International edition
September 21, 2020

By Renese Johnson (*)

CHICOS Conference Highlights - Part II: Puerto Rico and Cuba’s Investment Potential

Two of the most highlighted markets in the Caribbean during the CHICOS conference were Puerto Rico and Cuba.

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iven Puerto Rico’s ongoing debt crisis and recent credit rating drop, tourism has emerged as a major focus to help transition the economy from heavy manufacturing and create greater diversity.

Though tourism currently only accounts for approximately 7% of their GDP versus other Caribbean countries where it can be more than triple that, the figure still reflects an upward trend for the country over the last few years according to the WTTC. This is arguably attributable to the many actions conducted by Executive Director of the Puerto Rico Tourism Company, Ms. Ingrid Rivera.

While high costs as a result of major outstanding public debt were noted as a concern to some investors, Ms. Rivera spoke with great enthusiasm and confidence of the tourism sector Puerto Rico and taking things to the next level. Major highlights included the opening and rebranding of hotels (Hyatt Place to open early 2016; El San Juan Hotel now a Hilton property), increased airlift, (particularly and most recently from Europe), planned incentive measures to stimulate cruise arrivals which can help convert daytrip travels to returning overnight guests as well as more legislative endorsements to entice foreign investors.

It would be interesting to see if and how the PRTC focuses on other parts of the Island country, such as the west and south side, which are rarely frequented by tourists but are known to house some the most pristine beaches in region. Infrastructure plays a major role in limiting this ability, however, it could still be an exciting area for exploration given the growing number of U.S. residents' interest in frequenting markets ‘untapped’ by American westernization. At least, such has certainly been the case for Cuba…

With its notable leisure tourist potential and the significant increases in visitation already seen through the 12 legalized categories for travel currently, there is no shortage of excitement around Cuba. From its unique culture, lively atmosphere and nostalgic architecture a number of panelists noted it as “unlike anywhere else in the Caribbean”. There were, however, stated concerns over Cuba’s ability to bring about the necessary changes it would need – such as expanded infrastructure (from the airport to the internet), legislative measures to (i.e. loosen business protocol), and overall quality of service (both in the form of products and labor) – in order to create a sustainable tourism sector that would appeal to the very lucrative U.S. market past a one-time indulgent trip.

Interestingly, the question of if U.S. leisure travel would be legalized did not come up for debate amongst the panel. Rather, major questions were surrounded around when it is legal, what measures will the Cuba government need to implement in order to take advantage of the significant influx of visitation and drive true economic growth by which all their citizens can have the opportunity to benefit from? Still, even in spite of the outstanding claims in excess of $7 billion that Cuba owes to U.S.

Government for seized properties and the various partisan and philosophical differences between the two countries, diplomatic relations continue to loosen. In fact, U.S. has recently permitted American corporations in certain business segments (i.e. largely infrastructure based, although one segment was noted as ‘travel and carrier services’) to set up shop in Cuba and both countries have re-opened their embassies.

The big pink elephant in the room is how will privatization work with this organizations, if at all? Currently foreign investors in most all industries, including hospitality, usually must set up joint ventures with the Cuba government. While this may not be likely scenario for U.S. Hotel Operators to engage in, other foreign investors have and are currently doing business in the Country following this format.

Today Cuba has approximately 60,000 hotel rooms providing lodging accommodations throughout the island. Of these room, many have been set as J.V.s with companies in Spain, United Kingdom, Canada and Cuba itself and some panelists had noted that the Country hopes to increase their hotel count to 80,000 rooms over the next few years. As stated by Editor-in-Chief of the Cuba Journal (www.cubajournal.co), Mr. Simons Chase, “There are a number of hospitality-related investments currently taking place on the island right now”. One major venture he noted was a Cuba-China J.V. in the beach resort town of Varadero. Interestingly, during their talks for the development even China alleged has encouraged Cuba to loosen up their policies and learn to ‘play nice’ with other foreign investors.

In fairness, circumventing the Cuba government entirely given their influence on the Country’s economy for 60 years is not a realistic venture that American businesses should be holding out for either even as relations loosen. The two must learn to work together, requiring a host of changes to each country’s traditional business models. This sentiment was identified by all panelists in conjunction with Cuba’s need to make immediate modifications, citing that they don’t have the luxury of time as tourism in particular is a vital sector to ensure the stability of their economy. “They know change is inevitable and need to act fast,” noted Chase, “the question is how they are going to go about it”.

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