Caribbean states must look to widespread reforms to climb the ‘Ease of Doing Business’ rankings and attract vital investment.
[dropcap]T[/dropcap]he role of the private sector in encouraging economic growth cannot be overstated. Generating jobs, investing in infrastructure, driving innovation and creating entrepreneurial opportunities are all vital components of a healthy economy, driven in large part by private investors. But attracting those investors isn’t easy. Especially in the Caribbean where the business climate has remained stagnant for many years and Ease of Doing Business markers are notoriously weak.
“It is still too difficult and costly to do business in the region, and the Caribbean is still uncompetitive in many indicators,” said Dr Justin Ram, Director of Economics with the Caribbean Development Bank (CDB) during the bank’s annual news conference held in Barbados last month. Following a lacklustre year where the region saw average GDP growth of 0.6%, the CDB is urging Caribbean states to focus on business reform to foster diversification and greater levels of growth. It wants to see the region move up the World Bank’s Ease of Doing Business rankings and improve upon its average score of 110 (out of 190 economies surveyed worldwide).
SETTING THE STANDARD
The Ease of Doing Business rankings are compiled each year by the World Bank and considered the standard benchmark for global economies. When the Bank published its first report in 2003, it examined 133 economies, testing each across five categories. The 2018 report looks at 190 economies, and eleven categories or indicators.
These indicators cover a lot of ground. Researchers look at how easy it is to start a business, resolve insolvency, enforce contracts, trade across borders, get electricity, pay taxes, secure credit, register property and other issues that any average investor may encounter. While the list of issues may be long and intimidating, Dr Ram says small changes can make a big difference – just one positive reform in one area can improve a country’s GDP by as much as 0.15%.
Hampered by onerous bureaucracy, lack of resources, inefficient services and inadequate infrastructure, Caribbean states face many obstacles when it comes to building a better business environment. This has been reflected in their rankings. Jamaica is the best performer in the region, with a ranking of 70 while Haiti is the worst at 181. Saint Lucia’s ranking has been steadily dropping for several years and dipped further in 2018 from 86 to 91.
SAINT LUCIA’S PERFORMANCE
Saint Lucia’s sliding rankings are mainly due to consistently low scores in the areas of getting credit, resolving insolvency and registering property. These were the three most poorly performing indicators in the World Bank’s assessment for the country.
When it comes to accessing credit, the World Bank looked at the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws – Saint Lucia came up short in both areas with insufficient credit information and inadequate legal rights for both creditors and debtors. Another offputting factor for would-be investors is the time, cost and uncertain outcome of insolvency proceedings in a country where it can take up to two years for proceedings to close, and carry costs of 9% of the total estate. Registering property in Saint Lucia is also a lengthy process, taking around 17 days, involving nine separate procedures and costing 7.6% of the property value.
From its three worst areas, to its best: Saint Lucia scored highest in electricity supply, starting a business, and dealing with construction permits, all of which should give new investors some measure of comfort. In the latter area, Saint Lucia ranked 34th, well ahead of the 63.59 regional average, thanks to responsive government agencies and strong quality control regulation.
A STRATEGY FOR REFORM
Any discussion around ease of doing business is often skewed towards foreign investment. But taking such a narrow approach overlooks the far-reaching benefits business reform can have on the domestic private sector. All investors, whether foreign or homegrown, want security. Clarity and consistency bring in business from all fronts, as financiers seek to put their money somewhere stable.
In his 2017/2018 budget, Prime Minister Chastanet said his government would tackle two of the country’s biggest problem areas – insolvency and credit – and announced he would move on introducing a credit bureau, a registry of moveable assets and a secured transactions system. This will significantly alter the business climate by making it easier for firms to get credit. Currently only immovable assets, such as property, are accepted as collateral for loans but the Security Interests in Moveable Property bill (being drafted by government) will allow companies to use their immovable assets, such as equipment and inventory, to obtain loans. The Department of Finance is also working on developing a clear insolvency framework that will reduce the time frame for resolving insolvency, and streamline the bankruptcy process.
While reforms are a top-down process, the involvement of grassroots players is crucial if they are to succeed. All participants in the business climate must have a voice so that any resulting regulation, policy prescriptions and legislation is thoughtful, pragmatic and effective. The National Competitiveness and Productivity Council of Saint Lucia (NCPC) recognises this and regularly hosts meetings with the private sector, in collaboration with Compete Caribbean, on how best to move forward.
At the end of 2017, Compete Caribbean earmarked around US$400,000 to help implement a competitiveness agenda and bring about further business reforms. These form part of the Compete Caribbean Partnership Facility’s regional strategic plan, which NCPC will be helping to implement in Saint Lucia. This 2017-2020 roadmap will focus on enhancing the business and innovation climate through capacity assessment, sector level reform, strengthening national institutions that support development and identifying barriers to productivity.
