Growth, Development and Tourism in a Small Economy: Evidence from Aruba
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INTERNATIONAL JOURNAL OF TOURISM RESEARCH
Int. J. Tourism Res. 5, 315–330 (2003)
Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/jtr.441
Growth, Development and Tourism in a
Small Economy: Evidence from Aruba
Manuel Vanegas Sr and Robertico R. Croes*
University of Central Florida, Rosen School of Hospitality Management, 4000 Central Florida Blvd,
P.O. Box 161450, Orlando, Florida 32816-1450, USA
ABSTRACT and debate. Theories focus on such issues as
comparative and competitive advantage, the
This study will focus on tourism economic degree of openness of an economy, the hurdles
growth and its development impacts on for achieving economic scale and scope, the
a microstate and will explore their right market structure and the quality of the
implications for tourism analysis and institutional environment. There is a growing
planning. The evidence presented in this body of literature addressing the issue of how
article reveals that tourism in Aruba can to overcome the problem of poverty (Easterly,
generate desirable and widely distributed 2002). Few studies, however, have examined
impacts. The tourist performance also has the role that tourism can play in the quest for
been remarkable and consistent. The results prosperity and development. Exceptions to
also suggest that the export-led growth this trend can be found in Sinclair (1998),
strategy has affected the whole of the Clancy (1998), Sharpley (2002) and Sharpley
economy in a positive way. The principal and Telfer (2002).
conclusion is that institutional intervention Even fewer studies have assessed the role of
can only become a positive force within a tourism in overcoming the constraints of size.
context of rapid integration with the global Kammas (1991) reviewed the economic bene-
market. Copyright © 2003 John Wiley & fits to Cyprus based on an export-led strategy.
Sons, Ltd. Conlin and Baum (1995) addressed the issues
related to the impact of tourism in small island
economies. Assessing impact, however, is a
Received 8 April 2002; revised 29 April 2003; accepted 5 May short-term exercise and does not analyse the
2003
developmental process entailed in tourism.
Apostolopoulos and Gayle (2002), on the other
Keywords: development; policy; planning; hand, ventured into gauging the developmen-
impact; small economies. tal relevance of tourism in the context of small
size from a sustainable and alternative frame-
INTRODUCTION work. Like the other major paradigms in the
development studies (i.e. the classical theory,
T
he most effective means for achieving the dependency theory, and the neoclassical
economic performance in a country has theory), the sustainable paradigm also is
been the subject of considerable study flawed regarding the question of size.
What these studies share is that they pre-
*Correspondence to: R. R. Croes, University of Central dicted that the performance of tourism in a
Florida, Rosen School of Hospitality Management, 4000 small island economy is either poor or failing.
Central Florida Blvd, P.O. Box 161450, Orlando, FL 32816-
1450, USA They have argued that smallness compromises
E-mail: rcroes@mail.ucf.edu the economic viability of small countries that
Copyright © 2003 John Wiley & Sons, Ltd.316 M. Vanegas Sr and R. R. Croes
these countries will remain the victims of characterised by its small size and openness.
larger countries, or that tourism is not really External economic relations account for a sub-
suitable for small islands in view of its nega- stantial part of national expenditures, and eco-
tive manifestations and consequences (Bryden, nomic activities are concentrated around three
1973; Patullo, 1996; Fagence, 1999). Others important pillars, i.e. tourism, oil refining and
have ignored the potential of tourism for small international trade and financial services. All
countries by insisting in propping up the these activities are predominantly dependent
fading subsidised economic sectors of com- on foreign markets.
modities, such as sugar and bananas (Bernal Tourism as a growth industry was clearly
et al., 2001). Yet others have questioned the understood by the Aruban policy makers in
basic premise of using tourism as a viable the 1980s, when they were confronted with
development tool for small countries (Pastor severe problems of recession, declining gov-
and Fletcher, 1991). ernment revenue and high levels of un-
This study focuses on the fundamental rela- employment. The expansion of tourism was
tionship between development and small size. generally regarded as offering the most
In particular, it seeks to answer the question of promising opportunity for recovering the
whether tourism can overcome the tyranny of losses to the economy caused by the closing
size, and in so doing, it utilises the case study of the Lago oil refinery (IDAS, 1980; Cole,
of Aruba. Aruba is a small island country 1984; World Bank, 1986). In a 15 year time
located in the Caribbean Sea with a population span, Aruba created a solid US $2 billion eco-
close to 100 000 inhabitants and an area of nomy, with international reserves close to 17%
200 km2 (Figure 1). The economy of Aruba is of the GDP, an average 3% real GPD per
Figure 1. Map of the Caribbean region.
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)Aruba Tourism 317
capita growth annually, a GDP per capita of Bank studies have demonstrated that there
US$20 509.00 and with a total public debt is a direct correlation between poverty reduc-
remaining below 25% of GDP. tion and economic growth (Easterly, 2002). In
The purpose of this study is to analyse the this light, some countries have selected tour-
tourism economic growth and development ism development as a deliberate economic
impacts to Aruba and to explore their implica- growth strategy to achieve greater economic
tions for tourism development analysis and and development performance of small
planning. Furthermore, it will provide gov- countries.
ernment and policy makers with current and The theoretical rationale for tourism as a
reliable information on the contributions of development strategy derives from the con-
tourism to the Aruban economy. It will provide nectedness of exports and economic growth.
an indication of the degree of significance of Mihalič (2002) listed several advantages that
tourism to the local economy, and justify its tourism has over the classic export of goods
importance to the public at large. The scope of and services:
this study required the estimation of direct,
indirect and induced contributions of the (1) natural, cultural or social attractiveness,
tourism sector to income, employment, foreign which normally cannot be exchanged, can
exchange earnings and fiscal revenues. Finally, be valorised at a premium through tourism;
this study also provides important lessons for (2) products produced locally can extract a
small economies in developing tourism. higher price sold locally to tourists than
when exported and have lower costs
TOURISM AND ECONOMIC because of relatively lower, or no, trans-
DEVELOPMENT portation costs or insurance costs;
(3) some perishable goods (produce) can only
Despite tourism’s growing importance as an be sold to tourists in the domestic market
engine of growth for many countries, it has because of insufficient export capability
received little attention in the literature of and international marketing expertise.
