Remove barriers to international business
There has been much buzz since the media revealed that the Central Bank Governor, Dr DeLisle Worrell, advised Government that it must slash expenditure by close to $400 million if it is to maintain current levels of foreign reserves and stave off any need for currency devaluation.
It has been no secret that our export of goods and services has been on a steady decline since the global recession and that Government has been shoring up the island’s net international reserves (NIR), more so through multilateral agency funding rather than through organic trade growth.
We are now seemingly at a crossroads between Government spending cuts (seen by some as code for sending home significant numbers of public servants) and facing the bogeyman of devaluation.
However, I would suggest that there is a third way, and that way is to place more of our resources into exponentially ramping up the growth of our international business and financial services sector.
In 2008, at the crux of the global recession, international business entities were contributing close to $300 million directly to Government’s coffers, and over half a billion dollars worth of spend in the economy through paying salaries, rents, professional fees, and expenditure on accommodation, according to an Invest Barbados study.
All of these costs had to be covered by the orderly and officially recorded flow of foreign exchange into this country given that by their very nature, the income which international business entities generate is all earned offshore and then brought into Barbados in the form of investments or operational expenditure.
As with every other sector in Barbados since the economic decline, there has been a contraction in international business activity. However, the global trend in foreign direct investment (FDI) actually shows the reverse. According to the latest data from the United Nations Conference on Trade and Development, there has been a surge in annual FDI inflows into international financial centres in the last five years, from US$15 billion to US$75 billion. This is the kind of exponential growth that Barbados should be tapping into.
In spite of its enormous potential as a pillar for the country’s economic and social development, the international business and financial service sector has such a very light impact on the island’s physical environment that the over 4 000 entities operating within it appear somewhat invisible, even to those who are considered among the better informed in our society.
The country’s capacity for exponential expansion of this sector is therefore, unfortunately, not fully appreciated, and hence the will and determination to realise that potential seems absent.
The just over 4 000 active international business entities in Barbados constitute a mere drop in the ocean of business being done in offshore locations across the world. Official reports show that at March this year the Cayman Islands had 222 international banks and 768 insurance companies compared with 44 and about 255, respectively, for Barbados. In addition, the Cayman Islands, which effectively positioned itself as a fund-management jurisdiction around the same time that a right-thinking group of Barbadians made strenuous efforts to lead our country to capitalize on this new business, now boasts of being the world’s largest offshore fund-management domicile with 10 932 funds at March 31.
We can only speculate as to how different the Barbados economic profile may have been today had we managed to put effective mutual fund legislation in place following the Global Financial Service Conference held here in 1998.
A commitment to removing the significant home-grown impediments to the expansion of this sector could have a positive transformational impact on this country’s economic and social landscape. The question which is continually being asked is: “Why is it so hard to find the necessary will and commitment?”
• Henderson Holmes is executive director of the Barbados International Business Association.