ON THE RIGHT: Chances exist for a better way
In a small open economy like Barbados, investor confidence can be simply likened to an indication of investor faith in an economy. Here, one can begin to gauge such a sentiment by taking a look at the growth or decline in: (1) foreign direct investment levels; (2) foreign exchange reserves; (3) interest rates on new external debt; and (4) external and internal debt levels to name a few. Moreover, investor sentiment can be greatly influenced by the political and the wider social environment.
Barbados currently has an investor confidence issue. The recent Central Bank Review of Barbados’ economic performance for the first nine months of 2013 pretty much confirms this. We need not look any further than the $447 million fall in foreign reserves since last December.
Moreover, we are currently in a protracted situation where this decline could probably best be explained by the $326 million contraction in foreign direct investment coupled with the downturn in local investment activity.
Credit quality has also worsened for the commercial banking sector, leading to reduced profitability in what has been part of our most stable industry throughout the recession. Also, the current low inflation rate environment may mean well for consumers across the board but could be a disincentive to investment in, say, real estate – which is perennially purported to have the country’s highest economic yield.
Fiscal constraints are now the norm. The unemployment rate is recorded at 11.1 per cent. The tourism industry underperformed yet again. These are just a few simple but worrying examples of what can negatively influence investor sentiment. However, even in this uncertain environment, there are opportunities to eventually shore up both local and international investor confidence.
I believe that we should treat our current situation as a starting point through which we, just as with many a country in our position, bring about a change in investor confidence in the medium term. Government has a renewed focus on implementation and seems to be striving towards bringing key projects to fruition. Also, liquidity within an already stable financial sector is still strong. The Central Bank has been doing its part by being very active in Treasury bill markets the past two years and steadily so in long-term Government debt for nearly five years. This, along with an approximate 18 per cent per annum increase for the same time period in treasury bill holdings by the commercial banking sector has helped to finance Government expenditure.
Though of a regulatory nature, the timing of these investments speaks to a confidence in ourselves that cannot be so easily measured. We all just know that this stopgap was and is necessary.
My hope is that we appreciate that these measures alone are not sustainable for a small open economy in the long run and that we must purposefully set about to: (1) modernize our international business legislation even further to attract offshore hedge and private equity firms and investors to our shores; (2) further diversify our economy in a step-wise manner to eventually focus on new high yield industries such as culture, information technology, alternative energy, education, and overseas investment in primary and value-added agriculture; (3) court investors from emerging markets, particularly those with whom we enjoy double taxation treaties with; and (4) eventually establish an international sovereign wealth fund and a citizen’s investment fund for community and entrepreneurial projects.
These, once set in motion with a clear intent to implement, can and will result in about an eventual return in confidence.