The economics of a small island

by C.I. Martin 09.NOV.07

It is generally agreed that the scope for economic development in very small states like SVG is extremely circumscribed. Some of these tiny nations have been fortunate enough to discover oil or other minerals. Otherwise growth has depended on tourism, construction and remittances.{{more}}

Despite the availability of tax concessions and other incentives, manufacturing has never really taken off in many of them. This is probably because of the small domestic market, shortage of skilled labour and low productivity. Of course, with China now threatening to run even big and well-endowed countries out of the manufacturing business, the prospects for small states in this field have grown even fainter.

Agriculture does have a role to play. It provides food for the local market and is also a source of employment. The days, however, when agriculture accounted for the bulk of foreign exchange and was the engine of growth are now history. The changing function of the Marketing Corporation well illustrates what has been happening. Fifty years ago when that organisation was set up, its sole function was the exporting of produce to Trinidad, the UK and USA. Only later was an outlet for selling produce locally added. Today, some 90% of the small amount of produce the Corporation buys is sold locally. Its main task is to operate a supermarket.

In the circumstances, it should come as no surprise to learn that now that SVG is experiencing a 7% rate of growth, the highest in the OECS and very respectable even by world standards, the bulk of the growth comes from construction. This sector has been growing at the rate of 20%.

Much of the construction is being undertaken by Government. One figure sums up the situation very neatly. For the nine months to September this year, Government capital expenditure was 93 million dollars. For the corresponding period last year, it was 57 million. The figures referred to here are those in the budget, and these do not cover all the construction expenditure in which Government is involved.

The projects are there for all to see. The Rabacca Bridge, the Trans-island Road and the Library Complex are being funded by Taiwanese aid. The EU is funding the Road Reconstruction Programme. When this project started, there was only one contractor. Now there are two additional ones, one of whom at least is giving an object lesson on how road reconstruction ought to be done. The Canouan Airport is funded by Government.. Schools are being constructed with funds from the World Bank, CDB and the European Union. The big Windward Water Project is practically complete. National Properties is putting up the Reigate Building, and soon will be starting another rat Ju-C corner.

It would be idle to pretend that the ULP administration has not been at the centre of all this.. The Government has courted the Taiwanese relentlessly. It shook up the Road Reconstruction Programme by bringing in the additional contractors mentioned earlier. It was the ULP Government that set up National Properties and negotiated with the Canouan Developers for construction of the airport. The Government could hardly have spent so much time talking about the education revolution and not built new schools. Indeed by bringing in contractors from as far afield as China to build the schools, as well as carry out other projects our Government’s ability to implement projects, has been dramatically increased. The Cabinet Committee on the Economy was set up by the ULP administration to constantly monitor Government’s development projects. That it will soon hold its 60th monthly meeting is a clear indication of the Governments’ persistence and determination.

The Public Sector has not been solely responsible for the expansion in construction. The private sector, both local and foreign, have been playing their part. Foreign private investment has been assiduously courted by National Promotions (NIPI). The local private sector has been very involved in the construction of homes. Some of it aided by Government loans, but a lot also done through remittances.

Recently, there has been some talk about our dependence on remittances. So what else is new? As long ago as 1942, the English economist Benham pointed out that over 20% of St. Vincent’s national income came from remittances.

Ever since the abolition of slavery, we have been trying to undo the Middle Passage. An earlier generation emigrated to various parts of Latin America, the next generation to Aruba and Curacao and the present one to the UK and North America. Obviously remittances are linked to emigration. Some people do get help from relatives and friends abroad. I would be surprised, however, if these constituted the bulk of the remittances. There are a lot of Vincentians who have retired to SVG, having worked abroad for a long time. They now receive pensions from overseas. Moreover, the second or third most important occupation of Vincentians is seafaring. SVG is the home base of these sailors and they remit their money here. A lot of the remittances are, therefore, not gifts but entitlements.

Two questions have been posed by our construction-fuelled growth. First, is not the Government getting into too much debt to finance its various projects? Secondly, can the growth continue? As far as the debt is concerned, the truth is a lot of the projects are financed by grants or concessionary loans from Taiwan and the European Union.

As to the continuity issue, even in big countries the construction industry is the swing sector, and when it’s going at full throttle it carries the rest of the economy with it. Similarly, when it goes down, it carries the rest of the economy down with it. It is a cycle with which many countries have to live. We in SVG have to hope that we can keep the upswing in construction going until our tourism is big enough to carry the economy.