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Photo Credit: World Bank Photo Library April 2016 2 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table of Contents Acronyms and Abbreviations........................................................................................................................... 5 Acknowledgments.............................................................................................................................................. 8 Executive Summary........................................................................................................................................... 9 I. Objective of the Study, Scope, and Methodology................................................................................... 16 II. Context........................................................................................................................................................... 18 Overview of the Caribbean Region............................................................................................................ 21 Defining the Overall Problem: Lack of Private Investment in the Caribbean..................................25 III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative..........................................28 Sizing the Diaspora Population.................................................................................................................29 Assessing the Diaspora Population’s Potential to Invest....................................................................33 Investable Assets for the Diaspora: Need vs. Demand.........................................................................39 Current Investment Landscape in the Region................................................................................................... 39 Current Modes of Diaspora Investment...............................................................................................................60 Market Drivers and Impediments for the Diaspora..............................................................................58 Legal and Regulatory Impediments and Drivers for the Diaspora....................................................65 U.S. Investment Regulation and Taxation............................................................................................................68 Canada Investment Regulation and Taxation.................................................................................................... 70 United Kingdom Investment Regulation and Taxation—Executive Summary..................................... 73 The Business Environment......................................................................................................................... 75 Current Diaspora Convening Platforms and Distribution Channels.................................................78 IV. Recommendations......................................................................................................................................82 Framing the Recommendations................................................................................................................83 Recommendations for Implementation...................................................................................................84 Annex I. In-Depth Case Studies.....................................................................................................................87 Country Analysis: Barbados.......................................................................................................................87 Country Analysis: Jamaica.........................................................................................................................93 Country Analysis: St. Lucia....................................................................................................................... 111 Country Analysis: Trinidad and Tobago..................................................................................................117 Annex II: Country Macroeconomic Profiles...............................................................................................129 Annex III: Current Regional Investment Landscape................................................................................136 Annex IV. Related World Bank Group Initiatives in the Caribbean Region.........................................151 Table of Contents 3 Annex V. Estimating the Size and Geographic Distribution of the Jamaican Diaspora..................153 Annex VI. Diagrams of Relevant Government Institutions in Case Study Countries...................... 157 Annex VII. Legal and Regulatory Drivers and Impediments.................................................................. 161 Annex VIII. Typology of Diaspora Initiatives............................................................................................. 179 Annex IX. Interviews Conducted..................................................................................................................183 Annex X. References....................................................................................................................................... 187 Endnotes...........................................................................................................................................................193 List of Boxes Box 1: The South Africa Green X Infrastructure Debt Fund..................................................................... 51 List of Figures Figure 1: FDI Inflow to GDP Ratio...................................................................................................................25 Figure 2: Share of Firms Using Banks to Finance Investment (2010)...................................................39 Figure 3: Performance of the Jamaica and Trinidad and Tobago Stock Markets since 2007..........41 Figure 4: Unlisted Infrastructure Assets under Management December 2004 to June 2013........50 Figure 5: Snapshot of Private Equity in the Caribbean............................................................................54 Figure 6: Share of Caribbean Domestic Financial Sector Assets (2013)............................................139 Figure 7: Share of Firms Using Banks to Finance Investment (2010).................................................140 List of Tables Table 1: Geographic Scope of the Caribbean Prefeasibility Study..........................................................17 Table 2: Economic Activity, Viability, and Potential Impact................................................................... 19 Table 3: Macroeconomic Indicators for Four Select Caribbean Countries...........................................22 Table 4: Country Profiles of Mapping Study Nations (2013)...................................................................24 Table 5: FDI Inflow Trends 2009–2013 (US$ million)................................................................................26 Table 6: Total Migrant Stocks (2013)...........................................................................................................29 Table 7: U.S. Migrant Stocks (2013).............................................................................................................. 31 Table 8: European Migrant Stocks (2013)................................................................................................... 31 Table 9: Canada Migrant Stock (2013) ....................................................................................................... 31 Table 10: Citizenship Status of Black Caribbean Immigrants to the United States, 2006–2008.......................................................................................................................................................32 Table 11: Median Annual Earnings for Caribbean Migrants vs. Overall U.S. Workers........................33 Table 12: Trends in Remittances (2012–2013): Dominican Republic and Jamaica Dominate.........35 4 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 13: Geographical Source for the three Dominant Remittance-Receiving Nations..................36 Table 14: Snapshot of the Junior Market of the JSE..................................................................................42 Table 15: Public Debt and Equity Overview (2012)....................................................................................43 Table 16: Investment with Private Participation by Sector (US$ million)............................................45 Table 17: PPP Policy and Institutional Architecture in the Caribbean..................................................45 Table 18: Sovereign Ratings in the Caribbean Region.............................................................................. 47 Table 19: Responses Suggesting 13 Percent of Individuals Have Invested “Back Home”.................62 Table 20: Responses Suggesting 23 Percent of Individuals Have Funded Caribbean Startups.....63 Table 21: infoDev’s Findings Regarding Investor Profiles within the Caribbean Diaspora...............63 Table 22: Impediments to Engagement in the Caribbean........................................................................66 Table 23: Ease of Doing Business Rankings................................................................................................76 Table 24: Economic Freedom Favors St. Lucia, Eschews Corruption in Largest Economies............ 77 Table 25: Corruption Perception Index......................................................................................................... 77 Table 26: Total Size of Barbados Diaspora (UN Estimate Midyear 2013)........................................... 88 Table 27: Comparison of Firm Lending in Barbados, Select Caribbean Nations, and the LAC region.......................................................................................................................................... 90 Table 28: Comparative Turnover of the Barbados Stock Exchange...................................................... 91 Table 29: Total Size of the Jamaican Diaspora—JDI Working Estimate...............................................95 Table 30: Comparison of Firm Lending in Jamaica, Select Caribbean Nations, and the LAC Region....................................................................................................................................... 100 Table 31: Comparative Turnover of the Jamaica Stock Exchange.......................................................102 Table 32: Concessions and Qualifications for Investors under St. Lucia’s Diaspora Policy............112 Table 33: Total Size of the St. Lucia Diaspora ..........................................................................................113 Table 34: Comparative Turnover of the OECS Stock Exchange.............................................................115 Table 35: Comparison of Firm Lending in Trinidad and Tobago, Select Caribbean Nations, and the LAC Region........................................................................................................................................ 122 Table 36: Breakdown of SMEs Self-Reported Credit Needs.................................................................. 122 Table 37: Snapshot of TTSE Market in 2013 and 2014 .........................................................................123 Table 38: Comparative Turnover of the TTSE...........................................................................................123 Table 39: General Trends in TTSE Trading (2010–2014)........................................................................ 124 Table 40: Financial Sector Overview.......................................................................................................... 142 Acronyms and Abbreviations 5 Acronyms and Abbreviations AFI Approved Financial Institution BoP Bottom of the Pyramid BP British Petroleum BPO Business Process Outsourcing BSE Barbados Stock Exchange CARICOM Caribbean Community CARIFORUM Caribbean Forum CBI Citizenship By Investment CDB Caribbean Development Bank CDC Commonwealth Development Corp. CEO Chief Executive Officer CIBC Canadian Imperial Bank of Commerce CIF Caribbean Investment Fund CIM Caribbean Idea Marketplace CMIP Caribbean Mobile Innovation Project CORFO Chilean Economic Development Agency DBJ Development Bank of Jamaica DCI Development Corporation of Israel DFATD/EPIC Department of Foreign Affairs, Trade and Development/Entrepreneurship Program for Innovation in the Caribbean (Canada) DFI Development Finance Institution DFID Department for International Development ECCB Eastern Caribbean Central Bank ECCU Eastern Caribbean Currency Union ECLAC Economic Commission for Latin America and the Caribbean ECSE Eastern Caribbean Stock Exchange EFF Extended Fund Facility EGFL Enterprise Growth Fund Ltd ELP English Limited Partnership EMDE Emerging Markets and Developing Economies EPIC Entrepreneurship Program for Innovation in the Caribbean FAJ First Angels Jamaica FATCA Foreign Account Tax Compliance Act FCA Financial Conduct Authority FDI Foreign Direct Investment FI Financial Institution 6 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora FY Fiscal Year GDP Gross Domestic Product GHL Guardian Holdings Limited GP General Partner HNW High Net Worth IABD Inter-American Development Bank IBC International Business Company ICT Information and Communications Technology IFC International Finance Corporation IFI International Financial Institution IMF International Monetary Fund infoDev Information for Development Program IOM Institute of Migration IPO Initial Public Offering IPP Independent Power Producer IRC Incubator and Resource Center IRR Internal Rate of Return IT Information Technology JAMPRO Jamaican Promotions Corporation JBDC Jamaica Business Development Center JDI Jamaica Diaspora Institute JM Junior Market JN Jamaica National Building Society JSE Jamaica Stock Exchange JVCP Jamaica Venture Capital Program JVF Jamaica Venture Fund LAC Latin America and the Caribbean LAVCA Latin America Venture Capital Association LNG Liquefied Natural Gas LP Limited Partner MBSS Mona Business Support Services MIF Multilateral Investment Fund of the IADB MoFA Minister of Foreign Affairs MPI Migration Policy Institute MSME Micro, Small, and Medium Enterprises NBFI Nonbank Financial Institution NPL Nonperforming Loan OECS Organization of Eastern Caribbean States OFC Offshore Financial Center OM Offering Memorandum Acronyms and Abbreviations 7 PAJ Port Authority of Jamaica PE Private Equity PFIC Passive Foreign Investment Company PPP Public Private Partnership RBC Royal Bank of Canada REIPPPP Renewable Energy IPP Procurement Process RFP Request For Proposal RIB Resurgent India Bonds SEAF Small Enterprise Assistance Fund SEC Securities and Exchange Commission SIDF Sugar Investment Diversification Fund SIF Strategic Investment Fund SLDB St. Lucia Development Bank SME Small and Medium Enterprise SOE State-Owned Enterprise SPV Special Purpose Vehicle SUJ Start-Up Jamaica SWF Sovereign Wealth Fund TA Technical Assistance THA Tobago House of Assembly TRIPS Trade Related Aspects of Intellectual Property Rights TTFZ Trinidad and Tobago Free Zones Company TTIFC Trinidad and Tobago International Financial Center TTSE Trinidad and Tobago Stock Exchange TTSEC Trinidad and Tobago Securities and Exchange Commission UNDP United Nations Development Programme UWI University of the West Indies VC Venture Capital VF Venture Fund WTO World Trade Organization 8 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Acknowledgments This report was prepared by a team consisting of Cecile Niang (Program Lead), Leonardo Lemes Shanthi Divakaran (Team Leader, Senior Financial (Operations Officer), Asha Johnson (Operations Sector Specialist), Michel Noel (Head of Investment Officer, Jamaica country office), Zahra Alleyne Funds), Patrick McGinnis (Expert Consultant and (Operations Officer, Trinidad and Tobago country head writer), Sam Schneider (Consultant), Sam office), Caroline Vagneron (Caribbean CMU), and Raymond (Consultant, infoDev), and Erik Huitfeldt a number of other colleagues in the Caribbean (Legal Expert). The report was co-financed by the Country Management Unit provided excellent World Bank’s Caribbean Country Management guidance toward this study. Aun Rahman Unit, the World Bank’s Finance and Markets (Financial Sector Specialist, infoDev), Michelle Global Practice and the World Bank’s Trade Ottey (Investment Officer, IFC) and Qahir and Competitiveness Global Practice through Dhanani (infoDev) provided valuable input into the Entrepreneurship Program for Innovation the report. Thelma Ayamel, Marilyn Benjamin, in the Caribbean (EPIC) which is funded by the and Kendra Colleen Carberry-Walters provided Government of Canada. It was prepared under the critical logistical support. general guidance of David Crush (Practice Manager, The report was peer reviewed by Fiona Stewart F&M GP–Caribbean) and Sophie Sirtaine (Country (Senior Pensions Specialist) and Sona Varma Director, Caribbean Region). (Senior Country Officer, Jamaica). Aichin Jones The team is grateful for the multiple government, and the Arvyst Group provided design, layout, and academia, and private sector players across the production service. Caribbean region as well as Caribbean Diaspora who met with us and contributed to the findings of this study. Executive Summary 9 Executive Summary This study was initiated as a result of interest small and medium enterprises (SMEs) or for large expressed by Caribbean Governors attending the infrastructure projects, remains elusive. 2014 World Bank–International Monetary Fund Annual Meetings to tap into the regional Diaspora Despite these headwinds, the region also enjoys investor community to fund investment needs across some inherent strengths, including a largely the region. The overall development objective of the untapped resource: Given high levels of migration study is to formulate options that can help mobilize over the last 60 years, the Caribbean can claim one Diaspora capital in the form of private investment of the largest and most highly skilled Diasporas in productive investable assets, including start-ups in the world. By designing and implementing a and other business enterprises, social infrastructure strategy to engage this Diaspora, the governments (e.g., schools, hospitals), physical infrastructure in the region could position themselves to benefit (e.g., energy, transport, water), and public market from the skills and financial support of it. To do (i.e., liquid) investments. Diaspora-sourced so, these governments would need to implement investment flow into these types of productive a series of interventions and catalytic reforms that assets can ultimately serve to spur economic would be expressly designed to unlock the potential growth and job creation, which is a clear imperative of the diverse offshore community of individuals in this region. The survey also builds on the and groups that maintain close ties to the Caribbean. promising conclusions of the 2013 Information for At the same time, this strategy would represent Development Program (infoDev) survey, which a shift from one of the largest flows of capital at identified the potential demand for such investments the present—remittances. Instead, it would seek to within the global Caribbean Diaspora. mobilize a group that has been traditionally oriented toward remittances to channel a portion of this This document encompasses a broad survey of 14 financial engagement into productive investments. countries in the Caribbean as well as an in-depth analysis of four countries in particular (Barbados, The objective of the 2015 mission to Barbados, Jamaica, St. Lucia, and Trinidad and Tobago), whose Jamaica, St. Lucia, and Trinidad and Tobago, macroeconomic overview can be found in the table and subsequent meeting with members of the below. The team visited these four countries as part Caribbean Diaspora in London and Toronto, was of a mission in April and May 2015 in addition to to conduct research to assess the modalities of conducting extensive desk research on the region potential initiatives to catalyze Diaspora investment as a whole. There are clear differences among into the Caribbean region. The framework for this the countries that comprise the broader group of prefeasibility assessment comprised four areas Caribbean states, much as there are differences of analysis, focused on (1) sizing the Diaspora among the subset of four countries. Irrespective, the population and its investment potential and interest; countries in the region face a number of challenges: (2) conducting market research on the investment The region as a whole faces low growth, persistent landscape, including investable assets and market unemployment, and climatological exposure. drivers and impediments; (3) analyzing the legal Many Caribbean nations must also contend with and regulatory framework for investments in high levels of indebtedness and structural fiscal the Caribbean; and (4) identifying distribution imbalances that constrain government investment. channels and convening platforms that can offer, As a result of these myriad factors, much needed host, or advocate for a potential Caribbean regional investment, whether in the form of funding for Diaspora initiative.  10 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Main Findings agriculture), capital is not always the constraint in every Caribbean country. It is often said that there is a 1:1 ratio between Caribbean nationals living in the Caribbean and Although members of the Diaspora are reportedly people of Caribbean descent residing abroad. relatively active and quite enthusiastic about Although this anecdotal evidence is widely cited, investing in the Caribbean, the dominant form of sizing and segregating the Diaspora is a challenge investment has traditionally been housing, often because of a paucity of official and reliable data for when these individuals retire (not productive both on a regional and on a state-by-state basis. investment). A broad base of Diaspora investment tends to be channeled through either charity Music, food, and cultural events typically serve as (schools and hospitals are mostly the beneficiaries), fora to assemble members of the Diaspora in their remittance-investments to empower entrepreneur- host countries. The convening Diaspora platforms relatives (for small-scale businesses such as tend to be the High Commissions/embassies, social/ farms), or Diaspora entrepreneurship in their home cultural/professional affiliation organizations or old country (e.g., information-technology companies, boys/old girls networks, all of which are most likely outsourcing, nursing homes). A smaller group to be country-specific rather than pan-Caribbean. of higher net worth Diaspora members tend to They also cater to older and well-established make larger investments in the Caribbean through Diaspora individuals. Most of these organizations diversified holdings or through investment vehicles. are oriented toward charity rather than investment, although these charitable donations may also In general, there are few well-packaged investment contribute to overall economic development. opportunities, particularly for retail investors Caribbean businesses that cater to the Diaspora interested in passive vehicles. Diaspora members and provide cultural goods, telecommunications, or tend not to invest in infrastructure projects remittance services also provide platforms for the because these are large and complex investments Diaspora to convene, although these tend mainly to that are difficult to navigate for noninstitutional be Jamaican businesses. investors. However, a new class of high net worth (HNW) individuals who have entered through Anecdotal evidence shows that like any other the Citizenship by Investment Program in small group, the Caribbean Diaspora is heterogeneous, Caribbean states may possibly represent motivated with a range of investment preferences, varying potential investors in infrastructure projects. capacity to invest, and little uniformity with regard to levels of financial sophistication. While members of the Diaspora are motivated to invest in the Caribbean for sentimental reasons or Various Caribbean governments have taken because of the potential to make high returns in a promising steps to target the Diaspora, although geographically accessible region (for the North infrastructure for, and outreach to, Diaspora American Diaspora), they also face significant members is stronger in some Caribbean countries market impediments. Apart from concerns about than in others. The ideal government role in these crime (e.g., Jamaica), individuals find transacting initiatives remains an open question since members in the Caribbean islands to be highly bureaucratic, of the Diaspora are often suspicious of government- often ridden with governance issues, and lacking led actions. Thus, any potential government role in in accountability across both government and investment programs could affect overall demand. nongovernment sectors. In addition, members of the Diaspora are often not aware of opportunities Although investment is needed in a number in their home countries. A range of promising new of sectors (e.g., transport, alternative energy, initiatives and platforms also seek to facilitate Executive Summary 11 increased Diaspora investment. The Diaspora are At the same time, programs that support Diaspora also impeded because they face multiple legal investment have to recognize the scarcity of jurisdictions and legal compliance challenges. investable opportunities in a number of sectors, including social infrastructure. Additional research could determine whether further investment Conclusions into social infrastructure sectors would ideally To pursue targeted Diaspora-focused initiatives, be commercially oriented, or whether it is best more resources need to be committed to conducting to continue to facilitate existing philanthropic robust Diaspora sizing and mapping exercises in channels. select countries so as to segregate the Diaspora by generation, income, and net worth to better Beyond SMEs, mutual funds focused on Caribbean understand affinity and investment capacity as any investments may not have sufficient supply of menu of initiatives designed to mobilize Diaspora securities to operate effectively and to offer investment will need to be segregated to target adequate diversification for the Caribbean Diaspora specific groups of the Diaspora by investment population. Thus trying to set up additional capacity and preference. Caribbean-focused mutual funds may not be advisable at this time. Financial instruments and vehicles that target the Diaspora have to be commercially viable, and not Given that private equity and venture capital just pull at the heartstrings. This is particularly (PE/VC) are commercially challenging in the important when targeting younger professionals. Caribbean, and the Development Bank of Jamaica is currently planning to serve as an anchor investor Caribbean governments must continue to build in PE funds that could attract Diaspora investments, robust infrastructure to enable outreach to creating an additional PE/VC vehicle to specifically the Diaspora. However, these initiatives have target Diaspora members is not recommended at to be complemented with a strong focus on this stage. Angel investment in the Caribbean may “soft” practices that can engender confidence instead provide a more attractive alternative for in the government. In the meantime, an honest HNW Diaspora members. broker—such as the World Bank or the Caribbean Development Bank (CDB)—is believed generally Citizenship By Investment (CBI) programs link to be a better interface for a Caribbean Diaspora- citizenship in a particular nation with an associated focused initiative than governments. investment by a noncitizen. These programs have been gaining in popularity, and although debate is With respect to structuring specific solutions that ongoing with respect to the due diligence and security target the Diaspora community, interventions issues of CBI programs in small states, the Diaspora that target SMEs offer accessible and attractive population that arises from these programs could investment opportunities. In order to encourage be an interesting source for investment, particularly investment in these types of assets, a Diaspora for larger infrastructure projects. Assessing the entrepreneurship cofinancing facility could potential for CBI involvement in infrastructure be established to support Caribbean Diaspora investments should be part of a broader feasibility entrepreneurs wishing to set up businesses in the study for a regional infrastructure public private region. A feasibility study should be conducted to partnership (PPP) facility designed by the World assess the potential for such a facility, which would Bank and CDB. be erected by the World Bank and CDB. 12 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora From a legal and regulatory perspective, a number The Jamaica Stock Exchange (JSE) initiative of key areas exist where laws and policies around could be replicated by other Caribbean countries to the region should be strengthened and harmonized facilitate retail investment into the stock markets. to enhance the business environment, particularly with regard to PPP frameworks. Given that Homestrings has an established track record as a crowdfunding platform for Diaspora In hopes of catalyzing financial and broader investment, the World Bank and CDB could business connections between the Diaspora and potentially support the listing of SMEs and their countries of origin, Diaspora “connectors,” projects on the platform to allow for more Diaspora that is, Diaspora who have significant networks in investment into the region. their host countries, may be able to play a major role in building bridges between entrepreneurs in the There is a need to package and clearly present Caribbean and investors abroad. Thus expanding investment opportunities to the Diaspora through angel networks and connections to HNW Diaspora various convening platforms. members is an important goal. Recommendations Diaspora professionals who can Diaspora HNW investors, including Retail investors (passive vehicles Diaspora entrepreneurs wanting to play the role of connectors and Diaspora from the Citizenship By and stock exchange) invest in Caribbean facilitate skills transfer Investment program Financial Instruments Active dissemination of existing Conduct a feasibility study to assess Conduct a feasibility study to Executive Summary investment opportunities for retail the potential for a regional facility set assess the potential for a regional Diaspora investors that can be up by CDB/World Bank to cofinance infrastructure facility set up by marketed without capital market Caribbean entrepreneurs interested CDB/World Bank and managed by authority approval. in investing in SMEs in the Caribbean. private manager to facilitate both Possible partner: infoDev DFATD- institutional investors and HNW Regional EPIC individuals in the CBI program to invest in both commercial and social regional infrastructure projects. Possible partner: PPIAF The Development Bank of Jamaica set up a facility with technical assistance (TA) from the World Bank to cofinance Diaspora entrepreneurs Jamaica Pilot in investing in SMEs in Jamaica. Market Catalyzing (1) CDB to work with governments (1) In coordination with the various Support all groups and associated and CEDA to package various Investment Promotion Agencies and initiatives (such as infoDev) that investment opportunities for the the University of the West Indies, help foster linkages between angel Diaspora through monthly meetings arrange group business trips for a networks and potential Diaspora at High Commissions, Diaspora cross section of professional, well- investors (with the capacity to invest associations, etc. connected Diaspora members to as angels). (2) World Bank to partner with introduce them to incubators, SMEs, CDB to establish a funding and/or larger businesses, etc. This would TA facility to support the sourcing, allow for connections between their Regional diligence, and offering of Caribbean network of investors and SMEs/ deals on international crowdfunding entrepreneurs. platforms. (3) Work with various (2) World Bank/CDB to set up a TA stock exchanges to promote JSE’s facility for Diaspora connectors to idea of allowing Diaspora investors create sector-specific forums in the with tax-sheltered retirement Caribbean to introduce entrepreneurs accounts option to invest in existing to investors. Caribbean stocks and vehicles. (1) Support regional initiatives to map and analyze the Caribbean Diaspora to better understand its investment capabilities and geographic location. (2) Support the expansion of online platforms like Homestrings to create regional or subregional initiatives uniting Diaspora investors around thematic projects/ SMEs, etc. 13 14 (1) Support the rollout of DBJ’s (1) Package various investment Jamaica PE/VC program and opportunities for Diaspora through DBJ to host exchange trips/ strengthen marketing strategy to monthly meetings at HCs, Diaspora seminars with professional Jamaican accredited Diaspora investors. associations, etc. Diaspora to help professionalize the (2) Establish DFI-funded TA facilities (2) World Bank to partner with business environment. Should work to partner with local/foreign PE/ CDB to establish a funding and/or in coordination with University of VC funds to support investment TA facility to support the sourcing, the West Indies, Jamaican Diaspora Jamaica Pilot to SMEs (including export-focused diligence, and offering of Jamaican Institute, and Caribbean Export SMEs catering to Diaspora consumer SME deals on international Development Agency. markets). crowdfunding platforms. Support the Jamaican government’s efforts to (1) map and (2) craft national policies catered to attracting Diaspora investment and (3) build tools (such as online databases) to collect data to understand the Diaspora and engage in a meaningful way with these communities. Legal/Regulatory (1) Diaspora offices in Foreign Affairs Strengthen and harmonize the ministries could have high-level regional legal and regulatory ombudsmen to register complaints framework for PPPs to help facilitate by Diaspora members and facilitate HNW Diaspora investment in fast track dispute resolution infrastructure projects within the mechanisms to provide Diaspora region. investors with comfort. Redgional (2) Improvement of justice systems for timely management of business disputes. Investing Back Home: The Potential Economic Role of the Caribbean Diaspora I Objective of the Study, Scope, and Methodology I. Objective of the Study, Scope, and Methodology 17 This prefeasibility study assesses the modalities of a potential regional financial initiative to catalyze Diaspora investment into the Caribbean region. The study comprises the first stage of a two- stage process providing recommendations for possible regional initiatives to catalyze Diaspora investment. In the second stage, the Bank will conduct a feasibility study to assist the government in implementing one (or more) of the recommended initiatives. The World Bank’s engagement in this prefeasibility to fund investment needs. This report has been study follows a request made by Caribbean developed as a result of these conversations and Governors at the 2014 World Bank–International a concept note review meeting held in April 2015 Monetary Fund (IMF) Annual Meetings. During for a proposed prefeasibility study. The study the annual meetings in 2013, the Trinidad and has analytical underpinnings in a 2013 study on Tobago Central Bank Governor and delegation Diaspora Investing: The Business and Investment had already expressed an interest to tap into the Interests of the Caribbean Diaspora, conducted Diaspora investor community as a source of by the World Bank–managed Information for potential funding for (1) infrastructure and social Development Program (infoDev) and supported by projects and (2) start-ups, smaller firms, and the Canadian Department of Foreign Affairs, Trade private sector projects in Trinidad and Tobago and Development/Entrepreneurship Program for and possibly the Caribbean region more broadly. Innovation in the Caribbean (DFATD/EPIC). Subsequently, during the annual meetings in 2014, several high-level representatives from Caribbean Scope: A group of 14 Caribbean countries (table 1) countries expressed similar interest in tapping were considered in this proposed study, based on into the regional Diaspora investor community the grouping of World Bank clients in this region. Table 1: Geographic Scope of the Caribbean Prefeasibility Study Non-OECS Caribbean OECS Caribbean Central & South American Barbados Antigua & Barbuda Belize Dominican Republic Dominica Guyana Jamaica Grenada Suriname Trinidad & Tobago St. Kitts & Nevis The Bahamas St. Lucia St. Vincent & The Grenadines 18 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora In-depth case studies: Although the broad study Jamaica and Trinidad and Tobago out of this discusses all 14 countries listed above, practical group of three. We choose Barbados because it is necessity dictated that a more in-depth analysis a high-income service-based economy in which be conducted on a subset of these countries that both remittances and tourism play an important could form the basis of a regional pilot initiative. role. Moreover, Barbados has one of the more The report thus focuses on a subgroup of countries sophisticated financial sectors in the region and based on geographic representation, viability seeks to cast itself as an international financial center. (based on economic activity and ease of doing It also hosts the Caribbean Development Bank, business), and potential impact (based on estimated which may be a suitable partner for this initiative. size of Diaspora and investment potential). We In pursuit of geographic representation, St. Lucia selected the following four countries for the in- is selected as a member of the Organisation of depth assessment: Barbados, Jamaica, St. Lucia, Eastern Caribbean States (OECS), with a sizeable and Trinidad and Tobago. Diaspora population, as well as greater reported economic activity than some of its counterparts Rationale: Research and interviews conducted in the OECS. In addition, St. Lucia also seats the suggest that Jamaica, the Dominican Republic, OECS Secretariat, which promotes cooperation and Trinidad and Tobago are the most viable pilot across the OECS region. countries in terms of the respective size of their national and Diaspora populations, as well as overall In addition, this report narrows the prefeasibility economic activity and deal flow. This understanding study to members of the Diaspora residing in is substantiated by these countries’ relatively high Canada, the United Kingdom, and the United States. global competitiveness and economic freedom Both the World Bank Migration and Remittances rankings (table 2). The three countries that have the Factbook 2011 and infoDev study on the Caribbean largest Diaspora populations in the region are also Diaspora indicate that these three countries host the among the highest remittance recipients, attesting largest population of Caribbean migrants. In fact, to potential viability and impact. Given the relative the infoDev survey found that half of the Diaspora ease of grouping a regional pilot initiative within respondents were based in London, New York, a subset of English-speaking countries, we picked Miami, and Toronto.2 Table 2. Economic Activity, Viability, and Potential Impact2 Economic Activity & Viability Potential Impact Stock of Global Ease of Emigrants/ Entrepreneur- Doing 2015 as a Remittance ship & Business Global Economic percentage received Population GDP GDP Development Ranking Competitive- Freedom of (US$MM Country (in millions) (US$MM) Growth Index Rank (2015) ness Index Index population) 2009) 48,000/ Antigua and Barbuda 0.09 $1,200 -0.1% NA 89 - - $24 48.3% 44,000/ Bahamas 0.38 $8,400 0.7% NA 97 - 41 - 12.8% 105,200/ Barbados 0.28 $4,200 0.0% 59 106 55 $149 41.0% 50,200/ Belize 0.33 $1,600 1.5% NA 118 - 117 $80 16.1% 69,300/ 0.07 $516 -0.9% NA 97 - 61 $23 I. Objective of the Study, Scope, and Methodology Dominica 104.1% 1,035,800/ Dominican Republic 10.4 $61,000 4.6% 77 84 101 86 $3,477 10.1% 68,000/ Grenada (OECS) 0.11 $835 2.4% NA 126 - - $54 65.5% 432,900/ Guyana 0.8 $2,900 5.2% 127 123 117 123 $253 56.8% 985,500/ Jamaica 2.7 $14,300 1.3% 97 58 86 48 $1,924 36.1% 31,900/ St. Kitts and Nevis 0.05 $709 4.2% NA 121 $41 61.0% 40,400/ St. Lucia 0.18 $1,300 -0.4% NA 100 35 $28 23.2% St. Vincent and the 41,100/ 0.11 $709 1.7% NA 103 44 $30 Grenadines 37.6% 204,400/ Suriname 0.54 $5,200 2.9% 121 162 110 129 $2 39.0% 358,600/ Trinidad and Tobago 1.3 $24,600 1.6% 89 79 89 67 26.7% $99 Sources: World Bank, World Bank Migration and Remittance Factbook 2011. Notes: GED Index 2015. Based on entrepreneurial attitude, ability, and aspiration. 19 II Context II. Context 21 Overview of the Caribbean Region Although the Caribbean is often viewed as part of the greater Latin American region, the regional economy of the Caribbean is distinct from the rest of Latin America in numerous and important ways. Broadly speaking and despite their diversity, national economies within the region can be grouped into three different types, albeit with significant overlap: (1) commodity exporters3 (i.e., natural resources and agricultural goods); (2) service-based economies4 (i.e., tourism and financial services); and (3) microstates (i.e., Eastern the worldwide downturn, and it has recovered Caribbean Currency Union5 [ECCU] members). to a lesser extent since. In 2013, while South Although economic integration and policy America region grew by 3.2 percent, the Caribbean coherency continues to increase around the region, it (excluding the ECCU) saw growth of just 2.8 has largely been a piecemeal process and has failed percent, while the ECCU subregion grew just 0.5 to create a standardized level of development across percent. Unemployment has been a particularly the Caribbean. Growth dynamics and investment problematic indicator of this stagnant economic conditions vary from country to country as a result environment, with unemployment ranging from of a disperse set of market sizes and economic 12 to 21 percent in the Bahamas, Barbados, growth drivers. For instance, commodity-exporting St. Lucia, and Belize.6 Although the adverse nations have shown a markedly better performance macroeconomic environment dates to the 1990s, over the past decade than their service economy when trade preferences to European markets were and microstate counterparts. lost and heightened emigration caused a flight of skilled labor, the biggest contemporary challenges Despite their differences, Caribbean economies facing Caribbean countries are a derivative of their large and small also share a number of important mutual vulnerability to external and climactic traits that prove critical to understanding why, shocks. Natural disasters, in particular, have caused overall, the region’s economic growth has lagged problems for countries reliant on the tourism behind global and regional Latin American industry and for the smaller countries. According benchmarks. Prior to the global financial crisis in to the IMF, losses on account of natural disasters 2008, the Caribbean was growing less on average in the Caribbean rose from 0.9 percent of gross than other emerging market regions, including domestic product (GDP) per year in the 1980s and those in the rest of Latin America. Once the crisis 1990s to 1.3 percent of GDP in the 2000s. took hold, the Caribbean was more impacted by 22 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The strain on already struggling public budgets in public funding problem. As a result, the risk of fiscal the Caribbean over the past two decades—in the crisis looms over the Caribbean as a whole, which form of fallout from the global financial crisis and means that borrowing costs remain high, limiting periodic yet massive costs associated with natural both fiscal flexibility and private investment.7 disasters—has led to a regional debt crisis. In particular, non-commodity-exporting Caribbean The twin challenges of high indebtedness and economies face limited growth because of high fiscal imbalances across the Caribbean region debt and rising debt-to-GDP ratios. In 2012 the have led to constraints on government spending. overall public debt for the region (excluding the Thus, the private sector must take a leading role Dominican Republic and Jamaica) was estimated at in driving economic dynamism as well as job 79 percent of regional GDP. Meanwhile, Jamaica’s creation via investment in businesses across the public debt represented 123 percent of its GDP economic spectrum, but especially in the small in 2013, while the Dominican Republic’s debt and medium enterprises (SME) segment. Private reached 47 percent of GDP. OECS countries such sector investment in business and infrastructure is as Antigua and Barbuda and St. Kitts and Nevis, as a critical foundation for future growth, especially well as high-income nations such as Barbados, also in strategic sectors: The private sector is estimated face dangerously high-debt to-GDP ratios (table 3). to be responsible for creating some 90 percent of Still, Jamaica faces perhaps the most troublesome jobs on a global level. Moreover, while in emerging debt scenario in the region. In 2013 the country markets SMEs are known to be fundamental drivers received a four-year Extended Fund Facility (EFF) of job creation, 70 percent cannot access financing by the IMF in the amount of US$932 million (as part from a formal financial institution.8 In the Caribbean of a total of US$2 billion provided by multilateral region, specifically, according to the United Nations agencies). The EFF requires that Jamaica implement Economic Commission for Latin America and the a number of reform and adjustment measures aimed Caribbean (ECLAC), foreign direct investment at debt and deficit reduction. (FDI) has been effectively monopolized by just two sectors: services and natural resources, with Throughout the region, structural fiscal problems the latter becoming a larger portion of the region’s continue despite some improvement over the inflows in recent years (a trend at odds with last two years. This has continued in the form of ECLAC’s observation that investment in tourism persistent deficits and high public debt. Rising tends to have a larger impact on job creation). The interest rates associated with that debt—reaching 17 overwhelming concentration of FDI in these two percent in Jamaica and 13 percent in the Dominican sectors has prompted some governments in the Republic in 2014—have further exacerbated the region to try and attract more diverse investments.9 Table 3: Macroeconomic Indicators for Four Select Caribbean Countries GDP GDP GDP Debt/GDP WB Country (US$MM) Growth Per Capita Ratio Classification Barbados* $4,200 0.0% $14,917 90.5% H Jamaica $14,300 1.3% $5,290 123.6% UM St. Lucia $1,300 -0.4% $7,328 79.8% UM Trinidad and Tobago $24,600 1.6% $18,372 37.1% H Source: World Bank Databank. Note: H = High, UM = Upper Middle, LM = Lower Middle. High-income economies (US$12,746 or more); upper-middle-income economies (US$4,126 to US$12,745); lower-middle income economies (US$1,046 to US$4,125). The most recent figures for Barbados available are from 2012. II. Context 23 That top FDI-receiving Caribbean nations have the Diaspora can motivate individuals to contribute seen foreign investments largely in the form of to the development of their home country. big-ticket transactions, such as the new Sandals resort in Barbados or British Petroleum’s (BP) The Caribbean region is thought to have one new offshore oil endeavor in Trinidad and Tobago, of the largest net migration rates globally, with further suggests the need for diversification of FDI, particularly large numbers of skilled emigrants. and, more specifically, the exclusion of SMEs in the The World Bank’s 2011 Migration and Remittances region’s current investment paradigm. Factbook indicates that 10 Caribbean countries were among the top 30 emigration countries by Beyond broad-based job creation, the private sector percentage of population. Furthermore, 13 of the must take an active role in financing improvements 14 countries addressed in this study are also among in infrastructure, especially given the limited the top emigration countries of tertiary-educated financial space for most governments—outside of individuals. The Caribbean Diaspora is a particularly Trinidad and Tobago—to fund large-scale projects. promising group considering the large percentage With regional governments lacking the funds of self-identified Caribbeans living abroad, many of they need to invest in infrastructure development whom are well-educated, occupy professional jobs, and maintenance, which are critical to sustainable and have the capacity to make investments. Given economic growth but in most countries under the the large Diaspora population in North America, purview of public spending, this makes FDI a this is aided by the geographic proximity for most critical potential source of external financing for Diaspora residing in Canada and the United States to the region’s significant infrastructure needs. And travel frequently to their country of origin and their the need for investment is considerable: The March propensity to maintain various economic linkages 2014 World Bank Public-Private Partnership (PPP) with their native countries. In fact, a December 2013 Roadmap in the Caribbean identified a potential infoDev Caribbean Diaspora survey13 found that half PPP pipeline of 33 projects with a total estimated of the survey respondents sent money back home in investment value of US$2–3 billion. the form of remittances. Given the region’s inherent challenges to growth, The potential to mobilize members of the government leaders have looked to find innovative Caribbean Diaspora for both regional and country- ways to catalyze productive investment into the specific investment initiatives is encouraging region. One of these innovative mechanisms seeks some Caribbean political leaders to craft specific to tap into the Caribbean Diaspora10 as a source of strategies aimed at their respective Diasporas. For investment capital. Plainly stated, the Caribbean example, the government of Jamaica is creating an Diaspora may be one of its greatest resources in International Migration and Diaspora policy, which terms of both human capital and investment capital. seeks to coordinate and mobilize engagement across The countries in the region, regardless of size and the various geographies in which the community relative prosperity, report high emigration rates. resides. The Ministry of Foreign Affairs (MoFA) Anecdotally, the nations of the Caribbean share has concluded that in all countries where Diaspora a striking distinction: Many sources report a 1:1 mobilization has been successful, there has been ratio of Diaspora to nationals,11 with particularly support of the state to do so, and thus it seeks an large numbers of skilled emigrants among the active role for the federal government in Diaspora ranks living abroad.12 The potential link between affairs. Given this assertion, the MoFA is circulating Diaspora and development is drawing attention a draft Diaspora policy, which will eventually from organizations such as the Global Forum on become the National Diaspora Policy. The MoFA Migration and Development. Studies have found also maintains a permanent Diaspora Advisory that the persistent cultural affinity and patriotism of Board that includes representatives from Canada, the 24 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora United Kingdom, and the United States (Northeast, This prefeasibility study has been prepared as part of Midwest, South). Each of these respective locations a series of efforts to consider the overall development selects a representative to serve on the board. objective of mobilizing Diaspora capital toward These representatives advise the Minister of State private investment in productive investable assets, who interacts with the Diaspora through quarterly which are defined as start-ups and other business meetings in an effort to maintain close coordination enterprises, as well as social infrastructure (e.g., with overseas leaders and associations. Similarly, schools, hospitals) and physical infrastructure St. Lucia has launched a new Diaspora policy that (energy, transport, water) projects that are appropriate attempts to engage members of its Diaspora to to Diaspora investors. The ultimate objective of cultivate as many ties as possible between them this Diaspora-sourced investment flow would be to and the island through an array of policy strategies. spur economic growth and job creation, which is From proactive engagement to incentives, the policy an imperative in this region. The study comprises framework entails various strategies for attracting a focus on selected countries in the Caribbean Diaspora investment into the St. Lucian economy. region, including OECS states, non-OECS states, Moreover, it looks to provide Diaspora with a and three countries in Central and South America. straightforward path toward becoming full-fledged Taken together, the region that is the subject of resident citizens once again.14 this prefeasibility study has a combined population Table 4: Country Profiles of Mapping Study Nations (2013) GDP GDP (% GDP per Current Account WB Country Population (US$B) Growth) capita (US$B) Classification* Dominican Republic 10,400,000 61.10 4.6% $5,879 (2.40) UM Trinidad & Tobago* 1,300,000 24.60 1.6% $18,372 2.80 H Jamaica 2,700,000 14.30 1.3% $5,290 (1.30) UM Bahamas 377,274 8.40 0.7% $22,312 1.60 H Suriname 539,276 5.20 2.9% $9,825 (0.20) UM Barbados* 284,644 4.20 0.0% $14,917 (0.22) H Guyana 799,613 2.90 5.2% $3,739 (0.43) LM Belize 331,900 1.60 1.5% $4,893 (0.07) UM St. Lucia 182,273 1.30 -0.4% $7,328 (0.10) UM Antigua & Barbuda 89,985 1.20 -0.1% $13,342 (0.20) H Grenada 105,897 0.84 2.4% $7,890 (0.21) UM St. Kitts & Nevis 54,191 0.77 4.2% $14,132 (0.06) H St. Vincent 109,373 0.71 1.7% $6,485 (0.21) UM Dominica 72,003 0.52 -90.0% $7,175 (0.07) UM Total 17,346,429 127.63 Average $7,357 Median 308,272 2.25 $15,218 Source: World Bank Databank. Note: H = High, UM = Upper Middle, LM = Lower Middle. High-income economies (US$12,746 or more); upper-middle-income economies (US$4,126 to US$12,745); lower-middle income economies (US$1,046 to US$4,125). The most recent figures for Barbados available are from 2012, and current account from 2010; Trinidad and Tobago’s current account figure is from 2011. II. Context 25 of over 17 million inhabitants, GDP of US$1,276 discussed, is directly connected to the public debt billion, and GDP per capita of US$7,357. Given issues and fiscal imbalances seen around the region. the wide range of countries in this study, however, a Thus infrastructure could benefit from increased wide range of wealth, population, and GDP growth FDI, but as a critical building block for economic is found across this selected group. Table 4 presents growth itself, increased investment in infrastructure key data points for each of the countries included in could have tremendous positive ripple effects on this study, in this case ordered by population. regional economies as a whole. The same holds true for the Caribbean’s SME markets. A variety of structural, regulatory, and financial constraints, Defining the Overall Problem: which will be detailed here, remain. Lack of Private Investment in the Caribbean FDI is an important source of external financing in the region. Even though FDI levels in the Caribbean Although comprehensive policy initiatives to have recovered since the devastating impact of address the Caribbean region’s public debt issues the global financial crisis, they have recovered remain fundamentally important, any long-term less than other emerging markets regions. FDI solution to spur sustainable growth must involve a represents a critical source of capital, with some comprehensive role for the private sector. In addition of the region’s economies reporting some of the to debt restructuring and fiscal policy reform, world’s highest FDI-to-GDP ratios (figure 1). The countries in the region also require initiatives to Caribbean’s FDI inflows have recently relied on improve conditions for business and investment big-ticket transactions in the largest economies in and to reduce supply side constraints. Most the region (e.g., the Jamaica-based Sandals group’s Caribbean countries currently lack adequate private investment of nearly US$300 million in Barbados investment in infrastructure, which, as previously in 2014) and rise in internal demand, privatization, Figure 1: FDI Inflow to GDP Ratio 18 16 14 12 % of GDP 10 8 6 4 2 0 Ba dos re cia Ba as os m Do elize n R ca Gr lic Gu a St Ja na s& a th t. s Su nes e go vi da rinam ad itt aic ub m ca min ad ba ya Na e G Lu di a en .K m B ha ep rb rb To na Ba S d& & ua ini ini tig t& Tr Do An en inc .V St Source: World Bank (figures from year-end 2012). 26 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora and liberalization programs, as well as increased a general lack of scale with regard to investible tourism and investor interest in areas like real estate assets. Thus, foreign investors have difficulty development. Although the financial crisis hit the finding opportunities for attractive financial returns. Caribbean’s FDI flows slightly harder than it did Specifically, although FDI flows have recovered most places (down 54 percent regionally in 2008, since 2009 on a regional basis in the aftermath of the compared with 33 percent worldwide), according financial crisis, this rebound has not been distributed to the United Nations Conference on Trade and evenly across the region, but rather has focused Development, FDI in the Caribbean grew 37.8 largely on the Dominican Republic and Trinidad and percent from 2012 to 2013, growing from US$82 Tobago (table 5). These two economies represent billion to US$113 billion. approximately 60 percent of FDI regionally. They are also the most evolved markets with regard to Allocation of FDI across the 14 economies in this energy (Trinidad and Tobago) and investment in study remains a story of the “have’s” and the “have tourism (Dominican Republic). FDI in the rest of not’s.” Although FDI in the Caribbean totaled the region has remained flat. US$113 billion in 2013, the region suffers from Table 5: FDI Inflow Trends 2009–2013 (US$ million) 2009 2010 2011 2012 2013 Total % Total Dominican Republic 1,695.30 1,820.20 2,197.50 3,415.90 1,599.70 10,728.60 36.4% Trinidad & Tobago 709.1 549.4 1,216.10 2,452.20 1,712.60 6,639.40 22.5% Bahamas 663.9 871.9 666.6 526.1 382.2 3,110.70 10.6% Barbados 458.1 668.8 725.1 515.6 376.3 2,743.90 9.3% Jamaica 485.1 185.7 172.7 473.4 626.7 1,943.60 6.6% Guyana 164 198 246.8 277.9 200.5 1,087.20 3.7% Belize 108.8 96.4 95.3 194.2 89.2 583.9 2.0% St. Kitts & Nevis 130.7 116.2 109.6 92.4 110.7 559.6 1.9% St. Vincent and the 110.2 97.2 85.6 115.4 126.7 535.1 1.8% Grenadines St. Lucia 146.3 121.2 96.4 75.7 83.5 523.1 1.8% Antigua & Barbuda 80.6 96.6 65.1 129.3 134.2 505.8 1.7% Grenada 102.5 60.4 42.6 31.4 74.6 311.5 1.1% Dominica 42.4 24.3 14.1 23.1 17.9 121.8 0.4% Suriname -93.4 -246.7 145.2 124.3 137.4 66.8 0.2% Total 4,803.60 4,659.60 5,878.70 8,446.90 5,672.20 29,461.00 100.0% Total Ex-Dr, T&T 2,399.20 2,290.00 2,465.10 2,578.80 2,359.90 12,093.00 41.0% Source: World Bank Databank. II. Context 27 In search of investment capital for the region, are meant to serve as vehicles for crowdsourcing Caribbean leaders have launched various programs, or as a conduit to build databases of the Diaspora some rather innovative, to attract investment to to use technology to forge stronger ties for both their respective countries. Jamaica seeks to create political and economic initiatives. This includes a a more attractive environment for private equity/ program called Global Business Connect, an online venture capital with the help of the World Bank, business portal launched in May 2014 and managed the Multilateral Investment Fund of the Inter- by Jamaica Promotions Corporations (JAMPRO), American Development Bank (IADB), and the the investment promotion agency of Jamaica. Development Bank of Jamaica (DBJ). The partners Finally, several Caribbean governments, such as St. recently launched the Jamaica Venture Capital Kitts and Nevis and Antigua and Barbuda, have also Program (JVCP), which seeks to raise a venture turned to less orthodox ways of enticing investors capital fund—with a minimum target size of US$20 to put capital to work in the region by creating million—that will be regional in nature. An initial “citizenship for investment” programs. Essentially, “Call for Proposals” launched in late 2014 generated these countries have set up mechanisms to provide applications for eight potential fund managers, passports for high net worth (HNW) individuals most of which were regional funds also seeking that can provide a donation or investment to the to invest in Jamaica.15 Various governments, for country. example, Jamaica, have created online portals that Diaspora and the Potential III for a Diaspora-Focused Finance Initiative III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 29 Sizing the Diaspora Population17 Since the mid-20th century, the Caribbean region has been the source of one of the largest emigrant populations in the world. Although this population is diverse, in terms of both demographics and destinations, according to the World Bank’s 2011 Migration and Remittance Factbook, relative to other global Diaspora groups, a distinctively large portion of Caribbean migrants consists of individuals who are both highly skilled and well educated. Within the Latin American and the Caribbean (LAC) region, the Dominican Republic and Jamaica rank as Table 6: Total Migrant Stocks (2013) two of the top 10 countries with the largest number of emigrants. According to the United Nations Percent of Total Migrant National Population Division, in 2013, the Dominican Stock Population Republic’s migrant stock as a country of origin (i.e., Dominican the number of people born in the Dominican Republic Republic 1,190,441 11.0% living abroad) at midyear was the highest in the region Jamaica 1,094,899 40.0% at 1,190,441, with Jamaica coming in close behind at 1,094,899 (table 6). Although Guyana and Trinidad Guyana 462,187 57.0% and Tobago have the next largest migrant stock, both Trinidad & Tobago 374,092 27.0% populations total less than half a million people. As Suriname 262,006 48.0% noted, these figures remain estimates, however, and Barbados 100,224 35.0% sources within the Caribbean offer alternative figures. For example, the Jamaica Diaspora Institute estimates Dominica 74,793 103.0% that the overall Jamaican migrants stock is far higher, Belize 62,570 18.0% approximately three million individuals. St. Vincent 60,295 55.0% Grenada 57,910 54.0% As shown in the tables below, the vast majority of the Caribbean Diaspora population18 is concentrated in Antigua & 56,700 63.0% Barbuda Canada, the United States, and Europe (especially the St. Lucia 56,027 30.0% United Kingdom). Although well-maintained data are available for the broad brush strokes of these migrant Bahamas 49,950 13.0% patterns thanks to the efforts of entities like the St. Kitts & Nevis 28,756 53.0% United Nations Population Division’s Department of Total 3,930,850 22.0% Economic and Social Affairs, for the most part, there Average 280,775 is a dearth of data regarding the precise locational Source: United Nations, Population Division. 30 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora and socioeconomic orientations of the Caribbean United Kingdom. An estimated 65 percent of the Diaspora, even in primary destination countries such Caribbean population in the United Kingdom as the Canada, the United Kingdom, and United States. is Jamaican. There are limited data about the That said, data on the dynamics of the Caribbean broader Caribbean-origin population in the Diaspora in the United States are far more abundant United Kingdom, although the 2011 Census for than what is available on the populations based in England and Wales showed that 1.1 percent of Canada and Europe. Regarding the demographic the population identifies as black Caribbean, an and geographic specificities of Caribbean Diaspora indicator that has remained stable for the past populations in Canada and Europe, data gaps remain, decade. Caribbean migrants (foreign-born and although it is clear the majority of the communities otherwise) in the United Kingdom are estimated are concentrated in Toronto and London. to number around half a million people total, with most of them concentrated in and around the city Based on data gathered by the United Nations, the of London. In addition to the United Kingdom, breakdown of the size and origins for the Caribbean other prime destinations countries in Europe for Diaspora communities residing in the United States, the Caribbean Diaspora are Germany, Italy, the Europe, and Canada is as follows: Netherlands, and Spain. As table 8 shows, again excluding Suriname, as of mid-year 2013, the • United States: As seen in table 7, the United States largest Caribbean Diaspora populations in Europe has by far the largest Caribbean migrant stock of originated from Jamaica, the Dominican Republic, the three top destination countries, with 65 percent Guyana, Trinidad and Tobago, Barbados, of all migrants from the select 14 Caribbean Dominica, and St. Lucia. countries residing in the United States as of mid- year 2013. According to the U.S. Census Bureau, • Canada: Although the size of the Caribbean in addition to foreign-born migrants, in 2009, Diaspora populations residing in Canada largely there were a total of 6 million self-identifying mirrors those of European countries, albeit members of the Caribbean Diaspora in the United slightly smaller, as table 9 indicates, Canada States. In 2009 the U.S. Census Bureau reported has almost three times as many migrants from that 44 percent of Caribbean-born people in the Trinidad and Tobago and a far smaller population country were non-naturalized U.S. citizens that from the Dominican Republic. In total, Canada’s represented around 9 percent of the entire foreign- Caribbean migrant stock in descending order of born population. Most Caribbean migrants living size is Jamaica, Guyana, Trinidad and Tobago, in the United States reside in Florida and New York and Barbados. Including the second generation (60 percent in 2009), although Spanish-speaking population, Jamaica’s Diaspora in Canada is Caribbean and Central American countries (e.g., thought to number around 300,000 people, up Belize and the Dominican Republic) also have from the 142,000 first generation migrants reported large populations in California. According to the by the United Nations in table 9. Recent data on United Nations, the largest Caribbean subgroups the total Caribbean Diaspora in Canada beyond in the United States as of 2013 were the Dominican recent migrants are unavailable, but in 2001 more Republic, reaching nearly one million, followed than 500,000 people of self-reported Caribbean by Jamaica, Guyana, Trinidad and Tobago, and origin were living in Canada, which comprises Barbados (table 7). approximately 1.7 percent of the country’s total population. At the time, the Caribbean migrant • Europe: With the exception of Suriname, which community in Canada was highly concentrated in has the vast majority of its Diaspora worldwide Ontario and Quebec, comprising around 6 percent concentrated in the Netherlands, the Caribbean of Toronto’s population and 3 percent of Montreal’s Diaspora in Europe is primarily located in the population (table 9).19 Table 7: U.S. Migrant Stocks (2013) Table 8: European Migrant Stocks (2013) Table 9: Canada Migrant Stocks (2013) U.S. Percent of U.S. Percent of U.S. Percent of Migrant Total Migrant Total Migrant Total Stock Population Stock Population Stock Population Dominican Dominican Dominican 967,988 37.7% 90,182 16.0% 142,933 37.0% Republic Republic Republic Jamaica 765,043 29.8% Jamaica 150,659 26.7% Jamaica 101,004 26.1% Guyana 281,371 11.0% Guyana 28,876 5.1% Guyana 76,310 19.8% Trinidad & Trinidad & Trinidad & 249,001 9.7% 25,012 4.4% 17,925 4.6% Tobago Tobago Tobago Suriname 7,981 0.3% Suriname 215,514 38.2% Suriname 11,498 3.0% Barbados 55,384 2.2% Barbados 20,650 3.7% Barbados 10,560 2.7% Dominica 35,812 1.4% Dominica 13,291 2.4% Dominica 7,742 2.0% Belize 53,099 2.1% Belize 226 0.0% Belize 4,821 1.2% St. Vincent 26,510 1.0% St. Vincent 219 0.0% St. Vincent 3,387 0.9% Grenada 29,688 1.2% Grenada 44 0.0% Grenada 2,755 0.7% Antigua & Antigua & Antigua & 22,806 0.9% 321 0.1% 2,709 0.7% Barbuda Barbuda Barbuda St. Lucia 21,712 0.8% St. Lucia 12,928 2.3% St. Lucia 2,443 0.6% Bahamas 35,569 1.4% Bahamas 6,788 1.2% Bahamas 1,297 0.3% St. Kitts & St. Kitts & St. Kitts & 12,538 0.5% 111 0.0% 934 0.2% III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative Nevis Nevis Nevis Total 2,564,502 100.0% Total 564,821 100.0% Total 386,318 100.0% Average 183,179 18,3179 Average 40,344 Average 27,594 Source: United Nations, Population Division. Source: United Nations, Population Division. Source: United Nations, Population Division. 31 32 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Rather than representing a monolith, the Caribbean populations in terms of gaining citizenship in Diaspora is a diverse and vibrant collection of destination countries. As table 10 illustrates, a individuals, many of whom have strong emotional comparison of Migration Policy Institute (MPI) ties back to the homeland that reflect in the types data collected on migrant citizenship statuses in of economic connectivity with the region that they the United States from 2006 through 2008 strongly maintain or aspire to create. The Jamaican Diaspora favor black Caribbean migrants over most other provides a case study with respect to the change in immigrant groups. As a large subset of the Caribbean the nature of migration over the last half century, Diaspora, black Caribbean immigrants are far more specifically with regard to the changing nature of likely than other migrants to the United States to Jamaican migrants with the passing of time. In achieve citizenship, and they are far less likely to the 1950s and 1960s, Jamaican migrants largely enter the country illegally. migrated to the United Kingdom. The population was characterized by low educational attainment Table 10: Citizenship Status of Black and limited economic means, and it participated Caribbean Immigrants to the United in largely public sector outfits such as the National States, 2006–2008 Health Service and public transport. Another wave Black of immigrants were professionals, such as nurses Carribean All US and teachers. When British immigration laws Immigrantsl Immigrants tightened in the 1990s to focus more on skilled Naturalized US labor, the numbers of Jamaican immigrants to 49% 32% Citizens the United Kingdom, and immigrants from the Permanent Residents 28% 28% Caribbean more broadly, declined. Migration Unauthorized patterns thus began to shift from the east to the 16% 30% Immigrants north, with greater numbers of Jamaicans and other Other 7% 10% Caribbean migrants moving to Canada and the United States. In Canada, a point-based system for 100% 100% Source: MPI. immigration was introduced earlier (in the 1970s), Note: The totals in this study also include Haiti and Cuba. which favored educated immigrants. In the 1990s and 2000s, more middle class Jamaicans migrated to Canada because of the crime and drug problems in According to MPI data, Caribbean migrants to the Jamaica. These later immigrants tended to be more United States also build higher relative wealth, educated and wealthy and have a strong connection thus fueling remittance flows back to their origin to their home country. Thus, as can be gleaned from countries. Using the United States as an example, the case of Jamaica, although older generations of Caribbean immigrants are also more affluent than the Caribbean Diaspora are primarily low-skilled the average American worker, with Barbadians and and low-income migrants, newer generations are West Indians earning as much as 10 percent more. better educated and more equipped to invest capital Jamaicans and Trinidadians fall within average back in the Caribbean region. earnings, while the remaining migrants from the region earn less than the average (table 11). Given the relatively high level of skills and educational attainment among members of the Caribbean Diaspora, broadly speaking, it is no surprise that they outpace other immigrant III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 33 Table 11: Median Annual Earnings for funds that offer investment opportunities that Caribbean Migrants vs. Overall U.S. are designed for sophisticated investors. This Workers restriction applies, regardless of the size—in terms of capital committed—of the investment. Median Earnings, 2005-2009 Moreover, it is not prudent to advise these All Workers investors to consider committing their capital to All US workers age 16 and over $32,000 these types of sophisticated strategies. Native-Born Workers $33,000 • Moreover, it is worth noting that few individuals, Immigrants Workers $26,000 whether they are in the Diaspora or not, have the Caribbean Sub-Set expertise and knowledge to become active angel Barbados $36,000 investors. Angel investing, if done correctly, Other West Indian $35,000 requires a specialized understanding of how early stage ventures work, their needs, and what kinds Antigua Barbuda $35,000 of risks are entailed in these types of investments. Grenada $33,000 Typically, less than 10 percent of such ventures Jamaica $32,000 are successful. It is imprudent to advise Diaspora Trinidad & Tobago $32,000 investors to commit capital to ventures where the likelihood of failure is extremely high as this will St. Vincent $32,000 only serve to discourage repeat investment. St. Kitts & Nevis $31,000 Bahamas $30,000 The target population of the Caribbean Diaspora— Dominica $30,000 who have the potential to invest in their countries St. Lucia $27,000 of origin—tend to be the HNW members, as well as younger professionals with high disposable Dominican Republic $22,000 incomes and net worth, which includes both more Source: MPI. recent migrants as well as first to third generation Diaspora members. The children of the earliest Assessing the Diaspora generations of Caribbean migrants tend to have a strong affinity to their country of origin. These Population’s Potential to Invest Diaspora members, now middle-aged, also tend to At present, small investors represent the most likely be professionals, with higher incomes and ability to source of Diaspora investment. Specifically, less invest. Some have set up businesses in their home than 10 percent of those surveyed in the infoDev countries (e.g., Jamaica) such as restaurants, grocery study self-reported that they met the U.S. regulatory stores, farms, outsourcing outfits, and nursing definition of “accredited investor,” having a net homes. With Canada’s and the United Kingdom’s worth of US$1 million and income of at least more stringent immigration rules that favored the US$200,000 each year for the last two years (or most professional and skilled migrants, more recent US$300,000 together with their spouse if married) Caribbean Diaspora members in these countries with an expectation to make the same amount in tend to be highly skilled professionals who can the current year.19 Thus, more than 90 percent of understand and invest in financial instruments. Of potential investors face the following limitations.20 course, older migrants, such as Michael Lee Chin and Raymond Chang (both Jamaican-Canadians), • Unaccredited investors cannot—at least with who accumulated considerable personal wealth, respect to U.S. law—invest in private equity, also demonstrate significant potential to invest in venture capital, hedge funds, or other types of their countries of origin. 