economic development. When it is studied, it
often generates controversy. Proponents claim Croes (2003) discussed the suitability of
that tourism provides much-needed foreign tourism as a development strategy for small
exchange, creates jobs and generates govern- economies to overcome the built-in restric-
ment revenues. Critics contend, however, that tions imposed by size. Traditionally, small
most of these benefits actually go to powerful economies have been considered in a dis-
national and multinational groups, such as advantageous position in global competition.
hotel companies, travel operators and foreign Recently, however, a growing number of
investors. Further, they argue that leakages (i.e. empirical studies have demonstrated that
export revenues that leak out of the destination small economies surprisingly have outper-
to pay for imports of tourism-related goods formed larger economies. Thus, contrary to
and services, repatriation of profits as well as conventional wisdom, smallness of scale is not
overseas promotional expenditures and amor- fatal to prosperity. Tourism, in particular, has
tisation of external debt incurred in the devel- contributed in several important ways to the
opment of hotels and resorts) dilute any such positive performance of the average small
benefits to the host country. As the backdrop to economy. The impact of the new realities of
this debate, the World Tourism Organisation globalisation on small economies has caused
(WTO, 1999) estimates that 30% of the inter- some of them to consider new ways to bolster
national tourism expenditures take place in their performance. The implementation of new
developing countries. tourism strategies based on a demand focused
Armstrong and Read (2000) found that approach, supported by empirical analysis,
tourism has a strong positive relationship with could provide improved market knowledge
growth. Balaguer and Cantavella-Jorda (2002) to small economies, which they, in turn, could
demonstrated the relevance of tourism on use to achieve and sustain competitiveness in
long-term Spanish economic growth. World the global tourism industry.
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)318 M. Vanegas Sr and R. R. Croes
TOURISM DEVELOPMENT IN ARUBA a factor of 5.9, from 1303 rooms in 13 hotels of
international standard in 1975 to 7692 rooms in
Aruba’s involvement in tourism can be traced 29 such hotels in 2000, or an increase of nearly
back to 1947, when the Aruban Tourism Com- 500% in the number of hotel rooms. It is
mission was established in order to assess the estimated that nearly 1000 rooms also are
possibilities of the development of tourism. available in apartments, guesthouses and
This strategy concurred with the appraisal of lower category hotels. Although new hotels
the Anglo-American Caribbean Commission have been opened in the past 5 years, the total
in 1946, which identified tourism as a potential number of available rooms has not increased
economic force in the region for development. at the same rate, as one of the larger and older
In 1953, the Aruba Tourism Bureau (the pre- hotels was closed for renovation in 1998.
decessor of today’s Aruba Tourism Authority, By 2000, the inventory of the hotels in Aruba
ATA) was established as a government con- encompasses some of the world’s largest and
trolled entity to take the lead in guiding finest hotels chains: Hyatt, Marriott, Radisson,
Aruba’s tourist sector. Wyndham, Sonesta and Renaissance. In the
The closing of the Lago refinery in 1985, job mid-1980s, the government implemented a
creation priorities and structural adjustment policy to attract these large chains to establish
requirements motivated policy makers to in Aruba. The government understood the
enhance export promotion. The serious politi- nature of the service industry, particularly as it
cal engagement for job creation developed in relates to tourism. The nature of the hospital-
the mid-1980s, when the country decided to ity business required that the uncertainty of
promote tourism as its leading export sector. the consumer be compensated by a heightened
Formalising this commitment, Aruba adopted need for trust or reliability. The only way to
investment incentives, enhanced resort con- allay this uncertainty is by providing name
struction projects and developed substantial recognition and by relying on firm reputation.
new infrastructure. As tourism became the In other words, trust may be embodied in a
major focus, the economy began to turn brand name or flag name, and this can make a
around. great difference to the consumer, particularly
After 1986, the government devoted consid- in the case of hotels.
erable resources to tourism support. It invested Knowing that a firm-specific asset becomes
heavily to increase the economic and social very powerful when customers are in an un-
infrastructure to serve hotels and other tourist familiar setting such as a foreign country, the
facilities (e.g. upgraded electricity, water and government focused substantial efforts to
sewage systems, improved roads, increased embrace greater integration into the world
fire and police protection, and constructed a economy. In this respect, the government
new airport). In addition, the government clearly favoured at the initial stages of tourism
provided direct support through hotel loan development a global linkage with interna-
guarantees to assist private investors, tax tional chains, such as the case of the Hyatt
holidays and other fiscal incentives. chain (Croes, 2000). It even participated as an
Recognising the importance of tourism to equity partner in that particular project.
the recovery of the economy, the government’s Further government support for the tourism
primary prerequisite was an expansion in hotel sector has been provided through the promo-
accommodation. New hotels were needed to tion programmes of ATA. These programmes
match the projected demand for Aruba’s have been based, in part, on detailed statistics
tourism and to remove the accommodation of visitor flows. The information and data base
bottleneck. The expansion of the hotel sector classify tourist arrivals by country of resi-
became the cornerstone of tourism in Aruba. dence, age group, gender, air carrier, length of
Hotels merit particular attention because they stay and type of accommodation used. The
lie at the heart of the accommodation sector. main emphasis in the promotion activities has
According to Croes (2000) and Vanegas been on the USA market, which absorbed
(2001a), between 1975 and 2000, the number of nearly 55% of the total promotion and market-
tourist accommodations in Aruba increased by ing expenditures in 2000. ATA’s work is closely
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)Aruba Tourism 319
coordinated with promotion programmes of the world and regional average, thereby
the private sector (hotels, tour operators and increasing its market share in the Caribbean.
airlines). The effectiveness of these pro- Aruba ranked seventh in the Caribbean in the
grammes and the quality of organisation and number of tourist arrivals (excluding cruise
management in the tourism sector have been ship visitors) in 2000. The six Caribbean coun-
reflected in the progress of the sector, the high tries receiving more tourist visitors than Aruba
growth rate in tourist receipts and the high in 2000 were Puerto Rico, Cancun, the Domini-
hotel occupancy levels achieved. can Republic, Cuba, the Bahamas and Jamaica.
