What can we expect and what can we do?

  1. The Global Environment Today

On 15 December 2011,Christine Lagarde, the managing director of the International Monetary Fund had warned that the global economy faces the prospect of “economic retraction, rising protectionism, isolation and . . . what happened in the 30s – Depression. There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating.”

It is the view of most informed observers that the World Economy is experiencing its worst crisis in our lifetimes and that recovery will take several years.

 2.    The Barbados Economy Today

The Barbados economy too is in crisis as indicated by:

  • Large debt to GDP ratio (well over 100%)
  • Large fiscal deficit (68% GDP)
  • Last S&P rating indicates a negative outlook
  • Stagnant economic growth and all major economic sectors stressed
  • Business profits have fallen significantly (and corporate taxes with them)
  • Foreign Direct Investment falling
  • Unemployment is rising (12.1% according to last IMF report)
  • Foreign exchange reserves weak (cost of borrowing increasing)
  • Evidence of increases in nonperforming loans at all Commercial Banks
  • Slow real estate sales and falling property valuations
  • Many businesses are struggling to survive – BHTA warning of possible hotel closures in 2012
  • Increasing tax payments delinquencies
  • The agricultural sector is in decline and the future of the sugar industry is uncertain
  • Very weak growth outlook in all our productive sectors tourism, international financial services, agriculture, manufacturing
  • Inadequate economic diversification and exports
  • Dominant and bureaucratic public sector.

In these circumstances Barbados has some URGENT decisions to make. Postponement or failure to act will be disastrous. Don’t expect a quick turnaround – think 5-10 years of structural adjustment that focuses on global business competitiveness.

What Should We Do?

Here are recommended priorities:

  1. Protect the poor (no one can be left to starve or be without adequate shelter); everyone must contribute to this cost;
  2. Establish an expanded, resourced and empowered National Coalition of Social Partners (NCSP) immediately to guide and manage the transformation. This should include the Opposition, NGOs, and Churches etc.
  3. Major transformation of the Public Sector must commence in earnest immediately the vision must be to create the #1 Civil Service in the World. Strategies to facilitate this transformation must be developed by all the Social Partners working collaboratively for the common good.
  4. Cut Government expenditure dramatically (15-35% in 3 years) as well as reduce the taxes that fund it (remember-taxes are business costs). The strategies to permit this must be agreed by the NCSP. Emphasis must be on job creation in an expanding externally focused private sector driven by entrepreneurship.
  5. Displaced Public Sector workers must be provided with suitable financial protections (this can be funded in innovative ways and be paid for over 10 years as the benefits are long term).
  6. Privatization and asset sales should be included in the plan. Government’s role should primarily be business facilitation, infrastructure, security, health, education and protecting the poor.
  7. Create an aggressive Economic Growth Policy Platform with a strong business team to guide it with emphasis on engaging in global trade by:
  1. Creating and investing in new economic sectors (that earn foreign exchange)
  2. Government must communicate effectively the deep structural changes we MUST make – its time for a large dose of reality economics;
  3. Facilitating employment generation in the productive sectors
  4. Developing new export markets in collaboration with the Diaspora and other friends of Barbados
  5. Attracting international entrepreneurial skills which will bring new markets, new industries, new capital and new jobs
  6. Inviting more Foreign Direct Investment by engaging with existing investors to expand their Barbados operations
  7. Supporting the Barbados Entrepreneurship Foundation’s vision to make Barbados the # 1 Entrepreneurial Hub in the World by 2020
  • Government must communicate effectively the deep structural changes we MUST make – its time for a large dose of reality economics;
  • Supporting and re-structuring our existing productive sectors (tourism, agriculture, manufacturing)
  • Opening our economy to global markets and competition (including legal services and telecommunications)
  1. Reforming and modernising our Legal Judicial System
  2. Protecting the quality of life in Barbados.

In the USA The Kauffman Foundation (the world’s largest foundation devoted to entrepreneurship) has proposed The Startup Act.

The Startup Act will focus the attention of citizens and policymakers on the central role that high-growth startups must play to assure continued U.S. economic strength. The benefits of startups are well-established: Virtually all of the growth in U.S. jobs has been driven by the formation of firms less than five years old, and these new firms have been disproportionately responsible for commercializing the cutting-edge innovations that characterize modern life.

Achieving sustained economic growth will require more bold entrepreneurs who can launch and build new 21st century companies, a continuing stream of new ideas capable of being commercialized, fewer roadblocks to launch and grow these new enterprises and low-cost capital available to finance them.

Specific changes in government policy that the Startup Act proposes include:

  • Welcoming immigrants capable of building high-growth companies to the United States by providing “Entrepreneurs’ visas” and green cards for those with degrees in science, technology, engineering and math.
  • Providing new firms with better access to early-stage financing, creating capital gains tax exemptions for long-held startup investments, providing tax incentives for startup operating capital, facilitating access to public markets

Barbados must act now to create a business environment that attracts entrepreneurial investments that are innovative and that expand the economic base, create jobs, earn foreign exchange and provide tax revenues to Government.

Our emphasis has to be on becoming the #1 entrepreneurial hub in the world by 2020.

About the Author

Peter N. Boos
Peter N. Boos - Chairman Emeritus, Ernst & Young Caribbean

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).