AMSTERDAM - Aruba continues to lead the Caribbean ranking with the most attractive investment climate, but Curaçao also remains high on the ranking. This is despite the fact that both countries have been hit much harder by the Covid-19 crisis than most other Caribbean countries. The strength of the institutions of both countries plays an important role in this.
In 2021 Economic Bureau Amsterdam (EBA) published the Caribbean Investment Climate Index (CICI) for the first time. The 2021 CICI covered the year 2019, before the outbreak of the COVID-19 crisis (see Table 1).
A year later, the EBA publishes the new CICI, which takes into account the effects of the COVID-19 crisis on the investment climate. Due to insufficient data availability, the index cannot be determined for Sint Maarten again this year.
Investment Index
The CICI measures the attractiveness of the investment climate of countries in the Caribbean region. Attracting foreign investors is important, because of the small scale of most economies, the lack of access to international capital and the import dependency of many Caribbean countries.
The index contains sixteen countries and is made up of eighteen institutional, economic and financial indicators that make a Caribbean country more or less attractive to investors.
Examples of indicators are: rule of law, openness of the economy, economic growth, interest rates, government debt, and participation rate.
The Caribbean has been hit hard by the Covid-19 crisis. Many countries in the region, including Aruba, Curaçao and Sint Maarten, depend on tourism, which came to a near complete standstill in 2020.
Of the countries that make up the CICI, the average contraction of real gross domestic product (GDP) in 2020 was 12.8 percent. By way of comparison: the Dutch economy shrank by 3.8 percent in 2020. Aruba and Curaçao have been hit harder by Covid-19 than most other Caribbean countries (see Figure 1).
CICI-scores
The CICI 2022 includes the years 2020 and 2021, and with it the effects of the covid-19 crisis. In all countries, except Puerto Rico and Trinidad & Tobago, the investment climate has deteriorated as a result of the corona crisis.
Aruba still has the most attractive investment climate in the Caribbean region, despite being hit harder by Covid-19 than other Caribbean countries.
Curaçao's CICI score has also fallen as a result of the pandemic. However, the investment climate of Curaçao is still attractive compared to many other Caribbean countries due to its strong institutions. Curaçao is in fourth place in the ranking.
Economic recovery
The development of the investment climate in 2022 is related to the extent to which countries manage to recover economically from Covid-19. A number of countries, including Aruba, showed a strong economic recovery in 2021 as a result of a significant increase in tourism compared to 2020.
However, tourism development remains uncertain in the wake of the Covid-19 crisis. In addition, there is uncertainty due to rising inflation worldwide and the war in Ukraine.
Interest rate development
Interest rates can also pose a serious threat to the investment climate. It is important for Aruba and Curaçao to gradually reduce the high government debt. With rising interest rates, the displacement of productive public investment, such as in education and infrastructure, will increase.
This, while there is a great need for investment in both areas.
Reforms
In addition, the pace of economic reforms in the context of the country packages and implementation agendas will need to be accelerated. In Curaçao, and to a lesser extent in Aruba, there is a large output gap and untapped economic potential.
To turn the tide, the pace of implementation of reforms must be increased. Prioritization, sequence and coherence of various reforms and measures from the country packages are essential in this respect.
Data availability
The data availability of Aruba, Curaçao and Sint Maarten is limited; of Sint Maarten is even too limited to calculate a CICI score. The importance of better data for good policy-making has been emphasized for years. Data is also essential to measure and monitor the effects of the reforms in the context of the country package.