Ladies and gentlemen I would now like to draw your attention to the challenges of the regional tourism sector. It is clear that the mass market tourism model is unsustainable in the Caribbean given our small scale and high operating costs. To enhance the viability of the sector, operators should focus more on niche markets and the high-end segment. In the current environment, great occupancy levels are being reported primarily by the high-end operators such as Sandals Resort and Spice Island while the mass market operators continue to struggle. With high labour costs and expensive energy supplies, the regional tourism sector -which is energy intensive-, is finding it difficult to remain competitive.
Most destinations in the region rely primarily on oil for energy generation purposes, rather than the much cheaper gas fueled power generation grids found in Trinidad and Dominican Republic. In a situation where tourism destinations around the world derive electricity from cheaper and more efficient fuel sources or have scale, the Caribbean, using the current model is likely to remain relatively uncompetitive. According to the Caribbean Centre for Money and Finance, the Caribbean market share, compared to the rest of the Americas has been in decline. On the other hand, Central and South America have seen their market share grow between 1990 and 2011. When we look at CARICOM countries, in the context of the entire Caribbean the trend is the same. In 1990, CARICOM nations received 34 percent of all international visitors to the Caribbean. By 2000, this figure fell to 28 percent, before slumping further to 22 percent in 2011. Conversely, Cuba and the Dominican Republic experienced significant market share growth during the period.
Weighed down by surging energy costs, several Caribbean nations sought refuge in PetroCaribe, an energy-assistance programme for the Caribbean and Central America launched by the late Venezuelan President, Hugo Chávez, in 2005. The programme allows Caribbean states to take fuel from Venezuela, but only pay a portion of the cost up front, with the remainder being converted to long term loans. This consistently adds to the region’s stock of debt, which is already at unsustainable levels. The Economist Magazine revealed that Jamaica, Guyana and Haiti deferred payments to Venezuela that were equivalent to 4 percent of GDP and greater than 10 percent of government revenue, annually between 2011 and 2013.
During the period, Antigua and Barbuda deferred payment equivalent to 2 percent of GDP, while Grenada and Dominica added just below 2 percent annually to their respective debt figures under the programme. Since PetroCaribe permit these regional states to consume a level of fuel they ordinarily could not afford, policy makers have not felt a significant sense of urgency to address the woes of the energy sector. With Venezuela now finding it difficult to supply basic goods to its citizens and with the country facing severe and deteriorating fiscal deficits, the PetroCaribe programme has been called into question. One suspects that President NicolásMaduro will face mounting pressure to wind up the programme until the situation in Venezuela drastically improves.
From a Caribbean perspective, many regional states now find that their economic prospects are dependent on what is essentially a failed or failing state. I think we can all agree that this is a less than ideal situation, which is deeply disturbing, to say the least. In light of the recent fall in the price of oil to US$77 per barrel, after averaging over US$100 for an extended period, the IMF has advised Caribbean countries to put contingencies in place to cater for possible interruptions or a complete halt of PetroCaribe.
Ladies and gentlemen the world is constantly changing. Nowhere is change more evident than in the way business is conducted. Innovators have now become disruptors and have transformed (disrupted) many industries including banking newspaper, telecommunications and entertainment. As an example, one disruptor Uber, has significantly impacted the taxi business in over 200 cities around the world. The company was launched only in 2009 and connects commuters with nearby pre-registered cab drivers through a mobile application.
Usually, passengers are picked up within minutes of confirming a ride. They are in the process of disrupting taxi industries the world over. Innovators/disrupters have disrupted book publishing and the music industry. They are succeeding in getting more and more households to abandon hard-wire telephone services and steady improvements in mobile and internet phone technology make it a matter of time until traditional phones become a quaint relic. Hydraulic Fracturing (fracking) technology has disrupted the oil trade. By driving down transport and communication costs, they have transformed the clothing, furniture and untold other industries. They have virtually wiped out the travel agency business, replacing them with something call APPS. Neflix is about to disrupt the cable and satellite providers of television. Our own credit card industry is even about to be disrupted with the like of Apple pay. Such changes are part of the natural evolution of economic activity.
The Caribbean is used to economic changes, having moved from mainstay industries such as sea island cotton, cocoa and sugar. What is important is that the region recognizes we are in a tumultuous period of rapid disruptive change and the need to re-invent itself before it is too late. We all know change is coming but then all of a sudden it happens.
It will be remiss of me not to mention some of the good things that are taking place throughout the region. One example is the Cayman Islands’ foray into medical tourism. In February this year, the 104-bed hospital known as Health City Cayman Island (HCCI) was officially opened. The facility is the fruit of the vision of Dr. Devi Prasad Shetty, renowned cardiologist and founder of Narayana Health (NH), who has opened many similar institutions in his native India. Health City will provide cardiac, cardiology and orthopedic services at competitive prices to international and local patients. The hospital is expected to eventually expand to 2,000 beds. In five years time, they expect 15,000 persons, in doctors, patients, nurses, care giver etc to be on island benefiting from this. Cayman has a population of approximately 50,000. This has relevance for islands with sizeable medical schools where such venture would be a natural fit providing a teaching hospital and research facilities.
Yachting, particularly luxury yachts hold much potential for tourism development when an adequate number of large mariners are in place.
In energy, several nations in the region have begun exploring renewable energy alternatives. Aruba is well ahead of its peers in this regard, benefitting from significant cost savings by investing in wind energy. The country’s has seen its fuel consumption cut in half since 2012. Others are exploring the potential of geo thermal energy.
Perhaps the most frustrating thing about the region’s challenges is that much of what is required to effect meaningful change is within our control. For instance, it is by no means impossible for Caribbean governments to implement initiatives to reduce the role of the public sector in the economy. We have far too much government in these islands. Of course, this policy must be complemented by significant incentives to encourage private sector led growth. What about fiscal neutrality? Is it too much to ask elected officials to manage public funds more prudently and thus, turn away from deficit financing? Why can’t the Caribbean focus on niche market tourism and IQ-intensive industries? Is downstream diversification too hefty a goal for Guyana and Trinidad and Tobago?
If we revise the interest rate regime and in particular, eliminate minimum deposit rates that exist in some jurisdiction, will not some the shackles the bind the financial sector be broken? Buying high and selling low is a very ancient prescription for the demise of a business. Not one of these things is beyond our capabilities, yet we perpetuate the philosophies and activities that maintain the status-quo. We have become quite adept at identifying the underlying causes for the region’s structural deficiencies, but less competent at taking credible, sustained action to put things right. For this reason, the region continues to be blighted by unsustainable fiscal accounts and growth well below potential. Within the financial sector, investment by foreign banks in the Caribbean is receding, while indigenous banks are left holding on to stocks of non-productive loans and have inadequate capital to fill the void. In view of this, it is not surprising that the OECS banking sector is as stated in need of US$600 million to be re-capitalized. The model is indeed broken. I hope for the region’s sake that our will to take corrective action is not as well.