Promoting economic growth, development and international competitiveness through the convergence and coordination of the economic policies of Protocol Member States is a fundamental objective of the Revised Treaty of Basseterre (RTB), which established the Eastern Caribbean States Economic Union (OECS Economic Union). Achieving convergence and coordination in economic policies will help achieve other RTB objectives such as improving inter-sectoral linkages and standard of living, and reducing poverty.
The efforts toward establishing a Free Circulation of Goods Regime are therefore in keeping with the need to achieve economic policy convergence. However, given that intra-regional trade accounts for a fraction of all trade in the OECS Economic Union, enhancing trade and investment flows within the OECS would require a further examination of the business climate and, in this regard, the adoption of well thought-out economic policy. A starting point is the examination of the OECS’ performance in the Ease of Doing Business Ranking published by the World Bank. The Protocol Member States, not including Montserrat, have seen a decline in the Ease of Doing Business Ranking over the last 10 years (figure 1 provides a review of the ranking over the last six years). In particular, the average ranking for these economies has declined from 56 in 2007 to 116 in 2017. Notwithstanding this reality, however, it is important to be cognizant of the resilience of the OECS economies over the last two decades. Economic policy convergence must seek to examine the challenges within the single economy that give rise to the declining Ease of Doing Business Ranking and that further constrain trade and investment flows. This article will focus on the cost of operating a business within the OECS Economic Union.
The Ease of Doing Business Ranking features various indicators that provide details on the cost of operating a business. Several such indicators are highlighted in this piece – cost associated with starting a business; cost associated with getting electricity; and cost of trading across borders (exporting and importing). (Table 1 provides a snapshot of the data for 2017). Reducing the cost of doing business within the OECS Economic Union is important in order to enhance the global competitiveness of the economies operating within the single economy. This is the channel through which trade and investment flows can increase.
Given the expected positive outcomes associated with trade and investments – in terms of income and employment growth, this is also a channel through which economic growth, development and standard of living are increased and poverty reduction is achieved. Economic policy convergence will therefore be helpful in this regard.
Cost Associated With Starting A Business Streamlining the regulations and procedures for setting up a business within the OECS Economic Union will help reduce the time and the per capita cost associated with starting businesses. Establishing an environment of free circulation of goods is one of the measures toward achieving policy convergence for promoting trade and investment flows.
Cost Associated With Getting Electricity The cost associated with getting electricity is a major challenge for businesses, given that it represents a substantial input cost. Consequently, successful efforts at reducing this cost for businesses will ultimately be good for trade and investments.
Taking into consideration the fact that these OECS economies are major importers of oil – the key input in the production of electricity – and the international price volatility associated with this natural resource, policy measures should look toward a long-term solution.
The OECS Economic Union, given that it leads to an increased market size and associated economies of scale, may present an opportunity to address this matter by adopting a regional approach to reduce the reliance on foreign oil and increase the use of alternative energy sources that are cheaper and more environmentally friendly.
Cost Of Trading Across Borders Reducing the cost associated with trading across borders would also require long-term policy measures. Improving the transportation options available to traders and enhancing the efficiency of the ports in the OECS are two areas where there should be economic policy convergence aimed at improving and reducing the cost associated with cross border trade.
Improving trade and investments within the OECS Economic Union would require regional policy approaches. While there are many other related areas to be examined, addressing the cost of doing business in the OECS is an area that undoubtedly requires attention.
Any successes in this regard will help improve international competitiveness, create employment, improve standard of living, reduce poverty and enhance economic growth and development – key objectives of both the RTB and the Sustainable Development Goals (SDGs).