The advent of peer-to-peer accommodation services, the sharing economy and the future of the tourism sector in Curaçao; end of an era?
As of 2016, the Curaçao hotel industry and its vested interests claim that the tourism sector is in decline. Increasingly, fingers are being pointed at an internet-based commercial enterprise that operates a peer-to-peer, sharing economy system called ‘Airbnb’ which is proving to be an attractive alternative to hotels for foreign visitors. To make a long story short, Airbnb connects independent landlords and tenants online and charges a fee for this service. On a local level, the vested interests of the Curaçao hotel industry have no desire to lose market share against peer-to-peer systems. In reaction to this, this article aims to introduce the advent of peer-to-peer accommodation services and the future of the tourism sector in Curaçao to the reader.
2. The vested interests of the Curaçao hotel industry:
The current business model in the tourism industry that the government of the Dutch Caribbean island of Curaçao endorses is the hotel industry. The government amongst other things guarantees occupancy rates to foreign hotel chains to persuade them to establish in Curaçao. Slowly but surely, it becomes obvious for the cynics that the hotel industry is profitable mainly for:
(1) Financial institutions that create a chance to purchase safe, government backed bonds for loans intented for large tourism related projects such as beachside hotels.
(2) The companies that enjoy the ‘occupancy rates’ guarantee offered by the government to influence risk capital considerations of investors. So being, during low seasons, taxpayer money ends up subsidizing the slowly deteriorating hotel industry in order to comply with guaranteed occupancy rate clauses.
(3) The benificiaries of local public tender procedures that form a core element of political conspiracies to obtain construction and other involved lucrative contracts such as the provision of security, uniforms, catering, laundry etc. to the hotels. In practice these contracts tend to include elaborate under-the-table dealings, price-fixing and kickback schemes. Thusly, the interest of the vested interests tends to gravitate towards iniating projects of large scale as the yields thereof are tangible and can be locally shared amongst those involved.
(4) The local politicians that take credit for facilitating deals and promote the idea that they are creating jobs for their constituents.
(5) Employees of the hotel industry, commonly organized in labour unions.
One might simply call all of the above: the vested interests of the Curaçao hotel industry. Behind the ostentatious appeal of luxurious and profitable hotels we encounter the harsh reality of taxpayer money silently being directed towards failing government-backed ventures. Consequently, the government now finds itself in a vicious cycle of negotiating with banks, politicians, contractors, labour unions and private investors.
We get so lost in the discussion about exactly which failing hotel needs to be bailed out with taxpayer money in order to satisfy banks, politicians, contractors, labour unions and private investors that we risk losing sight of the grand scheme of things, namely the international developments in the field of peer-to-peer technology and the sharing economy. The system which at the moment is mostly felt by the vested interests in Curaçao is Airbnb. It is important for us as a country to not be caught off guard by the unavoidable implications of peer-to-peer technology and the sharing economy for the Curaçao tourism industry.
3. The implications of peer-to-peer systems and the sharing economy for the hotel sector:
Airbnb, an internet business located in San Francisco, U.S.A., applies a peer-to-peer, sharing economy system to the accommodation industry. Airbnb maintains a platform where online peer-to-peer technology allows private individual users to seek out and/or offer accommodations to other private individuals (a sharing economy). Airbnb charges an intermediary booking fee on transactions. In the local context, Airbnb turns out to be a such a solid system for the local online rental of accommodations to foreigners to the point where it is now shaking the Curaçao hotel industry and the community of vested interests to its very core.
Essentially what is happening on the national income scale is that disposable income for the tourist has augmented thanks to cheaper accommodation and these resources do not go through the channels of the vested interests, but to other independent (semi-)entrepreneurs. The vested community of interest in the hotel industry is furious; they claim amongst other that Airbnb users do not pay taxes towards tourism promotional activities and e.g. cleaning of beaches as the vested interests state that they do.
Many of the leading figures in Curaçao do not yet realize it, but Airbnb is radically circumventing the concentrated vested interests. Money now goes towards a diffuse group of independent (semi-)entrepreneurs who welcome the surplus income gained through renting out a part of their property as an accommodation in the sharing economy. Moreover, due to Airbnb, another tier of budget tourist such as foreign students and backpackers can now afford to come to vacation in Curaçao without having to spend premium rates for luxurious hotels and large overhead costs. It is already becoming obvious that peer-to-peer systems within a sharing economy is reshaping the Curaçao tourism industry and seems to be an end of an era for the traditional hotel industry.
4. The battle of the interests:
The outdated and heavily subsidized Curaçao hotel industry is now confronted with a steady decline in accommodation rates whilst visitor rates are observed to be steadily increasing. This is a clear indication that alternative accommodation services are becoming increasingly popular for tourists. The online based peer-to-peer, sharing economy accommodation system is reshaping the Curaçao tourism industry without most local policy makers having the faintest idea what a peer-to-peer system or a sharing economy is. The vested interests will no doubt continue to launch vicious attacks to discredit peer-to-peer systems, but unfortunately for them, peer-to-peer is here to stay.
5. Preparing Curaçao for peer-to-peer technology and a sharing economy:
The aforementioned taking into account, we should no longer concentrate our political energy into subsidizing the failing and grossly inflated hotel industry, but accommodate the advent of peer-to-peer services in a shared economy such as Airbnb and be one of the first Caribbean countries to fully acknowledge and reap the benefits of the impending era of peer-to-peer technology in a sharing economy. For the short term, the following two pragmatic actions are of urgent character:
5.1. Creating a taxation structure capable of taxing a sharing economy.
In anticipating of more peer-to-peer, shared economy systems, such as the peer-to-peer taxi system Über and Airbnb, taxation structures should be constructed that fit the modern day peer-to-peer technology and the rise of sharing economies. Even if only in order to be able to discard the argument of the vested interests that “Airbnb does not pay taxes”.
5.2. Opposing the efforts of the vested interests of the Curaçao hotel industry to impose protectionist regulation against peer-to-peer systems.
The failing hotel industry and its vested interests will soon suffer major blows and shrinkage; jobs will be lost and bankruptcies will occur. Panicked, the natural instinct for short-term thinking policy makers aligned with the vested interests will most likely be to impose legislation with the aim of obstructing and deterring services like Airbnb with methods such as hefty fines in order to protect the hotel industry where great financial and political interests are at stake.
As a community, we can thus choose between two options;
(a) Subsidize the failing hotel industry to continue bestowing benefits upon the vested interests and fight an unwinnable battle against innovations of the information age,
(b) Free up the portion of resources that is now spent on direct and indirect subsidies towards maintaining a failing hotel industry. This will lead to increased consumer surplus and more disposable income for both the tourists (the tenants / guests) as well as the local semi-entrepreneurs (the landlords/ hosts) which invariably will lead to economic growth in other sectors.
As of 2016, peer-to-peer, sharing economy systems are rapidly gaining significant market share in Curaçao. This is clearly felt in the hotel industry and will continue to do so in the next years as the tourist accommodation market transforms from large hotels to small apartments operated by small (semi-)entrepreneurs. Curaçao should prepare itself for the foreseeable financial consequences for the hotel industry in light of the imminent advent of peer-to-peer systems and the sharing economy. Embracing peer-to-peer technology entails the potential to significantly improve more effective resource allocation and welfare distribution in the small island economy of Curaçao.
Time waits for no one.
By Dennis E. A. Arrindell, member of the Association of Dutch Caribbean Economists.
Willemstad, Curaçao. August 8, 2016.