And The World Turns

In trying to understand the market forces that will impact real estate demand in Barbados in the coming years a look at the external environment is essential.The past 18 months has seen the worst economic decline since the Great Depression and repairing the damage will be a slow process in the western economies. Barbados depends […]

By Peter N. Boos

February 26, 2010

In trying to understand the market forces that will impact real estate demand in Barbados in the coming years a look at the external environment is essential.The past 18 months has seen the worst economic decline since the Great Depression and repairing the damage will be a slow process in the western economies. Barbados depends for most of its investment and trade with the USA, UK and Canada.

The Global Outlook

By October 2009 the US stock market had recovered sharply from their lows in March.The DOW was at 10,000 – up 60 percent in 6 months.

While in the UK the scene was one of massive accumulation of public debt and fiscal imbalances with the pound sterling projected by experts to weaken further.After general elections in 2010 cuts in government expenditure and higher taxes are probable.This is not good news for Barbados when you factor in the new travel taxes that came into effect on 1 November 2009.

The Canadian picture looked much better, thanks to conservative banking and stronger financial regulation and a resource based economy.

Most experts predict, at best, a slow, long recovery process, possibly five or more years in North America and Europe. Economic power and wealth is shifting to Asia. Brazil may lead an economic revival in Latin America.

The Caribbean Perspective

In the Caribbean the picture is troubling. The impacts from major financial sector failures at the Bank of Antigua and CLICO of Trinidad will have cascading effects in many sectors.What existed for the past few decades will not be good enough in the next decade and beyond.

The very high cost per capita of government services in the Caribbean is unsustainable. Public sector reform must come sooner rather than later as a competitive public sector can become a major driver of economic growth. Barbados should seek to get there first.

The Barbados Economy

The September 2009 IMF report on the Barbados economy, (one of the best managed economies in the Caribbean region), is instructive. It concludes that Barbados is facing a severe economic recession. Output is contracting as the global financial crisis has depressed tourism, brought Foreign Direct Investment to a sudden stop and weakened public finances. Unemployment is officially around 10 percent and likely to rise.The fiscal deficit is projected to widen to 8.5 percent of GDP and the public debt ratio is projected to rise to 115 percent of GDP in the current financial year. A three percent drop in GDP was reported for the first six months of 2009. No growth is projected for 2010. That may yet prove optimistic. A weak 2009/10-winter tourism season would exacerbatethe problems significantly. Some businesses have shut down and many more are threatened. IMF projections indicate a worsening picture in public finances without immediate corrective actions.

Government took some appropriate emergency measures early in 2009 and further strategies to respond to the crisis are being formulated.Tough decisions must be made but great opportunities also abound in the longer term. At a minimum, cuts in public expenditure and strategies to reduce the national debt are priorities. Protection of the international reserves and the fixed exchange rate peg will be at the heart of any policy initiatives.
A focus on creating more entrepreneurs and fewer civil servants will be a step in the right direction. Too much is expected of government by the public. A paradigm shift in public sentiment is needed towards more self-sufficiency, productivity, transparency and accountability in both the private and public sectors, removal of all job-destroying labour practices, innovation everywhere and an external markets focus.

Investing in Barbados Real Estate

As noted by the IMF in its September 2009 report, Barbados benefits from well-functioning institutions and social and political stability. Too true. It is this reality that will eventually ensure Barbados’ success in continuing to attract investment in real estate, both from domestic and international sources, as the global economy recovers, albeit slowly. Expect five challenging but transformational years after which Barbados will emerge as more internationally competitive and engaged in global trade.

Barbados is today an extremely attractive place to live, work and invest. Incentives for resident non-domiciled individuals and for holding and headquartered companies are attractive and are currently being improved.The people of Barbados are its greatest asset by far and a new era is beginning. Many new opportunities will become apparent, as the economy is re-structured to be more entrepreneurial, competitive and export services driven.

The OECD in 2009 acknowledged Barbados’ reputation for financial management and effective regulation and tax information exchange. We will deepen our commitment to a global financial system that shuns secrecy and exposes criminal and terrorism activities.

As a small country of only 166 square miles,owning a piece of it in a globalised world will continue to be an aspiration for many.

A Unique World Brand in Demand

Our national economic development strategy, focused primarily on export services (tourism, financial, cultural, professional, health, education,
sports etc), plus a high quality of life rating and a great natural environment, alongside strong democratic institutions and a deep respect for law and order, will see Barbados confirm and differentiate itself as the place in the Caribbean to invest for quality, integrity and security.

In the next decade expect many international investors and business executives to make Barbados a home base for a plethora of commercial transactions in a world experiencing “the death of distance” and technological innovation. Quality commercial and residential accommodation will be in demand.

The correction in real estate prices that has occurred over the past 12 months will drive innovation and reduce construction costs and land prices. Better value will result. In the longer term a “piece of the rock” will be as precious as an ounce of gold or a barrel of oil is today.

[quote_left]Prepared for Terra Caribbean’s The Red Book 2010 Pink Pages[/quote_left]

Peter N. Boos

Chairman Emeritus Ernst & Young Caribbean (since 2004); Founding partner Business Barbados publication (1999) and the Barbados business web portal BusinessBarbados.com (2009); Co-Founder, Chairman and CEO Substance Abuse Foundation Inc. (1996 to date); Founding Sponsor (2009) and First Chairman (2009-2014) Barbados Entrepreneurship Foundation Inc.; Founder of the Peter Boos Foundation (2004), (supporting youth development, entrepreneurship, education, addiction treatment, environmental protection, arts & culture development, relief of poverty and support of various community and charitable causes); Founder, Patron and first chairman ASPIRE Foundation (Barbados) Inc. - 'helping charities help' to strengthen and expand the Barbados Third Sector (2014 to date).

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