Caribbean Trade Law and Development

Tag: Caribbean

  • Petrocaribe: Triad of Issues Puts Future of Existing Arrangement in Doubt

    Alicia Nicholls

    On June 29th 2005, fourteen of the Caribbean countries which met with the late President Hugo Chavez Frias in the beautiful northern Venezuelan port city of Puerto La Cruz signed an energy cooperation agreement which would seek to be a beacon of south-south cooperation and solidarity. Nearly eleven years after the ink has dried on the Agreement, a triad of developments has added fuel to the growing fire of concerns about the sustainability and viability of the Petrocaribe Agreement which provides beneficiary countries in the Caribbean and Central America with Venezuelan oil on very generous terms.

    First, oil prices this month have continued their months-long slide, dropping to twelve year lows. In light of current geopolitical realities, a recovery in prices is unlikely any time soon. Secondly, in December last year the United Socialist Party of Venezuela (PSUV), the party of the late President Chavez and his successor President Nicolas Maduro, lost its majority in the Venezuelan National Assembly. The newly elected Opposition majority is calling for a review of Venezuela’s oil agreements. Thirdly, Venezuela’s continued economic turmoils have prompted President Nicolas Maduro to decree a 60-day economic state of emergency. This decree is currently being debated by the National Assembly, Venezuela’s unicameral legislature.

    This article argues that despite Petrocaribe’s popularity in the region and President Maduro’s pledge of continued support for the initiative, the triad of developments above will eventually force a revision of the terms of the arrangement. Beneficiary countries in the Caribbean should prepare themselves for this eventuality.

    “Petrocaribe, towards a new Order in our America”

    This was the title of President Chavez’s speech at the opening session of the Fourth Petrocaribe Heads of Government Meeting in Cuba in 2007 and sums up the philosophic underpinning of the arrangement. The Petrocaribe Energy Cooperation Agreement was the brainchild of President Chavez as part of his thrust towards creating an alternative, development-friendly model of integration based on the principles of solidarity and development as opposed to exploitation and neo-imperialism.

    The stated goals of the Petrocaribe Initiative are to guarantee energy security, promote social and economic development and promote the integration of Caribbean countries “through the sovereign use of energy resources, sustained by the guiding principles of the Bolivarian Alternative for the Americas (ALBA)”, which President Chavez offered as an alternative to the US-initiated and now shelved Free Trade Area of the Americas (FTAA). Petrocaribe has been continued under his successor, President Nicolas Maduro, after President Chavez’s death from cancer in March 2013.

    Petrocaribe has largely benefited the Region

    Seventeen countries of the Caribbean and Central America, plus Venezuela, are signatories to Petrocaribe. This includes Cuba and the Dominican Republic and all countries of the Caribbean Community (CARICOM), except for Barbados and oil-exporter Trinidad & Tobago. Barbados and Trinidad & Tobago had declined to join, stating it would prejudice their other arrangements.

    Venezuela’s state-owned oil company Petroleos de Venezuela (PDVSA) provides Petrocaribe beneficiary countries with oil on extremely generous terms in keeping with Petrocaribe’s aim of facilitating development and not profit. Beneficiary countries pay only a percentage of the price of the oil up front (within 30-90 days) and are given grace periods of between one-two years, and up to twenty-five years to repay the remainder of the loan at interest rates of one percent if oil prices are above $US40 per barrel and two percent if they are below. The higher the price of oil per barrel the higher the percentage of the loan which may be repaid long term. The loan may be repaid in cash or in services and goods. Cuba has used medical and educational services as a way of repaying its loan, while until recently Guyana had a rice for oil arrangement with Venezuela.

    These generous terms have made Petrocaribe extremely attractive, particularly to the small island developing States of the Caribbean which are highly dependent on imported fossil fuels (with the exception of Trinidad & Tobago). Fuel imports comprise a large portion of Caribbean countries’ import bills and high electricity costs have an impact on business competitiveness. Petrocaribe’s financing terms make oil much cheaper.

