Compete Caribbean Private Sector Assessment Report for Grenada 2013
FINAL REPORT Compete Caribbean OECS Project Private Sector Assessment and Donor Matrix Report for Grenada
Prepared by: The Special Studies Unit (SSU), Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), University of the West Indies, Cave Hill Campus, Barbados
August 2013
1 Compete Caribbean Private Sector Assessment Report for Grenada 2013
BENCHMARK/COMPARATOR COUNTRIES:
Benchmark countries used in this report include all 15 beneficiary countries of the Compete Caribbean Program, as listed below, in addition to Malta, Mauritius, the Seychelles, and Palau.
2. The Bahamas
3. Barbados
4. Belize
5. Dominican Republic
6. Dominica
7. Grenada
8. Guyana
9. Haiti
10. Jamaica
11. St. Lucia
12. St. Kitts and Nevis
13. St. Vincent and the Grenadines
14. Surinam
PROJECT TEAM
Dr. Judy Whitehead, Dr. Winston Moore, Dr. Jonathan Lashley, Mr. Ryan Straughn, , Mr. Mitch Hartman, Ms. Carol-Anne Blenman and Ms. Beverley Hinds.
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ACRONYMS AND ABBREVIATIONS
CARICOM Caribbean Community CDB Caribbean Development Bank CIDA Canadian International Development Agency CIDA Canadian International Development Agency CROSQ CARICOM Regional Organisation for Standards and Quality CSME Caribbean Community Single Market and Economy DfID United Kingdom Department for International Development ECCU Eastern Caribbean Currency Union EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product HDI Human Development Index IADB Inter-American Development Bank ICT Information and Communication Technology IFC International Financial Corporation IMF International Monetary Fund OECS Organisation of Eastern Caribbean States PRGF Poverty Reduction and Growth Facility PSA Private Sector Assessment PSD Private Sector Development RCA Revealed Comparative Advantage RCF Rapid Credit Facility of the IMF UN United Nations UNDP United Nations Development Program USAID United States Agency for International Development VAT Value Added Tax
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Contents
Executive Summary...... x 1. Introduction...... 2
1.1. Background...... 2
1.2. Methodology...... 3
1.3. Report Structure...... 4
2. Country Overview...... 5
2.1. Governance...... 5
2.2. Environment...... 8
3. Grenada, the OECS and the ECCU...... 10
4. Macro Context of Grenada and the OECS...... 13
4.1. The International Economy...... 13 4.1.1 Trade...... 15 4.1.2 Foreign Direct Investment (FDI)...... 18 4.1.3 Analysis for the International Economy...... 19
4.2. The Domestic Economy...... 19 4.2.1 Analysis for Domestic Economy...... 26
4.3. The Productive Sectors...... 27 4.3.1 Industry and Agriculture...... 27 4.3.2 Services...... 30 4.3.3 Analysis for the Productive Sector...... 31
5. Characteristics, Issues, Challenges of Private Sector Development in Grenada...... 32
5.1. Goal of Private Sector Development in Grenada...... 32
5.2. State of the Private Sector...... 33 5.2.1 Large and Fast Growing Sectors...... 35 5.2.2 Business Supportive Institutions Structure...... 37 5.2.3 Donors and Other International Entities...... 37 5.2.4 Access to Finance...... 49 5.2.5 Corporate Taxation...... 54 5.2.6 Business Environment...... 57 5.2.7 Technology and Innovation...... 60 5.2.8 Trade and FDI Policies...... 61 5.2.9 Labour Regulation...... 63 5.2.10 Infrastructure, Communications and Energy...... 65
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5.2.11 Gender...... 66 5.2.12 Ease of Doing Business...... 68 5.2.13 Summary...... 73
5.3. Field Research Findings...... 74 5.3.1 Priority Action Areas...... 74
5.4. Summary...... 88
6. Conclusions and Recommendations...... 89
6.1. A Long Term Action Plan for Private Sector Development...... 89
6.2. Summary...... 91
Bibliography...... 94 Appendices...... 96 Appendix 1: Structure of the OECS...... 97 Appendix 2: List of Key Stakeholders from Interviews and Consultations...... 99 Appendix 3: Grenada’s Governance Framework...... 101 Appendix 4: Donor Matrix Report for Grenada...... 103 Description of the Donor Community...... 105 Description of Local Stakeholders...... 105 Public Sector Stakeholders...... 105 Private Sector Stakeholders...... 106 Description of Information Available for the Analysis of Private Sector Characteristics, Development Initiatives and Results...... 108 Identification of Opportunities to Increase Efficient Design and Execution of Programs...... 108 Identification of Opportunities to Address Omitted Priority Problems...... 109 Recommendations...... 109 DMX Annex 1: Analysis of Donor Projects and Programs in Grenada and the OECS...... 111
TABLES Table 1: Labour Market Data for Grenada (Various Years)...... 25 Table 2: Unemployment Data for Comparator Countries (Various Years)...... 26 Table 3: Top 20 Exports for Grenada for 1995 and 2010...... 29 Table 4: Contribution to GDP by Sector in Grenada (2012)...... 33 Table 5: Sectoral Employment in Grenada (2008)...... 34 Table 6: Main Objectives and Sector Profiles of Donor Projects in Grenada and the OECS...... 38 Table 7: Institutional Analysis: Background of Business Support Institutions in Grenada...... 39 Table 8: Institutional Analysis: Donors and International Organisations...... 40 Table 9: Credit Unions in the Caribbean (Number and Penetration Ratio)...... 49
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Table 10: Technology Use by Manufacturing Firms in Selected Countries (% of firms)...... 61 Table 11: Infrastructure Indicators for Grenada and Comparator Countries...... 65 Table 12: Biggest Obstacles to Business in the OECS (Enterprise Survey, 2010)...... 73 Table 13: Private Sector Growth and Development: SWOT Matrix for Grenada...... 76 Table 14: Recommendations and Actions Matrix for Grenada...... 93 Table 15: Business Support Institutions and Other Relevant Bodies...... 99 Table 16: Organisations Attending National Consultation and Main Contact...... 99 Table 17: Cabinet Members and Portfolios...... 101 Table 18: Private Sector Stakeholders in Grenada...... 107 Table 19: Main Objectives and Sector Profiles of Donor Projects in Grenada and the OECS...... 111 Table 20: Overview of Main Donor Projects by Objective, Sector and Value...... 112 Table 21: Main Objectives and Sector Profiles of Donor Projects in the OECS and Member States...113 FIGURES
Figure 1: Snapshot of the Grenada and Comparator Countries...... 6 Figure 2: Governance Effectiveness for Grenada versus Comparators (2010)...... 7 Figure 3: Environmental Performance: CO2 Emissions for Grenada versus Comparators (2008)...... 9 Figure 4: Current Account Balance for Grenada (1980-2010)...... 13 Figure 5: External Accounts Analysis for Grenada (1980-2010)...... 14 Figure 6: External Debt and Debt Service for Grenada and the OECS 6 (2000-2010)...... 15 Figure 7: Real Effective Exchange Rate Index (2005=100) and Current Account Balance (%GDP) for Grenada (1980-2010)...... 15 Figure 8: Trade Snapshot for Grenada (2008)...... 16 Figure 9: Treemap of Imports, Grenada 2010...... 17 Figure 10: Treemap of Exports, Grenada 2010...... 17 Figure 11: Inward FDI for Grenada and Comparators (2011)...... 18 Figure 12: GDP Dynamics in Grenada...... 20 Figure 13: GDP Growth in Grenada (1980-2010)...... 21 Figure 14: GDP Decomposition by Expenditure for Grenada (1980-2009)...... 21 Figure 15: GDP Decomposition by Industry for Grenada (1980-2010)...... 22 Figure 16: Inflation Data for Grenada (1980-2010)...... 23 Figure 17: Fiscal Deficit for Grenada (2000-2010)...... 24 Figure 18: Gross Government Debt for Grenada versus Comparators (2000-2010)...... 25 Figure 19: Product Space Map (Exports) for Grenada 1995 and 2010...... 28 Figure 20: Diversity and Average Ubiquity of Exports for the Caribbean...... 30 Figure 21: Decomposition of Service Exports for Grenada (1980-2010)...... 31
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Figure 22: Interest Rate Spreads for Grenada (1980-2010) and Comparators (2010)...... 50 Figure 23: Domestic Financial Variables for Grenada versus Comparators (2010)...... 51 Figure 24: Sources of Finance for Investment for Grenada and Comparators (2010)...... 52 Figure 25: Sources of Finance for Working Capital for Grenada and Comparators (2010)...... 53 Figure 26: Value of Collateral Required for Credit for Grenada and Comparators (2010)...... 53 Figure 27: Firms with Access to Financial Services for Grenada and Comparators (2010)...... 54 Figure 28: Corporate Taxes for Grenada and Comparators (2012)...... 55 Figure 29: Tax Rates as a Constraint to Doing Business for Exporters and Non-Exporters (2010)...... 55 Figure 30: Major Constraints to Doing Business- Licenses and Permits and Tax Administration (2010) ...... 56 Figure 31: Business Licensing as a Major Constraint to Doing Business (2010)...... 56 Figure 32: Strength of Investor Protection for Grenada versus Comparators (2012)...... 57 Figure 33: Corruption as a Major Constraint to Doing Business (2010)...... 58 Figure 34: Crime, Theft and Disorder as a Major Constraint to Doing Business (2010)...... 58 Figure 35: Practices of Competitors in the Informal Sector as a Major Constraint to Doing Business (2010)...... 59 Figure 36: Transportation as a Constraint to Doing Business (2010)...... 60 Figure 37: Market Map Average Tariffs (2009)...... 61 Figure 38: Senior Management Time Spent on Dealing with the Requirements of Government Regulations- Comparison across Selected Countries (2010)...... 62 Figure 39: Major Constraints to Doing Business: Customs and Trade Regulations (2010)...... 63 Figure 40: Major Constraints to Doing Business: Time to Clear Imports (days)...... 63 Figure 41: Labour Market Issues in Grenada and Comparators (2010)...... 64 Figure 42: Availability of Services to Firms for Grenada versus Comparators (2010)...... 65 Figure 43: Major Constraints to Doing Business: Electricity and Transportation (2010)...... 66 Figure 44: Female Participation in Establishments for Grenada versus Comparator (2010)...... 67 Figure 45: Percentage of Firms with Female Top Managers for Grenada versus Comparators (2010).67 Figure 46: Overall Ease of Doing Business Rankings for Selected Countries (2012)...... 68 Figure 47: Time and Cost to Start a Business: Grenada versus Comparators (2004)...... 69 Figure 48: Time and Cost to Start a Business: Grenada versus Comparators (2011)...... 69 Figure 49: Change in Doing Business Rankings for Grenada versus Comparators (2011 to 2012)...... 70 Figure 50: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators.71 Figure 51: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators.71 Figure 52: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators.72 Figure 53: Electricity Rates in Grenada and Selected Caribbean Countries (2010)...... 85 Figure 54: Organisational Chart of the OECS Secretariat...... 98
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8 Compete Caribbean Private Sector Assessment Report for Grenada 2013
Executive Summary
The private sector assessment (PSA) for Grenada draws on analysis of primary data from interviews with key stakeholders from the domestic private and public sector as well as interviews with regional and international agencies. In addition, secondary data was utilised to describe the state of the country at both the micro and macro levels. Threats to Private Sector Development in Grenada Grenada has a number of strengths that would likely support the continued growth and development of the private sector. The island’s natural beauty and heritage can be leveraged to support its continued focus on tourism, while its experience as a world leader in the production of spices can be leveraged to generate entrepreneurial opportunities higher up the value chain. However, key threats identified during the private sector assessment (PSA) could have significant implications for private sector development in the future. The key threats identified from the Enterprise Survey (2010) for Grenada indicated tax rates, an inadequately educated workforce, access to finance, political instability and crime theft and disorder as the five biggest obstacles to doing business in Grenada. These results were mostly borne out in the examination of other secondary data.
Table A: Biggest Obstacles to Business in the OECS (Enterprise Survey, 2010)
Biggest Obstacle ANT DOM GREN SKN SLU SVG Tax rates 18.2 8.6 17.6 20.0 6.0 11.0 Inadequately educated workforce 1.3 2.1 15.4 10.0 7.4 12.8 Access to finance 15.3 44.0 12.8 20.9 35.0 20.6 Political instability 6.1 0.0 12.3 0.5 0.2 10.2 Crime, theft and disorder 7.9 3.6 10.2 13.4 5.1 11.3 Practices of the informal sector 4.8 3.1 8.4 5.8 2.7 7.8 Tax administration 2.4 0.0 5.7 1.4 0.0 2.6 Transportation 3.9 3.5 4.1 3.4 10.7 1.0 Access to land 0.7 0.0 3.9 0.7 0.0 0.0 Labour regulations 0.0 4.4 2.9 0.0 5.6 0.0 Electricity 13.0 29.7 2.7 15.2 22.4 10.6 Customs and trade regulations 16.1 0.9 2.1 5.2 4.0 9.9 Corruption 7.7 0.0 1.4 3.5 0.9 1.5 Courts 0.0 0.0 0.8 0.0 0.0 0.3 Business licensing and permits 2.7 0.0 0.0 0.0 0.0 0.3 In addition to these umbrella issues, a number of specifics also emerged from previous research. These issues included: Finance Issues: need for legislation to protect creditors; lack of a credit bureau; high interest rate spreads and high collateral requirements;
Cost Issues: cost and time to register a business; stamp duty on sales;
Competition from unregistered businesses;
Limited intra-regional transportation options.
In addition, several other issues were identified by interviewees, including:
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Political and Governance Issues which related to ad hoc planning;
A ‘silo’ mindset in the public sector where agencies and departments operate in their own interest rather than to a specific strategic plan;
Lack of availability of data for strategic planning purposes;
Lack of fiscal space and hence a lack of Government investment in public good investments;
Cost of energy and electricity;
A Long Term Action Plan for Private Sector Growth The analysis of both primary and secondary data identified a number of pertinent issues affecting the development and growth of the private sector in Grenada. One of the most critical recommendations to emerge from the study is the need for the implementation of a forum for collaboration between key stakeholders and representatives of labour, the private sector and Government. The priority of the Action Plan was:
Action 1: Establishment of a Tripartite Committee (government-employer-labour) to identify the needs of all bodies and guide and oversee private sector development strategies.
At present, attempts are being made to facilitate these discussions; however, there is no formal forum available to discuss the issue of private sector development at the national level. While higher level discussions are taking place in Grenada, they are at an early stage and presently no sub- committees to deal with specific issues have been formed; although recent discussions have addressed how the committees on wages, prices and productivity, and on economic development, should be composed. It is recommended that this tripartite group be tasked with implementing the other elements of the action plan below, identified from the research process:
Action 2: Rationalisation and streamlining of public sector’s business support framework through the work of the Tripartite Committee to ensure a revised system that addresses both the needs of the private sector (access to finance, technical assistance and data) as well as wider obligations of Government.
Action 3: Development of a National Strategic Plan that mainstreams private sector development in the country. Through the lobbying efforts of Government, the plans for the development of the private sector should also be integrated into regional strategic plans at the level of the OECS/ECCU and CARICOM.
Action 4: Reduce the cost of finance through the reduction of transactional and operational costs in financial institutions through the use of technology and monitoring of efficiency levels; the reduction of risk and risk-averseness through the establishment of a credit bureau and a collateral registry; the strengthening of the Grenada Development Bank in terms of financial and human resource; and the introduction of alternative financial products and greater competition in the financial sector.
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Action 5: Increase the capacity of businesses to access finance through the provision of support (technical assistance and training) for the adoption of accepted business practices (recordkeeping) and the skills to develop business plans for funding and strategic planning1.
Action 6: Provide incentives for energy conservation and frameworks for the exploitation of renewable/alternative energy. Incentives and support in this area will act as both a cost- reduction tool as well as an opportunity for investment and enterprise development in the renewable/alternative energy sector.
Action 7: Education and training curriculum reform that addresses the long term strategic direction of Government as well as the more immediate needs of the private sector. The long term strategic direction of Government should be constructed on the basis of dialogue with the private sector.
An overview of the recommendations and related action plans are shown in Table B. While all of the Action Points relate to the establishment of a conducive environment for the development of the private sector and are external to enterprises, the private sector itself will need to take a portion of responsibility and seek to adopt a more proactive approach to exploiting opportunities available in the market. Given the perception that the private sector is not as proactive as it can be, and as a caution in relation to interventions to spur private sector development, it is imperative that all key stakeholders, are fully aware of the current level of development of the private sector. In Grenada, and across the region, the private sector is relatively under-developed and limited in its ability to cope with current neo-liberal developments resulting from a long period of protection. Any interventions should therefore seek to assist the private sector, in consultation with the public sector, to build domestic market opportunities as well as special and differential treatment for export goods in the short- to medium-term, rather than fully expose the private sector to the rigours of international competition. Lessons should also be learnt in relation to drawing on the strengths of the region rather than seeking, as in the past, to attract investment based on low-cost labour which subsequently led to the attraction of footloose enterprises that relocate to competitors as cost levels change. In this vein, the Caribbean needs to exploit those resources for which it has an advantage and a brand, suggesting a concentration on alternative energy (geothermal, solar), specialist agricultural products (nutmeg in Grenada) and agro-processing, eco-tourism, edu-tourism (drawing on human resources in the region), heritage tourism, health and wellness (both product-specific and related to tourism), and financial services, among others. In addition to drawing on the locational advantages that exist in the region, attention should be paid to the specific recommendations that have consistently emerged from research in the region which speak to: niche market development; moving up the value chain; development of strategic alliances and joint ventures for knowledge and technology transfer; and the development of clusters, both vertical and horizontal. While activities in these areas are not specifically mentioned in the Action
1 These services exist in Grenada and are provided by the GIDC. However, the utilisation of these services needs to be expanded given the results to emerge from the PSA.
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Plan due to their specificity, they should remain as options during the development of the strategic plan for private sector development and growth in Grenada.
12 Table B: Recommendations and Actions Matrix for Grenada
Critical Themes Main Critical Issues Actions Details Responsibility of… General Political Limited dialogue between 1. Establishment of a As noted by Fashoyin (2004) there is a need for: Government to and Governance stakeholders representing Tripartite Committee Members to be independent and representative initiate Issues Government, labour and Willing to consult and negotiate the private sector Demonstrate mutual trust and respect ‘Silo-mindset’ in business 2. Rationalisation and Need for communication at the Tripartite Committee level to determine the specific external needs Government in support organizations in the streamlining of public of enterprises in relation to the business environment (finance, technical assistance) while meeting conjunction with public sector sector’s business the wider obligations of Government. Tripartite Committee Ad hoc development support framework planning 3. Development of a Lack of information sharing National Strategic by the private sector Plan that Lack of utilization of mainstreams private technology. sector development Access to Finance High Transaction and 4. Reduce the cost of To address the issues of access to finance, several specific steps can be taken: Eastern Caribbean Operating Costs finance Introduction of technological advances; Central Bank; Informational Asymmetries 5. Increase capacity of Monitoring of efficiency rate of financial institutions to identify areas for improvement; Business support Alternative Financing business to access Establishment of credit bureaus and collateral registries; organisations Options finance Introduction of alternative financing options such as equity financing, Greater competition in the financial sector, particularly the strengthening of domestic institutions; Provision of technical assistance and training to the private sector in relation to increasing formality, the adoption of accepted business practices, and the skills to secure funding. Cost of Doing Cost of electricity 6. Provide incentives for Provision of incentives and support to help reduce energy costs through conservation as well as for Government Business energy conservation investing in the sector. To facilitate investment in the sector, Castalia Strategic Advisors (2012:7), and frameworks for note that there is a need to: the exploitation of ‘Define legal and regulatory framework for geothermal energy; alternative energy Support geothermal resource exploration and related feasibility studies; options. Set clear permitting and planning for geothermal development; Support geothermal transactions’ Labour Market Limited availability and lack 7. Education and The specific content of any reform should be determined at the Tripartite level and informed from Government Issues of specialist skills in the training curriculum the strategic plan for private sector development. Agreement will need to be reached on the labour market: reform. immediate needs of the private and the longer terms development vision of Government. Trade Issues Limited product and market The trade issues highlighted for Grenada cannot be addressed directly by the Action Plan as the expansion of product range and markets will require range with a domestic the action of private sector entrepreneurs. The Action Plan seeks to provide a conducive environment in the provision of appropriate labour and focus. capital for the exploitation of market opportunities. Compete Caribbean Private Sector Assessment Report for Grenada
July 2013 1. Introduction
1.1. Background
Compete Caribbean is a private sector development program funded by the IDB, DFID and CIDA which works with Governments and the private sector to promote economic growth and enhance competitiveness across the Caribbean region. The Private Sector Assessment (PSA) and construction of Donor Matrices for countries in the region is but one element of the overall program. The overall objectives of the Compete Caribbean program in the OECS include: a) Building a more robust and sustainable private sector through the elimination of remaining restrictions to the free flow of goods, services, capital and people within the countries of the Caribbean Single Market and Economy; b) Providing opportunities for forging closer private sector linkages across OECS member countries; c) Shifting from protection to adjustment support to help disadvantaged countries, regions and sectors, manage the process of intra-regional liberalisation; and d) Facilitate private sector development within a more open trading environment. The program is expected to be delivered within three components as follows: 1. Component 1 provides a review and diagnostic of the status of private sector development in the OECS region. This component focuses on: a. A review of existing studies and reports on private sector development and competitiveness for the participating OECS member countries in the last 5 years, as well as an evaluation of the recent performance of the private sector in each of the six independent OECS member countries; and b. The identification and evaluation of obstacles to effective private sector development; 2. Component 2 focuses on the development of private sector development strategies and action plans to include the development of a draft private sector development action plan for each of the six independent OECS member countries, and for the OECS sub-region as a whole, and the identification of possible opportunities for collaboration by CDB and IDB in supporting the development of the private sector in the region. 3. Component 3 focuses on consensus building among key stakeholders on future actions under the recommended private sector development strategy and facilitation of national and regional workshops to present findings and action plans. There are two main elements of the PSA project which are a Private Sector Assessment Report (PSAR) and the construction of a Donor Matrix (DMX). The DMX is to provide an inventory of donor projects related to private sector development and identify duplication and omissions. The main aim of the PSAR element of the project is to identify market failures that are affecting the development of the private sector at a national and at a regional/sub-regional level, and to identify priority areas for intervention. There are two main elements of the PSA:
First, it compiles and analyzes information from different sources in order to provide a snapshot of the state of the private sector in the country, and second, it brings the information to relevant stakeholders- such as firms in the economy- to establish priorities on all the identified issues affecting the future growth in the private sector. The Caribbean Development Bank is the executing agency for the PSAs and DMXs for six of the OECS countries which include: Antigua and Barbuda, Dominica, Grenada, St. Kitts, St. Lucia and St. Vincent and the Grenadines. In late 2012, the research team conducted interviews across the OECS with key stakeholders including government ministries and agencies concerned with private sector development, private sector associations, civil society and individual business enterprises. These interviews were conducted with a view to ascertaining the primary constraints to private sector development and potential solutions to the issues identified. The following report highlights the main results to emerge from and analysis of primary and secondary data collected as well as the views expressed in national consultations organised by SALISES in Grenada and Antigua and Barbuda, and by the Caribbean Growth Forum in Dominica, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. The details of the methodology adopted for the research is shown below.
1.2. Methodology
The private sector assessment (PSA) draws on primary data analysis from interviews with key stakeholders from the domestic private and public sector as well as interviews with regional and international agencies. In addition, secondary data was utilised to describe the state of the country at both the micro and macro levels. The specific methodology for the PSARs had three (3) core components: 1. Analysis of secondary data and documentation from the following sources: a. Enterprise Surveys/Doing Business Surveys b. Central Government Fiscal Accounts c. World Development Indicators d. CARICOM Secretariat/OECS Secretariat e. Miscellaneous Country Surveys 2. Interviews/Consultations with key stakeholders: a. International Donor Agencies b. Regional/Sub-Regional Agencies c. Country-Specific Agents including business associations, representatives of labour and relevant public sector bodies. Specific businesses and finance providers were also included. 3. Identification of Main Thematic Issues affecting PSD and Identifying Priorities from the results of interviews and national consultations. The interviews conducted in Grenada included the main business support organisations and sector associations in both the public and private sectors (Grenada Industrial Development Corporation; National Development Foundation of Grenada; Grenada Hotel and Tourism Association and the Grenada Chamber of Commerce and Industry), finance providers and representatives, the Grenada offices of regional agencies, and private enterprises. A listing of key stakeholders from interviews and consultations is included in the Appendices. In addition to these specific elements of the research, the development of the PSA Reports was assisted by the information to emanate from consultations organised under the Caribbean Growth Forum banner.
The Caribbean Growth Forum (CGF) is a joint initiative by the Compete Caribbean Program, the Inter-American Development Bank, the World Bank, and the Caribbean Development Bank. It is supported by the Canadian International Development Agency, the United Kingdom’s Department for International Development, CARICOM Secretariat, and the University of the West Indies. The CGF is a facilitated methodology for public-private dialogue around issues central to private sector development and growth. It brings a non-traditional approach to the greatest challenge currently faced by the region – creating sustainable and inclusive growth. The Forum also aims to facilitate an action oriented dialogue around key policy reforms needed across three thematic areas: Investment Climate, Skills and Productivity and Logistics and Connectivity. Many Caribbean territories have a very good starting point with draft or completed national growth strategies. Therefore, the aim is to identify the priorities within the three pillars of the CGF that can contribute to these national strategies. In this respect, the CGF’s methodology has been designed to result in a consensual, concrete action plan with specific responsibilities and timelines, and it has built in transparency and accountability mechanisms to make sure that, over time, results are delivered. The CGF is part of the donor agencies’ commitment to support the Caribbean and develop and implement inclusive growth policies that generate jobs and opportunities for all.2 The CGF’s consultations and subsequent working groups provided useful information to add to, and corroborate, the findings of the current PSA.
