Honourable Prime Minister & Minister of Finance, Dr Denzil Douglas, Deputy Prime Minister, Hon Sam Condor & Mrs Condor, other members of Cabinet, senior officials in the public sector, private sector colleagues, representatives of civil society agencies, other community stakeholders, a pleasant "Good Morning" to you. On behalf of our Board of Directors I express you the Government of St. Kitts and Nevis the Chamber's appreciation for (a) your invitation to participate in this national economic consultation and (b) affording us the opportunity to bring to the table the private sector's concerns, views and recommendations for our future economic survival as a small island developing (SID) state.
Many of the economic issues I will speak to this morning are by no means new. Several of them have been presented over the years through various platforms, including our Annual Private Sector Reports, tax reform proposals and our "closed door" consultations that we have been able to sustain with the Prime Minister over the past few years. Nevertheless, these issues still bear repeating, with a view to being addressed in a collaborative, concerted manner designed to bring about positive and lasting change insofar as creating and sustaining an investment-friendly climate, a level playing field for local and foreign investors, an internationally competitive labour force that is constantly being re-tooled, re-trained and armed to take advantage of our economic opportunities. I should also state that it is not the intention of the Chamber to have all of these issues dealt with today " in spite of generous 30-minute time limit we have been allotted on the agenda. Given our large numbers, our limitation to one working day and the diversity of opinions, concerns, ideas and recommendations that will be put forward by the various stakeholders here today it would seem more prudent to mention our concerns, issues, ideas and recommendations with a view to further exposing and addressing them in subsequent deliberations with Government. Nevertheless, I think we should be viewing this national consultation as a positive, think-thank for the common goal we should all share " that of discovering and pursuing the critically important steps we must take on the journey of long-term economic, social, political, and cultural survival of the people of the Federation of St. Kitts and Nevis. Our people must be first at all times. If our people are not, then we are merely conducting an exercise in futility that merely pays lip service to the consultative approach to development that we all say we want time and again.
Government's finances obviously top the list of our concerns for the economy of St. Kitts and Nevis. Most, if not all, of us are aware that our National Debt has skyrocketed to dangerously high levels over the past decade. Given our small population, the per capita cost of this debt is disheartening. While it may be argued untiringly as to whether such spending is on good versus bad investments, the facts remain that such debt levels are unhealthy and must be addressed diligently, with a primary goal of sustained reduction. To make the public party to the state of our fiscal health is also critical: such economic indicators should be freely and consistently provided to the public, and should be reinforced with positive messages regarding our need to bolster national savings if we are going to leave a meaningful legacy to future generations. As such, we call on Government to provide us with these facts on a regular, digestible basis that is understandable to the common man on whose behalf Government makes decisions every day of our lives. This is not an age in which we should hoard information, but one in which we must be transparent and share such information as widely as possible so that we may be able to cultivate an intelligent, well-informed public from which we will have to continue harvesting our Country's next generation of leaders. Our debt reduction strategy should also be designed to root out fiscal mismanagement, ensuring that Government consistently practices responsible spending in the interest of the Nation. As an aside, we have noted from the agenda that we received only yesterday that the "Overview of Fiscal Performance, Debt & Tax Reform" has been placed as the penultimate topic for today's deliberations. We are of the view that this critical topic should have been placed much higher on today's agenda, as a means of helping to set the tone for this National Consultation on the Economy.
In an era of globalization trade facilitation is becoming even more important to both the local private sector and the regional and international markets who wish to do business with us. We are therefore heartened by the strides that have been taken by the Ministries of Finance and International Trade to explore areas of weakness in our business and trade processes with a view to improving on them and thereby enhance our competitiveness. However, it cannot be overemphasized that our Customs Department must facilitate local businesses which must compete with international ones especially insofar as the matter of duty refunds for duty free projects is concerned. These refunds should be processed almost immediately for companies with duty free concessions and we are well aware that there, at present several capital-intensive, tourism projects that have qualified for such concessions and will be coming on stream shortly. Given the administrative reconciliation time lapse for such refunds, our local merchants are often outbid by our foreign competitors who do not have such administrative burdens to consider in export sales. Our suggestion is to place the emphasis of duty refunds on the consumer and not the seller of such duty-free goods.
