Prime Minister's Interview on the Economy - November 8, 2000
Q. Sir, the theme for your Budget Address this year was "Strengthening, Modernizing and Repositioning the Economy. Implicit in that theme was the need to refashion the way we do business and to reshape the Saint Lucian economy. How much of that has been achieved to date?
A. The Government decided a long time ago that the leading sector of the economy in this period, in this cycle, had to be tourism and services and therefore we have designed policies to accelerate growth and development in that sector. Hence, for example, the initiative of the Government of Saint Lucia to launch the Financial Services Sector and we are now beginning to see the early signs of benefits from that sector. It is also for that reason that we accelerated investment in tourism and also decided to introduce Casino Gambling because we recognize that given the rather competitive environment that we were in we needed an edge over other competitors and at the same time to give a new dimension to our tourism product. So these are two key sectors.
The third sector that we have got into and we are yet to see the fruits of that sector, of course, is the free zone and we have now put into place the Free Zone Management Authority. Several of the buildings have been leased and I expect that this activity will continue. Over the past few months we have spent a considerable amount of time and energy to refashion the approach of the National Development Corporation and we have now targeted call centres as the next step in our promotion efforts and we are beginning, now, to see the results of that initiative. It is vital that we move into that sector and what has helped us to move into that sector is the impending liberalization of the telecommunications environment. Already one local investor has been granted incentives to move into that area and heís promising to employ some 500 to 600 persons. And quite recently, I had discussions with a company in Trinidad and they too are hoping to establish another call centre in St. Lucia, so in effect what has been happening, and quietly happening, is the gradual acceleration of tourism and the services sector.
This clearly has meant that the banana industry has taken on a subsidiary role in the entire economy. Now part of the difficulty that we have, Roger, is a psychological one. I think we are yet to appreciate that the economy of St. Lucia has made a fundamental transition, meaning that at this present time, Tourism and Services contribute roughly 13% to our gross domestic product. Bananas have now been reduced effectively to about 7% of GDP. Now inevitably once the banana industry is in trouble and is going through difficulties, and thereís no question that it is going through difficulties - we all need to recognize and accept that - then as far as an average person is concerned the economy is in trouble because bananas are doing badly. Now donít misunderstand me. Clearly, if you have difficulties in bananas, it will have an impact on the rest of the economy, because export revenue has dropped.
So I think we are well positioned overall and what all of this really means is that the private sector and investors have to read the signals from the economy. They have to appreciate that this is an economy that is moving in a certain direction and therefore have to be careful about the investment decisions that they make. Unquestionably, for argumentís sake and I am certain we will look at that, the retail sector of the economy is going through its own difficulties, not only because of competition, but also because of other factors I am sure we can talk about later.
Q. Interesting that you raised this because some of the cityís businesspersons have been complaining that the economy is in a poor state, we hear comments that business has never been so bad at this time of year. Is the economy in crisis, sir?
A. I often find these comments to be a little extraordinary. Itís interesting because there are some business places I see rapidly expanding. Julianís Supermarket for one, I mean, they have just opened a new supermarket in the car park. They are now about to invest in a major business in the valley and in addition to this they have moved north. Thatís Julianís. We see also M&C constructing a new home hardware along the Vide Boutielle highway, a new mall in Bois DíOrange and there has, of course, been rapid expansion even of duty free shopping.
Now there are some sectors of the economy that are under stress. I would say the retail sector in particular and I believe that those who choose to invest in the retail sector need now to be very careful about that kind of investment decision. Let me explain Roger. It is the sector that is likely to feel the pinch if there is reduced income in circulation. Secondly, it is the sector that is most amenable to competition. St. Lucians are very attracted to small business and everybody feels that they could really make their day in that sector. But more than this, it is a sector most vulnerable to external competition and there are now several St. Lucians who now prefer to hop abroad, go and purchase and return to St. Lucia. But more than that there is the impact of the Internet. There are lots of persons who have decided to shop on the Internet particularly now, with the new modern postal services, that you can get these things dispatched to you very, very quickly. Itís like the used car industry. Once the used car business was pioneered by Roserie, you had a situation where other St. Lucians pounced on it and immediately there was considerable competition within that sector. But more interestingly, ordinary St. Lucians opted to order their own cars, so now you have several hundred persons actually importing their own cars into the country. So I would say that the retail sector would feel some of the pinch especially outside of the Castries environment, precisely because of the declining export income from bananas. Now let me explain, and I am going to read to you from a document prepared by WIBDECO. Now letís look at some of the figures, and I think we need to look at the figures because one advantage that the banana sector had over the tourism sector, itís the percolation of money throughout the economy. In a sense once the farmers received income from the sale of bananas they were able to spend that income rather quickly and they had a high propensity to expenditure for all kinds of reasons. Not only because they had to maintain their own families but of course their own desire for basic material goods and services.
