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Lack of clear plan to replace tourism leaves Hawaii’s economic future in doubt

  • DENNIS ODA / APRIL 25
                                An idea being floated around is to entice bigger spenders to come and enjoy the Hawaii experience.

    DENNIS ODA / APRIL 25

    An idea being floated around is to entice bigger spenders to come and enjoy the Hawaii experience.

The Hawaii economy needs a reset, and COVID-19 has provided the opportunity to do it.

Almost everyone agrees the state needs to diversify and be less dependent on tourism. There is also a growing sense that tourism had gotten out of hand — too many tourists, spending too few dollars.

Where there is less agreement is in deciding how to diversify and how to alter tourism.

Ideas being floated on diversifying include everything from astronomy to breadfruit milling.

Two Hawaii economic development aspirations from about 30 years ago have been put back on the table: expanding broadband and growing tourism through spending rather than arrivals.

Other economic development proposals circulating include green energy, health care, aquaponics and other forms of agriculture.

But so far another leading lady hasn’t emerged that could quickly replicate tourism’s 2019 output, which supported 216,000 jobs and yielded nearly $17.8 billion in visitor spending and more than $2 billion in taxes.

Alan Oshima, tapped by Gov. David Ige, is leading a collaborative effort to come up with the Hawaii Economic and Community Recovery & Resiliency Plan. Oshima said a three-part strategy to address the economic and community impacts of COVID-19 through stabilization, recovery and resilience is underway, but step one is still being worked on.

“This has got to be taken in phases based upon data and based on informed decisions that balance economic recovery and public health,” Oshima said. “It’s not like tourism is going to disappear, and there are other ways that the economy will kind of reshape itself, but if everyone is looking for it to be what it was in February, it won’t be. We have to be real.”

Parts of the economy, where social distancing can keep the risk of COVID-19 low, already have reopened on Hawaii island and Kauai and will reopen this week on Maui and Oahu, he said. If the curve remains low and under control, Oshima said, Hawaii might consider reopening medium-risk businesses such as hair salons and restaurants under certain conditions and guidelines.

Once Hawaii has begun to stabilize and recover, Oshima’s next focus is for the state to attain resilience by reevaluating and restructuring the economy to operate in a “new normal” and move the state to its “desired future.”

Travel will be mainstay

Mike McCartney, director of the state Department of Business Economic Development and Tourism, said travel will need to change to accommodate a COVID-19 world, but he expects it will remain a mainstay of Hawaii’s economy.

McCartney said he’s consulting with government and tourist leaders from Hawaii and around the globe to figure out best practices for the travel industry. He wouldn’t speculate on when Hawaii plans to lift the mandatory 14-day passenger self-quarantines that, along with COVID-19 fears, have kept travel demand low. However, McCartney said he envisions kamaaina travel will serve as a pilot for receiving out-of-state visitors later.

“There’s one theme: How do we be the safest place on the planet for visitors when we are ready?” he said. “Because if we do it prematurely, we’re going to run into problems.”

Ben Rafter, OLS Hotels & Resorts CEO, said Hawaii’s COVID cases are minuscule compared with major tourism destinations throughout the world. Unfortunately, this doesn’t mean there’s a clear path to reopening tourism on a significant scale, Rafter said.

“I’m hopeful that either in the departure airport or once someone lands at one of our airports, we can take reasonable safeguards, even if they are as simple as temperature checks,” he said. “Longer-term, I think the ‘passports’ that show one is healthy or that one has a vaccine or has passed a test are interesting.”

But Rafter said if these solutions are months away and 95% of the population is excluded from being able to visit Hawaii, “tourism will fail and Hawaii’s economy along with it.”

“Quite simply, there is no way Hawaii is economically successful without tourism. We can talk about diversifying the economy — I and every other hotelier I know are all for it — but we cannot do so until we first get tourism back,” Rafter said.

However, some in the community, including state Sen. Donovan Dela Cruz, state Sen. Glenn Wakai and Honolulu City Council member Kym Pine, think Hawaii should plan for a future where tourism occupies a smaller footprint. They’re concerned that the reward doesn’t always equal the cost. For instance, it took 10.4 million visitors in 2019 to reach $17.75 billion in spending, which was lower than the $18.3 billion in 2019 dollars that 6.5 million visitors brought to Hawaii in 1989.

