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The harsh effects of being less well-off

SIR RONALD SANDERS

Sunday, January 19, 2014    

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THROUGHOUT the Caribbean, people feel less well-off. The only people who may be exceptions to this general sentiment are those in Guyana whose per capita income (now US$3,410) has increased in recent years. But even in Guyana, the per capita income level is so low -- higher only than Haiti (US$760) in the Caribbean Community -- that any perception among the majority of doing better is marginal.

Unemployment has risen in several countries, affecting families across the board. They either have less collective income or those fortunate enough to be employed have to contribute to the survival of those without jobs.

Disposable incomes for all have declined as higher costs for utilities and higher income and value-added taxes devour increasingly larger portions of wages and salaries.

Again, with the exception of a small number of countries, the decline in real family incomes has adversely affected the construction industry with a decelerating effect on economies. The construction of individual homes or housing schemes is a provider of jobs and has a multiplier effect on economies stimulating economic growth.

Because of tight constraints to make ends meet, families are less willing to take on mortgages that they might be unable to repay. In any event, banks and other financial institutions are themselves reluctant to lend for anything but projects that have the most secure collateral.

Many of them are already holding mortgages and loans that are in default of payment by their customers. They are finding it difficult to recover their money even if they repossess properties.

Businesses, faced with contracting domestic markets in several Caribbean countries, have also been wary of investing in expanding existing businesses or creating new ones. Hence, they, too, are making no contribution to industries such as construction, and they are treading lightly in incurring additional debt and in taking on more employees.

A serious consequence of all this is a shrinking middle class in many Caribbean countries and an enlarging poor and near-poor A grave consequence is the increase in violent crime by some who are most deprived -- probably linked to drug trafficking and addiction.

In the past, Caribbean countries have been most concerned about the negative impact of violent crime on foreign investors, but the problem continues to overwhelm local communities. A big growth industry in the Caribbean is the provision of security services which will grow even more in the present distressing economic circumstances.

Yet, while Caribbean countries individually are in this grip of economic and social hardship to one extent or another, collectively the region is rich in real terms, both in natural and human resources. If the resources of the Caribbean community were harnessed for the benefit of the region as a whole, a halt could be brought to the current decline and a process of steady improvement could begin.

There is, however, a reluctance to do so, as governments have demonstrated a resolute insistence to deal with the problems in a national context only. A major component in most cases is beseeching and borrowing.

Well-minded advocates for "national solutions" even suggest that to look at regional options is "time-wasting" and "distracting". But those who advance this argument have not explained how the majority of small Caribbean economies would overcome their physical smallness; the smallness of their domestic economies; the severe restraints on raising money on the international capital market to build much-needed infrastructure; and their individual lack of capacity to bargain in the international community for better terms of trade, credit, and investment. Even Guyana, Belize, Jamaica, Suriname, and Trinidad and Tobago with their bigger size and greater natural resources cannot, by themselves, overcome these obstacles.

To overcome them, resources need to be combined for a common good; production needs to be integrated to make best use of resources -- human and natural; sovereignty needs to be pooled both to bargain more effectively and to become attractive to investors and to international lenders.

It seems that many governments of Caribbean Community (Caricom) countries are not ready to collaborate to make themselves more competitive in production; more attractive for investment; and more worthy for credit. Therefore, perhaps the time has come for a smaller coalition of willing countries to embark on such a course separate and apart from the rest of Caricom. In doing so, none of them would be required to give up their nationhood or national control of their borders; their culture; their legislatures; their taxes or their local environment.

Not all decisional areas raise issues of the same political prominence in every country. It is possible to separate out some on which action might move ahead by countries that are willing to participate. In other words, a coalition of the willing could establish a more customised approach, based on interests and capacities. Such an initiative, while bringing benefits to the participating states, would help to rebuild confidence among the Caribbean people through the demonstration that regional integration makes good sense.

Among the collaborative enterprises that the "willing" could consider are specific areas of investment in one or more country to which the participating states could stand as joint borrower, joint owner and joint beneficiary. These could focus on energy, value-added manufacturing, food production and tourism.

Individual Caribbean countries may not be considered acceptable risks for loans and investment, particularly in today's market, but a combination of them would be an attractive proposition. Not many areas of the world offer the backing of a wide range of commodities and services that the Caribbean has: bauxite, manganese, asphalt, oil, gas, sugar, rice, nutmeg, coffee, cocoa, a variety of fruits, flowers, animal, poultry, fish, forestry, gold, diamonds, tourism, financial services, and the potential for geo-thermal and solar energy.

Each country has resources, but by themselves -- except for oil, gas and gold -- they are not sufficient to attract major investment or to provide access to capital on the international market. And even in oil, gas and gold, capital investments are less attractive when the risk is being taken in one country alone and where only one government is the borrower or acts as guarantor.

Of course, governments must devise national solutions to all their problems, not only the economic ones. This calls for innovative ideas; for practical plans and creative management; and for implementation capacity. But Caribbean governments are fortunate in having a further string to their bow -- regional collaboration. Both paths should be pursued simultaneously.

There is nothing to lose, and the region would have a good shot at curing some of the ills that now befall each country without exception.

-- Sir Ronald Sanders is a consultant, senior fellow at London University and former Caribbean diplomat

Responses and previous commentaries: www.sirronaldsanders.com

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