II. Tourism—Recent Developments and Prospects
1. Over the past 10 years, St. Lucia’s tourist industry grew at a rate of 12 percent a year, driven by strong demand and sharp growth in capacity. The gradual erosion of preferential access to the EU market for bananas, St. Lucia’s major export commodity, prompted the authorities in the 1990s to intensify the focus on tourism and other services exports.
2. This chapter reviews recent developments in the tourist industry in St. Lucia and its growth potential over the medium term, in an increasingly competitive global tourism market. Section B gives an overview of developments in the tourist industry in St. Lucia during the 1990s, within the context of the Caribbean in general and the Organization of Eastern Caribbean States (OECS) in particular1 Section C examines the economic impact of tourism in St. Lucia. Section D discusses some of the issues of competitiveness and seasonality. Section E concludes with the medium-term prospects.
B. Developments in the 1990s
3. St. Lucia’s natural beauty, comparatively developed infrastructure, sociopolitical stability, and hospitality make it an attractive tourist destination. With the impressive growth in the tourism sector over the past 10 years, St. Lucia has surpassed Antigua and Barbuda to become the number one tourist destination in the OECS region. There are three categories of visitors to St. Lucia—stayovers, cruises, and excursionists.2 The United States and Europe are the principal markets, with the United Kingdom accounting for 70 percent of stayover visitors from Europe. Usually, visitors from the United States spend more per day, while those from Europe tend to stay longer.
4. The number of stayover visitors to St. Lucia grew rapidly during the 1990s (Figure 2.1). With the end of the recession in the United States in the early 1990s and strong demand from Europe, stayover visitors grew at an average annual rate of 7 percent during the decade. This compares with an average growth of less than 1 percent for Antigua and Barbuda, and 2 percent for Barbados—the main regional competitors—over the same period. St. Lucia’s share of stayover visitors in the OECS region rose sharply to 30 percent in 1999, and though still small, doubled to 2 percent of the Caribbean as a whole. This strong performance was due in large measure to the heavy investments by the government in supporting infrastructure, focusing on road development, and airport expansion and rehabilitation. St. Lucia has two international airports—the Hewanorra Airport and the smaller George F. L. Charles (formerly Vigie) Airport.
Figure 2.1St. Lucia: Selected Comparative Tourism Indicators, 1990-19981/
Source: Caribbean Tourism Organization.
1/ OECS excludes St. Lucia.
5. The cruise ship industry in St. Lucia grew steadily over the 1990s, with a sharp increase beginning in 1997 (annual rate of 17 percent), owing-largely to the diverting of ships to St. Lucia from Antigua and Barbuda and other northern Caribbean countries (which could no longer accommodate mega ships in the wake of the damages wrought by Hurricane Georges in 1997). By 1999, St. Lucia’s share of the OECS market had surged to 30 percent from 16 percent in 1990, and more than doubled to 3 percent within the Caribbean region as a whole.
6. St. Lucia’s ability to sustain growth in cruise passengers in the pre-1997 period was due to an aggressive marketing and promotional campaign by the government through the St. Lucia Sea and Port Authority (SLSPA); and extensive product development with the construction of the Pointe Seraphine cruise terminal, which included two exclusive berthing facilities for mega ships (capacity of over 2,000 passengers), and a large, modern duty-free shopping complex. The growth in the industry in the post-1997 period was facilitated by the development of a homeport in San Juan, Puerto Rico, which allowed St. Lucia to be a part of the five- to seven-day cruises originating out of San Juan. Reflecting additional port investment in late 1999, which extended the length of the two berthing facilities at Pointe Seraphine from 190 ft each to 400 ft and 300 ft, respectively, cruise passenger arrivals rose by an estimated 26 percent in 2000.3
7. Hotel investment in St. Lucia is driven by private sector initiative. Given the high demand in the 1990s, the hotel industry expanded capacity and upgraded facilities, with private financing from abroad (Table 2.1). Several large, modern hotels were completed during the 1990s, including international chains like the Jalousie-Hilton, Sandals, and the Hyatt Regency, adding some 2,579 rooms during 1990-99. Currently, there are 60 tourist establishments in St. Lucia, of which 25 percent are large hotels, in the four-to-five star hotel category.4 However, large properties account for just over half of the total room stock. While the remaining properties are small and generally in the three-star and lower category, amongst these are a few luxury villa-type properties that cater to an exclusive and wealthy clientele. These types of resorts account for 20 percent of the total room stock of small properties, with winter rates ranging from US$360-US$745 per night; and summer rates, from US$215 to US$515 per night. According to the St. Lucia Tourist Board (SLTB), the occupancy levels of these resorts are normally above 80 percent all year-round, reflecting strong marketing links with exclusive overseas promoters.
|1994||1995||1996||1997||1998 1/||1999 1/|
|Foreign direct investment (FDI)||33.9||33.0||19.6||18.6||86.0||97.9|
|Gross domestic investment (GDI)||125.1||104.8||121.2||143.0||148.9||172.1|
The sharp rise in 1998 and 1999 reflects several hotel projects, including the construction of the Hyatt Regency and the expansion of Sandals La Toe.
