TOURISM SECTOR “Possibilities are limitless. Investors and tourists have many options to explore in this amazing country. Its, culture, sports, nature, fairs and carnivals, its history, its beaches, cities and adventures; Colombia is an amazing country waiting to be discovered.” Jean Claude Besudo, President of Aviatur.
Economic Overview Colombia is becoming one of the most important destinations for tourism in Latin America. According to the World Travel & Tourism Council (WTTC), real demand for trips and tourism in Colombia is expected to increase from US$ 9,800 million to US$ 14,300 million during 20061 2015, a real growth of 4.5% per year , greater than the growth rate of 4.1% expected for Latin 2 America . The tourism sector currently accounts for 2.2% of total GDP in Colombia (US$ 2,700 million) , contributes 11.2% of total capital investments worth US$ 1,800 million, and generates 380,000 direct jobs, equivalent to 2.2% of total employment in the country. By 2015, the Colombian gross production of tourism sector is expected to reach US$ 6,600 million, reflecting a 9% growth. A US$ 5,500 million capital investment is also expected for this year, with a generation of 540,000 direct jobs; equivalent to an employment growth of 3.5% per year. By 2020, the number of tourists worldwide is expected to reach a total of 1.56 billion. The region including North, Central and South America will account for 282 million of tourists, equivalent to 4 18.1% of the global market.
Significance of the sector The increase in the number of foreign tourists arriving in Colombia (12.6%) is well above the worldwide growth rate estimated by the OMT (4.6%) for 2006. Colombia is thus becoming one of the most important tourist destinations in Latin America, both in terms of visitors and investment. Proof of this is the large number of articles highlighting Colombia as a yet-to-be discovered tourist destination in important publications such as Lonely Planet, the New York Times and The Guardian, among others. Various Colombian destinations have been featured in international publications such as Travel, Dream World Cruise Destinations; Viajeros from Spain and Gastronómica from Mexico. ESPN television network came to Colombia to film its Sport Travel show, and visited San Andrés, Cartagena and Santa Marta, focusing mainly on extreme sports destination offerings.
This amount includes tourism spending both by local residents and international travellers, as well as business travel, public spending in the sector and capital investment. 2 WTTC: inflation-adjusted real annual growth 2006-2015. 3 Ministry of Commerce, Industry and Tourism, tourist information system. Bulletin January, 2006. 4 WTO: tourism vision 2020
Additionally, the progress of the country in terms of security and the growth in tourism is highly noteworthy. Security has become a priority for the country since 2002, and has displayed highly positive results since the implementation in 2003 of the Democratic Security policy. These results have translated into a higher level of international confidence in the country. According to the publication travelbute.co.uk from the United Kingdom, the increases in terms of security and tourism are mainly thanks to the improvement of the country’s infrastructure. On the other hand, Colombia offers special features that make it a good potential destination for investment, particularly in terms of the incentives being offered to investors in the sector. Special Incentives for Investors: A 30-year income tax exemption for the construction of new hotels and the remodelling or 5 expansion of existing ones . This is the longest tax exemption offered by Colombian law. The legal stability law, whereby the government makes a commitment with investors to 6 maintain a stable legal environment . A 20-year income tax exemption for eco-tourism service projects . Currently work is being done to develop free trade zones for tourism, which would have a minimum area of 50 hectares and would be aimed to promoting and developing tourism services. This project includes marinas, sports docks and ports for cruise ships despite they don’t have the established minimum area. Differential VAT rate of 7% for lodging services . VAT exemption for air tickets and tourist packages . Income tax deduction of 30% on investments made in real productive fixed assets . Attractive financing programs: Financiera de Desarrollo Territorial S.A. (Findeter) offers credit lines with preferential rates for investment in tourism projects.
10 9 8 7
Industry overview Between January and December of 2006, 1,050,569 foreign travellers entered the country. It reflected a 12.5% increase compared to the same time period in 2005, equivalent to 117,325 more foreign visitors. This is the fourth consecutive year of growth between 2002 and 2006. The current growth trend shown in the next graph is expected to continue into 2007.