34 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The Jamaican Diaspora in Canada is uniquely large, through Citizenship By Investment (CBI) programs. diverse, and very engaged, making it particularly 21 This group of HNW citizens are likely to have suited for investment opportunities back in the the investment capacity, professional networks, and Caribbean. The Jamaican Diaspora in Canada, experience to be strong Diaspora investors. St. Kitts more than its counterparts in the United Kingdom and Nevis has the oldest CBI program, which started and the United States, has generated a number of in 1984; but other islands such as Jamaica and St. very prominent individuals, such as Michael Lee Lucia are considering such programs. In St. Kitts and Chin, Raymond Chang, and Delores Lawrence. Nevis, investments from such HNW individuals are This Diaspora is known to significantly give channeled either into a qualified real estate project back to their home country through remittances (US$400k minimum investment) or as a contribution (discussed further below), and through charity— (at least US$250K investment) into the Sugar via both national association and their alumni Investment Diversification Fund (SIDF), which aims associations. They tend to also be politically to diversify the economy beyond sugar by investing engaged in their home countries, despite the in areas such as entrepreneurial development and Diaspora members lacking the right to vote. The renewable energy programs. The SIDF is thus a financial sophistication, wealth accumulation, and quasi-sovereign wealth fund (SWF), funded by the investment interests of the Jamaican Diaspora capital of HNW individuals seeking citizenship. As reflect the nature of its varied constituencies. Older of 2014, St. Kitts and Nevis planned to fully convert Jamaicans, such as those in the United Kingdom, the SIDF into a SWF, also making investments in often are saving capital to build a home in Jamaica financial instruments.  Although debate is ongoing for their retirement years. Their financial needs are about the due diligence checks and security issues a savings account and a mortgage, but they are not of these CBI programs, the Diaspora population that looking for investment opportunities that require arises from them could be an interesting source for packing, analysis, and active management. They investment. For example, if some of these individuals are also not accredited investors and thus cannot were to relocate part of their business operations invest in alternative assets funds. Still, they may into the islands in which they are citizens, it could also want to start or get involved with business result in increased jobs and capital coming into the opportunities once they return home. In contrast, country. However, identifying these individuals is a younger migrants are more likely to stay in their challenge, since the databases documenting them are adopted countries because they have migrated for apparently guarded closely. economic opportunity. They may plan to acquire property in Jamaica, but likely as an investment or Beyond accredited investors, though, individuals in a second residence. At the same time, this younger the Diaspora can and do participate in investment. generation is likely more familiar with financial Although remittances are mainly used for products and more likely to build investment consumption purposes, an Institute of Migration portfolios, so they could have an interest in (IOM) study from 2010 observed that about 20 opportunities in Jamaica. Broad generalizations percent of remittances received by Egypt went remain inadequate, of course, since within each toward various forms of investment, such as real generational, educational, socioeconomic, and estate, SME enterprises, the stock market, or regional grouping, there will also be individuals agriculture.22 Moreover, in the absence of clear who seek more substantial opportunities to invest data showing investment trends of the Caribbean or operate businesses in Jamaica. Diaspora, remittance data can serve as a proxy for the potential capital that could be directed Additionally, a new class of potential Diaspora toward investment rather than solely funding investors has emerged among a subset of Caribbean remittances. Given its relatively large size, as small states: those who gain Caribbean nationality well as the level of demand for foreign currency III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 35 in local Caribbean markets associated with poverty Jamaica is the second largest beneficiary of and unemployment, the Caribbean Diaspora, remittances in the region, with a total volume of through remittances, has become major financial US$2.1 billion in 2012. Although the total amount participants in many economies in the region. In the of remittances Jamaica receives is less than the case of the Dominican Republic, as can be observed Dominican Republic, they represent a larger share in table 12, remittances play a dominant role, even of GDP (14.5 percent in 2012, ranking 16th in relevant to the other nations in this study. the world). Sources include US$1.4 billion (or 66 percent of total remittances) from the United States, In 2012 the Dominican Republic received a net US$328 million (or 16 percent) from the United US$3.6 billion in remittances, ranking it 30th in the Kingdom, and US$305 million (or 14 percent) from world in most net remittances received. That figure Canada (table 13). represented 6.1 percent of the Dominican Republic’s GDP in 2012, which ranked 36th in the world for Although its total migrant stock is not much share of GDP. Out of the total remittances received, smaller than that of Guyana, Trinidad and Tobago’s the overwhelming majority was estimated to have remittance volume in terms of absolute numbers come from migrants residing in the United States as well as share of GDP (US$126 million or 0.5 (US$2.7 billion or 75 percent of total remittances). percent of GDP) is significantly lower than that of The next largest amount came from Spain (US$417 Guyana (US$469 million or 16.5 percent of GDP). million or 13 percent) and Italy (US$78 million or This is undoubtedly because of its wealth of natural 2 percent) (table 13). Table 12: Trends in Remittances (2012-2013): the Dominican Republic and Jamaica Dominate Remittances Received - 2012 Remittances Received - 2013 Total US$MM % GDP US$MM % GDP Dominican Republic 4,200.0 7.1% 4,400.0 7.3% 8,600.0 Jamaica 2,100.0 14.6% 2,100.0 15.0% 4,200.0 Guyana 469.2 16.5% 328.2 11.0% 797.4 Belize 75.9 4.8% 74.4 4.6% 150.3 Trinidad & Tobago* 126.1 0.5% 126.1 St. Kitts & Nevis 51.0 7.0% 51.5 6.7% 102.5 Barbados 81.9 1.9% 81.9 St. Vincent 31.1 4.5% 30.0 4.5% 61.1 St. Lucia 29.7 2.3% 30.1 2.3% 59.8 Grenada 29.2 3.7% 29.6 3.5% 58.8 Dominica 23.2 4.5% 23.5 4.6% 46.7 Antigua & Barbuda 20.8 1.7% 21.1 1.8% 41.9 Suriname 8.0 0.2% 6.9 0.1% 14.9 Total 7,246.1 7,095.3 14,341.4 Source: World Bank’s Bilateral Remittances Matrix 2012. *Missing data on remittance levels for the Bahamas and Trinidad and Tobago 36 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 13: Geographical Source for the Three Dominant Remittance-Receiving Nations Dominican Republic Jamaica Guyana United States 75% United States 66% United States 69% Spain 13% UK 16% Canada 25% Italy 2% Canada 14% UK 6% Source: World Bank’s Bilateral Remittances Matrix 2012. resources and high GDP per capita (GDP per capital sources, key questions remain. In part there is is the third highest in the Western Hemisphere, a paucity of information regarding (1) where after the United States and Canada), which greatly members of the Diaspora currently invest, (2) what decreases the in-bound demand for remittances. they invest in, and (3) how they may be impeded Nevertheless, the two countries are similar in that from expanding on their investments. Based on the primary sources of remittances for both of interviews with Diaspora members in Canada and them are first and foremost the United States, then the United Kingdom, it appears that the Caribbean Canada, and finally the United Kingdom. Diaspora, especially members of older generations, tend to invest more in retirement homes in the Finally, although Suriname has the fifth largest Caribbean than in productive assets. As previously migrant stock living abroad among the countries noted, the economic makeup of the older in this study, its remittances volume is one of the immigrants is not typically considered conducive lowest in the region (US$8.1 million or 0.2 percent to entrepreneurship and investing. Specifically, of GDP in 2012). Observers have suggested that the stock of the Caribbean Diaspora in the United remittance levels have fallen over time because Kingdom tends to be older than persons in Canada of the Eurocrisis and its effects on the Diaspora in and the United States, and thus these migrants have Europe, unemployment among the Diaspora in the saved primarily to invest in retirement homes, with Netherlands, and the lack of a clear Diaspora policy the eventual plan of moving back to their home in Suriname.23 Moreover, Suriname sees significant country. For a more systematic evaluation of the outflows of remittances by foreign nationals (e.g., financial profiles and investment capacity of the from Brazil, China, and United States) who work in Caribbean Diaspora, however, more data need to be the country as well as individuals who fund school collected. For now, some light can be shed by the fees for children living overseas. The next highest Compete Caribbean Survey, which sought to gather remittance volumes after Trinidad and Tobago in information on the operations and business models the region are associated with Barbados (US$82 of firms owned and operated by members of the million in 2012) and Belize (US$83 million in Caribbean Diaspora. The survey indicates that 43 2012). percent of respondents earned less than US$50,000 in annual income in 2012, followed by 17 percent Remittances can serve as a proxy for net worth earning between that number and US$100,000 of the Diaspora when considering financial and 20 percent earning between US$101,000 and engagement in the Caribbean. It should be noted, US$300,000. however, the existing research and data available on the financial and socioeconomic profiles of According to the 2013 infoDev Diaspora Survey, the Caribbean Diaspora are decidedly inadequate. one in four members of the Diaspora invest in Although infoDev’s recent Caribbean Diaspora Caribbean real estate, and one in 10 invests in Survey (December 2013) and Compete Caribbean’s business enterprises in the region. Moreover, the Diaspora Entrepreneur Survey (2014)24 are valuable community is highly engaged: 70 percent of those III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 37 interviewed belong to an affiliation organization and 70 percent said they would be interested in in their resident country or back in the Caribbean. mentoring individuals in the region. The possibility Members of the region’s Diaspora give back to the of giving back to education was an area that was also region through charity and other donations as well, distinctively strong. There seems to be a “patriotic with one-third of respondents helping to support dividend” in the way Diaspora members view philanthropic enterprises and one-fifth donating financial engagement in their home countries; the to their schools. Beyond that, however, there is an survey shows that 80 percent of respondents would information gap, especially with regard to private accept lower than average commercial returns on investment activity and preferences. their investments as a way of giving back (although interviews with Diaspora find that commercial Nevertheless, based on the infoDev Survey, viability would be particularly important for as well as the activity of organizations such as younger Diaspora in particular), which would Homestrings, which is a global crowdfunding in turn allow for more portfolio flexibility and Internet company focused on mobilizing Diaspora development-oriented involvement. The picture as capital, significant opportunity exists to expand a whole, despite the persisting gaps in information, the Caribbean Diaspora’s level of investment and is one that lends credence to the assumption that financial engagement with the region. Although there is great potential in galvanizing Diaspora just 13 percent of those interviewed in the infoDev financial support for business and development in Study had invested in businesses in the Caribbean the Caribbean. at the time, 80 percent reported that they would be interested in doing so. Moreover, approximately 23 More specifically, the infoDev Survey indicates that percent of respondents invested in new ventures in Diaspora investors are most interested in directing the Caribbean at some time. The recent expansion their capital toward early stage SMEs. Of those of Homestrings’s presence in the region is also a surveyed, 40 percent said they had invested in a noteworthy sign of promise in Caribbean Diaspora start-up or early stage company, 60 percent of which investment. Under the leadership of Desmond were based in the Caribbean. Although they have Brunton, Homestrings is seeking to crowdfund also invested in larger public companies, accredited Diaspora investment in Caribbean projects requiring investors, along with the nonaccredited investor a minimum of US$5 million in fundraising, respondents to the survey, indicated a great deal of ranging from SMEs and commercial real estate to interest in angel investments in start-ups related to commercial banks and bank mutual funds that are green energy, telecommunications, education, and available only on the Homestrings platform. Initial agribusiness. Interest in investing in a Diaspora data on Caribbean activity on the Homestrings bond (63 percent) was 15 percentage points lower platform are thus far unavailable. Homestrings than the interest in investing in business ventures. allows only individual investors whom it deems Of the start-ups respondents had already invested to be “qualified investors,” meaning someone in within the Caribbean region, 73 percent were with a net worth of over US$1 million (including in Jamaica, 15 percent in Trinidad and Tobago, residence) or reported income for each of the past and 4 percent in Barbados. Notably, 14 percent of three years equal to US$250,000.25 respondents indicated they were indifferent about the country in which they would be willing to invest. The Caribbean Diaspora is large, educated, and Taken together, the data provided by the infoDev professional and, more importantly, highly engaged, survey indicate a level of experience and continued with a profound sense of loyalty as well as a sense interest in SME investment and financing among of obligation to give back. Of those interviewed members of the Diaspora that would lend itself for the infoDev Survey, 90 percent said they would well to an initiative to channel Diaspora capital like to be “more connected” to their home country, into early stage firms in the Caribbean. Although 38 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The largest onshore Caribbean institutional Although banks in non-ECCU countries fared investors are members of four different banking better than those in the subregion after the financial groups, three of which are Canadian. In 2010 these crisis, their portfolios remain weak and credit four all together controlled around 75 percent of growth is lackluster. Dependency on deposits and the sector’s total assets in the region. Canada’s equity limited the funding risks taken by the banks, Scotia Bank dominates the market in Jamaica (32 and adequate pools of liquid assets helped them to percent), the Bahamas (28 percent), Antigua and weather the crisis. But, although capital adequacy Barbuda (23 percent), and Grenada (23 percent) but ratios remain strong, banks in countries outside the operates in a total of 21 Caribbean countries. Scotia ECCU (e.g., the Bahamas and Trinidad and Tobago) Bank’s total assets in the region amounted to over have been impacted by increasing NPLs. This has, US$10 billion in 2010. Two other Canadian banks, in turn, hampered profitability. NPLs have led to a the Royal Bank of Canada (RBC) Financial and the contraction in credit, with banks exercising caution First Caribbean International Bank, a subsidiary of and increasing capital provisions in recent years. the Canadian Imperial Bank of Commerce (CIBC), are also dominant in several countries in the region, Although the share of total assets held by NBFIs with a total asset valuation of US$11.6 billion and remains small in comparison to that of the banks, US$9.7 billion in 2010, respectively. The only NFBIs, particularly credit unions, pension funds, indigenous Caribbean bank operating on a large and insurance conglomerates, are gradually regional scale is Trinidad and Tobago’s Republic becoming more significant investors in the region. Bank, which controls almost half of all the assets With tightened lending practices at banks across in its own market as well as much of the market the region since the global crisis, credit unions in neighboring Guyana. Within ECCU countries, have become more prominent. Still, their combined the indigenous banking sector is heavily integrated assets totaled just 7 percent of regional GDP in through cross-shareholdings, the interbank 2012. The countries with the most credit union market, and public sector exposure. Many of the activity are Belize, Barbados, Dominica, Grenada, governments and national insurance companies are St. Lucia, and St. Vincent and the Grenadines. Like shareholders in the banks. the banks, credit unions around the Caribbean are facing credit issues because of NPLs. The ECCU subregion and its indigenous banks, in particular, fared badly the wake of the financial Data on the size and asset composition of Caribbean crisis and have seen asset quality deteriorate. From pension schemes are limited, but management 2007 through 2012, the ratio of nonperforming sources at Sagicor, the largest insurance company loans (NPLs) reportedly doubled in ECCU in the region and the operator of the largest pension countries. By the end of September in 2012, return fund program in Jamaica, provided some data on on equity for the subregion stood at 7.4 percent, a the firm’s investment strategy. To put their operation full 15 percentage points lower than it was in 2007. in context, Jamaica’s entire pension system totals In both cases, high credit risk and low liquidity are approximately US$2.6 billion. Sagicor’s Jamaican to blame. Indigenous banks saw the capital-to-risk- operation is a joint venture, with slightly more than weighted-assets ratio rate reach 18.4 percent in 50 percent held in local hands and the remainder held 2012. This has resulted in already limited access by a regional holding company based in Barbados. to finance throughout the subregion getting worse, The Sagicor pension fund is heavily invested in and both credit and equity investment rates have Jamaican government bonds and is the largest not yet recovered from the contractions caused by equities holder on the JSE. Sagicor has exposure to the financial crisis. Jamaican property investments, such as hotels. It has not yet invested in private equity (PE) or venture III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 39 that kind of activity is present in a limited set of of activity, and the region’s banks fund the majority countries in the region at the moment, the infoDev of institutional investments, thus classifying them survey also indicated access to information about as “institutional investors” for the purposes of this potential investment opportunities and awareness study.26 The total assets of the Caribbean financial about the region’s financial systems are seen as sector, excluding offshore banks,27 amounted to barriers to increased engagement, meaning efforts 124 percent of regional GDP in 2013, 91 percent of to mitigate them could open the door to broader and which correspond to banks, with the rest attributable more substantial capital flows. to nonbank financial institutions (NBFIs). The Bahamas has the largest overall banking economy, with an onshore sector equivalent to 150 percent of Investable Assets for the Diaspora: GDP and an offshore sector equivalent to 72 times Need vs. Demand the size of the overall economy in 2013. Jamaica’s onshore banking sector, the smallest in terms of Current Investment Landscape in the total assets as share of GDP, was still equivalent to Region almost 50 percent. A detailed review of the Caribbean’s current Firms use banks to finance their working and investment landscape can be found in annex III. growth capital needs much more in ECCU and other Below is a regional summary of the composition of smaller nations than in larger economies such as the the financial sector, the major investment players, Bahamas, the Dominican Republic, Jamaica, and and their positions in the landscape. Trinidad and Tobago. This trend reflects the outsized importance of the banking sector in countries where The Caribbean’s financial sector is comparatively there are little other options for financing relative to large given the size of the countries in the region the larger and more sophisticated financial sectors and of the region overall. Banking is the largest area in larger economies in the region (figure 2). Figure 2: Share of Firms Using Banks to Finance Investment (2010) 60 50 % of Total Firms 40 30 20 10 0 re cia Ba dos Ba as os m Do elize n R ca Gr lic Gu a St Ja na s& a th St. s Su nes e go vi da rinam ad itt aic ub m ca min ad ba ya Na e G Lu di a en .K m B ha ep rb rb To na Ba d& & ua ini ini tig t& Tr Do An en inc .V St Source: World Bank Enterprise Survey. 40 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora capital (VC). Finally, Sagicor operates mutual funds the exchange markets are relatively small, even in Jamaica (including the Select Growth Fund, while some have done better than others, largely one of the largest on the island) and Barbados (the reflecting the overall macroeconomic trends of Global Balance Fund). There is a Sagicor unit in the region. The ECCU subregion, the Bahamas, the United States, but it does not have a Caribbean Barbados, the Dominican Republic, Guyana, Diaspora–specific business strategy. Jamaica, Suriname, and Trinidad and Tobago all have their own stock exchanges, and most of them The region’s insurance sector is dominated by cross-list. The ECCU has a subregional market for conglomerates that operate transnationally, with a the debt instruments of its member states, which total asset value of around 17 percent of regional issues Treasury bills and bonds. Among non-ECCU GDP in 2012. As mentioned above, one of the largest nations, all nations with stock exchanges also have players in the region is Sagicor, which is based in bond markets. The largest of the capital markets is Barbados and Jamaica and has an estimated US$5.3 located in Jamaica (the Jamaica Stock Exchange billion in total assets under management. The next [JSE]), which had just 39 firms in 2012, of which is Guardian Life, which is based in Trinidad and 31 were domestic. The market capitalization of Tobago and has US$3.4 billion in assets in its domestic firms that year was US$6.3 billion (or portfolio. Sagicor also operates extensively in Latin 43.2 percent of GDP), and the total value of stocks America, the United Kingdom, and the United traded was equal to 1.4 percent of GDP. Notably, States. Overall, the largest insurance industries are Jamaica’s government debt market has been shut in the Bahamas, Barbados, Jamaica, and Trinidad down since the IMF granted the country an EFF and Tobago. program, which mandated debt retirement. In sum, the Caribbean’s institutional investor Despite this generalized level of interest, with environment is dominated by banks but has begun the exception of Jamaica, the markets in the opening up to NBFIs more recently. Both of these region remain very shallow and public security types of institutions, which are highly integrated markets all trail Jamaica in terms of size and among Caribbean states and are heavily exposed market capitalization. Investment in public equity to foreign financial systems, were hit hard by the markets in the Caribbean is primarily concentrated global financial crisis at the end of the last decade. in companies from the financial, energy, and The downturn led to contractions in credit and equity construction sectors, all of which are areas that investments, especially in the ECCU subregion. The attracted the attention of respondents to the infoDev OECS saw total investment dropped to just 29.6 Diaspora Survey. Trinidad and Tobago’s main stock percent of GDP in 2010, and although that figure exchange (TTSE) had only 34 firms listed in 2012, climbed to 30.4 percent of GDP by 2013, it contracted of which 23 were domestic. Although still smaller in 2014 and is projected to do so once again in 2015. than Jamaica’s overall, the market capitalization of the domestic firms listed on the TTSE that year saw growth, moving from about US$12 billion in 2010 Potential Investable Assets to more than US$15 billion in 2012 (figure 3). The Publicly Traded Securities: Equity Markets and total value of stocks traded in proportion to GDP Debt Markets was down, however. The next largest exchange, in According to the infoDev survey, 22 percent of terms of domestic firms listed, is in the Barbados Caribbean Diaspora investors would like to invest (BSE), which is the home exchange of the First in publicly traded securities of companies in the Caribbean International Bank Ltd, followed by Caribbean, but only 8 percent of them currently do. markets of the Bahamas (BISX), Dominican This is the result of the fact that stocks and bond Republic (BVRD), Guyana (GASCI), the ECCU markets in the Caribbean are thin and illiquid. All (ECSE), and Suriname (SSX). III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 41 Some regional cooperation occurs between the had 23 listed companies (table 14) that includes exchanges, however, with cross-listings serving as firms in sectors such as manufacturing (9), retail a vehicle for regional players to access investors (6), financial services (5), and tourism, culture, and in multiple markets. In 2012 the companies that logistics. According to interviews conducted with were cross-listed on different Caribbean exchanges leaders at the Jamaican Chamber of Commerce, included the First Caribbean International Bank the JM is considered to be a critical element on Ltd., Trinidad Cement Limited, Jamaica Money the stock market’s future sustainability. Both of Market Brokers Ltd., Neal & Massy Holdings Jamaica’s exchanges proscribe parameters such Ltd., Sagicor Financial Corporation, Fortress as a mandatory free float of at least 20 percent, Caribbean Property Fund, National Commercial additional shareholder protections, independent Bank of Jamaica Ltd., Scotia Investments Jamaica audits and regular financial reporting. Companies Ltd., GraceKennedy Ltd., and Capital and Credit are permitted in the JM for up to 10 years (split into Financial Group Ltd. two five-year stages), or until surpassing a maximum shareholder’s equity capital capitalization of J$500 The 2013 infoDev survey indicates that 28 percent million, after which point they are required to of Diaspora investors would like to invest in list on the senior exchange. The companies on SMEs, which the region’s main markets do not the JM, and others like them not yet listed, face offer. While Junior Markets (JMs) in the region difficulties in accessing capital through less SME- promise such public traded investments, namely, friendly sources such as domestic banks or private the Jamaican JSE, the exchanges are particularly equity, a common barrier to entrepreneurship and small and generally still underdeveloped. Since broader economic development seen throughout 2009 Jamaica has operated a JM, which, upon the Caribbean region. Jamaica’s JM presents a opening, rose rapidly to become a popular resource promising example of how SMEs can be connected for Jamaican SMEs and a model for effective small to the capital they need as well as how investment business finance in the Caribbean region more opportunities can be diversified to include less broadly. As of the end of 2014, the Jamaican JM main-street sectors of the economy. Figure 3: Performance of the Jamaica and Trinidad and Tobago Stock Markets since 2007 140,000 1,800 120,000 1,600 1,400 100,000 1,200 Jamaica Trinidad 80,000 1,000 60,000 800 600 40,000 400 20,000 Jamaica JSE Market Index Russell Trinidad & Tobago 200 0 0 05/22/2008 10/02/2008 12/08/2008 05/26/2010 10/08/2012 02/22/2013 03/28/2014 06/25/2007 08/29/2007 03/18/2008 07/29/2008 02/13/2009 09/01/2009 01/13/2010 03/22/2010 08/02/2010 10/06/2010 12/10/2010 02/16/2011 04/25/2011 06/29/2011 09/02/2011 11/08/2011 01/17/2012 03/22/2012 05/29/2012 08/02/2012 12/14/2012 04/30/2013 07/05/2013 09/10/2013 11/13/2013 01/22/2014 06/04/2014 08/08/2014 10/14/2014 12/18/2014 02/26/2015 11/02/2007 01/10/2008 04/22/2009 06/26/2009 11/05/2009 Source: Bloomberg. 42 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 14: Snapshot of the Junior Market of the JSE 2009 2010 2011 2012 2013 2014 Listed Companies 1 8 12 16 21 23 Market Capitalization (J$B) 0.76 8.47 23.6 22.1 27.4 26.1 Sources: Development Bank of Jamaica, “Practical Assessment: The Venture Capital Industry in Jamaica,” and JSE Annual Report 2014. One attractive feature of the JSE JM has been the tax countries by extending listing opportunities to any benefit inducement it offers for listed companies. company incorporated in a CARICOM member. For the first four years of the JSE JM’s existence, In addition to the potential for cross-listing and listed companies were guaranteed 10 years of information sharing, the various junior exchanges income tax incentives. Then, in 2013, as part of its emerging in the Caribbean region should look to debt reduction program with the IMF, the Jamaican the JSE JM model for guidance in how to navigate government reduced the incentive to a complete balancing public budget considerations with SMEs income tax holiday for just the first five years. That and capital markets development. year 22 companies were listed on the exchange, a jump from 16 the year before, which was in turn a Other Caribbean nations have attempted to jump from 12 the year before that. Given the change replicate the success of the Jamaican JM, but they in tax incentives, however, in the period since the have seen only limited success. The Bahamas amendment to the incentive structure, only four Stock Exchange includes a JM but no companies new companies have been listed on Jamaica’s JM. have listed on it; companies listed on the Bahamian The Jamaican government has announced plans to JM are required to float 75 percent of shares. In phase out the JM’s tax benefits entirely in 2016, and Trinidad and Tobago, the JM remains small, but then end all special incentives by 2021. It is worth has seen some success, according to interviews noting that such a change in policy could ultimately with market experts, because of a low corporate lower the incentive for companies to choose to list tax rate inducement of 10 percent for the first five on the JM. years. This model mirrors the incentivizing strategy that had a central role in making the Jamaican Despite the recent lull in listings seen at the JSE JM an appealing option for SMEs. In the case of JM, it remains the preeminent securities market Barbados, there is a JM, but it remains very small, for SMEs in the region, and there is potential for with only one listing. it to continue to grow, as well as for its model to lead the way for other junior exchanges in the Public debt has become the most formidable region. Knowing the tax benefits that helped get of financial and economic challenges that the the JM off and running will soon expire, the JSE Caribbean has had to face over the past few has explored other options for attracting firms, such decades, particularly since the global financial as a new US$1.1 million pipeline project with the crisis, and especially in ECCU countries (table 15). Multilateral Investment Fund of the IADB (MIF) From country to country, there is a wide range of to help develop corporate governance among small public debt levels and sources of supply. Jamaica, and microenterprises that are interested in listing. where public debt was 143 percent of GDP in 2012, Although junior exchanges, or “SME Markets,” has been forced to restructure its debt, guided by have already been started in the Bahamas, Barbados, the IMF, and retire its government debt market en and Trinidad and Tobago, they remain small and masse. Similarly, Antigua and Barbuda, Belize, underdeveloped. It is no surprise then that the JSE Grenada, and St. Kitts and Nevis have also gone has looked to attract firms from other Caribbean through debt restructuring efforts. However, for Table 15: Public Debt and Equity Overview (2012) Claims on External Debt Market Central Stocks, Public Capitalization Portfolio Government and Publicly Listed of Listed Equity, Net Stocks Traded, (annual Guaranteed Domestic Companies Inflows Total Value (% growth %) (US$MM) Companies* (% of GDP)* (US$MM)* of GDP) S&P Rating Antigua & Barbuda -0.9 n/a n/a n/a n/a n/a n/a Bahamas 5.7 n/a n/a n/a n/a n/a n/a Barbados n/a n/a 24.0 106.4 -4.1 0.0 B Belize -6.1 1,052.2 n/a n/a n/a n/a B- Dominica 4.8 2,63.5 n/a n/a n/a n/a n/a Dominican Republic 3.8 14,176.5 16.0 n/a 0.0 n/a BB Grenada -2.8 489.5 n/a n/a n/a n/a n/a Guyana 3.1 1,092.2 12.0 21.4 n/a n/a n/a Jamaica 1.1 7,421.9 36.0 43.2 103.0 0.0 B-/B St. Kitts & Nevis -26.7 n/a 13.0 82.2 n/a 0.0 n/a St. Lucia 4.5 342.2 n/a n/a n/a n/a n/a St. Vincent & the Grenadines 1.1 269.7 n/a n/a n/a n/a n/a Suriname 6.6 n/a 11 n/a 0.003 n/a BB-/BB Trinidad & Tobago -5.4 n/a 37 0.6 n/a 0.005 A/AA Sources: World Bank Databank; individual stock exchange listings. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 43 44 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora those countries that have most of their debt held expensive and incomplete transport links—serve as domestically, restructuring can be devastating for considerable constraints to economic development. the domestic financial sector. Antigua and Barbuda, They stymie competition, limit regional cooperation, Barbados, Jamaica, and St. Kitts and Nevis all have and delay critical investments in public assets such considerable domestic public debt, while Belize, as broadband. Dominica, Grenada, Guyana, and St. Vincent and the Grenadines have a much larger portion of Financing for such projects comes from one public debt supplied by external sources. Belize of two principal sources: public financing or and Guyana have the greatest portion of their debt private financing. Given the region’s constraints supplied externally, with external debt stocks in with respect to providing public finance, private the amount of US$1.2 billion and US$2.3 billion financing could fill this gap to finance large or in 2013. Belize also owes the largest share of its long-term infrastructure projects, and institutional external debt to commercial and other private investors can serve as a source of capital for such creditors, along with the Bahamas, Jamaica, and opportunities. Specifically, an emerging alternative Trinidad and Tobago. The ECCU general public assets class of infrastructure investment caters debt amounted to 38 percent (domestic) and 46 to investors who seek alternative investment percent (external) in 2013, with forecasts of growth opportunities within their overall portfolio in both categories in years ahead. strategies. Moreover, these types of projects can be attractive to private investors as they offer Excluding the Dominican Republic and Suriname, opportunities for yield in a low return environment for which data were unavailable, the domestic share and also are uncorrelated with other investments in of public debt across the Caribbean region in 2010 their portfolios. Furthermore, institutional investors was dominated by commercial banks (36 percent), such as pension funds and insurance companies NBFIs (27 percent), and social security schemes may see these types of assets as more predictable (20 percent). The external share of public debt that and longer term in nature than other illiquid year primarily broke down to commercial creditors investments. (46 percent), multilateral creditors (34 percent), and bilateral creditors (14 percent). Meanwhile, the There is a dearth of data on levels and trends Dominican Republic saw its external debt stocks in private sector investment when it comes to rise from US$13.4 billion in 2010 to US$23.8 billion infrastructure and other alternative assets within the in 2013. Looking forward, given the expectations Caribbean region. Although the World Bank tracks of stunted regional growth without a solution for private sector participation in specific areas of the public debt quagmire, fiscal consolidation is infrastructure development (e.g., energy, telecoms, critical, and growing numbers of countries are transport, water and sanitation), as table 16 shows, pursuing such policies. the majority of the select regional countries either lack data or record no private participation in Private Securities: Infrastructure/ Public areas of infrastructure investment. Of the biggest Private Partnerships economies in the region, only the Dominican Infrastructure needs in the Caribbean are significant, Republic and Jamaica have well-documented and governments in the region recognize the private participation in infrastructure investment. importance of investment in infrastructure to drive More data are required to assess current levels sustainable and balanced growth. Without proper of private participation in regional and country- and continued investment in infrastructure, the specific infrastructure investment and, in turn, to inherent challenges to economic growth in the strategize methods for mobilizing private Diaspora region—factors such as high-energy costs and capital for investment. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 45 Table 16: Investment with Private Participation by Sector (US$ million) Energy Telecoms Transport Water & Sanitation Total Antigua & Barbuda n/a 0.0 n/a n/a 8,600.0 Bahamas n/a n/a n/a n/a 4,200.0 Barbados n/a n/a n/a n/a 797.4 Belize 22.2 n/a n/a n/a 150.3 Dominica n/a 0.0 n/a n/a 126.1 Dominican Republic 265.7 584.4 73.4 n/a Grenada 13.6 n/a n/a n/a 102.5 Guyana n/a 0.0 n/a n/a 81.9 Jamaica 132.0 15.3 600.0 n/a 61.1 St. Kitts & Nevis 16.5 n/a n/a n/a 59.8 St. Lucia 11.2 0.0 n/a n/a 58.8 St. Vincent n/a 0.0 n/a n/a 46.7 Suriname n/a 0.0 n/a n/a 41.9 Trinidad & Tobago n/a n/a n/a n/a 14.9 Total 461.2 599.7 673.4 n/a 14,341.4 Source: World Bank Databank.28 Table 17: PPP Policy and Institutional Architecture in the Caribbean Level Dedicated of Staff Project Detailed Defined Dedicated Experience Prep Policy Law Guidelines Roles* Unit(s) with PPPs Funding In place In place (DBJ Jamaica Absent Underway In place Moderate Absent (2012) & MOF) In place In place Trinidad & Tobago Absent Underway In place Low Absent (2012) (MOF) Dominican Republic Absent Absent Absent Absent Absent Moderate Absent In place Haiti Absent Absent Absent Absent Low Absent (MOF) Suriname Absent Absent Absent Absent Absent Low Absent OECS States Absent Absent Absent Absent Absent n/a Absent Source: Caribbean Infrastructure PPP Roadmap, March 2014. *Defined roles means positions with clearly defined functions related to PPPs. What is clear is that the overall architecture for PPPs for the preparation of PPP projects (table 17). Only in the Caribbean is underdeveloped. Within the three countries, Haiti, Jamaica, and Trinidad and region, only three countries, Jamaica, St. Lucia, and Tobago, have established dedicated PPP units. No Trinidad and Tobago, have adopted PPP policies, countries have adopted PPP laws and have dedicated defined the roles of various government entities in PPP project preparation funding to date. the PPP space,29 and are preparing detailed guidelines 46 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Experience with infrastructure transactions in concession agreement was signed between the Port the region is mixed. Although most Caribbean Authority of Jamaica and the consortium of CMA- countries have attracted some private investment in CGM and Terminal Link on April 7, 2015. The total infrastructure over the last 20 years, many of these value of the PPP pipeline determined by the PPP transactions have taken place through structures Roadmap estimates a total value between US$2 and other than PPPs. These included privatizations of US$3 billion, suggesting an average investment public utilities and regulated greenfield investments. requirement of US$75 million. The use of PPPs has been concentrated by both country and sector. According to the Caribbean Across sectors, PPP projects in the pipeline are Infrastructure PPP Roadmap, more than half of overwhelmingly in economic infrastructure. all PPPs over the past two decades took place in Among 33 projects, only six projects are in social the Dominican Republic (27 projects), followed infrastructure, including (1) a teaching hospital in by Jamaica (11 projects), and Haiti and St. Kitts Grenada, (2) a green government office complex in and Nevis (six projects). All other countries had Jamaica, (3) secondary schools in Jamaica, and (4) a maximum of five PPP projects to date. Among specialist clinical centers, (5) primary schools, and sectors, PPP projects concentrated in electricity (6) court complexes in Trinidad and Tobago. Among and transport, mainly comprising investments these, only the teaching hospital in Grenada and the in electricity generation by independent power court complexes in Trinidad and Tobago have reached producers (IPPs) and investments in roads, ports, the feasibility stage. The remaining 27 projects are and airports. In water, there have been a handful in economic infrastructure, including transport (14 of experiments with technical assistance lease projects), ICT (six projects), energy (four projects), contracts in Haiti, as well as with bulk water and water and wastewater (three projects) (annex I). treatment elsewhere. None of the investments in information and communications technology (ICT) Despite the attractive aspects of infrastructure as have taken the form of PPPs. Taken together the an asset class, however, the IADB identifies three regional track record remains uneven. Several principal constraints to infrastructure financing in projects such as Suralco in Suriname and WindWatt Latin America and the Caribbean: (1) regulatory Nevis in St. Kitts and Nevis have been providing hurdles, (2) weak institutional frameworks, and (3) reliable, quality service to their customers under a lack of local financing sources. These constraints power purchase agreements (PPAs) over a number are discussed in detail below: of years. On the other hand, several projects have encountered problems with unanticipated 1. Weakness of the PPP legal and regulatory fiscal costs, questionable value for money, and frameworks: In the absence of PPP laws, private implementation delays, and many PPP projects operators and investors and government entities have failed to launch. must rely on general administrative law and on specific sector laws to structure PPP transactions. Across the region, currently a pipeline exists of about Although this approach is feasible in a common 33 PPP projects at various stages of preparation, law legal framework and can be handled of which 15 are at concept stage, 12 at feasibility contractually in the PPP contract, it results in study stage, five at tender stage, and one transaction a fragmentation of the legal and regulatory closed. The largest project pipelines are in Jamaica framework across countries that reduces visibility and Trinidad and Tobago (eight projects each), for private sector participants. The lack of followed by St. Lucia and Suriname (three projects dispute resolution mechanisms also contributes each) and St. Vincent and the Grenadines (two to uncertainty of treatment of private operators projects). The closed transaction is the Kingston and investors in PPP transactions, although this Container Terminal in Jamaica, for which a 30-year can be handled through the PPP contract. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 47 2. Weakness of the PPP institutional frameworks: investment.30 First, there is a dearth of patient capital The general absence of PPP policy, guidelines, that is also willing to invest in local currency. Given and rules (with the exception of Jamaica, St. low public and private savings local investors— Lucia, and Trinidad and Tobago) further heightens whose investments would be denominated in uncertainty for the parties to PPP transaction and local currency—are unable to finance such large adds to transaction costs. The absence of PPP projects. As a result, foreign capital is required to units (with the exception of Haiti, Jamaica, and fund such projects, but this solution comes with its Trinidad and Tobago) contributes to a weak PPP own challenges. Foreign capital inflows—in the project pipeline across the region. In addition, form of FDI—are unpredictable in nature and are even in countries that have a PPP unit, the denominated in foreign currencies. Given the long- absence of incentives linked with implementation term nature of infrastructure projects, investors of successful PPP transactions results in limited looking for stable returns must as a result also take transformation of PPP project concepts and currency risk. The combination of a long-term feasibility studies into actual transactions. lock-up and a long term currency bet makes such investments less attractive than other more liquid 3. Limited base of financing sources for PPP investments. transactions: In the past, the vast majority of PPP transactions in the region have been financed In addition, foreign investors face considerable through equity from industrial sponsors/operators market risk in the region. This risk arises from the and bank project finance. This traditional model low sovereign ratings of most economies in the is increasingly showing signs of stress in the region. As shown in table 18, with the exception of wake of the international financial crisis. First, Aruba and Trinidad and Tobago, all countries in the the average debt/equity ratio of infrastructure region have a sovereign rating below investment PPP transactions is declining, as part of a trend grade. This places constraints on investments by to strengthen the balance sheet of project special institutional investors in infrastructure and other purpose vehicles (SPVs). Second, as a result of assets in the region. regulatory reforms under Basel II and III, banks are reducing their exposure to infrastructure Table 18: Sovereign Ratings in the project loans because of increased capital charges, Caribbean Region and they are reducing the maturity of these loans to meet new asset-liability matching rules. As a S&P Moody's Fitch result, alternative financing instruments need to Aruba BBB+ stable - BBB- stable be mobilized to raise additional equity beyond Barbados B negative B3 negative - the traditional industrial sponsors/operators base and to raise long-term debt beyond traditional Belize B- positive Caa2 stable - project finance by banks. Dominican BB- stable B1 stable B+ stable Republic The limited base of local financing sources for Caa2 Jamaica B stable B- positive positive infrastructure PPPs, and the associated lack of patient local currency capital, makes tapping foreign St. Vincent - B3 negative - investors necessary. Yet, for a number of reasons Suriname BB- stable Ba3 stable BB- stable discussed below, FDI remains a minor source of Trinidad Baa2 A stable funding for infrastructure in the Caribbean region. &Tobago negative In fact, about 10 percent of FDI to Latin America Sources: S&P, Moody’s, Fitch. and the Caribbean has gone to infrastructure 48 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora In the absence of inflows in the form of FDI, To date, the reliance on traditional sources of finance local institutional investors—specifically local for infrastructure PPP transactions meant that pension funds and insurance companies—would practically no channels were open for investments theoretically be a good source of capital for by qualified Diaspora investors in infrastructure infrastructure initiatives, but in the Caribbean PPP projects in the region. The need to broaden that is not the case. Caribbean pension funds and the equity and debt finance base beyond industrial insurance companies know the legal and regulatory sponsor/operators and bank project finance creates hurdles and challenges in the region, are investing both opportunities and challenges for mobilizing in local currency, understand the core economic both domestic and international investors, including opportunity, and are able to best assess the rationale Diaspora investors, in support of infrastructure PPP and the risks of a particular economy and project. projects in the region. However, these sources of capital in the region do not have the scale and the depth of assets to truly Given the significant equity investments take an active role in the financing of infrastructure required for such projects, infrastructure and PPP projects. For example, Jamaica’s entire pension opportunities require specific types of investors, system totals approximately US$2.6 billion. A 2012 often development finance institutions (DFIs) such OCED study of large pension funds in developing as the World Bank, IFC, IADB, MIF, European markets found that pension funds invest, on average, Union, or foundations. Depending on the nature less than 3 percent of their assets in infrastructure. of the project, however, the remaining investors, 31 If Jamaica were to follow this global benchmark, especially if they are meant to be private investors, the entire pension fund system would have less than will require specific skills. First, the investors must US$80 million available for infrastructure projects. be able to understand and navigate the considerable Even in the Dominican Republic, the largest legal, regulatory, and process hurdles that are economy in the region, this lack of capacity to endemic to PPP processes. At present, there is no invest in infrastructure is systemic. As of 2011, the harmonized PPP legal and regulatory framework size of the pension fund industry in the Dominican across the Caribbean, and each particular country Republic was US$3.5 billion, which suggests and project has its own specific dynamics, risks, infrastructure investment capacity of approximately and opportunities. Second, the investor must have US$100 million. Clearly, in the smaller economies the knowledge and capability to understand the of the Caribbean, this investment capacity declines risk and return profiles of a given investment and precipitously.32 then analyze whether those factors are consistent with the investor’s overall investment and portfolio In the absence of sufficient local capital, then, strategy. Finally, the investor must have sufficient Caribbean governments must find ways to create an capital to finance the process of due diligence investment environment and support infrastructure and—more importantly—the eventual investment projects that will be attractive to foreign sources of itself. Although the presence of DFIs and other capital. As noted, foreign investors often choose not early backers of a project is helpful in establishing to invest in infrastructure in the Caribbean because some credibility, it does not obviate all of the other of regulatory concerns. A well-structured PPP can steps needed to close an investment. Similarly, the serve to bring new sources of capital and expertise envisioned Regional PPP Unit—to be developed in to the table that will serve to improve the execution partnership with the World Bank Group, CDB, and of a project while mobilizing new sources of capital MIF—will serve to address regulatory and other into the economy in the form of an earmarked upstream constraints, but those additional hurdles infrastructure investment. will remain. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 49 Although PPPs often entail large infrastructure will bring the most value to a piece of land—by projects, other types of investments are found that developing it either for agriculture or for tourism. may be attractive to smaller investors or that would be attractive to highly motivated investors such Several alternative vehicles could be mobilized to as Diaspora investors. Specifically, social capital diversify the financing of infrastructure PPP projects is an area that could be more accessible to these in the region. These vehicles could constitute types of investors. First, these projects tend to be channels for mobilizing investments by qualified smaller in nature and are naturally available to a investors including qualified Diaspora investors to wider range of players. Second, they typically have infrastructure projects in the region. a social objective that is appealing to investors who seek to couple impact with return or are willing For instance, the past 10 years have witnessed the to trade some return in exchange for achieving emergence of a new class of private equity and social objectives. The Caribbean Infrastructure PPP debt funds dedicated to infrastructure investments. Roadmap identified several social infrastructure Starting from a very low base of US$17 billion projects (schools and health care facilities). For in 2004, assets under management of unlisted example, Trinidad and Tobago is assessing the infrastructure funds have increased steadily to reach business rationale for building 10 early childhood US$244 billion globally in mid-2013 (figure 4). education centers and primary schools, and St. The growth of the fund class continued through the Lucia has begun discussions on a health PPP. It is financial crisis, albeit at a slower pace in 2009 and worth noting, however, that these projects are at 2010. Following the international financial crisis this point very conceptual. PPPs in schools are done in 2008, infrastructure debt funds have developed under a private finance initiative where the private as a small but increasing fund class. Although an partners do not provide the service but instead build average of five new infrastructure debt funds were and maintain the infrastructure since education is raised per year over 2005–09, the number of funds a sensitive, state-provided service. Trinidad and raised has increased to 20 in 2013, with an aggregate Tobago is also studying the business case for capital raised of US$7.5 billion in that year. Over building three imaging and laboratory diagnostic the period, the share of infrastructure funds’ centers. This PPP initiative was announced in 2013 investments in emerging markets has increased and was funded with more than US$1.5 million rapidly, reaching 10 percent of the total in 2013. from the MIF, IADB, and Compete Caribbean and By industry, the largest sector is renewable energy, an additional US$450,000 in resources from the which represented 23 percent of the total over IADB. As discussed earlier in the report, social 2008–13, followed by transport (18 percent), social infrastructure—schools and hospitals—also tends infrastructure (18 percent), energy (15 percent), and to attract significant Diaspora philanthropy. utilities (14 percent). Pension funds (both private and public) are the most important investors in the An opportunity may also present itself to consider infrastructure fund class, representing a combined PPPs that are targeted to industries beyond core 35 percent of the total in 2013, followed by infrastructure or social infrastructure. Within the insurance companies (10 percent) and foundations smaller economies in the Caribbean, a wider range (8 percent). In terms of performance, infrastructure of assets and sectors are seen as belonging to the funds outperformed other private equity funds over public sphere. Thus, sectors such as agriculture 2007–13. Specifically, taking 2007 as a base, the and tourism can provide investment opportunities Preqin infrastructure index reached 138.0 in June that would otherwise be privatized or left to the 2013, compared to 121.3 for the all private equity private sector in other markets. In such a situation, indexes. the government may partner with an operator who 50 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Figure 4: Unlisted Infrastructure Assets under Management December 2004 to June 2013 Assets under Management (US$B) 300 250 Dry Powder (US$B) 200 Unrealized Value (US$B) 150 100 50 0 c c c c c c c c ec c ec ec De De De De De De De De De -D -D -D 2- 3- 4- 5- 6- 7- 8- 9- 11- 12 10 13 Source: 2014 Preqin Global Infrastructure Report. Within the Caribbean, three private equity funds of 2. Prometheus Energy Partners: Prometheus note have been oriented toward infrastructure. At was a private equity fund focused on energy present, only one of these groups, Real, remains opportunities in Trinidad and Tobago and the active: greater Caribbean region. Established as an offshoot of Guardian Holdings Limited (GHL), 1. Conduit Capital: Conduit was an early entrant a leading Trinidadian financial services company, to the private equity asset class in Latin America, the firm invested in the development of Trinidad’s raising its first fund in the 1990s. All three of extensive hydrocarbon resources and to enhance its funds were focused specifically on energy, returns on shareholder capital. In November 2008, with investments primarily in Central and South during the aftermath of the 2008 crisis, Guardian America. The firm did make one investment in sold the fund to a global infrastructure fund, the Caribbean via a greenfield energy project in Denham Capital. Although Denham Capital made Jamaica. All three funds raised by Conduit— one follow-on investment in a failed chemical Latin Power Funds 1, 2, and 3—invested in plant project (CariSal), it has not announced any Jamaica Energy Partners, the operator of 11 additional investments in the region. barge-mounted, diesel-fired power generating units. The combined capacity of 125 MW 3. Real Infrastructure Capital Partners: Real represents roughly 20 percent of the electricity is a new energy-focused private equity firm consumed on the island, and Conduit is the formed by several departing members of the controlling shareholder of these assets. Conduit Conduit Capital team. In January 2014, the firm sold its stake in Jamaica Energy Partners to Basic announced that it closed on a US$100 million in 2007 and then reacquired the company in Latin Renewables Infrastructure Fund to invest 2009. It continues to hold its stake at the present. in utility-scale, renewable power generation such Conduit raised its last private equity fund in 2005 as solar, wind, and hydropower in Latin America, and is not expected to raise future funds. Mexico, and Central America. To date, it has expressed interest in the Caribbean but has not closed any investments. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 51 Over the last five years, domestic infrastructure pension funds, insurance companies, as well as equity and debt funds have emerged in a growing private equity and debt funds. Recent examples number of emerging markets and developing include the European Fund for Strategic Investments economies (EMDEs) with the objective to mobilize in the European Union, and the Fund for Strategic resources from domestic institutional investors Investments in Senegal. Other countries such as for investment in infrastructure PPP projects. The Indonesia and Morocco are actively considering largest number of infrastructure debt funds raised establishing SIFs. The development of private or closed are outside the advanced economies of infrastructure equity/debt funds and SIFs could open North America, Europe, and Asia, with 21 funds the door for Diaspora investments in infrastructure seeking to raise or having raised US$8.2 billion in PPP projects in the region. In particular, a regional a dozen EMDEs by mid-2014. A good example of Caribbean private equity/debt fund and/or a SIF this new class of funds is provided by the Vintage could be marketed to qualified investors in the Capital GreenX fund in South Africa (box 1). Diaspora as part of a broader marketing strategy including both institutional and domestic private Building on the model of large SWFs that invest investors. domestically such as Temasek in Singapore and Khazanah in Malaysia, a growing number The feasibility of a regional SIF would need to of governments in advanced economies and in be studied carefully. In particular, the following EMDEs are establishing strategic investment funds elements should be taken into account: (SIFs) to serve as anchor investors for international and domestic institutional investors in domestic 1. The governance structure of the fund would investment projects or funds, in particular in need to be carefully articulated to separate the infrastructure. These institutional investors include ownership and management function. The SIF Box 1: The South Africa Green X Infrastructure Debt Fund Group in South Africa in November 2013. The fund first closed (Note I) raised R 2.5 billion entirely from South African pension and provident funds. The fund invests in senior debt in energy and renewable energy projects in South Africa. GreenX Note I focuses on deals that are structured along limited recourse project finance principles. Investments under Note I focus on projects that have been successful in the South Africa Department of Energy Renewable Energy IPP Procurement Process (REIPPPP). These projects include solar plants and wind plants in the provinces of Eastern Cape, Northern Cape, and Mpumalanga. Note I focuses on refinancing of bank debt on the secondary market and is now fully invested. Vantage Capital is now raising GreenX Note II, which will have a wider remit. In addition to projects under REIPPPP, Note II will also target investments in sustainable energy projects, which will include natural gas and cogeneration projects run by the South Africa Department of Energy. By contrast with Note I, Note II is targeted at primary finance and aims to enter deals post selection as preferred bidder but before financial close. The projects in which GreenX invests are underpinned by a South Africa Ministry of Finance guarantee to cover buyer payment default and/or political force majeure. 52 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora would not be established by an existing regional 3. The investment strategy for the SIF would need institution but would be established jointly to be carefully articulated. In particular, the SIF by interested governments. The SIF would be could invest as general partner (GP) in equity registered as a public limited liability company and/or debt funds, either cross-sectoral and/or in one of the participating countries or in a third sector-specific (economic infrastructure, social country in the region. The board of the SIF infrastructure), with the objective to crowd in would consist of Ministers of Finance and heads regional and international private investors, of specialized government agencies in charge of including Diaspora investors, in infrastructure PPP from participating countries and the CEO PPP projects in the region. The funds would take of the fund management company (see below). minority equity positions in infrastructure PPP The board would be responsible for defining and projects SPVs and/or buy debt from SPVs (loans monitoring the fund overall investment strategy or bonds). but would not be responsible for individual investment and exit decisions. The SIF would 4. The human resources strategy for management have a Secretariat responsible for supporting and staff of the fund management company would the activities of the board and the governance need to be carefully articulated. In particular, and audit committees. The SIF would establish management and staff would be recruited a fund management company responsible for solely based on their professional expertise and implementing the SIF investment strategy under a experience and originate solely from the private management contract with clear key performance sector, including investment banking, project indicators. The fund management company finance, and PE/VC. Finance professionals would be responsible for all investments and exit strongly networked with Diaspora investors decisions. The fund management company would could constitute an interesting target group for establish funds and/or subfunds or compartments recruitment by the SIF. They would need to be targeting specific infrastructure sectors and/ remunerated based on private market standards. or investor risk profile, including Diaspora investors. These funds/subfunds/compartments 5. The criteria for project selection by the fund could be in equity, mezzanine, and/or senior debt manager would need to be carefully articulated. In (loans or bonds). particular, it would be critical to rely on a double trigger including minimum internal rate of return 2. The regulatory framework for the fund manager (IRR) and economic rate of return. Projects with and for the funds/subfunds/compartments would strong regional economic integration potential as need to be carefully considered. In particular, well as potential for regional integration in the the choice of jurisdiction for the fund manager global economy would be prioritized. and for the funds/subfunds/compartments would need to be made taking into account the quality 6. The remuneration for the fund manager company of the regulatory and supervisory framework would need to be carefully structured to align the for investment funds, the quality of the business incentives of the fund manager with the strategic environment in particular for bankruptcy and objectives of the SIF. This would apply in for dispute resolution, the feasibility to register particular to the definition of the fund management the funds as pass-through structures for fiscal fee, share of the carry, and hurdle rate. purposes, and the existence of double taxation agreements with a broad range of jurisdictions 7. International and regional financial institutions across the region and with major Diaspora host would need to be closely associated with the countries. development of the regional SIF from the outset. In particular, international financial institutions III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 53 (IFIs) and regional FIs could provide critical Private Equity Securities: Private Equity, technical assistance support for the development Impact Investment, and Early Stage of the SIF during both the preparation and Investment implementation phases and could also participate as limited partners (LPs) in the capital of the fund Private Equity and provide leverage through mezzanine and/ Private equity (PE) refers to an asset class in which or senior debt alongside their LP participation, investors purchase the illiquid equity (or equity- thus acting as a catalyst for private investors like) securities of operating companies. This equity including Diaspora investors. Among IFIs, the is not publicly traded but instead held in private World Bank could provide its expertise in selling hands. In exchange for their capital, PE firms take bonds in support of its development projects to ownership stakes that range from minority through retail investors. to majority ownership in a company. PE investors typically hold these securities for a period of three 8. A preliminary market sounding would need to seven years with the expectation of generating to be carefully designed and conducted with attractive risk-adjusted financial returns upon regional and international private investors. The exiting the investment. PE firms are investment marketing strategy of the SIF would be targeted managers that typically raise fixed pools of at both institutional investors and qualified capital that are then invested in a diversified set investors in the Diaspora. of companies, often across many industries. PE firms source deals by working with a network of In parallel with the regional SIF, participating intermediaries, developing business linkages and governments could consider establishing a competencies in specific sectors, and by scouring regional infrastructure project venture fund (VF), a given market for investment opportunities. Apart with the objective to accelerate the preparation of from providing financing, funds typically take a infrastructure PPP projects ready for transactions hands-on (also known as value-add) approach, in with the private sector. The VF would carry out the that they help the companies in their portfolios to appraisal of PPP projects screened by national PPP enhance management capacity, improve market units and prepare infrastructure PPP transactions, focus and presence, strengthen governance, and including transactions in which the regional SIF manage growth. Although investment styles may could invest. It would be powerfully incentivized vary considerably, many firms seek financial to develop a strong pipeline of infrastructure PPP returns by supporting and financing the growth of transactions through its participation in the equity of the companies in their portfolios. As such, these the SPVs of transactions that have been successfully firms are widely linked to job creation, because this closed. The fund would work in close relationship is often a by-product of their efforts to build, and with PPP units in participating countries and with eventually sell, valuable portfolios of companies. the regional SIF. In the 2013 infoDev survey of Diaspora investment As in the case of the SIF, the feasibility of a regional activities, 8 percent of respondents self-reported that VF would need to be carefully studied. This would they met the U.S. regulatory definition of “accredited cover governance structure, regulatory framework, investor,” specifically having a net worth of US$1 business strategy and plan, human resources million and income of at least US$200,000 each strategy, fund manager selection and remuneration, year for the last two years (or US$300,000 together participation of IFIs and regional FIs, and market with their spouse if married) with an expectation sounding with international and domestic investors, to make the same amount in the current year.33 As including qualified investors in the Diaspora. noted, accredited investors have the option to invest in PE, VC, hedge funds, or other types of funds that 54 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora offer investment opportunities that are designed for implies an average investment of approximately sophisticated investors. Moreover, this same study US$20 million (figure 5). noted that 7 percent of respondents mentioned PE when asked to list “What sectors are most attractive Targeting Diaspora investors as a source of capital to invest in?” Thus, although interest in PE and VC for PE funds remains a challenge. Although Michael remains lower than other sectors such as agriculture Lee-Chin, a Jamaican Diaspora investor based in (41 percent) and real estate (33 percent), a strong Canada, is the sponsor of Portland Private Equity, correlation seemingly exists between the percent of arguably the most successful fund in the region’s accredited investors and interest in PE and VC. history, his case is the exception rather than the rule. Targeting offshore investors requires an Private equity in the Caribbean is not a new investment fund to assume a set of additional costs phenomenon, but there have been fits and starts and administrative burdens during its fundraising to build a homegrown industry mixed with process. For example, a fund that wishes to raise intermittent interest from external players. The main capital from Diaspora investors located in the target of both attention and volume in the industry United States will need to register the fund with the has focused on the larger markets in the region, U.S. Securities and Exchange Commission (SEC). principally Jamaica, the Dominican Republic, and Such a strategy could prove worth the time and Trinidad and Tobago. There have not been any effort were it straightforward to target Diaspora specific funds launched for any of these markets investors, but the informal nature of Diaspora of note, but rather small efforts by local players networks means that funds will then need to invest such as business angels or local corporates. As a time and capital in identifying and marketing to a result, information is scarce regarding the nature, disperse set of investors. Given that funds typically timing, and size of transactions. That said, the Latin target large institutional investors or family offices America Venture Capital Association (LAVCA) has that can invest in excess of US$5 million, launching been tracking deals in the Caribbean since 2010. a specific effort targeting individuals does not offer Since that time, the region has seen total invested a clear return on the time and capital involved to capital of US$299.6 million in 15 transactions. This reach Diaspora investors. That said, PE remains Figure 5: Snapshot of Private Equity in the Caribbean PE/VC Invesments in the Caribbean (in USD million and number of deals, 2010 - 1H2014) 140 7 $123.1 Investments (USD million) 6 120 6 100 5 # Deals $76.8 4 80 4 60 $53.4 3 2 40 $34.3 2 1 2 20 1 $12 0 0 2010 2011 2012 2013 2014 $ Deals # Deals Source: LAVCA III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 55 an attractive asset class that could be relevant to Unlike other fund managers who were forced to family offices associated with Diaspora investors or exit the market because of fund raising concerns, to members of the Diaspora with sufficient financial inability to deploy capital, and poor returns, capacity to investment in such funds. Portland has proceeded to launch and execute on the process of raising a second fund. Given Despite the challenges raising capital and the solid performance of the first fund, Portland identifying attractive deal flow, the PE industry in Private Equity launched a US$300 million second the Caribbean has matured over the last decade. fund in 2013. Portland Caribbean Fund II, L.P. After a series of false starts by other firms in the (“PCF II” or “the Fund”), is a 10-year closed-end region (see annex III), Portland Private Equity is fund seeking to invest in six to 10 fast-growing the first sustainable PE firm in the region, having companies in the Caribbean region. The Fund will closed on its first fund in 2008. At that time, the firm invest in various sectors (in particular financial raised the US$225 million AIC Caribbean Fund services, infrastructure, (renewable) energy, to invest in platform companies, specifically fast- telecommunications, agribusiness, consumer/retail, growing companies that could provide significant health care, and property development), primarily potential to expand into neighboring countries of in the Caribbean