Industrial Policy and Post-COVID19 Economic Transformation in CARICOM
Shridath Ramphal Centre Trading Thoughts – February 2023 by Alicia Nicholls
Writing in an SRC Trading Thoughts back in May 2020, the author Joel K. Richards presciently posited that the COVID-19 pandemic, which was then still in its early days, provided the Caribbean Community (CARICOM) with the opportune time to ‘reclaim’ industrial policy. Fast forward three years later, CARICOM appears to be making concrete steps to formulate the community industrial policy called for by the Revised Treaty of Chaguaramas (RTC). In the communique emanating from their Thirty-third Intersessional Meeting held in Belize, March 1-2, 2022, the CARICOM Heads of Government recognized “the urgent need” for developing a community industrial policy strategy. Additionally, Suriname will now have industrial policy added to the list of issues on which it has lead responsibility under the CARICOM quasi-cabinet. At the latest 44th Regular Heads of Government Conference meeting held in The Bahamas, issues around the consolidation of the CARICOM Single Market and Economy (CSME) again occupied a significant part of the agenda. This SRC Trading Thoughts offers some initial reflections on how a community industrial policy strategy could assist the region’s requisite transformation to a sustainable and resilient economy as the grouping enters its fiftieth year of existence.
Falling out of favour in the 1980s and 1990s, industrial policy is squarely back in vogue in the post-COVID-19 era. UNCTAD (2018) defines modern industrial policy as “a package of interactive strategies and measures aimed at (i) building enabling industrial systems (infrastructure, financial systems) and productive capacity (including assets, technology and skills), and (ii) supporting the development of internal and export markets”. Even before the pandemic, UNCTAD’s World Investment Report 2018 reported that in the preceding ten years, some 101 developing and developed economies had adopted formal industrial policies. This is even the case in advanced economies which once used and later rejected these policies on the basis of neoliberal orthodoxy as being inefficient or as the government “picking winners”. Take for example the United States CHIPS and Science Act of 2022 which provides funding to boost domestic research and manufacturing of semi-conductors or the EU’s Industrial Strategy to promote a green and digital economic transition.
Many CARICOM countries in the past relied in some part on Sir W. Arthur Lewis’ industrialization by investment which sought to promote industrialization by encouraging foreign direct investment through the use of fiscal and other incentives. Modern industrial policies extend beyond the economic growth and job creation imperatives and incorporate sustainability and the sustainable development goals (SDGs), digital transformation and global value chain integration. Modern industrial policies must also operate within the confines of global trade rules and financial regulations which had not existed when advanced economies were developing.
Industrial Policy in the RTC
For an agreement that was adopted in the early 2000s, the RTC was very forward-looking in that industrial policy is one of the policies for sectoral development outlined in Chapter Four. Moreover, the RTC mandates that the goal of the community industrial policy should be “market-led, internationally competitive and sustainable production of goods and services for the promotion of the Region’s economic and social development”. While industrial policy discussions often speak of manufacturing, industrialization entails not just manufacturing but also services industries.
Back in 2001 when the RTC was signed, its framers were clear-eyed that sustainability must be at the heart of any community industrial policy. This emphasis on sustainability, in particular SDGs 8 (decent work and economic growth) and 9 (industry, innovation and infrastructure) will likely be top of mind for members of the CARICOM Ministerial Task Force on Industrial Policy which will be chaired by Suriname. A technical working group has been mandated to develop and implement the policy.
The Ministerial Task Force and the technical working group would undoubtedly be guided by the RTC’s blueprint of nine objectives that should be at the heart of the Community Industrial Policy. These objectives include cross-border employment of resources, linkages among economic sectors, promotion of regional economic enterprises, establishment of a viable MSME sector, enhanced and diversified production of goods and services, enhanced production on an environmentally sustainable basis and balanced economic and social development, bearing in mind the needs of disadvantaged countries, regions and sectors.
