Tourism in the Dominican RepublicWorld Bank and Inter-American Development Bank Experience
Iain Christie, consultantTourism and Private Sector Development
World Bank
Juan Luna-KelserIDB
Senior Research AssociateGeorge Washington University
BBLFebruary 22, 2006Washington, D.C.
Photos: Thanks inter alia to Nanette Miller and Peter Copplestone
IslandCategory
Maldives Seychelles Bali Dominican Republic
Jamaica Madagascar
International arrivals (000s)
617 179(2002)
1,457 2,748 1,350 229
Domestic tourists (000s)
n/a n/a n/a 521 n/a n/a
Growth rate for tourism (arrivals)
9.4 0 18.6 17 4.8 14
Cruise passengers (000s)
n/a n/a n/a 500 1,132 n/a
Contribution to GDP (%)
8.8 20 2 7.3 6.0 2.0 est.
Foreign exchange earnings (US$ m.)
415 46.4(2002)
2,000 3,180 800 104.3
Number of room equivalents
8,429 3,975 19,522 59,000 24,625 10,230
Room Occupancy 83.9 54(2002)
47.8(2003)
74.2 55.5(2002)
55
Average daily expenditure (US$)
166.82(2002)
200(2002)
95.17 103.68 92(2002)
22.90
Length of stay (days)
8.3 10 4.1 9.1 9.7 20 (country)4 (hotel)
Employment(hotel sector)
14,182 5,000 n/a 20,000 32,856 15,906
Employment per room
1.7 1.3 n/a 0.8 1.3 1.55
Landmass (sq. km) 300 450 n/a 49,000 11, 000 587,000
Population (000s) 293 84 n/a 9,000 3,000 17,000
Playa Dorada
Playa Grande
Monte CristiPlaya Morro
Dominican Republic: Attractions
Santo Domingo
Puerto Plata
Scuba diving
Snorkeling
Surfing, Rafting
Water-skiing
Deep sea-fishing
Whale and turtle watching
Beach Volleyball
Basketball
Tennis and golf
Biking
Hiking and climbing
Horse-riding
Polo
Shooting
Birding (Samana)
Cultural and historical attractions
Cave tours …………..…… or just relaxing
1975 1990 1999 2004Foreign Arrivals (000s) 233 1,200 2,147 2,748Nationals n/a n/a 501 520Expenditures (US$ billions) 55.4 1,000 2,483 3,127
Dominican Republic: Tourist Arrivals & Expenditure
Source: WTO, ASONAHORES, and CENTRAL BANK
Tourism Trends in Dominican Republic
Profile of visitors
Age % Origin %0 - 24 20 North America 40
21 - 35 30 Europe 3336 - 49 30 LAC, Caribbean 27
50+ 2090% on leisure – mostly sun and sand
Hotel Capacity (rooms) 1977 1989 2004
Dominican Republic 1,600 18,500 59,000Bahamas 14,800Jamaica 13,000 24,625
Puerto Plata 3,292 16,458 (designed for 1,900 rooms)
Source: WB ICRs
Dominican Republic
Length of stay and expenditure9 days+Room rate (US$):
Off-season: $50-60High season: $80-90
Daily expenditure: $100/day (est.)
Hotel occupancyRoom: 74.2% in 2004Double: 1.8
Generates 35% of foreign exchange- US$10/per tourist tax levied at airport- second only to export zones
EmploymentDirect 50,000 (0.8/room)Indirect 30,00097% Dominican and 30% female
Dominican Republic: Tourism Trends
Institutions
StakeholdersSecretaria de Turismo
(formerly Central Bank, INFRATUR)Private
ASONAHORES, umbrella organization
Public private organizations– shared responsibility breeds trust
First WB Puerto Plata Tourism Project (1974-82)Amount(US$ m)
• Playa Dorada Infrastructure 11.8• Playa Grande Infrastructure 5.4• Airport 4.7
(access road, terminal building, navigational equipment & runway)• Hotel training school 0.5• Technical assistance & study funds 2.2
Contingencies 11.3TOTAL 35.9
Objective: to create a self-supporting tourism destination on the north coast: land was purchased and serviced under the project and sold to investors.
