June 16, 2021

The Real Economic Costs of Inefficient Institutions and Political Systems in the Caribbean

Guest Contribution by The Inclusive Agenda

“The future of growth and prosperity of the region must be underpinned by efficient, well-functioning, transparent institutions.”

Perry Douglas, The Inclusive Agenda

In mid-2020, Alan McIntosh, founder of Emerald Investments, sent a letter to the Prime Minister of Barbados in which he advised people not to invest in Barbados.  The letter appeared soon after the Prime Minister of Barbados the Hon. Mia Mottley appeared in a Business Post article, and on TV promoting increasing economic links between Ireland and her country.  Mottley also appeared on Irish radio and numerous other forms of media to talk about her “work from Barbados” initiative.

Perry Douglas of The Inclusive Agenda

Copies of the letter were also sent to multiple media outlets in the UK, “The Times”, “The Independent”, “Sunday Independent Ireland” and more, and of course, the story made its way onto social media: Twitter and Facebook, building all kinds of narratives along the way. 

Therefore, what could possibly motivate a wealthy European investor, and highly respected businessman, to write such a letter? 

From what the letter says, McIntosh made a US$2.5M investment in a Barbados hotel project about four years ago. He then ended up filing an action against Hotelier Peter Odle, for breach of contract, the individual he loaned the money to.  The investment was in relation to “The Sands Barbados” hotel, led by Mr. Odle.  Emerald Investments started formal legal action in 2018 against Odle, who had signed a personal guarantee.  

This letter clearly reflects McIntosh’s exacerbation with the situation:  “I am an Irish investor who invested in Barbados, and I wish I’d never done so. Unless changes are made to the legal system in Barbados, I would urge no one to invest in Barbados, either commercially or to buy a condo, holiday home or even take a holiday there. Why? The legal system is not fit for foreign investment or even to settle minor disputes promptly.”

McIntosh went on to say: “I have waited for the court system to allow me due process, and after almost three years have seen no progress in the courts whatsoever.”

“My advice to anyone contemplating investing in Barbados is: “Do not Do It.”   

Now, imagine for a moment, that you are a potential investor in the UK or elsewhere in the world, or even a potential vacationer to Barbados, other Caribbean islands, with thoughts of making a business investment, purchasing a vacation home, or condo? 

After hearing that “the legal system is not fit for foreign investment,” and said by a multi-millionaire businessman, co-founder of Irelands biggest home builder, Cairn Homes, owner of the Radisson Hotel at Dublin Airport, the Fleet Hotel in Dublin City centre, and numerous other property holdings.  It would defy logic or common sense for one not to heed such a dire warning, and from such a credible source. You might ask yourself, how am I supposed to stand a chance as a small investor, if this powerful and sophisticated businessman can’t even get a day in court to settle a basic commercial dispute?

The story reached Canada, the US, Europe, even Asia and Africa.  In the digital age, all stories are global. 

Of particular note, the story was also published on “AfricaBrief”, a digital business and investment news platform in Africa.  It so happens that Mottley is trying to court wealthy African’s to invest in Barbados. This story is a blow to her efforts because wealthy African investors traditionally look to move their capital out of the inefficient, corrupt home jurisdictions, into safe and reliable ones. The reason why countries like Canada and the UK continue to experience robust property investment markets, via wealthy Asian, African, and Indian investors particularly, is because these destinations are seen as safe, stable counties with transparent and effective governing and legal institutions.  Country-specific risk scenarios are a primary factor in investment decisioning; perception, real or imagined, about corruption or lacking legal institutions, drive negative investment narratives. 

Potential investors take in that information subconsciously through media then make really consequential decisions, consciously, based on the subconscious information they’ve processed.  This is how bias is formed and opportunity lost if no counter-narrative is actively applied in the information age.

Negative stories in the digital era often take on a life of their own, permeating exponentially, killing opportunity and economic growth without anyone being the wiser. If governments in the Caribbean are not mindful of the economic impacts of the information/misinformation age, they risk the long-term prosperity of their nations.

The future of growth and prosperity of the region must be underpinned by efficient, well-functioning, transparent institutions.  Strong and inclusive institutions are the hallmarks of prosperous societies in the promotion of global trade and commerce.  Gaining foreign investor confidence is something all societies must do, both the developed and developing ones.

According to the World Bank, weak political, economic and legal institutions lead to countries operating with high levels of inefficiencies, unable to function, or prosper, which causes suffering for its society foremost. For emerging market economies, inefficiencies drive corruption and can lead to an uneven distribution of wealth as small businesses face unfair competition from larger companies or business people, with established yet dubious connections with government officials.  Resources are inefficiently allocated to friends/companies that otherwise would not be qualified to win government contracts, opportunities, or business facilitation, had it not been for relationships with officials. This crony capitalism holds back innovation and entrepreneurship and stifles younger, more educated and talented entrepreneurs from coming up.  Wealth then tends to concentrate with the very few and much older “elites” in the society, and the nation remains stuck in a perpetual economic loop of underdevelopment, never reaching its full economic potential.

In 2018, Commonwealth Secretary-General Patricia Scotland said: “Corruption is poisonous, corrosive, vicious and an enemy of sustainable development. It destroys people’s confidence in their leaders, their politicians and their country.”  However, currently, five Caribbean countries – the Bahamas, Barbados, St Vincent and the Grenadines, Dominica and St. Lucia – rank amongst the 50 least corrupt countries in the world (out of 180), according to Transparency International’s 2017 Corruption Perceptions Index.  So, the news is not bad.

Therefore, without a coordinated response from the government, its leaders are essentially leaving the reputation and economic growth of their countries, not to fact, but to narratives on the internet.

