Cuban Economy and Tourism

8/19/2019 Cuban Economy and Tourism

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The New Eng ine of t he Cuban Econom y

by Philip PetersVice President, Lexingto n Insti tu teDecember 200 2

INTERNATIONAL TOURISM


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IntroductionC uba’s budding tourism industry, built during the 1990’s, has replaced sugar as the

island’s top foreign exchange earner. In contrast to sugar, tourism is based on

sound com petitive advantages, and it has the potential to generate additional

grow th, incom e, and em ploym ent in the decades ahead.

The sector is still relatively sm all –it em ploys 100,000 w orkers directly, about the

sam e num ber laid off from sugar industry jobs this year alone. But its significance

is large. Tourism developm ent is national in scope. It draw s foreign investm ent and

know -how . It forces officials and state enterprise executives to cope w ith

international m arket realities, and it is bringing m anagers and w orkers to learn the

art of custom er service.

Tourism also benefits other parts of the C uban econom y, creating dem and for

goods and services provided by state enterprises and, in spite of the econom y’s

clear socialist orientation, by C uba’s sm all private sector as w ell.

This paper exam ines the grow th and com position of C uba’s tourism industry and

its im pact on the C uban econom y and w orkers, and considers the industry’s

com petitive future in the international tourism m arket. It is based on field research

conducted in C uba, including visits to tourism businesses and interview s w ith

officials, executives, w orkers, and tourists them selves.

The evolution of Cuba’s tourism industry

U ntil the 1990’s, C uba w as alone am ong C aribbean econom ies in its lack of a

strong tourism sector or even an aggressive tourism prom otion policy.

The decision not to prom ote tourism in the early decades of Cuba’s socialist revolution

stem m ed from authorities’revulsion at the ills associated w ith tourism in the 1950’s:

gam bling, drugs, prostitution, and the presence of Am erican organized crim e in hotels

and casinos, w orking in league w ith the Batista governm ent. To this day, Cuban

officials are adam ant that gam bling w ill play no part in their tourism industry.

1 International Tourism: The New Engine of the Cuban Economy

The New Eng ine of the Cuban Econom y

by Philip PetersVice President, Lexingto n Insti tu te

INTERNATIONAL TOURISM


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By the 1970’s, C uba decided to diversify its econom y prom oting tourism , and the N ational Tourism Institute

w as created in 1976. In 1987, a decree-law w as

prom ulgated to allow for joint ventures in the tourism

sector in partnership w ith foreign capitalist investors.

The tourism institute becam e a governm ent m inistry

and a new state corporation, C ubanacan, w as created

to develop the industry and to enter into partnerships

The first tourism joint venture w as created in 1989 w

the H otel Sol Palm eras.

W hen the end of the Soviet bloc plunged C uba into a

econom ic crisis in the 1990’s, efforts to prom ote

tourism w ere redoubled. Tourism w as view ed as a use

of scarce investm ent capital that had a good prospect

of producing high and rapid returns. O ne fifth of

investm ent in the 1990’s w ent to the tourism sector.

In 1957, 275,000 tourists visited C uba, a peak that w

not reached again until 1987. By 1990, that record w

surpassed w ith 340,000 visitors, and now m ore than

1.7 m illion visitors enter Cuba each year, six tim es the

1987 level, w ith an average stay of seven days. The

im pact on C uba’s econom y has been significant:

•The tourism sector em ploys 100,000 w orkers, and

officials calculate that another 200,000 jobs in

agriculture, light industry, com m unications, energy,

and other sectors have been created by tourism .

•In 2000, tourism alone accounted for 41 percent of

foreign exchange earnings, ten tim es the level of a

decade earlier. Sugar’s contribution fell from 80

percent to 33 percent.

•A decade ago, an official says, C uba had “the typic

C aribbean tourism developm ent –fruit, drinks,

uniform s, m eats w ere all im ported.”O nly 12 percen

of the sector’s purchases w ere m ade from C uban

suppliers. Today, official data indicate that 68 percent of purchases are from

C uban sources.

•Cuba’s hotel capacity tripled in the 1990’s; today there are 37,225 room s in 240 hote

If tourism is socialist C uba’s first m ajor brush w ith globalization, the results have

not all been positive. The econom ic dow nturn of 2001 and the travel scare that

follow ed the Septem ber 11 terrorist attacks com bined to stop the grow th of

C uban tourism in 2001 and 2002, preventing C uba from reaching its projected

2 Lexington Institute

Old Havana and the southerncoastal city of Trinidad are

two centers of colonial

architecture that are

undergoing restoration and

attracting tourists.


