Free Falling: Leveraging the Caribbean Diaspora for Growth
Across the Caribbean, increasing pressure on governments to manage high levels of indebtedness and fiscal imbalances is placing severe limitations on their ability to effectively support broad-based social and economic development. Small states are especially vulnerable to the international economic environment, and the region continues to struggle after the 2008 financial crisis hit traditional growth sectors - tourism, commodities, and financial services –particularly hard. Furthermore, the region’s susceptibility to natural disasters has contributed to a weak economic recovery and has left little public sector capacity to focus on forward-looking growth opportunities.
The external environment continues to present challenges to Caribbean states. More pervasive global banking regulations have made the region less attractive for correspondent banks, resulting in a significant loss of these critical relationships over the past year. This loss is threatening the region’s access to the global financial system and thus its ability to take advantage of international business and financing opportunities. In addition, lower credit ratings and less favorable exchange rates in these states, coupled with declining tax revenues, have made it difficult for governments to offset the economic slow-down without resorting to more costly financing options. Furthermore, the region faces a risk that the US Federal Reserve may raise interest rates, which could result in reduced investment flows into the Caribbean, further exacerbating the economic situation of the island states.
Small states face certain unique challenges, such as geographic constraints, relatively small population sizes, and lower economies of scale, that limit their ability to grow. It is thus important to build resilience within these economies by diversifying sources of revenue and increasing integration into the global economy. Given the urgency for governments to focus on stabilization efforts, private sector groups and institutions should be encouraged to take the lead in driving innovation, supporting growth, and providing jobs across the various island states. Governments should support local entrepreneurial activity and work towards harmonizing business regulations across the region. These steps would not only help expand trading relationships, but also increase sources of foreign exchange revenue, raise the region’s attractiveness to correspondent bankers, and improve government balance sheets. While countries should not forgo opportunities for foreign direct investment as a growth mechanism, states should also consider placing renewed emphasis on small- and medium-sized enterprises, which can help lay the foundation for long-term competitiveness.
Caribbean states should also prioritize securing alternative sources of funding that are not only affordable, but committed to the region. According to a survey conducted among members of the Caribbean Diaspora, 80% of respondents were interested in making private sector investments in the Caribbean, with only 13% having actually done so. With one of the largest and most highly-skilled emigrant populations in the world, the human and investment capital potential of the Caribbean Diaspora is significant indeed. Governments in the region should aim to mobilize this potential to help their countries meet current and future challenges.
Infographic by Zindzi Thompson
Zindzi Thompson is an MA Candidate at Johns Hopkins SAIS.