The sharp rise in 1998 and 1999 reflects several hotel projects, including the construction of the Hyatt Regency and the expansion of Sandals La Toe.
8. One notable development in the hotel industry over the period reviewed was the increasing move toward “all-inclusive” hotels, which now account for some 45 percent of total rooms.4a The cost of a one-week winter vacation package at an all-inclusive resort ranges from about US$4,500 to almost US$6,800; and a summer package, from about US$4,000 to nearly US$6,000. Indicative of the strong growth in stayover arrivals to St. Lucia, hotel occupancy rates averaged nearly 70 percent in the 1990s, up from an average of 65 percent in the 1980s, largely reflecting the higher occupancy levels of the all-inclusive properties. Value-added in St. Lucia tends to be lower from all-inclusive resorts than from conventional hotels, as does revenue from traditional forms of taxation of hotel occupancy. In early 1994, the authorities does revenue from traditional forms of taxation of hotel occupancy. In early 1994, the authorities tightened the regulations on tourist-related tax collections in an effort to address the problem of low revenues from all-inclusive hotels in the face of strong growth in stayover arrivals. A dual occupancy tax rate system was introduced, with all-inclusive hotels charging EC$4-$8 per head, depending on the size of the establishment, while the rate on conventional hotels remained at 8 percent of receipts from accommodation, food, and drinks.
9. Against the backdrop of an increasingly competitive global and regional environment, St. Lucia has focused on improving product quality and increasing product differentiation in order to maintain its competitiveness. This has been achieved by strengthening the institutional framework of the tourist industry, which involved creating a separate ministry of tourism with responsibilities for, inter alia, product development (including developing eco-tourism with the construction of a botanical garden, eco-lodges, and improved nature trails); and allowing the SLTB to concentrate solely on product differentiation.
10. To promote and strengthen product differentiation, a new marketing strategy (including advertising on television and in the print media) was introduced in 1997, which sought to complement the traditional “sun, sea, and sand” image with that of a unique, upscale vacation resort. Unlike some Caribbean countries, whose marketing and promotion strategies are not income specific, St. Lucia’s is designed primarily to attract the high-end of the market, which tends to have a low price elastic demand. Working jointly with the private sector (through the St. Lucia Hotel and Tourist Association (SLHTA)), the authorities moved aggressively to reposition St. Lucia as a quality tourist destination, benefiting greatly from the economies of scale provided by the international chain hotels in the marketing area. An integral part of this strategy was to consolidate a niche market for St. Lucia—bridal couples and/or honeymooners, families, the elderly, nature-lovers, and jazz and sports enthusiasts (through the staging of an annual jazz festival, and the promotion and hosting of special international sporting events). According to the SLTB, the country hosts 3,000–4,000 weddings a year, the principal market being the United Kingdom. The Jazz Festival has become a major summer tourist attraction, and a recent survey conducted by the SLTB revealed that the festival attracts high-end tourists from North America and the United Kingdom. In 2000, the SLTB launched a new marketing and promotion strategy, designed to further increase its presence in the higher-spending U.S. market.
C. Economic Impact
11. Beginning in the early 1990s, tourism became the main source of economic growth in St. Lucia, with its direct contribution to GDP (as proxied by activities of hotels and restaurants in national accounts) rising from 11 percent in 1992 to 13 percent in 2000. However, the overall contribution of tourism to GDP is higher when account is taken of the effects of the intersectoral linkages with other sectors.5
12. Tourism is a major source of direct and indirect employment in St. Lucia, and in 1998, the sector employed an estimated 12,000 or 20 percent of the labor force with some two-thirds being in the accommodation and transportation subsectors. There are no reliable estimates of indirect employment, but the sharp increase in ancillary services in 1999 suggests that there was considerable growth in indirect tourist-related employment.
13. With the import-intensive nature of the tourist industry and the substantial employment that it generates, its contribution to fiscal revenue is significant, in the form of the hotel occupancy tax, import duties, consumption taxes, service charges, and income taxes. However, since the only easily quantifiable indicator is the hotel occupancy tax (which represented 6 percent of government revenue or US$9 million in 2000), it is difficult to capture the industry’s full contribution to government revenue. The comparable yield from the hotel occupancy tax for Antigua and Barbuda, and Barbados in 1999 was US$8 million.
14. Tourism is the main foreign exchange earner in St. Lucia. Driven by strong demand and the sharp expansion in hotel rooms, tourist receipts more than doubled to nearly US$280 million (45 percent of GDP) over the period 1990-98, compared with an increase of 70 percent for the Caribbean as a whole (including Cuba, the Dominican Republic, and Mexico), and about 20 percent for the rest of the OECS region. Stayover visitors to St. Lucia account for some 95 percent of total tourist expenditure. Gross receipts from tourism accounted for nearly 75 percent of total foreign exchange earnings in 2000, compared with 60 percent for the OECS region as a whole. Indeed, the structural changes underlying the transformation of St. Lucia’s economy from an agricultural-based to a service-oriented economy are evidenced by the sharp decline in the ratio of goods (predominantly bananas) to exports of goods and services, from 45 percent in 1990 to 16 percent in 2000, and the rise in the corresponding ratio for tourist receipts from 40 percent to nearly 75 percent.
