AN ECONOMIC
DEVELOPMENT
STRATEGY FOR THE OECS
OVERVIEW OF ECONOMIC PERFORMANCE
The OECS countries
as a group recorded moderate average growth over the 1992 to 1996 period, with Anguilla
exhibiting growth rates of over 7 per cent in three of these years, St Lucia over 7 per
cent in three years and St Vincent over 8 per cent in one year. Apart from
Montserrat which has had more than its fair share of natural disasters, no other
country experienced a decline in economic activity in more than one year and, in fact,
three countries have had positive growth in each year.
In 1996,
agricultural performance (about 12 % of GDP) varied from increases 11 per cent and 6 per
cent respectively in St Kitts/Nevis and Dominica to a 6 per cent decline in St Vincent and
the Grenadines. In St. Kitts the increase was due largely to a l3 per cent increase in
sugar cane harvest and an l8 per cent.increase in domestic food crops; while in Dominica,
bananas accounted for the bulk of the increase, recovering from effects of severe
hurricane in the previous year, The contraction in St Vincent reflected a drop in banana
production. In the OECS as a whole, banana export volume and earnings declined by 12
percent and 15 percent respectively, due to the decline in St Vincent and the Grenadines,
a continuation of the secular decline in Grenada, stagnation in St Lucia and a general
reduction in the price for bananas.
The manufacturing
sector (about 8% of GDP) expanded in 1996 in Dominica, Antigua/Barbuda and St Kitts by 6
percent, 4 percent and 3 percent respectively, but contracted by 1.2 percent in St Lucia.
Soap production was up by 32 per cent in Dominica; sugar related production activities
increased marginally in St Kitts but non-sugar output mainly in electronics,
declined by 2.4 percent while in St Lucia, several garment factories closed while
electrical and coconut products experienced declines.
In 1996, tourism
posted gains of 4 percent in the combined stopover and cruise ship visitors, and 4 percent
in gross earnings, despite the negative impact of the 1995 hurricanes, the Atlanta
Olympics and the US Presidential elections. Dominica, Grenada, St Kitts/Nevis and St Lucia
all experienced growth through increases in stopover guests and except for St Kitts/Nevis,
they also received more cruise ship visitors.
The balance of
payments performance deteriorated in 1996. Despite increases in tourism earnings and
remittances, the current account deficit worsened substantially as a result of huge trade
imbalances. Net capital flows were strong but were insufficient to cover the gap and,
consequently, reserves declined.
The fiscal
performance of the combined central governments strengthened as the aggregated current
surplus increased by some 33 percent in 1996. Recurrent revenues increased by 8 percent,
and recurrent expenditures by 7 percent. Grenada, St Lucia and St Vincent and the
Grenadines all recorded surpluses; Anguilla recorded a smaller surplus than in 1995; and
Antigua/Barbuda and Dominica moved from a deficit to a surplus position.
The external debt
increased, although by modest amounts. While Dominica, Grenada, St Kitts and Nevis and St
Lucia all increased their external debt only St Lucia had an increase of greater than 2
percent.
Inflation continued
to remain moderate in 1996 Consumer prices increased the most in Antigua at about 4
percent and in fact declined in St Lucia by more than 2 percent.
NEED FOR A STRATEGY TO FACE CHANGING
ECONOMIC ENVIRONMENT
The OECS countries
have had an impressive record of economic growth or most of the 1980's, averaging better
than 6 percent from 1983 to 1990, and although this pace of growth slowed in the first
half of the it has been for the most part a positive one.
The climate that
supported this level of economic activity is expected to change fundamentally and could
have negative consequences if stimulative measures are not taken by the leadership to
reverse this trend.
The level of
protection once enjoyed by the OECS banana producers in the UK market was reduced in 1993
with the introduction of the new EU banana regime. With the recent ruling of the WTO
Appellate body on the legality of the EU banana regime, the level of protection could face
the prospect of further reduction or even complete elimination in years to come.
Also, official aid
to the Region continues to decline and competition is intensifying in an already highly
competitive tourist market.
In the face of
these changes and their potentially dire consequences for the livelihoods of the people in
the sub-region, it is imperative that the leadership of the OECS develop and implement
policy initiatives to not. just maintain, but improve, the general living standards of its
people. This is particularly urgent in light of the current levels of poverty in the
O.E.C.S. While the levels in the individual member states may not all be particularly
alarming, there is the potential for the levels to increase, especially in light of
current pressures in the agriculture sector in general, and the banana sub-sector in
particular.