As was noted earlier our investment climate is of paramount importance to the business community. This investment climate is impacted by various factors, including (a) social stability which includes a low crime rate; (b) transparency in Government; (c) integrity in public life; (d) a level playing field for local and foreign investors; (e) reliable supply of essential services; (f) improvement in the skill base of the local labour force; (g) reduction of bureaucracy in Government services for matters such as business registration, work permit processing, and customs administration; and (h) simplification of the tariff structure and tax code. These are all issues that were raised as recently as May 2005 in our last Private Sector Report. Nevertheless, efforts must be made by all to ensure that a favourable climate for local and foreign investment exists, if we are to compete seriously with international markets.
As we move towards establishing our competitive advantage in the regional environment we must, as a Nation, address the issue of crime. Our levels of crime do not only impact the social well-being of the people of the Federation but also the financial well-being of our economy. We cannot sit by and watch those who engage in these activities affect the lives of every citizen of the Federation. The Ministry of National Security has over the last few months taken certain steps to deter future generations of criminals, and for that we commend them. However, we do not feel that enough is being done to address the issues of "the lack of confidence and trust" in our Police Force and the antiquated laws that allow criminals to remain on the streets. We within the private sector are always willing to assist Government with this issue, as we have been in the past. So, I will take this opportunity to re-affirm our commitment in helping to make the Federation of St. Kitts and Nevis a country in which crime is insignificant.
Another key characteristic of a favourable investment climate is also a reliable electoral system. Local and foreign investors, foreign aid agencies, and international watch-dog groups alike are all vigilant of world electoral systems an indeed they should. This is not purely a political matter. We wish to contend that electoral reform is an imperative for national development, regardless of the country or geographical space that we occupy. We have recently held initial consultations with a Commonwealth Secretariat mission charged with (a) the examination of our electoral system and (b) a roadmap for the way forward. Our Chamber needs to see action in this area as a matter of urgency. There is no cause for delay in this matter, as any inertia on our part will not bode well for successive generations of our people. Let us leave our children a positive electoral legacy, starting now!
Having recently closed the door on our haemorrhaging sugar industry, St. Kitts and Nevis now stands at the crossroads of economic definition and diversification. Our task is a mammoth one to re-train, re-tool and make life tolerable for the over 1500 workers displaced as a result of the closure. Our Chamber is fully intent on doing its part, and is happy to report that the International Labour Organisation has recently approved our proposal to offer entrepreneurial training to those former sugar workers wanting to establish small businesses. The ILO had provided almost US$10,000 worth of funding, in the first instance, to train approximately 45 such workers. It is our intention to stage this training programme later this month.
Related to the closure of the sugar industry is our concern over Government's land use policy in a post-sugar era. Very little information is available to the public insofar as land allocation and distribution are concerned. Critical questions to be answered include: How much land is being made available for development? How much of these lands are held by National Bank as security for the sugar industry's indebtedness? If we are serious about agricultural diversification and inter-linkages with tourism, then what proportion of our most arable lands is being made available to farmers? Will Government give a favourable nod to local food importers and retailers who are eager to establish joint venture agricultural programmes with small farmers and displaced sugar workers in an effort to reduce high levels of food imports and enhance our own food security?
The status of our manufacturing sector continues to be of major importance to the Chamber. In an era where light, regional manufacturing is being contracted, we are fortunate to have sustained the relatively high levels of activity in the sector. But - for how long? Our foreign-owned manufacturing outfits are essentially cost-centres that are presently competing with plants in Asia and South America where wage rates are significantly lower. Add to this the recent hikes in electricity and fuel costs and most of these manufacturers have instantly been confronted with an EC$35,000 per month electricity bill in some cases costs that were unforeseen when contracts and prices would have been fixed at the start of the year, and even two or more years in advance. While the Chamber realises that Government can no longer be expected to subsidize the cost of fuel and electricity we do call on the relevant Government agencies to explore with the private sector areas where concessions can be considered to buffer the effect of these sudden price increases. Such concessions would preserve jobs, benefits, enhance corporate viability. These matters, however, are scheduled for discussion on Friday, November 11, 2005 in a meeting with the Chamber's Manufacturers Division and the Ministry of Finance. As such, we will not delve further on the issue.
Earlier in my presentation I referred to the fact that many of the issues we wish to raise at this forum have been the subjects of discussion on various platforms over the past years. Given the wide and diverse representation of stakeholders at this gathering I will simply reiterate some of these concerns and recommendations for the record:
Fiscal Measures
Ø Our entire tax regime must be examined to rule out areas where we are uncompetitive. Moreover, some of our tax regulations may not be in line with WTO regulations, for example.
