Fostering Inclusive Tourism Development in the Aftermath of COVID-19 Mongolia June 2021 Acknowledgements This study was prepared by a World Bank team led by Michael Engman and Nick Kojucharov, in collaboration with Indraa Bold. The team worked under the guidance of Martin Raiser, Andrei Mikhnev and Zafer Mustafaoglu, and benefitted from valuable comments and inputs by John Perrottet, Andres Garcia, Bernard Aritua, and Akiko Sawamoto. Kayhan Suleman prepared the visual design of this presentation. The team is grateful to the leadership of the Ministry of Environment of Tourism as well as to the Mongolian Tourism Association for their time, insights, inputs and background material. The authors are also grateful for the assistance provided by Marinella Yadao, Otgonbayar Yadmaa and Susana Rey. Attribution – please cite this study as: World Bank (2021). Mongolia: Fostering Inclusive Tourism Development in the Aftermath of COVID-19. 2 Background ▪ The development of the tourism sector has long been viewed as integral to Mongolia’s efforts to diversify the economy and create more jobs outside the mining sector. ▪ Mongolia has a unique value proposition from a tourism endowment perspective, with strong niche products for leisure tourism linked to the country’s diverse nature and stunning sceneries; the nomadic lifestyle and Mongolian culture and festivals; the historical legacy of Genghis Khan; and sports and adventure tourism that thrive during a relatively short tourism season mainly between May and September. ▪ The business travel sub-sector is associated with Mongolia’s vibrant mining industry. The spectacular growth of the mining industry has brought rapid economic growth. It has captured the attention of both politicians and business leaders and helped shape the Government of Mongolia’s (GoM) policy agenda. It has also absorbed much workforce talent and led to persistent macroeconomic turbulence. ▪ The leisure tourism sub-sector has struggled to expand for most of the past two decades, underperforming its potential, but began to gather growth momentum in 2016, achieving arguably its best year on record in 2019. However, this was followed by the worst year on record in 2020 when the COVID-19 pandemic led to the to closure of international borders, cancelled flights and reduced domestic mobility. ▪ As of the publication date of this study (June 30, 2021), it remains unclear how much longer the COVID-19 pandemic will constrain global tourism activity. Fortunately, Mongolia has reported one of the fastest roll-outs of vaccines in the world. By May 10, 2021, Mongolia had inoculated more than 50% of its population with at least one dose of vaccine – the world’s second highest rate at the time.* ▪ This study is presented in a visual PowerPoint format to allow readers to more readily access key data, analytical findings and policy conclusions. It is a follow up to the previous World Bank-commissioned study of Mongolia’s tourism sector nearly a decade ago (World Bank (2012), “Mongolia: Economic Contribution of Mongolia’s Tourism Markets”, Discussion Paper, February 2012) that was prepared by a team of sector association and business leaders in Mongolia’s tourism sector—many of whom the authors of this new study consulted and whose insights greatly benefited this work. * https://ourworldindata.org/covid-vaccinations 3 Objectives, method and data ▪ Objectives: This study analyses the performance of the Mongolian tourism sector and the policy environment in which it operates. It adopts a data- driven approach to answer the key question of “what can the Government do to make Mongolia a more competitive tourism destina tion that delivers more inclusive and sustainable outcomes for the country?” ▪ Method: The analysis is structured as follows: ▪ Section 1 reviews the performance of the tourism sector, including the evolution of visitor demand, economic impacts, the profile of private enterprises in the sector, and the impact of COVID-19. ▪ Section 2 examines the Government of Mongolia’s tourism vision, policy and targets. ▪ Section 3 presents the findings of a new enterprise survey conducted for this study to identify and rank binding constraints to tourism development. It also provides deep dives into specific constraints based on insights of business roundtable discussions and the recent literature. ▪ Section 4 presents an outlook for Mongolia’s tourism sector based on scenarios for future visitor demand. It also assesses the supply -side implications of these scenarios for air transport, product development, accommodation and employment based on a built-for-purpose economic model. ▪ Section 5 concludes with a series of recommendations around regulatory reforms, policy measures, and public investments that could support the implementation of the State Policy for Tourism Development 2019-2026 and promote growth and diversification of Mongolia's tourism sector. ▪ Data: The analysis relies on publicly available data sources as well as quantitative and qualitative data collected for the purpose of this study. ❖ Central data sources: provided by the World Bank Open Data portal (data.worldbank.org) and the Tourism Statistics Data portal provided by the World Tourism Organization (unwto.org/tourism-statistics-data). ❖ Government of Mongolia: national statistics, survey data and views provided by the Bank of Mongolia and the Ministry of Environment and Tourism. ❖ Enterprise survey: firm-level data collected by the authors from 53 tourism companies operating in Mongolia in February-March 2021. ❖ Business roundtables: feedback collected in eight roundtable discussions with business leaders from various sub-sectors of the tourism sector in April 2021, in addition to interviews with various sector representatives and government officials between October 2020 and May 2021. 4 Table of contents 1. THE STATE OF MONGOLIA’S TOURISM SECTOR 6 1.1 Evolution of demand 8 1.2 Economic impact 16 1.3 The private sector 20 1.4 COVID-19 wreaks havoc 25 2. SECTOR POLICY, STRATEGY AND TARGETS 28 3. CHALLENGES TO TOURISM DEVELOPMENT 34 3.1 Tourism enterprise survey findings 41 3.2 Deep dives into select challenges 49 4. LOOKING AHEAD: GROWTH POTENTIAL AND 65 DEVELOPMENT SCENARIOS 5. A POLICY & REFORM AGENDA 82 FOR TOURISM DEVELOPMENT 5 1. THE STATE OF MONGOLIA’S TOURISM SECTOR 6 6 Mongolia has a UNIQUE value proposition to tourists 7 1.1 Evolution of Demand 8 International tourism arrivals grew rapidly in ▪ In 1995-2019, international arrivals grew by 10% (compound aggregate growth 1995-2011 before stagnating in 2012-2019 rate, CAGR) but the growth stagnated in the last decade: ✓ In 2000-2009: CAGR = 11.4% ✓ In 2010-2019: CAGR = 3.2% ▪ Over this period, the sector has absorbed several exogenous shocks: ✓ 2001: 9/11 terrorist attack ✓ 2003: SARS outbreak ✓ 2008-2009: Global financial crisis ✓ 2014-2015: Domestic measles outbreak ✓ 2020-2021: COVID-19 pandemic ▪ 2013-2015: business travel was adversely affected by a confluence of factors: (i) the mining industry is hit by the amendment to the Foreign Investment Law, which led to legal uncertainty and resulted in a steep drop in FDI; and (ii) the international market prices for coal and copper—Mongolia’s main Source: https://data.worldbank.org/ exports—both plunged. 9 In the 2010s, Mongolia lost market share in competing regional tourism markets ▪ From 2000-2010, Mongolia expanded its market share of international tourism arrivals to Developing East Asia, from 0.25% to a peak of 0.4%. This positive trend then reversed and Mongolia’s market share dropped to 0.3% in 2019. ▪ From 2000-2010, Mongolia broadly maintained its market share of international tourism arrivals to Eurasia (excluding Russia) at around 5%. This market share then shrank considerably to 1.6% in 2019. Note: Eurasia regional aggregate includes Mongolia, Kazakhstan, Kyrgyz Republic, Tajikistan, Uzbekistan, Georgia, Armenia, and Azerbaijan. Developing East Asia regional aggregate includes Mongolia, China, Cambodia, Indonesia, Lao PDR, Myanmar, Malaysia, Philippines, Thailand, and Vietnam. Source: United Nations World Tourism Organization (UNWTO) 10 Benchmarking Mongolia’s international arrivals to comparable tourism destinations Total Growth in arrivals1 total arrivals, Arrivals per Arrivals for (2019) 2010-2019 capita leisure ▪ Relative to comparators in Eurasia, ratio (arrivals/ Mongolia receives the smallest number of resident % of total international arrivals (and the second Units thousands CAGR, % population) arrivals lowest on a per capita basis) and has Mongolia 577 2.6 0.2 45.1 experienced the slowest growth in arrivals Regional (Eurasia) Kazakhstan 8,515 8.5 0.5 0.9 over the past decade. comparators Kyrgyz Republic 8,508 24.0 1.3 N/A ▪ Relative to comparators outside of Uzbekistan 6,749 24.0 0.2 15.5 Eurasia with similar geographic features Tajikistan 1,254 25.7 0.1 7.1 and/or tourism product menu (nature, wildlife, adventure, culture), Mongolia Georgia 5,080 18.9 1.4 66.1 also lags in terms of arrivals on a per Azerbaijan 2,876 9.4 0.3 42.2 capita basis (except for Nepal). Armenia 1,894 12.0 0.6 55.4 ▪ Relative to selected comparators with Inner Mongolia (China) 1,866 3.2 0.1 N/A similar climate-driven seasonality Comparators with Namibia 1,596 5.5 0.6 33.6 patterns, Mongolia attracts more arrivals similar geographic features and/or Botswana2 1,655 -2.2 0.7 22.4 than destinations with large land masses tourism product such as Greenland and the Russian Bhutan 316 25.5 0.4 89.1 menu Arctic, but compares unfavorably in Nepal 1,197 7.9 0.04 79.4 terms arrivals per capita and arrivals Comparators with Iceland 2,013 17.0 5.6 N/A growth to more established highly- similar climate- seasonal destinations such as Iceland driven seasonality Alaska3 1,204 4.1 1.6 N/A and Alaska. patterns Greenland4 58 2.7 1.0 N/A Russian Arctic 68 4.5 0.03 N/A 1 International arrivals staying overnight (excludes same-day visitors and cruise arrivals) 2 2018 Note: these headline arrival figures are not strictly comparable, however, data. 3 Arrivals by air only (excludes cruise visitors); includes visitors from the continental United States. as they hide significant underlying differences in the composition of 4 Arrivals by air only (excludes cruise visitors). tourism—for example, the share of leisure tourists exceeds 90% of arrivals in Bhutan but is less than 1% in Kazakhstan. 