AfriCaribbean Trade and Investment Forum 2022 – Closer Ties a Must

The ongoing pandemic has given impetus finally to governments in the region assigning additional resources to improving food security. Barbados in the period has been developing a closer relationship with Guyana and we have seen cooperation to increase black belly sheep production to satisfy local and some regional demand for lamb. There are additional initiatives we hope to see bear fruit in the coming weeks and months mentioned in a previous blog – Government Initiatives to Address Food Supply – The St. Barnabas Accord. Last week Minister of Agriculture reported there is a plan to slash food import bill by 20% when a food terminal is established in Barbados with the help of Guyana. It is a reminder the founders of CARIFTA envisioned Guyana to be the bread basket of the Caribbean almost 50 years ago.

Yesterday a direct flight – a first from Nigeria – to bring delegates to attend a 3-day investment forum one may argue is the result of the effort of the government to forge close ties with some African countries to create business of opportunities. The AfriCaribbean Trade and Investment Forum will take place in Barbados from September 1-3.  The forum represents an opportunity for the Caribbean and African private sectors  to explore opportunities for trade and address challenges that have historically prevented deeper collaboration.  The forum is being hosted by the African Export-Import Bank. The blogmaster is hopeful there is meaningful collaboration coming out of the engagement.

In a previous BU blog – Barbados based Fintechs on the MOVE the entry of Barbadian Fintech companies was highlighted and from reports have been reaping success on the African continent. It bears no reminder that 95 percent of Barbadian are of African descent, we therefore share a historical bond. 

Related Link:

CEO of Export Promotion Facebook page.

Minorities Laughing

Debate about the commitment of the two political parties honouring promises outlined in glossy manifestos aside, the documents serve a useful reference for citizens to hold political parties accountable.

All agree the last twenty years in particular have gotten progressively challenging for Barbados and Barbadians. The outgoing government with its bevy of financial consultants have focused mainly on executing macroeconomic arrangements. However, the harsh economic condition of the last decade and a half has meant less disposal income and some destruction of wealth for the middle and upper class. Of equal concern to the blogmaster is the lack of investment opportunity for wealth generation available to Barbadians, especially after the domestic debt restructure.

What does a check of the manifestos share with the public by the two main parties – Democratic Labour Party (DLP) and Barbados Labour Party (BLP) on plans to address the lack of investment opportunities?

The DLP makes no direct reference in the manifesto about a plan to create or facilitate opportunities for Barbadians to invest. It is embedded in general and vague language. The BLP’s message is more direct – see page below.

This is important because it is no secret the economic pie is disproportionately owned by minority groups in Barbados, comprised of less than 10% of the population. Why would majority Black political parties not prioritize implementing policy to afford mainly Black Barbadians greater opportunity to invest? Some will dismiss the manifestos as fluff, BUT, what else does the citizen have to hold the parties accountable?

There is little doubt in the mind of the blogmaster who added to the coffers in the last 20 years.

There is little doubt in the mind of the blogmaster who added debt.

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Adrian Loveridge Column – Improving Our Investment Climate

I want to return to the subject of implementing a single source website for prospective investors, especially those of a smaller scale, both from overseas and locally. Frankly, even for the most determined and tenacious, investing in Barbados remains a daunting task for virtually everyone when so much could be made easier, less time consuming and completed online.

It starts with the number of Government agencies that you are forced to deal with and in many cases their indeterminate response time. Often the delays lead to some of the required information being out-of-date, before all the requested documentation can be sourced, at any one time.

Facilitation in a timely manner is always important, but during the prolonged pandemic situation, it becomes even more critical, as foreign investors who understandably have become a rarer breed, clearly have multiple destination choices, especially in tourism.

My own thoughts are that every serious investor is granted a unique application online number with defined access, where all involved Government agencies can post verification of information and any other prerequisite requirements. It would also serve as a platform to confirm that ‘duty free’ and/or exemption of import duties, levies and VAT status had been granted to the applicants. This would help expedite customs clearance, construction or renovations, rather than risk costly delays, while the administration ‘considers’ individual or separate requests.

Most investment requires borrowed capital, so the clock starts ticking with interest payable, usually from day one, so any delays negatively affects the viability of the project.

