Eastern Caribbean Currency Union: Selected Issues
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International Monetary Fund
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Publication Date:
27 Oct 2004
eISBN:
9781451811667
Language:
English
Keywords:
ISCR; CR; ECCU country; bank; countries of the Eastern Caribbean Currency Union; ECCU CARICOM; CARICOM's share; tourism receipts; Tourism; Real effective exchange rates; Competition; Caribbean
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This Selected Issues paper on the Eastern Caribbean Currency Union (ECCU) underlies key features of business cycles. To obtain new measures of classical and growth cycles, simple rules were applied to date turning points in the classical business cycle, and a recently developed frequency domain filter was used to estimate the growth cycle. At the regional level, the ECCU countries are facing two shocks, i.e., the depreciation of the U.S. dollar and the depreciation of the Dominican Republic’s peso. The countries of the ECCU have experienced modest erosion in their price and nonprice competitiveness.

Abstract

This Selected Issues paper on the Eastern Caribbean Currency Union (ECCU) underlies key features of business cycles. To obtain new measures of classical and growth cycles, simple rules were applied to date turning points in the classical business cycle, and a recently developed frequency domain filter was used to estimate the growth cycle. At the regional level, the ECCU countries are facing two shocks, i.e., the depreciation of the U.S. dollar and the depreciation of the Dominican Republic’s peso. The countries of the ECCU have experienced modest erosion in their price and nonprice competitiveness.

IV. Eastern Caribbean Tourism: Developments and Outlook1

A. Introduction

1. Tourism contributes significantly to GDP, public finances, and the balance of payments in the countries of the Eastern Caribbean Currency Union (ECCU). During 1990–2002, the co-movement between real economic growth and the growth in stay-over tourist arrivals and tourism receipts in the ECCU was nearly 80 percent and 75 percent, respectively, reflecting the strength of the underlying sectoral linkages2. In the aftermath of the September 11 terrorists attacks, tourism to the Caribbean contracted sharply, and the ECCU suffered an unprecedented decline in output (a fall of 1.5 percent) in 2001, an increase in unemployment, and a sharp deterioration in its fiscal position (the central government deficit widened from 5½ percent of GDP in 2000 to around 7 percent of GDP in 2001).

2. There are several channels through which tourism affects real economic activity, public finances, and the balance of payments. The direct effect results from the provision of hotel and restaurant services, recreation and entertainment, transportation, and retail trade. The indirect effect emanates from economic activity related to suppliers’ provision of inputs (including raw materials and energy) to hotels and restaurants, and other retailers. Finally, there are also second-round effects on economic activity from the spending of household disposable income derived from either the direct or indirect effects.3

3. While detailed studies for all ECCU countries are not available, a study on St. Lucia provides an example of the economic contribution of tourism. According to a study conducted by the Caribbean Tourism Organization (CTO) in 1998, each EC dollar spent on tourism in St. Lucia generated EC$0.65 in income (64 percent through the direct effect, 23 percent through the indirect effect, and 13 percent through second-round effects).4 Tourists’ expenditures accounted for nearly 30 percent of GDP, about 20 percent of all St. Lucian jobs, and 20 percent of total government revenue. Visitor expenditures accounted for over 70 percent of St. Lucia’s exports of goods and services, suggesting a high level of dependency of foreign exchange earnings on tourism. However, the revenue leakage through tourism-related imports of goods and services is fairly substantial at more than double the amount of its contribution to government revenue.

4. The rest of the chapter is structured as follows. Section B analyzes recent developments in Caribbean tourism, with particular emphasis on the ECCU, from a global and regional perspective. Section C discusses the competitiveness of tourism in the Caribbean Community and Common Market (CARICOM)5 and the ECCU. It also describes the short-term policy responses of CARICOM, and a proposed medium-term strategy for restructuring the industry. The concluding section offers some policy recommendations.

B. Recent Tourism Developments

Overview: Aggregate Tourism Trends in the Caribbean

5. During the 1990s, there was uninterrupted growth in both Caribbean and world tourism. Over the period 1990–1999 the Caribbean share of world tourist arrivals and tourism receipts increased, since average growth in Caribbean stay-over arrivals and tourism receipts outpaced the growth in world stay-over arrivals and tourism receipts (Table IV.1).

Table IV.1.

