could be set up but the applicant should not waste time and effort chasing numerous officials for countless permits. The state should offer incentives for private entrepreneurs to properly register their business and pay taxes.”
The question is who will design the re-registering mechanism. Kyiv shows no interest whatsoever. Yet under the Crimean Constitution, the Autonomous Republic does have a certain extent of economic independence. Isn’t it high time to exercise this autonomy instead of beating around the bush and discussing the distribution of powers and responsibilities?
The third concern is the slow development of resort settlements. Mutual mistrust between local authorities and businesses has had the most adverse impact on the issue. Chaotic urban development of coastal settlements spoils the aesthetic impression of the shoreline –authorities should adopt and implement a general development plan. Private hotel owners and landlords do not pay for the commercial consumption of electricity and water –authorities should pass regulations on re-registering individual households into commercial guest houses. Private businesses fail to contribute to the budgets of local communities –authorities should develop transparent municipal programs that entrepreneurs sponsor. They are sick and tired of “voluntary donations”.
A lot of owners of legalized private hotels and guest houses are active citizens and patriots of their communities, willing to participate in their development. One example will suffice: Hryhoriy Taranenko lives on Drazhynsky Street, not far from the Yalta hotel. He restored a 130-year-old house with a neglected backyard and thus, he believes, helped to preserve the history of the cit. Hryhoriy rents out three rooms to tourists, paying taxes and dues as required. Moreover, he offers jobs to local people, even off-season: construction work, repairs, etc. He is sure landlords like him could do more and pay more to the budget, with proper support from the state.
“There is no need to reinvent the wheel. Look at Mediterranean countries, France, and Spain. I have been there and I know that residents of coastal areas get soft loans and are covered by municipal programs supporting small resort businesses,” says Taranenko. “Unfortunately, we cannot set up good cooperating relations with municipal authorities in Yalta. We can have tourists all year round. What we need to do is clean the city, let house owners renovate facades, install plaques with names of celebrities that stayed in various places, build viewing areas on Polikur Hill – there are gorgeous views from ithere. Trees should be preserved in the development process – most pine trees are over a hundred years old. Listen to what the visitors say: winter air in Yalta is even fresher and more healing than in summertime.”
Yet city authorities have their own plans vis-à-vis Polikur Hill – they want to erect multistory hotels and entertainment centres. The conflict between municipal authorities and the local community urged the latter to organize a public committee “Polikur Quarters” to promote the conservation of the historical part of the city and protect it from devastation.
Public organization could serve as a regulator of sorts. Owners of Crimean private hotels and guest houses are working toward setting up an association that would advocate their interests, maintain dialogue with authorities, draft and lobby for decisions favorable to the general public and business community, control the quality of services and join together advertising efforts. Deputy Minister Maryna Sliesareva is among the most enthusiastic promoters of this idea: in March, during the traditional resort fair, she helped organize a roundtable for more than 50 owners of private hotels and guest houses that approved a decision to set up the association. Now it is up to the entrepreneurs to make it effective.
I will not draw analogies with the logical riddle quoted in the headline: you will understand who is who in this situation. The question is who will be able and willing to act as a boatman, seeing to it that the goat does not eat the cabbage and, in turn, is not eaten by the wolf. The goat is valuable in and of itself – one can milk it if one feeds it well. Analogies or no analogies, private owners of hotels, guest houses and other resort facilities have been, and will be in the near future, the major and most reliable investors into the tourist-and-recreation industry on the peninsula.
Almost all of my interviewees concurred that Crimea has entered a new phase of its history as a health resort. According to Olexander Tarianyk, it is turning into the all-Ukrainian summer cottage. Andriy Klimenko endorses the idea: “Crimea is gradually becoming a region of second dwelling. People want to have holidays here but they resent the low quality of services and the Soviet-era attitude in large sanatoria and spa centers.”
Small and medium-size business will be developing their network of services for tourists: laundries, catering, drivers’ and nurses’ services, etc. Those who cannot afford buying apartments in Crimea, i.e. the majority of tourists will opt for private guest houses and inexpensive hotels.
What is to become of the “beacons” of the Soviet-era resort industry? O.Klymenko thinks they have an important role to play today – they protect large territories with parks and beaches from being torn into bits and pieces through chaotic urban development. As matters stand, they constitute a reserve for strategic investors should they dare to come to this region some day. Their territories could be used for four and five star hotels, luxurious spa centers and the like. According to Yevpatoriya Mayor Andriy Danilenko, sanatoria also have good prospects. Experts suggest numerous issues could be addressed once the long-overdue real estate tax is introduced.
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