Tourism Mega-Project Creates Expectations Among Investors
As part of a significant change towards a more open economic model, Cuba is seeking to attract new investment through the expansion of the tourism industry; the second largest source of income for the island after medical services. The government's objective is to increase accommodation capacity by 40% in the next 7 years - equivalent to 85,000 rooms by 2020. This trend should add dynamism to the economy at a time when this is most needed. As the government is looking to expand its tourism infrastructure, we see the segment growing thus creating new project opportunities for contractors. As part of this strategy a $176 million loan from Brazil was approved to modernise Havana and other four cities airports. Although the number of tourists has been growing since 2008, they remain below the Dominican Republic. However, the US' increasingly more relaxed attitude towards Cuba should favour the flow of tourists.
|Investment To Encourage Tourism Growth|
|Cuba Total Arrivals, '000|
The latest announced tourism project is the Marina Gaviota Varedero. It is a mixed-used mega-project that will offer more than 1000 moorings, shopping malls and a luxury hotel. The complex is located next to Varadero beach, one of Cuba's most popular tourist sites, which now also offers a $340 million golf club. The marina is the largest investment of its kind in the history of the island and is expected to open at the end of 2013. The Spanish Sol Melia Group has already invested in the project with a five star hotel that will open in the third quarter in 2013.
A project of this scale is new to the Caribbean, as such ventures have been pioneered and developed in Dubai and Middle East. It is designed to capture cruise liners and visitors from North America, Europe and increasingly from South America as their middle class expands. The implications for the Cuban economy are potentially very significant as the industry already creates more than 200,000 jobs. In turn, it will also encourage the development of the construction and utility industries.
However, we identify two potential risks. The first is a demand risk by which the infrastructure is being built in anticipation of visitors' interest, rather than responding the existing demand. The second risk has to do with potential transparency and governability issues as the Gaviota group is controlled by the Cuban armed forces. Although Cuba is slowly moving towards a more open regime, extensive state control remains and presents a pertinent risk to the operating environment.