The following strategy is
recommended as an approach for pursuing the twin goals of sustainable economic growth and
full employment
DEVELOPMENT STRATEGY
(1) Conduct macro-economic
policies with an anti-inflation thrust
- adopt the fiscal
reform programme being developed, which includes timing increases in the surpluses of the
public sector current accounts and establishing systems to facilitate the effective
management of the Public Sector Investment Programmes;
- maintain the current policy on
the exchange rate;
- link wage
adjustments as much as possible to increases in productivity.
(2) Embark on an
extensive program of product and service diversification
- seek out
opportunities for the private sector to access non-traditional industries such as the
informatics industry as well as to develop new products within existing industries,
particularly, agriculture and manufacturing.
(3) Encourage as
much as possible the private sector to produce goods and services export.
- Because of the
small size of domestic markets, prospects for economic growth would be greatest if goods
and services could be sold to foreigners. This would include agricultural products such as
bananas and sugar cane; tourism services in all its forms; construction contracting;
professional services such as accounting and engineering as well as various forms of
offshore services.
(4) Adopt the
following sector-specific measures
For the
agricultural sector
focus
attention on raising the productivity of traditional agriculture;
take
appropriate steps immediately that would enable the banana industry to use the remaining
years under Lomé to become globally competitive;
provide
investment and develop technological packages to reduce the unevenness of agricultural
development;
encourage
farmers to obtain shares in transportation, marketing and food processing ventures as a
means of increasing their profits;
continuously
re- appraise profitable activities and advertise investment opportunities for surplus
resources generated from farming; and
seek ways to
increase the production of food for the tourism industry;
For the
manufacturing sector
- expand the potential that now exists
for exports outside the region; incentives specific to the enterprises such as flour mills
for further food processing could be provided;
- expand the agricultural supply base
for processing; for example, the manufacture of sea island cloth and associated garment
manufacture;
- phase out the inefficient import
substituting enterprises;
- explore the full export potential of
the furniture industry, taking into consideration the availability of processed wood and
limber available torn Guyana and Suriname at CARICOM duty rates;
- continue to develop the handicraft
and ceramics industries with a view to capturing the tourist market, particularly the
market for cruise ship tourists.
For the tourism sector
- ensure that airport facilities
are adequate and that airports are accessible, well maintained and have competitive user
charges;
- ensure that telecommunications are
efficient and can facilitate cash and information transfer;
- ensure that roads are well
maintained and have adequate signs for tourists;
- ensure that seaports are operating
smoothly for managing the importation of cargo swiftly and at low cost and provide
berthing and disembarkation arrangements cruise ships and their passengers;
- train people to accommodate visitors
in order to encourage repeat business;
- ensure that the marketing strategy
is flexible enough to accommodate up-market and middle-income tourists, while providing
some support for the lower end of the market;
- assess the existing incentives to
determine whether, they are all still needed or how they should be modified;
- try to increase the value-added of
cruise ship tourism by selling to cruise Ship tourists, inexpensive meals, tropical fruit
juices etc. as well as handicrafts of various materials and the like;
- provide resources and incentives for
the development of the tourism product including commercial activities.
For the informatics sector
- establish a foothold in this
industry which is still relatively small, but growing computer literacy has to be pursued
but it should not be too narrowly defined in relation to Informatics. The pace at which
information is spreading is so rapid that it pays to invest in computer literacy to tap
into world wide information systems and to let the development of the know how for
Informatics emerge as a by-product of the overall drive;
- cheaper telecommunications rates
should be negotiated to increase competitiveness.
- develop an environment, including
incentives, for more investments in activities related to this sector.
For all sectors
(5) Mobilise domestic
savings:
One study shows a significant gap
in the O.E.C.S. states between domestic savings and investment. Attempts should,
therefore, be made to reduce the resulting dependence on foreign savings to finance
investment. Domestic savings can be mobilised by:
(a) upgrading the
enabling and supportive regulatory environment by means of
- seeking a consensus among business,
labour, and government on wastes, prices, exchange rate and productivity policies so as to
maintain the confidence of savers;
- promoting and maintaining
competitive real rates of interest
- emphasis on the taxation of
consumption rather than income;
- income tax deductions for financial
assets;
- a reduction or elimination of tax on
pension benefits, if the revenue loss is bearable; and
- signing, where possible, more double
taxation agreements with foreign jurisdictions, in the context of CARICOM obligations.
