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Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 FINAL REPORT Compete Caribbean OECS Project Private Sector Assessment and Donor Matrix Report for St. Vincent and the Grenadines Prepared by: The Special Studies Unit (SSU), Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), University of the West Indies, Cave Hill Campus, Barbados August 2013 i Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 ii Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 BENCHMARK/COMPARATOR COUNTRIES: Benchmark countries used in this report include all 15 beneficiary countries of the Compete Caribbean Program, as listed below, in addition to Malta, Mauritius, the Seychelles, and Palau. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Antigua and Barbuda The Bahamas Barbados Belize Dominican Republic Dominica Grenada Guyana Haiti Jamaica St. Lucia St. Kitts and Nevis St. Vincent and the Grenadines Surinam Trinidad and Tobago PROJECT TEAM Dr. Judy Whitehead, Dr. Winston Moore, Dr. Jonathan Lashley, Mr. Ryan Straughn, , Mr. Mitch Hartman, Ms. Carol-Anne Blenman and Ms. Beverley Hinds. i Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 ACRONYMS AND ABBREVIATIONS CARICOM Caribbean Community CDB Caribbean Development Bank CIDA Canadian International Development Agency CIDA Canadian International Development Agency CROSQ CARICOM Regional Organisation for Standards and Quality CSME Caribbean Community Single Market and Economy DfID United Kingdom Department for International Development ECCU Eastern Caribbean Currency Union EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product HDI Human Development Index IADB Inter-American Development Bank ICT Information and Communication Technology IFC International Financial Corporation IMF International Monetary Fund MFI Microfinance Institution NBFI Non-Bank Financial Institution OECS Organisation of Eastern Caribbean States PRGF Poverty Reduction and Growth Facility PSA Private Sector Assessment PSD Private Sector Development RCA Revealed Comparative Advantage RCF Rapid Credit Facility of the IMF UN United Nations UNDP United Nations Development Program USAID United States Agency for International Development VAT Value Added Tax ii Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Contents Executive Summary.................................................................................................................................................. ix 1. 2. Introduction...................................................................................................................................................... 2 1.1. Background.............................................................................................................................................. 2 1.2. Methodology........................................................................................................................................... 3 1.3. Report Structure ..................................................................................................................................... 4 Country Overview ............................................................................................................................................ 5 2.1. Governance ............................................................................................................................................. 5 2.2. Environment............................................................................................................................................ 7 3. St. Vincent and the Grenadines, the OECS and the ECCU............................................................................. 9 4. Macro Context of Grenada and the OECS .................................................................................................... 12 4.1. The International Economy .................................................................................................................. 12 4.1.1 Trade ................................................................................................................................................. 14 4.1.2 Foreign Direct Investments ............................................................................................................. 17 4.1.3 Analysis for the International Economy ......................................................................................... 17 4.2. The Domestic Economy........................................................................................................................ 18 4.2.1 4.3. 5. Analysis for Domestic Economy ...................................................................................................... 25 The Productive Sector .......................................................................................................................... 25 4.3.1 Industry and Agriculture.................................................................................................................. 25 4.3.2 Services ............................................................................................................................................. 27 4.3.3 Analysis for the Productive Sector .................................................................................................. 28 Characteristics, Issues, Challenges of Private Sector Development in St. Vincent and the Grenadines . 30 5.1. Goal for Private Sector Development in St. Vincent and the Grenadines ........................................ 30 5.2. State of the Private Sector ................................................................................................................... 31 5.2.1 Large and Fast Growing Sectors ...................................................................................................... 34 5.2.2 Business Supportive Institutions Structure .................................................................................... 38 5.2.3 Donors and Other International Entities ........................................................................................ 38 5.2.4 Access to Finance ............................................................................................................................. 52 5.2.5 Corporate Taxation .......................................................................................................................... 58 5.2.6 Business Environment...................................................................................................................... 61 5.2.7 Technology and Innovation ............................................................................................................. 64 5.2.8 Trade and FDI Policies ...................................................................................................................... 65 5.2.9 Labour Regulation............................................................................................................................ 69 5.2.10 Infrastructure, Communications and Energy............................................................................. 71 5.2.11 Gender .......................................................................................................................................... 73 iii Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 5.2.12 6. Ease of Doing Business ................................................................................................................ 74 5.3. Summary................................................................................................................................................ 80 5.4. Field Research Findings ........................................................................................................................ 81 5.4.1 Priority Action Areas ........................................................................................................................ 82 5.4.2 Summary.........................................................................................................................................100 Conclusions and Recommendations...........................................................................................................101 6.1. A Long Term Action Plan for Private Sector Development..............................................................101 6.2. Summary..............................................................................................................................................103 References .................................................................................................................................................................106 Appendices.................................................................................................................................................................108 Appendix 1: Structure of the OECS..........................................................................................................................109 Appendix 2: List of Key Stakeholders from Interviews and Consultations .........................................................111 Appendix 3: St. Vincent and the Grenadines Governance Framework...............................................................112 Appendix 4: Minimum Wage Levels in St. Vincent and the Grenadines .............................................................113 Appendix 5: Donor Matrix Report for St. Vincent and the Grenadines ..............................................................115 Description of the Donor Community .................................................................................................................117 Description of Local Stakeholders........................................................................................................................117 Public Sector Stakeholders ..............................................................................................................................117 Private Sector Stakeholders.............................................................................................................................117 Description of Information Available for the Analysis of Private Sector Characteristics, Dev elopment Initiatives and Results ...........................................................................................................................................120 Identification of Opportunities to Increase Efficient Design and Execution of Programs ...............................120 Identification of Opportunities to Address Omitted Priority Problems ............................................................120 Recommendations ................................................................................................................................................120 DMX Annex 1: Analysis of Donor Projects and Programs in St. Vincent and the Grenadines .........................121 TABLES Table 1: Unemployment Data for Comparator Countries (Various Years)......................................24 Table 2: Top 20 Exports for St. Vincent and the Grenadines for 1995 and 2010 .............................27 Table 3: Contribution to GDP by Sector in St. Vincent and the Grenadines (2012) ..........................31 Table 4: Condensed table showing Type of Enterprises and Labour structure in St. Vincent ............32 Table 5: Proposed Official Typology of Enterprises by Size – St. Vincent and the Grenadines (EC$) ...33 Table 6: Four Sectors Concentration and Share of St. Vincent’s Employment and Output ...............33 Table 7: Main Objectives and Sector Profiles of Donor Projects in St. Vincent and the Grenadines and the OECS ............................................................................................................................39 Table 8: Business Support Institutions in St. Vincent and the Grenadines .....................................40 iv Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table 9: Institutional Analysis: Donors and International Organisations .......................................43 Table 10: Credit Unions in the Caribbean (Number and Penetration Ratio) ...................................52 Table 11: Revenue per Trader Permits Issued in St. Vincent and the Grenadines (2007-2008) .........58 Table 12: Technology Use by Manufacturing Firms in Selected Countries (% of firms) ....................65 Table 13: Employed Population by Main Industrial Groups (2008) ...............................................70 Table 14: Infrastructure and Electricity in St. Vincent and the Grenadines (2010) ..........................72 Table 15: Biggest Obstacles to Business in the OECS (Enterprise Survey, 2010) ..............................81 Table 16: Private Sector Growth and Development: SWOT Matrix for St. Vincent and the Grenadines .........................................................................................................................................84 Table 17: Recommendations and Actions Matrix for St. Vincent and the Grenadines ................... 105 Table 18: Business Support Institutions and Other Relevant Bodies ........................................... 111 Table 19: The Government of St. Vincent and the Grenadines: Cabinet Members and Portfolios ... 112 Table 20: Overview of Key Stakeholders in St. Vincent and the Grenadines ................................ 118 Table 21: Main Objectives and Sector Profiles of Donor Projects in St. Vincent and the Grenadines and the OECS .................................................................................................................... 122 Table 22: Overview of Main Donor Projects by Objective, Sector and Value................................ 122 Table 23: Main Objectives and Sector Profiles of Donor Projects in the OECS and Member States.. 124 FIGURES Figure 1: Snapshot of St. Vincent and the Grenadines and Comparator Countries ........................... 6 Figure 2: Governance Effectiveness for St. Vincent and the Grenadines versus Comparators (2010) .. 7 Figure 3: Environmental Performance: CO2 Emissions for St. Vincent and the Grenadines versus Comparators (2008) .............................................................................................................. 8 Figure 4: Current Account Balance for St. Vincent and the Grenadines (1980-2010) .......................12 Figure 5: External Accounts Analysis for St. Vincent and the Grenadines (1980-2010) ....................13 Figure 6: External Debt and Debt Service for St. Vincent and the Grenadines and the OECS 6 (20002010) .................................................................................................................................13 Figure 7: Real Effective Exchange Rate Index (2005=100) and Current Account Balance (%GDP) for St. Vincent and the Grenadines (1980-2010) ................................................................................14 Figure 8: Trade Snapshot for St. Vincent and the Grenadines (2010)............................................15 Figure 9: Treemap of Imports, St. Vincent and the Grenadines 2010............................................16 Figure 10: Treemap of Exports, St. Vincent and the Grenadines 2010 ..........................................16 Figure 11: Inward FDI for St. Vincent and the Grenadines and Comparators (2011)........................17 Figure 12: GDP Dynamics for St. Vincent and the Grenadines .....................................................19 Figure 13: GDP Growth in St. Vincent and the Grenadines (1980-2010)........................................19 Figure 14: GDP Decomposition by Expenditure for St. Vincent and the Grenadines (1980-2010) ......20 Figure 15: GDP Decomposition by Industry for St. Vincent and the Grenadines (1980-2010) ...........21 Figure 16: Inflation Data for St. Vincent and the Grenadines (1980-2010).....................................22 v Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 17: Fiscal Deficit for St. Vincent and the Grenadines (2000-2010) ......................................23 Figure 18: Gross Government Debt for St. Vincent and the Grenadines versus Comparators (20002010) .................................................................................................................................24 Figure 19: Product Space Map (Exports) for St. Vincent and the Grenadines 1995 and 2010............26 Figure 20: Decomposition of Service Exports for St. Vincent and the Grenadines (1980-2010) .........28 Figure 21: Interest Rate Spreads for St. Vincent and the Grenadines (1980-2010) and Comparators (2010) ................................................................................................................................53 Figure 22: Domestic Financial Variables for St. Vincent and the Grenadines versus Comparators (2010) ................................................................................................................................53 Figure 23: Doing Business Rankings for St. Vincent and the Grenadines versus Comparators (2012) for Selected Indicators..........................................................................................................54 Figure 24: Value of Collateral Required for Credit for St. Vincent and the Grenadines and Comparators (2010) .............................................................................................................55 Figure 25: Firms with Access to Financial Services for St. Vincent and the Grenadines and Comparators (2010) .............................................................................................................56 Figure 26: Sources of Finance for Investment for St. Vincent and the Grenadines and Comparators (2010) ................................................................................................................................57 Figure 27: Sources of Finance for Working Capital for St. Vincent and the Grenadines and Comparators (2010) .............................................................................................................58 Figure 28: Corporate Taxes for St. Vincent and the Grenadines and Comparators (2012) ................59 Figure 29: Tax Rates as a Constraint to Doing Business for Exporters and Non -Exporters (2010) ......60 Figure 30: Major Constraints to Doing Business- Licenses and Permits and Tax Administration (2010) .........................................................................................................................................60 Figure 31: Business Licensing as a Major Constraint to Doing Business (2010) ...............................61 Figure 32: Corruption as a Major Constraint to Doing Business (2010) .........................................62 Figure 33: Crime, Theft and Disorder as a Major Constraint to Doing Business (2010) ....................63 Figure 34: Practices of Competitors in the Informal Sector as a Major Constraint to Doing Business (2010) ................................................................................................................................63 Figure 35: Transportation as a Constraint to Doing Business (2010) .............................................64 Figure 36: Market Map Average Tariffs (2009)..........................................................................66 Figure 37: Senior Management Time Spent on Dealing with the Requirements of Government Regulations- Comparison across Selected Countries (2010) ........................................................67 Figure 38: Major Constraints to Doing Business: Customs and Trade Regulations (2010) ................68 Figure 39: Major Constraints to Doing Business: Time to Clear Imports (days) ...............................68 Figure 40: Labour Market Issues in St. Vincent and the Grenadines and Comparators (2010) ..........70 Figure 41: Availability of Services to Firms for St. Vincent and the Grenadines versus Comparators (2010) ................................................................................................................................71 Figure 42: Major Constraints to Doing Business: Electricity and Transportation (2010) ...................73 Figure 43: Female Participation in Establishments for St. Vincent and the Grenadines versus Comparator (2010) ..............................................................................................................74 vi Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 44: Percentage of Firms with Female Top Managers for St. Vincent and the Grenadines versus Comparators (2010) .............................................................................................................74 Figure 45: Cost and Time to Start a Business: St. Vincent and the Grenadines versus Comparators (2011) ................................................................................................................................76 Figure 46: Economic Freedom, Comparison for Selected Countries (2012) ....................................80 Figure 47: Electricity Rates in St. Vincent and Selected Caribbean Countries (2010) .......................96 Figure 48: Organisational Chart of the OECS Secretariat .......................................................... 110 vii Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 viii Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Executive Summary The private sector assessment (PSA) for St. Vincent and the Grenadines draws on primary data analysis from interviews with key stakeholders from the domestic private and public sectors as well as interviews with regional and international agencies. In addition, secondary data was utilised to describe the state of the country at both the micro and macro levels. Threats to Private Sector Development in St. Vincent and the Grenadines The main strengths of the private sector development framework in St. Vincent and the Grenadines relate mainly to institutions where there is a clear presence of support (CED, Invest SVG, NDF) and the provision of support to the productive sectors through fiscal policies. It is also commendable that a public sector strengthening exercise is being undertaken. However, there are several constraints to private sector development in the country. Table B: Biggest Obstacles to Business in the OECS (Enterprise Survey, 2010) Biggest Obstacle Access to finance Inadequately educated workforce Crime, theft and disorder Tax rates Electricity Political instability Customs and trade regulations Practices of the informal sector Tax administration Corruption Transportation Courts Business licensing and permits Access to land Labour regulations ANT 15.3 1.3 DOM 44.0 2.1 GREN 12.8 15.4 SKN 20.9 10.0 SLU 35.0 7.4 SVG 20.6 12.8 7.9 18.2 13.0 6.1 16.1 4.8 3.6 8.6 29.7 0.0 0.9 3.1 10.2 17.6 2.7 12.3 2.1 8.4 13.4 20.0 15.2 0.5 5.2 5.8 5.1 6.0 22.4 0.2 4.0 2.7 11.3 11.0 10.6 10.2 9.9 7.8 2.4 7.7 3.9 0.0 2.7 0.7 0.0 0.0 0.0 3.5 0.0 0.0 0.0 4.4 5.7 1.4 4.1 0.8 0.0 3.9 2.9 1.4 3.5 3.4 0.0 0.0 0.7 0.0 0.0 0.9 10.7 0.0 0.0 0.0 5.6 2.6 1.5 1.0 0.3 0.3 0.0 0.0 From the interviews conducted and additional secondary data gathered during in-country visits, the main issues identified were mostly in keeping with the results of the background research. The main critical issues identified were: Costs and Stringency of conditions for finance Customs and Trade Procedures Market Access Inadequately skilled labour force Political and Governance Issues which related to ad hoc planning; A ‘silo’ mindset in the public sector in relation to agencies and departments operating in their own interest rather than to a specific strategic plan; Lack of fiscal space and hence a lack of Government investment in public good investments such as tourism marketing, business support mechanisms and addressing inefficiencies in the public service; Cost of energy and electricity; ix Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Lack of product differentiation and limited export market focus makes the country vulnerable to shifts in the global business cycle. A Long Term Plan for Private Sector Growth The analysis identified a number of pertinent issues affecting the development and growth of the private sector in St. Vincent and the Grenadines. One of the most critical recommendations to emerge is the need for the implementation of a forum for collaboration between key stakeholders and representatives of labour, the private sector and Government. Action 1: Establishment of a Tripartite Committee (government-employer-labour) to identify the needs of all bodies and guide and oversee private sector development strategies. At present, attempts are being made to facilitate these discussions, however, there is no formal forum available to discuss the issue of private sector development at the national level. Once established, the Tripartite Committee should seek to also address the following: Action 2: Rationalisation and streamlining of public sector’s business support framework through the work of the Tripartite Committee to ensure a revised system that addresses both the needs of the private sector (access to finance, technical assistance and data) as well as wider obligations of Government. Action 3: Development of a National Strategic Plan that mainstreams private sector development in the country. Through the lobbying efforts of Government, the plans for the development of the private sector should also be included in and regional strategic plans at the level of the OECS/ECCU and CARICOM. Action 4: Reduce the cost of finance through the reduction of transactional and operational costs in financial institutions through the use of technology and monitoring of efficiency levels; the reduction of risk and risk-averseness through the establishment of a credit bureau and a collateral registry; and the introduction of alternative financial products and greater networking in the financial sector. Action 5: Increase the capacity of businesses to access finance through the provision of support (technical assistance and training) for the adoption of accepted business practices (recordkeeping) and the skills to develop business plans for funding and strategic planning. These services exist in St. Vincent and the Grenadines and are provided by Invest SVG and the Centre for Enterprise Development, however, the utilisation of these services need to be expanded given the results to emerge from the PSA. Action 6: Provide incentives for energy conservation and frameworks for the exploitation of renewable/alternative energy and reduce the cost of fossil fuels. Incentives and support in this area will act as both a cost-reduction tool as well as an opportunity for investment and enterprise development in the renewable/alternative energy sector. Efforts to reduce the cost of fossil fuels would relate to periodic reviews of the fuel clause tariff structure, a review of the distribution chain and exploration of the possibility of privatisation of electricity supply. Action 7: Education and training curriculum reform that addresses the long term strategic direction of Government as well as the more immediate needs of the private x Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 sector. The reforms undertaken should be informed from manpower surveys and subsequently developed human resource development plans which should seek to catalyse the utilisation of apprenticeships and on-the-job training. The long term strategic direction of Government should be constructed on the basis of dialogue with the private sector. It should however be noted that in order for these actions to be effectively implemented, that the private sector will need to show greater willingness to share information and that both the private and public sectors will need to more effectively exploit technology in relation to data mining and collation in the public sector, and to improve productivity in the private sector. An overview of the recommendations and related action plans are shown in Table B. While all of the Action Points relate to the establishment of a conducive environment for the development of the private sector and are external to enterprises, that the private sector itself will need to take a portion of responsibility and seek to adopt a more proactive approach to exploiting opportunities available in the market. Given the perception that the private sector is not as proactive as it can be, and as a caution in relation to interventions to spur private sector development, it is imperative that all key stakeholders, from the international to the domestic level, are fully aware of the current level of development of the private sector. In St. Vincent and the Grenadines, and across the region, the private sector is relatively under-developed and limited in its ability to cope with current neo-liberal developments given a long period of protection through such mechanisms as preferential trade agreements which have recently been removed. Any interventions should therefore seek to assist the private sector, with the assistance of the public sector, to build domestic market opportunities as well as special and differential treatment for export goods in the short- to medium-term, rather than fully expose it to the rigours of international competition. Lessons should also be learnt in relation to drawing on the strengths of the region rather than seeking, as in the past, to attract investment based on low-cost labour which subsequently led to the attraction of footloose enterprises that relocate to competitors as cost levels change or economic circumstances deteriorate in relative terms. In this vein, the Caribbean needs to exploit those resources for which it has an advantage and a brand, suggesting a concentration on alternative energy (geothermal, solar), specialist agricultural products (such as nutmeg in Grenada) and agro-processing, eco-tourism, edu-tourism (drawing on human resources in the region), heritage tourism, health and wellness (both product-specific and related to tourism), and financial services, among others. In addition to drawing on the locational advantages that exist in the region, attention should be paid to the specific recommendations that have consistently emerged from research in the region which speak to: niche market development; moving up the value chain; development of strategic alliances and joint ventures for knowledge and technology transfer; and the development of clusters, both vertical and horizontal. The current VINCYKLUS initiative in promoting clusters provides a basis for growth in the area of clustering. While activities in these areas are not specifically mentioned in the Action Plan due to their specificity, they should remain as options during the development of the strategic plan for private sector development and growth in St. Vincent and the Grenadines. xi Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table B: Recommendations and Actions Matrix for St. Vincent and the Grenadines Themes General Political and Governance Issues Critical Issues Limited dialogue between stakeholders representing Government, labour and the private sector ‘Silo-mindset’ in business support organizations in the public sector Ad hoc development planning Lack of information sharing by the private sector Lack of utilization of technology. High Transaction and Operating Costs Informational Asymmetries Alternative Financing Options Actions 1. Establishment of a Tripartite Committee 2. Rationalisation and streamlining of public sector’s business support framework 3. Development of a National Strategic Plan that mainstreams private sector development Details As noted by Fashoyin (2004) there is a need for: Members to be independent and representative Willing to consult and negotiate Demonstrate mutual trust and respect Need for communication at the Tripartite Committee level to determine the speci fic external needs of enterprises in relation to the business environment (finance, technical assistance) while meeting the wider obligations of Government. Responsibility of… Government to initiate Tripartite Committee and address other issues in conjunction with Tripartite Committee 4. Reduce the cost of finance 5. Increase capacity of business to access finance Eastern Caribbean Central Bank; Business support organisations Cost of Doing Business Cost of electricity Labour Market Issues Trade Issues Limited availability and lack of specialist skills in the labour market: Limited product and market range with a domestic focus. 6. Provide incentives for energy conservation and frameworks for the exploitation of alternative energy options and reduce the cost of fossil fuels. 7. Education and training curriculum reform. To address the issues of access to finance, several specific steps can be taken: Introduction of technological advances ; Monitoring of efficiency rate of financial institutions to identify areas for improvement ; Establishment of credit bureaus and collateral registries ; Introduction of alternative financing options such as equity financing, Greater competition in the financial sector, particularly the strengthening of domestic institutions; Provision of technical assistance and training to the private sector in relation to increasing formality, the adoption of accepted business practices, and the skills to secure funding. Provision of incentives and support to help reduce energy costs through conservation as well a s for investing in the sector. Periodic review of the fuel clause adjustment. Assess the efficiency of the current distribution chain. Explore the possibility of privatization of electricity supply. Access to Finance Government The specific content of any reform should be determined at the Tripartite level and informed from Government the strategic plan for private sector development. Agreement will need to be reached on the immediate needs of the private and the longer terms development vision of Government. The trade issues highlighted for St. Vincent and the Grenadines cannot be addressed directly by the Action Plan as the expans ion of product range and markets will require the action of private sector entrepreneurs. The Action Plan seeks to provide a conducive environment in the provision of appropriate labour and capital for the exploitation of market opportunities. Issues that will need to be addressed during the execution of the Action Plans in relation to Trade include: Increasing efficiency in customs Strengthening of Bureau of Quality and Standards xii Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines August 2013 1 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 1. Introduction 1.1. Background Compete Caribbean is a private sector development program funded by the IDB, D fID and CIDA which works with Governments and the private sector to promote economic growth and enhance competitiveness across the Caribbean region. The Private Sector Assessment (PSA) and construction of Donor Matrices for countries in the region is one element of the overall program. The overall objectives of the Compete Caribbean program in the OECS include: a) Building a more robust and sustainable private sector through the elimination of remaining restrictions to the free flow of goods, services, capital and people within the countries of the Caribbean Single Market and Economy; b) Providing opportunities for forging closer private sector linkages across OECS member countries; c) Shifting from protection to adjustment support to help disadvantaged countries, regions and sectors manage the process of intra-regional liberalisation; and d) Facilitate private sector development within a more open trading environment. The program is expected to be delivered within three components as follows: 1. Component 1 provides a review and diagnostic of the status of private sector development in the OECS region. This component focuses on: a. A review of existing studies and reports on private sector development and competitiveness for the participating OECS member countries in the last 5 years, as well as an evaluation of the recent performance of the private sector in each of the six independent OECS member countries; and b. The identification and evaluation of obstacles to effective private sector development; 2. Component 2 focuses on the development of private sector development strategies and action plans to include the development of a draft private sector development action plan for each of the six independent OECS member countries, and for the OECS sub-region as a whole, and the identification of possible opportunities for collaboration by CDB and IDB in supporting the development of the private sector in the region. 