11 Sources: UNWTO, China National Bureau of Statistics, Greenland, Alaska Travel Industry Association, Rosstat, Statistics Greenland. Mongolia’s visitor mix has been shifting in Arrivals for tourism (i.e. leisure) purposes were the fastest- growing segment of market from 2010-2019 (+168%), driven by recent years amidst the decline in business visitor growth from several key source regions: tourism and rapid growth of leisure tourism 1. East Asia-Pacific: +245% (64% of total leisure visitors in 2019) 2. Europe: +87% (28% of total in 2019) 3. North America: +80% (5% of total in 2019) Meanwhile, arrivals for Business purposes, which are closely linked to the mining sector, have declined significantly (-61%) from a peak in 2013 amidst the mid-decade crisis in Mongolia’s mining sector as coal and copper prices plunged and FDI in mining dried up. Business tourism to Mongolia closely tracks foreign investment activity in mining sector 180,000 50% 160,000 140,000 40% 120,000 30% 100,000 80,000 20% 60,000 40,000 10% 20,000 0 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note that the interpretation of leisure and business tourism trends is complicated by the nontrivial number of cross-border traders (an estimated 10% of total leisure arrivals in 2019) from China and Russia who Source: National Statistics Office. enter Mongolia for business purposes but declare “tourism” as their purpose of visit to save time and avoid inspections. 12 Mongolia attracts international visitors predominantly from neighboring China and Russia in addition to South Korea, Japan, the EU, the US and Kazakhstan. In 2015-2019, Russian and Korean arrivals grew fast and so did non-traditional East Asian countries and territories such as Singapore, Hong Kong, Taiwan and Thailand. Source: UNWTO (2021). 13 Most international visitor activity is concentrated in Mongolia’s central and southern regions, creating geographic disparities in the potential capture of benefits from tourism Distribution of International Visitors Note: percentage calculations exclude Ulaanbaatar, which is the first point of entry for most visitors traveling to other regions. Source: World Bank estimates based on survey of Mongolian tour operators conducted by CAREC Institute. 14 Domestic tourism in Mongolia ▪ There are few data sources on domestic tourism. Visitor statistics for Mongolia’s national parks, which contain up to 80% of Mongolia’s tourist attractions, indicate that Mongolian visitors outnumber foreign visitors in most national parks. ▪ Economic spillovers from domestic tourism are relatively modest with most Mongolian tourists using AWD cars to visit the aimags and camp out in the nature during warmer months. ▪ There are few and mostly irregular domestic flights beyond the peak summer tourist season. Few ger camps can handle harsh winters and few hospitality services are available outside the capital in the low season. ▪ Mongolians are avid travelers, but mainly venture and spend their money abroad. ▪ Domestic tourism has increased in importance since Mongolia’s international borders were closed in early 2020. This creates a near-term opportunity to capture pent-up demand and spending from Mongolians who would have otherwise traveled abroad, but also potentially for a more durable expansion of domestic tourism if suitable products to attract residents (e.g. themed resort complexes, casinos) are developed. 15 1.2 Economic Impact 16 The macro picture: the Mongolian tourism and hospitality sector at large in 2019 ❑ Third largest sector after mining and agriculture, Mongolia’s tourism sector has maintained its relative weight contributing an estimated: in total exports and increased it in total services exports… ❑ Mongolia’s receipts from international tourism as a share of total exports has fluctuated greatly due to rapid growth in the mining industry but the share in 2000 and 2019 were both 7%. 7.2% to 7.6% of total 6.8% of total ❑ Inbound tourism expenditures as a share of services national employment goods/services exports was 49% in 2019 (up from 40% in 2015) income exports …but Mongolians consume more tourism services abroad as o Inbound tourism expenditure: 4.4% of GDP a share of total imports o Outbound tourism expenditure: 7.5% of GDP ❑ Mongolians’ expenditures on international tourism as a share of imports have fluctuated but rose from 7% in 2000, ❑ Foreign Direct Investment (FDI) in ‘tourism and to 8% in 2010, to 11% in 2019. hospitality’ = 10% per year of total FDI on average in 2014-2016 (WTO, 2021) and FDI in “hotels and recreation” = 5% in 2017 (World Bank, 2018). Source: https://data.worldbank.org/ 17 Mongolia’s tourism sector enjoyed its best year ever in 2019 but growth in average Mongolia’s international tourists have, on average, increased income per international visitor has been their spending over time, but the growth rate has been relatively subdued over the last two decades restrained. ▪ The income earned per international arrival has trended upward despite significant volatility. Between 2000 and 2019, the CAGR of the fitted trend line was 3 percent. ▪ The reasons behind the swings are manifold and difficult to disentangle. They include changes in the visitor source country composition and in the average length of stay; changes in tourism visa policy and administration; currency fluctuations, etc. There is anecdotal evidence about an influx of blue-collar guest workers arriving on tourist visas to avoid taxes and fees, and thereby diluting the data (World Bank, 2012). ▪ Relative to benchmark comparator countries and to the rest of developing East Asia, Mongolia ranks highly in terms of the level of receipts per international arrival (second only to Iceland), and the increase in this level over the past decade (second behind Uzbekistan). While this metric is not strictly comparable across countries (due to differences in visitor’s average length of stay, local prices, etc.), it nonetheless suggests that Mongolia is receiving relatively high-value inbound tourism. 18 Source: World Bank estimates based on UNWTO data. Amidst rapid growth in outbound travel by Mongolians, tourism has become a net income outflow for the economy ▪ Income from inbound tourism and expenditures on outbound tourism both grew significantly in 2000-2019 partly due to a very low baseline: ➢ Mongolia’s income (receipts) from international tourism increased 13-fold to US$605m despite stagnation in 2008-2015. Income doubled in 2015- 2019. ➢ Mongolia’s expenditures on international tourism increased 18-fold to US$1,036m. The annual growth rate exceeded 10% during 15 out of 20 years, and it exceeded 30 percent in 5 out of the 20 years. ➢ 2010 marked an inflection point when Mongolians started to spend more on tourism abroad than foreigners spent on tourism in Mongolia. ➢ In the 2010s, for every US$1 earned on inbound tourism, Mongolians spent US1.74 on outbound tourism. ▪ Mongolians’ increase spending on international is consistent with their rise is global spending power over the past 25 years—Mongolia’s expenditure on international tourism was nearly perfectly correlated (+0.96) to its income per capita in PPP terms. Source: https://data.worldbank.org/ 19 1.3 The Private Sector 20 Snapshot: Mongolian Establishments tourism and hospitality sector in 2019 520 Hotels 12,157 Hotel rooms 526 31,996 Tourist camps Camp beds 939 571 Food and beverage Registered tour serving facilities operators Employment 36,480 Direct employees in accommodation and food and beverage serving segments of the tourism sector: …of which 19,180 employed in accommodation and 17,300 in food/beverage An estimated 52,220 workers and entrepreneurs derive their livelihoods from tourism. 21 The accommodation sector in Mongolia is heavily Number of accommodation establishments by aimag concentrated in Ulaanbaatar and must contend with Ulaanbaatar the strong seasonality of tourism demand Khovd Khentii Khuvsgul Tuv The seasonality of the tourism demand produces occupancy rates above Selenge Sukhbaatar 60% during only four months out of the year Darkhan Uvs Umnugovi In 2018, the Mongolian Tourism Association surveyed 235 hotels and found the Uvurkhangai annual occupancy rate to be 32%. Erdenet Zavkhan The shoulder and peak seasons had the following occupancy rates… Dundgovi Dornod Dornogovi Gobi-Sumber May June July August September Gobi-Altai Bulgan 41% 76% 100% 100% 65% Bayan-Ulgii Bayankhongor Arkhangai …and while these numbers are only indicative, they do stress the challenges of 0 50 100 150 200 250 300 350 heightened seasonality. Source: Ministry of Environment and Tourism. Most hotels (60%) are located in Ulaanbaatar, where 90% of all hotel sector earnings are consistently generated, whereas tourist camps are more geographically dispersed Source: National Statistics Office (2021). 