New IDB, Compete Caribbean Book Highlights Key Reforms to Boost Firm Productivity

A new publication by the Inter-American Development Bank (IDB) and Compete Caribbean urged Caribbean countries to advance on key reforms to improve the business environment and boost firm productivity in a bid to accelerate long-term growth.

The book, "Are We There Yet? The Path toward Sustainable Private Sector Development in the Caribbean," analyzes opportunities and challenges for key policy reforms aimed at increasing the competitiveness and dynamism of the region's private sector.

This comprehensive book offers a regional perspective, encompassing 13 Caribbean nations: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

The study comes as the Caribbean seeks to bolster sustainable economic growth after the COVID-19 pandemic. The region grew at a yearly average of 1.47% during 1960-2019, below Latin America's annual growth rate of 1.94%, according to the study. This figure is significantly below the pace of expansion of both middle-income and upper-middle-income countries in the rest of the world, which grew at 3.08 and 3.6%, respectively.

"The launch of this publication comes at a pivotal moment for our region. It underscores the crucial role of the private sector in driving national growth and development. By identifying key challenges and offering regional solutions and policy recommendations, it aligns with IDB Strategy+ and the pillars of our ONE Caribbean regional program," said Anton Edmunds, IDB General Manager for the Caribbean Country Department.

"This is not just a book; it's a roadmap filled with regional messages and country-specific insights to promote more sustainable economic development within the Caribbean," he added.

The book places particular emphasis on four key determinants of business productivity and growth: the investment climate in which firms operate, the quality of human capital in local labor markets, the innovation capacity of firms, and the availability and adequacy of firm financing. The study used data from the Innovation, Firm Performance, and Gender Issues in the Caribbean (IFPG) Firm-Level Survey, sponsored by Compete Caribbean in 2020.

The analysis uncovers significant challenges in all these areas, but it also identifies critical areas where sound evidence-based policies have the potential to stimulate ecosystems that spur sustainable development.

Key Findings and Policy Recommendations

Business Environment

Challenges: The average Caribbean firm faces several obstacles, including reliance on informal payments to expedite processes like obtaining import licenses or construction permits. Additionally, about two-thirds of firms report frequent power or Internet outages, highlighting the need for improved public services.

Policy Recommendations: The study calls for policies to streamline processes to obtain licenses or permits, digitization of processes and services, automatization of public services via digital payment systems, as well as campaigns to increase transparency and discourage corruption.

Skills Mismatch

Challenges: There is a significant mismatch in the Caribbean labor market, with an oversupply of unskilled workers and a deficit of skilled ones. One of the main reasons is the emigration of highly skilled workers to work abroad.

Policy Recommendation: The book calls for the creation of a system in which potential employers and training institutions collaborate to increase productive employment through curricula design that emphasizes the most demanded skills. The study emphasizes the importance of high-quality vocational training, especially in information and communication technology. Additionally, it recommends governments to provide employment services such as job search support, job counseling, job placement, and recruitment and selection.

Innovation and Entrepreneurship

Challenges: Despite the potential gains from stimulating entrepreneurship and innovation, few Caribbean countries have systematic support for entrepreneurs. Existing initiatives are often small-scale, time-limited, and lack the necessary ecosystems to develop startups into scalable enterprises.

Policy Recommendations: Governments should design relevant and effective innovation support programs covering several stages of the business lifecycle, including the development of public and private incubators and accelerators to support entrepreneurs and innovative firms. It should also promote greater collaboration between industry and universities to support technological transfer.

Access to Finance

Challenges: Inadequate access to finance remains a significant barrier to firm productivity. Caribbean capital markets are underdeveloped and illiquid, forcing firms to rely on less adequate credit markets. Structural issues, such as limited information on credit histories, further complicate lending processes.

Policy Recommendations: The evidence stresses the need for policies to foster credit competition and facilitate financial inclusion. These include establishing credit registries and bureaus to facilitate more effective sharing of credit performance records, strengthening property rights and insolvency procedures, as well as improving financial technologies with adequate safeguards. Policies should also promote the use of technology to improve credit risk information.

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