Why Does The Tourist Dollar Matter? by Vista Del Mar Estate

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Contents

Published by The British Virgin Islands Tourist Doard

Acknowledgements

Foreword Printed by Caribbean Printing Company Ltd. Road Town, Tortola, B.VJ.

Cover photographs: Road Town, Tortola, 1939 (Courtesy oi Rowan Roy) Road Town, Tortola, 1989 (Photo by Curtis de Ravariere)

Introduction PART ONE HOW CAN THE TOURIST DOLLAR RAISE THE STANDARD OF LIVING?

CHAPTER 1 RAISING THE STANDARD OF LIVING OF AN ISLAND 7 COMMUNITY . Pierre Encontre has been the British Virgin Islands Political Studies of Paris University of Clermont 1 University of Michigan Embassy inLondon (U.K.).

a U.N. economic adviser to the Government o£ since 1985. He is a graduate of the Institute of and holds a Doctorate of Economics from the (France). He has been a research scholar at the (U.S.A.), and an economist with the French

This publication has been made possible by a grant from the Government of Canada, and prep red in collaboration with the Development Planning Unit in the Ministry of Finance, Government of the Bdtish Virgin fslan.ds.

1 The standard of living Is dependent on the capacity to Import • Three centuries of importation in the islands Importation, survival qnd progress 2 The capacity to Import ls determined by the ability to accumulate wealth The anti-model of Retlredom Can we raise the level of imports while deriving income from the sole production of domestic goods? • Accumulating wealth requires an outer market • Tourism trade and prospects of enrichment

8 8 12 14 15 19 20 22.

3 Accumulation of wealth can result from Investment In tourism Tourism vs. primary products Tourism vs. underdevelopment Tourism investment and economic development in the British Virgin Islands Development in VIrgin Gorda Development in Tortora CHAPTER 2: THE JOURNEY OF THE TOURIST DOLLAR: INTRODUCTION TO THE TOURISM INCOME MULTIPLIER 1 How does the tourist dollar change hands? The tourist expenditure is equivalent to the tourism revenue The counterparts of tourism revenue: inputs and incomes Tourist expenditure generates Input business Input business generates upstream business Input business and upstream business generate indirect tourism income Tourist expenditure generates direct tourism income • Direct and indirect tourism incomes induce additional income Inputs and lncomes entail leakages Leakages on input supplies Leakages on wages Leakages on profit Leakages on revenue The income-multiplying effect drsaggregated: direct effect, indirect effect, induced effect 2

The Income-generating Impact of tourist spending Illustrated

24 24 27

28 31

The tourism Income multiplier: an Indicator of economic performance • The formulation of the tourism income multiplier • The use of the tourism income multiplier • Other types of tourism multipliers The tourism sales multiplier The tourism employment multiplier

61 64

65 65 66

PART TWO HOW HAS OUR COMMUNITY ALREADY BENEFITTED FROM TOURISM? 41 43 43 44 45 45 47 48 49 50 50 51 52 53 54 57

CHAPTER 3: THE TOURISM ECONOMY OF THE BRITISH VIRGIN ISLANDS

1 The tourism demand Geographical composition of the tourist market • The visiting population A better indicator:the tourist per capita ratio • The type of travelling and accommodation used by visitors

72 72 74 76

2 The tourism supply • The hotel and entertainment fndustry • The yacht chartering and boat-related industry • The tourist-oriented retail and wholesale industry • The tourist transport industry

3 The tourist expenditure

CHAPTER 4: TOURISM AND WEALTH IN THE BRITISH VIRGIN ISLANDS

1 The generation of tourism Income • The direct tourism income

94 94

83 85 86

The tourism sector in the economy The growth of the tourist accommodation industry The indirect tourism Income The pattern of linkages to the tourist industry The pattern of indirect tourism income Import propensity and linkages The induced tourism income Tourism multipliers The tourism sales multiplier Unorthodox and orthodox tourism income multiptiers

95. 98 102 102 105 107 108 109 110 110

2 The distribution of tourism Income Wages vs. profit Tourism sal-aries and wages exceed tourism profits Tourism and domestic employment â&#x20AC;˘ Nationals vs.non-nationals Salary and wage earners Profit earners

114 114 117 118 122

Conclusion

125

Examples of local entrepreneurs In the tourism economy

129

Bibliography

134

Glossary

135

113 113

Acknowledgements I wish to express my gratitude to Otto O'Neal and Elihu Rhymer for their encouragement and the suggestions given to me from the day lproposed that an educational booklet on the economic impact of tourism be published and presen ted to senior students and teachers at the B.V.I. High School. . I also wish to acknowledge the interest demonstrated by the Caribbean Tourism Organization (C.T.O.) and the World Tourism Organization (W.T.O.) towards this publication. In particular, Vera Ann Brereton of C.T.O. has contributed useful comments on the manuscript. need hardly say that none of these organizations should be held responsible for any errors that the text may contain. I am grateful to the following persons for giving or arranging permission to reproduce photographic material: Candie Cooke, Milton Creque, Anderson Flax, Thomas Green (through the kind intervention of Miss Inez Turnbull), ()bed Malone, Vernon Pickering, Patricia Rhymer, Albert Stewart, Ian Taylor, Gary Turpin, and Peter Wimbush. I wish to thank, for their special effort of photographic research and comments, Leslie Allen, my father-inlaw, Penny Haycraft, J. R. O'Neal and Rowan Roy. Barbara O'Neal kindly accepted to provide a sketch on an important subject of local tradition. Curtis de Ravariere has been 1\elpful with photographic work and advice, and Irene O'Neal efficiently assumed the secretarial tas My greatest indebtedness, however, goes to my wife Ann for her willingness to read my fragmented works with a new eye, and her offering of the most valuable comments. Pierre Encontre IX

Foreword It is a very special pleasure and privilege for me to pen this foreword as Ibelieve that this booklet will have a significant impact on the attitudes and perceptions that our community brings to tourism. This is particularly important in that the growth of our tourism industry will impinge more and more on the day-to-day lives of our citizens resulting in higher levels of exposure to rultural conilicts. The idea of deve oping an educational booklet to raise tourism awareness emerged from discussions held during the Seminar on Tourism Management and Environmental and Development Issues organized by the B.V.I. Tourist Board on October 14-151 1987. As participants in the process of tourism policy formulation, we find the ideas of H. Peter Gray most relevant, in particular the cogency of his statement: "Of all of the possibilities [to increase the level of tourism density beyond which hostility may endanger the capacity to earn &:om tour.ism], the one most likely to achieve success would seem to be the creation of a complete awareness of the benefits that accrue from a prosperous tourism industry''*. This textbook seeks to implant positive attitudes and to

correct negative ones about the economic impact of tourism. We hope that it will be able to do so at the level of the class room, where it can also provide teachers and educators with adequate material to assist them in introducing tourism into the curriculum. It is also hoped that the book, in the homes and offices of local entrepreneurs, will point to opportunities for local initiatives in enhancing the local content of our tourism product. It is true that this booklet has been prepared primarily for the British Virgin Islands, but it does offer an approach that can form the basis for similar types of publications, not only across the spectrum of other island type industries, but also in other islands generally. We would like to express our appreciation to the Government of Canada through its agency C.LD.A. for financing this project, and the Development Planning Unit in the Ministry of Finance of the British Virgin Islands, particularly Pierre Encontre, for shouldering the task of the preparation of this text. Elihu Rhymer Chairman of the B.V.I Tourist Board

.. Gray, H.P. (1974). Towards an economic analysis of tourism policy. Social and Economic Studies,23, p.395. X

Introduction Should there be a history . of modem economic thinking in the British Virgin Islands, it might reveal three phases. 路

In the 1950s and early 1960s: As international travelling was growing; the natural environment of the islands was regarded as a valuable asset for economic development. The idea that this resource could be exploited to the benefit of the nation was aptly translated into policy when the Hotels Aid Ordinance was passed in 1953. Incentives were being offered to potential investors to encourage the development of a tourist industry. 2) From the late 1960s to the mid-1980s: The growth of the tourism economy was recognized as the principal factor of economic progress in the islands. Not only did tourism foster the development process, but it contributed to raising the standard of living of the community. A certain form of consciousness then arose; while the benefits of tourism were perceived, the costs of tourism became conspicuous. The "tourist dollar" would have an alarming propensity to "leak" out once it was poured into the economy. Profits would be transferred abroad; new employment would benefit expatriates; the tourism trade would entail massive importation payments. 3) Since the mid-1980s: The question of lessening the costs 1)

of tourism by pursuing a greater local content oÂŁ tou.rism . services has gained importance. More nationals, tt is thought, could share in the entrepreneurship and domestic employment, and a more substantial supply of local goods and services could substitute for imports. A sustained educational and training effort should be privileged as the avenue to a greater local input. This phase of economic thinking, advocating more lo al content, is now prevalent. The new approach to the benef1ts of tourism challenges the society as a whole. It touches on a wider spectrum of activities than the sole tourist industry. The search for a greater local content of the tourism product explores all possible linkages between tourism and the rest of the economy. It is envisaged, for instance, that local manufacturing of dinghies or sails to supply to the yacht chartering industry is just as important as local involvement in the yacht chartering industry itself. The same school of thought would also encourage local fanners to offer a steady, substantial supply of exotic fruits in response to the tourist demand. This booklet seeks to provide a picture of facts and mechanisms which a vibrant community should lean on to fulfil its development objectives. It is suggested that the tourism trade is important to the British Virgin Islands, not only through its present economic impact, but also because an increased local input to the tourism product can enhance the standard of living of the community. Development based on a greater local input to the tourism product supposes that no dramatic circumstances would interrupt the tourism trade. It also assumes that certain impacts of tourism, such as the impact on the fragile environment, are "monitored", that is to say, will not impair the durability of the industry or conflict with the well-being of residents. In the first part, we will see how the tourist dollar can taise the standard of living in an island economy. The first chapter seeks to demonstrate the role that 2

tourism can play in creating the conditions for a rising standard of living. It draws from the history of the emergence of tourism in the British Virgin Islands some observations about the benefits of investing in tourism. The second chapter, which is more theoretical, explains and illustrates the "journey" of the tourist dollar throughout the economy. This chapter shows how tourist spending can generate income to the benefit of many economic actors, direct or indirect participants in the tourism economy. These chapters are entitled: (1) RAISING THE STANDARD OF LIVING OF AN ISLAND COMMUNITY; (2) THE JOURNEY OF THE TOURIST DOLLAR: INTRODUC TION TO 1HE TOURISM INCOME MULTIPLIER. ln the second part, which comprises the third and fourth chapters, we will examine how the British Virgin Is1ands community has already benefitted from the tourist dollar. The third chapter will descnbe the tourism economy and highlight its most prominent features. The analysis of the benefits of tourism, however, will be introduced only in the fourth chapter. The tourism income will then be considered in terms of the generation, and pattern of distribution of wages and profits within the tourism economy. In this chapter, we will examine, in view of the benefits and costs of tourism activities, how much accrues from tourism to the community, and who benefits from the tourist dollar. These chapters are entitled: TOURISM ECONOMY OF THE BRITISH VIRGIN ISLANDS; (4) TOURISM AND WEALTH IN THE BRITISH VIRGIN ISLANDS. (3) 1HE

Finally, in the light of modern economic thinking advocating a greater local content of the tourism product, the conclusion will draw some reasons to infer that "the tourist dollar matters".

PART ONE HOWCANTHE TOURIST DOLLAR RAISE THE STANDARD OF LIVING?

CHAPTER 1

RAISING THE STANDARD OF LIVING OF AN ISLA.ND COMMUNITY A prime objective of development is to attain to a higher standard of living or level of material comfort for all. This implies the satisfaction of certain needs that are perceived, and arise to a large extent as a result of the publicity of progress in technology. In this chapter, we will observe that: (1) the standard of living is dependent on the capacity to import; (2) the capacity to import is determined by the ability to accumulate-wealth; (3) accumulation of wealth can result from investment in tourism.

1 The standard of living is dependent on the capacity to import In the Eastern Caribbean, attaining to a higher standard of living is based on the capacity to import more, or buy more goods and services from the rest of the world. Few consumer and intermediate goods are produced in the islands, and virtually no investment goods are manufac tured there. Canned food, clothes, home appliances, cars are examples of consumer goods or goods demanded for household consumption. Concrete blocks, cement and electric wire are called intermediate goods because they are not demanded for final consumption but as components of a manufacturing or construction process. Bulldozers, cranes and garbage trucks are among the investment or capital goods; they are goods of final use, but for producers, not consumers of goods or services. Finally, certain services, such as cable T.V. programmes, are also among imported products. Three centuries of Importation In the Islands The history of importation in the British Virgin Islands reflects changes .in the standard of living. Importation of Dutch linen from St. Thomas was re rded in the islands in 1690. Jn the plantation economy, ta1Smg the standard of living was primarily a concern for 8

the well-being of white planters. Whites represented 17% of the population of the islands in 1756 and were estimated at 1,000 people in1789. Although a large part of the income of the white community in Tortola and Virgin Gorda would be transferred to England, the wealth accumulated from exports of sugar, cotton and rum in the 1780s allowed rich planters to import various highly priced goods. Manufactures had been mainly imported from Britain, but most of the food supply and almost all of the lumber, by the end of the eighteenth century, were being brought in from the U.S.A Among consumer goods imported from Britain were "dry goods, household furniture, hardware, candles..,", wines, beer and ale, and fabrics. Other types of goods, related to investment rather than consumption, included copper vats for boiling sugar, "...nails, rivets, adzes, hoes,... [and] staves to make rum barrels" (Pickering, 1987, p. 38). Changes in the value of imports, from one year to the other, would match the changes in the export trade, which was the source of prosperity. Thus, at the peak of the plantation economy, during the period 1774-1784, imports from Britain were 4-5 times greater than they had been 30 years before. The growth in the volume of imports was linked to the increased number of slaves but did not raise the slaves' well-being consistently. Importation growth was mainly to meet the whites' "conspicuous consumption" (Dookhan, 1975, p. 60). As demonstrated by O'Neal (1987), the social order that prevailed in the plantation society could not be maintained without a deterioration of the slavemaster relationship. After emancipation (1834), importation from Britain declined considerably. A shift to the neighbouring Danish West Indies eventually culminated in the emergence of St. Thomas as the main supplier to the islands. British merchandise would continue to enter the Virgin Islands through St. Thomas and other British colonies. Some medicine brought in directly from Britain in 1867 for the 9

victims of the hurricane in that year was regarded as exceptional importation. Figure 1 illustrates 50 years of importation in the islands (1838-1887). The fluctuations indicate that with the decline of the plantation economy, the路 level of imports became unstable while diminishing in the long ru.n. Improvement in the standard of living was short-lived, and probably to the benefit of the few attorneys and estate managers who had been directing the plantations since most white planters had left the islands. Figure 1. Fifty years of importation in the B.V.l (1838 -1887)

vegetables to St. Thomas and St. Croix would not generate enough receipts, the most active groups of the labour force emigrated.

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In fact, the sharp decreases in the level of imports after 18_34 and 1867, as een in Figure 1, reflect periods of political cnses and econonuc depression. [n particular, the year 1853 was marked by a peasant insurrection which caused the exile of the last white residents. In the same year, Tortola was struck by an epidemic of cholera that caused the death of .almost a fifth of the population. Such disturbances, wh1h explain e dramatic decline in the level of imports dunng that penod, would obstruct any improvement in the general standard of living. Little economic progress was observed in the Colony for over a century. Because exports of livestock, fish and 10

(Caurksy of &wan Roy)

Road Town in 1920

In the 1930s and 1940s, the standard of living of the remaining population would be reflected in the capacity to import, according to an editorial in The Torch (June 1946), such products as "rice, flour, cornmeal, fats and canned goods; clothes, shoes and hats; lumber, cement, and other building materials'' (cited in Bowen, 1976, p. 69) as well as liquor and hardware. These articles were mainly imported from St. Thomas in exchange for U.S. dollars (or marginally, Danish kroner), while brown sugar and cotton fabrics were brought in from other Leeward Islands in exchange Jor British pounds, and subsequently, British West Indian currency. The capacity to import goods in the islands, in the first half of the twentieth century, was more stable than it had been in the days of the plantation economy and after emancipation. After World War II, a large proportion of the population would be involved in the inter-island trade on

regular flow of subsistence imports. The emigrants who which the Colony was living. Agricultural exports would enable those who had remained in the islands to secure a

- -1

Figure 2. Importation of 3 types of goods in the aV.I (1976-1986)

a higher standard of living than that which they had

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returned to the Territory with their savings would long for '000

enjoyed before in their home land. Again, their aspiration would be the ability to import better and more goods.

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Importation, survival and progress Up to the last years of pre-industrial Tortola, Le., before the tourism era, not only the prospect of progress in the standard of living, but also the idea of survival was associated with the capacity to import. Naaman Chalwell, a 36-year old farmer in Long Look, relates "a peculiar thing [thatl happened in our islands" one day in the late 1950s. We ran out of flour, because a shipment was delayed, and there was the same cry in every family; there was a need, but it could not be met And that was the fust time it struck me what this vision really meant. I said to myself: what would happen if we had shortages of things even more important than flour? Then, the answer came to me as a little boy, we would surely die, left without the basic things to survive on. If we want to survive, we must always have some kind of food on the inside. (Chalwell, 1987, p. 9) The capacity to import remains an essential criterion of

pattern of imports reflect

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progress in the standard of living. Figure 2 shows the changes in the importation of three types of consumer goods (clothing and footwear, furniture_, and medicine) in the British Virgin Islands over a period of 11 years ending in 1986. A comparison between the importation of medicine and that of clothing illustrates the link between a higher standard of living and the capacity to import. Pharmaceutical products are important, non durable goods for which the demand is normally related to changes

Soll1u oft/AJII! Dcveloprrett Pla:MlngUnit, Tnde otâ&#x20AC;˘tlstla.

in the population. A slow, but steady increase is observed in the importation of medicine, which will grow independent ly from economic circumstances. Clothing and footwear, on the contrary, are durable goods for which the demand is sensitive to prices; one buys new clothes when sales are announced, but one may otherwise continue to use old clothes. Prices of clothes, which are almost exclusively imported goods, underwent an exceptional rise of 35% in the B.V.l at the end of 1981, causing a sudden downturn in the importa ioof clothes in 1982. These imports started to grow agam m 1984 only, when for the first time prices of clothing merchandise went down (-4.9%). The capacity to buy new clothes or o?twear is an element of progress in the standard of bvmg. A lesser capacity to import, due to the expensiveness of such goods, would entail a delay in the nonnal progress of the standard of living. The shortage of flour in the 1950s and the dearness of clothing in the 1980s are two examples of the relative dependence of our well-being on the capacity to import in the islands.

. . The capacity to 1mport 1s determined by the ability to accumulate wealth A nation's capacity to import more goods and services depends on the amount of weallh that that nation Will be able taccw;nulate. Wealth is here understood as the flow of pnvat mcome (wages, profit) and public revenue generated tn the economyl.. A certain proportion of the national income is spent on the co sumption of goods and services that are produced dom stically: e.g., fruits, vegetables, fish, bread; banking, eparr ad personal services. The rest of the disposable mcome will be saved or spent on importation. The largest part of the B.V.I's import trade is Econ omists will find a fo u1 · f . . . . rm atl on o the relati onship between the

cap_ac:ty to tmport and the ability to accumulate wealth in· Salop & ·

SpJtaller, 1980, p. lOS.

ng X - M s.net exports, F as net foreign receipts, and Gas the g nunet deflctt for consumption-type purposes the th ·-£ from equation: ' au ors J1uer X-M+F::S-1-G

that "the current account [ . be hi her the . surp 1us we say, capaaty to import morel will

greater 1s the accumulation of private wealth fS] the 11g . JUeSr ISfththe accu:muJatron o£ capital and the larger is the b dget --c o egovernmentfG]".

denominated in U.S. dollars. Goods imported from the U.S.A, Puerto Rico and the U.S.V.I represent 79% of the Territory's total imports. That is to say, about four fifths (4/5) of the import trade takes place without importers' having to resort to the foreign exchange market. A bank transfer to settle imports in Tortola from Miami, San Juan or Charlotte-Amalie L'l similar to a domestic transaction; it has no concern with the exchange rate of the US. dollar vis a-vis other currencies. On the other hand, 21%, i.e., about a fifth of the Territory's import trade is with countries or territories that do not use the U.S. dollar. Britain supplies 8% of B.V.I. imports, while the Eastern Caribbean (the E.C. dollar zone) accounts for only 0.1%. Settlements of B.V J. importers' transactions in currencies other than the U.S. dollar are straightforward. In the absence of restrictions on the outflow of U.S. currency abroad, these transactions are operated through the U.S. banking system which has access to the foreign exchange market in the U.S.A I. Acaunulating wealth in order to increase the capacity to import is an objective pursued. The essential question now is: what wealth does the community have to accumulate? Unlike countries or territories that .issue their own currency, the British Virgin Islands does not need foreign currency reserves to pay for its imports. Yet, this does not suggest that . the Territory is not bound to accumulate earnings in relation to the outside to be able to import goods and services. · The anti-model of Retlredom

Let us imagine a small state, in the U.S.A.,. where the major asset is the environment, and the largest part of the resident population are affluent, retired people. Let us call the state The expected smallness of the B.V.I.'s need to resort to the foreign exchange market was a factor of tbe U.S.A.'$ acceptance of granting the Territory the right to adopt the U.S. dollar as an additional legal tender (1959), and subsequently as the sole legal tender (1967).

The Treasury Wharf in Road Town in 1964

(Omrtesy of Rowan Roy)

Retiredom.

