By Dickson Igwe, Contributor
Self-sufficient economies are good for national security, national health, and economic growth. Non-self-sufficient economies are slave economies, dependent on foreign powers, for their existence.
Now, countries that feed their populations from their own geography and natural resources are better off economically and socially than countries that depend on foreign imports to exist. And one of the ‘economic curses’ of Caribbean countries, including the Virgin Islands is the possession of import oriented economies that destroy local markets, local agriculture, and consequently local prosperity.
Continuous balance of payments imbalances caused by importation have the effect of gutting an economy. Essential skills that drive productivity migrate overseas. The economy becomes a monoculture sourced in an alien land. The import economy is managed by salesmen, and not producers that make stuff.
Another term is ‘spiv’ economy: a black economy develops, dependent on the goodwill of foreign investors, and foreign powers to exist.
Trade imbalances, caused by import cultures, take currency out the economy. This reduces the quantity and velocity of cash in a territory. The reduction of cash within a local market reduces economic productivity. It reduces business profitability, business investment, and causes a rise in inflation.
Businesses cut back on investment and hiring, internal productivity declines. The preceding is never good for economic growth. There are fiscal implications when an economy is import oriented.
Historically, countries that are net importers possess higher annual budget deficits. The reason is that productive capacity from internal markets is replaced by retail services. The pull of revenue is from inside out not outside in. When a country buys from another country it decreases its GDP. The exporting country on the other increases its GDP.
Export-oriented economies the way to go
With export-oriented economies, the centre of gravity is home markets, not foreign shores. There is more opportunity for government to raise tax revenues and invest when products and services are sourced on home ground. Government has greater fiscal control. The country will also be able to grow its GDP at a more substantial level than an import-oriented economy.
Countries that rely on tertiary services, and that depend on cheap imports to exist, furthermore, run up external debt levels at a greater rate than countries with healthy balance of payments. This is owing to weak internal productive capacity. But why is this? Well, the outflow of currency from the domestic market to foreign markets decreases foreign reserves, and increases debt, as tax revenue is lost to foreign countries.
Imported goods also incur importation and production costs borne by the consumer in the home market of the importing country. The banks that handle international trading are happy to see a country import more than it exports, as these banks earn valuable interest by managing these transactions.
This further drives up the importing country’s balance of payments deficit. The same is true when the movement of cash is in the opposite direction. Greater exports drive favourable balances of payments, building foreign reserves that derive from tax receipts.
As cash is paid into the receiving account the cash flow of the exporting business is strengthened. The importing country on the other hand pays the transportation and production costs. This is good for the balance sheet of the exporter and producing nation. Self sufficient countries protect their economies and perform better economically.
Eat what we grow, grow what we eat
Countries that produce what they consume protect their economies from wastage and cash frequently disappearing down the proverbial hole.
Exporting nations possess stronger internal markets in both terms of labor and productive capacity. A country with a growing GDP, driven by local production, is viewed favorably by global banks, and is able to borrow more cheaply on world money markets. This further strengthens its fiscal position.
The same is true with domestic banking. Banks like to see a resilient revenue source from retail banking customers. Consequently for economies such as the Virgin Islands and Caribbean Economies that follow a monoculture, import narrative, economic policy, must address the anomaly.
Transparent, accountable and appropriate investment policies in agriculture and fishing are not an option: investment in food and drink sufficiency is good economics. Then, investment in infrastructure that drives tourists to spend cash locally is critical: tourism is an export industry for the Caribbean.
However, greater revenues from tourism must benefit local markets, and not foreign multinationals. Strengthening local internal markets requires innovation and ‘’out of the box thinking.’’ Innovation and out of the box thinking is something the Caribbean lacks.
Copyright 2021 BVI News, Media Expressions Limited. All Rights Reserved. This material may not be published, broadcast, rewritten or distributed.