22 The hotel industry has grown in terms of supply and employment but not days stayed The # of hotel rooms (+91%) grew faster than the # of …but the # of days stayed at hotels was stagnant, although employees (+49%) in the hotel industry in 2007-2019… there was a pick-up during peak season in 2018-19 Source: National Statistics Office. 23 Hotels were struggling financially before the pandemic, with new investment slowing The weak growth in room demand has translated to poor This declining profitability has discouraged new hotel investments, financial performance for hotels, with revenues falling short which peaked in 2015-2016, as internationally-branded hotels such of operating expenditures over the last 5 years as the 5-star Shangri-La entered the market Source: National Statistics Office. Source: National Statistics Office. 24 1.4 COVID-19 Wreaks Havoc 25 Source: National Statistics Office. Source: National Statistics Office. The impact of the COVID-19 pandemic has been devastating—it wiped out the 2020 tourism season and will likely do the same to the 2021 tourism season ▪ The year-to-year drop in arrivals in 2020 was -90 percent … or -95 percent in Q2-Q4 ➢ Compared to -82 percent in South-East Asia, -77 percent in South Asia, -88 percent in East Asia and -70 percent in Europe ▪ The year-to-year drop in tourism receipts was -94 percent … or -97 percent in Q2-Q4 ▪ In 2020, y-on-y, the monthly number of passenger flights was +35% in January, -27% in February, -90% in March, -96% in April and -99% in May. ▪ Mongolia’s COVID-19 cases started to rise quickly in March 2021 and the growth accelerated in April 2021. The border is closed, and it is unclear if international tourism will be able to resume for the critical summer peak tourism season. 26 Section 1: Key takeaways • The trend growth in international tourism arrivals to Mongolia has slowed significantly over the last two decades and Mongolia’s tourism market share in East Asia has dropped. The composition of visitors has also undergone a significant shift, with the share of leisure visitors rising from 21% to 45% between 2010 and 2019 (driven mainly by visitors from East Asia), and the share of business visitor shrinking from 33% to 9%. • Domestic tourism appears limited as Mongolians are avid international travelers. Outbound tourism has grown much faster than inbound tourism, and Mongolians spend nearly twice as much on international tourism than what foreign visitors spend on tourism in Mongolia. • The tourism sector is an important contributor to Mongolia’s economy, accounting for 7.2% of GDP, 6.8% of total goods and services exports (including 49% of services exports), and 7.6% of total employment. • Accelerating tourism demand in the first part of the past decade helped drive a steady expansion in hotel rooms, which ultimately outpaced room demand in the latter half of the decade, resulting in oversupply, deteriorating financial performance of hotels, and a significant drop off in new hotel investment. This has compounded the long- standing structural challenges for accommodation providers in Mongolia stemming from the pronounced seasonality of tourism demand, which limits annual occupancy rates to around 30%. • The COVID-19 pandemic wiped out the 2020 tourism season, as revenue from international visitors collapsed by 94% year-on-year. The outlook for 2021 is looking almost as bleak although Mongolia is one of the leading countries in terms of COVID-19 vaccinations, which may allow the GoM to re-open its borders relatively soon and partly salvage the peak summer tourism season. 27 2. SECTOR POLICY, STRATEGY AND TARGETS 28 The Government of Mongolia’s (GoM) tourism policy emphasizes sustainability and inclusiveness ▪ The Ministry of Environment and Tourism (MET) is the line ministry in charge of the Tourism Law (last amended in 2017) that is the main legislation on tourism. The Tourism Law regulates relations between the State, citizens, economic entities, and organizations regarding tourism promotion, engagement in tourism activities, and provision of tourism services. It defines an open market access regime that encourages investment, and notably foreign investment. ▪ The Tourism Council advises and offers opinions to the Prime Minister on the elaboration and implementation of State-integrated tourism policies. ▪ MET’s current focus is on sustainable and inclusive development in select aimags where it seeks to strengthen local capacity to host tourists and promote local spillovers. MET’s annual budget to develop the tourism sector has over the last five years increased from today the market share is negligible (it operates one domestic ▪ In 2018, 73% of all domestic flights were chartered by charter flight). mining companies. ▪ The CAAM has certified 21 air carriers (o/w 9 foreign) and ✓ MIAT has undergone restructuring efforts, including with the before the COVID-19 pandemic: help of an international management team financed by the EBRD in 2003-2004, to give the airline a more ✓ Aero Mongolia (private, 3 aircraft) operated on 2 rational and commercial orientation international and 10 domestic destinations. before potential privatization. It ✓ Hunnu Air (private, 4 aircraft) operated on 4 remains a fully state-owned international and 9 domestic destinations. enterprise. ✓ Eznis Airways (private, 1 aircraft) operated on a single international destination. ▪ The market for small bush planes and bush air strips is underdeveloped due to regulations. Source: WTO (2021): www.wto.org/english/tratop_e/tpr_e/s406_e.pdf. 56 Access to skilled labor The short tourism season makes it difficult to attract and especially retain talent over time: (#10) and the ▪ The industry estimates that approximately 1/3 of workers are full-time and 2/3 are part- development and time/seasonal. retention of talent ▪ Tourism jobs are viewed as seasonal part-time and seldom offer a regular and dependable source of income. The short season disqualifies many staff from social security protection. ▪ Many staff are relatively young—often students or recent graduates—and turnover rates tend to be high. ▪ The season for tour guides is mid-May to mid-October and many of Mongolia’s 1,063 tour guides are teachers who use their mid-June to early September summer break to work as tour guides. ▪ Majority of specialized expertise such as boat captains and specialized guides is often brought in from abroad. The quality of services tends to suffer in transient environments partly reflecting: ▪ A lack of industry-led guidelines that promote quality standards. ▪ Fierce competition from copy-cat services due to low market entry barriers. ▪ Limited foreign language skills despite considerable wage premiums for proficiency beyond English. ▪ Weak academic and vocational training programs for tourism-related functions: ✓ Due to seasonality of the business, enrollment in tourism education/training programs continues to drop and accommodation sector is struggling to recruit and retain staff. ✓ Low returns to investment in training as upskilled workers sooner-or-later take up full-time jobs in other sectors. ✓ Most service providers conduct on-the-job training programs instead of relying on external training. 57 Road transport and logistics (#11) are ▪ The Trans-Mongolian Railway offers a niche product to tourists and caters more to regional visitors who move for work or family reasons. underdeveloped, and the Trans-Mongolian ▪ Built in 1949-1961 as a mostly single-track line on the Mongolian Railway has not experienced passenger growth segment of the Moscow – Beijing route. Mongolian trains run on 1,520 for two decades mm gauge track like Russian trains, whereas China uses 1,435 mm gauge track. Thus, carriages between the two countries must change bogies at the border. Logistics Performance ▪ The number of railway passengers (passenger-km) was flat in Index 2018 Mongolia in the 2000s except for 2010-2012 when it nearly tripled from the trend level. The volume carried in 2015-2017 was the lowest on record in the 2000s. ▪ Mongolia ranked 130th in the World Bank Logistics Performance 2018 Index out of 160 countries – behind all ASEAN and Central Asian countries except Tajikistan (134th) and Myanmar (137th). It ranked 134th in terms of trade and transport-related infrastructure such as roads, railroads, ports and information. Air and rail transport passenger developments in 1995-2019 58 Source: https://data.worldbank.org/ and https://lpi.worldbank.org/ 58 Visa access (#17): Mongolia’s tourism visa policy allows visa free access visitors mainly from the former Soviet Union, Japan and the Americas Mongolia’s tourism visa policy may not be more restrictive than that of other countries in the region, but it is far from tailored to realize the tourism potential: ▪ Visa-free access granted to citizens of 24 countries/territories such as Russia, Japan, United States and Germany. ▪ Visa on arrival valid for 30 days granted to 20 countries/territories but none of them figure high on the list of arrivals. ▪ Visitors from countries like China, South Korea, France, the UK, Italy, India and Australia do require a pre-arranged visa. It is reportedly difficult to obtain tourism visas from China. ▪ Tour operators argue that visa requirements are not binding constraints as long as visas are issued fast and efficiently, preferably electronically. Mongolia plans to launch an eVisa scheme in 2021 that could facilitate the application and approval process. Source: Wikipedia accessed May 10, 2021 59 Mongolia’s tourism sector faces considerable obstacles at the individual firm level: access to finance, government regulations + supply of skilled labor are chief among them Apart from the COVID-19 pandemic and low visitor demand, which of the following are the key obstacles currently facing your business? Source: World Bank tourism enterprise survey 2021. 