DeLisle Worrell: Four pillars of a forward-looking forex-driven growth
strategy for Barbados
Address by Dr DeLisle Worrell, Governor of the Central Bank of Barbados, to the Barbados
International Business Association's Monthly Luncheon, Bridgetown, 24 January 2012.
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The average Barbadian fully understands that the immediate priority for economic policy is
stability. If you are out fishing and you get caught in the midst of a sudden storm you batten
down the hatches and keep things shipshape until the storm passes. By analogy, it is
reasonable to expect renewed growth in the Barbadian economy only when we have found a
way out of the present international economic tempest.
The actions of the social partners in Barbados have so far succeeded in stabilising our
economy. The evidence is that we lost only 1 percent of foreign exchange reserves last year,
and the value of the Barbados dollar is as well protected now as it was a year ago. Barbados
has been able to stabilise the economy and still maintain a good quality of life because we
have a very high level of human development, as measured by the United Nations
Development Programme (UNDP). We have also contained job losses, thanks largely to the
strength of our acclaimed social partnership.
The second element of economic policy is to make use of the current period to cement the
foundations of future economic growth. Those foundations, which are the subject of my
lecture today, are:
A. Tourism;
B. International Business and Financial Services (IBFS);
C. Alternative Energy; and
D. Integrated Agriculture.
In each of these Barbados is internationally competitive, or can be. Investment should be
concentrated in these areas, for the medium term. In the short term the Balance of Payments
should be kept stable; that is the best we can do. But the investments we are doing and need
to do in 2012 can secure us a future of modest but steady growth, which is exactly what
Barbados needs to further improve the already superior quality of life our citizens enjoy.
Tourism
Barbados aims to be the Lexus of the tourism market. We are known in North America and
much of Europe as a high-end destination, because of the availability of luxury
accommodation, the quality of our infrastructure, our ideal climate and the authenticity of the
Barbadian experience. The company that makes the Lexus also makes Toyotas, and
Barbados does have accommodation to suit all pocketbooks. However, just as Toyota makes
its highest margins on its luxury brand, so too we ground our tourism at the top end, where
the returns are highest. Recent investments, ongoing projects and forecast investment in
tourism all fortify Barbados' competitive position in the top end of the market. That is why the
Four Seasons is such an appropriate and timely investment, and an excellent opportunity for
the NIS to diversify its portfolio in the interests of the economic development of the country.
A second strength of Barbados' tourism is market diversification. Visitors come from Caricom
countries, the US, and elsewhere, as well as the UK, our largest market. Thirdly, the
Barbadian vacation experience is quite varied, in terms of the cultural and sporting activities
on offer, although this is an area where much additional investment is needed, to enrich the
visitors' menu of choices. Our foremost challenge in tourism, one which affects other leading
sectors as well, is to achieve and maintain acceptable professional standards of service at all
times.
The International Business and Financial Services Sector (IBFS)
Thirty years of effort and initiative have yielded Barbados an IBFS sector which is second in
importance as a foreign exchange earner, though a long way behind tourism. We have
inherited natural advantages of climate, good international connections, the English
language, and a convenient time zone. We have added a network of Double Taxation
Agreements, a strong regulatory system which is constantly updated as international
guidance dictates, and a small pool of domestic expertise. I will end this talk with my
reflections on the challenges we face in the IBFS sector, but first a few words on the other
two pillars of the Barbadian economy's growth.
Agriculture and Agro-industry
Our major success, one that we share with our Caribbean neighbours, is in the rum industry.
The Caribbean, with help from the EU, has invested in the production and marketing of aged
rums, and Barbados now earns more from the export of rum than from sugar exports.
However, a strategy has not yet been put in place to integrate sugar cane and other
agricultural production into a layered, mutually reinforcing agricultural and agro-industrial
sector. I believe that an integrated sector, building on the established institutions in
agriculture and food processing, has significant potential for foreign exchange earnings and
growth.
Alternative energy
The substitution of alternative energy sources for fossil fuels as an energy source is the area
where Barbados can make substantial savings in foreign exchange spending. The
technologies for this are now commercially available, and they can be made affordable.
Importantly, the fact that policy initiatives in this area are supported by IDB financing means
that there is additional foreign exchange available to support the needed investment. Among
major projects being contemplated are a wind farm, a waste-to-energy plant, and the use of
renewables such as bagasse. However, the process where the country is most advanced is
solar generation. Already a handful of businesses and individuals have installed systems,
and gov't has led the way with major installations at Harrison's Cave and the Ministry of
Transport and Works. There is an opportunity here for retailers, banks and financial
institutions to sell household systems, tied to the grid, on the basis of down payments and
monthly payments that the middle class can afford.
