St Vincent and the Grenadines and the European Union

by Philippe Darmuzey

St Vincent and the Grenadines, which attained independence on 27 October, 1979, enjoys, like its sister Windward Islands, a close cultural, political and economic relationship with the European Union. The country is both a member of the Caribbean Community (CARICOM) and of the Organisation of Eastern Caribbean X States (OECS). It is also one of the 25 full members of the Association of Caribbean States (ACS) which was created on 25 July, 1994. A formal cooperation partnership with the European Union was initiated in 1976 within the framework of the Association with the Overseas Countries and Territories (OCTs). Under the OCT 'Decision', St Vincent and the Grenadines benefited from preferential trading arrangements with the EU, financial and technical assistance and other instruments of cooperation available through the fourth and fifth European Development Funds (EDFs). St Vincent and the Grenadines acceded to the Third Lomonvention as a full member of the ACP Group in 1984. It is now one of the 70 ACP States signatory to the Fourth Lomonvention, which links the ACP States to the European Union for the 19902000 period.

Since 1976, financial resources allocated by the European Union to projects, programmes and operations in St Vincent and the Grenadines have totalled about ECU 53.9 million.

The main areas of cooperation under the National Indicative Programme resources have been agriculture and rural development (34%), social infrastructure, mainly in the health sector (37%), human resource development (3.5%), economic infrastructure (21%), tourism and trade (4%), energy and the development of small and medium-sized enterprises in the area of industry, agro-industry and tourism.

Regional coo,oeration is also a key element in St Vincent-EU relations. In common with the other ACP partners of the OECS, CARICOM and the Caribbean Forum (CARIFORUM) the country benefits from EDF regional resources. The construction of Bequia Airport, completed in 1992, is the major single operation supported from the resources of the EDF regional programme in the Eastern Caribbean, with benefits primarily accruing to St Vincent and the Grenadines.

In addition, the country benefits substantially from its preferential trade arrangements with the European Union. These include duty and quota-free access for manufactured goods and preferential access to the Single European Market for bananas, up to the year 2002, under the banana protocol. Taken together with the benefits under the STABEX compensation scheme for losses incurred in banana (or other commodities) export earnings, this constitutes a considerable component of cooperation between the EU and St Vincent and the Grenadines.

'SIDS' vulnerability

To an even greater extent than several other Caribbean and Pacific State partners of the EU, St Vincent and the Grenadines faces the major development constraints inherent to Small Island Developing States (SIDS): the small domestic market, which seriously limits industrial opportunities, a narrow resource base, a high per capita cost of economic and social infrastructure, a fragile environment and heavy external dependence and vulnerability to external shocks, including natural disasters (particularly hurricanes and tropical storms).

The SIDS syndrome is compounded in this particular island state by the geographic dispersal of micro-development poles throughout the archipelago. Against this background, it is rather difficult for the country to reconcile its development requirements and the stereotyped image of the Grenadines tourism paradise.

St Vincent's mainstay is agriculture, in particular bananas. The country's resource balance is largely determined by the level of tourism receipts, banana exports (50% of total exports) and capital inflows. Through infrastructural improvements, the country is trying to develop its tourism potential. Non-banana agricultural production has increased. St Vincent is the main supplier of arrowroot. Fish landings and manufacturing production have also increased.

Since the mid-1980s, St Vincent and the Grenadines has pursued sound economic policies. This, along with increased banana exports, resulted in strong private sector-led growth. In 1990, real GDP increased by over 6% due to expansion in banana production. The country has continued to manage its public finances well in recent years.

The country's relatively rapid economic growth since the mid-1980s only slowed down with the drastic deterioration of the situation of the banana industry in 1992-93.

The depreciation of the UK pound by the end of 1992, followed by the banana price fall on the European market (the total banana exports from St Vincent are absorbed by the United Kingdom) in 1993 have been combined with a reduced production volume, together with reduced returns to the farmers and future negative expectations, to induce a decline of 40% in local currency of banana export earnings.

Construction activity increased during 1991, due in large measure to work on the Bequia airport, mainly financed by a grant from the European Union.

GDP-growth rates for 1992 and 1993 were +6.5% and +1.4% respectively.

The recent deterioration of the performance of the banana industry and the serious economic impact of the 1979 Soufriere eruption, Hurricane Allen in 1980 and the tropical storms of 1981, 1986/87 and 1993 show the degree of vulnerability of St Vincent's economy to external shocks and natural disasters.

