“FROM STABLIZATION TO GROWTH” – ADDRESS BY FREUNDEL STUART, PRIME MINISTER OF BARBADOS AT 30/01/2013 LUNCHEON OF THE BCCI
At this time, the world continues to grapple with the worst set of economic conditions experienced within the last hundred years. No country has yet fully recovered from the onslaught of the serial economic storms that afflicted the entire world. These interacting world conditions of low growth, economic uncertainty and financial stress since 2007 have greatly and adversely affected all of us in Barbados and the Caribbean.
Barbados is a small island developing country with an open economy, dependent on the major players in the world economy in an increasingly interdependent world community. Bolstered by our resilient human resource capacity, Barbados is a service economy driven by the demand in the developed world. Given what has been happening to major players such as those in the Eurozone, the UK (now facing what is called a triple dip recession) and the US, (as well as the Caribbean), the largest sources of our tourists and investors, it is no surprise that Barbados has had a very difficult time.
With the “strong tides lifting and the cables straining”, in the words of the well-known hymn, we have had to “secure our anchor as the billows roll”. All of the resources and energies of Barbadians have had to be focussed on ensuring that Barbados successfully survives these challenging times. At times like these, we have needed even more than before to link arms together and stand shoulder to shoulder to ensure that our society goes forward and no one is left behind.
We have had to find a dynamic balance: meeting current needs of our society while still providing some impetus for economic growth, renewing our infrastructure and providing capacity for future expansion.
To manage this situation, the Administration over which I preside from the beginning recognized that the social conditions of our country have driven much of our economic prosperity. The quality of our social fabric has produced for us a peace and political stability that attract tourists and investors to come here to visit or to invest in our country.
Recently a former Governor of a US State paid his first visit to Barbados and came to my office to let me know how impressed he was with Barbados. In our conversation later that evening, he expressed his amazement at the quality of life in Barbados and its evident signs of stability. So our stabilization efforts, to protect the Barbados ship in the turbulent waters of today’s economic realities, have been recognized by many.
Stabilization over the last five years has been effected by a series of actions. I crave your indulgence to identify some of these.
Through promotion of the sectors in our economy that earn foreign exchange, and timely and careful borrowing, as and when necessary, we made sure that we always had enough foreign exchange inflows to pay our foreign bills.
In the foreign exchange earning sectors of the economy, mainly tourism and international business, we have mostly been able to keep performance stable to improving. The foreign reserves of the country have therefore remained well in excess of the safety standard of three-months of cover for imports of goods and services and above the average held for all the period from the year 2000. There is therefore no threat to the value of the Barbados dollar.
We provided additional funds for the Barbados Tourism Authority to increase its marketing and promotion of the country’s tourism sector to improve our chances of maintaining our foreign exchange earnings. Examples of our efforts are to be found in increased airlift and seats from Canada, USA, UK, Brazil, France, Scandinavia and Germany. As Prime Minister I have had productive direct engagement with the Tourism Sector, through Meetings with BHTA which commenced in October last year and which will continue. The synergies with the Ministry of Culture, through the designation in 2012 of the Garrison in Barbados as a UNESCO World Heritage Site, have added a new tourism product and opened untold possibilities for tourism development.
In the international business and financial services sector we focused our promotion and development programme, took more marketing into Latin America, negotiated and signed more double taxation agreements including agreements with Qatar, Bahrain, Singapore and Vietnam, and updated our legislation to protect the sector and to create new products.
Our international business sector has managed to maintain its level of employment in Barbados. While we have lost some companies, we have gained others, and some of those that have remained have sought to expand their operations. We have achieved growth in every year since 2009 in the number of new companies setting up in Barbados and in the net retention of companies in this jurisdiction.
Reduced tax rates on income and adjustments to our immigration policy have provided an acceptable and sure encouragement for high net worth individuals to relocate to Barbados.