Now letís see what we are talking about. In 1990 St. Lucia earned 186 million dollars from bananas. In 1991 it was reduced to 146 million. In 1992 it shot up to 182 million. In 1993 it climbed down to 137 million and in 1994 it went down to 115 million. In 1995 it climbed up to 128 million, in 1996 it went down to 125 million, then in 1997, down again to 85 million. In 1998, it climbed to 91 million and in 1999 it went down to 87 million. In other words if you look at the period 1990 to 1999, over a ten year period, the income or the export revenue has in fact halved and it is very obvious that in a situation where you are going to have a reduced income from bananas, then you are going to feel some effects in the rest of the economy.
Q. Okay, so what is the current state of the banana industry? I know you have been meeting with farmers and have just completed a series of meetings with farmers and so on. Tell us, where does the banana industry stand at this moment?
A. The experience has been traumatic for the farmers. Itís not easy to adjust to this new (banana) regime. And I am not only referring to the domestic structure of the industry, but I am referring generally to the new marketing environment in Europe. The farmers of St. Lucia have been brought face to face with the realities of the market place and it is difficult for them to cope or to understand that market place. Those issues were never explained to them in the past. You had the old SLBGA and SLBGA, of course, operated by an overdraft and financed and subsidized the farmers. That is why, for example, up to 1997 the SLBGA owed in the vicinity of 46 million dollars, which really was a burden for St. Lucian taxpayers. So that faced with this new situation, and this new environment, it is traumatic. It is difficult for a lot of those farmers and Roger you must not forget too that a lot of the remaining farmers are in their 60ís and their 70ís. Their whole life has been in that industry. So it is not easy. It is painful. Interestingly, the European union who has been financing investment in the agricultural sector, in the banana sector in particular is now suggesting that St. Lucia should reduce not only its acreage in bananas, but also the number of persons involved in the industry. And they have come to that conclusion on the basis, not only on the market trends, but also of the ability of the farmers to survive in the new environment. It is also the case too that they have made that recommendation against a background of higher productivity, higher yields per acre and this is going to require substantial investment in irrigation. But just to bring home the point, when we now export bananas, particularly to supermarkets, farmers are now required to put extensive labels on the packages containing the fruits. The consumer now wants to find out what are the inputs, what are the insecticides, that go into producing the banana and all of that must be labeled. It now also means that the farmers are required to keep records of the various interventions in the production chain. Now clearly this is not just additional expenditure, but the process is trying to transform these farmers into small businesspersons.
But there are some paradoxes. You will recall, of course, that last year productions fell. The Europeans intervened by making a substantial sum of money available under the banana recovery programme. In fact, some 20 million dollars was made available for on lending to sustain farmers and we have seen some improvement as a result of that on lending. For example, in the case of this year, banana production in St.Lucia has actually increased and St. Lucia continues to out perform both St. Vincent and Dominica but the reality is that we donít see it that way in St. Lucia. I am going to again refer to the WIBDECO report and give you some figures. The September data from WIBDECO shows that St. Luciaís year to date production is 52,030 tons compared to roughly 47,858 tons for the same period last year. In effect, this represents an increase of 4,170 tons or about 8.3 %. For the Windward Islands as a whole, production to September increased from 96,366 tons to 102,875 tons or by 6,509 tons, in effect an average or overall increase of about 6.8 % which means that St. Luciaís increase is in fact ahead of the increase overall in the Windward Islands.
Interestingly, we continue to do better on quality scores, far better than both Dominica and St. Vincent and in the case of St. Vincent, normally championed by some persons in this country as the model to follow, clearly even in the context of our own changes here, we are doing far better than they are. St. Luciaís quality assessment score for September averaged about 84.3 % and for the year as a whole, roughly about 75.9 %. Both those figures were above last yearís figures and in September 1999 our quality average assessment was 76.5 % and the year to date for September 99 was roughly 73.3%. Additionally St. Luciaís quality assessment of 84.3% in September of this year was higher than that of Dominica about 79.5% , St. Vincent 76.7%, Grenada 79.6%. Likewise, and this is not something that is even appreciated, the free on truck or what you call FOT earnings of St. Lucia banana companies in September 2000 averaged ₤8.51 per box. For Dominica it was ₤7.81 per box for St. Vincent, ₤7.66 per box and Grenada it was ₤7.30 per box. Clearly again St. Lucia has exceeded the average of ₤8.10 per box.
