Posted: Thursday, July 10, 2014. 9:31 am CST.
Belize is a relatively poor ex-British-colony in the Caribbean Basin of Central America…with a very low population density of around 14 persons per acre of land. A population of around 350,000 on a land mass of little over 5 million acres.
It imports three times the value of what it exports….and most of what it exports are agricultural raw materials (mostly sugar, citrus, seafood and banana)…..to countries that import its produce within preferential market arrangements/treaties that were negotiated around the time of Independence, over 20-30 years ago.
Since Independence in 1981, Belize has only attracted two substantial production-based non-oil export-oriented industries…..papaya and shrimps…..whose exports were started by foreign investors….and both of which export as raw materials with little or no processing. Hot pepper sauces have been in the lime light for over 30 years, however only until recently has its export numbers started to appear in national trade statistics. It is still an infant at the age of over 30 years…quite reflective of being Belizean, generally.
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There are two ways in which Belize could increase its production economy:
1. produce more in scale and scope…..and value-add, through processing, more of what it produces
2. allow for import of raw materials which can be value-added through processing here and then exported at a profit to other countries
Belize can and have produced more since Independence…..corn, beans, soybean, sorghum, rice, chicken, beef, pork, seafood, milk, molasses, timber, coconuts, fruits and vegetables…..ALL of these were developed based on complete market protection through tariff and/or non-tariff (licensing) policies of the 1970’s and 80’s that prevent competition from imported produce. Most of this is for the domestic market, with some early-stage value-adding involved.
Belize can and does import some raw materials which it value-adds here…..flour, beer, soft drinks, bleach, glass and aluminum windows and doors, foam and mattresses, t-shirts, toilet paper….however, none of these have reached the stage where they export to other countries. Again, ALL of these investments were made possible by laws and policies drafted in the 1970’s and 80’s….which involves tariff and/or non-tariff protection from import competition.
In other words…..ALL of what Belize produces depends to great extent on preferential market arrangements…..either via treaties with foreign countries to whom we export…..or via tariff and/or non-tariff protection offered by our own government for the domestic market operations. This market protection from import competition is what allows domestic producers to turn a profit and remain in operation.
Belize faces the real threat of losing both of these preferential market arrangements within the next 2 to 5 years.
The threat of losing the export market preferential arrangements is a more complex reality….mainly because these arrangements are not made for Belize alone, but as part of trading blocs that negotiate in much larger political groupings….for example, CARICOM and ACP arrangements. There may be ways to wiggle past 5 years.
However, the threat of losing the domestic market preferential arrangements is much more real….as in this case, the enforcement arm of movers and shakers in the World Trade Organization and the CSME….the multilateral financiers, upon whom we have come to lean on heavily with our high debt-to-GDP ratio…the World Bank, IMF, IDB, CDB and CABEI….will be the ones forcing the hand of a weak Belize government.
Belize has been given until the year 2015 to remove all non-tariff (licensing) barriers to import competition….since discretionary non-tariff (licensing) protection is a no-no within the WTO treaty arrangements. According to these treaties, Belize should convert these non-tariff (licensing) arrangements to tariff measures….that is, increase the level of import duties to cover the domestic producers (up to the level allowed by already agreed BOUND RATES)…and then set up a scheduled program of reductions in that tariff over a defined period to 20% or below.
The Government of Belize and the domestic producers who benefit from these non-tariff preferential arrangements (similar to the concept of accommodation agreements)….have been slow in reacting to this demand from international trading partners and their enforcers….because they know that in Belize, the breach of tariff conditions are broad in scale and scope, ie. customs duties are very often avoided or evaded….and this increases the risk of ALL the investments in production that Belize currently has.
This high degree of uncertainty is called COUNTRY RISK in banking terms….and is one of the principal reasons why interest rates, especially for production businesses, remain relatively high.
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Most of the domestic producers who enjoy these benefits have used this domestic market protection to make super-normal profits to try to take out their expected return-on-investment in a short period….short-term vision….and this is the principal reason why prices and cost-of-living have skyrocketed in Belize since Independence…and why these investors have kept their investment to a scale and scope that has not allowed them to meet export conditions…chosing to stay closer to the exit door…so that if and when the windows to these benefits are closed…they do not lose their shirt.
Belize can try to drag this situation out until it is paper thin…..or it can take the bull by the horn, and move in proactive ways to save the day….and the night.
