The coyness may sometimes be there in official circles, but
Barbados is definitely a middle-income country, compares favourably in many
areas with many a developed country and has an outlook that is unmistakably
In 1989, Barbados recorded its seventh consecutive year of
economic growth, 3.5%, and attained its highest ever GDP per capita: BD$ 11270
or US$ 5635 - a growth that is clearly reflected on the ground in the
countrys sound social and economic infrastructures: a good health-care and
social security system, educational facilities of very high standard, efficient
public services and telecommunications network.
In a Caribbean of seemingly endless economic gloom,
Barbados achievement, in the face of an unfavourable international
situation, is without parallel. In a way, it fits in with that first
or best image, that uniqueness that has always been
associated with the island since the British claimed it in 1627. Geographically,
it is the most easterly of the Caribbean islands (sitting pretty, as they say,
in splendid isolation). It was the only island that was not disputed by the
Arguably the choicest of British colonial possessions in the
region (certainly the most anglicised, a fact that has earned it the name
Little England), Barbados was the first to establish a parliamentary
democracy in the Caribbean. Indeed its Parliament dates as far back as 1639, the
third oldest in the Commonwealth. It was here in the 17th century that large
sugarcane plantations were first set up in the Caribbean, leading to the massive
importation of slaves from Africa. (Previously indentured English labourers were
used). This, it should be noted, was a momentous event for Barbados for it saw
not only the squeezing out of smallholders and the consolidation of large
estates, but also the drastic reduction of the white population. The slaves were
freed in 1834.
The society which has emerged from these fortunate and
unfortunate circumstances is one that is peaceful, enlightened, hard-working,
fair-minded and friendly. Ninety-five per cent of the population are of African
descent, the remainder European.
Although Barbados, in terms of natural attributes, is equally
blessed with white sandy beaches and fine tropical sunshine like most of the
other islands, it is believed by many to have an edge not only in beauty, but
also in the pleasantness of its climate, constantly tempered as it is by the sea
breeze. This makes Barbados one of the most sought-after holiday resorts in the
Small reserves of oil and gas, and 438 sq km of land are
virtually the only assets with which nature has endowed the island. The
greatest, however, is its human resources, about 250 000 people, 98% of whom are
Independent since 1966 and politically stable with its
functioning democracy, Barbados has been able to capitalise on all the resources
at its disposal, thanks mainly to the fact that it has had successive
governments whose economic policies were fundamentally not different from one
These governments have so far emerged from either the Barbados
Labour Party, BLP (which was founded in the colonial days and led Barbados to
independence), or from the Democratic Labour Party, DLP (a break-away faction of
the BLP which is currently in government). There is now a third party, the
National Democratic Party, NDP, which was set in 1988. It is also of the Labour
family, having itself broken away from the DLP. This similarity and, as a
result, more or less consistency in policies has created foreign confidence in
Barbados, and a very healthy climate for investment.
There is no doubt that this factor has, to a large extent,
contributed to the resilience shown by the Barbadian economy to the bouts of
depression it has suffered since independence, the most notable being the
setbacks caused by the oil crisis of 1973/74 and the world recession of 1981/82
which saw the virtual collapse of Barbados exports to Trinidad and Tobago.
Despite these setbacks, Barbados maintained an average growth rate of 5.1 % in
the 70s and 2.5% in the 80s.
In the crises, manufacturing and the sugar industry were worst
affected, and it has been Barbados good fortune to have been one of the
few developing countries to lead the way in reforms in the early 80s.
Rather than wait for the Bretton Woods institutions to intervene, the government
of the day carried out adjustments it considered necessary. These won the
approval and the backing of the International Monetary Fund which provided a
stand-by credit of $ 13.4 million in 1982. By the end of the following year
Barbados was back on its feet and along the path of growth, with tourism
expanding, the industrial sector moving into the new area of offshore business,
and agriculture laying more emphasis on non-sugar production. These were in
effect the result of concerted efforts at diversification of an economy that had
been dominated by sugar.
Sugar: what future?