The principal markets of the USA, Venezuela,
Colombia and The Netherlands maintained
The evolution of tourism markets
their position of leadership in tourism arrivals
Table 1 shows a breakdown of tourist arrivals and receipts in 2000. Together, they accounted
since 1975 and demonstrates a sustained for nearly 86.8% of total tourist arrivals and
expansion in the tourism sector over the past nearly 65% of tourism receipts.
25 years. International tourist arrivals to Aruba
maintained an average rate of expansion of Impressive overall performance. Although the
7.5% during the period 1975–2000, growing number of tourist arrivals increased through-
by a factor of nearly 5.6 from nearly 128.9 out this period, not all markets performed
thousand visitors in 1975 to nearly 721.2 consistently. During this period, there was a
thousand in 2000 (Table 1), at a rate higher than significant increase in Venezuelan tourists
Table 1. Tourism trends in arrivals, nights spent, length of stay and occupancy rate. (Source: Aruba Tourism
Authority Statistical Data Base)
Tourist arrivals Growth rate Nights spent Growth rate Average length Occupancy
Year (thousand) (%) (thousand) (%) of stay (days) rate (%)
1975 128.9 5.2 986.2 25.8 7.7 74.2
1976 146.5 13.7 1023.7 3.8 7.0 81.5
1977 151.2 3.2 1101.8 7.6 7.3 78.7
1978 163.9 8.4 1163.7 5.6 7.1 76.8
1979 185.1 12.9 1277.2 9.8 6.9 83.4
1980 188.9 2.0 1165.0 1.5 6.2 82.3
1981 221.4 17.2 1375.6 18.1 6.2 83.7
1982 220.2 -0.5 1357.1 -1.3 6.2 74.8
1983 195.2 -11.4 1252.6 -1.7 6.4 72.0
1984 210.2 7.7 1387.3 10.8 6.6 79.5
1985 206.7 -1.6 1363.0 -1.8 6.6 80.5
1986 181.2 -12.4 1290.8 -5.3 7.1 70.7
1987 231.6 27.8 1628.4 26.2 7.0 73.1
1988 278.0 20.0 2079.6 27.7 7.5 78.6
1989 344.3 23.9 2657.2 27.8 7.7 79.8
1990 432.8 25.7 3380.0 27.5 7.8 68.2
1991 501.3 15.8 3768.3 11.2 7.5 69.7
1992 541.7 8.1 3902.3 3.6 7.2 71.7
1993 562.0 3.8 4027.8 3.2 7.2 71.4
1994 582.1 3.6 4233.7 5.1 7.3 74.5
1995 618.9 6.3 4473.1 5.7 7.2 70.8
1996 640.8 3.5 4713.7 5.4 7.4 71.4
1997 646.0 0.8 4834.8 2.6 7.5 73.5
1998 647.4 0.2 4889.7 1.1 7.6 77.6
1999 683.3 5.5 5142.9 5.2 7.5 77.4
2000 721.2 5.6 5247.8 2.0 7.3 76.0
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)320 M. Vanegas Sr and R. R. Croes
following the increase in world oil prices in Table 2. Annual average growth ratesa in GDP,
1973–1974 and again in 1979–1980 and the tourist receipts, arrivals and nights (%). (Source:
resulting benefit to the Venezuelan economy. authors’ calculations using Tables 1 and 4)
The share in total arrivals increased from Growth Growth Growth
nearly 19.2% in 1975 to 33.8% in 1982. With the rate rate rate Growth
devaluation of the Bolivar in 1983, however, tourist nights tourist rate
this market collapsed and declined by 73.5% Period arrivals spent receipts GDP
between 1982 and 1988. In 1983, the economy
1975–2000 7.5 7.9 10.6 7.4
of Venezuela experienced a devaluation of its 1980–1990 6.2 10.9 9.8 4.0
currency. Consequently, there was a period of 1990–2000 4.3 3.6 8.9 8.7
uncertainty in 1985 and 1986, which was 1995–2000 2.7 2.4 9.6 6.5
further compounded by a reduction in the
number of air passenger seats into Aruba. a
The annual average growth rate is calculated using the
Together, these factors adversely affected the following exponential equation: Y = XeTime where g multi-
Aruban tourism sector. plied by 100 indicates the average annual percentage
growth rate.
Spurred by intensified marketing efforts
elsewhere, this dramatic decline was partially
offset by growth in other markets. A nearly
64.4% increase in tourist arrivals from the USA has been close to 75%. This is an exceptionally
between 1982 and 1988 was the principal offset high level for a holiday destination subject to
to the decline in tourist arrivals from seasonal fluctuations in international travel.
Venezuela. This expansion of the USA market The declines in average occupancy level in
was the result of a dramatic increase in hotel 1990 and 1991 reflect the opening of nine new
room supply, a significant increase in air seat hotels with over 2100 rooms in those years.
capacity, the aggressive promotion of Aruba Despite the relative large expansion of hotel
and the occurrence of certain international capacity, the hotel sector in Aruba has contin-
political events, such as the Gulf War. As a ued to grow and to absorb the steady demand
result, by 2000, the total number of tourist for international tourism.
arrivals from the USA to Aruba increased to
458 132. Main tourism markets. The USA is the major
Total nights spent increased from nearly 1 supplier of tourists to Aruba, and its market
million in 1975 to nearly 5.2 million nights in share of total arrivals has stabilised at nearly
2000, or an annual average growth rate of 60% in recent years. The USA market share,
nearly 7.9% (Table 1). Recently, however, the however, has declined from its peak of nearly
growth has stabilised at a lower level. From 73.6% of total arrivals in 1986 to nearly 63.5%
1990 to 2000, the number of nights spent in 2000. This is still a high percentage for a
increased at 2.4% annually (Table 2). On the single market. This decline, however, is
other hand, between 1975 and 2000, the welcome because it shows that the relative
average length of stay in Aruba was nearly 7.4 dependence of the tourist sector on a single
nights. Tourists from The Netherlands are market has decreased. It also indicates that
longer visitors, with nearly 14 days, followed the promotional efforts by the authorities, in
by USA and Venezuelan visitors at 7 and 5.4 diversifying the content of the market, have
days on average, respectively. The average been relatively successful. During the past 25
length of stay of tourists is an important years, the USA market has shown remarkable
statistic because, together with figures on stability, with steady growth and a strong
tourist arrivals, it provides a more reliable response from the northeastern corridor.
