The activities of the majority of firms that comprise the manufacturing sector in Barbados would be termed as “Light Manufacturing” and classified as small enterprises with less than 100 employees.
While playing a key role in the islands economic development, employing some 8,756 Barbadians, regrettably the sector is contracting with few of its members focused on creating and/or expanding exports. Putting aside the traditional http://businessbarbados.com/investor-guide/business-support-services/manufacturing of sugar and rum, the two largest foreign exchange earners in the sector, Barbados’s industrial activity is largely directed at the local market.
Barbados’s major regional trading partners, Trinidad and Jamaica both have significantly larger domestic bases that provide their manufacturing sectors with a platform to export from a position of strength.Â The size of the Barbadian market could be considered the major challenge in building the required economies of scale that are essential to many manufacturers especially in their early development. This in addition to the duplicate nature of products being produced by similar type organizations in neighboring islands has created great challenges for local manufacturers when aiming to develop their export markets.
This “local focus” under the current conditions of the world economic slowdown and trade liberalization threatens a large part of the sectors viability. As a participant to the WTO, FTAA and CSME the government of Barbados will be hard pressed to continue to provide the manufacturing industry with protection by imposing high duties and tariffs on competing imported products, however, local manufacturers have and will continue to press the Government for continued import protection as it is felt that this protection assists in providing a level platform against Global competitive advantages
Some of the key vulnerabilities of the local manufacturing sector are:
- The small domestic market limits the ability to exploit economies of scale.
- The lack of scale further hinders our ability to invest in expensive current technology
- Lack of natural resources requires a high imported content of raw materials, including fuel.
- Raw material costs are increased due to the associated shipping cost and high local port charges.
- Long lead times for raw material procurement resulting in financing higher levels of inventory compared to foreign competitors of similar size.
- Small domestic pool of experienced manpower ultimately requiring a higher level of training.
- Due to the limits with in the human resources pool extra regional technical experience is required to progress and elevate manufacturing processes. The cost of these consultants who travel from developed countries and whose services are billed in hard currency are very expensive.
- Dependence of a narrow range of export products.
- Too small to influence international prices.
- Timely access to adequate financing, especially for the smaller enterprises has been a continuing problem.
- Limitations of diversification possibilities.
These concerns, though not exhaustive, bring the Barbados manufacturing sector to a crossroad. The question is simple; How do Barbadian manufacturers compete with those from regional and extra regional economies that have easier access to “just in time” raw materials and whose wage costs and other overheads and significantly lower?
The answer therefore is that while serving the ongoing needs of the domestic market unique products with strong export potential must be developed in order to provide growth opportunities in order to remain viable.
In order to progress this sector there are some essential requirements, such as:
- Market research to identify niche export products and markets.
- Unique product development addressing these niche markets.
- Export sales and marketing assistance
- Low cost Financing, in part, to off set the cost of elevated inventory levels and technical assistance
- Lower cost of energy
- Improved strategic planning and execution.
- Technical assistance for development and process improvements
- Training assistance to offset the added cost of Human resource development
- Implementation of Quality Management Systems to drive continuous improvement and human resource development.
- Leveraging of technology and the spreading of overheads over 24 hour operations.
- Market penetration through sales force development.
Having listed some of the challenges for manufacturing the Barbadian manufacturers can still consider themselves as fortunate as our Government is committed to the preservation and growth of the manufacturing sector. Through the years the Government has created a number of organizations in order to assist in the development of the manufacturing sector. These organizations have one common goal, to assist the sector, but their roles do vary. One such organization is the Barbados Industrial Development Corporation, which is responsible for promoting and facilitating the establishment, and expansion of business enterprises in Barbados and promoting the export of Barbados goods and services is a valuable resource for assistance. Through the BIDC manufacturers can access, once qualified, the Special Technical Assistance Fund, which offers consultancy, technical assistance and can offset a portion of installation and training costs associated with retooling as well as supporting market research and development for export projects.
The TVET council provides training grants, guidance and financial assistance and as such plays an active role in assisting manufacturers in the training and development of the somewhat limited Human Resources talent.
The Enterprise Growth Fund Limited (EGFL) is mandated to provide development financing to the manufacturing sector at rates significantly lower than the commercial sector. Though the EGFL financing is very attractive and can be considered to be more easily accessible than the financing available through the Industrial Credit fund, the EGFL fund is limited by available funds and as such a maximum limit is placed onto a single manufacturing entity of $2 million. As such the requirements of many developing and progressing manufacturers exceed this limit and alternate financing is generally required.
Industrial Credit Fund, which is administrated by the Central Bank, is a fund that was established to create an affordable source of financing. This financing is offered to manufacturers who require assistance in expanding their operations. However it is widely considered that this fund is difficult to access by nature of its operational mandate. The mandate requires a duplication of efforts and is layered with excessive red tape.Â The ICF offers funds directly to the commercial sector, which in turn must on lend to the manufacturer under strict approval guidelines, set by the ICF.Â As such the manufacturer must first obtain Commercial approval and then in many cases submit further documentation to meet the ICF requirements. Â Then after approval from the commercial bank, the commercial bank will prepare the required ICF documentation and apply to the Central Bank for the available ICF funds and await a response.Â The time taken to receive approval is as such considerably longer than a commercial approval.
Raw materials and equipment entering Barbados for registered manufacturers do not attract duty or VAT at point of entry. Removal of Vat on imports was a progressive move that was recently initiated by the past BLP Government and has had a positive effect on cash flow by eliminating most of the vat refunds that were due to many export manufacturers, while simplify the overall Vat accountability
The Barbados Government offers Tax incentives such as Tax-free holidays to foreign investors and innovative local investors and is very supportive of International investment.
While it is recognized that government can only do so much with the limited resources at its disposal and it is really up to the entrepreneurial ingenuity of each enterprise to craft its success, it is felt that the Government can improve the process of clearing goods from the port as well as the process of approving documentation for exports in a timely manner.Â The excessive “Red Tape” is a serious impediment that needs to be addressed.
The categories of manufacturing are:
- Fabricated Metal Products
- Food & Beverage
- Printing Paper &Â Plastic Products
- Precision Instruments
- Textiles & Apparel
- Furniture and Wooden Products
The manufacturing sector comprises mainly of light industry which includes the production of cement blocks, clay tiles, garments and textiles, paint, paper products, furniture, electronic components, chemicals, edible oils, soap and food products.
Manufacturing enterprises involved in the production of an “approved product” are entitled to special incentives under the Fiscal Incentives Act on approval of their application by the Ministry of Economic Affairs and Development.Â Tax holidays are granted according to the percentage of local value added to the item being manufactured. Enterprises considered being highly capital intensive with an investment of US$25m or higher may be eligible for up to 15 years tax holiday. Companies involved in manufacturing exclusively for export outside of CARICOM can qualify for benefits as an International Business Company (IBC). These benefits include a tax rate ranging from 2.5% down to 1%.Â Â In addition to the low tax rates these benefits include exemption from exchange controls and the duty free import of plant machinery, equipment and raw materials used in the manufacturing process.
By Nigel Worme, CEO COT Media Group and Alan Cox, Managing Director A.C. Wood House Inc.