Long-Term Economic Prospects of the Oecs Countries

ReportNo. 805&CRG Long-TermEconomic Prospects of the OECSCountries February15, 1990 Public Disclosure Authorized CaribbeanDivision CountryDepartment IIl LatinAmerica and theCaribbean Region FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized Documentof theWorld Bank Thisdocument has a restricteddistribution and may be usedby recipients Public Disclosure Authorized only in the performanceof their officialduties. Its contentsmay not otherwise bedisclosed without World Bankauthorization. - -~ CURRENCY EQUIVALENTS Currency Unit - Eastern CaribbeanDollar (EC$) Upon its creation in 1965, the Eastern Caribbean dollar was tied to sterling at the rate of L - EC$4.8. in July 1976, the link with sterlingwas broken and the Eastern Caribbeandollar was aligned with'the US dollar at the rate US$l = EC$2.70. Exchange Rate as of July 1976 US$1 = EC$2.70 EC$1 = US$0.3704 OECS COUNTRIES'FISCAL YEAR April 1 - March 31 FOROMCIAL USE ONLY This report is based on the findings of a World Bank economic mission which visited the Organizationof Eastern CaribbeanStates' (OECS) countrieswhich are members of the World Bank--Antiguaand Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St Vincent and the Grenadines--duringJanuary-February 1989. The mission was comprisedof Messrs. Alasdair Sinclair (Chief of Mission),Alberto Herrou-Aragon (Macroeconomistand AgriculturalEconomist), David Davi- (Tourism Consultant),Constantine Soumelis (EducationConsultant) and Ms. Carla Kruytbosch (ResearchAssistant). Other Bank staff members who contributed to the report include: Jose B. Sokol (Lead Economist),Alexander Yeats (TransportEconomist), Richard L. Ground (GeneralEconomist), Ms. Ginger Reich (ResearchAssistant) aad Herman von Gersdorff (Economist). CIDA supportedMr. Sinclair'swork during the report's preparation. The Caribbean DevelopmentBank contributedwith a section on Montserrat,a member of the OECS but not of the World Bank. This documenthas a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Itscontents may not otherwisebe disclosedwithout World Bank authorization. GLOSSARY OF ABBREVIATIONS ACP African/Caribbean/Pacific BDD ODA British DevelopmentDivision in the Caribbean CARDATS CaribbeanRaral DevelopmentAdvisory and Training Service CARDI CaribbeanAgricultural Research and DevelopmentInstitute CARIBCAN Canada's PreferentialTrade Scheme for the CommonwealthCaribbean CARICOM CaribbeanCommunity CATCO CaribbeanTrading Corporation CBI CaribbeanBasin Initiative CDB CaribbeanDevelopment Bank CET Common External Tariff CIDA Canadian InternationalDevelopment Agency CPI Consumer Price Index CREP Coconut Rehabilitationand ExpansionProject CTRC CaribbeanTourism Research and DevelopmentCentre DEVCO DevelopmentCorporation EAS EconomicAffairs Secretariat EC Eastern Caribbean ECCB Eastern CaribbeunC^natral Bank ECLAC Economic Commissionfor Latin American and the Caribbean EDF European DevelopmentFund EEC European Economic Community EIB European InvestmentBank GDP Gross Domestic Product GNP Gross National Product GSP General System of Preferences IBRD InternationalBank for Reconstructionand Development IICA InternationalInstitute for Cooperationir. Agriculture IMF InternationalMonetary Fund ITC InternationalTrade Commission LDCs Less DevelopedCountries MFA Multi-FiberAgreement MFN Most Favored Nation NDC National DevelopmentCorporation ODA Overseas DevelopmentAdministration OECS Organizationof Eastern CaribbeanStates OPEC Organizationof Petroleum ExportingCountries QR QuantitativeRestriction SITC Standard InternationalTrade Classification SMEs Small and Medium Enterprises UN United Nations UNESCO United Nations Educational,Scientific and Cultural Organization USAID United States Agency for InternationalDevelopment WI West Indies WISCO West Indies Shipping Corporation LONG-TERM ECONOMIC PROSPECTS OF THE OECS COUNTRIES TABLE OF CONTENTS Page No. EXECUTIVE SUMKARY .............................................. i SUMMARY AND CONCLUSIONS ........................................iv I. OVERVIEW .............................................. I II. ECONOMIC DEVELOPMENTS IN THE OECS COUNTRIES: A HISTORICAL PERSPECTIVE.......................... 4 A. Overview .......................................... 4 B. Growth of Output and Owuput per Capita............ 4 Output ........................................ 4 Output per Capita ... ......................... 6 Output Growth and Output per Capita Comparisons.......................... 7 C. Relative Price Performance........................ 9 D. Sectoral Shares of GDP at Factor Cost ............. 11 Sectoral Analysis ............................. 12 Shifts in the Composition of GDP and Economic Growth ......................... 16 E. Changes in the Pattern of Trade ................... 