caribbean trade & investment report · v conglomerates, other large firms and policy...

CARIBBEAN TRADE & INVESTMENT REPORT

2010 STRATEGIES FOR

RECOVERY, RENEWAL AND REFORM

EIPU

______________

CARIBBEAN TRADE & INVESTMENT REPORT

2010 STRATEGIES FOR

RECOVERY, RENEWAL AND REFORM

©2010, Caribbean Community Secretariat PO Box 10827 Turkeyen, Greater Georgetown Guyana www.caricom.org Published in Jamaica, 2010 by Ian Randle Publishers 11 Cunningham Avenue Box 686 Kingston 6 www.ianrandlepublishers.com Caribbean Community Secretariat Economic Intelligence & Policy Unit Caribbean Trade & Investment Report 2010. ISBN All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, photocopying, recording or otherwise, without the prior permission of the publisher and author. ____________________________________ The term US$ refers to United States of America dollars The term EC$ refers to Eastern Caribbean dollars Mn. denotes million The term “billion” signifies 1,000 million

Caribbean Trade & Investment Report 2010

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Contents

Page

Acronyms and Abbreviations ] xviii Preface and Acknowledgements ] xxi

Part One OPEN REGIONALISM AND DEVELOPMENT

I Dynamics of Intra Regional and Extra Regional Trading ]

Patterns ] 3

Introduction ] 3

A. Structure and Performance of Intra-Regional ] Merchandise Trade ] 3 1. Intra-Regional Imports ] 4 2. Intra-Regional Exports ] 12

B. Application and Impact of the Common External ]

Tariff (CET) ] 20

C. Other Issues Affecting Intra Regional Trade ] 22

Annex to Chapter I - CARICOM’s Trade with Third Parties ] 25 A. Structural Characteristics of External Trade ] 25 B. Adjusting and Transitioning to Reciprocal Trade ]

Regimes ] 26 C. Performance of Trade in Services ] 28

D. Need for Capacity in Foreign Languages ] 31 Endnotes and References ] 34

Contents

iv

II Investment Inflows from CARICOM and Third Party Sources ] 35

Introduction ] 35 A. Estimated Cross-Border Flows ] 35 1. Intra-Regional Direct Investment Flows ] 37 2. Major Supplier Countries and Major Recipients ] 43 3. Portfolio Investment Flows ] 47 B. Modes of Entry ] 50 1. Mergers and Acquisitions ] 51 2. Joint Ventures and Wholly Owned Subsidiaries ] 53 3. Franchises and Distributors ] 55 C. Role of Conglomerates and Other Large Firms ] 55

1. Factors Facilitating Conglomerate Cross Border ] Movements ] 56

2. Cross Border Activity of Large Single Product Firm ] 57 3. Impact of Removal of Restrictions against Cross ] 61

Border Investments in Small Scale Activity ] Annex to Chapter II - Investment Inflows from Third ] 66 Party Sources ] Introduction ] 66 A. Overview of Global and Hemispheric Developments ] 66 B. Foreign Direct Investment Flows to CARICOM States ] 68 C. Composition of CARICOM FDI Inflows ] 70 D. Source and Sectoral Distribution of CARICOM FDI ] 72

Inflows ]

E. Economic Impact of FDI in CARICOM States ] 72 F. Improving the Business Environment in CARICOM States] 74 Endnotes and References ] 78


v

III Tendencies Towards Economic Convergence in the Caribbean ] 79 Introduction ] 79

A. Convergence between Caribbean and Developed World ] 79 1. Indicators that the Caribbean is Lagging ] 80 2. Inhibiting External Factors ] 86

B. Reducing Disparities within CARICOM ] 88

1. Compensatory Trade, Investment and Financing ] Measures ] 89

2. Cooperation and Coordination Policies ] 93 (a) Macro-economic Harmonization Policies ] 93 (b) Financial and Fiscal Stabilization Policies ] 96 (c) Capital and Labour Market Liberalization Policies ] 97

3. Reducing Disparities within Member States ] 99

Endnotes and References ] 103

Part Two EVOLVING CORPORATE STRUCTURES,

STRATEGIES AND PRACTICES IV Experiences Gained by CARICOM Firms in Venturing Abroad ] 104

Introduction ] 104 A. CARICOM Firms and the Global Experience ] 105

1. Preserving and Leveraging Domestic Market Shares ] 112 2. Motivation for Going Abroad ] 112 3. Locational Preferences ] 123 4. Mode of Entry and Preferred Sectors /Industries ] 125

B. Risk Factors in Operating Extra-Regionally ] 129 C. Competitive Environment Abroad ] 131

1. Barriers to Entry Abroad ] 131 2. Experiences Gained ] 132

D. The Impact of Outward Expansion on the Firm’s ] Managerial, Organizational and Corporate ] Governance Structure ] 133


Contents

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V Conglomerates, Other Large Firms and Policy Implications ] 135

Introduction ] 135

A. CARICOM Economic and Business Environment ] 136 1. Caribbean Economic Performance ] 137 2. Private Sector Entrepreneurial Capacity ] 139 3. The Ease of Doing Business in the Caribbean ] 141 4. The Relative Developmental Impact of Small and ]

