The Economic Year in Review by STAR Publishing

THE STAR Businessweek JANUARY 5, 2019

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The Economic Year in Review Saint Lucia struggled to maintain growth in 2018, while the regional and global economy faced a myriad of challenges By Catherine Morris, STAR Businessweek Correspondent

This time last year, the Caribbean was licking its wounds. Following a devastating hurricane season and a resulting slowdown in the tourism industry, the region’s economy was faltering and the fiscal future looked worrisome. Happily, the dire predictions from economic pessimists did not materialise and while 2018 was a year of uncertainty and challenges, it was also the year that the Caribbean regained its footing. The Economic Commission for Latin America and the Caribbean (ECLAC) predicts 1.9 per cent growth this year in marked contrast to the paltry 0.2 per cent seen in 2017. Continued on page 4

High hopes, and much fear, as Jair Bolsonaro assumes Brazil presidency On the eve of Jair Bolsonaro’s inauguration as Brazilian president on Tuesday, there was a reminder of the strident political messaging that propelled the far-right politician from obscurity to electoral victory two months ago Page 3 & 7

Xi Jinping asserts that Taiwan and China ‘will be unified’ President Xi Jinping ratcheted up the pressure on Taiwan’s pro-self-rule government on Wednesday, asserting China’s right to use military force against “foreign powers” Page 7

Allen Chastanet, Prime Minister of Saint Lucia

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Exploring New Avenues in the Minimum Wage Debate By ED Kennedy, STAR Businessweek Correspondent

A coalition of Mexican families protest in Mexico City for higher minimum wages during the term of President Nieto

elling the story of economic growth and workers’ rights throughout the Caribbean would not be possible without a special mention of the push for a higher minimum wage. Alongside seeing an increase in income, many minimum wage workers (and their trade union representatives) have so often framed a lift in the minimum wage as a clear-cut victory of David over Goliath. Any inroads made that advance workers’ rights and lift living conditions are something to celebrate, but the minimum wage debate has often been a lightning rod locally and globally for criticism. Past battles may have been consigned to history but we now have the greatest rich-poor gap in our global economy since the Gilded Age of the early 20th century. Recent years have seen especially odorous revelations come out, in the Paradise and

Panama Papers leaks, about how some of the world’s most affluent use Caribbean domiciles to grow and retain their wealth so it’s a fitting time to revisit the minimum wage debate, and explore the contemporary perspectives to it.

New Push in the New World?

Late December saw Mexico’s wage commission indicate they would hike the nation’s minimum wage to around US$5 per day, representing a 16% increase, following through on the new President of Mexico Andres Manuel Lopez Obrador’s preelection push for a wage hike. This news is not only notable for Mexico, but for what it will spur in wider North and Latin America. For the United States and Canada, the impact could be quite direct. To what extent will a lift in minimum wages impact the long-term attractiveness of the

new NAFTA deal to business? For Latin America, the debate will be broader, but potentially span a far greater scope, for within the debate around minimum wages is not just a reflection on personnel costs in business, but a conversation surrounding the broader progress and advancement of economies and societies. In the United States, the minimum wage is a hotly contested political battleground in a nation that has achieved stable economic growth for generations.

Maximising the Minimum

Throughout the Caribbean, the chronicles of the labour movement and trade unionism have seen the minimum wage issue sewn into the fabric of historic and contemporary pushes for worker advancement, oftentimes as a central issue of dispute. The push for a higher minimum wage is an enduring trend in the dynamics of Latin

America’s business community. While the earnest efforts seeking to raise the minimum wage to lift the living standards of the economy’s lowest paid workers is surely admirable, historically research has shown that higher minimum wages have not always translated to higher living standards. This is despite the experience of nations like Honduras, where a lift in minimum wages did thankfully result in a reduction of extreme poverty, but also an uneven spread of success. Put simply, those who maintain that a minimum wage would deliver widespread social benefits have found their advocacy can run aground once the realworld application begins. Oftentimes a legally-mandated minimum wage has not had the desired effect. Instead of securing a good wage for a worker that would cover their living expenses, it has instead provided an avenue for employers to place an artificial barrier surrounding the lowest wage they are permitted to pay. Certainly an individual cannot be paid less than that wage legally, but they may be hesitant to ask for more, especially given that the minimum wage is often applicable only to salaried workers. Continued on page 5

