Mechanisms for Attracting Investment in the Infrastructure of Resort

Regions

Natalya A. Berezina

V.I. Vernadsky Crimean Federal University, Prospekt Akademika Vernadskogo 4, Simferopol, Russia

Keywords: Investments, Infrastructure, Concession Agreements, Resort Regions.

Abstract: Over the past 10 years, the tourism and recreation industry has grown at a rate exceeding the growth rate of

the world economy. The Russian Federation has the potential for the development of almost all types of

tourism and the prospects for increasing tourist flows due to the reorientation of outbound tourism to domestic.

However, it is hindered by the tourist infrastructure underdevelopment. The purpose of the work is to study

the features and advantages of the public-private partnership in the form of concessions to intensify the

investment process in the tourism industry. This paper analyzes the successful experience of this mechanism

in other countries, and also provides an overview of the current and forthcoming concession agreements in

the field of tourism in the Russian Federation. The main features of concession agreements, which ensure the

attractiveness of this mechanism for both the state and the private investor are studied. The most suitable

factors for tourism and recreation are considered.

1 INTRODUCTION

The sphere of tourism and recreation is one of the

most dynamically developing sectors of the modern

economy. The growth rate of the tourism industry has

outstripped the global average growth rate of GDP

over the past decade. The total contributions of

tourism to global GDP, including the indirect effect

on related industries, are estimated at 9.3% - 10.9%

(Statista, 2020). Even despite the losses due to the

Covid pandemic, it is expected that by the end of 2021

it will still be one of the top ten global industries and

generate more than one and a half-trillion dollars in

revenue (Ibisworld, 2020).

At the same time, the recreation and tourism

sphere is not only important in terms of economics.

It also plays a significant social role (Tkhamitlokova

Yu.O., 2016). Tourism contributes to the realization

of people's needs for rest, new impressions, personal

and physical development, health improvement

(Trofimov, E.N., Moshnyaga, Seselkin, A.I.,

Novikov V.S., Rassokhina, T.V., Sarancha, M.A.,

Kruzhalin, V.I., Shabalina, N.V., Gulyaev, V.G.,

Laguseva, N.N., Pisarevskaya, O.I., Kalnei, V.A.,

2014).

https://orcid.org/0000-0002-2702-5019

The Russian Federation has a unique potential for

the development of almost all areas of tourism.

However, the existence of a potential is not yet a

guarantee of successful development, but rather raises

the question of finding and implementing new

effective modern forms of cooperation between

various participants in the process in the

implementation of ambitious tasks (Dudin,

Burkaltseva, Tsohla, Voronin, Yanovskaya & Guk,

2017). Currently, the contribution of tourism to the

Russian Federation GDP is only 4.8% (Knoema,

2020). To a certain extent, it is related to the high

share of outbound tourism. Almost 7 million

Russians visited Turkey alone in 2019 (Association

of Tour Operators, 2020), which is comparable to the

tourist flow throughout the Crimea for the same year.

One of the key factors, determining this state of

affairs is the lack of modern, high-quality

infrastructure in Russia. Intensification of

investments in the field of recreation and tourism is a

priority task of the state. One of the targets of the

Strategy for tourism development in Russia for the

period up to 2035 (Government of the Russian

Federation, 2019) is to triple investment in tourism by

2035 compared to the level of 2017. This, in turn,

sets a task for the state to find effective mechanisms

178

Berezina, N.

Mechanisms for Attracting Investment in the Infrastructure of Resort Regions.

DOI: 10.5220/0010587901780185

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 178-185

ISBN: 978-989-758-519-7

for attracting private investment to the industry. One

of such promising mechanisms can be public-private

partnership and, in particular, concessions. The

world experience clearly shows that the thoughtful

application of this mechanism can lead not only to

accelerated, but also to breakthrough development of

tourism and entire regions.