1.3. Report Structure
The rest of the Private Sector Assessment is structured as follows. Initially, Section 2 provides a general overview of the country. This is followed by a description of its relationship with the OECS and the ECCU in Section 3. Section 4 then presents the macroeconomic context of the country in relation to domestic economic variables and the productive sectors, and the country’s position in the international economy with respect to trade and foreign direct investment. Section 5, the main section of the report, outlines the main characteristics, issues and challenges of the private sector including the support for private sector development, the state of the private sector, a review of primary and secondary data on the private sector and a summary of the main issues affecting its development. This is followed by the development of an action plan for private sector development in the country. Section 6 presents the main conclusions of the PSA and provides some general recommendations. The Appendices to the report include relevant details to complement the main report as well as the Donor Matrix Report for the country. The Donor Matrix Report describes the relevant members of
2 http://caribgrowth.competecaribbean.org/about-the-cgf the donor community, local stakeholders, information sources, opportunities for enhancing the design and execution of programs and opportunities to address priority gaps. 2. Country Overview
Grenada is a lower-middle income small microstate within the Eastern Caribbean archipelago. The island is just 344 km2, or about one sixtieth (1/60) the size of Wales. At the end of 2010 the population was estimated at 104,000 persons, with a median age of approximately 23 years and a population growth rate of about 0.3% per annum. Grenada’s Human Development Index (HDI) score in 2010 was 0.748, giving it a ranking of 67th out of 187 countries. The country’s score is above that for the region, largely reflective of the relatively higher life expectancy (76 years) and level of education. Grenada is a member of the Eastern Caribbean Currency Union (ECCU), which is fixed to the US dollar at $1 (Eastern Caribbean Dollar) to $0.37 (US Dollars). In recent years the Grenadian economy has been severely affected by the global economic recession. Since 2009, the economy has contracted by almost 6%. Furthermore, growth is projected at less than 2% over the short- to medium-term (2013 to 2015). This slowdown in economic activity has had a significant effect on Government finances, indeed Grenada is now one of the most indebted SIDS in the world. Unemployment as well has reached historic heights with 1 in 4 Grenadians estimated to be unemployed. Figure 1 outlines some indicators of Grenada’s economy in relation to its strength and the structure of the private sector.
1.4. Governance
Like most Caribbean islands, the colonial past of the island plays a fairly important role in relation to present cultural, social, political and economic characteristics. During the colonial era, the island was highly sought after, with the Spanish, French as well as British claiming possession at some point in the island’s history. Britain, the last country to claim colonial possession of the island, only introduced self-governance in the mid-1920s to landowners to a so-called Legislative Council. It was not until 1951 that all persons – regardless of income or property – were given the right to vote and contest elections. The island attained full internal self-governance in 1967 and Independence in 1974. After initial elections held in 1974, civil conflict resulted in the suspension of the constitution and democratic elections were not held again until December 1984. Grenada has adopted a modified Westminster parliamentary system. Within this model, Parliament consists of the Queen, represented by the Governor General, the Senate and the House of Representatives. The Leader of the Party holding the most seats in the House of Representatives is invited to form a Government by the Governor General. The Prime Minister then selects members from the House of Representatives to form the Cabinet. The Prime Minister and Cabinet together constitute the Executive arm of the Government. A profile of the Cabinet is shown in Appendix 3. Figure 1: Snapshot of the Grenada and Comparator Countries Small Caribbean States, Grenada and Extra-Regional Comparators
Grenada has one of the lowest GDPs per capita in the region and amongst international comparators However GDP growth over the last 30 years has been similar to that for other comparator countries 20000 6 18000 16000 5 14000 4 12000 10000 3 GDP per capita, PPP (constant 2005 international $) 8000 Average GDP Growth 1980-2010 (%) 2 6000 4000 1 2000 0 0 s a u d m 0 6 it a a 0 0 r n in 0 0 u e r 2 2 a r u M G S
Net FDI in the country has fallen dramatically since the onset of the internationalSince financial 2003, crisis Government and is now Debtbelow has the exceeded regional theaverage regional average and exceeded 100% of GDP from 2010
25 120 100 20 80
15 60 General Government Gross Debt (% of GDP) 40 Foreign Direct Investment, net inflows (% of GDP) 10 20 5 0
0 3 6 9 0 0 0 0 0 0 0 0 0 2 2 2 2 0 4 8 0 0 0 0 0 0 -52 2 2
Services are an extremely important part of the Grenadian economy at approximatelyTravel 78% services of GDP are in 2011, the main some component 10% above of the service regional exports average and have been above the regional average since 2006 80 80 78 75 76 70 74 65 72 60 70 55 Services Value Added (% of GDP) 68 Travel Services (% of service exports, BOP) 50 66 45 64 40 62 35 60 30
0 2 4 6 8 0 5 7 9 1 0 0 0 0 0 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2
Grenada's main export partnersOne areof the regional, main issues while for the businesses main export in Grenada commodities and the in (2008)regions were... was access to finance. Interest rate spreads are relatively high in the region, above extra-regional comparators
10 Milling Products, malt etc. Paper and paperboard etc. 9 8 7 25% 6 Fish and other marine animals Coffee, tea, mate and spices 5 47% Interest Rate Spread (%) 4 10% 3 2 10% Other 9% 1 0
0 2 4 6 8 0 0 0 0 0 0 1 0 0 0 0 0 0 2 2 2 2 2 2 Small Caribbean States include: Antigua and Barbuda; The Bahamas; Barbados; Belize; Dominica; Grenada; Guyana; Jamaica; St. Lucia; St. Kitts and Nevis; St. Vincent and the Grenadines; Surinam; Trinidad and Tobago. Extra-regional comparators include: Malta, Mauritius, the Seychelles, and Palau. Freedom House (www.freedomhouse.org) ranks the country as ‘Free’ with a Freedom Rating of 1.5, where a rating of 1 indicates the highest degree of freedom and 7 the lowest level of freedom. The think tank notes that recent parliamentary elections were considered free and fair (albeit with allegations of voter list manipulation). In addition, the right to free expression and the free exercise of religious beliefs are generally respected. The island has a robust civil society that actively participates in domestic, regional and international discussions. Workers have the right to strike and organise and collectively bargain, the independence of the Judiciary is respected and women are represented in Government. The Worldwide Governance Indicators Project of the World Bank and the Brookings Institution (Figure 2) suggests that weaknesses exist in the area of ‘Government Effectiveness’. The indicator captures the perceptions of the quality and independence of public services and civil service, the quality of policy formulation and implementation and the credibility of the government’s commitment to these polities. In 2010, the score for ‘Government Effectiveness’ in Grenada was in the 50th-70th percentile for all countries evaluated and below the median for the group of comparator countries.
Figure 2: Governance Effectiveness for Grenada versus Comparators (2010)
100 90 80 70 60 50 40 30 20 Percentile Rank (0-100) 10 0 s s s e i o ia e go e z it d c n a ll li a a u i b e e H b . L d o h B r t a T c a S en d y B r n Se G a e h d t a d id n n a i t Tr n ce in . V St
Source: Woldwide Governance Indicators There are no legal barriers to female participation in politics in Grenada. Since independence, 29 females have served in Parliament, with Mrs. Cynthia Gairy being the first female to sit in the House of Representatives in 1961. While women are not excluded from political parties, there are low levels of female representation in both the upper and lower Houses of Parliament. This indicates that more needs to be done to support gender equity in relation to political leadership. The Division of Gender and Family Affairs is the Government’s key focal point for the implementation and monitoring of policies and programmes pertaining to Gender and Development. The island is a signatory to numerous treaties and conventions in relation to gender equity. These include: the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) (1990), the Beijing Declaration and Platform for Action (1995), the Inter-American Convention on the Prevention, Punishment and Eradication of Violence. The notion of gender equity is also enshrined in the island’s constitution.
1.5. Environment
Grenada is located at the southern end of the chain of Lesser Antillean islands at 11 059’ Latitude and 12020’N and Longitude 61036’ and 61048’ West. Grenada is the largest of three main islands, with the other two being Carriacou and Petit Martinique. Carriacou is located 24km to the north-east of Grenada, while Petit Martinique is east of the northern section of Carriacou. In terms of area, Grenada is 312 km2, Carriacou 34 km2, and Petit Martinique 2.3 km2. The island’s climate is humid- tropical-marine, with seasonal or diurnal variation and a constant northeast trade wind. In the mountainous interior of the island, annual rainfall is between 3750-5000 mm while in the coastal regions it is 990 – 1500 mm. The driest months occur in the first half of the year (January to May) while the wettest months are in the latter half of the year (June to December). Annual average temperature ranges from a low of 280C to a high of 330C. The island is volcanic in origin and is therefore composed of andesite lava, pyroclastic rocks and basalt. The interior of the island is characterised by mountainous peaks, steep ridges and deep, narrow-valleys, the western side of the island is quite rugged, while the east, north-eastern and south-western parts of the island have gentler slopes. The highest point is Mount St. Catherine at 840m. A single north-south trending peak is the main watershed for the island. Approximately 30% of the island is covered with forests and woodlands. Grenada has a fairly advanced environmental policy framework. The overarching strategy document – the Medium-term Strategy – speaks to economic, social and environmental issues. There is a National Forest Policy in place that attempts to maintain a representative sample of all forest ecosystems which uses a market-based approach to encourage the conservation of privately owned forests, and the promotion of sustainable use of genetic resources for social, spiritual and economic benefit among other goals. Key pieces of environmental legislation in place include the Beach Protection Act, the Birds and Other Wildlife Act, the Fisheries Act, the Forest Soil and Water Conservation Act, the Land Development Control Authority Act, the National Parks and Protected Areas Act, the Pesticide Control Act, the Public Health Act, the Territorial Waters and Marine Boundaries Act, the Town and Country Planning Act and the Wild Animals and Birds Sanctuary Act. Five Government Departments (Physical Planning Unit, Ministry of Communication, Works and Physical Planning, Forestry Department, Land use Department, Environmental Health Department) and 3 Statutory Bodies (Solid Waste Management Authority, National Water and Sewage Authority, Physical Planning and Development Control Authority) are involved in environmental management. The economy and quality of life in Grenada are largely dependent on the capacity of its terrestrial and marine ecosystems to continue to provide ecosystem services. Ecosystem services take many forms: provisioning from natural systems (seafood, wood and plants from gully ecosystems) and altered agro-ecosystems; seashore protection services of reefs and coastal vegetation; sand generation by reefs; non-extractive use services that support income generating activities such as snorkelling, SCUBA diving, hiking and sightseeing; and, finally, the creation of opportunities for recreation, a critical component of human well-being that is afforded Grenadians through healthy terrestrial and marine ecosystems. Most of the key commodity inputs required for production are imported. The country currently imports sand from Guyana to supplement local production. The removal of sand from local beaches was banned in 2009. Renewed growth in the construction industry could place pressure on both domestic production and imported supplies of sand. There are two mining sites on the island: Mt. Gay Estate (opened in 2004 with an estimated life span of 10-15 years); and Telescope, located on the Windward North Eastern coast (in operation since 1944). The island imports fossil fuels to meet its energy needs. In 2011, the island spent EC$224 million on mineral fuels and related materials, or approximately 15% of GDP. The high dependence on imported energy implies that the island’s economy is volatile to changes in prices on the international energy market. Despite the relatively high reliance on fossil fuels, CO2 emissions per capita in Grenada are still comparative low: 2.4 tonnes per capita (Figure 3). With few possibilities of expanding its own limited production of fossil fuels, even though offshore fossil fuels are being explored, the most effective alternative to achieving a balance between demand and supply is to (1) contain demand growth by increasing energy efficiency, and (2) expand production from alternative energy sources and natural gas. Although much progress is now being made, neither of these two areas has an established policy/regulatory framework for the promotion of public or private investments. There are 23 surface and 6 ground water potable supply sources on mainland Grenada yielding approximately 12 million gallons per day (mgd) in the rainy season and 7 mgd in the dry season. In contrast, the demand for water in the wet season season is 10 mgd and 12 mgd in the dry season [Gov07]. The relatively high level of demand in the dry season is largely due to the overlap with the peak tourist period. Water resources are supplied by the National Water and Sewage Authority, but some communities in the south of the island rely on rainwater harvesting to augmenting their supply during the dry season. Carriacou and Petit Martinique are 100% reliant on rainwater harvesting.
Figure 3: Environmental Performance: CO2 Emissions for Grenada versus Comparators (2008)
12
10
8
6
4 Metric Tons per Capita 2
0
u is ic la v l a e b P N u d ep n R a n ts a it ic . K in t m S o D Source: World Development Indicators
3. Grenada, the OECS and the ECCU
Grenada is a member of the Organisation of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU), the common currency framework for the OECS countries; this is with the exception of the British Virgin Islands which does not use the Eastern Caribbean Dollar. The Eastern Caribbean Dollar is issued by the Eastern Caribbean Central Bank (ECCB), the monetary authority for the OECS. Grenada represented 14% of nominal GDP for the OECS, third behind Antigua and Barbuda (27%) and St. Lucia (21%), and ranked 5th in GDP per capita, in 2010. The OECS was established in 1981 with the signing of the Treaty of Basseterre, named after the venue of the signing of the treaty, the capital of St. Kitts and Nevis. The motivation for the formation of the body was to provide a formal structure for cooperation to deal with development challenges posed in the post-independence period. The OECS currently has nine members: Antigua and Barbuda; Commonwealth of Dominica; Grenada; Montserrat; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines; and Anguilla and the British Virgin Islands as associate members. In June 2010, a Revised Treaty was signed, establishing the OECS Economic Union, a single economic space for the free movement of goods, people and capital and a framework for the harmonization of monetary and fiscal policies. The Revised Treaty allows for the adoption of ‘…a common approach to trade, health, education and environment, as well as to the development of such critical sectors as agriculture, tourism and energy’3. The organs of the OECS are shown in Appendix 1. Of particular relevance to the development of the private sector in the region are the units under the Economic Affairs Division, specifically the Export Development Unit (EDU) and the Trade Policy Unit (TPU). The EDU is responsible for export development in manufacturing and non-traditional agriculture and the TPU provides assistance in formulation and implementation of trade policies and in the negotiation of trade arrangements. The EDU is currently working directly with officers in business development organisations across the region to facilitate interaction between them and actual enterprises in the region. Such proactive outreach programs are integral to enabling these development agencies in serving the needs of the private sector and act to allay the concerns expressed by international agencies during the PSA that the organs of the OECS were not as proactive as they could be. Although the Revised Treaty of 2010 spoke to fiscal coordination and free movement of persons, these have not come to full fruition, while movement of capital has not obtained any significant scale economies at the regional level. In relation to fiscal coordination, Schipke, Cebotari and Thacker (2013:5)4 note:
‘…faced with very high public debt, the region needs to put in place a mechanism to enforce fiscal discipline because the success of the common currency depends on simultaneously satisfying eight national budget constraints. As the experiences from the European Union
3 http://www.oecs.org/about-the-oecs/who-we-are/about-oecs
4 Schipke, A., Cebotari, A. and Thacker, N. (eds.) (2013). The Eastern Caribbean Economic and Currency Union: Macroeconomics and Financial Systems. IMF: Washington D.C.. demonstrate, cross-border spillover- especially via the financial sector- from the weakest member could undermine confidence and trigger a regionwide crisis.’ The undermining of confidence in these economies would indeed create a crisis, especially in relation to these economies’ reliance on foreign investment and tourism. In addition, the free movement of goods, labour and capital are the foundation of unions of this type to enable, in the long term, the realization of the benefits of integration, namely benefits of scale economies, rationalization of public services, and greater bargaining ability at international forums. However, given that private sector enterprises in the region indicate inadequately trained labour as a major constraint, it is questionable whether free movement of labour within the sub-region will pay any dividends to the receiving country, or the union as a whole, given that the economies are not structured in any significantly different ways, and therefore their labour force is likely to be comprised of the same types of skills and abilities. A similar situation to what exists for labour could be said to exist in relation to finance. While Schipke, Cebotari and Thacker (2013) note that indicators at a macro level indicate that the financial sector in the OECS is well developed, and on par with Latin America and the rest of the Caribbean, Enterprise Surveys ‘tell a different story’(p.15). Enterprise Surveys and Doing Business indicators across the region show that a significant amount of firms in the OECS view lack of access to finance as a major obstacle to their business, while interviews conducted during the PSA for the region indicate that this is due to the cost of finance, collateral requirements and application procedures, issues ground in the lack of credit information as well as the capacity of enterprise owners in supplying information to creditors. Given that this issue is pervasive across the OECS, while theoretically regional integration should provide scale economies in financial provision, in reality the movement of capital within the union would simply replicate the problems experienced at the domestic level. While these issues demonstrate that perhaps regional integration in the OECS/ECCU does not facilitate private sector development to the degree it should, their actual existence provides for a perception of stability at both the political and financial level, as well as pose the opportunity for growth in the future; that is if issues related to skills in the labour force, fiscal coordination and scale economies in financial provision can be addressed, if the private sector itself seeks to proactively exploit available opportunities in the wider region. However, these issues cannot be taken without due consideration to the external effect of the global financial crisis. In seeking to address the downturn, the OECS/ECCU has implemented an eight point program which includes the following elements and main components: 1. Suitably adapted Financial programmes for each country: a. Aim: To identify the financing gaps of government and recommendations to close gaps and address structural issues in relation to the Balance of Payments (external sector), National Accounts (real sector), Fiscal Accounts (public sector) and Monetary Accounts (financial sector). 2. Fiscal reform programmes: a. Aim: To develop efficient revenue and expenditure systems, as well address the management of governments’ cash flows, debt servicing and wages. 3. Debt management programmes: a. Aim: To facilitate the adoption of a structured approach to debt management to achieve optimal debt profiles and enhance sustainability. The debt target is 60% of GDP by 2020. 4. Public sector investment programmes (PSIP): a. Aim: To provide short- to medium-term fiscal stimuli for the ECCU in relation to ‘Quick disbursing projects which will put people to work and stimulate economic activity to restore growth; and …provision of critical infrastructure for medium and long term development’5. 5. Social safety net programmes: a. Aim: To review the social safety nets in the ECCU countries and the development of measures to achieve sustainable poverty reduction. 6. Financial safety net programmes: a. Aim: Restructuring and recapitalisation of the banking and insurance sectors and regulatory and supervisory strengthening. 7. Amalgamation of the indigenous commercial banks: a. Aim: To create economies of scale and scope, operational efficiency in financial services in the ECCU. 8. Rationalisation, development and regulation of the insurance sector: a. Aim: To reduce the number of insurance companies in the region and strengthen the regulatory framework. A brief review of the eight point plan reveals limited direct relevance to the development of the private sector with the exception of plans for public sector investment programs (PSIP) and the amalgamation of banks which, it would be hoped, would provide easier access to finance. While the points in the plan seek to provide an overall conducive environment for business in the long term, there appears to be limited attention to the immediate needs of the private sector at the regional and domestic level. This is not to say that the needs of the private sector are not being addressed, simply that the focus of policy at the regional level is more on the macroeconomic environment rather than increasing productivity and private sector development.
5 http://www.eccb-centralbank.org/about/ann26_eight.asp 4. Macro Context of Grenada and the OECS
1.6. The International Economy
Until 2004, Grenada’s current account deficit has normally fluctuated around 15% of GDP. Following Hurricane Ivan in 2004 and Hurricane Emily in 2005, and the subsequent damage to key agricultural commodity exports, the external current account deficit has more than doubled, reaching 35% of GDP in 2007 (Figure 4). The island’s banana producers also faced challenges due to changes to the EU trade regime for Bananas, which opened the EU market to increased competition. The slowdown in the key source markets has also implied that tourism receipts have declined in every year since 2009, while rising commodity prices has resulted in rising payments for oil and food imports.
Figure 4: Current Account Balance for Grenada (1980-2010)
50000000 10
5 0 0
-50000000 -5
-10 -100000000 -15 Millions US$ -150000000Balance (US$M) % of GDP % of GDP -20
-200000000 -25 -30 -250000000 -35
-300000000 -40 0 3 6 9 2 5 8 1 4 7 0 8 8 8 8 9 9 9 0 0 0 1 9 9 9 9 9 9 9 0 0 0 0 1 1 1 1 1 1 1 2 2 2 2
Source: World Development Indicators The large current account deficits, reported since 2005, were largely financed by foreign direct investment (FDI) inflows, mainly in tourism (e.g. hotels) and infrastructure (e.g. mobile telecommunications), and to a lesser extent remittance flows and overseas development assistance (Figure 5). After reaching as high as US$157 million in 2007, FDI inflows have declined somewhat and were estimated at US$60 million in 2010. Remittance and overseas development assistance flows are approximately US$25 million per year. The external indebtedness of the island was fairly steady for much of the period at around 80 per cent of GDP and between 10-20 per cent of exports of goods and services (Figure 6). In small open economies within a currency union with a fixed exchange rate regime, the real effective exchange rate is not a good proxy for external competitiveness. These economies tend to be very open to the rest of the world, given the lack of natural resources and limited self-sufficiency in food production. As a result, domestic prices tend to be largely driven by external factors beyond the control of the domestic authorities. In addition, as these economies tend to largely focus on the supply of services to other economies (e.g. tourism and international financial services), which are not very dependent on price, but on quality, the real effective exchange rate is not is good proxy for competitiveness of the island to provide these services. The limited utility of the real effective exchange rate to explain competitiveness changes is shown by the lack of correlation between the index and the external current account balance (Figure 7). Essentially, as the exchange rate is fixed, domestic prices are largely driven by external prices, not domestic market conditions. One would therefore not expect any relationship between the RER and the current account balance in fixed exchange regimes such as in the OECS.
Figure 5: External Accounts Analysis for Grenada (1980-2010)
400000000
300000000
200000000 ODA Net Financing FDI Remittances
100000000
Millions US$ 0 -22795901 -27991574-35946112-30418235-32614189-28564994 -37608321-43011304-39127383-42456510-48237518-47159534-49337221-39825024 -54939438-51472614-62923891-52930711 -80594644-81011165 -100000000 -91543958-88914083 -115110081 Balance of G&S Deficit + Reserves Accum. -130703359 -163293401 -200000000 -200754247-194857095 -219888893 -245184320 -260373216-249978456 -300000000 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2
Source: World Development Indicators Figure 6: External Debt and Debt Service for Grenada and the OECS 6 (2000-2010)
100
90
80
70 Grenada Debt Service OECS 6 Average Debt Service 60
50 % 40
30 Grenada External Debt (% GDP) OECS 6 Average External Debt (% GDP) 20
10
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IMF Article IV Consultations (Various Years) Note: Debt Service measured as % of Goods and Services Exports Figure 7: Real Effective Exchange Rate Index (2005=100) and Current Account Balance (%GDP) for Grenada (1980-2010)
140 10 5 120 0 100 -5 80 -10 -15 Index (2005=100) 60 -20 %GDP 40 -25 -30 20 -35 0 -40 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 Year
Exchange Rate Index Current Account Balance (%GDP)
Source: World Development Indicators 1.6.1 Trade Figure 8 provides a snapshot of the trade patterns in Grenada. More than one third of all imports are energy related. Fluctuations in international oil prices therefore have a significant impact on the overall external current account for the island. Given the lack of a large manufacturing base, most of the machinery and equipment required for the production of goods and services are imported from abroad (Figure 9). The USA is the largest trading partner, accounting for 31 per cent of all imported goods. Most of these items are non-durable and durable consumer items. Trinidad and Tobago also shows up as a major source of imports. Regarding goods exports, the island has a relatively vibrant milling and paper products industry. Exports from these two industries have supplemented exports in recent years, as traditional exports of spices and bananas have struggled in the face of major weather events (Figure 10). Most of these exports are aimed at other islands in the Caribbean, as well as tourists that have returned to their country. Besides these two main areas, the country’s export market is largely dominated by commodity exports.
Figure 8: Trade Snapshot for Grenada (2008) Figure 9: Treemap of Imports6, Grenada 2010
Source: The Observatory of Economic Complexity Figure 10: Treemap of Exports, Grenada 2010
6 A treemap of imports/exports show various products’ share of total imports/total exports. The product classification is based on the Harmonised Commodity Description and Coding System (HS) at the 4-digit level. Source: The Observatory of Economic Complexity 1.6.2 Foreign Direct Investment (FDI) FDI in Grenada is largely associated with tourism and commodity exports. In 2011, FDI in Grenada was 5% of GDP, largely on par with most other small island states. Grenada faces a number of challenges in regards to attracting FDI, many of which are outside of the control of policymakers. Its small market size limits the amount of funds flowing into the island for market-seeking opportunities. The size of the economy and lack of natural resources also results in higher input costs and limited opportunities for natural resource seeking FDI. Given the profile of the island, it is likely that most FDI would be of the efficiency-seeking variety (e.g. international financial services). This would utilise the surplus labour but would also require some investment in the human resource capabilities of the island.
Figure 11: Inward FDI for Grenada and Comparators (2011)
30.0
25.0
20.0
15.0
10.0
% GDP 5.0
0.0 is s a ic a v o lt l ic e d a b a N a u rb M p m -5.0d a e Ja n B R a n ts a it ic K n t -10.0 i in m a o S D
-15.0
-20.0
Source: UNCTAD The macroeconomic environment is quite stable, but there are some social and political uncertainties that might impact on potential FDI flows. In relation to the macroeconomic environment, inflation is relatively low, there are no restrictions on capital flows, and there is limited exchange rate uncertainty. There are also relatively few regulatory hurdles for potential investors; only electricity, telecommunications and water require government licences, while financial institutions must obtain permission from the Grenada Authority for the Regulation of Financial Institutions (GARFIN), founded in 2007. The Grenada Industrial and Development Corporation (GIDC) has been playing an important role in relation to investment promotion on the island. The institution offers investment and trade information, investment incentives, investment facilitation and aftercare, entrepreneurial/business skills training, small business support services, industrial facilities and policy advice. The entity attempts to act as a one-stop shop for potential investors. The entity can help investors prepare business plans and complete applications for various tax incentives and fast track applications for permits and licenses.
