Emsley D Tromp: The Caribbean marketplace - succeeding in a globalizing
world
Address by Dr Emsley D Tromp, President of the Bank of the Netherlands Antilles (Bank van
de Nederlandse Antillen), on the occasion of the 2007 TOG Partners' Conference,
Willemstad, Curacao, 3 July 2007.
* * *
Ladies and gentlemen, good morning,
After a look on the conference agenda, I noticed that you already had two busy days behind
you: one to get to know the island a little better (I am sure you enjoyed that) and yesterday
your first conference day, while everybody else on the island was celebrating Curacao's
national holiday "dia di himno i bandera" (day of the national anthem and flag). I wish you a
productive and interesting second half of the conference and hope that you will find some
more time to enjoy the hospitality and beauty of our island.
I also like to seize the opportunity to congratulate Ralph and his team for bringing this
prestigious conference to Curacao, making a welcome contribution to our tourism sector, and
with their new office they recently moved into. A new office - aside from being a true
architectural beauty - is a sign that doing business in Curacao has been good for KPMG and
confirms confidence in the future of the island.
I have been asked to address you on the topic "The Caribbean marketplace." Without any
further elucidation, I took the liberty to interpret this topic to mean: the need for further
Caribbean cooperation and integration to seize the challenges of a globalizing world.
My address this morning is structured as follows. First, I'll give you a brief overview of the
implicit weaknesses of Caribbean economies. Next, I will discuss the impact of globalization
on the region, followed by an overview of some critical elements of a regional globalization
strategy. I'll conclude my address with some closing remarks and the role KPMG can play in
preparing the region for successful global competition.
Ladies and gentlemen, we have to realize that Caribbean countries alone, by their sheer
size, cannot survive in a globalizing world. Most countries in the Caribbean are very small
and have open economies and, therefore, very vulnerable to international developments and
external shocks. The erosion of preferential market access to the European Union, the
establishment of NAFTA, the terrorist attacks on the United States, the international efforts to
combat money laundering and terrorism financing, and natural disasters all had a great
impact on our economies.
The high vulnerability of our economies as I mentioned is primarily the result of our
smallness, resulting in significant diseconomies of scale. Both the private and public sectors
are affected by these diseconomies of scale.
The small size of economic units and the small size of our national markets limit the
international competitiveness of the production of goods and services for both export and the
domestic market. Small firms are at a disadvantage in the global market place, because they
cannot realize economies of scale, are not attractive business partners, and cannot spend
significant funds on marketing, research and development.
Small economies have severe constraints on their material and labor inputs both in amount
and variety, related to their limited land area and small populations, leading to high unit costs
of production. For instance, the small size of the labor market limits the range of available
skills, pushing up the price of scarce skills. On the supply side, employment alternatives are
limited, which promotes a brain drain of high-skilled workers and causes high social costs for
low-skilled workers when industries have to restructure. Moreover, the small market size and
limited range of resources result in a narrower range of domestic and export production and
tends to cause high costs because there is often a lack of competition.
The provision of public goods and infrastructure is usually characterized by indivisibility. This
has two implications for small economies. First, the costs of public services per capita are
higher than in larger economies. Second, the government may be forced to provide various
goods and services - often at subsidized rates - that would typically be offered by the private
sector in larger economies, increasing budgetary pressures.
Besides diseconomies of scale, our countries are characterized by high vulnerability to
external shocks. Various factors contribute to this vulnerability, largely beyond our control. I
like to mention here our geographical location and high level of openness. Our countries are
located in a tropical area and, therefore, prone to natural disasters, particularly hurricanes.
These natural phenomena are recurrent and affect a large proportion of our population and
economies. In some cases, economic damages have exceeded annual GDP, taking a long
time to recover. Our high level of openness, illustrated by levels of imports and exports of
goods and services near and even over 100% of GDP, also entails a high degree of
vulnerability to external shocks. This is aggravated by the concentration of exports in a
narrow range of products and markets. For example, the erosion of preferential access of
agricultural products to the European market is having a significant impact on some
Caribbean economies.
To mitigate the effects of diseconomies of scale and the high degree of vulnerability to
external shocks, broader and deeper cooperation between the countries in the Caribbean
region is a viable and inevitable strategy. This is even more evident in light of the structural
changes taking place in the world and the way they affect the countries in the region.
