In the wake of the worldwide recession, international investors tightened their belts. Global Foreign Direct Investment (FDI) has been on a downward trajectory for the past decade, and fell further in 2017 with a 23 percent drop to US$1.43tr.
The one bright spot in the contracting economic landscape is the Caribbean, where FDI remains resilient, largely thanks to its thriving tourism sector.
FDI inflows to the Caribbean rose by 20 percent last year to reach almost US$6bn, according to the Economic Commission for Latin America and the Caribbean (ECLAC). The Dominican Republic was the region’s strongest performer, amassing over US$3.5bn in 2017.
The bulk of the investment was directed into the tourism industry. While Saint Lucia has not yet released its 2017 FDI data, the country certainly saw a major uptick in tourism-related projects last year.
Developments announced or completed in 2017 include Curio by Hilton; the luxury mega-hotel, Royalton Saint Lucia Resort and Spa; the Fairmont Saint Lucia in Choiseul and the Black Bay Master Development which is being funded by Dubai-based Range Developments. In total, the country expects to have around 2,000 new hotel rooms by 2021.
Some projects, such as the US$2.6bn Pearl of the Caribbean development backed by Hong Kong developers Desert Star Holdings Ltd., seek to use Saint Lucia’s Citizenship by Investment Program under which foreigners are offered citizenship in exchange for investing in a national fund or government-approved project.
These types of schemes have been used successfully by most Eastern Caribbean states to boost their FDI and attract investors from outside their core markets of Europe and the United States, gaining interest from Asia and the Middle East.
While the tourism industry is the main recipient of FDI dollars across the Caribbean, inflows have been more diversified in recent years as the region, along with the rest of the world, embraces the Fourth Industrial Revolution. Other industries attracting foreign interest in 2017 were services and manufacturing, in particular renewable energies and telecommunications.
In the past two years, around 12 percent of total FDI inflows to Latin America and the Caribbean have gone to the telecommunications sector while 15 percent funded renewable energies.
This rising interest in connectivity, technology and sustainable energy generation is reflective of global trends. As technology advances, there are more opportunities for Caribbean countries to capitalize on these niche markets.
Saint Lucia’s national investment agency, Invest Saint Lucia, is focused on diversifying the country’s FDI offering and recognizes that solely relying on tourism doesn’t provide long-term security.
The agency is now looking to lure investors in smart manufacturing, including agro-processing and smart technology manufacturing. It has also been successful in attracting Business Process Outsourcing (BPO) operations such as KM2, Ark Teleservices and Artificial Intelligence specialists Ojo Labs.
Not every Caribbean country is suited to the same type of FDI. While Saint Lucia has the resources to accommodate BPO services and the proven demand to sustain its tourism offerings, other countries can play to different strengths. The Dominican Republic received US$410m last year into its mining sector, Guyana attracted US$90m in its energy industry and Jamaica received US$60m from a Chinese iron and steel company to reopen aluminum plant Alpart.
The amount of FDI a country receives is important, but the quality of that investment is equally crucial. In 2015, the United Nations created a set of 17 Sustainable Development Goals (SDGs). These include affordable and clean energy, climate action, quality education, an end to poverty, gender equality and sustainable cities and communities.
ECLAC suggests that FDI has a vital role to play in helping the Caribbean meet its SDGs and advises countries to strategize on how to attract the right kind of investment, where it can be used most effectively and how FDI can contribute to structural change.
ECLAC predicts that global FDI will remain weak but stable in the short-term. As FDI in the Caribbean remains solid, another major source of external finance is waning. Official Development Assistance (ODA) is declining as a percentage of National Gross Income (NGI). In the 70s, 80s and 90s, the Caribbean ODA was an average of 0.4 percent of regional NGI. In 2016, it amounted to just 0.17 percent.
It’s clear that if Caribbean countries want to make progress on the SDG roadmap, set out in the 2030 Agenda, they cannot rely on ODA alone. FDI must play a bigger part in meeting those goals.
FDI can be leveraged to benefit local communities in a lasting way, building links between international firms and local SMEs so that skills and expertise are assimilated by the host country.
Investments into renewables can lower electricity costs, conserve the local environment and reduce pollution. Funding for emerging tech in fields such as agriculture will help countries in their bid for food security.
FDI at work in the manufacturing sectors should involve on-the-job training to reduce unemployment and create opportunities for local youth. In this way, the benefits can be felt throughout the local population and into the future.
This article has been republished from www.caribbeannewsdigital.com