STRATEGIES FOR INCREASING ECONOMIC RESILIENCE IN THE CARIBBEAN

ISSUE 3 / JULY - SEPTEMBER 2019 ABOUT ECLAC/CDCC

The Economic Commission for Latin America and the Caribbean (ECLAC) is one of five regional commissions of the United Nations Economic and Director’s Desk: Social Council (ECOSOC). It was established in 1948 to support Latin Strategies for increasing economic resilience in 3 American governments in the economic and social development of that region. Subsequently, in 1966, the Commission (ECLA, at that time) the Caribbean established the subregional headquarters for the Caribbean in Port of Spain to serve all countries of the insular Caribbean, as well as Belize, Strategies to avoid debt traps among developing 4 Guyana and Suriname, making it the largest United Nations body in the countries as they pursue the SDGs subregion. Promoting a competitive tourism industry in the 6 At its sixteenth session in 1975, the Commission agreed to create the Caribbean through upgrading and diversification Caribbean Development and Cooperation Committee (CDCC) as a permanent subsidiary body, which would function within the ECLA Financing Agro-processing in the Caribbean 8 structure to promote development cooperation among Caribbean countries. Secretariat services to the CDCC would be provided by the subregional headquarters for the Caribbean. Nine years later, the Building a Case for Trade Driven Economic 10 Commission’s widened role was officially acknowledged when the Economic Commission for Latin America (ECLA) modified its title to the Restructuring in the Caribbean: An Examination Economic Commission for Latin America and the Caribbean (ECLAC). of the Trinidad and Tobago Trade Policy CONTENTS Key Areas of Activity The ECLAC subregional headquarters for the Caribbean (ECLAC/CDCC Regular Features secretariat) functions as a subregional think-tank and facilitates increased contact and cooperation among its membership. Complementing the Recent and upcoming meetings 15 ECLAC/CDCC work programme framework, are the broader directives issued by the United Nations General Assembly when in session, which List of Recent ECLAC Documents and 15 constitute the Organisation’s mandate. At present, the overarching Publications articulation of this mandate is the Millenium Declaration, which outlines the Millenium Development Goals.

Towards meeting these objectives, the Secretariat conducts research; provides technical advice to governments, upon request; organizes intergovernmental and expert group meetings; helps to formulate and articulate a regional perspective within global forums; and introduces global concerns at the regional and subregional levels.

Areas of specialization include trade, statistics, social development, science and technology, and sustainable development, while actual operational activities extend to economic and development planning, demography, economic surveys, assessment of the socio-economic impacts of natural disasters, climate change, data collection and analysis, training, and FOCUS: ECLAC in the Caribbean is a publication of the assistance with the management of national economies. Economic Commission for Latin America and the Caribbean (ECLAC) subregional headquarters for the Caribbean/Caribbean Development and The ECLAC subregional headquarters for the Caribbean also functions Cooperation Committee (CDCC). as the Secretariat for coordinating the implementation of the Programme of Action for the Sustainable Development of Small Island Developing EDITORIAL TEAM: States. The scope of ECLAC/CDCC activities is documented in the wide Director Diane Quarless, ECLAC range of publications produced by the subregional headquarters in Port Editor Alexander Voccia, ECLAC of Spain. Copy Editor Denise Balgobin, ECLAC Coordinator Sheldon Mc Lean, ECLAC Design Blaine Marcano, ECLAC MEMBER COUNTRIES ASSOCIATE MEMBERS: Antigua and Barbuda Haiti Anguilla Cover Photo: Courtesy Pixabay.com The Bahamas Jamaica Aruba Barbados Saint Kitts and Nevis British Virgin Islands Belize Saint Lucia Cayman Islands Cuba Saint Vincent Curaçao Dominica and the Grenadines Guadeloupe Dominican Republic Suriname Martinique Produced by ECLAC Grenada Trinidad and Tobago Montserrat Guyana Puerto Rico CONTACT INFORMATION Sint Maarten ECLAC Subregional Headquarters for the Caribbean PO Box 1113, Port of Spain, Trinidad and Tobago Turks and Caicos Islands Tel: (868) 224-8000 United States Virgin E-mail: [email protected] Website: www.eclac.org/portofspain Islands Issue 3 / July - September 2019

DIRECTOR’S DESK: STRATEGIES FOR INCREASING ECONOMIC RESILIENCE IN THE CARIBBEAN

This issue of Focus considers strategies for increasing economic resilience in the Caribbean. Member States are vulnerable to both external economic and environmental shocks, given their small size and openness.

ocus therefore examines the use Like tourism, agricultural competitiveness Trade Policy 2019-2023 expresses of two state contingent bond and production has been in decline for the government’s position on Fcontracts that can mitigate the some time. Along with this decline competitiveness and economic and effects of untimely shocks on debt has been an increase in imports of export diversification, incorporates the repayment and limit unsustainable debt semi-processed and processed foods. Sustainable Development Goals, and is accumulation. Caribbean agro-processing has been aligned with the Nation’s own long-term negatively impacted by several challenges, development framework. Consideration is also given to the state chief among them access to finance. of the Caribbean tourism product and to Focus therefore explores the current strategies that might be used to enhance issues in agro-processing financing and productivity of the industry. The looks at several innovative strategies for subregion’s tourism competitiveness has filling the financing gaps. Yours in Focus been in decline, despite the importance of the sector for so many Caribbean This edition also acknowledges member States. We suggest the need for important collaboration between the upgrading and diversification, as a way of Trinidad and Tobago government and revitalising the industry and improving ECLAC Caribbean in producing a trade Diane Quarless competitiveness. policy aimed at structural transformation and growth. The Trinidad and Tobago

FOCUS | 3 STRATEGIES TO AVOID DEBT TRAPS AMONG DEVELOPING COUNTRIES AS THEY PURSUE THE SDGS Dillon Alleyne*

While historically the accumulation of debt and debt unsustainability was perceived as a developing country problem, in recent years the evidence suggests that the issue is more global, thus demanding renewed efforts to prevent and address its unsustainable build-up.