b) strengthening the regulatory and
legal environment through:
- the establishment of regulatory and
supervisory agencies for financial intermediaries;
- the introduction or upgrading of
investor/saver protection laws;
- the extension of the "fit and
proper" management criteria normally applied to bank management, to all financial
institutions;
- the portability of pension benefits
across all occupations;
- the introduction of staff training
programs and of newly appointed personnel for regulatory agencies;
- the removal of existing barriers to
capital flows and the establishment of incentives to further encourage more long-term
flows; and
- the adoption of procedures to make
the disclosure requirements for public and private limited liability companies uniform;
c) actively
promoting market development by:
- ongoing efforts to encourage the
establishment of stock and call exchanges, as well as secondary markets for government
securities;
- making it mandatory to have
actuarial reviews of National Insurance Schemes (NIS), and acting quickly on the
recommendations;
- sub-contracting out the management
of NIS investment funds if NIS staff is ill-equipped to manage such a large pool of
resources;
- making all pension schemes for
government workers fully funded schemes, to remove the large contingent liability placed
on governments and to tap a source of savings which can be significant but has not
normally been exploited;
- encouraging Caribbean financial
conglomerates to expand to other countries in the region;
- taking steps to harmonise the
legislative, regulatory and taxation systems in the region, as a means of promoting the
development of Caribbean financial conglomerates in the region;
- amalgamating weak financial
institutions (most notably, credit unions and indigenous banks) to ensure their long-term
survival;
- ensuring that strong credit unions
pursue the most profitable investment policies, through better regulation of their
activities; examining the existing deposit insurance schemes in Trinidad and Tobago and
Jamaica, with a view to structuring efficient safe and workable models for the financial
sector;
- accelerating the development of a
regional settlement system for the purchase and sale of equities, and a regional
custodian/depository for equities;
- taking steps to generate a wider
menu of financial assets in order to better meet the changing liquidity and risk/return
preferences of local and foreign savers;
- pursuing more balance in capital
market development programmes, by encouraging corporate, as opposed to, short-term
government securities.
- providing public information
programmes which detail the procedures for purchasing capital and money market instruments
and the pros and cons of each instrument.
- taking steps to remove restrictions
on formal savings instruments and to improve people's access to financial institutions to
bring more informal savings into the formal financial system;
- encourage financial institutions to
offer products with some of the same characteristics of informal instruments;
- including in privatization
programmes a provision for Employee Share Ownership Plans (ESOPs). Jamaica's experience
has been positive and might be studied and tailored for local implementation
(6) Adopt measures to attract
foreign investment by means of:
(a) enhancing the foreign
investment policy framework through:
- combining the
various laws pertaining to investment incentives into single foreign investment Acts that
spell out procedures, institutions, guarantees provided and dispute settlement mechanisms;
- providing simple
rules that allow for transparency in the granting of incentives;
- examining those regulations that
place restrictions on foreign investment to either review or abolish those that have been
mere formalities;
- establishing a "one-stop
shop" where necessary, which would be responsible for the publication of a national
investment policy which outlines the areas targeted for foreign investment as well as the
restricted ones if there are any; specific investments that are available to investors for
particular types of investments, terms and conditions under which foreign investors can
operate; and the procedures for obtaining approval;
- adopting a more promotional and
pro-active role for the investment agency;
- ensuring that the administrative
agency responsible for foreign investment must have the capability and authority to
implement the incentives programmes;
- reviewing incentives for
redundancy, such as having income tax holidays at the same time as programmes for
accelerated depreciation;
- using mechanisms like
cost-benefit analysis to assess the merits of incentives; and
- providing as much support as
possible for the local private sector since this sector, if vibrant might serve to
increase investments through joint ventures and other operational alliances, and moreover
might also serve as good advertisement for foreign investment.
b) developing an
appropriate human resource base through:
- focusing attention on tertiary
education and the development of technological infrastructure, both human and physical;
- developing a comprehensive skills
strategy in order to achieve a skilled, technical, technologically adept and scientific
workforce; and
- broadening the curricula of
secondary schools to focus more on technical scientific subjects.
c) upgrading the
infrastructure network through:
- a continuation of the policy to
privatise the public utilities;
- dismantling the utilities as much
as possible into their components and leasing or selling these parts to private entities.
This would likely avoid monopolistic practices;
- re-examining policy with a view
to reformulating legislation and regulation governing telecommunications services aimed at
promoting adequate competition and so widen the options for uses at an affordable cost.
- putting in place some mechanism
to exercise social oversight over the a public utilities (like a public utilities
commission);
- establishing autonomous bodies to
manage air and seaports and encouraging the involvement of the private sector in the
upgrading and management of seaports; and
- allowing private sector
involvement in the other main infrastructure sub-sub-sectors - roads and water.
d) supporting
measures at the level of Caricom to promote intra-Caricom investment and trade by
means
agreeing to:
- abolish the remaining controls on
the movement of capital and payments among member states;
- reduce restrictions on mergers
and acquisitions by Caricom-owned entities and promote the development of an integrated
Caricom financial system.
