Central Bank of the Dominican Republic predicts recovery in tourism
The consensus of the analysts indicates that the industry will gradually rebound and continue to lead the Insular Caribbean region and Central America in terms of tourist reception
The Dominican Republic is recognized as one of the most attractive tourist destinations for vacations in the entire Insular Caribbean, characterized by its white sand beaches and crystal clear waters, recreational opportunities and vast cultural wealth. For decades, the country has made efforts to efficiently take advantage of its comparative advantages and improve the competitiveness of the sector, but it was not until the 1990s, specifically, from the year 1995 with the entry into force of Law No. 16-95 on Foreign Investment, when the tourist industry was consolidated as a core activity within the Dominican economy.
Since then, the evolution of the hotel, bar and restaurant industry has played an extremely important role in the transformation of the national productive apparatus, with an average growth of the real added value of this activity of 5.9% in the last three decades, especially due to its multiplier effect on the demand for local goods and services and on job creation, as well as its high incidence in the country's total exports. In this sense, it is relevant to evaluate the performance of this activity in the Dominican Republic in recent years and especially, in the face of an adverse international context impacted by the COVID-19 pandemic, as well as the recovery expectations of this neuralgic industry for the country.
The application of tourism promotion and incentive laws has created an environment conducive to encouraging private investment in the sector, promoting the country as an increasingly attractive destination for tourists. This is evidenced by the dynamism observed in the arrival of foreign visitors, accumulating more than 45.9 million visitors in the last ten years. Specifically, considering in addition to Dominicans residing abroad, at the end of 2019 6,446,036 non-resident passengers entered the country, that is, 17% of all visitors from the Insular Caribbean and Central America, positioning the country as a leader in this region.
The trend in the arrival of visitors has meant foreign exchange income to the country from tourism for more than US $ 58,000 million between the years 2010 and 2019, receiving only in 2019 an amount of US $ 7,468.1 million, that is, 8.4% of the Domestic Product Gross (GDP). This result gives the Dominican Republic the top position in the Insular Caribbean and Central America region. It should be noted that tourism income represented 36.4% of exports of goods and services during 2019.
Additionally, the referred sector contributes to the flow of foreign exchange and to the balance of payments balance by attracting Foreign Direct Investment (FDI). During the 2010-2019 period, FDI destined for tourism reached the amount of US $ 4,911.2 million, equivalent to 19.4% of the total received in these years. Specifically, it is relevant to note the notable increase in the contribution of this component with respect to the total during the last decade, going from a weighting of 8.9% in 2010 to 29.3% in 2019.
It is important to point out that the resources channeled towards the development of this industry have led to an increase in the number of ecotourism activities offered and, in particular, to the construction of hotels of large international chains, continuously increasing the housing capacity in the country . In effect, the number of accommodation units continues to grow, surpassing the 86 thousand hotel rooms available in 2019. These are scattered throughout the country, but with a higher concentration in Bávaro-Punta Cana, the main tourist center of the Dominican Republic located in the extreme east. This area is the largest receiver of travelers and employs the largest number of workers in the sector.
Likewise, the outstanding performance of the sector has played a fundamental role in the transformation of the economic structure of aggregate demand towards one in which the services sector is increasingly predominant, in line with international experience in terms of the transition of the countries towards more advanced stages of development.
In particular, the hotel, bar and restaurant activity is characterized by having a high level of productive linkage with other sectors of the economy; with a high drag coefficient which generates a multiplier effect associated with the demand for goods and services from other activities. Specifically, this activity requires 39.8% in intermediate inputs for each unit value of production, mainly in agricultural and manufactured goods, as well as energy and water services, transportation, financial services, among others, which allows tourism to be considered as a transversal activity in the economy. On the other hand, from the analysis of the income and employment multipliers in the input-output framework, it can be observed that,
Similarly, it is necessary to highlight the importance of this sector as a generator of jobs for the economy. According to the data extracted from the Continuous National Survey of the Workforce (ENCFT), the hotels, bars and restaurants activity represents approximately 7.4% of the employed population in 2019, that is, more than 340 thousand direct jobs and indirect, for an increase of 64,000 net employed persons between 2014 and 2019. In this order, from an input-output approach, it is estimated that for every million pesos that the final demand for tourist goods increases, around 1.44 jobs are created additional work, consistent with the direct and indirect multiplier effect that this activity reflects.
