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Caribbean Fears Over Cuba’s Tourism May Be Misplaced, Reveals IMF Working Paper

Caribbean Fears Over Cuba’s Tourism May Be Misplaced, Reveals IMF Working Paper

WASHINGTON, D.C. May 1, 2017 (CMC) – The International Monetary Fund (IMF) says, fears by Caribbean countries that the opening up of United States-Cuba tourism could seriously impact the sector in the region, “may be misplaced”.

In a Working Paper titled “Revisiting the Potential Impact to the Rest of the Caribbean from Opening US-Cuba Tourism”, the authors found that “there is no reason to suggest that the sector will not continue to expand in the future”.

The paper noted that the Cuban revolution and the subsequent US embargo on Cuba, helped shape the tourism sector in the Caribbean, facilitating the birth and growth of alternative destinations.

“Therefore, the apprehension of the Caribbean tourism industry towards a change in US travel policy to Cuba is understandable, but likely unwarranted. The history of tourism in the region has shown that it is possible for all destinations to grow, despite large changes in market shares.

“Our estimations show that liberalizing US-Cuba tourism could result in US arrivals to Cuba, of between three and 5.6 million, most of it coming from new tourists to the region,” the Working Paper noted, identifying also the destinations most at risk of changes in US-Cuba relations.

The authors of the Working Paper – Sebastian Acevedo, Trevor Alleyne, and Rafael Romeu – argue that the potential opening up of US-Cuba tourism has the Caribbean region concerned, and understandably so.

“After all, the US is the single largest tourism market for the Caribbean and, for most countries, the most important source of tourists. Nonetheless, the analysis presented in this paper suggests that this anxiety may be misplaced.

“Tourist arrivals have grown throughout the region (with the exception of The Bahamas) over the last 20 years, accommodating rapid expansion in some destinations (Cancun, Cuba, and the Dominican Republic).”

They said as such, there is no reason to suggest that the sector will not continue to expand in the future, noting that while tourism shares have shifted, with Cancun, Cuba, and the Dominican Republic becoming larger players in the region, the rest of the destinations have still managed to grow their sectors at respectable rates, even as their market shares have declined.

“Furthermore, Canadian tourists have been the fastest growing market in the region and, in particular, have become the most important market for Cuba. And still Canadian tourism has grown in all destinations at a very fast pace, despite the fierce competition with Cuba. There is no reason to believe that free travel between the US and Cuba would be very different.”

The Working Paper notes that there will be a period of adjustment and more intense competition, which, as in the past, the Caribbean destinations must confront with sensible policies.

“But the process is likely to be gradual, for example, Cuba will also need to adjust its economic policies to be able to scale up investment and improve the quality of its tourism services. This will allow time for other Caribbean destinations to adapt to the new equilibrium, and tourism flows will continue to grow.”

The Paper notes that while an analysis has shown that completely removing the US travel restrictions to Cuba would significantly increase tourism flows, this increase will not happen overnight, because of many factors, including the fact “even if there were a sudden and complete removal of travel restrictions, it would take some time for the tourism industry in the US and Cuba to adapt, and absorb more US visitors to Cuba”.

The authors argue that the change in US policy is expected to benefit the region, as a whole, as the models indicate that aggregate tourism flows will grow.

They said the increasing US tourism demand in Cuba will push prices up and result in a shift of some Canadian and European tourists, who would have otherwise visited Cuba, to travel to other Caribbean destinations. This will partly offset any potential loss of US tourists that some destinations might suffer in the adjustment phase to the new equilibrium.

“There are some policy recommendations that will help Caribbean tourism destinations confront the increased competition from Cuba in the US market. Despite their generality, they are worthwhile in their own right.

“Our analysis shows that dependence on the US market is large, and while this dependence is understandable, in terms of the proximity and size of the US market, a diversification strategy that targets other advanced economies and large emerging markets, in Latin America, would be beneficial.

“Improving the competitiveness of the tourism sector will be crucial, and improving quality and reducing costs will help countries compete with a low cost provider such as Cuba. Finally, thinking of regional strategies to facilitate intra-regional travel would help bring the possibility of multi–destination vacations. This would help the rest of the Caribbean to benefit from the new tourists that will start visiting the region when the US opens up free travel to Cuba.”

The Working Paper notes that it is encouraging that the region is actively addressing some of these challenges.

“The tourism authorities and local hoteliers are proactively embarking on efforts to enhance their tourism product, by tapping into new markets; developing new products; promoting investment; building new partnerships; and developing human capital.

“In addition, the Caribbean Hotel and Tourism Association has been actively engaging the Cuban authorities to explore partnerships in promoting multi-destination initiatives. These various initiatives should mitigate the risk of a decline in tourist arrivals from the US to the Caribbean.”

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