Notes From The Margin

April 7, 2008

Is The Barbados Stock Exchange Becoming Irrelevant? Is it already?

We on the margin were reflecting on the recent conclusion of the Neal & Massey BS&T takeover. Neal & Massey were successful of course in buying the entire company. Some 97% of shareholders willingly took the offer and the remainder were bought out by N&M following the 90% rule. (If you own 90% of a public company you can take possession of the other 10% of shares just by paying for them). So lock stock and barrel, BS&T as an independent entity is history. What was once considered the symbol of white corporate power in Barbados has been sold (but that is another post).

So what happens next? Of course the company will be de-listed from the BSE, it’s now a wholly owned subsidiary so it won’t be traded. As a result the numbers of companies on the exchange take a hit. This will be the latest in a series of reductions in the number of public companies in Barbados. Island Properties Ltd. was taken off the exchange by Colin Brewer & Tony Hoyos, Life of Barbados was taken down by the Mutual (now Sagicor), BWIA was grounded by the Trinidad Government. If we want to think back that far Plantations Ltd. went in a long agonizing slide into oblivion. Now we have BS&T joining the ranks of companies that were once public.

Along with this slow dwindling, there is a scarcity of new companies going on to the exchange. Of course unless you count Sunbeach (we won’t go any further on that one). To make matters worse there’s an overwhelming tendancy for people to buy shares and then hold onto them for long term appreciation. So we have far more buyers than sellers. The mutual funds have added a new dimension but the returns (if you take out the BS&T takeover) have been pretty much moribund.

Merging the regional exchanges will buy time, however the fact of the matter is the investment arena in Barbados is pretty stagnant. If you listen to the rumour mill, the stories floating around about “back room deals” may or may not have substance, but they don’t engender confidence in smaller investors.

The management of the exchange must see the trends, and also must realise that from a long term view, if they do not take action they will be consigned to the same file folder that currently holds BS&T.

Marginal

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March 5, 2008

Sir Charles Williams on Apes Hill and Agriculture

 

A couple of days ago we were listening to the mid day call in programme and heard Barbadian construction magnate Sir Charles (COW) Williams call in. After he had made his point, the moderator David Ellis took the opportunity to ask him about the progress of his Apes Hill project.

Never one to miss an opportunity for promotion Sir Charles proceeded to wax lyrically about the great success that Apes Hill is becoming. Apparently the sales of lots has been so great it has forced them to accelerate their business plan to keep up with demand.

Then Sir Charles made an insightful point, when Apes Hill was a dairy farm, it employed approximately 12 persons at minimum wage, in its current state of construction it’s employing close to 400 persons (we were driving so we didn’t have the opportunity to write this down so if the numbers are slightly off don’t scream for our scalps) and those 400 are employed at much higher salaries.  One can reasonably assume that as the project completes it will occupy much more than 12 persons.

Now this opens an interesting point, is moving land out of agriculture necessarily a bad thing for society? Obviously there are limits on how much of this you can do but, is society better off with Apes Hill in agriculture or with it in tourism and golf courses? Similar questions could be asked about Royal Westmoreland.

It is unfortunate that there wasn’t an opportunity for this point to be discussed more on the call in programme.

Marginal

February 12, 2008

Concerns On The Cost Of Living

We have been watching with interest the efforts of the government to contain the rising costs of food, and while we see a genuine effort being made we have serious concerns about how sustainable that effort is.

Pinnacle Feeds warned about the impending price increase and was asked by the Minister of Agriculture to hold off pending talks with stakeholders. After intially stating that Governement could not subsidize the industry the minister went to bat at cabinet and the following statement appeared in the press today.

The Thompson administration agreed to the price increase but promised financial support to poultry and dairy farmers. When contacted, Minister of Agriculture Haynesley Benn assured farmers they would not be out of pocket.

“We have assured the farmers that they would be compensated. A mechanism has been worked out where there will be a price support for the farmers. A sub-committee met on Friday afternoon with farmers’ representatives and they will report to the Minister of Trade who will meet with them along with the Ministers of Finance and Agriculture.

“We would’ve worked out by that time how the farmers would be compensated. We will get back to the farmers’ representatives as to how soon compensation will come,” he said.

While we applaud the aims of the Government, this clearly cannot be a long term solution particularly in the face of a global rise cost of grain.

Now to be fair the subsidising did not start with this Government, the BLP subsidised domestic power prices by way of a subsidy on the fuel charge. At the time we on the margin chalked up to being an election gimmick that we felt would quickly disappear. However this spreading of subsidies into a new area gives us pause.

