India’s Business Interest in the Caribbean: Do We Need Certain Policy Interventions?

Gravity model is popular to predict movement of people, information, and commodities between cities and even continents. This takes into account the population size of two places and the distance between them. Since larger places attract people, ideas, and commodities more than smaller and places closer together have a greater attraction, the gravity model incorporates these two features. Such attraction, in turn, can explain certain economic flows such as investment, market access and trade.

The Caribbean economies may be considered as an attraction for the Indians. The economies may not have locational advantages such as large markets, lower costs of resource or superior infrastructure. Investment decisions in the Caribbean have been strongly influenced by historical ties with member states’ colonial past. In the Bahamas for example, the main sectoral and industrial recipients of FDI are tourism, financial services and infrastructure. The key players are Belgium, France, Germany, Hong Kong, UK, USA and the Netherlands. Canada, UK and the USA are the major players in Barbados’ tourism, agriculture, manufacturing, financial services and informatics sectors The major players in Belize’s agriculture/mariculture (shrimp farming), manufacturing (agro-processing), tourism and infrastructure (telecommunications) sectors are China, Taiwan, UK and USA. In Guyana, Canada, South Korea/Malaysia, UK, and US Virgin Islands dominate the sectors of mining (gold), forestry, Infrastructure (power and telecommunications), and trade. Tourism, mining and manufacturing in Jamaica are dominated by Canada, UK and USA respectively. In the other Eastern Caribbean economies, Caribbean, USA, UK, and other European countries – particularly Italy – are the main sources of FDI in agriculture, tourism and manufacturing. The Netherlands and USA are the major players in Suriname’s mining and manufacturing. In Trinidad and Tobago, energy (petroleum and petrochemicals, natural gas), electricity, transportation and communications and manufacturing are dominated by select Asian countries, Spain, UK and the USA.

To a large extent, CARICOM (Caribbean community) economies have pursued liberal foreign investment policies with limited restrictions on FDI. Some of these restrictions include: administrative foreign exchange control; land acquisition and reservation of certain sectors for local operations. The legal and institutional framework for investment promotion in the Caribbean has been well established. While the legal framework addresses the needs of investors – particularly the offshore sectors – in the form of international business legislation, the policy statements by the government translate the framework into the administrative arrangements and procedures for the approval of investments. Emphasis has been on all types of investment. The Caribbean has a very weak capital goods sector due to non-availability of high-tech and high value-added activities. In general, the Caribbean economies are classified as natural resource based or service oriented or a combination of both.
The Caribbean region has potential for high-tech industries. The Free Trade Area of the Americas (FTAA) – tentatively scheduled for completion in 2007 will encompass some 34 countries in the Americas, including the United States, creating a market with a population of approximately 800 million and a GDP of some $8.5 trillion English speaking Caribbean economies, despite their small sizes may play an important role by providing fiscal incentives to foreign investors (with particular reference to Indian IT investors) in the areas of services and manufacturing. The decision is strategic since it will help the foreign investors to explore markets in developed economies like USA and Canada. In recent times Mexico is taking full advantage in the NAFTA region. Private investors are more interested in financing projects in the Caribbean due to little risk involved. Given the inter-island synergies between the British West Indies, economies of scale are sometimes difficult to attain. However, the region follows the models laid down by countries such as Canada or Ireland that have built their industries on accommodation to the United States. In this context there are immense prospects of establishing strong India-CARICOM trade and investment relationships under the changing scenario.

Unfortunately, India’s share, as a source of imports and destination of Caribbean exports has been marginal. For example, exports to India from Barbados in 2001 was US$37,000 of the total exports of US$272.8 million, Imports from India was US$1.6 million of the total imports of US$1156 million,
India enjoys a special position in the context of the Caribbean economies due to its historical, ethnic and emotional relationships. It may be possible to develop strong economic linkages leveraging on these old relationships. The Caribbean countries need to reduce their dependence on the US (and to some extent the EU) markets for their imports and exports so as to dampen the wide fluctuations in their economic activity from year to year. The Indian economy has many complementarities vis-à-vis the Caribbean and these could be used synergistically to result in a win-win situation for both. On the other hand, there are many areas, covering primary, secondary and tertiary sectors of the economy where India has done exceedingly well and there is scope for developing economic linkages based on the same.

Investment from South, East and South-East Asia to the Caribbean is on the rise. Incentives to export-oriented investment as well as privileged access to the United States market have played a role in attracting, for instance, garments and other labour intensive industries form Asian to Caribbean countries. Interestingly, China is one of the largest investors in the Caribbean in recent times
Indian diaspora are not only strong in the USA and Europe, they form an equally strong business community in both Africa and the Caribbean. These roots may help the Indian business community to export capital in the form of foreign direct investment of its own to the region. Under the FTAA regime more and more multinationals may shift the operation and control of key business functions away from their head office to the English speaking Caribbean. This may happen at a rapid rate as IT skills and networks make the spread of digital information increasingly easy. Indian companies can take full advantage of the changing scenario by establishing their businesses and then explore their potential in the integrated region. This may be possible in the areas of IT and other financial services. Other possible areas of cooperation in order to create a win-win situation are, service sector development, manpower and training, Indian high technology applications – satellite remote sensing, oceanography, IT, biotechnology, Indian industrial joint ventures, offshore financial operations, oil and gas-production, refining and transportation, Indian entertainment industry (Indian Hindi films), exchange of academics, technical cooperation in economy, finance, science & technology, pharmaceutical industry. The Caribbean is the region hardest hit by HIV/AIDS in the world outside sub-Saharan Africa. India can take advantage of its cheap anti-AIDS drugs in this region. Likewise, the region may be treated as an entry point for Indian goods & services to the Latin American and North American markets.

It is now open to question why China is active and then grown fast. The Caribbean economies are culturally and socially closer to India. Yet, the India could not take advantage of this proximity. Still there is opportunities .But it requires well-thought policy interventions. Are the Ministry of External affairs listening?