he resolution of the sovereign WHAT ARE SOVEREIGN COCOS? a situation; who validates the trigger debt crisis in Greece and the Given the fact that the major source of mechanism; and whether short term Tevents surrounding the IMF-EU finance among many “so called’ middle treasury bills would be included. One support packages for Ireland, Portugal income countries is the bond market, contentious issue relates to the trigger and Cyprus have indicated that existing any strategy to relieve the pressure being liquidity assistance from the IMF. practices for sovereign debt crisis from bond repayment in the face of Many sovereigns may not be in favour resolution are weak and in need of unexpected shocks is worthwhile to of this option since they may not want reform (Brooke et al 2013). According pursue. to be a part of an IMF stabilisation to UNCTAD (2018), a decade after the programme. In addition, cooperation global financial crisis, global debt levels According Brooke et al (2013) between the creditor and debtor would continue to reach new record highs. It “sovereign cocos” are bonds which be necessary to avoid arbitrary rollover is estimated that by the end of March automatically extend their repayment requests. 2018, global debt stocks had reached maturity when a country receives US$247.2 trillion, up from US$168 official sector emergency liquidity This approach implies some amount of trillion at the onset of the financial crisis assistance. This would be stipulated at burden sharing between the sovereign of 2007–2008.1 This has been attributed the signing of the bond contract and (the taxpayer and creditors, usually the to systemic factors among which are become part of the agreement among private sector) which will likely lead to the weak global recovery, the slump in the parties. If all or part of the debt more cautious lending. There may also prices of primary commodities and a stock came under such a regime, then be the possibility of increased premiums lack of concessional finance to middle all or part of the amortization profile as creditors factor in additional costs to income developing countries.2 of the repayment would shift forward their portfolio. This is counterbalanced without the necessity of permission by reduced risks due to a reduction Closer to home, while the debt ratios from bondholders.4 There are pros in unexpected default. Let us now in the Caribbean are quite high (70% and cons to consider whether such consider GDP linked bonds. of GDP on average), the issue has not agreements should be standardised or received the attention it deserves at tailored to the specific circumstances WHAT ARE GDP LINKED BONDS? the international level. The objective of individual countries. In any case, of this article examines two types of over time, there will likely emerge a set According to Jones and Sharma state contingent bond contracts,3 GDP of standard practices which reflect the (2006), GDP linked bonds could help indexed bonds and Sovereign COCOs common challenge of the countries of to smooth debt servicing payments (contingent convertible bonds), which interest. by linking part of the annual debt aim to prevent unsustainable debt servicing of the bond to the growth of build up arising from negative external A number of issues emerge, however, the debtor country’s GDP. shocks. regarding the factors that trigger such

* Dillon Alleyne is the Deputy Director at the Economic Commission for Latin America and the Caribbean, Subregional Headquarters for the Caribbean in Port of Spain, Trinidad and Tobago. 1 In G7 countries debt rose from 92% of GDP in 2007 to 136% in 2015 2 Other factors are the challenge of financialization that is a growing dependence of non-financial firms on financial activities for their revenue flows and their emphasis on short-term investment strategies (including mergers and share buybacks). 3 IMF says that a state-contingent debt instrument (SCDI) is a debt instrument with payoffs that are contractually linked to a trigger event such as GDP or exports for example. They can be designed in a number of ways for example debt payments (interest and/or principal) could be made a continuous function of a variable like GDP or depend on a one time occurrence of a predetermined vents such as a hurricane.(IMF Feb 9, 2017.Staff note for the G20.State Contingent Debt instruments for the sovereigns). 4 While this strategy is not being generally pursued the French Development Agency has issued concessional loans to some West African sovereigns that include an automatic maturity extension if export revenues fall below a pre-defined level (AFD 2009). 4 | FOCUS Issue 3 / July - September 2019

can reduce debt distress when the Figure I: Caribbean debt to GDP ratio with and without indexation. economy is performing poorly. These instruments should be vigorously pursued by borrowing governments in the Caribbean to address the impact of shocks on debt repayment costs and to provide much needed fiscal space to address the challenge of sustainable development.

REFERENCES

Bustilio, Inés , Helvia Velloso,Winston Dookeran and Daniel Perrotti. 2018. Debt service payments will thus be Resilience and capital flows in the Countries in the subregion that lower in times of below-trend growth Caribbean. ECLAC Washington office. experience increasing volatility in their and higher in times of above-trend GDP or those that have monetary policy growth. This means that creditors Griffith-Jones, Stephany. Procyclicality; constraints as in the OECS will benefit would have a stake in the country’s old and new policy challenges. 2006. most from GDP indexed bonds.5 These future growth prospects. Prepared for Manchester July 25 t h benefits will be welcome by countries -27 t h. Initiative for Policy Dialogue that must provide additional resources GDP indexed bonds can be particularly meeting. to advance the SDGs. beneficial for the Caribbean as they stabilise government spending and IMF.2017.Staff Notes for the G20. Since such bonds do shift some of the require less interest payments in times of State-Contingent Debt Instruments for risk from the sovereign to the creditor, economic crisis. This improves the fiscal Sovereigns. some commentators suggest that there space and creates more opportunities may be challenges surrounding data for countries to follow countercyclical UNCTAD, 2015, Trade and adequacy and timeliness which can be fiscal policies. In addition, as the debt Development Report, 2015: Making resolved. The solution to these problems service falls in times of economic the International Financial Architecture lies in encouraging international stress the propensity to default would Work for Development (United coordination and endorsement, decline although there is no guarantee Nations publications, Sales No. E.15. especially by the multilateral financial that over borrowing might not occur. II.D.4, New York and Geneva). institutions. Using parameters for the Caribbean, a simulation of the impact of indexed UNCTAD. 2018. Financing for CONCLUSIONS and non-indexed bonds on the debt to development: Debt and debt GDP ratio was computed. The results sustainability and interrelated systemic This article has made the point that in Figure 1 suggest that when growth issues. Trade and Development Board, debt accumulation has become a global drops, without indexation, the increase Intergovernmental Group of Experts issue and is no longer a problem only in the debt to GDP ratio is largest (top on Financing for Development. Second of developing countries. The current line), while it does not increase by the session Geneva, 7–9 November. Item 3 approach to debt workout is therefore same amount with indexation (second of the provisional agenda. inadequate. line). Because a higher repayment is expected when growth rises, with The recent interest in state contingent indexation (third line) the decline in debt instruments such as Sovereign debt is not as significant as when growth COCOS and GDP linked bonds are rises without indexation (last tine). an important development since they

