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Managing Consolidation & Change - November 24, 1999

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"MANAGING CONSOLIDATION
AND CHANGE"
 
Feature Address
by the Honourable Prime Minister of St. Lucia
 DR.  KENNY  D.  ANTHONY
 
on the occasion of the
115th Annual General Meeting of the

ST. LUCIA CHAMBER OF COMMERCE INDUSTRY AND AGRICULTURE

November 24, 1999

Salutations...

INTRODUCTION

It does not take much debate for us to conclude that we live in challenging times.  In fact, daily challenges come both from without and within.  And, I dare say with all respect, that the ravages of Hurricane Lennie remind us that all to often they come from above.  Whatever the origin, rapid economic, social and political change is the one global phenomenon most likely to characterize our existence for the foreseeable future.  Continual change demands continual adjustment from us all.  More importantly, it demands a state of readiness and responsiveness if we are to remain viable.

In the same way that the cold war is over between East and West, here in the Caribbean, as in Saint Lucia, the post independence era is clearly also over.  The centrist politics of those decades are no longer viable.  In the same way that economic power has been transferred to the consumer, political power has been similarly disbursed to the citizenry.  Indeed, it can be argued that there has been a generational shift in the mindset of the nation and in the psyche of this country. 

Moreover, with that shift, the notion of government as prime mover within the economy has been debunked and replaced by the notion of Government as social partner, facilitator, and regulator.  These are realities of our modern economy, which emphasise the requirement of a close working relationship between government and the private sector.  It is a simple reality to which we must adjust our expectations and marry our objectives.

THE CHALLENGE TO US ALL

I say this because ultimately, we are both challenged.  Governments and businesses alike need to respond appropriately to consumers as to constituents. We are both challenged to develop systems for influencing change and managing our changing environments; environments in which we must coexist and prosper.

The good news however, is that we are not alone in this predicament.  As societies, markets and economies evolve, challenges as well as opportunities present themselves in varying degrees to all nations under the siege of uncertainty.  We in the Caribbean are no different.  What is certain however, is that the old ways of autocratic government and unresponsive business are gone forever.  We must all compete for our place in the sun.  The question then is how we will respond and how we will compete.  This address offers some hope and some suggestions.

REDEFINING GOVERNMENT

For Government, our primary task over the last two years has been nothing less than the redefinition of government.  This has been ongoing at several levels and there are profound implications for the whole economy.  I trust we can agree that a similar redefinition is required of the private sector, particularly in respect of the way in which it conducts business now and into the future.

Nevertheless, in the short time since assuming office, this government has had to re-invent itself.  We have had to redefine the mandate, operations, and structure of almost every major government or quasi government institution.  A few examples bear mentioning.  The National Development Corporation has been rescued from financial insolvency and re-engineered to produce the kind of investment promotion and export development service for which it was originally conceived.  The implementation of a one-stop shop for investment facilitation is now a major policy objective expected to streamline the flow of resources into Saint Lucia.  One indicator of successful transition is that the demand for factory shell accommodation is at an all time high.  This signals renewed international interest in St. Lucia as a manufacturing location.

Yet another example is The Saint Lucia Fish Marketing Corporation which has been financially restructured into a profitable operation.  Similarly, the Urban Development Corporation is finally returning to a solid footing and has resumed the provision of serviced sites and the construction of starter homes.  The corporatisation of WASA is in its final stages with a new mandate and a renewed viability.  The pace and scope of institutional change there has been pervasive and profound and additional announcements are pending regarding the management of that utility.

Similarly, the National Insurance Scheme has a redefined mandate and an unprecedented focus on its own long-term viability.  Hopefully, the days are over when NIS resources were deployed in the name of short-term expediency driven by an insatiable government appetite for cheap funding and irresponsible investment.   These are just some examples of consolidation which have been achieved.  I trust their significance will be impressed upon you.

Clearly, Government is using private sector models to restructure its private sector business.  We have privatised NCB where we are now a minority shareholder; we have transformed WASA into a private company, albeit under the corporatisation model; we have recently re-established Radio St. Lucia as a private company in preparation for its restructuring.  Similarly, the national Employment Resource Centre is established as a private company.  These examples confirm to us that private sector ideology is very much a part of government business. 

