One of the more striking developments over the last eighteen months or so has been the rise and rise of investment interest in the Caribbean region. So much so that hardly a week has gone by when one or another bank, private equity firm, hedge fund or privately wealthy individual has not been seeking advice on the opportunities available in the region.
For the most part, the interest has been focused on hotels, condominiums, real estate development and golf courses, but there has also been a thirst for information on other service sector opportunities, including areas that extend from private health care through the establishment of specialist financial services activities to port development and sea transport.
This level of interest is wholly new and reflects a radically altered view of the Caribbean. It is originating in nations in locations as diverse as the Gulf States like Dubai, the Far East, South Africa, India, Brazil and China as well as in Europe and North America.
It is paralleled by a growing trend among larger regionally owned companies to seek out investment opportunities in Europe in areas as diverse as food distribution, distilling, financial services, the franchising of restaurants and food processing.
This profound change is being driven by new factors. At its highest this new-found interest is a reflection of globalisation and global economic integration. It is being driven by a radical shift in the mobility of global wealth and a recognition that to take advantage of markets new approaches to investment are required.
This trend began some years ago but has accelerated as a result of digital connectivity and the growing ease with which capital can migrate.
It reflects the agglomeration of vast financial reserves in sovereign funds and investment vehicles held by states and the privately wealthy that has arisen not least from surging equity prices, the increase in oil and gas prices and the growth of China and India and other emerging economies. In the case of the Caribbean it is also the result of the pull of US dollar-based economies when the euro and other currencies are strong by comparison.
It is resulting in an utterly changed world in which, with some important exceptions, traditional relationships based on government to government ties may come to matter less than the ability of ministers and prime ministers to interact well with the chief executive officer or the president of the investment fund or enterprise involved.
While no one would wish, for example, to set aside governments’ formal ties with nations like Ireland and Spain, Europe’s two fastest growing economies, the reality is that it is the corporations like Digicel and Sol Melia and others that are at the leading edge of the region’s new relationships.
All of which will require a very different approach from governments and a much better understanding in the public service of what drives and retains investment.
In this context, a welcome development has been the willingness of some governments to embrace as ministers or as heads of statutory corporations, individuals who understand how business works and the issues that most concern investors. Examples are particularly prevalent in the tourism sector where the present ministerial incumbents in St Lucia, Aruba, Jamaica and elsewhere have backgrounds in business.
Global interdependence and the changing balance in economic power between nations suggest that within a relatively short period, the future strength and direction of many economies that consider themselves sovereign may become less within their control.
In a recent edition of the London Financial Times, one of its columnists suggested that by as soon as 2015 China’s purchasing power will match that of the US and by 2025 it will overtake it, causing “the biggest upheaval in global interrelationships for two centuries.”
The nature of foreign investment and ‘ownership’ is changing rapidly. Sovereign wealth investment funds from countries like China, Dubai, Botswana, Brunei and Kazakhstan are said to have available up to US$3 trillion for acquisitions. They are now actively buying into major US financial institutions hit hard by write-downs resulting from the collapse of the US sub-prime mortgage housing market. A week or so ago, for example, Abu Dhabi invested US$7.5 billion in Citigroup and it is suggested that since April such funds may have invested as much as $37.3 billion in distressed global financial assets.
They are also playing a central role in the international currency markets in their desire to protect the value of their holdings of US dollars.
As matters stand these investments are relatively benign and may even be stabilising the US financial sector. However no one is quite sure how active in the longer term sovereign wealth funds may become. As a consequence there are calls from the most developed nations for greater transparency.
An interesting Caribbean related example of how such funds can raise political questions comes in the form of the 2006 decision by the US Congress to stop Dubai ports buying a number of US port operations. The company is now planning a US$250M investment at Mariel in Cuba that will involve the construction of a modern container facility that if the US embargo were to end, would become the principal port of entry for US goods.
Elsewhere in the Carib-bean money from such funds, in the few cases where its origin has been visible, appears to have gone into major tourism investments and may in future be destined for energy hubs related to the shipment and holding of oil destined for the US market.
As this is being written the negotiations for an Economic Partnership Agreement with Europe are underway. In part the EPA is a step along the road to further opening the Caribbean region to overseas investment. What little debate there has been on the implications of this, sovereign wealth funds and the capital now flowing into the region from private sources needs to be much better related to the high value most in the region continue to place on their national sovereignty.
Previous columns can be found at www.caribbean-council.org