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level of 2 m illion visitors. Initially, the im pact w as severe: 10,000 hotel room s w ereput out of service, and m any support services such as taxis and restaurants w ere

idled. Like the rest of the C aribbean, C uba recovered slow ly, and O ctober 2002

brought the first possible sign of renew ed grow th, as a ten percent increase in

visitors w as recorded that m onth over O ctober 2001.

Industry strategy

C uba’s tourism prom otion strategy is built around three m ain attractions: beach

resorts, history and colonial architecture, and nature and ecotourism . The tourism

m inistry has targeted eight regions around the island for tourism developm ent;

initially, H avana and the Varadero beach resort received the lion’s share of

investm ent, and now the em phasis has shifted to other regions.

Beach resorts. The pristine beaches of Varadero, a 22-kilom eter peninsula tw o

hours’drive from H avana, have long been a refuge for C ubans and foreigners alike

M uch of the peninsula w as once ow ned by the D upont fam ily; in 1931, Irene

D upont de N em ours com pleted construction of a m ansion, w ith C uban m ahogany

and Italian m arble throughout, w here she spent a few w inter m onths each year.

The m ansion serves today as a restaurant and guest house, and its servant quarters

now house the pro shop of Varadero’s golf course.

Except for longstanding residential areas and a nature reserve on the peninsula’s south

side, Varadero’s geography is dom inated by tourism developm ent. Club M ed, Barcelo,

Sol M elia, Sandals, Superclubs, and other international resort brands are present. O ne

third of Cuba’s hotel capacity and nearly one fourth of tourism jobs are here. Thepeninsula consum es up to 50 m egaw atts of energy per day, all supplied by Energas, a

Canadian-Cuban joint venture that captures, cleans, and burns the highly sulfurous

natural gas that is a by-product of local crude oil production.

750,000 visitors cam e to Varadero in 2001, m ost arriving at the nearby international

airport. Random interview s w ith tourists indicate that a large num ber split their tim e

betw een Varadero and destinations such as Trinidad, Pinar del Rio, and H avana.

A ccording to Lester Felipe O liva, the tourism m inistry’s top official in Varadero, plan

call for the construction of about 9,000 m ore hotel room s, tw o new golf courses

(both slightly inland), and the quadrupling in capacity of Varadero’s 150-slip m arina

to prepare for the day w hen A m ericans travel w ithout restriction to C uba. O liva and

local tourism executives are also keen on expanding the area’s shopping, restaurant

and recreational offerings so they can m arket Varadero, in one executive’s w ords,

“not just as a beach, but as a com plete destination.”

Even as Varadero continues to grow , C uba’s investm ent em phasis is being placed

today on new beach resorts, especially in the keys off C uba’s north coast betw een

Villa C lara and H olguin provinces.

Colonial architecture. C uba w as settled and colonized by the Spanish in the 16th

century, and the island today holds som e of the m ost extensive areas of colonial


Tourists to Cuba: how many...Visito rs Gro ss revenue s

(thousands) ($ million)

1978 97 -

1989 275 -

1990 340 243

1991 424 402

1992 461 550

1993 546 720

1994 619 850

1995 746 1,100

1996 1,004 1,333

1997 1,170 1,515

1998 1,416 1,7591999 1,603 1,901

2000 1,774 2,034

2001 1,774 1.85

...and where from

Tho usan ds o f visito rs in 2001

C anada 350

G erm any 172

Italy 159

Spain 140France 139

M exico 98


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architecture in the A m ericas. C uban officials are w orking to preserve and restorethis architecture, fully aw are that they are enhancing C uba as a tourism destinati

as they safeguard their national heritage.

H avana’s colonial center is the m ost extensive and varied in C uba, and its

restoration effort is unique. U nder the direction of the city’s historian, Eusebio Lea

every dollar of O ld H avana’s tourism incom e is spent on restoration of buildings,

m onum ents, housing, and other neighborhood assets. A governm ent decree put

Leal’s office in charge of every zoning, land use, construction, and design decision

in its tw o-square-kilom eter area. A specialized w orkforce and a netw ork of

enterprises under Leal’s direction is executing dozens of renovation projects at a

tim e. (See the study “Rescuing O ld H avana”at w w w .lexingtoninstitute.org/cuba.

Trinidad, a city on C uba’s southern shore, is a sm aller, quieter place w ithcobblestone streets and a large area of historic buildings, m ainly housing. Som e

local tourism revenue is recycled into local restoration, but not in such a com plete

w ay as in H avana. Because there are alm ost no large buildings that could, if

restored, serve as hotels, Trinidad has m any private entrepreneurs w ho rent room

in their hom es to tourists.

