Economy of Barbados


Economy of Barbados

Overview

Since achieving independence in 1966, the island nation of Barbados has transformed itself from a low-income economy dependent upon sugar production, into an upper-middle-income economy based on tourism and the offshore sector. Barbados went into a deep recession in the 1990s after 3 years of steady decline brought on by fundamental macroeconomic imbalances. After a painful readjustment process, the economy began to grow again in 1993. Growth rates have averaged between 3%-5% since then.

The people of Barbados are referred to as Barbadians or Bajans.

History

Pre-independence

Since the first settlement by the British in 1625, through history the economy of Barbados was primarily dependent on agriculture. It had been recorded that minus the marshes and gully regions, during the 1630s much of the desirable land had been deforested across the entire island. Quickly Barbados was then divided into large estate-plantations and using indentured labour mainly from the British Isles for the cultivation of both the crops Tobacco and Cotton were first introduced. The island, facing a large amount of competition from the North American Colonies and the other Caribbean islands switched to the crop of sugar cane. Cultivation of sugar cane was quickly introduced by the exiled Jewish community which immigrated into Barbados from Brazil during the mid-1600s. This became the single best move ever for the Barbados economy at the time, the economy boomed and Barbados had become populated with so many windmills that the island had the second highest density of windmills per square mile in the world, second only to the Netherlands [http://www.barbados.org/windmill.htm] . For about the next 100 years Barbados remained the richest of all the European colonies in the Caribbean region. The prosperity in the colony of Barbados remained regionally unmatched until sugar cane production grew larger in geographically larger countries such as Haiti, Jamaica and elsewhere. Despite being eclipsed by larger makers of sugar, Barbados continued to produce the crop well into the 1900s and to this day.

With the emancipation of the African slaves in the British Empire in 1834, thereafter many Bajans started to place more emphasis on upward mobility and strong education to combat plantation living.

During the 1930s, politicians in Barbados started pushing for more self-government along with Barbados seeking to retain more of the profits from the economic growth within the country. At the time much of the profits were being repatriated by the British government to the United Kingdom. As the 1940s-1950s rolled around, Barbados moved towards developing political ties with neighboring Caribbean islands. By 1958 the West Indies Federation was created by Britain for Barbados and nine other Caribbean territories. The Federation was first led by the premier for the colony of Barbados, however the experiment ended by 1962. Later Barbados tried to negotiate several other unions with other islands, yet it became likely that Barbados needed to move on. The island peacefully negotiated with Britiain its own independence and became a sovereign nation at midnight on November 30 1966.

Post independence

Following independence from the United Kingdom on November 30 1966 sugar cane still remained a chief money-maker for Barbados. The island's politicians tried to diversify the economy from just agriculture. During the 1950s-1960s visitors from both Canada and the United Kingdom started transforming tourism into a huge contributor for the Barbadian economy. The man-made Deep Water Harbour port at Bridgetown had been completed in 1961, and there-after the island could handle most modern ocean going ships for shipping sugar or handling cargoes at the port facility.

As 1970s rolled around, global companies started to recognize Barbados for its highly educated population. In May 1972 Barbados formed its own Central Bank, breaking off from the East Caribbean Currency Authority (ECCA). By 1975 the Barbadian dollar was changed to a new fixed / constant rate of exchange rate with the US$ with the rate being changed to present day US$1 = BDS$2.00 (BDS$1.00 = US$0.50).

By the 1980s a growing manufacturing industry was seen as a considerable earner for the Barbados economy. With manufacturing then being led by companies such as Intel Corporation and others, the Manufacturing industry contributed greatly to the economy during the 1980s and early 1990s.

As one of the founding members, Barbados joined the World Trade Organization on 1 January 1995. Following the membership in the WTO, the Government of Barbados aggressively tried to make the Barbados economy fully WTO compliant. This led to collapse of much of the manufacturing industry of Barbados during the late 1990s in favour of many companies like Intel and others moving to lower cost Asian economies. During the late 1990s more companies started to become interested in Barbados' offshore sector, until it over took sugar as the new chief money maker. In 1999-2000 the OECD "blacklist" was circulated with Barbados listed in error. The negative fallout stymied new investment into Barbados' offshore sector Barbados for near 2 years as Barbados authorities acted swiftly successfully proving that Barbados' economy was regulated sufficiently to ward off financial criminal activity and that it was not a "Tax Haven" as charged, but instead a low-tax regime.

As the global recession hit in 2001, the offshore sector in Barbados slightly contracted further thereby making Tourism as the new chief money maker, after having earlier eclipsed Manufacturing and Sugar Cane. The Government of Barbados further changed legislation to transform the Barbados economy into one which fosters investment. Leading to several new Hotel developments. The government continues to try maintaining constraint from personal involvement in the Hotel activity and instead seeks private investment into the Barbados economy for future growth.