Moreover, the RTC recognizes that several concrete things must be in place should any community industrial policy achieve its objective. These include coordination of national industrial policies, establishing and maintaining an investment-friendly environment, providing support for MSMEs, among others. One thing, however, that the framers of the RTC could have hardly foreseen was the rapid growth of digital technologies and the importance of global value chains in global production. Technology has always been the driver of advancement, but in more recent years, digital technologies, such as blockchain, cloud computing, the internet of things and artificial intelligence, have revolutionized trade. A WTO/World Economic Forum (2022) report posited that trade technologies (Tradetech) have the potential to make trade more efficient, but more sustainable and inclusive once there is international policy coordination. An UNCTAD technical note of 2021, indicated a significantly increased share of ICT goods in merchandise imports from 13% in 2019 to almost 16% in 2020, the largest annual increase.
Digital technologies also open new economic growth opportunities and sectors. For example, Barbados has indicated its intention to become a fintech hub. The new Community Industrial Policy’s architects must consider how the region could take advantage of the knowledge economy, and bearing in mind the areas in which the region has a revealed comparative advantage.
Moreover, key to any industrial policy should be the promotion of innovation. According to the Manufacturing Production Index, medium-high and high technology industries were more resilient over the period 2019 to 2022 during the pandemic than low and medium-technology industries. Data on research and development (R&D) expenditure as a percentage of GDP in the Caribbean region is sparse but for those countries for which it is available, R&D in the region is low compared to similarly situated economies. For example, in 2019, Trinidad & Tobago’s R&D as a percentage of GDP was 0.06% compared to 0.42% for Mauritius and 1.89% for Singapore, according to the World Bank World Development Indicator database.
CARICOM should also leverage the technical and capacity-building assistance of UNCTAD which has done tremendous work on industrial policy for many years. The Government of Barbados is currently the beneficiary of an UNCTAD Project entitled “Promoting Sustained Recovering through Economic Diversification and Resilience in Barbados for a Sustained Recovery from the COVID-19 Shock” funded by China’s Global Development and South-South Cooperation Assistance Fund (GDSSCAF). At a recently held two-day capacity-building workshop under the project, the esteemed panelists on a panel I moderated looking at regional integration and industrialization strategy for the Caribbean region, agreed that accelerating the consolidation of the CSME was important for Barbados’ diversification and resilience-building efforts and that national and regional industrial policy initiatives must support each other. It was also agreed that CARICOM could learn from the experiences of other economic blocs like the Southern African Development Community (SADC) where although intra-regional trade remains small, it is on a positive growth trajectory unlike intra-CARICOM trade.
A community industrial policy strategy is a necessary ingredient but will not by itself substantially transform the CSME. There must be strategic policy alignment, streamlining, at the very least, the innovation, development, investment, trade and MSMEs policies to ensure they cohere and support each other. It also requires fixing the perennial and now crisis-level problem of costly intra-regional travel if MSMEs are to see the CSME as a viable source of inputs for goods and services, thereby boosting intra-CARICOM trade, economic growth and job creation. Improving the ease of doing business and greater access to statistics and market information are essential for promoting trade and monitoring and evaluating the success of any policies. It also requires putting in place harmonized sustainable and WTO-compatible incentives for encouraging MSME exports and growth and for promoting domestic, regional, diaspora and foreign investment for sustainable development.
The region’s educational policy must support its industrial policy. In addition to the important Science, Technology, Engineering and Mathematics (STEM) subjects, continuing to expand foreign language training from the primary school level will also encourage CARICOM children to not just see the English-speaking Caribbean as a place where they could find employment or establish businesses, but the Dutch-speaking Suriname and French-speaking Haiti.
As far as this author is aware, there are no public details as yet on the composition of the technical working group charged with developing and implementing the community industrial policy strategy. It is hoped that the group would be representative in its composition, including persons not just from public sector and private sector backgrounds, but also academia and civil society. The community industrial policy should support the priorities of Member States and therefore should complement national industrialization efforts and vice versa. This would require extensive consultation at both the regional and member State level with government officials (both those in charge and those tasked with implementing the policy), the private sector and civil society such as labour unions, for example. Lastly, it is also recommended that there be a youth representative on the technical working group. It is the youth who will have to run with the regional integration project and their perspectives will be critical to building a brighter CARICOM for all.
Alicia D. Nicholls is the junior research fellow with the Shridath Ramphal Centre for International Trade Law, Policy & Services of The University of the West Indies, Cave Hill Campus. Learn more about the SRC at www.shridathramphalcentre.com.