5 According to Christophe Destais (2017) , “GDP-linked bonds offer many advantages. They would limit the issuers’ debt-service obligations in times of slow or negative growth, reduce the likelihood of debt crises and defaults, avoid sharp spending cuts in order to maintain access to capital markets, and even provide some latitude for additional spending at a time when it is most needed. GDP-linked bonds would also render investors more responsible when it comes to lending money to a sovereign. In addition, investors would know in advance the terms of their bond restructuring and gain an equity-like exposure to a country. The counter-cyclical feature of GDP- linked bonds and the fact that they would alleviate the economic cost of a debt restructuring would also make them beneficial for financial stability and the broader economy”(CEPII Policy Brief No 19 November, Are State-Contingent Sovereign Bonds the Solution to Avoid Government Debt Crisis?) FOCUS | 5 PROMOTING A COMPETITIVE TOURISM INDUSTRY IN THE CARIBBEAN THROUGH UPGRADING AND DIVERSIFICATION Nyasha Skerette*

The Tourism industry is undoubtedly a leading driver of economic growth in the world economy, contributing to over 10% of global GDP, and accounting for 10% of world employment as the number of tourist arrivals have tripled since the 1950s.

or Caribbean countries, In an examination of tourism flows UPGRADING AND DIVERSIFICATION particularly the service producing to the Caribbean, Lamframboise et. AS STRATEGIES TO TRANSFORM THE Feconomies, the importance of the al. (2014) found that the Caribbean’s TOURISM SECTOR industry is even greater as tourism is the share of world tourism declined to primary driver of growth. This resulted 2.0% in 2013 relative to 2.5% in 2000. In the industrial sector, upgrading from the efforts of many Caribbean It was also determined that the average and diversification are related states to diversify their economy nominal cost of a beach holiday in the strategies commonly used to boost following the loss of competitiveness Caribbean was higher than for other competitiveness in production and and export potential of their agriculture beach holiday destinations. Further, trade. In the past, limited efforts have and, in some cases, mineral industries. following the 2008-09 global economic been made to apply these strategies to Across the subregion, the estimated crisis, annual visitor spending in the the services sector. direct and indirect contributions of Caribbean as of 2018 fell by as much tourism amounted to US$57.1 billion as US$5 million. This evidence along There is, however, a growing (15.2% of GDP) with total visitor with other statistics suggests that there recognition of the importance of expenditure reaching US$31.8 billion is need to improve the competitiveness services to the global value chain (the (20% of total exports). Moreover, of Caribbean tourism. process of bringing a product or service the tourism sector contributes 13.8% from conception to the consumer of total employment and generates For declining competitiveness in and providing after sales services). significant foreign exchange earnings Caribbean tourism to be addressed, This, in turn, has sparked increased for the subregion. Given the impact of the source of the problem must be interest in approaches to upgrading and tourism on the subregion’s economic identified. At the heart of this issue is diversification that might be utilized development, it is critical to promote the change in the needs of the average to transform the tourism sector and the competitiveness of the industry tourist. Today, tourists desire a more revitalize its competitiveness across the and, more importantly, to find ways authentic experience; one embedded subregion. to upgrade and diversify the tourism in the local culture. However, as it product. currently stands, Caribbean tourism is Although Caribbean countries have still very much natural resource based made efforts to upgrade and diversify with limited value added beyond a their tourism sector, significant CARIBBEAN TOURISM given country’s natural endowment. challenges remain which have COMPETITIVENESS DECLINING It is, therefore, important that limited both the competitive and the governments conduct a comprehensive sustainable development of the sector. Despite tourism’s substantial review, assessment and restructuring Below are some recommendations contribution to the subregional of Caribbean tourism aimed at adding on upgrades in the economic, social, economies, the reality is that Caribbean to the experience to meet the shifting and environmental sectors along with tourism has been losing competitiveness patterns of consumer demand, diversification strategies that Caribbean to other markets, such as those in Asian with attention to environmental countries can employ to increase and Latin American countries which responsibility and social inclusiveness. tourism competitiveness. offer a similar product, that of “sea, sun and sand”.

* Nyasha Skerette is an Economic Affairs Assistant at the Economic Commission for Latin America and the Caribbean, Subregional Headquarters for the Caribbean in Port of Spain, Trinidad and Tobago.

