Barbados economy difficult - T&T Firms note Island’s High Cost Structure
The economy of Barbados seems to have fallen from the height of prosperity it enjoyed ten years ago. In 2003, a survey by United Kingdom-based The Economist magazine showed that only the United States, Canada and the Bahamas had higher incomes per capita in the western hemisphere.
Barbados was ranked as a middle-income country with high wages and a stable economy. Today, those times seem like a distant memory.
The Barbados Central Bank of Barbados reported on Tuesday that the economy there was estimated to have contracted by 0.6 per cent in the first half of 2013, following no real growth in 2012.
The rate of unemployment was 11.6 in 2012 compared to 11.3 per cent in 2012, its Central Bank stated.
Against this bleak economic background, companies from T&T are finding it difficult to operate in Barbados.
Gerry Brooks, chief operating officer, ANSA McAL Group, told the Business Guardian on Monday that the economic situation in Barbados is “difficult.”
“Barbados finds itself in a difficult economic position. Growth has been less than one per cent over the last three years. The challenge is an annualised problem of spurring growth, which can become a systemic problem. That is one of the challenges. Right now unemployment is 11.6 per cent and it is certainly high and not declining. There is even the potential to go even higher,” Brooks said.
He said Barbados has multiple problems of low growth, relatively high unemployment and high debt levels and that ANSA McAL’s operations in Barbados are not immune from the country’s problems.
“Debt level is around 83 to 85 per cent of gross domestic product (GDP). If you look at tourist arrivals, remittance and financial services, none of those has been able to revive sufficiently to continue to spur this growth and to continue to sustain it. In this context, all businesses is Barbados are challenged. Our business is not immune from that.”
Brooks said that the ANSA McAL group had made significant investments in Barbados, including the acquisition of Brydens Barbados, new technology, (Tech One ERP) and the recent repurchase of shares.
He said that the investment represented millions of dollars in vital foreign exchange going into the Barbados economy.
Brooks said: “We are committed to the development of Barbados, our people and business there. We recognize that the economic model in small, vulnerable states must change. Barbados must also look again at its model to ensure that a cyclical economic challenge does not become systemic. Each territory must also relook its cost profile as it seeks to be attractive as a destination to attract future investment flows and foreign direct investment.”
The ANSA McAL executive said countries like Chile, Columbia Panama and other regional destinations including Trinidad have sharpened both fiscal incentives and "ease of doing business" to attract more capital.
Brooks said: “Respectfully, all of the social partners in Barbados must look again at the costs and productivity relationship. Quite simply, costs are too high comparatively. We are prepared to be part of a constructive dialogue on this. We have taken this approach and will continue to try to be innovative as we work with our teams to better service our customers and add value and ensure the longevity of our businesses."
ANSA McAL’s distribution arm in Barbados is Brydens.
“Our distribution business is formerly Brydens and Sons, A&R Tempro, and Stokes and Bynoe have been rationalised into Brydens. One of the reasons we did that is to improve the efficiency around the business, take cost out of the business and allow the business to be more competitive and to be able to provide greater value to competitors.”
Financial services
Brooks spoke of the group’s financial services business in Barbados, which has the insurance arm and financial services company.
“One is Consolidated Finance Company (CFC) and the other is Brydens Insurance, and we are actually making some changes in those businesses where they will be closely aligned and come under ANSA Merchant Bank, which will allow us to be far greater efficient and organisation.”
The third arm of the business in Barbados is McEnearney Quality, which sells cars, he said.
“The businesses have been working hard to sustain their current positions, but there really has been an absence of growth in those businesses as has been the case with many other businesses in Barbados,” Brooks said.
He said that the cost of operating in Barbados is very high.
“Barbados has to make a decision around its labour rate increases because nobody is going to increase their investment in Barbados, whether it is in ICT or tourism, unless it makes sense cost competitively.”
Reviving the economy
For the Barbados economy to be revived, Brooks said there are steps the government must take.
“Whether it is the financial services model, whether it is the tourism model, the government has to find a formulation to return the economy to growth,” Brooks said. “Part of that includes how Barbados works with other economies and positions itself to move the economy forward.”
Brooks said the group’s business in Barbados continues to remain challenged.
He said the ANSA McAL Group looks at its Barbados operations strategically.