?lven the population's means, a great deal of goods and serVIces would be brought from outside the State. On the ?therhhand, the area would have little to sell to the outside m . t e absence of industrial activities or Jar e-scaJ agr.Iculture. mployment in this fictitious State gwould : ly efertto the servicesbanking, personal services, b . ' c. s a result, the State of Retiredom would 1 o bVltanous ecord payments. a trade imbalance: no export receipts' but su !S tla.Yl xmport 路 . Economically th The irnbala ' e existence of RetiTedom is plausible. nee of trade would not affect the well-being of 16

the population. The local economy, bound to the rest of the nation by the dollar, would always have the advantage of the U.S. currency for its purchases from abroad. Naturally, what would determine the standard of living of that community is its dominant source of income, namely, retirees' pensions. The economic picture of the B.V.I. could resemble that of the Retiredom State if most residents in the islands were pensioners instead of producers of goods or services. With the U.S. dollar as its legal tender, the B.V.I. economy, like that of a U.S. State or Territory, would not be restrained from buying goods and services from outside its boundaries. The analogy is forced. There is no massive, deliberate abandonment of the islands by young natives with plans t return as pensioners in their retirement age. The comparison yet suggests that a retirees' state, or a similar economic picture, is what the British Virgin Islands would have to be to enjoy its present standard of living, were the islanders not to pursue any major production effort. Wealth derives from income either generated by domestk production or received through transfers of earnings from abroad. Wealth from abroad could be profits, rents, pensions, royalties or other forms of interests accruing to residents .from investments or other sources of income abroad. Such inflows of money are genuine wealth to nationals. This wealth may be earned from a previous or concurrent production effort abroad, and saved or spent at home. Borrowings from abroad are not wealth, although they may help a country that is suffering an imbalance of payments to make necessary investments to restore economic equilibrium and prosperity. In the Caribbean, very little wealth accrues to nationals from abroad. Investments abroad are the work of more developed countries, those that have an impact on the world economy. Instead, the Caribbean region is a part of the scene of this impact as it accommodates considerable foreign investment. 17

picture of a retirees' land once had some appeal in the lSlands. An edltorial in the Tortola Times, on 28 May 1960-' r ported !hat suggestions had been made that the annual unportatlon of 200 American and Canadian retired peoplshould be promoted. It was envisaged that the e tablishment of retired foreigners on fixed incomes would stim latthe economy, and that such a scheme would provide JObs d might be "the true road to development" Though a ttmg that "in economic terms the idea h som met , the newspaper stood firmly against it in consideration of the social implic...c:u.•ons • such d eve1opment • • assuredly would have divtded the society between a "white onomically superior class_." and a class of local gardeners, chauffeurs [and) domestic servants".

The first safari bus on Virgin Gorda in 1965

(C,cmr sy of Anderson FIIIX)

. In the absence of wealth transferred from abroad come to he islanders, the latter cannot be content wi exe:Cr?ductto?fa few domestic goods and services while p ling a nsmg standard of living in the islands. To

enhance the standard of living; weal must be accumulated from income generated by domestic production. What production will then enable. the islanders to raise their standard of living? Can we raise the level of Imports while deriving Income from the sole production of domestic goods? Domestic production includes domestic goods and services on the one hand, and exportable goods and services on the other hand. Domestic goods and services (e.g., fruits or vegetables; doctors or lawyers' advice) are produced mainly or solely for the domestic market, while exportable goods and services (e.g., rum, tourism) cater almost entirely for foreign markets. . Let us imagine a small island community that produces domestic goods only, and spends a certain portion of its annual income on the importation of other goods. In one particular year, the national income is expected to remain unchanged from the previous year. Yet the islanders think that their standard of living would be enhanced if they spent a greater portion of their income on imported goods. Since the national income is unchanged, they know that more spending on imports will imply less spending on domestic goods. While fulfilling this idea, they will find that the decrease in the demand for domestic goods is reducing the prosperity of their economy, because the production of domestic goods is their only source of income, and this production is experiencing a depressed demand. In fact, lower prosperity will impair the islanders' ability to spend more on imports; their wishes cannot be fulfilled A desired increase in the demand for imported goods and services could not be matched by a sufficient increase in the national income if the latter derived from the sole production of domestic goods and services. Production of only domestic goods and services in the islands does not generate the means to raise the standard of living on a long term basis. The limiting factor is the 19

The market place at the Waterfront in Road Town in 1953

(Courtesy ofPenny Haycraft)

smallness of the markeL Certain islands of the Federated States of Micronesia, in the Northern Pacific, have no expor able production and no tourist industry. Their capaaty to develop as self-reliant economies is marginal. Their use of the U.S. dollar as legal tender mainly accommodates U.S. military bases, which alone offer market opportunities to the islands.

system. After emancipation had aggravated the decline of the sugar industry and trade with Britain had collapsed, most planters abandoned the islands. Their hopes to accumulate further wealth had vanished The decline of trade with Britain gave growing importance to economic exchanges between the British Virgin Islands and the rest of the Caribbean, and later North America. The recovery of certain exportable cultivations was ob served in 1900- 1910 (cotton), 1905- 1911 (lime, cocoa), 19181920 (cotton), 1923 - 1929 (tobacco), 1935 (cotton). None of these lasted, as a result of such factors as the suspension of grants from Britain, infestation in the cotton plants, and with respect to tobacco crops, "deficiencies in the soil and . the lack of a stable external market" (Pickering, 1987, p. 70). In the absence of permanent economic viability in the islands during the first decades of this century, British Virgin Islanders found alternative sources of lncome in other areas with manpower needs and better wage conditions, including Santo Domingo where men worked in the sugar industry. Many of these emigrants returned to the Territory every year, "and with their small savings, bought some land, built small wooden houses, got married, and started a family" (Pickering, 1987, p.63).

Accumulating wealth requires an outer market If the domestic market is too narrow to allow the islands to accum te w.e th, foreimarkets must be called upon. The. Bntish Vtrgm Islands history of exporting goods and servtces is marked by eras of unequal prosperity. Althouh the portation of cotton was already a large s ur5e of mcoe m the 1730s, economic prosperity in the Vtrgm Islands plantation system took place in the last quarter of the eighteenth century. Exportation was not only th_e sole way of accumulating wealth for the benefit of the elite settlers, it was the raison d'etre of the plantation

An emigrant schooner

leaving Road Harbour in 1936

(Courtesy of Rowan Roy)

Emigration left farming in the hands of less prodnctiv groups, women and older men, who stayed on the land and generated less income. As a result, little economic growth was observed in the 1930s and the 1940s, in spite of an incessant inter-island trade, evidenced by a daily sea traffic of "about sixty B. V.I. sloops, schooners, and fishing boats" (Pickering, 1987, p. 70). U.S. dollars would accrue to路 the 13.V.I. farming community as nearly all B.V.I. products were sold in St. Thomas.

Cattle in Main Street in 1944

Livestock on ''Shipping Day" in 1944

(Courtesy o{Thomas Green)

The market was sufficient to maintain a certain well being in the community, but not to raise its standard of living.

Tourism trade and prospects of enrichment The islands were unlikely to derive substantial income from shipping farm products and fish to neighbouring markets. While agriculture, forestry and fisheries accounted for almost three quarters of the male working population, a local writer commented on the state of decline observed in fishing and agriculture in 1948. Anticipating a depletion of the fish population, he wrote in The Torch newspaper: "as 22

long as there are no regulations governing the preservation of fish, there is no hope of a permanent recovery". Meanwhile, agriculture was threatened by a "soil erosion", which according to the same writer "in time will convert us into an arid desert11 (dted in Bowen, 1976). No direction for development had yet been translated into policy at the beginning of the 1950s. However, as the environment was the most valuable natural resource, it was foreseen that the development of the islands would be based primarily on tourism. The Hotels Aid Ordinance was passed in 1953 to encourage, with various incentives, the development of a hotel industry. In 1962, the O'Loughlin report on the Territory's eco nomic potential, fiscal structure and capital requiremen s foresaw in the islands' environment "a resource base which ...[made]... a fairly high per capita real income obtainable" (reprinted in The Island Sun, 17 November 1962). "In the case of a major [world] recession", the report stated, "the [tourist] industry would be severely hit.... But in the happier circumstances of a general increase in world living standards,... [tourism] is likely to bring a higher living standard to all economic classes in the l'opulation than is a primary industry'' (reprinted in The Island Sun, 24 November 1962). The rationale was that unlike most primary products, the environment is a scarce resource for which the foreign demand is highly responsive to foreign wealth. It was hoped that foreign investment in the lucrative tourism industry would in the first instance create local employment and check the labour force's emigration. Subse quently, tourism revenue would accrue to the economy and benefit the largest part of the community. What was expressed was the need for foreign capital, without which no industry could be developed in the is1ands. What was sought was a wider foreign market because no economic progress was foreseeable in the context of agricultural and fisheries exports. Finally, what was envisaged was a wide benefit from the tourism trade to raise the standard of living of the community. .23

Accumulation of wealth can result from investment in tourism

In certain regions of the world, tourism as a domestic industry and a factor of development takes on particular importance. Three of these regions, where small island economies are found, are the South Pacific, the Indian Ocean and the Caribbean. The importance of tourism may be perceived by island nations in different perspectives. Some countries would promote tourism to reduce their dependence on the exportation of a few prirnary products, as world prices of commodities, hence export earnings have become erratic. Among such countries are Fiji in the South Pacific, Mauritius in the Indian Ocean, and St. Kitts - Nevis in the Caribbean. Other island nations emphasize tourism as a necessary industry because of the limited scope for development in agriculture and manufacturing. The Maldives in the Indian Ocean, as well as the British Virgin Islands and other Caribbean territories are within this category.

Tourism vs. primary products In Fiji, an archipelago of 332 islands and a nation of 680,000 to maintain a measure of prosperity after the economy experienced sharp declines in earnings from agricultural exports, and suffered in the South Pacific, tourism has contributed

from natural disasters. World prices of sugar, the country's first traditional export, fell by 40% i1984 and 20% in 1985, and those of coconut oil, the second traditional export, dropped by SO% in 1985 from their 1984 peak. Two hurricanes and a prolonged drought struck the islands in 1983 and two tropical cyclones hit the sugar crop inJanuary 1985. Although sugar remains the largest source of domestic income, efforts to promote Fiji's tourism have made this sector the largest source of gross foreign exchange earnings since 1982. Had Fiji been spared the disturbance of two military coups in May and September 1987, the country could have recorded 285,000 visitor arrivals in that year. A nation of one million people in the Indian Ocean, Mauritius benefitted from unprecedented rises in the prices of sugar in 1972-1974. Savings from sugar income were then invested in manufacturing, tourism and other services. The decline in world prices of sugar in 1975 caused a deterioration of the country's financial situation, to which a policy response was given in the 1980s. Efforts then focussed on the promotion of export-oriented industries and tourism. Tourism has now made the economy far less vulnerable than when sugar was its sole support. Continued efforts to attract investment have resulted in a tourism perfom1ance of 213,000 visitor arrivals in 1987. In view of the massive expansion of the tourism economy (from 15,000 visitors in 1968), the Government of Mauritius is conscious of the dangers of environmental pollution and cultural erosion that may accompany boundless growth. Sir Gaetan Duval, Minister of Tourism, sees 300,000 tourist arrivals as the limit "beyond which the Mauritian might cease to be friendly" (cited in Van de Velde, 1988). In the Caribbean, St. Kitts-Nevis provides an illustration of the role that tourism can play in an effort to diversify an island economy. The economy of St. Kitts-Nevis has been heavily dependent on sugar exports. In 1977-1978, the average price

of St. Kitts' sugar was US $245 per ton. Sugar then represented 75% of the country's domestic exports. In 1981, the export price of sugar rose to US $505 per ton. In 1?82, the collapse of sugar prices on the world market entailed a slump to US $385 per ton in the average export price of St. Kitts' sugar. Further loss in the sugar output was incurred in 1983 because of a drought. As a result, Government (sugar levy) revenues were severely affected. The objective is now to reduce the country's exposure to such fluctuations in sugar receipts. The strategy is to improve the operations of the Govemment owned sugar industry, while encouraging diversification efforts by the private sector. The sugar industry represents 12% of the gross domestic income and accounts for 60% of all merchandise exports. Actions to diversify the economy of St. Kitts-Nevis in elude the promotion of tourism, as well as non-traditional crops and non-sugar manufacturing industries. Incentives to attract foreign investors, in conjunction with an im provement of the infrastructure, have resulted in the construction of major hotel facilities. In Fiji, Mauritius or St. Kitts-Nevis, as in other islands, tourism is an antidote to economic fragility. Exposure to

Crushing cane at Sage Mountain in 1945

(Courtesy ofThom!lS Green)

world markets of export commodities such路 as sugar is feared Diversification is then a consistent answer, and tourism is favoured as complementary to agricultural activities. In other countries, the scope for economic progress through diversification in traditional areas is limited, while natural resources for tourism activities exist. Tourism, in this context, is a necessary remedy for a situation of

underdevelopment.

Tourism vs. underdevelopment The Republic of Kiribati (pronounced "Ki.ri-bas") is an archipelago of 33 islands in th:Central Pacific C?cean (the former Gilbert Phoenix and Lme Islands, colomes of the United Kingdm until 1979). Since the exhaustion of its phosphate reserves in the late 1?70s, bati has sought to diversify its economy, of wh1ch numng had been the mainstay from the turn of the ntury.. . . The diversification e拢fort m traditional areas lS focussed on the production of coconuts and tuna. But. progress in developing these and other re$ources has remamed modest. The coconut sector, in particular, has suffered from sharp fluctuations in the export prices of copra (dried coconut meat from which coconut oil is derived), as well as unstable weather conditions. As few 路other natural resources are available, consideration has been given to the development of tourism on the island of Kiritimati (formerly Christmas Island on the east of the archipelago), which has potential to attract visitors from the U.S. State of Hawaii, 1,200 miles away. For the economy of Kiribati, tourism is an appreciable antidote to the fragility of the traditional economy. More striking an example of tourism response to the risk of underdevelopment is the case of the Maldives, a country of 1,200 coral islands with a population of 181,500 in the Northeastern Indian Ocean. Scarce arable land there impedes development based on agricultural activities. Instead, fishing has been the mainstay of the traditional economy, 27

economy, but tourism is taking an increasing part and has, become the second largest source of domestic income (16% of the gross domestic product or income in 1985) after fishing. With an international airport since 1981, and a tourism industry of 30 resorts constructed between 1980 and 1985, the Maldives have the potential to become a tourism based economy. Similar characteristics are found in the Turks and Caicos Islands, an archipelago in the Northern Caribbean, and the single island of Anguilla These two territories have scarce natural resources other than their fine beaches which offer prospects for further tourism development. Kiribati and the Turks and Caicos lslands have both found an answer to the lack of permanent resources in developing. one attractive island for tourism (Kiritimati in Kiribati, Providenciales in the Turks and Caicos). The Mal dives and Anguilla have engaged in building prominent tourism industries. Yet, in comparison with all countries and territories observed, the British Virgin Islands presents the most complete characteristics of a tourism economy. Investment in tourism has induced the transformation of the B.V.l. from a subsistence farming and fishing society into a relatively high living standard economy. We must examine how this transformation was engaged, or how soon the emergence of tounsm in U1e islands moulded a situation that bas favoured progress in the standard of living of the community. Tourism Investment and the British VIrgin Islands

economlc

development

In June 1961, the U.K. Trade Commissioner in the Eastern Caribbean found the British Virgin Islands ''under路 developed: their annual income is small and,... much remains to be done in the way of basic development, e.g., of roads and water supply. But the B.V.I.", the Commissioner added, "have a glorious natural asset...". Thus referring to the environment, the Trade Com missioner had noted with satisfaction that the Government

(Courtesy of Thomas

The road to West End in 1949 Green)

had already prepared a Development Plan concerned with the development of tourism, and was studying further legislation to attract "those who will provide tourist facilities" (Booth, 1961, reprinted in Tortola Times, 17 June 1961).

The tourist industry, in June 1961, mainly consisted of an American private club on Guana Island, the Trellis Bay Club with a boat yard adjoining it on Beef Island, a guest house on Marina Cay, and the Fort Burt and Treasure Isle hotels on Tortola. A ferry, the Youth of Tortola, was also operating between Tortola and St. Thomas. On 29 December 1960 at 8:30 a.m., the first cruiseship ever to visit the Territory, the Meteor, had glided into Road Town Harbour with 115 passengers hailing from New York. The ship was to make a regular weekly call .until arch. Announcing the arrival of the Meteor, an editorial m the Tortola Times had antidpated that this visit might well "prove to be the most significant single event in the history of our economic development". In another editorial a week later, on January 7, 1961, the 29

(Courtesy of Penny Haycraft)

Crossing to Beef Island in 1%1 Tortola Shipyard in 1952 In tbe background, Fort Burt Hole! in construction

(Courtesyq{Permy flaycraft)

same newspaper contemplated that ''owners of horses and donkeys might perhaps do a thriving business if they place their animals at the disposal of tourists" to get visitors on the hilltops where they could enjoy the panorama of the is1ands. Only in June of the same year were the mule tracks replaced by the Joe's Hill road. The "jeepable" road connected more than 1,800 people living at Harrigan, Doty, Chalwelt Meyers, Soldier's Hill, Cane Garden Bay and other settlements with Road Town. In November 1962, an official of the Colonial Office was surprised to find that "living conditions in the Colony were on a higher level than in many other places in the West Indies". "While there is room for improvement", he said, "there is no real poverty here as can be found in other islands'' (cited In The Island Sun, 24 November 1962). The living conditions as the official saw them were to a large extent induced by earnings remitted lo the Territory by British Virgin Islanders working in neighbouring islands or 30

the U.S.A. Tourism activities were not sizeable enough to transform the Territory from a nation with 路 no real poverty" into a developing economy. The first significant move towards development, yet, was taking place at the same time in Virgin Gorda. Development In Virgin Gorda On one day of 1954, Malvin Flax was 1amenting over the drought that was causing the death of many animals in Virgin Gorda. "What we need is Mr. Rockefeller to come...", he said to Ralph O'Neal. Rockefeller was only a name synonymous with wealth, but Malvin Flax had perceived the idea that some fonn of major investment from the outside could bring appreciable benefits to the community. Malvin's vision became reality in 1960, when Laurance Rockefeller purchased a 56--acre tract with plans to develop a resort at Little Dix Bay. Rockefeller had noted, in the course of a cruise in 1957, the natural beauty of the terrain embracing Little Dix Bay. In 1958, he had donated funds to Government for the purchase and preservation of Spring 31

Bay and Devil's Bay. To appreciate the importance of the Little Dix Bay project for the development of Virgin Gorda, tet us just reflect on the working conditions then prevailing. As reported by the Tortola Times on May 28, 1960, the area of Little Dix Bay had ''no wharf to land incoming supplies, no electricity to activate construction machinery, no airstrip or adequate road, no water or machine shops, no tractors or contractors with heavy machinery, not even a telephone or theodolite". Yet, it was planned that local materials, labour and energy resources would be used as far as possible in the construction of the project.

Road in Virgin Gorda in 1938 (O!urtesy ofRowan Rhy)

relatives. Construction of the resort began in July 1961. One immediate effect of the project was the influx of immigrant labour that it entailed. A staff of 230 workers was employed and accounted for a weekly payroll of $8JOOO. This labour force included 146 British Virgin Islanders, mostly from Virgin Gorda, 66 contract workers from Barbados and the Windward and Leeward Islands (Anguilla, St. Kitts, Antigua), and 18 skilled and supervisory personnel of the constructing firm.

Beginning construction at Little Dix Bay in 1961

(Courtesy ofWB)

At the time of the developmental survey, in May 1960, four labourers were employed under the direction of Malvin Flax to carry out the clearing of the site. The men were paid at 50 cents per hour, a rate considerably in excess of the customary local rate. As explained by Rockefeller's representative, the high wages were to attract selected men who would eventually "fonn the nucleus of a permanent, trained and reliable staff '. Preference of employment was then offered to the former owners of the land and their

Because Virgin Gordians had already migrated to find employment in St. Thomas and Tortola, there was a lack of skilled labour on Virgin Gorda. Many of the West Indian workers who had been brought in to work on t1le construction of the hotel stayed after the resort was opened on 18January, 1964. Over the years, Little Dix Bay contributed considerably to the development of the island, through the wages paid out, the purchase of local goods and services, the construction of an infrastructure (airstrip, yacht harbour, road). The overall

l.aurance Rockefeller unveiling the plaque at the opening of Little Dix Bay Hotel on 18 January 1964 (Courtesy of (.eslAllen)

cost of the project, which should have neared $3 million upon completion, amounted to $6.5 million. The significance of the investment cannot be disputed when compared with the Territory's budget of$1 million in 1963.

Development in Torto/a After the opening of Little Dix Bay, one thought that the development thrust ought to benefit the entire Territory. The most visible changes, until the end of the 1960s, were to take place in the area of Road Town, Tortola.

Negotiations between the Government and Batehill of England resulled, in 1967, in the signing of the Wickham's' Cay and Anegada development agreements. . The Wick ham's Cay land reclamation project involved 70 acres in the bay of Road Town. lt was to- establish, according to Administrator Martin Staveley, "a measure of suitable industrial development" (dted in Bowen1976) in Tortola.