To help maintain employment in the private sectors, we have extended the unemployment benefit period and required those benefitting from this extended benefit to undergo training for potential new employment. In the situation of the ongoing low-growth international economic conditions that effectively result in reduction of private sector employment, Government has had to keep people employed so that demand conditions in the economy, and unemployment , are not worsened any more than is unavoidable. Government also increased public sector wages in line with the private sector in 2009.
Since August 2012 all workers in Barbados have enjoyed an increase in their disposable income as a result of adjustments in the tax bands announced in the last set of budgetary proposals by the Minister of Finance and Economic Affairs
Government permitted payment of deferred National Insurance dues over the medium term at subsidized interest rates, to help the business community maintain its employment level. Government has also worked with business to reschedule arrears to the NIS, Land Tax and VAT. It has also provided forgiveness of penalties and reduced interest payments on those rescheduled amounts. We provided and disbursed the Tourism Industry Relief Fund of BDS $25 million to keep employment going in the tourism sector.
For small businesses, we expanded the microenterprise grant scheme, increased the resources available to Fund Access, and established a Quick Response Seed Capital Fund as well as a Venture Capital Fund, which have contributed to significant growth in small business activities over the period.
The support for small business has been part of a larger attempt to ensure that the manufacturing sector recovers its strength and vitality, and is able to exploit the creativity and capacity for innovation of our people. We are convinced that a flame has been rekindled in the manufacturing sector, which must be protected from every threat of extinction.
The result of all these efforts has been that unemployment rose only slowly between the start of 2008 and mid 2012 but has begun to decline in the last six months. The most recent estimate of the rate of unemployment at around eleven percent is in line with the average for the period 2000 – 2005.
Social Issues: Putting People First
We have been dealing effectively with one of the most critical problems in our country, that is, the very poor state of the office accommodation occupied by public sector workers, with an undeniably negative effect on productivity. Two new buildings were constructed at Warrens and office accommodation at the Lloyd Erskine Sandiford Centre is being expanded.
While on this subject, I should like to say that we feel strongly that our policemen, who give great service to Barbados, deserve suitable conditions in which to work. We have therefore effected repair work on a number of police stations and construction of a few new ones is imminent.
These projects also helped significantly in keeping government spending high in the construction sector over the last few years.
Putting “people first”, we have paid special attention to national human resource development, and have also made sure over the last five years to expand educational and training opportunities and to improve our health services in a number of ways.
One of the strong social and economic planks upon which this administration will always stand is the provision of quality education at the point of delivery from the nursery to the tertiary levels. In education, we have successfully provided additional places at the Samuel Jackman Prescod Polytechnic, the Barbados Community College and Erdiston Teachers’ Training College, and have established sixth forms at the Christ Church Foundation School and the St. Michael School. We have raised the threshold and expanded the scope of loans available under the Student Revolving Loan Scheme.
Distribution of workbooks to primary school children; construction of new nursery and primary schools; and removal of the need for children to pay for public transportation to and from school, have all resulted in significant savings for parents, especially those who have two or more children of school age. These savings have more likely than not gone to purchase other goods and services in the economy.
Parents have been able to take comfort in the fact that their children were being cared for and guided at national summer camps during the long vacation. Last year alone we conducted 69 Summer Camps which housed 12,000 children and cost nearly five million dollars. This social initiative has reduced the exposure of these children to anti-social activity.
Likewise with health. Sterling work has been done in beginning the renewal of our health facilities through the significant repair, upgrade and replacement of plant and equipment at the Queen Elizabeth Hospital, the Geriatric Hospital and the Psychiatric Hospital as well as the conversion of the unused Lion’s Eye Care Centre into a functioning Cardiac Unit, construction of the St. John Polyclinic, and extended hours of service at Polyclinics.
Despite the tight economic conditions, we have increased the funding provided to the QEH substantially over that made available to the institution in previous years.
On an even broader level a National Youth Policy has been adopted and a White Paper on Ageing has been completed – no one has been left behind!