indicator of the volume of tourist than figures The stable expansion in tourism of Aruba is
on tourist arrivals alone. believed to reflect a more sustainable pace of
Average annual hotel occupancy rates in- the level of economic growth in the USA, a
creased during the 1970s and early 1980s and world-wide recognition for Aruba’s safety,
have exceeded 70% in all but 2 years since 1975 social and political stability, beautiful beaches
(Table 1). The average for all hotels since 1975 and consistently pleasant climate. In addition,
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)Aruba Tourism 321
direct air service between the USA and Aruba stabilised at an extremely low level of only
by American Airlines, Continental, Delta, 1.1%. In any case, the potential for attracting
TWA, USAIR, United, Delta and others will more tourists from The Netherlands remains
continue to facilitate growth in this market. substantial. Furthermore, because tourists
In the near future, with the growing awareness from The Netherlands also tend to stay longer
of Aruba in the USA market, the number of on average than their North American and
USA visitors is expected to increase. Venezuelan counterparts, the impact of this
After the USA, Venezuela is Aruba’s most market in terms of both expenditures and
significant source of tourists. Venezuela’s nights is even greater than the market share
market share increased to 15.5% in 2000, or numbers suggest.
3.8% more than in 1990. Tourism development
from the Venezuelan market will continue to
The seasonality debate
be mixed. The recent economic situation in
Venezuela has been influenced by the im- Tourism policy must address the matter of sea-
plementation of a structural adjustment pro- sonality of tourism demand. Seasonality in
gramme. To varying degrees, this programme tourism causes underemployment, underutili-
is expected to enhance production, to reduce sation of facilities, and in turn, a lowered pro-
inflation, to ease pressures on the external ductivity. Seasonality is a major issue in small
accounts, and to stabilise the economy. The economies. Is Aruba affected by high seasonal
political situation, however, remains uncertain. swings in visitor numbers? A review of Table
Colombia is the third largest source of 3 reveals that visitors from Venezuela and
tourist arrivals for Aruba, and its market share Colombia prefer to visit Aruba during the third
accounted for nearly 4.4% of visitors in 2000, quarter of the year, which coincides with their
or about the same market share when com- national holidays and the long school vacation
pared with 1999. From a peak of 33 300 visitors period. Americans, however, have less desire
in 1997, however, the numbers of tourist to visit Aruba during the same period. This is
arrivals declined to 31 200 in 2000. As the substantiated by the figures in Table 3, which
unstable political situation and recession show that, in 2000, 42% and 28.1% of the
worsened in the mid-1990s, these factors tourist arrivals from Venezuela and Colombia,
caused a dangerous downtrend in tourist respectively, came during the third quarter.
arrivals from Colombia. The corresponding figures for the USA, The
The Netherlands was the fourth largest Netherlands and the rest of the world were
source of tourists for Aruba, and its market 24%, 25.9%, and 27.3% respectively. This sea-
share reached nearly 4.2% in 2000, or a sonality is also reflected by the fact that, in the
decrease of nearly 2.3% when compared with third quarter of 2000, the occupancy rate was
1990. Growth rates in the 1990s have been sig- 77.2% compared with 73.8% in the fourth
nificantly below those recorded in the 1970s quarter, 81.7% in the first quarter and 72.5%
and 1980s. Despite the increased airlift in in the second quarter.
recent years, however, the Dutch market share Further analysis of seasonality, however,
remains relatively low. Between 1990 and 2000, indicates that three of the disturbing trends
the average annual increase in tourist arrivals affecting tourism in the Caribbean have not
Table 3. Seasonality of total tourism arrivals to Aruba by country of origin, 2000 (percentage of arrivals per
quarter). (Source: authors’ calculations using the Monthly Statistical Data Base of Aruba Tourism Authority)
Quarter USA Venezuela Colombia Holland Overall tourist arrivals
First 26.8 15.8 20.1 24.6 24.9
Second 25.6 21.4 28.7 23.4 24.4
Third 24.0 42.0 28.1 25.9 27.3
Fourth 23.6 20.8 26.1 26.1 23.4
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)322 M. Vanegas Sr and R. R. Croes
been present in the development of tourism exporter, with international visitors injecting
in Aruba: (i) the marked seasonality of high foreign exchange directly into the economy,
winter and low summer periods, (ii) the per- and a catalyst for related activities such as
sistently high average of seasonal unemploy- construction, financial services and telecom-
ment, and (iii) the seasonal reduction in hotel munications. In addition, tourism is a labour
accommodations. intensive industry, creates jobs across the
Does Aruba have another type of seasonal- employment spectrum and is a major sup-
ity? The answer to this depends, in part, upon porter of small and medium size businesses.
Aruba being competitive or non-competitive As shown in Table 4, the economic impact of
vis-a-vis the tourist’s country of origin. Gray tourism is reflected only partially in the esti-
(1970) noted that the so-called international mated direct contribution to the gross domes-
sun lust traveller may be competitive or non- tic product (GDP), which amounted to nearly
competitive with domestic tourism. Competi- 43.6% in 2000. This is less than, for example,
tive sun lust travel exists, for example, when the Bahamas, the Virgin Islands, the Cayman
Americans and Canadians winter in Aruba, Islands and St Lucia, for which its share of
Barbados or Jamaica rather than in Florida or tourism of GDP is 60% or more (Bryan, 2001).