Years of openin.g of tourism establishments

in the British Virgin Islands

1936

Guana Island Qub Sodallnn Fort Butt Hotel Sea Vjew Hotel Sebastian's on the Beach Marina Cay Treasure Isle Hotel Drake's Anchorage Resort Inn UtUe Dix Bay Hotel Long Bay Beach.Resort Ocean View Hotel Tortola Yacht Servires Olde yard Inn Smugglers Cove Hotel Bitter End Yacht Oub Hotel CSY Yacht Oub

The land reclamation works and cutting of access roads through Wickham's Cay were completed in 1969. Staveley's confidence in the project was eventually questioned by the people, and the lucrative scheme envisaged by Ken Bates was not implemented. Instead, the B.V.I. Government bought the reclaimed 1and for $5.8 million through a loan from the U.K. Government. In 1969, the Moorings was opened. This marked the beginning of the yachting industry. The establishment was to rise within ten years to the level of Little Dix Bay Hotel in terms of tourism receipts. The successful development of the Moorings and other tourist establishments on Tortola 36

Tortola

1960 1960

1964 1964

1964

1965

1965 1967

1968

1969 ]969

1969 1970

BVl Aquatic Hotel Sugar Mill Hotel& Restaurant Peter Island Hotel & Yacht Harbour Village Cay Hotel & Marina Sandcastle Biras CteekHotel Fischers Cove Beach Hotel Neptune's Treasure Dive.BVI Anegada Reef Hotel Nanny eay Marine Centre Castle Maria Hotel NannyCayYachtSales Prospect Reef Resort

(Ccurtesy of Thomas Green)

1979 1979

1953

1958 1958

Moorings (The)

The Methodist Church and Wickham's Cay in 1944

1973 1973 1975 1976 1976

Guana Island Tortola Tortola Tortola Tortola Marina Cay Tortola Mosquito Island Virgin Gorda Tortola Virgin Gorda Tortola Virgin Gorda Tortola Virgin Gorda Tortola Tortola Tortola Torlola Peter Island Tortola Jost Van Dyke Virgin Gorda Virgin Gorda Anegada Virgin Gorda Anegada Tortola Tortola Tortola Tortola

1948

1970

1m 1971

1972 1973

1977 1978

Tortola Marine MaDagement Cooper Island Beach Qub Galleon Beach Oub Leverick Bay Resort Pub (The) Skyworld Restaurant Jolly Roger fnn Rhymer's Cane Garden Beach Hotel Tropic Island Yacht Management Tradewtnds Resort Frenchmms Cay Hotel Maria'sby the Sea North South Yacht Charters Wharf, Seafood Restaurant & Bar (The) Mr.Fish Dpstairs Restaurant Baskin in the Sun Mango Beach Resort Ramada Nanny Cay Resort

1980 1980

1980 1980 1980 1981

1981

1982

1983

1984 1984 1984 1984 1985

1985 1986 1987

1988

Cooper Island

Virgin Gorda Virgin Gorda Tortola Torto1a Torlola Tortola Tortola Virgin Gorda Tortola Tortola Virgin Gorda Tortola Tortola Tortola Tortola Virgin Gorda Tortola

was facilitated by the transformation of Road Town into an, urban centre. The Wickham's Cay agreement, coupled with incentive legislation, attracted many entrepreneurs to the island as well as it changed the face of the capital. Four international banks were established in Road Town by 1968, and electricity and telephone services were extended throughout Tortola. Of no lesser importance to the business community was the opening of a deep water harbour at Port Purcell in 1972, which facilitated direct shipping service to Road Town from Europe and fhe U.S.A. In 1969, the runway at Beef Island Airport was extended, and three years later, the first terminal building was opened. A sign of development at the end of the 1960s was the existence of 22 construction and engineering companies, as well as four firms of architects and "a new professional class of accountants, and lawyers, and teclmicians of every description" (Bowen, 1976, p. 78). Finally, significant benefits were derived during those years by some families from speculation over land sought for various tourism development projects. Thus, learnmg from tourism investment in Virgin Gorda in the early 1960s, the Territory organized its development base in Tortola within less than ten years. The standard of living of the community was enhanced by the efforts that accompanied the emergence of tourism.

Dookhan, L (1975). A history of the British Virgin Islands: 1672 to 1970.Essex:Caribbean Universities Press/ Bowker. Editorial. (1960, May 28).Tortola Times, p.3. Editorial. (1960, December 24). Tortola Times, p.3. Editorial. (1961, January 7). Tortola Times, p.3. Encontre, P. (1987, January-February). Llnterview with Naarnan Chalwell]. Booklet published in commemoration of the

1987 Agriculture, Industry & Nutrition Exhibition.. (Available from

[Department of Agriculture, Goverrunent of the B.V.l.]) O'Loughlin Report. (1962). Introduction: The economic position of the British Virgin Islands [Reprint]. The Island Sun, November 17, p. 3, & November 24, p.3. O'Neal, M. (1987, October). The slave rebellion. of 1823 in Tortola, British Virgin Islands: The sociohistoriml context. Paper presented at a conference on Slavery and Emancipation in the Virgin Islands, sponsored by the (U.S.) Virgin Islands Historical Society and the Society of Virgin Islands Historians, St. Thomas and St. Croix, USVI. Pickering, V. (1987). A concise history of the British Virgin Islands. New York-Milan: Falcon. Salop, J., & SpiUi:ller, E. (1980). Wh.y does the current account matter? l.M.F. Staff Papers, 27 (1),101-134.

References: Booth, G. (1961, June 17). More business with the British Virgin Islands. Tortola Times, p.4. (Extract from Board of Trade Journal,1961, March.24). Bowen, E. (1976). Development, immigration and politics in a pre industrial society; A study of social change in the British Virgin Islands in the 1960s. Caribbean Studies,16 (1), 67-85. Big future for Little Dix. (1960, May 28). Torto1a Times, pp.l, 2. Chalwell, N.(1987):see Encontre, January-February 1987. Colonial official 1nspects B.V.T: Finds no real poverty in Colony. (1962, November 24).The Island Sun, pp.l,8. 38

----=------'"-

CHAPTER 2

THE JOURNEY OF THE TOURIST DOLLAR: INTRODUCTION TO THE TOURISM INCOME MULTIPLIER In order to prompt the economic development of the islands and raise the standard of living of the community, British Virgin Islanders have encouraged investment in tourism. As observed in the latter half of the 1960s, investment is an essential factor of development. Yet, investment is not a permanent generator of income. A slowing down of the investment thrust can interrupt the development process. This was experienced in the B.V.I in the early 1970s, when a sudden decline in the construction industry caused economic stagnation. A permanent generator of income, after investment has taken place, is the operation of sound enterprises ensuing from investment. In the tourism economy, the tourist dollar is the source of this generation of income. To understand the impact of the tourist dollar, it is necessary to examine the "journey" of the tourist dollar throughout the economy. The journey of the tourist dollar will benefit various economic actors. Its overall effect will be an income-multiplying effect. This chapter is organized as follows: (1) We will first examine how the tourist dollar changes hands in the economy.

4 1

(2) The income-generating impact of tourist spending will then be illustrated. (3)

Finally, the tourism-income multiplier will be formulated and justified as an indicator of economic performance.

How does the tourist dollar change hands? From the moment the tourist dollar has been spent, and so long as it will remain within the domestic economy, the tourist dollar will change hands. Many economic actors will benefit from the journey of the tourist dollar. How, for who and at what cost will this benefit arise? Before answering these questions, let us familiarize ourselves with a few concepts pertaining to the tourism economy: the tourist expenditure, the tourism revenue., the tourism inputs and the tourism income. The tourist expenditure Is equivalent to the tourism revenue Tourist expenditure naturally reflects the tourism demand. It also accounts for the tourism supply, as the supply is the satisfaction of demand. The tourism supply could be described as the domestic activities aimed at accommodating tourists. This depicts the capacity to supply tourism services. We may also consider the actual supply as it satisfies the existing demand. Whereas one could only assess the capacity to supply in physical terms (e.g. 1 number of hotel rooms available), one can measure the actual supply in economic terms, through the tourism revenue. The tourism revenue over a certain period of time is the

amount of sales of tourism services or services directly catering for the tourists' demand. Therefore, the tourism revenue is equivalent to the tourist expenditure, since the dollars spent by tourists in hotels accrue to hoteliers. In order to understand how the tourist's dollar changes hans after it has been spent, we must examine how the touriSm revenue will be used by tourism entrepreneurs. The counterparts of tourism revenue: Inputs and Incomes The tot dollar's next "change of hands" is performed by the hotelier as the latter makes disbursements out of his revenue to operate his enterprise. Op rati?g tourisz:t establishment like any other enterpriSe _Implies incumng various material expenses and remuneratmg factors of production. Material expenses such as f?od and beverages, electricity and telephone, laundry rvtce. and commis ions to travel agents are the different mp ts to he tounsm product "output". Production of tounsm se 1cs also directly involves labour and capital, the two. P:u'c1pal factors of production. Compensation of labour IS . m the orm of salaries and wages, while the remuneration of ca ntal is commonly referred to as profit. Inputs (matenal expenses) and incomes (wages and prof t) can be described as counterpart entries vis-a-vis the ?UriS, evenue because the tourism revenue, or cash mflow , IS transfo ed int? a cash "outflow'' or directly handed to the suppliers of mputs, as well as the workers and partners in the enterprise. The tourism revenue and its counterparts can be summarized in the elementary equation: Tourism revenue or sales = inputs + salaries & wages + profit Counterparts of tourism revenue Inputs

Tourism revenue Sales receipts

Salaries

Incomes

&wages Profit

Tourist expenditure generates Input business As a counterpart of tourism revenue, input implies a transfer of tourist dollars from the hotelier to the supplier of a good or service entering the hotel product output. Thus, input business originates in tourist spending. It may be beneficial to a sizeable number of economic actors, and a significant channel of multiplying income, according to the economy's ability to meet the demand for inputs. Input business generates upstream business Input business is generated by the hotelier's demand as hotel revenue results from the tourist's demand. Among hoteliers' input suppliers are farmers and fishermen, repair, maintenance and laundry services, banks and insurance companies, travel agents, advertising, accounting, legal and security services. In small tourism economies, the distribution sector (retail and wholesale) accounts for a large proportion of all supplies to hotels. In the British Virgin Islands, a study revealed that 71% of inputs to hotels were supplied by the distribution sector in 1968 (see Bottomley, 1978). What is categorized as input by a hotelier is naturally an output for the producer of this input. A crate of sweet potatoes is an input to the restaurant manager who has ordered it, but it is an output for the farmer who delivers it to the restaurant. Similarly, a laundry service is an input to the hotel operation, but an output from the laundry. If we consider the production process of different suppliers of goods or services to the hotel, we will figure out that a wide spectrum of "upstream" business is at stake. Output from a hotelier's supplier will imply a number of related inputs to the business of this supplier. These inputs are goods or services that in turn may involve further upstream suppliers. In a small economy with a high dependence on foreign supplies, a large part of the induced supplies to the tourist industry may rest on importation. The farmer who produces sweet potatoes may not require many input supplies: his main effort is his own

labour, and unless he uses fertilizers, his sole expense may be for the gas needed to deliver his produce. His tools are regarded as capital goods, entailing no recurrent expenses. The fisherman who supplies to hotels will incur expenses on fuel, baits, hooks and lines, eng1ne maintenance, paint and various accessories. The carpenter or the electrician who has a maintenance contract with the hotel will be supplied with parts and tools by the retail sector. The laundry entrepreneur will expend on purchasing detergents and plastic bags, as well as maintaining his washing equipment and laundry van. Banks and insurance companies, as well as travel agencies will be faced with office expenses (stationery, computers, etc.), while suppliers of advertising or security services will call on such suppliers as printers or guard uniform makers to provide their tools of trade. Finally, the retail and wholesale sector will be the principal channel of upstream supplies for most of the hotelier's direct and indirect suppliers. Public utilities (electricity, telephone, water) are also found among upstream supplies to the tourist industry. While input business generates upstream business, the overall business induced is an important source of income. This income will be called indirect tourism income. Input business and upstream Indirect tourism Income

business

generate

Whenever input supplies are delivered to a hotel, revenue accrues to the involved suppliers. Suppliers' revenues or sales of goods or services naturally have their accounting counterpartsi revenue always equals inputs plus incomes. By virtue of the counterpart principle, every time goods or services are delivered to the hote1 or to the hotel's suppliers, income is generated in the form of wages and profit. Wages are paid by the hotel's suppliers and all of the suppliers'

suppliers' input suppliers, except those who are notâ&#x20AC;˘ employers. Because suppliers, especially those "upstream", have more clients than the sole tourist establishments, the wages that they disburse compensate a labour force that does not only service the tourist industry. Only detailed analysis could reveal what proportion of salaries and wages paid out in a given enterprise is the counterpart of tourism-induced revenue or sales. If a laundry service has disbursed $10,000 in wages to its personnel, only 40% of this payroll may reflect services to the hotel industry, while the rest may account for services to hospitals or the general public. The same sUuation is found with regard to the profit derived by suppliers. All portions of income accruing to economic actors that supply to the tourist industry make up the indirect tourism income, which is distinct from the direct tourism income generated by tourist spending. This income arises in the tourist industry itself. Tourist expenditure generates direct tourism Income We are now back to the counterparts of tourism revenue. Apart from purchasing various input supplies, the hotelier must remunerate his factors of production. These are the entrepreneurship (investors of capital) and the labour. It is important to understand why entrepreneurship, like labour, is a production factor to be remunerated, and as such, a counterpart of tourism revenue. Whether in the form of dividends paid, directors' fees or savings for further investment, profit is the legitimate remuneration of those who own an enterprise. Profit is not merely the remuneration of capital ownership as a privilege; it is to a large extent the compensation of venture, dedication and know-how. As such, profit is the remuneration of an essential factor of production and hotel profit is a just share in the distribution of direct tourism income. Compensation of hotel labour in the form of salaries or wages is the other segment of direct tourism income as 48

generated by tourist spending. Wage is a familiar concept. Yet, the impact of tourism wages on the economy is not limited to the income of hotel staff. Direct and lndlrect additional Income

tourism

Incomes

Induce

We know that the overall business induced by tourism activities generates indirect tourism income through the chain of input supplies. Indirect tourism income consists of wages disbursed and profits gained by all suppliers "upstream" of the tourist industry. Direct income, as opposed to indirect income, is the total income paid out by the hotelier to the producers of hotel services: wages for labour, profit for owners. Dlrect income and indirect income must represent a sizeable part, but are not all of the overall income generated by the tourist expenditure. Direct and indirect tourism income, through the effect of household spending, induces additional income or 'provides an additional impetus for economic activity'' (Mathieson & Wall, 1982, p.65). Salaries and wages accnting to hotel employees, as well as wages paid out to the labour used by all suppliers upstream, constitute an income to domestic households. This income is to a large extent respent domestically, or transformed into revenue to the businesses catering for the household demand. Every time that such revenue is generated by household expenditure, counterpart income will arise, and part of this income in turn will be spent and create further income. This particular income in the periphery of the tourism economy is called induced tourism income. It is induced by the spending pattern of all beneficiaries of direct and indirect tourism income. The hotel bartender's salary is direct tourism income; part oJ the .salary of the truck driver who delivers liquor to the bar of the hotel is indirect tourism income; part of the salary of the barber in the barbershop where both the bartender and the truck driver are clients is induced

tourism income. Whereas (almost) all of the bartender's salary is a counterpart of tottrism revenue, only a portion of the truck driver's and an even smaller portion of the barber's are counterparts of tourism-induced revenue. The truck driver does not deliver to hotel bars only, while the barber does not do the hair of bartenders and tourist liquor delivery men only. The journey of the tourist dollar through the hands of the bartender, the truck driver, and the barber, demonstrates the multiplying effect of tourist spending. Tourism-generated income is not limited to the bartender's salary. It includes benefits to other economic actors, it is therefore "multiplied". Although tourism-generated income will be raised in almost all sections of the economy, certain "leakages" may hinder the income-multiplying impact of the tourist dollar.

Inputs and Incomes entail leakages As described above, the multiplying effect of tourist spending is significant. It may involve a great number of economic actors, through a complex chain of transactions, as the tourist dollar changes hands. This, however, will only be true if the tourism economy is a "closed" or "self reliant" economy. The reality is different: small island economies are "open" economies. The geography and history of the Caribbean have made the islands considerably dependent on the rest of the world. Tourism is an 11invisible" export. As a source of earnings like any export-oriented activity, it implies a dependence on foreign markets. Tourism activities, to a greater or lesser extent, also entail a multiple dependence on foreign supplies, foreign labour and foreign capital. These three types of external dependence materialize as leakages from the tourism economy; on input supplies, wages, and profit. Leakages on Input supplies The tourist demand induces a complex pattern of demand for goods and services throughout the economy. All of this

induced demand cannot be met domestic.ally. This is particularly true in some Eastern Caribbean islands where agricultural production has declined or remained marginal while the tourist demand grew, both in quantity and in quality. Such economies have a high propensity to import. Because imports are largely induced by the tourist demand, it would be unrealistic to consider the earning capacity of a tourism economy without allowing for the leakages entailed by the importation demand. Furthermore, a community living on a growing tourism economy tends to enhance its pattern of expenditure. As the tourist dollar induces widespread income, it will boost the household demand. Beneficiaries of the tourist dollar who spend their income domestically will increase their demand for goods and services to live more comfortably. Somehow, thiS demand will converge with the tourist demand on the same standards of quality. The raise in the standard of living will result in an increased level of imports. The occurrence of high import leakages is a prominent feature of Caribbean tourism. It will be highlighted in our examination of the B.V.L tourism economy. Leakages on wt ges When wages earned domestically are not spent domes tically, again income is leaking from the economy. There are two ways. that leakages on wages may occur: if the earnings are immediately transformed into savings locally, or if they are taken or sent out from the economy. One may question whether domestic savings are true leakages. In fact, savings may be delayed spending, or earnings to be reinjected into the economy. Such spending will enter the income-multiplying drcuit at a later stage, unless the savings are taken away by expatriates. Another aspect of the role of savings is that, once deposited in a bank, savings are not dormant. They become part of the bank's commercial activities. On the other hand, wage earnings taken out from the economy are a mere leakage of income. Such leakage occurs 51

- -

mainly as a result of the employment of expatriate labour in â&#x20AC;˘ the tourism and related industries. The outflow of currency takes the form of remittance payments abroad. Remittance payments may take place on a regular basis (at the end of the month) or occasionally, after a certain period of savings. The greater the numbeT of expatriates earning tourism income, the larger the volume of leakage from the tourism economy is likely to be. In a survey of tourism in the Commonwealth Caribbean, Bryden (1973) noted that tta relatively high proportion of the hotel employees in better-paid professional grades were non nationals in the Cayman Islands [87% in 1971] and the British Virgin Islands [60% in 1970]" (p. 131). Elkan and Morley (1971) indicated that 48.5% of the whole labour force in hotels and guest houses in the British Virgin Islands consisted of expatriates in 1970. More recent findings on the structure of tourism employment in the B.V.L will be presented in the last chapter. Leakages on profit A notable feature of tourism activities in the Eastem Caribbean is the predominance of foreign ownership. Foreign investment in tourism has been not only induced by the geography and history of the region, but generally encouraged by Eastern Caribbean nations. Transfers of profit from the islands are the normal implication of foreign ownership. In the absence of restrictions on private movements of funds, profit can be transferred as dividends, directors' fees or possibly management fees to a parent company abroad. Profit may also be invested locally to increase the domestic capacity and create additional employment. Tourism nations that cannot raise sufficient capital and have relied on foreign investment to exploit their natural resources usually do not deny foreign owners the right to retain profits. However, they seek the participation of nationals in the profit-making process. Education and training of nationals is the avenue to greater involvement 52

----

;!!Iii!_

of a nation in a foreign-owned tourism industry while the remuneration of ownership is still largely transferred abroad. Finally, leakages do not only affect inputs and incomes, which are the counterparts of tourism revenue. A particular form of leakage is observed on the tourism revenue itseli. It results from the involvement of transnational enterprises (corporations operating in more than one country) in international tourism. A tourism economy with substantial foreign participation like the British Virgin Islands is not spared by this particular form of leakage. Leakages on revenue A tourism economy may not get the complete benefit of direct tourist spending. This is found when part of the tourist expenditure materializes outside of the domestic economy. Foreign-owned hotels or yacht centres operating in the islands may be financially administered from a main tourist generating country. Bookings or reservations for such establishments will take place in the tourist market country, for clients in that particular country as well as in other countries. In the context of a pre-paid tourist service administered from abroad, one can no longer say that the hotel revenue is equivalent to the tourist expenditure. The reason is that the flow of tourist dollars into the economy is ''disconnected" from the tourist's expenditure which takes place abroad, and also smaller than that tourist expenditure. The flow of tourist dollars into the island economy is disconnected from the tourist expenditure when the latter is not merely forwarded by the reservation centre abroad to the local management of the hotel The inflow of tourist dollars is then generally smaller than the expenditure which has taken place abroad. Only a portion of the revenue abroad will be regularly transferred to the tourist's destination hotel to enable the resident manager to meet the operating expenses (mainly on supplies and wages) and

perform the service. The hotel operating expenses may therefore be met locally from two sources of cash inflow: â&#x20AC;˘ transfers to a local operation . account from the foreign decision centre; â&#x20AC;˘ domestically-raised revenue from guests without centra lized reservations or patrons of the bar and restaurant. If input supplies and labour expenses are met this way by the resident manager, the leakage resulting from a tourist transaction is in the form of a retention of profit abroad. Eventually, leakages on revenue amount to leakages on profit.