Sugarcane is, of course Barbados major agricultural crop.
For long the the main, and currently the second most important foreign exchange
earner, it is still in a state of profound crisis.
Since 1986 when -111 000 tonnes of sugar were produced, output
has fallen as the acreage under cane cultivation shrank and two of the six
factories closed: 83 000 tonnes in 1987, 80 300 t in 1988 and 63 600 t last
year, earning respectively $71.2 million, $67.2 m and $52 m. The situation,
however, would have been worse but for a guaranteed export quota of 50 000
tonnes on the European market which Barbados enjoys under the Sugar Protocol of
the Lomonvention, at prices above those of the world and the US markets.
Barbados however runs the risk of shortly not being able to supply its
preferential markets, given its domestic sugar requirement of around 15 000
tonnes. Most telling of the situation is the rising cost of production: $1328
per tonne in 1987 and $1360 per tonne in 1988 against export prices of
respectively $ 1040 and $1085 per tonne. The industry has had to survive in
recent years more on public support, a tradition that was started as far back as
the late 1930s following the Moyne Commissions recommendations, which
established the socio-economic link of the product.
The growing gap between revenue and cost of production of sugar,
however, has raised the question of whether it would not be wiser to phase out
its production altogether. Each time, the argument is advanced that the
fates of sugar and non-sugar agriculture are too tightly linked to be
separated. As can be seen in the interviews (pages 17 and 22), there are
rather powerful arguments in favour of maintaining sugar production, among which
are the fact that the industry is a large employer of labour and that sugar is a
commodity that cannot easily be replaced. The plan is to maintain a production
level of around 90 000 tonnes at least and to earn between $60 million to $70
million annually from the industry. It is yet to be seen whether these targets
can be met and how economically sustainable they will be.
Tourism, a driving force that is losing momentum
There is no doubt that Barbados owes much of its economic
achievements of the past few years to tourism which has expanded faster than any
other sector. In 1983, 328 000 tourists visited the island, spending a total of
BD$ 503.2 million. In 1989 there were 460 000 and expenditures were just over
one billion Barbados dollars. Contributing 14.3 % of GDP, tourism is, of course,
the biggest foreign exchange earner. Its growth is not only a reflection of the
boom in international tourism generally and the natural attractiveness of
Barbados, but also a result of intensified promotion, backed-up with the
expansion and improvement of facilities to cater for all classes of visitors
mass, middle and up-market. In 1987, for example, a new port facility for cruise
ships was opened in Bridgetown. There are now better road networks across the
island and sports and cultural calendars have been introduced to provide
tourists with a variety of recreational activities, in addition to the
traditional sun, sand and sea.
A new marketing strategy has also been adopted involving the
tapping of the United Kingdom, European and Canadian markets, with the
introduction of such practices as package tours. The result has been an
extension of the tourist season well into the so-called off-season
, i.e. April to November. The strategy now is to make tourism a year-round
industry not only for foreign exchange purposes, but to ensure greater job
security for Barbadians engaged in the industry.
Traditionally, the United States provided the bulk of visitors
to Barbados, but their numbers have been falling in recent years, from a share
of the market that averaged 41.2 % between 1986 and 88 to 33 % in 1989.
Although these deficits have been made up largely by increased arrivals from the
United Kingdom and Europe (from 22.4 % in 1988 to 26.2% last year), Barbados is
clearly facing greater competition in the American market, particularly from
other Caribbean resorts like the Bahamas, St Kitts and Antigua where,
noticeably, arrivals from America have increased significantly in the past few
years. At a time when Barbados is increasingly being seen as an expensive
destination, this must be particularly worrying, although Minister of Tourism
and Sport, Wesley Hall, feels confident that Barbados can hold its own by
offering value for money. Observers, however, point out that if Cuba
democratises and opens up realistically to international tourism (it has already
indicated its intention to cash in on tourism), the competition is bound to
intensify in the Caribbean, and particularly for Barbados.