TOURISM

The re-invigoration of the Saint Lucia Tourist Board has restored its focus on securing and expanding Saint Lucia's market share.  Consequently, tourism related investment is on the increase with Saint Lucia recording one of the most rapid expansions in new hotel capacity in the Eastern Caribbean.  For the first half of 1999 visitor arrivals increased by some 5.9% with a commensurate increase in visitor expenditure.  This figure rose to $492.4 million.  Average length of stay advanced slightly to 8.6 days consistent with an increase in European traffic.  Average hotel occupancy declined by 0.8% even as stay over arrivals increased by 3.9%.  In terms of a return to Government, Hotel Accommodation Tax revenue rose significantly by 37.4% to $5.07 million, reflecting growth in bed-nights and the new method of calculating this tax liability.

FINANCIAL SECTORS

 Legislation and institutional infrastructure related to the Financial Services Sector are both in their ultimate stages.  Admittedly, this has been long in coming, mainly due to an abundance of caution on our part.  However, this new development platform becomes operational in early December.  I encourage the Chamber to explore its vast new possibilities.  I urge you not to sit idly by and allow this new sector to pass from our hands. 

 In the on-shore banking sector, monetary aggregates expanded in keeping with expansion in the real sector.  There was an easing of liquidity in the first half of 1999.  Interest rates have decreased consistent with an increase in deposit liabilities by 14.5%.  In summary the recovery from the tight liquidity position of late 1997 and 1998 has been steady and continuous.  Loan deposit ratios have eased by 5.4% to achieve a ratio of 93.2%.  The budget target is 92%.

 TELECOMUNICATIONS

 Similarly, telecommunications reform and modernization are both proceeding apace.  Saint Lucia is playing a lead role in the regional negotiating process in which we are jointly engaged with the rest of the OECS.  This is yet another platform, which anticipates new commercial opportunities opening up for a whole new generation of enterprises.  We are poised to announced major changes in the domestic rate structure.  Already, major rate reductions have been announced for international calls.  "You asked for it and we heard you".

 MANUFACTURING

 Manufacturing is benefiting from unprecedented levels of government assistance.  Registered manufacturers are now routinely exempted from consumption taxes and import duties on a wide variety of inputs and equipment.  Not only are these unprecedented, they are universal.  This means that they are generally accessible to manufacturers irrespective of size, or scale or influence.

 The environment for joint venturing between domestic and foreign firms has been significantly liberalized.  The legal definition of a Saint Lucian company has been relaxed to facilitate this, with permissible foreign participation increased from an arbitrary 25 percent to 49 percent.  This alone has reduced the red tape and associated costs to new ventures such as the need for trade licensing and government approval to borrow locally.

 Consequently, the manufacturing sector recorded an increase of 5.2 percent in the value of production from $61.6 million in the first half of 1998, to $64.7 million in the first half of 1999.  Increases occurred mainly in Wearing Apparel, Electrical Products, Chemicals, Plastic Products, Copra and Copra Derivatives. These were only partially offset by decreases the categories of Food, Beverages and Tobacco, Paper and Paper Products, Wood and Wood Products, and Rubber Products.

 Government continues to provide a conducive enabling environment to stimulate growth in manufacturing.  Of particular importance is the need to restructure and re-orient the manufacturing sector so as to make it more competitive.  Government plans therefore to establish linkages between the manufacturing sector and other sectors, thus increasing the local market for domestically produced items.  We are also reviewing the effectiveness of the current fiscal incentives regime so as to encourage growth within the manufacturing sector. 

 BANANA BUSINESS

 Banana output in the first half of the year fell moderately due largely to drought conditions.  This was more than offset by a 13.5% price increase resulting in an overall increase in revenue.  Since July however, market conditions and sterling exchange rates conspired to reduce the WIBDECO price to local companies.  The price paid to farmers was similarly reviewed downward after some company attempts at price support.  Nevertheless, WIBDECO projects 1999 output to rise 7% over 1998 levels, exceeding 78,000 tons with annual revenue earnings of $96 million.  This represents a 4% increase over 1998.

