Download PDPs in the Caribbean: The cases of Barbados, Jamaica and Trin

FUNDACIÓN DE
INVESTIGACIONES
ECONÓMICAS
LATINOAMERICANAS
PDPs in the Caribbean:
The cases of Barbados, Jamaica and Trinidad
and Tobago
FIEL/SALISES
Speaker: Daniel Artana. Chief Economist FIEL
Port Au Prince, July 17th 2009
The strategy towards industrial policies
• The countries followed the Industrialization by
Invitation Strategy
• Underdeveloped small economies (lack of human and
physical capital, entrepreneurship, etc.). Need to
invest in public inputs to eliminate their original
disadvantages or to foster non-energy industries.
Idea was to “ignite” growth.
• Fiscal incentives to FDI in export oriented
industries/services
• Tourism and Offshore financial services in Barbados
• EFZs and “Strategic” sectors in Jamaica (Tourism, Industry,
Bauxite and Mining, Agro-Processing, Creative Industries,
Shipping and ICT).
• Energy related, tourism, EFZs in Trinidad in Tobago
• And SMEs
Country-specific challenges
• Barbados: The country has been able to change its economy,
fostering world-class suppliers in a few areas, particularly
tourism and financial services. Strong economic and social
indicators. Investment grade rating, political stability and stable
institutions.
• But over the last three decades growth rates have been modest,
below the world average. In addition: high cost destination for
tourism with strong competition from other Caribbean
destinations. World tighter regulation on off-shore businesses.
• Jamaica: GDP per capita is roughly the same as in 1970 with only
a few dynamic sectors (tourism, telecommunications and
bauxite). “Debt overhang” and crime appear not to have reduced
investment (25% of GDP), but rather skewed it towards safer but
lower-return activities
• Trinidad and Tobago: High growth but strong bias towards
Energy-intensive industries. Dutch Disease?
The new approach: Productive Development
Policies
• PDPs should be directed to promote clusters in sector where
the country has comparative advantages. The idea is to
overcome externalities that prevent the cluster to innovate.
• PDP is also about extracting information from the private
sector on significant externalities and their remedies as it is
about implementing the policies. A “good” industrial policy
consists of those institutional arrangements and practices
that organize effectively a public-private sector
collaboration.
• Focus on how to address coordination and information
failures
• Tax incentives are likely not to be cost-effective
Barbados: Tourism
• Clear competitive advantage + fiscal incentives.
Recently, fiscal incentives extended to other
tourism-related activities, before, only hotel
construction
• Challenges:
–
–
–
–
High cost destination
Sustained development. Condominiums?
Diversification
Linkages with other economic sectors
Barbados: IBC and SME
International Business Companies (IBC)
• Must be exporters, attracted through fiscal incentives
(2.5% maximum tax rate and tax treaties)
• Initially, IBC should be foreigner, now it could be local, but few
local firms registered.
SME
• Coordination problems
• Fragmented policy
• Some policies are subsidizing firms just because they are small:
• Others are more aligned with the modern approach, but they are new,
very small in scale, and lack of resources
Barbados: conclusions
• In general good interaction between private and specific
public agency (such as in Tourism and IBC),
• But there are some inter-agencies problems: firms claim
government agencies outside their sector not very
responsive.
• Corruption-tested agency design but too much red tape
(an unavoidable trade-off?).
– in general, red tape was on the top of the constraints to growth
reported by firms.
• There seems to be problems of coordination across
sectors and agencies.
• Lack of a National Strategy
Jamaica: Traditional Investment incentives & EFZs
• Inefficient allocation of capital: in subsidized industries
productivity could be so low as to allow projects with negative
rates of return
• Extensive informality in non-favored sectors
• Rent-seeking behavior and risk of corruption: public-private
dialogue has been predominately informal, with high ministerial
discretion in the provision of tax exemptions
• The export growth of the dynamic sectors has not been able to
offset the underperformance of the declining ones, and EFZs have
poorly contributed to market diversification
• Low spillovers: there are very few linkages between tourism
development and local communities, and between firms in the
EFZs and the rest of the economy.