Second WB Puerto Plata Project (1979 – 1990)
(US$ m.)Line of credit
Hotel and tourism finance 63.4Tourist services 4.6
Lent through 12 approved commercial banksTarget of 5,255 rooms by 1990
Urban works in Puerto Plata 1.2Pier areaTown squareSanitation and storm water drainage
Artisans’ handicrafts center to train 50 apprentices a year 0.6
Strengthening sectoral policies and administration 0.6
Contingencies 0.6TOTAL 71.0
Objective: to create a market, and provide hotel finance, to support investmentin tourism; also, to address issues not covered in first project.
Dominican Republic: Puerto Plata Two Tourism Project Results(Infrastructure and Hotel Credit)
Projected Completionat appraisal (1990)
Total costs (US$ millions) First project 35.9 49.5
Loan 21.0 20.9Second project 71.0 71.0
Loan 25.0 21.5Superstructure n/a 180.0(Period of rapid devaluation and inflation in 1980s (> 40%) )
Accommodations (rooms) 1,600 3,300Room occupancy (%) 65 76Cost per room ($) 44,000 75,000 Cruise passengers (000s) 3.2 47.9Economic rate of return (%) 17.5 (low) 12
(upper) 26Jobs created
Direct 6,000 12,000Indirect n/a 28,000
• Foreign exchange (US$m.) 100 1,000Source: ICR
What happened during first project?
Delays in contracting – e.g. the airport. Some contractors went bankrupt
By 1983, only 300 rooms (in spite of incentives) vs. 1,900 planned
Playa Grande never took off –INFRATUR built one hotel and golf course (sold in 2004)Investment cancelled (including Rio San Juan)and transferred to Playa Dorada
Playa Dorada attracted more tourism investment:Development between Puerto Plata and Playa DoradaSosua (up-scale) Cabarete: Surfing and integrated resort townLas Terrenas
New resorts (Punta Cana) put severe pressure on Playa DoradaIn mid-1990s, Playa Dorada suffered:
Occupancies plunged to 50% - no cash flow for re-investmentSold at low prices (US$20/person/day)
Subsequent effort to upgrade and add attractions
Move to All-inclusive (75% of all hotels)
Playa Dorada started as an open environment – most hotels “room only”
Moved to all-inclusive – restaurants closed, Puerto Plata lost business
Little visitation to cultural and historic sites
National brand image is undeveloped
Has not encouraged Small and Medium Enterprises (SMEs)
Some boutique hotels appearing again
What happened during second project?
Interest rate capped at 12%, when nominal rates were 24%
Handicraft center struggled for 8 years and was closed
INFRATUR only built one hotel in Playa Dorada – the Jack Tar Resort(sold to ALLEGRO and ultimately to OCCIDENTAL)
Playa Dorada has 14 hotels – all privately owned
Recent eventsUnder the Finance Law of 2004, INFRATUR required to drop tourismFunctions taken over by Secretaria de Turismo
IDB: Global Credit Program for Tourism Development
Loan number: 221/IC-DRTotal cost: US$71,4 millionAmount of loan: US$50 millionBorrower: The Central BankExecuting Agency: Tourism Infrastructure Department (INFRATUR)Commitment of resources and disbursement period: 3 and 4 yrs., respectivelyInterest rate: variableAmortization: 20 yearsApproval date: December 10, 1986Completion date: December 1, 1996Included a parallel technical assistance grant for US$800,000
Program Objectives and DescriptionProgram Objectives and DescriptionThree objectives:
– Increase incoming tourism flows (international arrivals);– Generate foreign exchange– Generate job creation / employment
Strategy:– Support the Central Bank’s efforts of providing credit to finance the construction of tourism accommodations in order to increase hotel capacity in the main tourist zones– Strengthen the management of the tourism sector
Description and ultimate goal:- Line of credit (sub loans) channeled to the private sector via Institutional Financial Intermediaries (IFIs) to finance 3,135 additional rooms and create 6,000 additional jobs
IDB: Summary of ResultsIDB: Summary of ResultsRoom capacity: 3,030 built vs. 3,135 (96.7% of goal accomplished)18 out of 23 hotels were financed and built (78% of goal accomplished)Jobs created: 3,700 vs. 6,000 (61.7% of goal accomplished)Geographical distribution of credit concentrated
in the northern coastLoan resources diminished from US$50 million
to US$41.6 million4 year delay in executionRates of return were consistent with appraisalFinancial intermediation was successfulContributed to the formation of Dominican
hotel entrepreneursDiversified DR’s economy away from dependence on
primary AG commoditiesPropelled DR into the international arena of private
investment
Overall Successes
Created image of DR as a tourism destination (largest in Caribbean)
Industry is seen to be sustainable
Universidad Católica took over hotel school in Puerto Plata
Overall Failures
Community outreach weak; local populations not well integrated
into projects
Puerto Plata initially flourished but with move to all-inclusive,
SMEs, including restaurants, failed
Optimistic planning horizons
– especially in attracting private investment
Weak mechanism for line of credit
Competition was not long in coming………………….
