Latin America Advisor

A Daily Publication of The Dialogue

Can the Caribbean Tourism Industry Withstand Covid-19?

Hotels, resorts, cruise lines, local tour providers and other companies in the Caribbean’s tourism sector are seeing numerous cancellations and are bracing for a severe downturn amid the coronavirus pandemic. // File Photo: Jamaican Ministry of Tourism. File Photo: Jamaican Ministry of Tourism.

The coronavirus pandemic has brought most of the cruise industry to a halt as companies including Royal Caribbean and Norwegian Cruise Line have temporarily halted U.S. sailings. Even before the suspensions, officials expressed alarm in the Caribbean, including in Jamaica, where the country’s tourism minister said the island had welcomed 50,000 fewer cruise ship passengers than normal in recent weeks. How big of an impact will Covid-19 have on tourism in the Caribbean, and which countries face the most severe effects? What should government officials in the Caribbean do to prepare their countries and mitigate the consequences? How well are tourism-related businesses, such as cruise lines and hotels, handling the situation?

Anton Edmunds, Saint Lucia’s ambassador to the United States and permanent representative to the Organization of American States: “The Covid-19 pandemic may be catastrophic to Caribbean tourism and regional economies. While media focus has been on the cruise industry, land-based tourism is also being battered. In fact, this segment of the industry is the major economic driver for most Caribbean countries—with its value in terms of revenue far outpacing the cruise industry by more than 10 to one. It is the larger employer of people on the ground, the largest foreign-exchange earner, and it contributes significantly to tax revenues, making it the key determinant of whether governments will be able to service their debts. With the shutting down of routes from key markets, stay-over visitor numbers will decline as cancellations increase. Diminished diaspora travel from April to July, which follows the traditional winter high season, will also have financial repercussions. Beyond hotel owners and operators, the impact of the pandemic extends to suppliers, farmers and ground-based transportation providers—that is, small businesses and entrepreneurs. There is probably nowhere within the regional economy where the impact will not be felt. So-called middle-income Caribbean countries, among the most highly indebted nations in the world, are at real risk of recession. From a governmental standpoint, countries are being forced to find a way to prop up their economies with very limited tools available to them. The suddenness of the spread of the virus has allowed no time for planning, and already tight fiscal space offers very little relief. The reality is that any efforts to infuse capital into the markets will be constrained by Caribbean governments’ limited access to cash. I expect that the urging by many will be that the international financial agencies develop a special fund and/or plan. In fact, a financial reset may well be necessary, with outright debt forgiveness and until a global recovery is well underway. A prime opportunity exists for the United States to lead the effort to stabilize the economies of its traditional allies in the region.”

Vangie Bhagoo-Ramrattan, head of the economic research unit at First Citizens in Port-of-Spain, Trinidad and Tobago: “Covid-19 will have a debilitating effect on the global tourism market. The World Travel and Tourism Council predicts that as many as 50 million jobs are at risk globally in the tourism sector and that 25 percent of global travel could be adversely affected. For the Caribbean, tourism and travel account for around 15.5 percent of total GDP, and the sector employs 2.4 million people—approximately 14 percent of total employment. The region depends heavily on the sector as its main source of foreign-exchange earnings, with visitors spending in the vicinity of $35.4 billion annually. At a special meeting of the Organisation of Eastern Caribbean States authority and the monetary council, it was determined that under the best-case scenario (containment of Covid-19 by the end of June), real GDP for the Eastern Caribbean Currency Union for 2020 will slow to 2.1 percent, down from an initial forecast of 3.3 percent. In the worst-case scenario, the region’s GDP is expected to contract by 1.9 percent. The tourism sector is currently projected to decline by as much as 20 percent, but that can be much worse if conditions worsen. The situation in the global tourism market is very volatile. However, many governments in the region have already implemented bold and necessary steps to mitigate the spread of the virus, including closure of borders and restricting the flow of non-nationals. There may also be the need for appropriate expansionary policies, both from a fiscal and monetary stance, to ensure that the private sector is supported in terms of cash flow and liquidity, as well as to safeguard jobs. Unfortunately, the spread of the virus continues unabated around the world. Caribbean countries already have onerous debt and limited fiscal flexibility to bolster their economies, especially for an undetermined length of time. While fiscal imbalances may worsen, the principle concern is to safeguard against the spread of Covid-19.”

Andrea Ewart, CEO of DevelopTradeLaw: “Still experiencing sluggish recovery from the 2008 recession, Caribbean tourist-dependent economies will be most negatively affected by the travel bans of the 2020 coronavirus pandemic. In response to its first instance of community transmission, the region’s top tourist destination, the Dominican Republic, has closed its borders for 15 days. However, tourism contributes only 11.6 percent to the country’s diversified economy. Other countries are performing a more delicate dance. Tourism accounts for as much as 60 percent of GDP and 50 percent of jobs in the Bahamas and Jamaica. They are among the countries that have banned or placed restrictions on arrivals from China, Iran and Europe, and are more discretely discouraging other visits, including from their faithful diaspora. Social distancing policies are leading to the cancellation of conferences, festivals, and sporting and music events that draw millions of visitors and dollars annually. Jamaica is preparing a fiscal package to mitigate the worst effects of the anticipated fall in tourist activity. However, with the number of infected people and instances of community transmission still low, the travel bans are aimed at positioning the region to later receive visitors seeking entertainment after weeks of self-isolation. This goal could be undermined if governments are unable to maintain a united front against cruise industry pressure to amend their policies and if the externally imposed bans extend for months instead of weeks.”

Rogelio Douglas, president of the Caribbean Sustainable Development Group in Limón, Costa Rica: “In no way can we minimize the massive global effect of Covid-19. After all the fundamental hygiene practices and minimal socialization, it might be best to focus on what lessons we can take away and where best to apply them. The Caribbean and Central American countries will suffer even more during this global shutdown, resulting from our fragility in size and huge dependence on larger economies. The coming weeks and months are forecast to be difficult for all of us. Notably, we have made similar errors in participating in a global economy driven by the principle of maximizing economies-of-scale while knowingly running the risk of a single point of failure. This lack of diversification means there is no flexibility to mitigate and adjust to the unknown and no ability to minimize risks with contingency plans. This is an ideal time for updating or creating more powerful strategic long-term plans incorporating markets, by broadening economic ties across continents; industries, by incentivizing internal development of new sectors in emerging technologies; inclusion, by investing in the productivity of the bottom half of the population for a more powerful economic engine with all hands on deck; and sourcing, by upgrading supply chains with multiple sources, including locals. With massive cancellations of cruise tours, airline flights and cargo slowdown, this region’s economy of 80 million people will be hurting for months to come. What better time to bolster national resiliency in equitable economic systems?”

The Latin America Advisor features Q&A from leaders in politics, economics, and finance every business day. It is available to members of the Dialogue’s Corporate Program and others by subscription.

 



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