Economics SBA: Foreign Direct Investment in Tourism

February 27, 2011 FOREIGN DIRECT INVESTMENT IN TOURISM IN ST.LUCIA

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Table of Contents Acknowledgements……………………………………………………………...........Page 2

Objectives………………………………………………………………........................Page 3

Introduction………………………………………………………………………….Page 4

Procedure Used To Collect Data……………………………………………………..Page 5-6

Presentation of Data……………………………………………………………….....Page 7-46

Graphs………………………………………………………………………..Page 8-39

Interview……………………………………………………………………..Page 40-46

Analysis and Interpretation…………………………………………………………Page 47-57

Findings and Recommendations…………………………………………………….Page 58-62

Bibliography……………………………………………………………………….....Page 63

Appendix I-Questionnaire…………………………………………………………..Page 64-69

Appendix II-Interview Schedule……………………………………………………Page 70-72

Appendix III- Tourism and Incentives Act………………………………………….Page 73-89


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Acknowledgements This project is the culmination of two weeks of tireless effort and exertion for an ideal, a vision and a hope. This painstaking work could not however, be completed without the assistance of a number of individuals: My Parents, whose unwavering support enabled and inspired me to persevere to complete the task at hand; My professor of Economics, whose wise counsel and insistence upon excellence sustained me during the struggle; Mr. McHale Andrew, whose advice, time and intellect have served to broaden my perspective and improve my analytical capabilities not only for this project, but also for the future; those in the tourism sector and government who supported this report by providing statistical data and questionnaires; and most importantly, to God, whose unfailing love, support and energy sustained me through faith during the road towards completion. It is my hope that this project should serve as a dedication to them and the country that the future may be, if anything, a little brighter.


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Objectives 1. To determine the extent of foreign direct investment in tourism in Saint Lucia. 2. To objectively analyze the effects of foreign direct investment in tourism on the Saint

Lucian economy, society, and political system. 3. To formulate a series of recommendations to alleviate the issues associated with foreign

direct investment in tourism. 4. To attempt to describe the economic repercussions of the aforementioned

recommendations.


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Introduction

Foreign Direct Investment (FDI) refers to the injection of externally generated funds into the

economy of a country through a variety of mechanisms including corporate entities, joint

ventures, government bodies etc. but excluding portfolio investments (injections through stock

markets). In the context of the tourist industry, FDI has played an integral role in stimulating

market expansion, profitability and growth in the developing industry.

Since the late 20th century, tourism has become the dominant sustainer of Saint Lucia’s

economy, signaling a shift from primary local agricultural industries to service based sectors.

However, due to the extensive investment and capital required in this industry, a surge of

foreign direct investment has occurred. Consequently, a number of social, political, cultural,

and economic repercussions have swept through Saint Lucia.

This documentation is directed towards providing a comprehensive and objective analysis of

the issues and benefits arising from foreign direct investment in Saint Lucia’s tourism sector.

Based on the information produced during the course of preparation, I hope to produce

recommendations which may improve the sustainability of foreign direct investment in Saint

Lucia. It is imperative that the development of our Caribbean economy be closely regulated

while simultaneously promoting the market expansion permitted by tourism exports and

reaping the benefits of technical and administrative expertise in the industry. How do we cope

with the onslaught of structural, legislative and social changes made requisite by accelerated

economic growth? These are the determinations which shall be made in the following pages.


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Procedure Used To Collect Data

In order to collect the information required for the preparation of the report, a variety of data

collection methods were utilized, namely: questionnaires; an interview; statistical data; and

secondary reports.

The administered questionnaires consisted of twenty (20) multiple choice questions. Due to the

highly technical nature of the research question, individuals were chosen on the basis of their

occupations in the tourism sector. This resulted in a diverse sample which included people of

all ages, mainly from the lower-upper middle class. Unfortunately, however, the sample was

slightly restricted by the difficulties associated with locating hotels willing to participate in the

survey and costs associated with preparing large volumes of the questionnaires on limited

funds. Participants were identified from two hotels and one taxi association in the island. The

questionnaire was prepared with the objectives in mind i.e. in order to allow the respondents to

comment on the perceived cultural, social and economic effects of foreign direct investment

and make recommendations pertaining to its regulation. Additionally, the questionnaire also

sought to investigate job satisfaction among respondent as an indicator of the effects of foreign

direct investment in tourism. Nineteen questionnaires were distributed to the small sample of

individuals directly involved in the tourism sector. Over a period of one month, the

questionnaires were distributed to the participating organizations, collected, and processed.

The interview conducted with the Executive Vice President of the Saint Lucia Hotel and

Tourism Association (SLHTA), was initially developed in the form of approximately seventeen

questions formulated upon the objectives of the study. These were carefully vetted by the

professor of Economics, and refined to produce a more targeted collection of questions. After a


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lengthy period, this individual was identified as an acceptable candidate for the interview

based on his ease of accessibility, his expertise both as an economist and as the former

Permanent Secretary in the Ministry of Tourism, and his present occupation as the Executive

Vice President of the SLHTA. After careful planning, the interview was carried out on the 7th of

February 2011, at 9:30 a.m., at the offices of the SLHTA. As opposed to the questionnaire, the

interview was directed towards a more thorough and technical examination of foreign direct

investment in tourism and its impacts. It lasted for approximately 1 hour 23 minutes and was

recorded with the intention of producing a synopsis, included near the end of this section

(pg.40).

Additionally, statistical data was obtained from the Economic and Social Reviews 2007, 2008

and 2009, in order to provide a complete overview of the state of foreign direct investment in

tourism in Saint Lucia. This was supplemented by a variety of reports and data from the World

Bank, Ministry of Tourism, Ministry of Agriculture, Ministry of Economic Affairs, Royal St.

Lucia Police Force, Trade Knowledge Network and the United Nations.


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PART I

PRESENTATION OF DATA


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The graph above describes the age demography of the nineteen respondents who participated in the study by filling out questionnaires. According to the chart above, the majority of respondents (37% or 7 individuals) were between the ages of 17 and 25 years old; whereas 26% or 5 individuals were between 25 and 39 years old. This demonstrates that a total of 63% of respondents were between the ages of 17 and 39 years old. On the other end of the spectrum, 16% of respondents, or 3 people, indicated that they were between 40 and 60 years old, while the remaining 21% or 4 individuals indicated that they were over the age of 60.

37%

26%

16%

21%

Age Group (Fig 1.1)

17-25

25-39

40-60

60+


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The diagram above shows the nineteen respondents from the questionnaire sorted according to their religious affiliations. Fourteen of the respondents indicated that they were members of the Roman Catholic Church; three respondents indicated their affiliation with other Christian denominations; whereas 1 respondent indicated their affiliation with the Hindu and Muslim religions respectively.

0

2

4

6

8

10

12

14

Religious Affiliation of Respondents (Fig.1.2)

Catholic

Christian(Other)

Hindu

Muslim


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The diagram above shows the data obtained regarding the citizenship of the nineteen (19) respondents who participated in the questionnaires. The objective of the question was not to establish the particular details of each respondent’s nationality, but rather to make the distinction in the data collected between Saint Lucian nationals, non-nationals, and those possessing dual citizenship. According to the bar graph above, thirteen (13) respondents indicated that they were citizens of Saint Lucia; four (4) respondents indicated that they were not Saint Lucian citizens; and two (2) respondents indicated that they possessed dual citizenship. It is essential to document that the data collected does not make the distinction between naturalized citizens and native-born citizens.

0

2

4

6

8

10

12

14

Saint Lucian Non Saint Lucian Dual Citizenship

Citizenship of Respondents (Fig 1.3)

Saint Lucian Non Saint Lucian Dual Citizenship


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The pie chart above depicts the occupations of the nineteen respondents who submitted questionnaires. From the graph above, it may be deduced that 32% (6 respondents) were employed as taxi drivers; 26% (5 respondents) were employed as hotel restaurant workers e.g. waiters, chefs etc.; 26% (5 respondents) were employed as hotel administrative workers e.g. managers; 11% (2 respondents) were employed as Vendors; and 5 %( 1 respondent) was employed as a hotel domestic worker. The data illustrates that the questionnaire was administered successfully to an occupationally varied sample directly involved in the tourism sector.

5%

26%

11%

32%

26%

Occupation of Respondents (Fig 1.4)

Hotel Domestic Worker

Hotel Administrative Worker

Vendor

Taxi Driver

Hotel Restaurant Worker


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The horizontal bar graph above indicates the annual salary ranges of the nineteen questionnaire respondents. However, two respondents chose not to provide responses to this question despite the unequivocal guarantees of anonymity made in the cover letter. Out of the remaining seventeen (17) respondents, five (5) indicated that they earned between 40000 and 200000 XCD (Eastern Caribbean Dollars) per year; six (6) indicated that they earned between 10000 and 40000 XCD per year; and the other six (6) confessed earnings of under 10000 XCD. Apart from the explicit reluctance of some respondents to respond to this particular question, it is impossible to attest to the veracity of the responses obtained. Individuals are generally extremely reluctant to answer questions which probe into their wages.

0 1 2 3 4 5 6 7

Under $10000

$10000-$40000

$40000-$200000

No Response

Annual Salary of Respondents (Fig 1.5)


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The diagram above depicts the educational qualifications of the respondents who participated in the questionnaire. Eight (8) respondents indicated that they had attained the Caribbean Secondary Education Certificate; five (5) respondents signaled that they had obtained their Associates Degree; two (2) respondents expressed that they had received A Level/CAPE qualifications and Ph.Ds. respectively. Only a single respondent revealed that they had obtained a Bachelor’s degree. Similarly, the remaining respondent revealed that they had only primary educational qualifications.