region and potentially in adjacent the Caribbean, thus supporting regional integration. countries such as Colombia and those in Central As noted, Portland Private Equity was founded by America (in particular Costa Rica and Panama). Michael Lee-Chin, a self-made former billionaire Investments are expected to be in the range of of Jamaican origin and controlling shareholder of US$5–60 million (including follow-on financings) National Commercial Bank of Jamaica. The fund and may be in the form of equity, quasi-equity or invested in six companies and as of December 31, structured loans, which allow for self-liquidating 2012, had disbursed a total of US$154.8 million into investment positions. The first US$100 million these businesses. The overall performance of the closing of the fund—which was originally expected fund has been good, with several exits generating in 2013—took place in late 2014. The IFC invested gross IRRs to date that are in line with the 20–30 US$20 million alongside other DFIs. percent target IRRs for a fund of this nature. Impact Investment The investment portfolio focused on a diversified set Private impact investing has remained largely of industries, although the investments themselves absent from the Caribbean despite the fact that it were largely concentrated in a few countries. The has become a steadily more common method of portfolio of the first fund included businesses in financial engagement in many developing markets the insurance, construction, telecom, real estate, around the world. In 2011 no members of the energy, and agribusiness sectors. Three of the Global Impact Investors Network were focused on businesses are based in the Dominican Republic, the Caribbean region, and not one single impact one is located in Jamaica, another is based on investment in the Caribbean had been registered Bermuda, and one company is pan-regional nature. with the network. The following are thought to be In terms of investment size, over 50 percent of the the primary reasons for why the Caribbean has not capital in the fund was directed to the Dominican been targeted for such investments: (1) With the Republic, while almost all of the remaining capital exception of Dominican Republic and Jamaica, was allocated to a regional telecom business that Caribbean nations are for the most part extremely operates in 21 countries. The investment in Jamaica small and relatively isolated island economies, and Bermuda was minimal, with each investment where developing economies of scale, an important representing less than 3 percent of the capital factor for profitability, is inherently more difficult; deployed by the fund. (2) most Caribbean nations are considered middle and upper-income economies with relatively high 56 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora levels of development, while their Bottom of the of leveraging Diaspora capital, in particular, for Pyramid (BoP) populations—those most often impact-minded investment. targeted by impact investing—are relatively small in size; and (3) PE, the primary financial instrument Looking ahead, despite noted impediments, arguably of global impact investors, is lacking on both the significant unseen potential exists for the region to demand and supply side in the Caribbean, as was develop as an impact-investing environment given discussed previously. the generally large market gap between capital supply and demand. Although the Caribbean is Nevertheless, various noteworthy private impact considered a highly banked region, with significant investors are operating in the region. With the liquidity and private capital, access to credit largest BoP population in the region, as well as remains extremely limited for BoP communities some of the greatest economic weaknesses more and access to equity funding limited at all levels. broadly, Haiti, which is not under consideration in Investors have shown interest in impact investing this study, has traditionally been the Caribbean’s in the region, but the lack of real pipeline and deal biggest magnet for private impact investments. selection is a major barrier. On the capital demand Leopard Capital is one example of a profits-minded side, opportunities exist that can be considered firm that has been involved in investments geared investment-ready, as well as those that need to be toward impacting areas such as affordable housing, articulated and developed, but also an abundance food processing, renewable energy, and tourism in of unexplored and completely undeveloped ones. Haiti (given the nascent stage of the Haitian tourism According to Compete Caribbean’s report Supply sector and its potential development impact, and Demand Side Assessment of Impact Investment tourism may be considered within the impact within the Caribbean, the greatest unmet demand sphere). Firms including the Small Enterprise for investment in the Caribbean is among SMEs, Assistance Funds (SEAFs) and Root Capital have, which go unserved by sources of capital such as in addition to providing growth capital for SMEs remittances and microfinance institutions that cater in Haiti, also developed technical assistance (TA) to entrepreneurs, as well as large company and programs for local business partners. The Calvert greenfield project suppliers such as commercial Foundation, which intervened strongly in Haiti and national banks and DFIs. The major financial following the 2010 earthquake, provides “patient barriers thought to be causing capital demands capital” for social and environmentally conscious of SMEs to go unmet are their lack of sufficient enterprises. Although these examples of global collateral, inadequate business planning, and impact investors in the Caribbean are limited to aversion to equity investments. On the nonfinancial Haiti, a strong case can be made for the possibility side, the main barriers are the general lack of of extending their engagement, or at least learning knowledge and awareness of opportunities from from their models, to grow impact investment both the perspectives of potential investors and activity in other Caribbean markets. Already, in investees, the inaccessibility of deal flow, and the Jamaica, the Jamaica National Building Society has dearth of investment opportunities developed to the partnered with I-Support Jamaica to launch a start- level of being considered investment ready. up online effort (Isupportjamaica.com) to attract increased impact investment to small entrepreneurs Among the countries in this study, Barbados, the in the country’s neediest communities (albeit with Dominican Republic, Jamaica, and Trinidad and very limited results). Finally, as a self-described Tobago are the most suitable for international “investment platform that facilitates Diaspora impact investment given their size, relatively and impact-investing to make a difference in the high degree of financial development, and SME world,” the expansion of Homestrings’ involvement activity. Nevertheless, many differences are found in the Caribbean region suggests the viability between them individually when it comes to access III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 57 to capital and entrepreneurial opportunities. First, connecting capital supply and demand difficult Barbados has a dramatically smaller population for commercial banks. But it also creates a void in than Dominican Republic, Jamaica, and Trinidad which impact investing and TA programs could be and Tobago, making growing economies of scale a best positioned to meet the needs of the growing greater challenge (table 2). Second, as the region’s SME market, helping create jobs and overall only “high income” nation, and the only Caribbean socioeconomic development through financing country that ranks above average for the LAC and consulting services. Regarding the optimal regions in both domestic credit provided by the countries for impact investment in the region, banking sector and usage of domestic credit by the much variation is seen when it comes to conditions private sector (figure 7), the gap between supply and in SME markets. Jamaica’s strong junior stock demand of capital in Barbados is far smaller than exchange has invigorated SME activity, while the other three comparators. Therefore, the potential the Dominican Republic continues to face major BoP impact is relatively smaller. Separately, access to capital issues among early and growth regarding opportunities for investment in start-ups stage firms. That said, the Dominican Republic’s and SMEs, Trinidad and Tobago stands apart from government has recently put in place a number of the others as an economy dependent on fossil fuel reforms in its corporate law system in an attempt industries. This, in turn, limits investment options to catalyze entrepreneurship and investment.34 with respect to renewable and alternative energy, Although Trinidad and Tobago’s banking sector is which is otherwise a major area of opportunity not as developed as that of Barbados, it does see in much of the region, as well as one of the most greater access to capital among SMEs. On both popular targets for impact investments globally. In a regional and domestic level, a platform such contrast, the Dominican Republic recently passed a as Homestrings, which already boasts nine SME Renewable Energy Incentives Law, which provides investment options in Africa and Asia that it ranks incentives for the production of renewable energy on a scale of impact,35 could provide a blueprint and products made with renewable energy. for connecting Diaspora capital to SMEs in the Caribbean. The abundance and variety of sectorial opportunities for impact investment in the Caribbean speaks to Transportation/infrastructure development: As the largely unheralded potential for the asset class IDB has observed, governments in the Caribbean in the region as a whole, but also its relevance region “are striving to bridge the gap between for this study’s examination of the potential for a transportation demand and supply to facilitate region-wide Diaspora investment initiative. There access to health care, education, jobs and markets are many overlaps between the potential areas of to all economic and social groups.” According investment discussed previously in this study in to Compete Caribbean’s December 2011 report the context of a hypothetical Diaspora investment Supply and Demand Side Assessment of Investment initiative in the Caribbean and those that are in the within the Caribbean, around the region the biggest most need and best suited for impact investments. transportation and infrastructure development- These primarily include SMEs, transportation/ related investment opportunities involve port infrastructure development, tourism and cultural facility development and air travel privatization. industries, alternative energy, and agricultural The government of Trinidad and Tobago recently development. launched a major initiative to redevelop ports, including PPP projects, which is discussed in SMEs: Across the region, access to capital is detail in the in-depth profile later in this study. limited on account of banks’ requirements related Jamaica, meanwhile, held a successful bid for to cash flows and collateral. The informal nature the privatization of Norman Manley International of sectors throughout the Caribbean also makes Airport in April 2015. According to the Compete 58 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Caribbean report, the wealthier Barbados is most is much promise in its wind energy. Meanwhile, interested in developing a ferry system linking it the Dominican Republic has committed to being by water to Trinidad and Tobago and its OECS 25 percent renewable dependent by 2025 and has neighbors. Regarding Diaspora investment, already seen major public and private investments opportunities, again, Homestrings could provide in wind projects, as well as some in geothermal. a blueprint, given its 19 existing infrastructure- Regarding Diaspora investment, as of July 2015, related investment opportunities in Africa. Homestrings offered two different “green energy” investment options—the SME Fund Green Energy Tourism and cultural industries: Most of the region and Biofuels—that are both based in Africa. comprises tourism-dominated economies, and so the scalability of opportunities in this sector should Agricultural development: Although many be an immediate attraction for impact investors. Yet Caribbean nations export food products, they also maximizing opportunities in the tourism sector is face food security issues, such as relying a large closely linked with transportation/infrastructure amount on food imports, according to Compete development and building connections to cultural Caribbean. Although Trinidad and Tobago again goods markets such as artisanal handicrafts and stands apart because of its natural resource wealth music. These cultural industries are essential and the ability to offset food price fluctuations, channels through which BoP communities can Jamaica and the Dominican Republic are both reap value from the influx of consumers associated ranked among the least food secure nations in Latin with tourism arrivals, but they also add value to the America and the Caribbean.36 Nevertheless, across overall economy because they primarily involve the region, countries would benefit from the kind cash transactions, thus increasing the inflow of of increased productivity and better protections foreign currencies. Jamaica and the Dominican against natural disasters that technological Republic stand apart as the two largest tourism development and investment would provide. In economies, yet, according to Compete Caribbean, addition, increased financing opportunities and TA both have major financing and TA needs when it could help improve quality and standardization in comes to building the necessary infrastructure and the local food market, which would benefit both bringing local products to market. exports and connectivity with the tourism sector. In terms of precedent for Diaspora investment in this Alternative energy: Energy dependence and high sector, as of July 2015, Homestrings offered three electricity tariffs make the shift toward alternative different investment opportunities in agribusiness, and sustainable energy sources extremely including two companies and a bond, all based in advantageous for the vast majority of the Caribbean, Africa. again with the notable exception of Trinidad and Tobago. The alternative energy areas identified Early Stage Investment: Accelerators, Angel by Compete Caribbean in 2011 for having the Groups, and Venture Capital greatest need and potential for investment in the Like PE firms, venture capital (VC) firms also invest region include wind, geothermal, small hydro, in the private securities of operating companies. and biomass fuel. That said, Barbados is a world VC firms are known for investing in early-stage leader in solar-powered water heating systems, companies that are typically riskier in nature than boasting the third largest deployment on a per the investments made by their PE counterparts. capita basis globally. And a significant opportunity Often, VC firms invest in companies in sectors that exists to invest in and build out similar capacities in are related to technology or innovation, although countries around the region. Jamaica generates over they may also back businesses in other verticals. 90 percent of its power from oil and has some of the In developed markets, VCs also source ideas and highest electricity costs in the region, though there build new companies from proprietary networks of III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 59 proven entrepreneurs. This seeding of investment does not seek to catalyze the creation of country- ideas into the market is less common in developing specific or pan-regional VC funds at this point. markets but will likely become more common as Given the nascence and lack of scale and volume these markets become more robust. of start-up opportunities, infoDev instead chose to focus on creating smaller pools of early stage Also like PE firms, VC firms are structured as funding in the form of angel groups. These groups, a private asset management funds that make through targeted investments of capital and hands- investments from long-term pools of capital on mentorship, can generate the kinds of early stage provided by LPs. The structure and nature of a ventures that will eventually provide the business venture capital fund is very similar to that of a case and justification for the first VC funds in the PE fund in terms of economics, duration, and region. governance structure. Investors in VC must also be prepared to take on more risk but are The first set of angels groups created as part of theoretically compensated by outsized returns the infoDev’s programs in the Caribbean are on their investments. Thus, although a number of set to launch or have launched already. Much investments in a given VC portfolio will likely fail, of the activity that is taking place at this stage is those investments that are successful will produce experimental because there is little culture in the attractive gains for the entire portfolio. region of formal angel investing. By mid-2015, infoDev expects to have four angel groups up and As noted, in the 2013 infoDev survey of Diaspora running. Two of these four groups are stewarded by investment activities, 8 percent of respondents self- HNW individuals who have created angel groups reported that they met the U.S. regulatory definition by recruiting and collaborating with 10 to 15 other of “accredited investor,” specifically having a net business angels. Geographically, the groups are worth of US$1 million and income of at least focused in the larger markets, with two groups in US$200,000 each year for the last two years (or Jamaica (First Angels and Alpha Angels), one in US$300,000 together with their spouse if married) Barbados (Trident Angels), and one pan-Caribbean with an expectation to make the same amount in the in nature (but not yet launched). The pan-Caribbean current year.37 As with PE funds, accredited investors angel group is under the auspices of the Caribbean have the option to invest through VC funds or invest Export Agency. directly into early stage businesses (i.e., start-ups) either on their own or via organizations such as The most developed of the angel groups, First angel investment groups. The study noted that 32 Angels, is based in Kingston, Jamaica. The creation percent of respondents stated that they were “very of the group has been championed by a HNW interested” in start-ups and early stage companies, individual, Joe Matalan, who is also the Chairman of and another 43 percent were “somewhat interested” the Development Bank of Jamaica. Each of the 10– in those types of opportunities. Moreover, 7 percent 15 members pays US$2,300 annual dues and agrees of respondents referenced VC when asked to list to meet monthly with two presenting potential “What sectors are most attractive to invest in?” investment companies. The members of the group lead due diligence and seek to close two or three At present, the focus for early stage funding for investments of US$100,000–250,000 per annum. the region is fixed on angel investment groups. This angel group is typical of other such groups infoDev’s EPIC is a seven-year US$20M program both in Latin America as well as the United States. funded by the government of Canada that seeks Given the small number of members, however, it to build an enabling ecosystem to foster high- will be critical for the members to be willing to growth and sustainable enterprises throughout the invest between US$10,000 and US$25,000 per Caribbean. The program does not focus on VC and member if the group is going to meet its investment 60 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora objectives. It is worth noting that First Angels mentorship, technical support, infrastructure, and other angel investment groups may choose to and other critical resources. See annex III for an establish links with Diaspora investors, not just as overview of the supply-side actors in the Caribbean a source of capital, but also as a source of expertise early stage market. and direct linkages to potential overseas markets where start-ups may choose to expand their presence as they grow. To date, First Angels has closed one Current Modes of Diaspora Investment investment. The group invested US$150,000 in DRT Current Diaspora investment in productive assets Communications, a marketing communications is heterogeneous in nature, corresponding to agency, which also offers technology-driven media members’ capacity and willingness to invest. A monitoring services. broad base of Diaspora investment tends to be channeled through either charity (schools and Beyond the work of infoDev with respect to building hospitals are mostly the beneficiaries), remittance- an ecosystem of angel investment and investable investments to empower entrepreneur-relatives entrepreneurs, several parties are working together (for small-scale businesses such as farms), or to deepen the supply of entrepreneurial finance by Diaspora entrepreneurship (e.g., IT companies, supporting the development of a stand-alone venture outsourcing, nursing homes) in their home country. capital fund. The Multilateral Investment Fund A small group of HNW Diaspora members tend to of the IADB has partnered with the Development make large investments in the Caribbean such as Bank of Jamaica (DBJ) to launch the JVCP. The through diversified holdings in banks or the energy objective of this initiative is to raise a VC fund— sector (e.g., Michael Lee Chin’s investment in with a target size of US$20 million at minimum— National Commercial Bank of Jamaica) or through that will be regional in nature. An initial “Call investment vehicles (again, Michael Lee Chin’s for Proposals” launched in late 2014 generated Portland Private Equity). Diaspora members tend applications for eight potential fund managers. not to invest in infrastructure projects because these While this is promising in terms of eventually are multimillion investments that are complex and raising capital for a fund, it remains to be seen difficult to navigate for noninstitutional investors. whether there is sufficient deal flow to support a Based on these observations, Diaspora investment fund, even at the regional level. This will become falls into a few key categories: more apparent once the angel groups operating around the Caribbean with the support of infoDev 1. Housing: This remains the most dominant form are in full operation and begin to make investments. of investment and represents an important source These angel groups, along with accelerators, will of hard currency, investment, and tourism (since serve as feeder funds for companies that could be Diaspora homeowners visit their properties candidates for VC investment. Until sufficient deals or rent them out to third parties). Diaspora are seen in the market, however, there will not be preference to invest in housing or real estate enough volume to justify the economic returns results from the advantage inherent in the asset expected by a venture capital firm. class. Such investments are long term in nature, which obviates any concerns about exchange Critically, VC firms are part of an overall rate and capital portability issues. Moreover, ecosystem for early stage capital that also includes these investments generate steady income, often angel investors or individual investors who seek indexed in dollars, since the owners may choose to provide seed money to early stage companies. to rent their properties to expatriate works in a Beyond these sources of capital, incubators and market such as Trinidad. Finally, Diaspora may accelerators are intermediaries that help companies see real estate as a part of the planning process to grow by providing a combination of capital, for an eventual return home. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 61 2. Philanthropic investment in economic the Caribbean. However, again there is a dearth development: As mentioned above, a broad base of data to understand the flow of capital into the of the Diaspora invest in economic development Caribbean through these channels. through their various cultural associations and other platforms that put together annual fund 5. Investing through passive investment vehicles: raisers and other events to send money or in-kind About 7.5 percent of respondents to the 2013 contributions home (e.g., raising funds for an infoDev survey reported investing in local stock ambulance, sending books, investing in nursing markets, which is consistent with the estimates seminars). of the management of the JSE. It is likely that most of this capital flows into the JSE rather 3. Empowering entrepreneurship among family than the other regional exchanges because of members by providing start-up funding: A the relatively high valuations in Trinidad and broad base of the Diaspora also fund dependent Tobago. A few asset management platforms cater relatives in the Caribbean to start small-scale to the Diaspora; for example, Jamaica Money businesses, for example, by buying a car to run a Market Brokers is a platform for investment for taxi business or to buy chickens to start a chicken risk-averse Diaspora members. MF&G Trust and farm. These investments tend to be made via Finance in Jamaica caters to more financially remittances and hence are difficult to capture savvy Diaspora investors. At the highest levels since remittance data are not broken down of investment are the likes of Michael Lee Chin, between consumption oriented and investment who is an anchor investor in the pan-Caribbean oriented.  Portland funds. However, PE and VC remain highly niche investments that are available to 4. Investing in small businesses as an owner- accredited investors. As noted, these types of operator or through a holding company organizations do not employ specific strategies model: Illiquid investments largely take the to target Diaspora investors because of the form of owner-operated companies operated regulatory and marketing investments required by individuals from the Diaspora who either to raise money offshore and from individuals. maintain business interests in the region or Finding and marketing to these types of have local partners. Some Diaspora members investors is far more demanding than targeting may set up tourism businesses (such as a guest large institutional pools of capital. That said, the house) or nursing homes or restaurants back region’s most prolific PE shop, Portland Private home. They may reside in Canada, the United Equity, was started by a member of the Jamaican Kingdom, or the United States and operate the Diaspora. Moreover, very good potential may business through family members; others may exist for Diaspora participation in the angel go back home to start the businesses. Direct investment sector once this industry gains greater investment by Diaspora may be facilitated by scale. investment agencies such as JAMRPO, InvesTT, Invest St. Lucia, or Invest Barbados (see section 6. Invest through Citizenship for Investment III for greater detail on these agencies). Stories Program in government-sponsored vehicles: As of these investments are anecdotal in nature, discussed above the CBI programs channel however, and no data exist to suggest systematic would-be citizen capital into specific vehicles success of these initiatives. Rather, these types that are quasi-SWFs. of investments tend to come via personal networks among trusted friends or family. HNW In the 2013 infoDev survey on Diaspora Diaspora members may invest through a holding investment, 64.4 percent of Diaspora respondents company model in various opportunities across expressed interest in pursuing investment in the 62 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Caribbean, with particular interest in start-up and that there appears to be a “patriotic dividend” in the early stage companies. Although just 13 percent way Diaspora members view financial engagement of respondents said they are currently invested in their home countries; according to the infoDev in businesses in the Caribbean (table 19), the survey, 80 percent of respondents would accept survey indicates 40 percent of respondents have below average commercial returns on their at some time invested in a start-up or early stage investments as a way of giving back. (Although company and that 60 percent of those were in the interviews conducted with Diaspora as part of this Caribbean (73 percent of which were in Jamaica, study also suggest that a patriotic dividend is more albeit with a lower response rate)38 (table 20). applicable to older migrants than to the younger Green energy, telecommunications, education, Diaspora population.) and agribusiness were the top sectorial interests identified. Most respondents said they made their Looking at the survey in terms of the types of investments directly to the company (88 percent) participants and their general financial ties, then, or via an online platform (11 percent), which was one sees that the Caribbean Diaspora largely not specifically named in the survey. Also notable is comprises people with less than US$100,000 of investible wealth (table 21). Table19: Responses Suggesting 13 Percent of Individuals Have Invested “Back Home” Caribbean diaspora survey (EPIC), Question 6 In what ways do you engage with the Caribbean community “back home”? (Check all that apply) Answer Options Response Percent Response Count I send money to friends and family 46.9% 213 I donate money to charities and non-profits 31.7% 144 I donate money to my alma mater 17.4% 79 I volunteer my time 39.9% 181 I mentor individuals 32.6% 148 I invest in the stock market 7.5% 34 I invest in property 22.5% 102 I invest in companies/businesses 12.6% 57 I work for a Caribbean entity 14.5% 66 I am not involved 16.1% 73 Answered question 454 Skipped question 193 III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 63 Table 20: Responses Suggesting 23 Percent of Individuals Have Funded Caribbean Startups Caribbean diaspora survey (EPIC), Question 11 and 12 Have you ever invested in a start-up or early stage company? Answer Options Response Percent Response Count Yes 40.2% 179 No 59.8% 266 Answered question 454 Skipped question 202 Where was the start-up or early stage company based? (Please list all geographies that apply) Answer Options Response Percent Response Count Caribbean 57.8% 104 Other 49.4% 89 If Other (please specify) 80 Answered question 180 Skipped question 467 Table 21: infoDev’s Findings Regarding Investor Profiles within the Caribbean Diaspora Investible Investible Investible Active Active Active Wealth Wealth Wealth investor in investor in investor in Accredited less than US$100,000- US$250,000- Caribbean Caribbean Caribbean Investor US$100,000 250,000 1,000,000 stock market property businesses Response 7.5 75.6 13.7 7.6 7.5 22.5 12.6 Percentage Response 26 248 45 25 34 102 57 Count Answered 345 328 328 328 454 454 454 Question Skipped 302 319 319 319 193 193 193 Question Source: infoDev. Note: “Accredited Investor”—Definition provided in survey based on U.S. law: “1. Individual: Has greater than one million USD investable assets excluding property OR making 200,000 USD per year for at least the last two years 2. Institution: Has greater than five million USD investable assets.” “Investible Wealth”—Investable wealth includes liquid assets such as cash, stocks, bonds, insurance and excludes property. 64 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Diasporic Investment and Linkages with Trade professional services (15 percent) coming second. The Caribbean Diasporic Entrepreneurship This is notable because these industries are trade- Analytical Report, a 2014 study prepared by Dr. focused, create local employment in the region, and Keith Nurse and Dr. Claremont Kirton, both of UWI also drive demand for secondary industries such as Consulting, a subsidiary of the University of the West logistics and shipments. Moreover, the researchers Indies, examines the role of Diasporic communities noted that the majority of the entrepreneurs in their in driving trade in goods and services. In the study, survey could be classified as “high impact” since which the IADB commissioned through Compete they were firms that undertook one of more of the Caribbean, Dr. Nurse and Dr. Kirton draw a clear following key actions as they build their companies: relationship between economic diversification and They performed detailed market research, sought global competitiveness for the Caribbean and the regional or international expansion, introduced mobilization of the Diaspora. More specifically, innovative products back into the region, constantly they assert that although Diaspora actors can serve upgraded their offering, or catered to the Diaspora as providers of capital to businesses in the region, to generate a growing market for their end products. their role should be far more holistic. Specifically, they argue the growth of Diasporic communities In addition to the survey, the researchers conducted generates new markets and demand for associated in-depth interviews with a group of 18 large and services. This expanded market and the demand well-known Diasporic firms in the agroprocessing within it helps to drive trade and to create larger and (Golden Krust, GraceKennedy), transportation more successful Caribbean enterprises. Diasporic (Laparkan), remittances (Jamaica National Heritage communities have a beneficial effect on companies Trust, GraceKennedy Money Services), creative that service their constituency in a number of (Tempo, Sports Max), and telecommunications ways. First, Caribbeans who move to new markets (Digicel, LIME, Telesur) industries. These still demand goods and services from their home firms include some of the largest home-grown countries. Second, they also demand new services corporations in the Caribbean such as LIME, in telecommunications or in financial services that Jamaica National, Digicel, and GraceKennedy, allow them to seamlessly connect back to their home and thus underscore the point that the many large countries. Often these cross-border services are companies in the region see the Diaspora as critical innovative in nature, whereby the Diaspora actually to their operations. helps to introduce new products and services into the region. As a result of this demand for relevant By focusing on the role of Diasporic communities in goods and services—either in their home market generating trade and other linkages, the Caribbean or to connect back to the Caribbean—the Diaspora Diasporic Entrepreneurship Analytical Report also has an impact on business development by helping suggests that engagement of Diaspora investors can to circulate investment, knowledge, intellectual have a catalytic effect on the overall investment property, and innovation. environment in a given country. Specifically, Diaspora investors wishing to operate in the Dr. Nurse and Dr. Kirton conducted a survey of Caribbean may demand “best practices” in terms 67 Diasporic entrepreneurs to understand the of the institutional arrangements in the region with nature of their businesses as well as the industries respect to the proper operations of government, that generate relevant opportunities. In doing so, suppliers, or buyers. This type of catalytic they found that agriculture, agribusiness, and relationship should be encouraged to improve food processing–related businesses were the most access to capital and to undertake structural reforms prevalent industries (31 percent of responses) with that encourage these investors and reflect their desire for clearer and investment-friendly policies. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 65 Market Drivers and Impediments in value and targets eight strategic sectors that align for the Diaspora with the overall economic diversification goals of the federal government: agribusiness, cleantech, The primary institutional drivers for investment manufacturing, tourism, creative industries, in the Caribbean are the countries’ respective downstream energy, IT, financial services, and investment promotion agencies, which, as maritime industries. Through major cultural events mentioned above, have facilitated some investments like carnivals and parades in Diaspora hubs like by the Diaspora. Below is a brief synopsis of the New York and London, InvesTT actively markets roles investment promotion agencies play in the investments to the Diaspora. In 2014 InvesTT, four Caribbean nations selected for in-depth study: in partnership with several cabinet ministries, Jamaica, Trinidad and Tobago, St. Lucia, and sponsored an investment conference in New York. Barbados. Further details on the agencies and other relevant government apparatuses in the region can Invest St. Lucia: Although the investment be found in the in-depth profiles and the diagrams promotion agency of St. Lucia does not target in annex VI. the Diaspora specifically when seeking foreign investment, it does engage with Diaspora investors. JAMPRO: An agency of the Ministry of Industry, In the past, the government, in partnership with Investment and Commerce, JAMPRO promotes Invest St. Lucia, has conducted missions to Canada, business opportunities in terms of trade and exports the United Kingdom, and the United States to and foreign investment into Jamaica. Traditionally, promote government bonds. Most members of the JAMPRO has not segmented their marketing efforts St. Lucia Diaspora do not make investments in their to foreign investors versus Diaspora investors, countries of residence, so the agency figures they so there is usually a mix of Diaspora and foreign are unlikely to invest in St. Lucia. Instead, Invest investors with no ties to Jamaica. But, more recently, St. Lucia sees opportunity in offering Diaspora an JAMPRO has set out to address the unstructured opportunity to target regional markets or develop nature of Diaspora interaction. One way it has products locally that can serve external markets. tried to do this is through a program called Global The strategic areas Invest St. Lucia focuses on are Business Connect, an online business portal. This ancillary services for tourism, manufacturing with online presence seeks to build on a number of export potential, and infrastructure, both hard and offline interactions that are sponsored by key actors soft. There is also strong interest in alternative in the government and economic establishment energy, such as wind and solar projects. of Jamaica such as the MoFA, JAMPRO, and the JSE as well as consulates and High Commissions. Invest Barbados: The government of Barbados, JAMPRO focuses its investment promotion through Invest Barbados, encourages foreign direct activities on strategic sectors that correspond to investment, with the stated goals of creating jobs the planning and development priorities of the and earning foreign currency, by seeking out and government of Jamaica, such as business process presenting projects to potential investors. The outsourcing (BPO), manufacturing, agroprocessing, investment promotion agency doesn’t segment and tourism. its marketing between foreign investors and the Diaspora and, ostensibly, has the least amount of InvesTT: Similar to its Jamaican counterpart, Diaspora-tailored investment promotions activity InvestTT promotes investment opportunities in among the four respective agencies discussed Trinidad and Tobago and has not traditionally here. That said, like the others, Invest Barbados segmented its marketing efforts to foreign investors focuses specifically on investment opportunities in versus Diaspora investors. It focuses specifically on key strategic sectors such as the hotel industry, IT, investment opportunities of US$1 million or more offshore banking, and manufacturing. For example, 66 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora international business companies have a maximum In interviews with members of the Caribbean tax rate of 2.5 percent on income and exemption Diaspora in Canada and the United Kingdom, a from foreign exchange controls. major topic of discussion was the difficulty of vetting potential partners and conducting due diligence Many potential impediments to Diaspora investment in the Caribbean.  Members of the Diaspora worry in the Caribbean are seen, but several key concerns about the competence and trustworthiness of their emerge as the most pressing. From the perspective intermediaries (such as lawyers) when trying to of trying to catalyze investment from the Diaspora, navigate the landscape back home. Among business a high cost is associated with finding and marketing professionals, there is experience with local partners to potential investors. From the perspective of in the Caribbean not honoring their commitments, investors themselves, on the other hand, a number financial or otherwise. In general, a perception is of high-level concerns are seen. First, investors found that local partners and intermediaries are are focused on macroeconomic instability and opportunists with the lack of long-term commitment. social instability. Moreover, investors and potential The Diaspora find due diligence a problem in the investors are concerned about a weak legal Caribbean; they find smaller lawyers to be lacking framework and poor legal enforcement. Finally, in competence and professionalism.  Top firms some investors feel too distant from the region and (e.g., MF&G Trust and Finance Ltd), on the other likely don’t know how best to source and manage hand, are seen as more reliable, but are also more any Caribbean investments. The responses to the expensive. Diaspora members often rely on their infoDev survey are given in table 22. family members to conduct due diligence for them. Table 22: Impediments to Engagement in the Caribbean Caribbean diaspora survey (EPIC), Question 7 What prevents you from getting more involved in the Caribbean? (Check all that apply) Answer Options Response Percent Response Count I do not feel a connection to the Caribbean 3.3% 15 I have no family there 4.4% 20 I have no friends there 1.8% 8 I worry about macroeconomic instability 30.0% 136 I worry about social instability (crime) 41.0% 186 I worry about the weak legal framework and enforcement 31.1% 141 I am too geographically distant 18.9% 86 I am not ready to get involved now, but would like to later 17.8% 81 Not applicable - I am already as invovled as I want to be 28.0% 127 Answered question 454 Skipped question 193 Source: infoDev. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 67 In fact, family members are often the frontrunners might help the Diaspora set up businesses in the because Diaspora fear being fleeced by locals Caribbean. Similarly, if the Jamaica National simply because they reside abroad. There is strong Building Society (JN) or Victoria Mutual could get belief that a trusted intermediary, such as the World the necessary regulatory greenlight for a banking Bank, has to mediate between the government and license in Canada and build a base of Caribbean the Diaspora to have anything happen. A structure customers, they could provide start-up funding to that is independent of the government is important such Diaspora entrepreneurs. to the Diaspora. Further, Diaspora members believe that a big organization such as the World Bank can Interviews and discussions with a large number of provide resources, but a small nimble organization private and public sector actors in the Caribbean should be the interface, to execute any new initiative. region also surfaced specific obstacles not found in the infoDev survey or in the meetings with Diaspora Based on interviews, the Diaspora in Canada and members in Canada and the United Kingdom. These the United Kingdom find that clarion calls issued include the following types of considerations: by the government to invest in the Caribbean are not backed with infrastructure and actions on the 1. Currency volatility and controls: Investors in ground to help facilitate such endeavors. Diaspora Jamaica, in particular, noted that the Jamaican members are uncomfortable with general calls for dollar has lost value steadily over the last four investment from the government without strides to years. In particularly, since the beginning of adequately create a better environment for them. 2012, the Jamaican currency depreciated from These calls for investment, in fact, exacerbate the approximately J$86 per U.S. dollar to more credibility problem since the Diaspora believes them than J$115 per U.S. dollar as of mid-2015. That to be a reflection of an unprofessional, ill-conceived, represents depreciation in excess of 30 percent, and therefore a risky mode of operating. Diaspora which makes investing in Jamaican dollars far members complain that even large agencies like less attractive than under a more stable currency JAMPRO do not move fast enough. The Diaspora regime. Investors in Barbados and ECCU feels there is a lack of comprehensive information on countries don’t face such concerns because programs and opportunities available. For example, the currencies of these countries are pegged to the Jamaica Stock Exchange advancement with the U.S. dollar. Similarly, the government of the Canadian Ministry of Finance, which allows Trinidad and Tobago has historically maintained Jamaican-Canadian Diaspora to invest in JSE a close trading band with the U.S. dollar. stocks through tax-sheltered accounts in Canada, Although these countries offer currency stability, has not been widely promoted. a tightly controlled currency regime does have some secondary effects. Investors in Barbados, Although a subset of Diaspora members have for example, are advised to register foreign entrepreneurial ambitions of their own, and currency that they bring into the country with the would like to set up businesses in the Caribbean, Central Bank to ensure that they will be able to they often do not have the resources to do so. For liquidate these positions and repatriate capital in example, members of the Diaspora cannot get the future. small business loans in Canada to start a business in Jamaica, and the cost of borrowing tends to be 2. Requirement to trade with local brokers: high in the Caribbean. Canadian banks operating Although the local equity capital markets in the in the Caribbean are separately managed and Caribbean offer potential for Diaspora members separately incorporated foreign subsidiaries. If and other offshore investment, investors face it were possible to access a small business loans some structural challenges with regard to through these Canadian bank subsidiaries it purchasing shares. For example, the exchanges 68 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora in the region are not yet integrated, either Legal and Regulatory Impediments regionally, or with global exchanges. As a result, and Drivers for the Diaspora in Barbados, Jamaica, and Trinidad and Tobago, offshore investors must open a local brokerage The following is a summary of the legal/regulatory account and trade from that account. and taxation impediments and drivers facing Diaspora members residing in Canada, the United 3. Foreign Account Tax Compliance Act (FATCA): Kingdom, and the United States, followed by a FATCA is a U.S. federal law requiring U.S. broad overview of preexisting evaluations and citizens (including those living outside the studies of the Caribbean’s legal and regulatory country) to report themselves and their non- environment by international researchers, including U.S. financial accounts to the Financial Crimes the World Bank’s Ease of Doing Business Study, Enforcement Network on a yearly basis. It also the Heritage Foundation’s Index of Economic requires all non-U.S. financial institutions to Freedom, and Transparency International’s Global search their records for suspected U.S. nationals Corruption Perception Index. for reporting their assets and identities to the U.S. Treasury. Congress enacted FATCA to make U.S. Investment Regulation and Taxation it more difficult for (resident and nonresident) U.S. citizens to avoid taxes and other financial Investment Regulation for Retail Investors obligations in the United States. This regulation imposes significant reporting obligations and Public Offering—Equity/Debt in Caribbean costs on foreign banks and financial institutions Companies and could serve as an impediment to the Diaspora Public offerings of equity or debt securities in population as they determine whether they could Caribbean companies to U.S. retail investors— like to open offshore accounts. Caribbean Diaspora members and others—would entail an extremely costly and time-consuming 4. Low liquidity in public markets: All of the public process to be in compliance with the Securities Act equity markets in the Caribbean suffer from low section 5. To make a public offering in the United levels of liquidity. As a result, the markets are not States, a company must first register with the SEC dynamic, do not attract new offerings, and make it and submit a detailed prospectus for approval. difficult for investors to buy or sell large blocks of If a public offering is conducted, the company shares. must then regularly file financial information with the SEC. This process is very costly and time- 5. Lack of investment vehicles or “packaged” consuming and therefore is a realistic option only investments: Although the local investment for large companies. The SEC has estimating that promotions agencies work to create matches the average cost of achieving initial regulatory between offshore investors who are interested compliance for an initial public offering is US$2.5 in the region and local entrepreneurs in need million, followed by an ongoing compliance cost, of capital, very few investment opportunities once public, of US$1.5 million per year.39  marketed by highly credible names in the market come “investment ready.” Moreover, few Public Offering—Units in Caribbean Investment investment vehicles, whether for publicly traded Funds/U.S. Funds Active in the Caribbean investments or for private investments, could Selling participation in an investment fund via a appeal to a wide range of retail investors. public offering is—just like for an equity or debt offering—a major time and cost commitment Annex VII includes an in-depth review of country- that makes it a viable option to only large funds, level regulations. none of which focus their activities exclusively in III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 69 one Caribbean nation or even the broader region. Investment Regulation for HNW Investors A public offering of units in an investment fund requires the fund to comply with the requirements Private Placement—Equity/Debt in Caribbean of public offerings in accordance with the Securities Companies Act section 5. The large investment funds that are Using the private placement exemption in the capable of meeting those requirements are too Securities Act section 4 is a less costly and time- large to address only a single Caribbean nation or consuming alternative to the public offering option the Caribbean region only. In practice, the funds for SMEs, but sellers are required to sell only to that use public offerings and may invest in the “accredited investors,”40 which would limit reach Caribbean are ones that have an emerging markets of the offering to only the wealthiest members of investment profile. the Diaspora. A company is not required to register a sale of securities with the SEC if it conforms to Crowdfunding rules promulgated under the private placement New crowdfunding rules provide an opportunity for exemptions of the U.S. Securities Act, which is Caribbean companies of all sizes to offer investment significantly less demanding than a public offering. opportunities to the Diaspora (retail as well as However, companies are permitted to offer and accredited investors) without having to commit to sell only up to US$5 million worth of securities a cumbersome offering procedure. The SEC passed in a 12-month period, and only to “accredited new crowdfunding rules (Regulation A+ under investors,” or up to 35 other persons. The rules Title IV of the JOBS Act) on March 25, 2015. promulgated under the law also states that the Regulation A+ provides an exemption from the securities once bought cannot be sold for at least registration requirements of the Securities Act. The six months without being registered with the SEC, rules allow nonaccredited investors to participate and general solicitation or advertising cannot be in equity crowdfunding and invest in start-ups and used to market them. Thus, although the private small businesses. Although nonaccredited investors placement exemption represents a simplified and can only invest 10 percent of their income/net worth less costly option, it is best fitted for a seller that per year via crowdfunding, companies are allowed has already identified angel investors and/or HNW to raise up to US$50,000,000. Diaspora members in the United States interested in investing. Although crowdfunding under U.S. law is a relatively simple and cost-effective method of Private Placement—Units in Caribbean raising funds, the establishment of crowdfunding Investment Funds/U.S. Funds Active in the platforms faces greater regulatory complications. Caribbean A crowdfunding portal must be registered with As is the case for companies offering equity or the SEC as a funding portal and be a member of debt securities, investment funds can make use of the Financial Industry Regulatory Authority. It the private placement exemption from the public is prohibited from offering investment advice or offering requirements, but can then sell only to recommendations; soliciting purchases, sales, accredited investors. Investment funds can make or offers to buy the securities displayed on its private placements provided they only sell units to platform; compensating employees, agents, or other “accredited investors” or up to 35 other persons. persons for such solicitation; or holding, managing, These limitations would likely make it very possessing, or otherwise handling investor funds or challenging to establish a fund that invests only in a securities. Caribbean nation or solely in the region alone. 70 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Taxation for Retail and HNW Investors Canada Investment Regulation and As U.S. taxpayers, members of the Diaspora Taxation42 face a number of disadvantages in receiving foreign incomes (including capital gains), and are Investment Regulation for Retail Investors incentivized to make their investments abroad through U.S. financial institutions. U.S. taxpayers Public Offering—Equity/Debt in Caribbean are offered a tax credit or itemized deduction to Companies prevent double taxation on income on which they Similar to the case in the United States, the sale have already paid foreign levies. As a general of debt or equity in a Caribbean company to the rule, one must choose to take either a credit or a Diaspora (retail and accredited investors) in deduction for all qualified foreign taxes. In most Canada requires a prospectus be prepared and filed cases, it is an advantage to take the tax credit. with the relevant securities regulators, a process This is because (1) a credit reduces the actual U.S. that is costly43 and time-consuming, and therefore income tax on a dollar-for-dollar basis, whereas a out of reach for all but the largest companies. deduction reduces only the income subject to tax; The prospectus required for a public offering is a (2) one can choose to take the foreign tax credit comprehensive disclosure document providing even if one does not itemize the deductions; and detailed information on the issuer’s business and the (3) if tax credit is chosen, and the taxes paid or securities being offered. It must also include three accrued exceed the credit limit for the tax year, one years of audited financial statements prepared in can carry over or carry back the excess to another accordance with International Financial Reporting tax year. Nevertheless, the result is that the taxpayer Standards or U.S. Generally Accepted Accounting will end up paying the highest tax—whether it is in Principles. In Québec, written material such as the foreign country or the United States. prospectuses and take-over bid circulars (tender offer materials) must be translated and sent to The 2010 FATCA legislation heightened residents in French. The process for completing an enforcement regarding reporting on investments IPO in Canada generally takes three to four months. held outside the United States; citizens and An issuer that becomes listed in Canada will be permanent residents are required to file with the required to comply with further requirements Internal Revenue Service if they hold financial regarding periodic disclosures, financial reporting, assets of more than US$50,000 abroad. They are and corporate governance, as well as the policies of also required to report on any investments in a the exchange on which its securities are listed. passive foreign investment company (PFIC),41 income from which is taxed at the top individual There are exemptions to the prospectus requirement tax rate (39.6 percent). The FATCA legislation that would make an offering of securities to the not only requires new self-reporting on PFICs and Caribbean Diaspora a less demanding process. other foreign-held financial assets, but also requires Of note for retail investors is the offering all “foreign financial institutions” to report on the memorandum (OM) Exemption, under the British assets held by U.S. citizens and permanent residents Colombia model, which is also practiced in or face noncompliance sanctions. Because of the New Brunswick, Nova Scotia, Newfoundland, punitive tax rate and the time-consuming reporting and Labrador. The British Colombia model of requirements, financial advisers are strongly the OM Exemption allows for sale of securities recommending that U.S. citizens and permanent to retail investors without the issuer having to residents invest internationally only via U.S. comply with the prospectus requirement if (1) the financial institutions. purchaser purchases the security as principal and III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 71 (2) at the same time or before the purchaser signs crowdfunding across the country’s provinces and the agreement to purchase the security, the issuer territories. All securities regulators in Canada delivers a prescribed OM form to the purchaser provide two exemptions to allow companies to and obtains a signed and prescribed form of risk raise capital using crowdfunding: (1) the Accredited acknowledgment from the purchaser. Even though Investor exemption and (2) the OM exemption. The a company must pay for preparation of the OM, British Colombia version of the OM exemption, as a rule of thumb, this expenditure will be worth which is also practiced in New Brunswick, Nova the cost if the fund is looking to raise more than Scotia, and Newfoundland and Labrador, applies CAN$100,000. to crowdfunding as it does securities and units in investment funds. It is a good option for Caribbean Public Offering—Units in Caribbean Investment companies or investment funds looking to attract Funds/Canadian Funds Active in the Caribbean investors to the Caribbean because it is inexpensive As is the case for companies offering securities and inclusive of retail investors. the selling of participation in an investment fund to the general public in Canada requires the fund Investment Regulation for HNW Investors to first file a prospectus with the relevant securities regulator, which is a costly and time-consuming Private Placement—Equity/Debt in Caribbean process, in turn limiting it as an option to only the Companies largest funds. These funds are too large to focus There are several exemptions to the prospectus exclusively on the Caribbean, so there are no requirements that allow companies to issue retail funds that Diaspora members can invest in securities without having to comply with the with the hope that their investment will benefit the expensive and arduous public offering requirements, Caribbean. yet most of the attendant exemptions (NI 45-106) are predicated on investor eligibility requirements The British Colombia model of the OM exemption that greatly limit the field of potential investors. for the prospectus requirement applies to investment Given the extent to which these restrictions limit fund offerings as it does for securities, making from whom companies can raise funds, it follows it the best option for funds interested in tapping that only Caribbean companies that have already Canada’s retail investor market. As discussed identified some angel investors or HNW Diaspora above, the British Colombia model of the OM members would utilize them: exemption allows for fundraising without imposing any eligibility requirements on investors. Thus, it is 1. The Accredited Investor Exemption—allows not only a cheaper and less demanding procedure the distribution of securities in any dollar than the prospectus filing, it also broadens the field amount to an unlimited number of investors in of potential investors to the entire Diaspora. This any Canadian jurisdiction, provided that each exemption could allow smaller-scale investment investor purchases the securities as “principal” funds with allocations focused on the Caribbean (i.e., not for the benefit of others) and qualifies as region to initiate fundraising from the Diaspora. an “accredited investor.”44 Crowdfunding 2. The Minimum Purchase Exemption—applies in Crowdfunding represents a cost-effective way for all provinces and territories in Canada, but under companies and investment funds to raise capital this exemption, an investor must purchase or be from the general public in Canada, though there deemed to purchase the securities as “principal” is variation in the legal framework applicable to and the securities must have an aggregate acquisition cost of no less than Can$150,000. 72 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora 3. The Private Issuer Exemption—allows private OM Exemption model, they would greatly narrow corporations to avoid prospectus requirements the field of potential investors. Although larger so long as they have fewer than 50 shareholders, funds could avoid this all together by absorbing the securities that are closely held by a prescribed costs of a prospectus procedure, they are unlikely group of private investors (e.g., family, close to be Caribbean-focused, as previously discussed. friends, business associates and accredited In addition, it should be noted that, even if an investors), and a restriction on the transfer of investment fund takes advantage of an exemption, securities. it still must file notice of the exempt trades with, and pay a filing fee to, the relevant Canadian securities 4. The Affiliates Exemption—permits an issuer to regulators within 10 days. The amount of the filing trade to an affiliate of the issuer that is purchasing fee is generally a nominal amount; however, in as principal. This exemption is available in all of British Columbia, Alberta, and Québec, the fee is the provinces and territories of Canada. An issuer calculated as a percentage of the investment made is an “affiliate” of another issuer if one of them by resident investors and could become a significant is the direct or indirect subsidiary of the other or amount. if each of them is controlled by the same entity. Taxation for Retail and HNW Investors 5. The OM Exemption—available in all Canadian jurisdictions except Ontario, but only the British Canada’s taxation regime relevant to the foreign Columbia model allows for the participation incomes and assets of its citizens and permanent of retail investors. In contrast, the Alberta OM residents largely mirrors that which exists in the Exemption model, which is also practiced in United States, except that no punitive rate is applied Manitoba, the Northwest Territories, Nunavut, to investments in PFICs. Canada’s tax system is Prince Edward Island, Québec, Saskatchewan, based on residency rather than citizenship, and and the Yukon, has the same requirements as the Canadian residents—including their spouses that British Columbia OM Exemption, but with the may work abroad—are subject to federal and addition of the following: Purchasers must qualify provincial taxation and reporting standards for as “eligible investors”45 and the acquisition cost international incomes. Any income, dividends, to the purchaser cannot exceed Can$10,000. or capital gains generated by foreign investments must be reported to the Canada Revenue Agency. Private Placement—Units in Caribbean Additionally, the taxpayer must report the specified Investment Funds/U.S. Funds Active in the foreign investments in his or her tax return if the Caribbean total cost of a Canadian taxpayer’s foreign property Investment funds can make use of the private exceeds Can$100,000 at any time during the year. placement exemption from the prospectus Specified foreign property includes funds and requirements in Canada. The prospectus exemptions bank accounts held abroad; debt securities issued described above in relation to regular companies by a nonresident; shares of foreign corporations, are also all available to investment funds. Because even if they are held by a Canadian broker; investment funds normally sell participation shares of Canadian corporations on deposit with a outside of their close circle of founders, the foreign broker; real estate; and other tangible and exemptions that are most applicable are the intangible properties located outside Canada. It Accredited Investor Exemption, the Minimum does not include property used or held exclusively Purchase Exemption, and the OM Exemption. in the course of an active business carried on by Although these exemptions would help funds avoid the taxpayer; registered pension fund investments; the costly and time-consuming procedure of a foreign investments held in Canadian-registered prospectus filing, excluding the British Columbia mutual funds; personal-use properties; and shares III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 73 or debt securities of a foreign affiliates. Although assets, liabilities, financial position, profits, losses, a resident can receive a foreign tax credit (T2209) and prospects of the company making the securities to avoid double taxation if the foreign country in offering. Thus, as in Canada and the United States, which they garner income or hold assets levies taxes the procedural requirements of the U.K. public on them, Canadian residents will end up paying the offering regime are time and cost consuming, and highest tax rate whether it is in the foreign country therefore prohibitive to Caribbean SMEs. or in Canada. In particular, the foreign tax credit provides residents with a credit for withholding An exemption to the prospectus requirement taxes previously paid to another country, up to for securities offerings could allow Caribbean 15 percent. If the credit is insufficient—that is, companies to market to retail investors while if the credit is less than the foreign tax paid— also avoiding the expensive and onerous nature investors may also be able to claim a provincial of a prospectus filing. This exemption from the (or territorial) tax credit (T2036). All said and prospectus requirement is for offers where the total done, Canada’s taxation system for foreign earned consideration for securities offered is less than £5 income is unfavorable compared to the taxation million. This may allow for Caribbean companies to of returns on domestic investments. However, the raise funding in the U.K. market from a large swath system is distinctively less inhospitable toward of the Diaspora, which predominately comprises foreign investments than is the case in the United retail investors. More research is needed to better States because it does not impose disincentives to understand this avenue.48 investing through foreign financial institutions. Public Offering—Units in Caribbean Investment Funds/Canadian Funds Active in the Caribbean United Kingdom Investment Regulation Selling participation in an investment fund to the and Taxation—Executive Summary general public requires the investment fund be Investment Regulation for Retail Investors authorized and have a prospectus approved by the FCA. The time and cost commitment needed to Public Offering—Equity/Debt in Caribbean comply with these requirements allows only the Companies largest funds to pursue this option. An investment The sale of a debt or equity in Caribbean company fund that seeks to attract retail investors must be to the Diaspora in the United Kingdom must as a authorized by the FCA, for which a labor-intensive main rule prepare and submit for approval by the prospectus is required. Furthermore, a fund Financial Conduct Authority (FCA), a costly and promoter must be authorized by the FCA to arrange time-consuming procedure that is out of reach for all investment deals. This procedure is costly and time- but the largest Caribbean companies. In the United consuming and therefore only available for large Kingdom, the Companies Act prevents anyone funds. As explained earlier, large funds cannot limit other than public companies from offering securities their investment scope to a Caribbean nation or the to the general public. The Prospectus Rules, Caribbean region; thus any competitive advantage implemented by the EU Prospectus Directive,46 in marketability to the Diaspora is diminished. require that securities cannot be marketed or sold to the general public until a financial regulator has As mentioned above, an exemption to the prospectus approved a prospectus. These requirements apply requirement could allow for fundraising from to offers of transferrable securities to the public Diaspora retail investors in the United Kingdom, and/or when securities are admitted to trading on and this exemption also applies to investment a regulated market, which, in the United Kingdom, funds. The exemption providing for investment is the London Stock Exchange. The requisite funds offering units with a total value of less than prospectus must contain information regarding the £5 million to avoid the prospectus procedure could 74 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora mean smaller, Caribbean-focused funds looking to total consideration received per investor is at least fundraise from the Diaspora in the United Kingdom €100,000, and where the total consideration cannot can target retail investors. Yet, again, more research exceed €100,000. These exemptions parameters is needed to verify this possibility. provide for a less demanding securities placement option to Caribbean companies, but they also Crowdfunding narrow the field of potential investors to only HNW Crowdfunding rules in the United Kingdom individuals and financial professionals within the allow for Caribbean companies and investment Diaspora, meaning this option is likely best suited funds to sell equity, debt, or participation to for companies that have already identified some retail investors, provided their investment is investors ahead of the placement. limited. Crowdfunding in the United Kingdom is regulated by FCA rules. These rules stipulate that Private Placement—Units in Caribbean crowdfunding platforms can attract: (1) HNW Investment Funds/U.S. Funds Active in the investors, (2) certified sophisticated investors, Caribbean (3) self-certified sophisticated investors, and (4) The aforementioned exemptions apply to investment restricted investors. Retail investors are permitted funds offering units as they do to companies looking to invest in companies and funds via crowdfunding to sell securities. However, these exemptions and so long as their investments are limited to 10 liberties are predicated on a fund’s field of potential percent of their assets. Given the relatively lenient investors being limited to HNW and qualified regulation regarding qualifications for investments professionals. An investment fund investing in through crowdfunding, as well as the growth Caribbean companies would typically be a venture seen in fundraising vis-à-vis crowdfunding in capital fund. In the United Kingdom, the most the United Kingdom in recent years, it follows common legal structure for venture capital funds that crowdfunding is an auspicious vehicle for is an English Limited Partnership (ELP) formed Caribbean companies and funds of all sizes to raise under the Limited Partnerships Act. ELPs allow capital from the Diaspora in the United Kingdom. significant flexibility around the commercial terms for the fund and are tax transparent. Most venture Investment Regulation for HNW Investors capital funds do not sell units to retail clients and are for that reason unregulated. In addition, they Private Placement—Equity/Debt in Caribbean are lightly regulated from a corporate governance Companies perspective, are not subject to onerous publication Several exemptions to the prospectus requirement requirements, and offer investors limited liability in the Prospectus Rules could make sales of debt protection. Other structures that may be used or equity to the Diaspora in the United Kingdom a include public companies for VC fund structures, cost-effective option for Caribbean firms, so long as private companies for club-style investments and they limit their offerings to “qualified investors.”48 limited liability partnerships. The tradeoff between A prospectus is not required for an offer of securities the freedoms allotted to investment funds of this addressed solely to qualified investors/professional kind and the narrowing of their potential investor clients.  