1.6.3 Analysis for the International Economy Given the openness of the Grenadian economy, international economic developments have a significant impact on the domestic economy. There are three key potential external threats to future developments: (1) growth levels in more developed economies; (2) commodity prices; and (3) FDI flows. Furthermore, with the small size of the domestic market, most growth opportunities in small states are related to the international economy. Future prospects for tourism, for example, are largely driven by economic developments in key source markets. If low growth in these economies is protracted, the already weak tourism industry could be further affected. Remittance flows, which are also an important component of the financing mix for the country, are also intimately associated with economic developments in the above-mentioned larger economies. Commodity prices have a significant impact on not only domestic prices but also external current account sustainability. More than 30 percent of imports in Grenada, for example, are of petroleum- related products. Fluctuations in international oil prices can therefore affect the success of any economic adjustment programme. Commodity prices also impact on the demand for travel to the island and can also increase the price of all imports as shipping costs rise. The relatively large current account deficit that Grenada has reported in recent years has largely been financed by FDI inflows. Should these flows continue to decline, the island will need to accumulate an even larger amount of external debt, which is already above 80% of GDP. FDI inflows also support growth in the construction industry. Any rebound in growth of this industry is therefore dependent on a rebound in FDI inflows.
1.7. The Domestic Economy
The size of the Grenadian economy has grown modestly between 1980 and 2010. In 2010, real GDP was estimated at US$986 million, just over two and a half times the size of the economy in 1980. On a per capita basis, GDP for the country was below that for most comparator countries (US$10,565): just 6 countries (Dominican Republic, Jamaica, Suriname, Belize, Guyana and Haiti) out of the 18 comparator countries considered had a lower level of per capita GDP. Figure 12: GDP Dynamics in Grenada
GDP Dynamics 1980-2010 GDP Per Capita 2010, PPP (current international $)
1200000000 12000 Bahamas, The Malta Trinidad and Tobago 1000000000 10000 Seychelles Antigua and Barbuda Barbados 800000000 8000 St. Kitts and Nevis Palau Mauritius 600000000 6000 Dominica Constant International $ mil Constant International $ St. Vincent and the Grenadines St. Lucia 400000000 4000 Grenada Dominican Republic 200000000 2000 Jamaica Suriname Belize 0 0 Guyana Haiti 0 7 8 0 9 0 1 2 0 10000 20000 30000 40000 GDP, PPP (constant international $) current international $ GDP per capita, PPP (constant international $)
Source: World Development Indicators Average growth for the Grenadian economy was also quite variable over the study period (see Figure 13). Average growth for the island between 1980 and 2010 was 3.5% per annum, just above the average for comparator countries of 3.2%. Reflecting the country’s vulnerability, during the period under review the island was affected by two major hurricanes (Hurricane Ivan in September 2004 and Emily in July 2005). It is estimated that Hurricane Ivan inflicted damage of about 200% of 2003 GDP. In recent years, the island has been significantly affected by the global crisis and the associated economic downturn that has resulted in a considerable contraction in earnings from tourism, foreign direct investment (FDI) and remittances. Since 2009, the economy has contracted by almost 6%. It is obvious from the figure below that these events had a dramatic effect on GDP growth with severe declines in the year of these events. In terms of the composition of GDP, expenditure on GDP is largely driven by trends in household consumption. For most of the period the share of consumption in GDP has fluctuated around 91 per cent of GDP. In recent years, however, the share of this category has risen, despite the slowdown in economic activity. In contrast, the share of gross capital formation (tourism plant and infrastructure), net exports and government expenditure in GDP has contracted in recent years, as government revenue earnings have contracted significantly (see Figure 14). While the large negative levels of net exports is indicative of the region, Grenada’s export structure has not changed significantly since 1995 and is considered relatively weak. This suggests the need to ensure that export development is key within the creation of any strategic plan for the development of the private sector.
Figure 13: GDP Growth in Grenada (1980-2010)
GDP Growth (Annual %) 1980-2010 Average GDP Growth 1980-2010 15 6.0
5.0 10
4.0
5 3.0
% 0 2.0 %
1.0 -5
0.0
s s s a e a u e vi d h n it in e u T a -10 r d N b s, y au a ar a u n d B G M re an am 0 3 6 9 2 5 8 1 4 7 0 d h 8 8 8 8 9 9 9 0 0 0 1 G ts n a 9 9 9 9 9 9 9 0 0 0 0 e it a B 1 1 1 1 1 1 1 2 2 2 2 th K a t. gu d S ti an n t A n Grenada ce in Average for Comparators . V St
Source: World Development Indicators Note: GDP Growth (Annual %) based on PPP (constant prices, international $) Figure 14: GDP Decomposition by Expenditure for Grenada (1980-2009)
200
150
100
50 % of GDP 0
-50
-100 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 Household Consumption Government Expenditure Gross Capital Formation Net Exports
Source: UN National Accounts Database Traditionally, the Grenadian economy has depended on the export of commodities (mainly spices and bananas) as well as tourism. With the loss of preferential markets in Europe, however, the banana industry on the island has virtually disappeared while Hurricane Ivan and Emily devastated the nutmeg industry. The island was also affected by a drought that had a significant impact on crops in 2010. As a result, the share of agriculture in GDP has fallen from 24% in 1980 to just 5% by 2010, while GDP has continued to decline and the other sectors have failed to fill the gap. The economy has therefore had to depend on manufacturing, finance and tourism to generate most of its growth in recent years. Manufacturing is estimated to have expanded in 2010, largely due to an increase in the production of beverages and rum. Most other areas of manufacturing, however, are largely dependent on the domestic market and have therefore declined significantly in line with economic activity. Tourism is dominated by arrivals from the US, the United Kingdom and the rest of the Caribbean and therefore is dependent on the economic fortunes of these source markets. The island also has a vibrant yachting segment that supports overall tourism development. The international financial sector is for the most part made up of firms involved in internet gaming and international business.
Figure 15: GDP Decomposition by Industry for Grenada (1980-2010)
100% 90% 80% 70% 60% 50% % of GDP 40% 30% 20% 10% 0% 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 Agriculture Industry Services
Source: UN National Accounts Database Inflation in Grenada tends to be relatively low. Since 1980, the average annual rate of inflation was 2.7% compared to 8.5% in a group of its peers. In 2010, the average annual change in prices was 3.4%, mostly due to higher food and energy prices, as well as the initial impact of the introduction of the Value Added Tax (VAT) in the first quarter of 2010. Food prices rose on account of higher prices for meats, dairy products and vegetables, while energy prices were chiefly influenced by international oil prices. Figure 16: Inflation Data for Grenada (1980-2010)
Inflation Dynamics 1980-2010 Comparative Inflation (2010) 25 14
12 20 10 15 8
10 6 % Grenada 4 5 2 0 0
a s a ia a is ic do d c lt v a a a Lu a e m b en . M N a r r t d J Ba G S n -5 a -2 ts it K 0 4 8 2 6 0 4 8 t. 8 8 8 9 9 0 0 0 S 9 9 9 9 9 0 0 0 1 1 1 1 1 2 2 2 -4
Source: World Development Indicators The Government of Grenada, with the help of its international partners, has been working assiduously to achieve some degree of fiscal sustainability. In 2006, the island entered into a three- year Poverty Reduction and Growth Facility Arrangement (PRGF) (subsequently extended for one additional year), to help mitigate the effects of food and fuel price shocks on the economy. It should be noted that this has implications for debt as commodity shocks lead to a deterioration of the external current account which has to be financed with either debt or FDI. Under the PRGF programme, the Government has implemented various structural reforms as well as various debt management strategies. On the structural side, the authorities introduced a VAT in 2010 in order to enhance the coverage and buoyancy of the indirect tax system as well as various measures aimed at enhancing external competitiveness. Other policies included prioritizing capital spending, restraining wage growth and increasing the efficiency of public expenditures. As a result of the policies highlighted above, the authorities have been able to reduce the fiscal deficit from over EC$200 million in 2006, to just over EC$100 million in 2010. Capital expenditure, in particular declined from more than EC$271 million in 2006, to just over EC$100 million in 2010. While current expenditure, after increasing in 2006, 2007 and 2008 has largely remained constant at just over EC$400 million. Tax revenue, on the other hand, despite the introduction of the more broad-based VAT, has been quite flat owing to the slowdown in domestic economic activity. Indeed, after falling into deficit in 2009, the fiscal current account recorded a marginal surplus, only, in 2010. Figure 17: Fiscal Deficit for Grenada (2000-2010)
600
500
400
300
200
EC$ Millions 100
0
-100
-200
-300 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Current Revenue Current Expenditure Capital Expenditure Deficit Fiscal Current Account Balance
Source: Central Government Fiscal Accounts After falling in the first full two years of the PRGF (i.e. 2007 and 2008), gross government debt in Grenada has again started to rise and is now significantly above that of similar small states. In 2010, gross government debt was 87% of GDP compared to just 72% in 2008 and 34% in 2000. In actual terms, gross government debt, mostly external, was US$546 million in 2010, up from US$178 million in 20007.
7 Measured in constant 2000 US$. Figure 18: Gross Government Debt for Grenada versus Comparators (2000-2010)
100 90 80 70 60 50 % GDP 40 Gross Debt (%of GDP) Average for Comparators 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year
Source: IMF WEO Database There is a severe lack of labour market data in the OECS. For Grenada, the only data available is for the period 1994, 1996-1998, 2001 and 2008. Data for these years is shown in the table below. The data for 2008 suggests that 1 in every 4 Grenadians in the labour market is unemployed; while traditionally the rate of female and youth unemployment was higher. Given the slowdown in economic activity that has taken place since 2008, the rate of unemployment is expected to have risen, but there is no estimate of the unemployment rate to support this conclusion.
Table 1: Labour Market Data for Grenada (Various Years)
Year Unemployment Male Female Unemployment Participation Rate Unemployment Unemployment Rate (Youth 15-24 Rate Rate Rate years) 1994 26.8 - - - - 1996 17.0 10.0 24.9 30.1 - 1997 15.5 - - - - 1998 15.2 10.6 21.8 31.5 65.0 2001 9.9 9.6 10.9 - 60.2 2008 24.9 - - - - Source: CARICOM Secretariat As a means of comparison, the table below shows the unemployment rates for comparator countries for which data was available. Table 2: Unemployment Data for Comparator Countries (Various Years)
Country Name Data Total Female Male Youth Year Unemployment (%) Unemployment Unemployment Unemployment (%) (%) (%) Bahamas, The 2011 13.7 13.7 13.6 na Barbados 2011 11.2 12.5 9.8 na Belize 2007 8.5 13.0 5.9 na Dominican Republic 2010 12.4 16.4 9.34 na Guyana 2011 21.0 25.74 17.24 46.0 Jamaica 2011 12.7 17.2 9.6 30.1 St. Lucia 2007 14.0 18.5 10.0 na Trinidad and 2008 4.6 6.2 3.5 10.5 Tobago Malta 2011 6.4 7.0 6.1 13.9 Mauritius 2011 7.9 12.3 5.2 21.7 Source: World Development Indicators As the table above demonstrates, the unemployment rate in Grenada is significantly higher than in comparator countries for which data is available; only in Guyana was the unemployment rate above 20%, with rates significantly higher for females and the youth as opposed to males. In terms of occupation by industry and sex, there is no recent data for Grenada.
1.7.1 Analysis for Domestic Economy The slowdown in world economic growth has had a negative effect on macroeconomic fundamentals in Grenada. Key industries, such as construction and tourism, have reported double-digit rates of decline and resulted in a significant deterioration in the employment profile for the country. Based on relatively poor employment statistics, it is estimated that 1 in every 4 Grenadians is without a job, with the statistics for the youth and females perhaps being somewhat higher. This has significant implications for the development of the private sector, especially given the predominantly domestic market focus of enterprises; not only do consumers have a lower spending power, unemployment and poverty can lead to crime and general social unrest. As a result of the deterioration in economic conditions, gross government debt has expanded again after falling under the IMF-led PRGF programme. The main policy challenge in the short- to medium- run will therefore be the implementation of a credible fiscal strategy that does not impede recovery prospects. The process of fiscal consolidation has already begun, with the implementation of the VAT in 2010 and various other initiatives aimed at enhancing the ease of doing business in the country. Should growth not recover in the short- to medium-term, Government debt could rise to unsustainable levels. 1.8. The Productive Sectors
Grenada has traditionally depended on agriculture and tourism to spur growth and development on the island. The production of bananas, which was significantly affected by extreme weather events, has begun to show signs of recovery in recent years. Banana production, for example, rose by 67% in 2008 alone, while nutmeg production rose by 59% in 2007 and 23% in 2009. In recent years, these traditional industries, as well as education, have added some impetus to growth. Education in particular has grown every year since 2001; in recent years, the industry has been the only segment of the economy that apparently not significantly affected by the global economic downturn. Most of this growth was due to activities on the St. Georges University Campus, which started as an offshore medical university training individuals for medical careers in the US, but has since expanded degrees in veterinary medicine, arts and sciences as well as graduate studies.
1.8.1 Industry and Agriculture Grenada’s export production structure has not changed significantly during the period 1995 to 2010, and in general the island tends to export goods that are not unique/complex. The product space maps show that there have been limited developments in the core with some expansion in the periphery (Figure 198). In reviewing the export data utilised to construct the maps, Bananas and Plantains, Soya Beans, and Yachts have fallen out of the top 20 between 1995 and 2010, and Frozen Fish (excluding fillets) has fallen out of the top 10. These products have been replaced in the top 10 by Beer, Preparations of a kind used in Animal Feeding, and Flat Rolled Iron or non-alloy steel. While the analysis reveals that there has been some augmentation of production, with a reduction of exports of primary products and an expansion of more processed products such as Waters (Flavoured or Sweetened), which has increased from 3.8% to 10.3% of exports, and Wheat and Meslin Flour (from 4.1% to 9.4%), the change has been limited, suggesting Grenada’s production structure has not changed significantly during this time.
8 ‘The product space map is a view of the network of relatedness of products that countries trade. The layout remains fixed for which the country’s export basket is overlayed with a thick black border on the products that they were exporting in the given year’ http://atlas.media.mit.edu/about/. An interactive version of the Product Space Maps for Exports is available from http://atlas.media.mit.edu/ Figure 19: Product Space Map (Exports) for Grenada 1995 and 2010
1995
2010
Source: The Observatory of Economic Complexity Table 3: Top 20 Exports for Grenada for 1995 and 2010
1995 Top 20 Exports Share 2010 Top 20 Exports Share Fish, excluding fillets 15.76% Fish, excluding fillets 27.79% Cocoa beans, whole 13.03% Waters flavoured or sweetened 10.30% Bananas and plantains 5.99% Wheat or meslin flour 9.42% Soya beans 4.89% Toilet paper of a kind used for household or 6.06% sanitary purposes Toilet paper of a kind used for 4.70% Cocoa beans, whole 3.48% household or sanitary purposes Wheat or meslin flour 4.10% T-shirts 2.17% Frozen fish, excluding fillets 3.87% Preparations of a kind used in animal feeding 1.58% Waters flavored or sweetened 3.82% Flat rolled iron or non-alloy steel, coated with tin, 1.58% w >600mm, t >0.5m Yachts 2.57% Beer 1.21% Electric generating sets and rotary 2.09% Cocoa powder, sweetened 1.03% converters Other fresh fruit 2.06% Cloth of iron or steel wire 0.72% Petroleum oils, refined 1.63% Electrical Boards and panels for protecting 0.63% electrical circuits Dates, figs, pineapples, avocados, 1.53% Artificial staple fibres 0.62% guavas and mangoes Refrigerators, freezers 1.41% Electric sound or visual signalling apparatus 0.52% Beer 1.36% Self-propelled bulldozers, excavators and road 0.45% rollers Crustaceans 1.06% Printers and copying machines 0.44% Stoves, ranges, barbecues and 1.03% Electrical transformers 0.42% similar appliances of iron or steel Preparations of a kind used in 0.98% Asphalt 0.40% animal feeding Flat rolled iron or non-alloy steel, 0.91% Frozen fish, excluding fillets 0.38% coated with tin, w >600mm, t >0.5m Other articles of plastic 0.65% Medicaments, packaged 0.36% Source: The Observatory of Economic Complexity The diversity of the island’s exports can be also be gleaned by looking at the diversity and ubiquity indices for the island (Figure 20). Diversity is the number of products for which a country has a revealed comparative advantage (RCA) of more than 1. The figure shows that over the period 1990 to 2009, average diversity in Grenada was 20, i.e. Grenada had 20 export products with an RCA greater than 1, and in 20079 specifically, 17 products with an RCA greater than 1. In general, this was lower than most comparator countries and significantly lower than the average for developed countries. The ubiquity index measures the extent to which the exports of a country are unique; the higher the value, the less unique a country’s exports (i.e. many other countries also export this good). In line with previous results, Grenada tended to export goods for which many other countries were also exporting; the average ubiquity was 35 over the period 1990 to 2009, and 42 in 2007 specifically.
9 2007 is used in this case as it was the most recent year for which data was available for all comparators. Figure 20: Diversity and Average Ubiquity of Exports for the Caribbean
Average Diversity (1990-2009) Average Ubiquity (1990-2009) 80.00 45.00
70.00 40.00
35.00 60.00 30.00 50.00 25.00 40.00 20.00 30.00 Number of Products Index 15.00 20.00 10.00
10.00 5.00
0.00 0.00
a a a a a e d lt d c c u u i i m b a in a a r M rb m n a a m a ri B B o J u d d D S n n a a a a u g gu ti ti n n A A
Diversity (2007) Ubiquity (2007) 80.0 50.0
70.0 45.0 40.0 60.0 35.0 50.0 30.0 40.0 25.0 20.0 30.0 15.0 Index Number of Products 20.0 10.0 10.0 5.0 0.0 0.0 a a a e d c t g a s u i l a d u b in a r u ti r M a b ri a m v r u B o A a a d D 8 B n G d M a n a a u a g u ti g n ti A n A
Source: Competitiveness Forum 1.8.2 Services Tourism is the main driver of activity in the services sector of the economy. Figure 21 plots the decomposition of the various components of the services industry for the period 1990 to 2010. On average, tourism services accounted for just less than three-quarters of service exports, with communications services accounting for most of the remainder. Travel services are the only category of services trade where the island has a trade surplus. For all the other segments of services, trade payments for these services far exceed earnings. In specifically addressing tourism, the World Travel and Tourism Council (2013)10, estimates the direct contribution11 of travel and tourism to the economy of Grenada as 6.4% of GDP in 2012, and 5.9% of employment, or approximately 2,500 jobs.
Figure 21: Decomposition of Service Exports for Grenada (1980-2010)
100%
90%
80%
70%
60%
50% Travel% of Serviceservices ExportsTransport services Insurance and financial services Communications, computer, etc. 40%
30%
20%
10%
0%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20
Source: World Development Indicators 1.8.3 Analysis for the Productive Sector The agricultural sector in Grenada, traditionally a key foreign-exchange earning industry, has contracted significantly in recent years due to loss of preferential market access and natural disasters. In 1980, agriculture accounted for almost one quarter of all production on the island. Since then, the size of the sector has shrunk significantly and now only accounts for less than 5% of total domestic activity. The tourism industry has also weakened in recent years as well, due to the weak global environment. The island continues to face a number of challenges but over the period 1995 to 2010 the country has failed to see any restructuring of its productive sector, although recent developments, as outlined in Section 4 (Large and Fast Growing Sectors), do suggest that policy- makers are aware of the need for some restructuring of the productive sectors into higher value- added activities.
10 http://www.wttc.org/site_media/uploads/downloads/grenada2013_1.pdf
11 The WTTC defines ‘direct contribution’ as spending in relation to travel and tourism by residents, businesses and government, and visitor exports on tourism related commodities (accommodation, transportation, entertainment and attractions) in relation to GDP, and for employment, jobs provided in these industries (accommodation services, food and beverage services, retail trade, transportation services, and cultural, sports and recreational services. 5. Characteristics, Issues, Challenges of Private Sector Development in Grenada
1.9. Goal of Private Sector Development in Grenada
The Government of Grenada faces a number of social issues which growth in the economy would enable them to address. These social issues include unemployment, poverty and the consequences of poverty (crime, health issues, and social unrest). In seeking to address growth in the economy, the 2013 Budget was themed as ‘Restoring Hope, Building the New Economy and Empowering our People’. The key elements of this New Economy were categorized as:
Fiscal sustainability
Debt sustainability
Lean Government
Private Sector as key driver
Technical and Vocational Education and Training
Life-long learning and high-wage employment
Innovation and knowledge
ICT applied to all aspects of development
World class service industry, especially in tourism
Green Business, Industries and lifestyles
Sustainable Development
Developing Agriculture along the Value Chain
Efficient Light Manufacturing
Dynamic Export Sectors
Lucrative oil, gas and renewable energy sectors
These elements indicate that the growth of the Grenadian economy is clearly centred on the development of the private sector, while the aim of the adoption of this New Economy model is to tackle the ‘…twin challenges of continued high unemployment and low economic growth’ (p.57). This concentration on private sector development extends the OECS/ECCU eight-point plan’s focus on more macroeconomic variables. The Government of Grenada also, with the help of its international partners, has been working assiduously to achieve some degree of fiscal sustainability. In 2006, the island entered into a three- year Poverty Reduction and Growth Facility Arrangement (subsequently extended for one additional year), to help mitigate the effects of food and fuel price shocks on the economy. Under this programme, the Government has implemented various structural reforms as well as various debt management strategies. On the structural side, the authorities introduced a VAT in 2010 in order to enhance the coverage and buoyancy of the indirect tax system as well as various measures aimed at enhancing external competitiveness. Overall, it appears the Government of Grenada sees growth in the private sector as a means to address issues in the wider society, and the Government has developed domestic institutions to support private sector development. In addition to sector specific institutions such as the Grenada Board of Tourism, there exists the Grenada Industrial Development Corporation (GIDC) and the Grenada Development Bank (GDB). The GIDC seeks to facilitate and support investments in Grenada, both foreign and domestic. The institution offers investment and trade information, investment incentives, investment facilitation and aftercare, entrepreneurial/business skills training, small business support services, industrial facilities and policy advice. The entity attempts to act as a one- stop shop for potential investors and can help investors prepare business plans and complete applications for various tax incentives and fast track applications for permits and licenses. The GDB on the other hand seeks to address a wider remit in relation to general socio-economic development through the provision of financial services to individuals for education and housing as well as to industry, tourism and agriculture. The GDB undertakes support to the private sector in line with Government’s strategic plan and hence should be guided by the main elements of the New Economy, as expounded in the 2013 Budget.
1.10. State of the Private Sector
The industrial structure of Grenada is dominated by services; education, real estate, renting and business activities, and transport, storage and communications account for 47.3% of GDP.
Table 4: Contribution to GDP by Sector in Grenada (2012)
Sector Share (%) Education 19.28 Real Estate, Renting and Business Activities 14.45 Transport, Storage and Communications 13.55 Public Administration, Defence & Compulsory Social Security 8.71 Financial Intermediation 7.68 Wholesale & Retail Trade 7.48 Construction 6.53 Electricity & Water 4.65 Agriculture, Livestock and Forestry 4.06 Hotels & Restaurants 4.05 Manufacturing 3.75 Health and Social Work 2.50 Other Community, Social & Personal Services 2.02 Fishing 1.66 Mining & Quarrying 0.15 Source: ECCB (2013) In relation to formalisation, there is no available data on the size of the informal sector, however, with the Enterprise Survey (2010) indicating that over 8% of enterprises noted that the practices of the informal sector were the largest obstacle to their business, it can be inferred that the informal sector of the economy is somewhat pervasive. Overall, the private sector plays a key role in terms of providing jobs in Grenada. The last estimate of the distribution of employment in Grenada suggests the private sector accounted for almost 57% of all jobs in the island [CDB08]. These jobs ranged across various income strata, but employment of the two lowest consumption quintiles on the island were largely private sector driven; almost 2 in every 3 jobs held by members of the first and second consumption quintiles were private sector based. While the island is dominated by larger entities in retail and manufacturing, the median private sector firm in Grenada is quite small12; Enterprise Surveys note that almost 65% of firms employ less than 20 persons, with most of the remainder employing between 20 and 99 persons. Given the small size of firms it is therefore not surprising that many of these firms would choose either a sole proprietorship or partnership as their ownership structure (73%). There is insignificant ownership by the public sector of firms and less than 20% of all firms are foreign owned. The best information available on the employment characteristics is from the Enterprise Surveys (2010). Based on a representative sample survey of firms in Grenada, the average small business employed 9 full-time persons and 2 part-time individuals. The disaggregation of employment and ownership by gender was quite even: 56% of small firms had some type of female ownership while 44% of permanent full-time workers were female. Both the CDB (2008) and the Enterprise Survey (2010) report that the private sector is largely dominated by service sector firms; the Enterprise Survey (2010) reports that 84% of the private sector can be classified as providing some type of services. These statistics are largely supported by the CDB [CDB08] poverty assessment report that suggests that 73% of employed persons find some type of work in the services sector. In the absence of more detailed information, the report further notes that 34% of individuals are employed in ‘general services’, 19% in ‘construction’ and 8% in Education/Social Work. Most of the other service categories are less than 5% of the employed labour force. Agriculture still remains quite important to generating employment in the country and it is reported that 8% of the employed work force are still involved in agriculture and fishing. Manufacturing accounts for less than 3% of employment.