0

1

2

3

4

5

6

7

8

AssociatesDegree

Bachelor'sDegree

Ph.D. A Levels orCAPE

CSEC Primary

Nu

mb

er

of

Re

spo

nd

en

ts

Educational Qualifications

Educational Attainment of Respondents (Fig. 1.6)

Associates Degree

Bachelor's Degree

Ph.D.

A Levels or CAPE

CSEC

Primary


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The above bar graph represents the respondents’ perceptions regarding the effects of FDI in Tourism on Saint Lucian Culture. The responses were designed to provide participants with one moderate and two extreme choices. A majority of nine (9) respondents signaled that they believed that FDI in tourism produced a negative cultural impact by discouraging local cultural pride. Five (5) respondents revealed that they perceived FDI in tourism to be culturally benign i.e. it has absolutely no impact on Saint Lucian culture. The remaining five (5) participants expressed a positive perception of FDI’s cultural impacts, by indicating that they believed it promoted local culture, language, and activities.

0 2 4 6 8 10

Cultural Impacts of Foreign Direct Investment in Tourism (Fig.1.7)

Promotes Saint Lucian Culture,Language and Activities

Benign

Discourages Local Cultural Pride


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The pie chart above signifies the respondents’ opinions pertaining to the implications of foreign direct investment on local workers involved in the tourism sector. An overwhelming majority of respondents (53% or 10 individuals) demonstrated a positive viewpoint towards FDI’s implications, by stating that it provided many employee benefits. 37% (7 individuals) of participants indicated that they thought FDI provided few benefits to the average worker directly involved in the tourism sector. The remaining 10% of respondents (2 people) expressed that FDI has an overall negative impact on workers in the tourism sector.

53%

37%

10%

Implications of F.D.I on Local Employees (Fig 1.8)

Many Employee Benefits

Few Benfits to the Average Worker

Negatively Impacts Workers


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The diagram above illustrates the extent of FDI’s role in making the tourism sector, a successful one. Eight (8) of the respondents signaled that they believe foreign direct investment is solely responsible for the success of the industry. A slightly smaller proportion (7 respondents) believes that foreign direct investment, although not the sole factor in the industry’s success is indeed a contributor. Finally, a minority of four respondents (4) expressed that they thought foreign direct investment played only a minor role in securing the success of the island’s tourism sector.

0 2 4 6 8 10

The Role of FDI in the Sucess of the Tourism Sector (Fig 1.9)

Played A Minimal Role

It is a Contributor along with otherFactors

It is Responsible for the Success


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The illustration above describes the responses received detailing the specific benefits reaped by those in the tourism sector as a result of FDI. For this question, respondents were able to select as many options from the list provided as desired. An overwhelming majority of ten respondents indicated that they thought FDI in tourist led to more jobs available in the sector; nine respondents indicated that they believed FDI provided higher wages for tourism workers. Unfortunately, a single respondent did not provide a response to the question, whereas, none of the respondents believed that FDI produced improved working conditions and job benefits in the tourism sector.

0 2 4 6 8 10

Provides More Jobs

More Wages

Improved Conditions

No Response

Nature of Benefits to Those in the Tourism Sector (Fig 2.0)

No Response

Increases Working Conditions andJob Benefits

Generates More Substantial Wages

Provides More Jobs


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The diagram above shows the responses generated regarding the environmental repercussions of FDI in tourism. Ten (10) respondents insisted that FDI had absolutely no environmental impacts in Saint Lucia; six (6) respondents indicated that they believed FDI was responsible for the destruction of the natural environment; two (2) respondents indicated that they perceived the environmental impacts of FDI to be wholly positive i.e. it promoted the conservation of the natural environment. The remaining respondent did not provide any response to the question, indicating possibly that they were of no distinct opinion, or that they were incapable (for one reason or another) of answering the question.

0

1

2

3

4

5

6

7

8

9

10

Environmental Impacts of F.D.I (Fig 2.1)

Destroys Natural Environment No Effect Promotes Environmental Conservation No Response


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The split pie chart above presents the data obtained from respondents regarding the impact of foreign direct investment on the political and economic sovereignty of Saint Lucia. An equal segment (39% respectively) of the sample indicated that they believed FDI in tourism did not produce any effect on the island’s political and economic independence and that FDI in tourism actually promoted and reinforced our political and economic sovereignty. Another 22% of the sample (4 respondents) signaled that they believed FDI resulted in compromises to the nation’s political and economic independence. Once again, a single respondent did not provide a response to this question.

Causes Interference;

22%

Has No Effect; 39%

Promotes Independence;

39%

Effects Of FDI on Political and Economic Independence (Fig 2.2)

Causes Interference

Has No Effect

Promotes Independence


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The diagram above represents the data obtained for the respondents’ perceptions of FDI’s implications on local entrepreneurship in the tourism sector. A slight majority of respondents (9) affirmed that they believed FDI in tourism had no effect on the opportunities and ease with which local entrepreneurs could establish and operate major enterprises in the tourism sector. A slightly lower proportion, eight (8) respondents, were convinced that FDI effectively obstructed the ability of local entrepreneurs to own, establish or operate the major businesses in the tourist sector. The remaining two (2) respondents conveyed their belief that FDI in tourism encourages local ownership and involvement in the major businesses in the sector. It should be noted that the “major businesses” referred to in the question were a direct reference to large hotels which dominate the market in Saint Lucia.

0

1

2

3

4

5

6

7

8

9

10 Effects of FDI on Local Entrepeneurship (Fig. 2.3)

Obstructs Local Ownership

Benign

Encourages Local CommercialOwnership


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The pie chart above attempts to depict the relationship between FDI in the tourism sector, drug trafficking, and sex crime, as described by the respondents. An overwhelming majority of 79% of the sample (15 individuals) conveyed their belief that FDI in tourism had no impact whatsoever on the illegal drug and sex industries. Of the remaining four respondents (21%), two (11%) indicated their perception that FDI actually discouraged the aforementioned illegal trades, while the other two (10%) signaled their belief that FDI nourishes these illegal trades.

10%

79%

11%

Impacts of FDI on Drug Trafficking and Prostitution (Fig 2.4)

Promotes Illegal Industries No Effect Discourages Illegal Trades


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The graph above, in a similar fashion to the one described on the previous page, attempts to investigate the linkages between foreign direct investment in the tourism sector and violent crime in Saint Lucia. In this case, there was a relatively uniform split between the respondents who believed that FDI in tourism exacerbates the issue of violent crime in Saint Lucia (8 respondents) and whose who advocated the absence of any linkage between FDI in tourism and violent crime (8 respondents). Additionally, a single respondent indicated that foreign direct investment in tourism results in a reduction in the incidences of violent crime in Saint Lucia, whereas a single respondent stated that FDI in tourism did have an unspecified effect on violent crime in the country. Once again, the remaining respondent did not provide an answer to this question.

0

1

2

3

4

5

6

7

8

Nu

mb

er

of

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spo

nd

en

ts

Implications of FDI on Violent Crime (Fig 2.5)

Exacerbates Violent Crime

Has No Impact

Ameliorates Violent Crime

Has an Unspecified Effect


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The horizontal bar graph above represents the implications of foreign direct investment upon social corporate policy i.e. the contributions which large tourism businesses make towards the overall wellbeing and development of the local society. Eight (8) respondents adhered to the belief that foreign direct investment in tourism encouraged firms to make contributions and foster a relationship with the society. Six (6) respondents adopted the neutral perspective that foreign direct investment did not influence the social consciousness of corporations in the sector. A minority of four (4) participants indicated that they perceived FDI as a negative factor which discouraged good corporate citizenship from businesses in the tourism sector. Once more, a single participant did not provide a response to the question.

0 2 4 6 8 10

Does FDI Encourage Good Corporate Citizenship? (Fig 2.6)

Discourages Good CorporateCitizenship

Has No Influence

Encourages Social Contributions


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The diagram above describes the role of foreign direct investment in tourism in the marketing and brand recognition of Saint Lucia’s tourism product above. Out of the nineteen (19) respondents, 58% (11 individuals) suggested that foreign direct investment has helped to promote Saint Lucia’s tourism product abroad; 26% (5 individuals) suggested that foreign direct investment has not assisted i.e. has played no role in marketing Saint Lucia abroad; and 16% (3 individuals) indicated that they believed foreign direct investment in tourism had disadvantaged Saint Lucia’s marketing and brand recognition abroad.

Promoted Saint Lucia Abroad

58% Has Not Assisted 16%

Disadvantaged Saint Lucia Abroad

26%

Impact of FDI on Saint Lucia's Brand Recognition and Marketing (Fig 2.7)

Promoted Saint Lucia Abroad

Has Not Assisted

Disadvantaged Saint Lucia Abroad


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The bar graph above illustrates the respondents’ recommendations in order to negate any issues stemming from foreign direct investment in tourism. For this question, respondents were allowed to select more than one response from the choices provided. Six (6) respondents signaled that they felt increased government regulation could possibly help relieve the negative impacts of foreign direct investment in tourism. Four (4) respondents espoused the reduction of foreign direct investment in the tourism industry as a solution to any issues associated with it. Similarly, another four (4) participants promoted the institution of social and cultural programs to alleviate the negative repercussions of foreign direct investment in tourism. Another six (6) participants indicated that they believed all of the above recommendations could be applied to alleviate issues associated with foreign direct investment in tourism. It should be noted that all of the respondents selected their recommendations based on the criteria of their ability to ameliorate negative impacts, while preserving the benefits of FDI in tourism.