International and Caribbean Tourism: 1990–2002

article image
Source: World Tourism Organisation; Caribbean Tourism Organization.
A04ufig2

Caribbean Share of World Tourism, 1990-2002

Citation: IMF Staff Country Reports 2004, 335; 10.5089/9781451811667.002.A004

Source: World Tourism Organization and Caribbean Tourism Organization.

6. The September 11, 2001 terrorist attacks in the United States had a pronounced deleterious effect on both world and Caribbean tourism, causing a contraction for the first time since 1990. During the first eight months of 2001, world and Caribbean stay-over tourist arrivals grew by 3 and 2½ percent, respectively, relative to the same period in 2000 (Caribbean Tourism Organization, 2002a, 2002b, 2002c).6 However, there was a sharp contraction of over 10 percent and nearly 17 percent in world and Caribbean tourism arrivals, respectively, during the last four months of the year (Table IV.2). With the decline in global stay-over arrivals observed in 2001, the Caribbean share of world tourist arrivals declined marginally from 3 percent in 2000 to 2.9 percent (still slightly higher than the average over 1990–99), while the Caribbean’s share of world tourism receipts was unchanged (at 4.2 percent) since world tourism receipts declined more sharply than Caribbean tourism receipts.

Table IV.2.

World Tourism: Tourist Arrivals and Tourism Receipts by Region

(Share of World)

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Source: World Tourism Organization and Caribbean Tourism Organization.

Arrivals data in millions and receipts expressed in US$ millions.

7. Although world tourism rebounded in 2002, Caribbean stay-over arrivals and tourism receipts did not. In 2002, world stay-over arrivals and receipts grew by 2.7 percent and 3.7 percent, respectively, while Caribbean tourism arrivals continued to contract (by 3.4 percent), although the decline in tourism receipts was less severe (a fall of 2.7 percent). As a result, the Caribbean’s share of world tourist arrivals fell from 2.9 percent to 2.7 percent over 2000-01—a 12-year low—while the region’s share of world tourism receipts fell from 4.2 to 4.0 percent (the 1999 level).

8. During the 1990s, there was also a shift in the country origin of stay-over visitors to the Caribbean, with the share of visitors from the U.S. declining (Table IV.3). The percentage share of visitors from the United States declined from nearly 60 percent in 1990 to 48 percent in 2002 owing to increased competition from various U.S. destinations, such as Florida and Hawaii. The share of European tourist arrivals was the second highest, and rose throughout much of the period from over 17 percent in 1990 to over 25 percent in 2002, partly reflecting the strength of the euro. The share of Canadian tourists declined initially, from 6.6 percent in 1990 through 1999, and then increased to 8.6 percent by 2002. Stay-over tourists originating in other countries (including elsewhere in the Caribbean) fluctuated somewhat during the period, and then stabilized at about 18 percent (Caribbean Tourism Organization, 2002a, 2002b, 2002c).

Table IV.3.

Stayover Tourist Arrivals in the Caribbean by Main Market: 1990–2002

(Arrivals data in millions)

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Sources: World Tourism Organization; Caribbean Tourism Organization.

9. During 1990–2001, the english-speaking CARICOM7 lost world market share to newly emerging, lower-cost tourism destinations elsewhere in the Caribbean (Table IV.4). CARICOM’s world market share of tourist arrivals declined from 0.88 percent in 1990 to 0.69 percent in 2002, while that of “other (non-CARICOM) Caribbean destinations” rose sharply, from 0.78 percent in 1990 to 2.02 percent in 2002. Similarly, CARICOM’s share of world tourism receipts declined from 1.29 percent in 1990 to 1.04 percent in 2002, while that of other Caribbean countries’ rose from 2.37 in 1990 to 2.92 in 2002.

Table IV.4.

Tourist (Stayover) Arrivals, 1990-2002

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Sources: World Tourism Organization; and Caribbean Tourism Organization.

Reflects the inclusion of the Dominican Republic and Puerto Rico in 1993, and Cancun and Cozumel in 1994.

Tourism Trends in the ECCU

10. The ECCU represents less than 5 percent of total Caribbean stay-over arrivals. CARICOM’s share is about 26 percent, while “other Caribbean countries/destinations” account for the rest. During 1995–01, average annual stay-over arrivals to the ECCU region ranged from a high of 250,000 in St. Lucia to just 9,900 in Montserrat. By contrast, non-ECCU CARICOM and other Caribbean destinations received an average of 3.9 million stay-over visitors (21 percent of Caribbean stay-over arrivals) and 13.6 million visitors (74 percent of the Caribbean stay-over arrivals), respectively, during this period. Among the various destinations included in the sample, Puerto Rico was clearly the industry leader, with an annual average of 3.2 million stay-over visitors.

