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2003-10-31 10:23:37

The Affect Of Globalisation On Tourism

Mike Smith interviews Ralph Massey, Michael Hooper and Frank Comito.

In late summer of 2002, Mr. J. Barry Farrington the President of the Bahamas Hotel Employers Association and Mr. Frank Comito the Executive Director of the Nassau Tourism Development Board approached Mr. Ralph Massey, an economist to do a study on Trade Liberalisation for the Tourism Task Force on Trade Liberalisation and over a five month period they produced a document that was discussed by Mike Smith, Mr. Massey, Mr. Comito and Mr. Michael Hooper V.P. of The Nassau Tourism Development Board on the Love 97 radio programme Contact.

Mr. Smith: I gather that the concern of the hotel association at the time when they asked you to do this study was that in addition to the Free Trade Area of the Americas, agreement there appeared to be a lot of globalisation issues taking place and I gather they wanted to find out how that would impact local tourism?

Mr. Ralph Massey: The reason for the study originally was more a need for the industry to be able to say something constructive on free trade, because the government was pressing business to help them meet their commitments under the FTAA negotiating process which said a date in 2005 would be the date you had to sign to get in or not get in. So, the question was what would be the position of the tourism industry. Interesting enough, that was the original starting point of the whole study and, in fact, that was the focus for most of the initial work, so all of the chapters in this book that relate to free trade, the development of free trade, the free trade agreements – how they work and where The Bahamas stood under them and where it should stand, really led to an examination of the industry itself. And the most important thing to come out of the industry itself was to look at the competitive position of the major industry in this country, which is tourism. The bottom line was that except for Atlantis, the rest of the industry is in a very serious vulnerable position created by what is clearly the high operating cost associated with doing business in The Bahamas.

Mr. Smith: Who comprised this task force?

Mr. Massey: The task force is made up of the Hotel Association, the Hotel Employers Association, The Bahamas Tour Operators Association and the Nassau Tourism and Development Board including both the Union and The Employers Association.

Mr. Smith: Were there any real surprises to the task force? Were they surprised about anything once you did your analysis?

Mr. Massey: The big surprise was the thing that pulled everything together. The country was well aware and politicians and pundits talked about various aspects of the problems in The Bahamas, so in general there were no secrets, but what the value of the task force was that it connected the dots in a way that showed dramatically that the industry was in financial difficulty. That happened because we were able to obtain data, which compared the operating results of Bahamian hotels with a typical Caribbean hotel and with a North American hotel. It brought the problem directly and clearly into the open, The Bahamas is a country with a comparatively high operating cost, comparatively low profit margins and the principal contributions to that has to do with cost of labour, productivity of labour, such things as pilferage, the need for heavy supervision that's triggered by both the productivity problems and the pilferage problems and very high electrical costs. All these problems we talked about, we talked about for a long time, the value of the study is that it brought this whole thing together nicely and neatly and it got right down to the bottom line, which in fact showed dramatically how the main industry in The Bahamas had difficulty competing. If you can't compete in the industry which you have a natural comparative advantage, the country is in deep trouble. What this means is that it goes beyond the tourism industry because what it means is all the desires of Bahamians to diversify the economic base of the country for the development of Bahamian entrepreneurs is held hostage by the high operating costs. If you can't make a buck, you can't grow. That's the bottom line. And it makes no difference whether you are a hotel operating on Cable Beach or whether you are a start up company in some new venture, if you can't make money, then there is no business.

Mr. Smith: Michael Hooper You are the Vice President of the Nassau Tourist Development Board, and was a member of the task force as well I think, what stands out in your mind after seeing the final report?

Mr. Hooper: We were aware of all the different components but this brought it together in one document making people more aware of the total impact, because we all had fragmented parts of it talking in the newspaper and the media about different parts of it and this brought it together. So, there was no real surprise for me because I'm operating in this environment day to day and I see these numbers and comparative numbers on a regular basis and fight and struggle with my team to try and make it work.

Mr. Smith: Are we seeing any relief, any improvement now in operating costs for hotels in The Bahamas. I know you've just had BEC reduction costs which is probably just a tip in the iceberg in trying to correct the problem, but is there any light at the end of the tunnel in the problem as far as operating costs are concerned?

Mr. Hooper: I think we have to believe so, otherwise there is no reason to carry on operating if you don't really believe there is an opportunity then you would just pack up and go somewhere else. We're in the middle of a union negotiation right now, which is critical, and the contract was out in January of this year, so we are trying to utilize reports like this from other hotels. South Ocean Hotel just laid off people to say to the union leadership the condition of the industry is pretty critical and we need to make sure that if we move this industry forward without a lot of job loses or other serious implications we need to work together so that we can sustain it, that is critical to our next phase and certainly union negations – as you mentioned BEC is a good start and we are always looking for every opportunity, we realize that the government earns income through their duties on brining in items, but that does cause extra costs for us where in America maybe they would just pay the cost, we pay cost, shipping, duty and also stamp tax, which can add 50-75% on the cost of a glass or a chair, towel or anything else that we need. So, yes the country needs income and we need to be competitive, and those are the challenges, it is not easy.

Mr. Smith: Frank Comito, I noticed in the report the word “crisis," was used, are we at that stage?

