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Recently, I wrote a commentary on this site entitled “Unity of Purpose=Sustainability and Survival”.  And in that commentary I listed a number of vulnerabilities that are critical to our continued growth and development. These vulnerabilities included political acrimony, ability to compete in open market economies, our small size, effective education and training, effective environmental/natural resources management, affordable, accessible and affordable health care; fragility of  our  economic  pillars (tourism and financial services), sound and strategic public policies, an unraveling social fabric, lack of effective master planning, economic diversification, effective governance,  job creation……etc.

This list of critical vulnerabilities  needs to be urgently addressed to sustain our standard of living.  Clearly, all these issues cannot be effectively addressed in a short commentary. Instead, the focus will be on sustaining  our economy and our standard of living.

Benito Wheatley in a 19 March 2009 commentary on this site  laid out a strong case for sustaining and diversifying our economy. Other commentators have also  spoken eloquently about the issue.  Nonetheless, this is such an important and critical issue  that it needs to be kept on the front burner. We need  to continue to discuss it.  In fact we need to  act on it with urgency,

Currently, the Virgin Islands ( VI) enjoys one of the highest  standard of living, as well as one highest per capita  income, in the region.  According to government’s Development Planning Unit( DPU), the VI’s GDP per capita is approximately $39K.  And by comparison, the GDP per capita in Bermuda is approximately $70K, Barbados $19K, Trinidad and Tobago $22K, Jamaica $8K, Antigua and Barbuda $18K, St. Vincent and the Grenadines $9K, Bahamas $30K, St. Lucia $11K,   Dominica $10K, Guyana $4K, and  the Cayman Islands $44K.

Further, tourism and financial services are the twin pillars, the foundation of the VI’s economy.  Information gleaned from the official government website indicates that tourism and financial services account for about 70% of GDP, 65% of all income  from employment, and 75% of government’s recurring revenue annually. Moreover, information provided by the DPU  for 2008 showed that  financial services contributed approximately $179M to the economy. While for the same period, tourism contributed approximately $338M.  Research shows  tourism accounting for approximately 45% of national income and financial services contributions  to national income ranging  between 42-47 %.

Clearly, tourism and financial services are the current anchor, the foundation of our economy.   During the past 30 years, they have  markedly changed our   economy  and lifted our standard of living.  Up to the late 60’s to  mid 70’s, our national income was derived primarily from fishing, burning coal, small plot farming, live stock raising, taxiing, remittances from  family members abroad, construction, grant-in-aid……etc.  Tourism and financial services have served  us well, contributing significantly to our  growth and development. But how long can they sustain our economy and  our standard of living?

Our primary economic engines – financial services and tourism – though they have served us well, are fragile and highly sensitive to external forces. The world-wide economic downturn is highlighting this sensitivity.  As a consequence of the economic turbulence, revenues  are flat, which is having a rippling effect throughout economy  affecting  both the  public and private sectors. These two industries combined contributes greater than 70% of the national income.  Consequently, a  major  stumble in either of these two pillars will send  shock waves  throughout our economy. The economy will experience a hard landing. A landing that will adversely affect our standard of living, creating much anxiety and hardship  among the population.  So what can we do prevent or minimize the impact of either a soft or hard landing?

First, we need to strengthen our competitive advantage to retain financial services and tourism as sturdy pillars of our economy.  The trajectory of any organization, any industry includes a growth phase, a stabilization/peak phase, and a  decline phase. Clearly, in regards to tourism and financial services, we must at all cost avoid the decline phase.  These industries are constantly changing and are competitive  so we have to reside in the growth phase. We have to live in the forefront, stay head of the class, and on the leading edge to maintain our competitive advantage. This competitive advantage is critical to our way of life, our standard of living.

Secondly, we need to diversify our economy. It is risky, myopic, and poor planning  to depend  mainly on tourism and financial services to sustain our economy.  We have been employing this economic strategy for far too long. The BIG question is how do we diversify our economy to put in place additional economic pillars to supplement tourism and financial services? This is a  huge task that will take all our  creative effort.  Both the  public(government) and   private sectors have key roles to play in this monumental task. Why is it such a huge task? For starters, our small size is a vulnerability. We have no  natural resources, no manufacturing,  no major industries. None.    What about agriculture? We need to maximize our agricultural output.  But our terrain, limited acreage, limited arable land, water supply, labor…….etc limits  the viability of agriculture  as a strong economic pillar. So what are our strengths?

Our strength is our people. Based on our vulnerabilities, we cannot attain either a competitive or comparative advantage in manufacturing or some  industrial activity. Instead, our best hope is to pursue a competitive advantage in some  service sector(s), employing the skills, talents, ability of our people.  Our people will be the key to our success. How do we develop our people to be the driving force of our economy?

In my view we need to pursue and  develop a strong knowledge-based economy, producing an army of knowledge workers ( KW) for employment at home and abroad.  And we can pattern  our approach for producing KWs based on the approaches employed  in the Far East. The Far East countries have effectively  figured out that they do not have competitive advantages in agriculture, meat and other industries to compete with  developed countries. But  that they have competitive advantages in computer science, engineering, medicine, information technology……etc.   And they are taking advantage of these competitive advantages.

Many of their graduates are recruited by developed countries.  And  technology permits many to stay at home and employ their technical skills.   Many major companies are not importing  employees to their  work places in developed countries. Instead, they are taking the work places to  employees in  their  homeland. How do they do it and how can we emulate it? They achieve it with a strong focus on education and training, particularly in  math and science.  This focus is paying dividends for the Far East and can pay dividends for us..  In addition to a knowledge-based economy, we need to focus on other areas i.e., back office operations, medical tourism…etc.  A knowledge-based economy and back office operations  are a  few ideas. We need  some out of the box thinking, a paradigm shift.    As such, I suggest that government establish and staff an ad hoc  committee  to identify other economic opportunities. Further, it needs to establish an Economic Department within the Ministry of Finance.

The bottom line is that we need to diversify our economy to sustain  our standard of living not only for boomers, generation Xers, Generation Y’s and millennials but also for the next generation of VIslanders.  As noted earlier,  it is risky and not the  best course of action to depend solely on two industries to support and sustain our economy. It goes without saying that because  we depend so heavily on tourism and financial services  if one of these industries falters that the high standard of living  that we  currently enjoy will be  adversely affected. Nonetheless, diversifying our economic base cannot be done in isolation. We must  take a system , holistic approach to diversifying our economy.

Thus, diversifying our economy must be directly  linked to effective education and training, natural/cultural/environmental resource management,   governance, master planning, public safety, social services,  job creation,  smart infrastructure growth and development, strong, sound, and strategic public policy; and accessible, affordable, quality health.  Diversifying our economy to sustain our standard of living and protect the huge investments of VIslanders  will be challenging. But we do not have  a choice. It  must be done t  And we have to equip and mobilize all  our people- citizens and residents- to get it done.

Edgar Leonard is a VIslander/Political Observer.

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