St Kitts and Nevis is small. The eastern Caribbean twin island-state is home to a population of about 40,000 and has an economy valued at just over $420m.
Like other countries in the Caribbean, it has been buffeted by a series of external shocks – hurricanes and the 9/11 terror attacks, for instance – as well as changing global economic dynamics, such as trade liberalisation that has resulted in the loss of key trade preferences.
Crucial economic sectors, such as agriculture and tourism, have suffered, slowing growth and casting doubt on the sustainability of the islands’ impressive development track record. Between 1980 and 2003, the country averaged real per capita economic growth of 4.7%.
Bouncing back
The country has bounced back from the downturn following hurricanes in 1998 and 1999, and then 9/11. According to prime minister Denzil Douglas, St Kitts and Nevis is expected to record growth of about 6% this year and similar growth next year. This has come at the cost of spiralling public debt, however: 172% of gross domestic product.
As a World Bank report observes, St Kitts and Nevis and the other members of the Organisation of Eastern Caribbean States (OECS), all small island-states, are at an economic crossroads. The report, Towards a New Agenda for Growth, released in May, notes the increasing marginalisation of these countries in the face of globalisation.
Despite the challenges, Mr Douglas is in a confident mood. Acknowledging the vulnerability of St Kitts and Nevis, he believes the country has the appropriate economic strategy to keep it on a sustainable growth footing. For a start, he is not shying away from regional integration – a trend that development experts insist is crucial to the broader Caribbean region’s prospects.
Integration prospects
“Let’s face it, we are not able to compete individually with the rest of the world. We believe the potential for the Caribbean to make an impact on the global economy can be realised if we pool our resources and continue to move in the direction we are going, which is towards greater and firmer integration,” says Mr Douglas.
The prime minister hopes that the establishment of the Caribbean Community single market and economy in January next year will go ahead without delay. The creation of the Caribbean Court of Justice is an important step in that direction, he believes. “We are in discussions about how we can improve the delivery of the integration movement. We have been talking about advancing what is mainly a trade relationship among the countries to one that will have great political involvement. Within the next five to 10 years, I would like to think that we will have achieved meaningful political and economic integration, with a fully functional commission that has influence and standing.”
Although closer integration and co-operation is viewed as necessary and desirable, Mr Douglas is adamant that it should be on terms that do not overwhelmingly benefit some and leave little for the rest. There are fears in the Caribbean that a single economic market will result in larger, more developed countries in the region gaining access to smaller countries’ economies, whose industries and markets cannot compete.
“St Kitts and Nevis is one of the smallest of the independent countries in the western hemisphere, so we recognise that we cannot go it alone,” says Mr Douglas. “We will sit down with our partners and seek to advance our cause, but within the context of integration.”
For Mr Douglas, whatever the costs of integration, it is a necessary step. “We have been able to identify in the [OECS] sub-region and the wider Caribbean region the specific challenges that we face. As a result, we are making the necessary adjustments to reposition our various economies. We recognised, for instance, that dependence on sugar agriculture was one of the limiting factors, so we decided to leave that behind in favour of areas in which we can be much more competitive and more successful.”
End of an industry
Faced with the imminent loss of European trade preferences for the export of sugar, the government decided in June to discontinue the production and sale of the commodity, bringing to an end a 250-year old industry that has been steadily scaled back.
“The price received for sugar will fall by 40% next year,” says Mr Douglas, “So we took the very painful decision to halt production now before we saw further losses. We are confident that we have taken the right decision. For 10 years, we have been diversifying the economy, which we want to be based on services, particularly tourism and international financial services.”
The government’s economic strategy is three-pronged: further development of the tourism sector; providing substitute livelihoods and income for those previously dependent on the sugar industry by tying agricultural development to tourism; and establishing St Kitts and Nevis as the financial hub of the eastern Caribbean sub-region.
Stimulating tourism
The tourism sector is generally considered to be the most promising in terms of economic development. A mini boom is expected on the back of the Cricket World Cup in 2007, when St Kitts and Nevis will host group matches. There has been a surge in the sector following the opening of a $500m-plus Marriot hotel and casino resort.
“We have seen a tremendous improvement in our tourism sector in the past few years,” says Mr Douglas. The recovery follows the sharp slowdown that the sector suffered post-9/11. In the last season, tourist numbers were up by 40%.
Indicative of challenges facing St Kitts and Nevis, the country has in the past lacked the room capacity to warrant regular scheduled commercial airline services. With the opening of the Marriot, which has more than 900 rooms, room capacity now exceeds 3000, a level that justifies regular flights out of the US and the UK. St Kitts and Nevis is connected to Miami and London, and is due to be connected shortly to New York.
The government is also planning to build new pier facilities for cruise ships calling at the islands. Two years ago, facilities that were destroyed by hurricanes in 1998 and 1999 were rebuilt, capable of berthing the largest cruise vessels at sea. During the last tourist season, the Queen Mary II, the largest cruise ship in the world, was docking at St Kitts and Nevis fortnightly, disgorging visitors onto the islands.
In something of a coup, St Kitts and Nevis hosted the Florida-Caribbean Cruise Association annual conference and trade show this year. It was first time that the event has been held in the eastern Caribbean. More than 700 industry representatives arrived on St Kitts to see firsthand what the country has to offer.
In line with recommendations in the World Bank report, St Kitts and Nevis is refining its tourism proposition beyond “sun and sand” and aims to establish itself as a year-round destination. “At the moment, we are still perceived as an on-season/off-season destination. We want to be completely year-round, which is why the government is partnering with the Marriot to expand facilities at the resort to provide new services that will attract families with children during the off-season,” says Mr Douglas.
With this outcome in mind, the government is aiming to stimulate investment with a package of incentives that includes tax holidays of up to 15 years and exemption on import duties. Overall, investment regulation is friendly for all sectors and skilled and trainable workers are available.
New livelihoods
To provide substitute livelihoods and income for those previously dependent on the sugar industry, the government has developed policy to tie agricultural development to tourism. Specifically, farm output is tailored to the needs of the hospitality industry.
“As the number of tourist visitors to the country grows, this will create a growing domestic market to sell into. And if there is a surplus over and above local requirements, it can be sold to neighbouring islands,” says Mr Douglas.
To this end, the government has provided technical and financial assistance to small-scale commercial farmers, including 15-year leases on land, and is investing in related infrastructure, such as irrigation.
Financial hub
Efforts to establish St Kitts and Nevis as the financial hub of the eastern Caribbean sub region are included in the government’s economic development plans. The country’s claim to the title is on solid ground: it is home to the Eastern Caribbean Central Bank and a host of financial institutions that wish or need to be in close proximity to the central bank. In terms of international financial services, the regulatory and supervisory frameworks have been overhauled to comply with international standards on money laundering and harmful tax practice. Recent telecoms sector liberalisation is resulting in a reduction in telecoms costs. Though relatively young as an international business jurisdiction, Mr Douglas believes there is reasonable potential for the sector.
Whatever discordant views there are on the finer points of the government’s economic policies, there is consensus that they are targeting the sectors with the greatest potential and orienting the country to withstand regional and global pressures better. For the moment, St Kitts and Nevis benefits from a stable macro economic climate and political certainty. It is the government’s intention to maintain that and sustain growth.
