Moscow, as Russia’s capital and the largest city in the country, has every reason to not only aspire to the position of the major center of tourism inside Russia, but also successfully compete in the world tourist market with other Western European capitals for major flows of foreign visitors. With the objective to achieve the stipulated goal and to transform Moscow in a large international center of business and cultural tourism, the Moscow City Government adopted a special document titled "Framework Program to Develop Tourism in Moscow for the period up to year 2010."

The existing state of the development of the tourism industry in Moscow is rather low, and the tourist potential of Moscow is actually only at 6-10 percent of its capacity. Thus, the number of tourists annually visiting the major Western European capitals is 10-15 times higher than the number of foreigners coming to Moscow every year. The document adopted by the Moscow City Government was based on development forecasts for the tourist industry until 2010 and on the relatively high expectations of the increase of numbers of tourists in Moscow during the next 10 years: For the period up to 2010, the annual number of visitors staying in the capital’s hotels is expected to reach 24 million, including 5 million foreigners and 19 million Russians.

According to official data available to the RF Border Guarding Service, 1.52 million foreign citizens from 198 countries arrived in Moscow via the Sheremetyevo-2 international airport in 2000, 2.58 percent up from the comparable figure for 2000. The number remained stable in 2001, at approx. 1.5 million, of whom some 40 percent were citizens of C.I.S. countries and 60 percent came from other foreign countries. Of the latter, clear leaders were Germany and the United States.

Foreign visitors to Moscow

Country 1999 2000 2001

(Jan.-June)

Germany 14% 14% 15%

USA 12% 11% 13%

Great Britain 7% 6% 7%

France 7% 6% 7%

Italy 5% 6% 5%

Others 55% 57% 53%

The supply of hotel accommodations in Moscow peaked between 1995 to 1998, when the industry saw an increased inflow of both Russian and foreign investments. It was precisely during these years that a number of large hotels were built in the city, including four-star and five-star ones. With this high supply of hotel accommodations in the city, the industry suffered a negative trend of market capacity shrinkage: From 1995 to 1998, the average occupancy rates of Moscow’s hotels dropped from 64 percent to 46 percent. Trying to adapt to the changing business environment, the city’s hotel industry has eventually undergone a major restructuring and re-organization. Over the period of 1995-2000, the total number of hotels in operation in Moscow declined 12 percent, and the restructuring was accompanied by dramatic changes in the structure of ownership.

An analysis of the present situation of Moscow’s accommodation fund reveals the absence of cheap and modern-class hotels oriented to mass tourism, including domestic tourism. In other words, the city lacks medium-class hotels offering international quality standards to be guaranteed by their belonging to an international hotel chain.

Moscow hotels are broken down by category as follows:

• One-star hotels: 31, of which none has been certified;

• Two-star hotels: 42, of which 11 have been certified;

• Three-star hotels: 42, of which 25 have been certified;

• Four-star hotels: 17, of which 10 have been certified;

• Five-star hotels: Nine.

From 2000-01 the market’s high-end added a number of new hotels, including Alrosa (15 suites, deluxe class); Sretenskaya (50 suites, not certified); Gostiny Dvor (120 suites, ostensibly five-star). Therefore, the city added 412 hotel suites. By the end of this year, the following new hotels should open their doors: Hilton Bolshoi (218 suites), Novotel at Novoslobodskaya; and Hotel Didona (250 suites, five-star, fifth block of the Zolotoye Koltso hotel).

The Moscow government’s program Zolotoye Koltso (Golden Ring) calls for building at least 17 hotels to a total floor space of 2 million sq. meters in the city center, 70 percent of which will represent the high-end segment of the market. Among others, the most urgent projects of the program include hotel complexes in Bogoyavlensky Per., Bolshoi Cherkassky Per., Maly Cherkassky Per., Soimonovsky Per., Sofiiskaya Nab., Kadashevskaya Nab. and Ilyinka Ul.

According to Boris Averyanov, deputy head of the Foreign Economic Relations Committee in the Moscow government, 10-14 new three-star hotels will be built in Moscow over the next few years. Project documentation has already been prepared and now the Moscow government is looking for investors.

Meanwhile, representatives of one of Moscow’s largest travel agency, Akademservis, announced plans to built two three-star hotels: one near the Paveletskaya metro station and the other near the Sevstopolskaya metro station.

In the next few years the city should increase its accommodation capacity by 3-4 percent. The General City Development Plan, which includes accommodation planning for the period up to 2020, calls for hotel building and modernization to a total of 22,000 accommodations, including upgrading a number of accommodations to four- or five-star category.

Foreign investments in Moscow totaled $4 billion in 2000 and $4.7 billion in 2001, and, according to Moscow Mayor Yury Luzhkov, will be no less than $5 billion this year. The accumulated volume of foreign investments in Moscow currently equals more than $20 billion.

The main area where Moscow plans to cooperate with foreign partners is the Moscow-City project and the hotel business.

The Zolotoye Koltso program was discussed at a Moscow government meeting held in January 2002. The program calls for attracting $2.4 billion of investment. The Moscow government sees one of the main sources of capital attraction to the industry in hotel privatization; most of the hotels are currently municipal property. A scheme to transform hotels into joint-stock companies in which the Moscow government will initially own 100 percent has been developed; the state will use these stakes for subsequent capital attraction. Between 2002-04 a privatization of all the municipally owned hotels and offering of their issued shares for sale is planned.

The article is based on the Moscow Government’s Committee on Foreign Economics Relations and the University of Hotel, Travel and Restaurant Businesses reports.