The Hindu Business Line : The Caribbean: Opportunities to be tapped

THE gravity model is often used to predict movement of people, information, and commodities between cities, countries and even continents. Since larger places attract people, ideas, and commodities and places closer together have a greater attraction, the gravity model is able to explain certain economic flows, such as trade, market access and investments. However, the distance between two places is not merely geographical but may be influenced by such factors as similarity of roots, culture, ethnicity and state of economic development.

The CARICOM (Caribbean community) economies have largely been pursuing liberal foreign investment policies with limited restrictions on foreign direct investments (FDI). Some of these restrictions include administrative foreign exchange control, land acquisition and reservation of certain sectors for local operations.

The legal and institutional framework for investment promotion in the Caribbean has been well established. While the legal framework addresses the needs of investors — particularly the offshore sectors — the policy statements by the government translate the framework into the administrative arrangements and procedures for approval of investments.

Investment decisions in the Caribbean have been strongly influenced by historical ties with member-states' colonial past. In the Bahamas, for example, the main sectoral and industrial recipients of FDI are tourism, financial services and infrastructure. The key players are Belgium, France, Germany, Hong Kong, the UK, the US and the Netherlands. Canada, the UK and the US are the major players in Barbados' tourism, agriculture, manufacturing, financial services and informatics sectors. Tourism, mining and manufacturing in Jamaica are dominated by Canada, the UK and the US respectively. The Netherlands and the US are the major players in Suriname's mining and manufacturing, while in Trinidad and Tobago, energy (petroleum and petrochemicals, natural gas), electricity, transportation and communications and manufacturing are dominated by select Asian countries, Spain, the UK and the US.

The Caribbean region has potential for high-tech industries. The Free Trade Area of the Americas (FTAA) — tentatively scheduled for completion in 2007 — will encompass some 34 countries in the Americas, including the US, creating a market with a population of approximately 800 million and a GDP of some $8.5 trillion. English speaking Caribbean economies, despite their small size, may play an important role by providing fiscal incentives to foreign investors in the areas of services and manufacturing. The decision is strategic as it will help the foreign investors explore markets in developed economies such as the US and Canada.

In recent times, Mexico has been taking full advantage of NAFTA (North American Free Trade Area). Private investors are more interested in financing projects in the Caribbean owing to the lower risks. However, the region follows the models laid down by countries such as Canada and Ireland which have built their industries on accommodation to the US.

Investment from South, East and South-East Asia to the Caribbean is on the rise. Incentives to export-oriented investment as well as privileged access to the US market have played a role in attracting, for instance, garments and other labour-intensive industries from Asian to Caribbean countries. Interestingly, China is one of the largest investors in the Caribbean in recent times.

India enjoys a special position vis-à-vis the Caribbean economies because of its historical, ethnic and emotional relationship. It may be possible to develop strong economic linkages leveraging on these old relationships.

The Caribbean countries need to reduce their dependence on the US (and to some extent the EU) markets for their imports and exports so as to dampen the wide fluctuations in their economic activity from year to year. The Indian economy has many complementarities vis-à-vis the Caribbean and these could be used synergistically to result in a win-win situation for both. On the other hand, there are many areas, covering primary, secondary and tertiary sectors, where India has done exceedingly well and there is scope for developing economic linkages based on the same.

Unfortunately, India's share as a source of imports and destination of Caribbean exports has been marginal. For example, exports to India from Barbados in 2001 were worth $37,000 of the total exports of $272.8 million. And its imports from India were $1.6 million of the total imports of $1,156 million.

The Indian Diaspora strong not just in the US and Europe, but also forms a vibrant business community in Africa and the Caribbean. These roots may help the Indian business community export capital in the form of FDI to the region.

Under the FTAA regime, multinationals may increasingly shift the operation and control of key business functions away from their head-offices to the English-speaking Caribbean. This may happen rapidly, as IT skills and networks make the spread of digital information increasingly easy. Indian companies can take full advantage of the changing scenario by establishing their businesses and then exploring their potential in the integrated region. This may be possible in the areas of IT and other financial services. Other areas with potential include service sector development, manpower and training, and high technology applications (satellite remote sensing and oceanography), IT, biotechnology, pharmaceuticals, industrial joint ventures, offshore financial operations, oil and gas production, transportation, entertainment ( Hindi films), exchange of academic and technical cooperation in science and technology.

The Caribbean is the hardest hit by HIV/AIDS outside sub-Saharan Africa. India can play a crucial role in treating the disease in this region. Likewise, the region may be treated as an entry point for Indian goods and services to the Latin American and North American markets.

China is active in the region and is fast emerging a major investor. The Caribbean economies are culturally and socially closer to India. Yet, India has not been able to take advantage of this proximity. Still there are opportunities. But it requires well-thought-out policy interventions.

(The authors are professors at the International Management Institute, New Delhi.)

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