How Covid devastated tourism in small island states
To put what this means for local economies into context, the chart below shows the contribution that the sector makes to each small island developing state’s overall GDP.
Aruba, the most tourist-dependent of the Caribbean islands in 2019, had the sector accounting for 28% of total GDP; followed by the US Virgin Islands and Antigua and Barbuda at 24%; Saint Lucia at 21%, and both the Bahamas and Grenada at 20%.
For most of these countries the drop in tourists in 2020 – classified as overnight stays – was devastating. According to the Caribbean Tourism Organisation’s latest statistics, Antigua and Barbuda, for instance, saw a decrease of 57.7% in the period between January and November 2020.
The biggest drop was registered in Bermuda at -84.5%, followed by the Bahamas, Guyana and Anguilla at -73.8%, -73% and -71.9%, respectively.
Hurricane season and pre-existing high levels of national debt have, in most cases, compounded the effect of the pandemic on tourism, and while some of these countries have reopened their borders, the expectation is that the sector will not go back to pre-Covid levels for many years.
What are the alternatives to tourism?
Governments across the Caribbean have come up with a range of solutions to support both employers and employees through the crisis. The Economic Commission for Latin America and the Caribbean (ECLAC) has established a Covid-19 observatory to follow up on the measures taken by the countries of the region, including those affecting tourism.
Measures cover grants; reduction in corporate income tax rate; agreements for employees’ work reduction to avoid dismissal; as well as the use of public-private partnerships to facilitate the transfer of tourism workers to other industries, including cleaners in hospitals and businesses, temperature checkers and contact tracers.
We are lucky to have hectares of arable land [in Belize], which makes agribusiness a valid alternative to tourism. Hero Balani, Beltraide
Most of all, however, governments and local investment promotion agencies (IPAs) are trying to leverage a trend that was in some cases already in motion: diversification.
The government of Belize, for instance, is assessing what it refers to as “new growth industries” and, following last November’s elections, has established a Ministry of Blue Economy and a Ministry of Aviation.
The country, which saw a drop in tourism of 66.9% in the period from January to November 2020, is now trying to pivot its economy and foreign direct investment (FDI) attraction strategy to other sectors including agribusiness and agro-processing; blue economy (fisheries and aquaculture); offshore business process outsourcing (BPO) services; light manufacturing and logistics; and sustainable energy.
“We are lucky to have hectares of arable land, which makes agribusiness a valid alternative to tourism,” says Hero Balani, manager at IPA BelizeINVEST Generation, a unit of Beltraide.
“We anticipate that some of our FDI inflows will need to diversify and pivot from tourism as our primary FDI earner into other priority sectors such as agribusiness and outsourcing services based on current trends being observed.”
Will natural resources fill the the tourism gap in Guyana?
Other Caribbean countries have at their disposal vast natural resources and can therefore turn to the energy sector as an alternative to tourism.
This is the case with Guyana, which has a strong oil and gas sector as well as natural resources that can be used to develop renewable energy. However, the pandemic has also curbed many investment plans into oil and gas.
“The oil and gas sector is key in Guyana, but even before the pandemic some foreign investors were expressing concerns,” says Lyndell Danzie-Black, a Guyana-based FDI and project management consultant.
However, the newly-appointed government is trying to boost investment in the sector.
“We expect those processes that were already under way to carry on, and we are seeing new plans being proposed at present,” says Danzie-Black.
The country’s huge natural resources and the availability of raw materials are best placed to catalyse the government’s efforts to boost exports, she adds.
Saint Lucia seeks BPO salvation
BPO and knowledge process outsourcing (KPO) services, as well as agribusiness and agro-processing, are also seen as safe havens by local IPA Invest Saint Lucia.
The Caribbean Tourism Organisation reports that the island saw a 69.7% drop in tourism year on year in the first 11 months of 2020.
While Saint Lucia’s borders reopened in July 2020 and airlines are offering deals to attract tourists from the US and the UK, a resurgence in the tourism sector is not expected until 2023–24, so alternatives are needed.
Everyone is talking about diversification, and has been for several decades, but I am not sure much is being done in practice. Marla Dukharan, economist
“Saint Lucia has seen noticeable growth and interest in BPO/KPO,” says a spokesperson for Invest Saint Lucia. “Major sector players and investors are now in dialogue to look at the market as the government makes the environment even more sector friendly.
“Being blessed with the ability to grow our own food on the island, food security and diversification of agricultural basket form part of the larger diversification strategy, with a close look into other vertical integration strategies, including smart manufacturing and agro-processing.”
Saint Lucia has also used the Covid lockdowns to upgrade its infrastructure, including roads, hospitals, technology, logistics and digitalisation of business, as it prepares for FDI levels to regain traction.
Rethinking tourism in a post-Covid world
Covid-19 is being seen as an opportunity to rethink the mass tourism model in the Caribbean, with plans being made to make the sector more sustainable for both the environment and local communities.
The report says: “In addition to improving collaboration and integration among sectors and institutions, a climate-sensitive, and risk-sensitive, approach would improve financing and focus on supporting investments that make wider contributions to sustainable development.
“Comprehensive planning processes that consider both issues are expected to be more efficient in the use of resources and to have multi-sectoral/overreaching societal benefits, as well as to be more sustainable and integrated with other sectors (water, energy, transportation, public infrastructure, agriculture and planning, among others).”
Tourism can also contribute to the modernisation of the agriculture sector, the lengthening of value chains, and an improvement of living and working conditions of local populations, it adds.
All talk on diversification from tourism?
Caribbean-based economists and consultants, however, are cautious about the likelihood of sustainable tourism and its feasibility in the short to medium term.
“Everyone is talking about diversification, and has been for several decades, but I am not sure much is being done in practice,” says Caribbean economist Marla Dukharan.
“Some countries have articulated strategies to invest further into agriculture, renewable energy, blue economy, education, etc… but within the tourism sector itself, we are [only] seeing some steps towards diversification.”
Dukharan says countries such as Barbados, the Cayman Islands and Bermuda have tailored various versions of digital nomad and medical tourism offerings, where qualified individuals can stay for a year or more.
We can make sure that our own people visit their countries and make them brand ambassadors. Lyndell Danzie-Black, FDI consultant
“The Cayman Islands recently announced the approval of the construction of a new hospital, as it deepens its medical tourism product,” she says. “In general, the longer-stay tourist is becoming much more of an attraction from a practical standpoint in this pandemic.”
Domestic tourism and self-isolation hotels are another way that local governments can continue to try to attract visitors in both the short and medium term.
Danzie-Black suggests targeting domestic tourism as a way to reboot international travel in future while being considerate of local communities.
“We can make sure that our own people visit their countries and make them brand ambassadors,” she says. “Host communities have become more wary of inbound travellers as they are themselves abiding by restrictions and are concerned about who is coming into the country.”
One thing is for sure, however; Covid-19 has changed travel, at a global level as well as for the Caribbean, possibly forever.
Danzie-Black warns that this could add extra barriers to travel. “I expect travel to become more expensive in future as cost is often passed on to the consumers. In general, we expect smaller groups and possible changes in traditional destinations within our region according to where it is perceived safer to go,” she concludes.
Join Our Newsletter
Want more FDI insights?
Sign up to Investment Monitor's weekly newsletter, Eye on FDI, to receive a round-up of the most important stories.