0

1

2

3

4

5

6

Recommendations to Alleviate the Issues Associated with FDI (Fig 2.8)

Increased Government Regulation

Reduction of FDI in the Hotel Industry

Social and Cultural Programs

Increased FDI in the Hotel Industry

All of the Above


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The pie chart above depicts the data obtained regarding the level of respondent support for proposals which would alleviate FDI-linked issues, while also reducing economic benefits. Nine (9) respondents expressly indicated that they would enthusiastically support any such methods by selecting “Absolutely.” Three (3) respondents signaled that they that they were “likely” to support any such measures. Five (5) of the respondents indicated a lack of enthusiasm to support any measures which would reduce issues and benefits, by selecting “unlikely;” whereas the final respondent signaled with absolute certainty that he/she would “never” support any such measures. Once again, one of the participants did not provide a response to this question.

Absolutely, 9

Likely, 3

Unlikely, 5

Never, 1

Support for Proposals which Alleviate FDI-linked Issues and Reduce Benefits (Fig 2.9)

Absolutely

Likely

Unlikely

Never


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The graph above illustrates the level of job satisfaction among the nineteen (19) respondents in the sample assessed. An overwhelming majority of eleven (11) respondents indicated that they were extremely satisfied with their jobs in the tourist industry. The remaining eight (8) respondents indicated that they would migrate to a job outside of the sector if the opportunity arose, inferring that although they were not necessarily dissatisfied with their job, they preferred to work outside the sector. None of the respondents surveyed indicated dissatisfaction with their jobs.

0

2

4

6

8

10

12

Job Satisfaction (Fig. 3.0)

Very Happy

Would Migrate to A Non-TourismJob

Dissatisfied


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Source: Economic and Social Review 2009; Eastern Caribbean Central Bank.

The line graph above illustrates the inflows of foreign direct investment into the Saint Lucian economy over a six year period (2003-2009). According to the information depicted, in the year 2003, approximately 287.35 million dollars were invested directly from overseas. This figure dropped in 2004 to approximately 206.60 million dollars investment, and rose slightly to 211.23 million XCD in 2005. In 2006, there was a dramatic increase in foreign direct investment to 631.62 million dollars, and a subsequently incremental rise in 2007 to an estimated 638.86 million dollars. Between 2007 and 2008, FDI decreased abruptly to 435.27 million dollars, probably in response to the global financial crisis (2007-present). Finally, in 2009, FDI remained at a relatively constant, but perceptibly lower 424.44 million dollars.

2003 2004 2005 2006 2007 2008 2009

FDI Inflows 287350000 206600000 211230000 631620000 638860000 435270000 422440000

0

100

200

300

400

500

600

700

Mill

ion

s o

f X

CD

FDI Inflows (2003-2009) (Fig 5.0)


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Source: Economic and Social Review 2009

The diagram above shows the percentage contribution of hotels and restaurants to Saint Lucia’s Gross Domestic Product in the ten year period spanning 1999-2009. In 1999, hotels and restaurants constituted 12.29% of the island’s total GDP at factor cost. There was a negligible increase in this figure in the year 2000 to 12.63%. In the year 2001 and 2002, the contribution of this industry recorded marginal declines to 11.78% and 11.64% respectively, possibly in response to the events of September 11th 2001. However, in the period from 2003-2005, the industry consistently grew in its contribution to GDP, as it generated 13.14%, 13.38% and 13.63% respectively. In 2006, there was a moderate decrease in the percentage contribution of hotels and restaurants to approximately 12.65% of GDP. In the last three years indicated on the graph (2007; 2008 and 2009), hotels and restaurants contributed only 11.54%, 11.72% and 11.56% of GDP respectively. This final three year period also corresponded exactly with the advent of the global economic crisis.

12.29%

12.63%

11.78% 11.64%

13.14% 13.38%

13.63%

12.65%

11.54% 11.72%

11.56%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

YEAR

Percentage Contribution of Hotels and Restaurants to GDP (Fig.5.1)

Percentage Contribution of Tourism to GDP


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Source: Government of St. Lucia Statistics Department

The pie chart above indicates the percentage contribution of the six leading industries to Saint Lucia’s Gross Domestic Product, at factor cost. Banking and Insurance generated the greatest proportion of the GDP in 2009 (15.5%), followed by communications (11.85%); hotels and restaurants (11.56%); manufacturing (6.3%); construction (5.28%); and agriculture (3.8%). It is pertinent to observe that the contribution of hotels and restaurants to GDP is not necessarily representative of the total contribution of the tourism sector to GDP..

Hotels and Restaurants, 11.56%

Agriculture, 3.80%

Manufacturing, 6.30%

Construction, 5.28%

Communications, 11.85%

Banking and Insurance, 15.50%

Major Industries in St. Lucia According to GDP Contribution 2009 (Fig. 5.2)

Tourism

Agriculture

Manufacturing

Construction

Communications

Banking and Insurance


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The diagram above depicts the percentage of electricity sales consumed by the various industries and consumers in the economy of Saint Lucia during the year 2009. Commercial users accounted for 35.4% of the electricity consumption in the island, followed by domestic users, who consumed 34.3%, hotels, which constituted 21.2%, industrial users, who consumed 6%, and finally, street lighting, which required 3.1%. As in previous cases, the percentage of sales allotted to hotels in the island does not include other businesses directly involved in the tourism sector. Thus the data does not provide a completely accurate impression of the sector’s contribution to electricity sales.

34.3%

3.1%

6.0%

21.2%

35.4%

Composition of Electricity Sales 2009 (Fig. 6.0)

Domestic Street Lighting Industrial Hotel Commercial


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Source: Economic and Social Review 2007, 2008 and 2009.

The chart above illustrates the percentage contribution of hotels towards electricity sales over an eight year period (2001-2009). In 2001 and 2002, hotels accounted for 19.9% and 19.8% respectively of the electricity usage in the island. In 2003, there was a sharp rise in the share of electricity sales consumed by hotels, up to 20.7%. This remained relatively steady in 2004, when hotels consumed 20.8% of the electricity sold in the island. In 2005 and 2006, hotels’ share of electricity usage decreased gradually to 20.5%, and further downwards to 20.2%. Subsequently, between 2006 and 2007, consumption of electricity by hotels as a percentage of total sales increased marginally 20.6%. This was succeeded by a further dramatic rise to 21.6% in 2008. In the final year of the data (2009), the percentage of electricity sold to hotels dropped slightly to 20.3%. However, for the overall nine year period, the linear line indicates that the hotel electricity usage share has trended upwards.

19.9% 19.8%

20.7% 20.8%

20.5%

20.2%

20.6%

21.6%

21.3%

18.5%

19.0%

19.5%

20.0%

20.5%

21.0%

21.5%

22.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009

Per

cen

tage

of

Ene

rgy

Sale

s Hotel Electricity Usage Share (Fig. 6.1)

Hotel Electricity Usage Share

Linear (Hotel Electricity UsageShare)


Page 33


The bar graph above shows the average number of hotels present in Saint Lucia over a period of six years. In 2004, there was an average of forty eight (48) hotels in the island. In 2005, the island was home to fifty two (52) hotels, an increase of four from the previous year. In 2006, there was an average of fifty four hotels in Saint Lucia, an increase of two from the previous year. In 2007, according to the data above, there were a total of sixty one (61) hotels in the island, a growth of seven from the year prior. In 2008, there was a moderate increase in the number of hotels in the island to sixty five (65). Between 2008 and 2009, there was a decrease in the number of hotels in the island to sixty four (64), possibly in response to the global economic crisis.

48

52 54

61

65 64

2004 2005 2006 2007 2008 2009

Average No. of Hotels in Saint Lucia (Fig. 7.0) 2004 2005 2006 2007 2008 2009


Page 34


The bar graph above represents the monetary contribution of hotels and restaurants to gross domestic product at factor costs, for a five year period beginning in 2005. According to the data presented above, hotels and restaurants contributed 279.07 million dollars to the island’s economy in 2005. In 2006, hotels and restaurants generated an increased amount of 281.15 million dollars. In 2007, this figure decreased significantly to 267.63 million XCD. However, this was succeeded in 2008 by a sharp increase in the monetary contribution of hotels and restaurants to GDP, to an estimated 292.48 million dollars. However, this figure again decreased sharply in 2009 to 273.47 million dollars. Again, it is essential to emphasize that these figures do not necessarily represent the complete contribution of the tourism sector to the island’s gross domestic product.

255

260

265

270

275

280

285

290

295

2005 2006 2007 2008 2009

279.07 281.15

267.63

292.48

273.47

Mo

net

ary

Co

ntr

ibu

tio

n in

XC

D(M

illio

ns)

Year

Monetary Contribution of Hotels and Restaurants to GDP (Fig. 7.1)

2005 2006 2007 2008 2009


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The graph above illustrates the developments of Saint Lucia’s Gross Domestic Product over the period from 2005-2009. In 2005, the island recorded a gross domestic product of 1924.32 million dollars. In 2006, this figure grew significantly to 2066.23 million dollars. In 2007, the economy of Saint Lucia experienced further growth as its GDP rose to 2112.62 million dollars. The year 2008 was accompanied with modest growth in the GDP to 2171.54 million XCD. Unfortunately, in 2009, the economy recorded its first contraction for the period examined, to approximately 2089.37 million dollars. This may have been a direct repercussion of the global economic crisis and the exogenous shocks it exerted on the local economy.

