Barbados is an underrated sovereign - Euromoney
Sunday, April 06 2014 @ 01:30 AM AST
Contributed by: michaelariston
Barbados is one of the most diverse economies in the Caribbean. It’s certainly the most robust, drawing in revenues from a wide range of industries (tourism, business services, manufacturing, agriculture), which feed into the region’s most politically and economically stable state.
Inflation is low, the government has measures in place to bring the budget deficit to a more sustainable level and foreign reserves are carefully husbanded. The jewel in the Caribbean crown, Barbados also boasts manageable debt, low corruption and an orderly society organized and run by consensus. In short, this is as stable a country as you’ll find, despite being surrounded by a curve of islands, many of which are politically unpalatable, racked with debt or, as with many frontier nations, struggling for growth in a turbulent world.
Barbados, as stable as Singapore or Switzerland, and a key economic and financial ally of the UK, US and Canada, suffers none of these travails. Yet its sovereign rating drags. In November 2013, Standard & Poor’s cut the long-term rating of Barbados to BB-minus from BB-plus, citing external pressures and a small current account deficit. The following month, Moody’s Investors Service followed suit, downgrading the island’s bond rating to Ba3 from Ba1.
WHY THE RATING AGENCIES ARE WRONG
Many believe the ratings giants are being unfair to an island blessed with superb leadership, a young population of 280,000, a burgeoning business services sector and an economy set to grow by about 1% over the next two years. They say the ratings agencies wrongly tar everyone with the same brush. And they are almost certainly correct. So here are a few choice reasons why Barbados is an underrated sovereign:
• Barbados competes with the best. “We are more competitive than the market gives us credit for,” says DeLisle Worrell, governor of the Central Bank of Barbados. He points to the World Economic Forum’s 2013-14 Global Competitiveness Report, which shows Barbados outperforming regional peers on a host of metrics, from financial market development to innovation, infrastructure and business sophistication. The WEF places Barbados 47th in the report, against 92nd place for Trinidad, a far larger, resource-rich economy, showing how much more Barbados has done with less. Ratings agency findings also contradict Euromoney Country Risk (ECR) data, which has over the past three years consistently presented a compelling investment picture. The island’s overall ECR ranking consistently outperforms the region, jumping from 36.9 points in September 2010 to 47.53 points in December 2013, a rise of 42 places. Moody’s in November tempered its message by pledging a potential upgrade of Barbados’s stock if the island’s economy returned to growth. Yet the truth is, recession hasn’t been a word used here since 2009. This is not an economy in trouble, as a wealth of data proves – quite the reverse.
• It’s filled with skill. Strong economies are those that plan ahead. Barbados has been doing this since independence nearly half a century ago. With few natural resources and few cash crops, it chooses to invest directly in its people, pumping investment into healthcare and education. Many Barbadians stay in education well into college, emerging with degrees and doctorates and remaining on the island to work for the plethora of lawyers, tax advisers, auditors, consultants and accountants that dot the landscape. Financial and business services firms contributed an estimated $100 million to government revenues in 2013 (despite Barbados offering a corporate tax rate as low as 1.6%). “We have a very literate, very competent labour force,” notes Donville Inniss, minister of industry, international business, commerce and small business. “Barbados is a jurisdiction where business works, a jurisdiction of real substance.” Adds Warrick Ward, deputy CEO of the Financial Services Commission: “Barbados offers world- class business and financial services and advice, and at very modest salary rates.” And it’s this price equality that maintains a broad middle-class and explains why Barbados is so stable, and with such a low crime rate. “We are very different to many of our regional sovereign peers,” adds Ward. “We have world-class human capital, we are able to think flexibly and to find solutions for problems, and we have political stability.” A final word here from Glyne Harrison, CEO of First Citizens Bank (Barbados), a leading pan-Caribbean lender: “We don’t have an abundance of natural resources or minerals so, long ago, we decided to invest heavily in our people, to ensure that our children can advance through the educational ranks. You’ll find that almost everyone [at our bank] has at least a bachelor’s degree – that is the basic standard. Few other countries here can say that.”
