Dominica the European Community: a solid partnership

by Philippe DARMUZEY

Dominica and Europe share five centuries of history but less than twenty years of cooperation. A formal cooperation partnership was initiated in 1976 within the framework of the Association between the European Community and its Overseas Countries and Territories (OCTs). The first EDF-funded operation in Dominica, a programme for the construction of coastal roads, began in July 1977. The road paved the way to the former British OCT's independence in November 1978 and to the accession of the Commonwealth of Dominica to the Lome Convention as a full member of the ACP Group.

The EEC and Dominica have used these 17 years to build a model of cooperation, to jointly define the objectives, adapt the instruments, and decide on the best way of responding to the country's short-term difficulties, long-term challenges and structural constraints. This has taken practical shape in the four Lome Conventions, through the full use of the integrated range of cooperation instruments available to Dominica.

Central to Dominica's economy and to EEC-Dominica cooperation is the banana issue, allegedly a common 'culture' heritage. It embraces both the trade and aid aspects of this cooperation. The banana has been the engine of growth, the determining factor for the definition of Dominica's development policies and economic reforms.

Looking to the future, the combined forces of world trade liberalisation, the Uruguay Round negotiations and the development of the Single European Market all contribute to focusing attention on the traditional link between the economies of Dominica and the Community, and between the banana producers of Dominica and Europe.

Adjusting to the present challenges of competition and economic diversufication is the new ambition at the core of the Lome IV National Indicative Programme and structural adjustment programme in Dominica for the period 1993-95. This is a major challenge, imposing on the partners a shift from the traditional project approach to the more demanding reform-oriented policy dialogue.

The European Community also pursues a genuine dialogue with Dominica on regional cooperation. Regional integration, for a small island economy, party to sub-regional (OECS), regional (CARICOM) or future wider Caribbean groupings such as the proposed Association of Caribbean States, is another type of structural adjustment process. Dominica takes full advantage of the regional cooperation instruments of the Lome Convention and shares with the other ACP partners of the Organisation of Eastern Caribbean States, the Caribbean Community and the Caribbean Forum the benefits of the regional resources of the EDF. This is essential, in the Community's opinion, for Dominica together with its partners of the English, Spanish, French and Dutch-speaking Caribbean, to meet the competition requirements of the large regional trade blocs in the making in Europe, North America (NAFTA) and Latin America. The European Community sees it as its mission to support such a regional integration process.

This regional dimension of EEC-Dominica cooperation has continued to grow over the last twenty years, to the extent that Dominica's Ambassador to Belgium and the European Community is now also the Joint Representative of the Member States of the Organisation of Eastern Caribbean States.

How were these basic features of Dominica-EEC cooperation translated into practical action?

Addressing the major constraints to development

Dominica is facing a series of problems typical of small island countries: the small domestic market, seriously limiting industrial opportunities; a narrow resource base; a high per capita cost of economic and social infrastructure; heavy external dependence; and vulnerability to external shocks, including natural disasters, particularly hurricanes.

Production in the agricultural sector is handicapped by the country's topography and lack of economic infrastructure, which limits the availability of land for agriculture to about 30% of the total area. Population pressure is forcing farmers to cultivate steep slopes and this, together with inadequate farming techniques, has resulted in soil erosion. Dominica has shortages of trained manpower at all levels, thus hindering diversification. In implementing EEC-Dominica cooperation agreements, emphasis has been extensively placed on agriculture and rural infrastructure. Special attention is being paid to the two main challenges confronting agriculture, the need to increase the quality and productivity of banana production and to enhance diversification into other crops. Complementary to agricultural support, efforts have also been directed under the Lome IV National Indicative Programme towards supporting Dominica's environmental strategy, especially as regards management capacity, the environmental dimension of rational land use and allocation, deforestation and waste collection, treatment and disposal.

Taking full advantage of the Lome instruments

Dominica-EEC cooperation has been successful by ACP/EEC standards in that there is hardly any instrument of the Lome Convention which has not been used with a satisfactory performance record.