The simple fact therefore Roger is that despite all the trauma, that despite all the pains, despite the fact that we have had a significant drop in export revenue, we continue to hold our own in the Windward Islands and the percentage production figures, which we have always had in the Windward Islands has in fact been maintained and you may ask why this is so. The other islands are not just in equal trouble; some of them are in even more serious trouble than we are and namely Dominica where the debt has risen substantially for their own marketing company. And of course in the case of St. Vincent, they have been helped largely because they invested in irrigation early, because it was easier for them to do that than was the case here in St. Lucia.
What I want to bring across is yes, the economy has suffered because of the decline in export revenue from bananas. There can be no question about that in the figures that we have had but it is also the case that coinciding with the decline in prices, we have actually increased production figures. Certainly, not as high as I would have liked, but clearly we have to understand that farmers are in fact, for all practical purposes as indicated earlier, in a business and they are going to be attracted by the earnings which they receive from the industry.
So there has been some impact, there will continue to be some impact, but St. Lucians have to appreciate and I think increasingly thereís recognition of this -that we have to continue to reposition this economy. You really canít put this economy into shock, into reverse gear. We have to massage the economy at this time, make sure that this economy manages the transition relatively smoothly so the investment in the new sectors can eventually take over. The fact of the matter is that there is a transition in the banana sector. I mean some farmers have left the industry and this is an attrition that is readily apparent in every island in the Windward Islands particularly in the case of Dominica where the movement is even more startling and dramatic than has been in the case in St. Lucia. The problem however is that some of the persons who leave, as I said, theyíre in their 60ís and their 70ís and it is not easy to redeploy them elsewhere in the economy, except of course if they decide to diversify and the Ministry of Agriculture is leading that effort at diversification. But it also means that the other sectors cannot grow as fast as we would like those sectors to grow, to absorb those persons that inevitably will have to give way in the banana industry.
Q. So is the banana industry on its last legs?
A. Roger, itís going to be difficult. It will be difficult, but the industry will survive. It will require a new farmer. It will require a farmer who operates a business. It will require a farmer who is prepared to invest in irrigation. It will require a farmer who understands the marketing environment. It will also require a farmer who is prepared to experiment. But the point I want to drive home is this. Bananas will be with us. Bananas will no longer be king; that there is going to be some stress, there is going to be some pain. People will find all kinds of reasons to give explanations to developments within that sector, but we are in the middle of the transition and I would say that it is vital that we continue to work on reshaping the St. Lucian economy and most crucially that we do not engage in acts of adventurism. We have to massage this economy and let it move in the direction it is supposed to go.
Q. Given all of this some persons are saying that the privatization of the industry has not worked. What are your views on that?
A. I donít agree with them. I mean, unquestionably some farmers are unhappy. They are unhappy because they are accustomed to their old ways. A couple things. The word privatization, I think, has always been an unhappy word. It has become part of our political lexicon, part of our political vocabulary. What in fact happened with the banana industry was really the transfer of the ownership and assets of the industry to the farmers. We are not talking about privatization in the sense that the industry was sold out and a private company bought it or the Government created a private company of its own. What in fact happened was that a company structure was used to transfer the assets and also the liabilities - there were very few liabilities if any - to the farmers via the mechanism of a company.
Now that route was taken for a number of reasons. Firstly, if you go back to the Cargill Report Ė and you know that that was the report that fashioned the approach for the former United Workers Party government, for the Government in St. Vincent and Grenada and Dominica - the Cargill Report made it quite clear that we have to try and do our best to remove politics from the industry; de-politicize the industry as much as possible. The second thing, the Cargill Report made the point that the industry could not possibly survive unless it was commercialized and by commercialization what they really meant was that the farmers have to operate their farms as a business and the governments have to stop subsidizing the industry by way of debt and overdrafts. Now the report was pellucid; it was very, very clear. The St. Lucia Labour Party in opposition made it very clear that that was the direction that we would take.
Now obviously there have been some unhappy developments and there is no question about that. While we understood that there was always a possibility that there would have been more than one company, we did not envisage, for example, that in the case of the SLBC (St. Lucia Banana Corporation) that there would have been some disintegration in the sense that two other companies would have been formed from some of the members of the SLBC. We had more or less assumed and imagined that there would have been two major companies SLBC and TQF (Tropical Quality Fruit Company) and that really would have been ideal. But it is unfortunate that circumstance developed so farmers are concerned, and rightly concerned, that we have more than one entity and in a situation where you have stresses and tensions in the industry then the reason that suggests itself as the easiest one will always be employed to justify arguments. And so it is with some farmers who feel the company structure clearly is not in their interest because they feel that a division is not needed in the industry. Now I agree with that and certainly I would hope that the situation would change but I take a long view. We have to understand that if we are operating in a marketing environment then we must allow the market forces to prevail. My own feeling is that some of the other companies, I donít know which one, will not be able to survive. They canít survive being undercapitalized.
