Great expectations for Cuba’s hotel industry
Cuba has more coastline than all the Caribbean Islands combined and it’s the second favorite destination for tourists in the region after the Dominican Republic.
Since the 1990s, the tourism industry in Cuba has been growing in strength and many forecasts demonstrate that it will continue to do so. Figures released by Cuba’s National Bureau of Statistics and Information (ONEI) show that in 2015, a total of 3,524,779 tourists visited the island, one million more than in 2010.
Last year, the total contribution of travel and tourism to the country’s GDP was 10.1 per cent and it’s expected to rise by 2.4 per cent this year and continue rising to up to 4.9 per cent by 2026 (12.3 per cent of GDP), according to a recent report published by the World Travel and Tourism Council (WTTC), report from March 2016,
Tourism industry experts say that if the tourist influx continues growing at this pace, the current hotel capacity will need to be widely expanded. At present, Cuba has a total of 134,535 hotel bed places.
To keep up with the tourist boom, the government announced in April of this year that it would be building 108,000 new hotel rooms in the course of the next 15 years, Spanish news agency EFE recently reported. These plans include the construction of golf resorts and marinas.
According to TOPHOTELPROJECTS, an online news platform which provides expert information on the hotel industry across the globe, there are currently 12 projects with 4,579 rooms in planning or under construction in Cuba. Eight of these projects are five star hotels.
Most visitors hail from America and Europe. In first place with a wide margin are Canadians with over 1,3 million. Second are Cubans residing abroad, with almost 400,000 annual visitors. Then come Germany, the United States, England, France, Italy, Spain, Mexico, Venezuela and Argentina.
Since the news broke in December of 2014 that US-Cuban ties were restored for the first time in more than half-century, the island has become even more attractive for foreign investors in the tourism industry.
The number of US tourists last year has skyrocketed after Washington loosened the travel restrictions to the island. From 2010 to 2015, the total amount of tourists grew 76,6 percent (63,046 in 2010 and 161,233 last year). Before to get to the island, Americans had to take charter flights or travel via other countries. Recently, three US airlines have begun offering commercial flights from the US to Cuba and five others will join the club in the upcoming months.
A bit of history
After Fidel Castro’s revolution in 1959, all main hotels were nationalized. And shortly afterwards the United States imposed the embargo on Cuba, which dried up the American market. In the next decades there was a sharp decline in the number of tourists.
Moreover, the collapse of the Soviet Union in 1989, and with it the loss of the Soviet economic subsidies, pushed the Cuban government to find an alternative economic model by forming hotel ventures with foreign countries such as the Spanish Sol Meliá group and German company LTI International hotels. To attract more foreign capital, in 1990 it legalized the circulation of the US dollar.
At present there are many well-established international hotel chains, mainly from Latin America, Spain and Canada like Blue Diamond Hotels & Resorts Inc., Mercure Hotels, Belive Group, Sunwing, Barceló Group, Blau Hotels and Resorts, among others.
Currently, Spain holds the majority of the foreign investment with 45 percent. Canada and Italy are tied in second place with 10 percent, followed by France in third place with 6 percent (source: data provided by report written by Cornell University http://bit.ly/2dAgnhR).
The hotel projects that are currently under construction are mainly mixed companies that will be managed by foreign hotel chains such as Meliá and Iberostar from Spain, in association with local tourism groups like Gaviota and Cubanacan.
For example, the Cuban travel group Gaviota is involved in the construction of 30 new hotels and resorts across the island that will be finished by 2018, according to the Cuban news portal Cuba Business Report.
Meanwhile, the first agreement between a Cuba and a US hotel company since 1959 was signed earlier this year. The Starwood hotel group will renovate and manage three luxury hotels in Havana.
Challenges for foreign companies
Despite Cuba’s enormous potential for business opportunities in the hotel tourism industry, there are four aspects that should be considered by a foreign investor when evaluating an investment, according to a report published last year by the Center for Hospitality Research of Cornell University on Cuba’s tourism business (to read the full report click on the following link: http://bit.ly/2dAgnhR):
- Lack of international finance and banking availability. Regular banking activities are restricted to Cuban government banks at the moment. Foreign investment businesses must open an account in Cuban Universal Currency (CUC) at a bank of the national banking system and they are allowed to have correspondents who assist them with foreign transactions. But the gradual opening of Cuba’s economy to the world in the last years, indicates that foreign banks will eventually be able to set up their operations in the island.
- Cuban government must be a partner in all foreign enterprises. The current regulations give the local government operational control of the business as a partner. Usually the Cuban side retains over 50 per cent of the capital. Most joint ventures now are 50-50.
- Local work force controlled by the government. The Cuban employees can only be hired by state employment agencies, which choose workers and negotiate wages.
- There is no local legal mechanism for resolving business disputes. If a dispute arises, an International Trade Arbitration Court could resolve it but hasn’t been tested yet.
Another aspect to have in mind is that despite the resumption of diplomatic relations between Cuba and the US, the US trade embargo – which forbids US citizens and corporations from trading with citizens or businesses of Cuba – still continues and can only be lifted by the US Congress. However, US-Cuban nationals are allowed to carry out business transactions with Cuban businesses. In addition, the fourth bilateral commission to further improve relations took place last week in Washington DC.
The continued growth in the tourism industry, the thawing of US-Cuba relations and the overhaul of the container port of Mariel are just a few significant examples, which indicate that Cuba holds a promising future for business opportunities.
Note: THINC conference on innovation in the hotel industry
hotelnacionalFrom August 2nd and 4th 2017, the Tourism, Hotel Investment & Networking Conference (THINC) will bring together around 300 expert delegates from around the world to exchange ideas about innovation in the hospitality sector at the legendary Hotel Nacional de Cuba in Havana.
The conference will host an interdisciplinary group of leaders composed by rebels, rule breakers and game changers from the hospitality industry, representatives from the hotel investment and development sector, architecture and design heads, as well as experts from different fields such as science, art and music.
THINC is a unique opportunity to meet and learn from a top selection of international influencers, who are shaping the future of the hospitality industry with innovative ideas.
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