Update Country Report Curaçao 17 May 2017

With the recent robust expansion of tourism to Cuba-especially of US visitors since the easing of some US travel restrictions-other destinations in the Caribbean have grown increasingly concerned about increasing competition. However, an IMF analysis has concluded that a future full opening of Cuba to US tourists would not have a devastating effect on most other Caribbean locales, and that the regional tourism industry would continue to grow.

The IMF document, Revisiting the Potential Impact to the Rest of the Caribbean from Opening US-Cuba Tourism, estimates that a full liberalisation of tourism for US visitors-admittedly unlikely in the short to medium term under the presidency of Donald Trump and a Republican-led-Congress-would eventually result in an annual increase in US arrivals of between 3m and 5.6m to the island. However, it argues that most of the rest of the region would weather such an increase well, with only a few islands being vulnerable to adverse effects.

Cuban tourism grows as US travel restrictions are eased

Tourist visits to Cuba by Americans are not allowed under longstanding US sanctions imposed on the island's Communist government, but around 12 select categories of visitors are exempt from this ban. This includes those Americans on educational, cultural and research trips, and those on so-called people-to-people exchanges. The administration of Barack Obama (2009-17) relaxed these rules further in December 2014 as part of its normalisation of relations with Cuba, by eliminating the need for prior authorisation of US travellers falling into these categories. This led to a surge in visitors to Cuba in 2015. Overall arrivals grew by 17.4% year on year, including growth of 21.8% in the category in which the US is grouped, to around 3.5m visitors. Expansion continued in 2016, with Cuba receiving 4m tourists, 13% more than in 2015.

Cuban tourism growth does not detract from expansion in the rest of the region, however. The IMF researchers note that growth in arrivals to Cuba in the 1995-2014 period coincided with growth in visitors to other destinations as well. Overall regional arrivals increased by 4% per year in that period, although the rate of increase was faster in larger markets such as Cuba (7.6% annually), Cancún (7.5%; although not strictly part of the region, the city, on Mexico's Caribbean Sea coast, is a direct competitor to Caribbean destinations) and the Dominican Republic (5.7%). Based partly on a study of trends in 2015, the IMF expects that even with further rapid growth of US arrivals to Cuba in the future, the overall flow of tourists to the Caribbean would continue to increase.

The case of Canada supports this assessment. Canada has been the fastest-growing source of tourists to most of the Caribbean in recent decades, and this has eased dependence on the US market. Although Canadian arrivals to Cuba grew by the largest extent (11.7% annually between 1995 and 2014), the number of Canadian visitors to other islands also increased (by 7.7% per year). The IMF extrapolates that a similar situation would occur once the US ban on tourism to Cuba is fully lifted (which The Economist Intelligence Unit sees as a likely scenario within five years, assuming that Mr Trump is not re-elected in 2020): while the number of visitors to Cuba would increase rapidly, other countries in the region would also benefit.

Moreover, as more US visitors arrive in Cuba, pushing up costs amid a relative scarcity of accommodation and services on the island, many non-US visitors will leave Cuba for other destinations in the region. Therefore, the impact of free travel between the US and Cuba would not necessarily be very disruptive to the regional tourism industry.

Some islands more vulnerable than others

Despite the overall scenario not being seen as too detrimental to Caribbean tourism, several smaller destinations that are more dependent on US visitors would be harder hit by increased competition from Cuba. These include the islands that receive more than 70% of their visitors from the US: the US Virgin Islands, Puerto Rico, the Turks and Caicos Islands, the Bahamas, the Cayman Islands, and Bermuda. Of these, the most at risk would be the US Virgin Islands, Puerto Rico, and Turks and Caicos. Anguilla and Sint Maarten would also be vulnerable.

The IMF suggests a number of policies that would help to reduce the risk to the most exposed economies. These include a diversification strategy to target source markets other than the US, including emerging markets; improving the competitiveness and pricing of the tourism offering; promoting more intra-regional travel; and offering multi-destination holiday packages via partnerships with Cuba. A number of Caribbean countries and their business associations, such as the Caribbean Hotel and Tourism Association, are already thinking in these terms.

Caribbean countries will still have time to adapt to the reality of Cuban competition. Before Cuba can absorb the potential number of new arrivals that a US policy change would bring, the country will have to scale up investment in its tourism industry to ensure the availability of sufficient accommodation and other infrastructure. It will also have to improve the quality of its tourism services, which remains below that of neighbouring islands.