Mr. Frank Comito: I think we are, in many ways and I think that the unfortunate thing is that there is almost a sense of comfort because we've weathered September 11th much better than many of our neighbours and competitors have. Atlantis continues to turn out much higher occupancy rates than the other hotels, so its created this false sense of security, which is disconcerting. Most people in the industry, beyond the hotel and the other areas in the tourism industry are very vulnerable right now. The economic outlook study that we've just completed this summer shows a high level of vulnerability we have to be very cautious; we are in a very precarious time right now.

Mr. Smith: But Ralph, the very first point in the conclusion was that The Bahamas needs both foreign direct and domestic investment to produce sustained growth, and you made a lot in conclusion in this report that because of the percentage that you get in terms of profit on your investment the growth of hotel rooms in The Bahamas is nowhere in comparison with for example, the Dominican Republic, Cuba and Cancun.

Mr. Massey: Right. And even Los Vegas which has been growing at a higher rate and which is a competitor. We don't like to think of Los Vegas as a competitor, but one of the things about tourism today is, I used to never believe that a resort located in an inhospitable a location as the desert of the centre of United States, would be a place to put a resort. You would never think that if you are starting out from scratch – you look at Florida you would never locate the world's largest tourist destination in the middle of Florida. It would logically be on the coast, but you no longer have to have quite that, you fabricate the resort. This is part of the new competition, which this country faces. Coming back to this idea of a crisis, it is easy to call wolf when things are bad and create a sense of looming disaster, but high operating costs in exactly the way that this country faces it now, is exactly what it has faced in virtually all major countries in Latin America, they repeatedly get themselves into a major crisis where their export industries can't export because there is no profits in it. A good case in point, just recently was Argentina, they unrealistically peg their currency against the dollar, when they unpeg their currency it dropped a very large percentage and they suddenly are exporting wine again. Travelling in Buenos Aires is terribly cheap now and people are discovering what a great place to go, so that one of the realities of the world is that you adjust for high operating costs through the devaluation of currency, now this country isn't like its monetary history, it not a duplicate of Mexico, Brazil or Argentina. This country has not had an inflation that has been spiralling caused by fiscal deficits, however, we recently and now have a major problem with the fiscal deficit, so the country is a little unique in that sense, but it has high operating costs and one of the alternatives to doing specific things with regard to electricity and increasing productivity and other things of course is the devaluation of currency. I don't think that the country is there at that point now, but in talking about these things, I think it's worthwhile recognizing that that is what countries are forced to do ultimately when they remain non-competitive.

Mr. Smith: But Frank, the average person in The Bahamas, who is fifty year old would have been born in a tourism economy, they would have lived all of their life in a tourism economy, they would have benefited from a tourism economy what has changed so significantly now to frighten them?

Mr. Comito: Well we are increasingly global. There are destinations we are talking about today that we did our comparative against that didn't exist, Cuba was not a destination ten years ago that we had to be concerned about, the Dominican Republic is the fastest growing destination in the region did not have a tourism industry 25 years ago, the same thing with Cancun, the entire coast there, twenty five years ago that was not a destination, they've matured, their cost of operations are much lower than ours, and in many cases their labour costs are so dramatically lower that they can afford to take two or three people to do the job that it might take one or two people to do here. So that is what we are up against. It's a global society, and consumers taste in a global society are much more discerning than they were before, they understand what value is, they look for value in a whole different way than they did before and if they don't see it, they spread the word and they don't come back.

Mr. Smith: Ralph, you put a lot of emphasis on growth in tourism in this report – the lack of growth compared to the other destinations like the Dominican Republic, like Cuba, but is that what you really want to have, for example, The Bahamas sought of reached a plateau and then grew two or three percent, you had this great jump in the Dominican Republic because they really wasn't in the tourism business at the level that we were at that particular time, and Cuba was out of it for a long period of time and now that they are catching up again, so obviously there is going to be a spurt of growth in Cuba and in the Dominican Republic, not so much Cancun, but do we want to grow at that pace, can we – for example – talking about expanding Atlantis now and the infrastructure that we have to put in for example the airport, the roads getting there, the airports and health clinics in Exuma – do we want to grow at that rate and can we support that rate of growth in terms of infrastructure?

Mr. Massey: That's one of the interesting problems that The Bahamas faces, this agony over whether they want growth, yet in 1990s they had six years in a row where the average real rate of growth here in The Bahamas was 4.1% per year – GDP. That produced a prosperity that affected everybody including creating the basis for a domestic construction boom that went on well after the peak construction ended on Paradise Island, It was a sustained growth. This was a period in which you had a dramatic redistribution in income in favour of the middle class and a reduction in the portion of income taken by the upper 20-40% of Bahamian society, so you had a big beneficial impact on Bahamians. Now, what I find difficult to understand is how Bahamians don't recognize that, what was behind all that was the 2.2 billion dollars investment in the tourism industry foreign investment, there is hardly any country, any poor country in the world that can get rapid economic growth without foreign investment. That's an uncomfortable truth, but that's the truth. That is where we are at, the country has to continue if it wants to have an increase in this material welfare, if it want to provide things which society thinks is important, it has to have economic growth. If things stagnate in this country, then what you start to have is social problems and the outstanding feature of the 1990s and of 2000 was the fact that you had a sustained growth, which was so sharply different from the prior ten/fifteen years.

By Mike Smith, The Bahama Journal
Contact is aired Mondays at 8:00 on Love 97.  

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