PRELIMINARY ASSESSMENT BVI ECONOMY
Introduction and Background
The purpose of this report is to assess the impact of the September 11th
terrorist attacks in the USA on the economy of the British Virgin Islands.
Additionally this report describes the recovery in the economy and
assesses prospects for the future. The report focuses on the sectors that
were impacted most such as tourism, government, distribution and the
external sector.
The assessment covers the period 15th September to 31st December 2001.The
reference period is the fourth quarter 2000 and of course the review
period is the fourth quarter 2001. Also in terms of coverage the
activities focused on are related to domestic trade in goods and services,
imports and exports, government taxes and spending, tourism activities and
investment activities. While covering the territory from Anegada to Jost
Van Dyke, Tourism as a single sector received the most attention, as it
appeared that the impact was more pronounced there.
In view of the limited statistical database, the timeliness of data
submissions and short period of assessment, our approach focuses on some
key and available leading indicators such as tourist arrivals, average
length of stay, credit, imports of goods and services, companies
registered, investment permits approved, consumer prices indices, etc.
Given the pressing need for Executive Council to be informed, it was
decided to submit this as a preliminary report and prepare the final
report when hard data becomes available. As a consequence, this assessment
focuses on activities and data trends in most areas and firmer number in a
few sectors.
Our assessment and monitoring activities included routine collection of
data at various ports of entry, administrative records of government
departments and some estimates using internationally accepted economic
statistics techniques. In terms of information collection from the private
sector, we conducted interviews with property owners, representative
associations, industry associations, management and interested
individuals.
The terror events in New York and Washington could not have come at a
worse time. The western industrialized world was in the middle of an
economic downturn since the fall of 2000 and continuing with the advent of
the Bush Presidency. European economies reached a valley while Latin
America and the Caribbean economies bogged because of the ties to
continental markets.
The American and other western industrialized economies had been hit by
softened financial markets and deteriorating aggregate demand. As the
boost of the Information Age, with the birth of the “dot.com”
enterprises leading the way in growth wore off, industrial production
slackened, unemployment rose and government’s fiscal position
deteriorated.
The terror attacks have left tourist in our main source market fearful of
flying. There is major concern over the continuing economic recession, the
threats of additional terror attacks in the USA and about the next phase
of the war on terrorism outside the USA. American tourists are filled with
anxiety, uncertainty and hesitance. The personal finance picture for the
future remains unclear and they are most fearful of being identified,
targeted and attacked overseas. Their uncertainty and fear have in effect
led to reduced discretionary spending.
The BVI economy is an export oriented one driven by international trade in
tourist and financial services. The openness of the economy is
demonstrated by the fact that exports and imports amount to 40% and 34.1%
of Gross domestic product, respectively. Growth and development of the
economy has been accommodated through extensive foreign direct investment
in key sectors and approximately half of the population and 60% of the
labour force are non-belongers. The financial system is fully integrated
with the USA as three of the four major commercial/retail banks are North
American and the other is European. Approximately 30% of the long term
bank deposits are held by non-resident, non-belongers. The BVI economy is
definitely influenced by global economic, social and political events.
A snapshot of the BVI economy at the time of the 9/11 terror attacks on
the USA would have shown a country in the low tourism and total activity
demand period. The BVI was an economy prepared for a natural disaster that
could have severely damaged the tourism plant and economic infrastructure.
The BVI was an economy coming to grips with the deterioration of regional
demand as it felt the impact of reduced aggregate demand in the USA.
The snapshot would have shown an economy under the threat of severe damage
to an industry that is responsible for more than one third of GDP through
OECD sanctions. An economy with a financial services industry under
reforms that would have enhanced supervision and new regulatory framework
totally outside of traditional government control. The financial services
sector was experiencing a significant drop off in the rate of growth but a
growth in revenue yield. The snapshot would have shown a tourism sector
with great and growing conflict between land, marine based and cruise ship
tourism .The economy snapshot would have also shown government fiscal
position tightening to the reality of a flatter revenue yield and
expanding expenditure for both current and capital affairs. There was so
much concern for the fiscal situation that a fiscal review consultancy was
in place to adjust revenue and tax measures to overcome income tax revenue
losses arising out of the OECD Harmful Tax Initiative requiring the
abolition of income. The government fiscal position was becoming stressed
with the current and anticipated cash flow requirements for the financing
of ongoing and new large capital projects.
