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

Source: Asonahores

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

DOMINICAN REPUBLICPuerto Plata Tourism Project

The Puerto Plata Region

Puerto Plataand

Playa Dorada

H O T E L S

APARTMENTS

Playa Grande

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

You! Thank

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