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[Infography] Cuba: between modernization and strong investment potential

Cuba is "the most beautiful land ever seen by human eyes," according to Christopher Colombus. The island is once again a favorite tourist destination, particularly for the French (187,000 in 2016), while United States President Donald Trump has reversed parts of the agreement made by his predecessor. Why this enthusiasm? The country is attractive because of its strong identity, that combines political legend, culture and sun. Hospitality ON draws up the portrait of an island with strong investment potential.

A major tourist destination before the revolution, Cuba lost 99% of its tourist influx after Fidel Castro came to power. The regime only relaunched its tourism strategy in the mid 1970s with the creation of a National Institute of Tourism and Infrastructure Development. Today, tourism has become one of the leading sources of revenue. For a population of around 11 million, 3.7 million of whom are in Havana, the island welcomed 3.9 million tourists in 2016.

After returning to its pre-revolution level in the 1980s, the number of tourists grew exponentially in the following decade. Thanks to a relaxation of restrictions, Americans are arriving on Cuban soil in growing numbers. While they only represent 3% of tourists – a figure that may be multiplied by five to include Cuban-Americans - whom Cuba considers nationals –  Canadians (38.8%) are more numerous, with more than one million tourists each year.

  Infographie | Cuba: between mordernization and strong investment potentiel

CUBAN TOURISM

The Cuban Ministry of Tourism has important projects planned for the future and is counting on massive investments of foreign capital. It offers a portfolio of 140 major tourism projects, which will give large groups the opportunity to invest through joint ventures with the State and international investors. At the beginning of 2017, Deputy Tourism Minister Mayra Alvarez promised to "work to improve hotel infrastructure, raise standards of facilities and provide all the insurance and trained labor force necessary.

Recently, the Ministry has decided to accredit five properties operated by the Cubanacán hotel group. To operate in Cuba as 4-star properties, hotels must comply with the parameters established for this category in the Norma Cubana 127, which regulates the classification of tourist accommodations and essentially reflects international standards recognized and approved by several Cuban institutions. Accredited hotels include the Camino de Hierro (10 rooms) inaugurated in 2001, Meliá Cayo Santa María (360 rooms), Encanto La Avellaneda (9 rooms) and El Marqués (6 rooms), inaugurated in 2014.

The goal is to satisfy the growing demand of the main tourism centers and to develop new leisure initiatives. Investments will be made in building and restoring hotels and complementary infrastructure. In order to diversify its tourism product, Cuba encourages the development of partnerships to create real estate agencies in connection to golf courses. The aim is not only to build high quality facilities but also other services such as marinas, fishing and diving centers and theme parks in order to position Cuba as one of the leading destinations in the Caribbean where there is great deal of competition to attract international travelers.

Foreign investors will contribute to diversification in terms of hotel management and will share their experience in marketing Cuba's products on a global scale. This development will be complemented by the improvement of airport facilities and other points of arrival. In addition, Bouygues Immobilier, which is multiplying the number of hotel construction sites it has in Cuba, covets a renovation project as part of a concession for Havana airport, in association with ADP. The SNCF, meanwhile, is well positioned to participate in the modernization of railway and rolling stock infrastructures, and training other specialists such as Colas Rail, Systra or Thales.

"With 8,000 km, Cuba has one of the world's largest railroad networks in relation to its surface area," says Dominique Vastel, SNCF Group International Management. "The Cuban government has decided on a $1.3 billion, five-year railroad plan and wants to increase the volume of annual passenger traffic from 9 million to 25 million within five years."

The International Investment Act was amended in August 2010. Foreigners will now be able to lease land for maximum periods of 99 years.

CHANGE IN ACCOMMODATIONS SUPPLY

The 2016-2030 plan includes the construction of 103,000 additional rooms throughout Cuba. After the American hotel chain Starwood in 2016, the Kempinski Group entered the market with the opening of the first real luxury hotel in the capital (246 rooms). Other hotels are also very much in demand: Prado y Malecón (218 rooms) managed by Iberostar and the Packard (246 rooms) by AccorHotels.

