Cuba Invests Big Time in a Shrinking Tourist Industry

Photo: Ethan Rheams

By Rachel D. Rojas  (Progreso Weekly)

HAVANA TIMES – In 2019, Cuba declared tourism one of the six strategic sectors of the National Economic and Social Development Plan for 2030. In the words of Minister of Economy Alejandro Gil, during his presentation of this plan to the National Assembly of Popular Power, for gains in social and economic development, tourism “represents a potential generator of financial currency, which has a spillover and drag effect on other economic activities.”

In the past President Miguel Díaz Canel has also referred to the importance of the tourism sector for the nation’s economy. However, end of 2019 figures published by the Office of National Statistics (ONEI) are well below what was planned for the first phase (2019-2021) of the proposed plan.

Although the official forecasts called for almost 5 million visitors to the Island, the data shows that the numbers did not reach 3.5 million. Since June 2019, the ban on cruise ships, yachts and private planes from the United States, as part of the tightening of the economic sanctions against Cuba, were finalized. The blockade reduced the already limited arrival of North Americans, consolidated since 2015 as the second largest market for visitors to Cuba, by only 5.2 percent, according to ONEI figures.

Given the contraction of a sector that contributes 10 percent of the Cuban Gross Domestic Product, the country’s strategy, according to the director general of Development, Business and Investment of the Ministry of Tourism (MINTUR), José R. Daniel Alonso, is to guide the investments of Cuban state-owned businesses, and international businesses, to expand the country’s accommodation capacity.

On this, there are mixed opinions from economists. Cuban economist Pedro Monreal explains it in simple terms: “The plan is to invest, in 2019, more than 3 billion pesos (120 million USD) — 6 times what is invested in agricultural activity — in a sector such as tourism, which has an idle capacity close to 50 percent and whose estimated visitors have just been reduced by 10 percent.”

On the other hand, economist Alejandro Figueras, an advisor to the ministry in question, explains that dismantling the organization and coordination of current construction projects would delay the process when resuming it in the future. Re-starting the dynamics of expansion that has been achieved so far, and with results similar to those of 1998 — when tourism grew tremendously — would not be achieved in an instant.

“It’s been 20 years since 3,000 hotel room were built in a year, until last year. We might consider reducing the number of rooms built, but that’s not the government’s plan, which is to continue adding to room availability, and that has a cost for hotels with low occupancy,” added Figueras.

According to figures from an unpublished study conducted by Professor Figueras, in 1991 there were 12,000 hotel rooms for tourism in Cuba, and there were approximately 340,000 visitors. In 2019, the country had 72,657 rooms (an increase of 60,000) and received a total of more than 3 million tourists (an increase of almost 90 percent). However, in more than 30 years of tourism development as an economic sector, the income for each tourist that arrives in Cuba is now lower: $600 as compared to $700 in 1991.

Taken in context, in a weakened economy the question of prioritizing these investments when there are so many other needs in the country is up in the air. About half the rooms are empty and the income produced by the tourism sector itself has decreased at the same rate as the arrival of tourists.

Graph by Cuban economist Pedro Monreal. Note: The 2018 investment data has been compared with the expected investment figure for tourism in 2019. The graph is not intended to be accurate, but rather to offer a comparative view of the levels of investment between different sectors. It reads, 2018 investments in millions of pesos: Education; Science and technological innovation; Public health; Agriculture, Transportation and communications; Non-sugar industry; Electricity, gas and water; Tourism.

But even if reality surpasses predictions, by 2025 — the last year of the Ministry of Tourism’s (MINTUR) plan — there will be different realities then in both Cuba and the United States that are different. In Cuba, for example, and according to the Constitution, there will be a new administration. In the United States, even if Trump wins reelection in 2020, there will be a new president. And even with a new US administration dominated by the Republican Party, tensions may not be as defined as they are today. We will then be exposed to a new and unexplored scenario — possibly with a different combination of options. 

Cuba, whose duty is to work for today and tomorrow at the same time, could be betting on an increase in future tourism, which impacts the national economy as unexpectedly as the boom of 2015 and 2016, after the declaration of normalization of relations between Cuba and the United States.

Tourism was the salvation of the 1990s. More than three decades later, external circumstances continue to be aggressive against Cuba, the country seems headed into a new, or perhaps a second, economic crisis, and the results continue being not those projected as the salvation. The expected miracle, then, needs other drivers to make it happen.

13 thoughts on “Cuba Invests Big Time in a Shrinking Tourist Industry

  • February 2, 2020 at 9:10 pm

    The Cuban government must move fast on foreign ownership of private property such as land, residence, car, etc. and possibly pilot a new project with Canadians who constitute the largest segment of the tourist population in Cuba. Why not allow private ownership of homes to Canadians and have them invest in infrastructure development of cities and towns that need better roads, bridges, electricity, internet, etc.?