18 F. The Financing of Private and Public Gross Investment.............................. 18 G. Conclusions....................................... 25 III. THE MACROECONOMIC FRAMEWORK ........................... 26 A. Overview.......................................... 26 B. Monetary and Exchange Rate Policy................. 26 The Current Structure......................... 26 Changes in Real Exchange Rates ................ 27 Maintaining Exchange Rate Stability with External Shocks........................ 30 C. Mobilization of Domestic Savings.................. 3tL D. The Revenue Generating Capacity of the OECS Governments .............................. 35 E. Conclusionq .... .............................. ... 37 IV. TRADE ................ 39 A. Overview .......................................... 39 B. CARICOM and the OECS.............................. 39 C. Trade Relationships with Europe and North America ................................. 41 D. The Uruguay Round and Other Trade Developments .... 42 E. A Strategy for Manufacturing in the OECS.......... 44 F. Agriculture in the OECS ........................... 47 The Real Exchange Rate and Agricultural Output ..................................... 51 G. Prospects to the Year 2000........................ 52 H. Conclusions....................................... 53 Page No. 1' TOURISM .............................................. 55 A. Overview .......................................... 55 B. Tourism in Grenada ................................ 56 C. Tourism in St. Vincent and the Grenadines ......... 61 D. Tourism in St. Lucia .............................. 64 E. Tourism in Dominica ............................... 66 F. Tourism in Antigua and Barbuda .................... 69 G. Tourism in St. Kitts and Nevis .................... 72 H. Conclusions ....................................... 75 VI. MANUFACTURING ......................................... 77 A. Overview .......................................... 77 B. Manufacturing in Antigua and Barbuda .............. 78 C. Manufacturing in Dominica ......................... 80 D. Manuf_cturing in Grenada .......................... 84 E. Manufacturing in St. Kitts and Nevis .............. 86 F. Manufacturing in St. Lucia ........................ 90 G. Manufacturing in St. Vincent and the Grenadines... 92 H. Conclusions ....................................... 95 VII. SELECTED TRANSPORTATION ISSUES........................ 97 A. Overview .......................................... 97 B. Air and Water Freight Rates to U.S. Markets ....... 97 C. Other Transportation Issues ....................... 102 D. Transportation Policy ............................. 104 E. Conclusions ....................................... 106 VIII. DEMOGRAPHIC. EDUCATION AND LABOR M&.RKET ISSUES........ 107 A. Overview .......................................... 107 B. Population Growth and Migration ................... 107 Tourism in The Bahamas ........................ 109 C. The Labor Force ................................... 109 D. Current Educational System ........................ 111 Curriculum and Structure ...................... 111 Enrollment Trends................ ............ 112 Financing of Public Education ................. 113 Quality of Education .......................... 117 E. Education and the Labor Market ................... 118 F. Conclusions ....................................... 120 IX. LONG TERM ECONOMIC PROSPECTS AND FOREIGN INDEBTEDNESS ...................................... 122 A. Overview ...... .................................... 122 B. Development Issues ................................. 122 C. Antigua and Barbuda ............................... 126 D. St. Kitts and Nevis ............................... 129 E. Dominica .......................................... 132 F. St. Lucia ......................................... 135 G. St. Vincent and the Grenadines .................... 137 H. Grenada ........................................... 139 I. Conclusions ....................................... 142 -3- Page No. ANNEX I: THE LONG-TERM ECONOMIC PROSPECTS OF MONTSERRAT...... 145 ANNEX II: THE MEASUREMENT OF THE FINANCING OF PRIVATE AND PUBLIC GROSS DOMESTIC INVESTMENT.............. 151 ANNEX III: ESTIMATES OF THE REAL EXCHANGE RATE EQUATIONS....... 153 ANNEX IVn ESTIMATES OF SUPPLY FUNCTIONS OF AGRICULTURAL COMMODITIES....................................... 157 ANNEY.V: AGGREGATE AGRICULTURAL SUPPLY FUNCTIONS............. 165 ANNEX VI: PAST TRENDS AND PROJECTIONS OF TOURISM IN THE OECS COUNTRIES .................................... 168 ANNEX VII: THE BANANA INDUSTRY................................. 209 STATISTICAL APPENDIX ............................................ 212 MAP IBRD 22032R

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