The prospectus requirement that follows field ultimately means such funds would be able from the EU Prospectus directive will not apply and to approach only a small portion of the Diaspora. the issuer will not be required to produce a prospectus This, in turn, could provide an obstacle toward the for offers within the following thresholds: offers establishment of a fund focused on investments in of securities addressed to fewer than 150, with the Caribbean exclusively. denominations of at least €100,000, where the III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 75 Taxation for Retail and HNW Investors regime for non-U.K. individuals (i.e., not U.K. domiciled) coming to base themselves in the United In the United Kingdom, investment in a company in Kingdom. a foreign country by a U.K. taxpayer will be taxable to both the foreign country and the United Kingdom if there is no double tax treaty or tax exemption to The Business Environment avoid double taxation of profits earned overseas The following provides analysis of the World and brought back to the United Kingdom in place. Bank’s Ease of Doing Business Study, the Heritage Even if a tax credit is awarded, a U.K. taxpayer will Foundation’s Index of Economic Freedom, and pay the highest tax on income overseas whether it Transparency International’s Global Corruption is in the foreign country or the United Kingdom. Perception Index as they pertain to the Caribbean Individuals who are resident in the United region. Kingdom are generally liable to U.K. taxation on their worldwide income and gains. Partnerships Despite growing integration throughout the are generally treated as transparent (i.e., flow- Caribbean, the regulatory environment is far through) for U.K. tax purposes. Accordingly, where from monolithic, which belies attempts at making the member of a partnership is a company or an generalizations about environmental conditions individual, he or she will be taxed on his or her for investing, starting, and operating businesses share of the profits as if they accrued directly. In in the region. Nevertheless, based on the World the event that a nonresident company is a partner or Bank’s Ease of Doing Business Study in 2014, a member in a partnership that conducts a trade in Jamaica and Trinidad and Tobago are the most the United Kingdom, the nonresident company will welcoming business environments holistically and, be considered to have a permanent establishment more specifically, appear to be the most hospitable in the United Kingdom such that profits will be for investments involving construction and SMEs subject to the country’s corporation tax of 24 (table 23). In 2014, Jamaica had the most auspicious percent, unless an alternative arrangement has been climate for starting and operating a local firm agreed to by HM Revenue and Customs. Where among all Caribbean nations, ranking 58th out of a taxpayer (whether a company or an individual) the total 188 countries and sixth out of the 32 Latin is resident in the United Kingdom and another American and Caribbean countries surveyed. In country, and the United Kingdom has a double tax fact, Jamaica ranked first in the entire LAC region treaty with the country in place, then that treaty will for “starting a business.” The next best-rated overall normally have a residence “tie-breaker” provision. Caribbean regulatory environment is Trinidad This provision will determine in which country the and Tobago, which placed 79th in the world and person is to be treated as resident for the purposes eighth in the region. It ranked fifth among Latin of allocating taxing rights. The United Kingdom has American and Caribbean countries for Protecting an extensive network of double tax treaties. Other Minority Investors, seventh for Starting a Business, U.K. tax policies typically considered favorable and ninth in Getting Credit, which together make for investors are as follows: generous rules as to its legal and regulatory environment seem one of deductibility of interest expenses;49 no withholding the most advantageous for equity investment and tax on dividends paid out to shareholders; an debt financing for SMEs, yet as has been discussed exemption from tax on capital gains on the disposal previously and as will be explored in detail in the of trading subsidiaries and certain minority interests in-depth profile, this is not the reality on the ground. in trading companies (known as the “Substantial Shareholdings Exemption”); and an attractive tax 76 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 23: Ease of Doing Business Rankings (Within LAC Region Except Where Indicated) Ease of Doing Ease of Dealing Business Doing Starting With Protecting Trading Rank Business a Construction Getting Minority Enforcing Across Resolving (Global) Rank Business Permits Credit Rights Contracts Borders Insolvency Antigua & Barbuda 89 12 18 3 25 2 6 19 19 Bahamas 97 15 15 17 32 18 21 9 8 Barbados 106 19 14 26 20 29 27 3 2 Belize 118 22 26 14 29 24 30 20 10 Dominica 97 14 5 8 22 13 26 18 20 Dominican Republic 84 11 19 18 14 12 5 2 27 Grenada 126 28 9 7 22 18 24 7 29 Guyana 123 26 17 5 30 17 4 15 24 Jamaica 58 6 1 2 4 8 19 25 7 St. Kitts & Nevis 121 25 12 1 25 13 18 10 29 St. Lucia 100 16 8 6 25 18 25 26 16 St. Vincent and the 103 17 9 4 25 8 15 5 29 Grenadines Suriname 162 30 30 15 31 25 32 23 21 Trinidad & Tobago 79 8 7 21 9 5 31 14 9 Source: World Bank Ease of Doing Business Study 2014. With regard to the level of economic freedom in Bahamas, which topped the Caribbean nations the Caribbean, again, conditions vary dramatically labeled “moderately free,” at 40th out of the total from country to country. Nevertheless, based on 178 countries. For Jamaica (48th) and Trinidad and the Heritage Foundation’s 2015 Index of Economic Tobago (67th), which ranked high in the World Freedom, the vast majority of Caribbean nations Bank’s Ease of Doing Business Study, low scores fall into the “moderately free” category (table 24). on the Freedom from Corruption, Property Rights, The Index of Economic Freedom grades a country’s and Financial Freedom indicators are the primary economic freedom based on measuring certain reason for the low rankings on overall economic indicators on a 0 to 100 scale, ultimately creating an freedom. These factors are common impediments aggregate score and country ranking. The indicators to investor confidence all along the continuum used include Rule of Law, Limited Government, from SME investments through to large-scale Regulatory Efficiency, and Open Markets.50 As PPPs. Further down the list, Belize, Guyana, and table 24 indicates, the only Caribbean nation with Suriname fell in the “mostly un-free” category, a “mostly free” ranking (35th out of 178 countries) though none of the select countries fell within the is St. Lucia, which had an aggregate score of 70.2 “repressed” categorization. out of 100. The next highest ranking goes to the III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 77 Table 24: Economic Freedom Favors St. Lucia, Eschews Corruption in Largest Economies Global Economic Overall Freedom Freedom Economic Property From Investment Financial Ranking Freedom Rights Corruption Freedom Freedom (out of 178) Score Score Score Score Score St. Lucia 35 70.2 70 71 65 40 Bahamas 41 68.7 70 71 30 60 St. Vincent 44 68 70 62 60 40 Barbados 46 67.9 80 75 65 60 Jamaica 48 67.7 40 38 85 50 Dominica 61 66.1 60 58 75 30 Trinidad & Tobago 67 64.1 50 38 60 50 Dominican Republic 86 61 30 29 75 40 Belize 117 56.8 30 6.7 50 50 Guyana 123 55.5 25 27 45 30 Suriname 129 54.2 35 36 30 30 Antigua & Barbuda n/a n/a n/a n/a n/a n/a St. Kitts & Nevis n/a n/a n/a n/a n/a n/a Grenada n/a n/a n/a n/a n/a n/a Source: Heritage Foundation 2015 Index of Economic Freedom. With regard to the legal, regulatory, and business Table 25: Corruption Perception Index environment in the Caribbean, corruption trumps liberalization or “openness” (table 25). On Global Corruption Perception Ranking (out of 175) Transparency International’s Global Corruption Barbados 17 Dominican 115 Perceptions Index for 2014, some Caribbean Republic countries were ranked toward the top as well as Bahamas 24 Guyana 124 the bottom. Barbados scored the best, above the St. Vincent 29 Belize n/a United States, with a 74 on a 0 to 100 scale (0 being Antigua & “highly corrupt” and 100 being “very clean”), and Dominica 39 n/a Barbuda an overall ranking of 17th out of 175 countries, with St. Kitts & the lower the ranking meaning the lower the level Jamaica 85 n/a Nevis of corruption in comparison to the other countries Trinidad & 85 Grenada n/a assessed. But perhaps the most noteworthy data Tobago from the corruption perceptions index are those Suriname 100 St. Lucia n/a that expose just how serious corruption issues are Source: Transparency International 2014 Global Corruption in the region’s largest and in many ways strongest Perceptions Index. economies (e.g., Jamaica 85th, Trinidad and Tobago 85th, Dominican Republic 115th). 78 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Current Diaspora Convening national associations for the St. Kitts and Nevis Platforms and Distribution Diaspora, and upwards of 200 Jamaican societies spread across the United Kingdom. In Canada, Channels the Jamaican Canadian Association is perhaps the The Caribbean Diaspora is connected through a most prominent organization catering to Jamaican linked chain of long-standing associations, although migrants, but Jamaican associations are found all these organizations tend to channel their energies over the country. In addition, secondary school into political, charitable, and cultural interactions, alumni associations are extremely active across the with some investment and economic activities as Diaspora community. In Canada, Jamaican Diaspora well. For example, the Jamaican Diaspora Institute member Paul Barnett brought together the Alliance counts more than 187 Diaspora organizations, of Jamaica Alumni Associations, consisting of which make significant contributions to Jamaica in 33 different school organizations. Professional the areas of health care, education, sports, politics, organizations, which may group nurses of business, investment, and trade. Similarly, the St. Guyanese-descent or lawyers among the Jamaican Lucian government interfaces with 24 different Diaspora, tend to perform significant charity work Diaspora groups in Canada, the United Kingdom, through either mobilizing money to buy equipment the United States, and the Caribbean. Barbados and for a hospital, paying for nurses back home to take Trinidad and Tobago also maintain similar social, courses in Canada and the United Kingdom, or even political, and cultural networks. Depending on providing skills transfer to their countries of origin. the country, these organizations tend to fall into The embassies/high commissions often assist these three general categories: charities, “old boys” and charitable causes by helping deliver the goods “old girls” networks, and regional organizations to the country. The sociocultural organizations that bring together the Diaspora at the local level typically consist of older Diaspora members; these to engage in areas of shared interest, such as organizations tend not to evolve to suit the needs of cultural and political events. The Diaspora also the younger Diaspora, thus the younger Diaspora comes together for large, periodic cultural events. population tends not to be as actively connected These include large food festivals and Caribbean with them. parades such as the Jambana festival in Canada and Trinidad Carnivals held all over the world. Finally, In additional to consular missions, many countries the Caribbean community participates actively at also maintain online communities through which athletic events such as the Penn Relays, an important they are seeking to engage with their Diasporas. track and field competition in Pennsylvania. Barbados engages with its Diaspora via the Barbados Network.51 Similarly, the Jamaican The various High Commissions and embassies Minister of Finance has created a Diaspora are typically a convening platform for the web portal at jamicaDiasporaconnect.com in an Diaspora, organizing cultural events and providing initiative funded by the European Commission– Diaspora with country updates, and they often United Nations Joint Migration and Development work in coordination with nongovernmental Initiative for the project Knowledge Networks for Diaspora-related organizations. The Grenadian Connecting Jamaica and Its Diaspora. To date, High Commission in the United Kingdom invites 1,500 registered members are in the database, the Diaspora for events on the last Friday of although the goal is to reach at least 100,000 to every month to provide updates and exchange have some critical mass. One of the impediments to information. About 60 people on average attend growing this web community, other than marketing every month. There are 23 active Guyanese and public relations, will be skepticism and distrust organizations, six Grenadian organizations (two of the Diaspora, who may not understand the exact of which are for medical professionals), 10 intention of the site and may have privacy concerns. III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 79 In an effort to stimulate direct political, cultural, into strategic sectors such as agribusiness, clean and economic engagement in the homeland, more tech, manufacturing, tourism, creative industries, formal interactions with the Diaspora take the form downstream energy, IT, financial services, and of conferences or government missions abroad. maritime industries. Barbados, Jamaica, St. Lucia, and Trinidad and Tobago all organize conferences in which the In addition to government entities and sciocultural country invites the Diaspora to discuss Diaspora and professional associations, the private sector is issues. Several of these conferences also include a powerful force in bringing the Diaspora together. discussions of issues relevant to investors. For Successful companies from the region that operate example, the goal of the Jamaican biennial internationally and cater to both local and Diaspora conference in June 2015 was to attract 2,000 residents represent a vital and significant source attendees, up from 1,500 in 2013. Organizers of both cultural and commercial linkages. Several hoped 50 percent of the attendees would come Jamaican titans in the corporate sector have grown from the Diaspora, while the remainder would and internationalized, both within the Caribbean and represent key local stakeholders. Similarly, St. in markets like Canada, the United Kingdom, and Lucia also organizes a biannual conference in the United States, by catering to the needs of the which the country invites the Diaspora, particularly Jamaican and broader Caribbean Diasporas. These the leadership and members of the associations, companies include the building societies Jamaica to return home to discuss Diaspora issues. National and Victoria Mutual, as well as consumer Attendance at the most recent event topped 1,000 goods company GraceKennedy. JN, under Earl individuals. The conference focuses on political Jarrett’s leadership, has an active presence in the and social topics, including education, welfare, United Kingdom dating back almost 30 years. They and charitable fundraising, but it does not have an facilitate the flow of remittances back to region economic or investment component. Additionally, and help the Jamaican Diaspora with mortgages the government uses this conference as a forum to to buy land and build or buy homes, which are the develop and refine its policies for the Diaspora. predominant forms of Diaspora investment. Through its active presence in the United Kingdom over the Leveraging their consular networks, governments past decades, JN has invested in understanding the also promote investment in their countries—either Diaspora, their aspirations and motivations, so that from the Diaspora or from overseas investors in the institution can evolve to suit the Diaspora’s general—through investment promotion agencies, needs. In doing this, JN has also tried to reach out which are discussed in detail above in the Market to the younger generations in the United Kingdom: Drivers and Impediments section. These include JN and the Caribbean Council, which supports trade Invest Barbados, which focuses specifically on and investment between the United Kingdom and investment opportunities in key strategic sectors the Caribbean, have yearly events called “Caribbean such as IT, offshore banking, and manufacturing. Question Time,” which target the professional Similarly, JAMPRO promotes business Diaspora to foster the political relationship between opportunities in terms of (1) trade and exports the U.K. Caribbean Diaspora and their U.K. and (2) foreign investment in Jamaica. JAMPRO parliamentary representatives. In Canada, both focuses its investment promotion activities on JN and Victoria Mutual have a strong presence strategic sectors that correspond to the planning when it comes to remitting funds and facilitating and development priorities of the government of the purchasing of retirement homes. In the United Jamaica. While Invest St. Lucia does not target Kingdom, the Voice newspaper, which seeks to the Diaspora specifically when seeking foreign speak for the black community in the country, was investment, it does engage with Diaspora investors. launched in 1982 and is geared toward people of Finally, InvesTT seeks to facilitate investment Afro-Caribbean origin; the Jamaican newspaper 80 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The Gleaner bought it in 2004. The GraceKennedy High Commissions, cultural organizations, and Group, a large Caribbean conglomerate, is another businesses. This group tends to be less motivated business organization active in the United States by altruism given their connection with their home in terms of providing a convening platform for the country is weaker (thus less charity-oriented) Diaspora, but they are not as active in Canada or the and more geared toward investment that yields United Kingdom. Similarly, Digicel, the pan-regional commercial returns. The younger Caribbean telecom network, also has a presence in the United Diaspora, which is less connected through social, States, but not as much in Canada or the United cultural, and alumni networks, is a group that is Kingdom. Finally, Laparkan, a Guyanese-owned harder to identify and congregate. They have a shipping company, seeks to connect the Caribbean connection with the Caribbean, but a less tangible community throughout the world with its services. one than that shared by older migrants. They tend to be professionals with higher disposable income As discussed previously, the connection between levels. Although they tend not to join clubs, they trade and investment when it comes to Diaspora would attend meetings that have status and meaning communities and their countries of origin is an and are aspirational (e.g., meetings with high- important one. As the 2014 Caribbean Diasporic level ministers) and are motivated more strongly Entrepreneurship Analytical Report contends, the by financial returns than altruism. Both JN and the generation of increased trade and other commercial Caribbean Council have tried to engage with these linkages between Diaspora communities and the Diaspora members, for example, by inviting key Caribbean region can have a catalytic effect on representatives from Jamaica who are focused on the the overall investment environment in the region. Logistics Hub to the United Kingdom in May 2014. Diasporic communities have a beneficial effect on companies that service their constituency in a Nevertheless, based on interviews with members number of ways when they increase demand for of the Caribbean Diaspora in both Canada and both nostalgic goods and innovative services in the United Kingdom, there is little awareness of sectors such as telecommunications and finance. the existing investment platforms and initiatives The Diaspora can have an impact on business for either HNW or retail investors; that is, outside development by helping to circulate investment, of facilities for charity, retirement homes and knowledge, intellectual property, and innovation. remittances.  Associations such as the Jamaican At the same time, Caribbean firms are able to Canadian association tend to host property reach a degree of size and scale that would not developers who inform the Diaspora about be possible if they were simply to operate in their investments in retirement homes. While this is home markets. In addition, Diaspora investors based on interviews, Diaspora members would be wishing to operate in the Caribbean may demand interested in investing in mutual funds (such as “best practices” in terms of the institutional through RBC in Canada) with investment focus on arrangements in the region with respect to the the Caribbean, there are currently no such vehicles proper operations of government, suppliers, or to their knowledge in either Canada or the United buyers. This type of catalytic relationship should Kingdom. It is unclear if Michael Lee Chin’s AIC be encouraged to improve access to capital and to mutual fund (which was sold in 2009 to Manulife undertake structural reforms that encourage these Asset Management Ltd) or Raymond Chang’s investors and act upon their desire for clearer and CI Investment Inc. had particular allocations to more investment-friendly policies. Caribbean assets. Michael Lee Chin’s Portland Private Equity funds were not discussed by HNW There is a strong initiative to mobilize the younger, Diaspora interviewed as being a potential channel more financially savvy, professionals (e.g., second for their investment. generation) among the Caribbean Diaspora by the III. Diaspora and the Potential for a Diaspora-Focused Finance Initiative 81 Diaspora-tailored bond offerings, which can government, conducted missions to Canada, the provide the opportunity for Diasporic communities United Kingdom, and the United States to promote to finance government debt or private enterprise government bonds. Currently, St. Lucia’s Ministry in their countries of origin, have been explored by of Finance is partnering with a brokerage firm called developing countries in need of external financing Eastern Caribbean Global Investment Brokers Ltd, and looking to engage Diaspora investors.52 As is which is a division of the Bank of St. Lucia, to detailed in the Typology of Diaspora Initiatives study Diaspora bonds and their potential to help below, both India and Israel have successfully St. Lucia access external financing. Nevertheless, issued Diaspora-oriented government bonds.53 In a number of obstacles face the potential success the case of India, three different Diaspora bonds of Diaspora bonds offerings in the Caribbean and have been issued to help address balance of payment should be kept in mind. First and foremost, Jamaica deficits and circumvent the high costs associated and St. Lucia—the two countries in the region with accessing international capital markets (e.g., that have explored the possibility of a Diaspora tougher standards of credibility, demands for higher bond offering—have already encountered some yields, and pressures for public policy reform). To problems. The earlier World Bank intervention on date, Diaspora bonds issued by the government- Diaspora bonds in Jamaica did not take off in the owned State Bank of India (SBI) have raised more end because the Jamaican government purportedly than US$11 billion. The example provided by Israel did not consider it valuable to specifically target is also relevant to the Caribbean region, because its the Diaspora. From an investor’s standpoint, the Diaspora bonds, first made available by the Israeli attractiveness of a public bond in a country like government and the Development Corporation of Jamaica, which has one of the highest rates of Israel since 1951, have financed more than US$26 public debt in the region, is also a concern. Lack billion in funding for transportation, energy, of borrowing credibility, concerns with regard telecommunications, water resources, and other to governance, and institutional deficiencies are essential infrastructure projects. The structures of disincentives for investors and have proven the the bonds issued by the two countries have varied downfall of Diaspora bonds elsewhere, such as in their length of maturities, fixed or floating rates, Ethiopia’s Millennium Bond.54 As well, a Diaspora minimum subscriptions, and degree of discount. bond issuance would also have to surmount the effects of currency depreciation. The Jamaican Interest in Diaspora bond offerings has been dollar lost more than 30 percent of its value against demonstrated among both Caribbean governments the dollar in the last three years, which directly as well as members of the region’s Diasporic affects the returns for offshore investors who are communities. However, Diaspora bonds were investing hard currency and the bond market. Thus, not considered as part of this prefeasibility study in the absence of currency stability, investment in given the context in some Caribbean countries of liquid assets will remain unattractive in terms of impediments such as currency volatility, trust in absolute returns, and liquidity is likely to remain government as an interface, and so on. According to limited until foreign investors feel that their overall the 2013 infoDev survey, 63 percent of Caribbean return will be attractive when they convert it back Diaspora respondents said they would be interested to hard currency. Finally, as the experience of St. in investing in a Diaspora bond. Previously, the Lucia in exploring a Diaspora bond option stands to World Bank in partnership with the government show, there are legal hurdles as well. The greatest of Jamaica explored the potential for issuing a of these is registering with the SEC, which is Diaspora bond, as part of an intervention tied to required if a bond offering wishes to raise capital in alleviating Jamaica’s public debt issues. In the case the United States. of St. Lucia, the country’s investment promotion agency has, in the past, in coordination with the IV Recommendations IV. Recommendations 83 Framing the Recommendations The efficacy of a regional investment initiative oriented for the Caribbean Diaspora would be best served through a dynamic structure of targeted and tailored strategies. A multifaceted approach would address the diversity of investment capacities and preferences within the Caribbean Diaspora, as discussed in section IV. Specifically, the initiative should cater to retail investors interested in passive investment vehicles; Diaspora entrepreneurs wishing to set up business in the Caribbean; HNW individuals interested in angel environment for businesses, encouraging economic investment and PE/VC vehicles; and the citizenship diversification, or developing market catalyzing by Investment Diaspora class, with possible interest in initiatives. But whether through investment, TA, or bigger ticket investments. What crosscuts all of these regulatory reform, efforts to cultivate SMEs markets potential areas of focus—regardless of what investors would fundamentally contribute to sustainable are being targeted, what assets are financed, and the development in the region. facilitation methodology being employed—is the need for commercial viability. A look at various past Given the state of the financial sectors around the and present efforts to galvanize Diaspora investors region discussed in detail by this report, setting for development in emerging markets elsewhere up a new mutual fund with underlying Caribbean supports this conclusion (section V). investments would be unadvisable. As discussed in section IV (subsection C) and annex I, the supply SMEs are a strategic sector seeing growth across of securities in the region is currently insufficient, the region that could offer entrepreneurial and including in the largest stock exchange in Jamaica, to investment opportunities to members of the operate such a mutual fund effectively while providing Diaspora and in turn foster both capital and skills adequate diversification to investors. What’s more, as transfer to markets in the Caribbean. Through VC indicated by the infoDev Caribbean Diaspora Survey, and PE networks as well as securities exchanges, a relatively limited percentage of the Diaspora are such as the JMs in Jamaica and Trinidad and interested in pan-Caribbean investments, which would Tobago, SME investments should target a range be the only way to compensate for the insufficient of sectors, including, but not limited to, services, securities supply in individual country markets, for agriculture, manufacturing, and technology. In some example, by structuring a regional vehicle. Finally, it countries, such as Trinidad and Tobago, capital is would be very costly to register a new mutual fund not the biggest constraint faced by firms; instead, it with the capital markets authorities in Diaspora host would be more useful to focus on building a better countries. 84 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The research conducted in this prefeasibility study The second set of recommendations are focused on also indicates that a new PE/VC fund should catalyzing investment and SMEs development in the not be established. Specifically, as discussed in Caribbean and are primarily designed to inform existing section IV (subsection C), the Caribbean presents projects that are under the auspices of the World Bank a commercially challenging environment for PE/ and other regional actors. Last, it is recommended that VC, with rare successes so far, and thus establishing a number of legal and regulatory reforms be pursued, a new fund could entail more risk than reward. which would in turn have major implications for the Moreover, in the case of Jamaica, as is discussed in aforementioned instruments and vehicles and would annex I, the DBJ may provide Diaspora members support market-catalyzing activities. with the opportunity to invest in their own sponsored PE/VC funds, which could make establishing a new fund both redundant and self-defeating. It should be Financial Instruments and Vehicles noted that research—outlined in this study—shows The World Bank should conduct a feasibility study that marketing to individual (HNW) investors is for a potential regional Diaspora entrepreneurship both challenging and expensive, and thus it would be cofinancing facility. Drawing from research into impractical to start a fund designed exclusively for the demand for financing in the region in this report Diaspora investors. and others, this study will need to estimate the financing gap faced by SMEs and entrepreneurs in Given the relative size and maturity of its economy, the region. Ultimately, it should orient this research Jamaica could provide the best option for the pilot of toward a better understanding of the potential a Diaspora investment initiative (annex I). Jamaica for a cofinancing facility with support from the stands out as the most advantageous country in World Bank and CDB, under a private manager, which to domicile a preliminary pilot project because which would help finance Caribbean Diaspora of its vibrant entrepreneurship ecosystem; its large, entrepreneurs wishing to set up businesses in the diverse and actively engaged Diaspora; the fact Caribbean. Spillover value from such a facility that the government already has a robust Diaspora would come from the elevation of local business outreach program; and the DBJ would be a strong practices. Potential partners for the cofacility could and reliable partner. That said, as was noted in section be infoDev, EPIC, and The Country Management IV, some potential investors and prominent members Unit (CMU). The work of Israel’s Ministry of of the Diaspora in Canada, the United Kingdom, and Immigrant Absorption in assisting Jewish Diaspora the United States who were interviewed expressed members who wish to start a business in Israel or skepticism about the credibility of the government in transfer one to the country, which is detailed in the identifying and facilitating investment opportunities. Typology of Diaspora Initiatives in section V, could Thus the involvement of a reputable independent provide valuable guidance for the study. Funding broker like the World Bank is preferable. sources for the study still need to be identified. The World Bank should also conduct a feasibility Recommendations for study for a regional debt and equity-financed Implementation infrastructure PPP facility. This study should look at The recommended next steps for implementation the viability of a facility with support from the Bank fall into three distinct, yet interrelated categories: and CDB, under private management, that would (1) financial instruments and vehicles, (2) market- target institutional investors as well as CBI HNW catalyzing activities, and (3) legal and regulatory reform. individuals for investment in regional infrastructure Specifically, we recommend feasibility assessments for projects, including both commercial (e.g., transport, (1) a regional Diaspora entrepreneurship cofinancing electricity, telecommunications) and social facility and (2) a regional infrastructure PPP fund. infrastructure (e.g., health, education). As discussed IV. Recommendations 85 in sections III and IV, substantial need exists for Further Diaspora investment growth should be infrastructure financing throughout the Caribbean, catalyzed by capitalizing on a number of existing largely attributed to the inadequate investment financial development projects in the region. capacity of governments facing debilitating debt. First, packaged investment opportunities should Thus the feasibility study will need to establish an be presented regularly to the Diaspora through estimate of the financing gap for infrastructure in existing convening platforms in host countries; the region and in Jamaica, in particular. The initial second, TA should be deployed to support deal flow idea is to structure the fund in three parts: (1) an for crowdfunding platforms targeting the Diaspora; infra-venture compartment, largely supported by a third, TA should be used for replicating the JSE idea Department for International Development (DFID) of allowing Diaspora members to invest in the local grant; (2) an infra-equity compartment; and (3) an stock exchange through tax-sheltered accounts; infra-debt compartment. But the feasibility study fourth, TA should be utilized to aid the expansion of should optimize a plan for developing a facility that Homestrings into the Caribbean; fifth, TA should be can finance a variety of project PPP SPVs. The study provided to facilitate Diaspora-mapping exercises should also explore the possibility of the Public- with IOM, particularly Jamaica’s efforts to map its Private Infrastructure Advisory Facility (PPIAF) Diaspora population; and sixth, funding should be serving as a partner and assess the potential for provided for study tours through which Diaspora collaboration with CBI programs. The study would connectors can meet entrepreneurs in the Caribbean be funded with US$1 million from a DFID grant. region and familiarize with local markets. Market-Catalyzing Activities Legal and Regulatory To help catalyze greater Diaspora investment in To further improve the climate for Diaspora investment Caribbean markets and foster a more attractive in the region, particularly in the context of PPPs, legal business environment for private investment in the and regulatory frameworks in the region should be region more broadly, it is recommended that angel strengthened and harmonized. A number of legal networks and their connections with the Diaspora be and regulatory impediments to Diaspora investment expanded. As was discussed in sections III and IV in the region exist, reflected in the responses of (subsection C), venture capital markets in even the Diaspora members to surveys and during interviews strongest Caribbean economies such as Jamaica and discussed previously in this report as well as the in- Barbados remain underdeveloped in part because of depth legal and regulatory analysis provided in annex a dearth of angel investors. Meanwhile, research into VII. To resolve many of the issues faced by Diaspora Diaspora investment preferences suggests HNW investors, it is recommended that the Diaspora members are interested in early stage investment Offices in the Foreign Affairs Ministries of Caribbean opportunities in their countries of origin, especially nations establish high-level Ombudsmen to register in certain strategic sectors such as technology. complaints by the Diaspora and help facilitate fast- Expanding angel networks through EPIC and track dispute resolution mechanisms to provide infoDev and their connection to HNW Diaspora Diaspora investors with greater comfort. Additionally, members could narrow the gap between this potential judiciary improvements should be made, particularly supply of angel funding and the demand that exists in Jamaica, so that arbitration institutions are not for early stage capital in the Caribbean. Regional overburdened and can review business disputes in a investment and business networking facilitators timely manner. Taking these steps would be valuable such as national investment promotion agencies for improving the environment for investment in the and UWI could provide support for these efforts. Caribbean broadly speaking, but they are especially In the case of Jamaica, the World Bank should aid critical for successful rollout of the infrastructure PPP DBJ’s PE/VC program and strengthen its marketing investment facility discussed above. strategy for accredited Diaspora investors. Annex I. In-Depth Case Studies Country Analysis: Barbados Unlike Jamaica and St. Lucia, both of which have created policies and political units dedicated to Despite being one of the richest countries in the deeper political and economic engagement of the Caribbean, Barbados confronts two crucial factors Diaspora, Barbados, like Trinidad and Tobago, has that must be reckoned with in weighing potential taken a less active approach toward creating these strategies for—and the merits of—a Diaspora- types of ties. The difference could be correlated to oriented investment initiative: public debt and their relative wealth vis-à-vis other countries in the exchange rate controls. In 2013 Barbados’ debt-to- Caribbean and the limited role of remittances in GDP-ratio was 90.5 percent, which placed it just the local economy. Either way, given the perpetual below Jamaica and a handful of OECS microstates. need for hard currency, Diaspora returnees do Although most of the country’s debt is domestic, play an important role in repatriating capital to the its large fiscal deficits remain a concern. That said, country, especially by building homes. In turn, the Barbados is otherwise known for discipline when residential construction market creates jobs. it comes to financial affairs, a fact that has played no small role in making it one of the Caribbean region’s largest financial services hubs, with major Sizing the Diaspora Population and onshore and offshore sectors. Barbados maintains Investment Potential some of the strictest exchange rate controls in the Although exact figures remain elusive, it is widely Caribbean, pegging its currency to the U.S. dollar agreed that tens of thousands of Barbadians at a 2:1 ratio. Although this enhances exchange have migrated overseas during the last century. rate stability, it also raises assets prices. These two Unlike Jamaica and Trinidad and Tobago, where macroeconomic issues—high public debt and strict immigration corresponded first to the United exchange rate controls—affect the Diaspora as they Kingdom and later to Canada and the United States, would any other foreign investors. Barbadians have headed in various directions, including the United Kingdom and various British dependencies in the Caribbean. Moreover, long- 88 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora standing Barbadian Diaspora communities live Investable Assets and Market in both Panama, as a result of migration to help Impediments build the canal, and Haiti. Barbados itself does not maintain a systematic and reliable set of statistics Startups and SMEs on either emigration or immigration, so domestic sources do not capture the quantum of the Diaspora. Angel Investing Consequently, overall statistics on the Diaspora are Trident Angels, Barbados’ angel investor group, was relatively weak, and conjectural estimations place the first such group in Caribbean, although activity the total Diaspora at approximately 100,000, as levels have been markedly lower than more recently seen in table 26. According to the United Nations, formed groups in Jamaica. Trident Angels formed in this figure includes 55,000 migrants in the United early 2014 under the chairmanship by Peter Boos, States, just under 18,000 in Canada, and just over a social entrepreneur and finance consultant, with 20,000 in the United Kingdom and Europe. an investment focus on MSME projects originating in Barbados. The group’s key investment principles center on firms that have demonstrated that they Table 26: Total Size of Barbados Diaspora have undertaken the necessary research to create a (Midyear 2013) viable project. Deal flow for the group funnels from United connections with the Barbados Entrepreneurship States Europe Canada Total Foundation as well as the Automotive Arts 55,384 20,650 17,925 100,224 entrepreneurship competition, which were held Source: United Nations (estimate). annually in 2013 and 2104. The Automotive Art company is a very successful Barbadian enterprise, Although a degree of uncertainty surrounds the led by CEO Derrick Foster, who is also a member accuracy of Barbados emigration and immigration of the Trident Angels. statistics, it remains clear that significant emigration has occurred from the country over time. Dr. Keith The Caribbean Export Development Agency, Nurse, a leading authority on Caribbean migration based in Barbados, is actively working to develop who is based in Barbados, notes that migration from a series of workshops to train Caribbean SMEs Barbados has been taking place far longer than in that are looking for financing to start or expand other nations in the region. As noted, a significant their businesses. In order to attend, participants migration to Panama took place in the early 20th must already have developed a business plan century. Moreover, migration to Haiti has been since the workshop will help them to reassess the ongoing. Both of these populations are characterized strengths and weaknesses of their business models. by modest economic achievement. The community Moreover, the workshop educates them on how in the United Kingdom started off squarely in the to address the interests and concerns of angel working class following migration in the 1960s but investors. This effort is supported by funding from has seen some relative prosperity over the last 50 the government of Canada, the European Union, years. Finally, more recent movement to Canada and the World Bank, including sponsorship that and the United States is led by a cadre of middle allows 20 CARIFORUM55 firms to participate in class professionals, as is consistent with the rest of this event. the Caribbean. Crowdfunding and Bitcoin56 The sole crowdfunding platform based in Barbados is Visionfunder.com, which has not yet gone live. This project faces challenges with respect to sourcing projects, engaging backers, and navigating Annex I. In-Depth Case Studies 89 regulations. The platform is run by two local Venture Capital Barbadian entrepreneurs and will focus on creating Despite several efforts by the Barbadian a marketplace for the preselling of Caribbean government, currently only the Enterprise Growth products and services to consumers in the Caribbean Fund Ltd (EGFL): Innovation Fund takes equity and in the Diaspora. From the perspective of the positions in firms owned by Barbadian citizens. founders, the company faces major hurdles with The Innovation Fund pairs technical assistance and respect to acquiring a merchant account and curating seed capital between US$25,000 and US$250,000 a cohort of in-demand products and services on the and invests in innovative companies with growth platform. It must also develop a strategy to solicit potential outside of Barbados and the Caribbean contributions from local Barbadians who do not in the following sectors: information technology, use e-commerce widely and Diaspora communities environment, creative industries (music, arts, who are distrustful of far-afield internet platforms. film, etc.), nontraditional agriculture, and tourism. The company has been engaging with potential The requirements for receiving funds from the sources of pipeline in the eastern Caribbean and Innovation Funding window is that the business larger islands, but it will likely experience weak must be majority owned by residents of Barbados participation and varying quality of projects in the and must have the potential to earn or save foreign earliest phases of operations. The platform will be exchange. The EGFL also features alternative an interesting project for the ad hoc attention of grant and loan windows for development of Diaspora but not a qualified candidate for more agricultural projects, energy efficiency projects, structured, larger investment from Diasporic industrial development and employment, small communities. hotels development, tourism, and trade receivables liquidity. Although companies in this program Barbados is home to Bitt, the first blockchain could potentially be targets for Diaspora investors, technology company in the Caribbean, with no specific strategy exists to date. Moreover, any potential to reduce costs associated with remittances such investor would likely be a “buy and hold” or and ecommerce. Despite its innovative approach, “buy and operate” structure since exiting equity the company faces significant challenges from positions in SMEs of this size in emerging markets established banks and other institutions. Bitt is a is very challenging. Caribbean-based digital asset exchange, remittance channel, and merchant-processing gateway that has SME Lending leveraged United States–based AlphaPoint’s state- of-the-art technology designed by veteran Wall Given the size of its population relative to countries Street traders. The company recently received a such as Jamaica and Trinidad and Tobago, Barbados US$1.5 million investment from Avatar Capital, a has a notably large SMEs market, with an estimated Caribbean investment group based in Trinidad and 11,000 such firms on the island, based on interviews Tobago. Bitt facilitates international Bitcoin trading with local market experts. The proliferation of in 11 major fiat currencies, such as the U.S. dollar, small, medium, and start-up companies in Barbados Great Britain pound, Canadian dollar, Euro, and is directly linked to the country’s success in the Barbadian dollar. The Bitt Exchange will facilitate renewable energy arena. Barbadian SMEs were the trade between traditional and digital currency first in the region to optimize and scale solar water markets for international commerce at a 1 percent heating technology and services, which are now fee and between individuals for remittances and ubiquitous around the country and rapidly spreading transfers at a 0 percent fee. The Bitt team was the to other parts of the Caribbean. The SME-spurred sole blockchain platform in attendance at a bitcoin innovation has helped reduce carbon emissions in summit hosted May 25–28, 2015, by Sir Richard Barbados and saved the country millions in energy Branson on his private Necker Island. costs, because it produces around just 15 percent of 90 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora its domestic energy requirements. Thus, the success to the 2010 World Bank Enterprise Survey. For story of SMEs in the green economy on Barbados medium-sized Barbadian firms (20–99 employees), is an important precedent to consider in assessing access to finance was by far the “Main Obstacle” potential investment strategies and opportunities for they identified facing. Small firms indicated only the Diaspora. The success of green energy SMEs in electricity as a greater issue. Barbados lends credence to the renewables sector as well as the SMEs market on the island. Yet, in In a promising shift, however, the Central Bank what is likely even more important in the context of of Barbados has recently launched an initiative to a potential Diaspora investment initiative, domestic expand access to credit for SMEs, which in turn financial institutions are not providing enough is expected to spur key sectors of the economy. In supply of capital to harness the SME market’s late 2014, the IDB approved US$35 million to the growth potential. Central Bank to fund a program called Enhanced Access to Credit for Productivity. The program As is the case with Jamaica and Trinidad and will promote investment projects geared toward Tobago, SMEs in Barbados report difficulties in supporting SMEs access to medium and long- getting access to credit from domestic lenders, term credit. It will also assist them with technical despite the fact that the country has one of the most assistance. This initiative seeks to invest in three developed and highly capitalized banking systems strategic sectors in the Barbadian economy: tourism, in the region. According to the IFC Enterprise construction, and manufacturing. It is hoped that Finance Gap Database, 35 percent of Barbadian the increased lending will support competitiveness micro, small, and medium enterprises (MSMEs) and allow firms to diversify. Within five years, the report access to finance a major or severe barrier. program is expected to provide more than 200 new Table 27 provides a more detailed look at the loans to SMEs, all with guarantees (some as high as level of credit service different segments of the 80 percent loan-value coverage for 10 years). business market receive in Barbados, according Table 27: Comparison of Firm Lending in Barbados, Select Caribbean Nations, and the LAC Region Small Medium Large Firms Firms Firms (employ (employ (employ 1-19) 20-99) 100+) All Firms % firms with access to a bank loan or line of credit Jamaica 26% 28% 47% 27% Latin America & the Caribbean 40% 56% 68% 48% Trinidad & Tobago 47% 72% 74% Barbados 58% 54% 76% Dominican Republic 50% 65% 77% % firms identifying access to finance as a major constraint Jamaica 47% 29% 11% 41% Latin America & the Caribbean 32% 29% 21% 31% Source: World Bank Enterprise Survey 2010. Annex I. In-Depth Case Studies 91 Capital Markets and Private Equity nonresident investors. The management of the BSE hopes that demutualization will help the exchange The Barbados Stock Exchange (BSE) is the third to internationalize and to simplify the investment largest stock exchange in the English-speaking process for Diaspora and other foreign investors. Caribbean, with 25 listed securities. Similar to This will be possible because by demutualizing, the Jamaica and Trinidad, the Barbados exchange, while BSE will convert from a member-held organization characterized by the highest volume in the region in to a joint-stock company that will be able to the past, now shows the lowest turnover in the region, raise capital to invest in new initiatives such as whereby turnover serves as a measure of liquidity internationalization. Still, this goal remains in that is calculated by dividing the total number of process, since the demutualization plan is dependent shares traded over a period by the average number of on an ongoing legal process. Additionally, the BSE shares outstanding for the period (table 28). is working on a program of regional integration with other stock exchanges in the Caribbean. Although the BSE has been in business for over These exchange are coordinating with regard to 25 years, it has not been profitable since 2008. technology in an effort to move all exchanges in Thus, although the exchange funds its operations the region onto the same software platform. Such because of significant reserves, it will require a coordination will help to reduce trading costs series of structural changes to achieve profitability between the exchanges, which is critical given that and sustainability. These changes include technology represents the largest operating cost of demutualization, alignment of the listing process the exchange. This coordination may also open the with global standards, and regional integration door to closer integration, coordination, and trading with other markets in an effort to convince more between investors in other Caribbean markets. panregional companies to cross-list on the BSE. At present, investors on the BSE are required to As with Jamaica and Trinidad and Tobago, the conduct trades through a registered broker who is BSE also has a JM that allows smaller companies also a member of the stock exchange. These brokers to list on the exchange under a modified regulatory are located in Barbados, and so international regime. The BSE JM was introduced in 1999 and investors must have a relationship with a local caters to companies that have gross assets of at least broker (namely, one of nine local players such as BD$500,000 (US$250,000) excluding goodwill and CIBC FirstCaribbean, Republic Bank, Sagicor, and minimum equity capital of BD$200,000. Moreover, Fortress) in order to trade. This structural barrier companies must have at least 25 shareholders who makes the trading process less user-friendly to maintain ownership of at least 25 percent. Although Table 28: Comparative Turnover of the Barbados Stock Exchange 2002 2003 2004 2205 2006 2007 2008 2009 2010 2011 2012 Caribbean (Ex-DR) 8.4% 4.4% 4.1% 3.2% 5.1% 3.0% 3.0% 1.6% 1.6% 1.6% 1.3% Latin America & 16.0% 19.9% 24.4% 27.8% 30.4% 40.7% 51.4% 48.9% 45.7% 46.1% 42.7% Caribbean High income: OECD 156.2% 111.8% 117.3% 123.0% 151.6% 185.8% 262.2% 219.1% 137.4% 141.0% 102.9% Jamaica 2.7% 3.5% 4.2% 3.1% 2.3% 2.9% 3.6% 1.8% 3.3% 3.1% 3.0% Trinidad and Tobago 3.0% 4.7% 3.8% 3.7% 2.6% 2.3% 2.6% 2.0% 1.2% 1.2% 0.8% Barbados 31.5% 5.7% 5.3% 1.7% 19.8% 5.5% 3.6% 0.3% 0.4% 0.4% 0.4% Source: World Bank. 92 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora this market has been in existence for over 15 years, The conference, which includes some sessions on it remains small, with just three listings from one investment and Diaspora linkages, convenes Diaspora issuer, a mutual fund managed by a local financial as well as returned Diaspora members and is organized institution. To encourage more listings, the BSE has by the Ministry of Foreign Affairs. Attendance at the called on the government of Barbados to create a last event was approximately 200 individuals. special tax structure, modeled after Jamaica, that would offer a tax holiday to companies listed on the Leveraging these communities and the consular JM. Such reforms have not been enacted to date. network, the government promotes investment in the country—either from the Diaspora or from overseas The exchange does not have a Diaspora strategy, investors in general, through Invest Barbados, its although it is important to note that unlike local investment promotion agency. The agency focuses investors, nonresident and foreign investors are specifically on investment opportunities in key not subject to capital controls as long as funds strategic sectors such as IT, offshore banking, and are registered with the Central Bank of Barbados manufacturing. Given its well-educated English- upon entering the country.58 Still, the extra step of speaking populations, highly subsidized education registering capital can serve to hamper investor system, and access to graduates of the local campus interest as it places one more step in the investment of UWI, Barbados has built a hub of high value- process. The main barrier to Diaspora investors added knowledge-based services that are integral at the moment, other than registration of capital, to the country’s offshore financial services sector. is the requirement to trade with a local broker. Foreign clients for the local services sector include With demutualization and perhaps greater trading Canadian financial services firms such as Scotia, volume, the ongoing series of reforms that the BSE CIBC, and RBC, as well as Caribbean players like is undertaking may serve to attract more foreign First Citizens and Republic Bank. Services include investors. accounting and business process outsourcing. Invest Barbados seeks out and presents projects, looking to raise capital for potential investors, but Legal and Regulatory Drivers and given the limited local investment culture, based Impediments on interviews with market actors, most Diaspora Please see annex VII for detailed discussion. investment tends to be made by owners of small businesses who will also run these businesses. The Diaspora: Networks, Distribution These businesses are typically in the BPO sector Channels, and Platforms but can also include garment production. Barbados engages with its Diaspora through its Additionally, the Barbados Investment and consular missions in particularly active communities Development Corporation manages 12 industrial such as New York, London, Miami, Washington, states and facilitates FDI for people who are seeking and Toronto. These hubs also tend to have cultural to establishes businesses on these properties. They organizations, old boys and old girls networks, and focus particularly on four sectors that have been professional organizations for groups like nurses or defined as strategic sectors by the government the police. Additionally, the Barbados Investment of Barbados: manufacturing, ICT, tourism, and and Development Corporation maintains an online financial services. They also operate a co-working community called the Barbados Network (http:// space with an incubation program and technical barbadosnetwork.foreign.gov.bb), although this site assistance grants of up to BD$50,000 for export- has not been updated regularly. The site is largely focused businesses that are targeting the Diaspora. used at present as a promotional tool for the third These include companies that sell cultural products biennial Diaspora conference held in August 2014. such as Wibisco and Aunt Mays. Annex I. In-Depth Case Studies 93 Country Analysis: Jamaica with financial products and more likely to build investment portfolios, so they could have interest in Sizing the Diaspora Population and opportunities in Jamaica. Given the prevalence of Investment Potential remittances in the Jamaican economy, both groups may choose to remit funds to support family back Rather than representing a monolith, the Jamaican in Jamaica. Of course, within each generational, Diaspora is a diverse and vibrant collection of educational, socioeconomic, and regional grouping, individuals, many of whom have strong emotional there will also be individuals who seek more ties back to the homeland that reflect the types substantial opportunities beyond simply buying a of economic connectivity with Jamaica that they house or remitting funds. These individuals will seek maintain or aspire to create. Part of this dynamic to invest or operate businesses in Jamaica. reflects the changing nature of Jamaican migrants with the passing of time. In the 1950s and 1960s, Within this context, Jamaica has embarked on an Jamaican migrants largely migrated to the United active approach to classifying, quantifying, and Kingdom. The migrants were largely characterized gathering data about the Jamaican Diaspora in by low educational attainment and limited support of the Jamaica Vision 2030—National economic means. More recently, migration has Development Plan. Vision 2030 Jamaica is a strategic shifted from the east to the north, with greater road map to guide the country to achieve the twin numbers of Jamaicans moving to Canada and the goals of sustainable development and prosperity by United States. This group is more diverse, with 2030. Moreover, Vision 2030 Jamaica falls in line examples of individuals migrating for educational with the United Nations Millennium Development and professional opportunities. Thus, although the Goals. The Plan is being developed with broad- Diaspora includes well-educated second generation based support across every department of the Jamaicans who have the capacity to invest government. The Planning Institute of Jamaica, in considerable amounts of capital in the Caribbean its role as the main planning agency in Jamaica, is region, it also includes illegal immigrants with few leading and facilitating this collaborative process, skills and low incomes. incorporating the support from private sector groups, civil society, and members of the Diaspora. The financial sophistication and investment interests of the Diaspora reflect the nature of its varied The explicit inclusion and engagement of the constituencies. Older Jamaicans, such as those in Diaspora as part of this wider vision for the country the United Kingdom, often are saving capital to is a fundamental aspect of both the development return home, build their dream home, and then and the execution of Vision 2030. The rationale for retire in Jamaica. Their financial needs are a savings this initiative is clear: Jamaicans in the Diaspora account and a mortgage, but they are not looking are of great economic importance, both in terms for investment opportunities that require packing, of remittances as well in terms of tourists, which analysis, and active management. They are also represent some 11–15 percent of overall visitors.58 not accredited investors and thus cannot invest in With the right policies, incentives, and investment alternative assets funds. Still, they may also want to opportunities, the Diaspora could represent an even start or get involved with business opportunities once more important force beyond simply providing they return home. In contrast, younger migrants are funds via remittances or investment in real estate. more likely to stay in their adopted countries because Efforts to engage in a more systematic and strategic they have migrated for economic opportunity. They fashion are now led by the MoFA. The Ministry may plan to acquire property in Jamaica, but likely aims to institutionalize the government’s efforts as an investment or a second residence. At the same through the Jamaican Diaspora Foundation and time, this younger generation is likely more familiar its operating arm, the Jamaica Diaspora Institute 94 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora (JDI), both established in 2009, as a direct outcome With the creation of a draft Diaspora policy, and of resolutions passed at the first Biennial Diaspora its eventual official policy, the government of Conference in 2004. Jamaica is building on some existing policy tools that drive Diaspora engagement. For example, These ongoing efforts to dedicate considerable Jamaicans living overseas may claim citizenship government resources to Diaspora engagement are by descent and by marriage. Despite these benefits, manifest in its public policy. First, the government some areas of Diaspora engagement remain points of Jamaica is creating an international migration of contention between Diaspora leaders and the and Diaspora policy, which seeks to coordinate Jamaican government. Discussion is ongoing and mobilize engagement across the various about the ability for Diaspora citizens to vote, with geographies in which the community resides. The complications regarding residency tests, absentee MoFA has concluded that in all countries where balloting, and the impact that a widespread Diaspora Diaspora mobilization has been successful, there political movement would have on local politics. has been support of the state to do so, and thus it These issues are not simply political issues, but seeks an active role for the federal government in also have a clear economic component. A limited Diaspora affairs. Given this assertion, the MoFA political role for Diaspora members also limits the is circulating a draft Diaspora policy, which will role of the Diaspora in having a say in the types eventually become the National Diaspora Policy. of economic decisions and policies that will affect Once this policy is adopted, the MoFA will endeavor overall Jamaica investment opportunities. to secure dedicated financing in the national budget to manage Diaspora-related initiatives. The MoFA also maintains a permanent Diaspora Advisory Estimating the Size and Geographic Board that includes representatives from Canada, Distribution of the Jamaican Diaspora the United States (Northeast, Midwest, South), Although the JDI, under the leadership of Dr. and the United Kingdom. Each of these respective Neville Ying, has undertaken a comprehensive locations selects a representative to serve on the effort to estimate the true size of the Diaspora board. These representatives advise the Minister across the globe, this exercise remains imperfect. of State, who interacts with the Diaspora through A variety of estimates are used for the size and quarterly meetings in an effort to maintain close geographic distribution of the Diaspora. The coordination with overseas leaders and associations. process is not straightforward given the definitional issues at hand when seeking a straightforward In tandem with these efforts at the public policy level, estimate to the number of “Jamaicans” residing the government, through the JDI, is in the process outside of the country. First, although reasonably of mapping the Diaspora in partnership with the good data sources exist for the three markets where International Organization of Migration. Similarly, most of the Diaspora reside—Canada, the United the Mona GeoInformatics Institute at UWI is also Kingdom, and the United States—other areas contributing to efforts to map the Diaspora. All of require estimates as well. Second, the estimate these efforts are in addition to a region-wide project must consider the inclusion of descendants of to map the Caribbean Diaspora under the auspices Jamaicans, such as second and third generation of the International Organization of Migration. descendants of the original émigrés. Additionally, These efforts are of critical importance because in some jurisdictions, Jamaicans register as black, deeper knowledge regarding the exact nature, Caribbean, or West Indian, which requires further demographics, and geography of the Diaspora will estimation. Thus, any estimation must reflect a allow the government to determine how best to series of adjustments to reflect these challenges. engage these considerable resources for the benefit of its development goals. Annex I. In-Depth Case Studies 95 Table 29: Total Size of the Jamaican Diaspora—JDI Working Estimate United States United Kingdom Canada Other Total Northeast 1,100,000 London 480,000 Toronto Area 210,000 South 450,000 W. Midlands 200,000 Other 90,000 Other 150,000 Other 120,000 Total 1,700,000 Total 800,000 Total 300,000 200,000 3,000,000 Source: Jamaica Diaspora Institute. Drawing from national census estimates from • Jamaicans in other regions of the world: The Canada, the United Kingdom, and the United States, JDI does not have access to specific estimates but along with statistical adjustments and estimations, has indicated a “guesstimate” of 200,000. the JDI estimates the total size of the Diaspora population at three million people (see table 29). To understand the investment capacity of these The vast majority of Jamaicans live in Canada, the immigrants, it is critical to consider the wide range United Kingdom, and the United States. of individuals who make up the Diaspora. By its very nature, the Diaspora is diverse and cannot be The specific demographics in the survey, on a addressed via policies that are “one size fits all” country-by-country basis, are as follows: in nature. A 2014 study by the Migration Policy Institute sought to better define the socioeconomic • Jamaicans in the United States: The JDI’s nature of the Caribbean immigrant population. working estimate for Jamaicans in the United This study found that although black Caribbean States is 1,700,000. The largest populations immigrants were 50 percent less likely than of residents are in the Northeast, mainly in other immigrants to classify as “unauthorized New York, Hartford, Boston, and Baltimore. immigrants,” 16 percent of the population is still Additionally, a concentration of Jamaicans live undocumented or illegal. Moreover, a study of in the South, mainly Miami Metro, Atlanta, Jamaican immigrants to the United States during Orlando, and Tampa. the period of 2005–09 found that approximately 20 percent of migrants were graduates or a four-year • Jamaicans in the United Kingdom: The JDI college, while 52 percent had only attained a high working estimates show that 800,000 Jamaicans school education or less.59 The same study finds and descendants of Jamaicans live in the United that Jamaicans civilian workers earned, on average, Kingdom, of which 144,000 are Jamaican born. US$32,000 per annum, which equals the average The majority of Jamaicans live in London (about earnings for all U.S. workers aged 16 and over.60 61 percent), with the next largest concentration In that sense, the Jamaican Diaspora member looks in the West Midlands, specifically Birmingham. very much like the average American. • Jamaicans in Canada: The JDI estimates a Given the educational, financial, and demographic total Diaspora population of 300,000 in Canada. nature of the Jamaican Diaspora, investment capacity Most Jamaicans live in Ontario (greater than is similar to the investment capacity of the other 60 percent) in the Toronto area. In the other average citizens in their adopted countries. Some major regions, the population of Jamaicans is portion of the Jamaican Diaspora, a small portion, significantly lower: Nova Scotia (1,010), Quebec will have the ability to invest in sophisticated assets (11,940), Manitoba (3,275), Alberta (8,720), and such as PE, VC, or angel investments. These types British Columbia (6,915). of opportunities will appeal to accredited investors 96 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora or other HNW individuals, likely in the range of will expect and demand best practices in terms of 5 to 15 percent of the Diaspora. The rest of the investment structures and corporate governance. As Diaspora will require investment opportunities a result, vehicles through which the Diaspora is being that are packaged to their own particular financial encouraged to invest must be credible, and at the appetite, capacity, and knowledge base. Based on moment, there is a dearth of such vehicles available the infoDev Survey of the Caribbean Diaspora, to potential investors. Instead, the vast majority of the relevant findings of which can be seen in potential investments fall within the sphere or small tables 19–21, a number of areas can be identified opportunities that are generated through personal as potentially viable opportunities for investment relationships rather than a structured or organized by the Jamaican Diaspora, along with avenues for market that lends credibility to the entire process. both sophisticated assets as well as more accessible Without resources on the ground, it’s very difficult options. These data can and should guide a tailored to find and manage an investment. approach toward packaging and marketing specific yet diverse investment opportunities to the different component communities of the Jamaican Diaspora. Investable Assets and Market Impediments Members of the Jamaican Diaspora, which made up Startups and SMEs an overwhelming 64.4 percent of the respondents to infoDev’s survey, appear interested in making Angel Investors investments in the Caribbean, especially in start-up Angel investing is a burgeoning phenomenon in and early stage companies, and even at lower than Jamaica that may present start-ups with a nimbler average commercial returns. Moreover, 80 percent and widely accessible source of funding for the early of respondents said they would be interested stage of their business. Investing an individual’s in doing so in the future. Specifically, strong wealth into a private business is a practice familiar interest was expressed in further SMEs and start- to Jamaica; however, it has traditionally been up investment opportunities, with 40 percent of executed through familial and personal networks, respondents having already invested in early stage typically in traditional “main street” SMEs. Jamaica businesses, and 60 percent of those companies does have an accredited investor61 standard that based in the Caribbean. Moreover, of the start-ups governs individuals who are able to act as angel in which respondents had already invested within investors, as follows: the region, 73 percent were in Jamaica. • Any individual whose net worth exceeds And yet, although great patriotic and national pride J$50,000,000.00 is found within the Diaspora, these products must • A corporation over 90 percent of the voting be attractive enough to induce people regardless of shares of which are owned by such an individual whether they are in the Diaspora or not. Jamaicans • A trust of which such an individual is the sole overseas have a predisposition to invest, but it primary beneficiary must meet the minimum requirements of safety • Individual who had an income before taxes in and a good rate of return. Emotion doesn’t overrule excess of J$10,000,000.00 in each of the two commonsense. This is especially true for the second most recent calendar years. and third generations of Diaspora families. Such individuals are far less sentimental with regard to Angel investing in start-ups by groups and their homeland. Unlike their forebears, they will networks, in a manner analogous to more seek business opportunities that offer attractive developed entrepreneurial ecosystems, is now returns, rather than simply look for a vehicle to being attempted by two groups which have been contribute back to the homeland. These investors formed since the summer of 2014. It is likely that Annex I. In-Depth Case Studies 97 the future investment strategies of angel groups will • Alpha Angels: Based in Montego Bay, Alpha focus on services, rather than technologies, given Angels is a group under development by its their backgrounds in traditional industries. The chairman Yoni Epstein, a business-process anticipated investment amounts in companies will outsourcing entrepreneur. The network has 10 likely range between US$50,000 and US$100,000. members committed to the group, at least two of The greatest challenge the following two angel which are American citizens with ties to Montego groups will face is the lack of quality investible Bay. The network is member-led, without a deals originating from Jamaica and the wider manager, and is receiving support from the World region. These two groups are profiled below: Bank EPIC program. The group has been holding deal screening meeting intermittently but has yet • First Angels Jamaica: Based in Kingston, First to make an investment. Angels Jamaica (FAJ) was founded in July of 2014 under the chairmanship of Joe Matalon, These investment groups, on their own, have the who is also the Chairman of the Development potential the address a critical gap in the early stage Bank of Jamaica. The network consists of 13 financing in Jamaica, but may also serve as an due-paying investor members, as well as KPMG important mechanism to crowd in Diaspora investors. and law firm Hart Muirhead Fatta as associate The infoDev Diaspora Study identified connectivity members. The activities of the network are led and distance as well as lack of awareness of by a noninvestor manager who orchestrates the investment deals as key barrier to investing in early- sourcing of prospective investment deals, the stage entrepreneurship. Hypothetically, local angel screening process, due diligence processes, and networks could address informational asymmetries other administrative functions of the group’s and poor connectivity to serve as trusted deal- operation. The operation of the network has sourcing mechanisms. Initial connections between been supported by the World Bank’s EPIC Diaspora groups and local angels will likely occur initiative, which provided mentoring of the ad hoc, given that the individuals within these manager, assistance accessing the ProSeeder groups are investing their personal capital directly online investment platform, and support for to companies on a deal-by-deal basis, without an implementing screening and diligence processes. overarching “side-car” fund or other pooling of Also, FAJ received a grant from the Xcala Program, capital, which could support coinvestment in a funded by the Multilateral Investment Fund standardized manner by a third party. of the IADB, which supports the development of angel investment networks through Latin Crowdfunding America and the Caribbean. The group openly Jamaican projects or entrepreneurs have attempted accepts applications from entrepreneurs online to presell products or solicit donations from via its website (www.firstangelsja.com) and its local and international investors via international Proseeder online account, as well as sourcing platforms such as Kickstarter, Indiegogo, and companies from the networks of its members. To others. Pre-sale crowdfunding and contributions date, the group has convened three pitch events, to crowdfunding, because they do not offer equity heard presentations from seven entrepreneurs, or security in a company, are permissible under and made one investment. The value of this current Jamaican legal and regulatory frameworks. investment