Now letís look at the facts and letís broaden the discussion Roger. If privatization, and recall my own unhappiness for that term privatization, was the problem in St. Lucia, then why on earth in Dominica where they have not privatized theyíre in so much trouble. Why have they lost so many farmers? Why have their debt accumulated in Dominica? Why canít they come to grips with their situation? Look at St. Vincent. Why the drop in production in St. Vincent, despite the introduction of irrigation? Why the price structure? The question is, how long can St. Vincent and Dominica hold out? And the recent recommendations of the EU (European Union); they have made it absolute clear that commercialization is the way to go. So when we try something new or take a new departure Roger, I believe that you will get stresses. You will get problems. After all no major initiatives, no major readjustments will be without problems. There will be and rather than see problems as being insurmountable - there is no way you can engage in any reform if you do not have consequences from that reform - what matters most is the management of those consequences.
Q. Given what is happening with the banana industry at the moment, what has the government done to deal with the diminished inflows of foreign exchange occasioned by the lean period in the banana industry?
A. My first strategy was to improve the current and overall balance of central government and hence the early fiscal measures that we put into place. First we had to raise local revenue, and having raised local revenue, we had to also go to control expenditure. And for the last few months there has been a reduction in local expenditure. Some of that has been occasioned to by the fact that the wage bill and the public service have also been reduced. By not the sort of margins that I would like, but largely because of the policy of invitation to public officers to retire if they so wish and itís a carefully thought out policy by the way because we recognized too that there was a pool of talent and a lot of civil servants had money tied up in their pensions which they can then use and put in the economy. So that was really the first thing. The second thing of course, was to maximize our revenue from the tourism sector and therefore growth in that sector was critical and crucial. The more tourists we brought in, the greater the capacity to enhance revenue intake and collection. Not only through HAT but of course through your departure taxes. That is why from day one we pushed investment in that sector and let us see what has happened very quickly. We have had the expansion by Sandals as I indicated I think in the vicinity of some 21 million dollars. You have had Hyatt. You have had this brand new 18-hole golf course in the north. You have had the expansion at Le Sport, You have had expansion at Bay Gardens, renovations albeit force by Lennie at the Royal St. Lucian. You now have the small hotels in Vieux Fort under expansion. Kimatrai has changed its owner and the new owner is now busy remodeling. So too has that other small hotel, Julietís Lodge, that is undergoing change. In addition to this of course we have had increased airlift - Air Jamaica has been flying frequently to St. Lucia so we have better links. Crucially has been the investment in our cruise ship tourism. Our overall objective was to increase numbers because the tourist dollar had the greatest potential for revenue collection. One of the formidable problems with tourism is that it has very high level of leakages because of the heavy importation of supplies for the industry and we have not done well enough to develop linkages between the tourism sector and the agricultural sector. We have therefore concentrated to spur investment in that sector and we will continue those efforts and that is why even the casino gambling was a measure in that overall direction. So thatís the second. The third of course has been to ensure that we tap other sources of income. Encourage our own residents abroad to think of returning home to St. Lucia. You recall as government introduces very policy of granting returning nationals who have spent at least 10 years abroad duty free consumption tax-free on personal items etc. Because its far better for our nationals to bring home their income and to utilize that income here than to expand abroad. So I feel that the major thrust of the Government has been to push tourism as much as possible. But more than this I donít think people ever need to worry about management of the monetary policies, because we have one central bank and that central bank controls monetary policies. No government controls monetary policy in the OECS or in the membership of the OECS community. That is down by the central bank and we know that there are very clear patterns. Once the tourism season kicks off, and of course youíll notice that it has. This is November. Your revenue intake between November and May tends to be much better, much higher because this is really the pick season. After May when things level out a bit then the revenue intake goes down a little bit. So we are now beginning to see almost a certain pattern in the circulation of money. With bananas the money circulated year round. There was always some money to fall back on even though you had the traditional declining prices. With tourism on the other hand, it is a little truncated that the highest amount will circulate, let us say between November up to about May, up to the Jazz festival, then it tipples off after that. So essentially, we have been trying to utilize that, and of course to push investment as much as possible but we are in a very comfortable position and I have no anxieties about our capacities.
