THE STAR BUSINESSWEEK DECEMBER 7, 2019
WWW.STLUCIASTAR.COM
FROM BPO TO KPO: HOW SAINT LUCIA CAN GRAB NEW OPPORTUNITIES IN THE OUTSOURCING SPACE Over the past few years Saint Lucia has been quietly and successfully positioning itself as a Business Process Outsourcing (BPO) hub, encouraging firms such as OJO Labs, Digicel, Ark Teleservices and KM2 to house operations on the island. BY CATHERINE MORRIS, STAR BUSINESSWEEK CORRESPONDENT
IN THIS EDITION OF
SBW THE STAR BUSINESSWEEK
The Caribbean’s Shadow Economy The Caribbean has one of the largest informal economies in the world, encompassing street vendors, unregistered businesses and craft workers. Page 3
Continued on page 4
IMF Managing Director Kristalina Georgieva. Photo courtesy IMF
Aviation Advances in the 2020s
The Caribbean region depends on the effective operation of airplanes and the airports they utilise. Few people across the globe would look upon most traditional commercial flights as displays of great efficiency, but the Caribbean has long been beset by challenges within the aviation sector. Page 5
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
BANKING
WWW.STLUCIASTAR.COM
The STAR Businessweek
US TICK $1 ET P 0/ RIC EC E $2 5
2
PROUDLY PRODUCED BY STAR PUBLISHING CO (1987)
MAKING CENTS OF THE CIBC FIRSTCARIBBEAN DEAL BY ED KENNEDY, STAR BUSINESSWEEK CORRESPONDENT
13 th December 2019 PRESENTED BY
Royal Saint Lucia Turf Club Vieux Fort www.rsltc.com
Thoroughbred Racing in the Helen of the West including The Pitons Cup -The Caribbean’s Richest Prize at US$150,000!
Plus Free Concert immediately after featuring Meshach
Jah Cure
Patrice Roberts and
Teddyson John Project
feat. Ezra d Fun Machine & Ricky T
Tickets available online at
stlucia.org and at The Cell outlets island-wide
Earlier this month, CIBC announced a deal to sell two-thirds of its Caribbean banking unit to a company run by Colombian billionaire Jaime Gilinski Bacal for US$ 797mn. He has also recently snapped up a 4.3% stake in distressed Metro Bank Plc, making him the troubled British lender’s third largest shareholder.
E
arly November brought news that CIBC had reached an agreement to sell a majority stake in its Caribbean operation. The buyer is GNB Financial, a subsidiary sitting under the umbrella of the Gilinski Group, the financial empire run by Colombian billionaire Jaime Gilinski Bacal. This transaction is notable for an abundance of reasons beyond the sizeable US$ 797mn the buyer will part with to obtain the 66.7% share of CIBC FirstCaribbean. Here’s what you should know about this momentous agreement.
THE KEY STAKEHOLDERS Jaime Gilinski Bacal was educated in the United States. He worked in Morgan Stanley’s M&A division before building his own real estate and financial operations, and seeing the Gilinski Group firmly established as a commercial powerhouse. In complement to his pursuits in Colombia and around the world that have made headlines, this CIBC deal is joined by Bacal’s involvement in
Panama Pacifico as a landmark venture in the region. Partnering with the British billionaire brothers Ian and Richard Livingstone, Bacal spearheaded development of the Panama Pacifico mixed-use development along the canal’s western bank in the Arraijan district that was devised to serve as a Special Economic Zone, and built upon the former site of the US Howard Air Force Base. Late November also brought news of Bacal’s purchase of 7.4 million shares in Metro Bank PLC, the embattled UK business that has lost close to 90% of its value since January of this year. Bacal made the purchase through a British Virgin Islands company called Spaldy Investments Ltd, delivering him a 4.3% stake in Metro Bank. The timing of this acquisition alongside FirstCaribbean has set tongues wagging in financial circles about Bacal’s ambitions for both. CIBC also arrived at the table to this deal with its own impressive credentials, as a leading Canadian financial institution Continued on page 6
ECONOMY
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
THE CARIBBEAN’S SHADOW ECONOMY BY CATHERINE MORRIS, STAR BUSINESSWEEK CORRESPONDENT
T
he Caribbean has one of the largest informal economies in the world, encompassing street vendors, unregistered businesses and craft workers. While this untaxed and unregulated marketplace provides jobs and incomes for impoverished communities, it also leaves them vulnerable to crime and exploitation as well as hampering domestic development.