Table 5: Sectoral Employment in Grenada (2008)
Sector Employment (%) General Services 34% Construction 19% Education/Social Work 8% Agriculture and Fishing 8% Manufacturing 3% Source: CDB (2008)
12 The Draft National Policy Statement on Small Business Development from the Ministry of Finance (2008) defines a small business in Grenada as one employing 25 or less persons; annual sales/turnover of less than EC$2 million; paid up capital/net assets of EC$1 million or less; is more than 75% locally owned; demonstrates certain ownership characteristics that do not involve large companies. The top companies in Grenada are by and large involved in services. Bryden and Minors Ltd., for example, one of the largest companies on the island is involved in importing, marketing distribution of various products (e.g. food, liquor, toiletries, pharmaceuticals, household items, furniture, computers, home and car accessories as well as parts to name a few). The company is a limited liability company owned by Gerald S.W. Smith and Co. Ltd. (67%) and A.S. Brydens & Sons (Barbados) Ltd. (33%). Total employment is approximately 120 persons. Other major employers on the island include Lime (utilities), Courts Grenade Ltd. (retail), Geo F. Huggins & Co. (Grenada) Ltd. (manufacturing), Grenada Electricity Services Ltd. (utilities) and Spice Isle Retraders Ltd. (retail). 1.10.1 Large and Fast Growing Sectors The 2010 Budget Speech for Grenada identified a number of areas with the most promising growth prospects: health and education services, energy development, agro-processing and information and communication technologies. These industries are supported by various institutional developments in the area of a Special Business and Facilitation Committee, an additional Civil Court and a separate Registrar of Lands and Deeds. In the 2013 Budget, ‘Restoring Hope, Building the New Economy and Empowering our People’, the key sectors of this New Economy were: World class service industry, especially in tourism
Green Business, Industries and lifestyles
Developing Agriculture along the Value Chain
Efficient Light Manufacturing
Dynamic Export Sectors
Lucrative oil, gas and renewable energy sectors
Currently, based on the national accounts statistics for the island, the five largest sectors of the economy include: Agriculture, Construction, Wholesale and Retail trade, Education as well as Hotels and Restaurants. In 2011, Agriculture in Grenada was estimated to account for approximately 3.9% of GDP, significantly lower than the share it occupied prior to the many natural disasters that affected the island. However, the Eastern Caribbean Central Bank (www.eccb-centralbank.org) is projecting that the share of the sector will rise to just under 5% by 2014. This re-emergence of the industry will largely be driven by increased banana production as well as continued growth in nutmeg production. Agriculture in Grenada is characterised by a significant number of small farms cultivating produce on less than five acres. Approximately 8% of the labour force is employed in agriculture, therefore further growth in the industry could result in a further generation of jobs by the sector. The export of food and live animals is the largest category of merchandise exports (72%) and has been the only category of merchandise exports to record any significant growth since 2007. There is also tremendous scope for growth in agro-processing with significant employment currently being generated in Honey and Honey products, Confectionary, Snacks and Dried Fruits, Spices as well as Craft and Cosmetic Products. Construction in Grenada largely supports the growth and development of many of the other sectors and is still an integral part of the economy given the amount of jobs it generates. CDB [CDB08] estimates that 19% of Grenadians are employed in Construction. The industry’s contribution to total value-added is somewhat small at just 7.3%, but was as high as 19% in 2005 and 13.8% in 2006, before the downturn in the economy due the global financial crisis. Like the rest of the island, most of the firms in the industry are privately owned. The main construction firms on the island include Quinn Design and Construction as well as Creative Design and Building Construction Co. Ltd. among others. Most firms in the industry primarily cater to the domestic market. Wholesale and retail trade in Grenada is one of the single largest sectors in the economy. Total value-added for the sector in 2011 was estimated at 8% of GDP, but was as high as 9% prior to 2007. The industry provides jobs for about 5.5% of the employed labour force with a fairly even gender disaggregation. The industry is highly competitive and largely price driven due to the existence of many small traders operating beside larger established entities. The sector is dominated by Brydens and Minors Ltd., which employs almost 120 persons. Tourism is the largest earner of foreign exchange in Grenada. In 2011 it was estimated that tourism generated EC$315 million in foreign exchange for the island, with the Eastern Caribbean Central Bank (www.eccb-centralbank.org) expecting this figure to rise to about EC$341 million by 2014. The island offers the traditional sea, sand and sun tourism available in much of the Caribbean, but has also developed attractions in many areas including: heritage, eco and edu-tourism. The island also recently constructed a cruise ship terminal and upgraded its yachting and marina facilities in order to take advantage of these tourism subsectors. The World Travel and Tourism Council (2013), suggests that travel and tourism’s contribution to the Grenadian economy will increase over the next 10 years in relation to GDP, employment, visitor exports and investment. Education, as a foreign exchange generating sector, rapidly increased in Grenada since the establishment of St. George’s University on the island in 1976 via an Act of parliament. The institution currently enrols over 6000 students, primarily from the USA and the UK. The University contributes over US$100 million to the islands economy (www.sgu.edu) via salaries, hotel accommodations, housing, recreation, food, construction, goods and services, advertising expenditures as well as charitable donations. At the end of 2011, the education industry was responsible for 19% of GDP and was expected to rise to 21% by 2014. The industry provides jobs for almost 8% of the employed labour force. The sectors with the greatest potential to address the wider economic issues faced by Grenada in the long term are tourism, agro-processing and education. While development of the education sector as a foreign exchange earner is well established and continues to diversify, expansion of the agricultural sector along the value chain and investments in tourism need specific attention. Nutmegs have for a long time been an important part of agriculture in Grenada. ITC (2010) notes that prior to the hurricanes, there were over 6,570 nutmeg farmers; since this time the number has fallen to 2,500. The traditional market for nutmeg is the Netherlands where the product is processed for shipment to other countries. Within recent years, nutmeg prices around the world have been quite strong. If the island is able to boost production and regain previous markets there is tremendous potential for economic growth and export earnings. In addition, there is also potential for export earnings from valued-added products such as Nut-MedTM which has been marketed as a pain relief formula. This movement up the value chain is consistent with Government’s desire to develop agriculture along the value chain as well as the development of a dynamic export sector. The development of exports in this area is fitting in that it would assist the country in addressing the current trade deficit, however the sector is constrained by a lack of domestic and international marketing, financing, input prices and a lack of utilisation of local products in other sectors, specifically in tourism. The tourism industry in Grenada, prior to the Great Recession, was the recipient of significant foreign direct investment flows. However, with the slowdown in the world economy and the consequent decline in local tourist arrivals, many tourism properties have come under significant pressure. While the island is served by both regional and international airlines, many routes are indirect and costly. For example, on average the price of a return ticket from JFK, New York to Grenada is around US$787 per person compared to just US$390 for Barbados and US$597 for St. Lucia. 13 Further development of the tourism product would require further investment in supporting airlift to the island and thereby make the island more accessible to potential visitors as well as address some of the pressing issues affecting the sector. The main issues affecting tourism in Grenada relate to: high cost of energy which is deterring investment and resulting in closures; cost of finance; and a limited marketing budget for the GBT.
1.10.2 Business Supportive Institutions Structure Grenada has several organisations related to private sector development on the island, including representatives of labour, specific sectors and public sectors agencies. Table 7 provides a summary of the main institutions, their mission and the political influence of the organisation. Grenada’s basic infrastructure and business support is quite similar to other countries in the region. In Grenada, this support includes public sector entities such as an Industrial Development Corporation and a Development Bank, in addition to a bureau of standards which provides services related to certification, quality assurance and metrology. For the private sector, support is provided by a Chamber of Commerce, although other sector-specific representatives exist for tourism and for nutmeg growers. There is also the recent founding of the Grenada Coalition of Service Industries, but this agency is still in its infancy. As the table indicates, the political influence of the agencies representing the private sector is at best moderate, with consultation only occurring at the invitation of Government. In terms of networks, these are weak, with limited formal coordination within and between private and public sectors agencies. In order to better serve their constituents, the main need identified by business support organisations, with the exception of greater funding, has been greater support for human resource development.
1.10.3 Donors and Other International Entities Both multilateral and bilateral donors provide support for private sector development in Grenada. The main multilateral donors include the Caribbean Development Bank (CDB), the International Bank for Reconstruction and Development (World Bank), International Finance Corporation (IFC), European Investment Bank (EIB), the Delegation of the European Union to Barbados and the Eastern Caribbean (EU) while some bilateral assistance is obtained from USAID, Canadian International Development Agency (CIDA), the Government of Italy and the Government of China. In addition, multi-donor support is provided through Compete Caribbean. An overview of some of the key entities at the regional level is shown below, while a full exposition is located in the Donor Matrix (DMX) covering both national and regionally relevant programs and projects. The activities of donors are driven from both internal and external sources. While some agencies base the identification of priority areas from an internal analysis of country or region-specific data, others base the allocation of funds on the strategic/political objectives of the source country or region. Other donors indicated that priority areas are based on country demands, and not on any
13 Based on prices on www.expedia.com retrieved on 2 January 2013. covert strategic or political objective. While donors indicate for the most part that the needs of the receiving country are paramount, they do note that there are several main areas that greater support is needed, including support for regional integration, trade facilitation and logistics, access to finance and greater public sector dialogue. It should also be noted that the issue of gender is taken into consideration in all projects, sometimes implicitly, but generally the issue of gender is explicitly included. One of the main issues of concern in recent times was lack of donor coordination; however, duplication of donor efforts is being addressed, as seen with the Compete Caribbean program and the Caribbean Growth Forum (CGF). It must be noted that there was some concern in relation to duplication with the CGF and the Private Sector Assessments (PSAs) of Compete Caribbean. In addition, most agencies interviewed indicated that there is formal coordination with other donor agencies, while informal coordination is seen with country-specific agencies and NGOs in receiving countries. Some donors however noted that there was the need for greater collaboration with the CARICOM Secretariat and the OECS Secretariat. In relation to the nature of projects funded, the majority of active projects are focussed on Business Support, Finance (access to finance), the Business Environment in general or a combination of these objectives. For projects focussed on these objectives, there are 35 active or recently completed donor funded projects in Grenada specifically, and 12 operating at the OECS level. Of these projects, at the country level, the majority of projects are focussed on the Business Environment (46%), while the largest value of funding is seen in Business Support/Finance, US$35 million. In terms of the sector focus, 46% of these main objectives are targeted at the service sector. At the OECS level, for projects in these areas which are operating at the subregional level, the service sector is also the focus, accounting for 42% of projects. In terms of the number of projects and value, the Business Support/Institutional Structure objectives dominate with 42% of projects and funding in excess of US$31 million. In terms of gaps in support, access to finance has been noted as a major obstacle to business development in the region, however, projects specifically targeting this area at the sub-regional level only account for 17% of projects, and less than US$2 million in funding. At the domestic level in Grenada, specific projects addressing this issue account for 20% of projects and US$11 million in funding, the lowest level for all of the main objectives.
Table 6: Main Objectives and Sector Profiles of Donor Projects in Grenada and the OECS
Objective Share Agricultur Industry Services Value of Active (%) e (%) (%) (%) Projects (US $’000) Business Support/Institutional 28.6 5.7 14.3 20.0 $ 9,950 A
D Structure A
N Access to finance 20.0 5.7 5.7 20.0 $ 11,081 E
R Business Environment 45.7 - - - $ 19,688 G Business Support/Finance 5.7 - - 5.7 $ 34,658 TOTAL GRENADA 100.0 11.4 20.0 45.7 $ 75,376 Business Support/Institutional 41.7 8.3 8.3 8.3 $ 31,140 Structure S C
E Access to finance 16.7 8.3 8.3 16.7 $ 1,940 O Business Environment 25.0 8.3 8.3 8.3 $ 14,190 Business Support/Finance 16.7 8.3 8.3 8.3 $ 2,060 TOTAL OECS 100.0 33.3 33.3 41.7 $ 49,330 Table 7: Institutional Analysis: Background of Business Support Institutions in Grenada
Name Type and Brief History Report to… Vision, Mission and Goals (assessment) Sector Person in Charge Political Partner and Title Influence Organisations Grenada Industrial association that lobbies on the Members Vision – To lead the process in the creation of All Mrs. Hazelann Medium; has to None Chamber of behalf of its members. It is the oldest and a strong, unified globally competitive private Bell-Hutchinson be invited to Commerce and largest private sector organization on the island sector, working in effective partnership with (Executive participate in Industry with a recorded history back to the 1920s. government and civil society and driving Director) policy economic and social development. formulation Grenada Industry The investment promotion agency of the Government To be a reliable, responsive, world-class All High, None and government of Grenada. The entity was of Grenada investment and business support government Development established in 1985 organisations. agency Corporation Grenada Hotel An industrial association that lobbies on the Members The association promotes educational Tourism Pancy Cross, Medium; has to Grenada Board of and Tourism behalf of members of the tourism sector opportunities for industry workers, assist Executive Director be invited to Tourism Association (hotels, guesthouses, restaurants, airlines, tour with the development of cultural activities, participate in and dive companies, and others). aid in marketing and lobbies and advocates policy on the behalf of its members. formulation Grenada Bureau Established by the Standards Act No. 6 of 1989 Government To be a centre of excellence for providing All Simeon Collins, High; None of Standards to prepare and promote standards for all services in standardization, certification, Director government goods, services, practices and processes in quality assurance, metrology and compliance agency Grenada to standards with a view to enhancing the country’s competitiveness. Grenada Established in 1946 via Legislation No. 8 of Nutmeg To manage the marketing and promotion of Nutmeg Medium None Cooperative 1946 in the form of the Nutmeg Industry growers nutmeg exporters. growers Nutmeg Ordinance. Association Grenada Established by People’s Law No. 33 of 1980, the Government To be an innovative and viable development Private Mr. Mervyn Lord, High None Development Grenada Agricultural and Industrial organization, providing high quality financial sector Manager/Director Bank Development Corporation was renamed the and related services to the state of Grenada, Grenada Development Bank with the aim of fostering socio-economic development Grenada National Development Foundation of Grenada Board of Provide credit facilities to “unbankable” Private Mr. Earle Finlay, Low International National (NDFG) is a private sector, non profit, self Directors micro and small business enterprises; Sector Executive Director donors including Development sustaining organization founded in 1984. The Provide training and technical support. (Ag.) USAID and CIDA. Foundation NDF provides services for micro and small There is informal enterprise through training, lending technical coordination as assistance and business guidance. the need arises. Table 8: Institutional Analysis: Donors and International Organisations
e Gender and Informal Views of Monitoring Potential Gaps in Formal Country Projects Under m Budget Identifying Priorities PSD Coordinatio Donor and Evaluation a Collaborators Support Coordination Partnerships Consideration N Integration n Duplication Efforts r
o DFID’s DFID’s team identifies Some Need for Gender is There is an Everything is A lot of DFID has 5.6m The level of DFID uses a F
t projects run problems i.e. coordination more work on involved in aid undertaken projects and pounds duplication is program called n
e under cycles. development issues, with OECS trade each project coordination through work done unallocated moderate LOGFRAMES to
m They are debt burden, Secretariat. facilitation implicitly structure cooperation with local currently. Would and varies gauge projects t r
a currently in competitiveness, and freight (Private with others stakeholders like to focus on somewhat by and determine p
e the regional integration and trade Sector Donor i.e. IDB, done via strengthening sector, what outputs i.e. D
2nd year of then bid for funds logistics in Working CARTAC and CART fund financial sector, helps mainly jobs created, )
D (2011-2015) from government for OECS. group) which CART fund (CDB) regulation and is that not outcome of I F cycle, where 4 year cycle. Regional CIDA heads. (CDB) competitiveness many donors project, D (
t 75m pounds Integration, in poorer are in the workshops, n
e are allotted Non-Tariff countries in Caribbean; activities
m to the Barriers, Caribbean they also carried out, p o
l Caribbean. Clearer including Guyana have Donor average e
v The program Political and Belize. coordination Caribbean e runs under Targeting. structures in business D CDB Current priorities - - Gender CDB works - The CDB - - Results matrix.
k l a n allocated include: Equality closely with works to a n
o B US$22.5 Enhancing Policy all the serve the
i t t million to 11 adopted in bilateral and needs of its a
n Disaster Risk e n
r financial Management and 2009 and multilateral BMCs. The m e t
p intermediarie Safeguards/Streng related partners in OECS n o I l s thening Operational the region; member e
v (developmen Environmental Strategy. IADB, DFID, states are e D
t banks) in Sustainability Seeking to European also BMCs.
n 2012. ensure that Union, World a Economic Growth, e policies, Bank, IMF,
b Inclusive Social b
i Development programmes CARTAC and r
a Support for (including other bi- C Education and PSD) and lateral and practices are multilateral for Standards and QualityCARICOM Regional OrganisatioPnrogramCompete Caribbean Name competitive operates in a Compete Climate. Business, Management Knowledge areas such as Caribbean in US$40 for the capita GDP). (i.e.uses per CARICOM formula on a Budget based programs. CROSQ most of support who Donors2. members15 1.Gov'mts of sources: from2 comeFunds process Budget calibration services needed and what equipment sector to understand Surveys in privatethe include Demand researchneeded region). Important honey, in furn.)the production flour,(i.e. standardsfor these guide member states & issue that affect Political(key trade driven Compete is demand investmentagencies. from governments& Country Budgets World Reports, informationfrom andanalysis of Backgroundreports Identifying Priorities UNIDO work with potentialto There is Collaborators Potential towith help committees together but to put institution, standards just not evolve from thing is to The main wantto do. whatthey corethe for is going to be The 10th EDF takeplaceif but can only agendathe currently on Climate is Business Reformthe of Dialogue and SectorPublic Council, ess Competitiven Support Gaps in genderstill bureausand standard building up arein most efforts however included,be that gender maintains (CDB) CARTfund the under projects Most hard to indices are specific gender certain However, involved.n consideratio have gender project must Everysingle Genderand Integration PSD working with and CDC PAHOwith Now working awareness). and infrastructure RQI1 (quality, withhelped fundsIDB Germany and funds, and own CARTfund CDB CIDA CDB, DFID, donors i.e. mostwith initiatives and special coordination Formal Coordination Formal CIDA, CTO. Export, CARIB Dept U.S State Foundation, Center likeBranson NGOsother CARICOM, Bank, Worldwith coordination Informal Coordinatio Informal n benefit. stakeholders local wheres government works with program, Regional Partnerships Country labs) (startingwith private sector resources in the usingtime CDB)it is the first byCARTfund in house (funded project currently the accreditation metrology. With accreditation and totrying establish just on standards, Rather than focus Strategies EU. Updated partnership with strategy in do a growth Dominica wasto the projects in Attraction. One of Investment Reform& Antigua Customs Projects Under Consideration Secretariat. the CARICOM morewithin cooperate Need to improving. this is synergyand better areas for There are minimize objectiveto Caribbean's Compete with matrixhelps of donor the outcome group and coordination Donor Duplication Viewsof Donor projectsuse CROSQ Different objectives. met those that theyhad determined was ago, where it from 3 years strategic plan under a functioning been CROSQhas impact outcomesand determine evaluationto andMid-term ResultsMatrix and Evaluation Monitoring Efforts Development Agency (CIDA)Canadian International Caribbean Export Name also also Agency, CIDA, Development German states,DFID, member counterpart EUwiththe mostlyfrom Funding loans. rather than contributions grants and providedvia areFunds Canada.of Government the providedby assistance financial y of 80% approximatel CIDA handles contributing. Budget Connecting Markets. Entrepreneurship and Growth; and SustainableEconomic currently focus on: Government and Canadian determinedbythe CIDA’sprioritiesare others. tourism,among energy, specialist agro-processing, creativeindustries, distributive services, investmentin professional services, relationto growthare focus in opportunities for Sectors with Identifying Priorities stakeholders. mainwith collaborating Already agencies. domestic regionaland international, a withrange of Currentlywork Collaborators Potential a challenge.a integration is regional country, each in requirements lawsand differences in toDue - Support Gaps in issue). cutting (cross- efforts CIDA’s core toall of is Gender - Genderand Integration PSD and and DFID. involvesIDB, which Program Caribbean Competethe with is seen coordination Formal DFID OECS,EU, CARICOM,, Organisations Support Business, Governments Coordination Formal - - Coordinatio Informal n - stakeholders andlocals Government Partnerships Country Caribbean Canada- forInnovation; Entrepreneurship Program; Leadership Caribbean Eastern however include: Current projects Foreign Affairs. the Ministry of subsumedwithin is currently being CIDA as entityan investment trade and development; export sectors; trade and grants to key firms, small assistanceto agencies, direct promotion investment competitionvia enhancing meet remit: projectsAll which Projects Under Consideration projects. of future development inform the resultsto project reportingon better andthrough coordination planning and better through reduced Can be - Duplication Viewsof Donor progress. track project indicators to specify order to projectsin phaseof execution planning and utilized in the methodology is A framelog evaluators. external internaland Utilise both and Evaluation Monitoring Efforts BarbadIoFsC and the EasternEuropean Union Delegation to Name arealotted funds2013), cycle(2008- currentthe years. Under cycles every5 EDFunder operates Delegation EU Most services those needs. to meet find money approach and modify address, and toneeds priorities and strategic have for OECS,but No budget and Regionally both Budget Management Portfolio Logistics, Credit are i.e.neededTrade providethat services institutions) to institutions,financial clients (government workservices, with OECS are Advisory of projects in the Because majority the economic statusfrom atsocial and project officers look annually where Meetings) held (Country Protfolio initiatives. C.P.M. with& national to be linked globally prioritiesE.U.& It has development between country Jointprocess Identifying Priorities Export also. Caribbean Development] [OECS Export Secratariat OECS Lucia,Kitts, St. Dominica, St. DOMex in EUworks with Collaborators Potential needs. meettheir clientswith to and works IFC is flexible, to private and funding more loans foris need sector. There assist banking to is looking butfinancing provide loan toposition ina not for EPA, EU projectsAll fit Support Gaps in outcomes i.e andimpact gender projects and in implied genderis however projects, efforts in gender explicit foroutline No specific women targets implicitly This Agreement. Financial project hasa and each allocation, identifies Paper Strategy The Country Genderand Integration PSD . organisations Most Donor FAO. WorldBank, UNDP,with agreements framework are level.There presentation Donor atother meeteach groupsDonor Coordination Formal CIDA agencies among transparent Fluid, Coordinatio Informal n Kitts Min of St. ABIA, Antigua Commerce, Min.Lucia of Reform,St. Climate Investment Officeof Investment Grenada Finance, Ministries of Institutions government quasi- mostly Commerce, Chambers of Agencies, Investment Deal with Partnerships Country implementation andTax Trade logistics Euros28.3m to development, capacity systems, exprort health food safety agriculture & Tourism sector, Harmonisation, (8.6m Euros), &TradeOECS in Integration agreementfor; EUhasfinancing Projects Under Consideration gaps and IFC looksat assistance. providing oneis where no fillthe gaps in looking to importance there is an have seen y to what IFC Proportionall ; results are interventions export conducting ITC initiatives & national conducting Caribbean is Compete take for e.g. challenges; Some Duplication Viewsof Donor performance, Environmental Economic & performance, financial to assess System (DOTS) Tracking Outcome Development uses the IFC Services For Investment evaluate Monitoring] to Oriented [Results usesalso ROM evaluators.EU EUcontracts evaluation& mid-term provision for agreementhas financial Each projectin and Evaluation Monitoring Efforts World Bank Name approved US 120 m region.the Strategy for Partnership Regional a under operates bankthe Forthe OECS, income level on country's Depending 4 years. May2010 for Budget lookat. government could some areas however maysuggest government, projectswith aligns program and requests.TheBank government the of basis The onBank only act Identifying Priorities Barbados. office in a regional does not have Donorsthat the only Bank is one of work. The Bank could where World good area Barbados is a Donorswith in coordination To strengthen Collaborators Potential enough forenough have not (bank may sustainable project is sure that and makes has resources Bank 2) the government comes from provided1) it whatever open to The is Bank Support Gaps in region in thet developmen to crucialalso that is this thinksBank and the Objectives Strategic Regional WorldBank's defined in explicitly is Gender Genderand Integration PSD effectivein canmore be and together regionthe prevalent in they are very projects, as forpartner crucial a a CDBview as WB partner). main (one CDB DFID, UNDP, CIDA, E.U., Coordination Formal WB trys WB to availability. Donors because of difficult Donors is allwith meetings setting up Sometimes better. considered sometimes platform is The informal Coordinatio Informal n the into account always takes project, WB on natureof . Depending stakeholders andother s government operate with haveBank to where the policies on clear some There are Partnerships Country initiatives. regional tries to adopt ) and energy,and access(Telecomm. broadbandwith assistcountries The banktries to competitiveness. business improving priorities is Oneof mainthe Projects Under Consideration 4months) (every3- donors meeting with periodic UNDPsets up duplication. CDB to avoid Delegation, UNDPE.U (DFID, CIDA, Donorswith interactions number of There are a Duplication Viewsof Donor n Status Report Implementatio an andconducts the country dialoguewith leader has Task team each project. monthsfor is done every6 andevaluation Monitoring and Evaluation Monitoring Efforts 1.10.4 Access to Finance Access to finance is one of the foremost pre-requisites for facilitating entrepreneurs and helps bring conception into real gains. Sharma et al. (2012) noted that access to finance strongly influences private sector and economic growth, and it is pivotal to the finance-growth link. The World Bank maintained that when financial institutions and markets work well: …they provide opportunities for all market participants to take advantage of the best investment by channelling funds to their most productive uses, hence improving income distribution and reducing poverty (World Bank 2008). The issue of easy or cheap access to financing and working capital is specifically important to Small Island Developing States (SIDS) like Grenada due to the fact that the financial sector (i.e. commercial banking) is not as competitive and efficient as major economies. The financial sector in Grenada is dominated by four large foreign commercial banks (Canadian and Trinidadian owned) and eleven credit unions representing nearly 44,000 members (62% penetration rate) in 2011. While this penetration rate is the fourth highest in the OECS, it should be noted that lending to enterprises is limited across the region. Domestic banks include the Grenada Cooperative Bank and the Grenada Development Bank. The National Development Foundation also provides credit facilities for microenterprises.
