Malaysia's Economic Transformation Programme - Tourism (EPP12)

 
Status of Malaysia's Tourism Industry
Over the past two decades we have managed to increase our international arrivals from 7.4 million in 1990 to approximately 16 million in 2004 and to approximately 24 million in 2009.
The tourism sector has grown from RM 30 billion in 2004 to RM 53 billion in 2009 - a growth of 1.8 times (or 12 percent per annum from 2004 to 2009) placing Malaysia 13th in terms of global tourist receipts.  Only a few countries have been able to sustain double-digit growth over such a long period of time including Egypt, China and South Africa.
FACT : Malaysia ranked 9th globally for tourist arrivals in 2009

12 EPPs to Deliver RM 66.7 billion incremental GNI
Twelve entry points projects (EPPs) have been identified across five themes to enhance our tourism yields.  In addition, we have identified three business opportunities which will materialise due to the expected growth in the industry. The 12 EPPs are segmented in five broad themes that cater to different segment of tourists ranging from the avid shopper to the nature lover and business traveller, as well as families on vaction.  The five themes and 12 high-impact projects identified are:
Theme 1 : Affordable luxury

• EPP 1 : Positioning Malaysia as a duty free shopping destination for tourist goods
• EPP 2: Designating Kuala Lumpur City Centre-Bukit Bintang area as a vibrant shopping precinct
• EPP 3: Establishing three new premium outlets in Malaysia

Theme 2 : Nature adventure

• EPP 4 : Establishing Malaysia as a global biodiversity hub

Theme 3 : Family Fun

• EPP 5 : Developing an eco-nature integrated resort in Sabah
• EPP 6: Creating a Straits Riviera

Theme 4 : Events, Entertainment, Spa and Sports

• EPP 7: Targetting more international events
• EPP 8 : Establishing dedicated entertainment zones
• EPP 9a : Developing local expertise and better regulating the spa industry 
• EPP 9b: Expanding sports tourism offerings in Malaysia beyond hosting events 

Theme 5 : Business Tourism

• EPP 10 : Establishing Malaysia as a leading business tourism and destination
  Cross theme projects : Medium-haul connectivity; better quality hotels 
• EPP 11: Enhancing connectivity to priority medium-haul markets 
• EPP 12: Improving rates, mix and quality of hotels  

The list of EPPS mentioned above are just a brief outline of what the government is planning to do for the industry.  I'll focus more in EPP 11 and EPP 12 which are more relevant to hotel business segment.
EPP 11 : Enhancing connectivity to priority medium-haul markets
Tourist from the medium-haul markets contribute 53 percent higher yields than tourists from short-haul markets.  Medium-haul markets also have the highest forecasted growth from 2010 to 2020 of 8 percent (versus 3 percent for short-haul and 2 percent for long-haul).  However, Malaysia's proportion of medium-haul tourist arrival is only 15% compared to 43% for Singapore and 36% for Thailand.  A key reason for this difference is the significant gap in medium-haul flights.  In 2010 Malaysia had 579 medium-haul flights per week, compared to 928 for Thailand and 1010 for Singapore.  This gap is critical as we expect 43% of incremental arrivals in 2020 to come from medium-haul markets.
Action
1. Increase flight frequencies and air rights to 10 priority cities.  Australia, China, India, Japan, South Korea and Taiwan are expected to contribute over 90% of incremental tourist arrivals from medium-haul countries by 2020.  It is thus critical to focus on the key cities within these six countries where there is a significant connectivity gap today, namely : Beijing, Delhi, Melbourne, Mumbai, Osaka, Seoul, Shanghai, Sydney, Taipei, and Tokyo.  Compared to Singapore and Thailand, Malaysia has a double-digit flight frequency gap to most of these cities.  The increase in flight frequencies to address this gap and meet 2020 tourist arrivals will be achieved through focused capacity increases from our local airlines and targetted efforts by Malaysia Airport Holdings Berhad (MAHB) to attract more airlines from these countries to either start operating or increase existing flight frequencies to Malaysia.  In parallel, the Ministry of Transport will focus efforts on increasing air rights to countries that currently have restricted air rights (primarily Australia, India and Japan).

ImpactWith these actions, we will expect to see an increment of medium-haul tourists. By 2020, medium-haul tourist will account for 43% of all tourist.  Among that, 38% will be from China and 27% from India.

EPP 12 : Improving Rates, Mix and Quality of Hotels
Hotels represent a critical part of the tourism industry.  In order to achieve our goal of attracting high yield tourists, we need to ensure Malaysia has the right mix and quality of hotels.  Relative to our regional peers, Malaysia today has a lower mix of five-star hotels (ie. 5% in Malaysia versus 13% and 14% in Singapore and Thailand respectively).  In moving towards our ambition of growing tourist receipts by three times and tourists arrivals by 1.5 times, we will need more investments (to first upgrade and subsequently to increase supply) into our four- and five-star hotels as well as to ensure higher quality of service.
We need to enable our hoteliers to generate sufficient returns to encourage re-investment into the sectors as well as attract higher quality staff.  A key impediment to this today is our relatively low hotel rates (RM 320 per night_ for a fve-star hotel in Malaysia versus RM 766 in Singapore)
Actions
1. Link rating of four and five-star hotels to a target average room rate.  From 2013, a minimum room rate will be set for four- and five-star hotels.  This move is to encourage the hotel industry as a whole to increase their rates to close our gap versus peers in the region.  This increase is meant to ensure hotels are able to provide higher quality of service (through attracting and retaining better quality staff) and to encourage more investment into the four- and five- star hotel segments.
2. Adjust MIDA incentive to encourage investment into more four- and five-star hotels.  In order to encourage hotels to upgrade and refurbish their assets, we will extend the Investment Tax Allowance (ITA) to include four- and five-star hotels with foreign ownership.  In addition, we will also allow ITA for new construction as well as new purchase of four and five star hotels across Malaysia.  Currently, this incentive is open given to one-, two-, and three-star hotels across Malaysia and four- and five-star hotels in selected states only.  The ITA for refurbishment of hotels will also be increased from three times per company to five times for each property regardless of ownership.
Following preliminary discussions with MIDA, the Ministry of Tourism will champion and push through the request for ITA expansion.