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ECONOMIC UPGRADING institutes across the subregion address eco-tourism sites and resources and the specific skills and knowledge clear determination made on what can Economic upgrading involves gaps and aim to achieve international be offered to tourists. Consideration implementing measures to improve benchmark standards in the industry. should also be given to ways in which productivity and to move up the value Tourism businesses can also contribute the local community can benefit and chain in the sector. In the case of the by conducting rigorous audits of the the sites can be preserved. tourism sector, economic upgrading skills and competencies of their workers involves capturing higher value added to eliminate gaps in the service provided Market diversification efforts should and more sophisticated, skill and and to also meet the expectations of also prioritize the removal of travel technology-intensive segments of the their guests. These businesses can also bottlenecks by visitors from non- value chain. promote social upgrading by offering traditional markets. For example, where incentives for continuous learning for applicable, the visa requirements can be It has primarily centred on product and employees. reviewed to better attract visitors from process upgrading, which entail the non-traditional and emerging source modernization of the tourism products ENVIRONMENTAL UPGRADING markets such as Russia, China, and in the countries and investment in Latin America. The subregion should certification and standards. Environmental upgrading refers to also seek to revisit the Single Domestic There is currently little evidence that measures to improve a producer’s Space Agreement employed during the Caribbean countries are targeting environmental performance by 2007 ICC Cricket World Cup to enhance resources to priority areas as most reducing consumption of energy, water multi-destination tourism across the of the attention is often given to the and other resources and eliminating subregion. Additional language and number of visitor arrivals. What is waste in production processes to reduce cultural awareness training are also needed instead, is greater priority to its overall environmental impact. needed to provide relevant and targeted product development in niche areas advertising and promotion in these based on trends in consumer demand. As Caribbean countries diversify countries. For example, more focus should be their tourism product from “sea, sun, given to the quality of visitors whereby and sand” into cultural, heritage and Finally, given the importance of average spending and impact on fragile ecological resources, it is important innovation to the quality of the tourism natural environments and cultural that governments in collaboration with product, there is a need for policy resources take precedence. Further, private sector firms develop rigorous makers to work closely with businesses efforts should also be made by both the standards and certification for cultural to identify ways to facilitate innovation public and private sector to improve the and historical sites while also increasing in the tourism sector. Incentives can be standards and quality of product and the range of protected habitats. offered through awards for the most services to match the requirements of innovative business or through targeted high spending visitors. DIVERSIFICATION tax incentives to innovators.

SOCIAL UPGRADING Diversification is a complementary strategy to upgrading and involves Social upgrading is the process of the provision of new products and (continued on page 13) improving wages, working conditions, services and penetration of new and wellbeing of workers in a sector tourist markets. Before entering into by increasing their skills, technical new product and market niches, it knowledge and organization of work. is important that tourism product It relates to the proportion of the gains and market diversification strategies from economic upgrading that are include a rigorous analysis of the prior captured by workers versus investors. requirements for successful entry.

In this sector, Caribbean governments The eco-tourism market is a prime should seek to establish harmonized example where this strategy can be standards and certification for training employed. Before marketing a location in the tourism sector. It is important as an eco-tourism destination, there that the universities and vocational should be a full mapping of the key

FOCUS | 7 FINANCING AGRO-PROCESSING IN THE CARIBBEAN

Michael Hendrickson* Most Caribbean countries1 have experienced a secular decline in their agricultural sector. Real output in agriculture has contracted because the sector has lost competitiveness overtime. The counterpart to the decline in domestic agriculture has been a steady growth in the food import bill in the subregion, which has doubled from around US$2 billion in 2000 to almost US$5 billion in 2018. It is estimated that over 80% of the Caribbean’s food is imported (OECS, 2017).

urther, the bulk of the subregion’s underdeveloped production systems in the Caribbean is characterized by food imports consist of semi- that affect the quality and consistency of excess demand in the face of available Fprocessed and processed foods supply of agricultural inputs; inadequate supply. This has led to higher costs of (Silva et.al, 2011). Therefore, the use of certification and standards that act finance for those businesses that can development of a more dynamic agro- as signals of quality, including sanitary access commercial finance. processing subsector could not only and phyto-sanitary standards (SPS) and save vital foreign exchange and generate the Hazard Analysis and Critical Control Therefore, most agro-processors have employment but could also provide Points (HAACP);4 and insufficient and had to rely on internal financing (own healthy food choices that could help to high cost of financing. savings), government funding and donor slow the epidemic of non-communicable support, because of market failures. diseases in the subregion. Financing,5 in particular, has been consistently noted as one of the most Market failures in the sector include High quality processed foods could also severe constraints facing agro-processors informational asymmetry or mismatches lead to higher demand for local food in the Caribbean (Lambert, 2001). This in information on the viability of the products by the tourism industry, which article analyses the financing challenge in project between lenders and borrowers, currently imports the bulk of its food agro-processing and explores options for which prevent farmers from obtaining from the very source markets for the closing the financing gap, including the loans. Informational mismatches include subregion’s tourists.2 Agro-processing use of innovative financing mechanisms. moral hazard, where the borrower fails also has other advantages, including to use the loan prudently because the increasing value added3 and shelf life of The article discusses the current sources lender cannot adequately monitor his food, which contributes to food safety, of finance for agro-processors and their actions. Adverse selection, another form standards and year-round availability. limitations. It then analyzes alternative of mismatch, stems from the inability This could provide a platform for financing mechanisms, including of the lender to assess the quality of creating a vertically integrated food innovative vehicles that the subregion borrowers. This often results in riskier value chain - from farm to table - thereby can use to bridge the financing gap and borrowers obtaining the largest loans. contributing to higher farmer incomes enable its agro-processors to become These two problems lead to higher and sustainable livelihoods (IFC, 2012). more competitive both in domestic and default levels and suboptimal allocation external markets. of credit in agro-processing. Nevertheless, the development of agro- processing in the subregion has been CURRENT FINANCING OF AGRO- Furthermore, some agro-processors hampered by binding constraints that PROCESSING IN THE CARIBBEAN who produce their own inputs lack titles limit its dynamism and competitiveness. to the land that they farm, and this limits Three important constraints are: The market for agro-processing finance their ability to secure commercial bank

* Michael Hendrickson is an Economic Affairs Officer at the Economic Commission for Latin America and the Caribbean, Subregional Headquarters for the Caribbean in Port of Spain, Trinidad and Tobago. 1 This article particularly relevant for CARICOM member States with larger agricultural sectors and processing capacity such as Trinidad and Tobago, Guyana, Belize and Jamaica. However, smaller states could focus on selected niches. 2 This is ironic, as the logic of an integrated tourism sector is to maximise the returns to Caribbean along the different segments of the value chain, especially food and beverage demand which is an important component of the chain. 3 Value addition contributes to a seven-fold increase in income for some products (Isuekebhor, 2014). 4 HACCP is an international system aimed at reducing food safety hazard risks by identifying and controlling for given hazards at specific points along the production chain. 5 An IFC report on MSMEs, which includes many agro-processors, indicated that access to adequate electricity and finance were their main binding constraints.