These structural changes can be captured under the phenomenon of globalization, a
multidimensional process transforming all aspects of national and global activities and interactions
in a rapid and profound way. Inherent in the globalization process is that barriers to
international flows of goods, services, capital, money, and information are being increasingly
eroded and/or eliminated. The fact that world trade grows about three times faster than world
output serves as an illustration of this development. The small Caribbean countries which are
vulnerable to external events and that have limited adjustment capacity are particularly
exposed to the effects of globalization. Let me elaborate some more on a number of aspects
of globalization that impacts the region.
1. The phasing-out of preferential trading arrangements
The Caribbean region has been enjoying preferential access for several of its export
products to the markets of the European Union and the United States for a long time.
However, pressure is increasing to eliminate preferential arrangements and replace them
with agreements based on reciprocity, exposing the Caribbean countries much more to
international competition. The dismantling of the European Union's banana and sugar
regimes is an example of this development, forcing various countries to structurally adapt
their economies.
2. Rapidly increasing dominance of the global market
Technological developments in telecommunications, computerization, and information
technology have eliminated the barriers of distance and time, resulting in the reconstitution of
the world into a single economic and social space. To survive, every business must become
globally competitive, even if it produces and sells only within a local or regional market
because standards of quality and costs of production are set globally.
3. Increasing importance of the services industry
Services constitute one of the fastest growing sectors of the world economy. This is also
evident in the Caribbean region, in which tourism and international financial services are the
main pillars of most of the island economies.
4. Economic concentration
Globalization is creating larger units, both corporate entities and the coalescing of national
economies through regional integration to form regional trade blocks. The number of
countries that participate in trade blocks and the share in world trade they encompass are
ever increasing, representing a transition from an atomistic world economy of national
economies to a global market. CARICOM is a good example of this development in the
Caribbean region. The most prominent feature of corporate concentration has been mergers
and acquisitions. Particularly in the financial sector, we can notice this development also in
the Caribbean region, with the regional expansion of RBTT, FirstCaribbean Bank, and
Guardian for example.
5. Erosion of policy autonomy
Globalization is shifting power away from sovereign governments toward multilateral
institutions and multinational corporations. Sovereignty in all its dimensions has been
considerably constrained by economic interdependence. As a result, governments' control
over the design and implementation of national and international economic policy has been
diminishing.
From the discussion of these aspects of globalization, it becomes clear that formidable
challenges confront the Caribbean region for successful adaptation to this new environment
and achieving sustained economic development. A pro-active adjustment strategy, as
opposed to reactive adjustment, offers the greatest chance to success. Such strategy should
focus on consolidating and improving existing economic activities while reorienting the
economy toward new types of economic activities for the national, regional, and global
markets. I like to discuss with you some critical elements of this strategy in more detail.
1. A stable macroeconomic policy framework
For creating a stimulating entrepreneurial environment conducive to investment, it is
essential that macroeconomic policy instruments, such as structural policy, fiscal policy, and
monetary policy, be applied in a consistent and sustained manner, complemented by
supporting policies - in the fields of for example education and infrastructure - and a stable
institutional framework. This environment will facilitate private sector-led, market-driven
growth.
2. Strengthening existing economic activities
Tourism and international financial services are the most important economic activities in
many Caribbean countries. Tourism is a highly labor intensive sector in which many
companies from small to large, spread over several sectors of the economy are involved.
Tourism activities are particularly significant in the retail trade, hotels & restaurants, and
construction sectors, generating a considerable part of employment and foreign exchange in
our economies. Due to the effects of globalization, the Caribbean tourism sector is facing
increased competition from other regions, such as Asia and the Pacific. Therefore, to remain
competitive and maintain a sound growth in tourism, new products and markets must be
developed. This diversification could include health tourism, eco tourism, tourism geared
toward older travelers, cultural and heritage tourism, and conference tourism.
The international financial services industry in the region is facing many threats. Pressure
from the industrialized world through international institutions, such as the OECD, the IMF,
and the Financial Stability Forum, has increased to address issues like harmful tax
competition, money laundering, and terrorism financing. Moreover, the impact of
globalization is particularly eminent in financial services, which is not restricted by borders.
Therefore, competition is fierce from other regions and countries. To remain attractive and
reputable providers of international financial services, our strategy should focus on the
strengthening of supervision to improve compliance with the current best practices and
requirements imposed on international business and finance. If our legal and supervisory
infrastructure is considered adequate by the countries we get our business from, we will be
able to develop new products that can maintain this sector as an important contributor to our
economies.
3. Development of new economic activities
In identifying new economic activities, contributing to a diversification of the Caribbean
economies, we have to realize that our countries are not at the lower end of the wage
spectrum. Therefore, we have to focus on increasing productivity, product innovation, and
the creation of niche markets, in other words: more knowledge-based economic activities.
