Poor credit rating can impact on PPPs

From left: HK Yong, Advisor (Public-Private Partnerships)
of the Commonwealth Secretariat, London; Veronica
Bennett-Warmington, Senior Director Public-Private Partnerships,
Ministry of Finance and Planning (Jamaica); and Carl Howell,
Economist, Caribbean Development Bank (CDB), discussing
Accounting and Fiscal Challenges, Impact of P3.

Carl Howell, Economist at the Caribbean Development Bank (CDB), has outlined that “there is a negative correlation between countries with poor credit quality and the appetite for public – private partnerships (PPP)”.

The Economist was among top brass of business persons, political and private sector agencies throughout the region that met in Trinidad and Tobago at the 2014 CIBC FirstCaribbean Infrastructure Conference themed ‘Driving Caribbean Infrastructure Forward’. The conference is aimed at fostering a greater understanding of how the PPP model can be used throughout the region.

“There is no broad international consensus on what constitutes a public-private partnership (PPP). Broadly, PPP refers to arrangements, typically medium to long term, between the public and private sectors whereby some of the services that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/ or public services...” according to the World Bank.

Credit Risk

Howell explained, “The PPP is asking the private sector to take on public sector risk. It is saying provide us with capital for infrastructure and services that traditionally would have been provided by the public sector, if you give us a return we could bring upfront capital build out the infrastructure and pay over time.”

“Countries that don’t have a decent credit rating, that indicates you are a credit risk, the stronger the credit quality of a country then the more appealing or bigger appetite the private sector would have to support infrastructure development.”

“Some countries have infrastructural deficit, limited financing space you need the private sector to come on board but if you don’t have good credit quality then there is no real appetite so it does affect Barbados and all the countries out there with relatively poor credit quality, thus PPP’s at this point is not the best way to go. It is not that the private sector would not do a PPP but the risk premium that they ask the countries to provide would be higher rather than a 2 or 3 per cent loan, you could be talking upwards to 6 or 7 per cent which is expensive money so now the project benefits would be eroded because the cost of funding is expensive.”

The Economist pointed out, “The countries in the region that lead in relation to having PPP related capacity would be Jamaica, Trinidad and some extent Haiti these are countries with PPP laws already in place, where PPP’s work best would be in countries that have a strong regulatory environment, strong transparent mechanism for dealing with PPP’s.”

“Barbados is not as advanced as Jamaica and Trinidad, but the good news is that CDB is seeking to put in a unit dedicated to building out capacity across the region, across the banks borrowing member countries and Barbados will be right there to benefit from that expertise. The unit is still at conception stage, we are working with IDB, IFC and Wold Bank. We believe by year end it could be up and running.”

“In the past PPPs were seen as a project modality that could keep the debt off the balance sheet of Central Government, strictly speaking that is not the case because accounting standard in particular international public accountant standards, which states that you need to recognise a contingent liability on the books. As counties migrated using accrual accounting that meant you had to bring all of these projects to book then the debt level in countries skyrocketed.”

“We are building capacity and we need to recognise that PPP’s are really on book transaction and you should look to ensure that you have got an efficiently structured project, rather than focusing on whether it is an on balance sheet or off balance sheet transaction.” (NB)

FOCUS ON BIGGER PICTURE

CUTBACKS in some social services is a reality facing the entire region given the current economic climate, but a Government minister is urging regional governments to see the likely impact these cuts could have as it relates to social dislocation, rather than just looking at the bottom line.

Word of this from Barbados’ Minister of Industry, International Business, Commerce and Small Business Development, Donville Inniss, who says failure to acknowledge the likely impact could set back the developmental gains seen in the region by decades.

Barbados’ Minister of Industry, International Business, Commerce
and Small Business Development, Donville Inniss (right), who
delivered the featured address on the topic ‘The Relationship
Between Trade Policy and Gender Equality in the Region’ at the
inaugural Gender Mainstreaming in Caribbean Trade Policies
and Programmes workshop being held at the Caribbean Development
Bank, in conversation with Senior Officer Millennium Development
Goals, International Trade Centre, Meg Jones.