Hawaii. Aruba appears to attract only sun trav- Additionally, tourism generated nearly US$39
ellers, according to surveys conducted by the million in tax revenue and supported nearly
Central Bureau Statistics (CBS). It has a warm 16 000 jobs, or an estimated 35.7% of total
climate throughout the year coupled with employment.
many miles of clean beaches located on the In 2000, tourists spent nearly US$860 million
Caribbean Sea. It also is safe and has one of (Table 4). Tourist expenditures occur in eating
the Caribbean’s most stable economic, social and drinking establishments, shopping, sport-
and political environments. ing activities, hotels, entertainment and other
A more difficult question to answer is types of expenditures that visitors make indi-
whether travel to Aruba is competitive or non- rectly. To evaluate the importance of tourism
competitive with domestic tourism facilities in to Aruba, it is more meaningful to measure
country market sources. Travel to Aruba tends tourism by its net value, rather than total
to be less seasonal than travel to other tourist receipts. This measure totalled about
Caribbean islands. As shown in Table 3, in US$725.1 million or nearly 84.5% of total
2000, 24.9% of tourist arrivals to Aruba visited tourism receipts, a figure much higher than
during the first quarter, 24.4% during the that of the Caribbean as a whole (Wilkinson,
second quarter, 27.3% during the third quarter 1987; Bryan, 2001). In per capita terms, visitors
and 23.4% during the fourth quarter. In decid- to Aruba spent nearly US$1192 per visit in
ing upon a tourism destination, be it summer 2000, the highest performance (measured in
or winter, American tourists can choose international receipts per capita) in the
between Aruba, other islands in the Caribbean, Caribbean region during 1990–2000. Aruba’s
Hawaii and Florida. Few studies have con- performance was followed by Cuba, Jamaica,
sidered explicitly the relative nature of com- Dominican Republic and Puerto Rico.
petitive relationships between destinations
(Crouch, 1994). Tourism receipts and the balance of payments. One
of the economic objectives of Aruba’s tourism
policy is to increase foreign exchange earnings,
ECONOMIC EFFECTIVENESS OF
which is essential to pay for imports (or leak-
TOURISM EXPANSION
ages) and to sustain the level of international
reserves. With a narrow export base, tourism
Tourism and the economy
has made a significant contribution to Aruba’s
Tourism — defined as including accommoda- balance of payments. Consequently, the
tion, restaurants, recreation and services for number of tourist receipts has, on average,
tourists — is Aruba’s largest industry and its increased at approximately 9.6% during the
largest generator of both quantity and quality 1995–2000 period. This has given an average
of jobs. Furthermore, tourism is both a major elasticity coefficient between tourist receipts
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)Aruba Tourism 323
Table 4. Trends in GDPa and total tourist receiptsb
Nominal GDP Growth rate Tourist receipts Growth rate Receipts as
Year (Afl. million) (%) (Afl. million) (%) percentage
of GDP
1975 614.3 -3.2 101.0 1.5 16.4
1976 608.7 -0.9 138.7 37.3 22.8
1977 646.2 6.2 130.5 -5.9 20.2
1978 684.9 6.0 168.2 28.9 24.6
1979 711.5 3.9 194.6 15.7 27.4
1980 753.9 6.0 246.2 26.5 32.7
1981 960.5 27.4 279.9 13.7 29.1
1982 1062.8 10.7 265.4 -5.2 25.0
1983 1036.9 -2.4 205.2 -22.7 19.8
1984 982.0 -5.3 212.3 3.5 21.6
1985 753.2 -23.3 226.5 6.7 30.1
1986 775.0 2.9 283.4 25.1 36.6
1987 932.0 20.3 390.8 37.9 41.9
1988 1140.0 22.3 483.7 23.8 42.4
1989 1329.1 16.6 548.4 13.4 41.3
1990 1462.0 10.0 625.6 14.1 42.8
1991 1666.8 14.0 695.3 11.1 41.7
1992 1832.3 9.9 796.3 14.5 43.5
1993 2070.0 13.0 835.4 4.9 40.4
1994 2381.4 15.0 837.9 0.3 35.2
1995 2524.0 6.0 931.8 11.2 36.9
1996 2751.3 9.0 1098.1 17.9 39.9
1997 2949.0 7.2 1196.3 8.9 40.6
1998 3094.1 4.9 1306.5 9.2 42.2
1999 3307.2 6.9 1411.6 8.0 42.7
2000 3525.4 6.6 1538.3 9.0 43.6
a
Data on GDP 1975–1985 are from ECLAC (Economic Commission for Latin America and the Caribbean), several issues.
Data on GDP from 1986 onwards are from the Central Bank of Aruba.
b
Data on tourism receipts 1975–1985 are from the Central Bank of the Netherlands Antilles. Data on tourism receipts from
1986 onwards are from the Central Bank of Aruba.
and tourist arrivals of about 3.6, which indi- 10.6% during the period 1975–2000 (Table 2),
cates that foreign exchange receipts are rising growing from US$56.4 million in 1975, to
proportionally faster than arrivals. This result US$860 million in 2000 to become the largest
is significant higher than the average elasticity source of export income to Aruba. Over the
coefficient of 2.1 and 1.4 reached in the periods same period, tourist receipts in Aruba have
1990–2000 and 1975 to 2000, respectively. This increased faster than the growth both in
result during 1990–2000 is higher than the international receipts world-wide and in the
world average and if measured during Caribbean. Furthermore, because tourist
1995–2000, the performance is close to twice as receipts grew faster than GDP, the proportion
high as the world performance rate (Ceata- of tourist receipts to total GDP increased from
Hatton, 1998). The measure of elasticity of nearly 16.4% in 1975 to nearly 43.6% in 2000.
arrivals–foreign exchange earnings is a good It is perhaps not surprising that nearly
gauge of the effectiveness of tourism in gen- US$412.1 million (almost 48% of the total
erating foreign exchange. tourist receipts) was spent by residents of the
Historically, tourist receipts have exhibited USA, which in 2000 accounted for 63.5% of
phenomenal growth. It has maintained an total tourist arrivals. Tourist visitors from
average annual rate of expansion of nearly Venezuela spent US$113 million (almost 13.2%
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)324 M. Vanegas Sr and R. R. Croes
of the total tourist receipts), visitors from The impact in the overall growth rate of the
Netherlands spent US$36.8 million, visitors economy.