In terms of financial performance, all Lome funds of the past three Conventions have been fully committed and disbursed at highly satisfactory rates. 50% of Lome IV National Indicative Programme resources were expected to be committed by the end of 1993 in combination with the entire Lome IV allocation for Structural Adjustment.

Since 1976, the European Community has committed some ECU 43.7 million to projects, programmes and operations in Dominica. 3 Virtually all EEC funding is in the form of grants, the only exception being loans from the European Investment Bank (EIB), which tend to be very soft-term.

National Indicative Programmes: predictability of resources

National Indicative Programmes (NlPs) negotiated for five years provide a reliable source of funding for Dominica's long-term development priorities. Funds have been concentrated heavily on road infrastructure, for the reinstatement of some 42 km of road on the east and west coasts (EDF IV); the reconstruction of a vital road link (16 km) across the centre of the island (EDF V), primary and farm feeder roads and the Geneva-Petite Savanne road in the south-east of the island. The roadworks, carried out by direct labour, have been satisfactorily completed. Training and experience was provided for Dominicans in the field of project planning and management, and road rehabilitation and maintenance techniques. The roads have to a considerable degree removed obstacles to the movement of goods and people through improved transport and communications and better access to farmland, thereby supporting balanced economic, social and agricultural development. Continued diversification of Dominica's economy and the development of related agroindustrial activities will be influenced by the expansion of the country's feeder road system.

Agricultural diversification, to reduce dependence on the fragile banana crop, was the objective of two small EDFfunded operations:

-a successful pilot project for the production of patchouli on a 7-hectare plantation and the distillation of oil from the dried leaves (Essential Oils);

-a lime rehabilitation project in the south-west of the island at Soufriere.

The Lome IV programme focuses on the continuation of efforts in the rural development sector (50°/O) towards agricultural diversification and supporting economic and social infrastructure. Environmental management, planning and projects are the other main focal area (35%).

In addition to the above priorities, some resources were allocated under Lome III to a tourism development project for the upgrading of access to tourist sites and the provision of promotional material. Under Lome IV, a tourism programme is being designed in areas such as ecotourism which reflect the linkages between the environment and tourism sectors.

European Investment Bank: the long-term risk partnership

Dominica has developed a long-term investment partnership with the European Investment Bank (EIB) in areas normally not eligible for EDF grant funding, such as industry, agro-processing, mining, tourism and energy. Dominica's abundant water resources, a gift of nature, have been exploited with the assistance of the EIB. In cooperation with the AIDBank, a part-financing of a mineral water bottling plant (ECU 0.7 million) was provided under Lome II for 'Carib Spring' bottled water. After a successful start-up phase, this encountered difficulties as a result of the deterioration of market conditions in the southern Caribbean. Under Lome III, the EIB, together with other multilateral (World Bank) and bilateral (France, Canada) donors, has contributed ECU 3.8 million to the financing of the DOMLEC Hydro-Power project which harnesses the energy of the island's rivers and freshwater lake into increased hydroelectric generation capacity (4.3 MOO). Through the Caribbean Financial Services Corporation, Dominica also benefited from EIB financing for the renovation of the well-known Fort Young Hotel in Roseau.

The Agricultural, Industrial and Development Bank (AIDBank), Dominica's intermediary financial institution for the development of small and medium-scale enterprises, has received continued support from the EIB in the form of risk capital to increase its share capital (ECU 0.8 million) and recently (1993) through a global loan of ECU 2 million. This will permit the AIDBank to keep carrying out its successful development role in the area of enterprise development.

Centre for the Development of Industry

Enterprise development, in the form of joint ventures with European partners and through technical and marketing assistance, is also being encouraged by the ACP/EEC Centre for the Development of Industry (CDI). This has been the case for a number of small wood-working and furniture companies which take advantage of the country's valuable timber resources.