    In a context where Caribbean countries are finding it increasingly difficult to access concessional financing, Petrocaribe has been an alternative source of financing. In the countries of the Organisation of Eastern Caribbean States (OECS), Venezuelan support under ALBA has provided investments in social programmes, including the provision of eye care treatment services by Cuban and Venezuelan doctors under Mission Miracle. In Jamaica, the Government established the  Petrocaribe Development Fund which uses inflows accruing to Jamaica under Petrocaribe to finance critical development projects.

    However, while the Petrocaribe arrangement allows cash-trapped governments more leeway to spend money on social and development programmes, the accumulation of Petrocaribe debt has added to beneficiary countries’ already high debt burdens. Critics also argue that despite its stated goal of improving Caribbean countries’ energy security, the cheap oil provided by Petrocaribe has arguably lessened Caribbean islands’ impetus towards transitioning to alternative energy sources.

    …But Petrocaribe makes little financial sense to Venezuela

    While largely economically beneficial to the Caribbean and rooted in a development-oriented philosophy, Petrocaribe’s generous terms have made little financial sense for Venezuela. The main benefit of the Agreement to Caracas is the diplomatic support it has been able to secure from Caribbean countries on hemispheric and international issues. The CARICOM bloc is an important voting bloc in the Organisation of American States and Caracas has benefited from CARICOM countries’ support. Petrocaribe has also expanded Venezuela’s sphere of influence in a region historically regarded as the United States’ backyard.

    Although Venezuela has the largest proven reserves of crude oil in the world and oil accounts for about 95% of its exports, economic stresses have plagued the country for some time now and have only deteriorated as oil prices continue their plunge. At the time of Petrocaribe’s signature in 2005, oil prices hovered around $50 a barrel. As at the time of writing this article, the price of brent crude oil is $28 a barrel. In its October 2015 forecast, the IMF forecasted Venezuela’s economy to contract in 2015 and 2016 by 10% and 6% respectively.

    Venezuela’s oil exports and international reserves are down and the country has been reliant on loans from China. According to El Universal, President Maduro has called for an emergency meeting of OPEC before the next meeting scheduled for June this year and has decreed a state of economic emergency.

    Petrocaribe’s Terms will likely be revised

    Petrocaribe’s generous terms were steeped in Chavez’s philosophy for an alternative integration model which was based on development and solidarity as opposed to profit and exploitation. Without doubt Petrocaribe has brought social and economic benefits to beneficiary countries, a fact recognised by Caribbean leaders who continue to speak  favourably of the Agreement and by President Maduro who has sought to reassure Caribbean countries of Venezuela’s continued support for Petrocaribe. In the midst of an escalation of Venezuela’s border dispute with Guyana, President Maduro undertook a Petrocaribe tour in October last year where he reiterated Venezuela’s commitment to the region.

    However, as economic pressures continue to mount in Venezuela so has the internal opposition to the generous terms of the Petrocaribe deal. Back in 2013 Opposition Leader Alfonso Marquina had called on the Venezuelan Government to modify the terms of the Petrocaribe agreement as it was “seriously hurting Venezuela”. More recently in December last year, the newly elected Opposition majority in the Venezuelan National Assembly  announced its intention to  review Venezuela’s oil agreements, including Petrocaribe.

    In light of the diplomatic and geostrategic importance of the Caribbean to Venezuela, it is likely the Petrocaribe Agreement will not be discontinued but modified in the short term. Modification of the Agreement’s terms could take various forms, including increasing the percentage of the loan which must be paid in the short term, raising the interest rate, reducing the repayment term, among mechanisms.

    To some extent Petrocaribe’s numbered days have been recognised by some beneficiaries. Last year the Dominican Republic used money raised on bond markets to redeem a large portion of its outstanding debt to Venezuela under Petrocaribe, while Jamaica did a debt buy-back. Caribbean countries must also place renewed importance on reducing their dependence on fossil fuels and developing renewable energy options. Low oil prices at the moment should not be a reason for complacency. The plan by St. Vincent & the Grenadines for a geothermal plant by early 2018 is therefore encouraging.

