Address Delivered By
Senator The Honorable Maxine McClean
At The Fourth Annual Regional Conference On Investments And The Capital Markets, Jamaica, January 27, 2009.
Introduction
Thank you, Mr. Chairman for your kind words of introduction, Minister of Finance and the Public Service, the Honorable Audley Shaw, Caribbean Heads of Government, leaders of the regional and other Stock Exchanges, Ladies and Gentlemen. Let me first extend apologies to you on behalf of the Prime Minister of Barbados, the Honorable David Thompson, who had originally accepted an invitation from the Jamaica Stock Exchange to address you this evening but regretfully could not be here due to the exigencies of office.
On his behalf, I convey best wishes and sincere thanks to the Jamaica Stock Exchange for the vote of confidence that the organisation had placed in him in extending an invitation for him to be the keynote speaker at this event. I am honored to have been called by the Prime Minister to deputise for him and I wish to thank you for agreeing that I do so. Of course as some of you might know, or just heard I was involved for many years as a Director of the Barbados Stock Exchange, and therefore have an enduring interest in the issues of this conference.
The Legacy Of 2008
Ladies and gentlemen, we continue to witness extreme volatility in the international financial services sector. This has had a profound impact on our small developing island economies. To a large extent the stability of these economies continues to be at the mercy of decisions taken by economic and political actors in the industrialized world. We must also note that this also financial and economic disaster has come at a time when the hemisphere has been hit by seasonal impact of hurricanes.
Across the globe economies large and small, developed and developing experienced in 2008, a year of great economic challenges and uncertainty. Similarly it is anticipated that the outlook for 2009 has been forecasted by economic and financial analysts to be just as gloomy or more so. These analysts however are unable to forecast with any degree of certainty, the scope, degree and duration of the economic downturn.
Cynical lay persons like me ask whether their traditional models are applicable today. What we do know is that developing countries will face harsh and burdensome challenges over the next few years.
In fact I believe that one of your tasks at this conference is to reflect on the fact that the region has weathered the initial period of this storm reasonably well. To our benefit our banking sector has pursued business strategies that are conservative. We therefore have to ask what opportunities exist to be exploited in those strategies. We have to distill from our operations a set of best practices on which to build.
Beyond the financial crisis, last year, we experienced the steady increase in oil prices, with its attendant threat to the balance of payments position and economic stability of most small non-oil producing economies like ours in the Caribbean. Of course we also saw the dramatic decline in prices during the latter part of the year. This volatility has made the task of forecasting and strategic planning more difficult at the macro-economic and firm levels.
We cannot however take comfort in what might be a short reprieve. Our balance-of-payments positions were hit hard in many instances. As we seek to recover from the oil price shocks, we now face the reality of declining consumer spending in Europe and North America. For countries like Barbados and Antigua, the rapidly declining Pound Sterling will translate in reduced tourism receipts. Investors in those jurisdictions have lost confidence in their capital markets, and this too is expected to impact the region adversely.
Additionally, we witnessed the effects of the rapid increases in commodity prices on the world market and the resulting grain shortages, as some major grain producing countries sought to divert food crops into the production of bio-fuels as alternatives to fossil fuels. This was coupled with a significant growth in demand for food products in the population-dense countries, China and India.
The issue of food security has thus become a major concern for Governments and the people of the region, many of whom have awakened to the need to re-examine our current agricultural policies, and the priority paid to food security. Over the last two decades or so the focus of many countries in the region was on the building of strong service economies, generally downplaying the contributions of agriculture and manufacturing. Again this needs to be revisited.
Overall ladies and gentlemen, the year 2008 was clearly one of global financial collapse and economic downturn for many of our developed trading partners. As such, last year might have signaled the start of a period of great economic woes for the region. We however cannot, as a resilient people, become mere observers to this world crisis, and willing victims of the international melt down. We need to look inward to ourselves to face this crisis. We need to engage in what I term “competitive co-operation”. This is not a contradiction. It is an approach which recognises the uniqueness of each country while at the same time acknowledging the fact that we cannot go it alone.