Ecotourism. C uba’s natural environm ent offers m any

opportunities for ecotourism developm ent: the m ountains, cave

and geological form ations of the V inales valley in w estern C uba

the forests and w ildlife of the Rosario, Escam bray, and Sierra

M aestra m ountain ranges; the w etlands of the Zapata peninsula

The island’s w aters apparently boast spectacular environm ents aw ell. W riting in the February 2002 National Geographic, author

Peter Benchley describes a dive he m ade off southw estern C uba

that revealed “an underw ater realm that had not existed, so far

as I knew , since the 1950’s…anim als in num bers and diversity I

hadn’t seen in decades.”

Ecotourism developm ent is only in its incipient stages in C uba,

but its evolution w ill have an im portant bearing on environm ent

protection. W hile C uba has environm ental protection policies, it is also true that

m any of Cuba’s pristine areas, such as those described by Benchley, are

undisturbed sim ply because C uba has lacked resources to exploit them . A future

flow of tourists attracted by these assets can give the country an opportunity to

earn profits by protecting nature.

Other attractions. In addition, C uba is developing attractions to bring new visito

to Cuba or to give current ones greater reason to spend m oney, or to return.

C uba is beginning to m ake appeals to C anada’s long-term tourists, the

“snow birds”w ho spend up to six m onths in Florida each year. In Tarara (just east

of H avana) and elsew here, C uba is tailoring beach cottage sites to provide the


Las Terrazas, a mountain resort about

40 minutes’ drive from Havana, is an

example of nature tourism. Its hotel,

shown here, is built into a mountaintop

forest. A mainly European clientelemixes with Cubans to enjoy hiking,

swimming in waterfalls, cycling, and

exploring the ruins of a 19th century

French coffee plantation.


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Tourists conquer uninhabited isles

Northeast of the town of Caibarien in Villa Clara province,

across a 46-kilometer causeway that spans open sea, salt

marshes, and small islands, lies Cayo Santa Maria, one of

hundreds of keys off Cuba’s north coast.

Cayo Santa Maria, formerly uninhabited, is now home to the

300-room Hotel Sol Cayo Santa Maria, opened in March

2002, the first of three hotels to be built on the island. The hotel

is owned by Cuba’s Gaviota tourism chain and is operated by

Spanish executives under a management contract. It operatesunder an all-inclusive pricing plan. Similar projects have been

built on keys along the northern coast.

Like other Caribbean beach resorts, the Sol Cayo Santa

Maria has plenty to keep its guests busy on site, including

swimming, boating, tennis, a gym, shops, restaurants,

child care, and live entertainment. Inland excursions are

available for guests, but this is clearly a place where

visitors satisfied by beaches and relaxation can stay

without ever venturing into Cuba itself.

The resort appears to be built with minimal environmental

impact: its buildings are only one or two stories tall, guest

rooms are spread out in a vast area of bungalows, and thebuildings are barely visible from the beach. Raised wooden

walkways traverse the dunes, protecting them from foot traffic

and erosion.

One Sunday last April, the new staff was getting a workout

as 290 Canadians, Britons, and Germans were checking out,

and 263 more visitors were on their way to check in.

lodging, am enities, health services, and pricing that these travelers require. NewA m erican im m igration restrictions that lim it the issuance of long-term U .S. tourist

visas m ay aid C uba in w resting part of this m arket from Florida.

G olf courses are expensive to build, but C uban officials are finding that they m ight

profit by building new ones to com plem ent the island’s single professional-grade

course at Varadero. The C aribbean has an average of one golf course per 2,000

hotel room s; C uba’s ratio is 1:40,000. A ccording to tourism m inistry econom ist and

adviser M iguel Figueras, golf is one of m any services that can attract higher-

spending visitors. H e notes that com pared to per-tourist spending at the beach

resorts in the C uban keys, spending is 40 percent higher per tourist in Varadero,

and 70 percent higher in H avana.



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Industry structure and foreign participationIn business term s, there are tw o pillars to C uba’s tourism industry: a netw ork of

state enterprises, and the participation of foreign capitalist corporations that brin

investm ents and know -how .

In the tourism sector, several conglom erates dom inate

the m arket. These include C ubanacan, founded in

1987, w hich has 15 separate com panies and 33,000

em ployees and earns one third of C uba’s tourism

incom e. G ran C aribe ow ns 45 hotels, accounting for

one fourth of the island’s hotel capacity. O thers includ

G aviota, a tourism business ow ned by the arm ed

forces, and H abaguanex, a com pany that is operatedby the O ffice of the H istorian in O ld H avana and w ho

profits are used for that area’s restoration.

