Will the Budget budge anything?

Barbados' Prime Minister made his first budget speech presentation yesterday afternoon. I did not get to listen to all of it, and I will not make plans to listen to the subsequent debate, not because I have no interest but simply because I don't have the time. I have no intention of pretending to be clever and make a full assessment of the budget. I spent a short while today reading the prepared text (see link), and a few things really struck me.

The PM stirred up the ants by waving again the red rag of implied lack of accountability and poor governance of financial affairs by the previous administration. He summarily cancelled the contract with a company named 3S for improvements to the so-called ABC Highway, to expand the highway and build flyovers. The PM has a very dim view of the financial rectitude surrounding this project:

"ABC highway ... is an example of the most reckless and wanton disregard for financial prudence and management."

He elaborated:

"Work started and no contract was signed and, despite the decision of the Cabinet of Barbados, Three S has still not signed a contract. No specifications, no bill of quantities, no working drawings and no contract! From an original projection of $119 million in November 2005, by May 6, 2006 the projection had reached $143,614,460.23 in less than six months. By December 17 2007, the figure for road widening only moved from the original figure of $40 million to a revised figure of $70, 231,220.00 and then to an amazing $117 million. Despite the
decision of my Cabinet, Three S is now claiming more.

Enough is enough!

As Prime Minister and Minister of Finance, I am ordering an immediate termination of the contract with Three S; a full investigation of that sordid mess - the terms of which will be set out shortly; and that the Ministry of Transport, Works and International Transport work with the Barbadian contractors to have the road widening completed.

Furthermore, there will be no flyovers!!"

I've made clear my views on the flyovers issue and applaud this decision as being sane and appropriate for a country of only 166 square miles, even if it has the world's highest traffic density and road network density.

But this road project is still going to extract a heavy price:

"In an effort to ensure that we meet previous commitments in respect of the ABC Highway project, I propose to increase the fees for the use of the highway with effect from August 1, 2008. The new fees will be as follows and are expected to yield an additional $46 million in a full year."

So, out of total expected revenue gains of B$ 104 million, two-fifths of this will come from dipping into the pockets of those who own, operate and use motorized vehicles. Barbadians have had a long love affair with motorized transport. (Visitors like me will get stung too, as my driving permit will now cost ten times what it did, from B$ 10 to B$ 100; I should rush out and renew early.) In my mind that huge bite for revenues is an unfortunate result of not helping people understand that increased wealth does not have to be manifested by higher car ownership, and the almost inevitable result of the real cost of fuel being kept low. Weaning people away from this love may be part of the PM's thinking. One could believe that, given other measures to provide or subsidized free public transport.

Ironically, there was some "guidance" in one of the newspapers this weekend on how to save money through changing driving habits. (See "The Cost Cutters – Easing gas pain " in the Sunday Sun; dont be fooled by the title, it is about driving.) It notably left out suggestions like sell the car, buy a bicycle, or walk. It did suggest "going public...on weekend outings such as picnics" or taking a bus excursion to the museum! It did mention consolidating trips and car-pooling. Here lies part of Barbados' traffic problem. The car has taken on the role of an essential. So, the main "sin" that Barbados has that can be taxed relates to the car; not booze or ciggies as it is in the UK.

The other aspect of the budget that struck me, and this I heard live, was a certain creative thinking. In different areas we like to believe that size does not matter. Barbados is very small, and it needs to deal with the fact that it lacks land to do many things that it feels are needed to help develop. It's not like Guyana with acres of land and very few people; it's a dot with a reltively large population, and not well-distributed. But , to help overcome this, it will "grow land", so to speak:

"To help solve this dilemma, Government has been invited by a number of private sector joint-ventures involving significant local and foreign investors of good repute and business success, to facilitate the creation of additional real estate acreage off the coasts of Barbados through reclaiming lands including constructing offshore islands and constructing marinas for yachts."

I've seen the benefits of land reclamation projects, and I know that such projects are part of Dubai's development plans, especially to boost tourism.

The budget is also treading a fine line in setting out a policy related to foreign investors. On the one hand we have the "already announced a policy of protecting our East Coast from Pico Teneriffe to Skeetes Bay as a national park area and from the purchase of land by foreigners", stated in the budget speech. This sounds like a slap for foreigers. But we also have the PM putting out feelers for what he calls "philanthropy capital", wanting to tap the supposed deep pockets of those foreigners who have made Barbados a second home, as well as Bajans living abroad who are looking to find ways of investing in their native land.

"Investing private capital for a public return is a new approach to development financing, where corporations or wealthy individuals “invest” resources on the expectation of social or environmentally sustainable returns, whether or not they also expect a cash return.

The new source of philanthropy capital has a range of advantages over traditional sources of development financing such as bilateral and multilateral aid or remittances. These include independence from politics, flexibility in development projects invested in and the ability
to provide seed capital and long term funding.

Financing economic opportunities for the poor in developing countries, coupled with the rise of social entrepreneurship using private capital to finance development challenges, is highly effective at transforming economies and fueling economic growth."

