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Enhancing Productivity and Growth in the Caribbean

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A presentation delivered by Dr. Justin Ram, Director of Economics, CDB during the 47th Annual Meeting of the Board of Governors on May 24, 2017 in Providenciales, Turks and Caicos Islands.

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Enhancing Productivity and Growth in the Caribbean

  1. 1. ENHANCING PRODUCTIVITY AND GROWTH IN THE CARIBBEAN Dr. Justin Ram Director of Economics 2017 Annual Board of Governors Meeting Turks and Caicos Islands May 24th, 2017
  2. 2. Outline 01 Context and Justification for the Study 02 Pillars for Growth 03 Foreign Direct Investment 04 The Knowledge Economy 05 Research and Innovation 06 Clusters 07 Recommendations
  3. 3. Low growth, high debt trap (6) (4) (2) 0 2 4 6 8 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Growth(%) Real GDP growth 2006 to 2016 Emerging market and developing economies CDB BMCs Other Small States 145.3 120.3 93.6 90.0 89.2 87.7 85.0 81.1 67.2 65.9 56.6 52.0 46.4 44.3 33.6 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 BAR JAM ANT BZE GRE DOM SVG SLU SKN BAH TT SUR GUY ANG HAI Debt to GDP (%) 2016 2015 Source: WEO 2017; Country authorities; CDB 2017 Source: WEO 2017; Country authorities; CDB 2017
  4. 4. Key development and competitiveness issues 0.30 0.40 0.50 0.60 0.70 0.80 0.90 Human Development Index, 2015 Medium Human Development High Human Development Very High Human Development Low Human Development 0 20 40 60 80 100 120 140 160 180 Doing Business Rank 2009 vs 2017 DB Rank 2009 DB Rank 2017 Source: UNDP, 2016 Source: World Bank, 2016
  5. 5. Vulnerability to natural disasters BMCs Experiencing Severe Natural Disasters 2000-2015 Country Year Disaster Damage (% of GDP) BEL 2000 Storm 33 GRE 2004 Hurricane 200 GUY 2005 Flood 36 DOM 2009 Hurricane 35 HAI 2010 Earthquake 121 SLU 2011 Hurricane 34 DOM 2015 Flood 96 Parametric Insurance Payouts and Estimated Total Losses Insurance Payout ($m) Total Losses ($m) Payout (% of Losses) ANG CCRIF 2010 4.2 13 32.3 BAR CCRIF 2010 8.5 741 1.1 SLU CCRIF 2010 3.2 588 0.5 SVG CCRIF 2010 1.1 288 0.4 HAI CCRIF 2010 8 14,000 0.1 DOM CCRIF 2015 2.4 244 1.0 Source: IMF, 2016
  6. 6. Business cycles are highly correlated with that of trading partners Source: IMF, World Economic Outlook, CDB 2017. -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 The Caribbean and trading partners business cycle BMCs United States Canada United Kingdom
  7. 7. Growth volatility in BMCs Source: IMF, World Economic Outlook, CDB 2017
  8. 8. Periods of sustained economic growth COUNTRY PERIODS Antigua and Barbuda 1978 to 1991 Bahamas 1963 to 1971, 1978 to 1986 Barbados 1960 to 1972 Belize 1966 to 2006 Dominica 1979 to 1988 Grenada 1981 to 1991 St Kitts and Nevis 1981 to 1993 St Lucia 1988 to 1996 (1982-1990)* St Vincent and the Grenadines 1980 to 1990 Trinidad and Tobago 1973 to 1982, 1995-2009 * indicates where the growth rate was over 10% Source: Werker (2013)
  9. 9. Stages of development Stage 1 Factor driven - where the country relies on largely unskilled labour and its factor endowments (mainly its natural resources) Stage 2 Efficiency - where the country develops “more efficient production processes and increase product quality” Stage 3 Innovation driven - where the country competes on the “most sophisticated processes” and innovate new ones.
  10. 10. Competitive- ness rank and stage of development Country 2006-7 (121 countries) 2009-10 (131 countries) 2012-13 (144 countries) 2016-17 (138 countries) Current stage of development Barbados 41 44 44 72 Transition from 2 to 3 Jamaica 67 91 97 75 Efficiency Trinidad & Tobago 76 88 84 94 Innovation Guyana 113 104 109 n.a Efficiency Suriname 104 102 114 ---- Transition from 2 to 3 Source: WEF: Global Economic Forum Report
  11. 11. Growth and productivity -2.00 -1.00 0.00 1.00 2.00 3.00 4.00 5.00 ANU BAH BAR BLZ DOM GDA GUY HAI JAM SKN SLU SVG SUR T&T BMCs Growth Accounting Framework (% contribution to GDP), 2010- 2015 Labor Capital TFP
  12. 12. Total factor productivity BarbadosJamaicaTrinidad&Tobago Lewis 1955 identified the following factors that propel growth:  Savings;  Capital accumulation;  Growth of knowledge and the application of new ideas;  International trade;  The framework of private-public sector relations; and  Institutions—property rights, economic freedom etc.