Government has to decide that if ‘we’ really wish to project an investor friendly environment, that radical reform is needed within our existing administration and during this challenging period when many of our public servants are not fully utilized there is the perfect opportunity to effectuate reform and innovation.
It is simply not enough to give the impression that as a country, we welcome with open arms, both foreign and local investment, if the many layers of bureaucracy act as a major deterrent to inspiring entrepreneurs.

Perhaps the first step would be to glean first- hand experience from the people who have already transformed their dream into a business reality and fully evaluate the current impediments.

After all, Government coffers are greatly enhanced from the very moment that an investor commits to a venture through the collection of various taxes and levies on property purchase including stamp duty, transfer tax, non-recoverable VAT on legal and advisory fees etc.
In our particular case, over $400,000 was paid to the state recently for the completion of a sale to new owners.

You Asking Me to Invest?

One thing this blogmaster knows from reading evaluations about the 2008 global economic crisis, it rubbished classical economic explanations. In fact the crisis served to popularized behavioural economics which is described as “an important link between economic and psychological sciences in the analysis of individual decisions especially combining psychological assumptions with economic decision-making analyzes, draws attention with its approach to the 2008 global crisis“. In simple terms the classical economic approach assumes individuals will be rational and consumed with self in decision making. Injecting behavioural economic considers psychological factors that serve to motivate people, force attitudes and create expectations.  Using the theory of behavioural economics the conclusion was made that the 2008 global meltdown was more than a financial crisis, it was a crisis of confidence.

In recent years both political and NGO talking heads have been trotting out the message Barbadians should save in the credit unions because the movement is seen as more supportive to empowering Black and working class people based on its philosophy. They should challenge a risk averse mindset and use the billions in savings lodged in the banks to invest or buy equity stakes in businesses. In recent weeks the government has indicated a special arrangement will be established to attract citizen investment in renewable energy program. The government is on a mission to persuade risk averse Barbadians to INVEST.

There is an interesting inference to the 2008 global financial crisis and the austerity period Barbados has been navigating for the last eleven years. Although acknowledged  there was a financial meltdown in 2008 in the USA – bear in mind the Barbados dollar is forever pegged to the US dollar – Barbadians ignored the failing economic indicators and maintained a lifestyle not reflective of the harsh economic environment. The irrational behaviour by Barbadians- including the government- has been responsible for the current perilous state of the economy.

In the book Stolen: How to save the world from fictionalization  by Grace Blakeley, she wrote, “when people are uncertain about the future, they may behave in ways that seem irrational – for example, saving when they will receive little return for doing so, or spending far above what they can afford. This is because in the context of uncertainty, people prefer to hold liquid (easy-to-sell) assets – and they tend to prefer to hold the most liquid asset of all: CASH (blogmaster’s emphasis). Liquidity preference means that, the higher the levels of uncertainty, the more people save rather than spend“.

The same is true about business behaviour and how investment decisions are taken. Blakeley states, “this kind of uncertainty marks business’ behaviour even more than consumers’ and affects their investment decisions. If businesses’ confidence about the future turns, they are likely to stop investing. These lower levels of investment will result in lower revenues for suppliers, who may have to lay people off, who will reduce their spending, leading to a fall in economic activity“.

The point to be made is that it is not enough to expect Barbadians will behave rationally by answering the call to invest, there are underlying psychological reasons to consider. How does a government committed to transforming the way we do business understand the psychological factors at play in Barbados? Has this government with a bevy of communications people on payroll developed a strategy to counter the underlying psychological factors? So much learning from the 2008 meltdown but have we learned anything?

 

 

 

The Grenville Phillips Column – Get Out of the Stupid Boat

You are wealthy when the money you have invested is giving you enough money to pay for your monthly expenses.  Responsible investment guidance was clear until the end of 2018.  Now, much of that guidance has been proven not to work, and must be revised.

Before November 2018, there was near unanimous agreement that the most secure investments on our planet, were the treasury bills of governments that respected individual property rights.  Therefore, every person on Earth with a retirement savings and/or pension plan, likely had much of it invested in such treasury bills.

