For decades now a significant part of any discussion regarding the Caribbean economy has centred on encouraging diversification and enhancing competitiveness.
Whether the issue has been identifying alternative options for agriculture as preferential arrangements for bananas or sugar came to an end, how best to reduce the region’s vast and unnecessary import bill for food, or what some believe to be an the over reliance by some on the tourism and financial services economy, the challenge has always been to identify a new and sustainable activity from which the Caribbean might prosper.
Unfortunately this has not been easy as in many sectors nations in the region have not the economies of scale, a large enough domestic market, low enough labour rates, entrepreneurial interest, or high enough levels of productivity to be able to compete against neighbours in Latin America, let alone globally.
Only it seems in areas where the region has a unique selling point or natural advantage is it able at least to hope to be able to truly succeed. That is to say in tourism, given the region’s natural environment and geographical location; in creative industries where individual talent can be nurtured; in oil, gas and extractive industries in those nations lucky enough to have deposits or reserves; and in the financial services sector where an early start and creative approach to new offerings for companies and wealthy individuals have, until recently, kept the region ahead of international competition.
Even then the problem in some nations has been an inability to develop and sustain across one or more governments a national strategy that ensures the growth of these industries or the evolution of existing ones.
This is especially challenging in very small islands like the region’s overseas territories which sustain their economies for the most part through tourism, financial services and associated fees.
But even for them the message coming from Europe is the need to encourage new forms of investment given that their financial services offerings may be less valuable than in the past if, as the G8 and G20 intend, the aggressive reporting requirements of the United States under the FATCA provide the momentum internationally for the establishment of multilateral agreements on automatic tax exchange, information on beneficial ownership and a range of other measures aimed at widening the global tax net so as to make it easier to achieve on a multilateral basis information on tax evaders and to tackle tax base erosion and profit shifting.
While there is every justification for such measures if applied globally and in a manner that ensures that it does not simply see offshore registrations migrate to more opaque jurisdictions beyond the gaze or control of developed and advanced nations, the stock response when asked what under such circumstances should overseas territories do is encourage new investment and diversify.
What diversification is often taken to mean is to undertake something completely new but as the Bahamas Minister of Financial Services, Ryan Pinder, made clear in an interesting recent speech at the Nassau Conference, this might be better achieved by forward positioning a jurisdiction for active business. By this he meant finding ways to tie the financial management of a client, and a part of their business and the external trade of their commercial activity to the location in which they are using financial services.
What Mr Ryan suggested was that the Bahamas could, for example, as a part of its offering bring together a facility such as its free trade zone, the tax advantage the islands offer and their location as a preeminent logistics hub to attract not only the client from a wealth management perspective, but also a component in their business operations.
What he seemed to be suggesting is that there was a reason to find a natural connection between the business of the client, the financial management they required and ultimately the residence of the client.
We see this today. We have high net worth individuals who began utilizing the Bahamas as a jurisdiction for banking, or for use of our products. Their involvement with the jurisdiction evolved from use of the jurisdiction, to being a part of the jurisdiction. Many high net worth individuals have decided to take up residency in the Bahamas, and have decided to establish physical presence operations in the Bahamas connected to their respective services businesses.
The suggestion is an interesting one especially for a nation within easy reach of the United States that can provide quality accommodation, a good standard of living, security and the geographical advantage the region offers to many businesses. It is why nations like the Cayman Islands have been able to prosper from the location of international hedge funds and the management locally.
What is suggested may not be to everyone’s taste in as much as it is not dissimilar in some respects to the growing regional trend towards selling citizenship for investment. However, the fundamental difference in the approach Mr Pinder suggests is that not only should the client consider residence for themselves but also locate either the services element of their business or at best a physical part if say they were involved in manufacturing or transhipment making use of the Bahamas or some other regional location offering geographic advantage.
His comments are also interesting as they challenge the direction that some governments and countries in the region are going in. Where rather than accept globalisation and the smallness of the region and its economies, the desire is to manage ever smaller and protected national space in ways that accept and seek to control investment without finding ways to more broadly facilitate the investor.
These are not easy issues to resolve as they touch on complex issues of history, national identity and cultural independence, but increasingly as many countries across the world are coming to realise, they offer a way of not just economic diversification but if well managed of significantly spurring a country’s development.
David Jessop is the Director of the Caribbean Council and can be contacted at email@example.com