60 Mongolia’s tourism sector faces considerable obstacles at the individual firm level (cont.) The #1 constraint to the surveyed companies was access to finance: 75% of tour operators and travel agencies and 72% of hotels, restaurants and transporters noted that this was a major obstacle. 14 months of closed borders are detrimental to cash flow! Tour operators and travel agencies struggle more with finding adequate talent (major obstacle for 67%) and transportation (major obstacle for 45%) whereas hotels, restaurants and transporters point to regulations (major obstacle for 53%) and taxation (major obstacle for 44%). These tourism sector findings can be compared to another World Bank Enterprise Survey conducted in Mongolia before the COVID-19 pandemic in 2019 of 360 manufacturers and service providers. That top-5 list of individual obstacles was: 1. Political instability (35%) not explicitly covered in the tourism survey 2. Tax rates (17%) #4 in the tourism survey 3. Access to finance (16%) #1 in the tourism survey 4. Corruption (9%) not explicitly covered in the tourism survey 5. Inadequately educated workforce (6%) #3 in the tourism survey Source: World Bank (2019) accessible at www.enterprisesurveys.org/en/data/exploreeconomies/2019/Mongolia. 61 Tourist satisfaction surveys commissioned by the GoM in 2018 highlight opportunities to develop new tourist products and priorities for improvements ▪ Most foreign tourists to Mongolia are aged 40+ with one-third aged 55+, which indicate the need for tailor-made products and services for this service segment. There is an opportunity to develop longer travel itineraries for the retired Asian markets of 55+ aged travelers. ▪ There is limited availability of travel information in nearly all languages, and it impedes prospective tourists from exploring and planning the opportunities of a Mongolian visit. ▪ The leisure travel segment spent on average 13 days and $2,300 per trip including the air ticket price. But the high cost of air travel to Mongolia was perceived to put Mongolia at a disadvantage and reducing the attraction of the destination. ▪ The visa application (+fee) process - and the lack of online visa processing - is a major issue to develop the Chinese market. It also a barrier to many Western European and South Korean tourists. ▪ 38% of survey respondents replied that they were satisfied with their Mongolia trip, 56% were moderately satisfied, 5% were not satisfied, 1% found their trip to be unacceptable. ▪ 50% of survey respondents would like to visit Mongolia again within 4 years, 9% would not visit again, and 26% did not know. ▪ Other common complaints from tourists captured in GoM surveys of foreign tourists: ✓ The scarcity and inadequate sanitation of public bathrooms. ✓ Road conditions, status of maintenance, and traffic in the capital. ✓ Irregular room/camp services such as changing of bed clothes and waste management. ✓ Inadequate training of staff and modest foreign language proficiency. ✓ The lack of private taxi services for mobility in and around the capital. ✓ Inadequate internet connectivity in tourist locations. ✓ Limited food menus and lack of choice of vegan and vegetarian dishes in restaurants. 62 Despite these challenges, surveyed industry representatives still perceive opportunities for profitable private investments in tourism products and assets in the medium-term ▪ Despite the current oversupply of mid-range hotels, these are still seen as a low-risk ▪ Despite nomadic culture and nature-based tourism experiences already being investment based on being the preferred accommodation category for future Mongolia’s top tourism products, further development of these offerings is seen as foreign and domestic business travelers. no-regret investment given their perceived alignment with the preferences of tourists from key growth markets such as South Korea and Japan. ▪ Investments in aircraft are viewed as high-demand and high-return, provided that the regulatory framework for aviation is amended to reduce entry barriers and ▪ Development of festivals and winter tourism products are viewed as critical to onerous and costly operating requirements. lengthening of tourism season and unlocking potential for year-round tourism revenue. ▪ Firm-level investments in upgrading digital capabilities are also seen as instrumental to long-term profitability, seeing as only around 10% of registered accommodations ▪ Within the MICE segment, highest growth potential is seen in the incentives are online and most of their online content is not in English. business, targeting companies in China, South Korea, and Southeast Asia. Source: Authors’ tourism enterprise survey (2021). Source: Authors’ tourism enterprise survey (2021). 63 Section 3: Key takeaways Feedback from the tourism enterprise survey and consultations with industry stakeholders revealed the following perceptions about Mongolia's tourism development constraints and the priorities for GoM support: 1. Mongolia’s aviation policy is the predominant policy constraint to the development of the tourism sector. The GoM could improve access by: (i) negotiating open skies agreements and removing code-sharing requirements with MIAT for foreign airlines; (ii) inviting competition to break the current jet fuel monopoly; and (iii) proactively courting new airline groups to serve Ulaanbaatar, which would also boost domestic air transport. 2. Stronger sector coordination, public-private collaboration, and tourism policy implementation would improve sector outcomes: (a) the shoulder seasons could be extended with proactive product development. The GoM has a key facilitating role, but product development is largely a responsibility of the private sector, in collaboration with aimags and city authorities, where ideas for new festivals, conferences, services and experiences originate; (b) a more strategic and persistent tourism marketing and branding campaign would help put Mongolia on the map in key source countries; and (c) the private sector could be more effectively organized as a constituency facing the GoM. More prescient leadership and strategic budget decisions would help on all these matters. 3. The GoM could consider some additional COVID-19 pandemic emergency relief measures as the tourism sector is at the cusp of losing a second consecutive year of income. The recovery will only start once Mongolia has the coronavirus under control, which may be near given the rapid increase in vaccinations, but the peak June-August summer season may not be much different from 2020. Thus, the GoM could consider emergency relief to businesses that are under distress but remain financially viable. Regulatory forbearance, tax relief and efforts to improve access to finance under these extraordinary circumstances could be motivated to facilitate a recovery and reduce unnecessary damage. 64 4. LOOKING AHEAD: GROWTH POTENTIAL AND DEVELEPMENT SCENARIOS 65 COVID-19 presents a significant challenge to the global (and Mongolia’s) tourism outlook UNWTO’s recent projections point to a relatively slow resumption of international tourism for 2021 ▪ Many tourism businesses in Mongolia remain on government life support, and it has become more difficult to access finance amidst sharp drop in revenues. ▪ There is great uncertainty about the timeline of re- opening and resumption of international travel. ▪ There are questions marks about the appeal of Mongolia as a tourism destination in post-COVID-19 period – will its attractiveness increase or decrease? *Actual data is preliminary and based on estimates for destinations which have not yet reported monthly results. Source: UNWTO (2021). (Data as of March 2021) 66 The pandemic is also prompting structural changes in the international tourism market 5 structural shifts to which the tourism industry must respond: 1. Changing demand. 2. Consolidation. 3. Digitization. Firms 4. Health and 5. Basic services Reduced viability of some Consolidation of sector and destinations are hygiene are needed for markets and low-profit due to business forced to rapidly sustainability and to models (i.e. high-volume and failures/distress brings transition to the digital standards will prepare for future crises, low margin). The opportunities for larger world. Technology drives affect traveler on which the private industry is seeing increases in investors with high productivity and offers experience and sector can build. With domestic tourism and standards to create new opportunities for supply-side costs. limited fiscal space, decreases in business travel, markets but risks crowding sustainability monitoring Mongolia government with future growth in high- out smaller firms and but will impact the future needs to spend smarter value, nature-based tourism. losing local benefits of tourism work. and crowd in private Mongolia may have through leakages and participation. opportunities to capitalize on insolvency. this shift in demand. 