Large Firms ] 143

B. Comparative Corporate Strategies ] 145 1. Sectoral and Geographical Diversification and ] Spreading of Risks ] 146 2. Large Regional Firms‟ Strategies for Growth: ] Mergers and Acquisitions or Organic Growth ] 148 3. The Strengths and Weaknesses of the Conglomerate ] and Single Sector Models ] 151 4. Financing Corporate Growth: Financial Institutions ] in Conglomerates ] 157

C. Policy Implications ] 159

1. Lessons Learnt from Firm Experiences ] 159 2. Best Practices for Encouraging and Facilitating ]

Corporate Growth ] 161 3. Policies for Further Acceleration of Regional ]

Integration ] 163

Annex to Chapter V: Financial Performance ] 165 Conglomerates ] 165 1. Ansa McAl Limited ] 165 2. Banks DIH Limited ] 169 3. CL Financial Limited ] 170 4. Demerara Distillers Limited ] 174 5. Goddard Enterprises Limited ] 175 6. Grace Kennedy and Company Limited ] 176 Large Single Sector Firms ] 179 1. Guardian Holdings Limited (GHL) ] 179 2. Republic Bank Limited ] 181 3. Sagicor Financial Corporation ] 183



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VI Firm Weaknesses and Regulatory Reform of Non-Bank ] Financial Sector ] 188

Introduction ] 188

A. Overview of CARICOM’s Financial Sector Structure and ] Regulatory System ] 189 1. Overview of the Caribbean Financial System with ]

Focus on the Non-Bank Sectors ] 189 2. A Comparison of CARICOM‟s Regulatory Regime ]

with International Norms and Trends ] 194

B. Incidence, Causes and Impact of Regulatory Failures ] 196 1. Episodes of Regulatory Failure in the Caribbean ] 196 2. Reasons for Regulatory Failure ] 205 3. Impact of Regulatory Failure on Caribbean Economies] 209

C. Conceptual and Regulatory Implications ] 213 1. The Concept of “too big to fail” and its Consequences ] 213 2. The Need for and Role of Coordinated Supervision in ]

the Financial Sector in CARICOM - The Caribbean ] College(s) of Regulators ] 215

3. Lessons to be Learnt from Regulatory Failures and ] the Long Term Response ] 219


Part Three

STRATEGIES AND APPROACHES TO ENHANCING COMPETITIVENESS

VII A Regional Strategic Approach to Recovery and ]

Re-Positioning of CARICOM’s Tourism Sector ] 226

Introduction ] 226

A. Regional Tourism Performance and Related Trends ] 228 1. Dependence on Tourism ] 228 2. Land Tourism Arrivals Share of World Market ]

Declining ] 228 3. Cruise Tourism Arrivals Explosion but ]

Non-Commensurate Benefits ] 229

Contents

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B. Strategies for Overcoming Performance Constraints ] 230 1. Increasing Marketing Effectiveness ] 231 2. Improving Air Access ] 231 3. Enhancing Human Resource Training, Development ]

and Service Levels ] 233 4. Increasing Product Innovation and Diversification ] 233 5. Creating Effective Sectoral Linkages ] 235

C. Enhancing Caribbean Tourism Sector Competitiveness ] 239 1. The Wider Caribbean and International Competitors ] 239 2. Hotel and Airfare Costs ] 244 3. Taxation of Sector Operations ] 246

4. „Brand Caribbean‟ - ] 247 5. Supportive Role of Government ] 247


VIII Challenges to Offshore Financial Centres in the New ] 250 International Dispensation ] Introduction ] 250 A. Evolving International Tax Standards Process ] 252

1. OECD Harmful Tax Competition Initiative ] 252 2. From Commitment to Implementation ] 253 3. Issue of a Level Playing Field ] 255

B. Impact of OECD Initiative on Offshore Jurisdictions ] 257 1. Fallout Affecting Both OECD and Non-OECD ]

Jurisdictions ] 257 2. Adverse Effects on Caribbean Business ] 264 C. Future of Offshore Financial Centres ] 269

1. Can Caribbean Jurisdictions Survive ] 269 2. Forthcoming Peer Review Process ] 271 3. Differing Vulnerability of Financial Products in ]

Caribbean Jurisdictions ] 274



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IX Debt Sustainability and Satisfying Government Expenditure ] 279 Needs Introduction ] 279 A. Level and Structure of CARICOM Indebtedness ] 280

1. Size of Debt and Related Indicators ] 280 2. Relationship between External and Domestic Debt ] 281

B. Government Expenditure and Revenue Profiles and ] 287 Debt Implications ] 1. Factors Determining Government Expenditure Profiles] 287 2. Level and Composition of Government Expenditure ] 287 3. Enhancing Fiscal Effort ] 291 4. Government Expenditure Management and Control ] 293 5. Related Debt Management Strategies ] 295

C. Debt Sustainability in the Medium Term ] 301

1. Mitigating Persistent Fiscal Gaps ] 302 2. Lessons Learnt ] 307


X Strategies for Regional Development and Transformation ] 310

Introduction ] 310

A. Shaping the Future Requirements for Transformation ] 312 B. New Operational and Institutional Investment as a ] 313 Transformation Strategy ]