The quality of service
There remains a major threat to Barbados' competitiveness in all sectors, and it is our
inability to guarantee consistently high standards of service in the private and public service.
It is not enough that we should have examples of service excellence, and we do. What we
really need is an average standard that is outstanding, by international comparisons, and a
minimum standard that never falls below the acceptable. This is absolutely essential,
because we compete on quality, not price. This is not the place to elaborate, but this is, I am
convinced, THE threat to the future growth and prosperity of this country.
What about construction and other sectors?
They cannot lead because they need foreign exchange to expand, and they do not generate
any foreign exchange. So they must depend on the foreign exchange provided by tourism,
the IBFS sector, agriculture and agro-industry, and on the foreign exchange saved from the
use of alternative energy.
Strategies for the IBFS sector and role of Central Bank
I am not the expert on the sector, but it is my understanding that the IBFS sector has had to
reinvent itself on more than one occasion. It may be time for another reinvention, to address
changing circumstances and opportunities in the international market. The challenges arise
from the on-going need to upgrade our legal and regulatory framework, in line with
international standards as well as those of countries with which we do business. Barbados
has begun to respond appropriately to these challenges, but we need to up our game in
every case. I will touch on the Global Forum, the FSB, the FATF, and recent changes in the
practices of the Canadian Revenue Authority.
The Global Forum
The Global Forum has been set up to provide a more transparent means of certifying that
countries meet an agreed standard for the exchange of tax information and other related
practices. Former Prime Minister Arthur played an important role in the initiatives leading up
to the establishment of the Forum, and Barbados is a member. We are participating in an
ongoing international process of country evaluation. We have had some stumbles, but it is
my understanding that we are recovering from them. There are others in the room who can
better elaborate on this than I can.
The Financial Stability Board (FSB)
We have also made a positive response to the initiatives of the FSB, the body charged with
coordinating the reform of the international financial system. We have prepared two studies
which we have aired at regional and international meetings, on the importance of the IBFS
sector to Caribbean economies, and documenting the measures we have taken and are
taking to ensure that our regulatory systems are kept up to marks with the guidelines
published by international bodies. The papers can be accessed on the Central Bank of
Barbados website. We are also gearing up for our next Financial Sector Assessment
Programme (FSAP), more than a year away, and Central Bank and the Financial Services
Commission (FSC) will be engaging with you on this.
Financial Action Task Force (FATF)
With respect to the Global Forum and the Financial Stability Board, we now have reasonably
transparent international processes that we can work with. That is not yet the case with
FATF. Like the FSB, FATF is an exclusive members club which presumes to impose its rules
on countries who are refused membership. Both FSB and FATF have addressed this
anomaly, in a fashion, by establishing regional advisory groups. We have been able to use
the Regional Consultative Group of the FSB to make the case for the Caribbean, and the
Caribbean Financial Action Task Force (CFATF) is gaining momentum in protecting the
interests of the region. In all three areas we need transparent processes by which countries
may be certified as having achieved acceptable international standards.
The Canadian Revenue Authority changes and the need to diversify markets
Changes made recently redefine the competitive landscape in the Canadian market, and the
fact that tax information exchange agreements may now provide benefits similar to those
available under double taxation agreements exposes Barbados to competition from countries
where there is no income tax. This matters a great deal, because so much of our IBFS
business is concentrated in the Canadian market. We must market the other factors that
make Barbados competitive, including our regulatory framework and superior infrastructure.
We need to take appropriate measures to solidify our position in the Canadian market; we
can't afford to lose our strong companies, and those of long standing. However we must
begin a deliberate campaign to diversify the countries that use our international financial
centre, to reap the benefits of our network of double taxation agreements. That is an
enterprise which we need to embark on together, the industry, the community of
professionals active in the international financial centre, Invest Barbados, the Ministry of
International Trade, the Financial Services Commission and the Central Bank.
Finally, a word on the role the Central Bank plays. Next month look out for the first issue of
our new quarterly IBFS newsletter, to be published on our website. It will update you on all
the latest developments affecting our IBFS sector. Our contributors are all leading players in
the industry, and we invite anyone who might wish to contribute to be in touch with Neville
Pollard at the Central Bank. On March 15 we plan our second annual IBFS conference,
together with FSC and BIBA. Invitations will be sent out shortly.
Thanks, and I am happy to entertain your questions.