Doing Nothing is not an Option

It is a dangerous world that we live in today. It is one full of uncertainties as we consider the complex effects of climate change, political change in North Africa and the Middle East as well as the continuing effects of the global economic crisis. And lest we forget there is the ongoing war against a supra national radical Islamic network that has changed the face of warfare by creating new structures of alliances waging total war against both military and civilian targets with a cowardly preference for the latter. Amidst all this is the continuing technological and innovative change that has a disruptive effect on long cherished business models, creating new consumption patterns that affect us all.

As Barbadians face the future we need to identify and seize the opportunities rather than focus on the negatives. It is an opportunity to streamline both our government and business processes and maximize the use of new technological tools in doing so.

It is a time for bold leadership to change the way we do business and reduce response times to the bewildering array of global forces that impact our society. Doing nothing is not an option.

There is a series of actions that we need to take to protect the gains that we have made over the decades and to drive us forward to a higher level of achievement.

Now is the time for us to develop new economical reliable sources of energy to power our economy and secure our future. Absent an abundance of natural gas the most logical option is to install a network of nuclear powered mini generation systems. These new systems are being developed and manufactured by Westinghouse, Siemens, Hitachi and General Electric and can be barged in and relocated on a flatbed trailer to its final site for a turnkey installation.

There is a place for other alternative sources of power but the core generation needs of the country will always be oil, natural gas or nuclear power. With oil now over US$100 a barrel and projected to be US$300 a barrel by 2020, an oil based generation system becomes prohibitively expensive. Given the level of turbulence in North Africa and the Middle East the short term price movements could be even more dramatic.

At the same time the world is now facing a protracted bout of extremely high food prices due to a multiplicity of factors that show no signs of abating. Consequently, government needs to restructure its method of taxation that, under the present system of import duty and VAT, automatically increases with the increased cost of food. At the same time the business community should be exploring alternative systems of food distribution to achieve as much efficiency as possible. Needless to say, we also have to accelerate our capacity to do more to feed ourselves by expanding food production on our remaining farm lands. In this regard it seems that we are finally focusing on the greatest deterrent to farmers, crop theft.

Finally we need to release the energies and entrepreneurial spirit of young people by creating an enabling environment for change and risk taking. Barbadians can now live here and work anywhere in a world, a world of scarce knowledge based skills. What is needed to facilitate this is a robust ultra broadband connectivity throughout the island that will ultimately require fiber optic connections to the home and business. An island wide Wi-Fi service being promoted by the Barbados Entrepreneurship Foundation is a good first step and should be followed by an early roll out of 4G networks by the cell phone operators.

phillip.goddard@braggadax.com

Changing the Barbadian Paradigm

Mr. Donville Inniss, the Minister of Health, delivered a remarkable address to the Old Harrisonian Society last weekend. In many ways it reflected Ms. Mia Mottley’s comments in the House of Assembly when she declared that we have a government that we can no longer afford. Both members of Parliament on opposite sides of the House recognize that the present structure of government is not serving the people of Barbados as well as it should. I agree!

In fact there is probably a broad consensus on this issue. The question is, what are we prepared to do about it?

Barbados is replete with studies and diagnostic analysis that highlight the threats to our economic development but we seem to be short on solutions. Those that we do have seem to be unpalatable and not politically expedient. Policy making has now reached the level of putting reelection ahead of national interest and the ship of state is a rudderless vessel aimlessly drifting in the turbulence of a dangerous world.

I do not advocate reckless and extreme measures or radical surgery, but we seem to have reached a point that maintaining the status quo has become an article of faith and the society is suffering from a form of mental sclerosis. Both the public and private sectors seem to be resistant to meaningful change and are risk averse to a fault. It was not always so.

Larger and more sophisticated countries than ours are now struggling to deal with the issue of entitlements that threaten to swamp their public finances. The actuarial realities of state and federal Cadillac pension programs are now coming home to roost in the United States and socialized medicine in Europe and the US only add to the looming insolvency. Owen Arthur recognized the problems with our National Insurance at an early stage and took a tough decision to raise the retirement age to 70 and increase contributions over time to ensure the viability of the system well into the middle of this century. At the same time there is a cautious approach to limiting the excesses of our medical care programs.

We now need to seriously address the structure of government and the technological 

infrastructure to support a public service of the 21^st Century to meet the needs of our society. It requires an investment in a knowledge based society where decision making is pushed down to the lowest possible level. To do this we have to cut out the duplication of effort and downright wastefulness of government spending and seriously address the losses of statutory corporations. Where there is no longer a need for a statutory corporation or a department of government is should be closed. Last week I asked if there was any need for us to operate two sugar factories to process the island’s sugar cane. The sole reason seems to be to create unproductive work for people to perform at the public’s expense. This is not a sustainable policy.

This week, I must ask, what is the rationale for maintaining the Ministry of Agriculture at its present manning level? Now that the Sugar Industry falls under the Ministry of Finance, surely their workload must be significantly diminished.

phillip.goddard@braggadax.com

Wither the Sugar Industry?

