Tourism in East Caribbean Countries

This paper studies recent developments in tourism in the East Caribbean countries (ECC) and reviews government policies to support tourism. The paper also presents a model to explain the movements of tourist arrivals to the region during 1970-86. The estimated model is used to project future tourist arrivals in the ECC.

Abstract

This paper studies recent developments in tourism in the East Caribbean countries (ECC) and reviews government policies to support tourism. The paper also presents a model to explain the movements of tourist arrivals to the region during 1970-86. The estimated model is used to project future tourist arrivals in the ECC.

I. Introduction

Tourism in the East Caribbean countries (ECC) is an important industry and in some countries it has become the Leading source of foreign exchange earnings. 1/ Tourism also has fostered the development of infrastructure, employment, and entrepreneurship, and often has led to opportunities for foreign investment. Despite the importance of the tourism sector to the ECC, however, few empirical studies have been done for the region due to limitations of the available data. 2/ The purpose of this study, therefore, is three-fold: to develop a consistent data set across the six ECC, to analyze these data and assess recent tourism developments in the region, and to provide estimates of income and price elasticities of ECC tourist arrivals for use in projecting the growth of tourism.

The volume of tourist arrivals to the ECC appears to depend on real income in industrial countries, particularly in the United States, Europe, and Canada, and on the real price of air travel, of which fuel cost is a major component. The first oil crisis (1973-74) severely affected the volume of tourist arrivals to the ECC. In the wake of the recession that followed, stayover arrivals declined by 7 percent in 1974 and by a further 5 percent in 1975. By 1977, however, tourist arrivals had recovered to the pre-1974 level as the recession in industrial countries ended and the price of air travel stabilized. In the early 1980s the second oil crisis and world recession resulted in another decline in arrivals. But since 1983, the expansion in industrial countries and the stabilization in the price of air travel have resulted in a tourism boom in the region, as indicated by the 13 percent average annual increase in arrivals in 1983-86.

In recent years, a prominent issue for the ECC tourism sector has been whether there are opportunities for further growth and development, or whether capacity already exists to meet current and potential demand for coming years. Inadequacies in tourism-related infrastructure are still apparent in the region, and these constraints have often discouraged the provision of flights by major airlines. The other side of this “chicken and egg” problem is that regular flights are deemed a prerequisite by investors to expand accommodation.

The structure of the paper is as follows. Section II analyzes recent developments in ECC tourism, both from the perspective of interregional comparisons in the Caribbean area and from the view of intraregional comparisons among the six countries in the ECC. Section III discusses tourism policies and linkages to other economic sectors. Section IV presents a formal model of tourist arrivals to the ECC, and reports estimates of income and price elasticities. Section V uses these estimates to predict future tourist arrivals to the ECC. Section VI concludes the paper.

II. Recent Developments in ECC Tourism

1. Tourist arrivals

From 1970 to 1986, Caribbean stayover arrivals grew at a compound annual rate of 4 percent, roughly the same rate as total world stayover arrivals, maintaining for the region a remarkably stable 2 ½ percent share of the world arrivals (Table 1). The Caribbean remains a highly desirable vacation destination, despite the fact that it is much more expensive for tourists than other similar destinations. 3/

Table 1.

All Countries: Tourist Arrivals, 1970–86 1/

(In millions of stayover visitors; growth rates and shares in percent)

article image
Sources: CTRC, Caribbean Tourism Statistical Reports, 1982 and 1986; CTRC Statistical News, December 1987; and Fund staff estimates.

Revised estimate for 1984; preliminary for 1985; preliminary estimate for 1986.

Revised estimates for 1980-84; preliminary for 1985; preliminary estimate for 1986.

The countries in this group are Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. Revised estimate for 1984; preliminary for 1985; and preliminary estimate for 1986.

Arrivals to the ECC grew at about the same rate as arrivals to the Caribbean overall during the 1970s, but they grew faster during 1980-86. In terms of shares of stayover arrivals, the ECC grew from a 4 percent share in 1980 to a 5 percent share in 1986 (Table 2). Other regional gainers were Belize, Jamaica, the Turks and Caicos Islands, St. Maarten, and the Dominican Republic. Increases in the shares of tourists to Jamaica and the Dominican Republic coincided with the recent currency devaluations in these countries. Other more traditional tourist destinations, such as the Bahamas, Bermuda, and the U.S. territories, while remaining strong tourist attractions, have lost market shares in recent years.