WHAT IS THE INFORMAL ECONOMY? The International Monetary Fund (IMF) defines the informal economy as any economic activity that falls outside the regulated economy and tax system. The businesses in this shadow economy are usually smaller scale and reticent to provide information so economists do not have access to much statistical data when tracking and quantifying the sector. The IMF estimates that the global informal economy is large, but receding. From 2010-2017, the areas with the largest shadow economic sector were sub-Saharan Africa, and Latin America and the Caribbean. In both regions, the informal economy is worth around 34 per cent of GDP (in comparison to 9 per cent of GDP in North America). Informal economies tend to be larger in low-income and/or undeveloped countries and it’s not hard to see why. Poor access to education and career opportunities, lack of vocational training, poverty, crime and corruption can all drive people out of the formal job market and into unregulated business. While some fall through the cracks due to economic and societal pressures, others willingly operate in the shadow economy as a means to avoid paying taxes or fees or simply to circumvent the arduous administrative work that comes with operating a business. THE CARIBBEAN CONTEXT A 2017 report from the InterAmerican Development Bank (IDB) examined six Caribbean countries and determined that Jamaica’s informal economy is worth around 43 per cent of its GDP while Trinidad and Tobago’s is around 35 per cent and Barbados’ 37 per cent. Statistics from Saint Lucia are harder to find, however research from the University of the West Indies suggests that 30.5 per cent of jobs on the island come from the shadow economy and a 2010 report from Saint Lucia’s
Chart showing the progression of the global informal economy over the last three decades. Photo courtesy IMF
Central Statistics Office credits informal enterprises with contributing 8 per cent of Saint Lucia’s GDP and 27.3 per cent of total employment. In Saint Lucia and the wider Caribbean, the underground economy encompasses a broad spectrum of individuals and activities. In the island context, it can include farmers taking their produce to local markets, beach vendors selling crafts to tourists on the beach, unlicensed taxi drivers, artists with stalls by the side of the road, musicians playing for change in city streets. The informal economy has also proven an unconventional way of addressing the employment gender gap in the Caribbean. The ad-hoc nature of the labour force allows women to become more involved, giving them the flexibility to work around their family and domestic responsibilities. It is also often the only option for women denied access to education. According to UN Women, 59 per cent of informal jobs in Latin America and the Caribbean are filled by women. These include domestic labour, agricultural and seasonal workers, and craftswomen.
WHY FORMALISE? Many Caribbean citizens are deprived of a steady income and it’s a feature of Caribbean ingenuity and resilience that informal workers will turn to whatever options available to provide for themselves and their families. But it comes with a cost to the whole country. National policy is developed on the basis of national income data and tax revenues. The shadow economy allows a significant part of a country’s economic activity to go unmonitored, potentially skewing important statistics and disrupting economic models that can be used to plot national development. Speaking at a recent forum, IMF Managing Director Kristalina Georgieva commented: “Informality results in lower tax revenues that hinders the government’s ability to spend on social programs and investment. This means the individuals that are most in need of social programs and of public infrastructure may not receive them. If we get a better handle on informality, it may unlock much needed progress in a range of areas.” Additionally, operating outside of the regulatory framework means no formal
WWW.STLUCIASTAR.COM
protection, leaving workers exposed to crime, corruption, exploitation and dangerous working environments. According to the IMF, poverty levels among people in informal employment are, on average, twice as high as that of people in formal employment due to low productivity, low incomes and limited access to government benefits. It’s also worth noting that the underground economy isn’t simply concerned with legitimate activity. It also includes smuggling, drug trafficking, trade in illegal or restricted items, prostitution and fraud – adding fuel to the Caribbean’s already severe crime crisis.