Now I will stop and think a good while and wonder what will happen. You just told foreigners that they cannot get their hands on any more prime real estate in the country, which is the asset that many of them want. Instead they can put their money into "social or environmentally sustainable"projects and do not expect a cash return. This is not even a second-best for most potential investors. Maybe the idea will work. Barbados will stop being the Caribbean choice for a lot of the rich, partying crowd to come and plough their money into real estate. Instead they will be hoping to get tapped up to finance a long list of worthy causes. There had better be a much better environment of governance, accountability and transparency for this to work. I personally don't buy the idea; yet am happy to be proven wrong. Even committed individuals don't plough so much into their beloved projects. Barbados' new government will have to do a lot of convincing for that general idea to change. Anyway, why give to Barbados that seems to be already wealthy and well developed rather than put money into the world's really needy regions? Maybe the Bajan diaspora will take this on.

So, in his first foray onto the budget stump, Barbados' PM has made clear that he has a very different view of what Barbados will physically look like in the near future. It will have no flyovers, and it will soon be an arhipelago. He will stop rich and famous foreigners owning land they want to buy, and instead hope that they will see Barbados as a new charity of choice. And they say that politicians lack vision.

Dealing with modern financial transactions: Jamaican authorities playing catch up; Bahamas accused of facilitating "improper" financial transactions

I just landed back in Jamaica after two weeks in Nassau.

This morning I read that PM Golding has "mandated" the Finance Ministry to convene a meeting with the Attorney General and the Financial Services Commission (FSC) to help "resolve" issues related to these schemes and "help to formulate clear guidelines on the way forward for unregistered investment clubs" (see Gleaner article). A report is to be submitted by January 7. There seems to be more than an element of dog chasing its tail in these movements after recent court rulings and issuance of "cease and desist" orders againts various "investment clubs", including Cash Plus and OLINT (see cartoon from Jamaica Observer). Add to that some signs of disarray as the Gleaner and RJR also report that the new Chairman of the FSC, Michael Hylton, the former Solicitor General, has stepped down indicating he cannot remain because of "policy differences" (see RJR report). Some of the clubs have taken steps to relocate themselves: OLINT had already moved to Turks and Caicos, and Higgins Warner report that it has closed its operations in Jamaica, relocated to Argentina, and is seeking to relocate to the United Arab Emirates.

If you are interested in a seemingly disinterested view on "alternative investment schemes" you can keep up with news on "Cash plus Investment" (which I have added to the links for Interesting Caribbean Blogs).

Unrelated in a direct sense but interesting is a report in The Bahamas Nassau Guardian (see report in Jamaica Observer) that it has again been cited as a domicile for "improper" financial transactions, this time involving billionaire Igor Olenicoff in hiding millions of US dollars from the US tax authorities. The IRS The Internal Revenue Service (IRS) claimed that between 1998 and 2004 Olenicoff hid more than US$346 million in Bahamian offshore bank accounts. The case is Olenicoff's second brush with the IRS. His company Olen Properties paid US$272,024 to settle IRS claims for 1994 to 1996, after the agency originally sought US$148 million in back taxes and penalties from his company. For more on Olenicoff see article in Forbes magazine. He is no stranger to controversy and was also recently involved in speculation as to whether his company was a front for Iranian financial interests.

These islands have long been a financial playground and it will be interesting to see if the games go on as usual or if there is some change on the way.

Thinking about the issues: the example of foreign investment

The past few days have seen some interesting discussions on various Barbadian blogs about foreign investments and what they may or may not bring to the island. What they highlight for me is that issues are rarely cut and dried, and that there appear to be some real efforts to get beyond the surface of the issues. I like the piece I read today on Notes from the Margin blog(entitled "Barbados and Foreign Investment",see link), which tries to identify how aspects of foreign investments may or may not benefit the domestic economy. This adds useful points to consider made on another blog, Barbados Underground (entitled "Going, Going And The West Coast Of Barbados Is Gone!", see link). These discussions were spurred by a Middle Eastern news report (see http://www.menafn.com/) of a recent visit to Barbados by a Saudi prince, Prince Alwaleed bin Talal, chairman of Kingdom Holding Company, to discuss investment opportunities in the tourism sector.

One of the roles of a good, free press, is to be able to sense where in the issues of the day they need to go and dig deeper for the good of the public knowledge. Investigative journalism is not an easy task and there may be social and institutional blocks that stop it being a common feature of the mainstream press. A mark of a mature democracy is the fact that the press is broadly free, and reporters are generally able to work to pursue stories with a large degree of physical and literary liberty. When such investigative journalism seems to be lacking, the door is opened wider for those who are not part of the mainstream press who are prepared to press the tough questions, and do so until they get satisfactory answers. Even where investigative journalism is well established and known to be of very high quality, there is still plenty of space for others to probe, and the Internet has made that task much easier.

Having spent much of my life in the UK or US, I am accustomed to difficult questions being raised without the messenger always having to beware that there could be reprisals for even raising an issue. Some of the comments I have had on my blog suggest that in Barbados a good number of people feel that to raise questions is to open oneself up to a possible reprisals. Nevertheless, I hope that people in Barbados will see this probing as a normal part of what is needed to get a wider and better understanding of problems. Not all of those who write and comment are in a good position to then provide the answers. But probing should also help in getting at the information. I remember being told when I first went to work: "We don't expect you to have the answers, but we do expect you to know what are the right questions".

One of the questions to think about is why foreign individuals and enterprises who have the choice of where to invest their money choose to invest in Barbados, and are the factors that make Barbados attractive legitimate and sustainable. Two related question come from this. First, if the environment is right for foreign investors is it the same for residents? Second, if Barbadians have funds available, are they investing in the island, consuming or are they saving, and why are they making these choices? Food for thought over the weekend.