Brazil

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High hopes, and much fear, as Jair Bolsonaro assumes Brazil presidency ‘Tropical Trump’ is country’s first far-right leader since military dictatorship By Andres Schipani in Brasília

n the eve of Jair Bolsonaro’s inauguration as Brazilian president on Tuesday, there was a reminder of the strident political messaging that propelled the far-right politician from obscurity to electoral victory two months ago. “He (a police officer) fired with the intention to kill? Of course he f***ing did, the [criminal] was carrying a rifle!” Mr Bolsonaro said in a two-minute video montage of quotes circulated by his son and social media campaign manager Carlos. In another clip, the elder Mr Bolsonaro then berates Congress: “You people are not concerned about public safety. You are all pussies.” The video, which shows the former army captain firing guns, riding a horse and insulting leftists and ends with his motto “Brazil above everything, God above all”, sets the tone for a four-year presidency of Latin America’s biggest economy that got under way with Mr Bolsonaro’s swearingin on New Year’s Day. The 63-year-old said in his first presidential speech in Brasília that his government would free the country from leftwing “ideological moorings”, combat the “ideology of gender” taught in schools, and respect Brazil’s “JudeoChristian tradition”. “I stand before the whole nation on a day when people begin to free themselves from socialism, from the inversion of values, from state gigantism and from the politically correct,” he said in a speech to the nation. A self-proclaimed ally of Donald Trump, Mr Bolsonaro was congratulated by

Brazil’s new president Jair Bolsonaro and his wife Michelle greet crowds in Brasilia after his swearing-in ceremony © AFP

the US president soon afterwards. “A great inauguration speech — the USA is with you!” Mr Trump wrote on Twitter. Among Brazilian supporters, expectations are high that the rightwing congressman, elected on a wave of popular disgust towards Brazil’s previous leftist governments, will clean the country of rampant graft, jump-start an economy slowly emerging from its worstever recession, and fight spiralling crime. A record 63,880 people were murdered in 2017 and Mr Bolsonaro himself suffered a near-fatal stabbing at a rally during the election campaign. “We have been robbed for years by corruption, we have no security in the streets and the economy is faltering,” said Nazaré Sady, a 67-year-old Bolsonaro supporter in Rio de Janeiro. “I am very happy . . . Brazil is recovering its dignity, its greatness.” “Bolsonaro is a bit extreme,” admitted

Brasília resident Víctor Murilho, aged 30. “But he personifies the changes we need.” While Mr Bolsonaro is unlikely to live up to his middle name of “Messias”, or Messiah, his presidency nevertheless marks a historic shift in Brazilian politics. Sometimes called the “Tropical Trump”, he has lambasted traditional media for spreading what he calls “fake news”, and will be Brazil’s first far-rightwing leader since the military dictatorship three decades ago. Seven of his 22-member cabinet have also served in the military. Marking the political sea-change, Viktor Orban, Hungary’s populist prime minister, and Benjamin Netanyahu, the first Israeli leader to visit Brazil, were in Brasília to watch Mr Bolsonaro don the presidential sash. Leftist Latin American leaders Nicolás Maduro of Venezuela, Daniel Ortega of Nicaragua and Miguel Díaz-Canel of Cuba,

deemed dictators by Mr Bolsonaro, were meanwhile disinvited. At the October presidential election, almost 60m Brazilians embraced Mr Bolsonaro’s campaign pledges, mainly delivered through social media, to promote Christian family values, national pride and economic liberalism. Indeed, business optimism is already on the rise. According to a December poll by Datafolha, 65 per cent of respondents believe the economy will improve in coming months, the survey’s highest reading in almost two decades. “We are definitely bullish. It will be a good time for businesses,” said one European investor looking to expand operations in Brazil. One reason for such investor excitement is Mr Bolsonaro’s economics team, which is led by former investment banker Paulo Guedes and a group of fellow alumni of the University of Chicago, known for its adherence to free markets. Pension reform is a priority. But there are also worries. Mr Bolsonaro’s executive team includes many outsiders with little political experience in managing congress. Environmentalists say the new administration threatens conservation of the world’s largest rainforest. A pledge by Mr Bolsonaro to move the Brazilian embassy in Israel from Tel Aviv to Jerusalem has also exposed divisions in his foreign policy team, while prompting pushback from Brazil’s powerful beef lobby, which fears loss of key sales in Arab markets. More generally, many wonder if the former backbench congressman — who has freely expressed nostalgia for the dictatorship, said gun ownership should be liberalised, and openly denigrated women, homosexuals and black Brazilians — can govern the country’s 209m population inclusively. Continued on page 7

