ES GOAB SYMPOSIUM 07 06 PRIVATESECTOR WB

Towards a New Agenda for Growth in the OECSAntonella BassaniCaribbean Unit, The World Bank: 

Towards a New Agenda for Growth in the OECS Antonella Bassani Caribbean Unit, The World Bank

Outline: 

Outline Emerging concerns in the OECS countries Key barriers to sustained growth Opportunities for growth A new agenda for growth and competitiveness

1970s-2000s: Overall good progress in the OECS: 

1970s-2000s: Overall good progress in the OECS Relatively high growth rates of per capita income Strong foreign direct investment Strong social indicators Early attainment of universal primary education Improved life expectancy But this is changing . . .

Emerging concerns in the OECS: 

Emerging concerns in the OECS Slowing economic growth Declining productivity Contraction of private investment since mid 1990s FDI still flowing, but shares of world flows declining External climate is changing…

Growth slowdown since early 1990s : 

Growth slowdown since early 1990s Per Capita Incomes (PPP) 1975-2004

Declining productivity has hampered growth…: 

Declining productivity has hampered growth… Total factor productivity (median growth rates, %) Source: World Bank staff estimates

…increasing competition in tourism market: 

…increasing competition in tourism market

Recent contraction of private investment: 

Recent contraction of private investment COMPOSITION OF INVESTMENT, 1990-2003

FDI still flowing but share of OECS in world declining: 

FDI still flowing but share of OECS in world declining

External climate: 

External climate Eroding trade preferences Declining aid flows High oil prices and increasing interest rates Regional and global integration Caribbean Single Market and Economy FTAA and trade in services EU Economic Partnership Agreement WTO and rule-based international trade

Key barriers to sustained growth: 

Key barriers to sustained growth Investment climate poor educational outcomes and inadequate skills infrastructure constraints natural disasters

Investment climate: 

Investment climate Macroeconomic and fiscal stability are critical to sustained investment Government sector remains large and costly in terms of impact on labour and financial markets Delivery of services still focused on regulation rather than facilitation, e.g. tax and customs Public investment programs need to be more focused and cost-effective Investment promotion regime should be updated

Wages, skills and labor market: 

Wages, skills and labor market High wages, growing faster than productivity Labor regulations moderately rigid – difficulties in hiring/firing, and cost of firing Evidence of labor market segmentation -- govt vs private, skilled vs unskilled, unionized vs informal Shortage of skills resulting from shortfall in education and training output, and migration Linkage between labor market demand and skills output needs to be strengthened

Infrastructure constraints: 

Infrastructure constraints Access to utilities fairly good but costs high Businesses often cross-subsidize consumers reflecting a bias toward consumption vs production Improvements in technology has reduced scale economies somewhat but Better regulation needed to promote efficiency, quality, reliability and competitive pricing Regional approaches can conserve on limited regulatory capacity and help depoliticize issues Substantial investment needed to meet infrastructure growth needs but large public debt constrains government investment capacity New policy approaches will be needed to leverage the private sector

High Incidence of natural disasters: 

High Incidence of natural disasters High vulnerability In 1970-99, Caribbean had on average 12 catastrophic events a year (cumulative damages=US$8.5 billion or 12% of GDP per country) In 1970-2002, 12 natural disasters in the ECCU (median reduction in same-year real GDP growth of 2.2%) loss burden is on increase inadequate prevention, e.g. building codes access to insurance facilities limited due to high transaction costs reliance on international donors to finance post-disaster needs the Bank is studying the viability of a Caribbean Catastrophe Risk Insurance Facility to allow Caribbean countries to pool natural disaster risks

Many inherent advantages of OECS: 

Many inherent advantages of OECS areas of identified comparative advantage: proximity to large market largely English speaking population alluring natural beauty rich culture other small states have succeeded Iceland, Singapore, Malta, Ireland have competitive niches – based on services, technology and innovation developing innovative and competitive clusters will be critical for future growth in the OECS

Tourism: 

Tourism the region’s traditional tourism product (sun, sand and sea) has reached maturity in most countries tourism has failed to create backward linkages with local economy growing demand in new product areas such as adventure, cultural tourism, yachting provides opportunities several success stories in these new niches (St. Lucia’s Jazz Festival, Dominica’s Creole Festival, yachting in St. Vincent/Grenadines and Antigua/Barbuda and Barbados’ upscale resort Sandy Lane)

Offshore education: 

Offshore education emerging cluster of education exports in Caribbean: 24 medical + 1 veterinary schools (half in OECS) 70% of international medical graduates entering US during 1984-2004 from Caribbean offshore schools demand for offshore medical education expected to remain high estimated direct impact on the economy: from 0.2% of GDP in St. Lucia to 8.3% in Dominica; indirect impact even greater Build upon success: expand education exports in non-medical areas (e.g., English-training cluster)

Health and wellness services: 

Health and wellness services opportunities also exist to develop health tourism global health service exports amount to about US$104 billion expected growth in exported health services is estimated to be 6% annually a number of existing health and wellness centers (e.g., Le Sport in St. Lucia) and rehabilitation services (e.g., Cross Roads Center in Antigua and Island Dialysis in Barbados)

ICT enabled services: 

ICT enabled services poor results in past with call centers because of high labor and interconnectivity costs but ICT can improve competitiveness of OECS firms by: making distance irrelevant gathering customer and competitor information in real time improving productivity and logistics many Caribbean firms have used ICT to gain competitive advantage (internet gaming in Antigua and Barbuda)

A new agenda for growth?: 

A new agenda for growth? Formulate a new long-term vision of an integrated OECS in the global economy with the private sector, trade unions, civil society, etc. Reorient development model toward greater openness and competition with the private sector as the engine and the govt as coordinator and enabler Build capacity in labor force, private sector and government to sustain growth

Formulating the vision: 

Formulating the vision Successful small states identified a broad cluster of competitive sectors and built on them at the right moment in time Ireland –ICT manufactures for EU market Singapore/Hong Kong – Finance and logistics The OECS might look at a cluster of tourism, education, health & wellness services The vision needs to be formulated by govt, private sector, trade unions, civil society

2. Reorienting the development model: 

2. Reorienting the development model Rationalize tax, customs and incentives regimes to promote more competition Implement less discretionary and more rules-based government to improve investment climate Public sector reform to reduce burden of government on the labour market Fiscal adjustment to restore macroeconomic stability and reduce burden of government on financial sector

3. Building the capacities: 

3. Building the capacities In the labor force Improving the efficiency of education spending Refocus curricula on labor market needs In the private sector Reward innovation and entrepreneurship Expand use of standards and certifications Promote adoption of new technologies

3. Building the capacities: 

3. Building the capacities In the government (with regional focus) Regulatory framework for utilities, transport, interconnectivity to lower costs Investment and tourism promotion focused on “overall destination” approach Planning of public investment Strengthening and harmonization of standards and certifications to raise service quality Provide harmonized and non-discriminatory investment regime at regional level Participation in trade negotiations to improve market access in services

Some short term priorities?: 

Some short term priorities?

Slide28: 

Thank you!