By AleemKhan From Breaking News Trinidad and Tobago

Export-oriented manufacturing activities in the Caribbean are very limited due to high energy costs in all countries except Trinidad and Tobago, according to a study by the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC), released in Santiago, Chile on Friday (July 4). The study, authored by Olaf de Groot and Miguel Perez Ludena of the Investment and Corporate Strategies Unit, ECLAC, is part of an ECLAC “Series of studies and perspectives.”

The authors said “limitations in transport infrastructure” also account for the “very limited” export-oriented manufacturing activities in the Caribbean.

For these reasons, they said, Caribbean countries covered in their report have not developed export-processing operations in any relevant scale as has been the case in Mexico, Central America or the Dominican Republic, despite competitive wages in many countries.

The study cited as an example of competitive wages that the minimum salary in Jamaica is the equivalent of US$200 dollars per month.

“Most of the manufacturing investments take place in processing of natural resources, although the most ambitious projects, such as aluminum smelters, have failed to materialize,” the study said.

“Cemex produces limestone aggregate in Jamaica for exporting to other subsidiaries in the group. Complant Sugar (from China) operates sugar production facilities in Jamaica integrated within the sugar cane plantations. ArcelorMittal (the largest steel maker in the world based in Luxembourg) has a fully integrated mini-mill in Trinidad and Tobago to produce billets and a wide range of medium to high quality grades of wire rods, with a total capacity of 2.7 million tons. Taking advantage of the very low price of gas, it is a competitive plant, exporting 90 per cent of its production through its own dedicated port,” the ECLAC study noted.

“It is important to note though that for specific economies, the impact of a single investment can be large, even if it does not feature prominently in the region’s list of largest investments,” the authors wrote. “After all, the economies in the region are relatively small and can thus be strongly influenced by such investments. A good example is Green Tropics Limited 2012 investment announcement in Belize. The Spanish company is proposing to invest in a plant to manufacture sugar and confectionary products and its investment will make up a significant portion of FDI inflows into Belize.”

 

TOURISM

The study also broached the topic of tourism in the Caribbean. “Tourism is the economic mainstay in most of the economies in the region, which is why the global economic downturn, which has hit tourism hard, has been relatively tough on the region,” ECLAC said.

“Investments in the tourism sector, particularly for new projects, do not tend to be recorded as very large, when compared to, for example, investments in either natural resource extraction or natural resource processing,” the ECLAC study said.

However, in recent years, several of the Caribbean economies have received significant tourism-related investments, the authors said. With respect to announced projects, Jamaica has received the greatest portion of investment, with two US$100 million dollar investment announcements in 2004 and five others of significant size in other years.

In the Bahamas, four projects of significant size were announced and two recent ones were in Saint Lucia, the study said. Finally, it said, Antigua, Belize and Saint Kitts and Nevis received one each recently.

 

BIG FISH IN SMALL POND

“In many of these smaller economies, such announcements basically make up the majority of inflows of foreign direct investment (FDI) in a significant period. Of course, if one compares the size of investments to the size of the economies, one can see that the impact of a single investment in one of the smaller economies can be much greater than the impact of all the investments in Jamaica put together,” the study said.

The mergers and acquisitions (M&A) situation has been a bit different in the region. In fact, among large M&As in the region in recent years, only two involve tourism businesses, and interestingly enough, it was the same one, the ECLAC study said.

According to the study, in 2004, Kerzner International of the Bahamas was taken over in part by the Istithmar Group of United Arab Emirates, and in 2006 the entire group was sold to K-two Holdco Ltd of the United States in the largest Leveraged Buy-Out (LBO) to ever take place in the Caribbean.

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