    As a Canadian who visits Cuba more than four times per year, I do not see why if I decided to own a residential property in Cuba I could not do it because of an archaic government rule that does not believe in private ownership. Canadians like me are ready to pay property tax on homes and lands we could own in Cuba the same way we do in Canada. Say, if a house is worth $50,000 pesos, the yearly tax amount could be $5,000 pesos that goes directly to government coffers. Imagine the economic opportunities that will result from such a new reality in Cuba.

    We are talking about a potential boom in real estate and construction which would, in turn, spur economic renewal and prosperity to large areas of the island.

    But for starters, let the government designate pockets within Cuba that may be available for foreign investors to own land and build homes. Take for instance Santiago de Cuba. It is one of the most beautiful and warm provinces in Cuba with ocean and mountain living side by side. The outskirts of Santiago de Cuba are still for the most part underdeveloped and not on the government’s agenda for any major economic transformation. Santiago de Cuba could be an area of potential private land ownership and a great pilot for such an endeavor.

    The government can introduce private foreign ownership of homes and small business in designated areas of Santiago de Cuba. Let foreigners open new restaurants, motels, restaurants, convenience stores and supermarkets, health and wellness clinics, car rental agencies, etc. in these designated areas that can be turned into enclaves and communities where foreigners can live the way they desire.

    The Cuban government can and should have in place special legislation for foreigners. Create a parallel judicial system and police force that provide foreigners the peace of mind they so deserve and the level of freedom they are accustomed to having in their neck of the woods. Let them pay for all of these services with tax on goods and services. Have in place a GST rate that is reasonable and one that provides the Cuban government an additional source of income.

    Without exploiting such opportunities, Cuba will remain caught between a rock and a hard place: between a nasty American blockade that does not seem to let go of Cuba and an economic system that cannot respond quickly to internal and external challenges.

  • January 31, 2020 at 12:46 pm

    As with a comment above, Cuba is full of contradictions – is an understatement!
    Just on such example points to their leading work in horticulture or organic farming. Yet there are vast parcels of land sitting idle and producing nothing. Cuba needs to invest more in agriculture, not only for produce exportation but to further supply to its own!

  • January 25, 2020 at 6:27 pm

    Every Country thrives on Tourism especially the USA and Europe. There are Countries that the Department of State forbids tourists to travel to due to various conditions i.e. treatment of Human Rights, Diseases vulnerability, war zones, etc.

  • January 25, 2020 at 5:36 pm

    We have been visiting Cuba for 25 years. We like to go to Playa Costa Verde for many reasons. The staff are familiar, the beach has shade, the ocean is warm and accessible. The hotel is showing its age and it seems they don’t have the means to do repairs. We had no hot water in our room for 2 weeks. Originally all rooms needed the room key in a slot to prevent electric use when the key was removed. No Air conditioning when the door was open. None of these environmental measures work at all. As Canadians we understand the problem with food shortages and are fine with that. Cuba could grow a better variety with such and ideal climate, and some modern irrigation practices. On the hotel grounds alone they could have fruit trees, to supply the resort. We will continue to spend our annual vacation budget in Cuba, but I would be reluctant to recommend it to a first time visitor who might have different expectations, and who haven’t had time to fall in love like we have

  • January 25, 2020 at 10:03 am

    NWrigley, the reduction of US visits to Cuba doesn’t only hurt American people who want to visit family in Cuba! It effects Cuban people in Cuba. The loss of revenue has a powerful effect that trickles out in all directions. It ripples through the very tourism sector this article refers to. It hurts Cubans who make money on US visitors one way or another– but clearly in many ways. When US visitors spend money in Cuba, that money is roughly 24X more powerful (CUC) than their own currency (CUP). Also, if you believe as I do that every US visit has the potential to open the minds of US visitors and Cuban citizens in Cuba, then there’s that impact as well…Cuba is full of contradictions and gray areas, but one thing is clear–the 2016-2018 boom of US tourism seemed to bring lots of money into Cuba, and more importantly, it fueled a sudden rise in private sector business–from small scale street sellers of every kind, to drivers, tour guides, fixers, money changers, and of course larger scale business run more seriously.

    Whether or not that influx of money had some negative ramifications is debated–I think it did, but what phenomenon doesn’t have pros and cons? And as one of my Cuban friends often says, if Cubans want McDonald’s, who are we to say they ‘shouldn’t’ have it? I don’t really want to see Cuba become just an extension of the US economy–I hope they can build out their own, eventually–as they had begun to do in the last few years. But it shouldn’t really be for us to say what the specifics are in that economy. All we can and should support is their own freedom to pursue what they want to pursue. That may come with some regrets 50 years later when they look back, but that is reality.