1800

1850

1900

1950

2000

2050

2100

2150

2200

20052006

20072008

2009

XC

D(m

Illio

ns)

2005 2006 2007 2008 2009

GDP At Factor Cost 1924.32 2066.23 2112.62 2171.54 2089.37

GDP At Factor Cost (Fig. 8.0)


Page 36

Source: Government of St. Lucia Statistics Department

The graph above compares the employment of the local labour force by three major sectors (hotels and restaurants; wholesale and retail trade; and agriculture) over a period of eight years (2001-2008). The data for the first four years (2001-2004) was averaged for ease of presentation. Between 2001 and 2004, hotels and restaurants employed approximately 12.06% of the labour force, whereas wholesale and retail trade and agriculture employed 15.81% 16.16% respectively. In 2005, hotels and restaurants accounted for 12.61% of employment; while agriculture accounted for 13.13% and wholesale and retail trade accounted for 14.55%. Subsequently, in 2006, wholesale and retail trade surged ahead by employing 17.18% of the labour force; as opposed to agriculture, which sharply decreased to providing only 8.87% of employment; whereas hotels and restaurants grew moderately to employ 13.04% of the labour force. In 2007, wholesale and retail trade slumped to provide only 15.40% of employment, whereas hotels and restaurants accounted for 12.19% and agriculture accounted for 11.36%. In 2008, hotels and restaurants overtook the other two industries to produce a staggering 16.01% of employment (the highest in the island); whereas agriculture employed 10.64% of the labour force; and wholesale and retail trade employed 15.12%.

2001-2004Average

2005 2006 2007 2008

Hotels & Restaurants 12.06% 12.61% 13.04% 12.19% 16.01%

Wholesale and Retail Trade 15.81% 14.55% 17.18% 15.40% 15.12%

Agriculture 16.16% 13.13% 8.87% 11.36% 10.64%

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%20.00%

Pe

rcen

tage

of

Lab

ou

r Fo

rce

Emp

loye

d Employment of Labour Force By Sector 2001-2008

(Fig 9.0)


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Tourism Receipts as a Percentage of Exports and GDP (2008 Prices) (Table 9.1)

Source: World Bank; Economic and Social Review 2008

The table above indicates the tourism receipts in US dollars; as a percentage of exports; and as a percentage of the Gross Domestic Product in Saint Lucia, for the period 2000-2008. In 2000, receipts from the tourism sector in Saint Lucia amounted to approximately 281 million USD, and accounted for 75% of exports and 46.8% of GDP. In the year 2001, tourism receipts declined to approximately 233 million USD, or 71% of exports and 39.4% of the island’s GDP. In 2002, the downward trend persisted, as tourism receipts declined to 210 million USD, or 66% of exports and 35.4% of GDP. The downward trend in the years 2001 and 2002 may have been a consequence of the events of September 11th 2001. However, in 2003, tourism receipts rose sharply to an estimated 282 million USD, accounting for 72% of exports or 45.3% of the island’s gross domestic product. In 2004, this upwards trend continued, as receipts generated 326 million USD of revenue or 49.2% of GDP. However, as a percentage of exports, tourism receipts fell to 70%. During the following year (2005), receipts rose to 369 million USD, accounting for 51.8% of GDP and 70% of exports. In 2006, this figure decreased to 294 million USD, or 67% of exports and 38.4% of GDP. Subsequently in 2007 and 2008, tourism receipts rose to 302 million USD and 311 million USD respectively. For 2007, this equates to 66% of exports and 38.6% of GDP, whereas for 2008, it accounts for a 59% share of exports and a 38.7% share of gross domestic product.

Year Receipts(USD) % of Exports % of GDP 2000 281,000,000 75 46.8 2001 233,000,000 71 39.4 2002 210,000,000 66 35.4 2003 282,000,000 72 45.3 2004 326,000,000 70 49.2 2005 369,000,000 70 51.8 2006 294,000,000 67 38.4 2007 302,000,000 66 38.6 2008 311,000,000 59 38.7


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Average Earnings of Salaried Persons by Industry (2003) (Fig. 9.2)

Source: St. Lucia Earnings and Hours of Work Report 2003; International Institute for Sustainable Development.

The table above shows the rate of earnings per hour for men and women involved in four major sectors of the economy in St. Lucia. According to the chart, in the Manufacturing sector, men earned an average of $14.47 per hour for 164 hours of work per week, whereas women earned an average of $11.68 an hour for the same work week, representing a gender discrepancy of $2.79. In wholesale and retail trade, men earned a noticeably lower average amount than in the previous case i.e. $12.03 per hour for a week of 166 hours, whereas women earned an average of $10.78 per hour, representing a gender difference of $1.75. In the hotels and restaurants subsector, men earned a higher average of $13.29 per hour for a 176 hour work week, whereas women earned about $12.93 per hour for the same period of time. This indicates a gender discrepancy in wages of only $0.36. Lastly, men in construction averaged earnings of $23.00 per hour for a 157 hour work week, whereas women earned a vastly lower $13.21 per hour for the same work week, indicating a massive gender difference of $9.79.

Sector Average Normal Hours of Work per week

Men’s Avg. Earnings rate/hr

Women’s Avg. Earnings rate/hr

Manufacturing 164 14.47 11.68

Wholesale and Retail 166 12.03 10.78

Hotels and Restaurants 176 13.29 12.93

Construction 157 23.00 13.21


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Source: Royal St. Lucia Police Force; the Star Newspaper; Helen Television Systems

The graph above shows the number of homicides occurring in the island over the seven year period beginning in 2004. Between 2004 and 2005, the level of homicides steadily increased from 30 to 33. In 2006, this was succeeded by a drastic increase to 43 homicides. However, this was followed by an abrupt movement downwards in 2007 to 25 homicides. In 2008, this figure grew dramatically to 39, where it remained consistent for the year 2009 also. In 2010, there was a further marginal increase in the number of homicides occurring up to 46.

0

5

10

15

20

25

30

35

40

45

50

2004 2005 2006 2007 2008 2009 2010

Homicides in St.Lucia 2004-2010 (Fig. 10.0)

2004 2005 2006 2007 2008 2009 2010


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Interview 1. What is the extent and nature of foreign direct investment in tourism in Saint Lucia?

The interviewee commenced by first discussing the difficulties associated with tracking foreign direct investment in the region. Primarily, he stressed that there are no facilities or apparatus specifically designed to record and isolate foreign direct investment into the island’s economy. Generally, FDI is tracked by investor declarations, for which there is no guaranteed accuracy and as inflows through the island’s financial sector. However, there is extreme difficulty associated with isolating FDI into the tourism sector when collecting data from the banking and financial system, since these entities do not necessarily provide “disaggregated” data. Fortunately, the interviewee was able to provide a tentative indicator that 70-85% of the foreign direct investment into Saint Lucia is tourism related (on average).

2. Do you believe that extensive foreign direct investment in tourism is sustainable in the long term? Early in the interview, the respondent indicated the obstacles associated with maintaining a balanced approach with respect to large inflows of foreign direct investment. He emphasized that large volumes of FDI into the sector not only have to ability to significantly alter the nature of the island’s tourism product, but also its demographics and social equilibrium. He referenced a situation in Anguilla whereby the implementation of ten proposed tourism projects would have introduced labour requirements which exceeded the population of that country. This, he recapitulated, is indicative of the need for political administrations to adequately consider the long term implications of their decisions. Secondly, the interviewee illustrated that the dependence of the Saint Lucian economy on foreign direct investment inflows, especially in the tourism sector, left the island extremely vulnerable to exogenous economic shocks, and possibly severe collapse as a result of funds being withdrawn. He indicated that even


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more specifically, the management of the “Sandals” chain of hotels, because of their dominant position in the local tourism industry (67% of US arrivals to Saint Lucia are accommodated at Sandals resorts), have the capability to influence governmental decision making. Also, the commercial presence of Sandals in the island also resulted in the transfiguration of the island’s tourism market from a UK dominated one, to a US dominated market instead. Achieving a balance between foreign and local investment is an absolute necessity for the sustainability of our economy in his view.

3. How does foreign direct investment in tourism impact the patterns of specialization in Saint Lucia? The interviewee expressed that the increasing dominance of service sectors in St. Lucia and the Caribbean, which require low technology and relatively low capital investment is simply a microcosm of the global economic shift. However, he also firmly stated that this has also improved St. Lucia’s competitiveness- as opposed to our prior reliance on mainly manufacturing and agricultural exports in preferential markets; we are instead depending on our natural resources and beauty in the free global marketplace. However, he criticized our failure to maximize the expanded market provided by the tourism sector as the result of poor economic management. By supplying a vastly enlarged marketplace, foreign direct investment in the tourism sector introduces ample opportunities for growth in other sectors through integration and visionary economic management. The interviewee recapitulated that integration and economic management must occur so as to capitalize primarily on local resources, that sectors outside of tourism may reap the induced benefits of FDI. At present, this does not occur in Saint Lucia due to our reliance on imports leading to inefficiencies.

