Sir K Dwight Venner: Innovation, entrepreneurship and economic growth
in the Caribbean
Speech by Sir K Dwight Venner, Governor of the Eastern Caribbean Central Bank, at the
High Level Science, Technology and Innovation Conference: "Strengthening and Utilizing
S&T in the Caribbean", Grenada, 26-28 March 2015.
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Entrepreneurship, innovation, and private sector development as a necessary
condition for sustainable growth and socioeconomic transformation in the Eastern
Caribbean Currency Union
The ECCU has reached a turning point in its economic history as it seeks to recover from the
severe impact of the Global Recession on the economies of its member countries. This
presentation will address the critical role of entrepreneurship, innovation and private sector
development in providing the fundamental underpinning for moving these economies,
societies and polities to higher levels of advancement in this century.
The ECCU comprises eight (8) of the nine (9) countries of the OECS, the other country being
the British Virgin Islands which uses the US dollar as its currency. These islands have some
fundamental structural issues which have proven to be major constraints on their
development. The countries and their economies are extremely small, open and vulnerable
to external shocks and natural disasters. The combined estimated population of the islands is
627,800 with a physical size of 1124 square miles. The Gross Domestic Product is
approximately 16.2 billion, with per capita GDP of $25,745.
With respect to openness, the ratio of exports and imports to GDP is over one hundred per
cent, with the countries importing most of their consumer, intermediate and capital goods and
exporting a very limited range of goods, being mainly dependent on the tourism industry.
The vulnerability of the countries is vividly illustrated by the havoc caused by tropical storms
which have occurred with a fair degree of regularity over the years, resulting in significant
losses of national output and new expenditures for replacing essential infrastructure such as
buildings, both residential and commercial, roads and bridges.
The close relationship with our main trading partners the United States, the United Kingdom,
Canada and the European Union, has resulted in the business cycles of those countries
having a marked impact on our economic and financial systems.
Another major structural factor is the seasonality of our main productive sectors, tourism and
agriculture, which has caused economic activity to be limited to less than a full calendar year
with a significant underutilization of resources.
Because of the abovementioned factors, the state, the private sector and the financial sector
are unable to derive substantial economies of scale and scope in public administration,
production, distribution and marketing. The current situation is one in which the public sector
or the state can be described as over-stretched, given the demands for public goods and
services in the context of narrow economic and tax bases.
The private sector is constrained by small and undiversified markets and follows the historic
trend of being engaged mainly in distribution, wholesale, retail, professional services and
construction. Activity in the formal segment is to a large extent focused on non-tradeables
with a much smaller per cent being in tradeables. This structure is not conducive to
facilitating growth as it is anchored in consumption activities.
There are two factors which encourage this pattern. First, our geographic location is in close
proximity to the largest mass consumption society in the world, which shapes our own
consumption patterns. This demonstration effect is transmitted through the media, mainly
television, our friends and relatives in the US and frequent visits to that country. The second
factor is the presence of a liberal democratic political system with a competitive multiparty
system in which many promises are made in order to be elected.
The financial system which is dominated by foreign and local commercial banks is aligned to
this private sector structure by both history and practice. It is Anglo Saxon in orientation
which means that the banks lend for short term purposes and do not venture into the more
risky projects necessary for growth and development.
The current economic system can be described by what we term the Input-Consumption-
Default model. Input describes the approach to investment which concentrates on the upfront
investment but not the final output. The facts are that, despite high levels of public and
private investments, output and growth levels remain low and not related to the inputs. This
is as a result of the lack of coordination of these investments, that is, they occur in silos and
with limited multiplier effects, because of the choice of projects, and massive inefficiencies
leading to wasteful cost over-runs. Lack of coordination of policies, programmes and projects
is also a major cause of lagging economic growth. This occurs within government, between
government and the private sector, and between the countries in the OECS/ECCU. The
Default element is related to the use of policies which are traditional and have not been
changed for a long time, policies which have been thrust upon us by external agencies, such
as the international financial institutions and donor countries, and the imitation of policies
which may not be appropriate to our particular environment.
The challenge for us is: How do we break out of the current low output/high debt scenario
and choose between the four outcomes which could confront us in the future? These are:
i. Failed states
ii. Barebones survival
iii. Moderate growth, and
iv. Socioeconomic transformation.