3. Component 3 focuses on consensus building among key stakeholders on future actions under the recommended private sector development strategy and facilitation of national and regional workshops to present findings and action plans. There are two main elements of the PSA project which are a Private Sector Assessment Report (PSAR) and the construction of a Donor Matrix (DMX). The DMX is to provide an inventory of donor projects related to private sector development and identify duplication and omissions. The main aim of the PSAR element of the project is to identify market failures that are affecting the development of the private sector at a national and at a regional/sub-regional level, and to identify priority areas for intervention. There are two main elements of the PSA: First, it compiles and analyzes information from different sources in order to provide a snapshot of the state of the private sector in the country, and second, it brings the 2 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 information to relevant stakeholders- such as firms in the economy- to establish priorities on all the identified issues affecting the future growth in the private sector. The Caribbean Development Bank is the executing agency for the PSAs and DMXs for six of the OECS countries which include: Antigua and Barbuda, Dominica, Grenada, St. Kitts, St. Lucia and St. Vincent and the Grenadines. In 2012, the research team conducted interviews across the OECS with key stakeholders including government ministries and agencies concerned with private sector development, private sector associations, civil society and individual business enterprises. These interviews were conducted with a view to ascertaining the primary constraints to private sector development and potential solutions to the issues identified. The following report highlights the main results to emerge from the analysis of primary and secondary data collected as well as the views expressed in national consultations organised by SALISES in Grenada and Antigua and Barbuda, and by the Caribbean Growth Forum in Dominica, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. The details of the methodology adopted for the research is shown below. 1.2. Methodology The private sector assessment (PSA) draws on primary data analysis from interviews with key stakeholders from the domestic private and public sector as well as interviews with regional and international agencies. In addition, secondary data was utilised to describe the state of the country at both the micro and macro levels. The specific methodology for the PSARs had three (3) core components: 1. Analysis of secondary data and documentation from the following sources: a. Enterprise Surveys/Doing Business Surveys b. Central Government Fiscal Accounts c. World Development Indicators d. CARICOM Secretariat/OECS Secretariat e. Miscellaneous Country Surveys 2. Interviews/Consultations with key stakeholders: a. International Donor Agencies b. Regional/Sub-Regional Agencies c. Country-Specific Agents including business associations, representatives of labour and relevant public sector bodies. Specific businesses and finance providers were also included. 3. Identification of Main Thematic Issues affecting PSD and Identifying Priorities from the results of interviews and national consultations. The interviews conducted in St. Vincent and the Grenadines included the main business support organisations and sector associations in both the public and private sector (Ministry of Tourism; Statistical Department; Invest SVG; St. Vincent Hotel and Tourism Association; the St. Vincent Chamber of Commerce and Industry; the St. Vincent National Development Bank; and the National Development Foundation), finance providers and representatives, and private enterprises. A listing of key stakeholders from interviews and consultations is included in the Appendices. 3 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In addition to these specific elements of the research, the development of the PSA Reports was assisted by the information to emanate from consultations organised under the Caribbean Growth Forum banner. The Caribbean Growth Forum (CGF) is a joint initiative by the Compete Caribbean Program, the Inter-American Development Bank, the World Bank, and the Caribbean Development Bank. It is supported by the Canadian International Development Agency, the United Kingdom’s Department for International Development, CARICOM Secretariat, and the University of the West Indies. The CGF is a facilitative methodology for public-private dialogue around issues central to private sector development and growth. It brings a non-traditional approach to the greatest challenge currently faced by the region – creating sustainable and inclusive growth. The Forum also aims to facilitate an action oriented dialogue around key policy reforms needed across three thematic areas: Investment Climate, Skills and Productivity and Logistics and Connectivity. Many Caribbean territories have a very good starting point with draft or completed national growth strategies. Therefore, the aim is to identify the priorities within the three pillars of the CGF that can contribute to these national strategies. In this respect, the CGF’s methodology has been designed to result in a consensual, concrete action plan with specific responsibilities and timelines, and it has built in transparency and accountability mechanisms to make sure that, over time, results are delivered. The CGF is part of the donor agencies’ commitment to support the Caribbean and develop and implement inclusive growth policies that generate jobs and opportunities for all. 1 The CGF’s consultations and subsequent working groups provided useful information to add to, and corroborate, the findings of the current PSA. 1.3. Report Structure The rest of the Private Sector Assessment is structured as follows. Initially, Section 2 provides a general overview of the country. This is followed by a description of its relationship with the OECS and the ECCU in Section 3. Section 4 then presents the macroeconomic context of the country in relation to domestic economic variables and the productive sectors, and the country’s position in the international economy with respect to trade and foreign direct investment. Section 5, the main section of the report, outlines the main characteristics, issues and challenges of the private sector including the support for private sector development, the state of the private sector, a review of primary and secondary data on the private sector and a summary of the main issues affecting its development. This is followed by the development of an action plan for private sector development in the country. Section 6 presents the main conclusions of the PSA and provides some general recommendations. The Appendices to the report include relevant details to complement the main report as well as the Donor Matrix Report for the country. The Donor Matrix Report describes the relevant members of the donor community, local stakeholders, information sources, opportunities for enhancing the design and execution of programs and opportunities to address priority gaps. 1 http://caribgrowth.competecaribbean.org/about-the-cgf 4 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 2. Country Overview St. Vincent and the Grenadines is an upper-middle income small microstate within the Eastern Caribbean archipelago. The island is just 389 km 2 , or about one tenth (1/10) the size of Rhode Island. The population is estimated at 110,000 persons, with a median age of 31 years and population growth rate of about -0.313% per annum. St. Vincent and the Grenadines Human Development Index (HDI) score in 2012 was 0.733; 83 rd out of 187 countries. The country’s score was below that for the Latin America and Caribbean region, largely reflective of a relatively lower life expectancy (72 years). St. Vincent and the Grenadines is a member of the Eastern Caribbean Currency Union (ECCU), which is fixed to the US dollar at $1 (Eastern Caribbean Dollar) to $0.37 (US Dollars). Growth in St. Vincent and the Grenadines was quite volatile over this period. The downturn in the global economy as well as several natural disasters, have derailed the economy on many occasions. Between 1994 and 2010, the island has been affected by 5 tropical storms and 1 category 2 hurricane (Tomas, 2010) as well as a drought in 2010. As a result, following average growth of 5% between 2002 and 2007, the economy contracted by 2.4% in 2009 and a further 1.8% in 2010. The contraction in the economy largely reflected falling tourist arrivals as well as FDI-related construction, which has had negative spillover effects on the rest of the economy. An overview of the main indicators for the economy is shown in Figure 1. 2.1. Governance Freedom House (www.freedomhouse.org) ranks the country as ‘Free’ with a Freedom Rating of 1, where a rating of 1 indicates the highest degree of freedom and 7 the lowest level of freedom. The think tank notes that the last parliamentary elections were considered free and fair, despite threats of legal challenges to the result of the 2010 General Elections. In addition, the right to free expression and the free exercise of religious beliefs are generally respected. Workers have the right to strike and organise and collectively bargain, the independence of the Judiciary is respected and women are represented in Government. The Worldwide Governance Indicators Project of the World Bank and the Brookings Institution suggests that the country performs moderately in the area of ‘Government Effectiveness’. The indicator captures the perceptions of the quality and independence of public services and civil service, the quality of policy formulation and implementation and the credibility of the government’s commitment to these polities. In 2010, the score for ‘Government Effectiveness’ in St. Vincent and the Grenadines was above the70 th percentile for all countries evaluated and above the median for the group of comparator countries. 5 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 1: Snapshot of St. Vincent and the Grenadines and Comparator Countries Services Value Added (% of GDP) Foreign Direct Investment, net inflows (% of GDP) Net FDI in the country has been relatively erratic, but on a growth trend up to 2008 before a fall to its present level of about 15% of GDP. Despite the limited growth since 2009, as a share of GDP, FDI is somewhat higher that comparator countries. 30 20 10 0 Guyana Jamaica Surinam Trinidad… Bahamas,… Dominica Antigua and… Grenada Seychelles Malta St. Kitts and… St. Lucia St. Vincent… 0 Belize 5000 Dominican… 10000 Mauritus 15000 6 5 4 3 2 1 0 Government Debt as a percentage of GDP is below the regional average and has not exceeded 70%, unlike other countries in the region General Government Gross Debt (% of GDP) 20000 However GDP growth over the last 30 years has been marginally better than that for other comparator countries 100 80 60 40 20 0 -10 Services are an extremely important part of the St. Vincent and the Grenadines economy at approximately 74% of GDP in 2011, some 6% above the regional average 80 75 70 65 60 20002001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Travel services are the main component of service exports . However, their share of service exports has fallen marginally below the regional average since 2010 Travel Services (% of service exports, BOP) GDP per capita, PPP (constant 2005 international $) GDP per capita in St. Vincent and the Grenadines has been consistently below the regional and extra-regional average Average GDP Growth 1980-2010 (%) Small Caribbean States, St. Vincent and the Grenadines and Extra-Regional Comparators 38% 16% 9% 6% 10% Edible Vegetables and certain roots and tubers Cereals Beverages, Spirits and Vinegar Other Interest Rate Spread (%) 21% 70 60 50 40 30 2005 2006 2007 2008 2009 2010 2011 One of the main issues for businesses in St. Vincent and the Grenadines and the region was access to finance, and like the rest of the region, interest rate spreads are relatively high St. Vincent and the Grenadines' main export partners are located within CARICOM, while the main export commodities (2010) were... Mill ing Industry Products, Malt etc. Edible Frui t and Nuts etc. 80 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Small Caribbean States include: Antigua and Barbuda; The Bahamas; Barbados; Belize; Dominica; Grenada; Guyana; Jamaica; St. Lucia; St. Kitts and Nevis; St. Vincent and the Grenadines; Surinam; Trinidad and To bago. Extra-regional comparators include: Malta, Mauritius, the Seychelles, and Palau. 6 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Percentile Rank (0-100) Figure 2: Governance Effectiveness for St. Vincent and the Grenadines versus Comparators (2010) 100 90 80 70 60 50 40 30 20 10 0 Source: Woldwide Governance Indicators In relation to the issue of gender, females are represented in the House of Assembly and the Senate (3 from 21), but not to any significant degree. However, the issue of gender is given Ministerial prominence and addressed with the establishment of a Gender Affairs section within the Ministry of National Mobilisation, Social Development, Family, Gender Affairs, Persons with Disabilities and Youth. The goal of the Gender Affairs section is to ‘Support the integration and advancement of a gender perspective into national development so as to attain equality and equity’. 2.2. Environment St. Vincent and the Grenadines has a number of hazards that pose a threat to both the environment and economic viability. The island is inherently vulnerable to hurricanes, volcanoes and other climate change hazards and 70-90 % of the sloped terrain also poses risks of land slippage. The Government, in 2006, passed a national emergency act, which identifies tasks and functions of crucial stakeholders in an Emergency Committee. Examples of these tasks are: Designation of Vulnerable Areas Power to declare Disaster Alert Power to close roads The Government also passed an act to monitor and control precursor chemicals (defined as any substance which can be used in any of the chemical processes involved in the production, manufacture or preparation of narcotic drugs, psychotropic substances or substances having a similar effect; or incorporates its molecular structure into the final product making it essential for those processes). Figure 3 shows CO2 emissions were second lowest versus other comparator countries. 7 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 3: Environmental Performance: CO2 Emissions for St. Vincent and the Grenadines versus Comparators (2008) Metric Tons per Capita 12 10 8 6 4 2 0 Source: World Development Indicators 8 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 3. St. Vincent and the Grenadines, the OECS and the ECCU St. Vincent and the Grenadines is a member of the Organisation of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU), the common currency framework for the OECS countries; this is with the exception of the British Virgin Islands which does not use the Eastern Caribbean Dollar. The Eastern Caribbean Dollar is issued by the Eastern Caribbean Central Bank (ECCB), the monetary authority for the OECS. St. Vincent and the Grenadines represented 12% of nominal GDP for the OECS, and ranked 7th in GDP per capita, in 2010. The OECS was established in 1981 with the signing of the Treaty of Basseterre, named after the venue of the signing of the treaty, the capital of St. Kitts and Nevis. The motivation for the formation of the body was to provide a formal structure for cooperation to deal with development challenges posed in the post-independence period. The OECS currently has nine members: Antigua and Barbuda; Commonwealth of Dominica; Grenada; Montserrat; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines; and Anguilla and the British Virgin Islands as associate members. In June 2010, a Revised Treaty was signed, establishing the OECS Economic Union, a single economic space for the free movement of goods, people and capital and a framework for the harmonization of monetary and fiscal policies. The Revised Treaty allows for the adoption of ‘…a common approach to trade, health, education and environment, as well as to the development of such critical sectors as agriculture, tourism and energy’ 2 . The organs of the OECS are shown in Appendix 1. Of particular relevance to the development of the private sector in the region are the units under the Economic Affairs Division, specifically the Export Development Unit (EDU) and the Trade Policy Unit (TPU). The EDU is responsible for export development in manufacturing and non-traditional agriculture and the TPU provides assistance in formulation and implementation of trade policies and in the negotiation of trade arrangements. The EDU is currently working directly with officers in business development organisations across the region to facilitate interaction between them and actual enterprises in the region. Such proactive outreach programs are integral to enabling these development agencies in serving the needs of the private sector and act to allay the concerns expressed by international agencies during the PSA that the organs of the OECS were not as proactive as they could be. Although the Revised Treaty of 2010 spoke to fiscal coordination and free movement of persons, these have not come to full fruition, while movement of capital has not obtained any significant scale economies at the regional level. In relation to fiscal coordination, Schipke, Cebotari and Thacker (2013:5) 3 note: ‘…faced with very high public debt, the region needs to put in place a mechanism to enforce fiscal discipline because the success of the common currency depends on simultaneously satisfying eight national budget constraints. As the experiences from the European Union demonstrate, cross-border spillover- especially via the financial sector- from the weakest member could undermine confidence and trigger a regionwide crisis.’ 2 http://www.oecs.org/about-the-oecs/who-we-are/about-oecs 3 Schipke, A., Cebotari, A. and Thacker, N. (eds.) (2013). The Eastern Caribbean Economic and Currency Union: Macroeconomics and Financial Systems. IMF: Washington D.C.. 9 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 The undermining of confidence in these economies would indeed create a crisis, especially in relation to these economies’ reliance on foreign investment and tourism. In addition, the free movement of goods, labour and capital are the foundation of unions of this type to enable, in the long term, the realization of the benefits of integration, namely benefits of scale economies, rationalization of public services, and greater bargaining ability at international forums. However, given that private sector enterprises in the region indicate inadequately trained labour as a major constraint, it is questionable whether free movement of labour within the sub-region will pay any dividends to the receiving country, or the union as a whole, given that the economies are not structured in any significantly different ways, and therefore their labour force is likely to be comprised of the same types of skills and abilities. A similar situation to what exists for labour could be said to exist in relation to finance. While Schipke, Cebotari and Thacker (2013) note that indicators at a macro level indicate that the financial sector in the OECS is well developed, and on par with Latin America and the rest of the Caribbean, Enterprise Surveys ‘tell a different story’(p.15). Enterprise Surveys and Doing Business indicators across the region show that a significant amount of firms in the OECS view lack of access to finance as a major obstacle to their business, while interviews conducted during the PSA for the region indicate that this is due to the cost of finance, collateral requirements and application procedures, issues ground in the lack of credit information as well as the capacity of enterprise owners in supplying information to creditors. Given that this issue is pervasive across the OECS, while theoretically regional integration should provide scale economies in financial provision, in reality the movement of capital within the union would simply replicate the problems experienced at the domestic level. While these issues demonstrate that perhaps regional integration in the OECS/ECCU does not facilitate private sector development to the degree it should, their actual existence provides for a perception of stability at both the political and financial level, as well as pose the opportunity for growth in the future; that is if issues related to skills in the labour force, fiscal coordination and scale economies in financial provision can be addressed, if the private sector itself seeks to proactively exploit available opportunities in the wider region. However, these issues cannot be taken without due consideration to the external effect of the global financial crisis. In seeking to address the downturn, the OECS/ECCU has implemented an eight point program which includes the following elements and main components: 1. Suitably adapted Financial programmes for each country: a. Aim: To identify the financing gaps of government and recommendations to close gaps and address structural issues in relation to the Balance of Payments (external sector), National Accounts (real sector), Fiscal Accounts (public sector) and Monetary Accounts (financial sector). 2. Fiscal reform programmes: a. Aim: To develop efficient revenue and expenditure systems, as well address the management of governments’ cash flows, debt servicing and wages. 3. Debt management programmes: a. Aim: To facilitate the adoption of a structured approach to debt management to achieve optimal debt profiles and enhance sustainability. The debt target is 60% of GDP by 2020. 10 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 4. Public sector investment programmes (PSIP): a. Aim: To provide short- to medium-term fiscal stimuli for the ECCU in relation to ‘Quick disbursing projects which will put people to work and stimulate economic activity to restore growth; and …provision of critical infrastructure for medium and long term development’ 4 . 5. Social safety net programmes: a. Aim: To review the social safety nets in the ECCU countries and the development of measures to achieve sustainable poverty reduction. 6. Financial safety net programmes: a. Aim: Restructuring and recapitalisation of the banking and insurance sectors and regulatory and supervisory strengthening. 7. Amalgamation of the indigenous commercial banks: a. Aim: To create economies of scale and scope, operational efficiency in financial services in the ECCU. 8. Rationalisation, development and regulation of the insurance sector: a. Aim: To reduce the number of insurance companies in the region and strengthen the regulatory framework. A brief review of the eight point plan reveals limited direct relevance to the development of the private sector with the exception of plans for public sector investment programs (PSIP) and the amalgamation of banks which, it would be hoped, would provide easier access to finance. While the points in the plan seek to provide an overall conducive environment for business in the long term, there appears to be limited attention to the immediate needs of the private sector at the regional and domestic level. This is not to say that the needs of the private sector are not being addressed, simply that the focus of policy at the regional level is focussed more on the macroeconomic environment rather than increasing productivity and private sector development. 4 http://www.eccb-centralbank.org/about/ann26_eight.asp 11 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 4. Macro Context of Grenada and the OECS 4.1. The International Economy Since 2001, St. Vincent and the Grenadines’ external current account deficit has further deteriorated. In 2001 the external current account balance was estimated at -6% of GDP falling to 16% of GDP in 2003 and to -33% of GDP in 2008. There was some improvement in the current account balance in 2009 and 2010, but was still at unsustainable levels (see Figure 4). The deterioration in the island’s external current account balance largely reflected falling exports of traditional export commodities, rising food and petroleum prices as well as a contraction in earnings from tourism. The net services balance in 2010 was EC$197 million compared to EC$263 million in 2006. The merchandise trade balance also contracted by over EC$100 million due to declining exports of traditional export commodities (primarily bananas). 50 10 5 0 -5 -10 -15 -20 -25 -30 -35 Millions US$ 0 -50 -100 -150 -200 -250 1980 1985 1990 Balance (US$M) 1995 2000 2005 % of GDP Figure 4: Current Account Balance for St. Vincent and the Grenadines (1980-2010) 2010 % of GDP Source: World Development Indicators The deficit on the external current account has in recent years been financed by rising FDI inflows. Prior to 1994, FDI inflows were less than US$15 per year. Since then, however, FDI inflows have grown quite rapidly reaching US$89 million in 1998 and US$160 in 2008. FDI inflows in 2009 and 2010 declined somewhat to US$100 million. Most of the remainder of the deficit tends to be financed via aid flows as well as a small amount of remittance flows. The external indebtedness of the island was fairly steady for much of the period at around 50 per cent of GDP and about 10% of exports of goods and services (see Figure 6). 12 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 5: External Accounts Analysis for St. Vincent and the Grenadines (1980-2010) 300 Millions US$ 200 100 0 -100 -23-18-22-20-18-13-21-17-14-33-28-38-33-42 -37-37 -35-43-30 -58 -67 -68 -88 -84-100 -113 -126 -188 -193 -211 -237 -200 -300 1980 1985 1990 1995 Remittances Net Financing Balance of G&S Deficit + Reserves Accum. 2000 2005 2010 FDI ODA Source: World Development Indicators Figure 6: External Debt and Debt Service for St. Vincent and the Grenadines and the OECS 6 (2000-2010) 80 % 60 40 20 0 2000 2005 St. Vincent and the Grenadines Debt Service OECS 6 Average Debt Service St. Vincent and the Grenadines External Debt (% GDP) 2010 Source: IMF Article IV Consultations (Various Years) Note: Debt Service measured as % of Goods and Services Exports In small open economies, the real effective exchange rate is not a good proxy for external competitiveness. These economies tend to be very open to the rest of the world, given the lack of natural resources and limited self-sufficiency in food production. As a result, domestic prices tend to be largely driven by external factors beyond the control of the domestic authorities. In addition, as these economies tend to largely focus on the supply of services to other economies (e.g. tourism and international financial services), which are not very dependent on price, but on quality, the real effective exchange rate is not a good proxy for competitiveness of the island to provide these services. The limited utility of the real effective exchange rate to explain competitiveness changes is shown by the lack of correlation between the index and the external current account balance (see Figure 7). Essentially, as the exchange rate is fixed, domestic prices are largely driven by external 13 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 prices, not domestic market conditions. One would therefore not expect any relationship between the RER and the current account balance in fixed exchange regimes such as in the OECS. 140 10 120 5 0 100 -5 80 -10 60 -15 %GDP Index (2005=100) Figure 7: Real Effective Exchange Rate Index (2005=100) and Current Account Balance (%GDP) for St. Vincent and the Grenadines (1980-2010) -20 40 -25 20 -30 0 -35 1980 1985 1990 Exchange Rate Index 1995 Year 2000 2005 2010 Current Account Balance (%GDP) Source: World Development Indicators 4.1.1 Trade Figure 8 provides a snapshot of the trade patterns for St. Vincent and the Grenadines. More than half of all imports are for energy related imports. Fluctuations in international oil prices therefore have a significant impact on the overall external current account for the island. Given the lack of a large manufacturing base, most of the machinery and equipment required for the production of goods and services are imported from abroad (Figure 9). The US is the largest trading partner, accounting for 33% of all imported goods. Most of these items are non-durable and durable consumer items. Trinidad and Tobago and the United Kingdom also show up as a major sources of imports. On the goods exports side, the island’s main commodity export remains agricultural commodities, with alcoholic beverages also appearing in the top 5 export categories (Figure 10). More than one third of these exports are for the St. Lucian market, with most of the remainder going to Trinidad and Tobago, Barbados and the UK. 14 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 8: Trade Snapshot for St. Vincent and the Grenadines (2010) 15 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 9: Treemap of Imports5, St. Vincent and the Grenadines 2010 Source: The Observatory of Economic Complexity Figure 10: Treemap of Exports, St. Vincent and the Grenadines 2010 Source: The Observatory of Economic Complexity 5 A treemap of imports/exports show various products’ share of total imports/total expor ts. The product classification is based on the Harmonised Commodity Description and Coding System (HS) at the 4 -digit level. 16 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 4.1.2 Foreign Direct Investments FDI in St. Vincent and the Grenadines is largely associated with tourism and commodity exports. In 2011, FDI was 19% of GDP, the third largest ratio among the group of comparator countries. St. Vincent and the Grenadines face a number of challenges in regards to attracting FDI, many of which are outside of the control of policymakers. Its small market size limits the amount of funds flowing into the island for market-seeking opportunities. The size of the of the economy and lack of natural resources, also results in higher input costs and limited opportunities for natural resource seeking FDI. Given the profile of the island, it is likely that most FDI would be of the efficiency-seeking variety (e.g. international financial services). This would utilise the surplus labour but would also require some investment in the human resource capabilities of the island. Figure 11: Inward FDI for St. Vincent and the Grenadines and Comparators (2011) 30.0 25.0 20.0 15.0 % GDP 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 Source: UNCTAD The macroeconomic environment is quite stable, but there are some social and political uncertainties that might impact on potential FDI flows. In relation to the macroeconomic environment, inflation is relatively low, there are no restrictions on capital flows and limited exchange rate uncertainty. There are also relatively few regulatory hurdles for potential investors; only electricity, telecommunications and water require government licences, while financial institutions must obtain permission from the International Financial Services Authority. Invest St. Vincent and the Grenadines has been playing an important role in relation to investment promotion on the island. The institution offers investment and trade information, investment incentives, investment facilitation, industrial facilities and policy advice. Key sectors targeted include manufacturing, tourism, international financial services, information and communication technologies, the creative industries as well as agriculture and agro-processing. 4.1.3 Analysis for the International Economy Given the openness of the St. Vincent and the Grenadines economy, international economic developments have a significant impact on the domestic economy. There are three key potential 17 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 external threats to future developments: (1) growth in more developed economies; (2) commodity prices; and (3) FDI flows. Given the small size of the domestic market, most growth opportunities in small states are related to the international economy. Future prospects for tourism, for example, are largely driven by economic developments in key source markets. If lack of growth in these economies is protracted, the already weak tourism industry could be further affected. Remittance flows, which are also an important component of the financing mix for the island, are also intimately associated with economic developments in the above-mentioned larger economies. Commodity prices have a significant impact on not only domestic prices but also external current account sustainability. More than one third of the total value of imports in St. Vincent and the Grenadines, for example, are for imports of petroleum-related products. Fluctuations in international oil prices can therefore affect the success of any economic adjustment programme. Commodity prices also impact on the demand for travel to the island and can also increase the price of all imports as shipping costs rise. The relatively large current account deficit that St. Vincent and the Grenadines has reported in recent years has largely been financed by FDI inflows. Should these flows continue to decline, the island will need to accumulate an even larger amounts of external debt, which is already just below 40% of GDP. FDI inflows also support growth in the construction industry. Any rebound in growth of this industry is therefore dependent on a rebound in FDI inflows. 4.2. The Domestic Economy The size of the St. Vincent and the Grenadines economy has grown quite rapidly between 1980 and 2010. In 2010, real GDP was estimated at US$1.1 billion, over three times the size of the economy in 1980. On a per capita basis, GDP for the island was still, however, below that for most comparator countries (US$11,077): just 8 countries (Dominican Republic, St. Lucia, Jamaica, Suriname, Belize, Grenada, Guyana and Haiti) out of the 18 comparator countries considered had a lower level of per capita GDP. Growth in St. Vincent and the Grenadines was quite volatile over this period. The downturn in the global economy, as well as several natural disasters, has derailed the economy on many occasions. Between 1994 and 2010, the island has been affected by five tropical storms and one category 2 hurricane (Tomas, 2010), as well as a drought in 2010. As a result, following average growth of 5% between 2002 and 2007, the economy contracted by 2.4% in 2009 and a further 1.8% in 2010. The contraction in the economy largely reflected falling tourist arrivals as well as FDI -related construction, which has had negative spillover effects on the rest of the economy, especially in relation to employment. 18 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 12: GDP Dynamics for St. Vincent and the Grenadines GDP Per Capita 2010, PPP (current international $) 12000 1000 10000 800 8000 600 6000 400 4000 200 2000 Constant International $ mil 1200 0 Constant International $ GDP Dynamics 1980-2010 0 1980 1985 1990 1995 2000 2005 Bahamas, The Malta Trinidad and Tobago Seychelles Antigua and Barbuda Barbados St. Kitts and Nevis Palau Mauritius Dominica St. Vincent and the Grenadines St. Lucia Grenada Dominican Republic Jamaica Suriname Belize Guyana Haiti 2010 0 10000 20000 30000 current international $ GDP, PPP (constant international $) GDP per capita, PPP (constant international $) Source: World Development Indicators In order to offset the negative effects of these shocks, the island made a request to the IMF for access to the Rapid Credit Facility (RCF) to the tune of US$3.26 million. While the facility does not have programme-based conditionality, countries are expected to put policies in place address the balance of payments problem, as well as support macroeconomic stability and poverty reduction. Figure 13: GDP Growth in St. Vincent and the Grenadines (1980-2010) GDP Growth (Annual %) 1980-2010 Average GDP Growth 1980-2010 16 6.0 14 5.0 12 10 4.0 6 % % 8 3.0 4 2.0 2 0 1.0 Surinam Trinidad and… St. Lucia St. Vincent and… Seychelles Malta St. Kitts and Nevis Average for Comparators Mauritus St. Vincent and the Grenadines 2010 Guyana 2005 Jamaica 2000 Grenada 1995 Dominican… 1990 Belize 1985 Dominica 0.0 1980 Antigua and… -4 Bahamas, The -2 Source: World Development Indicators Note: GDP Growth (Annual %) based on PPP (constant prices, international $) 19 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 The success of these stabilisation plans will hinge on the ability of the authorities to moderate the growth in consumption. Expenditure on GDP is largely driven by trends in household consumption. For most of the period the share of consumption in GDP has fluctuated around 90 per cent of GDP. In recent years, however, the share of this category has fallen: in 2010 household consumption was estimated at 79% due to falling household incomes. The islands net exports (or trade balance) has also deteriorated significantly. In 2007, 2008 and 2009, the net exports were estimated at almost 30% of GDP. There was some improvement in the current account balance in 2010, but the deficit still remained above 13% of GDP. Government expenditure and gross capital formation have both increased in recent years as part of government efforts to stimulate the economy. Since 2007, government expenditure has been about 2 percentage points higher when compared to the 20012006 period, while gross capital formation in 2010 was more than 11 percentage points higher than in 2009. Figure 14: GDP Decomposition by Expenditure for St. Vincent and the Grenadines (1980 -2010) 200 150 % of GDP 100 50 0 -50 -100 1980 1985 1990 1995 2000 Household Consumption Government Expenditure Gross Capital Formation Net Exports 2005 2010 Source: UN National Accounts Database Traditional, the St. Vincent and the Grenadines economy has been dependent on the export of commodities (primarily bananas), as well as tourism. With the loss of preferential markets in Europe, however, the banana industry on the island has declined significantly while Hurricane Tomas (2010) and the Black Sigatoka disease have devastated most of the remaining banana crops. As a result, the share of agriculture in GDP has gone from almost 21% of GDP in 1990 to just 6% by 2010, while GDP has fallen and other sectors have failed to fill the gap. As a result of the decline of agriculture, the services sector has become more important: tourism, wholesale and retail trade, transport storage and communications, construction and real estate, renting & business activities; these four industries together account for more than 50% of GDP. St. Vincent and the Grenadines receives over 200,000 tourists every year, half of these were due to cruise ship passengers (110,954) and most of the remainder was made up of long stay passenger arrivals (72,645) as well as yacht passengers (43,115). More than 33% of long stay tourist arrivals came from the Caribbean, followed by the USA (30%) and the UK (16%). Tourism activity has stimulated economic activity in most of the 20 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 other service industries such as construction, wholesale and retail trade and transportation. Services share in GDP has gone from 60% in 1993 to 75% by 2010. Figure 15: GDP Decomposition by Industry for St. Vincent and the Grenadines (1980 -2010) 100% 90% 80% % of GDP 70% 60% 50% 40% 30% 20% 10% 0% 1980 1985 1990 Agriculture 1995 Industry 2000 2005 2010 Services Source: UN National Accounts Database Inflation in St. Vincent and the Grenadines tends to be relatively low. Since 1980, the average annual rate of inflation was 2.9% compared to 8.5% in a group of its peers (see Figure 16). Between 2005 and 2008, prices in St. Vincent and the Grenadines were significantly above the historical average, primarily due to higher prices for food, beverages and housing, as well as fuel and light. While some of the increase can be attributed to higher international commodity prices, the increase in prices can also be attributed to the implementation of the VAT in 2007. Since 2009, however, the rate of price increases has been subdued: in 2009 inflation was 0.4% while in 2010 it was just 0.8%. The slowdown was largely due to falling housing prices and subdued growth in prices of good as well as transportation and communications. 