AS the Caribbean region continues to experience lacklustre economic performances resulting in rising unemployment, crime and poverty levels, solutions must be sought to spur growth.

Last month, the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena, addressing the XXIV Regional Seminar on Fiscal Policy in Chile, said the investment ratio in the region was not enough to maintain high growth rates because investment was unfortunately prone to being unsustainable during crises.

“Investment in Latin America and the Caribbean is not only highly volatile, but during economic upturns, it is also unable to recover from its fall during the downturn. Private investment has not been dynamic and public investment has been declining,” she told the meeting, which included top officials from the IMF and the Organisation for Economic Co-operation and Development (OECD).

The Caribbean Development Bank (CDB) hosted a regional media briefing at its headquarters in St Michael, Barbados, entitled “Building and Sustaining a Resilient Caribbean Economy: Confronting the Growth Challenge” in which its president Dr Warren Smith said that at the end of 2009, the region saw signs of economic recovery driven in part by growth in the emerging and developing markets. However, with Caribbean economies largely being open, their fortunes are inseparable from their main trading partners which are the United States, Canada and Europe.

“The region’s main trading partners have continued to struggle with weak financial, labour and housing markets, so that the robust rebound which we had hoped for has not happened. It certainly did not happen in 2011, and the recovery in CDB’s borrowing member countries (BMCs) has lagged somewhat but is now beginning to take place.”

The importance of economic growth

The way Dr Smith sees it, economic growth is an inseparable part of the solution to the problem of poverty. It is often said that though growth is a necessary but insufficient condition, it has to be present. If Caribbean economies are not growing, the opportunity and resources to address poverty will be absent.

“Economic growth is a primary focus of the CDB and the other regional financial institutions. So what was the growth picture of 2011?

“Thirteen of our 18 BMCs grew in 2011. That’s a good result. The growth was not robust, but it was good to see us move from negative territory to positive territory.

“The star performers in relation to growth were Guyana and Haiti, both of whom exceeded five per cent growth. Now growth of five per cent and above for us is the type of number we would like to see replicated across the Caribbean. Bahamas, Belize, Dominica, Grenada, Jamaica and Montserrat grew somewhere between one and five per cent. Barbados, British Virgin Islands, Cayman Islands and St Lucia grew at less than one per cent. There was continued negative growth in Anguilla, Antigua, St Kitts, St Vincent and Trinidad & Tobago. We have no data available for the Turks & Caicos,” said the president of the CDB.

Tourism

Most Caribbean countries have narrow production bases, with many of them dependent either on services or commodity exports. Some of the larger countries tend to have a combination of the two. It must be said that tourism features prominently in most Caribbean countries.

“So as goes tourism, so go many of our countries, certainly as far as growth is concerned,” said Dr Smith on this matter. Sticking with tourism, he said that eight of the 12 countries experienced growth in stay-over arrivals with the best performers being Anguilla, The Cayman Islands, Barbados and Jamaica. Growth was slower in The Bahamas, Belize, Guyana and St Vincent. There was no growth in Dominica, Montserrat and St Lucia.

Agriculture

For centuries agriculture has been the mainstay of most Caribbean countries, but as many colonial ties have been broken and preferential agreements no longer exist, agriculture has become less of an economic force.

According to Dr Smith, the agricultural sectors of Belize, St Lucia and St Vincent suffered setbacks due to recurring crop disease and natural disasters. Guyana, Dominica, Grenada and Jamaica were able to capitalise on higher food prices.

“There are some very important developments taking place in some Caribbean countries in an area of agriculture referred to as ‘protected agriculture’. In Jamaica, Dominica and Barbados we are seeing more and more greenhouses springing up. This represents the infusion of technology into the production of agriculture which now lays the basis for better integration with some of the other sectors such as tourism, which demand not only reliability of supply but also reliability of quality. We have noted that protected agriculture does well at certain altitudes. The higher up you go, the better the results tend to be. The closer you get to sea level, the more challenges present themselves. One of the things we have done at the CDB is to provide a grant to look at this problem and try to come up with some answers for us, so this business of infusion technology into our agricultural sector can become more entrenched and more pronounced,” said Dr Smith.

Mining

On the mining side, Guyana benefited from rising prices for bauxite and gold and Jamaica benefited from improved pricing for alumina and the reopening of some plants that were mothballed during the early parts of the recession.

