BRADES – A new report on private sector development in the Caribbean presents a view that suggests what we face on Montserrat is no different than the challenges of other larger nations in the region.
The Economist Intelligence Unit was commissioned by Compete Caribbean to conduct a series of reviews of the economies of 15Caribbean nations. Private Sector Development in the Caribbean: A Regional Overview provides a summary of the 15 reports.
While Montserrat was not reviewed, six member states in the Organisation of Eastern Caribbean States (OECS) were, including our next door neighbor Antigua & Barbuda.
The challenges noted can also be seen in Montserrat. They are: Strained public finances; Cost of energy; Access to finance; Human capital, in particular inefficient labor markets and emigration of skilled labor; and Innovation capacity.
The opportunities identified for the countries are also applicable here. These include: Engagement of the Diaspora; Key measures to improve the business environment; Improve education systems; Improve firm productivity; and a Regional approach to climate change.
The review notes that collectively, 2015 “will be a significantly more difficult year than the previous three, reflecting the still challenging economic climate” across the Caribbean. The need for private-sector-oriented solutions to these nations’ long-standing challenges has never been greater,” the report notes. Adding “structural reform is needed in most Caribbean countries.”
As the Caribbean remains primarily dependent on tourism, they suggest a priority needs to be economic diversification. Too many countries are also “excessively dependent on imported energy and/or suboptimal solutions for power generation.”
Just as in Montserrat, the Caribbean economies studied were dominated with primary employment being in the public sector and at a time when governments’ finances are under strain. The report also found that civil servants were also part of the barriers to effective reforms which could benefit the economy.
“The public sector in the region is large in terms of employment, and the political power of public sector workers has enabled them to erect barriers to reforms that might adversely affect them. In some cases, special interest groups have created obstacles to reform within institutions, thus impairing these organizations’ performance easy of doing business,” the report noted.
However, what is clear is that the policy makers have the capacity to play a significant role in transforming the economy.
“Both policymakers and entrepreneurs in the Caribbean are expected to have a difficult year,” the 40-page report stated. “The IMF estimates that the tourism-based economies that make up most of the countries profiled in this report grew by only 1.1% in 2014 and will expand by 1.7% in 2015.
Caribbean tourism is to be further challenged by the acceleration in the normalization of relations between the US and Cuba, which could result in substantial investment in Cuba’s tourism industry.”
Notable recommendations which can be taken on board to promote sustainable growth in the region and on Montserrat are:
- “Governments and private sector enterprises can work together to establish public private partnerships (PPPs) on a regional basis.” The report pointed out the countries were not yet seeing much benefit from the CARICOM Single Market & Economy (CSME). “Only a few inter country industrial clusters exist in the Caribbean region, reflecting poor cooperation and the weakness of economic links between nations.”
- Tourism must target new markets – In 2001 tourists visiting the Caribbean spent 75% more than visitors to the Pacific islands, but by 2010 this advantage had virtually disappeared. Tourism based economies in the Pacific have grown faster, in part because the Pacific islands’ customer base is fairly diverse, whereas the Caribbean depends for the vast majority of arrivals on the US, Canada and Europe economies that were severely affected by the economic slowdown that took place from 2008.
- The intelligent engagement of the Caribbean countries’ substantial Diasporas, along with a variety of private and public sector actors within each of the various countries, has the potential to promote innovation. The Diasporas are important owing to the fact that, since the 1990s, remittances to the region have exceeded inward foreign direct investment and official development aid. “As of early 2015, remittances appear to have held up fairly well.”
- Improved education systems and outcomes are just part of the policy packages that have the potential to boost the competitiveness of Caribbean countries. “The well-educated in the Caribbean sometimes struggle to find suitable employment opportunities. A shortage of suitable employment opportunities and relatively low wages leads many skilled workers to emigrate from the region, depressing population levels and also, in the view of some experts, resulting in monetary losses that outweigh the value of the funds remitted home by emigrants. Medium and long term human capital strategies must ensure that educational outputs meet private sector needs.
- Tax reforms that encourage investment in the most productive economic sectors
- Regional initiatives to boost innovation. “Encouraging the formation of dynamic clusters is crucial in terms of generating skilled jobs in innovative new enterprises that will keep talented workers in the Caribbean. Public-sector investment is vital to creating such clusters because it can support collaboration and coordination that might not occur otherwise, which then can lead to more sophisticated joint actions involving a number of firms.
- Greater efforts needed to boost female employment in formal sector firms in industries other than education and restaurants/hotels, in which women are already fairly well represented.
- Renewed efforts at the regional level to deal with climate change and environmental problems.
A principal challenge faced by SMEs worldwide and which is particularly acute in most of the Caribbean, is access to finance. “Data from a 2014 firm level survey …show that difficulty in obtaining finance is a leading impediment to doing business, with 30% of firms in the region mentioning it as a moderate obstacle and 26% citing it as a major or severe obstacle.
“Thus, the survey data indicate that numerous firms in the region do not use banks to fund investment, while a substantial minority do not use such institutions as a source of working capital. This is partly owing to the fact that credit bureaus do not exist in many countries and interest rates tend to be high. It is also because banks in the region require high levels of collateral. In most countries in the region it is well over 100% and in Barbados, Belize and Jamaica it exceeds 170%,” the study revealed.
As a founding member of the OECS and soon to accede to the Economic Union, Montserrat must consider the opportunities inherent in collaborating with our larger partners in order to get the economy moving. Current efforts to transform the education system to directly affect the preparedness of students to enter the world of work must be stepped up. Any measures which can finance the growth of agro business and technology innovations must be encouraged.
Montserrat is no worse off than our neighbours and so we must ensure we are moving forward to be able to support regional strategies to protect our economies.