PUNTA CANA: Early in Playa Dorada cycleVery successful using personalities and sound business sense.Instead of land being purchased by public sector,
private sector assembled packagePrivate sector provided all on site development costs,including infrastructure (airport, power plant, water aquaduct, etc.)
LA ROMANA, Casa de Campo and Tooth of the DogInternational resort with famous golf courses
CAP CANA, high-end luxury, gated real estate development (very recent)
OTHER SMALLER DEVELOPMENTS – e.g. Boca Chica, Juan Dolio
The Northwest, including Montecristi, Dajabon, Santiago Rodriguez and Valverde
The Amber Coast (Puerto Plata and Sosua)
MacaoBavaroFirst two were:Barcelo in Bavaro; Investors from
Playa Dorada
Northwest Samana peninsula
Nagua and Cabrera
Santo Domingo - La RomanaThe South including: Barahona, Bahoruca, Independencia and Pedernales
San Cristobal, Palenque, Peravia, and Azua de Compostela
Constanza and Jarabacoa
• Despite the tortuous route,Tourism has helped improve the overall business climate
(along with other investors, Falconbridge, etc.)
• Private growth may be outstripping Government’s capacity to implementpublic policy and manage growthNonetheless, projects resulted in much better infrastructure for north coast.
Need to manage growth: quality, quantity, location
• Much tourism is still enclave in nature– missing an opportunity to open up economy
(nonetheless, tourism industry procures most of its food needs in DR)
Need to open up industry and promote SMEs
Lessons for Africa
First generation investors were industrialists, not tourism professionalsNow, foreign – savvy operators, mostly Spanish with interests in Cuba and Mexico
Need professional managersSelected Hotel NumberManagement Groups Hotels Rooms
Barcelo Hotels (Spain) 9 2,900 Occidental/Allegro Hotels (DR) 9 2,800RIU (Spain) 7 4,000 Sol Melia (Spain) 5 2,300AMHSA Hotels 5 1,500Casa Marina 5 1,400Iberostar (Spain) 4 1,900Princess (US) 4 2,135 Fiesta Hotels (Mexico) 3 1,300 Breezes 2 1,200 Viva Resorts 3 1,000 Coral by Hilton (UK) 4 2,000 EMI Resort 1 300Club Med (France) 1 243
Lessons for Africa
Product and Product Development
DR is a sun and sand destination – soundly managed, but basically a “commodity”
Add value!Focus on activities and experiences to diversify markets
– mountains, rivers, sports fishing– Ecotourism and adventure– Cultural and historical heritage
DR has excellent air access TO the country; poor access WITHIN Roads reputedly bad:
in fact, country is quite open and roads improvingCost of excursions is VERY highOnly 10% visit Santo Domingo
– well developed cultural center
Need to work at forging the links – local tour operators have key role to play
Lessons for Africa
InstitutionsINFRATUR now out of tourism (2003)Ministry of Tourism has inherited most of its tasksASONAHORES, very powerful private sector association
Need for strong institutional framework
Human Resource DevelopmentDomestic hotel schools and management courses overseasVery important for product development
LanguagesTechnical Skills in tourismUnderstanding of cultural and historic underpinningsInter-personal skills
Need to provide tourism education
Lessons for Africa
Strengths• Diversified economy – large agriculture, agro-business, and fishing industry (also, sugar, coffee and mining)• Natural, historic and cultural assets• Friendly relaxed people • “Open skies” air policy• Amber and larimar jewelry• Entrepreneurial drive• Strong local market (20% Dominican)• Second home market• Top class golf courses
Weaknesses• Reliance on all-inclusive formula• Poor brand image in the marketplace for the destination• Tourism policy framework• Culture is not integrated with tourism
Opportunities• Proximity to North American markets• Improved road network, domestic assess• Product diversification into more active tourism• Human resource development• Supply chains for handicrafts, foods• Further FDI• Cultural and historic tourism• Cruise market potential
Threats• Monochromatic product line• Rapid expansion is threatening infrastructure, especially sanitation and solid waste.
Dominican Republic: SWOT Analysis