Tw enty Cuban hotels are joint ventures w ith foreign

corporations, w here the foreign partner contributes

capital at the beginning of the project, ow ns up to ha

the business, participates in m anagem ent and

m arketing, and receives distributions of profits. The

partners –from Spain, C anada, Britain, N etherlands,

Italy, G erm any, France, and M exico –operate hotels

w ith a total num ber of 4,000 room s. Joint ventures

w ere the predom inant form of foreign participation in

the early 1990’s, w hen dom estic capital w as scarce.

N early half C uba’s hotel capacity (17,420 room s) is

operated under a second form of foreign participation

hotel m anagem ent contracts. This arrangem ent has

been used m ore frequently in recent years as C uba

recovered from the depths of its 1992-1993 econom i

crisis and had dom estic capital to invest in hotels.

The M inistry of Tourism has a 19-page standard m anagem ent contract form that

the basis for negotiations w ith foreign partners. U nder this sam ple contract:

•the foreign m anaging com pany assum es responsibility for all operations, trainin

and international m arketing, and its “internal audit and quality control team s”are expected to visit;

•accounts are kept according to “the 1986 uniform accounting system of the

H otel A ssociation of N ew York C ity;”and

•the foreign partner’s com pensation consists of a) a percentage of the hotel’s gro

revenues, and b) a share of profits distributed on a sliding scale, w here higher

volum es of profits result in a higher percentage share for the foreign partner.

M anagem ent contracts offer advantages to C uba: the foreign partner contributes

know -how , m anagem ent services, and m arketing but does not receive a share of



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ow nership; and higher shares of profits rem ain in C uba. O ne disadvantage is thatthe entire initial capital expenditure is m ade by C uba.

C uban officials say that they are again favoring joint ventures to finance new

tourism projects precisely because they allow C uba to conserve its ow n capital –

and to use it to build the golf courses, restaurants, and m arinas that m ake the

industry m ore profitable. C urrent plans call for 12,000 new hotel room s to be built

under joint ventures.

Tourism’s impact on the Cuban economy: stimulating domesticproduction

Tourism is valued in C uba’s econom ic strategy not only because it earns hard

currency from abroad, but because it creates a m arket for diverse goods and

services supplied by C uba’s dom estic industry.

Vice M inister of Tourism Eduardo Rodriguez de la Vega sees three benefits to the

tourism sector: direct em ploym ent, the stim ulation of dom estic production, and a

push for greater quality. “W e are w orking under the pressure of very dem anding

custom ers, our foreign tourists,”he says. “This puts our producers on the field of

international com petition.”

O fficials say that Cuba buys dom estic supplies for the

tourism industry only w hen they m eet quality standards

and are m ore com petitively priced than im ports. “W e

support but w e do not protect dom estic industry that

sells to tourism ,”according to the tourism m inistry’s

M iguel Figueras. Rodriguez de la Vega describes a

m onthly m eeting w here the supply situation is review ed

region by region to identify products that Cuban

producers are not delivering. “The hotel chains are the

ones that interest m e –they are the client,”he says.

“W e’re interested in producers having relationships w ith

each hotel for the product and delivery that the hotel

requires. That allow s us to m ove tow ard zero inventory.”

According to official data, C uban producers provided

12 percent of the tourism industry’s supplies in 1990

(w hen there w ere 340,000 visitors) and now provides 68 percent to an industry

that is serving nearly tw o m illion visitors per year.

It is im possible to m ake an independent evaluation of these figures, but

observations and official accounts m ake it clear that the share of dom estic sales to

the tourism sector has increased significantly.

•A purchasing m anager for a m ajor hotel chain used to buy his dairy products from

Holland and N ew Zealand and his vegetables from M exico, Chile, and Canada. “Now , I

buy alm ost all those products from Cuban sources,”he says.


A worker monitors automated,

imported equipment that

produces towels for the tourism

industry in the Hilatex

company outside Havana.


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•O fficials say that 500 greenhouse operations are producing vegetables andflow ers for tourism , 95 percent of the tourism sector’s beer is of dom estic

production, tour buses are produced in a C uban-H ungarian joint venture, Ikarus

and increases have been registered in dom estic production of construction

m aterials, soft drinks, and other products.

•A report to the C ouncil of M inisters records that of $41 m illion in tourism purchas

in February 2001, $27 m illion w as bought from Cuban suppliers, and in February

2002 $24 m illion of a total $36 m illion in purchases w as spent in Cuba.