The BVI economy was experiencing mix results in performance and there were
a number of external and internal challenges that would have absorbed the
energies of the country to bring us into a good fourth and first quarter
increased aggregate demand situation.
Output
The Development Planning Unit estimates that the terror events of the 11th
September 2001 in the USA would result in a 3.5% reduction of the gross
domestic product as measured in the classical Keynesian method. This
suggests that national output consisting of consumption, investment,
government and external sector will amount to just over 91% of what was
expected in 2001.
The anticipated decline in national output is to be seen in Consumption,
Government and the External sector. During the early part of the review
period consumption by both government and the private sector fell
marginally. However, private consumption by individuals, particularly
those employed in tourism and by businesses involved in tourism rose
toward the entire of the review period. The reduction in government
consumption was very small and occurred mostly during the early parts of
the review period. This reduction in consumption occurred at business
point that were closed or where activities were severely reduced such as
ports of entry and offices dealing with tourism.
The reduction in national output due to decreased activities in the
external sector came mainly as a result of decreases in the exports of
tourist services. The 12.0% fall in the number of visitors in the first 6
weeks of the review period is responsible for the most of the reduction
seen. Although the fall off in tourism services exports continued
throughout the review period, the latter half was markedly improved due to
heavy promotion and discounting on the part of operators. Tourism inflows
from the export of services fell approximately $40.0m over the review
period.
There are no firm indicators that suggest any real decline or
deterioration in investment. Indicators such as the number of alien land
holding licenses, the number of development applications and
sub-divisions, the imports of capital goods, employment in construction
and credit for construction either increased or showed significant
decrease during the review period.
Since the Thanksgiving Holiday period, co-inciding with the start of the
tourism high season, national output has commenced a slow and steady
recovery in national output received its final and most energetic boost
with increased imports and subsequent consumer spending in the economy as
the Christmas and New Year Holiday season approached. The economy
experienced a relatively quick shift from the low season and terror shock
of the early review period to heightened period of consumer spending,
imports, government spending and tourism exports at the end of the review
period.
Consumption
In the classic Keynesian economic model consumption is defined as the
spending by consumers, businesses and government on good and services to
be consumed but not in the course of production. The BVI economy is almost
70% consumption and it is estimated about $560.0 mn will be spent on
consumption during the course of 2001.
At the time of the terror attacks in the USA, consumption was at its
lowest annual point. Historically the month of September is that low
season for economic activity in the BVI. However, the terror attacks
caused further reduction in tourism demand and consequently an overall
reduction in aggregate demand due to the sector linkages with that sector.
During the course of the review period both private and government
consumption exhibited the same behavioral pattern. Immediately after the
attacks consumption fell noticeable as the country was effectively closed
to tourists due to the closure of certain ports. Consumption picked up
slowly as workers incomes began to rise in response to increase hours of
work. Consumption then went into recovery as tourism demand increased
around the Thanksgiving Holiday period. Tourist establishment were able to
reduce their discounts while increasing their occupancy levels, incomes to
employees and spending generally.
As the Christmas Holiday season approached with increased incomes and
spending, consumption in general increased. Of course imports, one of
major indicators, rose some 4.1% to $61.2 mn in anticipation and support
of increased consumption. During the course of the final month of the
review period, consumption accelerated as spending increased parties and
other entertainment, food preparation, music, consumer durables, consumer
electronics, clothing and other Christmas gifts.