Table 9: Credit Unions in the Caribbean (Number and Penetration Ratio)
Number of Credit Member Penetration Country Unions s Ratio Antigua & Barbuda 6 25892 0.44 Bahamas 10 39070 0.18 Barbados 35 157198 0.77 Belize 13 121889 0.64 Dominica 10 62683 0.88* Dominican Republic 15 417862 0.07 Grenada 11 43849 0.62 Guyana 25 33499 0.07 Haiti 69 400379 0.07 Jamaica 42 920408 0.52 St. Kitts & Nevis 4 18523 0.53 St. Lucia 15 81022 0.74 St. Vincent & the Grenadines 9 56741 0.81 Suriname 25 24628 0.07 Trinidad & Tobago 130 499528 0.56 Source: World Council of Credit Unions (2013) *Penetration ratio not available from WCCU. Ratio estimated from population estimates for 2011. Compared to the other Caribbean countries, Grenada’s credit market is relatively inefficient when measured by the spread between lending and deposit rates. At roughly 8 percentage points, the island has one of the highest interest rate spreads among comparator countries with only Antigua and Barbuda having a higher spread in the OECS. Since the early 1990s, the interest rate spreads on the island fluctuated between 6 and 8%. These relatively high spreads have remained quite high, even during the downturn, as deposit rates have risen since 2006, with a slight decline since 2009. Figure 22: Interest Rate Spreads for Grenada (1980-2010) and Comparators (2010)
Interest Rates 1980-2010 Interest Rate Spread 2010
14.00 18
16 12.00 14 10.00 12
8.00 10
8 % 6.00 6 % 4.00 4
2.00 2
0 0.00 s a e e s c a s a u d z e li d e c ti a m li n b u ll ai ri n a e i u b e 0 3 6 9 2 5 8 1 4 7 0 u a in B ad p r h m 8 8 8 8 9 9 9 0 0 0 1 a C r n e a yc Ja 9 9 9 9 9 9 9 0 0 0 0 Su e R B e 1 1 1 1 1 1 1 2 2 2 2 M r n d S G a n e ic a th in a gu Interest Rate Spread d m ti an o n t D A n Deposit Rate ce in Lending Rate . V St
Source: World Development Indicators Given the importance of domestic firms in the economy, domestic savings play a key role in relation to the availability of credit. At the end 2010, deposits as a % of GDP were over 98%, one of the highest ratios among the group of comparator countries. Similarly, bank credit as a ratio of bank deposits was 86%, one of the highest in the Caribbean. This suggests that most savings in Grenada are utilised to finance credit. Despite this relatively high conversion ratio, the island was still ranked 98 out of 185 in terms of the ease of accessing credit. This suggests that business finance (or the lack thereof) is both a supply and demand problem. On the supply-side, there is the perceived risk associated with supplying loans to the small business sector, while on the demand-side entrepreneurs and small businesses may lack the ability (e.g. record keeping, constructing business plans) to access available lending facilities. It should however be noted that with the savings deposit rate (SDR) and the reserve requirement rate (RRR) set by the ECCB, that the funds available for lending are restricted and may therefore account in part for the high cost of finance in Grenada and the wider region. Figure 23: Domestic Financial Variables for Grenada versus Comparators (2010)
Deposits (% of GDP) Bank Credit/Bank Deposits (%)
Malta St. Lucia St. Kitts and Nevis The Bahamas Mauritus Grenada Antigua and Barbuda Mauritus Grenada Malta St. Lucia Belize Dominica St. Vincent and the Grenadines The Bahamas Antigua and Barbuda Belize Dominican Republic St. Vincent and the Grenadines Dominica Guyana Guyana Seychelles St. Kitts and Nevis Jamaica Jamaica Haiti Seychelles Dominican Republic Haiti
0 20 40 60 80 100 120 140 160 0 20 40 60 80 100 120 140
% %
Source: World Development Indicators Figure 24: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators
200 10 180 9 160 8 140 7 120 6 100 5 80 4 60 3 40 2 RANK 20 1 Strength of Legal Rights Index (0-10) 0 0 a s ti u d e i la a in a a n d H P re a G n re G e h t d n a t n ce in . V St Getting Credit- Rank Getting Credit- Strength of Legal Rights Index
Source: Doing Business 2012 One of the most influential theories of corporate leverage is the pecking order theory of capital structure [Mye84]. This theoretical framework suggests that firms prefer internal to external finance due to adverse selection. The data for Grenada on the surface fits this hypothesis with 60% of investment being financed by internally generated cash, with most of the remainder coming from debt and insignificant amounts from supplier credit and equity (Figure 24). The over reliance on internal sources of finance has traditionally been seen as a constraint to firm growth as it limits the ability to exploit profitability investment opportunities [Moo05], this is particularly the case for younger and smaller enterprises.
Figure 24: Sources of Finance for Investment for Grenada and Comparators (2010)
90.0 80.0 70.0 60.0 50.0 40.0 % of Total 30.0 20.0 10.0 0.0
a a a s e a m s d ic ci a iz n a tu a n u m el a n i n i L a B y i r re m t. h u r u o S a G Su a G D B M e Th Internal Bank Supplier Credit Equity or Stock Sales
Source: Enterprise Survey
Besides investment opportunities, firms also require funds for working capital purposes, i.e. to meet day-to-day expenses. In general, approximately one-fifth of working capital finance each comes from banks as well as trade creditors (Figure 25). These ratios are relatively high for the region, and when combined with the relatively larger spreads on the island may suggest that the cost of working capital financing may be somewhat burdensome for firms. The relatively even share in terms of working capital financing between bank and trade credit is also of note and may be relative to the difficulty of obtaining bank credit. Indeed, Figure 26 suggests that Grenada has one of the highest collateral requirements among comparator countries: 220% of the value of loan (from commercial banks). Only the Bahamas at (231%) and the Dominican Republic at 234% have higher collateral requirements. These relatively high collateral requirements exist despite the comparatively high level of penetration of banking services on the island: virtually every business in Grenada has a checking account and almost half utilise either loan or line of credit services (Figure 27). Figure 25: Sources of Finance for Working Capital for Grenada and Comparators (2010)
30.0
25.0
20.0
15.0
% of Total 10.0
5.0
0.0
a a a s e a m s d ic ci a iz n a tu a n u m el a n i n i L a B y i r re m t. h u r u o S a G Su a G D B M e Th Bank Supplier Credit
Source: Enterprise Survey
Figure 26: Value of Collateral Required for Credit for Grenada and Comparators (2010)
250.0
200.0
150.0
100.0 Percentage of Loan 50.0
0.0 a s s c d vi a li m u e m b a b N a u in r h p r a d a e u B n B R S d a e n n ts h a a it T ic a K in gu t. ti S m n o A D
Source: Enterprise Survey Figure 27: Firms with Access to Financial Services for Grenada and Comparators (2010)
120.0
100.0
80.0
60.0
Percentage 40.0
20.0
0.0
a a a s e a m s d ic ci a iz n a tu a n u m el a n i n i L a B y i r re m t. h u r u o S a G Su a G D B M e Th Checking Account Bank Loan/Line of Credit
Source: Enterprise Survey
1.10.5 Corporate Taxation Companies domiciled in Grenada pay income taxes on all sources of non-exempt income no matter the source. The rate of tax on resident companies is 30% and companies are assessed based on all income earned during a given calendar year. All businesses also have to pay a stamp tax on gross income (whether or not the company makes a profit or loss) of 0.25% for gross annual income of between EC$30,000 to EC$100,000 and 0.5% on all amounts above EC$100,000. There are capital allowances for depreciation as well as a wide variety of fiscal incentives for potential investors in tourism, manufacturing and a wide cross-section of other areas. There is no income tax on capital gains or dividends. There is, however, a property transfer tax of 5% of the value of the property sold. In addition, if a foreign company buys into a local company the foreigner pays a tax rate of 15% on the investment while the local entity pays 10%. On 1st February 2010, the island introduced a value added tax (VAT) on the sale of goods and services of 15%, with the exception of accommodation at hotels, which is taxed at 10% and telecommunications services at 20%. For households, all individuals are allowed a deduction of EC$60,000 of income, and are then taxed at 30% on the excess. The Doing Business Survey for Grenada calculates that the total taxes on profits on average firms sum to 45.3% when one takes into account taxes on profits, sales, salaries, property transfer and vehicles (Figure 28). This rate was one the highest in the region and comparator countries behind only St. Kitts and Nevis (52.7%), The Bahamas (47.7%), Jamaica (45.6%) and Palau (73%). While the rate on corporate taxes is high, but not prohibitively so (Figure 29), the stamp duty on sales is a peculiar tax, existing in only a few other places around the world. Without the stamp duty, the island would have a total rate of tax on par with most other comparator countries. This is an area that the authorities on the island can investigate further to find creative ways of eliminating this tax on doing business.
Figure 28: Corporate Taxes for Grenada and Comparators (2012)
80 70 60 50 40 30 Percentage 20 10 0 a s s a u d vi a n m a a e m a a l n N a y in a e h u r P r d a G u G n B S a e ts h it T . K St Labour Tax Total Tax (% Profit)
Source: Doing Business 2012
Figure 29: Tax Rates as a Constraint to Doing Business for Exporters and Non-Exporters (2010)
100 90 80 70 60 50 40 30 % 20 10 0 a a a a c s a s d c n i li u c o a i a c b ti i d n a y Lu u ri in a e m u . p u b r a G t e a m r G J S R o a n M D B a ic in m o D Non-Exporter Exporter
Source: Enterprise Surveys (2010) Obtaining licensing and permits does not appear to be a major constraint to doing business in Grenada (Figure 30 and Figure 31). The Grenada Industrial Development Corporation (GIDC) notes that the process of forming a company only requires 4 procedures: business name search (3 days), business name registration (2 days), tax registration (2 days) and social security (1 day). Some specialised permits and licenses can, however, take up to 30 days to obtain. The picture for tax administration was somewhat different. The Enterprise Surveys conducted in Grenada report that almost 1 in every 3 companies reported that tax administration was a major constraint to doing business. The finding may be due to the number of payments required each year (30) as well as the relatively high rate of tax on businesses.
Figure 30: Major Constraints to Doing Business- Licenses and Permits and Tax Administration (2010)
50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 e s s s s a z a ca e i a o d li d i n v d a e u a i e m a en B rb m d N a b r a a a d h r G B J en n a a d r a B B n G s e a e tt h h i T a t K u d t. ig n S t a n t A n ce in . V St Licenses and Permits Tax Administration
Source: Enterprise Surveys (2010)
Figure 31: Business Licensing as a Major Constraint to Doing Business (2010)
70 60 50 40 30 20 10 % 0 a e e a a c a o s s s a s a d m iz n d li c g vi a o c e i a a l a u b i a e m d i in c n n e y b u a b N a a in d Lu e i B u r p m o h b a . r r G a e a T d a r m n t G u B R J d n B a o e S S d n n a B D r n a a s e G a c tt h e i d i T h a in a K t u id t. d ig m n S n t o i a n D Tr t A n ce in . V St Non-Exporter Exporter Source: Enterprise Surveys (2010) 1.10.6 Business Environment Grenada has relatively strong investor protection legislation in place (Figure 32). The Constitution prohibits the compulsory acquisition of any investment enterprise or asset of an investor except in rare instances. The islands Investment Code Incentives Act also protects personal property and permits the acquisition and disposal of all property rights. The Patents Act, Trademarks Act as well as the Copyright Act protect intellectual property rights; the country is also a member of the World Intellectual Property Organisation, the Paris Convention, the Berne Convention and the Patent Cooperation Treaty. Cases falling under the Acts of Parliament are heard by the High Court, with appeals to the Eastern Caribbean Supreme Court (www.eccourts.org) and in the final instance the Caribbean Court of Justice (www.caribbeancourtofjustice.org). The country is also a member of the International Centre for Settlement of Investment Disputes. There are, however, a couple of areas responsible for the relatively high strength of investor protection rank index (Figure 32), particularly in relation to the liability of shareholders. Under the current laws, shareholders may hold the approving body (the CEO, members of the Board of Directors, or members of the Supervisory Board) or a single member liable in unfair or prejudicial buyer-seller transactions. The Court can also void a transaction upon a successful claim by a shareholder plaintiff, if rescission is available, when the transaction is unfair or entails a conflict of interest. In most other areas, the strength of investor protection is relatively high.
Figure 32: Strength of Investor Protection for Grenada versus Comparators (2012)
200 9 180 8 160 7 140 6 120 5 100 4 80 3 60 2 RANK 40 Strength of Investor Protection Index (0-10) 20 1 0 0 a s ti u d e i la a in a a n d H P re a G n re G e h t d n a t n ce in . V St
Protecting Investors - Rank Strength of Investor Protection Index
Source: Doing Business 2012 The island also scored poorly in relation to the level of corruption (Figure 33). The Enterprise Surveys (2010) for Grenada suggests that almost 1 in every 3 non-exporters and 1 in every 5 exporters believe that corruption is a significant constraint to doing business. The reported level of corruption is particularly problematic in the area of obtaining water connections and obtaining construction permits. Small firms were more likely to identify corruption as a constraint to doing business. In addition to corruption, many exporters also identify crime, theft and disorder as key constraints (Figure 34). One industry where this is particularly problematic is agriculture, where the small sizes of the land holdings make crops relatively costly. While there is legislation in place to tackle the problem, apprehending individuals is quite difficult and places a tremendous pressure on the country’s relatively small police force.
Figure 33: Corruption as a Major Constraint to Doing Business (2010)
80 70 60 50 40 30 20 10 % 0 a e c s a s s d m li vi i e a a a b e c in m n n u N Lu d a e i p . a h r r e d t n a G u R n S e B S n a r a s G e c tt e h i i h T in K t t. d m S n o a D t n ce in . V St Non-Exporter Exporter
Source: Enterprise Surveys (2010) Figure 34: Crime, Theft and Disorder as a Major Constraint to Doing Business (2010)
90 80 70 60 50 40 30 20 10 % 0 s s s a i o e go d v d n a a e a i b en N b d o r d r a T G n a en d a B r n s G a tt e i h d K t a t. d id S n n a i t Tr n ce in . V St Non-Exporter Exporter
Source: Enterprise Surveys (2010) Competition can have both positive and negative effects on the ability to do business. On the one hand, competition can encourage innovation and push firms to seek export markets, on the other, too much competition can act as a hurdle to doing business by leading to extreme price competition. Figure 35 suggests that most firms in Grenada see the practices of competitors in the informal sector as a hindrance to doing business. Indeed, there seems to be a relatively high level of informality on the island: firms surveyed as part of the Enterprise Surveys (2010) noted that many operated up to 6 years before they formally registered their business. It is therefore not surprising that 73% of firms in the country indicated that unregistered or informal firms are key competitors. This is as compared to 62% for Latin America and the Caribbean and 56% for the World. Many exporters also cited constraints in relation to transportation as another hurdle to doing business (Figure 36). During interviews conducted with businesspersons on the island, the main issue related to intra-regional exports and the lack of vessels that operate between islands. Indeed, Grenadian businesspersons noted that it was often easier to ship goods to Miami and then bring them back to their target jurisdiction in the region.
Figure 35: Practices of Competitors in the Informal Sector as a Major Constraint to Doing Business (2010)
90 80 70 60 50 40 30 20 10 % 0 s s s a i o e go d v d n a a e a i b en N b d o r d r a T G n a en d a B r n s G a tt e i h d K t a t. d id S n n a i t Tr n ce in . V St Non-Exporter Exporter
Source: Enterprise Surveys (2010) Figure 36: Transportation as a Constraint to Doing Business (2010)
90 80 70 60 50 40 30 % 20 10 0 a c a a o d li n i g a b a c a n u y u b e p u . L o r e G t T G R S d n n a a c d i a in d m i o in D Tr Non-Exporter Exporter
Source: Enterprise Surveys (2010) 1.10.7 Technology and Innovation Companies in Grenada have access to technological platforms that can enhance the efficiency of their enterprises. The country has three main telecommunications providers: Flow, LIME and Digicel. Flow offers cable television, landline, as well as internet services. LIME, the largest telecommunications company in the country, offers landline, internet and mobile services. Digicel mainly focuses on the mobile market, but also provides internet services through its mobile network. Communications comprise approximately 5.5% of GDP. There is a relatively high level of technology use in most Grenadian enterprises. Given the level of internet penetration, most enterprises use e-mail to interact with clients and suppliers (see Table 10). A significant proportion of these companies are also developing a web presence by investing in their own website. Indeed, relative to the benchmark group of countries, the country had an above average number of firms with their own website. The only area where the island lagged behind its peers was in the use of technology licensed from foreign companies. This could suggest that there are opportunities for greater collaboration with foreign companies. Table 10: Technology Use by Manufacturing Firms in Selected Countries (% of firms)
Variable Using technology Internationally-recognized Own E-mail to interact licensed from quality certification website with foreign companies clients/suppliers Antigua and 0.0 3.7 28.3 87.9 Barbuda Barbados 6.8 18.3 68.2 100.0 The Bahamas 20.1 31.1 50.1 89.5 Belize 16.7 0.7 27.8 85.0 Dominica 10.3 1.3 1.8 70.8 Dominican Republic 24.1 11.8 48.9 85.3 Grenada 15.2 32.6 42.5 80.6 Guyana 17.4 29.5 46.0 92.5 Jamaica 14.6 16.5 36.4 72.6 Mauritius 14.4 11.1 35.9 69.3 St. Kitts and Nevis 9.6 19.4 40.4 91.5 St. Lucia 0.0 0.6 15.4 53.9 St. Vincent and the 24.6 20.9 32.3 82.2 Grenadines Suriname 5.4 11.1 11.0 58.5 Trinidad and Tobago 2.2 16.9 30.8 81.2 Source: Enterprise Survey (2010) 1.10.8 Trade and FDI Policies Tariffs are relatively low on most categories of goods imported into Grenada, suggesting that the country’s local producers could be subject to high levels of competition from imports. The average applied tariff on all products in 2009 was 10%, in line with the average among the group of comparator countries. The level of protection offered to the agricultural sector is relatively low, with the average tariff on these goods at 17%. The level of protection offered to agriculture was almost five times lower than Barbados, and half that of Belize and Trinidad and Tobago. It should be noted, however, that some industries, particularly tourism, usually import most goods duty-free. Figure 37: Market Map Average Tariffs (2009)
70 60 50 40 30 20 % 10 0 s c s e a o i i d d l v m a a b e a en b u N in r r ep d r G a R n u B n a S a ts ic it in . K m t o S D Average for all products Agricultural Products Industrial Products
Source: Market Access Map (2009) As it relates to the time it takes to deal with government regulations, the island lagged behind most other comparator countries. Senior managers in Grenada reported that they spent almost 8% of their time dealing with government regulations compared to just 4% in Antigua and Barbuda as well as Barbados, and just 2% in Jamaica, Dominica and St. Lucia (Figure 38). Trade regulations were part of the problem, with almost 1 in every 5 firms flagging customs and trade regulators as a constraint to doing business (Figure 39 and Figure 40). Although Grenada performs relatively well in relation to comparator countries, it is still an area that should be addressed given that the issue is one of process and could be addressed with relatively limited expense. Figure 38: Senior Management Time Spent on Dealing with the Requirements of Government Regulations- Comparison across Selected Countries (2010)
14.00 12.00 10.00 8.00 6.00 4.00
% 2.00 0.00 a a s s a s a ic ci o e d iu n a u d in a it a L a d n r y m t. rb a re u u Ja S a n G a G B re M G e h t d n a t n ce in . V St
Source: Enterprise Surveys (2010) Figure 39: Major Constraints to Doing Business: Customs and Trade Regulations (2010)
70
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50
40
30
Percentage 20
10
0 s s a i o a ca d v d d i u e a a a rb N b en m a d r r a B n a G J d a B n ts a it a K gu t. ti S n A
Source: Enterprise Surveys (2010) Figure 40: Major Constraints to Doing Business: Time to Clear Imports (days)
25
20
15
Days 10
5
0
a m s a e n a o ic iz a n d n el y i a i B u r rb m G Su a o B D
Source: Enterprise Surveys (2010) 1.10.9 Labour Regulation Labour regulation is via the Employment Act (1999), and its Amendments (2000) as well as the Labour Relations Act (1999) and the Amendment (2000). The Employment Act established and set out the functions of the Department of Labour, Labour Advisory Board, as well as set out fundamental principles (in relation to forced labour, discrimination, equal pay and remedies for infringements of rights), contracts of employment, hours of work, protection and regulation of wages, leave entitlements, discipline and termination of employment among other things. The Act sets the maximum hours of work, excluding overtime, at 40 hours for agricultural workers, 44 for clerical or shop assistants and 60 for domestic workers and security guards. The minimum period of notice before an employee’s services are terminated is two weeks for employees that have worked three months or less and one month for those individuals that have been employed for more than one year. Overtime is set at a minimum of one and one-half times the normal hourly wage, while the annual leave entitlement is set at two weeks for first year employees and three weeks thereafter. The Act also explicitly tackles the issue of pay discrimination by requiring that “every employer shall pay male and female employees equal remuneration for work of equal value”. The Labour Relations Act sets the institutional framework for labour relations on the island. Issues covered by the legislation include the registration of trade unions, establishes the freedom of association, sets conditions for exclusive bargaining rights for trade unions, certification, and dispute procedures among other things. A trade union can be certified as the exclusive bargaining agent for workers if they can prove that they represent the majority of employees. Trade and industrial relations disputes are normally settled by the Labour Commission who may refer the case to an Arbitration Tribunal; a final appeal may be made to the High Court. Given the relatively transparent approach to labour market regulations on the island, most businesses did not identify this as a significant hindrance to doing business (Figure 41). Instead, the most important issue related to accessing skilled employees. CDB [CDB08] reports that 65% of the heads of households reported primary education was their highest level of educational attainment, with just 19% having some level of secondary education. There is therefore a need for a greater investment in the island’s human resource capacity if companies are to take advantage of opportunities that may arise in areas such as ICTs, offshore financial services, health and wellness, education and training facilities, agro-processing as well as light manufacturing.
Figure 41: Labour Market Issues in Grenada and Comparators (2010)
70.0 60.0 50.0 40.0 30.0 20.0 10.0 % of Total 0.0 a e c s a s d iz li vi i e a l b e c in n e u N Lu d e B p . a r e d t n G R n S e n a r a s G c tt e i i h in K t t. d m S n o a D t n ce in . V St Labour Market Regulation as Constraint Inadequately Trained Labour Force as Constraint
Source: Enterprise Survey
1.10.10 Infrastructure, Communications and Energy Most of the modern telephony and communications technologies are widely available in Grenada, with some dead zones due to the topography of the island. Penetration is, however, relatively low in relation to the utilisation of the Internet and high-speed broadband services (Figure 42); these were both less than 40 per 100 persons. Mobile penetration was comparatively high, with more than 116 cell phones per 100 persons. Figure 42: Availability of Services to Firms for Grenada versus Comparators (2010)
200 180 160 140 120 100 80 per 100 people 60 40 20 0 a a s e s d i a iz m le a c m l a l n Lu a e in e e . h B r h r t a u c G S B S ey e S Th Fixed broadband Internet Internet users Mobile cellular subscriptions
Source: World Development Indicators The private sector in Grenada has access to relatively reliable public and private infrastructure. Electrical outages on the island are relatively rare at less than 1 per month (Table 11).
Table 11: Infrastructure Indicators for Grenada and Comparator Countries
Economy Grenada Average for Comparator Countries Number of Electrical Outages in a Typical Month 0.7 3.6 Duration of a Typical Electrical Outage (hrs) 1.6 1.7 Losses Due to Electrical Outages (% of Annual Sales) 0.4 0.6 Percent of Firms Owning or Sharing a Generator 51.4 37.8 Proportion of Electricity from a Generator 0.8 3.4 Days to Obtain an Electrical Connection 22.9 17.9 Percent of Firms Identifying Electricity as a Major Constraint 16.9 39.4 Number of Water Insufficiencies in a Typical Month 0.8 0.7 Proportion of Products Lost to Breakage or Spoilage During n.a. 0.6 Shipping to Domestic Markets (%) Percent of Firms Identifying Transportation as a Major Constraint 14.8 23.5 Source: Enterprise Surveys Despite the relatively consistent supply of electricity, private sector investment in generators is relatively high; 51% compared to an average of 38% of companies in the benchmark group of states. The utilisation of generators appears to be partially due to the duration of outages (1.6 hours) and the average length of time it takes to obtain an electrical connection (23 days). This finding is to some extent supported by the relatively small number of firms reporting that electricity was a major constraint to doing business (Figure 43). Similarly, transportation was only identified as a hindrance to doing business by 15% of firms surveyed. Figure 43: Major Constraints to Doing Business: Electricity and Transportation (2010)
70
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30 Percentage 20
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a a a s e a m s d ic ci a iz n a tu a n u m el a n i n i L a B y i r re m t. h u r u o S a G Su a G D B M e Th Electricity Transportation
Source: Enterprise Surveys (2010) 1.10.11 Gender The Division of Gender and Family Affairs has the responsibility to coordinate activities related to gender balance in Grenada. There have been many programmes and regulations introduced to support the goal of gender equality. At present, there is a Programme for Adolescent Mothers (PAM), the main aim of which is to ensure that young mothers can continue their education while still taking care of their offspring. The Police are expected to investigate all instances of adolescent pregnancy or statutory rape. In relation to work place issues, the Office of the Labour Commission is responsible for monitoring instances of gender discrimination. There is some evidence that the situation of women, however, in relation to poverty is deteriorating. CDB [CDB08] reports that poverty among females was 36% in 2008 compared 31.5% in 1998. While these rates of poverty are lower than those reported for males, if these females are also the head of a significant proportion of the households it could put the household at risk. Moreover, the unemployment rate for females (31.7%) is more than 13 percentage points higher than that for males (17.9%). To address these issues, the Employment Act makes explicit requirements regarding females in the labour force in order to ensure gender equality. All employers are required to keep records of all female employees including normal pay and workweek, and duration of any maternity leave granted. The Act also explicitly prohibits discrimination on the grounds of sex, race, colour, marital status, family responsibilities, among other characteristics in relation to recruitment, training, promotion, terms and conditions of employment, termination of employment or other matters arising out of the employment relationship. More specifically, it states “every employer shall pay male and female employees equal remuneration for work of equal value”. The Establishment Surveys (2010) also provides indicators on gender disparities. Figure 44 shows indicators of female participation in firms (ownership and permanent full-time positions), while Figure 45 examines the number of firms with female top managers. Almost 57% of the firms interviewed indicated that they had a female participating in ownership, one of the highest ratios for the group of the comparator countries; a similar story emerges when the statistic used is the proportion of permanent female full-time workers (46%). Grenada also scored highly in terms of the proportion of female top managers, with one in every 4 top managers being female.
