Barbados: Recession and Post Recession Niches

The initial liquidity crisis and its accompanying tyrant, the international recession of the last two years, has presented opportunities for Barbados to reposition its economy and restructure its social development priorities and policies. While this activity remains very much at the policy stage, it is, however, a focus of important proportions which portends possibilities of growth and development in both the short and long term.

Actual performance of the economy within the first nine months of 2010 has been encouraging within the context of the overall global environment. Indeed, the international financial markets continued to show confidence in Barbados in the form of the substantial oversubscription of a two hundred million dollar bond, which was floated in New York in 2010. This positive demand made it possible to obtain a seven per cent interest rate in a 12 year issue in an unstable international market. Showing sound prudence and management, the loan proceeds were applied partly to the retirement of the short term US$1,000,000 loan which had been taken up one month earlier.

With the new maturing obligation, the need to use the Central Bank’s foreign exchange reserve was nullified. The remaining loan proceeds were applied to finance the difference between foreign receipts and payments during the low months of tourism expenditures. Indeed, tourism output itself, which had shown a decline during the liquidity crisis, has now begun to experience a resurgence, with a three per cent increase over January to September 2010, when compared to the similar period of last year. Positively, some restructuring in the tourism industry is being noticed, for although the number of visitors from the United Kingdom has decreased, the American and Canadian arrivals have significantly increased to the degree of more than balancing the United Kingdom falloff.

Similarly, private capital flows during the first half of 2010 are showing increasing signs of improvement with real estate inflows totalling US$43 million compared to US$26.5 million in the same period of 2009. The significant capital injection of approximately US$500 million to finance the building of a new beer factory is also encouraging, as is the US$20 million inflow resulting from the sale of a US dollar series of a Barbados National Oil Company bond issue. Indeed, although there has been some dropping off in revenue, the fiscal deficit for the first half of 2010 is below the comparable period in 2009. The fiscal deficit to GDP ratio estimated at 9.3 per cent is favourable compared to 10.4 per cent for the similar period of last year. This favourable decline is attributable in large measure to the reduction in expenditures.

While tax revenue collections fell by three per cent in 2010, the value added tax was an exception, yielding nine per cent more in receipts when compared to the similar period last year. The government in recognising the value of the Value Added Tax as a revenue collecting mechanism, has raised the tax itself from 15 per cent to 17.5 per cent as an important measure in the Minister of Finance’s November 2010 budget. While consideration will be given to reducing the level of Value Added Tax after an 18 month experiment, there is little doubt that the expected revenue will put the economy further in balance, and send the right signals to the international financial community, its rating agencies, and to the local public as well.

Furthermore, the quickest growing category of current expenditure for the last 10 years in the form of transfers and subsidies has experienced an overall three per cent reduction. In this regard, expenditure on goods and services has been reduced by 13 per cent and the bill for salaries and wages has registered a decline of six per cent.

A Profitable International Sector

The contribution of the international business sector in the year 2009 was US$120.15 million, and represented approximately 58 per cent of all corporate taxes received during that year. This figure accounted for approximately 11 per cent of total government revenues since the year 2005. In the year 2010, international business companies and exempt insurance companies in particular, have shown significant increases and at least two large insurance and global reinsurance structures have established their centres of operations in Barbados. International business companies in particular have shown significant increases over both periods of the liquidity crisis and the international recession, with 1,883 renewing licences in 2007; 2,418 renewing in 2008 and 2,480 in 2009. In 2010, the figure is likely to surpass the 3,000 mark.

In a word, international business has shown relative increases in a recessionary environment and from licence fees alone in 2009, Barbados has collected in excess of twelve million Barbados dollars. The jurisdiction is clearly benefitting significantly from its international sector, which may safely be seen to be outperforming in a recessionary environment.

The international sector was accorded an appropriate accolade in April 2009 when the OECD, in its report A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard, recognised Barbados as the only independent Caribbean nation which has substantially implemented the internationally agreed tax standard. Indeed, Barbados has met the OECD requirements for the exchange of information on request in all tax matters. Furthermore, the international sector was well recognised in the Global Competitive Report of 2009/2010, which rated Barbados’ overall competitiveness as third in Latin America/The Caribbean, and 44th worldwide; its soundness of banks as fourth in Latin America/Caribbean and its availability of latest technologies as second in Latin America/Caribbean, and 29th worldwide.