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credit, because of their inability to meet The agro-processing subsector is two- producers. There are a range of VCF collateral requirements (FAO, 2019). In tracked with respect to access to finance. mechanisms, with only some being general, markets are not available, or The larger, well-established businesses appropriate for Caribbean agro- when available, are not well developed such as National Canners Ltd, owner processors. Three of these are: contract for financing some business start ups of the Matouks brand in Trinidad and agro-processing, joint-venture finance and for helping agro-processors to Tobago and Walkerswood Caribbean and trade-receivables finance (IFAD, expand then businesses, especially to Foods in Jamaica, have been able to 2012). enter export markets. Therefore, the access commercial finance. This stems subregion needs venture capital and from their track record in running Contract agro-processing is based on angel investors which can facilitate these profitable businesses. By contrast, small lead-firm providing direct funding or activities. businesses with limited collateral assets guaranteed sales agreements that allow have had little or no success in accessing processors to access finance from other Recognizing the financing gap, to commercial finance. The financial financial institutions. The latter model Caribbean governments have established constraints on this segment of the has been used in contract farming by development institutions to fund market is therefore likely limiting the the Grenada Marketing and National agriculture and agro-processing activities development of new small enterprises, Importing Board (MNIB) (FAO, 2016). in the subregion. Important institutions which is hampered by lack of access to Similarly, the Jamaica Broilers company include agricultural development banks, start-up capital. has a contractual farming arrangement national development foundations and with some farmers. The company other agricultural finance institutions. DEVELOPING ALTERNATIVE provides them with high quality chicks These institutions provide concessional FINANCING MECHANISMS TO and guidelines on standards, which the finance to small agro-processors for FUND AGRO-PROCESSING farmers are expected to meet in order business start-up and operational to sell to the company. Contract agro- expenses. Funding is often provided Agro-processors and policy makers in processing takes an integrated value with a grace period of 2-4 years and loan the subregion will need to continue to chain approach in that lead firms also servicing is sometimes on the reducing explore non-traditional and innovative provide technical assistance in areas such balance, which is more favourable financing mechanisms to increase as standards, quality management and (Francis, 2001). The development finance funding for the sub-sector (ACP, IICA, marketing. This increases the chances institutions also provide extension CARDI and CTA, 2016). A range that the agro-processor will succeed and services in areas such as project writing of innovative financing mechanisms thus be able to repay the loan in cash and bookkeeping to facilitate small could be explored, including a mix of or in kind. Caribbean agro-processors business development. Increasingly, debt, equity, loan guarantees and other that are export-ready could explore these institutions also consider gender schemes. contractual financial arrangements with in their lending activities, in order to lead buyers to scale up their operations. increase the number of female-owned6 Agro-processing value chain finance small businesses in agro-processing. is an innovation that should be given greater priority in the subregion. Value Nevertheless, the pool of funds available chain finance (VCF) refers to funding to development finance institutions is for various activities along the value relatively small compared with that held chain for a product or service. This type by the dominant commercial banks of finance might be more relevant for (continued on page 14) (CDB, 2016). In addition, development larger Caribbean islands, with greater finance institutions have been affected prospects for agro-processing. Agro- by loan repayment problems that processing is an intermediate activity have forced most of them to shift between the production and distribution to operating on more commercial of agricultural products and is ideal for terms. This has resulted in reduced VCF. Moreover, because VCF tends to concessional lending, which has limited be better tailored to different segments small businesses’ access to development of the agro-processing value chain financing institutions. it is likely to have greater impact on

6 The Caribbean Development Bank (CDB) and Caribbean Export are partnering to develop a WE-Xport programme that will provide greater access to finance for female- owned businesses that are focused on exporting.

FOCUS | 9 BUILDING A CASE FOR TRADE DRIVEN ECONOMIC RESTRUCTURING IN THE CARIBBEAN: AN EXAMINATION OF THE TRINIDAD AND TOBAGO

