/

COVID19: Missing pieces to solving tourism puzzle

3399 views
3 mins read

Those who deal directly with the tourist industry worldwide have a very difficult job and many dilemmas to try and resolve.

Deputy Minister of Tourism Savvas Perdios said he expects (if the virus “goes away” over the next 2-3 months) that tourist arrivals will be reduced from last year’s record of 4 mln to ‘at best’ 2.4 mln foreign visitors.

The direct hit will primarily be borne by the hotels, as well as restaurant businesses, and of course, all the others who rely on tourism, including the agricultural farmers, distributors and retailers, and further down the line to our own industry, real estate.

The easy part for the hotels is to apply to the government for grants to cover some of their losses, including the payment of salaries for non-working staff.

But that begs the question, who is this ‘generous’ government in the first place, if not all of us, the taxpayers.

Where is the government going to find this huge amount for compensation to be paid to all sectors and all workers?

Although the government can secure loans from the EU and issue bonds, these must be paid back at some point, which means, in addition to the possible increase in taxation (which is the main attraction of our tax system for local and foreign businesses), we may also have the Russian government threatening to cancel our double taxation agreement.

We may be able to replace hotel income to the extent possible, using the local market as part of a heavily subsidised internal tourism effort, but will employees and businesses have enough money to pay for summer holidays?

I have suggested putting a cap on the foreign visitors to be shared 60% for the beach hotels and 40% for the mountain resorts, to boost the latter sector.

Unlike other countries, such as in Europe where tourists can drive from one country to another, our only means of transport is by air.

Yet even these airlines are running into trouble and one after the other airlines are going bust, with many more following this route.

So, let’s come to various dilemmas:

  • When any business that lets its staff go, will the staff be there when the business comes back to some sort of normal levels? This applies especially to the tourist industry where in any case we continued to have a problem with staff, even during the good year of 2019.
  • Hoteliers suggested that the pre-paid reservation fees (some of which are used to extend/upgrade the hotels) should be discounted for future bookings. But then, will the hoteliers have the cash to absorb the discount? Others suggest that these reservation fees should be guaranteed by the government towards a refund. Say we have only one hotelier having obtained a loan for €15 mln, with others as a rough estimate seeking a total €80 mln, why should the rest of us pay for this facility?

For those who want government-guaranteed loans, they should mortgage their properties. But this will be a huge problem for the government because it does not want to be burdened with the property if the hotelier does not repay the loan.

  • Then we come to the serious dilemma of the virus itself. If a hotel or restaurant gets infected by the virus (not due to lack of precautionary measures), will the establishments not be liable for compensation? The answer is to get suitable insurance, but then what insurance company will provide cover of, say, €100 mln for damages or compensation demands.  At present, there is no insurance company that can undertake this risk, as one of many reasons why hoteliers will not operate this year is the fear of these compensation payments – even if the tourist has the virus prior to their Cyprus visit, creating opportunities for all sorts of scams.
  • At the end of the day, we must also bear in mind the situation at the banks regarding their non-performing loans (NPLs) which will definitely increase, whereas the much-expected sale of bad loans to foreign investment companies will simply not go ahead. The situation brings us face to face with the disastrous bail-in of 2013, and more recently the near-miss with the Co-op bank.

On a lighter note, where does one keep their money safe? I wonder if it is time to reconsider the construction of safe boxes, duly secured and insured and with a separate ownership title.

A far-fetched idea, you may say, but the facts of life are there.

Sending one’s deposits abroad may be an option, but can those foreign banks also provide protection and sustainability of your deposits?

 

www.aloizou.com.cy

[email protected]