Hospitality and Tourism E1:R1
◢ Tourism's contribution to Iran's economy lags behind global averages and the expected value of the country's natural and historical attractions
◢ Hotel supply tariffs have been reduced, making it easier for domestic operators to bring properties to international standards
Iran’s Tourism and Hospitality Potential
In the Persian calendar year of 1394, more than 5.2 million tourists visited Iran. Assuming an average expenditure of USD $1,700 per tourist, the industry generates approximately USD $9 billion per year. This means that Iran ranks 39th in the world for tourism revenue. However, in relative terms, the overall contribution of tourism to the Iranian economy is negligible, contributing 2.5% of GDP. This falls below the global average of 3% of GDP and by this metric, the country ranks 136th worldwide. The value of tourism exports were just 1.7% of Iran’s total exports in 2015. This compares with 17.7% in Turkey, considered the region’s tourism leader until the recent instability.
Importantly, according to the World Tourism Organization, Iran ranks tenth in archaeological and historical attractions and fifth in natural attractions among global destinations. UNESCO’s latest round of World Heritage Site Designations added another to Iran’s growing roster of 19 sites; the Lut Desert, located in the East of the country. However, the global perception of Iran remains profoundly negative and this remains a barrier to mass-market tourism despite the fact that the country remains relatively affordable as a destination, owing to the weakness of the Rial.
A recent development in the industry has been the relative rise of business tourism, which currently accounts for 9.2% of the total visitors to the country. The proportion of business tourists is expected to rise as the country’s business environment improves. Business tourists offer high recurring expenditures and help support the rise of a more diversified tourism base.
Overall, Iran is an above average destination, with affordable pricing, but with a lagging industry and poor marketing. As such, there is a marked growth potential in this sector in Iran. The World Tourism and Travel Council (WTCC) ranks Iran 17th in the world in terms of growth in tourism.
The economic benefits of growth in the tourism sector could be profound. Currently, the tourism sector employs 476,000 Iranians, accounting for roughly 1.9% of total employment. The global average is 3.6%. This suggests that tourism can be a major area of job creation, which is a core economic priority in post-sanctions Iran. However, hospitality employment requires high-levels of training, an area where Iran has historically lacked resources. New investments in training and management programs will be necessary to bring the country up to international standards for service.
Investment Activity on the Rise
Investors are reacting enthusiastically to Iran’s tourism potential. In 2015, 3.1% of total national investment in Iran was focused on the tourism sector, which still lags behind the global average of 4.3%. As the post-sanctions recovery continues, Iran’s unique global position as a growth market for tourism and hospitality should see tourism’s portion of total national investment rise to 3.8% in 2026 on the back of steady 5% annual growth, but at a much higher magnitude as the total value of investments in Iran increases.
One of the countries that offers the strongest parallel to Iran in terms of tourism potential is Italy. With a similar reliance on cultural patrimony to drive tourist interest, Italy’s success story in making tourism a pillar of the economy is encouraging for Iran. A recent delegation from Italy’s coastal Marche region, led by the provincial governor Luca Ceriscioli, culminated in the signing of several MOUs, including a tourism-focused agreement between Marche and the northern Iranian province of Mazandaran. Both Marche and Mazandarn are popular domestic tourism destinations, but have untapped potential in attracting international visitors.
The importance of tourism to near-term economic growth as well as to the larger resuscitation of Iran’s global image has also earned the attention of policymakers. Valliollah Seif, the governor of the Central Bank of Iran (CBI) has given his assurances to Masoud Soltanifar, head of the Cultural Heritage, Handicraft and Tourism Organization, that Iran’s central bank will enable investment in the tourism sector.
CBI intents to support tourism by providing financing to small and medium-sized enterprises. Iran’s banks have historically neglected SMEs. But smaller enterprises have a crucial role to play in driving near-term post-sanctions economic growth. With less red tape, these more nimble organizations can be first to generate jobs and provide new products and services in the Iranian market. However, smaller enterprises needs external financing. Seif’s support for SME financing in the tourism sector is part of a wider push to allocate 10% of the available financing among Iranian banks to smaller enterprises.
Reduction in Hotel Supplies Tariffs
In another change in policy, the Hotelier Society of Iran has reached an agreement with the Iran Customs Administration to decrease the import tariff on hotel supplies, thereby reducing the cost-base of hotel management and enabling Iranian hoteliers to source better quality amenities.
The reduction of tariffs is an example of the debate around Iran’s “resistance economy” in microcosm. Tariffs are a legacy of an economy policy that favored self-sufficiency through domestic production. Iran has existing production capacity in key hotel supplies such as bedding, furniture, fittings, laundry and catering equipment and appliances, hairdryers and hand dryers, and ceramics and silverware. Should domestic hotel operators use the reduced tariff to seek foreign important, domestic production is likely to suffer. Moreover, while tourism is valuable as a source of foreign currency, a greater reliance on imports will see an increased proportion of that currency used for procurement.
Nonetheless, the overall quality of Iran’s domestically produced hotel supplies lag behind what is available in international markets. Particularly as international brands seek to enter the Iranian market, the insistence on bringing Iranian hotel facilities and amenities inline with global brand standards will be crucial. The reduced tariffs make it feasible for international brands to use their approved-procurement channels to bring key supplies into Iran. For the domestic manufacturers, retaining market share in the face of increased competition will require innovation and improved pricing. This shift in emphasis towards competition is encouraging, and part of a wider trend where Iran’s economy is shifting to favor the consumer over the producer.