By examining how the tourist dollar ''changes hands", we have highlighted the channels through which tourist spending generates income. We know that the overall income resulting throughout the economy from a certain tourist expenditure will be greater than the income generated in the sole tourist industry by the same tourist expenditure. Because the tourist dollar "journeys", it multiplies income. To explain how tourist spending generates income throughout the economy, we have "disaggregated., the income-multiplying impact of the tourist dollar into three components: the direct effect, the indirect effect and the induced effect of tourist spending. The direct effect relates to the income remunerating the factors of production in the tourist industry, namely, the salaries and wages of workers, and the profit of entrepreneurs. Wages and profit have been described as counterparts of the tourism revenue because tourism revenue is the resource used to remunerate labour and ownership. The indirect effect relates to the wages and profit in all businesses involved in the supply of goods and services to

the tourist industry. Indirect tourism income is. generated by the tourist dollar as the latter "percolates" throughout the economy. The induced effect accounts for the income generated throughout the economy as a result of household spending by all beneficiaries of direct and indirect tourism income. Direct income, indirect income and induced income are three segments of the overall income generated by the tourist's dollar. These three types of income can be summed up to produce an estimate of the economic impact of tourist spending Overall tourism income = direct tourism income + indirect tourism income + induced tourism income Whereas measuring direct tourism income is straightforward, estimating the indirect and induced components of the overall tourism income is a complex exercise that requires input-output analysis. Direct tourism income is approximately equivalent to the value added of the tourism industry. The value added is the total remuneration Âˇ of production factors: wages and gross profits (including depreciation), to which interests and rents of land are conventionally added. With a definition of the tourism sector limited to hotels, restaurants, yacht chartering and other boat-related services, the British Virgin Islands had a direct tourism income of $18.9 million in 1986 and $24.6 million in 1987, representing 22.3% and 25.4%, respectively, of the gross domestic income. By comparison, tourism contributed less to the gross domestic income in any member state of the O.E.C.S than it did in the B.V.I in 1987: Antigua & Barbuda 15.4%; St. Kitts Nevis 9.1%; St. Lucia 7.2%; Grenada 6.5%; Montserrat .9%; St. Vincent & the Grenadines 2.0%; Dominica 1.3%. Indirect tourism income, in small island countries, will be limited by the dependence of the economy on foreign supplies. Wages and profits will mainly accrue to importers of retail and wholesale goods. However, indirect tourism income may be substantial in a tourism economy where

The lncome-multlplylng effect dlsaggregated! effect, Indirect effect, Induced effect

direct

--- -

tourism-related services are flourishing. Finally, induced tourism income is the segment of overall tourism income where the multiplying effect of tourist spending is the most intricate. Induced income will be greater, the higher the standard of living.

The income-generating impact of tourist spending illustrated The following chart illustrates the direct, indirect, and induced economic impacts of the tourist expenditure. It presents a summary of these impacts through four different areas of tourist expenditure or tourism revenue: accommodation, entertainment, shopping and transport. For each of these areas, the counterparts of tourism路 revenue appear in the Direct Impact column: purchases of goods and services (input supplies), wages and profit. Taxes are not distinctly assimilated to the counterparts of tourism revenue although they account lor Govern ment's benefit in the tourism economy. Isolating taxes from the inputs and incomes of tourism enterprises would be subjective because taxes are not considered as distinct tourism income. In other words, Government is not regarded as an economic actor to be remunerated along with workers and owners of enterprises. Indirect taxes such as import duties are part of the cost of supplies. Other indirect taxes such as hotel accommodation tax, cruising permits or passenger tax are based on, or related to the volume of activities of hotels, marine centres, or transport agents. As taxes collected by these establishments on behalf of Government, they do not enter the profit making process. Direct taxes such as income taxes on individuals and 56

The income-generating impact of the tourist expenditure (1)

(3)

(4)

AREA OF roURIST EXPENDITURE

DIRECT IMPACT

INDIRECT IMPACT

INDUCED IMPACT

({a!<ages)

(Le geo)

(Lu.kageo)

lrrpons

ACCOMMODATION

PURCHASES OF GOODS& SERVICES

lf1ll011s

Input & upstream supplies to tourist accommodation Salaries & Wages

f!emillances I Profit

(Continu拢d) (1)

(2)

(3)

AREA OF

DIRECT IMPACT

INDIRECT IMPACf

TOURIST EXPFNDITURE SHOPPING

9 r-

(4)

(l.eal<agos)

(LeU..geol

INDUCED IMPACT (Lalcageo)

llll>Ortl

I PURCHASES

Input & upstream supplies to tourist sf]opping

OF GOODS & SERVk::ES

_ j

RemlUances

Salaries & Wages

路=

(Transfe )

Profit

. . O.t5tt"

C.-"i .W

;?.

\:__ .

Salaries

...

Rarrltta n c es

/N. tNOt c:.UO ,ij\

'AOFrr''_::t'

PURCHASES OF

Input & upstream

·c; \ ·w

TOURIST EXPENDITURE

lrrpons

Household lr11POI1$

TRANSPORT GOODS & SERVICES

· !'vi

"''•

supplies to tourist

ttt

::::r

·'-' :

0 lrrpons transport

-t.'"" 9

Profit

Salaries& Wages (Til!ll!e )

SALARIES & WAGES Rema A.i te... J

13.:7" PROFIT

J :t'

Profit

:' \

·.

ages

路路-路

companies are normally not isolated from wages and profit' while these are highlighted as the remuneration of labour and ownership. Wages and profits generated through the supply of goods and services to the tourist industry are represented in the Indirect lmpact column. The latter also features all upstream supplies, that is to say, supplies to the different suppliers to the tourist industry. Finally, the induced impact of tourist expenditure, a concept now familiar, is depicted in the last column of the chart. Induced income is derived from household expenditure originating in columns 2r 3 and 4. Household expenditure is effected by workers and entrepreneurs in the tourist industry (column 2), as well as those in various sectors supplying to the tourist industry (column 3), and those in sectors generally catering for the household demand (column 4). The household expenditure will induce further transactions until the impact of the initial tourist expenditure has ceased. The tourist dollar that has circulated throughout the economy has been eventually absorbed by leakages. This is why it is said that leakages are contrary to the multiplying effect of tourist spending. The chart shows leakages on the right路 side of each column. They are imports of goods and services, remittances of salaries and wages abroad, transfers of profits abroad. Transfers of profit are mentioned between brackets in the Indirect Impact and Induced Impact columns because it is assumed that such transfers are not as substantial from outside the tourist industry as they are from within the tourist industry. Even within the tourism industry, trans fers of profit abroad mainly concern the accommodation sector (hotel, yacht chartering). Remittances of salaries, on the other hand, may affect the entire economy and not only the tourism industry.

3 The tourism income multiplier: an indicator of economic performance The income-multiplying impact of the tourist dollar has been explained and illustrated. It may now be forn:ulated. Once defined, the multiplier will be constdered as an indicator of perfoymance to assist decision-makers in assessing the economic impact of tourism. Other types .of tourism multipliers will also be introduced as related soc1o economic indicators. The formulation of the tourism Income multiplier The tourism income multiplier can be formulated as follows: A overall tourism income m= ll

dired tourism income

overall tourism income

A direct tourism income + ll indirect tourism income + ll induced tourism income where m is the multiplier and A (delta) represents a change in a variable. ll dired tourism income is the direct tourism income resulting from a given tourist expenditure. Let us rec ll, direct tourism income is the income generated by ton:ISt spending within the tourist industry (accommodat10n, ll

entertainment, shopping, transport). 6. indirect tourism income is the indirect tourism income resulting from the same tourist expenditure. We remember that indirect tourism .income is the income derived by all suppliers of inputs to the tourist industry (fanners, fishermen, etc.). Finally, A induced tourism income is the induced tourism income deriving from the spending of A dired tourism income and A indirect tourism income. One notices that all components of the tourism income multiplier ratio are in the form of variations (A) instead of integral values. This form is conventionally adopted to signify that the tourism income multiplier can be applied to any amount of income generated in the tourist industry, in particular, to any marginal amount. When the multiplier is estimated through an input output analysis, the base period of calculation is usually a year. The amounts of tourism income thus considered are large. Now, it is assumed that the estimated multiplier is also valid for small amounts of income. Hence, a marginal amount of direct tourism income can be multiplied. If the multiplier has been estimated at 1.55, the generation of $100 in wages or profit within the tourist industry will result in the accretion of $155 (1.55 x $100) in overall tourism income throughout the economy. By extension, the. same multiplier will apply to any amount of tourism income anticipated to arise from a certain tourist expenditure. For example, the multiplier will provide an estimate of the economic impact of a promotion campaign if a certain amount of summer packages is ex pected to be sold as a result of this campaign. It is worth noting that the tourist expenditure does not appear in the formulation of the tourism income multiplier. The multiplier does not tell us how much income a given amount of tourist expenditure has generated. The multiplier only tells us how much income has been generated, as a result of tourist spending, in excess

of the direct tourism income. In the previous example where the multiplier (m) equalled 1.55, let us suppose that the tourist expenditure has been $200 and has generated $100 in wages and profit within the tourist industry. The resulting overall tourism income was $155, that is to say, $55 of income has been induced outside of the tourism industry per se. Let us again consider the multiplier (m) as previously defined,ontheonehand:

A overall tourism

income m = A direct tourism income we can estimate a coefficient (c), whereby: b. dired tourism income = c . A tourist expenditure on the other hand; then, we can establish a direct relationship between the tourist expenditure and the overall income that tourist spending induces; b. overall tourism income = m . A direct tourism income

= m . c . A tourist expenditurc f

Both

the

tourism

income

multiplier

(m)

and

the

technical coefficient (c) will be estimated from an input

output tablel. lf we call M the product of m and c (M = m.c), then M can be regarded as an "unorthodoxtt tourism multiplier: . 11 overall tourism income = M . A tourist expenditure

M is unorthodox because it does not represent a multiplying effect between two consistent variables. Only a multiplying effect between two related variables (such as direct tourism income and overall tourism .income) will be a genuine multiplying effect. Instead, one cannot say that M "multiplies" the tourist expenditure, as tourist spending has only been "transformed" into domestic income through the

Input-output analysis requires, however, that the technical coefficient (c) be constant onlyin the short run.

profit-making process. One must remember that a conventional tourism income multiplier, like m, unlike M, multiplies income to tum it into wider income, but does not multiply expenditure to change it into income( The use of the tourism Income multiplier How do economic planners and decision-makers use tourism multipliers? In general, the tourism income multiplier pertains to short-term economic planning. Let us say that beyond a 3-4 years future, the assumptions on which the estimate of a multiplier is based may no longer be valid. First, the tourism income multiplier helps to verify the degree to which certain development objectives have been met. A general objective may be to maximize the income generated by the existing tourist industry. Periodic estimates of the tourism income multiplier will give a picture of the capacity of the tourism economy to generate income. If the multiplier has been estimated at 1.44 in 1985 and 1.55 in 1988, it will appear that the objective of increasing the economic benefits of tourism over time is being met. Of further interest will be the derivation of partial multipliers for different segments oi the tourist industry. Through these multipliers, the relative capacity of different tourism activities to generate income will be examined. Land-based tourism can then be compared to water-based tourism; or overnight visitors to cruiseship passengers and day-trippers, and so on. The differentiation between tourism multipliers will be essential in an area like the

Whereas the "orthodox" tourism income multiplier (m) will always be greater tha,n 1, the "unorthodox" multiplier (M) may be less than 1 in certain areas where b.igh leakages occur. In this context, the British Virgin Islands has recorcled a gross domestic product smaller than the total visitors expenditure.

British Virgin Islands with diversified and prominent tourism activities. Whether complete or partial, low tourism income multipliers indicate weak linkages between tourism and other sectors oi the economy. From an analysis of the different supplies (inputs) to the tourist industry, the need to stimulate certain supplying sectors in order to reduce import leal<ages will be highlighted. Finally, the tourism income multiplier will be a component of the evaluation of tourism projects. Economic planners may wish to estimate the anticipated impact of a particular development project (developing a beach resort, expanding a yacht centre, etc.) on the domestic economy. The relevant tourism income multiplier will be applied to the direct income expected from the project. As a result, the overall wages, profits and related leakages induced by the project will be estimated. Other types of tourism multipLiers Economists are interested in analyzing the income multiplying impact of the tourist dollar. The tourism income multiplier is the most relevant indicator in their eyes. Other observers may be concerned with other aspects of the multiplying effect of tourist spending. For example, a business community, through the voice of a commerce association, may question the real impact of the tourist dollar in terms of the amount of business induced by tourist expenditure throughout the economy. An answer lies in the tourism sales multiplier. The tourism sales multiplier The tourism sales multiplier is the coefficient by which the sales of the tourist industry can be multiplied to arrive at the overall sales induced by the same tourist demand throughout the economy. Thus, if the tourism sales multiplier was 1.50 in 1985 and 1.60 in 1988, a given tourist expenditure of $1 million 65

would have resulted in $1.5 million of overall transactions â&#x20AC;˘ in 1985 and $1.6 million in 1988. That is to say, the sales multiplying effect of $1 million in tourist spending would have been the raising, outside of the tourist industry, of $0.5 million induced business in 1985 arid $0.6 million in 1988. It would then appear that the business community's benefit from tourism would have augmented, as increased trans actions throughout the economy would have resulted from tourist spending over time. The tourism sales multiplier, like the tourism income multiplier, is derived through the technique of Input output analysis. Finally, policy-makers may find it essential to measure the impact of tourism on domestic employment. To this end, another indicator may be used: the tourism

References: Bottomley, A. (1978). The use of input-output analysis for income and employment projections: The case of the British Virgin Islands. Caribbean Studies,18 (3,A), pp. 157-174. Bryden, ]. (1973). Tourism and development: A case study of the Commonwealth Caribbean.Cambridge University Press. Elkan, W., & Mor1ey, R. (1971). Employment in a tourist economy: British Virgin Islands. University of Durham, Department of Economics. Mathieson, A., & Wall, G. (1982). Tourism: Economic, physical and social impacts. London & New York: Longman.

employment multiplier.

The tourism employment multiplier Jt is the coefficient by which the employment generated in the tourist industry by a certain amount of tourist expenditure is multiplied to arrive at the total employment induced by the same tourist expenditure throughout the economy. The tourism employment multiplier is subject to greater errors than the tourism income and tourism sales multipliers. If employment is measured as the number of jobs, the relationship between tourist expenditure and tourism employment is not homogeneous, unless it allows for the existence of part-time or seasonal jobs. Moreover, the economic significance of tourism-induced employment rests on the level and pattern of remuneration rather than the numbers employed. Yet, public decision-makers attach special importance to the social impact of tourism and call on economists to highlight the employment effect. If found relevant, the tourism employment multiplier, like its income and sales counterparts, will be derived through an input-output analysis. 66

PART TWO

HOW HAS OUR COMMUNITY ALREADY BENEFITTED FROM TOURISM?

CHAPTER3

THE TOURISM ECONOMY OF THE BRITISH VIRGIN ISLANDS As previously demonstrated, the journey of the tourist dollar can induce a flow of economic benefits to the host community. The British Virgin Islands as a host community has relied on these benefits to activate its development and raise its standard of living. 路 We shall now examine how the benefits of tourism have materiali2ed in the islands. Before considering the pattern of tourism income that has influenced the standard of living in the Territory (see Chap. 4), we must look at the characteristics of the B.V.I. tourism economy. The tourism economy is a sphere of activities through which the tourist expenditure generates income. Tourist spending is the economic act that takes place when the tourism supply meets the tourism demand. We can describe the tourism economy through: (1) the tourism demand (or demand of the tourist population); (2) the tourism supply (or supply by the tourist industry); (3) the tourist expenditure.

The tourism demand Let us consider where the tourists come from, what numbers they represent, and what mode of travelling and accommodation they adopt. Geographical composition of the tourist market Two thirds of overnight holiday visitors to the British Virgin Islands come from the U.S.A.l_ Throughou!. the Caribbean, the average proportion of Uruted States VISitOrs is only 51.6%. This suggests that the B.V.I's dependence on the U.S. tourist market is high in comparison with other Caribbean islands. The Bahamas, Bermuda, the Cayman Islands, Jamaica, Puerto Rico and the United States Virgin Islands are more highly dependent on the United States tourist market.t an the B.V.I. is2. Conversely, the Wmdward Islands (Donuruca, Grenada, St. Lucia, St. Vincent and the Grenadines) and the French West Indies (Guadeloupe, Martinique), all geographically situated in the Eastern Caribbean, and Cuba (with a rate of 1%) are among the islands least dependent on American tourism. 1 2

The proportion was 66.5% in 1988. The highest rate of dependence on the lJ.S. tourist market in the Caribbean has been recorded in the U.S.V.I: 93.1% in 1987.

In 1988, the B.VJ. accommodated 117,020 - tourists from the U.S.A, while 30A50 originated from other Caribbean islands, 19,350 from Europe, and 9,150 from Canada. Why do visitors from North America outnumber visitors from Europe? The total population of the ten wealthiest countries of Europe is greater than the total population of the U.S.A. and Canada. Moreover, these two groups of countries demonstrate comparable standards of living. Yet, the number of stayover visitors to the B.VJ. from North America is over six times greater than the number of European visitors. The largest part of Europe is further from the Can"bbean than any part of the U.S.A is. Even though the inconve nience of long distance journeying is alleviated by frequent air traffic, the cost of travelling to the Caribbean remains higher from Europe than it is from North America. The exchange rates of major European currencies vis-a-vis the U.S. dollar, though favourable to European travellers over the last few years, have not had a significant impact on the number of European visitors to the B.V.I. In fact, distances, vacation habits and costs of travelling are linked to each other. Europeans often take a longer vacation than Americans. Unlike Americans, European visitors are inclined to stay in the same destination longer than a week. Because the Caribbean is a longer way away for Europeans, it is a worthwhile destination for longer stays only, but this entails greater spending. Finally, European travellers are on average younger than North American travellers. The expenditure that younger people can allocate to long distance joumeying is smaller than the expenditure of middle age or older travellers. On the other hand, long distance travelling is more inconvenient to older people and relatively less appealing to retired Europeans. Overall, economic reasons prevail as these are linked to distances when one decides to travel to the Caribbean from either Europe or North America. This is specially true with regard to the British Virgin Islands, because the Territory is

among the more expensive tourist destinations. The annual number of overnight holiday visitors from the U.S.A. has risen significantly (by 340%) within 12 years. Yet, the Territory's dependence on the U.S. tourist market has not augmented, but rather dh:runished in the long run, as U.S. tourists represented 72% of the tourist population in 1976 and66.5% in 1988. The visiting population The number of tourists visiting the British VITgin Islands has grown almost without interruption over the years (see Figure 3). Only in 1983 was there a decrease in the tourist population, as the number of cruiseship visitors diminished in that year. Figure 3. Holiday visitors to the B.V.I (1977 -1988)

250 , OOOr------ -

;!OO . 000

-.,-_.---,

Tota l ho Hd- v>&.>.t ot'o // 15.0, 000

10 0 ' uoo

50, 000

/ /)"

...-

..,

...:::;;; '::.

Overnight holiday visitors are the largest portion of our

tourist

holiday visitors (see Figure 3). None of the other segments of the tourist population (day trippers, cruiseship visitors) has grown significantly in the long run. The tourist population of the British Virgin Islands iS smaller than that of most Westem Caribbean islands and greater than that of most Eastern Caribbean islands. Specifically, the B.V.I's tourist population in 1987 was 11 times smaller than that of Puerto Rico and 9 times smaller than that of the Bahamas. It was al.so smaller than the tourist populations of the Dominican Republic (5.3 times), Jamaica (4.3 times), the U.S.V.I (3.4Âˇ times), Bermuda (2.8 times), as well as Cuba and the Cayman Islands. In the Eastern and Southern Caribbean region1 larger tourist populations than that of the British Virgin lslands are found in St. Maarten, Barbados, Guadeloupe, Martinique, Aruba, and Trtnidad and Tobago. However, the British Virgin Islands accommodates more overnight holiday visitors than any O.E.C.S member state with the exception of Antigua and Barbuda. In that country, the tourist population was greater than that of the B.V.I by 4% in 1987 and 11% in 1988 (see Figure 4). The B.V.I's tourism perlormance is also higher than that of Curacao, Haiti, Anguilla, the Turks and Caicos Islands, Bonaire, St. Eustatius or Saba. Figure 4. Overnight tourist arrivals

population.

in the Eastern Caribbean (1988)

Cru i,.esh1:p v isito_rs

soo. 0 00,--

- --

--_,

BARBAl)oS

eJ Source qf tlilJJI!

l OO,OOO

lopn11!11t Planning Unit, Tou rism etaJ!sllc:o.

In 1988, a tourist population of 242,300 visited the Territory. Out of this total, 175,970 visitors (72.6%) stayed overnight, while 36,840 (15.2%) visited the Territory on day trips and 29,490 (12.2%) arrived as crttiseship passengers. Thus, almost three quarters of all holiday visitors are overnight tourists. The growth of the tourist population over the la.st 12 years has been sustained by an almost continuous increase in the number of stayover or overnight

TheB.V.I

accommodates more tourists

tha,n most other

ANT1GUA & BARBUDA

$'1'.1\! T'I'li-NEV!S GRENADA S'l' .VlNCEN'I: & GR . DOII LN.J.CA

ANGUikLA MONTS.

Sorce o ftltll11: Ouibbelln Tou rism Organization.

Eastem.

B V ,l' ST â&#x20AC;˘.LUCI/1

Caribbean

islands.