To achieve the preferred outcome, which is socioeconomic transformation, requires a rate of
growth ranging between 5 and 7 per cent which is not attainable with the current economic
policies and the existing economic resource base. Socioeconomic transformation requires
the creation of a dynamic private sector which is export oriented and internationally
competitive. This will require an efficient and effective state and a transformed financial
sector as supporting and complementary institutions. Of major importance however will be
what we refer to at the ECCB as the seven great modernizations which represent the
fundamental platform for achieving our goals. The seven are as follows:
1. Energy
2. Transportation
3. The Environment
4. Education and Skills Training
5. Research and Development
6. ICT and
7. Governance
The first three require a significant engineering input and specialization in the hard sciences.
A cadre of engineers will be required to investigate and develop projects to enhance the
infrastructure in these areas. The second three are the essential knowledge based areas
where human capital is critical to increase productivity through innovation. The final one, that
is governance, is the over-arching platform which coordinates and guides, establishing the
institutional framework for making and executing policies with regard to the first six.
For the OECS/ECCU countries, the new Treaty of Basseterre is the legal framework under
which governance and policy making will be organized. This, under the present constitutional
arrangements, will form what can be termed a dual system of government and governance,
incorporating and coordinating the policies, programmes and projects which will facilitate the
development of the member countries. The creation of a single financial and economic space
will provide a more conducive domain for our development.
The more specific challenges relate to the nurturing of entrepreneurship and the
development of an innovative outward looking private sector which is a medium to long term
project, but must be started immediately. The beginning of this project involves the updating
of the work done in Saint Lucia with the census of the private sector and continuing this work
in all of the OECS countries. This would be the starting point for a diagnostic process to
identify the structure of the private sector in each country, the activities in which they are
engaged, the difficulties they have as a private sector generally, and the specific
impediments to operating in the export sector. This would also involve the use of the "Doing
Business Survey" carried out by The World Bank and a more targeted survey with the OECS
environment as its base.
The next step would be to identify actual and potential sources for entrepreneurs in the
OECS domain. The following are being suggested:
1. The transformation of some of the traditional trading firms by providing incentives for
them to enter the export sector;
2. Citizens of the OECS in various diasporas involved in business ventures who may
be enticed back to their countries, or more appropriately, to the single economic and
financial space. They need not move completely, but have a branch of their
business in the space as an outpost of the original business. There is a publication
entitled the "New Argonauts" by AnnaLee Saxenian which chronicles such
operations by entrepreneurs in the United States from Ireland, India, Israel, the
Peoples Republic of China, the Republic of China on Taiwan and South Korea.
3. Middle level professionals who have good networks, local and regional knowledge,
and business acumen who could be incentivized into becoming entrepreneurs. Two
forms of organisation are available to them, namely, production cooperatives and
investment clubs. These are critical in small societies which require joint activities to
establish the critical mass necessary to ensure success.
4. Another potential source would be the excess workers in the public and banking
sectors who have the regulatory and organizational skills to participate in
entrepreneurial projects. The key factor would be the use of separation packages
which provide funding, training in business development and management, a menu
of projects carefully developed to identify the areas in which we have a comparative
advantage which can be leveraged into a competitive advantage, and the
establishment of clusters of export- oriented activities which have the critical mass to
attract complementary and supporting functions which are commercially viable, such
as research facilities.
5. Finally, a robust investment in encouraging young people in primary and secondary
schools and recent school leavers to become entrepreneurs through targeted
programs. Examples of these could be the widespread establishment of Science
Clubs, Savings Clubs, 4 H Clubs, and the Junior Achievement Programme.
A very important exercise would be the identification of focal points in each country where
scientific activities are being conducted. Organizations such as Ministries of Agriculture,
Education, Health and Public Works are all heavily involved in scientific activities, though not
in research. Bureaus of standards and other laboratories do exist which test products for
domestic consumption and to meet export standards. Air and Seaport authorities also have
heavy equipment which requires sophisticated mechanical and engineering skills to maintain.
In the educational system our Community Colleges must be identified as thought leaders in
spurring an interest in scientific activities which facilitate the creation of a new scientifically
oriented class of entrepreneurs.
The challenge for us is to create a coordinating platform within each country and across the
Economic Union to incorporate scientific research activities of the applied type allied to our
production nodes, in order to focus on creating an innovative private sector which operates
exclusively in the export sector. This will require an institutional framework which can be
provided by the Economic Union and a central data base which can be subject to open
access. The public sector, private sector and the financial sector should be full participants in
this effort as they have the capacity and vested interest in the outcome.