was not disclosed, but in the The most successful Jamaican contributions-type transactions, six of the angels in the network campaign was run by the Jamaican bobsled team for purchased a 17 percent equity stake in DRT their participation in the 2014 Sochi Olympics. The Communications, a marketing communications team raised US$130,000 on Crowdtilt (now simply consulting agency and media monitoring service, known as Tilt) with a 2.5 percent fee on total giving led by 35-year-old CEO Danielle Terrelonge. and 3 percent fee on credit card contributions. The 98 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora average donation was US$34.60, with nearly 3,000 local communities, including the possibility that individuals contributing to the campaign from 50 this platform could act as a presale marketplace, states and 52 countries. Interestingly, US$30,000 rather than simply listing projects, so that local and of their Crowdtilt campaign was amalgamated in Diaspora communities engage to source tangible the form of Dogecoin—a crypto-currency that’s Jamaican goods and services. similar to Bitcoin. The cryptocurrency fundraising incurred no base fee and less than 1 percent A second Jamaica platform that has experienced transaction fee. Dogecoin was exchanged for a fiat moribund fundraising levels is the Jamaica Diaspora currency, presumably U.S. dollars, and contributed Connect portal, an initiative by a smattering of public to the Crowdtilt campaign. Beyond Crowdtilt, the and private institutions, including the Ministry Jamaican bobsled team conducted an Indiegogo of Foreign Affairs and Foreign Trade, Jamaica campaign to raise an additional US$55,987 from National, JAMRPO, and the Jamaica Tourism 1,546 contributors in a total of four days. Indiegogo Board. The platform’s purpose is to communicate charges a 4 percent base fee on a successful with the Diaspora and to serve as a connecting campaign. The bobsled team campaign was mechanism to pair the knowledge, networks, and certainly a unique example given their notoriety financial resources of Diaspora with three cohorts: with a vast number of young people internationally. (1) projects, (2) institutions, and (3) Diasporic groups. Regarding projects, the portal indicates In addition to international platforms, two Jamaican that it has raised J$107,000 (about US$924) from platforms have been active with fundraising 15 donors for unspecified projects on the platform. components that constitute crowdfunding. Direct The platform database includes 42 projects in engagement with Diaspora members on these various areas, including education, skills training, platforms has been elusive, and local contributions youth development, community development, and have faced headwinds from low e-commerce crime reduction and prevention. Where institutions adoption rates, relatively low personal computer are concerned, the portal has raised funds from one usage, and a lack of awareness and trust in this donor for a total of 17 institutions associated with new phenomenon. JN launched a peer-to-peer education, skills training, community development, lending platform to support projects and companies youth development, parenting, crime reduction/ in Jamaica; however, the effort was unsuccessful prevention, vocational training, and certification. at generating significant contributions and the The portal lists 117 Diasporic groups across Jamaica, website was parked for restructuring. The effort the United Kingdom, and the United States without built initially from JN’s significant remittances representation from Canada or other countries. business, and there was some informal pooling The groups are a mix of private Diaspora support of remittances monies for social causes, which companies, interest groups, and associations. bore the idea to launch a unique crowdfunding Again, it is unclear from the platform whether these website (www.isupportjamaica.com). The first entities may to solicit donations as well through the phase of the platform’s model sought to lever JN’s platform or indirectly, and how they have benefited existing credit assessment personnel to identify from the networks and expertise of Diaspora. Last, projects, facilitate peer-to-peer lines of credit, and the portal contains a repository of knowledge and encourage repayment. The second phase of the resources regarding to Diaspora-related issues, project intended to broaden the potential offerings including a Research Library, Catalogs of Case to include grants. Unfortunately, the platform Studies and Best Practices, a Document Library, generated extremely low contribution levels and and Archives of the Human Interest Stories that was taken offline during its initial phase. Although have been featured on the Portal’s homepage. the platform is inactive, JN is now reconsidering their model and offering to Diaspora members and Annex I. In-Depth Case Studies 99 Maybe the most promising platform for channeling gross of fees, it has failed to attract more players to Diaspora investment dollars into Jamaica is the industry. Homestrings, an internationally based platform that offers structured investment opportunities to SME Lending qualified HNW Diaspora investors. The platform serves as a repository of impact-driven investment Jamaican SMEs are an increasingly large bond and fund offerings from governments, banks, contributor to the nation’s employment market and corporates, project sponsors, and SMEs, targeted overall economy. What’s more, they represent one at qualified (e.g., “accredited” or “sophisticated”) of the largest and most vibrant ecosystems of SMEs individual Diaspora investors. Homestrings’ focus in the Caribbean region. With a dearth of official is international, listing projects from across the data, there are estimated to be roughly 200,000 globe. Diaspora investors contribute via PayPal SMEs and 200,000–400,000 micro-entrepreneurs or wire/bank transfer, and—depending on the in Jamaica. According to a 2014 World Bank investment type and terms—are charged a 1 percent Jamaica SMEs Finance Technical Note, these annual management fee on invested capital and 1 businesses are primarily concentrated in wholesale percent annually thereafter on capital balance and retail sectors (more than 50 percent) as well outstanding, and a 10 percent annual performance as community, social, and personal services (23 fee on their individual annual yield for the duration percent). Regardless of the sector, however, SMEs of the particular investment. The platform has listed across the board face the common obstacle of a Caribbean-based offering, the Fortress Caribbean access to finance. Table 30 illustrates the relative Growth Fund, administered by Fortress Funds difficulties in accessing credit Jamaican SMEs of Barbados. Homestrings was founded by Eric grapple with relative to the Latin American and Vincent-Guichard in 2011. Mr. Guichard is also Caribbean region and three Caribbean comparator Chairman and CEO of the sovereign institutional countries. asset advisory firm Gravitas Capital Advisors since 1996 and was formerly portfolio manager at the As is common in developing economies, Jamaican World Bank, where he also served as a technical banks shy away from lending to many SMEs, advisor to sovereign and multilateral institutions especially those companies that are new and worldwide. untested businesses. Although SMEs may feel that they are shut out of the banking sector because of Venture Capital high interest rates, unwillingness to take risk on Venture capital activity in Jamaica has been extremely the part of financial institutions, or bureaucracy, limited to date, despite periodic interventions by the banks have their own explanations for the lack of government of Jamaica over a number of decades, debt capital available to SMEs, including a lack of including most recently the Jamaica Venture Capital preparation on the part of borrowers due to the high Program led by the Development Bank of Jamaica. level of informality in the economy. Banks are also In the early 1990s, 22 corporate entities and financial unwilling to take risk on failure, especially when institutions participated as Limited Partners in the this failure is caused by poor management and Jamaica Venture Fund (JVF). During three years informality. of operation, the JVF made commitments between J$1 and J$5 million to a total of 14 start-up or Several private sector and public sector players have early-stage companies. The JVF had a successful designed and launched programs that seek to better track record, primarily because of its investment in prepare entrepreneurs to raise capital, especially in Jamaica Money Market Brokers (JMMB), which the form of debt financing. For example, the DBJ returned more than J$300 million to investors over seeks to stimulate and enhance the economic and a 10-year period. While this constituted 4.62 times social development of the country through credit 100 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 30: Comparison of Firm Lending in Jamaica, Select Caribbean Nations, and the LAC Region Small Medium Large Firms Firms Firms (employ (employ (employ 1-19) 20-99) 100+) All Firms % firms with access to a bank loan or line of credit Jamaica 26% 28% 47% 27% Latin America & the Caribbean 40% 56% 68% 48% Trinidad & Tobago 47% 72% 74% Barbados 58% 54% 76% Dominican Republic 50% 65% 77% % firms identifying access to finance as a major constraint Jamaica 47% 29% 11% 41% Latin America & the Caribbean 32% 29% 21% 31% Source: World Bank Enterprise Survey 2010. lines that are granted to 12 financial institutions of processing the related documents by up to 70 (AFIs) approved to on-lend DBJ’s funds to their percent. Finally, the DBJ operates a loan guarantee clients. These AFIs include commercial and program under its credit enhancement facility that merchant banks, credit unions, and the National serves as a backstop for companies with limited People’s Co-operative Bank of Jamaica Limited, collateral. The facility provides guarantees of up to among others. DBJ funding is channeled to clients J$10 million or 50 percent of the loan amount for with viable developmental projects through AFIs general SME loans, and up to 80 percent for energy that undertake both credit evaluation and the loan loans. supervision. The funds are provided at attractive interest rates to clients involved in strategic growth From the private sector, NCB has launched a sectors, such as the agriculture, agro-processing, television program to inspire and train business manufacturing, tourism, mining, and the service owners. NCB Capital Quest is a Jamaican reality sectors. Moreover, the DBJ launched a technical TV series that premiered on TVJ in 2015. On assistance program in 2014 that seeks to prepare the show, seven SMEs compete for an equity companies to raise capital. The program allocates investment of up to J$50 million. The program J$2.7 million for the preparation of business kicked off with a weeklong boot camp in October documents for SMEs with an aim to reduce 2014, where contestants were trained in key subject structural problems when trying to access funds areas, including leadership, corporate governance, from financial institutions. Specifically, the project and investor pitching. The boot camp was designed provides SMEs with electronically generated grant to help SMEs to better position their businesses vouchers that can be cashed in for services related to attract investors. Following the boot camp, the to financial management, mentoring and coaching, SMEs were put through a number of capacity- business process improvement, preparation of building activities and grueling entrepreneurial business plans, financial statements, and strategic challenges, testing their determination and business and marketing plans. Selected companies receive acumen. This program provides an entertaining yet vouchers of up to J$300,000, reducing the cost informative method of capacity building for SMEs Annex I. In-Depth Case Studies 101 to understand how to get financing, in terms of management feel that the change in tax status has either debt or equity. been a clear driver of the decrease in activity. Capital Markets Despite these headwinds, the JSE seeks to offer an alternative path to SME finance and to offer a To provide SMEs with access to capital, the JSE demonstration effect for the region by preparing launched its Junior Market (JM) in 2009. The more companies to list on the exchange. The MIF listing requirements for the JM were designed recently approved a technical cooperation program to encourage and promote investment in to improve the framework of the JM and to provide entrepreneurship, thereby creating employment and 25 SMEs with capacity building so that they can furthering economic development. Specifically, the meet listing requirements, especially with respect JM offers a simplified regulatory framework versus to corporate governance. The project will also the main exchange. Moreover, a company may support activities to strengthen JM mentors and raise a relatively small amount of equity capital, brokers so that they are better equipped to handle with a requirement that the total capital raised via the various requirements for smaller enterprises. In the exchange fall between J$50 million and J$500 the long term, this project endeavors to establish million (US$500,000 to US$5 million). Finally, in a benchmark model to address the lack of equity an effort to set itself up as a regional exchange and financing for SMEs by demonstrating the potential a hub for SME financing, the JM extends listing of an alternative stock exchange and providing a opportunities to any company incorporated in either replicable example that is relevant to other stock Jamaica or within another CARICOM country. exchanges in Latin America and the Caribbean. The Since its creation in 2009, more than 25 companies total project budget is US$1.4 million, of which have listed on the JM, in the process accumulating the MIF will contribute US$563,750 and JSE will J$3.5 billion ($30 million) in capital via their initial contribute US$574,800. public offerings. This represents the first efforts in a project that aspires to one day include as many as Large and Established Businesses: Capital 500 listed firms on the JM. Markets and Private Equity As a result of austerity measures adopted to comply The JSE is the largest stock exchange in the English- with the IMF program, Jamaica has implemented speaking Caribbean, with 73 securities listed on tax reforms that will directly impact the relative the main, Junior, and U.S. dollar market. There is attractiveness of the JM as a place to list an SME. also a bond market. As such, the JSE views itself At the time of the creation of the market, companies as a one-stop shop for the capital market needs of listed on the JM paid 0 percent income tax for the companies along a broad continuum, ranging from first five years and 25 percent per cent of regular SMEs up to regional champions. The JSE does its tax rate for years 6 to 10. By design, this regulation clearing through the Central Bank and is regulated served as a strong financial incentive to attract by the government. The JSE itself also listed on its companies to the market. Under the revised tax own exchange after demutualization took hold in scheme, companies still enjoy a full tax holiday 2008. Although the JSE represents the largest and for the first years after a listing, but there are no most complex public exchange in the Caribbean, it benefits in years 6 to 10. By December 2021, all remains plagued by low liquidity, versus both the special incentives to the JM will cease. Since the Latin America and global benchmarks. An analysis change in the tax regime, the number of IPOs has of market turnover ratio provides an effective metric declined dramatically, with just three IPOs since by which to compare the relative liquidity of stock January 1, 2014, versus 23 IPOs from the market’s exchanges. Specifically, turnover ratio is defined creation in mid-2009 through the end of 2013. JSE as the total value of shares traded during a period 102 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 31: Comparative Turnover of the Jamaica Stock Exchange 2002 2003 2004 2205 2006 2007 2008 2009 2010 2011 2012 Caribbean (Ex-DR) 8.4% 4.4% 4.1% 3.2% 5.1% 3.0% 3.0% 1.6% 1.6% 1.6% 1.3% Latin America & 16.0% 19.9% 24.4% 27.8% 30.4% 40.7% 51.4% 48.9% 45.7% 46.1% 42.7% Caribbean High income: OECD 156.2% 111.8% 117.3% 123.0% 151.6% 185.8% 262.2% 219.1% 137.4% 141.0% 102.9% Jamaica 2.7% 3.5% 4.2% 3.1% 2.3% 2.9% 3.6% 1.8% 3.3% 3.1% 3.0% Source: World Bank. divided by the average market capitalization for the stock brokers—NCB Capital Markets, Victoria period. Average market capitalization is calculated Mutual Wealth Management, Barita, or Sagicor as the average of the end-of-period values for the Investments, all of which are companies that have current period and the previous period. Essentially, traditionally catered to local Jamaican citizens or this serves as a proxy for how much of the exchange to members of the Diaspora. Additional brokers and its components are active in a given period. As are expected to sign up for this program in the shown in table 31, Jamaica shows very low levels of future. Moreover, this platform could also allow turnover versus the wider Latin America region and investors access to an investment such as a even relative to the Caribbean region as a whole in Diaspora bond. some years. Thus, the market lacks the dynamism seen both in its peer markets and in global markets • In January 2015, the JSE also received generally. authorization from the Canadian Ministry of Finance that allows investors located in Canada To improve liquidity, the management of the JSE who buy stocks in Jamaica to access the same tax has undertaken a number of initiatives that seek to treatment as any other securities that are in their attract new investors and bring greater volume to tax-sheltered savings accounts such as IRAs, etc. the market. The JM, launched in 2009, sought to These policies only apply to stocks trade on the increase the number of listings and to attract investors main board of the JSE. The JSE is also embarking who sought access to fast-growing entrepreneurial on a plan to structure similar programs with the ventures. More recently, the JSE has tailored its United Kingdom and the United States. new product offerings to the Diaspora and other international investors who would like exposure to • Although data are limited, the management of the Jamaican capital markets. Specifically: the JSE estimates that members of the Diaspora own less than 10 percent of shares on the • In April 2015, the JSE launched its first online exchange. When seeking wider engagement, trading platform, with specific intentions of the management of the JSE faces significant increasing trading volume from the Diaspora and challenges when trying to identify and size the also from other international investors. The new market opportunity. Their current marketing platform allows individual investors to buy and efforts include a regional capital markets sell securities such as stocks, options, bonds, and conference and marketing trips to Canada, the mutual funds, as well as to manage and review United Kingdom, and the United States. The portfolio transactions on the JSE. Until the debut JSE also works with other organizations such as of this new system, online trading was limited to JAMPRO and markets directly to pension funds stockbrokers. To use the platform, investors will and other potential overseas investors. They first need an account with one of the four initial have found, however, that as a small and illiquid Annex I. In-Depth Case Studies 103 market, there is little interest in Jamaica as a • Portland Private Equity: Through its first fund whole. As a result, Jamaica, along with the other (also referred to as AIC Caribbean) and its Caribbean exchanges, is studying the prospects current fund (Portland Private Equity Fund II), of a Caribbean Exchange Network that would Portland has invested in companies throughout give a wider regional footprint and could also the Caribbean. The fund’s sponsor, Michael Lee- become an integrated online trading network at Chin, who is the richest individual Jamaican, and some point in the future. At present, however, part of the Diaspora as he lives in Canada. The the need for local registration by brokers across AIC Caribbean fund totaled US$225 million and markets creates a clear market impediment. the new fund is seeking to raise a total of US$300 That said, despite the modernization and million. To date, most of the capital invested by internationalization of the market, local brokers Portland has been destined for markets other than are still required to broker deals. For example, if Jamaica or for regional projects. For example, in members of the Diaspora would like to invest in its first fund, Portland invested approximately 30 the local market, options to invest are limited to percent of its capital in infrastructure and tourism First Global, Scotia, Sagicor Bank, and National opportunities in the Dominican Republic. Nearly Commercial Bank, all of which are brokers who all of the remaining capital in the fund was facilitate Diaspora investment back into the directed to three regional transactions in the region. Similarly, Diaspora members can choose telecom, food processing, and power sectors. to invest by engaging a firm such as MayBerry Portland invested approximately 2 percent of that offers wealth management services. the fund in a Jamaican insurance company. The first fund is currently reporting a net IRR of 17 • Efforts to increase investment by the Diaspora percent and a 2.7 times cash return, both of which in either bonds or in publicly traded stocks must are strong results. also overcome the combined effects of currency depreciation. The Jamaican dollar lost more than • Norbrook Capital Management: Norbrook 30 percent of its value against the dollar in the is an investment holding company focused on last three years, which directly affects the returns leveraging strategic investments and operational for offshore investors who are investing hard expertise to build a global group of market leading currency. This same phenomenon also affects companies. The firm has investments in Ghana, the bond market, which had been attractive, but Jamaica, and the United States that operate in four was undermined by currency issues. Thus, in main sectors: logistics, transaction processing, the absence of currency stability, investment in health care, and BPO. The company invests in liquid assets will remain unattractive in terms SMEs and has built a portfolio of companies that of absolute returns and liquidity is likely to are far smaller than those targeted by Portland. remain limited until foreign investors feel that their overall return will be attractive when they • Blue Equity: Blue Equity is a United States– convert it back to hard currency. based lower end of the middle market private equity firm with investments that are primarily Private Equity domiciled and focused on the United States. It has invested in two companies in Jamaica, but Although the Caribbean is a small market for private these were opportunistic investments and there is equity, Jamaica is a hub for the industry, with not a specific fund dedicated to the country. The several funds that provide private capital choosing investments include the following: to maintain a physical presence in the country. The regional or global players that operate in Jamaica • The Antilles Group, one of the largest include the following: corporations in Jamaica with revenues in 104 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora excess of US$330 million. In 2011, Blue five of the eight funds that responded to the first Equity invested in the company, the licensee of call and is also sounding out the MFI community Shell brands in the energy segment in Jamaica, in search of limited partners for the first fund. The and sold its stake in 2012 to Rubis Group, a potential fund partners do not need to be country French downstream petroleum and chemicals specific, but they must be willing to allocate capital company that already controlled the Chevron/ to the Caribbean region. Moreover, they must Texaco distribution points on the island. allocate capital back to Jamaica on a 1:1 basis if that capital comes from the DBJ. Finally, they must • Island Ice & Beverage Company Ltd open a local office in Jamaica. With respect to the manufactures and distributes packaged ice nature of investments in the fund, the DBJ remains in the Caribbean. IIBC supplies over 750 agnostic in terms of both sector focus and stage, locations in Jamaica. Blue Equity invested which can range from venture capital up to pre- in 2008 in a deal that consolidated two of IPO investments. Although the program title refers Jamaica’s largest ice manufacturers. It exited to “venture capital,” the design of the program is the business in 2013, although the terms of the oriented to SME finance rather than venture capital deal are not publicly available. as it’s commonly defined in the United States (i.e., financing start-ups and technology businesses). • GK Capital: Although it has not yet raised a fund, another likely candidate to raise capital The DBJ sees the Jamaica Venture Capital is GK Capital, which is a subsidiary of the Programme as an attractive investment product GraceKennedy Group, one of the Caribbean’s to offer to Diaspora investors. Although they largest and most dynamic corporate entities. have not spoken formally with Diaspora investors Formed in 1922, it has expanded and diversified yet, they have shared their strategy publicly over the years into food manufacturing and and are contemplating participation and interest distribution, banking, insurance, money from offshore sources of capital. That said, any remittance services, hardware, and building investment opportunities related to these funds material retailing. It is listed on the JSE and would be expressly restricted to accredited TTSE and has assets in excess of US$1 billion. investors. The fund is domiciled in St. Lucia, which The company is considering raising a private is a good jurisdiction because of favorable tax equity fund to complement other advisory and treaties within CARICOM. Although the DBJ plans investment services it currently offers. to market to the Diaspora, it also recognizes that it will need to develop a clear marketing strategy for Presently the Development Bank of Jamaica (DBJ) that constituency. This will include participation in is embarking on a process to deepen the private Diaspora events, such as the semiannual Diaspora equity and venture capital industries in Jamaica. Conference. Still, the onus of the marketing strategy Specifically, the DBJ established a program will fall within the purview of the funds that are through which it will become an investor in one or selected for the program. more funds, with each fund having at least US$25 million under management. The Jamaica Venture Infrastructure PPP Projects Capital Programme is managed by the DBJ along with technical assistance and financial support Overall Landscape for Infrastructure PPPs in from the MIF. Through this program, the DBJ plans Jamaica to issue an annual call for proposals for the next Together with Trinidad and Tobago, Jamaica is the five years, meaning that the DBJ intends to invest only country in the region that has issued a PPP approximately US$10 million over that period. policy and defined the role of government ministries The bank is currently conducting due diligence on and agencies in developing PPP projects. Together Annex I. In-Depth Case Studies 105 with the above countries and Haiti, Jamaica is the 2017–18 horizon, mainly driven by growth in only country in the region that has established a the productive and transportation sectors. These PPP unit. However, like all other countries in the strategic projects are articulated around a number region, Jamaica does not have a PPP law. of key programs, including the global logistics hub initiative, agro parks program, ICT/business The PPP unit is housed in the DBJ. The unit is process outsourcing program, energy generation competently run and staffed with highly experienced program, and integrated resorts developments. A professionals. The unit has a strong track record review of these programs shows that a significant of preparing, structuring, closing, and following share of the strategic projects could potentially be up the implementation of major PPP transactions, structured as PPPs, under both user payment and including Sangster International Airport in Montego availability payment models (see technical annex Bay, the Highway 2000 concession (Phase 1), and I). This potential vastly exceeds the number of the North-South Link extension of Highway 2000. projects currently under preparation by the PPP unit at DBJ. The PPP unit is currently preparing seven transactions, including one in the transport sector Third, narrow base for financing of PPP (Norman Manley International Airport), three in the transactions to date. As of to date, the vast majority water sector, one in government IT infrastructure, of PPP transactions have relied on equity from and one in green government buildings, and has project sponsors and on traditional bank project recently closed the Kingston Container Terminal financing. There has been one example of a project Transaction (see above). bond sold to domestic pension funds as part of the financing of the Highway 2000 project. Key Challenges to the Development of Infrastructure PPPs in Jamaica Key Opportunities and Challenges for Mobilizing The development of PPPs in Jamaica is hampered Diaspora Investments for Infrastructure PPP Project by a number of fundamental constraints. Finance in Jamaica First, fiscal limitations under the Extended Fund As of to date, the reliance on traditional sources Facility (EFF) with the IMF. The EFF program of finance for infrastructure PPP transactions imposes a number of tight constraints for the meant that practically no channels were open for development of PPPs in the country. Specifically, investments by qualified Diaspora investors in availability payments made by the government infrastructure PPP projects in Jamaica. The need to in the framework of PPP projects are counted as broaden the equity and debt finance base beyond contingent liabilities and therefore subject to the industrial sponsor/operators and bank project public debt ceiling under the program. Partial credit finance creates both opportunities and challenges and partial risk guarantees issued by the government for mobilizing both domestic and international are counted at face value, not at options value. This investors, including Diaspora investors, in support severely constraints the fiscal space available for of infrastructure PPP projects in the country. the government to support PPP transactions. As in other countries of the region, sources of Second, limited PPP pipeline development finance for infrastructure PPP projects could be compared to potential. The FY 2015–16 Growth broadened through three main channels. Agenda Policy Paper prepared by the government identifies several strategic growth projects to First, international infrastructure private equity support the achievement of the agenda’s overall and debt funds could be mobilized to invest in objective of 3.0 percent GDP growth at the FY equity and/or debt (loans, bonds) in domestic 106 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora infrastructure PPP projects in Jamaica, as part of partial credit and partial risk guarantees at options their international portfolio diversification strategy. value, and implement this revised framework The key challenge to mobilize these funds is to build following the completion of the EFF; (2) to on the track record of PPP transactions successfully prepare a revised framework for the accounting of structured and closed by DBJ to promote Jamaica availability payments as recurrent expenditures in as a viable investment destination for these funds. the budget, and implement this revised framework following the completion of the EFF; (3) to prepare Second, a regional private equity or debt fund and adopt a comprehensive PPP law covering could be encouraged to invest in equity and/or the design, negotiation, financial closure, and debt in infrastructure PPP projects in Jamaica. monitoring and evaluation of the various types As in the previous case, the key challenge would of PPP contracts in all sectors, with the new law be to promote Jamaica as a viable investment articulating the framework for investor protection destination for the fund based on its track record as well as contract dispute resolution mechanisms; of PPP transactions. In addition, given the regional (4) to prepare and adopt a law on private equity/ geographical focus of the fund, the capacity of the debt funds based on international best practice and PPP unit to generate a strong deal flow together enabling the registration of private equity/debt with other participating governments in the region funds in Jamaica, to prepare and adopt a revision to would become important to justify the business the corporate legislation enabling the incorporation case for a regional fund. of limited partnerships by shares, and to prepare and adopt a revision of the fiscal code treating limited Third, a regional SIF could be encouraged to invest partnerships by shares as full pass-through entities in equity and/or debt in infrastructure PPP projects for taxation purposes. in Jamaica, in coinvestment with international and regional private equity and debt infrastructure Market catalytic actions: The second priority is to funds, subject to the same challenges as above. scale up the generation of a PPP project pipeline and accelerate the closing of PPP transactions. To Investments by qualified Diaspora investors could this end, the government would mandate the DBJ be mobilized through the regional private equity/ to take the lead in developing and implementing debt infrastructure fund and/or through the regional the regional infrastructure PPP project venture fund SIF to contribute to equity and/or debt finance of in partnership with interested governments and infrastructure PPP projects in Jamaica as part of the development finance institutions in the region, IFIs, investments by the funds in the region. regional FIs, and private investors. Elements of an Action Plan Financing instruments: The third priority is to Based on the above, an action plan to develop diversify the range of financing instruments for the Diaspora investment in infrastructure PPP projects financing of PPP transactions and to market these in Jamaica could be articulated around three main instruments to Diaspora investors. pillars: (1) legal and regulatory reforms, (2) market catalytic actions, and (3) financial instruments. First, building on its track record of successful PPP transactions, the government would take Legal and regulatory reforms: The first priority is the lead together with interested governments to to design and implement a comprehensive program encourage the development of a regional private to strengthen the legal, regulatory, and institutional equity/debt infrastructure fund that would invest in framework for PPPs in the country. This program equity and/or debt in infrastructure PPP projects in would consist of the following components: (1) to participating countries. It would market its shares prepare a revised framework for the valuation of to domestic and international investors, including Annex I. In-Depth Case Studies 107 qualified investors in the Diaspora. The fund in participating countries (see above). The SIF would be supported through equity/debt financing would attract domestic and international investors from international financial institutions on a as LPs. The fund would also be marketed to nonguaranteed basis. domestic and international qualified investors, in particular to qualified investors in the Diaspora Second, further building on its track record, the from participating countries. The fund would be government would take the lead together with supported through equity/debt financing from interested governments in the region to develop international financial institutions and from and implement a regional SIF that would invest in multilateral and bilateral donors with the counter- equity and/or debt in infrastructure PPP projects guarantee of the participating governments. Technical Annex I: Potential Strategic PPP Projects under the 2015–2016 Growth Agenda Projects Description / Timeline Ministry of Transport, Workd and Housing North-South Link Highway Highway project is 67.2 km long, from Caymanas St. Catherine on the South Coast to 2000 Mammee Bay St. Ann on the North Coast, crossing the Rio Cobre River and bypassing Mount Rosser and Flat Bridge. Construction works for Section 1 and Section 3 to be completed by 4th quarter FY 2015/2016. Expansion and privatization Contracting a suitable concessionaire to manage the KCT. Finalize negotiations with of the Kingston Container Preferred Bidder – March 2015. Terminal (KCT) Privatization and upgrading The process of recruiting a suitable concessionaire to manage the NMIA. Announcement of the Norman Manley of Preferred Bidder – September 2015. International Airport (NMIA) Major Infrastructure for Programme for rehabilitation of roadways, major bridge projects, major road projects and Development Programme employment creation. Programme for FY 2014/2015: 1) JEEP Component - Undertaking (MIDP) of infrastructure works at cost of J$1.6B 2) Road Rehabilitation - Commencement of the rehabilitation of approximately 60km of roadways across the network - $1.5B - construction period of approximately 14 months 3) Bridges - Repair to six (6) bridges –J$124M. Portland Bight Development A proposal for the establishment of a transhipment port and an industrial and Project commercial economic zone in the Portland Bight Protected Area/Goat Islands. Environmental Impact Assessment Studies and submission to NEPA for approval - to be determined. The project will be executed in phases based on the approvals for each stage. Ministry of Industry, Investment and Commerce Caymanas Special Economic The development of the Caymanas Special Economic Zone (CSEZ) is the first of several Zone (CSEZ) SEZs and an enterprise team is responsible for its development. Issue RFP for Feasibility Study and procurement of Feasibility Study – May 2015. Commence Feasibility Study – August 2015. Factories Corporation of Jamaica Naggo Head Tech Park Development of 750,000 square feet technology park in Naggo Head, Portmore. Assess (JAMPRO) the proposals and enter into final selection of entities – 1st quarter FY 2015/2016. 108 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Jamaica Promotions Corporation Business Process Outsourcing 1) BTP Lot 3 Limited 2) Advanced Call Centre Technology 3) Xerox Commercial Services (BPO) Projects (JAMPRO) 4) New ICT Space Development – Creation of new BPO space across the country through the DBJ ICT Infrastructure Loan Facility. Number of new jobs: 7,880 BPO jobs (estimate). 2015-2016. Hotel Projects 1) Moon Palace Resort (formerly Jamaica Grande) 2) Braco Resort (Melia Resorts) 3) Marriott 4) Hospiten Jamaica Ltd. The additional hotel expansions along the North Coast expected to add approximately 1300 rooms. 2015-2016. Blue Mountain Renewables The company has been recommended to supply 36.3MW of capacity from wind power at Munro, St. Elizabeth. Ministry of Finance and Planning Harmony Cove Development Harmony Cove is a 2,300-acre property on the north coast. It is being developed into a resort to include world class golf courses, spa, marina facilities, commercial developments, luxury hotels, residencies, casino, convention and entertainment centres, restaurants and retail assets. Issues related to the financing and loan risk coverage to be resolved – 1st quarter FY 2015/2016. Celebration Jamaica Hotel & Celebration Jamaica Hotel & Resort is part of the wider Integrated Resort Development. Resort Evaluation of Celebration Jamaica Development Limited’s application for an order to declare the project an Integrated Resort Development – 1st quarter FY 2015/2016. Development Bank of Jamaica School Energy PPP NET is examining the possibility of a private sector investor to install, finance and maintain the PV systems to supply energy to 30 public schools (pilot project) with similar public procurement being pursued by the PCJ. Subject to NET’s approval, DBJ to engage consultants by March 2015, through IDB technical assistance, to support the NET in developing Business Case. LED Streetlights MLGCD is seeking to replace the current streetlight bulbs with LED streetlights. Due diligence report - May 2015. Expansion of Soapberry NWC to circulate pre-feasibility to stakeholders for final comments in order to finalise the Wastewater Treatment Plant report by March 2015. NWC/CWTC to have internal discussions to decide on strategy – expected conclusion by April 2015. The recommendations for improvement of the Development Applications Process (DAP) were approved Dec 2, 2014 by the Cabinet and are as follows: Establishment of a Joint Technical Team to review; assess and monitor specified applications; MOU between the LPAs and the NEPA to facilitate the Joint Technical Team; development of criteria and Development Application mechanisms for standardization of timelines for all categories of buildings, additions Process (DAP) and renovations; full implementation of the AMANDA system; amendments to the Local Improvements Act and the Town and Country Planning Act to allow for electronic filing and parallel processing of applications and documents; Action Plan to be reviewed by Local Authorities – March 2015; Action Plan to be submitted to Cabinet for approval – April 2015. Annex I. In-Depth Case Studies 109 Legal and Regulatory Drivers and Impediments In addition to formal Diaspora organizations, the Diaspora also comes together for large, periodic Please see annex VII for detailed discussion. Jamaican culture events. This includes large food festivals and Caribbean parades such as the Jambana The Diaspora: Networks, Distribution Channels, festival in Canada that brings together more than and Platforms 50,000 attendees. Moreover, athletic events such The Jamaica Diaspora is organized through a linked as the Penn Relays, an important track and field chain of long-standing associations, although competition in Pennsylvania, counts upwards of these organizations tend to channel their energies 40,000 Jamaicans in attendance. As a result, private into political, charitable, and cultural interactions, sector players such as GraceKennedy as well with some investment and economic activities as government organizations such as JAMPRO as well. The JDI counts more than 187 Diaspora actively attend and market to the Diaspora at these organizations, which make significant contributions types of events. to Jamaica in the areas of health care, education, sports, politics, business, investment, and trade. Successful Jamaican companies that operate These organizations are most vital in terms of their internationally and cater to both local and Diaspora connections to older Jamaicans or first Jamaican Jamaicans also represent a vital and significant generations, but are less relevant to younger source of both cultural and commercial linkages. Jamaicans or descendants whose families have lived Several Jamaican titans in the corporate sector abroad for several decades. These organizations have grown and internationalized, both within the tend to fall in to three general categories: Caribbean and in markets like Canada, the United Kingdom, and the United States, by catering to • Charities: Organizations such as the American the needs of the Jamaican and broader Caribbean Friends of Jamaica connect Diaspora members Diasporas. to raise funds for social projects such as schools. They are the place where Jamaicans can direct • Jamaica National and Victoria Mutual: Both of their philanthropic efforts through an organized these companies cater to the older generation of and credible distribution channel. Jamaicans who moved to the United Kingdom and sought to save their capital to buy a home • Old Boys and Old Girls networks: There is back in Jamaica. They are both building societies tremendous affinity for secondary educational in the European sense of the term, with a business institutions, and many of the elite Jamaican model centered on taking deposits and then giving schools have very strong ties abroad and can housing loans. Over the last decade, however, mobilize their alumni with great speed. This Jamaica National (JN) has expanded into small includes schools such as Campion, Immaculate, business lending, giving loans from US$50,000 and Kingston College. UWI also has an up to US$3 million. JN has approximately international alumni effort. 150,000 members in the United States, 60,000 in the United Kingdom, and 30,000 in Canada. • Regional organizations: Regional organizations Approximately 50 percent of the savings inflows bring together the Diaspora at the local level to to JN come from Jamaicans in the Diaspora, engage in areas of shared interest, such as cultural which equates to J$2.5 billion. Although clients and political events and engagement with the local of the building societies have typically saved consulate or High Commission. For example, to buy homes for themselves in Jamaica, they Jamaican political parties maintain permanent also use the building society to invest in tourist- representation in large Diaspora markets. focused housing or in mixed-use properties that they can rent out or use for themselves. Moreover, 110 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora many small businesses are supported by relatives It focuses on political, cultural, and economic abroad, so JN facilitates this flow of capital. issues. The goal of the 2015 conference is 2,000 attendees, up from 1,500 in 2013. Organizers • GraceKennedy: As noted, GraceKennedy is hope 50 percent of the attendees will come from listed on the JSE and has assets in excess of the Diaspora, while the remainder would represent US$1 billion. The company is the exclusive key local stakeholders. The conference includes a franchisee of the Western Union brand, operating focus on economic issues, including promotion of in nine markets across the Caribbean. It also the potential for investment in Jamaica, information operates a well-loved food business, Golden regarding the investment environment, and informal Krust, that followed the Diaspora to more than networking. 60 countries, with particular strength in Canada, the United Kingdom, and the United States. The government promotes investment in the The company operates a bank and is seeking country—either from the Diaspora or from overseas to convert remittances into bank accounts. It investors in general, through JAMPRO, the operates civic forums to bring together members investment promotion agency of Jamaica. It is an of the Diaspora in its principal markets. agency of the Ministry of Industry, Investment and Commerce that promotes business opportunities As part of its overall Diaspora policy set, the MoFA in terms of (1) trade and exports and (2) foreign is also seeking to create an online community—a investment into Jamaica. Traditionally, JAMPRO Diaspora web portal—at jamicaDiasporaconnect. has not segmented their marketing efforts to foreign com in an initiative funded by the EC-UN Joint investors versus Diaspora investors, so there is Migration and Development Initiative (JMDI) for usually a mix of Diaspora and foreign investors the Project: Knowledge Networks for connecting with no ties to Jamaica. In terms of trade, financial Jamaica and its Diaspora. This project also institutions such as Jamaica Money Market Brokers includes support from project partners, including and building societies like Jamaica National and the Mona School of Business and Management Victoria Mutual are the forerunners with respect at UWI and KAJANS Women Enterprise in the to building deep outreach within the Diaspora United Kingdom. This portal aspires to be a major communities. Similarly, Digicel, the regional vehicle for communicating with Jamaicans in the telecom champion, has developed a number of Diaspora and allows the government of Jamaica to electronic and telecom channels to drive remittances share information directly with the Diaspora. To back to Jamaica. Thus, they represent exports in the date, 1,500 registered members are in the database, financial services and telecom industries. although the goal is to reach at least 100,000 to have some critical mass. One of the impediments to With regard to Diaspora investment in the country, growing this web community, other than marketing most activity has been unstructured in nature, and public relations, will be skepticism and distrust driven by individuals who tap into their personal of the Diaspora, who may not understand the exact networks to find investment opportunities. As a intension of the site and may have privacy concerns. result, JAMRPO is trying to connect directly with the business Diaspora in hopes of creating a more In an effort to stimulate direct political, cultural, institutional approach to generating these types and economic engagement in the homeland, the of investments. This is especially important now government of Jamaica, together with partners such that the Diaspora is entering its third and fourth as JAMPRO organizes a biennial Jamaica Diaspora generation in some markets, so the direct ties Conference. The event includes sponsorship and and networks are far looser and weaker than they participation from critical private sector players were in the past. As noted, JAMPRO is hoping to such as GraceKennedy, JN, and Victoria Mutual. tailor a solution to unstructured nature of Diaspora Annex I. In-Depth Case Studies 111 interaction and engagement through a program Country Analysis: St. Lucia called Global Business Connect, which is a business portal, launched in May 2015. The site, which can be Sizing the Diaspora Population and accessed at www.jaglobalbusinessconnect.com will Investment Potential serve as a platform to facilitate interactive forums and blogs; webinars and live discussions among Although it is one of the smallest states in the the business community of investors, exporters, Caribbean, St. Lucia is crafting a new Diaspora buyers, distributors, the Jamaican Diaspora, the policy that is among the most comprehensive efforts consular corps and foreign services, and the local of its kind in the region. St. Lucia’s new Diaspora and international media. Activity to date has been Policy attempts to engage members of its Diaspora minimal. to cultivate as many ties as possible between them and the island through an array of policy strategies. This online presence seeks to build on a number of From proactive engagement to incentives, the policy offline interactions that are sponsored by key actors framework does not only entail various strategies for in the government and economic establishment of attracting Diaspora investment into the St. Lucian Jamaica such as the MoFA, JAMPRO, and the JSE economy, but also looks to provide them with the as well as consulates and High Commissions. These easiest path possible toward becoming full-fledged events include the Biennial Diaspora Conference, resident citizens once again. In fact, it expressly treats the JSE Conference, and the Jamaica Investment members of the Diaspora the same as citizens (minus Forum, a forum for international investors that is the right to vote). Understanding the full scope of organized every three years. The Investment Forum St. Lucia’s Diaspora policy is important because it is focused on foreign rather than Diaspora investors helps contextualize it, demonstrating that the policy’s and has specific focus strategic industry verticals for breadth is, ironically, partly a reflection of the country’s the Jamaican economy such as BPO and tourism. small size. This is further punctuated by the fact that any policy toward the “Diaspora” also necessarily JAMPRO focuses its investment promotion includes other OECS citizens, which are by nature of activities on strategic sectors that correspond to St. Lucia’s membership in the organization, afforded the planning and development priorities of the almost all the same rights as citizens of St. Lucia. government of Jamaica. For example, the nation has Therefore, although some of the strategies within identified a strategic opportunity in the BPO space, the Diaspora policy may be worth considering for so JAMRPO is working to strengthen the national application elsewhere in the region, some parts would brand in this segment to create pull from potential likely be impossible or disadvantageous for larger clients. Other strategic focus sectors include neighboring economies to emulate. manufacturing, agroprocessing, and tourism. These sectors are often of interest to the Diaspora but are At the heart of the St. Lucian Diaspora policy are likely to be owner-operated rather than VC-style incentives for members of the Diaspora designed investments. Thus, they are essentially MSMEs to incent individuals to acquire property and take operated by Diaspora in conjunction with trusted up residence on the island, as well as to invest and local partners, family, or other people with whom build businesses there. For returning nationals, they have long-standing ties. JAMPRO notes the policy framework offers importation free of that a large component of the inbound interest is customs duties for household and personal effects, from Jamaicans who are offshore and looking motor vehicles, and tools of trade. For both national for opportunities, so JAMPRO acts like a small- and non-nationals there are then an extensive series business broker in these cases. Given the lack of of incentives for enterprises and investment in investable assets, however, very few smaller one- the productive sectors of the economy. The level off transactions actually take place. of incentives is based in part on the “local value 112 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora added” by the enterprise or investment, and the Some of the sectors include real estate, construction, policy has an explicit bias toward manufacturing, distribution, restaurants, and professional and but the fully array of potential incentive offerings domestic services. This type of policy would include the following: likely be ill advised in one of the larger economies under study here and is further testament to the 1. Tax holiday up to a maximum of 15 years uniqueness of St. Lucia as a OECS microstate. 2. Waiver of import duty and consumption tax on Clearly, the government believes this strategy imported plant, machinery, and equipment will best address St. Lucia’s unique challenges. In 3. Waiver of import duty and consumption tax on addition to favorable regulation, Diaspora members imported raw and packaging materials are courted with more incentives when it comes to 4. Export allowance—tax relief on export earnings investing and establishing businesses on certain 5. Carry forward of losses parts of island. The new Development Areas Act 6. Unrestricted repatriation of all profits and capital. provides investors and developers incentives for establishing businesses in Vieux-Fort, Anse la To foster as hospitable of an environment as possible Raye, Soufriere, Canaries, and Dennery. See table for Diaspora investors, the St. Lucian government’s 32 for an overview of the concessions offered and new Diaspora policy attempts to provide viable the business qualifications for them. Although investment opportunities as well as more generous the Diaspora policy lacks specifics on this issue, incentives. One of the boldest stipulations of the mention is made of the government’s willingness Diaspora policy is the St. Lucian cabinet’s decision to work with the Diaspora to develop financial to restrict investment activity in many of the key instruments that would allow them to help fund sectors St. Lucian nationals allow assign first right projects from overseas. The policy makes explicit of opportunity to local residents. That said, the mention of the desire to rehabituate the Diaspora policy also stipulates that a license can be obtained from merely sending remittances to also pooling by a non-national to operate in these sectors if there resources to make strategic investments. is a determination of insufficient local investment. Table 32: Concessions and Qualifications for Investors under St. Lucia’s Diaspora Policy Concessions offered to individuals/companies a) Import duty, stamp duty and consumption tax on inputs for the construction of new and refurbishment of existing buildings b) Land and house tax c) Stamp duty payable by vendors and purchasers on the initial purchase of property d) Lower corporate taxes e) Higher tax allowances/accelerated depreciation Businesses that qualify for concessions a) Conference Centers b) Residential Complexes c) Commercial or Industrial Buildings, including Office Complexes d) Other facilities directed toward the improvement or expansion of services to the tourism sector e) Water based activities f) Tourism projects highlighting the heritage and natural environment of St. Lucia g) Arts and cultural investments h) Agricultural-based activities i) Fisheries-based activitiess Source: St. Lucia Diaspora Policy, Draft 4. Annex I. In-Depth Case Studies 113 In addition to seeking to attract investors and percent, are undocumented or unauthorized citizens businesses, St. Lucia’s Diaspora policy also looks to in their host countries. Very few HNW individuals create brain exchange by developing TA programs live there, especially in New York. Instead, the and information exchange. One of the highlighted more affluent migrants tend to live in the South, initiatives of the policy is the plan to establish a in areas like Texas and Atlanta. The Consulate of Diaspora Volunteer Programme that facilitates St. Lucia in New York is currently developing a members of the Diaspora to donate their time and database of migrants as part of the overall Diaspora expertise toward various causes on the island. The initiatives of the central government. Moreover, the government also wants to register individuals and government is also embarking on a project with the entities that could provide consultancy services and IOM to map the Diaspora. This is part of a larger develop technical networks among experts in key IOM project at the level of the OECS. industries such as education, health and tourism, as well as provide more channels for capacity building. When it comes to information exchange, Investable Assets and Market the St. Lucian government hopes to funnel dialogue Impediments with the Diaspora through the executives of the SMEs and Start-ups Diaspora associations and other organizations to the country’s missions and consular offices and the The financial system consists of banks as well Office of Diaspora Affairs, which is located within as credit unions and represents one of the few the Prime Minister’s Office. pathways to saving for the local population. The Ministry of Finance, Economic Affairs, Planning, and Social Security reports that about Estimating the Size and Geographic nine international banks, six commercial banks, Distribution of the St. Lucia Diaspora and 16 credit unions are licensed in the country.62 Although exact figures remain elusive, the International banks tend to lend to the middle class Ministry of Foreign Affairs estimates that total as well as affluent citizens. There are no unit trusts size of the Diaspora population at approximately in St. Lucia, because savings are largely channeled 80,000 people (see table 33). The vast majority into savings accounts. Wealthier individuals may of St. Lucian migrants live in Canada, the United choose to work with private banking units located Kingdom, and the United States. In the United in Barbados. Diaspora members may also choose States, the community is largely located in the to keep accounts in St. Lucia to maintain a base of New York City area. The community in the United local cash to cover expenses associated with their Kingdom consists mostly of older migrants who left local real estate holdings, such as vacation homes. for Europe in the 1960s and 1970s, while migrants Many members of the Diaspora maintain credit to North America are younger. It is worth noting union accounts, which are the banking entities that however, the MoFA believes that a large portion of cater to the rural communities in the country. North American migrants, perhaps as many as 50 Table 33: Total Size of the St. Lucia Diaspora United States United Kingdom Canada Total Northeast 36,000 10,000 22,500 Other 11,500 Total 47,500 Total 10,000 Total 22,500 80,000 Source: Ministry of Foreign Affairs (estimate). 114 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The St. Lucia Development Bank (SLDB) is 100 entrepreneurship ecosystem and, relatedly, any percent owned by the federal government and falls normative means by which entrepreneurs may under the Ministry of Finance. The institution’s access VC, angel investing, or crowdfunding. mission is to grant loans that will contribute to Numerous institutions are supporting the activities economic development. It also works to support of the entrepreneurial class through training the operations of SMEs. Specifically, it seeks to and networking support, including the St. Lucia support companies or individuals with the end Development Bank, St. Lucia Trade Export goal of creating new employment in the private Agency, The Caribbean Regional Communications sector. It also seeks to support companies that have Infrastructure Program, and others, however, the capacity to export their goods abroad, thus anecdotal evidence suggests that aspiring generating foreign exchange. The strategic sectors entrepreneurs see no competitive advantage to targeted by the bank include agriculture, fishing, remaining in St. Lucia to grow their business and will education, housing, services, and manufacturing. matriculate to other larger islands in the Caribbean Approximately half of the EC$40 million (US$14.8 or emigrate further afield to access talent, networks, million) total loan book is currently oriented toward knowledge and growth finance. Initial research the education, specifically student loans, and housing suggests that private funding for business ventures sectors. The bank lends from a pool of funds that are does occur on the island, but these events are closely provided by the National Insurance Company of St. related to longstanding personal and/or business Lucia, the CARICOM Development Fund, and the relationships. To date, there is no standardized CDB. Business loans in the agriculture and services angel investor activity, although St. Lucia will be segments average EC$40,000 ($14,000) and are a geographic focus within the Caribbean Export used to buy equipment and other goods. Educational Development Agency’s future plans to develop a loans average EC$120,000, while housing loans are Caribbean regional angel network. Further, no St. typically the largest loans. All loans must be secured, Lucian businesses or projects have successfully sometime by personal guarantees. raised any type of crowdfunding. With regard to VC, a single St. Lucian project received funding Since no banks are willing to fund start-up from the Jamaican-based Caribbean Investment enterprises, the SLDB also operates the Youth Fund, which was established in 2000 and ultimately Enterprise Equity Fund, an investment fund that returned capital to Limited Partners because of a supports entrepreneurs aged 18–35 who wish to lack of investible projects. build innovative companies that create employment. The bank may invest up to EC$50,000 (US$18,500) Capital Markets and Private Equity in a given enterprise and can own no more than 50 percent. Upon investing, the bank appoints a board St. Lucia participates in the Eastern Caribbean Stock director and bank staff or local business people Exchange (ECSE), which is located in St. Kitts. lend technical assistance. The bank then holds on The ECSE is a regional exchange that includes 13 to this investment for as long as seven years before listed stocks as well as eight debt issuances. The existing via a pre-negotiated put structure. This market does not have a junior or SME exchange. fund started five years ago with a commitment of Two companies from St. Lucia trade on this EC$5 million, but deployment has been slow, with market: East Caribbean Financial Holding Co. Ltd just 10 percent of the total invested to date. The (Holding Company for Bank of St. Lucia) and St. lack of investments reflects a paucity of innovative Lucia Electricity Services Ltd. As with the other projects within the local ecosystem. exchanges in the region, liquidity is low (table 34). Because of a lack of critical mass of entrepreneurs Apart from the ECSE, capital markets in St. Lucia on the island, St. Lucia lacks an organized are shallow, with few assets for investment outside Annex I. In-Depth Case Studies 115 Table 34: Comparative Turnover of the OECS Stock Exchange 2002 2003 2004 2205 2006 2007 2008 2009 2010 2011 2012 Caribbean (Ex-DR) 8.4% 4.4% 4.1% 3.2% 5.1% 3.0% 3.0% 1.6% 1.6% 1.6% 1.3% Latin America & 16.0% 19.9% 24.4% 27.8% 30.4% 40.7% 51.4% 48.9% 45.7% 46.1% 42.7% Caribbean High income: OECD 156.2% 111.8% 117.3% 123.0% 151.6% 185.8% 262.2% 219.1% 137.4% 141.0% 102.9% Jamaica 2.7% 3.5% 4.2% 3.1% 2.3% 2.9% 3.6% 1.8% 3.3% 3.1% 3.0% Trinidad and Tobago 3.0% 4.7% 3.8% 3.7% 2.6% 2.3% 2.6% 2.0% 1.2% 1.2% 0.8% Barbados 31.5% 5.7% 5.3% 1.7% 19.8% 5.5% 3.6% 0.3% 0.4% 0.4% 0.4% ECSE 1.9% 0.3% 0.3% 0.4% 1.2% 1.5% 0.7% 0.9% Source: World Bank. of sovereign bonds. The Ministry of Finance is infrastructure, social infrastructure, and productive partnering with a brokerage firm called Eastern sectors that require the use of government assets, Caribbean Global Investment Brokers Ltd, which including land, and that are expected to contribute is a division of the Bank of St. Lucia, to study to economic growth and diversification. Diaspora bonds. This is in the early phases, however, and there are legal issues, such as registering with To date, these institutional arrangements are not the SEC to raise capital in the United States, that yet operational, and the pipeline for PPP projects will require further study. Moreover, there is no in St. Lucia is small. It consists of five projects, of clear indication as to the actual demand for such a which three in transport (Hemanorra/GFL airport product in the Diaspora. redevelopment, southern roads rehabilitation project, and a north-south link road), one in ICT Public-Private Partnerships in Infrastructure (national and regional connectivity infrastructure), and a health PPP currently under discussion with Together with Jamaica and Trinidad and Tobago, St. IFC. Among these projects, two are at the concept Lucia is the only country in the region that has issued stage (airport redevelopment and health PPP), and a PPP policy and defined the role of government the three others are at the feasibility stage. ministries and agencies in developing PPP projects. The development of PPPs in St. Lucia is hampered The national PPP policy issued in March 2015 by a number of fundamental challenges: (1) is comprehensive and in accordance with best although the adoption of the national PPP policy international standards. It provides a clear constitutes a great step forward, St. Lucia does definition of PPPs, clearly articulates the objective not possess a legal and regulatory framework for and scope of the PPP policy, sets out a coherent PPPs; (2) the government has limited capacity in PPP process, and articulates an institutional PPP the area of PPP project preparation, structuring and framework grouping various sectoral ministries management; and (3) the small size of the country and government agencies around a high-level entails that the deal flow of potential PPP projects steering committee under the Department of will remain limited. Finance, Economic Affairs and Social Security, to be supported by a core team and project teams In light of these challenges, the government needs responsible for the preparation of specific projects. to implement an action plan focusing on key priority The scope of the PPP policy covers PPPs in core actions: 116 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora 1. A PPP law will need to be formulated and Their largest and most active populations of Lucians implemented to provide the foundation for the PPP outside of the Caribbean are in New York and program. This law should cover all stages of the London, followed by Toronto. Within the region, PPP process, including PPP project screening and the Lucian Diaspora lives in Barbados, Guyana, and preparation, implementation and procurement, French Guiana. The ambassador to the Diaspora, and contract management. Critically, as set out in Dr. June Soomer, characterizes the Diaspora as the PPP policy, the law should require that every highly organized, with these groups participating project above a minimum threshold in the public in a group called the Union of St. Lucian Overseas investment program screened for PPP suitability Associations. At the same time, the government and that only projects that are not suitable for PPP is keen to maintain ties with the older Diaspora be integrated into the public investment program. while building a long-term relationship with young people before they migrate. Younger migrants tend 2. The PPP team set out in the PPP policy will to take a less interest in this associations, so the need to be transformed into a PPP unit capable government wants to approach them while they are of meeting critical responsibilities under the still in the homeland to develop the next generation expanded PPP program that will result from the of relationships. implementation of the PPP law. In particular, the unit will need to deliver the critical functions of More formal interactions with the Diaspora take the project identification and preparatory activities. form of conferences or government missions abroad. This will include needs identification, project Like the other countries in this study, St. Lucia also prioritization, option analysis and selection, organizes a biannual conference in which the country project scoping, information collection, cost- invites the Diaspora, particularly the leadership and benefit analysis, and screening for PPP potential. members of the associations, to return home to discuss Diaspora issues. Attendance at the most recent event 3. The government will need to join the regional topped 1,000 individuals. The conference focuses project venture fund that will be responsible for on political and social topics, including education, proceeding with project appraisal and structuring welfare, and charitable fundraising, but it does and preparation of tender and contract. not have an economic or investment component. Additionally, the government uses this conference 4. The government will need to join the regional as a forum to develop its policies for the Diaspora. SIF that will be responsible for negotiating and For example, issues of note include the desire of the closing the transaction with private sponsors and Diaspora community to vote in elections, which is an investors, investing in the PPP alongside private ongoing conversation. In the past, the government, investors, contract management, performance in partnership with Invest St. Lucia, has conducted monitoring, and execution of exit. missions to Canada, the United Kingdom, and the United States, to promote government bonds. The Legal and Regulatory Drivers and Impediments mission also sought to tap into expertise with regard to risk capital, although there was limited follow-up Please see annex VII for detailed discussion. upon return. The government promotes investment in the country, The Diaspora: Networks, Distribution either from the Diaspora or from overseas investors Channels, and Platforms in general, through Invest St. Lucia, the investment The St. Lucian government interfaces with 24 promotion agency of St. Lucia. Generally, Invest St. different Diaspora groups in Canada, the United Lucia does not target the Diaspora specifically when Kingdom, the United States, and the Caribbean. seeking foreign investment. The average person in Annex I. In-Depth Case Studies 117 the Diaspora does not make personal investments as well as demand for government debt at both and tends to travel to St. Lucia for social reasons. home and abroad. According to the IMF, excess Given that these individuals are not investors in reserves at Central Bank averaged TT$8.4 billion their countries of residence, it’s not likely that they per day in May 2014 compared with just over TT$6 will make an investment in St. Lucia either. The billion in April 2014.63 There is also a shortage of most significant driver of investment in St. Lucia is investable assets in the local economy. The US$550 market access, to either the local or regional market, million Eurobond issue undertaken in December or a third market such as the United States because 2013 is an example of this phenomenon. This issue of preferential trade agreements. Thus, Invest St. was 9.9 times oversubscribed and generated some Lucia sees opportunity in offering Diaspora an US$50 million in local interest. Trinidad can raise opportunity to target regional markets or develop money easily at very good rates. Because of strong products locally that can serve external markets. demand the interest rate was adjusted from 4.75 With respect to strategic areas for investment, percent to 4.375 during the offering. External debt Invest St. Lucia focuses on ancillary services for remains at less than 20 percent GDP by the end of tourism, manufacturing with export potential, and the projection period, while the share of short-term infrastructure, both hard and soft. There is also debt versus overall indebtedness is exceptionally strong interest in alternative energy, such as wind low. In sum, access to capital is not an issue in and solar projects. Invest St. Lucia reports that, Trinidad and Tobago. while historically there has been some Diaspora investment, it has been sporadic. Investment of Given Trinidad and Tobago’s macroeconomic note has been in the tourist sector, especially context, unlike other economies in this study, accommodations, from small to large. This includes remittances are not a factor in the local economy, LeSport, a high-end health and wellness center, totaling just 0.5 percent of GDP in 2012. Moreover, which is one of two hotels owned by the Barnard although no official statistics are available, several family of the United Kingdom, which is part of the sources spoke of a phenomenon of “reverse St. Lucian Diaspora. remittances” whereby workers that migrate to Trinidad and Tobago from other areas of the Caribbean or the world send remittances back to Country Analysis: Trinidad and their families and their homelands. Unlike many Tobago of the other countries in the Caribbean, remittances don’t represent a critical ongoing component of the Sizing the Diaspora Population and economy, and no driving need has been seen to craft Investment Potential a comprehensive Diaspora strategy along the lines of those of Jamaica or St. Lucia. There has been Unlike Jamaica and St. Lucia, both of which have discussion regarding the creation of a Diaspora unit created policies and political units dedicated to at the Ministry of Foreign Affairs, but this project deeper political