Figure 44: Female Participation in Establishments for Grenada versus Comparator (2010)
80
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30 % 20
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0
a a ze n is e d li a v m a e y e a n B u N n re G d ri G n u a S ts it . K St
Percent of Firms with Female Participation in Ownership Proportion of Permanent Female Full-time Workers
Source: Enterprise Surveys (2010) Figure 45: Percentage of Firms with Female Top Managers for Grenada versus Comparators (2010)
45 40 35 30 25 20 15 10 5 0
s s e o ia go e n d c a m i a u b a d b . L o in a r t T r n a S d u re B n S G a e d h a t d d i n in a r t T n ce in . V St
Source: Enterprise Surveys (2010) 1.10.12 Ease of Doing Business While Grenada has several institutions to support business development, as well as a fairly transparent system for doing business, the island’s ranking in relation to the ease of doing is indicative of a less than supportive business environment. According to the Enterprise Survey (2012), Grenada was ranked 100th out of 185 countries in relation the ease of doing business. Within the Caribbean, the only countries with a lower ranking were Haiti (174), Dominican Republic (116), Guyana (114) and Belize (105).
Figure 46: Overall Ease of Doing Business Rankings for Selected Countries (2012)
Antigua and Barbuda Trinidad and Tobago Barbados Bahamas, The Belize 200 Suriname Dominica
100 St. Vincent and the Grenadines Dominican Republic
0 St. Lucia Grenada
St. Kitts and Nevis Guyana
Seychelles Haiti
Palau Jamaica Mauritius Malta
Source: Doing Business 2012 One of the main reasons behind the relatively low score in relation to the ease of doing business was the time and cost it takes to start a business (see Figure 47 & Figure 48). In both 2004 and 2011, the cost of registering a business was just over 25% of GNI, the second highest among comparator countries. In relation to time, it normally takes 15 days to start a business, more than 10 more days than the leader among comparator countries (Dominica) and 14 more than the world leader of New Zealand, where the process can be completed in one day. Similar to most other comparator countries, the island’s ranking in relation to the ease of doing business, however, has improved in recent years. Nevertheless, there remains significant scope for improvement. Figure 47: Time and Cost to Start a Business: Grenada versus Comparators (2004) Time (days) Cost (% of GNI) 50 60
45 50 40
35 40 30
25 30
20 20 15
10 10 5
0 0 TrinidadBelizeBarbadosThe andAntigua BahamasDominican St.TobagoPalauGuyana Vincent andGrenada BarbudaSt. St. Republicand LuciaSeychelles Kitts theJamaica Mauritiusand GrenadinesDominica Nevis St. TrinidadVincent and andMauritius theSt. TobagoJamaica Lucia GrenadinesSt.TheAntiguaPalau Kitts Bahamas and BarbadosandDominicanGuyana NevisSeychelles BarbudaDominicaGrenada RepublicBelize
Source: WB, and Archibald, Lewis-Bynoe and Moore (2004) Figure 48: Time and Cost to Start a Business: Grenada versus Comparators (2011) Time (days) Cost (% of GNI) 50 60
45 50 40
35 40 30
25 30
20 20 15
10 10 5
0 0 TrinidadBelizeBahamas,Antigua andDominicanPalauGuyana TobagoSt. St.The andKitts Vincent GrenadaBarbuda andRepublicSt.Dominica Lucia Nevisand the Grenadines TrinidadMauritius andAntiguaBahamas, PalauTobagoSt.St. Kitts andDominican Vincent The GuyanaandBarbuda NevisandDominica Republic theSt. Grenadines GrenadaLuciaBelize
Source: Doing Business 2011 Figure 49: Change in Doing Business Rankings for Grenada versus Comparators (2011 to 2012)
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s c i s s a ca ia a li it m u e d i c b a a t ll a in u m u H n ri e n L a p ri u h re m t. h e u a c G o S a R S M y D B n e e a S Th ic in m o D
Change in Ease Rank Change in Starting a Business Rank
Source: Doing Business 2012 Other indicators of the ease of doing business include dealing with construction permits, getting electricity, registering a property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency (see Figure 50, Figure 51, and Figure 52). Areas where Grenada under-performed, i.e. had a ranking higher than most comparator countries, was in relation to registering property, getting credit, paying taxes, as well as enforcing contracts. It normally takes 47 days to register a property in the island, 20 days less than for Latin America and the Caribbean. However, the cost of this process was 7.4% of the property value, or 2.9 percentage points higher than for Latin America and the Caribbean. In relation to credit, the island suffers from a lack of information on potential borrowers; there is no private credit bureau or public credit registry. In addition, secured creditors are not necessarily paid first when a company is liquidated and lenders may not enforce security rights out of court. In relation to taxes, the island has one of the highest rates of profit tax among comparator countries, while the cost of enforcing a contract can be almost one third of the value of the claim. Figure 50: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators
200 180 160 140 120 100 80 RANK 60 40 20 0 s e a m go e ca u a ca z d a a ll i la n i li a n b e a a ya n e en ri o h m P u i B r u T c a G m G S d y J o n Se D a d a id in Tr
Dealing with Construction Permits Rank Getting Electricity Rank Registering Property Rank
Source: Doing Business 2012 Figure 51: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators
200 180 160 140 120 100 80 RANK 60 40 20 0
a s is a a s d le v ci ic tu a el e u n ri n h N L i u re c d t. m a G y n S o Se a D M ts it . K St
Getting Credit Rank Protecting Investors Rank Paying Taxes Rank
Source: Doing Business 2012 Figure 52: Doing Business Rankings for Grenada versus Comparators (2012) for Selected Indicators
200 180 160 140 120 100 80 RANK 60 40 20 0 a e a c s d z n li u a li a b it n e y u r e B u p u r G e a G R M n a ic in m o D
Trading Across Borders Rank Enforcing Contracts Rank Resolving Insolvency Rank
Source: Doing Business 2012 Giving the important role played by finance in the development process, the country’s poor ranking in accessing credit is a significant risk to private sector development and growth. While the country has attempted to fill this void through the establishment of a national development bank, it is unlikely that such an institution can cater to the wide and varied needs of a small and fragmented private sector, likely to be the case in most Small Island Developing States. Key policy interventions therefore needed in this regard to include the establishment of a public credit registry and support for the establishment of a private credit bureau. This would reduce information asymmetries that may exists for lenders and therefore enhance the speed and potentially amount of credit made available to the private sector. Legislative changes are also required to provide greater protection to creditors, as secured creditors are not necessarily paid first when a company is liquidated; there is also the need to speed-up the process of enforcing security rights. Private sector development is generally acknowledged as a key aspect of achieving sustainable development. This is not to say that the government does not have a critical role to play, instead, it is best understood as a symbiotic partnership with the private sector generating growth and the government providing the enabling conditions. At the macro level, it is important that the policy mix is right in relation to trade, budgets, labour market flexibility, taxes, finance, physical infrastructure and human capital as well as good governance. While at the meso and micro level, effective institutions are key; business support, labour unions, training and financial institutions all have a critical role to plain in supporting growth and development. 1.10.13 Summary Grenada has a number of strengths that would likely support the continued growth and development of the private sector including: relatively low inflation; a relatively good rating on governance effectiveness; obtaining licenses and permits; strong investor protection; access to technological platforms; good labour relations; and a relatively strong infrastructure. The island’s natural beauty and heritage can also be leveraged to support its continued focus on tourism, while its experience as a world leader in the production of spices can be leveraged to generate entrepreneurial opportunities higher up the value chain. However, key threats identified could have significant implications for private sector development in the future.
Table 12: Biggest Obstacles to Business in the OECS (Enterprise Survey, 2010)
Biggest Obstacle Antigua Dominica Grenada St. Kitts St. Lucia St. Vincent and and Nevis and the Barbuda Grenadine s Tax rates 18.2 8.6 17.6 20.0 6.0 11.0 Inadequately educated 1.3 2.1 15.4 10.0 7.4 12.8 workforce Access to finance 15.3 44.0 12.8 20.9 35.0 20.6 Political instability 6.1 0.0 12.3 0.5 0.2 10.2 Crime, theft and disorder 7.9 3.6 10.2 13.4 5.1 11.3 Practices of the informal 4.8 3.1 8.4 5.8 2.7 7.8 sector Tax administration 2.4 0.0 5.7 1.4 0.0 2.6 Transportation 3.9 3.5 4.1 3.4 10.7 1.0 Access to land 0.7 0.0 3.9 0.7 0.0 0.0 Labour regulations 0.0 4.4 2.9 0.0 5.6 0.0 Electricity 13.0 29.7 2.7 15.2 22.4 10.6 Customs and trade 16.1 0.9 2.1 5.2 4.0 9.9 regulations Corruption 7.7 0.0 1.4 3.5 0.9 1.5 Courts 0.0 0.0 0.8 0.0 0.0 0.3 Business licensing and permits 2.7 0.0 0.0 0.0 0.0 0.3 The key threats identified from the Enterprise Survey (2010) for Grenada indicated tax rates, an inadequately educated workforce, access to finance, political instability and crime theft and disorder as the five biggest obstacles to doing business in the country. These results were mostly borne out in the examination of specific data presented in the above analysis. Apart from the issue of political instability, these results are mostly in keeping with the rest of the region. In addition to these umbrella issues, a number of specific issues also emerged from the background research. These issues included: Finance Issues: The need for legislation to protect creditors; The lack of a credit bureau; High interest rate spreads and high collateral requirements; Cost Issues: The cost and time to register a business; Stamp duty on sales; Competition from unregistered businesses; Limited intra-regional transportation options. These and other issues are discussed in greater depth in the responses from stakeholder interviewees.
1.11. Field Research Findings
In addition to the desk review of key private sector development challenges, interviews were conducted with various departments, firms and representative associations in the public service, private sector, non-governmental organisations and academia. The entities were chosen to capture a wide variety of views regarding the main challenges concerning private sector development. Interviews were conducted between July and August 2012 using a focused semi-structured interview. Both open-ended and closed-ended questions were posed in interviews in order to obtain details on the key private sector development challenges. Following on from these interviews, a national consultation was held in Grenada in March 2013 to review the main issues to emerge from the review of secondary data and in-country interviews as well as issues to emerge from the working groups developed for the Caribbean Growth Forum (CGF) as described in the introduction. The following subsections identify the main critical issues to emerge from the interviews and the consultations and present a series of required actions to address these issues.
1.11.1 Priority Action Areas The key obstacles to business growth gleaned from the background research in Grenada where: Lack of an adequately educated workforce Political instability Crime, theft and disorder Finance Issues: o Lack of access to finance o The need for legislation to protect creditors; o The lack of a credit bureau; o High interest rate spreads and high collateral requirements; Cost Issues: o Tax rates o The cost and time to register a business; o Stamp duty on sales; Competition from unregistered businesses; Limited intra-regional transportation options.
During the interviews conducted with key stakeholders, these issues were presented and interviewees were asked to comment in relation to:
Did the list adequately capture the main issues constraining private sector development in the country? What other issues would they add to this list? Identification the top three issues holding back private sector development? Recommendations to solve the identified challenges?
Overall, the applied element of the research (interviews and consultations), indicated that the issues identified from the secondary data were mostly representative of the issues facing the private sector in Grenada, with the main issues related to their being a lack of an adequately educated workforce, finance issues, and cost issues. In addition, several other issues were identified including:
Political and Governance Issues which related to ad hoc planning; A ‘silo’ mindset in the public sector in relation to agencies and departments operating in their own interest rather than to a specific strategic plan; Lack of availability of data for strategic planning purposes; Lack of fiscal space and hence a lack of Government investment in public good investments such as tourism marketing, business support mechanisms and addressing inefficiencies in the public service; Cost of energy and electricity; Lack of product differentiation and limited export market focus makes the country vulnerable to shifts in the global business cycle.
These findings from the applied element of the PSA are not dissimilar to those emerging from the Caribbean Growth Forum (CGF) consultations undertaken across the region in the first quarter of 2013. The three working groups (Logistics and Connectivity, Investment Climate, Skills and Productivity) organized for the CGF for Grenada identified a number of issues that once addressed can catalyze private sector development. The main needs and recommendations from the CGF Working Groups for the private sector in Grenada were:
Governance Issues: o Broaden and implement a new policy framework that addresses private sector issues and impacts their investment capabilities o Streamline the processes and procedures related to the establishment and operation of a business Finance and Costs Issues: o Reduction of energy costs o Reduce operating and financing costs and improve access to finance Trade Issues: o Improvement in trade and business logistics services o Strengthening regional collaboration Market Expansion Issues: o Harnessing the power of ICT o Create better linkages between agriculture and tourism, agro-processing and the wider economy Labour Market Issues: o Enhance skills in: management and leadership, and technical areas including information and communication technology
Drawing on the results of all aspects of the research, the following SWOT (Strengths, Weaknesses, Opportunities, Threats) matrix was developed in relation to the private sector growth and development in Grenada. The matrix is subsequently used to develop recommendations and action plans based on the main critical issues identified. Table 13: Private Sector Growth and Development: SWOT Matrix for Grenada
Strengths Weaknesses Opportunities Threats International Relations Governance: Economy: Economy: and Governance: Lack of human resource Freedom of Lack of growth in main Membership of capacity in business support movement of capital trading and inward international bodies, organizations; in the region; investing countries; regional integration Lack of formal dialogue Freedom of Fall in FDI inflows; schemes (OECS/ECCU between social partners; movement of goods Increases in commodity and CARICOM) and Lack of formal coordination in the region; prices on the other regional bodies amongst business support Exploitation of larger international market (CDB, UWI, ECCB). organizations; regional market; Labour and Skills: Signatory to trade Lack of a strategic plan to Labour and Skills: Brain drain agreements and guide public and private sector Freedom of Sectors: international investment; movement of skilled Competition from new conventions; Low rating on Governance labour in the region. tourism destinations Stable democracy; effectiveness; Sectors: with new tourism Strength of investor Lack of freely available data. Specialty tourism; products and loss of protection; Economy: Foreign exchange seat capacity from non- Relative overall ease of Relatively high Government earning education; national carriers; doing business. debt; Geothermal energy; Increased competition Economy: High current account deficit; Agro-processing; from imports for Stable regional Difficulty in accessing finance Trade agreements. domestic producers currency; due to cost and collateral Technology: with greater trade Relatively low inflation ; requirements; Exploitation of liberalisation; Remittances from ex- Limited utilisation of non-debt existing technology Environment and patriots; financing (i.e. equity) for cost-savings in Society: Labour and Skills: Small domestic market; the private sector Climate change. Good labour relations; Low tariff levels exposes and greater Access to education in domestic producers to dissemination of the domestic and increased competition; information from regional market. Costs of energy; the public sector. Sectors: Sales tax; Established reputation Cost of regional and in tourism; international transportation; Niche market in nutmeg Labour and Skills: production. Lack of skills demanded in the Environment and labour market Society: Sectors: Natural beauty and Overdependence on tourism; heritage; Lack of diversification of Transport and products and export markets; Communications: Environment and Society: International air and sea Exposure to natural disasters; ports; High levels of poverty and Proximity to regional unemployment and international Technology: markets; Existing technology not Relatively good utilised to its full potential domestic network (private and public sectors) infrastructure (transport and communications); Access to technology platforms. These interrelated issues are discussed below and used to develop recommendations and action plans in relation to the priority areas of: General governance issues; Access to finance issues; General costs issues; Labour market issues; Trade issues.
1.11.1.1. General Political and Governance Issues The interviews, as well as the stakeholder consultations, identified general political and governance issues as critically impacting on private sector development. Stakeholders were of the view that development planning tended to be ad-hoc with little or no use of strategic long-term visioning. In addition, private enterprises were of the view that there was a ‘silo mentality’ in public sector business support organisations with these agents operating as autonomous entities without an explicit relationship with other public sector entities and a single strategic vision. This negative view is somewhat borne out by Grenada’s relatively low ranking among comparator countries for ‘Government Effectiveness’, which looks at the perceptions of stakeholders in relation to the quality and independence of public services and the civil service, the quality of policy formulation and implementation, and the credibility of governments’ commitment to these policies; Grenada ranked below the median for comparator countries and was the lowest in the OECS. These constraints are further exacerbated by the limited fiscal space available to the Government. At over 90% of GDP, Grenada has one of the highest rates of public sector indebtedness amongst all small island developing states (SIDS) and high level of indebtedness not only places limits on public sector goals, but can also impact on private sector development. One key limitation is in the area of public goods (e.g. tourism marketing, business support and other investments to support private sector development). Without some level of government involvement many investments may be lost due to the public-good characteristics of the particular investment. With budget limitations, however, the public sector’s ability to be involved in this type of investment is limited. Other limitations that might arise from high levels of indebtedness include long delays in processing applications and overall bureaucratic inefficiencies as well as limited availability of support mechanisms, all inflicting time and monetary costs on doing business. In addition, stakeholders at the consultation meeting were also of the view that data and access to information in Grenada was also a key priority area for private sector development. At present, access to information is largely gleaned via the ECCB’s website or Government of Grenada’s website. However, participants were of the view that key statistics (e.g. unemployment) were not available on a timely basis or simply not available. These constraints suggest the need for the development of a national strategic plan for private sector development, an explicit delineation of the remits of various Government agencies, and the development of greater communication channels between business support organisations (both public and private) and greater dissemination of information. The relevant Action Plans developed from the PSA to address these issues include: Action 1: Establishment of a Tripartite Committee (government-employer-labour) to identify the needs of all bodies and guide and oversee private sector development strategies. However, such attempts in Grenada have not been overly successful. In 1998 discussions commenced between the Government and the social partners to develop a MOU for consensus on national development. In 2000, a statement by a representative of labour read: ‘In spite of the fact that meetings are held, one gets the impression that it is a mere talk shop and no policies are developed or serious action taken on matters referred to Cabinet’ (p.80)14. In addition, under the immediate past administration attempts were made to establish a social protocol entitled: ‘A Grenadian Partnership for Economic Survival, Social Cohesion, and Ultimate Transformation in the Face of an Unprecedented Global Economic and Financial Crisis’. However, agreement on the content of the Protocol could not be reached. Under the present administration, efforts have been undertaken to establish a social protocol in conjunction with the social partners, but this is still at an embryonic stage. The social partners in this regard are the Government of Grenada, the Grenada Trade Union Council and representatives of the private sector. Given that a medium of communication is being developed, the formal establishment of a tripartite committee should form part of these discussions. Once established, the Tripartite Committee should seek to also address the following: • Action 2: Rationalisation and streamlining of public sector’s business support framework through the work of the Tripartite Committee to ensure a revised system that addresses both the needs of the private sector (access to finance, technical assistance and data) as well as wider obligations of Government. • Action 3: Development of a National Strategic Plan that mainstreams private sector development in the country. Through the lobbying efforts of Government, the plans for the development of the private sector should also be included in any regional strategic plans at the level of the OECS/ECCU and CARICOM. A national strategic plan can ensure that national policy planning is continuous and not subject to the electoral business cycle. It was considered that such an approach to development planning would also enhance the transparency of government policy formation as well as reduce business uncertainty. There are sector specific strategies (e.g. Grenada Board of Tourism Strategic Plan, 2011- 2014), donor plans as well as the throne speech, but without an overall national strategic plan it is not clear how these sometimes distinct documents would fit into an overall national strategic plan. An overall national strategic plan would also help to get around the common criticism of the ‘silo- mindset’ common in the public sector. Rather than focussing on departmental or ministry-specific objectives, technocrats would be working towards national objectives. While this approach does not necessarily mean that intra-governmental lines of communication would improve, it does however, provide a basis for overall strategic planning and developing policy priorities. ICTs and knowledge platforms could then be used to facilitate communication between various departments and ministries.
14 Greaves, E. (2004). Social Dialogue in Selected Countries in the Caribbean: An Overview, Journal of Eastern Caribbean Studies, 29 (4), 64-85. The development of a national strategic plan may offer some logistical challenges in relation to who develops the plan and how to ensure that it would be followed with changes in Government. These challenges should however not be viewed as insurmountable and the existence of these challenges should not deter action. Indeed, if the private sector was sufficiently strong, and insisted that successive government keep to a development plan, the concern about political business cycles would not be present. This therefore suggests that if the private sector is afforded the space to grow, these problems with implementation would wane. One of the other issues that warrant discussion is the lack of fiscal space afforded to the Government. While the development of a strategic plan for the development of the private sector will not in itself solve the fiscal problems of government, the demonstration of commitment to private sector development can act as a boost to investor confidence and open avenues for public- private partnerships in public goods where opportunities exist. In addition, the establishment of a more interactive and proactive business support framework can assist in expenditure savings through rationalisation, as well as revenue enhancement through the general growth and development of the private sector. However, in order to effectively execute these action plans a number of issues will need to be addressed including: Lack of information sharing and research by the private sector; Lack of economic and labour market information; caused in part by the limited use of existing technology by the public sector. Private enterprises are reluctant to share information on their enterprises and by greater inclusion in the decision-making process there may be greater willingness to share relevant information. The private sector will need to inculcate this culture of information sharing to assist governments in understanding the situation of the private sector, and its contribution to the economy. One such avenue that this can be addressed through is the establishment of a private sector funded research unit, perhaps overseen by the private sector representative on the Tripartite Committee. Such a unit could identify opportunities (domestic and foreign) for private sector growth as well as potential threats to the various sectors. Pooling of resources would allow the decision-making process of individual firms and other economic agents to benefit from evidence-based research and data which should enhance profitability and sustainability. There is also a strong demand by private sector enterprises for data, to assist in strategic planning and the formulation of business plans for accessing finance. However, the situation is not that data does not exist in the region, it is basically that the data is not collated or mined as public sector agents are not fully exploiting the available technology. Individual governments, through such agencies as Inland Revenue Departments and National Insurance Schemes, collect information over specific periods that could provide more detailed information as regards revenue and expenditure by sector, employment levels and categories, and investment data. The problem in this regard is a lack of infrastructure and human resources to consistently collate and present data. This is an area where, at the country and regional level through national statistical offices and the OECS Secretariat and the Eastern Caribbean Central Bank, that donors could direct resources; especially as it relates to technical assistance in the development of such a system. These are the sorts of issues that will need specific attention to enable all of the action plans to be effectively implemented. It should however also be noted that the private sector is also not utilising the available technology to its fullest potential even though they would benefit from its use in the general operations of their firms. As an example, firms utilize a significant amount of their human resources physically collecting payments whilst the technology exists that can provide a far more efficient solution, thereby reducing fraud and associated security issues. Once implemented, the current resources can then be deployed to enhance the levels of service delivery or to more productive areas within the business operation.
1.11.1.2. Access to Finance Across the OECS the issue of access and the cost of finance is one of the biggest barriers to doing business, mainly due to under-developed capital markets. The situation is no different in Grenada. Private sector stakeholders interviewed stated that finance was either difficult to attain due to collateral pre-requisites or too costly to borrow (interest rates); collateral as a percentage of loan size was 220%, the highest in the OECS, and the interest rate spread was 7.5% in 2010, the second highest in the OECS after Antigua and Barbuda. The interest rate spread in this regard is important as it provides a relative indicator as to the efficiency of financial institutions and/or the level of competition in the sector; high interest rate spreads can either indicate that financial institutions are inefficient or that they are exploiting a dominant market position. High transaction and operating costs are passed onto the consumer via higher interest rates. In Grenada, individuals noted that the high cost of finance was a key hurdle limiting new firm formation and the expansion of existing enterprises. Added to this, access was also limited due to a lack of information on potential borrowers, and the financial sector regulators lack an appreciation for the special circumstances of smaller enterprises. As noted by interviewees in the financial sector in Grenada, there is a need to be flexible in the loan terms with new businesses given erratic income streams during the early stages of development and the fact that many of these businesses may be seasonal. However, when repayments are missed, even with the consent of the lender, the regulator classifies the loan as delinquent. This has the consequence of providing a picture of poor performance by the financial institution, and sullying the reputation of the borrower. It should however be noted that these limitations to accessing finance are not purely institutional, that entrepreneurs also either propose impractical projects, or present poorly constructed business plans due to a lack of skills, as well as a lack of data. To address these access to finance issues (collateral requirements and high interest rates), there is a need to investigate the cause of these issues which relate primarily to efficiency in financial institutions, high transaction and operational costs, and information asymmetries in relation to borrower information available to lenders. In addition, there is the need to balance the savings deposit rate and the reserve requirements set by the ECCB. The ECCB’s Savings Deposit Rate (SRD), the statutory minimum rate on savings deposits, has been shown to be positively correlated with interest rate spreads from commercial banks operating in the OECS (Grenade (2007). This, taken in relation to the Reserve Requirement Ratio (RRR), proxied as the percentage of reserves to total deposits mandated to be held by commercial banks, which has an effect on the amount of funds available to make loans, together influence higher interest rates on loans in the region as this burden is normally passed on to customers. It is recommended that these two variables, RRR and SDR, are assessed intermittently to find a suitable balance as they both affect the cost of borrowing in Grenada and the OECS in general. The other causes of high interest rates, high interest rate spreads and high collateral requirements are discussed below. Transactional and Operating Costs Communications charges, legal fees, informational cost for finding the correct price all increase banking transaction costs. The World Bank (2008) stated that modern trends in transactional lending suggest that any improvements in information available and technological advances are likely to improve access to finance for MSME’s (for example through credit registries and automated credit appraisal) and hence reduce transactional costs. To quote:
‘Encouraging the development of specific infrastructures (particularly in information and debt recovery) and of financial market activities that can use technology to bring down transaction costs will produce results sooner than long-term institution building.’ World Bank (2008:15) The IMF (1998) also noted that operating costs for commercial banks in the Eastern Caribbean was a key determinant of interest rate spreads. Grenade (2007) showed that operating cost ratios, defined as operating costs to assets, for foreign banks in the Eastern Caribbean were higher than indigenous banks and the overall average ratio was higher than the acceptable international standard of 3.6 15. It can be assumed that the operating cost ratio for commercial banks operating in the region, is presently higher than Grenade’s 2003 estimates, due to substantial changes in energy prices and other expenses. The concept of introducing technological advances to reduce transaction and interest costs from banks operating in Grenada should be high on the priority list. To reduce transaction and operating costs it is recommended that policies be structured around ensuring the formality of businesses (i.e. the registering of companies, technical assistance for product/service development), technological advancement (i.e. credit information systems), and efficiency of operating costs (i.e. incentives/policies that reduce variable costs of electricity such as retrofitting). All of these policies should contribute to reductions in interest rates charged for credit services. Given that inefficient operation of financial institutions will result in increased costs to consumers, it is also recommended that a quarterly assessment be taken of the overall efficiency rate to ensure commercial banks operating in Grenada are running efficiently and, as a result, benefitting the consumer, individual or enterprise, from competitive prices. The overall efficiency rate in this regard relates to profitability rates, margin rates, weighted results rates and employment efficiency rates16.
