VZCZCXRO1955
RR RUEHGR
DE RUEHKG #1089/01 1941155
ZNR UUUUU ZZH
R 131155Z JUL 07
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 5036
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHME/AMEMBASSY MEXICO 2898
RUEHRD/AMCONSUL MERIDA 0029

UNCLAS SECTION 01 OF 03 KINGSTON 001089 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CAR (HARNE, COLLINS), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS 
 
E.O. 12958:  N/A 
TAGS: EIND ECON EFIN EINV SOCI JM
SUBJECT: JAMAICA'S TOURISM BOOM 
 
 
KINGSTON 00001089  001.2 OF 003 
 
 
¶1. Summary: Tourism figures for 2006 show tourists flocking to 
Jamaica in record numbers.  Visitor arrivals for 2006 broke the 
psychological three million barrier for the first time, while 
earnings of USD 1.9 billion also soared to new heights.  The 
diversion of a number of visitors from Cancun following the ravages 
of hurricane Wilma and increased marketing efforts were the 
underlying factors for the record performance.  The impressive 
arrival figures were accompanied by a surge in foreign direct 
investment, with the room stock set to increase by 40 percent.  The 
interest in Jamaica is being driven by Spanish investors who appear 
to be attracted to the North American source market.  But while this 
massive investment is welcome in some circles, concerns abound about 
its likely impact on smaller hotels.  Visitor arrivals should, at 
best, remain flat for 2007, but performance could pick up in 2008 as 
the policy-related shocks dissipate and Cancun slows its successful 
discounting campaign designed to lure tourists back.  End summary. 
 
 
 
--------------- 
The Raw Numbers 
--------------- 
 
¶2. Data from the Jamaica Tourist Board (JTB) show that the island's 
tourism industry had a record year in 2006.  All the performance 
indicators point to an industry in growth mode, despite rising crime 
and harassment.  Arrivals for 2006 broke through the three million 
barrier (up 16.5 percent), the highest level of arrivals recorded in 
a single year.  The sector, which registered two million visitors in 
1999, has expanded by a remarkable 50 percent in just seven years. 
And it is the more economically appealing stop-over segment, up 18.7 
percent to 1.7 million, which has been providing the impetus for 
growth.  Cruise arrivals, up 17.7 percent to 1.4 million, also 
contributed handsomely to the upswing.  The buoyancy in stop-over 
arrivals was due to: (1) the diversion of visitors from Cancun 
following the ravages of hurricane Wilma in 2005; (2) marketing 
initiatives by hotel chains and the JTB; (3) the increase in the 
room stock coupled with rising airlift; and, (4) the continued 
economic bullishness in major source markets.  Cruise arrival was 
driven by increases in both the number and size of ships, with three 
new "mega-vessels" calling during the year. 
 
 
¶3. Revenues also broke new ground, climbing by 22.1 percent to USD 
1.9 billion.  Just over USD 1.7 billion or 93.7 percent of total 
earnings was attributed to stop-over arrivals (USD 1,054 per 
visitor) with the remaining USD 188 million coming from cruise 
visitors (USD 88.3 per visitor).  Earnings for 2006 climbed for the 
fourth consecutive year, confirming the sector has fully recovered 
from the sluggishness that characterized the sector following the 
2001 terrorist attacks.  At this level of earning, the tourism 
sector has overtaken remittances as the number one foreign exchange 
earner after being displaced for the last two years.  The sector has 
therefore cemented its position as the main pillar of the Jamaican 
economy. 
 
------------------------- 
Performance Wanes in 2007 
------------------------- 
 
¶4. But after growing handsomely in 2006, both visitor arrivals and 
earnings dipped during January to March 2007.  Stop-over arrivals 
declined by 2.1 percent, reflecting lower arrivals from the United 
States, down 12.1 percent.  Overall arrivals would have been worse, 
but for a bounce from Canada (up 32.8 percent) and Europe (up 15.7 
percent).  The bend in the growth trend is disturbing to tourism 
stakeholders, who initially blamed the shock on the Western 
Hemisphere Travel Initiative (WHTI).  However, immediate past 
president of the Jamaica Hotel and Tourism Association (and Sandals 
hotelier) Horace Peterkin told emboffs that while WHTI affected 
performance, the imposition of a temporary CARICOM Visa for Cricket 
World Cup was a bigger fiasco, given that it was an internal policy 
decision.  Peterkin's opinion was backed up by Evatt Bloomfield of 
the Sunset chain and Steve Ueker of the Half Moon hotel. 
 