Several large hotel projects like the Port Charles Marina project in Speightstown helped the tourism industry continue to expand in 1996-99, and more recently the new Hilton Hotel on Needhams Point, Saint Michael in 2005.

Current

Offshore finance and informatics are important foreign exchange earners, and there is also a light manufacturing sector. The government continues its efforts to reduce the unacceptably high unemployment rate which it met in the 1990s, encourage direct foreign investment, and privatize remaining state-owned enterprises.

The main factors responsible for the improvement in economic activity include an expansion in the number of tourist arrivals, an increase in manufacturing, and an increase in sugar production. Recently, offshore banking and financial services also have become an important source of foreign exchange and economic growth.

Economic growth has led to net increases in employment in the tourism sector, as well as in construction and other services sub-sectors of the economy. The public service remains Barbados' largest single employer. Total labor force has increased from 126,000 in 1993 to 140,000 persons in 2000, and unemployment has dropped significantly from over 20% in the early 1990s to 9.3% at the end of 2000.

The Barbados government encourages the development in: financial services, informatics, e-commerce, tourism, educational and health services, and cultural services for the future. In 2000 based on Barbados' level of growth - (at the time) Barbados was supposed to become the world's smallest developed country by 2008. The Government has since stated that the country is still on course for this to happen instead by around 2025.

Taxation

General

In 1997 Barbados implemented a general taxation which covers most items. Known as the Value-Added Tax ("VAT") it covers almost all items at a 15% tax rate and a 7.5% for hotel accommodations. Exported goods and services, prescription drugs and a few other specific items are zero rated under the legislation. The VAT replaced several other taxes such as: the Consumption Tax, Stamp Duty, Surcharge, Excise Tax and an Environmental Levy.

The island continues to wean off of taxes outside of the VAT system. In 2002 the Barbados government increased the level of people in Barbados who are exempt from having to pay taxes on their homes. This has steadily grown with the island heading for a possible rate of 0% taxation in all other areas.

The government has also toyed with the idea of making retirement savings as tax exempt, to encourage Barbadians to spend less on goods and to encourage Barbadians to save more income as they once used to.

Bilateral treaties

Barbados has several bilateral tax treaties, mostly aimed at removing double taxation on companies that operate in the Barbados economy. Since Barbados is at times considered an expensive place to conduct business, the treaties are mainly a measure to provide some savings to international businesses operating in Barbados. Some of the countries which Barbados has taxation agreements with are:
*Botswana,
*Canada,
*China,
*CARICOM,
*Cuba,
*Finland,
*Malta,
*Mauritius,
*Norway,
*Sweden,
*Switzerland,
*the United Kingdom,
*the United States and
*Venezuela."Source:" [http://www.barbadosbusiness.gov.bb/miib/Legislation/Treaties/bilateral.cfm Barbados Government website containing the text of the majority of the above tax treaties]

The bilateral tax treaty negotiated with Canada in particular has been a political-football for the government of that country. The treaty was made to allow the profits for IBCs and offshore banking companies to be repatriated to Canada tax-free after paying taxes in Barbados. The aim was mainly for companies like the Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), and Scotiabank, which (along with Barclays of the United Kingdom), when-combined control a healthy majority of Barbados' local Commercial Banking sector. In essence the treaty makes the economy of Barbados almost an unofficial part of the Canadian economy and it was aimed at allowing Canadian companies to extract profits back to Canada more easily. During the Canadian national elections of 2003 and 2006, it was cited that the former Minister of Finance and later Prime Minister Paul Martin had international shipping companies that operated in Barbados' offshore sector under the bilateral treaty possibly saving his company from higher taxes in Canada.

Primary industries

Agriculture

About 16,000 hectares (39,500 acres), or 37.2% of the total land area, are classified as arable. At one time, nearly all arable land was devoted to sugarcane, but the percentage devoted to ground crops for local consumption has been increasing. In 1999, 500,000 tons of sugarcane were produced, down from the annual average of 584,000 tons in 1989–91. In 2001, sugar exports amounted to US$22 million, or 8.4% of total exports. Major food crops are yams, sweet potatoes, corn, eddoes, cassava, and several varieties of beans. Inadequate rainfall and lack of irrigation has prevented the development of other agricultural activity, although some vegetable farming takes place on a commercial scale. Some cotton is also grown in drier parts of the island, but until cotton can be picked by machine it is unlikely that output will rise to its former level.

Animal husbandry

Livestock rearing isn't a major occupation in Barbados, chiefly because good pasture has always been scarce a& imported animal feed is expensive.The island must import large quantities of meat and dairy products. Most livestock is owned by individual households. Estimates for 1999 showed 23,000 head of cattle, 41,000 sheep, 33,000 hogs, 5,000 goats, and 4,000,000 chickens. Poultry production in 1999 included 9,000 tons of meat and 1,000 tons of hen eggs. Apart from self-sufficiency in milk and poultry, the limited agricultural sector means that Barbados imports large amounts of basic foods, including wheat and meat.