  • January 25, 2020 at 9:56 am

    I just got back from Cuba yesterday. I will return just because it really moved me how lovely the people were to me, they took such good care of us and the country is so incredibly beautiful and interesting. The only thing that I won’t look forward to on my next visit is the cost of getting around due the unavailability of buses. The food obviously could be improved on and the high cost of getting a bit of wifi when you really need to plan your excursions. The Casa Familiars were far, far superior and cheaper than the Hotels. The government should also allow Cubans to rent Hotels at the same price as foreigners, it is grossly unfair that they can’t afford to holiday in Cuba, especially when they cannot holiday abroad. They tell me that the cost for them is three times higher to stay in their own Hotels.

  • January 25, 2020 at 9:37 am

    Also take into account Thomas Cook went under which carried nearly 500 passengers a week from Manchester to Cayo Coco and the same with holguin and varadero that’s 1500 approx every week. This is surely a great miss to the industry. Let’s hope that another airline takes over this route

  • January 25, 2020 at 9:30 am

    I too have been to Cuba many times, by far my favorite Caribbean destination. One other thing the Cuban government should concentrate on is the maintenance of existing tourist facilities. Fixing what they have before building new. A number of resorts are in real need of a face lift. The reason a lot of people return is for the Cuban people not the resorts. Too often we hear “it is very good for Cuba.” A few upgrades and innovations in supply management would make this a desired destination, not a cheap place to visit.

  • January 25, 2020 at 8:46 am

    “In the United States, even if Trump wins reelection in 2020, there will be a new president. And even with a new US administration dominated by the Republican Party, tensions may not be as defined as they are today.”

    I’ve been aware that a schism existed in the Republican Party on the eve of Bush Jr’s inauguration as to whether or not trade sanctions on Cuba should be lifted, but I’m hoping Joe Biden wins the Democratic presidential nomination, names Andrew Yang as VP, and coasts his way to victory in November with almost 60% of Cuban American voters in FL because he will pan Donald Trump for screwing up consular services at the US Embassy in Havana and scaring away many Canadian and European investors from Cuba by activating Title III of Helms-Burton (which I now think Clinton shouldn’t have signed given its extraterritorial nature; few lawsuits files so far). And if Biden wins the election, then the Berniecrats will go home and realize of ultra-leftist ideology had no place in America and Biden will order Title III and some other parts of Helms-Burton redacted.

  • January 24, 2020 at 6:59 pm

    I have been to Cuba many times, love it. The problem with the hotel building boom is the room prices. I have had several people in Havana say too bad Canadians go to Varadero and not as often to Havana. New hotels will not solve this…… many of the new hotel rooms are going for 300, 400, or more CUC per night. Canadians can go for a week to Varadero, airfare, transfers, room and meals for from 600CUC -1300CUC total. There are not many tourist that will pay the high price the new hotels are expecting. No wonder they are experiencing low occupancy. I can stay in a very nice casa in Havana for 50CUC a night. No idea what the new hotels being built in Varadero will be charging.

  • January 24, 2020 at 10:56 am

    But don’t forget A World Economy slowdown in the assessment. What goes up also comes down and the up and down cycle is very hard to predict.

  • January 24, 2020 at 10:06 am

    Cuba must have entered into an agreement with Russia to subsidize or reduce the cost of hotel rooms. In December there were well over 300 Russians in one hotel in Santa Lucía (Camagüey). There are other countries that can fill these new hotel rooms other than the US. The reduction in flights from the US only hurts the American people who want to visit family in Cuba.

  • January 24, 2020 at 8:54 am

    Tourism will probably always be the number one economic driver in Cuba certainly for the foreseeable future. Its geographic location in the Caribbean and its relative enormous size for an island in this area makes it ideal for tourists from North America and Europe who want to escape the cold winters.

    But as the saying goes: Don’t put all your eggs in one basket. Economically, Cuba needs to diversify its economy so that it can weather economic downturns which will occur be it in tourism or any other sectors. The island has huge empty expanses of land suitable for agriculture from Pinar del Rio in the north to Guantanamo in the south stretching east and west also. There are countries in Latin America much smaller in geographic size, such as Costa Rica, Honduras, who fully utilize their climatic advantage to successfully export agricultural products such as pineapples, bananas, plantain, and other tropical fruit to markets in Canada and elsewhere. I understand because of the United States embargo and the Helms-Burton law, Cuba, through no fault of its own, is restricted from trading with other countries. This is a shame and internationally unacceptable.

    However, looking into the future, one day, the United States policy towards Cuba will change and Cuba needs to be prepared to begin looking at exporting what it has a relative economic advantage in and that is successfully growing and exporting products that North American consumers always buy and relish eating. Like tourism this is a potential market that is worth millions of dollars in economic activity.

    As the article rightfully states: “The expected miracle, then, needs other drivers to make it happen.” Keep concentrating on Cuban strengths: tourism and agricultural exports which it has a relative advantage.

Comments are closed.