So far this season, there have been falls in both arrivals and
bed occupancy (see interview with Minister of Tourism and Sports, page 20) from
virtually all the countrys sources of tourists. No doubt there is a need
to step up promotional campaign - a fact already recognised by the Barbados
Hotel Association (BHA) which has, this year, launched a tourism enhancement
fund of BD$ 5 million, to be raised annually for promotional activities.
It is noticeable that, in order to recoup losses being incurred
whether as a result of the demands for wage increases by the Unions or as a
result of low occupancy, hoteliers have increased room rates this year. The
extent to which this will affect overall income from tourism is yet to be seen,
but it does not augur well for the expensive image that is being
associated with Barbados.
Diversification, constrained by export markets
A declining sugar industry and a dominant tourist sector, whose
faltering this year could spell trouble for Barbados, bring to the fore the
issue of diversification which has been the policy pursued vigorously,
especially since independence. As already seen, it has had a measure of success.
It is important, however, to note that, given its poor resource
base and small domestic market, manufacturing in Barbados relies heavily on
imports and exports (indeed if account is taken of tourism, the economy as a
whole is dependent on the state of the world economy). The international scene
has not altogether been favourable in recent years to Barbados, and if
manufacturing, which was virtually non-existent 35 years ago, accounts today for
a significant volume of exports light manufactures such as furniture, food and
beverages, pharmaceuticals, garments, electronics, chemicals, cosmetics, it is
not for want of dynamism, it is constrained very much by export markets.
Manufacturing accounts for 9.9 % of GDP. It grew last year by
5.4 %. A good deal of the credit for this expension goes to the Barbados
Industrial Development Corporation (BIDC), which was set up by an Act of
Parliament in the late 50s to stimulate, facilitate and undertake
the development of industry in the country. The BIDC goes out to Europe
and America to identify companies that it feels can operate viably in Barbados
and then persuades them to come either solely or in partnership with local
entrepreneurs with a package of incentives: tax holidays, duty-free imports of
all raw materials, production equipment and spare parts, subsidised factory
shells and, sometimes, technical assistance, in addition to guarantees on the
repatriation of dividends, property and capital. Every year one or two
manufacturing units are set up in the country providing greatly needed
Unlike manufacturing, the export-oriented service industry has
had no problems. Indeed, its progress has been spectacular in the past nine
Whereas, for example, there were only two data processing
companies in 1981, there are now 11 operating in Barbados. Manufacturing employs
13000 people (13% of the labour force).
Since the revision in 1977 of the International Business
Companies Act, the offshore business sector has also been expanding. Many
foreign insurance companies, sales corporations and banks are choosing Barbados
as a base, attracted mainly by the tax treaties which Barbados has concluded
with their home countries, aimed at ensuring that such benefits as they gain in
Barbados are not lost at home through taxes. Barbados currently has tax treaties
with the United States, Canada, Denmark, Norway, Sweden and the United Kingdom.
Whether in manufacturing, in services or in off-shore business,
Barbados is attractive to foreign investors because of the availability of
skills, and a trainable workforce generally, as well as its political stability
and good infrastructure.
There is now a drive for an all-round expansion of industry, but
there are two major problems: wages are very high, indeed, higher than
productivity - in the last 10 years, wages, according to some reports, have
risen by 75%, while production has increased by only 10%; Barbados still has
serious market difficulties.
The first is an issue which the government recognises but which
it will have difficulty dealing with, as it adheres to the principles of
collective bargaining (a democratic process, as the Prime Minister puts it), and
the Trade Unions show no signs of moderating demands.
It is believed in some quarters, however, that the level of
wages is directly related to a new industrial phase, that Barbados is no longer
a country of cheap labour and that it is moving on in manufacturing to a new
stage of higher quality products during which a few companies would be lost.
These would be replaced, they say, by stronger, more competitive ones and, in
time, wages will be aligned with productivity.
However plausible this theory, it assumes a recovery of exports.
Barbados, biggest market is the Caribbean, but since the collapse of
CARICOMs Multilateral Clearing Facility (resulting mainly from the
indebtedness of Guyana) and the imposition of import restrictions by Jamaica,
and Trinidad and Tobago in the wake of their economic difficulties,
Barbados exports to the Caribbean have been severely affected.
