Politics and Business

The political landscape in Barbados has been charged for months now owing to leadership issues with the main opposition party, being played out in the public sphere.

The disputes and divisions would ordinarily be seen as par for the course with any political organisation following electoral defeats. The Conservative Party in the United Kingdom recently experienced its worst loss in nearly 200 years and is currently embroiled in leadership squabbles. What makes the local scenario more acute is the near annihilation of opposition forces in the last two elections, resulting in no parliamentary opposition and yielding absolute power to one party.

The fact that this has occurred in Barbados, which holds astutely to traditions of democracy and civility is worrisome. Political pundits and armchair activists are predicting a 3.0 whenever elections are held. Barbados, however, can least afford a one-party state and every effort must be made to ensure this country has a healthy, functioning democracy.

From the perspective of business, a strong democracy is needed for an enabling business environment to be preserved. The lack of democracy can lead to political instability which impacts foreign investment, primarily through its effects on investor confidence, economic predictability, and the overall business environment.

Foreign investors generally seek stable political environments to minimise risks associated with their investments. Investors rely on consistent and transparent policies regarding taxation, regulation, and trade. The absence of established democratic structures can result in a lack of checks and balances. This unpredictability can lead to a decline in foreign direct investment (FDI), as businesses may choose to invest in countries where they perceive a more stable and predictable political landscape.

A strong democracy fosters a conducive business climate. Political instability can lead to disruptions in policy implementation, affecting sectors that are critical for foreign investment, such as tourism and financial services. For instance, Barbados’ tourism sector, which is a major driver of its economy, relies heavily on foreign investment and visitor confidence. Any signs of unrest or instability can negatively impact tourist arrivals, further affecting the economy and investor sentiment.

Investors typically look for environments that promote sustainable economic policies and reforms. The current political landscape may hinder the development of comprehensive economic policies that stimulate innovative ideas and reforms necessary for economic resilience and growth.

Without looking too far, there are several examples among CARICOM member states where the lack of an effective democracy and political turmoil spurred a fallout in business activity.

Examples have been recorded in Jamaica in the 1980s, where the country experienced a severe economic crisis due to political tensions and policy uncertainty. This later led to a decline in foreign investment and economic growth. Trinidad and Tobago in 2010, experienced a political crisis leading to a period of policy uncertainty and delays in decision-making, which affected business confidence and investment. Haiti has been embroiled in turmoil for years, which continues to impact their prospects for economic growth. Haiti’s economy has contracted for five consecutive years, with negative growth rates projected to continue in 2024 (-1.8%). This prolonged economic downturn is primarily driven by heightened insecurity and political instability, which directly affects business operations.

Using the recent electoral crisis in Guyana, following the March 2020 general election as a case study, one can see the economic impact of political instability. This turmoil resulted in delays for numerous projects, notably in the oil sector. Investment decisions by major companies like ExxonMobil were temporarily stalled as the government grappled with a deeply divided political landscape. These delays impacted the country’s burgeoning oil economy, which relies heavily on timely approvals for exploration and production activities.

As reported by InewsGuyana, investor confidence declined in Guyana as investors expressed hesitation in committing capital to projects due to the perceived instability. The Inter-American Development Bank pointed out that political uncertainty is viewed as one of the main challenges to doing business in the country, alleviating concerns that prolonged political strife could lead to policy reversals and regulatory unpredictability.

Planned improvements to the road and transport network faced delays, which hindered logistics and supply chain operations for businesses, particularly in agriculture and manufacturing, where timely deliveries are crucial.

Frequent blackouts and energy crisis complicated efforts to address longstanding issues with electricity supply. The Guyana Power and Light struggled to meet performance targets, deterring potential investments in various sectors, especially manufacturing.

The Georgetown Chamber of Commerce and Industry conducted a study that revealed significant declines in business activity attributable to the uncertainty. An extract from the survey showed that approximately 64 per cent of surveyed businesses reported some form of decline in operations due to political uncertainty. This decline was characterised by varying degrees of impact on business activity, highlighting the pervasive nature of the unrest across different sectors.

Among the businesses that experienced a downturn:

– 85 per cent  reported a decline of 25 to 50 per cent in their level of commercial activity.

– 15 per cent experienced an even more severe decline, reporting drops between 75 per cent  to 100 per cent in business activity. This stark differentiation underscores how severely the political environment affected business health during this period.

Though the aforementioned examples may appear extreme to some, it is not impossible for there to be disruption in our way of life if democracy is threatened. Business owners need therefore to pay attention to the current political shenanigans and appreciate the implications of this on our business environment if not curtailed.