Economy of Barbados

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Contents 1 Overview 2 History 2.1 Pre-Independence 2.2 Post Independence 3 Current 3.1 Taxation 3.1.1 General 3.1.2 Bilateral Treaties 4 Economic Factors 4.1 Tourism 4.2 Natural Resources 4.2.1 Aquaculture 4.2.2 Fossil fuels 4.2.3 Cotton 4.3 Weather impacts 4.4 Consumer spending 5 Facts & figures 6 See also 7 References

[edit] Overview

Since achieving independence in 1966, the island nation of Barbados has transformed itself from a low-income economy dependent upon sugar production, into a globally upper-middle-income economy based on tourism and the offshore sector. Barbados went into a deep recession in the 1990s after 3 years of steady decline brought on by fundamental macroeconomic imbalances. After a painful readjustment process, the economy began to grow again in 1993. Growth rates have averaged between 3%-5% since then.

The people of Barbados are referred to as Barbadians or Bajans.

[edit] History

[edit] Pre-Independence

Since the first settlement by the British in 1625, through history the economy of Barbados was primarily dependent on agriculture. It had been recorded that minus the marshes and gully regions, during the 1630s much of the desirable land had been deforested across the entire island. Quickly Barbados was then divided into large estate-plantations and using indentured labour mainly from the British Isles for the cultivation of both the crops Tobacco and Cotton were first introduced. The island, facing a large amount of competition from the North American Colonies and the other Caribbean islands switched to the crop of sugar cane. Cultivation of sugar cane was quickly introduced by the exiled Jewish community which immigrated into Barbados from Brazil during the mid-1600s. This became the single best move ever for the Barbados economy at the time, the economy boomed and Barbados had become populated with so many windmills that the island had the second highest density of windmills per square mile in the world, second only to Holland [1]. For about the next 100 years Barbados remained the richest of all the European colonies in the Caribbean region. The prosperity in the colony of Barbados remained regionally unmatched until sugar cane production grew larger in geographically larger countries such as Haiti, Jamaica and elsewhere. Despite being eclipsed by larger makers of sugar, Barbados continued to produce the crop well into the 1900s and to this day.

With the emancipation of the African slaves in the British Empire in 1834, thereafter many Barbadians started to place more emphasis on upward mobility and strong education to combat plantation living.

During the 1930s, politicians in Barbados started pushing for more self-government along with Barbados seeking to retain more of the profits from the economic growth within the country. At the time much of the profits were being repatriated by the British government to the United Kingdom. As the 1940s-1950s rolled around, Barbados moved towards developing political ties with neighboring Caribbean islands. By 1958 the West Indies Federation was created by Britain for Barbados and nine other Caribbean territories. The Federation was first led by the premier for the colony of Barbados, however the experiment ended by 1962. Later Barbados tried to negotiate several other unions with other islands, yet it became likely that Barbados needed to move on. The island peacefully negotiated with Britiain its own indpendence and became a sovereign nation at midnight on November 30, 1966.

[edit] Post Independence

Following independence from the United Kingdom on November 30, 1966 sugar cane still remained a chief money-maker for Barbados. The island's politicians tried to diversify the economy from just agriculture. During the 1950s-1960s visitors from both Canada and the United Kingdom started transforming tourism into a huge contributor for the Barbadian economy. The man-made Deep Water Harbour port at Bridgetown had been completed in 1961, and there-after the island could handle most modern ocean going ships for shipping sugar or handling cargoes at the port facility.

As 1970s rolled around, global companies started to recognize Barbados for its highly educated population. In May of 1972 Barbados formed its own Central Bank, breaking off from the East Caribbean Currency Authority (ECCA). By 1975 the Barbadian dollar was changed to a new fixed / constant rate of exchange rate with the US$ with the rate being changed to present day US$1 = BDS$2.00 (BDS$1.00 = US$0.50).

By the 1980s a growing manufacturing industry was seen as a considerable earner for the Barbados economy. With manufacturing then being led by companies such as Intel Corporation and others, the Manufacturing industry contributed greatly to the economy during the 1980s and early 1990s.