Furthermore, the United States restrictions on the import of garments, an area
in which Barbados had felt it had a comparative advantage, has brought the
countrys textile industry almost to a standstill.
Although exports to the Caribbean Community rose significantly
in 1988 and 89 (thanks mainly to a re-entry into the Jamaican market) they
are far from returning to normal. The US and Canadian markets remain difficult
to penetrate despite the Caribbean Basin Initiative and the CARICOM/Canada trade
agreement (CARIBCAN) which were designed to boost Caribbean exports to these
countries. It therefore, came as no surprise that Barbados visible trade deficit
widened last year to BD$ 979.9 m from DB$ 809.7 in 1988, owing to high imports,
mainly from CARICOM countries and the United States.
The United States remains by far potentially Barbados
biggest export market, notwithstanding the restrictions on the import of
textiles. BIDC officials admit that the problem is essentially one of a very
small country trying to master the complexities of producing and exporting to a
market as large as the US. But if Barbados is to have any sizeable earnings from
manufactured products and succeed realistically in its diversification efforts
it has to have access to that market and, on this, Errol Humphrey, Deputy
General Manager of the BIDC, believes Barbados is in the process of
learning how to assess it effectively .
In a country where manufacturing has expanded and the number of
cars on the roads has grown from just under 8000 to 18 000 in five years,
Barbados has been fortunate in having small deposits of oil and gas which it
exploits, thus reducing its dependence on oil imports - an important factor in
the countrys import/export equation.
Non-sugar agriculture: still import-substitution oriented
Not facing any significant problem of export market is non-sugar
agriculture, the diversification of which is dogged by a plethora of problems:
access to land (emanating from the plantation system inherited from the slavery
and colonial era), unfamiliarity with new crops and new technologies, and
Despite these handicaps, Barbados has achieved a good level of
self-sufficiency, which in terms of import-substitution, is considerable -
a positive foreign exchange step, as Minister of Agriculture, Food
and Fisheries, Warwick Franklin describes it (see interview on page 22).
Barbados is not only self-sufficient in such items as yams, sweet potatoes,
carrots, cabbage, okras, beets and hot peppers, it exports reasonable quantities
to regional markets. It is doing well in livestock production and, until
recently, in fisheries produce.
A more significant, and indeed worrying, fact about non-sugar
agriculture in Barbados is the decline in the area of arable land under food
crop production. Last year, a prolonged dry period, according to the
Central Bank 1989 Annual Report, was one reason for the reduction in food
crops planted, but farmers also appear to be converting arable land for housing
development, in an effort to pay off debts. The result was that food
production in 1989 was no higher than in 1988 and way below its 1987
level. This meant that regional and extra regional exports of fresh
produce declined to negligible proportions.
The fisheries sector, which grew rapidly between 1984 and 1986,
thanks mainly to the Oistins Fisheries Terminal project financed by the EDF, has
since been depressed, mainly as a result of difficulties being experienced by
fishermen in gaining access to richer fishing grounds within Trinidad and
Tobagos territorial waters. Barbados is currently negotiating for that
Although Mr Franklin believes fruits and yams have great export
potential, the development of cotton and the flower industries, in his opinion,
will be the main focus of non-sugar agriculture as the major foreign
exchange earners for Barbados in the next 7-15 years.
Maintaining external reserves
Last years deficit in the balance of visible trade was the
fifth in a row. For the first time, however, since 1981, Barbados had an overall
balance of payments deficit of $70 million.
This, coupled with sizeable debt repayments and servicing (the
heaviest the country has ever faced) and increased demand on foreign exchange
(as the boom in the construction industry provoked demands for imports of
materials and equipment), led to a dramatic fall in the countrys foreign
exchange reserves in 1989.