2 MATERIALS AND

METHODOLOGY

The study used global analytical and reference data,

data from the Russian platform for supporting

infrastructure projects "Rosinfra", conducted studies

of legislative materials. The works of Russian and

foreign scientists, dealing with tourism, investments,

public-private partnerships, including Internet

resources, were studied. When studying these

materials, analyzing the processes taking place in

tourism, and forming conclusions, a number of

methods were used: observation, comparison,

economic and statistical analysis, systemic and

integrated approaches. The methodology of the

systems approach made it possible to highlight the

key tasks, the solution of which will allow to achieve

the target indicators of tourism development. The

selection of analysis data, formal procedures, a

consistent and logical interpretation of detected

patterns, and the results contributed to the formation

of information content and to ensure the validity of

conclusions. To analyze the foreign experience in the

application of concession agreements, information

materials of the International Finance Corporation,

data from the American National Park Service were

studied, a number of projects implemented through

concessions were selected. Diagrams and tables

were used for visualized, aggregated, and holistic data

presentation. When determining the prospects for the

development of domestic tourism, as well as the

development of author's recommendations, an

integrated approach was used.

3 RESULTS

The need to intensify investment in the recreation and

tourism sphere, declared by the state in the Strategy

for tourism development, becomes even more urgent

in the context of events, occurring on the world stage.

The latest decade has been marked by complex

political and social processes, which in many respects

have significantly reduced the level of stability,

security and comfort in many countries. All these

factors steadily increase the attractiveness of

recreation within the country for many Russians. In

the context of the 2020-2021 Covid pandemic, which

was accompanied by the closure of borders, travel

inside the country remained the only guaranteed

opportunity for our fellow citizens to exercise their

right to rest. At the same time, attempts to switch

outbound tourism to domestic tourism can only be

successful if the growing domestic tourist flow is

linked to the industry's willingness to provide a

modern, high-quality and affordable product.

Figure 1 shows the target indicators for the

development of the main directions of tourism, set in

the Strategy for tourism development for the period

up to 2035 (Government of the Russian Federation,

2019). Goal-setting in each of these areas is

associated with ambitious plans to modernize existing

or build new infrastructure, its weak development,

according to some researchers, is holding back the

growth of tourism in the Russian Federation (Center

for Social and Economic Research, 2020). But a

fundamental change in the current situation and a

rapid renewal of infrastructure are impossible without

increasing the investment attractiveness of the

industry. This is a large-scale and long-term task, the

achievement of which, in addition to economic

measures, requires the consolidation of a wide variety

of interdisciplinary efforts. In particular, such as

establishment of:

 A complex of infrastructure auxiliary in

relation to the tourism facilities - at least

transport and communal;

 Industry-wide training system to ensure the

quality of the services and effective

management of the tourist facilities;

 Recognizable travel brands, development of

marketing programs, both at the meso-level of

regions and clusters, and at the level of

individual products;

 A unified system of quality standards and

management of the tourism sector. At the same

time, these efforts should be accompanied by

the adoption of economic measures to stimulate

investment activity in the recreation and

tourism sphere.

Mechanisms for Attracting Investment in the Infrastructure of Resort Regions

179

Figure 1: The main directions and indicators of tourism development for the period up to 2035.

The researchers identify the following measures such

as:

 active use of the mechanism of public-private

partnership in the form of concession

agreements (da Costa and Ribeiro, 2019;

Moioli, Boniotti, Konsta and Pili, 2018;

Karanatova, Khodachek and Kulev, 2017)

 creation of tourist clusters and investment

management at the meso-level (Karanatova et

al., 2017).

 - provision of state guarantees, direct subsidies

and tax benefits, including through the creation

of free economic zones and territories of

advanced development (Afanasyev, Oborin

and Shman, 2017).

 direct attraction of foreign investment (Fauzel,

2020).

The new present challenges make us look

differently at the ongoing processes and, to some

extent, rethink the effectiveness and applicability of

various measures. So, for example, the process of

attracting foreign investment today is somewhat

complicated by sanctions, and the possibility of

providing government subsidies and guarantees in the

post-Covid period, when the state has already spent

significant funds on various types of support and

subsidies for industries and citizens affected by the

pandemic during 2020, may also be on hold. In such

conditions, there is an acute issue of finding new

forms of interaction between the state and a private

investor, effective tools for attracting private capital

to solve problems that are significant for the

development of the industry and the economy of

resort regions. The mechanism of public-private

partnership in the form of concession agreements can

become just such a tool. This mechanism allows

authorities at the federal, regional, and municipal

levels to solve urgent problems of sustainable

development of an industry or region, develop

infrastructure, create new jobs, and increase the level

of well-being of the population. On the other side, the

personalized attitude of the state towards a private

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

180

partner, provided by the very essence of concessions,

helps the investor to develop his business in a more

transparent, understandable, stable environment.