However, Cuba's value for money seems to generate a lot of complaints. It only takes a few clicks of the mouse to discover the frustration of many holidaymakers. "Four-star rooms in Havana are the equivalent of a small Parisian three-star hotel... It's more expensive than in Paris," said Stéphane Ferrux, a travel agent based in Cuba. On the other hand, hotels and all-inclusive packages are multiplying, while the number of tourists is not growing proportionately and prices have hardly increased over the last six years.

The Ministry of Tourism is aware of these dysfunctions which could jeopardize the country's primary source of income. Several Caribbean destinations, including Mexico and the Dominican Republic, have a supply that is much more compliant with international standards.

At present, Cuba's hotel supply is estimated at 68,000 rooms. 64%, or approximately 43,000 rooms, are currently managed and marketed by the five major Cuban hotel chains: Gran Caribe, Cubanacán, Gaviota, Islazul and Habaguanex. Although 80% of the hotel supply today is managed by Cubans themselves, a few major international chains are present with Meliá in the lead. Located in Cienfuegos, Trinidad and Camagüey, Meliá have a total of 931 rooms on the island. Five of its brands are represented: Meliá Hotels & Resorts, Paradisus, Innside by Meliá, Sol by Meliá and Tryp. The company is committed to renovating hotels and applying its usual standards, in order to offer an impeccable level of quality and service.

The supply can also be expanded thanks to the "cuentapropistas", a status of autoentrepreneurs that concerns more than 500,000 people and allows the operation of private accommodations. These rooms for rent in private homes, known as "casas particulares", abound in Havana’s neighborhoods. Taxes charged have been gradually reduced to €35 per room per month plus 10% of turnover. The downside? Competition has become fierce.

While the average salary is equivalent to about 30 dollars (26 €) per month, inequalities are growing between those who have access to the money of tourists and those who do not. According to Cuban authorities, however, most Cubans see this development as an opportunity for the future.

AN IMPEDIMENT FOR TOURISM DEVELOPMENT?

In 2017, new United States government regulations on travel to Cuba and commercial arrangements were set that limit the ability of travelers to take certain flights and stay in private mansions with links to the Cuban government and the military. American travelers will no longer be allowed to travel on their own or for study purposes unless they are traveling with an approved organization.

The US State Department has published a long list of hotels across Cuba where American travelers will now be excluded. It is interesting to note that this list does not include hotels such as the Four Points by Sheraton in Havana, developed in collaboration with GAESA, which belongs to the Cuban army. However, the list does include several hotel brands operated by European hotel companies, such as the Iberostar Laguna Azul hotels in Varadero and Royalton Cayo Santa María in Cayos de Villa Clara.

These restrictions are likely to hamper the development of tourism infrastructure on Cuba’s hotel market, while making it more difficult for American travelers to find accommodations. Foreign Minister Bruno Rodriguez denounced an "unfounded and misleading" warning to travelers aimed at "undermining Cuban tourism" to the United Nations.

As a result, Cuba has deteriorated infrastructure, inconsistent quality of service, a tourism offer that boils down to "sun and beach" holidays, all-inclusive packages that are relatively more expensive than in other Caribbean countries, and a convertible peso (CUC) that is higher than the US dollar. Yet neither Hurricane Irma nor the restrictions of the Trump administration will ultimately get the better of the tourism boom. According to the Ministry of Tourism, Cuba welcomed four million visitors in 2017, reaching this level 54 days earlier than in 2016. Such good performances make it possible to forecast a new record in 2018.

The global craze for the destination and the important arrival of European tourists in the years to come represent challenges in terms of the needed volume and quality of reception that Cuba wants to give itself the means to meet. The island state is moving towards a new electoral process that will make it possible, on March 11, to renew half of the deputies of the National Assembly of People's Power. These elected MPs will be responsible for appointing the new Cuban President. As a result, the President of the Council of State and the Head of Government will no longer be Raúl Castro. The question remains: what kind of impact will the change of government have the strategy that is well underway for developing Cuba's tourism economy?

KEY FIGURES 

  • Total population: 11 million 
  • Primary cities: Havana (3.7 million ), Santiago de Cuba (550,000) and Camaguey (350,000)
  • GDP: 87.133 billion dollars (2015)
  • Average salary: 19 dollars per month (2012)
  • Tourists: 3.9 million (2016)

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