A Resurgent Cuban Tourism Market

Prospects for a Resurgent Cuban Tourism Market

by COHA Research Associate Nicholas Maliska

- Cuban tourism has faltered in recent years, and an end to the U.S. travel embargo appears to be the catalyst needed for significant growth in the tourism industry.
-The Freedom to Travel to Cuba Act, seeking to lift all travel restrictions on the island, is supported by 60 to 67 percent of Americans and would likely result in one million tourists visiting the island within the first year.
- The bill has thus far been stalled due to anti-Castro ideologues in key Committee positions and the precedence of the ongoing health care battle in Congress.

For almost fifty years, the United States has prohibited the vast majority of its citizens from traveling to Cuba as a part of its economic embargo on the island. However, a flood of American tourists may soon be unleashed on this forbidden island as a bipartisan coalition grows in the U.S. Congress in support of the Freedom to Travel to Cuba Act. This bill comes at an opportune time for Cuba, a country which has seen growth rates in tourism falter in recent years as it once again relies on the travel industry to play a prominent role in the island’s economic development.

Although U.S. president Barrack Obama has repealed several modest elements of the archaic embargo back to Clinton-era levels, his administration has not appreciably changed course from the antagonistic anti-Cuba policies of the past. Obama’s campaign promises of “libertad” for the Cuban people have remained contingent upon democratic reform, which the Castro regime has continually rejected as onerous and intrusive. Obama’s lack of initiative in addition to Clinton-era legislation, which requires congressional action rather than presidential action to abrogate the travel ban, means Congress will have to take the lead in order to reenergize genuine U.S.-Cuba policy reform. Despite support from a majority of Americans, the Freedom to Travel to Cuba Act has been stalled in the House Foreign Affairs Committee since February 2009 due to the persistent efforts of hardliner anti-Castro politicians and lobbyists. It would appear that this small, yet powerful group, as it has repeatedly done in the past, is holding back the reforms needed to normalize relations between the two countries. Action on this bill will expedite the arrival of an estimated one million tourists within the first year after the travel ban is lifted and will almost immediately materialize into economic, social, and political benefits for the Cuban people.

The U.S. Embargo and Its Effect on Cuban Tourism

After the 1959 Cuban revolution in which Fidel Castro overthrew the U.S.-backed Batista dictatorship, Washington imposed travel and economic sanctions on the island by 1963. Since then, the embargo, or “el bloqueo” (blockade) as it is called in Cuba, has remained in place, except from 1977 to 1982 when U.S. President Jimmy Carter temporarily lifted the travel ban. Washington’s goodwill towards Cuba turned out to be short lived, and although Cuba no longer posed a security threat in the aftermath of the Cold War, the U.S. Congress passed both the Cuban Democracy Act in 1992 and the Helms-Burton Act in 1996. These measures tightened sanctions on the strainted nation and made the transition to democracy a requirement for loosening the embargo. The Helms-Burton Act also codified the embargo; as a result, Congress must now approve any changes to the embargo and it is not required that sanctions be renewed annually by the president. The embargo is enforced by the Treasury Department and does not explicitly prohibit Americans from traveling to Cuba, but in effect makes it illegal by prohibiting financial transactions with Cuba.

Havana, once known as the Las Vegas of the Caribbean, was a major hub for American tourists in the 1950’s, enabling Cuba to attract roughly twenty percent of the Caribbean’s total visitor pool. However, after the Cuban Revolution and subsequent initiation of the U.S. embargo, the island received far fewer tourists. This can be attributed not only to the embargo, but also to Castro’s policies that closed down all risqué bars and casinos, ending Cuba’s appeal for many potential tourists out for a good time. In the 1970’s, the Cuban government again began promoting investment in the tourism industry, but it was not until 1989 that annual tourist visits surpassed pre-revolutionary levels. In the 1990’s, tourism averaged an astonishing 18 percent growth, helping to bring Cuba out of the deep Depression it found itself in.

