"Barbados will need to make giant steps in its economic and financial plans and policies to respect and maintain its legacy of confidence, stability and a strong regulatory ethos," writes Sir Trevor Carmichael, Q.C.
Barbados welcomed 2017 having just feted a year- long celebration of fifty years of political independence, and is a jurisdiction still valiantly striving to restate its economic and financial purpose. After eight years of little socio economic advancement, its economy registered moderate growth during the early months of 2017, fueled to some degree by the tourism and international business sectors. The jurisdiction’s external current account recorded a deficit from April to December of 2016, going as low as US$250 million, which represented a reduction of approximately US$15 million. Currently, a fiscal deficit of approximately US$332 million is being projected – representing an improvement of US$2.5 million as compared to the previous year. In continuing its focus on a programme of fiscal consolidation, there has been a gradual narrowing of the deficit. The country’s financial system therefore remains well capitalised and stable. With weak private sector demand, the banking system continues to be punctuated with high levels of excess liquidity and very low interest rates, with both deposit and lending rates continuing their decline.
Efforts at Resuscitation
Within this scenario of a struggle for sustainability, the jurisdiction is striving to improve certain key elements of its very successful international business sector through an increased focus
on niche areas. The recent launch of the International Securities Market (ISM) of the Barbados Stock Exchange is now a fait accompli and represents one such niche. This market will be a vehicle for the listing and trading of securities of issuers who may or may not be incorporated in Barbados, and who may otherwise have been listed or traded on other exchanges around the world, such as, the second tier markets of Canada, the US and the UK. This is not a new concept, since the Benchmark Exchanges such as Bermuda, the Cayman Islands and the Channel Islands are in the market undertaking precisely this type of business with growing success. The new development will give expanded legal status to the provision of a seat for exempt securities, an accommodation which had first been made as early as 1989 on behalf of a major Canadian enterprise, to allow its local Barbados International Business Company to trade on the Hong Kong exchange without question or recourse.
This recent launch is all encompassing and all pervasive and it seeks to raise the likelihood of attracting new types of international businesses to Barbados - it also encourages the use of our double tax treaties, and allows new types of businesses to be undertaken as with listing sponsors. Its core products will be equities, bonds and other fixed interest securities; as well as mutual funds. The advantages are many. The ISM will magnify the range of products in the Barbados international business sector.
Another area in which Barbados continues to excel is in its use of the Societies with Restricted Liability Legislation (SRL). For it has given, the now old 1982 Companies Legislation, a flexibility of use and application that is particularly attractive for American parents who seek to enjoy the benefits of a flow through subsidiary which may in part be treated as a partnership. It is not replicated in other comparable jurisdictions and continues to give Barbados a strong comparative
advantage, as was evidenced in November and December of 2016 with the advent of extraterritorial anti-hybrid legislation. In so many instances, the recognition and suitability of the Barbados SRL, was shown by the many local incorporations which followed – not to mention the taxation which will accrue in the Barbados treasury this year. This good fortune, like product delivery success, is capable of further replication in Barbados if the quickly drafted, but long awaited Foundation Legislation is properly introduced for use by the many awaiting South American clients. While the existing suite of legislation is a good varietal mix, identified legislative changes should be implemented as soon as possible so as to attract more quality international business.
The case of arbitration is a long discussed dream eagerly awaiting reality. While the present 2009 international arbitration legislation is modern in scope and effective in applicability, efforts must continue to add to the arbitration mix by way of an operating arbitration centre which attracts the settlement of international disputes that impact Barbados and our other Caribbean jurisdictions – as well as those which ultimately impact and engage those jurisdictions outside of the Caribbean.
There are other pieces of new legislation which have been recommended and are under active consideration. The negotiating of co-production treaties with jurisdictions such as Canada, New Zealand, Britain, the United States of America, and many more, will give scope to the nascent local film industry. It is an industry which has great ramifications for transfer of technology and skills, substantial income generation, and the furtherance of youth opportunities for career development.
The Challenge Ahead
Within this scenario of challenge and efforts to respond, certain fundamental imperatives must be recognised and pursued. At the basic regulatory level, attention should be directed to the conclusion reached by three Caribbean economists; Dr. Allan Wright, Dr. Kari Grenade and Dr. Andie Scott-Joseph and the findings in their new research paper “Fiscal Rules: Towards a New Paradigm for Fiscal Sustainability in Small States.” In their findings, Wright et al recognise the need for the adoption of fiscal rules as a means to overcome the fiscal and debt challenges faced bythe various Caribbean economies. Both Jamaica in March 2014, and Grenada in January 2016 have legislated such rules, and while the smaller Caribbean jurisdictions in the Organisation of East Caribbean States (OECS) have not legislated rules yet, they operate under the rules recommended by the Eastern Caribbean Central Bank. Last year Barbados indicated in a ministerial statement, an interest in introducing similar legislation, however its continuing absence remains a glaring omission. Barbados therefore still lags in the need for this important requirement, which according to the authors represents “an indicative framework for the design and implementation of fiscal rules, based on specific country nuances.”
Given the high import costs associated with fossil fuels and the huge associated drain of foreign currency, it is not surprising that Barbados has committed to the achievement of 100 per cent renewable energy with a target of achieving 65 per cent by the year 2030. In addition to the reduction
of the fuel import bill, this policy is obvious in its environmental protection potential. It is therefore of some concern that the jurisdiction has received funding from the Inter-American Development Bank to the sum of US$34 million for a Liquified Natural Gas (LNG) project. For while it is recognised that LNG is the most clean of all the fossil fuels,, there is still a cost attached to retrofitting and maintaining generating assets to support LNG. The other option of buying new generators to replace retiring assets is even more costly. It is debatable whether the US$34 million funding may not be better used in a direct investment into local projects presently underway such as solar or wind farm installation, a biomass plant, or some direct application with non-compromised environmental benefits. For although it is impossible to be rid of fossil fuels in one fell swoop, it is nevertheless a smarter use of funding if applied directly to the full solution strategy rather than the half-way house option. Advocates within the renewable energy community are however optimistic that at least part of the funding will be used directly for the incipient renewable energy infrastructure.
Barbados is easily differentiated from other Caribbean financial centres because of its commitment to a low tax jurisdiction philosophy. It focuses on treaties and active businesses as opposed to volume-driven, zero tax international business companies. The Barbados brand is one of transparency and trust, and it has the ability to engender confidence and certainty. This sound reputation has been carefully built on the solid foundation of a substantial business infrastructure. Legislation may sometimes be slow in terms of delivery but it is generally very strong and thorough.
The jurisdiction has, experienced a sluggish prosperity since 2008 but the island is nevertheless buttressed by a stellar reputation and a proven business infrastructure, putting it at the crossroads of challenge and change. It will be necessary to carefully review its business facilitation processes, its decision making structures and its inner self.
Looking beyond fifty years of independence the jurisdiction takes courage in the spirit of its independence leader and national hero, the Rt. Excellent Errol Walton Barrow, who in his "Parting of the Ways" speech, during the January 1966 parliamentary independence debate stressed the importance of the multifaceted nature of independence as a living organic concept:
“The soul of this community has to be laid bare, and there is no better time to do that, than when we are preparing for Independence, so that we know what we are, who we are, and where we are going.”
Barbados will need to make giant steps in its economic and financial plans and policies to respect and maintain it legacy of confidence, stability and a strong regulatory ethos.
Sir Trevor Carmichael QC
Sir Trevor Carmichael, KA,LVO,QC. 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.