COMPETITION Seeking to end its reliance on tourism, the region has focused on economic diversification in recent years – creating a whole rainbow of fiscal potential. The blue economy (maritime), the green economy (agriculture) and the orange economy (arts and culture) are all industries that deserve dedicated attention, but the often ignored underground economy is arguably a more pressing concern as it poses a real threat to all facets of the formal economy, not only by lowering productivity but also impacting legitimate businesses. In the small markets of the Caribbean, formal and informal business cannot help but compete and the latter has a decided advantage given that it doesn’t have to play by the rules. Evading taxes, regulations, fees and paperwork gives shadow operators the chance to lower their supply costs – something that, in a formal society, generally comes about through efficiency and innovation. Customers, who are simply looking for the lowest price, find themselves unwittingly participating in this black market and making it harder for formal firms to capture market share. It’s a particular concern in the area of Intellectual Property Rights – for example, an unlicensed crafts vendor may easily lift product designs from a formal competitor and reap the rewards of work that’s not theirs. The Organisation for Economic Cooperation and Development (OECD) has guidance for policymakers in the Caribbean and other developing regions trying to reduce their informal activities. It suggests more advocacy from competition authorities, in combination with reducing the regulatory burden for those operating legitimately. In summary, policymakers must incentivise a move from informal to formal by reducing the costs of entering the established economy and increasing the benefits of SBW doing so.
3
4
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
OUTSOURCING
WWW.STLUCIASTAR.COM
FROM BPO TO KPO: how Saint Lucia can grab new opportunities in the outsourcing space Continued from page 1
T
hese providers employ hundreds of St Lucians and deliver a welcome boost to the domestic economy but as the BPO market grows both regionally and internationally so too does the competition and Saint Lucia must evolve to secure its foothold in the sector, exploring new opportunities in higher value niches.
LONG-TERM GROWTH The global BPO market is predicted to reach US$343.2bn by 2025, according to analyst firm Grand View Research. This is a sector that is growing fast as companies realise the cost and time savings associated with parcelling out non-core competencies to other jurisdictions. The rise of BPO isn’t just a boon for corporations, it also provides plenty of opportunities for developing countries who can provide a large workforce in a low-tax environment. The Caribbean in particular is neatly suited to take advantage of the demand for BPO services, thanks to its ability to supply nearshore services for its largest neighbour, the US. Jamaica is the leader in the region, with over 36,000 employees servicing the BPO sector and sector growth of around 20 per cent each year, according to Caribbean Export. As the market heats up and looks forward to more growth over the long-term, competition is increasing. This year’s Outsource to the Caribbean conference, held in Curacao in May, welcomed delegates from around 23 Caribbean nations – all clamouring for a piece of the BPO pie. “Jamaica has done really well,” says Kirk Laughlin, Founder and Managing Director of BPO research and analyst group Nearshore Americas. “They have a large population so that alone is a significant factor - companies want to be able to scale up. I think Jamaica will continue to grow [but] there is greater and greater competition and as a result, operators continue to ask where else they can get great talent, great workers and great output with a native Englishspeaking population Saint Lucia is high on that list.” And thanks to a proactive approach from government and Invest Saint Lucia, buzz is building about the island. KM2 has expanded its facilities in the north and OJO Labs has significantly invested in its centre in the south. Laughlin says: “Saint Lucia has definitely been a success story. They have had a series of wins which demonstrate that [Invest Saint Lucia’s work] has paid off. There is a lot of potential there from the perspective of an investor.” With service providers now casting an eye over the entire region, looking for the most advantageous fit for their firms, Laughlin believes that Saint Lucia can further distinguish itself in
KPO and BPO investment to uplift their people, economy and society as a whole. “It is truly transformative,” says Laughlin. “People get into high-paying jobs and can go up the ladder and get promoted. It is an introduction to a lot of new skills that are useful and transferable in the knowledge economy. These workers are in a good position to go off and become entrepreneurs themselves, filling some gap in the services they’ve seen and the business they have learned. They end up being very productive and that helps the overall image of a country.” Laughlin highlights fintech as an area to watch, given the high demand for more tech-oriented wealth management services, but warns jurisdictions against becoming too specialised, saying: “You are trying to introduce investment from the whole broad spectrum. It is great to be moving in a knowledge services direction but you have to be careful not to say you are just one thing and turn away other potential investors.”
