Throughout the Caribbean, countries continue to struggle to attract critical foreign direct investment and capital grants to boost their chances of generating much needed economic growth and development. To compound this problem, many countries face huge and rising fiscal and debt crises which in some instances result in massive increases in the deficit on the current account of the balance of payments. Barbados’s economic situation immediately comes to mind as a shining illustration of this crucial point.
The troubling reality is that once the deficit on the current account of the balance of payments increases, the country will lose international reserves. In cases where fixed exchange rate systems exist, the loss in international reserves will most definitely put upward pressure on the exchange rate and if corrective measures are not implemented, the local currency could be devalued.
For those countries with flexible exchange rate systems the loss in international reserves will force markets to respond and the local currency will depreciate. And that is precisely what is happening in Jamaica.
Therefore, without foreign financial inflows, the only real option left to Caribbean countries to reverse their weakening external positions is to narrow the gap between exports and imports by a combination of strategies to increase exports while simultaneously reducing imports. This column focuses on the former.
To be quite honest, expansion in exports can only materialise if the goods and services being produced for foreign markets are able to compete with those from other countries, period! Hence, Caribbean countries have little choice but to improve the level of international competitiveness of the commodities which they produce for exports. But how does one improve international competitiveness?
Exchange rates
For way too long our countries have been relying on competitiveness generated from the existence of exchange rates that are fairly close to equilibrium levels according to several reports from the International Monetary Fund.
But clearly, the exchange rate, as important as it is in influencing international competitiveness, is not sufficient.
According to the economics literature, based on the experiences of China and India in particular, “socio-economic factors such as cultural values, the accumulation of social capital and the existence of social networks are an important impetus of long-term international competitiveness and economic development”.
Hence, as Caribbean countries seek to improve their international competitiveness, they must seriously embrace changes in several areas including the importance of education, veracity, industriousness, attitude towards work, approach to technology and progress, social capital and social networks, trust, confidence, corruption, stance on globalisation and competition, and long-term orientation.
These important determinants of international competitiveness cannot be ignored in favour of an approach that features mostly financial and economic concerns.
Indeed, if as small, open economies in the Caribbean we are serious about improving our international competitiveness, then, logically, we should learn from the examples of China and India and start broadening our focus to include social, institutional, socio-demographic and other issues in addition to the financial and economic matters we have been working on for so many years.
Otherwise, our lack of international competitiveness on the global scene will remain and that is not what we should be encouraging or promoting by our very own lack of foresight.
Email bfrancis@uwichill.edu.bb
