2024: Caribbean Opportunities and Challenges

by Adam Greenfader, AG&T

In 2024, the Caribbean stands at a crossroads of transformative possibilities. However, the region is still undergoing repercussions from the Covid19 pandemic and growing environmental threat. Additionally, 2024 is a critical political year with an unprecedented wave of elections worldwide. In this article, I discusses key opportunities and challenges for the Caribbean in 2024 and beyond.

Opportunities

Reshoring

The COVID-19 pandemic exposed the vulnerabilities of global supply chains, highlighting the need for countries to secure critical supplies closer to home. In response, the United States has initiated reshoring efforts, redirecting millions of dollars and significant resources back to North America and the Caribbean. This strategic shift aims to enhance national security and economic stability by reducing dependency on distant manufacturing hubs.

Locations such as Costa Rica, Northern Mexico, and Puerto Rico have greatly benefited from these reshoring efforts. For example, Puerto Rico's pharmaceutical industry has seen remarkable growth. The island exported $13.2 billion in pharmaceuticals, establishing itself as the third-largest biotechnology manufacturer in the world. This achievement underscores Puerto Rico's pivotal role in the global biotechnology sector and highlights the potential for further economic development in the Caribbean.

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Reshoring not only boosts local economies but also creates job opportunities and fosters innovation within the region. As more companies and industries relocate their operations, the Caribbean stands to gain from increased investments and technological advancements, positioning itself as a critical player in the global supply chain landscape.

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Tourism

?The Caribbean's tourism sector continues to show strong growth, demonstrating resilience and adaptability post-pandemic. According to the Caribbean Tourism Organization (CTO), international stay-over arrivals increased by 14.3% in 2023. This rise reflects the region's recovery and growing appeal as a travel destination. Regional hotel occupancy rates also improved, climbing 9.4% to 66.5%.

Financial metrics indicate robust hotel performance. The average daily rate (ADR) in the Caribbean rose by 11.1% to $323.04. Consequently, revenue per available room (RevPAR) surged by 21.9%, reaching $217.79 in 2023. These figures underscore Caribbean hospitality profitability and growing demand.

Projections for the cruise industry are equally optimistic. The sector is expected to continue its upward trajectory, with an estimated 35 million cruise visits to the Caribbean in 2024. This anticipated growth highlights the region's strong positioning within the global cruise market and its appeal as a premier cruise destination.

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Data from IRR’s Caribbean Hospitality Market Report for the first quarter of 2024 confirms a positive start to the year. For instance, incoming passenger numbers in February increased by 12% year-over-year in San Juan, Puerto Rico. Montego Bay, Jamaica, saw a 7.7% increase, while Aruba experienced an 18% rise in January. The US Virgin Islands also reported a 19% increase in January arrivals. These trends reflect a robust recovery and a promising outlook for Caribbean tourism in 2024.

Challenges

Environmental

This year, the Caribbean is experiencing record-high temperatures. Such elevated temperatures, such as in oceans, typically lead to more frequent, stronger, and longer-lasting storms. The increased severity of weather events poses significant risks to infrastructure, economies, and communities in the region. As a consequence, insurance costs should continue to rise, making it more expensive for individuals and businesses to obtain coverage. In some cases, insurance companies may even withdraw services from high-risk areas, leaving certain regions and markets without adequate protection.

Innovative financial solutions are essential to address these challenges. Pace Financing (Property Assessed Clean Energy) and Green Bonds represent promising avenues for funding climate-resilient infrastructure and renewable energy projects. These financial instruments encourage investments in sustainable development, helping to mitigate the adverse effects of climate change.

Public-private partnerships are also crucial in this context. By collaborating, governments and private entities can pool resources, share risks, and implement large-scale projects that enhance regional resilience. Such partnerships can drive the development of critical infrastructure and promote sustainable practices across the Caribbean.

Cost of Capital

While inflation for building materials has generally decreased in 2024, the cost and complexity of capital is rising. Higher interest rates this year have made borrowing more expensive for property buyers, developers, and financial institutions. Banks are responding to these risks by syndicating loans, a practice where multiple financial institutions share the funding and risk of a single loan. Larger European banks are also increasingly focusing on Environmental, Social, and Governance (ESG) criteria. These institutions prioritize investments that demonstrate sustainability and the ability to withstand environmental and economic shocks. This trend towards ESG and resilience-focused investments reflects a broader shift in the global financial landscape. Investors are looking for opportunities that not only offer strong financial returns but also mitigate catastrophic risk while contributing to sustainable development. For developers, aligning their Caribbean projects with these criteria can enhance their attractiveness to potential financiers and secure the necessary capital for growth.

The 2024 Political Landscape

In 2024, over 50 countries, representing half of the global population, will hold national elections. This unprecedented wave of elections will influence global economic activity. Elections typically lead to periods of economic uncertainty, as businesses and investors adopt a wait-and-see approach, delaying major decisions and investments until the political landscape becomes clearer. Caribbean nations must navigate these uncertainties while seeking to maintain economic stability and growth. Strategic planning and adaptive policies will be crucial as the region responds to the outcomes of these political events.