4. What is the legislation governing foreign direct investment in tourism? Although not able to provide specific details upon the regulations concerning foreign direct investment in the tourism sector, the interviewee did indicate that such


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legislation does exist, albeit in a limited form. There are certain occupations, which, by law, are only allowed to be pursued by local operators/enterprises e.g. local transportation; restaurants (except specialized restaurants). However, these laws are not always stringently observed, and in many cases, are waived in order to permit foreign ownership and investment into various subsectors in the industry. It is his belief that our overall development must be predicated upon our domestic progress primarily. Where foreigners are granted work permits to occupy certain executive positions for which we lack qualified human resources, it should be mandated that these foreign executives provide training and education for locals in order to facilitate a gradual transition to local expertise in the sector. Additionally, there are currently no regulations directed at controlling the distribution and sale of land to foreign entities, in order to protect local interests. The interviewee emphasized the need for Saint Lucian authorities to implement land zoning regulations in a fashion similar to other Caribbean territories e.g. Bermuda, where foreigners are completely barred from the ownership of land for the purpose of tourism developments. This necessarily facilitates local involvement in the sector. Mechanisms such as preferential rates and leases may also be used in order to guarantee a sustained flow of income from the use of land for largely foreign invested tourism projects.

How effective is this legislation in preventing abuse of the population, natural resources and rights of Saint Lucian citizens? There respondent described a linkage between the social consequences of not having a coherent land policy, and the conservation of the local environment in Saint Lucia. In essence, he stated that the lack of a land policy in the interest of the local people may lead to disenfranchisement, which may in turn result in a lack of consideration for the environment by the population. Disenfranchisement due to lack of ownership indelibly does not foster an understanding for the sanctity of the land. The interviewee coined it a “psychological” phenomenon. Local individuals are effectively shut out of the market for land due to high prices stemming from increased demand and scarcity.


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5. What is the balance between foreign owned hotels and locally owned hotels in the

island? The majority of hotels in the island are owned by Saint Lucians. However, the respondent stated that examining the distribution of hotel rooms in the island provides a more realistic picture of the balance between local and foreign owned establishments. In his estimates 60% of the hotel rooms in the island are owned by non-nationals. An additional 20%, he emphasized, are owned by naturalized Saint Lucian citizens. Consequently, approximately 80% of the hotel rooms in the island are owned by non-natives. Hence, he stressed the importance of distinguishing between native citizens of the island, and naturalized citizens in the analysis of foreign direct investment in tourism in St. Lucia.

6. What are the incentives designed to attract foreign direct investment into the Saint Lucian tourism sector? The respondent illustrated that there are no overt preferential policies in attracting investment, both foreign and local, into the tourism sector in St. Lucia. Instead, incentives are affected solely by the volume of the investment. He briefly dissected the Tourism and Incentives Act of 1996 (Appendix III) in support of this sentiment, which extends the length of tax holidays based on the volume of the investment. By operating in this way, he argued, this incentives act creates an inherent bias towards foreign investors, who are more likely to have the resources to invest larger amounts in the island. Also foreigners, due to the expansiveness of their financial resources, are more likely to receive ready access to high ranking government officials. There also exist a number of other incentives acts which may apply to businesses involved in the tourist sector, such as the Special Development Areas Act, the Freezone Act, and the Fiscal Incentives Act. The Special development Areas Act is geared towards encouraging development in certain communities in the island, namely: Vieux Fort, Canaries, Anse La


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Raye, Soufriere, and Dennery. The Freezone Act is designed to facilitate export development, whereas the fiscal incentives act is geared purely towards encouraging investment into the island’s economy.

7. How has the growth of tourism, through significant foreign direct investment, helped to boost the performance of the agricultural sector specifically, through cross-sector initiatives? In short, the interviewee equivocated that there is no direct relationship between the market expansion triggered by tourism and an increase in agricultural production. If any gains do indeed exist, these are only marginal. The relationship, he firmly asserted, is more akin to “tokenism” as opposed to meaningful integration. In support of this, whereas our per capita consumption has increased, our per capita production has instead receded. When asked if this statistical revelation could possibly be due to inadequate resource capabilities exerting pressure on our ability to sustain an enlarged market, the respondent further elucidated that, since the loss of our preferential markets overseas, the agricultural industry has largely lost its enthusiasm, such that there are measurably less farmers in the sector. This, the interviewee insists, is a telling sign that the Saint Lucian economy is inherently inclined towards “Exporting what it produces, and importing what it eats.”

8. What should be our long term strategy in the context of foreign direct investment in St. Lucia? In the view of the interviewee, it is essential that we produce an overall development policy based upon three fundamental principles. The first of these, good governance, must include “transparency, efficiency, good faith, and patriotism,” so that everyone may be equal and accountable under the rule of law. Secondly, economic competitiveness, which implies that we maximize the usage of our resources in the most effective and efficient manner, to both guarantee reasonable return on investment and also to protect our own interests at home. Furthermore, all citizens must have the


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opportunity to engage economically, politically and socially in the affairs of the island (social equity). This means that individuals must have the right and opportunity to participate in the ownership of their country. Thirdly, we must also seek to preserve our most valuable resource: natural beauty. The tourism industry relies heavily on the innate beauty of our homeland. Therefore, it is ever more vital that we endeavor to protect and sustain this beauty. The interviewee indicated that, based on the feedback received from guests over a three year period, the greatest lures of Saint Lucia’s tourism market are our natural beauty and friendly human factor. We must however work towards packaging these winning features into a viable product that can be upsold by any citizen of the island. This will help us to maximize the multiplier effect of the tourism industry. With respect to our long term legislative strategy as it pertains to foreign direct investment in tourism, the respondent indicated that personally, he was of the opinion that rigorous land zoning policies need to be implemented in St. Lucia, on a similar scale as in Bermuda and other territories. .

9. How effective have we been at protecting the environment alongside the rapid growth of the tourism sector due to foreign direct investment in tourism? Concisely, the respondent stated that we have “absolutely not” protected our local environment. Recreational water quality, the state of our coral reefs, and the volume of solid waste polluting the environment constitute an abysmal reality for environmental conservation in Saint Lucia. The interviewee did disclose that the St. Lucian government has persistently suppressed unfavorable reports on water quality in the island. The recent passage of Hurricane Tomas, he said, served as testament to our failure to protect the environment. The effects of a category 1 hurricane were greatly multiplied by poor environmental practices and a lack of coherent policies.

10. How much of the foreign direct investment in tourism in Saint Lucia originates from the Caricom territories.


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At present, there are three Jamaican owned Sandals Properties in St. Lucia, as well as the Barbadian owned Almond Chain of Resorts. Apart from these significant inflows from the region, there are also a number of smaller inflows in various entities such as restaurants and airlines.

11. Should we be worried about compromises in our political and economic sovereignty as a result of foreign direct investment in tourism? The interviewee believes that there is reason for concern with regard to “policy autonomy” and economic sovereignty in the island. He specifically referred to dominant market players using their influence to alter economic and political initiatives. He illustrated however, that this issue is not unique to foreign owned enterprises or to the tourism sector. In fact, any dominant player in the market, whether local or foreign owned, may be able to exert significant influence over the island’s politics and management. The behavior of these enterprises must be “circumscribed” to promote “social equity and economic competitiveness.”

12. Does foreign direct investment have any effect on the state of violent crime in the island? The interviewee emphasized that while individuals have been marginalized in the society, this is not necessarily a direct or exclusive consequence of the tourism industry. Furthermore, this by itself may only be a contributing factor to the current crime situation plaguing the island. He instead placed a greater focus on a lack of enforcement for the law in totality and an unequal or unbalanced distribution of income in the society. The interviewee argued that in the countries with relatively low crime rates e.g. Singapore (Gini coefficient=42.5) and the Nordic countries (Norway Gini Coefficient=25.8), not only are laws effectively enforced, but there also tends to be high income equality within the society.


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PART II ANALYSIS &

INTERPRETATION


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Analysis and Interpretation There is a multiplicity of unanswered questions pertaining to the effects of foreign direct investment in St. Lucia. In the interest of ascertaining the complete implications of the data collected: it is imperative to analyze the information above, not in isolation, but rather in its totality and wholesomeness.

i. Foreign Direct Investment in Tourism and Crime

Crime is a social, economic, and political phenomenon. Consequently, to

provide a holistic examination of the effects of foreign direct investment in tourism in St. Lucia, it is naturally requisite to provide some degree of insight into the linkages between FDI in the sector, and crime.

The data above highlighted evident linkages between the incidences of violent crime in St. Lucia and the significant foreign direct investment into tourism. From the questionnaires (Fig. 2.5), there was a distinct division between respondents who believed that FDI increased the rate of violent crime in the island, and those who believed that it exerted no impact on these violent incidences. In these responses, there was a clear distribution according to income brackets: typically, respondents in the lower-lower middle income brackets (Up to $40000 EC annually) indicated that FDI in tourism had absolutely no impact on violent crime; whereas respondents in the higher middle-high income brackets (Above $40000 EC annually) tended to indicate that FDI in tourism increased the rate of violent crime. When examined in conjunction with the other two data pools (Statistical data and Interview), there seemed to be a corroboration, which affirmed that FDI in tourism may in fact have indirect negative implications of violent crime in the island. Overall, in the period examined with regards to the number of homicides in the island (2004-2010), there was an upwards trend (Fig 10.0), with homicides increasing from thirty one (31) in 2004 to forty six (46) in 2010. Fluctuations in this crime data nearly corresponded precisely with the fluctuations in the percentage


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contribution of hotels and restaurants to Gross Domestic Product (Fig. 5.1). This could perhaps, be illustrative of a direct linkage between the tourism sector’s growth and the crime situation in the island. However, based on the limited nature of the data collected, it is difficult to conclusively declare this. As previously stated, the interviewee alluded to possible direct and indirect associations between FDI in tourism and violent crime due to marginalization of individuals in the society and high income inequality.