• Low tax, not no tax. Not all Caribbean islands are the same - a fact that is sometimes easy to forget. Barbados isn’t the Cayman Islands or the British Virgin Islands (BVI), archipelagos boasting zero corporate tax, and an awful lot of shell companies. Barbados has long been the place you go to pay tax into a world- class, financially transparent revenue system, rather than a place to conceal shadowy finances. Notes Connie Smith, managing director at Tricor Caribbean, a local provider of integrated business, corporate and investor services: “We are beyond pure financial services. People just assume we have a bunch of banks, but the reality is that we only have around 45 licensed lenders, and around 4,000 locally-domiciled international entities, from global miners to equipment makers and aircraft leasing firms. We don’t do business with just anyone.” Adds trade minister Inniss: “If you want to set up a dummy corporation, or a shell company, this isn’t the place for you.” It’s worth noting here that Allen Stanford sought on three separate occasions to secure a Barbadian banking licence. The jailed former owner of Stanford International Bank was rejected every time.
• Whiter than white. Tax haven status becomes less appealing every year. Barbados never aspired to such a brand, and has fought long and hard to remain on the OECD’s ‘white list’ and off its ‘grey list’ of nations considered to be fostering tax evasion through insufficient financial transparency – the list has at various times included the Caymans, BVI, and Antigua and Barbuda. This matters: European and North American attitudes to tax evasion have tightened considerably in recent years (note the US’s FACTA bill, signed a decade ago), making it harder to reappropriate capital from pure tax havens. “We are very strong on sharing financial transparency with other governments,” notes Chris Callender, a portfolio manager at Bridgetown-based Fortress Fund Managers, which has $350 million in assets under management. “Barbados is seen as a very clean government. There is a very strong belief here that there’s a right and a wrong way of doing business. We don’t train our people to do business under the table.” Adds First Citizen’s Bank’s Harrison: “This isn’t a place where you set up dummy companies. To invest here we require full financial disclosure, full due diligence. You’ll never find us on an OECD blacklist, or described as a tax haven. And that makes us attractive to international companies that don’t want to worry about reputational damage.”
• Global time. Quite apart from Barbados’s handy position on the map – it’s perfectly positioned for doing business in Europe, the Americas and even the Middle East - the island offers one extra, tasty appeal: speed. Business can be done here, thanks to a world-class communications superstructure, “with the speed and sophistication that you’d expect in London, New York or Geneva,” notes Inniss. “You can move money around the world in a matter of minutes, and you have the confidence of the backing of a judicial system that works. Everyone quickly finds that this little island really is one of the best places in the world to do international business from.”
• DTAs and BITs. Both these acronyms also help mark Barbados out from the regional crowd. The island has signed 33 double-taxation agreements and a dozen bilateral investment treaties with various countries over the years: the first with the UK in 1970; the latest with Singapore in 2013. These help an investor from any participating country to either cut corporation tax to as little as 1.6% when ploughing capital into a third country (in the case of DTAs) or to ensure a fair hearing at an independent court of arbitration if a deal or investment goes wrong (in the case of BITs). But the real beneficiary is the Barbadian economy, which has spent the past half-century making itself essential to the daily global cut and thrust of financial life. Again, this marks Barbados out from its regional peers. And Barbados isn’t finished there. Next up: plans to become a globally-relevant stock market, thanks to the international securities market (ISM), set for launch as early as mid-2014, and to make it ever easier to set up and do business here. “Our ambition is to become like Singapore, where you can set up a business in minutes,” notes Jeremy Stephen, president of the Barbados Economic Society.
All of which paints a far healthier – and a far more balanced – view of one of the world’s, and certainly one of the Caribbean’s, most diverse, stable and ambitious economies, than the skewed findings of the ratings agencies would imply. “When Moody’s and S&P evaluate a country they do it in my view with ‘statistical perversity’,” says Sir Trevor Carmichael, a leading lawyer and chairman of Bridgetown-based Chancery Chambers. “They often fail to recognize the overall diversity and flexibility of a jurisdiction, and they lose sight of the unique fundamentals of that country.”
He points for proof of Barbados’s golden future to rising business and leisure arrivals from overseas, the launch of the ISM, and the push to expand into new, more profitable, and higher-value services. This is an extraordinary island nation, run by extraordinary individuals. It may be underrated by the ratings giants, but the global investor and business community knows a good thing when they see it.