Director of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), Professor Don Marshall, has criticised the government’s Economic Diversification and Growth Fund Bill, warning that it is out of step with its stated purpose.
The bill, which was passed in the House of Assembly on Friday, seeks to establish the Economic Diversification and Growth Fund to provide financial support to selected companies to boost employment, foreign exchange earnings and economic growth in Barbados.
An initial sum of $225 million is to be drawn from the Consolidated Fund over three years, in annual instalments of $75 million, along with any additional sums approved by Parliament by resolution or made available to the fund by way of gift or grant.
However, Professor Marshall said on Sunday that based on subsequent public pronouncements by Prime Minister Mia Mottley on the bill, it is about rightsizing tax rates for foreign companies seeking to invest in the Barbados economy.
“The governance and accountability of the intended expenditures are of relevance, and the PM reminds of the key oversight roles of the Auditor-General and the like. My concerns are along a different, but similarly important track,” the political economist said.
“A parliamentary bill”, he contended, “seeking to address economic diversification through the incentivisation of foreign investment is normally anchored by an industrial policy. This bill – that neither makes mention of inventions, value-added intentions, or innovation-mediated emphases nor delineates those sectors targeted for capital deepening or related initiatives – is not addressing the task for which the bill is so named.”
The professor said that the major inflows of inward investment in Barbados over the past 30 or so years have not led to economic diversification.
“Rather,” the SALISES director added, “it has reinforced the commercial dealing character of our economy. The bulk of foreign direct investment has been in real estate prospecting and along import distribution lines. To be sure, there are some foreign exchange and employment benefits as we bear witness to an increase in hotel room capacity, and with construction, there are spikes in employment.”
He continued: “Ultimately, the hospitality and construction sectors also hit our foreign reserves hard, as we import all the components to complete the respective projects and for maintenance. So, the urgent task has long been to push past the limited diversification that our economy reflects.”
The academic said that money drawn from the Consolidated Fund, once targeted at economic development, is deployed in various ways, but without reference to any class of investor, local or foreign.
“We have been investing in the modernising of infrastructure to woo or attract investment along the Harbour Road, Newton, Six Roads, and so on. These industrial parks have for some time been operating under the aegis of the BIDC [Barbados Industrial Development Corporation], and local and foreign businesses take up rents at various rates, depending on the nature and scale of the enterprise and whether the business redounds to the design, manufacture or commercial benefit of the country,” Professor Marshall stated.
“I would think, therefore, that the adjustment in rates of tax can be accommodated in a bill or in amendments of existing legislation addressing how we engage with international business companies. We have already completed the heavy lifting with respect to ending the differential tax rate between the local corporate tax rate and what we levied on international business companies in our international financial sector,” he suggested.
The UWI senior official added: “It is an unnecessary conflation of the two issues – tax rate adjustment for international business – and incentivising economic diversification in Barbados. The latter will not turn on the issue of tax rates, but on state posture. That is, the relationships and bargains struck with foreign and local investors, the capacity of the various line ministries, popular buy-in across civil society, and the capacity of the government to steer investment in the required sectors. More can be said.”
The bill defines a qualifying company as one with a real and substantial economic presence outside Barbados that engages in, or intends to engage in, real and substantial economic activity in Barbados. (EJ)
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