2.3.1.Lagging Integration and Competitiveness
The region experienced growth supported by high flows of FDI, trade preferences, and public investment, although at a lower rate than most developing countries. In the last twenty years, the Caribbean has also seen significant improvements in human development in all countries except Haiti, which is reflected in the 2010 Human Development Index (HDI) rankings (see Table 2 , chapter 2.2).
Although preferential trading arrangements were established with the EU and the USA as a development tool to stimulate and diversify Caribbean exports, the prevailing consensus is that trade preferences have not delivered the expected results of overall trade performance. The region’s export structure shows increased concentration of products. In 1997, the top 20 products account for 51% of total exports and this share increased to 70% in 2007.19 Table 4 below depicts the value of CARICOM domestic exports per commodity classification at the beginning of the evaluation period and in 2009. Data for the year 2007 give an indication of the trend before the economic crisis that started at the end of that same year. The only sectors of significant weight and growth (shown in table 4 in current US dollar rates) are mineral fuels and chemical products, accounting for more than 70%.20
Table 4: Value of CARICOM domestic exports per commodity (2002, 2007, 2009 in million US$) Standard International Trade Classification
(SITC) Commodity Description
2002 2007 2009 2009/2002 2007/2002 Value Value Value Value Value
All sections 5,257 16,647 11,138 212% 317%
Food and live animals 863 1055 818 95% 122%
Beverages and tobacco 174 332 323 186% 191%
Crude materials inedible, except fuels 789 1924 811 103% 244%
Mineral fuels, lubricants, related materials 1,974 9,318 7,141 362% 472%
Animal and vegetable oils, fats and waxes 6 8 8 133% 133%
Chemicals and related products, n.e.s. 645 2919 1099 170% 453%
Manufactured goods 460 781 495 108% 170%
Machinery and transport equipment 70 105 59 84% 150%
Miscellaneous manufactured articles 124 125 101 81% 101%
Not classified elsewhere 151 80 283 187% 53%
Source: CARICOM Stats
The high concentration of products, the small sizes of the markets and high transportation costs are major factors of low competitiveness. Nevertheless, the region followed the global trend towards trade liberalisation. Average applied Most Favoured Nation (MFN) tariffs fell
18
Regional economic outlook: western hemisphere, IMF, Oct 10, 2010 19
See Caribbean: Accelerating Trade Integration, World Bank and OAS, April 2009. 20
from over 20% in 1996 to just below 10% in 2005. Still, there is some tariff dispersion with average tariffs on 10% of goods over 20%.
The Caribbean countries are redefining their relations with their main trading partners, includ- ing the European Union through the recently signed Economic Partnership Agreement (EPA); they are also exploring the possibility of moving from unilateral to reciprocal arrangements with the United States and Canada. At the same time, the region is redesigning the process of regional trade integration with the on-going implementation of the CARICOM Single Market and Economy (CSME).
The CSME, the cornerstone of the regional integration agenda of CARICOM, focuses mainly on four areas: (i) the free movement of goods; (ii) a common external tariff and trade policy; (iii) sectorial development policies and (iv) macro-economic policies. While important pro- gress has been made in liberalising the movement of goods, the CSME agenda has shown few results in the other areas. The latest Summit of Heads of State of CARICOM in July 2011 decided to concentrate efforts on the completion of the Single Market, making of the Single Economy only a long-term objective.
CARICOM’s intra-regional total exports are still small:21
US$3.8 billion in 2008 out of which more than 60% is mineral fuels and derivatives from Trinidad and Tobago. The intra-regional exports constitute only 16% of total exports of the CARICOM countries.22
Additionally, the competitiveness of many Caribbean economies is undermined by high costs of doing business and other factors as measured for instance in the “Ease of Doing Business”- Index of the World Bank and the International Finance Corporation (IFC). As Figure 8 demonstrates, all CARIFORUM countries except for St. Lucia and Antigua & Barbuda rank among the lower third in the world (Barbados and Cuba are not ranked). Some other ACP countries, like Mauritius (rank 20), Botswana (52) or Vanuatu (60) show a relatively better performance for the measured period (June 2009 – June 2010).