15 Moore and Craigwell (2000) Information Asymmetries Informational asymmetries, as well as informality, directly affect the level of collateral required by commercial banks in the region as they increase the uncertainty of lending, id est. higher risk. This uncertainty is therefore passed onto customers through collateral requirements. While average collateral in Grenada was 220%, the world average was 168%, and the average for Latin America and the Caribbean was 197% (Enterprise Survey, 2010). Any measures to reduce information asymmetries, and increase formality, should therefore assist in reducing the cost of, and access to, commercial finance. Overall, the proportion of informational asymmetry that leads to higher collateral requirements for formal businesses could be said to be due to the absence of credit bureaus and related registries. It is recommended that these issues be address by the following actions: Establishment of Credit Bureaus: Credit Bureaus are defined as an agency which collects the credit history on individuals and other prospective borrowers that assist financial institutions with its lending decisions: ‘Rather than… various ill-fated schemes aimed at broadening access to credit, the countries would be better served with a vibrant system of credit bureaus. The bureaus would provide reliable information on all current and potential borrowers at low cost to banks and other lenders. This would allow lenders to move beyond their fairly small circle of well-known, and typically higher-income, business clients to lend to the broad strata of small and even micro businesses that represent the vast majority of productive enterprises in the Caribbean. To be truly useful, credit bureaus should be able to obtain not only bank loan repayment histories but also all hire-purchase, tax, and bill payment histories without the prior consent of the individuals involved. By the same token, each individual should be able to review and challenge the accuracy of his or her record, and the credit bureau should be responsible for correcting any verified inaccuracy on a low-cost and timely basis.’ IADB (2009:22). In 2012, the ECCB collaborated with the IFC in a conference called “Wider Access to Credit and Consumers’ Empowerment through Credit Information Sharing”. Representatives from regional central banks, ministries of finance, other government agencies, and financial institutions from the Eastern Caribbean Currency Union (ECCU) and the wider Caribbean region met to discuss credit information sharing systems (credit bureaus) in the Caribbean. The Credit Reporting Conference falls
16 Profitability Rates, defined as: Return on Assets (ROA)- presented as a ratio of financial results and a bank’s assets; Return on Equity (ROE)- a ratio of financial results to a bank’s own fund; Return on Sale (ROS)- a ratio of financial results to a bank’s income; Costs Ratio (C/I)- a ratio of costs to in- come. Margin Rates, defined as: Net Interest Margin- a ratio of interest results to assets; Interest Spread, which can be interpreted as a difference between the average interest-bearing assets and the average expense of interest-bearing liabilities. Weighted Results Rates, defined as: The result rate charged with reserves (reserves balance) which is shown as a difference between the building up and dissolution of reserves, and the achieved result; The result rate charged with operating costs, i. e. the ratio of operating costs to the result. Employment Efficiency Rates: The rate presented as a ratio of assets to a number of employees (job positions); The rate presented as a ratio of a result to a number of employees. under the umbrella of a Canadian International Development Agency (CIDA) funded project aimed at establishing a private credit bureau in the ECCU and the development of the credit bureau legislation for the region. This is the first step of many needed to rectify information asymmetry in Grenada and the OECS. The only country in the Caribbean that actively participates in comprehensive credit history collection is Trinidad and Tobago. According to USAID: ‘The Credit Bureau of Trinidad and Tobago was founded eighteen years ago by a law firm and collection agency. The bureau currently holds over 350,000 records and reviews an average of approximately 10,000 credit applications a month (individual and corporate applications). The banks in Trinidad and Tobago have recently decided to create their own platform for exchanging credit information, in which The Credit Bureau of Trinidad and Tobago will also be included’. USAID (2004) Establishment of Collateral Registries: Collateral registries are systems that identify and document property (movable property or real estate). In the Caribbean, the collateral registry system is underdeveloped and does not fit the ‘needs of a modern financial system’17. For the most part, financial entities in the Caribbean do not accept movable collateral (such as inventory, accounts receivables, crops and equipment) which is seen by the IFC as a significant impediment to a free flowing credit market and economic development. ‘Reforming the framework for movable collateral lending allows businesses—particularly SMEs—to leverage their assets into capital for investment and growth. Modern Secured Transactions Registries increase the availability of credit and reduce the cost of credit’18. Alternative Financing Options The financial landscape in the region is characterised by commercial banks (international, regional and domestic) and non-bank financial institutions (NBFIs) which are mostly domestic credit unions and microfinance institutions (MFIs). However, non-national banks dominate and ‘cherry-pick’ in their lending while maintaining a conservative, traditional approach to lending (collateral-based lending). There is a need for financial services which suit domestic needs through credit unions and other NBFIs. However, the Grenada Development Bank, which has this remit to address domestic needs, is in need of more resources and technical assistance in credit analysis, loan administration and monitoring, in order to meet domestic targets. In addition to debt financing, equity financing options are also required. Venture capital financing is limited in the Caribbean and institutions such as the MIF, part of the IADB group, has also been working on creating a better venture capital industry in the Caribbean, although it does not operate in the OECS. One of the problems faced in encouraging venture capital is a lack of a legal and regulatory framework in the region, and these issues will need to be addressed. In seeking to
17 USAID(2004)
18Source: http://www1.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Industries/Financ ial+Markets/Financial+Infrastructure/Collateral+Registries/ address this gap in financing options, the ECCB established the Eastern Caribbean Enterprise Fund (ECEF) in 2009: The ECEF is being positioned to be a mechanism for attracting investment capital and channelling those resources to promote the development of private sector enterprises in the region. In this regard, the ECEF will complement existing financial intermediation services of providers in the ECCU by offering a wide range of services to assist in filling the current gap with respect to the availability of requisite financing and technical support. Additionally, the ECEF will foster the creation and growth of productive sectors in the economies of the region through the injection of equity and debt financing….In addition, as the first regional fund of its type in the ECCU, the ECEF will also play a key role in the promotion of a private equity/venture capital industry in the region19. In drawing together all of these issues related to the lack of access to finance, there is a need to reduce the cost of finance and increase the ability of firms to access finance through increasing the formality of enterprises and enhancing the availability of data. While the availability of data is important for the development of business plans, both strategic and to access finance, this is already addressed in relation to Action 2. However, businesses also lack the ability to access finance because of a lack of record keeping, and a lack of skills to prepare viable proposals to finance providers. By increasing formality, not only in terms of issues related to registration but also the adoption of accepted business practices, access to credit is increased. The relevant Action Plans to emerge from this element of the PSA include: Action 4: Reduce the cost of finance through the reduction of transactional and operational costs in financial institutions through the use of technology and monitoring of efficiency levels; the reduction of risk and risk-averseness through the establishment of a credit bureau and a collateral registry; the strengthening of the Grenada Development Bank in terms of financial and human resource; and the introduction of alternative financial products and greater competition in the financial sector. Action 5: Increase the capacity of businesses to access finance through the provision of support (technical assistance and training) for the adoption of accepted business practices (recordkeeping) and the skills to develop business plans for funding and strategic planning. These services exist in Grenada and are provided by the GIDC, however, the utilisation of these services need to be expanded given the results to emerge from the PSA. It should also be noted that the negative impact of the current constraints in the financial market are often magnified due to other costs of doing business, especially the cost of electricity.
1.11.1.3. General Cost Issues The two main issues raised in relation to costs to businesses, with the exception of the cost of finance, were the current stamp duty of sales and the cost of electricity. The stamp duty on sales in Grenada is 0.5% which private enterprises considered onerous given that they could be making a loss and still have to pay taxes. The introduction of the Value Added Tax was also considered as a squeeze on margins. The issue of taxation is one subject that should be put on the agenda for
19 http://www.eccb-centralbank.org/money/ecef.asp discussion of any tripartite committee. Of greater concern however was the issue of cost of electricity. Based on interviews and the results of the Enterprise Surveys (2010), electricity costs were ranked as one of the biggest obstacles to doing business across the OECS. As shown in the figure above, cost per kilowatt hour (kwh) exceeded US$0.30 for all of the OECS countries included, while this cost was, unsurprisingly, less than US$0.05 for Trinidad and Tobago.
Figure 53: Electricity Rates in Grenada and Selected Caribbean Countries (2010)
40 35 30 25 20 15 US Cents per KW hour 10 5 0
go ca a a i d b a a o m en T a r d J G n a d a id in Tr
Source: The Caribbean Electric Utility Service Corporation (CARILEC) (2010) To address the issue of the high cost of electricity, and energy in general, the two main options involve conservation of energy and exploitation of alternative energy options. In terms of conservation, the adaptation of behaviour to reduce usage and the adoption of energy efficient technologies, along with retrofitting, provide avenues to reduce costs in the short and medium term. For Grenada, the possibility for the exploitation of alternative energy sources is high given the country’s ranking of third in the wider region in relation to the existence of an enabling environment and renewable energy projects expected to come on line in the next five years 20. The country however ranks low on the scale of existing renewable energy projects. The main opportunities in this area relate to geothermal energy. Castalia Strategic Advisors (2012) suggest that in order to realise the potential for geothermal energy that there is the need to: ‘Define legal and regulatory framework for geothermal energy; Support geothermal resource exploration and related feasibility studies; Set clear permitting and planning for geothermal development; Support geothermal transactions’ (p.7). The need for energy conservation and exploitation of alternative energy options relate to the following Action Plan:
20 http://www.castalia-advisors.com/files/Castalia-CREF_RE_Islands_Index_121010-1.pdf Action 6: Provide incentives for energy conservation and frameworks for the exploitation of renewable/alternative energy. Incentives and support in this area will act as both a cost- reduction tool as well as an opportunity for investment and enterprise development in the renewable/alternative energy sector. Incentives in this area could include concessions related to duties on imports of materials, technical assistance and the development of special funds for investments in alternative energy projects and enterprises supplying complementary services such as retrofitting. 1.11.1.4. Labour Market Issues In relation to the labour market, even when the above hurdles are scaled, the limited availability of trained individuals and the lack of specialist skills can still limit the potential for further expansion of the private sector in Grenada. In seeking to address these issues, two main areas that would require attention: Implementation of education, human resource and comprehensive human capital planning Vocational and On-the-Job Training Human Resource Planning Before the details of any strategic plan can be conceptualised, there needs to be a human resource development strategy based on a balanced account of the needs of industry and the strategic direction of Government. Manpower planning in this respect, along with other elements of a national strategic plan, would greatly assist in the current work environment as well as assist in future growth of the private sector by clearly signally the sectors which Government intends to support. Such clear signalling would encourage investment by the private sector in these strategic sectors, both foreign and domestic. However, there is a lack of useful data on the composition of the workforce and labour market dynamics to usefully inform the development of human resource plans for Grenada. A combination of the right investments in labour and physical capital can change the productive capacity of an economy. Strategic human capital planning spurs the identification of the research and development skills needed for sectors, which also helps in understanding the right type of investments in physical capital. Research and development, particularly in Science, Technology and Engineering, has been a predominant feature of emerging countries human capital plan to ensure the highest return per worker. Non-natural resourced governments such as Taiwan, Korea, and Malaysia strategized the role of R&D for industrial competitiveness and identified competencies in areas such as information technology, robotics, micro-electronics, laser technology, food and agro-technology, and bio- technology. Grenada and the wider OECS can learn lessons from these experiences and seek to exploit advantages in renewable energy technologies (geo-thermal, solar, wind and wave) and other locational advantages such as technologies related to the marine environment, agro-processing and niche manufacturing. Vocational and On-the-Job Training With respect to on-the-job training and apprenticeships, the promotion/incentivising for enterprises to invest in this element of skill development needs to be implemented to ensure that enterprises attain the required skills for growth, as well as provide an opportunity for uncertified labour to enhance their earning capacity through on-the-job certification initiatives such as national vocational qualifications (NVQs). This is an area where the private sector can contribute to the wider development of society. Given the specificity of required skills in some organisations, it is unlikely that training will be available in the education sector and therefore these skills would need to be built internally. As with incentivising investments in plant and equipment, incentives should be put in place to invest in training at the enterprise-level rather than the educational institution level by means of apprenticeships and on-the-job training with requisite recognition through certification and opportunities for labour to improve their employment prospects within and outside of the specific enterprise. Caribbean and National Vocational Qualifications (CVQs/NVQs) provide an ideal mechanism in this respect and participation by enterprises should be strongly encouraged. Such enhancement of skills not only benefits the productivity of the individual enterprise, but demonstrates to potential investors that a skills-base exists in the country and that there is a commitment to on-going training. The CGF working group for Grenada on Skills and Productivity specifically addressed the issue of a lack of skills in the labour force in Grenada. The report of the working group confirmed some of the findings of the PSA and revealed further details in relation to the skill needs in all sectors including specific strategic sectors. The skill needs for all sectors, and the education sector itself, were noted as ‘…the enhancement of soft and hard skills across all sectors, development of numeracy and literacy skills at all levels, teacher development and professionalism and adult and continuing education’. Other cross-cutting skills were management and leadership skills and ICT skills. The sector-specific skill needs were: Agriculture: marketing and nutrition Tourism: branding, marketing and product development ICT: software development, website hosting and skills to provide services to online marketing, e-commerce and e-government. It should be noted that these skill needs do not exist independently of any strategic plan for socio- economic development or private sector development specifically. Given this and the identified skill needs, the relevant Action Plan is: Action 7: Education and training curriculum reform that addresses the long term strategic direction of Government as well as the more immediate needs of the private sector. The long term strategic direction of Government should be constructed on the basis of dialogue with the private sector.
1.11.1.5. Trade Issues All of the above issues (governance, finance, costs and labour market issues) have had an impact on the product mix in Grenada. Most of the goods Grenada exports are not unique or complex. These items therefore tend to be at the lower end of the value-chain. In addition to the low value-added content, there also tends to be high export product and market concentration. This type of export structure therefore makes the island very vulnerable to shifts in the global business cycle. Moving further up the value-chain would allow the island to reduce the price volatility of these exports as well as enhance the economic impact of these export industries. Given that Grenada’s trade performance in the contemporary period is a result of other issues that affect the level of value- added in production, it is proposed that the problems experienced can be solved by the implementation of action plans that enhance the private sector’s voice in strategic planning, rationalises business development support, reduces the cost of doing business and provides suitable skills in the labour market. There is therefore no specific Action Plan to address trade issues in Grenada. 1.12. Summary
Private sector development cannot be separated from the overall sustainable development of the country. This therefore implies that social issues such as poverty, unemployment as well as environmental vulnerabilities should be considered in any plan to enhance private sector development. Indeed, these issues can often show up in the bottom line for businesses via higher security and insurance costs. It is imperative that these issues be kept in mind during the development of strategic plans to support the private sector. It seems that this is indeed the view of the Government of Grenada as the 2013 Budget was themed ‘Restoring Hope, Building the New Economy and Empowering our People’, where the development of the ‘New Economy’ was not separated from the empowerment of the citizenry. In keeping with the main issues to emerge from the PSA, and the CGF, the key elements of this New Economy, as presented in the 2013 Budget, were: Fiscal sustainability Debt sustainability Lean Government Private Sector as key driver Technical and Vocational Education and Training Life-long learning and high-wage employment Innovation and knowledge ICT applied to all aspects of development World class service industry, especially in tourism Green Business, Industries and lifestyles Sustainable Development Developing Agriculture along the Value Chain Efficient Light Manufacturing Dynamic Export Sectors Lucrative oil, gas and renewable energy sectors It is welcoming to observe that the Government’s narrative recognises the private sector as a key driver and a need for the development of green businesses, industries and lifestyles. In all, the majority of these elements of the New Economy complement the Action Plans developed from the PSA.
6. Conclusions and Recommendations
1.13. A Long Term Action Plan for Private Sector Development
The preceding analysis identified a number of pertinent issues affecting the development and growth of the private sector in Grenada. One of the most critical recommendations to emerge from both studies is the need for the implementation of a forum for collaboration between key stakeholders and representatives of labour, the private sector and Government. This gives the priority of the Action Plan as:
Action 1: Establishment of a Tripartite Committee (government-employer-labour) to identify the needs of all bodies and guide and oversee private sector development strategies.
At present, attempts are being made to facilitate these discussions, as noted above, however, there is no formal forum available to discuss the issue of private sector development at the national level. In Barbados, the umbrella institutional mechanism is known as the Social Partnership, which is chaired by the Prime Minister with members drawn from labour and private sector representative bodies. There are sub-committee meetings of the social partnership that then feed into the sessions chaired by the Prime Minister. Added to this consultative process, members of the social partnership also sit on the boards of various government agencies and key policymaking committees. Fashoyin 21 (2004:59), drawing on the Barbadian Social Partnership, provides some conditions for effective dialogue:
Free, independent and representative organisations of workers and employers; The willingness and readiness to consult, negotiate and share information; Strong and capable trade unions and employers’ organisations; Acknowledgement of the interdependence of the tripartite partners; Shared vision and a commitment to search for wider consensus; Mutual trust and respect for each party; Institutional machinery for social dialogue at the various levels of the economy; A certain degree of coordination between the levels of consultation and negotiation.
Fashoyin (2004) does however note that the framework for social dialogue cannot be neatly exported from one country to another, and the development of a Tripartite body in Grenada will should be cognisant of this, while appreciative of the challenges for meeting the conditions for effective dialogue. While higher level discussions are taking place in Grenada, they are at an early stage and presently no sub-committees to deal with specific issues have been formed, although recent discussions have addressed how the committees on wages, prices and productivity, and economic development should be composed22. It is recommended that this tripartite group be tasked with implementing the other elements of the action plan below, identified from the PSA for Grenada:
21 Fashoyin, T. (2004). Social Dialogue in Selected Countries in the Caribbean: An Overview, Journal of Eastern Caribbean Studies, 29 (4), 42-63. Action 2: Rationalisation and streamlining of public sector’s business support framework through the work of the Tripartite Committee to ensure a revised system that addresses both the needs of the private sector (access to finance, technical assistance and data) as well as wider obligations of Government. Action 3: Development of a National Strategic Plan that mainstream private sector development in the country. Through the lobbying efforts of Government, the plans for the development of the private sector should also be included in any regional strategic plans at the level of the OECS/ECCU and CARICOM. Action 4: Reduce the cost of finance through the reduction of transactional and operational costs in financial institutions through the use of technology and monitoring of efficiency levels; the reduction of risk and risk-averseness through the establishment of a credit bureau and a collateral registry; the strengthening of the Grenada Development Bank in terms of financial and human resource; and the introduction of alternative financial products and greater competition in the financial sector. Action 5: Increase the capacity of businesses to access finance through the provision of support (technical assistance and training) for the adoption of accepted business practices (recordkeeping) and the skills to develop business plans for funding and strategic planning23. These services exist in Grenada and are provided by the GIDC, however, the utilisation of these services need to be expanded given the results to emerge from the PSA. Action 6: Provide incentives for energy conservation and frameworks for the exploitation of renewable/alternative energy. Incentives and support in this area will act as both a cost- reduction tool as well as an opportunity for investment and enterprise development in the renewable/alternative energy sector. Action 7: Education and training curriculum reform that addresses the long term strategic direction of Government as well as the more immediate needs of the private sector. The long term strategic direction of Government should be constructed on the basis of dialogue with the private sector.
It should be noted that the various elements of the Action Plan seek to provide a conducive environment for private sector development in Grenada, however, this does not suggest that the implementation of the Action Plan in and of itself will automatically lead to growth of the private sector; there must also be entrepreneurial action in exploiting opportunities in the local, regional and global market. This is especially in light of anecdotal evidence that emerged during interviews throughout the region that the private sector demonstrated a lack of interest in looking ‘beyond their borders’ and instead seeks to grow domestic market share. As another caveat, the implementation of the Action Plan cannot be undertaken in isolation from regional integration efforts at the OECS and CARICOM levels. If Action 3, the development of a
22 http://www.gov.gd/egov/news/2013/jun13/12_06_13/item_1/government_social_partners_agree_working_e stablishment_social_protocol.html
23 It needs to be noted that these services exist in Grenada and are provided by the GIDC. However, the utilisation of these services need to be expanded given the results to emerge from the PSA that finance providers are still not satisfied with quality of proposals. national strategic plan, is taken as synonymous to some degree to the development of an industrial policy, the following should be noted:
‘Given that trade negotiations often take place at the regional level, industrial policies should be framed by the existing and likely trade commitments and coordination should be facilitated as much as feasible as it is unlikely that the Region will gain the first-world status that it seeks without greater regional coordination’(p.145)24 In relation to the development of a national strategic plan with a regional focus, attention should be paid to the specific recommendations that have consistently emerged from research in the region which speak to niche market development, moving up the value chain, development of strategic alliances and joint ventures for knowledge and technology transfer, and the development of clusters, both vertical and horizontal25. While activities in these areas are not specifically mentioned in the Action Plan due to their specificity, they should remain as options during the creation of the strategic plan for private sector development and growth in Grenada.
1.14. Summary
The Grenadian economy has been severely affected by the global economic recession. Since 2009, the economy has contracted by almost 6%. Furthermore, growth is projected at less than 2% over the short- to medium-term (2013-2015). This slowdown in overall economic activity has had a significant effect on government’s finances. Indeed, Grenada is now one of the most indebted SIDS in the world. Unemployment as well, has reached historic highs with 1 in every 4 Grenadians unemployed. While the private sector in Grenada face many specific issues related to taxes, dealing with Government departments, etc., it is considered that by focusing on the wider issues and the facilitation of a forum for discussion, that many of these specific issues could be addressed. It is also important to be aware that many of the recommended actions will not bear results in the short- term; building a framework for the development of alternative energy and curricula reform are not overnight processes, and require an element of structural change. In summary, the table below outlines the relationship between the main critical themes identified from the PSA, the main critical issues and related elements of the Action Plan. It should be noted that while all of the Action Points relate to the establishment of a conducive environment for the development of the private sector and are external to enterprises, that the private sector itself will need to take a portion of responsibility and seek to adopt a more proactive approach to exploiting opportunities available in the market. Given the perception that the private sector is not as proactive as it can be, and as a caution in interventions to spur private sector
24 Moore, W. (2010). Trade and Industrial Policy in the Caribbean. In: Alleyne, F., Lewis-Bynoe, D. and Archibald, X. (2010). Growth and Development Strategies for the Caribbean. CDB: Barbados.
25 An overview of policy recommendations made in this respect can be found in: Lashley, J. (2010). Productive Sector Development in the Caribbean: Manufacturing and Mining. In: Alleyne, F., Lewis- Bynoe, D. and Archibald, X. (2010). Growth and Development Strategies for the Caribbean. CDB: Barbados. development, it is imperative that all key stakeholders, from the international to the domestic level, are fully aware of the current level of development of the private sector. In Grenada, and across the region, the private sector is relatively under-developed and limited in its ability to cope with current neo-liberal developments given a long period of protection through such mechanisms as preferential trade agreements which have recently been removed. Any interventions should therefore seek to assist the private sector, with the assistance of the public sector, to build domestic market opportunities as well as special and differential treatment for export goods in the short- to medium- term, rather than fully expose it to the rigours of international competition. Lessons should also be learnt in drawing on the strengths of the region rather than seeking, as in the past, to attract investment based on low-cost labour which subsequently led to the attraction of footloose enterprises that relocate to competitors as cost levels change or economic circumstances deteriorate in relative terms. In this vein, the Caribbean needs to exploit those resources for which it has an advantage and a brand, suggesting a concentration on alternative energy (geothermal, solar), specialist agricultural products (nutmeg in Grenada) and agro-processing, eco-tourism, edu-tourism (drawing on human resources in the region), heritage tourism, health and wellness (both product- specific and related to tourism), and financial services, among others. In addition to drawing on the locational advantages that exist in the region, attention should be paid to the specific recommendations that have consistently emerged from research in the region which speak to: niche market development; moving up the value chain; development of strategic alliances and joint ventures for knowledge and technology transfer; and the development of clusters, both vertical and horizontal. While activities in these areas are not specifically mentioned in the Action Plan due to their specificity, they should remain as options during the development of the strategic plan for private sector development and growth in Grenada. Table 14: Recommendations and Actions Matrix for Grenada
Critical Themes Main Critical Issues Actions Details Responsibility of… General Political Limited dialogue between 1. Establishment of a Tripartite As noted by Fashoyin (2004) there is a need for: Government to initiate and Governance stakeholders representing Committee Members to be independent and representative Issues Government, labour and the Willing to consult and negotiate private sector Demonstrate mutual trust and respect ‘Silo-mindset’ in business support 2. Rationalisation and Need for communication at the Tripartite Committee level to determine the Government in organizations in the public sector streamlining of public sector’s specific external needs of enterprises in relation to the business conjunction with Tripartite Ad hoc development planning business support framework environment (finance, technical assistance) while meeting the wider Committee Lack of information sharing by the 3. Development of a National obligations of Government. private sector Strategic Plan that mainstreams Lack of utilization of technology. private sector development Access to Finance High Transaction and Operating 4. Reduce the cost of finance To address the issues of access to finance, several specific steps can be Eastern Caribbean Central Costs 5. Increase capacity of business to taken: Bank; Business support Informational Asymmetries access finance Introduction of technological advances; organisations Alternative Financing Options Monitoring of efficiency rate of financial institutions to identify areas for improvement; Establishment of credit bureaus and collateral registries; Introduction of alternative financing options such as equity financing, Greater competition in the financial sector, particularly the strengthening of domestic institutions; Provision of technical assistance and training to the private sector in relation to increasing formality, the adoption of accepted business practices, and the skills to secure funding. Cost of Doing Cost of electricity 6. Provide incentives for energy Provision of incentives and support to help reduce energy costs through Government Business conservation and frameworks conservation as well as for investing in the sector. To facilitate investment in for the exploitation of the sector, Castalia Strategic Advisors (2012:7), note that there is a need to: alternative energy options. ‘Define legal and regulatory framework for geothermal energy; Support geothermal resource exploration and related feasibility studies; Set clear permitting and planning for geothermal development; Support geothermal transactions’ Labour Market Limited availability and lack of 7. Education and training The specific content of any reform should be determined at the Tripartite Government Issues specialist skills in the labour curriculum reform. level and informed from the strategic plan for private sector development. market: Agreement will need to be reached on the immediate needs of the private and the longer terms development vision of Government. Trade Issues Limited product and market range The trade issues highlighted for Grenada cannot be addressed directly by the Action Plan as the expansion of product range and markets will with a domestic focus. require the action of private sector entrepreneurs. The Action Plan seeks to provide a conducive environment in the provision of appropriate labour and capital for the exploitation of market opportunities. 7. Bibliography
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The administration of the OECS is run by the OECS Secretariat, which is based in St. Lucia. The organs of the OECS include: The OECS Authority: The highest policy-making body of the OECS consisting of the various Heads of Government. The Authority’s chairmanship changes annually and rotates between the various member countries’ Head of Government. The Council of Ministers: The Council is comprised of appointed Ministers of Government from each member state and is responsible to the Authority. The Council act on matters referred by the Authority and also makes recommendations to the Authority. The OECS Assembly: The Assembly is comprised of appointed members of Government and Opposition from each member state. The Assembly serves as the legislative arm of the OECS. The power of the Assembly is confined to common market aspects of the Economic Union- Monetary Policy; Trade Policy; Maritime Jurisdiction and Maritime Boundaries; and Civil Aviation. The Assembly is permanently based in Antigua and is comprised of five legislators from every independent state and three from every non-independent state. The Economic Affairs Council: The Council is comprised of representatives of member states, usually Ministers of Trade. The Council is guided by the Economic Union Protocol and the Council is the principal organ of the Economic Union. The OECS Commission: The Commission is the main administrative organ of the Economic Union. It is comprised of a Director-General whose responsibility is the daily administration of the Organisation and convenes and presides over meetings of the Commission. The Commission also included one Commissioner of Ambassadorial rank named by each member state. The Commission also provides the Secretariat services for the organs of the OECS and makes recommendations to the Authority and Council of Ministers ‘…regarding the formation of Acts and Regulations of the Organisation; and undertake other work and studies, and perform other services relating to the functions of the Organisation as required under this Treaty or the OECS Authority or by any other organ’26. The OECS Secretariat: The Secretariat is responsible for the coordination of the function of the OECS under the direction of the Director-General. The organizational chart of the Secretariat is shown below. In addition to these organs, other relevant institutions include:
The Eastern Caribbean Central Bank (ECCB): The ECCB is the monetary authority of the OECS and issues the Eastern Caribbean Dollar. The ECCB maintains currency stability and oversees the banking system in the member states. The ECCB is governed by a Monetary Council and a Board of Directors and is managed by a Governor, currently Sir Dwight Venner. The ECCB was formed in 1983 and is based in St. Kitts and Nevis. The Eastern Caribbean Civil Aviation Authority (ECCAA): The ECCAA is an autonomous body with the OECS with responsibility to regulate civil aviation activities. Eastern Caribbean Supreme Court (ECSC): The ECSC has unlimited jurisdiction in all member states in accordance with individual Supreme Court Acts. The Court, established in 1967, is the superior court of record for the OECS member states.
