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close this bookThe Courier N 185 - March - April 2001 - Dossier: Cinema - Country Reports: Angola (EC Courier, 2001, 76 p.)
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Meeting point: Sir Neville Nicholls

The Caribbean Development Bank - looking through a poverty prism

Sir Neville Nicholls, President of the Caribbean Development Bank (CDB) met senior government officials across Europe during November 2000 to secure funding for the fifth cycle of the bank’s Special Development Fund. The Courier spoke to him in Brussels.

As the Caribbean’s leading development finance institution, CDB is committed to the systematic reduction of poverty through social and economic development. It does this by promoting private and public investment in development projects across the region and by providing technical assistance to local entrepreneurs.

Sir Neville Nicholls explains that, while the region is considered a middle income area, the Caribbean has deep pockets of poverty, caused in part by its traditional export dependence on sugar, citrus and bananas.

“The economy of the region is changing, leaving older displaced workers without the education and skills to be retrained in tourism or the knowledge-based economy,” he says. “The bank with its member countries has developed strategies to address this dynamic.”

CDB is collaborating with the Inter-American Development Bank (see Courier 183) on an initiative to prepare regions to survive the economic impact when trade preferences in Europe come to an end.

Redirecting traditional exports away from the US and Europe is part of a strategy to refocus the agricultural sector inwards to supply the many hotels and resorts that form the backbone of the region’s burgeoning tourist industry. It is illogical to export inexpensive citrus and bananas and at the same time import costly vegetables and other fruits to feed a growing sector of the economy.

The banana industry is caught in the middle of an unwieldy trade dispute between two economic giants, which has created uncertainty and fear among growers. Such trade disputes are not unusual, Nicholls maintains, but in this instance, the American position “makes it very difficult” for the industry to survive.

However, there are lucrative niche markets in the US and Europe for exotic tropical fruits. This potential could be developed with EU financial measures to assist banana-producing countries to diversify production. Many older agricultural workers could be redeployed into new, diversified crop production using scientifically-based methods.

At the same time, the region’s economic infrastructure is being strengthened to encourage foreign direct investment, and CDB is supporting projects that will ensure the necessary transport infrastructure (roads, airports and seaports) is in place to facilitate the tourism sector.

New globalised economy ushers in new opportunities

Caribbean countries are no strangers to the uncertainties of the global economy. Small size, a high degree of openness and lack of economic diversification have always left them vulnerable to the vagaries of world economic conditions.

Sir Neville Nicholls (middle), with Volville Forsythe, Assistant Bank Secretary (left) and Dr Warren Smith, Deputy Director, Corporate Policy and Planning (right)

In fact, the region has been coping with globalisation for the last five centuries. However, at the beginning of the 21st century, new opportunities are emerging for the Caribbean to exploit its comparative advantage. An educated labour force and competitive wage costs are creating opportunities for participation in the IT and service sectors.

Nicholls points to the region’s economic and political stability as significant assets to attract inward investment, and says that both the knowledge-based economy and the IT sector that supports it are taking root and flourishing in the Caribbean.

“The service sector is not based on exploitation of natural resources,” he says. “Economic activities are based on knowledge, not commodities, which is why CDB and the EU are financing education projects in the region.”

The University of the West Indies, for example, in collaboration with the Inter-American Development Bank, is committed to a 10-year programme in science and technology training which includes distance-learning facilities and three campuses that serve member countries.

“We are trying to shift the emphasis from the traditional pursuit of a general arts degree programme to IT and computer training,” Nicholls explains. “We are responding to demand and at the same time enabling our people to be more mobile.”

The approach is paying off. Nicholls points out that many US companies are attracted to doing business in the region with increasing ticketing, billing and call centre activity. In addition, local entrepreneurs are setting up their own businesses offering IT related services.

A “pro-poor” approach

Poverty assessments have been done in several of the bank’s member countries and projects are now looked at through a “poverty prism” to assess their prospective impact on poverty and on vulnerability. The Social Development Fund (SDF) is responding with more than 50% of its funds allocated to poverty reduction.