¶5. It is the return to normality in Cancun which appears to be the 
underlying reason for the drop.  With Cancun using the opportunity 
to refurbish after Wilma, the destination is back in the market with 
an improved product offered at bargain prices and has retaken lost 
market share from countries like Jamaica.  This sentiment was 
confirmed by Peterkin and echoed by all the major hoteliers emboff 
spoke to in Jamaica's resort areas.  The figures seem to bear this 
out, as arrivals for the first quarter of 2007 are ahead of arrival 
for the similar period of 2005.  GoJ officials also posit that the 
anticipated crowds for CWC, which did not materialize, and the 
travel advisory issued by the USG for the event would have scared 
some visitors from the island during the competition. 
 
KINGSTON 00001089  002.2 OF 003 
 
 
 
------------------ 
"Spanish Invasion" 
------------------ 
 
¶6. Within the last five years Jamaica has witnessed a massive 
transformation of its tourism landscape due to a sudden spike in 
interest by Spanish investors.  The current wave of Spanish 
investment is paralleled only by the bauxite investments of the 
1950s and 1960s.  Since 2002 six Spanish hotel groups have started 
construction of 20 hotels, comprising almost 10,000 rooms to be 
added to the existing stock of 21,000, an almost 50 percent 
expansion.  The hotels are all concentrated along the north coast of 
the island, stretching from Ocho Rios to Negril.  The ACS Group out 
of Spain is also investing heavily in modernizing an international 
airport, a strategic tool for expanding airlift and by extension 
arrivals.  The Spanish investment is expected to surpass USD 1.5 
billion, allowing Spain to unseat the U.S. as Jamaica's largest 
source of FDI in the last five years. 
 
¶7.  What has become commonly known as the "Spanish Invasion" is 
complemented by a host of other foreign and local investments.  In 
one small, unspoilt section of the north coast, an additional 12 
hotels, including the high-end Harmony Cove, with significant U.S. 
interest, are slated for construction.  Other luxury developments 
including the world famous GoldenEye (USD 80 million) and the Tryall 
Country Club (USD 150 million) are undergoing expansion.  The 
picturesque parish of Portland could also experience a similar 
transformation to that taking place on the north coast once 
infrastructural work is completed.  Canadian-Jamaican billionaire 
Michael Lee Chin and Sandals' Gordon "Butch" Stewart have already 
taken positions in the area, which boasts a new marina. 
 
 
---------------------------- 
But Why the Sudden Interest? 
---------------------------- 
 
¶8. There has been much speculation about the reasons for the sudden 
interest from Spanish investors who have been operating in the 
nearby Dominican Republic and Mexico for years.  Hoteliers like 
Roger Allen from Crane Ridge Resorts is convinced that the Spanish 
chains are into budget tourism and have seized the opportunity to 
locate in Jamaica to benefit from the captive North American market. 
 This position is shared by other local hoteliers and was actually 
confirmed by the Spanish hoteliers who told emboffs that they depend 
on North America for up to 70 percent of their visitors.  Critics 
like Allen also argue that the Spanish investors have been offered 
huge incentives, including hassle free approvals, while local 
hoteliers are left to languish.  This complaint is likely valid. 
When asked about the reasons for the influx of investment, Daniel 
Hofer of the Iberostar group made reference to the special role 
played by the island's promotions agency, JAMPRO.  But Hofer also 
attributed the sudden interest to Jamaica's reputation built on 
brands such as Bob Marley and Kool Runnings.  He also stated that 
once a major chain invests in a country, others tend to follow, a 
situation referred to as the "flying geese pattern" in FDI 
literature. 
 