“We cannot keep depending on the outside world to come here to feed ourselves and to give us money for our economy — that has proven through COVID to be a risky, failed system for our future,” Pine said.

Creating new economy

Pine, who held a town hall meeting Friday that focused on creating a new economy for Hawaii, said she’s excited about growing and milling breadfruit, which could lead to billions of dollars in spinoff applications. Breadfruit has been identified as an effective source of plant protein, an ingredient that can make gluten-free bread rise, a natural herbicide and a moisturizer in cosmetics, she said.

Pine also supports investment in thermal energy conversion of organic materials — a mobile system that processes and converts waste into commercially viable products with no negative or harmful emissions.

“With minimal investment, both ideas could be ready to go in about six months,” she said. “Tourism made so much money and was so easy. The time is now to finally listen to the many people who have had a solution for Hawaii but were ignored because of the greed of tourism.”

Dela Cruz said $10 million in CARES Act money has gone toward the Oshima-led economic navigator effort, which so far has not provided state lawmakers with an actionable plan.

“When it comes, I hope it’s not a regurgitation of the same aspirational DBEDT strategic plans that we’ve already reviewed. We need specific projects and actions yesterday,” Dela Cruz said.

Dela Cruz said he favors diversification through agriculture, construction projects and health care — areas of the economy that could swiftly scale up.

Wakai, who chairs the Senate Committee on Energy, Economic Development, and Tourism, is pushing to grow alternative energy, aquaculture and aerospace.

“When we benefited from having eight years of record growing tourism, no one wanted to have a discussion about diversity. Now that economy is in ashes, and people are more willing to talk about economic opportunity,” he said. “People are realizing there has to be a better way. If we start now, we could get some traction in two years.”

Oshima and McCartney were less specific on what Hawaii’s resilience plan should include; however, they said it would be data-driven, with the University of Hawaii helping to shape economic diversification.

“We can’t just talk about diversity if we don’t have access to markets or access to capital or a trained workforce to accommodate the new economy. They all have to be linked,” Oshima said.

The will and desire of the people have a role to play, too, McCartney said.

While economic navigator plans are still unfurling, the pair seemed to favor expanding broadband so that Hawaii can better export its products and intellectual knowledge to include its handling of COVID-19 if the state is able to maintain the current success rate. Oshima said extending broadband even to rural areas will be key to supporting businesses in a world where social distancing may be required.

Seeking big spenders

They also support growing Hawaii tourism through spending rather than arrivals — a plan that requires figuring out a way for Hawaii to attract higher-spending visitors who are willing to pay more for the experience.

Paul Brewbaker, principal of TZ Economics, said using broadband to connect Hawaii to the world sounds like an introduction that he penned for the Atlas of Hawaii 1992 edition. Still, finally leveraging broadband might allow Hawaii to better manage and monetize tourism and lead to new economic development, he said.

“Disney has done it through merchandising and intellectual property content,” Brewbaker said. “This is the moment to capitalize on what technology makes possible to leverage the natural endowment, the cultural endowment, and turn that into something that other people are willing to pay for to experience virtually or through content or services.”

He’s less convinced that the state can draw higher-spending visitors to Hawaii given that tourism spending over the past 30 years hasn’t come close to keeping pace with arrivals growth.

“It’s improbable that it will succeed after decades and decades. We built a Hawai‘i Convention Center on this premise, and that didn’t work, either,” Brewbaker said. “But I could be wrong.”

Frank Haas, Marketing Management Inc. president, said he thinks big data and analytics make it possible to identify higher-spending guests and use targeted marketing to draw them to Hawaii. Moreover, given Hawaii’s dependence on tourism, Haas said the state has to try.

“The standard line when people used to talk about tourism recovery was, ‘Let’s put butts in seats and heads on beds,’” he said. “It can’t be about mass marketing anymore. It has to be about giving the customer what they value. We have to think about how to create the kind of tourism that we want, given the opportunity that we have.”

Hawaii also needs to find an acceptable standard for reopening tourism in a COVID-19 world and how to manage the risk, Haas said.

“It would devastate the economy to keep tourism shut down for a long time. It’s 200,000 jobs, and we don’t have a short-term replacement,” he said. “We’ve been talking about diversification for years but never come up with anything that effective for replacing that many jobs.”

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