    Petrocaribe beneficiaries will have to brace themselves for the inevitability of its revision and for the eventual loss of this concessional financing.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • 2015 Year in Review for Caribbean Region: Triumph, Tragedy and Hope

    Alicia Nicholls

    2015 has been a year of both triumph and tragedy for the countries which make up the Caribbean region. This article reviews some of the major political, diplomatic and socio-economic challenges and gains experienced by the Region in 2015, many of which would have been covered on this blog throughout the year. It also speaks to the prospects for 2016.

    Political/Diplomatic issues

    General elections led to changes of government in St. Kitts & Nevis, Guyana and Trinidad & Tobago, while voters in the British Virgin Islands, Belize and St. Vincent and the Grenadines bestowed the incumbent governments with a fresh mandate.  In October Haiti held its first round of presidential elections, as well as local elections and the second round of legislative elections. The second round of presidential voting which was slated to occur on December 27, was postponed indefinitely in December.

    On the international stage, the election of Prime Minister Justin Trudeau in Canada was widely welcomed in the Caribbean Region as possibly heralding a new era in Caribbean-Canadian relations. However, the electoral defeat of President Nicolas Maduro’s United Socialist Party of Venezuela (PSUV) in the Venezuelan legislative elections in December has caused concern in the Caribbean about the future of Petrocaribe, a legacy of the late President Hugo Chavez under which Venezuela provides oil to participant Caribbean States on preferential terms.

    In international diplomacy, the Region had two major triumphs. The first was the historic election of Dominica-born Baroness Patricia Scotland as the first female Secretary-General of the Commonwealth of Nations.  The second was the conclusion by 196 parties of an international climate change agreement in Paris, which though not perfect, paid consideration to the interests and needs of small states.

    The catastrophic human and economic devastation inflicted by Tropical Storm Erika in Dominica in August and Hurricane Joaquin in the Bahamas in September-October, and the prolonged drought and water shortages being experienced across the Region are sharp reminders that climate change is an existential threat to the Region’s survival. Access to climate change finance will be critical in financing Caribbean countries’ mitigation and adaptation strategies. Despite the triumph of small states at Paris, this is only just the beginning and a major hurdle will be the ratification of the Agreement by all parties, critically the US.

    Caribbean low tax jurisdictions’ battle against the tax haven smear made by metropolitan countries continued in 2015 after several Caribbean countries were included in blacklists by the European Union and the District of Columbia. At the 8th meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes held in Barbados in October, there was acknowledgement made that the Global Forum was the “key global body competent to assess jurisdictions as regards their cooperation on matters of transparency and exchange of information for tax purposes”. However, the fight is not over.

    On the international front, the border disputes between Guyana and Venezuela and Belize and Guatemala remain unresolved.  The Guyana-Venezuela dispute came to a boiling point after the announcement that Exxon Mobil Corp had discovered large oil and gas deposits in waters of the disputed region pursuant to a contract made with the Government of Guyana. While CARICOM countries have pledged their support of Guyana’s sovereignty, Venezuela’s more aggressive diplomatic engagement of the region in recent months has raised questions about where CARICOM states’ loyalties will truly reside; with a fellow CARICOM state or with a major financier. To further complicate matters, Suriname, a fellow CARICOM State, has restated its claim to a portion of Guyana’s territory. Indeed, the expeditious and peaceful settlement of both disputes will be important for the economic future of Guyana.

    While the US embargo of Cuba remains despite an overwhelming United Nations vote (191 to 2) yet again in favour of ending it, the United States and Cuba made significant advancements in 2015 in the quest towards “normalization” of relations. These included the easing of several travel and trade restrictions, the mutual re-opening of embassies in August and the announcement in December of an agreement to resume commercial flights between Cuba and US for the first time in more than half a century. The future resumption of air links between Cuba and the US is a welcomed development and instead of simply fearing the impact this will have on their US arrivals, Caribbean States should see this as an impetus to increase their marketing efforts in the US market and to improve the competitiveness of their tourism product.