A better Indicator: the tourist per capita ratio Though a conventional indicator, the number of holiday visitors fails to provide indications relating to the compa rative benefits of tourism between island economies. Let us consider two island nations, the British Virgin Islands and Antigua and Barbuda. Their numbers of stayover tourist arrivals have been comparable: 172,700 and 179,800, respectively, in 1987. Yet, these two nations do not derive equal benefits from tourism. Similarly, St. Lucia and Haiti accommodate almost equal numbers of tourists: 122,600 and 121,800, respectively, in 1987. But St. Ludans and Haitians do not realize the same benefits from the tourism trade. The impact of tourism is dependent on the size of the community that benefits from the tourist dollar. A better indicator of the significance of the impact of tourism, therefore, is the tourist per capita ratio: Visitors population Host country's population

The visiting population considered here is that of overnight visitors (which excludes cruiseship passengers), because overnight tourists, through their expenditure, have the most significant impact on the economy. With a popula tion officially estimated at 12,197 in 1987, the British Virgin Islands has had the highest tourist per capita ratio among all island economies (14.2). The growth observed in B.V.I. tourism in 1988 suggests that this record position as indi cated by the following table may have remained in that year. Let us assume that the impact of the individual tourist's dollar is the same throughout the Caribbean. From one island to the other, one tourist's expenditure brings similar benefits to the islanders. These benefits, as we know, are induced by the income-multiplying effect of tourist spending. As previously highlighted, the standard of living of an island community is to a large extent determined by the capacity to import goods and services in the islands. The amount of imports necessary to satisfy a nation naturally

The B.V.L has had the highest tourist per capita ratio among all island economies (1987)

v· ·

British

141

Islands

Norfolk d•

129 11.9 10.4

St Maarten

Jersey Cayman Wand$ Bermuda 13aleariIslands (Spain)

9.9 8.4 7.3

Guernsey United States Virgin Islands

6.6

Bahamas

61 5.4

6.5

Isle o!Man Anltllilla St. Eustatius Guam Saba Turl<s c!t Calooslslands

4.7 4.2

4.1 3.9

3.6

Arul>a

3.5 3.1

lalre

Santa Cruz deTI!nerife•• AmeriC<Ul Samoa Las Palrnas"" Antigua & Barbuda Malta

24 2.4 2.3

2.2

d elonBarbados Madeira <Portugal) St. Kitts-Nevis

1.7 1.5 1.5

MOntserrat

1.4

Curacao Guadelol.lpe.... French PolynesiaSt. Lucia New Caled91liaMaldives

0.90 0.87 0.86 0.86

Canbbeal'\ Pacilic (South) Caribbean

EnChannel Caiibbean Caribbean

Meditemmean Sea English Channel Caribbeal'\ Caribbean lrish Sea Caribbean Cmbbean Pacific <North> Caribbean Caribbean Caribbean Bo! Caribbean Atlantic <North) Pacific (Sou\h) Atlanrte <North) Caribbean

Mediterranean Sea

St. Vincent & the Grenadines DomWca Western Samoll Fiji COnri.ca....

0.41 0.23

Caribbean Atlantic (North) Caribbean M<!Qiterranean Sea Caribbean lncUan Ocean (South) Caribbean Caribbean Pacific (South) Caribbean Pacific (South) Indian Ocean <North) Caribbean Caribbean Pc (So1,1th) Caribbean Caribbean Padflc (South) Pacific (South) Mediterranean Sea

Mauritius Tonga RellllionPoh Yap "'"' TrilkVMuattl

0.20 0.18 0.15 0.13 0.12 0.11 0.11

Indian Ocean (South) Padflc (South) Indian <Xean (South) Pacific <North) Pacific <North) Pacific <Nortb) Pacific (South)

Cape Verde

0.10

Atlantic <North)

0.09

Aflanti<North)

1.4

CYPrus

Seychelles

1.1

Q74

0.72

Martinique-

0.71 0.61

Grenada

Niue_.

0.55

0.33

0.29 018

<Portugal)

Aiores

Tuvalu

OD7

Pactfic(South) Pacific <North) Kiribati Pacific (South) S01omon Ts!ands Pacific (South) Comoros Indian Ocean (South) Sao Tome & l'rindpe O.OX Atlantic (North) •Australian External Territory, ""Canary Islands, in, -France's IA tnenlOl"Territory Federated States o{Mjcronesia ·-Nc.w Zealand's ASsociated Territory,

Marshall Islands

-"·'' •-·

•

o.,u. rist. per

0.06 0.05 0,03 0.02

. ratl Yearly number ofovernighUow:ist.s earn -----'----:: _ 1 a0

7 6

•

ResldC.11t population Island economies with a population not larger than 1 miJUon are hereby considered.

Sources of da!Jl:

•

Carib'bean Tourism Research k Development Centre. (1988). Carib an Tourism St atiStical R(!}'ort 1987. OECS, Economic Affairs SOCretarlat

•

W!lfld Tourism Organital:lon

•

depends on the size of this nation. On the other hand, the • capacity to import is itself dependent on the ability to accumulate wealth to pay for these imports. We know that the tourism trade is a major factor of this ability. If 200,000 visitors within a year generate a certain amount of tourism revenue to a nation of less than 15,000 (B.V1.), the latter can benefit more from the tourist dollar than will a nation of 80,000 (Antigua & Barbuda) accom modating the same number of visitors. This comparative advantage of the tourist dollar is grossly measured by the tourist per capita ratio. British Virgin Islanders have a greater potential to derive personal benefits from tourism than Antiguans, although the two nations demonstrate a similar tourism performance. The difference in potentials is reflected in the difference between the tourist per capita ratios: B.V.I. 14.2, Antigua & Barbuda 2.3 in 1987. St. Lucia has an even smaller ratio than Antigua's: 0.9; yet St. Luctans can expect considerably more benefits from the tourist dollar than will Haitians (0.02), although St. Lucia and Haiti have compa rable numbers of stayover tourist arrivals. A very high tourist per capita ratio grossly indicates that a limited host population accommodates lots of tourists. While tne tourist expenditure represents substantial revenue to the domestic economy, this tourism trade also requires large investments. Airport facilities, roads, jetties and related public services (immigration, customs, fire and rescue, etc.) are among the public investments and expenses that rise in the long run as the tourism trade grows. But the smaller the population to face these investments and expenses, the harder the pressure of a massive tourism trade. Investments will require foreign financing, and the maintenance of ports and roads will become a heavy burden on Government's shoulders. On the private side, a large tourism trade naturally implies the existence of a sizeable "tourism plant": hotels, marine centres, etc. A small population does not have the capacity to develop a tourist industry on its own, without 78

foreign capital The B.V.l's thrust into touriSm during the 1960 decade took place in a pre-industrial sodety. No local capital, whether private or public, would have been sufficient to develop a prominent tourist industry and raise it to its present standard. The cost of depending on foreign capital, for a small community, is the little indigenous involvement in the production process. Profits are transferred abroad to the benefit of foreign entrepreneurs, and a certain social imbalance may result from the inflow of immigrant labour. Eventually, one can recognize a facet of the British Virgin Islands economy through the tourist per capita ratio. With a growing tourism trade handled by a small population, the Territory has the potential to derive from tourism a higher standard of living than most tourism economies. Yet, because of the inevitable dependence on foreign factors of production (foreign aid for infrastructure, foreign capital and labour in tourism), the nation's standard of living has been to a large extent raised by foreign hands. The type of traveJILng and accommodation used by visitors

More holiday visitors arrive in the British Virgin Islands by sea than by air. This was first observed in 1979, and the number of s a arrivals has progressed faster than the number of air arrivals over the last few years. Visitors arriving by sea are: • cruiseship passengers, whose visits are limited to day trips on the islands; • ferry passengers, who almost exclusively embark in the United States Virgin Islands; • yachtsmen, who will use marina or moormg facilities overnight, or anchor in B.V.l waters without using such facilities, or those who only visit the islands for the day. In many Caribbean countries, more visitors arrive by sea than by air. Cruiseship passengers alone outnumber air 79

passengers and other stayover visitors in Grenada, St. 路 Vincent and the Grenadines, Martinique, the Cayman Islands and the U.S, Virgin Islands. In the latter territory, sea arrivals represent 63% of the .total visiting population. This proportion is comparable with that of the British Virgin Islands where 62% of all holiday visitors arrive by sea. Yet, while 58% of visitors by sea to the U.S.V.I. are cruiseship passengers, the counterpart proportion for the B.V.l. is only 19.8%. On the other hand, 42.3% of tourists arriving in the B.V.l by sea use yacht accommodation. They are yachtsmen entering B.V.I. waters to use marina or mooring facilities, or ferry passengers who will charter a yacht in the Territory. A much smaller proportion of all tourists arriving by sea (6.6%) use hotel or other rented accornmodatio Among visitors arriving by air, the demand for hotel or boat accommodation is more evenly distributed. A certain proportion of tourists arriving by air will stay overnight in a hotel, and then move out to a chartered yacht. Overall, the British Virgin Islands with respect to its visiting population is to a large extent a water-based tourist destination. Two thirds of all tourists arrive by sea and well over half of all overnight holiday visitors use yacht accommodation. Almost three quarters (72.6%) of all holiday visitors to the Territory are overnight visitors. They use either land based or water-based accommodation for overnight purposes. Land-based accommodation is offered in hotels, guest houses, campgrounds, villas and other vacation houses. Water-based accommodation relates to the yacht chartering industry, which deals with the renting of crewed yachts or bareboats. It also comprises marina facilities for yachts not registered in the Territory. Tourists using yacht accommodation represent 58% of overnight visitors, while hotel accommodation accounts for a quarter (25%) of the same population. Figure 5 shows that since 1979, the number of visitors staying in boats has 80

remained between two and three times as路 large as the number of visitors staying in hotels. Figure 5. Overnight holiday visitors to the B.V.I (1977 -1988)

100, ooo,-----------------------,,.-,

80,000

Bo.a t acoornmoda t lon

_. ."'

60,000

4Q,OOO

20 ' 000

/ 78

Visitors using boat accommodation

are 23 times more than

HQt&l

cconvnO(l-at.ioo

81 82 83 84 85 86 S<niYUofdll/tt; Development Planning Unit, Tour!snuiatlstico,

visitors using hotel accommodation.

The tourism supply

To satisfy the tourist demand, the tourism industry offers accommodation and other services. All tourist services make up the tourism supply, which is sometimes referred to as the tourism product. The concept of tourism product has a distinct connotation beyond the literal meaning of a product, which is a tangible good or service. A hotel room or a yacht charter, with all the facilities attached to them (swimming pool, dockage, etc.) can be described as tourism products; they are sold at a rate implying specified components. One l<nows what the rate of a hotel room includes, and also does not includeThe risk of unpleasant surprises from the delivery of such product is limited; the hotel guest will normally get what he has expected for the price paid. The concept of tourism product may now be "stretched" to allow for an environment that tourists will expect to find. In this perspective, the tourism product becomes the subject of a more complex picture. This picture comprises of things that will "make our [tourism] product equivalent to the price we are asking'' (E. Rhymer): the tidiness of a town, the beauty of public areas, the friendliness of a people, a sense of security, etc. The tourism product in its wider sense is the people's product, whereas the tourism product in its commercial sense is the entrepreneur's product. "Making [our] people feel part of this tourism product" (Rhymer, 1987, p. 40) has been stressed as a goal of tourism policy in

the British Virgin Islands. The tourism supply considered below r lates to the tourist industry as a supplier of tangible services. Yet, certain segments of the tourism supply pertain to commercial activities that do not only cater for tourists. We will examine four areas of the tourism supply. They are: (1the hotel and entertainment industry, (2) the yacht chartenng and boat-related industry, (3) the tourist oriented retail and wholesale .industry, and (4) the tourist transport industry. The hotel Industry

and

entertainment

The hotel industry comprises 37 establishments throughout the Territory. Twenty are located on Tortola, ten on Virgin Gorda and seven on other islands. Additional accommodation can be found in 2 campgrounds, 13 guest houses and 20 villa rental enterprises. Among the 37 hotels operating .in the B.VJ., 14 offer marina facilities (or access to a marina) to accommodate the yacht chartering industry. Among these establishments or sites offering both hotel and marina facilities, 6 are primar ly marinas where most activities pertain to yacht chartenng. In 6 other establishments, land路based accommo路 dation accounts for the largest part of revenue. Finally, in 2 hotel and marina sites, including Nanny Cay on Tortola hotel and marina activities are runseparately. ' Half of the Territory's hotel room capacity is found on Tortola, but a higher growth in that capacity has been ob erved since the beginning of the 1980s in Virgin Gorda. Pnor to 1980, the room capacity of Tortola had shown a higher growth than that of Virgin Gorda. The B.V.I's ?otl room capacity (993) is surpassed by that of three countnes m the O.E.C.S region: Antigua & Barbuda St. Lucia, and St. Kitts-Nevis. ' Hotel occupancy has not increased significantly in the long run, hough the average rate of hotel occupancy rose from 50% m 1984 to 60% in 1988. Prior to this period, one could <?bserve a contrast between a decreasing trend in the 83

snack bar. Uve entertainment is featured at certain of these estabHshments.

Peter Island in 1974 Hottl)

(Courtesy of Peter Island

average hotel occupancy (1978-1984) and an increase in the hotel room capacity. In other words, although the performance of the existing industry was declining, the development of this industry was pursued. This suggests that foreign investment, the primary source of investment in the tourist industry, is not dissuaded by short-term developments. It operates by long-term strategies piloted from abroad. As the tourism trade is subject to a seasonality effect, the average hotel room occupancy reaches its peak in February (83% in 1988), and itslowestlevelinSeptember (40.5%). Partly related to the hotel industry, the tourist entertainment sector includes bars, restaurants and occasional cultural attractions. In addition to the bars and restaurants that are attached to, or associated with hote1s, some 37 independent bars and restaurants are frequented by tourists. They include beach bars and restaurants, local or West lndian food and foreign cuisine restaurants, taverns and panoramic restaurants, traditional pubs and an airport 84

The yacht chartering and boat related Industry Yacht chartering and cruising services are offered by some 25 enterprises. These services range from owner-operated day sails to charters organized by major marine centres. They consist of bareboat and skippered or crewed sailing charters and can be offered as tenn or day sails, week-end charters, personalized or luxury cruises. Other waterbased services are often provided jointly with chartering, while some are supplied separately. ln either case, water-based services are mainly related to water sports and include sailing, boardsailing, water-skiing; snorkeling, scuba and diving instruction, rentals and tours, sportfishing, underwater exploration and photography. Six enterprises offer complete diving services, and 3 others provide underwater photography and video services. Finally, some 28 enterprises offering goods and . services to the yacht chartering and related industry also pertain to the tourism economy. Five establishments make rigging or sails, while dinghies and boats of other types are made in two fiberglass workshops. Boat repair, refinishing, servicing or brokerage, yacht maintenance and sales, marine and chandlery supplies, boat cellular telephone and marine consultancy are fields of activities without which the yachting industry could not have developed as it has. The number of charter yachts based in the B.V.I. has increased until the beginning of the 1980 decade, and since then has remained at a plateau stage; 328 registered boats were recorded in the Territory in 1987i 335 had been recorded in 1982. The number of yachts available for charter has augmented at the low, average rate of 1% per annum during the period 1981-1987, while the number of overnight visitors using boat accommodation grew at the annual rate of 7%. This difference in growth could have been explained by an increase in the rate of occupancy of the yacht fleet.

.. ---

In fact, such increase was not observed. Not all visitors. staying on yachts are visitors chartering yachts. As marina facilities developed within the resort industry, an increasing proportion of visitors using boat accommodation in B.V.I. waters have been yachtsmen sailirig in to use marina space. These now represent 55.5% of all tourists using boat accom modation, while 44.5% of the latter would charter yachts based in the Territory. Thus, a majority of yacht tourists are yachtsmen sailing in on foreign yachts as opposed to visitors chartering domestic yachts. The tourist-oriented retail and wholesale Industry The concept of tourist product is not limited to the tourist service consisting of the rental of a hotel room or chartering of a yacht. The environment, whether natural or commer cial, enhances the tourist service, making it a complete product. The commercial environment that visitors expect to be offered consists of the tourist-oriented retail and wholesale sectors. Tourist-oriented retail and wholesale establishments supply to visitors either directly, or indirectly through the hotels and yacht enterprises that accommodate visitors. The tourist-oriented retail sector, in the British Virgin Islands, comprises some 45 establishments. For each of these enterprises, at least half of the sales are sales to holiday visitors. Tourist-oriented retail enterprises offer such items as spices and herbs, coral handicraft and jewelry, local art, Caribbean publications, handprinted fabrics, tropical cloth ing, swimwear, skin products, etc. Tourist-oriented wholesale establishments supply visitors, and specially yachtsmen, with various types of food, beverages, dry goods and equipment.

In the British Virgin Islands, the public路 infrastructure for tourism comprises airport facilities on Beef Island and Anegada, a deep water harbour at Port Purcell, jetties in Road Town and West End, Tortola, on Anegada, Virgin Gorda and Jost Van Dyke, and a network of 92 miles of public roads (including 57 miles of paved or concrete roads) on Tortola, Virgin Gorda, Anegada and Jost Van Dyke. The airstrip and yacht harbour in Virgin Gorda are owned and maintained by the Little Dix Bay resort. The seap1ane landing base at West End, Tortola, as well as the yacht harbour at Nanny Cay are also port facilities owned and operated by the private sector. Transportation services are operated by private enter prises. They consist of one national airline (a public com pany), four foreign or regional airlines with agents in the Territory, two plane charter and three helicopter charter companies; seven ferry services linking Tortola to North Sound and Spanish Town in Virgin Gorda, Anegada, Peter Island, St. John and St. Thomas; eleven car and bicycle rental services; seven bus and sightseeing servites; and some 260 individual taxi services. Finally, travelling services are offered to visitors by two domestic travel agents. These however receive the largest part of their revenue from travellers residing in the Territory.

The tourist transport Industry Air, land and sea transport services are offered to holiday visitors by the government as well as the private sector. Govemment's input to the transport capacity consists of the construction and maintenance of the infrastructure re quired for air,land and sea traffic. 86

Donkey was the main meatls of transporUn 1943 (Courtesy o{Thomas Green)

The tourist expenditure

As the tourism demand meets the tourism supply, tourist spending takes place. Tourist spending is the economic act without which there would be no tourism economy. The tourists' expenditure is equivalent to the revenue of the tourist industry. This revenue in tum is the counterpart of

purchases of goods and services by the tourist industry and the remuneration of labour and capital engilged in this industry. In the British Virgin Islands, 38% of all sales of goods and services are sales to holiday visitors. In 1988, the tourist expenditure benefitting the Territory amounted to $118.5 million.. The average tourist expenditure, or average expenditure of each tourist on one visit was $489. This ?gure indicates that the B.V.I's average tourist expenditure IS near to the average tourist expenditure throughout the Caribbean region (approximately $440 in 1987). Most islands with a lower average tourist expenditure than the B.V.I's (e.g., U.S.V.I, St. Lucia, St. Vincent and the Grenadines, Cayman Islands, Grenada) have higher proportions of cruiseship passengers than the B.V.I's (12.3%). Because cruiseship passengers generally spend little in the islands visited, countries that have a high ratio of cruiseship visitors do not benefit as much from each visitor's arrival as the B.V.I. does. In Grenada, where cruiseship passengers account for over two thirds of the

whole tourist population (68.9%), the average tourist expenditure amounts to US $228, which is less than half of that of the B.VJ. A comparable, high ratio of cruiseship visitors (62.2%) is found in the U.S.V.I, but the spending habits of these visitors in downtown Charlotte-Amalie explain that the U.S.V.rs average tourist expenditure (US $406) is dose to that of the B.V.I. (US $489). In the long run, tourist expenditure in the Territory has demonstrated substantial growth. Throughout the period 1977-1988, the amount of tourist dollars spent has doubled every 3-4 years. Figure 6. Tourist expenditure in

(1977- 1988)

the B.V.I

us s

'000

80,000

Since 1979, the

60.000

population of

./'

Che.rcer bo-a-= touristif 4 0 '000

_/,

.-_-:;::;=.

spent more than the

-?--1

"20 ,000

charter boat tourists has

population of botel tour.ists.

Hotal touris w

Soowct of II#IA: Development 1'lannl11g Unlt,..l'ouriom otatlstlcs.

Hotel and charter boat tourists spend 43% and 44%, respectively, of all tourist dollars flowing into the economy. Other stayover visitors (in rented or own accommodation) account for 12% of the tourism revenue. Cruiseship passengers and other day trippers represent only 0.7% and 0.3%, respectively, of the whole tourist expenditure. The expenditure of charter boat tourists is the only segment of the overall tourist expenditure that has grown without interruption over the years. Since 1979, charter boat tourists have been spending more than hotel tourists. In 1985, while the hotel tourists' expenditure

...

._.._..

....

l I

recorded a slight decline over the previous year (-1.1%), the路 charter boat tourists' expenditure rose. by 20%, primarily under the effect of a sudden increase in charter rates. The expenses of hotel tourists are more "concentrated" on accommodation than those of Charter boat tourists. Only 11% of hotel tourist spending takes place out of the hotel, that is to say, on outside entertainment, shopping and transport. Whereas 89% of the hotel tourist dollars are spent within the hotel (primarily as room expenses), only 72% of charter boat tourists' spending benefits the charter enterprises as suppliers of chartering services and marina facilities. Other expenses by charter boat tourists, also on entertainment, shopping and transport, represent 28% of their total expenditure (hotel tourists: 11% only). The hotel industry raises more tourist dollars than the yacht chartering industry, but boat tourists benefit the rest of the local tourism economy (entertainment, provisioning, transport) more than hotel tourists do. Figure 7. Average tourist expenditure in the B.V.I (1988)

in 1987 and 1988. It has progressed since 1983, as the average cruiseship visitor's expenditure was $25 in that year. Cruiseship visits however benefit a relatively small number

of domestic enterprises. Their impact on local retail and entertainment activities is not comparable with that of any type of stayover visitors.