Kirk Laughlin, Founder and Managing Director of Nearshore Americas. Photo courtesy Nearshore Americas
Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities to individuals that have expertise in a specialized area
this crowded market by redefining its BPO proposition and targeting more niche sub-segments such as Knowledge Process Outsourcing (KPO).
WHAT IS KPO? BPO is generally associated with call centres and consumer support i.e. basic activities that require minimal levels of training. But as the sector expands to encompass many different fields,
providers are now looking to farm out more specialised activities. KPO involves information-related services that require skills and expertise, for example activities in fintech (financial technology), real estate, architecture, web services and the medical sector. Given the value of these tasks, KPO jobs typically come with higher wages and more educational opportunities. Over the longterm, small island nations can leverage
ATTRACTING INVESTMENT One thing all investors prize is certainty, and BPO/KPO firms are no exception. This is where Saint Lucia has excelled, according to Laughlin who says the government has been very adept in giving investors a ‘soft landing’. “Investors want to go to a destination that is fluent in their industry. A destination that has thought of all the details [and] is clear about the red tape, making sure they can fulfill what they are offering and not abandoning companies after they invest. Saint Lucia has done that. There is a really welcoming attitude towards these industries by the government.” Despite the country’s readiness, challenges remain. Laughlin, who has spoken extensively with firms in the field, says that while operators are warming up to the Caribbean, concerns remain about the high cost of electricity and the lack of available commercial space. Another off-putting factor for investors is the small size of the islands and their workforce. “At the surface level there are these perceptions [about the Caribbean] but investors have to go look and get the data, visit the places. Some do not do their homework and so they miss out. It boils down to how intrepid the investor is to seek it out.” While size is an insurmountable obstacle for Saint Lucia, Laughlin remains confident that the island can still build on its momentum so far and play to its strengths, becoming a “smaller scale Jamaica”. “I am bullish,” he adds. “I have plenty of firsthand insight into this industry and we are in the early innings of a huge global trend moving in the direction of tech-enabled services. This is an emerging market that is very strong. There are going to be lots of opportunities for countries that are paying attention.”
AVIATION
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
WWW.STLUCIASTAR.COM
5
AVIATION ADVANCES IN THE 2020s BY ED KENNEDY, STAR BUSINESSWEEK CORRESPONDENT
T
he Caribbean region depends on the effective operation of airplanes and the airports they utilise. Few people across the globe would look upon most traditional commercial flights as displays of great efficiency, but the Caribbean has long been beset by challenges within the aviation sector. This is compounded by the fact that the region relies so heavily on aviation to feed its tourism industry and, in turn, that many irritations are not so much the result of unavoidable necessity, but red tape and other issues that are ripe for reform. The good news, as we look to 2020 and the new decade ahead, is that a number of advances in operational approaches and technology are seeing strong and enduring change arrive on the scene.
DEFINING THE DESTINATION Recent years have seen many nations around the Caribbean engage in airport upgrades, including developments in Eastern Caribbean countries like Antigua and Barbuda, St Vincent and the Grenadines, and Saint Lucia. Unquestionably, glittering new amenities, as well as the media attention they generate globally, can deliver a real shot in the arm in activity. Nonetheless, as detailed prior in STAR Businessweek in ‘Preparing a Flight Path: A new airport and its supporting infrastructure’ (March 10, 2019), what makes a ‘great’ airport can be surprising. Some transport hubs, like Singapore’s Changi Airport, are so beautiful that they become destinations in their own right, but airports which subscribe to ‘form follows function’ can still win acclaim too. It’s why otherwise inauspicious hubs, like Baltimore-Washington International Thurgood Marshall Airport, enjoy consistently strong growth in passenger numbers owing to a reputation for ease and efficiency. Fortunately for customers, many upgrades in the aviation sector can be done in existing airlines and airports with little-to-no disruption to customers and flight schedules. THE SUCCESS OF CARIBBEAN AIRLINES Late November brought news of Caribbean Airlines’ performance from January to September of this year, with an EBIT of US$ 17.92mn (TT$ 121mn). Although the overall profitability of the airline was hampered by its domestic losses, total revenue for the period was up 3.8%, with the implementation of new tech and enhanced cost management credited among the factors for this growth. The launch of the airliners mobile app in June made mobile booking and flight updates easily accessible to passengers on
The complex logistics of operating an airport encourage many inefficiencies to arise. (Source: Pixabay)
the go. Caribbean Airlines’ partnership with Worldpay has been notable in this regard. Worldpay aided the airline in optimising point of sale payments for its cargo transport operations within the United States, alongside assisting the airline to combat fraudulent activity, helping save over US$ 1mn in operational costs. Beyond upgrades in airline efficiencies on the ground, there is also the promise of advances in technology, and how it stands to benefit non-stop flights. This is something Caribbean Airlines cited as a boost to its performance, with 2019 seeing the announcement of non-stop flights between Port of Spain and Curaçao, and Kingston to Barbados. But there’s excitement about what lies beyond the region.
