Jump starting the Economy: Lessons from Barbados by Sir Ronald Sanders
Unless there is an environment in all Caribbean Community and Common Market (CARICOM) countries to help make businesses fully productive, they will not jump start their economies that now wallow in economic stagnation.
Barbados is about to take a big step forward in improving the climate for the establishment and growth of businesses. It is a step other Caribbean countries should emulate, particularly as the productivity of a country ultimately depends on the productivity of its businesses.
The economic model being pursued by President Hugo Chavez in Venezuela of nationalizing banks, oil companies and other productive enterprises may work for him for a time.
Certainly, it will last while his government has access to the cheque book of the state-owned oil company, PDVSA, and oil prices remain elevated. But, it will not work for many CARICOM countries whose debt to GDP ratio is so high that the obligation to repay debt prohibits them from spending to grow their economies.
The ratio of debt to GDP in several Caribbean countries is serious:
» St Kitts-Nevis 178%,
» Jamaica 128%,
» Antigua and Barbuda 107%,
» Barbados 106%,
» Grenada 87%,
» Dominica 86%,
» Belize 80%,
» St Lucia 70%, and
» St Vincent and the Grenadines 67%.
When the global financial crisis slammed the Caribbean early this year, government revenues declined and they were unable to borrow money on commercial terms to finance development projects.
At that time, some of us called for focus to be placed on the private sector to keep the economies stimulated and maintain employment.
At least two international financial institutions – the International Finance Corporation and the Inter-American Development Bank (IDB) – indicated then that they had funding available for the private sector.
It would have been beneficial if governments and private sector institutions had met to determine what businesses could be pursued on a national and regional basis; what funding would be required; and what financial institutions could be tapped for such funding. It didn’t happen, and many Caribbean economies have deteriorated.
Dominica, Grenada, St Lucia, St Vincent and the Grenadines and St Kitts-Nevis have all had to apply to the International Monetary Fund (IMF) for help through one or other of its windows for soft-lending. In the case of Antigua and Barbuda, the government has sought a full Stand-by programme, the terms of which are still being negotiated.
If Jamaica’s current experience with the IMF is anything to go by, it will be sometime before the terms of an Antigua programme are settled. Jamaica applied months before Antigua and Barbuda but the terms are not yet finalised. From current indications, Jamaica will face new and higher taxation – a development about which the private sector has already voiced concern.
Now, the example being set by Barbados. The government has secured a soft loan from the IDB for US$10 million and is putting-up US$1.8 million of its own resources to support the expansion of private sector participation in the economy, and to make government more effective and efficient as a facilitator of businesses.
The loan is for a 25-year term, with a 4-year grace and disbursement period at a LIBOR-based interest rate.
The Barbados government as well as local and foreign investors had expressed the need for improvement in some business climate factors. Specifically, they had identified the long period of time needed to start a business, delays in cross-border transactions and insufficient access to finance.
These are not conditions unique to Barbados, but since the island was rated 46th of 133 nations by the World Economic Forum’s most recent Global Index of competitive nations, it is obvious that the climate for business in other Caribbean countries is very much worse. Trinidad and Tobago was second at 86 and Jamaica third at 91.
A recent Barbados Central Bank study estimates the time required to start a domestic incorporated business ranges from 281 to 480 days while international business can range from 24 to 187 days.
No banking institution in the world would earmark millions of dollars for financing a project and keep such a large sum on ice while government bureaucracy grinds through a laborious process leading to the start-up of a business. Little wonder therefore that many domestic businesses have to opt to invest their money on the international market, and foreign investors shy away from the Caribbean.
Like every other Caribbean country, private sector development in Barbados is currently faced with serious challenges including eroding trade preferences for its main agricultural export, sugar; higher costs of compliance with new OECD and G20 requirements for its financial services sector; increasing trade liberalization which is reducing government revenues from import duties; declining tourism earnings; and limited scope for export diversification.
The Barbados government has recognised that for unemployment and economic growth to be tackled, business must play a bigger role in the economy, and it is against that background that it approached the IDB for a loan to finance the greater participation of business in the economy, and to make them more competitive in regional and international trade.
» Financing from the IDB will allow the government to pursue four crucial objectives:
» Rationalizing government regulations to support business development including a review of the impact of some taxes on businesses;
» Strengthening the private sector through cooperation by businesses including sharing costs of common services;
» Improving the machinery to facilitate trade including improving and modernizing customs procedures; and
» Lowering the cost of moving goods and people through the development of a National Transport Policy and Master Plan.
Barbados, unlike many other Caribbean countries, already has a strong public-private dialogue involving government, trade unions and the private sector. This programme will require that the dialogue be moved-up to a higher level focussing on competitiveness and private sector development.
If the public-private partnership gets it right, international financial institutions have resources to support viable private sector projects, and some of the strain of keeping the economy stimulated, expanding export earnings and creating sustainable employment could be shared by the private sector.
Caribbean countries should seriously consider following this Barbados approach.
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December 18th, 2009