TRADE POLICY Sheldon Mc Lean* As a small, open economy, trade and investment play an integral role in the welfare and development of Trinidad and Tobago. Recognizing that international trade is the driver of economic growth and development, the Government of the Republic of Trinidad and Tobago (GORTT) sought to develop a comprehensive trade policy to guide its external trade agenda in the medium term and drive the economic diversification and transformation required for development. CLAC Caribbean collaborated Union (EU) as well as other subregional horizontal in nature and insufficient to with Trinidad and Tobago’s and bilateral arrangements. either adequately improve the country’s E Ministry of Trade and Industry economic resilience or boost economic in the development of the ‘Trinidad TRINIDAD AND TOBAGO TRADE growth. and Tobago Trade Policy 2019 – STRUCTURE 2023: Towards Sustainable Economic With protectionist sentiments emerging Growth and Diversification (TTTP)’. International trade is pivotal to the globally, which threaten to disrupt The policy is a concrete expression of development of the country’s economy, the multilateral system and the global the GORTT’s trade-related objectives with the ratio of exports to GDP being economy, building economic resilience aimed at improving competitiveness, 68% and imports to GDP at 64%. and reducing the effects of external economic and export diversification, as Trinidad and Tobago remains the shocks1 has increasingly become a well as the country’s foreign exchange leading manufacturing economy in the priority for subregional governments. A earning potential. In providing the subregion. leading policy priority of the GORTT, technical assistance required for therefore, is to transform exports to drafting the policy, ECLAC Caribbean On the one hand, 90% of all the ensure that the country increasingly drew on lessons learned from previous country’s exports are concentrated produces high-value goods and services, trade policies, and incorporates policies among a few energy and energy-based with growing global demand. and strategies included in the National products along with a few food and Aid for Trade (AfT) Strategy 2016- beverage and tobacco products. On the KEY FINDINGS OF THE EMPERICAL 2019; the National Quality Policy other hand, services now account for ANALYSES (NQP) 2018-2030; and the National about 57% of its GDP, although they e-commerce Strategy 2017-2021. A key represent approximately 10% of total Empirical analysis conducted by ECLAC mandate in drafting the TTTP, was its exports. Further, while goods have revealed that Trinidad and Tobago’s alignment to the country’s long-term traditionally dominated the country’s strongest trade complementarity lies development framework espoused in exports, trade in services has increased with Caribbean economies, Latin and the National Development Strategy in significance, rising to 18.3% of GDP Central America, Africa and Asia. This (NDS) - Vision 2030. in 2017. means that exports of Trinidad and The TTTP also considers internationally Tobago best match the imports of agreed development goals, in particular Moreover, the country’s exports are, these economies, when compared with the Sustainable Development Goals on average, far too specialized in a few the country’s trading partners such as (SDGs), and the international and products when compared to the world the EU and North America. subregional trade agreements to which average or even with that of other the country is signatory. The latter Small Island Developing States (SIDS). This suggests that the country’s includes, inter alia, the World Trade Efforts to diversify the economy export patterns have been influenced Organization (WTO) agreements, over the past two decades have been by factors such as market proximity, the Revised Treaty of Chaguaramas, mildly successful, as illustrated by the the existence of preferences or the ACP Cotonou Agreement and increasing share of mid-tech products. historical trading arrangements, with the follow-up Economic Partnership These attempts at diversification, insufficient consideration of the Agreement (EPA) with the European however, have proven to be largely trade complementarity, comparative

** Sheldon Mc Lean is the Coordinator of the Economic Development Unit at the Economic Commission for Latin America and the Caribbean, Subregional Headquarters for the Caribbean in Port of Spain, Trinidad and Tobago. 1 Particularly external shocks relating to commodity prices, global demand, climate change and geo-politics. 10 | FOCUS Issue 3 / July - September 2019

advantage and the potential of intra- Therefore, in an attempt to further for the fashion industry, pharmaceutical industry trade necessary to sustain trade diversify Trinidad and Tobago’s products, down-stream aluminum creation. exports along the value-chain and align products, downstream petrochemical The Trade Complementarity Index exports to markets with increased trade products, downstream as well as calculated further highlights that complementarity, the TTTP advances upstream energy products, agriculture there is considerable room to develop key elements of an export diversification and agro-industrial products, and green exporting capacity to match the imports strategy and seeks to nudge the country industries. The Policy gives a more of all groups of trading partners. towards increased production and detailed assessment of these and other Promoting intra-industry trade could exports in industries with comparative products as well as destination markets. help achieve this export development, advantages. In diversifying goods and which is consistent with the results of services export the imperative is clear SERVICES the growth engines estimates conducted and is outlined below. in the drafting of the policy. The analysis revealed that the services GOODS sector continues to be one of the main There is, however, considerable engines of growth in Trinidad and potential for Trinidad and Tobago to The TTTP presents a range of products Tobago, with 53% of the long-run increase intra-industry, intra-regional where Trinidad and Tobago has a variation in economic growth being trade. This could provide a basis for a comparative advantage. Moreover, in attributable to this sector. subregional integration process which is assessing the export potential of these predicated on production integration as products in relation to destination However, while the services sector originally envisaged in the CARICOM markets, the TTTP has been instructed presented the greatest opportunity Single Market and Economy (CSME). by a consideration of its exports for economic growth in the medium Using the Grubel-Lloyd (1975) Index that are either Rising Stars or Missed to long term, the country has found it for Trinidad and Tobago relative to Opportunities. challenging to increase the efficiency selected groups of countries, indicators and export of services. The Trade are generally low (typically below 0.25) The Policy targets the production and Policy, therefore, has a considerable and generally show no rising trend over export of high value-added products focus on increasing the scope, quality, such as, electronic assembly items, light and efficiency of the services that the manufacturing, textiles and garments country, particularly Tobago, seeks to Based on the results of the export. empirical analyses, the wider Caribbean, South America, Rising Stars: Central America, Asia2 and Products commanding increased Europe will be primarily targeted (continued on page 12) market share in dynamic sectors. for export expansion, the TTTP Priority: Accelerate export given significant underutilized expansion of these products. trade potential. The TTTP also recognizes the potential to expand exports to the United Missed Opportunities: States, where a large Caribbean Products with decreasing share in diaspora continues to drive dynamic markets. demand for such exports. TTTP Priority: Reverse the declining export performance of these key sub-sectors time (see Table 1). This suggests that (These products were mainly being exported to EU, Canada and Africa). Trinidad and Tobago currently is not involved in significant intra-industry trade.