As one of the founding members, Barbados joined the World Trade Organization on 1 January 1995. Following the membership in the WTO, the Government of Barbados aggressively tried to make the Barbados economy fully WTO compliant. This led to collapse of much of the manufacturing industry of Barbados during the late 1990s in favour of many companies like Intel and others moving to lower cost Asian economies. During the late 1990s more companies started to become interested in Barbados' offshore sector, until it over took sugar as the new chief money maker. In 1999-2000 the OECD "blacklist" was circulated with Barbados listed in error. The negative fallout stymied new investment into Barbados' offshore sector Barbados for near 2 years as Barbados authorities acted swiftly successfully proving that Barbados' economy was regulated sufficiently to ward off financial criminal activity and that it was not a "Tax Haven" as charged, but instead a low-tax regime.

As the global recession hit in 2001, the offshore sector in Barbados slightly contracted further thereby making Tourism as the new chief money maker, after having earlier eclipsed Manufacturing and Sugar Cane. The Government of Barbados further changed legislation to transform the Barbados economy into one which fosters investment. Leading to several new Hotel developments. The government continues to try maintaining constraint from personal involvement in the Hotel activity and instead seeks private investment into the Barbados economy for future growth.

Several large hotel projects like the Port Charles Marina project in Speightstown helped the tourism industry continue to expand in 1996-99, and more recently the new Hilton Hotel on Needhams Point, Saint Michael in 2005.

[edit] Current

Economy of Barbados
Currency	1 Barbadian dollar (BBD)
Fiscal year	1 April – 31 March
Trade organisations	WTO
Statistics [2]
GDP ranking	159th (2005)
GDP	$4.831 billion (PPP), $3.051 billion (Nominal) (2005)
GDP growth	2.5% (2005 est.)
GDP per capita (PPP)	$17,300 (2005 est.)
GDP by sector	agriculture (6%), industry (16%), services (78%) (2000 est.)
Inflation	-0.5% (2003 est.)
Pop below poverty line	N/A
Labour force	128,500 (2001 est.)
Labour force by occupation	agriculture (10%), industry (15%), services (75%) (1996 est.)
Unemployment	10.7% (2003)
Main industries	tourism, sugar, light manufacturing, component assembly for export
Trading Partners [3]
Exports	$209 million (2004)
Main partners	U.S. 20.6%, UK 14.5%, Trinidad and Tobago 13.9%, Saint Lucia 6.9%, Jamaica 6.6%, Saint Vincent and the Grenadines 5.1% (2004)
Imports	$1.476 billion (2004)
Main Partners	U.S. 35.2%, Trinidad and Tobago 20%, UK 5.6%, Japan 4.3% (2004)
Public finances [4]
Public debt	N/A
External debt	$668 million (2003)
Revenues	$847 million (including grants) (2000)
Expenses	$886 million, including capital expenditures (2000)
Economic aid	$9.1 million (recipient)(1995)
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Offshore finance and informatics are important foreign exchange earners, and there is also a light manufacturing sector. The government continues its efforts to reduce the unacceptably high unemployment rate which it met in the 1990s, encourage direct foreign investment, and privatize remaining state-owned enterprises.

The main factors responsible for the improvement in economic activity include an expansion in the number of tourist arrivals, an increase in manufacturing, and an increase in sugar production. Recently, offshore banking and financial services also have become an important source of foreign exchange and economic growth.

Economic growth has led to net increases in employment in the tourism sector, as well as in construction and other services sub-sectors of the economy. The public service remains Barbados' largest single employer. Total labor force has increased from 126,000 in 1993 to 140,000 persons in 2000, and unemployment has dropped significantly from over 20% in the early 1990s to 9.3% at the end of 2000.

The Barbados government encourages the development in: financial services, informatics, e-commerce, tourism, educational and health services, and cultural services for the future. In 2000 based on Barbados' level of growth - (at the time) Barbados was supposed to become the world's smallest developed country by 2008. The Government has since stated that the country is still on course for this to happen instead by around 2025.

[edit] Taxation

[edit] General

In 1997 Barbados implemented a general taxation which covers most items. Known as the Value-Added Tax ("VAT") it covers almost all items at a 15% tax rate and a 7.5% for hotel accommodations. Exported goods and services, prescription drugs and a few other specific items are zero rated under the legislation. The VAT replaced several other taxes such as: the Consumption Tax, Stamp Duty, Surcharge, Excise Tax and an Environmental Levy.

The island continues to wean off of taxes outside of the VAT system. In 2002 the Barbados government increased the level of people in Barbados who are exempt from having to pay taxes on their homes. This has steadily grown with the island heading for a possible rate of 0% taxation in all other areas.

The government has also toyed with the idea of making retirement savings as tax exempt, to encourage Barbadians to spend less on goods and to encourage Barbadians to save more income as they once used to.