Effects of the pandemic on the Dominican tourism sector
Just when the national tourism sector began to resume its growth trend, after the adverse impact on flight reservations to the country as a result of international press coverage of the unfortunate deaths of some American tourists during May and June 2019, the COVID-19 pandemic shocks the world. In effect, it generates the closure of national borders by air, sea and land between the months of March and June 2020, as a measure to mitigate the spread of the virus, which notoriously affected this sector in a synchronized way at the international level.
In this framework, the interannual flow of travelers in the second quarter of 2020 was zero (-100.0%). However, after the reopening of the airports in July, tourism has gradually recovered. To give an idea of the magnitude of the improvement experienced so far, if the figures for the month of December 2020 are taken into account, the arrival of non-resident visitors (foreigners and Dominicans) reached 348,464 tourists, representing 55.8 % of all non-resident visitors who arrived in the country in December 2019. This constitutes a significant advance, since in July of this year 135,163 visitors arrived in the country, for a proportion of 22.9% compared to the same month of last year.
By 2020, the arrival of non-resident visitors to the Dominican Republic was 2,405,315 tourists, an interannual variation of -62.7%, of which 1,699,194 are foreigners and 706,121 are non-resident Dominicans, which means that after the reopening of the airports in the July-December period 1,011,224 tourists were received.
An important aspect to highlight is the positive effect that the Responsible Tourism Recovery Plan that the Dominican Government is promoting in conjunction with the private sector has had so far, which includes measures to promote the country as a safe vacation destination and promote the Country-Brand. Specifically, the economic incentives package for the sector includes an investment program of more than RD $ 420 million pesos, temporary elimination of the advance payment for 6 months and the payment of the tax on assets until June 2021 and reduction of the rate Advance Price Agreement at 35% between September and November 2020. In addition, the aforementioned plan includes internationally certified health safety protocols to be followed by tourism companies and travelers entering the country,
These provisions represent an excellent complement to the monetary and financial measures launched by the Central Bank of the Dominican Republic (BCRD) since March, in support of key sectors of the economy such as tourism, exports, construction , manufacturing, agricultural activity and Micro, Small and Medium Enterprises. It should be remembered that the monetary institution has made available to the productive sectors and households a total of RD $ 190,814.4 million (more than 4.0% of GDP) since the beginning of the COVID-19 pandemic, constituting the most stimulus plan wide of the entire region of Central America and the Caribbean,
It is important to highlight the effect that this stimulus plan has had on the performance of all economic activities, excluding Hotels, Bars and Restaurants, which has allowed the weighted average of them to show a positive inter-annual variation for the first time after the impact. adverse effect of COVID-19 in the economy, registering a growth of 0.2% in the month of November and projecting 1.7% for the month of December 2020. With this preliminary forecast, the total IMAE would be registering an interannual variation of -1.5% in December 2020, which constitutes a significant improvement compared to -3.4% in November, -4.3% in October and -29.8% in April (28.3 percentage points less), the latter representing the most critical moment of the pandemic.
In addition, it should be noted that the Central Bank has played a crucial role in maintaining the relative stability of the exchange rate during the past year, covering the mismatch generated in the supply of foreign currency due to the decrease experienced by tourism income as a result of the COVID-19 pandemic. In that vein, during 2020 the issuing entity made gross interventions in the foreign exchange market with sales for an amount of US $ 6,996.0 million.
In terms of added value, the hotel, bar and restaurant activity has been one of the most notoriously affected by the pandemic, registering a relative variation of -71.3% in the GDP result for the April-June 2020 quarter. No However, it is important to note that the most recent figures from the Monthly Economic Activity Indicator (IMAE) as of November 2020 show a recovery in activity, accumulating a less negative year-on-year relative variation (-47.9%), a trend that is expected to continue improving, as the spread of the virus continues to dissipate, now with mass vaccination at the international level, and this in turn allows global economic performance to intensify its tendency to recovery.Likewise, it is expected that the comparative advantage that the country has in terms of the low density of its hotel buildings, together with the prevention measures implemented that have generated minimal levels of contagion in the tourist centers, will strengthen the sustained path towards the reactivation of the Dominican tourism industry.
Although the current health crisis has generated severe economic effects on the Dominican economy, they are expected to be transitory. In this vein, the Central Bank econometric models project that in 2020 the economy would close with a real GDP variation of the order of -6.7% / - 6.8% and that during 2021 growth would be around 6.0%, above the potential rate. This would be possible thanks to the strong macroeconomic fundamentals and the great resilience of the Dominican private sector to recover from both external and internal supply and demand shocks.