Export led growth: Who will lead in the Caribbean? Part 2
Despite all the promises of the Economic Partnership Agreement (EPA) with the European Union (EU), the countries of the Caribbean have not benefitted from increased exports to EU markets or from increased investment from the EU.
The 15 Caribbean countries to which I refer are the 14 independent member states of the Caribbean Community (CARICOM) and the Dominican Republic – together described as CARIFORUM. Each of these countries has individually signed EPA's with the collective 27-nation EU.
According to Ivan Ogando Lora, the Director-General of CARIFORUM, over the last 5 years since the EPA has been operational, "exports of goods from Caribbean countries to the EU has practically remained stagnant going from €4.6 (US$5.8) billion in 2007 to €4.5 (US$5.7) billion in 2011". Further, he says that "with regard to trade in commercial services, CARIFORUM members exported €4.9 (US$6.2) billion in 2009 while the corresponding figure for 2011 was €4.7 (US$6) billion". It is clear, therefore, that the existence of the EPA has not resulted in greater exports of Caribbean goods and services to Europe.
While there are major obstacles to accessing the markets of EU countries despite the EPA, the main reason for the stagnation of Caribbean exports is the private sector's failure to gear itself to take advantage of opportunities that exist. It also lacks access to capital, and it faces relatively high-costs of labour and other factors of production. This will remain the case, except for a few large companies in the region, unless there is a collaborative effort with governments to regionalise production for exports of both goods and services and to create region-wide machinery to facilitate exports.
The stagnation of Caribbean exports to the EU market requires urgent attention particularly as no other area of the world gives the Caribbean equivalent wide access. Immediate attention should also be given to penetrating new markets particularly non-traditional ones which have expanded exponentially in recent years. These markets are China, India and Brazil, particularly.
A recent Caribbean Exporters Colloquium held by the Caribbean Export Agency underscored the absolute necessity for each of the 15 CARIFORUM states to increase earnings through exports of goods and services. Unless, such exports are expanded, the countries of the region will not earn enough foreign exchange to pay for their vital imports including oil and gas. They will also lack the capital to maintain and improve physical infrastructure such as tourism plants, modern telecommunications, road transportation and ports. A great task, therefore, falls to the Caribbean's private sector. But while a greater effort is needed by the private sector to retool their enterprises and to take advantage of existing markets and target new ones, this is not a task they can undertake alone.
As an example, in seeking to penetrate new markets such as China, India and Brazil, businesses need a framework in which to do so. In this regard, CARIFORUM governments should already have started negotiations with India and Brazil to establish treaties that agree rules for trade, investment and development assistance on a long-term and predictable basis. They should also have launched negotiations for double-taxation agreements.
China presents a special problem that CARIFORUM countries should resolve sooner rather than later. Nine of the 15 CARIFORUM countries have diplomatic relations with China while 6 of them maintain relations with Taiwan. This situation deprives CARIFORUM of the opportunity to negotiate a single agreement with China as CARIFORUM countries have done with the EU. It is understood that the 6 countries with links to Taiwan – and who are beneficiaries of Taiwan's aid – wish to continue to receive this assistance, but they should not stand in the way of the other 9 countries settling better arrangements than they now have with China through a long-term trade, aid and investment treaty. The nine should proceed to conclude a treaty with China. The remaining six should have the option to join such a Caribbean-China treaty should circumstances change in the future.
The stagnation in EU trade in goods and services is unlikely to improve not only because of the lack or readiness by the Caribbean's private sector to take advantage of the EU markets, but also because the EU is busily signing-up EPA's with other parts of the world whose goods and services directly compete with the Caribbean's.
By the same token, the Caribbean's other traditional markets, the US and Canada, based on several factors - including their proximity, a significant Caribbean Diaspora population, and their size - still offer export opportunities that should be energetically pursued.
One of the important findings of the recently held Colloquium is that a Caribbean Business Council comprising high-level government and private sector representatives has to be set-up urgently to make binding policy decisions about how to expand Caribbean exports of goods and services and to put in place the machinery to do so expeditiously. This should no longer be a matter for delay. Beyond this, however, are two critical mechanisms that would help the private sector to penetrate new markets. These are a Pan-CARIFORUM Export-Import (Ex-Im) Bank and a region-wide Export Credit Guarantee Scheme (ECGS). Attempts at national Ex-Im Banks have not been greatly successful because of a lack of sufficient capital, and such ECGS that were tried suffered from insufficient take-up by local businesses - as with most other things in the Caribbean, national enterprises and national resources are usually too small. That is also why the Caribbean Single Market should be perfected without further delay.
There is every reason to believe that a Pan-CARIFORUM Ex-Im Bank to provide the Caribbean private sector with access to capital for exports, and a Pan-CARIFORUM Export Credit Guarantee Scheme would receive initial funding support from donors and lenders including multilateral financial institutions.
As Delisle Worrell, the Governor of the Barbados Central Bank, pointed out recently, "Caribbean economies may grow in a sustainable fashion only when their foreign exchange earnings increase". To increase such earnings, exports of goods and services must expand. Collective action is required by governments and the private sector. An improved quality of life for the Caribbean's people depends on it.