The Need For Cooperation
If there was ever a time in the history of the region when there was need for the further deepening of economic cooperation, the time is now. Even the most optimistic of us recognise that as the recession deepens in the major markets of the developed world, Caribbean economies too will experience recession.
Many will argue that the next two years be difficult ones for us. Indeed, it is very likely that the coming years will present the greatest economic challenges that Caribbean economies would have had to face in the post-independence period.
Clearly, there is no room for complacency on the part of economic actors. The absence of highly visible impacts of the recession to date is indicative of a lag effect, given the nature of business activity. It is inevitable that we will be touched. We therefore have to anticipate the worse and work to realise a lesser impact. Consumers need to consume, employers need to focus on efficiencies before layoffs, employees need to boost productivity, and above all investment needs to continue. Indeed we have to educate the public about the benefits of investing, and most importantly the difference between saving and investing.
Surviving The Current Crisis
As a region we have to look inward to do what I mentioned above: invest, produce and consume. We all know that we are small, vulnerable, open economies, which depend heavily on the mo
re developed countries for foreign exchange. We know that this is critical to our economic growth and development. However so far we have not taken full advantage of opportunities thrown up within the region: that is its resources: people, commodities and markets for example. We also have to put our national houses in order as we seek to build regionally.
Standing alone we are most vulnerable. But this vulnerability can be reduced if we truly work together. It is imperative that we seek to embrace the full spirit of regional economic cooperation and collaboration at all levels of the economic spectrum. However we can only succeed if we are open and honest about the benefits, and most importantly the fundamental challenges integration and collaboration pose.
Involvement Of All Stakeholders
Regional cooperation cannot be driven only by the Heads of Government of CARICOM or by the decisions made at meetings of the various sub-organizations of that body, for example the Council For Finance and Planning (COFAP) which should be meeting in Barbados at this time. The region’s private sector must be an aggressive force behind the movement towards regional cooperation and collaboration. It is vital that the captains of industry and commerce engage in meaningful dialogue to strategise about ways to maximize the use of the region’s resources in an effort to increase the consumption of regional goods and services while building competiveness in the global arena.
This conference offers participants one such opportunity. It can and should be an excellent vehicle to tap into some of the region’s best brains. All stakeholders must be brought on board. Non- governmental organisations and civil society must be part of this dialogue. In Barbados during the crisis of the early 1990’s, a tripartite approach to surviving that period was adopted. Together the Government and representatives of the labour movement and the private sector came together to find solutions. It is perhaps more than coincidental that some of the same players are now involved in a search for solutions. Certainly the current Prime Minister of Barbados was one of the architects of that approach and has again turned to that model to navigate the turbulent waters we now face.
“The Barbados Model” – Involving The Diaspora
No country in the region can afford to minimise the contribution of its citizens to its foreign exchange position. Remittances are an important source of foreign exchange, and research has shown that in respect of quantum they compare favourably with foreign direct investment in some countries. Traditionally however efforts have not been expended to move these away from the individual, person to person transactions that characterize this phenomenon. At the institutional level however, credit unions have undertaken promotional drives in Europe and North America to encourage individuals abroad to save at home. In Barbados I am aware that this has been successful.
In Barbados, the David Thompson administration is developing a number of investment vehicles in which our people in the diaspora can invest and realise returns that will compete favourably with those in North America and Europe. Given the scenario playing out on those continents, our people can take comfort in the more conservative and ethical business practices of our regional and indigenous players in the financial services sectors.
The Caribbean is said to have some of the highest emigration rates in the world, especially among higher skilled individuals. In fact the point was made by Augustin Carstens, a Deputy Managing Director of the IMF, that research undertaken by the IMF found that “the losses to the Caribbean from emigration to the OECD countries have outweighed the value of remittances received”. This must be seen for the opportunity it affords the region. The individuals who fall into this category are people who have the finances to invest, and only need the investment vehicles, and a serious programme promoting these opportunities.