 In the interim, the privatized Banana Sector has survived its first major internal challenge.  It has done so largely through democratic processes enshrined in its own charter.  It is possibly for the first time in its history, that the sector has resolved such a fundamental issue without political interference.  I know that many have been critical of Government's hands-off approach to the restructured industry and I understand your trepidation.  As vital as the industry remains to economic life we must also consider the cost of successive interventions, bailouts and restructurings over the last three decades. 

 Nevertheless, we remain optimistic about the new market-oriented sensibility that increasingly characterizes decision-making within the industry.  There is now real choice in the industry.  Where a farmer is disappointed by the performance of one company he can market his fruit with another.  The recklessness of the past is gradually giving way to the realities of market competition.  The Government of Saint Lucia concurs with the view of the EU that there are too many external layers in the industry.  We both agree moreover, that WIBDECO has to be restructured, and in that context, the Government should divest its shares in that company.  We have no difficulty with this approach and will not hesitate to divest our WIBDECO shareholding at the appropriate time.  This strategy is also consistent with our intentions to diversify opportunities for equity participation and capital market development.

 THE CONSTRUCTION SECTOR

 Construction activity in the economy is significantly up, accounting for the lion's shares of new employment.  In fact, unable to meet demand in recent months, there have been several marked shortages of basic building materials such as clay and concrete products and sheet-rock.  More importantly, activity in the sector has been buoyed by a healthy mix of residential, commercial, institutional and tourism related construction.   We expect this trend to continue particularly with Government's ongoing housing construction, school building and road expansion programs.  The actual commencement of the Bordelais Correctional Facility costing some forty-five millions dollars, the Hyatt Regency Hotel and Rosewood projects have helped boost sector employment by some 30%.

 Private sector projects such as the Hyper-Mart at Bois D'Orange and the M&C Home Depot Project will consolidate this trend.  The same is expected of several new hotel developments projects which will be announced subsequently.  Together with the new hotel and stadium announced for Vieux Fort, and the National Cricket Ground in Gros Islet, output in the construction sector is projected to increase by 5.5%

 CDB FINANCED INFRASTRUCTURE

 The Government of St. Lucia and the Caribbean Development Bank recently agreed an indicative country program with the will be a major catalyst to economic activity.  This program is valued at US$67.1 million over the next 3 years.  A total of US$25 million is to be set aside for the road infrastructure programme commencing in the first quarter of the year 2000. A total of US$6 million has been set aside for the second phase of the Basic Education Reform Program. Student loans through the Saint Lucia Development Bank will account for another US$3 million.  US$4 million has been set allocated to flood control and US$4 million for projects related to Solid Waste Management.

THE ECONOMIC PROGNOSIS

In terms of the general economic climate, the outlook for St. Lucia is positive.  I am delighted that this optimism was recently confirmed by the Chamber's most recent Business Survey and that the majority of businesses seem to share the view that the worst is behind us.  The developments outlined above are expected to sustain an annualized growth rate of 3%.  This will be consistent with the target set in the 1999/2000 budget.

OFFICE OF PRIVATE SECTOR RELATIONS

In related news, I am pleased to announce that the Office of Private Sector Relations has initiated discussions with the Ministry of Commerce to fund an ISO certification programme for manufacturers.  That is to say, Government is willing to finance, on a matching grant basis, the process of certification by any manufacturer aspiring to this internationally recognised standard of excellence.  This is consistent with the objectives of the Private Sector Development Strategy recently reviewed and approved by St. Lucia's private sector representative organisations.

In the meantime we are mindful that the implementation of the final phase of the Common External Tariff, involving a further reduction in the tariff rates is likely to have implications for the competitiveness of the domestic manufacturing sector.  Government will therefore accelerate efforts to neutralise any negative growth impacts this may have on the sector.  We are inviting your assistance and co-operation in this.