Fishing

The fishing industry employs about 2,000 persons, and the fleet consists of more than 500 powered boats. The catch in 2000 was 3,100 metric tons. Flying fish, dolphinfish, tuna, turbot, kingfish, and swordfish are among the main species caught. A fisheries terminal complex opened at Oistins in 1983.

Forestry

Fewer than 20 hectares (50 acres) of original forests have survived the 300 years of sugar cultivation. There are an estimated 5,000 ha (12,350 acres) of forested land, covering about 12% of the total land area. Roundwood production in 2000 totaled 5,000 cu m (176,500 cu ft), and imports amounted to 3,000 cu m (106,000 cu ft). In 2000, Barbados imported $35.3 million in wood and forest products.

Mining

Deposits of limestone and coral were quarried to meet local construction needs. Production of limestone in 2000 amounted to 1.5 million tons. Clays and shale, sand and gravel, and carbonaceous deposits provided limited yields. Hydraulic cement production totaled 267,659 tons in 2000, up from 106,515 in 1996.

econdary industries

Manufacturing

The manufacturing sector in Barbados has yet to recover from the recession of the late 1980s when bankruptcies occurred and almost one-third of the workforce lost their jobs. Today, approximately 10,000 Barbadians work in manufacturing. The electronics sector in particular was badly hit when the U.S. semi-conductor company, Intel, closed its factory in 1986. Leaving aside traditional manufacturing, such as sugar refining and rum distilling, Barbados's industrial activity is partly aimed at the local market which produces goods such as tinned food, drinks, and cigarettes. Many industrial estates are located throughout the island. A cement factory is located in St.Lucy.

The export markets have been severely damaged by competition from cheaper Caribbean and Latin American competitors. But domestic manufacturing also faces serious potential problems, as trade liberalization means that the government can no longer protect national industries by imposing high tariffs on imported goods. Thus, Barbadian manufacturers must compete with those from other regional economies, whose wage costs and other overheads are usually much lower. The other significant industrial employer is the petroleum sector, where oil deposits are located in the southern parishes but oil has not been produced in commercial quantities; although the island's small oil refinery was closed in 1998 and refining moved to Trinidad and Tobago, where labor and other costs are cheaper.

Construction

A construction boom, linked to tourism and residential development, has assisted the recovery of a large cement plant in the north of the island that was closed for some years and reopened in 1997.

Tertiary industries

Tourism

Tourism is Barbados's crucial economic activity and has been since the 1960s. At least 10 percent of the working population (some 13,000 people) are employed in this sector, which offers a range of tourist accommodations from luxury hotels to modest self-catering establishments. After the recession years, tourism picked up again in the mid-1990s, only to face another slowdown in 1999. This drop was in part due to increasing competition from other Caribbean countries such as the Dominican Republic, and in part to a reduction in visits from cruise ships as they shifted to non-Caribbean routes or shorter routes such as the Bahamas. Cruise ship visitors totaled 445,821 in 1999, a reduction from 517,888 in 1997, but stay-over visitors rose to 517,869 in 1999, setting a new record. Overall, the country witnessed over US$700 million in tourism receipts in 1999.

The real problem for Barbados is that tourist facilities are too densely concentrated on the south coast, which is highly urbanized, while the Atlantic coast, with its rugged shoreline and large waves, is not suitable for beach tourism. There are few large brand-name hotels (the Barbados Hilton was closed for refurbishment in 2000) which makes marketing the island in the United States difficult. On the other hand, the absence of conglomerates and package tours results in a far greater trickle-down of tourist spending among the general population.

Informatics employed almost 1,700 workers in 1999, about the same number as the sugar industry. The island has been involved in data processing since the 1980s and now specializes in operations such as database management and insurance claims processing. Costs in Barbados are higher than elsewhere in the Caribbean (although still only half of costs in the United States), but the island offers strong advantages such as a literate English-speaking workforce and location in the same time zone as the eastern United States. Despite these factors, employment has fallen in recent years, reflecting increasing mobility on the part of foreign companies, which frequently relocate to lower-cost areas.

Financial services

The financial services sector has also faced problems as licenses issued to new financial companies have slowed down since 1998. There are an estimated 47 offshore banks, as well as hundreds of other insurance and investment companies, all catering to overseas clients. Figures are hard to track, but it is estimated that these financial activities earned BDS$150 million in foreign earnings in 1995. In 1998, approximately 7,500 people were employed in the banking and insurance sector. The financial sector is also under threat of sanctions from the EU and the Organization for Economic Cooperation and Development (OECD), both of which have expressed concerns about money laundering, tax evasion, and other financial improprieties in Caribbean offshore centers.