The twenty-first century has witnessed a steady decrease in the high rates of growth in visitors to Cuba. Arrivals slowed in 2006 and 2007, and although tourism reached a record high of 2.35 million tourists and was bringing in roughly US$2.7 billion in 2008, the number of visitors reflected only an 8.7 percent increase from 2005. One reason for this was the Bush administration’s tightening of the embargo in 2004, which led to a decline in Cuban-American family travel to the island. Also, the Castro government revaluated the Cuban convertible peso, which in effect made it more expensive to travel to Cuba. This move had detrimental effects on Cuba’s European market, which provides 39 percent of Cuba’s foreign visitors. The number of European visitors fell from a high of 1,048,000 in 2005 to 909,000 in 2008. In contrast, Canadians have been sustaining Cuba’s tourism industry, growing 24 percent from 660,000 in 2007 to 818,000 in 2008, according to the National Statistics Office of Cuba. The island seems to have exhausted the supply of readily available tourists coming from traditional markets. Tourist arrivals have been decreasing from six of its seven top tourist supplier nations, with only its largest market, Canada, increasing over the past few years.

It would be fair to say that Canadian tourists have enabled Cuba to weather the worldwide economic crisis that has devastated tourism in other Caribbean nations. In fact, tourist arrivals to Cuba have increased by 3.1 percent through July of this year. However, Tourism Minister Manuel Marrero stated, “tourism is growing, tourists keep coming, but they have changed the way they travel… They are coming for less time, trying to come with a lot of discounts, and that has caused a decline in profits.” The 2.5 million tourists expected this year falls far below the Cuban government’s 2000 long range forecast of 5-7 million annual tourists by 2010. Similarly, Cuba’s share of Caribbean tourism is still around 10 percent, far from the pre-revolutionary levels of 20 percent. Considering that U.S. tourists account for 52 percent of all tourists in the Caribbean, this significant gap can be almost entirely attributed to the U.S. travel embargo. According to a report by Cuba to the UN General Assembly, the embargo costs the Cuban economy US$1.2 billion in lost tourism revenue every year. An end to these sanctions will likely be the catalyst necessary for any significant growth of the Cuban tourism industry.

Welcome to Havana: The Freedom to Travel to Cuba Act

Polls show that 60 to 67 percent of the general U.S. population support lifting all travel restrictions to Cuba. Even in southern Florida, the stronghold of the anti-Castro movement that traditionally has opposed any relaxation of the embargo, 55 percent of Cuban-Americans now support lifting the travel ban, a significant increase from the past. These numbers represent the generational shift now taking place among Cuban-Americans. Growing in both number and influence, the young generation does not hold bitter grudges against the Castro regime, but rather looks at the embargo as one of the key factors holding back the island’s development. Given the growing support among Americans, and even Cuban-Americans, for lifting all travel restriction, it is necessary to question why Congress has yet to act.

The current pending legislation in Congress – the Freedom to Travel to Cuba Act (H.R. 874 and S. 428) – prohibits the President from regulating travel by U.S. citizens to or from Cuba. This bill is the latest in a long line of proposed progressive reforms to the United State’s draconic anti-Cuba policies, which have failed to pass over the past decade, including a 2007 forerunner to the current legislation. One of the principle reasons for the failure of past reforms was the promised veto threat by President Bush. Although Obama has failed as of yet to initiate meaningful reform to existing U.S.-Cuba policy, he will almost certainly sign this bill. Currently, the bills in the House of Representatives and the Senate have generated strong support, with 161 and 33 co-sponsors respectively, more than any other recent liberalizing legislation towards Cuba.

From interviews with several Congressional aides close to the pending measure, it is clear that support is growing for the bill, but is not yet at the level needed to secure its passage. In addition to the 161 co-sponsors of the bill in the House, the aides mentioned that there are roughly twenty more representatives ready to sign on to it. However, they said the House leadership has made it clear that support for the bill would have to be proven before moving it to a vote. Stating that health care has been consuming the attention of legislators, the staffers are unsure whether the Freedom to Travel to Cuba Act will pass in time to become law by the end of the year. Nevertheless, they seemed confident that it will pass next year by the end of the 111th Congressional session.