The SDF is used to make or guarantee loans of high development priority, with longer maturities, longer deferred repayment arrangements and lower interest rates. Funds have been used to finance projects in areas such as human resource development, poverty reduction and institutional capacity-building. As of December 1999, SDF amounted to the equivalent of US$ 525,463,000.

The purpose of Nicholls’ European trip was to solicit financing for the fifth round of SDF financing. The fund mirrors EU objectives in terms of development assistance. He explains that Haiti and Suriname are about to become CDB members, which will double the borrowing membership as well as significantly increase the number of poor people in the bank’s region. This will “transform the nature of the bank” as it reaches out to meet the needs of its new French-speaking members.

CDB supports micro-enterprises that in turn create employment in service sectors that support the knowledge economy and tourism. The bank’s most successful participation with the micro-economic sector has been through technical assistance implemented through the Caribbean Technological Consultancy Services Unit. This body assists users to find solutions to practical problems encountered in production enterprises, the hotel industry and the IT sector. Low-cost assistance is also provided in project implementation, training, computerisation and in developing business plans.

The bank is taking a “pro-poor” approach to the private sector. Under its pilot Microfinance Guarantee Programme, CDB provides a guarantee for a line of credit from a commercial lender to a specialised microfinance institution, which then lends the funds to micro and small enterprises.

In the wake of the rapid urbanisation of their populations, many Caribbean countries are faced with inadequate infrastructure facilities such as drainage, solid waste disposal, sewer and water supply systems, inadequate road networks, declining housing stock and the proliferation of derelict buildings. Strained social and community services are unable to cope with the growing number of issues resulting from urbanisation, such as overcrowding, substandard living conditions, poverty and crime.

In response, CDB developed an Urban Revitalisation Strategy in cooperation with member countries to support projects directed at improving urban areas, having net social and economic impacts and possibly reducing poverty. “All member governments realise that the private sector is the engine of growth and that they must provide an enabling environment to create development,” Nicholls says. “CDB gives macroeconomic advice to help facilitate this.” CDB has refocused its activities to bring poverty reduction to the forefront of its initiatives, because the region will not move forward until its whole population is able to participate in the benefits of a liberalised global marketplace.

Dianna Rienstra

CDB - facts at a glance

· The bank, which was established in 1970, is based at Wildey, St Michael, Barbados in the West Indies. As a regional financial institution, CDB contributes to the economic growth and development of member countries in the Caribbean.

· During 1999 CDB achieved positive net transfers of $44 million to the borrowing member countries. This was the second consecutive year in which positive net transfers were achieved.

· CDB’s financial resources consist of Ordinary Capital Resources (OCR), comprising mainly subscribed capital and borrowings and Special Funds Resources. As of 31 December 1999, the OCR was $565,445,000 comprising mature subscriptions and reserves, market loans on the US capital market and also loans from the European Investment Bank, the Inter-American Development Bank and the World Bank.

· Regional members include Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, the British Virgin Islands, the Cayman Islands, Colombia, Dominica, Grenada, Jamaica, Mexico, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, the Turks and Caicos Islands and Venezuela. Of these, Colombia, Mexico and Venezuela do not borrow from the bank. Non-regional members are Canada, China, Germany, Italy and the United Kingdom.

· Subscribed share capital is $749.9 million, of which $584.3 million is callable capital and $165.6 million is paid up capital. The largest shareholders are Trinidad and Tobago, Jamaica, Canada and the United Kingdom. The US, as a non-member, does not participate in CDB’s Ordinary Capital Resources, but is the largest contributor to its Special Funds Resources. The Netherlands has also been a substantial contributor to this fund.

· In 1992,1995,1996,1998 and 1999 CDB made private placements in the New York market for $30 million, $11.5 million, $35 million, $50 million and $60 million respectively. These offerings have been rated AAA by Moody’s Investors Services. In February 2000, CDB secured a loan of $60 million on the Japanese capital market.