THE CARIBBEAN PAPERS a Project on Caribbean Economic Governance
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The Centre for International Governance Innovation THE CARIBBEAN PAPERS A Project on Caribbean Economic Governance Beyond Tourism: The Future of the Services Industry in the Caribbean DANIEL P. E RIKSON AND JOYCE LAWRENCE Caribbean Paper No.3 April 2008 An electronic version of this paper is available for download at: www.cigionline.org Addressing International Governance Challenges THE CARIBBEAN PAPERS Abstract Letter from the The small economies of the Caribbean have entered a Executive Director period of extraordinary economic uncertainty driven by the impact of new trade rules on the region’s agricultural It is my pleasure to introduce The Caribbean sector, dramatic advances in technology that have lowered Papers, a product of our major research project on barriers to entry, and fierce global competition from large, Caribbean Economic Governance. CIGI is an inde- low-wage countries in Asia. Furthermore, the Caribbean pendent, nonpartisan think tank that addresses nations’ ability to sustain a high level of social well-being international governance challenges. Led by a is suffering due to the effects of broader economic change group of experienced practitioners and distin- that has left the region in a reactive position. Against this guished academics, CIGI supports research, backdrop, the services sector in the Caribbean may serve forms networks, advances policy debates, builds as an important source of economic growth, but only if the capacity, and generates ideas for multilateral region begins to move beyond tourism to take advantage of governance improvements. emerging opportunities in the areas of banking and finan- cial services, call centres and information and communi- This project convenes researchers and leaders cation technology, off-shore education and health services, within the private and public sectors to examine and transportation. This essay assesses the future prospects and provide substantive answers and policy pre- for the Caribbean to create a thriving service-based econ- scription to current economic governance chal- omy and offers ideas to help the region to both build on lenges facing the Caribbean region. The papers and transcend its reliance on tourism to carve a more were initially presented at CIGI workshops, where profitable and sustainable niche in the global economy. their authors benefited from extensive comments and discussion on their work. Through this series, we hope to present and discuss policy issues pertaining to trade, investment, human capital, the fiscal outlook, and public sector management practices, among other issues relevant to the Caribbean region's economic future. We encourage your commentary on these papers and welcome your thoughts. Please visit us online This paper is published jointly with the Caribbean Policy Research Institute at www.cigionline.org to learn more about the (CaPRI), a Caribbean-wide think tank that is contributing research and pol- Caribbean Economic Governance Project and icy expertise to CIGI’s Caribbean Economic Governance project. CIGI's research programme. The opinions expressed in this paper are those of the author and do not Thank you, necessarily reflect the views of The Centre for International Governance Innovation or its Board of Directors and /or Board of Governors. Copyright © 2008 The Centre for International Governance Innovation. John English This work was carried out with the support of The Centre for International Executive Director Governance Innovation (CIGI), Waterloo, Ontario, Canada (www.cigion line.org). This work is licensed under a Creative Commons Attribution- Non-commercial – No Derivatives License. To view this license, visit (www.creativecommons.org/licenses/by-nc-nd/2.5/). For re-use or distri- bution, please include this copyright notice. ISSN 1915-6413 (Print) ISSN 1915-6421 (Online) The Centre for International Governance Innovation Introduction Figure 1. Average Annual GDP Growth 8 In recent years, the small economies of the Caribbean1 have 7 entered a time of extraordinary economic uncertainty, as 6 traditional industries face new challenges amid a fiercely 5 competitive global environment. The process of globaliza- 4 tion over the past few decades has had a profound effect 3 on developing countries worldwide, and the Caribbean has 2 been no exception. Dramatic advancements in technology 1 Annual Percentage Growth have lowered barriers to entry, minimized transportation 0 costs, and maximized specialization so that production of -1 goods and services increasingly takes place across borders. -2 Large developing countries, such as China and India, have Haiti Jamaica Barbuda Barbados Dominica Grenada St. Lucia used their economies of scale to dominate