High-end tourism is driving economic growth in the Turks and Caicos Islands (TCI), which received a BBB+/Stable/A-2 Sovereign credit rating from Standard & Poor’s (S&P), whose analysis highlighted the Caribbean nation’s hospitality industry.

The north Caribbean nation should see $600 million in hotel, condo and marina investment pumped into the economy in the next two years.

It stated: “TCI enjoys favourable growth prospects based on its well-developed tourism industry. Its per capita GDP is likely to approach $24,000 this year. We expect GDP growth to average three percent over the next three years, sustained by a good flow of new tourism projects.”

The report had expanded on per capita GDP, stating it “rose from just above $13,000 in 2004 to a peak of $23,600 in 2008 before falling in the next two years. In 2014, per capita GDP is likely to surpass its previous peak.”

The report noted: “The UK’s political intervention in 2009 and the subsequent constitutional changes had little impact on the tourism industry, which has been driven largely by US economic trends and private-sector investment.”

S&P gave a brief economic and political history of TCI: “The pre-2009 administration had expanded government spending and public sector employment, as well as run up debt and unpaid bills. Several officials of that administration have been formally charged with misappropriating Crown lands and public funds for illicit purposes. The interim UK-appointed administration reformed public finances, passed about 70 laws to set up a new framework for governance, and appointed a powerful chief financial officer (CFO) reporting directly to the Governor. The actions of the CFO, who can cut spending and raise revenues if necessary, can only be overruled by the UK Secretary of State. The UK also provided a bridge loan (now repaid) and then a loan guarantee to stabilise public finance.”

The rating agency said that TCI had enjoyed 15 years of steady growth until 2009. “GDP growth averaged almost 12 percent annually during 2004-2008 before falling nearly 20 percent in 2009.

S&P also stated that TCI has a “ ... small economy, which limits competition and raises costs in some sectors.”

In pinpointing high-end tourism as the islands’ driver of growth: “TCI’s small, open economy is highly dependent on tourism, mainly from the US,” adding: “Tourism, mainly high-end condos, hotels, and private villas, dominates the economy” of the Caribbean island group, which consists of eight main islands and 299 smaller ones, with a total surface area of 238 square miles. “It generates more than half of GDP directly and indirectly and employs about 32 percent of the population.

“TCI competes with islands like St Barts and Anguilla in attracting mainly affluent stay-over visitors.”

S&P also reported on the island’s tourism infrastructure. “There are about 3,000 rooms consisting of hotels and condominiums (the latter outnumber the former).”

It reported the completion of a $10 million expansion of TCI’s main airport in late 2014 to double its capacity will accommodate projected passenger growth for the next 10 years. A recent runway expansion now allows wide bodied jets from Europe to land.

“However, political compulsions could restrict work permits and business licenses. That, and limited access to capital for small and medium-size enterprises, may constrain long-term GDP growth.”

Approximately 300,000 tourists visit the Caicos islands each year, while about 700,000 cruise visitors dock at Grand Turk.

“About 80 percent of tourists are from the northeast US, and the average stay is five nights.”

“Stop-over tourist inflows fell in 2009 but recovered by 2011 and have continued to grow steadily since then, along with cruise tourism. The economy recovered very gradually in 2010 and 2011.

S&P pointed to trends in tourism as largely determining economic and population growth, because much of the population is transient.

“The boom until 2009 lowered unemployment and boosted immigration. (The) population grew from 19,886 in 2001 to 36,600 in 2008, before falling to 31,400 in 2012. “Typically, more than half the workers in hotels are foreigners (mainly from Haiti, Dominican Republic, and the Philippines), providing labour flexibility to the economy.

“Much of the economic adjustment resulting from the sudden drop in tourism from the US in 2009 was managed through the departure of immigrant labour, especially in tourism, from nearby islands. The social impact of the recession on local residents was much less severe than the GDP fall would otherwise imply.”

S&P projected a sunny economic outlook for the remainder of this year. “GDP growth is likely to have been just below three percent in 2013, reflecting a recovery in tourism and construction, and it should rise moderately in 2014 above three percent and hover around three percent over the next three years on average, sustained by a flow of new projects.

“Official data show that about $600 million of new projects are in the pipeline for the next two years, including major hotels, marinas, and condos.

“Tourism arrivals rose more than 40 percent in the first quarter of 2014.

“The privately owned Sandals group, which owns the Beaches brand hotel-condo complex, accounts for just over half the airlift into the island.”