C. Attracting Investment in the Sectors ] 316

1. Review of Approaches to date ] 316 2. Recommended Institutional Reform for Investment ]

in Priority Sectors ] 317 3. Private Sector Institutional Development Reform ] 319

D. Investment in Employment Creation ] 320

1. An Institutional Reform Response to Employment ] Creation ] 320

E. Investment in Innovation and Technology Transfer ] 323 1. Review of Experiences ] 323 2. Suggested Institutional and Regulatory Arrangements ] 324

Contents

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F. Competition Policy and Law ] 325


Tables

Table I.1: Value Of CARICOM Intra-Regional Imports by Country, ] 5 2004-2008 (US$mn) and the Total % Change for the ] Period ]

Table I.2: Intra-Regional Imports as a Percentage of Total Imports, ] 7 2004-2008 ]

Table I.3: Comparison of Intra-Regional Imports with Total Imports, ] 8 2004-2008 (US$bn and Per cent) ]

Table1.4: Percentage Changes in Intra-Regional Imports, ] 9 2004-2008 ]

Table I.5: CARICOM Petroleum Imports as % of Total Intra- ] 10 Regional Imports, 2004-2008 ]

Table I.6: Value of Intra-Regional Imports of Petroleum and ] 11 Petroleum Products, 2004-2008 (US$mn) ]

Table I.7: Value of Intra-Regional Total Exports by CARICOM ] 13 Countries, 2004-2009 (US$mn) ]

Table I.8: Percentage Change in the Value of Intra-Regional ] 15 Exports by CARICOM Countries, 2004-2009 ]

Table I.9: CARICOM Intra-Regional Trade Balance, 2004-2008 ] 16 (US$mn) ]

Table I.10: Trade Balance between Selected OECS Countries and ] 19 Trinidad and Tobago (US$‟000) ]

Table II.1: Total Caribbean Investment in the OECS as Per cent ] 36 of Investment from all Sources, 2003-2008 ]

Table II.2: Firm Ownership Structure - Jamaica and Suriname, 2010 ] 36 Table II.3: Intra-Regional Reach of Selected CARICOM ] 38

Transnational Firms, 2009 ] Table II.4 Distribution of Selected Firms across the Region, 2009 ] 39 Table II.5: Trinidad and Tobago Direct Investment in the Rest of ] 43

CARICOM, 2003-2009 (US$mn) ] Table II.6: Intra-Regional Investment Flows to the OECS, ] 45

2003-2008 (US$‟000) ] Table II.7: Total Intra Regional Investment in the OECS, 2003-2008 ] 46 Table II.8: CARICOM Cross Listed Companies, 2010 ] 47 Table II.9: Home Base of Firms of Cross Listed Securities ] 48 Table II.10: Cross Border Trades, Trinidad and Tobago Stock ] 48

Exchange, 2004-2009 ] Table II.11: Inter-Depository (CSD) flows, Jamaica, 2007-2009 ]

(US$mn) ] 50


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Table II.12: Selected Examples of Mergers and Acquisitions in the ] 53 CARICOM Region, 2005-2009 ]

Table II.13: Intra-Regional Joint Venture Investment, 2004-2008 ] 54 Table II.14: TCL Selected Financial Data, 2005-2008 (US$) ] 58 Table II.15: TCL Geographic Contribution (Per cent) ] 59 Table II.16: Summary of TCL Share Transactions, Trinidad Stock ] 60

Exchange ] Table II.17: Restrictions Identified for Removal Concerning ] 63

SMEs across the Region ] Table III.1 Caribbean Growth during the Crisis ] 80 Table III.2 Per Capita Gross Domestic Product at Market Prices for ] 81

CARICOM Member States and OECD Countries, 1995, ] 2000, 2005 and 2008 ]

Table III.3 Selected Indices of Socio-Economic Advancement ] 82 and Competitiveness ]

Table III.4 Changes in Caribbean Economies Human Development ] 83 Index‟s Assigned Rank ]

Table III.5 Caribbean Rankings with Respect to Ease of Doing ] 85 Business, 2009 ]

Table III.6 Size and Significance of CARICOM Countries‟ ] 86 Remittances ]

Table III.7 Tariff Measures Promoting LDCs Industrial Development ] 90 Table III.8 Caribbean Development Bank Distribution of Cumulative ]

Disbursements to MDCs and LDCs, 1970-2009 ($‟000) ] 91 Table III.9 CARICOM Development Fund Targets for First (4 Year) ]

Contribution Cycle ] 91 Table III.10 List of Beneficiaries under the Petroleum Stabilization ]

Fund (2004-2009) ] 92 Table III.11 Number of Countries Meeting the Convergence ] Requirements ] 97 Table III.12 Number of Skill Certificates Issued or Verified up to ]

2010 ] 99 Table III.13 Indicators of Poverty and Mal-Distribution of Income in ]

Selected CARICOM Countries ] 100 Table III.14 Rates of Unemployment in the Caribbean, 2000 to 2008 ] 101 Table IV.1: Selected CARICOM Firms with Extra-Regional Presence ] 109 Table IV.2: Selected Financial Information for Selected CARICOM ]

Firms with Extra-Regional Presence, 2010 ] 113 Table IV.3: Areas of Operation of Four Major Non-Financial Firms in ]

