Green Shoots in 2011
Words by Tully Cornick
In the Caribbean, many people probably agree that at least from an economic standpoint, 2010 did not turn out as we hoped. ‘Green shoots’ expectations that had been hyped up in the media turned out to be just that, delicate shoots that slowly emerged with the potential to develop into something more, but still highly susceptible to the environment they were growing in. Now, at the beginning of 2011, we are yet again trying to guess what the year ahead will bring. Economists’ crystal balls show a nebulous picture at best; however, what we do know about economic trends is that recessions are cyclical, they come and go. When they come and when they go is something we still cannot fully predict. So, in the meantime, to make sure we are poised for when the Caribbean economies do take off, we as nations, governments, companies and individuals need to understand who we are, what we do, why we do it and where we want to go. To do this we need to trace a plan on how to get there, layout every step of the way and, finally, act on it.
So, what can Caribbean jurisdictions expect in the year ahead? Some indicators hint at an improvement in the economies and the performance of the sectors that the region is heavily dependent upon – tourism and finance. The first half of 2010 saw a slight improvement in tourist arrivals with stopover volumes showing an increase for most jurisdictions with a few exceptions (Bermuda, Curacao and Trinidad & Tobago). The feared mass exodus of companies that are domiciled in tax-light jurisdictions due to pressure from the US and EU has not materialised, and, in fact, there has recently been an increase in company and fund registrations in both Cayman and BVI. Meanwhile, our neighbour, the USA, already seems to be lifting itself up, albeit slowly – at the end of October the Bureau of Economic Analysis estimated that real GDP in the US increased at an annual rate of 2% in the third quarter of 2010; real GDP increased 1.7% in the second quarter.
If these indicators are a sign of what is to come, governments, businesses and people of the Caribbean need to ensure that we are ready to take advantage of the upturn. Not only do jurisdictions need to guarantee that when US tourists have enough disposable income to travel abroad, they choose Barbados over the Seychelles, they also need to diversify and target markets other than the US. Over the last few years China and India have experienced growth in the number of households with disposable income, and these households are now travelling. The Caribbean Community and Common Market (CARICOM) held conversations with China as early as 2005 to promote their jurisdictions as a destination, but what has been done in recent years? Likewise with the financial services industry, countries need to position themselves so that when it gains more momentum, companies choose to set up entities in Cayman rather than Singapore. Despite increased scrutiny and criticism from the US and EU authorities, with recent changes in regulations abroad prompting some companies to move their domicile from the Caribbean to countries such as Ireland and Luxemburg, most are choosing to stay put and new companies are being registered. This is no doubt due to the tax treaties, agreements and continued reassurance that is being provided locally.
Another possibility available to jurisdictions is to broaden their reach into new sectors or to look to diversify their product offering. Medical tourism is an example that is being considered by the Cayman Islands, while St Maartin expanded its tourism product to target high-net-worth individuals through the development of mega-yacht facilities, such as The Yacht Club at Isle de Sol.
It is important that governments help support those companies that are reaching for new markets or industries and that they have a plan to maintain and improve the infrastructure that supports the industries upon which they depend. For smaller economies, in particular, the government’s role is crucial; they can help to establish legislation that facilitates investment or removes barriers. Some governments are inviting the participation of the private sector to help maintain or develop the infrastructure needed to keep their territories competitive (The Bahamas is privatising its telecommunications operations) while others are providing assistance to facilitate foreign investment (Barbados is partially guaranteeing the debt of a tourism development project).
Some islands will choose to continue on the existing path. Those though that select diversification through leveraging existing skills (the ability to provide tourists with an outstanding experience, or continue to provide companies and investors with a safe and accepted market to operate in) to target new markets, or through offering new products (for example, captive insurance or medical tourism) will broaden their appeal to existing customer markets. Again, the key to success is planning.
Before we choose a plan to follow we need first to assess the options available and determine our desire and ability to deliver. We need to understand the critical paths to the best way forward. If Chinese tourists are principally interested in shopping, gambling and Chinese food, can we deliver this to them? Does satisfying two out of the three requirements cut it – probably not if your competitors can deliver on all of them. Depending on the path chosen, we will need to develop a plan on how to get there and, the most difficult part of all, act on it. Regardless of what happens in 2011, if the nations, govern-ments, companies and individuals in the Caribbean want to succeed, it will not come about by chance, but rather through analysis, planning and execution.
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