Investment Opportunities in the Tourism Sector

The tourism industry, which has been the backbone of the Barbados economy in recent years, continues to be the main contributor to the creation of employment and the primary generator of foreign exchange.

Tourist arrivals have been on a constant upward trend since 2013, with compound annual growth of approximately 8.3% between 2014 and 2017. Year to date results are further suggesting that this trend will continue for 2018, with arrivals at June 2018 ahead of those recorded for the same period in the prior year by approximately 3.4%. This growth in arrivals has been derived primarily from North America and the United Kingdom, reflecting the continued success in penetrating these markets. In contrast however, the cruise visitor segment has seen a reduction on account of a decline in ship calls for the six-month period to June 2018.

It is clear that this positive trend in tourist arrivals is acting as a catalyst for investors to seek opportunities to maximize their returns through investing in projects within the tourism industry. These investments from reputable global brands will not only increase the profile of the island’s product offering but will also increase its capacity to handle the increasing numbers arriving on our shores. The significant projects expected to commence in the near term include the Sands (153 rooms), Wyndham Hotel Group (450 rooms), Hyatt (190 rooms), Beaches Resort (400 rooms) and more recently the partnership of the Crane with Hilton Grand Vacations.

This pattern of growth highlights the consistency of the local tourism industry. Of note is the global trend, which suggests that planned travel, whether for business or leisure is becoming shorter in duration but at the same time, more frequent in occurrence. Overall, the positive trend in the tourism industry, both locally and regionally, has heightened the level of confidence of banks throughout the region in providing financing for expansions and renovations; and to a lesser extent, acquisitions, and new builds (according to this year’s KPMG Tourism Financing Survey).

During the onset of the recession, financing was primarily being provided by non-banking institutions which had a significantly more confident outlook regarding the prospects for tourism throughout the Caribbean region. Recent statistics are now showing that the banking sector’s confidence level is almost on par with that of the non-banking institutions. Given the capital intensive nature of projects within the tourism industry, the ability to raise financing is pivotal to the progress of the proposed plans, as this form of capital will allow investors to maximize their returns through having access to the appropriate level of debt financing to fund these projects. As such, the aforementioned improvements in the confidence levels of key banks bode well for the future prospects of the industry.

Ultimately, the ability to continue to realise future success within the tourism industry will be hinged on the ability of policymakers to continue to encourage further investment in the island. To date, there are a number of legislative avenues for investors to access favourable tourism incentives. These include the Tourism Development Act 2002, through which incentives are offered to restaurants, recreational facilities and services, tourism attractions (with emphasis the island’s natural, historic and cultural heritage) and for the construction of properties in noncoastal areas. Additionally, provision is made in the Act for investors in tourism projects to benefit from the write-off of capital expenditure and claim allowances on 150% of interest. Lower rates of VAT are also applied in respect of the supply of tourist accommodation and services. There are also exemptions from import duties, value added tax, and the environmental levy in respect of furniture, fixtures and equipment as well as building materials, supplies and equity financing.

It should also be noted that in a recent speech, the Prime Minister of Barbados, the Honourable Mia Amor Mottley, Q.C., M.P. also made reference to creating a “level playing field” for the industry with

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