CARICOM, 2010 ] 114 Table IV.4: Selected Financial Data for Goddard Enterprise Ltd., ]

2007-2009 ] 117 Table IV.5: Goddard Enterprises Ltd., Performance of Operating ]

Segments (% Contributions) 2007 and 2008 ] 119 Table IV.6: Profitability of Ansa McAl Operations, 2007-2008 ] 120

Contents

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Table IV.7: Ansa McAl Segment Information – Geographic ($USmn) ] 121 Table IV.8: Grace Kennedy Overseas Operations, 2008-2009 ] 123 Table IV.9: Factors Impacting on the Choice of Market Entry Mode ] 126 Table IV.10: Selected Corporate Ownership Changes Involving ]

Extra-regional Mergers and Acquisitions ] 128 Table V.1: Per Capita GDP Growth in CARIFORUM Member ]

Countries (%) 1960-2008 ] 138 Table V.2: Growth Decomposition for Latin America and the ]

Caribbean ] 139 Table V.3: The Business Environment in CARIFORUM Countries ] 142 Table V.4: Shareholder Value ] 155 Table V.5: Selected Performance Indicators – 2005-2009 ] 156 Table VI.1: Regulatory Agencies and Main Financial Intermediaries ]

within CARICOM ] 190 Table VI.2: Commercial Bank Interest Rate Spreads, 1999-2008 ]

(Weighted Average Loan Rate minus 3-month Deposit ] Rate) ] 191

Table VI.3: Statutory Fund Requirements for CLICO Barbados ] 197 Table VI.4: Guyana - Commercial Banks and Non-Bank Financial ]

Institutions Deposits (GUY$000) ] 199 Table VI.5: Jamaica: Supervised Financial Institutions, 1997- 2001 ] 200 Table VI.6: Non-Bank Failures in Trinidad and Tobago, 1986-1993 ] 203 Table VI.7: Structure of the Trinidad and Tobago Financial System, ]

2009 ] 204 Table VI.8: Summary Estimates of Potential Losses from the CL ]

Financial/BAICO Failure, US$ ] 211 Table VI.9: Benefits and Challenges of Implementation of the ]

College of Regulators ] 216 Table VI.10: Emerging Regional Financial Architecture ] 219 Table VII.1: Travel and Tourism‟s (Direct and Indirect) Contribution to ]

the GDP of Selected Caribbean Countries, 2008 ] 228 Table VII.2: Cost of Hotel and Airfare to Selected Countries from ]

New York and London ] 244 Table VII.3: Taxation Cost of Selected Countries ] 246 Table VIII.1: Central Government Debt as a Percentage of GDP ]

for OECD Countries ] 251 Table VIII.2: Chronology of Country Commitment to the Internationally ]

Agreed Tax Standards ] 254 Table VIII.3: Subsidiaries among the 100 Largest US Corporations ]

with Location(s) in Caribbean Offshore Jurisdictions ] 259 Table VIII.4: Subsidiaries among the 100 Largest Publicly Traded ]

US Federal Contractors with Location(s) in Caribbean ] Offshore Jurisdictions ] 262

Table VIII.5: Caribbean Countries: Selected Indicators of Economic ] Contribution of Offshore Financial Centres ] 265


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Table VIII.6: Total Number of Cancellations of Registered Offshore ] Entities, St. Vincent and the Grenadines, 2004-2009 ] 266

Table VIII.7: Number of New Licenses, Incorporations and ] Registrations for Saint Lucia and St. Vincent and the ] Grenadines ] 266

Table VIII.8: Government Fee Income from International Financial ] Services, St. Vincent and the Grenadines (EC$) ] 267

Table VIII.9: Government Revenue Earned from International ] Financial Services, Saint Lucia ] 267

Table VIII.10: Rise and Fall in Government Revenue from Offshore ] Business, Nevis ] 268

Table VIII.11: Estimates of OECS Government Revenue from Offshore ] Sources (US$000) ] 269

Table VIII.12: Year of Entry of CARICOM Jurisdictions into the Offshore ] Financial Business ] 270

Table VIII.13: Schedule of Peer Reviews of Caribbean Jurisdictions ] 273 Table VIII.14: USA Classification of Caribbean Jurisdictions among ]

Major Money Laundering Countries, 2010 ] 273 Table IX.1: Total Debt /GDP for Selected CARICOM Countries, ]

2008 (%) ] 281 Table IX.2: CARICOM Countries Per Capita Income Ranking ] Compared with their Per Capita Debt Ranking ] 281 Table IX.3: Total External Debt Stock as Percentage of Total Debt ]

of CARICOM Countries, 2005-2008 (US$mn and %) ] 282 Table IX.4: CARICOM External Debt Service Ratio, 2005-2008 ] 283 Table IX.5: Total Debt Service/Government Revenue Ratio for ]

Selected CARICOM Countries, 2008 ] 284 Table IX.6: Domestic Debt (US$mn) 2005-2008 and as a % of ]

Total Debt ] 285 Table IX.7: Domestic and External Debt Indicators for Jamaica, ]

1990-2008 ] 286 Table IX.8: Government Expenditure as a Percentage of GDP ] 288 Table IX.9: Government Capital Expenditure as a Percentage of ]

