Are cracks appearing in Caribbean business? The economic downturn has caused hardship across the globe, but how has the Caribbean fared? James Fuller talks to leading experts in the regional economy who assess its impact and give their opinions on the future. 

Tourism

"We’re still in decline so it’s going to be hard in the short term, but by the end of the year I feel we’ll have reached the worst point." Winfield Griffith, Caribbean Tourism Organisation

Few world regions are more heavily dependent on tourism than the Caribbean: in 2009 it will provide 10% of government revenues, 14.5% of GDP and 12% of regional employment. So when the economic downturn hit UK and US tourist numbers, the region was set to suffer.

“Tourism dependency has increased and this, when coupled with the global crisis, has resulted in the region not faring well over the last year. There has been a 7.8% overall reduction of 2009 visitors with some countries, like Anguilla, Bermuda and BVI, experiencing drops in excess of 20% early in the year,” says Winfield Griffith, Acting Director of Research and Information Management at the Caribbean Tourism Organisation.

“Last year American Airlines cut back its Caribbean schedule. It has restored some of that but it’s still an indication of the uncertainty around. Hotel occupancy rates and room revenues are significantly down as well, and many have been forced to lay off staff. Problems in the financial sector have also meant some hotel development projects have had to stop.”

Another issue is looming on the horizon. “The UK Government’s proposed Air Passenger Duty is a big concern. It’s a tax levied on travellers and increases with the air mile distance travelled. It could add £75 per person in economy class, and that, for a family, could decide whether they come to the Caribbean or not.”

So, how bad is it? “The situation is obviously bad, but tourism has grown in recent years, so in reality a 10% reduction takes us back to 2005 levels. This means businesses will have to roll back operations. Those used to the old levels might find it easier; whereas newer ones could be struggling for survival. 

“Also, if a country was making US$1 billion-a-year from tourism, a 10% drop means it is making US$ 900 million; in these small economies that’s still a lot of foreign exchange.”

Griffith adds there is light on the horizon. “We’re still in decline so it’s going to be hard in the short term but, by the end of the year I feel we will have reached the worst point. Then, if initial signs of recovery in the US are to be believed, we should start to crawl out of it from first/second quarter 2010.”

Construction

"The construction sector has definitely slowed, but opinions are mixed on how much." Vanessa Hansen, editor of Caribbean Construction Magazine. 

“The tourism downturn has had an effect on the construction industry,” says Vanessa Hansen, “especially in the northern Caribbean islands which depend on US tourists. That has had a trickle-down effect on tourist construction projects, but also on government projects because their revenues will be impacted as well.

“The Cayman Islands government has put a hold on one of three high school projects, but is going ahead with a large government administration building. In Barbados, work on the Four Seasons resort came to a grinding halt in February – there is word that another investor might be on board, which would get the project moving again. Meanwhile, several projects in Anguilla have either slowed or halted since last year. But in Turks and Caicos two new hospitals will be completed by early next year, and in the Bahamas, the government broke ground on the more than $400 million airport redevelopment in July.”

Hansen says that in these economically tough times, cheap imported labour, often from China, is being sought. “This has created unrest among local workers and unions in several jurisdictions including T&T, Guyana,  Jamaica and Grenada.”

And the industry prognosis?

“I think it will pick up soon. You can’t work your way around some of the infrastructural projects, they have to go ahead. When the international funds become available the governments will proceed.

“Don’t forget, some are still in long-term recovery from hurricane strikes as well, such as Grenada, Turks and Caicos and the Cayman Islands. Of course suffering a hurricane strike is terrible but someone has to rebuild, so construction picks up again.”

Manufacturing & Consumerism

"The steel industry has been severely hit, with a couple of companies close to closure, stagnated or no longer interested in expanding their trade routes." Greig Laughlin, Trinidad and Tobago Manufacturer’s Association
 
Greig Laughlin says the economic downturn has resulted in “a significant number of job losses across most or all sectors”.

The general slump in consumerism has also meant that many companies have slowed or ceased production as they back-up stock.
“This has resulted in the loss of jobs, mandatory vacation periods and shutting down plants temporarily; with some manufacturers indicating the possibility of this measure becoming permanent,” says Laughlin.

Job losses regionally have altered consumerism patterns, varying from nation to nation, and made buyers more cautious in their spending; a diminishing demand which has been reflected in price reductions on many products.

The impact on the construction and steel sectors has been particularly marked. “The steel industry has been severely hit, with a couple of the TTMA’s companies close to closure, stagnated or no longer interested in expanding their trade routes.”

And, at such a vulnerable time, Laughlin cites the threat of increased competition from European Union (EU) goods with the signing of the Economic Partnership Agreement (EPA). The agreement ensures reciprocal treatment on roughly 83% of all goods, effectively wiping out the preferential treatment benefits previously enjoyed by CARIFORUM products.

Laughlin says the crisis has highlighted the need for diversification, both in Trinidad and Tobago, largely dependent on oil and gas, and throughout the region, where a high dependency on tourism exists.