Support for the legislation comes from a broad, bipartisan coalition. On the right, farm state Republicans and free-trade proponents have teamed up with the Chamber of Commerce to end the embargo that costs the United States billions in potential exports every year. Although these groups may not immediately benefit from the bill, they believe that the legislation would lead to the further easing of economic sanctions, opening up a market of eleven million Cubans to U.S. products. The airline industry is lobbying hard for the passage of this bill as well, with the popular travel website Orbitz circulating an online petition that has received over 95,000 signatures. The U.S. travel industry is optimistic that the passage of this bill will bring between US$1.18 to $1.61 billion in enhanced revenue, as well as create 16,888 to 23,020 new jobs. The coalition behind the bill also includes liberal Democrats, religious associations, and human rights groups such as Human Rights First and Amnesty International. These organizations recognize the failure of 50 years of economic isolation, which have punished the Cuban people rather than furthered U.S. interests. They believe that increased communication and constructive exchange between Cubans and Americans through travel and trade will benefit both countries.

Despite this broad coalition, the bill has failed to leave the House Foreign Affairs and Senate Foreign Relations Committees due to the disproportionate representation of anti-Castro legislators in key positions. The U.S.-Cuba Democracy Political Action Committee (PAC), an influential anti-Castro group, has lobbied legislators for years, spending more than US$750,000 in the 2008 election cycle to influence Congressmen to vote against any legislation threatening to lift the embargo. The Congressional Cuba Democracy Caucus, which consists of Cuban-American Congressman and other legislators with large constituent blocs of Cuban-Americans in Florida, New Jersey, and New York, has positioned itself in opposition to this bill. These hardliners, such as Senator Robert Menendez (D-NJ) and Representatives Ileana Ros-Lehtinen (R-FL), Lincoln Diaz-Balart (R-FL) and Connie Mack (R-FL) oppose any move to ease the embargo until political prisoners are released and the Cuban government transitions to a western-style democracy that guarantees more freedoms for its people.

Their strategies have been singularly successful in the past, leading to the defeat of every legislative initiative that has attempted to significantly alter the embargo. One example was the Rangel Amendment in 2007 that sought to lift some of the economic restrictions on Cuba, but was voted down 245 to 182. 66 Democrats voted against the bill, 51 of whom had received campaign contributions from the U.S.-Cuba Democracy PAC. This defeat illustrates that proponents of a new U.S. policy toward Cuba have thus far lacked the organization and funding to counter the U.S.-Cuba Democracy PAC’s cash register. Currently, anti-Castro politicians have been able to maintain their entrenched positions in the relevant Committees due to seniority. Given that a significant number of the 48 members on the House Foreign Affairs Committee are in opposition to the bill, the future of the current bill is far from certain. However, since the current legislation deals exclusively with travel, it will likely attract more support than the Rangel Amendment.

Why it Should Pass: The Benefits of Unrestricted U.S. Travel with Cuba

The passage of this bill would provide an immediate economic boost to the island’s struggling economy, securing hundreds of millions of dollars in hard currency, promoting foreign direct investment, and creating new employment opportunities in the construction and service sectors. Studies estimate that one million Americans will travel to Cuba in the first year alone after the travel ban is lifted, providing at least a US$1.2 billion boost in possible revenue for the island. Additionally, the end of the embargo would open Cuba to the prosperous cruise line industry, from which it largely has been excluded. In 2008, only 32,000 excursionists visited the island, accounting for just over one percent of all foreign visitors. This is in stark contrast to the pre-revolution era when cruise passengers represented over 20 percent of all visitors. Needless to say, lifting the embargo would provide significant revenue and other benefits for Cuba’s port cities if cruise ships were once again able to service the island. The influx of tourists flocking to see the forbidden island for the first time would also result in an increased demand for hotels and restaurants, thus creating thousands of jobs in the service and construction sector. Additionally, the influx of U.S. dollars from a new stream of visitors would increase the income of many Cubans, whose current average wage is a meager US$20 per month.

