Growth threat

A new global study is warning that the cuts in investment that companies in Barbados and other Caribbean countries made to get through the COVID-19 pandemic are now threatening economic growth and recovery across the region. 

And it has recommended the creation of a non-political, public-private institution to help companies that suffered during the pandemic but remain viable.

The report published Wednesday by the Centre for Global Development (CGD) and the Inter American Development Bank (IDB) said that more than two years after the onset of COVID, productive capital numbers remain 20 per cent below pre-pandemic levels, and new policies are needed to help companies in the Caribbean and Latin America boost investment and growth.

“To reverse the situation and prevent it from leading to a type of economic long COVID where a weak private sector fails to create jobs and stimulate economic growth, governments in the region should actively pursue a series of policies to help companies boost investment and hire new employees,” the report recommended. 

The report examined the balance sheets of a large number of companies across the region and discovered that, despite an economic recovery in 2020 and 2021, capital levels at companies are still 20 per cent lower than they were before the pandemic began.

The joint CGD-IDB report recommends several ways governments could kickstart investment and economic recovery for the region’s businesses.

These include the establishment of a new, independent and temporary public-private institution with a mandate to identify and support firms that suffered during the pandemic but are still viable and need investment.

It said this institution needs to be staffed by the private sector to avoid political interference.

Another recommendation is for the promotion of digitalisation strategies in each country, with a focus on proven, cost-effective and growth-enhancing policies like the prioritisation of investment in digital infrastructure.

Policies to boost and incubate promising young firms and improve access to venture capital through both international networks and local markets; and simpler, more transparent, and more efficient legal procedures to allow firms to reorganise or go into bankruptcy more effectively were also suggested. 

The report also said that greater flexibility for law courts, better insolvency frameworks, and an international forum to assist with bankruptcies would help unsuccessful businesses reform or wind down their activities.

“While it is good news that relatively few larger firms failed, the drop in their productive capital implies significant scarring and threatens the region’s economic growth,” said Principal Advisor of the Research Department at the IDB Andrew Powell.

Director of the Latin America Initiative and senior fellow at the CGD Liliana Rojas-Suarez added: “Rebuilding capital is essential for firms after the pandemic, but with global and local interest rates rising and major uncertainties in international capital markets, it’s clear that firms will find it a challenge to obtain the necessary financing for investment.”

The report analysed companies across the region’s economy. It found that although revenues at companies in sectors like logging, mining, and other extractive industries have mostly recovered, in many sectors – including construction, retail, and most white-collar industries – revenues remained significantly depressed.

It found that investment fell sharply while debt levels remained high, especially in sectors hit the hardest by the COVID-19 pandemic. In addition, the demand for formal workers diminished and informal employment rose steeply during the recovery.    

Small firms, which often have limited access to credit, were punished the most severely by the crisis. The report finds smaller companies still face more financial challenges and are more likely to fall behind on debt payments, with a significant portion shutting down.

While overall economic growth has recovered significantly in many countries across the region, the report said, the stalled recovery for companies in key sectors has had knock-on effects on workers, especially for women and younger people.

The number of workers in informal businesses has increased from its already high pre-pandemic levels. Higher informality, the researchers said, will further constrain the region’s productivity and growth, largely because informal companies tend to be much less productive.

emmanueljoseph@barbadostoday.bb