Some of those in attendance at the workshop on Monday.

Minister Inniss was the featured speaker at the four-day Gender Mainstreaming in Caribbean Trade Policies and Programmes workshop, which officially began on Monday at the Caribbean Development Bank’s conference centre.

He made the point that women in particular would feel the impact of such cuts. Inniss stated that the simple reality is that women still play the more dominant role in the rearing of children in the society and in terms of what happens in households, and are still making a significant contribution in the workplace and economic space in the region.

“If today we are forced to cut in areas of education and healthcare and all of the other social services, that naturally will lead to a negative impact upon the women in our society in particular.

“Therefore, I can only urge policymakers throughout the region to let us not only look at figures that speak to deficit, balance of payments, external debt, etc., but there is a human side of it which we must frontally address, but first we have to realise it exists.

“As we throughout this region work with international lending agencies to address the challenges in our economies on the fiscal side, that we never forget that our actions can cause a level of social dislocation that can roll back our gains for decades to come.”

He encouraged the delegates in attendance to make the necessary pronouncements on the matter in order to enlighten policymakers on the reality of the issue.

The Minister also made the point that while there are no ongoing robust debates on gender across the region at the parliamentary or national level relating to trade and development, its impact on women must be addressed.


“The truth of the matter is if our women do not have the same level of access to capital, if they do not have the same opportunities available in the business development world, then we do have an issue here to address. And it is not a matter that we can bury our heads in the sand about. So even though it is not a national debate, my concern is it could be very much like a volcano that it is simmering underneath waiting to explode at some point in time. And that is something that we don’t need to have happen in this region.”

The Minister also encouraged delegates not to shelve the work that will come out of the workshop but to put it into action. He exhorted that as they deliberate on the topics, the focus as it relates to gender must not solely be placed on women, but also the challenges facing men. (JH)

Darren Bravo named WIPA Cricketer of the Year

Darren Bravo was thrilled to get some advice from the
legendary Sir Garfield Sobers (right) who was at
the preparatory camp in Barbados. 

Left-handed batsman Darren Bravo was last week Thursday named as the Cricketer of the Year when the West Indies Players Association held its annual awards at the Jamaica Pegasus Hotel.

The year 2013 was a special one for Bravo, who finally lived up the high standard expected of him. He scored a career-best 218 against New Zealand in Dunedin; it is one of the highest scores ever recorded by a West Indian in that country.

He was also named as the Caribbean T20 MVP.

Bravo noted that he was proud of his innings in New Zealand especially as it helped the West Indies stave off what looked like a certain defeat.

“We were staring down the jaws of defeat until I put up my hand and did the job for the team. The guys were supporting me along the way as well and it was good to know that we were facing defeat and were able to come out with a draw. I believe that is something to feel great about and I am looking forward to the upcoming series as well,” said Bravo.

As for the upcoming home series against the Kiwis, Bravo noted that it was important that he not only continue believing in himself, but that he sticks to the basics as well.

“The ball might not swing as much as in New Zealand, but New Zealand has a quality bowling attack and I believe they are going to use the conditions to the best of their ability so I believe that it is important that not only myself, but the rest of the team, play their natural game in the best possible way,” said Bravo.

"Their (New Zealand) bowling attack has been doing very well over the last couple of years. We don’t normally bat well twice in a Test,” Bravo said.

“At times we tend to get a decent score in the first innings and falter in the second or the other way around. That is something we need to rectify. When our batsmen get starts we need to carry on and get big scores.”

Bravo was part of the preparatory camp in Barbados where he spent time with the West Indies legend Garry Sobers. One of the things he picked up from Sobers was the importance of creating scoring opportunities, instead of letting the opposition bowlers take control.

“He singled out that I should be able to play all around the wicket,” Bravo said.