4 DISCUSSION

4.1 Features of Concessions

In its economic essence, a concession is a government

initiative to find and attract a private partner

(investor) to create infrastructure and provide

services, created and provided by the public sector

(Farazmand, 2018).

By inviting a private partner, the state receives a

number of additional benefits of a very different

nature:

 saves money that would otherwise have to be

spent on investments in the creation and

reconstruction of infrastructure. Even the most

developed countries are regularly faced with

budget deficits and the need to borrow. At the

same time, tourism is traditionally not included

in the list of priority areas for spending public

funds. Attracting a private investor is in many

cases the only real opportunity for a large-scale

renovation of the tourism infrastructure.

 receives all the benefits of doing business,

which are traditionally associated with the

private sector. It is the achievement of higher

economic efficiency; flexibility of approaches

and a higher degree of innovation; less

bureaucracy and faster decision-making speed;

creativity in response to changes in external

conditions and challenges of the time.

 transfer of commercial risks to a partner. This

is even more valuable in the case that the state,

as has already been shown, is usually less

adaptable and less effective in responding to

emerging risks.

 maximizing budget revenues. The concept of

concession agreements provides the possibility

of establishing concession payments from a

private partner in favor of the state for the right

to conduct commercial activities using the

objects of the concession agreement. The

existence of the specified payment is not

mandatory, but rather represents an additional

option.

 In turn, a private partner also receives a number

of benefits:

 obtaining a commercially attractive object. In

the tourism and recreation sphere, concession

objects are often represented by hotel,

sanatorium and other facilities that have a rich

history, an advantageous location, a large

adjacent territory, an initially good and well-

thought-out infrastructure, but outdated or

desolate. Operating this facility provides a

number of competitive advantages.

 concession agreements, as a rule, imply some

additional obligations on the side of the state

participant. For example, preferential

connection to public utilities, construction of

access roads, and the organization of additional

transport routes may be provided. Moreover,

concession agreements may contain clauses to

protect against changes in legislation or

competing infrastructure construction.

 personalized attitude of the state towards a

private partner. Concession agreements are

concluded on an individual basis, in which each

concessionaire provides its own conditions for

the volume and timing of investments, the size

of the concession payment, and the obligations

of each of the parties. Thus, for the state, each

concessionaire acquires its own unique

features, turning from just an investor into a

partner helping the state to solve urgent

problems. That is, the concessionaire receives

that degree of attention to his activities and his

problems, which he would not have received by

entering the investment process outside the

concession framework.

4.2 Examples of Foreign Concessions

Due to these distinctive characteristics, concessions

have become quite widespread in the world economy.

Table 1 provides an overview of some foreign

projects in the recreation and tourism field,

implemented through a concession (Global Ports

Holding, 2020, Lisbon cruise port, 2020, NPS

Commercial Services Program, 2020, The National

Council for Public-Private Partnerships, 2013,

Macautripping, 2020).

Mechanisms for Attracting Investment in the Infrastructure of Resort Regions

181

Table 1: Examples of foreign concessions in the recreation

and tourism sphere.

Countr

Main Results

Bahamas Cruise Port of

Nassau

Investments of $ 25

million,

construction of

piers, a terminal, a

coastal amusement

ark com

lex

Portugal Lisbon port Investment 25

million euros, new

terminal

USA 103 National

Parks

Revenue of

concessionaires for

2018 = $ 1.5 billion,

concession payment

to the state = $ 126

million.

USA Union Station,

abandoned

former Central

Station,

Washin

ton

Investment 160

million dollars,

annual number of

visitors = 25 million

le.