In terms of government consumption, the initial reduction occurred when
tourist demand deterioration caused closure of certain facilities. The
Thanksgiving Holiday period brought increased consumption as government
spending rose 12% over the same period in 2000. Government consumption
peaked as a customary during the last month of the year when “Christmas
shopping” occurred. Treasury preliminary figures indicate a 9% increase
in the December-to-December period in spending.
The events of 11th September impacted consumption negatively but the
recovery in aggregate demand, especially for tourism services brought it
back to about 90% of the previous year’s level. But, the holidays and
high tourist season spending could not completely erase the losses
suffered during the first month after the terror attacks.
Investment
During the period September to December 2001, investment, as measured by
gross capital formation, rose slightly over like period in 2000 due to the
continued confidence in the economy, the continued public sector
investment and credit for home construction. The investment of capital
goods and durables, a key component in investment grew better than
moderately in support of home construction, commercial space development
and government projects.
Another major component of domestic inward investment in the BVI is the
building of residential and rental homes by seasonal, retired or
semi-retired residents. As a key source of unofficial inward investment
flows, the acquisition of real estate for development and non-speculative
purposes is a good measure of investment and future activities of
construction, personal services and accommodation sectors. Official
records indicate a small increase in number of non-belonger land holding
licenses issued during the review period compared to the reference period.
Domestic credit to the construction sector and individual for the building
homes present a good indication of the level of capital formation in the
economy. During the review period bank credit for construction and other
investment activities rose some 7.5% for the private sector. Indications
are that credit to residents and non-residents continued unabated during
the reviews period as investors planned held firm in the face of the
events of 11th September .
The events of 11th September 2001 had little effect on the plans investors
have for development as indicated by the increase in number and value of
application for land sub-divisions and building development. Statistics
from the Town & Country Planning Department suggest a 6.08 percent and
7.8 percent increase in the number of building permits sought and in the
value of proposed developments, respectively.
The imports of capital goods consist mostly of industrial steel,
construction materials, heavy equipment, transport vehicles and other
industrial goods. Imports period amounted to approximately $65.0m, up
about 6.3 percent over the reference period in support of the continued
investment activities, and expanded credit. Of course, the public sector
investment in the airport, other infrastructural projects and commercial
accommodation spaces contributed significantly to the better than moderate
expansion in domestic investment volumes.
Government Finance
Continuing a trend established almost a decade ago, government fiscal
situation improved each quarter until the quarter following the terror
attacks in the USA. Overall revenue grew at an annual average of 14.1
percent to reach $183.1 mn during 2000. This fiscal performance continued
to provide, on average, $20.0mn to finance public sector capital outlays
each year during the past decade However, the 11th September events in the
USA interrupted this trend bringing an estimated loss of about $7.5 mn or
4.0 percent in government revenue in 2001
In September 2000 government revenue amounted to $15.29mn compared with
the $8.65m collected during September 2001 as a result of deteriorated
demand for tourist services and the resultant reduced inflow from the
supportive sectors such as transport, communications etc. Treasury figures
indicate that losses in revenue collection extended to sectors not
directly related to the softened tourist demand and the fall in imports at
the early part of the review period. It should be noted that
Government’s current expenditure fell 50.5 percent from $16.55m to
$8.37mn on a September-to-September basis.
During the reference period capital expenditure recorded $12.8mn compared
to $16.0mn in the review period, indicating a 40.0 percent expansion. This
increase however, was a result of planned and committed activities and was
intended to ignite soften demand as the construction and import sectors
showed no indicators here.
Overall government revenue amounted to 188.5% mn, up $5.4 mn or 2.9
percent over the like period in 2000. Therefore, expect for the $6.5mn
September loss in revenue, the fiscal situation of the Central Government
has recovered to previous growth trends. The situation is expected to
improve in 2002 barring any further softening in aggregate demand for the
BVI goods and services.
Employment
Overall, the labour market in the BVI has returned to post 9/11 levels in
terms of total number of person employment. In fact there was little
impact on the number of jobs given that the terrorists events occurred
during the slowest period of the tourist season. Many tourism
establishments had already reduced their workforce to customary low
seasonal levels with most ex-patriate taking their usual late summer trips
to their countries of origin.