Law 788 of 2002. Law 963 ofl 2005. 7 Ibid. 8 Law 788 of 2002. 9 Art. 33 Law 633 of 2000 10 Art. 158-3 Law 863 of 2003
Arrival of foreigners to Colombia Number of travellers 2002 - 2006
10,3% 1.100.000 900.000 700.000 500.000 300.000 100.000 2002 2003 2004 2005 2006* 26,6% 18,0% 12,5%
0,001 1E-11 1E-19 1E-27 1E-35 1E-43 1E-51 1E-59 1E-67 1E-75 1E-83 1E-91 1E-99
*Preliminary data Source: DAS
Colombia has an important tourist potential that has not yet been fully explored, as shown in the number of visitors compared to other countries in the region. For example, Mexico and Costa Rica, both well-travelled destinations for international tourists, posted decreases in 2006 in the number of arrivals of 2.8 % and 2.0%, respectively, compared to the previous year. Ecuador also suffered a 2.2% decrease in the number of tourists, whereas Colombia posted growth of 12.5% in the same time period. Number of tourists arrived to Latin American countries (2006) (thousands of tourists) 21.300
5.000 4.000 3.000 2.000 1.000 0 Mex CR Mex
Source: DAS, OMT.
1.645 1.050 841 718
Per CR Per
Ecu Ecu Pan
In the case of cruises, in 2006 a total of 52 cruise ships touched port in Colombia with 50,031 passengers, equivalent to growth of 16% compared to the previous year. The renewal of visits from cruise ships to Colombia is also a good new for the national tourism 11 industry. Royal Caribbean, the world’s most modern and second-largest cruise line” , arrived in Cartagena on April 18th, after six years of absence. It was the first of 36 ships scheduled by the cruise line for the season 2007-2008. According to estimates, this first ship generated income
El Tiempo, “Cruises to Cartagena left 14 million dollars in the 2007-2008 season” April 17,l 2007
worth 385,000 dollars, and income is expected to be three times higher this season than in 2005-2006. Arrival of cruise ships to Colombia Number of ships 2002- 2006
Number of passengers 2002 - 2006 (Thousands)
59 52 45
80 60 42,6 40 20 49,3 48,2 50
0 2002 2003 2004 2005 2006
0 2002 2003 2004 2005 2006
Source: SPRC, SPSM, Port master San Andrés Isla
Includes: Cartagena, Santa Marta and San Andrés
During the first four months of 2007, 30 ships with 35,022 passengers arrived in Cartagena. For the next season of August 2007 – April 2008, some 108 cruise ships with an estimated number of 182,658 passengers, not including the crew, are expected to arrive at this port, according to the shipping schedule of the Cartagena Port society, updated as of May 1st this year. In the case of San Andrés, the General Maritime Department reported that during the first four months of 2007, 2 ships have arrived at the port with 1,292 passengers. During the same period, Santa Marta reported the arrival of 7 ships with a total of 8,802 passengers. This reflects a substantial change, considering that this port normally receives between two and three ships per year, and that during January-April 2006 no arrivals were reported. Colombia, a Country with High Tourism Potential The country’s insufficient hotel infrastructure offers a good opportunity for foreign investment. The country will require new investment projects to meet growing demand that is developing thanks to the country’s improved image, which is beginning to generate a large inflow of foreign visitors. The sector has been rated as having a High Impact in terms of the four variables considered during a sector segmentation exercise: 1. Market size: production of USD 274 million (2003) and sales of USD 346 million (2004). 2. Employment: over 19,000 jobs 3. Exporting capacity and orientation: exports of US$ 1,550 million due to travel and US$ 455 million for land transport of passengers (2006). 4. Added value: the sector generates a high level of added value according to interviews held with trade association and business leaders. Infrastructure In terms of the infrastructure required for tourist industry, the country is well positioned compared to other countries in the region.