Australia Former

quarantine

facility in

Sydney

Investments 20

million austral.

dollars,

conservation of

historical objects,

creation of

exhibition and hotel

com

lexes

PRC Macau Gaming

Concessions

Investments over $ 3

billion, construction

of dozens of new

hotel and gaming

complexes, 39

million tourists in

2019, the share of

the total

contribution of

tourism to the

region's GDP is over

70%

This table shows that concessions have

successfully proven themselves in various projects

and in countries with very different levels of

economic development.

Within the framework of concessions, old ports

are being successfully reconstructed and new ports

are being built, both in Europe (Portugal) and in the

Caribbean (Bahamas). In the USA, the concession

mechanism is recognized as a priority model for

operating national parks.

The concession to “reset” the former Washington

Central Station also had great success. The huge

building had been empty since 1978 and increasingly

decayed. The state was seriously considering

demolition. However, a private concessionaire

breathed new life into it and turned it into an iconic

entertainment, shopping, and business complex that

attracts more than 25 million visitors annually. A

similar process took place with the former Sydney

quarantine station.

Macau's gaming concessions also achieved

impressive success. After the transfer of the former

Portuguese colony to the jurisdiction of the PRC in

1999, the Chinese authorities set themselves an

ambitious task: to turn an essentially unremarkable,

ordinary city, of which there are many, into an Asian

Las Vegas, eclipsing its older brother in beauty,

splendor, and fame. A concession mechanism was

chosen to accomplish this task. Twenty years later, it

is safe to say that this mechanism has fully met the

expectations placed on it by the Chinese government.

4.3 Tourist Concessions in Russia

From the point of view of the Russian legislation,

under a concession agreement, a private partner

(concessionaire) undertakes at its own expense to

build or reconstruct an object of a concession

agreement (real estate), use this object in its

commercial activities, and subsequently transfer it to

the ownership of a state partner (concedent) (Federal

Law on Concession Agreements, 2005). Russian

legislation also allows the use of a concession

mechanism for tourist sites. In particular, the

following objects are included in the list of permitted

facilities under concession agreements:

 health resort treatment facilities;

 culture and sports facilities;

 facilities used for the organization of recreation

and tourism;

 sea and river ports and ships.

The legal framework and economic needs created

successful preconditions for the application of

concession agreements in the field of tourism in

practice. Table 2 shows a list of existing agreements

with an investment amount of more than 100 million

rubles. (Rosinfra, 2020).

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

182

Table 2: List of concession agreements in force in the field

of tourism.

Project name Region Amount of

investments,

mln. rub.

1 Cultural heritage

site "Sanatorium"

Kislovodsk "

Stavropol

region

1878

2 Year-round

children's center

"Polar Star"

The

Republic of

Sakha

(

Yakutia

)

1 474

3 Sanatorium, p.

Elton Pallasovsky

district

Volgograd

region

850

4 Reconstruction of

the cinema

"Pervomaisky"

Omsk

region

600

5 Reconstruction

and operation of

the facility for

organizing

recreation of

citizens and

touris

St.

Petersburg

470

6 "Former estate of

Zheleznov"

Sverdlovsk

region

380

7 "Nizhnekamsk

terms"

Republic of

Tatarstan

370

8 Hotel service

facility in historic

uildings

St.

Petersburg

303

9 Reconstruction of

the "Wa

on barn"

Omsk

ion

160

10 "House of the

manufacturer"

Sverdlovsk

ion

150

11 Children's health

camp in

Svetlo

ors

Kaliningrad

region

140

Total 6 774

Unfortunately, so far there are only 11 such

agreements in Russia totaling 6,774 mln. rubles.

However, 17 more projects totaling 71,750 million

rubles are in the stage of pre-competition

development or competition. The list is given in Table

3 (Rosinfra, 2020).

Table 3: List of projects in precompetition development.

No. Project name Region Investmen

t volume,

mln. rub.

1 International resort

"Three Volcanoes"

Kamchatka

Territor

39 200

2 Resort cluster

"Mratkino"

Republic of

Bashkortost

7 700

3 Reconstruction of

the sanatorium.