The statement by Dr. Attlee Brathwaite that the sugar industry was essentially bankrupt was not news and certainly came as no shock to anyone. The vagueness of language used to describe the fortunes of the island’s major agricultural enterprise is quite remarkable. Pin the sky dreaming and wishful thinking that has replaced hard business decisions and serious strategic planning has brought us to this pass.

It is no secret that the BAMC plantations operate at a cost level that is at least 50 percent higher than privately owned and operated plantations. Private growers of sugar cane produced approximately 200 thousand tons of cane last year and received $15 per ton subsidy from government. This subsidy was not enough to cover increased cultivation and harvesting cost and the resultant loss that they made cannot be sustained.  One must wonder what the BAMC subsidy was, as the $160 million raised in bonds has been now exhausted.

The cultivated area of sugar cane is now so reduced that Andrews factory, in its present configuration, could process all the harvested sugar cane this year. Yet the current plan is to operate both Portvale factory as well as Andrews thus essentially doubling the cost of processing.

Comments made in the press indicate that substantial working capital would be needed to cultivate and harvest the crops over the next three years and that major investment capital would be needed to transform or restructure the industry. It would be nice if some concrete figures could be attached to those statements.

Currently the BAMC cultivates sugar cane, harvests it and transports it to the factories for processing. The expense of the BAMC is covered by the taxpayers of Barbados and the money received from the sale of sugar. As the guaranteed price of sugar declines, as it has in recent years, the portion paid by the taxpayers increases. Meanwhile the BAMC efforts to control costs have not been stellar.

It is long past time that we had an open and frank debate in the country on the future of the sugar industry and what it means for us, both in terms of all the benefits and costs to the society. Government can no longer be expected to write a blank cheque for the industry as it chases will o’ the wisps for alternative uses for sugar cane. For example high cost sugar cane can only produce high cost ethanol and high cost cane fiber is an expensive alternative fuel.

Then there is the issue of planned capital cost. To talk of spending $200 million to build or upgrade a factory is a fantasy that rivals Disney’s Magic Kingdom.

The sugar industry is of vital importance to all Barbadians and it deserves to be discussed in a transparent and open manner that would frankly address the issues of employment and efficiencies that could be brought to bear. Plain speaking is needed and hard headed business decisions need to be taken to either continue the production of sugar or to bring the industry to a safe landing before economic gravity takes over and we have a crash.

phillip.goddard@braggadax.com

The Price Gouging Straw Man

In recent weeks there has been a series of charges leveled against the business community of price gouging and using the VAT increase as a cover for extravagant price increases. As usual, the outcry is supported mainly by emotional political demagoguery and flawed research in the media. In all, it reflects an anti business ethos in the community and a desire to deflect the blame of significant price increases on to corporate Barbados.

There is no doubt that we have all experienced increases at the checkout counters of the supermarkets in recent months but there are several reasons for this that are beyond the control of the business community. The global rise in consumption and adverse weather phenomena that has created havoc with the production of crops has created significant shortages that have resulted in increased prices.
In the past six months the price of corn has nearly doubled, wheat has increased by 60 percent, sugar has more than doubled and the price of Soybean is 60 percent higher. All of these primary product price increases have and will continue to cascade through the food chain as animal and poultry feeds increase in price and we will see a steadily rising cost of food products beyond what we are experiencing at the present time.

Underlying the food price increase is the gradual increase in the price of oil that has tripled over the past two years. This has increased the cost of transportation and the energy inputs to processing food.
Thus far, most of the price increases have been gradual. In some instances, astute forward purchasing has protected consumers from any price increase but there is a limit to that protection unless commodity prices recede.

There have been some dramatic price increases in some items however such as pie fillings, strip loin beef and liquid shortening that have been reclassified by customs officials so that they fall under different tariff headings resulting in large increases of import duty. This can be viewed as a stealth tax increase that is not visible to the consumer and gives the impression of ad hoc or random price increases by the retailer.

In the case of pie filling the duty rate has changed from 20 percent to 140 percent. Thus a can of apple pie filling whose landed cost was $10 would have a duty paid VAT inclusive cost of $13.80 before the last budget and a duty paid VAT inclusive cost of $28.20 after the reclassification and the VAT increase a massive 204 percent increase in cost without adding any value to the transaction. In a similar vein any beef that has the word “loin” in its descriptive name, such as sirloin or strip loin has now moved from no import duty to an import duty of 40 percent. Liquid shortening also experienced an exceptionally large import duty increase.

Rather than seeking to delve into the facts of the matter, some elements of the press have joined the hue and cry against the Barbadian business community by publishing a survey of regional prices showing that Barbadian supermarket prices on 5 items were higher than those in other regional markets. This was a classic presentation of raw data that was in one instance skewed so remarkably that the text of the article refuted the tabulation above it in the case of boneless stew beef. The tabulation compared the price of boneless stew beef in Barbados with bone in stew beef in Trinidad and Jamaica. Only in the text did one realize that boneless stew beef was actually cheaper in Barbados than the other two countries.  In addition no mention was made of other cost factors of the retail operations such as employee cost which is significantly higher in Barbados.

The fact of the matter is that it is government that is pushing its hand further into our pockets while deflecting the blame onto the business community.

phillip.goddard@braggadax.com