ST. LUCIA Choosing the Puerto Rican Road

September 25, 2007

This tiny island nation in the east-
ern Caribbean has some things in
common with its now famous neigh-
bor, Grenada. Each has a popula-
tion of just over 100,000, lush volcan-
ic scenery that steals the visitor's
breath-and a gravely underdevel-
oped economy that places it among
the hemisphere's poorest countries.
The two former British colonies are
separated by less than 100 miles, but
in recent times opposing policies and
prime ministers have made the dis-
tance seem far greater.
While Grenada's Maurice Bishop
courted Cuban and Soviet-bloc aid,
St. Lucia's conservative John Comp-
ton looked to more traditional western
sources for help. What Bishop called
a "mixed economy" in Grenada,
Compton termed "communist." And
when U.S. troops invaded Grenada in
October, Compton hailed it as a vic-
tory over "the moving finger of
Marxist dictatorship."
On his own island there is less to
cheer about. Unemployment stands at
27%, imports exceed exports by $100
million a year and the GNP is declin-
ing. St. Lucia's per capita annual in-
come is well under $800.
Discouraging statistics like these
seem to go with the territory. Among
the problems holding back St. Lucia
and many other struggling Caribbean
states:
One crop economy. They call
bananas "green gold" here-the fruit
makes up about 80% of all St. Lucia's
exports. Virtually every bunch goes to
a protected market in Great Britain,
but prices are not guaranteed and Bri-
tain's own recession has put island
growers in a tough bargaining posi-
tion. Cheaper Latin American bana-
nas dominate markets elsewhere.
Natural disasters. Located square
in the hurricane belt, St. Lucia experi-
Castries graffiti: Comoton Must Go: Canitalism Gone Mad
MARCH/APRIL 1985
enced the inevitable in 1980, when
Hurricane Allen leveled parts of the
island and completely destroyed the
year's banana crop. The year before,
the Soufribre volcano erupted next
door on the island of St. Vincent, seri-
ously damaging that country's har-
vest.
The brain drain. Without .a full-
fledged university of its own, St.
Lucia sends its brightest to the United
States or England for higher educa-
tion. And there many of them stay,
lured by higher pay and a wider
choice of careers. One result, as char-
acterized in a recent World Bank re-
port, is a St. Lucia government "han-
dicapped by the scarcity of adminis-
trative and professional skills."
Scant capital. "St. Lucia's com-
mercial banks are unable to attract a
significant inflow of capital-in large
measure because of high interest rates
prevailing today in the United States
and other financial markets. The re-
sult: severe liquidity problems,"
warns an authoritative newsletter pub-
lished for investors interested in the
Caribbean.
Firm Believer in Free Market
Ask just about any St. Lucian and
he or she will tell you that times are
5especially hard now. The signs are
evident. In the capital city of Castries,
knots of unemployed men gather on
street corners and eye oblivious
tourists. In the countryside, families
living in rough shacks wait resignedly
for long-promised electricity and run-
ning water. In the open-air markets
women vendors complain that no one
has money to buy their goods.
"We have a crime problem, at a
level not known for a while," says
Guy Ellis, editor of the island's news-
paper, The Voice. "There will be se-
rious discontent if there is no reversal
in unemployment," he predicts.
Compton, a firm believer in the free
market, blames much of St. Lucia's
present ills on his predecessors. After
presiding over an unspectacular but
growing economy for 15 years, he and
his United Workers Party (UWP) lost
a 1979 general election to the St.
Lucia Labour Party (SLP), made up of
moderates and some radical socialists.
Infighting, and an economy buffeted
by Hurricane Allen and world reces-
sion brought that government down
early, and in May of 1982 Compton's
UWP was voted back into power.
"The road will be long and trials
sore and many a sunshine soldier will
fall by the wayside as the storm clouds
gather and the going gets rough ... "
Compton orated in a recent address to
his party in which he explained that
St. Lucia was still suffering the af-
tereffects of bad management by the
SLP.
