At last year’s ASCE meetings we presented a paper comparing the future of the Cuban tourism industry and its economic impact under two scenarios. We accepted the Ministry of Tourism’s figures projected through the year 2000 and formulated our own estimate of a ten-year projection through the year 2007. We chose to project ten years into the future and avoided consideration of the variables, issues, theories, predictions and suggestions regarding changes in the political system in Cuba. In this manner, we did not cloud the purpose and methodology of our study with political issues.
The two scenarios were defined as follows:
First Scenario: Assumes the continuation through the year 2007 of the current political and economic system, perhaps with minor changes having a minimal impact.
Second Scenario: Assumes the complete elimination of political and economic barriers, both internal and external. We also assumed a free capitalistic economy, where American citizens and residents, as well as Cuban citizens, are able to invest in, operate, visit and enjoy any of Cuba’s tourism facilities; to develop any enterprise to support the tourism industry; and to satisfy the growing consumer demand for better products and services.
Table 1 summarizes our estimated tourism statistics under both scenarios, for the year 2007.
Table 2 shows the economic impact of tourism in Cuba in 2007 estimated on the basis of Puerto Rico’s multipliers. Please refer to Appendix II for the employment, production and income multipliers used for the table.
On the basis of Puerto Rico’s employment and production multipliers, Cuba’s tourism will annually be forfeiting the opportunity to generate $7.575 billion in economic impact.
Measured in terms of income, the government of Cuba will not receive annually from $4.162 billion to $9.262 billion (depending on the use of Type I or Type II multipliers) because it continues with the present political, social and economic models.
The above annual losses expressed on a daily basis indicate that every day of the year 2007, Cuba will be forfeiting from $20.8 million to $25.4 million.
We estimate that Cuba is currently losing between $4.6 and $5.7 million of economic impact per day.
The extraordinary effort made by Cuban authorities to develop the tourism industry is only partially effective because of its poor economic performance. Should Cuban citizens be allowed to actively participate and benefit from the ripple effect of the economic multipliers that tourism activity would generate, Cuba might have solved the problem of the Soviet Union’s discontinuance of subsidies to the island. Thus, it could be argued, the so-called “special period” would have ended by now.
Some of the comments and feedback received from colleagues, friends and critics included the suggestion of comparing the Cuban experience with that of another tourism area similar to the island. This would support our claim that the Cuban Government is shortchanging itself and its citizens.
SEARCH FOR A COMPARABLE EXAMPLE
After an exhaustive search we identified Cancún, in the State of Quintana Roo, Mexico, and the development of a tourism corridor that begins with Cancún and continues south down the coastal areas. The development of Cancún is the successful result of a strategic alliance among the Mexican government, Mexico’s private sector, and the international hospitality industry.
Mexico, unlike many other countries in the world, developed important tourism centers by creating master-planned destination resorts. Several Federal agencies built the first hotel properties and infrastructure and soon were followed by private investors who acquired land from those agencies to build new hotels. These developers acquired the land ready with utilities and urban infrastructure.
How the Mexico and Cancun Story Began
The enormous development of the tourism industry in Mexico originates with the governmental support to the industry throughout the last 24 years. The Secretariat of Tourism (SECTUR) and other governmental agencies, including the National Trust Fund for the Development of Tourism (FONATUR) pioneered the “polo turístico” concept of “destination resorts” in the country, resulting in a major success for the industry. The five fully integrated tourism centers—Cancún, Ixtapa, Los Cabos, Loreto, and the Bays of Huatulco—are products of an alliance between the government and the private sector.
Just 27 years ago, Cancún was a sleepy fishing village near archeological treasures surrounded by beautiful Caribbean beaches. Today, it is one of the most visited tourist destinations in the country, and the world. The number of visitors in 1997 reached 2.6 million, with 79 percent being foreign visitors.
