Observations on Economic Conditions in Antigua & Barbuda
Posted by Arthur Thomas
on Jul 22, 2011
The following is the feature address delivered at the Rotary Club of Antigua 2011/2012 Handovery Ceremony. It was delivered by Vincent A. Richards, Ph.D. - Managing Principal, Richards & Associates.
President, President-Elect, other members of the head table, other officers and members and guests of the Rotary Club of Antigua, good evening.
I am delighted to be here with you this evening and to participate in your Installation and Awards Ceremony. I imagine that this is a very auspicious event for the President and President-Elect. For the President, this is one of his last official functions in that capacity. For the President-Elect, this may be viewed as a presidential inauguration ceremony and the presidential ball rolled into one. Congratulations to both of you! Congratulations to you, Mr President, for evidently leading your Club with distinction during the past year. And congratulations to you, Madam President-Elect, for gaining the esteem and confidence of your fellow Rotarians to the point where they have chosen you to hold the highest office of the Club and to be their maximum leader for the next year.
World-wide, and in Antigua and Barbuda as well, Rotarians are known to be individuals who are at the top of their chosen fields of endeavour. You are known to be highly motivated, to be innovators, visionaries, leaders all, doers as well as thinkers. So what do I say to you tonight? How do I keep your attention for the ten to fifteen minutes your President has given to me?
I thought I would put in historical context the difficulties our economy has been experiencing these past three years or so. In other words, are there any historical parallels that might give us hope? Is there an episode in our economic history that might give us reason for optimism? I will share my thoughts with you on this. And then, as I reflected on the excellent work in health, education, youth development and social welfare that your Club currently engages in and noting that during the term of your incoming President, the Club will begin its fortieth year, are there any suggestions I can be presumptive enough to put forward to you?
So let us briefly reflect on economic conditions in our country and journey back in the past to see if there are any parallels. Since July 2002, Richards & Associates has carried out its half-yearly Mind of the Nation Survey™. The Mind of the Nation Survey™ determines the attitudes and perspectives of Antiguan and Barbudan adult residents on the nation’s economy currently and in the future, their sentiments on a number of political issues including current voting preference, their opinions on topical issues and their use of the electronic media. It also monitors household views on select industries.
Let me share with you a sampling of the opinions in July 2005, before the current economic recession and in December 2009, when the country really began to feel the full effects of the great global economic recession and dramatic shocks in the international financial markets. Among the questions we ask Antiguans and Barbudans to gain a sense of the household finances of the respondents is this.
Would you say that you and your family are financially worse off or better off than you were a year ago? In July 2005, roughly a quarter of the respondents, to be precise 26%, felt they and their families were financially better off than a year earlier. More than two-fifths, 45%, said their financial position had remained unchanged. In other words, 71%, more than two-thirds, had experienced improved or stable household financial fortunes. Forward to December 2009. In December 2009, 15%, compared to 26% in July 2005, considered their household financially better off than a year earlier. Roughly the same proportion as in July 2005, two-fifths, (to be precise, 41%) had stability in their family finances. This means that in December 2009, 44%, that is more than two-fifths, of respondents experienced a worsening of their household financial situation. This compares with 29% in July 2005. Thus in December 2009, there was a 16% upward shift in the proportion of respondents in the worsening family finances category.
How would you rate economic conditions in this country today? As very poor, somewhat poor, somewhat good or very good? In July 2005, a narrow majority of respondents, 52%, considered economic conditions as good, that is, somewhat good (49%) or very good (3%). This means that 48% of the respondents considered national economic conditions as poor. Fifteen percent answered "very poor" and 33% answered "somewhat poor". By December 2009, the tables had turned. A clear majority of respondents, 62%, considered national economic conditions as poor, with 23%, almost one-quarter, responding "very poor" and 39% responding "somewhat poor". Obviously, those who now viewed national economic conditions as good fell dramatically to a clear minority at 38%. The other seven questions we ask to gauge a sense of how respondents see national economic conditions and their own finances reveal similar shifts between July 2005 and December 2009.