certain manu- Antigua & St. Vincent Bahamas, The St. Kitts & Nevis facturing and service sectors, achieving a sustained period & the GrenadinesTrinidad &Tobago Dominican Republic of double-digit growth in the process. With an abundance of labour, these countries have benefited from a cycle of 1980-1989 1990-1999 2000-2005 investment and spending that has catapulted large num- Note: The line denotes the long-run world average growth rate of 3%. Source: World Development Indicators. bers of once impoverished people out of dire poverty. However, not all countries have been lifted up by global- ization. The small nation-states of the Caribbean have and light manufacturing (World Bank, 2007). Technology struggled to achieve economic growth and are paid scant is more rapidly diffused than in the past, a fact that attention by larger global powers. On average, the Caribbean has spurred internal debates within the World Trade has underperformed most developing countries world- Organization (WTO) involving intellectual property rights wide with average annual GDP growth of just 3 percent and other issues of technology sharing. The process of during the period from 1990 to 2005 (see Figure 1), com- trade liberalization over the past 25 years has been accom- pared to 9 percent for China. The economic development panied by major shifts in global production. Trade in serv- of the Caribbean has not kept pace with rapid changes in ices has increased relative to trade in commodities, and the global trading system. countries that have learned to harness the growing demand for services have fared better than most. In the last quarter-century world trade has expanded and become more diverse. In 1980, trade in agriculture, food, minerals, and oil accounted for almost 80 percent of glob- 1 Unless otherwise noted, the Caribbean refers to the following sovereign nations: Antigua & Barbuda, the Bahamas, Barbados, Belize, Cuba, Dominica, the Dominican ally traded items. By 2005, this amount fell to less than 40 Republic, Grenada, Guyana, Haiti, Jamaica, St. Kitts & Nevis, St. Lucia, St. Vincent percent due to the expansion of trade in chemicals, textiles, & the Grenadines, Suriname, and Trinidad & Tobago. Author Biographies Daniel P. Erikson is senior associate for US policy and Joyce Lawrence is a candidate for Masters in Pacific director of Caribbean programs at the Inter-American International Affairs at the University of California, San Dialogue in Washington, D.C. He has authored more Diego, where she serves as the editor-in-chief of the than fifty published articles, is co-editor of Transforming Journal of International Policy Solutions. She graduated Socialist Economies: Lessons for Cuba and Beyond (2005) and summa cum laude from Washington University in St. Louis a contributor to several books, including Looking Forward: with a Bachelor of Science in Business Administration, Comparative Perspectives on Cuba’s Transition (2007) and with majors in international business and marketing. She Taking Sides: Clashing Views on Latin America (2007). was an intern at the Inter-American Dialogue in the sum- He earned a Masters in Public Policy as a Dean’s Fellow mer of 2007 and currently lives in San Diego, California. at Harvard University’s John F. Kennedy School of Government and a BA from Brown University. Beyond Tourism: The Future of the Services Industry in the Caribbean | 1 THE CARIBBEAN PAPERS Once globally coveted for its agricultural bounty, the the World Trade Organization (WTO) negotiations that Caribbean countries have for the most part lost preferential have suffered from a prolonged deadlock between devel- access to European and North American markets. This has oped and developing countries on a range of sensitive dramatically reduced the region’s possibilities for produc- issues including agricultural subsidies. The lack of econo- ing agriculture for export. The sugar and banana indus- mies of scale and limited structural reforms in Caribbean tries that once demanded high world prices are now countries will continue to hinder potential benefits from undercut by larger countries with economies of scale. The these accords. increase in world supply of these goods was accompa- nied by the general lowering of trade protections for these To fill the void left by the no-longer-profitable agricul- industries. European Union (EU) sugar prices, which were tural sector, Caribbean nations have been surviving on the fixed until 2006, will be cut by 36 percent by 2010, elimi- hard currency generated through tourism and external nating the preferential access for the Caribbean sugar remittances. Of these, tourism most clearly utilizes the market (Economist Intelligence Unit, 2007b). Following this Caribbean’s abundant assets – sand and sea. From 1995 to announcement, St. Kitts and Nevis ceased