SAVING FOREIGN EXCHANGE
SAVING FOREIGN EXCHANGE – BASIL SPRINGER COLUMN APPEARED IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON MARCH 22 2010
Click here for information on a new venture capital investment opportunity! www.bimventures.com
“Therefore I say unto you, What things soever ye desire, when ye pray, believe that ye receive them, and ye shall have them. And when ye stand praying, forgive, if ye have ought against any: that your Father also which is in heaven may forgive you your trespasses” – Mark 11:24-25
In examining the performance of the Barbados economy, there are a number of indicators that must be monitored. These include real GDP growth, inflation and employment; the fiscal deficit, the deficit on current account, the external debt service ratio and net international reserves. This is a formidable set of economic measures. Since I am not an economist by training, I will keep it simple.
I recently saw an article in the press where the Minister of Tourism was praised, especially for bringing more tourism related sporting events to the Island. There was also praise for what appears to be the imminent restructuring of the Barbados Tourism Authority to include a product development company and a marketing company; and a new cruise ship pier.
I think that this is exactly what we should be doing, building on the sectors that have served us well, and supporting the emerging sectors where “sunrise industries” will be the order of the day. What I really don’t understand is – why the agricultural sector, which is certainly basic to our survival, is traditionally treated with such scant respect.
The inflation rate fell from 8.6% in 2008 to 3.1% in 2009; may it continue to fall through 2010. Unemployment touched on double digit figures in 2009 and the only way to reduce this is by a net expansion of the economy where, as the Barbados Workers’ Union has proposed, one should not only look to retain jobs, but one should encourage members of the work force to take advantage of opportunities for enterprise development on their own.
To narrow the fiscal deficit we have to review the taxation policy and, indeed, ensure that taxes are collected on a timely basis. Maybe we should, rather than continue to pursue a system of direct taxation, be moving more towards a system of mainly indirect taxation which tends to incentivise the entrepreneur with the corresponding call to action.
The current account deficit narrowed in 2009 compared with 2008 and we would wish that this continue with a determined thrust on exports together with an import substitution drive. The external debt service ratio is projected to rise in 2010 but, if certain steps are taken to grow the economy, this could very well be reduced in the next five years.
Today I am more concerned about the net international reserves which were sufficient to purchase 21 weeks of imports at the end of 2009. This is certainly a much more comfortable position than the 1991 crisis when we only had enough net international reserves to purchase one week of imports.
I am proposing that we should not only introduce an export expansion policy through the agricultural, financial, creative industry sectors, but that, in parallel, we focus on import substitution. Export expansion increases the net international reserves and so does import substitution, hence, my suggestion for a parallel thrust in this regard. I have argued elsewhere that, for most agricultural commodities, an import substitution strategy not only contributes positively to reducing the food bill, but with optimal agricultural management practices, we can produce these commodities for less than their imported alternatives. Added bonuses are that we get fresher products and we know the chemical profile of the treatments used to grow these commodities, both of which contribute to a healthier nation.
Imported vehicles are a significant drain on the net international reserves but they also have a positive impact on Government revenue because of the high level of duties which are imposed. I think a policy to reduce the imports of new vehicles as a means of increasing the net international reserves should be considered. In pursuing this upside potential we, of course, would have to manage the downside risks associated with new car dealer reaction, net job losses (if any), sources to replace annual duty revenue on vehicles, vehicle insurance considerations and artificial lifestyle and cultural nuances.
On the positive side, one could create a new industry to cannibalise vehicles, which have reached the end of their natural life, to refurbish durable parts, and enhance the quantity and quality of auto- and body-repair activity.
I noticed a report in last Saturday’s Barbados Today that the Daimler driven by Queen Elizabeth II at the turn of the century is still in truly immaculate as-new condition due to proper maintenance. I certainly try to keep my almost-12 year old car well preserved at relatively little cost – it looks like new and performs as if it were a new car. We need a policy curb on the regular three-year change of individual or company car syndrome merely because we have or can borrow the Barbados dollars to buy the car. Only those who can prove that they actually earn or save foreign exchange should be considered for permission to purchase a new car over a certain value.
The power of positive thinking is embodied in the text above which is also tempered by balance in the concept of forgiveness. As I pray for this food-for-thought for saving foreign exchange to be considered in the interest of developing our economy, may I also ask to be forgiven for trespassing on accustomed individual rights and liberties?
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. – CBET – Columns are archived at www.cbetmodel.org)