One of the main reasons, Mr. McIntosh has gone to such lengths, is his dismay with the system, not being able to get his case heard in a reasonable time in the Barbados court system.  This then fuels his perception that the Barbados political system is inherently corrupt and that Barbadian hotelier, Peter Odle, is being purposefully protected by friends in high places.  Odle’s personal friend does happen to be Prime Minister Mottley.  So, it is merely a logical connect-the-dots mental process for McIntosh, and other investors watching from afar.  We really don’t know if these perceptions are true or not; however, that does not matter.  If not countered, perception becomes the prevailing reality!  Furthermore, it exacerbates the problem when we learn that in September 2020, Mottley appointed Odle as Chairman of the Barbados Port Authority, (BPI)—a clear patronage appointment, for a friend who helped her in the election.    

McIntosh has also made it clear in the letters he’s written to PM Mottley, that he is not asking Mottley to use her influence towards a favourable outcome for him.  He simply seeks to advocate for himself in bringing to the PM’s attention, the state of her legal system, and how it is a negative factor for those considering Foreign Direct Investment (FDI) in Barbados.  Mottley not responding simply hurts Barbados and the broader CARICOM region’s FDI climate.

In 2019, Foreign Direct Investment (FDI) in the Caribbean, declined 7.8%, which represents a precipitous decline from its highest historical value reached in 2012.  Furthermore, the impact of the current COVID-19 crisis has caused a profound reduction in FDI in 2020 and is expected to continue to fall further by at least another 10%, in 2021.  Therefore, it is not helpful when these types of stories get out and are not countered.  These stories only reinforce bias, preconceived notions, perceptions, and stereotypes of Black people and the region as corrupt and backwards. 

To help sustain and stimulate FDI in Caribbean markets, as a base, strong, efficient, active, and transparent institutions must bolster the recovery and future growth agendas.  Research shows that FDI is the most critical factor in economic expansion for any society, particularly for developing Small Island States (SIS).  SIS without mature, robust, localized global capital markets—building investor confidence becomes even more paramount to a viable future growth existence.  If negative public discourse around foreign investors’ losing money, due to local business people hiding behind systems of corruption, or inefficient institutions, and an indolent legal system, this then becomes the prevailing narrative, which investors make decisions off of.

Programs like Citizenship by Investment (CBI,) for example, a program Grenada and other Caribbean states currently operate, have been plagued with an abundance of shady characters over the many years.

Major media outlets have produced non-flattering documentaries about CBI programs throughout the region, a blow to the reputations of these SIS.  According to the Economist, the “defenders of the schemes insist that criminals seeking a bolthole are the exception and that they are making great strides in imposing stricter due diligence standards. The vast majority of their customers, they argue, are honest, respectable people with a legitimate hankering.”

Nevertheless, after looking into it, we couldn’t find any reasonably positive CBI story online.

Therefore, the big risk, and future priority towards a positive growth curve trajectory for the region, is the un-branding of the region away from the narrative as a haven for illegal, unscrupulous, criminals.  We must control our own narrative, write our own stories, otherwise, others will write them for us.  The well-written story that needs to be told going forward should be about well-intentioned, legit investors like Allan McIntosh, Emerald Investments, honestly investing in the region, finding the place efficient, well managed, with strong public institutions that build investor confidence.  The story should also go on to say, that McIntosh makes good money on his investments, and creates meaningful amounts of jobs, the enterprise becomes a responsible corporate citizen, contributing to climate change mitigation, specific to the region, and investing in education and skills training programs to prepare the next generation for the future-of-work.

In an era of digital transformation, the world is increasingly competing for limited global investment dollars.  Unless the region can become savvier at controlling information and communication narratives, in its favour, valuable investment dollars will end up elsewhere. 

Leadership, from islands like Barbados, about public occurrences like the McIntosh/Odle saga, which finds itself closely associated with the Prime Minister, cannot go unaddressed.  For example, on social media or in public discourse in the investor community abroad, the story/narrative going around is that Peter Odle is notorious for using political relationships to protect himself from numerous lawsuits.  We, of course, do not know if these narratives are true or not, nor can they be substantiated in real-time, but that’s the nature of social media, and if you don’t have your own media strategy in place or story to tell, your image becomes whatever narrative emerges online.  Salacious, headline-grabbing stories get more attention and go on to create further unwanted narratives.

This fundamentally works against the efforts of the PM, for example, who is whole-heartedly trying to sell Barbados to the world, with her “work from Barbados” scheme.     

However, in the end, while the big boys fight it out publicly, the little guys bear the economic brunt.

I would think it critical and responsible for government to understand precisely, how the new digital playing field works, and that everything comes back to economics in the end.  Digital message control and business image strategies are now an essential discipline in order to carve out your place in the digital universe.  To have a long-term sustainable economy for the benefit of the people, you must adapt to globalization, and promote your country to the world, this is how the wealth of nations grow.

Perry C. Douglas is an Entrepreneur and Innovator…for Inclusive Caribbean Economies. Read more of his work at his blog The Inclusive Agenda: http://theinclusiveagenda.blogspot.com.

The views and opinions expressed herein are solely those of the guest author and are not necessarily representative of those of the Caribbean Trade Law & Development Blog.

caribbeantradelaw

The Caribbean Trade Law and Development Blog is owned and was founded by Alicia Nicholls, B.Sc. (Hons), M.Sc. (Dist.), LL.B. (Hons), a Caribbean-based trade and development consultant. She writes and presents regularly on trade and development matters affecting the Caribbean and other small states. You can follow her on Twitter @LicyLaw. All views expressed on this Blog are Alicia's personal views and do NOT necessarily reflect the views of any institution or entity with which she may from time to time be affiliated.

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