We maintained and improved the social safety net to provide for our most vulnerable citizens. Since almost every dollar spent in assistance to preserve the social safety net flows immediately into spending in the local economy, this has in fact resulted in additional spending in the economy. The evidence based findings of the 2010 Country Assessment of Living Conditions (CALC) survey, allows us now to target our assistance where it is most needed and to develop empowerment programmes to give needy persons a hand-up rather than a hand-out.
We have increased allowances to the disabled and to children in need. The National Environment Enhancement Programme has successfully converted former welfare recipients into steady wage-earning workers. Non-contributory old age pensions and the reverse tax credit have also been increased and the long awaited pensions of retired Barbados Defence Force employees have been paid.
If I may turn to infrastructure issues, The Barbados Water Authority has been hard at work replacing leaking mains that wasted both water and electricity. Additionally, the BWA has started its expansion of the size of various distribution mains to be able to deliver the amount of water necessary for existing and future population settlements and developments. Various projects, for which planning permission applications were made but could not be finalized, have therefore been able to receive permissions, or to have the process resumed.
At the Mangrove site in St. Thomas we are improving our management of municipal solid waste. The technology attaching to the new cell at that location will remove the threat of leachate from the garbage escaping into the aquifer.
An important contribution to our infrastructural thrust in the tourism sector has been renewal work at Harrison’s Cave. We found it with all of the original loan spent and the project far from finished. I am pleased to say that the Cave has now been reopened to the public and continues to be a boon to our tourism.
The road network is an essential part of any country’s infrastructure. In this sector we have completed the ABC Highway; made road improvements and road widening at Warrens; improved and increased roundabouts at Orange Hill, Frere Pilgrim, Boarded Hall and others, and repaired Horse Hill Road. The above are all evidence of support for the private construction industry
I am now turning to Housing which generates considerable employment through construction as well as through improvement of the quality of life for all. Much effort has been expended in constructing more housing units for lower income and lower middle income families, resulting in new housing in several areas of the country.
Government has also been able to negotiate arrangements for fully funded private-sector development for lower middle income housing, and has removed VAT on materials for houses up to $400,000. The National Housing Corporation has retrofitted and upgraded the NHC terraced units for transfer to tenants of more than twenty years standing, who were up-to-date with their rental payments. These units are now in a position to be conveyed after our most recent legislative action in Parliament.
To protect these fields and hills beyond recall, we have had to correct some deficiencies in our defence systems and so we have invested resources to make our radars operational and to implement our coastal surveillance system.
As I have briefly outlined in the examples given, through the efforts of the Government, in collaboration with the private sector, the trade unions and the people, Barbados has been stabilized and business and social conditions have been kept far less hostile than they otherwise would have been. The decline in gross domestic product has been halted though the country has had only marginal growth from 2010. Government’s deficit is also coming down, in line with our medium term fiscal strategy.
Fiscal policy will continue to be synchronised with monetary policy and the aim is to achieve fiscal sustainability over the medium term as set out in the Medium Term Fiscal Strategy. We will continue the gradual reduction of the fiscal deficit as a percentage of GDP in order to keep government’s fiscal position sustainable and gradually reduce the public debt as a percentage of GDP. Our policies to achieve these objectives will consist of initiatives such as:
(i) Improving the efficiency of government’s revenue collecting system to generate more revenue without increasing rates of taxation.
(ii) Re-allocating resources to generate greater productivity from government activities.
(iii) Facilitating greater use of Public-Private Sector Partnership (PPP) arrangements for capital projects that are self financing, through savings in government expenditure or through increased revenues.
(iv) Increasing the efficiency of Government procurement.
In the context of developments in the rest of the world, over the last five years, it is evident that Barbados has fared reasonably well. Having achieved a levelling out of the economy, one may legitimately ask, how do we expect to restore growth?