In October 2018, our Government passed a law to confiscate a significant amount of our collective retirement savings and pensions.  There was no opportunity for the vast majority of investors to be heard.  The financial institutions that managed our investments appeared to be politically compromised.  They stopped acting in the best financial interests of investors, and instead appeared to support grand larceny, by allowing the confiscation of our money without our consent.

Confidence in the Government’s ability to properly regulate private investment companies in Barbados was already shaken by the Trade Confirmers and CLICO scandals.  However, the confiscation of our retirement savings and pensions was a warning for us to seek better investment guidance.  That is the focus of the remainder of this article.

Steps to Investing

To put investing for wealth in context, consider a mortgage.  Each of us may deposit money in our bank account.  The bank pools this money and offers a family a 30-year mortgage of say $300,000.  The family must repay the $300,000 of our money, plus interest of about $400,000 for a total repayment of about $700,000.

What we get back is essentially the $300,000 we invested.  The bank keeps the $400,000 interest payment and gets wealthy.  You receive whatever you put in and get to live hand-to-mouth.  Do not worry, most of us are in the same stupid boat.  So what can we do about it?

Deciding to get out of the boat is the first step.  Avoid paying interest is the second, and making wise investments is the third.  To demonstrate that you have taken the first step, and to prepare you for the third, start to freely invest in others.

There are several Barbadian products that are of an international standard.  We can facilitate them getting global recognition if we all agreed to promote, at the same time, one product on our social media sites each week.  Why should we unselfishly promote others’ products?  Because we would want others to unselfishly promote our products.

The second step is to avoid paying interest.  Credit cards should be paid in full or not used.  Potential homeowners can avoid mortgage interest payments by working together.  For example, 100 families can form a company to construct 100 starter houses for themselves, by paying the company $2,000 each month for 8 years, instead of paying the bank $2,000 for 30 years.

Each 3-bedroom, 2-bathroom house can be constructed for under $200,000, and within 6 months.  To reduce defaulting risks, each participating family should have already secured their land.  This risk can also be managed by allowing those who have secured their land to have their houses constructed first.

The final step is to make wise investments.  You are likely to get a faster return on your investment if you pooled it with others.  For example, 100 people can invest $1,000 each to manage an event.  To protect your investment, the event should be cancelled if it cannot attract enough participants to make it profitable.

Losing It All

Can you lose your entire investment in such initiatives?  Yes.  If the person managing the business intends to steal your money, they can easily do so.  The risk of losing your money in this manner is significantly reduced by investigating the professional reputation and personal integrity of the persons managing the investments.  In Barbados, the pool of trust-worthy managers has been muddied considerably, so that selecting a competent and honest person is like a lottery.

Previously, trusting a politician, lawyer, banker, professional, or senior manager was automatic.  However, politicians regularly accuse each-other of gross corruption, lawyers are commonly accused of misappropriating their client’s money, and many managers received unmerited promotions for political reasons.  Therefore, the risk of selecting an unqualified person is unacceptably high.  Tragically, the risk of overlooking a highly qualified person is even higher.

Political operatives normally try to damage the good professional and personal reputations of our most accomplished citizens, if they deem them threats to their political party.  They have also interpreted their instructions to mean that the national economy must be reserved for supporters of the political party they worship.  These irresponsible actions can sabotage promising wealth initiatives that can lift many out of poverty.  Their political masters can change this divisive and corrupting system any time they wish by issuing new instructions, but they never do.

Grenville Phillips II is a Chartered Structural Engineer and President of Solutions Barbados.  He can be reached at NextParty246@gmail.com

The Grenville Phillips Column – Pay for Fun and Make Investments

If you have an extra $50 to spend, then you can take someone to the cinema to experience 3 hours of the Avengers: EndGame.  If you had an extra $500 to spend, then you could have taken someone to experience about 3 hours of the Buju concert.  With either option, you know that you are paying for fun.

If you had the extra money, then you would not likely be disappointed that you spent it, regardless of how hard you worked for it.  You had it, you spent it, and you enjoyed yourself.  If you had not spent it on fun, then you would probably have spent it on something else, or given it to someone in need.

Since you will have extra money sometime, why not use some of it to get more money?  With the additional money, you can: pay off your debts, help more people in need, and pay for a lot more fun.  So, what can you legally do with an extra $50 or $500 to get more money?

