The In­ter­Amer­i­can De­vel­op­ment Bank’s (IDB) re­port, re­leased last week, on “Glob­al and Re­gion­al Economies At a Cross­roads” pro­vides an op­por­tu­ni­ty for Caribbean coun­tries to re­flect on their suc­cess­es to date in pur­su­ing a de­vel­op­ment agen­da, says econ­o­mist Dr Vanus James.

He told the Sun­day Busi­ness Guardian that the IDB re­port showed ev­i­dence and ex­pec­ta­tions about the re­cent and fu­ture growth per­for­mance of key re­gion­al coun­tries, not­ing that its fo­cus is the short to medi­um term.

In the case of T&T, James said the re­port doc­u­ment­ed a rate of GDP growth of 3.1 per cent for 2022 and pro­ject­ed av­er­age growth of 2.5 per cent in 2022 to 2026.

He added that the re­port al­so pro­vid­ed some ev­i­dence of volatile per­for­mance by ob­serv­ing that the non-en­er­gy sec­tor con­tributed most of the growth in the first three quar­ters of 2022, grow­ing at an av­er­age rate of 4.9 per cent, while the en­er­gy sec­tor con­tract­ed slight­ly by 0.7 per cent in the same pe­ri­od.

On the oth­er hand, James not­ed that in the last quar­ter of the year, buoyed by im­prov­ing en­er­gy prices, the en­er­gy sec­tor ex­pand­ed at a rate of 5.4 per cent, com­pared to 1.2 per cent for the non-en­er­gy sec­tor.

“Much of the ro­bust per­for­mance of the non-en­er­gy sec­tor was due to its dy­nam­ic ser­vices; and this is ex­pect­ed to con­tin­ue in the near fu­ture. The qual­i­ty of these growth per­for­mances could on­ly be prop­er­ly as­sessed in re­la­tion to cor­re­spond­ing de­vel­op­ment da­ta (or even da­ta re­lat­ing the growth rates to the av­er­age in­ter­est cost on debt to clar­i­fy sus­tain­abil­i­ty). These are not pro­vid­ed by the re­port,” James ex­plained.

How­ev­er, he said it is worth ob­serv­ing that the doc­u­ment­ed growth per­for­mances ac­tu­al­ly pro­vide com­pelling ev­i­dence that the coun­tries of the Caribbean are all grow­ing at rates well be­low the trends re­quired to de­vel­op their economies.

Ac­cord­ing to James, in a con­text of low rates of growth of pop­u­la­tion, low (re­al) GDP growth rates and high growth volatil­i­ty are al­so com­pelling ev­i­dence of in­ad­e­quate trend growth of GDP per capi­ta. This, James ad­vised should be of con­cern to Caribbean so­ci­eties, since fail­ure to raise liv­ing stan­dards at an ad­e­quate rate leads to the un­de­sir­able con­se­quences cit­i­zens live with every day in coun­tries like Ja­maica and T&T.

In these cas­es, James said cit­i­zens have wit­nessed un­ac­cept­ably high crime rates and high rates of em­i­gra­tion of skilled work­ers in pur­suit of bet­ter op­por­tu­ni­ties in the economies of the North At­lantic.

“And, in fact, loss of skilled work­ers feed­back to low­er liv­ing stan­dards in the los­ing coun­try while rais­ing liv­ing stan­dards in the re­cip­i­ent coun­tries, set­ting up an ad­verse dy­nam­ic for the los­ing coun­try. Such mat­ters are not men­tioned in the re­port,” James stat­ed.

In al­so ex­am­in­ing the re­port, econ­o­mist Dr Vaalmik­ki Ar­joon said it showed that the re­cent im­prove­ment in the per­for­mance of the re­gion does in­deed present op­por­tu­ni­ties for the lo­cal econ­o­my es­pe­cial­ly for in­creased ex­ports.

How­ev­er, this al­so hinged on the in­ter­est rate de­ci­sions that the Fed and re­gion­al cen­tral banks will take go­ing for­ward to tack­le the cur­rent sticky in­fla­tion.

Ar­joon ex­plained that tourism lev­els have un­der­gone a re­mark­able resur­gence, even sur­pass­ing the pre-pan­dem­ic lev­els of 2019 in cer­tain coun­tries, no­tably the Ba­hamas and Ja­maica.

He said this resur­gence has cre­at­ed sub­stan­tial op­por­tu­ni­ties for the lo­cal man­u­fac­tur­ing sec­tor, par­tic­u­lar­ly in the food and bev­er­age in­dus­try.