from Colombia spent US$32.4 million, visitors
from Canada spent US$16.2 million and visi- Income generation. Tourist expenditures gener-
tors from the rest of the world spent nearly ate revenue to hotels and other types of accom-
US$248.9 million. In terms of expenditures per modation, restaurants, nightclubs, bars, retail
visitor, however, Venezuelans ranked first, fol- establishments, taxi drivers, tour operators
lowed by USA citizens, with Brazil residents and others. The money received from tourists
third. The principal reason for this result is the by these establishments and individuals is
attraction of up-market tourists, particularly respent by them in several ways. Some of it
Venezuelans. goes to the government as taxes, duties and
It is important to point out that the annual licenses. Part also is paid to other business
distribution of tourist receipts has shown a establishments to purchase services and goods
similar trend to that of the tourist arrivals. This and to buy capital equipment. Some leaks
suggests that similar to tourist arrivals, Aruba abroad to buy items imported directly by these
has shown a less seasonal pattern in the incom- establishments or in the form of repatriated
ing ‘new money’. For example, during 2000, profits to overseas owners and shareholders.
tourist receipts were distributed as follows: Finally, the remainder forms income — wages
29.3% in the first quarter 23.4% in the second and salaries, rent, interest and profits.
quarter, 23.3% in the third quarter and 23.9% The original US$860 million of tourism
in the last quarter. Clearly, the first quarter receipts becomes nearly US$1212 million of
shows the highest tourism yield (arrivals income to the Aruban community, which
divided by receipts), whereas the third quarter increases the total tourism impact on the GDP.
indicates the lowest yield. The receipts from tourism quickly filter down
If foreign exchange generation was one of to an extremely broad cross-section of the
the main objectives of tourism expansion, it Aruban population, so that the entire com-
can be asked whether tourism allowed a sub- munity shares the economic benefits. Vanegas
stantial growth in import capacity, the main and van Nes (1996) estimated an income mul-
mechanism through which tourism would tiplier of 1.41.
contribute to development as a whole. The The income changes are evident throughout
import capacity of tourism was affected posi- Aruba with the construction of new properties,
tively by relative price changes. As prices in the expansion of existing properties, and the
general, and operating costs in particular, creation of new tourism attractions. Clearly,
increased in the 1990s, hotels also increased the first-order impacts of tourism-led growth
their prices. In other words, there was an can be spectacular and evident. From an aggre-
increase in the terms of trade for tourism gate perspective, the formula works as follows:
between 1990 and 2000, after the major expan- (i) production of tourism goods and services
sion of the sector. The prices of tourism in increases, (ii) the potential for further invest-
Aruba, measured in foreign currency, rose ment, profits and savings is enhanced, and (iii)
faster than the prices of goods the country GDP growth is boosted.
imported. Tourism receipts increased by an
annual average of near 8.9% from 1990 to 2000,
Employment impact and labour
but the import capacity, the volume of imports
force participation
these tourist receipts could purchase, increased
by 9.7%. Tourist expenditure creates more employment
This would suggest improved quality in than any other sector of the Aruban economy.
service, and less load in the use of space, The expenditure by tourists creates direct
because the greatest amount of adjustment to employment in hotels, cafes, restaurants, retail
changes in nominal demand appears to be the trade, casinos, as well as transport enterprises,
result of prices rather than the result of sightseeing operations and other tourist attrac-
arrivals. It appears that an increase in terms- tions that deal solely, or in part, with meeting
of-trade in the GDP of Aruba had a positive tourism demand. As the tourist dollars circu-
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)Aruba Tourism 325
Table 5. Tourism employment indicatorsa (Source: Department of Labour data base; World Bank, The Economy
of Aruba: Adjusting to Changing Conditions, Report No. 6299-ARU, 26 August 1986)
Year Hotel rooms Tourism Employment Direct Employment Indirect Employment
1980 1,926 4,996 3,046 1,950
1985 2,268 4,963 3,044 1,999
1986 2,524 4,850 2,950 1,900
1990 4,822 9,041 5,150 3,891
1995 6,666 13,458 6,738 6,720
1996 6,687 14,224 7,178 7,046
1997 6,747 14,859 7,499 7,360
1998 6,847 15,293 7,721 7,572
1999 7,367 15,963 8,084 7,882
2000 7,692 16,255 8,263 7,992
a
To standardise the employment figures, calculations have been made, with small modifications, combining the labour
information generated by the Central Bureau of Statistics (CBS) Labour Dynamics in Aruba, CBS Labour Force Survey
(1994) and the statistical data base of the Department of Labour.
late through the economy, they create further Bryan (2001, p. 3), the Caribbean average is one
rounds of expenditure and thereby generate in every four persons is employed in the
and maintain employment in other sectors. tourism sector, and the total number of persons
A 1980 CBS survey recorded 3046 employees employed vis-a-vis the total number of hotel
in hotels and casinos and 1950 employees in rooms, results in an average 1.33 employees
other tourist dependent activities. In 1986, per room ratio (Bryan, 2001, table 4).
there were 2950 employees in hotels and The indirect effects account for nearly 7992
casinos and there was indirect employment of additional jobs. In the absence of tourism,
nearly 1900 employees (the World Bank, 1986). nearly 8262 jobs would be lost and a further
Employment in tourism between 1980 and 7992 would be adversely affected. Many of
1986 was nearly 27% of total employment. As these latter jobs, however, would continue to
can be seen from Table 5, from 1980 to 1986 exist but at a reduced rate of remuneration.
tourism employment declined from 4996 to Vanegas and van Nes (1996) estimated that for
4850, followed by an upward trend to a new every 45 new tourist arrivals approximately
peak of 16 255 in 2000 (Table 5). one new job is created directly and 0.9 addi-
The CBS conducted a survey on employ- tional job is created indirectly. In other words,
ment in 1994. In essence, the survey found that US$28 231.59 should be spent to create each
nearly 35% of all employment in Aruba is additional job.
either maintained or greatly affected by
tourism. This makes Aruba one of the largest
Public sector tax revenue
relative producers of tourism jobs in the world.