21 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 16: Inflation Data for St. Vincent and the Grenadines (1980-2010) Inflation Dynamics 1980-2010 Comparative Inflation (2010) 14 20 18 12 16 14 10 12 8 % 10 8 6 6 4 4 2 2 0 1980 1985 1990 1995 2000 2005 2010 St. Vincent and the… 0 -2 -4 Source: World Development Indicators Since 2002, Government’s fiscal deficit has been widening. Deterioration largely reflected significant growth in both current as well as capital expenditure. Between 2006 and 2010, wages and salaries rose by almost 30%, while transfers and subsidies more than doubled over the same period. As a result, government’s current account balance – current revenue less current expenditure – went from a surplus of EC$58 million in 2008 to a deficit of almost EC$9 million in 2010. As a result, government’s fiscal balance (excluding grants) was almost 6% of GDP in 2010. With the introduction of the VAT in 2007, government revenue yields rose from 24% of GDP in 2006 to as much as 30% of GDP in 2009, and 27% in 2010. Since 2009, however, revenues have been relatively flat. With incomes falling, taxes on income and profits were virtually unchanged between 2009 and 2010, while VAT on international trade and domestic transactions both fell by around EC$10 million. 22 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 17: Fiscal Deficit for St. Vincent and the Grenadines (2000-2010) 600.00 500.00 EC$ Millions 400.00 300.00 200.00 100.00 -100.00 -200.00 2000 Current Revenue 2005 Current Expenditure Capital Expenditure 2010 Deficit Fiscal Current Account Balance Source: Central Government Fiscal Accounts As a result of the deterioration in Government’s fiscal position, gross government debt has been rising since 2007 and is now 67% of GDP. Most of this debt is denominated in foreign currency: external debt in 2010 was 42% of GDP (US$222 million6 ) compared to 30% of GDP in 2008 (US$167 million). External public sector debt service has also been rising quite rapidly and is now estimated at 17% of GDP. Public sector debt is expected to rise even further in the future due to planned International Airport project, however, debt ratios should be contained after the project is completed. 6 Measured in constant 2000 US$ 23 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 18: Gross Government Debt for St. Vincent and the Grenadines versus Comparators (2000-2010) 90 80 70 % GDP 60 50 40 30 20 10 0 2000 2005 Year Gross Debt (%of GDP) 2010 Average for Comparators Source: IMF WEO Database Like most of the OECS, obtaining information on labour market developments in St. Vincent and the Grenadines is quite difficult and often dated. Nevertheless, it is estimated that the unemployment rate in 2008 was 19%, with about 17% of the labour force being unemployed for 12 or more months. As a means of comparison, the table below demonstrates that the unemployment rate in St. Vincent and the Grenadines is higher than for comparator countries, with the exception of Guyana, with a higher burden on women and the youth. Table 1: Unemployment Data for Comparator Countries (Various Years) Country Name Data Year Total Unemployment (%) 13.7 Female Unemployment (%) 13.7 Male Unemployment (%) 13.6 Youth Unemployment (%) na Bahamas, The 2011 Barbados 2011 11.2 12.5 9.8 na Belize 2007 8.5 13.0 5.9 na Dominican Republic 2010 12.4 16.4 9.34 na Guyana 2011 21.0 25.74 17.24 46.0 Jamaica 2011 12.7 17.2 9.6 30.1 St. Lucia 2007 14.0 18.5 10.0 na Trinidad and Tobago Malta 2008 4.6 6.2 3.5 10.5 2011 6.4 7.0 6.1 13.9 Mauritius 2011 7.9 12.3 5.2 21.7 Source: World Development Indicators The majority of persons are employed in services/sales or elementary occupations. This largely reflects the lack of skilled persons in the labour force. In 2008 more than 50% of labour force participants had no formal qualification and only 24% had secondary school certification. 24 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 4.2.1 Analysis for Domestic Economy The slowdown in world economic growth has had a negative effect on macroeconomic fundamentals in St. Vincent and the Grenadines. Key industries, such as construction and wholesale and retail trade as well as tourism, have reported double-digit rates of decline, resulting in a significant deterioration in the employment profile for the island. Based on relatively poor employment statistics, it is estimated that 1 in every 5 Vincentians was unemployed, with the statistics for the youth and females expected to be somewhat higher. As a result of the deterioration in economic conditions, gross government debt has begun to expand again after falling during the early 2000s. The main policy challenge in the short- to medium-run will therefore be the implementation of a credible fiscal strategy that does not impede recovery prospects. The process of fiscal consolidation has already begun, with the implementation of the expenditure reducing measures and various other initiatives aimed at enhancing the ease of doing business on the island. Should growth not recover in the short- to medium-term, however, Government debt could rise to unsustainable levels. 4.3. The Productive Sector St. Vincent and the Grenadines has traditionally depended on agriculture and tourism to spur growth and development on the island. The island has been trying to expand its offering of international financial services. At present the sector comprises International Business Companies, International Trusts, International Banks, International Insurance Companies and Mutual Funds. Given the traditional agricultural base on the island, there is also potential for agro-businesses in the area of coconut processing, fruit processing, poultry production, cassava processing, dasheen and other root crops as well as arrowroot processing. 4.3.1 Industry and Agriculture St. Vincent and the Grenadines’ production structure has not changed much in recent years, and in general, the island tends to export goods that are not unique/complex (Figure 197 ). The product space maps show that there have been limited developments in the core with some expansion in the periphery. In addition, most of the new industries are on the periphery, which could have implications for coordination in the accumulation of capabilities. 7 ‘The product space map is a view of the network of relatedness of products that countries trade. The layout remains fixed for which the country’s export basket is overlayed with a thick black border on the products that they were exporting in the given year’ http://atlas.media.mit.edu/about/. An interactive version of the Product Space Maps for Exports is available from http://atlas.media.mit.edu/ 25 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 19: Product Space Map (Exports) for St. Vincent and the Grenadines 1995 and 2010 1995 2010 Source: The Observatory of Economic Complexity 26 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In reviewing the export data utilised to construct the maps, Frozen Fish (excluding fillets), Fish Fillet or Meat, Women’s Suits, and Fishing Vessels have fallen from being in the top 10, to out of the top 20. Cruise ships and similar vessels fell from third (11% of exports) in 1995 to 19 th (0.4% of exports) in 2010. These products have been replaced in the top 10 by Yachts, Waters (flavoured or sweetened), Carton, Boxes and other packing containers made of paper, Flat rolled iron, and Preparations of a kind used in animal feed. It should be noted that Bananas and Plantains fell from 23% of exports in 1995, to 4% in 2010. While the analysis reveals that there has been some movement up the production chain with a reduction of exports of primary products and an expansion of more processed products the percentage change has been limited over the period. Table 2: Top 20 Exports for St. Vincent and the Grenadines for 1995 and 2010 1995 Top 20 Exports Bananas and plantains Tugs and pusher craft Cruise ships and similar vessels for the transport of persons Frozen fish, excluding fillets Wheat or meslin flour Rice Fish fillet or meat Women's suits, not knit Share 23.30% 11.57% 11.04% 2010 Top 20 Exports Yachts Wheat or meslin flour Tugs and pusher craft 10.88% 7.73% 5.84% 3.41% 2.68% Bananas and plantains Manioc (cassava) Rice Waters flavored or sweetened Cartons, boxes, cases, bags and other packing containers of paper Flat rolled iron or non-alloy steel, coated with tin, w >600mm, t >0.5m Preparations of a kind used in animal feeding Floating or submersible drilling platforms Antiques older than one hundred years Manioc (cassava) 2.15% Fishing vessels Men's shirts Preparations of a kind used in animal feeding Fish, excluding fillets Flat rolled iron or non-alloy steel, coated with tin, w >600mm, t >0.5m Yachts Jewelry of precious metal Cartons, boxes, cases, bags and other packing containers of paper Crustaceans Packing of goods 1.89% 1.40% 1.28% Waters flavored or sweetened Share 55.32% 6.13% 6.11% 4.20% 2.82% 2.70% 1.58% 1.33% 1.27% 1.24% 1.12% 0.87% 1.24% Fork-lift trucks 1.17% Aluminum structures (bridges, towers etc) 0.76% 0.61% 1.02% Packing of goods 0.86% Scrap of precious metal 0.65% Automatic data processing machines 0.42% 0.41% 0.41% 0.51% Ferrous waste and scrap 0.49% Cruise ships and similar vessels for the transport of persons 0.49% Crustaceans 0.38% 0.36% 0.30% Source: The Observatory of Economic Complexity 4.3.2 Services Tourism is the main driver of activity in the services sector of the economy. Figure 20 plots the decomposition of the various components of the services industry for the period 1980 to 2010. On average, tourism services accounted for just over four-fifths of service exports, with communications services accounting for most of the remainder. Travel services are the only category of services trade where the island has a trade surplus. For all the other segments of services trade payments for these services far exceed earnings. 27 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In specifically addressing tourism, the World Travel and Tourism Council (2013) 8 , estimates the direct contribution9 of travel and tourism to the economy of St. Vincent and the Grenadines as 6.0% of GDP in 2012, and 5.5% of employment, or approximately 2,500 jobs. Figure 20: Decomposition of Service Exports for St. Vincent and the Grenadines (1980-2010) 100% 90% % of Service Exports 80% 70% 60% 50% 40% 30% 20% 0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 10% Communications, computer, etc. Transport services Insurance and financial services Travel services Source: World Development Indicators 4.3.3 Analysis for the Productive Sector The agricultural sector in St. Vincent and the Grenadines, traditionally a key foreign-exchange earning industry, has contracted significantly in recent years. In 1980, agriculture accounted for almost one quarter of all production on the island. Since then, the size of the sector has shrunk significantly and now only accounts for less than 7% of total domestic activity. The tourism industry has also weakened in recent years as well due to the weak global environment. In the 2012 budgetary address the authorities also unveiled a number of policies aimed at stimulating private sector development. One of these initiatives was the production of 20,000 tonnes of bananas for regional and extra-regional export. Funds will be used to obtain GAP certification for 900 banana farmers. The larger capital works project currently being undertaken is a new international airport at Argyle. At present, to get to St. Vincent and the Grenadines one needs to make connecting flights at other regional airports. The new international airport would reduce the cost of travelling to St. Vincent and the Grenadines due to the elimination of intermediate flights from other regional airports. 8 http://www.wttc.org/site_media/uploads/downloads/st_vincent_and_the_grenadines2013_2.pdf 9 The WTTC defines ‘direct contribution’ as spending in relation to travel and tourism by residents, businesses and government, and visitor exports on tourism related commodities (accommodation, transportation, entertainment and attractions) in relation to GDP, and for employment, jobs provided in these industries (accommodation services, food and beverage services, retail trade, transportation services, and cultural, sports and recreational services. 28 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Numerous measures were also announced to support traditional industries. From 2012, all manufacturers (including agro-processors) will receive duty free concessions on all raw materials, plant and equipment imported for use in their operations. To further assist businesses, electricity tariffs for industrial uses were also reduced. 29 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 5. Characteristics, Issues, Challenges of Private Sector Development in St. Vincent and the Grenadines 5.1. Goal for Private Sector Development in St. Vincent and the Grenadines The Government of St. Vincent and the Grenadines’ main priority in the aftermath of the financial, CLICO and BAICO crises, along with its ECCU counterparts, is to structure budgeting plans in accordance to the eight-point stabilization program conceived by all ECCU members. The Government, in its 2013 budget speech address10 stated: ‘The 2013 Budget is crafted, too, within the frame of the Draft National Economic and Social Development Plan, the Eight Point Growth and Stabilisation Programme of the ECCU, and the various developmental instruments and programmes of the OECS and CARICOM to which our government has contributed’. (p. 6) The eight-point program speaks to: Suitably Adapted Financial Programmes for each country; Fiscal Reform Programmes; Debt Management Programmes; Public Sector Investment Programmes; Social Safety Net Programmes; Financial Safety Net Programmes; Amalgamation of the Indigenous Commercial Banks; and lastly, Rationalisation, Development and Regulation of the Insurance Sector. Aside from this, job creation and poverty reduction were still overarching themes for St. Vincent and the Grenadines. The Government is currently undertaking a population census to update demographic and employment statistics and outlined that: ‘…a more robust public sector investment programme, an increase in domestic and foreign direct investment, an enhanced flow of remittances, an uplift in tourism arrivals particularly after the international airport opens in 2014, a revitalization of agriculture and fisheries, and an improvement in the export of services (including entertainment), are likely to spur job creation.’ 11 (p. 17) The sentiment of increasing investment (foreign and domestic), agriculture and its by-products, and the export of services are all echoed in the mandate of many business support institutions such as Invest SVG, the National Development Foundation, the Centre for Enterprise Development, COMFI (an alliance of three large credit unions) and indigenous banks, among others. In addition to this, human resources are expected to be more competitive in tourism, as the Government seeks to establish a hospitality and training institute, which is a pre-requisite for a more competitive tourism services sector in St. Vincent and the Grenadines12 . 10 http://www.gov.vc/ 11 http://www.gov.vc/ 12 INVEST SVG priority sectors for investing were identified: Information and Communications Technology (ICT), International Financial Services (IFS), Tourism, Agri -business, Light manufacturing and the Cultural Industries. The government is seeking to attract investors in these sectors. Credit Union League stated from interviews that their penetration rate was consistently at 8 percent. The NDF stated from interviews that a sizeable proportion of their funds were going towards agriculture and fisheries and maintains that this sector has potential. The Center for Enterprise Development’s specific objective is to increase the number of viable enterprises in St. Vincent and the Grenadines. COMFI was established in 2013 by the three largest credit unions in St. Vincent, it is a cooperative that makes small business loans. The Bank of St. Vincent and the Grenadines mentioned in an interview that its output for the last year rivals most of the international banks. 30 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Government also places energy independence as another instrument to revolutionizing the structure of its economy with hopes that production could become more competitive with cheaper input costs. Though many ECCU governments are working on creating a more sustainable and renewable energy, most electricity companies in the Eastern Caribbean are owned by governments and contribute significantly to government revenues. Moreover, as highlighted the 2013 Budget Speech, the funds from the PetroCaribe deal (traditional fossil fuel resources) are borrowed for major Government projects i.e. the new international airport. ‘Government also approved funding to IADC (International Airport Development Company) in the amount of 50 percent of the monies accumulated under the loan component of the PetroCaribe (SVG) Ltd. fuel supply arrangements that the Government of Venezuela has established with the Government of St. Vincent and the Grenadines. As at 31st October 2012, IADC has been able to borrow EC$ 41.4 million from the PetroCaribe funds to be used for airport construction’. (p. 35) In general, it appears that the Government of St. Vincent and the Grenadines is seeking to ensure sustainable growth in the private sector through a number of avenues in relation to enhancing investment opportunities in a number of sectors through enhancing access to finance, reducing energy cost and developing the human resources of the country. While it appears from the majority of the rhetoric that private sector development is being pursued for its own sake, the Government appears to recognise that the generation of employment is key for the sustainable reduction of poverty, while also seeking to ensure fiscal security and foreign exchange earning capabilities to allow the Government to undertake its other obligations to the citizenry of the country. 5.2. State of the Private Sector The industrial structure of St. Vincent and the Grenadines is dominated by services; real estate, renting and business activities, wholesale and retail trade, and transport, storage and communications account for 48.1% of GDP. Table 3: Contribution to GDP by Sector in St. Vincent and the Grenadines (2012) Sector Real Estate, Renting and Business Activities Wholesale & Retail Trade Transport, Storage and Communications Public Administration, Defence & Compulsory Social Security Construction Financial Intermediation Agriculture, Livestock and Forestry Manufacturing Education Electricity & Water Health and Social Work Other Community, Social & Personal Services Hotels & Restaurants Fishing Mining & Quarrying Source: ECCB (2013) Share (%) 16.55 16.25 15.28 10.54 8.34 6.37 5.86 4.88 4.57 4.13 3.07 2.45 2.23 0.33 0.22 31 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 The structure of the private sector in St. Vincent and the Grenadines, in relation to the size of enterprises and the distribution of the labour force, is illustrated in the table below. Statistics indicate that out of approximately 110,000 persons in St. Vincent and the Grenadines, approximately half the population is in the labour force and 49,000 persons account for the total employed labour force. Approximately 69% of the employed, accounted for in NIS data, are employed in the private sector; while 32% are employed in the public sector. Unemployment was estimated between 2325%. The gap between the NIS accounted workforce and the adjusted workforce is noticeably large, and Vincentians still participate in informal type activities in Agriculture, Construction and Retail. This evidence is validated by the classification of type of enterprise listed below; the table shows 80% of Vincentian businesses were informal, micro or small scale enterprises and 60% of total employed persons were in Micro or Small enterprises (MSEs). As seen across the sub-region, Government is the dominant employer in the country and also has a number of stakes in primary production in the island (i.e. Government has a 20% stake in the largest company on the island, Eastern Caribbean Group of Companies (ECGC), and the agro-processing company WINFRESH is owned by OECS participating governments). Locally owned enterprises remain in small to medium scale agro-processing, light manufacturing, consumer goods and smallscale tourism related business. Table 4: Condensed table showing Type of Enterprises and Labour structure in St. Vincent No. of Employees Type of Enterprise (1-5) (6-20) Micro Small Share of Business by Enterprise Type 80% Share of Employment by Enterprise Type 55-60% Sector Manufacturing Agriculture and related (20-50) Medium 18% 5% Construction >50 Large 2% 2-3% Services Tourism Financial Retail and Wholesale Government Other Services Total Source: 2010 Labour Market Report, MSME (2009) and Enterprise survey Workforce (in the NIS) Adjusted Workforce (not in NIS) 2,183 531 2,183 5,000 5,770 6,600 2,776 1,239 4,277 3,000 1,239 6,500 13,200 7,703 37,679 13,228 11,250 49,000 32 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In relation to the definition of businesses by size in St. Vincent and the Grenadines, the table below outlines the officially proposed typology (MSME Report, 2009). Table 5: Proposed Official Typology of Enterprises by Size – St. Vincent and the Grenadines (EC$) INDICATORS No. of employees Net asset value LARGE Over 50 Over 1 million MEDIUM 20 to 50 Up to $1 million Annual sales/turnover Over 2 million Needing to borrow Over $500,000 Less than $2 million Up to $500,000 Legal Structure From 100% Minimum 75% foreign to 00% local local Source: Secretariat (2009) MSME report SMALL 6 to 20 Less $500,000 Less $500,000 Less 250,000 Minimum local than than than 75% MICRO 1 to 5 Less than $100,000 Less than $100,000 Less than $50,000 100% locally owne Non-Domestic ownership is most prevalent in large-scale telecommunications firms, hotels, manufacturing, and commercial banking. These enterprises capitalize on knowledge of export markets, marketing techniques, distribution networks, among others, and reap a substantial percentage of the country’s output. Though most of the income generated may be repatriated overseas, the value creation through large scale employment and inclusive employment of professional staff is equally important. For example, ECGC is 40 percent owned by Canadians, CEO is Vincentian; telecommunications companies KARIB cable, DIGICEL and LIME are non-resident owned enterprises and much of their management are nationals. In addition, Government may offer citizenship to large investors (i.e. owner of the recent Buccament Resorts was recently awarded citizenship). Table 6: Four Sectors Concentration and Share of St. Vincent’s Employment and Output Sector Telecommunication Manufacturing Company LIME, DIGICEL, KARIB East Caribbean Metals, ECGC, Packaging, Hairoun Beer, Kendra’s Windows , Mountain Top Water , Container Corp Tourism Buccament Bay resort, Palm Island Resort Electricity/Utilities VINLEC Source: Survey Results and Annual Reports No of Companies 3 7 Share of Sector Employment ≥75% ≥45% Revenue (% of GDP) 8-9% 7% 2 ≥24% .. 1 ≥35% 8% The table above illustrates the concentration and share of the country’s employment and revenue by the main enterprises hold in each sector. The non-domestic owned companies represented for the telecommunications sector employs an estimated 75% in the sector and contributes an estimated 9% to the economy’s total output. The seven companies representing the manufacturing sector, half being foreign-owned, contributes 6-7% to the total economy, and employs an estimated 50% of the manufacturing sector. The recently opened Buccament Bay and the Palm Island Resorts are some of the major players in the tourism industry and currently employ more than 24% of total persons employed in the tourism 33 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 sector. These non-resident owned enterprises continues to add value to the tourism product of St. Vincent and the Grenadines. The private sector in St. Vincent and the Grenadines is characterised by a large number of informal, micro or small enterprises, with larger enterprises mostly being foreign- or Government-owned, and with a heavy concentration in the services sector. Notable shock events such as the elimination of trade preferences to the EU market in the early 2000s, the recession of 2008, liquidation and receivership of BAICO and CLICO insurance in 2009/2010, and damage from Hurricane Tomas in 2010 has jolted the already vulnerable private sector, especially in relation to enterprises in tourism and subsistence agriculture. Private capital flows and overall demand have also suffered as a consequence. To cushion the adverse effects of the various shocks to the country’s economy, Government has put in place short-term measures to address duties and electricity costs in sectors such as tourism. In addition, STABEX/SFA funds was created to provide assistance in the transitory period to the displaced subsistence agricultural labour force and to assist the country in their efforts to diversify and enhance private sector competitiveness. Notwithstanding, it is imperative that issues related to enterprise development which lead to significant structural changes be investigated, so that the country could benefit from sustain growth in factors of production to transform its large informal and indigent labour force. 5.2.1 Large and Fast Growing Sectors The largest sectors in St. Vincent and the Grenadines as a percentage of gross value added, outside of public administration, are: Real Estate, Renting and Business Activities (17%), Wholesale and Retail Trade (16%), Transport (15%), Construction (8%) and Financial Intermediation (6%) (ECCB, 2013). For employment, the largest sectors are Other Services, which supplies 23.0% of employment, Construction (13.5%), and Wholesale and Retail Trade (13.3%) (CARICOM Statistics, 2012). In relation to the largest companies in the country, these are as indicated in the previous section and comprise several foreign-owned enterprises in the communications and tourism sectors. As indicated in ECCB (2012)13 , there was an expectation of marginal improvement in the economy in 2012 due to developments in construction (Argyle International Airport, upgrades to Buccament Bay Resort, Government’s capital works program), tourism (heightened marketing), manufacturing (strong demand for flour, feeds and beer) and agriculture (recovery from Black Sigatoka disease). With regards to gender segmentation in the labour market of the largest sectors in St. Vincent and the Grenadines, estimates suggest that of the approximately 11,000 persons in the informal economy, 5000 are in agriculture comprised mostly of women. In tourism services, most of the administrative and elementary services are dominated by women. As indicated in the Survey of Living Conditions (2008): "There is evidence of gender segmentation of the labour market, men in construction, women in hotels and tourism”. These characteristics of the labour market suggests that women are somewhat marginalised from the largest sectors, and when they are included, they are in mostly elementary positions. 13 http://www.eccb-centralbank.org/PDF/efr_june2012(1).pdf 34 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 While the foregoing speaks to the largest sectors in the economy, any discussion in the context of growth is difficult given the current economic crisis. However, in relation to the results from interviews conducted during the Private Sector Assessment, potential for growth was identified in the following sub-sectors: 1. 2. 3. 4. 5. 6. 7. 8. Eco-Tourism Construction Knowledge-based industries (ICT) Creative Industries Light Manufacturing Agro-processing in cocoa (chocolate) and meat Pharmaceutical and Medical manufacturing Finance Eco-Tourism The Government of St. Vincent and the Grenadines sees tourism as its comparative advantage in overall production and currently directly employs an estimated 3,000 persons in the private sector. To this extent, there have been many incentives and initiatives directed towards tourism related businesses and its support organisations. For example, the Hotel and Tourism Association of St. Vincent stated that they have been able to negotiate the tax rates of hotels and villas along with concessions on electricity and import duties. Moreover, this association mentioned that hoteliers, and the sector as a whole, are looking at developing the sub-sector of eco-tourism. Recently, St. Vincent and the Grenadines has been lauded for being among the top 50 countries with the best dives and the Government has received help on restoring sites such as Fort Duvernette which is expected to “add to the ecotourism heritage product of St. Vincent and the Grenadines”. 14 Construction The construction sector in St. Vincent and the Grenadines employs close to 5000 persons and, with the value-added in this supply chain, along with physical investments in infrastructure, this sector should not be overlooked as a potential driver of private sector development. This non-productive sector is one of the most direct ways a government or any organization can impact private sector job creation, and the multiplier effect from infrastructural work spans through every sector. It is recommended that elements such as training on high-tech equipment use, public-private stakeholder participation on planning for infrastructure and the facilitative environment, among other factors, be noted as high priority areas for private sector assistance in this sector. This should help firms involved in construction understand what is required of them, and how they fit into the country’s development plan. In addition, the development of a cadre of skills in this area could also assist in developing service exports to the region, as undertaken by large construction firms in Barbados. 14 Statement by the tourism authority on the World wide Web http://www.discoversvg.com/index.php/de/component/acajoom/mailing/view/listid-1/mailingid-16/Itemid271 35 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Information and Communication Technology Part of most growth strategies by governments around CARICOM is to capitalize on the advantages of information, communication and technology. St. Vincent and the Grenadines is no different. It is believed that ICT, particularly telecommunications, employs over 1000 people and could play an even greater role in adding value to the service product of the country. A telecommunication executive maintained that they were proud to be a partner in the country’s ICT growth strategy as it would be win-win effort for everyone involved. In its strategic ICT plan for 2010-2015, the Government lists e-government, training human resources, business development and effective regulatory environment as the four main initiatives for St. Vincent and the Grenadines’ ICT development. Investments in telecommunications have dramatically increased in the last 5 years through the ICT Investment Act (2007) and the e-government plan is currently being undertaken with the help of the Taiwanese government. Creative Industries: Film, Music and Culture The creative industries present great opportunities for private sector development, especially with the enhanced EPA (Economic Partnership Agreement) benefits allowed to Caribbean industry stakeholders. Employment in this sector is not quantifiable due to the considerable amount of informality in the industry, however, it is part of the growing interest among a sizeable young and inexperienced demographic in St. Vincent and the Grenadines. To quote, “… creative industries offer many opportunities for livelihood/employment, but face several labour market related challenges which are all manageable”. 