Buses and taxis at inaugural call of the Cunard Countess, 16june1978 (Ccu.rtesy ofVerntm Pickering)

us s 1,000 HOTEL 1'0U R tllT 1,500

TOURIST TN RENTKO ACCOM , CHARTER BOAT TOURIST 1'llllR18T N OWN 1\CC. ClWISeSJUP VISITOR

1,000

The average hotel tourist spends twice as much as the average charter boat tourist.

500

Sol.r<4 of dJJfa: Dl:vclop..,.nt rtan.ntng OniTmu:lsrnstatlstlcs.

Finally, Figure 7 indicates that the average hotel tourist spends over twice as much ($1,107) during his visit as the average charter boat tourist does ($540). The average expenditure of cruiseship visitors has been estimated at $45 90

References: Caribbean Tourism Research and Development Centre. (1988). Caribbean Tourism Statistical Report1987. Barbados. Caribbean Tourism Research and Development Centre. (1988). Statistical News (Quarterly review of Caribbean tourism trends), June, September, December. Development Planning Unit, Ministry of Finance (1989). Tourism in the British Virgin Islands: 1987. Road Town,Tortola. 91

...

._.._..

....

l I

in 1987 and 1988. It has progressed since 1983, as the average cruiseship visitor's expenditure was $25 in that year. Cruiseship visits however benefit a relatively small number

of domestic enterprises. Their impact on local retail and entertainment activities is not comparable with that of any type of stayover visitors.

Buses and taxis at inaugural call of the Cunard Countess, 16june1978 (Ccu.rtesy ofVerntm Pickering)

us s 1,000 HOTEL 1'0U R tllT 1,500

TOURIST TN RENTKO ACCOM , CHARTER BOAT TOURIST 1'llllR18T N OWN 1\CC. ClWISeSJUP VISITOR

1,000

The average hotel tourist spends twice as much as the average charter boat tourist.

500

Sol.r<4 of dJJfa: Dl:vclop..,.nt rtan.ntng OniTmu:lsrnstatlstlcs.

Encontre, P. (1987, May). [Interview with Elihu Rhymer, Chairmail' of the B.V.I. Tourist Board]. Discover: British Virgin Islands, Published in commemoration of the 11th OECS Meeting, pp. 39-43. Rhymer, E. (1987):see Encontre, May 1987.

CHAPTER 4

TOURISM AND WEALTH IN THE BRITISH VIRGIN ISLANDS We have studied the main characteristics of the B.V.I. tourism economy. As the tourist dollar "percolates" throughout the entire economy, tourism income will be generated and distributed to various beneficiaries. The ability of the nation to raise its standard of living will depend, to a large extent, on the generation and distribution of this income. This chapter examines: (1) the generation of tourism income; and (2) the distribution of tourism income.

1 The generation of tourism income In Chapter 2, we observed that the income-multiplying effect of tourist spending .includes a direct effect, an indirect effect, and an induced effect. We will adopt a similar approach in measuring the income generated domestically by the tourist dollar. After considering the direct, indirect, and induced segments of tourism income, we will estimate the tourism income multiplier as an indicator of the overall economic. impact of tourism in the British Virgin Islands. The direct tourism lncome To estimate the direct tourism income, one can examine the part played by tourism in the gross domestic product (or income) of the economy. The gross domestic product (G.D.P.) is based on the concept of value added, which we previously met when we observed how the tourist dollar changes hands. The value added can be defined in two ways. 1) Let us suppose that we are buying a piece of coral handicraft from a local manufacturer. The selling price of the item is higher U1an U1e cost price of the quantity of coral required to make the item. The selling price presumably accounts for the coral, the labour employed to smooth the raw material, and the art work put into finishing the product. Labour and art skill are invisible components carrying a value that is

added by the manufacturer to the value of the material or visible input. The selling price therefore includes a visible value for the intermediate product consumed, and an invisi ble value ''added" to arrive at the selling price. Thus, the value added of this production reflects the efforts of labour and entrepreneurship, including the talent with out which there would be no final product. 2) The value added of any production is the remuneration of labour (salaries and wages) and entrepreneurship or ownership of the capacity to produce (profit). The gross domestic product is the aggregated value added of all sectors of the domestic economy, or the over ll income accruing to all factors of production (labour, capital or entrepreneurship). This is why the gross domestic product could also be called gross domestic income. The part played by tourism in the gross domestic product therefore consists of the value added of the tourism sector, which can be measured in proportion to the value added of the whole domestic economy (G.D.P). The tourism sector In the economy A conventional classification of economic activities suggests that the tourism sector be limited to the tourist accommodation industry. We will consider as the RV J's tourist accommodation industry the following four areas of activities: • Hotels and restaurants without marinas; • Hotels and restaurants with marinas; • Marinas and yacht chartering enterprises; • Other boat-related services. The first category includes all tourist-accommodating or tourist-entertaining establlshments that do not provide marina facilities, although most of these establishments are situated by the sea. The second category comprises all tourist establishments that offer marina facilities. Marina activities do not 95

represent the largest part of the turnover of these. enterprises. Most of these establishments are resorts where land based (hotel) activities are predominant. The third category consists of rinas where land-based (hotel) activities do not l'epresent the largest part of revenue. This category also includes all individual yacht chartering and cruise enterprises that operate separately from marinas. Finally, the fourth category comprises all other boat related or water-based services such as yacht maintenance and sales, chandlery supplies, diving and sailing instruction or underwater exploration. The hotel with marina category of establishments accounts for almost half (47%) of the value added or income generated by the whole tourist industry, while marina and yacht chartering enterprises represent almost a third (32%) of the industry. Considering that both land-based and water-based activUies are found in these two groups of tourism establishments, we can look at the distribution of direct tourism income in a different way. It is estimated that 85% of the income generated by hotels with marinas is derived frotn land-based, as opposed to water-based services. On the other hand, 84% of the income generated by marinas and yacht chartering is derived from water based, as opposed to land-based activities. Accordingly, while 62% of the direct tourism income in these two groups of tourist esta blishments is generated by land-based tourism services, 38% of the same tourism income derives from the production of water-based services. Although many tourism enterprises in the British Virgin Islands offer boat-related services, the tourism industry, in terms of wealth generated, is princi pally a hotelbased industry. Over the years, the tourist accommodation industry as a whole has taken a growing part in the economyaccounting for 20 25% of the gross domestic product (1977: 20.0%; 1982:

23.1%; 1987: 25.2%).

A complete estimate of the direct tourism income should allow for the value added generated by tourist oriented retail and wholesale enterprises, as well as tourist transport and communications activilies. In theory, these two groups of tourism activities pertain to, respectively, the retail and wholesale sector, and the transport and communications sector. National accounts normally do not make a distinction between tourist-oriented and other segments of the retail and wholesale sector, or between tourist transport and non-tourist transport activities. Therefore, part of the value added of the retail and wholesale, and transport and communications sectors should be isolated as tourist-oriented activities, and assimilated to the tourist accommodation industry. . fu the British Virgin Islands, it is estimated that 15% of the value added of the retail and wholesale sector is generated by direct tourist spending. Within the transport sector, 75% of the value added of air transport enterprises, 85% of the value added of land transport enterprises, and 10% of the value added of sea transport enterprises are generated by tourist spending. [n the sector of communications, which mainly consists of telephone services, 22.5% of the value added derives from direct tourist demand. Finally, .94.4% (instead of 100%) of the value added of the tourist accommodation industry itself (hotels, marinas, etc.) results from direct tourist spending. This is mainly due to the fact that hotels and restaurants without marinas derive as much as 16% of their value added from non-tourist spending in local and town centered restaurants. Overall, direct tourism income based on a larger definition of the tourism industry accounted for 29.7% of the Territory's gross domestic product in 1987. As an aggregate of value added, the direct tourism income serves an important purpose. It is the basis for estimating the growth of the tourist accommodation industry.

----------The growth of the tourist accommodation Industry Over a period of 19 years beginning in 1969, the BritiSh Virgin Islands economy has grown at the average annual rate of 4.7%. A certain acceleration of growth was observed at the same timei whereas an average annual growth of 3.7% had been recorded over the 1970-1979 decade, the annual growth of the economy was estimated at 6.0% during the period 1980 -1987. Growth is measured from the value added at constant przces, which accounts for the real growth in the volume of goods and services produced domestically. The impact of monetary inflation on the market value of goods and services is "hidden" in estimating the value added at constant prices. This is based on the assumption that production is valued at the same prices during the period of observation. Hence, changes in the value added at "constant prices" only reflect changes in the quantities of goods and services produced. Growth in these quantities indicates real progress in the production of goods and services, and in the income generated through the sale of these goods and services. If the value added at constant prices of the whole economy is considered, it will make up the gross domestic product (G.D.P) at constant prices. A rise in the G.D.P. at constant prices reflects the growth of the economy. It is a conventional indicator of economic progress. lf the value added of only one particular sector of the economy is considered, changes in the constant price value added of that sector will reflect changes in the real production (or income) of that sector. Therefore, growth in the tourism sector must be estimated through the constant price value added of the tourism sector. Over the same 19-year period beginning in 1969, the tourist accommodation industry has grown at the high, average annual rate of 12.1%. During this period, the part played by the industry in the generation of domestic income rose from 9.1% to 25.2% of the gross domestic product. Since 1976, the tourist accommodation industry has been the

- -

leading sector of the economy. It is necessary to divide the history of tourism growth in the Brttisb Virgin Islands into three segments. 1) Between

1970 and 1980, the tourist accommodation industry was the fastest growing sector of the economy, with an average annual growth of 19.3%.

2) During the first halÂŁ of the 1980s (1981-1984), as holiday

visitor arrival figures reached a plateau phclse, tourism underwent a noticeable decline substantiated by a negative, average annual growth of 6.1%1. 3)

Finally, a new phase of tourism growth began in 1985, with a growth rate of 4.9%. Since then, direct tourism income has continued to grow (1986: +4.9%; 1987: +20.2%).

Figure 8 illustrates the growth of the tourism sector over the 19-year period beginning in 1969. lt also allows a comparison with the agriculture and fishing sector aild the construction sector. One can observe that in 1969, tourism and agriculture and fisheries were two sectors of equal economic importance. After 1969.,. the growth of tourism has offered little opportunity for a prolonged growth in agriculture and fishing. In spite of the induced tourist demand for food, the traditional farming and fishing activities have not significantly benefitted from the growth of the tourism economy. By comparison, the construction sector has reacted to the growth of the tourism industry. In 1971, construction underwent a sudden decline that did ' not end until 1973. Major public utilities projects, as well as the land reclamation works at Wickham's Cay had been complet ed. No large hotel construction was taking place in the Territory, with the exception of the development of Biras Creek.

During the same period (1981-1984), the average annual rate o! tourism growth in the OECS region (not including the BVl) wa s 4.5%,

Figure 8. Growth of 3 sectors of the B.Vleconomy (base year:1%9) us

â&#x20AC;˘ooo

8,000

6, 000

4. 000

'- -?

2,000

... 69

TOU::/

" ' /--

-- ".

ACilll CULTUl!E

-77 ?9

Over the years, tourism has benefitted the construction sector more than the farming and

fishing sector.

FISHERIES

-81 83

-81

Oevelop nt Plarullng TJJilt. N1.tlonal aa:ounts (nl11e added: at DNtant prlces).

Nanny Cay before development in 1974

(Courtesy

Gary

Turpin)

Indeed, no major tourism establishment was opened in Tortola between 1971 and 1976. The cessation of the largest construction finn on the island precipitated the decline of the construction sector; construction income diminished by 30% in 1971, 22% in 1972, and 9% in 1973. A short-lived recovery, partly due to the development of Nanny Cay, was observed in 1 74 and 1975. But construction income again declined by 23% and 25% in 1976 and 1977, respectively. The development of Prospect Reef Resort finally contributed to a new recovery of the construction sector, which did not decline again untill985. Figure 8 suggests that the rapid growth of tourism in the second half of the 1970s provided an impetus to the construction sector. This impetus derived not only from the development of the tourist industry, but also from an induced demand for commercial and individual construction. As tourism income benefitted the economy, the multiplying effect of tourist spending stimulated construction activities. Within the tourist accommodation industry, marina and yacht chartering services have demonstrated the fastest growth between 1984 and 1987 (average annual growth: 100

17.1%). Yet, the greatest annual growth ever recorded in direct tourism income took place in 1987 in hotels with marinas. This sub-sector, which comprises ten of tll.e largest tourism establishments in the. Territory, grew by 47% in that year, after a decrease by 6.3% in 1985, and another decrease by 7.2% in1986. The ten hotels with marinas generated $4.3 million in extra direct tourism income in 1987 over 1986. Oi this $4.3 million in extra income or value added, $1.1 million was paid as extra salaries and wages to a labour force of 970. The xest of the extra direct tourism income generated by these ten establishments, that is to say, $3.2 million was added remuneration of capital in comparison with 1986, principally extra profit to foreign investors. This sole extra profit surpassed, for example, the total amount of wages paid in the construction sector in 1987 ($3.0 million). Thus, one can observe that a sudden, massive growth in only one segment of the tourism industry could have a substantial impact on the whole economy. Whether such tourism growth could have benefitted the host community equitably will be questioned in the last sections of this chapter.

101

The Indirect tourism Income To operate a hotel, a hotelier must spend a substantial part of the hotel's revenue on the purchase of goods and services. These goods and services are the material inputs to the production of the hotel service. Input expenses have been defined as "counterparts'' of the hotel revenue, because they represent an outflow of money that is made possible by the inflow of revenue. As a chain of input business takes place to supply the hotel with goods and services, and to supply to the suppliers of the same goods and services, indired tourism income is generated. It is tourism income because it results from tourist spending, the act without which there would be no tourism economy. This tourism income is called "indirect" as opposed to the "direct" tourism income which benefits the factors of production in the hotel itselfsalaries and wages for the labour, profit for the ownership. The significance of the indirect tourism income depends on the linkages existing between the tourist industry and other sectors of the economy. We must therefore examine the pattern of these linkages. Who supplies to the tourist accommodation industry, and what income do these suppliers derive from the tourism trade? The pattern of linkages to the tourist Industry

The following chart illustrates the tourism revenue and its counterparts, and indicates the structure of these counter parts in the British Virgin Islands economy. Counterparts of tourism revenue

Inputs 61.6

Direct tourism

income

domestic 39.3

Tourism revenue Sales receipts

100

imported 22.3

38.4

102

We can interpret this figure as follows. When 路$100 has been received from tourists by the tourist accommodation industry, $61.6 of this revenue is spent, in turn, by the industry to purchase goods and services, while $38.4 is distributed as wages and profit to remunerate the factors of production. Within the $61.6 that will be spent on material inputs, $39.3 will serve to pay for domestically supplied goods and services, while $22.3 will "leak" out of the economy as payment for direct importation of other goods and services. However, the overall import leakage resulting from the initial $100 tourist expenditure will not be limited to the $22.3, which accounts for the sole goods and services directly imported by the tourist industry. Most of the merchandise domestically supplied to the industry has been previollSly imported by the retail and wholesale sector, and therefore represents indirect importation by the tourist industry. In fact, every sector of the economy that supplies goods or services to the tourist industry has its own import bill. The retail and wholesale sector, naturally, is the largest supplier of imported goods to the tourist industry; 80% of all goods and services purchased by retail and wholesale establishments are imported. Other suppliers of goods and services to the tourist industry are also importers; manufacturing and construction enterprises import 66% and 61%, respectively, of their supplies of goods and services. . The overall import effect of tourist spending therefore mcludes various indirect imports as well as the direct importation realized by the tourist industry itself. Figure 9 shows the pattern of direct inputs to the tourism industry. This pattern represents the direct purchases of goods and services realized from 9 different sectors of the economy by the tourist accommodation industry. Direct importation by tourism enterprises is treated as a distinct channel of supplies and appears in the form of a bar on the right side of the graph. The latter therefore represents 9 groups of domestic suppliers and one 103

Figure 9. Supplies to the tourist industry in proportion. to the tourism revenue (1987) IMPORT 2

O RETJ\L! & WHOLESALE CONSTRUCTION

BUSlNESS 4 PROfESSIONAL

SERVICES ELECTRICITY & WATER FrNANC!AL SERVICES TRANSPORT & COMHUN.

PtSHEI!IES

MANUJ'I\CT . AGRIC.

Slnlta

of tWo:

The tourist industry spends more on imports of goods and services than on retail and wholesale purchases.

Develop"""t Planning Unit, National aa:cunta.

group of foreign suppliers who could be called the "rest of the world". The supplies are represented in proportion to the total expenses incurred by the tourist industry, or equivalently, to the tourism revenue which provides the means for these expenses. The largest beneficiary of the demand for goods and services by the tourist industry is the retail and wholesale sector, to which 17% of all monies spent by tourism enterprises is passed on. One can observe, however, that an even greater proportion of all disbursements effected by the tourist industry accounts for direct importation (22%). Considering that most goods bought domestically by the tourist industry have previously been imported, it is suggested that the tourism sector has a fairly high propensity to import. A striking feature of the profile of tourism linkages is the smallness of agricultural inputs; less than 1% of the expenses of the tourist accommodation industry benefits the farming sector. Other sectors, such as manufacturing, fishing, transport and communications, or the financial services get 1% to 2% of the input business directly supplying to the tourist industry. The construction sector accounts for 5.2% of all the expenses of tourism

establishments and it appears to be their second largest domestic supplier. . Within the tourism sector, the pattern of linkages indicates that hotels with marinas and marina or yacht chartering enterprises have a higher propensity to import (28%) than hotels and -restaurants without marinas (8%). The greatest import component however is found in the other boat-related services which spend 34% of their revenue on direct importation. . Large enterprises, that is to say, resorts and mannas have a higher propensity to import than hotels and restaurants without marinas. These accordingly spend a greater proportion of their revenue on domestic retail nd wholesale supplies. On the other hand, large en.terpnses spend a larger part of their revenue on constructiOn than small establishments do. While hotels and restaurants without marinas spend 47.5% of their revenue on domestic supplies, hotels with marinas and single marina or yacht chartering enterplises spend only 35.4% and 362%, respectively, within the domestic economy. This suggests that hotels and restaurants without marinas, among which most local and small esta blishments are found, are more inclined to benefit the local economy than larger tourism enterprises are. The pattem ollndlrect tourism Income Figure 10 represents the indirect tourism income or total earnings of all direct and upstream suppliers to the tourist industry, as a result of a $100,000 tourist expenditure. Imports do not appear in Figure 10 because they do not, as such, represent a sector of the economy. The indirect tourism income as depicted by Bgttre 10 consists of the value added (salaries, wages, profits) gene rated outside of the tourist industry by all suppliers of goods and services to the tourist industry. Thus, the indirect tourism income is measured after the tourist dollar has "journeyed", and the income generated by the tourist dollar has "multiplied" throughout the economy.

104 105

Figure 10. Indirect tourism income generated to each sector by $100,000 tourist expenditure (1987) us 路 -----------------------------BUS:Il<!ISS ' PROFESSIONA L. .SERV

'000

',j/ J,OOO

/Y/;

T"ES

llETA!L 'LE WHO I!SA

CONSTRUCTION 'I'RAN SPORT & COMMUN,

FINANCIAL ELECTIUClT楼

SER VTCES

WJI:rER

HANUFACT. AGJIIC. I'ISHERU!S

2.000

l.OOO

Tourist spending generates more income in business and professional services than in any other sector of the economy (other than the tourist industry

itselO.

Sourer of d4UI: O..Velopment l'lannln&Unit, National aa:amts.

It. can be observed that the three largest beneficiaries of the . JOurney of the tourist dollar are the non-tourist (busmess and professional) services, the retail and wholesale sector,. and the constr:z cti?n sector. An interesting finding, her , lS the substantial unpact of tourism on non-tourist s rozces. The latter involve a wide variety of finns that dire:tiy or indirectly supply to the tourist industry: architects, surveyors, landscaping and real estate services lawyers, accountants, engineers and investment consul ts, ipment rental enterprises, computer and secretanal services, management and security services laundry and photography services, etc. " o understand how tourism will benefit non-tourist ser ces, onmust recall how the multiplying effect of tounst spend1ng takes place. Let us consider, for example, the growing demand of hot ls for computer services as part of the non-tourist senn.ces. Thindirect tourism income generated in the non tour:zst servzces sector will not only include the earnings denved. by computer agents from their services to hotels. It will also account for a certain amount of earnings derived by the same computer agents from their services to the

wholesalers where these hotels are clients. If these wholesalers in turn are clients to, let us say, shipping agents who also use domestic computer services, an additional round of earnings in computer services will take place. These earnings will be part of the indirect tourism income generated by the initial tourist expenditure. Eventually, the indirect tourism income will include earnings of computer agents as suppliers of domestic services at all levels of the chain of inputs: hotels, wholesale, shipping agents, etc. This demonstrates that the tourist industry, to a certain extent, can support a service-based economy. Tourism also induces substantial earnings in more traditional activities like retail and wholesale, construction and transport. A $100,000 tourist expenditure can generate almost $11,000 of income in the non-tourist seroices, retail and wholesale, and construction sectors. Only $200, however, will accrue to farmers at the same time, but fishermen will derive almost $1,000. Overall, $19,650 in the form of remuneration of labour (wages) and entrepreneurship (profit) will be generated by the tourism sector to the benefit of the local economy. Tourism has the greatest income路multiplying impact among all sectors of the B.V.I. economy. Within the tourism sector, hotels and restaurants without marinas are most able to generate indirect tourism income ($24,108). These enterprises have a lower content of direct imports than other parts of the tourist industry. The lower the import-propensity of a sector of activities, the more significant the domestic impact of this sector is likely to be.

