Notes From a Native Son – The Four Seasons ‘Investment’
The government of Barbados, despite sound public advice, looks set to go ahead with the Bds$50m ‘investment’ in Four Seasons, the holiday project on the West Coast, which in time will become the biggest white elephant since independence. It is clear there is no business economic reason for the decision, as there is none, and the government’s decision to go ahead with pumping taxpayers’ money in to the project is political and not economic.
First, let us look at the only legitimate reasons for any such political intervention: first, job creation; second foreign currency earnings; and third, the need for top end tourist accommodation. Let us deal with the third reason first. Barbados needs further top class hotel accommodation like a hole in the head.
There are more than enough hotel beds available, which even at time of great demand, such as the Cricket World Cup, are still under used. During the CWC, hotels were only 70 per cent occupied. Even so, the government has a huge portfolio of hotels which it is at a lost as to what to do with it.
In the case of Four Seasons, over and above this obsessive desire for an international brand (the Hilton is international), it is unclear what its business plan is since it appears to change according to how the wind is blowing. There is no evidence as to how it plans to fill this void. What we do know is that in strict business terms, the business plan is flawed. First, it was meant to be a hotel/villa development. Then it appears as if the villa development was suspended as the executives approached government and other regional and international funding bodies for loans. This alone should raise a red flag. If the original business plan was based on a hotel/villa development, then what has happened, apart from the urgent need for further funds, to change their plans?
This has not been explained adequately to the public by Four Seasons, nor, even more worryingly, by the government. Then there is the issue of job creation. The government could have injected this stimulus in a much more creative way. Take the $120m and now this $50m, a total of $170m, along with the $50m spent on the Warrens roundabout development, all this could have been used to fund a Nelson Street and environs development, thereby providing decent homes for local people and turning the centre of our Capital in to a creative working hub.
The foreign currency argument, which seems to be the main purpose of the tourism sector, is not viable. Currency reserves are a hedge against shocks which has been made largely irrelevant through the new global financial architecture – even after the 2007/8 banking crisis. But our poor democratic culture means that government could go ahead with major capital investments without any kind of parliamentary debate.
The second flaw in the Four Seasons current business plan is that it does not appear as if the $50m government/NIS so-called investment (in reality a handout) has followed formal due diligence procedures. Does this mean that the investment will cover all development costs until completion and the hotel/villa begins operating commercially? If not, then it means that Four Seasons will more likely be back in the market trying to raise further funds.
There is also the issue of governance. Four Seasons is a private project, or was meant to be, and as such how private investors spend their money is nothing to do with taxpayers, as long as they obey the law. However, once they approach government for support then they should be treated as a listed company, with all the bells and whistles.
There is a strong rumour, and it is no more than that, that the executive chairman of the project was the recipient of over US$4 in fees for his alleged involvement in the Bds$120m loan, which the project received in the early years of the Thompson administration. So far there has been no confirmation or denial of this claim. As this involves public money, there is a need to make this clear. Not doing so is a failure on the government’s part.
There are also other questions: if Mr Persaud is the executive chairman, what is his annual salary and what are his day to day responsibilities? It is unusual, to say the least, for a project such as this to have a fulltime, salaried chairman, which is what ‘executive’ means.
National Insurance Scheme:
It is my view that the national Insurance Scheme has always been badly managed. An insurance scheme’s primary responsibility is to provide retirement income for its beneficiaries. Its investment strategy, therefore, should be based on meeting its current commitments i.e. the already retired, and making competent investment arrangements to need the needs of deferred and active members and beneficiaries. Such a strategy has traditionally been based on fixed income, to meet those known commitments, based on demographics; equities, to grow future income; and cash, property and, maybe, alternative investments, such as hedge funds. Obviously speculative investments must be ruled out as there is too much of a risk to the scheme’s money; Four Seasons, as it presently is, is mere speculation.
Good portfolio construction is important at the best of times; and, at times such as these, with global negative volatility and market uncertainty, it is even more so. So, even on basic investment grounds, ignoring asset allocation principles, this so-called ‘investment’ is not a good one because it ignores market conditions. It is a waste of taxpayers’ money. Has there been any risk profiling? Good investors would want to see the worst case scenarios on the cash flow projections. What does this way? In fact, what does the re-drafted business plan say about these changes and cap-in-hand approaches for funding|?
What is also important is who was really behind this decision? The CEO of the NIS, the investment committee, the minister of finance, or did they just did a quick spin on a voodoo board and hoped for the best?
The issue, far and away above providing million-dollar villas for the super rich to own their little part of Barbados, is why is this incompetent government adding to the public sector deficit?
Public finances are in a urgent need of restructuring, but this is not the plan we all expect and hope for. Whatever the method, they have put crap in and got crap out. According to the Auditor General’s report, the NIS is still years behind with its financial reports. If this is still the case, do we not think this should be the first priority for the new chief executive?
Analysis and Conclusion:
The only way in which concerned taxpayers can fight back, apart from removing the government at the next general election, is by challenging this decision in court. Even if the high court decides against the challenge, it would present the Caribbean Court of Justice in its appellate role, with a real constitutional dilemma. In any case, it would clarify the extent of Executive powers over the parliament, the extent of its powers to intervene in statutory agency decision-making and the limits of judicial powers of intervention.
In the final analysis, this is a decision for Barbadian citizens. They can either sit on their hands and play silly party politics, or behave like grown ups and interrogate the government over this blatant act of irresponsibility.
The decision is theirs.