“At times the opposition will block your strong area. So you could take those same deliveries and play it through midwicket. You set the field for yourself, rather than let the opposition dictate your pace. I will be looking to do that in this series.”

He added that the time spent with Sobers was invaluable. “It’s something I will cherish for the rest of my life. When he left the camp I really started missing him. He eased my mind as much as possible and he was in the nets working on some technical areas and also sharing a laugh. Wonderful sharing a week and a half with him.”

Other major awards on Thursday went to Stafanie Taylor (Female Cricketer of the Year); Shivnarine Chanderpaul (Test Cricketer of the Year), Dwayne Bravo (ODI Cricketer of the Year) and Sunil Narine (T20 Cricketer of the Year).

Chanderpaul also received a special award as the first West Indian to play 150 Test matches, while Chris Gayle was also honoured as he prepares for his 100th Test match. (PG)

Sanctions and the Caribbean

Sanctions and large fines are becoming the weapon of choice for the United States and others as they seek ways to stop nations facilitating trade or financial transfers that touch countries they are engaged in a political dispute with.

The issue is becoming more acute as huge fines and restrictions placed on international banks threaten to stop what can be the quite legal free flow of funds to nations regarded as transgressors of rules
relating to tax, money laundering, terrorism or international organised crime.

The issues are complex as the administrative approach being adopted in some cases intentionally confuses quite proper objective concerns about illegal payments with subjective considerations based on political judgements.

Although so far not subject to the huge fines that a number of international banks are now facing, the Caribbean and its financial sector is now under intense scrutiny and can no longer expect to be immune from the effect of increasingly invasive extraterritorial legislation.

The longest running and most questionable example is the US trade embargo on Cuba and the way that the US Treasury is now inter-preting the legislation. Through a series of complex and difficult to unravel US laws such as Helms Burton, and the continuing inclusion of, by its own admission, the hard to justify US designation of Cuba as a terrorist state, the US authorities have been extending their pressure internationally on the Cuban Government.

They have done so by taking legal action against international banks operating in the US and the threat of extradition of their executives.

So serious has this become that in Europe, despite it being illegal to comply with such external trade legislation, many of the continent’s largest banks have not only withdrawn from undertaking any transaction that even vaguely involve Cuba, but have shut down individual’s bank accounts
and recalled loans out of fear of huge fines on their operations in the US.

At its most serious is the announcement last week of a fine of US$8-10 billion on the French bank, Banque Paribas, for allegedly violating US sanctions and anti-money laundering rules. Washington has said that between 2002 and 2009 the bank made hidden transactions in US dollars to Cuba, Sudan and Iran and other nations against which the US has sanctions. If the French bank concerned admits its guilt not only will it cease to be able to clear US dollar transactions, but so big is the fine that it will lose its credit rating, its profitability, and have to raise new capital to meet European banking requirements.

The French Government is concerned about the impact of this and the broader political implications.

Its President, Francois Hollande, will raise the issues with the US President and may halt transatlantic trade negotiations. The country’s Foreign Minister has declared Washington approach “unfair, unilateral and irrational”.

According to research undertaken by the Financial Times, such US pressure on foreign banks has become so pervasive that they now occupy 12 of the top 20 places in a league table of post economic crisis penalties levied by US authorities. Just as strikingly, foreign banks now account for 27 per cent of the $96.4bn of the fines and settlements that US authorities have levied for a whole range of financial misdemeanours since 2008.

In the context of Cuba, there is a growing suspicion in Europe that as US corporations begin to take a greater interest in the future investment and trade opportunities on the island – the powerful US Chamber of Commerce led a small delegation from major US corporations to Havana last week – they are actively encouraging the US Administration to more strictly enforce US extraterritorial legislation in order to exclude European and other international corporations from investing in or trading with Cuba.

The sanctions issue, as far as the Caribbean is concerned, is also manifesting itself in other ways.