Here is what needs to be done:
1. Belize Customs needs to be electronically linked to the customs departments of all our principal trading partners….with a view to significantly reducing the chances of avoiding and/or evading customs regulations. In general, corruption needs to be clipped in the bud, and the penalties for evading and/or avoiding customs regulations should be increased significantly…both upon the facilitator and the facilitated.
2. The Customs Tariff Law should be completely overhauled with the objective of creating the conditions that could significantly increase domestic production in a sustainably profitable manner. Basically, by reducing the tariff on importation of production inputs to zero (or near zero), starting with fuel….while increasing the average rate of import duty from its current 9%, to around 15%….which could see the import duty of many items which we cannot produce reduced from the very high rates they are currently…and a few items that compete directly with our narrow range of domestic production increased along the lines of EFFECTIVE RATE OF PROTECTION (ERP) principles.
3. The Business Tax needs to be reduced to 1% across ALL businesses that operate in Belize with sales above the threshold…..no if’s, and’s or but’s. There should be no business operating in Belize that does not want to (or cant) contribute 1% of sales to the general good of the country.
4. The General Sales Tax needs to be reduced to 10%, across the board….no exemptions nor exceptions. There should be no favoring of one production over another….and we have already seen that exemptions and exceptions from paying import duty and/or GST does not benefit consumers in the medium to long term, as this history has been written in significant increased cost-of-living since the “lower cost-of-living no matta wat” budget was read on April 1, 2010.
5. The Development Incentive laws needs to be overhauled….since exemptions on import duty for production inputs would no longer be needed….and exemptions should become a one-off application for capital inputs at start up or expansion, obtained through a rapid turn-around over-the-counter window….with tightly defined set of criteria that is non-discretionary…..once you meet them, you get the exemptions approved. This should be a complementary DEVELOPMENT-BASED SERVICE….not a fee-for-favor mafia-style protection service. A lean and mean Beltraide can be financed through other means….and they should be much more about investment development, attraction and facilitation, rather than another gate keeper shaking down existing and potential investors….or attempting to “teach” entrepreneurship, a subject they have little or no capacity nor capability for….in a perpetual investment enabling environment that leaves much to be desired.
6. The EPZ, Free Zone, IBC and Marine Registry laws need complete overhaul…and performance of approved operations continuously monitored to ensure compliance with the “accommodation agreements” with our governments that allow them to exist in the first place. A cost-benefit analysis needs to be done on ALL existing and future operations to guide any modifications to the laws that will make these entities work in Belize’s medium-to-long-term favor. If these entities cannot show where there is a win-win for the investor….and for the people of Belize….they should be given a reasonable and defined period of time to execute their chosen exit route. The distortions that these create seem to cause more problems than solutions for Belize….and its relations with important bonafide international partners. They are likely a major factor pushing us further along the dark corridors of corrupt existence.
7. Belize needs to invest much more in its Foreign Trade budget from the current $0.48 million to $2 million…..so that Belize develops the capacity and capability to defend its best interest within our treaty arrangements. This entity must become much more market oriented and friendly, directly involved with domestic production interests and their ambitions…..rather than remain a paper artifact on dusty shelves.
8. Belize needs to stop discriminating against those production opportunities that value-add imported production inputs and transform them through profitable value adding for the domestic and/or export markets. Since we produce so few production inputs ourselves, this area offers the greatest and most rapid avenue to increase of industry. Belizeans generally scorn upon products that are not made from 100% Belize raw materials….even if they meet CARICOM ORIGIN criteria and can be exported within our treaty rules under those most-favored conditions to CARICOM markets. Our laws, policies and practices need to be upgraded to reflect this reality and ambition.
9. Even after all the factors to positively influence Belize’s competitiveness and productivity have been addressed….the cultural attitude that exists in Belize favors imported products over locally produced products. A sustained cultural program needs to be invested in….so that these attitudes change, and so that the Belize domestic market becomes a more efficient and effective sling shot for more domestic production to meet conditions for exportation. Export markets are not favorable to the weak of heart…the closed of mind….nor the empty of pockets….it requires the building of a war-chest (realistic budgets) compatible with the scale and scope of that ambition. Belize needs to invest in improving its cultural attitude, behavior and choices…..before it will be able to attain its just objectives of the increase of industry, sobriety and useful knowledge.
This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Masters in Business Administration degree from Lancaster University.
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