The STABEX insurance

Since 1979, Dominica's main exports, bananas and coconuts, have benefited from the guarantee mechanism offered to the ACP countries through the system of Stabilisation of Export Earnings (STABEX). This insurance for bad years triggers cash transfers to compensate for loss of earnings due to poor harvests or a drop in prices. It has so far (July 1993) compensated Dominica's shortfalls in earnings from bananas and coconuts for a total amount of ECU 8.468 million. This accounts for the following bad years:

It is estimated that the STABEX insurance has added a 26% value bonus to the regular development assistance of the EEC to Dominica.

Facing disasters: emergency assistance

Emergency aid

Dominica lies in the Caribbean hurricane belt. The damage caused by Hurricanes David, Allen and Frederick in 1979-80 and Hugo in 1989, and by torrential rains in 1981, was extensive: roads were washed away, public and private buildings were demolished or badly damaged, and crops were destroyed.

Additional to STABEXcash transfers, Lome resources for emergency aid, undoubtedly designed with countries like Dominica in mind, were tapped for the funding of building materials and medical and other supplies totalling ECU 4.4 million.

Aids control

Among the other disasters threatening the people of Dominica, like many other countries in the world, is the AIDS killer.

The Community helps the Government to cope with the situation through a small AIDS prevention programme funded from the budget of the Commission. The programme provided ECU 12 500, most of which was used to purchase hospital equipment for Aids testing.

Nutrition

Food aid has in the past been channelled through international organisations supported by the EEC from the

Commission budget. Over the years, the bulk of the food supplies (including skimmed milk powder, vegetable oil, cereals and pulses), a total of 350 tonnes, has gone through Catholic Relief Services to the local NGO, The Social Centre, from where it has been distributed to specific target groups: pregnant and breast-feeding women, pre-school children and the elderly.

In all, the monetary value of food aid to Dominica has amounted to ECU 975 000.

Counterpart funds from EEC food aid in the early 1980s were utilised to establish a fresh-water prawn farming project. The project, it should be noted, meets both the objective of agricultural diversification and that of improving food selfsufficiency and meeting nutritional requirements for the population.

Reaching the people: NGO and microproject assistance

Small development projects at grassroots level have met with much success in Dominica and over the past 15 years over 25 such projects have been funded. Typically, the EEC contribution per project, normally about 50% of the project cost, could be as high as ECU 150 000, with the balance of funds being contributed by the local community in cash and in kind. To date, projects in the fields of community development, vocational training, fisheries and health have been the focus for these small schemes. Some of the other areas covered have been construction of housing, adult literacy, teacher training, carpentry and the provision of educational material, to name but a few. Apart from enhancing living conditions for the community involved, microprojects draw on locally available skills in such areas as project supervision, construction and carpentry. They also provide a form of motivation to the local population, who then frequently become owners of the project. The operations are designed and executed in a close partnership between local and European NGOs and through cofinancing arrangements between NGOs and the European Community (Commission budget).

Two programmes of microprojects were also completed under Lome II with EDF support.

Other instruments

As discussed below, Dominica also takes advantage of its trade arrangements and Fisheries Agreement with the EEC as well as the new Structural Adjustment Facility of Lome IV.

EEC-Dominica cooperation (1975-1993)

Tuning up the engine of growth-bananas

Of common concern to Dominica and Europe, the banana issue embraces both the trade and the aid dimensions of ECDominica cooperation.

The trade relationship

Agriculture accounts for about 1/4 of Dominica's GDP and 60% of total merchandise exports. Bananas alone account for about 90% of agricultural exports and 60% of total exports.

Under the Lome Convention, Dominica benefits from duty-free access for manufactured goods to the EEC, as well as preferential arrangements for bananas, as discussed below.

The European Community, by far the main client of Dominica, accounts for approximately two-thirds of Dominica's exports and one-95th of Dominica's imports.

Bananas have accounted for more than 90% of exports from Dominica to the European Community in recent years.