and economic engagement of the did not come to fruition. Diaspora, Trinidad and Tobago has taken a less active approach toward creating these types of Absent a need for capital, the ongoing strategic ties. This phenomenon reflects the relative wealth need of the economy is one of diversification rather and high liquidity in the local economy vis-à-vis than foreign direct investment. The main external other countries in the Caribbean. As a result of its risk over the medium term would be a sustained considerable natural resource wealth, Trinidad and decline in energy prices since energy makes up Tobago does not need to look to the Diaspora to approximately 50 percent of government revenues. source capital for the local economy. In fact, there Over time, Trinidad and Tobago has chosen to is significant liquidity in the local banking system diversify the nature of the end markets for its 118 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora exports of liquefied natural gas (LNG) and has on energy by developing new geographic areas and shifted its exports from the United States to Asia, industries within the country. This department has Europe, and Latin America.64 Still, technological undertaken a number of mapping studies, in Northeast changes along with the development of a significant Tobago (focusing on ecotourism and small niche LNG export capacity from the United States could agriculture), the North Coast of Trinidad (focusing pose a long-term threat if it significantly expanded on ecotourism and small niche agriculture), East global natural gas supplies. The ongoing reliance on Port of Spain, the Central Area of Trinidad (which is energy resources for a vast majority of the country’s an industrial cluster and offers business services as prosperity remains a fundamental challenge. well), and the Southwest Peninsula (for a methanol plant). Given the large size of the public sector, part There is also a need to enact structural reforms of the mission is to move employees from the public and achieve diversification with regard to the labor to the private sector. market. Despite the low recorded unemployment rate at less than 4 percent, evidence indicates significant As part of these efforts, Trinidad and Tobago is underemployment, suggesting that official data working to position itself as a regional financial may underestimate the degree of slack in the labor center given that the country is home to a number of market. According to the IMF, temporary make the region’s leading indigenous financial institutions, work programs reduce measured unemployment including Guardian Holdings, Republic Bank, and but contribute little value added. Moreover, First Citizens Bank. Moreover, the country has solid Trinidad and Tobago’s public service employees ratings from the global rating agencies, high GDP represent 25 percent of total employment, including per capital, excellent infrastructure, and English- permanent, contract, and daily paid workers in 48 speaking human capital. Moreover, free tertiary ministries, agencies, and departments. This large education in Trinidad and Tobago produces from and expensive bureaucracy remains an important 12,000 to 14,000 graduates per year. This includes hindrance to structural reform. the local campus of UWI and the University of Trinidad and Tobago. Within the context of its local labor market, Trinidad and Tobago faces an enormous challenge in In support of these efforts, the government has limiting the brain drain phenomenon. A 1998 study created an initiative called the Trinidad and Tobago (Carrington and Detragiache) placed Trinidad’s share International Financial Center (TTIFC), which is of total tertiary-educated migrants at 46.7 percent a Special Economic Zone that will have its own and overall migration rates of the tertiary-educated courts and financial services authority. The creation at 57.2 percent, the third highest brain drain level of a dedicated financial center is not meant to in the world (Financial Times, March 23, 2005).65 cannibalize the local market, but instead will seek to The loss of intellectual capital is particularly acute cater to international players. So it still would need among doctors and nurses (medical brain drain) and a domestic PE law. At the same time, TTIFC aspires teachers. Stemming brain drain is a colossal task to raise the standards of the local environment by because of massive outward migration of university creating a world-class set of institutions that serve graduates to North America and Europe. Moreover, an ecosystem of leading financial players. TTIFC the high levels of employment, even if there is was first conceived in 2006 and operationalized acute underemployment, further compounds the in 2012, although the requisite laws to create the challenge of reattracting and/or retaining skill labor. special economic zone remain in draft form. In addition to creating a regulatory framework to Activated in 2012, the Economic Development attract global financial firms, TTIFC is also building Board is charged with diversifying the economy and local BPO industry that can service these clients. the labor market by deemphasizing the dependence At present, two firms, Scotia Bank and RBC, have Annex I. In-Depth Case Studies 119 established captive units to service their clients in the supply of foreign exchange in the market. This, North American and the region. TTIFC seeks to along with the motivation of preventing currency create some 3,000 jobs in the next three years and depreciation, has prompted the Central Bank to as many as 7,000 to 10,000 jobs over the medium tap into its sizable foreign reserves—about US$11 to long term. billion—and inject hundreds of millions of U.S. dollars into the economy. However, interviews with It is important to note that the development needs some market actors indicated linkages between and financial needs differ between the islands of the government’s interventions and the shortages Trinidad and Tobago. Trinidad claims the vast themselves. Critics of the Central Bank’s policies majority of the country’s combined population of say the injections encourage dollars to be hoarded 1.3 million, as Tobago has a population of only because the value is set artificially, instead of by the 60,000. Moreover, its economy is more akin to market. In truth, a great deal of private Trinidadian those of other small Caribbean nations, with a foreign exchange wealth is held offshore. Based on dependence on industries such as tourism. Tobago figures provided by the Central Bank in mid-2014, has its own House of Assembly (THA), and this the money injected into the market was gobbled local government employs the majority of local up by a few sectors: 30 percent (US$1 billion) residents. The THA—Tobago’s local government— was used by the retail and distribution sector, 22.4 has achieved an independent Moody’s rating. In percent (US$752 million) by credit card centers and May 2015, Moody’s Investors Service downgraded 14.1 percent (US$474 million), by manufacturing. THA’s issuer rating to Baa2 from Baa1. The outlook Meanwhile, just 2 percent (US$67 million) of on the rating is negative. That rating is driven by the injections have been distributed via over-the- its strong linkages with Trinidad and Tobago given counter purchases by the general public. Although that 98.7 percent of THA’s revenues come from the the government has recently adjusted access to the central government.66 Furthermore, THA requires stimulus to increase flows to smaller banks and approval from the central government to contract nonfinancial institutions, systemic risks remain financial long-term debt, which ensures a strong within its foreign exchange market. level of oversight. Although THA relies on the central government for almost all of its revenue, it has considerable flexibility over its expenditures. Estimating the Size and Geographic This allows THA to react to revenue pressures and Distribution of the Trinidad and Tobago maintain positive results. Diaspora Although sporadic efforts have been made to size the It is also critical to note that most market actors in Trinidad and Tobago Diaspora, no comprehensive or Trinidad and Tobago expressed concern in regard credible studies has been undertaken by the country’s to both foreign exchange volatility as well as a government. The United Nations estimates a total general difficulty when trying to access foreign migrant stock in mid-year 2013 of 374,092. Trinidad exchange.67 Although Trinidad and Tobago has and Tobago’s emigrant population predominately had a nominally floating currency since 1993, it lives in the United States (249,001), followed by has maintained a “dirty” float, one in which the Canada (76,310), and Europe (25,012), which is government intervenes from time to time to keep the almost exclusively limited to the United Kingdom. country’s currency at a particular value and address Although these estimations give a sense of the complaints of foreign exchange shortages. The quantum of the individuals in the Diaspora, some seasonal nature of Trinidad and Tobago’s dominant complicating factors exist with regard to counting the foreign exchange inflow, taxes on the energy actual population. First, this number underestimates sector, means there is a natural inconsistency in the total population because of the difficulty of 120 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora counting undocumented migrants. This figure could Investable Assets and Market be considerable given that a 2014 study by the Impediments Migration Policy Institute finds that some 16 percent of Black Caribbean migrants to the United States Startups and SMEs are unauthorized.68 It also bears noting that there is a notable Trinidad and Tobago population in the Angel Investors Middle East as well because of the country’s strong No formal angel networks exist in Trinidad, and capabilities in the oil and gas sector. This population the funding of enterprises by private individual is often disregarded because it falls outside of the investors is largely tied to personal and professional usual focus countries and is more transient in nature. networks. The Enterprise Hub, a private business support and training agency, boasts Trinidad’s Sources indicated that the Diaspora tends to choose first program to connect entrepreneurs with HNW to migrate and settle around similar hubs as other individuals who are successful entrepreneurs Caribbean Diaspora groups. This includes the eastern and retired executives. According to the Ministry United States (New York, Washington, Miami, and of Planning Council for Competitiveness and Atlanta), as well as Toronto and London. Moreover, Innovation website, the Enterprise Hub’s program these Diaspora members tend to be connected is the first of its kind; however, none of the publicly back to the homeland, often keeping passport and available records indicate the successful matching owning property. For example, migrants often of entrepreneurs with investors. choose to invest in real estate, which they can rent out to expatriate oil workers based on U.S. dollar The Trinidad Ministry of Labor and Small and Micro prices and one day use as a retirement home. Enterprise Development is considering how best to Although they may maintain dual citizenship and create collaborative funding mechanisms between own local property, there is a residency requirement angels and crowdfunding whether in sequence or in with regard to voting in local Trinidad and Tobago parallel. There is also an innovative proposal being elections. To participate in the democratic process, considered by the ministry that for every TT$80 an a citizen must also be a resident for at least six angel invests, they would receive a TT$20 tax credit, months before the date of the election. and in addition the government would provide a further TT$20 in capital investment in the deal. Multiple sources note that the central government’s Implementing such an incentive could encourage statistics gathering and reporting capabilities are investment activity and mitigate a portion of risk and notoriously weak. The IMF reports that the Central would help to channel public funding that is already Statistical Office has yet to move into suitable allocated for SMEs directly into their hands. quarters and remains woefully understaffed and under-resourced. The production of critical data Crowdfunding (including GDP, trade, and labor, as well as tourism There are no operating crowdfunding websites statistics) continues to fall further behind, grinding based in Trinidad, although there is a wide interest to a halt in critical areas and rendering the conduct in supporting crowdfunding by business support of surveillance ever harder.69 This lack of capacity institutions in Trinidad including Startup Weekend, is clearly seen in the paucity of data as regard to the and the largest incubator networks in Caribbean Diaspora. Unless this office’s capacity strengthens, such as NEDCO. greater clarity regarding the size and location of the Diaspora will remain elusive. As in Barbados, Jamaica, and St. Lucia, the utilization of international presale or donation- based crowdfunding websites, such as Kickstarter Annex I. In-Depth Case Studies 121 or Indiegogo, is not restricted in any way by crowdfunding regulation. The TTSEC would need Trinidad and Tobago’s regulatory regime. Because to determine the changes to current regulations of the regulatory and cultural issues, there have not needed and the new regulations that would be been a large number of successful campaigns that required, and build a supervisory framework as have originated in Trinidad. Kickstarter research well consider how cross-border transactions would indicates that there has been one successful be enabled and monitored and how anti–money- campaign that raised US$10,300 from 48 backers laundering regimes would be followed. for a documentary film project.71 Six other campaigns were unsuccessful in reaching their SME Lending campaign goals and therefore did not receive any SMEs represent a significant segment of Trinidad funds. The combined goal of these six campaigns and Tobago’s economy, comprising over 85 was US$125,000, and the total pledged toward those percent of registered businesses and generating 28 campaigns was US$3,212, with approximately 45 percent of the country’s GDP, according to a report percent of that total coming from one campaign. This produced for the World Bank by Term Finance would indicate that the majority of the campaigns Limited in April 2015. According to Trinidad and were launched with no marketing/promotion plan Tobago’s Chamber of Industry and Commerce, and execution. All but one of these campaigns were SMEs are defined as companies that employ arts-related projects. Globally on Kickstarter, as between six and 50 people, have assets valued in of the writing of this report, the success rate for somewhere between US$42,000 and US$833,000, campaigns is 37.5 percent71 In looking at Indiegogo, and generate annual sales between US$42,000 and a total of 14 campaigns were done, and two were US$1.7 million. About 18,000 companies fit this successful in reaching their fundraising goals (a profile, and they employ 20 percent of Trinidad and total of USD$7,200). The remaining campaigns Tobago’s population. They occupy the country’s received pledges of USD$56,720 on a combined manufacturing, distribution, retail, entertainment. goal of USD$740,000. All but one of those and services industries. Despite their large stake campaigns were “flexible funding” campaigns, in the economy, however, SMEs in Trinidad and meaning that the campaign owner was able to keep Tobago, like elsewhere in the region, struggle to whatever money they received. The data from these find credit (table 35). A staggering 70 percent of campaigns demonstrate similar characteristics as SME funding comes from personal savings. the Kickstarter campaigns. Fundraisers were not able to find an audience for their campaigns because Based on Term Finance’s survey results, a large of a lack of marketing/promotion and/or mismatch majority of SMEs in Trinidad and Tobago find it in interests in the campaign itself. It also indicates difficult to access funds when they need it, and based that on average these Indiegogo campaigns were on estimates, a major gap exists between lending attempting to raise USD$36,000. Global success supply and demand. A troubling 55 percent of SMEs rates on Indiegogo are estimated to be 20 percent.72 say they have missed an “attractive opportunity” in the past on account of their lack of access to The Trinidad and Tobago Securities and Exchange credit. With 78 percent of SMEs saying they need Commission has yet to establish a regulatory funds, and 67 percent saying they find it difficult to framework to allow for the normative offering access funds, there are thought to be 9,407 potential of debt and/or equity funding products via the borrowers in Trinidad and Tobago’s SMEs lending internet. However, the Trinidad and Tobago market. Sizing this demand for credit is difficult, but Securities and Exchange Commission (TTSEC) has the task is aided by the Term Finance survey, which begun to study crowdfunding through World Bank, asked SMEs how much credit they would borrow if IOSCO, and other research materials. Currently no credit were made available to them. Table 36 breaks TTSEC schedule is set up for formally considering down some of the results of the survey question’s 122 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 35: Comparison of Firm Lending in Trinidad and Tobago, Select Caribbean Nations, and the LAC Region Small Medium Large Firms Firms Firms (employ (employ (employ 1-19) 20-99) 100+) All Firms % firms with access to a bank loan or line of credit Jamaica 26% 28% 47% 27% Latin America & the Caribbean 40% 56% 68% 48% Trinidad & Tobago 47% 72% 74% Barbados 58% 54% 76% Dominican Republic 50% 65% 77% % firms identifying access to finance as a major constraint Jamaica 47% 29% 11% 41% Latin America & the Caribbean 32% 29% 21% 31% Source: World Bank Enterprise Survey 2010. Table 36: Breakdown of SMEs’ Self-Reported Credit Needs Share Share of Share of Share of Share of of SMEs SMEs that SMEs that SMEs that SMEs that that need needs needs needs needs All more than more than more than more than more than potential US$1,600 US$7,800 US$16,000 US$31,000 US$40,000 borrowers 13% 25% 13% 13% 31% Estimated value (US$MM) 1.95 18.34 19.56 37.91 116.64 194.42 Source: Term Finance Limited, “SMEs & Start Ups in Trinidad & Tobago. responses, as well as calculations regarding the size creditworthiness of SMEs, which requires both of the credit market based on them. qualitative and quantitative assessments. Having said that, there are some big banks in Trinidad Despite recognizing the potential in the SME and Tobago, such as RBC, that have delved into lending market, the banking sector in Trinidad the SMEs lending market. RBC reports that and Tobago generally lacks the ability to price the approximately 33 percent of its lending is destined credit risk of SMEs, and thus is, for the most part, to companies with assets between US$100,000 to discouraged from working with them. As is the US$1 million. Yet the bank makes demands of its case in most developing economies, Trinidad and own, particularly when it comes to companies on Tobago’s SMEs have a hard time communicating the smaller end of the spectrum, such as those with with banks, pitching their business models and US$20,000 to US$100,000, which represent less growth plans without the acumen they need to than 20 percent of its lending. These companies are adhere to the formalized procedures and standards expected to provide guarantees and collateral, such the banks demand. Nevertheless, the banking as real estate. sector also falls short in the range of expertise and resources that it needs to properly evaluate the Annex I. In-Depth Case Studies 123 To better address the financing needs of SMEs, the changes to existing legislation will require approval TTIFC is designing and structuring a vehicle that from the Trinidad and Tobago legislative body. will service companies that cannot access financing from the traditional banking sector. This will serve Capital Markets and Private Equity as an intermediate policy that will eventually create a The Trinidad and Tobago Stock Exchange is the pipeline for both the SME exchange and the broader second largest stock exchange in the English- Trinidad and Tobago stock market. To provide speaking Caribbean, with 31 securities (table 37). financing to SMEs, the TTIFC is considering a risk capital model to fund growth, expansion, and exports As noted with Jamaica, an analysis of market at these companies. This strategic initiative will entail turnover ratio provides an effective metric by which raising and managing a TT$100 million fund whereby to compare the relative liquidity of stock exchanges. 66 percent of the capital would be provided by the Similar to Jamaica, Trinidad and Tobago shows federal government with the remainder contributed by very low levels of turnover versus the wider Latin private investors. The government would determine America region. Thus, the Trinidad and Tobago the investment policy, the board of the fund would market also lacks the dynamism seen both in its be selected from the private sector, and a private fund peer markets and in global markets generally. Table manager would run the day-to-day operations of the 38 compares turnover at the Trinidad and Tobago effort. This fund projects returns of 13–17 percent per exchange with that of other regional exchanges. annum over a 10-year fund life, and the model calls for at least 47 investments. It would be invested in five Table 37: Snapshot of TTSE Market in years but repaid over the following five years through 2013 and 2014 a combination of interest payments, revenue royalties, and equity. In addition, the fund would benefit from Dec. 31, Dec. 31, 2013 2014 a TT$10 million technical assistance funds to prepare the companies to raise capital. The TTIFC is in the Market Capitalization 118,756.93 114,678.70 ($MM) process of finalizing the request for proposal (RFP) Total Listed for a fund manager and for a TA provider. The fund Companies 33 31 manager is expected to receive compensation in line Member with traditional private equity economics (2 percent Organizations 7 7 management fee and 20 percent carried interest). The Cross Listed Index 49.43 41.72 fund manager will raise capital from local investors such as pension funds and institutional investors, All T&T Index 1,993.72 1,983.18 but may also choose to target Diaspora as well. The Composide Index 1,185.05 1,150.91 timing for the issue of the RFP is 2015, but some small Source: TTSE Annual Report 2014. Table 38: Comparative Turnover of the TTSE 2002 2003 2004 2205 2006 2007 2008 2009 2010 2011 2012 Caribbean (Ex-DR) 8.4% 4.4% 4.1% 3.2% 5.1% 3.0% 3.0% 1.6% 1.6% 1.6% 1.3% Latin America & 16.0% 19.9% 24.4% 27.8% 30.4% 40.7% 51.4% 48.9% 45.7% 46.1% 42.7% Caribbean High income: OECD 156.2% 111.8% 117.3% 123.0% 151.6% 185.8% 262.2% 219.1% 137.4% 141.0% 102.9% Jamaica 2.7% 3.5% 4.2% 3.1% 2.3% 2.9% 3.6% 1.8% 3.3% 3.1% 3.0% Trinidad and Tobago 3.0% 4.7% 3.8% 3.7% 2.6% 2.3% 2.6% 2.0% 1.2% 1.2% 0.8% Source: World Bank. 124 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Although the market turnover is low both on an disequilibrium due to the scarcity of supply. For absolute and a relative basis, as seen in table 39, that reason, RBC doesn’t target the Diaspora, and trades averaged below 50 per days over the last it knows of few notable examples of other financial five years. Moreover, trading metrics deteriorated institutions pursuing such a strategy. in 2014. Republic, which is the biggest pension fund In an effort to increase trading volume and the manager in the Caribbean and one of the leading number of listed companies, the Trinidad and institutional investors in the region, also affirms that Tobago Stock Market has also created a Junior it has no Diaspora strategy nor does it seek to target Exchange called the SME Market that is modeled offshore investors. Unlike Jamaica where there is on the JSE. This initiative, which was announced an active stock market and junior stock market, in 2011, also sought to reduce SME reliance on Trinidad capital markets are far smaller. Even if bank financing by providing an alternative source the SME market develops in Trinidad and Tobago, of capital for growing businesses. The market the required capital will be sourced in the local is available to companies that with capital bases market rather than from international investors. between TT$5,000,000.00 and TT$50,000,000.00 Republic invests in government debt, highly rated (US$800,000 to US$8,000,000). Moreover, SMEs corporates bonds, and some public equities, but it would be required to raise capital on the stock makes no investments in private equity because of a exchange through an IPO with a minimum of 25 regulatory environment that limits foreign currency shareholders holding at least 30 percent of the investment to no more than 20 percent of the entire company’s share capital. Companies that list will portfolio in foreign currency assets. This policy, in enjoy a 10 percent corporate tax rate for a total of conjunction with other regulations, dramatically five years. To date, no companies have listed on the limits the scope of investments available to the SME Exchange. pension funds. As such, Trinidad and Tobago is a conservative investment culture, and this culture Engaging the Diaspora in Trinidad and Tobago has only been strengthened by the implosion of CL is not simply a question of attracting capital Financial. and then directing that capital into one of the existing investment vehicles or opportunities that Unit Trust, the largest mutual fund in the Caribbean, exists today. As Royal Bank of Canada’s local offers U.S. equities and fixed income as well as local representatives note, there is a dearth of investment fixed income funds, Trinidad and Tobago income available for local investors, so attracting capital funds, and a US$1.7 billion domestic income fund. from overseas makes little sense given the existing The firm has 589,000 unit holders, or 80 percent Table 39: General trends in TTSE Trading (2010-2014) 2010 2011 2012 2013 2014 Total Trades 8,615 9,278 8,838 14,060 13,747 Average Daily Trades 35 38 37 37 56 Total Volume (MM) 77.96 564.18 50.86 122.42 104.96 Average Daily Volume (MM) 0.31 2.29 0.21 0.49 0.42 Total Value ($MM) 870.07 1030.69 750.24 1637.12 1406.85 Average Daily Value ($MM) 3.52 4.19 3.11 6.6 5.71 Source: TTSE Annual Report 2014. Annex I. In-Depth Case Studies 125 of the workforce in Trinidad and Tobago, and the in the market. Investors who seek foreign currency typical account has a balance of less than US$5,000. assets do so because they perceive a complete These individuals buy a diverse basket of shares mispricing of the assets locally when compared to whereby the Unit Trust’s investment offerings serve equivalents in the developed world. With so much to mobilize savings of the ordinary men and women local liquidity chasing a limited set of opportunities, of Trinidad. As such, these mutual funds don’t offer they feel that assets are mispriced relative to global an opportunity to diversify into riskier assets, but markets. These pricing issues only exacerbate the instead tend to hold fixed income and large public difficult in marketing local Trinidad and Tobago shares. investments to the Diaspora or to other foreign investors. Efforts to create listed equity vehicles for the Diaspora have meet limited demand and have Private Equity been design to focus their portfolios outside of Trinidad and Tobago. Unit Trust has developed a Given the excess liquidity in the market and high product specifically for the United States market asset prices, Trinidad and Tobago presents a difficult that manages a stock fund consisting of U.S. stocks. environment for PE, outside of infrastructure It has chosen to offer a U.S.-centric product for opportunities or investments that are executed U.S. investors rather than a Trinidad and Tobago– as part of a pan-regional company. As noted, focused product because return on the local market Guardian Holdings sought to create a PE platform are hampered by low liquidity and currency in Trinidad and Tobago in the form of Prometheus risk. This makes such a product unattractive to Energy Partners, a private equity fund focused on global investors who can invest across multiple energy opportunities in Trinidad and Tobago and the geographies unlike local investors who must invest greater Caribbean region. Despite these attempts, their capital within Trinidad and Tobago. The the fund never was able to raise sufficient capital to U.S.-based fund has not been successful, despite become a self-sustaining entity. Moreover, one of its efforts to market to the Diaspora, and manages investments in Trinidad and Tobago, Carisal, ended less than US$50 million. Maintaining this fund has poorly after years of efforts to build a plant that also required Unit Trust to register in the United would make it a leading supplier of caustic soda, States and to contend with onerous SEC and U.S. calcium chloride, and other related products through regulations. When considering the Diaspora, Unit a base in Trinidad and Tobago. No other PE firms of Trust notes that although Trinidad and Tobago’s note have entered the market since that time. market are deep vis-à-vis most of the Caribbean, they remain far too shallow to create specialized Infrastructure PPP Projects products for offshore investors. Overall Landscape for Infrastructure PPP Interestingly, although local financial institutions Projects do no target Diaspora investors for the local market, Together with Jamaica, Trinidad and Tobago is the some local investment management firms focus only country in the region that has issued a PPP exclusively on helping local investors to diversify policy and defined the role of government ministries client risk away from concentration in Trinidad and and agencies in developing PPP projects. Together Tobago. Local firm Sheppard Securities manages with the above countries and Haiti, Trinidad and US$400 million, of which approximately 60–70 Tobago is the only country in the region that has percent of these assets are held in hard currency. established a PPP unit. However, like all other There is significant demand for hard currency countries in the region, Trinidad and Tobago does investments, although the firm struggles with the not have a PPP law. limited access to foreign exchange that is typical 126 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The PPP unit is housed in the Ministry of Finance. Key Elements of Action Plan The unit is at an incipient stage and severely In light of these challenges, a fundamental reform understaffed. As of to date, out of the eight projects of the PPP framework is required as a sine qua non identified in the regional roadmap, the PPP unit to develop this asset class in Trinidad and Tobago. appears to be working on one project only, the This reform will need to be based on the following specialist clinical centers. key components: Key Challenges to the Development of 1. A PPP law will need to be formulated and Infrastructure implemented to provide the foundation for the The development of PPPs in Trinidad and Tobago PPP program. This law will cover all stages of the is hampered by two fundamental challenges. PPP process, including PPP project screening and preparation, implementation and procurement, First, Trinidad and Tobago has considerable fiscal and contract management. Critically, the law space to finance public investments on budget. will need to require that every project in the Following the establishment of a SWF that mitigates public investment program be screened for PPP the impact of fluctuations in energy prices on fiscal suitability and that only projects that are not revenues, the government is expected to maintain suitable for PPP be integrated into the public fiscal balance over the medium term. Within this investment program. medium-term framework, public investment is projected to remain at about 5.5 percent of GDP, 2. The PPP unit at the Ministry of Finance will representing about 17 percent of government need to be strengthened to be able to meet its overall revenue or 42 percent of government energy responsibilities under the expanded PPP program revenue, and public sector debt is projected to that will result from the implementation of remain below 30 percent of GDP (see IMF Article the PPP law. In particular, the unit will need IV, 2014). In this macrofiscal environment, the to deliver the critical functions of project government has little financial incentive to rely identification and preparation. This will include on PPP transactions to finance public investment needs identification, project prioritization, projects through the private sector. Therefore, option analysis and selection, project scoping, the rationale for reliance on PPP projects needs information collection, cost-benefit analysis, and to articulated primarily on increased efficiency in screening for PPP potential. project management. 3. The government will need to join the regional Second, the limited capacity of the PPP unit infrastructure project VF that will be responsible translates into slow processing of PPP projects from for proceeding with infrastructure PPP project concept phase to appraisal to closing of transactions appraisal and structuring and the preparation of with the private sector. This situation constitutes the tender and contract. a further disincentive to rely on PPPs for public investment projects, as the potential efficiency gain 4. The government will need to join the regional to be derived from private management of public SIF that will be responsible for negotiating and investment projects may be largely offset by the closing infrastructure PPP project transactions inefficiency of the PPP project preparation and with private sponsors and investors, investing negotiation phase. in the PPP, contract management, performance monitoring, and execution of exit. Annex I. In-Depth Case Studies 127 Legal and Regulatory Drivers and Impediments general, through InvesTT, the country’s investment promotion agency. The agency focuses specifically Please see annex VII for detailed discussion. on investment opportunities of US$1 million or more in value and targets eight strategic sectors that align with the overall economic diversification The Diaspora: Networks, Distribution goals of the federal government: agribusiness, Channels, and Platforms cleantech, manufacturing, tourism, creative The Trinidad and Tobago Diaspora is clustered at the industries, downstream energy, IT, financial consular level and through regional organizations services, and maritime industries. InvesTT does not in population hubs, but the formal or informal ties segmented its marketing efforts to foreign investors with the government appear to be far weaker than versus Diaspora investors, so there is usually a mix in countries that have established Diaspora policies of Diaspora and foreign investors with no ties to and/or units. Although there was talk of creating a Trinidad and Tobago. Diaspora bureau at the central government level, this never took hold. Moreover, the Ministry of InvesTT seeks out and presents projects looking to Science and Technology sought to create a database raise capital to potential investors, but given the lack of Trinidad and Tobago Diaspora STEM expertise of an angel investment culture, there is very limited and intended to include Diaspora in the database, demand. Although the agency seeks to help Diaspora but this project did not come to fruition. In addition investors back home, they note that Trinidadians, to formal Diaspora organizations, the Diaspora also having come from an oil and gas economy, prefer comes together in large shows of cultural affinity. to structure an “off-take agreement,” meaning This includes the world-famous Trinidadian that they with regard to Diaspora investment in Carnival and West Indian Parade that attracts over the country, most activity has been unstructured one million people in New York City. A similarly in nature, driven by individuals who tap into their important event, the Notting Hill Carnival in personal networks to find investment opportunities. London, is billed as the largest transnational festival Most Diaspora investment comes in the form of in the world. As a result, government organizations small owner-operated projects. In 2014 InvesTT, such as InvesTT actively attend and market to the in partnership with several cabinet ministries Diaspora at these types of events. sponsored an investment conference in New York, but this approach proved challenging as InvesTT Leveraging these communities and the consular found that investors preferred tailored solutions network, the Trinidad and Tobago government rather than a “herd” approach. A similar conference promotes investment in the country—either held in Trinidad and Tobago had limited success in from the Diaspora or from overseas investors in terms of investment activity. Annex II. Country Macroeconomic Profiles The following are individual macroeconomic profitable returns for Diaspora investors mobilized profiles of the 14 Caribbean countries under by a World Bank initiative. With further growth consideration in this prefeasibility study. They can on the horizon, the country’s GDP was US$61 broadly be divided into three regional geographic billion in 2013, representing 4.6 percent growth, groups (economies sorted by size). an improvement on the last two years, which each hovered around 3 percent growth. Since the signing of the Central American–Dominican Republic Free Non-OECS Caribbean Trade Agreement in 2007, investment and exports have increased and facilitated FDI growth. Total Dominican Republic FDI in 2012 was 6.53 percent of GDP, or US$3.1 billion. Although 2014 saw FDI drop to around GDP Debt/ US$2 billion, the Dominican Republic bumped up in GDP (2013) Population GDP the 2014–15 Global Competitiveness Index, rising (2013) Per Capital (2013) (2013) to rank 101st out of 144 countries. Still, although $61.1b or the Dominican Republic’s economy has done well $9,911 10.4m 51.7 percent 4.6 percent in the wake of the financial crisis, systemic and structural issues remain that must be addressed. The The Dominican Republic is the largest economy in economy is highly dependent on the United States, the Caribbean. It is historically known as an exporter which is where around half all its exports go and of sugar, coffee, and tobacco, though recently where the bulk of remittances (5 percent of GDP) the service sector has become the dominant GDP come from. In addition, economic inequality has contributor and employer, because of growth in become a major problem (poverty rate spiked from tourism, telecommunications, and free trade zones, 32 percent in 2000 to almost 50 percent in 2004). leaving agriculture and manufacturing trailing The GNI per capita in 2013 was just US$5,770. behind. These are the sectors that would likely Unemployment remains high as well (15 percent in provide both the path of least resistance and most 2013). However, the fiscal situation in the country 130 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora is generally improving. The government’s budget government’s financial woes, combined with deficit was brought down to 3 percent of GDP in the expansion of the country’s services industry, 2013 after sitting at almost 7 percent in 2012, in has opened a window of need and potential for large part because of a government bond placement. private finance to encourage continued growth The national current account balance has dropped by injecting capital into important areas such as dramatically from where it was in 2011 (7.5 percent infrastructure development, which normally be of GDP) to just 4 percent GDP in 2013, though it backed by public funding. This is an important area was projected to climb in 2014 and 2015. for a Diaspora investment initiative to consider. The Jamaican government has had recent success in lowering inflation rates, though that success has Jamaica been predicated on monetary policies that cause GDP Debt/ interest rates to rise, further worsening the business GDP (2013) Population GDP environment. In 2012 FDI in Jamaica represented (2013) Per Capital (2013) (2013) just over 2 percent of GDP. In cooperation with and $14.3b or 123.6 funded by the IMF, World Bank, and IDB, since $9,048 2.7m 2013 Jamaica has set out on a plan for reform and 1.3 percent percent stabilization, debt reduction, and enhancement of Jamaica’s real per capita GDP has increased at an the conditions for business and growth. To that end, average rate of 1 percent a year over the past 30 years, it received a significant improvement in ranking making it one of the slowest growing developing in the 2014–15 Global Competitiveness Survey, countries in the world. It is highly vulnerable to moving from 94th in 2013–14 (out of 148) to 86th external shocks, such as downturns in the United (out of 144). And in the 2015 Ease of Doing Business States or fluctuating international commodity Index, it ranked 58th out of 189 economies, placing prices, although the commodity and industrial highest in the Caribbean. sectors (e.g., mining and textile manufacturing) have contributed a smaller share of GDP in recent Trinidad and Tobago years, and the services sectors, particularly hotels and restaurants, have had markedly higher rates GDP Debt/ of growth. After going through a recession from GDP (2013) per Population GDP 2008 to 2010, Jamaica returned to slight growth (2013) capita (2013) (2013) in 2011, only to contract in again 2012. Growth in $24.6b or 2013 was a meager 0.2 percent, and unemployment $20,438 1.3m 37.1 percent 1.6 percent stood at 15.2 percent. Meanwhile, a high inflation rate, averaging over 9 percent annually between 2009 and 2013, after years of real appreciation in One of the wealthiest countries in the Caribbean, the value of the Jamaican dollar, has stunted export Trinidad and Tobago has experienced almost competiveness and diversification. Nevertheless, continuous economic growth since 1960 largely Jamaica’s greatest challenge is not in economic through the exploitation of the country’s rich oil diversification, but rather its exceptionally high and natural gas reserves. The country suffered public debt, estimated at 141.6 percent of GDP as major contractions in 2009–11 because of the of spring 2014. This has limited domestic demand global financial crisis, seeing the construction, and forced GDP growth dependence on the external restaurant, and financial sectors hit the hardest. sector, including large remittances from the United But the economy grew by an estimated 2.1 percent States and the United Kingdom. However, the in 2013 and registered real income per capital Annex II: Country Macroeconomic Profiles 131 of US$14,370. Despite the downturn earlier in The Bahamas the decade, the economic structure of Trinidad and Tobago has remained relatively stable, with GDP Debt/ roughly 40 percent of GDP generated by the energy GDP (2013) Population GDP sector and 60 percent by the nonenergy sector. The (2013) per capita (2013) (2013) country’s strong institutional environment has $8.4b or 0.7 $32,036 377,274 66.2 helped attract multinational companies to invest percent percent into oil and gas extraction, LNG refinement, and related industrial projects. Extractive industries got An open economy is dominated by two service more than 70 percent of total FDI inflows between sectors—tourism (plus related construction) and 2001 and 2011. Although net FDI decreased by financial services—that account for roughly two- 30 percent between 2012 and 2013, going from thirds of GDP and are the largest employers. Industrial US$2.45 billion to US$1.7 billion, most of the production, manufacturing, and agriculture are activity remains in the hydrocarbon industries. all limited by the country’s geographical area and Investments are growing in the chemicals industry factor endowment. Altogether, the private sector as well. Domestic private sector investors are made up 80 percent of GDP and 78 percent of total in part to thank for the energy sector’s growth, employment in 2011. Although tourism continues demonstrating the kind of conditions needed for to overwhelmingly dominate investment flows and sustainable growth unseen in much of the region. public policymaking in the Bahamas, there are On the other hand, the country’s dependence on new plans to increase private sector involvement gas and oil exports has led to “Dutch disease,” in the country’s electricity industry and reverse where there is a tendency for the exchange rate the long-held moratorium on offshore oil drilling. to appreciate, in turn negatively impacting the Overall growth averaged slightly over 1 percent competitiveness of the nonenergy sector. Between from 2010 to 2013, after contracting by an average 2006 and 2012, the real exchange rate increased by of over 3 percent annually from 2008 to 2009. over 30 percent. Although Trinidad and Tobago’s Unemployment peaked at 15.9 percent in 2011 and seemingly endless energy reserves are able to has begun to slowly decline since; greater foreign protect it from international energy price volatility, investment in tourism-related construction and it is still vulnerable to fluctuations in food prices. infrastructure projects, which would likely come The recent decline of food prices has allowed from the United States, is expected to help further inflation rates to stay low (3.3 percent in mid- address unemployment. FDI inflows reached 2014) in comparison to the double-digit rates of US$594 billion in 2011. The annual inflation rate 2012. To account for the revenue volatility from averaged just over 2 percent from 2000 to 2013. the energy sector, the government has created a Like elsewhere in the region, economic recovery, savings fund called the Heritage and Stabilization increased employment, and tourism-related Fund. This fund has allowed Trinidad and Tobago’s construction activity have grown import demand public debt to remain relatively low for the region and therefore present obstacles to narrowing the (52.7 percent of GDP in 2013), which has earned Bahamas’ sizable current account deficit in the the country “A” investment-grade credit ratings. It near future. Although the deficit is expected to was ranked 89th out of 144 in the 2014–15 Global decrease from 2014’s 20 percent of GDP figure in Competitiveness Index. 2015, on account of new tourism and slight growth in remittances, in both cases the trends are largely contingent on growth patterns in the United States. 132 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Barbados OECS Caribbean Economies GDP Debt/ Antigua and Barbuda GDP (2013) Population GDP (2012) per capita (2013) (2013) GDP Debt/ $4.2b or 90.5 GDP (2013) Population GDP $25,181 284,644 0.0 percent percent (2013) per capita (2013) (2013) $1.2b or -0.1 A small, open economy with relatively high levels $13,342 89,985 92.2 percent percent of development, Barbados’ growth has been virtually stagnant for two decades and has been An OECS member, during the global financial slower to rebound from the global financial crisis crisis in 2009, this twin-island nation’s real GDP than its peers. Growth averaged just 1.4 percent contracted by 10.3 percent, and then in 2010 by annually between 2009 and 2013, while during another 8.9 percent. It wasn’t until 2012 that the same period the average was 3.2 percent for growth returned, but that reversed the following comparator countries. Nevertheless, GDP per year. A boom in the tourism industry, particularly capita in 2013 stood at US$15,373, one of the private investment in construction, helped the highest among comparator countries. Tourism country’s growth improve slightly in 2014. The and associated service sectors such as wholesale, overall downturn of recent years has resulted in the retail, real estate, and construction dominate the by-product of narrowed current-account deficits, private sector and are the primary contributors caused by the drop in FDI inflows, which were to GDP, followed by the business and financial previously used to pay for budget deficits. Antigua sectors. Unemployment reached 11.7 percent in and Barbuda’s FDI inflows peaked in 2006 at 31.4 2013, and though general economic recovery in percent of GDP and last registered at 11.1 percent the region has helped, structural unemployment of GDP in 2011. Although the fiscal deficit reached remains an issue. The country’s limited export 19 percent of GDP in 2009, it was estimated profile and import dependency have contributed at around 2 percent over 2010–13. From 2007 to the deterioration of its current account balance through 2013, the average rate of annual inflation (10.4 percent of GDP in 2013). The overall fiscal was around 2.5 percent, which is relatively low deficit grew to 12.3 percent of GDP in 2013–14, for the region. The economy’s dominant sector is three times its 2011–12 size. National debt reached services, particularly tourism, and subsectors such nearly 98 percent of GDP in 2013. The country’s as hotels, restaurants, wholesale, retail, real estate, deficit has traditionally been financed through renting, business activities, transport, storage, strong FDI inflows and remittances. FDI was just communications, and financial intermediation, under 8 percent of GDP in 2011 and 2012, then which altogether account for 65 percent of GDP. dipped in 2013, and rebounded in 2014. Political Manufacturing and agriculture account for just 3.4 stability, lack of corruption, and relatively good percent. In addition to continued public debt issues, infrastructure are key for its historic success in with its the economy as open as it is, Antigua attracting FDI. Barbados ranked 55th out of 144 and Bermuda—like many of its neighbors in the countries in the 2014–2015 Global Competitiveness region—is at risk of being destabilized by weak Index. It has maintained a fixed exchange rate growth in developed countries, volatile commodity since 1972, pegging its dollar to the U.S. dollar at a prices, and decreased FDI. 2:1 rate. Over the past 25 years, the average annual rate of inflation has been just 3.6 percent. Annex II: Country Macroeconomic Profiles 133 Dominica revenues decreased and budgetary support from the European Union Development Fund ended in 2013. GDP Debt/ From 2012 to 2013, public debt increased from 73.3 GDP (2013) Population GDP percent of GDP to 74.9 percent GDP. Inflation on (2013) per capita (2013) (2013) the island has remained relatively low, averaging $516m 1.7 percent for 2010–13. or -0.9 $7,127 72,003 73.5 percent percent Grenada A member of the OECS, Dominica saw economic activity contract by 1.4 percent and 0.9 percent in GDP Debt/ 2012 and 2013, respectively, despite steady growth GDP (2013) Population GDP (2013) per capita (2013) (2013) over the past two decades. These contractions were mostly the result of a decline in construction output $835m or 115.0 $7,890 105,897 2.4 percent percent (down 21 percent in 2012–13), banana production (cut in half in 2012–13), and tourism (total A member of the OECS, Grenada’s economy grown number of visitors halved since 2010). Although modestly over the past couple decades, and despite construction and tourism started to rebound in suffering major economic contractions in the wake 2014, sustained growth remains heavily threatened of the global financial crisis, it recovered to grow by external shocks, such as natural disasters and 1.5 percent in 2013, the largest amount since 2007. global economic trends. Dominica’s economy Grenada has evolved from a largely agricultural is dominated by the services sector. In 2013, commodity-exporting and services economy into services (primarily tourism-related) accounted a predominately services (i.e., tourism and related for 68 percent of GDP. The other large sector as construction) and manufacturing (electronics and a proportion of GDP is agriculture, livestock, and rum) economy. Although spice and banana exports forestry (14.3 percent). Despite the rising level of have gone down because of the loss of trade dependence on tourism, investment in the sector has preferences with Europe and numerous natural been the lowest in the OECS (along with Grenada), disasters, tourism has increased dramatically the country’s lack of infrastructure serving as both (services accounted for 83 percent of GDP in a cause and consequence. Although the electricity 2012), but especially after the construction of a and water subsectors make up just over 5 percent of large “Sandals” resort in 2013. The manufacturing GDP, the Dominican government has signaled plans sector accounted for just 3.2 percent of GDP in to invest in geothermal electricity to meet domestic 2013. In 2012 FDI inflows were around 4 percent demand and export to neighboring countries. FDI of GDP. Although the new Sandals resort saw inflows were just US$17.9 million in 2013, but the FDI inflows surge temporarily in 2013, they have potential is high for an increase in the coming years since receded. Overall declines in construction and if opportunities in the geothermal sphere emerge. tourism in Grenada since the financial crisis have Dominica’s current account deficit decreased from weighed on the country’s employment profile; 17.9 percent of GDP in 2012 to 14 percent in 2013 the unemployment rates sat at 33.5 percent in as a result of increased exports, import stagnation, 2013. In 2011 Grenada had one of the lowest income payments, portfolio investment, and higher levels of GDP per capita in the Caribbean region transfers received by the government. Despite and internationally, at just less than US$10,000. improving in 2013, the fiscal balance got worse in The financial crisis and the ensuing downturn 2014, making for an overall deficit during 2011–14 helped make Grenada one of the most indebted that has held around an average 4.4 percent of GDP. small-island developing nations in the world. The Capital expenditures have increased while nontax 134 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora country’s current account deficit widened to 27.1 and Eastern Caribbean Stock Exchange. The current percent GDP in 2013 from 19.2 percent in 2012 in account debt declined from 20.9 percent of GDP in result of the surge in FDI-related imports and weak 2010 to around 9 percent in 2013. Although it was services sector growth. In lieu of new FDI flows, saddled with debt after the global financial crisis, debt-related inflows and external arrears have been and recent hikes in commodity prices added further used to finance the deficit. Grenada’s public debt pressure, fiscal consolidation measures pursued became the highest in the region in 2013, with a by the government were successful in turning an 115 percent debt to GDP ratio, prompting the overall fiscal deficit in 2010 of 7.6 percent GDP into government to pursue fiscal consolidation policies a surplus of 5 percent GDP in 2013. Furthermore, that began to yield gains in 2014. Yet, from 2010 to the fiscal consolidation, paired with domestic debt the end of 2013, the public debt-to-GDP went from restructuring in 2013 through debt for land swaps, 97.5 percent GDP to 110 percent GDP. has allowed public debt to decline. Nevertheless, the islands continue to have the highest debt-to- GDP ratio in the OECS, with public debt rounding St. Kitts and Nevis out to 103 percent of GDP in 2013. One of the economic success stories of the OECS GDP Debt/ St. Lucia GDP (2013) Population GDP (2013) per capita (2013) (2013) GDP Debt/ $709m or 104.9 GDP (2013) Population GDP $20,263 54,191 (2013) per capita (2013) (2013) 4.2 percent percent $1.3b or $7,328 182,273 79.8 percent microstates, St. Kitts and Nevis accounted for 13 -0.4 percent percent of the nominal GDP of the organization in 2013, with its own real growth rate of 3.8 percent. Among OECS countries, St. Lucia absorbed the The islands’ GDP per capita of US$15,570 ranked shock of the global financial crisis relatively well, third among comparator countries in 2013. Overall, accounting for the second-largest share of nominal the macroeconomic environment is stable: Inflation GDP in the organization at 21 percent (just behind is relatively low, there are no restrictions on capital Antigua and Barbuda at 27 percent). And over the flows, and there is little uncertainty surrounding past three decades as a whole, St. Lucia’s economy the exchange rate. After contracting in 2009 and has grown modestly, averaging 3.5 percent annually 2010, growth in the tourism and other services, from 1981 through 2013. However, being heavily as well as FDI-related construction, continued reliant on tourism and banana exports for growth, to overtake manufacturing and agriculture as the and after facing the global economic downturn and primary engines of the economy. In 2013 the four the devastation caused by several natural disasters, largest sectors of the economy were real estate, St. Lucia’s economy has begun to contract recently. renting, and business activities; construction, Estimates put the total damage caused by Hurricane transport, and storage; communications; and Tomas in 2010 at 34 percent of GDP, which at once manufacturing. Meanwhile, tourism growth has hurt tourism and necessitated new government offset imports brought on by increased domestic expenditures. Real GDP growth declined in 2013 demand; investment in the sector has led to rising by 2.3 percent after dropping 1.3 percent in 2012. FDI inflows (18.2 percent of GDP in 2012 to 20.2 Unemployment jumped from 21.4 percent in 2012 percent in 2013), giving St. Kitts and Nevis one of to 23.3 percent in 2013. Although inflation remains the highest proportions among small-island states in low (2.7 percent in 2013), and the current account the world. International reserves have increased as deficit narrowed from 14 percent GDP in 2012 to well. St. Kitts and Nevis is the home of the ECCB 8.8 percent GDP in 2013, the external balance has Annex II: Country Macroeconomic Profiles 135 gotten worse as FDI levels remain low and there has subsectors, since the country has shifted away been a decline in foreign assets held in St. Lucia. FDI from the commodity exports (e.g., bananas) it once increased in 2013 but remained at the same level it relied on, overall growth is impossible. But higher was in 2011: 6.3 percent of GDP. Because more than FDI inflows are required. In 2013 FDI reached half of all imports are energy related, changes in 17.6 percent of GDP, and construction on a new international oil prices have had a major effect on the international airport as well as a number of other current account balance. On the other hand, because projects began. The drawback of public spending of fiscal consolidation efforts including revenue and on those new construction projects, in combination expenditure measures introduced in 2013, the overall with emergency expenditures needed to mitigate the public deficit has been reduced from 9.3 percent natural disaster at the end of the year, was ultimately of GDP to 5.9 percent of GDP. Nevertheless, flat the current account deficit increasing from 27.8 FDI growth and government borrowing caused the percent of GDP in 2012 to 29.2 percent in 2013. And public debt-to-GDP ratio to hit 80 percent of GDP the overall fiscal deficit widened from 2.1 percent in 2013, up from 74 percent in 2012. For St. Lucia of GDP in 2012 to 6.2 percent in 2013. Although to turn its growth trends around, FDI inflows and it is still one of the lowest among the OECS, the the tourism sector must make a recovery. Although debt-to-GDP ratio increased from 72.2 percent in the education sector has done well recently, with 2012 to 74 percent in 2013 and is likely to increase increased activities by offshore medical universities, because of capital expenditures to address the fallout the five main service sectors still account for of the floods and landslides. The vulnerability of around 60 percent of GDP, and the demand for new the economy to international commodity price construction and infrastructural development is high. fluctuations also puts the current account at high St. Lucia has no restrictions on capital flows and only risk; imports of petroleum-related products account limited exchange rate uncertainty. for more than one-third of imports total value. One advantage St. Vincent and the Grenadines has is a low inflation rate for the region, which has averaged St. Vincent and the Grenadines 2.5 percent annually since 1995. GDP Debt/ GDP (2013) Population GDP (2013) per capita (2013) (2013) Central and South American $709m or Economies $7,328 109,373 76.4 percent 1.7 percent Belize A member of the OECS, St. Vincent and the Grenadines emerged in 2012 from economic GDP Debt/ contraction after the global financial crisis, GDP (2013) Population GDP (2013) per capita (2013) (2013) expanding by 3.3 percent, and then by another 1.8 percent in 2013, in large part because of new $1.6b or 1.5 $7,328 331,900 75.5 percent percent public investments in construction. However, as was the case with Hurricane Tomas in 2010, natural The economy has seen steady, but recently slowed, disasters (this time floods and landslides) struck in growth since the global financial crisis: 2.1 percent late 2013, destroying infrastructure, halting tourism in 2011, 4 percent in 2012, and 0.7 percent in 2013. and putting the country on track for contraction the As a commodity-exporting and service-based following year. In 2013 real estate, renting, and economy, Belize’s growth depends on agricultural business activities; wholesale and retail trade; and exports (citrus, sugar, seafood, and bananas) as transport, storage, and communications accounted well as tourism and financial services. Although it for 48.1 percent of GDP. Without growth in those 136 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora has been an oil producer and trader in the past, the gold, and increases in international mineral prices. sector is in decline on account of well depletion and Between 2000 and 2010, exports quadrupled, lack of new discoveries. The largest portion of FDI going from US$490 million to US$2.3 billion. inflow (30 percent) on average from 2001–11 has Gold, alumina, and oil represented more than 80 gone into hotels and restaurants. The next-largest percent of total exports in 2013 and 30 percent of share has been invested into the financial services GDP. Agriculture and manufacturing are relatively sector. New areas for FDI emerging are real estate small sectors in comparison, but remain important and mining. Total FDI inflow for 2013 was US$89.3 producers as domestic demand for goods increases million. Belize has a high structural unemployment with rising per capita income. Inflation stood at rate and a shortage of skilled labor across all sectors. 1.9 percent in 2013, and although it is expected As one of the most open economies in the region, to rise, it should remain far below the 2011 high. vulnerability to fluctuations in international demand Monetary policy is consistently geared toward for its commodity exports, as well as its relatively maintaining the real exchange rate in equilibrium. narrow economic base and reoccurring damages DFI has increased along with general investment caused by natural disasters, have stymied Belize’s in construction related to the resource extraction growth over the past decade and added to national sector in recent years. Suriname ranked 110th out deficits. The island’s current account deficit in 2013 of 144th in the 2014–2015 Global Competitiveness was 4.5 percent of GDP. That same year, Belize’s Index. In addition to large investments from U.S. US$547 million “superbond” went through debt and Canada-based mining firms, the Surinamese restructuring that led to the extension of the bond’s state-owned company, Staatsolie, oversaw the term and a lower interest rate that will reduce debt- construction of a new oil refinery, an investment service costs and ease pressure on fiscal accounts. equivalent to 15 percent of GDP. The refinery Although the restructuring will help, total public could help ease demand for imported refined oil. debt, as a proportion of GDP, is still around 75 However, currently, the Surinamese economy is percent. Any widening of the country’s current still highly vulnerable to international commodity account deficit would further stunt overall economic price fluctuations, as both an exporter and importer. growth, but also put pressure on the Belize dollar, Largely on account of increased expenditures, which has been pegged at 2:1 with the U.S. dollar declining gold prices and debt servicing costs, since 1987. the country’s fiscal balance suffered in 2013, with an estimated fiscal deficit of 6 percent of GDP, representing a 100 percent increase over 2012. Still, Suriname Surname’s total public debt was equivalent to only 31 percent of GDP in 2013, which is significantly GDP Debt/ lower than most of the Caribbean. The government GDP (2013) Population GDP (2013) per capita (2013) (2013) is expected to scale back its plans for investment $5.2b or until consolidation measures are taken and the $9,825 539,276 29.2 percent fiscal deficit is reigned in. 2.9 percent Guyana Although it is technically the smallest country in South America, Suriname has emerged over the past decade as one of the best performing economies in GDP Debt/ GDP (2013) Population GDP the Caribbean region. It saw its real GDP expand (2013) per capita (2013) (2013) by 4.4 percent in 2013, up from 3.9 percent in $2.9b or 59.9 2012. This sustained success is largely attributable $3,739 799,613 5.2 percent percent to Surname’s natural resource wealth, particularly Annex II: Country Macroeconomic Profiles 137 A commodity-exporting country, Guyana has seen Those fluctuations in aggregate demand impact the positive growth and increased investment from manufacturing and services industries. Recently both the public and private sector since 2010, offshore energy projects have attracted foreign largely on the back of the agricultural and mining investment interest, which could help boost growth. industries. From 2008 to 2013, GDP per capita rose The Guyanese government, having improved its from US$4,888 to US$6,400 (31 percent increase). fiscal and monetary policies recently, has been able In 2012 FDI inflows made up around 11 percent of to stabilize total public debt. Although it remains GDP. Critical to this growth was Guyana’s valuable extraordinarily high, at about 60 percent of GDP, the commodity exports, particularly gold. Rice is the more conservative fiscal policies being practiced, other main export. Despite the risks the economy coordinated with monetary policies, have led to a faces when it comes to changes in commodity single digit inflation of around 2 percent, a major prices and environmental shocks, growth was decline from the levels seen during the financial projected around 4 percent for 2014 and 2015, crisis and what is needed to provide a hospitable respectively. The Guyanese market is unique in environment for private sector investment. It has that much of the private investment in mining also allowed the Guyanese to accumulate foreign and agriculture comes from domestic sources and exchange reserves. Guyana was ranked 117th rises based on commodity prices, in turn spurring out of 144 countries in the 2014–2015 Global production and distributing benefits to the rest Competitiveness Index. of the economy, resulting in increased demand. Annex III. Country Regional Investment Landscape Financial Services: Banking and Figure 6: Share of Caribbean Domestic Insurance Financial Sector Assets (2013) The Caribbean’s financial sector is notably large NBFIs given the small size of most of the countries in the 9% region and of the region as a whole. Banking is the largest area of activity and the region’s banks fund the majority of institutional investments.73 The total assets of the Caribbean financial sector, excluding offshore banks (banks that are domiciled in the region and which cater to investors based in the United States, Europe, and other regions), amounted to 124 percent of regional GDP in 2013, 91 percent of which correspond to banks, with the Banks rest attributable to NBFIs (figure 6). The Bahamas 91% has the largest overall banking economy, with an onshore sector equivalent to 150 percent of GDP and an offshore sector equivalent to 72 times the size of the overall economy in 2013. Meanwhile, Jamaica’s onshore banking sector, the smallest Source: IMF Working Paper, “Financial Interconnectedness and Financial Sector Reforms in the Caribbean.” in terms of total assets as share of GDP, was still equivalent to almost 50 percent. Altogether, the ECCU’s banking economy was valued at 176 the global financial crisis. In total, 2013 investment percent of its GDP in 2013, despite the subregion’s in the subregion’s financial sector amounted to financial sector having been especially hard hit by about 30 percent of its GDP. 140 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Firms use banks to finance the working capital billion), or 1,082 percent of GDP. Some ECCU and growth capital needs much more in ECCU countries also have offshore banking sectors, but and other smaller regional nations than in larger at a far smaller scale (45 percent of subregional economies such as the Bahamas, Jamaica, the GDP). The offshore and onshore sectors are entirely Dominican Republic, and Trinidad and Tobago. insulated from one another, with formal prohibitions This trend reflects the outsized importance of the in place to prevent interaction between the two. banking sector in countries where few other options are available for financing relative to the larger The biggest onshore Caribbean institutional investors and more sophisticated financial sectors in larger (which includes commercial banks) are members of economies in the region (figure 7). four different banking groups, three of which are Canadian. In 2010 these four all together controlled In addition to domestic banks, foreign banks have around 75 percent of the sector’s total assets in the become a large player in the Caribbean, making up region. Canada’s Scotia Bank dominates the market roughly 60 percent of the total assets of the region’s in Jamaica (32 percent), the Bahamas (28 percent), banking sector. Although U.S. and European banks Antigua and Barbuda (23 percent), and Grenada are present, their activities are primarily limited to (23 percent), but operates in a total of 21 Caribbean the offshore centers of the Bahamas and Barbados. countries. Scotia Bank’s total assets in the region The Bahamas is the biggest sovereign Offshore amounted to more than US$10 billion in 2010. Two Financial Center (OFC) in the region, and the fourth more Canadian banks, the Royal Bank of Canada largest in the world, accounting for 98 percent of (RBC) Financial and the First Caribbean International the US$598 billion financial sector, or 7,220 percent Bank, a subsidiary of the CIBC, are also dominant in of the Bahamas’ GDP. Barbados is the other major several countries around the region, with a total asset sovereign OFC in the Caribbean, with 87 percent of valuation of US$11.6 billion and US$9.7 billion in its financial system in offshore bank assets (US$47 2010, respectively. The only indigenous Caribbean Figure 7: Share of Firms Using Banks to Finance Investment (2010) 60 50 % of Total Firms 40 30 20 10 0 re cia Ba dos Ba as os m Do elize n R ca Gr lic Gu a St Ja na s& a th t. s Su nes e go vi da rinam ad itt aic ub m ca min ad ba ya Na e G Lu di a en .K m B ha ep rb rb To na Ba S d& & ua ini ini tig t& Tr Do An en inc .V St Source: World Bank Enterprise Survey. Annex III: Current Regional Investment Landscape 141 bank operating on a large regional scale is Trinidad in NPLs, the global crisis showed how vulnerable and Tobago’s Republic Bank, which controls almost the ECCU banking sector was to high-risk foreign half of all the assets in its own market as well as assets and the cross-border exposures that market much of the market in neighboring Guyana. Overall integration had cultivated. The ECCB took over financial interconnectivity has increased throughout the Antigua and Barbuda Investment Bank in 2011 the region due to the emergence of cross-border when it collapsed, after it had intervened previously capital flows and financial conglomerates. The in 2009 with the Bank of Antigua. Already limited presence of foreign banks, foreign participation in access to finance throughout the subregion insurance markets and pension funds, along with has become worse, with both credit and equity securities trading abroad and direct borrowing investment rates having not yet recovered from the of domestic firms in international markets have contractions caused by the financial crisis. accelerated the integration. Although banks in non-ECCU countries fared Within ECCU countries, specifically, the indigenous better than those in the subregion after the banking sector is heavily integrated through cross- financial crisis, their portfolios remain weak and shareholdings, the interbank market, and public credit growth is lackluster. Banks in non-ECCU sector exposure. For example, the Eastern Caribbean countries were most resilient in the period after Financial Holding Company, the parent company the crisis, largely because they were stronger than of Bank of St. Lucia, is also a majority shareholder their ECCU counterparts before the crisis took of Bank of St. Vincent and the Grenadines. Along hold. Dependency on deposits and equity limited with the National Bank of Dominica, Antigua the funding risks taken by the banks, and adequate Commercial Bank and St. Kitts-Nevis-Anguilla pools of liquid assets helped them to weather this National Bank, they are the largest shareholders of challenging period. Although their capital adequacy the Eastern Caribbean Amalgamated Bank. Many of ratios remain strong, banks in countries outside the the governments and national insurance companies ECCU like the Bahamas and Trinidad and Tobago are also shareholders in the banks. Public sector have been impacted by increasing NPLs. This has, exposure for the banking sector in ECCU countries in turn, hampered profitability. Nonperforming is an ongoing concern. In 2011, while it was just 5 loans have led to a contraction in credit, with banks percent for foreign banks in OECS countries, public exercising caution and increasing capital provisions sector exposure of indigenous banks reached over 20 in recent years. In the Dominican Republic, which percent of their total assets (on aggregate). fared relatively well in the wake of the financial crisis, structural issues serve as the fundamental The ECCU subregion and its indigenous banks, barriers to greater credit access. Specifically, the in particular, fared badly the wake of the financial lack of formalization, a predominance of high crisis, and have seen asset quality deteriorate. From interest rates, a lack of collateral, and a paucity of 2007 through 2012, the ratio of NPLs reportedly large multiservice lenders, have all come together doubled in ECCU countries. By the end of to limit the banking sector’s utility in providing September in 2012, ROE for the subregion stood at access to finance for SMEs. This is evidenced in the 7.4 percent, a full 15 percentage points lower than it relatively low percentage of firms accessing bank was in 2007. In both cases, high credit risk and low finance for investments (40 percent or less in half of liquidity are to blame. Although the subregion’s the 14 countries) as well as the relatively low levels bank, the ECCB, has set a prudential threshold of of domestic credit provided to the private sector 8 percent for capital-to-risk-weighted-assets ratio, (below 35 percent in the Dominican Republic, indigenous banks saw the capital-to-risk-weighted- Jamaica, and Trinidad and Tobago) and by the assets ratio rate reach 18.4 percent in 2012. In financial sector (below 55 percent in the same three addition to fueling credit deterioration and growth countries) (table 40). 