  13. 13. Pillars for enhancing growth and development Development of a “knowledge economy” Foreign Direct Investment Information and Communications Technology Research and Development Innovation Clustering
  14. 14. FDI inflows -55 45 145 245 345 445 545 645 745 845 945 1,045 1,145 1,245 1,345 1,445 1,545 1,645 1,745 1,845 ANT BAH BAR DOM GRE GUY HAI JAM SKN SLU SVG SUR TT ANG BEL USDmn FDI inflows (USD mn) Average 2009-2015 Average 1991 to 2008
  15. 15. EODB and FDI inflows 2015 -10000 0 10000 20000 30000 40000 50000 60000 70000 80000 0 20 40 60 80 100 120 140 160 180 200 FDIInflows(US$mn2015) EODB (2015) Scatter plot between the EODB index and FDI inflows, 2015
  16. 16. FDI promoting policies • Alternative type of tax holidays • Removal or exemption of tax duties • Removal or exemption of import and export duties • Grants Improving overall business climate Removing or reducing challenges to investors Investment Promotion Agencies Financial measures to stimulate FDI FDIPromotingPolicies • Doing business • Human resource • Corruption • Governance • Logistics • Taxation treaty • Citizen by Investment Program • Data / information availability
  17. 17. Ease of doing business reforms: the case of Jamaica Starting a Business • Simplified pre-registration and registration formalities; • Electronic interface between the Companies office and Tax Administration; • Changes to tax depreciation rules or deductions; • Streamlining internal procedures Getting Credit • Enhanced access to credit information (regulatory framework) • Credit Bureaus and enhanced credit reporting systems • Modern secured transactions system (Security Interests in Personal Property Act)
  18. 18. Broadband and productivity Source: ITU 2012. Broadband Economic Impact
  19. 19. ICT and broadband ICD Development Index 2016 Country IDI Rank Access Index Use Index Skill Index ANT 75 6.3 4.0 6.2 BAR 35 8.2 5.9 7.7 BEL 119 3.7 2.6 5.8 GRE 74 6.3 3.8 7.0 GUY 121 4.3 1.7 5.7 JAM 99 4.8 3.6 5.8 SKN 34 7.7 6.5 7.6 SLU 94 5.7 3.7 5.5 SVG 78 6.5 3.9 5.9 TT 67 7.0 4.5 5.7 Source: ITU, 2016
  20. 20. ICT and broadband Source: ICT-Pulse.com Speed/bps Price/USD Speed/bps Price/USD ANG 2 M 40.0 48 M 128.8 ANT 1 M 47.5 2 M 62.2 BAH 8 M 30.0 70 M 124.8 BAR 15 M 32.5 1 G 297.5 BEL 256 k 12.5 16 M 350.4 BVI 4 M 99.0 48 M 228.9 CAY 1 M 61.0 300 M 303.7 DOM 2 M 27.8 50 M 84.3 GRE 12 M 29.3 100 M 128.5 GUY 256 k 29.1 10 M 72.6 JAM 1 M 19.0 200 M 121.2 SKN 6 M 36.4 48 M 128.5 SLU 2 M 33.5 100 M 127.0 SVG 2 M 33.4 100 M 127.0 TT 1 M 21.9 240 M 105.0 TCI 6 M 69.0 50 M 210.0 Lowest d/l speed Highest d/l speed 2016 Broadband and Internet Prices
  21. 21. Building a Knowledge Economy MSME training to use Digital Online Technologies Build the Pillars of the KE Private Sector Training initiatives in KE Finance & encourage MSME expansion in Digital Content Production Fiscal Incentives for MSMEs and ICT sector Support & Promote Women in MSME 21st Century Curricula and Institutions ICT Infrastructure Regulatory Reform Regional Oversight Task Force/Office
  22. 22. R&D, technological transfer and innovation 28.1 47 33.3 36.9 14.6 Type of Research and Development in the Region (2014) New or Improved goods/services Market Development Quality Improvement Cost Reduction Network Development 13% 8% 15% 28% 5% 15% 16% Innovative Firms, 2014 (%) OECS JAM BAR GUY BEL BAH TNT
  23. 23. Obstacles to innovation External • Demand • Incentives (funding) • Legal / Regulatory (copyrights, standards) • Networks (collaboration) • Knowledge (market information) Internal • Finance (financial resources) • Organisational (management culture, confidence, remuneration/incentive) • Capacity (time to market, technical uncertainties, qualification of employees)
  24. 24. Development of RD & I in the Caribbean Collaboration between Public and Private Sector and Research Centers Financing Regional / National Innovation System (NIS) Internal Capacity
  25. 25. Cluster development Clusters in the Caribbean Music (Jamaica) Yachting (Saint Lucia) Pepper Sauce (Trinidad & Tobago) Gold Jewellery (Guyana)