15 INVEST SVG stated that they have been working extensively by lending technical assistance and international promotion to designers and creative-based industries and have seen a high success rate. It is therefore important that, not only financing be available for much of those individuals without collateral, but assistance for overall business development be put in place, i.e. encouraging foreign capital investments, formalizing the business, informational tools to understand the benefits of EPA, and training as part of the training curricula. Light Manufacturing The manufacturing sector has often been overlooked in many small island’s strategic growth plans, and because of this, countries like St. Vincent and the Grenadines struggle to diversify their production, become highly vulnerable to external shocks, and experience serious macro-economic implications. St. Vincent and the Grenadines, in the late 1980s, had a robust manufacturing plan that gave incentives, zoning, and promotions, and as a result brought a substantial amount of foreign capital and employment and changed the paradigm on how to develop a mechanism for that sector in the early 1990s. One manufacturer disclosed that the sector used to be thriving with the production of tennis rackets and other related business, but presently he thinks the sector is too low on Government’s agenda. The sector today employs over 2000 persons and minimally impacts foreign exchange. It must be highlighted that the country’s inherited physical landscape, high input costs of electricity and other factors contribute to a disadvantage in scale economies and price competitiveness. However, there are some strong points that should be mentioned about the opportunity that this sector holds. Firstly, free zones has been already been facilitated and more zones are likely to be implemented by government. Secondly, the government is working on an energy efficiency plan to reduce energy costs. Thirdly, because of the country’s location in the 15 InvestSVG (2010) 36 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Western Hemisphere, businesses could further capitalize on trade agreements. Finally, there is now greater emphasis on the development of technical skills and retaining human capital, especially after CGF and in-country consultations. Building on this groundswell of action, the Government will be well served by implementing appropriate incentives to assist this sector to grow. Agro-Processing Agro business is one of the main sub-sectors identified as an opportunity by key industry players such as the Centre for Enterprise Development and the National Development Foundation. Part of the over 4000 persons employed in the agricultural sector, agro-producers are increasing exponentially as small and backyard farmers learn about the techniques to make by-products from the raw material. There are some questions about the efficiency of this type of production, as it is labour intensive and production is on a small physical scale, yet there are some key points to show the opportunity which could be reaped from this sector. Firstly, because St. Vincent and the Grenadines has relied predominantly on agricultural production and its processes, skills for the processes of its by-products can be easily transferred. Secondly, by being a part of an alliance, cooperative or cluster development organization, i.e. VINCYKLUS, small agro producers can benefit from reduction in overall costs. Additionally, they are a number of successful small agro businesses who have sustained their businesses via linkages to the tourism sector. Some of the value added products that stakeholders are interesting in exploiting in the area include chocolate from cocoa and meat production. On a related note, opportunities in the pharmaceutical and medical manufacturing sector may also be available. Most of our interviews conducted in the agroprocessing industry showed the need for micro-biologist and more bio-technological research, especially in regards to verifying products through standards and testing. In the same vein, microbiologists and those in bio-technology could exploit the by-products offered from raw agriculture/crops. For example, aspirin is a by-product from the willow bark plant Digoxin, used to treat heart conditions, are derived from foxglove; and Quinine, used to treat malaria and is synthesized from cinchona bark. There is great potential in St. Vincent to research and develop the possible drugs and pharmaceutics that could be derived from its large agricultural lands. Institutions such as CARDI, medical research labs, Multinational Companies, Multilateral organizations and government should be the prime stakeholders to participate in the development of this sub-sector. Alternative Financing and Offshore Financing Alternative finance and offshore finance are also noted as sub-sectors that present opportunities and could change the financial landscape in St. Vincent. The financial sector currently employs over 1,000 persons and the industry is growing, especially in the sector of credit unions, which has seen a strong consistent 6.8 percent growth rate for the last 5 years. Much of the alternative financing success can be attributed to the stringent conditions foreign banks place on Vincentians and viceversa, treatment faced in alternative financial institutions or cooperatives. An alternative financial option facilitates more financial inclusion in a country, and if managed right, is proven to be much more profitable than formal banks. For example, the top three credit unions amalgamated to form a micro-finance program, COMFI, dedicated to facilitate the small business community. Invest SVG also list offshore banking as a sector area with investment opportunities, though, because of restrictive secrecy laws, have come under international review. In terms of the largest sectors in the economy and their potential for future growth, the most viable areas appear to be in tourism and manufacturing. Through heightened tourism marketing and the 37 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 development of a niche in eco-tourism, the country may be able to provide a sustainable growth path for the sector. In manufacturing, a focus on the sectors with greatest potential, agroprocessing and pharmaceutical and medical manufacturing, would allow for the development of indigenous sub-sectors that can provide employment opportunities and obtain valuable foreign exchange. In relation to one of the largest sectors, construction, the dominant projects in the country should be commended for their revenue generation ability (Argyle International Airport and upgrades to Buccament Bay Resort). These projects not only provide for employment in the short term, they also provide for further development of the tourism product and enhance airlift to the country. 5.2.2 Business Supportive Institutions Structure St. Vincent and the Grenadines private sector has a number of supportive institutions. Table 8 below illustrates the role each Business Support Institution plays as well as information on their mission and the political influence of the organisation. Support in St. Vincent and the Grenadines includes both public and private sector entities with a similar structure to other OECS member states. Institutions include Invest SVG, an investment promotion agency, the Centre for Enterprise Development, Chamber of Commerce, Tourism Association, and the National Development Foundation. As seen in other OECS member states, there is limited formal coordination between representatives, although there are informal networks in place. 5.2.3 Donors and Other International Entities Main donors to St. Vincent and the Grenadines include: The Caribbean Development Bank (CDB), The European Union’s European Development Funding (EDF) program, The Department for International Development (DFID), The International Bank for Reconstruction and Development (IBRD), the European Investment Bank (EIB), and the International Finance Corporation (IFC). Major bilateral assistance came from the Canadian International Development Agency (CIDA), USAID, and the Government of Taiwan. In addition, multi-donor support is provided through Compete Caribbean. An overview of some of the key entities at the regional level is shown below, while a full exposition is located in the Donor Matrix (DMX) file covering both national and regionally relevant programs and projects. The activities of donors are driven from both internal and external sources. While some agencies base the identification of priority areas from an internal analysis of country or region-specific data, others base the allocation of funds on the strategic/political objectives of the source country or region. Other donors indicated that priority areas are based on country demands, and not on any covert strategic or political objective. While donors indicate for the most part that the needs of the receiving country are paramount, they do note that there are several main areas tha t greater support is needed, including support for regional integration, trade facilitation and logistics, access to finance and greater public sector dialogue. It should also be noted that the issue of gender is taken into consideration in all projects, sometimes implicitly, but for the most part the issue of gender is explicitly included. One of the main issues of concern in recent times was lack of donor coordination, however, duplication of donor efforts is being addressed, as seen with the Compete Caribbean program and the Caribbean Growth Forum (CGF). However, there was some concern in relation to duplication with the CGF and the Private Sector Assessments (PSAs) of Compete Caribbean. In addition, most 38 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 agencies interviewed indicated that there is formal coordination with other donor agencies, while informal coordination is seen with country-specific agencies and NGOs in receiving countries. Some donors however noted that there was the need for greater collaboration with the CARICOM Secretariat and the OECS Secretariat. In relation to the nature of projects funded, the majority of active projects are focussed on the Business Support, Finance (access to finance), the Business Environment in general or a combination of these objectives. For projects focussed on these objectives, there are 42 active or recently completed donor funded projects in St. Vincent and the Grenadines specifically, and 12 operating at the OECS level. Of these projects, at the country level, the majority of projects are focussed on the Business Environment (38%) and Business Support/Access to Finance (38%). The largest area in terms of funding is Business Support/Access to Finance with US$41 million. It should however be noted that although Access to Finance by itself only accounts for 5% of projects, it accounts for 31% of funding (US$38 million). In terms of the sector focus, 52% of these main objectives are targeted at the service sector. OECS St. Vincent and the Grenadines Location Table 7: Main Objectives and Sector Profiles of Donor Projects in St. Vincent and the Grenadines and the OECS Objective Business Support/Institutional Structure Access to finance Business Environment Business Support/Finance TOTAL Business Support/Institutional Structure Access to finance Business Environment Business Support/Finance TOTAL OECS Share (%) Agriculture (%) Industry (%) Services (%) Value of Active Projects (US $’000) 19.0 4.8 7.1 9.5 $ 13,803 4.8 38.1 38.1 100.0 41.7 2.4 19.0 11.9 38.1 8.3 2.4 11.9 11.9 33.3 8.3 2.4 28.6 11.9 52.4 8.3 $ $ $ $ $ 37,503 29,647 41,608 122,561 31,140 16.7 25.0 16.7 100.0 8.3 8.3 8.3 33.3 8.3 8.3 8.3 33.3 16.7 8.3 8.3 41.7 $ $ $ $ 1,940 14,190 2,060 49,330 At the OECS level, for projects in these areas which are operating at the sub regional level, the service sector is also the focus, accounting for 42% of projects. In terms of the number of projects and value, the Business Support/Institutional Structure objectives dominate with 42% of projects and funding in excess of US$31 million. In terms of gaps in support, although access to finance has been noted as a major obstacle to business development in the region, projects specifically targeting this area at the sub regional level only account for 17% of projects, and less than US$2 million in funding. However, at the domestic level in St. Vincent and the Grenadines, while only accounting for 5% of projects, support for access to finance accounts for 31% of total funding in these areas. 39 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Technical Assistance The St Vincent and the Grenadines Chamber of Industry and Commerce is a non-profit, non-governmental, membership based organisation. Established in 1926, the SVGCIC is the oldest and largest private sector Members Partner Organisations The St. Vincent and the Grenadines Chamber of Commerce VisionTo be the focal point for the delivery of technical support, advisory and information services to the private sector for the facilitation of an enabling environment which will encourage the growth and development of an entrepreneurial spirit in St. Vincent and the Grenadines. Mission- A people-centered organisation with the professional competence and commitment to business resulting in increased competitiveness, higher levels of business success and sustainability in the local private sector. General Objectives of CED: Increased economic growth and employment; Increased diversification of the economic activity; Poverty reduction. The specific objectives of the CED are: To increase the number of viable enterprises in St. Vincent and the Grenadines. To strengthen the institutional support base for private sector development in St. Vincent and the Grenadines. To build organizational commitment and capacity to deliver sustainable developmental and innovative solutions to all business partners and stakeholders. Political Influence The Minister responsible for Industry Person in Charge and Title Vision, Mission and Goals (assessment) The CED is a State-owned corporation reporting to the Minister responsible for Industry, and is mandated to promote development of the private sector in St. Vincent and the Grenadines. Its work includes marketing and promotional support, research and data, education, incubator services, and other activities Private Sector Mr Felix Lewis Mediu m None Private Sector Mr Michael Nanton Mediu m None Sector of Affiliation Report to… Technical Assistance Type The Centre for Enterprise Development Name Brief History Table 8: Business Support Institutions in St. Vincent and the Grenadines 40 Invest SVG Technical assistance/ Investment Promotion The National Development Foundation Technical Assistance/ MicroFinancing The National Commercial MicroFinancing organization, representing the interest of approximately 120 businesses across SVG. The report concluded that in order for the Government to achieve its ideals of self-sustainable and balanced economic growth it was necessary to create a separate entity which would be responsible for the island’s Investment Promotions and Foreign Direct Investment functions. Consequently the National Investment Promotions Incorporated was founded by decree in October 2003. NIPI was rebranded Invest SVG in a move to bolster the company’s image and identity regionally and internationally. The Invest SVG brand was launched on August 24th 2009. NDFSVG was incorporated on 26th October, 1983 as a private non-profit development organization. Its main purpose is to promote self-help development among the less privileged sectors. The main purpose of the Foundation is to promote self-help development among the less privileged sectors primarily through the provision of credit, technical assistance and training in the initiation and/or development of owner managed enterprises. The Bank of Saint Vincent & the Grenadines, formerly the National Partner Organisations Political Influence Person in Charge and Title Sector of Affiliation Vision, Mission and Goals (assessment) Report to… Brief History Type Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Government of St. Vincent Mission-To attract FDI, act as policy advocate to create a more facilitative environment. Invest SVG provides aftercare services, trade shows, technical support Private Sector Mr Curtis Denny High None Government of St. Vincent To promote and support entrepreneurial development in the small and micro business sector by providing credit, technical and training to improve the social well being and economic prosperity of its clients and to make a positive contribution to national development Private Sector Ms Hermia Neehall Mediu m None ECFH and the Government To be the preferred provider of superior financial products and services through Private Sector Derry Williams Mediu m None 41 Shareholders The league came out to unify the system, train and develop services in Credit union, Compliance, monitor their performance, discuss cooperative issues Micro to Small Enterprise Ms Angela Patrick Low Partner Organisations caring, professional staff and appropriate technology. To be customer-focused, innovative, and efficient. To exceed shareholder expectations and be a catalyst for development. Political Influence of St. Vincent Person in Charge and Title Commercial Bank (SVG) Ltd. was founded in June 1977 by The Honorable Robert Milton Cato the then Premier of Saint Vincent with 11 staff members at a single Branch. The current staff complement is 159 and the Bank operates from 2 locations in Kingstown which includes its Head Office, and five branches. The branches are located in Georgetown on the Windward side of St. Vincent, Barrouallie on the Leeward side, and on the Grenadine Islands of Bequia, Canouan and Union Island. Formed in 1962, registered in 1964 Sector of Affiliation MicroFinancing Vision, Mission and Goals (assessment) Credit Unions (Credit Union League) Report to… Bank Brief History Type Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 None 42 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Name Budget Identifying Priorities (DFID) Department For International Development Table 9: Institutional Analysis: Donors and International Organisations DFID’s projects run under cycles. They are currently in the 2nd year of (2011-2015) cycle, where 75m pounds are allotted to the Caribbean. The program runs under thematic areas i.e. Economic Growth (27.5m pounds), Climate Change, Governance and Security. DFID’s team identifies problems i.e. development issues, debt burden, competitiveness, regional integration then bid for funds from government for 4 year cycle. Potential Collaborators Some coordination with OECS Secretariat. Gaps in Support Need for more work on trade facilitation and freight and trade logistics in OECS. Regional Integration, Non-Tariff Barriers, Clearer Political Targeting. Gender and PSD Integration Gender is involved in each project implicitly Formal Coordination Informal Coordination Country Partnerships Projects Under Consideration Views of Donor Duplication Monitoring and Evaluation Efforts There is an aid coordination structure (Private Sector Donor Working group) which CIDA heads. Everything is undertaken through cooperation with others i.e. IDB, CARTAC and CART fund (CDB) A lot of projects and work done with local stakeholders done via CART fund (CDB) DFID has 5.6m pounds unallocated currently. Would like to focus on strengthening financial sector, regulation and competitivenes s in poorer countries in Caribbean including Guyana and Belize. The level of duplication is moderate and varies somewhat by sector, what helps mainly is that not many donors are in the Caribbean; they also have Donor coordination structures in placed. DFID uses a program called LOGFRAMES to gauge projects and determine outputs i.e. jobs created, outcome of project, workshops, activities carried out, average Caribbean business indexes etc. 43 Caribbean Development Bank Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities CDB allocated Current priorities US$22.5 million include: to 11 financial Enhancing intermediaries Disaster Risk (development Management and banks) in 2012. Safeguards/Streng thening Environmental Sustainability Economic Growth, Inclusive Social Development Support for Education and Training Improving the environment for private sector development Improving Productivity and Competitiveness in Agriculture Potential Collaborators Gaps in Support - Gender and PSD Integration Gender Equality Policy adopted in 2009 and related Operational Strategy. Seeking to ensure that policies, programmes (including PSD) and practices are responsive to gender equality issues. Formal Coordination Informal Coordination CDB works closely with all the bilateral and multilateral partners in the region; IADB, DFID, European Union, World Bank, IMF, CARTAC and other bilateral and multilateral partners. Country Partnerships Projects Under Consideration The CDB works to serve the needs of its BMCs. The OECS member states are also BMCs. - Views of Donor Duplication - Monitoring and Evaluation Efforts Results matrix. 44 Compete Caribbean Program Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities US$40 for the Caribbean in areas such as Knowledge Management, Business Climate. Compete operates in a competitive process where businesses can submit proposals. Background reports and analysis (information from World Reports, Country Budgets from governments & investment agencies. Compete is demand driven Potential Collaborators Gaps in Support Competitiven ess Council, Public Sector Dialogue and Reform of the Business Climate is currently on the agenda but can only take place if the country has an appetite for such reforms Gender and PSD Integration Every single project must have gender consideratio n involved. However, certain gender specific indices are hard to obtain from OECS. Formal Coordination Informal Coordination Formal coordination and special initiatives with most donors i.e. CDB, DFID, CIDA Informal coordination with World Bank, CARICOM, other NGOs like Branson Center Foundation, U.S State Dept Country Partnerships Projects Under Consideration Antigua Customs Reform & Investment Attraction. One of the projects in Dominica was to do a growth strategy in partnership with EU. Updated Strategies presented with local stakeholders. Views of Donor Duplication Monitoring and Evaluation Efforts Donor coordination group and the outcome of donor matrix helps with Compete Caribbean's objective to minimize duplication Results Matrix and Mid-term evaluation to determine outcomes and impact 45 CARICOM Regional Organisation for Standards and Quality (CROSQ) Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities Funds come from 2 sources: 1.Gov'mts of 15 members 2. Donors who support most of CROSQ programs. Budget based on a formula CARICOM uses (i.e. per capita GDP). No specif. budget allotted on a country basis, more regional. Political (key trade issue that affect member states & these guide standards for production (i.e. flour, honey, furn.) in the region). Important research needed include Demand Surveys in the private sector to understand what equipment needed and calibration services needed from CROSQ to facilitate trade. Potential Collaborators There is potential to work with UNIDO Gaps in Support The 10th EDF is going to be the core for what they want to do. The main thing is to evolve from not just standards institution, but to put together committees to help with Accreditation and Metrology. Gender and PSD Integration Most projects under the CARTfund (CDB) maintains that gender be included, however most efforts are in building up standard bureaus and gender still needs to be properly defined for CROSQ projects. Formal Coordination Informal Coordination Country Partnerships Projects Under Consideration CDB CARIB Export, CARTfund CIDA, CTO. and own funds, Germany and IDB funds helped with RQI1 (quality, infrastructure and awareness). Now working with PAHO and CDC working with accreditation. UNDP as well. Regional program, works with governments where local stakeholders benefit. Rather than focus just on standards, trying to establish accreditation and metrology. With the accreditation project currently in house (funded by CARTfund CDB) it is the first time using resources in the private sector (starting with labs) Views of Donor Duplication Monitoring and Evaluation Efforts There are areas for better synergy and this is improving. Need to cooperate more within the CARICOM Secretariat. CROSQ has been functioning under a strategic plan from 3 years ago, where it was determined that they had met those objectives. Different CROSQ projects use different evaluations, mostly done through LOGFRAME. 46 Caribbean Export Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities Funding mostly from the EU with counterpart member states, DFID, German Development Agency, CIDA, also contributing. Sectors with opportunities for growth are focus in relation to professional services, investment in distributive services, creative industries, agro-processing, energy, specialist tourism, among others. Potential Collaborators Currently work with a range of international, regional and domestic agencies. Gaps in Support Gender and PSD Integration - Formal Coordination Informal Coordination Governments , Business Support Organisations , CARICOM, OECS, EU, DFID Country Partnerships Projects Under Consideration Governments All projects and local which meet stakeholders remit: enhancing competition via investment promotion agencies, direct assistance to firms, small grants to key sectors; trade and export development; trade and investment relations etc.. Views of Donor Duplication Monitoring and Evaluation Efforts Utilise both internal and external evaluators. 47 Canadian International Development Agency (CIDA) Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities CIDA handles approximately 80% of financial assistance provided by the Government of Canada. Funds are provided via grants and contributions rather than loans. CIDA’s priorities are determined by the Canadian Government and currently focus on: Sustainable Economic Growth; and Entrepreneurship and Connecting Markets. Potential Collaborators Gaps in Support Already collaborating with main stakeholders. Due to differences in laws and requirements in each country, regional integration is a challenge. Gender and PSD Integration Gender is core to all of CIDA’s efforts (crosscutting issue). Formal Coordination Informal Coordination Formal coordination is seen with the Compete Caribbean Program which involves IDB, and DFID. Country Partnerships Projects Under Consideration - CIDA as an entity is currently being subsumed within the Ministry of Foreign Affairs. Current projects however include: Eastern Caribbean Leadership Program; Entrepreneursh ip for Innovation; CanadaCaribbean Leadership; Regional Integration and Trade; and Caribbean Local Economic Development. Views of Donor Duplication Monitoring and Evaluation Efforts Can be reduced through better planning and coordination and through better reporting on project results to inform the development of future projects. A log frame methodology is utilized in the planning and execution phase of projects in order to specify indicators to track project progress. 48 European Union Delegation to Barbados and the Eastern Caribbean Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities EU Delegation operates under EDF cycles every 5 years. Under the current cycle (2008-2013), funds are alotted both Regionally and Nationally. EU delegation determines the national allocation via the country strategy paper (CSP), located on EU's website. Joint process between country development priorities & E.U. It has to be linked globally & with national initiatives. C.P.M. (Country Protfolio Meetings) held annually where project officers look at social and economic status from governments Potential Collaborators Gaps in Support EU works with DOMex in Dominica, St. Lucia, St. Kitts, OECS Secratariat [OECS Export Development] Caribbean Export also. All projects fit for EPA, EU not in a position to provide loan financing but is looking to assist banking sector. There is need for more loans and funding to private sector in Caribbean. Banks are too risk averse; need for Guarantee fund and Credit Bureaus Gender and PSD Integration The Country Strategy Paper identifies allocation, and each project has a Financial Agreement. This implicitly targets women through developmen t of Micro and Small Businesses Formal Coordination Informal Coordination Country Partnerships Projects Under Consideration Donor groups meet each other at Donor presentation level. There are framework agreements with UNDP, World Bank, FAO. Fluid, transparent among agencies Deal with Investment Agencies, Chambers of Commerce, mostly quasigovernment Institutions EU has financing agreement for; Integration &Trade in OECS (8.6m Euros), Harmonisation, Tourism sector, agriculture & health food safety systems, exprort capacity development, 28.3m Euros to Carib Export for Regional Private Sector Development Program 3.1m of CARIFORUM 47.1m EPA funds for services. Views of Donor Duplication Monitoring and Evaluation Efforts Some challenges; take for e.g. Compete Caribbean is conducting national initiatives & ITC conducting export interventions ; results are almost the same & some projects need to be run sequentially. Private Sector Donor Group coordination helps. Each project in financial agreement has provision for mid-term evaluation & EU contracts evaluators. EU also uses ROM [Results Oriented Monitoring] to evaluate project design, effectiveness, relevance and sustain. Court of Auditors come for large EU projects 49 IFC Name Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Budget Identifying Priorities No budget for OECS, but have strategic priorities and needs to address, and modify approach and find money to meet those needs. Most services in OECS are Advisory Services and Trade Facilitation, Logistics, Credit Bureaus Because the majority of projects in the OECS are Advisory services, work with clients (government institutions, financial institutions) to provide services that are needed i.e. Trade Logistics, Credit Portfolio Management Potential Collaborators Gaps in Support IFC is flexible, and works with clients to meet their needs. Gender and PSD Integration Formal Coordination Informal Coordination No specific Most Donor CIDA outline for organisations explicit . gender efforts in projects, however gender is implied in projects and gender impact and outcomes i.e females jobs provided Country Partnerships Projects Under Consideration Ministries of Trade logistics Finance, and Tax Grenada implementation Investment Office of Investment Climate Reform, St. Lucia Min. of Commerce, Antigua ABIA, St. Kitts Min of Finance Views of Donor Duplication Monitoring and Evaluation Efforts Proportionall y to what IFC have seen there is an importance in looking to fill the gaps where no one is providing assistance. IFC looks at gaps and tries to fill them. For Investment Services IFC uses the Development Outcome Tracking System (DOTS) to assess financial performance, Economic & Environmental performance, Private Sector Impact. For Advisory Services they use Strategic Relevance, Efficiency & Effectiveness 50 Name Budget Identifying Priorities World Bank Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 For the OECS, the bank operates under a Regional Partnership Strategy for the region. 120 m US approved May 2010 for 4 years. Depending on country's income level they may get IBRD funds (middle income loans) or IDA assistance (lower income concessional loans & grants) The Bank act only on the basis of government requests. The Bank aligns program and projects with government, however may suggest some areas government could look at. Potential Collaborators Gaps in Support To strengthen coordination with Donors in Barbados is a good area where World Bank could work. The Bank is one of the only Donors that does not have a regional office in Barbados. The Bank is open to whatever provided 1) it comes from government 2) the Bank has resources and makes sure that project is sustainable (bank may not have enough for certain initiatives) Gender and PSD Integration Gender is explicitly defined in World Bank's Regional Strategic Objectives and the Bank thinks that this is also crucial to developmen t in the region Formal Coordination Informal Coordination Country Partnerships Projects Under Consideration CIDA, E.U., DFID, UNDP, CDB (one main partner). WB view CDB as a crucial a partner for projects, as they are very prevalent in the region and together can be more effective in helping countries The informal platform is sometimes considered better. Sometimes setting up meetings with all Donors is difficult because of Donors availability. WB trys to keep constant dialogue with Donors. There are some clear policies on where the Bank have to operate with governments and other stakeholders. Depending on nature of project, WB always takes into account the implication to private sector. One of the main priorities is improving business competitivenes s. The bank tries to assist countries with broadband access(Telecom m.) and energy, and tries to adopt regional initiatives. Views of Donor Duplication Monitoring and Evaluation Efforts There are a number of interactions with Donors (DFID, CIDA, UNDP E.U Delegation, CDB to avoid duplication. UNDP sets up periodic meeting with donors (every 34months) Monitoring and evaluation is done every 6 months for each project. Task team leader has dialogue with the country and conducts an Implementatio n Status Report 51 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 5.2.4 Access to Finance Access to finance is one of the foremost pre-requisites for facilitating entrepreneurs and helps bring conception into real gains. Sharma et al. (2012) noted, that access to finance strongly influences private sector and economic growth, and it is pivotal to the finance-growth link. The World Bank maintained that when financial institutions and markets work well: …they provide opportunities for all market participants to take advantage of the best investment by channelling funds to their most productive uses, hence improving income distribution and reducing poverty (World Bank 2008). The issue of easy or cheap access to financing and working capital is specifically important to Small Island Developing States (SIDS) like St. Vincent and the Grenadines due to the fact that the financial sector (i.e. commercial banking) is not as competitive and efficient as major economies. The financial sector in St. Vincent and the Grenadines is dominated by three large foreign commercial banks (Canadian and Trinidadian owned), the Bank of St. Vincent and the Grenadines, a Co-operative Bank and nine credit unions representing nearly 57,000 members (81% penetration rate in 2011). While this penetration rate is the second highest in the OECS and the wider region, it should be noted that lending to enterprises is limited across the region. The National Development Foundation also provides credit facilities for microenterprises. Table 10: Credit Unions in the Caribbean (Number and Penetration Ratio) Country Number of Credit Unions Members Penetration Ratio Antigua & Barbuda 6 25892 0.44 Bahamas 10 39070 0.18 Barbados 35 157198 0.77 Belize 13 121889 0.64 Dominica 10 62683 0.88* Dominican Republic 15 417862 0.07 Grenada 11 43849 0.62 Guyana 25 33499 0.07 Haiti 69 400379 0.07 Jamaica 42 920408 0.52 St. Kitts & Nevis 4 18523 0.53 St. Lucia 15 81022 0.74 St. Vincent & the Grenadines 9 56741 0.81 Suriname 25 24628 0.07 Trinidad & Tobago 130 499528 0.56 Source: World Council of Credit Unions (2013) *Penetration ratio not available from WCCU. Ratio estimated from population estimates for 2011. Compared to the other Caribbean countries, St. Vincent and the Grenadines’ credit market is relatively more efficient when measured by the spread between lending and deposit rates. At roughly 6 percentage points, the country has one of the lower interest rate spreads among comparator countries; the only Caribbean countries with lower spreads were The Bahamas, St. Kitts and Nevis, Suriname, Barbados, Belize and Dominica. Since the early 1990s, the interest rate spreads on the island fluctuated between 6 and 8%. These spreads have remained quite constant in the 6 to 7% range since 2005. 52 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 21: Interest Rate Spreads for St. Vincent and the Grenadines (1980-2010) and Comparators (2010) Interest Rates 1980-2010 Interest Rate Spread 2010 14.00 18 16 12.00 14 10.00 12 8.00 % % 10 8 6.00 6 4.00 4 2.00 0.00 0 1980 1985 1990 1995 Interest Rate Spread 2000 2005 2010 Deposit Rate Lending Rate Mauritius Bahamas, The Canada St. Kitts and Nevis Suriname Barbados Belize Dominica St. Vincent and the… St. Lucia Dominican Republic Grenada Antigua and… Trinidad and Tobago Seychelles Guyana Jamaica Haiti 2 Source: World Development Indicators Domestic savings play a key role in relation to the availability of credit. At the end 2010, deposits were over 64% of GDP, one of the lowest ratios among the group of comparator countries and the lowest in the OECS. In relation to bank credit as a ratio of bank deposits, this was 78%, about the average for the region. This suggests that a large proportion of savings in St. Vincent and the Grenadines is utilised to finance credit. Figure 22: Domestic Financial Variables for St. Vincent and the Grenadines versus Comparators (2010) Bank Credit/Bank Deposits (%) Malta St. Lucia St. Kitts and Nevis The Bahamas Mauritus Grenada Antigua and Barbuda Mauritus Grenada Malta St. Lucia Belize Dominica St. Vincent and the Grenadines The Bahamas Antigua and Barbuda Belize Dominican Republic St. Vincent and the Grenadines Dominica Guyana Guyana Seychelles St. Kitts and Nevis Jamaica Jamaica Haiti Seychelles Dominican Republic Haiti 20 40 60 80 100 120 140 160 % 0 0 20 40 60 80 100 120 140 % Deposits (% of GDP) Source: World Development Indicators 53 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Despite the proportion of savings used to finance loans, the country was still ranked one of the lowest in the region for getting credit. This suggests that business finance (or the lack thereof) is both a supply and demand problem. On the supply-side there is the perceived risk associated with supplying loans to the small business sector, while on the demand-side entrepreneurs and small businesses may lack the ability (e.g. record keeping) to access available lending facilities. It should however be noted that with the savings deposit rate (SDR) and the reserve requirement rate (RRR) set by the ECCB, that the funds available for lending are restricted and may therefore account in part for the high cost of finance in St. Vincent and the Grenadines and the wider region. This low ranking is demonstrated by Doing Business (2012) which currently ranks St. Vincent the Grenadines as the fourth lowest-ranking country in the region to obtain credit, next to countries such as Guyana, Suriname and Jamaica. 200 10 180 9 160 8 140 7 120 6 100 5 80 4 60 3 40 2 20 1 0 0 Getting Credit- Rank Strength of Legal Rights Index (0-10) RANK Figure 23: Doing Business Rankings for St. Vincent and the Grenadines versus Comparators (2012) for Selected Indicators Getting Credit- Strength of Legal Rights Index Source: Doing Business 2012 Some enterprises and business support institutions interviewed stated that if finance was available, the cost of finance was burdensome to their already costly operations. Invest SVG representatives stated that their clients, mostly small agro-processing and cultural businesses, are unable to meet the stringent collateral demands of private sector financing. Collateral complaints are validated in Figure 24, which showed St. Vincent and the Grenadines with the third highest collateral requirements in CARICOM, in excess of 210% of the value of commercial bank loans. These relatively high collateral requirements exist despite the relatively high level of penetration of banking services on the island: virtually every business in St. Vincent and the Grenadines has a checking account and over half utilise either loan or line of credit services (Figure 25). 