Caribbean countries have grown used to weathering the storms that batter their golden shores every year between June and November. But the economic storm the world faces with Covid-19 is something new entirely. 

“Covid-19 has laid bare pre-existing vulnerabilities and forced us to recognise the importance of pressing that reset button on our development agenda,” Deodat Maharaj says, speaking from his house in Bridgetown, Barbados.  

A Trinidadian national and former deputy secretary general to the Commonwealth for economic and social development, Mr Maharaj was appointed executive director of the Caribbean Export Development Agency in January 2021 to lead a “transformational agenda for Caribbean resilience”. 

Between January and August 2020, tourist numbers to the Caribbean fell by 64%, according to the UN World Tourism Organization.

With all but three countries in the region classified as tourism-dependent by the International Monetary Fund (IMF), Covid-19 has revealed just how exposed one of the most highly indebted regions in the world is to unforeseen shocks. Across the Caribbean, national governments are looking to pivot away from tourism and diversify their economies. However, questions remain over the long-term effects of the pandemic’s damage to these governments, their limited fiscal space and capacities to embrace new sectors.  

Looking for options

“Countries across the region are looking for options and job creation: some with special economic zones (SEZs), some will focus on new entrepreneurship, others on blue- and eco-tourism. Because if you remain with tourism or one main economic activity, it will be at your peril,” Mr Maharaj remarks. “The world is really hyper competitive.” 

To stay afloat, Mr Maharaj adds that the region has to “re-imagine tourism because every single jurisdiction in the Caribbean cannot be selling sea, sun and sand”, advocating instead for selling culture. “In Trinidad, you link tourism with your carnival, Jamaica with art and music, Guyana and ecotourism, and so on,” he says.

Krishna Srinivasan, deputy director of the IMF Western Hemisphere Department, says that the real concern for the Caribbean economies exposed to the tourism fallout is “scarring”. 

"In the Caribbean, where tourism is the mainstay, all other sectors are interlinked, whether it is the construction, retail, transport or financial sector, all these other sectors are also negatively affected,” he says, making it very difficult for small and medium-sized enterprises to bounce back.  

What the IMF advocates, therefore, is for “horizontal integration” in these economies, whereby tourism is paired with other sectors, such as shipping, agriculture and health, to give rise to the likes of ecotourism, medical tourism and agritourism.

From VIP tourism to SEZ services

In November 2020, Barbados’s prime minister, Mia Amor Mottley, signalled plans to fund a green investment plan that would allow tourism firms in the country to switch to renewable energy, making their supply chains more digital and sustainable.

If successful, this would be a world away from the Barbados of the 1980s, when British Airways’s Concorde, a now defunct supersonic passenger carrier, flew there, making it into one of the region’s VIP destinations. 

Ms Mottley announced in March that her country needed to diversify its economy and was looking to establish an SEZ and attract foreign direct investment (FDI) in manufacturing, technology and biogenetic engineering.

Zoë Harries, a consultant advising the government on the launch of the SEZs, says the government is looking at targeting finance, business services and life sciences — particularly pharmaceuticals and medical devices.

“Many countries would like to have a high-tech park, or a research and development lab, but that’s higher up the value chain, so it makes sense to go step-by-step and build on strengths that are already there,” she says, citing the prevalence of the sugar cane, manufacturing, and food and beverage sectors in Barbados.

Learning from history

The example of Costa Rica looms large in the region. Following a severe economic crisis in the 1980s, the country moved from a model of import substitution to diversifying their exports, with a focus on high-tech exports, specifically in life sciences. The World Bank has since hailed the country as a “clear success story”. 

“In terms of competitiveness of FDI, they need to have a SEZ,” Ms Harries remarks. “Is it going to be successful? That all depends on how they model it and how they define their value proposition.”

However, the talent pool in the country of some 287,000 people is limited, Ms Harries adds.

Free zones are not new in the region. Jamaica, Aruba, and Trinidad and Tobago all have all established free zones, but none as considerable as in the Dominican Republic, which has 74 free zones. 

In November last year, DP World invested roughly $114m to expand its dock at the Punta Caucedo port, with the aim of helping to turn the country into a regional logistics hub. 

Although the Dominican Republic’s tourism industry only accounts for 16% of its gross domestic product, as compared to Barbados’s 30%, such a push towards a freer movement of goods and services adds to the changing landscape of the Caribbean. 

Morten Johansen, CEO of DP World Caucedo, which features a port terminal and free zone, says that the Dubai-based port operator is looking to position the country to become “more competitive and to attract investment”, in line with broader trends of near-shoring and making supply chains more resilient

It will collaborate with the government to provide software tools so that the government can become more agile, he says, as technological agility is “equally important as infrastructure” when it comes to generating connectivity.

Climate action

However, following the major blow dealt to global supply chains by the pandemic, that connectivity may be further disrupted by more localised and potentially more devastating future climate shocks. In May, the Dominican Republic hosted the virtual Latin America and Caribbean Climate Week 2021, which called for an urgent ramp-up of regional climate action.

In a 2019 paper, the IMF proposed that countries vulnerable to climate change, such as the Caribbean islands, develop comprehensive disaster-resilience strategies together with development partners and other stakeholders. The international body has already piloted such strategies in Grenada and Dominica, as a way to coordinate and improve the efficiency of stakeholder support.

Sònia Muñoz, division chief of Caribbean I division at the IMF, says that the high upfront costs of building climate resilience, such as building infrastructure and buying insurance, mean that everyone has to play a role, from national governments to the international community.

Mr Maharaj believes the key to future success for the region, come what may, is integration and knowledge. “I’m an optimist: first, I think that the efforts to establish a Caribbean single market and economy will be very much accelerated. Second, the future of the Caribbean really lies in the knowledge and expertise of its people, and so I see our economies being more knowledge-based.”

With numerous free-trade agreements, such as those between the Caribbean and Canada, the Caribbean and the UK, Mr Maharaj expects the region to become a gateway to other markets. “If we get it right, the Caribbean can be a beachhead.”

This article first appeared in the June/July print edition of fDi Intelligence.