Prepared for Caribbean ConnectBarbados: June 28-30, 2006

Evelyn Wayne, CARICOM Secretariat

FLOWS OF INVESTMENT CAPITAL FROM EXTRA-REGIONAL SOURCES

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Overview

Background Importance of FDI to CARICOM States

Trends in Investment Flows to CARICOM (1990-2006)

ImpactPolicy Recommendations.

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BACKGROUND

Foreign Direct Investment is considered critical to the growth and development of CARICOM Economies.

National Development Strategies usually treat FDI as a limiting factor and/or a catalyst to growth and development.

Resulted in a significant build-up of stock of foreign capital in CARICOM States

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FDI STOCKS % OF GDP (1990-2004)

1990 2000 2004

Developing Economies

9.8 26.2 26.4

Antigua 74.0 108.3 139.6

Belize 22.1 39.1 66.2

Dominica 39.7 101.4 130.7

Grenada 31.8 104.4 141.2

Montserrat 55.7 220.6 225.8

St Kitts 100.6 153.5 202.9

St Lucia 79.5 122.0 162.9

St Vincent 24.3 148.8 169.8

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FDI STOCKS % OF GDP (1990-2004)

1990 2000 2004

Developed Economies

8.2 16.3 20.5

Developing Economies

9.8 26.2 26.4

LA&C 10.5 24.7 34.1

Bahamas 18.9 36.8 39.9

Barbados 10.0 11.9 15.9

Guyana 31.8 106.5 120.9

Jamaica 18.6 43.0 66.4

Trinidad 41.3 85.8 83.3

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Mixed Performance Attracting FDI

UNCTAD FDI Performance Index – ranked Guyana (#5)and Trinidad (#6)

among Top Ten Performers in 1997. shows the overall performance of

CARICOM States declining between 1997-2003.

Improvements in the ranking of individual States.

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UNCTAD Inward FDI Performance Index (Ranking)

1995-97 1998-00 1999-01 2000-02 2002-04

Bahamas 33 52 64 54 52

Guyana 5 21 19 16 31

Haiti 131 122 124 129 133

Jamaica 44 28 23 22 17

Suriname 138 139 140 140 140

Trinidad 5 22 16 16 15

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UNCTAD Inward FDI Potential Index (Ranking)

1995-97 1998-00 1999-01 2000-02 2002-04

Bahamas 35 37 38 40 48

Guyana 56 60 63 65 94

Haiti 135 136 135 137 137

Jamaica 68 81 75 79 84

Suriname 45 76 86 92 55

Trinidad 65 65 64 59 54

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In Summary……

Bahamas and Trinidad and Tobago were considered to have high FDI potential and to have performed well.

Guyana and Jamaica were categorized as having low FDI potential but to have performed above average.

Haiti and Suriname were considered to be underperformers.

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TRENDS: CARICOM Inflows Relative to Inflows Worldwide

1999

%

2000

%

2001

%

2002

%

2003

%

2004

%

CARICOM (US$ Millions)

1,968 1,950 2,349 1,796 2,260 2,470

World 0.2 0.1 0.3 0.3 0.4 0.4

Developed 0.2 0.2 0.4 0.3 0.5 0.6

Developing 0.8 0.8 1.1 1.2 1.4 1.1

LA&C 1.9 2.0 2.9 3.6 4.8 3.7

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TRENDS: CARICOM FDI Inflows (US$MN.)

(1995-2004)

0

500

1000

1500

2000

2500

1995 1997 1999 2001 2003

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TRENDS: Components and Origin

Equity Capital is the main form of FDI in CARICOM.

However, decline in greenfield projects coming to the Region – 13 in 2002, 8 in 2004.

Main sources of FDI continue to be the USA, UK and Canada. USA was major source for almost all States.

Evidence of some diversification of sources (primarily from other developing countries – Malaysia, Colombia, Dominican Republic and India)

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TRENDS: Sectoral Distribution

FDI continue to be concentrated in a few resource-based sectors – primarily mineral extraction and tourism; and agriculture/forestry, to a lesser extent.

Inflows to tourism have overtaken inflows to other major sectors in several States.

Many States recorded declining flows to the

manufacturing sector.

Jamaica appeared to be the only CARICOM State where FDI flows exhibited a diversified sectoral distribution between 1998-2003

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Evidence of Diversification

Available data show some degree of diversification in inflows to the tertiary (services) reflective of international trends.

Liberalization of telecommunications sector in several States resulted in considerable inflows to this sector and for development of a growing ICT sector.

This is more pronounced in Jamaica which became the primary Caribbean destination for the location of offshore call centres.

New areas of comparative advantage developing viz Offshore medical and education facilities; Creative industries – fashion design, film-making and

music.

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Impact

FDI usually results in the transfer of a bundle of assets which translates into economic growth in recipient countries.

Available data shows that while CARICOM is home to relatively large stocks of FDI leading to sometimes, high levels of economic growth, significant industrial diversification and transformation somewhat lacking.

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The Challenge ….

Not only how best to attract foreign capital but how to ensure that the activities of the companies they attract serve the developmental goals of the Community.

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Policy Recommendations

A proactive investment promotion strategy.

Proactive efforts to enhance development of domestic and regional private sector.

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Proactive Investment Promotion Strategy

CARICOM investment policy and promotion strategy which is broadbased and all encompassing at the regional level and targeted at the national level.

Targeting should focus on attracting investments for production of higher value-added, technology-embedded goods and services.

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Elements of IP Strategy

Promote CARICOM as a single investment location.

Role of IPAs should be enhanced to promote Community as a single investment location while targeting desired investments for specific jurisdictions.

Effective use should be made of Community’s arrangements with third States.

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Private Sector Development

Entrepreneurial capacity in CARICOM is considered weak

To achieve growth – need to attract new knowledge-based and technology superior investments.

A vibrant and dynamic domestic private sector is important signal that a country is conducive and supportive of private enterprise.

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Private Sector Development

Correct deficiencies in business environmentAdministrative and regulatory proceduresPhysical infrastructural deficiencies.

Address quality of life issues (crime) – personal security and safety, physical protection of assets.

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Thank You