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Impact of Globalization on Caribbean Economies

Definition:
‘Globalisation is often described as a historical process that entails the increasing
integration of, and interaction between countries as national borders become less
significant.’

Globalisation entails economic, cultural, political and environmental integration, however


for this course; the focus will be on economic integration

Factors leading to the recent acceleration of the globalization process

 Internationalization of finance; i.e. liberalization of capital markets and financial


flows

 Internationalization of production and distribution; offshore production, the


subcontracting of work to firms in other countries

 Technological, Information and Communication revolution

Globalization: The Caribbean experience

1. Caribbean countries have been fairly open as trade including import and exports
accounts for more that a 100% of GDP for most countries

2. Large volume of foreign capital is being invested, usually in the form of FDI in
industries developed from our natural resource base eg. TOURISM

3. Free trade is gradually replacing the existing system, which posses barriers to
protect the local markets from imports, and save infant industries from mulateral
giants.
4. the regions trading relationships is now being made more complex as the region
tries to diversify its trading relationships beyond traditional partners for example,
US , UK and Canada to include Latin America and other counties

5. There is increase cross border investment within CARICOM, Trinidad and


Tobago is the leader

6. Firms are now reorganizing and restructuring businesses to operate more


efficiently and more effectively in the Global environment. This includes
formation of alliances, takeovers and regional expansion

7. Restructuring and reorganization of government activities; greater focus on


macro economic stability and greater focus on creating an investment friendly
environment.

8. There has been a negative impact on businesses and individuals

The Vulnerability of Small States to the Negative Effects of Globalisation

• The lack of diversification of exports, over-dependence on specific overseas


markets, and dependence on imported technology and intermediate goods.

• Small States cannot influence the international prices of their exports.

• SIDS rely heavily on taxes on international trade to generate revenue. The WTO
effort to achieve extensive tariff reduction could cause increased fiscal deficits.

• Relatively high transportation costs cause a loss of competitiveness.

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• Traditional agricultural exports are uncompetitive due to the legacy of preferential
trade agreements.

• The key support sectors (transportation, telecommunications and financial


services) are all limited by size.

Potential Benefits of Globalization


 Increase access to foreign capital; 0ncrease movement of capital across
international borders, hence it is easier for investors to gain access to foreign
capital. This will fill the gap between domestic savings and investment needed

 Increase access to global markets for their exports

 Improves consumer welfare; because countries can import from any where goods
can be had at the cheapest prices

 Increase access to modern technology

Coping Strategies

 Product differentiation and niche marketing should be the basis of short term and
medium term response to globalization. Flexibility is also essential

 Amalgamation of production efforts is increasingly important to meet the needs of


the international markets and to benefit from economies of scale; example is the
hot pepper industry

 The opening of markets and the increased mobility of capital is also presenting
opportunities for businesses with well established bands to relocate production to
other markets. By doing so they can benefit from increase access to skills,
finance, technology, lower production and distribution costs and better
distribution networks

 In the short and medium term, partnerships, strategic alliances and other special
arrangements can be used to overcome some of the challenges and build
competitive advantage

 Increase mobility of skilled labour presents an opportunity for businesses to


acquire expertise from outside while seeking to build their internal capacity

 Additional financing and restructuring, this however may be difficult to acquire

 Major policy changes and intervention will be required to emphasize the creation
of knowledge industries based on innovation and entrepreneurship

CASE STUDY: The Impact of Globalization on the Caribbean Sugar and Banana
Industry

Belal Ahmed, Consultant in Agriculture, UWI Mona, Kingston, Jamaica

Sugar and Banana are two important crops; they are major foreign exchange earners and
sources of employment for most Caribbean countries

Presently the cost of producing sugar and Bananas is three times higher than the world
market price
This is compensated by preferential treatment under the Lomé Convention, the Cotonou
Agreement was also signed in 2000 providing a guaranteed market at competitive prices
for both products until 2008, after which both industries will face the full effect of
globalization.

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Challenges that these industries face in light of Globalization

• Lack of increased production and productivity


• Absence of economies of scale
• Labour problems and high cost
• Slow pace of crop diversification
• Low level of technology
• Inadequate research and development support

Globalization and Caribbean Agriculture

Globalization manifested in two ways;


• Removal of farming subsidies
• Liberalization of the import regime

Caribbean Agriculture has experienced a decline in production


• Caribbean countries are more vulnerable to the globalization process given their
limited size.
• Due to liberalization of the exchange market; the Jamaican, Guyanese and
Trinidadian dollar depreciated against major world currencies

Lomé Convention / Cotonou Agreement

The Lome convention is an agreement between the ACP countries and the European
(EU). The Lome Conversion, was first signed in 1975, gives special prices and privileges
to agricultural imports from the ACP countries.

Given the creation of the WTO these privileges are currently under threat of complete
extinction. In April 1996, the United States along with Mexico, Guatemala, Costa Rica
and Ecuador filed a complaint to the WTO trading body. They charged that the Lome
Conversion’s Banana Protocol unfairly acts against the Central and Latin American
banana producers, hence the protocol should be discontinued.

Impact of Globalization on Sugar and Banana Industries

SUGAR
Cost of sugar production in the Caribbean is relatively higher than world prices and the
more efficient producers

For low cost producers; Brazil, Columbia…


The cost per kilo for producing raw cane sugar, beet sugar, and corn syrup averaged less
than $0.20 US between 1989 and 1995

While the corresponding figure for the Caribbean during the said period averaged around
$1.00 US
Globalization has impacted negatively on the price of world sugar in recent years, the
prices decline as the producers strive to bring prices in line with the WTO proposal for
achieving consistent prices between cane sugar and beet sugar by 2003.

St Kitts and Nevis


In 2000 the crop season produced 17, 639 tons of sugar a reduction from the 31, 374
produced in 1997.

Jamaica
In 1998 the Government purchased the Sugar Company of Jamaica (SCJ) to prevent the
company from collapsing

Belize
In 1995 the Sugar Company was privatized due to the continued heavy loses incurred

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BANANAS

The impact of globalization on the Banana industry will affect huge effects on Jamaica,
Belize and the Windward Islands.

The cost of producing bananas is US$ 537.50 per ton while the average world Market
price is US 473.20 per ton. However the EU’s average preferential market price is US$
833.40 per ton.

The Cost of production has gone up steadily in the banana industry over the past 10 years
and banana export form Caribbean countries decreased steadily during 1995-1999 due to
natural disasters, low market demand and low price offers

Some Initiative in crop and Product diversification

Attempts have been made to replace sugar and Banana with other crops. One such project
was the winter vegetable production in Spring Plain, Jamaica. After three years of
experimentation, the 600 ace farm had an estimated loss of US$ 48 million due to
mismanagement bad planning and wrong choice of crops.

The Caroni Ltd, Trinidad and Tobago’s only sugar company, has partially diversified its
operations into beef and milk production, rice and fruit production.

Considering diversification, Livestock production, fruits, spices and bamboo are more
suitable for the region.

The Sugar Industries Research Institute in Jamaica has developed a number of items from
sugar including cane Juice drink, industrial syrup and charcoal.

The Scientific research council of Jamaica has developed products from bananas
including chips, candied, flour and nectar.