FROM THE EAST TO THE WEST INDIES It may be tempting to think in 2019 that just about all air commute routes are already covered and optimised, but there is still ground to break and the promise of greater efficiency. In November Qantas Airlines notably made the non-stop flight from London, UK to Sydney, Australia in 19 hours and 19 minutes. Although that is a long time for a typical Caribbean traveller accustomed to island hopping in just a few hours, a non-stop flight among this
route is seen by many in aviation as a final frontier. The growth of non-stop routes over longer distances doesn’t just add bragging rights to an airline’s marketing, but also enhances efficiency on the ground. Given the comparatively close proximity of Caribbean nations to one another, the growth of more non-stop flights is unlikely to rapidly alter airlines on the ground, but it could have a bearing on tourism growth generally. Currently nine of the world’s top ten longest non-stop flights use a runway in the Asian region, with five of them
The growth of nonstop routes over longer distances doesn’t just add bragging rights to an airline’s marketing, but also enhances efficiency on the ground
landing at US airports. For Caribbean nations seeking to tap into the lucrative rising purchasing power of the Asian region, the growth of non-stop flights and the reduction of travelling time overall means more would-be travellers currently sitting in Hong Kong, Tokyo or New Delhi will look to a Caribbean vacation and no longer be deterred by the travel time.
TRAVELLING WITH BAGGAGE The Caribbean family will always find some hurdles in its path when it comes to improving aviation efficiency. Travel here from the Americas and Europe, or even between islands, will require flights of substantial distance, and see planes land in many states with small economies that must pursue reforms cautiously given there is little room for loss on the nations’ balance sheet. It would be a mistake, however, to regard such hurdles as insurmountable or as reasons to avoid travelling the path at all. As recent upgrades and advances show, substantial change is taking place in numerous areas across the commercial aviation sector. Such changes may take time to usher in, and more work certainly remains to be done but, when complete, it will be to the benefit of the Caribbean’s tourism industry and all in the region who long for a stronger and leaner aviation sector.
6
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
BANKING
WWW.STLUCIASTAR.COM
MAKING CENTS OF THE CIBC FIRSTCARIBBEAN DEAL Continued from page 2
in recent times, as well as indications its new owners take the helm with ambitions to build on it with stronger growth, mean existing employees have little need to worry about an overnight slice and dice of staff numbers. This said, the shift away from a CIBC provided service will also come with a rebrand of the business, and some teething issues are expected to occur as a move to other service providers goes ahead.
FirstCaribbean International Bank was created out of a merger of the Caribbean operations of Barclays Bank and CIBC in 2002, and in 2006 Barclays announced that it would exercise their option to exit the Caribbean venture completely resulting in CIBC gaining majority-control of the bank. In late 2019, CIBC announced that FCIB would be sold-off to a Colombia banking group
with in excess of 10 million clients. Yet, notwithstanding the track record for ambitious projects among Bacal’s operations, the purchase of CIBC’s FirstCaribbean shares has raised eyebrows in global finance owing to the nature of the purchase.
THE AGREEMENT For a time in 2018 CIBC pursued a USbased IPO where it sought up to US$ 240mn, aspiring to reduce its holdings in the bank to 73%. Ultimately dropping the idea, CIBC cited market conditions as the reason for the change of mind. Although the market conditions have clearly become more favourable for CIBC with this deal, the performance of the banking unit and the nature of the regional industry as a whole mean this deal is done amidst some enduring doubt and concern among financial observers. The low-growth nature visible in many sectors of the market means a potential buyer may be enticed away from signing off on a deal locally due to a stronger growth history (and future potential for it) demonstrated elsewhere. Conversely, some of the regional risks perceived by observers are beyond all control. The reality that a hurricane can quickly wreak havoc upon a nation is indeed harrowing, but is also a clinical economic calculus for prospective buyers when assessing the risks and liabilities of a business.