Public sector employment and other private sector employment in the area
of financial services, construction and other services remain relatively
unchanged given that these sectors were virtually unaffected by the
general reduction in international travel. Domestic public sector
employment has expanded slightly after contracting by about 0.2 percent in
the first two months of the quarter. Construction employment rose slightly
given the public sector investment programme and the continued expansion
in credit to home building and general construction activities. Employment
in the financial and business services sector rose moderately as demand
for these services was unaffected by the general reduction in
international trade.
In respect of tourism employment, while the number of jobs remained
virtually unchanged the number of hours employed was significantly
reduced, in some instances by more than 50% in the first 6 weeks after the
9/11 attacks. In addition to the usual reduction due to low season, the
number of hours worked is estimated to have average 15 per week in most of
the major establishment. However, the late quarter performance of arrivals
returning to about 80% of normal has virtually eradicated seasonal
employment in the tourist sector. An important concern is that the
seasonal employment and the further reduction in tourism sector employment
due to softened demand impact on the lower level skilled workers and
expatriates who dominate this employment group. This is an important
consideration given that as work permit employees they are second
preference and are subject termination and voluntary repatriation under
circumstances of softened demand and reduced unemployment.
Prices
In an economy charactered by softening aggregate demand and that depends
on international trade in business/financial and tourism services one can
reasonably not expect to see an inflationary situation. Prices in the BVI
are correlated with prices in the continental USA given the high import of
goods and services from this market. For the purposes of these monitoring
exercises, consumer, construction and tourism prices are used, as they are
the only processes monitored.
During the course of this review period, the consumer Price Index (CPI),
the best and most reliable measure of movement in the general price level
rose 1.52 percent overall compared to the reference period. This is
comparable to the 1.2 percent rise seen in the USA consumer price level.
However, as expected in a situation of falling aggregate demand, prices of
consumer products have declined slightly while prices for services rose
slightly (0.6 percent) to result in an expected small increase over all
CPI sections. Consumer prices at the end of the review period reflected a
slight increase of 1.52 in the prices of imported consumer goods and a
rise in the prices of domestic services.
Although somewhat less significant, tourism prices as measured by the
Tourism Price Index, provides an indication of how faster the BVI as a
destination is becoming more expensive. Naturally, with depressed demand
for the BVI as a destination due to the fear of flying, tourist prices
would obviously fall to indue demand. From our Tourism Price Index (TPI)
there is approximately an overall 20 percent fall in prices, particularly
for accommodation where local service providers discounted to fill rooms.
Tourist arrivals, expenditure and tourist nights are down 24.3, 1.7 and
1.1 percent, respectively reflecting the softened demand experienced.
Construction prices, although related more to investment, give an idea of
the rate of escalation of these services. Surprisingly the Construction
Cost Index (CCI) rose less than the rate of inflation as measured by the
CPI. This less than expected increase came about as a result of declines
in the import prices of steel, lumber, electrical construction materials
and other aggregate. This came about as a result of fall in international
prices for these materials and the fall in domestic interest rates.
Financial and Business Services
Financial services is one of the world most competitive and highly
regulated services, and it is one of the primary engines of growth in the
economy of the British Virgin Islands. The financial performance of the
Central Government is highly dependent upon the flow of direct and
indirect revenue from the financial and business services sub-sector.
Estimates suggest that this sector is responsible for almost 55% of the
central Government revenue in the first round.
The financial services sector remains largely unaffected by the terror
events of 11 September due in part to the structure of the industry. The
absence of a large offshore banking sector to allow the management of
terrorist resources rules our country out for further scuting. In addition
the BVI maintains a reputation as a highly regulated and clean
jurisdiction which portrays a good image to the rest of the world. The
level of self policing by the industry has the potential for rapid
identification of unfit providers.