G.K.

Ordzhonikidze in

Kislovodsk

Stavropol

Territory

6 700

4 Construction of an

administrative and

business center

with an exhibition

com

lex

Tomsk

region

5 387

5 Reconstruction of

the Imperial Stables

Department

St.

Petersburg

3 200

6 Creation of the

tourist and

recreational

com

lex "Ramon"

Voronezh

region

2 703

7 Zoo construction Samara

ion

1 600

8 Festival - park Samara

region

1 026

9 Resort "Krestov

Brod"

Moscow

ion

970

10 Military - patriotic

ark

Samara

ion

720

11 Children's health

camp

"Chernomorets" in

Anapa

Samara

region

700

12 Ski complex

"Manzherok"

Altai

Republic

666

13 Reconstruction of a

social and cultural

facility

St.

Petersburg

300

14 Multifunctional

cultural and

information media

center in the city of

Kovrov

Vladimir

region.

300

15 Center of gravity

"Bereg Don"

Voronezh

region.

250

16 Reconstruction of

the facility for

organizing

recreation of

citizens and

tourism

Primorsky

Krai

198

17 "Belkino Estate" Kaluga

ion

130

Total 71 750

Mechanisms for Attracting Investment in the Infrastructure of Resort Regions

183

Despite the relatively small number, the examples

of successful concessions in the tourism and

recreation sector prove that they are absolutely a

working mechanism in this industry. The total

volume of investments for projects at the stage of pre-

competitive development is more than 10 times

higher than the volume of investments under the

agreements already signed. It indicates the growing

interest of the regions in this mechanism for attracting

investment, as well as the significant need for such a

mechanism. Thus, all the prerequisites are being

created for concessions to play a more prominent role

in creating a modern, high-quality, affordable tourist

infrastructure, contributing to the achievement of

ambitious goals for the development of domestic

tourism in the Russian Federation.

5 CONCLUSIONS

The use of public-private partnerships in the form of

concession agreements can make a significant

contribution to the intensification of the investment

process in the field of tourism and recreation. This

mechanism is inherently universal and has been

successfully used in a wide variety of industries.

However, there are several distinguishing features

that make it particularly suitable for the travel

industry.

1) Attracting medium-sized investments.

Concession agreements imply, on the one side, that

the size of investments will be large enough to solve

some problem noticeable for the industry or region

(otherwise the state partner will simply not be

interested in its concluding). On the other side,

problem solution at the regional level may require

less investment than is necessary to attract the

attention of the federal center. An analysis of

agreements in the field of tourism and agreements

shows that in most cases this refers to investments

from several hundred million rubles to several

milliard. This is a lot in order to expect that a private

investor on his own, without initiative from the state,

will sharply intensify his investment processes. And

too few to be of interest to the federal center.

2) Reduced seasonality. One of the hallmarks of

the tourism industry is its seasonality. The uneven

tourist flow means that all the resources of the region

are worn out in the high season, and idle time in the

low season. Reducing seasonality should be one of

the targets when planning the creation of new

infrastructure. To solve this complex task, it is

necessary to coordinate the efforts of all parties: both

from private business and from the state.

Concessions are a convenient mechanism for

combining the interests of the state and business.

3) Improving efficiency and reducing costs. A

significant increase in the domestic tourist flow is not

possible without the fact that the proposed product,

on the one side, is modern and of high quality, and on

the other side, it is accessible to the general

population. It means that the field of recreation and

tourism must look for ways to increase efficiency. A

private partner is an irreplaceable participant in this

process. At the same time, the participation of the

state and the determination of the parameters of

investment projects in concession agreements will

contribute to a more thoughtful investment,

avoidance of close competition between projects, a

price war, and ensuring the diversity and

complementarity of the infrastructure being built.

These several points represent the most key

positions, the implementation of which will

contribute to both the intensification of investment

processes and an increase in the efficiency of the

provision of tourist services, an increase in the tourist

flow and the development of tourism, the provision of

year-round employment and the growth of the

economies of resort regions. The concession

mechanism has great prospects for attracting private

capital for those projects that the state considers the

most priority and significant.

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