JAMAICA'S TOURISM BOOM

UNCLAS SECTION 01 OF 03 KINGSTON 001089

SIPDIS

SIPDIS

STATE FOR WHA/CAR (HARNE, COLLINS),WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS

E.O. 12958: N/A
TAGS: EIND ECON EFIN EINV SOCI JM
SUBJECT: JAMAICA'S TOURISM BOOM


KINGSTON 00001089 001.2 OF 003



1. Summary: Tourism figures for 2006 show tourists flocking to
Jamaica in record numbers. Visitor arrivals for 2006 broke the
psychological three million barrier for the first time, while
earnings of USD 1.9 billion also soared to new heights. The
diversion of a number of visitors from Cancun following the ravages
of hurricane Wilma and increased marketing efforts were the
underlying factors for the record performance. The impressive
arrival figures were accompanied by a surge in foreign direct
investment, with the room stock set to increase by 40 percent. The
interest in Jamaica is being driven by Spanish investors who appear
to be attracted to the North American source market. But while this
massive investment is welcome in some circles, concerns abound about
its likely impact on smaller hotels. Visitor arrivals should, at
best, remain flat for 2007, but performance could pick up in 2008 as
the policy-related shocks dissipate and Cancun slows its successful
discounting campaign designed to lure tourists back. End summary.



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The Raw Numbers
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2. Data from the Jamaica Tourist Board (JTB) show that the island's
tourism industry had a record year in 2006. All the performance
indicators point to an industry in growth mode, despite rising crime
and harassment. Arrivals for 2006 broke through the three million
barrier (up 16.5 percent),the highest level of arrivals recorded in
a single year. The sector, which registered two million visitors in
1999, has expanded by a remarkable 50 percent in just seven years.
And it is the more economically appealing stop-over segment, up 18.7
percent to 1.7 million, which has been providing the impetus for
growth. Cruise arrivals, up 17.7 percent to 1.4 million, also
contributed handsomely to the upswing. The buoyancy in stop-over
arrivals was due to: (1) the diversion of visitors from Cancun
following the ravages of hurricane Wilma in 2005; (2) marketing
initiatives by hotel chains and the JTB; (3) the increase in the
room stock coupled with rising airlift; and, (4) the continued
economic bullishness in major source markets. Cruise arrival was
driven by increases in both the number and size of ships, with three
new "mega-vessels" calling during the year.



3. Revenues also broke new ground, climbing by 22.1 percent to USD
1.9 billion. Just over USD 1.7 billion or 93.7 percent of total
earnings was attributed to stop-over arrivals (USD 1,054 per
visitor) with the remaining USD 188 million coming from cruise
visitors (USD 88.3 per visitor). Earnings for 2006 climbed for the
fourth consecutive year, confirming the sector has fully recovered
from the sluggishness that characterized the sector following the
2001 terrorist attacks. At this level of earning, the tourism
sector has overtaken remittances as the number one foreign exchange
earner after being displaced for the last two years. The sector has
therefore cemented its position as the main pillar of the Jamaican
economy.

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Performance Wanes in 2007
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4. But after growing handsomely in 2006, both visitor arrivals and
earnings dipped during January to March 2007. Stop-over arrivals
declined by 2.1 percent, reflecting lower arrivals from the United
States, down 12.1 percent. Overall arrivals would have been worse,
but for a bounce from Canada (up 32.8 percent) and Europe (up 15.7
percent). The bend in the growth trend is disturbing to tourism
stakeholders, who initially blamed the shock on the Western
Hemisphere Travel Initiative (WHTI). However, immediate past
president of the Jamaica Hotel and Tourism Association (and Sandals
hotelier) Horace Peterkin told emboffs that while WHTI affected
performance, the imposition of a temporary CARICOM Visa for Cricket
World Cup was a bigger fiasco, given that it was an internal policy
decision. Peterkin's opinion was backed up by Evatt Bloomfield of
the Sunset chain and Steve Ueker of the Half Moon hotel.


5. It is the return to normality in Cancun which appears to be the
underlying reason for the drop. With Cancun using the opportunity
to refurbish after Wilma, the destination is back in the market with
an improved product offered at bargain prices and has retaken lost
market share from countries like Jamaica. This sentiment was
confirmed by Peterkin and echoed by all the major hoteliers emboff
spoke to in Jamaica's resort areas. The figures seem to bear this
out, as arrivals for the first quarter of 2007 are ahead of arrival
for the similar period of 2005. GoJ officials also posit that the
anticipated crowds for CWC, which did not materialize, and the
travel advisory issued by the USG for the event would have scared
some visitors from the island during the competition.

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"Spanish Invasion"
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6. Within the last five years Jamaica has witnessed a massive
transformation of its tourism landscape due to a sudden spike in
interest by Spanish investors. The current wave of Spanish
investment is paralleled only by the bauxite investments of the
1950s and 1960s. Since 2002 six Spanish hotel groups have started
construction of 20 hotels, comprising almost 10,000 rooms to be
added to the existing stock of 21,000, an almost 50 percent
expansion. The hotels are all concentrated along the north coast of
the island, stretching from Ocho Rios to Negril. The ACS Group out
of Spain is also investing heavily in modernizing an international
airport, a strategic tool for expanding airlift and by extension
arrivals. The Spanish investment is expected to surpass USD 1.5
billion, allowing Spain to unseat the U.S. as Jamaica's largest
source of FDI in the last five years.


