Private Sector Development and Competitiveness in the Caribbean Diego Morris Business Climate Reform Projects Coordinator Kingston, Jamaica March 2011

Private sector development in the Caribbean has unique challenges due to the size of the countries, their openness and the associated regional integration and liberalization processes, eroding trade preferences, fragile macroeconomic environment which curtails the reach of public policy, the effects of the global financial crisis and the constant threat of natural disasters. 2 Context

Source: International Monetary Fund, International Financial Statistics 3 Except for Trinidad and Tobago exports are low High concentration of exports

What are the Main Constraints that Limit Firm Level Productivity? Fan, Qimiao., Criscuolo, Alberto., Ilieva-Hamel, Iva. (March 2005). A Better Investment Climate for Everyone: Whither SME Policies? High Cost of Doing Business Limited Business Upgrading:

5 High Cost of Doing Business

Global Competitiveness Report Scores Caribbean,

Top Five Constraints to Doing Business Source: GCR and DB

Doing Business Ranking 2011 (183 Countries) 8

Aggregate History of Business Climate Reform 9

10 Limited Business Upgrading

Firm-Level Competitiveness Ranking Source: GCR and DB

12 Cluster Data Analysis

Productive Development Policies

14 Low product sophistication Low diversification No structural transformation

15 Characteristics of the PDP Approach in the Caribbean Multiplicity of policies, agencies and instruments that produce overlapping efforts, confusion, inflexibility and inefficiencies.

Some Additional Issues 16 A complete absence of quantitative evaluation programs. Lack of accountability of programs and of governmental agencies. Programs are targeted to entrepreneurs and businesses not necessarily involved in new activities. Support to firms because of their size rather than their innovative capacity which is the true market failure. State as master strategist, no real public-private dialogue Implementation is the key failure

Traditional Approach of Donors to Issues of PSD 17 Interventions have been one-shot, isolated interventions that address particular issues of private sector development, some tackling issues of business climate, some issues of clusters, some access to finance and others SME development. These productive development programs are created in response to specific needs, at different points in time without taking into consideration a systemic approach to enhancing competitiveness

18 Towards a Comprehensive Framework Institutions Policy and Instruments Business Upgrading Knowledge & Evaluation

The program establishes a US$ million grant facility to support private sector development and competitiveness in the Caribbean region. 19

Beneficiary Countries Antigua and Barbuda; The Bahamas; Barbados; Belize; Dominican Republic; Dominica; Grenada; Guyana; Haiti; Jamaica; St Lucia; St Kitts and Nevis; St Vincent and the Grenadines; Suriname; and Trinidad and Tobago. 20

Program Objectives The ultimate goal of the program is to foster sustainable economic growth and enhance competitiveness in the Caribbean. The specific objective is to have: (i)Increased consensus and focus on strategic interventions to promote private sector development; (ii)Improved enabling environment for business development, trade and integration; and (iii)Enhanced capacity of clusters and firms to increase productivity and to sustainably compete in national, regional and global markets. 21

Governance Structure 22 The Compete Caribbean Program will have the following oversight structure: (i) a Program Advisory Group (PAG); (ii) a Regional Consultative Forum (RCF); (iii) an Executive Committee (EC); (iv) an Investment Panel (IP) for Component 3; and (v) the Program Coordination Unit (PCU) to be established in Barbados. This governance structure is displayed schematically in the following diagram.

Program Structure Private Sector Development Strategies Donor Matrix Knowledge Management Products Comprehensive Framework for Private Sector Development TA to implement Business Climate Reforms TA to Support Public-Private Dialogue on Competitiveness (PPD) Business Climate and Competitiveness Enhancement Facility Public Sector Support to Clustering Initiatives Direct-Firm Support – Matching Grants Enterprise Innovation Challenge Fund Private Sector

Compete Caribbean Supported Projects Demand Driven Country Ownership Knowledge Generation Strategy Monitoring and Evaluation Framework Gender Strategy Environmental Sustainability Strategy Donor Harmonization Strategy 24

Mervue House, Marine Gardens, Hastings, Christ Church, Barbados. BB14047 Tel: Fax: Thank You

Component 1: Comprehensive Framework for Private Sector Development and Knowledge Management The objective of this component is to: 1.Increase regional and national consensus and focus on strategic and priority interventions promoting private sector development; 2.Increase the synergies among donor-supported PSD projects; and 3.Strengthen knowledge management to ensure the transmission of PSD best practices, evaluation of interventions impact, and knowledge exchange with national and regional stakeholders. 26

Program Structure The Caribbean Private Sector Development (PSD) Donor Group The Caribbean PSD Donor Group was established in 2008 by the IDB to increase the impact of the multiple private sector development projects funded by its members by sharing information and lessons learned; avoiding overlap and promoting synergies and moving to a more comprehensive approach to development. Participating Members: IDB, DFID, CIDA, CDB, European Commission, USAID, World Bank, GIZ and UNDP. Donor Coordination

Component 2: Business Climate and Competitiveness Enhancement Facility The objectives of this component are to: 1.Implement productive development policies and business climate reforms; and 2.Foster public-private dialogue and strengthen competitiveness councils and their Technical Units (TU). 28

Component 3: Enterprise Innovation Challenge Fund The objectives are to: 1.Enhance the development of the productive sector, by supporting clusters and value chains to compete in regional and global markets; and 2.Increase the generation of employment and income by strengthening Caribbean businesses with resources to finance innovative ventures, develop new products, implement new business models, and enter new markets. 29