Given the importance of services-based industries in Caribbean economies and its
encouraging prospects, the development of new activities in the provision of services is likely
to produce the greatest rate of success. Evidently, our workforce will have to be properly
skilled, knowledge oriented, and capable of adopting new technologies. Some interesting
activities that could be explored are the provision of retirement facilities to persons in
developed countries, health care services to foreign patients, bio-technology, internet-based
services, and entertainment.
4. Improving productivity
Achieving and maintaining international competitiveness in a globalizing world necessitates
continual improvements in productivity. This comprises not only labor productivity, but also
managerial capacity, adaptation of new technologies, and improvement of infrastructure.
Increasing labor productivity requires improvement in the quantity and quality of education
through vocational training as well as on the job training. Social partnerships based on
tripartite dialogue between the private sector, trade unions, and the government could
promote the improvement of labor productivity. However, it is well known that much of our
high-educated human capital resides outside the region. It is, therefore, also important to
establish schemes to induce overseas nationals with professional skills to return home.
Productivity can also be raised by improving managerial capacity in both the private and
public sectors. To perform well in a constantly changing environment, the relationship
between management and workers must be harmonious based on cooperation and dialogue.
Managerial capacity can be improved in the short run by attracting skilled managers and
professionals from abroad with an emphasis on Caribbean nationals who have a better
understanding of local culture and traditions. In the long run, improving education is the road
to pursue.
Finally, the adaptation of new technologies, such as the use of the internet to do business,
and improving the physical infrastructure, such as utilities, airports, and telecommunication,
will contribute to higher productivity.
5. Overcoming xenophobia
Many Caribbean countries suffer from varying degrees of xenophobia, hampering a
successful participation in the global economy. We have to abandon this mentality, be less
preoccupied with national ownership and focus on what foreign investment can mean for
economic activity, the development of new products and services with higher value added,
and the creation of jobs.
6. Strategic corporate alliances
The small size of most Caribbean firms put them at a severe disadvantage in the global
economy. Collaborative corporate strategic alliances, mergers, and acquisitions can provide
a larger capital base, expand resources, pool expertise and introduce new technologies,
largely eliminating this disadvantage. In addition, larger regional firms are more likely
jointventure partners for foreign investors, contributing to extra-regional expansion. The further
increase in size will equip them even better to compete successfully in the world market.
7. Further regional integration
In addition to corporate integration, regional integration should be expanded. CARICOM is
the most suitable entity to take this task upon it by widening its membership to include the
rest of the Caribbean and Central America which will create a much larger economic space
and thereby increase the possibilities of realizing the necessary economies of scale. The
ultimate objective should be the completion of a regional single market and economy.
Combining forces through a regional cooperative approach is also the most effective way to
proceed in international trade negotiations. It increases the leverage of small states, because
by operating as a single unit we can increase our critical political mass, and it economizes on
the costs to our countries by pooling scarce skilled human resources and sharing
representational duties.
Ladies and gentlemen, I have tried to demonstrate that the Caribbean countries and
companies on their own will fall rapidly behind and marginalize themselves given the current
trends in globalization. Through regional alliances, cooperation and integration, we can
overcome our inherent weaknesses and will be able to compete successfully in the global
market. This process of strategic global repositioning is far from finished and requires
unrelenting efforts of our governments, business companies, and other interest groups to
implement the adjustments and structural transformation necessary for sustainable economic
development in the decades ahead. To refer back to the topic of my address: the Caribbean
last stop
marketplace, in my opinion, should not be seen as the but as an instrument to
succeed in the global marketplace.
In concluding ladies and gentlemen, KPMG is a good example of a global company. With
offices and expertise in countries all over the world and a solid regional presence, KPMG
pre-eminently can assist governments and companies in the Caribbean in the difficult and
complex processes of change necessary to prepare the region for global competition. Many
different fields of expertise will be involved, such as international business and finance,
mergers and acquisitions, management training, interim management, and head hunting. All
fields of expertise in which KPMG can pride itself as being among the world's foremost.
By collaborating with other stakeholders, KPMG can play a pivotal role in converting the
weaknesses I have identified in the Caribbean economies into strengths. This will go a long
way in making the Caribbean not a final stop but an important stepping stone to do business
in this globalizing world. This will not only lead to strengthen local economies, but it will also
help improve social conditions to make the Caribbean an even better place to live and visit.
Thank you for your attention and wish you a productive conference.