Investing in Tourism

A fewdays ago in London, the Bahamas Prime Minister, Perry Christie, told a meeting organisedby Caribbean Export that the region needed a new formula to maximiseinvestment.

CaribbeanExport’s message was the same. The organisation’s Executive Director, PamelaCoke Hamilton suggested that the region had to move on. She indicated that theorganisation hoped that when Caribbean Heads of Government next met they would adopta draft regional investment strategy that places the economic emphasis infuture on the areas where the region has competitive advantage and can makerelatively rapid and significant gains: tourism, renewable energy, businessoutsourcing or, as other speakers suggested, the opportunities that arise outof the region’s strategic location or the growing global interest in its blueeconomy.

Particularlystriking was a new regional investment promotional video. In it, successful largeinternational investors operating in value-added and knowledge-based sectors spokeabout why they had located their operations in the region, set in part againsta background of non-traditional business images of Health City in Grand Cayman,St George’s University in Grenada and the innovative Boucan, Hotel Chocolat hotelin St Lucia.

Morespecifically, in an address that mixed the impromptu with the prepared, MrChristie suggested that the region did not speak enough about tourism as agenerator of economic activity. “Tourism has not matured equitably in ourregion”, he observed. “Tourism and niche industries will be the future engineof growth for most of the 40m citizens of the Caribbean”, he said.

He sethis remarks against the now widely accepted recognition that the only realisticway in the short to medium term to create significant GDP growth across theCaribbean – given the high levels of debt and the socially tough fiscaladjustment programmes many countries having to address – is through theencouragement of foreign direct investment,.

MrChristie’s comments and Caribbean Export’s emphasis on investment in tourismand its allied sectors are of particular significance at a time when significantgrowth in the industry seems attainable.

Statisticsproduced by PKF Consulting in their 2015 editionof ‘Trends in the Caribbean Hotel Industry’ indicate that Caribbean hotelsexperienced a 17.3 percent increase in their net operating income (NOI) in2014, marking the fourth consecutive year that Caribbean hotels have seen adouble-digit increase in NOI. PKF also noted that with room revenues rising by7.4 percent, largely as a result of a 5.1 percent increase in average dailyrate (ADR), the average Caribbean hotel surveyed was able in 2014 to translatea 5.0 percent growth in revenue and well contained costs into a 17.3 percentincrease in their bottom line.

Regional visitor arrivals statistics tella similar growth story, albeit in a different way. In 2014 26.3mvisitors chose the Caribbean, a 5.2% increase over the 25m that travelled tothe region the year before. In the first six months of this year alone according to just published figures from the UN World Tourism Organisation,visitor arrivals to the Caribbean increased by 7 per cent, with thehighest overall growth coming from the US.

In other words visitor demand is increasingand if Caribbean governments are serious about returning their countries togrowth and economic stability they need to focus much more on tourism and itsintegration with the wider domestic economy.

They ought also to be thinkingmuch more about what happens when Cuba comes fully in to the US market and abouthow they intend responding to the rapidly increasing demand from US citizens tovisit.

Last winter and spring hotel occupancy in Havana ran at virtually at 100per cent with room rates increasing accordingly. The implication is that beforetoo long US arrivals will drive the need for substantial internationalinvestment in new hotels and allied facilities in Havana and beyond at theprobable expense of the rest of the region. So evident has this become that Mexican,Colombian, French, Spanish and many other investors, together with theirgovernments are now rapidly exploring the possibility of working with Cubanenterprises to invest in and manage new hotels across the country.

Cuba’s opening to the US also make the strongest case for the rest ofthe region to diversify the source of their visitors as international andinter-regional competition becomes more intense. Governments with the industryought also to determine rapidly the relative weight to be given to finding new feeder markets, orcreating new niches in existing markets in North America and Europe.

The issue is particularly challenging when it comes to completely newmarkets as this requires airlift and a host of accompanying arrangements involvingairlines, tour operators and other service providers, as well as longer leadtimes and usually some form of significant financial incentive.

There is also the related unresolved issue that Cristina Jönsson, a tourism lecturer at UWI’s Cave Hill Campus, and a UWI managementstudies graduate, Nicola Harrison, pointed out earlier this year in a paper lookingat what Brazilian visitors expect from a vacation. In brief, this found thatnot enough notice was being taken of visitor motivation when targeting newmarkets. As a consequence, Brazilians werenot finding in Barbados what they most wanted: loud beach life, spontaneity,adventure, parties, eating out very late, nightlife, and for some in theindustry to be able to speak Portuguese.

The implication is that for some destinations theremay be more value in identifying the increasingly diverse range of niche opportunitiesin sub-sectors of the already known European and North American market in areassuch as faith based tourism, sporting events, entertainment in the form ofmusic festivals, or in considering a market that remains socially contentiousin most Caribbean nations, the encouragement of high-spending visitors from thelesbian, gay, bisexual and transgender (LGBT) community.

If there was ever a moment whenCaribbean Governments ought to recognise fully and publicly the strategic and commercial importance of tourism, agree the challengesthe industry faces, and encourage on a regional basis new investment, this isit.

DavidJessop is a consultant to the Caribbean Council and can be contacted at

david.jessop@caribbean-council.org

Previouscolumns can be found at www.caribbean-council.org