High inflation hurting Barbados tourism

BRIDGETOWN, Barbados, Friday May 25, 2012 – Prices in Barbados have surged by roughly 16 percent over the past two years, and by 9.4 percent in 2011 alone. That rate of inflation is three times higher than that of the country’s major international trading partners and also the highest rate of inflation in the entire Caribbean.

That was the situation outlined by Opposition Leader Owen Arthur at the recent Barbados Employers Confederation (BEC) luncheon at the Barbados Hilton.

Arthur maintains: “Since countries in the region are facing the same external shocks, it illustrates dramatically, that the bulk of Barbados’ price increases have been domestically generated, especially by factors that have significantly added to cost of domestic production.”

“A small open economy will face significant competitiveness challenges if its domestic costs and prices are allowed to rise significantly faster than those of its main competitors, and if it allows this to persist while operating under a fixed exchange rate regime.”

Arthur contended that: “Great pressure can come to be placed on the stability of the exchange rate if traders and investors perceive the rate as being significantly overvalued as it appears to be now.”

“This is a matter that cannot and should not be brushed aside, especially as it bears most adversely on the tourism sector which is being called upon to drive the nation’s growth and development.

“For this sector has been made to face rising cost of utilities, food and beverage, insurance, property taxes and the increase in the VAT to the point where its costs are dramatically out of line with competing destinations.”

According to Arthur: “Increasing domestic costs, accompanied by significant price discounting to boost arrivals, passed on at fixed exchange rate, have undermined the financial stability of enterprises in the sector and will continue to trigger the kind of closures that have been evident recently in relation to South and West Coast establishments.

“The virtual closure of NCO, a large call centre establishment, was due also to its inability to maintain viability under a fixed exchange rate, in the face of a significant increase in domestic cost,” he added.

Returning to tourism, the former prime minister drew attention to the visible signs of deterioration in the sector.

“There are several West Coast and South Coast hotels (particularly on the south coast) on the market for sale for extended periods of time including the 90 room Sandy Bay, 58 room Tropical Escape, 130 room Silver Sands, 55 room Caribbee Hotel and the Regent St. James. The closure of Almond Beach Village will now be added to the growing list of closed hotels. In addition there are several dilapidated assets [that] have reduced the sustainability of Barbados’ Tourism product.

“Barbados is also at risk of being viewed as a “tired” destination given that there has not been the development of any new attractions in recent years. Further to this the island has suffered from the loss of several attractions such as the Graeme Hall Sanctuary, the Ocean Park at Newton, Bajan Helicopter and the Helicopter Tours.

“To improve the overall quality of the Barbados product offering in order to deliver higher levels of value for money, issues relating to the economic cost of a quality vacation experience must be addressed,” Arthur noted. Click here to receive free news bulletins via email from Caribbean360. (View sample)