A04ufig3

Caribbean Tourist Arrivals, Average Percentage Share over 1995-2001

Citation: IMF Staff Country Reports 2004, 335; 10.5089/9781451811667.002.A004

Source: World Tourism Organization and Caribbean Tourism Organization.

11. During 1995–2001, ECCU and the rest of CARICOM had a much larger share of the cruise passenger tourist market in the Caribbean than the stay-over market. On average, over the same period ECCU’s average annual market share was 10½ percent, while non-ECCU CARICOM’s share was nearly 27 percent.

12. ECCU and other CARICOM countries catered to the high-end of the tourism market, and as such, during 1995–2001 the ECCU’s share of visitor expenditures exceeded its share of tourist arrivals. The ECCU received about 5 percent of average total receipts to the Caribbean (US$0.9 billion), while CARICOM as a whole received nearly 27 percent of average total Caribbean receipts (US$5.6 billion).

13. There was a noticeable decline in the relative shares of CARICOM vis-à-vis other Caribbean destinations in three out of four tourism performance indicators over the period 1990 to 2001 (Table IV.5). In particular, the decline in CARICOM’s Caribbean share of stay-over arrivals, visitor expenditures,8 and rooms in tourist accommodation suggests a reduction in CARICOM’s competitiveness vis-à-vis the rest of the Caribbean. Moreover, in each case, the ECCU’s shares exhibited a steady decline. CARICOM’s share of Caribbean (stay-over) tourist arrivals declined, from about 31 percent in 1990 to less than 25 percent in 2001, and ECCU’s share also fell, from 5.4 percent to 4.2 percent in 2001. Moreover, given that the average daily expenditures of stay-over tourists typically surpasses that of cruise passengers, the erosion of CARICOM’s stay-over market share was also reflected in an erosion in CARICOM’s market share of visitor expenditures, which declined from 35 percent in 1990 to 25 percent in 2001. Finally, consistent with the rapid expansion in the market share of “other Caribbean” stay-over visitors, this group’s market share of tourist accommodations also rose rapidly, from 42 percent in 1990 to 73 percent in 2001. In 2002, CARICOM and ECCU regained some lost ground vis-à-vis “other Caribbean destinations” in all three indicators, and the ECCU’s share either stabilized or increased. On the other hand, CARICOM’s share in cruise ship tourism rose marginally during 1995–2000. The region’s share rose from 37 percent to 39 percent, before declining again in 2001 and 2002.

Table IV.5.

Selected Caribbean Market Share Indicators1/ 2/ 3/

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Source: Caribbean Tourism Organization.

‘CARICOM’ refers to english-speaking, traditional CARICOM members as defined in Appendix Tables IV.1-8

The 1990 column is only indicative, since the data for key “Other Caribbean countries” (such as Cancun/Mexico, Cozumel/Mexico, the Dominican Republic, and Puerto Rico) are not available.

The data in this table are expressed as ratios to the respective Caribbean totals.

14. Tourist arrivals to ECCU countries increased in 2002 despite the contraction in total Caribbean tourist arrivals; however, the ECCU’s share of world tourist arrivals continued to decline. Despite a 2.3 percent nominal increase in tourist arrivals to the ECCU, the growth in world tourist arrivals outstripped that of the ECCU, resulting in the decline in the ECCU’s world share of tourist arrivals. The decline in the Caribbean aggregate was primarily due to a general (and in some cases fairly significant) decline in arrivals to “Other Caribbean Countries” (falling by 4.4 percent). Arrivals to non-ECCU CARICOM countries also declined, but fairly modestly (falling by 0.8 percent)9.

C. Caribbean Tourism: Trends in Competitiveness

15. The loss in CARICOM and ECCU market share to other Caribbean destinations during 1995–2001 can be associated with a decline in either price and/or nonprice competitiveness. Nonprice factors include product design, packaging, quality of service, reliability of supplies, after-sales service, distribution networks, marketing and market intelligence, and air access.