On the mining situation, Dr Smith pronounced: “Our information is that massive investments are on the horizon in several types of mining in Guyana. In fact as far as economic growth is concerned Guyana, is a very exciting prospect in the CDB family.

“Oil production declined in Belize. Apparently there were one or two problems with a few of their wells. In Trinidad & Tobago oil and gas production fell due to maintenance work undertaken by one of their major producers. Guyana is poised to become one of the major producers of oil in the Caricom region.”

Manufacturing

Manufacturing either contracted or remained flat due to reduced demand or falling competitiveness in most of the CDB’s BMCs. The BMCs with large agro-processing and mineral-refining capacities benefited from rebounds in commodity prices, for example, sugar and rice in Guyana and sugar and citrus production in Belize. In Trinidad & Tobago there was growth in non-oil manufacturing.

The construction sector benefited from post-disaster reconstruction in Haiti, St Lucia, and St Vincent. In The Bahamas and St Kitts, renewed investment took place in tourism-related activities which boosted their construction industries.

Labour and financial markets

One would expect that with the types of challenges faced by the Caribbean there would be fallout in its financial markets which would be re-elected in the labour markets, especially in the employment numbers.

“On the financial side, what we discovered was that prudential banking indicators have deteriorated for the third successive year. You would have seen in several of our newspapers reports of non-performing loans (NPLs) rising in several countries. That is a consequence of what is happening in the economy. Not only are individuals suffering, but businesses are under pressure.

“There are continuing challenges for some of the East Caribbean currency union indigenous banks and I don’t think that is a big secret. Efforts are still taking place to tackle the CLICO/BICO exposures. The unemployment figures in the Bahamas, Barbados and Jamaica shows double-digit mid-year unemployment rates. The latest figures I saw were 12.8 per cent; in Barbados they are in a similar zone. In the smaller UK overseas territories they have depended on the importation of labour from the region, and because of the economic problems in those countries they are issuing fewer work permits, which then impacts those surplus labour economies which supply labour to them.”

Inflation

On the inflation side, Dr Smith sees spikes occurring, but generally core inflation seems to be under control. In Anguilla there has been the introduction of a petroleum levy and a customs surcharge which led to a spike. Barbados increased the rate of its VAT from 15 to 17.5 per cent, and St Kitts & Nevis introduced VAT as part of its economic adjustment programme.

Jamaica, St Lucia and Trinidad & Tobago saw declines due to exchange rate stability in Jamaica and slowdown in demand in Trinidad& Tobago. In the case of St Lucia, subsidies on basic foods and fuel tax concessions led to lower inflation.

Positive signs

Alicia Bárcena, the executive secretary of ECLAC points out that the quality of public finances in the region has improved.

“Public debt has been significantly lowered, and its profile and composition are more balanced. Tax revenues and the average tax rate have increased. The decrease in interest payments has created significant fiscal space, and social public spending has been maintained.”

She highlighted that the region’s gross fixed capital formation represents almost 20 per cent of GDP, while in some countries in the Asia Pacific region it reaches 40 per cent.

Bárcena urged that investment in the region be aimed at improving infrastructure, increasing research, science and innovation, promoting banking institutions for development, and developing cleaner matrices from an environment perspective. She called on regional countries to consolidate a “sustainable and, at the same time, stabilising” fiscal policy, with a low debt-GDP ratio in good times and counter-cyclical expenditure policies during recessive phases.

“Fiscal policy must contribute to long-term economic growth through stable investment in physical and human capital and innovation. It must also have a redistributive impact, which includes progressive tax rates,” said Bárcena.

She believes that the region is currently in a privileged situation in the midst of the crisis that some European countries face.

A look at 2012

The CDB expects most of the Caribbean economies to grow this year. However, this growth will be very anaemic with the exception of Guyana, which is expected to continue to boom due to what is taking place with gold and the commodities sector.

“We expect unemployment to remain high, with the financial sector continuing to struggle as workouts are implemented. Fiscal target achievements will also continue to be a challenge for most of our countries and the outlook is constrained by high debt and weak tourism flows.

“The good news for 2012 is the news about growth. The bad news is that our growth figures have had to be revised downwards because of the emerging risks in Europe which is one of our most important trading partners, with a sizeable part of our tourism coming from that area. If what is emerging from the financial markets of Europe has the kind of ripple effect, the reverberations across our financial markets could be substantial. This would mean that many of our countries that go to the market for borrowing would face difficulties,” said Dr Smith.