Within the region little effort has been made to develop pan-Caribbean investment instruments. There is therefore the possibility for the regional capital market leaders to encourage our people to invest in projects with regional scope. To illustrate, we continue to lament the absence of adequate sea transportation, needed to move both goods and people. Much time has gone into the discussion of this issue, but to my mind no serious thought seems to have gone into the developing models for the financing of this by the region’s people.
As we strive to cooperate there is need for policy convergence. Tax incentives have been used across the region to encourage foreign investment. We need to explore common tax incentives to the public to encourage investment in new technologies, for example solar energy and other business ventures which can bring real solutions to the region’s major problems. Of course these must be so structured to offer comparable returns, certainly in the medium to long term.
The Role of Regional Stock Exchanges
As a former Director of the Barbados Stock Exchange I am aware of ongoing efforts to harmonise the operations of our Stock Exchanges. I know of the resources and time expended to address this issue. Of utmost importance is the regulatory framework within which cross-border trading takes place. The events which unfolded in North America over the last two years bear testimony to the importance of regulation.
Beyond striving for a single Exchange we need to find ways to expand the reach of share ownership. We know of the reluctance of many companies to become listed entities. Given this our Stock Exchanges have to devise options which would allow privately held companies to access indigenous capital. In Barbados there has been movement in this direction.
Our commercial banking sector has often been excessively liquid. Our credit union sector has been able to mobilize the savings of a predominantly working class membership base. Owners of these funds can be encouraged to invest a percentage of the savings in equities.
The Government of Barbados stands firmly behind initiative to develop a regional capital market. It supports any effort to finalise a harmonized investment policy framework for the region. Such a framework would help to create a pro-business environment within the region that would be conducive to the development of internationally competitive regional firms and the emergence of a fully integrated regional production system. The Government of Barbados therefore endorses any effort to speed up any process that would
· reform investment policies at the national and regional levels
· help to finalize the CARICOM Investment code which is currently in draft and
· that would aid in devising a harmonized investment incentives system.
Barbados also supports any effort made to conclude the Financial Services Agreement which I understand is
also in draft and has been in draft for the last five years. The principal objective of the creation of the Caribbean Single Market and Economy (CSME), is regional economic growth and development through increased production and market efficiencies. The onus is therefore on every Government in the region to support the establishment of a regional financial services infrastructure that would enable well functioning and viable financial markets at both the national and regional levels. If our economies are to be strong, there must be sustained growth in investment, both domestic and foreign. In turn if there is to be growth in investment, there must be strong financial systems that are supported by strong legislation.
We must remember that well developed financial markets, in particular capital markets in the region, are key to having an adequately diverse mix of funding sources for private sector businesses, Governments and individuals. Well functioning financial markets at both the national and regional levels can enhance the range and availability of financial products and services at competitive rates and can thereby facilitate economic activity between regional economies.
Furthermore, the development of a properly functioning regional Stock Exchange will improve the marketability of securities, facilitate the achievement of greater liquidity, more realistic valuation of company securities, market efficiency, and the diversification of risks.
From what I have said the importance of an integrated regional financial market must be clear. There must be a commitment to the process of deepening the integration of our financial systems and capital markets. The Revised Treaty of Chaguaramas calls for the integration of the financial services sector through the removal of a range of cross border restrictions, the harmonization of legislation across borders as well as the harmonization of supervisory and regulatory institutional structures that, together, should ease cross border transactions in financial services and facilitate the free movement of capital across the region.
Now more than ever we need to work to achieve the ideals of this Treaty. Ladies and gentlemen, let me wish you a productive conference. I believe that together you can offer the region some practical solutions to address the short term issues the region faces, as well as a number of strategies to take the regional financial sectors to the next level. Again I thank you for your kind attention.