A04ufig4

ECCU: Real Effective Exchange Rates (1990 = 100) 1/

Citation: IMF Staff Country Reports 2004, 335; 10.5089/9781451811667.002.A004

1/ For real effective exchange rate indices. An increase (decrease) indicates an appreciation (depreciation). Excludes Anguilla and Monteserrat in calculation of the ECCU average.2/ Weighted average of CPI in a common currency. Customers: Antigua - (Canada, UK, USA); Dominica - (France, UK, USA); Grenada - (Trinidad and Tobago, UK, USA); St. Kitts - (Canada, UK, USA); St. Lucia - (Canada, UK, USA); St. Vincent - (Trinidad and Tobago, UK, USA). Weights are based on proportion of tourists arriving from each country in 2001.3/ Weighted average of CPI in a common currency. Competitors: Bahamas (23.4%), Barbados (8.0%), Dominican Republic (43.5%), Jamaica (19.4%), Trinidad and Tobago (5.7%). Weights are based on the share of tourism arrivals to the Caribbean in 2000.

16. Movements in customer-based and competitor-based real effective exchange rates (REER) are key indicators of the ECCU region’s price competitiveness—reflecting demand and supply-side factors, respectively. 10 The competitor-based REER index helps explain the loss of market shares since the late 1990s. It shows a sharp improvement in the ECCU’s competitive position vis-à-vis other Caribbean competitors through much of 1997; followed by an appreciation that became quite pronounced from the second half of 2002. On the other hand, the customer-based REER is not useful in explaining the declining share of ECCU in world tourism since the latter half of the 1990s.

17. The under-performance of the ECCU in 1995–99, which is not explained by customer-based real effective exchange rates, suggests the possible dominance of nonprice factors or the rigidity of tourism-related products priced in U.S. dollars. In fact, the depreciation of the Eastern Caribbean dollar vis-à-vis its competitors did not translate into a decline in several key factors such as cost of vacation packages, car rental prices, and long-distance telecommunication charges. The role of industry-specific price and nonprice factors is further explored in the sections that follow.

Industry-Specific Price Competitiveness: Demand-Side Factors

18. The ECCU and other CARICOM destinations are characterized by higher tourism-related prices, reflecting their appeal to the high-end of the tourism market. Figure IV.1 provides a comparison of various competitiveness indicators for different Caribbean destinations. These include average European vacation package prices for 4-5 star resorts (Panel 1); average all-inclusive vacation package prices for 4-5 star resorts (Panel 2); rental mid-size car weekly rentals (Panel 3); and nightly hotel room rates at the “100 Top Caribbean Resorts” (Panel 4). The data confirm that, for these indicators, prices in ECCU countries tend to be among the highest in the Caribbean. For instance, six out of eight of the costliest European vacation packages were found in ECCU countries, and the most costly European vacation packages were found in Anguilla (also an ECCU member state). The ECCU median price for European vacation packages was US$2,170, while the non-ECCU median was US$1,623. In addition, ECCU member states accounted for 4 out of 7 of the costliest all-inclusive 4-5 star resorts; the ECCU median price was US$2,282, while the non-ECCU median was US$2,069. Similar conclusions can also be reached regarding the ECCU and non-ECCU weekly rental price of mid-size cars (a median of US$330 versus US$302, respectively) and for nightly hotel rates at 100 top Caribbean resorts (a median of US$615 versus US$525, respectively).

Figure IV-1.
Figure IV-1.

Tourism Competitiveness Indicators in the Caribbean, 2003

Citation: IMF Staff Country Reports 2004, 335; 10.5089/9781451811667.002.A004

Sources: Expedia; Showker’s “100 Best Resorts of the Caribbean” (2003).

19. Despite the appeal of the ECCU and CARICOM to the high-end of the tourism market, there is some evidence suggesting that tourists responded favorably to lower prices. Table IV.6 explores the relationship between tourism demand and prices of European vacation packages, hotel taxes, and the cost of a three-minute international call using Spearman’s rank correlation coefficients.11 12 Table IV.7 provides a summary of average ranks of each of the significant paired variables discussed in this section and the subsequent sections discussing supply-side factors and nonprice factors13. The fact that the rank correlation coefficient between average stay-over arrivals and average European vacation package prices at 4-5 star resorts was negative and statistically significant means that lower stay-over arrivals tend to be associated with higher vacation package prices (Table IV.6). Moreover, the underlying data, summarized in Table IV.7,14 confirm that during the period 1995–2001 ECCU countries had higher average European vacation prices and lower average stay-over arrivals, while “other Caribbean destinations” had lower average European vacation package prices and a higher average number of stay-over arrivals.