Heritage Tourism and put a considerable amount of resources and we have opened up several sights around the island. The objective of the government is not only to maximize on this extraordinary beauty of our island, to make use of our natural assets and by the way we have to get away from this business that those assets are to be enjoyed only by tourists. Thatís not so. Itís important that St. Lucians enjoy their country. It belongs to them and believe you me we have assets that are not easily matched elsewhere. So we have attempted to diversify in that sector. Now you recall in the last budget I mentioned that we would be constructing jetties in three communities. Anse La Raye, Canaries and Laborie. Now the objective behind this initiative is not only to facilitate tourists who decide to visit the island, to sail around the island but also to encourage even our own local people to get involved in a little entertainment to take excursions, to go down, take a boat and go down to Laborie and spend a day. Likewise with Canaries, and I have also seen some new initiatives obviously. The fish fry in Anse La Raye, which I think, has very very great potential. I am very pleased with what is happening there because I think youíre probably aware of the fact that I inspired it to some extent. I thought that Anse La Raye needed to be brought into the main stream. In addition to this of course have been the other investments and we are beginning to diversify our tourism product. That 18 hole golf course at cap I think is a wonderful addition, it will make a lot of difference and we are also beginning to see some subsidiary services where I think St. Lucians have got to use their imagination is really to fill in the gaps in that sector. There are a number of additional services that can be made available. For e.g. I havenít been able to convince anybody to get into the business of selling flowers to the cruise ship passengers. It makes a wonderful difference. If youíre going back on the boat and you are there with your wife, possibly girlfriend or fiancť, if you can buy a bunch of flowers and say come on letís go on board. So we have those gaps to fill but it is vital that we allow the benefits to percolate now one of the aspects of the governmentís policy is to encourage all sectors in the industry. The business of encourage only hotel investors, I think we have had to reverse on that and government has embarked to keep policies firstly. We amended tax legislation to make it possible for persons who receive tips etc, not to be taxed on tips. We did that very early. Secondly, we introduced last year the policy of allowing taxi drivers to import vehicles duty free and consumption tax free. Some persons criticized us for that, but we thought it most important that we begin to reshape the fleet that we have and to bring the taxi drivers into the ministry of tourism and I think the policy is beginning to work well. As a matter of fact, as I go around I see some new taxis and I am really very pleased by what I see. So there has been a lot of development and the government will continue to push tourism, I will also tell you that I want to review the incentives regime and I want to provide even more encouragement, particularly for those investors who pumped any significant sums of money like 100 million dollars into the sector, so I might be in a position to make some announcements in due course.
Q. Some persons are saying that the government is providing too many concessions. Are these concessions impacting on governmentís ability to fund its programmes?
A. Yes! Absolutely, yes! And the civil servants - those who manage the economy -constantly complain that we have been far too generous. I guess there are two sides of a coin. I mean, they complain we are too generous, others say we donít give enough concessions. Take a look at the range of concessions that have been introduced by this government. The manufacturers are now getting their rebates in respect of the consumption taxes; we just spoke about the taxi drivers who have got concessions, the minibus drivers have concessions in some form and we continue to grant concessions to persons who are investing in this stream. We have expanded the range of concessions to small businesses in particular, especially those who obtain benefits under SEDU (Small Enterprise Development Unit). As you know, the churches get their range of concessions and we expanded that to include the non-traditional churches. The civil servants are not very happy with that. Every year around Christmas time I get a memo pleading with me not to continue the policy of allowing barrels to come into the country free of customs duties. And the concerns are very, very real but the reality is that because we are in this period of transition we have got to establish mechanisms to urge the economy along.
Thatís one of the reasons why we have gone in and given extensive concessions in respect of housing and building. Right now, for example, if you are renovating, constructing or redesigning a business place in any of the towns - Castries, Vieux Fort or Soufriere, we would grant you duty free concessions on the materials. Already we are beginning to see the benefit of that policy in the city centre and about seven or eight persons have actually made use of this facility. The other thing the government has done, and this really has been a quiet revolution of sorts, is the expansion of the duty free shopping sector. I once suggested that I want to see St. Lucia become a shopping Mecca for the Caribbean and part of that strategy was to encourage even more duty free facilities. And we are being very very liberal.
Q. Employment and employment generation, always an issue. Sir, what has the government done to create employment and generate employment opportunities?
A. I remember the heated debate a few months ago with the employment figures. I will say generally the investments in some key sectors. There have been key initiatives in the private sector like the expansion in Sandals (Resorts), expansion in the hotels, restaurant services etc. We have employed also several persons through investment in the public sector. The major activities, the car park for one, then the new Ministry of Communications and Works building, in addition to the Free Zone in Vieux Fort and the fisheries complex again in Vieux Fort. Now we have the stadium on the way in Vieux Fort. We have the prisons in Bordelais on the way. So the Government strategy has been to push and nudge the construction sector because the construction sector is really a sector that can absorb a lot of restless people. Now I have heard the comment, the suggestion made, that the benefits of construction have not been as significant as it could have been because in some cases foreigners or foreign companies have been employed. A lot of persons do not understand that sometimes the money for investing in the public sector is borrowed regionally, for example the Caribbean Development Bank, and through other institutions, but it also means that once you go through these institutions that other eligible companies in those member states qualify and thatís a condition of the loan of the membership. But I am really very pleased that even in the case of the car park that a lot of small contractors were employed.
