Whoever prevails at the next general election will inherit an economy distressed by COVID and impaired by three pre-existing deficiencies: fiscal weakness, poor physical infrastructure, and inadequate service delivery. These deficiencies will delay any economic recovery, dampening new growth through much of 2021 and beyond. Without policy realignment, our post C-19 normal will be a reheated version of the old familiar.
Businesses which reposition for the long slow haul will probably survive, and may even thrive. Those which don’t will fall into perpetual peril because of two colliding truths: the growth potential of the entire economy is compromised by our macro deficiencies, and, growth is the very thing we must achieve to overcome our chronic crisis of high debt, low wages, and crumbling social systems.
Those truths persist because successive governments have shown as much policy continuity as drunk moths dancing round a flame. The result is decades of reversal, repetition and redundancy. Now that our days of promise and pretense have run out, we have virtually no reserves of time, money or human capital. And, the annual exodus of brightest brains is the most damning testament of our failure as an economy and a society.
Simply put, we must improve our anemic growth by reversing that loss of talent, reducing dependence on tourism, tempering our addiction to foreign investment, and rebalancing domestic and external trade. Maybe none of this is news. But here we are, at a standstill, years after the IMF warned the entire Caribbean about the black hole of high debt, low wages and low growth afflicting tourism-led economies. As reluctant as we are to redress these uncomfortable truths, the 2020 UNDP report on Economic Transformation and Recovery is refreshingly brutal. It confirms that the impact of this pandemic will worsen pre-existing social and economic vulnerabilities, inequalities and risks.
Distress signals are already glaring, including a 67% contraction in the accommodation and food service sectors (almost twice earlier predictions), and a 26% decline in real GDP which doubles official expectations. Contraction in Agriculture turns out to be 15.2%, instead of 1.0%. and Government’s overall deficit is 11.5% of GDP, well over the 7% originally expected. As of October 2020, government debt is striding toward 95% of GDP, busting the 70% estimated earlier, and completely out of line with the 60% recommended benchmark. Clearly, we have been underestimating a deadly combination of economic woes. Now that surpluses are spent, a sober reality check should be our first step toward the radical repositioning we so badly need.
Nine months into this pandemic, there are very few options for priming the economic pump—short of more borrowing, and the desperate sale of national assets. Those of us who operate in the real world should not look to Government for resources. We have to save ourselves and each other.
Policy
It is unlikely that hotel occupancies or cruise arrivals will recover before mid 2021. As such, it is imperative that we bring smaller properties back online, along with the weddings, incentive and conference sector. There is significant high-end boutique business out there, looking for distinctive destinations and intimate experiences.
This may not provide the tax infusion that government craves, but it is ripe fruit with huge implications for DMCs , restaurants, event producers, sites and attractions. These operators can attract and accommodate custom clients who pay well and keep people employed. Such measures help to stabilize household income and improve consumption and investment prospects. The current emphasis on make-work projects, which end as suddenly as they start, is shortsighted. Keeping companies open is an easier and cheaper way to preserve employment, transform jobs and move employees up the income ladder.
Among other truly transformative measures, a proactive Trinidad government announced a mix of housing solutions for people of different socio-economic standing. This sort of intervention has long-term income and wealth benefits which we would do well to contemplate. If, however, we insist on direct income support, we should at least consider digital vouchers which are tradeable within the domestic economy. These can serve as a sort of bitcoin expansion of the money supply: a virtual currency, which can be transferred like cell phone credit. The technology already exists, locally.
Moving up-market to build resilience is also a good option. This could be one benefit of a new long-stay visa which encourages work-from-home executives to relocate temporarily to St. Lucia. There are similar incentives in our Corporate Headquarters legislation. We can learn from our own success. A logical policy framework would also include long-term incentive regimes, such as technology-based tax allowances to encourage transformation at company level. Such transformation includes re-tooling, reskilling, restructuring, upgrading, and virtually anything which boosts domestic investment and future productivity.
Similarly, new production models could drive private equity (not debt) into traditional agriculture. By devising new productive farming units, with annual production schedules linked directly to markets, new efficiencies would yield attractive rates of return, so that small investors with personal savings can get involved in modern tech-supported agriculture. This is a perfect time to create strong agri-business eco-systems.
Moreover, the old duty-free / tax-free concessions are not sustainable. In this stringent fiscal environment, we need a shift from pre-production subsidies to performance rewards. Let concessions be earned, based on dollars invested, employment generated, PAYE and NIC contributions, linkages to the domestic economy and foreign exchange actually deposited into the banking system, not into fat accounts abroad.
Fiscal councils are also increasingly recognized as tools to promote sound fiscal practice as they provide independent information, analysis, monitoring and compliance with fiscal rules. Well-designed fiscal rules have been introduced in St. Kitts & Nevis, Grenada, and Jamaica, putting public debt on a clear downward path. There are some hopeful signs here, but vigilance remains the eternal price of freedom.
Business
In the short term, new collaborations can be surprisingly fruitful, boosting domestic investment, trade and job creation. The business community can mobilize idle man-hours to provide technical and financial coaching to SMEs who need to refocus their business models on customers closer to home or in the global marketplace. This would accelerate their transition from physical and in-person transactions to virtual, online, take-away or e-commerce platforms. It helps to remember that SMEs can be new suppliers as well as new customers, sometimes simultaneously. What may start as a marriage of convenience, could well flower into lasting love.