Investment in tourism and other areas of the economy would also increase with the lifting of the travel ban. Presently, Cuba has a capacity of 50,000 hotel rooms, with the construction of 30 new hotels with 10,000 rooms being planned within the next five years. All investment in Cuba is required by law to be jointly owned by the Cuban government, and majority ownership by foreign companies in the country is rare. Unfortunately, as a result of the poor investment climate and a shortage of hard currency to finance these projects, investment has proceeded at a noticeably slower pace in Cuba than in other countries. One of the major problems with Cuban tourism is the low rate of return for visitors. One reason for the low rate of return is that Cuba’s infrastructure and service sector are not on par with other Caribbean travel destinations, leaving the island nation in need of improved roads and modern transportation in order for the travel industry to more effectively compete.

Not only would lifting the travel ban be economically beneficial, but it would also be socially and politically advantageous for the Cuban people. Economic liberalization and the development of Cuba’s economy is likely to create an environment that favors progressive reform. Although the anti-Castro bloc has argued that allowing tourism or trade with Cuba will only fund the Castro regime and enable it to continue repressing Cuban society, this is an entirely simplistic view. Any democratic movement will have to emerge from the Cuban people, and as history has shown, economic liberalization often precedes democratic reforms. Despite Raul Castro’s stated commitment to socialism, economic reforms will likely be instituted in the coming years. It is imperative that the U.S. assists the Cuban people in achieving these reforms by opening up every avenue of communication and trade, rather than discouraging them. The United States has long prided itself as providing a beacon for other nations through its example of democratic institutions. Enhanced communication and exchange of ideas between Americans and Cubans should be encouraged rather than be punished, as they have been under the past and current U.S. policies.

Moving Forward

The U.S. is the only country in the world that still maintains economic sanctions against Cuba. Washington has consistently stated that it wants Cuba to institute political reforms before it undertakes any policy changes toward the island. However, Cuba considers political reform to be an internal affair and has repeatedly refused to recognize any calls to reform its domestic policy. Instead, Havana insists that the U.S. repeal the embargo unconditionally. It is clear that fifty-years of Cuban resistance will not be altered at a time when the island’s geopolitical position has never been stronger or the island less isolated. Governments worldwide, but especially in Latin America, view the obduracy of Washington to end its embargo as a continuation of its failed efforts to influence Latin American countries. This was demonstrated in 2008 when the UN voted 185 to 3 to condemn the U.S. for its continued economic sanctions against Cuba. Global public opinion demonstrably believes that it is time for the U.S. to reverse this widely unpopular and palpably failed embargo.

During his campaign, Obama promised “libertad” for all Cubans, but this “freedom” comes with a catch. He has made it clear that any relaxation of the embargo by the U.S. will necessitate democratic reforms on the island. This is not a new policy, but rather the same misguided strategy advocated by President Bush and his predecessors. Obama’s gestures of goodwill, such as his limited relaxation of the travel ban in April, which now allows unlimited travel and remittances by Cuban-Americans to the island, have been largely symbolic and of minor consequence. None have changed the underlying reality of the draconian embargo. They have merely upheld the two-tier system whereby Cuban-Americans can go to Cuba at will, but all other Americans can be sent to jail if they try to exercise the same right. The insincerity of the kind of thinking going on behind this “new” approach towards Cuba is evident in Obama’s September renewal of the Trading with the Enemy Act. Meanwhile, the U.S. recently has initiated a dialogue with Cuba regarding immigration and the possibility of resuming mail service to the island. This is progress hardly worthy of the word; evidence clearly shows that Obama will not be rushing ahead to drastically revise Washington’s policy.

Congress now has the ability to go beyond these conditional gestures and take a giant leap forward in modernizing U.S.-Cuba relations by reenergizing support for ending the travel ban. Normalizing relations has thus far been kept on the backburner while domestic issues such as the economy and health-care consume the attention and political capital of both Obama and Congress. Legislators should not allow the Cold War mindset of a select few Cuban-American ideologues to continue dictating U.S.-Cuba policy. Travel will undoubtedly bring economic and social opportunities to Cuba that will greatly improve the basic situation of the Cuban people. If and when the bill is passed, it will finally signify the beginning of a new era in U.S.-Cuba relations.

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This analysis was prepared by COHA Research Associate Nicholas Maliska
Posted 07 Oct 2009
Word Count: 3300

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