You can play the lottery. However, you will likely lose all of your money quickly.  You can invest it in someone else’s business.  However, they if they desperately needed your investment to keep going, then there may be structural problems with that business, and you may lose that investment.  You can invest it in your own business, but if your business is not yet profitable enough to pay your monthly expenses, then a return should not be expected.

There are steps that you can take to make it probable that any extra money you invest will make more money.  Before investing in any product, ask yourself these two questions.  1)  Are similar products selling well now?  2)  Is it likely that your product will sell when you are ready to bring it to the market?  Once the answer to both of those questions is yes, then ask yourself one more question.  3)  What is likely to cause you to lose all of your money.

Let us test a few money-making ideas.  What about planting, cultivating and selling beans?  Are beans selling now?  Yes.  Will beans likely sell in 2 months when they are reaped?  Yes.  What will probably cause you to lose all of your money invested in this venture?  Crop thefts by monkeys and humans is very likely, and you can do little about it at this time.  So let us think of another product.

What about investing in building a house to sell?  Are houses selling well now?  No, the housing market is depressed.  Will the house likely sell in one year after it is constructed?  No.  The market is likely to continue to be depressed while the economy is under BERT/IMF management.  Note that if the housing market were not depressed, you could have grown your $50 or $500 investment – we will address how in the next article.

What about an example that will work?  That is the challenge.  Before I tested the ideas, I thought that both of them were worthy investments.  However, the test showed that while both ideas are good, they are just not wise investments at this time.

Every product has customers.  One challenge is to identify those who are willing to purchase your produce before you invest in it.  The euphoria of coming-up with a good idea leads many to make an emotional decision.  They then prematurely invest their money and lose it.  Testing the idea with the questions reduces the risk that you will make an emotional decision.

You can reduce the risk of failure by selecting a product from what you normally purchase in one week, and making a business out of it.  For example, you probably eat breakfast, lunch and dinner.  Since everyone needs to eat to survive, food will sell today and tomorrow.

How can you lose your money with food?  Preparing food that most people: will not like, cannot afford, or is inconvenient to purchase will likely do it.  Since these risks are generally within your control, the next step is to design a business that avoids these risks.

Grenville Phillips II is a Chartered Structural Engineer and President of Solutions Barbados.  He can be reached at NextParty246@gmail.com

BL&P’s Promise to Barbadians — You Must Invest in Community Solar

He added that Light & Power is also planning “community solar to ensure that every Barbadian has the opportunity to participate in the island’s green transformation and the renewable energy future for Barbados.” – Roger Blackman, Managing Director (BLP)

The Barbados Light & Power in its recent edition of Watts New Business Managing Director Roger Blackman reassured the audience that his company is committed to a 100/ 100 vision of 100% renewable energy. This is good news for some of us who appreciate that a sustainable power supply that is affordable and a strategic fit for a Small Island Developing State is the commonsense approach.

The reference by Blackman to “community solar” should pique the interest of all Barbadians who have had to labour in an investment market of reduced interest rates and extension of bond maturities. There is no reason why the public and private sector should not structure investment opportunities for ordinary citizens to invest in growth areas. Barbadians have always been a thrifty people and this behaviour is reflected in the billions of dollars which continue to nestle with financial institutions. The fear for many is that if citizens see no appealing avenues to invest they will stop saving and engage in greater consumption behavior which the country cannot afford given the forex earning constraints.

It hasn’t gone unnoticed that Wigton Windfarm in Jamaica is about to list on the Jamaica Stock Exchange (JSE) with an IPO and Prime Minister Holness has been encouraging ordinary Jamaicans to grab the opportunity to invest.  It is a nobrainer for private and foreign investors – with good reputations – to see the benefit of an adequate rate return by investing in a growth area. It is a no brainer that government and private sectors have a vested interest is creating an optimal climate for investment by creating the best investment products. The blogmaster notes that the proposed GAIA PPP floated by the government accommodates worker participation.   The  business models practiced by Williams Group of companies and a few others in Barbados should be standard modus operandi as we work to make Barbados great again. Trade Unions calling striking action for a 1% or 2% wage increase has become redundant. All collective bargain agreements should demand worker participation.