When considering the case of drug and sex linked offenses in St. Lucia, and their connection to FDI in tourism, the only reliable data was obtained from the questionnaires. From the questionnaires, however, an overwhelming majority of respondents advocated the absence of any tangible relationship between FDI in tourism and drug and sex related crimes (Fig. 2.4). Due to the lack of accurate statistical data concerning these offenses, it is virtually impossible to address this adequately.

ii. Foreign Direct Investment in Tourism and Political and Economic Independence.

Any industry central to the economy of a country may possibly have the capability to affect political and economic decisions. When foreign direct investment is introduced into the equation, it may easily result in foreign interference in local political and economic affairs.

In the questionnaire, a dominant portion of respondents agreed that FDI in tourism did not jeopardize the island’s political or economic sovereignty, whereas an equal percentage of respondents concurred that it promoted our economic and political independence (Fig. 2.2). This was in direct contravention to the information obtained from the interview. The interviewee emphasized that dominant market players e.g. Sandals, due to the sheer volume of their investment and significant role in the market, are able to effectively alter the direction of governmental policies and economic decisions. Hence, there was a clear contrast between the two primary sources of data.


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Furthermore, foreign direct investment in tourism, due to its own inherent external nature, and the external nature of the tourism sector, has created in a fragility and vulnerability in the St. Lucian economy. This is because “tourism demand is generally seasonal and susceptible to shocks and unexpected events such as natural disasters, regional conflicts and political instability.” (Jules, 2005)

Tourism receipts, and the hotel and restaurant subsector have consistently generated an overwhelming percentage of the island’s GDP, employment and exports, as per the statistical data. (Fig.9.0; 9.1 and 5.1) This has indubitably resulted in a shift away from the previously dominant agricultural sector, towards the tourism sector. However, instead of this resulting in complete economic diversification; it has instead resulted in a re-concentration of economic potential into the tourism sector. However, despite this, tourism has undeniably allowed St. Lucia to obtain a measurable amount of economic independence, by reducing our dependence on preferential trading agreements and markets. In this way, it has strengthened the nation’s ability to cope with globalization.

While strides should be continually made in order to achieve full economic and political independence for St. Lucia from foreign entities, the tourism industry, by leading the shift away from trade in preferential market settings has supported limited political and economic sovereignty.

iii. Foreign Direct Investment in Tourism and Education

Education is an essential tool for the human resource development of St.

Lucia. Foreign direct investment in tourism, by increasing employment opportunities in the sector particularly, and the island as a whole, unequivocally exerts an influence on the patterns of education of the labour force.

This was clearly indicated by the educational attainment of the respondents in the sample, the vast majority of who were not qualified beyond


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the secondary school level (CSEC) (Fig. 1.6). This is perhaps demonstrative of the low educational requirements of tourism, which results in an excess of low quality human resource involvement in the sector. This is further reinforced by McLaren’s (2003) assertion that the top and mid-level managerial positions in the sector tend to be dominated by foreigners, whereas locals are often unlikely to undergo promotions of this nature. In fact, it is these positions that generally have the most stringent qualification requirements in the sector. Hence, by depriving local employees of the opportunity to advance in the sector, foreign direct investment in tourism is merely perpetuating the existence of low quality human resources in the sector. In the productive industries, tourism reinforces “relatively low technology intensity production in the sub region.” (UN 2003)

Although tourism generally requires a high level of foreign capital investment, the same applies. There was conclusive agreement on this issue, between all three data pools, as the interview also advocated that at present, there are absolutely no existing educational programs designed to facilitate the transfer of skills from foreign to local labour. With the implementation of such measures, tourism has the capability to radically develop the human resources of the country. However, at present, the situation persists.

iv. Foreign Direct Investment in Tourism and Culture

In order to produce a refined and marketable tourism product, it is necessary that the tourism sector utilize the unique cultural practices of St. Lucia. However, this may ostensibly result in repercussions for the native way of life in the island.

This was made abundantly clear by the respondents in the questionnaire, who predominantly believed that tourism discouraged local cultural pride, and thereby encouraged individuals to adhere to cultural practices which are not their own. (Fig.1.7) This cultural infiltration may have potentially disastrous consequences for St. Lucia. However, the respondents also advocated that


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tourism encouraged corporations to harbor a social consciousness, thereby resulting in positive societal impacts. (Fig. 2.6)

However, this perspective was not completely reinforced by the interview conducted. Although the interviewee did allude to possible negative side effects, he also emphatically indicated the importance of our local natural and cultural beauty to the tourism industry. These factors, he implied, could help define the success of St. Lucia’s future tourism product. Similarly, although one of the reports obtained asserted that growth in tourism may lead to the “commodification of cultures,” and the alteration of local practices to “satisfy the expectations of what visitors think is authentic,” it also countered by stating that “tourism has as much potential to revitalize and reinforce cultures as it does to destroy them.” (Jules 2005) Cultural preservation is integral to the future of the tourism sector.

Foreign Direct Investment in tourism, when assessed in the context of the island’s cultural identity, is a two edged sword. The result of the eventual strike will be determined by our finesse in regulating this tool.

v. Foreign Direct Investment in Tourism and the Environment

Overwhelmingly, the sample assessed via the questionnaire insisted that FDI in tourism did not exert any effect whatsoever on the physical environment of the island. (Fig 2.1) This was in direct contravention to the information from the two other data pools. However, the interviewee and statistical data coalesced to indicate that foreign direct investment in tourism does in fact exert an overall negative effect on the island’s physical environment.

Despite the fact that tourism depends heavily on the natural beauty of the island, it also results in expanded land usage, resource consumption (water) and threats to biodiversity. Despite the difficult entailed in obtaining accurate statistics for water consumption in St. Lucia, a report by the Caribbean Policy Development Center (CPDC) accused hotels of consuming double the amount of


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water as residents in 1998. Of the effects of a rapidly growing tourism sector, another report stated that there is little doubt of the sector’s threat to biodiversity (Jules 2005). Unregulated watersports and recreational marine activities also contribute towards damaging coral reefs and other natural resources. Unrestrained land clearing to facilitate new hotels and tourism developments lead to erosion (Ministry of Agriculture, Forestry and Fisheries 2000), the effects of which could readily be observed all over the island after the passing of Hurricane Tomas.

Admittedly, the depletion of the natural environment makes the island even more vulnerable to environmental shocks and natural disasters e.g. 2010 drought. This may conversely have negative effects on the tourism industry itself. Furthermore, only approximately 30% of the hotels in St. Lucia complied with wastewater treatment regulations, (PAHO 1994) creating further hazards to recreational and potable water quality. This aligns conveniently with the interviewee’s claim that recreational water quality in St. Lucia is abysmal, leading to suppression of reports by the government. Naturally, the suppression of these results can only be due to an overwhelming desire to prevent any decline in tourism arrivals due to negative publicity. Recreational water usage plays a pivotal role in St. Lucia’s tourism product. However, the introduction of ecotourism to the sector by foreign investors has the capacity to contribute positively to the conservation of the physical environment. Hotels such as Jade Mountain in the island should be highly regarded for their environmental consciousness.

In its totality, however, despite the discrepancy with the interview data, the information obtained points directly to an overall negative impact of tourism on the natural environment. As the tourism sector grows through the input of foreign investors, these problems may be exacerbated. However, it is important to note that if the goals of our tourism development emphasize the significance of the environment to our tourism product, a future environmental calamity may be averted.


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vi. Foreign Direct Investment in Tourism and Labour

Apart from the implications of Foreign Direct Investment upon the education of the labour force in the island, dealt with earlier, it also exerts a distinct influence on other aspects of the labour market.

Tourism accounts for a major percentage of the employment of the labour force in St. Lucia. As the average number of hotels in St. Lucia has steadily risen over the past few years, so too has the percentage of employment attributed to the hotel and restaurant sub-sector increased. (Fig.7.0; 9.0) In addition to providing increased job opportunities for the local population, foreign direct investment in tourism, by stimulating the growth of the industry, has also, from the perspective of respondents, provided significant benefits for workers including increased wages. (Fig 3.0) Furthermore, the respondents emphasized that this led to an extremely high level of job satisfaction within the sample of employees involved in the sector. Although a noticeable portion of the respondents indicated that they would migrate to another sector if the opportunity arose, none of them expressed outright dissatisfaction with their employment in the tourism sector. This illustrates the high levels of job satisfaction which pervade the tourism sector as a result of the benefits accrued from foreign direct investment in tourism.

Additionally, assessing the impact of FDI in tourism on labour in the context of gender equality yields a number of distinct findings: as opposed to other major sectors in the economy, the hotel and restaurant subsector displayed the lowest disparity between average male earnings per hour and average female earnings per hour. However, this subsector does employ a larger proportion of females than males (Jules 2005). . The central role of women in the traditional St. Lucian family may possibly be impacted by the relatively high normal average hours of work for those employed in the tourism sector.