Our plans and expectations for growth are based on four underpinnings, that is (1) promoting the foreign exchange earning and saving sectors much more vigorously, while we increase our economic capacity in order to achieve higher and more balanced growth; (2) continued but prudent spending by Government in the domestic economy; (3) upgrading and expanding infrastructure and carrying out the necessary restructuring across various sectors; and (4) maintaining the social safety net and other essential investments in our social capital.
In tourism, we will increase our promotion in each of our source markets. We will sponsor increased airlift, more especially from Western Canada and USA, and the Scandinavian countries; and we will seek to achieve more airlift with Latin America through inaugurating direct air links with Panama. Similarly we will sponsor airlift to South Africa. Where new air routes are inaugurated, we will engage in more cooperative advertising with partners in those markets. Marketing and promotion of our cruise tourism will similarly be intensified.
To accommodate the increase in visitors that we expect to get from a significantly increased and sustained marketing thrust, our country needs to rebuild our capacity in tourism. To expand our physical capacity in tourism and reverse the decline in rooms that set in between 1995 and 2007, we will support several major construction projects in the sector by offering incentives through the Tourism Development Act. These will include the revitalized Four Seasons project, further expansion of the Crane Beach Resort, rebuilding and expanding Almond Beach Village, Beachlands, Regency, continuation of Port Ferdinand, and rebuilding of Sam Lord’s Castle. Our heritage tourism thrust will continue unabated.
For the international business and financial services sector, more legislation will be introduced to improve the product offering. We will continue work on nearly twenty new double taxation treaties to give us a critical mass of treaties in each major area of the world, as we seek also to negotiate additional bilateral investment treaties to complement our double taxation agreements. In order to deal proactively with the new Foreign Accounts Tax Compliance Act (FATCA) legislation in the USA, we will negotiate with the USA so as to reduce the cost to and impact on Barbados of this legislation.
Invest Barbados will intensify promotion of the country as a domicile through which investment is done, through more road shows into those markets with the most potential; more face-to-face meetings with service providers and potential clients in those markets; and closer contact with relevant government agencies in countries from which our business comes.
All of the government departments and agencies that interface with the international business sector will be provided with the necessary resources and systems to bring their responsiveness to the sector’s needs up to the best standards, while preserving the integrity of the domicile. These agencies include the Corporate Affairs and Intellectual Property Office, the Immigration Department, the Inland Revenue Department, the International Business Division, the Financial Services Commission, the Central Bank of Barbados and the Chief Parliamentary Counsel’s Office.
The run-down conditions that we found in our water and sewerage systems and municipal waste disposal reflected serious neglect of our infrastructure. This situation will be reversed, and we will expand our capacity in those areas.
Our planning in relation to infrastructure is sufficiently advanced that we expect increased levels of economic activity and employment shortly as we position the country for more development.
During the course of the next few months, we expect construction to start on the Pierhead marina for luxury yachts and the new Bridgetown cruise pier to separate cruise ships from cargo vessel operations. Both of these projects will include the reclamation of land to be developed into mixed-use tourism establishments. We will give renewed vigour to the Redevelopment of Bridgetown, and provide support for the Restoration of our Heritage assets and creation of incentive programmes to sustain these assets.
In the area of telecommunications, I am pleased to say that work has already begun on the upgrade of our telecommunications services as two major companies have been added to the licensees in our telecommunications sector and have begun to roll out their developments. We expect that the competition between four majors will redound to the benefit of users in the sector. ICT remains vital to the modernization of both the public and private sectors.
So far as water is concerned, the Barbados Water Authority has developed plans for improving and expanding its reservoir system to better store the increased volumes of potable water that the Authority is in process of making available to the country.
Water supplies will be augmented. The first task is to bring all the water from the desalination plant into the distribution system at incremental costs only, and to improve the capacity of the water mains. Secondly, the Authority has negotiated for a search for additional potable underground water, and for getting that water into the distribution system.