Too Big To Fail. We are also aware of the consequences of the global great recession, the effects of which are evident in many countries including our own. Closer to home we are familiar with the collapse of the Stanford business empire; and we remember the run on the now defunct Bank of Antigua. And many families across this country know only too personally and very painfully the consequences of the collapse of British American Insurance Company. As an aside, the company was neither British nor American. Antiguan and Barbudan families also know of the problems of Clico Insurance. They know of the collapse of the parent of British American Insurance Company and Clico Insurance, the CL Financial Group.
This all sounds like dismal stuff. And it is! How do we as a nation recover from the serious economic wounds that have been inflicted by both domestic and international developments?
Let me take you back to 1968, a few years before your club was founded in 1972. Then, the economy of Antigua and Barbuda was in a crisis similar, but, of course, in some ways distinct, to what we are now experiencing. Because of time constraints, I mention the single most important point. Export agriculture, then the engine of growth for the entire economy was in crisis. Export agriculture never recovered. But the economy as a whole did recover, and as we all know the economy experienced impressive growth during the 1980s.
So what was the situation in 1968? By any frame of reference, export agriculture, comprising sugar and cotton, which had dominated the agriculture sector, and in some sense the entire economy for centuries was on its death bed. It was in intensive care. If we look at the 11 years up to 1968, that is, from 1958 to 1968, the observed trend implies that export agriculture had collapsed. In terms of sugar, the peak year in that period was 1959. By 1965, sugar cane milled was a mere 50% of this peak; sugar produced was even less at 44% and sugar revenue was 46% of the peak value. In the following year, 1966, sugar cane milled had declined dramatically again to 28% of the peak level. Sugar manufactured was even worse at 23% of the peak level. Only a 12% increase in the price of sugar over the 1965 price kept sugar revenue above one-quarter of the revenue earned during the peak year of 1959. The situation worsened again in the following year, 1967. Sugar cane milled was 20% of the peak year. Sugar manufactured was even less at 15% of the peak level. And again, even though the unit price of sugar was 12% higher than that of the peak year of 1959, sugar revenue was only 18% of that of the peak year. The results of the year 1968 confirmed the collapse of sugar. Sugar cane milled and sugar produced were 6% and 4% respectively of their peak levels. Sugar revenue was 4% of the peak amount. Think of a scenario where your current sales revenue is 4% of your best recent year and you have a scenario of export agriculture in 1968. To top it off, in 1969, there was no sugar manufactured as the crop was not reaped. Hence no national income from King Sugar that year!
A similar situation applied to sea island cotton.
In relative terms, the collapse of the economy of Antigua and Barbuda in the second half of the 1960s was more dramatic than the decline we are now seeing. So the good news is that since in our recent history - 40 years in the historical scheme of things is after all recent – since in our recent history we have recovered from a worse economic crisis, we should do our forebears proud and recover from this one. So to repeat, the good news is that we have successfully rebounded from an economic downturn worse than the one we are now experiencing.
The bad news is that countries are known to have lost a decade or more in which broad based economic recovery on a sustained basis does not occur. As the elite of the Antigua & Barbuda captains of industry, finance and professional services, it is for you,
Mr President, Madam President-Elect, other officers and members of the Rotary Club of Antigua to help ensure that Antigua & Barbuda does not have a lost decade.
So here is an idea to the President-Elect and her Cabinet and to those who would assume these positions in the next two to five years. In addition to continuing the marvellous work that the Rotary Club of Antigua is doing, is there a project that can make your current work more effective, as well as have broader beneficial impact for national development?
the debate as to what makes a nation wealthy has waged. In his book, Farewell to Alms: A Brief Economic History of the World, Professor Gregory Clark of the University of California Davis contends that the quality of the labour force is the fundamental factor underpinning a country’s economic growth. Professor Jared Diamond, the famous ecologist and best-selling author of the University of California Los Angeles argues that "the origin of world inequality stems from the historical endowment of plant and animal species and the advancement of technology". He concedes that "Human institutions are critical to a society’s well being but there are preconditions for them".
The view of Dr Daron Acemoglu, an award-winning economics professor at the Massachusetts Institute of Technology is as follows: And I quote: People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That's what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity. Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments.
End of quote.
The debate I am sure will continue.