If anyone is interested in undertaking a thorough analysis of the current state of Caribbean economies and prospects for future growth and development, that analysis must incorporate the basic notion that an economy comprises several parts, all of which work in unison to bring about desired results.
What we have, therefore, are different parts of the system performing different functions, but they are all interconnected. Hence, any shock to one component of the economic system will eventually be transmitted to the other parts. We have witnessed this several times throughout the course of our economic history, the most recent example being the global financial and economic meltdown of 2008/2009.
Therefore, for an economy to perform well and be able to sustain comparatively high levels of growth and development in the long run, the financial sector, government, the real estate sector, the business community and the external sector must all work in harmony to ensure that disruptions in one or several sectors do not have too harmful an effect on the other sectors.
That scenario, of course, is mostly ideal. In the real world and especially with small, open economies like those in the Caribbean, a negative shock to one sector could have huge implications for the other sectors and the economy as a whole. Sadly, that hideous reality is evident in several economies throughout the region at the moment.
Anyone familiar with the workings and nature of Caribbean countries would admit that activities within the financial sector provide perhaps the best gauge of circumstances facing those economies as a whole. And that is so because the financial sector to a large extent represents the heart of the economic body.
Given the level of economic performances we have witnessed in the region since the global recession of six years ago – performances reported on by several regional and international organisations such as the Caribbean Development Bank, Eastern Caribbean Central Bank, and the International Monetary Fund – it should come as no surprise that there is currently underway massive changes in the manner of conducting business within our crucial financial sectors. Those dynamics are captured succinctly in an eye-opening piece by Tim Kiladze published in the Globe and Mail last February entitled:
“Trouble in Paradise: Inside Canadian Banks’ Billion-Dollar Caribbean struggle.”
Although quite detailed in his expose, the effects of the difficulties facing these major Canadian providers of financial services can be summarised in a few areas: (a) Extensive downsizing and consolidation in order to reduce operating expenses. This action has resulted in the closure of several branches throughout the
Caribbean. For example, the Bank of Nova Scotia has shut down its
branch in Grenville, Grenada while in St. Lucia the RBTT closed down four branches as part of its consolidation with Royal Bank of Canada.
(b) The article mentions the significant losses incurred in the Caribbean operation from Barbados and Trinidad and Tobago to the OECS.
This is likely to result in a tightening of lending; making it even more difficult for individuals and businesses to access much needed financing.
Starbucks’ CEO, Howard Schultz, once said “success is not sustainable if it’s defined by how big you become” and we in the Caribbean can clearly see that at play with the changes in our financial sector where the “big players” no longer epitomize “success”.
The 2008/2009 global financial and economic crisis also taught us that employment should not be taken for granted. In an unprecedented move; for example, the Government of Barbados announced in December 2013 that over 3,000 thousand government employees will be laid off, forcing more and more of those affected individuals to be exploring alternative sources of income to ensure their daily survival.
The truth is that the economic realities facing Caribbean countries
are only a reflection of the types of policies and programmes we put
in place at the level of our governments, businesses, trade unions, financial sector and other important areas of activities. From all we know in terms of economic relationships, there is a fairly logical case to be made for the contribution of the financial sector to growth and development of regional economies.
Hence, as our financial sector evolves, there will be ramifications for our ability to grow and develop economically, partly because the demand for and supply of credit will change. With an already huge financing gap in existence in most Caribbean countries, any further deterioration in lending activities because of restructuring taking place within major banks operating in the region could prove disastrous for our small and fragile economies.
The time is thus right for cool heads to prevail; strong leadership to emerge at all levels of society, and every economic actor to work in unison to ensure future stability and viability of our Caribbean economies. By working together to achieve the single goal of financial and economic stability in the region, we shall overcome!
(Dr. Brian Francis, a former Permanent Secretary in the Ministry of Finance, is currently a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Barbados of the University of the West Indies)