26 Op cit. Figure 54: Organisational Chart of the OECS Secretariat
Source: http://www.oecs.org/images/oecs_org_chart.jpg Appendix 2: List of Key Stakeholders from Interviews and Consultations
Table 15: Business Support Institutions and Other Relevant Bodies
Name of Institution Contact Person Address Grenada Development Mervyn Lord Melville Street St. Georges Bank Grenada Industrial Sonia Roden Frequenté Industrial Park St. George's Development Corp. Grenada, West Indies Grenada Statistics Mr. Curlan Gilchrist Ministerial Complex, Botanical Gardens Department St. George's - Grenada, W.I Ministry of Finance Timothy N.J. Antoine Ministerial Complex, Botanical Gardens St. George's - Grenada, W.I National Development Mr Earle F. Finlay Foundation of Grenada Lucas Street, St. George’s CARDI (Caribbean Mr Reginald Andall CARDI Grenada P.O. Box 270 St George’s Agricultural Research and Grenada Development Institute) Grenada Bankers Mr. Nigel Ollivierre C/o First Caribbean International Bank, Association Church & Halifax Streets, St. George's Grenada Cooperative Ms. Chanda Davis PO Box 1307, Belmont Road, St. League George's Ocean House Building, Morne Rouge Grenada Hotel & Tourism RD, Grand Anse, P.O Box 440, St. George, Association Ms. Pancy Cross Grenada Grenada Trades Union Madonna Hartford (Ag) c/o Public Workers' Union, Tanteen, St. Council George's OAS (Organisation of Terence R. Craig P.O. Box 123, St. George's, Grenada American States) Table 16: Organisations Attending National Consultation and Main Contact
Organisation Contact Email Antoine's Woodwork Michelle Antoine [email protected] Belmont Estate Shadell Nyack Compton, Manager [email protected] Belzeb Roberte Laurant, Manager/Owner [email protected] CARDI Ruben Raymond [email protected] Farmer Guido Marcelle [email protected] Flamboyant Hotel Lawrence Lambert [email protected] GHTA-Consultant/Ethical Jennifer Alexis [email protected] Ideas GIDC Mrs. Sonia Roden [email protected] Grenada Board of Tourism Esther Thomas [email protected] Grenada Chamber of HazelAnn Hutchinson, Executive [email protected] Industry & Commerce Director Grenada Coalition of Jude Bernard [email protected] Services Grenada Development Mervyn Lord, Manager [email protected] Bank Grenada Distillers Ltd Ruel Edwards [email protected] Grenada Hotel and Tourism Pancy Cross [email protected] Association Grenada Ports Authority Edward Lord [email protected] Grenada Solar Power Ltd Kevin Burkhardt [email protected] Hubbards Allan Biersynski [email protected] Organisation Contact Email LIME Gwenlian Andrews [email protected] MAYAG Anita Sutton [email protected] Ministry of Trade & Export Randy Cadet [email protected] Development Ministry of Youth Sen. Sheldon Scott [email protected] Empowernment National Development Earle F. Finlay [email protected]/[email protected] Foundation of Grenada m National Training Agency Lincoln Morgan [email protected] Noeville Denis Noel, Manager/Owner [email protected] PS Ministry of Labour, Javan Williams [email protected] Social Security and Ecclesiastical Affairs Quality Solutions for Heidi Vincent, Lead Consultant [email protected] Business Excellence RBTT Vaughan Brathwaite [email protected] Sissons Paints Grenada Ltd. Christopher DeAllie, Managing [email protected] Director Spice Isle Treats Andia Jones Treo Entertainment Andre Greenidge [email protected] UWI Dr. Curtis Jacob [email protected] Yolande's Confectionery Yolande Smith Appendix 3: Grenada’s Governance Framework
The island attained full internal self-governance in 1967 and Independence in 1974. After initial elections held in 1974, civil conflict resulted in the suspension of the constitution and democratic elections were not held again until December 1984. Grenada has adopted a modified Westminster parliamentary system. Within this model, Parliament consists of the Queen, represented by the Governor General, the Senate and the House of Representatives. The Governor General summons Parliament, brings its session to an end and formally approves all bills before they become law. These powers are, however, exercised under the advice of the Executive (the Prime Minister and his Cabinet). All legislation must be approved by all three components of Parliament. Only the House of Representatives is directly elected by citizens, while the Senate consists of 13 non-elected members: 7 chosen by the Prime Minister 3 chosen by the Leader of the Opposition 3 chose by the Prime Minister to represent civil society The House of Representatives is made up of 15 elected officials and by and large sets the legislative agenda for the island. Any member can introduce bills, except those involving expenditure or taxation, which can only be introduced by the Government, i.e. the political party that has captured the most seats in the House of Representatives. By law, elections are to be held every five years, but the Governor General, on the advice of the Prime Minister, may dissolve Parliament before this period. Grenada has two main political parties: the National Democratic Congress and the New National Party. In the last election (2013), the National Democratic Congress, the ruling party, lost all of its 11 seats, leaving the New National Party with all 15 seats in parliament. There are three other parties, the Grenada United Labour Party, the People Labour Movement and the newly formed National United Front. The Leader of the Party holding the most seats in the House of Representatives is invited to form a Government by the Governor General. The Prime Minister then selects members from the House of Representatives to form the Cabinet. The Prime Minister and Cabinet together constitute the Executive arm of the Government.
Table 17: Cabinet Members and Portfolios
Member Portfolio Dr. Keith Mitchell Prime Minister & Minister for Finance, Energy, National Security, Public Administration, Disaster Preparedness, Home Affairs, Implementation and Information Elvin Nimrod Deputy Prime Minister, Attorney General and Minister for Legal Affairs, Labour, Local Government, and Carriacou and Petit Martinique Affairs. Gregory Bowen Minister of Communications and Works, Physical Development, Public Utilities and Information Communication Technology Anthony Boatswain Minister of Education and Human Resource Development Member Portfolio Claris Modeste Minister of Health and Social Security Roland Nhola Minister of Agriculture, Lands, Forestry, Fisheries and the Environment Nickolas Steele Minister of Foreign Affairs and International Business Emmalin Pierre Minister of Youth, Sports and Ecclesiastical Affairs Alexandria Otway-Noel Minister of Tourism, Civil Aviation and Culture Oliver Joseph Minister of Economic Development, Trade, Planning and Cooperatives Delma Thomas Minister of Social Development, Housing and Community Development Source: The Official Website of the Government of Grenada (www.gov.gd) The Grenada Constitution guarantees fundamental rights and freedoms to every person regardless of race, place of origin, political opinions, colour, creed or sex. These include: life, liberty, security of the person and the protection of the law; freedom of conscience, of expression and of assembly and association; protection for the privacy of his home and other property and from deprivation of property without compensation; and the right to work. Appendix 4: Donor Matrix Report for Grenada Compete Caribbean Private Sector Donor Matrix Report for Grenada
July 2013 Description of the Donor Community
Please see Section 1.10.3 of the main PSA Report for information on: Active multilateral and bilateral donors Formal and Informal Coordinating Mechanisms among donors Methodologies for indentifying priorities for donor funding Monitoring and evaluation by donors Opportunities to improve coordination amongst donors For an analysis of programs and projects undertaken by donors in the country and in the OECS in general, please see DMX Annex 1: Analysis of Donor Projects and Programs. A listing of projects is available separately in Microsoft Access format.
Description of Local Stakeholders
Public Sector Stakeholders
The main public sector body in Grenada dealing with private sector development is the Ministry of Economic Development, Trade, Planning and Cooperatives. The Mission of the Ministry is:
To provide trade policy, environment management and export development to achieve sustainable development. The Vision of the Ministry is:
To be a dynamic force in wealth creation and the responsible use of resources. The stated priorities of the Ministry include: Promote and facilitate exports with emphasis on product diversification and value creation Fulfil obligations to regional and multilateral agreements in trade Participate in major trade fairs Establish councils on Trade and the Environment (see http://www.gov.gd/ministries/environment.html) The Government of Grenada also provides support to PSD through the Grenada Industrial Development Corporation (GIDC). GIDC provides policy advice to Government in a number of areas: Monitors the development of approved investments to ensure that project development is in compliance with the conditions under which investment incentives were granted and advise government on appropriate actions. Monitor performance of approved enterprises and report annually on the economic impact of the Investment Incentive Programme. Monitor the investment climate, examining the interrelated policy areas of modal neutrality, market contestability, policy coherence needs and advocating policy measures that would maintain a good investment climate. Makes recommendations to government to upgrade legislation/regulation and protect tax and incentive packages for investors. Organizes private/public sector consultations, business forums and round table discussions to obtain feedback and the views of the business community on issues affecting the private sector The GIDC also supports private sector development through: Business development unit that works with local entrepreneurs (helping with writing business plans, customer service, accounting procedures, diagnostic services) Industrial park facility; space to persons to operate businesses For other benefits to enterprises, manufacturers benefit from various incentives such as reduced import duties, removal of the customs service charge. In relation to training programmes, these are in place to help individuals transition from school to work (i.e. Grenada Youth Empowerment Programme).
Private Sector Stakeholders
A listing of main private sector stakeholders is shown in Section 1.10.2. Please see below for specific information on networking and coordination, activities, and information on monitoring and evaluation. Table 18: Private Sector Stakeholders in Grenada
Name and Background Activities Formal Coordination Informal Monitoring and Coordination Evaluation Grenada Cooperative The GCCL provides loans and insurance to affiliates; these funds The League primarily works with members. They As needed M&E undertaken Credit Union League are sometimes used to provide liquidity support to these would however like to create greater links with Ltd. institutions to help them upgrade their infrastructure. These other institutions on the island. Founded in 1958 loans are largely financed by member dues, but the entity is trying 43,849 members in to change this formula. The GCCL also does training for members 2011
Grenada Development Financing MOU with GIDC - Loan officers Bank Technical assistance Funding from CDB, EIB, National Insurance and monitor each loan Founded in 1965 Microenterprise financing Government Number of visits Financing for young entrepreneurs required each year Interest rates range from 7-12% GARFIN is the regulator
National Development Provide credit facilities to “unbankable” micro and small business In the past the institution received funds from As needed - Foundation of Grenada enterprises USAID, CIDA, Canadian Training Awards Founded in 1984 “Unbankable” means projects that would not normally be funded Programme (CTAP), Government of Taiwan, etc by banks and other financial institutions Providing training and technical support Grenada Hotel and Marketing of Grenada Regional tourism association and Chamber of - - Tourism Association Coordinating member activities Commerce Lobbying government Training Grenada Chamber of Advocacy and growth MOU with GIDC and GDB - - Commerce and Regular meetings on issues that arise Industry Social partnership meetings Founded 1922 Project committee to work on bottlenecks 200 members Description of Information Available for the Analysis of Private Sector Characteristics, Development Initiatives and Results
The most up-to-date information on the private sector in Grenada is provided by the Enterprise Surveys and Doing Business Reports as used extensively throughout the PSA Report. In addition, there are directories available on manufacturers in the country compiled by the relevant ministry. However, these directories are not regularly updated. In addition, the Eastern Caribbean Central Bank conducts twice yearly Business Outlook Surveys (http://www.eccb- centralbank.org/Statistics/outlooksummary.asp).
Identification of Opportunities to Increase Efficient Design and Execution of Programs
The GIDC is the main body responsible for private sector development in Grenada. The agency primarily focuses on the issue of investment promotion, but also has a mandate to focus on increasing the number of indigenous small businesses as well as facilitating the growth of existing domestic enterprises. As would be expected, the agency has a particular focus on industrial enterprises. Private sector development in other areas of the economy are handled by other agencies or government departments: tourism (Grenada Board of Tourism), agriculture (Ministry of Agriculture, Forestry, and Fisheries, Grenada Cocoa Association, Grenada Cooperative Nutmeg Association, Grenada Food and Nutrition Council and Minor Spices Association), education (Ministry of Education) and the Ministry of Economic Development, Trade, Planning and Cooperatives. With so many entities involved in private sector development, many of the opportunities for economies of scope and scale are missed both at the enterprise level as well as in the area of government policy formulation and support. The main issue of opportunities to increase the efficient design and execution of programs relates not only to these overlaps and duplication, but also to the gaps raised in the PSA Report pertaining to lack of easily accessible finance, lack of matching of skills supplied with the needs of the private sector, and lack of access to data. One of the reasons for these gaps is a lack of inclusion of the private sector in decision-making and strategic planning. It is hopes that this issue would be addressed by the establishment of a high-level steering committee comprising of labour, private sector and public sector representatives. While many government departments and ministries have an expressed mandate to focus on the development of small businesses, there is no single department coordinating the Government’s efforts in this area. Most small businesses are typically owner-operated, have few employees and a small market share. Because of these characteristics, there are unlikely to be able to participate and influence government policy development through traditional channels. Small enterprises would therefore have limited voice in the area of policy development. During many of the interviews conducted with the private sector, the view was expressed that they were often consulted after policy initiatives were developed. This approach limited the ability of the private sector to fully and effectively participate in the policy development process, an approach that could lead to the need for amendments after the legislation was passed, an increased cost of doing businesses as well as business uncertainty. Identification of Opportunities to Address Omitted Priority Problems
The areas omitted from current support for private sector development can be addressed as recommended in the PSA Report, Section 1.13. In addition, many of the agencies mentioned in the previous section (GIDC, Ministry of Tourism, Grenada Board of Tourism, etc.) are in one way or the other are associated with the goal of private sector development in Grenada. While a single entity would result in some cost savings, it is likely that such an institution might not have the necessary capacity to effective enable private sector development in such a wide cross-section of industries. Instead, members of all the above agencies, along with representatives from key supporting industries (e.g. finance, labour, customs, among others) could form a special taskforce with the expressed objective of private sector development and tasked with coordinating any overlaps or duplication that might occur in the goal of private sector development. While many government departments and ministries have an expressed mandate to focus on the development of small businesses, tremendous opportunities could be garnered from such a group, department or desk formed with the sole purpose of small business development. Such an entity could identify issues with current and future laws and regulations that impede private sector development or increase the cost of doing business for current enterprises, identify policy priorities for small business development and the creation of an incentive framework to support the growth of these enterprises. It is important that the Multi-Partite Committee identified in the 2013 Budget Statement provides a forum for all social partners to effectively feed into the policymaking process. This should not be after policy initiatives are developed, but should build into the development process stakeholder consultation. While this might add another layer to the policymaking process, the overall benefits yielded in private sector development and the limited need for future amendments could more than offset these additional consultation costs.
Recommendations
The areas where recommendations are required from the terms of reference for the DMX section of the project relate to recommendation that improve coordination amongst donors, improve donor coordination with local stakeholders and improve PSD-related information systems and monitoring and evaluation. The current activities by Compete Caribbean as an approach to improve donor coordination and the Caribbean Growth Forum (CGF) initiative are two examples that other donor agencies not currently participating would do well to emulate. In areas of congruence, such initiatives should be utilised to achieve overall development goals, while unilateral targets could still be met via the donor’s independent activities. In relation to donor coordination with local private sector and public sector representatives, the results of interviews across the region speak to the issue of a lack of dissemination of information on areas of support available as well as the results of research studies for which local stakeholders have provided information. The inclusive modus operandi of the CGF is a good example of how to improve the relationships with local stakeholders through inclusion in working groups and transparency in research results. However, it should be noted that there was limited participation by the private sector and this will need to be more actively encouraged. This point is closely related to the issues of the development of information systems and monitoring and evaluation. Private enterprises are reluctant to share information on their enterprises and by greater inclusion in the decision-making process may foster greater willingness to share relevant information. There is a strong demand by private sector enterprises for data to assist in strategic planning. However, the situation is not that data does not exist in the region, it is basically that the data is not collated or mined. Individual governments, through such agencies as Inland Revenue Departments and National Insurance Schemes, collect information over specific periods that could provide more detailed information as regards revenue and expenditure by sector, employment levels and categories, and investment data. The problem in this regard is a lack of infrastructure and human resources to consistently collate and present data. This is an area where, at the country and regional level through national statistical offices and the OECS Secretariat and the Eastern Caribbean Central Bank, that donors could direct resources, especially as it relates to technical assistance in the development of such a system. DMX Annex 1: Analysis of Donor Projects and Programs in Grenada and the OECS
Both multilateral and bilateral donors provide support for private sector development in Grenada. The main multilateral donors include the Caribbean Development Bank (CDB), the International Bank for Reconstruction and Development (World Bank), International Finance Corporation (IFC), European Investment Bank (EIB), the Delegation of the European Union to Barbados and the Eastern Caribbean (EU) while some bilateral assistance is obtained from USAID, Canadian International Development Agency (CIDA), the Government of Italy and the Government of China. In addition, multi-donor support is provided through Compete Caribbean. The majority of active projects are focussed on Business Support, Finance (access to finance), the Business Environment in general or a combination of these objectives. For projects focussed on these objectives, there are 35 active or recently completed donor funded projects in Grenada specifically, and 12 operating at the OECS level. Of these projects, at the country level, the majority of projects are focussed on the Business Environment (46%), while the largest value of funding is seen in Business Support/Finance, US$35 million. In terms of the sector focus, 46% of these main objectives are targeted at the service sector.
Table 19: Main Objectives and Sector Profiles of Donor Projects in Grenada and the OECS
Objective Share Agriculture Industry Services Value of Active n
o (%) (%) (%) (%) Projects (US $’000) i t a c o L
Business Support/Institutional 28.6 5.7 14.3 20.0 $ 9,950 A
D Structure A
N Access to finance 20.0 5.7 5.7 20.0 $ 11,081 E
R Business Environment 45.7 - - - $ 19,688 G Business Support/Finance 5.7 - - 5.7 $ 34,658 TOTAL GRENADA 100.0 11.4 20.0 45.7 $ 75,376 Business Support/Institutional 41.7 8.3 8.3 8.3 $ 31,140 Structure S C
E Access to finance 16.7 8.3 8.3 16.7 $ 1,940 O Business Environment 25.0 8.3 8.3 8.3 $ 14,190 Business Support/Finance 16.7 8.3 8.3 8.3 $ 2,060 TOTAL OECS 100.0 33.3 33.3 41.7 $ 49,330 At the OECS level, for projects in these areas which are operating at the subregional level, the service sector is also the focus, accounting for 42% of projects. In terms of the number of projects and value, the Business Support/Institutional Structure objectives dominate with 42% of projects and funding in excess of US$31 million. Although access to finance has been noted as a major obstacle to business development in the region, projects specifically targeting this area at the subregional level only account for 17% of projects, and less than US$2 million in funding. At the domestic level in Grenada, specific projects addressing this issue account for 20% of projects and US$11 million in funding, the lowest level for all of the main objectives demonstrating gaps in the support mechanism. In taking the region as a whole, a similar situation is seen where access to finance is only the main focus of 14% of projects, and a joint focus with Business Support for 13% of projects. Table 20: Overview of Main Donor Projects by Objective, Sector and Value27
Objective Active/Recent Average Agriculture Industry Services Total Value of Completed Share (%) Projects (% Projects (% Projects (% Main Projects Projects of total) of total) of total) (US$'000) Business Support/ 67 27.0 6.3 7.9 10.8 $ 107,738 Institutional Structure Access to finance 36 14.1 5.9 6.7 10.6 $ 104,390 Business Environment 91 33.5 9.0 10.1 19.0 $ 155,733 Business Support/ Access 35 12.9 4.8 5.2 7.0 $ 96,996 to finance Total 229 - 26.0 30.0 47.4 $ 464,857 As indicated in the table above, the greatest number of projects relate to the Business Environment, accounting for on average 34% of projects at a total value of US$156 million. In terms of sector concentration, on 47% of projects are focussed on services. The table below outlines the main information by the main objectives, sector of focus and value at the country level in the OECS.
27 Note that some percentages do not sum to 100% due to rounding during aggregation. Table 21: Main Objectives and Sector Profiles of Donor Projects in the OECS and Member States
Country Objective Active/Recently Share of Total Agriculture Industry Services Total Value of Main Completed Projects (%) Projects (%) Projects (%) Projects (%) Projects (US$'000)
a Business Support 12 37.5 6.3 3.1 9.4 $ 15,350 d u
b Institutional Structure r a
B Access to finance 5 15.6 6.3 6.3 6.3 $ 1,250
d
n Business Environment 11 34.4 3.1 9.4 3.1 $ 19,049 a
a Business Support and Access 4 12.5 3.1 3.1 9.4 $ 3,457 u g i to finance t n
A TOTAL 32 100.0 18.8 21.9 28.1 $ 39,105 Business Support 11 31.4 11.4 11.4 22.9 $ 14,553 Institutional Structure a c
i Access to finance 6 17.1 11.4 11.4 17.1 $ 20,873 n i Business Environment 15 42.9 2.9 11.4 42.9 $ 20,243 m o
D Business Support and Access 3 8.6 2.9 2.9 8.6 $ 4,150 to finance TOTAL 35 100.0 28.6 37.1 91.4 $ 59,819 Business Support 10 28.6 5.7 14.3 20.0 $ 9,950 Institutional Structure a d
a Access to finance 7 20.0 5.7 5.7 20.0 $ 11,081 n e
r Business Environment 16 45.7 $ 19,688 G Business Support and Finance 2 5.7 5.7 $ 34,658 TOTAL 35 100.0 11.4 20.0 45.7 $ 75,377 Business Support 10 28.6 8.6 8.6 8.6 $ 7,493 s i v Institutional Structure e N Access to finance 9 25.7 2.9 11.4 14.3 $ 9,093 d n a
Business Environment 14 40.0 8.6 11.4 34.3 $ 15,243 s t t
i Business Support and Access 2 5.7 $ 3,820 K
. to finance t S TOTAL 35 100.0 20.0 31.4 57.1 $ 35,648 a i
c Business Support 11 28.9 5.3 10.5 7.9 $ 15,450 u L
Institutional Structure . t
S Access to finance 5 13.2 10.5 7.9 7.9 $ 22,651 Country Objective Active/Recently Share of Total Agriculture Industry Services Total Value of Main Completed Projects (%) Projects (%) Projects (%) Projects (%) Projects (US$'000) Business Environment 16 42.1 21.1 18.4 15.8 $ 37,674 Business Support and Access 6 15.8 2.6 5.3 5.3 $ 7,243 to finance TOTAL 38 100.0 39.5 42.1 36.8 $ 83,017 s
e Business Support 8 19.0 4.8 7.1 9.5 $ 13,803 n i
d Institutional Structure a n
e Access to finance 2 4.8 2.4 2.4 2.4 $ 37,503 r G Business Environment 16 38.1 19.0 11.9 28.6 $ 29,647 e h
t Business Support and Access 16 38.1 11.9 11.9 11.9 $ 41,608
d
n to finance a
t TOTAL 42 100.0 38.1 33.3 52.4 $ 122,561 n e c n i V
. t S Business Support 5 41.7 8.3 8.3 8.3 $ 31,140 Institutional Structure l e
v Access to finance 2 16.7 8.3 8.3 16.7 $ 1,940 e L
S Business Environment 3 25.0 8.3 8.3 8.3 $ 14,190 C
E Business Support and Access 2 16.7 8.3 8.3 8.3 $ 2,060 O to finance TOTAL 12 100.0 33.3 33.3 41.7 $ 49,330
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