2 Including India, China and the ASEAN bloc.

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BUILDING A CASE FOR TRADE DRIVEN ECONOMIC RESTRUCTURING IN THE CARIBBEAN: AN EXAMINATION OF THE TRINIDAD AND TOBAGO TRADE POLICY (CONTINUED)

Based on the analysis, the trade manufacturing and energy sectors. It The TTTP presents key elements of competitiveness matrix of services further targets the development of the an export diversification strategy that export for Trinidad and Tobago shows following sectors: tourism; medical and is rooted in a broader industrial policy a mixed picture. On the one hand, in health services; creative industries and and seeks to nudge the country towards Figure 1, sectors where Trinidad and entertainment services; key business increased production and exports Tobago typically has comparative services including law, accounting and in industries where the country has advantage are classified as Missed auditing and education and training; comparative advantage. This economic Opportunities or Retreats because the ICT; data collection and analysis for transformation would reduce the price country has not fully exploited this marketing and customer service; and demand vulnerabilities that typify advantage. On the other hand, sectors financial services, energy services and Trinidad and Tobago’s exports and where the country does not have a maritime services. In this regard, the build capacity for sustained growth. comparative advantage or its export aim is to identify and take appropriate volumes are very small (e.g. financial steps to increase the scope, quality, and In this regard, the TTTP presents services and intellectual Property), efficiency of production and exports of policy measures in key areas that will have been shown to be Rising Stars. these services. Successful liberalization facilitate the shift into tertiary industries This suggests that the sectors are in of these aspects of the domestic market and propel the export diversification the early stage of development, and and the attraction of foreign investment and expansion agenda forward. Key thus technical and financial policy into the development of human among these measures is the investment support are strongly required. The capital and physical infrastructure in innovation and research and implementation of the Trade Policy will will also make business services more development, which the GORTT views be a vehicle for delivering this support. competitive and attractive as a services as crucial for closing the technology gap export. with developed economies. Measures to In light of these findings, the TTTP support trade are also identified, with a recommends that the services sector KEY POLICY INTERVENTIONS focus on global value-chain integration be developed in parallel with the and clustering; enhancing human capital

Figure I: Trade Competitiveness Matrix for Services Export of Trinidad and Tobago (from 2004-2006 to 2015-2017)

Source: UNCTADSTAT

12 | FOCUS Issue 3 / July - September 2019

for trade development; promoting the The Ministry of Trade and Industry will human capital to access export markets administration and enforcement of be responsible for implementing the in order to improve the standard of IP rights; enhancing environmentally TTTP, with the support and engagement living and quality of life of citizens. friendly trade practices and supporting of the private sector, other Government e-Commerce uptake. Ministries and the public agencies under Through the TTTP, the GORTT its purview such as exporTT, CreativeTT outlines a plan for the medium to long- Moreover, by aligning the TTTP to the and the Trinidad and Tobago Bureau term delivery of broad-based export National Development Strategy, the of Standards (TTBS). Among existing growth, particularly in high-value exports GORTT has underscored its commitment arrangements, the Ministry will utilize by increasing production and trade to identifying, understanding and the TTTP-established Cross-Agency in emerging areas with comparative removing obstacles to the full participation Implementation Committee and the advantage across the goods and services of women and youth in the development Trade Policy Technical Working Group sectors. The TTTP identifies key of trade. Therefore, in a first for Trinidad to engage public and private stakeholders goods and services sectors for export and Tobago’s trade agenda, women, in the monitoring, evaluation and diversification and expansion and sets the youth, and the differently-abled have implementation of the Policy. country on a sustainable and clear path been brought into the frame of trade, to implementing a policy framework that trade policy and industrial development. CONCLUSION would support its development. Such a policy inclusion has led to the identification of a number of measures Trinidad and Tobago’s participation in that will ensure that adequate broad-based international trade allows it to reach economic growth and social development beyond resource constraints and use is achieved. the energy, ingenuity and diversity of

(continued from page 7) PROMOTING A COMPETITIVE TOURISM INDUSTRY IN THE CARIBBEAN THROUGH UPGRADING AND DIVERSIFICATION (CONTINUED)

CONCLUSION positioned to embark on such efforts, REFERENCES thereby setting the stage for other small The present article has outlined a few to medium sized entities to follow Laframboise, Nicole, Mwae, Nkunde, important upgrading and diversification accordingly in the future. In the end, Park, Joonkyu and Zhou, Yingke strategies that can be employed to assist the goal is to ensure that upgrading and (2014). ‘Revisiting Tourism Flows to the in the improvement of the Caribbean’s diversification efforts lend themselves to Caribbean: What is Driving Arrivals?’, tourism sector. Implementation of a an increase in the economic contribution mix of these and other strategies can IMF help to boost the observed decline in of the tourism sector and to ensure that competitiveness impacting the subregion such efforts also lead to social upgrading Hendrickson (2019). ‘Industrial over the last couple years. measured by growth in employment, Upgrading and Diversification to wages and working conditions, as well address the competitiveness challenges Of course, the capacity of a given country as environmental upgrading, reflected in in the Caribbean: The Case of Tourism’, or business to undertake such initiatives efficient use and conservation of natural ECLAC will vary. However, policymakers and and environmental resources. larger tourism entities may be better

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FINANCING AGRO-PROCESSING IN THE CARIBBEAN (CONTINUED)

