Thursday, April 18, 2024

WHAT MATTERS MOST: We need foreign investment


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BARBADOS has a social partnership that works and it needs an economic partnership that functions. Our economic history is one of functional cooperation between the public and private sector, which all post-independence governments, except the current one, understood and practised. Perhaps the time has come to put financial principles in law to prevent a recurrence of the fiscal madness inflicted on this country over the last six years.
Economies grow predominantly through private consumption and investment. In Caribbean economies, growth is sensitive to the nature of trade with the rest of the world. However, it has become too fashionable to suggest that all of our economic hopes are wrapped up in international trade, leaving us less independent after decolonization.
If domestic policies do not matter, why did Jamaica and Guyana perform so poorly in the post 1973 oil crisis period when compared with other Caribbean economies that faced the same international economic environment? Domestic policies matter most!   
The truth is that the first requirement in managing economies is to determine the mix of state and private capital. The former is assessed on its social impact while the latter’s assessment is done on its profitability.
Countries that have pursued a judicious mix of capital, dominated by private capital, have fared better over time. In the region, the evidence is compelling that excessive state involvement courts economic disaster. This is truer when governments spend on consumption rather than investment, which is the recent experience of Barbados.
In light of the observation, let us take a look at Barbados’ economic future with the mix in mind.
In doing so, there is no difference between domestic and foreign capital, except that it is hoped that every effort is made to facilitate some local ownership and, equally important, control.
It is apparent to everyone that Warrens is the area of economic expansion; Speightstown, Oistins and Holetown are restricted by their coastal locations. State capital must therefore be used to build out the infrastructure that is required. This includes improving the road network in anticipation of the obvious. As a result, the only way to go is up. The debate on flyovers will have to be resumed.
Perhaps it is not truly appreciated that the ABC Highway plus Highway 2A run almost the entire length of the island from the airport to Mile-and-A Quarter in St Peter. This means that crossing the highways, from east to west and vice versa, is the main reason for traffic complications especially during the school terms.
There are some other issues associated particularly with Highway 2A, which for the most part splits the water zones; on the west, there is zone one and on the east are the other zones. This split has obvious implications for future planning of the country.      
In the Warrens area, a fire station is a must.
A modern post office is essential. And closer police presence is a requirement. In essence, state planning is a necessary precondition for building out the area as an example of future growth and development. This must be accompanied by the use of alternative energy, not because it is cheaper, but more so it may be sustainable with the right policy framework.  
Once there is certainty about the future direction for the area coupled with confidence about the economy as whole, the platform for employing private capital would have been built. The other critical essential is for the resumption of increasing disposable income among consumers, which can only be done on the back of a growing economy that requires more consumption.
Therefore, Barbados needs foreign investment more now than ever. Our existing wealth, rather than the creation of new wealth, has been used to accommodate Government’s consumption. Three sources especially have been exploited: the National Insurance Scheme, which is close to exhaustion; commercial banks that have already grown tired of buying Government paper and personal savings and investments, which have been choked off by Government policies.     
There is a view that borrowing very heavily on the international market is going to create new wealth.
The view is misguided and tainted with political survival. The country’s economic survival is paramount and this requires the right mix of local and foreign investment, not just foreign borrowing. The latter buys time; the former creates wealth.    
An economic partnership has to have the right mix of private and public capital, consumption and investment and local versus foreign ownership.  
• Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.


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