Of con­ces­sions, agree­ments and in­vest­ments…

The Star (St. Lucia) - - BUSI­NESS - By

IAn­gus J. Robin­son would like to touch on two is­sues that have arisen for dis­cus­sion in Saint Lu­cia and the wider Car­ib­bean, i.e. the use of con­ces­sions as a tool to at­tract in­vest­ment and the dis­cus­sion on the over-reliance on tourism (ho­tels) as a ma­jor con­trib­u­tor to GDP.

Econ­o­mist Dr. Vanus James, speak­ing at the OECS Eco­nomic Growth Fo­rum in Gre­nada re­cently, posited that the big­gest im­ped­i­ment to growth of the economies of the OECS is their small size and scale of pro­duc­tion, and the lack of a uni­fied re­gional ap­proach to devel­op­ment.

As re­gional economies strive to di­ver­sify their pro­duc­tive bases, the fact re­mains that the key growth engine re­mains the tourism and hos­pi­tal­ity sec­tor, and with­out hav­ing the money read­ily avail­able to do it them­selves, then re­gional gov­ern­ments must at­tract in­vest­ment.

The Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment (OECD) has stated clearly that for­eign di­rect in­vest­ment (FDI) is an in­te­gral part of an open and ef­fec­tive in­ter­na­tional eco­nomic sys­tem and a ma­jor cat­a­lyst to devel­op­ment. FDI trig­gers tech­nol­ogy spillovers, as­sists hu­man cap­i­tal for­ma­tion, helps cre­ate a more com­pet­i­tive busi­ness en­vi­ron­ment and en­hances en­ter­prise devel­op­ment. All of these con­trib­ute to higher eco­nomic growth, which is the most po­tent tool for al­le­vi­at­ing poverty in de­vel­op­ing coun­tries.

The sim­ple truth, go­ing back to Dr. James, is that many is­lands of the Car­ib­bean op­er­ate at a dis­ad­van­tage, which means that gov­ern­ments need to be creative to at­tract in­vest­ment. One of the most ef­fec­tive ways of do­ing that is by of­fer­ing con­ces­sions for in­vest­ment. With grow­ing com­pe­ti­tion, the use of fi­nan­cial con­ces­sions (prop­erly ad­min­is­tered) has be­come a very suc­cess­ful tool to at­tract FDI, which is both trans­par­ent and ef­fec­tive. Those who knock the use of con­ces­sions, have lit­tle to of­fer as an al­ter­na­tive.

As for the dis­cus­sion about an over-reliance on ho­tels, with San­dals com­ing un­der the mi­cro­scope, there is only one ques­tion that needs to be asked; who else is pre­pared to do it? Saint Lu­cia should be proud that it is able to con­vince an in­vestor to so deepen its in­vest­ment . . . not afraid. Let me high­light the fact that many other coun­tries are ac­tively woo­ing the San­dals brand at the mo­ment, as op­posed to the grow­ing skep­ti­cism among some lo­cally. I can only say here that com­pla­cency breeds con­tempt, and you don’t know what you have un­til it’s gone.

Ul­ti­mately it is the host coun­try that needs to es­tab­lish a trans­par­ent, broad and ef­fec­tive en­abling pol­icy en­vi­ron­ment for in­vest­ment and to build the hu­man and in­sti­tu­tional ca­pac­i­ties to im­ple­ment them. How­ever, for an in­vest­ment to be ef­fec­tive and ben­e­fi­cial there must be gen­uine co­op­er­a­tion be­tween pub­lic and pri­vate sec­tor part­ners, held to­gether by good will on both sides.

One of the great dan­gers fac­ing the Car­ib­bean is the view that we are a third­world ter­ri­tory in­ca­pable of trans­act­ing first world busi­ness, and one of the ma­jor fac­tors that has con­trib­uted to that, is when gov­ern­ments break prop­erly bind­ing agree­ments with multi-na­tional cor­po­ra­tions.

A Prince­ton Univer­sity study re­vealed that from a multi­na­tional cor­po­ra­tion’s point of view, rule of law in a des­ti­na­tion coun­try hinges on the sanc­tity of con­tracts with the host gov­ern­ment. How­ever, since the 1990s the vast ma­jor­ity of gov­ern­ments around the de­vel­op­ing world have at one time or an­other vi­o­lated MNCs’ con­tracts. Host gov­ern­ments break ex­plicit and im­plicit con­tracts with MNCs, lead­ing to de­val­ued for­eign hold­ings through forced con­tract rene­go­ti­a­tions, dis­crim­i­na­tory pol­icy changes, and other un­due in­ter­fer­ence.

That is what has hap­pened in An­tigua re­cently with San­dals, and a Prime Min­is­ter talk­ing so loosely about be­ing able to aban­don con­ces­sions is not some­thing we should take lightly. In to­day’s age of in­stan­ta­neous com­mu­ni­ca­tion, a dis­pute be­tween a gov­ern­ment and an in­vestor spreads through­out the globe in a mat­ter of min­utes, plant­ing the seeds of in­sta­bil­ity; dis­trust and lack of con­fi­dence which can be be­come mor­tal wounds for coun­tries in the re­gion, be­cause we are all viewed as ONE Car­ib­bean.

Ac­cord­ing to the Cle­ments World­wide Risk In­dex, po­lit­i­cal in­sta­bil­ity (real or per­ceived) is the num­ber one con­cern among top global man­agers at multi­na­tional cor­po­ra­tions and global aid and devel­op­ment or­ga­ni­za­tions. For cor­po­ra­tions and de­vel­op­ing na­tions – it means less in­vest­ment for those coun­tries that have greater po­lit­i­cal in­sta­bil­ity and more re­ported prob­lems.

To say that coun­tries have to fear the ‘ty­coons’ as Le­nard Montoute re­cently put it, is to con­fess that you as a gov­ern­ment do not have the skill set nor sense to man­age your busi­ness. I do not think that is the case in Saint Lu­cia. I cer­tainly hope not.

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