Jordan’s tourism sector faces a crisis that is affecting some more than others. The government decision on lowering electricity rat...
Jordan’s tourism sector faces a crisis that is affecting some more than others. The government decision on lowering electricity rates for hotels does not solve the crises. Rather, it merely adds to distortions and amounts to unfair subsidies.
Jordan’s tourism
sector plays an important role in the economy. According to the Ministry of
Tourism and Antiquities (MOTA), tourism receipts exceeded 3.1 billion JODs in
2014, growing by 6% over 2013. In 2014, Jordan received 3.99 million overnight
visitors, a 1.1% growth over 2013.
Some 60% of overnight
tourists visiting Jordan chose to stay in hotels in 2014. Hotel guests totaled
2.4 million in 2014 while around 1.6 million tourists stay in apartments rather
than hotels. Hotel guests stay an average of 2.1 nights only generating over 5
million hotel nights in 2014.
Amman is the prime
tourism destination in Jordan followed by Aqaba, Dead Sea and Petra. In 2014,
Amman’s share of total hotel nights was 59% and its share of total guests stood
at 54%. Aqaba followed with 22% share of both nights and guests. Dead Sea came
in third at 14% of guests and 12% of hotel nights. Petra was in 4th
place, with a share of 7% of guests and 6% of hotel nights. Between them, the
four main destinations of Amman, Aqaba, Dead Sea and Petra accounted for 98% of
hotel nights and hotel guests in 2014.
2014 was a good year
and it was reflected in the results of hotels listed on the Amman Stock
Exchange. Seven publicly traded companies that own 13 hotels generated revenues
of 142 million JDs in 2014, a 5% growth over 2013. Operating profits increased
by 6% and reached 42 million JDs.
Unfortunately, 2015
has not started well for tourism in Jordan. According to MOTA, tourism receipts
in the first 4 months of 2015, dropped by 15% to reach 880 million JODs down
from 1032 million JODs. Tourists numbers also dropped by 13% while tourist
coming in groups dropped by 41%. This drop was also reflected in the results of
the publicly traded companies: In the first quarter of 2015, the aggregate
revenues of the 13 hotels at ASE dropped by 17% to stand at 25 million JODs
while operating profit dropped by 44% to stand at a mere 4.3 million
JODs.
In May, the
government announced actions aimed at energizing the tourism sector. The
measures included waiving taxes on plane tickets and waiving visa fees for
tourists that stay longer than 3 days and visit the tourism sites. Moreover,
the government decided to reduce the electricity charges for hotels in Jordan
by 50% to become 91 fils down from 181 fils. The official calculations suggest
that the electricity rare reduction will amount to 28 million JDs every year.
The visa reduction
measures which encourage more tourists to arrive in Jordan are good, yet the
massive electricity rate drop is all advised. The reasons are
straightforward:
The rate drop
disproportionately favors hotels less hit by the current crisis than hotels
suffering from very low occupancy rates. After all, hotels will low occupancies
will have reduced electricity consumption by default as most of the hotel rooms
remain empty.
The new rate sells electricity at below its actual cost. This means that the government is subsidizing hotels only while neglecting the other main components of the tourism service sector (restaurants, clubs, malls, recreation parks, etc). Moreover, it neglects that 40% of tourists choose to stay in furnished apartments not hotels. These now pay 4 times the electricity rates paid by hotels.
The rate drop further
distorts the electricity sector by illogical rates that make the rate paid by
hospitals and schools four times that paid by a five stars hotels.
In the
short term, absent a thorough rebalancing of the electricity rates in the
country, the better decision is for the government to keep the electricity rate
for hotels as they are. While directing the surplus it generates from the
tourism sector electricity bills (around 28% which is the difference between
181 fils and actual cost of around 140 fils per KWH) towards the marketing and
promotions budget of Jordan’s tourism sector. The root cause is the drop in
tourist numbers, and the root cause solution should be to drive up tourist
arrivals not reducing rates for some players at the expense of others.
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