The approach of the OECD – the grouping that brings together the world’s richest and most developed nations – and which blacklists nations that have not passed the required Anti-money Laundering and Combating the Financing of Terrorism legislation, could soon halt many financial transactions across the whole Caribbean region.

Although the rest of the Caribbean is compliant with OECD rules, Guyana’s failure to do so, which is fundamentally a reflection of domestic politics, has resulted in its referral by the Caribbean Financial Action Task Force (CATF) to its parent body, the OECD Financial Action Task Force (FATF) in Paris and almost certain retaliation.

The CATF, an organisation of twenty-seven Caribbean Basin jurisdictions, said on May 29 that Guyana’s posed “a risk to the international financial system” as a result of its not meeting agreed timelines. It therefore called on members to implement counter measures to protect their financial systems “from the ongoing money laundering and terrorist financing risks emanating from the country” and formally referred Guyana to the FATF.

What is clear is that the measures that will follow – enhanced due diligence; enhanced or systematic reporting of financial transactions; refusal to permit the establishment of subsidiaries or branches or representative offices in Guyana; limiting business relationships or financial transactions with Guyana or persons in our country; and other measures – will rapidly impact on the whole region if the rest
of the Caribbean does not respond by isolating Guyana to protect their own financial systems and to remain in compliance.

The issue of sanctions at a Caribbean level is also complicated by the use of offshore financial services such as those offered by the BVI or Cayman to international investors. For instance,  restrictions imposed by the G7 on Russia following the annexation of Crimea has resulted in the freezing of some Russian-owned Caribbean-held assets and transactions, and the imposition of reporting requirements on Russian use of the UK’s dependent territories.

There are also a growing number of other forms of regulation or legislation, such as the US FATCA, which impose reporting requirements for tax purposes on the region in relation to accounts held by US citizens overseas. These too are becoming a challenge to Caribbean financial institutions and governments in terms of compliance.

Extraterritorial legislation, sanctions and their deployment are set to become more contentious.

For most people it is acceptable in a globalised economy to control and regulate financial flows, halt criminality and enhance tax revenues so that states can fund their social commitments. However, measures such as those relating to Cuba, where sanctions have become a means of protecting economic self-interest or political objectives, are not.

David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org. Previous columns can be found at www.caribbean-council.org

Importing food is damaging the Caribbean: Why no action?

It is shameful that golden opportunities to produce more food in the Caribbean and significantly reduce the astronomically high annual food import bill of US$4.75 billion are being woefully neglected. If this misguided trend continues, the economies of many of the countries of the region will be increasingly imperilled.

At a time of very low or no economic growth, extremely high ratios of debt-to-Gross Domestic Product (GDP) and declining foreign exchange earnings in many of the 14 independent nations that comprise the Caribbean Community (CARICOM), the majority of them continue to spend huge sums on buying food outside the Caribbean.

In 2013, only four countries were exceptions to those with unsustainably high debt to GDP ratios. They were: Haiti 21.3%, Suriname 29.2%, Trinidad and Tobago 30.6%, and Bahamas 56.3%. Of the others, Jamaica 138.9%, Grenada 115%, St Kitts-Nevis 104.9% and Antigua and Barbuda 92.9% have the highest debt-to-GDP ratio. At the lower end of the unsustainable high debt-to-GDP ratio are Guyana 63.9%, Dominica 74.95, Belize 75.5%, and St Vincent and the Grenadines 76.4% (source IMF and World Bank).

It should be noted that in the case of Haiti, while its debt-to-GDP ratio is low, it has the highest rate of poverty at 77% of its population.

Other countries with high levels of poverty are: Belize 41.3%, Grenada 37.7%, Guyana 36.1%, and St Vincent and the Grenadines 30.2%.

These figures alone should be strong reasons for CARICOM governments to swiftly involve the private sector and financial institutions in acting to reduce the enormous food import bill. Experts have sounded alarms repeatedly that failure to deal with the issue is harming Caribbean economies and increasing their vulnerability to prices and supply from external providers.

