Patrick Springer | Global Americans | February 4, 2022
This month, Cuban courts are packed with protesters who rose against their government last July in the largest protests the island has seen since the Cuban Revolution. The protesters, who are now accused of sedition and liable for decades-long sentences, called for greater freedoms, along with more access to food and other necessities. November 15, 2021, was supposed to be the opposition’s “second act,” demonstrating sustained discontent with the Diaz-Canel regime. Anticipating the demonstrations, the Cuban government quickly arrested dissidents, and even reportedly manipulated the price of chicken to prevent any organized gatherings. Crowds were notably missing from the streets of Cuba the day of the event.
November 15, coincidentally or not, was also the date that the country planned to reopen its doors to international visitors. From this date forward, vaccinated foreigners arriving in Cuba were granted admission without proof of a negative test or any mandatory quarantine. Since the start of the COVID-19 pandemic, tourism has been virtually non-existent on the island. The shortage of tourists was aggravated last year when the country took extreme measures to fight the Delta variant. Today, despite relatively low case counts of COVID-19, tourists still have not returned. Low tourism revenue was one of several factors that caused Cuba’s GDP to fall an alarming eleven percent in 2020.
Amidst the pandemic, the extent to which the Cuban economy depends on tourism has become more evident. With international visitor arrivals approximately a tenth of what they were in 2019, Cuba’s dependence on tourism presents the Diaz-Canel regime with a pressing challenge: Does Cuba reorient its economic activity to rely less on tourism? Or will Cuba double down on its tourism investment in the hopes that tourists come back? Either choice will create severe economic pressures for the Caribbean island state in an atmosphere of political strife.
The Tourist Drought
Cuba’s tourism industry has suffered immense losses due to the pandemic. While the first wave of COVID-19 largely spared Cuba, last year’s Delta variant caused hospitals to overcrowd, complicated vaccination efforts, and resulted in shortages of basic necessities. The overall decline in tourism has been staggering. Prior to the pandemic, Cuba received an average of four million annual international visitors. This figure has fallen to 254,922 visitors as of November 2021—just over a 93 percent decrease.
Pre-pandemic, Canadian and European tourists dominated the Cuban tourism market and frequented popular beach resort towns such as Varadero. Russian arrivals have recently reached their 2018 and 2019 levels. In contrast, Canadian and European arrivals still comprise only about three percent of their pre-pandemic numbers. Thus, while Russians have returned in the same numbers as before the pandemic, the tourism market is receiving only a tiny fraction of its primary customers.
The lack of tourists doesn’t only threaten the tourism sector. Cuba uses the revenues from tourism to manage currency values, subsidize food production, and import materials used in agriculture and manufacturing activities. In fact, Cuba spends five times the amount on imports of what it receives in exports. President Díaz-Canel commented on this practice, explaining that “what we have on a weekly basis to pay credits, to buy raw materials and to invest, comes from tourism.” However, a troubling statistic recently revealed that imports which aid in food production and manufacturing have fallen nearly 40 percent since the pandemic began. Due to the pandemic, tourism has ceased to be the “breadwinner” it once was for Cuba.
Aggravating the inability to pay for imports, other sectors of the economy have also grappled with unfavorable conditions the past few years. On top of the U.S.-Cuba tourism restrictions enacted by the Trump and Biden administrations, exports that typically substitute for tourism have become less lucrative. Exports in which Cuba has an advantage, such as sugar and nickel, have suffered from world price decreases, and other Cuban export commodities have suffered from decreased worldwide demand due to COVID-19. Lastly, this poor economic environment is accompanied by increased U.S. sanctions on remittances, and the Venezuelan economic crisis. These economic misfortunes underscore the severity and urgency of the tourism market’s downward turn.
To Hold or to Fold?
Will tourists return quickly enough to revive the Cuban economy? This is the urgent question facing Cuban policymakers at the moment. According to government estimates, the tourism market will not reach pre-pandemic levels until at least 2023 or 2024. With food shortages becoming more common and a decreasing ability to pay for necessities, the regime must decide between two paths: reorient the economy away from an over-reliance on tourism, or recommit to tourism and “wait out the storm” for the coming years.
A reorientation of the state economy could diversify the country’s exports and cut down on food imports. To realize this, Cuba could shift resources from the tourism sector into its underdeveloped agriculture sector. This shift would provide more food production at home. The government could also mitigate the losses associated with reorientation by increasing production of its more fruitful export commodities such as tobacco, sugar, rum, nickel, and zinc, hoping that demand for these commodities will improve with worldwide post-pandemic recovery. Lastly, the government could also refocus its efforts on medical technology and service exports, considering Cuba has the most physicians per capita in the world.
Despite these available alternatives, any shift away from tourism will be risky. First, the tourism market comprised 10.6 percent of Cuba’s pre-pandemic GDP. In comparison, exports of commodities only contributed 1.2 percent. Therefore, shifting away from tourism by replacing the industry with exports will prove to be an almost insurmountable challenge. Second, a loss of tourism revenues will decrease the ability to pay for food imports on the island. Reorientation may reduce or even erase any food surpluses attained by producing more food domestically. Lastly, an abandonment of tourism in favor of these alternatives will likely reduce Cuba’s contact with liberal democracies, notably Europe and Canada, and drive the country into closer economic ties with Nicaragua and Venezuela—allies that are willing to bolster the Cuban economy and food supply.
The choice to reorient the economy away from tourism would require confronting powerful interests within the Cuban state. While the Ministry of Tourism shares ownership with some of the larger, foreign hotel chains, and local bed and breakfasts owned by Cuban citizens are permitted, the Cuban military owns the lion’s share of hotel rooms on the island and profits from the industry.
Alternatively, a recommitment to the tourism sector will see Cuba maintain good relations with liberal democracies yet expose the economy to a risky economic gamble. The government is currently undertaking efforts to expand tourism capacity on the island and is looking at ways in which it can improve the industry. Continued government reinvestment could pay significant dividends should tourists come flooding back to the island. However, tourism investment will not yield what it did before the pandemic for at least the next few years, decreasing Cuba’s ability to pay for imports. In turn, this will leave Cubans hungry and reduce the government’s ability to repay its growing debt.
The Cuban government thus faces two unpleasant options. Reorientation away from tourism can increase domestic food production, diversify exports, and push the country closer to its undemocratic allies. Such a move may endanger food availability on the island, threaten vested interests within Cuba, and sour relationships with EU member countries and Canada. Recommitment to tourism would help maintain ties with liberal democracies and offer a return on investments should international visitors return in numbers not seen since before the pandemic. But this route would endanger both food availability and the economy as a whole should tourists fail to return. Whichever path the government chooses to take, the Cuban economy finds itself in its most vulnerable position since the fall of the Soviet Union. Undoubtedly, the next few years will prove difficult for the people of Cuba as they seek to revitalize their post-pandemic economy.
Jim Hepple is an Assistant Professor at the University of Aruba and is Managing Director of Tourism Analytics.