Total Expenditure ] 290 Table IX.10: CARICOM Countries Tax Revenue as % of GDP, 2003 ]

and 2008 ] 292 Table IX.11: Current Fiscal and Overall Fiscal Balance to GDP for ]

CARICOM MDCs ] 295 Table IX.12: Current and Overall Fiscal Balance to GDP for ]

CARICOM LDCs ] 295 Table IX.13: Foreign Exchange Reserves in Months of Imports, ]

2005-2008 ] 297 Table IX.14: Average Terms of External Borrowing of Guyana and ]

The Bahamas, end 2008 ] 298

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Table IX.15: CARICOM Countries‟ Access to the IFIs Crisis Related ] New Financing Facilities ] 303

Table IX.16: Estimated Near/Medium-Term Regional Gross ] Borrowing Requirements ] 306

Annex Tables Annex Table I.1: Growth of CARICOM Merchandise Trade with USA ] 29

and EU ] Annex Table I.2: CARICOM Merchandise Trade with Other Important ] 30

Trading Partners, 2004-2008 (US$mn) ] Annex Table I.3: Trade in Services for CARICOM MDCs (US$mn) ] 31 Annex Table I.4: Trade in Services for CARICOM LDCs (US$mn) ] 31 Annex Table I.5: Intra-Hemispheric Grouping Trade as a Percentage ]

of their Trade with the World as a Whole ] 33 Annex Table II.1: Selected Indicators of Global FDI and International ]

Production, (1990 - 2009) ] 67 Annex Table II.2: FDI Inflows by Region: 2005-2009 (Billions of US$ ]

and Percent) ] 68 Annex Table II.3: CARICOM Inflows Relative to Inflows Worldwide ] (Per cent) ] 68 Annex Table II.4: FDI Inflows to the Caribbean Community, 2000-2009 ]

(US$mn) ] 69 Annex Table II.5: Composition of CARICOM FDI Flows (Per cent) ] 71 Annex Table II.6: Number of Greenfield FDI Projects by Destination ]

(Worldwide, Selected CARICOM States) ] 71 Annex Table II.7: CARICOM: Economic Impact of FDI Inflows ]

(2000-2009) ] 73 Annex Table V.1: Range of Subsidiaries and Respective Percentage of ]

Ownership - Ansa McAl ] 166 Annex Table V.2: Ansa McAl Financial Highlights (US$mn) ] 167 Annex Table V.3: Ansa McAl Assets/Liabilities (US$mn) ] 167 Annex Table V.4: Ansa McAl Segment Information – Business ]

Segments (US$mn) ] 168 Annex Table V.5: Ansa McAl Segment Information – Geographic ]

(US$mn) ] 169 Annex Table V.6: Financial Highlights of Banks DIH Ltd. (US$mn) ] 170 Annex Table V.7: Associates and Joint Venture Companies, ] CL Financial ] 171 Annex Table V.8: Corporate Structure of CL Financial Group ] 172 Annex Table V.9: Performance Indicators for CL Financial, 2005-2006 ]

(US$000‟s) ] 173 Annex Table V.10: Goddard Enterprises Ltd. Financial Highlights, ]

2005-2009 (US$mn) ] 175 Annex Table V.11: Goddard Enterprises Ltd. Segment Information - ]

Geographic (US$mn) ] 176


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Annex Table V.12: Goddard Enterprises Ltd. Segment Information - ] Business Segments (US$mn) ] 176

Annex Table V.13: Grace Kennedy‟s Financial Highlights ] 177 Annex Table V.14: Grace Kennedy‟s Assets and Liabilities (US$mn) ] 177 Annex Table V.15: Grace Kennedy and Company Ltd., Segment ]

Information – Geographic Location (US$mn) ] 178 Annex Table V.16: Selected Segment Information - Business Segment ] (US$mn) ] 179 Annex Table V.17: Guardian Holdings Ltd. Segment Information - ]

Geographic ($USmn) ] 180 Annex Table V.18: Republic Bank Ltd. Subsidiary Companies ] 181 Annex Table V.19: Republic Bank Ltd. Financial Highlights (US$mn ]

unless stated otherwise) ] 182 Annex Table V.20: Republic Bank Ltd. Segment Information - ]

Geographic ($USm) ] 182 Annex Table V.21: Sagicor‟s Financial Highlights ] 183 Annex Table V.22: Sagicor‟s Segment Information - Business ($USmn) ] 184 Annex Table V.23: Sagicor‟s Segment Information - Geographic ($USmn)] 185 Annex Table VI.1: Financial Services Institutional Structure in ]

CARICOM: 2002-2008 ] 223 Annex Table X.1: Examples of Trade and Investment Strategies of ] Trinidad and Tobago ] 327 Annex Table X.2: Patent Counts of CARICOM and Selected ]

Non-CARICOM Countries ] 330

Boxes

Box I.1: The Rate Structure of the CARICOM Common External ] 21 Tariff ]

Box II.1: Share Swap - A New Mechanism for Cross Border ] 37 Ownership Box II.2: A CARICOM Mergers and Acquisition Experience ] 51 Box III.1 Liliendaal Declaration on Financial Sector (New Framework ]

for Financial Regulation and Supervision in the Region) ] 95 Box III.2 Convergence Criteria for Caribbean Financial and Fiscal ]