Jamaica is the largest importer of agricultural products from outside the region at 21% or US$997.5 million of the total regional import bill.  Trinidad and Tobago is the second largest importer accounting for 20% or US$950 million, and Haiti is third at 19% or US$902.5 million.  

In part, the size of the food import bill for these three countries is explained by the relatively large size of their populations in relation to the other countries. Haiti has 10.2 million people, Jamaica 2.7 million and Trinidad and Tobago 1.3 million. The reason Haiti ranks behind Jamaica and Trinidad and Tobago is its very low per capita income of US$760 in 2013 – seven times lower than Jamaica’s and 19 times lower than Trinidad and Tobago’s.

But, while these three countries are the largest importers in total volume, they are not the biggest food importers on a per-head-of-population basis. Antigua and Barbuda leads the table in 2013 at US$1 170 followed by Barbados at US$1 126, Bahamas at US$1 106 and St Lucia at US$969. On this per capita basis, Trinidad and Tobago is sixth, Jamaica twelfth and Haiti fourteenth. These figures demonstrate the pervasiveness of the problem across the region.

A review of the prevalence of undernourishment in CARICOM is revealing. For instance, in Barbados, people are over-fed on inappropriate foods to the extent that, in the measurement of people in their 30s, Barbadians now rank as No. 1 in the Caribbean of persons who are overweight or obese. Trinidad and Tobago is second, Dominica third, Jamaica fourth and St Lucia fifth.

Much of this is due to the importation of processed food (now well over US$2.5 billion) that include homogenised composite food preparations; yeast and baking powders; stuffed pasta and fast foods.

Overweight and an increasing reliance on processed foods have contributed to medical problems such as diabetes and heart conditions. This means that the high cost of medical treatment for people, as a consequence of poor diet, has to be added to the US$4.75 billion annual food import bill with harsh effects on their economies.

It should be clear that CARICOM countries are doing themselves no favour by continuing the ill-advised policy of importing large quantities of food that could be produced within the region with contributions being made by all countries. Indeed, should governments of the region implement the food, nutrition and agriculture plans that they have drawn-up, not only would massive sums of foreign exchange be saved, but agriculture would make a significant contribution to GDP and economic growth and create tens of thousands of jobs across the region.

The failure to implement these plans at a time of very difficult economic circumstances is not only poor economic and financial planning and implementation, it is downright senseless – particularly as the countries could individually and collectively reduce their import bills by at least 30%, redirecting their foreign exchange for spending on job-creating and sustainable projects, and thus reducing poverty and
improving health standards.

What are some of the solutions? Studies conducted by the Food and Agriculture Organisation (FAO) show that CARICOM countries could increase their production of cassava, other root crops, vegetables and meat, particularly sheep and goats. Increases in such production, which could take place in every CARICOM country, would significantly reduce importation of wheat (US$248.8 m) and corn (US$145.5 m) that, along with Food Preparations (US$251 m), constituted the three largest imports in 2011.

For instance, cassava could be mixed with wheat for making bread, cakes and rotis with no discernible difference to taste and with the added advantage of a reduction of gluten. Further, a percentage of cassava could be added to corn that is used as feed in the poultry industry, thus reducing the import bill for corn and maintaining the quality of feed.

The same argument applies to meat importation valued at US$225 m. Several Caribbean countries are importing lamb from as far away as New Zealand, while the production of sheep and goat is perfectly feasible within the region to satisfy demand – and every country could be involved.

What is required is a well-organised meeting of Caribbean entrepreneurs, the Caribbean Development Bank, national development banks and visionary commercial banks with agricultural experts from each country to demonstrate the real economic opportunity that now exists if capital investment can be married to agricultural know-how. At offer is a significant portion of US$4.75 billion to be earned within the region for the benefit of the region.

The heads of Caribbean agricultural agencies, including CARDI, the Inter-American Institute for Co-operation on Agriculture and the FAO meet in Suriname in the week beginning June 10, it would be unforgivable if they ignore this opportunity that could only profit the region, its entrepreneurs and the economies as a whole.

