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Caribbean advised to review tax exemptions as FDI falls

By Caribbean 360

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PRESS RELEASE – The flows of Foreign Direct Investment (FDI) into the Caribbean shrank 4.7 per cent last year, a study by the Economic Commission for Latin America and the Caribbean (ECLAC) has revealed, even though it still receives more FDI than other developing economies.

And ECLAC has recommended that Caribbean countries review the incentives they offer to companies to attract FDI, including exemptions on income tax and customs duties, as part of a coordinated promotion policy in the region.

That is contained in ECLAC’s flagship Foreign Direct Investment in Latin America and the Caribbean report which, for the first time, dedicates an entire chapter to FDI in the Caribbean.

According to the report which was released yesterday, the nearly five per cent decline in FDI inflows in 2014 – down to US$6 billion –  is less severe than the 16 per cent drop registered in the wider Latin America and the Caribbean region, where flows fell to US$158.8 billion in 2014 from the US$189.9 billion in 2013. Nevertheless, since 2008 FDI inflows into the Caribbean have fallen 37 per cent.

“The percentage of Foreign Direct Investment as a proportion of Gross Domestic Product (GDP) is relatively high in the Caribbean compared with other regions of the world,” ECLAC said. “On average, these flows represent four per cent of the subregion’s GDP, and more than 10 per cent in some of its economies, while in the rest of Latin America that percentage is [less] than three per cent.”

However, ECLAC warned that this dependence, combined with the concentration in terms of the receiving sectors (tourism and increasingly natural resources) and the countries of origin (mainly Canada and the United States), means that Caribbean countries are highly vulnerable to variations in FDI flows.

ECLAC’s report analyzes the situation of 16 Caribbean countries.

Tourism is the sector that receives the most FDI in countries such as Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines, while in other nations natural resources predominate (Guyana, Suriname and Trinidad and Tobago).

In Haiti and Jamaica, FDI is principally aimed at the transportation and telecommunications sector.

The Dominican Republic is the biggest economy and the top recipient of FDI in the subregion (21 per cent of flows go to natural resources, 26 per cent to manufacturing and 23 per cent to tourism). In 2014 it received US$2.2 billion, up 11 per cent from 2013 but still a far cry from the over US$3 billion tallied in 2012.

It was followed by Trinidad and Tobago, which had inflows of US$1.39 billion in 2014 (down 30 per cent from 2013); Jamaica, which registered US$699 million (an increase of 7 per cent), and the Bahamas, with US$374 million (9 per cent less than in 2013).

Barbados jumped from US$5 million in 2013 to US$275 million in 2014; Guyana rose 19 per cent to US$255 million in 2014, from US$214 million in 2013; Antigua and Barbuda received US$167 million, up 66 per cent from 2013; Belize US$141 million, which is 48 per cent more than the previous year; St. Vincent and the Grenadines US$139 million, down down 13 per cent; and St. Kitts and Nevis US$120 million, a decline of 13 per cent.

Countries that had inflows of below US$100 million in 2014 include Haiti which recorded US$99 million, down 47 per cent from 2013; St. Lucia with US$75 million, a decline of 21 per cent; Grenada which registered a 64 per cent delince to US$40 million; Dominica which saw a 36 per cent increase to reach US$36 million; and Suriname where the figure was almost chopped in half, down 97 per cent, to US$4 million.

According to the study, the reason for the significant amounts of FDI flowing into the Caribbean lies in the active promotion policies applied by countries in the subregion. These policies range from actions to improve the overall business climate to the use of financial measures to stimulate FDI inflows, such as exemptions on income tax and customs duties.

“Upon analyzing the available evidence regarding the impact of these incentives, the organization recommends that Caribbean countries revise their usefulness, taking into account the high fiscal costs that these measures imply for their economies and the competition generated between countries in their bid to attract projects,” ECLAC said.

One aspect to take into consideration is the fact that, on average, the repatriation of profits derived from Foreign Direct Investment is equivalent to more than three-quarters of the FDI inflows into the Caribbean, especially in countries such as Barbados, Suriname and Trinidad and Tobago.”

ECLAC encouraged Caribbean countries to advance towards a coordinated policy of FDI promotion, “based on the concept that attracting bigger flows is less important than their impact on productive diversification and their convergence with long-term national development plans centered on equality of rights and environmental sustainability”.

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One comment

  1. St. Lucia 75 million alone!!?
    smh

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