Stability ] 96 Box III.3 Prognosis for Meeting the Caribbean Specific MDG 2015 ]

Targets ] 102 Box IV.1 Grace Kennedy Early Extra-Regional Expansion ] 106 Box IV.2: Grace Kennedy Looks for Value Overseas, 4 April 2008 ] 111 Box IV.3: The International Operations of Goddard Enterprises Ltd ]

and Neal and Massy Ltd. ] 116 Box IV.4: Ansa McAl goes Extra-Regional ] 122 Box IV.5: Sagicor Continues to Seek Opportunities to Grow, ]

16 June 2008 ] 124

Contents

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Box IV.6: Tucker Energy Services, A Caribbean Energy Service ] Company Located in Multiple Jurisdictions ] 125

Box IV.7: The Unsuccessful Entry of Republic Bank Limited of Trinidad ] and Tobago in the Dominican Republic ] 130

Box VI.1: The Case of Ponzi Schemes in Jamaica: OLINT and Cash ] Plus ] 201

Box VI.2: Worrell‟s Proposal for Enhanced Regional Financial Stability ] 221 Box VII.1: Implications for the Region - The Cruise Industry ] 234 Box VII.2: Implications for the Region - Health and Wellness Tourism ] 240 Box VII.3: Implications for the Region - Targeting Emerging Markets ] 241 Box VII.4: Implications for the Region - Attracting the Creative Class ] 242 Box VII.5: Implications for the Region - Marketing, Promotion and ]

Use of Information Technology ] 243 Box VII.6: Implications for the Region - Sustainable Tourism ]

Development ] 244 Box VIII.1: Supporting Measures in USA Stop Tax Haven Abuse ]

Initiative ] 258 Box VIII.2: Objectives and Principles Governing Global Forum ]

Monitoring and Peer Review of Implementation of Tax ] Standards ] 271

Box VIII.3: Examples of Uses of Offshore Financial Centres (OFCs) ] 275 Box IX.1: Barbados Nine Point Medium-Term Fiscal Strategy for ]

Development ] 296 Box IX.2: World Bank‟s Caribbean Debt Framework Solution ] 301 Box IX.3: Credit Ratings of Selected Caribbean Entities as at ]

30 November 2009 ] 306 Box X.1: Summary of Stages of CARICOM Development Strategizing ]

Since the Second World War ] 311 Box X.2: Sector Development Priorities ] 314

Annex Boxes Annex Box I.1: Scope for Review in Future EPA Negotiations ] 27 Annex Box I.2: Proposed CARICOM/Canada Development/Cooperation ]

Principles ] 29 Annex Box II.1: World Bank Rankings on Ease of Doing Business: ]

CARICOM States ] 74 Annex Box II.2: Ranking on Ease of Doing Business - Selected States ]

(2010) ] 75

Figures

Figure I.1: Suriname and Jamaica Intra-Regional Import Performance, ]

2004-2008 ] 6 Figure I.2: CARICOM Intra-Regional Imports and Total Imports ]

Compared ] 8


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Figure I.3: Erratic Nature of the Growth in Intra-Regional Imports for ] Dominica and St. Vincent and the Grenadines ] 8

Figure I.4: Intra-Regional Imports of Petroleum ] 12 Figure I.5: Intra-Regional Exports ] 14 Figure I.6: Intra-Regional Exports for Selected LDCs ] 14 Figure I.7: Trinidad and Tobago Trade Balance, 2004-2008 (US$mn) ] 17 Figure I.8: Trade Balance for Selected Countries ] 18 Figure I.9: Trade Balance of Selected OECS Countries with Trinidad ]

and Tobago, 2004-2008 (US$‟000) ] 19 Figure II.1: Distribution of Selected Firms across the Region ] 39 Figure II.2: Employment Data for Selected Intra-Regional Firms, 2009 ] 43 Figure II.3: Intra-regional Investments in the OECS, 2003-2008 ] 45 Figure II.4: Trinidad and Tobago‟s Volume and Value of Transactions in ]

Cross Listed Securities, 2004-2009 ] 49 Figure IV.1: Performance of Goddard Enterprises Ltd. ] 118 Figure IV.2: Ansa McAl Operations, 2007 and 2008 ] 119 Figure IV.3: Goddard Enterprises Ltd.: Number of Employees in Different ]

Markets, 2007 and 2008 ] 120 Figure IV.4: Grace Kennedy and Company Ltd.: Results from ]

Geographic Segments, 2008 and 2009 ] 123 Figure VI.1: Relative Sizes of Commercial Banks and Insurance ] Companies, Trinidad and Tobago ] 192 Figure VI.2: Deposits of Commercial Banks and the Non-Bank Financial ]

Sector (Guyana), 2008 ] 192 Figure VI.3: Trinidad and Tobago Financial System: Percentages of Total ]

Assets (2009) ] 193 Figure VI.4: CL Financial‟s Corporate Structure ] 210

Exhibits

Exhibit II.1: Exercise of Market Power ] 40 Exhibit II.2: Competition in the Intra-Regional Market ] 41 Exhibit II.3: Investors‟ Reasons for Intra-Regional Market Entry ] 41 Exhibit II.4: Area of Concentration ] 42 Exhibit II.5: Employment of Labour in Selected CARICOM Firms with ]