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The Economic Year in Review Continued from page 1

For the Caribbean, the issues surrounding any US-led confrontation with China are unlikely to revolve around ideology and politics, but to be much more about development, and how in real terms external support might spur investment, economic growth, job creation, and directly or indirectly support social provision

Saint Lucia struggles

While the region is making a slow but steady recovery, Saint Lucia’s economic performance dipped slightly. Buoyed by heavy public investment, stable FDI and a strong tourism sector in 2017, the country failed to carry this momentum into 2018 and GDP growth dropped from 3.7 per cent in 2017 to 2.5 per cent for the year, according to ECLAC. As with many of its Caribbean neighbours, national debt continues to be an issue in Saint Lucia, with gross public debt amounting to 59 per cent of

GDP in the second quarter of 2018. As the debt grows, so too do interest payments which accounted for 3.8 per cent of GDP. And there are growing concerns that Saint Lucia’s debt profile will worsen into 2019 following last month’s news that the government will borrow US$100m to redevelop Hewanorra International Airport. For the average citizen, the grassroots economics continue to paint a negative picture. According to the International Labour Organization, unemployment in the Caribbean fell from 8.1 per cent in 2017 to 7.8 per cent in 2018 but this slight

improvement was not reflected in youth employment. Saint Lucia continues to have one of the highest youth unemployment rates in the region, at 38.5 per cent — well above the 2018 regional average of 19.6 per cent. In addition to troubling rates of unemployment, inflation rose substantially between October 2017 and June 2018 going from 0.8 per cent to 1.9 per cent in those nine months. The biggest hikes were seen in food and beverages, prices for which rose 4.8 per cent, and gas and fuel which climbed by 12.6 per cent putting more

pressure on household bills. Last year also saw some positive economic gains however. Saint Lucia’s tourism sector had a banner year in 2018, continuing its role as the primary pillar of the domestic economy. The World Travel and Tourism Council estimates that travel and tourism contributed US$622.2m to Saint Lucia’s GDP in 2017 and expected this number to grow by 5.1 per cent in 2018. The organisation also forecasts a 5.7 per cent annual growth rate through to 2028. There was also good news in the agricultural sector where a 29.9 per cent rebound in

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domestic exports of food in the first half of 2018 pointed to a recovering industry, according to a CIBC market report. Exports of domestically produced manufactured goods also rose by 26.3 per cent.

The global and regional context

Saint Lucia’s economic performance for 2018 must be judged in both a regional and a global context. Global economic growth reached 3.2 per cent in 2018, a slight drop from 4.6 per cent the previous year. Worldwide, many economies struggled thanks to a backdrop of mounting trade tensions and volatile financial markets. Increasingly negative relations between China and the US contributed to a slowdown in world trade which dropped from 4.6 per cent in 2017 to 3.9 per cent in 2018. Uncertainty surrounding the future of the World Trade Organisation and its expected reform, combined with the looming threat of Brexit in 2019 and political upheaval within the Eurozone, mean that trade will most likely continue to be sluggish this year. Global liquidity held stable in 2018 but the beneficiaries tended to be developed nations rather than the perceived ‘high-risk’ emerging economies. Of those developing economies, Turkey took the lion’s share of global credit in the second quarter of 2018, followed by China, Mexico and Indonesia. As liquidity remained strong, global debt levels rose across the board and the shadow banking sector expanded.