Jamaica: New generation of policies. Tourism
• Master Plan for Sustainable Tourism Development (2003):
– designed as a two-stage process to facilitate consultation
– emphazises stronger linkages between tourism and other
productive sectors; greater community involvement
• The coordination failure: differentiate Jamaica from other similar
places in the region (Jamaica’s culture and heritage)
• Linkages between tourism industry and other sectors, through
minimizing leakages (food, drinks, linens, etc.). The national
agency of investment and export promotion is working to
establish a reliable supply chain to create access to the hotel
market for Jamaican food and beverages suppliers
• Pending to review the coherence of the Master Plan with the
traditional tax incentive regime
Jamaica: New generation of policies
• Private Sector Development Programe (PSDP). Enhance
the performance of SMEs applying modern approaches, such
as firm and sector assistance and/or grants managed by
private sector organizations, clustering and formal dialogue
between public and private sectors.
• Innovative export promotion policies include JTI
supporting the first comers to new developments (agribusiness and agro-processing in non traditional target areas
and markets), and being active in trade promotion activities.
• E-Powering Jamaica 2012
– review tax and duty policies for ICT to attract major
specialized corporations
– expand ICT focused Business Parks for major service
providers
– incentives for rapid adoption and use of new generation
networks.
Jamaica: conclusions
• Although industrial policy is moving
towards a more modern conceptual design,
the old schemes seem politically difficult to
dismantle.
• An important issue for the future would be
to avoid the common mistakes of the past:
subsidies
must
be
contingent
on
performance and granted on a temporary
basis.
Trinidad & Tobago
• TIDCO commissioned in 1999 a report “Investment Promotion
Strategy Study for Trinidad and Tobago” to the Irish TDI in order to
elaborate a strategy. Advise was that TIDCO should intermediate
actively in order to attract investment, to identify, contact, invite,
make it interested and follow up the potential company.
– Six sectors were targeted to be the focus of this policy: 1. Food and beverage, 2.
Chemicals and plastics, 3. Metal Processing, 4. Leisure marine, 5. Information
technology and electronics and 6. Printing and packaging. They were chosen by
TIDCO after several rounds with the consultants.
• PDPs are in a state of transition from an old-fashioned industrial
policy to a newer approach with an intense private-public
participation. However, we found that innovation policies are not of
concern to the authorities. Instead, they focused on fiscal incentives or
financial support unrelated to such a process.
• But the institutions created for Vision 2020 may be helpful for
collaboration with the private sector in obtaining the main
instruments to develop clusters.
• The PDPs for clustering the chosen sectors are still ongoing. Except in
Food and Beverage and in the ICT there were no significant advances
to evaluate their impacts.
Tourism
• There are many fiscal benefits for the activity, administered
by the TDC (Tourism Development Company).
• The tourism policy formulation and implementation for
Tobago are the result of two different governing bodies
seeking sometimes different goals (Central Government
and the local government, THA).
• Official documents as the Draft of National Tourism Policy
of Trinidad and Tobago (2008, July) stresses as problems
the restriction on foreign investors and workers, the lack of
up-to-date data and the a limited collaboration between
public and private sector stakeholders.
• Suggestion: closer collaboration and coordination between
different levels of government (TDC, THA) and with the
private sector.
SMEs
• Two state-owned institutions: the Business Development Company
(BDC) and the National Entrepreneurial Development Company
(NEDCO).
• Several problems:
• A complete absence of quantitative evaluation program. The lack of
accountability of programs and of governmental agencies is an
important issue to be solved as prerequisite to make the PDP useful
and effective.
• NEDCO programs are targeted to entrepreneurs not necessarily
involved in new activities.
• NEDCO lending programs might crowd out other private lending
initiatives such as MFI.
• BDC follows the traditional agency activities for SME: targeted and
directed to support firms because of their size rather than its
innovative capacity in which reside the true market failure.
Free Trade Zone
• The FTZ is smaller than others in the region.
• Compared to the domestic economy, its exports represent
1% of the total and 3.5% of the non-energetic external
sales; the employment less than 0.1% of the labor force
and its impact on the domestic demand is low.
• In this sense, proper PDPs are those which ease the “selfdiscovery” process to innovate. For example, the
strengthening of the venture capital fund for innovators
with strong State support would help the diversification of
the economy more than a FTZ with insufficient linkages to
the domestic production.
Trinidad and Tobago: conclusions
• The desired process of transformation of the productive base
was stated mainly in the Vision 2020 program.
• Through the creation of ad-hoc institutions with private and
public participation, an important process of consultation and
discussion led to several preliminary results.
• In some sectors the PDPs were implemented but they are far
from being completed. And the accountability of the agencies
and bodies in charge is still very weak.
• However, it should be noted that the selection of sectors could
be misleading.
• It is advisable that PDPs in T & T change towards supporting
the new process, new goods, etc. even among the chosen group
of sectors.