67 In the face of large uncertainty and a changing global tourism landscape, it is more instructive to evaluate Mongolia’s future tourism prospects in terms of scenarios A scenario-based approach allows for an analysis of the demand outcomes and supply-side implications of different configurations of tourism policy and investment initiatives. Three key illustrative scenarios are: 1. Business-as-usual (no policy change) ➢ The market continues to evolve in line with recent trends (factoring in disruptions from COVID-19 crisis) and its development is not supported by any targeted or comprehensive public investment or policy initiatives. 2. High-volume ➢ The government pushes a mass-tourism development model in pursuit of achieving ambitious targets for the quantity of international tourism arrivals. 3. High-value ➢ Investments and policies are focused on attracting visitor segments with the highest spending levels, even if it means a lower overall number of visitors (quality over quantity), with a view to maximize the economic impact of tourism and reduce pressures on tourism assets, service infrastructure and the environment. Note: Domestic tourism is not included in this future demand analysis due to lack of available baseline data on the quantity and profile of domestic travelers. However, the prevailing sentiment among GoM and private industry is that domestic tourism would flourish more under a mass-tourism model given the particular appeal of resort-based products to Mongolian residents. 68 Analytical approach (a) Segment the international visitor market in a manner that allows the demand scenarios to be expressed through differences in 1 the relative growth of these constituent segments (i.e. the market mix) (b) Define the demand profile of each segment: size, key source markets, length of stay, expenditure, accommodation preferences, tourism products/activities demanded 2 For each scenario, define contextual underpinnings and assumptions, and develop illustrative projections of demand from the key visitor segments 3 Evaluate the resulting market mix in each scenario and its tourism revenue implications 4 Assess supply-side response needed to realize projected demand (volume and profile) under each scenario in 4 areas: (a) Product development (b) Air transport (c) Accommodation (d) Tourism employment 69 Segmentation and characteristics of the international visitor base Tourism segment Definition/constituents Estimated Average daily Average Key source markets number of expenditure length of visitors (2019) (US$, 2019) stay (days) Business 76,101 Border traders Merchants from Russia and China engaging in routine overland cross- 42,883 $96 1.5 China, Russia border trade and staying more than 1 day during each visit MICE and - Meetings, incentives, conferences and events (MICE) 33,218 $190 12 China, South Korea, other - Official visitors and diplomats Other Asia, Europe - Short-term work-related visits (i.e. not for contractual employment), predominantly linked to mining sector activities Visiting friends and Non-Mongolian citizens traveling for the primary purpose of visiting local 207,850 $105 15.2 China, Russia relatives (VFR) friends and relatives Niche leisure 195,283 $270 12.7 Nature and Visiting primarily for nature-based purposes (e.g. sightseeing of 72,425 South Korea, Europe, adventure landscapes) and for soft (e.g. cycling) and extreme (e.g. mountaineering) China adventure activities Culture and Visiting primarily to experience Mongolian culture (e.g. nomadic life, 21,728 South Korea, Japan, history festivals) and/or visit historical heritage sites Europe Special interest Highly-niche activities such as hunting, fishing, archeology, etc. 86,910 Europe, Americas, South Korea Winter Leisure visitors coming during the winter season (November-February) 14,220 Russia, China, South Korea Mass leisure Travel (usually in large groups) for the purposes of shopping, relaxation in 41,374 $157 8.4 China, Russia resort or entertainment complex (including casinos); includes overland border tourism from China (Inner Mongolia) and Russia Other Other non-business and non-leisure purposes such as sports, arts, health, 56,692 $203 12.2 China volunteering, transit, etc. Source: World Bank estimates based on data from Ministry of Environment and Tourism, Border Protection Authority, and National Statistics Office. 70 1. Business-as-usual scenario details There is no active effort to grow or develop specific market segments or address long-standing Premise growth barriers to tourism development Stylized path for international tourism arrivals under business-as-usual scenario Scenario assumptions: # of visitors 800,000 ▪ Following a transitional period where it (conservatively) takes 3-4 years for arrivals to recover to pre-COVID-19 levels, 700,000 growth in leisure tourism gradually return to 10-year average 600,000 trend path prior to COVID (~3% per year), resulting in CAGR of 2% in 2019-2030. 500,000 ▪ Recovery trajectory of other visitor segment is similar, leaving 400,000 the market mix (i.e. the relative market shares of different 300,000 segments) broadly unchanged, which implies: 200,000 ✓ A resumption of modest growth in business tourism, after its decline and stagnation since 2014 amidst the 100,000 downturn in mining activity 0 ✓ Continuation of growth momentum in the VFR and 2018 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 “Other” segments that was building in the 4-5 years prior to COVID-19 71 2. High-volume scenario A focus predominantly on developing Mongolia’s mass tourism industry and attracting large volumes of Premise visitors, particularly from proximate regional source markets A mass tourism-oriented growth model would entail expansion of several key visitor segments: Growth segment description Key visitor source markets Relaxation, entertainment and gambling at resort complexes and tourism China, Russia, South Korea, Japan clusters to be developed throughout the country Land border tourism—large group-based tourism (i.e. via coach bus) at China (Inner Mongolia), Russia dedicated resort-style sites near Mongolia’s land borders MICE tourism, particularly large events/conferences and incentives travel China, Russia, South Korea, Southeast Asia Scenario assumptions: ▪ A nearly ten-fold increase in the mass tourism segment from 2019-2030 (from around 40,000 to 385,000 visitors), enabled in part by large expansion in airlift to large proximate Asian source markets (mainly South Korea and Japan) ▪ Induced additional demand for certain niche tourism segments (relative to business-as-usual scenario) as the large increase in visitors to Mongolia elevates international profile of the destination and attracts more repeat visitors 72 3. High-value scenario Exclusive focus on enabling the growth and diversification of products in niche market segments, and Premise attracting higher-spending visitor groups within those segments Scenario assumptions: • Significantly higher growth in niche leisure segments (+3% per annum) relative to business-as-usual scenario, capitalizing on rising post-COVID-19 demand for more remote and nature-based tourism experiences. • Development and rapid expansion of winter-time leisure tourism (+8% per annum relative to business-as-usual), to help increase consistency of income for tourism firms and employees throughout the year. • Increase of 20% in average daily spend of visitors of niche leisure segments, reflecting the diversification of product offerings (providing opportunities for visitors to spend more during their stays) and of more luxury-tier products. 73 Product development needs: high-volume (mass tourism) scenario ▪ The product vision for mass tourism revolves around the Water and ski resort complex near Khuvsgul Lake development of tourism clusters/complexes around the country, each drawing on the unique local assets Site name of the area to offer Chinggis Khan-themed complex in packaged and thematic Khentii province experiences. Cultural tourism complex in Khovd province ▪ The locations of these clusters/complexes have “13th century” historical heritage tourism park in Orkhon Valley Kharkorin area been identified with a view Border tourism complexes towards distributing visitors Free tourism zone in Gobi-Altai (targeting visitors from Inner Mongolia in China) more widely and boosting province for desert-themed tourism at Zamyn Uud and/or geographic inclusiveness of Dornod (Buir Lake) featuring casino resorts, tourism. Examples of Paleontological tourism park shopping, dining, horse clusters/complexes that (including dinosaur museum) in racing and camel polo Umnugobi province tracks have been envisaged in recent years (but not yet developed) are: 74 Product development needs: high-value (niche tourism) scenario Mongolia will need to build on its strong base of niche products to develop new offerings, particularly for winter-time tourism Niche segment Key products Current state of development Target source markets Widely offered Emerging but not widespread Yet to be developed Nature and adventure Cycling X All markets Trekking X All markets Mountain climbing X Europe, Americas, South Korea Hot air balloon X All markets Horseback riding X All markets Moto cross X Russia, South Korea, Japan, Europe Rafting X All markets Culture and history Nomadic camps X All markets Buddhism/Shamanism X Europe, Japan, South Korea Naadam X All markets Specialized festivals X All markets Gobi Marathon X Europe, Americas, South Korea, Japan Special interest Hunting X Americas, Europe, Russia Fishing (sport and ice) X All markets Paleontology, flora, X Europe, Japan