Tourism in Cuba - Brookings Institution

Tourism in Cuba

Riding the Wave Toward Sustainable Prosperity

Richard E. Feinberg and Richard S. Newfarmer

DECEMBER 2016

Table of Contents

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii Section 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. From Revolution to Rebirth and Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 3. The Industry Structure Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4. Who Benefits: Linkage versus Leakage? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5. Realizing Cuba's Goals for Economic Growth: Investment Requirements . . . 33 Section 6. Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Annex A. Cuba: Rooms Available, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Annex B. SOE Hotel Groups: Four- and Five-Star Hotels and Rooms . . . . . . . . . . . . . 50 Annex C. Diversifying Tourist Offerings: Medical, Eco-Adventurism, Cruise Ships . . . . . 52 About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Cover photos courtesy of Richard E. Feinberg, used with permission. Tourism in Cuba: Riding the Wave Toward Sustainable Prosperit y

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Acknowledgements

Investigating the Cuban economy is like no other: official statistics are thin and often ill-defined, and access to decision-makers, whether in government ministries or state-owned enterprises, is tightly circumscribed. Fortunately, many experts in the Cuban economy and specifically in the tourism industry generously came to our assistance. We are especially indebted to those industry experts and business people in the United States and Europe and working in the island's leading hotels, in Havana and in beach resorts, that shared their extensive knowledge with us, even as they prefer to remain anonymous. During our travels, we enjoyed the warm hospitality of owners of private bed and breakfasts and enjoyed the delicious cuisine of leading paladares; we also spoke with innumerable employees of state-owned hotels and other tourism-related businesses, who shared their life experiences and vital insights with us.

Among the knowledgeable Cuban economists, we want to once again express our appreciation to Ricardo Torres and Juan Triana Cordov?, and most especially to the leading expert on the Cuban tourism industry, Jos? Luis Perell? Cabrera, whose continual guidance and insights have markedly enriched this report. Thanks also to those who read and offered enormously useful comments on all or portions of draft manuscripts, including Peter Hakim, William LeoGrande, Carmelo Mesa-Lago, and several anonymous peer reviewers. Collin Laverty, president of Cuba Educational Travel, and Marla Recio Carbajal, shared their wide knowledge of all things Cuban. Sol Cuadra, Anisorc Brito, and Shihao Han provided quality research assistance.

At the Brookings Institution, Ted Piccone continued to offer his essential guidance and Ashley Miller and Caitlyn Davis moved us smoothly through the editorial process. Robyn Wentzel Freeman, at University of California San Diego, provided helpful background research. At Florida International University, Francisco Mora provided invaluable support, and Jorge Duany and John Thomas kindly shared their wisdom with us. At the International Monetary Fund, Alejandro Werner hosted an informal exchange with his regional experts, and, at the World Bank, Phil Schuler and Hannah Messerli provided useful background information. Evelyne Freiermuth of the World Travel and Tourism Council (WTTC) provided useful methodological perspectives on the WTTC data compilation.

Support for the Latin America Initiative comes from Liberty Mutual, UnitedHealth Group, Inc., Open Society Foundations, and Brookings Trustees Alfonso Fanjul and Paul Cejas. This research paper was generously supported by the Kimberly Green Latin American and Caribbean Center in the Steven J. Green School of International and Public Affairs at Florida International University.

The conclusions and recommendations of any Brookings research are solely those of its authors, and do not reflect the view of the institution, its management, or its other scholars. Brookings recognizes that the value it provides is in its absolute commitment to quality, independence, and impact. Activities supported by its donors reflect this commitment, and the analysis and recommendations of the Institution's scholars are not determined by any donation.

Tourism in Cuba: Riding the Wave Toward Sustainable Prosperit y Latin America Initiative at Brookings ? Kimberly Green Latin American and Caribbean Center

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Acronyms

ACE ADR B&B CITMA CAF CNAP CUC CUP ETECSA FAR GAESA GOP IFI MINFAR MINSAP MINTUR MTSS ONEI OPIC SMC SNAP SOE UCM VAT

Economic cooperation associations Average daily room rates Bed and breakfast Ministry of Science, Technology, and the Environment Andean Development Corporation Center for National Parks Cuban convertible peso Cuban peso Cuban Telecommunications Company Revolutionary Armed Forces Enterprise Administration Group Gross operating profits International financial institution Ministry of the Armed Forces Ministry of Public Health Ministry of Tourism Ministry of Labor and Social Security Office of National Statistics and Information Overseas Private Investment Corporation Cuban Medical Services National Parks System State-owned enterprise Military Construction Union Value added tax

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TSietlcetion 1. Introduction

Tourism in Cuba is poised to explode. Based on Cuban government plans to construct new hotels and resorts, the number of foreign visitors could rise from 3.5 million in 2015 to over 10 million in 2030--and that does not include an additional 5 million in cruise passengers. This tourism could generate over $10 billion in foreign exchange revenues--as compared to about $3 billion today and twice the amount currently being generated by all of the island's merchandise exports. U.S. citizens are itching to join the growing number of Europeans, Canadians, and increasingly middle-class Asians and other Latin Americans to experience the island's singular allure--the flood of travelers is just over the horizon. For some, Cuba is now a trophy destination--one that visitors like to brag about to their friends.

The Cuban government's 2030 Vision Plan recognizes the centrality of tourism to the nation's future, and the government has made it a "strategic sector."1 No other economic sector in Cuba is as ready to generate such large returns. No other sector can unlock future economic expansion and generate the foreign exchange necessary to release Cuba from the hard-currency tourniquet that has throttled growth. Eventually, agriculture and industry could take off, but not before government economic policies are thoroughly overhauled, and that will take time. Other promising sectors, such as biotechnology and the creative industries, are launching from much smaller bases. Only tourism has such a firm foundation from which to expand, and enjoys such favorable market conditions.

The importance of the government's efforts to promote the tourism industry has been underscored by the island's descent into a new austerity. Shocking the nation, in July 2016 then Minister of Economy and Planning Marino Murillo announced sharply contractionary measures necessary to cope

1 "Diversified tourism, including marinas and boating, golf and condominiums, eco-tourism, agro-tourism, cruise ships, historical and cultural tourism, conventions, congresses and festivals, and, especially, health and wellness tourism; and emphasizing the contribution to the strengthening of the integration of the domestic economy." Communist Party of Cuba, "Plan Nacional de Desarrollo Social Hasta 2030: Propuesta de Visi?n de la Naci?n, Ejes y Sectores Estrat?gicos," paragraph 242, April 2016.

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