Introduction

Hospitality is a multi-billion dollar industry and its origins can be traced back to ancient human civilizations. The word hospitality is derived from the Latin word ‘hospes’, which means visitor or stranger. Before the creation of hotels, human civilizations institutionalised diverse methodologies, rooted in culture and tradition, to provide lodging and accommodation facilities to guests (travellers/strangers) (Wich, 2021). For instance, Xenia is an ancient Greek notion of hospitality (the institutionalized guest-friendship between a guest and host) — much like contemporary Airbnb. Since there were no hotels for travellers in ancient Greece, a code of conduct was developed to regulate the custom of Xenia. The basic idea was that travellers could knock on a door and the host would accept the traveller and offer them lodging facilities. The guests were bound by law to treat the host’s house and possessions with respect. At the end of the stay, the host and the guest would exchange gifts as a token of the newfound Xenia relationship, which could last for generations (Shapiro, 2021). Similarly, records of the sub-continental history have repeated mentions of tourist shelters e.g., viharas, sarais, and musafirkhanas, though, the institutionalisation of hospitality can be traced back to Budhist monks; with the remnants of ancient cave temples in India as living proof.

In the current times, the hospitality industry has evolved into a significant investment opportunity due to global tourism potential. This trend has graced Pakistan and the country has emerged as an important tourist destination over the course of the past five years. Even though the hospitality industry has become an ideal sector for investing surplus capital for investors, however, the investment potential comes with various challenges. This article by the Iqbal Institute of Policy Studies explores the challenges of the growing hospitality industry in Pakistan.

Lack of Infrastructure and International Standard Facilities

The main businesses associated with the hospitality industry can be classified into four categories: lodging, food and beverage, recreation, and tourism. Each of these categories is interlinked and sub-divided into several other categories and allied industries (Wich, 2021).  The economy of Pakistan can get a swift boost by investing in the hospitality sector, primarily because of Pakistan’s vast tourism potential. The prestigious Condé Nast Traveler Magazine, with a Global total footprint of 33 million readers and followers, ranked Pakistan as the top tourist destination for the year 2020 (Conde Nast Traveller). However, due to a lack of infrastructure and resources as well as socio-political factors, Pakistan’s tourism and hospitality sectors have not been able to grow at par with international standards. Other challenges include inadequate hospitality standards practised by local hospitality brands, lack of hospitality schools, and lack of competition in the hospitality sector which has encouraged the monopoly of one or two major groups who are thriving on a hospitality threshold much lower than the international expectations.

From a business perspective, poor hospitality standards in Pakistan have a directly proportional impact on the hospitality sector. Poor standards and lack of infrastructure have restrained tourism in Pakistan over the years.  This is especially significant to the crippling economy of Pakistan because tourism has emerged as one of the biggest economic activities across the world. Numerous countries including Malaysia, Turkey, Thailand and UAE have improved their economies through the tourism sector. Pakistan can benefit immensely from its vast tourism potential by improving the standards and facilities of the hotel industry. Nonetheless, investors have the option to invest the money in franchising the hotels with international brands like Hilton and Marriott; to learn from their experiences and strategies while generating goodwill for Pakistan across the globe.

Lengthy Regulatory Processes

To construct and develop international standard hotels in Pakistan, the investor has to go through various stages: approval of building plan, classification of the hotel, registration of hotel, application of license, training of the hotel staff, and optimization of the hotel with international standards etc. Furthermore, the tourist services of all the provinces of Pakistan and the Federal Capital Territory are regulated by the Department of Tourist Services (‘DTS’). The main function of DTS is to regulate the Hotel and Travel Trades including the registration and issuance of Licenses to Hotels, Restaurants, Travel Agents, Tour Operators, and Tourist Guides (DTS Guidelines). The Government of Pakistan has a primary focus on tourism for which standardized facilities matching the international requirements are substantial. However, many local hotels and guesthouses have been launched in recent years which lack experience, quality assurance, and training in the sector.

The main challenge of building a hotel in Pakistan is the hefty investment requirements. And even in the case of sufficient investments, the length of the regulatory procedures becomes a bigger challenge to operate the hotel. For example, for the construction and development of a hotel in Islamabad, the building plan has to be approved by the Capital Development Authority (CDA) which takes several months. The post-construction requirements including registration and licensing, trademark registration, are also time-consuming.

Hospitality Industry in the Post-Covid World

Pakistan is gifted with a great geographical landscape and archaeological wonders. For Pakistan’s developing economy, the hospitality sector can contribute immensely by generating direct and indirect employment opportunities in more than 40 to 50 allied industries like cement, steel and other small and medium industries in the manufacturing sector. Upon operation of the hotel(s), the Hotel industry generates more jobs in various grades starting from non-skilled and skilled workers to management levels. Moreover, taxation from the construction investment is also a contribution to government revenue in the form of applicable taxes. However, the outbreak of the COVID-19 pandemic has severely affected Pakistan’s tourism sector in 2020.  For instance, in 2019, travel and tourism contributed 5.7% to the gross domestic product (GDP), whereas, in the covid outbreak of 2020 the total contribution to the country’s GDP decreased to 4.4 per cent; resultantly employment opportunities were reduced (Nazir, 2021).

In the Post-pandemic world, the thinking patterns are changing, with investors looking for safe investment opportunities (land, houses, residential properties etc). Investors are sceptical about investing in the hospitality sector of Pakistan due to the fluctuating nature of revenue generation. However, surprisingly the pandemic did not impact the local tourism of Pakistan. Due to covid restrictions, people could not travel across the world which generated an opportunity for local tourism to flourish. As a result, there was a huge influx of local tourists in the main tourist destinations of Pakistan, which resulted in a shortage of lodging and accommodation facilities. The real challenge is sustainable development, construction and operation of the hotels, alignment of the facilities with international standards, and improving the infrastructure through the development of roads.

Conclusion

The hospitality industry has evolved into a great investment opportunity due to its global tourism potential. Pakistan has immense tourism potential due to its unique geographical landscape. If tapped carefully, the tourism potential can significantly boost Pakistan’s economy. However, the hospitality sector is marred with several challenges, for potential investors willing to invest in the industry. With alternate options available for tourists, including the economically friendly Airbnb and, local houses with ‘paying guest’ options in northern areas, investment in the development and construction of hotels becomes a difficult decision. Due to the lack of infrastructure and resources, Pakistan’s tourism and hospitality sectors have not been able to grow at par with international standards. The socio-political factors have also been contributory to the cause. Moreover, the lengthy regulatory requirements to obtain the relevant approvals, licensing and registration of the hotel demotivate the investors. The Covid outbreak has also severely hampered the tourism economy. Nonetheless, Pakistan is building infrastructure and facilities including roads through its CPEC project. Investors are keen to invest in the hospitality sector owing to the increasing local tourism.