The Banana Protocol

Under the Banana Protocol of the Lome Convention, Dominica enjoys preferential access to its traditional market in the European Community. Exports for 1992 were 58149 tonnes of fruit at an estimated FOB value of around EC$82 million. The subsidy implicit in the guaranteed banana market has been estimated to amount to about 1/5 of the total value of Dominica's banana exports. The financial support deriving from the Banana Protocol is thus probably far more significant than regular EC development aid to Dominica.

The Single European Market for bananas

Continued preferential access for bananas in Europe after the opening of the Single European Market on I January 1993 was a major concern. This principle, which safeguards the interests of traditional ACP suppliers, has been agreed under the Lome IV Banana Protocol. At the same time a joint declaration accepts that the Protocol should not prevent the Community from establishing a single market in bananas.

After lengthy negotiations, the European Community Council was able to adopt, on 12 February 1992, a regulation establishing a common organisation of the market in bananas, based on a proposal from the Commission which is consistent with EEC obligations under the Lome Convention. As a result Dominica, like the other ACP traditional banana producers, will not be placed as regards access to its traditional markets and its advantages in those markets, in a less favourable situation than in the past or at present. The traditional quantity of bananas from Dominica eligible under the new regulation is 71 000 tonnes which is the amount exported in Dominica's record year. This new regulation, which entered into force in July 1993, will apply until 2002.

In addition, the Commission has proposed the establishment of a special system of assistance to traditional ACP suppliers of bananas. This is intended to help them meet the challenge of new competition from the rest of the world.

The banana competition challenge

While Dominica has an obvious interest in maximising the benefit provided by the preferential banana market, there is a need to improve the quality and productivity of banana production, which faces a growing challenge from its Latin American competitors. Concurrently, Dominica's agriculture should be restructured so as to enhance diversification into other crops. This is a genuine structural adjustment challenge supported by the EEC.

Adjusting to the new economic circumstances

The Structural Adjustment Facility

ECU 2 million have been mobilised by the European Community under Lome IV to support structural adjustment efforts in Dominica. The on-going structural adjustment process on the island hinges on different actions, carried out with support from the EC, which pursue closely interrelated objectives:

-agricultural diversification, for which ECU 2.25 million have been earmarked in the Lome IV NIP;

-improvement of quality and productivity in the banana sector, supported by STABEX transfers for 1990 and 1991 (approximately ECU 830 000);

-restoration of external and internal macroeconomic balances, to which general import programme finance from the ECU 2 million set aside for structural adjustment support will contribute.

There is an obvious need to ensure consistency in the use of these various instruments (STABEX, Structural Adjustment support, NIP programme).

The need for close coordination is, in particular, illustrated by the decision to allocate local counterpart funds generated by the structural adjustment foreign exchange facility to projects and operations geared to agricultural diversification.

A preliminary study was carried out in September 1992 for the design of the structural adjustment programme.

A follow-up study will shortly be conducted to define a practical agriculture diversification programme consistent with and supportive of structural adjustment.

The study should also address the issue of the linkage between agricultural diversification efforts and quality and productivity improvement measures in the banana sector.

The findings and recommendations of the study on this latter point could furthermore help define the terms for implementation of the special programme of assistance to ACP banana exporters recently proposed by the Commission, if it is adopted.

An integrated use of instruments

This is, therefore, a new type of partnership between Dominica and the European Community, in that:

-it constitutes a shift from the traditional project approach to the more demanding reform-oriented policy dialogue;it combines the use of the various instruments of the Lome Convention (National Programme, Structural Adjustment Facility, STABEX, counterpart funds, Banana Protocol) in a systematic and more coherent manner. The total resources combined for this programme amount to about ECU 5 million.

Supporting Dominica's regional integration process

In addition to being a member of the Organisation of Eastern Caribbean States and of the Caribbean Community, Dominica also belongs under the Lome IV Convention, to the group of 15 ACP partners of the Caribbean Forum. Isolation, disparity of levels of development, cultural diversity and vulnerability to external shocks and competition are the main challenges which require enhanced solidarity and regional cooperation between Dominica and its Caribbean partners. Lome regional funds are committed to these objectives.