Our good reputation for high quality potable water from underground sources must be maintained. We must maintain the quality of our beaches and near-shore water. Thus we are embarked on some major projects for such protection, the first of which is the upgrade of our Bridgetown and South Coast Sewerage Systems and septage handling facilities. The second is the installation of a West Coast Sewerage System that is so designed as not to cause, during construction, disruption on this coast that generates and drives so much of our income from tourism. Design work on these systems has been completed and financing arrangements are now being considered.
Further, we are near the start of construction of a leachate handling facility to take leachate from the existing cells and treat it to a high level of purity before discharging it again. This programme will provide protection from new garbage coming to the landfill site, and will also remediate many of the problems now being encountered from the garbage already stored there.
Agricultural restructuring and food security
Among the major new developments proposed for the agricultural sector are the restructuring of the sugar cane industry which should also start this year and end the financial haemorrhaging of this industry; use of Bagasse and river tamarind to generate electricity; and the production of more special sugars and molasses for the rum industry. Indeed work has already started on construction of new tanks for the molasses and rum industry.
We project also an increase in sugar cane yields, through intensified variety testing research; more rapid use of tillage improvements, composting, and wider use of irrigation practices. The rotation of lands required for good sugar cane cultivation will provide the opportunity to increase the food supply for the country. Cassava, both for human consumption, as well as for animal feed to help reduce the cost of animal husbandry in the country, will receive special attention.
Some of the cane rotation lands will also be put under cotton cultivation resulting in increased acreage and increased research into varieties to maintain the quality of our cotton and to increase yields, with overseas processing of the cotton into fabric, because of the economics of production. We will actively promote the use of that cotton by Barbadian manufacturers to produce haute couture garments using our local designers in association with international designers, and the sale of these garments in exclusive boutiques in Barbados and the Caribbean, as well as in international fashion centres.
As the country seeks to regain its position as a producer of fine Sea Island cotton, we will thus be engendering a rebirth of the Barbados garment industry. The seed from the increased production of cotton will also increase the feed available to the local livestock industry.
Lands now idle under the BADMC will be brought into cultivation of river tamarind to provide biomass feedstock for the sugar factory’s waste-to-electricity generating plant.
The land lease programme will be radically restructured to attract more young people into agriculture through a variety of means.
There is a suite of attractive options on offer to both the public and private sectors through important new initiatives such as the green energy complex, the public sector energy smart fund, renewable energy and energy efficient systems and oil exploration.
The green energy complex at Mangrove will enable us to bring a permanent solution to our management of solid waste as well as help us restructure our economy through the generation of baseload renewable energy. This green energy complex will consist of a “waste-to-energy” plant to convert our municipal solid waste into electricity and materials useful for the construction industry. The green energy complex also includes the mining of landfill gases and their use in generating electricity; and the covering of the landfills to the extent they exist with solar photovoltaic panels to generate electricity. We expect work on such a facility to start within a year.
The public sector smart energy fund will be used to retrofit government buildings to make them more energy efficient and to generate electricity from them using solar PV’s. This project will reduce the huge net cost to government of electricity, and will be replicated to generate even more savings.
For a few years now, several incentives have existed for households to install renewable energy systems and energy efficient systems. The budget for 2012 has extended these concessions and also provided similar ones for businesses.
A major national energy efficiency campaign, industry by industry, is also slated to start next year. Our attempts at energy efficiency are aimed at reducing our use of fuel for electricity by 20% or $80 million a year in the medium term; and our efforts to generate renewable energy are expected to generate savings in imports of fuel of almost $100 million per year in due course.
Between these two efforts, we should save $180 million or about forty per cent of our fuel imports for electricity generation. We expect over the next few years to achieve the wholesale conversion of our fossil fuel based electricity generation to natural gas.
Over the last three years we have engaged in more drilling of wells onshore and so significantly increased our proven reserves of both oil and gas. This drilling programme will continue as we need to produce more oil and gas from our known onshore reserves. While we press ahead with the onshore oil and gas industry, we shall also be awarding our first offshore licence, arising out of the 2008 bid round, to an international oil and gas and mining major.
