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WHILE THE WORLD watches the latest convulsion in Haiti, attention has been diverted away from a more promising development underway across the Caribbean economies. They could in less than two years make the biggest leap in their history with the implementation of the Caribbean Single Market and Economy (CSME).
The CSME is a free trade zone comprising 14 million people that aims to give the region a chance to develop its manufacturing and service industries, which today play second fiddle to tourism.
“It will make the entire region more attractive for foreign investors because it will be easier to move across the countries to do business and the whole process of investment should become a lot less hassle,” says Trevor Blake, director of finance and enterprise development at the Eastern Caribbean Central Bank (ECCB).
A unified market should benefit all 14 members, including the smallest economies. Barbados, for example, has a GDP of $5 billion but Grenada’s is a tiny $440 million. “A lot of the economies are very small and don’t have the kind of economic skill they need to compete in a new kind of global environment at the moment,” says Richard Francis, credit analyst at Standard and Poor’s. “To that extent, creating a larger market for their products should help the economies over the medium term,” he says.
Pooling skills Analysts and business leaders agree that regional integration should enable Caribbean countries to pool their skills and, for example, develop a hotel industry rather than continue to depend on the cruise ship industry that dominates tourism. Few islands have the resources to attract tourists for longer than a few hours or a few days. The financial services industry also aims to benefit.
“The opportunities for many banks in the Caribbean to spread their wings regionally are quite significant [and so with the CSME] we’ll have a more efficient financial services sector and a more efficient economy,” says Conor O’Dea, managing director of Bank of Butterfield International in the Cayman Islands. This bank has made several acquisitions across the region in the last few months.
International banks such as Canada’s Scotiabank and the Royal Bank of Canada have been increasing their presence in the region in recent years. Local banks such as Barbados headquartered First Caribbean Bank, which is a merger of the Caribbean operations of Barclays and CIBC, and financial groups from Trinidad & Tobago have begun to take over smaller rivals and consolidate the industry, a process that could be sped up by the single market.
There is, though, work to do and many recognize the obstacles ahead. Some analysts doubt that there is the political will to carry out such an ambitious project.
They point out that the region has a record of patchy attempts at political and economic integration starting with the 10-member British West Indies Federation which lasted from 1958 to 1962.
The region’s bid to present a united front has been hampered by the individual island nations’ need to wrestle first with their own local problems and, in a similar way to the European integration experience, there have been power blocs and suspicions among members of the Caribbean grouping.
The collapse of the federation was followed by the establishment of Carifta – the Caribbean Free Trade Association. This was set up in 1968 as the islands gained independence from Britain and looked for ways to take control of their development.
Under Carifta there was some increase in intra-regional trade and development of a few regional institutions such as the Caribbean Development Bank.
In 1973 Carifta was converted to the Caribbean Common Market (Caricom), which set out to promote wider cooperation in areas from education, health and economic activities to telecommunications and coordination of foreign policies. But progress on these fronts was slow. In 1989 the Caribbean governments agreed to work towards a CSME.
The 14 potential members of the CSME aim to unify laws and regulations to allow the free movement of goods, people and capital by 2005, although some leaders are already talking about 2006 as a more realistic starting date.
The implementation process will take place in stages and calls for at least 400 enactments in each domestic jurisdiction, according to Arthur Owen, the prime minister of Barbados and one of the project’s most enthusiastic promoters.
The region’s largest economies – Trinidad & Tobago, Barbados and Jamaica – say they are committed to the project and progressing on a number of fronts.
One of the biggest hold-ups has been in efforts to establish a Caribbean Court of Justice, which failed to materialize in 2003. The court would have original jurisdiction relating to the CSME as well as taking on the appellate functions that are in the hands of the UK’s Privy Council.
Furthermore, a fishing dispute between Barbados and Trinidad has thrown shadows over the project and some are sceptical it will ever see the light of day because of different national visions of what the community should look like. “It is a dream,” says Gary Voss, a leading businessman in the region and an executive of Anglo-Dutch consumer products group Unilever. “It is my view that we are eight to 10 years away from a single market, at best.”
Divisions
Some sectors, such as Trinidad’s growing energy industry, would benefit immediately from a single market. But other islands have less developed economies and little negotiating power. Some parts of the jigsaw are also as yet undecided, notably the currency to be used.
The eight small economies of the Eastern Caribbean Currency Union (Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines) share the Eastern Caribbean dollar, which they have used since 1983, with a fixed exchange rate of 2.7 to the US dollar. But Barbados, just to the east of the Eastern Caribbean chain, has its own currency (set at two Barbadian dollars to the US dollar) and the other larger economies also have their own currencies. “In the final analysis, the creation of a single market and single economy will depend upon the readiness of the least-ready member,” prime minister Owen of Barbados says.
But with or without a single market agreement, 2004 looks set to be a good year for the region’s economies. The dominant tourism sector is showing strong signs of recovery after a slump following the September 11 2001 attacks on the US. Last year, the Caribbean area reported an 8% growth in the number of foreign tourist from north and south America, after two years of decline, according to the World Tourism Organization. The Dominican Republic ranked first with 18% growth, followed by Cuba with 13% and Jamaica with 7%.
This year looks set to be good for the energy sector, led by Trinidad & Tobago, home to multinational energy players such as Spain’s Repsol-YPF. Trinidad’s central bank forecasts economic growth of between 4.5% and 5.5%, boosted by the start of production at a new methanol plant in the first quarter of the year. That would make this the eighth consecutive year of growth.
For their part, the economies of the Eastern Caribbean Community are looking to move forward in the financial markets with issues of government securities and equities. “We do have plans to issue more securities during the year, perhaps a longer-term bond,” says Trevor Brathwaite, permanent secretary of the ministry of finance in St Lucia, which has over EC$100 million ($37.5 million) issued to local investors.
Stability
The Eastern Caribbean Securities Exchange (ECSE), which was set up three years ago in St Kitts, aims to double its activities in 2004 and to convert itself into a key regional institution.
From June it will allow the participation of economies outside the Eastern Caribbean area. “The ECSE is a truly regional market, with a range of instruments from across the region, so it allows for more diversification for investors, specially for those seeking Caribbean-wide diversification,” says Baljit Vohra, general manager of the ECSE.
Barbados has distinguished itself as one of the most stable economies in the Caribbean. It is expected to post growth of 2.2% in 2003, according to central bank data, and is aiming for up to 3% in 2004. But its finances have caused some alarm in recent months.
According to central bank governor Marion Williams, the fiscal deficit had surged to 5.6% of GDP, as the government increased public spending to counter the impact of the fall in tourism revenues and avoid job cuts in the civil service. But the government says it intends to run a tight ship in 2004, as it looks to rein in its fiscal deficit to 2.5% of GDP in 2004.
Jamaica has more complex problems. The island is struggling with a debt to GDP ratio of roughly 145%, making it one of the riskiest bets for investors in the Caribbean. “In order to sustain that kind of a debt ratio you need to run a very high primary fiscal surplus, which Jamaica is managing to do but it is very politically costly for them”, says Carl Ross, head of Latin American sovereign research at Bear Stearns in New York.
