Caribbean & Central America - July 2008 (ISSN 1741-4458)

The Caribbean Community (Caricom) summit which took place in Antigua in early July, highlighted the multiple challenges to Caribbean economies, ranging from rising fuel and food prices to the knock-on consequences of the sub-prime crisis in the US.

Jamaica's prime minister Bruce Golding told the summit: “We are caught in the vortex of the worst global cyclone the world has experienced in my lifetime, and the leaders of the world with all their resources, might, and power appear to be helplessly disoriented."

Host prime minister Spencer Baldwin added: “Of particular interest to this summit, Caribbean economies are now facing a 17% cutback in airline services from our tourism supply centres in the lower United States together with increases in airfares and new airline charges.   This makes for bleak perspectives for the region's tourism driven economies."

The Economic Commission for Latin America and the Caribbean (Eclac) produced a report in April that looked at the implications of the US sub-prime mortgage crisis for the Caribbean and sought to identify the Caribbean countries most vulnerable. Overall the Caribbean recorded economic growth of 3.9% in 2007, down from 5.8% in 2006.  

The main growth drivers have been the commodity boom (particularly significant for Trinidad & Tobago and Jamaica) and tourism-related construction.

Eclac has calculated a “correlation coefficient" between US and Caribbean growth rates for 1971-2007. The countries with the closest positive correlations were St Lucia (40.9%), Trinidad & Tobago (34.6%), St Vincent & the Grenadines (34.1%), Suriname (33.4%), Jamaica (31.2%), Antigua & Barbuda (30.1%), Grenada (29.7%), The Bahamas (29.0%), Barbados (28.6%), Anguilla (28.2%), and St Kitts & Nevis (22.8%). The positive correlation for Dominica was only 11.9%, while three countries had negative correlations: Belize (-6.0%), Montserrat (-6.0%), and Guyana (-12.8%).
Eclac identifies five likely “transmitters" of US economic difficulties to the Caribbean, namely trade, tourism, remittances, finance, and foreign direct investment (FDI).  

The table below shows the relative importance for 15 Caribbean countries of goods exports to the US, commodities exports, tourism, tourism from the US, and remittances. In terms of trade, the US accounts for 15% of world trade, with 51% of goods exports from Caricom countries going to the US in 2006. As well as the likelihood of reduced volumes of exports, a drop in world commodity prices is also possible, as US growth stalls or goes into reverse.      

The Caribbean countries for which commodities form the highest percentage of total exports are Barbados (30.0% - oil and sugar), The Bahamas (25.7% - non crude oil), Belize (33.2% - oil, sugar, banana and plantain), Guyana (38.8% - aluminium ore, sugar, rice), Jamaica (75.0% - non crude oil, aluminium oxide/hydroxide, aluminium ore, sugar), Suriname (62.1% - oil, aluminium oxide/hydroxide, rice, banana and plantain), Trinidad & Tobago (66.8% - oil), Dominica (20.7% - banana and plantain), St Lucia (20.7% - banana and plantain), St Vincent & the Grenadines (35.2% - banana and plantain).

Tourism contributes over 20% of GDP in some countries, and the percentage of stay-over tourists originating from the US is as high as 86.2% in The Bahamas and 72.1% in Jamaica. In total 5.7m US tourists visited the Caribbean countries in 2006, 19.2% of the total outbound travellers from the US.

The Organisation of Eastern Caribbean States (OECS) countries have a notably high proportion of their GDP coming from tourism, although they also tend to be less dependent on the US market. The table shows that the countries that will be most affected by a downturn in US-originated tourism are: The Bahamas (17.3% of GDP from tourism, 86.2% of stay-over tourists originating from the US), Anguilla (23.6% and 65%), and Antigua & Barbuda (21.7% and 27.6%). St Lucia is also vulnerable, with 15.8% of its GDP coming from tourism and 36.5% of its stay-over guests originating from the US. Although 72.1% of Jamaica's stay-over guests come from the US, tourism accounts for only 9.4% of GDP.

However, while Jamaica might be less exposed to a tourist downturn than some, remittances form a much higher proportion of GDP than for most. Along with Guyana (18.8% of GDP), Jamaica (15.4%) is the only other country where the proportion of GDP represented by remittances is in double digits. The impact of a downturn in remittances would have a significant but less intense impact in Barbados (4.2% of GDP), Belize (6.7%), Anguilla (4.2%), and Grenada (7.1%).

Curiously, however, Eclac makes the point that during the last US recession remittances to the Caribbean actually increased from US$1,703m in 2000 to US$1,845.2m in 2001, which contradicted most predictions and suggests the need for caution when forecasting the exact consequences of the present economic difficulties in the US.

Rebuke to Venezuela Aside from economic preoccupations, the Caricom summit gave rebuke to Venezuela over its unresolved territorial dispute with Guyana, despite the fact that Caricom members Antigua & Barbuda, Bahamas, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St Kitts & Nevis, St Vincent & the Grenadines, and Suriname are all also beneficiaries of Venezuela's Petrocaribe initiative for oil supplies on preferential terms.

St Lucia is also mooting the possibility of joining. But despite this, the Caricom summit expressed “unequivocal support for the safeguarding of Guyana's territorial integrity and sovereignty and its right to develop its resources in the entirety of its territory.