Economics cannot be denied.

The upward pressure on prices is mostly exogenous in nature, that is, caused by factors outside of the Barbados economy. There would appear to be a “perfect storm” contributing to these raises including increasing oil prices, increased use of food for fuel, demand for raw materials such as steel etc. by the rapidly developing economies of China and India, and the list goes on. In the face of these forces a policy of subsidization simply is not sustainable, it is at best a stopgap measure that has the potential to damage the economy if it is allowed to continue beyond its limits.

We on the margin are not saying that the government should NOT subsidise, but we would be more comfortable if there was some public indication that the government acknowledged where the limits to this policy are.

Marginal

January 29, 2008

The State Of Shipping In The Caribbean

We on the margin have for a long time been supporters of the idea of ferries in the Caribbean. In our view one of the most serious barriers to regional integration and the creation of a single market and economy, is the sheer difficulty faced by an individual attempting to move around the Caribbean. Moving people and goods from island to island is hugely difficult, and that has several knock on effects in the economies of the region.

In Europe it is possible to drive on to a ferry in Scotland and be in Ireland a couple of hours later driving YOUR car on Irish roads, all for the price of a ferry fare. It is possible to ship container loads of merchandise/products/food/whatever on the same ferry without even taking them off of the truck! When you contrast this ease of movement with the situation in the Caribbean it’s pathetic.

Move a car? Sorry you only have one seat on LIAT (world’s most expensive low cost carrier) and 50lbs of baggage, and when we get to our destination we are greeted by Immigration officers and Customs Officer who seem to have difficulty with the concept of people wanting to travel to another island. There was a brief moment of hope during the Cricket World Cup when we had the single space, but that seems to have separated back into the default position of fragmentation.

President of the CDB Prof. Compton Bourne, touched on these issues recently in a speech where he highlighted the difficulty in moving goods from areas with excess productive capacity to areas with demand for those goods.

“There are countries in the region that have considerable food production capacity, but their arrangements for trade in the region are far
from adequate.”

This made it very difficult to supply the markets that are experiencing shortages or to provide a cheaper source of commodities to those markets with the existing arrangements, he argued.

“First of all, shipping is very poor within the region,” he charged. “Our shipping arrangements are largely geared towards bringing commodities from outside the region to the region, rather than moving commodities between the various islands and countries in the Caribbean.

“Secondly, our port facilities in the main for CARICOM trade are atrocious, often under-staffed, often not provided with the requisite phyto-sanitary inspection facilities and sometimes characterised
by a bit of hostility towards the trade. . . .”

For the single market and economy to become a reality, there needs to be ease of trade, and ease of travel, at the moment it is easier to get items out of a furniture store in Miami than it is to get it from a furniture manufacturer in Guyana. To speak of a single economic space is a farce unless this situation is rectified.

Marginal

September 25, 2007

A Controversial Viewpoint on Agriculture in Barbados

 

We on the margin heard a very different position on Agriculture this week that came up in conversation. We’re not necessarily in agreement with it, but it did make us pause for thought.  The point was put forward in a private discussion on the future of agriculture in Barbados, particularly with regard to the current bidding war going on over Barbados Farms and the response by the CEO of the BAS Mr. James Paul which basically centred on the issue of food security. .

The argument put forward by this individual made three observations:

1. Sugar Cane is a cash crop, as such the issue of food security should not be confused with the production of sugar cane.

2. Land under sugar cane production, does not contribute to food in Barbados but to money earned by the export of Sugar.

3. Barbados sells sugar to the EU at a loss, as our production costs are higher than the preferential price which we get for the sugar.

Given the above, he then asked the following

“If putting the land into Golf Courses or some other development, would earn a higher economic return per acre than sugar,  would it not make sense to put the land into that?”

 On the issue of food security (which we raised) the response given was two fold:

1. How much of the food consumed in Barbados is currently produced here? Not very much.

2. Government should aggresively incentivize the investment in intensive agriculture such as hydroponics etc. . This he argued would actually increase local food production even as the number of acres under cultivation decreased.

Our friend made it clear that he was not advocating placing all of Barbados under Golf Courses, but that Sugar Cane was actually a bad use of a limited land resource and that it needed to be examined without the emotion that usually colours these discussions.

We’re not saying that we agree with the guy,  but the argument was sufficiently thought provoking that we felt it was worthwhile presenting here.

Marginal

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