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The airport and the economy

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by G.E.M. Saunders Fri, Aug 26. 2011

There is now a growing consensus that international air access for SVG is vital for its national economic development. This is the view of economists, planners, regional and international leaders and governments and Vincentians at home and abroad. To his credit, former PM Sir James Mitchell also recognized this dire need over two decades ago and must now be pleased with the progress made thus far.{{more}} It is, however, this established need that will be my point of departure.

Those who currently oppose the ongoing construction of the Argyle International Airport have cited several areas of concern, mainly that:

(a) the full and final cost of the project is not known and is likely to rise over time

(b) there are no signed, formal agreements for funding the project from two of the three major contributors – Cuba and Venezuela

(c) the project will increase the national debt to alarming proportions

(d) the project could not meet all the requirements for funding from traditional or conventional funding sources

(e) The timing of the construction in the midst of a deep recession is unwise and will hurt the economy if and when funds have to be diverted to finance the construction

Quite frankly, neither the IADC nor PM Gonsalves can be certain about the final cost of this project, so I am not surprised that no estimate of a final figure has been proffered.

What is an absolutely certainty, however, is that this project, like every project from a doghouse to the $18 million Central market to the $50 million Cruise Terminal and the $90 billion Egyptian South Valley Development project, will incur at the very minimum, a 10% increase in the budgeted cost, even without a change in the scope of the project.

The concern that there are no formal agreements for financial assistance from major contributors of the “Coalition of the Willing” is a valid one, if one is to require security and continuity of funding over a period of several years. But what does the present Government do in the face of the continuing flows of tangible, crucial and extensive contributions from Presidents Castro and Chavez?

We have been informed that the measured quantity of work completed thus far has a value of at least $180 million when compared to the project cost estimates. So that if the IADC has reportedly spent close to $40 million on earthworks, drainage and concrete works, then it can be deduced that because of the contributions of Cuba and Venezuela, an additional value in excess of $100 million has been received from these and countries and, more importantly, in the absence of formal agreements.

It is true that Venezuela has not been paying the cost of Cuban employees working on the project, and this is now valued at around $10 million. But Venezuela has provided soft loan financing of $27 million through the Petrocaribe Fund and has contributed several pieces of heavy specialized equipment worth $10 million. Cuba on the other hand has contributed all of the designs at no cost to the GOSVG and technical assistance and labour discounted at more than 50 per cent.

These contributions are historic, both in terms of size and proportion and there can be no dispute that a loan of $700 million would not have been repayable and never would have been available from any single funding source. Given these facts and our point of departure above, the IADC and the Government seem to have devised a slightly novel approach to project financing which seems to be geared towards attracting significant grant financing and divesting of State assets in order to reduce the eventual amount to be borrowed.

Simple arithmetic shows that with approximately $100 million contributed in kind by our neighbors and $82 million from Taiwan, almost one-third of this project has so far been GIVEN to us. The IADC also has significant property in the form of lands at the ET Joshua airport, valued conservatively at around $300 million. The logical explanation is that these lands can be divested at anytime in the future to offset any significant borrowings made by the GOSVG/IADC.

An interesting debate among our leaders should really be centered around a calculation/estimation of how much debt can SVG afford. What eventual debt level do we need to target upon completion of this project? This would obviously require some consideration of all the costs and benefits both short and long term that are expected from the completed project. For years, we sat on debt of $200 million for a shipyard project, how much debt do we consider reasonable and affordable for our International airport?

The other uncertainty lies with how much of the consolidated fund will be diverted to this project in the immediate and long term to finance the cash flow needs of the project.

It is, therefore, absolutely clear that the Government and the Ministry of Finance will have to exert tighter levels of oversight on government spending and resource allocation.

One of the easiest ways for government finances to be leaked and wasted is through government projects. Therefore, Government and Statutory Corporation projects over a certain limit should be justified, streamlined and prioritized to ensure that the only those that create employment and bring immediate benefit to the beneficiaries are embarked upon at this time. This essentially means deliberate program management at the highest level to ensure that the left hand does not throw away what the right hand so badly needs.

Finally, many successful business ventures and initiatives were actually conceived and implemented during a recession. Although the timing of this project in the present regional and global financial and economic climate may, at face value, be cause for concern, the expectation has to be that our Country can use this period to practice more self imposed fiscal prudence, while we ready ourselves to take advantage of the post recession World with the newest international airport in the region.

Let us hope that it will only be a matter of time before the pent up demand for tourism and travel is released as the World economies improve. It widely felt that a new more prudent, post recession tourist and investor will eventually emerge, seeking direct contact with a new low cost high value destination that will be St. Vincent and the Grenadines.

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