byRonald Ramkissoon, Ph.D.

Senior Economist, Republic Bank Ltd.

Presentation to a Regional Forum on Cluster Development, Hyatt Regency, Trinidad, November 9, 2011

Situation of the Caribbean today What options for the Caribbean? What role for finance? Conclusions

Commodity producers◦ Showing some positive growth◦ Dependent on high external prices

Others◦ Negative growth◦ High fiscal deficits and high debt

All◦ Facing much external uncertainty◦ In search of sustainable strategies

Wait until the world economy improves and with that tourism, other demands

Or consider different approaches to igniting growth

Approach speaks to selected realities of the Caribbean

“..enduring competitive advantages in a global economy lie increasingly in local things- knowledge, relationships, and motivation that distant rivals cannot match.” M.P. p.78

“clusters represent a new way for thinking about location.” M.P. p. 78

“A cluster allows each member to benefit as if it had greater scale or as if it had joined with others without sacrificing its flexibility.” M.P. p. 80

At this juncture in Caribbean development, the financial sector (banks and non-banks) must join with other stakeholders in consideration of existing constraints to growth and in developing new approaches

The arguments for clusters are driven by the benefits that can accrue to firms- competitiveness, productivity, economies of scale etc.

These qualities are very much aligned with risk reduction which is paramount to the maintenance of a sound financial system

Successful clusters then are good credit risks and as such may already be reaping the benefits

The reality is that the issue of risk does not disappear in clusters but is reduced

The issue of the type of financial institution is important in risk mitigation

Need is for strong complementary sources of finance to bank funding, depending on the size and nature of the business e.g. venture capital, more developed capital market, other

The financial sector must help in the development of the appropriate institutions

Making it easier to do business is an exercise in cluster development

“By revealing how business and government together create the conditions that promote growth, clusters offer a constructive way to change the nature of dialogue between the public and private sectors.” M. Porter p. 89

Caribbean is at an important historical juncture Cluster development is a good approach Finance is important and financial institutions

have a supportive role to play Risk profile of businesses can improve with this

approach Apart from bank finance, alternative and

complementary forms of finance are important “Productivity, not exports or natural resources,

determines the prosperity of any state or nation.” M. Porter p. 89