[edit] Bilateral Treaties

Barbados has several bilateral tax treaties, mostly aimed at removing double taxation on companies that operate in the Barbados economy. Since Barbados is at times considered an expensive place to conduct business, the treaties are mainly a measure to provide some savings to international businesses operating in Barbados. Some of the countries which Barbados has taxation agreements with are:

• Botswana,
• Canada,
• China,
• CARICOM,
• Cuba,
• Finland,
• Malta,
• Mauritius,
• Norway,
• Sweden,
• Switzerland,
• the United Kingdom,
• the United States and
• Venezuela.

Source: Barbados Government website containing the text of the majority of the above tax treaties

The bilateral tax treaty negotiated with Canada in particular has been a political-football for the government of that country. The treaty was made to allow the profits for IBCs and offshore banking companies to be repatriated to Canada tax-free after paying taxes in Barbados. The aim was mainly for companies like the Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), and Scotiabank, which (along with Barclays of the United Kingdom), when-combined control a healthy majority of Barbados' local Commercial Banking sector. In essence the treaty makes the economy of Barbados almost an un-official part of the Canadian economy and it was aimed at allowing Canadian companies to extract profits back to Canada more easily. During the Canadian national elections of 2003 and 2006, it was cited that the former Minister of Finance and later Prime Minister Paul Martin had international shipping companies that operated in Barbados' offshore sector under the bilateral treaty possibly saving his company from higher taxes in Canada.

[edit] Economic Factors

[edit] Tourism

The economy of Barbados is susceptible to various issues. Changes in tourist arrivals currently has a direct effect on the Barbados economy. In order to stabilize tourism in Barbados the government has announced an initiative to have one major sporting event held in Barbados per year. In 2006 it was announced that the Sandy Lane Beach Hotel will host the Golf world cup. For 2007 several matches of the Cricket World Cup will be held on the island and the government promises that more big events will be lined up for 2008 and 2009 respectably. The Barbados government has also pursued 'home porting' agreements with several cruise-lines. As part of the deal, the Barbados government negotiates with cruise-lines, tourists fly to Barbados and are transported to the Deep Water Harbour in Bridgetown to begin their Caribbean cruise.

On a negative point, Tony Blair's association with the island could possibly make Barbados, and aircraft flying to and from Barbados, likely targets for terrorist attacks.

[edit] Natural Resources

[edit] Aquaculture

Barbados has considered the sea surrounding the island a natural resource. For centuries ocean going fleets from Barbados would haul fresh fish and other marine species for food. Barbados was best known for the Flying Fish which once more heavily inhabited the warm waters around the island.

[edit] Fossil fuels

Global pricing on fossil fuels also has a direct impact on the Barbados economy. Barbados remains one of the few islands in the Caribbean with an oil/gas field within its territory. The island currently has an exploration agreement with US-based PhilipsConoco (and previously Mobil) around the Oistins, town of Christ Church. Oil and gas supplies in Barbados have been considered small and are used most commonly for local consumption to decrease the need to import some of the island's fuel. Under an agreement with neighboring Trinidad and Tobago since the 1990s, the government owned Barbados National Oil Company allows all crude to be refined via Trinidad and Tobago's booming oil industry. The Trinidad and Tobago government in turn provides an equivalent amount of processed fuel back to Barbados (minus some oil to recoup the cost of refining.) then the rest is given back to Barbados in the end product.

The Government of Barbados refused to sign on to a deal with many of the other Caribbean islands and Venezuela known as PetroCaribe citing it could force local privately owned companies out of business, since PetroCaribe partially seeks to re-nationalise all energy infrastructure and also that the Barbados economy could not forecast future costs from being in PetroCaribe.

In an effort to further decrease the island's over dependence on oil the Government of Barbados is investing in technologies to harness wind power for energy, as well as possibly using more of the islands' unused sugar cane for Ethanol fuel energy, similar to Brazil[5].

[edit] Cotton

The Government of Barbados has recently announced goals to restart Barbados' brand of cotton. Studies were carried out and found the island to be ideal for restarting a cotton industry. However, the Barbadian government continues to have problems finding enough workers for agriculture with many workers having to be lured from other Caribbean islands, Asian countries or Latin America.

