01 June 2010

Formulating an Economic Policy for the British Virgin Islands

By Benito Wheatley
(Orginially published in the BVI Beacon on May 13 under the title "Moving Government beyond BiWater politics").
The recent controversy over the awarding of a water production contract to BiWater highlights the need for the Government to formulate a coherent economic policy to help guide government’s economic decision-making and coordination, and provide a clear economic direction for the Territory as a whole.
Currently, the Government’s economic policy amounts to a number of uncoordinated economic initiatives driven by factors other than a carefully crafted economic policy. As a consequence, it is unclear exactly what economic goals it is trying to achieve for the British Virgin Islands (BVI). Establishing a coherent economic policy should help to improve government’s economic decision-making and coordination and provide the society with a better understanding of its economic goals.
Formulating a coherent economic policy must begin with an economic vision, followed by a basic set of economic objectives and the development of a package of policy measures for achieving them. This process requires addressing four questions.
First, what is the Government’s economic vision for the Territory? To state it plainly, what is the economic future that the Government wants for the BVI. Twenty years from now does the Government envision a Territory still highly dependent on tourism and financial services? If so, does the Government envision more BVIslanders owning hotels and resorts, providing charter boat and plane services, and a substantially smaller number of BVIslanders providing taxi services? Does the Government envision significantly more BVIslanders owning trust companies and law firms, as opposed to simply occupying entry level and middle management positions? What about other sectors and industries? Is there a vision for agriculture and fisheries? What about health tourism or back-office services?
Whatever the economic vision may be, it is critical that an economic vision exist upon which a coherent economic policy can be formulated.

The second question to be addressed is, what general economic approach should the government pursue? More specifically, upon what economic and social principles should an economic policy be based? Should the Government pursue an economic policy that broadly seeks to economically empower BVIslanders through preferential treatment in the economy? Or should the Government pursue an economic policy that places local companies and BVIslanders on an equal footing with foreign companies and foreign workers in the economy? This was the essence of the BiWater contract controversy where the UK company was selected over Ocean Conversion (OC), a partially locally owned company, to provide water production services.

Governments around the world have varied in their approach to economic management. In Hong Kong, the government favors a free market economy that is open to foreign competition. The Hong Kong Government is primarily concerned about the efficient delivery of services to the public, as opposed to the origin of the companies or individuals who provide them. By contrast, in India, the Indian Government privileges local companies for contracts and shields domestic industries from foreign competition. The Indian approach emphasizes the economic empowerment of local companies and citizens and the development of domestic industries. In France, the French Government has adopted a mixed approach to economic management. Various sectors of the French economy are open to foreign competition, while others are strategically protected and government contracts are reserved for domestic companies. None of these approaches are perfect and each has its advantages and disadvantages.

In the case of the BVI, the operation of foreign companies in the Territory is necessary for the provision of certain services. However, this is not the case for every sector. In fact, in some sectors, it may not be desirable to allow foreign competitors into the market, particularly where they undermine the growth of a domestic industry.

What is most important to note here is that a government should adopt an economic policy of some type to guide its economic decision-making and coordination and the economic activities of the country it governs. Such a policy must be made clear to the business community and public to clarify their expectations of government and the position of local companies and individuals relative to foreign companies and foreign workers. Importantly, awarding petty contracts to party supporters and family members does not constitute an economic policy.

The third question that must be addressed is, what should the Government’s economic objectives entail? In simple terms, economic objectives are targets the government sets for attaining a desired outcome. Setting economic objectives involves deciding: How many more tourist arrivals are needed per year to sustain tourism growth? How many more international business company registrations are needed per year to sustain financial services growth? How many new local businesses should open per year to significantly increase entrepreneurship? How many new jobs should be created per year to absorb new entrants to the labor market? By what percentage should wages and salaries increase annually to keep pace with the rising cost of living? These are just a few of the areas where economic targets must be set. An in-depth study and analysis of the macro- and microeconomic conditions of the BVI should allow government to sufficiently perform this task.

The fourth and final question to be addressed is: what policy measures are needed to achieve the society’s economic objectives? A policy measure is simply a course of action a government adopts for achieving a stated goal. Policy measures include things like start-up grants for small businesses to encourage entrepreneurship; soft mortgages or land grants for residential construction to encourage home ownership; first right of refusal to local companies for government contracts to help grow domestic industries; tax incentives for foreign companies to attract foreign direct investment; and a number of other measures for economically moving the Territory forward.

In retrospect of the Government’s controversial decision to award BiWater a water production contract, a well-defined and coherent economic policy would have helped to clarify its position, or at the very least, provided a minimum policy standard against which the public could judge the contract’s procurement and the merits of the agreement.

On a final note, recent clashes between the Government and OC over water production contracts are indicative of a long standing problem in the BVI: the politicization of government contracts. By virtue of government’s ability to directly award a contract (i.e., bid, no-bid) and indirectly provide employment through it, or to deny the award of a contract, a ruling party is placed in an unduly politically advantageous position to influence the public. Likewise, certain businesses and individuals can potentially influence elected officials by pledging future support in return for a contract. These power dynamics present the danger of a government contract being used as a political tool for garnering public support or securing business. De-politicizing the awarding of government contracts would help to mitigate theses dangers and encourage impartiality.

In real terms, what this means is that government procurement must become a more objective and balanced process. One means by which to achieve this is the creation of a BVI Procurement Board whose responsibility would be to review bids on government contracts and vet companies. Once completed, the Board would submit its non-binding recommendations and rationale for a vendor to government for consideration. The Board’s recommendations would also be made public at the time of submission.

A body of this kind would be composed of elected representatives from industry organizations and appointed business professors from the Department of Business at the H. Lavity Stoutt Community College. A societally balanced membership would provide the level of objectivity and balance needed for determining the best proposals and the most appropriate vendors for contracts. Not only would this improve transparency and deepen the society’s participation in government’s economic decision-making process, but it would help to avoid the kind of controversies witnessed over the past months between Government and OC.

In conclusion, the Government cannot afford to be ambivalent or obscure about the economic direction of the Territory during these uncertain times. Formulating a coherent economic policy would strengthen Government’s economic decision-making and coordination, and give the people of the BVI a better understanding of the economic goals it has for the Territory. If done thoughtfully, the BVI will become a stronger society economically and be well positioned for a strong economic recovery in the future.

Benito Wheatley is an Analyst in the International Affairs and Services Department at the Financial Industry Regulatory Authority in Washington, DC. He is also a Researcher for International Affairs Forum Journal, published by the Center for International Relations in Arlington, Virginia. Please direct comments or questions to: Benito_Wheatley@yahoo.com.