Address at the 18^th Annual General Meeting

of the

Saint Lucia Industrial and Small Business Association

By

Permanent Secretary in the Ministry of Trade, Industry and Commerce

Titus Preville

August 19, 2007

Fox Grove Inn, Mon Repos

Theme: Strategic Positioning in the CSME

Salutations

Context
 

The CARICOM Single Market and Economy came into force on January 01, 2006. The establishment of this arrangement was driven by the need to create more competitive companies and firms throughout the CARICOM region in order to be able to compete with the goods and services produced by firms from the more developed world. Given that the WTO, of which CARICOM countries are members, have agreed to a process of progressive reduction in the level of tariffs that we can impose on goods imported into Saint Lucia and the rest of CARICOM from the advanced economies (trade liberalization), it became evident that the Governments of CARICOM would no longer be able to protect their domestic industries by such means. Even more critical than tariff reduction it has become extremely difficult to impose quota restrictions on the importation of goods into CARICOM economies from the developed world. We all know that quota restriction is a more effective means of protection than high tariffs. However since imposition of quotas is deemed more discriminatory than the use of tariffs, quota restrictions have been identified as incompatible with the process of creating greater efficiency in production. Hence the WTO has virtually outlawed the use of quotas as a means of protection.

In the face of the eminent increase in competition that would arise from trade liberalization the Heads of Government decided that the best way forward for the Region is to improve on the competitiveness of their domestic firms and companies and the general level of competitiveness of the Region as a whole. But what would this really mean?

With respect to improving the level of competitiveness of firms it was envisaged that there must be the free movement of all factors of production. This meant that labour should move freely throughout the region thereby encouraging competition in the labour market so that the quality of labour would improve so that firms would benefit from this factor. Better quality labour means better workers and greater productivity for firms thereby improving on the level of competitiveness of firms.

Free movement of capital would mean that firms would have access to the cheapest capital under the best conditions possible. Given that the cost of and access to capital are two factors inhibiting the establishment and growth of businesses in the Region it is reasoned that with free movement of capital the Regions businesses would benefit from a more efficient capital market.

Another factor that is critical to production is access to land and production space. The right of access to land for the purpose of establishing a commercial presence and for establishing a home is guaranteed in the Revised Treaty.

The final aspects of the Revised Treaty establishing the CSME are the right of any and every CARICOM national to establish a business in any member state and that there must be no discrimination on the basis of nationality of the CARICOM National.

Analysis of Implementation of the Revised Treaty

If an analysis of the conditions outlined above is carried out the following would emerge:
 

• With respect to the free movement of labour there has been limited free movement of certain skilled professionals. In the main, the areas that have been liberalized are related to management professionals. The other skilled areas have not yet been liberalized though there is the intent to have full liberalization by 2015.

• Capital movement is free within the sub-regional grouping of the OECS but restriction exists on movement of capital between the other member states as currency differences imply foreign exchange convertibility and the losses associated with is. In addition there is always the matter of currency value instability.

• With respect to access to land it has been agreed that all firms will have access to land and buildings for the purpose of conducting business. There should have been full access to land but at this point, there is a reciprocal arrangement among selected member states.

• All members have amended their legislation to ensure that there is no legal basis for discrimination on the basis of national treatment.

The EPA Negotiations

There is one other factor that should be borne in mind as one seeks to position oneself in a post CSME environment. This is the current negotiations with the European Union in the establishment of an Economic Partnership Agreement with CARIFORUM. Under this Agreement the European Union has insisted that there will be no distinction among member states of CARIFORUM as it related to how the EU will treat CARIFORUM members. This means that the countries identified as less developed within the CSME are not recognized as such in the EPA. Competition from goods and services into OECS markets will be of the same order of magnitude as with the rest of CARIFORUM.
 

Opportunities

Against this background what are the opportunities and possibilities for survival for micro, small and medium enterprises.

1. In the first instance there must be a decision on production strategy that should be adopted. Given the very small size of most of these businesses and the very small individual markets in which operations take place, it would seem that economies of scale that would be present in the larger members of CARICOM will not be realized in the OECS countries unless the following options are explored. There must be a concerted effort to introduce internationally recognized standards in the production process in individual firms. Once this is done then there must be a pooling production across individual member states where identical products are produced so that an impact can be made in the individual markets of members of the OECS and secondly in the wider markets of either CARIFORUM or the EU. The level of cooperation must be such that individual companies may have to form themselves into a single company so that individual owners become shareholders in a Pan-OECS company producing a single product.

2. Secondly, where heterogeneous products are produced there is need to seriously examine how networking can leverage individual competencies to ensure a cluster of companies can provide more than any individual company. Again, the foundation of these individual companies must be a basic adoption of international standards for the production process.

3. It is my view that in the first instance small businesses should seek to create alliances within the OECS. The presence of the Eastern Caribbean Securities Exchange creates a platform for easier access to capital with no foreign exchange risks. This however calls for a radical shift in the ownership structure of small businesses. Instead of the present dominant ownership structure where individual families own their businesses, one has to seriously consider converting these companies into publicly traded companies with persons having the possibility to purchase shares in these companies. This will significantly increase access to capital and address one of the more stubborn hurdles that have plagued the growth of the small business sector in the Region.

The small business sector should therefore seek to consolidate firstly among themselves within the OECS as the Revised Treaty offers some level of protection for the LDC(s) vis-à-vis the MDC(s) through Article 164. Secondly, although not yet fully functional, the Revised Treaty makes provisions for the use of the Regional Development Fund by Disadvantaged Countries Regions and Sectors. In that regard, the Regional Development Fund serves as a buffer for companies with in the LDC(s) which may not be successful in the first instance as a result of the impact of the CSME. If members were to establish in the MDC(s) then they would not have the benefit of the Fund.

The Way Forward

The way forward for the small business sector therefore calls for a change in approach to business and a change in mindset. I am aware that what is being asked of you may be difficult but I dare say that these are only some the changes that have to be studied and implemented if the small business sector is to succeed in this post CSME environment.

Now I am aware that some of you may be asking about is the role of Government in this new dispensation. Government to me must do the following:

• Review its taxation policies to reward companies that become efficient and grow and produce.

• Employ strategies that focus on building domestic capacity at the firm level though policies that reward innovation and the use of advanced technology to improve efficiencies.

• Examine the possibility of making access to capital easier. This can be done through the establishment of a Development Finance Institution.

• Provide market intelligence and help companies penetrate new markets.

• Remove bottlenecks in the economy so that trade is facilitated and not hampered.

• Provide more predictability in the domestic economy by providing a development plan for the country so that the private sector can have knowledge of what the medium to long term future looks like.

I believe that this is only the beginning of the things that have to be done. Let me take this opportunity to wish the new executive the very best and I look forward to working with you in the next year.

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