Cross Border Operations ] 42 Exhibit II.6: Mode of Entry of Selected Intra-Regional Firms, 2009 ] 51

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ACRONYMS AND ABBREVIATIONS ACSR - Association of Caribbean Securities Regulators AML - Anti Money Laundering BAICO - British American Insurance Company Limited BS&T - Barbados Shipping and Trading CAHFSA - Caribbean Animal Health and Food Safety Agency CAIB - Caribbean Association of Indigenous Banks CAIPA - Caribbean Association of Investment Promotion Agencies CAIR - Caribbean Association of Insurance Regulators CAPS - CARICOM Association of Pension Supervisors CARIBCAN - Caribbean-Canada CARICOM - Caribbean Community CARDI - Caribbean Agriculture Research and Development Institute CARTAC - Caribbean Regional Technical Assistance Centre CBERA - Caribbean Basin Economic Recovery Act CBI - Caribbean Basin Initiative CBTPA - Caribbean Basin Trade Partnership Act CBTT - Central Bank of Trinidad and Tobago CCBG - Committee of Central Bank Governors CCCU - Caribbean Confederation of Credit Unions CCJ - Caribbean Court of Justice CCL - Carnival Cruise Lines CCMF - Caribbean Centre for Money and Finance CCRIF - Caribbean Catastrophe Risk Insurance Facility CD - Certificate of Deposit CDB - Caribbean Development Bank CDF - Caribbean Development Fund CEO - Chief Executive Officer CET - Common External Tariff CFATF - Caribbean Financial Action Task Force CFSA - CARICOM Financial Services Agreement CFT - Combating Financing of Terrorism CGBS - Caribbean Group of Bank Supervisors CGI - Cayman General Insurance Co Ltd CGSR - Caribbean Group of Securities Regulators CHA - Caribbean Hotel Association CIB - CLICO Investment Bank CIC - CARICOM Investment Code CIDA - Canadian International Development Agency CLICO - Colonial Life Insurance Company CMMB - Caribbean Money Market Brokers COFAP - Council for Finance and Planning COTED - Council for Trade and Economic Development CPA - Country Poverty Assessment CROSQ - Caribbean Regional Organization for Standards and Quality


xix

CSME - CARICOM Single Market and Economy CSR/DDL - Cane Spirit Rothschild/Demerara Distillers Ltd. CST - Certificate of Sustainable Tourism CTIR - Caribbean Trade and Investment Report CTO - Caribbean Tourism Organization CTT - Continued Trust CVQ - Caribbean Vocational Qualification DD (TT) - Demerara Distillers (Trinidad and Tobago) Ltd. DDL - Demerara Distillers Ltd. DDUS - Demerara Distillers USA Inc. DFID - Department for International Development DSCL - Demerara Shipping Company Limited DSL - Distribution Services Limited ECCB - Eastern Caribbean Central Bank ECCU - Eastern Caribbean Currency Union ECLAC - Economic Commission for Latin America and the Caribbean EPA - Economic Partnership Agreement EU - European Union EURES - European Employment Service FDI - Foreign direct investment FIA - Financial Institutions Act FIBG - First International Bank of Grenada FINSAC - Financial Sector Adjustment Corporation FIU - Financial Intelligence Unit FOREX - Foreign Exchange FSAPs - Financial Sector Assessment Programmes FSC - Financial Services Commission GARFIN - Grenada Authority for the Regulation of Financial Institutions GDP - Gross Domestic Product GHL - Guardian Holdings Limited GI - Geographical Indications GKL - Grace Kennedy Ltd GORTT - Government of the Republic of Trinidad and Tobago GTICL - Globe Trust and Investment Company Limited HELP - Haiti Economic Lift Program HOPE - Haitian Hemispheric Opportunity through Partnership

Encouragement HDI - Human Development Index IAC - Insurance Association of the Caribbean IADB - Inter-American Development Bank IBC - International Business Corporations ICT - Information Communication Technology ISP - Internet Service Provider IMF - International Monetary Fund JMMB - Jamaica Money Market Brokers

Acronyms and Abbreviations

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LDC - Less Developed Country LIAT - Leeward Islands Air Transportation MDC - More Developed Country NFI - Non Financial Institutions NGO - Non-Governmental Organization NIS - National Insurance Scheme OAS - Organisation of American States OECD - Organization for Economic Co- operation and Development OECS - Organization of Eastern Caribbean States RBL - Republic Bank Limited RBTT - Republic Bank Trinidad and Tobago SAS - Stanford Allocation Strategy SGC - Stanford Group Company SIB - Stanford International Bank SMEs - Small and Medium Sized Enterprises SPS - Sanitary and Phyto-sanitary SPV - Special Purpose Vehicles SRU - Single Regulatory Unit TAB - Trade Across Borders TCI - Turks and Caicos Islands TCL - Trinidad Cement Limited TIEA - Tax Information Exchange Agreements TOPCO - Tropical Orchards Products Company Limited UK - United Kingdom UN - United Nations UNCTAD - United Nations Conference on Trade and Development UNDP - United Nations Development Programme USA - United States of America UWI - University of the West Indies VAT - Value Added Tax WTO - World Trade Organization WTTC - World Travel and Tourism Council


