Capital flight in tourism industry

Tourism is booming dramatically in Iran and for this reason; tourism infrastructures, renewing hotels and constructing tourism complexes have been spotlighted. Saeed Shirkavand, deputy of the Minister of Cultural Heritage, Handicrafts and Tourism organization has recently promised that the organization grant facilities to tourism projects showing advancements more than 20 percent. We asked some experts about the basis of granting such facilities and grant-in-aids. The question is how much these actions can improve or disrupt tourism and its infrastructures. Some people say, this may lead to economic rents and some others believe that is the only way to complete the infrastructures in current economic situation. Another important matter to be considered is that the liable and even those who invest in tourism are working in a virgin field and they reap what they sow.
Before adopting any policy in tourism, the unfinished projects should be reviewed, because many of them were launched with no professional study and then they were left incomplete. Some of such projects were unveiled before being finalized and some other ones with 10 to 70 percent advancement were stopped due to different problems like economic recession, delays in granting loans or inappropriate plans. According to statistics, in recent decade and only in Tehran, 705 licenses were issued for building welfare and tourism centers but only less than 10 percent of them were finalized. A similar situation is seen in the other cities of Iran.
The question now is how much recovering and completing such projects is economical or even possible. How constructive can be ignoring these projects? Such projects were costly and so many actions like buying building materials and taking expert advices were done for their development. Some of these incomplete buildings are exposed to erosion so, what should be done?

Contracts based on qualifications
"Granting any facilities by the government to private sector is necessary for completing infrastructures", Hossein Marashi, former head of Cultural Heritage, Handicrafts and Tourism organization said in an interview with Donyaye Eghtesad daily. He also added: "Before adopting any economic policy in tourism we should notice that tourism in Iran does not have any problem with demands, but we must improve services. Thus, it sounds logical that private sector and the government be active in tourism. Because, not having good responses to emerging demands currently cause undesirable results". Marashi believes that such situation may lead to economic rent if it is not controlled. He emphasized: "comprehensive supervision can be useful, but the most important point is that an inclusive method has to be applied for all the stages. For example, construction plans should be accomplished through lowest tenders in a way that no unexpected increase in prices occurs."
Marashi also said that unfinished projects are prioritized while budgeting and granting facilities. He added: "some of these unfinished projects were started without standard considerations and no more money should be invested in them. They would not be profitable at the end and they must be stopped at any stage."

Unrealized Promises
"Granting banking facilities with low interest and tax exemptions are critical for completing infrastructures of tourism. Regarding the urgent need of completing infrastructures of tourism and also not having sufficient time for utilization of tourism areas in Iran, granting facilities to investors seem the most rational solution." Mohamad Ali Farrokhmehr, head of Hotel Association of Tehran told Donyaye Eghtesad daily.
In Farrokhmehr's opinion, having seen the instability of rules and the unrealized promises during recent years, investors cannot trust the government. He added: "In 1997 a law was enacted on tax exemptions up to 50 percent for hotel owners or the ones who invest in this field. At the same time, investors tried to change the law to 100 percent tax exemptions and they also wanted to be granted banking facilities with low interests. But now, even the first law on 50 percent tax exemption is conditional." According to Farrokhmehr, enacting and abolishing the laws make investors feel mistrust because this is risking their capital and makes their future perspective gloomy.
He supposed that a promise on granting facilities can be a positive action after putting many obstacles in the way of investors. In his idea, some budget must be dedicated by National Development Fund of Iran to utilize and complete the infrastructures in tourism industry and this should be done through different stages. In the first stage, existing hotels and guesthouses have to be utilized and standardized. Tackling the current shortages is preferred as the first mentioned step in short time. The second stage focuses on the hotels and accommodations -with 70-80 percent progress- of which finalizing has been stopped for different reasons. Farrokhmehr suggests that in this stage, financial status of such incomplete projects should be reviewed and then budget can be allocated. In the third stage, new projects can be defined under expert opinions and this would be a long term and more reliable plan.
As an investor in tourism industry, Farrokhmehr says: "it would not be rational to stop granting facilities because of possible economic rent. By this way, the problem is ignored and no solution is found for it. It is possible to prevent crimes like economic rent by appropriate law enforcement. The decisions to cease granting facilities and sudden changes in laws or neglecting investors represent no achievement except incomplete and outdated infrastructures."
Considering the comments of people involved in tourism industry, volatility in decisions by regulators is one of the barriers to investors' success. Ceasing tax exemptions, cancelling promised loans due to administrative changes, economic recessions, increasing price of construction materials and swings in the market all are among the factors that threaten the position of investors. Such issues represent a grim outlook and decrease the possibility of investor's entering the tourism market. Investors do not want grant-in-aids or promises on granting facilities, such promises optimistically just help the administrators to stay longer in their positions. In fact, investors need a clear vision of their capital and they prefer to know about the kind of their relation with the government.