Table IV.6.

Rank Correlation Coefficients Between Tourism Demand and Price Factors 1/

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Sources: Caribbean Tourism Organization; Expedia; Showker’s “100 Best Resorts of the Caribbean” (2003); World Bank: International Development Indicators and Telecoms and Electricity databases; and National Authorities.

Denotes a significant relationship between bivariate pairs at: “*” the 10 percent level; “**” the 5 percent level; “***” the 1 percent level (Zar, 1972).

Table IV.7.

Summary of Average Ranks of Paired Variables for Significant Spearman Rank Correlations 1/ 2/ 3/

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Sources: As cited in Tables IV.6 and IV.8.

Each row represents a ranked pair. The number of bivariate pairs differ based on data availability. A low rank indicates a higher underlying value since the data are sorted in a descending order.

This rank correlation coefficient was positive as expected, but not statistically significant.

This is a proxy for adequate marketing/advertising.

20. There was also evidence of demand sensitivity to telecommunication costs (Table IV.6). The rank correlation between calls to the United States (a proxy for the cost of international calls faced by tourists) and average stay-over arrivals was negative and highly significant (at the 1 percent level). Table IV.7 confirms that the average cost of three-minute telephone calls to the U.S. was higher in ECCU countries and lower in other Caribbean countries, while average stay-over arrivals was higher in other Caribbean countries and lower in ECCU countries.15 16

Industry-Specific Price Competitiveness: Supply-Side Factors

21. In CARICOM, there was a statistically significant negative relationship between hotel accommodations and both electricity and nonresidential telephone subscription costs, indicating a negative association between operating costs and tourist arrivals (Table IV.8). Table IV.7 confirms that electricity unit costs were higher in the ECCU, which in turn had a lower average number of rooms in tourist accommodation. By contrast, average electricity unit costs were lower in “other Caribbean countries,” which in turn had a higher average number of rooms in accommodation. In addition, monthly nonresidential telephone subscription costs were higher in CARICOM as a whole, while average accommodations was lower. 17

Table IV.8.

Rank Correlation Coefficients Between Supply Conditions and Production Costs1/

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Sources: Caribbean Tourism Organization; World Bank Electricity and Telecommunications databases; and national authorities.

Denotes a significant relationship between bivariate pairs at: “*” the 10 percent level; “**” the 5 percent level; “***” the 1 percent level (Zar, 1972).

Nonprice Competitiveness

22. The evidence pointing to a deterioration in the nonprice competitiveness of ECCU and the rest of CARICOM vis-à-vis other Caribbean countries is mostly circumstantial, as these data are harder to obtain. For instance, after 30 years of operation, significant investment, mainly foreign direct investment (FDI) is most likely needed to refurbish old hotels, build new ones and rejuvenate the industry. In addition, there are concerns that the quality of service in hotels, restaurants and other attractions has not kept pace with market trends.18 There is also the perception that the ECCU lags behind the rest of the world in technological advances to address the needs of customers, such as access to automated checkouts, internet access, and state-of-the-art websites for information and reservations.19

23. The ECCU and CARICOM have also fallen behind in expenditure on advertising to improve their visibility in the market place. Moreover, in the immediate aftermath of the events of September 11, worsening fiscal positions have constrained spending on advertising. Traditionally, hotels have spent more on marketing than public tourism organizations, but public promotion in the form of “destination advertising” is crucial in maintaining the industry’s visibility in the market place.20 Table IV.7 confirms that CARICOM as a group had a lower average ratio of tourism budgets to GDP. For instance, on average, ECCU countries were reported to have spent around US$14 per stay-over visitor on promotions in 2001, compared with US$36 spent by the Cayman Islands. However, the rank correlation coefficient of average tourist arrivals and the ratio of tourism budgets was positive yet not statistically significant (Table IV.9).

Table IV.9.

Rank Correlation Coefficients Between Nonprice Factors and Tourist Arrivals1/

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Sources: Caribbean Tourism Organization; http://www.indo.com/distance/index.html.

Denotes a significant relationship between bivariate pairs at: “*” the 10 percent level; “**” the 5 percent level; “***” the 1 percent level (Zar, 1972).