Retail

Retailing is an important economic activity, especially in Bridgetown where there are large department stores and supermarkets. In the countryside, most stores are small and family-run. Some 18,000 people work in the retail sector.

Facts & figures

; GDP (purchasing power parity):: $5.53 billion (2007 est.); GDP (official exchange rate):: $3.739 billion (2007 est.); GDP - real growth rate:: 4% (2007 est.); GDP - per capita (PPP):: $19,700 (2007 est.); GDP - composition by sector::* agriculture: 6%:* industry: 16%:* services: 78% (2000 est.); Labor force:: 128,500 (2001 est.); Labor force - by occupation::* agriculture: 10%:* industry: 15%:* services: 75% (1996 est.); Unemployment rate:: 10.7% (2003 est.); Population below poverty line:: NA%; Household income or consumption by percentage share::* lowest 10%: NA%:* highest 10%: NA%; Inflation rate (consumer prices):: 5.5% (2007 est.); Budget::* revenues: $847 million (including grants):* expenditures: $886 million; including capital expenditures of $NA (2000 est.); Agriculture - products:: sugarcane, vegetables, cotton; Industries:: tourism, sugar, light manufacturing, component assembly for export; Industrial production growth rate:: -3.2% (2000 est.); Electricity - production:: 953 million kWh (2005); Electricity - consumption:: 886.3 million kWh (2005); Electricity - exports:: 0 kWh (2003); Electricity - imports:: 0 kWh (2003); Oil - production:: 1,002 bbl/day (2005); Oil - consumption:: 9,000 bbl/day (2005 est.); Oil - exports:: 1,666 bbl/day (2004); Oil - imports:: 7,071 bbl/day (2004); Oil - proved reserves:: 2.5 million bbl (1 January 2006 est.); Natural gas - production:: 27.97 million cu m (2005 est.); Natural gas - consumption:: 27.97 million cu m (2005 est.); Natural gas - exports:: 0 cu m (2005 est.); Natural gas - imports:: 0 cu m (2005 est.); Natural gas - proved reserves:: 135.8 million cu m (1 January 2006 est.); Exports:: $385 million (2006); Exports - commodities:: sugar and molasses, rum, other foods and beverages, chemicals, electrical components; Exports - partners:: US 27.6%, Trinidad and Tobago 15%, UK 10.2%, Saint Lucia 7%, Jamaica 6.5%, Saint Vincent and the Grenadines 4.3% (2006); Imports:: $1.586 billion (2006); Imports - commodities:: consumer goods, machinery, foodstuffs, construction materials, chemicals, fuel, electrical components; Imports - partners:: US 37.7%, Trinidad and Tobago 22.6%, UK 5.9% (2006); Debt - external:: $668 million (2003); Economic aid - recipient:: $2.07 million (2005); Currency (code):: Barbadian dollar (BBD); Exchange rates:: Barbadian dollars per US dollar - NA (2007), 2 (2006), 2 (2005), 2 (2004), 2 (2003); Fiscal year:: 1 April - 31 March

ee also

*Barbadian dollar
*Central Bank of Barbados
*List of Barbadian companies

References

[https://www.cia.gov/library/publications/the-world-factbook/geos/bb.html CIA World Factbook]
* [http://www.tax-news.com/asp/story/story_open.asp?storyname=25528 Barbados Eligible For Dividend Tax Benefits, Says IRS] - Tax-News.com
*PM Authur on obtainment of "developed nation" status by 2025 -- [http://www.nationnews.com/story/319373050456570.php World-class society by 2025, says Arthur] - December 27, 2006
*Standard & Poor's review on B'dos Economy -- [http://www.nationnews.com/story/310183319560686.php Positive points] - July 27, 2006
* [http://www.thecommonwealth.org/YearbookInternal/138226/economy/ The economy of Barbados] - The Commonwealth of Nations
* [http://www.nationnews.com/story/307200344106205.php Issues of a 21st century Caribbean] - March 7 2006
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=36845 WTO reports on trade policy of Barbados] - September 18 2008
* [http://www.nationnews.com/story/302972909568285.php Bajans high on list of wealthiest] - in the Americas - February 20 2006
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24390 WTO announces role for Barbados in Task Force] - February, 09th, 2006
* [http://www.nationnews.com/story/285194994826577.php A summary of the Budget] - The B'dos Annual budget for the year 2006-2007
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24351 Value Added Tax refunds total $44.2M] (US$22.1M)
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24238 Barbados 2005 economic performance to be reviewed]
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24347 THE STARK REALITY]
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24348 Barbados Ratings remain consistent] - By Standard and Poors
* [http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=24352 Double tax treaty to attract Int'l markets]
* [http://www.totallybarbados.com/barbados/Business/Economy/ Barbados Economy] :"See also :" Barbados


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