“The in­creased tourism de­mand for ho­tel, food, and restau­rant ser­vices has led to a surge in ex­ports of food and bev­er­age prod­ucts from our lo­cal food pro­cess­ing sec­tor to these economies, ef­fec­tive­ly meet­ing the height­ened de­mand. Over the past two years, the food pro­cess­ing sec­tor has ex­pe­ri­enced an im­pres­sive growth rate of 54 per cent, cap­i­tal­is­ing on the tourism boom by strength­en­ing its ex­ports of food items to the wider Caribbean re­gion. The lat­est da­ta from the fourth quar­ter of 2022 in­di­cates a 16 per cent im­prove­ment in the pro­duc­tiv­i­ty of this sec­tor,” Ar­joon said.

How­ev­er, he said to main­tain and en­hance T&T’s per­for­mance, cer­tain chal­lenges must be ad­dressed in the busi­ness en­vi­ron­ment. These in­clude high im­port prices from sup­pli­ers, dif­fi­cul­ties and de­lays at the port when ac­cess­ing im­port­ed raw ma­te­ri­als, em­ploy­ee pro­duc­tiv­i­ty, VAT re­funds, high fu­el costs etc. Stream­lin­ing busi­ness process­es and im­prov­ing the ease of do­ing busi­ness can al­so en­cour­age near-shoring, where US man­u­fac­tur­ers es­tab­lish fac­to­ries and sup­ply-chain out­lets in T&T.

Al­so, Ar­joon said near-shoring has the po­ten­tial to cre­ate more job op­por­tu­ni­ties and boost the lo­cal labour force par­tic­i­pa­tion rate, which cur­rent­ly stands at 55 per cent.

Ad­di­tion­al­ly, he not­ed that some coun­tries in the re­gion have re­port­ed an in­crease in pri­vate sec­tor cred­it, in­di­cat­ing height­ened busi­ness ac­tiv­i­ties.

Ac­cord­ing to Ar­joon, this may lead to ad­di­tion­al im­ports from the lo­cal econ­o­my, not on­ly in food and bev­er­age but al­so in cloth­ing and tex­tiles, pe­tro­le­um, and chem­i­cal prod­ucts etc.

“In­deed, some of these economies in­creased their in­ter­est rates in an ef­fort to curb in­fla­tion, for in­stance Ja­maica, which pushed up their rate from 4.5 per cent in April 2022 to 7 per cent by No­vem­ber 2022. If these rates soft­en in the fu­ture to stim­u­late spend­ing and pri­vate sec­tor in­vest­ment, once in­fla­tion tar­gets are met, it can po­ten­tial­ly en­hance our ex­port lev­els to these economies,” Ar­joon said.

How­ev­er, he ex­plained that a po­ten­tial down­side risk is the pos­si­bil­i­ty of an in­crease in the Fed rate, with cur­rent sig­nals of at least one ad­di­tion­al rate hike, not­ing that this could lead to low­er en­er­gy prices.

“In­deed, a rate hike can cause cap­i­tal flight to the US where coun­tries in­vest in US se­cu­ri­ties to take ad­van­tage of high­er in­ter­est, caus­ing ap­pre­ci­a­tion of the US dol­lar. Since oil and gas are trad­ed in US dol­lars, this sug­gests that oth­er coun­tries will find it more ex­pen­sive to af­ford the US dol­lar to pur­chase these com­modi­ties, po­ten­tial­ly re­duc­ing their de­mand.

“In­fla­tion re­mains a glob­al con­cern de­spite rate hikes by over 50 cen­tral banks, and fu­ture rate hikes will make bor­row­ing more ex­pen­sive for con­sumer and in­vest­ment spend­ing, po­ten­tial­ly re­duc­ing hy­dro­car­bon prices. Pro­duc­tion cuts by OPEC+ could help mit­i­gate this ef­fect for oil. In­creased gas pro­duc­tion in coun­tries like the US, to­geth­er with low­er in­ter­na­tion­al de­mand, has al­ready mod­er­at­ed gas prices,” Ar­joon fur­ther ex­plained.

He al­so not­ed that the re­port high­light­ed the growth of pri­vate sec­tor cred­it in cer­tain economies but stat­ed that small and medi­um-sized en­ter­pris­es (SMEs) still face chal­lenges in se­cur­ing loans from banks at rea­son­able in­ter­est rates, es­pe­cial­ly lo­cal­ly.

Giv­en the over­all health of the fi­nan­cial sec­tor in the re­gion, this may be an op­por­tune time for re­gion­al au­thor­i­ties to con­sid­er de­vel­op­ing a re­gion­al stock mar­ket, Ar­joon ad­vised.

He added that such a mar­ket could of­fer eq­ui­ty fi­nanc­ing op­tions for SMEs, pro­vid­ed it in­clud­ed an SME com­po­nent where these en­ti­ties can list their com­pa­nies, so that in­vestors from the re­gion and be­yond can pur­chase a stake.

This, Ar­joon added, would in­cen­tivise SMEs to main­tain prop­er fi­nan­cials and be­come reg­is­tered, pro­mot­ing their growth and de­vel­op­ment.