•An executive at the Solym ar hotel in Varadero says that w hile he still im ports

w ine, beef, chicken, apples, pears, silverw are, paint, and other products, he

relies on C uban sources for juices, w ater, vegetables, m any fruits, beverages,

dairy products, cereals, sheets, tow els, m attresses, floor tiles, and paintings.

•Vice m inister of light industry Isaac A layon G onzalez says his m inistry has

concluded m ore than 50 “cooperative production agreem ents”w here a foreign

partner brings know -how and equipm ent to a factory and is com pensated w ith

negotiated share of the factory’s revenues. U nder these agreem ents furniture,

soap, perfum e, textiles, and other item s are produced and sold to C uban hotel

•Air conditioners for the tourism industry are produced in a C uban-Spanish joint

venture, Frioclim a.


The return of cruise ships

Cuba receives about 80,000 cruise ship passengers per year – a market that, officials

say, is small and not highly profitable, but welcome nonetheless. Cuba tries to expand

the economic benefits by negotiating contracts with cruise lines to employ Cuban hotel

staff on the ships. Here, a ship berthed at the renovated passenger ship terminal in

Old Havana. The city’s long-term master plan calls for all cargo shipping to be

moved from the Bay of Havana to the port of Mariel so that only cruise lines, and

perhaps a cleaner bay, will be left behind. 220 kilometers to the southeast, a beach in

the nature reserve at Punta Frances on the Isle of Youth is reserved for day visits by

cruise ship passengers who arrive by launch while their ship remains well offshore.


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•Bottled w ater is produced by the C iego M ontero joint venture w ith Sw itzerland’sNestle corporation.

•Soaps, sham poos, and other item s in hotel room s are produced by the C uban

com pany Suchel.

•Cuban softw are is used for hotel m anagem ent, accounting, and building

controls system s.

N ear Havana’s airport, the Prim ero de M ayo Tow el Factory, founded in 1984,

provides an exam ple of the im pact of tourism on dom estic industry. The factory is

part of the H ilatex com pany, and form erly used Soviet equipm ent to m ake thread,

yarn, tow els, and fabric for w ork clothes.

The com pany w as hit hard by the econom ic crisis of the early 1990’s. The Soviet

equipm ent consum ed large am ounts of energy and often had to be idled. M any of the

com pany’s 4,000 w orkers w ent to agriculture or to new businesses developed by

Hilatex, such as a bicycle assem bly operation and a service com pany that m eets other

com panies’transportation, food, m aintenance, cleaning, and security outsourcing needs

H ilatex attem pted to expand its production of tow els for tourist hotels, but

encountered difficulties. In particular, one executive recalls “a terrible girl,”a

Spanish purchasing executive from a m ajor hotel w ho had very exacting standards

of quality. “She could not be satisfied,”the H ilatex m anager says. “She m ade us

sw eat blood, but it w as good. N ow she is satisfied and she buys from us.”

W ith the help of an $8 m illion investm ent in European m achinery, H ilatex now sells

to that “terrible”custom er and to dozens of others. A show room displays Hilatex

tow els used in all m ajor C uban hotels –an array of colors, textures, sizes, borders,

patterns, and m eans of placing the logo on the tow el that w as im possible to

achieve w ith the com pany’s old tools and techniques.

W ith the old Soviet m achines m othballed in a corner of the factory floor, w ith new

technology and one fifth the w orkforce it had a decade ago, H ilatex is m oving

tow ard annual production of six m illion tow els, tw elve tim es its 1994 production. It

is also w ithin sight of profitability; w hen it reaches that goal, the com pany w ill

provide production bonuses, in dollars, to its w orkers.

Impact on the Cuban workforce

A s part of a global industry that exposes its participants to constant international

com petition, C uba’s tourism sector could not be m ore different from the centrally

planned industries in w hich m any of its people form erly w orked.

O ne exam ple is M iguel Figueras of the M inistry of Tourism . He once w orked as a senior

official in the Cuban governm ent’s state planning board, coordinating internal

econom ic plans and Cuba’s participation in the planned trade and investm ent flow s of

the socialist bloc. Today his duties include analysis of foreign m arkets to determ ine how

Cuba can increase tourist visits from particular countries. He pays particular attention to



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Canada, Cuba’s top m arket. “Every day I get to the office,”he jokes, “I have coffee wthe m inister, and w e w atch C NN to see w hat the tem perature is in Toronto.”

In the industry itself, thousands of other w orkers have a sim ilar outw ard focus as

they m arket Cuban destinations to tour operators, adopt international m anagem

and accounting system s, and receive training in custom er service.

