#BTColumn – Economic diversification

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY. 

by Ralph Jemmott

Given the obvious imperative of growing the Barbados economy, the focus has been on diversifying output, particularly the outputs that earn foreign exchange. ‘We need to diversify’ they proclaim, often as if they had suddenly discovered some new truth.

Indeed that truth has been evident since the 1950’s when it became apparent that sugar mono-culture could not long sustain the island’s economy. The end of the preferential treatment afforded in the North Atlantic market places made diversification even more compulsive.

There have been a few hallmark diversifications in the Barbadian economy in the second half of the twentieth century.

Under Grantley Adams attempts were made to develop a tourism industry but by 1961 tourism and affiliated services were still largely confined to the West Coast and a very small area of the South. West Coast tourism along the so-called ‘Gold Coast’ catered to a relatively small elite clientele.

The many comparative advantages enjoyed by Barbados in the global tourism market place led to tremendous diversification away from sugar in the 1960s.

This was the policy of Errol Walton Barrow and was a tremendous success, earning Barbados significant foreign currency that substantively improved the standard of living on the island. The present difficulties in tourism occasioned by the global pandemic have led some to suggest that we erroneously placed all our eggs in the tourism basket. This ignores the fact of a time when the eggs were plentiful and the baskets were full.

Tourism and tourism services became the prime engine of economic growth. The expansion in GDP between 1960 and 1980 was in no small measure due to the tourist sector.

In 1988 the Guyanese economist, Clive Thomas estimated that tourism accounted for 15.5 per cent of Barbados’ GDP compared to 2.5 percent for sugar agriculture.

No one back then could envisage a COVID  pandemic affecting global tourism, but that sector still remains key to Barbados’ prosperity. In terms of its foreign exchange earning capacity, it is difficult to imagine its equivalent.

The Barrow regime also witnessed a diversification into manufacturing into small industries under the policy of ‘investment by invitation’ along the lines of the Puerto Rican Model advocated by Sir Arthur Lewis. This was the period of the Industrial Parksw expansion. This too proved a relative success in terms of earning foreign exchange and providing employment for the excess labour supply in Barbados, particularly for the school leaving generation.

However, the investment by imitation policy model had its limitations. In some cases wages were relatively low.
Investors demanded increasingly favourable incentives and tended to pull up shop and proceed to other locations like Mexico and the Far East where labour was cheaper and the concessions more gratuitous.

The Intel Corporation was a case in point. This is not to minimise the success of the industrial development policy which was very instrumental in sustaining the Barbadian economy in the period after independence. In fact given the lack of indigenous capital, Barbados like many other regional economies is still highly dependent on foreign capital investment. That is an inescapable reality. part from tourism and small scale manufacturing, the Offs-shore business sector has been the most significant contributor to the diversification of the Barbadian economy.

This was so particularly in relation to the earning of foreign currency which is the life-blood of the local economy.

According to Senator Darcy Boyce, then Minister in the Office of the Prime Minister, in 2007 some 20 per cent of corporation tax was coming from the International Business sector. Begun tentatively under Errol Barrow, that sector really progressed under the Tom Adams administration to become a major driver of economic growth.

Over the past two decades this sector has also had its challenges as the North Atlantic countries have sought to keep their tax revenues at home.

This brings us to the present. Barbados is now part of and tied to global capitalism. Truth be told, we are as dependent on inflows of foreign invested capital and access to overseas markets as we ever were. That is the nature of the beast.

The reality for those willing to accept it, is that Barbados remains an open highly vulnerable economy still subject to external shocks. No country is totally independent. Germany is very dependent on imports of natural gas from Russia particularly after it move away from nuclear energy.

We are now grasping at Chinese investment and loans, but we must be careful with Chinese economic, political and military imperialism.

There is no time in history that imperious economic power has not been followed by attempts at military hegemony. That was the basis of seventeenth century mercantilist thinking.
Foreign loans have to be repaid. The persons elected to govern us must be wary of ending up in any debtor’s prison, far less one run by a Chinese autocracy.

In 1961 former British Prime Minister Clement Attlee stated, ‘a lot of clever people have got everything except good judgement,’ We must make good judgments not only about how much we borrow, but from whom we borrow.

The persons who talk glibly about diversifying the local economy must say diversifying to what? It is clear that we have to start producing more of our own food.

This must go beyond endless speechifying about food security. One suggestion made to me is that we should turn to robotics, because as someone said, ‘we have nuff bright people bout hey.’ That sounds like the usual Barbadian bravado.

There is again much talk about Business Technologies connected to the so-called ‘Metaverse.’ That seems to be in a very embryonic stage. What exactly would a robotics industry require? Would that not be a capital and skill intensive enterprise? If it is a viable alternative, should we not know more about what it would involve.

Speaking recently at a ‘Research Day’ at the Owen Arthur Research Complex at Cave Hill, Professor Don Marshall reiterated that not enough was being done to diversify the local economy.

He noted that Barbados’ economic future cannot be based on what he calls ‘project based development,’ like the construction of hotels such as the Hyatt or a National Stadium. The good professor needs to tell us specifically what are the diversifying alternatives that he would suggest.

Merely to say that we need to diversify is to repeat the often repeated obvious.

Ralph Jemmott is a respected retired educator.