We all know the story of David and Goliath from the Bible. The image of small, vulnerable David fighting off the huge, armoured giant Goliath with a slingshot is a provocative one, and the story has come to be a metaphor for how being small and smart can win the day. If Barbados’ international business sector will continue to prosper, we need to take the lessons of this story to heart.
International business has long been carried on in many small jurisdictions like Barbados, the Cayman Islands, the Bahamas and Bermuda. Up until relatively recently, this business has been allowed to flourish by the large economies of the world, with the tax efficiencies offered accruing to their constituents’ benefit. There is no doubt that there are some unscrupulous players operating in this arena globally, but offshore business in Barbados is driven by tax treaties and legislation put in place by larger countries such as the US, Canada and the UK.
The sector, whose importance is often overlooked by many Barbadians, including government officials, contributed just under BB$1 billion to the economy in 2009. This means the sector contributed more than 20% of the total revenues earned by the country that year. To put it in context, $1 in every $5 earned in Barbados in 2009 came from the international business wallet. This is good business to have; Barbados would be a very different place economically and socially without it.
|Overall contribution of IB sector1
|Total cash inflows to economy2
|% of total
The table shows clearly the worrying downward trend in earnings from the sector since then. The numbers for 2011 are still preliminary. It is testament to how little attention is paid to the sector that there isn’t more recent information available in the public domain.
Barbados and Canada particularly have a special relationship, although this has changed over the years. The majority of the island’s international business sector has traditionally been sourced from Canada. Many of the top companies listed on the Toronto Stock Exchange have operations in Barbados (e.g. Loblaws, Petro-Canada, Gildan, Barrick Gold, ManuLife), and all the Canadian banks are represented here, either in retail banking or other operations. Despite the fact that Barbados is a small country, someone here worked “smart” in the past.
The relationship with Canada is reciprocal. The country’s only electricity company, Barbados Light and Power Ltd, is owned by Emera Inc. from Nova Scotia. The local ice cream company, BICO Ltd, has its ice cream manufactured in Canadian factories. The Barbados government borrows heavily from the Canadian banks here. Air Canada and WestJet have lucrative routes flying to Barbados daily. In other words, Barbados plays a role on the balance sheets and profit and loss statements of many Canadian companies, separate and distinct from the contribution made by having their international entities domiciled here.
The climate has changed since the global recession started in 2009, especially for small, previously “smart” jurisdictions like Barbados. The media and government-driven attacks made on businesses with offshore tax planning entities, as well as on the offshore jurisdictions themselves, have been unprecedented. They would not be unfairly characterised as witch-hunts, with black lists, white lists, grey lists, watch lists and top company executives being hauled in to explain themselves to government tribunals. In the UK, corporations and individuals are being “named and shamed”, for using perfectly legal and valid tax planning structures. The overall theme is that even though legitimate tax avoidance is your right, it is morally wrong.
Closer to home, here in Barbados we were recently the subject of a rare piece of “investigative journalism” by the Canadian Broadcasting Corporation. Hidden camera footage of locally-based tax planning professionals was aired in Canada and online, painting our offshore environment in as scurrilous a light as possible. The Canada Revenue Authority has audited and is auditing some of our international banks, and the opinions handed down are impacting the jurisdiction negatively. We have had to defend our regulation and tax treaty networks extensively and vociferously to the Organisation for Economic Co-operation and Development (“OECD”) in order to maintain our “white list” status.
In other words, “Goliaths”, in the form of challenges to international business, are springing up everywhere. Some have grown as a result of external global forces, others we have created for ourselves.
To conquer these Goliaths, we need to be smart, collectively and, just as importantly, individually. This matters because Barbados without an international business sector would be a much poorer place to live and work. Here’s something simple that we can all do today: Wherever we work, whether in a government department, a gas station, a law office, a supermarket, an accountant’s office, a hotel or a travel agent, each one of us can promote this jurisdiction simply by providing excellent service. Within the international business sector, we can’t wait for new government policy; we need to be creative and energetic with what we have. While there is no question that the government could be and should be doing more to protect this vital business, we should not overlook what we can all accomplish hand to hand, and person to person. Barbados is not a country of faceless institutions – it’s a nation of people. Our small size is our strength. Let’s be smart. Each one of us can be David, and each one of us can make sure that our rock finds its mark.
1 Source: Invest Barbados
2 Source: Central Bank of Barbados