More uncertainty on the horizon

In the past year, the Caribbean’s greatest

economic challenges reflected the region’s longstanding issues — the need for responsible public expenditure, failure to diversify domestic economies and dwindling inflows. External financing continues to be an area of concern as 2019 will bring more uncertainty, stifling appetite from developed nations to risk investment in emerging economies. Looking ahead, the island nations most likely to withstand geopolitical fluctuations will be those who have their fiscal house in order. The IMF has identified several areas of weakness in Saint Lucia’s economy, including climbing public debt, poor fiscal sustainability, lack of resilience to natural disasters, high unemployment and a failure to fully mine the potential of the booming tourism sector by building linkages to other industries. ECLAC predicts that the Caribbean economy will grow 2.1 per cent in 2019, while Saint Lucia will see growth of 2.9 per cent. The IMF is more optimistic in its estimates, forecasting 3.5 per cent GDP growth for Saint Lucia in 2018, and 3.7 per cent in 2019. While the Caribbean is maintaining a modest growth trajectory, ECLAC Executive Secretary Alicia Barcena warned the region: “The active role of fiscal policy in terms of revenue and spending must be bolstered. In terms of expenditures, in order to stabilize and invigorate growth, public investment must be reoriented toward projects that have an impact on sustainable development. All of this while protecting social spending, above all in periods of economic deceleration.”

The biggest hikes were seen in food and beverages, prices for which rose 4.8 per cent, and gas and fuel which climbed by 12.6 per cent putting more pressure on household bills

JANUARY 5, 2019

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Exploring New Avenues in the Minimum Wage Debate Continued from page 2

In many developed economies, a rise in the minimum wage rate has been indicative of brighter economic future, but raising the minimum wage itself does not guarantee a brighter economic future, ceteris paribus

Contractors, freelancers, and casual staff (though definitions can vary from one Caribbean nation to another, each of these roles are similar) can commonly be paid at rates outside the minimum wage calculus. Sometimes this can be higher but, equally, it can be lower. For developing nations — of which there are over 150 worldwide — a rise in the minimum wage has been an indicator of a more promising economic future, and also of a society achieving greater social cohesion when it comes to politics and policy making. We are now encountering a growth in voices advocating for alternatives.

Alternatives to the Minimum Wage Measurement

While a rise in the minimum wage can bring additional income to a person, it can also result in bracket creep: the occurrence whereby a (relatively) small increase in someone’s earnings results in a shift into the next income tax bracket. While the individual does earn more each year, they actually have less money in their pocket due to paying more taxes. In recent years economists have suggested that the efforts to raise a minimum wage should be redirected to a tax break, like an Earned Income Tax Credit (EITC). Instead of a direct raise in the minimum wage, there would be a reduction in the taxes that an individual on a lower wage pays. This would negate the bracket creep problem altogether.

Beyond tax credits there is also a growing push around the world for the concept of a basic income — one that would provide a guaranteed minimum income to all citizens of a nation, going beyond the scope of social security programmes like pensions that exist for senior citizens and those with a disability. While such an idea of all citizens having a basic income may at first seem like pie in the sky to fans of limited government, it has (somewhat surprisingly) a strong advocacy among many business circles. The reasoning is that a basic income would empower entrepreneurs, currently spending most of their working hours in a job they have no plans to continue, to devote themselves more fully to their own venture. This would free up their current job for another worker, with the prospect that their new business would create more (and higher paying) jobs in the future. The basic income debate has been especially vivid as it is not just jobs of minimum wage workers that are set to disappear should we see a greater adoption of A.I and automation in our workforce, but also the jobs of many middle and highincome earners. Certainly retraining may be easier for the latter groups than the former, but this trend is set to make an impact societywide. It is one for which all nations must plan as, in an era of automation, there will be a growing challenge to maintain not just minimum wage jobs, but employment across the whole economy.

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Business Support Services

225 Caribbean Technology Entrepreneurs Selected for CDB-funded Programme Press Release

ridgetown, Barbados— Two hundred and twentyfive aspiring technology entrepreneurs have been chosen for an incubator programme designed to equip them with the skills to take their businesses to the next level. Following a recent call for applications, over 200 regional entrepreneurs applied to be part of the Caribbean Tech Entrepreneurship Programme (CTEP) funded by the Caribbean Development Bank. CTEP is a virtual incubator and accelerator programme focused on stimulating the creation and supporting the growth of technology entrepreneurship in CDB’s 19 Borrowing Member Countries. The

“Supporting sustainable growth is one of CDB’s strategic objectives. This technology-focused incubator programme creates a platform for scores of entrepreneurs to develop the skills they need to advance their businesses, and to develop a range of innovative solutions for the market. They, in turn, can be better positioned to create further employment opportunities for others as they expand their companies, and indeed contribute to the digital transformation of the region,” said Lisa Harding, Coordinator of Micro, Small and Medium Enterprise Development at CDB. CTEP is being executed and managed by Orbit Innovation, using an approach comprising:

“Through a series of Business Incubation and Acceleration activities, Caribbean Entrepreneurs will connect with Mentors and Facilitators who are driven to help transform their Startups.” – CTEP

programme will provide regionally relevant capacity-building workshops and critical mentorship support. The first cohort is expected to commence in January 2019 and the selected entrepreneurs will compete for cash

and business support prizes. Fifty teams’ businesses are in the ideation stage, 30 in the validation stage and 10 in the scale-up phase. These teams will cover critical capacity areas over a 10-week virtual course under the tutelage of qualified mentors and facilitators.

• intensive applied learning activities designed to develop management skills and entrepreneurial capacities; • appropriate theoretical contexts that immerse entrepreneurs into interactive business innovation scenarios, modules and discussions; • relevant and entrepreneur specific practitioner and mentorship support; and • web-based business toolkits and critical skills learning modules. All updates will be featured on www.ctep.tech

One China Policy

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Xi Jinping asserts that Taiwan and China ‘will be unified’

President uses rare speech on issue to ratchet up pressure on US support for Taipei By Yuan Yang in Beijing and Edward White in Taipei

resident Xi Jinping ratcheted up the pressure on Taiwan’s pro-self-rule government on Wednesday, asserting China’s right to use military force against “foreign powers” that intervene on the issue of independence for the country. Mr Xi said Taiwan “must be unified, will be unified” with China in a sharp rebuke to President Tsai Ing-wen, who this week said that her people wanted to maintain self-rule and has courted closer ties with the US. “Chinese people do not fight other Chinese,” Mr Xi said, but added that Beijing would take “necessary measures” against foreign interference and “a small number of Taiwanese independence activists and separatist activities”. Mr Xi’s speech is the latest in a series of aggressive signals towards Taiwan and the US over the past year, amid concerns in Beijing about warming relations between Taipei and Washington. Ms Tsai on Tuesday used a new year’s address to call China’s attempts to “interfere in Taiwan’s internal politics” her “greatest challenge”. Her remarks came a day after US President Donald Trump signed the Asia Reassurance Initiative Act, a new law that promotes US arms sales and high-level visits to Taiwan. Mr Xi’s speech marked 40 years since Beijing ended the military bombardment of Taiwanese-controlled islands off the mainland to instead focus on diplomacy. The two sides have been at loggerheads since the Communist party took power in China

High hopes, and much fear, as Jair Bolsonaro assumes Brazil presidency Continued from page 3

Chinese President Xi Jinping’s rebuke to Taipei’s approach was said by analysts to reflect a more nationalistic approach © Getty

nearly 70 years ago and the former ruling Kuomintang party fled to Taiwan.

China claims Taiwan is its territory.

A senior Taiwanese official said Mr Xi’s warning over foreign interference was clearly “targeting the US” but played down concerns that Washington would weaken its support. “I really do not worry that someday the United States is going to abandon Taiwan,” the official said. Ms Tsai responded to Mr Xi’s comments by saying Taiwan would never accept “one country, two systems”. “China has to face the fact that the Republic of China [Taiwan] exists,” she said. Analysts say that with the power to rule China for life, Mr Xi could be considering making the eventual unification of China and Taiwan a hallmark of his presidency with a more nationalist approach. Zhu Feng, head of Nanjing University’s school of international relations, said the promise not to use military power against “Chinese people” to force unification could be seen as “an important

development in Taiwan relations” but it still left an opening for military retaliation against perceived moves towards independence. Since Ms Tsai’s pro-independence Democratic Progressive party (DPP) won Taiwan’s presidency in 2016, Beijing has hardened its stance, conducting live-fire naval military exercises in the Taiwan Strait last year for the first time since 2015. In September, China criticised the US for approving a $330m arms sale to Taiwan, the second such weapons agreement with Taiwan since Donald Trump took office. Beijing has also ramped up pressure on civilian fronts, encouraging international airlines and hotels into referring to Taiwan as part of China. China will “leave no room for any form of Taiwanese independence movement”, Mr Xi said. “The Taiwan problem is a Chinese domestic issue . . . we cannot allow any foreign interference.” Additional reporting by Nicolle Liu in Hong Kong