An A m erican tourism executive w ho has exam ined Cuba’s tourism industry notes that a

the industry develops, it w ill continue to create dem and for high-skill jobs. “There’s a

m isconception that the jobs are just m aking beds in hotels. But tourism dem ands m ore

than that, a w hole netw ork of ancillary services such as m anagers, suppliers, chefs,

specialized m ultilingual guides, dom estic air and land transportation and all the service j

associated w ith them .”

Foreign executives generally have a high opinion of Cuban personnel. “Cubans are givto service –the biggest challenge is learning foreign languages,”one executive says.

A Spanish executive says Cuban w orkers have “a high level of professionalism and cultu

w hat’s needed is tim e to train them to give excellent service in a relaxed w ay, because th

tendency is tow ard form ality.”He m anages a hotel w ith 492 em ployees, only tw o of

w hich are Spaniards, “a sign that w e believe in the C ubans’capacity,”he says.

A C anadian consultant, D avid M cM illan, says C uban tourism w orkers are “very w

educated”if not “overqualified.”They are “eager to learn, disciplined, and

responsive to guidance,”he says, but they “have not been exposed to quality

service as a custom er, and respond slow ly to the delegation of responsibility.”He

view s these as “system ic”problem s, not personal traits.

Foreign executives do echo dom estic Cuban criticism s of the system of em ploym e

agencies through w hich C uban w orkers are hired. Som e executives say the system

generally w orks w ell and delivers pools of qualified candidates for particular jobs

But a European U nion critique of C uba’s foreign investm ent system , issued in July

2002, com plained that the agencies are one of m any rigid features of the C uban

system : “The system of staff selection is controlled by the em ploym ent agencies

w ho try to im pose their candidates (frequently not suitable professionally) and m a

it difficult to hire candidates identified by the foreign partner.”

The em ploym ent agency system also m akes payroll costs high. A n em ployer m ay

pay the agency $450 per m onth for an em ployee’s salary and benefits, w hile the

w orker in turn m ay only receive a salary of $15 in C uban pesos from the agency.

H ow ever, through a variety of m eans, tourism w orkers fare far better than the

average C uban w hose salary is the equivalent of $10 per m onth. Exam ples:

•Entertainers in a Spanish-operated Varadero hotel are paid a sm all peso salary p

a m onthly cash supplem ent of $80.

•A m aid in another Varadero hotel earns a salary of 288 pesos each m onth ($11

plus about $30 in tips.

•A w aiter in a Varadero hotel earns $5-$25 daily in tips, from w hich he contribu

a few dollars each day for the benefit of other hotel w orkers w ho earn no tips



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•A supply m anager for a hotel chain receives $15-$20 perm onth from the pool of tips earned by other w orkers.

•A bartender on a cruise ship that calls on H avana w eekly

and is staffed by a C uban personnel agency earns $5 in

pesos plus $380 per m onth, plus tips.

Tourism supports Cuban entrepreneurs

To see how tourism affects Cuba’s sm all private sector,

type“Cuba casa part icular” (C uba private hom e) into an

Internet search engine. The results show how som e of

C uba’s licensed entrepreneurs –the 6,000 w ho rent room s

in their hom es to tourists, business travelers, and other

visitors –are m arketing their services to the w orld.

Visitors w ho stay in private hom es generally pay $25-$50 per

night for a room , and according to one British tourist, they

“form a connection w ith local people and a glim pse into som e

of the difficulties of living here, w hich you w ouldn’t see if you

stuck to hotels.”This tourist, Jeannette H yde, w rote in

London’sObserver last February that she used local referrals to

find private room s in Havana and Trinidad; som e w ere noisy,

others in Trinidad w ere “spectacular, like stepping into a

m useum .”A Canadian, David H ow ell, w rote of a trip w ith his

son that started in a Varadero hotel and proceeded to privatelodging, costing $20 per night, in Havana and Trinidad.

According to a H avana retiree w ho w orks as a rental agent for

m ore than 100 private hom e renters, the pattern of these tw o

visitors is increasingly the norm –instead of staying in one

place, his clients w ant to tour the country. For this reason, he

has added dozens of private hom es in Trinidad and Pinar del

Rio to his portfolio, and he books his visitors’entire itinerary.

A Septem ber 2002 report from independent journalist M anuel

David O rrio reported on the form ation of renters’cooperatives,

akin to associations of bed-and-breakfasts, in several Havana

neighborhoods. “In fact, the hom e rental cooperatives aresm all private enterprises,”he w rote. M em bers refer clients to

each other and cooperate in m arketing on the Internet. At

tim es, he reported, they pool their m oney and pay the tax bill of a m em ber w hose

revenues don’t cover a tax paym ent in a particular m onth. O ne leader of a 15-m em ber

cooperative said that her cooperative creates jobs for 50 independent entrepreneurs

w ho provide laundry, plum bing, repair, electrical, and transportation services.