Regional cooperation

Regional and sub-regional projects and programmes, additional to National Indicative Programmes, have benefited Dominica within the framework of the EDF regional programming for the Caribbean. Under Lome I, II and III, Dominica derived particular benefit from the following regional programmes:

Dominica-EEC Fisheries Agreement

Fish, which ignore national borders, will perhaps be an essential factor of cooperation between the French islands and Dominica. In the framework of its mandate to negotiate international fisheries agreements on behalf of its Member States, the Community has become actively involved in discussions on this subject between the Government of Dominica: and the neighbouring French Departments of Martinique and Guadeloupe. Under the agreerment, a Protocol which was initialled in Roseau in 13 March 1993 entitles Dominica to compensation from the Community in return for catches made in its waters by fishermen from the French Departments. The agreement, which also includes provision for research and training in the fisheries sector, provides for a total allocation of ECU 2.2 million for three years.

-Agriculture: Research carried out by the Caribbean Agricultural Research and Development Institute (CARDI). A study in the area of banana marketing was implemented for the CARICOM Secretariat and a study of crop diversification was implemented by the Agricultural Diversification Coordination Unit of the OECS (ADCU) which is based in Roseau.

-Human Resources Development: Programmes in favour of the University of the West Indies; the OECS Tertiary Education Project, which contributes to the elaboration of an OECS education reform strategy and plan and will provide school facilities at Clifton Dupigny College. New programmes to be implemented include the University of the West Indies student accommodation project, which will provide halls of residence at each UWI campus.

-Regional Trade Promotion Development: Major support is being received by the Eastern Caribbean States Export Development Agency (ECSEDA) set up in Dominica to provide assistance to OECS exporters. In the area of trade information and statistics collection, the EEC has also participated in the funding of the Automated System for the Collection of Customs Data (ASYCUDA), under which computer equipment has been installed and is being operated at the new customs office in Roseau.

-Tourism: The OECS tourism development project launched in 1992 provides a three-year programme of support in marketing investment, policy formulation, planning and training. It coordinates its operations with the larger Caribbean Tourism Organisation (CTO) tourism development programme, which includes professional technical assistance for the development of a major marketing campaign in Europe for the Caribbean destinations including Dominica, the Nature Island'.

-Transport. Programmes in sea (West Indies Shipping Corporation-WISCO) and air transport (Leeward Islands Air Transport-LIAT) were implemented under Lome I and II.

The Lome IV Caribbean Regional Programme (CRIP), which is being established under the umbrella of the Caribbean Forum, has identified programmes in six priority areas: agriculture, trade, transport and communications, environment and human resources development.

Dominica-DOM cooperation

Through the combined use of the European Regional Development Fund allocated to the French Departments of Martinique and Guadeloupe, and the EDF regional resources for the Caribbean ACP countries, Dominica is trying to develop its trade and interregional cooperation with the French islands in the sub-region. The European Community is strongly encouraging these efforts.

The regional integration process

Beyond the horizon of sub-regional cooperation, Dominica, like its partners in the wider Caribbean, has to face the increased competition forced on it by the creation of regional trade blocs in North America (NAFTA), Europe (the Single European Market) and Latin America. It is the Community's vocation, due to its own integration experience, to help Dominica participate in the process of deepening and widening Caribbean regional efforts through a policy dialogue which can take various forms, such as:

-at the sub-regional level, encouraging the initiative of an OECS economic reform strategy

-at the regional level, helping Caribbean decision-makers to assess the regional dimension of national adjustment programmes and measure the costs and benefits of regional integration. This latter topic is the subject matter of a study which has been undertaken using EC structural adjustment resources in close cooperation with CARICOM, the Caribbean Development Bank, the University of the West Indies, the Eastern Caribbean Central Bank and other Central Banks. Dominica is a part of this policy dialogue, which could pave the way towards a better understanding of the island's interest in supporting or otherwise the projected Association of Caribbean States.
P.D.