THE CASE FOR LONG-TERM LENDING TO SUPPORT BELIZE’S TOURISM INDUSTRY AND BY EXTENSION SPUR THE NATION’S ECONOMIC RECOVERY.
- Estimates vary but approximately 40% of Belize’s GDP is linked to international tourism. It stands to reason that with the nation’s tourism revenues reduced to near zero since mid-March, 2020, there can be no economic recovery for Belize without the recovery of the tourism industry.
- Direct employment by tourism is in the tens of thousands and is focused in San Pedro, Caye Caulker, Hopkins, Placencia, San Ignacio and Belize City but is felt nationwide as labor mobility has increased markedly over the last two decades.
- Linkages to the rest of the economy are strong, particularly with the agricultural/fishing sector which supplies millions of dollars worth of grains, fruits, vegetables and high value proteins to feed the over 1.5 million annual overnight and cruise visitors to the country. Other major tourism linkages are with the transport, construction and manufacturing sectors.
- Tourism is one of the nation’s major sources of foreign exchange and therefore an indispensable factor in maintaining a strong level of hard currency reserves and maintaining the exchange rate of the Belize Dollar.
What makes the current pandemic crisis so different from past large-scale negative events is its unknown duration and global impact. Hurricanes, floods or fires are events of specific duration and limited geographic impact. They are also often mitigated by insurance. The current situation is unprecedented and we have no playbook to deal with it. What don’t we know?
- While Belize has been blessed in terms of our own COVID-19 experience we do not know what effect the eventual opening of our borders will have on the number of COVID-19 infections and the ability of our health system to deal with them.
- While the question of when the PGIA will open is a frequent topic of discussion, what is often ignored is the question of once the airport is open, will North American visitors come to Belize? And if they do will we be able to safely screen them? And when they do, will they come at the levels they used to?
- Although our members report receiving regular emails from past and prospective guests saying how anxious they are to come to Belize, most survey data from the U.S. done by CHTA, Trip Advisor and IATA suggest that a majority of travelers are still fearful of getting on an airplane and when they do begin to travel it will be domestically as opposed to internationally. The outlook is even worse for the cruise industry as while the government considers July 1st as a possible date for PGIA reopening, cruise lines will not return to Belize prior to September.
The implications of these unknowns is that there is a strong likelihood that levels of visitor arrivals in Belize will remain far lower than most local observers estimate and that the duration of low arrival numbers will last longer.
If you combine the low arrival numbers with lower prices for lodging and tours caused by intense global competition, the result is an industry-wide revenue situation that is far worse than it first appears to the casual observer, government official or even many owners of tourism-related businesses.
Because the crisis hit in mid-March—the high point of the tourism season—most businesses had ample cash reserves and believed that they could ride out the storm with their seasonal surplus. Many declined to reduce staff size or make radical reductions in expenses, thinking that the crisis would be short-lived. Those who saw the need for additional financing turned first to their local bankers, who were largely amenable to some easing of terms and payment deferrals. Most of these measures, however, were short-term in nature and provided relief for only three to six months.
What we are now saying is that indications are that conditions in North America—both infection rates and public opinion—are such that the negative impact on our industry will be greater than anticipated and that there will be a much larger need for long-term financial assistance for the industry than anticipated. Where once it appeared that cash flow would return to sustainable levels by December 2020, it is now more likely that December 2021 is a more realistic date and even then the level of revenues will be substantially less than 2019.
WHAT DFC CAN DO
What we at BTIA are saying is that for many operators of hotels, restaurants and tour services the present level of financial support provided by the local banking system will not be sufficient to sustain them through what promises to be at minimum an 18 month period of severely depressed revenues. The resulting shutdowns of many businesses and loss of employment at most others represents a real threat to the nation’s economy; the resulting loss of tax revenue will further handicap the Belize Government from playing a larger role in the economic recovery.
While we realize that the DFC cannot bear the entire burden for Belize’s economic recovery it can play a larger role in helping the tourism industry—the driver of the economy—to get back on its feet. If that is not the role of a development bank then what is?
Simply put we are asking that DFC—either through its existing resources or new lines of international credit—establish a dedicated tourism industry loan window that can provide long term financing (7-10 years) at below market rates (3-6% interest) to established tourism businesses to get them through this unprecedented crisis and return themselves and the country to prosperity.
We are not looking for any “bailout” as we assume that borrowers will have to satisfy normal lending conditions such as reasonable collateral, realistic business plans, strong track records and perhaps other considerations such as target levels of local employment and monitoring of foreign exchange inflows. There may even need to have two windows: one for smaller clients and one for the larger players.
We look forward to working with you on behalf of our members and to helping establish common sense criteria and publicity for such a program. We realize that time is of the essence and are prepared to mobilize quickly in order to provide for the industry’s critical needs.