The public sector would have to commit, in a focused and practical way, to the
encouragement of an export-oriented entrepreneurial class and reorient its educational
policies to this objective. The financial sector must be transformed to be able to finance and
develop the kinds of financial products which would facilitate this new economic paradigm.
The private sector will need to reconstruct itself to be the driving force in this initiative. It is for
this reason that an OECS Business Council has been established to unite the various
organizations, for example, Chambers of Commerce, Employers Federation, Tourism,
Agriculture, Small Business and Manufacturers Associations in each country and across the
Economic Union.
The private sector in the OECS differs markedly from its counterparts in the wider Caribbean.
The very size of each country is a constraint on private sector development, hence the
importance of operating within the wider space of the Economic Union. The supporting
institutional infrastructure such as for example, a local campus, very large firms which can
provide leadership, such as a Grace Kennedy in Jamaica, an AnsaMcal in Trinidad and
Tobago and a Goddards in Barbados, and support services and access to international
arrangements are not available. This has its impact on the development of private firms and
enterprises in the OECS in their ability to access project support. Most of these projects
assume that the OECS private sector is on par with the rest of the region and so, in the
competition for resources, they come off second best.
There are a number of issues which set the OECS apart with respect to interventions that
involve the state, the private sector and external institutions and organisations. The first
concerns the banana industry in the Windward Islands which brought about a virtual
socioeconomic revolution in those islands. The banana industry came about after the demise
of sugar and was established in large part by five critical decisions taken by the British
government:
1. That the industry should involve production in all four islands to achieve critical
mass;
2. The establishment of a research center to select the most appropriate strain of
bananas and to treat with the pathology of a crop which is very susceptible to plant
diseases;
3. The shipping company Van Geest was contracted to transport the crop;
4. Marks and Spencers was contracted to market it in the UK;
5. The British government provided a protected market.
Small farmers thrived in this arrangement and valuable supply chains were established
between the UK and the Windward Islands.
In the case of telecoms, an intervention by The World Bank led to the liberalisation of this
sector which experienced significant growth. The World Bank also made a critical
intervention in the cruise ship industry with respect to charges for disposal of solid waste
which has had an impact on the environment within our coastal waters. Direct foreign
investment has been of great importance but it has not been noted for the transfer of
technology and management skills. This intervention must be more programmed to have a
significant developmental impact which would require the state and the domestic private
sector working in tandem to ensure that there is transfer of technology and substantial
spillover effects from foreign investment.
Two issues of interest to policy makers would be a study of the influence of the exchange
rate and the wage levels on the potential for export competitiveness, and the impact on our
economies of missing out on the development of secondary activities such as manufacturing.
This latter has important path dependent implications. The natural sequence of development
moves from primary to secondary to tertiary economic activities. We have passed from
primary to tertiary and may have missed the advantages and externalities of the secondary
stage. This was the stage at which the change in production methods between agriculture
and industry became differentiated with major innovations based on science and technology
becoming dominant. The establishment of educational institutions which catered to the new
production technologies became a critical element of the new economies. Measurement and
precision became a part of the production process.
The absence of an industrial revolution in our countries may have precluded a different
trajectory in our economic growth. Since we have moved to basically service economies
based on tourism, the question then becomes: Can tourism fill the gap that industry should
have filled? What, for example, are the scientific requirements of the tourism industry which
could provide higher levels of productivity and lower costs to make the industry
internationally competitive? In addition, since the tourism industry is international in scope,
what innovations and applications developed for our industry can be sold to other
destinations? The role of tourism in terms of linkages, both backward and forward, as well as
its possibilities as a launching pad for exporting goods and services to the source countries,
is one that should be seriously explored.
The possibilities for research and innovation lie in several areas, for example, alternative
energy sources, the environment, transportation, information technology applications aimed
at select niches and areas of the industry, such as culinary arts and floral designs. The
construction sector and the related professions such as architecture could benefit
tremendously from innovations which are tested in our environment and which could have
possibilities in other countries with a similar climate and topography.
All of these issues fit in with a more relevant model which is the Aggregation-Coordination-
Productivity model, which in a sense speaks for itself. The critical element would be the
representational organisation of the private sector and the bringing together of producers into
clusters to achieve critical mass. Coordination is required at the level of industries and the
public sector within countries and between countries to chart a course which has definitive
goals and targets. The use of science and technology is also critical to produce innovations
in production and management and a dynamic private sector which is internationally
competitive. All of this will not happen by osmosis and will require a vision of the future, the
acquisition of administrative and technical capacity to implement and a mental shift in our
approach to running our governments and our industries.