The pivotal role of aviation in regional integration

Speaking at the end of the recent summit of the Organisation of Eastern Caribbean States (OECS), Dominica’s Prime Minister, Roosevelt Skerrit, was clear.

“We just have to close our eyes for a few seconds and appreciate the impact on the way of life of ordinary citizens and businesses in this region if LIAT were to cease its operations … There are economic consequences. I think the regional private sector needs to join forces with the governments and all of us in the region”, he told journalists.

In a similar vein his Antiguan counterpart, Gaston Browne, who is now the OECS chair, said that LIAT remained vital to “keeping our people connected”, and that the airline was a critical component in regional integration.

Majority owned by the governments of Barbados, Antigua, St Vincent, and Dominica, LIAT remains on the edge financially, struggling to reconcile its essential role in sub-regional integration with how it should be financed and operated.

This is partly because, despite multiple restructurings, no one so far has been able to find a way to make viable a sub-regional carrier that serves the needs of all OECS citizens and visitors in a manner that is functional, politically equitable and socially relevant at the same time.

The present situation is expected to come to a head when representatives of the Barbados and Antigua governments meet soon to negotiate the terms on which Barbados will sell most of its shareholding in the airline.

A little earlier this year, Barbados agreed to the sale of much of its 49.4% shareholding to Antigua which currently holds 34%. The arrangement is expected to revolve around Antigua taking on most of Barbados’ part of the airline’s debt to the Caribbean Development Bank (CDB) while retaining a shareholding and continuing to participate in minimum revenue guarantee arrangements. This is an arrangement that involves the countries that LIAT flies to, contributing not on the basis of their shareholding, but on the frequency of flights to their nation. Antigua is also hoping also that other Caribbean governments, or those with a vested interest in tourism, will subsequently take up some of its shares.

Speaking about Barbados’ decision to sell, Prime Minister, Mia Mottley said recently that while her government retained an “absolute commitment to regional air travel” the country’s IMF programme required it “to step back”. Tellingly, however, she coupled this with the suggestion that this would allow other governments “to continue with their proposals to restructure LIAT in the way which they have determined.”

Ms Mottley’s stated view is that LIAT’s operating model is dated and unattractive and that the airline needs a new financial and operational approach and significant restructuring if it is to be able to be made viable and provide the required services.

Most reports suggest that the airline continues to struggle with short term liquidity issues and to service its US$65m debt to the Caribbean Development Bank (CDB) relating to a fleet upgrade.

Antigua’s Prime Minister says that his government believes it can address both issues and exercise the regional leadership required to turn the sub-regional carrier into a viable operation. It will, he said, “resist” any collapse and has developed a “strategic approach” that involves retaining all LIAT’s fleet of ten aircraft and Antigua’s role a regional hub.

Despite this, some shareholders remain reluctant to make further contributions without significant changes to the airline’s structure, cuts in expenditure and rationalisation of the number of aircraft and routes. Moreover, all this is happening as a plethora of smaller carriers are expanding their services across the sub-region in an uncoordinated manner.

What LIAT’s continuing difficulties highlight is the importance of finding a broader solution that results in a viable Caribbean operated carrier or interrelated carriers able to fly services that seamlessly link the various regions of the Caribbean together.

As this column noted last year, this requires joined up regional thinking that only a full Caribbean Heads of Government meeting can address and find practical ways to implement.

Unfortunately, in the real world of Caribbean aviation political interference has meant that decisions are often based on petty nationalism and an absence of the efficiencies that the private sector usually brings. Consequently, governments subsidise foreign carriers to fly in, subsidise regional airlines, and subsidise fuel. Then, in response, they tax in multiple ways, travel and travellers, to recover what has been spent.

Clearly this is unsustainable and if not addressed soon, regional aviation, and by extension regional integration, is likely to continue its slow downward spiral.

Regrettably, the likely solutions to LIAT’s problems suggest that the current piecemeal approach to regional aviation will continue without any holistic attempt to address underlying problems such as the extraordinary range of taxes and charges levied by OECS governments, the sub-region’s inability to deliver an integrated approach to transport that includes fast ferry services, or it unwillingness to address protectionist approaches to route licensing.

Some OECS governments now suggest that those who benefit most from LIAT’s services such as the tourism industry, should be taking up LIAT shares. This may be wishful thinking. Investors within or beyond the region would likely require a far-reaching rationalisation plus much less government constraint, while most hoteliers, who may well benefit from the airlift LIAT provides, are adamant they already contribute enough through domestic taxation.

In comparison to Central America, aviation in the Caribbean has been a disaster, staggering from one financial and operating crisis to another, too often micromanaged by governments, costing taxpayers millions of dollars in subsidies while becoming so expensive to use that a 2018 CDB study pointed out inter-regional travel is now in rapid decline.

Whether LIAT has an assured future remains to be seen, but for as long as politicians fail to satisfactorily address inter-regional connectivity and its cost, Caribbean integration will for most remain illusory.

When in the early 1990s it became apparent that Europe’s preferential regimes for Caribbean bananas and sugar were coming to an end, an impassioned debate began about a transition to other forms of economic activity. 

