The continued success of the Barbados economy in the international business arena will depend on our ability to be competitive rather than on tax incentives, although the latter remain important.
On becoming an Independent Nation on 30th November 1966, Barbados faced the challenge, as a small under-developed country, (with a population then of roughly 250,000 living on 166 square miles), of building a prosperous and sustainable future for its people. Errol Barrow, the first Prime Minister of Independent Barbados, immediately focused on education as the foundation on which to empower his countrymen and build a sustainable society and economy.
In 1966 the world had not imagined today’s warp-speed, digital, disruptive revolution that is now so rapidly changing all of our lives and impacting every sector and industry and how we imagine the future. ISIS, AML, KYC, cloud computing, Blockchain/Bitcoin, Uber, Facebook, AirBnB, The Internet of Things, BEPS, FATCA, 3D printers, driverless vehicles, Big Data analytics, RE/global warming, were yet to become a part of our daily news.
Back then Barbados earned its keep primarily by producing and selling Sugar made from sugar cane juice. We sold our delicious brown sugar (on preferential terms at subsidized prices in guaranteed markets) to the developed countries in North America and Europe. This was the post-colonial system created to ‘support’ the emerging ACP countries post independence.
In the 1970s efforts were made to develop and expand the Manufacturing sector. Various incentives were introduced to encourage import substitution manufacturing and to grow exports, create jobs and earn foreign exchange. Protectionism for domestic import substitution producers and tax incentives on profits and dividends for foreign investors were the main attraction for investors. Some significant investments were attracted. E.g. Intel (electronic chips), American Airlines (data capture and processing).
Barbados’ well-educated labour force was also a key factor for foreign investors. However, as wage costs rose and cheaper human resources were available elsewhere, many of these companies relocated.
“As one of the founding members, Barbados joined the World Trade Organization on 1 January 1995. Following the membership in the World Trade Organization (WTO), the Government of Barbados aggressively tried to make the Barbados economy fully WTO compliant. This led to collapse of much of the manufacturing industry of Barbados during the late 1990s … many companies like Intel and others moving to lower cost Asian economies.” – Wikipedia
In time, all of these preferences were eroded or eliminated under the banner of globalization and free trade, resulting in the collapse of the sugar agriculture sector and import substitution manufacturing.
Tourism in 1966 was very much in its infancy as a global phenomenon. International travel was the exclusive domain of the few rich enough to enjoy the delights of the beaches on the Platinum Coast or the cool Atlantic breezes at Bathsheba. The proliferation of airlines with modern aircraft and luxury cruise ships were still to come. Visionary early infrastructure expenditure on a deep-water harbour, a cruise terminal and a world-class airport, lead to the facilitation of Barbados as an aspirational tourism destination. Today, tourism continues to be at the heart of the Barbados economy.
In addition to traditional hotels, second homes and villas owned by non-residents have expanded considerably and contributed significantly to economic growth. Barbados now has a strong and growing global lifestyle brand.
The International Business Sector (referred to by some as The Offshore Finance Sector) finds its genesis in the early 1970s. With a long and respected history of democracy, social and political stability, public respect for law and order, a legal system based on English Common Law and Statutes and good quality of life, it was a logical and natural step for Barbados to seek to engage in the fast expanding global services economy. This decision was taken as a strategy to diversify the narrow economic base beyond sugar and manufacturing, which were under threat from external factors and which subsequently have declined. The vision was, and is still, the development of an enabling platform for legitimate, transparent international business to be transacted from Barbados, with an emphasis on substance and real local activity that generate good jobs and deliver substantial tax revenues and foreign exchange along with transfers of skills and global market opportunities awareness.
There is little doubt that Barbados can compete in a global services market. An enabling ICT environment (Barbados now has island wide fibre-optic high-speed internet access), highly educated people, Double Taxation, Tax Information Exchange and Bilateral Investment Treaties, enabling incentives Legislation and appropriate Regulation (based on transparency) are the platform for this initiative to attract investors.
Barbados has never been a ‘name plate’ jurisdiction, nor has it ever aspired to that status. It is an active member of the global effort to eradicate money laundering and terrorism. Global developments in the last few years have inevitably put the spotlight on enhanced tax collection, anti money laundering (AML) and efforts to curtail financial crimes and terrorism. The leak of the so-called Panama Papers in 2016 has been given wide publicity and created much concern and negativity in the public arena.
Many experts familiar with the Barbados story strongly defend its position as an international low tax business jurisdiction.
The Barbados Government’s International Business Strategic Plan 2014-2019 articulates the challenges ahead and the opportunities. Areas of growth potential to be prioritised include:
- Market diversification in Latin America, the Middle East, China, Eastern Europe and Africa.
- Establishing an international centre for ADR and Arbitration.
- Facilitation of HQ operations for companies and wealthy families.
- Facilitating ICT dependent industries. – Medical tourism – educational services.
- Wealth management services through Home Offices and Private Banks.
- Expansion of the tax treaty network and other trade arrangements with emerging economies in Latin America.
The continued success of the Barbados economy in the international business arena will depend on our ability to be competitive rather than on tax incentives, although the latter remain important. This requires a focus on productivity, strong business facilitation, transparent governance in all sectors, especially Government, investment in research and development, entrepreneurial innovation and speed of implementation, increased infrastructure development (ports, roads, etc) and improved quality of life (security, health services, social cohesion) – all of which will also readily appeal to international investors. With strong, credible leadership, Barbados has an opportunity, and the capacity, to build a burgeoning economy, founded upon the bedrock of the international business sector.