The world average is one tourism related job Tourism arrivals influence tourist spending
for every nine non-tourism jobs (Croes, 2000, and tourist spending generates tax revenues.
p. 79). Tourism generates both skilled and Tourism increases tax revenues because
unskilled entry-level service jobs, which are tourists pay taxes like most other people. As
important in addressing structural unemploy- they come from other countries, their expendi-
ment. Table 5 shows the equivalent of a total tures represent an increased tax base for the
16 255 persons were employed by the tourism government. In Aruba, tourist expenditure
sector in 2000 and that tourism is directly generates revenue directly to the public sector
responsible for nearly 8263 jobs. Based on a in the form of airport departure taxes, lodging
figure of 7692 rooms in 2000, direct employ- taxes and other charges. There also is a sec-
ment in tourism amounts to an average of ondary impact through the multiplier effect,
nearly 1.1 employees per room. According to in the form of:
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)326 M. Vanegas Sr and R. R. Croes
(1) other taxes and licenses paid by those court cases initiated against Aruba by the rele-
establishments and individuals that trade vant banks. Recently, one of these cases was
directly or indirectly with tourists; decided contrary to the government. The gov-
(2) customs and excise duties paid in goods ernment did not appeal the decision, and
and services required to supply the tourist instead decided to settle the cases by paying a
industry and to satisfy the secondary significant amount to the plaintiffs.
increase in economic activity generated Thus, in some of the hotel projects, the loan
by tourist spending. guarantees did not perform as expected. Such
problems, however, should not obscure those
Although the hotels generate taxes on prop-
instances in which the government’s use of
erty and assorted license fees, the major con-
loan guarantees, and in some cases direct
tribution of hotels to tax revenue occurs
equity investment, performed as anticipated.
through the room tax, which currently is at a
Indeed, one of the loan guarantees not related
rate of 6%. In 2000, government tourism tax
to the projects that have been in litigation,
revenue was estimated at approximately
served its purpose and has been retired. For
US$39 million, or about 11.2% of total tax
example, in 1996, the government’s loan guar-
revenue (the tax revenue figure does not
antee of US$40.2 million was retired follow-
include (i) the secondary effects of tourist
ing the successful refinancing of the Hyatt
expenditure and (ii) the airport service charge
Regency Aruba. The Hyatt Regency Aruba, it
paid to the Aruba Airport Authority), 9.5% of
should be noted, has been one of the most
total government revenue, and 2% of GDP.
successful and profitable hotels in the entire
The tourist sector in Aruba, however, is not
Hyatt chain.
the principal generator of tax revenues. This
Aruba’s rapid tourism expansion entailed
is due, in part, to tax holidays and num-
substantial financial outlays, including expen-
erous other fiscal incentives that have been
ditures on the provision and maintenance of
granted.
infrastructure in support of tourism in the
form of additional roads, airport, water, energy
and sanitation. The social, cultural and envi-
Tourism setbacks and other concerns
ronmental repercussions of tourism in Aruba,
The successful development of Aruba’s however, are more difficult to assess with pre-
tourism sector, which began in the mid-1980s, cision. From the perspective of the Aruban
did not come without a price. As discussed society, increased immigration has caused a
previously, in order to move the economy in certain degree of resentment by local peo-
the direction of tourism in 1986, the govern- ple toward the immigrant workers from
ment embarked on an aggressive programme Latin America countries. Furthermore, it is dif-
to develop the tourism infrastructure of the ficult to completely isolate tourism as a factor
island. At that time, Aruba was not well known in social–cultural changes when Aruban
in the tourism industry, and was even less well society has been exposed for decades to tel-
known in the international financial commu- evision programmes from both Venezuela and
nity. Therefore, in order to attract world class the USA.
partners to help develop hotel and resort prop- Tourism’s impact is not limited to the social
erties, the government provided loan guaran- and cultural environment. Tourism exerts an
tees on several of the projects undertaken in obvious physical impact on Aruba. Although
the mid-1980s. In addition, it offered fiscal there is no evidence that Aruba has reached its
exemptions and other tax relieves. carrying capacity, the growth of the industry
Three of these projects failed, although the is causing concerns in some circles. Tourism
government was able to bring in new parties requires a sophisticated infrastructure. Often,
to complete projects on those sites. Nonethe- the building of roads and the expansion of
less, the underlying loan guarantees that the hotels can alter significantly the physical
government granted in the development of the environment because of problems of light-
original projects remained outstanding and ing, beach maintenance, sewage treatment and
ultimately became the source of litigation in garbage control.
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)Aruba Tourism 327
POLICY IMPLICATIONS capital needs. The Government concentrated
on certain supply-side factors, such as incen-
This dramatic and positive tourism growth is tives that lowered costs (capital and land),
the result of a deliberate economic strategy by including loan guarantees, tax exemptions and
the government of Aruba. The current state of lower tax rates. It is important to recognise that
the tourist industry in Aruba is the result of the government has leverage to influence the
more than 15 years of planning. Tourism did development of tourism in specific areas or
not come to Aruba simply because of geogra- particular ways. For example, the government
phy or topography. The geographical elements may set the conditions of investment and
of a favourable climate and beautiful beaches access, determine what concessions will be
were important but not decisive. Rather, it was given to both national and foreign enterprises,
the government’s decision in the mid-1980s to and control access to land.
target the tourism industry that caused the The government also resisted the temptation
industry to undergo a spectacular export push. of going too far in promoting the domestic
The country gained relatively quickly from tourism economy. It knew when to slow down
foreign trade in services and goods. High and shift gears to achieve greater quality in the
rewards resulted from policies that made the industry in terms of higher tourism yield. In
country attractive to foreign consumers of the the context of the need for increasing tourist
country’s natural resources and to foreign receipts, the Aruba government adopted a
firms, which helped in providing a vast array policy in 1995 to limit the number of hotel
of services and infrastructure needed to rooms and thereby create a constraint on
develop a competitive tourist industry. further expansion of tourism supply. Also,
Aruba had an activist government in that in 1995, the government suspended the tax-
period, which directly intervened in the holiday package available to hotel and resort
economy. Not only was such intervention owners and developers. By limiting expansion,
correct, as history bears out, but it was the only the government sought to establish a tourism
role that could have been taken given the sector in which tourist receipts rose propor-
nature of tourism as an industry. The severe tionally faster than tourist arrivals. In other
economic crisis facing Aruba in the 1980s words, a shift in the emphasis of policy based
demanded decisive and swift action from gov- on quality rather than quantity, i.e. to increase
ernment. Faced with the problems of recession, the amount spent per tourist visitor by attract-
declining government revenue and high levels ing ‘up-market’ visitors as opposed to simply
of unemployment, policy makers turned to attracting larger numbers of visitors, has
tourism as a possible alternative source of occurred.