Preliminary figures* suggest that the slowing growth in registration of
offshore companies begin in late 2000 continued throughout 2001 including
the review period. Essentially what is happening is a reduction in the
extraordinary growth rate recorded over the past two years instead of a
decrease in the growth volume The approximate 25% decline in growth rate
of company registration seen in and around the review period cannot be
attributed to the events of 9/11. Instead our opinion is that it is more
related to the inability to maintain the windfall growth of 2000 resulting
from the Asian and other crises. Interestly though, the revenues yield
from financial services is estimated* to be up by between 8-12 percent
over the reference period.
In terms of other financial services products, captive insurance and
mutual funds registration, activity level are largely unimpacted by the
terror events in the USA. However, the competitive nature of these
industries can erode the BVI potential markets. But our early ability to
attract a high level of committed clientele is definitely impacting
positively on numbers in these areas.
Credit and Savings
The BVI financial system is very much integrated with the international
financial markets and it is in turn influenced heavily by the USA
financial markets. Given that our financial institutions are largely
international banks and credit card companies, the decline in the value of
equities and other financial instrument trading due to the 9/11 events in
USA had little or no negative impact on the domestic financial affairs.
The banking system is such that there was little fear of money laundering
or the holding of deposits for terrorist organizations.
During the review period, the money supply as measured by the stock of
cash and near cash instruments rose 3.3 percent to $598.6 mn compared to
the reference period largely as a result of increased domestic and foreign
long term savings deposits. While current or checking accounts were
slightly drawn down by 2.8 percent, mostly by commercial enterprises,
certificates of deposit by foreign entities and domestic individuals rose
4.1 percent to $1,145.8 mn. Overall, savings rose 18.4 percent to $220.0
mn.
As the average prime interest rate fell 28.0percent (in tune with the NY
prime), investors continued their investment plans implementation. The
liquidity ratio in the banking system continued to be reduced at an even
greater rate due to the faster growth rate loans. Compared with the
reference period, outstanding credit rose 8.1 percent to $496.5 mn mostly
in consumer and commercial credit. The number of loans, the average size
and the total outstanding increased moderately in spite of the general
deterioration of aggregate demand nationally.
In summary, the BVI financial market was fortunate not to suffer the ill
effects of reduced aggregate global demand, falling interest rates and
deterioration in the international trade. The structure of our financial
market somewhat precluded us from the “black list” of the global
community and the banks and limited presence of foreign deposits provided
little opportunities for terrorists organizations manage their resources
through our banking system undetected.
Tourism
Tourism is our most dynamic sector in terms of backward and forward
linkages with other sectors in the economy and it is highly competitive as
well as sensitive to political events world-wide. Being the major engine
of the economy, it generates more income, more jobs, more imports and
substantial revenue to the Central Government. On the other hand, tourism
has a much more profound effect on the sustainable development of the BVI
than any other sector.
From the point of view of calendar years, the year 2001 is expected to
amount to only 82% of the arrivals of 2000 leaving a 18% gap. A fourth
quarter to fourth comparison indicates that arrivals had fallen almost
20%. This is deterioration tourism demand is directly attributably to
terrorist events of 11 September 2001 and resultant fear of flying by the
average citizen in that country.
Preliminary figures from the DPU indicates that tourist expenditure will
amount to less than 90% of 2000 while tourist nights will be reduced by
almost 10% of 2001 in the review year. Cruise ship arrivals expected to be
down about 5% with expenditure from that category of tourists amounting to
85% of those seen in 2001. This projection suggests that the tourist
season will have been heavily impacted by the events of 9/11 in the USA.
During the first half of the review period small business were operating,
in some instance, below 30% capacity based on their actual occupancies.
