Iran’s budding tourism sector is shaping up to be a lucrative market for foreign investors seeking to expand their business in this part of the world.
According to the Iran Cultural Heritage, Handicrafts and Tourism Organization, the industry has grown by 12% in each of the past two years, reaching 4.8 million visitors in the last Iranian year (ended March 2015). The figure is expected to grow by 10% to 5.3 million by the end of the current year (ends March 19) and between 5-6% next year.
There are just over 1,100 hotels in Iran, only 132 of which boast four- and five-star ratings. In order to meet its stated goal of 20 million annual visitors a year by 2025, Iran needs 400 top quality hotels. Most hotels in Iran are old and need renovation.
The growing tourism sector and the vast potential for investment due to poor infrastructure make Iran a tough opportunity to pass up. While some, such as European companies, are looking to improve their global profile, others, namely Turkish firms, are aiming to offset losses.
Leaving Turkey
Turkey’s travel industry has taken a beating in the past year, due to an ongoing conflict with Kurdish fighters and terrorist attacks and other violence presumably orchestrated by the so-called Islamic State. The government in Ankara has blamed Kurdish separatists for the recent bombings in public places and roads that has killed and wounded hundreds.
Things took a turn for the worse last November when Turkey downed a Russian fighter jet on its border with Syria, prompting the Kremlin to impose painful economic sanctions on Ankara and ban its citizens from traveling to the Mediterranean country.
A number of bombings in subsequent months, which targeted crowded tourist areas in Ankara and Istanbul, killed dozens of people with German tourists making up most of the casualties. Russians and Germans are the top two contributors to Turkey’s tourism sector, making up nearly 10 million, or 25%, of annual arrivals.
“Given the loss of tourism revenue, Turkish hotel chains are exploring other countries to invest in to offset losses incurred back home, lest they risk going bankrupt” Jalal Ebrahimi, secretary-general of the Iran-Turkey Joint Council of Commerce, told the Persian daily Donya-e-Eqtesad. “We suggested Iran as an option and they welcomed it.”
European Interest
The lifting of economic sanctions last month and Tehran’s growing rapprochement with the West has helped improve Iran’s global image and apparently compelled foreign firms to take notice of the country’s nascent travel market.
“The French, Italians, Britons and even Japanese firms have shown interest in financing hotel projects in Iran,” Ebrahim Pourfaraj, president of Iran Tour Operators’ Association, was quoted as saying by the travel news website Donyaye Safar. “They’re already studying Iran and all we need to do is to ease investment regulations and they’ll enter the market.”
The French company AccorHotels, the world’s sixth-largest hotel group, was the first international group to set up shop in Iran, opening and managing two hotels — Ibis and Novotel — at the Imam Khomeini International Airport south of Tehran last October.
Spain’s Melia Hotels International last summer announced interest in the Iranian market, saying it plans to introduce its midscale brand Innside, and its upscale brand Melia.
Companies based in the UAE have already claimed a stake in the industry. The Rotana Hotel Group has a brand aimed at Muslim travelers – Rayhaan Hotel and Resorts – and the company is preparing four properties to open in Tehran and the shrine city of Mashhad by 2018.
Mashhad, in northeast Khorassan Razavi Province, is home to the mausoleum of Imam Reza (PBUH), the eight imam of Shia Muslims. The second most populous city, it is Iran’s top destination for religious tourists and attracts 25 million domestic and foreign tourists throughout the year.
Furthermore, Crista Hotels and Jumeirah Group, both of which are based in the UAE, are reportedly preparing to invest in Iran.
Not Just Hotels
Building hotels is not the only area of interest for international investors. Since the lifting of sanctions, Iran has signed deals and memorandums of understanding with some European countries and discussed future cooperation with others.
An Italian company is set to help develop tourism infrastructure on Kish Island, one of the most popular destinations in the Persian Gulf, while another Italian firm has agreed to help renovate cultural heritage and historical houses, which would then be repurposed into lodging facilities. Talks have also been had with a UK company that specializes in conservation of historical heritage.