54 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In exploring these issues during interviews, a CEO in a manufacturing company stated that his operations are mostly funded by German and American overseas banks, which offer working capital for manufacturing in Asia (overseas banking offer less than 8 % on financing, whilst domestically the rates are in excess of 10%). The CEO stated that savings from the cost of financing facilitates expansion of the company’s marketing budget, plant and staff, providing an indicator of the knockon effects of the efficient provision of finance. VINCYFRESH, a government owned agro-processor, suffers from the inability to access private sector credit due to the inherent structure of their ownership (public sector owned). The VINCYFRESH representative stated that while a strategic plan of action and location for plant expansion was identified, access to finance is almost close to nil due to the fact that private sector financial institutions cater to privately-owned enterprises, and international funding agencies are structured for policy-based type loans. This subsequently leaves the government-owned agro-processor unable to access funding from either agency. Figure 24: Value of Collateral Required for Credit for St. Vincent and the Grenadines and Comparators (2010) Percentage of Loan 250.0 200.0 150.0 100.0 50.0 0.0 Source: Enterprise Survey 55 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 25: Firms with Access to Financial Services for St. Vincent and the Grenadines and Comparators (2010) 120.0 Percentage 100.0 80.0 60.0 40.0 20.0 0.0 Checking Account Bank Loan/Line of Credit Source: Enterprise Survey One of the most influential theories of corporate leverage is the pecking order theory of capital structure (Myers, 1984). This theoretical framework suggests that firms prefer internal to external finance due to adverse selection. The data for St. Vincent and the Grenadines, on the surface, fits this hypothesis with 56% of investment being financed by internally generated cash, with most of the remainder coming from debt and insignificant amounts from supplier credit and equity (Figure 26). The over reliance on internal sources of finance has traditionally been seen as a constraint to firm growth as it limits the ability to exploit profitability investment opportunities (Moore, Craigwell and Maxwell, 2005), this is particularly the case for younger and smaller enterprises. 56 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 % of Total Figure 26: Sources of Finance for Investment for St. Vincent and the Grenadines and Comparators (2010) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Internal Bank Supplier Credit Equity or Stock Sales Source: Enterprise Survey Besides investment opportunities, firms also require funds for working capital purposes to meet dayto-day expenses. In St. Vincent and the Grenadines, nearly a quarter of working capital finance comes from banks, the second highest in the region after Suriname. Consequently, approximately 8% of working capital comes from supplier credit, the lowest in the region. This overall ratio of approximately 33% is moderate in comparison with the rest of the region, which may suggest that the cost of working capital financing may be somewhat less burdensome for firms in St. Vincent and the Grenadines than elsewhere in the region. 57 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 27: Sources of Finance for Working Capital for St. Vincent and the Grenadines and Comparators (2010) 30.0 25.0 % of Total 20.0 15.0 10.0 5.0 0.0 Bank Supplier Credit Source: Enterprise Survey 5.2.5 Corporate Taxation If taxation is set comparably high in a country, it could lead to significant downward pressure on savings, investment and economic outlook. The nominal corporate tax rate in St. Vincent and the Grenadines is 30%. The general business income tax rate is 30% of profits. International entities registered in St. Vincent and the Grenadines are not subject to taxation. There is no capital gains tax, no inheritance tax, no tax on dividends and corporate tax ranges from 10-30%. Withholding tax rates are: Royalties- 20% Property Rights- 10% Other Payments- 10% A feature of the local tax system is the Trader Permit system. Tax here is collected annually and levied on businesses of all sizes that carry stock or inventory and is graduated based on assessed stock value. The table below shows the number of trader permits issued in 2007 and 2008 at various levels of stock value, and revenue received from each size category. Table 11: Revenue per Trader Permits Issued in St. Vincent and the Grenadines (2007 -2008) Stock Value Traders July 2006-7 <$1,000 $1,000-$10,000 10,000-$100,000 $100,000-$1Mil. >$1Mil. TOTALS 479 873 344 156 27 1,879 Traders July 20078 439 884 351 136 35 1,879 % Total 2008 Fees Levied 25.5 47.1 18.7 7.2 1.5 100 $20 $50 $100 $250 $1000 Fee as % of Stock Value 2.0 ++ 0.5- 5.0 0.1- 1.0 0.025- 0.25 0- 0.1 Revenue July 20067 $9,580 $43,650 $34,400 $39,000 $27,000 $153,630 Revenue July 20078 $8,780 $44,200 $35,100 $34,000 $35,000 $157,080 % Total 2008 5.6 28.1 22.3 21.7 22.3 100 Source: MSME (2010) 58 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 As indicated from the Doing Business Survey of 2012 (Doing Business, 2012), labour taxes are one of the lowest among comparator countries and total tax as a percentage of profits is 39%, one of the lowest in the OECS with the exception of Dominica (38%) and St. Lucia (34%). Figure 28: Corporate Taxes for St. Vincent and the Grenadines and Comparators (2012) 80 70 Percentage 60 50 40 30 20 10 0 Labour Tax Total Tax (% Profit) Source: Doing Business 2012 Overall, enterprises interviewed during country visits did not see corporation tax as a significant hurdle, however, the imposition of the new indirect value added tax (VAT) and customs duties were seen as bigger hindrances. The views expressed in the interviews are somewhat supported from the results of the Enterprise Survey (2012), as shown in the figures below. In relation to tax rates as a constraint to doing business, 45% of exporters and 34% of non-exporters noted this as a constraint. In relation to major constraints in this area: 9% of enterprises noted licenses and permits as a major constraint, the second highest in the OECS after Antigua and Barbuda (17%); tax administration (19%), the second lowest in the OECS after Dominica (less than 1%); and business licensing (3% for exporters and 10% for non-exporters). 59 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 % Figure 29: Tax Rates as a Constraint to Doing Business for Exporters and Non-Exporters (2010) 100 90 80 70 60 50 40 30 20 10 0 Non-Exporter Exporter Source: Enterprise Surveys (2010) Figure 30: Major Constraints to Doing Business- Licenses and Permits and Tax Administration (2010) 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Licenses and Permits Tax Administration Source: Enterprise Surveys (2010) 60 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 % Figure 31: Business Licensing as a Major Constraint to Doing Business (2010) 70 60 50 40 30 20 10 0 Non-Exporter Exporter Source: Enterprise Surveys (2010) 5.2.6 Business Environment According to Doing Business (2012), regulations relating to protecting investors can determine whether investors are confident or reluctant to invest in the country. Indicators measured if regulations were clearly defined, promoted disclosure requirements, required shareholder participation and standards of accountability for company insiders. The report ranked St. Vincent and the Grenadines at 29, the same as the rest of the OECS and only bettered by Trinidad and Tobago at 24. On the Strength of Investor Protection Index, St. Vincent and the Grenadines was also high, again only bettered by Trinidad and Tobago in the region. 61 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 200 9 180 8 160 7 140 6 RANK 120 5 100 4 80 3 60 40 2 20 1 0 0 Protecting Investors - Rank Strength of Investor Protection Index (0-10) Figure 24: Strength of Investor Protection for St. Vincent and the Grenadines versus Comparators (2012) Strength of Investor Protection Index Source: Doing Business 2012 Although corruption was only noted by 21% of non-exporters and 6% of exporters as a major constraint to doing business from the Enterprise Surveys (2010), the lowest in the OECS apart from St. Lucia, the results from private sector field surveys showed a general concern about the function of Government in this area. % Figure 32: Corruption as a Major Constraint to Doing Business (2010) 80 70 60 50 40 30 20 10 0 Non-Exporter Exporter Source: Enterprise Surveys (2010) 62 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In relation to other crimes, theft and disorder, only 12% of non-exporters and 15% exporters viewed this as a major constraint to doing business, one of the lowest in the region. In relation to other major constraints, currently 65% of firms consider that they are competing against the informal businesses, but overall most firms do not see practices of the informal sector as a constraint, again one of the lowest in the region. % Figure 33: Crime, Theft and Disorder as a Major Constraint to Doing Business (2010) 90 80 70 60 50 40 30 20 10 0 Non-Exporter Exporter Source: Enterprise Surveys (2010) % Figure 34: Practices of Competitors in the Informal Sector as a Major Constraint to Doing Business (2010) 90 80 70 60 50 40 30 20 10 0 Non-Exporter Exporter Source: Enterprise Surveys (2010) 63 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In relation to transportation, only 12% of non-exporters and 5% of exporters identify this as a major constraint. However, because of St. Vincent’s topography, domestic transport takes considerably more time, which speaks to efficiency and productivity. % Figure 35: Transportation as a Constraint to Doing Business (2010) 90 80 70 60 50 40 30 20 10 0 Non-Exporter Exporter Source: Enterprise Surveys (2010) 5.2.7 Technology and Innovation The Neo-Classical paradigm describes changes in technology and technical advancement (human capital) as fundamental for business and overall macroeconomic growth. As shown in the table below, of the manufacturing firms surveyed for the Enterprise Survey (2010), 21% had an internationally recognized quality certificate, one of the highest in the region, and 25% of manufacturing firms used technology licensed from foreign companies, the highest amongst comparator countries. However, only approximately one-third of firms had an internet presence, one of the lowest in the region. These results suggest that St. Vincent and the Grenadines should be well placed for future business growth, however, from the interviews conducted in the country, private sector stakeholders identified several other issues that would constrain growth as it relates to technology and process innovation: lack of proper business techniques and accounting, such as cash flow systems; lack of a marketing database; and record keeping. 64 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table 12: Technology Use by Manufacturing Firms in Selected Countries (% of firms) Variable Using technology licensed from foreign companies St. Vincent and the Grenadines Dominican Republic The Bahamas Guyana Belize Grenada Jamaica Mauritius Dominica St. Kitts and Nevis Barbados Suriname Trinidad and Tobago Antigua and Barbuda St. Lucia Source: Enterprise Survey (2010) 5.2.8 International quality certification Own website 24.6 20.9 32.3 Using e-mail to interact with clients/suppliers 82.2 24.1 20.1 17.4 16.7 15.2 14.6 14.4 10.3 9.6 6.8 5.4 2.2 0.0 0.0 11.8 31.1 29.5 0.7 32.6 16.5 11.1 1.3 19.4 18.3 11.1 16.9 3.7 0.6 48.9 50.1 46.0 27.8 42.5 36.4 35.9 1.8 40.4 68.2 11.0 30.8 28.3 15.4 85.3 89.5 92.5 85.0 80.6 72.6 69.3 70.8 91.5 100.0 58.5 81.2 87.9 53.9 Trade and FDI Policies Tariffs in St. Vincent and the Grenadines are relatively low on most categories of goods imported into the country, suggesting that the country’s local producers could be subjected to high levels of competition from imports. The average applied tariff on all products in 2009 was 10%, in line with the average among the group of comparator countries. The level of protection offered to the agricultural sector is also relatively low, with the average tariff on these goods at 16%. This level of protection is significantly lower than that offered to agriculture in other countries in the region where the tariff a quarter of what it was in Barbados, and less than 40% of tariffs in Belize and Trinidad and Tobago. It should be noted, however, that some industries, particularly tourism, usually import most goods duty-free. 65 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 % Figure 36: Market Map Average Tariffs (2009) 70 60 50 40 30 20 10 0 Average for all products Agricultural Products Industrial Products Source: Market Access Map (2009) As noted in the previous Corporate Tax subsection, many small business importers interviewed felt excluded from policies related to tariffs. Even with the recently passed Small Business Development Act (2007), which exempts plant and equipment duties for qualified businesses, small businesses still said they faced tariff challenges. These enterprises complained that government, particularly in the recessionary period, were biased mostly towards hoteliers (as they received duty exemptions), whilst other businesses took the brunt of high duties. For example, hotel and tourism related businesses benefitted from: exemptions of Duties/V.A.T through the Hotel Act (1988); concessions on electricity; and technical assistance promotion via the Tourism Authority Act 39 (2007). 66 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 37: Senior Management Time Spent on Dealing with the Requirements of Government RegulationsComparison across Selected Countries (2010) 14.00 12.00 % 10.00 8.00 6.00 4.00 2.00 0.00 Source: Enterprise Surveys (2010) In relation to dealing with Government regulations in general, customs and trade regulations and time to clear imports, it appears that St. Vincent and the Grenadines performs moderately well. As Figure 37 indicates, 5% of senior management time is spent dealing with Government regulations. This amount is about the same as for Belize, Barbados and Antigua and Barbuda, less than half of that for St. Kitts and Nevis, Guyana and the Dominican Republic, and only a couple of percentage points above Jamaica, Dominica and St. Lucia. For customs and trade regulations as a major constraint to doing business and time to clear imports, St. Vincent and the Grenadines also performs relatively well and was about the average for the region; approximately 22% noted customs and trade regulations as a major constraint and it took approximately 8 days to clear imports. 67 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 38: Major Constraints to Doing Business: Customs and Trade Regulations (2010) 70 Percentage 60 50 40 30 20 10 0 Source: Enterprise Surveys (2010) Figure 39: Major Constraints to Doing Business: Time to Clear Imports (days) 25 Days 20 15 10 5 0 Source: Enterprise Surveys (2010) While the figures below illustrate that St. Vincent posted relatively good scores on trade regulations and time to clear imports, entities such as the Chamber of Industry and Commerce and East Caribbean Metals differed. The Chamber stated that most of their members were frustrated by the costs imposed by the Bureau of Standards for imported products; for example, costs for a confirmation certificate are levied on importers for Bureau testing. The Chambers further indicates that lab testing and clearance time is poor even with the certificate. East Caribbean Metals stated that some periods of production run continuously for months and hence require staff to rotate. One 68 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 of the biggest threats to production in this period is time spent to clear raw materials at the port, which increases labour input costs for the company. “…if you bring in the powder to make the PVC, and it isn’t cleared in time, then you have to pay overtime for staff.” Michael Persaud, Managing Director of East Caribbean Metals. 5.2.9 Labour Regulation Labour market distortions and regulations often make investors reluctant to invest in a country. The main acts and legislation relevant to labour relations are the recently amended Protection of Employment (2003) and the Wages Regulation (2008). Protection of Employment (2003) covers employment rights, severance pay and disputes. Under employment rights, the probationary period for employment is 6 months, terms of employment and vacation must be written. Termination for good cause states that employees can be terminated and ineligible for severance pay if, for example, they do not have the capability to perform the work they were employed to perform. All other terminations, excluding illness and redundancy termination, must have permission from the Labour Commission. In relation to remuneration, the Wages Regulation (2008) states minimum levels by employment category. These minimal levels are shown the Appendices. In reviewing the results of the Enterprise Survey data, it appears that there is relatively little dissatisfaction with the labour regulations in St. Vincent and the Grenadines, with only 5% of firms indicating that these were a constraint to doing business, the third lowest amongst comparator countries after Dominica (4.4%) and The Bahamas (4.9%) (see Figure 40). However, what does appear to be a major issue in relation to the labour market is an inadequately trained labour force, a result supported both by interviews with private sector representatives and the Enterprise Survey (2010). Although the percentage of the labour force with post-secondary/university education has increased from 3.2% in 1995 to 8.6% in 2008 (Kairi Consultants, 2009) 16 , approximately 35% of firms indicated that an inadequately trained labour force was a constraint to doing business; this was marginally below the comparator average of 36% and above the OECS average of 30%. This result suggests that although there is general satisfaction with labour market regulations, relative to the rest of the OECS, the skills available in the labour force in St. Vincent and the Grenadines are below average for the region. 16 Kairi Consultants (2009). Final Report: St. Vincent and the Grenadines Country Poverty Assessment 2007/2008: Volume 1. 69 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 40: Labour Market Issues in St. Vincent and the Grenadines and Comparators (2010) % of Total 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Labour Market Regulation as Constraint Inadequately Trained Labour Force as Constraint Source: Enterprise Survey (2010) As regards the issue of gender, the table below indicates that there is a clear gender segmentation in the labour market where women comprise 43% of the employed labour force and are mostly employed in Community, Social and Personal Activities, Financial and Business Services and Wholesale and Retail. In relation to the sectors that are dominated by females, this is seen in Education and Social Work, Wholesale and Retail, Hotels and Restaurants and Financial and Business Services where females account for 84%, 70%, 63% and 62% of employment in these sectors respectively. Table 13: Employed Population by Main Industrial Groups (2008) Industrial Group Female (% of Sex) Male (% of Sex) Total Female (% of Group) Male (% of Group) 100.0 100.0 42.8 57.2 Agriculture & Fishing 8.4 17.3 26.7 73.3 Mining and Quarrying - - - - 2.5 3.9 32.2 67.8 - - - - 1.0 25.5 2.8 97.2 12.4 4.0 70.1 29.9 6.7 2.9 63.0 37.0 Manufacturing Electricity, Gas and Water Construction Wholesale & Retail Hotel and Restaurant Transportation 0.3 6.0 4.1 95.9 Financial & business services 18.9 8.7 61.9 38.1 Public Administration/Social Security and Defence Education/Social Work 6.6 5.1 49.0 51.0 11.2 1.6 84.0 16.0 24.9 20.5 47.7 52.3 7.1 4.4 55.0 45.0 Other Community, Social and Personal Activities Not Stated Source: Kairi Consultants (2009) 70 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 For males, the dominant sectors of employment are Construction, Community, Social and Personal Activities, and Agriculture and Fishing. In terms of sectoral dominance for males, this is seen in Construction, Transportation, Agriculture and Fishing, and Manufacturing where males comprise 97%, 96%, 73% and 68% of employment in these sectors respectively. It should however be noted that although these statistics are intuitively accurate, the data is drawn from a poverty survey and not a labour market survey and that there are sectoral gaps in relation to Mining and Quarrying and Electricity, Gas and Water. 5.2.10 Infrastructure, Communications and Energy Nordås et al. (2004) illustrated that the quality of infrastructure and telecommunication is an important determinant of trade performance and export competitiveness. The government of St. Vincent recently passed the ICT Investment Act (2007), which gives exemptions on duties and tax concessions for ‘Approved’ ICT companies willing to invest, employ and overall contribute to the development of St. Vincent’s private sector. Penetration of mobile phones and internet users per 100 persons increased twofold and sevenfold respectively in the last 6-8 years. per 100 people Figure 41: Availability of Services to Firms for St. Vincent and the Grenadines versus Comparators (2010) 200 180 160 140 120 100 80 60 40 20 0 Fixed broadband Internet Internet users Mobile cellular subscriptions Source: World Development Indicators As indicated in the figure above, access to fixed broadband internet is low across comparator countries, and in the OECS ranges from 8 per 100 in Antigua and Barbuda to 27 per hundred in St. Kitts and Nevis with access in St. Vincent and the Grenadines at 11 per 100. For internet users, this stands at 70 per 100 in St. Vincent and the Grenadines, the third highest in the OECS after Antigua and Barbuda (80 per 100) and St. Kitts and Nevis (76 per 100). Also indicated in the figure above is the high level of mobile phone penetration, in excess of 100 for all OECS countries. Drawing on the results of the Enterprise Survey (2010) results showed that the major constraints in relation to Infrastructure, Communications and Energy were electricity (25% of firms), and transport (12%). Of interest here is that these results are below LAC and World averages, as shown in the 71 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 table below. In addition to these results, it appears that the electricity system in the island is performing well given the low number of electricity outages per month, duration of outages, and losses due to outages, all below LAC and World averages. In relation to the source of displeasure by 25% of firms that identified electricity as a major constraint, the source of this displeasure may lie more in the cost of energy rather than the infrastructure itself, as seen across the region. Table 14: Infrastructure and Electricity in St. Vincent and the Grenadines (2010) Percent of firms identifying electricity as a major constraint Percent of firms owning or sharing a generator Percent of firms identifying transportation as a major constraint Days to obtain an electrical connection (upon application) If a generator is used, average proportion of electricity from a generator (%) Number of electrical outages in a typical month If there were outages, average duration of a typical electrical outage (hours) Duration of a typical electrical outage (hours) If there were outages, average losses due to electrical outages (% of annual sales) Losses due to electrical outages (% of annual sales) Proportion of electricity from a generator (%) Number of water insufficiencies in a typical month* Source: Enterprise Survey (2010) St. Vincent and the Grenadines 25.4 22.9 12.0 Latin America & Caribbean 37.6 28.1 23.5 World 9.3 2.9 21.3 18.4 34.3 21.1 1.7 1.6 2.5 2.5 7.0 4.9 1.2 0.8 1.3 2.8 3.1 5.0 0.6 0.2 0.2 1.1 2.1 0.7 3.0 7.0 1.4 38.9 32.5 21.8 In looking at specific differences across the rest of the OECS, the figure below indicates that Electricity is viewed as a major constraint by only 17% of firms in Grenada, all of the other OECS countries are above St. Vincent and the Grenadines (25%), ranging from 45% in Antigua and Barbuda to 66% in Dominica. For Transport, the 12% that noted it as a major constraint in St. Vincent and the Grenadines was matched by Dominica and just below Grenada at 15%; all other OECS countries were in the range of 21% to 31%. 72 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Percentage Figure 42: Major Constraints to Doing Business: Electricity and Transportation (2010) 70 60 50 40 30 20 10 0 Electricity Transportation Source: Enterprise Surveys (2010) 5.2.11 Gender Figure 43 and Figure 44 indicate that St. Vincent and the Grenadines outperforms all other comparator countries in relation to both female participation in ownership (76%), permanent female full-time workers (49%) and females in top management positions (39%). However, the figures do not illustrate that females comprise most of the estimated 30% below the poverty line, and 55% of those engaged of informal-type sectors. As indicated in the discussion of the labour market, the figures also do not reveal the clear segmentation in the labour market with female employment mainly in Community, Social and Personal Services, Finance and Business Services and Wholesale and Retail Trade, mostly in elementary positions. In seeking to address gender issues in St. Vincent and the Grenadines, the Government has not only established a Gender Affairs Agency, it has also implemented a number of initiatives to generate employment in the rural communities that would directly benefit women. 73 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 43: Female Participation in Establishments for St. Vincent and the Grenadines versus Comparator (2010) 80 70 60 % 50 40 30 20 10 Percent of Firms with Female Participation in Ownership Trinidad and Tobago The Bahamas Suriname St. Lucia St. Kitts and Nevis Mauritius Jamaica Guyana Grenada Dominican Republic Dominica Belize Barbados Antigua and Barbuda St. Vincent and the Grenadines 0 Proportion of Permanent Female Full-time Workers Source: Enterprise Surveys (2010) Figure 44: Percentage of Firms with Female Top Managers for St. Vincent and the Grenadines versus Comparators (2010) 45 40 35 30 25 20 15 10 5 Dominican Republic Suriname Antigua and Barbuda Guyana Trinidad and Tobago St. Kitts and Nevis Dominica St. Lucia Grenada Jamaica Barbados Belize The Bahamas St. Vincent and the Grenadines 0 Source: Enterprise Surveys (2010) 5.2.12 Ease of Doing Business The influence of institutions in St. Vincent and the Grenadines on the ease of doing business is represented in the figure below in relation to the results of the Doing Business Survey of 2012. As the figure indicates, the country ranks 75 th out of 185 countries in relation to the ease of doing business. Within the region, only four other countries rank higher: Antigua and Barbuda (63 rd), Dominica (68th), St. Lucia (53rd) and Trinidad and Tobago (69th). 74 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 21: Overall Ease of Doing Business Rankings for Selected Countries (2012) Trinidad and Tobago Bahamas, The Suriname Antigua and Barbuda 200 Barbados Belize 150 Dominica 100 St. Vincent and the Grenadines Dominican Republic 50 0 St. Lucia Grenada St. Kitts and Nevis Guyana Seychelles Haiti Palau Mauritius Jamaica Malta Ease of Doing Business Rank Starting a Business Paying Taxes Trading Across Borders Protecting Investors Source: Doing Business 2012 In relation to the factors that contribute to this relatively high ranking for St. Vincent and the Grenadines, the country ranks highly in relation to Trading Across Borders (3 rd), Protecting Investors (5th) and Paying Taxes (6th). The country ranks 11th in relation to ‘Starting a Business’. In relation to the time and cost of registering a business, 2004 data indicates that in relation to time (in days), only St. Kitts and Nevis, Jamaica and Dominica in the region perform better than the 10 days in St. Vincent and the Grenadines. In relation to cost (as a percentage of GNI), only Trinidad and Tobago, in relation to comparator countries, outperforms St. Vincent and the Grenadines where cost was 2.3% of GNI. In 2011, Doing Business indicators suggest that while days to register a business had not changed, the cost of registering a business has increased to 21.2% of GNI (Doing Business, 2011). 75 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 22: Time and Cost to Start a Business: St. Vincent and the Grenadines versus Comparators (2004) Time (days) 60 50 40 30 20 0 Trinidad and Tobago St. Vincent and the… Mauritius St. Lucia Jamaica Palau The Bahamas St. Kitts and Nevis Antigua and Barbuda Barbados Guyana Seychelles Dominican Republic Dominica Grenada Belize 10 Belize Trinidad and Tobago Barbados The Bahamas Palau Guyana Antigua and Barbuda Dominican Republic Grenada St. Lucia St. Vincent and the… Seychelles St. Kitts and Nevis Jamaica Mauritius Dominica 50 45 40 35 30 25 20 15 10 5 0 Cost (% of GNI) Source: WB, and Archibald, Lewis -Bynoe and Moore (2004) Figure 45: Cost and Time to Start a Business: St. Vincent and the Grenadines versus Comparators (2011) Time (days) 60 50 40 30 20 0 Trinidad and Tobago Mauritius Palau Bahamas, The Antigua and Barbuda St. Kitts and Nevis Guyana Dominican Republic St. Vincent and the… Dominica St. Lucia Grenada Belize 10 Belize Trinidad and Tobago Bahamas, The Palau Guyana Antigua and Barbuda Dominican Republic St. Kitts and Nevis Grenada St. Lucia Dominica St. Vincent and the… 50 45 40 35 30 25 20 15 10 5 0 Cost (% of GNI) Source: Doing Business 2011 In relation to changes over time, the only comparable data for 2012 is 2011. However, the data does show some significant changes over the period with St. Vincent and the Grenadines improving by 9 ranking positions for the Ease of Doing Business and 10 positions in relation to Starting a Business. 76 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 24: Change in Doing Business Rankings for St. Vincent and the Grenadines versus Comparators (2011 to 2012) 10 5 RANK 0 -5 -10 -15 Change in Ease Rank Change in Starting a Business Rank Source: Doing Business 2012 Other indicators of the ease of doing business include dealing with construction permits, getting electricity, registering a property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency (see figures below). Areas where St. Vincent and the Grenadines under-performed, i.e. had a ranking higher than most comparator countries was in relation to registering property, getting credit, and resolving insolvency. The areas where the country performed relatively well were: dealing with construction permits; getting electricity; protecting investors; and trading across borders. 77 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 24: Doing Business Rankings for St. Vincent and the Grenadines versus Comparators (2012) for Selected Indicators 200 180 160 140 RANK 120 100 80 60 40 20 0 Dealing with Construction Permits Rank Getting Electricity Rank Registering Property Rank Source: Doing Business 2012 Figure 24: Doing Business Rankings for St. Vincent and the Grenadines versus Comparators (2012) for Selected Indicators 200 180 160 RANK 140 120 100 80 60 40 20 0 Getting Credit Rank Protecting Investors Rank Paying Taxes Rank Source: Doing Business 2012 78 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 24: Doing Business Rankings for St. Vincent and the Grenadines versus Comparators (2012) for Selected Indicators 200 180 160 140 RANK 120 100 80 60 40 20 0 Trading Across Borders Rank Enforcing Contracts Rank Resolving Insolvency Rank Source: Doing Business 2012 Drawing on data from the World Heritage Foundation (see figure below), St. Vincent and the Grenadines performs well in relation to economic freedom in comparison with selected countries. With an overall score of 66, the country is only surpassed by St. Lucia (71) and Barbados (69) in the region. Underlying this overall score are good scores in Business Freedom and Property Rights. 79 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 46: Economic Freedom, Comparison for Selected Countries (2012) Trinidad and Tobago Barbados 100 Belize 80 Suriname Dominica 60 40 Seychelles Dominican Republic 20 0 St Vincent and the Grenadines Guyana St Lucia Haiti Mauritius overall score financial freedom Jamaica Malta business freedom investment freedom property rights Source: World Heritage Foundation (www.heritage.org) St. Vincent and the Grenadines demonstrates relatively good rankings in relation to governance and overall economic freedom. However, there are some institutional shortcomings in relation to ‘getting credit’ and ‘resolving insolvency’, two issues that inextricably linked in relation to difficulties in resolving insolvency having knock-on effects in relation to increasing risk-averseness and hence increased difficulties in ‘getting credit’. Giving the important role played by finance in the development process, the country’s poor ranking in relation to accessing credit is a significant risk to private sector development and growth. Key policy interventions needed in this regard include the establishment of a public credit registry and support for the establishment of a private credit bureau. This would reduce information asymmetries that may exists for lenders and therefore enhance the speed and potentially the amount of credit made available to the private sector. Key legislative changes are also required to provide greater protection to creditors as well as speed-up the process of enforcing security rights. 5.3. Summary Already starting at a disadvantage, the country of St. Vincent and the Grenadines gained independence at an average lag of 14 years compared to its More Developed Countries (MDC) counterparts (i.e. Barbados, Jamaica and Trinidad). It is clear that the country is faced with numerous constraints that could impede private sector development. Notwithstanding, the country has been relatively successful in several of private sector issues previously mentioned, and it is therefore important that the country continue its advancement in these areas, whilst ensuring correction of the most critical private sector facets. The main strengths of the private sector development framework in St. Vincent and the Grenadines relate mainly to institutions where there is a clear presence of support institutions (CED, Invest SVG, NDF) and the provision of support to the 80 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 productive sectors through fiscal policies. It is also commendable that a public sector strengthening exercise is being undertaken. It is also worthy of comment that there is a high level of participation by women in ownership and management in St. Vincent and the Grenadines. However, there are several constraints to private sector development in the country relating to time and monetary costs of doing business (electricity, energy, importing/exporting and finance), lack of access to finance due to stringent conditions for credit and an underdeveloped capital market, weakness in interregional transport, and labour force issues related to a lack specialist skills and an inadequately trained labour force. All of this is in an environment where external threats from climate change and natural hazards, crime, and competition from new tourism destinations, present severe challenges to the private sector in St. Vincent and the Grenadines. Table 15: Biggest Obstacles to Business in the OECS (Enterprise Survey, 2010) Biggest Obstacle Access to finance Inadequately educated workforce Crime, theft and disorder Tax rates Electricity Political instability Customs and trade regulations Practices of the informal sector Tax administration Corruption Transportation Courts Business licensing and permits Access to land Labour regulations ANT 15.3 1.3 DOM 44.0 2.1 GREN 12.8 15.4 SKN 20.9 10.0 SLU 35.0 7.4 SVG 20.6 12.8 7.9 18.2 13.0 6.1 16.1 4.8 3.6 8.6 29.7 0.0 0.9 3.1 10.2 17.6 2.7 12.3 2.1 8.4 13.4 20.0 15.2 0.5 5.2 5.8 5.1 6.0 22.4 0.2 4.0 2.7 11.3 11.0 10.6 10.2 9.9 7.8 2.4 7.7 3.9 0.0 2.7 0.7 0.0 0.0 0.0 3.5 0.0 0.0 0.0 4.4 5.7 1.4 4.1 0.8 0.0 3.9 2.9 1.4 3.5 3.4 0.0 0.0 0.7 0.0 0.0 0.9 10.7 0.0 0.0 0.0 5.6 2.6 1.5 1.0 0.3 0.3 0.0 0.0 The key threats identified from the Enterprise Survey (2010) for St. Vincent and the Grenadines identified access to finance, an inadequately educated workforce, crime theft and disorder, tax rates, and electricity as the five biggest obstacles to doing business in the country. These results were mostly borne out in the examination of specific data presented in the above analysis. These results are mostly in keeping with the rest of the region. Some of the recommendations to address these and other issues raised during interviews with stakeholders are discussed in the following section. 