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Improving the business climate in the Caribbean

Several IDB programs are helping the region diversify its economy and attract new investments

The Inter-American Development Bank (IDB) is financing several programs to improve the business environment, foster diversification and enhance competitiveness in the Caribbean.

In recent years, the IDB has approved projects that are helping to reduce the cost of doing business and improve the region’s regulatory framework as well as enhancing the region’s capabilities to design and implement productive development policies. The Bank is also providing financing and technical support to improve the competitiveness of the private sector, particularly of small and medium-sized enterprises (SMEs).

In the past two decades the region has improved human development indicators significantly but its competitiveness and integration into the world economy remain a challenge. The recent global financial crisis and slow economic growth in North America and Europe have exacerbated the region’s needs to diversify its economy and its export base.

Compete Caribbean

Last year, the IDB teamed up with the Canadian International Development Agency (CIDA), and the United Kingdom’s Department of International Development (DFID) to support Compete Caribbean, a program to foster private sector development and improve competitiveness in 15 Caribbean countries.

The five-year program provides technical assistance and investment funding to implement productive development policies, business climate reforms, clustering initiatives and SME development activities within a comprehensive private sector development framework.

The program supports governments, chambers of commerce and industry, academic institutions, regional organizations and private sector entities in Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominican Republic, Dominica, Grenada, Guyana, Haiti, Jamaica, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname and Trinidad and Tobago.

The program integrates international best practices for private sector development andprioritizes projects that have a potential for positive impact on poverty reduction, gender equality and environmental sustainability.

Compete Caribbean, currently has 28 operations under development, and is expected to contribute to economic diversification, an increase in non-traditional exports, and the creation of approximately 8000 new jobs in the region.

Caribbean Competitiveness Center

To increase the effectiveness of productive development policies in the Caribbean, the IDB and the United Kingdom’s Department of International Development (DFID supported the establishment of the Caribbean Competitiveness Center (CCC) at the University of the West Indies (UWI) which will be launched on March 25, 2011.

The Center will increase the institutional capacity to generate and share world-class and Caribbean-specific knowledge products on private sector development and competitiveness; and upgrade the technical capacity of academics as well as public and private sector officials on cutting edge approaches to competitiveness, business climate reforms, clustering and SME development.

Work with individual countries

The IDB is also working at the country level to reform tax and business incentive systems, expand access to finance, improve the business climate, and help small and medium-sized enterprises improve their productivity and become more competitive in national, regional and global markets.

In Barbados, the Bank is implementing a $11.8 million project to optimize the use of government expenditure, strengthen the business climate, improve trade facilitation andincrease the competitiveness of productive sectors.

The project will provide information needed to determine a coherent framework for business development, implementing tools to assess the direct and indirect impact of alternative tax regimes on economic activity and government revenues. It will support the expansion of private sector participation in the economy and increase government effectiveness by reducing burdensome transaction costs, and establishing a more expeditious and equitable processing of investment applications.

Additionally, the project supports the modernization of trade logistics and trade facilitation services, with emphasis on upgrading the design of a Cargo Examination Facility (CEF) and risk assessment mechanisms, the establishment of an Electronic Single Window (ESW), as well as the overall update and improvement of customs procedures. The project will also support the restructuring of institutions that provide financial and non-financial Business Development Services as well as strengthen clusters and value chains to help firms improve productivity and access foreign markets.

Dominican Republic and Guyana

Since 2006, the IDB has approved US $180 million in policy-based loans in the Dominican Republic, which support measures to improve the country’s macroeconomic and fiscal stability, improve the business climate, promote the development of productive sectors and foster greater innovation and investment in research and development.

The IDB is supporting, the creation of the legal framework to facilitate greater international trade and provision of safeguards against unfair practices, as well as the creation of a National Network for Incubators and Entrepreneurs (Dominicana Incuba) to encourage technology-based innovation in the country.

In Guyana, the IDB is implementing a $26.7 million loan to increase competitiveness, foster private sector investments and boost the country’s exports. The project supports the establishment and strengthening of the National Competitiveness Council, fostering public-private dialogue on competitiveness and the prioritization of critical reforms to improve the business climate and enhance the country’s export potential.

Additionally, the project simplifies the business registration processes; establishes a tax structure that facilitates investment attraction, supports the implementation of the commercial court system, and upgrades the legal and regulatory framework and credit information to increase access to finance.

Haiti and Jamaica

In Haiti, the Bank is working with the government to improve the business climate and enhance the profitability and productivity of SMEs.

The support includes reforming the business registry system, reducing the cost, increasing efficiency and making it less complicated for entrepreneurs to establish a business. The project will eliminate unnecessary red tape, incorporating cloud computing technology and streamlining document management systems. Additionally, the reforms will streamline the process required to obtain construction permits, thereby shortening the time from approximately 1,100 days to 60 days.

The Bank is also preparing a $35 million project in partnership with other donorsto provide grants and performance-based rewards to SMEs. The project will finance Business Development Services and facilitate access to investment credit, and support SMEs as they transit through different stages of entrepreneurial development.

In Jamaica, since 2006, the IDB has approved two competitiveness loans for a total of $90 million and is expected to approve a third for $60 million this year. These operations support the reduction of distortions in the tax system, simplify tax administration and provide policy recommendations to establish a more coherent and effective use of public expenditure.

Additionally, the loans facilitate the use of moveable property as collateral for credit transactions and enable the establishment of private credit bureaus; the use of mobile banking transactions; and strengthen land property rights to expand access to finance. The Bank is also strengthening the country’s capacity to attract investment by implementing coordination mechanisms between multiple government agencies and establishing a new investment attraction framework.