Joint venture financing involves shared Jamaica Stock Exchange Junior Market The digital revolution also opens investment and ownership between agro- provides an avenue for investment innovative options for the subregion. processors and multinational operators in SMEs that meets the criterion for Crowd financing,9 for example, is in the sector. Joint ventures can also listing. Importantly, the Exchange links an option, especially for start-up provide access to modern technology, investors from the diaspora with the funding. There are four broad types of standards and external market channels. local market to provide international crowdfunding that can be leveraged by Nevertheless, to attract investors, marketing experience and support. Caribbean agro-processors: donations Caribbean agro-processors would need Further, the subregion also needs to or grants from benefactors; rewards;10 to improve their investment-readiness examine the feasibility of venture capital debt; and equity or share capital. Given by sourcing high quality inputs, adopting and angel investing. the steady uptake of digital technologies international standards and certification in the Caribbean, agro-processors could and adopting modern processing Venture capital and angel investing develop well-designed projects that facilities that could meet production are severely lacking in the subregion. could attract crowd funding, especially scale and quality requirements. Nascent efforts at developing venture from the diaspora. This could have the capital institutions have not been very added benefit of providing business Trade-receivables finance entails a successful (Rambarran, 2014). A major management and marketing know-how bank or other financial institution reason for this was insufficient demand from financiers who are experienced in providing working capital to an agro- for funds available by entrepreneurs, these areas. processor based on accounts receivable partly due to lack of viable projects or confirmed orders from buyers of (Guardian Newspaper, 2014). CONCLUSION the product. This financing option can be useful in the Caribbean, where most Given the weak private sector response, A more dynamic agro-processing agro-processing SMEs lack sufficient Caribbean governments might need subsector could contribute to fixed asset-based collateral to access to explore the potential of a PPP growth, employment and economic commercial credit. In addition, this arrangement for developing a venture diversification in the Caribbean. form of finance could be supplemented capital fund to promote start-ups However, to achieve this goal, countries by equity finance. Nevertheless, to and for the scaling up of competitive will need to tackle key bottlenecks that attract trade-receivables finance, agro- businesses in agro-processing and other are retarding the sector. processors would need to practice sound sectors. Nevertheless, such a fund would business management, including proper need to be guided mainly by private Affordable finance remains a major accounting and auditing, which would incentives and have proper oversight constraint. The time is therefore ripe increase their ability to service the loan. and management to ensure its success. for policy makers to explore innovative Indeed, this has been done in large financing options such as value chain Equity finance is another area of economies such as the European Union8 finance, angel investing and even opportunity for Caribbean agro- (Stander, 2017). Given the high levels of venture capital to promote growth and processors. Most Caribbean agro- external indebtedness in the subregion, sustainability in the sector. This should processing businesses are family-owned this would require a reprioritization of be supported by productive development with little or no investment from outside government investment. The case can policies to ensure a consistent supply parties (FAO, 2014). By opening up to be made for government investment, of high-quality primary inputs for equity investments, well established agro- particularly in businesses that are processing and a focus on making more processors can access more finance for profitable and have good prospects. producers ready for exporting. scaling up their operations, reduce their Governments can then secure a share financial risk and benefit from investor of the profits for reinvestment in REFERENCES expertise and guidance in managing the new ventures or for scaling-up agro- business.7 Although equity financing processing activities that have the ACP, IICA, CARDI and CTA. 2016. is mainly used in larger firms, the potential to penetrate export markets. ‘Investing in the Future of the Caribbean

7 In addition, they avoid the high loan servicing costs of debt finance, which could stymy the growth of the business. 8 The size and scale of the EU no doubt provide great advantages, but CARICOM as a group can still explore the state venture capital option. 9 Crowd financing entails the pooling or scaling-up of small amounts of money from group of persons who are enthusiastic about a business or venture (“Crowdfunding Strategy & Information, 2019). 10 Rewards entail investors contributing funds to a project in return for a reward or return on their investment that is in proportion to the size of the investment. 14 | FOCUS Issue 3 / July - September 2019

Means Investing in Agriculture.’ the United Nations (FAO). 2014. ‘SMAE Campus. Competitiveness in the Caribbean: Caribbean Development Bank. (2016). Proceedings of the FAO_JAPA OECS Secretariat. 2017. ‘OECS Puts ‘Micro, Small & Medium Enterprise Agribusiness Roundtable on Small and the Spotlight on Agriculture’, OECS Development in the Caribbean: Towards Medium Argo-processing Enterprises’. Secretariat. a New Frontier.’ Francis, Judith Ann. (2001). ‘The Fruit Rambarran, Jwala. 2014. ‘Venture Capital Crowdfunding Strategy & Information. Industry in the Caribbean Production, Financing in the Caribbean: Its Relevance 2019. ‘Crowdfunding 101’, http:// Processing, to the Economic Transformation crowdfundingstrategy.net/ Marketing & Future Prospects,’ Agenda,’ 3rd Caribbean Business beforeyoucrowdfundtips COMUNIICA, Año 5, N°16, 2001, p. Executive Seminar, Trinidad and Tobago. 48-59 Food and Agricultural Organization Silva, Sacha, Best, Robert and Tefft, of the United Nations (FAO). 2019. Guardian Newspaper. 2014. ‘More Help James. 2011. ‘Reducing the CARICOM FAO Addresses Gender Inequalities Needed for Venture Capitalism,’ https:// Food Import Bill and the Real Cost of in Caribbean Farming,’ 2 January 2019 www.guardian.co.tt/article-6.2.383094. Food Policy and Investment Options’ ‘FAO addresses gender inequalities in fe8e72a6cd. Caribbean farming Stander, Phillip. 2017. ‘Public Policies to International Finance Corporation Promote Venture Capital: How to Get Food and Agricultural Organization (IFC). 2012. Innovative Agriculture SME National and EU Measures in Sync’, of the United Nations (FAO). 2016. Finance Models,’ IFC. Jacques Delors Intitut, Berlin. ‘Contract Farming for Improved Farmer- Isuekebhor, Godwin. (2014). to-Market Linkages’, Issue Brief #17, The International fund for Agricultural January Lambert, Ian. (2001). ‘Problems and Development (IFAD). 2012. ‘Agricultural Constraints to the Development of the Value Chain Finance Strategy and Design: Food and Agricultural Organization of Agro-processing Sector,’ UWI Open Technical Note’.

RECENT AND UPCOMING MEETINGS 2019

AUG 8 - 9 August 2019 Caribbean Road Safety Regional Workshop - Kingston, Jamaica

14 August 2019 The effective and coherent implementation of the environmental dimension of the 2030 Agenda in Guyana through the Escazú Agreement - Georgetown - Guyana

List of Recent ECLAC Documents and Publications Listed by Symbol Number, Date and Title

LC/TS.2019/6 February 2019 Preliminary overview of the economies of the Caribbean 2017–2018

LC/TS.2019/9 February 2019 Economic Survey of the Caribbean 2018

FOCUS | 15 The Magazine of the Caribbean Development and Cooperation Committee ECLAC Subregional Headquarters for the Caribbean

PO Box 1113, Port of Spain, Trinidad and Tobago Tel: 868-224-8000 E-mail: [email protected]

vrb.al/eclaccaribbean

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