Table 2.

Selected Caribbean Countries: Tourist Arrivals, 1970-86

(In thousands of stayover visitors; growth rates and shares in percent)

article image
Sources: CTRC, Caribbean Tourism Statistical Reports, 1982 and 1986; CTRC Statistical News, December 1987; and Fund staff estimates.

Countries listed according to major island groupings.

For cases where 1986 data are not available, 1985 data are considered.

Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.

Some Caribbean countries are not shown in table; therefore, data for total Caribbean area exceed sum of individual country data reported.

a. Total arrivals

Within the ECC the number of total tourist arrivals (including stayover, cruise, excursion, and yacht visitors) increased at a compound annual rate of 7 percent from 1970 to 1986 (Table 3). The growth rates of arrivals differed substantially across countries in the region, with St. Kitts the highest, averaging 10 percent growth a year, and Grenada the lowest, at 5 percent a year. In terms of shares of total arrivals, Antigua has about 35 percent of the ECC market, Grenada and St. Lucia each has about 20 percent, St. Kitts and St. Vincent 10 percent each, and Dominica 5 percent (Table 4).

Table 3.

East Caribbean Countries: Total Arrivals, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.
Table 4.

East Caribbean Countries: Country Shares of Total Regional Arrivals, 1970-86

(In percent)

article image
Source: Fund staff estimates.

The growth rates of tourist arrivals have varied substantially over time. The first oil crisis in 1973-74 contributed to a substantial decline in arrivals. The quadrupling of oil prices not only reduced discretionary income available for tourism but also raised the prices of air travel and hotel accommodation. 4/ Likewise, the recession in industrial countries in 1980-82 had adverse effects on the growth of ECC tourism. On each occasion, the number of total tourist arrivals initially declined by about 20 percent and took four to five years to recover to the earlier levels.

The upswing in tourist arrivals to the ECC starting around 1978 is traceable to a number of factors, one being the liberalization of U.S. domestic air fares due to deregulation. 5/ Although international fares are not regulated in the same manner as domestic fares, the reduced fares for the domestic portion of air travel by U.S. residents to the ECC seem to have contributed to the upswing in tourist arrivals. Other factors that contributed to higher tourist arrivals in the late 1970s were the greater use of comprehensive package tours and the growth of the industrial economies.

There were events peculiar to the region that adversely affected tourism, such as hurricanes in 1979 and 1980 and the events of October 1983 in Grenada. In 1979 Hurricane David hit Dominica, and in 1980 Hurricane Allen hit Dominica, Grenada, St. Lucia, and St. Vincent, causing severe damage to major hotels, port facilities, and other tourist resources. The effects of the hurricane damage overlapped, however, with the period of recession in industrial economies in 1980-82, so it is difficult to discern to what extent the observed declines in tourist arrivals were due to hurricane damage or to the recession. The adverse impact of the events in October 1983 on Grenada’s tourism is clear as total arrivals fell by 14 percent in 1983 despite the industrial countries’ recovery that year.

b. Stayover arrivals

The growth of stayover arrivals is important for the tourist industry of each country as stayover visitors generate the most local value added of all tourist arrivals. St. Kitts and St. Lucia have both realized 9 percent average annual growth in stayovers while Dominica and Grenada have averaged under 4 percent (Table 5).

Table 5.

East Caribbean Countries: Stayover Visitors, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.

To make series consistent, nonresident nationals have been excluded for 1983-86.

The breakdown of stayover arrivals by country of origin reveals several characteristics, both with regard to patterns across the region and within each country. For example, 50 percent of U.S. stayover visitors to the ECC travel to Antigua (Table 6), while Canadians and Europeans tend to favor St. Lucia and Antigua over the other islands (Tables 7 and 8). Caribbean visitors are more evenly divided in their preferred destination (Table 9), and stayover visitors from other countries (mainly South American countries) tend to favor Grenada, probably because of its proximity as the southern-most island of the ECC.

Table 6.

East Caribbean Countries: Stayover Visitors From the United States, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.
Table 7.

East Caribbean Countries: Stayover Visitors From Canada, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.
Table 8.

East Caribbean Countries: Stayover Visitors From Europe, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.
Table 9.