24. Air access and distance from major customer countries appears to be an important bottleneck in expanding tourism in the region. Limits on air access are particularly acute during the high season, and have been aggravated by recent route cutting by major airlines. Regarding distance, Table IV.7 shows that on average, ECCU countries are furthest from Miami and also received fewer stay-over visitors, and had fewer flight arrivals from Miami and from the U.S. as a whole in 2003. Table IV.9 21 confirms a highly significant negative rank correlation between distance from the U.S. and average stay-over arrivals, and a highly significant positive rank correlation between average stay-over arrivals and the number of flights from the U.S. and Miami.

25. The September 11 terrorist attacks on the United States prompted the adoption by Caribbean countries of a host of emergency remedial measures in the short term, designed to mitigate the depressive effect of the shock. However, the shock also helped to foster a growing awareness of an underlying erosion in ECCU’s competitiveness, and of the need to adopt a medium-term response designed to restructure the industry so as to better ensure its long-term survivability The region’s medium-term strategic response is summarized in Box IV.1.

Caribbean Tourism: Proposed Medium-term Strategic Response

A Regional Tourism Strategic Plan was formulated, through the auspices of the Caribbean Tourism Organization (CTO), in the aftermath of September 11, which seeks to achieve the following objectives by 2012:

  • Grow visitor arrivals, increase tourism’s economic impact and achieve a more equitable distribution of its benefits.

  • Create a product that is sustainable, competitive and profitable.

  • Modernize the industry to face a rapidly changing, global environment.

  • Fund tourism development on a sustainable basis.

  • Achieve synergies and economies of scale through greater cooperation.

In seeking to achieve these objectives the medium-term strategic plan aims to:

  • Promote regional marketing, funded by the establishment of a Sustainable Tourism Development Fund via a mandatory US$5 tax on air and sea visitors.

  • Further develop cruise tourism, by bringing land-based and cruise entities together to create joint programs and adopting measures to increase the sourcing of supplies for the cruise sector from within the Caribbean.

  • Promote better air access for travellers by: (a) negotiating air services agreements on a regional basis; (b) providing incentives to improve functional cooperation among regional carriers; (c) supporting the development of strategically placed hubs to improve air transportation efficiency; (d) providing marketing support to external and regional carriers; (e) establishing a regional aviation oversight authority; and (f) commercializing the operations of airport authorities.

  • Enhance competitiveness and productivity, by: (a) researching the impact of taxes on tourism development; (b) adopting strategic measures to accelerate the flow of investment into the sector; (c) investigating the feasibility of a Caribbean Tourism Investment Fund and a Credit Guarantee Scheme; (d) encouraging private sector investment in infrastructural improvements; (e) improving access for small hotels to both equity and loan capital; and (f) providing 100 percent loan guarantees for prestige developments

  • Safeguard the environment, safety, and security, by: (a) publishing guidelines for the development of sustainable tourism; (b) legislating Environmental Impact Analyses (EIAs) as preconditions to new tourism development; (c) requiring concessions for capital investments that impact on water and energy consumption; (d) providing lines of credit to help small businesses to invest in environmental improvements; (e) creating Tourism Police Task Forces; and (f) outlawing all solicitation on beaches.

  • Promote community tourism, by: (a) providing concessions and establish a revolving micro-credit line for community based projects; (b) developing a national strategy to strengthen linkages; (c) treating designated suppliers to the tourism sector as exporters; and (d) helping develop and market the region’s cultural products as part of economic development.

  • Promote Human Resource Development, by: (a) developing a quality assurance framework for use within hospitality institutions; (b) introducing tourism education in the formal education system in the schools at all levels; (c) providing tertiary institutions with resources to develop world class tourism education; (d) reviewing the role of regional and national tourism operations, modernize their systems and equip them with the skills needed to manage a modern tourism industry; and (e) legislating to achieve freedom of movement of skills and labour across the region.

  • Develop information and technology, by: (a) supporting the further development of regional and national internet sites; (b) improving the timeliness and coverage of existing tourism information systems; (c) implementing Tourism Satellite Account (TSA) systems; (d) establishing a Regional Hotel Performance Monitoring System; and (e) developing tourism research capability and programs by the CTO and tertiary institutions.

Source: Caribbean Tourism Organisation.

26. The short-term strategic response to September 11, 2001 encompassed:

  • Subsidies to the tourism industry in the form of tax waivers and tax incentives, subsidized credit to refurbish hotels, and subsidies to regional airlines so as to maintain air access to the region.

