The Brazilian tourism industry was enjoying exceptionally good health until 2001, when it was hit by a series of events: The attacks of September 11, the Argentine crisis, and the uncertainties generated by the victory of Luis Inacio Lula da Silva in the 2002 presidential election. On top of that, Brazilians lost buying power as a result of a series of financial crises, and the slowdown in the country’s economy. In 2003, Brazil’s GDP grew by a mere 0.5%, according to the IBGE, the Brazilian Institute of Geography and Statistics. All these events combined to create troubled times for those who expected Brazil’s tourism market would take off.


”The drop in demand especially hurt the hotel industry, which lives off the tourism business in such major cities as São Paulo,” notes Ricardo Mader Rodrigues, a partner with HIA (Hotel Investment Advisors), a consulting firm. With so many international hotel companies investing in the country’s major cities, there has been an excess supply of rooms. Meliá, Renaissance, Intercontinental, Fasano and Sofitel are all in São Paulo; Ouro Minas is in Belo Horizonte; Sheraton is in Porto Alegre; Blue Tree Cabo is in Santo Agostinho; and Somerville is in Pernambuco. There are also five luxury projects along the Costa do Sauípe in Bahia. No wonder occupancy levels have been lower than anticipated.


“This fact is clear: There has been an explosion of supply, especially in hotels,” notes Marcello Chiavone Pontes, director of marketing at the MBA program of the Armando Alvares Penteado Foundation. “However, I believe that the decline (of the industry) is not related merely to the economic crisis. The boom was very big … It took a long time before there were no more hotel openings and then, suddenly, there was an enormous boom. In reality, one part of our history is the crisis; the other is an excess of supply.”


Expectations regarding investment in urban tourist hotels won’t improve overnight, only in the middle and long term. An exception is Rio de Janeiro, where business travel and tourism coexist in a unique way. In addition, Rio will be the site of the Pan-American Games in 2007.


The First Signs of Recovery

On the other hand, the Brazilian economy is starting to show signs of recovery. In the first half of 2004, the country’s GDP grew 5.3% compared with the same period in 2003. Even so, many observers don’t forecast important changes for the hotel industry in the short run. “There are still some areas in Brazil that may attract significant investments, but not at the pace that they did before,” says Chiavone.


Not everyone is pessimistic. Investment in the hotel sector has declined but it has not entirely stopped, according to a report by the Brazilian Hotel Industry Association (ABIH). Eraldo Alves da Cruz, president of the ABIH, says, “Throughout the country, you can still see investments occurring. We have a map of hotel investments – projects that are already specific – for construction from 2004 through 2007. It adds up to a total of 142 hotels, 6.12 billion reais, and 44,751 new rooms, which will generate 59,602 indirect jobs and 14,901 direct jobs. These projects will be located, by and large, in the Southeastern part of the country because the interior of São PauloState is highly coveted by all the big companies, Brazilian and foreign.”


A Change in Direction

To change course, the country will have to rethink its approach to tourism, says Chiavone. It will have to create a governmental policy toward tourism and make tourism a priority. “Brazil has never made it a priority,” he notes. “The dear Lord created Brazil for us: the coast, the beaches, the vegetation, the diversity of natural configurations. Now, we have to build the infrastructure. The government needs to create priorities.”


On the other hand, Eraldo da Cruz believes that management in the tourism sector has made great strides. “These days, tourism is decentralized, and we have a Ministry of Tourism. In the old days, we had no ministry of tourism per se; it was part of the sports ministry. Now we can count on a strong minister who represents us. I have a very good feeling about what he is doing, and I hear that we have an opportunity to make lots of progress,” says da Cruz.


It’s worth remembering that the limited expansion of the hotel market within large metropolitan areas has a very negative impact on local economies. For example, São Paulo attracts about 34% of all foreign tourists who come to Brazil, mostly from Europe and the United States. These days, São Paulo is the second most popular destination for tourists, surpassed only by Rio de Janeiro, for obvious reasons. In addition, São Paulo is the site of about 76% of all industrial fairs and exhibitions, scientific congresses and business conventions. Despite these numbers, restrictions on the development of tourism affect the performance of this market, which has enormous potential.


Mader believes that the only way to redress this situation “is through accelerated growth of the economy and a more equitable redistribution of income.”


Two Sides of the Coin

Another problem is Brazil’s negative image abroad because of publicity about growing violence inflicted on tourists, especially in Rio de Janeiro where most foreign tourists enter the country. So far, statistics do not show any significant decline in the number of foreign visitors as a result of this violence. However, it could eventually have an enormous impact on the performance of the hotel and tourism sector as a whole, analysts agree.


Despite the bad news, Brazil’s Central Bank reported recently that foreign tourists spent $2.59 billion in Brazil from January through October 2004, or 32% more than they spent during the same period in 2003.


“Lots of good things are happening,” notes da Cruz. “The numbers make me optimistic. Both domestic and foreign tourism have grown. The number of foreigners entering Brazil grew 15% from 2003 to 2004, according to INFRAERO, which manages Brazil’s airport infrastructure. Among unscheduled chartered flights there was a 110% increase in arriving passengers. When it comes to domestic arrivals, there was an 18% increase in passengers. I believe that the economy of Brazil is moving forward; this process will continue, and tourism is going to improve.”


Mass Tourism Moves Ahead

According to Mader, mass-market hotels for tourists are also showing encouraging signs. European investors from midsize hotel companies, mostly Portuguese and Spanish, are buying up hotels and even building new rooms, especially in the Northeast. “Despite the collapse suffered by global tourism after September 11, the Argentine economic crisis, and the political transition in Brazil in 2002, it seems that tourism is becoming strong again in our country, as we hoped,” says Maria Aparecida Andrade de Oliveira, an expert on tourism.


Mader is also fairly optimistic about the challenges facing the tourism market. “I see good prospects up ahead so long as the economic growth we see today is sustained in coming years.” He cites investments being made to create three-star hotels targeted at business tourism. “There are still good investments and launches in this sector.” That view is supported by the findings of the October 2004 report of the Brazilian Institute of Tourism (EMBRATUR). Their survey of hotel executives found that 55% expected to increase their investments over the next 12 months, and 30% planned to maintain investments at the same levels. Only 15% wanted to cut their spending.


Gold Mines to Exploit

Tourism complexes are an area that still has a lot of untapped potential, says Chiavone. “We have the entire Northeast coast, where there are already lots of rooms, but there are other regions, including other parts of the Northeast; the North; the Amazon; the Pantanal; the Lençois Maranhenses; the Mesetas…” Da Cruz recalls another sector of the hotel industry that is continuing to develop. “The big star now is the economical, lower-priced hotel. It is more in tune with the Brazilian population. There are no luxuries or messenger services, etc., but the lower-middle class can stay without damaging their pocketbooks. In Brazil, there are 40 million people who travel but barely 16% of them ever stay in hotels. That means we can target the other 84%. Because of their limited funds, the only solution is to put these people in more economical hotels.”


Experts agree that this sector has a future, so long as Brazil continues to grow at a sustainable rate and people work together to improve conditions. That way, the doors will remain open in an economic sector that supplies about one million jobs, directly and indirectly, supplies tax revenues of about $2 billion a year and has fixed assets of about $10 billion.