5.4. Field Research Findings In addition to the desk review of key private sector development challenges (presented in previous sections), interviews were conducted with various departments, enterprises and representative associations in the public service, private sector and civil society. These entities were chosen to capture a wide variety of views regarding the main challenges concerning private sector development in the country. Interviews were conducted between July and August 2012 using a focused semi-structured interview. Both open-ended and closed-ended questions were posed to interviews in order to obtain details on the key private sector development challenges. Following on from these interviews, issues to emerge from the working groups developed for the Caribbean 81 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Growth Forum (CGF), as described in the introduction, were also reviewed. The following subsections identify the main critical issues to emerge from the interviews and the CGF and present a series of required actions to address these issues. 5.4.1 Priority Action Areas The key obstacles to business growth gleaned from the background research in St. Vincent and the Grenadines where: Finance Issues: High interest rate spreads and high collateral requirements; Lack of an inadequately educated workforce Crime, theft and disorder Tax rates Cost of electricity During the interviews conducted with key stakeholders, these issues were presented and interviewees were asked to comment in relation to: Did the list adequately capture the main issues constraining private sector development in the country? What other issues would they add to this list? Identification the top three issues holding back private sector development? Recommendations to solve the identified challenges? From the interviews conducted and additional secondary data gathered during in-country visits, six main issues were identified which are mostly in keeping with the results of the background research. The following subsections investigate these critical issues affecting private sector development in St. Vincent and the Grenadines. The main critical issues identified were: Costs and Stringency of conditions for finance Customs and Trade Procedures Market Access Inadequately skilled labour force Political and Governance Issues which related to ad hoc planning; A ‘silo’ mindset in the public sector in relation to agencies and departments operating in their own interest rather than to a specific strategic plan; Lack of fiscal space and hence a lack of Government investment in public good investments such as tourism marketing, business support mechanisms and addressing inefficiencies in the public service; Cost of energy and electricity; Lack of product differentiation and limited export market focus makes the country vulnerable to shifts in the global business cycle. These findings from the applied element of the PSA are not dissimilar to those emerging from the Caribbean Growth Forum (CGF) consultations undertaken across the region in the first quarter of 2013. The three working groups (Logistics and Connectivity, Investment Climate, Skills and Productivity) organized for the CGF for St. Vincent and the Grenadines identified a number of issues that once addressed can catalyze private sector development. These issues were: finance, trade, 82 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 information and ICT, business support services, skills in the labour force and productivity. The main needs identified from the CGF Working Groups to address these issues for the development of the private sector in St. Vincent and the Grenadines were: Availability and Access to Finance Trade Facilitation: o Movement of People and Goods o Operation of customs in relation to ease of clearing goods o Market access and competitiveness Use of Information and Communication Technologies (ICT) and increased access to information Review and rationalization of current incentives and private sector development initiatives Education and training development to match needs of industry Increase productivity Drawing on the results of all aspects of the research, the following SWOT (Strengths, Weaknesses, Opportunities, Threats) matrix was developed in relation to the private sector growth and development in St. Vincent and the Grenadines. The matrix is subsequently used to develop recommendations and action plans based on the main critical issues identified. 83 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table 16: Private Sector Growth and Development: SWOT Matrix for St. Vincent and the Grenadines Strengths International Relations and Governance: Membership of international bodies, regional integration schemes (OECS/ECCU and CARICOM) and other regional bodies (CDB, UWI, ECCB). Signatory to trade agreements and international conventions; Stable democracy; Strength of investor protection; Good rating on Governance effectiveness; Relative overall ease of doing business; Fiscal incentives for businesses; Currently strengthening the public service; Existence of capacity development and business support organisations. Economy: Stable regional currency; Relatively low inflation ; Remittances from ex-patriots; Existence of alternative financing options (COMFI). Labour and Skills: Good labour relations; Access to education in the domestic and regional market. Sectors: Established reputation in tourism; Established manufacturing zones; Environment and Society: Natural beauty and heritage; Transport and Communications: International sea port; Proximity to regional and international markets; Relatively good domestic network infrastructure (transport and communications); Access to technology platforms. Weaknesses Governance: Lack of human resource capacity in business support organizations; Lack of formal dialogue between social partners; Lack of formal coordination amongst business support organizations; Lack of a strategic plan to guide public and private sector investment and lack of an economic board; Lack of freely available data. Economy: Relatively high Government debt; High current account deficit; Difficulty in accessing finance due to cost and collateral requirements; Limited utilisation of non-debt financing (i.e. equity); Small domestic market; Low tariff levels exposes domestic producers to increased competition; Costs of energy; Cost of regional and international transportation; Labour and Skills: Lack of skills demanded in the labour market Sectors: Lack of diversification of products and export markets; Small-scale production with no ability to obtain economies of scale. Environment and Society: Exposure to natural disasters; High levels of poverty and unemployment; Lack of flat land. Transport and Communications: Transport constraints within the region; Airport facilities (although new airport under construction); Cost of import certificates. Technology: Existing technology not utilised to its full potential (private and public sectors) Opportunities Economy: Freedom of movement of capital in the region; Freedom of movement of goods in the region; Exploitation of larger regional market; Labour and Skills: Freedom of movement of skilled labour in the region. Sectors: Specialty tourism; Geothermal energy; Agroprocessing; Trade agreements. Technology: Exploitation of existing technology for cost-savings in the private sector and greater dissemination of information from the public sector. Threats Economy: Lack of growth in main trading and inward investing countries; Fall in FDI inflows; Increases in commodity prices on the international market Labour and Skills: Brain drain Sectors: Competition from new tourism destinations with new tourism products and loss of seat capacity from non-national carriers; Increased competition from imports for domestic producers with greater trade liberalisation; Environment and Society: Climate change. 84 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 These interrelated issues are discussed below and used to develop recommendations and action plans in relation to the identified priority areas of: general governance issues; access to finance issues; energy costs issues; and labour market issues. 5.4.1.1. General Political and Governance Issues The PSA for St. Vincent and the Grenadines identified general political and governance issues as a critical issue impacting on private sector development. Stakeholders were of the view that development planning tended to be ad-hoc with little or no use of strategic long-term visioning. In addition, private enterprises were of the view that there was a ‘silo mentality’ in public sector business support organisations with these agents operating as autonomous entities without an explicit relationship with other public sector entities and a single strategic vision. This negative view is somewhat contrary to St. Vincent and the Grenadines’ relatively good ranking among comparator countries for ‘Government Effectiveness’, which looks at the perceptions of stakeholders in relation to the quality and independence of public services and the civil service, the quality of policy formulation and implementation, and the credibility of governments’ commitment to these policies; St. Vincent and the Grenadines ranked 7th out of 19 comparator countries and was 3rd highest in the OECS. Other hindrances in St. Vincent and the Grenadines to emerge from the interviews in relation to the public sector were the Bureau of Standards’ lack of proper laboratory testing and the cost of importing certificates. One of the main issues that appears constant across the OECS is what has been termed a ‘silomindset’ in the business support infrastructure. Most businesses in St. Vincent and the Grenadines, both directly and indirectly, were of the opinion that domestic support organizations were either influenced politically or lacked quality leadership. An MSME policy and strategy report from 2009 substantiates these claims in relation to the public sector, as highlighted below: “There is a strong public perception that government departments do not work together well, but instead have their own agendas aimed at job preservation as much as at customer service. This situation merely reinforces a “silo mentality” in the public sector. In any economy, particularly one with a public service in excess of 8,000 employees, there is no justification for this kind of divisiveness.” (Commonwealth Secretariat, 2009:68) The research undertaken for the private sector assessment somewhat corroborates these findings and suggests similar recommendations made which call for more liberalized policies regarding information disclosure, streamlining of support services to business, revision of fee schedules and expanding opportunities for SMEs through Government procurement. In addition, the Commonwealth Secretariat (2009) report recommends: ‘Streamlining of government processes as they relate to servicing small businesses. This will involve aggressively rationalising the multiplicity of forms, records and processes currently required for various registrations by business (especially by MSMEs). Revision of the CIPO [Corporate and Intellectual Property Office] fee schedule. The current fee schedule for CIPO registrations is high and will be reviewed where such charges are within CIPOs control to bring them more inline with international practice. Similarly efforts will be made to downscale the attendant legal fees charged to struggling entrepreneurs. 85 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Repackaging of public sector procurement programmes to deliberately create possibilities for MSMEs to participate in public tenders will also be pursued and legislation will make it mandatory for the government itself and for government-owned companies to reserve at least 25 % of their tenders for small businesses.’ The negative views expressed above should however not suggest that there are no positive actions being taken. In St. Vincent and the Grenadines, Invest SVG serves as the major promotional agency for businesses and the organization has a number of accomplishments regarding trade, cultural and fashion shows. However, some of the businesses interviewed thought that not enough time and money was directed towards gaining market access for the small-scale productive sectors and action of this concern has been taken. As a consequence of this constraint noted by the private sector, the Centre for Enterprise Development (CED), conceived a program called ‘VINCYKLUS’ meant to serve as a cluster for small businesses, with an overall objective: “To increase and strengthen the capability of individual producers operating within the cluster, through export development, training, marketing and promotion, and information support, in order to enhance and develop the export capacity of firms to take full advantage of market access opportunities” The conception of VINCYKLUS by the CED should be commended. However, the VINCYKLUS program currently faces human resource constraints, such as finding suitable management for the cluster program. Hence it is recommended that policies be geared at strengthening institutional capacity at VINCYKLUS and other business support agencies. It is also advised that for all initiatives/policies pertaining to market access, that strong alliances/partnerships be forged among VINCYKLUS, Invest SVG, NDF, the Chamber of Industry and Commerce and the wider business community. As with other recommendations, there is a greater need for the development of linkages and alliances. Such issues and recommendations should inform the development of a national strategic plan for private sector development, an explicit delineation of the remits of various Government agencies, and the development of greater communication channels between business support organisations (both public and private) and greater dissemination of information. The relevant Action Plans developed from the PSA to address these issues include: Action 1: Establishment of a Tripartite Committee (government-employer-labour) to identify the needs of all bodies and guide and oversee private sector development strategies. Once established, the Tripartite Committee should seek to also address the following: Action 2: Rationalisation and streamlining of public sector’s business su pport framework through the work of the Tripartite Committee to ensure a revised system that addresses both the needs of the private sector (access to finance, technical assistance and data) as well as wider obligations of Government. Action 3: Development of a National Strategic Plan that mainstreams private sector development in the country. Through the lobbying efforts of Government, the plans for the development of the private sector should also be included in and regional strategic plans at the level of the OECS/ECCU and CARICOM. 86 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 A national strategic plan can ensure that national policy planning is continuous and not subject to the electoral business cycle. It was considered that such an approach to development planning would also enhance the transparency of government policy formation as well as reduce business uncertainty. An overall national strategic plan would also help to get around the common criticism of the ‘silomindset’ common in the public sector. Rather than focussing on departmental or ministry-specific objectives, technocrats would be working towards national objectives. While this approach does not necessarily mean that intra-governmental lines of communication would improve, it does however, provide a basis for overall strategic planning and developing policy priorities. ICTs and knowledge platforms could then be used to facilitate communication between various departments and ministries. The development of a national strategic plan however offers up some logistical challenges in relation to who develops the plan and how to ensure that it would be followed with changes in Government. These challenges should however not be viewed as insurmountable and the existence of these challenges should not deter action. Indeed, if the private sector was sufficiently strong, and insisted that successive government keep to a development plan, the concern about political business cycles would not be present. This therefore suggests that if the private sector is afforded the space to grow, these problems with implementation would wane. One of the other issues that warrant discussion is the lack of fiscal space afforded to the Government. While the development of a strategic plan for the development of the private sector will not in itself solve the fiscal problems of government, the demonstration of commitment to private sector development can act as a boost to investor confidence and open avenues for publicprivate partnerships in public goods where opportunities exist. In addition, the establishment of a more interactive and proactive business support framework can assist in expenditure savings through rationalisation, as well as revenue enhancement through the general growth and development of the private sector. However, in order to effectively execute these action plans a number of issues will need to be addressed including: Lack of information sharing and research by the private sector; Lack of economic and labour market information; caused in part by the limited use of existing technology by the public sector. Private enterprises are reluctant to share information on their enterprises and by greater inclusion in the decision-making process there may be greater willingness to share relevant information. The private sector will need to inculcate this culture of information sharing to assist governments in understanding the situation of the private sector, and its contribution to the economy. One such avenue that this can be addressed through is the establishment of a private sector funded research unit, perhaps overseen by the private sector representative on the Tripartite Committee. Such a unit could identify opportunities (domestic and foreign) for private sector growth as well as potential threats to the various sectors. Pooling of resources would allow the decision-making process of individual firms and other economic agents to benefit from evidence-based research and data which should enhance profitability and sustainability. 87 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 There is also a strong demand by private sector enterprises for data, to assist in strategic planning and the formulation of business plans for accessing finance. However, the situation is not that data does not exist in the region, it is basically that the data is not collated or mined as public sector agents are not fully exploiting the available technology. Individual governments, through such agencies as Inland Revenue Departments and National Insurance Schemes, collect information over specific periods that could provide more detailed information as regards revenue and expenditure by sector, employment levels and categories, and investment data. The problem in this regard is a lack of infrastructure and human resources to consistently collate and present data. This is an area where, at the country and regional level through national statistical offices and the OECS Secretariat and the Eastern Caribbean Central Bank, that donors could direct resources; especially as it relates to technical assistance in the development of such a system. These are the sorts of issues that will need specific attention to enable all of the action plans to be effectively implemented. It should however also be noted that the private sector is also not utilising the available technology to its fullest potential even though they would benefit from its use in the general operations of their firms. As an example, firms utilize a significant amount of their human resources physically collecting payments whilst the technology exists that can provide a far more efficient solution, thereby reducing fraud and associated security issues. Once implemented, the current resources can then be deployed to enhance the levels of service delivery or to more productive areas within the business operation. 5.4.1.2. Access to finance A problem that has been consistent in the region is the cost of financing and under-developed capital markets. Private sector stakeholders interviewed in St. Vincent and the Grenadines stated that finance was either difficult to attain due to collateral pre-requisites or that it was too costly to borrow (high interest rates). Loans from credit unions and other financial intermediaries were typical mortgage and consumer type financing, and these institutions tended to shy away from private sector funding. Although the interest rate spread in St. Vincent and the Grenadines is the 3 rd lowest in the OECS, the spread in this regard is important to monitor as it provides a relative indicator as to the efficiency of financial institutions and/or the level of competition in the sector; high interest rate spreads can either indicate that financial institutions are inefficient or that they are exploiting a dominant market position. High transaction and operating costs are passed onto the consumer via higher interest rates. In St. Vincent and the Grenadines, working capital and other financial services are predominantly sourced from commercial banks, as demonstrated from the Enterprise Survey (2010). The problem with the commercial banking system is, first, a large percentage of banks are foreign-owned with conservative portfolios and employ a strategy of ‘cherry-picking’ the least risky private sector borrowers. Second, transaction and operation costs are relatively high and hence transferred to the interest rate paid on loans. Ultimately, the high level of informal unaccounted businesses and information asymmetries increase the risk of lending, which also contributes to higher up front collateral requirements. It should however be noted that these limitations to accessing finance are not purely institutional, that entrepreneurs also either propose impractical projects, or present poorly constructed business plans due to a lack of skills, as well as a lack of data. 88 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 The main hindrances therefore, for productive enterprises in relation to finance in St. Vincent and the Grenadines, relate to the cost of finance (high interest rates) and collateral requirements. For creditors, they insist that due to high operating costs, informality, and a lack of accounting records, that their risks are increased due to an increased likelihood of default and hence this needs to be offset by higher interest rates and collateral requirements. To address these access to finance issues (collateral requirements and high interest rates), there is a need to investigate the cause of these issues which relate primarily to efficiency in financial institutions, high transaction and operational costs, and information asymmetries in relation to borrower information available to lenders. In addition, there is also the need to balance the savings deposit rate and the reserve requirements set by the ECCB. The ECCB’s Savings Deposit Rate (SRD), the statutory minimum rate on savings deposits, has been shown to be positively correlated with interest rate spreads from commercial banks operating in the OECS (Grenade (2007). This, taken in relation to the Reserve Requirement Ratio (RRR), proxied as the percentage of reserves to total deposits mandated to be held by commercial banks, which has an effect on the amount of funds available to make loans, together influence higher interest rates on loans in the region as this burden is normally passed on to customers. It is recommended that these two variables, RRR and SDR, are assessed intermittently to find a suitable balance as they both affect the cost of borrowing in St. Vincent and the Grenadines and the OECS in general. The other causes of high interest rates, high interest rate spreads and high collateral requirements are discussed below. Transactional and Operating Costs Transaction costs are defined by Coase (1937) as the costs associated with a transaction on the open market, and by Wang (2003) as the economic value of resources used in locating trading partners and executing transactions. Communications charges, legal fees, informational cost for finding the ‘right price’ are all examples that apply to banking transaction costs. The World Bank (2008) stated that modern trends in transactional lending suggest that any improvements in information available and technological advances are likely to improve access to finance for MSME’s (for example through credit registries and automated credit appraisal) and hence reduce transactional costs. To quote: “Encouraging the development of specific infrastructures (particularly in information and debt recovery) and of financial market activities that can use technology to bring down transaction costs will produce results sooner than long-term institution building.’ World Bank (2008:15) The IMF (1998) noted that operating costs for commercial banks in the Eastern Caribbean was a key determinant of interest rate spreads. Grenade (2007) showed that operating cost ratios, defined as operating costs to assets, for foreign banks in the Eastern Caribbean were higher than indigenous banks and the overall average ratio was higher than the acceptable international standard of 3.6 17 . It can be assumed that the operating cost ratio for commercial banks operating in St. Vincent and the Grenadines, is presently higher than Grenade’s 2003 estimates, due to substantial changes in energy prices and other expenses. The concept of introducing technological advances to reduce transaction and interest costs from banks operating in St. Vincent and the Grenadines should be high on the priority list. However, 17 Moore and Craigwell (2000) 89 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 because of the informality of most businesses in the country, which leads to more personal catering between the borrower and lender, transaction costs may still prevail. In addition to this, a reduction in overhead costs to assist with lowering interest rates could potentially displace many employees in the banking sector. For example, a Vincentian banking representative interviewed for the private sector assessment, stated that they always wanted to introduce cost reducing mechanisms such as internet banking and other technological reforms, however, because of the mindset of the population and the informality of business customers, there was a preference for face-to-face, relationship-based, banking. To reduce transaction and operating costs it is therefore recommended that policies be structured around ensuring the formality of businesses (i.e. the registering of companies, technical assistance for product/service development), technological advancement (i.e. credit information systems), and efficiency of operating costs (i.e. incentives/policies that reduce variable costs of electricity such as retrofitting). All of these policies should contribute to reductions in interest rates charged for credit services. Given that inefficient operation of financial institutions will result in increased costs to consumers, it is also recommended that a quarterly assessment be taken of the overall efficiency rate to ensure commercial banks operating in St. Vincent and the Grenadines are running efficiently and, as a result, benefitting the consumer, individual or enterprise, from competitive prices. The overall efficiency rate in this regard relates to profitability rates, margin rates, weighted results rates and employment efficiency rates18 . Information Asymmetries Informational asymmetries, as well as informality, directly affect the level of collateral required by commercial banks in the region as they increase the uncertainty of lending, id est. higher risk. This uncertainty is therefore passed onto customers through collateral requirements. While average collateral in St. Vincent and the Grenadines was 211%, the world average was 168%, and the average for Latin America and the Caribbean was 197% (Enterprise Survey, 2010). Any measures to reduce information asymmetries, and increase formality, should therefore assist in reducing the cost of, and access to, commercial finance. A problem that has been encountered, not only by financial institutions, but also NGOs, public and technical institutions, is that lack of information and record keeping from private enterprises in St. Vincent and the Grenadines. For example, one indigenous bank interviewed stated that their institution was considered ‘the poor man’s bank’ and that many customers are facilitated even without the correct paper work. Another statutory institution stated that businesses wanted both technical assistance and finance, but were unwilling to divulge information and records on their business. This lack of information disseminated by businesses can be attributed to: 18 Profitability Rates, defined as: Return on Assets (ROA)- presented as a ratio of financial results and a bank’s assets; Return on Equity (ROE)- a ratio of financial results to a bank’s own fund; Return on Sale (ROS)- a ratio of financial results to a bank’s income; Costs Ratio (C/I)- a ratio of costs to income. Margin Rates, defined as: Net Interest Margin- a ratio of interest results to assets; Interest Spread, which can be interpreted as a difference between the average interest-bearing assets and the average expense of interest-bearing liabilities. Weighted Results Rates, defined as: The result rate charged with reserves (reserves balance) which is shown as a difference between the building up and dissolution of reserves, and the achieved result; The result rate charged with operating costs, i. e. the rati o of operating costs to the result. Employment Efficiency Rates: The rate presented as a ratio of assets to a number of employees (job positions); The rate presented as a ratio of a result to a number of employees. See Wozniewska (2008) 90 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Lack of knowledge of proper record-keeping and accounting Unwillingness to gather income statements or other crucial information due to fear of being imposed with taxes or other expenses Lack of awareness of technical criteria and documentation standards required by banking institutions. Overall, it appears that a proportion of the informational asymmetry that leads to higher collateral requirements is due to the level of informality of business in the country which can somewhat be attributed to the lack of enterprise management skills. The proportion of informational asymmetry that leads to higher collateral requirements for formal businesses could be said to be due to the absence of credit bureaus and related registries. It is recommended that these issues be address by the following actions: Technical Assistance Services: To access loans from formal financial institutions, businesses must have some formality structure. Technical assistance services make enterprises aware of customary procedures before approaching for working capital i.e. income statements, bookkeeping, strategic plans, and the process of registering business. For example, St. Vincent and the Grenadines’ investment promotional agency, Invest SVG, demonstrates this with the manner in which their technical services have actually assisted many businesses in accessing capital from financial institutions. Establishment of Credit Bureaus: Credit Bureaus are defined as an agency which collects the credit history on individuals and other prospective borrowers that assist financial institutions with its lending decisions: ‘Rather than… various ill-fated schemes aimed at broadening access to credit, the countries would be better served with a vibrant system of credit bureaus. The bureaus would provide reliable information on all current and potential borrowers at low cost to banks and other lenders. This would allow lenders to move beyond their fairly small circle of well-known, and typically higher-income, business clients to lend to the broad strata of small and even micro businesses that represent the vast majority of productive enterprises in the Caribbean. To be truly useful, credit bureaus should be able to obtain not only bank loan repayment histories but also all hire-purchase, tax, and bill payment histories without the prior consent of the individuals involved. By the same token, each individual should be able to review and challenge the accuracy of his or her record, and the credit bureau should be responsible for correcting any verified inaccuracy on a low-cost and timely basis.’ IADB (2009:22). In 2012, the ECCB collaborated with the IFC in a conference called “Wider Access to Credit and Consumers’ Empowerment through Credit Information Sharing”. Representatives from regional central banks, ministries of finance, other government agencies, and financial institutions from the Eastern Caribbean Currency Union (ECCU) and the wider Caribbean region met to discuss credit information sharing systems (credit bureaus) in the Caribbean. The Credit Reporting Conference falls under the umbrella of a Canadian International Development Agency (CIDA) funded project aimed at establishing a private credit bureau in the ECCU and the development of the credit bureau legislation for the region. This is the first step of many needed to rectify information asymmetry in St. Vincent and the Grenadines and the OECS. 91 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 The only country in the Caribbean that actively participates in comprehensive credit history collection is Trinidad and Tobago. According to USAID: ‘The Credit Bureau of Trinidad and Tobago was founded eighteen years ago by a law firm and collection agency. The bureau currently holds over 350,000 records and reviews an average of approximately 10,000 credit applications a month (individual and corporate applications). The banks in Trinidad and Tobago have recently decided to create their own platform for exchanging credit information, in which The Credit Bureau of Trinidad and Tobago will also be included’. USAID (2004) Establishment of Collateral Registries: Collateral registries are systems that identify and document property (movable property or real estate). In the Caribbean, the collateral registry system is underdeveloped and does not fit the ‘needs of a modern financial system’ 19 . For the most part, financial entities in the Caribbean do not accept movable collateral (such as inventory, accounts receivables, crops and equipment) which is seen by the IFC as a significant impediment to a free flowing credit market and economic development. ‘Reforming the framework for movable collateral lending allows businesses—particularly SMEs—to leverage their assets into capital for investment and growth. Modern Secured Transactions Registries increase the availability of credit and reduce the cost of credit’ 20 . Alternative Financing Options Another factor identified during the private sector assessment which would assist in increasing access to finance in the OECS is understanding the ideology of foreign banks, and exploring the prospects of utilising indigenous non-bank financial institutions (NBFIs). The financial landscape in the region is characterised by commercial banks (international, regional and domestic) and NBFIs (insurance companies, domestic credit unions and microfinancial institutions (MFIs)). However, nonnational banks dominate and ‘cherry-pick’ in their lending while maintaining a conservative, traditional approach to lending (collateral-based lending). There is therefore a need to encourage the development of financial services which suit domestic needs through the enhancement of credit unions and other NBFIs. The traditional financial sector in the Caribbean is currently being complemented through a number of NBFIs, such as credit unions, micro-finance and a regional export agency. The capitalization of credit unions, particularly in Barbados, are comparable to some small banks, as firms realize the need for a financial partner that understands the parallel between the size or stage of their business and the type of capital assistance required to take the business to the next step. USAID (2004) and Malaki (2006) show that microfinance institutions compliment and can coexist with formal financial institutions, as they focus on a niche demographic; the start-up or initial stages of firm development and the economically active poor. Though statistics on the effectiveness of micro-finance has been scrutinized and the results subject to debate, the outreach of NBFIs has with many small businesses, especially in the agro-processing field in St. Vincent has been encouraging: 19 USAID(2004) 20 Source: http://www1.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Industries/Finan cial+Markets/Financial+Infrastructure/Collateral+Registries/ 92 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 ‘Shifts in the private sector structure to service industries (from agriculture) indicate that there are opportunities for expansion of MSE financing that would have a direct and meaningful impact on the business environment 21 .’ USAID (2004) It is interesting to note that COMFI, a new MFI in the country, is an amalgamation of the three biggest credit unions in St. Vincent and the Grenadines. The experience this co-operative brings is vital, as they understand financial developments, small business issues and depositary system in the country. This local knowledge and a synchronisation with national development goals is vital to the development of a vibrant indigenous financial sector as well as the development of the private sector in the country. Another important source of alternative financing, particularly in the seed or start-up stage of business, is venture capital. Venture capital is money provided by an external investor to finance various stages and development of a business. The capital is invested for an exchange in equity stake, rather than loan financing, and it offers high-risk and high-reward for both client and financier. However, venture capital financing is limited in the Caribbean and institutions such as the MIF, part of the IADB group, has also been working on creating a better venture capital industry in the Caribbean. Their focus is on fund managers, helping them contribute to the venture capital industry that invests in SMEs that cannot access funding from traditional financial institutions. MIF results have been semi-encouraging so far on facilitating venture capital in the Caribbean. Some problems faced by the fund is, lack of quality fund managers, no local laws for venture capital investing, and governments not providing organized support for industry. However, the MIF is unable to operate directly in St. Vincent and the Grenadines, as their remit is limited to the 25 IADB member countries. This suggests that there is a need for another international or regional body to intervene in this area to directly facilitate the development of a venture capital industry in the region. In seeking to address this gap in financing options, the ECCB established the Eastern Caribbean Enterprise Fund (ECEF) in 2009: ‘The ECEF is being positioned to be a mechanism for attracting investment capital and channelling those resources to promote the development of private sector enterprises in the region. In this regard, the ECEF will complement existing financial intermediation services of providers in the ECCU by offering a wide range of services to assist in filling the current gap with respect to the availability of requisite financing and technical support. Additionally, the ECEF will foster the creation and growth of productive sectors in the economies of the region through the injection of equity and debt financing….In addition, as the first regional fund of its type in the ECCU, the ECEF will also play a key role in the promotion of a private equity/venture capital industry in the region’ 22 . Overall, it is recommended that emphasis be placed on capacity development and financial assistance of alternative financing options such as COMFI and the NDF, as they serve a critical purpose for micro and small businesses in St. Vincent and the Grenadines, the foundation of an immature private sector. It is important that technical assistance, which is also recommended in bank financing, play an important role in developing customers’ ability to be educated on private 21 Highlights from USAID (2004) Caribbean Financial Assessment document 22 http://www.eccb-centralbank.org/money/ecef.asp 93 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 sector financing. Technical assistance to firms helps both debtor and creditor with due diligence by preparing emerging entrepreneurs with an outlook of where the business could be, and by assisting micro-creditors on monitoring and evaluation. With regards to venture capital facilitation, it is advised that more emphasis be placed on capacity development of institutions via the development of fund managers specializing in the productive sectors, development of the legal framework for facilitating venture capital in the OECS and awareness on the potential of a venture capital eco-system. The ECEF, conceptualized by the ECCB, is a good start for creating a venture funding industry in the region, and it is proposed that all international assistance be prioritized around the development of this fund. Developing an alternative financing industry is an important element needed for financial inclusiveness in the OECS and St. Vincent and the Grenadines in particular. NBFIs and venture capital have helped developed many start-up and seed-staged enterprises in developed countries. The intention of these alternative recommendations is to compliment the services of formal banks (which have the ideology of formal conservative lending portfolios) with financing options that help the often excluded segments (start-up or initial stages of business) of the private sector. However, while the development of alternative financing options is important for facilitating access to capital without the normal stringent conditions enforced by banks, these alternative financing options are not expected to be a mainstay throughout the life of the business. As previously stated, NBFIs and venture capital options are usually backed by grants/subsides or cash injections from investors/co-operatives, and are designed to help businesses at earlier stages of their life cycle. Therefore the aim of these financing options are for businesses to reach a productive capacity which would result in savings/investment, and, ultimately, savings/investment services from commercial banks needed for sustaining the development of the business. The broader issue of a need for greater collaboration between various private sector representatives, between government agencies, and between the private and public sector also applies to the financial sector. As businesses in the private sector range in size from micro to small to medium to large, their market focus also ranges from local to national to regional to international, covering a spectrum of value-added activities from low to high. This lack of homogeneity in the private sector relates to heterogeneity of financing needs. Rather than competing for clients, financial institutions should seek to develop linkages to best serve the clientele for which they are best suited to serve, as well as provide opportunities for graduating from non-commercial finance, such as that offered by development-focussed NGOs and CBOs, to more commercial types of finance as they become more ‘bankable’. Since microfinancing institutions and commercial banks work to provide greater access to financial services, both could gain by forming synergies among themselves. Commercial banks have the network capability to facilitate this process, and thus each party could benefit from the expertise of the other. Consequently, target groups and intended beneficiaries could have greater access to both credit and non-credit services. In addition to insurance and guarantee schemes, they could benefit from facilities that the banks could offer for remittances and money transfers. Moreover, they could use services to facilitate payments, such as by means of cash machines, cheques, trust receipts and so on.(International Poverty Centre UNDP,2008) 94 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Such alliances are not unknown. In Africa, a number of banks are creating linkages with microlending agencies and are creating innovative fund products. The linkage with banks helps micro financiers benefit through the reach that banking services offer, such as branch networks and electronic transfer systems, bringing transaction costs down. In addition to this, the cooperation between both of the financing agents offer: a) b) c) d) Micro finance customers deposit systems More records on transactions and repayments Less information asymmetries on borrowers Joint Training and Marketing This culminates in creating greater credibility of micro-finance customers and the potential to access more commercial banking services as they create a formal credit history. An example of the detrimental effect a lack of cooperation and development of linkages can have on accessing finance was demonstrated by an agro-processor in St. Vincent and the Grenadines. Although the agro-processor was able to gain a sizeable percentage of her financing needs from a regional export agency, because of lack of knowledge of this export financing entity by a domestic commercial bank, the application for residual funding for the project was declined. This is an example of the problems that arise when financing entities do not form linkages or cooperate with each other and hence the potential of financially including many clients is lost. The International Fund for Agricultural Development (IFAD)23 is currently working to establish ongoing links with alternative lending agents and commercial banks to ensure that the excluded demographic gains access to financial services beyond the life cycle of IFAD projects. Furthermore, governments are engaging in guarantee schemes to assist with commercial bank inclusion of micro-finance customers. It is therefore recommended that St. Vincent and the Grenadines’ commercial banking sector collaborates and seek innovative linkages with NBFIs such as COMFI, NDF, and MFIs. Implementing linkages and cooperation between financial entities must be facilitated by legal and institutional policies from government. In drawing all of these issues related to the lack of access to finance, there is a need to reduce the cost of finance and increase the ability of firms to access finance through increasing the formality of enterprises and provision of networking among financial institutions to enable them to better serve private sector businesses at different stages of development. While the availability of data is important for the development of business plans, both strategic and to access finance, this is already addressed in relation to Action 2. However, businesses also lack the ability to access finance in relation to a lack of record keeping, and a lack of skills to prepare viable proposals to finance providers. By increasing formality, not only in terms of issues related to registration but also the adoption of accepted business practices, access to credit is increased. The relevant Action Plans to emerge from this element of the PSA include: 23 Action 4: Reduce the cost of finance through the reduction of transactional and operational costs in financial institutions through the use of technology and monitoring of efficiency levels; the reduction of risk and risk-averseness through the establishment of a credit bureau From the World Wide Web: http://www.ifad.org/events/op/2008/microfinance.htm 95 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 and a collateral registry; and the introduction of alternative financial products and greater networking in the financial sector. Action 5: Increase the capacity of businesses to access finance through the provision of support (technical assistance and training) for the adoption of accepted business practices (recordkeeping) and the skills to develop business plans for funding and strategic planning. These services exist in St. Vincent and the Grenadines and are provided by the Invest SVG and the Centre for Enterprise Development, however, the utilisation of these services need to be expanded given the results to emerge from the PSA. It should also be noted that the negative impact of the current constraints in the financial market are often magnified due to other costs of doing business, especially the cost of electricity. 5.4.1.3. Electricity Costs Based on interviews and the results of the Enterprise Surveys (2010), electricity costs were ranked as one of the biggest obstacles to doing business across the OECS. As shown in the figure below, cost per kilowatt hour (kwh) exceeded US$0.30 for all of the OECS countries included, while this cost was, unsurprisingly, less than US$0.05 for Trinidad and Tobago. US Cents per KW hour Figure 47: Electricity Rates in St. Vincent and Selected Caribbean Countries (2010) 40 35 30 25 20 15 10 5 0 Source: The Caribbean Electric Utility Service Corporation (CARILEC) (2010) In St. Vincent and the Grenadines, businesses such as LIME, ECGC East Caribbean Metal, along with the Chamber of Commerce, all indicated that electricity and energy costs were major constraints. In 2012, the Government of St. Vincent and the Grenadines signed an agreement with the Clinton Foundation to provide technical and financial support for geo-thermal energy. This exploration of alternative energy sources could have a catalytic effect on the economy of St. Vincent and the Grenadines as demonstrated by the experience of telecommunications company LIME with the introduction of retrofitted air conditioners; the country manager for LIME noted that the company experienced significant declines in electricity costs, estimated at 40%, over the last 2 to 4 years due to this retrofitting. 96 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 There is however no quick fix for problems relating to electricity or energy costs in a country lacking traditional mineral energy resources like St. Vincent and the Grenadines. To address the issue of the high cost of electricity, and energy in general, the two main options involve conservation of energy and exploitation of alternative energy options. In terms of conservation, the adaptation of behaviour to reduce usage and the adoption of energy efficient technologies, along with retrofitting, provide avenues to reduce costs in the short and medium term. For St. Vincent and the Grenadines, the possibility for the exploitation of alternative energy sources is high given the country’s ranking of sixth in the wider region in relation to the existence of an enabling environment and renewable energy projects already operating 24 . The country however ranks low on the scale of planned renewable energy projects. Castalia Strategic Advisors (2012) suggest that the main opportunities in this area relate to solar and wind energy. Some of the other recommendations emerging from consultations and previous research were: A bi-annual review of the fuel clause tariff structure (the fuel cost element of electricity) to reduce the incidence of price-gouging, or if price gouging is found to not be prevalent, reassure the private sector of such; Support for energy service companies which are providing retrofitting services; Address the current downstream distribution value chain with hydro-carbon suppliers to ensure the lowest possible energy prices Exploration of the possibility of privatisation of the electricity company as a means to increase efficiency and productivity. In accordance with the Energy Action Plan 2010: o Increased capacity of Energy Statistics to help bolster education/training, monitoring and evaluation; o Financial and fiscal incentives to any persons training or involved in the production of RE technologies and financial institutions providing capital for RE technologies Drawing on the results of the PSA in relation to energy costs, the need for energy conservation and exploitation of alternative energy options relate to the following Action Plan: Action 6: Provide incentives for energy conservation and frameworks for the exploitation of renewable/alternative energy and reduce the cost of fossil fuels. Incentives and support in this area will act as both a cost-reduction tool as well as an opportunity for investment and enterprise development in the renewable/alternative energy sector. Efforts to reduce the cost of fossil fuels would relate to periodic reviews of the fuel clause tariff structure, a review of the distribution chain and exploration of possibility of privatisation of the electricity supply. Incentives in this area could include concessions related to duties on imports of materials, technical assistance and the development of special funds for investments in alternative energy projects and enterprises supplying complementary services such as retrofitting. 24 http://www.castalia-advisors.com/files/Castalia-CREF_RE_Islands_Index_121010-1.pdf 97 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 5.4.1.4. Labour Market Issues The final issue constraining private sector development in St. Vincent and the Grenadines, but by no means the least important, relates to the labour force. These labour force issues relate to a lack of specialist skills in the OECS, a mismatch between what is demanded by industry and what is supplied by training labour market, as well as a general lack of adequately trained labour. As noted by the Enterprise Survey (2010), this was the biggest obstacle to 13% of businesses sampled in St. Vincent and the Grenadines. In seeking to address these issues, the private sector assessment identified two main areas that would require attention: Implementation of education, human resource and comprehensive human capital planning Vocational and On-the-Job Training Human Resource Planning There are several approaches that can be adopted to address the skill deficiencies in the labour market for St. Vincent and the Grenadines. However, before the details of any plan can be conceptualised, there needs to be a human resource development strategy based on a balanced account of the needs of industry and the strategic direction of Government. Manpower planning in this respect, along with other elements of a national strategic plan, would greatly assist in the current work environment as well as assist in future growth of the private sector by clearly signally the sectors which Government intends to support. Such clear signalling would encourage investment by the private sector in these strategic sectors, both foreign and domestic. However, there is a lack of useful data on the composition of the workforce and labour market dynamics to usefully inform the development of human resource plans for St. Vincent and the Grenadines. Invest SVG is currently working on increasing business registration and collecting enterprise data, which is the first step on attaining proper labour market information on the country’s large informal economy. To build on this effort, the government should implement a National Accreditation and Productivity Council under the remit of the Ministry of Education, which would work closely with the labour department and coordinate with other planning conduits25, to oversee comprehensive human capital planning for the country. Following the development of a balanced strategic plan (including a human resource development plan), attention should be paid to the facilitation of research and development initiatives in key sectors, with special attention to: technology transfer as a component of foreign direct investment; and the development of vocational and on-the-job training opportunities that allow for the development of specialist skills. Such an approach is not overly alien to St. Vincent and the Grenadines as seen with the development of its tourism industry, where the Government took a strategic decision to develop a relatively small tourism sector in consultation with key stakeholders (Tourism Authority and Hotel and Tourism Association). One of the key initiatives in this sense was the founding of a hospitality institute. Such efforts could be mirrored in the agricultural and light manufacturing sectors. This concentration on the development of specialist skills and technology transfer in the labour will be integral in the long-run for St. Vincent and the Grenadines to avoid the attraction of footloose investors that investments solely on costs, especially labour. A strategy of embedding investors through the development of specialist skills can avoid such unwanted investments. 25 Such as universities, private sector, training institutes, bi-lateral partners etc. 98 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 A combination of the right investments in labour and physical capital can change the productive capacity of an economy. What is spurred from strategic human capital planning, is identifying the research and development skills needed for sectors, which also helps in understanding the right type of investments in physical capital. Research and development, particularly in Science, Technology and Engineering, has been a predominant feature of emerging countries human capital plan to ensure the highest return per worker. Non-natural resourced governments such as Taiwan, Korea, and Malaysia strategized the role of R&D for industrial competitiveness and identified competencies in areas such as information technology, robotics, micro-electronics, laser technology, food and agro-technology, and biotechnology. St. Vincent and the Grenadines can learn lessons from these experiences and seek to exploit advantages in relation to renewable energy technologies (geo-thermal, solar, wind and wave) and other locational advantages such as technologies related to the marine environment, agroprocessing and niche manufacturing. The government’s human capital plan for R&D should involve Invest SVG, CED, University and Training institutes, CARDI, Chamber of Commerce and industry stakeholders. Vocational and On-the-Job Training With respect to on-the-job training and apprenticeships, interview results suggest that specific technical skills required by enterprises were absent in the labour market. The promotion/incentivising for enterprises to invest in this element of skill development needs to be implemented to ensure that enterprises attain the required skills for growth, as well as provide an opportunity for uncertified labour to enhance their earning capacity through on-the-job certification initiatives such as national vocational qualifications (NVQs). This is an area where the private sector can contribute to the wider development of society. Most respondents from the stakeholder interviews conducted stated that secondary, and even tertiary level graduates, lacked the technical expertise and other skills needed for workplace productivity. When asked if they participated in any apprenticeships or training programs for inexperienced professionals, most businesses stated it was minimal to non-existent. Given the specificity of required skills in some organisations, it is unlikely that training will be available in the education sector and therefore these skills need to be built internally. However, this does not appear to be promoted or practiced in St. Vincent and the Grenadines. As with incentivising investments in plant and equipment, incentives need to be put in place to invest in training at the enterprise-level rather than the educational institution level through apprenticeships and on-the-job training with requisite recognition through certification and opportunities for labour to improve their employment prospects within and outside of the specific enterprise. Caribbean and National Vocational Qualifications (CVQs/NVQs) provide an ideal mechanism in this respect and participation by enterprises should be strongly encouraged. Such enhancement of skills not only benefits the productivity of the individual enterprise, but demonstrates to potential investors that there is a skills-base in the country and that there is a commitment to on-going training. Chambers of Commerce, Government, enterprises, training institutes, and productivity councils are all considered as catalysts for implementing vocational training, apprenticeships and on the job training. However, it is ultimately Government’s responsibility to promote the adoption of apprenticeships and on-the-job training given the public good nature of such training. Collaborations 99 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 between Government, Chambers of Commerce and other private sector stakeholders should be given high priority. It should however be noted that the skill needs in St. Vincent and the Grenadines do not exist independently of any strategic plan for socio-economic development or private sector development specifically. Given this and the identified skill needs, the relevant Action Plan is: 5.4.2 Action 7: Education and training curriculum reform that addresses the long term strategic direction of Government as well as the more immediate needs of the private sector. The reforms undertaken should be informed from manpower surveys and subsequently developed human resource development plans which should seek to catalyse the utilisation of apprenticeships and on-the-job training. The long term strategic direction of Government should be constructed on the basis of dialogue with the private sector. Summary In addition to these core issues, issues related to trade were also highlighted such as inefficiency in customs and the need for the strengthening of the Bureau of Quality and Standards. However, these cannot be addressed directly by the Action Plan as the plan seeks to provide a conducive environment in the provision of appropriate labour and capital for the exploitation of market opportunities. However, these specific issues should be kept in mind during the implementation of the individual elements of the plan. Additionally, it needs to be noted that private sector development cannot be separated from the overall sustainable development of the country. This implies that social issues such as poverty, unemployment as well as environmental vulnerabilities should be considered in any plan to enhance private sector development. Indeed, these issues can often show up in the bottom line for businesses via higher security and insurance costs. It is imperative that these issues be kept in mind during the development of strategic plans to support the private sector. It is noteworthy that the Government of St. Vincent and the Grenadines appears to appreciate this and the general direction of the Government is in keeping with the Action Plans to emerge from the PSA. The 2013 Budget seeks to ensure sustainable growth in the private sector through a number of avenues in relation to enhancing investment opportunities in a number of sectors (agro-processing and export services, including entertainment) through enhancing access to finance, reducing energy cost and developing the human resources of the country. The Government clearly recognises that the generation of employment is key for the sustainable reduction of poverty, while also seeking to ensure fiscal security and foreign exchange earning capabilities to allow the Government to undertake its other obligations to the citizenry of the country. 100 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 6. Conclusions and Recommendations 6.1. A Long Term Action Plan for Private Sector Development The preceding analysis identified a number of pertinent issues affecting the development and growth of the private sector in St. Vincent and the Grenadines. As noted previously, the findings from the CGF are not significantly different to that from the PSA for St. Vincent and the Grenadines. One of the most critical recommendations to emerge from both studies is the need for the implementation of a forum for collaboration between key stakeholders and representatives of labour, the private sector and Government. Action 1: Establishment of a Tripartite Committee (government-employer-labour) to identify the needs of all bodies and guide and oversee private sector development strategies. At present, attempts are being made to facilitate these discussions, as noted above, however, there is no formal forum available to discuss the issue of private sector development at the national level. In Barbados, the umbrella institutional mechanism is known as the Social Partnership, which is chaired by the Prime Minister with members drawn from labour and private sector representative bodies. There are sub-committee meetings of the social partnership that then feed into the sessions chaired by the Prime Minister. Added to this consultative process, members of the social partnership also sit on the boards of various government agencies and key policymaking committees. Fashoyin26 (2004:59), drawing on the Barbadian Social Partnership, provides some conditions for effective dialogue: Free, independent and representative organisations of workers and employers; The willingness and readiness to consult, negotiate and share information; Strong and capable trade unions and employers’ organisations; Acknowledgement of the interdependence of the tripartite partners; Shared vision and a commitment to search for wider consensus; Mutual trust and respect for each party; Institutional machinery for social dialogue at the various levels of the economy; A certain degree of coordination between the levels of consultation and negotiation. Fashoyin (2004) does however note that the framework for social dialogue cannot be neatly exported from one country to another, and the development of a Tripartite body in St. Vincent and the Grenadines will need to be cognisant of this, while appreciative of the challenges for meeting the conditions for effective dialogue. Once established, the Tripartite Committee should seek to also address the following: Action 2: Rationalisation and streamlining of public sector’s business support framework through the work of the Tripartite Committee to ensure a revised system that addresses both the needs of the private sector (access to finance, technical assistance and data) as well as wider obligations of Government. 26 Fashoyin, T. (2004). Social Dialogue in Selected Countries in the Caribbean: An Overview, Journal of Eastern Caribbean Studies, 29 (4), 42-63. 101 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Action 3: Development of a National Strategic Plan that mainstreams private sector development in the country. Through the lobbying efforts of Government, the plans for the development of the private sector should also be included in and regional strategic plans at the level of the OECS/ECCU and CARICOM. Action 4: Reduce the cost of finance through the reduction of transactional and operational costs in financial institutions through the use of technology and monitoring of efficiency levels; the reduction of risk and risk-averseness through the establishment of a credit bureau and a collateral registry; and the introduction of alternative financial products and greater networking in the financial sector. Action 5: Increase the capacity of businesses to access finance through the provision of support (technical assistance and training) for the adoption of accepted business practices (recordkeeping) and the skills to develop business plans for funding and strategic planning. These services exist in St. Vincent and the Grenadines and are provided by the Invest SVG and the Centre for Enterprise Development, however, the utilisation of these services need to be expanded given the results to emerge from the PSA. Action 6: Provide incentives for energy conservation and frameworks for the exploitation of renewable/alternative energy and reduce the cost of fossil fuels. Incentives and support in this area will act as both a cost-reduction tool as well as an opportunity for investment and enterprise development in the renewable/alternative energy sector. Efforts to reduce the cost of fossil fuels would relate to periodic reviews of the fuel clause tariff structure, a review of the distribution chain and exploration of the possibility of privatisation of electricity supply. Action 7: Education and training curriculum reform that addresses the long term strategic direction of Government as well as the more immediate needs of the private sector. The reforms undertaken should be informed from manpower surveys and subsequently developed human resource development plans which should seek to catalyse the utilisation of apprenticeships and on-the-job training. The long term strategic direction of Government should be constructed on the basis of dialogue with the private sector. It should be noted that the various elements of the Action Plan seek to provide a conducive environment for private sector development in St. Vincent and the Grenadines, however, this does not suggest that the implementation of the Action Plan in and of itself will automatically lead to growth of the private sector; there must also be entrepreneurial action in exploiting opportunities in the local, regional and global market. This is especially in light of anecdotal evidence that emerged during interviews throughout the region that the private sector demonstrated a lack of interest in looking ‘beyond their borders’ and instead seek to grow domestic market share. As another caveat, the implementation of the Action Plan cannot be undertaken in isolation from regional integration efforts at the OECS and CARICOM levels. If Action 3, the development of a national strategic plan, is taken as synonymous to some degree as the development of an industrial policy, the following should be noted: ‘Given that trade negotiations often take place at the regional level, industrial policies should be framed by the existing and likely trade commitments and coordination should be 102 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 facilitated as much as feasible as it is unlikely that the Region will gain the first-world status that it seeks without greater regional coordination’(p.145)27 In relation to the development of a national strategic plan with a regional focus, attention should be paid to the specific recommendations that have consistently emerged from research in the region which speak to niche market development, moving up the value chain, development of strategic alliances and joint ventures for knowledge and technology transfer, and the development of clusters, both vertical and horizontal28 . The current VINCYKLUS initiative in promoting clusters provides a basis for growth in the area of clustering. While activities in these areas are not specifically mentioned in the Action Plan due to their specificity, they should remain as options during the development of the strategic plan for private sector development and growth in St. Vincent and the Grenadines. 6.2. Summary The economies of the OECS have all been severely affected by the global economic recession, both in relation to government’s ability to meet its obligations to its citizenry as well as the private sector’s ability to grow. Growth in St. Vincent and the Grenadines has been quite volatile over the last few years. In addition to the downturn in the global economy, several natural disasters have derailed the economy. Between 1994 and 2010, the island has been affected by five tropical storms and one category 2 hurricane (Tomas, 2010) as well as a drought in 2010. As a result, following average growth of 5% between 2002 and 2007, the economy contracted by 2.4% in 2009 and a further 1.8% in 2010. The contraction in the economy largely reflected falling tourist arrivals as well as FDI-related construction, which has had negative spillover effects on the rest of the economy. While the private sector in St. Vincent and the Grenadines face many specific issues related to taxes, dealing with Government departments, etc., it is considered that addressing the wider issues and the facilitation of a forum for discussion, that many of these specific issues could be addressed. It is also important to be aware that many of the recommended actions will not bear results in the shortterm; building a framework for the development of alternative energy and curricula reform are not overnight processes, and require an element of structural change. In summary, the table below outlines the relationship between the main critical themes identified from the PSA, the main critical issues and related elements of the Action Plan. It should be noted that while all of the Action Points relate to the establishment of a conducive environment for the development of the private sector and are external to enterprises, that the private sector itself will need to take a portion of responsibility and seek to adopt a more proactive approach to exploiting opportunities available in the market. Given the perception that the private sector is not as proactive as it can be, and as a caution in relation to interventions to spur private sector development, it is imperative that all key stakeholders, from the international to the domestic level, are fully aware of the current level of development of the private sector. In St. Vincent and the Grenadines, and across the region, the private sector is relatively under-developed and limited in 27 Moore, W. (2010). Trade and Industrial Policy in the Caribbean. In: Alleyne, F., Lewis-Bynoe, D. and Archibald, X. (2010). Growth and Development Strategies for the Caribbean. CDB: Barbados. 28 An overview of policy recommendations made in this respect can be found in: Lashley, J. (2010). Productive Sector Development in the Caribbean: Manufacturing and Mining. In: Alleyne, F., Lewis-Bynoe, D. and Archibald, X. (2010). Growth and Development Strategies for the Caribbean. CDB: Barbados. 