Ø If Value-Added Tax (VAT) is to be introduced in the Federation it must be off-set against import duties.
Ø Consideration must be given to reducing the property transfer tax at 10%, for the seller's account. This would stimulate growth in our real estate sector and result in higher tax revenue for Government in the medium to long term.
Ø The present discrepancies relative to merchants operating under the Mercantile Tax versus Duty Free concessions at Port Zante need to be examined with a view to eliminating what appears to be an unleveled playing field for business.
Ø St. Kitts and Nevis should be in Phase III of the Common External Tariff (CET). Government must make concerted efforts re: proposed and promised reductions in duties.
Ø Companies whose tax holidays have expired are being made to pay tax on losses. This issue must be re-visited, especially if such companies are to preserve jobs, maintain their service level to the community, and keep their doors open for business.
Ø Companies in St. Kitts-Nevis are effectively paying about 42% tax on high end salaries although hiring the best minds is not a small investment if businesses expect to be competitive. Tax exempt companies can afford to hire these levels of workers without tax penalties, but this is not the case in most businesses. The EC$60,000 ceiling on salaries is unrealistic in today's business environment, as a significant number of middle management staff easily exceed this limit in wages when commissions, etc. are factored in. Moreover, the continued discrepancy between this salary ceiling and Social Security's ceiling of EC$78,000 for salaries must be examined as a matter of urgency. We recommend further that the growing rate of inflation over the years must be taken into account when new taxable salary ceilings are established.
Ø The Chamber needs to learn what incentives will exist for companies who participate in the Basseterre Urban Revitalization programme. This project will affect all downtown property owners, who already pay uncompetitive, high rates of depreciation on buildings.
Work Permits
Ø Regulations governing work permit applications must be clearly articulated and not left to subjective interpretation.
Ø Government must attempt to strike a balance between facilitating businesses to hire the best minds - regardless of origin and safeguarding employment of our local workforce who should continually be upgrading their skills and knowledge bases to internationally competitive levels.
Ø Regulations have the potential of making St. Kitts and Nevis uncompetitive and unattractive to investors on the regional and international stage. In short, the regulations do not appear to be pro-development. As such, St. Kitts and Nevis could lose its potential to be the financial capital of the OECS because of some of these regulations. Examples of this include (a) the loss of seminars and conferences to other territories because of the burden of a work permit for a course facilitator; and (b) St. Kitts actual, recent loss of 12 new middle management positions to St. Lucia because of one international bank's unwillingness to have the fate of a new, competitive business operation be compromised by the uncertainty of local work permit regulations and processes.
Privatization
Ø Much has been articulated by Government insofar as the need to privatize various essential services. This must be addressed urgently if we are to promote an efficient system of administration and delivery of essential services to our consumer base. It is such efficiencies in delivery and administration of essential services that, very often, influence major decisions for foreign direct investment into St. Kitts and Nevis.
Legislation
Ø Small & Medium Enterprise (SME) Development The Chamber is eager to learn from Government the likely date when our draft legislation on SME development will be presented in Parliament. This Act, which is the result of a four-year consultation with various stakeholder groups and funded by the ILO is designed to create a favourable environment for SMEs in the Federation. This is important to our Chamber as 65% of our membership is constituted by SMEs.
Ø Charities Act Over four years ago the Chamber began lobbying for the passage of this Act which is designed to encourage charitable donations and philanthropy while affording donors the opportunity of having such donations as tax write-offs.
These issues, and others, are all matters that must be addressed in a systematic, consultative manner between Government and the private sector if we are to be a competitive jurisdiction in the face of the Caricom Single Market & Economy (CSME), the Free Trade Area of the Americas (FTAA), and the WTO. To attract the best investment we must offer the best environment for doing business. We must have a level playing field for investment that allows both local and foreign business owners to thrive, create jobs, develop a highly trained labour force, heighten Government revenues, and engage confidently in business expansion.
We trust that today's deliberations will stimulate further concerted effort to address our challenges and chart a new way forward for the people of St. Kitts and Nevis. In closing, I wish to re-state our Chamber's commitment to partnership with Government in national development. I also wish to use this opportunity to commend the Ministry of International Trade, Commerce and Industry for their improved consultation with the Chamber over the past 12 months. We look forward to participating fully in today's consultation and re-emphasize our gratitude for the opportunity to raise our concerns, ideas and recommendations before this diverse body of stakeholders.