East Caribbean Countries: Stayover Visitors From Caribbean Countries, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.

c. Cruise-ship arrivals

Cruise ships generally dock for a day or part of a day at various ECC ports. Thus, opportunities for cruise-ship passenger spending or contributions to value-added are limited. However, cruise-ship passenger arrivals are a large component of total ECC tourist arrivals (Table 10). Since 1970, Antigua has realized average annual growth in cruise-ship arrivals of some 12 ½ percent, despite a severe downturn during the last industrial country recession. Other countries, particularly St. Lucia, experienced decreases in cruise-ship arrivals in 1980-81 due to hurricane damage to port facilities. In addition, Grenada, which receives many more cruise-ship visitors than stayover visitors, suffered declines in cruise-ship passenger arrivals in every year from 1981 to 1984. There is evidence that, due to the events of October 1983, many cruise ships were re-routed to St. Vincent in late 1983 and early 1984. In fact, St. Vincent’s cruise-ship arrivals nearly doubled during this period.

Table 10.

East Caribbean Countries: Cruise-Ship Arrivals, 1970-86

article image
Sources: CARICOM Statistics Digest, 1970-81; North American Demand Study for Caribbean Tourism; CTRC, Caribbean Tourism Statistical Reports; Tourist Board data; and Fund staff estimates.

2. Tourist expenditure 6/

Since the beginning of the current recovery of industrial economies in 1983, the increase in tourist arrivals has given rise to an 18 percent average annual increase in tourist expenditure in the ECC region (Table 11). St. Kitts in particular has experienced a very large increase in tourist expenditure.

Table 11.

East Caribbean Countries: Tourist Expenditure, 1978-86

(In millions of U.S. dollars; and in percent)

article image
Sources: Tourist boards; and Fund staff estimates.

Per capita daily expenditure by stayover visitors is highest in Antigua (Table 12), where hotel rates are among the highest in the region and gambling facilities are available. St. Lucia has had the lowest per capita daily expenditure during the past few years, but the level of such outlays may change as a result of a new duty-free shopping complex at Pointe Seraphine.

Table 12.

East Caribbean Countries: Per Capita Daily Expenditure by Stayover Visitors, 1978-86

(In millions of U.S. dollars; and in percent)

article image
Sources: Tourist boards; and Fund staff estimates.

In terms of time spent in the ECC, tourists staying in hotels tend to visit seven or eight days on average (Table 13). Hotel guests in St. Kitts stay the shortest time, six to seven days, while St. Vincent’s hotel guests stay nine to ten days. Stayover visitors residing in private homes, mainly nonresident nationals visiting family members, stay twelve days on average.

Table 13.

East Caribbean Countries: Average Length of Stay for Guests in Hotels and Private Homes, 1978-86

(In number of nights)

article image
Sources: Tourist boards; and Fund staff estimates.

The direct contribution of tourism to value added in the ECC can be approximated by examining the share of the hotel and restaurant sector in GDP at current factor cost. In recent years Antigua has received 15 percent of total value added from tourism (Table 14). 7/ The other countries in the region received from 1 to 7 percent of total value added from this source. Tourism has further effects on value added through the demand for local transportation, entertainment, and other services, though these effects are more difficult to measure. 8/

Table 14.

East Caribbean Countries: Share of Hotels and Restaurants in GDP at Current Factor Cost, 1978-86

(In percent)

article image
Source: Fund staff estimates.
Table 15.

East Caribbean Countries: Ratio of Tourist Expenditure to GDP, 1978-86 1/

(In percent)

article image
Source: Fund staff estimates.

Nominal GDP at current market prices.

3. Accommodation

In the ECC there is a variety of tourist accommodation, including hotels, guest houses, apartments, cottages, and villas. In addition, time-share condominiums are becoming increasingly popular, particularly in Antigua. Hotel rooms dominate existing capacity in each island (Tables 16 and 17), and hotel capacity has grown fairly steadily in recent years. 9/ The number of guest houses, apartments, and cottages, owned most often by local entrepreneurs, fluctuates a great deal over time, and serves as a buffer when hotel capacity is fully utilized.

Table 16.

East Caribbean Countries: Accommodation Capacity of Hotels, Guest Houses, and Apartments and Cottages, 1978-86

article image
Sources: Tourist boards; and Fund staff estimates.