ornithology Wildlife safari X All markets Winter Camel polo X Europe, Russia Dog sledding X Europe, Russia Ice festivals X Europe, Russia Hiking X All markets 75 Forecasts: Visitor market mix under the 3 scenarios Number of visitors (CAGR, %) Market shares (% of total visitors) 2030 2030 2030 Business- High- Business- High- Business- High- Market segment 2019 as-usual volume High-value as-usual volume High-value 2019 as-usual volume High-value Business (including MICE) 76,101 94,622 148,094 104,457 2.0 6.2 2.9 13.2 13.2 13.3 12.5 Border traders 42,883 53,320 53,320 53,320 2.0 2.0 2.0 7.4 7.4 4.8 6.4 MICE and other 33,218 41,302 94,775 51,138 2.0 10.0 4.0 5.8 5.8 8.5 6.1 VFR 207,850 258,435 258,435 258,435 2.0 2.0 2.0 36.0 36.0 23.3 30.9 Leisure 236,657 294,253 633,964 401,694 2.0 9.4 4.9 41.0 41.0 57.1 48.1 Niche tourism 195,283 242,810 265,254 350,250 2.0 2.8 5.5 33.8 33.8 23.9 41.9 Nature and adventure 72,425 90,052 100,253 123,872 2.0 3.0 5.0 12.5 12.5 9.0 14.8 Special interest 21,728 27,015 27,015 37,162 2.0 2.0 5.0 3.8 3.8 2.4 4.5 Culture and history (including festivals) 86,910 108,062 120,304 148,646 2.0 3.0 5.0 15.1 15.1 10.8 17.8 Winter 14,220 17,681 17,681 40,571 2.0 2.0 10.0 2.5 2.5 1.6 4.9 Mass tourism (resorts, shopping) 41,374 51,443 368,711 51,443 2.0 22.0 2.0 7.2 7.2 33.2 6.2 Other (sports, volon-tourism, transit, etc.) 56,692 70,489 70,489 70,489 2.0 2.0 2.0 9.8 9.8 6.3 8.4 TOTAL 577,300 717,800 1,110,984 835,076 2.0 6.1 3.4 100 100 100 100 Source market evolution 35% ▪ Mass tourism-led growth at a high-volume scenario 30% enables Mongolia to reach 1 million visitors by 2030 but relying almost exclusively on the proximate regional 25% markets (China, Russia, South Korea, Japan) for growth. 20% ▪ Under the high-value scenario, the visitor would be 15% noticeably more diversified, with greater shares of 10% visitors from longer-staying and high-spending long-haul 5% markets (e.g. Europe and Americas). 0% 2019 2030 (Business-as-usual) 2030 (High-volume) 2030 (High-value) China Japan South Korea Other Asia Russia Europe Americas Other 76 Forecasts: Economic impacts ▪ Despite a smaller number of visitors (~275,000 less than in high-volume scenario), the high-value scenario results in visitor base with a higher average spend and similar overall tourism revenue for Mongolia. ▪ This underscores that more visitors is not always better in terms of economic benefits, and that policy targets focused on the quantity of visitors can be misguided and/or counterproductive. 3,000 250 Evolution of tourism 2,500 200 spending 2,000 150 1,500 100 1,000 50 500 0 0 2019 2030 (Business-as-usual) 2030 (High-volume) 2030 (High-value) 77 Forecasts: Air transport requirements ▪ Across the 3 scenarios, the projected increase in visitor demand cannot be realized without significant expansion in airlift from multiple origin markets. ▪ In the high-volume scenario, an additional 620,000 inbound flight seats would be needed by 2030—a doubling of current capacity—with the largest requirements for flights seats from the two key source markets (South Korea and China) that would likely drive mass tourism to Mongolia. ▪ A flight seat capacity increase of this magnitude underscores the importance of liberalizing the aviation market and establishing service agreements with foreign airlines to supply the necessary seats. 600,000 # of seats 500,000 Annual number of 400,000 required inbound flight seats by origin 300,000 of departure* 200,000 100,000 0 China Japan South Korea Other Asia Russia Long-haul (Europe, *Calculated based on 80% flight load factor Americas, Pacific) 78 Forecasts: Accommodation capacity ▪ In the business-as-usual scenario, Mongolia can absorb the projected increase in visitors by 2030 with only minimal new accommodation investments (~1,000 rooms), mainly in the luxury and mid-range hotel category. ▪ In the high-value scenario, new accommodation capacity needs would be more substantial (~4,600 rooms), including in tourist ger camps to host the increased number of visitors in niche tourism segments engaging in cultural and nature-based activities outside of Ulaanbaatar. ▪ In the high-volume scenario, realization of the projected 1 million visitors by 2030 would not be possible without significant new accommodation investment (~8,500 rooms), particularly in the resort-style hotels (3-5 stars) that would be preferred by the mass tourism visitor segments driving growth in this scenario. ✓ Required investment would be on the order of 100 new properties (hotels and camps), with a total estimated investment value of US$974 million over the next 10 years. ✓ To put this in perspective, it would be double the US$483 million in total investment (domestic + FDI) in the accommodation and food services in Mongolia from 2010-19. On an annual basis ($US97 million per year), it would also be four times the investment rate achieved in recent years (average $26 million in 2017-2019). These figures likely underestimate the full magnitude of new accommodation requirements as they do not factor in expected growth in domestic tourism. Required additional rooms by 2030 (by Required new investment in category of accommodation) accommodations (cumulative 2020- Annual rate of capital investment in accommodations 2030), $US million and food services 5,000 4,744 4,500 Accommodation Business- High- High- 2020-2030 (high- 4,000 category as-usual value volume volume scenario) 3,281 Luxury hotel (4-5 2020-2030 (high- 3,500 112.5 315.0 720.0 star) value scenario) 3,000 Mid-range hotel 28.1 95.6 247.5 2020-2030 (business- 2,500 2,063 (2-3 star) as-usual scenario) 2,000 Guest houses, 1 2019 1,500 1,231 1,369 star/non-star 0.0 0.0 3.6 hotels and hostels 1,000 728 2018 316 330 Camps 0.0 13.8 3.3 500 0 0 106 0 Apartments 0.0 0.0 0.0 0 2017 2030 (Business-as-usual) 2030 (High-volume) 2030 (High-value) TOTAL 140.6 424.4 974.4 0 20 40 60 80 100 120 US$ million 79 79 Forecasts: Employment needs ▪ To staff the additional accommodations required, an additional 5,300 trained hospitality workers would be needed in the high-value scenario, and 12,300 in the high-volume scenario, including around 15% at the higher-skill supervisory and management level. ➢ Put in perspective, this would be equivalent to 18% and 42%, respectively, of the approximately 30,000 workers currently employed at hotels and tourist camps in Mongolia. Mongolia’s total labor force in 2020 was 1,422,500. ▪ Based on current ratios of tour guides and tour drivers to leisure visitors, as many as 1,800 additional tour guides and 2,700 tour drivers (in the high-volume scenario) would also be needed to keep up with visitor growth. Additional staff required at accommodations by 2030 Estimated tour guide and driver needs 14,000 2030 12,000 Business- High- High- 2019 as-usual volume value 10,000 Leisure visitors 236,657 294,253 633,964 401,694 8,000 Tour guides 1,063 1,322 2,848 1,804 Additional required 259 1,785 741 6,000 Tour drivers 1,622 2,017 4,345 2,753 4,000 Additional required 395 2,723 1,131 2,000 Guide-to-visitor ratio 0.004 0.004 0.004 0.004 0 Driver-to-visitor ratio 0.007 0.007 0.007 0.007 Business-as-usual scenario High-value scenario High-volume scenario 80 Key takeaways ▪ Targeting 1 million visitors or more by 2030 would entail the development from scenario of mass tourism: demand and ✓ The demand would come predominantly from the large proximate Asian source markets (China, South Korea, Japan) and require an supply analysis unprecedented increase in airlift to these markets that the current protectionist aviation policy does not allow. ✓ It would also reduce the diversification of the visitor base (and thus resilience to shocks in one of these source markets) and the average visitor spend, resulting in lower incremental economic benefits from tourism. ▪ In both a high-volume or high-value scenario, a significant expansion of high-end accommodation will be needed, particularly outside of Ulaanbaatar, to align with preferences of the visitor base: ✓ This would require the mobilization of private investment on a scale that has not been consistently achieved over the past decade. ▪ A supply response in accommodation and tourism services is contingent on attracting more trained workers, which could prove difficult unless the high seasonality of tourism is reduced: ✓ The development of winter and shoulder season tourism products is critical in this regard. 81 5. AN INVESTMENT & POLICY AGENDA FOR TOURISM DEVELOPMENT 82 Guiding principles for the investment and policy agenda 1. Overarching sector strategy: ▪ Clarify whether a niche or mass tourism model will be pursued; trying to do a little of both may help diversify the sector but also risks spreading resources too thin, and not facilitating either model in an efficient manner. ▪ Develop a clear plan for extending the tourism season, which would be beneficial under both a niche or mass tourism model 2. Key principles for public investments in service of tourism development: ▪ Be guided by the demand profile of tourism activity expected in specific destinations. ▪ Invest in enabling infrastructure that no single private actor can afford to: ✓ Improve the attractiveness of destinations for tourists. ✓ Enable or enhance the logistical viability of tourism products. ✓ Reduce systemic risks, entry barriers, and operating costs for potential investors. ▪ Protect and preserve natural, cultural, and historical assets. 