He adds that manufacturers should look to the export market and take advantage of CARICOM trade agreements with nations other than the US, on which up until now too much dependency had been placed.

“Most feasible options, besides the CARICOM market, include Cuba and the Central American markets which have not become saturated. With Haiti also becoming a part of the trade in goods regime of the CSME, much potential is available for intra-regional trade with this relatively virgin market.”

Energy

"Oil & gas prices will rise again, so now is a good time to invest in renewables." David Renwick Energy Caribbean magazine

Regional energy aficionado David Renwick, who has 37 years’ oil and gas reporting experience, says the global downturn and associated low fossil fuel prices are both a blessing and a curse. "For airlines it’s good, because one of their main costs is aviation fuel. And for oil and gas importers, i.e. most of the Caribbean, it’s good because the price has dropped, so they will save on their foreign exchange. For fossil fuel producers, principally Trinidad & Tobago, it’s bad because it’s a huge source of income.”

In T&T the global slowdown has been blamed for the failed sales of four new exploration blocks, and none of T&T’s big energy companies have plans for exploratory drilling in 2009. This reduced activity has filtered through. “When incomes are falling, companies look at their biggest outlay, and that’s labour. Jobs have been lost at companies like BP Trinidad & Tobago and BG Group.”

Other energy projects have been affected. “The Eastern Caribbean Gas Pipeline, starting in T&T and ending in Guadeloupe, has been postponed for around 12 months,” says Renwick, who produces the bi-monthly Energy Caribbean magazine. “Through it, T&T was going to supply 25 million cubic feet per day for Barbados’ power generation, so that will have an impact.”

T&T’s downstream plastics industry, supplied by natural gas, has also taken a hit. The gas is available but financing is not as easily acquired. Projects put on hold include two at Point Lisas (a joint venture polypropylene complex and Essar’s steel complex). 

But the downturn could be a window of opportunity for the energy of the future, renewables. "Oil and gas prices will rise again, so now, when you’re saving money, is a good time to invest in renewables. Also, if you are building the infrastructure for a future renewables industry, the decreased cost of steel and construction materials makes it a good time.” 

Real Estate

"The Caribbean property market is a different animal because of low stock volumes, so you won’t see the same price freefalls as in America.” Marc Persaud, Chairman & CEO Sterling Mason

“Sales have dropped off dramatically, there’s no question,” says Marc Persaud, Chairman & CEO of regional high-end property company Sterling Mason. “There’s a lot of uncertainty out there.”

This has not necessarily translated into huge falls in property value, though. “Before the recession, prices were spiking and they have fallen back 10-15% but nowhere near the UK or US experience. Some islands like St Kitts have proved remarkably resilient.
“The Caribbean property market is a different animal because of low stock volumes, so you won’t see the same price freefalls as, say, in America.”

The fall-off in demand has meant a cessation in work on several developments. “Some developers have had to re-finance or suspend operations. We have a development in St Lucia, The Landings, which sold out its first two phases so had passed the critical mass point and is able to complete. Others are in a wait-and-see position.”

This has repercussions.“The stalled projects had back orders so it impacts everyone not just labour, for example, suppliers of concrete, tiles, appliances, windows and finishings.”

The immediate future, Persaud believes, will involve more joint ventures and mergers between realtors, and the tough times may be here for a couple of years at least. "Realtors will have to be more creative, using technology to reach the biggest markets they can. They need to have a regional expertise to be able to give the client precisely what they need.”

Agriculture

"I see the downturn forging new regional partnerships in the form of amalgamations of associations, fostering greater efficiency." Norman Gibson, Caribbean Agricultural Research & Development Institute

Dr Francis Asiedu, Norman Gibson and Maurice Wilson at CARDI (Caribbean Agricultural Research and Development Institute) say the global downturn has created uncertainty in the regional agricultural sector. “There are two areas most affected,” says Wilson, Head of Resource Mobilisation and Project Monitoring and Evaluation.

“Firstly, many CARICOM countries have strong tourist sectors, which yield markets for agricultural products and services. Tourism is down, so new markets have to be found to replace those which were seemingly assured.

“Second is the threat to investment in programmes and institutions designed to increase productivity and competitiveness because, with the signing of the Economic Partnership Arrangement (EPA), the region needs to become more globally competitive.”
Norman Gibson, Head of the Trinidad and Tobago Unit, and Dr Asiedu, Technical Services Manager, say initiatives such as Jamaica’s minimal national starches production, and Trinidad and Tobago’s investment in mega-farms and agribusiness capacity, are prudent. They believe removing or reducing agriculture funding in such uncertain times would be unwise.

Gibson says there are potential positives coming out of the downturn, though. “I see the downturn forging new regional partnerships and initiatives, in the form of clusters or amalgamations of associations, fostering greater efficiency.”

“Science, technology and innovation are the future,” adds Asiedu. “Technology-driven sub-sectors could attract young people and with adequate funding CARDI and partners are ready to take up the challenge.”