-------------------------------------------- 
So Will the New Investment Increase the Pie? 
-------------------------------------------- 
 
¶9. Supporters of the Spanish armada argue that the record investment 
represents the opening of new markets for Jamaica, as most of the 
Spanish groups are linked to major tour operators with a long 
history of marketing products and destinations in Europe, which 
could lead the diversification of the Jamaican product.  But while 
this assertion is theoretically appealing, the reality appears to be 
different.  Hofer told emboffs that the North American market will 
be big for his hotel, and based on his business model he would be 
competing against hotels such as the Ritz Carlton.  And these 
hotels, which have developed a winning business model based on 
economies of scale, have already begun to cannibalize smaller 
properties, with Allen already seeing a plunge in occupancy levels 
even relative to 2005.  Bloomfield also thinks the additional 15,000 
rooms will cause the tide to fall for everyone.  From all 
indications, therefore, the pie is not expected to grow 
significantly due to the influx of these chains, as it would appear 
that their business model is based on operating a lean business, 
which can deliver cheaper prices to lure North American visitors to 
their properties. 
 
-------------------- 
Future can be Bright 
-------------------- 
 
 
KINGSTON 00001089  003.2 OF 003 
 
 
¶10. That said, the increased competition augurs well for Jamaica, as 
it will force other hotels to improve their efficiencies and both 
visitors and the economy can only benefit from this development. 
And the increased investment and by extension competition is not 
expected to dissipate anytime soon, given the number of investors 
lining up to get a piece of the action.  Frank Sodern of the Spanish 
RIU Group, which has three hotels in operation and is building 
another two, thinks the industry is still in the start position and 
investment will continue to grow for some time yet.  This position 
was echoed by Hofer, who anticipates a continuation of the Spanish 
investment for another five to ten years, with new chains entering 
the market.  And he expects this growth to provide a much-needed 
boost for the economy, while also attracting service chains such as 
Walmart.  He also pointed to the linkages to be made with the 
agricultural and manufacturing sectors.  Sodern has also brought a 
new flavor to the all-inclusive product, with visitors being 
encouraged to leave the safety of the concrete walls to explore the 
rest of the island.  And despite Sodern's inherent vested interest 
(with visitors off property food and beverage consumption decline) 
the gesture can only lead to increased visitor expenditure and 
further extend the linkages. 
 
¶11. But this approach is fraught with danger, as any mishap could 
become a fiasco for the all-inclusive niche developed in response to 
the bad publicity associated with the tumultuous 1970s and more 
recently to "isolate" visitors from spiraling crime.  Only recently, 
a number of cruise passengers in Hanover parish were held at 
gunpoint, and the country is now suffering the effects of the bad 
publicity.  Environmentalists and some industry players have also 
blamed rising incidences of squatting and the associated problems of 
harassment and crime on the construction of the megastructures being 
put up by the Spanish chains (Post will report septel on 
environmental issues).  Additionally, Hofer's optimism is not 
necessarily shared by local hoteliers, as Jackie Sinclair of the 
relatively small Gloustershire hotel told emboffs that there is a 
definite bias against indigenous properties, which do not get most 
of the incentives extended to foreign investors.  When asked 
specifically about the future of the industry, Peterkin was also 
less than upbeat, saying it depended on the political leadership 
moving forward.  However, he did admit that with the right vision 
the sector could make a quantum leap in less than a generation. 
 
 
------- 
Comment 
------- 
 
¶12.  Jamaica's tourist industry should remain flat for the remainder 
of 2007, with unpublished figures suggesting a continued fall off. 
A JTB official told emboff that preliminary indications are that the 
sector continues to suffer from the WHTI and the lag effects of the 
temporary CARICOM Visa.  The official said that the situation would 
have been worse but for the ongoing surge in arrivals from Canada 
and Europe.  Expectations are that once Cancun slows its 
discounting, the local sector could return to growth mode, albeit at 
lower rates.  The additional rooms could also impact positively 
assuming they can be filled.  But given the current challenges, the 
fact that Jamaica continues to be a leading tourist destination is 
in and of itself astounding.  This confirms that the island has huge 
comparative advantages in tourism services and, if the country's 
problems could be arrested, the possibilities for investment, 
growth, and earnings could be endless. 
 
JOHNSON