For the most part the focus was on alternative crops, import substitution, manufacturing, and financial services. Little was said at the time about tourism because its sustainability was widely regarded as uncertain.

Since, then the world has moved on. Tourism has come to dominate most Caribbean economies. Unconstrained by the region’s smallness, the internet has enabled new offshore services to develop and prosper, and financial services, after being encouraged, have come under threat from the same nations that promoted their development.

In contrast agriculture has been slow to reorient itself.

While some entrepreneurs in the sector moved on and identified niche domestic or export markets or saw opportunity in large new acreages on virgin land on the mainland of South and Central America, most Caribbean farmers have remained caught in the past. Moreover, agriculture’s low returns and economic and climatic uncertainties have made the sector unattractive to most young people, resulting in there being little new thinking about how as an industry, agriculture should adapt to a much-changed Caribbean.

For this reason, a just published Caribbean Development Bank (CDB) and UN Food and Agriculture Organisation (FAO) ‘Study on the State of Agriculture in the Caribbean’ is breath of fresh air as it outlines how, with a significantly changed approach, the sector could again become of much greater economic and social relevance.

What it does is provide a long overdue comprehensive analysis – incredibly the first since 1981 – of agriculture in all CARICOM states including Haiti, plus the UK’s five Overseas Territories, which together comprise the Bank’s nineteen borrowing member countries.

It notes that while Dominica, Guyana, Haiti and Suriname remain heavily dependent on agriculture with the sector accounting in these nations for between 12 and 17% of GDP and between 10 and 50% of employment, in ten other borrowing nations, agriculture now accounts for less than 4% of GDP.

The study confirms that since 2000, the food import bill of CDB’s borrowing members has more than doubled from US$2.1bn to US$4.8bn with imported food now accounting for 60% of the food consumed in CARICOM and the UK Overseas Territories. It also says that in its borrowing countries food exports of traditional crops fell from 60% of agricultural production in 1990 to less than 20% in 2018.

As well as focussing on how the economies of the region have changed and how Caribbean agriculture might adapt, the study identifies the steps required to resuscitate the industry and reduce the region’s huge food import bill.

CDB make clear that the principal challenge now facing agriculture in the region is improving competitiveness and productivity. Productivity growth in Caribbean agriculture, it observes, remains low, with value per worker per annum remaining largely unchanged for 30 years. This, the report notes, contrasts negatively with Europe where over the same period the value has doubled or in the case of the United States, tripled.

CDB also say that because the sector has only a limited ability to comply with modern food safety and quality standards and for the most part lacks irrigation, it has been unable to adequately respond to the region’s rapidly growing demand for high-standard, agri-food products for the tourism, food processing and retail sectors, either within or beyond the region. The consequence has been a growing demand for agricultural imports.

Despite this, the report, which also addresses fisheries and aquaculture, says the sector as a whole has great potential for the creation of stronger market linkages with sectors such as tourism if support is provided to farmers, fisherfolk and agri-food businesses to adopt current international best practice and technologies.

CDB’s intention now is to develop a new agricultural policy and strategy paper for governments, multilateral institutions and aid donors, with the intention of modernising Caribbean agricultural practices, identifying key trends and the innovative practices and the science necessary to support an integrated approach. It also intends proposing measures that incorporate technology across the value chain and strengthen the sector’s capacity to become more resilient to climate change.

What makes this report particularly important is that it is forward looking, outlines solutions and opportunities and gives hope to all who believe in the centrality of agriculture to Caribbean life and who want to restore respect for agriculture’s role.

If the Caribbean’s agri-food system is to become more competitive, inclusive and sustainable, it has long been self-evident that agriculture requires a new approach, new policies and investment. In particular, as a sector, it needs to overcome its inefficiencies, adopt best practice and see more resources and much more land under crops that offer greater value to farmers and consumers.

Well delivered change could again make agriculture, albeit in a very different form, an important source of future regional economic growth and see the sector become a key contributor to poverty reduction, particularly for those not able to benefit from growth in other parts of the economy.

As CDB suggests, a resuscitated and integrated industry could also help address the socio-economic problems that the region faces in relation to food and nutrition insecurity, obesity, youth unemployment, and gender inequality.

By illustrating quite how much there is to be done the reports begs the question as who is going to act and how quickly.

In recent years CDB has developed a reputation for well thought through and executed actions. It has gained renewed respect from its lenders and non-borrowing members which include the UK, China and Germany and is well placed to mobilise resources.

However, initiating a new public-private policy dialogue, increasing acreages, addressing overfishing, identifying value chains, developing transport links to regional and overseas markets, and all else that is required to reinvigorate Caribbean agriculture will necessitate a well-integrated, managed and sustained effort with substantial resources delivered over a long period.

Transforming Caribbean agriculture in a manner that ensures it has a sustainable long-term future may be complex but pales in comparison to the social and economic and cost of inaction. The CDB report indicates this clearly and that if adapted, agriculture has an important role in the region’s future development.

David Jessop is a consultant to the Caribbean Council and can be contacted at david.jessop@caribbean-council.org

Previous columns can be found at www.caribbean-council.org

30 June 2019

The views and opinions expressed in the View from Europe are those of the author and do not necessarily reflect those of The Caribbean Council.

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