  • Upgrading security at airports and ports, so as to reassure travelers, with technical assistance from the World Bank and a loan of US$21 million extended to five ECCU countries.

  • In the private sector, hotels and airlines responded to the September 11 crisis by offering deep discounts (as much as 30-50 percent) and reducing costs through the streamlining of their operations, including layoffs. Airlines often reduced the number routes, resorted to flying smaller aircraft, and cut back on the quality of in-flight food service.

  • The launching of a joint public/private sector US$16 million promotional television campaign, initiated by the CTO, designed to market the region as a whole. However, the program is controversial, and several of the larger tourism destinations—such as Cancun, Cozumel, the Dominican Republic, Puerto Rico and the Cayman Islands—have since withdrawn from the program. The remaining countries are committed to the program, and some have borrowed from the Caribbean Development Bank (CDB) to finance their share of the budget.

  • Many of these promotions adversely affected ECCU and CARICOM countries’ fiscal situation, either through direct expenditure or through reduced tax revenues from lower hotel receipts. Nevertheless, this was seen as unavoidable under then prevailing conditions. However, in light of the deteriorating fiscal stance of the ECCU region, individual governments may need to re-examine the cost effectiveness of such policies.

D. Policy Implications and Conclusions

27. Tourism is an important source of income and foreign exchange earnings, employment, and government revenue in the ECCU region.

28. The countries of the ECCU have experienced a modest erosion in their price and nonprice competitiveness, in comparison with other Caribbean countries. The observed loss of tourism shares to other Caribbean markets is partly attributable to the recent appreciation of the competitor-based REER and to tourism-specific price and nonprice factors, including low quality of service. Ensuring the long-term survivability of the industry will require the implementation of measures designed to enhance the industry’s price and nonprice competitiveness and reduce U.S. dollar price rigidity in the tourism industry.

29. Regarding industry-specific supply-side factors, electricity and telecommunication rates appear to be quite high in CARICOM. This suggests the need for ECCU and other CARICOM countries to try to pursue common regional arrangements to regulate utilities and reduce market prices. Thus, the establishment of regional regulatory frameworks would help to enhance the productive efficiency and cost competitiveness of tourism enterprises.

30. There is a continuing need to attract additional FDI to the region, so as to refurbish old hotels and construct new ones. This calls for an improvement in the cost of doing business within ECCU, as the foregoing analysis showed that high operating costs have served as a deterrent to investment in new facilities. However, in addition to investment in physical capital, there is also a need for investment in human capital development, especially in the hotel and hospitality industries, with a view to enhancing ECCU’s nonprice competitiveness.

31. Further intensification of efforts are needed to stem the decline in air access. This will necessitate better monitoring of air access to the region. In this regard, a user-friendly database could be developed that provides current, timely information on available flights to different Caribbean destinations.

32. The potential for expanding tourism in the ECCU region remains vast. For instance, further development of niches in the yachting market, eco-tourism, the honeymoon market, sports tourism, and location filming of TV episodes and movies.

Table IV.1.

Appendix: Tourist (Stay-Over) Arrivals

(In thousands)

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Source: Caribbean Tourism Organization.

Total Caribbean data for 1990 taken from World Trade Organization statistics due to incomplete country disaggregation.

Change calculated as a percentage of beginning of period “total Caribbean” arrivals.

Anguilla is an associate member of CARICOM.

British Vfrgin Islands, Cayman Islands, and Turks and Caicos Islands are associate members of CARICOM.

Haiti and Suriname are non-English speaking members of CARICOM.

Table IV.2.

Appendix: Tourist (Stay-Over) Arrivals

(Percentage shares)

article image
Source: Caribbean Tourism Organization.

Change calculated as a percentage of beginning of period “total Caribbean” arrivals.

Anguilla is an associate member of CARICOM.

British Virgin Islands, Cayman Islands, and Turks and Caicos Islands are associate members of CARICOM

Haiti and Suriname are non-English speaking members of CARICOM.

Table IV.3.

Appendix: Cruise Passenger Arrivals

(In thousands)

article image
Source: Caribbean Tourism Organization.

Change calculated as a percentage of beginning of period “total Caribbean” cruise arrivals

Total excludes Montserrat and Cuba, for which there was insufficient data.

British Virgin Islands and Cayman Islands are associate members of CARICOM.

Haiti is anon-English speaking member of CARICOM.