Compton's formula for recovery is
what Caribbean development special-
ists refer to as the "Puerto Rican
model." In the short run he is betting
that a flagging tourist industry will re-
vive and generate badly needed for-
eign exchange. The longer vision is
that cheap wage rates and an array of
financial incentives will bring many
foreign manufacturers to St. Lucia's
shores.
Incentives Attract Investors
This approach was given its biggest
boost in 1977, when the U.S.-owned
Amerada Hess company decided to
build a multi-million dollar oil trans-
shipment facility in St. Lucia. The
five-million barrel operation, which
opened in 1982, has created jobs and
foreign exchange, and the company's
chairman, Leon Hess, provided most
of the funding for an island-wide
school reconstruction program. In re-
turn the government has made special
allowances: Amerada Hess pays lower
than usual taxes and is not subject to
normal labor regulations.
Financial inducements have at-
tracted a few foreign-owned garment
and electronic component factories as
well, but more are slow in coming.
The only outsider to set up shop on the
island in 1983, a Hong Kong-based
maker of plastic goods, so far has
hired only 14 persons. To attract more
investors the government is sinking
money into a publicity campaign that
last year included a several-page ad-
vertising section in Business Week
magazine.
Minister of State Peter Patrick Phil-
lips admits that, "Industry in St.
Lucia is still in a state of infancy,"
but he enthusiastically ticks off what
foreign investors like to hear: "All
the basic infrastructure is in place.
We have two airports, fine seaports,
adequate power, telecommunications,
maintained roads, available factory
shells . . and the fiscal incentives, of
course."
These incentives include tax holi-
days up to 15 years, duty-free impor-
tation of raw materials and, in some
cases, full repatriation of profits. In
addition, the government has desig-
nated areas of the country "free
zones," where companies are exempt
from customs procedures and some
civil codes.
Such concessions rankle some of
Compton's critics who complain that
under his guidance St. Lucia is be-
coming too dependent on outside in-
vestors, and is not getting enough in
return. "What concessions are given
for 40 or 50 jobs?" asks one promi-
nent labor leader who is skeptical
about the government's plan to ex-
pand exisiting free-trade zones and
develop others. "The companies
operating in these zones can hold life
or death power over the government. I
don't think this should be tolerated.
Their demands are excessive. Some
companies even want immunity from
unions."
Tyrone Maynard, president of the
National Worker's Union, the largest
on the island, is worried that St. Lucia
is attracting "fly-by-night" industries
with no real commitment to the is-
land's economy. Once tax holidays
end, he says, many transnational com-
panies move on. Maynard claims that,
increasingly, Caribbean countries are
being played off against each other
by potential investors. His example:
last year the St. Lucian government
failed to attract a New York-based tel-
evision manufacturer, PICO, because
it couldn't match the incentives being
offered by nearby St. Kitts/Nevis. Ac-
cording to Maynard, St. Lucia lost out
on 700 jobs.
Domestic Investors Shunned
Other complaints come from St.
Lucia's business community. Insur-
ance broker Servillus Jeffrey, for ex-
ample, would like to begin a size-
able electronics assembly plant on the
island, but he says Compton's pro-
foreign investment policies discrimi-
nate against local entrepreneurs. His
fledgling company, Caribtronics, so
far comprises a college-trained pro-
duction manager and eight women
workers who conduct simple testing
of components. Jeffrey, who holds an
MBA from the University of Califor-
nia at Los Angeles, says he has started
operations "through sheer determina-
tion," even though his efforts to ex-
pand have been thwarted by local
lending institutions, and ignored by
government.
"Everybody applauds my attempt
to create more industry here but no-
body wants to put their money where
their mouth is," he says. His request
for a loan of 50,000 Eastern Carib-
bean dollars (about $18,500) was
turned down by the banks, says Jef-
frey, because he was unwilling to
offer virtually all his personal prop-
erty as collateral. "Our so-called de-
velopment bank does not take a
cooperative attitude towards even a
local manufacturer who is going to
employ 100 persons. The thing that is
always thrown back at me is that if I
go bankrupt, they will have trouble
selling my equipment anywhere else.
But this is looking at it very pessimis-
tically," says Jeffrey, who has
worked for U.S. electronics firms in-
REPORT ON THE AMERICAS 6cluding Mattel Toys.