Companies wanting to stay agile should revise investment plans to the new reality. They can seek professional support and actively engage in debt management strategies with their banks. It is also good to know that Generation-Tech is out there, often with low-debt, zero-inventory solutions which reward IP and ICT skills, and use digital networks to identify needs and bridge gaps. It is time to embrace their tech-savvy solutions as the Caribbean equivalents of Uber, Amazon and AirB&B.
Meanwhile, we should avoid another shut down of the country. It is not simply a matter of taking a few days off, but the interruption of all that machinery while overheads like rent, interest, insurance, maintenance, and salaries are accruing. That reality underlines the communal value of the Recover Saint Lucia initiative launched by the business community on November 20, 2020. Enlightened self-interest suggests that companies get on board and be part of the larger solution.
That same self-interest should drive businesses to seek out and support startups in their sectors. There is fertile ground out there, and the next generation of entrepreneurs is a fascinating demographic. Don’t be afraid to invest, especially in innovation. At the very least, companies should look inward at existing competencies, embracing and energizing their teams. There is often more potential than we first think.
This is also a great time to consider entirely new business models. The best of them are scalable, sustainable, real time, and interactive. We can make our bubble work for us, by being adaptive, flexible and prepared to abandon the old winner-take-all, profit-maximization approach. If we wish to go far, we must go together.
Creative Industry
Enactment of local content stipulations would be manna to the creative industry which has languished since the closure of borders and the prohibition of mass gatherings. It is unacceptable that some $1.7m was raised to address the nation’s needs, while virtually none of that has been returned in support to the very artists who gave their time and talent.
The EC$200K matching grant fund proposed months ago by the Arts, Entertainment and Events sector should be implemented. This would support performance and employment opportunities in the sector, and aligns perfectly with recent government borrowing for COVID relief to vulnerable sectors.
Finance
Realistic restructuring of household debt is imperative, particularly where it affects generational access to higher education. This is a most critical contributor to long-term economic growth. We must therefore devise win-win-win formulas which allow resumption of commercial lending. We cannot all have our pounds of flesh.
Nor can we ignore the stock of loans and mortgages coming out of limbo as various moratoria end. Any viable debt management strategy will have to involve rescheduling, forgiveness, and sharing of pain between banks and borrowers. Transparent collaboration across the sector will help protect both lenders and customers from being played against each other. Even ECCB, our unassailable central bank, needs to consider practical ways of priming the monetary pump. That may well mean easing restrictions on both commercial banks and governments, so as to weather this storm together. It’s a fine line, but someone has to tread it.
Closer to home, payroll support would keep businesses open by sharing the burden among employee, employer and government. That approach also sustains NIC and PAYE contributions, reducing the risk of default on personal loans and mortgages. Such support would also avert the looming social security dilemma caused by depressed employment and earnings. If we are to avoid a whirlwind of later troubles, we must modernize the NIC benefits portfolio by adding an unemployment component. This would help stabilize incomes during future crises. At the very least, the next administration must create a broad-based facility to replace the benefits “borrowed” from unwitting NIC subscribers. The future cost of that largesse cannot be borne twice by the same impoverished pensioners.Terminus
After centuries of wasteful rivalry, the world has arrived at the edge of wisdom: a brief moment of shared responsibility and collaboration. The IMF estimates that joint action by developed countries could save 33% in spending, while achieving the same post-covid investment outcomes. There are gains for us too, if we want them. We already know that no single entity has the capital to achieve what needs to be done, and that our responses require broad participatory involvement. Yet, the unanswered questions linger: are we up to the task . . . will we muster the courage . . . do we care that much . . . why can’t we just wait this thing out . . ?
It is quite possible that we just want the old times to return, that survival, subsistence and subservience work fine for us. Bringing citizens, companies and communities together, and building teams around shared goals is hard work. And maybe we don’t deserve fandangled new imperatives like transformation and growth which demand a shared intelligence.
This is a thankless time to be in charge of anything. Sweeping laws and powers are increasingly useless, as compared to outreach and inclusion. Plus, we know ourselves to be subversive, and reckless, even with our lives. Conformity and compliance are not our strong suits. But we also know that the old adversarial postures are outmoded. We know the long months ahead will be a test of enlightened leadership, and the ability to bridge differences to achieve mutual progress. That requires new truth and trust. Regrettably or fortunately, there is no other way forward, not in this economic microcosm, where our faults and fortunes remain incestuously entangled.
Adrian Augier is a business leader and a development economist. He holds undergraduate degrees in Economics and Political Science, and an MA in Development Finance and Planning. A former Executive Director of the St Lucia Chamber of Commerce, he has worked with the World Bank, and consulted for regional governments and international development agencies. He is St. Lucia’s 2010 Entrepreneur of the Year, and an award-winning poet and producer. He is also a Caribbean Laureate of Arts and Letters, and was awarded an honorary doctorate from the University of the West Indies for his contribution to regional development and culture. He is the founder and Managing Director of the Landmark Group.
This article first appeared in the December 2020 edition of the STAR Monthly Review, available on newsstands and here: https://issuu.com/starbusinessweek/docs/star_monthly_review_december_2020
