Cuban thaw poses tourism threat to Caribbean neighbours
Cuban thaw poses tourism threat to Caribbean neighbours
The sight of the Stars and Stripes being hoisted over the newly opened
US embassy in Cuba last week, was one of the most visible signs yet of
the diplomatic rapprochement between the long-term foes.
If President Barack Obama gets his way, the US Congress will soon go
further still and lift its 55-year-old trade embargo on the island.
Such a move would be a major boon to the Cuban economy, not least by
unleashing a torrent of big-spending American tourists on the island,
which has largely been starved of such arrivals for more than half a
This, however, could prove disastrous for some of the small islands
elsewhere in the Caribbean which are heavily dependent on tourism. They
could see much of the US tourism trade they have come to reply on
decamping to the large, and quite possibly cheaper, new competitor in
“Although the embargo and travel restrictions remain in place, an
eventual lifting of sanctions would be a watershed event for the
region,” says Claudia Calich, emerging markets debt manager at M&G
“Countries that have the majority of tourists coming from the US are the
ones that will stand to lose the most as these tourists head to Cuba
instead. That could be disastrous for some.”
An IMF working paper published in 2008 said a hypothetical opening up of
Cuba to US tourists would represent a “seismic shift” in the Caribbean’s
“An industry-wide shock such as this occurs once in 100 years.
Neighbouring destinations would lose the implicit protection the current
restriction affords them, and Cuba would gain market share,” said the paper.
It warned that some countries’ over-reliance on US tourists left them
“vulnerable” to such a “supply shock” and potentially facing long-term
The IMF paper’s central forecast was that an embargo-free Cuba would
attract 3m US tourists a year, making it the largest destination in the
region for Americans.
To be fair, not all of these tourists will be siphoned off from its
neighbours. Firstly, the IMF estimated that the opening up of Cuba would
increase overall arrivals in the Caribbean by somewhere in the region of
2-11 per cent.
Secondly, Cuba would face some short-term supply constraints as it
builds its tourism infrastructure to cope with an influx.
The IMF’s 2008 assessment (which has not been updated since) suggested
Cuba had “substantial” excess capacity, with enough hotel rooms to cope
with a doubling of tourists.
However, 3m extra tourists would have implied a more than threefold
increase from the 1.4m it was attracting at the time, implying that some
of its Canadian and European visitors would be displaced, quite possibly
to other Caribbean islands.
The numbers have changed somewhat since then the IMF’s assessment, though.
Cuba has seen its tourist arrivals more than double to 3m a year, but
its capacity has also risen. London & Regional, which announced plans
for a $500m luxury Cuban resort in June, is just the latest to eye-up
the country’s potential.
The IMF’s 2008 figures, which take into account its forecast of the
displacement of non-US tourists from Cuba as Americans arrive, may still
be instructive however. And they are not pretty reading.
It predicted falls in visitor numbers of 35.5 per cent for the US Virgin
Islands, 31.1 per cent for the Bahamas, 29.9 per cent for the Cayman
Islands and 29.7 per cent for Aruba.
Declines of 18 per cent or more were also foreseen for Anguilla, Turks
and Caicos, Bermuda, the British Virgin Islands, Belize, Jamaica, St
Kitts, Panama, St Maarten, Costa Rica and the Mexican resort of Cancún.
Perhaps unexpectedly, there were also a handful of winners, with the
likes of Martinique and Guadeloupe seen as attracting more
French-speaking tourists displaced from Cuba than they lose in American
For some of the losers, the impact could be painful, however. The small
island of Aruba, located 29km from the coast of Venezuela, generates
88.4 per cent of its gross domestic product from tourism, the highest
figure in the world, according to the World Travel & Tourism Council, a
trade body (see the first chart).
A number of other Caribbean states, including the British Virgin
Islands, Anguilla and the Bahamas are also in the top ten most
tourism-dependent countries in the world, with more than 40 per cent of
the GDP being generated by the sector.
Several Caribbean states already have significant debt burdens and
relatively lowly credit ratings, with the likes of the Bahamas, Barbados
and Trinidad & Tobago on negative watch from at least one rating agency
(see chart below).
Ms Calich says she remains comfortable holding sovereign debt from the
Dominican Republic, a country with 6m tourist arrivals a year and
another country that the IMF saw as a small net gainer from the opening
up of Cuba.
But she says the analysis “has reinforced my credit concerns over
smaller islands such as Aruba and the Bahamas”, where credit trends and
ratings are “skewed to the downside”.
“Typically the smaller economies have less potential to diversify. For
every Bermuda (insurance) or Cayman Islands (financial services), there
are other countries that are struggling to diversify,” she adds.
“As debt levels creep up there are also other likely losers from the
David Scowsill, chief executive of the World Travel & Tourism Council,
is more upbeat, however.
His assessment is that the Cuban industry is essentially operating at
capacity, with visitor numbers rising 5 per cent last year (when the
industry accounted for 10.4 per cent of GDP) and a further 14.3 per cent
so far this year.
Moreover, it will take time for the country to build the hotels and
other infrastructure it will need to accommodate more tourists, although
it could probably host more cruise ships, which are not reliant on hotel
This means, for the time being at least, a surge in arrivals from the US
would essentially displace non-Americans, meaning they were up for grabs
by neighbouring islands.
“I don’t see any negative impact, certainly for the next two to three
years,” says Mr Scowsill. (He makes the same assessment of Haiti’s plans
to substantially expand its tourist infrastructure, which could
potentially damage the Dominican Republic, given that the country’s
share a land border and the Dominicans attract 15 times as many tourists
Overall, Mr Scowsill notes that tourism to the Caribbean in general
continues to rise, meaning there is scope for more winners than losers,
whatever the US Congress decides.
Source: Cuban thaw poses tourism threat to Caribbean neighbours – FT.com