Although the Global Financial Crisis hit CIBC hard, as it did many financial houses, FirstCaribbean has displayed a solid cycle of annual profits in recent years. Nonetheless, this sale sees FirstCaribbean valued at around US$ 1.2bn, a substantial decrease from its valuation at US$ 2.8bn that was on-hand when CIBC took control over most of the business.
DOES A SALE MEAN DOWNSIZING STAFF? According to CIBC, it holds 2,700 staff across 57 branches in 16 regional markets, and news of the deal surely made hundreds, if not thousands, among this count nervous about their future. At present it appears such worries are premature, albeit as many changes are flagged going forward. Following news of the deal, Collete Delaney, CEO of CIBC FirstCaribbean sent an internal email to employees, reportedly saying the deal will deliver “ . . . a strong platform for the future while retaining part of our [CIBC’s] heritage” and that CIBC is “not leaving the region”. By virtue of retaining a 24.9% stake in FirstCaribbean, CIBC has skin in the game when it comes to future operations, and it will also retain a number of minority shareholder protections, including liquidity rights surrounding its current ownership holdings. The strong performance of FirstCaribbean
INKING THE DEAL In 2017 the IMF published ‘Loss of Correspondent Banking Relationships in the Caribbean: Trends, Impact, and Policy Options’, noting with concern the shifts in the sector that resulted in cuts in service and higher costs, among other afflictions. News of this deal may be cheered by many but will do little to assuage the concerns held by those who share the IMF’s view, and worry for the future accessibility and affordability of banking services within the region. The total consideration for this deal will be US$ 200mn, with secured financing provided by CIBC itself for the remainder. It is expected to be completed in 2020, subject to fulfilment of customary closing conditions, including confirmation of regulatory approval. As well as this venture, via the Gilinski Group, Bacal has banking operations in Peru, Paraguay and the Cayman Islands, among other regional nations, with combined assets amounting to approximately US$ 15bn.
The Saint Lucia Registry of Companies & Intellectual Property Company Incorporations Name: Sunjoy Enterprise Inc.
Name: Fencing Solutions Inc.
Description: Wholesale business
Description: Fencing services
Directors: Hui LI, Zhouxin Huang, Alphaeus Fadlien
Directors: Dawn Alexander-Felix, Oswald Isidore
Date Incorporated: 20/11/19
Date Incorporated: 26/11/19
Chamber: Floissac Fleming & Associates
Chamber: SEDU
Name: The Ubuntu Movement Goddess Retreat Inc.
Name: Beachcross Villas Inc.
Description: Retreat including tours
Description: Guesthouse/ mini hotel
Directors: Ronda Itopia Archer
Directors: Keith Mondesir
Date Incorporated: 21/11/19
Date Incorporated: 26/11/19
Chamber: SEDU
Chamber: McNamara & Co.
Name: Epic 360 International Inc.
Name: Yesspal Ltd.
Description: Mixed farming
Description: Freelancer, online directory
Directors: Chris Blackmoore, Sherman Vinson
Directors: Jeffsust William, Gilliana St. Croix-William
Date Incorporated: 21/11/19
Date Incorporated: 27/11/19
Chamber: Lorne Theophilus Chambers
Chamber: SEDU
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
WWW.STLUCIASTAR.COM
7
8
THE STAR BUSINESSWEEK
DECEMBER 7, 2019
WWW.STLUCIASTAR.COM
1-800-804-2994
PRINTED & PUBLISHED BY THE STAR PUBLISHING CO, (1987) LTD. RODNEY BAY INDUSTRIAL ESTATE, MASSADE , P.O. BOX 1146, CASTRIES, ST LUCIA, TEL (758) 450 7827 . WEBSITE WWW.STLUCIASTAR.COM ALL RIGHTS RESERVED