142 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Table 40: Financial Sector Overview Domestic Domestic Number of Number of Bank Non- credit to Credit Provided Regulated Regulated Bank performing Lending private by Financial Commercial Non-Bank Capital Loans to interest sector (% of Sector (% of Banks Financial to Assets Gross Loans rate (%) GDP) GDP) (Onshore) Institutions Ratio (%) (%) Bahamas 4.8 77.4 104.9 n/a n/a n/a n/a Barbados 8.7 7 12 n/a n/a Belize 11.6 56.2 58.3 6 n/a n/a n/a Dominica 9.1 55.6 61 4 1 n/a n/a Dominican 13.6 24 47.8 n/a n/a n/a n/a Republic Grenada 9.3 74.9 80 5 2 n/a n/a Guyana 13.5 43.4 53.7 n/a n/a n/a n/a Jamaica 17.7 29.6 51.4 6 n/a n/a St. Kitts & 8.8 63.2 65.9 7 1 n/a n/a Nevis St. Lucia 9.1 111.1 123.1 6 7 n/a n/a St. Vincent & the 9.4 53.6 58.4 4 2 n/a n/a Grenadines Suriname 12 24 31.5 8 5 n/a n/a Trinidad & 7.5 31.1 33.7 8 17 n/a n/a Tobago Sources: World Bank Databank; individual country central bank and finance ministry listings. Although the share of total assets held by NBFIs 13 to 19 percent of GDP. Like the banks, credit remains small in comparison to that of the banks, unions around the Caribbean are facing credit NFBIs, particularly credit unions, pension funds and issues because of NPLs. The lack of regulation over insurance conglomerates, are gradually becoming the sector has allowed for rapid asset growth and more significant in the region. With tightened weak risk management, with many problem loan lending practices at banks across the region since portfolios exceeding prudential norms, especially the global crisis, credit unions have become more among the smaller credit unions. Although the prominent. They cater to local communities that Bahamas, Barbados, and the ECCU have sought to are out of the reach of the larger national banks implement greater supervision in the credit union and provide savings and credit for individuals and sector, the lack of information available and the small businesses in rural areas. Still, their combined sheer array of active institutions poses a serious assets total just 7 percent of regional GDP in 2012. challenge for regulators. The countries with the most credit union activity are Dominica (39 percent of GDP), Belize (21 Mandatory national social security programs, percent of GDP). Barbados, Grenada, St. Vincent called national insurance schemes, dominate the and the Grenadines, and St. Lucia, all of which pension fund industry in the Caribbean. But there is now have credit union industries that range from also an abundance of public service pension funds Annex III: Current Regional Investment Landscape 143 and other voluntary occupation pension schemes. to Jamaican property investments, such as hotels. It Contributory social security programs are offered has not yet invested in PE or VC because of the due- and required for nearly all employed workers in the diligence demands that such a strategy would entail. Caribbean, and the self-employed are also required Finally, Sagicor operates mutual funds in Jamaica to contribute in most countries. Most of the public (including the Select Growth Fund, one of the largest pension schemes are earnings-related and have on the island) and Barbados (the Global Balance defined benefits. Although the Dominican Republic Fund). There is a Sagicor unit in the United States, is the only country with mandatory defined- but it does not have a Caribbean Diaspora-specific contribution retirement accounts, Jamaica is the business strategy. only nation with a required program with benefits that do not depend on earnings. Public service The region’s insurance sector is dominated by pension schemes are common around the region conglomerates that operate transnationally, with a for national and local government employees as total asset value of around 17 percent of regional well as members of the military and police. They GDP in 2012. The largest players in the region are are mostly unfunded and have defined benefits, Sagicor, which is based in Barbados and Jamaica some being contributory and others not. Again, and has an estimated SU$5.3 billion in total assets the Dominican Republic is the only country with under management, and Guardian Life, which a defined-contribution program for civil servants. is based in Trinidad and Tobago and has US$3.4 Inclusion of employees of state-owned enterprises billion in assets in its portfolio. Sagicor also operates varies by country. In terms of occupation-based extensively in Latin America, the United Kingdom, pension schemes, only Bermuda requires employers and the United States. Overall, the largest insurance to provide a program. Looking at the region as a industries are in the Bahamas, Barbados, Jamaica, whole, occupation pension programs have both and Trinidad and Tobago. defined benefits and defined contributions. The insurance sector in the Caribbean has grown, Although data on the size and asset composition of but continues to suffer from the fallout of the CL the pension schemes in the Caribbean are limited, Financial Group (holdings company of the Colonial sources at Sagicor, the largest insurance company Life Insurance Company—CLICO) collapse in the region and the operator of the largest pension in 2009. When the CL Financial Group faced a fund program in Jamaica, provided some data on liquidity crisis, it was the largest insurance company the firm’s investment strategy. Sagicor’s Jamaican in the Caribbean, with total assets estimated around operation is a joint venture, with slightly more than US$16 billion (30 percent of regional GDP) and 50 percent held in local hands, and the remainder held with operations in 28 different countries. In the by a regional holding company based in Barbados. end, weak corporate governance, high interest rate All investment strategy is set at the country rather annuity products, and risky investments as well as than regional level, though its individual funds often high leverage caused the downfall of the Group. The include mixed packages of domestic, regional, and reverberations of the collapse have been immense, international investments. According to Sagicor particularly because the CL Financial Group was so officials, its pension fund is heavily invested in integrated into markets around the region, especially Jamaican government bonds and is the largest in ECCU states through its subsidiary, the British equities holder on the JSE. Recently, especially since American Insurance Company (BAICO). The IMF the introduction of the new IMF debt restructuring, estimates the cost of the collapse at 3.5 percent of there has been a move in the pension market to buy GDP on average for the Caribbean, and as much up large quantities of U.S. securities. But based on as 10 percent for Trinidad and Tobago. Now, with Jamaican regulation, just 10 percent of total assets less demand for insurance and payment problems may be invested offshore. Sagicor also has exposure on account of lower economic growth, insurance 144 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora companies region-wide have reported lower Asset Management and premiums and reduced investment. Investments: Private Equity In sum, the Caribbean’s institutional investor Early Attempts at Pan-Regional environment is dominated by banks but has begun Structures: The Caribbean Investment opening up to NBFIs more recently. Both of these Fund and Tiona Fund types of institutions, which are highly integrated among Caribbean states and are heavily exposed Although the PE industry in the Caribbean remains to foreign financial systems, were hit hard by the shallow, several attempts have been made to global financial crisis at the end of the last decade. create large-scale (at least in the context of the The downturn led to contractions in credit and equity region) PE funds for the last 15 years. One of the investments, especially in the ECCU subregion. more ambitious attempts to kick-start the industry The OECS saw total investment dropped to just took place in 2000 with the establishment of the 29.6 percent of GDP in 2010, and while that figure Caribbean Investment Fund (CIF). This fund, climbed to 30.4 percent of GDP by 2013, it contracted which was managed by the Caribbean Equity in 2014 and is projected to do so once again in 2015. Partners, received support and incentives from the 16-member CARICOM states and targeted total Although financial interconnectivity in the funds to raise of about US$150 million. Although Caribbean has helped enable flows of funds and the fund had a target average investment of US$10 financial services, mitigating disadvantages of million per company, the MIF investment stipulated the small economic scale of most countries in the that 20 percent of the fund be reserved for small region, these linkages with foreign banks and among businesses with less than US$3 million in sales indigenous financial institutions have also increased and fewer than 100 employees. These investments systemic risk. Much of the integration remains were to be in the range of US$250,000 to US$2 sui generis, but the ECCU represents an obvious million. In line with industry practice, the CIF was contrast, with its common central bank and stock structured as a standard PE fund with a 10-year fund and bond securities markets. It is in part because of life and a regional investment mandate. Investors this interconnectivity and interdependence that the included the European Investment Bank (EIB), the group of microstates was so much more devastated Inter-American Investment Corporation (IIC), the by the global financial crisis than the larger, more Multilateral Investment Fund (MIF), AIC Limited, independent financial sectors of non-ECCU nations and the Caribbean Development Bank (CDB). like the Bahamas, Barbados, Belize, the Dominican Republic, Guyana, Jamaica, Suriname, and Trinidad Despite this strong backing and a broad regional and Tobago. ECCU banks, in particular, have fared mandate, the fund was a clear commercial failure, poorly in recent years, because of capital shortfalls and it’s not clear how the investments performed. on account of weak risk management and poor Despite raising approximately US$50 million in oversight. That said, Barbados, Jamaica, Trinidad the fund, less than one-third of that capital was ever and Tobago, and the OECS maintain an agreement invested. It was, however, successful in creating to cross-list securities in their respective markets. a pan-regional portfolio, with investments in Moreover, the largest insurance player in the region, Antigua, the Bahamas, Guyana, St. Lucia, Jamaica, Sagicor, concentrates its investment securities and and Trinidad and Tobago. Given the inability of the lending portfolio in the Caribbean, and is heavily fund to successfully deploy the capital raised for exposed to sovereign credit risks. The second its first fund, no additional follow-on funds were biggest insurance player, Trinidad and Tobago’s possible. Guardian Life, holds 17 percent of its total assets in Jamaican dollars, reflecting its own exposure risks. Annex III: Current Regional Investment Landscape 145 Another early attempt (and failure) in the sector was Rather than taking a generalist approach, the Tiona Fund. Sponsored by the Commonwealth Prometheus Holdings sought to capitalize on one Development Corp. (CDC), Tiona was a US$20.5 of the inherent strengths of the region—its energy million closed-end PE fund, created to invest in industry. The fund’s investment thesis was based SMEs in the English-speaking Caribbean. The on the changing nature of the energy industry in fund, which had offices in Barbados, Jamaica, the Caribbean basis, with Trinidad’s economy and Trinidad, targeted long-term equity or quasi- shifting from being based primarily on oil to one equity investments of between US$250,000 and that was based much more on natural gas. In the US$2.5 million. The fund, which was launched in 10 years prior to establishing the fund, GDP grew the late 1990s was backed by investors including at a compound annual rate of 7 percent in Trinidad Bishop. Republic Bank Ltd., CIBC Caribbean and Tobago. Given the importance of the energy Ltd., Barclays Bank PLC, the CDC, MIF, CDB, industry to the Trinidad and Tobago economy, the and European Investment Bank. This fund was a nation’s government adopted policies to encourage commercial failure, largely because of poor product a diversity of downstream projects producing value- market fit. Specifically, PE oriented toward SMEs added products and requiring skilled labor. As such, in the region was incompatible with the realities it was estimated that approximately US$20 billion of of a market where family-owned businesses are capital could be invested in the Trinidad and Tobago reluctant to partner with outsiders. Moreover, the energy sector alone in the following 10 years. At market lacked opportunities for exit, which further the time of its fundraising exercise, Prometheus constrained the fund in terms of returning capital to had invested or committed to opportunities in the its investors. upstream, midstream, downstream, and service sectors. As of late 2006, GHL had made five investments or commitments in Trinidad for a total A Corporate-Led Industry-Focused of just under US$24 million. These investments Approach: Prometheus Energy Partners were all centered around Trinidad, with at least one The next notable attempt at a large PE platform investment involving pipelines to supply natural came in the form of Prometheus Energy Partners, a gas to neighboring islands in the eastern Caribbean. PE fund focused on energy opportunities in Trinidad and Tobago and the greater Caribbean region. The The Fund was set up in accordance with international Fund began in 2005 as an initiative of Guardian best practices and the management team counted Holdings Limited (GHL), one of the largest pan- with the strong institutional support from Guardian Caribbean financial services companies. GHL’s core Holdings, one of the larger and more reputable businesses are life, health, property and casualty financial services businesses in the region. Still, insurance, pensions, and asset management. despite the strong support from Guardian, which GHL it was traded on the Trinidad and Tobago, financed an initial team and well as an initial “proof Jamaican, and Barbados stock exchanges with a of concept” group of portfolio companies, the team market capitalization in excess of US$650 million struggled to raise capital. Put simply, despite the at that time. GHL started the fund to invest in the fact that it benefited from a highly credible founding development of Trinidad’s extensive hydrocarbon partner in the form of Guardian, investors were not resources and to enhance returns on shareholder attracted to the PE assets class in the Caribbean. capital. At the time of the fund’s creation, GHL As a result, Guardian decided to exit the business allocated up to US$25 million of cash from its and sold the entire operation, including the fund balance sheet toward investments. management team, to Denham Capital in November 2008, shortly after the impact of the 2008 global financial crisis took hold. Denham is a global PE firm that focuses its investments activities in the oil 146 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora and gas, mining, and power sectors throughout the In addition to its energy businesses, foreign investors world. It raised its most recent US$3 billion fund have long been attracted to the opportunities in the in 2012. tourism segment. While there are no Caribbean- specific real estate PE funds, various foreign players Since purchasing the Prometheus portfolio, Denham have chosen to make investments in the sector from made one significant investment in the Caribbean, their global operations. Often these investments but has otherwise been inactive, despite having a come in the form of a global hospitality company large fund from which to invest in other regions that has one or more resort properties in the region. throughout the world. Within months of purchasing U.S.-based private equity companies from Bain Prometheus, Denham invested US$50 million in a Capital Partners LLC to billionaire Sam Zell’s Trinidad and Tobago–based business called Carisal Equity International are boosting investments that was one of the investments in the Prometheus in Caribbean resorts as the region’s traditional portfolio. Carisal aimed to be a leading supplier of lenders scaled back operations. Specifically, in caustic soda, calcium chloride, and other related 2014 U.S.–based private equity firms have spent products to Trinidad, the Caribbean, Latin America US$329 million on hotel developments, the most and North America, and West Africa, for the oil in a decade.74 A number of these investments are in field services, road construction, ice-melt, and global hotel operators with hotels located in vacation other markets. In the end, the project was unable destinations across the world. For example, Equity to raise the required capital to construct its US$2.7 International invested approximately US$500 billion chemical plant. The objections of local million purchase of Decameron Hotels and Resorts, environmentalists may have played a role in the which operates more than 30 hotels in 11 countries project’s demise and difficulty in finding capital. worldwide, including two hotels in Jamaica. There are also numerous greenfield hotels developments in the Dominican Republic, such as the US$2 Other Private Equity Players: Global billion Tropicalia resort that is being developed Funds with Transaction Experience in the and financed by the Cisneros family, one of the Caribbean wealthiest families in Latin America. In addition to these funds, and Portland Private Equity, which are considered to have been the most “active” players in the region, a small number Early Stage Capital of additional players have also invested in the The market for early stage finance is made up of Caribbean or have expressed a desire to become investors who provide capital to growing firms and more active in the future. None of these funds are the firms themselves. In many markets, these firms focused entirely on the Caribbean, but rather take are supported in their earliest stages by incubators an opportunistic approach to the region because of and accelerators (both terms are often used fund investment themes that focus on sectors such interchangeably). Unlike VC firms, these incubators as infrastructure or tourism for which the Caribbean and accelerators are not funds per se and generally has relevance. Firms of this nature include provide only small amounts of financing. Often the infrastructure-focused firms such as Conduit capital invested by such intermediaries is start-up Capital and Real Infrastructure Partners as well as capital and is less than US$25,000–50,000. Rather Blue Equity, a U.S.-based lower-end of the middle than providing significant cash, these intermediaries market PE firm with investments that are primarily “invest” largely through in-kind contributions such domiciled and focused on the United States. It has as workspace, basic infrastructure, advice, technical invested in two companies in Jamaica. resources, mentorship, sector expertise, and other types of capacity building. These resources serve Annex III: Current Regional Investment Landscape 147 as a type of TA that represents important catalyst any member of a World Bank or OECS nation. In to address deficiencies in the business and funding doing so, the idea is to bring talented or aspiring ecosystems. By providing such TA, their ultimate entrepreneurs from anywhere in the world who can goal is to prepare companies for growth and help to build an ecosystem that will reside within eventual investment from angel investors and VC the region. Still, in the first program, 92 percent firms. of applications were from Jamaica, while there were also applications from nine other countries: Much of the initial potential deal flow for early Antigua and Barbuda, Barbados, Botswana, stage capital comes from a series of accelerators Canada, Dominican Republic, St. Kitts and Nevis, and incubators that already exist in the region. As St. Vincent and the Grenadines, Trinidad and noted, these accelerators are a critical element of Tobago, and the United States. The hub is located the ecosystem for early stage companies as they in Jamaica, but the CDB is providing a US$500,000 select, nurture, and facilitate funding for promising facility that will fly teams in from other areas of the early stage ventures. The accelerators that exist Caribbean to provide training. Start-Up Jamaica is to date range from programs that provide capital run by Oasis 500, a Jordan-based partner. (such as Start-Up Jamaica) to programs that focus on providing technical assistance to early stage As noted, beyond Start-Up Jamaica and to foster entrepreneurs. the environment for early stage capital, initially via angel investment and eventually via venture In 2014 the Caribbean Development Bank launched capital, infoDev is also working to provide TA to Start-Up Jamaica (SUJ), a Jamaica-based start-up entrepreneurs to prepare them for investment. Apart accelerator. SUJ is a public-private partnership from the examples discussed above, this includes between the government of Jamaica through the the following initiatives, all hosted in Jamaica: Ministry of Science, Technology, Energy and Mining and the DBJ on the one hand, and local • The Mona Business Support Services (MBSS) and overseas private investor partners on the at the University of the West Indies (UWI) other, including the World Bank. SUJ serves as an works in partnership with the Jamaica Business accelerator (a physical facility that takes equity in Development Center (JBDC) with the objective start-up technology companies that go through an to commercialize the best projects from UWI intensive selection process, in return for US$30,000 faculties and to provide business incubator of seed capital, training, and mentorship). The services to entrepreneurs. Currently MBSS offers accelerator houses start-up companies and provides fee-based business support services to 11 clients them with the key skills and technology, business, in IT, business process outsourcing, biotech, management, legal, and accounting support that will education, accounting, and loan services. MBSS prepare them to pitch to equity investors, such as plans to establish a fund to finance student angel investors, in hopes of receiving investments entrepreneurs once it becomes profitable. to grow their businesses. There has been no investment by angel or other investors in MBSS clients to date. The first class of SUJ companies entered the “bootcamp” training program in September 2014. • UWI is also heading the consortium for the About 215 applications were received for the Caribbean Mobile Innovation Project (CMIP) approximately 60 spots available. In many ways, supported by EPIC with a US$1.5 million SUJ, the program is modeled on Start-Up Chile, grant extending from 2014 to 2017. Under the which was a pioneer in building a local community program, the UWI Consortium has invited for innovation in Latin America. Thus, it is not just qualified partners to become mobile application open to companies from the Caribbean, but from hubs (Mhubs) to support mobile technology start- 148 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora ups in up to six Caribbean countries, including • Another program to spur early stage Jamaica. It is projected that 120 start-ups will entrepreneurship, the Caribbean Idea receive services under the program. The program Marketplace (CIM), was launched and financed provides investment readiness courses, with a by the U.S. State Department. CIM sought first course launched in Kingston in November to partner local entrepreneurs with Diaspora 2014. In addition, the program provides in- financers and partners through a business plan depth mobile support to eight Jamaican competition. Initiated by the International entrepreneurs (as of October 2014). In March Diaspora Engagement Alliance, CIM was funded 2015, the CMIP partnered with Developing the by the Inter-American Development Bank, the Caribbean, a regional technology conference, United Kingdom Department of International to host events that would include some 500 Development, and the Canadian International attendees across multiple sites in Jamaica, the Development Agency. Additional sponsors were Dominican Republic, Trinidad and Tobago, the United States Overseas Private Investment Cuba, and Guyana. These types of conferences Corporation, Digicel, Scotiabank, and Compete are important to kick-starting the entrepreneurial Caribbean. Compete Caribbean managed the ecosystem, although are unlikely to produce a 2012–13 initiative. On its face, CIM attempted large-scale set of investible companies in the a somewhat innovative approach to catalyzing short to medium term. Diaspora talent and financing by focusing on harnessing the Diaspora for productive financing • The Jamaican Scientific Research Council, and involvement in projects. Specifically, the in consortium with the Caribbean Industrial program required cosponsorship (and investment Research Institute, manages the Caribbean of US$25,000 from both a Caribbean and a Climate Change Innovation Center with the Diaspora partner) for a business plan that, if support of a US$1.5 million grant from EPIC in selected, would receive US$100,000 in funding. partnership with infoDev’s Climate Technology Over 160 applications were received from across Program. To date, the program has funded the region (Antigua and Barbuda, Bahamas, four innovative Jamaican entrepreneurs with Barbados, Belize, Dominica, the Dominican grants ranging from US$32,000 to US$50,000 Republic, Grenada, Guyana, Haiti, Jamaica, St. to develop innovative renewable/clean energy Kitts and Nevis, St. Lucia, St. Vincent and the projects. Grenadines, Suriname, and Trinidad and Tobago). Ultimately, the program did not achieve in its • The JBDC offers a broad range of advisory goal to award up to US$1,000,000 in matching services to MSMEs including business advisory, grants to 10 companies because of a lack of technical services, marketing assistance, and qualified business plans. Specifically, after a financial services (small business development review process, 12 entrepreneurs were selected loans). JBDC also runs an incubator and resource as finalists. Of these companies, there were six center (IRC) for start-ups and for existing from Jamaica, one from Trinidad, one from St. businesses. The incubator focuses on fashion, Lucia, one from the Dominican Republic, and craft and food agro-processing and is currently one from Barbados. The additional finalists were serving 35 clients. There has been no investment from Guyana and Haiti. Of those 10 projects, the by angel or other investors in IRC clients to date. business plans within this subset focused on the following industries: industrial (1), agriculture • The Technical Innovation Center at the University (2), technology (2), film and entertainment of Technology provides fee-based services and a (3), and recycling (3). In the end, only two of shared space to about 40 entrepreneurs in IT and these finalists received grants, largely because IT-enabled services. Annex III: Current Regional Investment Landscape 149 the business plans were deficient. One was a children’s entertainment program from Barbados and the other was an industrial company from Jamaica. The other two winners were from Guyana and Haiti. Billionaire entrepreneur Richard Branson has created a 12-week acceleration program funded by the Branson Centre for Entrepreneurship in Montego Bay. The Branson program is open to any entrepreneur in the Caribbean although it is physically hosted in Jamaica. The fragmented geography of the Caribbean, atomized populations of potential entrepreneurs, and poor transport links have required most initiatives to take a regional hub-and-spoke approach, hence the decision to house these initiatives in Jamaica, a large regional economy and population center. Annex IV. Related World Bank Group Initiatives in the Caribbean Region The World Bank–managed program infoDev, proposals versus actual needs for both regional and supported by DFATD/EPIC, is currently involved country-focused projects. Such an identification of in the seed and early stage ecosystem across the potential financeable projects could be useful to this Caribbean. infoDev completed the analytical proposal. The PPP Roadmap identified a potential study referred to earlier, “Diaspora Investing: The PPP “pipeline” of 33 projects that are being actively Business and Investment Interests of the Caribbean developed as PPPs across 11 Caribbean countries, Diaspora.” Following up on the Diaspora study, with a total estimated investment value of US$2–3 through DFATD/EPIC funding, infoDev has been billion. These are projects that are actively under working on a pilot program in 14 countries to development, albeit in some cases at an early stimulate early stage capital for entrepreneurs. stage, and that appear potentially viable as PPPs The countries are Barbados, Jamaica, Trinidad and from a prima facie assessment—from technical, Tobago, and the OECS. The program has focused economic, commercial, legal and regulatory, and on (1) building local angel networks; (2) building political perspectives—although detailed appraisal incubators to support early stage investing; (3) is needed in most cases. creating a recipient-executed US$1.7 million platform to connect entrepreneurs and investors An earlier World Bank intervention on Diaspora (this is a sector-agonistic, stage-agnostic platform); bonds in Jamaica did not take off. Given the high and (4) including a US$1 million TA facility to sovereign indebtedness of the region, a Diaspora support the preparation of investment transactions bond may not be attractive to investors. There may (Phase 2). be incentives for such an idea, given tax incentives and if exchange rate risk is reduced. The government The World Bank is designing a Caribbean PPP of Jamaica is understood to have withdrawn from initiative to strengthen policy, capacity building, the idea to develop a Diaspora bond in Jamaica and project pipeline related to PPP projects in the because the value-added of specifically targeting region. As part of the preparation of the proposal, the Diaspora investors and bifurcating the market was team mapped government infrastructure financing unclear, given limited expected volumes. 152 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora The World Bank current and pipeline portfolio The IFC Asset Management Company has made projects also include those that seek to address the two investments in the Caribbean region. Through need for investment in the Caribbean. For instance, the US$1 billion, growth-focused, Africa Latin a current US$50 million Jamaica Growth and America and Caribbean Fund (ALAC), IFC AMC Competitiveness Project seeks to strengthen the has made two PE investments in the region: business environment in Jamaica for private sector Guardian Holdings in Trinidad and Tobago and investment and productivity upgrading. A proposed InterEnergy75 in the Dominican Republic.76 An loan to Jamaica for SME Access to Finance that earlier proposed financial sponsor deal in Trinidad focuses on revamping the credit guarantee scheme, and Tobago fell through because of issues with factoring and leasing, and collateral registries will government land allocation and local opposition also focus on the legal and regulatory environment to the use of the concerned investment site. In for venture capital. In addition, the Bank is addition, IFC PE Fund of Funds has invested in the undertaking project preparation for a Grenada pan-Caribbean PE fund, Portland Private Equity Development Policy Credit (DPC) series (DPC1 Fund II (see earlier discussion on PE). under implementation, DPC2&3 forthcoming), and the bank currently has a Development Policy Loan (DPL) in Jamaica and is conducting advisory services work in LC3. Annex V. Estimating the Size and Geographic Distribution of the Jamaican Diaspora A variety of estimates have been made for the Jamaicans in the United States size and geographic distribution of the Diaspora. These estimates relate to the major Diaspora The American Community Survey 2010 shows locations: Canada, the United Kingdom, and the 965,355 Jamaicans living in the United States. United States, and estimates are needed for other This does not include descendants of Jamaicans. Diaspora locations worldwide. In seeking to find an The American Community Survey 2012 shows an estimate of the size of the Jamaican Diaspora for estimate of 1,037,216 but makes the point that it is the the National Diaspora Policy these multiple sources census population estimates program that produces are considered together with factors that point to and disseminates estimates of population. Another the need for adjustments to the variety of figures estimate shows 740,000 Jamaican Americans provided. Four of these factors are the following: (http//Wikipedia/wiki/Jamaican Diaspora#units). Concentrations of expatriate Jamaicans: 1. Currency of data source 2. Some estimates do not account for descendants 1. Are largest in the Northeast, mainly in New York, of Jamaicans: second and third generations and Hartford, Boston, Baltimore others 2. Show the next largest in the South, mainly Miami 3. Sampling margin of errors where indicated Metro, Atlanta, Orlando, and Tampa, and 4. Some Jamaicans registered as black, Caribbean, 3. Show the least concentration in the West and or West Indian in surveys and census. Midwest with the most persons in Los Angeles. Working estimates for this policy document were A working estimate is 1,700,000 (the base figure developed using figures from the various sources of 1,037,216, with adjustment for descendants of with adjustments using the factors above. Jamaicans, Jamaicans classified as black, West Indian, and Caribbean, and sample margin of error). 154 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Jamaicans in the United Kingdom Jamaicans in Canada Estimates of Jamaicans in London retrieved The 2006 Census produced by Statistics Canada February 12, 2014, from www.jamaicans.com/ estimated 231,110 Jamaicans are living in Canada. jamaicanoverseas/lon: Based on this report, most Jamaicans live in Ontario (197,545), the majority of whom live in the 1. 800,000 Jamaicans and descendants of Jamaicans Toronto area (160,210). In the other major regions, live in the United Kingdom the population of Jamaicans was significantly less: 2. Of these 144,000 are Jamaican born (Office of Nova Scotia (1,010), Quebec 11,940, Manitoba National Statistics 2010) (3,275), Alberta (8,720), and British Columbia 3. The 2011 U.K. census estimated the number of (6,915). Canada’s 2011 census estimates that Jamaicans living in the country as 143,000 with 256,915 Jamaica born live in Canada. This includes a margin of error of ±17,000. Jamaicans that have Canadian citizenship and Canadians of Jamaican decent. This source notes The data showed the majority of Jamaicans living that (1) the actual number of Jamaican Canadians in London (75,000 with a margin of error ±14,000), could be larger given that many people identified West Midlands (27,000 with a margin of error themselves as black, West Indians, or Caribbean ±8,000), East Midlands (8,000 with a margin of and (2) the estimate for 2011 Census shows an 11.2 error ±5,000), Northwest (7,000 with a margin of percent increase above the Census for 2006. error ±3,000) East (7,000 with a margin of error ±4,000), Yorkshire and the Humber (4,000 with a A working estimate is 300,000 (base figure of 256, margin of error ±3,000), and the Southeast (4,000 915 with adjustment for Jamaicans registered as with a margin of error ±3,000). black, Caribbean, or West Indian, sample margin of error and Canadians of Jamaican descent). The IOM Jamaica Mapping Exercise July 27, 2007, shows an estimate of 800,000 of those born in Jamaica and those of Jamaican descent in the Jamaicans in Other Regions of the United Kingdom. The following observations are World also made based on this mapping exercise: No available estimates were located, so a “guesstimate” of 200,000 was used. 1. Jamaicans are ethnically classified as black Caribbean 2. A more recent study estimates that 340,000 Total Size of Jamaican Diaspora Jamaicans are born in the United Kingdom 3. There is agreement that the largest number live A working estimate for the total Jamaican Diaspora in London (about 61 percent) with the next is 3,000,000 = (800,000 + 1,700,000 + 300,000 + largest concentration in the West Midlands with 200,000). Birmingham having the largest 4. Jamaicans are the predominant black Caribbean group. A working estimate is 800,000 (estimate from IOM’s survey, which includes Jamaican born and descendants of Jamaicans). Annex V. Estimating the Size and Geographic Distribution of the Jamaican Diaspora 155 United States United Kingdom Canada Other Total Toronto and greater Northeast 1,100,000 London 480,000 210,000 metropolitan area West South 450,000 200,000 Midlands Other resions 90,000 Other Other areas 150,000 120,000 regions Total 1,700,000 Total 800,000 Total 300,000 200,000 3,000,000 Source: N. Ying, JDI, 2014, Annex VI. Diagrams of Relevant Government Institutions in Case Study Countries 1. Barbados Consular Missions Ministry of Foreign Affairs & Foreign Trade High Commission Ministry of Industry, International Business, Commerce & Small Business Development The Government of Barbados Barbados Investment & Development Corporation (BIDC) Invest Barbados - New York Invest Barbados (formerly the Barbados International Business Promotion Corporation) Invest Barbados - Toronto 158 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora 2. Jamaica Consular Missions High Commission Ministry of Foreign Affairs Diaspora Advisory Board Planning Institute of Jamaica Jamaican Diaspora Jamaican Foundation Diaspora Institute Ministry of Finance The Government of Jamaica Ministry of Industry, Investment JAMPRO & Commerce Jamaican Tourism Board Development Bank Jamaica Venture of Jamaica Capital Program Annex VI. Diagrams of Relevant Government Institutions in Case Study Countries 159 3. St. Lucia Consular Missions Ministry of Foreign Affairs High Commission Prime Minister’s Office Ministry of Finance, The Government of Economic Affairs, Office of St. Lucia Planning & Diaspora Affairs Social Security Trade Export St. Lucia Promotion Agency Development Bank Invest St. Lucia Eastern Caribbean Bank of Eastern Caribbean Financial Holding St. Lucia Global Investment Company Brokers Ltd. 160 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora 4. Trinidad and Tobago Consular Missions Ministry of Foreign Affairs High Commission Economic Development Board Trinidad & Tobago The Government of International Trinidad & Tobago Financial Center (TTIFC) Central Statistical Office (CSO) National Export Facilitation Organization Ministry of Trade, Industry, Investment & Communications InvestTT Investor Sourcing & Faciliation Unit Annex VII. Legal and Regulatory Drivers and Impediments This annex gives a legal and regulatory analysis (IBCs), for example, have a maximum tax rate of that includes the taxation legislation of the legal 2.5 percent on income and exemption from foreign framework that governs investments made by exchange controls. No industries are closed officially foreign investors in Barbados, Jamaica, St. Lucia, to private enterprise, although the government and Trinidad and Tobago. reserves the right not to allow certain investments. Some activities, such as telecommunications, utilities, broadcasting, banking, and insurance, Investing in Barbados—Executive require a license from the government. There is Summary no percentage, or other restrictions, on foreign Ease of Entering, Doing Business, and Exiting ownership of a local enterprise, participation in a joint venture, or investment. Foreign nationals receive the same legal protections as citizens, and A. Incentives and Restrictions on the government has improved the legal regime for Nonresident Investment and Ownership property rights; Barbados is ranked 142 in the Doing Business report for ease of “registering property.” The government of Barbados has striven to cultivate an environment hospitable to foreign Most incentives relevant for foreign investors direct investment through tax incentives, free- and nonresident ownership in Barbados are tax market policies, and the affording of full legal incentives, though there are other policies that rights to foreign nationals looking to do business make entry a less formidable process. Barbados in Barbados. Invest Barbados encourages foreign has entered into double taxation treaties with the direct investment, with the stated goals of creating Canada, the United Kingdom, and the United jobs and earn foreign currency, and offers special States. Offshore businesses may operate either free incentive packages for foreign investments in of income tax (e.g., captive insurance) or with a tax the hotel industry, manufacturing, and offshore rate from 0.25 percent to 2.5 percent. An IBC must business services. International business companies by the terms of its license export 100 percent of its 162 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora services or products to enjoy those rates. The rate Dividends and other distributions to shareholders for income over US$15 million was reduced to 0.25 during the tax holiday are also exempt from the percent effective income in 2013. No withholding payment of income tax. Nonresident shareholders taxes are taken out of dividends, interest, royalties, liable to tax in their country of residence are or management fees paid to nonresidents. subject to Barbados withholding tax at a lower International financial service companies also rate.77 Enterprises not obtaining benefits under the enjoy several tax incentives; under the Exempt Fiscal Incentives (Amendment) Act (2007) and Insurance Act, a company incorporating with a generating export profits outside CARICOM may minimum capital of US$125,000 and at least one receive an export allowance expressed as a rebate Barbadian director is eligible for taxation on profits of corporation tax (between 35–93 percent) on at 0 percent for the first 15 years, and thereafter at 8 those profits. The Export Development Allowance percent on the first US$125,000 of taxable income, permits a company to deduct from taxable income as well as an exemption from a withholding tax an additional 50 percent of what the company spends on royalties and exchange control restrictions. in developing export markets outside CARICOM. The International Trust Act allows nonresidents to create trusts for the benefit of nonresidents, with no Last, the tourism sector is also an area in which the minimum capital requirements and no withholding government of Barbados has sought to incentive taxes, but subject to 35 percent tax on profits earned investment. A Market Development Allowance in or remitted to Barbados. Foreign investors must allows a company to deduct an additional 50 percent finance their investments from external sources of what it spends encouraging tourists to visit Barbados. or from income that the investment generates. Under the Tourism Development Act of 2002, businesses When a foreign investment generates significant and individuals that invest in the tourism sector can write employment or other tangible benefits for the off capital expenditure and 150 percent of interest. They country, the authorities may allow the company are also exempt from import duties, the value added tax, and to borrow locally for working capital. There is no environmental levies on furniture, fixtures and equipment, requirement that locals own shares of a foreign building materials, supplies, and equity financing. The investor’s enterprise, but some restrictions may Ministry of Tourism must first be engaged on projects apply to share transfers. under this legislation. Many policies and facilities make manufacturing and export-oriented enterprises especially advantageous B. Ease of Doing Business for investment. The Barbados Investment and Capital Markets and Portfolio Investment Development Corporation has established 10 well- Barbados’ policies largely seek to facilitate the free equipped industrial parks. But companies must meet flow of financial resources, although the government export performance requirements to take advantage has intervened in the local credit market to control of certain tax incentives. For example, “enclave interest rates, limit the volume of funds available enterprises” must produce goods exclusively for for borrowing, and borrow on the local market. export outside the CARICOM region. To further The government has implemented a continuous help manufacturers, the Central Bank of Barbados review process for legislation in the financial has established an export credit guarantee scheme, sector in an effort to strengthen and improve the covering preshipment financing requirements regulatory regime, ultimately hoping to attract and and postshipment credit risks for manufacturing facilitate retention of foreign portfolio investments. companies. The Fiscal Incentives (Amendment) Act Specifically, the 1982 Securities Exchange Act (2001) provides a maximum 15-year tax holiday to that founded the Securities Exchange of Barbados any manufacturer of an approved product, provided was replaced by the Securities Act, Cap 318A, that it meets the definition of an enclave enterprise. Annex VII. Legal and Regulatory Drivers and Impediments 163 which reestablished the exchange as the Barbados with International Organization of Securities Stock Exchange (BSE) and removed regulatory Commission designed to protect investors, ensure responsibility for the securities market activity from a fair, efficient, and transparent market and reduce the BSE, ultimately helping strengthen the market’s systemic risk. Public companies now have only 90 regulatory framework and development. A self- days from the close of their financial year to file assessment undertaken by the Bank Supervision audited financial statements with the BSE, 30 days Department of the Central Bank found their on- fewer than before. Additionally, a fine not exceeding shore and offshore sectors in general compliance US$5,000 has been added to the list of possible with the Basel Core Principles of Effective Banking penalties for any person under the jurisdiction of Supervision, utilizing the Basel Committee’s Core the BSE who contravenes or is not in compliance Principles Methodology. with any of the requirements. The BSE is relatively open to foreign investment, The BSE has shown a particular interest in although the intensity of requirements for listing on international investors with a new initiative to it varies between the Regular Market and the Junior establish an international securities market to Market. Companies looking to list on the Regular raise capital on the Barbados market. This move Market must have assets of no less than US$500,000 would offer greater support to the international and adequate working capital based on the last three business community and complement existing years of their financial performance, as well as their bilateral trade agreements. The BSE has already three-year projected performance. Companies must submitted the rules for review by the Financial also demonstrate competent management and be Services Commission. If approved by regulators, incorporated under the laws of Barbados or another the international trading facility could attract four regulated jurisdiction approved by the Financial types of listings: companies that would have their Services Commission. The Financial Services primary listing in Barbados, companies that would Commission supervises the nonbanking financial use Barbados as a dual or secondary listing, fixed sector, including domestic and offshore insurance income securities, and mutual funds. industries, the securities industry, credit unions, and pension plan funds. Applications for listing Competition from State-Owned Enterprises on the Junior Market are less onerous, requiring Although there are state-owned enterprises in minimum equity of one million shares at a stated Barbados, they do not pose a threat to investors. minimum value of US$100,000. Reporting and Statutory corporations or state owned enterprises disclosure requirements for all listed companies in Barbados include National Insurance Scheme include interim financial statements and an annual and the recently established National Revenue report. Non-nationals must obtain exchange control Authority. These companies are not designed approval from the Central Bank of Barbados to for competition, but rather support government trade securities on the BSE. programs such as the national pension plan and the collection of government revenue. The BSE is also relatively friendly to investors and has enacted new rules geared toward supporting and Dispute Settlement protecting investors. The BSE has stated its intent Barbados bases its legal system on the British to fully immobilize traditional share certificates common law system, and is party to—or compliant where clearance and settlement is computerized with—most international dispute settlement through the Barbados Central Securities Depository regimes. The Attorney General, the Chief Justice, Inc., which is a wholly owned subsidiary of the Puisne Judges, and Magistrates administer justice Barbados Stock Exchange Inc. In January 2014, in Barbados; the Caribbean Court of Justice is the BSE introduced new rules in accordance the highest court of appeal. Barbados is a party to 164 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora the World Trade Organization (WTO). The WTO trade unions, all key sectors are unionized, with Dispute Settlement Panel and Appellate Body all private and public employees in agriculture, resolves disputes over WTO agreements, and courts tourism, and at the airport and seaport belonging of appropriate jurisdiction in relevant countries to a single union confederation. The major unions resolve private disputes. The Barbados Arbitration recognize the advantages accruing to Barbados Act (1976) and the Foreign Arbitral Awards Act from foreign investment and foreign expertise, and (1980), which recognizes the 1958 New York they are generally flexible and accommodating Convention on the Negotiation and Enforcement in their dealings with employers. However, local of Foreign Arbitral Awards, contain provisions labor leadership is sensitive when it perceives a for arbitration of investment disputes. Barbados is lack of respect for Barbadian laws and customs also a member of the International Center for the by large, visible foreign employers. Early contact Settlement of Investment Disputes (ICSID), also and rapport with Labor Ministry officials and union known as the Washington Convention. Additionally, leaders by foreign investors may be helpful in terms individual agreements between Barbados and of fostering labor harmony. multilateral lending agencies have provisions calling on Barbados officials to accept recourse to binding international arbitration to resolve C. Ease of Exit and Repatriating investment disputes between foreign investors and The Ministry of Finance regulates the Exchange the state. Barbados is ranked number 28 for ease of Control Authority of the Central Bank of Barbados, “resolving insolvency” in the World Bank’s Doing including inward investment, registration of Business Report. foreign capital, currency accounts, and repatriation of capital and earnings. Although local on- Corruption shore companies must meet stringent exchange Corruption is not a major problem in Barbados, control requirements, government also welcomes but some U.S. companies have reported issues. investment by nonresidents with external sources Specifically, some U.S. companies have reported of financing. Companies can freely repatriate unfair treatment by Barbados’ Customs and profits and capital from foreign direct investment if Excise Department and efforts by political actors they registered with the Central Bank of Barbados to trade political support for payment or partial at the time of investment. The Central Bank may project ownership. In 2012 Barbados enacted the limit or delay conversions depending on the level of Prevention of Corruption Act (2010). Barbados international reserves under the bank’s control. The has not yet signed and ratified the Inter-American Ministry of Finance and Economic Affairs controls Convention on Mutual Assistance in Criminal the flow of foreign exchange, and the Exchange Matters and has signed but not ratified the UN Control Division of the Central Bank executes fiscal Convention on Corruption and the Inter-American policy under the Exchange Control Act. Individuals Convention against Corruption. Barbados has also may apply through a local bank to convert the signed the CARICOM Mutual Legal Assistance equivalent of US$3,750 per year for personal travel Treaty on Serious Criminal Matters. and up to a maximum of US$25,000 for business travel. To convert any amount over these limits, Labor one must apply to the Central Bank. International Barbados is friendly to organized labor and trade businesses, including Exempt Insurance and unions, and the leaders of the trade union movement Qualifying Insurance Companies, are exempt from enjoy a strong voice in the labor and economic these exchange regulations. affairs of the country. Although approximately 25 to 30 percent of the labor force belongs to Annex VII. Legal and Regulatory Drivers and Impediments 165 Investing in Jamaica—Executive • Revised Stamp Duty Act: Provides exemption Summary from additional stamp duty on raw materials and nonconsumer goods for the manufacturing Ease of Entering, Doing Business, and Exiting sectors. • Jamaica Free Zone Act: Under this revised Act, A. Incentives and Restrictions on companies granted free zone status are permitted Nonresident Investment and Ownership to import items free of customs duty, value-added The government of Jamaica has committed itself to tax, and other port-related taxes and charges for attracting foreign direct investment to drive economic an unspecified period. Profits earned are also growth. Jamaica signed a US$932 million Extended free from income tax for an unspecified period. Fund Facility with the International Monetary Eligible firms are required to export at least 85 Fund in May 2013 to, in part, affect significant percent of the goods and services produced within structural reforms to encourage investment. For the free zone. Slated to be repealed in 2015, at example, the government eliminated discretionary which time a new fiscal incentive arrangement tax exemptions that were noncompliant with the will be put in place. WTO Agreement on Subsidies and Countervailing Measures. The WTO granted Jamaica an extension • Urban Renewal Act: Companies that undertake to revise its incentives by the end of 2013. To development within Special Development Areas satisfy this obligation, the government passed the can benefit from Urban Renewal Bonds, a 33.3 Omnibus legislation, which took effect on January percent investment tax credit, tax free rental income, 1, 2014, codifying tax benefits for all investors, and the exemption from transfer tax and stamp simplifying the income tax code, and broadening duties on the “improved” value of the property. the tax base. The new omnibus fiscal incentives framework includes the following: • Income Tax Act (Junior Stock Exchange): As of January 1, 2014, companies listed on the JM • The Fiscal Incentives Act: Targets SMEs and will not be required to pay income tax in the first reduces the effective corporate income tax rate five years, reduced from 10 years. This benefit by applying (1) an employment tax credit at a will expire altogether on December 31, 2016. maximum value of 30 percent and (2) a capital allowance applicable to a broadened definition of • Bauxite and Alumina Act: Under this act, industrial buildings. bauxite/alumina producers are allowed to import all productive inputs free of import duties, VAT, • The Income Tax Relief (Large-Scale Projects and other port-related taxes and charges. and Pioneer Industries) Act: Targets large-scale projects and/or pioneering projects and provides • The Foreign Sales Corporation Act: This act for an improved and more attractive rate for provides exemption from income tax for five the ETC. Projects will be designated either as years for qualified income arising from foreign large-scale or pioneer, based on a decision by trade. U.S. law through the Tax Information Parliament and subject to an Economic Impact Exchange Agreement reinforces this incentive. Assessment. Foreign are treated well, generally granted national • Revised Customs Tariff: Provides for the duty- or Most Favored Nation treatment, subject to the free importation of capital equipment and raw rules of their bilateral investment treaties. No material for the productive sectors. screening mechanisms are in place for foreign investments, but if investors apply for government 166 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora incentives, they could be required to meet some Kingston Container Terminal, and Norman Manley basic prerequisites, and due diligence may be International Airport in Kingston. carried out by the approving agency. This process is not discriminatory and is not intended to impede Jamaica’s property rights laws and regulations are investment. Jamaica is a signatory to the WTO extensive and compliant with most international Agreement and is in compliance with most Uruguay standards, though issues with cumbersome Round obligations, including the Agreement on bureaucratic processes persist. The Jamaican Trade-Related Investment Measures Obligations. constitution guarantees property rights. The No performance requirements are imposed as country has a system of registered titles set out in a condition for investing in Jamaica, although the Registration of Titles Act, which recognizes and companies with Free Zone status must export at least provides for the enforcement of secured interests 85 percent of their output. Based on the Jamaican in property by way of mortgage. It also facilitates Companies Act, foreign investors are required either and protects the acquisition and disposition of all to establish a local company or to register a branch property rights, though working through Jamaica’s office of a foreign-owned enterprise. Branches of bureaucracy can result in significant delays. companies incorporated abroad must also register Jamaica is a member of the World Intellectual with the Registrar of Companies if they intend to Property Organization and is a signatory of the operate in Jamaica. Since 2005, foreign nationals Bern Convention. Jamaica and the United States who conduct business on a short-term basis do not have an Intellectual Property Rights Agreement require a business visa if they will be in Jamaica for and a Bilateral Investment Treaty, which provide a period not exceeding 30 days. assurances to protect intellectual property. However, Jamaica has remained on the special Jamaica has also undertaken a comprehensive 301 “Watch List” for more than 10 years, largely program of trade and financial liberalization, and because the patent and design law is not compliant no sector remains closed to foreign investment. with the Agreement on Trade Related Aspects of Although projects that affect national security, have Intellectual Property Rights (TRIPS). The following a negative impact on the environment, or involve are descriptions of Jamaica’s key property rights- sectors such as life insurance, media, or mining are related legislation and treaties: subject to regulation and certain restrictions, foreign investors have full access to Jamaica’s privatization A new Patent and Designs Bill: has been drafted— program.78 The National Investment Bank, which including new rules and fee structures—and is administers privatization, is mandated to ensure currently under review by the Chief Parliamentary that the process is fair and transparent. However, Council of Jamaica. General law provides protection in some privatization transactions, the participation for trade secrets. of local investors may lead to advantages in the scoring of proposals. When large entities are The Copyright Act of 1993: as amended, complies being privatized, advertisements are placed in with the TRIPS Agreement and adheres to the international newspapers such as the Financial principles of the Bern Convention. Times, New York Times, and Wall Street Journal to attract foreign investors, providing information The Trademark Act of 1999: is also compliant with on requirements and evaluation criteria. Foreign the TRIPS Agreement and provides the owner of investors have won most of the privatization bids registered trademarks exclusive rights for up to 10 in the last five years. The government is currently years, renewable. It provides for the protection of reviewing some of the remaining partly owned state “well-known” marks under the Paris Convention companies, with an eye to liquidating state holdings on Industrial Property Rights of which Jamaica is in firms such as Clarendon Alumina Partners, a signatory. Annex VII. Legal and Regulatory Drivers and Impediments 167 The Export Free Zones Act: allows investors to that apply to commercial banks, merchant banks, operate solely with foreign exchange in activities and building societies. such as warehousing, refining, manufacturing, redistribution, processing, assembling, packaging, Jamaica’s Stock Exchange (JSE) is the biggest and services such as insurance and banking. in the region, and largely hospitable to foreign Incentives offered include a 100 percent tax holiday investors. Based on the Rule 404 of the JSE, fully in perpetuity, no import licensing requirements, and paid shares shall be free from any restriction on the exemption from customs duties on construction and right of transfer. Although two listed companies raw materials, capital goods, and office equipment. have clauses within their memoranda and articles Amendments have also been made to the Export of association that restrict foreign investors, these Free Zones Act to allow for the establishment predate the JSE. JSE listing arrangements allow of Single Entity Free Zones, with individual for 20 percent of issued share capital to be listed, companies now designated as free zones. but no requirement stipulates that this threshold must be maintained after listing. The rules of Jamaica has investment treaties with the United the JSE and the Security Acts also have specific States (signed February 1994) and the United provisions relating to the process of takeover and Kingdom (1994), as well as double taxation mergers, but these are general and, given that there agreements with Canada, the United Kingdom, the are no specific provisions (except in the cases United States, and CARICOM, among others. mentioned above) regarding restrictions to foreign participation, it follows that no specific measures are designed to protect against hostile foreign B. Ease of Doing Business takeovers. The Companies Act and the Securities Capital Markets and Portfolio Investment Act govern acquisitions, mergers, and takeovers for Since the 1980s, Jamaica has initiated reforms aimed publicly traded companies. In 1996 the Securities at fostering private sector activity and increasing Act was revised to bring it in line with international the role of market forces in resource allocation. regulations. The takeover code was redesigned to These reforms intensified in the 1990s, resulting in ensure the integrity of the securities market while trade, financial, and capital account liberalization. protecting minority shareholders. There are laws and This has led to the availability of credit on market policies covering taxation, labor, health, and other terms, and foreigners are allowed to borrow freely issues to avoid distortions or impediments to the on the local market at market-determined rates of efficient mobilization and allocation of investment. interest. Although some major financial products But investors argue that the Redundancy Act, which are still lacking, the private sector still has access deals with severance payment, is a disincentive to to a variety of credit instruments. Jamaica has an investment funds. In 2001 the mandate of the Anti- effective regulatory system established to encourage Dumping and Subsidies Commission was expanded and facilitate portfolio investment. The Financial through the implementation of a Safeguards Act, Services Commission and the Bank of Jamaica which protects producers from import surges. jointly regulate portfolio investment. Since 1998 there has been consolidation and increased output Jamaica’s Junior Market (JM) emerged in 2009 performance in the sector. Significant strides have and quickly became the leading capital market also been made in terms of the regulatory framework, for SMEs in the Caribbean with capitalization of which are now in line with international standards. less than US$5 million. The JM has provided a The government is currently drafting omnibus way to create equity investing opportunities for banking legislation, which should facilitate more smaller businesses by offering tax incentives for effective supervision of financial entities as well as list companies. This incentive, initially a 10-year streamline the standards and applicable legislation tax holiday, was reduced to a five-year tax holiday 168 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora in 2014 to conform to the new incentives regime. Jamaica has a number of reciprocal enforcement Companies listed on the JM pay no income tax agreements with other countries, and the formal for the first five years, 25 percent of regular tax means for enforcing property and contractual rights rate for years 6 to 10, and receive exemptions on through the following: transfer tax on shares, as well as stamp duty on such transfers. Since the revision of the tax incentive 1. The Judgment and Awards (Reciprocal Enforce- reducing the tax holiday to five years the number of ment) Act companies seeking listing have declined. Although 2. The Judgment (Foreign) (Reciprocal Enforce- 21 companies were listed on the JM at the end of ment) Act 2013, very few new companies have been added 3. The Arbitration (Recognition and Enforcement since then, and the JM has now 23 listed companies. of Foreign Awards) Act 4. The Maintenance Orders (Facilities for Competition from State-Owned Enterprises Enforcement) Act. Under these acts, judgments Private firms compete with SOEs on fair terms in of foreign courts are accepted where there is a Jamaica. Yet Jamaican SOEs generally lack the same reciprocal enforcement of judgment with the profitability motives as private enterprises, because foreign state. the government often finances loss-making activities. Jamaica’s IMF program prioritizes divestment Jamaica, a signatory to the International Center from some of the government’s most inefficient for Settlement of Disputes since 1965, accepts investments. Jamaica does not have a sovereign international arbitration of investment disputes wealth fund or an asset management bureau. between Jamaicans and foreign investors. Local courts recognize foreign arbitral awards. International Dispute Settlement arbitration is also accepted as a means for settling Jamaica’s justice system is overburdened, which investment disputes between private parties. impacts the court’s ability to review business disputes in a timely manner and should be a major factor for Corruption businesspeople to consider when doing business Jamaica has a Corruption Prevention Act, which in the country. Although a credit reporting agency established a Corruption Prevention Commission did officially open in late 2012, comprehensive in 2003, but questions remain surrounding information about potential local partners or enforcement. The Commission was founded to borrowers remains lacking. Disputes between (1) receive, examine, and document the statutory enterprises are handled in the local courts, but foreign declarations of public sector workers; (2) receive investors can refer cases to the International Center and investigate any complaint regarding an act for Settlement of Investment Disputes. Cases have of corruption; and (3) conduct investigation into been reported of trademark infringements in which acts of corruption, if satisfied there are reasonable U.S. firms took action and were granted restitution in grounds to do so. To date there has been no the local courts. The Jamaican constitution provides enforcement, as the commission lacks the capacity for an independent judiciary with a three-tier to enforce the filing of declarations. Reports suggest court structure. Claims may be brought before the that noncompliance is running at over 30 percent. magistrates or Supreme Court. Appeals on decisions However, the commission will be working with the made in these courts can be taken before the Court Director of Public Prosecution to have enforcement of Appeal and then to the Judicial Committee of the measures implemented. Privy Council in the United Kingdom. Annex VII. Legal and Regulatory Drivers and Impediments 169 Labor Investing in St. Lucia—Executive Jamaica has a number of labor pro-labor laws and Summary regulations, including ones that favor Jamaican labor over foreign labor. Under the Employment Ease of Entering, Doing Business, and Exiting (Termination and Redundancy Payments) Act, 1974 (as amended) employees no less than two years of A. Incentives and Restrictions on continuous employment who are dismissed on the Nonresident Investment and Ownership grounds of “redundancy” are entitled to redundancy payment. As a general rule, workers with up to Despite its small size, St. Lucia has recently been 10 years of continuous employment are entitled able to attract substantial foreign business and to two weeks’ payment for every year as well the investment, especially in its offshore banking and requisite notice pay, while workers with more than tourism industries, because of market openness 10 years’ continuous employment are entitled to and investment incentives orchestrated by Invest three weeks’ payment plus notice pay. That said, St. Lucia. The government of St. Lucia strongly there are no unemployment benefits in Jamaica. encourages foreign direct investment, particularly Regarding foreign nationals, according to the Work tourism and hotel development, information Permit Act, a foreign national who wishes to work and communication technology, manufacturing, in Jamaica must first apply for a permit issued by international financial services, agro business, and the Ministry of Labor. The law, which seeks to give creative industries. Various incentive programs first preference to Jamaicans, requires organizations are in place to attract foreign investment through planning to employ foreign nationals to prove that Invest St. Lucia. Such policies include liberal attempts were made to employ a Jamaican national. tax holidays (up to 15 years, waivers of import duties and consumption taxes on imported plant machinery and equipment, imported raw and C. Ease of Exit and Repatriating packaging materials, and export allowances or Jamaica has no restrictions on holding funds or tax reliefs on export earnings). All proposals for transferring funds associated with an investment. government concessions and investment incentives However, foreign exchange transactions must be are reviewed by Invest St. Lucia to ensure that conducted through authorized foreign exchange the project is consistent with national interest dealers, cambios, and bureaux de change at market- and provides economic benefits to the country. determined rates. Foreign exchange is generally Export-oriented businesses are viewed particularly available, but companies tend to acquire large favorably. Invest St. Lucia provides “one-stop amounts of foreign exchange over a three- to four- shop” facilitation services to investors to guide day period, so as not to disturb currency markets. them through the various stages of the investment There are currently no plans to change the policies process. No industries are officially closed to affecting investment remittances, and there is no private enterprise, although some activities, such delay period for repatriating investment returns. as telecommunications, utilities, broadcasting, No legal parallel market (tiered system) is in place banking, and insurance, require a license from the for foreign exchange, and no limitations are put on government. The only restriction is the requirement the inflow or outflow of funds for any transaction. to obtain an Alien Landholding License for foreign U.S. companies indicate no problems or delays in investors seeking to purchase property for residential repatriating investments. or commercial purposes. No formal performance requirements or requirements for participation are in place either by nationals or by the government in 170 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora foreign investment projects. Companies registered • The Tourism Incentives Act: provides for in St. Lucia have the right to repatriate all capital, earnings to be exempt from income tax, as a royalties, dividends, and profits free of all taxes or tourism project managed by or on behalf of any other charges on foreign exchange transactions. a company is entitled to distribute profits to St. Lucia does not have exchange controls, and the shareholders or debenture holders as capital invoicing of foreign trade transactions may be made monies free of tax during the two-year period in any currency. following the end of the tax holiday. The Act also allows for customs duty exemptions, and permits A number of key treaties and pieces of legislation the importation into St. Lucia free of customs provide the legal and regulatory framework that duty and consumption tax of materials and allows St. Lucia to grant as many freedoms and equipment used exclusively in connection with incentives to foreign investors. St. Lucia has no the construction and equipping of the tourism bilateral investment treaty with Canada or the United project. States, but it does with the United Kingdom. St. Lucia is a member of the WTO and has a multilateral • The Freezone Act: is designed to promote export economic association agreement with the European development and foreign investment projects in Union. In addition to the National Development a “bureaucracy-free, duty-free, and tax-free” Corporation (Invest St. Lucia) Act, which addresses environment for prescribed activities. Incentives government policy to attract investment, the Trade include exemption for customs duties, taxes and License Act, Aliens Licensing Act, Development related charges on all classes of goods entering Incentives Act, Special Development Areas the Freezone for commercial or operating Act, Income Tax Act, Free Zones Act, Tourism purposes; no restrictions or taxes on foreign Development Act, and Fiscal Incentives Act, all exchange transactions; no taxes on dividends for have some impact on foreign investment. Below the first 20 years of operation; no work permit are explanations