Next week, the Caribbean-Central America Action (CCAA) will convene its 39th annual conference in Miami. CCAA’s two days of discussion will bring together the private and public sector around issues relevant to the region. CCAA is one of the premier groups that seek to promote a dialog on topics critical to Caribbean and Central America development. The subject of this year’s conference is A New Era in Regional Cooperation. Virgin Islands Capital Resources is sponsoring a round table discussion on The Cuba Challenge: New Ideas for Small-Islands States. VI Cap seeks to provide thought leadership on subjects relevant to small economies with a particular focus on issues important to the US Virgin Islands. The Cuba challenge is an important subject that requires community attention.
In September I shared observations concerning areas within the economy where possible disruption may occur from an economically normalized Cuba and discussed the need for thoughtful assessment and planning to insulate the economy from yet another troublesome event. Tourism, our rum industry’s contribution to government revenues, foreign investment and migration were discussed. I now advocate on behalf of thoughtfully assessing our advantage and professionalizing our tourism product. This is the effective strategy for differentiating the Virgin Islands from its competitors, increasing value-add for consumers, and reasserting leadership in tourism. Specifically, I suggest that in professionalizing our tourism product through industry leadership, innovation and skill development the Virgin Islands economy expands along new avenues of economic activity.
In the 1960s, the Virgin Islands transitioned from an agricultural based economy to one driven by tourism and hospitality, government employment and commodity processing. St. Thomas was mentioned in destination marketing with the French Riviera and San Tropez. Processing facilities were constructed for petroleum and bauxite on St. Croix, and U.S. customs concessions gave rise to some textile and watch production. Government created new employment opportunities to deliver a broader range of community services.
Societal change impacted the capacity of the workforce to adjust to the changing environment. A once competitive public school system, with both vocational and college preparatory tracks, strained under the weight of increased migration and swollen administrative cost. An industry-supported technical training school failed to realize its stated potential. And, a public college was founded to address affordable post-secondary education. Its curriculum increasingly skewed to the liberal arts, and public and business skill training though programs in nursing, education, marine biology and aquaponics sought to create links to the economy’s drivers.
In the late 1970s and early 1980s a government economic development council explored avenues for further diversifying the economy, an outgrowth of concern as to how sustainable tourism was as an economic driver and the environmental impact of heavy industry. Government institutionalized the awarding of economic development benefits and those efforts over time spurred a nascent financial and management services industry. The high cost of electrical power, water and transportation, and the productivity and cost of labor conspired to limit options for diversification.
Virgin Islands tourism’s growth was exponential in cruise tourism. Catering to this industry niche had the unintended consequence of reducing the demand for restaurants, night entertainment, and hotel rooms. The variety of shopping experiences narrowed. Two million seven hundred thousand visitors arrived in 2013 of which some 74% or 1.9 million were day excursionist. The World Tourism Council estimates tourism added $1.4 billion dollars to Virgin Islands GDP in 2014, involved some 13,000 workers, and accounted for some $437 million dollars of travel and tourism investment, 38% of all investment made in 2014.
As Virgin Islands tourism has grown so has tourism and hospitality grown as an economic driver worldwide. It contributes $7 trillion to GDP, involves 277 million workers and accounts for the movement of 1 billion plus individuals. With a projected annual growth rate of 3.6%, the tourism and travel sector will grow faster than the global economy. In the United States the industry generated nearly $1.5 trillion in economic output in 2013. All countries recognize and chase its economic potential.
Identifying economic drivers, developing a skilled workforce and attracting investment capital are all critical components of economic development and are the determinants of a community’s long-term sustainability. Small communities face yet another level of challenge, competing in a regional and increasingly globalized economy. The challenge is to identify scalable economic drivers, and productively exploit these for maximum sustainable benefit. This requires professionalism in product development and delivery, which in turn requires a critical evaluation of the value offered proposition. This is objectively assessable by evaluating workforce skill training, product differentiation and capital investment in infrastructure, services and facilities. These professionalizing characteristics erect barriers to competition and enhance competitive advantage.