    Socio-economic issues

    Lower oil and commodities prices have had a mixed impact on the region. They have been a blessing for services-based, import-dependent Caribbean countries struggling to overcome the lingering effects of the global economic crisis on their economies by slightly reducing their import bills and narrowing their current account deficits somewhat. For commodities exporting Caribbean states, however, the impact has been negative. Low oil prices have had a deleterious impact on the Trinidad & Tobago economy which is dependent on the export of oil and petrochemicals and was recently confirmed to be in recession after four consecutive quarters of negative growth.

    The tourism industry, the lead economic driver for most Caribbean countries, saw a strong rebound in 2015 with several Caribbean countries, including Barbados, registering record long-stay and cruise ship arrivals, buoyed by increased airlift and cruise callings and stronger demand from major source markets and lower fuel prices.

    However, the Caribbean continues to confront an uncertain global trade and economic climate. As recently as December, Managing Director of the International Monetary Fund (IMF), Christine Lagarde, was quoted as stating that global growth for 2016 will be “disappointing” and “uneven”. Another arena Caribbean countries must watch is the troubled Canadian economy and the depreciation of the Canadian dollar as Canada is one of the major tourism source markets for Caribbean countries and an important market for Caribbean exports.

    According to an Inter-American Development Bank (IDB) report released in December, Caribbean exports are estimated to decline 23% in 2015, with Trinidad & Tobago accounting for the bulk of the decline. A bright spark is that St. Lucia, Grenada and Guyana signed on to the World Trade Organisation (WTO)’s Trade Facilitation Agreement, joining Trinidad & Tobago and Belize. The on-going reforms being made by these countries pursuant to the Trade Facilitation Agreement should help facilitate and increase the flow of trade in these countries. Barbados, Guyana and Haiti underwent their WTO trade policy reviews in 2015.

    The Caribbean region continues to be one of the most indebted regions in the world. Aside from high debt to GDP ratios, several Caribbean countries continue to face high fiscal deficits, wide current account deficits and sluggish GDP growth. Regional governments will have to continue measures to lower their debt, broaden their exports and lower their import bills.

    In September, the world agreed to the 2030 agenda for sustainable development in the form of the 17 ambitious sustainable development goals and their 169 targets. A critical factor for achieving these goals will be access to financing for development. Caribbean countries already face several challenges in accessing development finance owing to declining inflows of official development assistance, unpredictable foreign direct investment inflows and limited access to concessionary loans due to their high GDI per capita. Caribbean States should continue to vocalize their objection to the use of GNI/GDP per capita as the sole criterion for determining a country’s eligibility for concessionary loans.

    The alarming rise in crime across the Region remains an issue which Caribbean countries must tackle with alacrity not just for the safety of their nationals but for the preservation of the Region’s reputation as a safe haven in a world increasingly overshadowed by terrorist threats. 2015 was a year marked by an escalation in terrorism, with deadly attacks in Egypt, Kenya, Paris and Beirut capturing international headlines. Moreover, the news of recruitment of some Caribbean nationals by ISIL (Daesh as ISIL calls itself in Arabic) is an issue which Caribbean States must confront.

    The growing threat of terrorism has caused some concern about the security and robustness of the Economic Citizenship Programmes offered by some Caribbean countries. St. Kitts & Nevis revamped its programme and in light of the Paris attacks, the Kittitian Government announced in December that Syrian nationals will be immediately suspended from its programme. However, the fact that St. Lucia has forged ahead with the establishment of its own programme, accepting applications from January 1st 2016, shows that some regional governments strongly believe the gains outweigh any potential risks.

    High unemployment and youth unemployment rates continue to be major social issues threatening the sustainability of the Region, with consequential implications for crime and poverty reduction and political engagement.

    Prospects for 2016

    Without doubt there are several issues and challenges which confronted the Region in 2015 and will continue to do so in 2016. Moreover, since the “pause” taken years ago, CARICOM continues to face the threat of regional stagnation and fragmentation. While Dominica must be applauded for signing on the appellate jurisdiction of the Caribbean Court of Justice, it is only the fourth out of fifteen  CARICOM States to have done so nearly fifteen years after the Court’s establishment.