“My fear is, based on what he has said, we could lose the rights we have,” said Luana Bulhões, a black lesbian professor in São Paulo who rushed to get married last month in case Mr Bolsonaro, who has said homosexuality could be beaten out of gay children, reverses current legislation. Fears of latent authoritarianism are somewhat curbed by the country’s strong institutions acting as a counterweight. Control Risks, the consultancy, believes concerns that Mr Bolsonaro is a threat to Brazilian democracy are overblown. “He will face independent judges and prosecutors, as well as an active media and opposition that will check his power and likely act as a last line of defence against potential power grabs or arbitrary decisions,” it said. That may already be happening. Although Mr Bolsonaro champions himself as an anticorruption crusader, his son and senator-elect Flávio has become embroiled in a scandal over payments involving a former driver. Flávio Bolsonaro has denied any wrongdoing, but the president-elect has “been unable to shake off the scandal, suggesting a premature end of the honeymoon newly-elected leaders usually enjoy”, said Oliver Stuenkel, a professor of international relations at the Fundação Getulio Vargas in São Paulo. For now, Mr Bolsonaro’s green and yellowclad supporters — echoing the colours of the Brazilian flag — are delighted by the prospect of a change in the country’s mindset after 14 years of leftist rule. In Brasília, pictures of the new president calling for a “new Brazil” beamed out of a giant billboard and crowds took up a common chant describing him as “mythic”. Mr Bolsonaro will be Brazil’s “best president ever”, said Renata Biezok, a São Paulo-based lawyer.

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Citizenship By Investment

Saint Kitts CIU to Instate Real Estate Escrow: Payouts Contingent on Developers Actually Developing By Christian Nesheim, Investment Migration Insider

he Saint Kitts & Nevis Citizenship by Investment Unit reports it has been consulting with developers over new regulations in a bid to prevent improper promotion and procedures related to the programme’s real estate option. The developers, said the CIU, had pledged to ensure that their promotion of real estate would reflect the statutory requirements — property purchases at no less than US$200,000 — while the CIU, in turn, made clear it “would not accept any applications for processing that reflect prices that are contrary to the current regulations” and that it would “vigorously enforce the regulations governing the CBI programme and that the department has been investigating and intends to act decisively against those whose actions

undermine the integrity of the programme.” The announcement follows months of debates around inappropriate — and possibly criminal — practices relating to the real estate option, where several developers and agents stand accused of selling CBIqualifying real estate for less than the mandated minimum, sometimes with no real intention to complete projects, leaving the islands with several “ghost developments”.

Developer payouts subject to project completion The government proposes to amend the Escrow Bill, which would require applicants’ funds for property acquisitions be placed in an escrow account at the time of approval in principle, to be released according to a payout schedule corresponding to different stages of project completion.

Sam Bayat, CEO of Bayat Legal Services

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Such a measure would both prevent agents and developers from selling property at discounted rates and ensure that developments do not go uncompleted. Reacting to the news, Sam Bayat of Bayat Legal expressed cautious optimism about the proposed amendments. “This is excellent news, especially the payment of escrow as per predefined rules,” he told Investment Migration Insider in a message, highlighting the importance of making payouts to developers contingent on their actually developing properties. “We saw similar problems in Dubai during the property crash a decade ago; many developers took down-payments and deposits to start new projects, and also used these funds for marketing, leaving projects without funds [to actually complete the construction].”

Proposed AMNESTY PERIOD FOR UNDERPAYING APPLICANTS TURNED INFORMANTS

Bayat also believes the CIU should not stop at merely preventing illegal discounting practices in the future; there should also be consequences for past transgressions. “This new escrow account, if wellconceived, will only solve future real estate application issues, but what about the hundreds of applicants who made

inadequate payments in the past?” asked Bayat. “We need an inquiry into all past real estate applications or the unit must advise individually each approved real estate applicant that, if they paid less than the minimum amount, they have a set time to come forward and pay the difference without repercussions and name those responsible for advising them to pay less.”

The developers, said the CIU, had pledged to ensure that their promotion of real estate would reflect the statutory requirements — property purchases at no less than US$200,000 — while the CIU, in turn, made clear it “would not accept any applications for processing that reflect prices that are contrary to the current regulations”

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