By C ben-David
After announcing early last year in the Budget Address as well as in Parliament that he intended to construct a 250-room hotel using public monies, the Honourable Prime Minister of St. Vincent and the Grenadines (SVG), Ralph E. Gonsalves, and Invest SVG’s executive director, Annette Mark, have just provided additional project information.
Not surprisingly, the location will be Mt. Wynne on the central leeward coast, not far from the Black Sands Resort and Villas complex whose site preparation began in earnest earlier this year.
Building a hotel or related tourism facility is always a risky undertaking. If Black Sands Resorts and Villas fails, no uncommon occurrence in the cut-throat Caribbean tourism industry, the costs would have to be borne by Pace Developments Inc., a relatively small Canadian builder of residential units one of whose divisions will also manage the complex. If the new government hotel fails or, as is more likely, only piles up annual losses like many other government-owned entities around the world, we taxpayers will have to absorb the deficits.
With no comprehensive feasibility study accompanying the explicit rationale that the hotel would prosper because we now have an international airport, plans for constructing the facility are disturbing. In the hospitality industry, demand normally drives supply. Given that our premier mainland hotels on or near the narrow strip of grey-white beaches at the Indian Bay/Villa area have an annual occupancy rate of 30-40 per cent, the need for additional accommodation is not to be seen.
According to government spokespersons, the construction of the new state-owned hotel would be financed by a US$50 million (EC$134 million) “soft loan” from our most faithful patron, the Republic of Taiwan. A “soft loan” is a form of credit with no interest or a below-market interest rate plus other concessions such as a long repayment period and interest deferral. Such advances are given by governments or multinational development banks to poor countries unable to borrow at the market rate and therefore viewed as a form of aid or, in the case of Taiwan, a way to buy loyalty.
We also know from the bitter experience of Argyle International Airport (AIA) and other government projects that a US$50 million government project can easily balloon to US$100 million.
Soft or not, the initial loan and the others sure to follow, would add to our sky-high debt level. Will we even be told how much net revenue the hotel will have to earn, after deducting the pricey management fees, to meet its interest and other liabilities? Not likely. Such figures are not revealed anywhere in the Caribbean.
In an interview with Searchlight newspaper on June 13, 2018, Mark also divulged that several major international hotel brands have expressed interest in managing the property. At a press conference the next day, the Prime Minister disclosed that two of the major international hotel brands that had come here to look at the site were the Hilton and Marriot hotel chains, rightly noting that these conglomerates are now rarely involved in hotel or resort construction but instead manage and/or lend their logo to facilities built by other entities.
Though many Vincentians, especially Unity Labour Party supporters and those few remaining socialist troglodytes who believe that the public ownership of the means of production is the best way to run the economy of country, will certain cheer this project, there is good reason to be fearful — very fearful — that it will ever proceed.
Although hotels and other hospitality venues around the world are sometimes built and exclusively owned by governments, these are generally confined to hard-line socialist regimes (such as the former Soviet Union, present-day Cuba, and Jamaica during the Michael Manley era) where their economic performance has been less than lacklustre. Conversely, their presence in mature capitalist economies is a sure sign that they are unprofitable from a free-enterprise perspective. Yes, many hotel chains, including the elite Four Seasons Hotels and Resorts, do not build any of the properties they manage, but the financiers, builders, owners, lessors, and franchisees are invariably private sector entities.
The days of public hotel construction, ownership, and management are nearly over as both building and administration have been transferred to the far more efficient, transparent, and profitable free market sector. As for possession, even Cuba, which until recently owned 100 per cent of the nation’s hotels, has shifted most management and up to 49 per cent of tenure to once reviled international capitalists.
When Jamaica was compelled to experiment with democratic socialism during Michael Manley’s first two terms in office (1972-1980), the nationalisation of the country’s hotels proved to be an economic disaster. When an Edward Seaga government that divested itself of the albatross his predecessor had created soundly defeated him, the hotel and tourism industries began to thrive again.
But even the few examples of public hotel ownership outside Cuba referred to by Ralph Gonsalves prove that governments have no business building hotels.
Barbados has been trying to sell its iconic Hilton-managed and branded resort for years and the Hilton-run hotel in Trinidad, built and owned by the government, was allowed to deteriorate for two decades before being slowly renovated beginning in 2005, a process that is still incomplete.
All publicly-owned and privately-managed Caribbean hotels also suffer from accountability and transparency issues with governments refusing to reveal the contents of their contractual arrangements or even whether the hotels are profitable or not.
As one British investment house spokesman said:
“State-owned hotels in the Caribbean has never been successful at any time. The business of government is not running businesses. Antigua is heavily indebted and should use its resources prudently in areas like education, healthcare and maintaining law and order — not using well needed capital to buy hotels.
“If the government gets into the hotel business, investors in all sectors will run off and with no FDI[Foreign Direct Investment], Caribbean countries would be a financial disaster. It just doesn’t make sense. The Prime Minister of Antigua needs to rethink his position on this.”
So does Ralph Gonsalves, whose regime has conceived, financed, built, and managed the AIA boondoggle while negligently vetting outside investors in our tourism industry, as in the case of Buccament Bay Resort (which shows no signs of re-opening anytime soon) and, as time may tell, Pace Developments Inc.
The only reason this government feels compelled to construct a large hotel at Mt. Wynne is that no legitimate and recognised private entity, local or foreign, would be willing to do so given the lack of white sand beaches or compensating attractions at Mt. Wynne and surrounding areas.
We already have a government-owned folly at Argyle. We don’t need another one at Mt. Wynne.
This is the 74th a series of essays on the AIA folly. My other AIA essays are here.