The jurisdiction had long ago been given international endorsement by agencies such as United Nations Development Program, which ranked it as fourth worldwide out of 177 countries in terms of literacy. Furthermore, the Human Development Report has consistently ranked Barbados as first in Latin America and the Caribbean and 37th worldwide out of 179 countries in its human development index. Transparency International in its corruption perceptions index has ranked Barbados as second in Latin America/Caribbean and 22nd worldwide out of 180 countries. These solid institution building and retaining features have endured to the benefit of Barbados in the recessionary environment, and have allowed its planners to continue to explore and carve out new niche areas along with strengthening its existing foundations.

The tax treaty network continues to be a source for transparent and reputable tax planning. The double taxation treaties are currently being used with full force and effect, some with great results and exposure, while others with more discreet utilisation and enjoyment. Double tax treaty partners include Austria, Botswana, Canada, CARICOM, China, Cuba, Finland, Ghana, Luxembourg, Malta, Mauritius, Mexico, the Netherlands, Norway, Seychelles, Sweden, Switzerland, the UK, the USA, and Venezuela.

The treaty with Mexico is exhibiting increased public use and its novel charitable dimension focus has provided a mechanism to blend philanthropy and business in unique structures with bold intentions and positive benefits. Furthermore, the bilateral investment treaties continue to provide the investment protection and comfort to investors who seek to use a Barbadian corporate structure to invest worldwide. For those companies and individuals seeking to invest within Barbados, the bilateral investment treaty with its positive protection mechanisms, including the benefits of international arbitration, provide positive incentive to invest within Barbados, in furtherance of the special niches which the jurisdiction seeks to provide.

Special Niches

Barbados continues to be recognised as an important jurisdiction for the manufacture of specialty products which require an excellent infrastructure with first world air and seaport facilities together with skilled and well educated labour, and a stable industrial relations climate.

Such manufacture includes the specialty areas of: agro-processing, electronic components and sub-assemblies, high fashion apparel, jewellery, leather items, medical supplies, optical devices, pharmaceuticals, printing and publishing. Over the last year, there has been an increased interest in the setting up of such facilities. This has positive implications for increased employment within the jurisdiction.

Furthermore, Barbados has sharpened its efforts to become the premier location for information and communication technologies (ICT investments). The facilitating environment has been improved with training centres, for medical transcriptionists, and training grants which subsidise training of workers. Such ICT enterprises may be established under the International Business Companies legislation or the International Society with Restricted Liability Act. The novel uses of ICT technology which are increasingly used in the jurisdiction include: call centre computer aid design (CAD), customer and technical support, credit card applications, data entry and fulfillment, database management, health insurance claims processing, and health information management, optical character recognition (OCR) applications, software development, transaction processing, and web application.

In a recessionary environment, the opportunity to start new businesses has been recognised by the Barbadian planners. Efforts have been made to expand the scope of marketing during the years 2009-2010. The results have been encouraging, and significant efforts have also been made by some of the jurisdictions professionals to more creatively use the International Business Company in the areas of art and architecture, music, film, and sports. Today, many structures are being devised which marry domestic and international components in creative combinations for mutual benefit. The purpose is developmental, the scope is recession proofing and beyond, and the overall intention is the creation of a jurisdiction the social and economic development of which is holistic and self sustaining.

Postscript

As the international recession recedes, Barbados in contrast has steadily increased its recession proofing by building on its inherent strengths and exploring new avenues of commercial and industrial endeavours. While it can not, as in the 18th century, be the sugar capital of the world, it may seek to be in the 21st century, the leading jurisdiction for business and the truly fine art of living.

Sir Trevor Carmichael KC
Sir Trevor Carmichael, KA,LVO,KC. was born in Barbados and educated at Harrison College and the University of the West Indies, Mona, Jamaica. After pursuing post graduate studies in the United States, he was called to the United Kingdom Bar as a member of the Middle Temple in London and the Barbados Bar in December of 1977. He is a member of the International Bar Association, the Inter-American Bar Association and a Committee Member of the Inter-American Bar Foundation as well as an associate member of the Canadian Bar Association. He holds membership in the International Tax Planning Association, the International Fiscal Association and was one of the parties responsible for establishing a Barbados Chapter of the International Fiscal Association of which he is Charter President. He is the Barbados Country Chairman of the International Litigation Committee on Business Law of the International Bar Association and a former Deputy Secretary General of the International Bar Association. He is a Life Fellow of the Institute for Advanced Legal Studies in the United Kingdom, a Life Member of the Commonwealth Magistrates and Judges Association and a member of the International Law Association.