From Caribbean Digital Network

A clinical perspective of CDN’s Ricardo Blackman in Barbados

July 9th – The shortage of domestic capital to drive economic growth is a common denominator across much of the Caribbean. The injection of foreign direct investment (FDI) has thus become a fact of life.

This economic reality has, however been at the core of growing concern among an increasing number of observers, at home and abroad, that the “FDI horse may have bolted,” unfortunately at the expense, not only of some regional economies, but also of innocent taxpayers of the region, whose job prospects have been adversely affected.

Ironically, the pros and cons of foreign direct investment, was apparently not on the agenda of the recently-concluded 36th CARICOM Heads of Government Conference in Barbados. But something tells me that Prime Minister Perry Christie of the Bahamas, would have found time during breaks in the deliberations, to ponder on the very serious implications of the potential impact of the news that the $3.4 Billion Baha Mar resort at Cable Beach, New Providence, one of the largest private sector development projects ever to be carried out on Bahamian soil, had filed a lawsuit in Britain against its contractors, China Engineering Corporation, seeking more than $192 Million in damages to compensate for delays and reported substandard work.

The legal action was taken one day after Baha Mar filed for Chapter 11 bankruptcy in the United States, subsequent to which the Bahamas Attorney General has filed a writ seeking to claw back Crown lands from the developer.

To get a sense of the implications of all this for the Bahamian economy, one has to note that this is a four-year construction project (started in 2011) which was expected to generate $400 million for local contractors and sub contractors, with a total of 8,000 Chinese workers being employed on site.

This project, financed by the Export-Import Bank of China, was to have provided some 8,000 permanent jobs for Bahamians by 2014, generating a $14.8 Billion contribution to the country’s gross domestic product (GDP) over a 20-year period, with some $500 Billion in incremental government taxes guaranteed over 25 years. China is delivering on its commitment to invest heavily in the English speaking Caribbean. Baha Mar is in addition to a brand new $35 million dollars stadium in The Bahamas; a grammar school and renovated hospital and sports stadium in Dominica and a power plant, cricket stadium and new school in Antigua, where residents have voiced their concern about a construction site at Jolly Beach, which has reportedly failed to employ locals alongside a number of Chinese nationals.

Since assuming the status as one of the world’s major economic powerhouses over the past forty years, China has begun to spread its wings aggressively in the English-speaking Caribbean.

Prior to the fall of the Berlin Wall on November 9, 1989, the two super powers of the day, Russia and the United States of America sought to establish spheres of influence in the region as evidenced by the establishment of outposts in Cuba and some Latin American countries as it relates to the Soviet bloc.

Today, however, having adopted the capitalist mode of production and with the ascendency of capitalism worldwide, mainland China now has begun to fill the vacuum created with the withdrawal of American influence in the region. The tussle is no longer communism versus capitalism, but mainland China in the Caribbean.

Analysts have now recognized that mainland China’s economic might has “rolled up” to America’s doorsteps in the Caribbean with a flurry of loans from state banks, investments by companies and outright gifts from the mainland Chinese government in the form of new stadiums, roads, official buildings, ports and even resorts in the region, where the US has long been seen as a prime benefactor.

My research indicates that in 2011, China announced that it would lend $6.3 Billion to Caribbean governments, adding considerably to the hundreds of millions of dollars in loans, grants and other forms of economic assistance already channeled to the region in the past decade.

Against this background, observers are concerned, and justifiably so, that Caribbean resources are increasingly owned by the Chinese State, and not, as they have been historically, simply by private investors. Our leaders seem not to recognize that this worrying trend is detrimental to the long-term sustainability and independence of the region.

Despite these concerns, Caribbean leaders have been accepting projects and investments with little or no oversight or accountability to screen the environmental, industrial, economic, social or political impact of such investments.

I am aware that in Canada, a screening procedure exists whereby investments over a certain amount must be reviewed by the appropriate industry Minister must undergo a test to determine how beneficial they are to Canada.

CDN is of the view that Caribbean governments should collectively consider such an approach, for without such a process, our countries are exposed to significant foreign ownership of domestic economic industries.

Even more worrisome are the international legal mechanisms that protect such foreign ownership and that can facilitate a type of control that limits domestic and regional sovereignty.

This legal mechanism is popularly referred to as Investor State Dispute Settlement (ISDS), an integrated clause of Bilateral Investment Treaties (BITs). These treaties are negotiated between countries that seek increased reciprocal investment. ISDS allows a corporation to sue a country’s government directly in an international tribunal that is removed from that country’s own domestic courts, for public policies that may affect the investor’s economic interest. That technical decision is final, without appeal and can be enforced in domestic courts around the world. In many respects, this mechanism can guarantee rights to investors and encourage positive investment. However, if leaders irresponsibly accept those investments, then a country may be subject to a procedure that places their economy at a disadvantage.

ISDS is dangerous to developing countries like those in the English-speaking Caribbean, where leadership may not be ahead of the curve on such matters. There are 5 BITs signed between China and The Bahamas, Barbados, Guyana, Jamaica and Trinidad and Tobago. In The Bahamas alone, Chinese state-owned enterprises finance a multi-million dollar hotel, own a major hotel, are about to purchase the country’s national airline, proposed to reconstruct its downtown core and have proposed to finance the Bahamas Electricity Corporation, the country’s only electricity company, the good news for the Bahamas is that this proposal has not been accepted. In other words, Chinese investment in The Bahamas targets the country’s tourism industry, which accounts for over 60% of its Gross Domestic Product (GDP) and for even more jobs. However, Bahamian leaders continue to irresponsibly accept Chinese involvement projects with no proper screening procedures and no real evaluation of the societal effects of an industry’s foreign ownership and on their citizens’ jobs.

There can be no question that foreign direct investment flows to the Caribbean can play a critic al role in relation to growth and development. But it remains a matter of debate whether, in the absence of on-going oversight, accountability, screening and holistic impact evaluation, whether these flows are useful to a country’s development are whether they do more harm than good.

CDN is therefore calling on the governments of the English-speaking Caribbean to take collective action to ensure that the foreign direct investment horse “does not bolt”, doing great harm to domestic economies and to the quality of life of the people of the region.

Lewis (1954) was one of the first Caribbean economists to initiate the concept and importance of foreign investment to small developing economies. He contended, however, that if there was a choice between foreign investment and domestic capital, the latter should be preferred, perhaps to protect the sovereignty of the nation.

Lewis did have a point, but times have changed in the Caribbean

For more on this story go to: http://www.caribbeandigitalnetwork.com/the-pros-ands-cons-of-foreign-direct-investment-in-the-caribbean/