Focus on increasing exports
Barbados can save $50 million in foreign exchange annually by replacing a number of imported items with alternatives produced locally.
But given the limited scope for more significant savings from the use of a major import substitution policy, the island should focus on increased exports of beverages, packaged sugar and other merchandise as part of a “strategy for accumulating foreign reserves through international trade in goods”.
That’s the conclusion of a study done by personnel from the Central Bank of Barbados, who are also urging local producers to lobby Government to fight their cause at the World Trade Organisation.
The issue was examined in a research and economic analysis on the topic Import Substitution: How Practical is it in Barbados? by Central Bank of Barbados Senior Economist Alvon Moore, Economist Carlon Walkes, and Statistical Officer Julian Jones.
The authors found that “the scope for growing production in Barbados to substitute for imports appears to be quite limited”.
“Nonetheless, there is the potential for the island to save as much as $50 million in foreign exchange annually, which is highly contingent on the alternative energy projects in the pipeline coming to fruition. In order to boost the export and earnings of sugar more aggressive marketing strategies need to be adopted to promote local sugar since Barbados no longer enjoys preferential export prices from the European Union,” they wrote.
“Although the opportunities to reduce imports through import substitution are few, efforts should still be made to develop local industries, particularly food crops, meat and alternative energy production, to reduce the import bill and raise employment levels.
“Given the small size of the domestic market, the local beverage industry has been making strides to expand production and penetrate non-traditional foreign markets through aggressive marketing strategies. However, for the industry to make gains within CARICOM a review of the provisions for special and differential treatment in the CARICOM treaty should be reviewed.”
The researchers also said the greater use of alternative energy and incentives for household and commercial adoption “must be continually encouraged in order for Barbados to become more energy independent”.
One of the areas of concern they believed needed attention if Barbadian producers were to do better was trade tariffs.
“Exceptions to binding tariffs and applying them equally to all trading partners can arise as it relates to protecting local industries and promoting fair trade within the WTO framework. Private sector enterprises faced with unfair competition through the granting of subsidies should lobby government to use WTO’s dispute settlement procedure to seek the withdrawal of such subsidies or the removal of their adverse effects,” the research paper stated.
Among the other challenges to greater import substitution pointed out was the high cost of production here and the fact that a number of imported items were inputs in the manufacturing process here.
“Production costs in Barbados are quite high. Such an environment impedes growth in the local manufacturing sector because consumers will opt to source their manufactured goods from markets where prices are more competitive. The high cost of living and manufacturing in Barbados is a result of the country being an upper-middle-income economy largely driven by tourism and the international business and financial services sector,” the paper pointed out. (SC)