“We look at Guyana, we look at Suriname, we look at the Eastern Caribbean territories, we look at non-Caricom territories and ask: where does it make the best sense to locate a new business? In terms of new business, we are going to have to take a look at the business and see which island is most cost competitive, with the best capacity for growth and make the investment on that basis.”
Brooks said the ANSA McAL Group wants to do more than survive in Barbados.
“We want growth, we are in the business of expansion and leveraging our capacity. We want to use our regional footprint to move it forward.”
Republic Bank
Derwin Howell, executive director, Republic Bank, told the Business Guardian on Tuesday by phone that the Barbadian economy is going through a “storm”, but added that Republic Bank’s subsidiary there is holding its market share during these challenging times.
“The economy has been pretty stagnant last couple years. The figures of Barbados Central Bank are not very encouraging. The challenge is: how do we manage a bank in that type of situation?” Howell said.
He said whether an economy is going through a boom or bust, the banking sector is always one of the last to feel the effects.
“When we entered in Barbados eight or nine years ago, it was at the tail of a good period. We had a couple good years there and then things changed. Banking tends to lag the economy. So when the economy gets going, it takes a little while to reach the banking sector. Similarly, when an economy goes into decline, the effects, like reduced credit, take a while to impact.”
He said Republic Bank Barbados’ market share is just above 20 per cent.
“We are holding our own, we are starting to gain market share, but these things move month to month. The market is a very slow one right now. The Government is under pressure to balance its books and balance the deficit. At the end of March, there was an eight per cent decline in tourist arrivals, which is the main driver of the economy,” Howell said.
He said the decline of Barbados’ tourist arrivals is significant as “pretty much everyone in Barbados depends on the tourist industry.”
“Whether it is the guy who sells the air condition unit to the hotel, or the people who sell fish to the hotel or those who provide beer to the hotel. An example is when Almond Hotel was closed down, banks saw a big drop in business. Those are the kinds of things that affect banks.”
He said Republic Bank has been working with customers who have been affected by the bad economy.
“A number of our customers suffered some reduction in income, and that reduction is a result of several things. They raised VAT from 15 to 17.5 per cent. There has also been salary reduction. In a lot of the hotel areas, rather than fire staff, they put them on reduced work hours.”
He said there has been an increase in non-performing loans because people have had these salary cuts or lost their jobs.
“The industry would have seen an upward trend. What we have been able to do, especially with mortgages, is to restructure loan facilities in line with income. However, if you have no income, there is no way to deal with that, but that has been in the significant minority.
“The banking industry there is highly capitalised so we can get through the storm. It is solid. It remains a challenge to run a bank in any declining economy. We have very seasoned bankers running our subsidiary here. Our staff here is around 500 employees.”
Howell said there are still signs of economic activity, like people buying cars and building houses.
“Of course, you have four or five banks fighting for those customers. So whereas people would have bought cars every five years, they now buy cars every seven years.”
Howell believes the Barbados’ economy will remain stagnant for some time.
“Certainly, for the next year or so, things will remain the same. We have to continue to work hard by going out there and get the good loans. We have to manage customer relationships and understand their needs, both at the personal and commercial levels. We also have to keep our eyes open for the good opportunities that come along.”
He said Republic Bank made a good choice by entering the Barbados market.
“Barbados is one of the larger economies in the region. When you look at our Barbados unit in our entire business, it varies between the second and third largest banking contributor. It is a good economy, but it is now going through its challenges. One of the benefits of being in a conglomerate is that when things are not good in an area, another part of the group take up the slack. The Barbados decision was a good one.”
Republic Bank in Barbados
In July 2003, the Republic Bank acquired a 57.23 per cent majority shareholding in Barbados National Bank Inc. The shareholding increased to 65.1 per cent in October 2003. On July 1, 2012, Barbados National Bank Inc was rebranded to Republic Bank (Barbados) Ltd.
On September 30, 2012, Barbados’s equity base stood at US$181.3 million and asset base at US$1.1 billion. In December 2012, Republic Bank Ltd made a successful bid for the remaining 34.9 per cent of the bank’s shareholding. Republic Bank (Barbados) Ltd is now a wholly-owned subsidiary of Republic Bank Ltd.
(Trinidad Guardian)
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| Date Posted | July 16 2013 |