Bed and breakfast

Visitors seeking lodging in a private

home can make advance reservations

through word of mouth or the

Internet, or once in Cuba they canlocate rooms by spotting this

“Licensed Renter” logo on a renter’s

front door. Above, the interior

courtyard of a home in Trinidad that

offers two rooms for rent to tourists.


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In a quiet H avana neighborhood, a retired couple hasbeen renting tw o room s in their hom e since 1996. Th

get their clients from w ord-of-m outh and referrals fro

an inform al neighborhood netw ork of renters. They

also have substantial return business.

The couple pays $500 in m onthly tax to rent tw o

room s, plus $7 for the parking space they offer to

clients. They have alw ays paid their tax bill, and in an

average m onth they have a net profit of about $1,50

They are occasionally visited by inspectors w ho check

see if they are renting the space they have registered,

and to check their log of visitors w here dates of stayand passport num bers are recorded.

They em ploy one m aid, one laundry assistant, and a

night guard. Their profits have enabled them to instal

new interior doorw ays and new w indow s, to paint th

house’s interior, to convert their garage into a bedroo

w ith bath, and to buy a stereo and kitchen equipm ent.

“This is the situation of those of us w ho rent our hom es –it’s not to get rich,”the

husband says. “You can’t get rich anyw ay,”his w ife interjects. “It’s to have better

furniture,”he continues, “better food, better conditions in your house, to save som

m oney in case you need to buy m edicine at the dollar pharm acy. It’s to have a bette

standard of living, and I don’t think the state is fundam entally opposed to that.”

O ther m em bers of C uba’s com m unity of 150,000 licensed entrepreneurs –artists

taxi drivers, private restauranteurs –also derive their incom e from tourism .

A n artist w ho sells paintings in O ld H avana’s m arket sold 11 paintings, each price

at $40-$60, during a recent w eek. H e easily m eets his $159 m onthly tax bill, and

his revenues allow him to em ploy four vendors (they alternate, w orking tw o at a

tim e) and one studio assistant and to pay $20 per m onth to a w om an w ho store

his w ares overnight in her nearby hom e. H e and his associates are evangelical

C hristians, and he teaches Bible study classes on Sundays. “I do w ell because I pu

m y trust in G od,”he says.

N earby in the sam e m arket, a w om an w orks as a vendor for three artists. She ha

w orked in the m arket for nine years; she earns approxim ately 20 percent of the

value of her sales, clearing $50-$60 in an average m onth.

O n the streets of Trinidad, a retired w om an w hose m onthly pension am ounts to

$3.00 m akes and sells straw hats; her m onthly profit averages $20. A retired

couple sells clothing and souvenirs, earning $30-$40 per m onth. A w om an w ho

rents room s in her hom e earns an average m onthly profit of $150 –“not enough

to get rich,”she says, but enough to provide w ell for her fam ily.


A private art market in Old

Havana provides income

for artists and vendors and

tax revenues for the

neighborhood’s restoration.


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The epicenter

The peninsula of Varadero, 140

kilometers east of Havana, is the center

of the most intensive tourism

development on the island. It has a golf

club that has been featured on the European professional tour, 46 hotels

in operation and others under

construction, and the Xanadu mansion,

a restaurant and guest house that was

formerly a Dupont family property.

The outlook W hat w ill be C uba’s future com petitive position in the

C aribbean tourism industry?

The econom ics of Cuban tourism involves tw o artificial

restrictions on its grow th: the C uban governm ent’s ow n

decision not to prom ote tourism strongly during the

first three decades of the socialist governm ent (a

decision that has now been reversed), and Cuba’s

continued status as the only Caribbean destination that

is cut off from its natural m arket, the U nited States.

C uba has m ade a spectacular start in the 1990’s,

increasing annual tourist visits fivefold. Starting from alow base, it has becom e the w orld’s fastest grow ing

tourism m arket, m oving from three percent of

C aribbean tourism in 1990 to nine percent in 2000,

and its tourism sector is still relatively sm all, in

C aribbean term s, relative to the size of its econom y.

W ith new infrastructure in place –hotels, resorts, and

11 international airports now served by 60 foreign

airlines –Cuba is ready to receive greater num bers of

visitors. A nd C uba’s uniqueness gives it strong reason

to becom e an increasingly attractive destination. In

contrast to regional com petitors that offer prim arilybeach resorts, C uba has colonial architecture, natural

riches, cultural attractions, and H avana, the

C aribbean’s largest city, a place that intrigues m any

visitors in spite of its physical decay. In addition, C uba

has niche attractions such as the house w here Ernest

H em ingw ay spent a third of his life and the w aters

w here he fished, and a rail netw ork built to serve the sugar industry, w here

railroad enthusiasts m arvel at m useum -piece steam locom otives, som e m ore than a

century old and still in operation.

