Delinking Caribbean Economies

by Nilio Gumbs Fri, Sept 30. 2011

The argument that the Caribbean must delink from its traditional trading partners and seek to promote greater links with emerging economies is an argument that has been becoming louder and louder in the region.{{more}}

The Caribbean region has found it difficult to rid itself of the colonial shackles of mercantilism and its trading relationship with the Anglo Saxon world, despite their status as independent nation states.

In the early 1980’s, the Caribbean region was at the forefront in promoting “South-South Cooperation” (promoting greater trade among developing nations). The emergence of Brazil, Russia, India, China and other smaller developing economies as major players in the global economy have presented new opportunities for the region seeking to break the stranglehold of our trading reliance on the Anglo Saxon world.

Four questions can be surmised from such a paradigm shift. What are the perceived benefits from detaching our umbilical cord from Britain, Canada and the United States? Would the diversification of our trading relations maximize trade and investment opportunities for the region? Would there be a two tier grouping of trading nations within CARICOM – those able to exploit trading opportunities that present themselves and those that cannot? Or is such a notion “more easily said than done”?

The delinking of Caribbean economies from its traditional markets must be carefully appraised from the standpoint of our geographical, climatic, economic and industrial base, migratory patterns and immersion into the global economy.

The “BRICS’ nations (Brazil, Russia, India, China and South Africa) have become major players on the world stage and the global economy, but they do not present similar opportunities to the region. For instance, India and China have a more diverse industrial and economic base compared to that of Brazil and Russia. The economic success of latter two depends heavily on the export of commodities – a situation similar to that of Australia.

Undoubtedly, China’s 1.3 billion population and market size and its US$3.4 trillion foreign exchange reserve has placed it in an enviable and unassailable position to leverage its diplomatic and trading might, globally. In 2009, Chinese total investment in the region amounted to US $7 billion. However, according to the “Trinidad Guardian” , CARICOM’s trade deficit with China has grown from US$1.7billion in 2008 to US$2.4 billion in 2010.

The Chinese Vice Premier Wang Quishan, at the Third China-CARICOM Economic and Trade Co-operation Forum, announced that his country would provide a $US 1 billion loan to CARICOM countries – possibly underlying the importance that China attaches to the region.

Palpably, China’s foreign direct Investment (FDI) in the region seems to be directed to the larger territories in the region with minerals or a strong tourism infrastructure. In Cuba and Guyana, there are nickel, oil exploration and bauxite, respectively. In Jamaica and Bahamas, it’s tourism. The Bahia Mar Resort in the Bahamas, with a cost tag of US$2.4 billion, is China’s largest single investment in the region.

Brazil, unlike China, is very close in proximity to the region; however, in 2010, the Office of Trade Negotiation (OTN) at the CARICOM Secretariat said “that Brazil remains a lucrative, but under exploited market for the region’s exporters”. Trade between Brazil and CARICOM stood at US$5.2 billion in 2008, however, with a $US 4.4 billion deficit in Brazil’s favor. As aforementioned, investment flowing out of Brazil and Russia tends to focus on accessing raw materials abroad due to the fact that most of their multinationals are heavily concentrated in the extractive sector.

Lima and De Barros (2009), noted that Brazilian outward investors are in search of three things: markets, natural resources and investment climates superior to the one they find at home.

Historically, India, has deeper embedded roots with CARICOM than China and Brazil due to the simple fact of the large Indian population of Trinidad and Tobago, Guyana and Suriname; in the eyes of India, a Diaspora that they must keep in contact with. However, trade and investment with the region is much smaller than that between China and Brazil. Exports to India from the region total US$133 million, while imports amounted to U$260 million in 2008.

It is important to note that Brazil, and India for that matter, have similar climatic conditions to us in the region. Hence most of the region’s agricultural products are produced on a larger and more efficient scale in those two countries. Russia and Brazil are the world’s largest producer of forestry products which are also exported from Guyana.

Tourism is the major revenue earner for most Caribbean islands. The United States and Britain are among the leading tourist markets for Caribbean tourist dependent economies. However, over 100 million Chinese will be travelling abroad in the next decade. Can we in the region expect to benefit significantly from this expected surge in Chinese tourists?

The Japanese and South Koreans have achieved a standard of living on par with that of highly developed Western countries. Yet these countries are not major tourist markets for the region. Japanese and South Korean products are omnipresent in the region, but the flow of investment opportunities to the region are insignificant. The lure of London, Paris, Rome, Los Angeles and New York for shopping and bargains are a better proposition to travelers from Asia.

Then there is the question of remittances and the close connection between the West Indian Diaspora in the Anglo Saxon world and their countries of origin. Remittances are a significant contributor to the revenue stream of all CARICOM member states, barring Trinidad and Tobago and Suriname. In Jamaica, it is the largest revenue earner in that country, even surpassing Tourism. In 2008, remittances peaked to the sum of $US 2.03 billion. In 2010, it was over $US 2 billion, fuelled in part by the one million Jamaican emigrants living abroad. So, too, a significant amount of the region’s agricultural exports to our traditional trading partners also cater to this Diaspora population.

While some CARICOM member states may salivate at the prospect of new trade and investment opportunities from emerging economies, the truth and fact of the matter is that the less developed countries in CARICOM cannot even compete within this grouping, much less to engage new opportunities from emerging economies.

Then there is the issue of whether countries like China behave differently from the father and mother of all exploiters – Britain and the United States. There are over 1 million Chinese trading and working in Africa. There is the contentious feeling in Zambia and other African countries that they are crowding out local traders, with China itself linking development assistance to contracting Chinese companies and workers. In Angola, the vast number of workers on site in the rapid construction boom taking place there are the Chinese. The United States and Britain are even questioning not only the role, but the behavior of China in its dealings with African nation. The conjecture seems to be – they are worse than we!

In essence, the CARICOM grouping member states unlike African countries cannot bring much to the table besides the potential of extractive minerals. Hence, is delinking Caribbean economies more easily said than done?