3. Key principles for tourism sector governance and regulatory environment: ▪ Provide a transparent, fair and predictable regulatory and policy framework for investors. ▪ Help guide the tourism market towards a growth mix with greater and more equitable and sustainable economic impacts. 83 Strategic vision: tradeoffs between high-volume (mass tourism) and high-value (niche tourism) growth models Area/issue Mass tourism-led growth model Niche tourism-led growth model Economic returns ▪ Potentially greater geographic dispersion of tourism benefits due to strategic ▪ Larger flow of tourism benefits to nomadic and herder communities. location of new resort complexes. Pros ▪ Stronger potential links to local suppliers. ▪ Resort developments likely to also attract significant domestic tourists and thus keep more of the income currently spent on outbound travel in the economy. ▪ Risk of low linkages with local supply chain amidst high import content of ▪ Potential capture of benefits by select nomadic families and tour operators purchases by resorts. specializing in providing niche products. Cons ▪ High up-front investment cost of building resort-based tourism clusters; risk that these resort developments are disconnected from demand. Employment ▪ Greater number of job opportunities due to large resort sites, including during ▪ Higher-quality jobs, particularly those serving luxury niche visitor segments. Pros construction phase of resorts. ▪ High share of seasonal jobs, as resort tourism is unlikely to attract winter-time ▪ Lower volume of tourism job opportunities due to less visitors. visitors and contribute to the extension of Mongolia’s tourism season. Cons ▪ Job opportunities limited to resort site area. Environmental impacts ▪ Potential to limit environmental impacts to localized geographic areas, ▪ Lower number of visitors and pressures on tourism and assets and supporting service assuming proper planning and mitigation measures are undertaken. infrastructure. Pros ▪ Opportunities for contribution to conservation at natural, cultural, and historical tourism sites. ▪ Degradation of environment due to high visitor foot traffic and pollution. ▪ Risk of concentrating tourism activity in most environmentally-sensitive nature-based areas, or in remote areas where local infrastructure is not sufficiently developed. Cons ▪ Larger strain on local services infrastructure (electricity, water, waste). 84 84 Reducing seasonality ▪ There are various approaches to reducing seasonality that have been adopted by destinations worldwide Approach International examples Considerations for Mongolia Development of events • Brazil (e.g. Gramado) Expansion of festivals, events, and competitions holds • Munich, Germany (i.e. promise for Mongolia, particularly those linked to cultural Oktoberfest) heritage. Development of low-season • Iceland Apart from possibilities related to cold-weather activities, products • Alaska, United States greater urban tourism offerings in Ulaanbaatar have • Marrakech, Morocco potential. • Lofoten Islands, Norway Dynamic seasonal pricing (deep • Spain Consultations with local tour operators and discounts for off-season, higher • Croatia accommodation providers suggest that, at discounted prices for peak seasons) prices, it may not be worth operating during off-season. Development of indoor facilities • Vancouver, Canada Large scale facilities would likely need to be (e.g. museums) and attractions • Dubai, UAE concentrated in Ulaanbaatar until sufficient service infrastructure can be developed in other regions. ▪ For Mongolia’s niche tourism visitor segments, development of specialized winter tourism products (e.g. dog sledding) would play a key role in reducing seasonality ▪ For mass tourism visitor segments, themed resort clusters (particularly if they have indoor venues, including casinos) and expanded urban tourism attractions (e.g. museums) can become year-round attractions ▪ Events and festivals (cultural, religious, sports, etc.) can be customized to attract both types of segments and scheduled throughout the year to help distribute visitor demand 85 Public A list of investment projects was compiled in response to the development challenges identified in section 3 and based on consultations with tourism investments stakeholders. They are here evaluated and prioritized in a systematic manner: ▪ Each investment is scored on a scale of 1-4 (4=highest) across five benefit criteria and one cost criterion, which are then combined into a stylized return-on- investment (ROI) metric. Benefit criteria: 1. Relevance to attracting demand from mass tourism visitor segments. 2. Relevance to attracting demand from niche tourism visitor segments. 3. Role in mobilizing private investment in the types of accommodation needed to respond to visitor preferences. 4. Catalytic effect to incentivize and create opportunities for the private sector to develop tourism products tailored to targeted visitor segments. 5. Broader potential socio-economic benefits of the investment for local communities and non-tourism sectors. Cost criteria: Approximate relative costs (4=highest cost) compared to average of other investments on the long list. Return on investment (ROI) = combined benefit score/cost score. 86 Key investment area #1: Transport and accessibility Investment Benefit categories Total Overall “Return” on benefit cost and Investment Relevance Relevance Mobilizing Private investment Collateral benefits score (score) (ROI) to niche to mass Target Accommodation Attracted Improved Product Development tourism tourism segments segments 1. Upgrading of 3 3 (3) enabling a greater (2) some impact – improved (3) Improved 14 3 14/3= 4.7 domestic airport volume of domestic flights to flight access and frequency intra-country infrastructure tourism areas will strengthen to domestic destinations may access and travel demand and commercial enable more of these opportunities for viability of potential hotel destinations to be included local residents investments in tour packages, especially depending on for visitors on shorter stays flight supply response 2. Specialized tourist 3 1 (2) some impact—will (2) some impact – will (1) no impact 9 3 9/3= 3 trains and sections of increase demand for encourage packaging of expected trans-Mongolian accommodation in train local tours and products with railway transit towns the train journey 3. International airport 3 1 (3) by enabling international (2) some impact – increased (3) will provide 12 4 12/4= 3 in western region of flights directly into western visitors will stimulate some direct Mongolia (new region, will strengthen demand for additional tour international construction or demand for products, and enable shorter connections for conversion of existing) accommodation, itineraries that do not require local residents particularly for 3- 5-star hotels starting in Ulaanbaatar and facilitate outbound travel Note: Highest-priority investments based on ROI score are highlighted in orange. 87 Key investment area #2: Services infrastructure (basic and tourism-specific) Investment Benefit categories Total Overall “Return” benefit cost and on Relevance to Relevance Mobilizing Private investment Collateral benefits score (score) Investment niche tourism to mass (ROI) segments tourism Target Accommodation Attracted Improved Product Development segments Basic services 4. Sanitation facilities at tourist sites 4 2 (3) improved waste management (1) no impact expected on new product (3) improved sanitation and 13 2 13/2= 6.5 and protected areas will reduce the cost of hotel development, but may improve visitor experiences waste management for local operations for existing products residents 5. Heating infrastructure (i.e. power 4 1 (3) will lower entry costs for hotels (4) critical to enabling winter tourism product (3) improved access to 15 3 15/3=5 stations and distribution networks) in winter tourism areas and visitors to be hosted in comfortable conditions; will heating for local residents at winter tourism sites encourage expansion of winter- help increase demand for winter products resilient accommodation (i.e. hotels rather than camps) Tourism-specific infrastructure 6. Service infrastructure at 1 4 (3) will increase appeal of the (4) will serve as anchor investment, creating a (2) potential use as events 14 3 14/3= 4.7 resort/casino cluster areas destination and contribute to focus and incentive for additional tour products and entertainment space for demand for mid-range based around the resorts residents accommodation 7. Conference and convention 2 4 (3) will increase demand for (2) some impact – increased visitors will stimulate (2) potential use as events 13 2 13/2=6.5 centers business hotels at a range of price demand for additional tour products and entertainment space and points community center for residents 8. Specialized infrastructure and 4 2 (1) no impact expected (3) will unlock opportunities for additional nature- (3) will help with the 13 1 13/1=13 facilities in nature-based sites (e.g. based products, particularly adventure management and national parks) experiences that require specific facilities and preservation of protected safety infrastructure 9. Dedicated festival venues and 4 2 (2) some impact in increasing (2) some impact—will improve visitor experience (2) potential use as events 12 2 12/2=6 facilities demand for accommodation at and help with monetization of festivals (e.g. via space and cultural center for festival sites opportunities for concession stands, memorabilia residents shops, etc.) 10. Improved signage (with 3 3 (1) no impact expected (2) some impact—will help improve visitor (1) no impact expected 10 1 10/1=10 interpretation) and visitor facilities experience and demand for repeat visits at key tourist sites and along transit 88 routes (i.e. rest/service areas) Key investment area #3: Tourism human resources Investment Benefit categories Total Overall “Return” on benefit cost and Investment Relevance to Relevance Mobilizing Private investment Collateral benefits score (score) (ROI) niche tourism to mass segments tourism Target Accommodation Attracted Improved Product Development segments 11. Vocational training centers 4 4 (3) increased access to qualified (3) increased access to qualified (2) limited impact 15 2 15/2= 7.5 (incl. for digital and language staff will improve service quality and staff will improve service quality and expected beyond skills) returns for hotels returns for tour operators tourism-related staff, although language and digital skills may help trainees with jobs in other sectors Note: Highest-priority investments based on ROI score are highlighted in orange. 