However, the USA Thanksgiving and Christmas Holiday periods, the start of
the winter tourist season, brought some wanted relief as occupancies
climbed back to almost normally expected levels. But, operators claimed
that they were only able to boost their occupancies through heavily
discounting of room rates at what were previously known as the peak
season. This situation is however not unique to small inns and villas in
the BVI as even airlines, hotel chains and many other businesses were
forced to discount in order to maintain market share, breakeven incomes or
plain survival
Another main consequence of the reduction in demand for tourist services
in the consequent reduction in the demand for labour. Of course, the
reduction for labour start was at the lowest skilled level such as food
service workers. Among both large and small establishments workers have
had their weekly hours reduced by more than 50% in most cases and by as
much as 75% in others. This situation persisted for the first half of the
review period and changed to almost normal as tourism demand returned to
almost normal.
Construction
The construction and installation sector is one of the key transformation
sector in that it transforms the natural environment in physical terms
through building of infrastructure, buildings and other structures. In the
BVI the construction sector has been responsible for building the foreign
direct investment in tourism plant, residential homes and other production
plant.
Typically construction and installation accounted for 2.6 % of GDP or
$19.3 mn in national income. 8.2% of total employment and pay $12.0in
taxes. In terms of a profile, the section is spread throughout the BVI and
more 95% of all employees are expatriate from neighboring Caribbean
islands. Local participate mostly at the large and small ownership level.
Of the 50 or so economic units involved in the sector, about 80% are
BVIslanders and their jobs are typically under $100,000. In short, the
sector is dominated by small contractors and do it yourself builders who
generally supervise their own construction.
The construction and installation sector uses 60-75% of the imports of
capital goods excluding motor vehicles. This means that the construction
sector best indicators are imports of goods. Since the terror attacks in
the USA imports of capital goods for construction and loans to the sector
by commercial banks has continued unaffected. Credit to the sector amount
to $175.7 mn up 19.8 % compared to the like period last year. The number
of non-belongers land holding licences are virtually the same and the
agreed amount of investment is approximately $5.8 mn, up 19.0 % over the
previous year. The number of building permits approved during the review
period amounted to 52 or 10.6% over the like period in 2000.
The Public sector plays a significant role as an employer through
competitive restricted and nominated tendering being responsible for more
than 40% of the capital outlays. It is also significant that about 30% of
capital works are implemented by small contractors. This makes the
construction and installation sector typical or similar to the
overall structure of the business unit market in the BVI.
According to building permits, imports of construction materials, non-belonger
land holding licenses approved, credit extended and outstanding and the
number of active jobs the construction and installation sector was largely
unaffected by the terror events of 11th September 2001 in the USA. The
public sector played a significant role with capital projects. such as the
Beef Island Airport, the Admin Complex on Virgin Gorda, Peebles Hospital,
road works, maintenance and a number of small infrastructure projects
administered through petty contracts.
Given the known investment intentions, commitments and plans in both
the private and the public sectors, the prospects for the construction
sector are bright for 2002 unless there is some unforeseen reduction in
the planned outlays and a comprehensive change in the plans of the
numerous investors, both domestic and foreign.
The External Sector
The external sector in the BVI consists of the imports and exports of
goods and services. This essentially means, on the import side, the
imports of goods through customs and the post Office as well as the
imports of professional technical and personal services. Imports of
services include services provided to BVIslanders traveling or studying
overseas. On the other hand, exports of services include the services
provided to tourists in the BVI and the services we provide in the BVI to
the rest of the world.
The total of transactions in the external sector amount to $2.1 billon
while the sum of all transactions in the economy amount to $3.1 billion
suggesting that the external sector is almost 70% of our economy. This
means our internal market is only 30% of our economy in terms of the value
of total transactions. Of course this says that our economy is susceptible
to external shocks or political decisions in the market where we buy and
sell goods and services. A further conclusion is that the better part of
our jobs depends on our ability to export and import
The terror events of 11 September had a dramatic impact on our
transactions with the rest of the world. Preliminary estimates indicates
that as much as $30.0 million or 10.0% of all potential transactions and
about 4.0% GDP could have been lost through our external sector in the
aftermath of the attacks. The early conclusions are that the tourism
sector would have been the most impacted as exports of tourist services
were severely reduced. Preliminary estimates show that imports increased
slightly given that the early part of the review period is normally not
associated with large imports for the tourist sector.