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However, this is beyond the scope of this project. Instead, the data suggests that although there is high wage equity in the hotel and restaurant subsector, there is some gender inequality with respect to the balance between males and females employed. However, this is negligible, and the overwhelming impact of tourism on the local labour force is largely positive.

vii. Foreign Direct Investment in Tourism and the Economy.

In the past decade, the tourism sector has expanded rapidly under the stimulating influence of foreign direct investment.

A multitude of respondents to the questionnaire keenly corroborated that FDI is completely responsible for the success of the sector. (Fig. 1.9) Unquestionably, FDI has resulted in untold amounts of expansion, especially within the hotel and restaurant subsector. This in turn, has provided the significant investment of capital required to sustain certain businesses in the industry, which, in other circumstances, would be unable to generate the equivalent capital locally. These high volumes of capital investment and receipts from the sector have triggered a multiplier effect in the economy. Testament of this may be found in the increasing energy consumption in the hotel and restaurant subsector, making it the third largest consumer of energy in the economy. Though this does support the revenue of LUCELEC, the local energy authority, it also mandates the importation of larger quantities of fossil fuels, potentially disturbing the trade balances of the island due to its increased energy demands.

Furthermore, by expanding the market size of the country far beyond its normal limits, the tourism sector should logically lead to the possibility of increased sales and production across the entire economy. However, based on supplementary data obtained from the interview, it was realized that (contrary to what logic would suggest) the integration between the tourism sector and other major sectors in the economy has negligible, introducing the concept of


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leakages. Having failed to maximize the multiplier opportunities provided by a growing tourism industry, leakages widely occur due to a number of factors, including: vertical integration between large tourism operators, airlines and tour operators; and fiscal incentives, which by favoring large volumes of investment, effectively prevent local entrepreneurs from entering the industry.

Additionally, the lack of a strict land zoning property has resulted in a skyrocketing demand for land in the island, which has conversely led to increased prices, further reinforcing the exclusion of local operators. This assertion concerning the exclusion of local entrepreneurs in the sector was not wholly aligned with the findings of the questionnaire. Although a large number of respondents indicated that FDI in tourism did obstruct local entrepreneurship in the sector, a slightly larger amount indicated that it has no impact (Fig.2.3). However, the tide of data obtained from the other pools demonstrated that FDI has undoubtedly resulted in the exclusion of the local businessman. After all 56.6% of rooms in the island were all inclusive in 2003 (Jules 2005). Consequently, although attempts are being made to stem leakages in the sector, the economy continues to slump away from maximizing its receipts from the tourism industry.

When the contribution of the hotel and restaurant subsector is taken into account together with the tourism receipts for the eight year period beginning in the year 2000, it consistently accounts for an over 45% share of the island’s Gross Domestic Product. (Table 9.1) This not only signals the dominant trend of the tourism sector in the island, but also illustrates a lack of economic diversity within the economy. Tourism has in this way reinforced our orientation towards exports, in a similar fashion to agriculture in the past. There is an inherent vulnerability in this economic reality. The fluctuations in the tourism receipts and hotel and restaurants subsector data indicated the inconsistencies of the industry, and highlighted its susceptibility to exogenous shocks. This data is further substantiated by the interviewee’s belief, that at present, the St. Lucian economy is far too dependent on tourism and foreign direct investment. If such


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investment were to be withdrawn or significantly reduced, the repercussions for the St. Lucian economy could be disastrous.

Additionally, the current regime of incentives does not maximize government revenue, while encouraging maximum foreign direct investment. The interviewee elaborately described the process by which the St. Lucian government, through its incentives policy, is ceding potential tax revenue to foreign governments through double taxation policies. However, on a positive note, FDI in tourism has, according to the questionnaire respondents, resulted in a massive increase in St. Lucia’s international brand recognition. Hence, the industry is self-propagating in this respect.


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Part III

Findings & Recommendations


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Findings To determine the extent of foreign direct investment in tourism in the St. Lucian

Economy. According to the mass of data collected, Foreign Direct Investment in tourism in St. Lucia directly accounts for significant proportions of the island’s gross domestic product and economic volume. Indirectly however, FDI in tourism accounts for even greater percentages of the island’s trade and gross domestic product through tourism receipts and other parts of the sector. When holistically assessed, tourism, stimulated by FDI, is the largest sector in the nation’s economy.

To objectively analyze the effects of foreign direct investment in tourism on the Saint Lucian economy, society, and political system. Foreign Direct Investment in tourism has a multitude of implications on the island’s political, social and economic milieu. These include: i) The overall growth of the island’s economy as measured through its gross domestic

product. ii) The shift away from the agricultural sector towards services based sectors. This has

in many ways allowed the island to benefit from increased economic and political independence, due to reduced dependence on preferential markets. However, it has still not permitted complete economic sovereignty.

iii) The reinforcement of the economy’s export orientation and a lack of economic diversity. Although tourism has expanded the market available to other industries in the island, a lack of integration has not permitted increasing economic diversity. Instead, the island has become increasingly dependent on a single industry (tourism).

iv) Barriers to entry for local entrepreneurs willing to enter the sector, due to the inherent biases created by the current incentives regimes.


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v) Increasing consumption of fossil fuels, due to increased electricity consumption in the island. This has the potential to upset trade balances.

vi) Increased land prices, due to the vastly increased demand for land from the sector for its expansion.

vii) High leakages in the economy. This is mainly due to failure to integrate the tourism sector with domestic industries, and vertical integration among large foreign entities.

viii) Potential foreign interference in government, due to the significant contributions by foreign enterprises.

ix) Improved gender equity in wages for the sector. Men and women receive nearly equal average pay in the tourism industry.

x) An emphasis on low quality human resources in the island, due to the exclusion of locals from top tier positions in the sector.

xi) Improved brand recognition and marketing of the island’s tourism product abroad, due to increased availability of advertising capital.

xii) A possible increase in environmental awareness, due to the advent of ecotourism. xiii) Greater income inequalities in the society as a whole, due to the dominance of

large, foreign corporate entities. xiv) Increased consumption of natural marine resources; xv) A possible commodification of the local culture, and a reduction of cultural pride,

however, it may also manifest an increased awareness and appreciation for local practices.

xvi) A possible increase in the incidences of violent crime in the island due to marginalization of the population.


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Recommendations and Implications The government of St. Lucia should implement a more rigorous land policy which

restricts the outright sale of large quantities of land to foreign individuals or entities except for certain designated “Tourism Development Areas.” In the long term, this type of policy will help facilitate greater social equity in the island, and reduce the marginalization of natives which currently occurs. However, if not implemented gradually and correctly, such a policy could lead to wide spread dissatisfaction among the dominant entities in the industry, and discourage further investment in the country. Apart from these effects, other expected impacts would include a decrease in the land prices on the island, due to reduced demand from foreign entities.

The relevant authorities in the island should undertake initiatives aimed at improving the linkages between the tourism industry, and other productive sectors such as manufacturing and agriculture which are currently solely export oriented. This will help reduce the leakages which occur as a result of excessive importation to sustain the expanded market and will, in the long term, boost the economy of the country by developing labour and technology resources. This must be done competitively and aggressively. The expected implications of such a policy would certainly be a marked decrease in tourism related leakages and a decrease in imports.

In order to rectify the current tendency for the tourism sector to reinforce low human resource development, it is imperative that the government of the island impose requirements that entities in the hotel sector will, instead of continually importing skilled labour from overseas, attempt to train local labour to fill top-tier managerial positions in the tourism sector. This will not only facilitate the development of the island’s human resources, but also enhanced local participation in the sector.

In the interest of negating the negative environmental impacts of tourism, and in order to increase the sustainability of the tourism in the island, it is essential that an exclusive body be established to regulate the planning and development of hotels in the island, so as to minimize their environmental impact. The island’s natural marine and terrestrial resources are an invaluable asset to the industry. Consequently, we must endeavor to


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protect these. In the short term, companies may indicate reluctance to cooperate with such measures, if the costs associated with minimizing the impact is too high. However, in the long term, tourism is St. Lucia will become a sustainable economic proposition.

Although the shift from agriculture towards the tourist industry has helped to diversify the economy is some respects, the increasing dominance of the tourism sector in the country will inevitably lead to a heavy economic reliance on the sector. Hence, in the interest of reducing the vulnerabilities associated with a dependence on an export sector, the government should concentrate on diversifying the economy by encouraging the development of alternative industries. In the long term, this will insulate the St. Lucian economy against exogenous shocks due to unalterable events.

The current incentives regime in the island should be revised in order to minimize the losses in potential revenue experienced by the government currently, while continuing to encourage foreign direct investment in the tourism sector. However, attempts should also be made to create a preferential investment setting for local investors in St. Lucia. As currently designed, the investment regime awards incentives based on volume. In order to increase local investment opportunities, natives must be offer incentives based designed to facilitate their lower volume investments. The long term consequence of this is an obviously reduced reliance on foreign direct investment in the sector, since additional local investment will exist to supplement it.


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Bibliography Jules S. 2005. Sustainable Tourism in St. Lucia, Winnipeg, International Institute for Sustainable Development.

Caribbean Development and Cooperation Committee, 2003, The Impact of Foreign Direct Investment on Patterns of Specialization in the Caribbean, Economic Commission for Latin America and the Caribbean.