The financial sector continues to demonstrate its unwavering commitment to maintaining shareholder value during times of austerity. The government must pave the way for a new business model to emerge that will sustain national development and enfranchise Barbadians. If we do not do it, who will?

We are Barbadians, we can do this!

Credit to sirFuzzy.

 

Fault Lines: Life, Debt, Default and a Failure to Invest

The following blogs authored by a young Barbadian Economist Simon Naitram who is currently an assistant lecturer at the University of the West Indies while pursuing a PhD from the University of Glasgow (featured image: Simon Naitram)

  • David, Barbados Underground

Life, debt, and now default. Barbados has reached the final stage of its illness. This isn’t our sob story. This is the tale of how we got here. This post isn’t a eulogy—it’s a lesson, a warning to our future selves.

The reason the government has defaulted on the country’s public debt is simple: the government just doesn’t have enough money to both keep paying back its loans and keep the country’s services running. The government chose to keep the country running.

How did the government reach this breaking point? Did the government simply borrow more than it could repay? The economics of government debt aren’t that simple. The government might have borrowed too much—it certainly made some bad financial decisions—but that’s not the real economic story.

The underlying economic mistake leading to default is that our government did not invest. It’s not that we spent too much money. Instead it’s that we spent our money on the wrong things. For a decade we did not invest in a brighter future. Nodebtw that we’ve reached that future, it’s a dark and miserable place.

A government’s debt is measured relative to how rich its people are. Bill Gates borrowing a million dollars isn’t the same as me borrowing a million dollars. The richer we the people are, the more money the government gets from taxing us. A 20% tax on $100 gives the government way more revenue than a 20% tax on $20.

Read full textLife, Debt, and Default


Barbados’ giant economic hole is entirely of our own making. Our distress stems from one fatal flaw: we do not invest.

Let me make it plain. Investment in new businesses, new technologies, and new ideas is the only way to generate sustainable economic growth. Economic growth is not just an economist’s foolish cravings. Economic growth is the only path to prosperity. Investment is needed for economic growth, and without economic growth, we perish.

Why is it that we don’t invest? What can we do to fix this fatal flaw?

The first problem is that we save only 13.6% of our income. The rest of the world saves 23.1% of its income. Our savings are paltry in comparison to the investment hole we need to fill. We simply don’t put aside enough money for our businesses to invest.

And yet, commercial banks don’t want our cash. They offer us a ridiculous 0.05% interest rate on our savings. Why? In 1990, the banks lent 68% of our savings to businesses. Lending to businesses is risky, but it is productive investment that generates high returns and grows the economy. In 2018, the banks have lent only 28% of our savings to businesses! Banks have stopped channeling our funds into productive economic activity—which is in fact their one job.

Read full textFailure to Invest

Where Does the Average Bajan Invest Today?

A member of the BU community posed the question to the blogmaster via private message – “Where does the average Bajan INVEST today- now?”.

There is a quick answer. There is a complex answer. The blogmaster is not qualified to address the complex answer, however, members of the BU family are free to fill the gap.

The question was influenced against the backdrop of government’s retrenchment exercise and should include private sector employees where similar retrenchment programs have been occurring in the post 2008 period.

Before the question posed can be answered it is important to understand how savings and investment differ. In simple terms individual savings is the difference between income earned – a salary – minus CONSUMPTION expenditure e.g. car, food, entertainment etc. To clarify, if the individual purchases an Aquaponics system (to produce food) we should define this as an INVESTMENT expenditure. The investment expenditure reduces household cost and creates a revenue opportunity.

The most recent Financial Stability Report page 20 produced by the Central Bank confirmed what we know, Barbadian individuals and other entities continue to save in the financial system. Some dismiss the high level of savings to Barbadians being risk averse others will counter by suggesting that we should consider other determinants. The blogmaster will leave this part of the debate to the BU intelligentsia except to say. Traditional investment opportunities are limited in Barbados and BLACK Barbadians especially have confused saving with the bank or credit union as an investment.

This blog is not meant to denigrate Barbadians. However, it is accurate to say that the financial IQ of Barbadians combined with a passive entrepreneurial disposition has defined our investment outlook. Some members of the BU family will point to how the education system has been designed in a post colonial period that has led to our state of mind.