We are mindful that businessmen have little time to listen to the ramblings of politicians in parliament.  As a result, they maybe unaware of policy initiatives intended to benefit them.  In an effort to strengthen our relationship and to provide timely information the office of Private Sector Relations will be publishing every two months, a newsletter entitled OPSR News.  The inaugural issue is being distributed today.

Beyond the silver lining

 The dark spot on the economic spectrum continues to be unemployment and the associated ravages of poverty and deprivation.  These we are not so proud of, but are attempting to address.  Quite apart from our efforts under the Poverty Reduction Program, Government, in close conjunction with the private sector is investing in the establishment of an Employment Resource Center to be located at Bisee.  The principal focus of this centre will be training of primarily, but not exclusively, young persons in preparation for the world of work.  

 At this juncture I would like to specifically acknowledge and applaud the good conscience of many firms within the private sector which have weathered these difficult economic times without instituting the layoffs and redundancies typical of such periods of adjustment.

 REVENUE

 Speaking now as Minister of Finance, let me say that restoring growth has been a difficult balancing act for this government.  We have had to simultaneously tackle economic stabilisation and reconstruction while addressing the most fundamental flaws in the fabric of the economy.  For this we have needed had to generate a considerable quantum of resources.  During the first half of 1999, Tax Revenue continued to increase, albeit at a slower rate of 9.2 percent, (to $101.64 million), compared with an 18.0 percent rise last year.  The deceleration in the rate of growth was attributed to a significant decline in revenue from taxes on goods and services and more specifically consumption tax on imports. 

 After increasing by 30.1 percent in the first quarter of 1998/99, taxes on goods and services grew moderately by 3.8 percent to $39.05 million.   Moreover, consumption tax on imports, which is the single largest revenue item, recorded an 8.2 percent decline to $25.98 million, owing mainly to reductions in consumption taxes on petroleum products as a result of increases in world petroleum prices.  Still we remain committed to the budget targets we have established.  We are firm in the belief that a sound macro environment is the critical framework for all development and I do not apologise for the absence of "spend quick - make work" schemes in the lead up to Christmas.

 I have described our revenue situation, not only to impress upon you Government's financing needs, but also to indicate the level of resources redeployed within the economy.  A quiet revolution is on its way.  When that revolution is complete, Saint Lucia will have the most diversified economy in the Eastern Caribbean.  The Financial Services Sector is to be launched in December.  Early next year the CDB-Funded informatics park will commence construction.  In March 2000 the Vieux Fort Free Zone funded by the People's Republic of China will commence business.  For the first time, Saint Lucia will enter into the Free Zone business already being pioneered by the Cimpex Group of Companies.

 WATCHWORDS FOR THE CHAMBER  

I implore you to continue the good work at company level and at institutional level.  Within your firms, efficiency, and competitiveness are the watchwords.  There is no hiding from that reality.  We have taken note of certain strategic alliances with international suppliers which promise to bring international purchasing power to domestic companies.  This is good for the economy.  But we hope that similar alliances will also emerge with regards to exports of goods and services

 With regard to human resources we wish to see more pro-activity on the part of the Chamber.  Government requires the input of the private sector to develop the human resource potential of our small nation.  Education is the future.  It is the bedrock of our future economic development and if Government is to go it alone, we will always be a day late and a penny short.  For this reason I invite you to contemplate a national collaboration on human resource development as a natural complement to the work the Chamber proposes to do on the Cost of Capital.

 CONCLUSION

 I am in danger of overstaying my welcome and so I must conclude.  In closing let me say that I believe this government is investing in a tremendous partnership with the private sector.  I wish to take this opportunity to thank the many private sector persons who have given of their time, experience and expertise to serve on boards, task forces and interim committees during this vital transition period. 

 I am especially proud of the emerging cadre of young St. Lucian professionals who have devoted themselves to the task of nation building at a time when the country so desperately needed to join hands.  Admittedly, we have made some mistakes but it continues to be a learning experience that we cherish and seek to sustain.  I would like to believe that we are beginning to speak the same language and I look forward to a long and fruitful dialogue with the private sector of St. Lucia.

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