Our social conditions will be maintained so that the safety net for the most vulnerable persons in the society remains intact and we continue to enjoy social, political and economic peace.
In relation to health, as we know, medical care to citizens and permanent residents of Barbados is free at the point of delivery. However the primary facility through which that care is provided needs such significant upgrading that we have announced that a new public hospital will be constructed. Planning work on this new facility has started in earnest and in addition, planning work on what will become of the current hospital will also be undertaken shortly.
There will be further developments in another important social sector, housing, due to start very shortly through government facilitation of arrangements for private sector funding at Bushy Park, Grotto, Exmouth, White Park, Walkers and Husbands, to name a few.
These are only a few of the projects that have started or are at the point of inception. There are many others that time does not permit me to discuss today, but which are equally important to keep the social conditions of the country conducive to strong economic growth and development.
I have briefly outlined elements of the stabilization programme that has kept the society stable over the past five years and I have sketched some of the initiatives in train to generate growth and capacity in the economy. I have had faith in the stabilization programme that has been successful so far. I also believe that our plan for economic growth will provide great benefit for all us.
To implement these projects, successfully, however, there must be even closer partnership between government, the private sector, the unions and civil society. While today I am speaking to members of the Barbados Chamber of Commerce and Industry, the initiatives outlined above will equally relate to members of the Barbados Hotel and Tourism Association, Barbados Agricultural Society, Barbados International Business Association, the Small Business Association, the Barbados Coalition of Service Industries, and business and professional associations throughout Barbados.
We are determined that Barbados will have a more efficient economy, more sustainable and equitable economic growth, and more entrepreneurship, creativity and innovation.
But Barbados will also be a society that protects those who are truly the most vulnerable, and will ensure its future by developing a vibrant class of highly talented young people with great self-esteem and a deep sense of national purpose, even as it looks after its aged and those persons with disabilities.
Above all we require a Barbados that is built on the shared values that have characterised this nation over the years, and provided a platform for sustainable development, nurtured by a traditional faith in the Almighty. We can count on the direction of a unified Cabinet team, using modern methods and buttressed by a working Partnership in Barbados – the Social Partnership – or perhaps we should call it “Team Barbados”.
This partnership reflects different roles but shared responsibility for the advancement of the country and a readiness to invest in the national good – even if it means some short term sacrifice for all of us. This partnership requires each of us – the trade unions, the private sector, and the public sector – to continue to trust the other.
I must at this time sincerely thank the members of the Social Partnership, and the Barbados Action Team resulting from that Partnership, for being a beacon of light to our nation in these difficult times. The Barbados Entrepreneurship Foundation (BEF) is also making a steadfast contribution to the development of modern entrepreneurship in Barbados at all levels.
It is my fervent hope at the start of 2013 that there will be a greater fusion of ideas and abilities between the business sector in Barbados, the country’s public sector and political administration, and our workers’ unions to further the development of our country.
All aspects of the operating environment of the CARICOM Single Market and Economy (CSME) must also increasingly take centre stage in our development and growth.
Ladies and gentlemen of the Chamber, you have heard me on the stability that we have enjoyed, and the growth we contemplate. That stability could not have been possible if we had taken unnecessary and imprudent risks. That stability would not have been possible without the cooperation and support of members of this Chamber. I want to thank you all most sincerely for being trustworthy allies during a period of unprecedented national challenge.
The plans for growth of which I have spoken today bristle with opportunities for the participation of the private sector in all of its incarnations: small, medium or large size. A review of your membership (now reportedly 286 members) tells me that service providers, hoteliers, manufacturers, investors, agriculturalists are all represented here.
I wish you to know that you can count on the collaboration, facilitation and transparency of the government over which I preeside. Where obstacles to facilitation need to be dealt with to make real the potential offered by the new opportunities, I commit to administrative and structural reform, using the energies of my office actively in that regard, within the framework of prudent and good governance.