Now a key element of the government strategy has been self-employment. It is clear that government does not have the capacity to employ everybody who wants a job. Government will never have that capacity. So you either have to hope for expansion in the economy, or crucially, we also have to encourage persons to engage in their own economic activity. That is why the government has pushed entrepreneurship and critically and crucially established the Belfund as well as engaged in Poverty Reduction activities. Now the Belfund is beginning to introduce some interesting results and I am really very happy with its operation because it is targeting persons in depressed communities - persons who have experienced poverty first hand - and helping those persons to transform themselves into small businesspersons and I am really very pleased by that. And increasingly, because of the money that is being made available to diversification in the agricultural sector, whether it is through SLREP (St. Lucia Rural Enterprise Project) or REDIP (Rural Enterprise Development Investment Programme) and again as I suggested through SEDU, you will find expansion in self employment activities.
The other limb of the government strategy has been retraining and the government now is about to open a Skills Training Centre and the objective of the Skills Training Centre is not only to train St. Lucians for the workforce but also to facilitate investors. Such that, for example, if an investor is going into an economic activity and he needs persons with a certain level of training, the skills training centre can do that. Now the centre is being established at Bisee and itís my understanding that it should be opening shortly. But here again we begin to see the elements of a strategy. Firstly push investment in the key sectors particularly the public sector investment. Secondly nudge and push the construction sector because we recognize it is a significant employer of labour hence the investment in housing and the concessions. Thirdly, self-employment, hence the establishment of the Belfund and SEDU to encourage persons to get into business activity. Fourthly, retraining of the workforce and the final element I would say itís the redesigning of NDC (National Development Corporation) and allowing NDC to select those niches where the impact would be significant. Hence our emphasis on the new call centres because the potential for employment there is immense. If our local investor comes through with his investment and he is able to employ five to six hundred persons and the potential investor from Trinidad comes in and he too is able to employ six hundred persons then it means in one shot we have provided jobs for about 1200 persons. And I am very excited by the call centres and I really do hope that we can maximize the benefits.
Q. Now Sir, the governmentís strategy of providing short term employment has been criticized roundly, some arguing that it is not achieving any productive purpose. Would you explain in simple terms how providing 3 millions dollars for such a programme is expected to help the economy?
A. I disagree with you Roger, that it has been criticized roundly. It has been criticized by some persons yes; certain commentators. But let us go through the history of it because I think there are two particular interventions that arouse the passion of some persons. Firstly, the 11 million dollars of the STEP Programme (Short Term Employment Programme) and recently I announced an allocation of 3 million to provide short-term employment before Christmas. As all of us know we do have a serious unemployment problem on our hands. Thereís no getting away from it. I mean this government inherited an unemployment rate of between 22 - 25%. Itís there. Itís a fact. Itís resilient and itís not going to be easy to deal with but we have to keep on at it and I think any reduction in unemployment is welcome.
Now when the government assumed office the country was going through a serious liquidity problem, and it is interesting too that this was also a period where the business houses were complaining that there was very little money in the economy. Therefore the government had two basic objectives. Firstly, to bring unemployment relief - I do not mean relief in the traditional sense - but to put St. Lucians to work in socially acceptable initiatives and also to assist the private sector. It is forgotten that under the STEP programme, the government said to the private sector that those who wish to expand their workforce, government would provide fifty per cent of the cost of employing additional persons. So it can never ever be said that the government did not give a helping hand to the private sector. It did. And there were some private sector entities that cooperated and employed a number of persons under the STEP programme who continue to be employed in some of those companies. In effect, one may say that the STEP programme also functioned as an apprenticeship system for some persons but critically and crucially, Roger, the initial expenditure on the STEP was designed to ease the liquidity situation, particularly to bring a number of persons into the economy because we knew that persons had been so starved of employment over the years that once they got the money they would promptly spend the money, which they did. There were persons who for example, built small houses and there were persons who used the money to purchase items that they had long been denied. The fact of the matter therefore is that the primary beneficiary of that expenditure was really the private sector because those persons promptly used their income and went shopping to purchase items and the government felt it necessary, very very quickly to allow some money to enter the system to ease liquidity.