Both as a consequence of the necessary reform in the banana industry and its vulnerability, St Vincent is facing continued sustainable development challenges. During this transitional period, EU-St Vincent cooperation will be focused on the restructuring efforts in the banana industry and the diversification policy which must accompany the banana reform. STABEX transfers for 1992 and 1993 will be used to this end.

Additional EU assistance is being envisaged to supplement the ongoing efforts with the resources of the proposed special programme of assistance to traditional ACP banana suppliers. It is intended to apply the proposed additional resources to support, both at the national level and at the regional level, the Windward Island Banana Industry restructuring plan.

EU financial and technical cooperation

St Vincent's efforts towards sustainable development have been supported consistently by the European Union at the financial and technical level.

Under the First Lomonvention (1975-80), the island's road system and health sector, both in the rural and urban areas, received priority support.

The health sector projects consisted of the construction of a clinic at Georgetown and the construction and supply of equipment for a 50-bed paediatric ward at Kingstown Hospital in the capital.

LomI (1980-85) and LomII (1985-90) saw assistance again concentrated on the health sector, in the form of continued development of the Kingstown Hospital, where a 90-bed ward was constructed. A clinic on Union Island was also financed.

Under a revamped Master Plan for the Kingstown Hospital, the main operating theatre has been completed, the emergency department is already manned 24 hours a day, and some nurses have been sent to Jamaica for training in special recovery room techniques. On completion of the project, the hospital will have 307 beds, an increase of over 100. New delivery suites and a special baby care unit are also being built as part of the project.

The focus of the LomII programme was on rural development, notably the settlement of the Orange Hill Estate in the north-east of the island. Funds were also made available for further improvements to the Kingstown Hospital and a small tourism project.

The Orange Hill Development Project involved the settlement of 1225 hectares. It included the provision of a farm access road network (32 km), housing sites, public utilities, a central administration providing advice on crop production, the supply of farm inputs and the provision of agro-processing facilities. Shops and schools were also constructed on the estate lands.

Four-acre plots of land have been leased to farmers, with an option to purchase. A total of 400 plots were allocated. Cultivation includes coconuts, bananas, nutmegs, citrus, peppers, pigeon peas, cassava, eddoes and other fruits and vegetables. The agro-processing complex produced bottled water.

A similar land resettlement operation with potential diversification linkages in the area of tourism development has been prepared, under the LomV Indicative Programme (1990-95) on the Mount Wynne/Peter's Hope Development Scheme. LomV funds have also been earmarked for further expansion of the Kingstown Hospital, the provision of additional secondary education facilities and tourism development with special emphasis on the tourism-environment linkage.

The European Investment Bank (EIB) assistance to St Vincent has provided additional EU support in sectors not usually eligible for EDF assistance.

Under the four Lomonventions, the EIB has financed operations in support of the improvement of electricity generation through loans to the National Electricity Company (VINLEC) (ECU 6.9 million under LomI and III) and the promotion of small and medium-scale enterprises in the industrial, agro-industrial and tourism sectors. EIB partner-institutions in the latter areas were DEVCO, the Development Bank and the Caribbean Financial Services Corporation. In addition, a feasibility study on an OECS-Guyana sand supply scheme was financed in 1993 and further support in the area of port infrastructure was under consideration by the end of 1994.

Total EIB assistance for the 198094 period represents ECU 11.5 million.

Another important instrument in EU-St Vincent cooperation is STABEX, the system which seeks to offset losses in agricultural earnings caused by price fluctuations. St Vincent's exports to the EU, or other destinations, of products on which the economy is highly dependent (most notably bananas in this case), qualify for STABEX coverage.

In the period 1980-94, St Vincent has been entitled to STABEX transfers totalling ECU 6.3 million. This is particularly in relation to the period 1992-94 associated with both price changes due to the overall evolution of the common organisation of the banana market in the EU and increased competition from non-ACP bananas, combined with local difficulties due to climatic factors (drought during 1993-94). STABEX transfers are being used by St Vincent for support to a major reform of the banana industry in parallel with the global efforts undertaken to diversify both agriculture and the economy as a whole.

Other instruments which benefit St Vincent include emergency assistance and NGO micro-project financing schemes. In the field of AIDS prevention, laboratory equipment and material are being supplied.

The integration of SVG in its regional environment

The EU also has an ongoing policy dialogue with the Caribbean on regional cooperation. St Vincent is a member of both CARICOM and the OECS. The latter has established a single monetary area, a common currency (the Eastern Caribbean dollar) and a common central bank (the Eastern Caribbean Central Bank).

