Preparing the Caribbean tourism industry for Brexit

On June 23, by a small majority, the British people voted to leave the European Union (EU). It is a decision that has consequences for the Caribbean tourism industry.

What happens next is far from clear. This is because only when a new British Prime Minister is appointed in September will a formal period of reflection begin on the future options for the UK’s relationship with the EU27. Then, sometime after that, possibly at the year-end, will the UK decide to invoke the relevant article of Europe’s Lisbon Treaty to leave, and embark on an uncertain two-year process of departure, probably followed by a negotiation on a new relationship.

This process is likely to be lengthy and far from easy. It will require high level national leadership in both of the main UK political parties; the civil service to develop objective options and to negotiate; and possibly up to ten years to unravel EU regulations and laws, with extraordinary additional complications arising if Scotland seeks independence based on its desire to remain in the EU.

It is therefore possible to envisage a long period of economic and political uncertainty, a possible recession in the UK, the diminution in the short to medium term of the British economy, and the continuing weakness of sterling.

Moreover, there is now widespread concern with the EU that the vote could play to political and economic tensions within the EU27 and may mortally weaken the already shaky foundations of European unity.

Despite this it is important to understand that nothing structural in the region’s relationship with either the UK or a Europe of 27 member states will happen suddenly. Moreover, the Caribbean’s relationship with the EU27 on trade, through the Economic Partnership Agreement (EPA), sums already programmed for development support, and all else will continue unchanged well into the future.

In general terms this provides the industry with some breathing space in which to study the strategic longer term impact on the region, how these changes might affect its tourism markets in the EU27 and the UK, and how best to respond.

That said, tourism, unlike any other industry in the region is uniquely exposed to the short and medium term economic effects of Brexit. This is because the industry depends on consumer and investor confidence in its principal feeder markets, the currencies of visitors retaining purchasing power, the predictability of regulation, and investor certainty.

A quick analysis suggests that the region’s industry will be affected in a number of ways.

Firstly, the collapse in the value of sterling to US dollar rate and by extension its decline in relation to all dollar related currencies in the Caribbean is likely to last for some years. While no doubt sterling will settle – some financial analysts suggest at around US$1.25 to the pound sterling – the present weakness suggests that the short term outlook for most destinations particularly for mid-market and family vacations in the Caribbean is in particular likely to be uncertain in the 2017 low season.

Secondly, there will be a negative effect on trade flows. The UK will have to make up its mind what trade relationship it wants with the EU and with the rest of the world. The three main options it has with Europe all involve in due course a future Caribbean trade negotiation with the UK. While in the shorter term, because of the weakness of sterling, purchases from the UK will become cheaper, the trade relationship for goods and services with the UK will eventually depend on what type of trade deal the Caribbean and UK want and whether this is similar to the Economic Partnership Agreement.

Thirdly, issues arise in relation to development assistance. The industry and some governments had been making significant progress with UK support in having the EU recognise the importance of tourism and providing the industry and government with related development support. When the UK departs the European Development Fund (EDF) it will lose the UK contribution which currently accounts for almost 15% of the total of around €500m (US$553m) per annum. How the UK then decides its bilateral development priorities outside of the EU remains to be seen, but will likely take account of Prime Minister’s Cameron’s recent commitment of US$400m in grant assistance for an infrastructure fund for the region.

Fourthly, there are likely to be a wide range of regulatory issues that will arise. Everything from standards to consumer legislation, open skies agreements and environmental issues which have been agreed at an all EU level will have to be looked at again in the context of a future relationship with the UK. While it is quite possible that much will remain the same, the UK’s limited negotiating capacity suggests that the Caribbean will not be a priority if it comes to resolving region-specific issues.

And fifthly, more generally the region will no longer have Britain’s voice in its support in the councils of Europe, suggesting a much closer relationship with France, Spain or the Netherlands will be required as well as an enhanced dialogue with the French and Dutch speaking parts of Europe in the Caribbean.

It is still early days, but there are some steps the tourism industry could take now.

The first is to develop a detailed assessment of how much the UK market matters to each nation, and study the likely issues that will arise out of having eventually parallel trade and regulatory environments with the UK and the EU27.

The second is to get to know on a sustained basis those in the UK who will be politically and administratively responsible for negotiating the UK’s exit and its future relationship with the rest of the world. The same holds true of the European Commission and in key EU27 member states.

The third is to continue the process already underway of market and airlift diversification in countries that rely heavily on British visitors.

And the fourth is for the industry, tourism boards and governments to genuinely work together on this issue to determine how to respond when negotiations are required.