    However, in spite of these challenges the Caribbean Region has several factors still going in its favour, including high levels of human development, well-educated populations, political stability and a large diaspora. These are factors which it should continue to leverage but should not take for granted. No doubt a critical success factor will be the ability of regional governments, individually and together, to formulate effective and innovative solutions to the challenges faced, working towards the achievement of the SDGs, and their ability to mobilize domestic and international resources to finance these solutions. Let us also hope that 2016 will be the year where there will be a greater emphasis on increasing the pace of implementation of the Community Strategic Plan 2015-2019. The unity displayed by CARICOM during the Paris negotiations should be a reminder that the Caribbean is at its strongest when united.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. Please note that the views expressed in this article are solely hers. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • Human Development Report 2015 – A Mixed Bag for Barbados and the Caribbean

    Alicia Nicholls

    The United Nations Development Programme (UNDP) released its Human Development Report 2015 yesterday. Entitled “Work for Human Development”, this year’s report focuses on the link between work and human development.  The central thrust of the Report is that work (not limited to a job or employment but in the broadest sense) can enhance human development. However, the link between income and human development is not automatic. While sustainable work can contribute to human development, some types of work (such as work which violates human rights) are detrimental to human development.

    The Human Development Index 2015, the Report’s flagship index, ranks 188 countries based on a range of human development indicators. Norway again topped the HDI rankings with an HDI value of 0.944, followed by Australia, Switzerland, Denmark and the Netherlands which retained their top 5 positions in the same order as in 2013. Niger was the lowest ranked country with an HDI of 0.348.

    Caribbean Performance 

    Caribbean countries continue to have a high level of human development. However, their performance in the 2014 HDI rankings was mixed. Barbados, Jamaica, Cuba, Dominica, Haiti and Suriname declined slightly from their 2013 rankings. The Bahamas, Antigua & Barbuda, Trinidad & Tobago, St. Lucia and Guyana maintained their positions. Only four countries: Dominican Republic, St. Kitts & Nevis, Grenada and St. Vincent & the Grenadines improved their ranking. The biggest improver was Grenada which jumped from 82nd position in 2013 to 79th position in 2014, with improvements in life expectancy at birth and mean and expected years of schooling.

    Countries on the HDI are classified by development level into one of the following categories: very high human development, high human development, medium human development or low human development. The majority of Caribbean countries are ranked as having high human development.

    The Bahamas has the highest level of human development in the Caribbean, maintaining its 55th place overall and increasing in HDI value from 0.786 in 2013 to 0.790 in 2014. Barbados has the second highest human development level in the Caribbean, dropping one place from 56 in 2014 to 57 in 2015 but maintaining an HDI of 0.785.

    The other Caribbean islands included in the High Human Development rank were: Antigua & Barbuda (58), Trinidad & Tobago (64), Cuba (67), Saint Kitts & Nevis (77), Grenada (79), Saint Lucia (89), Dominica (94), Saint Vincent & the Grenadines (97), Jamaica (99), Belize (101), Dominican Republic (101) and Suriname (103).

    Guyana which ranked at 124 is the only Caribbean country ranked in the Medium Human Development category. Haiti was the lowest ranked Caribbean country with a rank of 163 and an HDI value of 0.483. It is the only Caribbean country in the Low Human Development category.

    When compared to the HDI values of SIDS on average (0.660) and the average world HDI of 0.711, the performances of the Bahamas, Barbados and Antigua & Barbuda are especially commendable.

    Room for Improvement

    However, Caribbean countries should not take their rankings at face value as a reason for complacency. Drilling down into the HDI indicators and in the other indices comprising the report, there are several areas of concern and where improvement is needed. HIV prevalence among adults remains high in the region compared to other SIDS and the world. The Report also reaffirms the high vulnerability of Caribbean populations to natural disasters.

