Venezuela Narrows Caribbean Opportunity Set

Residents of the Bahamas and Cayman Islands may be quick to point out that the Venezuelan crisis is a distant concern, but the impact on the overall region may be menacing. These myriad islands are poorly-suited to absorb a major shock at a time when many economies are still suffering from the recovery costs of recent hurricanes, the retrenchment of international banks, and the realignment of the outsized Cuban economy, especially in the tourism sector. We suggest that the impact of the Venezuelan upheaval on island-based property development is overlooked.

As they relate to Venezuela, Caribbean-wide issues have largely stayed out of the international headlines because—with a few exceptions—they lack at-hand drama. Still, officials throughout the region may be worrying about spillover considerations that could erode the economic terrain. The challenge in discussing the impact of the upheaval in Venezuela on the region is to harness always-tempting generalizations. We focus on three broad concerns:

Investment Activity. The first challenge caused by Venezuelan chaos is the collapse of PetroCaribe, the Caracas-sponsored alliance that was meant to spread influence by providing the region with cheap oil. Across the islands, the reversion to open-market rates for imported oil has translated into unwelcomed fiscal pressure and higher borrowing rates, derailing some domestic fixed investment. Fortunately, there are bright spots, including selected infrastructure deals and renewable energy projects.

Illicit Economy. The second challenge is the growth of criminal activity, most prominently in maritime piracy off the coast of Venezuela. Incidents range from muggings to massacres. But there is also an accelerating narcotics trade and human-trafficking business. Undocumented migrants are recruitment targets for regional gangs and syndicates. The impact of Venezuela on island crime is a touchy subject with most governments. Talk of rising crime deflects precious investment dollars.

Humanitarian Costs. Some of the most obvious social friction is taking place in Trinidad. Relative to its total population of 1.4 million, Trinidad is seeing a greater impact from economic refugees than either Colombia or Brazil. The new underclass is not able to gain access to schools for their children or tap into healthcare services. The government has been harsh in its approach. Prime Minister Keith Rowley asserted, “This country will not allow the United Nations to convert it into a refugee camp.”

Few Caribbean nations can completely avoid the impact of a failed government in Caracas. These are small, fragile economies that could be blindsided by a cross-border wake. Day-to-day developments in Venezuela deflect attention from domestic policies and problems. As an example, the Dominican Republic—which allows visa-free travel from Venezuela—has seen an influx of some 30,000 refugees. Yet its economy is about the size of Richmond, Virginia or New Orleans, Louisiana.

For those in the real estate business, our outlook is better aligned with mindfulness than caution. We point to selective buoyancy in property valuations region-wide. Projects in Jamaica’s Montego Bay or Antigua’s English Harbor will continue to draw high international demand; the swank Mandarin in St. Vincent is set to deliver handsome returns to its investors. But these pockets of luxury—and others like them—are shielded from the whims of the broad regional economy.

The traditional risk for property investors in the Caribbean is exacerbated by the Venezuelan crisis. Projects that depend on government contributions, such as public-private partnerships, could stall. Validating this view, we have seen a number of expansive transactions cross our desk that require fresh capital input. On the other hand, those deals that are funded by commercial interests from the outset, such as those in the travel and tourism industry, will march to a different, global beat.

In the Caribbean, new-to-market investors should follow in the footsteps of the Chinese. Their cash hoard empowers discernment. At a hospitality industry conference in Puerto Rico last year, Daniel Liu, a senior representative of the Chinese State Construction Corp explained, “We are very much interested in expanding our business… When we invest, we are very particular.”

Our Vantage Point: Based on its current trajectory, the Venezuelan crisis could undermine property valuations across the Caribbean. Those investors who are likely to benefit most from fresh regional exposure are ones who relish niche opportunities or long-duration holdings.

Learn more at the Council on Foreign Relations

Note: The Caribbean Hospitality Investment Summit, sponsored by the trade publication Bisnow, was held in August 2018. See “The Caribbean Is Complicated: Incentives Lure Developers, But You Need To Be Cautious (29 August 2018) at bisnow.com.

© 2019 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: Oil tanker passes Castillo de San Pedro de la Roca in Santiago, Cuba. Credit: Ambeon at Can Stock Photo Inc.

Important Disclosure: The book-title and cover-image hyperlinks on this page are affiliate links. If you opt to make a purchase from amazon.com, I earn a sliver of revenue at no cost to you. The gesture is a much-appreciated vote of encouragement, signalling continued interest in these recommendations.

Required Notification: The website sponsor is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

Beyond Caparra

Turn Right for Roseau

To the uninitiated, the Caribbean can be a mind-boggling array of small islands, with a few large ones in the mix.

Man with Cigar

Become a geographer. Florida and the Caribbean have the same economic heft as Brazil. Our regional set includes the perimeter economies of Central America, Colombia, Venezuela, as well as the Guiana Highlands.

Relative Economic Size

Comments on this blog focus on Florida and neighboring trade partners. By output, we rank the major islands:

1. Puerto Rico ($103 billion)

2. Cuba ($78 billion)

3. Dominican Republic ($64 billion)

4. Trinidad and Tobago ($29 billion)

5. Jamaica ($14 billion)

Florida dominates the region with state-wide GDP of about $770 billion. The largest perimeter economy is Colombia at $378 billion, followed by Venezuela.

Note: Ranking is based on GDP data for 2014 at market prices.

Source: World Bank, US Bureau of Economic Analysis, Government Development Bank for Puerto Rico, Cranganore.