Several key elections will be particularly impactful for the Caribbean region:

United States: The US election is of particular importance to the Caribbean. With 51.8% of Caribbean tourists originating from the US, the region's tourism industry is closely tied to the US economy and political climate. Changes in US policies on travel, trade, and economic aid can have immediate and profound effects on the Caribbean's economic health.

United Kingdom: As a major global financial center, changes in the UK's political landscape can influence international trade, investment flows, and financial markets, potentially affecting Caribbean economies reliant on these interactions.

?Mexico: Mexico's political and economic policies significantly impact trade and investment across North America especially along the northern border in places like Monterey.

European Union: The EU's policies on trade, environmental standards, and financial regulations have wide-reaching effects. Caribbean nations engaged in trade and diplomatic relations with the EU will closely monitor these elections for potential changes in policy direction.

Panama: As a critical hub for maritime trade through the Panama Canal, Panama's political stability and economic policies are vital for regional and global trade. Election outcomes could influence shipping costs and logistics, impacting Caribbean trade dynamics.

China: While the People's Republic of China does not hold elections, it has established an increasingly robust investment presence in the Caribbean. This growing influence is contributing to a shifting geopolitical landscape and potential political instability in the region. From 2005 to 2020, Chinese investments in Caribbean energy and infrastructure sectors reached upwards of $7 billion, according to the U.S. Congress’ Foreign Affairs Committee.

Chinese investments in The Bahamas have focused on large-scale infrastructure projects and tourism developments, enhancing the nation's economic prospects while increasing its dependency on Chinese capital. Over the past two decades, Chinese investment in Jamaica has exceeded $2.1 billion, with significant projects in infrastructure, such as road networks and highways. These developments have been pivotal in modernizing Jamaica's transport infrastructure and boosting economic activity. China's involvement in Cuba includes energy projects aimed at improving the island's power generation capabilities, which are crucial for its industrial and residential needs. Chinese investments in Guyana are primarily centered around its burgeoning oil and gas sector, contributing to the nation's economic growth and positioning it as a key energy supplier in the region.

Conclusion

While nobody has a crystal ball, it is evident that the Caribbean region continues to evolve. ?New technologies are playing an increasingly significant role in 2024 and beyond. Several innovative approaches are shaping the region’s development and resilience strategies:

Renewable Energy Sources: The Caribbean is increasingly adopting renewable energy solutions, such as solar, wind, and geothermal power. These technologies are reducing dependency on fossil fuels, lowering energy costs, and decreasing carbon emissions, contributing to a more sustainable and resilient energy infrastructure.

Marine and Coastal Ecosystems: Efforts to cultivate and restore reefs and mangroves are gaining momentum. These natural barriers protect shorelines from erosion and storm surge, enhance biodiversity, and support fisheries. Such ecological initiatives are crucial for the long-term sustainability of coastal communities.

Parametric Insurance: To mitigate the financial impact of natural disasters, the Caribbean is utilizing parametric insurance. Unlike traditional insurance, which compensates for actual losses, parametric insurance provides immediate payouts based on predefined parameters, such as hurricane wind speeds or earthquake intensity. This approach ensures rapid financial relief and aids in swift recovery efforts. Parametric insurance groups like the Caribbean Risk Insurance Facility (CCRIF) fill a gap in available insurance offerings for natural catastrophes. https://www.ccrif.org

Artificial Intelligence and Machine Learning: Forward-thinking real estate projects are integrating artificial intelligence (AI) and machine learning (ML) to enhance sustainability and efficiency. These technologies optimize resource management by integrating high-yield organic food production, clean water systems, and circular waste-to-resource processes at the neighborhood scale. AI and ML applications help create self-sufficient and environmentally friendly communities.

About the Author : Adam Greenfader

Adam Greenfader is a Chairman of AG&T, a real estate development and advisory firm based in Miami, Florida. AG&T specializes in hospitality, residential, and resort developments in the Caribbean and Central America. ?Since 1993,? Adam has collaborated on over 55 projects valued at $1.7 billion dollars. The projects include master planned communities, hotels, and private island resorts.? Key locations include Puerto Rico, Sint Maarten, Panama, Costa Rica, and Mexico.? ?AG&T’s principal clients include hedge funds, private equity and other institutional capital groups.

Mr. Greenfader currently chairs the Urban Land Institute’s (ULI) Caribbean Council and is the Florida Liaison for the Puerto Rico Builders Association.? ?He is passionate about resiliency, green building and the use of new technologies like blockchain for real estate. Adam is a noted speaker and recently released a new book called, “Why Puerto Rico Now: a masterplan for resurgence, resiliency, and long-term economic growth.”

Photo Credits: lovephotolove

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