growth. Capital requirements and the need to The 7.5% average annual increase in tourist
coordinate efforts in simultaneously providing arrivals world-wide to Aruba between 1975
a range of services dictated an activist govern- and 2000 demonstrates the vitality of the
ment role in order to achieve the many suc- industry as well as the remarkable resistance
cesses recorded over the past 15 years. of the sector to economic fluctuations and
Consequently, the government played the role other problems. There is, however, some evi-
of regulator, entrepreneur, banker and motiva- dence to suggest that macro-trends are chang-
tor. The government forged partnerships with ing. Between 1990 and 2000, the average
local and foreign capital in terms of creating annual increase in tourist arrivals appeared to
incentives, reducing risks and even played the have stabilised and more modest growth can
role of entrepreneur by directly participating be expected in the near future. Another note-
with equity in certain hotel projects. worthy characteristic is that although the
One of the initial challenges facing the numbers of tourist arrivals have increased at a
government was creating sufficient business lower pace, tourist receipts have stabilised or
interest in the tourism industry. Therefore, increased at 8.9% between 1990 and 2000. This
significant collective action was taken to alle- clearly indicates Aruba’s ability to increase
viate the problems among private firms in additional tourism yields at a lower marginal
tourism, especially in terms of initial risks and capital/output ratio without significant new
Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)328 M. Vanegas Sr and R. R. Croes capital investment. The strategy to accomplish played by tourism within the community, and higher tourist yields was based upon quality the need to apply long-term planning strate- and the existence of a critical mass of facilities gies based on accurate product and market and attractions. Aruba has shown great poten- information. The industry will have to tial for global competitiveness in tourism. undergo a continuous process of review and Tourism has increased competition in the adjustment, such as changing the product mix economy as a whole by encouraging new to meet shifting demands or creating a new entrants in the market place, which, in turn, customer base. Tourism growth will continue has had a positive impact on the price level of to depend on such factors as improved eco- goods and services. According to data pro- nomic conditions in North America (the USA vided by the Central Bureau of Statistics (CBS, and Canada), increased and improved pro- 2000), the number of firms has increased from motion and marketing, the consolidation of 1940 in 1987 to 4442 in 1999, representing a markets in South America and Europe, the 229% increase. This presence of start-up com- provision of new alternative opportunities panies democratises the market structure and that would attract new market segments, and prevents market dominance by monopolies or an increasingly successful promotion of a oligopolies. In addition, these new entrants, summer vacation in Aruba. forced by the competitive pressures of the Tourism patterns are dynamic and unstable, global market, quickly learn how to accom- in both the short and long term. There are a modate risk-taking. They make use of the variety of reasons for these characteristics, technology spread and the necessary some of which have been demonstrated by the entrepreneurial learning to engage in the above analysis. There are other factors, improvement of the quality of their product however, that this study did not address. The and service. most significant of these are political forces Facing constant international competition, and the as yet unknown long-term impacts of the local tourist industry in Aruba is forced to the fear of terrorism on the USA. improve and raise its standards. For example, There are at least two implications for the local hotel belonging to a world-class chain further research and planning based on the must maintain the same high international analysis presented in this paper. First, further standards wherever it operates, and it will research in Aruba is needed, particularly in impose such high standards on its local sup- assessing the magnitude of the volatility of pliers and employees. Thus, in terms of both tourism revenues in order to reduce the un- products and services, the local market must certainty level in future decision-making. raise and maintain its standards. This makes Research in other areas also is needed includ- the domestic market work effectively, and ing: social, physical and environmental thereby promotes efficiency in the entire impacts, longitudinal travel patterns of indi- economy, not only in the export sector. vidual tourists, and tourist perceptions and The justification for using tourism as a behaviour. Second, researchers must analyse means for achieving economic growth is clear data over a long period in order to identify in terms of income, jobs, foreign exchange meaningful patterns in tourism trends from and economic competitiveness. In the case of its market sources. Aruba, there is a correlation between tourism The change in tourism trends suggests that growth and economic growth. What remains significant structural change may be occurring unclear is the impact of tourism on the diver- in international tourism. It is possible to spec- sification of the economy. Although there have ulate on the possible causes of this change: the been signs of nascent industries in light man- terrorist attacks on New York and Washington, ufacturing and horticulture, the scope and the political instability in the Middle East, scale of the linkages have yet to be demon- recession, increasing travel related costs, strated conclusively. inflation, increasing competition from other There is a growing recognition within the destinations and high unemployment in the government and the private sector of the ben- developed countries. Only time will tell, efits and costs associated with tourism, the role however, if this altered pattern of tourism Copyright © 2003 John Wiley & Sons, Ltd. Int. J. Tourism Res. 5, 315–330 (2003)
Aruba Tourism 329
growth is a short-term or long-term phenome- exposure to global competition improved the
non and whether it might affect, and if, how, quality of tourism products and services. Thus,
the tourism sector of Aruba. tourism became a successful vehicle for over-
coming the constraints of a small scale.
CONCLUSIONS In Aruba, the transition from economic
weakness to strength came relatively quickly.
Undoubtedly, the government’s strategy suc- Aruba’s strategic policy for economic growth
ceeded in sparking the development of Aruba was developed in response to the economic
as one of the premier tourist destinations in the crisis of the mid-1980s. The Aruban Govern-
Caribbean and lifting the country’s economy ment met and overcame this challenge through
out of a serious and potentially destabilising a policy of direct intervention in the economy
crisis. This analysis of tourism’s economic and a reliance on the tourism industry as the
impact and size has demonstrated that tourism principal means for overcoming the perceived
is the largest and most important segment of limitations of a small economy.
the Aruba’s economy.
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