of the most relevant treaties and fees for management personnel of Freezone legislation for foreign investors: businesses; no import or export licenses and no price control; and no company income tax for the • The Special Development Areas Act: seeks to first five years, and thereafter a very limited tax encourage investment in designated areas, such range. as Vieux-Fort, Anse la Raye, Soufriere, Canaries, and Dennery. Special concessions offered under • The Treaty of Chaguaramas: established this law include exemption on import duty, stamp CARICOM in 1973 with the purpose of promoting duty, and consumption tax on inputs for the economic integration among its 15 member construction of new buildings and the renovation states. Investors operating in St. Lucia are given of existing buildings; land and house tax; preferential access to the entire CARICOM stamp duty payable by vendors and purchasers market. The Revised Treaty of Chaguaramas on the initial purchase of property; higher goes further to establish the CARICOM Single tax allowances; and accelerated depreciation. Market and Economy, by permitting the free The types of businesses that can qualify for movement of goods, capital, and labor within these concessions are residential complexes; CARICOM States. commercial or industrial buildings; facilities related to expanding the tourism sector; water- • The CARICOM Competition Commission: is based activities; tourism projects highlighting the established to apply the rules of competition in heritage and natural environment of St. Lucia; respect of anti- competitive cross-border business arts and cultural investments; and agricultural conduct. The CARICOM competition policy and fisheries-related activities. Annex VII. Legal and Regulatory Drivers and Impediments 171 addresses anticompetitive business conduct, such intellectual property, and public procurement, as agreements between enterprises, decisions the environment, and protection of personal data. by associations of enterprises, and concerted practices by enterprises that have as their object • CARIBCAN: an economic and trade development or effect the prevention, restriction, or distortion assistance program for Commonwealth Caribbean of competition within the Community and actions countries in which Canada provides duty free by which an enterprise abuses its dominant access to its national market for the majority position within the Community. No legislation of products that originate in Commonwealth is yet in operation to regulate competition in Caribbean countries. St. Lucia. The OECS has agreed to establish a regional competition body to handle competition Regarding legal protections, foreign nationals matters within its single market. receive the same treatment as local citizens, and property rights laws and enforcement are generally • The Revised Treaty of Basseterre: establishes the effective and hospitable for nonresidents. The OECS. The OECS consists of the nine member police and court systems are efficient and unbiased states of Antigua and Barbuda, Dominica, in commercial matters, and the government operates Grenada, Montserrat, St. Kitts and Nevis, St. in a generally transparent manner. Civil law protects Lucia, and St. Vincent and the Grenadines physical property and mortgage claims. The with associate members being Anguilla and the administration of intellectual property laws is the British Virgin Islands. The purpose of the treaty responsibility of the Attorney General through the is to promote harmonization among member Registry of Companies and Intellectual Property. states in areas concerning foreign policy, defense Enforcement of intellectual property rights in St. and security, and economic affairs. The six Lucia does remain somewhat weak, in part because independent countries of the OECS ratified the of resource constraints, but infringement in most Revised Treaty of Basseterre establishing the areas is small-scale. Under the Land Acquisition OECS Economic Union on January 21, 2011. Act, the government may by declaration initiate the The Economic Union established a single acquisition of land required for a public purpose. financial and economic space within which all St. Lucia employs a system of eminent domain factors of production, including goods, services, to pay compensation when property needs to and people, move without hindrance. be acquired in the public interest. Some special license requirements apply to the acquisition of • The Economic Partnership Agreement (EPA): land, development of buildings and expansion of was concluded between the CARIFORUM states existing construction, and special standards for and the European Community and its member various aspects of the tourism industry. Individuals states. The EPA is designed to replace the now or corporate bodies who are not citizens and who expired transitional trade regime of the Cotonou are seeking to acquire land may require a license Agreement. The overarching objectives of the prior to the execution of the transactions, depending EPA are to alleviate poverty in CARIFORUM, upon the amount of land in question. to promote regional integration and economic cooperation and to foster the gradual integration of the CARIFORUM states into the world B. Ease of Doing Business economy by improving their trade capacity and Capital Markets and Portfolio Investment creating an investment-conducive environment. St. Lucia’s monetary and exchange rate policies The agreement promotes trade related are determined by the Eastern Caribbean Central developments in areas such as competition, Bank (ECCB). The ECCB regulates domestic 172 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora banks. Exchange controls restrictions on capital Caribbean Supreme Court, an itinerant court that and nontrade current transactions have been hears appeals from all Eastern Caribbean States. suspended under the Exchange Control Act. As a The Eastern Caribbean Supreme Court sits in the member of the OECS, St. Lucia is a member of St. Lucian capital of Castries. Final appeal is to the the ECSE and the Regional Government Securities Judicial Committee of the Privy Council. All laws Market. The ECSE is a regional securities market must conform to the provisions of the Constitution established by the ECCB and licensed under the and are void to the extent of any inconsistency. The Securities Act of 2001, a uniform regional body of Caribbean Court of Justice is the regional judicial legislation governing securities market activities tribunal, established in 2001 by the Agreement to facilitate the buying and selling of financial Establishing the Caribbean Court of Justice. The products for the eight member territories. St. Lucia CCJ has original jurisdiction to interpret and apply is a member of this stock exchange, and it is open the Revised Treaty of Chaguaramas. St. Lucia is to portfolio investment. According to the most subject to the original jurisdiction of the court. recent data available from the government, assets of commercial banks totaled US$2.15 billion in St. Lucia is signatory to a number of agreements November 2012 and remained relatively consistent that endorse the authority of international throughout the year. The reserve requirement arbitration procedures. A party to the WTO, St. for commercial banks was 6 percent of deposit Lucia is subject to the WTO Dispute Settlement liabilities Panel and Appellate Body, which resolve disputes over WTO agreements. St. Lucia is a member of the Competition from State-Owned Enterprises International Center for Settlements of Investment Statutory corporations or state-owned enterprises Disputes. St. Lucia is also a member of the World in St. Lucia are not a threat to investors, because Intellectual Property Organization. Article 45 of they are not designed for competition. State- the Protocol Amending the Treaty that established owned enterprises include the National Insurance CARICOM commits all 15 members to implement Corporation and the Water and Sewage Company stronger intellectual property protection and Inc. They support government programs such as the enforcement. national pension plan and the management of pipe- borne water, sewage, and solid waste management Corruption services. Although corruption related to foreign business and investment is not generally believed to be a Dispute Settlement major problem in St. Lucia, some widely publicized St. Lucia’s legal system is based on British common allegations have been made against government law, and the judiciary is independent and trials are officials. St. Lucia has laws, regulations, and generally fair, as well as more efficient than is penalties to combat corruption. However, although the case in larger neighbors such as Jamaica. The the law provides criminal penalties for official judicial system consists of lower courts, called corruption, enforcement is not always effective. Magistrates’ Courts, as well as a Family Court. Government agencies involved in enforcement of The Eastern Caribbean Supreme Court (St. Lucia) anticorruption laws include the Royal St. Lucia Act establishes the Supreme Court of Judicature, Police Force, the Director of Public Prosecutions, which consists of the High Court and the Eastern and the Financial Intelligence Unit. The country is Caribbean Court of Appeal. The High Court hears a party to the Inter-American Convention against criminal and civil matters and makes determinations Corruption and acceded to the United Nations on the interpretation of the constitution. Appeals Convention against Corruption on November 18, are made in the first instance to the Eastern 2011. Annex VII. Legal and Regulatory Drivers and Impediments 173 Labor St. Lucia guarantees the free transfers of profits and Minimum wage regulations in effect since 1985 repatriation of capital. set wages for a limited number of occupations. The minimum monthly wage for office clerks was EC$300 ($111), for shop assistants EC$200 Investing in Trinidad and Tobago— (US$74), and for messengers EC$160 (US$59). A Executive Summary new labor code went into effect on August 1, 2012. Ease of Entering, Doing Business, and Exiting St. Lucia has a labor force of about 90,600 persons, with a literacy rate of 94.8 percent. The country’s technical and training needs are met largely by the A. Incentives and Restrictions on local state college, which offers courses in skilled Nonresident Investment and Ownership labor, including plumbing, electrical engineering, air Trinidad and Tobago has a favorable and open conditioning and refrigeration, masonry, carpentry, investment climate, and most investment barriers mechanical engineering, motor mechanics, typing, have been eliminated in recent years. With the and basic hotel skills. There is also a pool of government looking to encourage diversification professionals to draw from, in fields such as law, away from dependence on the oil and gas sector, medicine, business information technology, and new focus has been given to attracting investment accounting. Many of the professionals in St. Lucia toward tourism, information and communications trained in the Caribbean, Canada, the United technology, creative industries, maritime industries, Kingdom, and the United States, where many of manufacturing, and agriculture. Generally, no them gained work experience before returning to restrictions or disincentives are put on investment. St. Lucia. Investors in St. Lucia are responsible Foreign ownership of companies is permitted for maintaining workers’ rights and safeguarding and welcomed under the Foreign Investment Act, the environment. The Labor Commissioner settles which specifies that an investment proposal can disputes over safety conditions. Workers have the be denied only if it is illegal, contrary to public right to report unsafe work environments without morals, or environmentally unsound. Foreign jeopardy to continued employment; inspectors then equity participation in local companies is limited investigate such claims, and workers may leave to the extent that a foreign investor is permitted to such locations without jeopardy to their continued own 100 percent of the share capital in a private employment company, but a license is required to own more than 30 percent of the share capital of a public C. Ease of Exit and Repatriating company. The Foreign Investment Act also limits foreign ownership of land to one acre for residential St. Lucia has some of the most liberal and unimposing purposes and five acres for trade purposes without policies toward foreign investors looking to exit the a license. In the past, the government has freely market and repatriate funds. Companies registered granted waivers on corporate equity and land in St. Lucia have the right to repatriate all capital, ownership restrictions. royalties, dividends, and profits free of all taxes or any other charges on foreign exchange transactions. A major part of Trinidad and Tobago’s openness to There are no exchange controls in St. Lucia, and the foreign investors is tied to recent privatizations and invoicing of foreign trade transactions may be made efforts by the government to provide a favorable in any currency. Importers are not required to make environment for private enterprise. The nation prior deposits in local funds, and export proceeds is increasing the number of PPPs as a model for do not have to be surrendered to government privatizing key sectors, aiming to ensure control authorities or to authorized banks. There are no while opening economic growth opportunities. The controls on transfers of funds. The government of 174 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora government has encouraged foreign investment in free, and tax-free environment. Currently several state enterprises; in nearly every case, foreign 15 approved enterprises are located in eight investors have purchased large minority holdings Free Zones. The majority are located within a in privatized firms. Generally, the government will multiple-user site in D’Abadie, Trinidad, but involve itself in foreign investments only when any suitable area in Trinidad and Tobago can the investor is seeking government incentives or be designated as a Free Zone by the Minister of concessions, the investor wishes to lease land in Trade and Industry. one of the government-owned industrial parks, or a planned activity requires a license, such as mining • Free Zone enterprises are exempt from or drilling. Based on the Companies Act, private customs duties on capital goods, parts, and foreign and domestic entities have the right to raw materials for use in the construction and establish and own business enterprises and engage equipping of premises and in connection in remunerative activity. Under the Companies with the approved activity; import and export Ordinance and the Foreign Investment Act, a licensing requirements; land and building foreign investor may purchase shares in a local taxes; work permit fees; foreign currency and corporation, incorporate or set up a branch office property ownership restrictions; capital gains in Trinidad and Tobago, or form a joint venture or and taxes; withholding taxes on distribution of partnership with a local entity. Businesses may be profits and corporation taxes or levies on sales freely purchased or disposed of. Private enterprises or profits; VAT on goods supplied to a Free and public enterprises are treated equally with Zone; and duty on vehicles for use only within respect to access to markets, credit, and other the Free Zone. business operations. • Application to carry out an approved activity The nation’s legal, regulatory, and accounting in an existing free zone area is required. If systems are consistent with international norms. a given project requires designation of a Proposed laws and regulations are published in new free zone area, a separate application is draft form for public comment, and the government made to the TTFZ. Activities that qualify for solicits private sector and business community approval include manufacturing for export, comments on proposed legislation. Trinidad and international trading in products, services for Tobago has bilateral investment agreements with export, and development and management of the Canada, the United Kingdom, and the United free zones. Activities that may be carried on States. There is no bilateral taxation treaty between in a Free Zone but do not qualify as approved Trinidad and Tobago and the United States. All of activities include exploration and production the country’s laws and regulations abide by the activities involving petroleum, natural gas, or WTO’s Trade-Related Investment Measures. The petrochemicals. Companies Ordinance and the Foreign Investment Act, in general, govern foreign investments. • Certificate of Environmental Clearance In addition, the Free Zones Act and rules for rules: adopted in 2001, they have helped clear environmental clearance are relevant to foreign up uncertainty over environmental impact investors: assessments by placing the environmental approval authority for most projects under the • The Free Zones Act of 1988: established the jurisdiction of the Environmental Management Trinidad and Tobago Free Zones Company Authority. The Authority has legal recourse (TTFZ) to promote export development and against persons or companies it believes are in encourage both foreign and local investment violation of environmental requirements. projects in a relatively bureaucracy-free, duty- Annex VII. Legal and Regulatory Drivers and Impediments 175 Despite some unnecessary complexities involving on the local stock exchange. The government has land ownership, policies in Trinidad and Tobago established a Securities and Exchange Commission are favorable for property rights from a foreign for the purpose of supervising and regulating investor’s perspective. Property rights are protected the securities market and market actors. Foreign under the constitution and common-law practice. investors must obtain a license from the Ministry of Secured interests in property are recognized and Finance before they can legally acquire more than enforced; however, Trinidad and Tobago has a dual 30 percent of a publicly held company. Below are system of land titles, the old Common Law title brief explanations of the pieces of legislation most system, and the registered land title system governed relevant to the country’s capital markets: by the Real Property Act of 1946. Approximately 75 to 80 percent of land in Trinidad and Tobago • The Securities Act (amended in 2011): seeks remains under the more complicated Common Law to provide protection to investors from unfair, System, which is not a reliable system for recording improper, or fraudulent practices, to foster secured interests. The country ranks 178 out of 189 fair and efficient capital markets, to engender countries in the World Bank’s rankings for ease of confidence in the capital markets in Trinidad and registering property. It is engaged and supportive Tobago, to reduce systemic risk, and to cooperate of intellectual property rights issues internationally with other jurisdictions in the development of and is a member of the World Intellectual Property fair and efficient capital markets. Organization and a signatory to several international agreements on intellectual property rights. Trinidad • The Financial Institutions Act (2008): and Tobago drafted its IPR laws in consideration modernizes regulation of banks, insurance of the standards of TRIPS and is TRIPS Plus companies, and other financial institutions, and compliant. The nation has specific legislation that provides penalties up to US$800,000 and five protects trademarks, patents, industrial designs, years in jail for operating without a license from trade secrets and unfair competition, geographical the Central Bank. Directors and officers of a indications, layout designs of integrated circuits, company violating the Act can be held liable. plant varieties, and copyrights. No expropriation actions have been taken since the 1980s. • The Fair Trading Act of 2006: adopted antitrust legislation that regulates mergers, anti- competitive agreements, and monopolies and B. Ease of Doing Business provides for the establishment of a Fair Trade Capital Markets and Portfolio Investment Commission. Under the Act, merging enterprises The government of Trinidad and Tobago welcomes are required to apply to the Commission for foreign portfolio investment and has an established permission to merge if their assets exceed TT$50 regulatory framework to encourage investment in million (approximately US$8 million). The Act the country’s well-developed capital markets. A full requires the Commission to make a determination range of credit instruments is available to the private within one month. sector, including a small but well-developed stock market. No restrictions are placed on borrowing Trinidad and Tobago established the Heritage and by foreign investors. There are no restrictions on a Stabilization Fund in 2007 as the country’s sole foreigner’s ability to establish a bank account. The sovereign wealth fund. Its stated purpose is to save legal, regulatory, and accounting systems governing and invest surplus petroleum revenues (in excess of credit markets are, on the whole, effective and 10 percent of estimated revenues) to sustain public transparent. The country’s stock exchange operates expenditure capacity during periods of revenue a takeover and merger code for companies listed downturn. The Fund’s day-to-day operations are managed by the Central Bank and governed by a 176 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora five-member board. The 2007 legislation mandates nation’s Court of Appeal. The United Kingdom that the Fund be maintained in U.S. dollars and Privy Council Judicial Committee remains the final prohibits domestic investment or petroleum-related court of appeal for Trinidad and Tobago. Criminal investments. acts are first heard by the Magistrates’ Court and may also be appealed as high as the Privy Council. Competition from State-Owned Enterprises State-owned enterprises (SOEs) are active in most Trinidad and Tobago is signatory to major sectors and industries in Trinidad and Tobago. The international arbitration agreements, which make Investments Division of the Ministry of Finance it a less risky environment for foreign investors. is responsible for conducting management and It is a member of the International Center for performance audits of SOEs, which includes 42 the Settlement of Investment Disputes, which wholly owned companies, five majority-owned facilitates conciliation and arbitration of investment companies, five minority-owned (i.e., less than 50 disputes between contracting states and nationals percent holdings), and 32 companies held indirectly of contracting states. The nation has also ratified as subsidiaries of wholly owned companies. The the New York Convention on the Recognition Investments Division also has the responsibility to and Enforcement of Foreign Arbitral Awards, appoint directors to the Board of Directors for SOEs. which facilitates the registration and enforcement The division submits the annual audited accounts of foreign arbitral awards between contracting of SOEs to the Public Accounts Committee, and states. A Mediation Board was created in 2004 the audited annual reports are available to the with responsibility for certifying mediators and public. SOEs are required to disclose the financial accrediting training programs. In 2010, through interests and decision-making processes of their a joint initiative with the Judiciary, the Dispute executives. SOEs are often informally or explicitly Resolution Centre became an innovator of Court- obligated to consult with government officials Annexed Mediation. The Dispute Resolution before making major business decisions, and Centre administers disputes with claims ranging they frequently undertake commercial activities from several thousand to many millions of dollars. as well as their public function mandates. Some prominent SOEs include the Urban Development Corruption Company of Trinidad and Tobago and the National Trinidad and Tobago is party to most major Infrastructure Development Company, both of international anticorruption agreements and which are responsible for large-scale construction initiatives and does not face any major corruption projects. In the energy sector, the nation has three issues. It has signed and ratified the UN fully state-owned companies: the Petroleum Anticorruption Convention and the Inter-American Company of Trinidad and Tobago, the National Gas Convention Against Corruption. In 2000 the Company, and the National Petroleum Marketing government established an Integrity Commission Company; it also holds an interest in several joint to make new provisions for the prevention of ventures. Nevertheless, foreign companies continue corruption of persons in public life by providing to dominate natural gas exploration and production. for public disclosure of assets and to promote the integrity of public officials and institutions. The Dispute Settlement nation has well-established procurement processes, Trinidad and Tobago has an independent judicial and many foreign companies have secured system that is competent, procedurally reliable, and government service contracts in recent years. That substantively fair. Civil cases are heard through the said, Trinidad and Tobago is not party to the WTO High Court of Justice, which can grant equitable Government Procurement Agreement or the OECD relief, such as acclamation injunctions and public Convention on Combating Bribery. law remedies. Decisions may be appealed to the Annex VII. Legal and Regulatory Drivers and Impediments 177 Labor on investment may be freely transacted without The nation’s labor laws, governed by the Industrial limits. No requirement applies to withholding on Relations Act, are generally friendly to organized interest paid to resident individuals with respect to labor. The IRA provides for dispute resolution loans secured by bonds or other similar investment through an industrial court in instances where the instruments. When the individual is a nonresident, issue cannot be resolved at the collective bargaining the withholding tax is 20 percent, except in cases table or through conciliation efforts by the Ministry where treaty relief is available. Where the remittance of Labor. The law provides for the right of most is in the form of dividends paid to a U.S. individual, workers, including those in state-owned enterprises, the tax rate is 15 percent of the gross dividend. In to form and join independent unions of their the case of a U.S. company owning more than 10 choosing without prior authorization. Local labor percent of the voting control of a local company, laws generally protect foreign laborers. The law sets the rate is 10 percent of the gross dividend. For occupational health and safety standards, which the dividends paid to a U.S. company with less than 10 Occupational Safety and Health Agency enforced. percent ownership, the tax rate is 15 percent. In the The government’s occupational health and safety case of a U.S. resident company having a branch or regulations apply to all workers, regardless of permanent establishment in the country, the rate of citizenship. Local labor laws generally protected branch profit tax is 10 percent, levied on after-tax foreign laborers brought into the country, a profits, minus any reinvestment of such profits. stipulation usually contained in their labor contract. No formal restrictions are placed on the numbers and/or duration of employment of foreign managers brought in to supervise foreign investment projects, an issue that is specifically addressed in the Bilateral Investment Treaty between the United States and Trinidad and Tobago. Several foreign firms have alleged, however, that there are inconsistencies in the issuance of long-term work permits. These generally fall into two categories: (1) a permit is not granted to an official of a company that is competing with a local firm or (2) the authorities threaten not to renew a permit because a foreign firm has not done enough to train and promote a national into the position. Some executives of smaller companies have found that their work permits are approved only if they form joint ventures with local firms or set up formal training programs. C. Ease of Exit and Repatriating Trinidad and Tobago is relatively liberal when it comes to foreign investors exiting markets and repatriating capital, though there are a number of specific regulations regarding U.S. companies. There are no exchange controls on foreign currency and securities. The repatriation of capital, dividends, interest and other distributions, and gains Annex VIII. Typology of Diaspora Initiatives Investment Initiatives enabling them to raise investments from both Indian and U.S. investors. Investors can expect annual The Indian Diaspora Investment Initiative interest payments, and can select investment tenors (IDII) (2014 to Present) from one, three, five, seven, and even 10 years. Investors can purchase the note either through Sponsor/Implementer: United States Agency for their investment adviser or through the Calvert International Development; Calvert Foundation Foundation’s online platform vested.org, where one can invest in a note for as little as US$20. Target Diaspora: Indian-Americans Results: The notes program was launched in 2015. Objectives: Channel Diaspora investments in a focused and sustainable way that addresses the SME financing gap in India, capitalizing on a moment Homestrings (2011 to Present) of efflorescence in bilateral relations between the Sponsor/implementer: Homestrings; Gravitas United States and India. Enable Indian-Americans Capital Advisors to help support financing for enterprises in India in sectors like education, financial inclusion, Target Diaspora: Global Diaspora communities agriculture, health care, water and sanitation, renewable energy, and energy efficiency. Objectives: Provides a platform for a repository of impact-driven investment bond and fund Policy framework/methodology: U.S.-based retail offerings from governments, banks, corporates, investors can purchase Community Investment project sponsors, and SMEs, targeted at qualified Notes offered by the Calvert Foundation. In turn, (e.g. “accredited” or “sophisticated”) individual USAID has pledged to provide US$50 million for Diaspora investors. a Development Credit Guarantee to support Indian financial institutions lending to social enterprises, 180 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Policy framework/methodology: Homestrings lists provided no patriotic discount on Resurgent India projects from across the globe. Diaspora investors Bonds and only a small one on IMDs; when RIBs contribute via PayPal or wire/bank transfer and— were sold in August 1998 to yield 7.75 percent on depending on the investment type and terms— U.S. dollar-denominated bonds, the yield on BB- are charged 1 percent annual management fee on rated U.S. corporate bonds was 7.2 percent. There invested capital and 1 percent annually thereafter was thus no discount on the RIBs. As for the IMDs, on capital balance outstanding, and a 10 percent the coupon was 8.5 percent, while the yield on the annual performance fee on their individual annual comparably rated U.S. corporate bonds was 8.9 yield for the duration of the particular investment. percent for a 40 basis points discount. The platform has listed a Caribbean-based offering, the Fortress Caribbean Growth Fund, administered Results: Diaspora bonds issued by the government- by Fortress Funds of Barbados. owned State Bank of India have raised more than US$11 billion to date: IDBs US$1.6 billion; RIBs Results: Under the leadership of Desmond Brunton, US$4.2 billion; IMDs U$5.5 billion. Homestrings has facilitated Diaspora investment in Caribbean projects requiring a minimum of US$5 million in fundraising, ranging from SMEs State of Israel Bonds (1951 to Present) and commercial real estate to commercial banks Sponsor/implementer: Development Corporation and exclusive mutual funds. In the Caribbean, the of Israel (DCI); the government of Israel platform has listed the Fortress Caribbean Growth Fund, administered by Fortress Funds of Barbados. Target Diaspora: Jewish-Americans; Jewish- Canadians India Development Bonds (1991); Objectives: Develop a stable source of overseas Resurgent India Bonds (RIBs) (1998); borrowing and a mechanism for maintaining ties India Millennium Deposits (2009) with the Jewish Diaspora. Harness the capital Sponsor/implementer: State Bank of India capacities of the Jewish Diaspora to contribute toward infrastructure development in Israel. Target Diaspora(s): Indian-Americans; Indian- Europeans Policy framework/methodology: Offering both fixed-rate and floating rate bonds since 1980s. Objectives: IDBs were used to provide a vehicle for Investors have options, such as multiple maturities the Diaspora to return funds to India following its and minimum subscriptions. They sell for between balance of payments crisis in 1991. At other times, US$100 and US$100,000. The Ministry of bonds were issued for the Diaspora because of Finance defines DCI’s annual borrowing policy in limited access to international capital markets. accordance with foreign exchange requirements. The ministry periodically sets interest rates and Policy framework/methodology: All three bond other parameters on DCI bonds to meet the annual offerings provided a higher return for retail investors borrowing target. But the government doesn’t than similar financial instruments in their countries seek credit ratings from agencies such as S&P of residence. They were provided at a fixed rate and and Moody’s. The bonds are sold directly by DCI five-year maturity in U.S. dollars, British pound, with Bank of New York acting as the fiscal agent. and the Euro. The State Bank of India distributed Currently, about 200 DCI employees work in the the bonds in conjunction with international banks United States who maintain close contacts with and bypassed SEC registration. The Indian Diaspora Jewish Diaspora. They host investor events with the express purpose of selling bonds. Annex VIII. Typology of Diaspora Initiatives 181 Results: With capital inflow generated through Skills and Tech Transfer Initiatives the issuance of these bonds, the government has spent more than US$26 billion for transportation, Migration for Development in Africa energy, telecommunications, water resources, and (MIDA) (Cape Verde, Guinea) (2008– other essential infrastructure projects. Nearly all the 2010) bonds have been redeemed at maturity, and about US$200 million were unclaimed as of 2005. That Sponsor/implementer: International Organization same year, the bond made up roughly 32 percent of for Migration; European Commission; the the government’s external debt (US$31.4 billion). Portuguese government; the Instituto das Communidades de Cabo Verde Israeli Ministry of Immigration Target Diaspora: Cape Verdeans in Portugal, the Absorption (Unknown to Present) Netherlands, and Italy; Guineans in West Africa Sponsor/implementer: Ministry of Immigration Absorption; Ministry of Trade, Industry and Labor; Objectives: Diaspora for Development of Cape the government of Israel Verde (DIAS DE Cabo Verde)—Encouraged and enabled Cape Verdeans residing in Portugal, Italy and Target Diaspora: Returning citizens as well as the Netherlands to help develop key sectors of the immigrants (most of whom are seen as members Cape Verdean economy and improve its all-around of the Jewish Diaspora) and, under some investment climate through knowledge transfer, circumstances, children of immigrants, are eligible. capacity building and entrepreneurship. MIDA Women Guinea Project—Encouraged the creation of Objectives: Assist former residents of Israel who microenterprises among poor rural women in Guinea wish to start a business in Israel or transfer one to by tapping into the professional Guinean Diaspora the country. residing in West African countries such as Senegal. Policy framework/methodology: The Ministry’s Policy framework/methodology: DIAS DE Cabo Business Entrepreneurship Department provides Verde—Promoted participation of Cape Verdean public training and guidance for entrepreneurs, as well agencies in business creation and investment promotion as feasibility checks, tax counseling, and financial through consultations with the Diaspora. Cape Verdean assistance for business investments through its 12 Diaspora professionals executed 29 training missions. business counseling centers. Two types of loans are Diaspora entrepreneurs also carried out nine network available for opening businesses: the State-Guaranteed missions to explore investment opportunities in Cape Small Business Assistance Fund and the Fund for the Verde. MIDA Women Guinea Project— Provided an Self-Employed Immigrant. One can only apply to the eight-day training course in creating and managing a Fund for the Self-Employed Immigrant once. The microenterprise for 60 Guinean women. In partnership maximum loan is NIS 100,000, and the minimum with RCG, small lines of credit (300,000–650,000 GF) equity capital is 25 percent of the loan. There is also a were given under friendly terms to women trained in conditional grant worth 17.5 percent of the total sum the program. IOM covered all expenses related to the of the loan and no more than NIS 5,000 (with standing grants; three Guinean Diaspora members and RCG loan becomes a grant after three years). There is a 2 staff provided support and advice. percent index-linked loan or 4 percent dollar-linked loan. The payment period is six years. 182 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Results: Thirty-three Cape Verdeans living in Policy framework/methodology: Network of 400 the Netherlands, Portugal, and Italy and their registered HNWs and other influential members business partners were counseled on investment of the Chilean Diaspora help design and finance opportunities in strategic sectors, creating SMEs business projects that introduce innovation to the and business management under the support of production and services sectors, boost human capital the Agency for Entrepreneurial Development and to augment productivity, and promote technology Innovation (Agência para o Desenvolvimento and knowledge transfers to and from Chile under Empresarial e Inovação). the oversight of the public-private Fundacion Imagen de Chile. Daily operations run by a Technical Secretariat, which focuses on facilitating ChileGlobal—The Talent Network for connections between its Diaspora networks and Innovation (2005 to Present) academic, private and public sector figures in Chile. Sponsor/implementer: Fundacion Chile; Fundacion Partnering with ProChile and CORFO to identify Imagen de Chile; ProChile; Chilean Economic potential members of the Diaspora for the network. Development Agency (CORFO) These partners also help support member activities, seminars and workshops. Target Diaspora: Chileans in the Argentina, Australia, Brazil, China, Mexico, Spain, Sweden, Results: Helped create 76 companies with more the United Kingdom, and the United States than 50 domestic and international partners with ChileGlobal holding shares in 23 of the companies Objectives: Develop strategic innovation sectors in Chile by building links with the Chilean Diaspora. Utilize transfer of knowledge, skills, contacts, and technology to cultivate high human capital and business creation in Chile. Annex IX. Interviews Conducted Pre-Mission Interviews and Meetings Mr. Aaron Arnoldy, Founder, Encite Social Impact Fund for the Caribbean Mr. Jeremy Bauman, Access to Finance Consultant, infoDev Mr. Sujoy Bose, former head of IFC AMC ALAC Fund Mr. Matt Bull, Senior Infrastructure Specialist, PPIAF, World Bank Ms. Caron Chung, Executive Director, American Friends of Jamaica Organization Mr. Doug Hewson, Partner, Portland Private Equity Ms. Retu Jalhan, Nexxus Impact Investment Conference Mr. Ralph Keitel, former lead for LAC region, IFC PE Fund of Funds Ms. Helen Mary Martin, Senior PPP Specialist, Global Infrastructure Facility Mr. Ben Moody, CEO, Pan American Finance Ms. Catilin Murphy, Head of Communications, Latin American Venture Capital Assoc. Ms. Abigail Noble, Associate Director, Head of Impact Investing Initiatives, World Economic Forum Ms. Michelle Ottey, IFC’s Advisory Services in Public Private Partnerships Mr. Fabio Pittaluga, Senior Social Development Specialist, World Bank Mr. Aun Ali Rahman, InfoDev Mr. Samuel Raymond, InfoDev Mr. Julian Robinson, Minister of State, Ministry of Science, Technology, Energy and Mining Mr. Eduardo Roman, Head of Research, Latin American Venture Capital Assoc. Mr. Oliver Sagba, Sagba Consulting Mr. Brian Samuel, Administrator, IFC PPP Initiative Ms. Sona Varma, Senior Country Economist, Jamaica, World Bank Mr. Jun Zhang, IFC Senior Manager for the Caribbean 184 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Jamaica Mission: April 20–23, 2015 Ms. Tanya Bedward, Ministry of Transport, Works and Housing Min. Arnaldo Brown, Diaspora Counselor Affairs Department, Ministry of Foreign Affairs and Trade Mr. Richard Byles, President and CEO Sagicor Investments Ja. Ltd. Ms. Stacey Clarke Callum, The Planning Institute of Jamaica Ms. Courtney Campbell, President and Chief Executive Officer, First Global Bank and GKFG Mr. Dennis Chung, CEO, Private Sector Organizations of Jamaica Ms. Yvonne Clarke, Interim Managing Director, Ministry of Education’s National Education Trust Mr. Dennis Cohen, Deputy Managing Director, National Commercial Bank Jamaica Ltd. Dr. Minto Coy, Mona School of Business and Management (UWI) Mr. Claude Duncan, Vice President, Jamaica Promotions Corporation Limited Mr. Trevor Fearon, CEO, Jamaica Chamber of Commerce Ms. Toni-Shae Freckleton, The Planning Institute of Jamaica Mr. Ivan Gonzalez, Consultant, Youth Employment in Digital and Animation Industries Project Mr. Rajeev Gopal, Resident Representative, International Finance Corporation Mr. Noel Greenland, Senior Vice President, GraceKennedy Remittance Services Mr. Earl Jarret, General Manager Jamaica National Business Society Ms. Mariam McIntosh Robinson, Portland Private Equity Mr. Frank James, Group Chief Financial Officer, GraceKennedy Limited Mr. Julian Mair, Group Chief Investment Strategist, Jamaica Money Market Brokers Mr. Joseph Matalon, Director, PSOJ; Chairman, DBJ Mr. Milverton Reynolds, Managing Director, Development Bank of Jamaica Ms. Audrey Richards, Project Consultant, Jamaica Venture Capital Programme Mr. Devon Rowe, Financial Secretary, Ministry of Finance and Planning Ambassador Sharon Saunders, Diaspora Counselor Affairs Department, MoFAFT Ms. Marlene J. Street Forrest, General Manager, Jamaica Stock Exchange Professor Densil Williams, Mona School of Business and Management (UWI) Mr. Easton Williams, The Planning Institute of Jamaica Steven Whittingham, Managing Director, GK Capital Management Limited Professor Neville Ying, Jamaica Diaspora Institute; Executive Director of the Mona School of Business Trinidad and Tobago Mission: April 24–28, 2015 Mr. Euric Bobb, Chariman, Commercial Bank in Belize Mr. Shyamal Chandradathsingh, Vice President, Investor Sourcing, InvesTT Mr. John P. Clarke, Investment Manager, Republic Bank Ltd. Mr. Glenn Hamel-Smith, Hamel-Smith and Co Mr. Gregory Hill, CEO, ANSA Merchant Bank; Head, Securities Dealers Association Mr. Joel Jack, Tobago House of Assembly Mr. Sekou Mark, Vice President, T&T Unit Trust Ms. Racquel Moses, President, InvesTT Mr. Osborne Nurse, Private Consultant; former head of SEC Annex IX. Interviews Conducted 185 Ms. Michelle Ottey, Investment Officer, PPP Infrastructure, IFC Mr. Rikhi Permanand, Chairman, Economic Development Board Mr. Ram Ramesh, Private Consultant Ms. Michele Reis, Researcher and consultant on migration and Diaspora issues Ms. Michelle Rolingson-Pierre, Vice President Financial and Capital Markets Development Mr. Oilver Sabga, Sabga Consulting; My Term Finance Mr. George Sheppard, CEO, Sheppard Securities Ltd Mr. Darryl White, Managing Director, RBC Bank; Chairman, Bankers Association Governor Ewart Williams, former governor of the TT Central Bank. PPP team, Debt Management Unit, Economic Management Division of the Ministry of Finance and the Economy Barbados Mission: April 29–30, 2015 Ms. Jannette Babb, Invest Barbados Mr. Peter Blackman, Caribbean Development Bank Dr. Keith Nurse, Executive Director, UWI Consulting Inc. Ms. Sandra Payne, Invest Barbados Mr. Kip Thompson, Managing Partner, AIC Caribbean Fund Dr. DeLisle Worrell, Governor, Central Bank Mr. Marlon Yarde, CEO and General Manager, Barbados Stock Exchange Inc. St. Lucia Mission: May 4–5, 2015 Mr. McHale Andrew, CEO, Invest St. Lucia Mr. Phillip Cross, Country Head and General Manager, Bank of Nova Scotia Mr. Hubert Emmanuel, Permanent Secretary, Ministry of External Affairs Mr. Francis Fontenelle, Director of Finance, Ministry of Finance Mr. Philbert Francis, Manager St. Lucia Development Bank Ambassador June Sommer, Ambassador to the Diaspora, Office of the Prime Minister Mr. J. Calixte Leon, Executive Director, Financial Services Regulatory Authority London, UK Mission: August 17–18, 2015 Ms. Penny Carballo-Smith, Adviser, CADSTI-UK; Managing Director, Future Think Mr. Julian Hall, Founder, Ultrakids Club Ltd Ms. Marion Herbert, Acting High Commissioner, Guyana High Commission Ms. Catherine Hickery, Associate Director Programmes and Research, The Caribbean Council H.E. Kevin Isaac, The High Commission of St. Kitts and Nevis Mr. George Ruddock, Managing Director, GV Media Group LTD/The Voice Newspaper Mr. Samuel Sandy, Consular Officer, High Commission for Grenada Ms. Paulette Simpson, Senior Manager, Corporate Affairs and Public Policy, Jamaica National UK Office 186 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Toronto, Canada Mission: August 19–20, 2015 Mr. Len Carby, Paul A Barnett and Associates Inc. Ms. Karen Cunningham, Cunningham Law Professional Corporation Ms. Kamala Jean Gopice, Jamaican Canadian Assoc. Mr. Norman Nelson, President, Hummingbird Financial Corp. Ms. Paulette Senior, YWCA Canada Councilor Michael Thompson, City Councillor, City Council of Toronto Mr. Anthony Warner, Consulting Engineer, Virtual Engineers Annex X. References Azimi, Kaveh, and Claire-Cecile Pierre. May Caribbean Economics Team, Inter-American 2013. Where, How, and for Whom? Focusing Development Bank. Jan. 2014. Caribbean Region Managerial and Financial Capital Support for Quarterly Bulletin. Volume 3, Issue 1. Washington, SMEs. Cambridge, MA. DC: World Bank. Barbados Stock Exchange. July 2015. About the Clarke, Kimg, and David Popo. May 2014. Social Market: Registered Brokers. http://www.bse.com. Development and Protection in the OECS Member bb/about-market/registered-brokers. Bridgetown, States. Castries, St. Lucia: Organization of Eastern Barbados. Caribbean States Commission. Barnett, Chance. Sept. 2013. “Donation- Cubas, Diana, Cecilia, Briceno-Garmendia, Based Crowdfunding Sites: Kickstarter vs. and Heinrich Bofinger. Jan. 2015. OECS Ports: Indiegogo.” http://www.forbes.com/sites/ An Efficiency and Performance Assessment. chancebarnett/2013/09/09/donation-based- Washington, DC: World Bank Group, Transport crowdfunding-sites-kickstarter-vs-indiegogo/. and ICT Global Practice Group. Jersey City, NJ. Della Croce, R. 2012. Trends in Large Pension Campollo Consulting LLC, and Wall’s Street Fund Investment in Infrastructure. OECD Working Advisor Services LLC. April 2012. How Latin Papers on Finance, Insurance and Private Pensions. America Pension Funds Invest Their Assets. New Paris, France: OECD. York. Emerging Markets Private Equity Association. Caribbean360. Oct. 2012. Fall-off in Overseas May 2014. Private Credit Solutions: Mezzanine Remittances to Suriname. St. Michael, Barbados. Financing in Emerging Markets. Washington, DC: Emerging Markets Private Equity Association. 188 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Freitas, Patricia, Eduardo Lopes, and Eduardo International Monetary Fund. June 2014. Sette. Sept. 2013. Market Report: Creating a Jamaica: 2014 Article IV Consultation and Venture Capital Ecosystem in Jamaica—Strategic Fourth Review under the Extended Arrangement and Implementation Plan. Kingston, Jamaica: under the Extended Fund Facility and Request Development Bank of Jamaica. for Modification of Performance Criteria—Staff Report; Press Release; and Statement by the Freitas, Patricia, and Eduardo Sette. May 2013. Executive Director for Jamaica. Washington, DC: Market Report: The Venture Capital Industry International Monetary Fund. in Jamaica—Practical Assessment. Kingston, Jamaica: Development Bank of Jamaica. International Monetary Fund. Sept. 2014. Trinidad and Tobago: 2014 Article IV Consultation— Gamser, Matt. Oct. 2014. Closing the SME Finance Staff Report; Press Release; and Statement by Gap. Washington, DC: SME Finance Forum. the Executive Director for Trinidad and Tobago. Washington, DC: International Monetary Fund. Government of St. Lucia. 2015. Diaspora Policy. Castries, St. Lucia: Government of St. Lucia. infoDev, World Bank Group. Dec. 2013. Diaspora Investing: The Business and Investment Interests of Griffith, Ronnie, Trecia Boucher, Patrick McCaskie, the Caribbean Diaspora. Washington, DC: World and Roland Craigwell. 2008. Remittances and Their Bank. Effect on the Level of Investment in Barbados. St. Michael, Barbados: Economic Affairs Division, International Organization for Migration. 2010. A Barbados Ministry of Finance, Economic Affairs Study on Remittances and Investment Opportunities and Energy. for Egyptian Migrants. Cairo, Egypt: International Organization for Migration. Heritage Foundation. Nov. 2014. 2015 Economic Freedom Index. Washington, DC: Heritage International Organization for Migration and Foundation. Migration Policy Institute. 2012. Developing a Road Map for Engaging Diasporas in Development. Holden, Paul, and Hunt Howell. Oct. 2009. Geneva, Switzerland and Washington, DC: Enhancing Access to Finance in the Caribbean. International Organization for Migration and Washington, DC: Inter-American Development Migration Policy Institute. Bank. Jamaican Ministry of Industry, Investment and Hosein, R., M. Franklin, and S. Joseph. 2006. The Commerce. Jan. 2015. Improving Access to Capital Caribbean Diaspora—An Untapped Resource by MSMEs: A Proposal for the Rationalization of for Impacting Economic Development through Financing Programmes and Services to the MSME Investments in the Caribbean. St. Augustine, Sector. Kingston, Jamaica: Jamaican Ministry of Trinidad and Tobago. Industry, Investment and Commerce. Inter-American Development Bank: Compete Jamaican National Building Society. May 2013. Caribbean. Dec.2011. Supply and Demand Side Maximising the Value of the Diaspora to Jamaica’s Assessment of Impact Investment within the Sustainable Development. http://www.jnbs.com/ Caribbean. Washington, DC: Inter-American jamaican-Diaspora-foundation-and-jamaica- Development Bank. Diaspora-institute. Kingston, Jamaica: Jamaican National Building Society. Annex X. References 189 Kerr, William R., and Alexis Brownell. Sept. 2013. Nugent, Stevonne, and Juan Pedro Schmid. Jan. Homestrings, Inc: Diaspora-Based Financing 2014. The Business Climate in Jamaica: What Does and the Crowd Funding of Development. Harvard the Enterprise Survey Have to Say. Washington, Business School. Cambridge, MA. DC: Inter-American Development Bank. Ketkar, Suhas, and Dilip Ratha. May 2007. Ogawa, Sumiko, Joonku Park, Diva Singh, and Nita Development Finance via Diaspora Bonds: Track Thacker. July 2013. Financial Interconnectedness Record and Potential. Washington, DC: World and Financial Sector Reforms in the Caribbean. Bank. Washington, DC: IMF, Western Hemisphere Department. Kickstarter. July 2015. Stats. www.kickstarter.com/ help/stats. New York. Organization of Eastern Caribbean States Secretariat. April 2008. Economic Union Treaty Latin American Private Equity and Venture Capital and ECCU Eight Point Stabilization and Growth Association. 2014. Industry Data and Analysis. Programme—Frequently Asked Questions FAQs. New York: Latin American Private Equity and Castries, St. Lucia: Organization of Eastern Venture Capital Association. Caribbean States Secretariat. Leon, H., and R. Smith. Sept. 2011. “Macroeconomic Organization of Eastern Caribbean States Stability and Growth with Equity.” First Caribbean Commission. 2015. Draft Paper on Advancing Development Round Table. Port of Spain, Trinidad Telecommunications Policy and Regulation in the and Tobago: International Monetary Fund. OECS. Castries, St. Lucia: Organization of Eastern Caribbean States Commission. Lerner, Josh, Ann Leamon, James Tighe, and Susanna Garcia-Robles. Oct. 2014. Adding Value Parra Torrado, Monica. April 2014. Youth through Venture Capital in Latin America and the Unemployment in the Caribbean. Washington, DC: Caribbean. Cambridge, MA: Harvard Business World Bank. School. Plaza, Sonia. Aug. 2011. Ethiopia’s New Diaspora Moody’s Investors Service. July 2006. Analysis: Bond: Will It Be Successful This Time? Washington, Trinidad & Tobago. New York: Moody’s Investors DC: World Bank. Service. Plaza, Sonio, and Dilip Ratha. 2011. Diaspora for Myers, Fletcher & Gordon. Jan. 2015. Second Legal Development in Africa. Washington, DC: World Report On: Legislative and Regulatory Reform of Bank. the Venture Capital Regime in Jamaica. Kingston, Jamaica: Myers, Fletcher & Gordon. Preqin. 2014. 2014 Preqin Global Infrastructure Report. Newland, Kathleen, and Sonia Plaza. 2013. Policy Brief: What We Know about Diasporas PricewaterhouseCoopers. Dec. 2005. World GTL and Economic Development. Washington, DC: Trinidad Limited—Information Memorandum. Migration Policy Institute. New York: PricewaterhouseCoopers. 190 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora Prometheus Energy Partners and Guardian United Nations, Department of Economic and Social Holdings Limited. Aug. 2006. Prometheus Energy Affairs, Population Division. 2013. International Partners Transaction Opportunity Overview— Migration Report 2013. New York: United Nations. Draft. Trinidad and Tobago: Prometheus Energy Partners and Guardian Holdings Limited. United Nations and Economic Commission for Latin America and the Caribbean. 2013. Foreign Public-Private Partnership Advisory Facility, World Direct Investment in Latin America and the Bank Group. March 2014. Caribbean Infrastructure Caribbean, Santiago, Chile: United Nations and PPP Roadmap. Washington, DC: World Bank. Economic Commission for Latin America and the Caribbean. Public-Private Partnership Advisory Facility, World Bank Group. March 2014. Institutional Investment UWI Consulting: The University of the West Indies. in Infrastructure in Emerging Markets and June 2014. Caribbean Diasporic Entrepreneurship Developing Economies. Washington, DC: World Analytical Report. Kingston, Jamaica: University Bank. of the West Indies. Rodriguez-Montemayor, Eduardo. Sept. 2012. Western Hemisphere Department. Feb. 2013. Diaspora Direct investment: Policy Options for Caribbean Small States: Challenges of High Debt Development. Washington, DC: Inter-Development and Low Growth. Washington, DC: International Bank. Monetary Fund. Statistics Canada. 2007. The Caribbean Community World Bank. DataBank. Washington, DC: World in Canada. Ottawa, Ontario: Statistics Canada. Bank. St. Lucian Ministry of Finance, Economic Affairs, World Bank. 2010. High Food Prices: Latin Planning and Social Security. July 2015. Financial American and the Caribbean Responses to A New Services Regulatory Authority [Financial Sector Normal. Washington, DC: World Bank. Supervision Unity]. https://www.finance.gov. lc/departments/view/62. Castries, St. Lucia: St. World Bank. 2010. World Bank Enterprise Survey Lucian Ministry of Finance, Economic Affairs, 2010. Washington, DC: World Bank. Planning and Social Security. World Bank. Jan. 2011. Vulnerability to Food Price Thomas, Kevin J.A. April 2012. A Demographic Increases in LAC, 2011: A Preliminary Assessment. Profile of Black Caribbean Immigrants in the Washington, DC: World Bank. United States. Washington, DC: Migration Policy Institute. World Bank. 2011. World Bank Migration and Remittance Factbook. Washington, DC: World Transparency International. 2014. Global Bank. Corruption Perceptions Index. Berlin, Germany: Transparency International. World Bank. 2012. Bilateral Remittances Matrix 2012. Washington, DC: World Bank. Trinidad and Tobago Stock Exchange Ltd. 2014. 2014 Annual Report: Investing in Human Capital. World Bank. June 2013. Accessing International Port of Spain, Trinidad and Tobago. Climate Change Related Finance in Latin America and the Caribbean. Washington, DC: World Bank. Annex X. References 191 World Bank. 2013. Doing Business 2014: World Bank Group. 2014. OECS and Barbados: Understanding Smarter Regulations for Small and Bi-Annual Economic Update. Washington, DC: Medium-Size Enterprises. Washington, DC: World World Bank. Bank. World Bank, the Government of Canada, and the World Bank. 2014. Ease of Doing Business Study University of the West Indies. 2011. “Enhancing 2014. Washington, DC: World Bank. the Efficiency and Integrity of Remittance Transfers through Effective Regulatory and Supervision World Bank Dominican Republic. 2010. From the Systems in the Caribbean.” Caribbean Remittance International Financial Crisis towards Inclusive Forum. Kingston, Jamaica: World Bank, the Growth in the Dominican Republic. Santo Domingo, Government of Canada, and the University of the Dominican Republic: World Bank. West Indies. World Bank, Financial Sector Assessment Program, World Bank and International Monetary Fund. Nov. Development Module. Sept. 2014. Jamaica MSME 2009. Financial Sector Assessment: Dominican Finance Technical Note. Washington, DC: World Republic. Washington, DC: World Bank and IMF. Bank. World Economic Forum. 2014. Global World Bank, Human Development Sector Competitiveness Report 2014–2015. Geneva: Management Unit. March 2010. Strengthening World Economic Forum. Caribbean Pensions: Improving Equity and Sustainability. Washington, DC: World Bank. Endnotes 1. Doing Business ranking is out of 189 It includes Antigua and Barbuda, Dominica, Economies, Global Competitiveness Index (out Grenada, St. Kitts and Nevis, St. Lucia, and St. of 144)/2015 Economic Freedom Index (out of Vincent and the Grenadines. 178): “The stock of emigrants as percentage of population is defined as the ratio of emigrants 6. World Bank, Youth Unemployment in the of a country to the population.” Caribbean, April 2014. 2. The findings of the online survey were based on 7. In addition to Jamaica, the IMF has guided the responses of 636 respondents affiliated with Antigua and Barbuda, Belize, Grenada, and St. each country in the Caribbean as well as inputs Kitts and Nevis in restructuring public debt. from face-to-face focus groups and individual interviews with more than 200 participants. 8. http://smefinanceforum.org/post/closing-the- sme-finance-gap. 3. Belize, Guyana, Jamaica, Suriname, and Trinidad and Tobago. 9. http://caribbean.eclac.org/content/foreign- direct-investment-latin-america-and- 4. The Bahamas, Barbados, and the Dominican caribbean-2013. Republic. 10. We define the Caribbean Diaspora broadly as 5. The Eastern Caribbean Currency Union is the being the body of emigrants over the last few common-currency framework for the OECS. decades from the Caribbean region as well as The Eastern Caribbean dollar (EC$) is issued by their descendants who continue to nurture a the Eastern Caribbean Central Bank (ECCB), cultural affinity with their “home” region. which is the monetary authority of the OECS. 194 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora 11. Diaspora Investing: The Business and 14. The St. Lucia Diaspora Policy. Investment Interests of the Caribbean Diaspora, infoDev, December 2013. The Caribbean 15. The proposals have reached shortlist stage, and region, in fact, is thought to have one of the at the time of interview were being evaluated. largest net migration rates globally according DBJ, partnering with roughly 10 institutional to Hosein et al., The Caribbean Diaspora—An investors, is currently seeking to play anchor Untapped Resource for Impacting Economic investor for three or four PE funds, with capital Development through Investments in the amounting up to 20 percent of each fund. Caribbean. 16. Figures in this section represent estimates 12. Migrants are persons who move to a country from international sources. It must be noted other than that of their usual residence for a that several of the four countries studied in period of at least one year, so that the country the present document maintain their own of destination effectively becomes their new estimates, which may differ significantly from country of usual residence (UNPD). The external sources. Those estimates are provided World Bank’s 2011 Migration and Remittances in Section VI. Factbook indicates that 10 Caribbean countries were among the top source countries of 17. Includes first-generation immigrants, second- migrants. generation immigrants, and citizens who claim Caribbean heritage. 13. infoDev is a global trust fund program in the Financial and Private Sector Development 18. http://www.statcan.gc.ca/pub/89-621-x/89- Network of the World Bank Group. In 2013 it 621-x2007007-eng.htm. conducted a study to assess the business and investment interests of the Caribbean Diaspora 19. infoDev, 5. as part of the Entrepreneurship Program for Innovation in the Caribbean (EPIC)—funded 20. For reference purposes, approximately 7–8 by the government of Canada—and in line with percent of the total U.S. population classifies as the World Bank’s respective Caribbean Country accredited investors. Partnership Strategies, which emphasize the importance of igniting private-sector led growth. 21. Citizenship by Investment (also known The study includes data gathered from a survey as economic citizenship) is the granting of 636 respondents affiliated with every country of citizenship status to an individual (and in the Caribbean. While respondents came from immediate family members) contingent upon around the world, the Diaspora members were a specified and quantifiable investment in the concentrated in four major cities: London, New country. The normal grounds for the granting York, Miami, and Toronto. The study, and its of citizenship is birth within a certain territory, corresponding survey, sought to answer four descent from a parent who is a citizen, marriage key questions: (1) Who are the members of the to a citizen, and naturalization. Although Caribbean Diaspora? (2) How willing are they residence is granted to investors and wealthy to engage with the Caribbean? (3) What is their individuals in most countries, only a very few financial ability to invest back home? and (4) countries now have laws to grant citizenship by What models could work to increase Diaspora way of investment for economic considerations investment? and without any lengthy residence requirements. Endnotes 195 22. IOM, A Study on Remittances and Investment and 2013); St. Kitts and Nevis (2011); St. Lucia Opportunities for Egyptian Migrants (2010). (209 and 2012); St. Vincent and the Grenadines (2012); and Suriname (2012). 23. http://www.caribbean360.com/business/fall- off-in-overseas-remittances-to-suriname. 29. This entails allocating responsibilities for the various stages of preparation of PPP projects 24. A total of 67 firms participated in the survey among government ministries and agencies. (a 32 percent response rate). The results show This includes project identification and PPP that most of the potential investors in Diasporic screening, appraisal and preparation, contract activity are from Guyana, Haiti, and Jamaica. structuring and drafting, contract tender and Almost half of the respondents’ firms are signature, and contract management. registered in the Caribbean, and most of them are young (less than five years) and micro (1– 30. IADB, Rethinking Reforms (2013). 5) employees. Out of the 66 respondents who provided their country of birth, 43.3 percent 31. OECD, Trends in Large Pension Fund listed Jamaica, and 9 percent listed each of Investment in Infrastructure (2012). Haiti, Trinidad and Tobago, and the United States. Then Canada and the United Kingdom 32. How Latin America Pension Funds Invest Their were listed by 6 percent each. Just 3 percent said Assets (2013). they were born in Barbados, and none listed St. Lucia. About 29 percent of respondents said 33. infoDev. their base of operations was in the Caribbean region exclusively, 31 percent said they were 34. HKS, Where, How, and for Whom? Focusing exclusively based outside the region, and 30 Managerial and Financial Capital Support for percent said they had operations based both SMEs (May 2013). inside and outside the region. 35. As of July 2015 this includes HS Diaspora 25. The operating definition of “qualified Bond—SEAF Macedonia II, Homestrings- investors” used by Homestrings is the same as Ovamba SME Lending Fund (Cameroon), the “accredited investor” definition used by the SEAF Macedonia II Fund, Central Africa SEC. SME Fund, SEAF Caucuses Growth Fund LP, IL&FS Nucleus India Fund LLC, MCAP India 26. Investments by organizations with large cash Fund (MCIF), Fundo Investimento Privado reserves set aside for investment purposes Angola (FIPA), and Tara India Fund IV. (e.g., banks, finance companies, insurance companies, labor union funds, mutual funds, 36. World Bank, Vulnerability to Food Price unit trusts, pension funds). Increases in LAC, 2011: A Preliminary Assessment (Jan. 13, 2011), http://siteresources. 27. Banks that cater to investors based in the United worldbank.org/INTLAC/Resources/LAC_ States, Europe, and other regions. FoodCrisis.pdf. 28. Availability of data varies from country to 37. infoDev. country, year to year: Antigua and Barbuda (2012); Belize (2010); Dominica (2012); the 38. Although the infoDev survey provides many Dominican Republic (2011 and 2013); Grenada insights in an otherwise limited field of research (2009); Guyana (2012); Jamaica (2010, 2012, regarding the Caribbean Diaspora investment 196 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora environment, there is a reoccurring problem 42. Canada does not have a securities regulatory throughout it, to no fault of its architects, which authority at the federal government level, but is the large stratification of question response instead regulates capital markets through laws rates. For example, while 445 out of a possible and agencies established in the country’s 13 647 total participants responded to the question provinces and territories. The 13 regulators “Have you ever invested in a start-up or early work together through the Canadian Securities stage company?” In the same study, 73 percent Administrators to harmonize regulation through of respondents did not state whether they had rules known as “national instruments.” Issuers funded a start-up in the Caribbean, which means can also rely on a “passport” system that allows these data leave some doubt as to the quantum them to deal directly with just one or two of actual activity in these sectors. Additionally, regulators. The majority of provincial securities the vast majority of the total respondents to the commissions operate under the passport system, survey (65 percent) self-identified as members so the processes for registration, prospectus of the Jamaican Diaspora. review, and exempted relief applications are generally harmonized. The federal government 39. More information on the cost can be and the provinces of British Columbia, found in a 2012 report prepared by Ontario, New Brunswick, Saskatchewan, and P r i c e w a t e r h o u s e C o o p e r s , h t t p : / / w w w. Prince Edward Island are currently pursuing a pwc.com/en_us/us/transaction-services/ cooperative capital markets regulatory system. publications/assets/pwc-cost-of-ipo.pdf. 43. This report is prepared off-site, and an estimate 40. An “accredited investor” is defined by the SEC of performing a public offering and maintaining as an individual whose net worth, or joint net the status has not been found. worth with the person’s spouse, exceeds US$1 million at the time of the purchase, or has assets 44. An individual “accredited investor” is an under management of US$1 million or above, individual who, either alone or with a spouse, excluding the value of their primary residence. beneficially owns financial assets having an An individual with income exceeding aggregate realizable value that before taxes, US$200,000 in each of the two most recent but net of any related liabilities, exceeds years or joint income with a spouse exceeding US$1,000,000, or an individual whose net US$300,000 for those years and a reasonable income before taxes exceeded US$200,000 in expectation of the same income level in the each of the two most recent calendar years, or current year. whose net income before taxes combined with that of a spouse exceeded US$300,000 in each 41. PFICs are “pooled investments” registered of the two most recent calendar years and who, outside of the United States. This most typically in either case, reasonably expects to exceed that encompasses mutual funds but can include all net income level in the current calendar year, kinds of financial products including hedge or an individual who, either alone or with a funds, insurance products and non-U.S. pension spouse, has net assets of at least US$5,000,000. plans. It might even encompass a bank account if that account is a money market fund rather 45. An “eligible investor” is either certain than just a straight deposit account because companies or an individual whose (1) net money market accounts are essentially short- assets, alone or with a spouse, in the case of an maturity fixed-income mutual funds. individual exceed US$400,000, (2) net income before taxes exceeded US$75,000 in each of the two most recent calendar years and who Endnotes 197 reasonably expects to exceed that income level 50. That is, Rule of Law (i.e., property rights, in the current calendar year, or (3) net income freedom from corruption); Limited Government before taxes, alone or with a spouse, in the case (i.e., fiscal freedom, government spending); of an individual, exceeded US$125,000 in each Regulatory Efficiency (i.e., business freedom, of the two most recent calendar years and who labor freedom, monetary freedom); and Open reasonably expects to exceed that income level Markets (i.e., trade freedom, investment in the current calendar year. freedom, financial freedom). 46. Directive 2003/71/EC on the prospectus to be 51. http://barbadosnetwork.foreign.gov.bb. published when securities are offered to the public or admitted to trading. 52. For example, the precedent for success through online Diaspora bond offerings has already been 47. It could not be conducted when writing this set by Homestrings, which has successfully report because it was prepared off-site. facilitated funding for a number of bond issuers in Africa, such as the Dakar Municipal Bond, 48. The European Union does not use the term the Federal Republic of Nigeria Finance Bonds “accredited investors” but rather “qualified (Naira), and the SPP Chad Petroleum Finance investors” in the Prospectus Directive and Bond. Homestrings continues to offer a bevy of “Professional Client” in the MiFID directive public and private Diaspora bonds in domestic (Directive 2004/39/EC). Qualified investors and foreign currencies, including bonds set to and professional clients include (1) a client that fund everything from general public debt to has carried out transactions, in significant size, hospital and hotel construction and renewable on the relevant market at an average frequency energy development. of 10 per quarter over the previous four quarters; (2) a client whose financial instrument portfolio, 53. World Bank, Development Finance via defined as including cash deposits and financial Diaspora Bonds: Track Record and Potential. instruments, exceeds €500,000; and (3) a client that works or has worked in the financial sector 54. http://blogs.worldbank.org/peoplemove/ for at least one year in a professional position ethiopia’s-new-Diaspora-bond-will-it-be- that requires knowledge of the transactions or successful-this-time. services envisaged. 55. CARIFORUM is a subgroup of the African, 49. The United Kingdom’s interest deduction Caribbean, and Pacific group of states rules have been amended to introduce a established in 1992 to serve as the basis of “worldwide debt cap” for international groups economic cooperation with the European of companies. This is designed to restrict Union. It includes all 15 Caribbean nations, as the tax relief available to U.K. members of a well as the Dominican Republic. worldwide group on their finance expense by reference to the external consolidated finance 56. Bitcoin is a cryptocurrency hosted on a costs incurred by the group as a whole. There decentralized and open public ledger and is, however, an important exemption for the powered by a community of “miners” that process financial services sector. The debt cap rules mathematical encryption algorithms to generate do not apply to a group that is a “qualifying new currency units, verify all transactions, and financial services group.” This exception is update the ledger. Miners are incentivized to designed for banks, insurance companies, and process new snapshots of the public ledger, other financial institutions. known as blocks, through the award of new 198 Investing Back Home: The Potential Economic Role of the Caribbean Diaspora bitcoin or the provision of fees. The systematic 73. Investments by organizations with large cash and repeated capturing of blocks is known as reserves set aside for investment purposes a “blockchain.” In addition to accounting for (e.g., banks, finance companies, insurance cryptocurrency units, blocks can also contain companies, labor union funds, mutual funds, embedded information such as a bill of sale. unit trusts, pension funds). 57. Barbados Stock Exchange, http://www.bse. 74. h t t p : / / w a s h p o s t . b l o o m b e r g . c o m / com.bb/about-market/registered-brokers. Story?docId=1376-NFKEC46TTDSL01- 526H7DM6GPHIDOPPIOES7GSM8O. 58. http://www.jnbs.com/jamaican-Diaspora- foundation-and-jamaica-Diaspora-institute. 75. With Portland Investment Fund. 59. Migration Policy Institute. 76. IRRs on these investments are currently not known. 60. Ibid. 77. The Fiscal Incentives may be discontinued in 61. More information on accredited investor 2015 based on WTO rules. standards is located in the Legal and Regulatory Drivers and Impediments section. 78. Although Jamaica ranks well among its regional peers in areas such as starting a business and 62. https://www.finance.gov.lc/departments/ registering property, in the World Bank Doing view/62. Business Report, Jamaica slid from 91st in 2013 to 94th in 2014. Jamaica ranks lower than 63. IMF. regional countries such as St. Lucia (64) and Trinidad and Tobago (66), but ahead of St. Kitts 64. Ibid. and Nevis (101) and the Dominican Republic (117). Jamaica also underperformed in the 65. Reis. areas of paying taxes, enforcing contracts, and getting electricity. 66. Moody’s Investor Services. 79. IOM, Developing a Road Map for Engaging 67. Dr. Michele Reis interview. Diasporas in Development; World Bank, Development Finance via Diaspora Bonds: 68. Migration Policy Institute. Track Record and Potential. 69. IMF. 70. h t t p s : / / w w w . k i c k s t a r t e r . c o m / projects/258315988/doubles-with-slight- pepper?ref=nav_search. 71. www.kickstarter.com/help/stats. 72. h t t p : / / w w w . f o r b e s . c o m / s i t e s / chancebarnett/2013/09/09/donation-based- crowdfunding-sites-kickstarter-vs-indiegogo/.