The OECS is at an economic crossroads and should reposition itself by adopting innovative approaches to growth and competitiveness, according to the World Bank study, ”Towards a New Agenda for Growth” (April 2005). With such action, the report argues, the region can successfully position itself to compete in an increasingly globalized economy. Without action, it risks eroding many of the social gains won over the last 3 decades.
Reflecting trends in the wider Caribbean, the study highlights the significant benefits that could accrue to the region if steps are taken to address the recent slowdown in growth and mounting debt and fiscal imbalances. A companion study to a Caribbean-wide study “A Time to Choose”, launched earlier this month, the OECS study seeks to identify the causes of the slowdown in growth and offers possible options to reverse the trend.
In the 1980s, the OECS sub-region experienced a relatively strong decade of growth (5.9 percent per year), driven mainly by tourism and banana exports. But growth in the OECS has been slowing down since the early 1990s as a result of a decline in productivity growth and a contraction of private investment. Similarly, the six independent OECS countries rank among the top 16 most highly indebted emerging economies in the world, and the report warns that unless growth is enhanced and debt reduced, the social gains of the past three decades risk being eroded and that poverty may increase, along with unemployment, especially of young people.
The OECS has been extremely competitive in attracting foreign investment (FDI), with relatively stable flows as a share of GDP over the last two decades. The average ranking of the OECS as a whole on the UNCTAD FDI performance index in 2002 was 20th out of 177 countries. In contrast, the study finds that the top ten exports from the sub-region are primary commodities with limited value-added and argues that this structure of production and exports has resulted from a reliance on special and differential treatment that has not served the region well over the long term.
"The states that comprise the OECS have considerable potential, but to realize it they must define a new development path, and develop the skills, services and technology to leverage their natural advantages of language, proximity to the large US market, stable democracy and the environment. Greater regional cooperation, will also be critical to boosting growth and competitiveness both nationally and regionally,” said Caroline Anstey, World Bank Country Director for the Caribbean.
The study highlights a number of possible actions--by both the sub-region’s Governments and the private sector--which could enhance its global standing. Citing the case of the sub-region’s key export, tourism, which has lost market share within the Caribbean and worldwide, the study says that the outlook for the OECS in the global economy need not be a pessimistic one and cites the success of other small states which have successfully integrated in the global economy. The study also recognizes the successful reorientation of the traditional sun and sand tourism towards a more holistic tourism involving the whole destination, borne out by the success of St. Lucia’s Jazz Festival and Dominica’s Creole Festival.
Another area cited is offshore education: medical schools represent a small but growing services sector that has responded to a growing and unfulfilled demand for physicians in the United States. St. George's University School of Medicine in Grenada and Ross University School of Medicine in Dominica are two of 23 primarily offshore medical schools in the region, whose graduates together account for close to 70 percent of the international medical graduates entering the US. Demographic trends suggest there is scope for an expansion of growth in this sector. Similarly, the cross-border provision of health services has created opportunities for Caribbean health service and health-tourism providers: Le Sport in St. Lucia and rehabilitation services such as Island Dialysis in neighboring Barbados are two case studies cited.
“Improving the business environment implies tough choices for the governments of the sub-region," says senior economist and the report’s principal author, Camille Nuamah. “This report does not offer a silver bullet for growth but does suggest strategic agenda for both governments and the private sector to consider if they are to improve their capacity to compete globally.”
The study suggests (i) the formulation of a strategic sub-regional vision for the economy and key sectors; (ii) the pursuit of greater openness, competition and a more level playing field in the domestic market; and (iii) building new capacity in the labor force, private sector and government. It also suggests a number of short-term priorities including fiscal and public sector reform, raising the skills base, strengthening the enabling environment and improving the business environment.
Ms. Nuamah adds that “while retooling the skills base in the OECS will be paramount in order to compete in the new globalized economy, so, too, will be the promotion of innovation and the adoption of new technologies by the private sector." The study also suggests that governments seek to deliver improvements in transport and utility services, key factors in establishing competitiveness.
The Bank study also highlights recent successes in sub-regional institutions which auger well for the future, including, the Eastern Caribbean Telecommunications Authority--in expanding teledensity, competition and cost reduction--and the Directorate of Civil Aviation--in addressing security issues in the sub-regions airports. The study emphasizes that these successes may offer regional solutions to many other common national problems.