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PREFACE AND ACKNOWLEDGEMENTS This quinquennial study, Caribbean Trade and Investment Report 2010, is the third in the series of five year benchmark surveys of issues of critical importance to the integration workings of the CARICOM Single Market and Economy and the development and transformation of the regional economies, in general. The Caribbean countries affixed their signatures to a Single Market Agreement in 2006 and the Framework for a Single Economy Regime is scheduled to come into existence in 2015. While trade and investment issues, as analysed in Part One of the publication, remain a key focus, more emphasis than usual is accorded to the macro-economic facilitating and regulatory context, given the very severe fallout from the global financial and economic recession that began in the last quarter of 2008. The dramatic decline in trade, investment and employment activity in the Caribbean has shown once again the extent of the vulnerability of these economies to external shocks and their lack of resilience for withstanding same. In the years immediately preceding the onset of the crisis, both the mature developed and emerging market economies enjoyed relative boom conditions that strained supply capacities to the extent that food security and energy security became universal issues. Global trade and investment grew even faster than output and the Caribbean fully participated in the boom. Intra-CARICOM trade as a percentage of these countries‟ total world trade also increased, although only marginally so. The dramatic decline in CARICOM economic activity post the onset of the crisis, and the very slow and sluggish path to recovery, illustrate forcibly the need for economic diversification at the sectoral level and, also, at the geographical and marketing level to include greater partnering with the more buoyant emerging market economies. The crisis has also been putting strain on the process of trying to reduce disparities within CARICOM and on efforts to promote a greater degree of economic convergence. At the compensatory financing level, Member States are finding it difficult to meet their obligations with respect to providing resources to certain regional institutions. At the macro-economic policy harmonization level, the crisis is making it even more difficult for the countries to attain the various financial and economic stabilization targets that are a pre-requisite for moving onto a path for the adoption of a single currency. As discussed in Part Two of this Publication that deals with evolving corporate structures, strategies and practices, the crisis has also adversely affected certain CARICOM firms which, having acquired the experience of operating locally and in other parts of the Caribbean, had invested in certain Third Party countries. The most costly casualty of all is the CL Financial Group. Its fall from grace also dragged down its subsidiaries in other parts of the Region. The entire process was triggered partly by the collapse of the real estate market in the USA, in which it had made some large and risky investments and, partly, as a result of a business philosophy based on high leveraging and reliance on the convenience of related party transactions. While large size and a

Preface and Acknowledgements

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critical mass are important for achieving economies of scale and scope and, as a result, international competitiveness, prudent operational strategies and practices are equally important. Accordingly, conglomerates in the Caribbean, particularly, the financial conglomerate genre, require a considerable amount of regulatory oversight and a more systemic or macro-prudential approach to cross-border supervision. In this regard, non-bank financial institutions in the Caribbean have been found to need a much greater degree of regulatory attention. In Part Three of the Publication, dealing with strategies and approaches to enhancing competitiveness, tourism is one of the activities selected for detailed scrutiny, given its importance to the Caribbean economy. The Caribbean tourism sector, particularly the land based component, has been losing international market share. The Region needs not only to intensify its product and service diversification activities but, also, to invent, orchestrate and more effectively deliver unique, engaging and unforgettable Caribbean Brand experiences - that cater to the needs of the increasingly creative and demanding class of travelers. Another important Caribbean activity deserving of special analytical treatment in the publication is the offshore financial sector. The crusade, intensified since the crisis, of the OECD countries relating to transparency and effective exchange of information, has created critical challenges for the survival of the offshore financial industry, particularly in the Caribbean Region. A new industry strategy, including the identification of financial segments that are more likely to be legally sustainable, is required. The very high level of indebtedness of Governments of CARICOM Member States constrains attempts to create alternative development strategies and to generally pursue a more pro-active economic transformation role. Even with the best of efforts, effective debt reduction can only be achieved well beyond the medium-term. A new development paradigm is therefore required which results in much higher levels of fiscal discipline and increased productivity and efficiency. Besides achieving recovery and renewal, the Caribbean needs to re-position itself for dealing with an expected even more competitive international environment, post the crisis. Analysis of the abovementioned issues has been conducted by a team of researchers led by Dr. Maurice Odle, Economic Adviser to the Secretary-General of the Caribbean Community. The other contributing authors are Enid Bissember, Dr. Gem Fletcher, Dr. Lester Henry, Dr. Auliana Poon, Dave Seerattan and Evelyn Wayne. In addition, important inputs and insights were provided by Myrna Bernard, Bernard Black, Cheryl Burnett, Hudson Carr, Dia Christian, Allyson Francis, David Lord, Judith Louis, Steven MacAndrew, Deoram Persaud, Chris Richards, Desmond Simon and Rhonda Wilson. Manuscript production, layout and formatting services were provided by Cheril Collins and Bernique Benjamin.


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Finally, we would like to express a special appreciation to the following institutions for financial assistance in the preparation of this publication: The Caribbean Development Bank, the European Commission, the Inter-American Development Bank and the Organisation of American States. EDWIN W. CARRINGTON SECRETARY-GENERAL CARIBBEAN COMMUNITY

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