[edit] Weather impacts

In 1994-1995 Barbados found itself to be vulnerable to large changes in the earth's weather patterns. A (one in one-hundred and fifty year) drought gripped the entire island and some residents were unable to draw adequate water supply. In order to prevent a repeat of this event, the island entered into an agreement Ionics Co. to build a desalination water plant. After its completion the water plant was able to provide up to one-third of Barbados' total daily water consumption. The drought delivered a huge blow to the island's agriculture industry. [6], [7]

[edit] Consumer spending

Spending in Barbados continues to be one of the immediate problems to the Barbados economy and the island's cash reserves to peg the currency to the US dollar. Barbadians continue to import large numbers of cars from Asia, despite the government slapping higher duties to discourage spending. As many as 500 cars continue to be added to Barbados' roads every month worsening chronic traffic problems and forcing the government to back more of this spending in order to maintain high levels in the nation's Foreign exchange reserves. [8]

[edit] Facts & figures

GDP (purchasing power parity)

$4.745 billion (2005 est.)

GDP (official exchange rate)

$2.964 billion (2005 est.)

GDP - real growth rate

4.1% (2005 est.)

GDP - per capita (PPP)

$17,000 (2005 est.)

GDP - composition by sector

• agriculture: 6%
• industry: 16%
• services: 78% (2000 est.)

Labor force

128,500 (2001 est.)

Labor force - by occupation

• agriculture: 10%
• industry: 15%
• services: 75% (1996 est.)

Unemployment rate

10.7% (2003 est.)

Population below poverty line

NA%

Household income or consumption by percentage share

• lowest 10%: NA%
• highest 10%: NA%

Inflation rate (consumer prices)

-0.5% (2003 est.)

Budget

• revenues: $847 million (including grants)
• expenditures: $886 million; including capital expenditures of $NA (2000 est.)

Agriculture - products

sugarcane, vegetables, cotton

Industries

tourism, sugar, light manufacturing, component assembly for export

Industrial production growth rate

-3.2% (2000 est.)

Electricity - production

819 million kWh (2003)

Electricity - consumption

761.7 million kWh (2003)

Electricity - exports

0 kWh (2003)

Electricity - imports

0 kWh (2003)

Oil - production

1,000 bbl/day (2003)

Oil - consumption

10,000 bbl/day (2003 est.)

Oil - exports

NA bbl/day

Oil - imports

NA bbl/day

Oil - proved reserves

1.254 million bbl (1 January 2002)

Natural gas - production

29.17 million cu m (2003 est.)

Natural gas - consumption

29.17 million cu m (2003 est.)

Natural gas - exports

0 cu m (2001 est.)

Natural gas - imports

0 cu m (2001 est.)

Natural gas - proved reserves

141.6 million cu m (1 January 2002)

Exports

$209 million (2004 est.)

Exports - commodities

sugar and molasses, rum, other foods and beverages, chemicals, electrical components

Exports - partners

Spain 14.3%, UK 12.9%, Trinidad and Tobago 12%, US 10.5%, Saint Lucia 5.9%, Jamaica 5.6%, France 4.6%, Saint Vincent and the Grenadines 4.4% (2005)

Imports

$1.476 billion (2004 est.)

Imports - commodities

consumer goods, machinery, foodstuffs, construction materials, chemicals, fuel, electrical components

Imports - partners

US 30.4%, Trinidad and Tobago 24.8%, UK 6.4%, Japan 4.5% (2005)

Debt - external

$668 million (2003)

Economic aid - recipient

$9.1 million (1995)

Currency (code)

Barbadian dollar (BBD)

Exchange rates

Barbadian dollars per US dollar - 2 (2005), 2 (2004), 2 (2003), 2 (2002), 2 (2001)

Fiscal year

1 April - 31 March

[edit] See also

• Barbadian dollar
• Central Bank of Barbados
• List of Barbadian companies

[edit] References

CIA World Factbook

• Barbados Eligible For Dividend Tax Benefits, Says IRS - Tax-News.com
• Standard & Poor's review on B'dos Economy -- Positive points - July 27, 2006
• The economy of Barbados - The Commonwealth of Nations
• Issues of a 21st century Caribbean - March 7, 2006
• Bajans high on list of wealthiest - in the Americas - February 20, 2006
• WTO announces role for Barbados in Task Force - February, 09th, 2006
• A summary of the Budget - The B'dos Annual budget for the year 2006-2007
• Value Added Tax refunds total $44.2M (US$22.1M)
• Barbados 2005 economic performance to be reviewed
• THE STARK REALITY
• Barbados Ratings remain consistent - By Standard and Poors
• Double tax treaty to attract Int'l markets

See also : Barbados

This article contains material from the CIA World Factbook which, as a US government publication, is in the public domain.