89 Policy and regulatory measures A. “No-regret” measures irrespective of preferred tourism development model AREA/CONSTRAINT RECOMMENDED REFORM OR ACTION DIFFICULTY TIMEFRAME IMPACT RESPONSIBILITY 1. Air access ▪ Remove of code-sharing requirement with MIAT for foreign airlines and establish open skies agreements. Low Short High Ministry of Transport ▪ Develop and adopt of new civil aviation policy centered on better access, quality and price competition and aligned Medium Medium Medium Civil Aviation with the tourism policy and economic and export diversification aspirations. This should include a review of the rules and Authority, MET regulations regarding the operation of smaller planes with a view to develop the air transport market for small aircraft, or air taxis/bush planes in sync with planned regional airport development. ▪ Streamline and digitize visa process (e-visa) for all nationalities to reduce time and transaction costs. Low Short Medium Ministry of Foreign Affairs 2. Labor and skills ▪ Introduce protection schemes for seasonal tourism workers, including some eligibility for social security benefits. A High Medium High Ministry of Labor and possible mechanism is a Tourism Employee Fund financed by earmarking a share of the VAT on tourism enterprises. Such Social Protection earmarked funding could be part of the broader Tourism Support Fund currently under consideration by the GoM. 3. Marketing ▪ Strengthen coordination and consistency of marketing effort between the public and private sectors, targeted at high- Low Short Medium MET, Hotel and potential visitor segments; centralized marketing support by government has an especially important catalytic in Tourism Associations underdeveloped tourism sites in Mongolia where there are no private “anchor” investors to carry the marketing costs. 4. Tourism planning ▪ Improve quality and consistency of tourism statistics, including developing a Tourism Satellite Account (TSA); this is Medium Medium Medium MET, National Statistics and governance important not only for understanding and monitoring demand and economic impact trends in the sector, but also for Office prospective investors seeking to evaluate the market; some key data gaps to be addressed include domestic tourism activity, international visitor surveys, and hotel occupancy rates. ▪ Adopt a clear land use and zoning policy for protected areas and other sites of historical or cultural significance that Medium Medium Medium Ministry of encourages good governance and a transparent review and inspection process before permits are issued for Construction and construction and development. Urban Planning, MET ▪ Adopt strategically-guided (i.e. not ad-hoc) sector quality standards (e.g. for hotels, tour guides, transport providers) and Medium Medium Medium MET accreditations to help inform consumer choice, incentivize continuous quality upgrading, and support sustainable destination development (e.g. GSTC standards). 5. Fiscal and ▪ Earmark a proportion of the tax income generated by the tourism sector for redistribution from the capital/center to the High Medium High Ministry of Finance investment policy aimags/regions where tourism services are consumed with the aim to strengthen local governance and incentivize continuous improvement in aimag-level facilities. 90 Policy and regulatory measures (continued) B. Measures specific to mass tourism model AREA/CONSTRAINT RECOMMENDED REFORM OR ACTION DIFFICULTY TIMEFRAME IMPACT RESPONSIBILITY 6. Visa policy ▪ Consider removal of tourism visa requirements for key source markets; introduce year- Low Short Medium Ministry of round short-term travel permits for non-passport holders from Inner Mongolia (China) to Foreign Affairs facilitate land border tourism. 7. Planning and investment ▪ Develop PPP/concession frameworks for development of resort tourism clusters, including Medium Medium Medium MET policy potential tax and investment incentives. C. Measures specific to niche tourism model AREA/CONSTRAINT RECOMMENDED REFORM OR ACTION DIFFICULTY TIMEFRAME IMPACT RESPONSIBILITY 8. Marketing ▪ Improve public-private coordination in organizing and funding national festivals and Low Medium Medium MET events (academic, cultural, cinema, literature, music, and sports) to attract niche tourism travelers and build up product offerings during winter and shoulder seasons. 9. Sector planning ▪ Develop visitor management plans at tourism sites with at-risk environmental, historical, or Low Short Medium MET cultural assets to reduce pressures from visitor foot traffic and facilitate asset preservation. 91 Mongolia has a UNIQUE value proposition to tourists 92 References Amadeus (2020), Digital Transformation for Destinations: Mongolia, Compiled by World Bank (2012), Mongolia: Economic Contribution of Mongolia’s Tourism Markets, Amadeus for Destinations and Travel Audience, May 2020. Discussion Paper Bayarsaikhan, Dulguun (2019), Tourism under a Magnifying Glass, mimeo. World Bank (2018), Mongolia - Systematic Country Diagnostic (English). Washington, D.C. : World Bank Group. Government of Mongolia (2019), Resolution of the Mongolian Government, http://documents.worldbank.org/curated/en/576101543874150141/Mongolia-Systematic- Number 333, Translation from Mongolian, August 21, 2019. Country-Diagnostic. 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World Bank Group (2020), Towards Sustainable Management of Natural and Built Capital for a Greener, Diversified, and Resilient Economy, Policy Note for Mongolia, June 2020. UNWTO (2020), Compendium of Tourism Statistics Dataset: Mongolia. World Bank Group (2020), Institutional and Structural Reforms for a Stronger and More World Economic Forum (2019), The Travel & Tourism Competitiveness Report 2019: Inclusive Recovery, Policy Note for Mongolia, June 2020. Travel and Tourism at a Tipping Point, Insight Report. World Bank (2020), Mongolia InfraSAP: Infrastructure for Connectivity and Economic WTO (2021), Trade Policy Review: Report by the Secretariat: Mongolia, Diversification. WT/TPR/S/406, Restricted, January 20, 2021 World Bank (2020), The COVID-19 Business Pulse Survey Mongolia: Firms, Entrepreneurship, and Innovation Global Team, September 2020. 93 People consulted for this work between October 2020 and May 2021 Mr Aldarkhishig Sukhee (Mongol Expeditions and Tours) Mr Od Jambaljamts (MCS Group) Mr Ron Oren (Mongolian Ways) Mr Altanbagana Deleg (Active Adventure Tours) Mr Gantulga Ganbat (HorecaSoft) Ms Sodgerel Badarch (White House) Ms Ariunchimeg Khasbagana (A-Star Mongolia) Mr Gereltuv Dashdoorov (Mongolia Quest) Mr Soyol-Erdene Tsegmid (MAX Group) Mr Baatarsaikhan Tsagaach (Tavan Bogd Group) Mr Helge Reitz (Nomads Tours and Expeditions) Ms Soyolmaa Jigjidsuren (Step In Mongolia) Mr Barsbold Baatarsuren (Discover Mongolia Travel) Mr Jan Wigsten (360° Mongolia) Ms Tsomorlig Erdenechuluun (Ayalliin Anduud) Mr Batbayar Amgalanbayar (Mongolia Trekking) Mr Ishbaljir Battulga (Mongol Khan Expeditions) Mr Tulga Otgonbaatar (Nomadic Trails) Mr Batbayar Gurragchaa (Mongolian Civil Aviation Authority) Mr Keith Swenson (Stone Horse Expeditions) Mr Tuyen Nguyen (former IFC Resident Representative) Ms Bayasgalan Jigmeddorj (Oyuny Undraa Group) Ms Khaliun Chuluunbaatar (UB City) Mr Ulziibold Yadamsuren (MIAT Mongolian Airlines) Ms Bayasgalan Saranjav (Ministry of Environment and Tourism) Mr Maanii Nyam-Osor (Flower Hotel) Mr Ulziiburen Sharaa (Diplomat Hotel) Ms Buyanbadrakh Choibalsan (Mongol Guide Center) Mr Munkhbat Batbekh (Mongolian Professional Tour Guides Assoc.) Ms Undraa Buyannemekh (Nomadic Expeditions) Mr Dirk Bansemer (Kempinski Khaan Palace) Mr Munkhjargal Narmandakh (Aero Mongolia) Ms Uranchimeg Bumtsetseg (Hotel Nine) Mr Enkh-Amgalan Natsagdorj (Puma Imperial Hotel) Mr Munkhjargal Purevjal (Hunnu Air) Ms Uuriintuya Dorjpalam (Stepphenfuchs Reisen) Mr Enkhbat Navaantseden (New Ulaanbaatar Int. Airport) Mr Naranbat Nasanbat (Mongolian Aircraft Industries) Mr Victor Ng (Shangri-La Hotel Ulaanbaatar) Mr Enkhbat Usukhjargal (International Air Transportation Assoc.) Ms Narantsetseg Delgersuren (New Juulchin Tours) Ms Vina Tay (Shangri-La Hotel Ulaanbaatar) Ms Enkhzaya Jamsran (Chinggis Khaan Complex) Ms Navchaa Myagmarjav (Tsolmon Travel) Mr Zagdsumber Tumurbaatar (Korean Air) Mr Ganbat Sainbuyan (Oyuny Undraa Group) Ms Ninjin Giliyased (Iris Tours) Mr Zolbadral Batmunkh (iHotel). Mr Gantemur Damba (Mongolia Tourism Association) Ms Nyamsuren Geserbadam (Premium Travel) 94