SYgle>Industry Information>Cuba opens to US hotel brands, with strings attached

Cuba opens to US hotel brands, with strings attached

Column: industry Tag: US hotel brands,Cuba,foreign investment Published: 2017-05-19 09:25 Source: Author:

Deborah Rivas, director general of foreign investment for the Ministry of Commerce and Foreign Affairs of Cuba, spoke this week at the South American Hotel Investment Conference about the hotel and tourism opportunities in the country. (Photo: Stephanie Ricca)

HAVANA—Building tourism infrastructure, including hotels, is high on the agenda of the Cuban government, but while opportunities exist, the process can be complicated.

Cuban Ministry of Tourism officials, developers and hoteliers gathered at the inaugural South American Hotel Investment Conference Cuba this week to lay out the country’s agenda for promoting tourism and offer best practices for international hotel companies that might seek to partner with the government and its agencies to operate hotels.

Numbers on the rise

In 2016, the country recorded 4 million visitors, a 14.5% rise over the previous year, according to Cuban government data. That number is pacing ahead for this year, according to Deborah Rivas, director general of foreign investment for the Ministry of Commerce and Foreign Affairs of Cuba, who said via translation that as of 3 May, the country has recorded 2 million international visitors already.

Much of this is due to the U.S. government’s 2016 loosening of the nearly 70-year embargo between the countries, allowing U.S. residents to visit the island under 12 officially authorized categories.

Canada remains the top feeder market to Cuba for tourists, followed by Europe and Latin America, according to Janet Ayala Díaz, director of promotion and communication for Cuba’s Ministry of Tourism.

Currently, 366 hotels are open in Cuba, she said, and 67% of the rooms are “at the four- to five-star level,” she said, including five all-inclusive hotels. The country has 10 international airports, seven tourist marinas and three cruise terminals. Cruise activity also is growing, bringing in more than 170,000 passengers a year.

“Our main challenge now is to manage the avalanche of visitors from abroad,” Díaz said.

What the government seeks

Several major government-related agencies manage Cuba’s development projects, and those companies—namely Grupo Gaviota, Grupo Hotelero Gran Caribe, Grupo Cubasol and Grupo Cubanacán—provide services ranging from hotel development to other infrastructure development, like housing and transportation.

What Cuba wants, Rivas said, is foreign direct investment in tourism projects.

“Tourism is one of Cuba’s strategic sectors for development, and the primary objective is to boost our GDP growth between 5% and 7% per year,” she said. “Our public policy doesn’t differ. We want to promote businesses to export, and (we want to) import management skills and tourism. … Tourism is our No. 1 most dynamic sector.”

She outlined three ways foreign companies can gain a foothold in Cuba, with options 1 and 2 being more important for hotel companies:

Joint ventures: “More than 20 JV companies have been established in the tourist sector,” Rivas said. “The purpose here is to establish someone with a Cuban partner.”

International economic association contracts: More than 80 of these agreements are in existence, Rivas said, many long-term ones with tour operators.

Wholly foreign-owned companies: “We’re not promoting this in tourism; we want to make sure the largest share is owned by Cuban companies, but it is possible to have a wholly foreign-owned company to do business in the tourism sector,” she said.

Rivas said the path to establishing a partnership in Cuba—particularly for hotel companies—is to partner with Cuban companies developing the projects and come in as a management company.

“Identify your potential Cuban partner for a project … then discussions can be started,” she said.

At that point, both parties submit a proposal to Cuba’s Minister of Tourism, who has 45 days to approve economic association contracts, or to the Minister of Foreign Trade and Investment, who has 60 days to approve joint venture proposals.

Where the opportunities are

So what are the potential hotel opportunities? The government has prioritized 114 projects in the tourism sector around the country, Rivas said, which include new-build hotels, management contracts for hotels, hotel renovations, property developments associated with tourism, and management contracts for marinas and theme parks, ranging from Havana to more resort, beach locations.

Havana’s latest hotel development project, the Gran Hotel Kempinski Manzana La Habana, is set to open later this year, with 246 guestrooms, in Old Havana. The hotel building was first built in 1890, and redevelopment was done by Cuban companies, partnering with Kempinski as manager—the Geneva-based company’s first project in Cuba.

International companies like Spain’s Melia Hotels International, Iberostar Hotels & Resorts and NH Hotel Group have presences around the country, as do other non-U.S.-based companies, which can’t officially do business in the country while the U.S. government embargo is in place. The only hotel in Cuba managed by a U.S. company, in this case Marriott International, is the Four Points La Habana by Sheraton Hotel, which opened in June 2016, with Starwood Hotels & Resorts Worldwide (now Marriott) managing it by special permit of the U.S. Treasury Department.

“For those trying to come in (as business partners to Cuban development companies), know that investment is being made accompanied from the beginning by operators—from the moment the project is announced, we’re working on who will operate it,” said José Daniel Alonso, director general of tourism development for Cuba’s Ministry of Tourism. “It’s important the (hotel) chains can identify the projects that don’t yet have a partner.”

He was quick to point out that the country needs more hotels to meet demand.

“We haven’t met the demand for foreign five-star brands,” he said.

One element that might give U.S. hotel companies pause is the Cuban government’s five-year management contract model, which contrasts with the typically 20-year models most brand-managed hotel companies implement domestically.

Still, Daniel Alonso said the process is smoother than foreign investors might fear.

“We are willing to evaluate any concept,” he said. “I’m calling on you to allow Cuban construction companies to accompany you. We’re losing time. There are many companies that have come and been guided through the process and done it rapidly. We’re trying to make these processes faster.”

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