Likewise, although the situation now is a little different, the liquidity situation in St. Lucia is far better than it was a few months ago. The level of deposits to credit has increased. Now some may say this is either a good thing or a bad thing but as far as I am concerned St. Lucians need to save more and if deposits can increase, even if they think they are doing so because they are concerned about the future, then it is a good thing for the banking sector. And I have no difficulties with it because we have wanted to ease the liquidity situation. The liquidity situation now is not identical therefore to the liquidity situation when we started STEP. Enter the three million dollars, it has always been the case since this government has been in office that around Christmas time we always try to beautify and tidy up the country. The philosophy is very simple. Saint Lucia is to be enjoyed by Saint Lucians first. If tourist and others come in and they like what they see, fine. But if Saint Lucians can feel good about their country they are bound to feel a little better about themselves and so some three million dollars is intended to facilitate that activity - to put that country in shape. But at the same time we have to face the reality, there are some persons in our country because of the failure to train them over the years who, because of their positions in life, will not be able to find other sustainable jobs. Are we to forget these poor people? Where is our social conscience? What has happened to that? What has happened to our desire to reach out? And surely no one can dispute the fact that if you are spending money to beautify the country you are engaged in economically and socially useful activities. There can be no question about that because at the end of the day that money will find its way into the supermarkets, into the business places.
Now it is erroneous to suggest that the entire three million dollars is, in fact, going to persons employed by the NCA (National Conservation Authority). That is really not so. The government has pumped an additional 1.5 million dollars for small-scale infrastructure projects, particularly in the communities, whether it is footpaths, drains, sidewalks, or bridges. If you walk around Saint Lucia the infrastructure of our communities have virtually fallen apart. It has been in decay now for several years and we do have a lot of repair work to do, so at least 1.5 million is intended to resolve problems in communities, to provide facilities which, in any event, is expenditure we are supposed to engage in.
I think some of the comments have, clearly, been misguided. Obviously, I would much prefer if the jobs occurred by expansion in the private sector but the reality is if you were to inject that money into the private sector, it would take them months and years before they begin to reap the benefits of it and in any event the private sector is a recipient of tremendous amount of incentives from the government. We assist in a variety of ways so I donít think that ought to be the issue at all.
Q. The construction sector, what is the outlook like, although the Bordelais facilities are continuing, there are some other projects that are winding down. What is the outlook like?
A. There has been a slight slowing down, particularly on the public sector side because I mean the car park is completed, the Free zone is completed, the Ministry of Communications and Works, that is near completion but, I expect an acceleration. Firstly, on the public sector side, we have the stadium. Then of course you have the cricket field in the north about to start; then you have the prisons now under construction and there are many public sector projects, which I mentioned earlier. Then thereís going to be that massive injection from the CDB-funded road construction early next year. If you travel around the country now youíll notice that they have started to mark the highway - the Castries/Vieux Fort highway. And that is intended to prepare for the resurfacing of that entire route. Then, there is a new road between Soufriere and Vieux Fort to be constructed as well. The Government, as you heard only yesterday, will be injecting additional money to conduct an assault on the road system in the next budget because I think we have to bring it into shape as quickly as possible. There are serious problems in some communities, in particular the agricultural communities. So I expect that there will be substantial road construction.
But the Governmentís thrust has also been in the housing sector. That is why very early on we introduced some new initiatives. For example, people who saved a minimum of six thousand dollars a year, we allow tax deduction for those savings because we want to encourage savings and want people to move into construction and the Governmentís policy has also been to encourage house ownership. That is why we have established PROUD to at least confer to people the possibility that they can own a lot of land; they can call it theirs because once you own land you can enter the economy. You have something you can bargain with, you can go to a bank, you can take a loan, and you can finance something. So ownership of property is key and I want to see more St. Lucians own land.
In addition to these initiatives, Government has recently approved a special bond issue of some 20 million by the NCB (National Commercial Bank) intended for on lending to the housing sector, particularly to the lower income groups in our country. So I would think that the construction sector again would pick up its momentum. We need to encourage it.
There are a number of tourism related projects, but you know me, I would not want to say anything about those things now because I donít want what happened to the former regime to happen to this government - meaning that you announce the project but it does not materialize. Iím petrified of that. I will announce them, when I see the actual projects on the ground. So I think despite a little slow down in the first half (of the year) in construction, by now you are beginning to see again the momentum Iím speaking of.
Q. Fuel prices have been going up all over the world and recently the government was forced to increase fuel prices here. Obviously these increases will impact on the economy in one form or the other. What are the experts saying about this rate of increase in fuel prices? Are they going to go down? Are they going to increase further?