103 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 its ability to cope with current neo-liberal developments given a long period of protection through such mechanisms as preferential trade agreements which have recently been removed. Any interventions should therefore seek to assist the private sector, with the assistance of the public sector, to build domestic market opportunities as well as special and differential treatment for export goods in the short- to medium-term, rather than fully expose it to the rigours of international competition. Lessons should also be learnt in relation to drawing on the strengths of the region rather than seeking, as in the past, to attract investment based on low-cost labour which subsequently led to the attraction of footloose enterprises that relocate to competitors as cost levels change or economic circumstances deteriorate in relative terms. In this vein, the Caribbean needs to exploit those resources for which it has an advantage and a brand, suggesting a concentration on alternative energy (geothermal, solar), specialist agricultural products (such as nutmeg in Grenada) and agro-processing, eco-tourism, edu-tourism (drawing on human resources in the region), heritage tourism, health and wellness (both product-specific and related to tourism), and financial services, among others. In addition to drawing on the locational advantages that exist in the region, attention should be paid to the specific recommendations that have consistently emerged from research in the region which speak to: niche market development; moving up the value chain; development of strategic alliances and joint ventures for knowledge and technology transfer; and the development of clusters, both vertical and horizontal. The current VINCYKLUS initiative in promoting clusters provides a basis for growth in the area of clustering. While activities in these areas are not specifically mentioned in the Action Plan due to their specificity, they should remain as options during the development of the strategic plan for private sector development and growth in St. Vincent and the Grenadines. 104 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table 17: Recommendations and Actions Matrix for St. Vincent and the Grenadines Themes General Political and Governance Issues Main Critical Issues Limited dialogue between stakeholders representing Government, labour and the private sector ‘Silo-mindset’ in business support organizations in the public sector Ad hoc development planning Lack of information sharing by the private sector Lack of utilization of technology. Access to Finance High Transaction and Operating Costs Informational Asymmetries Alternative Financing Options Cost of Doing Business Cost of electricity Labour Market Issues Limited availability and lack of specialist skills in the labour market: Trade Issues Limited product and market range with a domestic focus. Actions 1. Establishment of a Tripartite Committee 2. Rationalisation and streamlining of public sector’s business support framework 3. Development of a National Strategic Plan that mainstreams private sector development 4. Reduce the cost of finance 5. Increase capacity of business to access finance 6. Provide incentives for energy conservation and frameworks for the exploitation of alternative energy options and reduce the cost of fossil fuels. 7. Education and training curriculum reform. Details As noted by Fashoyin (2004) there is a need for: Members to be independent and representative Willing to consult and negotiate Demonstrate mutual trust and respect Need for communication at the Tripartite Committee level to determine the specific external needs of enterprises in relation to the business environment (finance, technical assistance) while meeting the wider obligations of Government. Responsibility of… Government to initiate Tripartite Committee and address other issues in conjunction with Tripartite Committee To address the issues of access to finance, several specific steps can be taken: Introduction of technological advances ; Monitoring of efficiency rate of financial institutions to identify areas for improvement; Establishment of credit bureaus and collateral registries ; Introduction of alternative financing options such as equity financing, Greater competition in the financial sector, particularly the strengthening of domestic institutions; Provision of technical assistance and training to the private sector in relation to increasing formality, the adoption of accepted business practices, and the skills to secure funding. Provision of incentives and support to help reduce energy costs through conservation as well as for investing in the sector. Periodic review of the fuel clause adjustment. Assess the efficiency of the current distribution chain. Explore the possibility of privatization of electricity supply. Eastern Caribbean Central Bank; Business support organisations Government The specific content of any reform should be determined at the Tripart ite level and Government informed from the strategic plan for private sector development. Agreement will need to be reached on the immediate needs of the private and the longer terms development vision of Government. Specific issues that will need to be addressed i nclude: Lack of labor market data Lack of utilization of formalized apprenticeships and on-the-job training The trade issues highlighted for St. Vincent and the Grenadines cannot be addressed directly by the Action Plan as the expansion of product range and markets will require the action of private sector entrepreneurs. 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(2007). “Determinants of Commercial Banks Interest Rate Spreads: Some Empirical Evidence from the Eastern Caribbean Currency Union,” ECCB Working Papers, March. Holden, P; Howell, H (2009). Enhancing Access to Finance in the Caribbean, Private Sector Development Discussion Paper #4, No. IDB-DP-164, IADB IFC and World Bank. (2010). Enterprise Survey – St. Vincent and the Grenadines. Washington: International Finance Corporation and the World Bank. ILO (1997). Human Resource Development for continued Economic Growth the Singapore Experience 1997, ILO Workshop on Employers’ Organisation in Asia -Pacific in the Twenty-First Century International Poverty Centre (2008). Banking the Un-Banked: Improving Access to Financial Services, Research Brief Oct /2008 no.9, International Poverty Centre. Malaki, Akhil (2006). 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Foreign Direct Investment, Technology Transfer and Firm Performance, Hong Kong Institute of Economics and Business Strategies, University of Hong Kong 106 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Trevor Hamilton Associates (2010). On the Labor Market and Investment Study in St. Vincent and the Grenadines, for InvestSVG Wang, N (2003). “Measuring Transaction costs: An Incomplete Survey”, Working Paper Series, Working Paper number 2 February 2003, Ronald Coase Institute Watson, G (2009). Linking Remittances and Access to Finance, Global Remittances Working Group November 2009, Multilateral Investment Fund, IADB Wozniewska, G (2008). Methods Of Measuring The Efficiency Of Commercial Banks: An Example Of Polish Banks, PhD ISSN 1392-1258. Ekonomika 2008 84, Banking Department Wroclaw University of Economics 107 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Appendices 108 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Appendix 1: Structure of the OECS The administration of the OECS is run by the OECS Secretariat, which is based in St. Lucia. The organs of the OECS include: The OECS Authority: The highest policy-making body of the OECS consisting of the various Heads of Government. The Authority’s chairmanship changes annually and rotates between the various member countries’ Head of Government. The Council of Ministers: The Council is comprised of appointed Ministers of Government from each member state and is responsible to the Authority. The Council act on matters referred by the Authority and also makes recommendations to the Authority. The OECS Assembly: The Assembly is comprised of appointed members of Government and Opposition from each member state. The Assembly serves as the legislative arm of the OECS. The power of the Assembly is confined to common market aspects of the Economic Union- Monetary Policy; Trade Policy; Maritime Jurisdiction and Maritime Boundaries; and Civil Aviation. The Assembly is permanently based in Antigua and is comprised of five legislators from every independent state and three from every non-independent state. The Economic Affairs Council: The Council is comprised of representatives of member states, usually Ministers of Trade. The Council is guided by the Economic Union Protocol and the Council is the principal organ of the Economic Union. The OECS Commission: The Commission is the main administrative organ of the Economic Union. It is comprised of a Director-General whose responsibility is the daily administration of the Organisation and convenes and presides over meetings of the Commission. The Commission also included one Commissioner of Ambassadorial rank named by each member state. The Commission also provides the Secretariat services for the organs of the OECS and makes recommendations to the Authority and Council of Ministers ‘…regarding the formation of Acts and Regulations of the Organisation; and undertake other work and studies, and perform other services relating to the functions of the Organisation as required under this Treaty or the OECS Authority or by any other organ’ 29 . The OECS Secretariat: The Secretariat is responsible for the coordination of the function of the OECS under the direction of the Director-General. The organizational chart of the Secretariat is shown below. In addition to these organs, other relevant institutions include: 29 The Eastern Caribbean Central Bank (ECCB): The ECCB is the monetary authority of the OECS and issues the Eastern Caribbean Dollar. The ECCB maintains currency stability and oversees the banking system in the member states. The ECCB is governed by a Monetary Council and a Board of Directors and is managed by a Governor, currently Sir Dwight Venner. The ECCB was formed in 1983 and is based in St. Kitts and Nevis. The Eastern Caribbean Civil Aviation Authority (ECCAA): The ECCAA is an autonomous body with the OECS with responsibility to regulate civil aviation activities. Eastern Caribbean Supreme Court (ECSC): The ECSC has unlimited jurisdiction in all member states in accordance with individual Supreme Court Acts. The Court, established in 1967, is the superior court of record for the OECS member states. Op cit. 109 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Figure 48: Organisational Chart of the OECS Secretariat Source: http://www.oecs.org/images/oecs_org_chart.jpg 110 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Appendix 2: List of Key Stakeholders from Interviews and Consultations Table 18: Business Support Institutions and Other Relevant Bodies Name of Institution Chamber Of Industry & Commerce (St Vincent & The Grenadies) Inc Invest SVG Contact Person Ruthmilda Patrick Ministry of Finance and Economic Planning Ministry of Tourism, Sports and Culture Mr. Maurice Edwards Mrs. Lavern Grant National Development Foundation Mrs. Hermia Neehall St. Vincent and the European Development Fund St. Vincent and the Grenadines Hotel & Tourism Association Statistical Office Ms Laura Anthony – Browne Commercial Technical & Allied Workers Union Alice Mandeville St. Vincent & the Grenadines Co-op Credit Union Ms. Angela Patrick St. Vincent and the Grenadines Small Business Association The Secretary Mr. Edmond Jackson Executive Director Ms. Gatlin Roberts Address Corea's Bldg Hillsboro St Box 134 Kingstown 2nd Floor Administrative Bldg. Bay Street P.O. Box 2442 Kingstown P.O.Box 608, Kingstown. 2nd Floor NIS Building, Upper Bay St., Kingstown, St. Vincent McKies Hill, Kingstown, St. Vincent and the Grenadines 1st Floor, Administrative Centre Bay Street, Kingstown P O Box 2125, Kingstown, St Vincent & the Grenadines Ministry of Finance, Planning and Economic Development, PO Box 608, Kingstown P.O. Box 245, Middle Street, Kingstown, St. Vincent and the Grenadines P O Box 1265, Lower Kingstown Park, Kingstown, St. Vincent and the Grenadines P.O. Box 2343, Kingstown 111 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Appendix 3: St. Vincent and the Grenadines Governance Framework St. Vincent and the Grenadines gained independence from Britain on 27 th October 1979. The Government is a parliamentary democracy based on the Westminster model. The country is a member of the British Commonwealth with Queen Elizabeth II as the head of state. Queen Elizabeth II is represented in St. Vincent and the Grenadines by the Governor General, Sir Frederick Ballantyne. The Prime Minister is the Honourable Dr. Ralph Gonsalves who was elected in March 2001. The House of Assembly has 15 elected members and 6 senators who are appointed by the Governor General on the recommendation of the Prime Minister. Table 19: The Government of St. Vincent and the Grenadines: Cabinet Members and Portfolios Member Dr. Hon. Ralph Gonsalves Portfolio Prime Minister and Minister of Finance, National Security, Grenadines Affairs and Legal Affairs Hon. Girlyn Miguel Minister of Education Hon. Senator Dr. Douglas Slater Minister of Foreign Affairs, Foreign Trade and Consumer Affairs Hon. Clayton Burgin Minister of Health, Wellness and the Environment Hon. Montgomery Daniel Minister of Housing, Informal Human Settlements, Lands and Surveys and Physical Planning Hon. Saboto Caesar Minister of Agriculture, Industry, Forestry, Fisheries and Rural Transformation Hon. Maxwell Charles Minister of National Reconciliation, the Public Service, Labour, Information and Ecclesiastical Affairs Hon. Cecil McKie Minister of Tourism, Sport and Culture Hon. Senator Julian Francis Minister of Transport, Works, Urban Development and Local Government Hon. Frederick Stephenson Minister of National Mobilisation, Social Development, the Family, Gender Affairs, Persons with Disabilities and Youth Source: http://www.gov.vc/index.php?option=com_content&view=article&id=11&Itemid=104. Last Accessed 8 th April, 2013. 112 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Appendix 4: Minimum Wage Levels in St. Vincent and the Grenadines Domestic Workers Persons with living-in accommodation - $400.000 per month with meals Persons without living-in accommodation - $450.00 per month with meals Persons employed on a day-to –day basis - $25.00 Hotel Workers Front Desk/Receptionist/Secretary………….$675.00 per month Accounts Clerk/Office Clerk……………….. $900.00 per month Guest Services……………………………… $ 900.00 per month Room Attendants………………………….. $565.00 per month House man/Bellboy……………………..… $450.00 per month Supervisor – Housekeeping……………..….. $675.00 per month Food and Beverage Supervisors………..……$775.00 per month Cooks…………………………………….… $675.00 per month Dish washer/Kitchen Helpers……….….….. $450.00 per month Chef………………………………….………$1,100.00 per month Laundry ………..$30.00 per day………….. $500.00 per month Gardener………..$30.00 per day……………….$500.00 per month Maintenance…………………………….….….. $900.00 per month Waiter/Waitress…………………………..……. $565.00 per month Bartender…………………………………...….. $675.00 per month General Helper…………………………………. $565.00 per month Industrial Workers Workers Employed in industrial sector Apprentice for period of six months to one year - $20.00 per day Watchmen ………….. …………………………. $40.00 for a twelve-hour shift. Workers in Offices of Professionals Clerks………………….………. $ 700.00 per month Receptionist……………….…… $ 600.00 per month Office Attendant………..……… $ 400.00 per month Secretary/Typist……………..….$ 800.00 per month Shop Assistants 1. Persons with previous working experience Cashiers $175.00 per week $700.00 per month 113 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Sales Clerk $150.00 per week $6 00.00 per month 2. Check-out attendants, office Attendants, packers and cleaners (full time) $125.00 per week Part time cleaners (3 hours or less) $200.00 per month 3. Porters $150.00 per week 4. Watchmen $200.00 per week 5. Office clerks a. With previous working experience $600.00 per month b. Persons sixteen and over: On first employment, first six months $500.00 per month Thereafter: $600.00 per month 114 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Appendix 5: Donor Matrix Report for St. Vincent and the Grenadines 115 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Compete Caribbean Private Sector Donor Matrix Report for St. Vincent and the Grenadines August 2013 116 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Description of the Donor Community Please see Section 5.2.3 of the main PSA Report for information on: Active multilateral and bilateral donors Formal and Informal Coordinating Mechanisms among donors Methodologies for indentifying priorities for donor funding Monitoring and evaluation by donors Opportunities to improve coordination amongst donors For information on programs and projects undertaken by donors in the country and in the OECS in general, please see DMX Appendix 1: Donor Projects and Programs. Description of Local Stakeholders Public Sector Stakeholders The main public sector body in St. Vincent and the Grenadines supporting private sector development is the Ministry of Agriculture, Industry, Forestry, Fisheries and Rural Transformation. The Department of Industry is: ‘The principal institution responsible for shaping the government’s policy in respect of the country’s institutional development and to stimulate the development of the industrial sector by promoting greater economic diversification, export competitiveness and improved productivity. This unit processes applications for industry incentives under the Fiscal Incentives Act, Chapter 366 of the Laws of St. Vincent and the Grenadines (Revised Edition) 1990.’ 30 In addition to the Ministry, St. Vincent and the Grenadines also operate the Centre for Enterprise Development, an investment promotion agency, Invest SVG, and a National Development Foundation. An overview of these agencies is provided in Section 5.2.2. while additional information is included in the table below. Private Sector Stakeholders A listing of main private sector stakeholders is shown in Section 5.2.2. Please see below for specific information the background of these organisations are well as the main constraints faced and sectors considered as having potential for future growth. 30 http://www.agriculture.gov.vc/index.php?option=com_content&view=article&id=218&Itemid=181 117 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table 20: Overview of Key Stakeholders in St. Vincent and the Grenadines Name Type of Organisation Business Support Background Main constraints faced To attract FDI, act as policy advocate to create a more facilitating environment. Provision of aftercare services, trade shows, technical support St. Vincent Hotel and Tourism Association The Chamber of Commerce Business Support Marketing Hotels and Advocacy for Hotels and tourism related businesses Business Support To build organisational commitment and capacity to deliver sustainable, developmental and innovative solutions to all business partners and stakeholders. Bureau of Standards Business Support Bequia Tourism Association Business Support VINCYKLUS Business Support Established in 1992, The Standards Act No. 70 of 1992 (amended by Act No. 28 of 2001) gives the SVGBS authority, inter alia, “…. to prepare and promote standards relating to goods, services, processes and practices produced and/or used in St. Vincent and the Grenadines, to ensure industrial efficiency and to assist in industrial development as well as to promote public and industrial welfare, health, safety and to safeguard against negative effects to the environment”. The Bequia Tourism Association (BTA) was formed in December 1999 by a group of individuals from the Bequia business community, with the dual aims of protecting and enhancing the island's resources for both visitors and the community, and of attracting more visitors to the island through its own promotional and marketing initiatives. Its membership has now become more broadly based, encompassing not only business people but also representatives of community groups, Bequia schools, private residents, and Bequia lovers from around the world. The overall objective of VINCYKLUS is to increase and strengthen the capability of individual producers operating within the cluster. 1)Energy Costs 2) Book keeping and Efficiency of Business 3) Access to finance 1)Access to Finance 2) Energy Costs 3) Airlift 1)Bureau of Standards Certificate costs 2) Energy costs 3)Market Access 1) Human Resource Capacity/ Skilled Staff (In Bureau) 2) Capacity to implement 3)No National Labs Center for Enterprise Development Business Support (Government Owned Statutory) THE CED is a people-centred organisation with the professional competence and commitment to deliver timely, relevant and reliable services, information and advice to potential and existing entrepreneurs on all aspects of business resulting in increased competitiveness, higher levels of business success and sustainability in the local private sector. Invest SVG Areas/Sectors with potential for future growth 1) ICT 2) Construction, Infrastructure 3) Agro-Business linkages 1) Airport Opportunities 2) Eco- Tourism 3)Sport Tourism (Kite Surfing) 1) Linkage between Hospitality and Agro-Business 2) ICT 3)Green Projects 1) Agro-Business/Processing 2) Linkages among sectors i.e. Tourism 3) Service Industry 1)Energy Costs 2)Maintenance Costs-Sea Salt 3)Access to the island (Transport Costs) 4)Public Awareness on Tourism 5) Security 1) Diving Facilitation 2) Hospitality Training School 3)Bequia as central to tourism in SVG 1)Access to Finance 2) Certification Standards 3) Customs 4) Capacity Issue in VINCYKLUS 1)Access to Finance specifically (equity) 2) Energy Costs 3) Customs Efficiency 1) Agro-Production 2) Micro-Enterprise 3)Creation of Synergies 1) Agro-business 2) Cultural Industry 3) Designing a sustainable financial services model for entrepreneurs 118 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Port Authority Business Support (Government Owned Statutory) Business Support/Fina nce The St. Vincent and the Grenadines Port Authority (SVGPA) is responsible for the operation and administration of the Port of Kingstown, the nearby Campden Park Container Port (CPCP) and the Cruise and Ferry Terminal. The Port Authority's mission is to provide a coordinated effective and efficient system of port facilities to the public The league came out to unify the system, train and develop services in Credit union, Compliance, monitor their performance, discuss cooperative issues 1)Operating inefficient running 2 ports 2)Access to finance 3)Infrastructure 4)Brain Drain (Technical Fields) 1)Infrastructure, Airport Services 2) Access to finance 3)Credit Unions inadequate focus on production 1)Centralized Port 2) Tourism The National Development Foundation Business Support/Fina nce Established to assist the poor with training, technology and funding. 1) Agro-Business 2)Clustering 3)Poultry, Meat The National Bank of St. Vincent Finance (Private Enterprise) Cooperative Bank Finance (Private Enterprise) 1)Politics(Policies superficial ) 2)Unskilled labour force 3)Energy Costs 1) Agri-Business 2)ICT/ Services Ministry of Tourism Public Sector The Statistical Department Public Sector The Bank of Saint Vincent & the Grenadines, formerly the National Commercial Bank (SVG) Ltd. was founded in June 1977 by The Honorable Robert Milton Cato the then Premier of Saint Vincent with 11 staff members at a single Branch. Bank of Saint Vincent & the Grenadines currently offers services in retail banking which includes savings and deposits in addition to credit and investment banking. st The St Vincent Co-operative Bank Limited opened its doors to business on 1 February 1945 and is one of the oldest indigenous financial institutions in St. Vincent and the Grenadines. We are committed to providing Banking services that consistently conform to customer requirements; to deliver them efficiently, whilst maintaining the highest degree of service quality in order to achieve total customer satisfaction. The objective of Ministry of Tourism is to ensure that there is a high quality visitor experience for all consumers of St. Vincent and the Grenadines’ Tourism Product. Mission is to facilitate informed decision-making through the provision of high quality, relevant, user-oriented and dynamic statistical services by coordinating Statistical activities and promoting the adherence to Statistical standards. 1)Funding decreased to NDF 2)Record Keeping 3) Market Access 4) Energy Costs 5) Customs 1)Unskilled labour force 2)People resistant to innovation/change 1)Access to Finance 2)Youth Entrepreneurship 3) Hotels data sharing 1)Data Collection, 2)Human Resource Capacity in Stats 1)Agro-Business 2) ICTs 3) Tourism Linkages 1) Fashion Cultural, 2)Benefits from Diaspora Credit Union League 1) Financial Services (Credit Unions, Micro-Financing) 2) finding Synergies 3) Youth in Agro-business 1)ICT 2)Tourism 119 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Description of Information Available for the Analysis of Private Sector Characteristics, Development Initiatives and Results The most up-to-date information on the private sector in St. Vincent and the Grenadines is provided by the Enterprise Surveys and Doing Business Reports as used extensively throughout the PSA Report. In addition, the Eastern Caribbean Central Bank conducts twice yearly Business Outlook Surveys (http://www.eccb-centralbank.org/Statistics/outlooksummary.asp). A recent survey of the MSME sector was also undertaken by the Commonwealth Secretariat in 2009. Identification of Opportunities to Increase Efficient Design and Execution of Programs The main issue in relation to opportunities to increase the efficient design and execution of programs relates not only to these overlaps and duplication, but also to gaps. The gaps mainly relate to the main issues raised in the PSA Report in relation to lack of easily accessible finance, lack of matching of skills supplied with the needs of the private sector, and process issues related to the operation of customs and trade-related organisations and a ‘silo-mindset’ in business support organisations. One of the reasons for these gaps is a lack of inclusion of the private sector in decision-making and strategic planning. It is hoped that this issue would be addressed by the establishment of a high-level steering committee comprising of labour, private sector and public sector representatives. Identification of Opportunities to Address Omitted Priority Problems The areas omitted from current support for private sector development can be addressed a s recommended in the PSA Report. In addition, many of the agencies mentioned in the previous section are in one way or the other are associated with the goal of private sector development in St. Vincent and the Grenadines. While a single entity would result in some cost savings, it is likely that such an institution might not have the necessary capacity to effective enable private sector development in such a wide cross-section of industries. Instead, members of all the above agencies, along with representatives from key supporting industries (e.g. finance, labour, customs, among others) could form a special taskforce with the expressed objective of private sector development. Such should be tasked with coordinating any overlaps or duplication that might occur in relation to the goal of private sector development. Recommendations The areas where recommendations are required from the terms of reference for the DMX section of the project relate to recommendations that improve coordination amongst donors, improve donor coordination with local stakeholders and improve PSD-related information systems and monitoring and evaluation. The current activities by Compete Caribbean as an approach to improve donor coordination and the Caribbean Growth Forum (CGF) initiative are two examples that other donor agencies not currently participating would do well to emulate. In areas of congruence, such initiatives should be utilised to achieve overall development goals, while unilateral targets could still be met via the donor’s independent activities. 120 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 In relation to donor coordination with local private sector and public sector representatives, the results of interviews across the region speak to the issue of a lack of dissemination of information on areas of support available as well as the results of research studies which local stakeholders have provided information for. The inclusive modus operandi of the CGF is a good example of how to improve the relationships with local stakeholders through inclusion in working groups and transparency in research results. However, it should be noted that there was limited participation by the private sector and this will need to be more actively encouraged. This point is closely related to the issues of the development of information systems and monitoring and evaluation. Private enterprises are reluctant to share information on their enterprises and by greater inclusion in the decision-making process there may be greater willingness to share relevant information. There is a strong demand by private sector enterprises for data to assist in strategic planning. However, the situation is not that data does not exist in the region, it is basically that the data is not collated or mined. Individual governments, through such agencies as Inland Revenue Departments and National Insurance Schemes, collect information over specific periods that could provide more detailed information as regards revenue and expenditure by sector, employment levels and categories, and investment data. The problem in this regard is a lack of infrastructure and human resources to consistently collate and present data. This is an area where, at the country and regional level through national statistical offices and the OECS Secretariat and the Eastern Caribbean Central Bank, that donors could direct resources, especially as it relates to technical assistance in the development of such a system. DMX Annex 1: Analysis of Donor Projects and Programs in St. Vincent and the Grenadines Main donors to St. Vincent and the Grenadines include: The Caribbean Development Bank (CDB), The European Union’s European Development Funding (EDF) program, The Department for International Development (DFID), The International Bank for Reconstruction and Development (IBRD), the European Investment Bank (EIB), and the International Finance Corporation (IFC). Major bilateral assistance came from the Canadian International Development Agency (CIDA), USAID, and the Government of Taiwan. In addition, multi-donor support is provided through Compete Caribbean. In relation to the nature of projects funded, the majority of active projects are focussed on the Business Support, Finance (access to finance), the Business Environment in general or a combination of these objectives. For projects focussed on these objectives, there are 42 active or recently completed donor funded projects in St. Vincent and the Grenadines specifically, and 12 operating at the OECS level. Of these projects, at the country level, the majority of projects are focussed on the Business Environment (38%) and Business Support/Access to Finance (38%). The largest area in terms of funding is Business Support/Access to Finance with US$41 million. It should however be noted that although Access to Finance by itself only accounts for 5% of projects, it accounts for 31% of funding (US$38 million). In terms of the sector focus, 52% of these main objectives are targeted at the service sector. 121 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 OECS St. Vincent and the Grenadines Location Table 21: Main Objectives and Sector Profiles of Donor Projects in St. Vincent and the Grenadines and the OECS Objective Business Support/Institutional Structure Access to finance Business Environment Business Support/Finance TOTAL Business Support/Institutional Structure Access to finance Business Environment Business Support/Finance TOTAL OECS Share (%) Agriculture (%) Industry (%) Services (%) Value of Active Projects (US $’000) 19.0 4.8 7.1 9.5 $ 13,803 4.8 38.1 38.1 100.0 41.7 2.4 19.0 11.9 38.1 8.3 2.4 11.9 11.9 33.3 8.3 2.4 28.6 11.9 52.4 8.3 $ $ $ $ $ 37,503 29,647 41,608 122,561 31,140 16.7 25.0 16.7 100.0 8.3 8.3 8.3 33.3 8.3 8.3 8.3 33.3 16.7 8.3 8.3 41.7 $ $ $ $ 1,940 14,190 2,060 49,330 At the OECS level, for projects in these areas which are operating at the sub regional level, the service sector is also the focus, accounting for 42% of projects. In terms of the number of projects and value, the Business Support/Institutional Structure objectives dominate with 42% of projects and funding in excess of US$31 million. In terms of gaps in support, although access to finance has been noted as a major obstacle to business development in the region, projects specifically targeting this area at the sub regional level only account for 17% of projects, and less than US$2 million in funding. However, at the domestic level in St. Vincent and the Grenadines, while only accounting for 5% of projects, support for access to finance accounts for 31% of total funding in these areas. In taking the region as a whole, access to finance is only the main focus of 14% of projects, and a joint focus with Business Support for 13% of projects. However, within these categorisations, 22% of funding is directed to Access to Finance, while 21% of funding is targeted at both Access to Finance and Business Support. Table 22: Overview of Main Donor Projects by Objective, Sector and Value 31 Objective Business Support/ Institutional Structure Access to finance Business Environment Business Support/ Access to finance Total 31 Active/Recent Completed Projects 67 Average Share (%) 27.0 Agriculture Projects (% of total) 6.3 Industry Projects (% of total) 7.9 Services Projects (% of total) 10.8 Total Value of Main Projects (US$'000) $ 107,738 36 91 35 14.1 33.5 12.9 5.9 9.0 4.8 6.7 10.1 5.2 10.6 19.0 7.0 $ $ $ 104,390 155,733 96,996 229 - 26.0 30.0 47.4 $ 464,857 Note that some percentages do not sum to 100% due to rounding during aggregation. 122 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 As indicated in the table above, the greatest number of projects relate to the Business Environment, accounting for on average 34% of projects at a total value of US$156 million. In terms of sector concentration, on 47% of projects are focussed on services. The table below outlines the main information by the main objectives, sector of focus and value at the country level in the OECS. 123 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 Table 23: Main Objectives and Sector Profiles of Donor Projects in the OECS and Member States St. Lucia St. Kitts and Nevis Grenada Dominica Antigua and Barbuda Country Objective Business Support Insitutional Structure Access to finance Business Environment Business Support and Access to finance TOTAL Business Support Insitutional Structure Access to finance Business Environment Business Support and Access to finance TOTAL Business Support Insitutional Structure Access to finance Business Environment Business Support and Finance TOTAL Business Support Insitutional Structure Access to finance Business Environment Business Support and Access to finance TOTAL Business Support Insitutional Structure Access to finance Active/Recently Completed Projects 12 Share of Total (%) 37.5 Agriculture Projects (%) 6.3 Industry Projects (%) 3.1 Services Projects (%) 9.4 Total Value of Main Projects (US$'000) $ 15,350 5 11 4 15.6 34.4 12.5 6.3 3.1 3.1 6.3 9.4 3.1 6.3 3.1 9.4 $ $ $ 1,250 19,049 3,457 32 11 100.0 31.4 18.8 11.4 21.9 11.4 28.1 22.9 $ $ 39,105 14,553 6 15 3 17.1 42.9 8.6 11.4 2.9 2.9 11.4 11.4 2.9 17.1 42.9 8.6 $ $ $ 20,873 20,243 4,150 35 10 100.0 28.6 28.6 5.7 37.1 14.3 91.4 20.0 $ $ 59,819 9,950 7 16 2 35 10 20.0 45.7 5.7 100.0 28.6 5.7 5.7 20.0 11.4 8.6 20.0 8.6 5.7 45.7 8.6 $ $ $ $ $ 11,081 19,688 34,658 75,377 7,493 9 14 2 25.7 40.0 5.7 2.9 8.6 11.4 11.4 14.3 34.3 $ $ $ 9,093 15,243 3,820 35 11 100.0 28.9 20.0 5.3 31.4 10.5 57.1 7.9 $ $ 35,648 15,450 5 13.2 10.5 7.9 7.9 $ 22,651 124 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 OECS Level St. Vincent and the Grenadines Country Objective Business Environment Business Support and Access to finance TOTAL Business Support Insitutional Structure Access to finance Business Environment Business Support and Access to finance TOTAL Business Support Insitutional Structure Access to finance Business Environment Business Support and Access to finance TOTAL Active/Recently Completed Projects 16 6 Share of Total (%) 42.1 15.8 Agriculture Projects (%) 21.1 2.6 Industry Projects (%) 18.4 5.3 Services Projects (%) 15.8 5.3 Total Value of Main Projects (US$'000) $ 37,674 $ 7,243 38 8 100.0 19.0 39.5 4.8 42.1 7.1 36.8 9.5 $ $ 83,017 13,803 2 16 16 4.8 38.1 38.1 2.4 19.0 11.9 2.4 11.9 11.9 2.4 28.6 11.9 $ $ $ 37,503 29,647 41,608 42 5 100.0 41.7 38.1 8.3 33.3 8.3 52.4 8.3 $ $ 122,561 31,140 2 3 2 16.7 25.0 16.7 8.3 8.3 8.3 8.3 8.3 8.3 16.7 8.3 8.3 $ $ $ 1,940 14,190 2,060 12 100.0 33.3 33.3 41.7 $ 49,330 125 Compete Caribbean Private Sector Assessment Report for St. Vincent and the Grenadines 2013 DOCUMENT END. 126