D. The Issues of Competitiveness and Seasonality
15. A combination of indicators are needed to meaningfully assess competitiveness, particularly in a tourism-driven economy. In the absence of a unit labor cost (ULC)-based index, the minimum monthly wages of certain categories of workers in hotels and restaurants were used to assess cost competitiveness in St. Lucia. Estimates for St. Lucia, Antigua and Barbuda, and Barbados for 1999 suggest that St. Lucia was more cost-competitive than its main regional competitors (Table 2.2). In addition, the authorities have concentrated on increasing the value of the product by focusing on nonprice factors, such as the quality of hotels and hotel services; physical and social infrastructure; and the quality of ancillary services like transportation, local tours, restaurants and entertainment. The authorities have attributed St. Lucia’s gain in market share to these nonprice factors and its comparatively more moderate wage cost increases.
16. The tourist industry in St. Lucia is highly seasonal, with strong winter months and slow summer months. Partly in an effort to smooth out seasonality but also to increase the multiplier effect of tourist expenditure, the government consolidated its efforts to develop eco-tourism with the introduction in 1999 of a local, community-based initiative called the St. Lucia Nature Heritage Tourism Project. This was designed to expand the pool of tourists in general and visitors from the European market, in particular, who tend to travel in the summer months. The gradual increase in the share of stayover visitors from Europe to 38 percent over the last five years, compared with 32 percent for the United States, suggests that there has been some success in promoting eco-tourism in the European market. As part of a wider plan to market the Caribbean as an attractive summer tourist destination, St. Lucia is actively involved in promoting a regional marketing plan, which will focus on promoting special international sporting events. In a further attempt to deal with the stop-go income and employment effects of seasonality, St. Lucia has embarked on a marketing campaign to sell St. Lucia as a shopping destination in the French-speaking Caribbean in order to boost the number of year-round visitors.
17. With the top quality product that it has developed over the past 10 years (luxury hotels and resorts, good infrastructure facilities, and excellent ancillary services), the growth potential of the tourist industry in St. Lucia is good. To underscore the importance of developing this potential, the government has adopted a five-year strategic plan for the sector, the critical elements of which are to reposition St. Lucia as a premier scenic destination providing a higher quality and more diversified product, and to protect the environment from the unfavorable effects of an expanding tourist industry. With the current policies in place and the expected implementation of the plan, growth prospects point to 5-6 percent a year over the medium term. With the United States and the United Kingdom as the principal markets, growth will depend, in large measure, on the economic prospects in these countries. However, with improved air access (the introduction last year of a new regional airline out of St. Lucia), and the new marketing and promotion initiatives of the SLTB, the Caribbean market is expected to expand, cushioning, in part, any adverse effects from a slowing of the U.S. economy. Summary of Investment Projects, Product Development Department, Ministry of Tourism.
18. The new and rigorous marketing efforts being launched in Europe and the Caribbean should reduce seasonality, hence increasing the use of new and existing facilities. Room capacity is expected to increase further in 2001, with the completion of an additional hotel and the expansion of an existing property. Based on approvals granted by the ministry of tourism last year for hotel projects, hotel construction should remain buoyant over the medium term.7
19. The outlook for strengthening the linkages between the tourism sector and agriculture and fisheries is encouraging, with hotels reporting increased direct purchases from farmers covered under the Farmers and Hotels Agreement, an initiative of the SLHTA dating back to 1995. The SLHTA has indicated that the links between some hotels and farmers have been strengthened to the point where these farmers have been able to use their market arrangements to secure loans from commercial banks and the St. Lucia Development Bank.
20. Price competition in the global and regional market is expected to intensify with further growth in Cuba and the Dominican Republic, as major tourist destinations. Nonprice factors will continue to be important, allowing St. Lucia to compete effectively even with these destinations, which tend to attract the lower-end of the market. This indicates that St. Lucia needs to consistently maintain a high quality product and services in order to offset price disadvantages.
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The OECS is comprised of Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and the two U.K. territories, Anguilla and Montserrat.
Excursionists (about 1 percent of total visitors) are those who stay for one day only without hotel accommodation.
Information provided by St. Lucia Sea and Port Authority.
Report on Database of Tourist Establishments, St. Lucia Tourist Board.
All-inclusive packages cover room and board, and sporting activities.
Based on preliminary findings from a tourist impact study (funded by the European Union) of six Caribbean countries (Anguilla, Bahamas, Barbados, British Virgin Islands, Jamaica, and St. Lucia) being conducted by the Caribbean Tourism Organization (CTO), tourism (directly and indirectly) accounts for 28 percent of GDP in St. Lucia.
Summary of Investment Projects, Product Development Department, Ministry of Tourism.