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Experts ponder Cuba tourism potential as Raúl cautiously opens up economy
CubaNews / April 2008

By Larry Luxner

Along crowded, quirky Duval Street in downtown Key West, Fla., the karaoke bars, burger joints, art galleries and tacky T-shirt vendors all sing the praises of Jimmy Buffett’s “Margaritaville” and the Florida Keys.

But one shop is oriented a little further south — about 90 miles south, to be exact. The Cuba! Cuba! Store at 814 Duval St. lures in customers with decorative cigar boxes, coffee mugs, music CDs, baseball caps, Cohiba ashtrays and keychains glorifying all things Cuban.

Yet because of the U.S. trade embargo, nothing in this boutique — except for back copies of Cigar Aficionado, a few choice paintings and little figurines which qualify as art — actually comes from the forbidden island (the baseball caps are assembled in Haiti and Nicaragua).

“We’re so close to Cuba that I thought this store would be a good idea for Key West,” shop-owner Larry Winters tells us in between assisting customers. “A lot of European tourists ask me, ‘Where’s your Che T-shirts?’ I tell them I can’t sell that here.”

Not yet, anyway.

Che Guevara, the global symbol of revolution, is anathema to the one million or so Cuban exiles who call South Florida home.

Even so, U.S. multinationals ranging from Marriott to McDonald’s have gazed longingly at Cuba since the early 1960s, waiting for Fidel Castro to quit or die so they could once again flood the island with their products and services.

Banks, hotel chains, cruise-ship companies and travel agencies all see Cuba as a virgin market, waiting to be exploited — and Key West, far from being hurt by the competition, could cash in big-time, thanks to its status as the closest point in the United States to Cuba itself.

Says Winters: “If they put the ferry boat back into service, I think there could be a steady stream of people driving to Key West, just like in the old days.”

But with 81-year-old Fidel now writing essays from his sickbed and younger brother Raúl, 76, officially running Cuba, it looks as if the waiting game will go on a little longer.

“The critical factor here is what the process the Cuban government will use to open up the economy,” says Carlos Saladrigas, vice-chairman of Miami-based Premier American Bank and founder of the Cuba Study Group.

“The next few months are going to be incredibly telling. Rumors are abundant that significant economic reforms are about to be undertaken,” said Saladrigas, who fled the island in 1961. “What I don’t understand is why Raúl is purposely raising the expectations of the people for change. If he doesn’t intend to deliver, he’s either a fool or he’s crazy.”

Economically, Cuba hasn’t been doing badly. Growth last year came to around 10%, boosted by record-high prices for nickel, the island’s chief export commodity. Tourism brought the island revenues of about $2 billion in 2007 — compared to $2.2 billion for nickel — and accounted for some 300,000 jobs, according to Cuban officials.

Yet the island’s tourism advantages have been offset in recent years by a lack of investment in hotel maintenance, Washington’s punishing embargo and an unfavorable foreign-exchange policy toward the U.S. dollar that hurts Canadian visitor arrivals.

Ariel Terrero, a commentator on the TV program “Buenos Días,” recently complained that local tourism authorities have been slow to act compared to Cuba’s chief rivals in the Caribbean tourism market: Jamaica, Cancún and the Dominican Republic.

To try to boost the numbers, Cuba plans to build 30 hotels starting this year; this will add over 10,000 hotel rooms to the island’s tourism infrastructure.

Ramón Zamora, an official of the Cuban Ministry of Tourism, said almost 1,000 of the new rooms will be in Havana, which along with Varadero accounts for 70% of Cuba’s tourism revenues.

Plans for developing tourism through 2010 call for building new facilities, promoting the new Hoteles E chain and investing in activities like scuba diving, boating and golf. At the end of 2007, according to government statistics, Cuba had 46,000 hotel rooms in 307 properties, 23% of them in Havana.

Spanish hotel group Sol Meliá is the leading hotel brand in Cuba, with 24 four- and five-star Meliá, Tryp, Sol and Paradisus properties across the island. Other large chains managing hotel properties in Cuba include two Jamaican companies, Sandals and Superclubs, and Spain’s Iberostar.

Cuba’s state-run chain, Gran Caribe, has more than 12,300 rooms in 50 hotels including some of the capital’s most famous properties: the Hotel Sevilla, which marks its 100th anni-versary this year; Hotels Victoria and Presidente, both in Havana’s Vedado district, and both of which mark their 80th anniversary in 2008; the Habana Libre Tryp, which turns 50, and the oceanfront Hotel Deauville, which also turns 50 this year.

J.J. Jennex, investor relations director at Leisure Canada Inc., said the island received more than 600,000 Canadian tourists in 2007, making Canada the top source of visitors in Cuba — ahead of Spain, Italy, Germany, Great Britain and of course the United States.