Jeffrey says he is the only St. Luc-
ian attempting to start up electronics
assembly on the island, but he claims
to know of others wanting to open
garment factories who are experienc-
ing similar frustrations.
Incentives Not Sufficient
If local investors feel that foreign
manufacturers are getting a better
deal, Michael Lewis, co-director of
Brabo Ltd., the plastics firm recently
arrived from Hong Kong, argues that
the advantages to foreigners are often
not enough to lure them. "At the mo-
ment the government is not geared
properly for industrializing," asserts
Lewis.
Too much bureaucratic red tape and
a lack of service industries to support
the manufacturing sector are among
the problems he cites. "You come
here with a factory, and you want
some water pipe-there is no water
pipe. You want some electrical wir-
ing-there is no electrical wiring
available. In Hong Kong, if you need
some wiring or spare parts for your
machines, you go out in the street and
buy it and you're back to work im-
mediately," explains Lewis, who has
also operated factories in Taiwan and
South Korea. Despite the drawbacks,
Lewis found St. Lucia's low wage
rates ample incentive to come to the
Caribbean. He pays his workers about
$18 per week. His company is serious
enough about the venture to designate
St. Lucia its headquarters.
Lewis offers little encouragement,
though, to those who might follow his
example. He maintains that eight out
of every ten investors who come to St.
Lucia leave within two years. "Basi-
cally, they cannot hack all the prob-
lems," he says.
There are some St. Lucians who
consider foreign manufacturers like
Lewis part of, rather than a solution
to, their country's economic difficul-
ties. They argue that an island nation
should become more self-sufficient by
growing food and making products
that are consumed at home. And they
worry that agricultural development is
suffering while foreign industry is
courted.
"Indigenous" Industry Sought
One government officer, who asked
not to be named, says, "I think what
is important is whether St. Lucia is
able to feed itself over the next 10 to
15 years. Right now we import too
much food, and we don't export the
"Times are especially hard now"
right kinds. We have some of the rich-
est soil, but we can't live on bananas
only. So there have to be some gov-
ernment supported incentives for farm-
ers to grow vegetables and dairy prod-
ucts. It is ridiculous that we import
these things from Barbados and other
islands."
He would like to see more farming
co-operatives on the island, as well as
industries he calls "indigenous,"
such as solar drying of fish and pro-
cessing of local fruits and vegetables.
The officer says he takes the "un-
popular view" that strict import
quotas are necessary to encourage
consumption of local goods, and that
the main focus of government con-
cern-and money-should be the ag-
ricultural sector.
"It is more important to maintain a
job than to create one," he states.
"You attract foreign investors, that's
one thing, but to keep the jobs they
provide is another. We can't base
long-term development on these for-
eign companies that come and go all
the time."
The man whose job it is to bring
more manufacturers to St. Lucia says
he understands well the pitfalls inher-
ent to an economy dependent on for-
eign investors. But for Harry Joseph,
general manager of the government's
National Development Corporation,
the strategy is one of necessity.
"We have the problem of maintain-
ing our identity as a small country
while at the same time having to ac-
cept the stipulations, the influence,
whether fair or unfair, of outside in-
vestors. It is all very well to theorize
that the foreign investor will pay at-
tention to your culture, that he
shouldn't get more than he is giving.
But in reality, the investors sometimes
have the mentality that St. Lucia
needs them more than they need us.
"Size shouldn't be a basis for one
taking advantage of another-it's not
just. But we are in a very difficult bar-
gaining position, and one that is very
simple. Right now," says Joseph,
"what we need is jobs, jobs, jobs.
And that's the bottom line."
Answers the government officer
quoted earlier: "What we have to do
is create our own jobs."
A key question on this small, beau-
tiful and poor dot in the Caribbean
seems to be: Can St. Lucia become
another Puerto Rico? And does it want
to?
Deirdre Kelly, a specialist in interna-
tional development, recently spent
four months studying women in St.
Lucia's electronics industry. She is
currently a research associate with
the Pacific Studies Center in Moun-
tain View, California.

Tags: St. Lucica, capitalism, Caribbean, investment


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