Not very long ago, when countries started to ‘construct’ National Economic Plans, financial services featured very little if at all. The focus was then on agriculture and manufacturing and the service activity to feature most prominently was likely to be tourism. Indeed, as a sector, banking was not understood to make a worthwhile contribution to the economy. Could you imagine how life would be without banks, insurance companies and the range of other financial institutions? Would the projects that banks finance actually take place in their absence? Would anyone assume the business risks without the ability to insure against them? {{more}} Obviously the answer to these questions is no, and that is the measure of what the financial services sector contributes to the economy.

Banks are about financial intermediation, their role being to garner deposits from savers and lend to borrowers. That is the core of banking business, but many other services have been added over the years. Therefore measuring the impact on employment and Gross Domestic Product does not give the true picture of the impact of financial services on the economy. One extension of the banking function has been the development of offshore banking services. What is sometimes referred to as private banking is said in the modern era to have developed in Switzerland. Capital fleeing from political and social upheavals in Russia, in Nazi Germany and Latin America found Switzerland to be a safe haven. Centres later grew up in Luxembourg, Guernsey, Jersey and the Isle of Mann to serve the British, French and German markets. These private banks essentially managed the financial assets of high net worth individuals.

Countries which come under the umbrella of the Organization for Economic Co-operation and Development (OECD) have traditionally regarded offshore financial services as a preserve of the developed world, and view the entry of developing countries into that sphere of activity as an encroachment. They have therefore sought to place enough obstacles in the pathways of new entrants to the sector in order to maintain their competitive advantage. Nevertheless St. Vincent and the Grenadines can point to elements of its own competitive advantage for the provision of offshore financial services.

Among them are the following:

– A democratic system of government and political stability

– A stable economy underpinned by a strong currency

– A favourable time zone

– A favourable climate

– Exemption of offshore companies from a wide range of taxes

During the past twenty to twenty-five years financial centres have become a major part of the emerging global financial system. Any country can be considered offshore. In the case of St. Vincent and the Grenadines, the country would be considered offshore for citizens of Switzerland, the US or the UK, while those countries would be considered offshore for citizens of SVG. In 1968 Singapore set itself the target of becoming a financial centre within ten years. The foundations for this financial centre were the rule of law, an independent judiciary, a stable government, which pursued sound economic policies and led to a stable Singapore dollar. In the country’s favour was its position on the map and the time zone gap which it was able to fill. At the time the world’s financial markets opened first in Zurich, Switzerland. Later Frankfurt, Germany followed by London, England opened for business. In the afternoon Zurich closed followed by Frankfurt then London, which handed over financial traffic to New York, which in turn handed over to San Francisco. There emerged a gap between the close of business in San Francisco and the opening of Zurich. This is the gap that Singapore was able to fill successfully and transform itself into a financial centre.

While no such gaps exist today countries have found that niche markets could be created out of efficient communication systems and a human resource base that is literate and readily trainable. These they have been able to build on to foundations such as those which existed for Singapore. The range of financial services and products offered by offshore jurisdictions may include International Business Companies, offshore trusts, offshore foundations, offshore insurance etc. This demonstrates that banking is multifaceted and it is a sector that could add value and contribute to growth in the economy. SVG would need to find creative ways to respond to the subtle and not so subtle challenges of the OECD and create pathways that could eventually lead to its own competitive advantage.