Import propensity and linkages A $100,000 tourist expenditure will induce nearly $20,000 of income. outside of the tourist industry. This indirect tourism income adds to the direct tourism income" estimated at $38,400, that the same tourist expenditure will generate within the tourist industry. Concurrently, $100,000 of tourist expenditure will entail only $4,000 of direct and indirect imports. Tourism does not

106

107

have the highest import propensity among all sectors of the B.V.I. economy; the retail and wholesale sector will spend $7,000 on imports for every $100,000 of sales or revenue. The high import propensity oJ the retail and wholesale sector is a major cause of the import propensity of the tourism sector. Most goods supplied by retailers and wholesalers to the tourism sector must be imported. An increase in the local supply of farm products, if oriented towards the satisfaction of the tourist demand, would increase the number of beneficiaries of tourist spending. Similarly, the economy would benefit from a greater supply of locally manufactured goods, such as quality pastries and rum, handprinted textiles, handicrafts, fiberglass dinghies, sails and other boat-related products, printed work, etc. However, more significant benefits might accrue to the B.V.I. economy through an expanded range of services to cater, directly or indirectly, for the needs of the tourism indUstry.

The Induced tourism Income The benefidaries of direct and indirect tourism income are the employees and owners of tourism enterprises and businesses that supply to the tourist industry. All of these employees and entrepreneurs in tum will spend fhat direct and indirect tourism income on household consumption. This demand will generate induced tourism income. The induced tourism income generated in the British Virgin Islands has been estimated on the basis of the pattern of domestic household expenditurel. A $100,000 tourist expenditure in the Territory generates $20,330 in direct household income, $9,195 in indirect household income, and $8,050 ininduced household income (see Figure 11). The highest levels of induced income are generally

Considering- that a large part of the profit generated by tourism activities is transferred abroad, the household expenditure of profit earners has been neglected.

108

tNDUCED

"tOUR ISM I NCOME

(1.1-H)

Figute 11. Distribution of the overall household income generated by $100,000 tourist expenditure (1987)

DI RECT TOOitTSM

INCOME

( 54 , H )

So"'cx of Aanunts..

UA:

DPU,

National

derived from activities where the remuneration of labo or direct income is highest. In the British Virgin Islands, e induced income is higher in four non路tourist sectors than It is in the tourism industry. These four sectors are (for initial expenditure of $100,000), transport and comn:zum cations ($11,760), non-tourist (business and professwnal) ($11,005), financial ($9,730), a:'d services services manufacturing ($9,390). On the other hand, sectors Wlth lower wages such as the retail nd who esale sector and the construction sector generate lower mduced mcomes: . We have considered three types of tounsm mcotne, which we have called direct, indirect, and induced tourism income. We _can now summarize our fin ings int? a selected few tourism multipliers as introduced m a preVIous chapter.

Tourism multipliers Because tourist spending generates sizeable income in excess of the direct earnings of workers and entrepreneurs in the tourist industry, it is said that tourist spending has an income-multiplying effect. As the generation of tourism income results frm the sales of goods and services, it is eful to ssess at first the sales-multiplying impact of the tounst expendtture.

109

The tourism sales multiplier A $100,000 tourist expenditure or tourism revenue generates $197,760 in sales of goods and services throughout the economy. The tourism sales multiplier or ratio of the overall sales induced in proportion to the tourism sales therefore is 1.98. In the British Virgin Islands economy, only the ra?sport and communications sector has a greater sales m tiplier (2.07) than that of tourism. Considering that an estimated 66% of sales in transport derive from tourist spending, tourism has the highest sales multiplying impact among all sectors of the British Virgin Islands economy. Within the tourist industry, sales multipliers are distributed as follows: • Hotels and restaurants without marinas ..... , ........ , ....... 2.07 • Hotels and restaurants with marinas .... .............. ....... 1.62 • Marinas and yacht chartering enterprises ..................... 1.94 • Other boat-related services ................................... 2.73

This distribution of sales multipliers suggests three remarks. 1) Hotels and restaurants without marinas or small tourism enterprises have a higher propensity to buy from local suppliers than hotels with marinas or resorts do. 2) Marina and yacht chartering enterprises also demon st te a . greater sales-multiplying impact than hotels wzth tnannas where hotel activities are predominant. Yacht chartering enterprises require a wider range of goods and services, including boat-related services, than hotel activities do. 3) Finally, the other boat-related services (boat main enance, d.i g, etc.) show the greatest sales-multiplying unpact w1thin the tourism industry, because of their needs for various goods (equipment, parts, etc.) and services (welding, refinishing, etc.). Unorthodox and orthodox tourism Income multipliers A $100,000 tourist expenditure generates $37,575 in direct,

indirect and induced household income. · This income multiplying effect can be translated into a ratio of the overall tourism income generated by that expenditure, to the expenditure itself. This ratio (about 0.38) is erroneously called "multiplier". We shall regard it as an unorthodox tourism income multiplier because tourism revenue (the tourist expenditure) is not actually multiplied into tourism income. The unorthodox tourism income multiplier tells us what proportion of a given tourism revenue has eventually taken the form of household income after the tourist dollar has "changed hands". The unorthodox multiplier does not tell us how much household income is generated, as a result of this change of hands, in excess of the income of direct participants in the tourist industry. In the British Virgin Islands, an important development objective is to enhance the linkages of the tourism industry to the other sectors of the economy. These linkages can be assessed in terms of sales (hence, the tourism sales

multiplier) but they are often considered in terms of income. In this respect, the orthodox tourism income multiplier is the most adequate indicator of the impact of the tourist dollar as the latter is "passed on" by the tour:ism industry to the rest of the economy. The (orthodox) tourism income multiplier, in the British Virgin islands, was 1.85 in 1987. It can be regarded as a stable ratio over a period of 2-3 years. This means that when $100 accrues to salary and wage earners in the tourist industry, another $85 is generated throughout the rest of the economy. By comparison, the tourism income multiplier in the Territory was estimated at 1.73 in 19741. Within the tourism industry, the (orthodox) tourism income multiplier is distributed as follows (1987):

Tourism survey by R.V. Evans, Government of the B.V.I., October 1975,

p.12.

110

111

• Hotels and restaurants without marinas .. •. .. . . . ... .. . .... ... 2..02 • Hotels and restaurants with marinas ...... . .. , , ... . . .•... . . . . 1.53 • Marinas and yacht chartering enterprises . .... , .......• .... .. . 1.85 • Other boat-related services............. .... ..... .. ..... ... ... 2.33

gain, we observe that hotels and restaurants without marmas, a category which includes most local establish

ments, have a higher capacity to pass on the benefits of tourist speng to .the rest of the economy than hotels and re t rants Wtth mannas or resorts do. A major reason for this 1S that small or local establishments are inclined to call on local suppli rs of goods and services more than large hotels are. Manna and yacht clulrtering enterprises meet the average multiplier of the tourism industry (1.85), and also demonstrate a greater ability to generate income than do resorts where hotel . activi es are predominant. Finally, other boat-related servtces, wtth a tourism income multi plier of .33: have the highest income-multiplying impact m the tounst mdustry. Tourism sales multipliers and tourism income multipliers overall indicate that a diversified, water-based tourisindus ry. is .best able to benefit the B.V.I economy. Accordmgly, It 1S rmportant that an extensive range of supplies and services be available to realize these benefits. . Fin lly, tourism income multipliers can be used in estrmating the overall contribution of tourism to the gross do estic product or incomel, An estimate of 51% was amvt for the year 1987. This shows that tourism directly and mdrrectly generates half of the British Virgin Islands'

wealth.

2 The distribution of tourism income Who benefits from the income generated by the tourism trade? While a part of the hotel revenue is spent on various material inputs, the factors of production of the hotel service Oabour, capital) will be remunerated. Firstly, the distribution of tourism income between wages and profit can be considered. The part played by tourism in the domestic employment will be indicated at the same time. Secondly, we shall examine the situation whereby tourism income has been accruing to expatriate workers and foreign investors as well as British Virgin Islanders. -

Wages vs. profit

Before considering the distribution of direct tourism in come between wages and profit, let us recall that the direct tourism income or total earnings in the tourism industry represents almost two fifths (38.4%) of the tourism revenue. The remaining three fifths of the tourism revenue is spent on material inputs. Thus, we know that the tourism industry spends more on purchasing goods and services than on remunerating its employees and owners.

In addition to the four sub-sectors of the tourism industry, the retail and wholesale and transport and communiCiltions sectors have been accow.lted for in this calculation as they too are beneficiary of tourist spending.

112

113

Tourism salaries and wages exceed tourism profits In 1987, the tourism industry paid $16.8 million in salaries and wages to its labour force. At the same time, $15.0 million in profits accrued to the ownership of the tourism industry. Differences in the distribution of direct tourism earnings

appear within the tourism industry. Profits exceed salaries and wages in hotels and restaurants without marinas and to a lesser extent in marina and yacht chartering enterprises. Conversely, salaries and wages exceed profits in hotels and restaurants with marinas, and in other boat-related services. The largest portion of salaries and wages disbursed in 1987 within the tourism industry was paid out by hotels and restaurants with marinas ($7.2 million). This amount was higher than the salaries and wages paid out by marina and yacht chartering enterprises by 33%. These enterprises on the other hand paid twice as much salaries and wages ($5.4 million) as hotels and restaurants without marinas did. The distribution of direct tourism income in the Territory suggests that: • hotels and restaurants without marinas, the category in which local and small establishments are found, are most inclined among all tourism activities to fa-vour profit in comparison with salaries and wages; • single marina or yacht chartering enterprises demon strate a higher inclination to favour profit than hotels with marinas do. Tourism and domestic employment

The tourism industry in 1987 employed 39% of the domestic labour force. Tourism employment then represented 48% of employment in the sole private sector. Figure 12 shows a comparison of the employed population in tourism and other sectors of the B.V.I. economy. With an estimated 2,817 employees in 1987, tourism employment

114

Figure12. Employed population in tourism and other sectors of the B.V.Ieconomy (1987)

inCluding BVI E.lectl:i.C.l.tY Corpoxation

4,000

Tourism is the TQURlSHGOVERNKaNT SERVICES• R£TAlL OLESALE 3,000 CONS!I'RliCUON BUSINESS & PROF. SERVICES TRANSl>ORT & COMMUN. 1-!ANUFACTUR!NC FlNIINCE

.ooo

largest sector of employment in thellV.I

economy.

Smlru of diU: Soc:W Security Board.

employment was distributed as follows: • Hotels and restaurants without marinas ... , ...... ············· 773 • Hotels and restaurants with marinas ............... ,·· . • ······971 • Marinas and yacht c rtering enterprises .•...........·, ·······893 •

Other boat-related services.. , .............. , ...... "...··"··· 180

In 1970, by comparison, tourism was only the third largest sector of employment, with labour force of. 379. In order to appreciate the present tmpact of tounsm on domestic employment, we can consider a "margiX:al" amount of ex.tra tourist expenditure in a context of tounsm growth. Let us suppose that, at a certain time of th:year, n extra 100 the $ ' 000 of tourist expenditure in companson Wllh prev ious year benefits the economy. This extra tou:l-St expenditure or tourism revenue will result in . te creation of 4 to 5 jobs in the tourist industry1• Additionally, the "journey'' of that extra tourisi? revenue roughout . the economy will induce the creatwn of an esbmated 3 JObs outside of the tourist industry. Overall, the $100,000 extra All estimates of employment created by ariations of demand have been derived through an input-output analys1s ofthe. B.V.I. economy.

115

tourist expenditure will result in the creation of 7 to 8 jobs

in the economy.

We can now compare this employment effect with that of a similar, additional demand in the construction sector or the finance sector. An extra $100,000 demand for construction would create 5 jobs in the construction industry, whereas a similar extra demand for financial services (banking, insurance, etc.) would create only 2 to 3 jobs in the finance sector. Thus, we observe that a certain growth in the tourist demand is not likely to create more new jobs in the tourist industry than an equivalent growth in the demand for construction would in the construction industry. However, while the $100,000 tourist demand will create 7 to 8 jobs throughout the economy, an equivalent demand for construction or financial services will induce the creation of only 6 or 5 jobs, respectively. Tourism therefore has a greater overall capadty to generate new employment than the construction industry or the financial services. Within the tourism industry, different activities have different capacities to generate employment. A $100,000 extra demand in hotels and restaurants without marinas will create 11 to 12 jobs overall in the economy, whereas the same demand in hotels with marinas will create only 5 jobs. This indicates that local or small establishments are more capable of creating new employment than large hotels and resorts. If a small hotel or a restaurant faces a sudden rise in the tourist demand, it may have to use up its working capacity. Further increase in the demand will then induce additional employment. Out of the 11 jobs likely to be created throughout the economy because of an additional $100,000 demand for small hotel or restaurant services, 8 jobs will be created within the small hotels and restaurants themselves. The 3 other new jobs will emerge, as a result of the multiplying effect of tourist spending, outside of the tourist industry. Conversely, if a similar demand benefits hotels with marinas, the need for additional employment will be 116

limited. The large capacity of these hotels will allow them to "absorb" the sudden extra demand without creating more than 3 new jobs. Thus, marginal growth has more visible effects in small tourism establishments than in large tourism establishments. The following table shows the distribution of jobs offered by the B.V.l. tourism industry during a 14-month period beginning in January 1988. The distribution shows employment classified into seven categories ranglng from unskilled employees to establishment managers. It is believed that the 534 job offers recorded represent the largest part of the labour force which was actually sought by the tourist industry during the same period. The proportion of newly created jobs among these job vacancies is estimated at 57%. Thus, some 305 new jobs were created by the B.V.l. tourism industry between January 1988 andApril1989.

Establishment managers Assistant managers (or equivalent) Specialized instructors 路 TechrUcalvvorkers Chefs and cooks Oerks and vvai tcrs Helpers Total

Jobs offered 19

65 32 50

83 184. 101 534

ofvvhich: jobs nevvly created

39 29 40 41 92 51

305 U the tourism economy has the capacity to create employment, who will benefit from the new tourism employment? This question raises the issue of distinction between British Virgin Islanders and expatriates as partidpants in the tourism economy.

Nationals vs. non-nationals The existence of a tourism industry implies that sizeable investment has taken place, and that a labour force is available. In most islands where a prominent tourism 117

ind try is found, part of the capital and part of the labour requrred to develop and operate that industry have been brought from abroad. In the British Virgin Islands, foreign ractors of production of tourism services play a particularly Important role. Salary and wage earners

?ver halof the labour force employed in the B.V.I. tourism mdustry s of foreiorigin (54.1%). This proportion is close to he raho of expatriate earners of salaries and wages in the entire economy (54.3%), not including Government employees. The _ greatest proportions of expatriates are found in cons rudwn . (64%), manufacturing (58.5%), and the non tou'!st (busmess and professional) services (57%), while the r azl and _wholesale, transport and communications, and finance Services have ratios of expatriate workers not greater .than 50%. Within the tourism industry, the highest proportton oexpatriatlabour is found among hotels and restaurants wzthout marmas (61%) which include the local r smaller stablishments. Conversely, the lowest propor tion of foreign labour is observed in hotels with marinas (49%). This indicates that large tourism enterprises are generally more inclined to employ British Virgin Islanders than small hotels and restaurants are. Why does the B.V.I. tourism industry employ expatriate labour? In the e r1y yea:s of tourism development (1960s), a few constructiOn proJects induced a substantial demand for lab?trr. Large numbers of male British Virgin Islanders had ermgrated. Others, involved in traditional self-employ ment ctivities, were not prepared to wo;k for wages. Expatnate workers were then brought in, mainly from Barbados and the Eastern Caribbean. . vyhile some expatriates stayed in the islands' construc tion mdustry, others found job opportunities in the tourism

118

industry. Uttle Dix Bay Hotel was the first large establish ment which employed workers who had participated in the construction of its premises. Many labourers who were not desirous of leaving the islands when the construction sector declined in the early 1970s also found alternative employ ment in the hotel and marina industry. Among the expatriates now employed in the B.V.I tourism economy are men and women who have stayed in the Territory after immigrating to work on a particular project, or workers who were recruited from the very countries of previous immigrants. Older immigrants have shown to advantage their new standard of living to relatives and friends who stayed in their native land. Thus, a basis was formed for employers to recruit more expatriate workers. Many expatriates have been reluctant to leave the British Virgin Islands where they have benefitted from a standard of living that they helped to raise. While the tourism industry developed, various tourism professions appeared. A growing demand for professional and specialized skills took place in land-based as路 well as water-based activities. Different executive tasks in hotels and marinas have been put into the hands of assistant managers, food and beverage managers, charter operations managers, restaurant supervisors, etc. Beside these executives, the tourist industry employs a class of specialized workers, such as hote1 accountants, chefs, boat captains or skippers, mechanical or electrical engineers, diving, sailing or windsurfing instructors, underwater photographers or videographers. Insufficient numbers of British Virgin Islanders have been able to respond to the demand for these skills over the years. This has resulted in another trend of expatriate employment, mainly from the U.K and the U.S.A. Not only has a substantial labour force been brought in from the South, but a class of specialized tourism workers a1so has immigrated from the North. The 'British Virgin Islands Labour Code regulates the

119

conditions surrounding the employment of non-belongers. Work permits may be granted to non-British Virgin Island ers seeking employment when "there was no B.V.Islander available._[to fill certain posts, or]...a scarcity of skills among B.V.Islanders"l. In 1988, 70 new work permits were granted to hotel and restaurant managers or working proprietors, yacht captains and self-employed yacht charterers, a class of men and women almost exclusively of British or North American origin. In the same year, 19 new work permits were given to chefs and cooks, a category where West Indian as well as European or North American workers are found. Meanwhile, 100 new work permits were granted to bartenders, kitchen helpers, waiters, hotel maids and related workers, a category dominated by immigrants of Caribbean origin. The distribution of new work permits received from the B.V.l Government suggests that when 60 expatriate workers of Caribbean origin join the Territory's tourism industry, 40 expatriate workers of European or North American origin are also given the right to work in B.V.I. tourism.

ants, specialized instructors and boat captains: A portion of their salariesestimated at 50%, is either saved to be even tually taken away, or remitted abroad on a regular basis. . . Other tourism workers, mostly of Caribbean ongm, conversely regard the B.V.L as a desirable place to live, and may seek a permanent status in the Te.t:ritory. They are mainly bartenders, waiters and waitresses, cooks, cleaners, kitchen helpers and maids. Most of these orker.expect.a rising standard of living and wish to remam parhopants m the B.V.l economy indefinitely. They may retain a substantial part of their salaries and wages for use within the B.V.I. economy. However, many of these tourism workers remit a part of their income abroad to their home land. An average 25% of those people's earnings leaks out of the Territory's economy. Overall, 26% of all salaries and wages distributed by the tourism industry will not stay in, and benefit the economy. This estimate is based on the profile of remuneration in tourism as depicted by Figure 131. Figure 13. Average annual salary or wage in the B.V.I tourism industry, in US$ (1988)

What leakages ensue from expatriate employment? Expatriate workers in tourism do not use their earnings like British Virgin Islanders working in the industry do. Part of the salaries and wages of expatriate workers leaks out of the domestic economy. It consists of tourist dollars that. o not. ']oumey" throughout the economy. Some part opants 1.n. the. B.V.I. tourism industry, mostly of contmental ongm, Will not be residing and working in the British Virgin Islands for a large number of years. Among them are hotel managers, assistant managers and account tants, In 1988, 249 work perm1ts were granted to nationals of the U.K, 321to

U.S. o.r Canadian citizens, 1938 to immigrants from OECS member countries and 327 to nationals of Guyana.

120

*noincludlng gr Luitles 5l'ECLUUED INS'UUCTOI! BOAT CAPTJ\l N CHEF COOK Cl.E}Ifre l!f' 000

13AR1'Elf0.

WAlTER*

10.000

5",000

Bartenders and waiters-, a category which also includes .hotel clerks, benef'rt from gratuities that account, on average, for twice their base salary or wages. An expatriate res_o.rt waitdurig.a pr s?':rous.tourtst season can live on his sole gratUthes while rerrutting-his fiXed mcome abroad,

121

Prt:Jflt earners

hotels with marinas, single marina or yacht ch rfenng . e terprises and other boat-related services in the Almos

all

B tish rr Islands are foreign-owned establishments. F1ve mannas m Tortola and one in Virgin Gorda, however, are owned or leased on a Iong-tenn basis by British Virgin Jslanders. One marina on Nanny Cay is owned by the gov rnment. All yacht chartering operations that these mannas accommodate are run by foreign entrepreneurs. On the other hand, two thirds of the hotels and restaurants without marinas are owned by British Virgin Islanders. Two sizeable establishments of this category are beach ho.telocated in Cane Garden Bay, Tortola and in the Valley, Vrrgm Gorda

If considered in its entirety, the tourism industry is largely owned by foreign investors. All resorts and most yacht chartering and other boat-related enterprises are foreign-owned. The average individual -profit derived by these enterprises is greater than that of local establishments. It is estimated that about 95% of the overall profit of the tourist industry accrues to non-British Virgin Islanders.