Sustainability Impact Assessment of the EU-ACP Economic Partnership Agreements; Caribbean Region: Tourism.

Greene T. St. Lucia’s Investment Incentive Regime, Castries, Invest Saint Lucia.

Government of Saint Lucia; 2008; Economic and Social Review 2007; Castries; Ministry of Economic Affairs, Planning, Investment and National Development.



World Bank, 2000-2008, International Tourism, Receipts http://data.worldbank.org/indicator/ ST.INT.RCPT.XP.ZS, Retrieved 3.11.11.

Royal St. Lucia Police Force, 2004-2007, Reports and Statistics, http://www.rslpf.com/stats.htm, Retrieved 3.11.11.

McLaren, D. 2003. Rethinking Tourism and Ecotravel. Second Ed. CT: Kumarian Press, Inc.

Ministry of Agriculture, Forestry & Fisheries. 2003. National biodiversity strategy and action plan of St. Lucia. Castries: Government of St. Lucia,

The St. Lucia Government Statistics Department. 2003. Saint Lucia Earnings and Hours of Work Report. Castries: Government of St. Lucia.

http://data.worldbank.org/indicator/%20ST.INT.RCPT.XP.ZS

http://data.worldbank.org/indicator/%20ST.INT.RCPT.XP.ZS

http://www.rslpf.com/stats.htm


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Appendix I


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Dear Respondent, Our names are Jarnickae Wilson, Kerishlyn Ambrose, and Kareem Louis. We are presently form 5 students nearing the conclusion of a two year course in CSEC Economics. As an integral part of this course, we are required to submit a School Based Assessment (SBA) for the purpose of investigating and analyzing the following topic: “The Impact of Foreign Direct Investment in the Saint Lucian Tourism Sector.” Foreign Direct Investment refers to the long term participation of foreign entities in Saint Lucian business and economy. Foreign entities include individuals, corporations or businesses, and shareholders. Foreign Direct Investment in Saint Lucia may be most commonly seen in foreign-owned businesses, especially in the Hotel and Tourism sector. As part of the preparation of this report, it is imperative that I humbly solicit your support in order to collect information utilizing a questionnaire pertaining to the subject at hand. As is standard procedure your anonymity shall be preserved during our collection process. With your help, this presentation shall not simply be an investigative report, but also a stepping stone to the resolution of issues arising from foreign direct investment in Saint Lucia. Once again, thank you for your kind cooperation.

Regards, Jarnickae Wilson


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PART I 1) To which of the following age groups do you belong?

a) 17-25

b) 25-39

c) 40-60

d) Over 60

2) Are you a Saint Lucian Citizen?

a) Yes

b) No

c) Dual Citizenship

3) What is your Religious Affiliation?

a) Christian-Catholic

b) Christian-Other

c) Muslim

d) Hindu

e) Other

4) What is your role in the tourism industry?

a) Hotel Domestic Worker

b) Taxi Driver

c) Vendor

d) Hotel Restaurant Worker

e) Hotel Administrative Worker

5) What are your annual earnings?

a) Under $10,000 ECD

b) $10,000-$40,000 ECD

c) $40,000-$200,000 ECD

d) Over$200,000 ECD

6) What is your highest degree of educational attainment earned?

a) Associates Degree

b) Bachelor’s Degree

c) Ph.D.

d) A-Levels OR CAPE

e) CSEC


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PART II

7) Do you feel that foreign direct investment in Saint Lucia’s Hotel Industry has played a major

role in the success of that industry?

a) FDI is responsible for most of its development and success

b) FDI may have contributed to the success, along with other factors.

c) FDI played a minimal role in the industry’s success

d) FDI makes only a negative impact in the industry’s development and success

8) In your opinion, does foreign direct investment in Saint Lucia’s Hotel Industry provide

extensive benefits for the populace?

a) It provides many benefits to employees

b) It provides few or insignificant benefit to the average worker.

c) It negatively impacts the circumstances of the average Saint Lucian worker.

9) In what way does foreign direct investment in the Hotel Industry benefit those involved in

the sector?

a) It provides more jobs in the sector

b) It generates more substantial wages for workers

c) It increases job benefits and working conditions

d) Other

10) Are you of the impression that foreign direct investment in tourism in Saint Lucia has

diminished the prominence of Saint Lucian cultural activities?

a) It results in greater foreign cultural influence and discourages local cultural pride

b) It does not at all affect local culture or activities

c) It promotes native Saint Lucian culture, language, and activities

11) Do you feel that foreign direct investment in tourism has promoted environmentally

unsound development of the country?

a) It causes destruction of the natural resources and environment in Saint Lucia

b) It does not have any negative impact on the natural environment of Saint Lucia

c) It promotes the preservation of Saint Lucia’s natural resources.

12) In your opinion, does foreign direct investment in the Hotel sector increases the likelihood

of foreign interference in local political and economic affairs?

a) FDI allows foreign entrepreneurs to interfere in the island’s politics and running.

b) FDI does not compromise Saint Lucia’s independent local governance.

c) FDI promotes local government control free of interference.


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13) Do you believe that foreign direct investment in tourism effectively obstructs local

ownership and influence in the major businesses of the tourist sector?

a) FDI in the Hotel Sector hinders the existence of locally owned and managed

businesses

b) FDI does not reduce the opportunities available to local entrepreneurs to own and

establish hotels and other tourism-related businesses.

c) FDI encourages and supports local investment and ownership of tourism businesses

and enterprises.

14) Does foreign direct investment in the hotel sector promote drug trafficking and prostitution

in Saint Lucia?

a) It encourages the selling of drugs and sexual services.

b) It does not have any effect on the selling of illegal drugs and sexual services.

c) It discourages the trafficking of drugs and prostitutes.

15) Does foreign direct investment in the hotel sector increase the prevalence of violent crime?

a) FDI increases the rate of violent crime.

b) FDI has no impact on incidences of violent crime in Saint Lucia

c) FDI reduces incidences of violent crime in Saint Lucia

16) Does foreign direct investment in the hotel sector encourage companies to contribute to

Saint Lucian society and causes (have a social consciousness)?

a) FDI results in companies making more significant contributions to the development

and welfare of the society.

b) FDI does not affect the contribution hotels and tourism related businesses make

towards social projects.

c) FDI results in reduced contributions and interest in the social welfare and

development of the society.

17) In your opinion, has foreign direct investment in the hotel sector increased Saint Lucia’s

marketing opportunities and improved its recognition abroad?

a) FDI has assisted by marketing Saint Lucia as a destination globally and promoting its

interests abroad.

b) FDI has not assisted at all in advancing Saint Lucia’s interest abroad.

c) FDI has disadvantaged Saint Lucia’s marketing and overall global reputation.


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18) What measures do you think should be adopted in order to alleviate the issues (if any)

associated with foreign direct investment in the hotel sector, while preserving the benefits?

a) Increased government regulation

b) Reducing FDI in the hotel sector

c) Introducing Social and Cultural Programs

d) Increase FDI in the hotel sector

e) All of the Above

f) Other

19) Would you support any attempt to regulate or decrease foreign direct investment into the

hotel sector if it reduced the economic benefits, while also reducing the negative effects?

a) Absolutely

b) Likely

c) Unlikely

d) Never

20) Are you satisfied with your job in the tourism sector?

a) Very Happy

b) I would move on to another job outside of tourism if I could

c) Not at all, I absolutely detest my job.

d) Other:


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Appendix II


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Interview Schedule 1. What is the extent and nature of foreign direct investment in Saint Lucia’s tourism

sector presently? 2. How has it changed in the last five to ten years? 3. In what form does foreign direct investment occur? Is it foreign individual

entrepreneurs, or rather corporations and governments investing directly into the sector? How does this investment occur? Is it in the form of equity shares in tourism businesses (hotels etc.) or rather in the form of foreign owned and managed businesses? Which is more prevalent?

4. Do you believe that extensive foreign direct investment is sustainable in the long term? 5. What is the legislation and regulation governing foreign direct investment in Saint

Lucia? 6. How effective is this legislation in preventing abuse of the population, natural resources

and rights of Saint Lucian citizens? (if it exists) Also, what is the prevailing attitude of the hotel and tourism association with regards to foreign direct investment?

7. What are the incentives designed to attract foreign direct investment into the Saint Lucian tourism sector.

8. What are the effects of Foreign Direct Investment on the Tourism sector, and the economy and society at large?

9. How has foreign direct investment in the tourism sector helped to boost Saint Lucia’s tourism product and overall development?

10. What are the issues and challenges associated, in your mind, and in the view of the hotel and tourism association, with foreign direct investment in the tourism sector?

11. What is the level of local involvement in the functioning of the tourism sector in Saint Lucia? Is it appropriate or optimal or do you believe that more/less local involvement should be facilitated by government?

12. Should the Saint Lucian public be concerned with possible compromises in Saint Lucia’s economic and political sovereignty due to extensive foreign direct investment in tourism?


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13. In the long term, what is the strategy of the Government and Hotel Association with regards to foreign direct investment? Is the inclination towards increasing and maintaining inflows, or promoting a greater degree of local involvement?

14. What recommendations would you make pertaining to foreign direct investment in tourism in Saint Lucia? (if any)

15. How do you expect these recommendations to impact the economy in the short and long term?

Documents

Economics SBA: Foreign Direct Investment in Tourism