Figure 8: Ease of Doing Business- Caribbean states aggregate rankings (June 2009-June 2010)
Source: World Bank and IFC (2011) „Doing Business 2011“;
* Singapore is shown as a benchmark for the best rating and Chad for the worst rating.
In sum, trade liberalisation in the Caribbean is being implemented in a fragile macroeconomic and structural environment. Trade liberalisation (and more specifically the EPA implementa-
21
See Annex IX, table CARICOM Intra-regional total exports by country in US$ ‘000: 2004-2008 22
EVA 2007/geo-acp: Evaluation of EU co-operation with the Caribbean Region ECO Consult – AGEG – APRI – Euronet – IRAM – NCG
tion process) needs to pay attention to these constraints, which cover a very large range of issues.
2.3.2.Other Challenges
Politically, the Caribbean states are diverse, but share similar practices holding regular na- tional elections and showing common elements of good governance and rule of law. Yet, some of these mostly democratic systems are restrained by too little institutional and financial capacity. With the exception of the most populated countries, Haiti and the Dominican Re- public (DR), positive common trends can be seen in the high average of human development in most of the countries. However, the fact that the Caribbean region is internationally ranking second in magnitude of HIV/AIDS rates (with mostly women and young people concerned and the highest rate in Haiti) affects social as well as economic standards in the region. Although the countries are mostly classified as high- and middle-income countries, there is a high proportion of poverty and great inequalities of wealth and income. Women are more likely to be unemployed, thus gender inequality persists.
The fragility of most Caribbean economies, high rates of unemployment, high population density and the proximity of highly developed economies to which it is relatively to emigrate partly explains the high out-migration rates in the region. In addition national and transnation- al crime and security problems (in particular drug related) impact negatively on FDI and con- tribute to the high rate of migration and loss of skills (“brain drain”) as families and individu- als leave the region for security reasons. Brain drain from the Caribbean is the highest in the world: in 2000, the emigration rate for tertiary level graduates averaged 65% for 13 CARICOM countries; in five of these, the rate exceeded 70%.23. The problem of illicit drugs particularly affects Haiti and the DR, Trinidad and Tobago, Guyana and Jamaica, but also the Caribbean region in general concerning drug smuggling on the famous “Caribbean route” preferred by Colombian and other drug cartels.
Many Caribbean islands are classified as one of the world’s hotspots24
in regard to conserva- tion of international biodiversity supporting exceptionally diverse ecosystems that, however, have been devastated by deforestation (regionally 71% of the energy consumption derives from charcoal) and human encroachment (e.g. through coastal maritime pollution). Moreover, the region struggles with a scarcity of fresh water resources and is environmentally vulnerable to natural hazards and their aftermath (such as hurricanes, earthquakes, tsunamis, and volcanic eruptions) and global climate change, which includes rising sea levels, leading, inter alia, to floods.
As a partly correlated result, the Caribbean is one of the most natural disaster-prone areas in the world, making it very vulnerable, despite its high and middle-income designation: disas- ters and environmental devastation have a strong and immediate impact on the economy both through contraction of economic output or through worsening of the balance of payments or of the budget. The main service sector in the great majority of the Caribbean states, tourism, is severely affected in the event of natural disasters.25
23
Pienkos, Andrew; Caribbean Labour Migration: Minimizing Losses and Optimizing Benefits 24
As defined by Conservation International. 25
Disaster is defined here as “a sudden, calamitous event that causes serious disruption of the functioning of a community or a society causing widespread human, material, economic and/or environmental losses which exceed the ability of the affected community or society to cope using its own level of resources.“ UN/ISDR 2004; definition also used by DG ECHO.