The financial services sector was hardly impacted by the terror events. In
fact as indicated earlier revenue inflows from this area increased
continuing the trend established earlier. The explanation for this
phenomenon is the delivery of a higher-level product and the attraction of
higher capitalized firms. Official exports, imports and other flow of
services remained largely unaffected.
The external sector, like all other sectors, feared better during the
second half of the review period. Obviously, as tourism demands improved
that external sector revenue inflows improved. Financial services remained
virtually unaffected and imports grew back to normal and slightly beyond
as the Christmas holiday season contributed significantly to the recovery
of aggregate demand in the economy.
Of course prospects for the future are especially in the financial
services sector with continued implementation of the KPMG Report
highlighted by the establishment of the Financial Services Commission.
Service provider in the tourism and related industries indicate very good
bookings overall for the sector. However, the marginal and small operators
are still not fully optimistic about their high season and remain cautious
about 2002 as a good year. There is some concern for the tourism sector,
especially the small and marginalized operator who are generally domestic
investors and BVIslanders.
Small Businesses
Small businesses, economic units with less than 10 employees dominant the
structure of the BVI economy given that they amount to 75% or about 3,500.
Of critical importance and concern is that a significant share of the
small businesses in tourism is owned by BVIslanders. In particular, the
small inns and villas sub-sector is one of the few areas in which
BVIslanders have invested in the tourism sector. However, a significant
number of small businesses are established in distribution, personal
services and business services.
During the first half of the review period most small businesses,
especially in tourism related and distribution experienced definite
negative impacts from the events of September 11th in the USA. Typically
small businesses are marginal operators with small profit margins, poorly
established structures and management and very much unprepared to meet the
challenges of rapid change. The reduced tourist demand following the
terrorists attacks resulted in reduced incomes, depressed profit margins
and a difficult business environment.
Some small businesses have indicated difficulties generating sufficient
income to cover operating expense and to meet amortization. This generally
resulted in businesses reducing their deposit level and individuals
pouring more equity in cash to keep businesses afloat. However, there are
no indicators from small business owners indicating that the 9/11 impact
on their businesses are being fully borne by themselves.
Preliminary estimates by the DPU are that small businesses have lost about
25% of their income earning potential for 2001. While the last half of the
review period witnessed some recovery in aggregate demand, small
businesses are not expected to recover fully from the impacts of the
terror attacks until well into 2002. However, the Christmas, New Years
Holiday period brought some relief to especially the small businesses that
are involved in distribution and tourist related services. But our small
business sector continues to suffer from the effects of September 11th in
the USA and continued competition from retailers in the neighboring USVI,
Puerto Rico and the Southern Coast of the United States
Conclusion
While terror events of 11th September had a negative effect on the
economy of the BVI, the turn of the world events, the economic structure
of the BVI, the timing of the events, the role of the BVIG, the business
profile of critical sectors, the tourism clientele and the financial
position of the BVIG and the private sector all contributed to almost full
recovery towards the end of the fourth quarter.
While a number of international events contributed to the recovery, it was
the strength and diversification of the BVI economy and the profile of
businesses together with the efforts of the BVIG that are most responsible
for the recovery seen thus far. The mix of international and small
domestic enterprises played a significant role in tourism demand recovery
and stabilizing domestic demand, respectively.
The extent to which the economy has recovered and can recover further
during the course of 2002 depends upon the leadership of the GBVI and the
behavior of consumers and investors in terms of their confidence. GBVI
must be commended for its policy and strategy of restraint, monitoring and
letting the private sector self recover.
The table is set for a good recovery in 2002 if no more grand level
external shocks occur and the GBVI continues the type of leadership on
these particular issues. GBVI and the private sector need to shift from
crisis management into proactive strategies to facilitate previously
anticipated growth and development.
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