- grant work permits automatically
to technical, professional and managerial personnel of Caricom-owned and controlled
enterprises operating in any member state;
- accelerate the development of the
Caricom Stock Exchange as the basis for capital market integration with Latin America; and
(e) actively seeking,
in conjunction with Caricom partners, increased trading relations with Latin America.
(7) Consider
an active social and environmental policy as necessary to support economic development
a) Social Policy
A country's
social climate should be seen as important for its economic development since it can, for
example have implications for key activities such as attracting foreign investment and
tourists. The social climate can be enhanced if some of the following policies are
adopted:
- use the income tax system, where
possible, to deliver relief to low-income persons as compensation for higher consumption
taxes;
- provide, to the extent possible,
social assistance payments in an amount that will not deter persons from working or
seeking employment;
- provide modest housing grants, where
possible, to low-income persons for the purchase of a home;
- while not necessarily introducing a
system of Medicare, ensure that basic health care services are available to persons who
are unable to pay for them;
- encourage employers to pursue the
objective of equity in their hiring and promotion policies;
- address and correct issues and areas
of gender imbalances and discrimination;
- pay attention to issues of
population size, spatial distribution and access to development resources.
b) Environmental Policy
In
collaboration with the Natural Resources Management Unit (NRMU), governments must adopt
policies related to:
- the cessation of soil erosion and
the re-accumulation of soil;
- the design of systems for the better
collection and management of drinking water;
- the replacement of tree cover
where necessary and possible;
- the recycling of liquid and solid
waste where feasible; and the development of farming systems for marginal lands.
8) Develop a strategy for
implementing the above initiatives
a) Improvement in Public
Management Capability
A critical
aspect of the development potential of the O.E.C.S. is the capacity in the public sector
to formulate, develop, design and implement effective policies, programmes and projects.
This has resulted in an apparent lack of absorptive capacity to efficiently utilise
available or accessible resources. Unless this is addressed, this strategy will not
achieve the results intended. Consequently, governments must:
- develop a more rational and
effective structure in the public service;
- strengthen the critical agencies and
mechanisms for the development and delivery of programmes and projects;
- introduce competitive remuneration
packages to retain critical skills and experience in the public sector;
- reduce the levels of waste and
ineffectual use of financial and human resources;
- ensure effective performance
appraisal as a basis for reward and promotion;
- introduce performance competition in
the public service;
- encourage private sector delivery of
services where possible and effective.
b) Process
For the policy
initiatives outlined above to be implemented and effective, it would be necessary to
obtain broad-based public acceptance and support. The following are some suggestions for
what might need to be done to achieve that objective:
- hold discussions with major
stakeholders - government and opposition politicians, public servants, businesses,
employers, trade unions, umbrella groups such as Chambers of Commerce, consumer groups
etc.- with a view to achieving consensus;
- publish the list of initiatives
agreed upon;
- seek agreement on a time frame for
implementation of each initiative or !;et i)f initiatives;
- prepare and publish progress reports
on initiatives undertaken.
c) Time Frame and Actions for
Finalising the Development Strategy
The outline of
the strategy paper will be discussed with representatives from ECCB the Public and private
sectors, and labour unions. After each round of discussions, the outline will be adjusted
to incorporate the agreed-upon views of the group with whom the discussions were held. In
this way, the next group will be in a position to benefit from the views of previous
groups.
Discussions are
planned to be held with the following groups:
ECCB:
- Ongoing discussions will be held
between the O.E.C.S. Secretariat and the ECCB.
The Private Sector:
- Since the last
PCC meeting was held in September, 1997, and the next one will not be held before January
or February, 1998, a copy of the outline is being sent to the St. Lucia Chamber of
Commerce (contact point for the O.E.C.S. private sector) on October 23, 1997 requesting
comments from the private sector by November 30, 1997.
The Public
Sector:
- At the meeting of
the Directors of Planning, their comments will be solicited and incorporated in the
outline. Since there is no formal arrangement for holding discussions with labour unions,
the Directors of Planning will be asked to obtain the views of labour at the national
level, and transmit them to the O.E.C.S. Secretariat by November 30, 1997.
The Authority:
- The O.E.C.S.
Secretariat and ECCB will present the revised outline to the Heads of Government at the
Authority meeting to be held in late November or early December, 1998.
- The outline will
be further revised, as necessary, to incorporate comments by the Heads.
- This revised
outline will be expanded upon by the O.E.C.S. Secretariat and ECCB to become the official
O.E.C.S. Development Strategy Paper.
- This Paper will
be presented officially to the Heads of Government at the Authority meeting in May, 1998.
Other Interested Groups:
- At the national
level, governments may wish to engage in consultations with other interested groups,
including all political parties, once the Heads of Government receive the first draft of
the outline.
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