Hoteliers, investors see opportunity and risk in Cuba
 
Hoteliers, investors see opportunity and risk in Cuba
18 OCTOBER 2016 8:12 AM

Hoteliers and experts representing Cuba as a destination discussed the challenges and opportunities for developing and financing hotels once the embargo on travel from the U.S. to Cuba is lifted.

PHOENIX—Even without a lot of tourists from the United States, Cuba is the No. 2 travel destination in the Caribbean. Now, with efforts underway to loosen restrictions on U.S. travel to Cuba, hoteliers and investors from the U.S. are planning their moves into the country.

Experts representing Cuba as a destination talked with hoteliers about the challenges and opportunities for developing and operating hotels in the country during the “Cuba: Development and investment opportunities” panel at The Lodging Conference.

The opportunities
Cuba is already thriving when it comes to annual inbound tourists, and that number is expected to increase dramatically once restrictions are lifted on tourism from the U.S., said James Williams, president of Engage Cuba. Currently, U.S. citizens are allowed to travel to Cuba for 12 purposes, which include education, official U.S. government business and journalism. 

“You have an eased travel dynamic, but tourism is still prohibited. Even with that, Cuba was the No. 2 tourism destination, or international traveler destination, in the Caribbean last year,” Williams said. “We’re expecting action this year in the lame duck session … on the U.S. travel ban, so you’re talking about estimates of (one and a half) to three to four million Americans additionally going to Cuba.”

Williams added that “the Cuban hotel capacity is already stretched pretty much to the breaking point, so they’re rapidly trying to build and grow hotels.”

“Huge, pent-up demand” for U.S. travelers in Cuba and a changing travel dynamic overall will make it easier to build and manage hotels there, Williams said.

Ruben Ramos Arrieta, minister counselor of the economic and trade office at the Embassy of Cuba, agreed there are a lot of opportunities in the country.

“I can tell you that the hospitality sector there in Cuba (was the first) to be open to foreign investment in the ’80s,” he said. “So we’ve had foreign counterparts in the hospitality sector for more than 25 years. Nowadays, Cuba … (is) transforming, and there is change in the economic activity.”

Ruben Ramos Arrieta, minister counselor of the economic and trade office at the Embassy of Cuba, talked about the challenges and opportunities for financing, development and operations in Cuba. (Photo: Danielle Hess)

The challenges
With opportunity comes risk, Strategic Hospitality Services President David Oliver said. Because the citizens of Cuba are “100% literate,” he said, hotel employees from the country working in the country are going to expect good wages and a better quality of life.

“The Cubans know what they have,” he said. “They have a jewel that needs to be buffed a little, but they know what they have and they’re not going to give it away, so you can’t assume there’s going to be money laying around everywhere on the table to be picked up easily.”

Panelists said people who live in Cuba are using old pesos while tourists are using new pesos. Williams said eventually there will be a harmonization of the two currencies, but this will bring challenges because people are unsure of when the change will happen and what the impact of it will be.

Williams pointed to other key risks, on both the U.S. and Cuban side of business.

“One piece of risk that is very unique to Cuba is you have an evolving legal framework and regulatory framework on both sides of both players involved in any sort of transaction,” he said. “You have the U.S. legal regime, which is easing at a pace that is significant, but is still a moving target. … We’re expecting imminently another regulatory round of easing from the … the Obama administration, which will make it even easier for hotels and U.S. businesses to operate in Cuba, but we have an election coming up … that will create further uncertainty.”

He said Cuba has “gone through some major and really important economic reforms.”

“They’ve put out sort of a modern foreign investment law. They create a lot of incentives. They’ve been much more aggressive and open to attracting foreign investment, but it’s still a moving target as they’re going through their own process of reform improvement or updating in Cuban parts,” he said. “So you do have these issues of, you’re going to be analyzing a situation, which may not be the exact same six months from now as it is today or two years from now or three years from now. That creates challenges.”

But Arrieta said the risks of investment and hotel development in Cuba are minimal.

“You have, at this moment, in Cuba 65,000, almost 66,000 rooms,” he said. “And around 45,000 of them are being managed by foreign companies, by joint ventures. … That means that more than 75% of the rooms there in Cuba are doing business with foreign counterparts.”

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