FONATUR has provided, during its first 24 years of existence, more than US$1.7 billion in loans for new tourism projects and renovation of existing ones, adding more than 180,000 rooms to Mexico’s inventory. FONATUR has also acted as a catalyst, bringing together resources from public and private sectors in Mexico and attracting foreign investment to the tourism sector. Cumulative foreign direct investment in Mexico’s tourist sector amounted to US$5.4 billion between 1989 and 1997; meanwhile, domestic investment in this sector exceeded US$2.0 billion. Funding from the World Bank and the Inter-American Development Bank to FONATUR was used mainly for infrastructure improvements and tourism centers. Commercial banks have been the vehicles to channel funding for tourism projects. In addition, commercial banks are permitted to act as developers and promoters and assemble deals for projects ranging from a single hotel property to mixed-use destination resorts.
The role of commercial banks in the development of tourism in Mexico has been significant, even in the period when banks were “nationalized.” The portfolio of hotels and other tourism assets has fluctuated, following the ups and downs in the market. Because Mexico is still in the process of becoming a totallyfree- economy, actions by the government’s finance authorities impact on the tourism industry, often beneficially.
As a result of the implementation of the North American Free Trade Agreement (NAFTA), both sides of the border began an intensive exchange of acquisitions, joint ventures, and other forms of trade and business arrangements. These activities caused an improvement in the confidence level regarding the investment opportunities that were offered on both sides.
At the last Acapulco Tiangis (an annual tourism meeting) a number of U.S. hotel chains announced development programs in Mexico by joint ventures, management contracts, and franchising. These plans are still active, in spite of the economic crisis of 1994-95, a period that provided an education for foreign entrepreneurs on the management of inflation and devaluation in Mexico.
Cancún, like any other tourism destination in Mexico, may be affected by the ups and downs of the Mexican economy. History, however, has proven that Cancún has been able to protect itself from situations related to currency devaluation faster than other Mexican destinations because of the practice of pegging room rates and cost of packages to the U.S. dollar. This is due to the fact that the bulk of the demand for this destination is from foreign sources. Because payments in foreign currency precede chronologically the payments of expenses in pesos, the industry benefits and technically is protected from the effects of devaluation. As we know, the wise practice of operating in foreign currency is paramount in the Cuban tourism activity.
In order to appreciate the growth of tourism in Cancun, Table 3 presents Cancún’s tourism statistics from 1980 to 1997.
CANCUN AND CUBA
The Mexican Caribbean, including Cancún, compares with Cuba in as many ways as they differ. Table 4 summarizes those similarities and differences that show how each tourism dollar of revenue behaves so differently under the two political-economic regimes.
It is interesting to note that the average expenditure per day per person has increased in Cuba while it has decreased in Cancún. This is due in part to the increase in new all-inclusive properties in the Cancun market, which generally cater to a price sensitive client, and to better marketing on the part of the Cuban tourism authorities. Sales of Cuban cigars for resale and for own consumption account for $24 of the average expenditure per person per day in the island.
This comparison of selected tourism issues tells only part of the story. In order to understand the ramifications of the tourism activity, its necessary to estimate the economic ripple effect that tourism causes in each of the two cases in their respective economic systems: Cuba, a socialist economy, and Cancún, Mexico, a free market, capitalist economy.
In Table 5 we provide such a comparison. The comparison is based on the methodology followed in the Year 2007 exercise described at the beginning of this report. Due to the absence of data from the island, the author made assumptions in several of the variables.
Cuba in 1997 received $1.500 billion in gross revenue from tourism. On a daily basis, this represents $4.1 million per day.
However, on the basis of employment and production multipliers, Cuba’s tourism industry in 1997 forfeited the chance to generate $913 million in economic impact.
Measured in terms of income multipliers, the government of Cuba failed to receive in 1997 between $738 million to $1.857 billion (depending on whether Type I or Type II multipliers are used) because it continues with the present political, social and economic model.
The above annual estimated losses expressed on a daily basis indicate that every day of 1997 Cuba forfeited from $2.5 million to $5.1 million.