    Another worrying statistic is the high prison population per 100,000. Saint Kitts & Nevis had the highest per capita prison population in the region with 714 prisoners per 100,000. Crime is also an area for concern. For the period 2008-2012 Belize had the highest homicide rate among CARICOM countries, with 44.7 homicides per 100,000. Violence against women also raises concern. For Barbados and Jamaica, two of the handful of Caribbean states for which this  data was available, 30 per cent and 35 per cent of women (15 years and over) respectively have experienced intimate or intimate partner violence.

    Many Caribbean countries are seeing declining private capital inflows as a percentage of GDP and have also seen a decrease in their GNI per capita. Barbados’ GNI per capita decreased by about 0.8 per cent between 1980 and 2014. Jamaica’s decreased by about 32.5 percent during the same period. On the contrary, Grenada’s GNI per capita increased by about 124.6 per cent.

    Another area for improvement is in gender equality. Despite females in Barbados having a higher level of human development than males due to their higher life expectancy at birth, longer expected years of schooling and mean years of schooling for females, GNI per capita is much higher for males (10,407 for females and 14,739 for males).  Moreover, while a higher percentage of Barbadian women than men have at least a secondary level education, women have a lower participation in the workforce and make up only 19.6% of seats in Parliament. Therefore, despite a ranking of 57 on the HDI, Barbados ranks 69 out of 155 countries on the Report’s Gender Inequality Index. In comparison, the Bahamas is ranked at 55 on the HDR and  58 on the GII.

    Maternal mortality ratios in the Region remain a cause for concern. Haiti’s rate is 380 maternal deaths per 100,000 live births. Though much lower than Haiti’s, Trinidad & Tobago’s maternal mortality ratio of 86 per 100,000 and Cuba and Jamaica’s of 80 per 100,000  are above the average rate for SIDS of 61.5 per 100,000 live births and above the average for high human develoment countries (41 per 100,000). Barbados’ ratio of 52 maternal deaths per 100,000 births is also worrying.

    Youth unemployment is a growing problem globally and in the region exacerbated by the global recession of 2008 and the continuing uncertainty in the global economy. According to the HDR report, the global youth-to-adult unemployment ratio is at a historical peak and in 2015, 74 million young people (ages 15- 24) were unemployed. Youth unemployment data was not available for all Caribbean countries. However, the available data in the report is troubling. For example, according to the report, Trinidad & Tobago’s rate of youth (not employed or not in school) was 52.5%.

    For too many indicators, there is lack of data available for Caribbean countries.  It is for this reason that we have no idea of how Caribbean countries would rank on the inequality-adjusted human development index which gives a truer measure of human development as it takes into account inequality. Lack of data makes it difficult to track progress.

    Despite a mixed performance in 2014, the Caribbean Region continues to enjoy overall high levels of human development. However, there are several areas of concern which policymakers will have to target if our countries are to reach the ranks of “very high human development”.

    The full Human Development Report 2015 may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. Please note that the views expressed in this article are solely hers. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • Private Sector Development in the Caribbean: A Regional Overview 2015

    Alicia Nicholls

    The Economist Intelligence Unit recently released a report entitled “Private Sector Development in the Caribbean: A Regional Overview” commissioned by Compete Caribbean. The report discusses private sector development in the Caribbean region and is based primarily on the analysis in the Private Sector Assessment Reports (PSARs) on fourteen Caribbean countries which are available as separate reports on the website of Compete Caribbean.

    A direct extract from the Report:

    For the Caribbean countries as a group, 2015 will be a significantly more difficult year than the previous three, reflecting the still-challenging economic climate. The need for private-sector-oriented solutions to these nations’ longstanding challenges has never been greater.

    Some of the key challenges and opportunities identified in the PSARs are:

    Challenges:

    • Strained public finances
    • Cost of energy
    • Access to finance
    • Human capital, in particular inefficient labor markets and emigration of skilled labor
    • Innovation capacity

    Opportunities:

    • Engagement of diasporas
    • Key measures to improve business environment
    • Improve education systems
    •  Improve firm productivity
    •  Regional approach to climate change

    The full report may be accessed on the website of Compete Caribbean here. Happy reading!

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read her commentaries and follow her on Twitter @LicyLaw.