Although credit restrictions imposed by the Central Bank
resulted in a slight recovery, at only $269.5 million (3) Barbados foreign
exchange reserves are worth only three months of imports. Experts agree that
renewed pressure on reserves would throw the economy off balance if the foreign
exchange earning sectors fail to perform adequately.
As already seen, the prospects are not good for those sectors.
Tourism is unlikely to bring in as much foreign exchange as it did last year.
This fits in with the forecast of the Central Bank in its 1989 Annual Report.
The same report says that sugar exports, will again stagnate while
exports of manufactured goods are not likely to increase significantly,
concluding that without effective measures to arrest the strong growth in
aggregate expenditure and to dampen the import surge, the pressure on the
foreign exchange reserves will intensify. Although debt-servicing this
year is expected to be much lower than last, this is unlikely to reduce that
For the immediate future at least Barbados economic
stability calls for fiscal prudence. The alternative will be increased external
borrowing and probably the intervention of the IMF - an intervention that will
inevitably lead to the devaluation of the Barbadian dollar which is currently
pegged to the US dollar at two to one.
Barbados needs a stable currency. That is the view of the IMF,
according to Deputy Governor of the Central Bank, Delisle Worrell. And for a
small country like Barbados, he says the Fund believes that the best of
possible options in terms of policy, to avoid devaluation, is to keep a
reasonable level of exchange reserves and meet its debt obligations.
Barbados, however, has up till now risen to that challenge. It has regularly
repaid principals and serviced its debt - a practice that has earned the country
the rating of most creditworthy nation in Latin America and the Caribbean. A not
altogether laudable feature of this reputation, however, is its tendency to
borrow to repay debts. Although this is designed in effect to lengthen the
maturity of its debts, it is simply postponing the days of reckoning.
Barbados has excellent relations not only with the IMF but also
with other financial institutions, including the Caribbean Development Bank, and
the Inter-American Development Bank and the World Bank, both of which have been
particularly helpful in recent years in the financing of infrastructural
Experts share the Central Banks opinion that there can be
only one sound economic course to take - and that is: cuts in expenditures,
especially those with foreign exchange implications.
Stabilising the currency, on the other hand, means keeping
inflation low, which is something that is difficult to achieve in an economy as
open as that of Barbados. The best it can do is to keep inflation at
least at the same level as that of the worlds rate of inflation,
according to Mr Worrell. At 6.2% in 1989, however, inflation is rising not so
much as a result of higher prices in the countries which are Barbados
major trading partners as of the governments option increasingly for
indirect taxes in preference to direct taxation to raise revenue. The
government, as it were, is caught between two poles, says Worrell.
To go further as far as indirect taxation is concerned, there is an
inflationary impulse that has repercussions, but at the same time there is a
strong public reaction against any further indirect taxations. The only
solution, in his opinion, is to try over the course of time to reduce the
levels of government spending.
So, from the point of view of both capital and current spending
there is a need for cuts, certainly sooner than later. Last year, the Sandiford
government successfully slashed spending by BD$ 55 million. The 1990 budget
appears in that vein in being more modest than expected. The last before the
elections, it foresees expenditure of about $1.3 bn against revenue of $1 ten.
The government is expected, as usual, to finance the deficit through domestic
borrowing, especially from the Central Bank.
The thrust of the budget is to maintain growth and create more
jobs. It should be noted, however, that, despite the growth recorded in the past
few years, the unemployment figure still hovers at between 16 and 18 %.
Moreover, growth has been lopsided: electricity generation, and the construction
industry, for example, accounted for the bulk of the growth in 1989. Aiming at a
more balanced growth will not be easy. Prime Minister Erskine Sandiford predicts
a GDP growth rate of at least 2% this year. This was based on the assumption
that tourism and manufacturing will perform at least as well as 1989, but the
trend so far will suggest a zero or negative real growth. Whatever happens,
Barbados is certainly in for a leaner time.
For more detailed sectoral studies, see the interviews with the
Ministers of Tourism, of Trade, Industry and Commerce, and of Agriculture, Food
and Fisheries. A historical, socio-economic analysis of Barbadian society by K.
Sandiford is published on page 29.