The country currently has 10 airports which service international flights. A concession was recently granted for the upgrade and expansion of El Dorado airport, which would make it the most important airport in the region for passenger and cargo transportation. In the JanuaryMarch 2007 time period, 355.523 arrivals of international passengers were reported at the airport in Bogotá. International passenger arrivals during the first quarter of the year increased 15%; or 46,750 passengers more than the same period of the previous year. Airlines such as Aerolíneas Argentinas, Air Canada, Air France, Air Madrid, American Airlines, Continental, Copa, Cubana, Delta Airlines, Iberia, Grupo Taca-Lacsa, Lanchile, Lan Peru, Mexicana de Aviación, Servivensa, Lloyd Aéreo Boliviano and Aeropostal, help shorten distances by providing direct flights between Europe or North America and Colombia; which also, because of its strategic location, is a perfect connection with the rest of the Americas. Additionally, Colombia has become a destination for business travellers, as an ideal location to host congresses and international events. Spacious convention centres are strategically located in the most important cities and are equipped with leading-edge technology. The current promotion strategy for this sector calls for attracting a total of 192,287 visitors in 2008 directly 12 facilitated by Proexport Hotel Occupancy Rates According to data from the Colombian Hotels Association – Cotelco, average occupancy rates in Colombia have increased by 13 percentage points between 2002 and 2006. Bogotá, Cartagena, Norte de Santander and Antioquia reported occupancy rates higher than the national average, according to consolidated data for the year up to December 2006. Hotel Occupancy Rates in Colombia (%) 2002 – 2006
60% 55% 50% 45% 40% 35% 30% 2002
* Preliminary data Source: COTELCO
54,1% 49,1% 43,4% 50,2%
Investment in Tourism Between 2003 and 2006, the tax breaks offered through Law 788 of 2002, which provides an income tax exemption on services provided by new or remodelled hotels, has promoted investments of US$ 31.8 million for the construction of new 2,485 rooms. It has also promoted the remodelling of 4,877 with investment of $53.2 million dollars. New construction and remodelling resulted in 7,362 rooms with total investments worth 85 million dollars, in 25 departments throughout the country, led by San Andrés, Bogotá, Antioquia, Atlántico and Quindío.
This target may be modified.
During 2006, the tax exemption produced investments in this sector of US$46.8 million, aimed at the construction or remodelling of 4,037 hotel rooms located in different regions throughout the country. Of this total, $13.2 million dollars were invested in building 1,433 new hotel rooms, and US$ 33.5 million on remodelling of 2,604 rooms Investment in Hotels* Investment 2004- 2006 (Thousands of Dollars)
Number of Rooms which benefited 2004- 2006
4000 3000 2000 1000 0
0 2004 2005 2006
Source: Ministry of Commerce, Industry and Tourism – DITUR
*Information of investment in new or remodelled hotels which were benefited from Law 788 of 2002 and the 2755 decree of 2003.
Success Stories “As one of the largest groups in this business worldwide, we can knowingly state that Colombia is a country with huge tourism potential” Patrick Vaysee, President of Accor Colombia. “I believe that with this new outlook on demand, Law 788 will help to develop the sector, because investors sense it is a good opportunity to place their money in this business”. Carlos Márquez, Marketing Manager at Hoteles Royal “The change in franchise of one of the country’s most renowned hotels is a show of confidence in the new possibilities that will continue to drive the hotel business”. Jaime Alberto Cabal, President of Cotelco.
Existing Investors in the sector In the last year several hotel companies have shown their confidence in the country:
The country’s first condo-hotel is being built in Cartagena by the Royal-Radisson hotel chain, with an approximate investment of US$ 32.6 million The Hilton group returns to Bogotá after 17 years of absence with a new hotel, which will require investments of US$ 27 million. There are also other projects in the works from Decamerón, Las Américas, and Royal and Dann hotels. Two Marriott hotels will open doors in Bogota on 2009. The first one will be a JW Marriot with nearly 250 rooms; the second one closed to El Dorado airport, will offer 250 rooms to the executive travellers that come to this city. A tourism free trade zone is being developed in Valle del Cauca, a project with an estimated cost of US$ 150 million, with participation from a Canadian construction firm. One of its attractions will be the largest water park in Latin America. Cartagena is planning the renewal of the Getsemaní sector, which will cost US$ 100 million. The Howard Johnson international hotel chain opened an office in Colombia to manage the hotel chain’s businesses in the country. The office will also receive and offer hotel 13 franchises . An expansion plan that includes opening of two hotels in Colombia was announced by the Real Hotels & Resorts of Grupo Poma. The expansion plan is scheduled to be performed over the next two years. Pedro Agullo Miralles, an investor from Spain, formed the company Cartagena Internacional in Colombia to develop hotel projects in the country. A 94% stake of the company is owned by this foreign investor and the remaining 6% is owned by members of the Brigard & Urrutia 14 Asociados law firm . Intercontinental Hotels Group (IHG) will sign a franchise agreement with Grupo Suites for a new Holiday Inn in Medellín. This hotel will be IHG’s fourth hotel in Colombia and the second one in Medellín. IHG has been present in this city for 37 years with its
www.lanota.com, February 17, 2005. Ibid, June 9, 2006.
Intercontinental Medellín. The Holiday Inn-La Strada hotel will be located in El Poblado, will be 19 storeys high and will offer 90 rooms. It will be connected to La Strada, a real estate 15 project that will include residences, retailing and restaurants .
www.lanota.com, September 14, 2006