“People go to Varadero and it’s a beautiful beach, but I don’t think they really experience Cuba,” Jennex told CubaNews. “They might as well be in the Dominican Republic.”

Vancouver-based LCI currently has three projects in the pipeline. The first is Monte Barreto, an all-suite hotel that’ll be built in three phases on a site in the Miramar suburb of Havana. The $33 million project envisions a 737-room tower of seven or eight stories.

The second project consists of a 400-unit, high-end resort on the island of Cayo Largo, and the third will be a sprawling resort at Jibacoa — halfway between Havana and Varadero — that’ll eventually have two golf courses and several hotels and luxury villas.

So far, LCI has spent $23 million in Cuba, even before a single shovel is sunk into the ground, and Jennex said total investment could reach $500 million.

“What the Cubans have done is built their industry around the package tours, which are all-inclusive,” he said. “That kind of clientele is not loyal. They open up the paper and look for the cheapest deal. Cuba now realizes that if they want to augment the amount of dollars per visitor, they’ve got to create an industry that caters to high-end travelers.”

Dubai’s Profile Investments Group, which has substantial interests in the United Arab Emirates, India, Cape Verde and North Africa, last month finalized a deal to acquire 49% of LCI. This follows a much larger deal announced by Dubai Ports World to invest $250 million in rebuilding and modernizing the Port of Mariel, just west of Havana.

Although unrelated, both investments are clearly banking on an end to the U.S. travel ban and a resumption in trade sometime in the next few years.

“Cuba is without a doubt one of the most exciting new markets in the world,” said LCI’s executive chairman, Walter Berukoff. “With the backing of a vertically integrated global real-estate developer such as Profile, we are ready to accelerate development of our world-class asset base in Cuba and become that nation’s premier hospitality and resort development company.”

Yet for Cuba’s tourism industry to really take off, Americans must be allowed by the U.S. government to travel there freely. And that won’t happen until the Castro regime enacts significant economic and political reforms to encourage private enterprise as well as foreign investment.

“Cuba’s foreign investment law now allows joint-venture type arrangements,” said Michael Roberts of the Washington law firm of Venable LLP. “They’ve been somewhat successful with foreign hotel chains, but they haven’t been very successful in replicating foreign investment in other sectors.”

Roberts noted that the Miramar Trade Center, a sprawling new office complex on the western outskirts of Havana, was financed “in large part by foreign investment funds that were secured off the cash flow of some foreign travel agents.”

In the meantime, the embargo has especially hurt Cuba’s struggling cruise business — especially in Old Havana, where the cigar and rum shop at the city’s recently renovated $10 million passenger terminal is closed, and ship visits are few and far between.

“The reason is the U.S. blockade, which does not allow ships to visit Cuban ports,” said José Antonio López, general manager of the state company that runs Cuba’s four cruise terminals. López, in an interview with Reuters, blamed the 1992 Torricelli Act, under which vessels sailing to Cuba are barred from entering U.S. ports for six months; this effectively rules out most of the Caribbean cruise industry, which is headquartered in Miami.

“All cruise operators want to come to Havana and thousands of cruises sail around Cuba, but they’re penalized if they visit,” he complained. “Even the ones most interested in visiting Cuba don’t dare.”

According to López, Cuba’s cruise trade peaked in 2005 with 102,440 passengers visiting the island on vessels that put in 122 calls at Cuban ports. Only two years later, those numbers had shrunk to 11,000 visitors from just 23 dockings. Most of those were sailing on the “Holiday Dream” owned by Spanish operator Pullmantour.

But Pullmantour stopped sailing to Cuba in October 2006 after it was bought by Miami-based Royal Caribbean, the world’s second-largest cruise ship company. Even so, López said Cuba has the capacity to handle one million cruise-ship passengers a year and up to 600 port calls of vessels weighing up to 70,000 tons.

It could be a long time before those dreams are realized, though Simon Calder, travel editor of London’s Independent, can’t wait.

“The big U.S. airlines have their draft schedules ready; I expect Miami-Havana to swiftly become the busiest international air route in the world,” he wrote Feb. 20, the day after Fidel’s resignation.

“Canada, Italy, Spain and Britain have proved invaluable as in-vestors prepare to drag Cuba’s decrepit tourism infrastructure into the 21st century, by providing a supply of sun-starved holidaymakers,” said Calder, warning that “U.S. hotel groups and tour operators will seek to outbid Europeans and Canadians for the best properties.”

And once the boycott ends, he said, “300 million Americans will be able to explore Cuba, rather than just fly over it. That could mean other Caribbean islands are likely to see a sharp fall in bookings.”

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