W hen restrictions on A m erican travelers are elim inated, C uba w ill experience a

second boom . A m erican travel analysts predict that in the first year after travel

restrictions are dropped, one m illion A m ericans w ill visit C uba –a num ber that

w ould cause a 58 percent increase over current visitation levels. “If A m ericans

com e, w e have hotel capacity for the first m illion,”an official says. This near-term

shortage w ould benefit thousands of C uban fam ilies that w ould be able to rent

room s in their hom es to a segm ent of the new A m erican m arket.

The terrorism scare that has dam pened tourism w orldw ide m ay cause C uba to

low er its grow th projections, w hich have anticipated five to seven m illion visitors by



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2010 w ithout A m erican tourism . H ow ever, it is safe to assum e that C uban tourismw ill continue to grow substantially even if A m erican policy rem ains unchanged.

A nd tourism w ill in turn continue to drive the C uban econom y. “Any com pany

m aking investm ent decisions looks at present and projected levels of tourism ,”a

foreign investor w ith operations in C uba notes. “It drives dem and for dom estic

production, energy, im ports, and everything else. W e can’t count on the em bargo

ending, so for now tourism is the key factor.”

Cuba’s tourism grow th prospects –and the rate of return visits –w ill be further

enhanced if C uba continues to im prove quality, know -how , and custom er service

C om petitors in the island C aribbean, M exico, and even Florida have good reason

to keep an eye on this em erging destination.


Room to growTourism revenue as percent

of gross dom estic product

C uba 8

Jam aica 17

Barbados 27

Dom inican Republic 15

G renada 17

Baham as 38

St. Lucia 39


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Further reading“The Im pact on the U .S. Econom y of Lifting Restrictions on

Travel to C uba,”a study by D orothy Robyn, Jam es D.

Reitzes, and Bryan C hurch, the Brattle G roup, W ashington,

D C , July 2002.

A w ebsite that illustrates the C uban governm ent’s approach

to tourism prom otion is found at w w w .gocuba.ca. A n am ple

listing of C uban w ebsites w ith C uban m edia, speeches,

announcem ents, decrees, other official inform ation, and

new s on C uba’s econom y, is found at w w w .cubaw eb.cu.

“C uba Reefs –A Last C aribbean Refuge,”by Peter Benchley,

National Geographic, February 2002; a description of C uba’sm arine environm ent and the im pact of tourism . O ther recent

National Geograph ic coverage of C uba: “Evolution in the

Revolution,”by John Putnam , June 1999; and “Cuba’s

G olden Past,”by Thom as B. A llen, July 2001.

The Cuban Way: Capitalism, Communism and Confrontat ion ,

by A na Julia Jatar-H ausm ann, Kum arian Press, 1999.

The G eorgetow n University C uba Briefing Paper Series covers

econom ic, social, and political topics in depth. Papers are found

at: w w w .georgetow n.edu/sfs/program s/clas/Caribe/cbps.htm .

Lexington Institute studies on C uba’s econom y and U .S.-C uba relations, and other m aterials are found at

w w w .lexingtoninstitute.org/cuba.

Havana: Two Faces of t he Antillean M etropolis, by Roberto

Segre, M ario C oyula, and Joseph L. Scarpaci, U niversity of

N orth C arolina Press, 2002 (revised edition).

Studies by the author published by the A lexis de Tocqueville Institution: “C uban

A griculture: Slow Road to Recovery,”M arch 1999; “Cuba’s New Entrepreneurs:

Five Years of Sm all-Scale C apitalism ,”August 1998 (text available at w w w .adti.net;

authored by Philip Peters and Joseph L. Scarpaci); “Cubans in Transition: The

People of C uba’s New Econom y,”M arch 1999; and “A D ifferent Kind of

W orkplace: Foreign Investm ent in C uba,”M arch 1999; all available for sale at theA lexis de Tocqueville Institution (w w w .adti.net).

“Cuba’s Econom ic Perform ance and the C hallenges Ahead,”m onograph by

A rchibald R.M . Ritter, C anadian Foundation for the A m ericas; see w w w .focal.ca.

To contact the author: peters@ dgs.net

Photos by Philip Peters

The Lexington Institute gratefully

acknow ledges the financial support

provided by the Ford Foundation for

this study.


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Cuban Economy and Tourism

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