How is tourism profit used? Tourism profit can be distributed as direct remuneration of ownership or entrepreneurship. It can also be used to finance immediate investment or saved for future expan sion or other purposes. Profit accruing to local entrep reneurs often serves to expand existing establishments (e.g., development of a beach bar and restaurant in Cane Garden Bay, construction of an entertainment centre in the Valley). Profit accruing to foreign investors, the largest portion of the overall tourism profit, can easily be transferred abroad in the absence of restrictions on capital movements out of the Territory. Some foreign owners of tourism establishments do not transfer large profits from the islands. This usually happens when an enterprise does not derive a substantial profit, or when it undergoes frequent expansion or renovation, or because its owners are few and are established in the Territory. The largest part of the tourism profit, however, accrues to foreign investors who do not reside in the British Virgin Islands. Some of these investors are organized into transnational corporations that follow investment strategies and own enterprises in more than one country. Large resorts owned by foreign corporations do transfer substantial profits abroad, but they also often reinject capital in the domestic economy for expansion or renovation purposes.

Mrs. Cynthelia Creque left) managed the

(at

Social Inn until1984.

(Courtesy of Milton Creque)

122

123

References Devel?p ent Planning Unit, Ministry of Finance, (1988) British Vzrgm Islands NatWnal Accounts Statistics: 1977-198G R d Town, Tortola. 路 oa Encontte, P. 0987, October). Tourism in the B.V.I.: Economic perfonna ce arul development objectives. Paper presented at the Seminar on Tourism Management & Environmental and Develop ent Issues, organized by the B.V.I. Tourist Board in collaboration with the Chief Minister's OffIce, R oad 'T'.. own, Tortola. Encontre, P. (1987, December). Tourism within the national accounts: the case o'1 the British V trgzn . . tSr. lands. Paper presented at the Regional Tottrism Economic Plannin orkshop,. organized b>: the Caribbean Tourism Research an evelopment Econ 路 c Centre路 With the cooperation of the E uropean Ollll c ommum ty, Christ Church, Barbados. Government of the British Virgin Islands. Report of the lAbour Department for the year 1988 (in preru ration). Road Tortola. rTown,

Note:

All da.ta pertaining to the National Accounts domestic product by industry, except value added of sector) and to the input-output analysis of the economy (tourism multipliers) have been derived b aut or at the Development Planning Unit in the Mi of Fmance, Government of the British Virgin Islands.

(gross public BV1 . st ry

the

Conclusion Tourism provides the B.V.I. economy with a foreign market that has enabled British Virgin Islanders to raise their standard of living. 12 4

The existence of a tourism economy in the islands induces benefits for the islanders. Salaries, wages and profit accrue to many British Virgin Islanders who play a role at different levels of the tourism economy. Because the tourist dollar "journeys" throughout the economy, it will benefit more islanders than the sole employees and employers in the tourist industry. Tourism income is "multiplied", that is to say, tourism income is not only direct, but also indirect and induced. In particular, it concerns various suppliers of goods and services in addition to the direct participants in the tourist industry. As a significant source of government revenue, tourism also contributes to the nation's capacity to support its development efforts. Yet, another picture of the tourism economy surrounds this perception of the tourist dollar. There are "leakages": 22% of the tourism revenue will leave the domestic economy in the form of import payments26% of salaries and wages paid by the tourist industry are remitted abroad, while 95% of all tourism profits accrue to foreign investors who will transfer a large part of their earnings. In economic terms, leakages of tourist dollars do not reduce the benefits of the tourism trade. Saying otherwise would amount to saying that paying the price of a plane

125

ticket reduces the advantage of the a.ir trip. The purchase of a plane ticket is only the requirement to answer to obtain the benefit of an air trip. Similarly, it is more correct to say that leakages of tourist dollars are the price to pay to have the benefit of tourism income. The magnitude of leakages for a given benefit of the tourism trade depends on the characteristics of the islands at a particular time. To maintain standards of quality in the tourism product, certain amounts of goods and services have to be imported. To satisfy special manpower needs, expatriate labour must be retained or called on. Finally, as long as suffident local entrepreneurship does not exist, foreign investment may take place and more tourism profit consistently may be tranferred abroad. The essential question regarding the development of the tourism economy is then: how to increase the economic benefits of tourism for the islanders without eroding the sodal and physical balance of the islands? A greater economic benefit of tourism for British Virgin Jslanders can be achieved in different ways. Through lower leakages First, an increased tourism income for the islanders can be derived from a greater involvement of nationals in the existing tourism economy. A larger share of tourism salaries and wages will benefit Brittsh Virgin Islanders. The latter may also be able to substitute certain imports with the supply of more local goods and services. Increased local involvement will result in lower leakages of tourist dollars. Through higher leakages Altematively, a greater tourism income for the islanders an be derived from an expansion of the existing tourist mdustry. ff this expansion is not undertaken by local entrepreneurs, it will be controlled by foreign investors, and

may entail a general incre se in leakages. A large t m project in the British Virgm Islands ill cause addit10n l importation of goods and service.s. It will probably result m the recruitment of more expatnates. Moreover, when the project is able to yield a profitp:ofit earnings ill bused or transferred by foreigners unhnutedly. Yet, thiS proJect may also benefit British Virgin Islanders, because some goods and services will be supplied locally, and the project is likely to employ belongers along with expatriate orkers. . Now, a situation of growing econoc benefits gamed at the expense of higher leakages of tounst do not be considered only in economic terms, but also m.soc1al and cultural terms. British Virgin Islanders are conscwus of the risks that tourism growth could entail within their society. 路 The social balance of a small island community may be distw:bed by the presence of la ge numberof expat:d e workers in a context of tounsm growth . A gr wmg imbalance between British Virgin Islanders and fore1 ers in the economic ownership might also be .perceived unfavourably if local entrepreneurship was not en ouraged. Over the years, the importation of certam consumer goods originally to satisfy foreigners' taste has expanded because of an induced local demand for the . me goo . Finally the cultural environment of BntiSh Virgm Island:rs could gradually degenerate ithe context of a massive tourist presence if the perpetuatwn of local culture was not instilled. .. Tourism has raised the standard of livmg of Bntlsh Virgin Islanders while offering oppor ties to .foreign investors, expatriate workers, and fore1 s ppliers. A growing foreign involvement in B.V.I. to nsm 1s no longer perceived as the most desirable way to mcrease the wel1 being of British Virgin Islanders. The ne"Y .ap roach to the tourist dollar contemplates a wider partiCipation of B.V.I.

This adds to the economic cost of a growing expatriate population in terms of social services (education, health, etc.)

126

127

nationals in the tourism economy. A greater tourism income through lower leakages of tourist dollars is preferred to a greater tourism income through higher leakages of tourist dollars. Higher leakages, because of their social and cultur.al consequences, may impair the benefits of tourism. Instead, it is hoped that an expanding local role will induce lower leakages and a wider benefit of the tourism trade. Greater local participation will involve a larger part of the community in tourism entrepreneurship, employment, and also the supply of goods and services to the tourist industry. The tourist dollar "matters" because the tourism economy in its entirety presents British Virgin Islanders with a range of opportunities to enhance their standard of living without eroding their social and cultural environ ment. These opportunities will be found in more managerial, specialized and technical employment for British Virgin lslanders in the tourist industry if adequate education and training efforts are pursued. Economic and social progress will also rest on local entrepreneurship, not only in the tourist industry itself, but also in the sphere of supplying the goods and services required by tourism activities. Figure 14. Cumulative numbers of B.V.Islanders with higher education degrees in 3 different fields of studies (1981-1992)

0,.---------------, 40

Business 30

adrn in1stral-lOO/ & 4CCO UCit 1.

Business administration & accounting graduates outnumber hotel studies graduates.

.,../"" _., Compute.r s t udie. 88

128

Sourceof dAJ r Mll\Jstl)' of H,E & W, 91

9'2

Scllo lp statistiCÂť.

Examples of local entrepreneurs in the tourism economy

Andy Flax (at right) and his wife Nonna opened a bar by the sea in Virgin Gorda in the early 1960s. They catered for the workers at Little Dix Bay, owned the first safari bus i n the islands, and eventually opened a reputable beach hotel and restaurant in the Valley (tup photo represents

opening of Fischers Cove &.lch Flotel on September 9,1973).

Jatnes Rhymer of Cane Garden Bay (bottom photo) is remembered as a leading exampleof native entrepreneurship in Tortola's tourism.

1 3 0

Michael Uoyd of Brewers Bay produces about 2,000 lbs of pawpaws and other fruits per year. The B.V.I hotel and restaurant Industry has the capacity to consume about 23,000 lbs of local fruits annually.

131

132

al M rt. of Doty Tortola (top photo) cultivates nine squaryards of W ter a m , t with the seasoning der1ved from thyme and supplies many dresl<tau:an;ulkner of Anegada (bottom photo) that aromatic plant. Pat an evm a . make pottery and pal.nfJngs that are sought after by tounsts.

â&#x20AC;˘

Josie Fahie of Baughers Bay (top photo) continues a family tradjtion of boat making. With a staff of 7, he makes an average 80 fiberglass boats per year. Most of these boats, such as the "Carib Tender" dinghies, are favoured by the yacht chartering industl)l others are exported to Eastern

Caribbean islands.

Elvet Meyers of Cane Garden &y (bottom phl!to) repairs over 1,500 sails and makes some 50 new sails per year. With a staff of 3, he. also makes bimini tops, cushion covers and other boat-related products.

13 3

Bibliography Backer, R. de (1985, July-August). Unbending after the economic storm {in Country Report on Fiji). The Courier, pp. 34- 40. East Caribbean Division, IMF Western Hemisphere Department. (1985). New Fund member St. Christopher and Nevis striving to diversify sugar-based economy. IMF Survey,14 (3), 34 - 36. Harrigan, N., & Varlack, P. (1975). The Virgin Islands Story. Essex:Caribbean Universities Press!Bowker. Kadt, B. de (Ed.). (1979). Tourism: Passport to development? (Perspectives on the social and cultural effects of tourism in developing countries -- A joint World Bank-Unesco study). Oxford University Press. Kakoza, J. (1987). Mauritius achieves twin goals of stabilization and growth. IMF Survey,16 (3), 34-36. Lea, J. (1988). Tourism and development in the Third World. London & New York: Routledge.

Pagni, L. (1985, November-December).

Mainta,ining unity and

winning the battle of the economy (in Country Report on St. Christopher and Nevis]. TheCourier,pp.31-37. Pickering, V. 0983). Early history of the British Virgin Jsumds: From Columbus to emancipation.Falcon. Seward, S., & Spinrad, B. (Eds.). (1982). Tourism in the Caribbean: The economic impact. Ottawa: International Development Research Centre. Shah, S. (1986). Fiji economy undergoes painful adjustment to precipitous decline in commodfty prices. IMF Suroey, 15 {12), 178-180. Shah, S. (1986). Kiribati seeking ecollomic diversification in wake of depletion of phosp'hate reserves. IMF Suroey, 15 (23), 379 383. Shah, S. (1987). Maldives' adjustment measures enhance medium termgrowth prospects.JMF SurveJ;,16 (21),344 -347. Van de Vclde, M. (1988, September-October). Maurjtfus and the Midas Touch (in Country Report on Mauritius]. The Courier, pp. 7-12.

Glossary The following list contains the _spec路a. lized terms u路sned 1isno thbe mam路 text. All terms appearing in italics m thts glossary WI a . found as entries. Accumulation o拢 wealth: conno tes a continuous flow ofthpatrivwaitlel . la . es) and government revenue income. (projil, sa m :gability to raise its standard of living. dAeccteumuln o pwuealth normally understood in the context of 1 .1S . aeti.ona economic growth.

t! r;ei:J::S

Benefits of tourism: .the vanal'o us u : indirect induced) accrum g to 1 pa crp

1 3 4

and in the rest of the tounsm economy.

Coefficient: a number by which another number is multiplied. .

the .P availability of sufficient income to nnp?rt Coao.pdasctaim tynort路 dtoservi g ces m order to maintain or secure a standard of ltvmg beyond that of a subsistence economy.

. P. aid to secure the benefits of tounsm; the Costs of tourism: the pnce economic are the leakages of tourist dollars as these costsof tounsm "journey" throughout the economy. .

. ed by domest ic or f o r e ig n Capital: the means m vest . r,. . .,. ; ta l is e n t r e p r e n eu r c o n s i d e r ed a s towards the production of goods or servtces. -.-,.,. a factor of production.

urlsm revenue路 the different uses of tounsm Count arts of t a tourist tablishment; the tourism inputs revenu: m oper:;g tourism incomes (profit, salaries, wages). .BY v(siurtpupebeosf) thaendcoun terpart principle' tourism revenue equals tounsm inputs + tourism incomes. 135

Day-trippers: the category of tourists who will not use overnight domestic ac.commodation, whether land-based or water-based. Day trippers are either visitors from neighbouring islands, or yachtsmen who do not use marina or mooring facilities overnight but spend a day visiting the islands. fn B.V.I. tourism statistics, cruiseship visitors are distinct ftomday-trippers. Direct tourism income: the income (profit, salaries, wages) accruing to direct participants (entrepreneurs, workers) in the tourism

industry.

Exportation: the act of selling goods or services to persons who normally are residents abroad. Export receipts: the revenue derived from exports or sales of goods or services abroad. Factor of production: the financial or human resources engaged in the production of goods or services. The two main factors of production are the labour (human resources) and the capital (financial resources, transformed intobuildings,equipment,etc.). Foreign exchange earnings: foreign currency earned or accumulated through trade or financial transactions with the rest of the world. If derived from exportation, these earnings will be converted into export receipts for the exporter. Foreign investment: investment of capital abroad or from abroad; investment in tourism by foreign entrepreneurs is foreign investment. Gross domestic product: the aggregated value added of all sectors of activities, or the overall incogenerated in the domestic economy over a year. The gross domestic product (G.D.P.) at constant prices is a conventional indicator of economic. growth. It depicts the community's ability to accumulate wealth. The G.D.P. per capita, or ratio of G.D.P. to the population, is tbe average individual income in the community. Hotel occupancy: the average proportion of rooms or beds occupied over a certain period of time. The conventional ratio of hotel (room) occupancy is the number of rooms occupied in proportion to the number of rooms available. Importation: the act of buying goods or servicesfrom abroad. Income-multiplying effect; effect produced by the "journey" of the tourist dollar. Under this effect, the overall income generated throughout the economy by a certain tourist expenditure will be

'thin the sole tourist industry 'ts h . me generated W l ' ture i nc ome-multiplying greater than t. e mco The " "' • m. 1 "by'J Jthat ect . tourtSt expendt rnbination of direct iru:ome, mdtrect ·der sense results from e co W1 ed. income,and indue mcome. . ( fit salaries, wages) . . Jl\e· the mcome pro ' d Indirect ) of goods \ g touriSJI co (' dudin upstream suppliers an accruing to all sul?p ers ln services to the tourtSt mdustry. . :t... . wages) . . the income (profit, sal!4nes, Induced tourism c:'t household goods and services to the accruing to all supplie . . · iru:ome. . . ) be . ef daries of direct and mdtrect tounsm n t 1. oods or servlCes (mputs ' I t business: the business of supp ymg g i rtic:ular to the tourist industry. . betWeen the • th nalysis of interrelatiOns Input-output analysts: e a I be confined to the analysis of different sectors of the onomy.d t (e g tourism) to the rest of the linkages of one particul scan .derived from the input the economy. Tounm mu p

c:;

output analysis of tounsm.

t produce g

ood sernces. Labour' is s or

Labour: the work necessary ? considered as a factor of produchon. king population. . . that are, .. not Laboudorce: the wor . ti 'ties· tounsm servtces Land-based tounsm ac V1 • or water - based leisure activities. directly related to th ad transport pertain to land-based Hotels, restaurants an n

tourism activities.

. Leakages from u ut of the economy. d o ar Leakage:. the transfer of o lace at different stages of the the tounsm economY. can tak. fhe form of pre-payments abroad, "journey" of the tourtSt .dollar, tn laries or wages, or tramfers of import payments, rermttances of sa profit. ed transactions take place Linkage: a situation hereby repeaurism) and the rest of the between one particular mdustryf (e.g}-:o: f goods or services to that ainly in the form o supp 1 Omy m econ ' th sectors of produc ti'on · industry by o er t blisbrncnt accommodating · 'tin' omme r dal e s a c VlSl g Marina: industry water-based or yachts h t cha r te ring for either the yac 136

yachtsmen. ssary to hotel)the recurrent expenses nece Operating expenses o a .

( f

1 3 7

operata hotel, mainly for the purchase of . (supphes) and the remuneration of the 14bour force. goods and sezyJ.ces Orthodox tourism income multi li . th .. inco?'e generated in the tourist ;nd t e coefficzent ?Y which the tounst expenditure is multiplfed .to arrieby a certaamount of overall income generated thro h h at an estimate of the expenditure. ug out t e economy by that tourist Overnight holiday visitors: tourists h . ov ight, using either land-based wt o 1.A tay m . theaccommoterritory dation. or wa er-vu:;ed tounst Package tour: a tourism d t r lation to a particular p; u':Ist c tion, transport, etc.

. .

:g f combined services in on; passage, accommoda-

Primary products:agricultural or tnining products. Profit: the remuneration f 't I' o capz a tnvestmentorentrepreneurship Propensity to import: a certain amount of . . . particular industry as a result of 1 d 0ll . tmporwn effected by a to that industry. ar of expendtture or demand Remittance (of salaries or wages)· one f< salary or wage earners transfer a . t 0fonn of leakage, whereby usually to their home land. par their earnings abroad, Rent the remuneration of property leasing. Sal: the remuneration of labour usually fixed d basts. ' an on a monthly Seasonality effect: the variability of . seasoto the other. 1n most Caribbea ed tou.nsrrz. demand from o e effect lS perceived as a slowing dow r tina ons, : .seasonaftty ounsm acttmties during the summer season. - n

Standard of living· the I el f community. It can . be ev;""" _. aterial comfort observed in a

expr==u m economic terms ( omes c product per capita) or in ph . I e.g., number of motor vehicles per householJ> Ica tenns (e.g. the average Stayover holiday visitors:see overnight holiday visitors. Tourism activities: the different types f 0 . based or W' " t b --1 servtces whether 'nd . . er-CISa , pertau• u•ng to the tourist indust U4 "J

Tourism demand: the demand for tourism servic:·.

Tourism economy; the economic actors and forces associated with the demand and supply of tourism services. Tourism employtnent multiplier: the coefficient by which the number of jobs created in the tourist industry as a result of a certain tourist expenditure is multiplied to arrive at an estimate of the overall nwnber of jobs created as a result of that expenditure throughout the economy. Tourism enttepreneurbusines-s person in tourism activities. Tourism income: earnings of all participants in the tourism economy. It can be referred to as the overall tourism income, that is to say, the sum of direct,indirect,and induced tourism income. Tourism.

income

multiplier:see

orthodox tourism

income

multiplier. Tourism industry: the enterprises that benefit from direct tourist spending. Tourism industry often connotes the sole (land-based or water-based) tourist accommodation industry, but it may also

encompass the tourist entertainment, distribution, and transport activities. Tourism input: goods or services supplied to the tourist industry; one of the counterparts of tourism revenue. Tourism investment investment of capital in the tourism

industry. Tourism plant the established tourism industry. Tourism product a tourism service.ln its narrow sense, it is a priced service (e.g., a hotel room, a yacht charter). In its broader sense, it also implies a certain quality of the environment (e.g., cleanliness, safety). · Tourism

revenue: receipts from sales of tourism services by a

tourist establishment.

Tourism sales multiplier. the coefficient by which a certain amount of tourist expenditure or tourism sales is multiplied to arrive at an estimate of the overall sales generated throughout the economy by that tourist expenditure. Tourism supply: the actual supply of tourism services by the tourism industry.The tourism supply equals the tourism demand. Tourism trade: the transactions that take place within the tourism

138

economy. Tourist accommodation: the accommodation facilities offered to

1 3 9

tourists

the

tourism

industry. Tourist destinationa destination country or territory offering tourism services. Tourist dollar: the currency that enters the domestic economy at the time of tourist spending. Tourist establishment: an establishment offering tourist

accommodation.

Tourist expenditure: the expenditure associated with the tourists' demand for-goods and services. Tourist market a (foreign) geographical area where a tourist destination is advertised and where all or part of that desti nation's visiting population comes from. Tourist per capita ratio: the ratio of the annual number of (overnight) tourists to the resident population of the

tourist

destination. Tourist spending: see tourist expenditure. Transfers of profit. occur from the tourism economy to the countries of residence of foreign investors. Transnational corporations: large enterprises owning commercial establishments in more than one country, and sometimes in different areas of activities. Underdevelopment a country's state of relative inability to exploit natural resources to sustain growth in the community's standard of

living.

Unorthodox tourism income multiplier. the coefficient by which a certain amount of tourist expenditure is multiplied to arrive at an estimate of the overall income generated by that tourist

expenditure.

Upstream businessthe business of supplying goods or services to ("upstream from") the direct suppliers of related goods or services to the tourism industry. Example: a laundry service to a hotel is direct input business; the supply of detergent to the laundry entetprise is upstream input business. Value added: the value of a production in excess ol the value of the bought-in material components of this production. The value added is also the total remuneration of all participants in the production process: salaries and wages lor workers, profit for entrepreneurs or 140

owners. Value added at constant prices: the value.added in a PCU:ticul r essed 路 the prices of the eqwvalent production m =he :ar, usu ly a previous year. Change_s in the vaiue add at constant prices represent real changes m the.. vo ume o production, regardless of any inflation factor. PoSltive changes reflect economic growth. Visiting population: the pul tion at has actually visited a tourist destination over a certam penod of tune. Wages: the remuneration of labour, usually on a daily, weekly or fortnightly basis. . Water-based tourism activities: tourism se c:S. that ardtrectly ted to the sea or water-based leisure activities. Mannas, Y.b hdt la pertain to water- ase re chartering, water sports and sea transport . .

tourism activities. Yacht chartering:the renting of crewed yachts or bareboats.

141