(The writer is a Consultant, Senior Fellow at London University and former Caribbean diplomat)

We’re all in this together

Coming at a very strategic point in the calendar, just on the tail-end of a week’s worth of activities celebrating World Environment Day, was Sunday’s observance of World Oceans Day. This year’s theme, ‘Together, we have the power to protect the oceans’, tied in nicely with the focus of the activities that took place last week, which focused on small island developing states (SIDS), climate change and, of course, putting a stop to rising sea levels.

It is rather unfortunate that even though SIDS’ contribution to global pollution is not as great as large, industrialised countries, they are the ones who face the greatest threat to their territorial integrity as sea levels rise. As is constantly emphasised, all countries have a stake in the protection of the earth, as the effects of climate change can wreak havoc across both continent and island, big or small. The more extreme hot and cold temperatures, as well as stronger storms and unusual weather patterns, have all been attributed to changing climate conditions.

However, SIDS appear to be bearing the brunt of these events. Their small size means that evacuation to safe ground may be reduced or even impossible as the increased severity of the natural disasters could mean the devastation of the entire country. Meanwhile, rebuilding efforts are equally challenging in these developing nations with their limited economic resources.

Therefore, it really is incumbent upon the people and governments of these SIDS to raise their voice – as urged by the theme for World Environment Day – and make sure that this issue not only remains a priority on the global agenda, but that larger countries are made to keep the commitments they have made with regard to reducing pollution levels and meeting other targets.

Beyond boundaries

Officials have cited a lack of collaboration between and within regions of the SIDS grouping and frankly, this is quite disappointing. How will they be able to get larger countries to take their cause on board when they themselves have not got their act fully together? Certainly, individual efforts are not to be scoffed at, but it’s better together.

At the recently held Lionfish Derby in Barbados, Acting Director of the Coastal Zone Management Unit (CZMU), Dr. Lorna Inniss, noted that efforts to keep down the numbers of this invasive species in Barbados’ waters are hampered by a lack of co-ordination at the regional level. Common sense, of course, since lionfish have no respect for maritime boundaries and will go wherever the tides and food supplies take them.

The definition of an island is well known – a piece of land surrounded by water. Therefore, nowhere should World Ocean’s Day hold greater import than in a country such as ours. When we consider the role that the ocean plays in so many aspects of island life – in tourism, fisheries, shipping, arts and craft and so on – there must be a sense of responsibility on the part of every Grenadian to show respect to this massive resource. When we consider the fact that oceans span 71 per cent of the Earth’s surface, there must be continued global co-operation for its protection.

CUT BY HALF – 50% reduction on concessions for statutory bodies

By Linda Straker

AS of August 1, 2014, statutory bodies established by an Act of Parliament will only be able to receive 50 per cent of concessions on imports into the island.

“Where a statutory body now enjoys any percentage of exemption or concession from the payment of custom duties and taxes, any such percentage is now reduced by 50 per cent,” said Section 3 of the recently approved Statutory Bodies (Treatment of Exemptions and Concessions) (Miscellaneous Provisions) Bill 2014.

The Bill, which was recently approved by both Houses of Parliament, describes a statutory entity as a body established by an Act of Parliament with statutory powers and operational autonomy to carry out government related functions and which is part of or under the direct control of the Government.

There are currently more than 20 such bodies and they include the National Water and Sewage Authority; the Grenada Ports Authority; the Grenada Postal Corporation; T.A. Marryshow Community College; the Grenada Airports Authority; the Grenada Bureau of Standards; the National Stadium Authority; the Grenada Authority for the Regulations of Financial Institutions; the Gravel and Concrete Emulsion Corporation; the National Cultural Foundation; the Spicemas Corporation; and most recently, the Grenada Tourism Authority.

Data from the Ministry of Finance shows that for 2013, statutory bodies received a total of EC$4.7 million.