7. What has become commonly known as the "Spanish Invasion" is
complemented by a host of other foreign and local investments. In
one small, unspoilt section of the north coast, an additional 12
hotels, including the high-end Harmony Cove, with significant U.S.
interest, are slated for construction. Other luxury developments
including the world famous GoldenEye (USD 80 million) and the Tryall
Country Club (USD 150 million) are undergoing expansion. The
picturesque parish of Portland could also experience a similar
transformation to that taking place on the north coast once
infrastructural work is completed. Canadian-Jamaican billionaire
Michael Lee Chin and Sandals' Gordon "Butch" Stewart have already
taken positions in the area, which boasts a new marina.


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But Why the Sudden Interest?
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8. There has been much speculation about the reasons for the sudden
interest from Spanish investors who have been operating in the
nearby Dominican Republic and Mexico for years. Hoteliers like
Roger Allen from Crane Ridge Resorts is convinced that the Spanish
chains are into budget tourism and have seized the opportunity to
locate in Jamaica to benefit from the captive North American market.
This position is shared by other local hoteliers and was actually
confirmed by the Spanish hoteliers who told emboffs that they depend
on North America for up to 70 percent of their visitors. Critics
like Allen also argue that the Spanish investors have been offered
huge incentives, including hassle free approvals, while local
hoteliers are left to languish. This complaint is likely valid.
When asked about the reasons for the influx of investment, Daniel
Hofer of the Iberostar group made reference to the special role
played by the island's promotions agency, JAMPRO. But Hofer also
attributed the sudden interest to Jamaica's reputation built on
brands such as Bob Marley and Kool Runnings. He also stated that
once a major chain invests in a country, others tend to follow, a
situation referred to as the "flying geese pattern" in FDI
literature.

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So Will the New Investment Increase the Pie?
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9. Supporters of the Spanish armada argue that the record investment
represents the opening of new markets for Jamaica, as most of the
Spanish groups are linked to major tour operators with a long
history of marketing products and destinations in Europe, which
could lead the diversification of the Jamaican product. But while
this assertion is theoretically appealing, the reality appears to be
different. Hofer told emboffs that the North American market will
be big for his hotel, and based on his business model he would be
competing against hotels such as the Ritz Carlton. And these
hotels, which have developed a winning business model based on
economies of scale, have already begun to cannibalize smaller
properties, with Allen already seeing a plunge in occupancy levels
even relative to 2005. Bloomfield also thinks the additional 15,000
rooms will cause the tide to fall for everyone. From all
indications, therefore, the pie is not expected to grow
significantly due to the influx of these chains, as it would appear
that their business model is based on operating a lean business,
which can deliver cheaper prices to lure North American visitors to
their properties.

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Future can be Bright
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10. That said, the increased competition augurs well for Jamaica, as
it will force other hotels to improve their efficiencies and both
visitors and the economy can only benefit from this development.
And the increased investment and by extension competition is not
expected to dissipate anytime soon, given the number of investors
lining up to get a piece of the action. Frank Sodern of the Spanish
RIU Group, which has three hotels in operation and is building
another two, thinks the industry is still in the start position and
investment will continue to grow for some time yet. This position
was echoed by Hofer, who anticipates a continuation of the Spanish
investment for another five to ten years, with new chains entering
the market. And he expects this growth to provide a much-needed
boost for the economy, while also attracting service chains such as
Walmart. He also pointed to the linkages to be made with the
agricultural and manufacturing sectors. Sodern has also brought a
new flavor to the all-inclusive product, with visitors being
encouraged to leave the safety of the concrete walls to explore the
rest of the island. And despite Sodern's inherent vested interest
(with visitors off property food and beverage consumption decline)
the gesture can only lead to increased visitor expenditure and
further extend the linkages.


11. But this approach is fraught with danger, as any mishap could
become a fiasco for the all-inclusive niche developed in response to
the bad publicity associated with the tumultuous 1970s and more
recently to "isolate" visitors from spiraling crime. Only recently,
a number of cruise passengers in Hanover parish were held at
gunpoint, and the country is now suffering the effects of the bad
publicity. Environmentalists and some industry players have also
blamed rising incidences of squatting and the associated problems of
harassment and crime on the construction of the megastructures being
put up by the Spanish chains (Post will report septel on
environmental issues). Additionally, Hofer's optimism is not
necessarily shared by local hoteliers, as Jackie Sinclair of the
relatively small Gloustershire hotel told emboffs that there is a
definite bias against indigenous properties, which do not get most
of the incentives extended to foreign investors. When asked
specifically about the future of the industry, Peterkin was also
less than upbeat, saying it depended on the political leadership
moving forward. However, he did admit that with the right vision
the sector could make a quantum leap in less than a generation.


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Comment
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12. Jamaica's tourist industry should remain flat for the remainder
of 2007, with unpublished figures suggesting a continued fall off.
A JTB official told emboff that preliminary indications are that the
sector continues to suffer from the WHTI and the lag effects of the
temporary CARICOM Visa. The official said that the situation would
have been worse but for the ongoing surge in arrivals from Canada
and Europe. Expectations are that once Cancun slows its
discounting, the local sector could return to growth mode, albeit at
lower rates. The additional rooms could also impact positively
assuming they can be filled. But given the current challenges, the
fact that Jamaica continues to be a leading tourist destination is
in and of itself astounding. This confirms that the island has huge
comparative advantages in tourism services and, if the country's
problems could be arrested, the possibilities for investment,
growth, and earnings could be endless.

JOHNSON