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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