To answer the question posed by the member (he is free to expose himself). Even in the so called ‘good times’ the investment market in Barbados can be accurately described as closed. Bear in mind the blogmaster does not consider individual savings in financial institutions as investment. Where are locals – those being displaced by government – able to invest money to generate meaningful income that is not illiguid? There is no active equity market. There is Fortress Fund and a couple other mutual funds that show moderate ROIs. You get the picture!

Earlier in the blog BLACK was capitalized for a reason. It was not meant to be an incendiary verbal, simply to differentiate how Blacks and minority groups approach investing in the same local market.   For years minority groups have established Pooled Investment Funds. In a simple definition, an opportunity is identified and a group of individuals come together based on a shared position to invest in the idea and agree to share the risk. The idea maybe to buy property to rent or flip, acquire an equity stake in an under capitalized business, transport an emerging business concept from offshore to local market … you get the picture. The more sophisticated investment is that a few pension funds managers act as loan sharks. Is this activity regulated? A blog for another day. However it must be said that all investments bear risk!

The upside to what is happening to displaced workers in Barbados it that it may serve to disrupt a passive state of mind. This is where the national conversation needs to be anchored instead of the old way thinking. It is time to change the thinking.

 

 

 

 

Notes From a Native Son: As a Retail Investor It is Important to Take Cautious Steps when Investing

Hal Austin

Hal Austin

Introduction

Recently I received an email from a desperate retail investor raising serious questions about her investment in a well-known Caribbean fund manager. I know the feeling. The world is still trapped in an acute financial crisis which experts are only now beginning to understand and which is concentrating minds when it comes to where to invest your hard-earned money. One widely shared view, even by leading central bankers, is that the 2008/9 crisis was the worst since the 1930s depression. But there is a growing body of work that suggests that the 1980s recession was far worse as far as businesses were concerned than the 2008/9 crisis. It is a thesis that Professor Chris Higson and his colleagues at the London Business School are doing some empirical work on, and colleagues in the US are doing similar work and their conclusions will help us to see the bigger picture. The important question on the micro level is: how do companies respond to financial crises? What happens to their balance sheets and to profitability? Modern portfolio theory makes a number of assumptions, one of which is that investors are informed; that they are rational; and that they know what they want. We know that customers, including investors, quite often do not know much about the enterprises that they invest in; that they are not rational, often investing at the top of a bull market and sell at the bottom of a bear market. Few appreciate that equity investments are for the long haul, a minimum of five years. Obviously, this is not a Quick MBA in corporate finance, but just to give an idea of what is involved in retail investing and some precautionary steps to take.

The Environment:

Before looking at the firm you intend to invest in, have a deep look at the sector and how rival firms are performing. What are the long-term prospects? Where does the firm fit in the wider landscape? Is it growing, if so, is it organic or growth by acquisitions? Few firms separate organic growth from acquisitions in their financial reports. Then there is the inflation illusion: a firm that claims to be growing through sales must adjust for inflation, once this is done, quite often real sales growth is negative. In fact, even in good years, few firms have real growth. This flows in to what Joseph Schumpeter called ‘creative destruction’ – the death and birth of new firms.

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Notes From a Native Son: What Ethics and Whose Social Responsibility?

Hal Austin

Introduction:
On Wednesday I delivered the keynote address to a Financial Times seminar on ethical and socially responsible investing and thought the content generally of interest to share with a number of you. I have turned the speech in to a blog.

Re-Defining Ethical:
Behaving in an ethical or socially responsible way is one of those things that most people think they know about, but like most social definitions, what is ethical to me may be fun to you. In the not so long ago days, when we talked about ethical and socially responsible investing – and the two are not the same – we knew broadly what we meant: that we did not want to invest in companies that manufactured alcoholic drinks, tobacco products, encouraged promiscuous behaviour, and so on – generally the sort of assets that churches, charities and other religious bodies invest in. However, in today’s climate we have to rip up that definition and start again. As the Chinese say, we are living in interesting times. But in a world of historic social and economic upheaval, this throw away phrase means far more than it at first suggests.

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