As a member of the two organisation mentioned, St Vincent takes full advantage of the Lomegional cooperation instruments. Under LomV, it also belongs to the group of 15 ACP partners who make up the Caribbean Forum. Island status, 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 among the Caribbean partners. Lomegional funds are committed to these objectives.

Regional and sub-regional projects and programmes, which are additional to the national indicative programmes, have benefited St Vincent within the framework of the EDF regional programme for the Caribbean. Under Lom, II and III, the country derived particular benefit from the following regional programmes:

Transport: The Bequia Airport is the largest single EDF-financed project in the Eastern Caribbean. The airport provided a new air link in the sub-region between the Grenadines (Bequia is the largest island of the Grenadines), and Barbados, Martinique and Guadeloupe. The airport was officially opened in May 1992 by Prime Minister James Mitchell in the presence of several Caribbean Heads of Government and Philippe Soubestre, Deputy Director-General for Development of the European Commission. The EDF contribution to the project is ECU 18.5 million, of which ECU 2 million is from the National Indicative Programme and ECU 16.5 million from the Regional programme (LomII).

Other programmes in sea and air transport (relating respectively to WISCO, the West Indies Shipping Corporation and LIAT, Leeward Islands Air Transport), were implemented under Lom and III.

Agriculture: Research carried out by the Caribbean Agricultural Research and Development Institute (CARDI). A study of crop diversification was implemented by the Agricultural Diversification Unit of the OECS (ADCU) which is based in Dominica. Human Resource 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 provides for new facilities at St Vincent 'A' Level College.

A new student accommodation project under implementation for the UWI 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 EU 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 customs office in Kingstown.

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 more extensive tourism development programme run by the Caribbean Tourism Organisation (CTO), which includes professional technical assistance for the development of a major marketing campaign in Europe for the Caribbean destinations, including St Vincent and the Grenadines.

The LomV Caribbean Regional Programme (CRIP) under the umbrella of the CARIFORUM has indentified programmes in six priority areas - agriculture, trade, transport and communications, environment and human resource development. The financial resources allocated to the CRIP for the period 1990-95 amount to ECU 90 million.

Financing decisions for the Trade Development Programme (ECU 14m), the agricultural sector programme (ECU 25m), the Inter-University Programme including UWI, the Caribbean Examinations Council's Project (ECU 2.5m) and the Tourism Development Programme (ECU 13m) were expected to be taken in early 1995. In addition, a new programme in the area of tertiary education for the benefit of the OECS countries is in preparation. All these projects, plus a few others in the above-mentioned sectors will benefit St Vincent and the Grenadines directly.

Beyond the horizon of sub-regional cooperation, St Vincent, like its partners in the wider Caribbean, has to face the increased competition brought about 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, inspired by its own integration experience, to help St Vincent participate in the process of deepening and widening the Caribbean region. This can take such forms as:

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

- at the regional level, helping Caribbean decision-makers to address the regional dimension of national adjustment programmes and to measure the costs and benefits of regional integration. This latter topic is the subject matter of a study which has been undertaken in close cooperation with CARICOM, the Caribbean Development Bank, the University of the West Indies, the Eastern Caribbean Central Bank, other Central Banks and European Universities;

- addressing regional cooperation and integration issues. These will remain of crucial importance in the face of globalisation and regionalisation trends. The countries of the wider Caribbean Basin had this in mind when they created the Association of Caribbean States (ACS) in July 1994. St Vincent and the Grenadines is one of this organisation's 25 members.

EU-St Vincent trade relationship

Under the Lomonvention, St Vincent and the Grenadines benefits from duty-free access for manufactured goods to the EU market, as well as preferential arrangements for bananas.

The EU accounts for approximately one-half of St Vincent's exports and one-fifth of St Vincent's imports. Bananas have accounted for more than 90% of exports to the EU in recent years.

Exports of bananas were around 70,000 tonnes. The Banana Protocol will extend preferential access to the Single European Market up to the year 2002. The subsidy implicit in the EC guaranteed banana market has been estimated to amount to about one-fifth of the total value of St Vincent and the Grenadines' banana exports. The financial support deriving from the Banana Protocol is thus far more significant than regular EU development aid to St Vincent and the Grenadines.

The combined support of the LomV Banana Protocol and STABEX provides for the most important aspect of cooperation between EU and St Vincent in the present economic transition period. It also illustrates the comprehensive and integrated use which can be made of the LomV Convention's trade and aid instruments.

EU-St Vincent and the Grenadines - cooperation (1976-1995)

P.D.