World Bank says Caribbean Countries Must Improve Productivity and Competitiveness to Accelerate Growth
The Caribbean region is at a development crossroads and its member nations must take significant and concrete steps to improve productivity and competitiveness and face up to more global competition if they are to accelerate or even maintain past growth, says a new World Bank report. By taking such steps, they will reposition themselves strategically as an emerging trading bloc for goods and services; without such action, they risk growing economic marginalization and erosion of many of the social gains of the last three decades.
According to the flagship 15 country report, A Time to Choose: Caribbean Development in the 21st Century, the region needs to move beyond decades of reliance on traditional markets and trade preferences to swiftly adapt and diversify into new sources of growth, exploiting its natural advantages of location, environment, political stability and democratic traditions. Citing the examples of Ireland and Singapore, the report argues that small economies, despite their size, can be competitive in many sectors, particularly in niche marketing.
The report, which draws upon extensive consultations with governments, private sector and civil society, recommends that countries work together to negotiate an orderly dismantling of preferences in return for increased technical and financial support, arguing that trade preferences, combined with subsidies, have yielded less than optimal results for the Caribbean nations. In just 15 years, the region’s share of European and North American imports have fallen from 0.71 percent in 1985 to 0.27 percent by 2000.
“Now is the time to choose a new development path in the Caribbean to meet the challenges of the 21st century,” said Caroline Anstey, World Bank Country Director for the Caribbean. “Innovation and adaptability will be key moving forward, but so too will be political will and the commitment to collectively leverage regional benefits. There are some exceptional examples of both domestic entrepreneurship and domestic-international partnerships cited in the report so we know it can be done. What this study proposes is a menu of options to open the door and then invite the private sector in.”
Emerging Opportunities
Although tourism, one of the region’s key sectors, is under increasing pressure from emerging markets in Cuba and Central America–the Caribbean Community’s market share of international tourist arrivals declined from 0.91 percent in the 1990s to 0.69 percent in 2002–the report offers upbeat prospects for diversifying the traditional tourism product and for exploring opportunities in other industries.
An increasing demand in new product areas such as adventure and cultural tourism, eco-tourism and upscale resorts, provides an opportunity for the region to revitalize the mature tourism sector, borne out by the success of St. Lucia’s Jazz Festival, Dominica’s Creole Festival, and the increase in eco- tourists across the region.
Other positive examples are cited throughout the report, with offshore education, health services and information and communication technology (ICT) enabled activities identified as possible additional areas of potential growth, particularly for English- speaking countries.
In offshore education, medical schools represent a small but growing services sector that has responded to a growing and unfulfilled demand for physicians in the United States. St. George’s University School of Medicine in Grenada and Ross University School of Medicine in Dominica are two of 23 primarily offshore medical schools in the region, whose graduate’s together account for close to 70 percent of the international medical graduates entering the US. Demographic trends suggest there is scope for an expansion of growth in this sector. Similarly, the cross-border provision of health services has created opportunities for Caribbean health service and health- tourism providers: Le Sport in St. Lucia and rehabilitation services such as Island Dialysis in Barbados are two case studies cited.
Across all sectors, two critical inputs are needed to aid and stimulate growth. First, the effective use of ICT is an essential ingredient for improving competitiveness. Firms such as Unique Jamaica, a cluster of 100 small hoteliers and attractions, used ICT to launch a cost effective marketing campaign devised to attract higher-end adventure and nature tourists. In order to foster an environment for greater and more effective use of ICT, Caribbean policymakers must facilitate access and create a more competitive telecommunications sector (including addressing the problem of high Internet costs), provide support services for firms, and accelerate regional harmonization in key policy areas related to ICT. Second, enhancing the skills base of the labor force will be key to fostering a workforce ready to compete in the 21st century.
Dangerous slippages
The report cautions, however, that the Caribbean region faces a number of challenges that threaten to undermine the remarkable health and education indicators attained in the post-independence period. Unemployment, particularly of youth, is increasing, inequities are emerging, productivity is falling, and all are contributing to stagnant or declining economic activity. Without remedial action, the report notes, per capita growth is expected to reach only 2.3 percent for 2001-2010, compared to 4.3 percent in the 1970s. Caribbean governments will also have to address the high debt levels that have grown from a regional average of 67% in 1997 to 96% in 2003 against a backdrop of declining aid flows.
“Small countries are more susceptible to volatility, in part due to their size and inherent vulnerability to natural disasters. None of these challenges is insurmountable, but now is the time to move beyond the rhetoric and to put in place concrete measures which encourage private sector-led growth,” said Sanjay Kathuria, the report’s principal author. “Deepening the bonds of regionalism must be seen as an opportunity and not as a threat and we believe the pay-offs and long-term prospects for creating jobs, relieving social strife, and positioning the region as an economic force to be reckoned with will be considerable.”
A Time to Choose says overall investment rates have been quite high at about 30 percent of GDP since 1990, but warns that they could decline with eroding preferences, the maturing of traditional industries such as tourism, and an increasingly more competitive international environment. The report, which draws on a survey of 159 firms operating in the region, argues that to improve the investment climate, Caribbean countries must improve their performance in the areas of infrastructure, policy and legal environment, and taxation and customs.
“There is a large agenda for the Caribbean and one that requires considerable political will and leadership,” said Anstey. “Now is the time for Caribbean governments to engage all stakeholders – civil society, the private sector, trade unions, the media, donors, and each other – to discuss the challenges and opportunities of new sources of growth and competitiveness for their societies.”