What then is the Virgin Islands’ legitimate concern as it considers an economically normalized Cuba? I would argue that it is our ability to differentiate our tourism product from Cuba’s as well as from other competing Caribbean communities and to evidence demonstrable value-add for the consumer. As such buttressing the sustainability of that product requires professionalizing the delivery of that product.
Virgin Islands tourism’s appeal is a product of weather, geographic location, history and culture, marine recreation and environmental esthetics. Geographic proximity to the world’s second largest travel market is critically important. US dependency status is a distinct advantage when marketing to U.S. based tourism assuming our product is professionally delivered. Convenient and affordable high frequency transportation makes year-round visitor travel possible.
Government policies have contributed to the VI’s competitive advantage. The Virgin Islands have been a sales and trading center through the centuries. Regional preferential trade treaties and successive rounds of international tariff negotiations have reduced the beneficial impact of the Territory’s free port status and its custom duty concessions. However, there remains a history to build on to reinvigorate our retail sales offerings. The public sector through infrastructure enhancements, security and regulated traffic flow can promote a conducive and appealing environment for shopping. Transportation, government assessments and logistic expenses, which increase the cost of goods acquired and sold need managing to allow for price advantage against competing destinations. The private sector can diversify product offerings, restrain cost of sales, enforce product quality and sales standards, and be price competitive with other markets. Addressed holistically and collaboratively, competitive advantage can grow.
A well-trained, motivated and knowledgeable industry staff will add to our tourism product’s competitive advantage. Effective competition demands workforce training and development as well as advancement opportunity. Attracting and retaining a skilled workforce requires opportunities for career enhancement at all levels of operation. Enforcing product quality standards is equally important. Finally, integrating data and information management systems and adopting industry best practices increases efficiency, reduces cost and ensures the timeliness and relevance of product offering.
Addressing the challenge a normalized Cuba represents to the Virgin Islands therefore requires a critical self-assessment, the redoubling of efforts to differentiate and deliver a professional product. The 1970s search for economic insulation, above mentioned, is today’s requirement to professionalize through investments in skills, infrastructure and facilities. Quality of service is the defining measure of competitive capability.
Professionalization begins in the classroom from the formative years through post-secondary education. Secondary and post-secondary educational investment in hospitality, the culinary arts, and marine services and engineering can develop a well skilled workforce with domestically applicable and exportable talent. Fifty years after entering this competitive economic sector, as a community we have yet to prioritize and institutionalize hospitality and marine services training despite the significant contribution these industries make to GDP or to workforce employment. Nor are enforced standards guiding the delivery of services to this critical sector of the economy.
The Virgin Islands led the growth of Caribbean tourism in the post 1960s period. The opportunity is there to assume regional industry leadership, be innovative and demonstrate product superiority and product differentiation. That leadership can build off of the global perception that the Virgin Islands is a powerhouse in Caribbean tourism. The Swiss and Germans have professionalized their hospitality sector into substantial economic drivers, assumed leadership in European hospitality and now export that leadership worldwide. Industry leadership and professional skills become in and of themselves economic drivers. Globalization drives expatriate assignments to assist in the development of new markets and offerings. Universities recognize this demand and train students to be able to fill that demand. Reputation and workforce proficiency can open additional career opportunities for Virgin Islanders. This contributes to an upwardly mobile workforce, allows for meaningful job creation and opportunities for worker advancement and attracts and retains young workers who can commit to further expansion of the economy through innovation and entrepreneurship.
Nothing above suggests limiting efforts to seek new opportunities for economic diversification. It does, however, recommend the need for a laser like focus on the comparative advantage we enjoy and exploiting that advantage for the advancing of the economy. The take away is the need to look within and perfect that which exists. Pursuit of excellence not only enhances the competitiveness and sophistication of the product but also insulates it from the disruptive event of a normalized Cuba and increasing global competition. It also offers the opportunity to build a teaching economy that becomes an economic driver and contributes to GDP growth.
Editor’s Note: Justin Moorhead is managing director of Virgin Islands Capital Resources Inc., a 501 (c) 3 non-profit with a community economic development mandate. VI Cap has been a part of the Virgin Islands community since 1997. Mr. Moorhead is also president of Seslia & Company and Seslia Securities.