A. First of all, the effects of the fuel prices are already beginning to be felt in the economy. We have to understand that most of what we utilize we import it, and therefore in the countries where the items are produced, because companies have to pay more for fuel, they are going to pass on the costs along the chain to the consumer. So that, make no doubt about it, some of the increases we are experiencing are a direct result of that and already too you could see the impact most directly when you travel. Airlines are now charging extra for fuel. So there can be no insulation of the St. Lucian economy from that phenomenon because we have to import and once the goods are produced, manufactured and the boats or whatever or aircraft get to transport these items to St. Lucia then there are those additional costs.
Q. Any relief in sight?
A. Before I come to the relief question we must have one particular concern and thatís its effect on inflation in St. Lucia and the governmentís policy, as you know, is deliberately to absorb some of the initial cost - up in the vicinity of 20 to 24 million dollars, I canít quite remember the figure right now - to ensure that we contained inflation. I was also concerned about the fact that we had made this dramatic conversion to the CET (Common External Tariff) and therefore if you had a situation of rising fuel prices and price hikes as a result of the CET, I had to be careful that we did not push inflation too much. And in a sense it was a policy of containment of inflation.
Despite our best efforts, the cost of fuel has had an inflationary impact and youíll see it in the most dramatic way in the fuel surcharge of LUCELEC (St. Lucia Electricity Services Ltd.). Now the question is, whether there is any relief in sight? There are so many factors to consider. It is going to be crucial that there be some stability in the Middle East. I think you saw the dramatic effect on the market once the tension between Israel and the Palestinian state was obvious. So I think that is going to be one key factor. The second, of course, is the pressure on the cartel. The period of the 1970ís, when the cartel could have justified such increases, is a very different period from today and my own view is that developed countries have to say in clear language to the cartel as well as to countries such as Venezuela, that this is unacceptable; that they are doing damage to the economies of developed countries and we mustnít mince our language. We have to say this to them in very clear and direct language. Itís not just the economies of the Western world that they are putting under pressure, but they are putting under pressure countries that are developing and developing countries are paying the highest price because we are less able to absorb those prices.
I think the initiatives by some countries, particularly the initiative by Venezuela, are useful. We are yet to see how that will work out in the case of the OECS because we donít have refining capacity. But I believe that there are ways that can be explored to assist in a reduction in prices. I also want to take the opportunity to say to the St. Lucian public that once there are good signs of sustained reduction, we certainly would respond in accordance with the formula which I had announced in the budget, and so far I am very appreciative of their response to the measures taken by the government. I think this is one time the television screens are useful because they could actually see whatís going on around the world. And interestingly the Barbados government recently announced a further hike in its own fuel prices and I believe fuel prices in Barbados probably are approaching about 10 dollars a gallon. So I believe there can be relief. Itís difficult to say exactly when the relief will come because there are so many factors at stake. But certainly the situation in the Middle East is key and I think developing countries do have to exert maximum pressure on the cartel and particularly members of the cartel who are extremely close to developing world.
Q. Finally Sir, at this time next year where do you position St. Luciaís economy and what will St. Lucians be saying about the economy?
A. I think this time next year will be interesting, very very interesting. I hope our call centres will be off the ground so some substantial employment will be created there. By then of course the road programme, CDB road programme, will be on its way. The stadium will be nearing completion, the prisons will be nearing completion, additional housing would be on the way, and hopefully too additional investment in the tourism sector. I think we have made a transition and we still have some pain to undergo in the banana sector, but I want to say to St. Lucians that they have to make a psychological leap - this tendency for us to believe that because bananas is in trouble then the whole economy is in trouble, I think we have to divorce ourselves from that kind of thinking. Yes we have problems in the industry, yes we share all those problems with the Windward Islands, but I think they have to look to the other sectors of the economy. Those new sectors that we have positioned and we are going to begin to see the benefits of those sectors. I also want to say however that we have got to be very careful about investment in the retail sector. That is where the competition is, that is where the stress is, and looking at what is happening in St. Lucia I believe we will be going through some furious competition in the next few months. For some it might be good. For others not good.
Q. Well Sir thank you very much for taking time to discuss the current state of the economy with us and we would of course be happy to have you back anytime that youíre ready.
A. I enjoyed this and I have a feeling we should do this more often but possibly on the next occasion when we do it we should intersperse it with it some telephone calls so that I can answer some questions because its not all the time one has the time to respond to so many of the things that you hear already on television. I do enjoy the dialogue. As I have said before certainly I welcome discussion on St. Luciaís economy. Iím not suggesting by any means that this economy is the healthiest economy, but what I can say is this, that I think that we have made an important transition. The economy is well positioned. There is now considerable fiscal discipline. This economy has been very thirsty. We have had to pump money into this economy. But I think in the end the results are clearly emerged. And while I am realistic enough to know what the strains, what the pressures are, where the areas of pressure exist, I am also confident about the future with St. Lucian economy.
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