EDITORIAL - Time to diversify
Mon, 07/25/2016 - 12:00am
FIRST there was the global economic downturn which had a significant impact on small countries, especially the tourism-dominated islands in this region.
Still battling their way out of that crisis, now comes Brexit which seems likely to return them to difficult times.
It is really a sure case of having to take body blows once you are integrated into the global economy.
Last week the International Monetary Fund (IMF) said it has cut its forecasts for economic growth in Latin America and the Caribbean over the next two years. This stems from what the Fund calls the unexpected United Kingdom vote to leave the European Union, thereby creating a wave of uncertainty amid already fragile business and consumer confidence.
Brexit has thrown a spanner in the works, said Maurice Obstfeld, IMF chief economist and economic counsellor. So growth projections for Latin America and the Caribbean in 2016 and 2017 were 0.4 and 1.6 per cent respectively. Now they have declined to 0.1 per cent for both years.
The global economic crisis had its origins in the United States before spreading to the rest of the world, inflicting severe damage. Brexit is a creation of the United Kingdom and that too will spread.
Where does all of this leaves small countries? Because they are vulnerable and susceptible to shocks, they have no place to run and have no alternative but to take the punches while hoping that eventually they will emerge from whatever crisis follows from the Brexit vote. It again highlights the point that small countries must engage wherever necessary in a major diversification of their trading partners, and those with whom they engage in commercial relationships.
The World Bank had sounded this point some years ago when it became apparent that the economic crisis had taken hold of those North Atlantic countries, which the Caribbean for example depends very much on for almost everything. They were the main markets for tourists coming to these shores; they were our major trading partners; capital inflows into the Caribbean originated from the USA, Canada, the UK and Europe; investments in our International Business and Financial Services sectors also came from those countries, and the list goes on and on.
There were other Caribbean countries – notably the ones whose economies are dominated by commodities – that were not hit as hard as the tourism islands. Similarly, the Latin American countries were not badly affected either because they were trading with China and several Asian countries which escaped the global economic meltdown. In fact, it was those Asian countries which have and continue to prop up the world economy.
The World Bank’s suggestions make sense. Barbados and the Caribbean have to diversify their economic relationships, and in a hurry, so as not to suffer from any of the mishaps that continue to take place in the North Atlantic countries.
They have to concentrate more on South-South relations; they have to enter more bilateral relationships with Latin America and even Africa. This should not be done at the expense of cutting ties with the UK, Europe, the USA and the others, as there is a danger when a country places all of its eggs in one basket.
It is not something that can be achieved overnight. But the global recession and Brexit come with vital lessons.