  26. 26. Pepper sauce cluster: Trinidad The estimated economic contribution of this cluster is US$15.6m in 2010 The backward linkages are: •Pepper farming •Commercial processing •Packaging Related clusters: •Processed food and meets •Spice industry •Packaging •Entertainment and Tourism The packaging segment is well developed Seeds are locally sourced from a gene bank Market is domestic, regional and international
  27. 27. Gold cluster: Guyana • Two distinct clusters: – Primary extraction – Jewelry production • Mining sector contributes 10% to GDP (7% gold) • Market is predominantly export oriented (96 % of raw gold is exported) • Only 4 % of gold available for local jewelry production • High duties on imports of gemstones further discourages value added jewelry production • Forward and backward linkages are weak • Lacks skills pooling • Value chains are not well established • 7% royalty and duties on ore contributes to the illegal trade
  28. 28. Building on clusters • Support private sector • Incentivize • Training / education • Standards / KPMs Public Sector • Leadership • Dialogue with Public Sector • Investment • Stronger linkages Private Sector • Training of Policy makers • Regional Cluster Fund • Regional Cluster Observatory Regional
  29. 29. Recommendations
  30. 30. Growth strategy Foreign Direct Investment Clusters MSME Development Innovation Research & Development Technological Transfer Knowledge Economy ICT Broadband
  31. 31. FDI A regional strategic plan be developed and implemented to improve the “ease of doing business”; Tax competition be removed so that there would be no game playing by foreign investors; A regional working group be established to examine the package of incentives needed to attract foreign investors in selected key sectors; Discussion be held with educational and training institutions to assist with both R&D and HRD to support the needs of FDI; The diaspora be targeted as an important source of skills and finance for the development of the region; Standards be set for the Citizenship for Investment programmes; Greater use be made of foreign- local partnerships; and Work be undertaken with CAIPA and Caribbean Export to develop a regional investment promotion strategy to boost innovation and technological transfer.
  32. 32. ICT – national level MSME training to use Digital Online Technologies Build the Pillars of the KE Private Sector Training initiatives in KE Finance & encourage MSME expansion in Digital Content Production Fiscal Incentives for MSMEs and ICT sector Support & Promote Women in MSME 21st Century Curricula and Institutions ICT Infrastructure Regulatory Reform Regional Oversight Task Force/Office
  33. 33. ICT – enterprise level Design and implement national RD&I strategic plans Implement relevant legislation and regulations Dedicated ministries, research centres & science councils Ensure adequate financial support is available Active promotion of collaboration through innovative procurement strategies Active promotion of collaboration by enterprise extension officers Development of explicit technical and training support services for RD&I Implementation of incentives for industry-academia linkages Curriculum development in secondary, post- secondary and tertiary education
  34. 34. Cluster development – national level Support existing private sector driven activities Develop cluster level incentives Incentivise new business formation Provide funding in early stages Support development of competitiveness strategies Strengthen weak cluster segments Fund training of technocrats and stakeholders Rationalise state institutions and establish KPIs In education, direct curriculum and R & D to meet needs
  35. 35. Cluster development – Regional level Support the training of regional policy makers, private sector institutions and firms Establish and fund a regional cluster fund to support national cluster development Establish a “Regional Cluster Observatory” Establish a special fund to promote “Regional Clusters”
  36. 36. Incorporate into national development plans and CARICOM strategic plan For example: • Economic Growth Council (Jamaica); • OECS Growth and development strategy; • Trinidad and Tobago’s Economic Advisory Board and Vision 2030; • HOG’s regional commissions: Economy, HRD, ICT; • Development partners: CGF and Future of the Caribbean Project
  37. 37. Thank you!

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