Grenada’s Economic Prosperity: Moving Ahead And Lessons For The Wider OECS Economic Union

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A review of Grenada’s growth performance for the past 35 years and during the post-independence era has been encouraging. In comparison to other Caribbean and OECS economies, economic growth performance in the ‘Spice Isle’ has been relatively stable. Although average economic growth for the independent OECS economies declined by 2.45 percentage points between the periods 1980-1994 and 1995-2015, with significant declines for Saint Lucia, Antigua and Barbuda and Dominica, Grenada experienced the slowest downturn in average economic growth over the period. Grenada along with other OECS economies has also experienced growth in average GDP per capita income between the periods 1980 – 1994 and 1995 – 2015, although average growth in GDP per capita income was higher in the pre-trade liberalisation era of the 1980s and early 1990s when compared with the late 1990s onwards, a period that defines the trade liberalization era (see figures below). Furthermore, in 2015 Grenada achieved an economic growth rate of 5.1%, one of the highest growth rates in the OECS for 2015, suggesting that the economy has recovered from the 2008 Global Financial Crisis. Grenada, along with the Member States of the Eastern Caribbean Currency Union (ECCU), has also experienced stable and low inflation rates over the last two decades. Relatively low inflation rate has been one of the hallmarks of the ECCU arrangement. There is a plethora of explanatories that point to Grenada’s current positive economic performance. Also, Grenada’s experience provides lessons that could go a long way in improving the overall business environment within the OECS Economic Union Area.

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During the post-independence era, Grenada achieved some degree of economic diversification. Arthur Lewis’ “Industrialization of the British West Indies (1950)” forwarded an economic growth and development agenda for the Caribbean islands based on economic diversification and Foreign Direct Investment (FDI). This development mode has been supported by other Caribbean economists during the post-independence era during the 1960s and 1970s. In the OECS, despite efforts at encouraging economic diversification, many economies are still largely dependent on a narrow group of economic activities. However, Grenada stands out as one of the more diversified economies in the OECS. Grenada’s economic activity for 2015 suggests that the agricultural sector has continued to assume a less dominant role in domestic economic activity and new sectors such as education, hotels and restaurants and banking have emerged. Limited dependence on one or a few export activities ensured that the trade liberalisation period, which negatively affected major economic sectors such as banana and sugar exports, did not significantly weaken economic growth performance in Grenada. While natural disasters such as Hurricane Ivan in 2004 and the Global Financial Crisis of 2008 have negatively impacted economic growth and development, Grenada’s efforts at economic diversification have allowed for a more balanced economic growth experience. Essentially, a more diversified economic base is good for overall business development. A more diversified economy allows for greater opportunities for creating employment and improving incomes, thus, reducing the demands on the public purse. More specifically, for businesses in the OECS Economic Union Area, it means greater opportunities for business linkages, intra-regional trade and growth in business profits in the long-term.

Grenada’s growth in the education sector is one of the outcomes of their economic diversification efforts. This sector has witnessed significant growth since the establishment of the St. George’s University complex in Grenada. Today, the education sector in Grenada accounts for 18.46% of GDP and nearly 8% of total employment. The growth in the Grenada’s education sector and the continuation of government support for national training has led to the attainment of relatively high tertiary level enrollment. According to The Economist (2015), Grenada has one of the highest enrollments in tertiary education at 52.8% and this rate surpasses the world average of 32%. Further growth in tertiary education attainment will be good for the OECS Economic Union. One of the challenges facing the OECS economies is access to a quality labour force. Studies by Compete Caribbean have found that many OECS economies experience a mismatch in skills demanded and skills available and that most of the labour force has secondary level education or less. This cannot be good for business development in the OECS. Improving competitiveness in the global economy requires a more educated, soft skilled based labour force. Thus, the current efforts to investment in higher education in Grenada will help improve global competitiveness of businesses both in Grenada and the wider OECS Economic Union.

Grenada’s economic development and economic growth prospects in the twenty-first century will continue to improve given efforts to address possible economic risks. Grenada is one of the highest indebted Member States in the ECCU and the national unemployment rate is above 30%. Public debt stock in Grenada stands at EC$ 2.7 billion and public debt to GDP ratio at 103.6% in 2015. High public debt levels in Grenada and the wider ECCU will weaken growth in the private sector in the OECS Economic Union, particularly due to concerns over higher taxation levels and lower public sector investments. In his 2016 Budget Address, Prime Minister Dr. Keith Mitchell addressed efforts at reducing public debt levels through a debt restructuring effort. The Grenada government is also seeking to reverse the trend in the unemployment rate by focusing on private sector development, particularly through business financing and development plan support. Moreover, improving the Ease of Doing Business in Grenada will go a long way in enhancing the business and investment climate, reducing unemployment and improving economic growth in the long-term. In the 2016 Ease of Doing Business, published by the World Bank, Grenada is ranked 138 out of 189 countries. In particular, the challenges facing Grenada’s private sector growth include: registering property; getting credit; paying taxes; trading across borders and resolving insolvency. These are challenges that also affect the wider OECS Economic Union Area. The government of Grenada is currently taking steps to address these challenges through efforts that are aimed at improving the regulatory environment, creating more access for business financing and encouraging more foreign direct investment flows.

Grenada’s efforts at economic diversification, encouraging tertiary education, supporting private sector development and improving the macroeconomic environment are essential for promoting sustainable economic growth and development in the long-term. Moreover, these efforts are the principle economic measures that are needed across the OECS to shift these economies towards high growth performance. These measures will ensure that the OECS Economic Union Area, when it is fully operational, will be a vibrant and robust Single and Financial Economic Space. A robust OECS Economic Union Area will be good for business given access to a larger market and bigger pool of labour. Further, it is also important to allow for the attainment of the objectives articulated in Article 2 of the Protocol of Eastern Caribbean Economic Union such as enhanced economic growth and development and greater inter-sectoral linkages.